The things I evaluate each year...

Ensure total 401K contributions will not exceed the maximum allowed ($14,000).  On target for $13,700.

Ensure total Roth IRA contributions will not exceed maximum allowed ($4,000).  On target for $4,000.

Estimate Federal and State Income Tax amount due and/or refunded.

Ensure total federal income tax withheld is close to what my total tax liability will for the year.

Estimate next year's taxes and set paycheck withholding amount accordingly (goal is to not receive large refund)

Determine max 401K amount allowed next year and ensure I contribute that amount

Determine max Roth IRA amount allowed next year and ensure I contribute that amount

Examine investment's asset allocation and rebalance as necessary

Investigate amount in Money Market savings and find more aggressive investment location for money for new year

Calculate investment return and compare to the established goal for the year

Determine total dividend amount earned for the year (in both taxable and non-taxable accounts)

Gather appropriate tax documents and prepare for delivery to CPA

Examine expenses for year and establish goals for cutting unnecessary costs

Determine if Net Worth goal was met for this year

Establish Net Worth goal for next year

Determine if savings goal was met for this year

Establish new savings goal for next year

Annual Karas Financial Checkup

The annual Karas Financial Checkup is fast approaching.  Around this time of year I begin assessing the positive and negative aspects of our financial decisions of the past year and start thinking about goals for the upcoming year.

One of the many factors I look at is our current asset allocation and how it compares to our target asset allocation.  So far this year I have nailed it.  My goal over the very long term is to achieve 10% return.  If, at the end of the year, I find that a certain asset class ( i.e. large-cap stocks ) is outside my projected percentage, then I will begin to contribute more or less money to that particular asset class.

Vanguard's Six Rules of Successful Investing

This guy's Personal Finance Blog  doesn't leave much to the imagination.  He pretty much opens his entire financial life to the world.  Apparantly, he wants to retire at 36 with $1,000,000.  Well, fortunately for him, he plans to move back to China to retire.  It would be a bit more difficult to retire in America at 36 years old and then expect to live another 50 years in retirement on only $1,000,000.  Although I wouldn't be bonehead enough to put every freakin detail of my financial life out on the internet, you have to somewhat admire the guy for his sense of discipline and desire to meet a noble goal.  It's always helpful to observe how other folks go about meeting their financial objectives.

Don't be fooled by this bonehead.  Frequent stock trading is one of the worst things you can do.  This guy fails to mention the thousands of dollars he is paying in transaction fees.  Why do you think he asks for donations from visitors to his site simply to view his stock purchases everyday?  What an idiot.  I can almost assure you this is one of those 28 years wussies who has never had to work a day in his life.  Mommy and Daddy have bankrolled this moron since he turned 18.  Our society is so deadset these days on the short-term that it's hurting everyone over the long-haul.  If one is serious about making sound investment decisions and are disciplined enough to keep the long-term in mind, then an organization like Vanguard is the way to go.  This document is an excellent starting point.

Vanguard's Six Rules of Successful Investing

Live Beneath Your Means

Diversify

Keep Costs Down

Remember Taxes

Buy and Hold for the Longrun

Know Yourself

New Bankruptcy Law

The new bankruptcy law went into effect on October 17th.  It's my understanding that the personal bankruptcy filings just prior to the 17th here in Tulsa skyrocketed.  Folks are trying to get in under the wire before the terms of filing personal bankruptcy change dramatically.  I think these changes are long overdue.  Even though the law previous to the 17th would discourage people from buying extravagant items just prior to filing bankruptcy, many people with high incomes were abusing the bankruptcy law.  The new law is now actually looking at the individual's monthly income and running it through a "means" test in order to determine whether or not the person can file Chapter 7.

Bank Of America - "Keep The Change"

Not sure if you have seen this before, but Bank of America has instituted a program called "Keep the Change" that contributes money to the customer's savings account whenever they make a purchase using their debit card.  Basically, if a consumer makes a purchase using their debit card, Bank of America will round up the cost of the item and contribute the difference between the real cost and the "rounded" amount to a savings account.  So, if someone makes a purchase for $7.50, then Bank of America will round the purchase price up to $8.00 and contribute .50 cents to your savings account.  Hmmm, sounds like a pretty good deal, huh.

This new scheme by Bank of America is underhanded for two primary reasons...(1) in some cases, consumers are already paying a fee for each transaction made on their debit card and (2) merchants are assuming extra costs since credit card companies impose a fee upon the merchants for each transaction.  Bank of America is simply attempting to increase usage of debit cards so they can collect more from consumers and merchants.

A Couple Of New Books

I've started a couple of new books this week.  As you've probably noticed, I'm a bit of an antiquity buff.  In my view, there is no more interesting period of history then the time of the great Roman Empire.  I've spent quite a bit of time reading bits and pieces of Roman culture, but I've never taken the time to delve into the definitive volumes on Roman History - Edward Gibbon's Decline and Fall of the Roman Empire.  The book is a bit daunting, but I'm determined to make a run at the first two volumes.

Dayna and I have really been enjoying the new series Rome on HBO.  I'm not sure how historically accurate the program is, but it's darn entertaining.  You should check it out if you are not offended by violence and strong sexual content.

Investing For The Long-Term

This is a bit off the topic at hand, but worth mentioning to remind ourselves that we are investing for the long-term.  My investment accounts dropped about $6,000 in value over the last two weeks.  The last several months have been very good, but positive runs don't last.  We must take advantage of the "low" times by buying more.  The longer your investing time horizon, the greater chance you have to achieve good gains.  It's not unrealistic to target a 10% return on your investments over the long-haul.

Below is an example of the highs and lows for stock equities over different periods of time...

One Year Period - Low = -35%, High = +54%

Five Year Period - Low = -7.5%, High = +28.6%

Ten Year Period - Low = +1.2%, High = +20.1%

Fifteen Year Period - Low = +4.3%, High = +18.9%

Twenty Year Period - Low = +6.5%, High = +17.9%

Continue to Dollar Cost Average over the long-term and this will allow you to buy more shares when the cost falls during the low times.  Another viable option to consider is Value Averaging.

Making Money Work for You

I want to take the opportunity to begin next week's topic today.  I've entitled this week's discussion "Making Money Work for You".  I think the biggest hurdle people must overcome is to get themselves in a position where their money is working for them and not against them.  As one simple example, it's difficult to increase your Net Worth when one is paying more in bank service fees and credit card interest charges then what you are making in investment interest and dividends.

There are many great resources related to money savings tips.  I'll share some of these resources this week and discuss how these ideas can be used to help utilize the saved money for advancing your Net Worth.  One helpful resource that I have found useful is BCS Alliance.  Scroll down a bit and notice the Debt Management section on the BCS website. You'll find some good information regarding saving money in many areas of your life.  The ultimate goal is to put this "saved" money to use so that it can begin making money for you.

There are obviously many ways to put free'd up money to work for you, but, perhaps the most significant ways revolve around the kicking of a bad habit.  Not only will one improve their health, but will also have the gift of a couple thousand extra dollars each year for other purposes.  Cigarettes and Starbucks habits are the two big ones that come to mind.  At $3+ a pack, a person could save about $1,200/year if they stopped smoking one pack a day.  Discontinuing daily Starbucks could put another $900/year in your pocket.  That's two grand that can be invested a year.  With the power of compound interest, $2,000/yr will add up nicely.

These are just a couple examples.  We all have our own way of cutting expenses and saving for our future.

Seattle Rocks

Seattle was very cool.  Check out our pics.  The highlight of our trip was definitely the Hot Shop inside the Museum of Glass in Tacoma, Washington.  The museum itself was nothing to write home about, but the Hot Shop and Dale Chihuly exhibits were very worthwhile.  Danny Perkins was the guest artist while Dayna and I were visiting the Hot Shop.  We had the opportunity to see him work the glass from the very beginning while it was molten glass.  The Music Experience  was overpriced and just really not that great.  It was interesting to see the Bob Dylan and Jimmy Hendricks exhibits, but other than that, the only other worthwhile thing inside was the hands on musical instruments area where one could learn to play different instruments.  Seattle has some of the most fantastic restaurants around.  We enjoyed several different places, but I would highly recommend ... Saltys  , Icon Grill  and Trattoria Mitchellis.  We had a great time.  We kept things pretty low key since we were looking for a nice, quiet and relaxing few days off.  The Alexis Hotel was ok.  It was a bit pricey for what we got.  We had an interesting first experience with our room, but requested a different one and things progressed nicely after that.  We obviously drank lots of coffee while in town.  As a matter of fact, we saw the very first Starbucks.  That was kind of cool.  We also frequented a unique spice store in the Pike Place Market and bought a couple different types of tea for the upcoming cold fall nights here in Tulsa.  Well, it's back to reality now.  I'm taking off work next week as well so I can get some things done around the house before the baby comes.

Seattle Trip

Dayna and I will be enjoying Seattle this week.  Even though I could update the blog, I think I'll take a break for a few days.  We'll plan to share our Seattle adventures and pictures with you all when we return next week.  Talk to ya soon.

Estate Planning For Pets

Here's something I bet most people don't spend a lot of time thinking about...what will happen to my pet when I die?  Well, fortunately, we live in America and our great capitalistic society allows folks to come up with just about any idea.  Yes, indeed, you can ensure that fluffy gets a good home when you're pushing up daisies -  Estate Planning for Pets.  Actually, it's a pretty good idea to think about stuff like this.  I know I get pretty attached to my pets.  My awesome four year old Golden Retriever, Jackson, was one of the great joys in my life while living in Austin.

Health Care Directive

The Terry Schiavo situation that unfolded before the entire country was a bit uncomfortable for me.  Regardless of your view on the matter, one thing is certain - it's crucial to have a Advance Health Care Directive.  Ideally, this formal document is important to have, however, I have read on several occassions that simply stating your wishes on a sheet of paper and then signing it along with your family member's signatures can often serve adequate.  Anything that clearly states your wishes and is witnessed and signed by loved ones can meet your needs.  But, to be safe, it's really best to use an Advance Health Care Directive form.  The AHCD is VERY specific.  The questions asked range from what types of medications should be given to you in the event you are incapacitated to disconnecting a breathing and/or feeding tube.  You really don't want to leave anything to chance.  Personally, I could not deal with being completely dependent on other people for my existence.  Quality of life means everything to me.  My mobility and mental sharpness are absolutely necessary for me to exist.  Of course, everyone is different and must make these decisions themselves now before an unfortunate accident may occur.  Let's pray our lives do not take a negative turn, but in the event it does, an AHCD will serve one well.  Here is an example AHCD from Arizona.  Each state can be different, so check out your state's website for more information.

Estate Planning

Preparing to die ( i.e. estate planning ) can be expensive.  Speaking of dying, check out my new link to books I'm currently reading.  Anyway, yes, estate planning can be very expensive, but it does not have to be.  Unless you're mega-rich with lots of assets to worry about, most of us now have the luxury of using some great ( and inexpensive ) software packages to assemble all the necessary documents.  Suze Orman has a pretty decent software package.  Yeah, I know, she can be a cheeseball and communicate false information sometimes, but these documents are pretty standard and not even she can mess that up.  The point here is that you don't need to spend a ton of money ( sometimes in the thousands of dollars ) on an attorney to assemble all the essential documents.  Of course, some folks don't want to worry about these documents and will be comfortable shelling out the bucks for an attorney - that's ok too.

In addition to the Living Trust I mentioned yesterday, some things to consider are...

Will

Durable Power of Attorney

Living Will / Advance Directive / Health Care Directive

Name your beneficiaries on your assets

Find the right executor

Keep important info about your assets in a safe deposit box

Communicate your wishes to your family

Just remember that the US Government is more than willing to step in for you if you don't plan accordingly.  For the most part, as long as you establish your beneficiaries on your assets and can avoid probate, then you should be alright.

Estate Tax

Currently, the Federal Government is scheduled to repeal the Estate Tax law in the year 2010.  However, unless Congress acts, the threshold will return to $1 million in the year 2011.  As of today, an individual may leave their heirs $1.5 million without paying Estate Taxes.  This number gradually increases each year until it reaches $3.5 million in 2009.  Wealthy individuals really must look at their options seriously to help their heirs avoid paying 45-50% in taxes when they pass away.  It's important for folks to remember to factor in life insurance policies when determining the total value of assets that may be passed on to an heir.  Life insurance policies can easily push one over the thresholds that are set to determine whether or not your heirs will owe an estate tax.  Obviously, avoiding taxes is one of the primary objectives of Estate Planning.  In the event you find yourself exceeding the $1.5 million threshold this year, you may want to consider giving your children financial gifts now using the money that pushes you over the $1.5 million mark.  Remember, each parent can give each child a gift of $11,000 each year without paying a gift tax.

In addition to avoiding the estate tax, you want to also work to avoid probate.  Your spouse automatically inherits everything that is yours due to the marriage laws in this country ( this is one of the primary benefits that same-sex couples covet about the "official" marriage bond ).  Apart from your spouse, designating your heirs as "beneficiaries" on your major financial assets ( i.e. 401K, bank accounts, etc ) will typically serve adequate to pass along these assets to your children.  However, it's good practice to establish a Living Trust to help avoid probate.

Child Tax Credit

We had wonderful time last night for my birthday.  Once again, I ate entirely too much at the Melting Pot.  For anyone who has not tried it, you should check it out if you have one in your town.  It's a bit on the expensive side, but you do get a lot to eat and the atmosphere is nice too.  Dayna's due date is April 20th ( right around tax time ), so I thought I'd look into how the Child Tax Credit works.  This seems to be a pretty good deal.  Apparantly, one can get a $1000 tax credit for each child if your Adjusted Gross Income (AGI) does not exceed $110,000 when filing jointly.

Early Savings Plans

Tomorrow is my birthday and Dayna is taking me to the Melting Pot restaurant tonight for a nice dinner for two.  I'm very much looking forward to the time alone with her.  Today was a bit stressful.  Of course, you know I'm a pretty big college football fan.  Unfortunately, A&M had to squeak by Baylor today in overtime.  It was not a pretty game and I was frustrated the majority of the time watching it, but at least we got the win in overtime 16-13.  Since this week's theme is "Children's Education", I just wanted to bring up the different types of early savings plans available for parents.  Education Savings Accounts (ESA) is the common term for these funds.  I just briefly want to mention the most common:  Coverdell, 529 Prepaid Tuition and 529 College Savings Plans.  I'll let you know how the Melting Pot goes tomorrow.