Don’t fall for talk about inside information
Q: My brother is recommending that I invest in a company that will soon go public. It’s one of those ‘friend who works at this company, and whose father-in-law is an engineer there, etc.’ stories. The company has developed some sort of heart monitor. Can you advise?
A: You’ve told me enough. Do not buy the stock. People who act on ‘hot tips’ based on ‘inside information’ almost always lose money. Therefore, any money you invest in this stock must be considered a speculation, not an investment. Be willing, and prepared, to lose everything you invest. If it works out better than that, terrific.
Q: I used to spend money all the time, and I still have debt to pay off. One day, it occurred to me that in order to get the most out of my money without useless spending, I should budget it before I actually spend it.
Once I did this, I had less desire to spend. I have been practicing this for several months and find myself ready for a debt-free Christmas as well as plenty of discretionary fun money.
A: Congratulations on your success. You’ve shown that the first step toward financial success is the realization that you must change the way you spend. The second step, which you’ve also taken, is to move from realization to action. It doesn’t take long for your new behavior to bring about genuine improvements in your financial situation.
The final step is to maintain your new habits. When people change their diet, they often marvel at their weight loss and celebrate by eating, undoing much of what they’ve struggled to achieve. I fear you might be wandering into such a trap without realizing it. I draw your attention to your final sentence, where you note that despite the fact that you still have debt, you contend that you have ‘plenty of discretionary fun money.’
The bulk of that discretionary money should be sent to your creditors until the debts are completely paid off, using further diligence to avoid the recurrence of such debt. You need not become miserly about it, for if you do nothing but pay off debts, you run the risk of becoming so dissatisfied with your new lifestyle that you might abandon the process altogether. I suggest that you grant yourself permission to spend some of your money in ‘fun’ ways. But try to engage in such spending only as a reward for achieving certain financial milestones. As soon as your debts are paid off, you should start putting the extra money into investments. No one ever got rich by eliminating debts. You get rich by accumulating money in savings and investments.
Q: Can I deduct (on my federal and state tax returns) the property tax I pay each year to my city and county? The house is paid for, and I live in North Carolina.
A: Yes. State and local real estate taxes are deductible on both your federal and state income tax returns if the tax is based on the assessed value of the property. You cannot, however, deduct itemized charges for water or sewer that are based on consumption.
Q: I’m the pastor of a small church in Maryland. I get a decent salary, and the congregation provides a wonderful place to live. Unfortunately at the end of the year (more often the middle of the month), my wife and I find ourselves struggling to keep our heads above water.
Our situation isn’t dire ‘ we have no debt to speak of, and I don’t believe we’re living an extravagant lifestyle. Our cars are paid off, and though we use credit cards for most of our purchases, we usually pay them off in full each month.
But at 40 years old, with two children, we really need to be setting significant amounts of money aside, which we’re not doing. We have next to no savings at this point. (We have life insurance, and I have about $50,000 in an IRA).
The problem is that when I try to bring up the idea of a financial adviser or making a budget so that we can make sure we save money, my wife gets defensive, assuming I’m faulting her for our financial struggles, as she handles most of the purchasing and bill-paying. Or she’ll say that there’s no point in discussing putting money aside until we actually have some money. Putting my foot down and insisting that we’re going to start saving money would not be helpful or happy in the short or long term.
Do you have any ideas or suggestions for how I might get us moving forward with our finances?
A: Yes, your situation is common. If your wife resists the suggestions you’re making, it could be because you’ve already delegated the household finances to her. She is acutely aware of the limitations caused by your income, so telling her that you want to focus on long-term strategies serves no useful purpose.
I suggest you make an appointment with an adviser and invite your wife to join. If she dissents, go without her. It’s your IRA, after all. Ask the adviser for ideas that can help you save, then discuss the ideas with your wife.
Start small. For example, in my book, ‘The Truth About Money,’ I explain that spending paper currency and collecting the change can help you save $20 per month with no effort. That money can serve as the beginning of a good savings plan.
Focus your efforts on retirement; tell the kids (and tell them now) that they will have to pay for college themselves. This is not a tragedy. Kids will find a way to get the degree, provided you tell them ASAP that they need to take charge of that effort.
Financial Adviser Ric Edelman is the author of several best-selling books about personal finance, including ‘Ordinary People, Extraordinary Wealth’ and ‘Discover the Wealth Within You.’ You can e-mail him at [email protected].