Personal Finance

New Year: Got Your Notebook?

Keep important data in a Notebook

It’s a new year: got your notebook? You know, that one with all of your passwords, account numbers, doctor names, and that very important song that must be played at your funeral.

Yeah, that notebook. Where is it? It might reside digitally on your computer or in the cloud, or it might be a pile of papers in a file cabinet, or it might be in an old-fashioned 3-ring binder. The new year is a good time to ask: how easily can someone who needs it find it?

Who Might Need the Notebook and When?

Everyone needs a someone in mind for the notebook. Your someone is who will step in for you and help to handle things when you can’t. If an immediate someone does not spring to mind, consider asking a professional to be that someone – an attorney, accountant, or professional fiduciary, for example.

When will someone step in? At a time when you need the notebook, but can’t get to it. Like the new commercial for disability insurance, we can imagine all kinds of accidents and tragedies that might bring about a need for the notebook. Rather than dwell on those, let’s imagine that you are suddenly swept away on an all-expenses paid trip out of the country to a remote island with spotty cell coverage.

While you are whale-watching and snorkeling the reefs for an indefinite period, things still need to be handled back home. Bills to be paid. Taxes to be filed. Gifts to be given. People to be notified of your absence and introduced to the someone who is handling things.

What Goes in the Notebook?

In essence, the Notebook is a central place you keep information that your someone will need in case something happens to you.

Common and essential items in the Notebook include:

  • Your five basic estate planning documents: original will (drafted by an attorney in the state where you reside), living will, health care power of attorney, durable power of attorney, and HIPAA designations.
  • Advanced estate planning documents: trusts, partnership agreements, business buy/sell agreements, shareholder agreements, etc.
  • Insurance policies. ALL of them: life, long term care, health, property, car, boat, liability, and any others.
  • Contact information for professional advisers: attorneys, bankers, accountants, investment advisers, insurance agents, and (of course) your Certified Financial Planner™.
  • Also, if your adviser has an assistant or paraprofessional who knows you and your situation, write down their contact information and a little note to that effect. (“Sharon is the assistant and she runs the whole place.”).
  • All of your health care providers – doctors, dentist, optometrist, veterinarian (who is going to take care of Fluffy?). Put similar information by each one – what they helped you with and if any office or nursing staff know you and your history.
  • Important to remember also, anything handled online: digital password manager, online user ids and passwords, bank statements, investment accounts, real estate deeds and mortgages. So much of our financial lives nowadays keys off of our email address. Can they even get into your email? (See: Document Your Digital Assets for more online stuff to consider.)

Extra Items for the Notebook

In addition, not-as-essential items some people include are:

  • An “ethical will” outlining your values. This often gives family members guidance when they are unsure what you would want. Writer Susan Turnbull’s book, The Wealth of Your Life, can help guide you through this process.
  • An end-of-life health care management booklet, like Five Wishes.
  • An Aging Plan – describing your wishes for the potential time of life when you may need assistance with activities of daily living, transportation, and housing transitions.

Notebook Update Season

It’s a good time of year to check in on your notebook. The end of January brings tax notices from bank accounts, investment accounts, mortgage statements, health insurance, employers, IRA providers, and more. Take this opportunity to pull together scattered pieces of your financial life. Consider collecting everything not only for the accountant, but also for your family or special someone.

One way to keep the notebook updated is to check each tax statement and match it up with a corresponding account in the notebook. Perhaps you forgot about those I-bonds you bought on Treasury Direct – no paper statements, all online. Better add that account to the notebook. All those deductions for insurance from your employer – would someone know how to contact the insurance companies if needed? Then would the insurance companies talk to them? That contact info, power of attorney forms, and beneficiary designations are good updates for the notebook too.

Think of your notebook as a bread crumb trail helping your loved ones work backward from that remote island to the place where you are sitting with paid bills, up to date connections, easily-accessed email and your personal address book at your disposal. A little effort each year will save your someone(s) many headaches later.

Got a notebook you love already? Comment below on what makes it uniquely yours. Share your best ideas.

For more on this topic, see The Mindful Money Mentality: How To Find Balance in Your Financial Future. Struggling with issues mentioned here? Tell me more – Schedule a call.

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Student Loan Forgiveness 2022? 6 Questions To Ask

Student loan forgiveness 2022? Where do your student loans stand right now? It can be pretty confusing to figure that out. Covid deferrals, loan servicer mistakes, and now forgiveness have led to a mish-mash of options. However, the big financial mistake you can make is to assume you don’t qualify for some kind of relief.

One piece of good news on the mish-mash front, especially if you have more than one loan: Those loans can now be seen on one page at www.studentaid.gov. No more checking on each servicer’s website for your information. It has a helpful feature. The site divides your loans into those that can be forgiven (through any existing forgiveness program, not only the most recent one), and those that cannot (mostly private loans).

To use studentaid.gov, you will need an FSA ID. This is different from your loan number. Apply for one at the website, and you’re in.

6 Questions to Ask Yourself

Before deciding, like Seinfeld’s Soup Nazi, “No forgiveness for you,” (90s reference – might make no sense to recent graduates), ask yourself these 6 questions to start:

1) Were your loan payments ever on some kind of income-driven repayment plan (IDR)? If so or you are not sure, see “Income-Driven Repayment Loans,” below.
2) Have you worked in medicine, education, or for government, at all since graduation? You may have been given bad advice about Public Service Loan Forgiveness. Skip to “Public Service Loan Forgiveness,” below.
3) Does your employer offer any type of student loan reimbursement benefit? If not, might they consider one? It’s tax-free to both you and them until 12/31/25. For more info, see “Tax-Free Student Loan Reimbursement,” below.
4) Did you repay some or all of your Covid-deferred loans in the last 33 months despite the fact they were on deferral? Skip to – “Forgiveness – What We Know So Far,” below.
5) Is your household Adjusted Gross Income (look on your tax return or ask your CPA or CFP) less than $125K (single) or $250K (married)? Skip to – “Forgiveness – What We Know So Far,” below
6) If you are a parent of a current student getting loans, is your household Adjusted Gross Income (look on your tax return or ask your CPA or CFP) less than $125K (single) or $250K (married)? Skip to – “Forgiveness – What We Know So Far,” below

Income-Driven Repayment Loans

If your loan payments were ever calculated based on your income, you may be entitled to some relief. Many errors were made in the calculations of those payments, mostly in the loan servicers’ favor. Most of those errors have now been corrected. You may owe less than you think. You may also qualify for lower payments.

Go to student aid.gov, sign up for an FSA ID, and find out.

Public Service Loan Forgiveness

A study showed that nearly all applications for PSLF had been rejected over the past several years when many of them should have been approved. Additionally the loans suffered from accounting errors.

Plus, more jobs have now been added to the PSLF program eligibility.

****But in order to have your case reviewed, you have to enroll at the student aid.gov site by getting an FSA ID by 10/31/22.****

Anyone in medicine, education or government work should go ahead and enroll. Enrolling sooner than later will reduce the chance of getting caught up in a last-minute rush of applicants.

Tax-Free Student Loan Reimbursement

With the 2017 Tax Act, employers and employees were given a special benefit. Employers can reimburse employee’s student loans up to $5250 (but any tuition directly reimbursed is subtracted first). The employers get to deduct the compensation, and the employee doesn’t pay tax on it. This benefit is available regardless of salary, income, or occupation.

Because the 2017 Act sunsets in 2026, however, this means that this benefit is only available until 12/31/25, unless it’s extended by Congress.

Ask your employer if this benefit is available to you. If you work for a small-ish employer, that employer may not be aware of this benefit. Given the tight labor market, it might be a good time to make the request to add it, or to provide it for you.

Forgiveness – What We Know So Far

While many of the details still have to be worked out, you’re probably aware that the recently-enacted loan forgiveness applies if you are single with Adjusted Gross Income (AGI) of less than $125K or married with AGI of less than $250K.

Again before letting that internal Soup Nazi strike you down, remember AGI is not your gross income/salary. If you are a W2 employee, your AGI would be approximately:
Salary+Bonus minus Retirement contributions minus HSA (Health Savings Account) contributions.


In addition to retirement and HSA contributions, there are many other adjustments that can affect your AGI, but they are less common. The point is that if you make $135K and think you don’t qualify, think again. If you contribute $6K to your 401K and $6K to your HSA, your AGI is $123K, so you actually do.

If you are self-employed you probably have even more deductions, so a thorough tax review would be in order. Maybe an amended return for 2021 might be worthwhile if you find a deduction that was missed.

The amounts that can be forgiven are $10,000 for all borrowers with public loans (not private ones), and an additional $10,000 if they were also Pell Grant recipients. The website at student aid.gov will tell you which loans you have that are forgivable.

What if you paid off your loans within the past year and you would otherwise qualify for forgiveness? Surprise – you will be able to apply for a refund. Details on that yet to come, though.

What if you are the parent of a current student? As long as the student had loans as of 7/31/22, and your household’s AGI falls below the income eligibility figures, your child’s loan(s) would qualify for forgiveness.

Summary – Several Strategies

In summary, now there are several strategies to employ that can help ease the burden of student loan debt. Consult with a knowledgable CPA or CFP on what opportunities there might be for you.

You can make an appointment to speak with us about your student loans or other concerns on our Contact Us page.

Continue ReadingStudent Loan Forgiveness 2022? 6 Questions To Ask

A Buckets Approach To Retirement Income

buckets

A buckets approach to retirement income: One of the most common questions financial planners receive from pre-retirees is, “What’s the safest way to give myself a paycheck once I quit working?”

Those who have been around long enough probably know someone who retired close to a particularly bad market year, like 2001, 2007 or 2008. Because that someone had to, or chose to, sell some investments at that terrible time, they ended up living off of much less than they originally thought. This can be a scary thing to watch. It makes some wonder, “How do I make sure that doesn’t happen to me?”

The Buckets Approach

Enter the buckets approach to retirement income. Below is a link to a video excerpt from the online course, “Retirement Readiness,” outlining a buckets approach in more detail. (A link to the course can be found at the bottom of this article and here.) A description for each of the buckets follows below.

https://youtu.be/mkeqzgJfeFc

Bucket 1 – Cash and Money Market Accounts

The first bucket will provide your paycheck. The rule of thumb is to
1) calculate any retirement income you will have (pension, Social Security, dividends, interest, rental property, for examples);
2) figure your annual recurring expenses (do not include one-time expenses such as replacing a car, roof, or paying for a special trip or wedding);
3) subtract 2) from 1); and
4) keep 1 to 2 years of that difference in Bucket 1.

For example, Justine retires at 65. She expects to live past age 82 so she is waiting until 70 to claim Social Security. She has a pension of $800/month. Her recurring expenses are $70,000 annually. The annual difference is $70,000 – $9,600 = $60,400. To start retirement, she decides to keep 1.5 years of the difference in Bucket 1 so $60,400 x 1.5 = $90,600. She puts that in a high-yield money market account and sets up an automatic transfer of $5833.33 monthly to her checking account. Voila – she has a new paycheck.

When she turns 70, she will collect $45,000 in Social Security. At that time the annual difference will fall to $70,000 – ($9,600 + $45,000) = $15,400. She decides to keep 2 years of the new difference in Bucket 1, so $15,400 x 2 = $30,800. She reduces the monthly transfer from the money market to $1283.33 per month.

Bucket 2 – Bonds, CDs, and Bond Funds

The second bucket replenishes Bucket 1. As the paychecks come out, the principal in the money market account will naturally decrease. When the balance reaches a level you have predetermined, a transfer is made from Bucket 2.

Bucket 2 is comprised of a combination of CDs, bonds, and or bond funds. CDs and bonds have maturity dates, so they are structured in a ladder (staggered maturity dates usually 6 to 12 months apart into the future). As each one in the ladder matures, the principal is either transferred to Bucket 1, or redeployed into a new CD or bond with a maturity date at the end of the ladder. If bond funds are used, they are laddered according to the duration in the fund, and the funds are sold as needed to replenish Bucket 1.

Bucket 3 – Stocks and Stock Funds

Bucket 3 replenishes Bucket 2 through harvesting gains in stocks. To do so, the general rule of thumb is:

  1. Review Bucket 3 on a regular but infrequent schedule (at most quarterly and at least annually). I
  2. f there are gains, transfer those to replenish Bucket 2.
  3. If there are no gains (i.e. the market is in a correction), then do nothing until the next scheduled review.

In this way, stocks are not sold at the most inopportune time. With up to 5 years of paychecks in hand, the first two buckets provide a secure cushion from market corrections.

Final Notes

It’s worth noting that whether the buckets are held in a tax-deferred account or a taxable account makes a difference. Buckets may be spread across accounts in different combinations to minimize taxes.

The goal of the Bucket approach isn’t to generate the best returns of any retirement portfolio on record, but rather to help prevent retirees and pre-retirees from selling at an inopportune time. Thus, a new retiree could use the bucket concept to replace their paycheck without worry about what markets are doing that month.

For a short online course on how to speak “finance” about retirement readiness, see Simple Finance Retirement Readiness: https://bit.ly/3p3BkXE.

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Read more about the article Minimalism, Kakeibo and Happiness

Minimalism, Kakeibo and Happiness

saving money

Minimalism, Happiness and Kakeibo: Minimalism trends have been around at least a decade. They contributed to the rise of the FIRE (Financially Independent Retiring Early) movement, where 20- to 40-somethings shared ways to “retire” before the conventional 60-something age. Much of the movement’s advice questions how much one really needs to spend to be happy.

While staying-at-home one morning in 2020, my husband and I had a heartfelt talk about the future. We began with guessing how the world might change; and then how our microworld-within-the-world might change. We braved scary thoughts about health, family, finances, and society. Then we shifted to how little we need to be happy.

Choosing Wisely

In other words, should scary stuff happen, we agreed to make a choice about our response to it. The pandemic helped affirm that stuff, even money, isn’t our highest priority.

It’s possible we aren’t the only ones coming to these conclusions. Minimalism might enjoy a pandemic-inspired boost. For example, in 2020 journalist Sarah Harvey described her discovery of the Japanese art of kakeibo (“kah-keh-bo”) in this article: https://www.cnbc.com/amp/2020/01/08/how-this-japanese-method-of-saving-money-changed-my-lifeand-made-me-richer.html

What is Kakeibo?

Kakeibo is the Japanese art of keeping a written financial ledger. Writing Harvey’s expenditures down brought their relative need (or lack thereof) into sharp focus for her. It helped her spend less by watching what she spent on. As a result, she chose more wisely in her spending.

For me, I already keep a spending journal, but joining Weight Watchers also worked the same way. By tracking what I ate, I quickly learned where excessive calories came from. As a result, I ate more mindfully. More frequently, I paused before grabbing the next snack. As a result, I chose more wisely in my eating.

So, kakeibo kind of works like Weight Watchers but for wealth.

Paring Down the Excess, Like, a Car

Looking at our spending during the pandemic caused us to wonder, if we are being forced to do without, what won’t we miss? While being forced to stay home, we discovered upsides to more home-cooked meals; more family time (even if on Zoom); more movies at home; and more neighborhood bike rides. More downsides were discovered to driving, commuting, and shopping in stores.

We began to realize – could we slow down, spend less, and actually be a little happier?

For example, because we got outside more, we met more neighbors. We stayed closer to home for socializing as well as shopping and working. In fact, I was using my car so much less that it began to feel like excess. Why were we paying insurance, license renewal fees, and letting it take up room in the garage? So In July 2021, we sold it.

Minimalism, Money, and Mindset

Like an ecosystem hit by a natural disaster, some parts of our old lives may now begin to feel excessive, or may crumble and not come back. Others will adapt and grow to take their place.

Having to make do with less highlighted that happiness is more dependent on our mindset than our stuff and our money.

What discoveries have you made about your spending in the last 2 years? Share a comment below.

For more psychology of money, tax, and funny video tips, subscribe to the award-winning monthly e-letter, “The View From the Porch,” at https://bit.ly/3t2uwfn.

For a short online course on how to speak “finance” about retirement readiness, see Simple Finance Retirement Readiness: https://bit.ly/3p3BkXE

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Read more about the article 2021 Book Reviews

2021 Book Reviews

books

2021 Book Reviews: Last year I read or listened to 48 books. That’s not a number particularly worth bragging about (I think my bookworm mother probably read twice that many). But, it was enough that I felt like I was learning, re-learning, or being entertained from other authors constantly.

Of the 48, below are those selected for recommendations this year, arranged by topic. For past recommended books, check the Resources page. It includes other recommendations for finance, lifestyle, and life improvement books.

Fiction

19 of the 48 I read were fiction. Of those, The Dictionary of Lost Words, by Pip Williams, was my favorite. Taking place in Oxford, England in the late 19th and early 20th centuries, it chronicles how certain words were left out of the original Oxford English Dictionary. Told from the point of view one of the original editors’ daughters, it reveals the subtle dismissal of women, of the poor, and the uneducated through leaving out their vocabulary. The daughter, who starts out as a youngster underneath her father’s working table, makes her own collection of “lost words” that were literally left on the cutting room floor. Ultimately she becomes a respected scholar, though still with the inferior rank of being a woman in a man’s profession. Women in male-dominated professions everywhere will relate well to this story.

Psychology of Money

I always include this topic in the annual book review list. Last year finally saw the publishing of a book with the actual title The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness, by Morgan Housel. Housel reviews the many different tricks our minds play on us when it comes to money, why, and what we can do about it. The field of behavioral economics, upon which the book is based, is difficult to explain in layman’s terms, but Housel does an excellent job.

Finance

Reverse Mortgages, by Wade Pfau, Ph.D. Dr. Pfau upended the financial planning profession nearly 7 years ago when he published research saying, “Financial advisors are not doing their jobs if they aren’t at least considering reverse mortgages.” Initially brushed off, subsequent independent studies have confirmed his findings. Regulations have tightened and these products have evolved into a legitimate option for many different financial goals. His book outlines the details, which can be quite complex, but understandable to non-professional readers. It’s now a reference book on my shelf. I am including it here for the second year in a row because I referenced it enough in 2021 to have read it again.

Life-Improvement: (also known as “self-help”)

Deep Work: Rules for Focused Success in a Distracted World, by Cal Newport, was a perfect segue from reading “Rest” two years ago. Both books emphasize the importance of pausing, rest, and breaks in doing work that requires great focus. Newport begins by listing all the ways that society and our screens keep us distracted. We end up working mostly on superficial tasks. To get into the deep work space, most people require a great deal of uninterrupted, undistracted focus time. In the past, I would try to squeeze in that time between working on the superficial tasks.

As a result of reading the book, I made more changes to the calendar. Larger blocks of time are now set aside for client meeting time, preparation, and followup, in addition to writing time. So I might have 10 days straight of meetings, followed by 5 days of writing and working on course development. I cannot report, sadly, that I am sticking to the plan as well as I thought, but I can definitely sense improvement. (To clients, you may experience longer than expected email response times. But hopefully the responses will be better thought-out than before.)

Life-Improvement XXtra Help

These next two are perhaps controversial and definitely don’t belong on a financial planning reading list, but I learned so much from them I want to include them. Along with money, sex and our sexual anatomy are the most under- and mis-communicated, misinformed, and misunderstood topics in our society. These two books spell e-v-e-r-y-t-h-i-n-g out in simple, understandable, relatable and occasionally humorous terms. If all adults of all ages would read BOTH: The Vagina Bible: Separating the Myth from the Medicine by Dr. Jen Gunter and The Penis Book: A Doctor’s Complete Guide – From Size to Function and Everything in Between by Dr. Aaron Spitz, oh, how much happier we all would be. I considered giving both books to my adult nieces and nephews for Christmas presents but realized they might not open them, and I still want them to visit me once in a while.

What books were life-changing for you in 2021? Let me know in the comments below.

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Read more about the article Monthly Money Dates

Monthly Money Dates

couples and money

Monthly money dates sure don’t sound very romantic. However, it’s said that money and sex are the two biggest reasons for divorce*. Could it be just a coincidence they are also two of the most difficult topics for couples to discuss? So perhaps it might make sense to figure out how to talk about them. Making regular times to talk about a difficult topic can often break down walls within other relationship areas.

In fact, a money date doesn’t have to last that long. Probably at most 15 minutes. (Unlike that other difficult topic, quicker is better.) One suggested format for a money date has 3 parts, with each partner taking turns:

For Part 1: “Here’s what I contributed this month.”

And Part 2: “Here’s what I see for major expenditures coming up.”

Then Part 3: “How are we doing?”

Money Date Part 1: What You Contributed

First, telling what you contributed, no matter how big or small, starts the conversation with recognition for your efforts. If one partner stays home or is out of work, find a way to recognize other ways you contribute – whether it’s nurturing the kids or searching for that next great job.

Money Date Part 2: Upcoming Expenditures

Second, talking about what’s coming up, or could come up, leaves little room for unpleasant surprises. While this may be the hardest part of the conversation, it’s placed here for a reason. Psychological studies show that thinking about how much we spend or have spent can induce the same emotions that lead to depression. On the other hand, counting what we have induces the same emotions that lead to happiness and fulfillment. That’s why the spending question is sandwiched between the other two.

Money Date Part 3: How Are We Doing?

Third, how well you are doing? Ask, what goals are worth tracking? If you are unsure where to start, try the following four indicators: retirement accounts; savings levels; debt levels; and charitable giving. Rather than constantly comparing to an ideal number, find a way to recognize progress from where you were at some point in the past. No matter where you might see room for improvement, walk away with at least one thing you can both point to and be glad or hopeful about.

Money Date Wrap-up: What Next?

Sharing your hopes and working through challenges about money decisions, even for 15 minutes, can be an intimate couples exercise. If you follow this formula successfully, you might find you’re a little more interested in that other intimate topic that’s hard to talk about. (And feel free to take longer than 15 minutes for that one.)

For more tips on the psychology of money, subscribe to the award-winning monthly e-letter, “The View From the Porch,” at https://bit.ly/3t2uwfn, check out Holly’s book, The Mindful Money Mentality: How To Find Balance in Your Financial Future, or sign up for the online Retirement Readiness course.

*see Dr. Dae Sheridan’s Tedx Talk, “Real Talk about ‘The Talk'”

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What’s a Holiday Spending Style?

what's a holiday spending style

What’s a holiday spending style? It’s the approach you take to spending money on others.

How do you decide what to spend at the holidays, and on whom? In her program, Money Habitudes http://www.moneyhabitudes.com, Dr. Syble Solomon breaks down our money habits and attitudes into several different styles. Here are how a few of those styles might apply to holiday spending.

Spending Style: Status

After earning my first real money at 15, I made a list and a budget for each person on it. A few years later, at age 20, I looked at the list of names, each with a dollar sign beside them, and thought “Yikes!” It could appear as if each person had a price tag.

At the time, I didn’t know it, but I was operating under one of Dr. Solomon’s six spending styles, the one involving “status.” In other words, I was too concerned what other people would think about my spending decisions, and as a result, I spent too much.

So next,  I made a “total” budget, and tried to keep track as I went along on how I was doing. Yet that didn’t work very well, since I could always find an excuse to break the budget on something to keep it “fair.”

Spending Style: Security

If you spend very little on others, and on yourself, because you are concerned you may need it for an emergency, you might have the “security” spending style. You might do the bare minimum necessary to get invited back to next year’s turkey dinner. Or you might find ways to celebrate other than spending money.

Spending Style: Idealist

Idealist – If you reject the materialism of the holidays, then you might give everyone something home-made, like cookies, or your own artistic creation. You have the hardest time of all styles making a spending plan, because you despise handling money matters.

Spending Style: Spontaneous

This style can’t wait to see what great ideas are presented each year by retailers. Perhaps you make a spending plan, but you have a tough time sticking to it because of all the fun temptations and opportunities to purchase the perfect gifts presented to you right before checking out.

Spending Style: Caretaker

Caretakers see gift-giving as a way to show how much you care about people. Your spending plan might be more generous than other spending styles (but hopefully not more generous than is financially wise).

Spending Style: Goal-Oriented

Your most important concern is staying within your spending plan. It may take you longer to get your shopping done in order to find the right gift-cost combinations.

What’s Your Style?

If you exhibit more than one holiday spending style, that is a good thing. The key is not to take any one style to an extreme. If you can make a spending plan that is wise for your situation, shows your love and affection for others, and still allows for some guilt-free spontaneity, you have probably found the combination that will bring you, and those you care about, lots of joy this holiday season.

For more on the psychology of money, see The Mindful Money Mentality: How to Find Balance in Your Financial Future.

Or to schedule a call to talk about money matters on your mind, click here.

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Decision Fatigue and Shopping

retail shopping fatigue

Decision fatigue is a real thing. I discovered this poignantly on a recent shopping trip. The mission was simple: Buy a spice rack. I figured the best shot was at Bed Bath Beyond (BBB); a store I had not entered in over a year, much less at the holidays. I had a specific size and type in mind, so there was no doubt BBB would provide all the choices I needed. Little did I know that trip would be the beginning of the end of my day’s productivity.

Upon entering, I scanned quickly, bypassing a cart to stay focused on the single item I wanted. Smugly, I glided past the holiday specials to the kitchen department. Lo and behold, there were spice racks. And all kinds of other racks. An embarrassment of choices.

Because I like choices (or thought I did until this day), before long, I was nose to nose with shelves and shelves of plastic, rubber, wood, aluminum, and chrome gadgets, and doodads for kitchen storage problems I didn’t even know I had. It was an assault on my single-mindedness. More than once, something other than a spice rack caught my eye. At first, I had the mental wherewithal to ignore them.

Decision Fatigue Begins

As the minutes wore on, my brain was presented with dozens of items for which a decision had to be made. Does it look like what I came for? If yes, is it the right size and type? If no, move to next item. As this process continued, some strangely gleeful part of my brain, a la Martha Stewart, said, “It’s not the spice rack, but….is it something I COULD use? Hmmmm…it looks very handy. And sleek, too! After all….maybe it could make even more room in the cabinet?” The cabinet, of course, had nothing to do with the spice rack.

“STOP IT,” another Jean-Chatzky-part of my brain, said. “You are here to get the spice rack. Move on.”

Next doodad. Does this look like the spice rack? No, not quite. Yet, the label showed the entire matching doodad set in a fantasy-organized kitchen. Then that Martha Stewart voice again, “Oh, wouldn’t it be cool if my whole kitchen looked like this doodad’s label?”

“STOP IT,” Jean intervened. “You would have to buy every doodad like it in here, which is a) exactly what you did not come here to do and b) doesn’t even include a spice rack. Next item!”

And so it went….back and forth over a dozen items for fifteen minutes. My mental wherewithal was waning.

Finally, I found exactly what I was looking for and grabbed it.

Decision Fatigue Leads to Aimless Shopping

By then, Martha and Jean had gone 144 rounds. I felt drained. So why did I feel like, oh, taking a look around? Just to see if there was something I couldn’t live without? I got to the bath side and wondered what got into me.

To check out, I had to walk the gauntlet of holiday specials again. I actually pondered chocolates. That’s how beaten-down my willpower was.

When I left the store only $8.35 poorer, I felt like Rocky – beat up, but victorious.

I needed a nap.

Emptying the Decisionmaking Fuel Tank

Dr. Moira Somers, a decision fatigue expert, talks about the mental energy required to make decisions, particularly ones avoiding temptation. It seems we wake up each day with a finite amount of mental decisionmaking energy, like a full tank of fuel. After exhausting our tank, it’s free-for-all shopping, chocolate, smoking, sleeping, nagging, drinking, or whatever your personal favorite fallback behavior happens to be. That devilish irrational voice, (“it’s ok to have it this time” “I won’t do it again” “I can make it up later”) is most powerful when we’re depleted.

To make it more challenging, now we have online shopping. Savvy retailers are perfecting the presentation of temptations on our phones as well as they do in stores. It’s devilishly easy (and I confess, enjoyable) to click and shop.

Finally, stress of any kind (had a little bit of that the last 2 years?) burns fuel in the tank too. When we worry, we erode the ability to resist spontaneous decisions we later regret.

How To Keep the Tank Full

Some solutions? Plenty of sleep. Meditation and mindfulness. Frequent rest breaks. Having someone with whom you can share your struggles.

Also, put fewer decisions into every day by asking whether they can be:

  • automated
  • delegated
  • eliminated or
  • date-activated (meaning putting it on the calendar so it doesn’t take up space in your head).

For more on decision fatigue, see Dr. Somers’ work at http://moneymindandmeaning.com, or Chapter 6 of The Mindful Money Mentality: How To Find Balance in Your Financial Future.

Continue ReadingDecision Fatigue and Shopping

Over 70 1/2? How To Keep The Charitable Deduction

With the new tax law, many people will no longer itemize. So when they think about taking out a mortgage, paying property taxes, or making charitable deductions, they should no longer assume some kind of tax “discount”. This is because the standard deduction has been raised to $12,000 for singles and $24,000 for married couples, making itemizing for some people, particularly retirees on fixed incomes, obsolete.

So, interest, taxes, and charitable deductions are not really “discounted” for them any longer.

But those over 70 1/2 have a way around the charitable deduction by supporting charities directly from their IRA. It’s called a Qualified Charitable Distribution and it counts toward the annual Required Minimum Distribution. The Qualified Charitable Distribution must be sent directly to the charity.

Checkbook vs. QCD Illustrated

To illustrate, take Betty and George, 75 and 78, who have a paid-off house, a few medical expenses, and low property taxes, but give generously to their church – $10,000 a year. Between pensions, Social Security, and investment income, they make $80,000. On top of that, their Required Minimum Distributions from IRAs total $20,000.

Normally they write a check to the church in December. At the same time, they take their Required Minimum Distributions from their IRAs. Compare how they will do by using their IRA instead of their checkbook for the charitable deduction:

If They Use Checkbook

Pensions, Soc Sec, Invstmts                                                                    $80,000
Required Minimum Distribution                                                           +20,000
Adjusted Gross Income                                                                           $100,000
Standard Deduction                                                                                   -24,000
Taxable Income                                                                                         $76,000
Taxes (12% bracket)                                                                                     – 9,120
Net After Taxes                                                                                          $66,880
Charitable Contribution Check                                                                -10,000
Net Cash Flow                                                                                            $56,880
If They Use QCD from IRA
Pensions, Soc Sec, Invstmts                                                                     $80,000
Required Minimum Distribution (20K minus QCD of 10K)              +10,000
Adjusted Gross Income                                                                             $90,000
Standard Deduction                                                                                   – 24,000
Taxable Income                                                                                           $66,000
Taxes (12% bracket)                                                                                       -7,920
Net After Taxes/Cash Flow                                                                       $58,080

Using the QCD instead of the checkbook saves Betty and George $1,200.

To use the QCD, instead of writing the check in December, Betty and George would ask their IRA custodian to send 1/2 of their Required Minimum Distributions to the church, and half to their bank accounts. (Or they could instruct specific dollar amounts.)

But They LIKE Writing a Check

QCDs, though, are a little more complicated than writing a check, a problem for some older people. What if Betty and George are a bit stuck in their ways?

“But I like the satisfaction of writing the check,” they might say. One option is to replace the check with a nice card to the church that says something like, “We instructed our IRA custodians to send our annual pledge of $10,000 directly to the church this year. Please notify us if it does not arrive by December 15. Signed, George and Betty.”

QCD’s are a little more work and coordination, but well worth the trouble to keep the deduction.

For more technical rules and smart uses of QCD’s, see also: https://www.kitces.com/blog/qualified-charitable-distribution-qcd-from-ira-to-satisfy-rmd-rules-and-requirements/

Contact us if you’d like to talk taxes or other financial planning topics.

Continue ReadingOver 70 1/2? How To Keep The Charitable Deduction