Good afternoon.

While tax season is still fresh on your mind, it's a great idea to take action on any changes you need to make for your 2012 taxes.  This may include adjusting withholding, starting a small business retirement plan, changing 401k contribution levels, keeping better records of deductible expenses, contributions, and mileage, and more.    The earlier in the year you tackle these items, the easier they are and the more options you have.  Call me if you want to discuss your situation.

For investing, all the major indices are still positive year to date, although we've taken some minor steps backward in the past few weeks.   As of today, the S&P 500 is up 11.29% year to date (vs. 12.59% at the end of the March).  You have a full first quarter report below.

In this month's newsletter, we have a very special guest column.  Dr. Tim Kincaid shares part of his journey with money and offers a process to further develop each of our money stories.  Financial planning is about so much more than the money, and Tim really shares some key insights on how we can each more fully align our financial decisions with our true values, goals, and beliefs.

Also in this newsletter we have information on planning for a career change, deciding whether to pay down debt or invest, and upcoming retirement and social security workshops.   As always, feel free to e-mail me at [email protected] with requests for newsletter topics you'd like to see covered or to discuss concerns or questions on anything in the financial world.  Thanks, and live well!

Your Money Story

By Dr. Tim Kincaid, EdD - Certified Professional Coach

Dr. Tim Kincaid, EdD -- Certified Professional Coach

Money is a powerful concept. Think of all the ways in which most of us give our attention to money - how we earn it, manage it, account for it, save it, spend it, worry about it, and even give it away. Not surprisingly, many of us have unquestioned limiting beliefs about money. We may even hold judgments about the relationships others have with their money - rich or poor, lavish spenders or overly frugal.  

In The Energy of Money, author Dr. Maria Nemeth challenges readers to create a personal "money autobiography" by writing a description of our lifelong experience of money, from earliest memories to now. She suggests that what we observed and learned about money from our earliest memories informs our money beliefs as adults. What a sobering exercise! My money autobiography showed me how my own Money Story - my current beliefs about money - was very much shaped by my parents' beliefs about money. 

My folks were members of "The Greatest Generation." They were kids during the depths of the Great Depression and were young adults during WWII. (Keywords: Lack, Scarcity, Limitation, Rationing, Distrust, Secrecy, Hardship, Doing-without.) Understandably, they saw the world as generally an unfriendly place; money was hard to come by and to be protected at all costs. For them, the glass often looked half full. I acknowledge that I didn't experience the hugely challenging times they endured growing up. Different life experience means different worldview, so I see and experience the world differently - as a generally friendly place of abundance that is full of choices and opportunities. For me, the glass is more than half full.    

Interestingly, I had to work through feeling uncomfortable, even a little disloyal, in questioning differences in our belief systems. Working with my own Coach, I concluded that embracing my own true personal beliefs is not disrespectful of elders nor does it invalidate their experiences. Rather, this simply means making a personal choice to mindfully notice the beliefs I hold, discern if they are true for me now, and then change them by creating a more personally authentic Money Story of my own. Nobody gets to be wrong!

Coaching is a great way to explore unquestioned limiting beliefs. Not surprisingly, money is a common focus of calls with my coaching clients. I invite them to examine their own Money Story - its origins, benefits and limitations. Often they decide a substantial re-write of their own Money Story is in order to craft a more modern, accurate and congruent set of personal beliefs around money.

It's not easy to uproot lifelong beliefs. Friends and family members may not feel comfortable or supportive of such changes at first, or ever. But I suggest that there are few things that are more satisfying than feeling more authentic, aware, and aligned with one's own values and beliefs. So, what's your Money Story?

10 questions to help create your new Money Story:

1. What was the financial circumstance of your childhood?
2. What messages about money can you recall when you were young?
3. In what ways do you think your current financial situation relates to that of your family of origin?
4. What is one assumption or belief about money that no longer serves you well?
5. What might be a desired outcome of embracing a new personal Money Story?
6. By changing your Money Story, what are you saying "yes" to?
7. By changing your Money Story, what are you saying "no" to?
8. If you want to ask for some help with this, who would be supportive and non-judgmental of you as you explore?
9. When will you begin?
10. How will you know your new money story is accurate and truly your own?

Dr. Tim Kincaid, EdD, MBA, is a certified professional coach, change management consultant and university instructor who works and lives in Northeast Tarrant County. A special coaching interest of his is facilitating with mid-life exploration, transition and reinvention. Coaching sessions are primarily conducted by telephone. He can be reached at [email protected]  His website is www.kincaidcoaching.com.

A higher salary. More job security. Doing what you love. Fewer hours. More travel. Changing careers can be rewarding for many reasons, but career transitions don't always go smoothly. Your career shift may take longer than expected, or you may find yourself temporarily out of work if you need to go back to school or can't immediately find a job. Planning for the financial impact can make the transition easier.

Do your homework

First, make sure that you clearly understand the steps involved in a career move, including the financial and personal consequences. For example, how long will it take you to transition from one career to the next? What are the job prospects in your new field? How will changing careers affect your income and expenses in the short and long term? Will you need additional education or training? Will your new career require more or fewer hours? Will you need to move to a different city or state? Is your spouse/partner on board?

Next, prepare a realistic budget and timeline for achieving your career goals. If you haven't already done so, save up an emergency cash reserve that you can rely on, if necessary, during your career transition. It's also a good time to reduce outstanding debt by paying off credit cards and loans.

And here's another suggestion. Assuming it's possible to do so, keep working in your current job while you're taking steps to prepare for your new career. Having a stable source of income and benefits can make the planning process much less stressful.

Hands off your retirement savings

Planning ahead can also help protect your retirement savings. When confronted with new expenses or a temporary need for cash, many people tend to look at their retirement savings as an easy source of funds. But raiding your retirement savings, whether for the sake of convenience, to raise capital for a business you're starting, or to satisfy a short-term cash crunch, may substantially limit your options in the future. Although you may think you'll be able to make up the difference in your retirement account later--especially if your new career offers a higher salary--that may be easier said than done. In addition, you may owe income taxes and penalties for accessing your retirement funds early.

Consult others for advice

When planning a career move, consider talking to people who will understand some of the hurdles you'll face when changing professions or shifting to a new industry or job. This may include a career counselor, a small business representative, a graduate school professor, or an individual who currently holds a job in your desired field. A financial professional can also help you work through the economics of a career move and recommend steps to protect your finances.

Going back to school

Before you start applying to graduate school, ask yourself whether your investment will be worthwhile. Will you be more marketable after getting your degree? Will you need to take out substantial loans?

In your search for tuition money, look first to your current employer. The first $5,250 of employer-provided education assistance is exempt from federal income tax. But read the fine print: some employers may require you to choose a course of study related to your current position, maintain a minimum grade point average, and/or continue to work at the company for a certain period of time after you graduate. Also, investigate whether you can continue to work at your company while you attend school part-time.

Students attending graduate school on at least a half-time basis are eligible for Uncle Sam's three major student loans--the Stafford Loan, Perkins Loan, and graduate PLUS Loan. Also, at tax time, you might qualify for certain tax benefits, such as the Lifetime Learning credit--see IRS Publication 970 for more information.

Debt Reduction vs. Save & Invest

There are certainly a variety of strategies for paying off debt, many of which can reduce how long it will take to pay off the debt and the total interest paid. But should you pay off the debt? Or should you save and invest? To find out, compare what rate of return you can earn on your investments versus the interest rate on the debt. There may be other factors that you should consider as well.

Rate of return on investments versus interest rate on debt

Probably the most common factor used to decide whether to pay off debt or to make investments is to consider whether you could earn a higher after-tax rate of return on the investments than the after-tax interest rate on the debt if you were to invest your money instead of using it to pay off the debt.

For example, say you have a credit card with a $10,000 balance on which you pay nondeductible interest of 18%. You would generally need to earn an after-tax rate of return greater than 18% to consider making an investment rather than paying off the debt. So, if you have $10,000 available to invest or pay off debt and the outlook for earning an after-tax rate of return greater than 18% isn't good, it may be better to pay off the debt than to make an investment.

On the other hand, say you have a mortgage with a $10,000 balance on which you pay deductible interest of 6%. If your income tax rate is 28%, your after-tax cost for the mortgage is only 4.32% (6% x (1 - 28%)). You would generally need to earn an after-tax rate of return greater than 4.32% to consider making an investment rather than paying off the debt. So, if you have $10,000 available to invest or pay off debt and the outlook for earning an after-tax rate of return greater than 4.32% is good, it may be better to invest the $10,000 rather than using it to pay off the debt.

Of course, it isn't an all-or-nothing choice. It may be useful to apply a strategy of paying off debts with high interest rates first, and then investing when you have a good opportunity to make investments that may earn a higher after-tax rate of return than the after-tax interest rate on the debts remaining.

Say, for example, you have a credit card with a $10,000 balance on which you pay 18% nondeductible interest. You also have a mortgage with a $10,000 balance on which you pay deductible interest of 6%, and your tax rate is 28%. So, if you have $20,000 available to invest or pay off debt, it may make sense to pay off the credit card with $10,000 and invest the remaining $10,000.

When investing, keep in mind that, in general, the higher the rate of return, the greater the risk, which can include the loss of principal. If you make investments rather than pay off debt and your investments incur losses, you may still have debts to pay, but will you have the money needed to pay them?

Some other considerations

When deciding whether to pay down debt or to save and invest, you might also consider the following.

• Motivation -- if you find paying down debt highly motivating causing you to spend less and allocate more funds toward your goal, that may more than offset any mathematical difference between the projected rate of return on your investments and the interest saved on your debt.
• What are the terms of your debt? Are there any penalties for prepayment?
• Do you actually have money that you could invest? Most debts have minimum payments that must be paid each month. Failure to make the minimum payment can result in penalties, increased interest rates, and default. Are your funds needed to make those payments?
• How much debt do you have? Is it a problem? How do you feel about debt? Is it something you can easily live with or does it make you uncomfortable?
• If you say you will save the money, will you really invest it or will you spend it? If you pay off the debt, you will have assured instant savings by eliminating the need to come up with the money needed to pay the interest on the debt.
• Would you be able to borrow an additional amount, if needed, and at what interest rate, if you paid off current debt? Do you have an emergency fund, or other source of funds, that could be used if you lose your job or have a medical emergency, or would you have to borrow?
• If your employer matches your contributions in a 401(k) plan, you should generally invest in the 401(k) to get the matching contribution. For example, if your employer matches 50% of your contributions up to 6% in a 401(k) plan, getting the 50% match is like getting an instant 50% return on your contribution. In addition, there are tax advantages to investing in a 401(k) plan.

The May and June personal finance workshops are designed for those in or near retirement.  In May, we'll cover how to turn your investments into a source of retirement income and in June we'll do a deep dive on social security planning -- both critical topics for those getting close to retirement. 

 The May workshop is Tuesday, May 15 at 6:30 pm.  Registration is encouraged for planning purposes to [email protected]. 

Workshops are usually on the 3rd Tuesday of the month at 6:30 pm.  Please mark your calendars and tell your friends about ones that interest you.      

• May: Structuring your Retirement Income (designed for those in retirement or within 5 years)
• June: Social Security Planning for baby boomers

The Keller Public Library is located at 640 Johnson Road.

If the Tuesday evening time is not good for you, I will be presenting the Social Security workshop at the Conservatory in Keller on Saturday May 19 at 10 am.  This event is open to the public.  The Conservatory at Keller Town Center is located at 200 Country Brook Drive, Keller, TX 76248.  The phone number is 682-593-2742.