April 26, 2012Vol 5, Issue 4 
DFW Financial Planning

Jean Keener, CFPGood 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 jean@keenerfinancial.com 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!

In This Issue
Your Money Story
Planning for a Career Change
Debt Reduction vs. Save & Invest
First Quarter Investment Recap
Free Keller Workshop: Planning for Retirement Income
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Your Money Story

By Dr. Tim Kincaid, EdD - Certified Professional Coach


Dr. Tim Kind, 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 drtim@kincaidcoaching.com  His website is www.kincaidcoaching.com.

Planning for a Career Change

Financial planning for career changeA 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

Pay down debt vs. save & investThere 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.
First Quarter Investment Recap

Who could possibly have guessed?  After all the discussion in the press about the long economic slowdown, last year's downgrade of American sovereign debt, talk of double-dip recessions and looming crises in Europe and China, the U.S. investment markets turned around and, in the first three months of this year, posted the best first-quarter returns in 14 years.  Global markets followed suit, albeit more modestly, and investors received double-digit returns from real estate and high single-digit returns from commodities investments as well.


The Russell 3000, which tracks the entire U.S. stock market,rose 12.87% for the first three months of the year.  The S&P 500 which tracks large US companies gained 12.59%.  U.S. small companies as measured by the Russell 2000 small cap index posted a 12.44% gain.


Interestingly, the two economic segments that were responsible for last decade's major market busts, information technology and financial companies, led the markets this past quarter, posting aggregate returns of 21.14% and 21.46% respectively.   But the uptrend could be seen across nearly all sectors.  Materials, industrials, energy, consumer discretionary and staples, healthcare and telecom sectors all posted gains; the only losing sector were the ultra-conservative utilities, down 2.68% for the quarter.


Looking abroad, the MSCI EAFE Index, which tracks global stock markets in the developed nations, rose 9.97% for the first quarter of 2012.  European stocks were up 9.89%, while the Far East index posted an 11.03% gain, led by a 19% upswing in Japan's Nikkei index--its strongest first quarter rise in 24 years.  MSCI's emerging markets index, which covers market returns in the lesser-developed nations, rose 13.65% for the quarter.


Real estate and commodities participated in the upswing, but more modestly than stocks.  The Wilshire REIT index, which follows real estate investment trust that invest in commercial, residential and industrial properties around the country, was up 10.79% for the quarter.  The S&P GSCI commodity index rose 5.88% in a quarter when crude oil prices rose 15% to hit $128 a barrel, just $20 below the all-time peak in 2008.


There is little change in the interest rate scene over the past quarter; investors are still getting record-low yields from Treasuries.  The yield on 12-month Treasury bonds is 0.17%, rising to 0.33% for two year maturities, and 0.5% for 3-year issues.  At the 10-year maturity level, rates started the quarter at 1.87% and rose to 2.21% by the end of March.  Investors have been willing to buy U.S. government debt as a safer alternative to Eurozone bonds; however, a recent article published by Reuters notes that the recent resolution of the Greek debt crisis might send investors back across the Atlantic.  If that does happen, the result is likely to be higher Treasury bond rates, and losses for existing holders of Treasury securities.


Corporate bonds performed well during the first quarter; the iShares iBoxx US Dollar Investment Grade Corporate Bond ETF rose 2.34%.  However the spread between 10-year corporates (currently at 3.44% in aggregate) and government 10-year bonds (2.21%) is low by historical standards.  Meanwhile, investors in inflation-protected TIPS and mortgage-backed securities eked out positive returns; the iShares Lehman TIPS Bond Fund returned 0.82% for the quarter, while the iShares Lehman MBS Fixed-Rate Bond Fund, which invests in pools of mortgages, gained 0.44%.


It goes without saying that the strong stock returns were a pleasant surprise, and might be an indication that investors believe the economy is turning the corner at last.  Since early March 2009, the S&P 500 index of stocks has more than doubled in value, from 683 to over 1400 (1408 at market close at the end of the quarter), making all the peaks and valleys and twists and turns seem like background noise.  Since a swoon last summer, the index is up nearly 30 percent. 


The important lesson for investors is that returns can't be predicted in advance, and that has proven especially true of these lengthy--albeit choppy--market updrafts that have restored much of the wealth that was lost in the Great Recession.  Of course, after a roaring first quarter, the lesson should also be viewed in reverse.  We don't know what the markets will give us for the rest of the year, and there will almost certainly be some more downswings as the roller coaster moves from here to December.  But those downswings will mean that stocks are (at least temporarily) being sold at a discount to current prices.  Even that can be good news to investors who are putting money into the markets to meet their financial goals. 

Upcoming Personal Finance Workshops
Keller Public Library Free Financial Education Seminars

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 library@cityofkeller.com


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, KellerTX 76248.  The phone number is 682-593-2742.

I hope you found this newsletter informative.  KFP offers a free, no-obligation initial consultation to start the financial planning process for new clients.  To learn more or schedule a time, call 817-993-0401 or e-mail jean@keenerfinancial.com.
Jean Keener, CFP, CRPC, CFDS
Keener Financial Planning

Keener Financial Planning provides as-needed financial planning and investment services on an hourly and flat-fee basis.

All newsletter content except where otherwise credited Copyright 2012, Keener Financial Planning, LLC.