According to the College Board, the most recently published figures of the average annual cost of tuition and fees at a public university for a school year was $9,139 for in-state students and $22,598 for out-of-state students. The average cost of a private university was much higher at $31,231.

Thankfully, much like tax-advantaged accounts designed to help us save for retirement, there are
tax-advantaged accounts designed to help families set aside funds for future college costs. Named after Section 529 of the Internal Revenue Code and created in 1996, there are two types of tax-advantaged college savings programs: pre-paid tuition plans and college savings plans.

The attraction of 529 college savings programs is that both provide for investment earnings to grow on a tax-deferred basis. In addition, funds used to pay for qualified education expenses may be withdrawn free of tax. Nonqualified withdrawals, on the other hand, are subject to ordinary income tax and a 10% penalty on earnings. Let’s examine the differences.

Prepaid Tuition vs. College Savings Plans

One type of 529 programs is the prepaid tuition plan, which allows you to lock in tuition rates at eligible state colleges and universities.

Most are sponsored by state governments and allow account holders to “purchase” tuition at today's rates and “redeem” the credits in the future when your child is going to college. In effect, the state is absorbing tuition increases during the years in between.

Pre-paid tuition plans allow you to pay for tuition in one payment today or through installments, but generally don’t cover expenses such as room and board. Your contributions are then pooled with other plan participants and invested by the state, then transferred to the appropriate school when your child starts college. But since the state is managing the investments, you have no investment options.

In contrast, college savings plan typically offer several investment options, at varying levels of risk, depending on how close the child is to college. Plus, college savings plans allow students to attend any accredited post-secondary school, public or private, irrespective of the state where you live or where the college is located.

In addition, although the investments are managed by a state-designated professional money manager – typically through mutual funds – and are allocated to mutual funds based on the age of your child (the beneficiary), you generally get to determine which investment is appropriate or you, based on your risk tolerance and other factors.

The investment objectives of the mutual funds are also what most people are familiar with: equity mutual funds, fixed-income mutual funds, and money market mutual funds or age-based mutual funds that shift the allocation among stocks, bonds and cash depending on the age of your child.

The following chart was copied from the Securities and Exchange Commission and outlines many of the major differences between prepaid tuition plans and college savings plans:

College Savings Plan

Prepaid Tuition Plan

• No lock on college costs.

• Covers all "qualified higher education expenses," including:

• Tuition

• Room & board

• Mandatory fees

• Books, computers (if required)

• Many plans have contribution limits in excess of $200,000.

• No state guarantee. Most investment options are subject to market risk. Your investment may make no profit or even decline in value.

• No age limits. Open to adults and children.

• No residency requirement. However, nonresidents may only be able to purchase some plans through financial advisers or brokers.

• Enrollment open all year.

• Locks in tuition prices at eligible public and private colleges and universities.

• All plans cover tuition and mandatory fees only. Some plans allow you to purchase a room & board option or use excess tuition credits for other qualified expenses.

• Most plans set lump sum and installment payments prior to purchase based on the age of beneficiary and number of years of college tuition purchased.

• Many state plans guaranteed or backed by the state.

• Most plans have age/grade limit for the beneficiary.

• Most state plans require either owner or beneficiary of the plan to be a state resident.

• Most plans have a limited enrollment period.

 

Which is Right for You?

Your own financial situation will determine whether a prepaid tuition plan or college savings plan is the preferred vehicle to help someone through college. Part of this determination includes the effect that either will have on your student’s financial aid eligibility and your own estate planning. That being said, as a financial advisor I worry about prepaid tuition plans for a few reasons:

First, there just are not that many states providing prepaid tuition plans and accepting new applications. While this list is always changing, right now I found 10 that are accepting new applicants: Florida, Illinois, Maryland, Massachusetts, Michigan, Nevada, Pennsylvania, Texas, Virginia, and Washington.

Second, I really don’t like to rely on a state to fulfill a financial guarantee, especially with shrinking state budgets.

New Mexico, for example, terminated its program altogether; Colorado is no longer open to new account holders; and Alabama froze its payouts at 2010 levels.

That doesn’t mean that college savings plans are not without flaws either. My “worry” with college savings plans are fewer, however: some college savings plans are very expensive and some don’t have great investment options from which to select. With a bit of homework, however, both of these worries are mitigated.

The Key to Saving for College

The reality is that depending on the number of children you have, saving for college will be the most expensive item you encounter, outside of saving for your retirement. So much like I counsel clients with their retirement, the key is to start early so that your savings have more time to grow. Feel free to email me at ivan@otbfinancialplanning.com if you have any questions or would like to start saving for college today. If you found this blog post helpful, subscribe below.

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Why You Need Commercial Umbrella Insurance

In our increasingly litigious society, business owners, especially those in the fitness industry, must be prepared for the possibility of lawsuits. You may have seen CrossFit, Inc. be involved in a number of lawsuits and think that something like this may not happen to you. Here is an example of Kansas City area CrossFit being sued and ultimately losing when a member hurt his back during a 1-rep max deadlift. The jury found the man 50% negligent, yet he was still awarded $400,000 in damages which were split between CrossFit, Inc. and the gym owner.

A lawsuit could result in large legal fees and settlements. In addition, negative publicity and lost time resulting from court-related activities can have a substantial impact on your business.

A commercial umbrella liability policy is designed to help protect you and your business from claims that can be catastrophic for your business. It can provide protection above the required liability limits of your commercial general liability, auto liability, and employer’s liability (workers compensation) policies.

How Commercial Umbrella Insurance Works

Umbrella coverage takes effect when the limits of your underlying policies have been exhausted, and may also cover what your current business policies exclude. Because it pays only after your underlying policy is exhausted, its usually very affordable. Typically, a commercial umbrella policy may offer extra protection for legal defense expenses, losses occurring outside the U.S., and personal injury or property damage claims. In addition to covering the named insured, it may also protect your coaches and others you agree to protect under a written contract, at least to the extent that losses occurred within the scope of business duties.

However, while umbrellas provide for losses and liabilities above and beyond the scope of other insurance, certain exclusions may still apply. In most cases, you will be expected to maintain your underlying insurance, without alterations in terms or conditions, during the term of the umbrella policy. You may also be required to carry certain amounts of insurance in these underlying policies in order to qualify for an umbrella. But, the cost for your umbrella coverage will likely be lower if your primary deductibles or policy limits are higher.

The Important of Regular Insurance Policy Reviews

Be sure to review your insurance policies regularly because the amount of umbrella coverage you need may change over time. For instance, changes in your underlying policies, such as new exclusions or limitations, may leave gaps in your umbrella coverage. Also, inflation and ever-increasing legal awards often necessitate an increase in coverage.I recommend using a fee-only advisor, such as Outside The Box Financial Planning, because fee-only advisors do not receive commissions or other compensation from insurance companies for selling their products. This way you get the most objective advice. 

Your primary insurance may not always provide all the protection you need, especially when an expensive court settlement is involved. Contact us at 312-554-5889 or ivan@otbfinancialplanning.com for more information on how you can help protect your business from lawsuits and other potentially catastrophic losses.

Dollar Cost Averaging - Creating Good Money Behavior

The increase in volatility to start 2018, coupled with the almost 9-year bull market run has caused many sophisticated investors to question when to buy and when to sell. So, it’s important to remember that there is a very simple investment strategy that doesn’t require you to stare at trading screens all day – Dollar-Cost-Averaging.

It isn’t new and exciting, but many a successful investor has proven its worth. The principle behind it is this: You put the same amount of money into the same investment on the same day each month. Those months when the investment’s price goes up, your set amount does not buy as many shares. But when the investment‘s price dips, you get to buy more shares at a cheaper price.

Guess what? When the price goes back up, all those shares you bought cheaply make you some money. Those shares you bought when the price was high look good, too.

There are a few reasons to invest this way:

Celebrate Twice

First, it takes the guesswork out of trying to predict what the stock market is going to do. It’s easy to lose money seeking to time the market. Even professional investors can be pretty bad at it. As long as you feel good about the investment you buy, you know that the fundamentals are right, and your situation has not changed, you shouldn’t care what the stock market is doing day to day.

In fact, maybe you should celebrate when the market dips and you buy because you get to buy more shares that you think have great long-term prospects.

And you celebrate again when the market rallies because all your shares are more highly valued. You win either way. Also, you won’t have to put so much time and energy into investing. You can focus on your career and family rather than obsess over your portfolio.

Disciplined Approach

Next, Dollar-Cost-Averaging creates a disciplined approach to building wealth. You are now on a path to save and invest regularly, building wealth one month at a time. Yes, we have all read about those hot stocks that made someone rich overnight. But for most of us, it’s going to take a working lifetime to accumulate our wealth.

It Doesn’t Take Much to Start

You can do this for as little as $100 per month and many platforms don’t even have a minimum. You don’t need thousands of dollars to get started or to continue your dollar cost averaging plan. So, no excuses.

Some Things to Think About

·       Start with a monthly amount that won’t break your bank. This is money you won’t miss on a monthly basis.

·       Commit to a Dollar-Cost-Averaging program of at least 12 months. It takes time to build wealth and see the results of your efforts.

·       Don’t wait for the price to go up or down. The key is consistency. Don’t vary the amount based on how much is in your savings account that day, either. Set it up for the same day, same amount, same investment.

·       Don’t stop it when the market retreats. If you still believe in your investment, keep investing. Remember, in a down market you are buying more shares for less money.

Final Thoughts

The Dollar-Cost-Averaging approach is about building wealth steadily, consistently and with discipline over time. It’s about creating and strengthening good money behavior. When you do this for 10 years and see your accumulated balance, you won’t care that you didn’t invest exactly on the best day in the market in 2018.

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How to Avoid Scams at Tax Time

Here’s what to know and how to protect yourself.

Identity thieves often swipe your bank or credit card account numbers, birth date information or Social Security Number (SSN) to steal from your accounts, open a new and phony account or make illegal purchases. Some 15.4 million consumers were victims of identity theft or fraud last year, according to a new report from Javelin Strategy & Research.

All sorts of nefarious schemers can come after you via the phone or email. Your tax return offers a trove of your personal information, and this time of year scammers also prey on your apprehension about paying taxes.

The Internal Revenue Service recently published its latest list of scam warnings, freely admitting, “It’s true: Tax scams proliferate during the income tax filing season.”  

Among IRS tips:

• Beware of unexpected communication at the start of tax season that claims to come from the IRS.
• Don’t fall for phone and phishing email scams that use the IRS as a lure. The fake messages typically probe you for personal information thieves often pose as the IRS offering a bogus refund or warning you to pay past-due taxes – sometimes, with phone scams, threatening you with immediate arrest if you hang up.
• The IRS sends letters by postal mail and initiates no contact with taxpayers by email to request personal or financial information. This means any e-communication, such as text messages and messages over social media.
• The IRS doesn’t ask for personal identification numbers (PINs), passwords or similar confidential information for your credit card, bank or other accounts.
• If you get an unexpected email, open no attachments and do not click links in the message. Forward the email to phishing@irs.gov. See more about reporting phishing scams involving the IRS at the agency’s website.

(Note: Only IRS.gov is the website of the U.S. government's Internal Revenue Service.)

Source: Federal Trade Commission, Consumer Sentinel Network.

To protect against scams and identity theft:

• Don’t carry your Social Security card or any documents that include your SSN or Individual Taxpayer Identification Number (ITIN). Don’t keep forms containing that information in your car, either.
• Don’t give any business your SSN or ITIN just because someone who claims to represent the company asks. Give such information only when required and when positive who you’re talking to.
• Check your credit report every 12 months. Stay aware of your credit status and learn quickly about any illegal use of your credit or accounts.
• Secure personal information in your home.
• Protect your personal computers with firewalls and anti-spam and anti-virus software, updating security patches and changing passwords for your home Internet accounts.
• Give no personal information over the phone, through the mail or on the Internet unless you initiated the contact and are sure of the recipient.
• Choose a tax preparer carefully. Most preparers provide excellent service a relative few are unscrupulous. The IRS recommends watching for preparers who try to manipulate or change your income figures or makeup deductions to qualify you for tax credits and unusually large refunds.

Tax season brings enough to worry about. Cross identity theft off your list.

When planning for retirement, most Americans think mainly about using tax-advantaged savings vehicles like 401(k) or individual retirement accounts, while failing to consider the triple tax advantages associated with saving for future health care costs using a health savings account, or HSA.

First established under the Medicare Modernization Act of 2003, HSAs are tax-exempt savings plans that must be paired with a high-deductible health insurance plan that meets certain criteria. An HSA owner can make tax-deductible (or pre-tax, if through an employer) contributions to the account, which can in turn be spent tax-free on qualified health care expenses, including on certain health insurance, Medicare, and long-term care insurance premiums. Moreover, any interest or other capital earnings from the account accrue tax-free as well. Thus, unlike any other tax-advantaged savings plan, the HSA offers triple tax benefits: tax-free contributions, tax-free earnings, and tax-free distributions.

Any taxpayer who is not enrolled in another health insurance plan is eligible to open a health savings account. Thus, HSAs are often used by self-employed individuals, small business owners, or those who otherwise lack access to a government or an employer-sponsored plan. Increasingly, however, high-deductible plans coupled with an HSA are being offered to employees as employers seek to shift their health care costs away from the company and onto workers. 

Yet even if the plan is offered through an employer and the company makes contributions to employee HSA accounts, all the funds in an HSA are held by the account owner, not the employer, and any unused balances in a worker’s account go with the employee when he or she leaves the company. The accounts are managed by a trustee or custodian, such as a bank, insurance company, or brokerage firm. Individuals looking to use all or a portion of the funds for retirement should consider opening an HSA with a financial institution that offers mutual funds or other long-term investment options.

While HSAs are similar in some ways to health care flexible spending accounts (FSAs), the maximum amount that can be carried over each year in an FSA is $500, whereas in an HSA there are no limits on the amounts that can be carried over, or on when the funds are used. Thus, HSAs are highly attractive vehicles for saving for medical expenses in retirement, when most people’s health care expenses are highest.

There are, of course, a number of restrictions associated with HSAs. The IRS stipulates that for 2018, the annual deductible of an HSA-compatible health plan cannot be less than $1,350 for self-only coverage or $2,700 for family coverage and that the annual out-of-pocket expenses (deductibles, co-payments, and other amounts; but not premiums) may not exceed $6,650 for self-only coverage or $13,300 for family coverage. The HSA contribution limits in 2018 are $3,450 for an individual and $6,900 for family coverage. Individuals over age 55 can put in an extra $1,000 per year in catch-up contributions.

Contributions to an HSA can be made only up until the account owner becomes eligible for Medicare, usually at age 65. However, an individual can continue to contribute after reaching age 65 if he or she has not yet signed up for Medicare. Conversely, an individual can no longer contribute if he or she qualifies for Medicare before reaching age 65.

Especially for higher-income savers who are generally healthy and do not need to draw down the funds to pay for medical expenses, HSAs are a potentially effective vehicle for saving for retirement. According to a study by the Employee Benefit Research Institute (EBRI), savers who contribute the maximum allowable amount in an HSA over 40 years and take no distributions over that period could accumulate up to $360,000 if the rate of return was 2.5%, $600,000 if the rate of return was 5%, and nearly $1.1 million if the rate of return was 7.5%.

Until the account owner turns 65 or becomes eligible for Medicare, the funds in an HSA can only be used to pay for qualified medical expenses. Withdrawals used for nonqualified medical expenses prior to this point are subject to income taxes and a 20% penalty. However, after age 65 or Medicare eligibility, withdrawals for non-medical expenses are not subject to the 20% penalty, though they are subject to income taxes as they would be from a traditional IRA. Thus, an HSA can be used as a back-up retirement plan—and one that has a number of added advantages, including no minimum distribution requirements and no income limits on contributions.

Another attractive feature of the HSA is that the tax-free distributions do not have to be taken in the year the qualifying expense is incurred. For example, the account owner could keep a list and receipts of the qualified health care expenditures he or she incurred while contributing to an HSA, but which were paid for at the time with after-tax dollars. The individual could then withdraw funds from the account for another reason, while reporting an equal amount of health care expenditures from prior years his or her tax return for the year in which the withdrawal was made.

In addition, an HSA owner between the ages of 59½ and 65 who also has IRA or 401(k) assets can take distributions from these retirement accounts and deposit the funds directly into an HSA. While the individual will owe tax on the distribution, he or she can reduce the tax owed by taking a deduction on the contribution to the HSA. This strategy provides a tax-efficient way to give the owner more funds that can be spent tax-free on medical expenses in retirement.

A SEP May Be The Way To Save On 2017 Taxes

In today’s tight job market, small business owners are in competition to attract and retain top employees with robust employee benefit packages. Many larger businesses find the best approach to meeting their employees’ retirement saving needs is a “qualified” pension or profit-sharing plan. Qualified plans provide an array of features that help employers achieve a range of objectives. However, these plans also involve reporting and recordkeeping requirements, along with administrative expense.

On the other hand, many businesses don’t need every feature offered by a qualified plan. The most appropriate plan for these employers may be one that delivers an attractive benefit with minimal administration and expense. In addition, if employees would like to defer income, the SIMPLE Individual Retirement Account (IRA) may be a cost-effective solution. However, small business owners and sole proprietors may want to consider the Simplified Employee Pension (SEP), an equally effective option.

Is a SEP Right for You?

In 1978, Congress created SEPs as an alternative to traditional retirement plans. Rather than setting up a profit-sharing or money purchase plan with a trust, small business owners can establish a SEP and make contributions directly to a traditional IRA set up for each eligible employee (including themselves). SEPs provide similar advantages to profit-sharing plans, but since the employee controls the IRA, the employer is not responsible for detailed recordkeeping and reporting.

While SEPs are usually most appropriate for small businesses and self-employed individuals, any business (including C corporations,
S corporations, partnerships, and sole proprietorships) can establish a SEP. Unlike a qualified pension or profit-sharing plan, which must be established no later than the last day of the plan year, an employer can establish a SEP plan up until their tax filing deadline, including extensions, which means you may still have time to set one up for 2017!

Establishing a SEP is relatively straightforward. In most cases, the business owner completes an IRS Form 5305-SEP, which is used to set the age and service requirements for plan participation, along with the formula for allocating contributions. Once completed, a copy of this document, in addition to other SEP information, is given to each eligible employee to satisfy legal disclosure requirements.

Participation Requirements

Small business owners may establish age or service eligibility requirements for their plans (in order to retain your employees); however, these eligibility requirements may not be more restrictive than those set forth within IRS form 5305-SEP. The employer may exclude all employees covered by a collective bargaining agreement (if retirement benefits were the subject of good faith bargaining), those under age 21, any employees who have not performed services for the employer in at least three of the previous five years, and employees who have received less than $550 in compensation for the current year.

Contributions to a SEP are allocated to eligible employees in proportion to compensation, with each receiving the same percentage of pay. Employer contributions are always 100% vested. These contributions can be substantial, up to the lesser of 25% of an employee’s compensation (limited
to $270,000 or $54,000 in 2017).

A SEP can provide a substantial tax planning opportunity for the owner. Consider the following example: A CrossFit Affiliate with $250,000 of net income for 2017 that will be passed through to its owner(s) (LLC taxed as S Corp.). Assuming the owner is single with no other income, a $25,000 contribution to a SEP would result in $8,250 of tax savings realized by the owner(s) (Based on 33% marginal tax rate). In other words, a $25,000 contribution towards the owners’ retirement only costs the owner $16,750!

Because contributions are discretionary, employers can vary the amount from year to year, or skip the contribution entirely; however, if the employer makes a contribution in a given year, it must be made for all eligible employees who performed services during the year of the contribution. It is important to note that contributions for self-employed individuals are subject to additional limitations.

If you are a small business owner who values simplicity, wants to retain key employees and get a tax brake for doing, a SEP may be an appropriate choice. For more information, please contact me at ivan@otbfinancialplanning.com. If you found this article helpful, sign up for our newsletter to receive the latest strategies and insights.

A Tax-Deductible Buy-Sell Agreement

One of the critical needs of a small business is to protect against the untimely death of an owner. This is important because the family of the owner may face a large tax bill, and may not have the liquidity to pay the tax. To make matters worse, it may not be desirable for the deceased owner’s family to have a hand in running the business and surviving owner may not have enough cash for a buyout.

This problem can be solved with a well designed buy-sell agreement. Although there are a variety of ways to structure such an arrangement, the two most common approaches are the stock redemption and the cross-purchase plans. Because of leverage and tax efficiency, these plans are often funded with life insurance. Insurance can provide both the liquidity needed by the family to meet its tax obligations and the ready cash for the surviving owners to purchase the interest of the deceased shareholder.

In a stock redemption plan, the business agrees to purchase or retire the stock of a deceased stockholder. Typically, the business purchases life insurance on each stockholder to fund the arrangement. In a cross-purchase plan, the owners agree to buy the stock of a deceased partner. To fund a cross-purchase agreement, each owner buys life insurance on each of the co-owners. In both cases, life insurance guarantees that funds will be available if and when they are needed.

A frequent obstacle to funding a buy-sell arrangement is a lack of sufficient cash to pay for the required insurance. For example, in a 28% tax bracket, it takes $3,472 in pre-tax earnings to support a $2,500 life insurance premium. So, it’s not surprising that many owners ask if there is a way to deduct the cost of the insurance premium. Can this be done?

In fact, there is a way . . . by purchasing life insurance through a profit-sharing plan sponsored by the business. When properly structured, the funding of a cross-purchase plan in this manner has all the advantages of a traditional buy-sell agreement, with the added benefit of income tax leverage to reduce the owners’ out-of-pocket costs.

A Little Background. . .

The Internal Revenue Service (IRS) defines a qualified profit-sharing plan as a plan of deferred compensation. This definition creates flexibility that is not available with a qualified pension plan.

Amounts allocated to the profit-sharing account of a participant may be used to provide incidental life insurance protection for himself or anyone in whom the participant has an insurable interest [Treasury Reg. 1.401-1(b)(1) (ii)]. The IRS has agreed in private letter rulings that this regulation supports the purchase of life insurance on the life of a co-shareholder, to fund a cross-purchase agreement. (See PLRs 8108110 and 8426090.)

Generally, in designing such an arrangement the following conditions should be met:

1. The plan must be a tax-qualified profit-sharing plan.

2. The plan should allow each individual participant to direct a portion of his or her account toward the purchase of life insurance.

3. The plan should provide that participants may purchase life insurance on themselves, or on the life of any individual in whom they have an insurable interest.

4. The purchase of insurance must meet the so-called “incidental death benefit” limitations.

5. Taxable insurance costs (“PS-58 costs”) must be reported by the participant whose account is supporting the cost of the life insurance.

6. If the participant is married, the spouse of the participant should consent in writing to the use of the profit-sharing funds in this manner.

7. At death, the amount at risk under the policy may be distributed immediately to the surviving shareholder. This amount is received free of income tax and may be used to satisfy the buy-sell agreement. The cash value portion of the policy should remain in the profit-sharing plan.

The funding of a cross-purchase agreement through a profit-sharing plan in this manner may work best for small, closely-held businesses with two or three owners. But, it can work in larger businesses as well, and this approach may provide a cost-effective means of purchasing life insurance. This is an important consideration for any business that may not otherwise have the ability to fund the buy-sell plan.

If you need help setting up a buy-sell agreement, choosing appropriate insurance coverage, or help reducing your tax liability exposure, please contact us at (312) 554-5889 or at ivan@otbfinancialplanning.com.

Partnering with Outside The Box Financial Planning offers numerous benefits for individuals seeking retirement planning, small business support, wealth management, and beyond.  With their fiduciary duty, comprehensive approach, unbiased advice, transparent fee structure, and ongoing support, OTBFP act as a trusted advisor who prioritizes your best interests. Click here to schedule a complimentary “Fit” meeting to determine if we would make a good mutual fit.

Remember, financial decisions have long-lasting implications, and working with a professional can provide the expertise and guidance necessary to make informed choices that align with your financial aspirations. 

However, if you would like to take a shot at building a financial plan on your own, we offer our financial planning software, RightCapital, free of charge. Click here to get started.

We will spend almost $20 billion in 2018

When we were in elementary school, most of us have fond memories of receiving cards and candy on every February 14th. We would bring a decorated shoe-box to school and by the end of the day, it would be filled with sweet notes from our classmates and lots of candy.

But how many of us knew then, or know now, the history of Valentine’s Day? Or how big Valentine’s Day business really is? Let’s explore.

A Muddled History of Valentine’s Day

The history of Valentine’s Day is shrouded in mystery – and some would say its origins are anything but romantic. But most historians agree that today’s holiday can trace its roots through both Christian
and Roman history.

Many historians suggest that the ancient Romans are responsible for our modern Valentine’s Day because Emperor Claudius II executed two men – both happened to be named Valentine – on February 14th
of different years in the 3rd century. Legend suggests that one of the Valentines, a priest, performed marriages in secret despite the fact Claudius had outlawed marriage for young men because he decided that single men made better soldiers than those with wives. When Claudius discovered that Valentine was performing marriages, he was put to death.

Other historians suggest that the Christian church
may have decided to place St. Valentine’s feast day in the middle of February to “Christianize” celebration of Lupercalia, which was a fertility festival – as well as a pagan one – dedicated to the Roman god of Agriculture, Faunus.

The Business of Valentine’s Day

No matter your historical perspective, no one can argue that in 1913, Valentine’s Day forever changed when a Kansas City-based firm named Hallmark
Cards began mass producing Valentine’s Day cards.

And today, Valentine’s Day is huge business:

• According to the National Retail Federation, consumers in the U.S. will spend an estimated $19.6 billion on gifts for Valentine’s Day, up from $18.2 billion the previous year.
• More than 10 percent, or $2 billion, will be spent on flowers. And this one day represents 13% of the annual flower sales.
• According to the Greeting Card Association, an estimated 1 billion Valentine’s Day cards are sent each year, making Valentine’s Day the second largest card-sending holiday of the year (2.6 billion cards are sent during Christmas).
• Women purchase approximately 85% of all valentines. But men spend almost twice as much as women on Valentine’s Day gifts.
• $143.56 is the average amount we will each spend on Valentine’s Day in 2018
• $3.7 billion is the total amount spent by couples planning a night out on Valentine’s Day.
• 94% of Americans want chocolate as a gift.

Valentine’s Day & Financial Planning

So, you’re probably wondering, “what does
Valentine’s Day have to do with financial planning?”

Well, I could suggest that the amount of money we spend each Valentine’s Day is reflective of the overall economy, much like Black Friday signifies the health
of the upcoming shopping season. Or I could suggest that the $20 billion is a big part of our consumer spending, which makes up 2/3 of our GDP
(but remember U.S. GDP is about $18 trillion).

But truthfully, Valentine’s Day really has nothing to
do with financial planning at all.

So, how about instead I promise if you sign up for my newsletter, I’ll send you a box of chocolates? Happy Valentine’s Day!

Organization, efficiency, and discipline are the three primary steps of financial planning. Organization is knowing where your money comes and goes. An efficient portfolio means a better chance of profits, and discipline keeps you on the right track.

Statistics tell us that the average credit card debt per person - including all people who pay off their cards each month - is over $5,500. Folks don’t have a handle on the big picture of their personal financial world.

If you are one of these folks, you should know what the steps of financial planning are and get started today, either on your own, using resources on the Internet, or by hiring a financial planner.

The first and most important step of financial planning is organization. You can be a lot closer to your financial goals in life by organizing your finances and understanding money flows, both inflows (like your paycheck) and outflows (bills).

If your financial life isn’t terribly complicated, an Excel spreadsheet may suit your needs perfectly. However, using something a little more sophisticated, such as Mint, Quicken or other online budgeting tools may become necessary, as you and your financial life continue to evolve.

There are a million ways to approach organization, but the “how?” is nowhere near as important as “when?” Of course, the answer to when to start organizing is now.

Whatever method you choose, once you set up the system you should enter historic information as far back as 12 months (if you have it). This requires digging out the old bank, investment and credit card statements. It’s not as intimidating as it sounds. In today’s connected world, you can simply download the transaction history from your bank, investment or credit card companies, and import it directly into your Mint or Quicken file. You still need to go through things, but much of the data entry is done for you.

If you don’t have the time, the facility or the patience to enter this historic information, don’t give up. Tracking your information from today forward is valuable as well. Think about it: In a year, you’ll have 12 months’ worth of history in your system.

As you generate this history (or review the old history), patterns of your spending habits emerge. Perhaps you spend much more on golfing than you realized, or maybe your home decorating expenses were greater than your mortgage payments over the last year. Each of these patterns helps you to understand where your money goes. Once you know that, you can begin to control it.

Quicken or Mint.com also organizes your investments, which takes us to the next step: efficiency.

If you have a couple of old 401(k)s from former employers, you can look at all investment accounts from a top-down perspective, using these tools. For many folks, it may be the first time you see all your investments in one place.

This is when you adjust your allocation for a more efficient portfolio. You might think your investments were diverse enough but find that you bought the same investments in multiple accounts. An efficient allocation is about spreading your money across many different broad asset classes.

Now we’re into the place where the rubber meets the road. After you organize everything in an efficient manner, you need to maintain this organization over time. This requires discipline.

You need to balance your checkbook at the end of the month and keep your information up-to-date when you receive the credit card and investment statements. The automated tools help a lot, but you can’t just let it go on autopilot. You need to sort through the information to understand what’s going on with your cash flow and investments. You might need to change your spending habits or rebalance your investments if they get out of line.

But what takes the most discipline is maintaining your investment allocation as planned when the market is very volatile. You might be tempted to pull out of the market after a big loss or start buying in when the market has a huge run-up. Keeping you disciplined is quite often the major benefit of having a financial advisor, who can help you maintain the proper long-term perspective of your investment allocation and not let emotions rule the actions.