Andre Sugars’ Key Points On How To Make Sound Financial Decisions (Part 2)

Andre Sugars’ Key Points On How To Make Sound Financial Decisions (Part 2)

We just wrapped up all the extension returns for TY2017, and can finally place our gaze SQUARELY at what's ahead.

Which is a funny thing to say, because, well … for too many of our clients, we are continuously looking backwards — simply because they haven't worked with us before the year is over, and we aren't able to make the proactive moves that we could make, if given more time.

Let's get ahead of the game, shall we?

Give us a call ((310) 327-1985) or shoot me an email through the button at the top of the page, and let's set up a time to do some tax planning on your behalf. This is especially the case if you own a business in South bay (or have a side hustle) … with all of the changes this year, I anticipate that our calendar is going to be quite full in December with last-minute moves.

But taxes aside (I know, funny coming from me) … there are still plenty of mental "traps" that you can fall into, if you don't get your mind right regarding money.

For years, we've worked directly with families in vastly different situations. And there are plenty of tactical maneuvers we advise — both from a tax standpoint, and a more holistic, financial standpoint — but nothing can replace the proper financial mindset.

Last week, I gave you two "mental mistakes" that you might be making with your financial decisions:

1)    Wrong Mental Accounting

2)    Subtle Price Anchoring

This week, I have a couple more.

Andre Sugars' Key Points On How To Make Sound Financial Decisions (Part 2)

"You can't undo the past … but you can certainly not repeat it." – Bruce Willis

Aside from the tactical moves that we often help families and clients to make, there are often underlying psychological traps that can influence the mistakes we make with our money. Things like…

Self-Sabotage Trap #3: Fixating on losses, instead of moving on

Definition: Our consistent tendency to avoid loss, rather than acquiring gain.

Typical Example: An investor is more likely to sell a stock which has increased in value, rather than selling stock that decreased. Over time, her investment portfolio is made up of investments that have decreased.

Cure: Don't think of selling a stock for less than you paid for it as being a loss. It can actually work as a gain for two reasons:

* Tax deduction (which can really help!)
* The other side of opportunity cost: opportunity GAINED (i.e., you can better utilize that money elsewhere)

So, don't check your portfolio so often. If you don't know you've lost money, you don't experience the pain. (And riding the roller coaster of your portfolio's value is a waste of emotional space.)

Since stock prices go up in the long run, the longer you go without looking at your portfolio, the greater chance of seeing a gain.

Sometimes taking that loss really is the best thing you can do.

Self-Sabotage Trap #4: Financial Herd-Following

Definition: The tendency for us to want to do the same thing as a large group of others, with no thought to whether that action is rational or irrational.

Typical Example #1: Buying when prices are high because everyone else is.

Typical Example #2: Selling when prices are low because everyone else is.

Cure: Warren Buffett said, "Be fearful when others are greedy, and greedy when others are fearful."

Keep this in mind when making your next financial decision. If everyone is telling you to buy this or buy that (i.e., gold, silver, real estate), then do the opposite.

In the financial investment world, if it seems too good to be true, then it usually is.

One idea is to write yourself an investment policy statement or contract.

Include factors such as:
 * Investment objective
 * Investment goals
 * Desired asset allocation and diversification
 * Summary of your risk tolerance
 * Rebalancing schedule

Before making any changes, consult with this contract.

You can also take advantage of our inherent tendency to do what's approved by others, to affect positive behavior in yourself. For example, let's say you are trying to pay off debt. Tell your three closest friends, make an informal contract, sign your name at the bottom, and then email it to them. The pain you would incur from breaking that contract is high, relative to the pain of breaking your behavior if you went about it alone.

You might be making more mistakes than you realize. Perhaps these.

But do let me know: is this helpful to you?

And is there anything more that we could do for you, to help?

Until next week,

 

Andre Sugars

(310) 327-1985

Champion Tax Service

 

Andre Sugars’ Common Financial Mistakes (Part 1)

Andre Sugars’ Common Financial Mistakes (Part 1)

You pay your bills on time. You try to save as much as you can. You even follow the advice you read in the books and hear on the radio about how to keep your finances in check.

But you’re still not getting ahead.

Well, sometimes, it’s the unchallenged, mental assumptions about how we’re handling our money that rise up and bite us in the keister.

You see, in the course of our daily work around here, we not only work with tax forms and legal/financial documents a TON … but we also get a regular crash course, via those documents, on how people (our South bay clients, mostly) have arrived to the place where they actually have something to *protect*.

In short, we get to be around a great many well-accomplished families and individuals from South bay.

So, perhaps it’s odd to you, but I’ve learned to pay attention to the little lessons I can learn from my clients, and from people of means around the country.

I’ve discovered a few things along the way about what keeps people from the kind of accomplishment and means that so many of them are looking for, at least when it comes to their finances.

Let me know what you think…

 

Andre Sugars’ Common Financial Mistakes (Part 1)

“Remember that not getting what you want is sometimes a wonderful stroke of luck.” – Dalai Lama

 

In the course of working with clients, I’ve identified some financial mistakes I see (as well as ones I’ve made myself!), which can be fixed.

These are the sorts of financial mistakes that don’t normally show up in balance books, but are revealed after looking at overall trends. In some ways, they can be VERY difficult to fix … but that’s often because we aren’t even aware we’re making them.

Once we gain that awareness, however … well, you begin to notice that your finances are “suddenly” in a much better place. At that point, it’s easy. Because all it takes is thinking a little differently…

Self-Sabotage Trap #1: Wrong Mental Accounting

Definition: Tendency for families to divide money into separate accounts based on subjective criteria.

Typical Example #1: Treating $100 you received as a gift from Grandma, differently than a $100 bill earned.

Typical Example #2: Having money languishing in a savings account earning 0.25%, while carrying high-interest debt to pay off at 12%.

Cure: Funnel income, no matter the source, into one savings account.

For any “found money”, such as a tax refund or gift from Grandma, quickly decide where that money is best utilized.

As for expenses, occasionally change how you pay. If you always pay with a credit card, try cash. This will get you remembering that all of it, for the purposes of your mental “books”, should be lumped into one monthly bucket.

Self-Sabotage Trap #2: Subtle Price Anchoring

Definition: Our tendency to relate the value of a purchase to a price point which, rationally, should have no bearing on the amount spent.

Typical Example: The “rule of thumb” to spend two months’ salary on an engagement ring.

Typical Example #2: A realtor will tell you that “in 2015, this house was going for $500,000 — and is now listed at only $350,000!” … causing you to think this house is undervalued.

Cure: For big ticket purchases like a house, car, or engagement ring, ask a friend whose financial values you respect for their input.

For everyday purchases, avoid looking at the MSRP or sticker price.

Ask yourself:

    Can I afford this today?

    What do I really want to spend?

    What is this really worth to me?

Marketers are experts at this sort of price-anchoring, and we really should know better … but yet we still fall prey to it. Try not to let outside sources set up the comparison by which you should be considering such large purchases.

There are a few more big ones, but for the sake of brevity I’ll save those for another week.

But do let me know: is this helpful to you?

And what more could we do for you, to help? Shoot me back an email through the button at the top of the page. I read every one.

Until next week,

 

Andre Sugars

(310) 327-1985

Champion Tax Service

 

Should South bay College Students Invest In The Market Or Pay Off Student Loans Early?

Should South bay College Students Invest In The Market Or Pay Off Student Loans Early?

As a general rule, most debt isn't helpful to you. In fact, I could probably state that more clearly: debt can be a massive load on your financial future.

And, of course, that is especially true of student loans.

Now, much can be written about the explosion of student loan debt over the last decade (and has), but today I wanted to posit an idea to you if you carry these kinds of loans. It's perhaps a "dangerous" idea, but it is the kind of financial thinking that, when followed, can build habits of wise investment and careful risk-taking that often mark a wealthy, successful life.

But before I get there, a quick follow-up to my note from last week.

I wrote about optimizing our mental machine, and keeping clear of the dogmatic opinion-sharing so prevalent on social media and outlet media.

But I'm also reminded of that old Abraham Lincoln quote: The mind is like a parachute; it functions best when open.

(Yes, I know Lincoln didn't say that.)

In their excellent book, Think Like a Freak, best-selling "Freakonomics" authors Steven Levitt and Stephen Dubner wrote about the rising phenomenon of dogmatism — and how it significantly hampers our ability to see solutions to problems very clearly.

In my opinion, there are many serious problems in our culture. Many people are being abused, repressed and victimized. Even in South bay.

But shouting, lecturing, militarizing and browbeating won't get us there. While social media can certainly play an important hand in bringing attention to, and opening dialogue on, some of these situations and issues, let's be careful to maintain a tone with one another that is respectful and open to the validities in others' thoughts.

In other words, let's all pour a small bucket of ice water over our heads around some of our cultural hot topics — and be sure we're listening first and speaking last, shall we? Myself included, for sure.

Now, let's talk about student loans and investments…

 

Should South bay College Students Invest In The Market Or Pay Off Student Loans Early?

"Go confidently in the direction of your dreams. Live the life you have imagined." – Henry David Thoreau

 

The media is certainly good for this: bringing awareness to the rising, crushing wave of student debt. In fact, the average student in the Class of 2016 has $37,172 in student loan debt. And while this is a big number, it doesn't have to cripple your financial future.

In fact, some students from South bay may be better off not taking their parents' advice on how to get out of debt. Because unlike many other forms of debt, student loans are usually best when paid as slowly as possible.

Yes, as I said previously, almost all debt is bad. But, there are two areas in which this general rule is not as hard-and-fast: home mortgages and student loans. Wise financial stewards can, in fact, use these types of debt to their advantage.

Graduated students are often told that they need to pay off student loans early so that they can start building real wealth. Make extra payments, and the process accelerates. So, is that always the best strategy?

Well, it depends. You see, if you're careful, you can take advantage of a financial principle that can help you make later financial decisions: "the spread".

You see, the lower the rate of interest on your loan and the higher the average market return (as now, when the market is, in fact providing excellent returns), the more it makes sense to invest your extra dollars instead of paying down on your loan. The difference between a debt and investment rate is known as the "spread." for example, if market rate of return is 11% and the interest on your student loan is 4%, then, the "spread" is 7% (11% minus 4%).

Let's look at this in the real world. Madison and Tim each have $20,000 in student loans which are to be paid over 10 years at 4% interest. Tim pays his monthly payments of $202 plus an extra payment of $100 extra so he can clear that debt ASAP. Which, because he makes those extra payments, he's out of debt in six years, instead of ten. No more debt now, and Tim actually invests the full $302 per month that he had been putting towards his debt. Ten years after graduating, Tim has paid off his school debt and his investments have grown to $16,728.

Madison does it differently. Instead of paying extra on her loans, Madison pays only the minimum amount of $202. And now, she ALSO puts $100 per month (that she could have used to make extra payments) and she wisely invests it. She does this for ten years. But, when you look at the math, her investments have grown to $21,700, beating Tim's return by $4,972.

I've written before about "the time value of money", and this is a sterling example. That's because, in Madison's case, instead of making extra payments as Tim did, she invested her money for a longer period of time. Tim's four years of investment (even with a larger sum), can't beat Madison's TEN years of (smaller) investments, because she harnessed the power of compounding interest.

Oh, and there is one additional reason students might consider this: Student loan interest, like home mortgage interest, is still tax deductible (which of course, you KNOW I love). Even under the new tax law, there is a tax deduction of up to $2,500 for student loan interest (as long as you meet some basic requirements). The tax code is, in effect, helping to subsidize the cost of your loan. The faster you pay down principle, the faster you lose your tax deduction, which is one more reason that paying just the minimum may be the best option for some. And, with the savings from your tax deduction, you have more money to invest at higher rates of return.

So, yes, this is a "dangerous" strategy. And you should look at the numbers for YOUR situation. The smaller the spread between your loan interest rate and the average market return, the less appealing this strategy becomes.

Plus, there are other important cases to be made, of course, for working to be debt-free as quickly as possible, especially from a mental standpoint.

Here's the critical component of this strategy: you must save and invest your money. If you don't invest the extra money (and you simply spend it), you would have obviously been better off putting your extra dollars toward the repayment of your loan.

So, consider this carefully. Research your loans, your rates. Make sure you have an emergency fund, don't get saddled by credit card debt, and make sure you are handling other financial basics.

But remember: one of the greatest strategies to building wealth is TIME. Start investing as early as possible, do it smart … and don't get scared by "conventional wisdom".

And, as always, my team and I are here to help. Thanks for listening.

Until next week,

 

Andre Sugars

(310) 327-1985

Champion Tax Service

 

Getting Your Mental State Out Of Fear And Anxiety By Andre Sugars

Getting Your Mental State Out Of Fear And Anxiety By Andre Sugars

I might be wrong, but I get the sense that many of my friends and clients in South bay are getting wiser about the dangers of our digital age.

Because they are, indeed, quite real.

There is a famous clip of an interview with NYT-bestselling author, and cultural commentator Simon Sinek that made the rounds about a year ago on the way millenials have been trained to think by the always-online lifestyle.

But if we think that the things he discusses in that video are only pertinent to younger people, we are fooling ourselves. Many things that have defined this millennial generation have trickled upwards into every generation via the mass media.

And look — I do taxes and help with finances for a living. I'm not an expert in these matters.

However, I do see what happens to my South bay clients who get wrapped up in the media cycle of fear and negativity, and, well, what often happens to their finances as a result.

Frankly, I'm tired of seeing clients and friends who are "beaten down" by all the fear and anxiety in their lives.

And there is one major source for it — which is entirely optional.

And I suggest you "opt-out", if you will.

So if you'll pardon this diversion from my normal financial fare, here goes…

Getting Your Mental State Out Of Fear And Anxiety By Andre Sugars

"Time sets the stage; fate writes the script; but only we may choose our character." – Liam Thomas Ryder

Life in the modern world isn't always a trip in the sunshine.

But it's made so much harder by the tendency of our world to suffocate you with mental junk and global negativity.

I believe that the number 1 danger for ALL of us moving forward in 2018 is allowing today's world to starve your brain with "junk food" and deaden your spirit with the overwhelming feeling that you are small, insignificant … helpless.

I've learned to avoid the 24-7 news channels, and the sites online that traffic in fear. I figure that I'll see what I need to when seeking out resources for our clients about current events. But let's look, for example, at CNN.

CNN is about as bland as you can get — it's "normal" to "normal" people. But I also realize, most "normal" people accomplish relatively little in their time on this planet (at least on the outside). Those of us who are going somewhere in life must have better things to do than to listen to talking heads opine about political gamesmanship and the dozens of tragedies that we can't (and won't) be able to do anything about.

Right now, the world is swimming in negativity. And you need to be serious and proactive about it. Because — if you don't — it'll kill your vocation, kill your career growth, kill your dreams and everything you really care about.

The mass news media is NOT your friend.

They feed on fear, and they sell paranoia, division and hyperbole. It's what they do.

And not only must you protect yourself from this drip, drip, drip of depression, you need to fight it on behalf of your family and friends, your coworkers and customers.

Tell them what's good. Greet them with a smile and with encouragement. Tell them what they're doing right. Give them a voice to the hope still latent within their bones — which is too often buried in a junkpile of media-fueled negativity.

You (and they) need to celebrate little tiny victories. Every. Day.

This is an essential skill for a business owner, for a careerist, for a parent at home — and for all of us: when you have a major victory in your life, you need to find encouraging people who will celebrate it with you. Because good news is good news indeed.

Until next week,

Andre Sugars

(310) 327-1985

Champion Tax Service

 

Six Steps To Debt Recovery By Andre Sugars

Six Steps To Debt Recovery By Andre Sugars

Our hearts are with the Carolinas, and with the cleanup process that is just beginning over there. With all of the the flooding that is hampering efforts to get in and even evaluate the damage, we know this will be a long road to recovery.

The slow onset of these hurricanes is a mixed bag, isn't it? We prepare for doom, but doom doesn't strike at every point … and then there is the inevitable frustration with media and public officials who didn't get it exactly right or aren't doing enough or should be handling things differently.

It's very understandable, but I think we could all benefit from extending grace to everyone involved. Hurricanes are hard to deal with, full stop. So let's all do what we can to help, and avoid pointing fingers.

And last week I wrote about preparing to deal with potential disasters in your future, on the financial front. I realized after the fact that I didn't spend enough time on the earlier portion of the note, which went into the steps I recommend for climbing out of a hole — "cleaning up from a financial disaster", if you will.

So this week I thought I'd dig a little deeper into how I'd suggest you go about doing that.

Six Steps To Debt Recovery By Andre Sugars

"It's not whether you get knocked down. It's whether you get up." – Vince Lombardi

As I sat down to write this article, it made me think about some South bay clients that I've walked with over the years who fought their way — successfully — out of debt that would have crushed other families.

How did they do that? Today I'll tell you.

Here's something they did NOT do: Borrow money to pay off more borrowed money (and call it savings).

That only works for Uncle Sam, apparently.

In general, with these issues, I'm a big fan of automation — but not in all instances.

[For example, do NOT "automate" your tax preparation process with off-the-shelf software. Especially of the "free" variety. We have to clean up so many mistakes made by these products (and their users!), that I cannot, in good conscience, recommend them.

Yes, I'm obviously biased. But the facts are the facts. Take a gander at this, for just one small example: http://www.customerservicescoreboard.com/TurboTax]

Anyway, moving on from that.

To answer some of the questions we occasionally get from South bay clients facing tough times, I've put together a step-by-step debt recovery process which we often help people work through.

1. First, pay more than the minimums

If you only pay the minimum payment each month, your bill could continue to INCREASE, even if you completely stop using your card. This is called "negative amortization"–where you think you are paying on your debt but the additional fees and finance charges are more than the minimum payment. The bottom line is: Pay more than your minimum or you will eventually be in debt over your head.  

2. Create an automated system

With online banking and automatic payment options, there are GREAT tools for ensuring you don't mess up because of administrative chaos. If you feel you can't manage all your bills by pen and paper, there are several good software programs available for keeping track of your financial records.

In fact, I recommend that you automate a payment ABOVE the minimum monthly payment, just to be certain that you start getting ahead of the game. Those minimum payments are rigged against you, and the only way to get ahead is to … get ahead. I have some more thoughts on automation in a moment.

3. Yes, you can negotiate

No, you do not need to be an attorney or other professional to negotiate with your credit card company (negotiating with the IRS, on the other hand, is a very different story!). The rising amount of consumer debt in this country has made creditors realize that they need to be more understanding of their customers — if they hope to get any money back. If you file bankruptcy they are only going to get pennies on the dollar, so they are often willing to make deals.

4. Proactively contact your creditors — in writing

Open communication always helps. Usually credit card companies get ignored and end up sending delinquent files to a collections agency. So they'll actually appreciate your openness in contacting them, and may be more understanding of your situation. Proactively dealing with your debt problem, rather than hiding, will not only help your financial problem, but will make you feel better about yourself as well.

5. Develop a simple tracking system

If you are not able to pay the full amount of your credit each month, you should still pay something to stay on top of it. You should work off of a written budget so you know exactly where you stand. Some experts suggest that you divide your monthly debt budget by the percentage each bill makes of the total and pay that amount.

Here's an example: If you owe a total of $1,000, and one credit card is $800 and the other is $200, and you only have $100 available to pay for that month… You should pay $80 on the $800 balance, and $20 on the $200 balance. This way you are reducing each debt by the same percentage.  

6. Do NOT be intimidated

No matter how forthcoming and honest you are, some creditors have been taught to be mean and downright nasty. Hang in there, and don't let this tactic intimidate you.

Give us a call today, for help.

Until next week,

Andre Sugars

(310) 327-1985

Champion Tax Service

 

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