Letter of Last Instruction vs. Will

Death and its preparation are things people would like to avoid planning and talking about.A recent survey on 1,001 adults by Rocket Lawyer found that 57 percent of adults do not have a Will.

On a side note, a week ago, we unexpectedly lost a valuable personal finance academician, Dr. Celia Hayhoe, who has worked wonderfully on the Protecting Your Retirement program. The program focuses on talking about and planning for severe illness and death, long before such things happen.

Last month, with the help from John Darden Esq., I’ve revised our will and its preparation publications. I had wanted to place examples on Latter of Last Instruction and Will documents but could not get it done. Similar publications from Montana, Indiana, Utah, Florida, and Idaho universities also did not place examples of these publications.

So, below are some examples of Letter of Last Instruction.

• JDSUPRA
• End-of-Life Task Team – Fairbanks, Alaska

Unique aspects of a Letter of of Last Instruction include:

• This letter is not legally binding like a Will.
• From the examples above, the letter is not even signed, witnessed, nor notarized. I would just do it with two witnesses singing the letter.
• Leave a copy of this letter with several relatives and friends. You may write on the envelope, “Letter of Last Instruction”. E-mailing it to others? – I have to think about it.

Budgeting Simplified

A budget is a simple personal finance tool that summarizes periodic money flow. A budget is useful because it reveals spending waste, aligns spending priorities, controls spending, transforms money into a tool (not your master), and forces you to think about money. For a family, a budget may function as a crisis prevention tool due to its capabilities to start a family discussion on money and coordinate efforts to better manage money.

As popularized by NEFE High School Financial Planning Program, five simple steps to create a budget are:

1. Decide on a time frame
2. List all types of income
3. List all expenses under their categories
4. Balance you total income and total expenses
5. Study your budget

These steps are illustrated in the budget example below with their correspondent step number inserted.

Browse more data visualizations.

Further elaborations on the steps involved:

Step 1: Decide on a time frame

Usually your time frame selection depends on the frequency you get paid (e.g. bi-weekly, monthly)

Step 2: List all types of income

Other income sources: Alimony, scholarship, odd jobs, rent payment received, public assistance

Step 3: List all expenses under their categories

Note that savings are put in this section. In fact, savings is the first item you set in the Estimated Fixed Expenses. Known as Pay Yourself First (P.Y.F.), this is a savings type you allocate to yourself in the very beginning and not at the end of budgeting when you have leftover income after allocating for necessary expenses and savings.  .

Other fixed expenses include saving for other purposes (specify), car payment, and daycare expenses. Other variable expenses include auto expenses and pet food. In this section, we focus on the essential ones. Fixed but non-essentials such as cable service go in the Discretionary Expenses

All other (fixed and variable) expenses are placed under the estimated discretionary expenses. They include fast food, movie, gym membership, clothes, parties, donations, barber/hair salon, and school books

Step 4: Balance your total income and total expenses

An example budget at work: If the Total Estimated Expenses was $1,300 and you can’t increase your income in the short-term, you would decrease your expenses. With this expenses breakdown, the logical place to find items to reduce is the discretionary expenses category. For instance, you may halve the last two items to balance the budget.

Step 5: Study your budget

Besides figuring out where to survive the month like in the “A budget at work” example above, a budget may lead one to cut unnecessary spending, decide which spending to cut, and reach financial goals in the longer term.

Ideally, before building up a budget, you should have financial goals. A SMART financial goal example is to afford a summer 2013 trip if you continue to save $25/month from now. This will motivate one to save or look into its feasibility. Your goals and budget may be altered after revisiting and comparing them.

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A budget does not have to be perfect especially in the earlier stages. This is partially because a budget can get very complicated with some income and expenses not occurring periodically, accidental expenses, the ability to fund expenses savings/credit, etc. In addition, a budget focuses on money flow, not on the (long-term) wealth accumulation, i.e. net worth.

This is an oversimplified example of a budget for a single person. A real-life one may get very complicated, especially when a larger family is involved. Despite its potential complications, a budget is a very useful financial tool.

More information on budgeting is available at: Managing Your Money: Where Does All the Money Go? http://aces.nmsu.edu/pubs/_circulars/Cr-592.pdf. The DOCX version of the infographic above is available at: http://bit.ly/nmsubudget1.

Before you Buy That …

Questions To Ask Yourself Before Buying That?

It’s that time of the year when Americans are finding the best gifts for the festive season. This year’s Thanksgiving weekend has shown an increase of sales from $45 billion last year to $52 billion this year, according to the National Retail Federation (2011). Cyber Monday also posted increased sales from $1.03 billion last year to $1.25 billion this year (Talley, 2011).

Shopping needs differ from one individual to another depending on his values, attitudes, cultural expectations, and preferences. So, it is very challenging to come up with a specific list for all on what to buy or not buy, but giving more thoughts to your purchase increases the likelihood of getting the gifts you won’t regret.

A list of 13 questions below can help consumers make the right shopping decision:

Will this purchase help me meet one of my goals? Do I really need it? Want it? What must I give up to have it? Why do I want to buy it? Am I buying this only because it is on sale? Am I buying this only because my friends are buying it? Has the media influenced my decision to buy this item? Am I buying this because I am depressed and need cheering up? Would I come back tomorrow to buy this? Can I afford it? Do I need to borrow money to buy this? If I borrow money to buy this, how long will it take me to pay it off? Would I feel better now without spending money?

Composed by Sara Croymans (2004), this card comes in a wallet size card template for consumers to remind themselves, which would be very useful when considering purchases or when they’re one swipe/click away from paying for them.

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On a personal note, I thought this simple “Wise Consumer Shopping” card is a very effective tool to prevent spending leaks. The wallet-size card allows people to keep it in their wallet or purse – from where consumers would get their cash or credit card for brick-and-mortar and online purchases. This is especially if the card is used according to its instruction:

When you are considering a purchase take out this card. Review each question, answer honestly.

How I Explained Income Tax to a Middle School Girl

There are so many types of tax …. but the big one that I did last night and annually is the income tax.

Traditionally, we fill in the forms obtained from the libraries, post office, etc. With the advancement of technology, we can print these forms out along with the instructions from IRS.gov. And yeah, there are federal and state income tax – maybe a few big cities have them too. The paper method gets a bit messy because you have to read the instructions, do the math manually, and include all the documents (e.g. tax documents, receipts) that you’d mail a parcel to the IRS. The e-filing has made it so easy that almost all of these things are done for you. Imagine, I could have spend hours last night trying to figure the math and rulings only to find that my tax filing had been rejected – so have to go back to read the errors and rectify it, which is burdensome. With the e-method and e-filing, I fix it online and reclicked to submit.

For middle class like use, there are many companies that offer free federal filings for free as listed here. Note that you may need to pay for the state e-filing. I paid the $14.95 for the state filing and got the federal one free. We ended up getting some money back from the federal tax and paid $3. A purpose of taxes is to get redistribute the wealth so that the poorer will not lag behind too much wealth-wise.

When we purchase goods and service, we pay sales tax. I think NM’s is about 7.5 percent [5.125% to 8.6875% depending on the location of the business]. Normally, food is not tax because food is a necessity even for the poor.

When you eat yummy stuff (e.g. ice cream, apple), I tax you by having a (my size) bite or chunk out of them.

 

On Tue, Mar 29, 2011 at 8:42 AM, My other daugther wrote:
How do you do tax?!?!

2011/3/29  and I replied

I shoulda done the tax with you …. but I was afraid of a lightning quick boy who would come and press the keyboard and click the mouse.

2011/3/29 Nnn wrote

On 29 March 2011 07:17, I wrote:
…. Our tax e-filing got rejected.

Nnn’s last name with IRS and SS is “X Y” – no hyphen. Although in previous years, I hyphenated the name and it was fine.

Don’t worry, I just e-submit it again with the corrected info.

Pure Credit Card?

I’ve been staying in a developing country for quite a while. The credit card industry seems to be catching on. However, there is less incentive for people to obtain a credit card here because the purchase protection is less and its deposit-like property is less likely to be used.

In the US, we are allowed to cancel the payments made if we have a good reason to do so. I tried to do so here after discovering that the reason for my malfunction internet service is not due to dues not paid.

In a country where motel and car rental are not popular, there’s even less incentive to obtain credit cards over here. In the US, people are likely to use credit card as opposed to other payment methods so that they don’t have to put deposit upfront. Even when debit cards are used in these transaction, a large portion of your money (e.g. $200 to $500) are being transferred to these motel and rental car companies when using their services. There could also be “holds” or “blocks” which mean that an overdraft fees may incur if your bank account is on the red or you cannot spend the held money temporarily.

Purer credit card [merely getting personal loans] in developing country? Does this mean less convenience users?

Recovery in Cite?

Just like my van that missed out on the Cash for Clunkers program due to the mileage requirement, some not so poor but needy people also missed out on governmental stimulus package. For these people (most likely, you and I) …. economic recovery still feels far off.

Hmmmm … so far … the very rich get richer while the middle class people get poorer.

Smells Like Teen Money Management

This is another resource for training youth about money management. The content appears to be very similar to the one produced by NEFE, High School Financial Planning Program (HSFPP). The powerpoint presentation is also available in Spanish.

By the way, this organization also provide free materials on consumer related publications on topics that include

• Saving Your Home from Foreclosure
• Staying on Track With Credit
• How to Send Money Home
• Families and Credit Cards
• Cómo Crear y Mantener Buen Crédito
• Robo de Identidad – Fraude de Cuentas
• Entienda y administre bien su crédito Cómo usar el crédito con prudencia

Fighting Investment Frauds

A free video on investment fraud, from an e-mail I received from EBRI:

Visit SaveAndInvest.org to watch a preview of Tricks of the Trade: Outsmarting Investment Fraud, a free 60-minute documentary on preventing investment fraud. The video uncovers the persuasion tactics con artists use to defraud their victims through compelling stories of victims and perpetrators. It also teaches the basic defenses investors can use to guard against fraud.

Financial Planning Need for Women

• Traditional role of men in household financial areas
• Gender pay gap
• Reduced working years, if worked
• Financial knowledge
• Demographic trends: Divorce, widows.

Suggested citation: Abdul-Rahman, M. F. (2008). Financial planning need for women. In M. A. Bock (Ed.),  Health and Wellness e-Newsletter, 3-4, 2-3, NMSU College of Agricultural, Consumer and Environmental Sciences, Las Cruces, NM.

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Financial Planning Need for Women In tough economic times, the needs to be meticulous in every aspect of household management are in dire need. People are now increasingly concerned about financial management and efficient use of resources from small ticket items to large expenses. Examples of these items are grocery coupon savings, energy-efficient light bulbs, energy-saving laptops, and best house deals. One item that tends to be overlooked due to our financial myopic inclination is financial planning, particularly retirement planning.

While financial planning is a pressing issue across all segments of the population, an emphasis should be placed on women. In recent times, we have observed changes that require women to put more emphasis on financial planning. As pointed out by Brennan and O’Neill (2004), as high as 90% women will need to be in charge of their financial management at some points in their lives. Traditionally, men have been in charge of financial matters in the household with Social Security and other pension plans. These all have changed with high divorce rate, uncertainty about the reliability of Social Security, and the shift from a defined benefit to defined contribution plan.

Although the pay gap between men and women has decreased, the gender pay gap is still a pushing factor for women to get acquainted with financial planning knowledge. For women who work, they tend to get paid 25% less than their male counterparts and spend 11 years out of workforce due to birth and care giving to children and frail elderly (Brennan, & O’Neill, 2004). These would certainly impact promotion chances and their Social Security and pension incomes.

Compared to men, women fared worse in financial planning knowledge. In a recent study by Lusardi and Mitchell (2008), women were found to perform worse than men in financial literacy questions on compound interest, inflation, and especially stock risk diversification.

Demographic tendencies also point towards the need for women to be financially literate. Life expectancy for of men and women in 2005 are 75.2 and 80.4 years, respectively. For couples of the same age, this means that women are expected to spend their last five years being a widow. In reality, men tend to marry younger women, thus, women are expected to live in widowhood longer than five years, unless they remarry. In the U.S., the proportion of widower among men and widows among women are 4% and 12 percent respectively.

Besides widowhood, people may end up being alone with a divorce, which is an end result for 40% to 50% of marriages in the US. In both widowhood and divorce instances, financial management dependency on former spouse may leave these women in financial disarray. Financial planning in single times prior to getting married is very different to that after spouse’s death and divorce. Considering that a divorced first marriage has an average marriage span of 8 years, divorced women are likely to face custody, working with kids, babysitting, and debt issues. Widows may face bequeath division, home management, home downgrading, debt, and retirement income issues. Inadequacy of financial management skills will certainly add to stress already imposed by death of a spouse or divorce.

Preparing oneself with financial management skills does not mean that one needs to be Certified Financial Planners® who are familiar with tax issues, different retirement accounts, stock market, insurance plans, and estate planning. Women need to know the basics of personal finance and where to go for financial assistance. Often seen as a marketing prey, widows may need to consider on what to do with their houses (81% compared to 67.8 nationally) that are now too big and challenging to maintain.

There are many financial planning programs available for women of different ages. In high school, kids may participate in Jump$tart and National Endowment for Financial Education (NEFE) High School Financial Planning programs. County agents and home economists may provide these types of program (some of which are free) for adults or refer you to others. Besides the internet, another way to find home economic county agents is by looking up in the blue book (government pages) section of the yellow book for “COOPERATIVE EXTENSION SERVICE” contact information. One may also ask for personal professional guidance in financial management by consulting with certified financial planners whose service comes with a charge. Some useful websites include www.jumpstartcoalition.org, www.ftc.gov/YouAreHere, and www.extension.org/personal%20finance.

Reference

Lusardi, A, & Mitchell, O. (2007). Financial literacy and retirement preparedness. Evidence and implications for financial education. Business Economics, 35–44.

Brennan, P.Q. & O’Neill, B. (2004). Money Talk: A Financial Guide for Women. Ithaca, NY: Natural Resource, Agriculture, and Engineering Service.

U.S. Census Bureau (2008). Statistical Abstract of the United States 2009. Washington, DC. Retrieved April 23, 2009 from http://www.census.gov/compendia/statab/2009edition.html

More Financial Responsibility for NM Youth

NM is known for being one of the poorest state in the nation. Financial capital is not the only resource for investment. I truly believe that non-financial capitals are underutilized until recently when the waves of credit crunch tsunami slammed on the US economy.

One of the areas in which NM may increase their revenues is via the maximization of tax rebate and credit revenues. This is especially true for the federal one since the tax returns tend to be larger. More importantly, this is the right of Americans and others who contribute to the US economy to pay their taxes or obtain their tax credits.

***** need citation *****

NM may increase its tax income by simply filing their tax. An effective manner, for those with relatively simple tax situation, is to have individuals fill and file their taxes online. While the computer literacy of adults in the US is not that great, this problem may be alleviated by having the youth to help out their parents in preparing taxes.

The explosion of high-tech devices among the youth is observed in the high use of computers and internet at school and libraries. Youths are mainly using internet for school work, social networking, and entertainment. An area in which the youth may be lacking is the use of internet for financial effective financial management. Besides tax issues, other potential areas related to technology and financial management are e-banking, e-bill payment, e-reminder, and coupons/discounts. With some training and assistance, the internet may be used as a boost to increase a household income by, for example, developing a website on family business on-line, advertising sales through craigslist, and getting involved in on-line works.

The purpose of this project is to educate the adults and youth on how the internet may help in a household’s financial managements. Adults need to be educated on computers so that they know about the potential benefits or hazards that the internet pose. People need to be informed that they are many scammers on-line who are exploring all avenues to make profit out of those who are well-versed in the internet world. Although children may not be familiar with some financial practices and jargons, their familiarity with the computers may compliment their parent’s knowledge. Children may be able to chat with an expert, call an expert, google the right phrases, and sense the reliability of a website based on its appearance (url address and design).

This preoject, in turn, is likely to push children to understand their financial conditions from various dimenstion. Children would likely know about the state of financial condition of the family. Parents and children would now talk about effective ways to improve a household’ financial conditions. With the knowledge on financial condition, it is hoped that children would be more frugal in their spending and more active in exploring other avenues to gain income. When children have a valid purchases, instead of merely asking parents for money, children of financial-challeged households may be motivated to prioritize their to-buy items, to save, and to work. The indirect effect of this is that children may talk more about healthy financial practices with their parents, their teachers, counsellors, and even their friends. In addition, having to work, may reduce their time spent in less healthy behaviors such as excessive video game playing and eating.

Ref

NM Dept of Revenue: https://ec3.state.nm.us/crs-net/logon.asp
NM Taxation and Revenue: http://www.tax.state.nm.us/trd_pubs.htm
IRS E-File Not for Everyone: http://www.wired.com/techbiz/media/news/2003/01/57274
GAO-02-205 Tax Administration: Electronic Filing’s Past and Future …
GAO-07-27 Highlights, TAX ADMINISTRATION: Most Filing Season …