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Procrastination: Help me get started!

As I’m coming off the October 15th deadline, I’ve given a lot of thought to why so many of us procrastinate. The October 15th deadline is the extended due date for personal tax returns that were originally due April 15th, so at this point we are 9 ½ months into the next year. When the process is delayed and the deadline approaches, the unnecessary stress caused to tax preparers and clients is visible, but it is avoidable. This stress doesn’t even take into account the actual dollars it costs to file and pay your returns late with accumulated interest and penalties.



If we can’t find ways to not procrastinate when there are direct financial penalties from government agencies, how are we going to avoid procrastinating on important decisions and moves in our lives that have no deadlines?

One example I love to reference comes from Dave Ramsey’s Financial Peace class and highlights the negative long-term impact of procrastinating and starting to save later in the game rather than now. Dave’s example references, Jack, a person that starts early and invests $200 a month for 9 years and stops. Jack’s friend, Blake, doesn’t start investing until Jack has stopped. Since he waited, he decides to invest the same $200 a month, but he contributes $200 a month until retirement. Even though Blake invests for 38 years versus Jack’s 9 years, he has accumulated significantly less money than Jack at retirement. The power of time and compounding is too much to overcome.

If we know that we shouldn’t procrastinate, and most of us don’t mean to push off the inevitable to the last minute, how do we avoid it? One of my favorite authors and speakers, James Clear, has an article on the methods to avoid procrastination. Mr. Clear's book Atomic Habits has ideas that helped me put daily steps in place so that I accomplish important tasks on time. Mr. Clear outlines four easy steps to help you avoid procrastination:

  1. Make the Rewards of Taking Action More Immediate
  2. Make the Consequences of Procrastination More Immediate
  3. Design Your Future Actions
  4. Make the Task More Achievable 

One of my favorite points in the article is to use a method called temptation bundling. The basic concept is: 

Only do [THING YOU LOVE] while doing [THING YOU PROCRASTINATE ON].

In the self-employed, small business owner world, a good example would be to:

Only pay yourself for the month while doing the bookkeeping and bank reconciliation.

After a short period of time you associate your reward (“thing you love”) with the required action, and you have a habit that is difficult to break. Ultimately, you’ll have to complete the undesirable task anyway, so why not get rid of the stress of procrastination? 

Procrastination can derail many of your immediate and long-term goals, so contact us when you are ready to move forward with your important financial plans.
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Are You Ready for Winter?

My daughter came home from college to visit with us for a few days. After a long hot summer in East Tennessee, temperatures have finally started to feel like Autumn here. We took advantage of her visit by trekking to Dollywood for their Great Pumpkin Luminights event.



The next morning as we loaded my daughter's car for her 2 1/2 hour drive to Nashville, she explained that her portable tire inflator was broken. Back story - a few years ago, I found a great deal (aka cheap!) on some easy to use, portable tire inflators on Amazon and I bought them for everyone in my family. When they opened them on Christmas morning, I got plenty of puzzled looks. Since then, my family members have learned to appreciate the convenience and utility of the devices. 

The big drop in temperatures caused a tire on my daughter's car to deflate.

 


She noticed it and tried to hook up her inflator to fix it. Her dad was proud for a couple of reasons:

  1. She took the initiative to fix the problem
  2. She used the tool that I provided to her
  3. When that didn't work she asked for help 
    
Fathers are problem solvers and when we see our kids learn to solve their own problems, it's satisfying. It is even more so when they rely on tools (physical, spiritual, emotional, intellectual) that you equipped them with. Since mom had the same unit in her car, I gave that one to her so she could inflate the tire and hit the road. As she drove away, I was reassured from this incident that my daughter was becoming very responsible.

Seasonal changes can insert unexpected events into our life. Some things, like a low tire you can prepare for. Others, like an unseasonal snowstorm, you may only be able to react to. 

The global economy is heading into the holiday period where things are normally strong. Unfortunately, there are signs of "unseasonal" weakness that investors should prepare for. The Federal Reserve is conducting open market operations in the bank funding repo market to inject liquidity into the banking system. This was unexpected when the need arose at the end of summer. The problem is worse now and the Fed was forced to ramp up their intervention. 

This is a serious problem percolating in the banking system at a time of year when we normally don't worry about such things. Despite their assurances that this action isn't QE, the market is behaving like it is. 

It may be a bit early, but maybe stock investors should get their winter tire chains ready now. If you're within 6 years of retirement, think about paring back your risk exposure until we see signs that consumers aren't spooked.

Happy Halloween.
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But I don’t want to live on a budget!

Why do budgets have such a negative connotation?  It seems like any time you start to talk about budgets, people put up the defenses and fight to avoid it. 

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I’ve had several different scenarios lately where the client needed a budget to dig out of a financial hole from a job change or needed a retirement budget to allow for making the final projections on their ability to retire.  Yet, it always seems that starting a budget is a monumental mental hurdle for people regardless of how important it is to solve the problem or finalize a retirement picture. 

But a budget is not designed to be something feared and loathed, but a tool that allows you to manage your finances.  I also like to think of a budget as a spending plan instead of some cruel device that controls me and doesn’t allow me to spend money.  I’m currently facilitating Dave Ramsey’s Financial Peace class as a Wednesday night study through my church.  This is an awesome class that teaches some important financial skills that many people have never been taught and wouldn’t be taught without this class, but its teachings revolve around a budget.  Why is that so important?  Dave’s opinion is that you have to give every dollar a name and purpose.  Without every dollar being dedicated to a purpose, money seems to disappear and not accomplish the goals you desire and work so hard to achieve.  

The skill of budgeting is not something that you learn over night, so it will take time.  I feel it takes at least 3 months to get your monthly budget under control and probably a full year to build out a reliable budget.  It takes a year to capture all the annual expenses that people forget about like vacations, Christmas, annual insurance premiums, birthday presents, etc.  While individually, some of these items don’t seem too big, collectively they can be 10% of an annual budget.  That’s enough to derail anyone’s plan.  

Most people want to retire as soon as they are financially secure enough to retire.  How do you know if you will be financially secure without a spending plan?  That requires us to project your annual budget out into retirement.  A small miss or overspending can be amplified over an average 18-year retirement that is only getting longer with increases in medical treatments and healthier living.  I was recently approached to help a young client plan to semi-retire at an extremely early age.  In his case, we will have to project his retirement for probably close to 50 years.  If we don’t have a good conservative budget for his yearly spending, how can we be sure he’s saved enough to make it that far while living the lifestyle he is accustomed to?

My advice is to start now and use technology to help you take back the control of your money.  We provide our clients with an easy budgeting tool.  It’s amazing how simple the process can be.  You set your initial budget and connect your spending sources (bank accounts, credit cards, etc.)  With some time and learning, the system starts assigning transactions to the budget categories.  You can then monitor monthly spending and have a reference for spending over time.  With this knowledge, you have the power to make needed changes and live with the assurance that your money is going towards its intended goal. 

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Enslaved in a Plastic Prison

Ever been sold on the payment instead of the price? Yeah, me too and so has everyone. Salespeople make it quite simple to get you in that new car, help you get the new bedroom suite, purchase a new boat, and even get you into a new wardrobe. 


It’s a Big Problem 

Millions of Americans don’t even need salesperson because they do this to themselves. They’ve bought into MASTERCARD’s tagline.    

There are some things money can’t buy. For everything else, there’s MASTERCARD.

 Are you the master of your Mastercard or are you enslaved to it like some Americans who are part of the 828-billion-dollar pile of credit card debt? 

 

This is the amount of credit card and other revolving plans debt that Americans had at the end of August 2019. 

828 Billion!  

The number alone stirs up many questions for me, but one question persists – how? 

After much thought, my conclusion isMinimum. Minimum. Minimum. 

Here’s what happens when you only pay the MINIMUM on your credit card: 


ExampleNancy purchases a $500 wardrobe on her Mastercard. It has a 17% APR. Her minimum payment is 4%, which equates to $20 per a month. After she pays the minimum for 42 months, Nancy’s $500 wardrobe will cost $659.75.   

Breaking Free from the Plastic Prison 

To get out of debt, intensify your payment strategy. Sacrifice right now in other spending areas to make it happen. No, it’s not easy and yes it can be painful, but it will be worth it. Be intentional and stay focused.  

Once out of debt, begin taking steps to stay out of debt. Delay your gratification until you have intentionally saved for a specific purchase. Self-impose a credit limit on your cards. Take Dave Ramsey’s approach – CUT UP your cards and progress to a cash only budget. In addition, always pay off the balance at the end of the month. We saw a horrendous example of what happens if you don’t in the video above. 

 Final thoughts:  

In the wise words of a colleague, “we don’t have an income problem, we have a spending problem.”  We must continually check ourselves and our motives regarding our purchases.  

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Flip a Coin

Undoubtably, you've seen the recession headlines in recent months and I'm sure you're asking if the warnings are credible or not.

The simple answer: it depends. The US economy is driven by three factors: Government spending, business spending and consumer spending. Of these, consumer spending exerts the most influence.

Consumer spending itself is a function of employment, discretionary income, sentiment and credit utilization. If consumers are employed (unemployment is around 3.5% so, check yes), they have income to pay their bills. If they receive pay raises (not much progress on this one), they have extra discretionary income for non-essential spending (clothes, cars, vacations). If they are confident in their job and income stability (positive sentiment), they are more willing to obligate their future and borrow money to finance very large purchases.



Tariff and trade war headlines dented consumer sentiment this summer. When the next data point is released, impeachment talks won't help. If these two issues persist, recession concerns may very well become reality.

Chinese leaders are meeting with US officials in October for another round of trade negotiations. Most of our news outlets offer a skewed view of these negotiations because of the media's hatred for President Trump. The economic reality in China is that their economy is slowing dramatically and this is putting pressure on leaders to do something. Pork prices skyrocketed after an African virus wiped out 1/3 of China's massive pig herd. Pork is the primary protein in the Chinese diet so this price spike is hitting every dinner table in the country. Protests in Hong Kong are creating instability and economic uncertainty. It looks like waiting for the next presidential election will be a high-risk and potentially costly strategy.

If the two sides come to an agreement in October, that could flip the recession script 180 degrees. The global economy could snap from the economic doldrums back to life. This flip would happen when global interest rates are ridiculously low. This in turn, would help convince borrowers commit their future to their local banker.

We don't like to be reactionary in our investment decisions but the unpredictable nature of "Trump vs China" requires a patient wait-and-see approach.
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Ignoring the Problem

A recent study by eMoney advisor revealed that Americans aren’t looking for professional help when it comes to managing their finances. The results show that 63% of respondents have never consulted a financial advisor. The survey also shows that 33% of those same individuals were living paycheck to paycheck.

The results highlighted that while they make reviewing their finances daily, almost half of investors report being embarrassed or confused when talking about money. The study also found that 30% of those individuals that hire a financial advisor admit to hiding information about their spending habits to their advisor.

This study is one of many that highlights the lack of preparedness that many Americans face with their personal finances. If you’re experiencing feelings of fear, despair, embarrassment or disdain, you can ask for help. Our team at LeConte listens to our clients, develops an actionable plan and helps our clients execute those decisions along the way.  

There’s an old saying that if you find yourself in a hole, stop digging.  No matter how close to reaching your planning goals, let us give you a hand to get out of the financial hole and back on track to achieving your dreams.

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Series: Essentially Essential – Thoughts from the Press box: The Phases

As a service to my local high school football team and town, my Friday nights are mostly spent in a press box with a headset on. I’m not a high school football coach. I have a pretty neat opportunity to color commentate during the local radio station.  

**In short, a color commentator is someone who assists the play-by-play commentator and adds details or interesting facts about the teamsindividual players, and the game as it progresses.   

With this unique opportunity, coupled with the recent and on-going lessons from co-facilitating Dave Ramsey’s 9-week Financial Peace University course, I’d like to give you my insights from the press box. No, this post is not about a recollection from a specific play or even a specific game, but a realization from a game that our society devotes countless hours to and how you can apply it to your financial life.   

Football fans know the basics of the game - offense, defense, and special teams. To be consistently good, all three must be accounted for. The same applies to a good financial life: 


Offense
 

From springtime, through summer, to scrimmages, and throughout the actual season, a progression occurs. Teams start with the basics. Laying the foundation to get the team moving in the same direction is crucial. The team sets goals, lifts weights, and practices different movements/drills. As the season nears, implementation of the playbook occurs. Then week by week, as new teams are faced, talent is discovered, and game plans change; ultimately opportunities are capitalized on. 

This is what we must do in our financial life. Realizing a good offense doesn’t just happen is a big keyIt begins with intentionality. Laying the foundation by setting individual or joint goals, then implementing a scheme/strategy, taking action to accomplish those goals, maintaining discipline throughout, and adjusting when necessary based on new challenges or discoveries that life introduces. 

In short, here are a few things to think about: 

  • Just as a head coach sets the vision/goals for the team, you set the vision/goals for your future
  • Just as teams adjust from quarter-to-quarter in a game, you have stages in life that you must adjust in to capitalize on opportunities around you 
  • Just as the offensive players practice their plays for the game to score points, you must practice discipline in paying yourself first (contributing money to a retirement plan) 
  • Just as the quarterback manages the play clock by choosing when the ball is snapped, you must manage your budget/spending plan

Defense

Defense is about protecting your side of the field, especially keeping the opponent out of your endzoneThe goal is to stop the opposing team from scoring more than your team. Defenses do this by working together as a unit. They take an inventory of their skill sets, they implement different coverages and blitzes, they tackle the ball carrier, cause turnovers, and execute the game plan.  

This is what we must do in our financial life. Just like offense, realizing a good defense doesn’t just happen, so taking steps to be intentional is keyIf we know the goal is to keep the opponents from scoring, we first must study their products, learn their sells techniques, and put a guardrail up for ourselves to stay off their turf. We then take an inventory of our assets and implement a strategy based on an evaluation on what assets should be protected. Nextresearch coverages that make sense and that are most effective (cost and protection). As time passes, reevaluate your defense to determine if it’s effective and make sure it’s helping you win the phase. 

In short, here are a few things to think about: 

  • Just as defenses take inventory of their skill sets to build depth in positions, you should build depth in an emergency fund for unexpected expenses
  • Just like the eleven guys on defense that are working to protect their endzone, protect your large assets
  • Just as a defensive lineman occupies offensive linemen to keep the linebackers free/safe to make a tackle, occupy an appropriate amount of term insurance to keep your family safe if something happens to you
  • Just as defensive secondary change their coverage, review your current coverages and see if they still provide proper protection

The adage, defense wins championships is true, but it also ensures your possessions will be protected and your family will be taken care of regardless of unforeseen events. 

Special Teams 

This phase of the game is most often overlooked or downplayed by spectators until a dynamic play occursMostly focused on the kickersmomentum or even the scoreboard can swing to the opponent in just one kick. Whether it’s a missed point after touchdown (PAT), a 55-yard field goal to end the first half, a punt stopped on the one-yard line by the coverage teamor a punt return for a touchdown, this phase is extremely important.  

Most of the time, people group actions into offense or defense, but I view special teams as financial life occurrences that can significantly multiply your chances of winninggive peace of mind, or be a detriment to accomplishing your goalsSome may only happen once in your lifeso as former University of Tennessee head coach General Neyland put it, “Press the kicking game. Here is where the breaks are made.” 


In short, here are a few things to think about: 

  • Just as the kickoff team working hard to get the returner in for a touchdownworking hard at an extra job to maximize your retirement account in the early years can rapidly increase your chances of a successful retirement  
  • Just as a field goal safe or punt safe is called (this means that the rushers do not rush the kicker, but drop back in case a fake field goal or punt is called), have a professionally drafted will to ensure your familyassets, and last wishes are safeguarded
  • Just as a team kicking a twenty-yard field goal at the end of a half producing three points forgoes the opportunity to score a touchdown (which means the ball is on the three-yard line), review your investments at year end to harvest any losses, if necessary
  • Just as a snapper snaps the ball over the punter's head into the endzone and the punter tries to pick the ball up, but fumbles it to the other team for a touchdownan individual can inherit a bunch of money and change their spending habits and fumble the inheritance away 
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Mortgage Rate Roundup

Rates this year have plummeted from the peaks of 2019. I spoke with a couple of mortgage loan originators this week to get the low down here. In East Tennessee you can get around 3 1/2% on a conventional 30 year fixed rate mortgage without buying down the rate. 15 year fixed are slightly above 3%. These rates are hovering around all time lows in the United States. 

Maybe you should consider buying a house in Denmark or Amsterdam though. Why? Mortgage rates there are getting really weird. Negative rate weird. They will pay you 1/2% to take out a mortgage in Denmark. Here's a link to the details in case you don't believe me. 



Before you start looking for a job and a house overseas, think about a couple of things. Taxes in Europe are out of control and so are home prices. 

Even if a move to Amsterdam isn't in the cards, you may want to call a mortgage originator and ask them to run your refinance numbers.
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What Will That Cost Me In Taxes

This is the question asked to me so many times every week. Sometimes we are talking about a current matter, and I can answer that question fairly easily. However, there are questions like the one I received recently about a future inheritance that is worth millions of dollars and includes various assets like IRA’s and highly appreciated stock. That answer gets a lot more complex and uncertain.

Why is it so difficult to respond to these questions with confidence? The Tax Cuts and Jobs Act (TCJA) passed in December 2017 was a fairly sweeping change to the tax system for both individuals and corporations. The law lowered individual and corporate tax rates, increased the standard deduction, eliminated personal exemptions, made more people eligible for the child tax credits along with many other changes. But, the law was only put in place through the year 2025 and we have a highly contested political situation right now that could result in changes before 2025.

So, what happens if we make it to 2026 with no changes? If nothing changes, the laws would go back to those in place before the new law took effect. We’ve seen these sunsetting laws before. When the sunset date approaches, the political discussions start as to whether the law should be extended.
If we have a political change at the next election, what will it cost me? Kiplinger has an interesting article that outlines each Democratic candidate’s tax plan. Each one has some specifics that make it their plan, but they also have a lot of similarities.



Some common themes of the Democratic Plans are:
  •  Increased tax rates - The increased taxes vary slightly in form, but effectively go back to rates pre -TCJA rates or even higher.
  • Increase the payroll tax wage base – Currently wages above $132,900 are excluded from Social Security, so several plans eliminate that cap. That’s an additional 12.4% (6.2% employee/6.2% employer) tax.
  • Increase or eliminate capital gains rates – The current law provides beneficial tax rates to investments that you hold for longer than a year. Several proposals would tax these gains as ordinary income or at a rate higher than the current top rate of 20%.
  • Estate tax- The estate tax exemption is currently $11.4 million. That means an individual can pass $11.4 million on to heirs without paying an estate tax. The heirs then get a step-up in basis to the fair market value on that date. Most of the plans want to lower that exemption significantly. Several reference returning to 2009 levels of $3.5 million and some even want to eliminate the step-up in basis on certain assets.
  • Wealth Tax – This is a common term among several plans that want to tax the net worth of the richest Americans. This is an annual tax at 2%-3% on accumulated wealth above an established level.
  • Tax Credits – Most of the plans try to provide tax credits to help with the costs of caregiving, adoption, and for low income earning families.
So, what will that cost you in taxes? We don’t know for sure right now, but I’m confident it will cost most people more in the future than it does right now. We just don’t know when that change will occur. If any of these changes might impact you, we should schedule some time to discuss.
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