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Taylored Wealth Tips ~ November 2007

Welcome to fall. Wiht the changing colors we have some changing economics. Here are tips on how to manage the changes that might affect you.

In this issue read about

• Paying off the mortgage, pro's & con's
• End of year tax tips
• Great REal estate buys and how to find them

Should you pay off your mortgage early or not?
         I have a number of folks who ask this one and the answer in general is NO, but there can be good reasons to do so.  When considering how best to use your monthly income when you are under 55, the best advice I have ever heard is to PAY YOURSELF FIRST. 
         What is meant by this, is to put a set amount of money each month into your own savings account, earning minimum of 5%. You should fund a ROTH IRA if you can, or IRA if you must, after the company or individual 401k with matching.  After depositing to your “savings” account, then start paying the bills.
         You will find that you limit your spending based on the balance left in the check book (no fancy budget required).  For any money left over you need to consider what your future goals and needs are. Perhaps you want to buy that boat, pay for kids college, invest in real estate or you want to move onto financial freedom earlier than 59.5 years of age. To do these things you need CASH.  Put this extra cash into an account that earns interest and can be withdrawn against at any time (not your ROTH or IRA or 401k).
         Why not pay off the mortgage early? First and foremost the cash you put into your home does not earn interest. Property values appreciate without additional cash. The current market shows depreciating values but that happens even if you put cash in. The horror is that depreciating market the cash you put in is worth less. If you did need to get money out you wouldn’t be able to get as much. Secondly, under 55 you generally need cash at unexpected times to invest in a new personal business, new home, or other opportunities. You need CASH. Paying off the mortgage, puts your cash into your home. You can not access cash in the home without borrowing it (again) at a higher rate.

End of year tax tips:   Get educated on IRS changes for charitable contributions, reducing your taxes, & managing cash flow
Manage your Cash flow  - By managing cash flow you will identify your slow pay clients and predict their behavior so you can use it to your advantage to reduce taxable income ( read on).
Cash flow is essentially the movement of money into and out of your business; it's the cycle of cash inflows and cash outflows that determine your business' solvency. Keep a close eye on your cash flow, so you can forecast potential cash flow problems and take steps to remedy them before they cause you problems.
Not sure how to do cash flow analysis??
We are offering a workshop Jan 9 , 2008 as a lunch and learn to help our small business owners learn just how to do this. Some tips we cover in the workshop include invoicing that gets results (payment); use of credit for customers and a deposit policy.
To learn more about the workshop or to register click here
Reduce your income  - Pay less in taxes by an obvious way … put the max amount into your SEP IRA or the newer individual 401k. 
If you are like many small business owners you still need access to cash so while putting away your pre planned annual amount of money into the Individual 401k or SEP IRA, you may want to think more creatively.
If you have slow paying clients, you may be able to use this to your advantage by billing and receiving income next year after January .  Check with your accountant as to your accounting status of accrued or cash basis.
Increase Expenses - look for expenses you plan to take next year that you could take this year. Make your business insurance payment early or your membership dues early.
A quick and easy way to perform a cash flow analysis is to compare the total unpaid purchases to the total sales due at the end of each monthIf the total unpaid purchases are greater than the total sales due, you'll need to spend more cash than you receive in the next month, indicating a potential cash flow problem.

Charitable contribution rules for 2007 as posted by the IRS
Rules for Clothing and Household Items
To be deductible, clothing and household items donated to charity after Aug. 17, 2006, must be in good used condition or better. However, a taxpayer may claim a deduction of more than $500 for any single item, regardless of its condition.       
The taxpayer does need to include a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances, and linens.
Guidelines for Monetary Donations
To deduct any charitable donation of money, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. A bank record includes canceled checks, bank or credit union statements and credit card statements. Bank or credit union statements should show the name of the charity and the date and amount paid. Credit card statements should show the name of the charity and the transaction posting date.
Donations of money include those made in cash or by check, electronic funds transfer, credit card, and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.
Prior law allowed taxpayers to back up their donations of money with personal bank registers, diaries or notes made around the time of the donation. Those types of records are no longer sufficient.

Buyers – There are some fantastic deals that are 20% and more below market value. We have several builders and realtors who are helping with auctions to move slow moving property at bargain basement pricing. Call if you are interested and let us know which area.
If you aren’t sure about how to get into real estate investing and would like to learn, we are offering a workshop on real estate investing this coming January 18 ( 11-1pm) and a 2nd time on January 19th (9-11am).
To register or find out more about the workshop

The Saturday workshop is followed by an “in the streets tour” that will include everything you need ( financing, contract options, detailed line item costing for upgrades, and market analysis info) for several well priced properties for you to view and get started on right away.
In the workshop you will learn about how to improve your reasonably good credit by 10-15 points within 30 days. We also go over the in and outs of financing for investors. The lenders look for different factors for investors than primary home owners and we give you the inside scoop. Finally we wrap up a review of foreclosures and the process of buying a foreclosure before it goes into foreclosures (owned by the bank), while it is owned by the bank , and after it is owned by the bank.

Tip for the month; here is some good news as provided by CNN Money this Sept 2007 :
By Keisha Lamothe, CNNMoney.com staff writer  September 12 2007: 9:25 AM EDT for housing in the past year.
At the state level, Florida added the highest number of homes (273,000), followed by Texas (198,000), and California (181,000). Among the states with the fastest growth rate, four out of five states are in the West: Nevada (4.5 percent), Arizona (3.5 percent), Idaho (3.4 percent), Florida (3.3 percent), and Utah (3.1 percent).
There are good deals right here in Colorado too and they stay on the market about 1-2 weeks
( no, that is not a misprint).
Pinal County, Arizona, was the fastest-growing housing market in the nation last year, according to a report released by the U.S. Census Bureau Wednesday. Housing units in the Arizona county, part of the Phoenix metro area, jumped by 16.6 percent, or 18,000, in the 12 months ended July 1, 2006.

Three of the top five fastest-growing counties were in Florida, with second-place Sumter, fourth-place Lee, and Flagler County, which had the highest growth rate in the past two years.
Pinal County's neighbor, Maricopa County, added the most housing units, with an increase of 43,000. Placing second was Harris County (Houston), Texas, which added 39,000 units, followed by Clark County (Las Vegas), Nevada, with 38,000.