Simplicity

Planning for Joy

Posted on Jan 7, 2019 in Community, Health, Simplicity

Yes, losing 10 pounds might bring you joy when it happens. Giving up red meat and quitting smoking will help improve your health over time. Saving more money will result in meeting financial goals sooner, or with greater confidence, and you know I’m going to encourage this, but it won’t happen overnight.

I cannot object to any of these resolutions. They are all laudable. They also require change, and change is hard. It takes at least three weeks to change a habit, and often longer. By all means, get started on those resolutions (or re-start them), but also plan for greater joy.

In addition to my New Year’s Resolutions, here’s what I’m planning to add more joy to my life:

1. Play
My dog has a good life. On her worse days, she suffers from the boredom of watching me work. Since I have to work to keep a doghouse over her head, she’s going to have to learn to deal with it. And yet, that doesn’t mean I can’t learn a thing or two from her, too.

Often when I’m downstairs in the office, she is upstairs in her corner perch, watching the neighborhood scene. I’ll hear her pad down the stairs and come around the corner into the office. Every time she does this, I greet her with my happiest dog-voice, and take a break in what I’m doing for a pet and a little play. I say I do this for her, to have good associations with my office so she’ll hang out here. In truth, I find it is good for me, as well. I am terrible at taking breaks, and the dog is a natural.

I could just set a timer and tell myself to take a break. How much more fun it is, though, to unleash the joy of seeing my dog prance around the office with her little paws in the air, her play-bow, and her goofy look, when I take a breath before I start a new project.

2. Organize My Desk
I know this sounds like work. I am a planner by nature, and I like order in my universe. Maybe it’s a coping mechanism, but it also helps me to focus and relax into whatever I’m doing when I’m in a clutter-free zone. My new house is slowly getting organized, but not yet up to my standards of order, and it’s stressing me out. As a business owner, there is no end to things to do for the job. A clear desk is an accomplishment, too. My plan for the New Year at work is to close out each day putting my desk in order, filing papers, and scheduling the next day.

Earlier in the business I sublet office space from a large engineering firm. The sliding glass doors to each office had no locks. For practical purposes, I ended each work day putting all my projects away, under lock and key. Starting the next day was bliss! Taking joy in sitting down and intentionally beginning a new project, rather than staring down a pile of ongoing work, is my goal for 2019. I’ve done it before, and I know I can do it again!

If you’re inclined to try a bit of rearranging to de-clutter your space but need a little nudge, here are a couple of resources. I was a huge fan of Peter Walsh and his Clean Sweep program on HGTV. The program is 10 years old, but his approach is timeless. His philosophy towards organizing your home and office is the same as mine towards personal finance: arrange your environment (or money) to live a richer, fuller life with less stress. And you can sign up for his #31DaysToGetOrganized daily reminders to help you one day at a time. If Marie Kondo’s Life-Changing Magic of Tidying Up is more your speed, you can read her book or go straight to her new series on Netflix to learn how to “KonMari” your spaces.

Kondo talks specifically about joy in organizing your things, and Walsh used his master’s degree in educational psychology to help people let go of the associations they have with things that no longer serve them and to refocus on what really mattered. Both focus special attention on items of sentimental value, and the meaning they add to our lives. Here’s to more joy and greater meaning in your spaces (and at my desk) in 2019!

For more on Peter Walsh: Peter Walsh on YouTube
For Marie Kondo on Netflix: Marie Kondo on Netflix

3. Re-invigorate My Hibernation
Even though we are past the Solstice and our days are getting longer, Winter has barely begun and we will have many cold, gloomy days to come. “Hiberation” is from the Latin meaning “to pass the winter” and for many that means hunkering down and doing as little as possible until the warmth and sun call us out into the world again. But therein lies a missed opportunity.

For nine years after my mother’s stroke, I split my weekends into two periods: Saturdays were for life maintenance, running errands, stocking the fridge, doing laundry. Getting the house in order for a new week. Sundays were spent with my mom. Doing her laundry, checking on supplies for her apartment, getting her place in order for the next week, watching a movie or going to a show, and having dinner before going home. I loved the time with my mom, but I was exhausted by the end of the weekend. After she died, I had a hard time figuring out my Sundays. Then one Sunday I had brunch with friends. I remembered the luxury of sleeping in, meeting for eggs and biscuits, and lingering over that final cup of coffee.

Lately I’d been feeling blue again on Sundays. The luxury of a “free” day seemed to be amplifying the freedom single people have: I could do anything. And so sometimes I did nothing, only to feel let down by frittering away my time. I started to plan outings for my Sunday afternoons. A movie, a play, a museum. All the things I loved, things easy to do on my own, and things that would get me out of my own head and return me home refreshed. That was a successful Sunday, a joy.

Winter weekends can be perfect for binge-worthy TV on a comfy sofa with a warm beverage and snacks. They can also be opportunities to explore your neighborhood or city, enjoy a hobby or expand your connection to others. And even if you’ve fallen off the resolution wagon already, get right back on, and as you work on changes for an Improved You, consider a few tweaks for a more joyful You as well.

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Let the Debate Begin: Waiting for Tax Reform Details

Posted on Apr 25, 2017 in Community, Philanthropy, Planning, Simplicity, Tax

Now that your 2016 tax return is behind you, you might be thinking about how tax reform changes expected under the Trump Administration might affect you. We are expecting a big announcement tomorrow, but despite some advance hype of “massive” changes, we’re likely to get only minimal details. The tax code is 4,029 pages and covers a multitude of taxes and entities. Tax reform, like Repeal and Replace, is going to take longer than originally planned.

The Big Three Goals of current tax reform proposals are:

1-Reduction of the corporate tax rate
2-Lower tax rates on individuals (reducing tax brackets from 7 to 3)
3-Simplification

In general, Republican proposals strive to broaden the tax base and lower tax rates. Under the banner of freedom and personal responsibility, these proposals support the idea that government should be as small as possible, providing minimal benefits to individuals, but counter that with lower tax rates, meaning more after-tax dollars in pocket, with which people are free to do what they want.

What are the things to watch for tomorrow? Here’s what I’ll be watching for:

1. Corporate tax rate: Republicans originally wanted a 20-25% top rate, which even they felt was unrealistic. Expect Trump to hold out for the 15% corporate rate he campaigned on.

The argument for a lower corporate tax rate is one of global competitiveness. The Tax Foundation reported that the US ranks 32 of 43 countries in the OECD in terms of international competitiveness. Note that the Tax Foundation is the oldest non-profit think tank in the country, described as an “independent tax policy research center” but it is also noted for a conservative, business-friendly bias.

The top US corporate tax rate is 35%. But who really pays this? The US Government Accountability Office (GAO) issued a report in March 2016 that reviewed US corporate taxes over a five-year period. “From 2008-2012, profitable large US corporations paid, on average, US federal income taxes amounting to about 14% of the pretax net income that they reported in their financial statements. When foreign and state and local income taxes are included, the average effective tax rate across all of those years increases to just over 22%.”

One of my sources for tax policy research is the Tax Policy Center (TPC), a nonpartisan joint venture between the Urban Institute and the Brookings Institution. From TPC’s perspective, a 15% corporate tax rate would make the US one of the lowest corporate tax regimes – until other countries cut their own rates, as they did after the Tax Reform Act of 1986. It would also create a ginormous loophole for high-income individuals. Under the Trump proposal, the 15% rate would apply to partnerships and sole proprietorships, which would create a huge path for tax avoidance by sheltering wages through such an entity. If the new rules let pass-through entities, such as sole proprietors and LLCs (like this firm) be taxed at the lower corporate tax rate, then that benefits me (and dentists).

Let’s be clear about how this works: it’s not like there is one bucket for corporate tax receipts, and a separate one for individual tax payments, and yet another for payroll taxes. All tax receipts go into the same bucket, and go right out again to pay our collective expenses. Those countries with lower corporate tax rates also have much higher personal tax rates. (The plan in the US is to cut those too – at least at the very top levels. You can guess where this is headed.)

The one bright idea in corporate tax reform proposals is to tie corporate tax rate reform to reform of individual tax rates, potentially aligning rates and eliminating this type of income-shifting loophole.

2. Fewer tax brackets for individuals: The idea is to simplify the tax system. The following chart shows how your tax bracket might change under the proposed simplification.

By the way, this doesn’t come without a cost. The deficit is expected to increase by $6 trillion in 10 years. That’s more than a 25% increase. Your kids and grandkids get to figure out how to pay for that.

Ultimately what you care about is what you have in your pocket, as well as what things you have to pay for (health care, city services, college, retirement, etc). While marginal tax brackets are expected to change, if some deductions and exemptions are eliminated as expected, you could end up paying more in taxes. Fortune magazine took a look at the impact of expected changes on take-home pay, and this is the result:

If you’re in the Top 1% of earners, this works for you.

Hand-in-hand with the compressed brackets are higher standard deductions ($15,000 for a single filer, $30,000 for marrieds).  The higher standard deduction could make your tax calculations simpler by eliminating the need to itemize.  It may also make your tax liability higher, and remove incentives for certain spending and investment.

3. Deductibility of state income tax:  One of the items on the chopping block is the deductibility of state income taxes. Let’s not kid ourselves about this being payback to states that went blue and voted for Clinton. The states most effected: California, New York and New Jersey.

That said, Trump is not the only President to use tax reform to rectify political slights. We have the current rule on the non-deductibility of donations to not-for-profit organizations with a political agenda because President Lyndon Johnson was miffed over a preacher literally using his pulpit to bully Johnson. Trump has suggested repealing the Johnson Amendment, which essentially shut down lobbying activity by 501c3 organizations.

But if you don’t have itemized deductions of at least $30,000 for a married couple (or $15,000 for a single filer), it might not make that much difference to you, and might simplify your tax return.

4. Deductibility of mortgage interest: This is a classic middle- to upper-income deduction on the block. Each household can deduct mortgage interest on mortgage indebtedness up to $1,100,000 on up to two homes (that means loans totaling up to $1.1 million, not a deduction of $1.1 million). So mortgage interest on your house (and vacation home) is deductible up to these limits. What if you hold a multi-million loan on your home? Or own more than two homes? You’re not able to deduct that interest anyway. No skin off your nose.

5. Cap on total itemized deductions & 6. Deductibility of charitable donations: One proposal last summer from House Republicans suggested eliminating all itemized deductions except those for home mortgage interest and charitable contributions. The latest scuttlebutt puts charitable donations on the chopping block too. Or at least capping them.

Trump campaigned on capping all itemized deductions at $100,000 for single people and $200,000 for couples. You might not care about this one either, if you’re not making seven figures. But a lot of support to not-for-profits comes from higher earners. A taxpayer making over $1 million paid an average of $260,000 on state and local taxes according to the TPC. At this point, this taxpayer’s itemized deductions would be capped, eliminating the tax incentive for charitable giving by high earners.

One of the arguments made by those favoring smaller government is that people should have the choice of how their money is spent, and if they want to give to social services and other philanthropic causes, they can give to charity directly. Congress created the charitable deduction 100 years ago this year, to incent Americans to support their communities. With smaller government and a capped or eliminated charitable deduction, the landscape of American society will fundamentally change.  If you are in the camp that believes an American spirit of generosity is in part responsible for the success of capitalism (as I am), things won’t be changing for the better. The “compassionate conservatives” in the Republican Party won’t be happy with the reduction in tax incentives for charitable giving either, as it would affect donations to religious organizations.

7. Limits on donor-advised fund deductions: It’s unlikely we’ll hear anything tomorrow on this detail of the tax code. There are already some limits based on income for large charitable contributions, either directly to an organization or to a donor-advised fund (DAF). A DAF allows a taxpayer to “bunch” deductions for future charitable contributions into a single tax year. I recommend DAF contributions to charitably-inclined clients when they have a windfall, to off-set some of the tax they would otherwise pay in that year. Proposals here have included a time limit on the pay-out of DAF money through grants. Under current law, there is no limit on how quickly you need to make donations from a DAF; some proposals are suggesting funds be distributed to charities in 5 years.

Simpler is not always better. In my view we have the wacky tax code we have due to the same strong special interests we have always had, and because our economic world has grown more complicated. If you think about the tax code as a tool to incent certain behavior, as an example, you get to deduct your mortgage interest and property taxes because as a society we think it’s better for wealth building and maintaining capital stock for individuals to own their own homes. We have other tax rules to rectify imbalances, such as the Alternative Minimum Tax (AMT), which was created because in 1962 it was discovered that a bunch of millionaires were paying no tax, and that seemed unfair. That it was not inflation-adjusted and had unintended consequences years later doesn’t mean it was a bad idea, it means it needed to evolve as the economic landscape did.

For a quick overview of the three main proposals and detail on some of the main changes up for consideration that you may hear about tomorrow, check out http://www.taxpolicycenter.org/feature/preparing-2017-tax-debate

Remember that Trump views himself as a disrupter and a master negotiator, and as such, he’s not likely to start with a centrist proposal meant to bring everyone into the fold. Once we do have a detailed bill to consider, the legislative process begins. That means lots of hearings, followed by changes, more review and comments before the House then Senate vote. But Democrats in Congress are not aligned, and Republicans  may attempt to push through a tax bill with only Republican votes, though they may not have enough.

Alternatively, Republicans can use the Budget Reconciliation process to overcome this legislative hurdle. There are many rules that need to be followed, but it’s possible we’ll get tax reform this way. We got the Affordable Care Act this way under Obama and the 2001 tax cuts under Bush.

To date, there has generally been strong support for tax incentives for retirement savings, home ownership, and some charitable giving. Under the proposals being floated thus far, these tax-preferenced items are expected to have less value in the future.

We’ll find out more tomorrow.

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Why I Love Tourists

Posted on Oct 12, 2015 in Community, Planning, Simplicity

Most people who live someplace even moderately interesting are likely to say they hate tourists. Tourists can be slow, plodding, don’t know where they are going. They drive too slowly and walk erratically. They gawk, mouths agape, and point at things.

That they do these things is exactly why I love them.

4th St Bridge-WalkwayThis past week I was back from a business trip to New York City and I was walking over the Fourth Street Bridge in my neighborhood. The bridge is a World War I relic, a working drawbridge rebuilt in 2006, which spans Mission Creek. From the bridge there is a view of houseboats, Potrero Hill, cormorants, herons, cranes, and occasionally seals, manta rays and starfish.

But to see these things, you have to be paying attention. I was walking across the bridge, my head down, looking at the wooden slats of the pedestrian walkway, thinking of the 12 million things I needed to do now that I was back from my trip. I was halfway across when I thought to look up. To notice the light on the water, the brown gull crying out, the fog beginning its morning retreat to out to sea. I cross the bridge every day, I was taking it for granted, and I was missing my life.

Tourists remind us of what we often miss.

What does this have to do with financial planning? Because it’s true what they say about life happening while you’re making other plans. These little things, these minutiae, so easy to miss, are critical to happiness. It is important to have a portfolio that meets your needs. It is important to know that you have a complement of insurance coverage that protects you from catastrophic loss. It is important to have plans in place to help you break down and tackle the Big Goals. But it is the small things that make up our lives and bring us happiness.

Planning doesn’t guarantee you certain outcomes. But it starts a process of clarifying what is important to you, and putting your attention there. When you can be confident you’re taking care of your financial business, you can allow yourself to focus on the rest of life. Take the time to look up, notice what’s happening around you. Slow down. Put the museum exhibit you want to see on your calendar. Stop in at that café that you pass by every day, though it looks so inviting. Our days turn into months, the months turn into years. Add up those years, and that’s your life.

This may be a long weekend for some of you. Even if it isn’t, take a minute this morning before you get swept away in your daily routine and look around. At the kids playing with their breakfast, at the garden bed you planted this spring, at the other passengers on the bus or train. Gawk, point, be in awe of something new. Even something mundane. Be a tourist in your own life.

We can lay out plans for a good financial life, but the good life, truly, is in the day-to-day.

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Planning in One Page

Posted on Sep 14, 2015 in Blog, Community, Family, Planning, Simplicity

Colleague and sketch guy extraordinaire, Carl Richards, has a new book called The One-Page Financial Plan. My work is all about organizing, simplifying, and getting clarity around what really matters for you, and a one-page plan sounded awesome. As I often do, I test-drove this process myself and here’s what my One-Page Plan looks like:

To be able to take care of myself:

1. Own my home

2. Financial freedom at 70

3. Ability to participate in the communities I love

What you’ll see right away is that the plan is very focused, and simple. But for any of you who have practiced yoga or tried meditation, steadying the wiggly body or calming the monkey mind is harder than it looks.

But this is exactly what you must do to have a plan that works: You must get to the “why” of what you’re doing. I call what I do “values-based” financial planning, and at its core it’s about what you value, what is important to you. The “why” will become your litmus test for financial decision-making.

The “Why”
Carl’s one-page plan starts where I also start the planning process, with the “why.” The Why is your financial mission. His question is: Why is money important to you?

To have a secure retirement?

To take care of your family?

To die with the most toys?

The Why is totally internally-driven. If you are looking for external validation, your “why” will always fail, because you’re not directing it. When it’s externally-driven, you’re looking to the outside for validation, and you won’t feel a sense of calm when you answer the question. When you answer truly, you relax, you feel a relief from anxiety. You’ve answered the question.

What Gets in the Way of The Why
Part of getting to The Why is digging into what money means to you. My financial mission is to be able to take care of myself.  My process looked like this:

Money is important to me because I want to be financially secure.
Because I want to be able to take care of myself.
Because no one else will be there to do it.

In those three sentences, I got to one of my core values: self-sufficiency. I came from a working class family. My parents bought their first house on the GI Bill, my dad went to school and worked part-time, and money was a struggle. I worked my way through college, and graduate school. There was a lot of messaging in my early life around my family not having any support outside the four of us — my parents, brother and me — and how we could only rely on ourselves.

Being able to take care of myself financially – pay my bills, never get in over my head, take educated risks but don’t bet the farm, have a little money socked away, a few staples in the pantry always– is at the core of how I run my financial life.

For you, it might be thinking you “should” have a house, but you’re really fine renting and would rather put your savings into a business idea. It might be feeling you deserve a certain standard of living, when the fear is really not living up to someone else’s (or your) standards, of not being as good as your peers. Only you can know why money is important in your life.

The “What”
Once you figure out why you’re working hard and saving – or spending your nest egg in a certain way – then you can get more specific about the actions you need to be taking to work towards these goals. What Carl notes – and embraces – is the certainty of change. Don’t wait around for the perfect answer or the “right” decision. Good planning is a lot like living your life fully: you start where you are, with what you can do today, and do it. You have to translate The Why into actionable goals. You need to list everything you want to do or have, then prioritize in terms of how “The What” supports the Why.

To live up to my Why, I want to own my own home, save enough to be financially independent at age 70, and participate in the communities I love.  Taking care of myself doesn’t mean spending all my time at the office, it also means having a good life today, and so I’ve included how I’ll spend my time in addition to what I’m doing with my money.  Your plan is about you and building a meaningful life.

The What is the top three specific things that you need to do to fulfill your financial mission. You’ll note that not all these goals necessarily require financial resources: two of the communities I love involve dogs and books, and I’ve volunteered in animal shelters, libraries and school reading programs. What is your What? What are the three goals you’ll work on now?

Putting Your Why and What into Action
Once you have your Why, you have a measure against which you can evaluate the financial decisions you face. When you wonder how to spend your money or how to save, ask yourself, is this action supporting your Why? For me, I ask “Will this action enhance my ability to take care of myself?” Then test the decision about which of your three top goals it’s advancing.

OnePagePlan_napkinv2That’s it. Write your Why and your What on a post-it or an index card (Carl wrote his, shown here, on a napkin with a Sharpie). Put it on your mirror, keep a copy in your wallet. This isn’t about other people telling you what to do, this is a talisman of your creation, your money mantra to keep you centered and on track to get what you really want out of this life.

Get out your Sharpie and get to work!

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