Martha S. Echols, CPA, PC » Birmingham tax preparation

“This Is Self-Serving, But It Needs To Be Said” Birmingham Accountant Reports

Birmingham Tax Professional, Martha Echols, CPA — Mon, 16 Jan 2012 14:55:41 +0000

"The most important thing in communication is hearing what isn’t said." – Peter F. Drucker

As I wrote a couple weeks ago, the start of the year is pretty important, in my opinion. And the LAST thing you need is to be stressed over finances.

Yet that’s, unfortunately, how many families start their year, this year.

So, is there anything we can do to help? Yes, we live to help you with your taxes, but what truly animates me and my staff is the fact that assisting real families (like yours) can make a difference — not just in your "bottom line", but in the peace by which you operate. That’s, really, why we do what we do.

So, do let us know if there’s anything at all we can help you with: (205) 715-0088

Indeed — we’re getting very close to the point where we begin to see many folks walk through our doors with their tax information in hand. Last week, I posted a mostly-complete list of what you will need to get your taxes done.

Well, today my message runs a significant risk of being extremely self-serving. I get that, but I want you to know that isn’t why I’m writing it. Sure — I want my business to do well, and that happens when our clients keep using our services and refer their family and friends our way.

But I’m writing this today to give you a warning about some new options available to taxpayers, which haven’t always been there. I hope you hear what I have to say, and that you take it to heart.

Martha Echols’
"Real World" Personal Strategy
Hidden Problems In Popular Tax Filing Options
For various liability issues, I’m loathe to actually mention this company by name, but let’s say (for the purposes of this conversation) that there’s a big, popular company who made its fortune on the backs of lower-income taxpayers called H&P Black (a name picked completely at random). This company is flooding the airwaves with a brand new program offering "free" tax preparation.

Maybe you’ve heard about it? Well, like many such things, there are, shall we say … strings.

First of all, here are the restrictions: it only covers those filing the 1040EZ federal form, which covers only the very simplest tax issues. It can’t be used by anyone who has dependents, makes more than $100,000 per year, is age 65 or older, claims adjustment to income like alimony or tuition deductions, or itemizes deductions. Thus, homeowners who deduct mortgage interest or people with large charitable contributions can’t use the 1040EZ.

Plus, filers have to pay fees for state tax preparation and any other fees incurred — which have a tendency to pile up.

Asked by stock investors why [said company] was doing this, an executive replied: "Our ability to monetize this program means a minimal impact on our net average charge," [said company] Retail Tax President Phil Mazzini told analysts on Dec. 7. (source)

It’s always enlightening to look at executive interactions with stock analysts to see why public companies do what they do, I’ve found.

So — in summary: don’t be seduced by the siren call of getting something for nothing. You usually end up paying for it, in a whole host of ways.

In fact, one of OUR revenue centers over the years has always been in fixing the mistakes made by these "big box" retail tax outfits and off-the-shelf software programs, and discovering loads of missed opportunities and overpayments.

(Because, speaking of software: do you remember when our current Treasury Secretary used the leading tax software to do HIS taxes, unintentionally created a bunch of errors with it, and then blamed it for all of his tax problems in front of the Senate? Not an uncommon issue, I’m afraid.)

The old adage *is* an adage because it’s so often true: you get what you pay for. It’s the foundation for a stable economic system because it’s almost always true.

Birmingham Accountant On: “My Financial Resolutions”

Birmingham Tax Professional, Martha Echols, CPA — Mon, 02 Jan 2012 14:31:46 +0000

"It is in your moments of decision that your destiny is shaped."
- Anthony Robbins

This first full week of the year is often cited as one of the most difficult and depressing weeks of the year. Far from shiny newness, experts say that with all of the let-down after the holidays, coming back to work, or leaving behind family, can bring a heightened sense of loss. That, combined with the fact that we’re staring at 2-4 months still left of winter (depending what part of the country you call home, of course–we have clients and friends reading this from across the country)…

Well, it can be a tough week.

So, I thought we would lighten the load for you in two ways:

Firstly, I was sent this extremely funny short video the other day. Now that the holiday season is over, what better than to laugh at it? We just got bombarded with a ton of "Top __ of 2011" lists, but I’m not sure this video was on any of them. If you want a quick pick-you-up, here’s a funny prank pulled on helpless Target employees on Black Friday last: http://www.youtube.com/watch?feature&v=CYbVpAwGGGs
Check it out, then you will want to come right back to me when you’re done.

Alright, funny time over. The second way I’d like to lighten your 2012 load is by giving you some simple, actionable guidance on FINANCIAL resolutions which are easy (and profitable) for you to keep.

You see, I hope you don’t mind that I see it as my role in your life to not only provide authoritative and actionable tax advice for your specific situation, but also to play a role as a "coach" for your finances, and even your mindset.

This is why our clients and their friends seek us out for *more* than simple tax preparation, but a whole host of other services as well–from planning, to business services, to simple encouragement. I get to be someone in your life who says: "You can do this. You’re not alone."

It’s my great hope that our relationship will continue to grow into 2012, and beyond. And not just for "business purposes". We love our clients — you’re like family to us (the *good* kind of family, that is)!

So, with my coach hat firmly in place, here are some thoughts for effectively creating and pursuing your personal financial goals, as we move into 2012…

Martha Echols’
"Real World" Personal Strategy
Echols’ Financial Resolutions for 2012
Here’s the thing about most financial resolutions: They don’t usually last even until the end of January. That’s because making a permanent change in our behavior requires both time and a steely resolve. But I’ve found that we can develop financial character one action at a time.

So in that vein, here are some financial practices to take you from pauper to prince or princess if you add one each year. If you’ve already got one down, move to the next on the list.

#1 MOST CRITICAL: Resolve to become (and stay) debt free. Now, I’m not Dave Ramsey, but there’s a reason why he’s become so popular: his approach works. I’d say that you can have a fixed-rate fixed-year traditional mortgage on your house — but nothing else, please. No equity line of credit on your house. No car payments. Certainly no credit card debt. Because you simply have to learn to live within your income — which, unfortunately, sometimes means going without. The millionaires among us really are frugal. So learn to enjoy that process, and it’s a fantastic start.

#2 Automate your savings (AKA Pay Yourself First). You can start by getting the entire match if your company offers a 401(k) plan. Usually this translates to saving 5% of your salary while the company contributes a 4% match, which is the fastest way to get an 80% return on your money. Most Americans forgo this match, believing they need to spend 100% of their salary. But you can learn to think like a millionaire and live well on 95% of what you make. If you don’t have a 401(k) plan, act like you do, and sock away 5% automatically.

#3 Fully fund your 2012 Roth IRA. This is $5,000 in 2012 and $6,000 if you are older than age 50. If you can’t manage the entire amount in January, put in $416 monthly. Automating deposits in an employer-defined contribution plan is easy. Fortunately, automating saving in a Roth IRA or a taxable savings plan is equally painless. Most brokers offer an automatic money link between your checking account and an investment account. Set your savings on autopilot, baby!

Remember — these steps build off one another, so if you already have done the first 3, here’s your next step:

#4 Save another 5% in a taxable investment account. Automating savings is great, automating investment is even greater. Key word here: automate. At this point, you’re hitting a mark of saving 15-20% of your income. That’s a fast-track to long-term prosperity.

But I’m not quite done, grasshopper. However, I’m going to leave you with these for now, and come back to this again in the weeks ahead.

Happy New Year!

Birmingham Tax Professional’s: “Back-of-the-Napkin Financial Principles Even I Use”

Birmingham Tax Professional, Martha Echols, CPA — Mon, 22 Aug 2011 14:35:37 +0000

"The game of life is not so much in holding a good hand as playing a poor hand well." – H. T. Leslie

Meeting with clients this past week (and the week before) has been a blast.

No — really! And yes, I know, I should get out more.

The reason we enjoy doing this (especially this time of year), is that seeing the look on clients’ faces when we identify tweaks and quick moves which carry a significant ROI on their tax dollars … well, it’s worth all of the time we’ve put in to learning this craft.

Sometimes during these meetings, I’m duped into sharing some of the ‘private’ details on how I think about taxes, finances and investing for my OWN family. Yes, I do try to practice what I preach in these Notes to my clients and friends! (And yes, I do have a private life outside of tax forms.)

Enough people have told me that these back-of-the-napkin principles which I share have been helpful, that this morning I’ve been motivated to put some of them down for you in easy-to-digest form!

So, without further ado, Martha Echols’ Napkin Financial Strategies…

Martha Echols’
"Real World" Personal Strategy
Economic Principles in Action for Your Family
Whether you’re running a Fortune 50 corporation, or just trying to keep your household expenses from exceeding your salary, the same basic financial concepts which I use in my personal life can apply for you. These are fundamental building blocks for wise financial decisions.

Quick Interest Calculations: The Rule of 72
Want to double your money? The Rule of 72 can tell you how long it will take, based on the specific interest rate you’re looking at. Just divide 72 by the interest rate. For example, if you’re looking at an investment with an interest rate of 6 percent, then 72 divided by 6 gets you an answer of 12 years.

This is a rough estimate, of course, but it’s pretty effective.

In fact, you can also turn the equation around to determine the interest rate you’re looking at if someone promises to double your money in a set amount of time. Twice as much money in 12 years? Divide 72 by 12 and you get an interest rate of 6 percent. This rule lets you evaluate investment opportunities quickly and decide where to put your money.

Opportunity cost.
What do you need to give up in order to get something you want? It’s a question of money, but also time and value: Pursuing an advanced degree may take years–are you willing to put in that amount of time? Will a sports car give you enough enjoyment to offset going into debt for it?

Sunken costs.
This is money you can’t get back–a non-refundable airline ticket, for example. Keep sunken costs in perspective. It’s easy to start thinking "Well, I’ve already spent $100, what’s another $25?" You’ve got to be willing to walk away sometimes.

Time value of money.
According to this principle, a dollar you receive today is worth more than a dollar you’ll get tomorrow. You’ll have opportunity to invest that dollar immediately and begin earning more revenue from it (and also avoid losing value because of inflation).

Again, this helps you make calls about your purchases — and your income. It’s the old "a bird in the hand" theory in action for your wallet.

I hope these help!

Guarding Against Your Own Private Downgrade

Birmingham Tax Professional, Martha Echols, CPA — Mon, 08 Aug 2011 14:27:40 +0000

"All mankind is divided into three classes: those that are immovable, those that are movable, and those that move." -Benjamin Franklin

What a messy weekend. Heartbreaking news from Afghanistan, the S&P downgrade — and now all of the resultant (and gruesomely predictable) political posturing. Oh, and as I write this, it’s no surprise that the stock market is "reacting" a bit.

Echols’ Key Reminder #1: The only thing certain about the stock market is that it’s volatile. So those of you with many assets resting there, don’t make moves out of panic. Sit down to discuss a tax-advantaged strategy … not a knee-jerk fear response.

Echols’ Key Reminder #2: What you choose to "ingest" over these next few days will greatly impact your state-of-mind. Garbage in, garbage out, as they say. And, of course, the opposite is true–when you surround yourself with excellence and clear-eyed determination, you find that your heart and mind carry much greater strength. Temper your media intake this week, as they are (quite literally) merchants of fear.

Echols’ Key Reminder #3: The only thing you can truly control is yourself. You can’t control the market, you can’t control the US debt rating (unless, of course, Messrs. Geithner and Bernanke are reading this — perhaps you guys can!), and there’s a real sense in which you can’t even, really, control your salary and income.

So, with those key reminders in mind, here’s what I suggest:
Call my office this week: (205) 715-0088 and request one of our limited Tax Planning Saver Sessions. During this session, we will analyze your current situation and identify clear action steps for the last quarter of 2011 — designed to save your bottom line hundreds (or even thousands).

You CAN control your tax strategy … and we can help.

To You and Your Family’s Peace of Mind!

Putting Your Money Where Your Heart Is

Birmingham Tax Professional, Martha Echols, CPA — Mon, 23 May 2011 14:02:09 +0000

"Where your treasure is, there your heart will be also."
- Luke 12:34

I’m in a bit of a contemplative mood as I write, this morning. After a restful weekend with friends and family … being out and about, listening to the radio and watching some TV, I’m struck by this question — why is it that so many people who live with significant means are simply … unhappy?

Having worked with families across a wide spectrum of income and asset levels, I don’t find this to be a general rule, but what I do find is that neither is it uncommon. Some "rich" people are terrible grumps — but so are many who are struggling through poverty.

And, of course, some of the most beautiful people I know also happen to be wealthy … and a few are very poor.

So, a common temptation is to judge our well-being not by what *we* have — but by how much we have compared to others. However, families at today’s poverty level live as well as the upper middle class did a few decades ago! Yet, they still feel deprived. I’ve found that even big luxuries ultimately disappoint us as we steadily become accustomed to a higher standard of living. An indulgent purchase loses its luster, and the satisfaction it brings is fleeting.

So how can you fix this?

I believe it starts by re-aligning our hearts a bit. And that’s what I’m writing to you about today.

[By the way, it may seem unusual for a tax professional to write about this sort of thing -- but I've found that money is often the truest expression of our passions. And, as such, it's worth protecting fiercely. So, let us help you sit down and PLAN for that protection this week. Give us a call to set up one of our (rapidly-disappearing) tax planning sessions: (205) 715-0088]

Martha Echols’
"Real World" Personal Strategy
Putting Your Money Where Your Heart Is
It’s a cliche, but it’s oh-so-true: Money doesn’t buy happiness. Families earning $50,000 a year overspend trying to keep up with those making $100,000 — who, in turn, attempt to live like those making $200,000. For many families, the lure of consumerism wins out over qualities like foresight and the patience which saving requires.

The Beatles were right too: "Money can’t buy you love." You can’t pay someone a million dollars to love you more than a million dollars. Money can’t buy integrity or friendship either. You can often purchase a cheap imitation of these values but not the genuine article.

But money can be used to clarify and encourage the things already most important to you. It can be used to show your love for someone, keep your integrity or help a friend in need.

So, here is a simple exercise which can help you determine what you value most in life: Look at this list of 15 values:

    Achievement
    Adventure
    Aesthetics and culture
    Authority/Power
    Financial security
    Friendship/Love
    Health
    Independence
    Integrity
    Philanthropy
    Recreation
    Service
    Spiritual growth
    Wisdom
    Work

Cross off 10, and keep the five most important to you. Then rank those five in order of importance. Look at your list and answer this question: Are you living your life and using your money in sync with your values? If you are married, ask your spouse to do the same exercise independently, and then compare your answers.

Now, take these values and give a hard look at where you are spending your money. Does it fit?

Surveys have found that people regret what they didn’t do more often than what they did.
Our lives can change course dramatically (and serendipitously) all because of some small decision on our part. How many times have we heard the story of how a happily married couple met, only to be surprised it almost didn’t happen?

And, often, these decisions are expressed through how we spend our money.

We each long to participate in something significant and realize our greater passions. But that doesn’t just "happen"! It requires foresight, planning and forgoing our momentary desires. The choices we make, every day, determine the ones we will have the opportunity to make in the future. Without those hesitant, often stumbling first steps, we can’t even begin the journey. And, of course, the first step is the hardest.

Voicing what we are passionate about can be scary. Beginning to act on our ideas can feel overwhelming. But courage isn’t a lack of fear; it’s action in spite of fear. And our fear may indicate we are on the quest of our lives.

So again — I refer you to your list of values, held up against how you are currently spending your money: Are there small changes you can make–which would translate into BIG, passionate goals? Going through this exercise may not result in a dramatic career change, but it will help you see ways to align your actions to your goals.

And that, my friend, WILL bring you true happiness.

We’re a phone call away: (205) 715-0088

To You and Your Family’s Peace of Mind!

Birmingham Tax Professional Answers, “How Warren Buffett Did It”

Birmingham Tax Professional, Martha Echols, CPA — Mon, 09 May 2011 14:57:17 +0000

"Fortune favors the bold."
- Virgil

Ah, sweet May. I love it. The birds are chirping and the flowers are blooming. Once the weather begins to get warmer, you see people start thinking about summer and, of course, they want to lose weight to look good in their bathing suits.

Why do so many wait until it gets warmer until they start thinking ahead?

I’d like to help you make some shifts in your thinking today. I’ve been reading up, recently, about Warren Buffett — and what it took for him to create the kind of financial empire he now enjoys. I’ve gathered some lessons, which I’d like to pass on to you today, as inspiration for what can truly be possible.

Financial well-being is earned by paying close attention to how you are THINKING about that well-being, and what it takes to get there. So, if you’ll indulge me, allow me to give you a few short lessons from Mr. Buffett about how to create financial success — in any economic season.

I’d love your thoughts.

(And don’t miss the opportunity for your friends to enjoy the peace-of-mind found from having a competent expert review their 2010 returns, at the end of my Note. They’ll thank you…)

Martha Echols’
"Real World" Personal Strategy
Warren Buffett’s Financial Wisdom
Billionaires aren’t hatched overnight.

But there will be another generation of such men and women in the next few decades — and chances are, they will tread the same path as those who have come before.

So let’s look at Warren Buffett’s path as an example, shall we?

1) Start with a meat and potatoes small business — and be your own boss.
Buffett made his fortune by doing things his way, not by following the crowd. In high school, Buffett and a pal bought a pinball machine to put inside a barbershop. With the money they earned, they bought more machines until they had eight different shops running their machines. When they sold the venture, Buffett used the proceeds to buy stock and start another small business. By age 26, he’d become his own boss and amassed $174,000 — or $1.4 million in today’s money.

LESSON: Don’t fall for the temptations of a huge, immediate windfall business. Cut your teeth on the side, with something basic, reliable and small.

2) Mind the foxes who steal from the vineyard: small expenses.
In the famous book, The Millionaire Next Door, authors Stanley and Danko report that millionaires live well below their means. They budget, plan investments, and allocate their time, energy, and money into building wealth instead of displaying high social status.

Warren Buffett’s companies are known for watching out for small expenses. Exercising vigilance over every expense can make your profits and your paycheck go much further.

LESSON: The next time you spot a sale or online deal, check in with yourself to see if that $50 is better saved or invested than spent. It might seem like you’re spending a relatively small amount of money, but it all adds up.

3) Debt kills.
Warren Buffett advises his people to limit what they borrow. Living on credit cards and loans won’t make you rich. Buffett never borrowed a significant amount of money, not even for investments or mortgages.

The Millionaire Next Door reports that millionaires’ parents did not provide "economic outpatient care", and their own adult children are economically self-sufficient as well.

LESSON: If you do give your teenager a credit card, make sure to set firm limits and specify use ahead of time. If they abuse the privilege, they lose the card. Do the same for yourself.

4) Leap forward.
Very often those who supply the affluent become wealthy themselves. In fact, one of the best ways to make money is to sell products or services to those who already have money. Many people don’t see these opportunities because they’re far too busy seeking money and security in the short term only.

Well, when Buffett began managing money in 1956 with $100,000 cobbled together from a handful of investors, he was dubbed an oddball. But he didn’t allow others’ opinions to keep him from leaping into a profitable venture. Over and above, I might add, others with greater private means.

Lastly, I will suggest this: Get professional advice on new ventures and ideas. We are here for far more than "just" tax planning. I and my team would love the opportunity to sit with you, and help you evaluate the direction of your financial life … and point you in a new direction, should it be necessary.

We’re a phone call away: (205) 715-0088

To You and Your Family’s Peace of Mind!

Could There Be a Mistake? We Can Fix It.

Birmingham Tax Professional, Martha Echols, CPA — Mon, 02 May 2011 14:20:17 +0000

"If you don’t like the road you’re walking, start paving another one."
- Dolly Parton

As I write this on Monday morning, we’re all pretty distracted by the news of the capture and death of Osama bin Laden. It’s a bipartisan moment of gratification — even if it does mean celebrating the death of another human being. In this case, the world may actually be a better place right now.

All that aside, I wanted you to know that we’re starting to pick the pace up around here, after the intensity of the end of our busy season. This is the time of year when we reach out to non-clients and business owners, who are looking for real assistance in managing their tax burdens and finances.

It is, after all, what we do best.

Yes, shutting those doors at the end of the day two weeks ago (the 18th) was sweet. My staff and I could look back on months of hard work, and take real satisfaction in hard work and a bunch of new client relationships which we’re excited to see last for years.

"But…what now?"

That’s a good question–and it takes me back to our offseason preparation. Sure, we’ve taken some well-deserved rest around here … but we NEVER "shut the door" on our relationship with YOU!

That’s why we’ll continue to be here for you for all of your tax and financial needs. If you’re new to us this year…you’ll soon find out that we make big deal around here of keeping in touch, and offering you hope and wisdom about the current state of the economy–and YOUR wallet!

So this week’s Strategy Note, in fact, deals with a topic which most taxpayers have no idea about.

Martha Echols’
"Real World" Personal Strategy
Yes, You Can Still Find Deductions
As a client of mine, you’ve already got the peace-of-mind that you were able to claim every possible deduction legally allowed in the tax code for 2010. We put each return through an extensive review process to ensure to ensure you keep as much of your hard-earned income as the IRS allows.

But what about your friends?

Well, since it’s now AFTER April 18th, they might think that the proverbial "fat lady" has sung on their 2010 returns. Not so.

Did you know that according to a report issued by the General Accounting Office, taxpayers overpay the IRS almost $950 million every year, which equates to an average overpayment of $400 per taxpayer. That’s a somewhat dated report…and the current numbers are certain to be higher.

What’s worse is that folks who prepared their own taxes (with a software, or on their own) are the most vulnerable. But did you also know that taxpayers who used one of the "big chain" preparers are almost as bad off?

An excerpt from a more RECENT report from the GAO: In a Limited Study, Chain Preparers Made Serious Errors

In GAO (United States Government Accountability Office) visits to chain preparers, paid preparers often prepared returns that were incorrect, with tax consequences that were sometimes significant. Some of the most serious problems involved these preparers…

   1. Not reporting business income in 10 of 19 cases;
   2. Failing to take the most advantageous postsecondary education tax benefit in 3 out of the 9 applicable cases; and
   3. Failing to itemize deductions at all or failing to claim all available deductions in 7 out of the 9 applicable cases.

More clippings from the report:
* The 19 paid preparers we visited arrived at the correct refund amount only twice. On 5 returns, all for the plumber, they understated our refund amount by a total of $3,465.
* All 19 of our visits to tax return preparers affiliated with chains showed problems. Nearly all of the returns prepared for us were incorrect to some degree, and several of the preparers gave us very bad tax advice, particularly when it came to reporting non-W-2 business income. Only 2 of 19 tax returns showed the correct refund amount, and in both of those visits the paid preparer made mistakes that did not affect the final refund amount.

So what can your friends do about this? Simple: file an "Amended" Return.

Many tax businesses don’t provide this service, but even though we’ve completed our clients’ returns, we WILL review any of your friends’ returns.

To You and Your Family’s Peace of Mind!

Refunds & UN-Automating Your Life

Birmingham Tax Professional, Martha Echols, CPA — Mon, 25 Apr 2011 13:58:42 +0000

Success is not measured by what you accomplish but by the opposition you have encountered, and the courage with which you have maintained the struggle against overwhelming odds.
- Orison Swett Marden

Last week, I posted my Note about automating your investment savings. After posting it, I did some more thinking about the whole notion of automating our lives, and I realized that there are some times when "automation", as such, can actually HINDER our financial growth.

Call it the hidden costs of convenience. And, in my opinion, it’s quite real.

But before I get to that, a few tax-related items:
1) Your Refund Status: Make sure you have a copy of your tax return on hand or know your "filing status", SSN and the exact dollar amount of the anticipated refund.
* Online: Go to IRS.gov and click on "Where’s My Refund". (http://www.irs.gov/individuals/article/0,,id=96596,00.html?portlet=4)
* Automated Phone: Call 1-800-829-4477 24 hours a day, 7 days a week for automated refund information.
* In-Person Phone: Call 1-800-829-1954 during the hours shown in your IRS form instructions.

2) "Do I need to keep a copy of my return?"
Yes, for a *minimum* of three years. There’s all kinds of contexts where it’s useful. We do keep one on file, on your behalf, but it’s just smart and safe for you to keep one in a secure place at home. (I’ll soon have a Note about Amended Returns, and you will need a copy for that process, as well.)

As for the supporting documents from your return, anything that relates to a home purchase or sale, stock transactions, retirement, business or rental property, should be kept much longer than the three years.

Now … I have a humble suggestion for you this week, and as always, I’d love your thoughts!

Martha Echols’s
"Real World" Personal Strategy
The Benefits of De-Automating Your Personal Finances
Small business owners know what it is to write checks for quarterly taxes, and, I believe, they have deeper sense for what they are paying, as a result.

In fact, I think our country would be a different place if everyone had to write a personal check and send in their taxes like this. When people really see what they pay (or don’t pay) I think they would feel differently about their tax burden!

This is a common refrain among certain political observers — but it has me thinking about what it might mean for YOUR family…

In fact, this is part of the genius of financial guru Dave Ramsey’s "envelope system" for family budgeting (whereby you place cash into specified envelopes, and pay only as much cash as remains in the envelope for different budget categories). "Automating away" our obligations can lull us into financial slumber.

Which is why I now propose that you REMOVE automation from certain checks that you write each month. (Again, this is aside from automated savings, as discussed last week.)

[But a word of caution: The only danger to this approach is that you run the risk of focusing too much on scrimping pennies. I certainly advocate wise budgeting, but it's important to remember that thinking over much about saving money can constrict your mind away from important "risks", which can often be worth taking -- like starting that business, making a new investment, etc. Don't let this technique keep you from expanding your financial mindset!]

So, a few suggestions for what you might DE-automate:
1) Just once, receive your paycheck in cash (instead of ACH’d), or cash the full amount when you receive it. Because, have you ever HELD one paycheck’s worth of money before? It’s really hard to fully comprehend how much you’re bringing in until you physically feel those stacks of $20s in your hand. I can guarantee you it’s a lot harder to spend it when you’re seeing it in person rather than online. And it hurts frittering it away more, too.

2) Paying your mortgage manually. Feel the burn of this large check, every time you write it. It will trickle into how you think about the other bills which you pay such that even if this is the only bill you take off of "auto-pay", you’ll be wiser with your remaining funds each month.

3) Only purchase vehicles for cash. If you had to pay outright, wouldn’t you end up with a cheaper car? Probably. Just because many are used to setting up loans and payments for vehicles, does NOT mean it’s wise — in fact, this is one of the primary markers for the "quiet millionaires" (those who are getting ahead financially, even on relatively smaller salaries). Yes, your pride might suffer when you’re not rolling around in a 2011 Lexus … but considering the real cost of that pride-booster does wonders for ameliorating your egotistic tendencies.

In short, paying in cash (or with a manual check) helps you to consider the following questions:

* Is this ____ still WORTH it?
* Is there a way I can cut it down a bit?
* What’s the best way to pay for it right now? (c/c, check, cash?)

Again, some of this could literally take seconds, but the point of it all is that you STOP to do it. With automation, you don’t get the "ping" every month because it’s already doing the thinking for you. You’ll learn a LOT more about the financial "you" this way than you would otherwise, I’m certain. It’s really about paying closer attention.

Enjoying the slowdown around our offices, but still thinking of YOU!

A Simple Tweak, Which Can Really Help

Birmingham Tax Professional, Martha Echols, CPA — Mon, 18 Apr 2011 13:15:42 +0000

You have to see opportunity before you can seize it.
- Greg Hickman

I think this week’s Note can really help every one of my clients and contacts. I’m excited for you to read it.

But as I write, it’s tax day (Monday, April 18th), and we are pushing hard during this final stretch! Procrastinators are streaming through our doors (after all, we welcome them here), the phone is ringing off the hook, and my email inbox is overflowing.

Another year, another tax day.

So, here’s my confession: I didn’t write the below article this morning. I hope you’ll forgive my lack of timeliness. But I *did* prepare it earlier, because I KNEW that today wouldn’t allow me to. However, I’m a pretty decent planner, so I had this one all set up and ready.

That said… I’m quite proud of this one, and I think you’re going to really enjoy it. It’s admittedly a little on the technical side–but I really believe it’s worth your time to read and consider. Would love your thoughts on it!

Roger Menden’s
"Real World" Personal Strategy
Automatic Investing As The Basis For Real Wealth
Yes, it may be a cliche, but the greatest engine to generate real wealth is saving and investing. And the best way to ensure that your default is saving & investing is to automate the process. Pay yourself first, and your savings will grow exponentially.

Effective money management is based on the idea that very small changes can yield enormous gains in your family’s finances. This process, both easy and simple, is worth millions. Unfortunately, only a tiny percentage of American families take advantage of the tools available to implement this automated technique.

So here’s how you pull this off: Have all income flow into a joint taxable investment account. Make saving and investing your default. Putting all of your money in this account helps ensure that you move only the money intended for some other purpose into a different account.

For working families, this means an automatic deposit of paychecks into their joint account. Banks will try to entice you into setting up automatic payroll deposit into their checking account. They will offer you additional interest if you do so. Resist. The additional interest is not worth the failure to not only save but to save and invest. Your taxable investment account should be the default.

For retired families, this means an automatic deposit of Social Security checks. It also means their required minimum distributions (RMDs) from their individual retirement accounts (IRAs) should be deposited first into this account.

From this account you can then withdraw what you need for daily expenses. Do this by setting up a regular transfer of funds from your joint investment account to your checking account. Make sure the transfer matches the amount you have allocated in your budget, ideally 65% or less of what you need to support your lifestyle. The other 35% should remain in your joint taxable account, much of it to be invested.

Part of what remains is the 10% you have designated for "unknown unknowns". In the ideal world, this money will not be needed, but few families can anticipate every possible expense. Each stage of life presents new challenges. Having the financial margin to absorb some of life’s shocks is simple wisdom and offers financial peace of mind.

Because the time horizon for this emergency money is unknown, invest it in a balanced portfolio. If unused, your emergency money will double in 7 to 10 years and provide a greater safety net for your family. If you have to dip into this fund, keep track of the amount. If it approaches the full 10% every year, you are using your emergency money to extend your budget, not simply for unanticipated expenses.

The less you use this account, the more quickly you will reach financial independence. These funds are mixed with your other taxable investment savings and continue to grow your net worth. If you are meeting all of your expenses without any major surprises, these funds can be used to purchase a home, start a business or for additional charitable giving.

Another portion of what remains in your taxable investment account will be the 5% you are specifically designating as taxable savings. Because this 5% gets mixed in with charitable giving that is being invested and your unknown expenses, the entire portfolio should be balanced. If an emergency arises, any portion of the portfolio could be sold to furnish the needed funds. Similarly, when you want to gift appreciated stock, any portion of the portfolio could be gifted.

The last portion might be the 10% for funding your retirement accounts each year. Many people put this money directly into a retirement account as part of the payroll process through a pretax deduction. If that is the situation, you don’t need to flow anything through your taxable investment account. But you may want or need to fund your retirement outside of a payroll deduction. One example is funding your Roth IRA each year. In this case you may want to collect the money in your taxable investment account and then transfer it to a Roth account.

If you want to fund a Roth IRA account for the maximum $5,000 (in TY2011), you could transfer the entire amount once during the year or set up a monthly transfer of $416.66. The money from your paycheck would provide the cash, either letting it build up throughout the year or supply the funds for each month’s transfer.

Busy people forget to make the necessary transfers each year. That’s why a monthly transfer is preferable. Saving and investing should be automated so it occurs regularly without any additional effort. Whatever is in your checking account you are likely to spend. Whatever is in your investments you are less likely to spend.

Automating the process of saving and investing is like damming a river to form a reservoir. The alternative is the manual process of hauling buckets of water from your stream to a water tower. You will never grow rich by hauling buckets, and it’s much harder work.

No matter what income you have, you probably already have enough to grow rich! Saving and investing just $10 a day builds a million dollars over your working career at average market returns. You build wealth by what you save and invest, not by what you spend. Automating the process of saving and investing grows your wealth while you sleep.

Sending you our affection, through a haze of tax forms!

Thoughts During Our Final Week

Birmingham Tax Professional, Martha Echols, CPA — Mon, 11 Apr 2011 14:33:45 +0000

The ability to concentrate and to use your time well is everything if you want to succeed in business–or almost anywhere else for that matter.
- Lee Iacocca

I’m writing this on Monday morning, the 11th, and our offices are buzzing!

Next Monday will be no different — it’s the federal deadline, after all, and we always get panicked phone calls from people on that day. There is still time for us to do an excellent job for you or for your friends, as of this writing, but the window is closing rapidly.

So, I have a solution for you in this week’s Post … but before I get to that, a couple quick points:
1) The averted government shutdown means that refunds will NOT be delayed — more than normal, that is. If you’re curious about the status of yours, go here:
http://www.irs.gov/individuals/article/0,,id=96596,00.html

2) Tomorrow (Tuesday) is "Tax Freedom Day", which is calculated each year by the non-partisan Tax Foundation (if the government *had* shut down, it would be even later!). Here’s that information, if you’re interested: http://www.taxfoundation.org/taxfreedomday/. One of the fun little facts:

Americans will pay more in taxes in 2011 than they will spend on groceries, clothing and shelter combined.

Which, of course, is why I and my staff are here: keeping your tax bill as low as legally and ethically possible.

And, of course, we can always do this …

Martha Eschols’
"Real World" Personal Strategy
Extensions, Explained
Let’s clear some things up with some facts about getting an "extension".

As you know, this upcoming Monday, April 18, is the filing deadline for a federal tax return. If you need more time to get your paperwork complete, you need to file (or have us file on your behalf) this form…
http://www.irs.gov/pub/irs-pdf/f4868.pdf

…with the IRS by the end of the day on the 18th. This gives you an automatic six-month (until October 17, 2011) extension of time to file.

Here’s the deal: An "Extension of Time to File" is not an "Extension of Time to Pay", unfortunately. The Extension simply gives you an automatic six months of additional time to get your paperwork together and file that return. But, if you owe more than what you paid with your estimate, you’ll be accumulating penalties and interest on the difference–so PLEASE don’t take the entire six months to do this!

So, when filing your "Extension of Time to File", you’ll need to estimate what you think you owe to the IRS. This should not be pulling numbers out of thin air (or other various body parts)! You’ll still need to go through your receipts and tax documents and get them "somewhat" organized.

From here, you can estimate both your income and your expenses, and then approximate what you owe Uncle Sam. Keep in mind that this is an ESTIMATE. And, you’ll have to pay what you estimate you owe at the time we file for the extension.

You can do this all electronically through our office, you can mail in the form WITH estimated payment (must be postmarked by the 18th), or you can call a specialized provider and pay by credit card. We can provide you with the appropriate number to call.

But it’s NOT TOO LATE! Come by right away!

To You and Your Family’s Peace of Mind!

Martha S. Echols, CPA, PC » Birmingham tax preparation

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