The Personal Finance Handbook

By Brian Kuhn

Successful financial planning requires specialized knowledge—without which it’s easy to make costly mistakes.

CERTIFIED FINANCIAL PLANNER TM and author Brian Kuhn focuses on helping middle-income Americans reach their financial goals. His clear, straightforward advice makes The Personal Finance Handbook the perfect reference tool for anyone interested securing their future.

Kuhn reveals the importance of proper estate planning, how to approach investment and retirement savings, and how to maintain and improve your credit rating. You’ll also learn how to avoid identity theft and what to do if you—or your child—become a victim.

Designed with beginners in mind, The Personal Finance Handbook is like a monetary cookbook—pick it up whenever you need a recipe for financial success, whether you’re saving for college, in the market for a new car, or planning an investment strategy.

• Language: English
• Publisher: Brian Kuhn
• Release date: Jan 1, 2016
• ISBN: 9781507624678

Brian Kuhn

Brian Kuhn serves as the manager of a division within Planning Solutions Group; a Fulton MD hybrid RIA with over $500 million in assets under management. The division he manages, called PSG Clarity, is a unique planning team that focuses on affordable & efficient financial planning for hard working Americans who have been under served by the investment management industry thus far. Generally focusing on individuals under a certain threshold of investable assets, rather than above it, Brian & his team help everyday folks accomplish financial goals that have thus far proved difficult due to complexity, procrastination, or being overlooked by other planners.In his 14th year as of January in the financial planning field, Brian focuses his practice in the areas of retirement planning, investments, & insurance protection, with a special interest in assisting public sector employees. He is the author of “Total Compensation: A Practical Guide to Federal Employee Benefits” which is available on Amazon.com & Amazon Kindle. In 2015 he released the book “The Personal Finance Handbook, a Guide to the Most Common Personal Finance Questions”. He has contributed articles or been quoted on personal finance by the WSJ, USNews.com, Yahoo Finance, HuffingtonPost, & Fedsmith.com among others. He has appeared in financial planning news articles at What’s Up Annapolis magazine, Taste of the Bay magazine, The Severna Park Voice, & on Michael Hodes’ Estate & Chris Hensley’s Retirement Planning radio shows, as well as on ABC News TV Affiliate WMAR in Baltimore.He is the host of the bi-weekly TV show “Your Future Your Finances which airs on channel 16 MMC in Montgomery County MD. Brian is a member of the Maryland Financial Planning Association & participates on their PR committee, & is on the marketing committee of the West County Chamber of Commerce. His profile as a financial planner is featured at wiseradvisor.com, the CFP board’s letsmakeaplan.org site, nerdwallet.com, Guidevine.com, SaplingAdvisory.com & Brightscope.com. He has been interviewed as a featured author at Businessinfoguide.com. He was named a 5 Star Wealth Manager for 2015.He is a CERTIFIED FINANCIAL PLANNERTM (CFP®), Chartered Life Underwriter (CLU®), & Certified in Long Term Care (CLTC). He holds his FINRA Series 7, & 66 registrations. Brian graduated from Towson University with a B.S. in Business Administration & a minor in English. He lives with his wife Merin & their daughters Charlotte & Caroline in Odenton, MD.Securities offered through Triad Advisors, Member FINRA / SIPC. Advisory Services offered through Planning Solutions Group, LLC. Planning Solutions Group, LLC is not affiliated with Triad Advisors. PSG Clarity is a division of Planning Solutions Group, LLC.Maryland Office 8161 Maple Lawn Blvd, Suite 400, Fulton, MD 20759 • Phone [phone] • Fax [phone] • [e-mail]

Book preview

The Personal Finance Handbook

All the Best Personal Finance Questions & Their Answers

by

Brian Kuhn

Copyright © 2015 Brian Kuhn

All rights reserved.

ISBN: 1507624670

ISBN 13: 9781507624678

Smashwords Edition

Summary

The Kitchen Table Financial Handbook is written to address the most commonly asked questions of CERTIFIED FINANCIAL PLANNERTM, Brian Kuhn. This guide is designed to assist those contemplating what they will need to do to plan for major events in their adult life including finding college money, buying an automobile and planning for retirement and many others. Take this book to your kitchen table and use it in the same way that you would use your favorite cookbook.

Contents

Summary

Introduction- Gift Boxes for Golden Years

Section I –Weigh Your Anchors

Decide Where to Land Before Taking the Leap

What’s the safest place to put my money?

Safe or Safety Deposit Box in Home

From the Department of Treasury

Physical Assets

Final Thought on Safe Places to Stash Money

How Can I Prevent Identity Theft?

Popular Places to Grab Your Identity Information

Teens and Children – Latest Targets of Identity Theft

General Rules to Protect Your Identity

What to Do If Your Identity is Stolen

Recognition Passes for Grown-Ups Only

What Do Creditors Look for in order to Approve Your Credit Request?

Know your credit utilization factors

What Is Contained in Your Credit Report?

A Few Things to Know about Credit Cards

Card limits are not written in stone.

Fees and Transactions Subject to Interest

Fees Subject to Interest Charges

What Is the Best Way to Negotiate Lower Interest Rates?

How do I maintain good credit? The Do’s and Don’ts!

How Long Will It Take to Pay Off My Credit Card?

So You Want to Cancel a Credit Card

What about Wheels?

Should I Buy or Lease a Car?

Comparing Options

When Does It Make Sense to Lease?

The Impact Buying or Leasing Has on Credit

What Happens if I Declare Bankruptcy?1

Debts You Get to Keep – Like it or not

Types and Purpose of Bankruptcy

Determining Your Answer to Debt Relief

The Ugly Truth

Another Alternative - Non-Bankruptcy Workouts

Bankruptcy is a privilege not a right

Chapter 12 Bankruptcy

The Service Members Relief Act or SCRA

Declaring Student Loans in Bankruptcy Filing

The Process

How Is My Credit Affected after Bankruptcy?

Working It Out

Is it better to start a business or work for someone else?

To Stay or Go – Where’s My Dough?

What Makes an Employee Invaluable?

Characteristics of Invaluable Employees

Characteristics of Entrepreneurs and Business Owners

Preparing to Own a Business

If I start a business should I be a sole-proprietorship, LLC, LLP, C Corp or S Corp?

Ignoring the Money Talk

I hate budgeting.

How do I have a productive conversation about money with my spouse?

Making a Budget Bearable

The One Thing No One Puts on Budgets

Let This Egg Be Mine

Everyone Retires Individually

The Effect of Inflation on Retirement Funds

Quantity of Costs – Behind the Curtain

When Inflation Became the Norm

Necessity as the Mother of Inflation

When the War Was Over

Creating Your Own Hedge Fund

When Should I Start Saving for Retirement?

Financial First Aid

Can I be sued and lose all my money?

Do I need disability insurance?

What Assets are Protected?

Should I stay in my current home or downsize when I retire?

What is the best state to retire to?

What happens if I go live overseas when I retire?

How much money do I need to retire?

Section II- Finances with Family Involvement

Protecting Family and Finances

What happens if I die without a Will?

Is a Will the only legal document I need?

How do I provide instructions for my spouse if I died?

What happens if both my spouse and I die while our children are minors?

How do I make sure my children from my prior marriage Inherit my money when I die?

Leaving Your Property to Your Surviving Spouse

How do I leave my children my money without them spending it unwisely?

What is a TOD or POD designation?

What’s the difference between JTWROS, JTTEN and JTIC?

The Advantages and Disadvantages of Joint Tenancy

Should I put my child on my bank account or residence title?

How do I assure my child with special needs is taken care of if my spouse and I pass away?

What’s the difference between a will and a trust?

Different Types of Trusts to Consider

Totten Trust

Irrevocable Life Insurance Trust

Discretionary Trusts

Special Needs Trust

First-Party SNT

Third-Party SNT

Pooled SNTs

IRA Trust

AB Trusts

Incentive Trusts

Should You Tell Your Beneficiaries

Making Sure That Your Family Stays Afloat After You’re Gone

What’s the biggest risk I face as a household?

What’s the difference between Whole Life, Universal Life, and Variable Life?

What kind of life insurance should I get?

How much life insurance do I need?

Can any of my insurance raise the rate they are charging on me?

How do I check to make sure my beneficiaries are correct?

Protecting Family and Finances When Couples Split

What’s the difference between a community property state and a non-community property state?

What Makes Property a Community Possession?

What is Equitable but Not Equal in Community Property States?

What is Equitable but Not Equal in Equitable Property States?

Moving from Community Property to Non-Community Property States

Moving from Non-Community Property to Community Property States

A Good Education is Expensive

Narrowing the Target

What’s the best way to save money for my child’s college?

What is the fastest way to save and grow money for my child’s college?

What happens to a 529 plan if my child doesn’t go to college?

What do I do with my child’s old UTMA/UGMA/ESA/Coverdell account?

How do I save money on college costs?

Section III – The Government in My Life

What services does the government really offer?

Are there any tax deductions I am missing?

How long do I need to keep all my old financial documents?

Will my family owe taxes to the state or federal government when I die?

If I receive life insurance proceeds are they taxable?

Should I plan on trying to pay off my house by the time I retire or keep it for the tax deduction?

Will Social Security still be there by the time I retire?

When can I take my Social Security?

If I have a deceased or ex-spouse, how does their work record affect my Social Security?

Does Social Security provide anything besides retirement income?

Can I work and still collect my Social Security?

If I can become disabled can I still work in a job I can do?

Unscrambling Government Directed Health Care

What is Medicaid?

What is Medicare?

What is Medicare Part D?

How much does Medicare cost?

What is Medigap?

What is Obamacare?

What’s the difference between an FSA and HSA?

How much does long term care cost?

Can the government or nursing home take my money if I need care?

How do I stay out of a nursing home as I get old?

Will the government take care of me when I get old?

What extra benefits do I get for being in the military?

Since I am a veteran will the VA take care of me if I need long term care?

Will my pension provider go bankrupt and stop paying me?

Should I take a lump sum or income stream from my pension?

Section IV – The Art of Growing Money

Is there anything I can invest in besides the stock market?

Should I buy rental properties to create retirement income?

How much risk should I take with my investments?

What organizations protect me regarding my finances and investments?

What’s the difference between an IRA, 401(k) and 403(b)?

IRAs - Individual Retirement Accounts

How do I take my old 401(k) with me when I change jobs?

How do I keep track of the cost basis on my investments?

What’s the difference between an IRA and a Roth IRA?

How much is my IRA taxed?

When and how much does the IRS make me take money out of my IRA/401(k)?

Is there any way to avoid the required minimum distribution on my IRA?

Should I do a Roth IRA or a regular IRA?

Is an annuity good or bad?

If I buy an annuity do I have to give up all my money?

Stocks & Bonds and Other Market Securities

What does owning a stock really mean?

What does owning a bond really mean?

Should I invest in Municipal bonds?

What does owning a mutual fund really mean?

What’s the difference between a closed end fund and open end fund?

Which is better a Mutual Fund or an ETF?

What does owning a REIT really mean?

What does owning a MLP really mean?

Should I invest in gold?

How do I actually get to a person when I call the company that manages my money?

Section V – Why a CERTIFIED FINANCIAL PLANNERTM

Addressing Fairy Tales about Financial Advisors

Introduction- Gift Boxes for Golden Years

Some people hear the phrase retirement plan and cringe at the thought that they still do not have an adequate plan if they have any plan at all. There are several reasons and plenty of excuses why people are not creating workable plans to protect their own futures. So, let’s start by getting rid of the myths and excuses.

● Retirement plans and investments are only for the upper income brackets.

● I don’t have enough money to invest in anything.

● I’d put money in a 401(k) plan but my company doesn’t offer one.

● I’m saving for a down payment on a house right now.

● Once I’m financially stable, I’ll use my left-over cash for a retirement base.

● I don’t know anything about saving money or investing.

● I’ll never be able to set aside enough to live on for 20 or 30 years.

● I’ll just have to make do with social security benefits.

One of the biggest misconceptions is wrapped up in all of these excuses. There is a perception that you cannot or should not set up a retirement plan until you have extra money or your bills are paid off. Yet if you were told that inside a gift wrapped box is a brand new car, a yacht or a down payment on a home, would you save what you needed to enjoy these items?

Of course you would. Actually, every working American has saved up money to buy at least one or more of these items at some point. If you think of a retirement plan as a present that you are going to give yourself when you are no longer able to work as you do now, would you be more inclined to put money aside for your gift box? You can do it.

The percentage of Americans with something set aside for those golden years went from 60% to less than 40% with the onset of the economic demise of 2008 partly because 20% needed the funds for family support following a job loss, lost all the value of their investments. According to the latest statistics from the Bureau of Labor Statistics for the U.S. Government, only 53% of American Households have some type of retirement plan established.

Of that 53%, the vast majority (approximately 80% or 42.4% of the 53%) work for companies with more than 500 employees and have an income in the top 25% of all workers in the U.S. According to the Census Bureau statistics, the top 25% make more than $185,000 per year on average.

● 70% (or 37.1%) of the same 53% of workers with a retirement plan are employed by companies with more than 500 employees and make more than $83,000 per year.

● The balance of the 53%, are the 20.5% of workers with a retirement plan works for enterprises with less than 100 employees and make on average less than $50,000 per year.

Again, this is income per household not per individual which means that as an individual, the retirement preparation rate may be considerably lower in the bottom 25% compared to the upper 25%.

If you really want to feel depressed, USA Today did a household survey in April 2014 and reported that of the sampling that they took, 60% of all working Americans had less than $25,000 in a retirement account not including a pension plan provided by employers, primary residence or a defined benefits plan.

This means that only 31.8% of the 53% of American households preparing for retirement have more than $25,000 set aside – including the top income brackets.

The truth is:

● Retirement plans are more necessary for those in the lower and middle income brackets than for those in the upper brackets.

● You will never have enough money to invest unless you start.

● Your employer no longer has to be the one offering a 401(k) for you to invest for retirement!

● You can save for more than one thing at a time – Gift Box, new car and home.

● Use money that you’ve tagged Gift Box because life always manages to spend your extra money.

● Start saving first and then talk to a financial advisor that can help you.

● The goal is not to set aside all the money you need to live on for the next 20 or 30 years. The goal is to set aside a decent chunk to make life more pleasant and monitor how you are doing over time.

● If you believe that you will be able to live on social security benefits when you retire, find out what you will get from social security if you retire at 70 and live on that monthly amount now and see how it goes.

Expenses do not lessen as you get older. And those golden years turn into dented nickel if you haven’t a nest egg to help out.

Section I –Weigh Your Anchors

In this first section, focus is placed on financial issues that permeate life for most people at one time or another. Whether you believe you will never be able to retire or not, you will at some point be physically unable to work full time at any job. It’s one of those nasty tricks that Mother Nature imposes on all of us.

Yet, ignoring the steps necessary to reach a point that you are not a financial burden to your family starts while you are still working and have the ability to control what, where and how you spend your money. These are answers to questions that are rarely addressed by parents or in school but are necessary to understand in order to make a reasonable decision as an adult.

The decisions you make become the anchors that allow you to prepare for your future retirement years.

Decide Where to Land Before Taking the Leap

For those who are newcomers to seriously considering creating a few Gift Boxes for their older years, there are some common questions that nearly everyone asks. The first year when you are getting started is the hardest only because you will need to adjust your thinking and change some habits. But it may still be easier than quitting smoking or going on a diet.

What’s the safest place to put my money?

Most people on first meeting a financial advisor in a public setting such as a seminar or charity event ask for general information rather than questions that would apply specifically to their finances.

It would be nice if answering the safest place to put you money had only one answer that was suitable to nearly everyone. But it doesn’t. Where you put your money depends on what you need that money to do, if anything at all.

Because the questions below are generalities, the answers are not definitive to your particular situation but may help you to determine details that are useful to you.

Safe or Safety Deposit Box in Home

Before you laugh, having at least some cash in a safe in your home – or a safety deposit box that perhaps not even your children know about – is important. Just don’t hide it in the freezer that’s too easy to find.

This is your Disaster-Cash-to-Dash account.

Every area of our country is liable to experience natural disasters, some more so than others. Hurricanes, tornados, earthquakes, floods, snow storms and forest fires can shut down power and make it impossible for you to use a bank or credit card to access your funds.

As a simple rule of thumb: save up enough emergency cash that you can reach if you have to evacuate your home or city to last at least 2 weeks. Generally by that time, you’ll be able to get into your bank or credit accounts.

Federal Credit Unions offer more options and better service than other facilities for depositing funds. Online Only Banks offer better services and lower fees than traditional banks but use of ATMs is underdeveloped at this time.

From the Department of Treasury

If you have yet to visit the website for the Department of the Treasury, you may be surprised at the variety of instrument options now available to help you start saving without a ton of money.

Treasury Bonds –

For the purpose of safe-keeping, Federal Treasury Bonds1 are an excellent option for funds that you don’t want to keep in a bank or credit union. There are three different types of Treasury Bonds.

● The first type is an auction bond sold in increments of $100 each with interest rates determined by the auction price and matures in 30-years. Current interest rates for what is referred to as the Discount 30-year Treasury bond is 2.83% as of March 2015 with interest paid on the bond every 6-months. If you choose to purchase what is called a Premium Bond, you set the minimum amount of interest that you will accept and how many bonds you are purchasing. When the bonds are auctioned, you may or may not win the bid.

● The second type is called an EE Bond which is sold at $25 per bond and interest is accrued over a 30-year stretch. Current interest rates are only 0.10% per year. You can cash these in after one year with a penalty on interest or hold them for a minimum of 5-years with no penalty. They mature at full rate in 30-years.

● The third type is an I-Bond (or Inflation protection bond) with a purchase of $25 for electronic bonds and $50 minimum if you purchase these with your income tax refund. If you purchase with income tax refunds you will receive paper certificates. Otherwise, there are no paper certificates. Current interest rates are 1.48% as of March 2015. You can purchase up to a maximum of $5,000 with tax refunds or $10,000 if you buy electronically.

You can purchase any of these bonds at www.treasurydirect.gov by setting up an online account. Another option that you might want to consider is to set up a payroll savings option and automatically deduct a specified amount (such as $25) from your pay each period.

The 30-year Treasury bond can be purchased through Treasury Direct or through your bank or broker. Bidding is handled in the same way that purchases are handled. However, if you are just starting out and want a safe place for your money to grow, purchases pay less interest but you can purchase them immediately without bidding against the high-rollers.

Marketable Securities

Securities are not the same as Bonds but these are another potential way to save money while investing. Although many experienced investors purchase Treasury Securities, including other countries, these marketable securities are a great way for novice investors without a ton of cash to dip their toes into investments.

These are exempt from all state, local and federal income taxes, so making money on them does not count as income. If you are already retired and on a social security, buying a few of these can give you the ability to increase your income, pad your retirement funds or leave for your family’s inheritance.

● T-Bills – These securities are sold in increments of $100 and are issued for terms starting at 4-weeks up to 52-weeks.

● T-Notes – Not to be confused with T-bills, the T-notes are longer term security investments ranging from 2 to 10 years with a fixed rate of interest determined at the time of purchase according to the close at auction. The interest accrues every 6 months. T-notes are sold in increments of $100, can be a way to set aside money for education funds as well as retirement.

● TIPS aka Treasury Inflation-Protected Securities – These securities are sold in $100 increments for terms of 5, 10 and 30 years. The Fixed Rate Interest is paid twice a year until maturity on the adjusted principal. This is where TIPS differs from other securities because the principal value is adjusted according to the Consumer Price Index which can experience fluctuation. Essentially, you are buying insurance against the fluctuating rates so when inflation or deflation occurs, you aren’t losing all your money.

myRA Account

The "myRA just opened up to workers in the U.S. with less than $129,000 income per year for individuals (less than $191,000 for couples) who want to set up a retirement gift box" but lack the money to get it started.

● There are no minimums to open the account – you can start with $5.

● You can set the deduction for any amount - $7, $16, $25 – pick a number that you are comfortable with and it is deducted from each pay check.

● Since this is not tied to your employer, with the exception that they are required to make the deduction, if you leave that job and go to another job you aren’t losing any money or time in rolling over the funds to a new account.

● Your employer is not charged a fee for depositing your money and does not administer these accounts.

This is a payroll deduction account and your employer is notified to make your contributions each pay period.

Physical Assets

One of the most common physical assets that people invest in to use for retirement is real estate. There was a time when people believed that owning land was the most secure way to protect your hard earned money and that the value of land only goes up because it is finite.

The housing crash of 2008 and 2009 certainly changed the way Americans view purchasing a home and / or land. There are still millions of people whose houses are underwater if they purchased a home in the era of the bubble. Worse, there are millions of homes that have been repossessed and are sitting empty in city after city uncared for and deteriorating.

For real estate investors, some of these properties are being bought up and refurbished, taken down and replaced with commercial properties.

Precious metals –

Buying gold, silver and platinum jewelry can be a good investment. Buying gold and silver coin collections that are advertised on television and the internet may be a poor choice. If you choose to invest in precious metals, consider jewelry and select pieces with the highest content of the metal. For example, gold jewelry that is solid 23kt gold is nearly pure while 10kt is only ½ gold and ½ base metals.

Collectibles –

If you watch Antiques Roadshow then you know that an antique can be worth much more than the original cost. This requires that you keep the collectible long enough for it to appreciate in value. The problem with collectibles no matter what category is that their value is going to fluctuate wildly according to what other people or future generations want to collect. If you choose to put some of your money in a collection, first love the item. You might get stuck with it.

Final Thought on Safe Places to Stash Money

Often people with minimal income feel defeated before they start. Here are some ideas to get you started in saving money that you can later invest in one of the other options.

● Save what you can. Bank accounts are able to be opened typically with as little at $5 and money can added when you have it. Then once larger sums are accumulated other options can be considered.

● For those who are working part-time jobs, you can open a myRA account and start having $5 per pay period deposited directly into your account from as many employers as you wish.

The one thing that the experts in financial planning recommend is to have several different methods of saving and / or investing your money.

How Can I Prevent Identity Theft?

Preventing identity theft is one of the most challenging efforts that anyone must face. Generally people think of their identity being stolen because of using credit cards online. However, that is not what the statistics reveal at all. More people experience this kind of theft in the brick and mortar world than they do by shopping online.

Each year, there seems to be a certain number of people who experience identity theft repeatedly. The reason that just some people are attacked over and over is unclear but it is not unusual that if you have had your identity stolen once, you will have it stolen at again.

Popular Places to Grab Your Identity Information

Where are you most likely to have your identity stolen? Could it be credit card information used by unauthorized people and find that someone has opened all kinds of accounts in your name?

Believe it or not, look first at family members that are in your home with access to your bank account numbers, saved passwords, credit card information including the 3-digit number on the back of your card and who already know your address and work information. More identity thieves turn out to be close relatives to you – sons, daughters, siblings and even grandchildren.

When it turns out that one of your immediate family members are the perpetrators of this crime, and it is a crime, you have to make some difficult choices that are not going to be family friendly. You will either have to file a criminal complaint or keep silent agreeing to pay all the bills that your loved one incurred.

Either option will cause division in the family as some of members will scold you for making a relative a criminal and others will be infuriated if you don’t. This is really a no win situation. Seek an attorney’s advice before deciding what you want to do.

Trash Cans and Dumpsters

Another very popular location to gain access to your personal information is the trash that you set out in front of your home or the dumpster behind work.

● It is important that you know that once your trash is on the sidewalk, it is free for anyone to dig through and you have no protection under the law to claim that it was stolen from you.

● The same is true of dumpsters – what is in or around the dumpster is in the public domain and no