Why asset rich is not the same as cash flow rich

Net Worth and Goals MemeKJ: There is a huge difference between someone being asset rich/poor and cash flow rich/poor. “How can this be?” you might say. Shouldn’t everyone who has $5,000,000 in assets be cash flow rich and be able to do what they want? The answer may surprise you. While the figures below would put these fictitious people in the 1%, it may not be so cozy for one of these families, and an example outlining the two concepts may help put it in perspective.

Family scenario one details:

    Two people, age 65, recently retired
    Net worth of $5,000,000
    Home value of $2,000,000 with a loan of $500,000
    Second home value of $750,000 with a loan of $250,000
    Retirement accounts of $2,000,000
    Regular investment savings of $1,000,000 (with 50% in private equity)
    No other loans
    $50,000 per year in total household inflows
    Living expenses of $175,000 per year

Family scenario two details:

    Two people, age 65, recently retired
    Net worth of $5,000,000
    Home value of $500,000 with no loan
    Second home value of $500,000 with no loan
    Retirement accounts of $2,000,000
    Regular investment savings of $2,000,000
    $50,000 per year in total household inflows
    Living expenses of $175,000 per year

Some notable differences
Can you see how different these two scenarios may be? Their net worth is the same, their cash inflows are the same, and their living expenses are the same. However, the first couple has a significant amount of their net worth tied up in their multiple houses (not to mention, that’s probably a significant contributing factor to their living expenses with the additional cost for upkeep, taxes, insurance, etc.). In fact, the first couple may feel quite constrained with their living expenses, but the second family may have much more flexibility for dining out at fancy restaurants, traveling to exotic locations, donating more to charity, gifting to family members, etc. If something happens in the market and their investments decline in value, they can more easily cut back on those discretionary expenses, whereas the first couple’s expenses are likely to be much less flexible at precisely the time where they may need it to be so.

Learn the roles of each component of your net worth
Part of building your savings and net worth over time is to understand the different components of your net worth. Some investments (often dubbed alternative strategies, hedge funds, private equity) may not be readily accessible if/when you need the cash, but additionally, your home may not be able to be sold quickly if you need the cash equity (if it even exists like millions of homeowners saw coming out of 2008). If you don’t have the wherewithal to know where to start, find someone who does!

All net worths are not created equal
It’s not all about the number next to your net worth that’s imortant, but it’s equally important to understand the composition of your net worth. Can you readily access the money if you need it or would it be cost prohibitive? If the economy is going through a slump, would that cause additional pressure on your net worth at the worst of times?

What should I do?
Much like it’s important to not put all of your eggs in one basket for investing, it’s equally important to do that for your overall financial well-being across different account types. Look to figure out what you and your family need to build each “bucket” of (1) readily accessible savings/CDs/money market accounts, (2) regular investment accounts, (3) retirement accounts, (4) use assets – home, cars, etc., and (5) HSAs, FSAs or other medical-related accounts. Research how you can access the funds and what flexibility (or lack-thereof) you have with the groups of assets, and play each one to its strengths and purposes in life. Build your personal balance sheet statement regularly and your long-term goals will much appreciate it!

    Are you “asset rich” or “asset poor”?
    Are you “cash flow rich” or “cash flow poor”?
    Tell us about what you can do to improve your situation.

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Same sex marriage and new planning considerations

Same Sex Marriage Equality Sign.jpgKJ: With the repeal of the Defense of Marriage Act (DOMA) and the recent rulings from the IRS, the rights of same-sex couples have changed dramatically, and there are many financial planning implications for the sweeping changes for taxes, long-term planning, gifting, and retirement. Here’s what you need to know about the recent changes and how it may impact your life or the lives of loved ones:

Income tax implications
Married, same-sex couples are now treated as married for federal income tax purposes. Also, looking forward, you are required to either file as married filing jointly (MFJ) or married filing separately (MFS). Typically, it’s better for a married couple to file as MFJ, but please seek professional tax advice to explore the options further. One thing many same-sex married couples may see is that their income taxes could actually increase given that a number of deductions, phase-outs, etc. for married individuals are not simply double the rates of single filers. An additional part of the ruling from the IRS stipulates that married same-sex couples are actually allowed to refile their tax returns going back three years from the date of their tax return filing. This additional feature isn’t a requirement, but if the calculations turn out to be income tax beneficial, then you can file and claim the tax refunds.

Gift and estate tax implications
When two U.S. individuals are married, they can gift an unlimited amount of funds to the other spouse without incurring gift tax consequences. This did not used to be true for same-sex couples, so they had to use their annual gift exclusion (the amount each person can give each other person per year without gift tax consequences – $14,000 for 2013) and their lifetime exemption. Now, with the IRS changes, same-sex couples can enjoy the same treatment from both gift and estate tax systems as other married couples.

Your state of residency doesn’t matter
The IRS recently announced that in order to be considered married for income tax purposes, then you simply have to have been married in a state that recognizes the marriage – regardless if you reside in a state that does not recognize the marriage.

Other considerations
More and more companies are allowing for medical benefits to cover domestic partnerships, and previously, the premiums paid on behalf of a partner were taxed as income to that individual. With the IRS’s ruling, this is no longer the case, and it may help reduce the income tax burden of covering a same-sex partner through employer benefit programs. Additionally, same-sex couples can now qualify as married with respect to benefits at an employer.

What hasn’t been addressed
The IRS didn’t address anything about cohabitation arrangements or civil unions, so those arrangements remain unchanged. The recent IRS ruling only applies to married couples.

There is still a lot to be addressed with other Federal programs like Social Security, but significant changes have been made, and the IRS rulings have paved the way for other benefits and rights to be extended to same-sex married couples. With spousal benefits for Social Security, Medicare, etc. potentially opening up to same-sex married couples in the future, the implications for your benefit amounts could be dramatically different. Consider consulting a tax advisor and financial advisor to explore how the recent sweeping changes may impact you.

    Do the recent rulings impact your life?
    Does this impact the lives of any of your loved ones?
    Tell us about what this means for you.

Same sex marriage and new planning considerations is copyrighted by TheSimpleMoneyBlog.com without consent to republish.

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Why grocery ads are a budget’s best friend

AJ & KJ: Congratulations to our winner of the Cardpool gift card giveaway! It’s great to give back to those who have given so much of themselves. We hope you enjoy the gift card and get some great use out of it. Enjoy the site…we certainly have!

Pick the grocery shopper
Tom Thumb Grocery Ad.jpgAJ: we’ve mentioned previously that groceries and meals are squarely within my wheel house. As responsible and reasonable as Kirby is, the grocery store is no place for him. He’s swayed by large quantities of items we rarely eat that live in our pantry for months on end even though he means well and truly does intend to eat all 96 pop tarts! Personally I’m an efficiency grocery shopper. My lists are organized by rows in my store and are outlined for specific dates to coincide with sales ads.

Create a grocery list
My grocery lists start months prior to my actual grocery shopping. They’re drafted based on the meal plans I create along with basics we regularly purchase (onions, milk, eggs, toilet paper) and I reference them alongside sales ads for up to a month prior to the week that I will need the items. Many times canned goods, frozen items and meats go on sale at some point within the month I will need them, but were I to wait until the week I needed them, they might be as much as 4 times higher priced.

Utilize store clubs & learn their sale schedules
I belong to two store clubs in addition to Costco and use those discount and coupon opportunities weekly. Most stores issue ads on Wednesdays along with weekend or one day specials. Some weeks this is tedious and somewhat irritating, as you would have to make three trips some weeks in order to get everything you need on the days in which they are actually on sale which is why pre-planning is crucial. One program we utilize frequently is the Tom Thumb “Just 4 U” system. You can find coupons online or via their iPad/iPhone/Droid apps and load them directly to your account. Just be sure to check the receipt when checking out to make sure the coupons were loading properly!

Planning weeks (or months) in advance creates financial flexibility
Beginning to pay attention to your grocery list four weeks in advance might seem absurd, but it actually simplifies our lives especially with regards to unnecessary financial strain. Planning is far less stressful than overspending in my world. Research has allowed Kirby and I to get ahead on our savings month over month which ultimately means we’re contributing to our savings at an increased pace. Plus, time is on our side, so we are saving early to see if we can get on track.

Practice makes perfect
KJ: The more you plan, the better at it you get, and the less time involved in each step. Much like building a budget for the first time, you don’t really know how to plan for what to normally expect let alone how to plan for anything unexpected that comes up. So start planning and create a system. If you find your system is causing you too many headaches than what it fixes, then tweak it a bit until you find your stride.

    What grocery ads do you use regularly?
    Do you plan ahead?
    Tell us how you plan your meals for your family.

Why grocery ads are a budget's best friend is copyrighted by TheSimpleMoneyBlog.com without consent to republish.

Some of the links in the post above may be affiliate links. This means if you click on the link and purchase the item, we will receive an affiliate commission. We feel strongly about only recommending products or services we use personally and/or believe will add value to you, our readers. Read more about our commitment to providing quality product recommendations.

Gift card giveaway

Cardpool Gift CardKJ: Gift card giveaway is the name of this post since our blog is officially one year old, and what better way to celebrate than to give out a free gift card!? A special thanks goes out to all our loyal readers for continuing to make this one year mark possible! We are giving out a gift card for Cardpool.com for up to $25 (Update: gift card giveaway now closed). We don’t receive any kind of referral for this site, and we thought this site was just too good not to share with our readers!

Too good to be true? Nope!
I’ve come across a number of discounted gift card sites over the years, but I recently stumbled across one that sounded almost too good to be true. The name of the site is Cardpool.com. You can search their inventory to find a gift card that you want, and place your purchase. Shipping is free on the cards, and they even have electronic gift cards you can use that are sent right to your inbox for first use. The site only works with gift cards that have NO EXPIRATION and NO FEES, so you don’t have to worry about the balance declining precipitously over time if you don’t use it right away.

Why bother?
Nobody likes leaving free money on the table, so search their inventory and find a card for something you KNOW you will use, and try it out. Believe me, there are some great discounts offered ranging from 1% – 35% off.

Don’t get suckered into an unnecessary purchase though!
Just because a card is discounted (even heavily), don’t purchase it if you won’t use it (or don’t NEED to use it). This is where being able to channel that struggle of “want vs need” is most valuable. Think about the places you go to regularly (and for us that’s Home Depot for most things needing to be fixed in our house, Petco for discounted kitty litter, Banana Republic for some nice work clothes, etc.) and see if any are on this list. If they are on the list, great, but if not, see if they have been on the list before, and you can actually sign up to get notifications when new gift cards become available.

How it works
Other people who do not need or want a gift card anymore can sell them to Cardpool.com for money. Cardpool pays you within 24 hours and have a set percentage they take off the top – each offer is different for each brand. You get your payment right away, and you don’t have to wait until the gift card subsequently sells. Plus, if you don’t have an even amount on your card, it doesn’t matter! The more people using the site (both buyers and sellers), the better the site’s inventory can be to those who want to buy the discounted gift cards – like us!

Whole gift cards aren’t likely
You aren’t likely to find a gift card that is exactly $25, $35, $50, etc., so keep in mind that you may get one with $44.13 left on it. After all, the even amount of a gift card is an arbitrary figure anyways…when was the last time you bought something that was exactly $25 or $35? If you’re OCD and this is likely to cause you stress, then brace yourself, or you know, leave it for the rest of us who just want to save a little extra money on our purchases!

Our first purchase
Our first purchase on this site was for a hefty Home Depot gift card. We were looking to replace some lightbulbs in our house with some more energy efficient LED bulbs (great by the way!), and we had found them heavily discounted on Home Depot’s website, PLUS we saved an extra 7% on the purchase by getting an electronic gift card sent to our e-mail for near-instant use. The best part about it is we made the purchase with our credit card (that is paid off in-full each month mind you)! Not only did we enjoy the 7% off the gift card, we still earned our cash back rewards on our credit card for the purchase. Win-win!

So search around their site and see if there’s a gift card you want to buy (or sell), and leave us feedback on how it worked for you. Also, don’t forget to follow us to receive updates:

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    Have you heard of Cardpool.com?
    Will you consider using the site?
    Share with us why or why not!

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Some of the links in the post above may be affiliate links. This means if you click on the link and purchase the item, we will receive an affiliate commission. We feel strongly about only recommending products or services we use personally and/or believe will add value to you, our readers. Read more about our commitment to providing quality product recommendations.

A year in review

Simple Money Shock FaceAJ & KJ: We’re coming up on our one-year anniversary of our blog, and we can’t believe what a big year it’s been! We started this blog last October, went on the trip of a lifetime, and bought a new home just to name a few things!

We hope you have enjoyed our posts and that you have found some valuable information on how to build your savings and retirement nest egg. We look forward to continuing to bring you interesting and relevant content and if you haven’t already, follow us on Twitter, like us on Facebook, +1 us on Google, connect to our RSS feed, or get our posts delivered to your inbox. Find a post you like? Share it with others!

This year, we’ve covered everything from discussing Quicken or Mint? to addressing how to maintain balance to DIY projects like building a desk.

Want to read more on the importance of saving early? Start with the following posts:

Read our series on some simple, frugal tips:

Get the low-down on personal finances 101:

Use our posts as a stepping stone to work together on your finances by discussing:

Begin to navigate the maze that is children’s education:

And, while you’re at it, check out our archives pages for a list of all past posts organized by category (there’s over 90 available!), or check out the nifty search feature in the top right of the each page.

Thank you for your loyal readership, and here’s looking forward to many more years! We couldn’t have done this without you!

A year in review is copyrighted by TheSimpleMoneyBlog.com without consent to republish.

Some of the links in the post above may be affiliate links. This means if you click on the link and purchase the item, we will receive an affiliate commission. We feel strongly about only recommending products or services we use personally and/or believe will add value to you, our readers. Read more about our commitment to providing quality product recommendations.