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Summer 1997

Wink Tax Services

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IN THIS ISSUE . . .

ACHIEVING YOUR FINANCIAL GOALS

What are you doing to ensure that you achieve your financial goals? Developing and following a written financial plan will give you a road map to help in the process:

1. ASSESS YOUR CURRENT SITUATION.

First, you should assess your current financial situation by preparing a new worth statement and an analysis of your spending. See the article "Assessing Your Current Situation" for more details.

2. ESTABLISH WRITTEN, SPECIFIC FINANCIAL GOALS.

Numerous studies have shown that individuals with specific, written goals achieve greater success than individuals with no goals or only very vague goals. Set exciting goals to keep you motivated to reduce your current spending to save for the future. List your goals in order of importance. Since you may have limited resources, some goals may have to be postponed until others are satisfied. Set interim goals as well as an ultimate goal so that you can measure your progress toward your final goals.

3. DEVELOP A DETAILED PLAN, WITH SPECIFIC STRATEGIES AND TIMETABLES.

Youíll need to consider current resources, future funds available for your goal, expected rate of return on investments, and many additional factors.

4. IMPLEMENT YOUR PLAN.

This is the step where many people fail. Preparing a financial plan is a process that can be accomplished in a short period of time, but implementing the plan requires a lifetime of discipline and dedication. To help, keep these tips in mind:

Make saving and investing part of your monthly routine so that it becomes second nature to you.

Donít become overwhelmed by the amounts you need to save. In many cases, it will take years to see substantial progress toward your goals.

Develop an investment strategy that is compatible with your risk tolerance.

Donít try to accomplish too much at once or you will become disillusioned with your entire plan.

5. MONITOR YOUR PROGRESS.

You should monitor your progress at least annually, altering your plan if progress is not satisfactory or if your goals have changed.

6. SEEK HELP WITH YOUR PLAN.

While you can certainly prepare a financial plan by yourself, there are some advantages to engaging a professional for help:

To obtain the advice of an objective professional who is knowledgeable about all areas of financial planning and will ensure that significant concerns are not overlooked.

To keep up to date on new developments in the financial arena.

To help provide the discipline you need to implement your plan. People are usually more inclined to follow a plan if they know someone else is monitoring their progress also.

To ensure that all financial decisions make sense in the context of your overall financial plan.

Please call us at (800) 878-4036 if youíd like help with your financial plan. Together, we can work to help ensure that your financial objectives are reached.

DEALING WITH YOUR FINANCES DURING DIVORCE

While divorce is a painful time, emotionally, you mustnít forget that divorce will also have a significant impact on your finances. Many important financial decisions must be made during the divorce process and it is generally better to obtain financial advice before, rather than after, a settlement is made. Some of the items that will need to be evaluated include:

CONSIDER WHETHER YOU REALLY WANT TO KEEP THE MARITAL HOME. Make sure you can afford all the costs of running the home after the divorce. If you later find out that you must sell the home and move to a less expensive home, you may be faced with a significant capital gains tax bill. It may make more sense to sell the home as part of the settlement, so that both spouses can share any tax liabilities or can defer the gain by purchasing a home equal to half of the adjusted selling price of the original home. Couples age 55 and older need to time the sale carefully to preserve their one-time exclusion of $125,000 in capital gains.

MAKE SURE YOU THOROUGHLY REVIEW YOUR INVESTMENTS BEFORE AGREEING TO A SPLIT. Even though two investments may have equal current market values, one may have greater future prospects than the other. Some investments may be difficult to value accurately or to sell quickly if you need to. You also need to consider potential tax liabilities.

DONíT FORGET ABOUT RETIREMENT PLANS. Pensions, 401(k) plans, and individual retirement accounts are usually considered marital assets. These assets are particularly important to a spouse who has no retirement assets of his/her own.

ENSURE THAT ANY PAYMENTS DUE TO YOU IN FUTURE YEARS ARE COVERED BY LIFE INSURANCE. In the event that your former spouse dies, you want to ensure that there are proceeds available to pay amounts that are still due to you.

CONSIDER MEDICAL INSURANCE COVERAGE. If you have been covered by your spouseís employer-based medical coverage and your spouseís company has 20 or more employees, you should be able to keep that coverage for 36 months under Cobra However, you will have to pay for the coverage unless you make arrangements with your spouse.

MAKE SURE TO SPECIFY IN WRITING WHO IS RESPONSIBLE FOR JOINT DEBTS.

REALIZE THAT YOUR STANDARD OF LIVING IS LIKELY TO DECREASE. Since it is generally cheaper for two individuals to live together than to live apart, you will probably find it necessary to make adjustments to your living expenses. You need to sit down, before accepting a settlement, to figure out how much you will need to cover your expenses after divorce. Although your needs may not impact the total amount of your settlement, it may affect which assets you choose. You may find that you canít afford the marital home or that you need investments for current income.

DONíT FORGET TO TAKE CARE OF ROUTINE PAPERWORK. You should reevaluate beneficiaries on bank and brokerage accounts, mutual funds, insurance policies, and retirement plans. Wills and powers-of-attorney will also have to be updated.

Donít let the emotional trauma of a divorce prevent you from making the right financial moves. Call if you or someone you know needs help dealing with the financial aspects of divorce.

ASSESSING YOUR CURRENT SITUATION

To determine whether you are making progress toward your financial goals, you need to assess your current financial situation. That involves preparing both a net worth statement and an analysis of how you are currently spending your income.

NET WORTH STATEMENT

A net worth statement lists all of your assets and liabilities, with the excess assets equaling your net worth. Be sure to list all assets, including vested balances in retirement plans and 401(k) plans, personal property, jewelry, and household furniture. Value assets at the amount you would obtain if you sold them now, not the amount you actually paid. You should prepare a net worth statement at least annually to measure the progress you have made during the year. When reviewing the statement, consider the following items:

HAS YOUR NET WORTH GROWN MORE THAN THE ANNUAL RATE OF INFLATION? To make sure you are not losing ground to inflation, your net worth should increase by at least the inflation rate. Ideally, it should increase much more than that.

WHAT IS YOUR RATIO OF ASSETS TO LIABILITIES? If this ratio is decreasing, you should carefully assess whether your debt load is becoming burdensome.

WHAT IS THE TREND IN YOUR SHORT-TERM AND LONG-TERM LIABILITIES? Short-term liabilities include items such as credit card balances and auto loans. Hopefully, you should be finding ways to decrease this type of debt.

WHAT PERCENTAGE OF YOUR ASSETS IS FIXED AND WHAT PERCENTAGE IS LIQUID? Fixed assets include items like home or jewelry. Although they may increase in value over time, it can be difficult to sell them in a short period of time. Liquid assets, such as bank accounts or stocks, can more easily be converted to cash when needed. It is important to have sufficient liquid assets to cover financial emergencies.

HOW DID YOUR INVESTMENT PERFORM DURING THE PAST YEAR? While you are thoroughly reviewing your financial position, now may also be a good time to do a thorough analysis of your investmentsí performance during the past year.

ANALYSIS OF SPENDING

Even if you donít feel a need for a strict budget, itís still a good idea to analyze how you are spending your income. This analysis can help you determine how to reduce spending and increase savings.

First prepare a cash flow statement analyzing past income and expenditures to reveal your current spending patterns. List all your income for the past year as well as expenditures by category. Even if you havenít been keeping track of your expenditures, canceled checks, credit card receipts, and tax returns will provide much of the needed information. You may want to keep a journal of all expenditures for a month if you are unable to account for large sums of money.

Divide the expenditures between fixed and essential expenses (housing, insurance, taxes, saving, etc.), variable and essential expenses (food, medical care, utilities, etc.), and discretionary expenses (entertainment, clothing, travel, charitable contributions, etc.). Analyze the statement to see if there are items you can cut back on, allocating those sums to savings.

Next prepare a budget for future spending that incorporates your financial goals. Keep these points in mind:

Male conscious decisions about how you will spend your money, donít just assume that you will spend the same as last year.

Make the budget flexible. Nothing goes exactly as planned and your budget should be able to deal with emergencies.

Budget for large, once-a-year expenditures.

Donít try to be too precise. Everyone in the family should have a reasonable personal allowance that they can spend without accounting for it.

Compare your actual expenditures to your budget periodically to ensure that you stay on track.

Keep it short, simple, and easy to implement so that you donít dread the entire budget process.

These two tools can help you determine where you currently stand financially. Prepared annually, they can also help you measure your progress in achieving your financial goals. Please call if youíd like help analyzing or preparing your net worth statement and expenditure analysis.

DID YOU KNOW?

While 37% of all households own stocks, either directly or through institutions, the top 5% of households own 77% of all equity holdings, which includes individual shares defined-contribution pension funds, IRAs, Keoghs, 401(k)s, and mutual funds. The bottom 80% of households own just 1.8% of all equities (Source: Business Week, April 22, 1996).

Stock ownership increases in households with more education. In 1990, 4.1% of stocks were owned by individuals with three years of high school or less, 20% by individuals with four years of high school, 28.2% by individuals with one to three years of college, and 47.7% by individuals with four or more years of college (Source: The Wall Street Journal, May 28, 1996).

Only 10% of shareholders make six or more trades in a year (Source: New York Stock Exchange, 1996).

It is estimated that assets in retirement accounts will increase from $3 trillion now to over $5 trillion by 2001. Currently, over half of all new contributions are being invested in stocks and equity mutual funds. (Source: Money, April 1996).

The volume on the New York Stock Exchange has doubled since 1992, while volume on the NASDAQ has doubled since 1993 (Source: Securities Industry Trends, November 22, 1996).

The U.S. equity market is now 43% of the worldís total capitalization compared to 61% in 1975 (Source: Securities Industry Trends, November 22, 1996).

NEWS AND ANNOUNCEMENTS

WEíVE MOVED!

After 7 years in our old office it was time to expand our horizons and move up in the world, well actually move 2 miles west to Crooks and 16 Mile, and up to the 3rd floor.

The real reason was to control costs, and rent is our largest single expense after personnel. We have not increased our fees in over 10 years and would like to hold the line as long as possible (maybe another 10 years). Second, the world has changed quite a bit over the 7 years we lived in the EMRC building. Back in 1990, we needed a lot of space for our library, but today over half of the library has moved onto tiny 51/2 inch CD/ROM disks and they contain twice the information we maintained in 1990.

So our new home is 1700 West Big Beaver, Suite 355, which is still in Troy and hopefully easier to reach (we are closer to I-75 and Big Beaver is 3 lanes each direction rather than 2).

While our location has changed, we have not, except maybe a little more efficient. Our 3 companies still offer a full and expanding menu of services.

Please feel free to stop on by and visit our new home (we are getting close to being unpacked) and soon we will have our virtual home up and running with home pages on the World Wide Web.

Sincerely,

Ray, Derrick, Ed, Paulette, Jocelyn, Sue, and Gloria

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We do not offer legal advice. All information provided on this website is for informational purposes only and is not a substitute for proper legal advice. If you have legal questions, we recommend that you seek the advice of legal professionals.

Tax Disclaimer: To ensure compliance with IRS Rules, any U.S. federal tax advice provided in this communication is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer (i) for the purpose of avoiding tax penalties that may be imposed on the recipient or any other taxpayer under the Internal Revenue Code, or (ii) in promoting, marketing or recommending to another party a partnership or other entity, investment plan, arrangement or other transaction addressed herein.

Copyright © 2017 Wink Tax Services / Wink Inc.
Last modified: January 30, 2017