This 13% increase in the traditional turkey dinner costs includes a meal of the following for 10 people:

• 16 pound turkey
• Bread stuffing
• Peas
• Sweet potatoes
• Rolls
• 1 lb relish tray of celery and carrots
• Pumpkin pie with whipped cream
• Milk & coffee

Writing this post is already making me hungry, I’m not sure if I can wait until Thursday for the feast!

But in all seriousness, this rising inflation should sound an alarm to everyone out there.  Costs of the things we use every day are increasing rapidly while many Americans are unemployed or underemployed.  Inflation has historically averaged about 3.5% over the last 75 years or so.  But there have been periods of time where it was much higher than that.  Most of you remember the 80′s when mortgage interest rates were well into the teens.  In fact, a 12% interest rate on your mortgage would have been very good at one time.  I only mention mortgage rates because they do tend to be tied to overall inflation rates in general.  Mortgage rates right now are very low.  In fact, mortgage rates are now much lower than the inflation rate of food, medical care, and housing.

One of the important aspects of personal financial planning is diversification.  Everyone knows that you should diversify your retirement assets into various classes to protect yourself from everything going down at once.  Diversification also protects you from missing out on an investment class that grows at a rate far greater than other classes.  If you have part of your assets in that class you’ll be able to take advantage of that increase.

Buying insurance is another way to diversify your assets.  Putting part of your money into an insurance policy to protect you from a significant loss makes good sense.  I’ve always supported buying insurance for the big things that could creast a catastrophic loss.

I want to suggest today another way to diversify your assets, and protect yourself from major losses.  This may seem crazy to some of you, but to many who are already doing this, it makes perfect sense.  I think every family needs to put some of their assets into buying extra food and other household consumables.  Having a supply of food daily consumables will protect you against rising inflation.  In fact, if you were able to use food today that you bought 1 year ago, you would have essentially earned 13% on the money you invested into that food.  I’ll bet you didn’t make that in the market last year.

Now I know that not all food items can be stored that long before use.  But there are a lot of ways to store food for much longer than a year.  Many canned goods and dry food items are packaged in a way that they can be used well over 1 year later.  Powdered milk and powdered eggs can also be purchased and stored for well over a year.  Wheat, which can be ground into flour can be stored for up to 25 or 30 years.  There’s a ton of information on the web about building up a food storage for your family.

You could also invest some of your assets into food and aggriculture stocks.  But if food becomes difficult to get, you can’t eat your shares of stocks.

We are experiencing food shortages in many parts of the world right now.  This could continue to affect food prices going forward.  Food costs rose by 13% this last year, how much will they go up this next year?

Now I’m not say to go dig a bunker in your backyard and prepare for the end of the world.  What I am saying is to just buy a little extra each time you go to the store.  Find things on sale and buy a few more of them than you normally would.  Turn an extra closet into a food storage pantry and start filling it up.  Gradually build up a storage of food and household supplies as an easy way to protect yourself from rising costs.  And if inflation really gets out of hand down the road, you’ll be glad you did.

Most successful people make a habit of setting goals every year.

How do most people go about setting goals for the New Year?  Goal setting is a big part of personal financial planning.  But setting goals is something you should do for all aspects of your life.  I have worked with lots of different kinds of clients and financial advisors, and they all do it differently.  I think the key here is that “you just DO IT!”  Every successful person I know makes a habit of sitting down and using one method or another to set goals for the New Year.  Here are 5 different methods I have heard of that work.  Take your pick, or maybe use a combination of them all…

Categories:  Business, personal, family, financial, spiritual, etc.

This is my favorite way to set goals each new year.  Maybe I like to use it because it’s the way I first learned to set goals.  I think it’s a great place to start, especially if this is the first time you have ever sat down to really think about what you want to accomplish in the coming year.  Make your goals reachable, but still challenging.  Give yourself something to really shoot for.  I was once told that if you aiming for the stars and hitting the mountain top is better than aiming for the mountain top and landing in a pile of garbage .

Blank slate approach

This approach to goal setting usually starts with a list of “what you want” and ignores what has happened in the previous year.  This could also be a great way to get started if it’s your first time really setting goals.  But most people who set goals each year usually have lots of carry over from the previous year.  Works in progress.  Projects in progress.  Goals you haven’t hit yet.  But if you really work on these goals all year long, you should have a really big “DONE” list too.

The “UGLY” list

This is opposite to the blank slate approach.  Here, you start with a list of things about your life or business that you don’t like, that perpetually bug you, create stress, waste time, adn get in the way.  These are things that when you get rid of or eliminate them, you have achieved your goal.  We all know that it’s easier to pull weeds than to grow flowers.  So with this approach, you are setting your goals by first eliminating the “weeds” from your life.

Use the calendar heavily

If you are like most busy people, you already have lots of dates blocked off way out into 2011.  Your calendar is already full with weekly activities and responsibilities.  This only leaves a limited number of “loose” days to go around.  Divide your year by months, quarters, and halves, and note the goals that you want to accomplish by the end of each period.  Setting deadlines for yourself will be extremely motivating and help you accomplish them.  Use the calendar to move items from the “TO DO” list to the “DONE” list.

Constantly monitor and modify

Most successful people I know constantly make and modify goal lists, one way or another.  Yearly goal setting is not something you do and stuff in a drawer.  You need to keep your goals where you can constantly see them, and modify them as needed.  Seeing them each day will remind you of what you want to accomplish, and will help you use your time wisely.

No matter what approach you take to goal setting, just plain doing it is the first and most important step.  Take the next day or so to really think about what you want to achieve this year, and what you want to get rid of in your life.  Do this, and by 12/31/2011, you’ll have a great big “DONE!” list to admire.

If you have any suggestions for goals setting that you’d like to share, please enter a comment at the bottom of this post.  Your contact information will not be displayed on the site.

Make it a productive year!!

Pop Quiz: How much of a lump sum would a 65-year-old need to generate an extra $500 a month for the rest of his life?

Small businesses that provide health insurance to their employees now qualify for a
special tax credit (up to 35%), due to recent health care reform legislation.  The
credit, provided under the Patient Protection and Affordable Care Act, is designed to
encourage small employers to offer health insurance for the first time, or maintain
coverage they already have.

Who is eligible?

Groups with fewer than 25 full-time equivalent employees are eligible.  The employer
must pay for at least half of the employees health insurance premiums (can include
dental and vision coverage) and must pay out less than $50,000 in average annual
wages to employees.  The total number of employees does not include the business
owner or family members.

Can an employer with 25 or more employees qualify for the credit of some of
the employees are part-time?

Yes.  Because the limitation on the number of employees is based on Full-Time
Employees, and employer with 25 or more employees could qualify for the credit if
some of its employees work part-time.  For example, an employer with 46 half-time
employees (meaning they are paid wages for 1,040 hours) has the equivalent of 23
Full-Time Employees and therefore may qualify for the credit.

How does the employer claim the credit?

The credit is claimed on the employer’s annual income tax return.

Where can an employer find out more?

Beginning in early June 2010, anyone can call Turning Point Benefits Group at 704-
887-4984 to find out more information and see if they qualify for this credit.  You can
also visit www.irs.gov to get more details.

How long will this tax credit be available to small businesses?

The tax credit is effective for the 2010 tax year, and is currently scheduled to run
through 2014.  In 2014 the tax credit increases from 35% to 50% for qualifying
businesses.

Can other organizations qualify for the credit?

Tax exempt organizations can also qualify for the tax credit.  Those organizations can
earn up to a 25% credit for the same guidelines as the small business.  That rate
increases to 35% on Jan. 1, 2014.

How would the tax credit look in real dollar amounts?

The Internal Revenue Service provided the following fictional business as an example:

Main Street Mechanic, an automobile repair shop with 10 employees, can get
$24,500 in tax credits for 2010.

Here’s how:

Tax Credit for 2014:  $35,000

Beginning January 1, 2013,  a new Medicare surtax of 3.8% will be assessed if you have income over a “threshold amount”.  The new surtax will be assessed on the lesser of:

1. “Net Investment Income” OR
2. Any “Modified Adjusted Gross Income” over the “threshold amount”

Investment Income

OK, so what the heck does that mean?  First, investment income comes from a lot of sources.  Here’s what’s included in “investment income” for purposes of the 3.8% surtax:

• Interest
• Dividends
• Capital Gains
• Annuities
• Rents
• Royalties
• Passive activity income

“Investment income” does not include:

• Active trade and/or business income
• Distributions from IRAs or other qualified retirement plans
• Any income taken into account for self-employment tax purposes

Threshold Amount

The “threshold amount” is as follows:

1. Married taxpayers filing jointly – $250,000
2. Married taxpayers filing separately – $125,000
3. All other individual taxpayers – $200,000
4. Trusts and estates – $11,200

So if your MAGI is over the “threshold amount”, you will pay the 3.8% surtax on the lesser of all your investment income or on your income that in excess of the “threshold amount”.

Here’s what your new tax rates will most likely look like for Married Taxpayers Filing Jointly:

I know, clear as mud.  If this still does not make sense, and you think that you are pretty sure that your income is going to be close to or over the “threshold amounts” mentioned above, then you probably need to talk to a good Certified Financial Planner certificant, and also a good CPA.

There are a number of strategies you can use in your presonal financial planning to reduce or eliminate this excess surtax if you are someone who will be exposed to it.  If you are one of these people, you need to contact us as soon as possible to start planning ahead.  As I like to say, these are “high class” problems to have.

Challenges

Many parents of disabled children are not sure of the best way to plan for their family’s needs.  Two of the biggest challenges these family’s face is first, how much money will be needed to care for their child; and second, who will take care of the child when the parents are gone.  Family members often feel that the best thing they can do is to open an account in the disabled childs name and put as much in it as possible.  While it is wise to save as much as you can for this person, having it in their name can cause problems when you later try to apply for Social Security, Medicaid, and all kinds of other social programs that are available to them.

Most people with disabilities cannot get their own health insurance.  If they are able to buy it, it’s very expensive and will come with pre-existing conditions exclusions.  The maximum coverage amounts are also often too low.  Because of this, many of these people end up having to apply for Medicaid.  With Medicaid they lose the ability to see any provider that they want to, and they often can’t go to the specialists that they really need to see.

Solutions

If you have a special-needs family member, the first thing you should do is to sit down with a financial advisor who is familiar with this type of planning.  This type of personal financial planning involves a mix of social work, life coaching, and finances.  It will also involve working with a special-needs attorney to draft the proper documents that will protect your loved one and your resources.  A good attorney like this will be able to give a lot of direction on things you can do to protect your family.

Rising Debt

But there are some signs looming out there that indicate that all the trouble may not be over.  One of the biggest signs of trouble is the amount of debt that the United States is accumulating at a rapid rate.  In the next year, the total debt held by the US government will rise to $12 trillion.  All the economic stimulus and the war in Afghanistan continues to fuel this burden.  As the trend continues, our dollar is worth less and less (because we keep printing more and more of them).  The largest holders of all this US debt (which is in the form of treasury bonds) are Asian and European countries.  Once these investors get tired of our fiscal irresponsibility and the low rates that our bonds are paying them, they will start heading for the exits.  As they start selling bonds, the values of the bonds will drop, and interest rates will rise.

How Soon Could This Happen?

The United States has a very large credit limit, so this is not likely to be something that happens very quickly.  But in the next three to five years, this scenario is very possible.  When it does happen, stock and bond markets will take a tumble, and interest rates, inflation and unemployment will rise to levels we haven’t seen in a few decades.

What Can I Do?

Fortunately there are some steps you can start taking to protect yourself from another financial meltdown, and it doesn’t involve putting your money in the mattress.  Stay tuned in the days to come for some personal financial planning ideas that could help you stay afloat if the economy starts to sink again.

While going to get a burger and shake may not seem like a big deal, the stakes get much higher as children grow older and parents start making financial gifts, or giving financial assistance to them.

In personal financial planning, reducing a person’s estate is often a concern.  Many people who are in a position to do so, will make financial gifts to their children for estate planning purposes.  This is usually done when someone is trying to reduce their taxable estate, or just to let their kids enjoy some of their inheritance early.  Additionally, parents will often give financial assistance to children when there is a need.  While there is nothing wrong with giving money to your children, you need to be very careful in how you do this so that nobody screams, “That’s not fair!”

Equal gifts, but not equal needs

Every family that has adult children knows what it’s like to have at least one child who has a greater financial need than the others.  Parents are often naturally inclined to want to help this child out a little more than the others.  This is where it can get a little sticky.  If a parent gives money to one child and not to the others, they take a chance of driving a wedge into the family.  While you may think you are doing that child a favor, (and you are) your other children may not feel the same way about it when they find out.  I have seen several situations like this where siblings who were better off financially felt left out, cheated, and maybe even less loved, because their parents didn’t give gifts equally.  I’ve seen this drive a wedge between siblings, and between parents and children.

Leaving more to one child

I’ve also seen situations where parents left more of their estate to one child when they passed away.  Again, this was a case where the parent felt that this particular child had a greater financial need and would benefit more from the larger inheritance.  While this may have been true, the child who inherited less was left to feel left out and somehow less loved.  Even though this is done with good intentions, it can really tear a family apart.  The more well-off child resented the sibling that was left with a bigger inheritance, and at this point the two have not spoken to each other in about 10 years.

Is there a better way?

Only you can decide the best way to handle these situations.  But I have seen some different things that people have done to try and make .  In one situation, a child was having some financial difficulties and the parent wanted to help them out.  They made an agreement that any money the parent gave them now would be deducted from their final inheritance when the parent passed away.  I thought that this was a fair way to help the child out now, but still be fair to the other children in the family.  I have seen other families require the child to pay back the money over time, but with little or no interest.  This method helps the child out now and allows them pay the money back when they get back on their feet.

There are a lot of ways to deal with these situations that allow you to help out a child in need.  While it’s easy to think, “My other kids don’t need this money”, you may not be doing them a favor in the long run.  You may in fact be setting them up for family contention down the road if you don’t give equally to all of your children.  Even if they don’t need the money as badly, if another child gets more, there could easily be feelings of resentment and bitterness towards the other child, and towards you.  No one wants to be remembered that way.

Pay Now

When you convert part of your IRA or 401(k) to a Roth, you have to pay taxes now on the amount you convert.  Many people feel that tax rates are likely to go higher in the future (especially since our tax rates today are the lowest we’ve seen in decades).  Everyone knows about our government’s debt situation…it’s not good,  not to mention social security and Medicare.  To pay for all these things, they’re going to have to increase taxes at some point.  So to pay your taxes now may end being a pretty good deal.

Play later

Paying taxes at a lower rate today may sound nice, but the real benefits of the Roth IRA conversion are long term.  As you know, Roth IRA’s grow tax free.  That means that when you eventually pull your money out of the Roth at some point down the road, you don’t have to pay any taxes on ANY of the earnings!  This is especially attractive for younger individuals who have time to let the money grow and compound tax free.  In general you need to plan on the money growing for about 10 years or longer before you plan to use it in order to benefit from paying the taxes now.  The more tax rates go up in the future, the sooner you will “break even” so to speak, and come out ahead.

Out of Pocket, But Spread Out Over Two Years

When you convert part of your IRA or 401(k) to the Roth you have to pay the taxes out of your pocket.  You cannot have the taxes taken out of your IRA account.  This can limit the amount you may realistically be able to afford to convert.  If you have savings in an after-tax account, you could use money from that to pay the taxes also.  The best part is, you can spread that tax payment over the next 2 tax years!  So you don’t have to pay them all this year, which helps.

A Higher Tax Bracket?

Be careful as to how much you convert.  Not only do you have to pay the taxes on it out of pocket, but converting to the Roth could bump you into a higher tax bracket for this year.  Whatever amount you convert will be added as taxable income to the rest of your taxable income for the year.  So if you make $80,000 at your job, and you convert $20,000 to a Roth, your taxable income is now $100,000 for the year.  Be sure to consult a tax professional before you make a conversion so that you don’t regret doing it later.

Here are the 2010 tax rates:

Talk to your personal financial planner today to see if making a Roth IRA conversion might make sense for you in 2010.

Red Flags

We’ve all heard the timeless admonition, “If it sounds too good to be true, it probably is.”   While this is great advice, it can be hard to know the difference between “good” and “too good”.  Investment fraudsters make their living by making deals sound both good and true.  Here are a few tactics to watch out for:

•  The “Phantom Riches” Tactic — dangling the prospect of wealth, enticing you with something you want but can’t have. “These oil wells are guaranteed to produce $5,500 a month in income.”
• The “Source Credibility” Tactic — trying to build credibility by claiming to be with a reputable firm or to have a special credential or experience. “Believe me, as a senior vice president of XYZ Firm, I would never sell an investment that doesn’t produce.”
• The “Social Consensus” Tactic — leading you to believe that other savvy investors have already invested. “This is how ___ got his start. I know it’s a lot of money, but I’m in — and so is my mom and half her church — and it’s worth every dime.”
• The “Reciprocity” Tactic — offering to do a small favor for you in return for a big favor. “I’ll give you a break on my commission if you buy now — half off.”
• The “Scarcity” Tactic — creating a false sense of urgency by claiming limited supply. “There are only two units left, so I’d sign today if I were you.”

Other signs to be cautious of would include:

They want you to make an immediate decision.  If they are calling you, they might even have a courier in the neighborhood ready to pick up your check right then.

1. Calling it a “guaranteed” investment, with little or no risk, or “as safe as a bank CD”.  (Keep in mind that I’m talking about securities here, not insurance products like fixed annuities.)
2. Recommendations based on rumors, tips, inside information or an unannounced breakthrough.
3. Recommendations based on the seller’s ability to predict future events.
4. Requests for your credit card number for any reason other than to make a purchase.  Requests made for “identification purposes” or “verification purposes”.
5. Unwillingness to provide written information, state securities registrations, or verifiable references.
6. Investment opportunities in another country or that involve an offshore bank.
7. Unwillingness to let you discuss the investment with a third person.  Many times they want you to keep the investment a secret.
8. They might send out account statements or letters that are not on company letterhead.

Check out the seller

Ask the person if they and their firm are registered with FINRA?  The SEC?  A state securities regulator?  If so, which ones?  And then, verify the answers.  To check the background of a broker, use FINRA BrokerCheck or call 800-289-9999.  For an investment advisor, use the SEC’s Investment Adviser Public Disclosure Web Site.  Many advisors today are not securities licensed, nor are they Registered Investment Advisors.  In this case they may be licensed to only deal with insurance products like fixed annuities and life insurance.  You can check out these advisors with your state insurance department to see if anyone has filed complaints against them, etc.  And it’s always a good idea to check out some of the person’s references too.

Check out the investment

Ask the person if the investment is registered with the SEC or with your state securities regulator.  Then use the EDGAR database of company filings to confirm what the salesperson is telling you.  Also call your state securities regulator to find out what they know about the company.  Call a few of the company’s big customers and suppliers to make sure that they are really doing business together.  If the investment is an insurance product it would not be registered with the SEC or state securities regulators, and you would need to check with your state insurance department.  They will have a list of insurance companies that are licensed to do business in your state.  Make sure the company is licensed, and then check out their financial strength ratings through A.M Best, Moody’s or Standard & Poors.

 There are many legitimate investment opportunities, and legitimate sales people out there who want to help investors.  But unfortunately there are also those who would take advantage of you.  And as we have seen in recent happenings, it’s often difficult to tell the difference between the two.  When it comes to making a new investment, it’s always best to listen to your instinct, and not rush into anything.  A good deal will still be a good deal tomorrow.  And there is always plenty of time for you to do research to make sure you’re dealing with a good source.