Schedule your appointment 619.255.9554 info@plattwm.com
Smart Credit for Smart People

Smart Credit for Smart People

In the consumer economy, credit is pretty easy to obtain. That often leads to problems for those who don’t know how to use it wisely. At the other end of the spectrum, some people avoid using credit altogether. Smart people use smart credit strategies to maximize their financial position.

Credit provides leverage to help consumers build assets and wealth. In honor of March being National Credit Month, here’s the lowdown.

Why do most Americans need credit?

Now that credit scores are national, standardized, and organized by the three credit-reporting bureaus, it’s become a popular measuring tool. Before 1989, credit scores were localized affairs and used mainly for just obtaining loans or credit cards. 

Today that’s no longer the case because credit scores aren’t just for lenders anymore. It’s essential to monitor your score since there can be a lot riding on it. In today’s world, it’s necessary to have one in the first place. 

Americans who don’t have at least one credit card will likely find themselves disadvantaged in various financial situations. Not only when it comes to arranging for a mortgage to buy their house but also in finding a job and renting an apartment. 

Landlords and employers often request a check on the applicant’s credit history. Some consider the lack of a credit score even worse than a bad one. Good landlords may not rent to someone with no credit at all.

Most Americans must build a retirement nest egg through contributions to a retirement plan. Still, a significant source of household wealth remains the family home. Buying a house for cash is beyond most people’s means, so financing through a mortgage is critical. A history of good credit means a much lower interest rate added to the principal cost than a higher rate for someone with poor or no credit at all.

That’s why young adults need a credit card and learn to use it responsibly by paying off the balance every month to avoid interest charges. That’s the best way to start a history of good credit, as well as avoiding the pitfalls of having too much revolving debt.

Maximizing the use of credit cards

As long as you pay off the card balance each month, the amount due doesn’t continuously increase with interest payments. Using credit cards can help consumers build wealth. 

In addition to making money, wealth depends on not losing money or giving up too many gains. If someone gains unauthorized access to your card, it’s easier to dispute a transaction compared to a debit card.

Make money with your credit by finding cards that provide rewards that match your lifestyle. If you do a lot of traveling (and will resume after the coronavirus pandemic), then a card that offers travel rewards makes a lot of sense as long as the annual fee doesn’t wipe out the reward. 

When you have good credit, it’s easy to find a credit card with low or no fees that give you rewards on your purchases. Cashback is a great reward, but many cards these days offer points instead. You can still benefit from the points rewards because you can exchange points for various merchandise and gift cards. Now you’ve got presents for birthdays and holidays covered.

Smart credit as leverage

While credit cards are one example of credit, they don’t provide you with any leverage because you pay the balance every month. Using different credit types to buy assets gives you the ability to invest more without paying the entire amount upfront.

What kinds of assets does credit help you leverage? Technically vehicles are listed as assets on the balance sheet, but they depreciate quickly. Taking out a loan to buy a car doesn’t provide you with an asset. 

However, taking out a loan (mortgage) to buy a property or taking out a loan (student loans) to increase your human capital will help you accumulate wealth when used correctly. 

Being smart about leverage allows you to invest in something that you can’t afford to pay for entirely right now but will be able to in the future (given some reasonable assumptions). Using leverage to buy an asset (or capital) that you won’t be able to maintain in the future sets you up for potential disaster. Keeping it reasonable helps ensure the loan amount won’t wreck your finances down the line.

Using credit for smart timing

For example, initially, interest-only (IO) mortgages were used for people who logically expected enough income in the near future that would then allow them to pay down the principal. A typical example (at least here in California) is a Hollywood director who could expect millions from one film released after nine months. The IO loan helped them buy a decent house now rather than wait a year for the money to come in. 

These loans weren’t intended to finance too much house for people who didn’t expect they’d be able to afford the payments. Of course, IO loans aren’t the only ones that can be misused. You’ve probably heard of the phenomenon known as being “house-poor,” where the housing and associated payments eat up most of the homeowner’s income. 

Sometimes that’s due to something unexpected like job loss. But sometimes, it’s due to a mortgage that’s larger than the homeowner can reasonably expect to carry for 15 or 30 years. While layoffs and recessions aren’t predictable, the amount of income you need to sustain a mortgage and associated housing payments is. 

Using smart credit for better returns

Home equity loans make sense when you’re making improvements to the home that will increase its value. They make less sense when you’re taking the money out to buy something. 

Similarly, refinancing a mortgage is a great idea when either rates have dropped or your credit has improved to the point where you can substantially save on payments. It’s a bad one when you’re trying to take money out for a purchase because you don’t have any other cash available. Especially an investment that doesn’t result in ownership of an asset.

If you’re building a business that’s likely to grow and prosper, taking out a business loan to get through those first lean years is an excellent use of leverage. It works with investment real estate, too. Many lenders will allow you to use the property’s expected rental income to increase the loan principal. 

Making sure that the amount is within reason applies to student loans as well. Taking out a 6-figure loan to pay for school may make sense when you’re entering a field, like medicine, where you’ll be richly rewarded with hundreds of thousands of dollars a year. But it’s way too much for a job where the average income is only in the five figures annually.

Using credit wisely and as leverage to accumulate capital and build assets is an integral part of a smart financial plan. Debt isn’t necessarily a bad thing, as long as you manage your credit exposure and avoid incurring unnecessary interest charges.

Good credit is necessary for the modern world, so having at least one credit card paid off monthly is helpful for many financial decisions.

Are you thinking about refinancing a mortgage or investing in property? Feel free to give us a call at 619.255.9554 or send us an email to set up an appointment.

 

Are you on track for retirement?

Making sure you will be ready for retirement can be overwhelming. Funding your retirement accounts over the years is a critical part of your journey to the retirement of your dreams. An experienced Financial Advisor can help you navigate the complexities of investment management. Talk to a Financial Advisor>

Dream. Plan. Do.

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

Vacation Homes and Taxes: 4 Things You Need to Know Before You Buy

Vacation Homes and Taxes: 4 Things You Need to Know Before You Buy

Your vacation home may be taxed differently than your primary residence, depending on how you use it. Will you be using it as a second residence, a rental property or an investment property? There are advantages and disadvantages to each with different rules from lenders and the IRS. It’s important to know the rules for vacation homes and taxes before you buy, to see if the costs make sense.

While the IRS draws a firm line between a residence and an investment property, lenders have a looser definition of what “second home” really means. You could have more than one “second” home. Each lender has its own rules about whether it will finance a property used at least partially for rental income. In general, they prefer to lend money for personal residences as opposed to investment properties.

Here’s a guide to making sure you know what kinds of financial issues, including taxes, you may encounter on your second home that might not have appeared with your first.

 

1. If your vacation house is not rented out but remains a residence for you and your family, taxes are levied like they are for your primary residence.

 

Mortgage interest may be tax-deductible

 

As long as you bought your house before 12/15/2017, you can deduct mortgage interest up to $750,000 of mortgage debt. You can do the same for a certain amount of home equity loan interest when you use the money to improve the property. 

You can only take the mortgage interest deduction if you’re itemizing. Therefore, if you’re married filing jointly, you’ll need to get over the $24,000 standard deduction hurdle to take it.

 

Local and state real estate (property) taxes may be tax-deductible

 

In theory, state and local taxes (SALT) are deductible from your federal return. However, the Tax Cuts and Jobs Act of 2017 limited SALT deductions to $10,000. 

 

If you’ve already reached this limit on your primary home, then you have no more room for deductions on your second home. But if you haven’t, you might get some tax relief from your vacation home.

 

2. If your vacation house is used for rental property and not entirely personal use, the taxation will likely change.

 

In the IRS parlance, a “second home” is different from an “investment property” and likewise is taxed differently. If you claim a property as a second home, you must live in it at least some of the time (during the taxable year. An investment property is one you don’t live in. 

 

Second homes qualify for mortgage interest and real estate tax relief, whereas investment properties don’t. On the other hand, maintenance and other expenses can be deducted for investment properties but not for personal residences. That includes the entire property tax bill, not the $10,000 SALT limit on a second home.

 

 

3. A second home used for personal and rental use can change characterization according to how many days you use it for each purpose during the calendar year.

 

If you rent your vacation home for 14 days or fewer during the tax year, you do not owe taxes on the rental income.

 

Otherwise, the income is characterized as taxable. Expenses related to a rental property, including property management, are deductible against the revenue. You can deduct the expense of utilities and any maintenance that’s performed. You can even deduct the cost of a new roof from your taxes. 

 

You can also take a depreciation deduction, but be aware it may later be recaptured when you sell. The deduction is limited to the percentage of time during the year that you rented the home out.

 

Although you can’t take a loss on a second home, you can take losses on an investment property to offset income.

 

Tax considerations of using your vacation home as a residence and a rental

 

If the home is used both as a personal residence and as a rental property, the costs must be divided between the two. One of two conditions must be met to be considered personal property and qualify for the mortgage interest/property tax deductions. And it has to be the one that would require a greater number of days you lived in the house.

 

The conditions are either you live in the house for at least 14 days during the year, or you use it at least 10% of the time you rent it out. 

 

For example, suppose you rent your house out for 150 days during the year. If you don’t spend at least 15 days living in it, the house will be considered investment property and taxed accordingly. If you lived there for 14 days, you would meet the first condition, but not the second with its higher residency requirement.

 

None of these periods have to be consecutive; you could have a two-week stay plus a few three-day weekends here and there in between rentals if you like. The aggregate number of days you live in it during the year is what counts. 

 

While this expense division is technically true for all types of residences, it’s more common with second homes than primary ones.

 

4. Whether you use the property as a second home or at least partially as an investment property also affects taxes when you sell it.

 

Depending on when you bought your second home, you may qualify for the residential capital gains exclusion when you sell an appreciated property. There’s no exclusion when it’s used as an investment property, and you might be subject to depreciation recapture as well.

If you bought it before 2008, you’re able to use the capital gains exclusion as long as it’s a second home and not an investment property. You may recall that you’re allowed to exclude a certain amount of the capital gain from your taxes on the sale of your residence. The exclusion is $250,000 when filing singly and $500,000 when you file jointly. In expensive real estate locations like San Diego, the exclusion can save you a lot of money on your taxes if you’re eligible.

But it’s your second home, not your primary. (Or you may have been treating it as an investment property until now.) The way to get around the residency requirement is to move into the home for at least two of the five years preceding the sale. That will allow you to characterize the property as a residence and take the exclusion.

 

 How tax depreciations work on a vacation home

 

Investment properties are eligible for a tax deduction for depreciation every year to offset rental income. When you sell it, the deductions are subject to recapture. You can avoid it in the year of sale by performing a 1031 exchange with another property, which delays recapture.

 

Depending on your tax situation, one form of tax relief (taxable interest and SALT deductions, capital gains exclusion) might be more attractive than the other (expense deductions, property taxes). The characterization isn’t set in stone, so you may find that one is more advantageous now and elect to make a different choice later.

 

If you’d like to talk about how a second home might affect your financial situation, please give us a call at 619.255.9554 or send us an email to set up an appointment.

 

 

 

Are you on track for retirement?

Making sure you will be ready for retirement can be overwhelming. Funding your retirement accounts over the years is a critical part of your journey to the retirement of your dreams. An experienced Financial Advisor can help you navigate the complexities of investment management. Talk to a Financial Advisor>

Dream. Plan. Do.

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

Financial Planning and Investing for Women

Financial Planning and Investing for Women

We’ve put together some ideas for women to get comfortable talking about financial planning and investing.

Women face many unique challenges when it comes to personal finance and investing. One big challenge is that money is a taboo topic for women. By one estimate, 90% of women will be solely in charge of their money at one point in their lives. It can be hard to take control of your financial situation if you don’t feel comfortable talking about it.

According to research by Fidelity, 80% of women investors refrained from talking about money with people close to them, citing reasons like it’s too personal or uncomfortable, or not wanting people close to them to have that knowledge. Only 47% of women said they would be comfortable talking about money with a financial professional.

These statistics are seemingly at odds with results from the same study that showed a huge majority of women would like to become more engaged with financial planning and learning more about money and investing.

With these statistics in mind, we put together a quick list of ideas to help you start talking about your money, finances, and investments.

 

Find your tribe of women investors.

Find a community of people that you trust to discuss financial issues. If you have specific goals (like saving more or getting out of debt), surrounding yourself with like-minded people can give you support and encouragement. A group of women can help you feel comfortable enough to ask questions and learn from each other.

Learn more about financial planning for women.

Commit time to learning more about personal finance, investing and financial planning. There are many books and online resources dedicated to helping people learn.  Start with our video series on Financial Fundamentals.

 

Ask your financial advisor questions.

Don’t be afraid to ask questions if something is confusing or if there are terms you aren’t familiar with. A good financial advisor knows that it is important that you understand your finances and investments for you own security and peace of mind. 

Be compassionate to yourself when relearning how to talk about money.

Understand that most people feel some discomfort talking about money, not just women. Personal finance reveals how you spend your money and what is important to you in your life. Talking about it is deeply personal and emotional. You might have to take a hard look at your upbringing and social or cultural teachings about money. If you were taught that it isn’t polite to talk about money or if finances were a source of stress in your family, you may have to relearn some of the beliefs that you were raised with. This can be difficult, so be kind to yourself as you go through this process. 

Find a financial advisor who understands women investors and their unique concerns.

 

Find a financial profession that wants to understand your situation and your concerns, answer your questions in a non-judgmental way, and explains your options with the pros and cons of each course of action.

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary meeting. 619-255-9554.

 

Dream. Plan. Do.

Networking for Success on LinkedIn

Networking for Success on LinkedIn

Working remotely and under stay-at-home orders means everyone is online. Being on the internet won’t go away once we’re able to gather in person, which will hopefully be soon! Networking online is critical during this time. The one social media platform dedicated to business and professionals networking is LinkedIn.

 

Why should you start networking on LinkedIn

 

For entrepreneurs, those in the C-suite, and management, the platform isn’t just finding clients. It is also an excellent way to connect with colleagues in your field to stay up-to-date on industry trends. This community also comes in handy if you leave your current position and want to transition to something new. 

When should you start networking? Just as it’s yesterday in person, so it is on LinkedIn. Don’t wait until you have a problem to start networking. Build your connections and contacts even if you have no intention of going anywhere or doing any content marketing.

Many employees looking for new jobs are on LinkedIn, and you might find the right talent there. You might have colleagues (or follow someone) who write thought-provoking articles that show up in your feed.

If you work in a highly regulated industry, your compliance department probably has some rules about how you can engage on social media channels. We’ll talk about general guidelines for LinkedIn in this post, but it’s good practice to run it through compliance first. Even if it’s not required.

Start with your page. If you have your own business, you can also create a business page. Executives, your company may already have a business page, and you can link it to your profile.

 

Understanding LinkedIn Networking basics

 

The platform is free, though you can upgrade to a paid subscription if you like. Management and C-Suite employees will probably get what they need from the free version discussed here. 

However, entrepreneurs who run B2B companies may prefer the upgraded version, known as Sales Navigator. The paid subscription makes it much easier to find target clients, and you’re able to message and connect with new people.

Your direct connections are called 1st-degree connections, people such as colleagues and friends. Introductions from your colleagues and friends become your 2nd-degree connections.

You can ask your 1st-degree connection for an introduction or ask the 2nd-degree contact if they would like to interact. Continue to extend your LinkedIn networking power to connect to 3rd-degree connections. LinkedIn doesn’t permit you to directly link to anyone you don’t have a 2nd or 3rd-degree connection.

 

Optimize Your Linked In Network Profile: Tell Your story

 

The more you build out your profile, the more visible you’ll be on the platform. The idea is to showcase yourself so people will be interested in getting to know you. Why are you a helpful or valuable connection?

  • Use your headshot instead of leaving the picture blank. You can also change the blue banner behind your head. Your company may have a suggested banner, or you can create one for your own business. When you develop your own, make sure it speaks to exactly what you do. And keep it simple.
  • The headline shouldn’t just be your title. “Manager” or “VP” doesn’t show off your skills. Instead, write what you do or specialize in specifically. 
  • Upload your resume to prepopulate things like the places you’ve worked and the schools you attended. Write up your Linked In descriptions to tell a story of your background and accomplishments. 

Make sure that you have all your certifications and awards in the proper spots. It’s not bragging when you earned it! Depending on your company, you may accept testimonials or endorsements to feature on your page.

Many business people make the mistake of rewriting their resume in the About section. Don’t do it. This is your opportunity to let people know more about you. What is it about your work that you genuinely enjoy? Think of it more as your mission statement in life and business. What kinds of subjects interest you? What do you like to do for fun?

It’s a great place to spotlight the problems you solve for your clients and how they feel after working with you. Especially for business owners. You can also add in why you chose this particular field. Keep your story at the bottom, so the “What’s In It For Me” for clients and prospects is front and center.

 

Using the LinkedIn Networking platform

 

As with other social media channels, the LinkedIn algorithm shows people you might know so that you can confirm connections. These can be eerily accurate or entirely off the mark. The more people you connect to, the better the algorithm gets. 

You don’t have to connect to everyone it suggests, but take a look at the person’s profile to decide if you want to reach out or not. Write a short note about why you’re connecting. Remember, it’s networking, so make the note about them, not you.

Once you’ve connected to someone, you’ll be able to see their network. If they are linked to someone you’d like to know. You can ask for a mutual introduction.

You’ll get a feed of the people you connect to and any organizations or groups you follow. You can follow well-known people in your field or a topic (such as “entrepreneurship”) to get those kinds of articles in your feed. It’s also algorithm-based, so who you engage with most shows up more often in your feed.

Interact with the postings, so people get to know you. You can also post articles and posts. Maybe you’ve written them, or else you think they would help the people in your networks.

LinkedIn also has groups, though the posting frequency tends to be much slower than on Facebook. You can join groups with your certification, in your industry, or with similar titles. Most business people can find groups where their clients appear and where referral sources or centers of interest go. 

Posting in these groups gets you in front of people that might not be on your feed. Connect with people who engage with you or whose posts you find engaging as well. (Note the focus on engaging, not selling.)

Although it’s business-oriented, it’s also social! Genuine interest responses, thought-provoking comments, or dialogue prompts work well.

Go forth on LinkedIn and prosper!

You can follow us on social media too! Platt Wealth Management is on FacebookLinkedIn, and Instagram. If you’d like to talk about your financial situation, please give us a call at 619.255.9554 or email us to set up an appointment.

 

 

Are you on track for retirement?

Making sure you will be ready for retirement can be overwhelming. Funding your retirement accounts over the years is a critical part of your journey to the retirement of your dreams. An experienced Financial Advisor can help you navigate the complexities of investment management. Talk to a Financial Advisor>

Dream. Plan. Do.

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

How the Latest Relief Packages Affects AGI’s, RMD’s, Deductions

How the Latest Relief Packages Affects AGI’s, RMD’s, Deductions

The U.S. Congress recently passed, and the President signed, the 5,593-page Consolidated Appropriations Act of 2021 relief package—and experts are still mulling over what the impact will be on ordinary citizens. There are stimulus checks, tax planning relief provisions, and a break for people who experience high medical expenses during the pandemic.

 

There’s even a new paycheck protection program extension.

 

New AGI and tax considerations in latest relief package

 

First, the new legislation provides for stimulus checks, with a “base” credit of $600 per eligible individual plus $600 more for any dependent child (technically, any children qualifying for a Child Tax Credit). But, as with the CARES Act, eligibility starts phasing out for individuals earning more than $75,000 of adjusted gross income or joint filers with over $150,000 AGI.

These phaseouts, based on the 2019 tax return, seem unfair. The economic hardships the bill was designed to address took place in the final three quarters of 2020. But if the taxpayer’s 2020 income calculation indicates a larger check amount, the government will issue an additional check to make up the difference. If someone receives a stimulus check based on 2019 income and then reports higher 2020 income, that would make that person ineligible to receive the check. There will be no requirement to pay the money back to the government.

The new legislation also extends regular unemployment compensation benefits for an additional 11 weeks and adds $300 a week to the unemployment checks. This “pandemic unemployment assistance” for individuals who wouldn’t usually qualify for unemployment benefits (such as self-employed persons) was also extended for 11 more weeks. Note that the $300 a week and 11 weeks is lower than the $600 a week and four-month extension passed in the CARES Act.

 

Medical and charity deductions in the new relief package

 

On the tax front, the hurdle for deducting medical expenses in any given year was reduced from 10% to 7.5%, meaning that anything over that percentage of adjusted gross income would now be deductible on your next tax return. And the bill extends a provision from the CARES Act relating to charitable deductions.

People can take a full deduction of up to 100% of their AGI for any cash donation to a public or private charity (but not a donor-advised fund).

In the bill, Congress did not extend the temporary waiver of required minimum distributions, which means that people over age 72 will have to resume taking their RMDs in 2021.

What else can we find in those 5,593 pages?

 

Taxpayers will use their 2019 earned income to determine eligibility for the 2020 earned income tax credit and additional child tax credit.

Business lunches and dinners have become 100% deductible for 2021 and 2022.
And the bill creates a second round of the Paycheck Protection Program forgivable loans, with $284 billion set aside.

Finally, the bill provides funding for the federal government’s operations for another nine months.

 

 

Are you on track for retirement?

Making sure you will be ready for retirement can be overwhelming. Funding your retirement accounts over the years is a critical part of your journey to the retirement of your dreams. An experienced Financial Advisor can help you navigate the complexities of investment management. Talk to a Financial Advisor>

Dream. Plan. Do.

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

Login

[ultimatemember form_id=”1899″]

×