Sean is living a very exciting life. At the ripe old age of 27, Sean, has a
sky-rocketing career, annually earning in excess of six-figures. He sees the
world as an international stage for his career success. Recently, Sean met
Amber, and they plan to marry and start a family. By his own admission, it's
time for Sean to clean up some of his financial mistakes. While Sean has focused
intently on developing his earning potential, he let other issues tarnish his
credit report, missed important tax deductions, and spent his money as quickly
as he earned it.
I interviewed Sean and Amber for nearly an hour,
reviewing their financial details and talking with them about their goals for
the future. Since they are just starting to build their financial world, the
three important points emerged: They are not as organized as they need to be for
financial success. They are not receiving good tax and planning advice. They do
not understand how to plan for their financial future. After they deal with
these issues they can focus on growing their financial world and protecting what
they're working so hard to achieve.
ORGANIZATION
Sean has moved a
number of times and one of his big regrets is that he has not stayed organized.
He's not sure where to find his prior tax returns and cannot readily locate any
of his critical important documents. To be fair, Sean is not foolish. He is a
very bright man, proficient in those things allow him to make a high income at
an early age. He and Amber see the need to need organize and focus their
financial world.
What I've recommended they do is take the time to locate
the 17 critical documents that everyone should have quick access to in the event
of an emergency. Then, store digitized copies of them in a secure, online
service. That way, they need only find Internet access to be able to retrieve
that information. When they move, these copies will not be lost in the process.
In addition, they need to gather the information on their banking, savings,
credit cards, and investment accounts. They need all this information in one
place as well. I suggested a service that updates the values in these accounts
nightly. They need to organize their financial and personal information in one
place so that they can have in-depth discussions with a trusted financial
advisor about their future.
TAX PLANNING ADVICE
Sean has not
received good tax advice in the past regarding the tax filing regulations and
exclusions available to American Expatriates. The hearsay he has received from
family and friends has been dead-wrong. He still needs to file his 2008 income
tax return. He is not sure if he qualifies for the Foreign Earned Income
Exclusion for 2008. He is not sure if his foreign earned interest, dividends,
and capital gains are taxable in the U.S. and he is not sure if his Internet
business income is taxable in the U.S. or not.
Sean really needs a
qualified tax advisor to help him sort out all the pieces of his tax world. He
also needs to identify all his travel in a travel journal. I communicated to
Sean that interest, dividends and capital gains earned anywhere in the world are
taxable in the U.S. He will collect that information for the year 2008 so that
his tax return can be accurately filed. He will need to consult with his tax
advisor to understand how he can eliminate or defer U.S. taxes on the income
associated with his internet business.
MANAGING THE FUTURE
As Sean
and Amber contemplate marriage and starting a family, I suggested to them that
the biggest argument between husbands and wives is generally over money. It is
time for the two of them to implement some good financial basics. For that, I
have three recommendations that will help them for the future.
For the
next 60 days, they will each record all of their spending and once a week, they
will share the details of their purchases with each other. This is not to be a
time to judge each other, but a time to understand the habits and values of the
other. This is an opportunity to have open conversations that will help them
understand each other's point of view and to know how best to focus their
spending in the future.
Another financial basic for them to implement is
the concept called, "Pay yourself first." This means that each month, before
they pay their other expenses, they will set aside a fixed amount for any future
goals. They first need to build an emergency savings account. They should have
6-12 months of expenses set aside. After that, they should build savings for
other goals they may have. I asked each of them to check into what
employer-sponsored retirement programs might be available. I encouraged them
begin contributing to those programs, to help save for retirement while reducing
current taxes.
In order for Sean and Amber to define their financial
future better, I recommended some books that I like to have my clients read. The
Richest Man in Babylon, by George S. Clason; Rich Dad, Poor Dad, by Robert T.
Kiyosaki; Simple Wealth, Inevitable Wealth, by Nick Murray; and for Sean's
business: the E-Myth series by Michael E. Gerber.
Sean and Amber have the
opportunity for a great future together. In order to get off to a strong start
they need to organize what they have, manage today's income well, and find a
qualified tax and financial professional to help them chart their course for the
future.
Copyright (c) 2009 Nick Hodges
No comments:
Post a Comment