Tuesday, August 31, 2010

Why I Fire Clients

Over the years I have become more particular about who I take on as a client. Because of my choosy nature I rarely need to tell a client I can no longer serve as their accountant. That said I fired a client last week. In my defense, the client was long-term and from my pre-picky days.

What causes me to fire a client? Foul language, verbal abuse, and non-payment for services rendered top the list. The recent firing came about because she wanted a staff member to perform services without charge. She then made a scene at the office and also used her home and cell phone to call rapid fire. Very childish behavior in my opinion. At this point there was nothing she could say to remain a client.

She returned to pick up her papers the same afternoon and requested she be taken off the mailing list which I informed her was already done. Then she used foul language and refused to leave until I demanded she do so 4-5 times.

I bring this issue up because it highlights several issues. Any tax/accounting professional worth their salt will not work with people that disrupt the office, risking other clients due to the disruptions. The most important point is attitude. Blowing up at the tax office will never help you. The issue she had was minor and quickly remedied. If she would have asked politely, there is a good chance I would have done the work pro bono. Once she tossed an attitude, a discount of any sort was out.

Remember, no one wants to work without pay. And who wants to eat crow without pay? Some clients are not worth it, so they are fired. A smile goes a long way.

Tuesday, August 24, 2010

Kids, Money, and the Frugal Lifestyle

Living a frugal lifestyle is difficult as it is; add kids and it turns downright challenging. It is back-to-school season and the schools have the longest list ever of stuff kids need to bring the first day. No wonder teachers complain they make too little. Most seem to lack basic money skills to get, keep, invest, and manage their money.

Once the school has your wallet open it is time for peer pressure from fellow students and their parents to encourage more stupid spending.
  • Did you drive your kids to school in an over-priced, gas-guzzling SUV? Then you are a mean mommy. Your kids will be scarred for life.
  • Did you buy your children the latest electronic toy, gizmo, cell phone, iphone (i anything), or gadget from Apple? Then you are a mean, good-for-nothing daddy. Your kids will be scarred for life.
  • How much did you spend on the summer vacation? Not enough. Did you even go on a summer vacation? No? What will the other students, their parents, and the teacher thinks when the class shares their summer activities? Your kids will be scarred for life.
  • Is your home over 3,000 square feet? Flat screen TV? No? What is the matter with you? Now nobody wants to be your child's friend. Only a low-life would treat their kids in such a manner. They will be scarred for life.
  • Please tell me you bought your kids the latest and trendiest cloths for the first day of school. No? What is the matter with you? Child Services should be called. That is child abuse. Your kids will be scarred for life.
And the litany goes on. Your self-worth and -esteem are hinged directly to how much you spend beyond your means if you believe the media and the folks at school or the coffee shop. Why?

The reason is clear to me. Advice given is meant to serve the person giving the advice, not you. The government wants you to borrow and spend more to help the economy; the financial planner says to NOT pay off your mortgage and invest the money; the banker says to borrow for a car or boat. All that advice is wrong. The elected government official wants to get re-elected; the investment advisor wants a commission; the banker, interest.

Even I am not immune. The amount of time I grant toward convincing you to live debt-free is small. I am your accountant. If you really think paying the bank $10,000 in interest is worth the $3,000 you get from the government is tax savings is a deal, go for it. I can point out the extra refund I got you, charge you $300, shake your hand, and go home. Of course, I will use the $300 to pay off my mortgage of fill my bank account.

The day you find pride in living a frugal life; the day you grin ear-to-ear because someone points out your strange frugal ways is the day you are truly free from the rat race.

Think about the pressure you get to spend money. Ask yourself: What is in it for the advice giver? Ask yourself: What is in it for you?

Bowing to peer pressure and refusing to teach your children fiscal responsibility IS child abuse. By withholding these basic needs in managing money you condemn your children to a life of servitude to money.

Money problems lead to crime, alcohol, child, and spousal abuse, stress, insomnia, divorce, and a litany of other health and social problems. Teach your kids by example. Live within your means and really enjoy life.

This is the greatest gift you can give your children and the lesson is never taught in school.

Tuesday, August 17, 2010

How to Declutter Your Life For Fun, Sanity, and Profit

For the last six months clutter has been my enemy number one. The accumulation of crap junk things in my life sapped my sanity and productivity. The effort is slow, but progressing. Each step taken improves my peace of mind and reduces stress.

No one will accuse me of a clutter-free life. The goal is to reduce a little bit of clutter each day. Yesterday I took a huge step. At the office there is a side storage room that leads to the basement. The closet/hall is lined with shelves of old tax journals, tax code, and other junk accumulated over 27 years of business. The storage space is less cluttered today.

There were some real beauties in there: two complete volumes of the tax code with regulation and explanation from 1988 and 1992, a Wisconsin unemployment handbook from 1994, binders, Who's Who for 1996, practice builder sales literature from who knows when, and an old Section 105 administration guide.

The shelves under all that weight were stressed to the max and an accident waiting to happen. The shelves no longer groan. All paper is in the shredding room and the binders were either recycled or burned. Office paper is cross-cut shred and ends up a fibrous mass good for bedding my animals at home. The office feels better for the effort. The shredding room should return to normal in a few days.

My desk and office floor were recently covered from end to end with stacks of papers and works in progress. My office is still cluttered and requires more drastic action, but in the last several months I have been complimented with comments like, "Keith, I can see your floor," and ""You have a desk!"

Yes, most of my floor is clear. Most. You can actually see bits and pieces of my desktop most days. Vigilance is required daily. The clutter bomb is always waiting to reassert itself.

If you desire your life back (as I did), peace of mind, less stress, and a better quality of life, declutter. Here are a few tips I used to declutter:
  • Think Small Clutter takes a lifetime to build, it will take less time to dispose of, but it will take time. Dealing with a lifetime of clutter is overwhelming. Start with one room or closet and get the low hanging fruit first. Worn out clothes should be sent to recycling or the thrift shop, depending on condition. Old magazines and junk mail are easy choices for most of us.
  • One Thing a Day Schedules are tight. If you don't have hours, or even an hour or fifteen minutes, commit to one thing a day. Get rid of one thing, one piece of clutter, and don't replace it.
  • Focus on the Important My desk and floor required immediate attention. Perfection never entered the equation. My focus was to get papers off the floor and clean my desk so the desktop could be seen. Sometimes decluttering life means ending procrastination. A lot of little jobs can reduce productivity when working the big jobs. I like to take one-half day a week and dig into all the little projects that accumulated and clean them up.
  • Electronic Clutter In my line of work electronic clutter is an issue. I turn my email off for most of the day. I deal with email, correspondence, and phone calls at selected times. This allows for greater productivity. Since I get more work done this way, it frees up time for things I prefer to do. Take steps to reduce email. Make good use of the junk mail folder. Turn off the interruptions of cell phones and other devices that sap your lifeblood.
  • Tough Decisions A large number of items are difficult to throw out. My back issues (20 years worth) of Science News and science fiction magazines fall into this category for me. I never know when I might need to review a copy of the June 23rd 1987 issue of Science News or when I might want to reread a short story from the January 1993 issue of Isaac Asimov's Science Fiction Magazine. There are even tougher issues to decide when throwing stuff out. I give myself permission to keep things for later consideration. But seriously, those issues of Asimov's would get great use at the local jail. Someday. Someday.
  • Enjoy the Moment There is no feeling like the feeling of freedom. As you clear out a little each day the cumulative effect becomes real. The open space feels super. Cleaning the house is easier and unrealized stress is reduced. Enjoy each room or closet as you free it from the albatross of decades of stuff.
Decluttering your life can save you money. You will come to appreciate an uncluttered environment and will reconsider purchases that only reclutter your life. Many of the things you no longer want/need can be sold on eBay or rummage sales for some extra cash. This extra money can reduce or eliminate debt, the biggest clutter and stress in a large number of lives.

Now you can breathe.

Tuesday, August 10, 2010

The Not So Big Problem of the U.S. Budget Deficit

One and a half trillion dollars in added debt per year seems like an insurmountable problem, but is it? The red ink pouring out of Washington has so many people up in arms that our economy may falter or sink into a double-dip recession. Our leaders should review the 1930s before embarking on such austerity.

After World War II, the United States had a national debt of around 120% of GDP. The United States never paid any of that debt down... ever. Okay, there were two years with a small budget surplus, but that was so small it was only a fraction of a percent and the next year it was spent. So what gives? The national debt was huge in 1945, never paid down, and became a small, manageable debt in subsequent years. Why? And more important, how?

We need to fast forward to the 1990s and the largest budget surpluses our federal government ever had. (On percentage terms President Andrew Jackson paid off 100% of the national debt. It did not last long.) How did President Clinton run so many and so much surplus? It was simple really. President Clinton understood that the budget deficit can be eliminated by increasing spending slower than economic growth. It takes a few years, but it always works and keeps the economy humming.

Let me illustrate. If your national economy is $1,000 and the government takes in $90 in taxes and spends $100, you have a budget deficit of $10. If the economy grows 5% the next year to $1,050 and tax revenue collected remains the same in percentage terms, you collect $94.50. If spending increases 2%, your government spends a total of $102. The budget deficit for the year is $7.50, a decline of 25% in your budget deficit.

When using really big numbers, like the size of our real economy and government finances, the numbers are compelling. The federal government can spend more and actually be financially in a better fiscal position as the debt is a smaller percentage of the economy. Running a budget surplus can injure a national economy, especially in weak economic times. The real trick is to increase the total national debt less than the economy grows.

During a recession the economy shrinks so the debt burden grows fast and scares politicians and guys on the street. It shouldn't and here is why. Economic performance is measured in inflation adjusted terms. If the government reports 3% economic growth and inflation is 2%, the economy grew 5%. The government adjusts the numbers to reflect real growth. However, the economy grew 5% in dollar terms. If the national debt grew less than 5%, not he 3% reported, the deficit is easier to manage than the year before.

With all this said, $1.5 trillion deficits are not something we want to repeat each year. However, the sky is not falling. The national debt of the United States is well below all-time highs compared to GDP and is currently under 100% of GDP. The concern is how fast we are increasing the debt burden.

Congress does not need to irritate the President into lowering spending. Just increase spending slower than the economy grows and in a few years we are back in the black.

Now you can smile and enjoy the day.

Wednesday, August 4, 2010

Lower Stress, Simplify Life, Get Something Done: Turn Off Email

Life is filled with stress. Constant demands and nonstop interruptions cause stress to build until life twists into a swirl of nonproductive and unfinished work. One of the most disruptive tools in the office and daily life is email.

Stress is a cancer that eats you from the inside out. The best way to lower stress is to finish projects or at least make serious progress every day. The way to get good work done each and every day is to eliminate interruptions during work time. Three to four hours of quiet time a day allows you to accomplish more than 98% of people in a day.

The only way to get this uninterrupted quiet time is to turn off all electronics, especially email. Nothing disrupts concentration and a good work habit than email. Cell phones, iPods, and similar devices come in a close second.

If you want a happier, less stressful, more productive, fulfilling life, turn off the cell phone and email. Any electronic that barges in and demands your immediate attention rapes you of your life. It could even cost you your job.

I turn off my email for several hours each day. I need the block of time to get work done. If I don't respond instantly to an email, I am not ignoring you, I am getting work done. You should try it. The stress reduction alone is worth it.

In an always on, always demanding world, something that simplifies life is worth its weight in gold. By lowering your stress your medical costs could go down and you could live longer. Regardless, your life will be more worth living.

This rat is out of the race, yet still in the game. How about you.

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Sunday, August 1, 2010

Wealthy Neighbors

The lesson I am about to share took 20 years to sink into the frugal accountant's skull. I see a couple thousand people per year on a professional basis. This provides me the opportunity to see what works for others; it also makes painfully clear the things that do not.

About 225 of my clients are wealthy, defined as $1 million or more in liquid net worth. The remaining 1800 clients want to be wealthy, defined the same.

There is a striking similarity to the 225 wealthy clients rarely shared by the non-wealthy list. The striking difference is in the investments they make. The wealthy clients follow Warren Buffet's two rules:
  1. Never lose money.
  2. Refer to rule one.
Wealthy clients are married to these two rules and you cannot pry them away from this philosophy no matter how good the salesman is.

Popular media only solidifies the minds of the wealthy that their way is right. The media says the stock market returns on average 10% per year in the long run. The wealthy say, "In the long run we are dead." When it comes to stocks, the wealthy know "figures do not lie, but liars figure."

If you pick the right entry and exit points you can justify any position you want. One lie is using 1928 as your starting point. When the stock market is at an all time high and calculated from 1928, a non-high stock market entry point, you get very nice returns. However, if you look at the true long term results of the Dow Jones Industrial Average from January 1, 1900 to today, you have a hard time breaking a 5% return.

The S&P 500 is a broader based stock average and has been with us since 1950. The stock market has enjoyed the greatest gains in history for the last 60 years. The 1950s was the best decade for U.S. stocks ever and the 1980s and 1990s were pretty good too. Still, the S&P 500 total return since 1950 is only 7% with 2 of the six decades experiencing a negative return.

Wealthy clients know the stock market at best produces 7% returns with lots of risk and downside. They also know that 5% is the best you should hope for with stocks if you know what is good for you. The 10% stock market returns are a lie and the wealthy know it.

So what are the wealthy doing? CDs and Treasuries.

Shocking. Isn't it?

It should come as no surprise that the wealthiest individuals in a community take little to no risk on a large portion of their money. A typical client with over $1 million in liquid net worth has no debt and does not look wealthy. Farmers, that high paying job we all want to get into, are a perfect example. Not every farmer is rich. But those that are save like no tomorrow. They frequently tell me they "never take off the pile."

Wealthy people invested in 30 year Treasury bonds back in the year 2000 when they locked in 7% or better. Interest from Treasury securities are state tax free. Interest rates are lower now, but the wealthy Treasury bond holder received $700,000 in interest in the last 10 years state tax free. The government still owes them another $1.4 million over the next 20 years plus the return of the original $1 million.

Remember the old articles about how much it costs to buy a home with a 30 year mortgage. Well, Treasury bonds work the same way in reverse. It is like the government paying you taxes. I like that. If you buy a $100,000 home with a $100,000 mortgage with a 30 year term at 7% you will pay the bank a total of $239,508 if you make no early payments. Treasury bonds work even better to your advantage. When you make a mortgage payment a portion is principle. With Treasury bonds the government only pays interest. A $100,000 30-year Treasury at 7% interest will pay you $210,000 in interest over the term plus your original $100,000. The government pays you $310,000 over the life of a 30 year Treasury bond. And the wealthy know it.

Interest rates are lower today. So what are the wealthy doing now? CDs. More accurately, long-term CDs; the 4 and 5 year kind. You see, the wealthy know that 4-5 year CDs pays around 3% with a small penalty for early withdrawal. If rates go up, they pay the fee and reinvest at the higher rate. They win at every turn.

When interest rates go higher for 30 year Treasuries, they will make the switch.

As I conclude this post I want to share what I see from my side of the desk. I have never seen a client in tears because they have a low interest rate on their bonds or CDs. They want higher yields, but are willing to wait. Stock and mutual fund investors at least once a month come in for help. They sufferd a large loss and the money will no longer carry them through retirement. In some cases they need to go back to work. The stress is clear on their faces and body language. I want to help, but the damage has been done.

Consider what the wealthy do. Invest in boring. It is safer. Besides who wants the kind of excitement risk implies. Only use excess money for mutual funds and stocks. You will sleep better.