Taxes and Home Ownership – The mortgage interest deduction is not the only game in town

Two weeks ago I finished the Certified Financial Planner introductory course to personal taxes and learned about a very attractive benefit of home ownership: Internal Revenue Code Section 121. Sec 121 allows the gain on the sale of a residential home to be excluded from income. The exclusion is up to $250,000 for a single person or up to $500,000 for a married couple filing jointly.

That’s a lot of money that can be excluded from taxes. However, there are some caveats if the residence was used as a rental since 2008. Yes, I know these concepts might bore some, but I was deeply intrigued. As a California native I’ve seen the housing market do amazing things. One day I may get to give someone the good news that they get $250k/$500k of income tax free. Or I may even get to benefit from it myself. The specific requirements to qualify for Sec 121 are below.

Continue reading “Taxes and Home Ownership – The mortgage interest deduction is not the only game in town”

12 Month Sabbatical – Update on my Microfinance Adventure

Best advice I ever got was an old friend of mine, a black friend, who said you have to go the way your blood beats. If you don’t live the only life you have, you won’t live some other life, you won’t live any life at all. That’s the only advice you can give anybody. And it’s not advice, it’s an observation.

– James Baldwin quote on Brain Pickings

It’s Actually Happening! Update on my Microfinance Volunteer Adventure

James Baldwin’s observation applies perfectly to the next chapter in my life. As I alluded to in my previous post on Microfinance ($2/day) and on the one announcing my career change (aligning your spending) I am making major changes in my life. Part of my inspiration for this definitely comes from Mo, a good friend who moved to Turkey to become an English teacher and who now lives in Japan. She has documented her travels over at Travels of Mo. The other part of my inspiration is listening to my inner curiosity more closely.

How I Found Costa Rica and Agreed to It

I’m planning on quitting my job and potentially being unemployed for a 12 month sabbatical. I lined up a microfinance institution (MFI) volunteer opportunity in Costa Rica through NGOAbroad and am scheduled to start in October, five months from now. When I first found this opportunity it felt too good to be true. Costa Rica is expat heaven, a tourist destination, and has a great medical system. For a moment I wondered whether I would actually have anything to contribute because the country is doing much better than others in South America. Continue reading “12 Month Sabbatical – Update on my Microfinance Adventure”

Corinna’s Hero’s Journey – Reinventing into Retirement

Our first installment of the Hero’s Journey is Corinna’s reinvention into retirement. Corinna retired as a Secretary seven years ago from City government. Since that time she’s learned a lot about herself and gained a clearer understanding around her relationship with money. Continue reading “Corinna’s Hero’s Journey – Reinventing into Retirement”

Financial Hero’s Journey

Joseph Campbell is a scholar who studied ancient myths and developed the idea of the monomyth – The Hero’s Journey. The three part act of the monomyth is a way to understand how we all can change or improve what’s not working. This arc has been used in many settings, from Harry Potter to Star Wars. It was further publicized by Hollywood screenwriter Christopher Vogler; below is his well-known adaptation. Interestingly, the Hero’s Journey is also a recurrent theme in 12 step recovery shares: What it was like, What Happened, and What It’s Like Now.

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Every one of us has many iterations of this journey in our own life. Sometimes it has to do with a transformation on how we handle addiction (12 Steps), a difficult outside circumstance (Star Wars), or big money changes. In this series of blog posts I will be detailing out the experience of people who now have a flourishing relationship with money. I will treat the main three acts as follows:

  1. Recognition of a problem
  2. Confrontation of said problem
  3. Resolution of problem and triumphant return of hero

I would love to hear your stories for this! If you are interested in sharing your financial hero’s journey please leave a comment below.

To find out about my own Financial Hero’s Journey check out the following posts:

Alyssa Windell, another awesome financial blogger, wrote a great post connecting the hero’s journey and money here.

Why Hire a Financial Planner?

Although I’ve never hired a financial planner, I have had to hire an expert to help me do something I could potentially have done myself. Earlier this year I switched gyms and the new one had less exercise classes. After two years of either going to a class or doing cardio I had still not started weight lifting. I always had a reason to skip it. The truth was I didn’t know how. After some half-hearted attempts to learn I realized I was not disciplined enough to learn this skill on my own. The routines online confused me and my motivation barely lasted past five minutes.

Shortly after joining the new gym they offered me an introductory personal trainer session. At first I was an adamant no. At the time my main objections were that it’s expensive and it’s something I should be able to figure out on my on. But then I saw that I could afford it and realized that I was probably not going to learn it on my own. So I took the plunge and signed on for a one year contract. I can now happily say I am comfortable with my weight lifting routine. And a positive side effect is that my butt has never looked better!

So what does my personal trainer have to do with a financial planner? Both professions have experts who motivate you through behavioral changes. They have been trained to quickly spot possible problems. Plus the best coaches, either for fitness or finances, are just as excited about your success as you are. If it’s fear that’s holding you back, take a look at this great article by Michael F Kay from Financial Life Focus. Continue reading “Why Hire a Financial Planner?”

Women’s Symposium of Southern California

Next International Women’s Day we will have the second annual Women’s Symposium of Southern California, which will bring together financial experts to answer questions from women in the community. The first symposium was in March of 2016 and it was a great success. It was all put on by Marah Fineberg, CFP and she decided there is a need for an annual event like this in our community.

I am proud to say that I am part of the Partnership Committee. My main job is to let others know about the upcoming Symposium and request involvement from other organizations that share our mission.

I’d love to hear if you have any thoughts on who I should contact. Also, please spread the word to anyone you think may benefit from this event. Our next event will be on March 8, 2017 in Marina Del Rey.

Sufficiency and your True North – Celebrating Enough

The Soul of Money by Lynne Twist is not your typical personal finance book. It does not go into how to get out of debt or where to put your retirement investments. Instead, it is a thoughtful book that reminds us that we already have enough. We have probably all heard that the endless pursuit of more does not lead to an enjoyed life. It only leads to a need for more. The issue for many of us is that we forget this simple idea, especially when we listen too closely to the consumerism in society. Twist shares her transformation away from the mindless pursuit of more towards a more aligned lifestyle for herself and her family. Continue reading “Sufficiency and your True North – Celebrating Enough”

Career Exploration Before Signing on for College Debt

One of my nieces is starting her senior year of high school and is stressed about college. She knows she wants to go to college, but is unsure of what she will study and how she will pay for it. This is very natural, especially for children who are the first ones faced with the luxury/burden of deciding what they will do for money as adults. A few generations ago most people grew up to do what their family did. The children of blacksmiths were blacksmiths. The children of farmers were farmers.

My niece is certain that she wants to attend college because she likes academics. However, college is not the only option. High school graduates can join the military, go to a trade school, start a business or get a job. Most high-paying jobs do require a college degree, especially if you want to move up in a company. But if you go to college just because it’s expected of you, rather than because of your own internal motivation, you may have trouble completing the degree requirements. If academics is not your thing consider trade school; the school requirements are shorter, the cost is lower, and the jobs are unlikely to be outsourced to other countries.
Continue reading “Career Exploration Before Signing on for College Debt”

Helping Kids Become Financially Capable

Most of the responsibility of teaching kids about money falls on their parents and family. This can be rather stressful, especially if you are uncomfortable talking about money and don’t want to be actively questioned by a kid. In order for kids to learn about money they’ll have to be allowed to interact with it and yes, even make mistakes with it. It’s better to make money mistakes as a kid when the amounts are much lower than to learn about money after you open up a credit card at 18.

As a parent, or even just as a person who interacts with children, we need to pay attention to our money talk around kids. Do you put money down and call it the root of all evil? Do you glorify it and act as if you’ll never have enough? How do you say no to buying something for your child or any kid you know? Do you ever say no?

There are many ways to teach children about money; you’ll get to decide what way works for you and the kids you interact with. The main thing is to keep in mind that kids clearly see your beliefs around money; make sure that you are as aware of them as they are.

Before you start get overwhelmed, keep in mind that you do not have to teach your child about every single money situation. Instead, teach them to think critically and care for themselves. We have no way of knowing what financial questions they will run into as adults because it will be a different world then. Most parents today are surprised to see their young adult children saddled with mortgage sized debt for their college degree because when they were young college was either not necessary for a good job or much more affordable for the academically gifted. Most grandparents are surprised to see their middle aged children scrambling to save for retirement because they had pensions to fall back on. I bet most great-grandparents would be surprised to see their retired children having to deal with long term care expenses because most people didn’t live through the same medical issues we have today.

We have no way of knowing what the future holds. It is better to focus on teaching ability rather than the “right” or “wrong” thing to do. The Center for Financial Inclusion calls this critical thinking ability around money Financial Capability.

What is Financially Capability?

Financial capability goes beyond financial literacy of being able to read a bank statement or fill out a credit card application. The Center for Financial Inclusion’s definition covers several topics: from feeling competent about one’s ability to make financial decisions to being disciplined when pursuing long-term goals. Someone who is financially capable is able to not only understand financial products, but is also able to decide what is in their own best interest. They can see beyond get rich quick schemes and other financial scams. They are able to balance their current and long term wants. Simply put, people who are financially capable are in charge of their money and not the other way around.

How do you teach financially capable decision making? By having your child practice making money decisions. Knowing about banks is not the same as feeling confident in front of a teller or saying no to high pressure insurance salespeople. Take a moment to think back to your earliest money decisions. How old where you? What did you decide? What was the outcome? Did you feel empowered around money or frightened by it?

Examples of Money Stories

I have two very vivid memories around money as a kid. At about eight years old I was given the opportunity to decide how to spend a whole $30 my dad had given me for a week long trip to visit family in Sonora, Mexico. My cousin wanted me to buy all the candy possible on my first day at the corner store, but I refused. For this I was called “coda” or stingy and felt put down.

My first major money decision was at the age of 12. I was getting my braces at the orthodontic school and one of the dental students offered me $200 to attend one of his exams. It turns out I had just the cavity he needed. I then spent the entire $200 on a piano keyboard I rarely used. From there I learned to think things through before big purchases. These two things: saving my money under peer pressure and regretting a major purchase were made possible by my parents’ willingness to let me own my money, the decisions I made, and the consequences.

A good friend of mine had the opposite experience. Every Lunar New Year gift or birthday gift given to her as a child was confiscated by her parents. Whenever she did have money she spent it quickly just in case it was taken away. Once she started to earn her own money it took a lot of work to retrain herself to save for long term purchases and pay off debt.

Although my friend’s parents were trying to teach her the value of saving, somehow it did not go as they had expected. In my case, my mom continues to remind me to go against my natural hoarding tendencies and spend money on myself. This goes to show that the extremes are never recommended. Also, kids are all different. What worked with one child may not work with another. Be willing to test things out and give kids enough space to learn about how to use money.

We all have different ways of relating around money. The more aware we are of our own natural tendencies, the easier it will be to change if anything is not working. I took a year to track all of my expenses to learn about my own money tendencies; you can check out the post entitled Beyond Hoarding.

Share, Save, Spend

Unless you are actively talking about money with kids they are going to learn from their peers, the media, and whatever snippets of information they overhear. Nathan Dungan, a thought leader in the financial education sector, points out that children are bombarded by as much as 3,000 marketing messages a day. All of this can teach a child that the goal of money is just to consume. Unless these messages are checked it can create an adult with compulsive buying habits and overwhelming debt. For so many Americans managing money is their main source of stress. We can teach children a different way.

Dungan advocates a Share-Save-Spend method to allow children the opportunity to learn about money. He also recommends that children be taught to track their expenses. I think it could be a very fun experience to have the entire family share what they spent money for a week, without guilt or blame. This includes parents! We all make poor money decisions at some point. It is much better to review the decision and learn from it, than to avoid it and sit in shame. Your child will learn so much from seeing you make a mistake and then get back up to try again.

Gabriel Brenner, a financial advisor at Abacus Wealth Partners, shared his experience using the Share-Save-Spend method with his children’s allowance

The method goes like this:

50% Spend – The perfect place to learn about buyer’s remorse, just like I did with my $200 keyboard. Also, as Brenner points out: [A] lovely side effect of the Spend, Save and Share strategy is that it minimizes begging and whining. The answer is always, “Yes, you can have that. Use your allowance.”

25% Save – This is a great way to see how patience and discipline can pay off. I remember how overjoyed my brother was when he saved enough money to buy his Nintendo 64. He loved that game much more than anything else that was bought for him because saving for it allowed him to exercise his autonomy.

25% Share – By giving to others a child can know that there is enough for everyone. It also develops a sense of community. We all share this planet, we can also share our resources responsibly.

The beauty of teaching kids about money is that you’ll probably get to learn a ton about yourself and connect deeply with him or her. Like with many of life’s big questions, it is in the questioning that we learn. I mentor a little girl and when we first began to go on outings she seemed uncomfortable with having me pay for everything. At the time she was only 10 years old and already knew that money is limited.

We talked about it and I clearly told her our expenses were in my budget, as long as they were reasonable. We decided we could have big expensive outings every six months. Our first expensive outing was getting her doll’s hair done at the American Girl store. Our other outings would be more affordable things like flying a kite at the park or going for a hike. After this discussion she was more relaxed.

This was as much of a growth experience for her as it was for me. She asked me a lot of big questions, for example, “What is a reasonable expense? How do you budget? Why do you budget? Do you make more money than other people?” Yikes! I shared enough with her to answer without boring her with adult details like the stress I felt before creating a budget or the structural inequalities that have increased income gaps since the 70s.

The way we use time and money speaks loudly about our values. By spending time talking about money with a child you are letting him or her know that they are valuable and capable. What if you are terrified of having to look at any of this? Thankfully you do not have to figure it all out today. The first thing is to be aware of how you use money and start to consider talking with the kids you know about what money is for.

For a very lively look at this topic I recommend you check out Brunch & Budget’s podcast over at Bondfire Radio. Pamela Capalad is a pro at talking with kids about money. You’ll definitely benefit from her suggestions, especially since according to her website “Parents are more afraid to talk to their kids about money than they are to talk to them about sex or drugs.”

What money conversations have you had with kids? Do you remember having them with adults when you were a kid? Would you ever consider tracking your money as a family and discussing it openly?

The Benefits of Partnering with a Financial Planner

It can be very difficult to share financial details with someone else because they are so private. This means that many people would never consider seeing a financial planner, even if they found their finances overwhelming. However, partnering with someone else can make looking at your finances more enjoyable and you are sure to make progress towards your goal of financial flourishing. Check out my first ever video, and please let me know what you think!