04 Jun 2013

The Summer Save Up: Ten (or More) Ways to Save $20/Week This Summer

By John Vento
With all of the summertime fun to be had, for many families, living within their means goes right out the window by the time June rolls around. But if you want to reach financial independence, says John Vento, you must find ways to keep boosting your savings?even when fantastic summer vacations are calling your name. He offers several great tips on how to save up this summer.

Hoboken, NJ (June 2013)?For many of us, summertime is sacred. It's the time of year for fun and relaxing with family and friends. And so, every year we try to make the absolute most of these warm months, and more often than not that means spending money we don't have. Beach vacation with the entire family? Put it on the credit card! Country club pool membership? Just take money out of the rainy day fund! New shades and other summer duds? Whip out that plastic again! Unfortunately, notes John Vento, this spend-now-worry-about-it-later mentality means severe setbacks when it comes to reaching overall, long-term financial goals.

"Naturally everyone wants to make the most of their summer, so many folks tend to go a little spending crazy," says Vento, president of his New York City-based Certified Public Accounting firm, John J. Vento, CPA, P.C., and Comprehensive Wealth Management, Ltd., as well as the author of the new book Financial Independence (Getting to Point X): An Advisor's Guide to Comprehensive Wealth Management (Wiley, 2013, ISBN: 978-1-1184-6021-4, $40.00, www.ventocpa.com).

"Rather than living within their means, they start living the high life and very rarely can they afford it. It's one of the biggest financial mistakes people make. If you want to become financially independent, you must live within your means, and that means carefully controlling and budgeting your spending over the summer."

As Vento writes in his book, living within your means requires that you live on less than your take-home salary and any other resources you receive, such as income from an annuity or a trust. Living within your means does not mean existing from paycheck to paycheck. Living within your means does not mean living on credit or on loans. It means not only figuring out how to pay for your needs and wants, but budgeting your income so that you still have a little money left over. It also requires that you save money.

"That's right, 'living within your means' includes not only such necessities as shelter, food, utilities, and clothing," notes Vento. "You must also pay into your personal savings. Ideally, that payment should be 10 percent or more of your gross pay. And all of that can't go out the window when summer rolls around and you want to go on a nice vacation. The good news is that when your entire family works together, you can easily adopt several summer savings strategies. Think about it this way: If you can implement a plan this summer that helps you save just $20 a week and then you keep it up for an entire year, you can tuck away an extra $1,040."

Read on for a few of Vento's tips excerpted from Financial Independence (Getting to Point X) on how you can save $20/week or more this summer:

Stay cool without breaking the bank. Hot summer days mean your AC is practically running non-stop, which means your summer power bills can sometimes break the bank. But you can allay some of these costs by using a programmable thermostat to minimize your utility use and cost or by installing ceiling fans to allow you to use less air conditioning. "You should also make sure your home?especially your attic?is sufficiently insulated," notes Vento. "If the insulation in your attic is less than 6 inches thick, you are under-insulated. Insulation of 12 inches thick can lower your heating and cooling costs by 25 percent in a year."

Save on gas. A great way to cut back on how much you're spending on gas each week is to trade in your car for a bike. "If you live close enough to your work, enjoy the warm weather by biking or even walking to work," says Vento. "If biking or walking isn't an option, organize a summer carpool or start taking public transportation. Of course, if you're able, these are great changes to carry over into the fall and winter."

Wash your own wheels. It can be tempting to just zip into a local carwash and pay someone else to wash your car. But depending on the level of care you're paying for, you can spend anywhere from $5 to $30. Get outside and enjoy the weather by washing your own car. You'll save some money and will probably even do a better job on your own.

Shape up... Insurance companies take into account your physical health. Therefore, people who smoke, have high cholesterol levels, have high blood pressure, are overweight, and have other problems (including depression) will usually have higher insurance premiums than a person who is in good physical shape and health. "Use the summer to make healthy life choices," says Vento. "Clean up your diet. Stop smoking and start exercising."

...but forgo the gym membership. "Bathing suit season" as it's often called will probably have you focusing a little more on your fitness. But rather than throw out a bunch of money on a membership to a gym you might not even end up using that often, think of all of the ways you can workout outside for free. Walk, run, or bike local trails. Use workout videos. Or attend donation-based classes that allow you to pay a much more reasonable amount for your workouts.

Have fun for free. Check out "free events" offered in your neighborhood. Many towns offer free concerts and movies in the park or at the beach during the summer. Or take the family to the park for a Saturday afternoon or evening picnic.

Don't splurge on vacation. Of course, there's always a lot of build up around the yearly summer vacation. "But if you don't have the money to spend, you should absolutely look for more cost-effective options," recommends Vento. "Instead of going on expensive vacations, traveling first class, eating at the most expensive restaurants, going on all the most expensive tours, and going to overpriced five-star hotels, fly coach, cook in the hotel if possible, and go to a safe, fun, cheaper hotel."

Go green and save. Summer is a great time to make an effort to "go green" and start making more environmentally friendly choices. "A great way to do this is to refill your cleaning product spray bottles with less expensive refill bottles, instead of buying another more expensive spray bottle," says Vento. "Or replace incandescent light bulbs with compact fluorescent light bulbs (CFLs). These use more than 70 percent less energy and last much longer, which will save you money on the cost of light bulbs and on your electricity bill. And of course, you should always turn off the lights when you leave a room and take advantage of all the natural light you get during the summer."

Hang it out to dry. Instead of running your dryer during the summer, hang clothes and other laundry outside to dry. This saves money on your utility bills as well as wear and tear on your clothing.

Become a thrifty foodie. First, give up junk foods completely: Not only are they expensive, they are unhealthy. Second, plan your meals. "Doing so can save you money and time," says Vento. "When grocery shopping, you will know exactly what you need to buy so there is no excess food thrown out at the end of the week. Take advantage of readily available, in-season fruits and vegetables by cooking more at home. Then brownbag your leftovers for your lunch at work the next day. And finally, buy in bulk or use grocery store rewards cards."

"Creating a summer of fun should not leave you worse off financially than when the season began," says Vento. "Be sure to discuss and share your family financial goals with your entire family so that everyone can commit to taking these easy, responsible steps toward saving and building on your financial stability. When you make these smart choices, it makes reaching long-term financial goals all the more achievable."

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13 May 2013

Financial Independence is NOT Just for Wealthy People--10 Steps to Get You There

By John Vento

Journey to Point X (Financial Independence):

Ten Steps to Get You and Your Finances Where You Want to Go

Financial independence is the point at which you stop working for your money and your money starts working for you.

John Vento provides ten steps to help get you there.

Hoboken, NJ (May 2013)?As a result of the 2008 economic meltdown, it became stunningly obvious that many Americans had not managed their finances well. What we learned as the economy slipped into a Great Recession was that many people lived paycheck to paycheck. Many had mortgages they couldn't afford. Many took unnecessary investment risks. And far too many weren't saving a dime let alone putting money away for their kids' college or their own retirement. Financial advisor John Vento says it's time for Americans to get their financial houses in order. He says everyone should make reaching financial independence?or their Point X, as he calls it?a top priority.

"Financial independence isn't something that's just for wealthy people," says Vento, president of his New York City-based Certified Public Accounting firm, John J. Vento, CPA, P.C., and Comprehensive Wealth Management, Ltd., as well as the author of the new book Financial Independence (Getting to Point X): An Advisor's Guide to Comprehensive Wealth Management (Wiley, 2013, ISBN: 978-1-1184-6021-4, $40.00, www.ventocpa.com).

"And it's not something that's guaranteed just because you're a top earner. Financial independence, or Point X, is literally and fundamentally the point at which we can stop working for our money and our money starts working for us. It is the spot at which our savings and investments alone generate enough income to support our chosen lifestyle, and allow us to continue to live that lifestyle without having to work for a paycheck. It is the place where we have achieved true financial independence."

A CPA and CFP® with decades of experience, Vento knows exactly what it takes to sustain and build wealth. His new book is a complete resource for anyone concerned with building wealth and financial security in today's no-guarantee financial environment. Authoritative, comprehensive, and up to the minute, it is an essential financial guide for every individual and every family.

"Of course, no one?not even the super wealthy?can just snap their fingers and reach financial independence," notes Vento. "No matter how you define your particular Point X, whether it is an annual income of $25,000 or an estate of $250 million, you need to not only understand but effectively deal with ten fundamental wealth management issues.

"Throughout our lives, we will encounter many questions and problems relating to money, but every one of them will fall, in some way, under one or more of these ten key wealth management issues. It is important that you understand them and work within them productively?that you become financially literate."

To that end, Vento covers each of the ten key wealth management issues in great detail in his new book. Read on for an overview of each one of them:

Live within your means. "Living within your means" is living on less than your take-home salary and any other resources you receive, such as income from an annuity or a trust. Living within your means does not mean existing from paycheck to paycheck. Living within your means does not mean living on credit or on loans. Living within your means does not mean turning to parents or friends to pay the tab when you cannot quite meet the rent or need to buy a new computer. It means not only figuring out how to pay for your needs and wants, but budgeting your income so that you still have a little money left over.

"The single most important step any individual must take to become financially independent is to commit to living within his or her means," says Vento. "In addition to living within your means, if you are ever going to get to Point X, you must also save money. Therefore, 'living within your means' includes not only such necessities as shelter, food, utilities, and clothing, but also payment into your personal savings. Ideally, that payment should be 10 percent or more of your gross pay."

Understand taxes. The average American family pays more than one-third of its income in federal, state, and local income taxes?and even more in property taxes, excise taxes, sales taxes, and other hidden taxes, such taxes on cigarettes, liquor, and certain luxuries. In other words, for just about everyone, taxes are our biggest personal expense, by far.

"In order to reach Point X, it is imperative that you understand the basics of our tax system, and that you practice careful and strategic tax preparation and planning so your personal tax burden does not deplete your income unnecessarily, and your wealth accumulates quickly and safely," explains Vento. "Tax laws are incredibly complicated, and there is no reason for you to read up on or understand the virtually infinite ins and outs of the often arcane U.S. Tax Code. Most people do need help from professional tax advisors to benefit from tax strategies; however, you should have enough basic knowledge about taxes and the tax system to ask the right questions and find the appropriate help to suit your own unique financial and tax needs."

Determine your financial position. Determining your financial position does not mean simply knowing your annual salary or identifying how much you take home in every paycheck?although that is definitely part of it.

"In order to live within your means, you must have a precise understanding of your financial assets, liabilities, and net worth, by preparing a Statement of Financial Position," notes Vento. "You also need to know?and to track on a regular basis?where all your personal funds are coming from and going to: This is your Statement of Cash Flow. Finally, after taking a careful look at your current financial position, you must determine your financial goals, whether for five years, ten years, or throughout your retirement years. Only then can you realistically budget for the future?and of course, reach Point X."

Manage debt. For many people, debt is a scary concept, although it need not be. The fact is there is good debt and there is bad debt. Understanding the difference between bad debt and good debt is imperative to becoming financially literate and financially independent. Basically, good debt is money that people borrow for purchases and situations that, in the long term, will help them amass wealth and ultimately reach Point X. Some examples of good debt include student loans, business loans, certain investment asset loans, and some personal-use asset loans (such as an affordable home mortgage). In contrast, bad debt is money that people borrow (usually on a credit card) for the purchase of nonessential expenditures as well as many personal-use assets.

"When you do not use debt properly, that can lead to significant financial hardship and can prevent you from ever becoming financially independent," says Vento. "However, when you use debt to leverage yourself in the pursuit of accumulating wealth, it can be a very powerful tool."

Insure your health and life. Even a sound, carefully planned investment strategy can fall apart if you have not prepared properly for unforeseen problems concerning health and life. If you or a member of your family is hit with a prolonged illness, a severe injury, a disability, or death (especially of the primary wage earner), the planning and investing you have so carefully developed can quickly disintegrate.

"Health insurance and life insurance help protect you and your family from the unexpected," explains Vento. "The premiums you pay will provide you with the peace of mind that comes with knowing that your assets and family will be protected, if and when the unexpected happens. Having the right kinds of health and life insurance at the appropriate stages of life is as important as the insurance itself. Your particular situation will determine what type of insurance you need, what kind of policy or policies will work best for you, and the amount of coverage you should carry."

Protect your property with insurance. Protecting your property by implementing the proper risk management strategies is critical to achieving and maintaining your financial independence. The type and extent of insurance you need will change throughout your lifetime, as will the types of assets and the extent of wealth you have accumulated. The three major personal property risk management issues include homeowner's insurance, automobile insurance, and umbrella liability insurance.

"You should consult with your property liability insurance agent or broker to fully evaluate your needs so that you can determine proper coverage to meet those needs," asserts Vento. "It is critically important to remember you should always secure your new insurance coverage before you drop your old policy. You never want to leave yourself unprotected without proper coverage in between policies. Obtaining the proper homeowner's, auto, boat, and personal umbrella liability coverage can provide you with the peace of mind of knowing you and your property will be protected. Being unprepared for the unexpected can rob you and your family of your pursuit of financial independence."

Pay for college. If you are like most parents, one of your biggest concerns is, How am I going to pay for my children's education when the time comes to send them off to college? Some parents hope their child will receive academic or athletic scholarships or grants. But for most parents, the reality is they will have to pay the majority of the cost of college from their savings?or even worse, they may have to go into debt.

"With the skyrocketing cost of college, it's important that you start planning early," says Vento. "Be open to your children about financial decisions and what consequences these decisions will have on the family's future. Take advantage of college savings programs such as Internal Revenue Code Section 529 plans, Coverdell Education Savings Accounts, savings bonds, financial aid (such as federal grants, loans, and scholarships), as well as education tax deductions and credits. Understanding how scholarships, government grants, and student loans can help is essential."

Plan for retirement. Everyone should be planning financially for retirement, regardless of how old or young they are. Especially given that people coming into retirement are facing concerns that retirees did not face 20 or 30 years ago, including living longer and supporting themselves throughout turbulent financial times.

"The longer you wait to start saving for retirement, the harder it will be to accumulate the amount you need to be financially independent," says Vento. "Remember, one of the most valuable investment assets you have is time; the more years you save the greater your chance of financial success. By far the easiest way to do this is by contributing to your employer's retirement plan, or if that is not available, to an individual retirement account (IRA). Implement a retirement saving strategy that allocates a specific dollar amount or percentage?I recommend at least 10 percent?of your salary every pay period. Therefore, you are paying yourself first, as though saving for retirement is your number one required expense. In fact, saving for retirement is not an expense because it adds to your investable assets, but treating it as such is of utmost importance to your success."

Manage your investments. The rewards of proper investing can be very generous when investors adopt an investment discipline that allows them to purchase quality investments and then allows those investments to take their course. This may have been best said by Warren Buffett, the primary shareholder, chairman, and CEO of Berkshire Hathaway who is also considered by many to be the most successful investor of the twentieth century.

"It is critically important that you select an investment model that you are willing to stay with, even in the worst of markets," notes Vento. "The appropriate investment plan for you should be the one that provides you with the highest potential rate of return in the long run that is within your risk tolerance."

Preserve your estate. If you do not take the necessary steps to preserve your estate, unintended beneficiaries may take a significant amount of your estate instead. These unintended beneficiaries include the federal and state governments, the state administrator, attorneys, and perhaps even relatives you have not spoken to in decades. The money you may spend today on a qualified estate attorney may save your estate significant dollars in both estate taxes and administrative costs down the road.

"Estate planning, which I should stress is not just for the wealthy, can give you peace of mind by assuring your family's financial security will continue even after your death," says Vento. "It can significantly reduce estate taxes, administrative costs, and assure that your loved ones will be taken care of. It allows you to dispose of your assets as you see fit, with consideration given to your heirs' individual needs."

"Financial independence?the point at which we can stop working for our money and our money starts working for us?or Point X, as I call it in my book, is the financial ideal that we all seek," says Vento. "With the right plan and a commitment to making the necessary life changes, anyone can reach their Point X...but you have to be dedicated to making the lifestyle changes and taking the necessary steps to achieve financial security."

# # #

About the Author:
John J. Vento is author of Financial Independence (Getting to Point X): An Advisor's Guide to Comprehensive Wealth Management (Wiley, 2013, ISBN: 978-1-1184-6021-4, $40.00, www.ventocpa.com). He has been the president of the New York City-based Certified Public Accounting firm John J. Vento, CPA, P.C., and Comprehensive Wealth Management since 1987. His organization is focused on professional practices, high net worth individuals, and those committed to becoming financially independent. He has been the keynote speaker at various seminars and conferences throughout the United States that focus on tax and financial strategies that create wealth. John has been ranked among the most successful advisors of a nationwide investment service firm and has held this distinction since 2008.

Mr. Vento brings with him his vast experience from working with KPMG, one of the big four Certified Public Accounting firms, where he specialized in audits of the medical and dental professions and the financial services industry. He has been an adjunct professor at St. Francis College in Brooklyn, NY, as well as Wagner College in Staten Island, NY. John has also been an advocate for promoting financial literacy and has been a lecturer throughout the New York City Public Library system.

John J. Vento graduated from Pace University with a bachelor's degree in business administration in public accounting, and continued on to earn an MBA in taxation from St. John's University. He is a Certified Public Accountant (CPA) and a member of the American Institute of Certified Public Accountants and the New York State Society of Certified Public Accountants. Mr. Vento is also a Certified Financial PlannerTM (CFP®).

About the Book:
Financial Independence (Getting to Point X): An Advisor's Guide to Comprehensive Wealth Management (Wiley, 2013, ISBN: 978-1-1184-6021-4, $40.00, www.ventocpa.com) is available at bookstores nationwide, from major online booksellers, and direct from the publisher by calling 800-225-5945. In Canada, call 800-567-4797. For more information, please visit the book's page on www.wiley.com.

09 May 2013

The Lost Generation--Can the Under 40 Crowd Survive the Great Recession

By John Vento

"The Lost Generation" or "Survivors of the Great Recession"?
A Financial Expert Explains How the Under-40 Crowd Can Get
on Track to Financial Independence Despite the Slow Economy
A recent study from the Urban Institute found that Americans under 40 have
financially fallen behind where previous generations were at that age.
John Vento explains how they can shake off the constraints of the Great Recession.

Hoboken, NJ (May 2013)?Go to a good college. Get a high-paying job. Then you'll be set for life. These simple instructions sum up the financial advice that a whole generation of Americans was given growing up, as visions of big houses, fancy cars, and carefree living danced in their heads. Of course, the reality for Americans under 40 is proving to be much different. Mountains of student loan debt, unemployment lines, and barely getting by have resulted from a Great Recession and slow economy that have stifled what has been dubbed the "Lost Generation" before they could get a solid financial foundation under their feet. In fact, a new study from the Urban Institute shows that the average wealth for Americans under 40 is 7 percent less than for those under 40 in 1983.

But financial expert John Vento says that there is a brighter side to this coin. He explains that this generation will learn from these economic hardships and can therefore set up more financially stable lives in the long term.

"Just look at how the Great Depression generation reacted to that harsh economic climate," says Vento, president of his New York City-based Certified Public Accounting firm, John J. Vento, CPA, P.C., and Comprehensive Wealth Management, Ltd., as well as the author of the new book Financial Independence (Getting to Point X): An Advisor's Guide to Comprehensive Wealth Management (Wiley, 2013, ISBN: 978-1-1184-6021-4, $40.00, www.ventocpa.com).

"The clients I work with who grew up during that time know the value of a dollar. To this day, many of them live very conservatively because they understand what it feels like to not have some of the necessities of life. Today's survivors of the Great Recession will learn the importance of making sound financial decisions because they won't be able to get by otherwise. They understand there is no such thing as guaranteed employment and as a result, I think, many of them will have a greater appreciation for the value of financial planning. What's more, they have the benefit of having seen what results from living on credit and excess. They've seen what happens when bubbles burst and how long it takes to dig out of a stock market crash."

Vento's new book focuses on helping readers from all walks of life reach financial independence. It is a complete resource for anyone concerned with building wealth and financial security in today's no-guarantee financial environment.

"Of course, it won't be easy for these young people," says Vento. "Many of them have to overcome significant student loan and credit card debt. In addition, unemployment and stagnant wages may have stifled their ability to save for retirement or to purchase a home. But just as many in the Great Depression generation survived by living conservatively and saving at every turn, the survivors of the Great Recession can still build up sound financial futures by doing the same."

Below Vento provides a few tips for the "Lost Generation," which he prefers to call the "Survivors of the Great Recession," on how to get their finances in order and start building wealth for a brighter future.

Make financial literacy a priority. Financial literacy means having a firm understanding of fundamental financial concepts and strategies and the ability to manage money responsibly in order to ensure financial security.

"Truthfully, I think a course in financial literacy should be a core requirement in high schools and universities," says Vento. "Such a course would provide essential knowledge in personal finance that today's young people simply don't get anywhere else. But since such courses are the exception instead of the rule, it is imperative that young people find other ways to become financially literate. After all, a lack of financial literacy is in part what led to the recent financial collapse.

"Many Americans simply didn't have the financial knowledge needed to manage their finances in a responsible way. They took out mortgages they couldn't afford. They made risky investments. They spent every dime rather than saving for a rainy day. When you have financial literacy, you can manage your money in a way that sets you up for long-term security. You know how to save, how to approach your taxes, how to make decisions regarding purchasing real estate and saving for retirement, and so on. Having this knowledge is the first step to reaching financial independence, and that's why I tried to make Financial Independence (Getting to Point X) as comprehensive as possible when it comes to learning the essentials that lead to financial literacy."

Live within your means. In his book, Vento establishes that every hardworking American has the ability to save and ultimately become a millionaire if they follow certain wealth-building principles. Even with the challenges they face, the "Lost Generation" is no different. The first step for them is to live within their means.

"Real wages for young Americans are stagnant at best and decreasing at worst," says Vento. "Clearly that's negative. But it can be overcome if you simply accept that your standard of living will have to be lower than that of the previous generation. And that's okay. A lower standard of living does not have to mean a lower quality of life; the two are independent of one another.

"The single most important step any individual must take to become financially independent is to commit to living within his or her means," he adds. "In addition to living within your means, if you are ever going to reach financial independence, you must also save money. Therefore, 'living within your means' must include not only such necessities as shelter, food, utilities, and clothing, but also payment into your personal savings. Ideally, that payment should be 10 percent or more of your gross pay. A great way to start out saving is to find ways to save $20 or more per week. I offer 101 ways to do just that in my book. Remember, the biggest asset you have is time. If you tuck away that extra $20 into a savings account every week, at the end of the year, you will have $1,040. If you are 30 years old and invest that additional $1,040 for 35 years (until you are 65) at an 8 percent rate of return, you will have $179,209. If you are able to save $20 or more per day ($7,300 per year) for 35 years at an 8 percent rate of return, you will have $1,254,466.* It's amazing that is all you need to do to one day become a millionaire. The trick is to stay focused and believe that being financially independent is possible."

Get a handle on student loan debt. Managing student loan debt must become a top priority for those under 40 (and anyone still working toward paying off their loans!). "Many people in this age group have opted to remain in school because of the stagnant job market," says Vento. "That means they've taken on more student loan debt than they otherwise might have had the economy been better. This trend has to end. I understand that the job market is very tough, and many recent college grads simply can't find work doing what they want to do. But accruing more and more student loan debt to continue their education isn't a good solution. My suggestion is to take a job, any job, and stop adding to your student loan debt. A job that pays $25,000-$30,000 a year is better than no job at all. With time and patience, you may be able to move up the corporate ladder, and hopefully your salary will move up with you.

"You should also put a plan in place, right away, for paying off your student loans. Speak to each lender and try to get your rate reduced and the terms extended. Consolidate debt where possible, extend the number of years for payment, and lower the interest rate. In later years when your financial situation improves you can always pay down these loans. And always pay your student loans on time, every time; not doing so will have a negative effect on your credit score, which will only make your financial picture worse."

Pay yourself first. Regardless of age, everyone should always focus on paying themselves first. That is especially true of today's under-40 population, notes Vento.

"If you're employed, set aside 10 percent or more of your gross earnings by contributing to an employer-sponsored retirement account such as a 401(k)," he says. "If your employer does not provide a retirement plan savings vehicle, then open up an individual retirement account (IRA). Once again, make sure you put 10 percent or more into this account with a maximum of $5,500 allowed for 2013 for those under the age of 50. After you have done this, you have now succeeded at paying yourself first. Doing this allows you to then determine your standard of living. You can spend only what you have left after funding your retirement savings and of course paying the related taxes. Paying yourself first and saving for the future is not a choice; it is a necessity and must come before all of the other unnecessary wants in life. Will this be easy? Of course not, but anything that is worth something is never easy."

Don't rush into buying a home. Because of the financial hardships they've experienced as a result of the Great Recession and the economic downturns that came before it, members of the "Lost Generation" are also having difficulties buying a home.

"Part of the American Dream is owning your own home," says Vento. "And that is all well and good, but we saw during the housing crisis what happens when people purchase homes they can't afford. Young people should not rush into buying property. Anyone who can't put down 20 percent toward the purchase of a home should keep saving and wait until they can before buying. It's okay to rent an apartment or even live in your parents' basement if that's what makes sense for you financially. In fact, I lived in my parents' basement until I was married and able to afford a home.

"That said, for those fortunate enough to have saved enough for a down payment, the timing of purchasing a home could not be better," he adds. "This is a terrific opportunity for this generation since property values across the country are significantly lower than in 2008, and interest rates are at a historical low. The benefits of home ownership are significant, which include the deductibility of real estate taxes and mortgage interest as well as points paid on the initial purchase. The key here is to purchase a modest home, one that will provide shelter, not one that will provide you with bragging rights among your friends and family. It is much better to own a $300,000 home with a $100,000 mortgage than it is to own an $800,000 home with a $600,000 mortgage. Remember, live responsibly and save."

Avoid using credit cards. Many young adults in this generation have accumulated lots of credit card debt. Credit card debt is the financial equivalent of having terminal cancer. It is a surefire way of killing your chances of becoming financially independent. The only reason people have credit card debt is because they have spent more money than they earned. Sometimes this is necessary, such as in cases of a medical emergency, but the majority of the cases of credit card debt come from living irresponsibly. Remember, if you spend more money than you make, the only way to make up the shortfall is by going into debt. This vicious cycle must end and it must end immediately.

"First and foremost, throw out your credit cards," suggests Vento. "Instead use cash or a debit card. Guess what? If you don't have the money in your account, then you cannot purchase the things you want. Another possibility is renegotiating with the credit card companies. Often you can come to an agreement to eliminate some of this debt for pennies on the dollar.

"If you have an extreme amount of credit card debt?for example, if your overall debt exceeds your assets?then you are considered insolvent," he adds. "If this is the case, you may want to consider filing for personal bankruptcy. (Unfortunately, student loans typically cannot be wiped out as part of bankruptcy.) Although this will ruin your credit for at least seven years, it may give you a fresh start and will allow you to start rebuilding your finances from ground zero. Of course, anyone can avoid these problems by simply avoiding using credit cards."

"We have just gone through a horrific decade when it comes to economic and financial matters," says Vento. "The choices and decisions the under-40 generation makes now and the lessons they have learned will have a direct impact on their futures. Will this generation have to change their goals and expected retirement age? Most probably yes. Will they live high and mighty and as irresponsibly as the previous generation? I certainly hope not. The key for them will be to stay focused and understand the basic principles of becoming financially independent.

"To sum it all up, work hard and earn an honest living," he concludes. "Always live within your means and pay yourself first by contributing to your retirement plan and taking advantage of the associated pretax savings. Throw away those credit cards and stop adding additional debt. Focus on increasing your quality of life, not your standard of living. I am optimistic about the future of this generation. Their path may be much different from the one they envisioned growing up, but by following established wealth management principles, they can absolutely reach financial independence."

# # #

19 Apr 2013

The Uncle Sam Savings Plan: Why Taxes Are Your Biggest Expense and How to Get Them Under Control

By John Vento
Most of us assume that our mortgage or rent, student loans, or child care costs eat up
the majority of our income, but the truth might surprise you. Our biggest expense?
Taxes, says John Vento. He offers tips on ways to save when the taxman cometh.

Hoboken, NJ (April 2013)?Where did all my money go? It's a universal question. And if you're like most people, it's one you ask with more than a touch of frustration. You don't spend extravagantly. You pay the bills, buy groceries, and provide school supplies and clothes for your kids. Sure, maybe you go out to eat on Saturdays and take a once-a-year vacation?after all, you deserve some pleasure in life?but it's hard to believe these small luxuries account for your stagnant savings or, worse, that credit card debt that's slowly inching upward.

So where did all the money go? Author John Vento has an answer that might surprise you. Taxes.

"Most people think their biggest expense is their mortgage or rent or their kids," says Vento, president of his New York City-based Certified Public Accounting firm, John J. Vento, CPA, P.C., and Comprehensive Wealth Management, Ltd., as well as the author of the new book Financial Independence (Getting to Point X): An Advisor's Guide to Comprehensive Wealth Management (Wiley, 2013, ISBN: 978-1-1184-6021-4, $40.00, www.ventocpa.com). "But believe me when I say that most of your money has gone?and continues to go?to taxes, taxes, and more taxes.

"Just think about it," he adds. "There's your federal and state income taxes. Social Security taxes. Payroll taxes. Sales taxes. Property taxes. And on and on. In fact, if you take a close look at how much you pay for various taxes, chances are this number would be more than 50 percent of your overall expenditures. And while no one can avoid taxes completely?not legally anyway?there are almost certainly ways to reduce your bill that you aren't taking advantage of."

A Certified Public Accountant and Certified Financial PlannerTM with decades of experience, Vento knows exactly what it takes to sustain and build wealth. His new book is a complete resource for anyone concerned with building wealth and financial security in today's no-guarantee financial environment. Most importantly, in it, Vento explains how to employ current tax facts and strategies in order to save hundreds?and perhaps thousands?of dollars every year.

"So if you want to increase your savings, what would be the single most important expenditure for you to focus on in order to keep more of what you make and get closer to achieving financial independence?" asks Vento. "The answer, of course, is taxes, taxes, taxes. But the fact is, most people completely overlook the importance of minimizing their taxes in order to help maximize their wealth accumulation."

If you want to change your taxes from your biggest expense to your biggest saving opportunity, take a look at a few tips from Vento:

Find a trusted financial advisor. Everyone needs a trusted advisor to guide them during good times and bad?someone whose primary goal will be to help you achieve your long-term financial objectives. And while you may assume financial advisors are for "the super wealthy" (i.e., not you), or that your stockbroker or tax preparer adequately fills this role, Vento says you're wrong in both cases.

"You need a financial planner who can analyze your status and assist you in setting up and implementing a program to achieve your ultimate goal of financial independence," says Vento. "Develop a close relationship with your advisor. Don't just go to see her once a year when it's time to file your taxes. The better your financial advisor knows you, the more effective she'll be at finding the tax credits, deductions, etc., that apply to you and as a result can help you save big money on your taxes."

Get organized. Don't walk into your tax preparer's office with your W-2 and a few receipts and expect to have a wealth-building experience. "Tax records, such as records of income received, work-related expense reports, medical expense information, information about home improvements, sales, and refinances, and so on, should be carefully kept on a year-round basis?not thrown in a drawer or shoebox and then hastily assembled just for your annual tax appointment," notes Vento. "Without tax records, you can lose valuable deductions by forgetting to include them on your tax return, or you may have unsubstantiated items disallowed if you are audited."

Retro-file to take advantage of missed deductions. Using your taxes as a way to actually save money is probably a new concept for you. That said, chances are high that you've missed out on ways to save in years past. Well, here's some good news for you: Those savings aren't lost forever.

"Say you discover you have not taken advantage of several deductions or tax credits that you've been entitled to," Vento posits. "Don't beat yourself up: You can file an amended return to claim an additional refund. Generally, the statute of limitations is three years from the date you filed your tax return. Therefore, you can file a claim for refund for the last three years of tax returns if you uncover a recurring error. This is a great way to improve your cash flow, and it's a great example of why you should meet with your tax advisor throughout the year."

Get credit for your kids. Put together a list of all expenses related to your kids. You'll want to include child care, tuition payments, 529 plan contributions, donations, medical expenses, etc. "Ask your tax preparer to explore every tax credit that might be available to you, such as the child care credit, child tax credit, and the earned income credit," explains Vento. "For older children who are in college, you must consider the education tax credits, such as the Lifetime Learning Credit and the American Opportunity Tax Credit.

"If your children are young and you're looking for the best overall savings option, you'll have the most control and the greatest tax benefits if you save money via a 529 plan," he adds. "Although you do not receive any federal tax deduction for the contributions you make to these plans, the distributions are generally tax free to the extent that you use them to pay for qualified higher education expenses. For example, assuming you contribute $10,000 to a 529 plan in the year your child is born and this amount accumulates to $30,000 by the time the child is ready to attend college, this entire amount can be used free of tax if used for qualified higher education expenses. Neither you nor your child will be taxed on the profit made with this money.

"If your state has its own sponsored savings plan, you may get the added benefit of a state tax deduction for any contributions you make before the end of the year," he adds. "It's like getting a scholarship each year you save, even before your child goes to college. Of course, there are tons of tax benefits related to raising your kids so be sure to check with your tax advisor to make sure you're taking advantage of all of them."

Know what gets taxed and what doesn't in regard to insurance payouts. Generally, the cost of personal homeowner's, automobile, boat, and umbrella liability insurance are not tax deductible. However, insurance reimbursements to the extent of your loss are generally not taxable. So if you receive an insurance reimbursement as a result of damage to your home or car (as long as it is not in excess of your adjusted basis), it isn't taxable, notes Vento.

"Keep in mind that if you own a rental property, you can generally deduct most of the expenses associated with maintaining and managing the property, including the cost of property insurance, which includes premiums for fire and liability," he adds.

Retire from a big tax burden. Many Americans aren't saving enough for retirement. That's unfortunate for two reasons. Number one, the earlier you start to save for retirement the better. And number two, retirement saving is a great way to reduce the amount you pay in taxes.

If your employer offers a 401(k) plan, invest as much as it will allow, Vento recommends. Making elective salary deferrals to your company's retirement plan allows you to defer tax on your salary and get a tax-deferred buildup of earnings within your plan until you start making withdrawals when you retire. Other options include IRAs, which are available to all wage earners at any salary level, as well as to nonworking spouses.

"Contributions to traditional IRAs may be tax deductible if you meet the requirements; your withdrawals will be taxable in the year that you make those withdrawals," Vento explains. "Therefore, a traditional IRA gives you a tax deduction in the current year and a tax deferral for any earnings, but ultimately you will pay tax when you withdraw from your account.

"In contrast, contributions to a Roth IRA are not tax deductible, but qualified withdrawals are tax free," he adds. "Therefore, Roth IRAs do not give you a tax deduction in the current year, but ultimately your qualified withdrawals including earnings will be paid out to you tax free. Compare the benefits of a traditional IRA to a Roth IRA and choose the one that is best for your particular situation."

Get the most out of Social Security. If you are collecting Social Security benefits, up to 85 percent of these benefits could be subject to federal income tax. However, it's important to note that you can avoid paying income tax on your Social Security benefits if your provisional income is $25,000 or less if you are single, or $32,000 or less if you are married and filing jointly.

"Planning your retirement income to include tax-free withdrawals, such as from a Roth IRA account, may allow you to keep your income under these thresholds and ultimately avoid paying tax on your Social Security benefits," explains Vento.

Don't get taxed by your health. Take full advantage of medical insurance premiums paid by your employer on your behalf. This is considered a tax-free fringe benefit. These medical insurance premiums are 100 percent deductible by your employer and tax free to you. All payments made by the medical insurance company to cover your medical expenses are also tax-free payments made for your benefit.

"If your health insurance qualifies as a high-deductible plan, you should establish an HSA and fully fund tax-deductible contributions to cover future medical expenses," says Vento. "Individuals can contribute and deduct $3,250 for a single policy and $6,450 for a family in 2013. If you and your spouse are 55 or older, you can make an additional tax-deductible, catch-up contribution of $1,000 each."

Don't let taxes deflate your ROI. Inflation and taxes are perhaps the two biggest drains on your investment returns. When investing, you must always consider the tax consequences of your investment when determining your true rate of return.

"For example, if you hold an investment for more than a year, you will have the added advantage of long-term capital gains treatment," notes Vento. "Net short-term capital gains are taxed as ordinary income, which means they can be taxed at a federal rate as high as 39.6 percent (based on 2013 tax rates). In contrast, net long-term capital gains are taxed at a preferential federal rate that does not exceed 20 percent (based on 2013 tax rates). If you do not pay attention to the tax consequences of your investments, you may be paying significantly more in taxes than the law requires."

Give a gift. Take advantage of gifting strategies that can help you prevent losing some of the value of your estate to taxes. For 2013, the gift tax exclusion is $14,000 per year. What this means is that you can make a gift in this amount to anyone?and to as many people as you like?every calendar year, and that money will not be subject to gift tax or included in your taxable estate. Furthermore, it will not be added back to your lifetime exemption (which in 2013 is $5.25 million). This amount can be increased to $28,000 per year if a nondonor spouse agrees to split the gift.

"This can be a great way to transfer assets to children, grandchildren, and other intended heirs while you are still alive," says Vento. "Ultimately, this will reduce the taxable value of your estate and, at the same time, your ultimate estate tax liability."

"Paying taxes doesn't simply have to mean kissing a large portion of your hard-earned money good-bye," says Vento. "When you understand how they work and know where to look for opportunities, you can actually minimize your tax payout, and as a result, save a lot more of your money. Those savings can then pave your way to financial independence."

# # #

About the Author:
John J. Vento is author of Financial Independence (Getting to Point X): An Advisor's Guide to Comprehensive Wealth Management (Wiley, 2013, ISBN: 978-1-1184-6021-4, $40.00, www.ventocpa.com). He has been the president of the New York City-based Certified Public Accounting firm John J. Vento, CPA, P.C., and Comprehensive Wealth Management since 1987. His organization is focused on professional practices, high net worth individuals, and those committed to becoming financially independent. He has been the keynote speaker at various seminars and conferences throughout the United States that focus on tax and financial strategies that create wealth. John has been ranked among the most successful advisors of a nationwide investment service firm and has held this distinction since 2008.

Mr. Vento brings with him his vast experience from working with KPMG, one of the big four Certified Public Accounting firms, where he specialized in audits of the medical and dental professions and the financial services industry. He has been an adjunct professor at St. Francis College in Brooklyn, NY, as well as Wagner College in Staten Island, NY. John has also been an advocate for promoting financial literacy and has been a lecturer throughout the New York City Public Library system.

John J. Vento graduated from Pace University with a bachelor's degree in business administration in public accounting, and continued on to earn an MBA in taxation from St. John's University. He is a Certified Public Accountant (CPA) and a member of the American Institute of Certified Public Accountants and the New York State Society of Certified Public Accountants. Mr. Vento is also a Certified Financial PlannerTM (CFP®).

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