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Finding A Financial Planner
July 01, 1996

Finding A Financial Planner

Q. Can you tell me how to contact someone in San Antonio that uses fee only financial planning? I recently began to use Excel to organize my budget, for the first time in 25 years. I was astonished at what I found. I earn on average between 10 & 15 k per month, but I never seemed to get ahead of things, now I have an opportunity for much more, I am 49 and would like to get this under control. I have no retirement set aside, fortunately I have the ability to earn now. I have a small business. We specialize in migrating legacy software (primarily COBOL) applications to open systems. I need to find someone who can help me organize my finances and establish a sound investment and retirement plan.

---F.G., San Antonio, TX

  

A. It is not necessary to do everything the hard way, even if you are a Certified Geek: forget about Excel and get yourself a copy of Quicken. In less than a month you'll know more about your personal finances than anyone wants to know.

To get the purest fee-only planning, call the National Association of Personal Financial Planners at 888-FEE-ONLY. They will send you a list of fee-only planners near you.

If you are online and in a hurry, go to the IAFP website (International Association of Financial Advisors) at "//www.IAFP.org" and find their financial advisor referral service. They will mail you information on financial planners in your area.

You can also call them at 800-945-4237. It should be noted that IAFP members are NOT fee-only but frequently operate on a fee offset by commissions basis. This can be problematic in the acquisition of life insurance where the commissions tend to be very large and state laws prohibit "rebating." This means you can get a proposal for fees offset by commissions in mutual fund sales and be offered a life policy whose first year commission will be larger than all the other commissions put together--- but with no "offset" from the commission.

My suggestions: First, make sure you get a complete disclosure statement with commissions on ANY sale, including life insurance. The entire area of mutual fund distribution is changing very rapidly and moving toward asset based/fee only. Life insurance, however, still lags far behind. Second, references from satisfied clients are a good reality check.

  

Q. I am recently divorced and am finding money to be very tight. I never allowed in my budget a car payment or full coverage insurance. Is a car payment and full coverage insurance always going to be a part of ones budget? You know we all have this crazy goal that we are going to pay off our cars and keep them forever. We want to get that car payment out of our budget but is that really possible?

You know if the car is financed that you are always going to have full coverage because of the loan.

---C.L., aol.com

  

A. You said it, I didn't. Getting rid of car payments is a crazy goal, a fool's nirvana. Even if you don't have a payment, the car you drive is still depreciating. You would be "low-balling" yourself on personal spending if you did not allow for ongoing depreciation.

The real question here is what is a realistic depreciation figure?

*         If a typical car loses half its value in three years and costs about              $20,000 then you've got a real expense of $3,333 a year that needs to              be in your budget.

*         If you intend to hold the car for 6 years and it depreciates another 50              percent, you'll have an average depreciation of $2,500 a year ( $15,000              divided by 6).

*         Even if you buy a used car, it is reasonable to assume it will lose about              half its value in three years. So if you buy a used car for $10,000 with              the intent of keeping it three years, you need to budget $5,000 for              depreciation or $139 a month.

*         The only time you drop insurance on a car is when you can afford the loss              if there is an accident. For most people that day never comes because              few will put themselves at risk for, say, the $5,000 value of a very old              car.

  

Q. My wife and I have been investigating home equity lines of credit for the purpose of doing some home improvements. They usually state that the interest may be tax deductible. This leads me to believe that the interest may not be tax deductible. Are there any guidelines I can follow to determine this?

---D. K., sprynet.com

  

A. Interest on home equity lines of credit is tax deductible under certain conditions and those conditions are set by our friends in Congress.

*         If your total mortgage balance is $100,000 or less it is tax deductible.

*         Above that amount, it is tax deductible under certain conditions such as;              whether the loans were taken out before October 13, 1987 ( you're home              free);

*         if they were taken out after that date the money was used for improve              your primary home or buy a second home provided you owed less than $1              million.

To see the whole tragi-comic disaster I refer you to a diagram on page 363 of the 1995 Ernst and Young Tax Guide, a Godzilla sized paperback. The complexity of this simple law is enough to justify the resumption of above ground nuclear testing--- provided that the first test is in Washington, D.C. The conditions for deductibility are also laid out in IRS publication 936.

Residents of Texas are unique in being saved from the complexity of this miserable law by an equally miserable law, the Texas Homestead Act. The homestead laws prohibit borrowing equity out of a house.

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