Rick Kahler's Financial Awakenings

We have just started our six-day trek across the Atlantic, having visited Barcelona, Nice, Malaga, and the Canary Islands. We’ve certainly enjoyed the sights, sounds, and tastes of Europe, despite a number of challenges.

Celebrity finally came through and picked up two of our three nights in Barcelona after they cancelled the first two days of our cruise. Cruise.com, Celebrity, and Expedia were still trying to sort out who would pay the cancellation penalties on the reservation I made to assure we had rooms in Barcelona. For more on that, read my previous post “A Celebrity Cruise Line and Cruise.com Nightmare.”

I rarely check baggage when I travel, as my batting average with lost luggage is about .300. Of course, when doing a cruise with a family of four, checking luggage is inevitable. When I saw we had five airline connections to make between Rapid City and Barcelona, I told Marcia to be sure to pack our toiletries in our carry-on luggage and mentally prepare to not see our bags for a day after arriving. That turned out to be a bit optimistic.

Northwest was an hour late on our initial flight to Minneapolis. We had to sprint to catch the next flight to Detroit, and we knew our bags didn’t make the fast connection. Then Northwest canceled our third flight from Detroit to New York, where we were to have switched to Aer Lingus. Northwest really helped us out and put us on a direct flight to Amsterdam from Detroit, and then on to Barcelona. We actually ended up in Barcelona a hour earlier than we originally would have with Aer Lingus.

Predictably, though, our bags did not show up in Barcelona. We filed our lost baggage claim and went about sightseeing, hoping our bags would join us the next day.

We left Rapid City on a Wednesday. We were not reunited with our bags until late Saturday night. After 80 hours of wearing the same clothes, we threw in the towel and decided to test the “Lost Baggage” provision of our travel insurance. According to the policy we purchased through Travel Guard, we were covered for $100 per person for expenses relating to lost baggage.

Now, $100 will buy a lot of skivvies in the US, but it’s a different story in Spain. We asked the hotel clerk for an inexpensive department store, one where the average Spaniard would shop. We spent half a day trying to communicate in Spanish and decipher European clothing sizes. We found out it really didn’t matter anyway, because one maker’s size 85 was another maker’s size 95.

At the end of the day, my $100 bought: one pair of boxer shorts, one T-shirt, three pairs of socks, and a scarf for warmth. I have never owned a $25 T-shirt in my life, but believe me, it was the cheapest T-shirt in the store. Maybe the bottom line is that Spaniards don’t wear T-shirts. Or else only very wealthy Spaniards wear T-shirts.

When we get home, I’ll get a chance to try out the travel insurance coverage. That should be good for another report. For now, we’re prepared to enjoy the Atlantic crossing, knowing our luggage is safely in our own possession.

In the last couple of weeks, we’ve seen an increasing number of television commercials featuring sleigh bells and fluffy fake snow. The Sunday paper is stuffed with advertising inserts to help us find the perfect gifts. Obviously, it’s that time of year again.

Time to start thinking about tax strategies.

Right now is the season to see if there is anything you need to do before the end of the year to lower your tax bill. It may be too late in the year to implement some strategies, but you can put them in place for next year.

The first strategy for reducing your taxes is simple: pay attention to the basics. Make sure you claim the right number of personal exemptions, figure your taxes at the correct rate, and claim all the deductions to which you are entitled. Some of these might include the child tax credit, education expenses, state taxes, or charitable contributions.

Have you contributed the maximum allowed to an IRA or to your employer’s 401(k) plan? If you don’t have an IRA, you have until April 15 of next year to open one for this year. Plus, take a look at the amount being withheld from your paycheck. Please think about reducing your withholding if you’ve been getting a large refund every year. That “bonus” is nothing but an interest-free loan to Uncle Sam. Put the same money into an IRA or savings account instead and let it earn interest for you.

If your financial affairs are more complex, there are additional ways to save on taxes. These involve three basic strategies: arranging to receive more of your income from sources that are taxed at lower rates, direct deductions, and reducing FICA taxes.

Long-term capital gains (those on property you have owned for at least a year) are currently taxed at a lower rate than ordinary income. Dividends on stocks are also taxed at a lower rate than is interest. You don’t want to over-emphasize the tax aspect in making investment decisions, but do keep those factors in mind if you need to make changes in your investment portfolio.

The second and third tax-saving strategies apply if you own your own business, even a small, part-time one. Again, remember the basics, and be sure you deduct anything that is a legitimate business expense. This might include use of your car, an office in your home, or travel expenses. Your business might pay medical insurance or other benefits for its employees, including you.

Another often-overlooked method of saving taxes is to reduce FICA deductions. If you are self-employed, you pay both the employee and employer share of taxes for Social Security and Medicare. That is a 15% deduction. However, FICA is not charged on dividends or rents. So many owners of small businesses incorporate, then take out part of their earnings as dividends rather than salary. Of course, if you do this, you will receive less Social Security income when you retire. If you take the tax savings and invest it for retirement, however, in most cases you will be better off.

Please keep in mind that these are basic strategies. Some of them might not apply to you, and there is no room in one short article to do more than introduce them. Plus, of course, the tax laws change from year to year.

If you think some of these approaches might work for you, I’d strongly recommend that you consult a tax preparer, preferably a CPA if your situation is at all complicated. Do-it-yourself is wonderful for many things, but trying to keep up with the federal tax code is not necessarily one of them.

A recent column, “The Housing Bubble That Wasn’t,” struck a real nerve with readers, who shared some thoughtful comments via email and my weblog. In that column I compared today’s housing prices, adjusted for inflation, to those in 1950. Viewed with that perspective, today’s prices don’t seem all that high.

One South Dakota reader called my numbers “selective statistics from organizations with a vested interest in the status quo…” There could certainly be some truth in the assumption that one source of those statistics, The National Association of Home Builders, would have a bias toward suggesting today’s prices are not high. However, that source was balanced by others such as the National Bureau of Economic Research, the US Bureau of Labor Statistics, and the US Census Bureau. None of those organizations would have any reason to be biased one way or another about the question of whether we are in a housing bubble.

Amy Hall, Rapid City, SD, wrote to question, "…whether or not 1950 is a good benchmark. I’m just wondering if 1950 was a time of great prosperity and if maybe prices were out of proportion then compared with other decades." Amy’s question was essentially repeated by another reader, Jeff Grimm, Portland, OR. He wrote, "I don’t believe the average household is willing to live as frugally as our parents did in the 50s, which puts a lot more demands on the income."

They raised a valid point. Comparing 1950 and today is essentially laying two snapshots side by side. That’s a much different scenario than doing a year-by-year comparison over a period of time, which would provide a much more complete history of housing prices as well as other related factors.

The South Dakota reader quoted earlier also brought up another significant factor that the numbers I cited did not address. “One needs to ask if in 1950 were there no-money-down interest-only mortgages? What were the bankruptcy rates? Home equity loans?" He rightly draws a parallel that there is a correlation between housing prices and the ease of obtaining mortgage financing.

Certainly, it would appear to me that mortgage debt is far easier to obtain now than it was in 1950, which adds credibility to the point he made. There is no doubt that as mortgage interest rates rise and lenders start requiring higher equity contributions, housing prices will start to cool. The question is whether they will cool or go into a deep freeze.

In the June edition of Research Reports, the American Institute for Economic Research found the major culprit in recent housing increases to be land prices, not structures. They suggest that the increase in land prices is not surprising when we consider our increasing population, more restrictive zoning, and environmental regulations.

They also point out that the increases in housing prices are very regional. Indeed, I have suspected that housing costs on both the East and West Coasts will adjust more severely than housing costs in “flyover” country. Statistics from the Federal Housing Finance Board suggest that since 1999, the consumer price index increased 13.1% while the average cost of a home increased 39.9%. There are 38 states that have seen housing prices increase at a rate higher than the CPI. That leaves 12 states that haven’t even kept up with inflation. (South Dakota, at 16.7%, was 31st on the list of home price increases—more proof that we aren’t last in everything!)

I remain unchanged in my overall assessment that housing prices will stagnate, even slump in some areas, but a crash is not in the cards. I do appreciate everyone who took the time to share your insightful comments.

In the past I’ve recommended Cruise.com for great deals on cruises.  I’ve used them several times and have been very pleased.  Last month I posted a story on yet another great deal I got on Cruise.com for a cruise on Celebrity cruise lines.  My family and I were able to secure a repositioning cruise (a transatlantic) from Barcelona, Spain to Fort Lauderdale, FL, with five stops for $3,200, cruise only.  I thought that was a pretty good price.

Now, more of the story.

We received a call from Cruise.com six days prior to sailing to let us know our cruise had been delayed by two days and two of the Mediterranean ports eliminated from the itinerary.  Bummer.  The problem?  Delaying air travel would cost $800, assuming we could even get the same flights.

But no fear, Celebrity offered to put us up for two days and give us a small credit and refund. While we were left with a cruise itinerary we would not have booked in the first place, their offer was probably as good as it would get. 

We planned to get into Barcelona one day ahead of sailing.  We researched hotels and selected one that could accommodate a family of four in one room (no easy task in Europe) and that was well located to minimize the wear and tear on a 4-year-old’s legs.  We asked Celebrity that they simply extend us in that hotel for two nights and we would be satisfied.

That would be too easy.

No, Celebrity demanded that we stay in their approved hotel.  We checked it out and it was well located, although we would have to split up into two rooms.  OK, we agreed, as long as we could get the first night, for which we would pay, at the same hotel, so we wouldn’t have to move after the first night.

Fast forward 36 hours. Cruise.com calls and says, oops, Celebrity has changed you to another hotel and now the first hotel is completely booked and unavailable.  Some checking by us turns up that the second hotel is in the boondocks of Barcelona, blocks from any public transport.  To make matters worse, the hotel was booked for the extra night we needed, meaning we would have to pack up and switch to the boondocks hotel after the first night.  This was not the relaxing vacation I had in mind.

When I told them I would rather cancel the cruise that spend the first three days lugging baggage around Barcelona and staying in an isolated hotel, I was told they would only refund the cost of the cruise, leaving me to eat a total of $1,600 in non-refundable air fare charges. 

Just for grins, I got on Expedia, and behold, the first hotel was totally available for the same nightly room cost at the boondock hotel! Finding out the people I am doing business with have been deceiving me never makes my day. As of this moment, I am not sure what is going on.  I am not sure Celebrity knows what is going on, either.

What I do know is that the folks I’ve talked with at Celebrity have been rude, unhelpful, incredibly rigid and surly.  The folks at Cruise.com have been pleasant, but ineffective.

The most aggravating thing about this is that I’ve spent the better part of three days attempting to get my family into the same hotel for three days.  And it has been incredibly stressful, to say the least.  Celebrity won’t talk to me, because the cruise was booked with Cruise.com.  I’ve talked with three people at Cruise.com trying to resolve this, spending hours waiting on hold.

In the big picture, this should have been an easy task for these two behemoths of the industry.  Their customers, including myself, deserve better.

To top this off, I bought travel insurance from Travel Guard.  Part of the coverage is "Trip Delay." So do you think this delay is covered?  Of course not.  Anything that is a delay due to the carrier is not covered.  Good grief!

This is my 14th cruise, so I am no neophyte to the experience.  Usually, cruises go off without a hitch.  But there are times, like this, things don’t go as planned.  And my experience with Holland America and Celebrity is that when things go wrong, they don’t go out of their way to accommodate their passengers.  You are pretty much on your own.  For that reason, I won’t sail with Holland America anymore, who left us stranded on an island in the Baltic and refused to adequately compensate us for our expenses.

Unless Celebrity steps up to the plate, they may next on my list of companies not to do business with.  So far, I am not ready to completely write off Cruise.com.  I feel they are trying. 

I’ll keep you updated. For now, I recommend that clients defer from using Cruise.com, and certainly Celebrity Cruise Lines until we see how this shakes out.

Chances are you won’t ever be famous enough to write an autobiography. Still, your life has its own story. That story is shaped by your background and the influences that have formed your beliefs and helped make you the person you are. One facet of your biography that is rarely explored is your money story.

The goal of the financial integration work I do is to help someone build a more balanced and healthy relationship with money. A first step in that process is to identify your existing relationship with money—how you feel about money, what you believe about it, and how you use it.

One tool you can use for this is to write out your own money story, a brief history of the role money has had in your family and in your life. Part of it is simply a description of facts, perhaps statements such as, “My mother grew up in a large family with very little money.” Beyond that, however, your money story should explore emotions and beliefs—your own and those of others. You can do this by briefly describing what you know or believe to be true about the circumstances and attitudes about money held by your parents, grandparents, siblings, and other significant relatives. See if you can identify patterns of belief or behavior that have shaped your relationship with money.

If you’d like to write your money story, you can use the following questions to get you started.

1. Was your family’s history affected by significant events related to money? Examples might be losing a business, losing family wealth, achieving financial success, immigrating in search of prosperity, living through the Depression of the 1930s, wartime experiences and losses, or the early death of a parent.
2. Did your family’s ethnic or cultural background affect your beliefs about money?
3. What was the attitude toward money of your family’s church or religious tradition?
4. What is your earliest memory about money?
5. What are your unhappiest memories (from childhood or later) about money?
6. What are your happiest memories (from childhood or later) about money?
7. As a child, did you feel rich, poor, or average? Did you worry about money? Were you embarrassed by your financial status or did you feel different from others because of it? Your feelings may or may not correspond to your family’s actual financial circumstances.
8. How did your parents (individually and as a couple) handle money? What feelings or attitudes did they express, directly or indirectly, about it?
9. How was money related to your choices as a young adult regarding education, jobs, career choices, and relationships? How have those choices affected your later adult life?
10. How do you and your spouse or partner handle money? Is this different from or the same as the way money was handled in any former relationships?
11. How do you feel about your current financial circumstances?
12. How would you describe yourself around money? Generous, stingy, thrifty, extravagant, responsible, careless, etc?
13. What is your current family situation related to money? Do you receive money from your parents, help support them, lend or borrow money between siblings, or give money to adult children? Are there feelings of resentment within the family over inheritances or unequal financial circumstances?
14. How do you feel when you think about your financial situation and retirement or old age?

Writing your money story is for your own information only. You don’t have to share it with anyone, and you won’t see it on any best-seller lists. Still, writing it can give you a great deal of insight into the role of money in your life.

The first international presentation of the Financial Integration Workshop, to be conducted in Guatemala City, Guatemala, on November 2, was postponed due to a devastating hurricane that hit that country in October.  The workshop will be rescheduled for sometime in 2006.

As it turns out, the headquarters of Health Communications, publisher of The Wisdom Of Ebenezer Scrooge, was located right where hurricane Wilma came ashore in Florida.  As a result, the release of my latest book, originally set for November 15, will be delayed for two weeks to one month.  Accordingly, we have rescheduled the book release party from November 11 to December 8, from 4 to 6 PM.  Check here in the next few weeks for details.

Getting to Kahler Financial Group is easy. The address is:

Kahler Financial Group

1010 9th St. Suite 1

Rapid City, SD 57701

Phone: 605.343.1400

Here is a map, or just go to www.mapquest.com and insert your origination and destination points.

See you there!

http://www.mapquest.com/maps/map.adp?searchtype=address&country=US&addtohistory=&searchtab=home&address=1010+9+th+Street+&city=Rapid+City&state=sd&zipcode=57701+