Good reasons to hate tax time

Today is April 11th.  And I’m frustrated that my taxes are still not done.

Tax time is stressful and frustrating.  For many people you have little control over when they will be done and that is so frustrating.

My personal accountant has to wait for my business accountant and the K-1 before he can do my taxes.  The later my K-1, the later my personal taxes.

What is also frustrating about tax time is that you never get the best from your accountant.  The accountant is so busy just completing the tax returns that he or she has little time for advice, strategy, or suggestions other than the minimal, “you should put money in an IRA.”  I have post-it’s all over my return with questions on strategy, deductions, and ways to get the most out of my tax situation.  And this is the worst possible time for my accountant to review any of this.  Yes, every year I think I should call him a couple months after tax time and pick his brain, but I get busy and it rarely happens.

Confession time:  I haven’t been paying quarterly estimates.  (In my defense I have been much better about flossing!). But seriously, tax time is much worse when you end up writing bigger checks.  And next year I will finally do this.  I always make retirement contributions and the HSA contributions.  But, I have hated writing those quarterly checks.  That stops now.  Next year, I will only have to write a few small checks.  That’s the plan.

The other frustrating reality of tax time is that you’re absolutely, positively not making as much money as you think you are.  This is why budgeting is so helpful!  April 15th is the big wake up call when everyone realizes that the government is taking 28% or more of Everything you make.  You’re not making $50,000.  You’re only making $36,000 after the government takes its share.  It’s really depressing.  Which is why you Need to get every legitimate tax deduction you possibly can.  Roth, 401K, HSA, etc…

Tax time is frustrating.  But it’s part of life.

The truth is that maxing out a Roth retirement fund over a lifetime will make you wealthy. The math is unequivocal on this.  So, if you’re smart enough to be doing that, you’re way ahead of the game to be financially independent.  And that’s really good news.

It’s not about the money.  It’s about taking charge

When I finally started the line item scrubbing of every credit card bill this year, I was amazed at how much gets through the cracks: multiple anti-virus recurring charges, membership to a sporting goods VIP club I didn’t remember, delivery charges everywhere, and storage unit increases all come to mind.  There are so many more.  And I find them every month.  

“Oh we’re sorry we charged you for our VIP club when you haven’t made a purchase in 3 years.”  Yeah Right.  

What she should have said was the truth, 

“Were sorry to see you go because we make so much money off people too busy to pay attention when we’re ripping you off, sucker.”

Was that too harsh?  Sorry if I overdid it. 

So, yesterday I spent :20 minutes changing my hosting company for my business website.  I had the “deluxe” plan- hosting for 50 websites and of course, I only use it for one.  So, after going back and forth with customer service, I downgraded to the less expensive plan.  Savings?  Wait for it. 

$20 over the next 12 months.  Ugh. 

And I felt dejected.  What am I doing this for?  Why would I waste 20 minutes of grief with customer service with my limited free time?  $20? 

But today I realize it’s not about the money.  It’s about the control.  It’s about knowing that every dollar I make is mine.  No waste. No exceptions.  Nothing lost.  Every dollar belongs to me and if I spend it, it’s on something that really adds value to my life.  And that principle is important whether you make $50,000 a year or $500,000 a year. 

So, I’ll keep going. 

It’s time for this sucker to get off the yearly VIP membership club charge! 

Do we even know why we want what we want? 

She was a very pretty girl who was used to getting whatever she wanted.  That much was always clear to me.  She worked as an assistant to a Wall Street executive and was used to having men with huge egos and bank accounts woo her.  She always wanted to have dinner at one of the three most expensive and or hottest restaurants in New York. Nobu and a few others I can’t even remember.  Honestly, at the time, I was ok with all of that.  She was actually very smart and insightful, but her financial expectations became frustrating even then.  

We spend money we don’t have, to buy things we don’t need, to impress people we don’t even like.

Why do I bring this up?  We were dating during The holidays a few years back and she mentioned she wanted lingerie from La Perla.  Think Victoria’s Secret but with a 700% markup.  I had to research it myself.  I became really interested in this company and brand because I have almost never seen a markup like that for any other product.  Their bras were like $100-$200.  As an investor and business prof, I was very intrigued.  “Why was La Perla so good?  Is it the quality?  The fabric?  Why is it so much more expensive than every other brand?,”  I asked her.  She was annoyed and defensive and I think she may have even intimated I was being cheap (Me Frugal?).   I was very confused.

 And I quickly realized that she didn’t know what made it the best.  She didn’t know why it was better than other brands.  All she knew was that her friends would be impressed.  She knew the name and the cost.  And that was all that mattered. 

She didn’t know why she wanted it.  She just did.

This reminds me of a podcast of The minimalists I just heard where they talked about  how Rolex became such a powerful brand.  Apparently, in the 1950’s and 1960’s, men used to go on vacation and dive using Rolex watches.  These were wealthy, rugged, adventurous men who preferred a quality dive watch.  And other men started to buy the watches and it became the huge brand it is today.  But, it is primarily a quality dive watch.  And most men pay a premium for a watch that can safely go to 2,000 meters.  But many of them never use it in the water except, in the shower or a pool.  It makes you feel cool, rugged, adventurous, and wealthy.  But first, they need your $2,500.00 

The smarter you are the more you realize how powerful advertising, branding, and social influences are in our decisions to spend money.  It’s powerful.  

Sometimes we don’t even know why we want what we want. 

Negotiation:  The art of getting what you want

People have so many ill conceived ideas about negotiations.  The media presents this ridiculous image of an alpha male business executive brow beating someone into getting whatever he wants.  This is pure fiction and makes too many intimidated to simply ask for what they want.  

Mad Men is one of my favorite shows.  I happened to catch a few episodes this weekend now that football season is over.  Mad Men is a great show about the advertising industry of the 1960’s.  Here’s why I bring it up:  one of the senior executives is fired and a prime office becomes available.  The office has a dozen alpha male junior executives who all want the office.  But who ends up getting the office?  Peggy Olson- That’s right, the only female copywriter with the least experience gets the office.  How?  She was the only person with the courage to ask for it.  

Ask for what you want.  

Here’s an example from my own life:  As you know, I’m cutting back on frivolous spending.  So, I’m reviewing all the monthly subscriptions I receive (they’re are a lot!).  Anyway, I really like XM Sirius radio in my car, but I would like it a lot more, if it was less expensive.  So, I called them.  I used a simple, honest approach.  I told the woman that I really liked the service, but I’m not sure I can keep getting it because it’s too expensive and I’m cutting back.  What happened?  She offered to cut the fee in half  (from $200/ year to $100).   And I had to pay for the year upfront, which I agreed to do.  We both got what we wanted: I got a better deal and her company kept a customer.  Win. Win. 

The goal of every negotiation is for both sides to get most of what they want.  That’s why alpha males are not the best negotiators and why research tells us that introverts and shy people are actually good at negotiating.  Why?  Because in order to be a good negotiator, you need to consider things  from the viewpoint of the other side.  When I ask for a 10% discount on a tv, I give the salesperson the ability to get what they want: the ability to tell their boss they made another sale.   Salespeople have bills to pay and they have pressure to make a sale.  Makes no difference what the product is.  

If you don’t get what you want, walk away.  I’ve been meaning to open a new bank account lately.  It’s a long story but my bank no longer has any convenient atms near me and I’m paying $6 per withdrawal and it makes me crazy!  So, I called the closest bank and spoke to the woman about opening an account.  In order to waive the fees they wanted like $7,000 in the account, or a direct deposit every month, or 10 debit card transactions.  Ugh, no way.  

I walked away.  And last month, the same bank had a promotion for new accounts: they would waive the fees for just $1500 in th account AND they would pay me $250 to open the account.  Bingo.  Now, I’m interested.  

Negotiating takes a bit of courage, which is a muscle we all need to flex.  And it allows you to have more control over your life.  Which is a feeling we all want.  

Ask for what you want.  You’ll be surprised how often you can get it. 

The risk to the stock market no one talks about

So here we are at Dow 21,000.  

Let’s review how we got here: the experts predicted a crash if Brexit passed.  It did and the markets shrugged it off.  And again, the experts warned us that if Donald Trump was elected, the market would crash.  The market has since rallied 12-15% to new highs in every index. And here we are. 

Most portfolio managers were underinvested heading into the election.  Since Trump’s improbable win, professional investors have been playing catch up- trying to get invested in a market that has not fallen by more than 1% on any day for a month- something that hasn’t happened in 54 years.  

Valuations are very stretched.  Depending on the figure, we are at near 26X earnings on the S&P 500.  Levels last seen in 1929, 1999, and 2008.  This means the market is expensive. However, due to the intervention by the Fed in the bond market, the stock market is viewed as the only alternative for most investors.  This is a very unnatural situation. As a value investor, I can tell you there are hardly any stocks that fit my strict criteria.  

The risk is not a crash.  The real risk is that 7-10 years from now, we are still at or below 2400 on the S&P 500  or 21,000 on the Dow Jones Average. 

Why?  The fed has used emergency level interest rates going on 7 years.  This was used to stimulate the economy.  The federal reserve has a $4B balance sheet.  Interest rates have been at historic lows.  This has boosted stocks and real estate artificially.  Pulling future gains to the present.  If we have taken future returns, then future returns should be lower going forward.  The fed has been artificially supporting the market. We don’t know what will happen when they unwind their balance sheet and rates return to normal levels. 

When I ran this morning, I cheated a little bit.  After I ran, I was walking on the treadmill but I was holding on to the side rails.  It’s cheating.  My arms were supporting my body.  That’s what the fed actions and the stock buybacks have created.  It’s artificial support.  

Are companies doing well?  Not really.  They’re shrinking their shares outstanding by buying back stock.  Where does the money come from?  Mostly from issuing bonds aided by low interest rates.  

Buybacks used to be done exclusively by companies that felt their shares were undervalued by investors.  Today, almost every major buyback is being done at all time highs.  Think about that.  “Were buying back our stock because it’s undervalued … at All Time Highs!”

I’m not impressed.  

There is a big difference between running 5 miles and walking 5 miles holding the side rails of a treadmill.  

Ralph Lauren wants me broke and in debt

Ralph Lauren is not my friend.  I’ve spent so much money on his products over the years that I don’t even want to think about it.  But I need to think about it to figure out why I spent money the way I did and whether or not I’m going to miss it if I stop.  

What’s really important?  Financial freedom or name brand stuff? 

Even though I own a ton of Ralph Lauren items, I never purchased any of it at retail prices.  Whenever I found shirts, jeans, or home items on sale or at an outlet store I always went crazy.  Luxury at a discount.  What could be better? 

The cash could be better.  Having the cash and the investment gains that I sacrificed over many years would be nice.  How much could it be?  I’m guessing maybe $20,000 of principle costs over 20 years.  We could be talking up to $160,000 at 10% investment returns.  Of course, those are all estimates.  But the point of this blog is to examine these decisions in order to prioritize my financial life. 

If my bank account was where it should be, I would not be thinking about these expenses.  But, I’m on a quest to create financial abundance for myself and really take a hard look at what I spend my money on and if it really adds value for the costs involved. 

Most of the time I’m deciding no.  Right now, I want the cash.  I want the investment returns.  Less stuff.  More cash.  

Am I never going to buy another luxury item? No.  But, in order for me to buy a Ralph Lauren product these days, I need to love it and it has to be worth the inflated price. 

My job is to get myself wealthy.  Not make Ralph Lauren wealthy.