Even Millionaires are Using Budgets.

According to a recent NYT article:

“Someone with $100 million has nothing to fear, not even fear itself.

But not long ago, a client with such assets called and asked Bruce Bickel, her wealth adviser at PNC Wealth Management, to put her on a budget.”

Millionaires on budgets? What’s This world Coming to?

According to The Boston Consulting Group, worldwide wealth is not expected to return to 2007 levels until 2013 – and the number of millionaires is down 18%. All this has created a crisis in confidence for the wealthy. So much so that they are not only cutting back, but changing their behavior to make the cut backs a way of life.

I guess it’s a good thing, I just wish I had enough money to not know where it’s going and still make ends meet. But then again, my frugal nature would still make me watch my dollars and cents.

But while budgeting is generally a good thing, in this case it could have a trickle down effect, and lead to a generally tepid economy:

“Caution, like thrift, can be detrimental to an economy in crisis. If wealthy investors steer clear of stocks for the medium term, the trading rally of the last few months could slow. If they are afraid to lock up their capital for the longer term, private equity partnerships and hedge funds could suffer. And if wealthier people eschew the heavy debt load they had recently embraced, their savings may increase but the banks that had eagerly lent to them will feel the effect. And this will then affect less-affluent investors.”

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Wages Growing Again?

Check this out- after unprecedented cost cutting measures by corporations over the past 12-14 months, wages are growing again! Or are they?

This is according to a recent NYT article. I myself was a victim of just about all the cost cutting measures (except being laid off) last year: My raise was postponed indefinitely, company match to my 401(k) was halted, and my bonus evaporated into thin air.

“Most companies have evidently decided that pay cuts aren’t worth the downside…The theory holds that executives of companies don’t cut pay, even when demand for labor has fallen. They worry that employees will become less motivated or start looking for another job,…So companies instead lay off workers or stop hiring. They concentrate the pain.”

This makes sense. I know my loyalty to my employer would quickly fade if I lost income further.

You have to parse the article carefully to find where the wage growth is happening, because it’s mostly due to inflation being less than 0, so even though workers are earning the same dollar amount as last year, the buying power of those dollars is increasing.

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Mortgage Debt Relief in Effect Until 2012.

Before The Mortgage Debt Relief Act of 2007, you would owe taxes on any amount of debt that was canceled or forgiven. The Mortgage Debt Relief Act allows those who cancel or reduce mortgage debt through mortgage restructuring or foreclosure to avoid paying taxes on the amount forgiven. It’s a good thing too – Can you imagine the psychological and financial blow this would be for the millions of homeowners losing their homes to foreclosure today?

The act covers up to $2 million (or $1 million, if filing separately).

Cancellation of Debt.

The IRS defines the cancellation of debt as any money borrowed from a commercial lender that is later forgiven. Outside the coverage of the relief act, you would have to declare this debt for tax purposes.

“When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is normally reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C”

When Cancellation of Debt income is not taxable.

Here are some of the most common situations where you would not owe taxes on the canceled amount:

• When the canceled debt is covered by the The Mortgage Debt Relief Act of 2007
• Debts discharged through bankruptcy
• When the total debt is more than the fair market value of your total assets (insolvency), some or all of the canceled debt may not be taxable.
• If the debt was due directly to the operation of a farm and more than half your income from the prior three years was from farming and the loan was owed to a person or agency regularly engaged in lending, your canceled debt is generally not considered taxable income.

Type of Debt Covered by the Act.

The Mortgage Debt Relief Act applies only to debt used to purchase an existing home, build a new home, or substantially improve your primary residence, or to refinance debt incurred for those purposes. The debt must be secured by the home, and the maximum amount exempted by the act is $2 million or $1 million if married filing separately.

The Mortgage Debt Relief Act of 2007 is in effect until 2012, and more information can be found here.

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How to Avoid Debt After Death.

The death of a loved one can be emotionally devastating, but it can also be financially devastating when that loved one was providing for the family. In fact, the loss of income from the death of a spouse is one of the major causes of bankruptcy in America.

Here’s your ounce of protection against the financial calamity caused by the provider’s death: Term Life Insurance.

Knowing what you need is not as easy as how much. To answer that daunting question, you need to first determine the amount of income you would lose, due to the death of your spouse (or vice versa).

Some things to consider when determining how much life insurance you will need:

Who’s expenses are you covering by purchasing life insurance?

The most common answer to this question is your spouse and children (who are not yet adults).

You basically want to cover your income, for the time required, and any expenses you leave behind. For example, if you have one small child you probably want to cover your income until he is old enough to live on his own, and cover the cost of your funeral as well. Beyond that, you may also decide that you would to cover (or at least contribute to) your child’s college education. You would need to figure what the cost of a state college or university will be when junior graduates high school. You can find some info on this at the sites listed below, but it’s essentially an educated guess.

Mortgage and Other Loan Payoffs.

You may want to ensure that your family has enough to pay off your debts and start with a clean sheet. To that end, you’ll want to add up the outstanding balances on any mortgages and car loans you have.

Resources:
How to afford high education costs?

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