BIG SPENDERS vs. BIG SAVERS

Who would you rather emulate?

You stand at your window and look across the street. Nice house, you think. Nice landscaping. Nice sports car. Nice driveway. New bikes for the kids. Wow, your neighbors are really well off. If only you had that kind of money.

That plain home down the street with the older model sedan parked out front pales in comparison. A couple in their seventies lives there, and the front yard hasn't been spruced up in a decade. Who knows, maybe they struggle just to get by.

If you could somehow look into the financial lives of those two households, you might be surprised. The couple with all the toys might not be as wealthy as the neighborhood perceives, while the vanilla exterior on that humble rancher might hide a multimillionaire next door.

Remember that affluence does not = net worth. When you look across the street at the house of that well-to-do family, you are not necessarily gazing at a portrait of wealth. You are seeing a portrait of their spending habits.

What are they spending their money on? Perhaps, quite literally, a façade; their house may be the best house in the neighborhood, but what of kind of mortgage payment are they grappling with? Are they making payments on that sports car? That vehicle is a depreciating asset (unless they keep it garaged for a few decades). The flat-screen, the pool, the home audio system ... they have put their dollars into things that their neighbors can see. They may be engaging in all-too-common financial behavior: thinking of wealth in terms of material items, spending money on toys instead of their lives.

Real wealth may not be advertised. Perhaps the older couple down the street isn't interested in the hottest new luxuries. Decades ago, they put extra money toward their mortgage; even with housing values currently depressed, their residence is still worth much more than they paid for it. Most importantly, it is paid off.

Maybe they are good savers, always have been. When they were the age of the flashy couple up the street, they directed money into things that their neighbors couldn't see - their investments, their retirement accounts, their bank accounts.

Years ago, they could have lived ostentatiously like that high-earning couple up the street - but instead of living on margin, they chose to live within their means. They saw some of their friends "rent" a luxury lifestyle for a few years, only to lose homes and cars they couldn't really afford. Sometimes the economy or fate had a hand in it, but too often their friends simply made poor decisions.

It could be that it was just more important for them to think about the future rather than the moment. Parenting reinforced that philosophy. Their good financial habits kept their family away from a bunch of bad debts, and helped them build wealth slowly. Indirectly, it also helped their kids, who grew up in a household with less financial stress and with an appreciation and understanding of key financial principles. Now, they are applying those principles to build wealth in their own lives.

Roughly every fortieth American is a millionaire. There are nearly 8 million people with a net worth of $1 million or more in the U.S., and their financial characteristics may differ slightly from what you expect.1

Fidelity's 2012 Millionaire Outlook survey (which polled 1,000 households with $1 million or more in investable assets) notes that 86% of millionaires are self-made. Not so amazing, perhaps, but here is a striking detail. Among the self-made millionaires, the top sources of assets were 1) investments and/or capital appreciation, 2) compensation and 3) employee stock options or profit sharing. Millionaires born into wealth were the most likely to cite entrepreneurship and real estate investing as key factors behind their fortunes.2

According to the survey, the average U.S. millionaire is 61 years old with $3.05 million in investable assets. Fidelity also found that with regard to the financial future, more than (30%) of these millionaires were focused on preserving wealth, rather than growing it (20%).2

What will you spend your money on, tomorrow or today?

As Thomas J. Stanley and William D. Danko noted in their classic study The Millionaire Next Door, the typical millionaire lives on 7% of his or her wealth. That was in 1997; the percentage could be lower today. Call it frugal, call it boring, but such financial conservation may help promote lifetime wealth. Today, with so many enticements to spend your money as soon as you earn it, this mindset may have a lot of financial merit.1

Citations.
1 - www.investopedia.com/financial-edge/0411/why-many-millionaires-dont-feel-rich.aspx#axzz2AM2TWb3m [4/13/11]
2 - www.reuters.com/article/2012/07/19/idUS126070+19-Jul-2012+BW20120719 [7/19/12]

Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO PETER MONTOYA.

AN ABUNDANT THANKSGIVING WEEK

This is a very special message written by a good friend and colleague, Ed Jacobson. His message could make your Thanksgiving and life a little more joyous. Enjoy the message and Thanksgiving!

Chapter 32:

An Abundant Thanksgiving Week

My mind's been cooking lately about the rapidly-approaching Thanksgiving holiday and the piece I've wanted to write about having An Appreciative Thanksgiving Day. Then a new notion arose: Why not think about an Abundant Thanksgiving Day? I love the concept of abundance. It can refer to financial or material abundance, but it embraces much more than that. I conceive of it as a sense of fullness, ripeness, brimming with life, in various sectors of our lives: financial, familial, spiritual, religious, community, work, health, psychological ...the list of abundance areas goes on and on. In fact, I've created an instrument called the Life Abundance Portfolio© which gives people the opportunity to explore their sense of abundance in a range of key areas in their life. So, let's call it an Abundant Thanksgiving Day, and explore what that might consist of.

When I think of an abundant Thanksgiving, I think first of food. Then my mind goes to the people who have gathered together. Whether it's a small family dinner, a large group of friends and family, or a gigantic church dinner, there's generally good cheer and at the very least a temporary cease-fire. We tacitly agree to put aside our differences and our weapons of mass reactivity. We break bread together, instead of bristling at Aunt Maud or grimly tolerating cousin Max. We enjoy the good fellowship while we can. Someone is likely to say that we should do this more often, and not just on our national Turkey Day.

Instead of simply nodding your agreement, respond instead with "What a wonderful idea! How can we make that happen?" See what energies arise, both in you and others. Maybe a couple of you who have energy around the idea can nominate yourselves as the group to make it happen. It only takes a couple of committed people. Recall Margaret Mead's classic statement: "Never doubt that a small group of thoughtful, committed citizens can change the world; indeed, it's the only thing that ever has."

Thinking more about an Abundant Thanksgiving Day, I think about gratitude and thanksgiving, and then about the people who spend Thanksgiving Day either alone, in prison, or in the hospital. Then I call to mind people on a street in a far-off land or, with alarming frequency, in our cities and even our rural areas. It's a stretch for some of us (myself included) to hold the uncomfortable paradox of being surrounded by abundance while knowing that others near and far are so much less blessed materially. I wonder how other people make peace with that paradox, while at the same time asking someone to pass that fabulous-looking stuffing. This Thursday at Thanksgiving dinner with my family, I intend to verbally acknowledge our own bounty and others' lesser material abundance, and vow to do more to contribute somehow more to these unknown others' well-being.

How might we honor the spirit of giving thanks this year in a way that does two things:

•Creates as much appreciation as we can stand, and
•Addresses the question, How can we get more of this sense of appreciation, more days of the year?

Here are a couple of rituals of appreciation and abundance for Thursday, and three for the week leading up to the Big Day:

Thanksgiving Day

1. The host or other Designated Appreciator (the D.A., for short) can tap a glass with a spoon, get everyone's attention, and propose the following: "Could we capture the spirit of Thanksgiving by going around the table (or the room), and each one of us saying two or three things that you feel especially grateful or thankful for today?" And the host or the D.A. models the process by going first, thereby making it safe for people to be personal (and even profound) in their declarations. When everyone who wishes to has taken a turn, it might be appropriate for the D.A. to add, "I wonder if anyone has any thoughts about what we could do to have that sense of gratitude or thankfulness not just today, but more of the time?" And just wait. See what thoughts and insights are offered. If none arise, the D.A. might offer their own thoughts, and leave it at that. And then, of course, pass the stuffing.

2. Alternatively, the host or D.A. can suggest after dinner (if a football game isn't on the TV and if everyone isn't in the throes of a Tryptophan-induced nap) that folks share stories about a time during the past year when they felt especially blessed, in whatever area of their life. Depending on the size of the gathering, it may be best not to go around the room. It might more comfortable and lead to a deeper experience to gather in threes or fours, and give each person a couple or three minutes to tell their story to the listeners, whose job is simply to listen. Afterwards, the D.A. might say, "Wow! Here are some things I learned in listening," relate what he heard, and wait to see who else wants to share.

The Week Before

1. Right now, look within yourself and look around you, and enumerate all the things you're grateful for. Then at dinner this evening, report on your experience, mentioning a few of the items on your gratitude list. Invite others to do the same. Make the point that a day of thanks-giving doesn't have to always fall on the fourth Thursday in November. You might be surprised at who reports, and at what they say.

2. Before Thursday, make an Abundance List. Write down the following Abundance Areas, or make up your own:

•Family
•Work
•Community
•Religion / Spirituality
•Health
•Friends
•Finances
•Stuff ( iPods, a car that works, comfortable shoes, toothpaste)

In one or more of the above areas, list the things you feel abundant about. Place a check mark next to items that you can do something about having more of. You might then jot down specific actions to take. You may find, however, that simply making a check-mark serves to plant it in your mind and prompts you to take action. As always, do whatever works for you.

3. Here's a final exercise to do in your mind's eye before Thanksgiving Thursday: Picture each person you'll be spending Thanksgiving Day with. Mentally make the rounds of the anticipated dinner table. For each person, silently identify what you love most about them, their most admirable qualities, or a memory of a happy time spent with them. Experience the positive feelings that go with these positive memories. Repeat these mental rounds each day before Thursday, and watch what happens. You may find that it increases your sense of anticipation (which we can call Anticipatory Savoring), and your enjoyment of Thanksgiving Day. And because of the positive energy you'll be exuding when Thursday rolls around, you'll be amplifying others' enjoyment of the day.

I wish you and yours a Thanksgiving Week filled with abundance and appreciation. And 364 other days like that.

PRACTICES

1. Apply the first Designated Appreciator ritual during your Thanksgiving dinner, no matter how many people are around the table. Alternatively, apply the second Designated Appreciator ritual after the meal. (You can do either or both Practices even if you're dining alone. It may sound a little weird, but I've done it, and it works.) Almost invariably, when it's over someone will express their thanks for your suggesting the exercise. After acknowledging their appreciation, then ask "How did this work for the rest of you?"

2. Before Thursday, make your own Abundance List. Invite others in your household to make their own lists. On Thursday, suggest that everyone share their lists.

3. Invite members of your household to experience the pre-Thanksgiving guided imagery exercise of picturing who would be seated around the Thanksgiving dinner table. Ask them to share their images. Wonderful things can happen.

•Noting similarities between people in what they anticipate can be very confirming and enriching, and can also increase the savoring when Thursday comes.
•Discovering differences in what is anticipated can broaden everyone's sense of abundance, and can also increase people's understanding of each other's frame of reference -- always a good thing.

4. At least once per month, review your own Abundance List. See what happens when you de-link it from a milestone event like Thanksgiving and make it part of your ongoing routine.

5. Invite your family to conduct a monthly review of everyone's Abundance List. It can become a meaningful family ritual.

This chapter excerpted from Appreciative Moments: Stories and Practices for Living and Working Appreciatively. iUniverse, 2008. Permission of the author.

Here's a thought: signed copies of Appreciative Moments make a thoughtful holiday gift for family, friends, colleagues, and clients. Interested? Contact me at ed@edwardjacobson.com.

Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO ED JACOBSON.

NEGOTIATING A PATH AWAY FROM THE EDGE

We're hearing a lot about the fiscal cliff in this post-election time period, and surprisingly, considering the angry partisanship of the campaign, some of the news is encouraging. The White House and Congressional leaders, elected officials from both sides of the aisle, are saying that they believe they can reach agreement before the end of the year.

What is this fiscal cliff? The term refers to a lot of different tax and budget provisions that are all scheduled to take place automatically at midnight on December 31. These include:

Higher tax rates. When the clock strikes twelve, the Bush-era tax cuts will expire, eliminating the 10% tax bracket altogether, and moving the current 25%, 28%, 33% and 35% brackets up to 28%, 31%, 36% and 39.6% respectively. At the same time, the 0% capital gains tax rate for lower-bracket Americans would bump up to 10%, and the tax rate on dividends would rise to 15% or 28%, depending on the recipient's income tax bracket.

The loss of deductions--including a provision that eases the so-called "marriage penalty," some deductions for college tuition, child tax credits, dependent care credits and a particularly harsh phase-out that would eliminate up to 80% of some taxpayers' itemized deductions for mortgage interest, state and local taxes, and charitable donations.

Random across-the-board budget cuts that nobody intended to see enacted. The Budget Control Act of 2011--what most of us remember as the tense compromise that ended last year's budget standoff--calls for automatic government spending cuts of $1.2 trillion from the federal budget over the next 10 years. The cuts apply to just about every discretionary (non-Social Security, Medicare, Medicaid) program in Washington, although most of what you're hearing about are reductions in the defense and education budgets.

The expiration of stimulus measures: The Obama-era payroll tax cuts will go away, raising taxes by about two percentage points for workers.

Why do we call this a "cliff?" Because everything on that list would take money out of the hands of taxpayers and, at the same time, lower government spending-essentially providing the U.S. economy with the opposite of a government stimulus, what some have called a hard punch in the gut. The Congressional Budget Office estimates that if we go over the cliff--that is, if Congress and the President don't act between now and the end of the year--a total of $560 billion would exit the economy. The CBO estimates that this would reduce America's total economic activity in 2013 by four percentage points. Hello recession!

So what are the odds that Washington will get its act together and choose a course that doesn't take us over the cliff? As it happens, there is reason to hope. Leaders on both ends of the partisan divide agree on many things in this negotiation: that the tax cuts are too painful and random to allow in their present form, and that tax rates on American taxpayers with less than $250,000 in income should continue as they are today. The sticking points are if or how much tax rates should rise for Americans in the higher tax brackets, and where to apply the budget knife.

This rare moment of meaningful negotiation offers Washington policymakers a chance to expand the discussion and come up with a long-term solution to the nation's debt problem-which is, after all, the topic of debate which led Congress to create this fiscal cliff in the first place. If you're optimistic, then cross your fingers that the leaders in the room will want to do something more with this conversation than just address the immediate problem.

As you follow the debate, pay attention to whether our elected officials are actually tackling the issues or just kicking the can down the road yet again. If you hear discussion about permanent laws, such as a balanced budget amendment, or a framework that forces Congress to offset any expenditures with cuts elsewhere, or a change in tax rates, or some kind of entitlement reform (Means testing? Raising eligibility ages?), that will be a sign that Washington is getting serious about addressing real issues.

If, on the other hand, you hear about caps on future appropriation bills, or frameworks for deficit cutting, or solutions which sunset in 12 or 24 months, that means that we'll be going through a version of this debate for the foreseeable future, and the can could be kicked, once again, far enough down the road to become a 2016 Presidential election issue and a headache for the next President to deal with.

We should also pay attention to the timing. The longer the U.S. economy continues to march straight toward the edge, the longer businesses will be reluctant to hire or invest in the future. But for now, this moment may be something to enjoy. How often do we see Democratic and Republican leaders in the same room together, promising to get something done? Maybe it will become a habit.

Sources:
http://news.yahoo.com/blogs/ticket/obama-lawmakers-hold-constructive-talks-taxes-deficit-174256300--politics.html
http://www.smartmoney.com/taxes/income/how-the-expiring-bush-tax-cuts-affect-you/
http://bonds.about.com/od/Issues-in-the-News/a/What-Is-The-Fiscal-Cliff.htm

Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.

SOME FISCAL CLIFF SCENARIOS

What could play out in the near future?

Will 2013 be as severe as some economists think? The fiscal cliff is getting closer and closer. How will Congress respond?

In the worst-case scenario, Congress argues and deadlocks. Tax hikes and roughly $109 billion in federal spending cuts take a bite out of GDP and another recession becomes a possibility.1

There are other possibilities, however. The fiscal cliff may yet be averted, or at least we might back away from its edge. One of several scenarios might come to pass.

Scenario A: Congress buys time. Many analysts think this is exactly what will happen. Congress is in a lame-duck session. The option for legislators to "pass the buck" may prove tantalizing. So we could see a short-term, stopgap deal with the idea that the next session of Congress will tackle the problem later in 2013. The debt ceiling could be raised, and a "down payment" might be made on longer-term liabilities.1

Scenario B: Congress can't make a deal. This may not be so improbable; if you remember the "super committee" assigned to craft a deficit reduction plan in 2011, you will also remember that it didn't accomplish the set task. In fact, we are facing the fiscal cliff because of that committee's failure.2

The "fiscal cliff" already amounts to Plan B. When Congress and the White House reached an accord to raise the debt ceiling back in August 2011, $1 trillion in federal spending cuts were greenlighted and Congress was told to find $1.2 trillion more to slash. As that didn't happen, $1.2 trillion in automatic cuts are set to begin next year. So Congress would actually be following federal law if it did nothing to respond to the issue.2

Doing nothing seems unsuitable, but there is the risk that history could repeat itself. Election outcomes may alter political assumptions and interfere with consensus. If it looks like we will go over the cliff in the waning days of 2012, there is a strong possibility that the incoming 113th Congress could vote quickly to reinstate select spending levels and tax breaks. That might mute some of the clamor from global financial markets.3

Scenario C: Middle ground is reached. Some degree of compromise occurs that leaves no one particularly satisfied. Certain short-term provisions are phased out, such as the payroll tax holiday, the recent increases for small business expensing, and assorted tax credits and tax breaks for education. The Bush-era tax cuts are preserved (at least temporarily) for the middle class, but rates rise for those making $1 million or more per year. The clock turns back to 2009 with regard to estate taxes. The rich face higher taxes on capital gains and dividends. Perhaps some defense cuts are postponed.

Scenario D: The "Grand Bargain." Congress and the White House boldly arrive at a something more than an incrementally enacted deficit reduction plan. They reach a "grand bargain," a deal designed to cut the deficit by $4 trillion by the mid-2020s, after historic, long-range compromises are made to reach stability on assorted tax and spending issues. With a lame-duck Congress, this may be a longshot.1

Scenario E: The "Down Payment." Legislators could always tear a page from another playbook in trying to solve this problem. The Bipartisan Policy Center, for example, thinks a "grand bargain," or anything approximating a real deal on the fiscal cliff, is unlikely given the short interval between the election and 2013. It recommends a "down payment" of deficit cuts that could be approved by a fast-tracked simple majority vote. If Congress didn't take further steps to cut the deficit next year, then certain tax breaks would disappear and cuts would hit social welfare programs (excepting Social Security).2

Whatever happens in Washington, this is a prime time to consider financial moves with the potential to lower your taxes and insulate your wealth. Explore the possibilities before 2013 arrives.

Citations.
1 - articles.marketwatch.com/2012-10-25/economy/34719282_1_fiscal-cliff-tax-cuts-defense-cuts [10/25/12]
2 - thehill.com/blogs/on-the-money/budget/262893-bipartisan-policy-center-floats-fiscal-cliff-solution [10/12/12]
3 - www.salon.com/2012/11/01/a_look_at_3_scenarios_as_the_fiscal_cliff_looms/singleton/ [11/1/12]

Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO PETER MONTOYA.

POST-ELECTION POLITICS: THE 30-YEAR MISSION

One of the most interesting aspects of every presidential election is the inevitable post-election trauma suffered by the roughly 50% of Americans who supported the unsuccessful candidate. Those of us with long memories will recall Americans vowing they would leave the country after George W. Bush won the disputed 2000 election, and again four years later. Judging by President Bush's extremely low profile during the 2012 presidential election campaign, his eight years in office were not considered an unqualified success even by his own party. Yet the country has survived, and one can predict with confidence that it will weather any political issues (and policies) that arise during a second Obama presidency.

In fact, if the citizens whose candidates won can come down from their highs, and those whose candidates lost can shake off the depression, they would notice that the country's economic system has been remarkably resilient despite the dysfunctional political process that virtually everybody, on both sides of the spectrum, rightly deplore. Despite the selloff the day after the recent election, the American stock market has actually delivered better performance under Democratic than Republican presidents--for no visible economic reason. (The accompanying chart shows the evidence pre-Obama.)

The biggest economic problems that America faces today have actually accrued slowly, gradually, and under the stewardship of multiple presidents from both parties. There is some evidence that the U.S. electorate doesn't yet understand the high cost of avoidance, of political one-liners offered by candidates from both parties that have trivialized very real long-term problems or suggested that they can be solved quickly if the right person is elected.

Fortunately, it is possible to understand the nature of these bigger-picture, bigger-than-a-sound-bite problems--and the solutions. You just have to put up with a lot of charts.

The charts can be found here: http://www.businessinsider.com/politics-economics-facts-charts-2012-6#
courtesy of Business Insider. What you see first is a long, relatively smooth avenue of growth in the U.S. economy since 1947, punctuated by a significant drop in 2008 and a recovery to the former highs since then. A second chart shows real per capita income--the amount of money, inflation-adjusted, that the average worker takes home, and here we see a bigger drop for a longer period of time. Perhaps the most remarkable chart shows essentially the same thing for corporations: you see a very steep drop in corporate profits after tax from 2008 through 2010. But then, unlike the worker income, corporate profits zoom back up again, surpassing record highs. What is most remarkable is that most of the rise in corporate profits--literally much more than half--has been recorded in the last 11 years. Before that, corporate profit growth was slow and steady. In the past decade, it has been very uneven and spectacularly fast. The next chart shows that companies are making more profit per dollar of sales than ever before.

The next set of graphs is about jobs, and you see a big drop in civilian employment as a percentage of the total population during the recession, which bottomed out in 2010 and continues to scrape along at roughly 58%--well below the late 1990s high of 64%. But if you look at the chart as a whole, those high employment rates were a historical anomaly. The current total employment-population ratio is actually higher than it was at any time from 1940 to 1976, and is well above levels in the early 1980s. In the following chart, we see that wages as a percent of the economy have reached an all-time low (roughly 44%). Companies are sharing less of their revenue with employees than ever before.

What about debt and spending levels? You already know that total debt in our economy is at an all-time high, although it has leveled off since 2008. In subsequent charts, this is broken down into household debt, corporate debt, state and local debt, and federal government debt. All of them have risen dramatically over the past 30 years; the lines practically jump off the page. So, of course, you look for where to cut. A chart looks first at the number of state and local workers, and finds that they now represent about the same percentage of total U.S. employees as there have been for the last 40 years. The next chart--the 39th in the series, shows that, despite what you may have heard about a ballooning Washington bureaucracy, the total number of federal government employees has held steady for nearly 50 years, and is actually below levels in the late 1960s. Looked at another way, federal government workers now make up a smaller percentage of the total workforce than at any time since the 1940s.

The federal debt problem is not complicated: charts show that spending has gone up as federal tax revenue (due to the recession and slow recovery) has fallen dramatically. The most interesting subsequent chart shows that by far the biggest contributor to the increase--really, the reason there has been any increase at all--has been an explosion in the cost of Social Security, Medicare and Medicaid. You look at the line rising from 1960 through 2011 and it looks a bit like the slope of the Matterhorn: straight up. These programs now make up a record 16% of all American economic activity--up from roughly 4.5% in 1960. And, of course, every year sets a new record.

The inescapable conclusion of this economic graphic slideshow is that corporations have done very well during the four-year term of a president who business leaders have accused of being a socialist. Individual workers have suffered under what many have called a "populist" president. Overall debt has leveled off, but somehow, the U.S. is going to have to gradually fix the out-of-balance social programs, by reducing benefits and collecting more revenue to pay for them.

The slide show commentary suggests that it took us 30 years to get into this mess; it may well take us 30 more to climb back out of it. Let's see; that covers the span of between four and seven future presidents, and the White House will almost certainly change hands (or parties) several times over that time period. We will need all of them, plus Congress, to recognize what you now know. And we will need all citizens, even those who were disappointed by the recent election, to continue to push for meaningful solutions rather than take their money and vote to Canada.

Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc. wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.

THE ONE PERCENT SOLUTION

During the run up to the Presidential and Congressional elections, you might sometimes get the idea that certain voters line up reliably behind certain policies. In fact, the biggest stereotype has been that people with above-average wealth -- the so-called "one-percenters" -- never want to pay any taxes. Instead, corporate executives and financial leaders expect the government to reduce spending, and somehow reduce the federal deficit without calling on them to make a contribution.

But in the real world, business leaders are trained to apply business logic to the problems in front of them, and when they look at the challenges facing America's finances, the conclusions they're coming to don't fit neatly along partisan lines.

For example? Recently, a coalition of more than 80 CEOs of major U.S. corporations have joined together to tell Congress that it needs to find a bipartisan solution to the so-called "fiscal cliff" -- the changes in tax law and the federal budget that will take place at midnight, December 31. Longer term, they have asked Washington to address the deficit in a realistic way. The group, which includes such one-percenters as the CEO of General Electric, Boeing, Verizon, Aetna, Microsoft, Cisco, Blackrock and Goldman Sachs, has publicly argued that, despite the "no new taxes" pledge that many in Congress have signed, raising taxes in some form is inevitable if we are serious about paying down the federal debt. So far, the coalition has raised $29 million to carry this "raise taxes" message to various Congressional districts.

The One Percent Solution came right out of their respective accounting departments. The CEOs say that it makes no mathematical sense to try to fix the deficit without raising taxes, but they also believe there is a significant amount of waste in current government spending. The group has asked Congress to follow a deficit reduction model similar to the Simpson-Bowles deficit reduction committee recommendations, which called for both spending cuts and temporarily higher taxes which fall hardest on persons with the most income and wealth.

Why would the one-percenters lobby for a higher tax bill? Interestingly, their letter makes clear that they are not necessarily putting the good of the country ahead of their own interests, but they are putting the welfare of their companies first. They say that the looming fiscal cliff and uncertainty over the budget is costing their corporations meaningful business. Goldman Sachs cited a report which shows that capital spending has weakened over the past few months, and 6-month forward capital spending levels have fallen to pre-recession levels.

Meanwhile, another group of one-percenters are asking for similar measures. The Financial Services Forum -- which brings together the nation's largest banking institutions -- has sent a letter to the White House and Congress asking them to negotiate a bipartisan deficit agreement as soon as possible -- and the term "bipartisan" is clear code for "we will accept Democratic proposals to raise taxes as part of the deal." The letter repeats warnings that have been sounded by Fed Chairman Ben Bernanke, the Congressional Budget Office, various ratings agencies and even the Chinese government.

The CEOs of big banks and big businesses would almost certainly benefit personally from lower tax rates. Their respective calls to action suggest that the threat of inaction on the economy has finally become too dire to ignore. America's one-percenters, who have been spoken for throughout the election cycle, and now speaking out on their own, saying they are willing to sacrifice a bit of their own income to help the country climb out of its fiscal woes and restore economic growth and prosperity. It is possible that forecasts delivered by their own accounting departments suggests that higher economic growth will more than pay for the temporary cost of higher taxes -- in the long run.

Economists and accounting professionals from these various firms are sitting down with members of Congress through the remainder of the year to help explain not just the importance of these fiscal issues, but also the best, most realistic ways to move past them. Dare we hope that Congress will finally listen?

Sources:
http://yhoo.it/T1zTBv
Big Banks Blast Washington

http://on.wsj.com/TLTzz1
Business Leaders Press Congress to "Fix the Debt"

http://onforb.es/VJfMjv
80 CEOs to Obama and Romney

http://yhoo.it/WLyjL9
CEO's Launch Campaign

Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.