1. Life Crises: How to Achieve Your Financial Goals
Thank you for attending CalCPA’s Dollars & Sense workshop. We hope this program will help you improve your knowledge and understanding of basic financial tools and goals—information that can help each of us in our daily lives.
As CPAs, we are committed to the highest ethical standards and excellence. Our mission is to provide the public with trusted advice and counsel, on which you can base your most important financial decisions.
Today’s program offers common sense guidelines to help you make informed financial choices. Personal financial planning is a key ingredient to achieving your goals. The inevitable truth is few people are fortunate enough to enjoy a charmed life with no financial troubles. At one time or another, the majority of us are likely to experience significant debt, need a major operation, or will be laid off from work. As they say, there are two certainties in life: death and taxes. During the next hour, we’ll discuss these events and how to financially prepare for them.

2. Budget Your Way to Success
Use personal finance software
List sources of income
Identify major expenses
Record every expenditure
Cut expenses if possible
Monitor regularly
A budget is a saving and spending plan that can help you reach your financial goals. With computer and personal finance software, you can make the task easier and enhance your ability to analyze the results. Personal finance software can chart the success of your budget by category. It can also serve as a planning tool to help you meet your goals. However, you can successfully create a simple budget plan with just a pencil and a sheet of paper. In your packet, you’ll find some sample budget tables that you can fill out.
Regardless of whether you use software or a paper planner, start by listing all sources of monthly income, including wages and salary, bonuses and commissions, interest, dividends and rental income.
Next, identify your major expense categories: mortgage or rent, insurance premiums, child care, utilities, food, clothing, medical and dental bills, gifts and car repairs.
If you’re unable to account for a large chunk of your income, carry around a small notebook and record every dime you spend over the next few months. Look for expenses that you can cut, which will leave you with more money for investing, vacations, your children's college fund and other purposes.
It is important that you monitor your budget regularly. If you find that your spending is outpacing your income, rework the numbers.

3. Budget Your Way to Success
Cut expenses but pay yourself first
Emergency funds and loans
Sell unnecessary items
Insurance and taxes
If your money is limited, how can you reduce your expenses? Spending less than you earn is the key to successfully saving and investing money. Try trimming a couple of items off of your monthly budget. For example, sacrifice dinner and a movie in order to help consolidate your debt on one low-interest credit card.
If you are determined to accumulate savings, you need to establish a routine. Always pay yourself first! Automate your savings plan. Put the maximum amount possible into your employer-sponsored retirement plan. Consider investing a substantial proportion of your portfolio in stocks, which tend to offer higher yields than bonds or cash over the long term. Remember that it’s never too soon or too late to save.
In addition to your retirement, you should also save money for an emergency fund, which many people keep in a savings account. You should have three to six months of living expenses that you can easily tap into in the event of an emergency. If your balance is high enough, you may be able to open a money market account or a money market mutual fund that pays a higher rate of interest and still allows ready access to your funds.
If you own a house, you may be able to renegotiate your loan to get a lower interest rate with a lower monthly payment. If you have decent equity (the difference between what you owe on the house and its current market value), you could get a second mortgage at a rate much lower than credit card interest. You should shop around for the best mortgage rates.
Most of us have unnecessary but useful items that others may be willing to purchase. So clean out the attic, closets and basement and have a garage sale. If you have several cars, consider selling one or more, especially the oldest one with high mileage.
Ensuring that you have adequate insurance coverage is vital to protect your family and your assets. Review and update your health, disability, life, automobile and homeowners' policies. Make a checklist of your policies and the amount of coverage you have. Determine whether changes in your financial and family life warrant adjusting coverage.
Lastly, you should develop long-term tax-savings strategies. Periodically consult with a financial adviser, such as a CPA, to be certain that you have considered all aspects of your financial situation.

4. How to Handle Bankruptcy
Affects your credit
Discharges some debt
Two primary types
Chapter 7
Chapter 13
Unfortunately, if you haven’t budgeted well, you may find yourself contemplating bankruptcy—something to avoid if at all possible. A bankruptcy stays on your credit report for 10 years. After bankruptcy, you may have a difficult time obtaining credit, buying a home, getting life insurance or even getting a job.
Bankruptcy is a legal procedure that offers a fresh start. People who follow the bankruptcy rules receive a discharge—a court order that says they don't have to repay certain debts. However, it will not wipe out or reduce all of your debt. If divorced, you must continue child-support payments and alimony. You also must pay any fines, taxes and some student loan obligations. If you acquired a loan through fraud, you must make complete restitution.
As of October 17, 2005, new bankruptcy regulations go into effect. The information presented here reflects those changes.
There are two primary types of personal bankruptcy: Chapter 7 and Chapter 13. Each must be filed in federal bankruptcy court. The filing fees run about $200 for Chapter 7 and $185 for Chapter 13. Attorney fees are additional and can vary. It is likely that filing for bankruptcy will be much more expensive than prior to October 17, 2005, as attorneys will need to complete more paperwork. Those filing for bankruptcy must show they have received credit counseling at least six months before filing.

5. How to Handle Bankruptcy
Chapter 7
Liquefies assets not exempt
Restricts who can file by income
Can use only once every 6 years
Known as straight bankruptcy, Chapter 7 involves liquidation of all assets that are not exempt. Exemptions include retirement plans, 401(k)s, IRAs, personal items, such as clothing and home furnishings and tools that you need for work. If you own your home, you can still live in it, although you may be required to tap all of your equity up to the $125,000 exclusion. And you likely will retain the vehicles you use for business or to drive to work. Some of your non-exempt property may be sold by a court-appointed official or turned over to your creditors.
If your income is above the state median for your family size and you can pay at least $100 monthly to creditors you are unable to file for Chapter 7. The median income for a family of four in California, for example, is about $68,000. As for being able to pay creditors $100 monthly, the bankruptcy court, not you, determines if you have the funds to do that.
You can receive a discharge of your debts through Chapter 7 only once every six years.
Because of the median income limit and the requirement to pay $100 to creditors, more people who would have qualified for Chapter 7 under the old rules will now be required to file for Chapter 13.

6. How to Handle Bankruptcy
Chapter 13
Can retain essential property
Must complete in 3 to 5 years
Must pay at least $100 monthly
Chapter 13 allows people with a steady income to keep certain property, like a mortgaged house or a car, that they otherwise might lose. Usually Chapter 13 does not allow you to keep real estate other than your residence if a creditor has an unpaid mortgage or lien on it.
In Chapter 13, the court approves a repayment plan that allows you to use your future income to pay off a default during a three to five-year period.
The court determines if you have the ability to pay at least $100 to creditors by looking at your monthly income and subtracting “allowable expenses” according to an Internal Revenue Service schedule. Allowable expenses are what the IRS says you need to sustain you and your family in the area in which you live. If your actual costs for these items are higher than the IRS schedule, however, you are usually out of luck.
Your monthly income also may be reduced by certain other expenses, so long as the costs are reasonable, and the court considers them necessary expenses. These include costs to care for an elderly parent or a disabled child, health insurance, education expenses through high school (up to $1,500 per child), child support, alimony, mortgage payments and the administrative costs of your bankruptcy.

7. How to Rebuild Credit Credit counseling service
Nonprofit is preferable
Helps organize budget
Check credentials
Of course it is never anyone’s plan to allow bankruptcy become their only viable alternative. However, if you find that your credit card bills are overtaking your paycheck, consider going to a nonprofit credit counseling service to prevent such circumstances. They can help you solve your financial problems. Many universities, military bases, credit unions, housing authorities and branches of the U.S. Cooperative Extension Service operate nonprofit credit counseling programs.
Reputable credit counseling organizations advise you on managing your money and debts, help you develop a budget, and usually offer free educational materials and workshops. Their counselors are certified and trained.
Be sure to check the agency with your state attorney general, local consumer protection agency and Better Business Bureau. They can tell you if consumers have filed complaints about them.

8. How to Rebuild Credit Debt management plan Debt negotiation programs
If your financial problems stem from too much debt or your inability to repay your debts, a credit counseling agency may recommend that you enroll in a debt management plan (DMP).
Under a DMP, you deposit money each month with the credit counseling organization. The organization uses your deposits to pay your unsecured debts, such as credit card bills, student loans and medical bills, according to a payment schedule the counselor develops with you and your creditors. Your creditors may agree to lower your interest rates and waive certain fees. However, check with all your creditors to be sure that they offer the concessions that a credit counseling organization describes to you.
A successful DMP requires you to make regular, timely payments, and could take 48 months or longer to complete. You may have to agree not to apply for—or use—any additional credit while you're participating in the plan.
Debt negotiation is not the same thing as credit counseling or a DMP. It can be very risky and have a long-term negative effects on your ability to get credit. Debt negotiation firms may claim they're nonprofit. They also may claim that they can arrange for your unsecured debt—typically, credit card debt—to be paid off for anywhere from 10 to 50 percent of the balance owed.
The firms often pitch their services as an alternative to bankruptcy. They usually tell you to stop making payments to your creditors, and instead, send your payments to the debt negotiation company.
There's no guarantee that the services they offer are legitimate. There also is no guarantee that a creditor will accept partial payment of a legitimate debt. Most debt negotiation companies charge consumers substantial fees for their services.
While creditors have no obligation to negotiate the amount a consumer owes, they have a legal obligation to provide accurate information to the credit reporting agencies, including your failure to make monthly payments. That can result in a negative entry on your credit report.
If you decide to work with a debt negotiation company, be sure to check it out with your state attorney general, local consumer protection agency and the Better Business Bureau.

9. How to Rebuild Credit Secured credit card Limited to deposited amount
Available after bankruptcy discharge
Another way to establish or re-establish credit is through a secured credit card. With this method, you deposit a specific amount into a special account, and you receive a card with a credit limit that equals your deposit. In effect, you are borrowing against your own money and paying interest to do so. If you declared bankruptcy, you normally can’t apply for a secure credit card until after your bankruptcy has been discharged by a court.
It may take months, even years to establish a good credit rating after having missed numerous payments or declaring bankruptcy. However, you won’t be able to unless you have a plan and pay your debts in a timely fashion.

10. Staying Out of the Red Negotiate severance pay Apply for unemployment
Keep up insurance
When people find themselves unemployed and without a regular paycheck, some will consider bankruptcy. If you have recently joined the ranks of the jobless or fear a pink slip is in your future, your number one priority is to find work so that you will have funds to pay your bills. In addition, there are several important financial matters you must address.
While the law does not mandate severance pay, many companies offer dismissed workers one to two-weeks pay for each year of service. Consider whether you should negotiate for more severance pay or other perks, particularly if circumstances, such as your age, may make it more difficult for you to land a new job. In any case, resist the temptation to use your severance to pay off your mortgage or credit card debt. You may need the money down the road to keep you in the black.
Each state has different eligibility requirements for qualifying for unemployment benefits. Normally, if you've lost your job through no fault of your own (such as being laid off) and you meet your state requirements for wages earned or time worked during a certain period, you can qualify for unemployment benefits.
Once you're laid off, the cost of your health insurance and other benefits generally becomes your personal responsibility. Medical coverage is expensive, but make no mistake, no one—especially the unemployed—can afford to be without it.

11. Protect Yourself with Insurance
Health insurance
Compare policies
Know limitations and exclusions
Customize
Rider
Endorsement
Increased health care costs make it extremely critical for couples to consolidate health insurance in order to avoid paying for duplicate coverage. If you and your spouse both have health insurance through your employers, compare your coverage and costs to determine which plan best fits your circumstances and finances.
Each state has its own laws regarding health insurance, including what must be covered and what may be excluded. Many policies provide limited coverage for certain types of illnesses, injuries, treatments and procedures. These are known as the policy's limitations. Some things may not be covered at all. These are known as the policy's exclusions. Examples of exclusions are pre-existing payments, cosmetic surgery and organ transplants. Some of these may be covered by your policy, especially if mandated by the state.
You often can customize a health insurance policy to your individual needs through a rider, which is a special provision that is printed separately and attached to your original policy. A rider can be used to make specific changes to your standard policy, or it can provide additional coverage over and above your standard coverage. A policy endorsement accomplishes the same goal—the difference is that an endorsement is actually incorporated into the body of your existing policy. Adding a rider to your policy for additional coverage generally increases your premium.

12. Protect Yourself with Insurance
Health insurance alternatives
COBRA
Individual coverage
Trade group
State-sponsored
If your spouse is employed and has coverage at work, enrolling under his or her plan is likely to be the best alternative. However, there are other options.
The Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA) allows displaced workers to continue group coverage for themselves and their dependents for at least 18 months. If you choose COBRA coverage, you pay the entire cost of the group rate premium.
Rates and options for individual health insurance vary from state to state, and premiums are generally higher than costs for COBRA. Plans offering the most choices in doctors or hospitals tend to cost more than plans with limited choices.
If you just need coverage for a short time—perhaps while you are waiting for a new job's benefits to become effective—and you are healthy, consider looking at short-term policies offered by some health insurers.
Members of a trade group, professional organization or even an alumni association may be able to join a group health insurance plan.
If private insurers have turned you down, you may be eligible for your state's high-risk pool. Be aware, however, that premiums are usually more expensive than for plans sold by private insurers.

13. Protect Yourself with Insurance
Medicaid (Medi-Cal)
Available for certain groups
Directly pays providers
Apply through social services office
Medicaid is health insurance that helps many people who are unable to afford medical care pay for some or all of their medical bills. In California, the Medicaid program is called Medi-Cal.
Medi-Cal is available only to certain low-income individuals and families who fit into an eligible group that is recognized by federal and state law. You may be eligible for Medi-Cal if you are under the refugee assistance program or the adoption assistance program. You could also be eligible for Medi-Cal if you are over 65 years old, disabled, or pregnant.
Medi-Cal does not pay money to you; instead, it sends payments directly to your health care providers.
You can apply for Medi-Cal benefits through your county’s social services office. If you are found (or determined) eligible, you can continue to get Medi-Cal as long as you meet the eligibility requirements.

14. Protect Yourself with Insurance
Disability insurance
Deducted by state
Offered by employer
Purchase on own
As vital as health insurance is, it won’t replace your income while you are in the hospital or recuperating for several months at home. That’s why disability insurance is so important. Disability insurance provides you with a monthly income in the event an accident, illness or injury leaves you unable to work. Most people who work in California are covered by the State Disability Insurance program or SDI. If you are covered, your employer automatically deducts your SDI payment from each paycheck. SDI provides short-term benefits to eligible workers who suffer a loss of wages when they are unable to work because of a non-work related illness or injury or a medically disabling condition from pregnancy or childbirth.
Only four other states besides California have state disability insurance programs. If you move elsewhere, you should consider purchasing a disability insurance policy. Even Californians should consider purchasing a long-term policy as the state’s policy only provides benefits for the first year following a disability. You may be able to purchase long-term disability insurance from your employer. If not, you purchase it on your own. Compare policies and select the one that meets your needs at a premium you can afford. If finances are limited, you can reduce the cost by extending the waiting period before coverage kicks in.

15. Tax Breaks for Job Hunting
Must seek similar work
Cannot deduct if too long of a gap
Cannot deduct costs of first search
Cannot deduct reimbursements
If you are unemployed or expect to be, you can get a tax break simply by looking for a new job. You also may get a tax deduction if your employer relocates you, causing you to move in order to retain your job. Of course, you must meet certain eligibility guidelines, and you’ll need to itemize your deductions.
To be eligible for a deduction for job-hunting, you must be seeking a job in your current line of work. If you decide to switch careers, you won’t be able to write off the cost of finding your new position. J
ob search expenses are not deductible when there has been a substantial amount of time between your prior employment and your search for a new job. You’re also barred from deducting expenses related to your job search if you’re looking for your first job, as might be the case for college graduates.
And you may not deduct expenses, for which a prospective employer reimburses you.

16. Tax Breaks for Job Hunting
Possible deductions
Résumé
Travel
Relocation
Medical Costs
So exactly what can you deduct when searching for work?
You can deduct fees you pay to an employment agency or outplacement firm. The cost of resume preparation, printing and mailing are deductible, as well as long-distance phone calls, job-wanted ads and publications.
For some job hunters, the cost of travel is the biggest expense. You usually can deduct your mileage to and from the job interview site. You also may deduct air or train fares, hotel and meal expenses, cab fares and other incidentals when you travel long distances for an interview.
You also may deduct moving expenses if you need to relocate to be closer to your new job or because of a transfer or the relocation of your worksite. To deduct moving expenses, you must meet two tests: (1) your new job location must be at least 50 miles farther from your former home than your old job location; and (2) you must work full-time for at least 39 weeks during the 12-month period following the move.
Whether or not you are out of work, you may be able to deduct medical or dental expenses for you or your family. However, you can only deduct that portion of your combined medical or dental costs that exceeds 7.5 percent of your adjusted gross income (AGI). You can include the cost of your premiums for medical and dental insurance, including COBRA, in your total medical expenses.. If you decide to become self-employed or work as a freelancer, you can deduct 100 percent of the cost of such insurance.

17. Reducing Taxes on Your Estate
Estate planning
Minimizes tax consequences
Needed if worth $1.5 million or more
Ensures how assets are disposed
We have talked about taxes in this presentation. Now we will discuss that other inevitability — death. Did you know that you can reduce the tax burden on your heirs through careful estate planning? Successful estate planning transfers your assets to your beneficiaries quickly with minimal tax consequences.
You may think estate planning is only for the wealthy. If your assets are worth $1.5 million or more, estate planning may benefit your heirs. By the time you account for your home, investments, retirement savings and life insurance policies you own, you may find your estate in the taxable category.
Even if your estate is not likely to be subject to federal estate taxes, you may need estate planning to ensure your assets are disposed of as you wish.

18. Reducing Taxes on Your Estate
Make annual gifts
Shield property
Use trusts
Make charitable gifts
Fund a life insurance trust
There are a number of estate planning methods that you can use to minimize federal taxes on your estate.
You can make annual tax-free gifts of $11,000 each to any number of individuals. Couples can give combined gifts of $22,000 per recipient.
You can shield property transferred to a spouse from taxes. Federal tax law generally permits you to transfer assets to your spouse without incurring gift or estate taxes. Marital deductions, however, may increase the total combined federal estate tax liability of the spouses upon the death of the surviving spouse. To avoid this problem, many couples choose to establish a bypass trust.
With a bypass or credit shelter trust, the first spouse to die can leave the amount shielded by the unified credit to the trust. The trust can provide income to the surviving spouse for life. Upon the death of the surviving spouse, the assets are distributed to beneficiaries.
Charitable gifts are not taxed as long as the contribution is made to an organization that operates for religious, charitable or educational purposes.
Life insurance trusts can be designed to keep the proceeds of a life insurance policy out of your estate and give your estate the liquidity it needs. The proceeds from life insurance held by the trust may pass to trust beneficiaries without income or estate taxes.

19. Preparing for Your Funeral
Funeral home not necessary
Be sure to comparison shop
Get itemized price list
Consider package offers
It is unfortunate that the last crisis we all will experience is our own death. Since it is going to happen sooner or later, it is an event we should plan for. Planning your own funeral can spare your survivors much anguish and also reduce the financial burden your death may leave them with.
Many people don't realize that they are not legally required to use a funeral home to plan and conduct a funeral. However, many people find the services of a professional funeral home to be a comfort at such a difficult time.
Consumers often select a funeral home or cemetery because it's close to home, has served the family in the past, or has been recommended by someone they trust. But people who limit their search to just one funeral home may risk paying more than necessary for the funeral.
Comparison shopping need not be difficult, especially if it's done before the need for a funeral arises. The Funeral Rule, enforced by the Federal Trade Commission, requires funeral directors to give you itemized prices in person and, if you ask, over the phone. If you visit a funeral home, the law requires the funeral provider to give you a price list itemizing the cost of the items and services offered. If the price list does not include prices of caskets or outer burial containers, the law requires the funeral director to show you the price lists for those items before showing you the items. Many funeral homes offer package funerals that may cost less than purchasing individual items or services.

20. Preparing for Your Funeral
Cemetery considerations
Religious connection
Restrictions on memorials
Incidentals
Endowment care
Veteran burial
When you are purchasing a cemetery plot, consider the location of the cemetery and whether it meets the requirements of your family's religion. Other considerations include what, if any, restrictions the cemetery places on burial vaults purchased elsewhere, the type of monuments or memorials it allows, and whether flowers or other remembrances may be placed on graves.
Most cemeteries require you to purchase a grave liner, which will cost several hundred dollars. Note that there are charges—usually hundreds of dollars— to open a grave for interment and additional charges to fill it in. Perpetual care on a cemetery plot sometimes is included in the purchase price, but you should clarify that point before you buy the site or service.
If you plan to bury your loved one's cremated remains in a mausoleum or columbarium, you can expect to purchase a crypt and pay opening and closing fees, as well as charges for endowment care and other services. The FTC's Funeral Rule does not cover cemeteries and mausoleums unless they sell both funeral goods and funeral services.
All veterans are entitled to a free burial in a national cemetery and a grave marker. Spouses and dependent children also are entitled to a lot and marker when buried in a national cemetery. Beware of commercial cemeteries that advertise so-called "veterans' specials." They may offer a free plot for the veteran but charge exorbitant rates for an adjoining plot for the spouse.

21. On behalf of AICPA and CalCPA, thank you!
It’s been a pleasure talking with you today. I realize we covered a great deal of information that, although helpful, may seem a little overwhelming. Thankfully, you have all this information in the 360 Degrees of Financial Literacy packets that you received when you walked in. At this time I will be happy to answer any questions you may have.