09/21/2012

Edwin StephensLong-Term Investing & Financial Planning for LEOs
with Edwin Stephens

How will the 'fiscal cliff' affect LE families?

The 2013 economic forecast for the United States will require families to sacrifice more and exercise wise fiscal discipline with respect to their household budgets

Will the potential “fiscal cliff of 2013” in the United States cause family households to manage their already tight budgets even more conservatively? The short answer is a resounding, “Yes.”

For the last several months, Republicans and Democrats have been posturing their way towards the edge of the so-called “fiscal cliff,” a mix of nearly $560 billion in tax hikes and spending cuts set to go into effect in January 2013.

In an August 2012 column, John Hudson business writer for The Atlantic Wire, stated that http://www.theatlanticwire.com/politics/2012/08/fiscal-cliff-isnt-just-game-any-more/56062/ “it was thought that flying off this cliff would cause a “modest recession” in the first half of 2013, but it turns out, the consequences may be significantly worse.”

USA’s Economic Outlook for 2013
According to a new analysis by the non-partisan Congressional Budget Office, the country will be plunged into a severe recession if Congress fails to act on the so-called fiscal cliff.

The Congressional Budget Office says the so-called fiscal cliff would slice up to 4 percentage points off growth next year — causing the economy to contract in the first half — if all the deficit-slicing measures occur at once. Economists say the fiscal cliff has created uncertainty among businesses and consumers that’s already hindering growth.

It is projected that in 2013 state and local governments will already have tight budgets to manage due to a shortfall in low tax revenues from businesses and individual property taxes.

The employment outlook will not improve if Congress does not extend many of the Bush tax cuts.

However, the fiscal cliff will be avoided if the politicians find a way to compromise on the tax and spending cuts.

The politicians must pass legislation that will assist American families through these tough economic times.

Needs Versus Wants
American families will have to make some tough financial decisions in 2013 as they may be forced to stretch their budgets and do more with less household income.

Understanding the difference between your needs and wants is a vital part of saving money. To save money and live on a budget, it helps to really understand your priorities and your family’s true household needs.

When creating a spending plan and trying to live with limited funds, it is helpful to really consider what is a need and what is a want. To get started, make a list with two columns — Needs and Wants — and think very carefully before writing down items in each category.

First, decide if you could survive without this or that. Chances are, you can and will. Another way to think about this list is through fixed versus flexible expenses. Some bills are the same every month, like the rent or mortgage (fixed); while others such as dry cleaning, lunches
and gifts, change (flexible). One must make tradeoffs. Creating a family spending plan will require you to prioritize your needs from your wants.

Budget Your Lifestyle on Less Income
For most people, the word “budget” conjures up thoughts of penny-pinching and the unpleasant task of crunching numbers. This could not be further from the truth. A budget is at the cornerstone of a solid financial foundation, regardless of your situation, and it is not that hard to do.

The biggest fear that most people have when creating a budget is that they will need to suddenly cut back on all of the fun spending — things like the occasional coffee or dinner out, movie night, or even the trip to Grandmother’s for the holidays. It is impossible to know what expenses need to be cut, if any, without putting together a budget in writing.

Now that you have a budget, you can adjust your spending or saving in certain areas to improve the situation. Oftentimes you will realize that by just making a few small adjustments to your spending habits, you can significantly improve your lifestyle. This may mean cutting back on one of your magazine subscriptions, eating out one time less a month, or even viewing a matinee instead of seeing a movie in prime time.

Typically, just saving a few dollars here and there can be enough to not only make sure that your spend less than you earn, but also apply a few extra dollars to things like high-interest credit card debt or your retirement savings.

Plan for Big Ticket Purchases
In 2013, it will not always be easy to postpone buying things that you really want. However, before you make an impulse purchase or signing contracts to make a big purchase,
it is important to invest time to explore the rationale for these decisions and how they may impact your other financial objectives.

When confronted with a decision about making a big-ticket purchase, ask yourself:

• What am I willing to give up in order to have this item?
• Is spending money on this big-ticket purchase really worth it?

Finally, if your answer is yes, and you do decide to make the big-ticket item purchase then you do have to be willing to ask yourself what sacrifices are you willing to make. For example:

• Are you willing to work 20 hours of overtime per week for six months to pay for your big-ticket item?

In short, people will have to sacrifice more within their households with less income. In 2013, family financial forecasting and budgets ultimately will result in people exercising fiscal discipline if they want to live a good quality of life.


NOTE: Please go to www.CommodoreEds.com. For more sound investment advice, visit Edwin Stephens’ website at www.policeone.com/columnists/Edwin-Stephens/. Securities transactions through McClurg Capital Corporation. Member FINRA and SIPC.

About the author

Edwin K. Stephens is the Managing General Partner of The Stephens Group, an investment and asset management firm he founded in January 1993. The Stephens Group helps individuals, pension funds, public agencies, and private corporations with their financial planning needs. The firm’s objective is to provide good sound advice that is in keeping with its philosophy of maximizing profits through conservative fiscal management. Stephens is a licensed Series 6 Registered Representative. He is an Insurance Agent who is licensed in both California and Arizona. Stephens, who has previously authored articles on financial management and investment strategies for the San Francisco Police Officers Association Journal, counts among his clients many law enforcers and other public safety professionals in the San Francisco Bay. Stephens conducts financial planning seminars throughout the San Francisco Bay Area and Arizona. Stephens received a degree in English Literature from San Francisco State University in 1983. Securities transactions though McClurg Capital. Please go to www.CommodoreEds.com.

Contact Edwin Stephens.

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