An economical hobby

Posted on May 20, 2021May 20, 2021 by Danielle

Depending on what you choose, hobbies can be expensive. If your hobby requires a great deal of expensive equipment and travel (such as skiing or sailing), it’s going to take some careful scrutiny to fit that into a budget. It’s all going to have to come out of your discretionary budget, and only after savings have been fully funded.

I might contend that sometimes the collecting of materials for a hobby is actually a hobby in itself. Some people (ahem) can hardly resist the beauty of materials like yarn, fabric, embroidery floss, art materials…whether or not we’ll ever have time to make something out of them. In fact, making something, which means choosing one concrete creation instead of all the possible dreams, may act to spoil the fun.

However, the internet and maybe even the pandemic have taught us there are cheaper ways of acquiring knowledge—YouTube and even subscription sites are far cheaper than live lessons with an individual, or the cost of a three day conference seminar. I’m definitely not discounting the value of a live instructor, but if we’re sampling a possible new skill or trying to reactivate something we already know a bit about, it can be very economical to begin online. Online also gives you a community, no matter your location, job, previous experience, age…really, it’s opened up the world for pursuits where it can be hard to find enough people and information in one place.

I’ve seen some discouraging posts lately on some music sites. You have to be very careful to scrutinize marketing—anyone that promulgates they are the “only way to learn” while charging a hefty fee should be suspect. My strong advice is to look for a money back guarantee in case you don’t like what you’ve paid for. For example, I recently subscribed to a guitar program that I adored—for the first 30 days. Then, for some reason, the owner decided to update his well-functioning website. For one week (which I was paying for), the site was down entirely—with no extensions offered. Then, for the next 3 weeks it mal-functioned, crashed, and offered significantly less material than previously. As far as I can tell, all the “improvement” consisted of a change in theme colors. I exercised my money-back guarantee on the 59^th day, after hoping against hope that it would be fixed. Two months after, I hear it still isn’t. I feel a lot like what I felt when you have a great first date and never hear from the person again.

Having been rejected by a potential guitar teacher as pretty much too old to bother with, I’ve thought a lot about why an adult might want to take up or return to a hobby. Are you ever too old to learn something? Should teachers only be interested in young students with conservatory potential? Obviously, I believe this is defeatist, aging self-talk. After all, when possible, you should use your money on things which enhance your life. Here’s what I came up with while mind-mapping. While it’s mostly focused on guitar, perhaps it will apply to a pursuit you are considering.

Now you can recapture something you loved as a young person, but life intervened.
Now you can enjoy the sheer joy of playing an instrument without the pressure of getting into a university program. No more tryouts!
Now you have the luxury of time to perfect a piece. The process can be more important and more satisfying than any result.
You can learn to play an instrument where even the simplest pieces sound wonderful (unlike, say, violin). N.B. but if violin or French horn is your interest, you’ll put up with the sounds, as has every other learner before you.
You can get a decent instrument for far cheaper than many others (such as piano, harp).
It’s easily portable. You can play with a group or other instruments.
As an adult, your knowledge of the world of music is much larger—you’ve simply heard more than kids. If not, playing guitar can introduce a whole new world.
The instrument itself is beautiful and a pleasure to pick up every day.
You can take up a challenge to learn something uniquely beautiful and relatively uncommon that many people wouldn’t have the courage to do.

When I become disgruntled with my “lack of progress” (to where?), I plan to review this. It’s a good use of time and money to improve your life. And it doesn’t have to cost a fortune.

Are your finances your fault?

Posted on September 3, 2020September 8, 2020 by Danielle

Many of us tend to blame every disaster on ourselves. Except for the few who think everything is the other guy’s fault. Even in this pandemic, I hear a lot of people blaming themselves for losing their job, or making bad investment choices, or not seeing it coming.

If you’re making a financial plan, it’s very important to be realistic about what you can control and what you can’t. For example, you can certainly take advantage of all the job training offered you, put together a crackerjack resume, keep up your networking contacts, and try to do the best job possible, all things you can control. Yes, you’re allowed to feel a tiny bit guilty for these things, because you can control them, but you aren’t perfect.

You can’t control getting an unreasonable or sadistic boss (yes, some people are unreasonable or sick), have a change in supervisors and the new one wants their own team. You may have attained an age or pay level where the company concludes it makes sense to get rid of you and get someone cheaper. Your employer may be taken over, lose business, the university may not be able to re-open, or you’re in an industry that suffers in a pandemic. None of these events have anything to do with you, personally, and there’s little or nothing you can do about them.

Let’s look at it another way. Things you can generally control:

How much you spend.
Where you choose to live.
How much you save.
Whether you contribute to savings.
Whether you have an emergency fund.
Whether you continue to develop your job skills.
Whether you maintain your home well enough to prevent little problems from becoming big ones.
Whether you’ve established realistic goals and made a financial plan to address them.
What investments you choose.
Whether you have enough insurance to prevent catastrophe.
Whether you have an estate plan that preserves wealth and takes care of your loved ones.

Things you can’t control alone:

Whether unemployment benefits are adequate.
Accidents and illnesses (except for doing what you can to lead a healthy lifestyle)
Whether Social Security will be there for you.
Whether your employer operates fairly.
What “the market” will do in the future.
Whether you will have the perfect kid.
What college will cost.
What taxes will be.
What your home will be worth.
Whether you can depend on adequate care if you are disabled or elderly.

I’m sure either of these two categories could be expanded for many more points, but I want to make the point that the first group is things you can make individual, hopefully good, choices about—or your own individual mistakes. The second group is societal, and can only be addressed by groups of people banded together: parent/teacher associations, unions, consumer-group pressure and regulations, and political action.

You Star Trek fans will understand what I’m after. In Star Trek, individuals can still make poor choices, or rise to their highest capabilities, or be kind or cruel. But that society has organized itself economically so that no one goes hungry, everyone has access to education and housing and leisure time (and there still seems to be plenty of scope for personal expression). Perhaps most startling is the issue of disability. Technology has developed system-wide responses to most handicaps, whether blindness, injury, personality volatility, or mobility issues. Thus, although people may have handicaps, they are not disabled from fully functioning in society.

So, when difficulties arise, try to distinguish whether it’s an individual decision (or error) you’ve made—because those are often in your power to control and correct. Or is this an issue with the society you live in, and is the only solution group action or policy change?

Planning to give to charities: should you consider a donor-advised fund?

Posted on August 25, 2020August 25, 2020 by Danielle

It hasn’t been covered much, but charitable donation deductions were almost eliminated for the middle class in the tax “reforms”. You can only deduct your charitable contributions if you decide to itemize, and your allowable itemized deductions exceed $12,000 for a single and $24,000 for married filing jointly—and remember, all state and local taxes are capped at $10,000, no matter what your property tax is. If your mortgage interest is significant or your itemized deductions will exceed these caps, your charitable deductions will still be deductible. If not, nada.

There’s one exception. For the 2020 tax year, you can separately list up to $300/taxpayer as an “above the line” deduction, without itemizing. That’s not a fortune, but it’s something. But what if you give more, or plan to?

If your total allowable deductions exceed $12/24 K and you plan to itemize, then charitable donations will be deductible. Let’s say you pay $10,000 in property taxes, $14,000 for mortgage interest, and make a $10,000 charitable donation = $34,000 in itemized deductions.

But what if you’re married, with a paid off house, and your property tax is $10,000? Then you don’t get any deduction for the charitable donation, because you won’t itemize. In this case, probably the simplest way to deduct charitable donations is to bunch them into years where your itemized deductions will exceed the standard deduction, even if that means you make the donation every other year. So, with $10,000 in property tax, and $20,000 ( 2 years’ worth of donations), you’ll have an itemized deduction of $30,000—but only $6,000 benefit over the standard $24,000 deduction. You’ll also have to park the yearly budgeted charitable amount in an account somewhere, and pay taxes on whatever the probably minimal earnings are.

Then there’s the donor-advised fund, available to set up at most of the big investment houses. When you establish this fund, you put in a large lump sum, for which you get a tax deduction in the year you contribute the money. Then, you can keep it invested (and hopefully growing) until you decide to distribute it. The investment house will gleefully set this up for you, AND charge you a yearly management fee of about .60% to park it in the investment(s) you select. For that, they’ll faun all over you and tell you what a good person you are. But this is another one of those instances where there’s money to be made off of you, so why not? Even better, they’ll work with your financial advisor, who will also charge you a fee. So just let me know, okay? (not!)

For the most part, it seems worthwhile to me to simply park your donations in your own investment account and avoid the .60% fee. You can always donate the appreciated investment and avoid capital gains taxes when you make the donation (if that’s a consideration). You’ll have to pay tax on any earnings (dividends, interest), but you can choose an investment with very low or no payouts of this kind. If this is a donation that you make pretty regularly, there probably won’t be that much in earnings anyway.

The one situation where I can see that a donor-advised fund makes sense is if you 1) receive a large, taxable payout in one year (as with a taxable executive compensation payout at retirement), 2) have charitable intent anyway, and 3) have sufficient taxable earnings in the same year that you can use the entire donation as a deduction. It’s not going to be a direct trade off—your deduction won’t reduce your taxes in the same amount, but you will get a break IF YOU INTENDED TO DONATE ANYWAY. Or maybe you think you’re a savvy enough investor that you can grow the money better and faster (over and above the management fee) than the charity’s endowment team can. Um.

Other than that, I think most charities would rather have the money now. Or every other year or three. In the meantime, you can always designate one of your investments or investment accounts as earmarked to be donated, keeping it invested until the year when you can itemize.

That’s the story as I see it. If anyone can point out other situations, I’d be happy to hear about them.