Pete the Planner

Understanding Tax Increment Finance (TIF)

I'll be the first to admit I don't know everything. Tax increment finance (TIF) is one such area. I like saying TIFs so it would make sense for me to actually understand what a TIF is. This week on The Pete the Planner Radio Show I interviewed Rob Kendall, Brownsburg Councilman, about TIFs. He's a smart guy, so I'll shut up and let you hear all the information from him. 

TIF stands for Tax Increment Finance.The best way to describe TIFs is to talk about your property tax bill. You may not look at it too closely, but if you did you would find the taxing entities listed out, such as the library, the town of wherever you live, schools, etc. This is where your property tax money goes. In a TIF district, the taxes from commercial properties or any building taxed at 2-3% go into a TIF. The TIF is a specific fund the purpose of which is to pay for large infrastructure projects like laying sewer lines and other necessary projects. The reason TIF districts are so necessary is because in a state where there are property tax caps the general fund will be lacking. If money isn't raised through TIFs it will be difficult to find or raise the money necessary for infrastructure projects. The TIF committee that manages the funds is also highly accountable. They must reapply and be reappointed every year. And if you don't like the committee, you can reflect your vote as you elect the mayor and town council members. This is a pretty complex topic and I don't pretend to be an expert, although Rob did a great job of explaining it. I highly recommend listening to the podcasts above for more information.

To hear more from The Pete the Planner Radio Show be sure to check it out on Sundays at 4:00 pm on 93 WIBC

My “60 Days” Experience

I'm excited to share this guest post from Justin Montour at Elfcu. He and his wife recently worked through my 60 Days to Change program and hilarity ensued. Enjoy!

Sixty days ago I thought I had a pretty good grip on my family finances. I was making all monthly payments on time and paying extra toward our smallest student loan. We even had decided to lower my internet and cable package to the lowest level, which cut our bill in half. Actually, my wife made this decision for us. She said getting rid of DVR “wouldn’t kill me;” however, when I pleaded my case and asked, “Why risk it?” – it disappeared. Let’s not reopen that wound.

When Elfcu challenged its members to the “60 Days to Change” contest I admit my first thought was, “Piece of cake!” Then I ate that piece of cake and finished reading the rules and thought: “That sounds easy!” I had read Pete the Planner’s book about budgeting, heard him speak, followed his blog, friended him on Facebook, tweeted him, and superimposed him into my wedding photos. By internet standards we were best buds.

For the first few weeks this contest was no contest. We didn’t have any family loans or need any refinancing, and our credit history was clean. Pete took the gloves off around week three. He wanted us to challenge the abundance mentality of keeping too much money in our checking account, which reduced the balance in our account significantly. He used the metaphor of toilet paper (how much you use with a full roll versus a near-empty roll) to describe the “scarcity principle.” This concept is designed to make you stop and consider all the ancillary purchases you make throughout the week. I thought having some padding in our checking account was a benefit of being above-water in our financial lives, but it turned out that same padding was giving us permission to buy lots of little things that we ultimately didn’t need. The first week after lowering our balance we calculated over $65 worth of skipped purchases (beer, bubble gum, two fast-food meals, etc.) that we had saved just by increasing our awareness of our balance and running lean.

I was floored! It may not look like a hefty sum but this was almost exactly the amount we were saving monthly when my wife pulled the plug on our (my) DVR. Suddenly it was clear to me that we had some work to do. Maybe I hadn’t trimmed all the fat from my budget. Maybe I could be putting more toward our student loan debt. Did I want my DVR’s sacrifice to count for nothing? Could I let its death go unavenged? I decided we would redouble our efforts and by the end of the “60 Days to Change” we felt like we were at a whole new level of financial wellness. We had fully stocked our emergency fund, adjusted our cell phone data plan and paid off our smallest student loan with the excess. I know what you’re thinking: “with all the other savings, did you get your beloved DVR back?” It turns out I could live without it and really enjoyed throwing the extra savings at our debt. I even contemplated canceling cable completely, but apparently I needed it to watch “The Bachelor” every week. Go figure.

Maybe you missed out on “60 Days to Change” because you are a new member. Maybe you didn’t sign up because you didn’t want anyone to know your deep, dark financial secrets. Maybe you skipped out because you felt your finances couldn’t get any better than they already are. Whatever your reasons, if you didn’t accept the “60 Days to Change” challenge, then try this one: put your Elfcu to the test. Bring your financial situation to us and see if we can help you consolidate some debt, free up cash flow or redirect your investments to better work for you. Share your financial goals, concerns, and struggles with us. Trust us, because we have been building lifelong relationships with our members and supporting their financial success for almost a century. We can’t wait to hear from you!

Justin Montour (or J-Money, as he is called around Elfcu) is originally from New Hampshire. He likes reading, writing, and Mountain Dew. He's been married for three years, and he and his wife enjoy watching movies, going to concerts, making new friends and seeing new places.

Awkward topic: You need to cut off your kids

You may think what I teach is obvious, and in some ways you would be right. Math is simple and irrefutable. But then so is the evidence against smoking and you still see people smoking all the time. You may know getting into credit card debt is bad, but it doesn't stop you from wracking it up like it's your job. We are constantly doing things we know are bad for our financial lives. This is why I don't only teach math, I also teach about money behavior. How to identify it, redefine it, and reestablish it. Which often means things get awkward. 

The entanglement of family and money is one such topic. I'm talking specifically about parents and children being financially entangled beyond a typical timeline.

As a parent your role, from the very beginning, is to step in and fix problems, no matter how ridiculous (I'm looking at you toddler years). As your kids grow older you might be able to work in a moral lesson, but you are still there to solve the problem. This is a very hard habit to break. So hard in fact that most parents just don't. They are there when their 25 year old son's rent is late or their 30 year old daughter needs $5,000 to start a new venture. You are there to support and love them, except… financially supporting adult children isn't love. I warned you this would get awkward! 

And let me be clear, when I talk about supporting adult children I'm not just talking about paying their rent, I'm talking about extravagant gifts too. If your kids expect cash for every holiday they will become dependent on the income. Oh but we haven't even gotten to the awkward part yet. Ready? As parents, it's all your fault. Why? Because if your kids are coming to you with cash flow problems it means they aren't resourceful, and how did they get that way? Because you didn't teach them how to be resourceful. Forgive the allusion to an old maxim, but if you give your kids money they'll just keep asking for it, although if you teach them how to be resourceful they will be able to manage their funds on their own.

Just like trying to quit smoking, cutting off your kids will take time and a lot of self-discipline. Here are 3 tips for helping you manage the transition:

1. Impart knowledge. There's no need to cut them off without a lifeline. The lifeline here is knowledge. Teach them how to budget, remind them to spend less than they make, etc. If they are frequently running out of money, chances are they don't even know the basics.

2. Love them in other ways. Instead of cash gifts, give them basically anything else. Seriously, anything is better than cash.

3. Say no. Practice with me, Mom, can you help me pay my cell phone bill? NO. Dad, can you lend me $300 for my car payment this month? NO.

You've got this.

Need further inspiration? Listen to this segment from The Pete the Planner Radio Show on WIBC

Email question: Retirement planning is unfair, how do I get ahead?

Pete,

 

I read your article in Indy Sunday star. How lucky to retire at 52 with the choice of $52,000 or $500,000 and most likely never had to save a dime. The question is more real to the normal population. What do you tell a hard working 35 yr. old man with a good job and no pension. I have a house and car mortgage and 2 kids to feed. Wife makes a few bucks but she watches our kids. My question is I want to save for retire but where do we put our money. The company has 401K plan but how do I trust the stock market?  I really don't want to invest my hard earned money and wake up some morning to something that may fail. The stock exchange could care less if I jumped off a tall building. Look forward to your reply.

Doug

 

Eesh Doug, you're a little salty huh? I knew writing the column you are referring to, where I discussed options for someone with a pension, would only apply to a small percentage of readers, but I was answering a specific question. Just like I'm going to answer your question, even though not everyone feels the same way you do. Or maybe they do. Who knows?

 

Here's the thing Doug, I also don't have a pension, so I sort of understand where you are coming from. On the surface it seems unfair, but if we dig a little deeper I think you'll agree it is actually quite fair. 

 

Only 15% of the private sector has a pension. I am not in that 15% and neither are you. But your accusation that those with a pension didn't have to save a dime is unfounded though. The thing with people who have a pension is it was a part of their initial contract and benefits package. It's called deferred compensation. They work hard for their pension. You may be frustrated because you don't have one, but don't take it out on people who do.

 

I am also in my mid-thirties with 2 kids, so I understand your frustration about saving for retirement, but there's something you and about 99.99% of people get mixed up about retirement planning. Everyone is too focused on accumulation. I wrote an entire book on this subject (Mock Retirement), which if you want more information than I can give you in this post, is a great resource. Retirement planning really should be about breaking your dependence on your income, and secondarily, accumulation. Most people live on 100% of their income. If they get a raise, they absorb it and continue to live on 100% of their income. But let's say you are saving 20% of your income each paycheck. You're probably saving 20% to accumulate money, but the real impact of this saving is not the money itself but the fact that you are now living on 80% of your income. You've broken your dependence on 20% of your income. This is what retirement planning needs to be about. Work towards cutting your dependence on your income each year, increasingly more so as you get closer to retirement. This will not only help you accumulate money but also prepare you for the inevitable pay-cut in retirement.

 

To address your stock market concerns all I can say is I won't convince you to invest. It's not my business to force your risk tolerance one way or the other. All I can do is provide you with a few facts and you can do with them what you will. Since 1970, the S&P 500 has only been down 9 times. Nine times in 44 years. And, all of those 9 times the market has recovered within 5 years. And you're right, the market doesn't care about you, but neither does your car or your desk because they are inanimate. The stock market is just a tool. A tool you can use to your benefit. I actually did a Monte Carlo simulation a few years back that proved 100% cash retirement savings is actually more risky than a mix of 60% stock and 40% bonds. Why? Because the real danger isn't losing your shirt in the market, it's running out of money. Your retirement, more than anything else, is threatened by you using all your funds before you die. 

 

So there you go Doug. That's a pretty long-winded response, but I want to reiterate, being angry at the stock market and people with pensions really isn't going to do you any good. Keep working hard, start breaking your dependence on your income, and you'll be good-to-go. 

 

I also answered your question on The Pete the Planner Radio Show on 93 WIBC this week. Listen to it here:

What’s your vice?

No matter how tight you keep your budget, there is always some thing you are apt to overspend on. A vice is defined as a weakness in character, but for our purposes we'll go with a more lenient definition. Our new definition of a vice is it's something you admit is important enough to you that you allow yourself to spend frivolously on it. At some point we are going to work the word 'moderately' in there but are you with me so far? If you are, your vice probably popped into your head immediately. Since I brought up the topic, I'll share mine, my vices are clothes and eating out. And as much as I'd love to just go crazy spending on these things, I limit myself. One, because if I didn't it would drown me, and two, by limiting my spending I increase my enjoyment when I do spend on them.

You should be able to name yours quickly, but to help jog your memory here are a few common vices:

- Cars

- Home decorating

- Shopping

- Dining out

- Beer/wine/alcohol

- Hobbies

- Exercise

- Music

- Movies

- Travel

- Technology

- Pets

- Socializing 

You're probably thinking, how is exercise a vice?? But hear me out. Per our new definition, a vice is something you spend frivolously on, meaning you are spending more on your vice than is likely necessary. A gym membership is something which can easily fit into many budgets, but if you're a member of the fanciest, most pimped out gym in the city, chances are you're spending more than you need to. And that's okay, as long as it fits my vice budgeting criteria. Of course, there are criteria! Don't act surprised.

Vice Budgeting Criteria:

- Moderation. I could just stop here, but since we're talking about vices you probably aren't thinking clearly when faced with your vice of choice. Moderation really is going to be your friend here. If you use all your powers of will, and manage to spend in moderation when it comes to your vices, you can enjoy your vice while avoiding going over budget, or worse going into debt.

- Use 50% of your surplus. If you are meeting all of your obligations each month, including paying all bills, saving money regularly, and contributing to your retirement account, then you can spend 50% of your surplus each month on your vice. Why 50%? Because you need to limit yourself. Whether it's a college fund for the kids or a down-payment for a house, the other 50% needs to do something for your future. But, there's a catch with the 50% surplus rule…

- Don't spend over 5% of your take-home pay on your vice. If you bring home $4,000 a month and your monthly surplus in a given month is $500, and you use 50% of this on your vice that's actually over 6% of your monthly take-home pay. This is too much to spend on a vice. So here's the rule:

Net Monthly Income x 5% = Your Vice Budget

You just have to remember, you don't get to spend 5% of your budget on your vice, unless it's surplus. This isn't some extra budget category you get to add just because. This is a reward for spending less than you make. Let me put it this way: If you bring home $4,000 a month and your surplus is only $200 a month, you don't get to use the whole $200 on your vice. You have to first divide it in half which leaves you with $100 to spend on your vice and $100 to spend on other goals. Conversely, if we go back to the original example where you have a $500 surplus, you would use $200 for your vice and $300 for other financial goals.

It's a lot of rules, but here's the thing, by definition your vice is something you are buying with a 'who-gives-a-crap' attitude. So you need to learn and know these rules by heart so when you are faced with a major vice purchasing scenario the rules will kick in automatically. Spending smarter is the best way to get what you want all around. 

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