Volume 7 Number 3

From The Corner Office By Mitchell Freedman, CPA/PFS

In the Winter 1997 issue of The MFAC Report I made some "predictions," just for fun, of a number of things which would occur during the next four years. I didn't compare actual to projected at four years and it's five years now so let's look at the 7 predictions that I made on a variety of subjects. It's interesting how my predictions faired.

Federal Deficit - I said it would remain about the same. In 1996 the Federal Deficit was $107 billion. Subsequently we had substantial surpluses, but in light of the post September 11th tragedies a Washington Post article, on January 23, 2001 predicted that the 2002 Federal budget deficit will be $106 billion. DID I CALL IT OR WHAT?

Mexican Illegal Immigration - I predicted a slowing due to a booming Mexican economy. Well, Mexico is doing well, but the illegal immigration problem still exists.

Interest Rates - I predicted interest rates would be about the same as they were - In December 1996 the prime rate was 8.25% and in December 2001 it was 5% and at this writing 4.75%. I sure missed that one.

Inflation - I predicted an annual rate of 2.75% - According to the U.S. Bureau of Labor Statistics the inflation rate for 2001 was 2.85% - I hit this one pretty well.

Dow Jones Industrial Average - I predicted 8,500. As of December 31, 1996 it was 6,448 and as of December 31, 2001 it was 10,021 - I missed this one.

Seattle Earthquake - I predicted a 6.5 magnitude earthquake in Seattle. On February 28, 2001 there was a 6.8 magnitude earthquake in Seattle...I must be psychic.

L.A. Football Team - I predicted the New Jersey Giants would move to Los Angeles. Wrong again.

Tips and Alerts New Retirement Plan Limits for 2002 By Niko D'Oyen

As a result of new tax legislation, participants in retirement plans may be able to stash more money into their retirement plan accounts.

Here are the 2002 limits:

            (1) Permissible annual distribution at age 62

           (2) For individuals 50 years of age or older, an additional $1,000 can be added

           (3) For individuals 50 years of age or older, an additional $500 can be added

The new law is complex and you may want to seek tax advice from Mitchell Freedman Accountancy Corporation. If you need assistance with the investment of your retirement plan assets, MFAC Financial Advisors, Inc. may be your solution.

Tax Notes Watch Your (California) Retirement Plan Deductions By Tom Trent

California tax law has not as yet conformed to the Federal 2002 retirement plan limits outlined in this issue's Tips & Alerts column. However, the California Senate has passed SB657, which would retroactively conform California tax law to the new Federal limits. The California Assembly is now reviewing the Bill and while passage is expected, it is by no means a "slam-dunk" that it will be enacted. If conformity is not attained, taxpayers will not be able to deduct the new Federal amounts on their California personal income tax returns. So stay tuned to this issue. You may want to contact your California legislators to encourage them to treat tax conformity as an imperative, so that you can optimize your retirement plan contributions and your income tax liabilities.

What Children (and Adults) Need to Learn About Personal Finance By Mitchell Freedman

The Jump$tart Coalition for Financial Literacy (J$) is attempting to create a financially literate generation of young Americans. You can go to their website at http://www.jumpstartcoalition.org to learn more about this wonderful organization. To help accomplish its mission, J$ has assembled 12 principles for youth to understand. These same principles apply to adults as well. The below information has been reprinted with the permission of J$.

1. Map your financial future - Take time to list your financial goals, along with a realistic plan for achieving them. You can go places you want to go without a roadmap-but seldom on the first try.

2. Don't expect something for nothing - Be leery of advertisements, salespeople, or other sources of financial offers promising anything free. Like non-financial opportunities, if it sounds too good to be true, it probably is.

3. High returns equal high risks - Recognize that no one will pay you high interest rates on a sure thing. In most cases, the higher the interest rate offered to you, the investor, the higher the risk of losing some, or all, of the money you invest. Diversification of assets is the best protection against risk.

4. Know your take-home pay - Before committing to significant expenditures, estimate how much income is likely to be available for you. Net income, after all mandatory deductions, is more important to estimate than gross income before deductions.

5. Compare interest rates - Obtain rate information from multiple financial services firms to get the best value for your money.

6. Pay yourself first - Before paying bills and other financial obligations, set aside an affordable amount each month in accounts designated for long-range goals and unexpected emergencies.

7. Money doubles by the "Rule of 72" - To determine how long it will take your money to double, divide the interest rate into 72. For example, an account earning 6% interest will double in twelve years (72 divided by 6 equals 12).

8. Your credit past is your credit future - Be aware that credit bureaus maintain credit reports, which record borrowers' histories of repaying loans. Negative information in credit reports can affect your ability to borrow at a later point.

9. Start saving young - Recognize that your total savings are determined both by the interest you earn on those savings and the time period over which you save. The sooner you start saving, the more funds you'll be able to amass over time.

10. Stay insured- Purchase insurance to avoid being wiped out by a financial loss, such as an illness or accident. An insurance plan should be part of every personal financial plan.

11. Budget your money - Create an annual budget to identify expected income and expenses, including savings. This will serve as a guide to help you live within your income.

12. Don't borrow what you can't repay - Be a responsible borrower who repays as promised, showing you are worthy of getting credit in the future. Before you borrow, compare your total payment obligations with income that you will have available to make these payments.

The California Jump$tart Coalition (CAJ$) has been created to work in concert with J$ to improve the financial literacy of California's youth. Visit http://www.cajumpstart.org to learn more. I am a founder and the treasurer of CAJ$. If you would like to participate and support CAJ$, contact me for further information.

Heard in the Hall

Mitch Freedman was featured on ABC7.com on December 14, 2001 discussing year end tax tips. He was also featured in the December 2001 issue of Selling to Seniors discussing services needed by older clients.

On September 28, 2001 and December 6, 2001 Mitch attended CalCPA PFP Committee meetings in Los Angeles and Oakland respectively. On October 1 and 2, 2001 he attended an AICPA ElderCare Committee meeting in New York City. On October 18 and 19, 2001 Mitch chaired and was a speaker for the California CPA Education Foundation's "CPA's Role in an Aging Society" conference. On November 5 and 6, 2001 he was a speaker at the AICPA ElderCare conference and attended an AICPA Elder Care Task Force meeting in New Orleans. On November 19, 2001 Mitch gave an ElderCare presentation for the Channel Counties Chapter of CalCPA. On December 12, 2001 Mitch was a speaker at the CalCPA Business Managers Committee meeting in Los Angeles on the subject of CPAs as investment advisors.