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USA Today has an article on how my generation is not saving enough for retirement. While you could truthfully strike “my generation” from the above sentence, it’s particularly an issue because we have time to know and shouldn’t be having this problem.

Nearly 80% cite daily living expenses as a barrier to saving. While I know this can be a legitimate issue, there are ways to cut living expenses to the point where you can save. I, personally, just began putting money into my 401(k) again after buying a house and the birth of my daughter put a crimp in our budget (my wife is a teacher with a pension, so she was automatically saving). But we made every attempt to get back to putting into my 401(k) as fast as possible once my employer began offering a match.

61% cite “lifestyle purchases” as reasons not to save. This would be buying a nicer car, a big freaking tv, the latest iPod, etc… Why is this important? Compounding!

Here’s an example from Choose to Save, a public education program. Suppose you want to save $100,000. If you have 20 years, you can reach your goal by saving $3,272 a year and earning a 4% annual return. Shorten your time frame to 10 years, and you’ll have to save $6,559 a year and earn 8% annually to achieve the same goal.

It gets worse when you have 40 years to save before retirement but put it off until they are 50 and are unable to match the amount they would have earned. About.com has another example of this power.

So, Gen Yers. Save now. The more you save now the earlier you can stop working. There, that should be enough incentive.

I love the advice of the Motley Fool. They are usually spot on when talking up value stocks (though they thankfully abandoned growth stocks after the tech bubble). However, they sometimes forget they are talking to a lay audience.

The advice that they give is impeccable. However, not everyone has the ability, or time, to not only become an expert in one industry but to read through SEC filings. Abandoning Yahoo! Finance or other screeners just isn’t an option for most people. So, what do they suggest? Buy their newsletter! (of course)

Instead, they should be telling you to rely on time-tested ideas like finding stocks with lower P/E ratios than return on capital ratio. Stick to companies you’ve heard of. Do a Google News search for any bad news out there. Look at news stories on Yahoo! or MSN Money to see if anything has come out that would knock the stock down.

Or, conversely, you could invest in mutual funds or ETFs that invest primarily in dividend stocks and let professionals do the work for you. That’s my suggestion and that is what I do.

The WaPo has an article on the median American family from a financial perspective. And it ain’t pretty.

It has about $3,800 in the bank. No one has a retirement account, and the neighbors who do only have about $35,000 in theirs. Mutual funds? Stocks? Bonds? Nope. The house is worth $160,000, but the family owes $95,000 on it to the bank. The breadwinners make more than $43,000 a year but can’t manage to pay off a $2,200 credit card balance.

How do financial advisors rate the median family? They would prescribe the typical cut expenses, save more mentality. We keep harping on it, but it really is the only way to build wealth. Less than 50% of Americans have a retirement account. While I don’t think that includes pension accounts (the article doesn’t say), that’s still an astounding number given the shedding of pensions lately.

Case in point. We’ve replaced our furnace already this year. We just got word that our roof and siding will have to be replaced thanks to a freak February hailstorm. Luckily, we have insurance and have an Aon Home Warranty, so we’ll only pay $1,100 of the total $15,000 cost. But how many families have $15,000 for emergencies? We’d use most of our savings to pay the bill but would likely have to take on little debt. How many would be so lucky? Certainly not the median family listed above.

The WaPo has an article on the future of retirement benefits and the discussions now taking place.

One of the ideas floated includes an automatic IRA for employees that don’t have pension benefits through their employers, either in the form of a true pension or even a 401(k) plan. The idea would be modeled on the Federal Employees Thrift Savings Plan and would allow employees to opt out if they do not want to participate. However, employees would initially be enrolled to take advantage of inertia of most employees.

There are several obstacles. If they make it truly automatic, it would work a lot like Social Security and would essentially tax the poor even more. However, it is the poor that need the help the most, which is why individual Social Security accounts are such a bad idea. If they don’t make it truly automatic, many lower income employees would opt out so that they could pay for things like food and rent. Again, these are the exact employees these IRAs are supposed to target.

On the other side, the reason that employers don’t provide 401(k)s are anti-discrimination rules to ensure that highly paid employees are not treated better than everyone else and the costs involved of paying a trustee for the plan. This idea would would require all employers offer automatic IRAs, but would allow a tax credit of $250 to offset start up costs. Also, since the plans are straight IRAs, there would be no regulations on highly compensated employees or contributions to be made.

All this might work, but it would really be better to not add to the confusing number of retirement options. One of the great ideas the GOP has had in the past few years was to combine the various retirement accounts into one option. I would love to see everything combined into a 401(k) account with the 401(k) limits. It would level the playing field and not handicap workers just because they work for an employer that doesn’t offer a 401(k).

Consumers once again spent more than their incomes in January.

Personal incomes rose 0.7% in January, but spending rose 0.9% meaning consumers spent all of their raises and then some in January. That, in and of itself, isn’t entirely bad. However, coupled with the fact that we were already at a negative savings rate, that means consumers were spending more of their savings in January.

This is not sustainable. The fact that it hasn’t happened since the Great Depression should be the first indication of that. People need to save, otherwise they’ll be sorry once their savings are depleted and they just can’t have that plasma screen they NEED RIGHT NOW!

CNNMoney has a good reminder that your abode isn’t the only thing that needs spring cleaning. Your finances could also use a good look-see.

Their five suggestions are:

* Shred paperwork you don’t need. Bank/Credit Card statements after one year, paystubs other than your latest. Titles and CDs as soon as you get rid of the investment.

* Consolidate all your IRAs into one IRA so that you only need to track one set of investments.

* Consolidate savings accounts into one bank. Same reasons as consolidating IRAs.

* Close unnecessary credit cards. Keep any older than five years and one from two of the major issuers (Visa, Mastercard, AmEx, Discover). I would suggest closing any store credit cards you don’t use frequently as they could be fodder for identity theft.

* Close insurance gaps. Review insurance policies and wills to see if any life changes necessitate changes in coverage.

All good ideas that people put off for far too long (like cleaning out the garage). Take one weekend to clean the garage and one weekend to tackle your financial garage. If you need help, certified financial advisors can help. But, as always, make sure they have some sort of certification.

I am participating in the Carnival of Personal Finance this week. Go check out the Investimist post as well as all the other excellent posts. I will likely be posting on several in the upcoming week.

For anyone checking out the Investimist for the first time, welcome and get comfortable. I can be reached by leaving a comment (I will always try to respond). I welcome comments (and even the occasional criticism).

H&R Block had to restate the past two years of earnings due to “tax problems”. The media, including this Reuters article takes it as being that they messed up on their own tax returns. I can tell an accountant didn’t write the article.

What H&R Block fudged made an honest mistake on was in its accounting for income taxes. The story says that it’s state tax rate used for its financial statements was too low and they just figured it out thanks to Sarbanes-Oxley (SOX).

Anyone that has worked on a corporate tax footnote calculation is smiling at that. Everyone knows the state effective tax rate is too low but a song and dance happens every year to show that it’s just a one year anomaly. CPA firms are scared to death at getting sued out of existance thanks to SOX, so they’re not letting clients get away with the wink, wink, nudge, nudge anymore. And that’s why, as the article notes, that there are a lot of “it’s an honest mistake, honest” restatements happening thanks to the effective tax rate.

UPDATE: No, it looks like H&R Block actually used the wrong state tax rate on its tax returns and will now owe $32 million in back taxes. Because they owe taxes and have to restate earnings down, my guess is that they used too low a rate on the financial statements and too high on its tax return. How could that be? hmm….

MSN Money has an excellent article on not biting off more house than you can chew. Any first time homebuyer has heard it from older relatives: “buy a little more house than you can afford right now, you’ll grow into it”. The article lists reasons why that advice worked last generation, but doesn’t translate well now.

• Inflation. Rapidly rising prices in the 1970s and early 1980s meant you could count on hefty annual raises. Today, you can’t rely on double-digit income boosts to make your mortgage payment less of a burden each year.
• Two-income couples. A generation ago, single-income families were more common. If the breadwinner lost a job, the other spouse could go to work to save the house. With more two-income families needing both paychecks to make the mortgage payment, there’s no one on the sidelines to take up the slack — unless you put the kids to work.
• The lending industry. Thirty years ago, it was pretty tough to get a mortgage for more than you could really afford. Today, it’s fairly commonplace. More lenders have loosened their criteria, knowing that the vast majority of their borrowers will do whatever it takes to pay their mortgage — even if it means trashing the rest of their financial lives. 
• Retirement. A much bigger proportion of the workforce was covered by traditional, defined-benefit pensions 30 years ago — which means they didn’t have to save massive amounts of money on their own to have a decent retirement. Today, the onus is typically on you to carve enough out of your budget to fund 401(k)s and IRAs.

All of these are great points, but it doesn’t help you figure out how much house you can truly afford. There are a few tables to figure out how to calculate how much house you can afford, but I prefer the budgeting method.

Do a budget for six months. That is a long enough time frame to start to figure out necessary monthly expenditures (one year would be better). Using that data, figure out what you can truly afford to spend monthly on a house. Subtract 10% from that amount to give a little monthly wiggle room. Now, subtract $200/month for taxes and insurance (or figure out an approximate amount for houses in your area). Take that remaining amount and plug it into an online calculator to figure out how much house you can afford.

One important last step, though. House repairs generally cost 1-2% of the value of the home each year. So, if you purchase a $200,000 house, expect to sock away at least $2,000 per year for home repairs. Take this amount into account and re-calculate the house you can afford. This will give a little more wiggle room if the house needs major repairs, or if you want to replace carpeting or tile.

We went through a similar calculation when we bought our house. We ended up spending a tad more than we calculated initially, but the house came with a Aon Home Warranty for the first year, which gave us breathing room on repairs. It allowed us to allow our salaries to catch up and gave us a little cushion on repairs.

That’s just my suggestion, however. There are tons of resources on the internet on how to determine how much house you can afford. I will suggest one more thing, get a traditional 15 or 30 year mortgage and avoid the interest-only and other bizarre mortgages that have cropped up in the past few years. It will skew your calculations and could lead to a greater chance of default and selling the house for a loss. That’s not good.

CNNMoney’s “Ask the Expert” column highlights one of the glaring weaknesses of the “consumer-driven retirement” idea. A worker just moved from a job that offered a 401(k) to one that doesn’t. They were dutifully socking away the max under their 401(k) plan ($18,000 including catch-up contributions) but now is wondering what they can do without the 401(k).

The only answer is the IRA or Roth IRA, which allow a maximum contribution of $5,000 per year. That leaves $13,000 on the table every single year. Just because the worker happens to work for a company that chooses not to offer their employees a 401(k).

His suggestions are to invest in tax-managed funds and ETFs, mutual funds that trade like stocks. Both of these would keep taxes to a minimum. In the first case, the fund manager does not trade often or takes losses when appropriate, both of which lower the required capital gains distributions (which are taxed). ETFs trade like stocks and so capital gains are only taxed when the ETF is sold.

Additional options include index funds and tax-exempt funds. Index funds are lightly traded in because the composition of the major indexes rarely change. Tax-exempt funds are funds of municipal bonds that are exempt from Federal taxation (and sometimes state taxation as well). Municipal bond funds have lower returns, but when the tax benefit is taken into account, usually return 5-6% per year, much below the average 10% return of stock funds.

Those are your options, which is why a good 401(k) is a great benefit for employees. My employer just switched from a crappy one to a great one. It’s nice not only having a 3% match, but to be able to invest in funds with high returns and low expenses, rather than the other way around.