It is possible to determine the class a person comes from by their attitude toward money. You can spot a spendthrift a mile away before they spend a single penny. The same is true of frugal folks. You should also note that wealthy people are more frugal than middle class families. There are exceptions to the rules, but they are rare. Frugal people gather a million dollar plus liquid net worth in a relatively short time and no one knows it by the way they act. Poor folks spend what they can to look richer and the middle class spendthrift lives beyond his means on borrowed money ( and borrowed time) exuding the illusion of wealth.
I know people that carry a card in their shirt pocket that lists what they earn at their job by the year, month, week, day, hour, minute, and second. Tell said person to buy a soda from a vending machine and you will get a quick answer that they need to work just over two minutes for that one soda.
Here is what the card looks like:
$60,000/yr
5,000/mo
1153.85/wk
230.77/day
28.85/hr
0.48/min
.008/sec
The example is a hypothetical person, not a real person or client. However, a lot of people make $60,000 per year. Adjust the numbers to fit your personal situation.
These experiences pushed front and center as I started reading Jeff Yeager's latest book, The Cheapskate Next Door. When he states in chapter one that he knows people that carry an income card in their pocket a few clients came to mind. Every one of these clients is well off or wealthy with a liquid net worth of seven figures or higher.
My dad always said, "Son, it is not what you make; it is what you do with what you make." It took me forty years to figure it out. It is easier deciding if you want to spend money when you can equate it with how much time you will spend at work earning it. Spend $50 and you need to work another two hours.
The slow economic recovery has people thinking about money in ways not done for decades. It is survival mode for many. When unemployment is about to run out it takes desperate measures. Why wait. Take the necessary steps now so desperation is averted later.
It is always a good idea to wait before making a purchase. Think through what it will really cost you in life spent at work paying for it. And heaven forbid you pay interest to pay for a toy. Many folks pay a third or more of their income on their home. That means you spend nearly three hours at work every day just to pay the loan. Is it worth considering a smaller home and taking those extra hours with family? The choice is yours.
Try this for a week only. I do not want a lawsuit if someone goes into septic shock on my advice. Write down your income by year, month, week, day, hour, minute, and second. Keep it with you at all times. Before every purchase anything, check your chart to see how long you need to work to pay for the purchase. I bet you will put several items back on the shelf. Then you can cut your hours at work or retire years or decades early. Like I said, the choice is yours.
Showing posts with label personal finance. Show all posts
Showing posts with label personal finance. Show all posts
Wednesday, May 11, 2011
Tuesday, May 10, 2011
The Cost of Working and the Myth of Inflation
As an accountant I like to chop things into little bits to understand the data. A balance sheet or profit and loss statement provides valuable information about a business. Chopping the financial statements into bits gives me a better view and understanding of the inner working of the firm; comparing earning from month-to-month or year-over-year shows if the business is growing and if profitability is on track.
Individuals face the same financial decisions businesses do. The income and expense categories are different, as they are from business to business. Let me illustrate a different way of reviewing your personal finances. You drive to work daily and fill the car up with gas every week or so. Most people would view this expense as a $50 fill-up when the expense takes place. This gives a broad and deceptive overview of the cost of going to work. If we chop the data we get this: gas is around $4 a gallon as I write and if you drive 30 miles round-trip to work and your vehicle gets 30 miles to the gallon, it costs you $4 a day just to drive to work. If you drive an SUV it gets very expensive fast. (I used easy numbers. Here is the formula: price of gas/vehicles MPG=cost of gas per mile driven x miles driven=cost of trip.)
We can break this down even further. Four dollar gas in a vehicle that gets 30 MPG used 13.3 cents of gas per mile. This cost excludes all other auto expenses (depreciation, insurance, tires, oil changes and repairs). If you had to drop 13 cents into a jar every mile you drove, would you view gas price differently? Would you change your driving habits? Maybe drive the speed limit, coast into stops, and accelerate slowly? Hard research proves doing so increases fuel efficiency by 20% or more. That would cut the cost of gas per mile by 2.66 cents or about $200 per year just driving to work. Two hundred dollars is a small sum, but added to multiple area of living expenses grows to a tidy tax-free sum. (You do not pay taxes on reduced personal costs.)
What does inflation have to do with this? First, inflation is difficult to calculate. If car prices remain stable but the new models contain extra features, is this not deflation? Your new iPhone has more apps or more free minutes than the last cell plan for 10% more. Is this inflation or more purchased stuff in the form of a package deal?
Inflation in a single product in theory changes people's behaviors. Gas price goes up so the vacation in closer to home or cancelled. The drive to work is slower. Conservative driving can increase gas mileage 20% which equates to an 80 cents drop in the gas price for you with $4 at the pump prices. Higher beef prices leads people to buy more chicken. It works with most products. If one price goes up a replacement or substitute is found.
Thinking about what things really cost in the most basic units provides additional information to manage your finances. With the economy struggling and inflation in food and energy, it is a good idea to manage money better than ever. You will reach your goals quicker when you know where you started, where you are, and where you are going. It is a good idea to understand what each step costs.
Individuals face the same financial decisions businesses do. The income and expense categories are different, as they are from business to business. Let me illustrate a different way of reviewing your personal finances. You drive to work daily and fill the car up with gas every week or so. Most people would view this expense as a $50 fill-up when the expense takes place. This gives a broad and deceptive overview of the cost of going to work. If we chop the data we get this: gas is around $4 a gallon as I write and if you drive 30 miles round-trip to work and your vehicle gets 30 miles to the gallon, it costs you $4 a day just to drive to work. If you drive an SUV it gets very expensive fast. (I used easy numbers. Here is the formula: price of gas/vehicles MPG=cost of gas per mile driven x miles driven=cost of trip.)
We can break this down even further. Four dollar gas in a vehicle that gets 30 MPG used 13.3 cents of gas per mile. This cost excludes all other auto expenses (depreciation, insurance, tires, oil changes and repairs). If you had to drop 13 cents into a jar every mile you drove, would you view gas price differently? Would you change your driving habits? Maybe drive the speed limit, coast into stops, and accelerate slowly? Hard research proves doing so increases fuel efficiency by 20% or more. That would cut the cost of gas per mile by 2.66 cents or about $200 per year just driving to work. Two hundred dollars is a small sum, but added to multiple area of living expenses grows to a tidy tax-free sum. (You do not pay taxes on reduced personal costs.)
What does inflation have to do with this? First, inflation is difficult to calculate. If car prices remain stable but the new models contain extra features, is this not deflation? Your new iPhone has more apps or more free minutes than the last cell plan for 10% more. Is this inflation or more purchased stuff in the form of a package deal?
Inflation in a single product in theory changes people's behaviors. Gas price goes up so the vacation in closer to home or cancelled. The drive to work is slower. Conservative driving can increase gas mileage 20% which equates to an 80 cents drop in the gas price for you with $4 at the pump prices. Higher beef prices leads people to buy more chicken. It works with most products. If one price goes up a replacement or substitute is found.
Thinking about what things really cost in the most basic units provides additional information to manage your finances. With the economy struggling and inflation in food and energy, it is a good idea to manage money better than ever. You will reach your goals quicker when you know where you started, where you are, and where you are going. It is a good idea to understand what each step costs.
Sunday, March 20, 2011
The Power of Focus
Recently I wrote about the power of momentum. Today I want to talk about momentum's close cousin, focus. Focus and momentum walk hand in hand. The quality of life equation includes many variables and focus in one of the important ones.
In my line of work focus is very important, it is required to get anything done and to have any quality of life. It is too easy to worry about work when at home and too easy to feel guilty when at work when I would rather be with family. Of course, this is a recipe for getting nothing done and feeling terrible all the time.
There are no magic bullets to hone focus. Focus is a muscle that needs regular exercise to function well. We have all experienced the "zone"; that place where we are hyper productive and focused on the task at hand. For me this is more than a feeling; it is an emotional place. Usually I require quiet time and a closed door to reach this place and focus my attention. Sometimes I play loud music as a mental closed door (Stephen King writes to loud music as his way of shutting out the world while he focuses on his work). You need to look inside yourself to find this "zone."
Guilt destroys focus faster than anything else. When I prepare tax returns or perform other accounting tasks I shut out the world and do not worry about home, family, health, neighbors, world events, and so on. I refuse to feel guilty or complain about my time away from family and friends. Long ago I decided I choose to work. I can live on a lot less if I really do not want to work as an accountant.
The same applies in my private life. I could care less about the office when at home with family. If work blows up, so it goes (as Kurt Vonnegut says). I enjoy and experience the moment at hand. It is all any of us have.
The real trick lay at the borderline. Sometimes I work from home. I never feel any obligation to do so, but when I really want to complete a large task I will log into the office and tackle a job. I write from home. This blog post is evolving less than two hours before a family social gathering. However, I am focused on writing this piece while I write it and will not give it a thought when with family. I have a few projects I could log into the office for this weekend, but opted to spend my free time with family. My grandfather is very ill and the clock is reaching its end. It is challenging to focus with issues so large and important. But I get better at it with age.
If you desire for better things, being a better father or mother, a better husband or wife, a better employee or boss, a better friend or neighbor, a better writer, a better accountant or any occupation of your choosing, better at anything, focus. Find that place where momentum takes place and quality of life grows.
Taxes are important. Deal with the issues and move on. Taxes are not life; taxes are a fact of life. Spend the required time each week or month gathering the information you need to manage your finances and taxes. Then move on to the important things. Focus on the task at hand so the remaining 99% of your life can be an exercise in enjoyment.
That's my story and I'm sticking to it. Now what was I doing?
In my line of work focus is very important, it is required to get anything done and to have any quality of life. It is too easy to worry about work when at home and too easy to feel guilty when at work when I would rather be with family. Of course, this is a recipe for getting nothing done and feeling terrible all the time.
There are no magic bullets to hone focus. Focus is a muscle that needs regular exercise to function well. We have all experienced the "zone"; that place where we are hyper productive and focused on the task at hand. For me this is more than a feeling; it is an emotional place. Usually I require quiet time and a closed door to reach this place and focus my attention. Sometimes I play loud music as a mental closed door (Stephen King writes to loud music as his way of shutting out the world while he focuses on his work). You need to look inside yourself to find this "zone."
Guilt destroys focus faster than anything else. When I prepare tax returns or perform other accounting tasks I shut out the world and do not worry about home, family, health, neighbors, world events, and so on. I refuse to feel guilty or complain about my time away from family and friends. Long ago I decided I choose to work. I can live on a lot less if I really do not want to work as an accountant.
The same applies in my private life. I could care less about the office when at home with family. If work blows up, so it goes (as Kurt Vonnegut says). I enjoy and experience the moment at hand. It is all any of us have.
The real trick lay at the borderline. Sometimes I work from home. I never feel any obligation to do so, but when I really want to complete a large task I will log into the office and tackle a job. I write from home. This blog post is evolving less than two hours before a family social gathering. However, I am focused on writing this piece while I write it and will not give it a thought when with family. I have a few projects I could log into the office for this weekend, but opted to spend my free time with family. My grandfather is very ill and the clock is reaching its end. It is challenging to focus with issues so large and important. But I get better at it with age.
If you desire for better things, being a better father or mother, a better husband or wife, a better employee or boss, a better friend or neighbor, a better writer, a better accountant or any occupation of your choosing, better at anything, focus. Find that place where momentum takes place and quality of life grows.
Taxes are important. Deal with the issues and move on. Taxes are not life; taxes are a fact of life. Spend the required time each week or month gathering the information you need to manage your finances and taxes. Then move on to the important things. Focus on the task at hand so the remaining 99% of your life can be an exercise in enjoyment.
That's my story and I'm sticking to it. Now what was I doing?
Tuesday, August 24, 2010
Kids, Money, and the Frugal Lifestyle
Living a frugal lifestyle is difficult as it is; add kids and it turns downright challenging. It is back-to-school season and the schools have the longest list ever of stuff kids need to bring the first day. No wonder teachers complain they make too little. Most seem to lack basic money skills to get, keep, invest, and manage their money.
Once the school has your wallet open it is time for peer pressure from fellow students and their parents to encourage more stupid spending.
The reason is clear to me. Advice given is meant to serve the person giving the advice, not you. The government wants you to borrow and spend more to help the economy; the financial planner says to NOT pay off your mortgage and invest the money; the banker says to borrow for a car or boat. All that advice is wrong. The elected government official wants to get re-elected; the investment advisor wants a commission; the banker, interest.
Even I am not immune. The amount of time I grant toward convincing you to live debt-free is small. I am your accountant. If you really think paying the bank $10,000 in interest is worth the $3,000 you get from the government is tax savings is a deal, go for it. I can point out the extra refund I got you, charge you $300, shake your hand, and go home. Of course, I will use the $300 to pay off my mortgage of fill my bank account.
The day you find pride in living a frugal life; the day you grin ear-to-ear because someone points out your strange frugal ways is the day you are truly free from the rat race.
Think about the pressure you get to spend money. Ask yourself: What is in it for the advice giver? Ask yourself: What is in it for you?
Bowing to peer pressure and refusing to teach your children fiscal responsibility IS child abuse. By withholding these basic needs in managing money you condemn your children to a life of servitude to money.
Money problems lead to crime, alcohol, child, and spousal abuse, stress, insomnia, divorce, and a litany of other health and social problems. Teach your kids by example. Live within your means and really enjoy life.
This is the greatest gift you can give your children and the lesson is never taught in school.
Once the school has your wallet open it is time for peer pressure from fellow students and their parents to encourage more stupid spending.
- Did you drive your kids to school in an over-priced, gas-guzzling SUV? Then you are a mean mommy. Your kids will be scarred for life.
- Did you buy your children the latest electronic toy, gizmo, cell phone, iphone (i anything), or gadget from Apple? Then you are a mean, good-for-nothing daddy. Your kids will be scarred for life.
- How much did you spend on the summer vacation? Not enough. Did you even go on a summer vacation? No? What will the other students, their parents, and the teacher thinks when the class shares their summer activities? Your kids will be scarred for life.
- Is your home over 3,000 square feet? Flat screen TV? No? What is the matter with you? Now nobody wants to be your child's friend. Only a low-life would treat their kids in such a manner. They will be scarred for life.
- Please tell me you bought your kids the latest and trendiest cloths for the first day of school. No? What is the matter with you? Child Services should be called. That is child abuse. Your kids will be scarred for life.
The reason is clear to me. Advice given is meant to serve the person giving the advice, not you. The government wants you to borrow and spend more to help the economy; the financial planner says to NOT pay off your mortgage and invest the money; the banker says to borrow for a car or boat. All that advice is wrong. The elected government official wants to get re-elected; the investment advisor wants a commission; the banker, interest.
Even I am not immune. The amount of time I grant toward convincing you to live debt-free is small. I am your accountant. If you really think paying the bank $10,000 in interest is worth the $3,000 you get from the government is tax savings is a deal, go for it. I can point out the extra refund I got you, charge you $300, shake your hand, and go home. Of course, I will use the $300 to pay off my mortgage of fill my bank account.
The day you find pride in living a frugal life; the day you grin ear-to-ear because someone points out your strange frugal ways is the day you are truly free from the rat race.
Think about the pressure you get to spend money. Ask yourself: What is in it for the advice giver? Ask yourself: What is in it for you?
Bowing to peer pressure and refusing to teach your children fiscal responsibility IS child abuse. By withholding these basic needs in managing money you condemn your children to a life of servitude to money.
Money problems lead to crime, alcohol, child, and spousal abuse, stress, insomnia, divorce, and a litany of other health and social problems. Teach your kids by example. Live within your means and really enjoy life.
This is the greatest gift you can give your children and the lesson is never taught in school.
Tuesday, August 17, 2010
How to Declutter Your Life For Fun, Sanity, and Profit
For the last six months clutter has been my enemy number one. The accumulation of crap junk things in my life sapped my sanity and productivity. The effort is slow, but progressing. Each step taken improves my peace of mind and reduces stress.
No one will accuse me of a clutter-free life. The goal is to reduce a little bit of clutter each day. Yesterday I took a huge step. At the office there is a side storage room that leads to the basement. The closet/hall is lined with shelves of old tax journals, tax code, and other junk accumulated over 27 years of business. The storage space is less cluttered today.
There were some real beauties in there: two complete volumes of the tax code with regulation and explanation from 1988 and 1992, a Wisconsin unemployment handbook from 1994, binders, Who's Who for 1996, practice builder sales literature from who knows when, and an old Section 105 administration guide.
The shelves under all that weight were stressed to the max and an accident waiting to happen. The shelves no longer groan. All paper is in the shredding room and the binders were either recycled or burned. Office paper is cross-cut shred and ends up a fibrous mass good for bedding my animals at home. The office feels better for the effort. The shredding room should return to normal in a few days.
My desk and office floor were recently covered from end to end with stacks of papers and works in progress. My office is still cluttered and requires more drastic action, but in the last several months I have been complimented with comments like, "Keith, I can see your floor," and ""You have a desk!"
Yes, most of my floor is clear. Most. You can actually see bits and pieces of my desktop most days. Vigilance is required daily. The clutter bomb is always waiting to reassert itself.
If you desire your life back (as I did), peace of mind, less stress, and a better quality of life, declutter. Here are a few tips I used to declutter:
Now you can breathe.
No one will accuse me of a clutter-free life. The goal is to reduce a little bit of clutter each day. Yesterday I took a huge step. At the office there is a side storage room that leads to the basement. The closet/hall is lined with shelves of old tax journals, tax code, and other junk accumulated over 27 years of business. The storage space is less cluttered today.
There were some real beauties in there: two complete volumes of the tax code with regulation and explanation from 1988 and 1992, a Wisconsin unemployment handbook from 1994, binders, Who's Who for 1996, practice builder sales literature from who knows when, and an old Section 105 administration guide.
The shelves under all that weight were stressed to the max and an accident waiting to happen. The shelves no longer groan. All paper is in the shredding room and the binders were either recycled or burned. Office paper is cross-cut shred and ends up a fibrous mass good for bedding my animals at home. The office feels better for the effort. The shredding room should return to normal in a few days.
My desk and office floor were recently covered from end to end with stacks of papers and works in progress. My office is still cluttered and requires more drastic action, but in the last several months I have been complimented with comments like, "Keith, I can see your floor," and ""You have a desk!"
Yes, most of my floor is clear. Most. You can actually see bits and pieces of my desktop most days. Vigilance is required daily. The clutter bomb is always waiting to reassert itself.
If you desire your life back (as I did), peace of mind, less stress, and a better quality of life, declutter. Here are a few tips I used to declutter:
- Think Small Clutter takes a lifetime to build, it will take less time to dispose of, but it will take time. Dealing with a lifetime of clutter is overwhelming. Start with one room or closet and get the low hanging fruit first. Worn out clothes should be sent to recycling or the thrift shop, depending on condition. Old magazines and junk mail are easy choices for most of us.
- One Thing a Day Schedules are tight. If you don't have hours, or even an hour or fifteen minutes, commit to one thing a day. Get rid of one thing, one piece of clutter, and don't replace it.
- Focus on the Important My desk and floor required immediate attention. Perfection never entered the equation. My focus was to get papers off the floor and clean my desk so the desktop could be seen. Sometimes decluttering life means ending procrastination. A lot of little jobs can reduce productivity when working the big jobs. I like to take one-half day a week and dig into all the little projects that accumulated and clean them up.
- Electronic Clutter In my line of work electronic clutter is an issue. I turn my email off for most of the day. I deal with email, correspondence, and phone calls at selected times. This allows for greater productivity. Since I get more work done this way, it frees up time for things I prefer to do. Take steps to reduce email. Make good use of the junk mail folder. Turn off the interruptions of cell phones and other devices that sap your lifeblood.
- Tough Decisions A large number of items are difficult to throw out. My back issues (20 years worth) of Science News and science fiction magazines fall into this category for me. I never know when I might need to review a copy of the June 23rd 1987 issue of Science News or when I might want to reread a short story from the January 1993 issue of Isaac Asimov's Science Fiction Magazine. There are even tougher issues to decide when throwing stuff out. I give myself permission to keep things for later consideration. But seriously, those issues of Asimov's would get great use at the local jail. Someday. Someday.
- Enjoy the Moment There is no feeling like the feeling of freedom. As you clear out a little each day the cumulative effect becomes real. The open space feels super. Cleaning the house is easier and unrealized stress is reduced. Enjoy each room or closet as you free it from the albatross of decades of stuff.
Now you can breathe.
Sunday, August 1, 2010
Wealthy Neighbors
The lesson I am about to share took 20 years to sink into the frugal accountant's skull. I see a couple thousand people per year on a professional basis. This provides me the opportunity to see what works for others; it also makes painfully clear the things that do not.
About 225 of my clients are wealthy, defined as $1 million or more in liquid net worth. The remaining 1800 clients want to be wealthy, defined the same.
There is a striking similarity to the 225 wealthy clients rarely shared by the non-wealthy list. The striking difference is in the investments they make. The wealthy clients follow Warren Buffet's
two rules:
Wealthy clients are married to these two rules and you cannot pry them away from this philosophy no matter how good the salesman is.
Popular media only solidifies the minds of the wealthy that their way is right. The media says the stock market returns on average 10% per year in the long run. The wealthy say, "In the long run we are dead." When it comes to stocks, the wealthy know "figures do not lie, but liars figure."
If you pick the right entry and exit points you can justify any position you want. One lie is using 1928 as your starting point. When the stock market is at an all time high and calculated from 1928, a non-high stock market entry point, you get very nice returns. However, if you look at the true long term results of the Dow Jones Industrial Average from January 1, 1900 to today, you have a hard time breaking a 5% return.
The S&P 500 is a broader based stock average and has been with us since 1950. The stock market has enjoyed the greatest gains in history for the last 60 years. The 1950s was the best decade for U.S. stocks ever and the 1980s and 1990s were pretty good too. Still, the S&P 500 total return since 1950 is only 7% with 2 of the six decades experiencing a negative return.
Wealthy clients know the stock market at best produces 7% returns with lots of risk and downside. They also know that 5% is the best you should hope for with stocks if you know what is good for you. The 10% stock market returns are a lie and the wealthy know it.
So what are the wealthy doing? CDs and Treasuries.
Shocking. Isn't it?
It should come as no surprise that the wealthiest individuals in a community take little to no risk on a large portion of their money. A typical client with over $1 million in liquid net worth has no debt and does not look wealthy. Farmers, that high paying job we all want to get into, are a perfect example. Not every farmer is rich. But those that are save like no tomorrow. They frequently tell me they "never take off the pile."
Wealthy people invested in 30 year Treasury bonds back in the year 2000 when they locked in 7% or better. Interest from Treasury securities are state tax free. Interest rates are lower now, but the wealthy Treasury bond holder received $700,000 in interest in the last 10 years state tax free. The government still owes them another $1.4 million over the next 20 years plus the return of the original $1 million.
Remember the old articles about how much it costs to buy a home with a 30 year mortgage. Well, Treasury bonds work the same way in reverse. It is like the government paying you taxes. I like that. If you buy a $100,000 home with a $100,000 mortgage with a 30 year term at 7% you will pay the bank a total of $239,508 if you make no early payments. Treasury bonds work even better to your advantage. When you make a mortgage payment a portion is principle. With Treasury bonds the government only pays interest. A $100,000 30-year Treasury at 7% interest will pay you $210,000 in interest over the term plus your original $100,000. The government pays you $310,000 over the life of a 30 year Treasury bond. And the wealthy know it.
Interest rates are lower today. So what are the wealthy doing now? CDs. More accurately, long-term CDs; the 4 and 5 year kind. You see, the wealthy know that 4-5 year CDs pays around 3% with a small penalty for early withdrawal. If rates go up, they pay the fee and reinvest at the higher rate. They win at every turn.
When interest rates go higher for 30 year Treasuries, they will make the switch.
As I conclude this post I want to share what I see from my side of the desk. I have never seen a client in tears because they have a low interest rate on their bonds or CDs. They want higher yields, but are willing to wait. Stock and mutual fund investors at least once a month come in for help. They sufferd a large loss and the money will no longer carry them through retirement. In some cases they need to go back to work. The stress is clear on their faces and body language. I want to help, but the damage has been done.
Consider what the wealthy do. Invest in boring. It is safer. Besides who wants the kind of excitement risk implies. Only use excess money for mutual funds and stocks. You will sleep better.
About 225 of my clients are wealthy, defined as $1 million or more in liquid net worth. The remaining 1800 clients want to be wealthy, defined the same.
There is a striking similarity to the 225 wealthy clients rarely shared by the non-wealthy list. The striking difference is in the investments they make. The wealthy clients follow Warren Buffet's
two rules:Wealthy clients are married to these two rules and you cannot pry them away from this philosophy no matter how good the salesman is.
Popular media only solidifies the minds of the wealthy that their way is right. The media says the stock market returns on average 10% per year in the long run. The wealthy say, "In the long run we are dead." When it comes to stocks, the wealthy know "figures do not lie, but liars figure."
If you pick the right entry and exit points you can justify any position you want. One lie is using 1928 as your starting point. When the stock market is at an all time high and calculated from 1928, a non-high stock market entry point, you get very nice returns. However, if you look at the true long term results of the Dow Jones Industrial Average from January 1, 1900 to today, you have a hard time breaking a 5% return.
The S&P 500 is a broader based stock average and has been with us since 1950. The stock market has enjoyed the greatest gains in history for the last 60 years. The 1950s was the best decade for U.S. stocks ever and the 1980s and 1990s were pretty good too. Still, the S&P 500 total return since 1950 is only 7% with 2 of the six decades experiencing a negative return.
Wealthy clients know the stock market at best produces 7% returns with lots of risk and downside. They also know that 5% is the best you should hope for with stocks if you know what is good for you. The 10% stock market returns are a lie and the wealthy know it.
So what are the wealthy doing? CDs and Treasuries.
Shocking. Isn't it?
It should come as no surprise that the wealthiest individuals in a community take little to no risk on a large portion of their money. A typical client with over $1 million in liquid net worth has no debt and does not look wealthy. Farmers, that high paying job we all want to get into, are a perfect example. Not every farmer is rich. But those that are save like no tomorrow. They frequently tell me they "never take off the pile."
Wealthy people invested in 30 year Treasury bonds back in the year 2000 when they locked in 7% or better. Interest from Treasury securities are state tax free. Interest rates are lower now, but the wealthy Treasury bond holder received $700,000 in interest in the last 10 years state tax free. The government still owes them another $1.4 million over the next 20 years plus the return of the original $1 million.
Remember the old articles about how much it costs to buy a home with a 30 year mortgage. Well, Treasury bonds work the same way in reverse. It is like the government paying you taxes. I like that. If you buy a $100,000 home with a $100,000 mortgage with a 30 year term at 7% you will pay the bank a total of $239,508 if you make no early payments. Treasury bonds work even better to your advantage. When you make a mortgage payment a portion is principle. With Treasury bonds the government only pays interest. A $100,000 30-year Treasury at 7% interest will pay you $210,000 in interest over the term plus your original $100,000. The government pays you $310,000 over the life of a 30 year Treasury bond. And the wealthy know it.
Interest rates are lower today. So what are the wealthy doing now? CDs. More accurately, long-term CDs; the 4 and 5 year kind. You see, the wealthy know that 4-5 year CDs pays around 3% with a small penalty for early withdrawal. If rates go up, they pay the fee and reinvest at the higher rate. They win at every turn.
When interest rates go higher for 30 year Treasuries, they will make the switch.
As I conclude this post I want to share what I see from my side of the desk. I have never seen a client in tears because they have a low interest rate on their bonds or CDs. They want higher yields, but are willing to wait. Stock and mutual fund investors at least once a month come in for help. They sufferd a large loss and the money will no longer carry them through retirement. In some cases they need to go back to work. The stress is clear on their faces and body language. I want to help, but the damage has been done.
Consider what the wealthy do. Invest in boring. It is safer. Besides who wants the kind of excitement risk implies. Only use excess money for mutual funds and stocks. You will sleep better.
Thursday, July 22, 2010
The Stupidity Rolls On
The economic news is grim. Unemployment is near 10% and the meager recovery appears to be stalling. There is good news, however. Auto sales are picking up. Well, certain vehicles are selling well. The big gas-guzzling ones.
Sales of SUVs and trucks are up 24% this year. As long as the vehicle burns a gallon of petroleum every 14 miles or so it is selling well.
It has been 2 years almost to the day since fuel prices rocketed to over $4 a gallon. You would think Americans would have learned a lesson from the warning shot over the bow. But I guess not. Americans want big honking, gas-guzzling vehicles even if it destroys thier finances, puts the economy and their job at risk, or causes another spike in fuel prices.
To understand the depth of stupidity involved here we need to review some facts:
I am making a prediction, so remember, you heard it here first. When the economy really starts growing, gas prices will race past $10 a gallon, and will probably hit $16 - $18 a gallon... before 2015.
Then we head right back into a recession. My only hope is that the people that squandered the resource are the ones that lose their job. Why should the responsible pay for the actions of idiots.
I am not hopeful.
Sales of SUVs and trucks are up 24% this year. As long as the vehicle burns a gallon of petroleum every 14 miles or so it is selling well.
It has been 2 years almost to the day since fuel prices rocketed to over $4 a gallon. You would think Americans would have learned a lesson from the warning shot over the bow. But I guess not. Americans want big honking, gas-guzzling vehicles even if it destroys thier finances, puts the economy and their job at risk, or causes another spike in fuel prices.
To understand the depth of stupidity involved here we need to review some facts:
- Since 1981, worldwide consumption of petroleum has exceeded discovery of new reserves every year. Think about this sobering fact for a moment. If it doesn't run a shiver down your spine you have other issues to address.
- In 2008, worldwide consumption of petroleum was 31 billion barrels; new reserves discovered were 9 billion barrels. Do you feel that shiver again?
- Oil production peaked in 2005.
- To get the oil that remains requires very deep water drilling. How is that working out in the Gulf of Mexico?
- Oil prices are double from a decade ago while we are mired in a deep worldwide recession. How can oil run upwards of $70 a barrel when demand is so low due to the economy? Could it be...
- When the economy improves, and it will improve, demand for oil will climb. Without additional reserves available gas prices could soar higher than ever.
I am making a prediction, so remember, you heard it here first. When the economy really starts growing, gas prices will race past $10 a gallon, and will probably hit $16 - $18 a gallon... before 2015.
Then we head right back into a recession. My only hope is that the people that squandered the resource are the ones that lose their job. Why should the responsible pay for the actions of idiots.
I am not hopeful.
Thursday, December 17, 2009
Scrip
The IRS, in a private ruling, stated scrip rebates donated to charity are deductible.
Charities purchase scrip from retailers (or a clearinghouse) at a discount and sell to members and/or the public at face value. Example: A local church purchases a $100 Wal-mart scrip in the form of a gift card for $98 and resells it for full price, $100, to a parishioner. The church retains the $2.
The private ruling says the IRS will consider the $2 a deductible charitable contribution. The situation addressed in the private ruling involved a charity that gave buyers of scrip the option of receiving a cash discount or letting the charity keep it. Many charities don’t give the option of taking a cash discount and I read the private ruling to mean the deduction is only allowed when the option to take the discount is present.
Donors need acknowledgement from the charity prior to filing if claiming a deduction. Rebates kept by the purchaser are not taxed, as the IRS considers this a tax free price reduction.
Charities purchase scrip from retailers (or a clearinghouse) at a discount and sell to members and/or the public at face value. Example: A local church purchases a $100 Wal-mart scrip in the form of a gift card for $98 and resells it for full price, $100, to a parishioner. The church retains the $2.
The private ruling says the IRS will consider the $2 a deductible charitable contribution. The situation addressed in the private ruling involved a charity that gave buyers of scrip the option of receiving a cash discount or letting the charity keep it. Many charities don’t give the option of taking a cash discount and I read the private ruling to mean the deduction is only allowed when the option to take the discount is present.
Donors need acknowledgement from the charity prior to filing if claiming a deduction. Rebates kept by the purchaser are not taxed, as the IRS considers this a tax free price reduction.
Wednesday, October 28, 2009
It Pays to Ask
Today I will outline how your friendly accountant handles services provided by major corporations and how you can get many of the things you have for a fraction of the cost.
I live in the country where cable TV is unavailable. Instead, DirecTV provides my family with several hundred channels of quality programming. {cough} When local stations switched to digital, a few channels didn’t work, including the channel that broadcast most of the Packers games. Since I watch little TV, I was not bothered… until the Packers game situation arose.
The Packers play Minnesota in Lambeau Field this weekend and if the situation is unresolved I will miss it. {sigh} So, I call DirecTV and tell them to add the local channels. They say, “Sure, you just need a new receiver box. Fifty dollars please. Oh, and your bill goes up three bucks a month.” I explain I don’t want it that bad since I could swing for a new $20 antenna and get it for free. In the grand spirit of customer service they transferred me six times before I hung up and took a different approach.
The accountant in me was boiling by now. The only way to win this battle is to make it personal. I called Disk Network and got their best deal that included a free receiver and local channels and then called DirecTV back and told them I wanted to cancel. This brought me to a totally different department. They didn’t transfer the call then. Now I was offered a FREE receiver and an instant $50 credit on my bill to pay the next twenty months of local channel costs. They install the whole thing Friday morning.
To sweeten the deal, about six months ago I called and talked them into giving me a $10 per month discount for a full year. All the new goodies are in addition to the $10 a month discount I already had.
I tell this story so you can use it as a template to save money. Commodity items are easy to get discounted. You can apply the same philosophy to phone service, cable, credit cards, bank products, and more. A rule of thumb is: if it is a mass produced product or mass provided service, it is subject to discount.
Where doesn’t it work? Let me illustrate with an example I am intimately familiar with: accounting services. You can keep your friendly accountant and get a discount if you do it right. If you are a business and have your books in order, I am willing to discount my fee in some cases. Never ask for a discount in the middle of tax season when I am working sixteen hour days. I will not take a pay cut to work more hours February through April; I would rather lose an account and spend more time with my girls. Sorry.
A better approach: ask for a free tax-saving consultation when tax season is over. I will always say YES. It is something I can do later, get my work done now, and is more valuable to you than a fee reduction. Let me save you hundreds or thousands of dollars in a free tax review versus a fifty or hundred dollar tax season discount. You see, even non-mass produced services can be discounted if you try. And I really don’t mind sitting with a client outside tax season working tax saving strategies.
When in doubt, ask. No harm, no foul. The worst that can happen is you stay where you are at. Ask businesses for goodies. There are many unadvertised deals to be had. I know I give a lot of tax consults gratis. If you don’t ask, I’ll bill. I’m not mean; I just want to feed the wife and kids.
I live in the country where cable TV is unavailable. Instead, DirecTV provides my family with several hundred channels of quality programming. {cough} When local stations switched to digital, a few channels didn’t work, including the channel that broadcast most of the Packers games. Since I watch little TV, I was not bothered… until the Packers game situation arose.
The Packers play Minnesota in Lambeau Field this weekend and if the situation is unresolved I will miss it. {sigh} So, I call DirecTV and tell them to add the local channels. They say, “Sure, you just need a new receiver box. Fifty dollars please. Oh, and your bill goes up three bucks a month.” I explain I don’t want it that bad since I could swing for a new $20 antenna and get it for free. In the grand spirit of customer service they transferred me six times before I hung up and took a different approach.
The accountant in me was boiling by now. The only way to win this battle is to make it personal. I called Disk Network and got their best deal that included a free receiver and local channels and then called DirecTV back and told them I wanted to cancel. This brought me to a totally different department. They didn’t transfer the call then. Now I was offered a FREE receiver and an instant $50 credit on my bill to pay the next twenty months of local channel costs. They install the whole thing Friday morning.
To sweeten the deal, about six months ago I called and talked them into giving me a $10 per month discount for a full year. All the new goodies are in addition to the $10 a month discount I already had.
I tell this story so you can use it as a template to save money. Commodity items are easy to get discounted. You can apply the same philosophy to phone service, cable, credit cards, bank products, and more. A rule of thumb is: if it is a mass produced product or mass provided service, it is subject to discount.
Where doesn’t it work? Let me illustrate with an example I am intimately familiar with: accounting services. You can keep your friendly accountant and get a discount if you do it right. If you are a business and have your books in order, I am willing to discount my fee in some cases. Never ask for a discount in the middle of tax season when I am working sixteen hour days. I will not take a pay cut to work more hours February through April; I would rather lose an account and spend more time with my girls. Sorry.
A better approach: ask for a free tax-saving consultation when tax season is over. I will always say YES. It is something I can do later, get my work done now, and is more valuable to you than a fee reduction. Let me save you hundreds or thousands of dollars in a free tax review versus a fifty or hundred dollar tax season discount. You see, even non-mass produced services can be discounted if you try. And I really don’t mind sitting with a client outside tax season working tax saving strategies.
When in doubt, ask. No harm, no foul. The worst that can happen is you stay where you are at. Ask businesses for goodies. There are many unadvertised deals to be had. I know I give a lot of tax consults gratis. If you don’t ask, I’ll bill. I’m not mean; I just want to feed the wife and kids.
Friday, October 2, 2009
6 Financial Moves That Sound Good--but Aren't
Check this out. I firmly believe in sound financial advice. This is it.
Saturday, September 19, 2009
The American Dream Revealed
I couldn't contain myself when I saw the article linked below. If you want to live the American Dream, you need to follow a few simple rules. Click here for details.
Without debt your income goes a long ways.
Without debt your income goes a long ways.
Wednesday, August 19, 2009
Private Information
I am serious here: Don't drop off your credit report at a clothing drop-off site. I shouldn't have to say this, but it happened right outside my office.
This morning I arrived bright and early at work and parked near the clothing drop-off bin set up by a non-profit organization. Boxes of clothes too large to stuff in the bin are stacked neatly outside it with papers on top. I don't pay much attention to this situation as it plays out daily. Except, this time there are papers laying on top. Good accountant that I am, I glance at the papers and notice it is a credit report.
This is dangerous in our society. Identity theft is a real issue and a major headache to clear up once victimized. So, I gather the papers and bring them in the office for shredding. Paging through the papers I see a fine young man dressed in prison garb. This is where I phone the police and get their opinion. They send an officer over and it is decided the papers should be shredded and not taken in as evidence. No crime was committed.
Please, shred all documents before letting them out of your hands. Never set papers with personal information out in the open when they can be stolen. Please do this for me. It will help your friendly neighborhood accountant sleep better at night.
This morning I arrived bright and early at work and parked near the clothing drop-off bin set up by a non-profit organization. Boxes of clothes too large to stuff in the bin are stacked neatly outside it with papers on top. I don't pay much attention to this situation as it plays out daily. Except, this time there are papers laying on top. Good accountant that I am, I glance at the papers and notice it is a credit report.
This is dangerous in our society. Identity theft is a real issue and a major headache to clear up once victimized. So, I gather the papers and bring them in the office for shredding. Paging through the papers I see a fine young man dressed in prison garb. This is where I phone the police and get their opinion. They send an officer over and it is decided the papers should be shredded and not taken in as evidence. No crime was committed.
Please, shred all documents before letting them out of your hands. Never set papers with personal information out in the open when they can be stolen. Please do this for me. It will help your friendly neighborhood accountant sleep better at night.
Thursday, August 13, 2009
A Wise Choice
Choosing a tax preparer is more than shopping price. There are varying levels of competence among tax preparers and it's possible to hang a shingle without any qualifications.
Tracking a tax preparer is difficult, even the IRS has little oversight (accountingToday Vol. 23, No. 12). Since your tax preparer is handling your annual reconciliation (tax return), it is in your interest to find the best.
Can you trust the IRS to weed out bad preparers? No. The IRS tracks paid preparers on 22 different systems and many preparers use different identifying numbers. The IRS admits it cannot follow-up on all preparer complaints. The IRS doesn't even know how many paid preparers exist.
Let me give two examples that highlight the problems finding a competent tax pro.
A few years back I completed an audit where the IRS auditor threatened me with preparer penalties. Her expression was amusing when I showed her two IRS letters providing advice on the complicated tax situation. What happened is that the IRS reversed its position. If this happens, you will owe the tax and interest, but no penalty. Preparer penalties are not in the cards since we trusted the IRS's advice. In reality, it was a rouge agent on an ego trip. She has since left the area.
Next, a new client arrives from a tax preparer that changed his information prior to e-filing. The preparer added credits the taxpayer wasn't entitled to, changed the taxpayer's address, and direct deposited the refund to his own account. We provided the IRS with all the details and they have done nothing. The preparer wasn't shut down. The taxpayer is headed for tax court to get his refund. He is out over $10,000 and pushing higher. The preparer in question had a good prep fee: $60. Any tax pro that charges $60 is pulling a scam, unlicensed, or unqualified. Remember the difference between price and cost. If you save $100 in prep fees and overpay your taxes by $500, is it really a good deal? And if you get lucky and find a crooked preparer, God have mercy on you, you'll need it.
Since the IRS is unable to help you choose a qualified preparer, what can you do? The two real examples above show how the IRS fails to protect you, the taxpayer. The IRS promises more oversight, but I doubt it will be anything more than token.
To increase your chances in finding a real tax pro requires a small amount of research. First, your tax pro should be an enrolled agent (EA), CPA, or attorney. Second, they should have several years of experience.
EA's are the only tax pros. CPAs are accounting pros that might focus on taxation; attorneys, legal pros. Once you find an EA, check to see how long they have been in the field. If they are starting their business, but have worked in a tax office for years, that is real experience.
Finally, ask around. Successful people have a good working relationship with their tax pro.
It is never too early to start looking. Now is the perfect time to cement a relationship with a tax pro. They have time now and are less likely to spend time acquiring new clients when they are working fifteen hours a day. It could be the best time you spend all year with a high return on investment.
Tracking a tax preparer is difficult, even the IRS has little oversight (accountingToday Vol. 23, No. 12). Since your tax preparer is handling your annual reconciliation (tax return), it is in your interest to find the best.
Can you trust the IRS to weed out bad preparers? No. The IRS tracks paid preparers on 22 different systems and many preparers use different identifying numbers. The IRS admits it cannot follow-up on all preparer complaints. The IRS doesn't even know how many paid preparers exist.
Let me give two examples that highlight the problems finding a competent tax pro.
A few years back I completed an audit where the IRS auditor threatened me with preparer penalties. Her expression was amusing when I showed her two IRS letters providing advice on the complicated tax situation. What happened is that the IRS reversed its position. If this happens, you will owe the tax and interest, but no penalty. Preparer penalties are not in the cards since we trusted the IRS's advice. In reality, it was a rouge agent on an ego trip. She has since left the area.
Next, a new client arrives from a tax preparer that changed his information prior to e-filing. The preparer added credits the taxpayer wasn't entitled to, changed the taxpayer's address, and direct deposited the refund to his own account. We provided the IRS with all the details and they have done nothing. The preparer wasn't shut down. The taxpayer is headed for tax court to get his refund. He is out over $10,000 and pushing higher. The preparer in question had a good prep fee: $60. Any tax pro that charges $60 is pulling a scam, unlicensed, or unqualified. Remember the difference between price and cost. If you save $100 in prep fees and overpay your taxes by $500, is it really a good deal? And if you get lucky and find a crooked preparer, God have mercy on you, you'll need it.
Since the IRS is unable to help you choose a qualified preparer, what can you do? The two real examples above show how the IRS fails to protect you, the taxpayer. The IRS promises more oversight, but I doubt it will be anything more than token.
To increase your chances in finding a real tax pro requires a small amount of research. First, your tax pro should be an enrolled agent (EA), CPA, or attorney. Second, they should have several years of experience.
EA's are the only tax pros. CPAs are accounting pros that might focus on taxation; attorneys, legal pros. Once you find an EA, check to see how long they have been in the field. If they are starting their business, but have worked in a tax office for years, that is real experience.
Finally, ask around. Successful people have a good working relationship with their tax pro.
It is never too early to start looking. Now is the perfect time to cement a relationship with a tax pro. They have time now and are less likely to spend time acquiring new clients when they are working fifteen hours a day. It could be the best time you spend all year with a high return on investment.
Sunday, August 9, 2009
When a Deal is not a Deal
I went to Subway Sunday and used a coupon from the Entertainment Book, the one kids sell to raise money for school. When the order was rung up, it was way too high. I complained and was told the coupon actually made the cost higher. What a rip-off.
Kids sell the Entertainment Book so they can get money needed for class trips, supplies for sports, etc., and Subway creates a coupon that rips the costumer off. I would be better off handing twenty dollars to the kids and forget Subway.
This brings up a good point in personal finance. Coupons are not always the best deal. Many times a coupon is created to convince consumers to overpay for a product or service. If a company wants us to use their product, a coupon is a nice incentive. But, do they really think we don't notice if the coupon is really a rip-off?
Always check the real value of a coupon. Many times a product can be had cheaper without the coupon. And if the company is running a rip-off, spend your money elsewhere. As for me, I'll chose any other restaurant if there is a choice. Subway is off my list. I can see why Subway advertises weight loss in their ads. It all comes off the wallet.
Kids sell the Entertainment Book so they can get money needed for class trips, supplies for sports, etc., and Subway creates a coupon that rips the costumer off. I would be better off handing twenty dollars to the kids and forget Subway.
This brings up a good point in personal finance. Coupons are not always the best deal. Many times a coupon is created to convince consumers to overpay for a product or service. If a company wants us to use their product, a coupon is a nice incentive. But, do they really think we don't notice if the coupon is really a rip-off?
Always check the real value of a coupon. Many times a product can be had cheaper without the coupon. And if the company is running a rip-off, spend your money elsewhere. As for me, I'll chose any other restaurant if there is a choice. Subway is off my list. I can see why Subway advertises weight loss in their ads. It all comes off the wallet.
Thursday, August 6, 2009
Good Business Advice for Everyone
I commented on a blog last night that I think is solid advice for anyone in business. Give it a look-see.
http://pubrants.blogspot.com/2009/08/writing-as-business-part-2.html
http://pubrants.blogspot.com/2009/08/writing-as-business-part-2.html
Wednesday, August 5, 2009
What Will the Accountant Think
Two clients that left me years ago returned to the fold. Both clients own a business and suffered a setback when they terminated our engagement. Business is tough again and they need advice to maintain and grow their company, advice their current accountant could not provide.
I had a long talk with each this week and discovered the reasons they left my firm. First, they were embarrassed to have me see them fail, and, second, they felt it was my fault their business declined. Let me address both issues.
Embarrassment is a poor reason to end a relationship with your accountant, doctor, attorney, or any professional. Let me be clear: I am here to help you with the difficult issues. Every business eventually will hit a wall. The economy, industry, regulation, or other issue will put a company in a difficult position. This is the most important time to talk with your accountant. This rule also applies to personal finance. Accountants work financial issues all day long and frequently have referral resources to fit your specific issue. Avoiding your doctor because of an embarrassing rash is foolish. The doctor can prescribe ointment to solve the problem. Let your accountant apply some ointment to that financial, tax, or business rash.
The second issue is an underlying joke in the accounting profession. When a business fails, blame the accountant; must be his fault. This same theory shows up when people owe taxes on April 15th. Remember, you run/manage your business, not the accountant. I can give advice, but you need to apply it. The buck stops with you. It is counterproductive to blame the accountant. He is your friend, helping you sail the rough waters, with advice and referrals. Your accountant wants you to succeed. We want to keep you as a client. Trust me on this, I want my clients to all be rich and getting richer. Wealthy clients make accountants happy. If only I could force you to work through the issues.
Don't be afraid of your accountant; our job is to help with the tough issues. We've seen most of it before. We enjoy the challenge, want to help. As a group, accountants snap into action mode when a client comes in with issues. We shine brightest at these moments.
I had a long talk with each this week and discovered the reasons they left my firm. First, they were embarrassed to have me see them fail, and, second, they felt it was my fault their business declined. Let me address both issues.
Embarrassment is a poor reason to end a relationship with your accountant, doctor, attorney, or any professional. Let me be clear: I am here to help you with the difficult issues. Every business eventually will hit a wall. The economy, industry, regulation, or other issue will put a company in a difficult position. This is the most important time to talk with your accountant. This rule also applies to personal finance. Accountants work financial issues all day long and frequently have referral resources to fit your specific issue. Avoiding your doctor because of an embarrassing rash is foolish. The doctor can prescribe ointment to solve the problem. Let your accountant apply some ointment to that financial, tax, or business rash.
The second issue is an underlying joke in the accounting profession. When a business fails, blame the accountant; must be his fault. This same theory shows up when people owe taxes on April 15th. Remember, you run/manage your business, not the accountant. I can give advice, but you need to apply it. The buck stops with you. It is counterproductive to blame the accountant. He is your friend, helping you sail the rough waters, with advice and referrals. Your accountant wants you to succeed. We want to keep you as a client. Trust me on this, I want my clients to all be rich and getting richer. Wealthy clients make accountants happy. If only I could force you to work through the issues.
Don't be afraid of your accountant; our job is to help with the tough issues. We've seen most of it before. We enjoy the challenge, want to help. As a group, accountants snap into action mode when a client comes in with issues. We shine brightest at these moments.
Wednesday, July 29, 2009
Evil Financial Companies
Financial institutions needed public funds to survive. Now, to pay for their sinful ways, they punish the communities they serve with excessive fees and deceptive practices. The ink on the government check isn't dry and large bonuses are planned for the folks that brought us the current crisis.
I prefer an open, free, environment for business. But considering the seriousness of the financial mess and the continued bad behavior, massive regulation of the financial industry is nearly certain.
We will hear crying and lobbying to let banks and insurance companies manage themselves, but trillion in bailout money will overrule the whining. Some regulation is certain no matter what. And there should be. If you and I are asked to foot the bill for poor business practices, said practices will be made illegal.
What irritates me the most is banks and insurance companies beating on their good client to pay for their ineptitude.
The financial services industry will be significantly different in five years. Banks and insurance companies are based on trust. Once trust is destroyed, it is hard to regain.
The real question is: What can you do to protect yourself?
First, pay down debt. The banks abuse borrowers more than any other class. Interest rate changes can destroy a family's finances. Small banks and credit unions offer services for less in many areas. So, consider giving the local guy business.
Second, shop your insurance, especially if your rate jumps. Your insurance agent may have ideas to keep your insurance bill reasonable. It is better than losing you as a client.
Third, dump the credit cards and use debit cards sparingly. Credit card companies lead the list in spearing clients. Plastic also has fees that the merchant must pass along to you in higher prices to stay in business. This applies to debit cards as well.
Fourth, consider low cost mutual funds. If you need an investment advisor, you can avoid fees with a few simple tricks. The biggest fee is the sales charge on load mutual funds. You can avoid the up-front load, or high fee, back-end loaded-funds, by depositing your funds into the money market and then moving to the fund of choice. Investment reps hate this because it avoids a big commission for them. They still get paid each quarter to manage your funds so they will not go broke. The investment rep works to keep you happy, rather than sell and run.
Once your money is deposited with a fund family, you can move between funds fee free. Since there is no sales fee to deposit in the money market, you can switch to other funds in the family without charge.
Remember, you are the first line of defense in your financial life. Take the responsibility seriously. No one has your interest more at heart than you. Let the good financial services firms help you by taking a proactive role in your finances.
I prefer an open, free, environment for business. But considering the seriousness of the financial mess and the continued bad behavior, massive regulation of the financial industry is nearly certain.
We will hear crying and lobbying to let banks and insurance companies manage themselves, but trillion in bailout money will overrule the whining. Some regulation is certain no matter what. And there should be. If you and I are asked to foot the bill for poor business practices, said practices will be made illegal.
What irritates me the most is banks and insurance companies beating on their good client to pay for their ineptitude.
The financial services industry will be significantly different in five years. Banks and insurance companies are based on trust. Once trust is destroyed, it is hard to regain.
The real question is: What can you do to protect yourself?
First, pay down debt. The banks abuse borrowers more than any other class. Interest rate changes can destroy a family's finances. Small banks and credit unions offer services for less in many areas. So, consider giving the local guy business.
Second, shop your insurance, especially if your rate jumps. Your insurance agent may have ideas to keep your insurance bill reasonable. It is better than losing you as a client.
Third, dump the credit cards and use debit cards sparingly. Credit card companies lead the list in spearing clients. Plastic also has fees that the merchant must pass along to you in higher prices to stay in business. This applies to debit cards as well.
Fourth, consider low cost mutual funds. If you need an investment advisor, you can avoid fees with a few simple tricks. The biggest fee is the sales charge on load mutual funds. You can avoid the up-front load, or high fee, back-end loaded-funds, by depositing your funds into the money market and then moving to the fund of choice. Investment reps hate this because it avoids a big commission for them. They still get paid each quarter to manage your funds so they will not go broke. The investment rep works to keep you happy, rather than sell and run.
Once your money is deposited with a fund family, you can move between funds fee free. Since there is no sales fee to deposit in the money market, you can switch to other funds in the family without charge.
Remember, you are the first line of defense in your financial life. Take the responsibility seriously. No one has your interest more at heart than you. Let the good financial services firms help you by taking a proactive role in your finances.
Tuesday, July 28, 2009
Tax Increases
I'm as scared as hell, and you should be, too. I reviewed the package of tax increases passed and proposed today and know a lot of clients will suffer.
Many people will suffer income tax rates above 50% federal and state combined. And the government needs more money to stay solvent. Your money.
Even though the marginal tax rates may not reach 50%, when combined with phase-outs, the tax burden will increase by more than half for a large number of people. The higher your income, the deeper the bite.
Online Accounting Classes
provides information about the classes you can take to become an accountant. One needs advanced training to become an accountant, and this resource gives you the information you need to start learning more about it.
All the money the government pumped into the economy over the last several years will turn to inflation unless removed. There are only two ways to remove the money: higher taxes or higher interest rates.
At one time I felt inflation would accelerate. I still do, but with less conviction. The tax increases will mute the push-pressure on prices.
To put tax increases in perspective, consider this: If your taxes are 30% and rise to 35%, your tax burden has not increased 5%, but over 16%. The 5% increase is against your total income. Five divided by thirty is 16.6%, the real increase in taxes coming out of your pocket. This is money that could be used to buy goods and services, creating jobs. Now, it will go to the government for public spending and debt servicing.
My gut feeling is that the economy has seen the worst this round. Even if the economy improves, it will not translate to a higher standard of living. And if you have debt it will be worse yet. You pay debt off with after tax dollars.
It is in your best interest to reduce debt and prepare for a major transition in our economy, and I'm not just talking about alternative energy.
On a brighter note: Weather has sure been nice.
Don't throw anything at the nice accountant. Congress made the rules, we are just the messengers.
Many people will suffer income tax rates above 50% federal and state combined. And the government needs more money to stay solvent. Your money.
Even though the marginal tax rates may not reach 50%, when combined with phase-outs, the tax burden will increase by more than half for a large number of people. The higher your income, the deeper the bite.
Online Accounting Classes
provides information about the classes you can take to become an accountant. One needs advanced training to become an accountant, and this resource gives you the information you need to start learning more about it.
All the money the government pumped into the economy over the last several years will turn to inflation unless removed. There are only two ways to remove the money: higher taxes or higher interest rates.
At one time I felt inflation would accelerate. I still do, but with less conviction. The tax increases will mute the push-pressure on prices.
To put tax increases in perspective, consider this: If your taxes are 30% and rise to 35%, your tax burden has not increased 5%, but over 16%. The 5% increase is against your total income. Five divided by thirty is 16.6%, the real increase in taxes coming out of your pocket. This is money that could be used to buy goods and services, creating jobs. Now, it will go to the government for public spending and debt servicing.
My gut feeling is that the economy has seen the worst this round. Even if the economy improves, it will not translate to a higher standard of living. And if you have debt it will be worse yet. You pay debt off with after tax dollars.
It is in your best interest to reduce debt and prepare for a major transition in our economy, and I'm not just talking about alternative energy.
On a brighter note: Weather has sure been nice.
Don't throw anything at the nice accountant. Congress made the rules, we are just the messengers.
Friday, July 24, 2009
Cut Your Gas Bill 30% Without Giving Anything Up
With the new energy credits in the tax code, it makes sense to take advantage of low hanging fruit. This subject will require several posts and I will add the the subject on a regular basis.
Today, I want to grab the lowest of all hanging fruit, gasoline consumption. What I propose below costs you nothing and there isn't a tax credit for it. You can cut your fuel costs by 30% or more by following the habits outlined below.
* Keep your tires properly inflated.
* Do not neglect regular maintenance.
* Coast into stops.
* Accelerate modestly.
* Drive the speed limit.
* When replacing tires, buy low rolling resistance tries.
* Use synthetic oil.
* Use air conditioner sparingly.
* Do not accelerate up hills unless no other choice is available.
If you are real serious, use a ScanGuage II to get real-time feedback on efficiency. Following common sense and the law can be a real benefit personally in savings and to our society by using less imported energy.
I should not have to print this blog, but I get blown off the road every day and know how much gas is being thrown away braking and from aggressive driving.
My Honda Accord has over 100,000 miles on it and gets nearly 40 mpg. This, from a non-hybrid. Just think where energy prices would be if we all practiced better driving habits.
Check out http://www.cleanmpg.com/ for in-depth articles on improving your fuel efficiency. And a tax credit is not needed to get the advantage. In future posts, I will discus how to use the tax code to help pay for improving your home's energy efficiency.
Drive safe.
Today, I want to grab the lowest of all hanging fruit, gasoline consumption. What I propose below costs you nothing and there isn't a tax credit for it. You can cut your fuel costs by 30% or more by following the habits outlined below.
* Keep your tires properly inflated.
* Do not neglect regular maintenance.
* Coast into stops.
* Accelerate modestly.
* Drive the speed limit.
* When replacing tires, buy low rolling resistance tries.
* Use synthetic oil.
* Use air conditioner sparingly.
* Do not accelerate up hills unless no other choice is available.
If you are real serious, use a ScanGuage II to get real-time feedback on efficiency. Following common sense and the law can be a real benefit personally in savings and to our society by using less imported energy.
I should not have to print this blog, but I get blown off the road every day and know how much gas is being thrown away braking and from aggressive driving.
My Honda Accord has over 100,000 miles on it and gets nearly 40 mpg. This, from a non-hybrid. Just think where energy prices would be if we all practiced better driving habits.
Check out http://www.cleanmpg.com/ for in-depth articles on improving your fuel efficiency. And a tax credit is not needed to get the advantage. In future posts, I will discus how to use the tax code to help pay for improving your home's energy efficiency.
Drive safe.
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