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.
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, May 1, 2011
All Good Things
It was easy to see when it was Friday afternoon in my office for a long time. The boss, me, had an extra lively bounce in his step as the week approached end. And everyone knew why. It was card night.
"Playing cards with grandpa tonight?" I was asked by everyone. You bet I am. In my home, in my dining room, my grandfather, dad, two nephews, friends, neighbors, and I would gather for a night of sheepshead, the best card game ever played. My daughters watched four generations of Schroeder's sit at the same table week after week and play an old German game of cards, tell stories, and laugh. But all good things must end.
For years I deluded myself, wanting to believe it would last forever. This tax season lost that bounce as my grandfather felt the weight of the timekeeper. In mid-March he played his last game of cards at my daughter's birthday party before heading to the hospital and then nursing home. I visited often, watching a strong man yield to ninety years of life. Then, around 3:30 Good Friday afternoon, the card game ended forever. Easter Monday the family gathered one last time to honor our patriarch.
Last Friday we gathered for cards again without grandpa. It was a quiet night. It felt wrong. In honor of grandpa, we will continue on, enjoying the company of friends and family. All will remember in their own way.
I stopped writing for months as the workload of tax season and the desire to spend quality time with family left me without time to write. I'll get back in the saddle and write more. Grandpa would have wanted that. Next tax season should be happier.
I have no regrets spending time with family all these years. At times my workload left me so tired I could hardly think; I still made time for family. I do not regret one moment of it.
One his deathbed, my grandfather never once talked about money or work. He talked nonstop about family and that game of cards. He was the hardest working man I ever knew, but what he found most valuable was family and the time he spent with us. There is a lesson in there for all of us.
"Playing cards with grandpa tonight?" I was asked by everyone. You bet I am. In my home, in my dining room, my grandfather, dad, two nephews, friends, neighbors, and I would gather for a night of sheepshead, the best card game ever played. My daughters watched four generations of Schroeder's sit at the same table week after week and play an old German game of cards, tell stories, and laugh. But all good things must end.
For years I deluded myself, wanting to believe it would last forever. This tax season lost that bounce as my grandfather felt the weight of the timekeeper. In mid-March he played his last game of cards at my daughter's birthday party before heading to the hospital and then nursing home. I visited often, watching a strong man yield to ninety years of life. Then, around 3:30 Good Friday afternoon, the card game ended forever. Easter Monday the family gathered one last time to honor our patriarch.
Last Friday we gathered for cards again without grandpa. It was a quiet night. It felt wrong. In honor of grandpa, we will continue on, enjoying the company of friends and family. All will remember in their own way.
I stopped writing for months as the workload of tax season and the desire to spend quality time with family left me without time to write. I'll get back in the saddle and write more. Grandpa would have wanted that. Next tax season should be happier.
I have no regrets spending time with family all these years. At times my workload left me so tired I could hardly think; I still made time for family. I do not regret one moment of it.
One his deathbed, my grandfather never once talked about money or work. He talked nonstop about family and that game of cards. He was the hardest working man I ever knew, but what he found most valuable was family and the time he spent with us. There is a lesson in there for all of us.
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?
Saturday, March 12, 2011
Sunday, February 20, 2011
When You Must Absolutely File Married Filing Separately
Most married taxpayers should file a joint return as it is rare to cut your taxes by filing separately. Another overlooked reason for married taxpayers to file a separate return is to protect from spousal liability. This week a perfect example arose in the office on when to file a separate return.
A client informed me a family member of theirs had embezzled money from his employer. I had to tell the client that the legal issues are only the beginning of his problems. Once convicted or a plea agreement is reached, the IRS reviews the public documents and sends the taxpayer a bill for the unreported income. Yes, embezzled money is reportable and taxable income. Then the state will follow-up with their tax bill.
If the tax return with unreported income is a joint return, both spouses are fully liable. If the spouse that committed the crime ends up in jail, the other spouse will owe the entire tax bill. Since the criminal charges were already filed when the tax return was signed by both spouses, neither innocent nor injured spouse protection applies.
I feel bad for this family. They filed their tax return a few weeks prior to my knowledge of the situation. The wife will owe a lot of taxes her husband is guilty of creating.
If you suspect your spouse is gambling, or partaking in questionable business activities, or embezzling, file a separate tax return. You can always amend a “married filing separately” tax return to a joint return, but you cannot amend a joint return to a separate one.
Since these tax issues usually end up in the tens of thousands of dollars, think long and hard before you sign any tax return. It is very difficult to convince the IRS or courts you had no knowledge of the illegal act. When in doubt, pay the extra tax, and file your own “separate” return.
A client informed me a family member of theirs had embezzled money from his employer. I had to tell the client that the legal issues are only the beginning of his problems. Once convicted or a plea agreement is reached, the IRS reviews the public documents and sends the taxpayer a bill for the unreported income. Yes, embezzled money is reportable and taxable income. Then the state will follow-up with their tax bill.
If the tax return with unreported income is a joint return, both spouses are fully liable. If the spouse that committed the crime ends up in jail, the other spouse will owe the entire tax bill. Since the criminal charges were already filed when the tax return was signed by both spouses, neither innocent nor injured spouse protection applies.
I feel bad for this family. They filed their tax return a few weeks prior to my knowledge of the situation. The wife will owe a lot of taxes her husband is guilty of creating.
If you suspect your spouse is gambling, or partaking in questionable business activities, or embezzling, file a separate tax return. You can always amend a “married filing separately” tax return to a joint return, but you cannot amend a joint return to a separate one.
Since these tax issues usually end up in the tens of thousands of dollars, think long and hard before you sign any tax return. It is very difficult to convince the IRS or courts you had no knowledge of the illegal act. When in doubt, pay the extra tax, and file your own “separate” return.
Monday, February 14, 2011
The IRS Will Accept All E-filed Returns Today
The IRS has completed its computer updates accounting for the tax law changes Congess made in mid-December. You can e-file your return after 11:00 a.m. local time today if you prepared your own return. If you paper file the delay will be significantly longer. If we prepared your return you do not need to do anything. I will file your warehoused return during the first available IRS drain. My office will call you to confirm IRS acceptance of your e-filed return. If you provided us with your email address, my tax software company will email you acknowledgement of your accepted return.
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