Oct 08

A Guest Post from Crystal –

The level of debt amongst ordinary American citizens suggests that few are really good at managing money. While no one is suggesting it is always easy there are a few pointers that might be able to help you whatever your age. The tendency for people to spend what they earn each month and sometimes more makes saving and investment alien to a whole section of the population. You should resist that and start to pay more attention to your circumstances, present financial position and the future.

Investment

Some increase their assets relying on real estate. It has been a good way to build up money though the recession was a period when values dropped, sometimes alarmingly. In the medium to long term real estate however should always be a good investment. There are other alternatives. The S&P 500 has shown average growth since 1871 of over 10%. A single dollar invested in 1871 would now be worth $2.25 million, well ahead of inflation don’t you think? The figure is even better over the last 40 years. Even if you have no financial expertise you can expect good growth if you invest, the earlier in your adult life the better.
If you had started with only $500 in your first year and put aside $250 each year for investment over the next 30 years, that $8000 at 8% would have grown to over $35,000! The amounts involved are easily affordable are they not? Compound interest produces considerable growth over a long period.
It is a message that more young people seem to be getting rather than turning exclusively to student loans and the credit cards they can first obtain at the age of 18. The picture is still poor however with two thirds of students still needing to borrow at least 25% of their education costs knowing that it can take up to 10 years to pay off the loan. Figures show that this year’s graduates with student debt owe on average $35,000.

Household Debt

NerdWallet tells us that the average US household owes $15,000 or so with interest paid on credit cards reaching a massive $90 billion. Frightening, isn’t it? The picture doesn’t look good, yet compound interest results in money growing quickly. The smallest amount set aside will grow. The secret is to get rid of debt so that you can start to set it aside.
The terms of a student loan are not onerous but the interest that is added to any balance on a credit card every month could be described as penal. Some students who have used their first card for normal daily living will be paying a high price. It is one that many US households seem to be paying as well.

Employment Critical

As the US Economy improves after the years of recession unemployment figures are encouraging. Job are being created month on month and unemployment levels are back down to the level when the economy was buoyant before the recession hit. Those people that have a regular pay check coming in each month can look for an escape from expensive debt in today’s online lenders network at realisticloans.com that look at personal loan applicants and approve loans based upon the concept of affordability rather than credit score.
The application is quick and simple. All you have to do is to decide to act to sort out your financial problems. If you don’t the chances of building up a fund as illustrated above are minimal. Online lenders deal with applicants in this completely online process within hours of the email being sent. They require employment and bank details from applicants. If the sum being sought can be justified by the figures the money will be transferred electronically very quickly. A loan that can completely remove credit card debt is good news. The caveat is that you do not build up a balance again; there may not be an escape route.

Whatever your age you must think about the future and not rely on the Social Security System as your ultimate savior. The sooner you address any financial difficulties you have the better. Retirement years should be ones of comfort not sacrifice. They can be if you are proactive and don’t simply think the future will look after itself.

written by Joe \\ tags: ,

Aug 24

That was the title of a Barron’s article this past week. There’s been more and more press about the gap between the rich and the poor. In my work as a real estate agent focussing on renting to low income people, I see people who aren’t lazy, but just the opposite. Showing me proof of income made by working a 40+ hour week at a minimum wage job, and asking if we can take their cash income into account as well. The regular extra money they make doing some labor or babysitting nights or weekends. When you make $1400 a month working full time, you’re not going to able to afford much in the way of housing. We try to see three times a rent for income, i.e. $2400/mo income to qualify for an $800/mo apartment.

The Barron’s article started off with an observation, $1.4 trillion cash in the economy. The federal reserve backs up that number. The authors then make 2 logistical leaps that are beyond comprehension. First, that this cash is income. Forget for a moment that most people don’t keep more than a few hundred dollars sitting around. Even if they did, it only counted as income (declared or not) when it came in. The authors then assume that 80% of this money is income to the poorest 1/3 of households, the bottom 40 million families. Then, by magic, wait, not magic, a miracle. As in this cartoon.

miracle

Where was I? They conclude that the bottom 1/3 have an income that’s understated by as much as $30-$40K per year. To be fair to Barron’s and their real authors, the article was published in the “other voices” page.  This is where essays are solicited from readers who have some knowledge of finance. Whoever accepted this article blew it, in my opinion. Is there no cash economy? No. Of course there is. However, the numbers presented in the article offer bad math and a false conclusion. The income gap is so large that if it’s exaggerated by some percent, it’s still an issue. Sorry, Barron’s, this article isn’t worthy of your otherwise fine paper.

(Note: I am not condoning undeclared income, just putting it in perspective. A real estate agent is not an agent for the IRS, in fact we have an obligation to count any and all income, regardless of source.)

 

written by Joe \\ tags: ,

Aug 10

It’s already election season, and we have 15 months to look forward to our politicians each jockeying for position, name calling, debating, all the way to the final two (or three?) we can choose from in November 2016. I am a personal finance blogger, and do my best to stay non-partisan, but when I hear proposals that will affect our tax code or cause me to change my advice on investing, I’m going to analyze it here.

Today, it’s Chris Christie’s proposal to cut social security benefits. First, he’d like to push the age for full retirement benefits from the current 67 to 69. For this part of his proposal, I’d like to address the elephant in the room. The fact that this impacts black men disproportionately from whites.

From the CDC, “In 2011, life expectancy at birth was 78.7 years for the total U.S. population, 76.3 years for males, and 81.1 years for females. Life expectancy was highest for Hispanics for both males and females. In each racial/ethnic group, females had higher life expectancies than males. Life expectancy ranged from 71.7 years for non-Hispanic black males to 83.7 years for Hispanic females.”

BlackWhiteLifeExp

In other words, on average, a 67 year old black man has 4.7 years left to live, and a white man, 9.3. This cuts the benefit by 42% for black men, but only 21% for whites. I read his proposal and didn’t have to search too long to find government number for life expectancy. Yet, in all the media I consume, all the articles on the Christie proposal, I have yet to see this addressed by anyone. (To my readers – This observation opens a discussion of a far larger issue, health care. In the long term, instead of tinkering with Social Security benefits, we need to close this gap.)

Next, we have his plan to reduce benefits for that he believes simply don’t need the money. How much is that? He would phase out the benefit for those with incomes from $80K to $200K. For a single person, that’s quite the range. In the last election, I recall $250K/yr being considered rich. And we discussed the difference between rich income vs rich wealth. It’s possible to make $250K and blow through every dime, and it’s also possible to make $100K and save your way to a $2M retirement fund. But here, we’re talking about retirement, and the connection between $80K and the wealth it represents is best thought of via the 4% rule. In other words, assuming I spent a lifetime of work saving to my 401(k) and IRA, pretax, it would take $2M of wealth to let me withdraw $80K per year. This takes an above average wage (or wages for a couple, but if one person passes early than the other, we still have a single person dealing with this money) but nowhere near what we consider “rich.”

At $80K taxable, we’ll ignore deductions for this discussion. This person might have as much as $40K in Social Security benefits. The furnace breaks, the roof needs replacing, a child needs help sending your granddaughter to college. Whatever the reason, $60K extra is withdraw from the 401(k). The tax rate this year would be 28%, netting $43,200 to pay a year’s tuition. But Christie would add an effective tax of $20K (i.e. confiscate half the SS benefit) and the net result is $23,200 from that $60,000 withdrawal. This results in a marginal rate of 61.3%.

What I find most troubling is the Catch-22 in which we all seem to find ourselves. Social Security feels like a retirement plan. From the time I started working, I’d get an annual statement, basically telling me that if I kept working to a certain age, 62,65,70, I’d expect a certain benefit. Yet, as many have noticed, the statement have a warning.

Your estimated benefits are based on current law. Congress has made changes to the law in the past and can do so at any time. The law governing benefit amounts may change because, by 2033, the payroll taxes collected will be enough to pay only about 77 percent of scheduled benefits.

This, and the warning that it’s really not a retirement plan, but an insurance, leaves us all encouraged to save all we can, 10-15% of our income being ideal. In my example above, it was more about how the retiree saved than how much. In hindsight, had the savings been post tax, subject to a 25% margin rate, the accumulation might be $1.5M instead of $2M. The tax on dividends would be 15%, as would cap gains. But withdrawals wouldn’t be considered income, and Christie’s horrific proposal could be moot. To be clear, his proposal doesn’t just hit the wealthy, but those who simply saved what they could in a responsible way.

More to come on the topics raised here. What do think about Christie’s proposal? If you agree with him, what am I missing? If not, how would it impact you? Last do you feel that Social Security is a “Entitlement” or do prefer to call it an “Earned Benefit”?

written by Joe \\ tags: , ,

Jul 24

Today, a guest post from Crystal –

Many of us dream about hitting the road or traveling the globe… ideally without sapping our savings dry! To travel while working is the ultimate lifestyle. Here are some ways you can explore the world while still earning a living.

Freelance

Thanks to the internet and the rise of sites such as Elance and Freelancer, there is a whole suite of opportunities for writers, journalists, editors, graphic designers and programmers. These sites give professionals the ability to list their résumé and experience online and then bid for thousands of jobs available.

Initially, it can be a slow start as you build you profile and reputation. But once you are established, there is regular, paid work to be found and even a decent income to be had. The best thing is the work can be done from anywhere – an office, the beach or your dining table – using only an internet connection and laptop. Jobs are invoiced and paid online, with job tracking and even time tracking included as part of the service.

Sales

New technology has also changed the face of sales, meaning it’s no longer a door-to-door profession or needs to be based from a sales office. For example, companies such as Telcoinabox offer the opportunity for those with sales skills to essentially set themselves up as a telecommunications provider. Everyone uses telecommunications products every day, meaning anyone is a potential customer and they can be serviced from anywhere with a phone and computer.

Consulting

If you’re an expert in your field then consulting is a great way to earn money while on the road. With experience in fields like human resources, finance, IT or business mentoring, consultants can charge big dollars to help start up or shape up a business.

Tutor

It’s old school but noble. Tutoring, whether it’s in English, maths or general studies, is a great way to earn cash while traveling. It’s also a great way for you to engage in a little culture while overseas as you get to know new people and share your skills.

There are some great organizations that can find you positions overseas and provide you with accreditation, or you can establish yourself as an independent traveling tutor.

Website/Blogging

If you’re a great writer and have knowledge or wit to share then setting up your own website or blog could provide a steady income while you’re on the road. Income is derived through advertising or membership, but it’s a competitive field, so ensure your topic is of interest and you have a new take on it.

From parenting to food blogging, there are people making good money after establishing their own sites.

As technology and access to it improves by the day, more and more opportunities are opening up to global citizens looking to make the world their workplace. Whether it’s using your language skills, professional expertise or sales smarts, it’s simply a matter of taking the leap and finding the field to suit you. Then you can sit back on that beach in Thailand while the money keeps coming in.

written by Joe \\ tags: ,

Jul 09

I was listening to my local news station when a segment came on, a 5 minute bit of money advice with a local author and financial planner, Jonathan Pond.

I like his conservative approach. What’s unfortunate is that a quick few minutes to discuss any financial topic is going to miss some important details. In this case, the host asked what one should do with their 401(k) when they leave a job. Jon’s answer was to not leave it languish in the old account, to move it to an IRA. I hope listeners took that advice as “don’t forget about the 401(k), get more information.” I often say that it’s called personal finance  for a reason. Not all situations are identical. Let’s review 3 situations where leaving the account where it is would be best:

  • You were 55 or older when you left the company. Did you know that if you retire at 55, and try to take an IRA withdrawal before age 59-1/2, you’ll pay a 10% penalty? Yes there are some workarounds, a Sec (72t) withdrawal for instance. The simplest thing, however is to leave the funds in your 401(k) where you can withdraw with a 20% tax withholding, but no penalty, if you separated at 55 or older.
  • Your old 401(k) had great investing options. It’s possible. My old company 401(k) uses a Vanguard S&P fund that has a .02% annual expense. This is a $200 fee for every $million invested. The typical 401(k) expense is 1% or .02% per week.
  • Last, you’ve been doing well, well enough that you can’t make a pre-tax IRA deposit. Still, each year, you can do the back door Roth. Deposit to the IRA and immediately convert to Roth. Easy, right? Yes, but if you transfer your 401(k) to an IRA, and then try this maneuver, you’ll be in for a headache and tax bill. Conversions to Roth are prorated, all your IRA money is considered. So if you had $95K in your IRA and then deposit $5K to convert, 95% of the conversion will be taxable. Keeping the funds inside the 401(k) is the way to keep these funds segregated.

Are you making this decision right now? What factors have been part of your thought process? Have friends or family been giving you advice to go one way or the other?

written by Joe \\ tags: ,