Archive for the ‘14. Financial’ Category

HOW TO BECOME DEBT-FREE

If you become debt-free, you can save hundreds of thousands of dollars in interest payments over your lifetime and therefore have much more money to do those things you really want to do.  If you agree, how do you actually go about becoming debt-free?  That’s what this post is about.

Many people, including those with very high incomes, are simply conduits for money, receiving it and spending it, none of it staying with them after paying all of their expenses each month. Wealth is the money you have in the bank and in investments and other assets.  A high income can speed up your journey to wealth but only if you handle your money prudently.  However, most people that have accumulated wealth have average, or lower, incomes; basically their wealth came mostly from the appreciation of their home.  

One of the quickest routes to becoming poor is throwing your money away on credit card interest.  Therefore, one of the best investments you can make (for saving 8% to 30% interest every month) with little effort and with no financial training or education is to pay off your credit cards.  So before you invest money at today’s  pitiful rates, consider putting money you’d like to invest towards paying down and ultimately paying off your credit cards, starting with the highest interest rate card first.  Where do you find the money to do that?  You need to find an extra 10% of your income to then devote solely for paying down your debt each month.

After paying off your credit cards, focus on paying off your mortgage.  Since today’s mortgage interest rates are so low, why pay off a mortgage?  If you get from your bank a copy of the payoff schedule for your mortgage loan and compare  the principle of your mortgage loan against the interest due each month, you’ll see that even a small mortgage interest rate results in interest being most of each month’s mortgage payment, basically because you pay interest on the entire mortgage loan.  A relatively easy way to pay off your mortgage much faster is to pay at least an extra $100 or more towards your mortgage principle each month.

Finally, since most new cars depreciate by about 50% in only 3 years after purchase, you can save a huge amount of money by either buying used cars, or if you buy new ones, keep the car until it would cost more to fix it than the car is worth. I usually buy cars 8-10 years old.  Before the advent of cell phones, an older car could get you stuck in the middle of nowhere if it broke down.  But with an AAA card and a cell phone, you should be fine, unless your car ever breaks down in a bad neighborhood.  Moreover, older cars are generally safer than newer cars since older cars are much heavier than newer cars (that’s primarily how newer cars get better gas mileage).

For those with children going to college,  think seriously about your state college and compare its in-state tuition with tuition of other colleges.  Money should be borrowed only as a last resort with your overall financial goal being to live within your means.  Living within your means is not a goal in-and-of itself.  Living within your means is important in that it enables you to do those things that you wouldn’t otherwise be able to do because you couldn’t afford to because you’re not wasting money on needless interest.

Because I didn’t have a mortgage, for example, I had the funds to achieve one of my passions while living in Denver, Colorado: trap, neuter and return (TNR) about 100 cats (in accordance with the nationwide TNR program), maintain a  “come-and-go-as-you-please” cat shelter for feral cats, put out food and water for 30+ cats and a few dogs/day, and adopt and take care of 10 homeless stray cats, for a total cost of $5-10,000/year.

Whatever your hobby or passion, you’ll be much better able to pursue it if you are debt-free, as well as retire one day without being forced to live in near-poverty

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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TRUMP’S ECONOMIC PLAN: REDUCE TAX RATES TO INCREASE TAX REVENUE

 How can soon-to-be President Donald Trump pay for a trillion dollars in infrastructure improvements that he is advocating and still eliminate Budget Deficits and eventually the National Debt?  Few politicians explain this so I thought a U. of Penn Wharton graduate (me), who should know this, would explain it.  Many are concerned that the huge proposed infrastructure spending and proposed tax cuts will force the U.S. further into debt.  If you simply look at the economy as static, this would be true.  However, the economy is dynamic, not static.  Therefore, when you change some things, like reducing corporate taxes from the current 35% to President-elect Trump’s 15%, as well as reducing taxes on the middle class by about 1/3, this stimulates businesses in many ways, bringing back U.S. business and investment money to America and stimulating new businesses and the growth of existing businesses.  In addition, President Trump proposes imposing a 35% tax on any products companies try to sell in the U.S. if that company leaves the United States to make its products in another country.  Therefore, Trump’s economic plan  has both a carrot and a stick.  Moreover, Trump will repeal and replace Obamacare, which is a huge drag on the economy and businesses hiring full-time workers.

All of this resulting economic activity will result in a huge increase in the Gross Domestic Product (GDP), which is a measure of the size of the U.S. economy.  The taxes from this huge growth in economic activity, though the tax rates are reduced, will result in tax revenues being vastly increased.  President Ronald Reagan did this in the 80’s, as well as reduce regulations, and GDP consequently almost doubled in size within 10 years from the time that Reagan’s tax rate cuts went into effect (1983).  President Kennedy also did this in the 60’s.

GDP growth is extremely important because, with 4% annual GDP growth, the United States can afford to do what needs to be done without having annual budget deficits, that at the end of each fiscal year, are added to the total national debt.

However, the potential monkey-wrench in Trump’s economic plans, is that whenever the Federal Reserve significantly raises interest rates, which is likely to happen soon, a recession could follow.

PAY OFF THE NATIONAL DEBT BY BECOMING ENERGY INDEPENDENT

Few would disagree that it is a worthy goal for the United States to achieve energy independence, and even better, become a major energy exporter and pay off the national debt with the wealth we created from the proceeds?  Most would agree that achieving this goal with little or no air or water pollution would be a good thing for the U.S. and for the planet.  Wouldn’t it also be great if the U.S. had no national debt?

In 2013, the U.S. spent 388 billion dollars to buy oil from foreign countries, some of which are using our money to fund terrorist activities against us…and money that could otherwise be used to help stimulate the American economy and create jobs for Americans.  At the height of the Arab Oil Embargo in 1973, dependence on foreign oil was about 35%.  In 2013, dependence on foreign oil was 32%.  In other words, our dependence on foreign oil has slightly decreased in 40 years.

So what can and should the United States do, if anything?  I see two sides of this issue: 1) does the U.S. have the oil, natural gas, coal, nuclear, wind, solar and hydroelectric power to be self-sufficient and also export oil, gas, and coal; and 2) can we access, use, and sell some these energy sources in an environmentally responsible way?

From my research, it appears that the U.S. has over 100 years worth of natural gas, three times the oil stores of Saudi Arabia,  and 250 years worth of coal which the U.S. is now capable of burning using carbon capturing technology, with significantly reduced carbon-emissions.  Currently the U.S. gets about 18% of its energy from nuclear sources and a small amount from hydroelectric, solar and wind.

While the U.S. is furiously attempting to develop its solar and wind energy capacities, they won’t be significant sources of energy for at least 25 years.  We need to have sufficient energy now to fuel our economy, heat our homes,  as well as make gasoline abundant and affordable to power our cars and trucks (electric-powered cars run on electricity mostly generated by burning coal, the most polluting fossil fuel) .

There is no question that the U.S. is blessed with more energy than any other country.  Given the latest technologies, there’s also no question that we can extract and burn oil, gas and coal in an environmentally-sound manner.  The only hindrance is political.  There are a  number of people who believe that burning any fossil or carbon fuels, even the green fossil fuel…natural gas, is bad for the environment.  They have been effective in preventing oil exploration in ANWAR, in stopping the use of oil shale (although the oil from it can be extracted in-situ), and in preventing the licensing of new nuclear power plants (which are much safer than those old reactors in Japan, or the one in Pennsylvania (Three Mile Island… that had a partial meltdown in 1979). There are even prohibitions against drilling for oil even 1oo miles from our Florida and California coastlines.  Of course, China and Cuba are drilling  for oil 60 miles from our Florida coastline.  And of course the U.S. has loaned Brazil two billion dollars so that it can explore off of its coastline.

Finally, Canada was an economic basket case in 2009 and decided to get serious about drilling for oil because it needed the revenue.   It worked, and Canada is now doing very well.  Perhaps its neighbor to the south (the U.S.) will do the same.  Under Donald Trump’s presidency, America will finally become energy independent and also significantly pay down the National debt.

 

WHY DONALD TRUMP WAS ELECTED PRESIDENT? BACKBONE!

I’m sick of the media explaining that Donald Trump did well because of their many (half-baked) ideas and therefore I felt compelled to write this post, however, I must say that targeting blue-collar workers and rust-belt states was clever.

My credentials for saying what I’m about to say are simply that I’m a conservative, a graduate of U. of Penn’s Wharton School (but with a MGA , not an MBA), and have over 40 years employment with the Federal, a State and a city government.  I believe that Trump supporters support  him for the same reason that I like him:  the man has a stiff spine and is not timid.  When he’s criticized by the Press or political opponents, he doubles-down and fights back even harder.  In addition,  Trump’s focus on illegal immigration, the $19 trillion in National Debt, weakened military, Obamacare, anemic war on terror, tiny growth in the economy, etc. has touched a nerve with the electorate.  He’s truly a “Blue-collar Billionaire.”

Mitt Romney lost the 2012 Presidential election to President Obama because he refused to fight back.  He was more than capable, as evidenced by his outstanding performance in his first debate with President Obama.  When viciously attacked by the Obama campaign, he refused to fight back.  Governor Romney’s poor performance came on the heels of Senator McCain’s poor performance in the 2008 Presidential campaign.  Moreover, it followed President Bush’s unwillingness to fight back when constantly accused by the Left that, “Bush lied, people died.”

I’m not advocating picking stupid fights that can’t be won and simply receiving a black eye, but I also believe in not backing off when Democrats make false allegations.  For example, I believe that Speaker of the House, Paul Ryan, and Senate Majority Leader, Mitch McConnell, are often given bum raps when they don’t push a Bill in Congress that they know won’t pass.  However, there is a time to fight but Republican leadership doesn’t appear to have the stomach for it.  When there are good and rational reasons for not fighting, the Speaker and the Majority leader need to explain this on Fox News and other news outlets that are fair, otherwise don’t blame voters for thinking they are jellyfish-spine Republican Congressional leaders.

Donald Trump is a streetfighter.  “Turning-the-other-cheek” is not for successful politicians.  Trump is improving  his messaging and appointing impressive people to help him develop his policies.  He had a resounding victory over Hillary Clinton, thanks to his strong backbone. If he’s able to implement the policies he advocated in the election, he will go down in history as being one of our greatest presidents.  Congratulations and good luck Mr. President-Elect.

USE THE IRS TO HELP YOU SAVE MONEY: REFUNDS

If you have difficulty saving money, you can use the IRS to help you save.  How?  That’s what this post explains.

I have a problem saving money…money burns a hole in my pocket.  But this weakness of mine has not hurt me because I use a simple technique to save money despite my weakness.  Very simply, I have the IRS withhold much more money than I estimate I’ll owe in taxes.

Most financial planners advise against my method for saving.  Their opinion is that you don’t want to have the government hold onto your money when you could be earning interest on that money.  However, in the days of 1 % interest rates, plus my being most likely to waste and not save any extra money from my paycheck/pension, that argument does not make sense.

The strongest argument for having the government help you save is the following:  the Federal government takes money from paychecks before you see it.  Many people have great difficulty saving and would therefore save nothing without the government withholding money from pay.  In other words, 5% interest on 0 savings is 0. ..and that’s what I and many others would have saved without government withholding, 0.

With the tax refund I receive each year from the IRS I pay off credit card debt or do something else requiring a chunk of money.  But, of course, you can use your refund for anything you like:  a vacation, home improvements, auto repair, etc.

I’ve used the IRS to help me save money for years, and  I found that it works very well. The only qualifier, however, is that with today’s rampant ID fraud, there is a slight possibly that someone else may receive your tax refund. Try doing it this year and see the results for yourself.

 

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