Archive for the ‘10. Financial’ Category

HOW TO BECOME DEBT-FREE & SAVE

If you become debt-free, you can save hundreds of thousands of dollars in interest payments over your lifetime and therefore have 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 payments) with little effort and with no financial training or education is to pay off your credit cards.  So before you invest money, 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 it 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 $200 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 location.  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).  Another reasonable option at times is to lease a car.  Leasing a car can also be economical.

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, however  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 credit card 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” heated cat shelter for feral cats, putting 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 $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

GOP/TRUMP ECONOMIC PLAN: REDUCE TAX RATES TO INCREASE TAX REVENUE

How can President Trump and the Republican House and Senate pay for large tax cuts and a trillion dollars in infrastructure improvements that they are advocating and still eliminate Budget Deficits and eventually the National Debt?  Few politicians explain this so I thought that a U. of Penn Wharton graduate (me), who should know this, would explain it.  Many are concerned that the large 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 Trump’s 20%, as well as reducing taxes on the working and the middle classes, 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, Trump will repeal the individual mandate contained in Obamacare, which is the penalty that Obamacare imposes on those who chose not to be covered under it, estimated at $358 billion. Finally, there is about $3 trillion in U.S. corporate funds residing in other countries, that with a one-time repatriation tax rate of 10%, will return to the United States and be invested here.

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.

If some form of the Trump/GOP tax cuts become law, the United States economy (as measured by Gross Domestic Product, GDP) will more than double in 10 years.

 

 

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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