Monday, December 07, 2009
Thursday, November 26, 2009
More than a year ago I wrote a post (see below) about taxing stock transactions. I suggested 10c per share on both sides. Some of our politicians are suggesting .025pct. There really is no reason not to do it either way. Spreads have narrowed in the past several years to pennies from nickels, dimes and quarters. So we know that the market can operate with the wider spreads. Historically spreads are the profit margin of market makers. Well in this era, who is a bigger market maker than the US Treasury ? They are providing liquidity at every corner, so why shouldn’t they (we) get paid for it ?
Of course like any other government attempt to raise taxes, how they use the money is where they will absolutely screw it up. In this example they want to use half the money to fund a Job Creation Fund. A government run Job Creation Fund is the ultimate Oxymoron. Let me offer another post of mine that suggests that we open the doors to entrepreneurs and simplify and cheapen their cost to start businesses. The process of creating a company in this country has become so burdensome at the hand of regulation, insurance, taxes and administrivia, that we are slowing the true job creation engine that this country needs right now. Instead of the Government funding jobs, if the focus is on job creation, which is what it should be today, these funds should be used to remove all friction to those who start, fund and run companies.
This is from an excerpt from a post of mine and it is exactly what a smart politician should propose today in order to stimulate the creation of jobs in this country
Jul 28th 2008 10:13AM
What has impacted my decision on whether or not to start a business is the amount of paperwork involved and the local, state and employer taxes involved. Its complicated and expensive to start even the smallest business in the real world. The real world of course is different than the Internet world. The state of business, and in particular, entrepreneurship in the US has devolved into two worlds, the Internet and the real world.
In the Internet world, all you have to do is setup an account with an ad network, put it on your website, generate some traffic and they send you a check. . No licenses, no tax id, no announcements in the newspaper. It took me minutes. Its exactly what millions of people do as well and its created an entire Internet economy that lives off of Google, Yahoo, MIcroSoft, AOL, Ebay and others. Its the entrepreneurs path of least resistance, which is exactly why most take this route.
Compare that with setting up a real world business. This is from the State of Texas: (Which I am proud to say makes it far easier than most states to start a business).
Step 1:Legal Structure and Registrations
Step 2:Business Tax Responsibilities
Step 3:Licenses Permits and Registrations (Note to State of TX, this link was broken, I had to find the destination page )
Step 4:Business Employer Requirements
As an entrepreneur , I can tell you that working through the requirements of these four steps is scary and intimidating. Why ? Because to merely start your business, you have to deal with lawyers and accountants, which not only costs a lot of money, but more importantly, requires you to trust those lawyers and accountants to make decisions that could have make or break consequences on your business. You may have the best idea with the ability to execute on that idea, but one little snafu by these professionals and your business is down the tubes.
Even worse, if you mess up on any of this, you could get in legal trouble. You could get sued, or find yourself in the middle of some legal nightmare.
Then of course, there is the financial reality of having to pay all of the business and employer taxes and ever increasing insurance premiums.
Which brings us back to How to Jump Start the Economy.
If you want to see an immediate re invigoration of the economy, open the door back up for individual entrepreneurs to enter the real world without fear and without an immediate financial burden that pre empts their ability to be successful.
If we really want to stimulate job creation in this country, take the same approach to small business with 25 or fewer employees that we take to Internet taxes. Outlaw them.
No taxes or license fees of any kind on small businesses with 25 or fewer employees. No employer payroll tax. No state or local taxes. No taxes on earnings. No Payroll taxes. Nada. Use the money from the proposed taxes on the trade of public shares to fund not only this, but healthcare insurance premiums as well. The business owners and their employees will pay income taxes on their personal income , but not corporate earnings
The only taxes they would collect and remit are sales taxes and of course they would still file personal income taxes on their individual earnings.
Make this available exclusively to owner operated companies and only allow the operator to own and operate a single company (to prevent gaming the system).
The impact on the economy would be amazing and immediate. Those without jobs would be able to work for themselves. They would be able to join together and start companies. They would be able to take risks with far less capital and far less fear of failure. Sweat Equity would be all it takes to start a business. In addition, we would see many cash only propreiters go legit.
Not only would we see hundreds of thousands of new businesses started seemingly overnight, with millions of new hires, but from those new businesses would come new ideas that hopefully would give us our next engine for economic growth that super cedes today’s ideas.
For Congress, the challenge will be to keep the process simple. A simple no cost, online registration for the businesses, with information about the who, what, where and ownership of the companies so that they can track and help fund them. Which in turn would create the information base from which to fund the state and local revenue that would be lost. Easy ? No. But a far greater reward in job creation and growth for the country than the Government creating Job Funds and public works efforts.
In this economy we should open the door to our country’s Intellectual capital and the entrepreneurial energy that separates us from the rest of the world. Make it easy for entrepreneurs to do what entrepreneurs do, and great things happen. Voters and politicians alike seem to have forgotten what has made this country an economic powerhouse. We need to focus on creating a friction free environment for small businesses. That is exactly what will create jobs
Sep 30th 2008 9:02AM
Tax every single share of stock that is bought and sold 10 cents per transaction. One dime. If you buy a share of stock, your brokerage pays a 10c tax. If you sell a share, your brokerage pays a 10c tax. 1 share, 100 million shares. Its 10 cents per share.
Of course the tax will be paid for by those of us who are buying and selling stocks. So what. Here is the reality. If you are a true investor. Someone who wants to own a share of stock in a company you believe in, then its an amount that is not going to impact your investment decision making process.
If you are a professional trader or an institutional trader that trades continuously, then it may impact your decision making process, but only to the point of reducing your returns by a minimal amount. Its not going to change your inclination to trade. If you make 9.9pct instead of 10pct, you aren’t going to stop trading.
Whats the economic impact ?
If the NYSE, Nasdaq, Amex and OTC are trading 2 Billion shares a day, thats $ 200 Million Dollars PER DAY. If there are 260 trading days a year. Thats about 52 Billion dollars a year.
Thats real money.
Of course there has to be some fine print. You could reduce the tax per share for stocks under $5 dollars to 5cents. But i would leave it at 5cents even for stocks priced at pennies per share or less. This tax would act as a protection for investors and traders who get pitched unregulated penny stocks and who are more often than not the victims of rip off artists.
Take this $52 Billion Dollars and ????. I will open it to the floor for suggestions and save my conclusion for a later post.
Thursday, October 22, 2009
This is a guest post from Robert Brokamp of The Motley Fool. Robert is a Certified Financial Planner and the advisor for The Motley Fool’s Rule Your Retirement service. He contributes one new article to Get Rich Slowly every two weeks.
In recognition of National Save for Retirement Week, let’s take a gander at some numbers:
- The average Social Security retirement benefit is $1,159 a month, or $13,908 a year.
- According to the Employee Benefits Research Institute (EBRI), approximately a third of the 60-and-over crowd receives a monthly check from a defined-benefit plan, also known as a traditional pension. The average annual benefit is about $18,000.
Put those together, and you come to two conclusions:
- If you aren’t covered by a traditional pension and choose not to save for retirement, you’re left with just Social Security and an annual retirement income that is not far from the poverty line ($10,830 for a single American in 2009). Not fun.
- If you’re one of the lucky few (and getting fewer) who will receive a monthly check for life from a defined-benefit plan, those checks combined with your Social Security would amount to an annual retirement income of bit over $30,000, assuming the averages. That’s not a bad income, especially since many expenses really do drop in retirement (though some retirees go nuts with the cruises and RVs). But here comes the bad news: Most pensions don’t adjust for inflation. So an $18,000 benefit today would be able to purchase just $13,274 worth of goods in a decade, assuming a 3% annual inflation rate.
Oh, and there’s another little issue. Social Security and many (if not most) pensions may not have enough money to pay off projected benefits.
The bottom line is this: If you want an above-the-poverty-line retirement, and you want to feel comfortable that it will stay that way for the length of your retirement, then you must save, save, save, and then save some more.
It’s obvious, I know. At least, I think it is. But clearly not everyone is getting the message.
The EBRI reports that “among all families with a defined-contribution plan [such as a 401(k)] in 2007, the median (mid-point) plan balance was $31,800…Among all families with an IRA/Keogh plan, the median value of their plan was $34,000 in 2007…” Keep in mind that those are figures as of 2007, before the stock-market crash last year. So if we assumed that someone had both an average-sized 401(k) and average-sized IRA, then they’d have savings of $65,800 or less. That would be a nice chunk of change to find in the sofa cushions — but it wouldn’t last long as a primary source of living expenses.
How much do you need to save?
In a previous post, I described how you could use an online financial calculator to estimate when you can retire given your current savings rate, how much you need to save now to retire when you want, and the impact of various scenarios (e.g., working part-time in the first few years of retirement, downsizing to lower-cost living arrangements, etc.). As I wrote then, these calculators aren’t crystal balls; the future is just too unknowable. But they will provide a very enlightening estimate of whether you’re on track, and what changes will have the biggest effects on your retirement success.
Furthermore, they show the long-term benefits of saving. Go ahead, run your numbers, and then do it again, but this time assume you’ll save, say, an additional $200 a month. Chances are, you’ll be impressed, especially if you’re on the young-ish side.
Or for a different take, fill out a retirement calculator and assume you don’t save another dime. Then see what kind of retirement you have in store. For most people, it won’t be pretty…and that might provide a necessary kick in the pants.
I’ve confessed before that, despite being the retirement-planning guy at The Motley Fool, I don’t plan to fully retire. Yet I continue to max out my 401(k), year after year. I know there may come a time that I may no longer be able to work, and it’s also likely that I’ll join that Great Tax Shelter in the Sky before my wife. I save now because I want my future enfeebled self and widowed wife to be taken care of.
So do a big favor for your future self and (if you’re the marrying type) your future spouse: Save, save, save, and then save some more.
A stiff upper lip
Finally, on an unrelated note: If you’d like to spend money right now rather than save it, but you’d prefer it goes to a good cause, and you’d like the added bonus of seeing some really horrible collections of facial hair, support this year’s Mustaches vs. Cancer campaign.
Along with five other Motley Fools, I am participating in this two-month mustache-a-thon (much to the chagrin of our female friends). You can sponsor my ‘stache at my profile page. Yes, I know it looks like a balding caterpillar died on my lip. But it’s only been a couple of weeks, and it raises money to help kids with cancer. So give a hoot, support my snoot!
Related Articles at Get Rich Slowly:
- The Perfect is the Enemy of the Good
- Ask the Readers: What Can I Do If My Girlfriend Isn’t Serious About Money?
- Budgeting for Non-Budgeters: The 60% Solution
- 43% Won’t Have Enough in Retirement
- Follow-Up on the 63-Page Credit Card Agreement
Friday, October 09, 2009
Finances are one of the most complicated things in many people’s lives … and yet, they don’t have to be. With a little effort, you can simplify your financial life and end the money headaches most people face.
I consider myself a minimalist. As such, I shy from all kinds of complexities. I look for ways to simplify. I like worry-free solutions — I like to forget about it, so I can focus on things that are more important to me.
Here’s how I simplified my financial life:
Step one: I opted out of consumerism.
This is the first and most important step. If you’re a long-time GRS reader, you already know all about this — if you’re new, dig through the GRS archives for some great stuff about frugality and the consumerist mindset.
Too often, we get into the mindset of buying, of attaining more, of shopping for pleasure or stress relief or finding self-worth, of impulse buys. This is a mindset that comes from years of exposure to advertising, and it’s hard to stop. Start by becoming more conscious of it, and by telling yourself that you will no longer find pleasure in buying and having material things.
When you find yourself with an urge to buy, stop and breathe. Put the item on a 30-day list and don’t buy it until 30 days after you put it on the list. Usually the impulse will dissipate. Give thought to every purchase and ask yourself, “Is this really necessary? Can I live without it?” Try to live only with what’s necessary and get happiness from doing things — from spending time with people, from creating — rather than from material goods and spending.
Step two: I saved up an emergency fund
Before you can find financial peace of mind, you need an emergency fund, otherwise you’re always going to be living on the edge, from paycheck to paycheck. Every unexpected expense that comes up will derail everything I recommend below. This point has been driven home many times on this site, so I won’t belabor it. But start here: Save up at least $500 by putting $50-100 per paycheck towards this fund, and gradually build up to $1000 or more.
To do this, cut out unnecessary expenses. Look closely at your spending, including regular payments you might have forgotten about, and see what can be cut. There’s always something:
- magazine subscriptions
- monthly payments for services you don’t really need (including online services)
- buying books when you could use the library
- cable television
- a bigger car than you really need
- gourmet coffee when you can make your own at home
- a bigger home than you need
- storage space when you could just sell your stuff
- clothes and shoes when you already have plenty
- gadgets and computer purchases you don’t really need
- going out to lots of restaurants or bars or clubs or other expensive entertainment when you could stay home or do fun things without spending much
Put the money you cut into your emergency fund until it gets to at least $500.
Step three: I got out of debt.
Again, this has been well-covered here at GRS and elsewhere. But it’s important — otherwise, minimalist finances will be difficult to achieve. Debt payments are not essential — you shouldn’t have them in the first place. But until you pay them off, they’ll be headaches.
After you’ve saved at least $500 for your emergency fund, put most of your extra income towards debt payment, one debt at a time, until you’re all paid up. Maybe put a little each paycheck towards your emergency fund.
This step will take the longest, but it’s well worth it. And you can do the other stuff on this list immediately, without having to complete this step first.
Step four: I use cash, not credit
I’m a big fan of cash, and a big credit card hater. Credit card bills are a blight on most people’s finances; they make it too easy to spend money you don’t have, and then you end up paying tons in interest and fees.
Sure, it’s possible to use them responsibly, but in most cases, it’s an unnecessary temptation. Ditch the credit cards and use cash and (sometimes) Visa or Mastercard debit cards. These are better only allow you to spend money you already have.
Cash is great because you can withdraw a pre-determined amount each month, and you always know how much you have left. With credit cards, it’s easy to spend more than you have budgeted; to stay within a budget you’ll have to constantly track your expenses. No need to track expenses with cash — you can see you only have a little left. Try the envelope system for cash: Put designated amounts of cash into separate envelopes for groceries, gas and other spending.
Step five: I automated my finances.
I don’t like worrying about bills, so I’ve made my finances automagical. I have all my income automatically deposited in my checking account, and I’ve set up automatic payment for all bills. Some are done by automatic deduction, when possible, and others are done by using the online bill-paying system of my bank, set to recurring monthly payments. Other bills — my rent, for example — I’ve paid in big chunks, six months to a year in advance. I also make savings transfers automatic, and when I was in debt, those payments were automatic as well.
It helps to have a sizable emergency fund so you can make payments like this and not worry about whether there’s enough in your account for all of your automatic bill payments. I’ve actually split my emergency fund into two:
- Most is in an online savings account.
- The rest is in my checking, so I always have a comfortable cushion in my checking account.
It takes a little while to get automated finances just right, but you can start today by setting up automatic deposits and deductions and bill payments. It’s nice, because your finances also become paperless.
I recommend putting a reminder in your calendar to check on your bank accounts once a week, just for peace of mind. Otherwise, you can now forget about finances.
Step six: I don’t buy unless I need it — and have the money.
This is such an old and common-sense piece of advice that it’s almost embarrassing to put it here. But it’s important.
Once you’ve done all of the above, you’re debt-free with a good emergency fund and automatic finances. But what about purchases from that point forward? Should you buy a bike if you want to commute by bike? Should you buy new furniture? The answer is two-fold:
- Don’t buy it unless you really need it, and
- Don’t buy it unless you have the money already. Not “if you have the money next month or next week”, but only if you have the money in hand.
It’s as simple as that.
Avoid debt as much as possible. The last car I bought was used, and I was able to pay cash for it (with a trade-in). I hope to buy my first house completely with cash (or at least mostly with cash).
Don’t buy it unless you need it — and only if you have the money. If you follow these two rules, you’ll never have to worry about finances again. You’ll be able to bask in the glory of your worry-free financial life — and laugh in the face of humanity.
Related Articles at Get Rich Slowly:
- Live Simple - Tactics to Improve Your Life
- How to Organize Your Finances in Four Easy Steps
- Have More by Choosing Less
- Put Yourself on a Debt Diet
Tuesday, September 01, 2009
Should the government take from the rich to give to the poor?
I am going to try to keep this as politically neutral as possible, but I would like to get some reader's opinions on wealth redistribution. We had a guest post last week about Reverse wealth distribution that stirred up a lot of discussion, so I wanted to discuss it from a different angle.
Biblically it is very clear that we should be redistributing our wealth to help the less fortunate. But what role should the government be playing in this with our tax dollars? I have a few thoughts about it, but I really want to hear what everyone else thinks…
My thoughts on redistributing wealth
It encourages laziness.
Why would you work for something if you know you will receive it without working?
It sounds unconstitutional.
Not sure if it is - can someone confirm or deny?
Money isn't the answer.
So many people believe that money will solve their money problems, nothing could be further from the truth.
We should be willingly redistributing our wealth.
We should be the ones giving. When the government takes from a rich person to give to a poor person. The rich person isn't giving, but rather they are being taken from. There is a huge difference for both the giver and receiver. When you receive something from someone who truly wanted to give it, it is a whole lot different than when they are forced to to turn it over.
I don't need to repeat the numerous verses from the Bible about giving to the less fortunate. As Christians, providing for the poor and less fortunate is our responsibility - regardless of what the government does.
The whole thing is a mess.
As I sit and try to think of a solution, it is kind of overwhelming. You have some rich people who manipulate the system to avoid paying taxes. You have some poor people waiting for a handout. And you have a government that does a less than stellar job of managing our tax-dollars wisely.
What is the answer?
I don't know - you tell me in the comments below…
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Monday, August 24, 2009
This article was written by Joe, a financial counselor, has been a newspaper money columnist for nearly three years. He started his blog, Personal Finance By The Book, in July, 2009.
The Tortoise and the Haire All Over Again
A few months ago I watched a TV "reality" show which featured various lottery winners and the story book lives they live. Each family had left their old jobs and was now able to pursue their passions and live a life of luxury. They had paid-for mansions, horse farms and condos. Their marriages were better than they had ever been. Winning the lottery had evidently made all of their dreams come true.
I didn't actually watch the entire show because this misrepresentation of Lottery winners started turning my stomach. "Is this a Lotto infomercial?" I wondered. "Are these people for real?" I can think of three possible answers:
- They are actors; therefore the reality is unreal.
- They are so new at handling their riches that they have yet to experience the downside of new wealth.
- Everything on the show was true, but these people are the only ones the producers could find who actually benefited from winning the lottery. Hmmm. Maybe this is why I have never seen this program again: no more contestants.
Am I some kind of prude who looks down on those who play lotteries? Not really. But if you spend your hard earned money on lottery tickets, I have a word for you: "Wake up. Even if you win, you lose!"
Most lottery winners become bankrupt
Let me explain. A survey by "Associated Content" indicates that 90% of lottery winners become bankrupt after 10 years. Why? Because if they had trouble managing their previous incomes, they were totally out of their elements trying to manage a lot of money. Furthermore, the divorce rate of lottery winners is substantially greater than those who don't win. Why? Because great sums of money will magnify the character traits (good or bad) that a person already has. A mere thought of immorality somehow explodes into reality with great unexpected wealth.
Other downsides of winning the lottery:
- You will hear from all manner of con-men who are trying to "help you"
- You won't know who you can trust.
- Mere acquaintances will suddenly want to become good friends.
- You don't know who your true friends are.
- You quit your job and miss the friendships of your former co-workers.
- You move into a mansion and miss your former friends and neighbors.
- You become bored.
- You and your spouse fight about what to do with the money.
- You will hear from relatives you didn't know you had.
If you are a lottery player, you might be thinking, "None of these things would ever happen to me." Right, because you don't have a chance of winning anyway. Not really. With the odds of winning the Powerball jackpot at 1 in 146,000,000, you would need to buy a ticket every minute of every day for 278 years to just have an even chance of winning.
The lottery is a losing bet
So, win or lose, playing the Lottery is a losing bet. However, the real issue here is not the Lottery; it is the get rich quick mindset. Remember the story of the tortoise and the haire? The tortoise (slow and steady) wins every time. And you will too if you decide to start investing the money you now use to buy lottery tickets with. Only $10 a week in a good mutual fund should grow to at least $400,000 over a normal working lifetime.
"Wealth gained hastily will dwindle, but whoever gathers little by little will increase it." - Pro 13:11
You have a choice: throw your money away at a no-win bet or invest it a little at a time and build a certain nest egg. Are you a tortoise or a haire?
CPF Recommended Books
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- The Faith-Based Investor - Perfect for those wondering how to start investing according to your beliefs.
- The Automatic Millionaire - Perfect for those who want to learn how simple it can be to save for retirement.
- Getting Things Done - Perfect for those who have tried time-management systems that have failed. GTD is the best time-management book out there.
- Your Money or Your Life - Perfect for those who need to step back from their life and ask "why?" This book is great for helping you figure out what is important and adjusting your financial decisions accordingly. Highly recommended.
Wednesday, August 19, 2009
Let the Government go bail out somebody else. It’s too expensive for you.
I’ll admit that I haven’t followed all the ins and outs of this program but I have two good reasons for not doing so:
- I have a 1995 Camry that I love. My two eldest daughters used it to get to and from high-school. I still have a ten-year old at home and my ultimate goal is for her to use it to get to high-school 6 years from now.
- As long as I have a pulse, I will do everything I can to stop anyone I know from buying a new car. It’s a complete waste of money in most cases.
So why am I bothering to write about this? Well, the subject came up over the weekend. My daughter is thinking about getting a new car and “taking advantage” of the “Cash for Clunkers” program (with my beloved Camry no less!). I’m dead set against it.
This program stinks worse than the junk you find when you clean out your trunk for one major reason:
It forces you to get rid of a very inexpensive mode of transportation and burdens you with a very expensive form of transportation.
An automobile is a device we use to move around. That’s it. It’s not a social statement or a tool to increase your self-esteem. It’s a hunk of metal that moves you.
That being said, the question is, how do you get from point A to point B in the safest manner with the least cost. Right? Am I missing something?
Let’s look at my Camry to illustrate the “virtues” of this program. You tell me where I’m wrong.
Let’s take the first scenario where you trade in your clunker, receive $4500 and buy a new car. What does it cost you to own that new car over the next 7 years?
A 2009 Camry (SE) costs a hair over $23,000 if you buy a new one. Assume you buy it after turning in an old clunker, drive it for 7 years and sell it. In this case, here’s how your numbers add up:
So, if you buy the new car, it will cost you about $1700 per year to own. This is without the high cost of insurance you must buy when you own a new car. It also excludes the jacked up price you paid for the new car because everyone wants one right now and it excludes the maintenance cost. (I could not find good data on what it costs to maintain a used car.)
Now, lets assume you pass on the cash and drive your clunker. Here’s what it costs you to own it per year:
This means you could spend up to $1400 per year on repairs and still save money vs owning a new car. This assumes the car is safe and reliable for your particular needs. In my case, my 1995 gem is perfect.
By the way, this analysis ignores the low cost for insurance for the used car. No question about it, the clunker is better than the cash.
Will the clunker last another 7 years? Maybe not. So let’s consider another alternative.
If and when my good old 1995 Camry dies, I’ll replace it with a 2 or 3 year old car. It’s still going to be much cheaper than using this program. Take a look:
I used the Toyota site to determine the new car prices. I used the Kelly Blue Book site to get residual values. Again, this excludes the higher cost for insuring the new car but the lower maintenance expense. Buying used saves you $600 every year.
The bottom line is even with the clunker cash, it doesn’t make sense to buy a new car. So just remember this, friends don’t let friends buy new cars.
Post from: Frugal Dad