The Massive Debt Tsunami Is Coming!

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We all know that the FDIC is broke, right?  When Obama bailed out banks with TARP (Troubled Asset Relief Program) money six years ago, the reason was because the FDIC did not have any money.  Banks are supposed to pay insurance money into a fund so when a bank goes broke, this reserve pays depositors who would otherwise lose their savings.  But you may also remember Obama increased FDIC insurance from $100,000 per each account to $250,000 just to calm fears of total bank failures. It’s a nice thought, but since the FDIC is broke, it doesn’t matter too much.

Now turn your attention to the Pensions Benefits Guarantee Corporation or PBGC insurance plan.  Have you ever heard of this?  Through this program, in a like manner to the FDIC, all pension plan administrators are to pay insurance into a reserve for when pension plans go broke.  If you have a pension, this should be a comforting guarantee.

But here’s the problem: Director Thomas Reeder said that 10,000,000 workers with pensions are expected to run out of money in the next 10 to 20 years.  He said they have $2.2 billion available against a required pay out of $61 billion.  If a pension plan goes broke, plan participants will get something, but certainly not what they are supposed to get.  Here is how some numbers would work if you have a pension plan and the program goes broke.  Say your employer has a formula of 60 percent of your highest three years of earnings to be paid for  your lifetime.  Your income level averaged $80,000, so therefore you should receive $48,000 per year for life.  But if the pension plan fails, then the guarantee is reduced to just $8,580 a year as per Director Reeder’s numbers.

Social Security benefits are also in trouble and even the Social Security Administration says the fund will be out of money in 10 to 15 years.

Workers that participate in a 401(k) are also going to get much less than they bargained for since the average amount of money squirreled away by all workers is less than $3,000. Plus, think of all the risks 401(k) savers take with the market… If it takes a serious dive and you’ve actually accumulated a descent retirement fund of say $350,000 or more, there is no way you are going to recoup your loses in the time you have to do so.

And what about savings? Average savings per worker is less than 1 percent of their income.  The 2010 U.S. Census shows that all people reaching age 65 have less than $60,000 in total assets, including equity in their home.

Finally, let’s review the grim number associated with our nation’s debt at $20 trillion!!!!  

Are all these problems going to come together at the same time and swamp us in a huge financial tsunami? The odds don’t look good for us as a general population. But what can you do personally to protect yourself?

First, know the facts and learn the rules about the programs you put your money in. I have reviewed some of the grim facts here in this post.

Second, quickly change your spending, borrowing, and savings habits. And that means now. If you are still over-spending each month and  have consumer debt hanging over your head, you are more likely to be a victim of a terrible financial storm.   For help in creating a spending plan that will get you in immediate control of your spending, go here. For help creating a debt elimination plan that can have you out of ALL debt, including your mortgage in under 10 years, go here. If you want to talk about all the other, better options for creating a predictable retirement that do not rely on the FDIC, PBGC, Social Security, 401(k), or any other paltry savings programs, contact me for a no-cost conversation. I will be happy to outline some great ways you can get in complete control of your finances and create a future that will not be affected by the national debt tsunami that is about to sweep over us:  peter@moneymastery.com.

Why Government Should Get Out of the Business of Being in Business

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In business you must be creative and adjust to changes in technology and improvements or you will not survive.

A good example of this is the vinyl record industry. A client of mine in Pennsylvania worked in this industry from 1974 until 1983.  He denied the fact that cassette tapes were becoming more popular and that eventually his job would end.  But sure enough, it did.  He was so angry when he lost his job and income that it took him one full year to accept this event and move on to different employment. 

Here’s how the vinyl record industry declined as new audio technology and innovation pushed its way into the market:

screen-shot-2016-11-24-at-1-12-18-am

As you can see, businesses must be creative, adaptive, and competitive if they want to survive.

Not so for government.

Take the Civil Service as an example.  For 133 years the Civil Service has grown and taken on a life of its own.  It has unions and lobbyists and no one is able to fire someone in the Civil service if they are poor performers. 

Here’s what Wikipedia says about the Civil Service an how it came to be and why its very structure promotes stagnation and inflexibility within government operations and employment:

1.  The Pendleton Civil Service Reform Act (ch. 27, 22 Stat. 403) is a United States federal law, enacted in 1883, which established that positions within the federal government should be awarded on the basis of merit instead of political affiliation. The act provided selection of government employees by competitive exams, rather than ties to politicians or political affiliation. It also made it illegal to fire or demote government officials for political reasons and prohibited soliciting campaign donations on Federal government property. To enforce the merit system and the judicial system, the law also created the United States Civil Service Commission. This board would be in charge of determining the rules and regulations of the act. The Act also allowed for the president, by executive order to decide which positions could be subject to the act and which would not. A crucial result was the shift of the parties to reliance on funding from business, since they could no longer depend on patronage hopefuls.

2.  In 1877, there was growing interest in the United States concerning the effects of the spoils system on the American political system. New York Cityestablished the Civil Service Reform Association to help address the issues, which would lead to several other organizations like it showing up in other cities. The presence of these organizations was one of the first steps in trying to up end the spoils system in America.

3.  The assassination of President James A. Garfield moved the Civil Service Reform from city organizations to a leading topic in the political realm. President Garfield was shot in July 1881 by Charles Guiteau, because Guiteau believed the president owed him a patronage position for his “vital assistance” in securing Garfield’s election the previous year.[4] Garfield died two months later, and Vice President Chester A. Arthur acceded to the presidency. Once in office, President Arthur pushed through legislation for civil reform.

4.  On January 16, 1883 Congress passed the Civil Service Act, which is sometimes referred to as the Pendleton Act after Senator George H. Pendleton of Ohio, one of the primary sponsors. The Act was written by Dorman Bridgman Eaton, a staunch opponent of the patronage system who was later first chairman of the United States Civil Service Commission. However, the law would also prove to be a major political liability for Arthur. The law offended machine politicians, or politicians who belong to a small clique that controls a political party. These politicians realized that with the Pendleton Act in place they would have to find a new means of income, since they could no longer count on donations from the wealthy hoping to receive jobs.

5.  The Act initially covered only about 10% of the U.S. government’s civilian employees. However, there was a provision that allowed outgoing presidents to lock in their own appointees by converting jobs to civil service. After a series of party reversals at the presidential level (1884, 1888, 1892, 1896), the result was that most federal jobs were under civil service.

In 1952, 1 in 22 workers were employed in the government but today it’s 1 in 3.8. This means that government hiring  is out of control.  If a business needs to make a profit to survive and thrive, how can it possibly do so if it must pay for so many government workers with a ratio of 1 to 3.8? 

It is time that government turned a profit and was in constant risk of going broke so that it would be forced to move with the times, cultivate creativity and ingenuity, and thrust from its midst poor performers — until then, we risk running the true grit of this country, private enterprise, into the ground.

Being Financially Responsible Is Now History…

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In business the goal is to spend less than revenue and create a profit.  Profits allow debt repayments, add to the inventory, and expand marketing. But the federal government is not profit-oriented yet it still needs to create a surplus in order to repay debts, improve roads, maintain the military, etc.

A quick look at the government’s 2009 budget shows that every federal dollar that would come into the IRS that year had already been legislated, or mandated by Congress  for programs already set in stone, leaving our government leaders without any surplus at all.  Worse, there is no surplus to be available forever!  Maybe the Congress can make changes, for sure they can, but they haven’t so far and now we are in year 2016 and still, there is no surplus in sight.

My point is that we the people should not allow ourselves to get trapped like this in our own personal finances.  The technique to insuring a surplus, thus the ability to pay down debt and expand inventory or pay for college educations and so forth is as follows: 

  1. Build a spending plan using your income minus any withholdings.  Spend all of this money into categories and see how much extra you have left; what’s left must also be “spent” in the form of paying yourself in a savings account.   
  2. Now place every expense into a fixed payment column or a variable.  If you have $5,000 to spend and $4,895 is in the fixed column, you only have $105 of freedom to choose — there’s not a lot of wiggle room here, so if an emergency strikes, you’re bound to get into more debt. This is not the way to create a surplus.
  3. So, your next step it to take the fixed expenses and start cutting, selling and changing these expenses so you go from $105 in the variable column to $1,240.  Now you have room to pay for an emergency.  Now you can breathe financially.  Now you can make better decisions and not be running around like a chicken with its head cut off.  Stop overspending madness by examining your fixed vs. variable expenditures. 

Our government is having a hard time managing its finances by “large committee” (or Congress) if you will.  This has always been the case with committees, and that is why our Founding Fathers added the executive branch of government.  When blame is being dished out to the Congress about fiscally unsound policies, the president is every bit to blame for this kind of spending problem, since he is not examining so-called “fixed” spending programs and working with Congress to change more of these to variables (or eliminating them altogether). 

In terms of your own personal finances, I point to you as being the president of your situation.  You are in control.  Look at variable and fixed expenses, and work to get fixed expenses like debt eliminated from your Spending Plan. Don’t complain about our government’s overspending if you are not creating a cash surplus yourself by getting your own finances under control.

Why Putting Your Money in Motion Will Create More Money… without a Ton of Effort on Your Part

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Today’s post is the last in a series about the profound impact the 10 Money Mastery Principles can have in your life, if you will but learn and apply them. As I mentioned in the first post in this series, Financial Principles: Lighthouses that Will Never Steer You Wrong,  the principles I have shared in this series are eternal, unchangeable, and work no matter what your own personal financial circumstance are. Like lighthouses, the Money Mastery Principles provide a clear path to success that can be a guide no matter where you are in your quest to reach financial safety and prosperity.

Today’s principle, Principle 10, is a combination of applying each of the other nine:

Money in Motion Creates Additional Wealth. This principle is where wealth is truly built and accelerated (but only when the other nine principles are clearly understood and applied). If there is one single strategy that builds wealth and financial security the fastest, it is to understand the “leverage” factor of Principle 10 and how to get your money to do more than one thing at a time. The banks do it and so can you!

Principle 10 is amazing at creating additional wealth. But to be the most successful, Principle 10 needs to work in harmony with all nine of the other principles. The problem is if you are not well grounded in Principles 1 through 9, you won’t be able to keep much of the money you make in using Principle 10.

For example, if you do not track your income and expenses (Principle 2), you have no hope of knowing where you stand financially and therefore will continue to spend recklessly and borrow uncontrollably. If you don’t take time to know the rules (Principle 5), you could incur huge liabilities and even have legal expense. If you aren’t financially organized (Principle 8) like understanding how your assets are taxed, knowing where important documents are, or how your assets are titled, etc., you will lose money in ways you can’t even comprehend.  It is so important to learn all the Principles, and implement them in the order prescribed.

Let’s use an example of baking a cake and see how a recipeScreen shot 2016-08-31 at 3.26.27 PM helps you be successful. If you start with the right ingredients, but you mistakenly put in a cup of salt instead of sugar, how will the cake turn out? And what if you try to add the egg after the cake is baked? It’s the same with finances. You may know what the “ingredients” are for financial success (control spending, pay off debt, save for retirement, reduce taxes), but let’s say you don’t know what order to apply these things to your financial life. Or what if you concentrate too much on one area, like trying to pay down debt, for example, without learning how to get spending under control at the same time? The result won’t be any better than if you don’t follow the recipe for making a cake.

This little example illustrates the need to systematically manage your money using the right principles, in the right amount and in the correct order.

Here is an example of how one of my clients used the 10 Principles to make and save more money. I’ll call them Steve and Lori. First, they got their spending under control using a Spending Plan (Principles 1 and 2) so they could pay off all consumer debts (Principle 4) and save $500 a month (Principle 3). They stored up this money until they had three months worth for emergencies so they wouldn’t be stressed out over small financial emergencies. Then Steve and Lori saved and purchased a garden tiller to use for prepping soil. They rented this machine for two hours at a cost of $50 to friends and neighbors. They have now earned more than the $800 it cost them to buy the tiller and put $800 more into savings. Screen shot 2016-08-31 at 3.30.07 PMSteve and Lori have loved this little venture and have purchased more equipment and rent it out on a regular basis, creating a small, but thriving home-based business (Principle 9). While the amount of money they make isn’t huge, it IS extra income that hardly costs them much time or effort to earn. Plus they can deduct expenses in their side business using Schedule C that help offset overall taxes in their regular W-2 employment.  In addition, the equipment is used over and over to make additional money (putting their money in motion once to create additional money time and time again, Principle 10).

Now that they have learned the value of actually implementing Principle 10, they have the experience and know-how to see how they can implement this principle into even bigger ventures to make more money. They would not have understood the power of this principle without learning it personally on a small-scale as they did. Sometimes understanding how to create additional wealth with the money and resources you already have cannot happen until you implement the idea and see how it turns out.  How many people do you know that don’t have any consumer debt and are creating an extra $400 income each month outside their day-job with a simple side-business based on leasing an existing piece of equipment over and over again?

Go to www.moneymastery.com and find out how to use a principled-based, time-tested system to predict when you will quickly be out of debt, have a strong retirement savings fund, and be able to create additional wealth without a ton of effort on your part.

Checklist for Properly Structuring a Small Business

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As Peter noted in a recent post, Keep More of Your Money by Understanding How Taxes Work, working a small side business in addition to your W-2 job can help you make more money as well as save you valuable tax dollars by deducting business expenses using Schedule C.  The tax laws for taking business deductions with confidence aren’t complex, but one of the most important of those to keep in mind is that you need to run the business like a business and not a hobby. To show that you have serious business intent, use the following basic checklist (which presumes you will have only one employee, yourself) to make sure you are structuring your small business properly. Note:  This list may not be comprehensive since each state has its own requirements.

1.  Business License:  Many states require licensing of a business.  Sometimes the license must be obtained from the state, and other times the city or county will issue it.  Many home-based businesses and network marketing ventures do not ordinarily need a license.  Check with your state or city government.

2.  Fictitious Business Name:  If you use a name for your business or sole proprietorship other than that of your own name (which is recommended to protect your personal assets in case of liability lawsuits), you must generally register the company name with the county.

3.  Trade Name and Trade Mark Protection:  If you want to protect your trade name and any special trade marks that you want developed to brand your business, you will need to file a “Registration of Trademark or Service Mark” with the U.S. Department of Commerce. For further information or to reach the Commissioner of Trademark and Patents, call (800) 786-9199.

4.  Copyrights and Patents:  If you have developed some special invention or have some written material that you don’t want people to copy, you must file for a patent for invention or a copyright for written materials.  This can be done by contacting the Commissioner of Trademarks, and the Patent and Copyright Applications office.  Patent registration forms and questions:  (800) 786-9199.  To obtain copyright forms call (202) 707-9100.  If you have a copyright question, call (202) 707-3000.

5.  Business Insurance:  All businesses should have some form of insurance to cover them from theft of equipment and for liability issues.  Most homeowner policies exempt business equipment from their coverage.  Check with your property and casualty agent to see how extensively you are covered and what insurance you may need to obtain.

6.  Sales Tax Number:  In many states, you may be required to collect and remit sales tax.  Thus, you should get a sales tax number in the states in which you will be conducting business, especially your home state.  Many network marketing companies take care of this for you with the state in which you will be working.  If you are joining a multilevel marketing company, check with them about this number.

For more information, contact Money Mastery: 801-292-1099.

More Leverage Ideas to Help Your Money Make More for You

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In my last post, 5 Ways to Make More Money You Probably Never Thought About, I noted how wealthy people use their money and resources to make more money for them, rather than squandering them or sitting on them. In this post I wanted to give you some additional ways in which you can get your existing money and financial resources to do more than one thing at a time for you.

  1. Apply savings to debt. Rather than “parking” money in passbook savings that will make very little interest, why not deposit that money in a HELOC (home equity line of credit)? This puts the saved interest expense in your pocket (which is usually always going to be more than what you’d earn in passbook savings) while still keeping that money available for those emergency and emotional spending events that are sure to happen.
  2. Turn a non-producing (or low-producing) asset into a high-producing asset. Money that you have deposited into a 401(k) or IRA, for example, is sitting their earning a modest amount of interest, or it may even be losing money, so it’s probably not wise to put all your long-term savings into such “stagnant” programs. Investing some of your money into real estate or equipment that can be leased out is a better way to get your assets to produce more money for you.
  3. Spread out your investments. Consider various investment options based on how they are taxed, risk risk level, capital appreciation, and so forth.
  4. Increase your return on investment. While it’s important for people with large debt loads and little savings to be quite conservative early on with their savings habits, as you get spending and debt more under control you will see a little cash accumulate. When this occurs it is foolish to leave the money in a low-return program such as a CD. Consider, instead, what savings should be converted to higher yielding investment plans.
  5. Examine ways you can make your current investments more valuable. Like I mentioned in my last post, can you convert real estate space into rental income Do you need to study the market and trade investments in more lucrative fields? Can you use the equity in your current real estate to purchase additional properties to begin a “rolling” real estate investment?

More ideas in coming posts. Hope these are some you will take into real consideration as they could be resources you already have that you are not using to their full potential.

What a Quality Financial Wellness Program Really Looks Like

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Financial wellness programs in the workplace are designed to help participants understand how interrelated budgeting, debt, and savings are so they can make better choices.  Most companies who offer such “wellness” programs will invite employees to a retirement discussion once a year about where they have invested their 401(k) money.  The employee knows they will leave that meeting with no answers, only more questions, but the employer has fulfilled their obligation to instruct.  This is stupid, to say the lease.

This is a what a valid, quality financial wellness program looks like:

  1. An employee can ask any question about any financial subject (not just 401(k) stuff) at anytime during the year and get high quality answers that can be implemented, not just talked about.
  2. Employees will be given responsibilities and held accountable for accomplishing what is taught in the wellness program. Such accountability would include a time table for meeting certain goals, etc.
  3. Training will be offered for how to manage all aspects of finances, including how to control spending, pay down debt, save for retirement, and pay the right amount of taxes and how to do all this years in advance of issues that come as employees age, so they can plan ahead.
  4. The program will be based on time-tested principles and not on some financial product.  Life insurance is a good product, but may not work when the employee is trying to balance their spending, for example. For example, if an employee purchased life insurance but was unable to pay for it after one year, this will result in a waste of money.  While the product may be of value, the timing to buy is more important.
  5. Employees will receive ongoing and consistent training.

A quality financial wellness program teaches principles that will lead and guide the employee into making better decisions, rather pushing a product in a one-and-done meeting with an investment adviser.

I know of just the right financial wellness program that has helped thousands of people. To learn more about it visit  www.moneymastery.com today!

Just How “Liquid” is the Life Insurance Industry, Anyway?

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Just recently, the CEO of United Services and Trust Corporation, L. Carlos Lara, wrote an article and shared his research on the current liquidity of life insurance companies: http://partners4prosperity.com/liquidity-of-life-insurance-industry.

He reviewed the balance sheets of these companies with one objective: to determine how liquid are they in being able to withstand a major downturn in the economy. The article pointed out that even highly profitable companies can run into financial trouble if they don’t have the liquidity to react to unforeseen events.  Even if they have a stockpile of assets on their balance sheets, they can still struggle with cash flow issues when the market crashes if those assets are not liquid.  Liquidity is the major concern when it comes to financial stability in the market.

To analyze liquidity, financial ratios are established to give leading indicators as to when the economy is going to drop off a cliff.  As this liquidity analysis is being done on various insurance companies, Lara noted in the article how impressed he was with the strength the insurance industry proves out, over and over again.  No other money intermediary in any financial market has this kind of liquidity.

Given the superior financial strength of the insurance industry, Lara and his team dug deep into the financials to find out why this is so.  Here is what he found:

  • 70% of the assets of life insurance companies are in AAA rated bonds, meaning they are liquid in and of themselves.
  • Their yield has been close to 5% with no market risk attached.

As all the risks must be factored into an analysis, auditors are required to take the most conservative claims ratios.  Each individual state has its own insurance department and applies these same conservative standards.  This gives every life insurance company 50 separate sets of eyes examining them, so even though the economy has created a low interest rate environment for many years, the true test of the financial strength of these life insurance companies is in passing the test of liquidity, within all 50 states. Passing that test is a huge priority for these companies.

Another factor that is helping keep life insurance companies financially strong is their mortality experience.  As people live longer and do not die, the reserves of cash grow and provide tremendous liquidity.  Even though quantitative easing is going gang-busters (government printing tons of money) and this is the main reason interest rates are as low as anytime in our nation’s history, life insurance shows true growth as they can add to their reserves year after  year.

In summary, when the top three rating agencies (Moody’s, Fitch’s, and Standard & Poor’s) give life insurance companies the thumbs up, you know they are doing something right.  “U.S.  life insurers can weather the storm!” these agencies are saying.

If you don’t  know the value of adding life insurance to your retirement planning, you are missing out on a very solid and safe way to build your future. Email me with questions, I’m happy to help out: peter@moneymastery.com.

 

IRS Rules for Deducting Transportation Costs for Trips in the U.S.

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Okay, more IRS requirements for deducting transportation costs. Knowing these rules can be an important way to save valuable tax dollars in your small business venture. Don’t just dismiss these deduction options, they can save you lots of money all while allowing you to combine business with pleasure travel.

So let’s say you want to go on a little trip to San Francisco, and while you’re there you want to meet with prospective clients in order to promote your business. You love San Francisco, especially the great food. While there, you will talk to distributors and meet with potential clients you have set appointments with in writing before you take the trip. You will leave on Thursday and conduct some meetings on Friday and Monday. Based on this information, how much of your transportation costs to San Francisco are tax deductible?

Because you spend more than 50 percent of your trip days on business (don’t forget that travel days are counted as business days), you can deduct 100 percent of your transportation costs to and from San Francisco.

The tax-saving tip to remember for U.S. travel is:

Spend more than 50 percent of your days on business and you can write off 100 percent of your transportation costs.

It is very important when deducting transportation costs to know how many days of the trip are considered business days since the number of business days will dictate how much of your transportation costs can be written off. In an upcoming postet’s discuss in further detail the rules that determine what can be considered a business day.

IRS Rules for Deducting Transportation Expenses for Business Conventions or Seminars

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So you have a small side business and you want to combine business with pleasure as you travel to a seminar or convention. The rules governing transportation deductions for this kind of travel are different than any other kind of travel.

To understand these rules, I’ll use my example traveler, Loni again. Remember Loni was traveling to Las Vegas to attend a tradeshow (convention). She planned to work the tradeshow for two days and play the other three days of the convention. Loni took one day to travel the 650 miles from Evanston, Wyoming to Las Vegas and one day to travel back. Those two travel days can also be considered business days, so Loni spent four days on business and three days playing, for a total of seven days.

She needs to answer the following questions to determine how much of her transportation costs are deductible:

  1. Is this a business trip? Yes.
  2. Is it a trip to a business convention or seminar? Yes.
  3. Is Las Vegas outside the defined North American area? No.
  4. Were more than 50 percent of trip days, including travel days, spent on business? Yes (four days is more than 50 percent of seven days).

SO

Loni’s gasoline and other car transportation expenses to and from the Las Vegas tradeshow are 100 percent deductible.

The tax-saving tip to remember about travel for conventions or seminars is:

Spend more than 50 percent of your days on business and you can deduct 100 percent of your transportation costs.