Why Cut Taxes Right Now?

Everyone hates taxes, right?  I know I certainly do.  You may not think so based on the title of this post, but I get it.  As every American probably knows, the big move right now is to reform taxes.  The President wants to cut taxes.  The Republican House and Senate seem to be moving forward.  I guess I’m just not sure: Why cut taxes?  At least right now.

Does Anything Get Fixed With The New Proposals?

My biggest concern with what I’m reading is that things don’t seem to get fixed.  When I look at taxes, the problem I have is how arbitrary things are.  You have, as an example, a $3,000 limit if you lose money on stocks.  That’s the most you can write off in a year.  This is completely arbitrary.

Take the alternative minimum tax.  That’s been in place for decades. They always do a year by year change to exempt most people from it.  Does the new plan get rid of it or fix it for good?

The rich currently benefit from the thousands of deductions and credits more so than any other group.  It does stand to reason that if you make more money, you have more opportunities here.  Still,  ‘simplifying the tax code’ was a rallying cry for President Trump.  Is it going to get any simpler?

Business taxes are going to be cut under the new proposal.  This is supposedly to attract or keep businesses in America.  The thing is, I haven’t heard a single business say that this would make a difference?  Will it?  Or will businesses simply pocket the money?

At the same time, businesses paying less are supposed to expand.  In theory, taxes go down meaning there’s more money.  More money should fuel growth.  Will this work?

The tax cuts are supposed to increase household income.  But does this rely on businesses paying more from their tax savings?  I’m not sure businesses will do that.  More often than not, shareholders, not employees are rewarded.

These are just a few examples off the top of my head.  And while I may have missed some details, I’ve not seen these things addressed.  Are we really ‘fixing’ anything so much as ‘changing a bunch of stuff’?  And is that a good idea?

Does A Tax Cut Make Political Sense?

I’m kind of confused why Republicans are standing behind this.  Polls show that most citizens have doubts about this.  They seem to be pretty knowledgeable that the middle and lower class are not the primary beneficiaries.  Yes, the ‘trickle down’ effect is supposed to help them, but there’s a lot of skepticism.  With good reason, I would think.

So, I wonder why Republicans are standing behind this.  People would love a tax cut.  I’m just not sure the majority of voters will love this tax cut.  If this passes, and people aren’t happy about it, they’ll take it out on politicians next November.  After Republicans lost several key elections last month, this has to be worrisome.

But, it could be that they’re screwed either way.  After all, to be the Republican that says no to a tax cut, even a flawed one, could be used against them.

The Economy Is Bad, Right?

No, of course not.

Usually tax cuts happen when the economy needs a boost.  Tax cuts happen to get us out of a recession.  Or when growth is flat.  But, we’ve been in a period of economic growth for practically ten years.  It hasn’t been fabulous growth, but it’s growth nonetheless.

So, what’s the motivation for the tax cut?  And is it a good idea?  After all, if we cut taxes now, what happens during the next eventual recession?  A tax cut now will make it harder to play that card when it might be needed.

My Opinion

As I’ve said above, I would love to pay less taxes.  I’m just not sure this is the way to go.  I’m not in favor of any plan that puts the majority of cuts in the pockets of the rich.  The middle class is losing pensions and pays more for health care.  The lower class has a harder time than ever finding full time jobs.  These are the people that need the help the most.  Promising that the help will get there by first giving the savings to the rich is a bad idea.  The rich show that they will likely use that money to simply get richer.  They’ll invest it. They’ll save it.  What they won’t do is pass it down.  At least, not as their first option.

And I’ve already made it clear my thoughts about the impact to the deficit.

So, the answer for me is a firm no.

Readers, what do you think of the tax cuts?  Are they fair? Should we cut taxes at all?  What changes would you make and what would you keep?

Remember When Federal Budget Deficits Mattered?

It’s so interesting watching the latest talk from Washington come through.  It’s all about potential tax cuts and what they mean.  President Trump is touting a plan that would lower taxes for many businesses and people.  He claims it will help the middle class.  Pundits argue it mostly helps the rich.  Either way, it’s interesting that very little attention is given to the budget deficits and the impact that the plan would have.

Budget Deficits

For as long as I can remember, the federal government has run a budget deficit.  There were a couple of years under President Clinton when there was a surplus.  However, that seems to have been a blip on the radar, and very much an anomaly.

The government spends more than it brings in.  They’re the only level of government that is authorized to do so.  States, cities, townships and the like must all balance the budget.  The federal government does not have to do so.

And they don’t.

When a deficit is created, the government essentially issues bonds or bills and repay them down the road.  For decades, it seemed, people would worry about this.  They figured too many would devalue the dollar.  People worried that it could spark inflation.  Some worried what would happen if the market got saturated and there was no demand.

With all that, it was always thought that limiting or eliminiting deficits was the right idea.

I remember that budget deficits were a big point of most presidential elections as I was growing up.

Why No More Concern?

But it seems that the impact of budget deficits has waned.  Our deficit has exploded over the past fifteen years.  Yet, when the latest tax plan was introduced, the potential impact was nowhere near the top talking points.

So why is that? Why don’t budget deficits matter anymore?

Well, first, is that inflation seems to have really lowered the cost.  With inflation at historic low numbers, the government has to pay very little interest.  So, they can borrow practically for free.

Next, the demands for the US Dollar seems limitless.  Where many once feared too much debt could destabilize the dollar, that hasn’t happened.  At all.  It seems that as long as we issue debt, there are foreign countries willing to buy it.

Finally, I think it’s seen as an investment.  Cutting deficits would mean cutting programs and jobs. This would have a negative effect on the economy.  Some might argue that deficit spending has partially helped the economy chug along for the last ten years.  An argument could be made that cutting or reducing the deficit would be worse in the long run.

What’s Next?

I don’t have any idea how this plays out.  One could argue that there has to be a limit. However, you could also say that twenty years ago, the current deficits would have been unimaginable.  If George H.W. Bush or Bill Clinton had suggested the deficits we have today, they’d have been run out of office in a hurry.

So, really, as far as what happens next, who knows?  It’ll be interesting to watch, though.

Readers, what do you think about the current federal budget deficits?  Do you think the current deficit spending is sustainable?  What about adding even more with the proposed tax cuts?  

Do You Believe These Money Myths?

There are a lot of different things you’ll read when it comes to your money.  The personal finance world has lots of people with many opinions.  I’m one of them!  But with so much out there, it can often get confusing.  What do you believe?  What’s true and what’s a suggestion?  I don’t have all the answers.  But there are a few money myths that I’ve seen come up more than a few times.

#1: Always Pay The Higher Interest Loan First

The higher the interest rate means that less of your payment goes to your principal.  This is true.  So, you should always pay the highest interest loan first, right?

Not always.

I think you have some flexibility here.  If you have a loan with a low balance, maybe consider paying that off first.  It will free up some cash flow.  Plus, paying off a loan will give you a ‘win’ on your scorecard.  Those can be very important and might be worth a few bucks in higher interest in the short term.

#2: It’s Too Late To Start Saving

Many people start saving for retirement or their first home right out of the gate.  If you’re one of those people, then congrats.  But if you’re not, don’t worry.

It’s never too late to start saving.  I don’t care how old you are.  Many people who give this answer are just making excuses to continue bad habits.

I don’t care if you have friends that are your age who are already retiring and you haven’t saved a buck.  You should and you can start making a difference.

#3: You Have To Choose Between Paying Off Debt Or Saving Money

I’ve read at least a thousand pieces over the years on this topic.  Which is better if you have extra money?  Paying off debt?  Or saving/investing?

I’ve never understood why people think it has to be either or.  It doesn’t.

If the answer isn’t clear or you don’t have motivation toward one, why choose?  Try a mix of both.  Either one is going to help you in the long run.  And, you might find that one excites you more than the other.  If that happens, then you can make adjustments.

#4: Having An Emergency Fund Is Good Enough

OK, so you saved $1,000 for an emergency fund.  You’re covered, right?  Wrong.

The fact is that even if you’ve built yourself a cushion, there is still work to do.  What if you have an emergency greater than $1,000?  How will you restore your fund if an actual emergency depletes your fund?  What if someone comes to you with an emergency of their own?

Be prepared.  Think ahead.

#5: Following Someone Else’s Budget Is Your Ticket To Success

A budget that works for someone else may not work for you.  Everybody has different circumstances and different needs.

Also, many people are at different stages of how they can handle a budget.  Someone who’s never used a budget should start simple. If they tried to use the budget template of someone that’s had one for twenty years, it probably won’t work.

Budgets come in all shapes and sizes.  There is no one size fits all.

#6: Focus On Cutting Spending To Save Money

This isn’t bad advice.  It’s actually really good advice.  However, it may not always be the best advice.

After all, the advice here only focuses on one side of the equation.  Spending.  This is great, but there’s also opportunity that comes by making more money.

Consider that we all have limited time in our lives in which we can focus on saving money.  If your time allows you to cut $1,000 per month in expenses, that’s great.  But what if you focused that time on earning more money instead?  If you could earn $2,000 per month with the same effort, then focusing on cutting expenses could actually be costing you $1,000 per month.

#7: The Stock Market Is Always Going To Go Up

It may seem like this is true given that it pretty much has for the last ten years.  But it doesn’t.  And it won’t.  Don’t believe people on CNBC that tell you that ‘this time it’s different’.  And that the market can go up forever.

It’s not and it won’t.

Everybody needs to keep an eye on the market and recognize that it’s not a one way only road.  The experts that tell you that it can only go up probably have a plan in place.  And when the market starts going down, they’ll have executed their plan before they go back on the air and talk about the downturn.  Trust me on this.

The fact is, they don’t care about your money.  They care about theirs.  Don’t get the two confused.

Readers, what advice have you heard that may need some corrections or clarifications?  What do you think about the items I mentioned?  Please let me know your thoughts in the comments below.  Thanks for reading.

Going All In On Itemized Deductions

Since being married, my wife and I have always been able to itemize our deductions.  Between mortgage interest, property taxes, and state taxes, our itemized deductions have always exceeded the standard deduction amount.  This has been great come tax time.  But, it looks like the ability for us to itemize is coming to an end.

As such we’re going all in this year.

Why Itemized Deductions May Not Happen After This Year

Over the past couple of years, I’ve noticed that the gap between our itemized deductions and the standard deduction has gotten smaller. The main culprit is our mortgage interest.  We are just over five years into our fifteen year mortgage.  Each month a bigger chunk goes toward principal and less toward interest.  In the grand scheme of mb-201403stacksthings, this is fantastic, but it definitely changes strategy when it comes to itemizing.

I’ve calculated that if nothing were to change, we’d end up claiming the standard deduction beginning with our 2016 taxes.  I’ve seen this day coming, so we’ll be doing a couple of things to not only keep the ability to itemize, but maximize the amount.

How We’re Maximizing Our Itemized Deduction

First, we’ll pay our winter property tax in 2016.  The tax bill comes in November and is due in February.  Typically, we pay right around the due date, so that we keep our money in our pockets for the longest possible amount.  This year, we’ll make our payment before the end of the year.  Since we paid last year’s winter bill as well as the summer bill in 2016, we’ll have made three payments this year.  Since the deduction is based on the year you make the payment, this will work in our favor.

Second, we’ll make our January mortgage payment in December.  This means that we’ll make 13 payments this year.  Again, since the amount is based on the date you actually make the payment, we’ll get the extra amount in interest on this year’s taxes itemization list.

That’s cool!

Moving Forward

Looking ahead, we certainly won’t be able to itemize next year.  Which is fine.  I’m hearing that if Trump gets his way with some of his tax plan changes, the standard deduction amount would be going up.  This means that we likely wouldn’t have been able to itemize anyway.

So, the timing couldn’t have been more perfect, as least on how things are looking today.  You never know how things will change, of course.  Still, for now it looks like we’ll end up with a few hundred extra dollars in our favor when it comes time to calculate our 2016 taxes.

Readers, what tax strategies are you employing for the end of the year?  Are you doing anything special because of Trump’s tax plan or are these things you might do otherwise?  Let me know in the comments below.

 

Does Being Too Close To Money Make People Turn Evil?

The latest scandal in the banking industry has my shaking my head.  For those who haven’t heard, Wells Fargo is in it deep because they basically set quotas for the number of add on services that employees were required to sell.  This was pushing people to go above and beyond normal circumstances, opening accounts without permission, forging signatures, pressuring family and all sorts of fun stuff.  So I have a simple question: Does money make people evil?

Still In The Cycle Of Corruption

Basically, more awful behaviors in an industry that has the stench of a lot of awful behaviors.  I mean, nobody has forgotten the subprime mortgage crisis, right?

It just got me to wondering why this stuff keeps happening.  I’ve heard that we should break up the banks to make them smaller, or taking certain functions (like investing) away from banks.  All sorts of things, but I’m not sure any of that would work.

Does Money Make People Evil?

Maybe it’s not how big the banks have gotten.  Perhaps it’s simpler than that. It could be that people turn evil when they’re around money too long.

After all, money makes people do crazy things.  Even the Bible is full of stories of those who lost their way because of a greed for money.

Money makes people steal.  Cheat.  Lie.  Beg.  It brings out jealousy.  Anger.  Rage.  Sadness.  It makes people kill themselves.  Or others.  Or both.

mb-201312billscoinsAnd all of these things come out for people who don’t work with money.  They just deal with it on the periphery.

But what about those who work around it?  Every day.  They’re consumed with it.  Every spreadsheet they open. Each figure on a screen.  Every conference call they make.  Basically, everything they touch involves money.  Money, money money.

Could Banking Be A Short Term Career?

Maybe bankers should just work in the industry for so long and then be forced to go do something else like farm or build roads or sell clothes or something else.  Anything else that doesn’t drive them crazy as it seems working around it seems to do.

Obviously this is just a crazy suggestion, but I wonder if my underlying thought is correct.  Maybe money is like the sun or alcohol or drugs, all OK in moderation, but harmful, even deadly, if exposed to too much.

What do you think, readers?  Is there any real way to stop the next story that involves greed and corruption in the financial industry or are we doomed simply because of what money does to our minds?  Let me know what you think in the comments below.

Should You Buy A Franchise?

When people think of franchises, they often think of fast food chains that could cost more than a million dollars to start. A McDonald’s franchise, for example, requires a minimum of $750,000 in liquid assets. While signup costs include the cost of construction and equipment, they can range from $1 million to $2 million depending on location. The good news is that once the business is operating smoothly, revenues average around $2.5 million a year.  Is franchise ownership something to consider?

While the idea of opening up a fast food restaurant can be profitable, the cost of entry is what prevents most people from making the leap to having their own business. Unless they are already established business people, it’s difficult to get a bank loan large enough to cover initial costs.

Fortunately, there are many retail franchises available that cost much less and that can become quickly profitable. If you decide to open up a UPS Store, your UPS franchise cost could be covered with a moderate-sized bank loan. You would need from $60,000 to $100,000 in liquid assets. You would then need about $167,000 to $353,580 for the total initial investment. The wide range is based on the cost of the location.

It’s also important to note that the liquid assets are not part of the money you borrow from the bank. You can meet this requirement through retirement accounts, mutual funds, stocks, and bonds. You can also get a co-applicant to help you meet this requirement.

5 Essential Requirements For Franchise Ownership

Franchises work for people who have an entrepreneurial spirit and who are resourceful enough to get the funding they need to get started. They can be less risky and more profitable than starting your own business from scratch because almost everything has been figured out—from product to marketing, and from business processes to everyday operations.

However, not all requirements are financial. You also need to be the right person for the job. You will need to have an entrepreneurial mindset, an eager willingness to learn, enough financial management skills to track your profits and losses, sufficient leadership skills to manage employees, and enough time to dedicate to the business.

Let’s take a closer look at these five requirements.

1. Mindset.

You are not likely to succeed as a franchisee if you are doubtful and overcautious or if you are doing work that does not appeal to your natural interests.

Starting a business is difficult enough, running one from a pessimistic perspective or a resigned disdain for the nature of the work makes it almost impossible to overcome problems that will inevitably arise.

Grit and determination, as well as a natural love and aptitude for the work, are essential for getting through the tough times.

2. Study habits.

Although you will be given as much information as you need to successfully run a franchise, you have to be willing to spend the time to study everything about the business.

If you are someone who is too restless and impatient to sit down and crack open the books, then franchising may not be the right venue for you.

First of all, there is a lot you must know about the business. You need to know the business landscape, your market, and exactly how to apply the standardized business processes you are expected to follow.

In addition, the franchisor will not cover everything and you will have to do some self-study to fill in the gaps. For instance, you may not be taught how to write effective advertising but merely told that advertising is important. While you may be told where to advertise for best results, you might not be coached on how to advertise.

3. Financial management.

You must be good at allocating funds, keeping track of your incoming and outgoing, and paying small business taxes. While you don’t necessarily have to be an astute bookkeeper yourself, you have to be able to understand enough to make sure the bookkeeper you hire is competent.

4. Leadership.

Managing people isn’t as simple as telling people what to do. You have to avoid the extremes of acting like dictator to acting like a fellow employee.

Leaders know how to motivate apathetic people, discipline those who shirk work, and correct those who treat customers poorly.

Fortunately, you don’t have to have natural leadership skills. Leadership can be taught and it can be mastered through practice.

5. Availability.

You will not be successful as a franchisee if you have many other commitments. If you have to run your children to after school events, run other businesses, or enroll in advanced education, this business model won’t work for you. While you can get a semi-absentee business, you will still need to spend a considerable amount of time at your business to make it successful.

Rugged Individualism

You might not be surprised to learn that Gallup polls suggest that as many as 70% of Americans hate their jobs. As some of the hardest working people in the world, this quiet desperation is not due to the nature of work itself but the loss of autonomy. This love for freedom is a national character trait. It is this sentiment that created the American Revolution and opened up the early migration to the West coast. A franchise gives you the freedom to own your own business .