Archive for February, 2007

If you think finance is rather dry and boring, check out Feed the Pig and enjoy the videos. These hilarious skits focus on interruptions in spending and may cause you to consider a few of your own spending patterns. Are they perhaps a bit, errr, greedy? Focused on the short term? The U.S. Commerce Department of Economic Analysis reports that Americans spend $1.22 for every $1.00 they earn! 

If this is you, be sure to try Feed the Pig’s collection of tools and tips to help you save. The American Institute of Certified Public Accountants (AICPA) and state CPA societies partnered with the Ad Council to create Feed the Pig to encourage younger Americans to save as a key step in building a solid financial future. 
 

The next time you feel like complaining about the coins weighing heavily in your pockets, think about these alternative forms of currency.

The Babylonian shekel refers to a measure of barley. In ancient Greece, they used iron sticks as money. Cowry (or snail) shells paid the bills in ancient China and many parts of the South Pacific. Much of Europe used salt for currency at one time. Gold and silver coins have been used since about 560 BC. Cash crops like indigo, maize, rice, tobacco, and wheat were used for currency in colonial America. When Sydney, Australia was settled, rum was the main cash flow of the day.

Whatever form money takes, it is simply an object to which we assign value, whether it be paper, gold, or snail shells. Money matters because it gives us a common medium of exchange to buy and sell the goods and services that we need.

We spend a lot of money at the grocery store so there are lots of opportunities for saving. Here are a few ideas for changes that will put change in your piggy bank.

1. Consider size
First, bigger isn’t always better. You may save more by buying a larger bottle or jar, but if you don’t use it all before trashing it, the larger size isn’t worth the extra money. Where it does make sense on items such as paper goods and toiletries, it’s best to buy in bulk to save.

2. Invest in groceries medium-term
Buying a deep freezer will pay you dividends, you’ll always have frozen goods on hand and you can buy them in bulk or on sale to use later. With the extra space, you can also cook in bulk more and freeze for future use.

 3. Drink tap water
Americans spend over $10 billion annually on bottled water. Though studies show that bottled water adds no nutritional value and may even be environmentally unsound, Americans continue to pour money down the drain by buying and hauling home water when their own tap water is potable in most cases.
 
4. At the store
Plan meals and take a list. Eat before shopping, you are vulnerable to overspending when hungry. Don’t take along your favorite impulse buyers AKA your kids. Don’t buy any non-grocery items in a grocery store unless it’s a terrific sale.

Planning for retirement is a key element in securing your financial peace of mind. Depending on your current age, your long-term investment goals for the future will differ. Whatever your age, three targets to plan for are your financial security, adequate health care coverage, and the well-being of your heirs and your estate. General wisdom suggests various perspectives on investing for your retirement based on your age group.

In Your 20s

Getting started in investing is crucial at this time–compound interest is your friend. Even if you are struggling to pay off college debts and meet living expenses, the interest that accrues if you begin investing early in life makes this the soundest financial decision you can make.

In Your 30s

Juggling to buy a home, support a family, pay for college, and make ends meet probably leaves little thought for retirement right now. Wrong! Remember that you can save on taxes by investing in a salary reduction plan on the job. You may also be able to borrow that money from yourself to help pay for your home purchase. Investment assets may prove helpful in securing a good mortgage rate.

In Your 40s
Earning more at this point in your life probably means spending more. Expensive hobbies, bigger homes, college tuition are all high on the list of expenses now but don’t forget to maintain your retirement savings.

In Your 50s
If you’ve paid off the mortgage, continue putting this payment into your retirement vehicle. You may begin taking contributions at this time. Consider making gifts of investments to your heirs.

In Your 60s
Think about continuing your investments even after you begin taking your retirement contributions. This money will keep growing for you and your loved ones.

In Your 70s
Enjoy your retirement wealth. Review estate plans to be sure assets are distributed according to your wishes. Consider setting up a scholarship at a local college that reflects one of your passions or honors a family member.

If you are interested in building your personal wealth, read Paul Graham’s essay “How To Make Wealth” originally published in his book Hackers & Painters. This brilliant mind examines the idea of wealth, how to create wealth, and ultimately why founding or joining a startup is a great way to build wealth. Even if you are not exactly a geek or a hacker, his ideas will give you ideas about the opportunities to create wealth.

If you are specifically interested in a startup and live in the San Francisco Bay Area, don’t miss the FREE one-day startup school Paul Graham is teaching at Stanford on March 24, 2007. Deadline for signup is March 3, 2007.

Studies show that the majority of people overlook deductions when paying their taxes each year. Don’t rush, take your time and save yourself money this year. Spend time getting the records that you will need in order and have a system for archiving documents you need to store. Don’t go overboard on the deductions however, as this could be a red flag for an audit. If you are audited, remember that you do have rights. Don’t forget to check out recent legislation that may help you increase your tax return. If you have long-distance phone service, chances are that you can benefit from the federal break on excise tax on your long-distance phone service.

If you are considering a loan and you are unsure as to the differences between fixed interest rates and adjustable interest rates, read on.

Fixed Rate
Installment loans typically have fixed rate interest, meaning that the interest rate and the monthly payments will remain the same for the entire length of the loan.

Advantages

• Installments are constant
• Payments are easy to budget
• Loan cost won’t increase
• No unpleasant surprises

Disadvantages

• If interest rate drops, yours remains high
• Initially more than adjustable rate

Adjustable Rate
With an adjustable rate, the interest on your loan will vary. When the interest rates change, your monthly payment changes as well. This generally happens once or twice yearly.

Advantages

• Annual increases are usually controlled
• Initial rate is lower than fixed rate
• If rates drop, your overall costs are lower

Disadvantages

• Not always an option
• Tough to budget for increase in rate
• Vulnerability to rate hikes

Does it seem like personal income tax has been around forever? In fact, income taxation is a relatively recent event in US history and was even declared unconstitutional at one point. Here we present the historical highlights of the development of personal income tax in the United States. Keep in mind this is now one of your largest expenses.

1862
The US government imposes income taxes on citizens to pay for the Civil War. This period of taxation lasts until the law is repealed in 1872.

1894
A law taxing all personal income in excess of $4,000 at a rate of 2% is enacted but rejected by the US Supreme Court as unconstitutional.

1909
A new amendment allowing personal income taxation is proposed and ratified as the 16th Amendment by 36 states in 1913. Tax on personal income is now required by law.

1943
The government begins withholding taxes from paychecks, or “paying itself first”. This steady stream of income is required to wage World War II.

1952
The IRS reorganizes, finding that its former system of political appointment is ineffective.

1996
President Clinton creates a special commission to reorganize the IRS as it is, errr, ineffective.

2007
Only 56 days until you have to file a personal income tax return. Good luck.

Today’s tip to save you money: switch to compact fluorescent light bulbs throughout your home. The advantages of compact fluorescent (CF) bulbs over traditional incandescent bulbs are numerous:

- They last 8 to 10 times longer.
- They use an estimated 75% less energy.
- They produce 90% less heat while providing you more light per watt.

For example, a 25 watt CF bulb delivers about 1800 lumens as compared to 1750 lumens from a 100 watt incandescent lamp. One 20 watt CF bulb instead of a 75 watt incandescent bulb will save you about $65 over the life of the bulb (based on a rate of $.12 KWH). Now, count the number of light bulbs in your house currently and multiply by $65.

Additionally, many utility companies will actually reimburse you for switching to more energy-efficient compact fluorescent light bulbs making this a true money saver for you.

If you are confused as to which records are important to keep and for how long, this may help. You need to keep records of all of your earnings, usually some type of 1099 form. You also need to hold onto records of expense if you plan to itemize deductions or claim exclusions or credits. Remember to send copies, never originals, to the IRS if asked for backup. Below we list the typical types of tax records.

How long to keep your records?

The IRS typically has three years to audit your tax return, so keep anything relevant at least that long. If you underreport income, they have six years to audit you. If you don’t file or file falsely, they have forever. We list general guidelines.