Tag Archives: mortgage

Retirement Planning: A Document Checklist

Retirement Readings

June 15, 2016

Retirement planning

DOCUMENT CHECKLIST

You may find this Document Checklist of assistance in your planning. Please contact my office if we can be of further assistance.

Document

Location

Personal

Birth Certificate

 

Marriage License

 

Pre- or Post-Nuptial Agreement

 

Will

 

Trust(s)

 

Living Will(s)/Power(s) of Attorney

 

Mortgage Papers

 

Automobile Titles/ Papers

 

Income Tax Returns

 

Gift Tax Returns

 

Insurance Policies

 

Employee Benefit Documents

 

Passport

 

Military Records

 

Medical Records

 

Citizenship Papers

 

Warranties

 

Current Bills

 

Funeral/ Burial Documents

 

Other:_______________

 

Business Ownership

Partnership/ Incorporation Documents

 

Buy-Sell Agreement

 

Section 303 Stock Redemption Agreement

 

Business Valuation/Appraisal

 

Business Tax Returns

 

Other:_______________

 

MESSAGES
from the Masters…

FOUR WAYS TO MASTER CHANGE

by Sheila Murray Bethel

We are living in exciting age of unprecedented change. Today’s accelerated rate of change presents us with unique challenges and opportunities. When change brings success, keep your ego from getting out of hand. When the change is negative, use your sense of humor to get through it. Once you learn to handle change, you can take your skills, talents, and abilities and help others change. Let’s look at four ways to enhance your mastery of change.

1. Don’t Fight It.

The natural tendency is to protect what you know and value, what has become familiar and comfortable. Unfortunately the world will change with or without you. So you must adapt again and again. You make your life so much more complicated when you fight the change. You cause yourself stress and can actually become ill. Remember the old Serenity Prayer: God grant me the serenity to accept the things I cannot change, The courage to change the things I can and the wisdom to know the difference.

2. You don’t have to like the Change.

No one ever said you have to like the changes you are experiencing. However, you do have to understand them so you can progress. Study, explore, and read everything you can about the current matters that affect your perception and handling of change. Life is not always about “liking.” It is about doing the best you can, with what you you’ve got and getting on with it–right now!

3. Know what to defend against change.

There are some things we should resist changing because change does not always translate into better. Change for the sake of change alone can destroy valuable situations, assets, and relationships. Many values deserve to be defended. Ask yourself what you will change and what you will defend.

4. Have a Sense of Humor.

Humor can give you a momentary “emotional vacation.” A sense of humor can conquer pretense, and diffused anger and hostility. It can take an impossible situation and change it into an acceptable one. The old axiom, “if you take yourself too seriously, no one else will,” is key. The most effective people are spontaneous and can use humor to express their feelings, and to encourage others.

When you set out to be a change master and to make a difference in this world, there is no guarantee that it will be easy. By learning about change, serving others and helping them to learn to change, you will indeed be making a difference.

QUOTES
from the Masters…

 

On Integrity

 

“Always do right! This will gratify some people and astonish the rest.”

— Mark Twain

“A “NO” uttered from deepest conviction is better and greater than a “YES” merely uttered to please, or what is worse, to avoid trouble.”

— Mahatma Gandhi

“The virtue of man ought to be measured, not by his extraordinary exertions, but by his everyday conduct.”

— Blaise Pascal

 

On Kindness

 

“I believe…that every human mind feels pleasure in doing good to another.”

— Thomas Jefferson

“The world is my country, all mankind are my brethren, and to do good is my religion.”

— Thomas Paine

“Too often we underestimate the power of a touch, a smile, a kind word, a listening ear, an honest compliment, or the smallest act of caring, all of which have the potential to turn a life around.”

— Leo Buscaglia

“Because the soul has such deep roots in personal and social life and its values run so contrary to modern concerns, caring for the soul may well turn out to be a radical act, a challenge to accepted norms.”

— Thomas Moore

Celebrate Mother’s – April 29, 2016 Newsletter

Top Ten Mother’s Day Gift Ideas

collection

 

 

America’s Financial Literacy Crisis—and How to Fix It

By Scott Gamm

Could your local high school use an expert speaker on finance? Could your clients’ college-bound kids use a lunch and learn on financial literacy?

Far too many Americans are in the dark when it comes to how best to manage their finances. In honor of National Financial Literacy Month in April, we asked two experts to weigh in on the financial literacy crisis in America.

Both agreed schools need to be doing more to teach kids about finance. “This country has a real lack of understanding of how important it is to get the financial education in as early as possible with our children and as much as possible,” said Carmen Rita Wong, a personal finance author.

Only 10% of states received an A grade when it comes to how best they teach personal finance in schools, according to a report from Champlain College, and 23.5% received an F grade. A-grade states required students to take a finance class in high school in order to graduate.

“It’s just not enough,” Wong said. “The rest of the country needs to understand that this is really vital—just as vital as all of the other classes kids take because this is actual utility.”

Tina Powell, CEO of SheCapital, an investment management platform, said schools are too focused on testing. “There’s a saying in schools that if they don’t test it, they don’t teach it,” Powell said. “While the emphasis right now is on SATs, ACTs, and getting into college, there’s only so much margin that a teacher has that he or she can actually integrate these lessons in the classroom and that’s why we’re not seeing it.”

Wong said parents need to step in and fill the gap that schools have created by not teaching personal finance. “[Parents and teachers] also need education,” she said. “Not all parents have the right advice, and teachers also need to be educated on how to teach this.

Wong said parents engaging in basic money conversations with their kids, such as discussing allowances or explaining credit-card statements, can have a significant impact. “Sit down and practically show them how this all works,” Wong said.

The No. 1 concept to teach kids is limits, Wong said.

“It’s discipline, but it’s also just understanding that if you have $1, this is what it can do,” she said. “It teaches how much you can do with what, and if you want to do more, you’re going to need to borrow more.”

Powell said the practice of delayed gratification is fundamental. “You have to make sure your wants and needs are within reach,” Powell said.

Meanwhile, Powell pointed to compound interest, or interest on interest, as another important concept for parents to teach kids. The powerful effects of compounding interest can be seen when one starts saving early and has decades of time on their side. “Let your money work for you,” Powell said.

Both Wong and Powell agreed that stock-market investing is a critical component of financial literacy and wealth creation.

Quick! Easy! Thoughtful! For a mother, sister, dog mom, aunt, grandma. Buy jars, filling the ingredients and printing out a note card.

Or as a DIY Mother’s Day family project from kids to Mom’s.

The result is a simple, cherished, momento.

Click to watch:

mortgage-calculator

Reverse Mortgage Considerations

A reverse mortgage is a loan against the value of your home that does not have to be paid back for as long as you live in the home. Simply put, a reverse mortgage converts some of the equity in your home into income.

In Evaluating a Reverse Mortgage, Consider…

  • Typically, a reverse mortgage must be a “first” mortgage, meaning that if you still owe money on your home, you must pay off the existing mortgage before you can get a reverse mortgage (note: an initial lump sum payment from a reverse mortgage can be used to pay off an existing mortgage).
  • Keep in mind that, while you don’t have to repay a reverse mortgage for as long as you live in the house, the amount that ultimately has to be repaid does grow over time.
  • While the amount of debt grows over time, the reverse mortgage repayment cannot exceed the value of your home at the time it is ultimately sold.
  • If you take out a reverse mortgage, you continue to own your home. This means that you continue to be responsible for expenses such as property taxes, hazard insurance and home maintenance and repair.
  • Reverse mortgage proceeds may affect eligibility for assistance under state and federal programs.
  • The upfront costs associated with a reverse mortgage, such as an origination fee, closing costs and mortgage insurance premium, can be significant. This means that a reverse mortgage may be expensive if the loan is repaid within a few years of closing. As a result, if you anticipate moving within a few years, you should explore another alternative, such as a home equity loan.
  • Repayment of a reverse mortgage when your home is sold will mean less equity left to pass to your heirs.

Please contact my office if you would like additional information on reverse mortgages.

Contact@BenefitCI.com

OWNING A HOME – The Most Misunderstood American Dream

One of the largest transfers one will ever encounter is the purchasing of a home.  It is part of the traditional American dream. It can turn into a nightmare with sleepless nights and difficult decisions. Obtaining the maximum amount of house with the minimum price is the obvious goal. Also, a must when considering a home purchase, are things such as neighbors, the neighborhood, schools, property taxes, city services, maintenance, and upkeep. When you finally find this castle, there is excitement in the air and a commitment to purchase. My friend, you are now entering into an uncharted universe, the twilight zone of the banking industry called the mortgage.

Hello, I’m New On This Planet

All you know about the mortgage process is that you have worked your behind off, saved money for a down payment, and found a house you would like to buy. The next step, assuming you don’t have your mattress stuffed with cash, is to try to get approved for a loan to purchase it. So you arrange to meet with your banker. Your first impression of the people in the mortgage department, is that on the outside they look just like you and me. They look friendly and seem polite. But underneath that normal exterior they serve only one master, the bank.

Their first appraisal of you is to decide whether to satisfy their needs of consumption. They want to see income statements, tax returns, lines of credit, and your credit scores. It’s sort of funny that when you deposited $5,000 into one of their savings accounts they didn’t ask you for any of this information. But let’s face it, they just want to make sure you are not a credit risk. That’s why, in the bank’s eyes, every applicant is presumed to be a derelict and a liar. You must prove, beyond doubt, that you qualify financially so that you can afford any monetary abuse that they may throw at you. At the end of the first meeting, you sign an agreement allowing them to do this.

Dirt

Now as much as they want to give you a loan, by the time you walk to your car, they have started the process of making sure this won’t be easy. The hunt is on for problems in your past. New or old, big or small they are fixed on the idea of finding any, and I mean any, financial problems you have had. My personal experience is fairly common. I had purchased a home, sold it, and purchased another one. I lived in the new house about two years and decided to refinance it to lower the interest rate. All of these transactions were with the same bank and the same banker, all taking place in a seven year period. It was of no importance to them that I held several lines of credit with them with no debt balances and that my business account deposits with them were greater than the amount I wanted to refinance. At my expense, they wanted my credit scores and an appraisal of my home’s value. The funny thing was, they had done this five months earlier for the other lines of credit I established with them. What a con game!

I’ll Take The One On The Bottom

Your credit scores will vary from company to company. Some banks and mortgage companies will get as many as six or seven credit scores on you. Now, do you think they will use your best score? Guess again. How about the second or third best credit rating? Try again. How about the lowest or second to lowest score they can find? Bingo! Although five of your credit scores were good, they found the one they were looking for. In the bank’s eyes you are now “one of those kinds” of people.

Not So Perfect

You get the phone call about your questionable credit scores but are told not to worry. They are going to work this out for you so you can have this dream house. You are told any additional costs will be handled at the closing. They are now in control. Now, have you ever heard of a credit rating company making a mistake? Perhaps the rating company’s information was incorrect and they record a low score, but the bank is going to use that one anyway. Chances of trying to correct any scores from a credit company in time for your closing are remote; it takes a long time.

What Flavor Would You Like?

I am now entering into an area where you will really have to think from a different perspective. Home ownership and mortgages are confusing and emotional. As we discussed before, emotions are sometimes based on opinions not fact. I want to explore this confusion with you.

There is an array of different types of mortgages that you can select from. Banks and mortgage companies are becoming more creative in the packaging of these products. Why? They too see the ever-changing demographics of the country. They understand that buying a home is based on the affordability of the monthly payment, not necessarily the cost of the house. I can see how lending institutions would be considering extending the life of mortgages to 40 or 50 years. Why? More expensive homes, less future buyers of expensive homes, and retirees downsizing from larger homes. Banks and mortgage companies will want to create more buyers for these large homes while trying to maintain high values on these properties. The government also would like to see these larger homes maintain their values because this is a taxable commodity in the future. Property values continue to increase creating higher property taxes whether your house is paid off or not. The possible solutions for lending institutions would be to extend the payoff time of mortgages. Their thinking could be, “Hey, as long as we’re collecting interest, why not?” The dilemma here is that no matter what type of mortgage you decide on, you will experience major wealth transfers. The solution to reducing these transfers is understanding the opportunities that lie inside the mortgage itself.

Types of mortgages vary. There are 15-year and 30-year mortgages, bi-weekly mortgages, interest-only mortgages, adjustable rate mortgages, and balloon mortgages that will assist you in paying off your house. There is also the old standby of simply paying cash for your home. No matter what you decide to do, transfers will occur. If you get a mortgage, you are paying interest to the lender (a transfer of your money), and if you pay cash not only do you lose the money that you paid for the house, but also the ability to earn more money from that money (lost opportunity cost).

Which of these two situations will cause the least amount of transfers for you?

Many financial experts, along with your parents and grandparents, will conclude that paying your house off as fast as you can or paying cash for it, will result in the greatest rewards.

If Something You Thought To Be True, Wasn’t True. . .

Two lessons we talked about earlier come into play. Lost opportunity cost and liquidity, use, and control of your money will help you find the right solutions. By paying cash for your house, you must be of the belief that this is a great investment and you are certain of the rewards. After all, it’s not every day that you will plop down that kind of money on one investment. Experts will try to convince you that this is a wise decision. Let’s take a look.

Watch The Money Grow? Paying Cash

Let’s assume you decided to pay cash for your home. You paid $150,000.00 cash for a house in an area where housing values grew. You bought the home six years ago and the current value of the home is now $200,000.00. You would look at that gain and conclude that your investment in your home netted $50,000.00. Simply put, that’s over a 30% increase in the value of the home. So you go about telling all your friends how wise that decision was.

If you take the gain of $50,000.00 spread over six years, the real rate of return on that investment is 4.91%. The problem is during those six years, other payments were made to help increase the value of your property. New carpeting, painting, drapes, perhaps a new roof, furnace or air conditioner, possibly new windows and doors were improvements you made to increase the value of your home. Do not forget that you also pay property taxes that steadily increased with the value of your home.

Let’s say that while you lived there you paid $2,000.00 a year in property taxes and paid $12,000.00 for improvements and maintenance. Over a six year period, that would be another $24,000.00 paid. The rate of return on your home, compounded annually, is now 2.35%. How does that compare to other investments available to you?

In a down market, 2.35% sounds okay, but in a good market, that return sounds puny. Remember how everyone was impressed with your $50,000.00 gain?

No More Payments???

I have to explain the financial implications when someone pays cash for their home. In exploring this idea, I need you to really think deeper financially than you ever had to before. The lessons of lost opportunity costs, liquidity, use, and control and the Rule of 72 must be applied to your thinking.

Most people think they will save interest by selecting a shorter loan period.  With that in mind then paying cash for your home would save the most interest that would have normally been given to the bank. The problem is, by paying cash you no longer have that money to invest, so you are losing earnings that you could have made from that money. Also, if cash is paid for the house, you forfeit the tax benefits on the interest deduction. By using the tax deduction, you can recapture dollars, which you couldn’t do had you paid cash. You must understand that it costs you the same amount of money to live in your house whether you have a mortgage or you paid cash. Let’s take a look.

If you have a mortgage of $150,000.00 at 7% for 30 years, the monthly payment would be $997.95. If the monthly payment of $997.95 was invested for 30 years at 7% it would equal $1,217,475.00. If, rather than paying $150,000.00 cash for the house, you invested it instead at 7% for 30 years, it would grow to $1,217,475.00. Presto, it’s the same number!

Both of these scenarios are examples of transfers, whether you paid cash for your home or are making payments through a mortgage it is costing you money. The difference is that in the case of the 30 year mortgage at 7%, the mortgage would yield about $60,000.00 in tax savings in that 30 year period for someone in a 30% tax bracket.

That is called recapturing some of your transfers.

15 vs. 30

The two most common types of mortgages sold today are the 15-year and 30-year mortgages. Once again, misinformation clouds the choice between these two types of mortgages. In the 15-year mortgages, people assume the shorter the loan period, the less they will have to pay. Secondly, they believe they will save interest payments. With this line of thinking, you must conclude that, once again, the best alternative would be paying cash for the house. Let’s get out the microscope and take a look at these two mortgages.

Person A chose a 30-year mortgage for $150,000.00 with a 6.5% loan rate. She knows that under those terms her monthly payment will be $948.10. Person B obtained a 15-year mortgage for $150,000.00 with a 6.5% loan rate. He knows that his monthly payment for that loan will be $1,306.66.

Person A believes that her monthly payment at $948.10 is a good deal because it is $358.56 per month cheaper than the $1,306.66 payment for the 15-year mortgage. She is going to invest the savings of $358.56 per month into an account that averages a 6.5% return for 30 years. This grows to a tidy sum of $396,630.

Person B, who wasn’t born yesterday, plans to save $1306.66 a month for 15 years after he makes the last payment on his 15-year mortgage. He too predicts a 6.5% average return for those 15 years, and his investment would grow to an impressive $396,630.00. NOTE: It’s the same amount as Person A’s account. I have to ask you: Which person would you rather be?

In making the above comparison, I assumed a 6.5% mortgage loan rate and a 6.5% rate of return on their monthly payments. What would happen if both Persons A and B thought they could get an 8% average rate of return over that period of time on their investments? Person A’s $358.56 per month for 30 years at 8% would grow to $534,382.00. Person B’s $1,306.66 per month for 15 years would total $452,155 at an 8% earning rate. That’s a difference of $82,227.00 in the favor of Person A. The compounding of interest works in Person A’s account, causing the money to grow to a larger sum. Remember, Person B’s banker told him he would save money with a 15-year mortgage.

Hold on there, Kemosabe. You’re thinking, “If I took a 15 year mortgage, my interest rate might be lower than that 6.5% 30-year note.” You’re right. Let’s say the interest rate was 6.0% on that 15-year mortgage. Then both Person A and Person B invested the difference at 8% return just as we described above. You’re probably thinking, “Ah hah! Got you!” Try again. Person A’s savings still ends up $35,697.00 greater than Person B’s account. Don’t forget, Person A also received 15 more years of tax deductions that created an even greater savings.

Jimmy Carter

To continue our comparison of Persons A and B, we need to step into the WAYBAK time machine. Destination: the 1970’s. It was a time of high inflation, hostages in Iran, and funny clothes. Mortgage rates were extremely high. It was not uncommon to see mortgage rates of 10%, 15%, 18%. To proceed with our comparison, we must agree that since interest rates have been much higher in the past than they are today, that it is possible for mortgage rates to go higher, and of course, possibly, lower. O.K., back to the WAYBAK machine. Destination: the present. Phew! What a trip!! I want to thank Mr. Carter for the lesson we learned.

Knowing that interest rates could go up or down, let’s take a look at Persons A and B’s 30- and 15-year mortgage. First of all, NOW READ THIS SLOWLY, there are more tax deductions in the first 15 years of a 30-year mortgage, than there are in the entire 15-year mortgage. Second, in Person A’s 30-year mortgage, she knows for certain that her interest will remain the same for 30 years. Meanwhile, Person B has just made his last mortgage payment in the 15th year and is jubilant! My question is, now that he has paid off his mortgage, if he wanted to borrow money from his paid-off home, what are the interest rates? If he had a 15-year mortgage at 6.5%, and the interest rates are now 10%, you would have to say he was in a hurry to pay off his house at a lower rate so he could use his money at a higher rate. You see, Person A knows what her rate will be in that 16th year of a 30-year mortgage and because you put that $358.56 a month away, she now has accumulated $124,075.00 in savings by the 16th year.

She has enough money to pay off her house at that time, IF SHE WANTS TO. If economic conditions are favorable to do that, she can. If the stock market is yielding higher rates of return, she may elect to continue to pay on her mortgage and let her savings grow. Now, in the 16th year, Person B is just starting his savings program. Which of these two people would you rather be now?

Most people would want to be Person A. Person A has more control and more options and opportunities in the future. She also has retained some liquidity, use and control of her money. This allows Person A to be more flexible in ever changing markets. Person A has also been able to maximize the tax deductions in the 30 year mortgage. Remember, taxes are the largest transfer of your wealth that you will see over your financial life. Recapturing your money in the form of tax deductions is important.

From the bank’s standpoint, they would love to see everyone choose a 15-year mortgage. They will also encourage bi-weekly payments and any additional mortgage payments you can make. Why? These payments create the velocity of money for the bank. That means, the more money and the faster the money comes in, the more they can lend it out, to generate more profits. They disguise these payments as “interest saving techniques.” THINK ABOUT IT . . .A bank, whose sole purpose is to collect interest, telling you how NOT to pay interest? It doesn’t make sense.

Changing Landscape

Banks continue to tweak ideas about mortgages. It is their most lucrative product. The idea of interest-only mortgages is fairly new. In these mortgages you pay only the interest, no principal. They require you to put money into an account that the bank controls. An example would be, for every $100,000 you want to borrow you would put $12,500.00 into a 7% account controlled by the bank for 30 years. So, if you had a $200,000 home to finance, you would put $25,000 into their account. That money, the $25,000.00 at 7% would grow to meet a balloon payment due in the 30th year. Usually, the interest payments on this type of mortgage are higher than traditional mortgages.

Some mortgage companies tout a loan product that is totally flexible. You name the interest rate, and you name your monthly payment. They will tell you how many years it will take for you to pay it off. Hire a lawyer to read this contract. Of all these types of mortgages one thing stands out: The lending institutions are there to charge interest and make as much money as they can.

Insuring The Bank

Most banks and mortgage companies require down payments. If you don’t have a down payment they will charge you points. This extra money, above and beyond your mortgage payment, ensures them that in the event of foreclosure, their losses are covered.

The standard down payment on a house is 20%. Again, the bank feels comfortable, because should you not make payments and they must foreclose on your home, that 20% covers their losses. I consider that a 20% up-front failure fee. Don’t take it personally, they require this from almost everyone.

Black Hole In Space

Where does this down payment money go? If you were to put $30,000 down for your new home, what is your rate of return on the money? THINK HARD. ZERO! It will be zero percent forever. Next question: Can you borrow this $30,000.00 from the bank as part of your loan? NO! Why not? It’s not part of the mortgage. Now, the banks will argue that it lowered your monthly payments. That may be true on the surface, but let’s take a look at what the bank got out of this deal. They now have the use of your $30,000 for the next 30 years. At a 7.2% rate of return, that $30,000 would grow to $240,000 in 30 years for the bank. Just from the down payment they have earned more from you than what you paid for your house. Is your down payment deductible on your taxes? NO. Someone please remind me why I would want to do this. Remember, the bank is telling you the more you put down on the mortgage, the more you will save. Part of the solution to this problem is to demand that all of your down payment money be accessible to you through an equity line of credit.

I’ve Hit The Jackpot

Meanwhile, back at the ranch . . . you just went through the meeting for the  “closing” of your new home. You have signed 27 different documents, none of which you understood. What the heck . . . if you can’t trust the bank, who can you trust?

Now you’re a homeowner. You think you’re happy. The people at the bank gave you that congratulatory pen and calendar. They have truly put themselves in control of your future. They are happy. The people who sold the house to you are also happy. They even share their story of success with you. They bought that house new 33 years ago paying $39,000.00 for it. They remember how low the property taxes were back then, but even though they increased through the years, they still only averaged $1,000.00 a year in taxes. They remember the additions and improvements they made over the years totaling about $20,000.00. They feel it was their greatest investment. After all, they think they made $111,000.00 on the property.

THE MATH

  • Sale Price $150,000.

  • Original Purchase Price ($39,000.)

  • Gain on Sale $111,000.

Years you owned the home 33

If you have a gain of $111,000.00 over 33 years, the annual compound rate of return is 4.17%. But what really happened was this:

THE MATH INCLUDING TAXES AND IMPROVEMENTS

  • Sale Price $150,000.

  • Original Purchase Price ($39,000.)

  • Taxes and Improvements (33 years) ($53,000.)

  • Gain on Sale $58,000.

  • Years you owned the home 33

If you have a gain of $58,000.00 over 33 years, the annual compound interest return is 1.49%.

Now these people also had that house totally paid off for a few years. Had they been able to invest this $150,000 they had in the house, at a 7% earning rate they would have made $10,500 a year without touching the principal. That again is called a lost opportunity cost. The last three years they lived there they would have almost another $31,500.00 in lost opportunities. Plus, in losing the interest deductions, as little as they were, they became even more perfect taxpayers, which created more tax transfers of their wealth.

You congratulate them on their success, wish them well, and now you’re asking yourself: Will you have the same success they did? After all, they were happy that they made such a huge profit on the sale of their house.

Home Equity

If you have accumulated equity in your home, let me ask you one question: What’s the rate of return on the equity built up in your house? I mean, if you built up $70,000 of equity in your home, the bank must be sending you a hefty dividend check, right? WRONG! The equity inside your house is growing at zero percent. The argument here is, “Well my house increased in value therefore, my equity went up.”

Well, whether you have $70,000.00 or $1.00 of equity, the value of your property would still have gone up. If property values went down, would you rather lose $1.00 or $70,000.00 of equity? Although we have been taught that our home is a safe place to park our money, we really have to take a look at this situation.

Who Is In Control

It is important for you to understand how to get liquidity, use and control of the equity in your home. This is not money that you would invest, gamble, or spend foolishly. But, it can open up a great number of opportunities for you in the future.

Be The Bank

If you do have equity in your house, it is important that you establish an equity line of credit. Be advised, this is NOT used for investing. This credit line should be used to establish your own personal “bank.” Current tax laws may allow you to deduct the interest paid on your equity line of credit. Consult with your accountant to make sure you qualify for these interest deductions. Under most mortgage situations you will. The government really doesn’t care what you purchase with your equity line of credit. You will receive an interest-paid statement from the bank at the end of the year. It is similar to your mortgage interest statement. The rate of interest on equity line of credit may even be lower than your mortgage interest rate.

As previously stated, an equity line of credit should not be used to make investments, but can be used to eliminate interest payments that are not deductible. If you could take $5,000.00 of credit card debt at 18% with a $300.00 monthly payment and reduce it to a 6% interest rate with a $100.00 monthly payment and be able to deduct the interest off your taxes, would you be interested? That’s what an equity line of credit can do for you. If you have $12,000.00 balance on your car loan and you are paying $350.00 a month for it, how would you like to pay $250.00 a month and deduct the interest from that loan off your taxes? As you can see, there are many ways this could be favorable to you.

Tax-Free Money

The equity inside our homes, under current tax law, is tax-free money. Now, I don’t know what they were smoking when they passed that law, but whatever it was, I’d like to send them some more. But, there are also things that could negatively impact the tax-free equity in your home.

Hello Bubba!

You’re sitting in your home, looking out the window at the new landscaping project you just completed. There’s a knock at your front door. There, standing on your porch, is a guy you have never seen before. You crack the door open and he says: “Howdy! My name is Bubba. I’m your new neighbor. I’ve got six dogs, they’re all pretty friendly except for that one with no hair. . . if I were you I wouldn’t try to pet him. I’ve got four kids. Aren’t kids a hoot? I’ll tell you, between parole officers and social workers, kids sure keep you busy. My wife, now there’s a fine woman. You might see her from time to time. She’s gonna re-upholster furniture right out there on the front porch, to make extra money. Me, why I’m a work at home kinda guy. I’ll be rebuilding truck engines right here in the driveway. If you ever need my help, just let me know. See you, buddy!”

This is more like, see you later property values. Now, that example may seem a little extreme, but such a neighbor would dramatically affect the value of your house, and the tax-free equity in your home. Just some neighbor who didn’t maintain their property very well could affect your values.

Once, while my wife and I were searching for a home, we found a property that we really liked. I happened to walk out into the backyard and a little dog next door started barking. Barking and barking, followed by more and more barking. I looked at the real estate person and said they would have to lower the price of the house quite a bit if I was going to spend the rest of my life trying to convince that dog to be quiet. What is the price of peace and quiet in your own backyard?

Federal Reserve

Another situation that affects your tax-free equity in your home is the Federal Reserve. The Fed sets the interest rates that affect the bank loan rates. Your ability to afford a house is based on your ability to make that monthly payment. If interest rates are low, housing values are high, because less of the monthly payment goes to interest. If interest rates rise, home values fall. More money, on a monthly basis, would have to go to interest. The seller might have to lower the price of the house so that it is affordable, on a monthly basis, to attract buyers. Remember Jimmy Carter; interest rates skyrocketed, housing values plummeted. There go the house values and the tax-free equity again.

You’re Dead

We’re just pretending here, but if you and your spouse die in a common accident, what becomes of the tax-free equity in your home? It can magically become taxable again, this time at a higher rate, in your estate. Let’s review quickly: You’re breathing, it’s tax-free; You’re not breathing, it may be taxable! Enough said.

Not Dead, Just Disabled

We just discussed situations that could affect your home’s value, and affect that tax-free equity that’s earning a whopping zero percent. Without liquidity, use and control of this equity you may also be facing another danger. Let’s say one of the breadwinners in a household is involved in an accident or has a mild heart attack and survives. Now medical insurance covered most things, but the on-going therapy isn’t covered. The spouse, needing financial help, goes down to see the friendly banker for help. “I need some of the $70,000.00 equity I have in my home for medical reasons.” The banker musters up enough dignity and tells the spouse this: “Unfortunately, your mortgage payments were based on two income earners, not one. We feel you don’t have the ability to pay back (YOUR) tax-free equity to us with interest. Thank you, good luck.” 48 percent of all foreclosures in the United States are caused by a disability.  Having proper liquidity, use and control of your money would prevent some financial calamities.

3000 Days

When it comes to your home, the country’s demographics could play an important role. At a time when builders are building mega-homes for $300,000.00 to $500,000.00, we have to take a look at our aging population. With two-thirds of the now-working population 60 years old or older in 3000 days, consider this: A large portion of the population will be downsizing their homes. As people get older, they don’t need these 6000 square foot homes. Keeping up the payments and maintenance of these mega-homes will be a drain on retirement incomes. There may be a time when there is an overabundance of these homes on the market. Prices lowered to attract more buyers, means loss of home values and lower equity values in the house. Once again, it’s not a good place for your money to be when experiencing a down housing market.

Solutions

We have discussed the many aspects of home ownership and mortgages. It is important to establish as much liquidity, use and control of your money as possible. As previously discussed, a 30-year mortgage is more favorable than most other options. Further, you should limit the amount of down payment paid at purchase as much as possible. Establishing an equity line of credit on your home can give you liquidity, use and control of your equity. Refrain from paying cash for your home, as neighbors, interest rates, property taxes, and death taxes affect the value of your home. You create unintended consequences when you live in a home that is paid-off, without understanding your options. Failing to understand your options leads to lost opportunity costs, which in turn will create major transfers of your wealth.

Paying Yourself Back – The Velocity Of Money

If you are the owner of your “bank,” your equity line of credit, you have created liquidity, use and control of your money. If you purchased a car for $25,000.00 at 5% interest for 48 months, the payments would be $575.13 a month. You borrow the money from your “bank” to buy the car, and pay yourself back the $575.13 a month for 48 months. What happened here? You charged yourself the loan company interest rate, replaced the money into your “bank” in 4 years, and took tax deductions on the interest. After 4 years, the money has been replaced and it’s time to buy another car with the same money. There is still some value in the old car to assist you on your next purchase, possibly $6,000.00 or $7,000.00. Does it feel a little better being the owner of the “bank?” Remember, a car is a depreciating asset. Paying cash up front on something that will lose money is a losing strategy.

Our Goal

The objective of these exercises is to show you how to take back the liquidity, use, and control of your money. We also want to reduce or eliminate transfers of your money that are unnecessary. Recognizing these transfers and dealing with them can save you thousands of dollars. We want to create other “banks” of money for you that are tax efficient and help you retain monetary control. We will create these other “banks” by using the money you saved when you have eliminated and reduced unnecessary transfers of your wealth. Thus, you will not spend one more dime than you are already spending. By doing this, you will have more knowledge and money to make better financial decisions that profit you, not others. This will be an exciting change in the way you think about money!

For more information call Benefit Financial Inc. in Chino, CA at 909-548-7444 or email Contact@BenefitCI.com 

Qualified Plans – Financing Your Future or The Governments

wealth trasnfers

Major Transfers Of Your Wealth

 

In your everyday existence, you are confronted with transfers of your wealth. You continuously, unknowingly and unnecessarily, give or transfer money away. Not only do you give this money away but you also lose the ability to earn money on that money once it is transferred. This compounds your loss. To eliminate or reduce these transfers, you must first learn to recognize them and then understand how directly or indirectly they cost you money. You may have to confront conventional financial wisdom. Remember, the ones giving you these financial programs tend to profit from them. Always ask, who would profit from these transfers? Here is a list of the transfers of your wealth we will be discussing:

 ● Taxes

● Tax Refunds

● Qualified Retirement Plans

● Owning A Home

● Financial Planning

● Life Insurance

● Disability

● Purchasing Cars

● Credit Cards

● Investments

These ten transfers can create financial losses for you. You should study each one and determine how they will affect you. On the surface, the transfers seem pretty basic. It is not until you think a layer deeper that you find that these transfers may cause unintended consequences in the future. The future demographics of the country will affect everyone’s financial future.

 Thinking A Layer Deeper

I, for one, don’t believe qualified retirement plans are all that they profess to be. They are surrounded by ever-changing, complicated rules that can turn out to be very costly. I do believe    serve a purpose. At best, I believe they force people to save, which is something that people could do on their own with a little discipline. I don’t believe all the rhetoric about tax savings. Someone is going to be taxed on this money. If not you, then your heirs. The question is, at what rate will it be taxed?

 Tax Savings: Real Or Apparent?

I want to share with you an example of a 45 year-old person who was told they should have an IRA so they could generate tax savings. I gave this example to a group of accountants. I told them I would give $100.00 to each accountant who came up with the right answer. The question was this: If a 45 year-old person, in a 28% tax bracket that qualified for an IRA put $2,000 into an IRA, what would the tax savings be for that person? [I know the amount that can be deposited into IRAs has changed, just bear with me for the sake of the example]. I told them to write the answer on the back of their business cards and pass them forward. Every one of them passed their card forward positive that they would be $100.00 richer. I reviewed all the cards. They all said the same thing, $560.00. Which they figured by taking 28% of $2,000.00. I hesitated and then asked, “Is this tax savings real or apparent?” I went to the chalk board, and wrote these numbers:

 Age IRA plan growing at 10%

45 $ 2,000

52 $ 4,000

59 $ 8,000

66 $16,000

 

By simply using the Rule of 72, at 10% rate of return the money would double about every seven years. All the CPAs agreed with this calculation. I then told them every card they sent forward on it had the answer as $560.00. None of them seemed surprised. I then asked them, if this person could invest the $560.00 tax savings, what would that look like assuming I could get a 10% rate of return on that money?

 

Age Tax savings growth at 10%

45 $ 560

52 $1,120

59 $2,240

66 $4,480

Saving $16,000.00 in an IRA, investing the tax savings and having those savings grow to $4,480.00 looked great. I then combined the two charts:

Age IRA savings at 10% Tax savings at 10%

 

45 $ 2,000 $ 560

52 $ 4,000 $1,120

59 $ 8,000 $2,240

66 $16,000 $4,480

 

Now this person turns 66 years old and wishes to withdraw $16,000.00, along with other savings. Miraculously, they are still in a 28% tax bracket at the time of withdrawal. His accountant reminds him that he has to pay taxes on it at withdrawal. Interestingly, the tax due on that $16,000.00 withdrawn is $4,480.00. Exactly what was saved in the tax savings account? Over the 21 years of saving in my example, $784.00 had to be paid in capital gains taxes. This lowers the tax savings account to $3,696.00. Now this person had a tax due of $4,480.00 and had $3, 696.00 to help pay the tax.

 

We’re Not Done Yet

If you understand the demographics of the country, you will come to the conclusion that you will very likely retire to a higher tax bracket.

 

Age IRA savings at 10% Tax savings at 10%

45 $ 2,000 $ 560

52 $ 4,000 $1,120

59 $ 8,000 $2,240

66 $16,000 $4,480

Capital Gains Tax -$ 784

Savings after tax $3,696

Tax due at withdrawal:

28% tax bracket= $4,480

35% tax bracket= $5,600

40% tax bracket= $6,400

 

No one argued my calculation. No one argued the results or even the demographics. Most agreed it will be a problem in the future. After my example, I spoke to some of the accountants and I asked if they would still recommend IRAs to some of their clients. Some said yes. It is possible that the decisions of these accountants could cause larger transfers of their clients’ wealth in the future, unknowingly and unnecessarily.

 

Tax A Derby

If I can tell you the exact day that your qualified retirement account will suffer its greatest loss, would you want to know that day? And in knowing that day, if we could do something now to prevent these losses, would you do it? Taxes are the largest transfers of your wealth. The day you activate your qualified retirement account is the day that it will suffer its greatest loss, due to taxation, not because of losses in the stock market. 100% of your qualified retirement income becomes taxable. Congratulations, you’ve become the perfect taxpayer.

 

What We Have Here Is A Failure To Communicate

You may consider other complications that surround. Many people suffer from a lack of liquidity, use, and control of their money. limit the amount of access you have to your money. If this is the only source of your savings you may consider diversifying into more non-qualified accounts also. Limiting your access to your money may also limit your options and opportunities in the future. If you ask what would happen if you were to take money out of your IRA before

the age of 59½, what would the typical response be? You will be taxed on the amount you took out and penalized 10% of that amount for early withdrawal. Tax professionals consider this a major no-no. They will tell you if you wanted to withdraw $1,000.00 and you were in a 28% tax bracket that you would lose $280.00 in taxes and be penalized $100.00 to boot. Let’s get one thing straight. You were going to get taxed on this money either now or later. The thought that you will lose money for early withdrawal by being taxed

for it is misleading, since it will be taxed no matter what. Perhaps if you study the demographics of the country, once again you may come to the conclusion that there is a possibility you will be taxed on that money at a higher rate. The 10% penalty on the early withdrawal is a reality, unless . . .

 

Have You Heard This One

Accessing IRA funds before the age of 59½ without incurring the 10% penalty is permissible under the IRS notice 89-25-IRB 1989-12.68 section 72t by using one of the three following distribution methods: 1)Life expectancy; 2)Amortization; and 3)Annuitization. The life expectancy method simply calculates the amount which can be withdrawn annually, by dividing your account balance by your life expectancy based on tables furnished by the IRS. The second method is amortization, which allows you to amortize your account balance based on a projection of what your account might earn over your lifetime. The IRS requires that the interest rate assumed in this calculation be “reasonable.” For the annuitization method, the IRS also allows withdrawal based on a life insurance mortality table (UP-1984) and a “reasonable” interest rate assumption.

This method normally generates the largest withdrawal. If something you thought to be true wasn’t true, when would you want to know about it? It is possible to avoid the 10% penalty for early withdrawals from an IRA. In the event you have a 401(k) and lose your job or retire early, transferring your

401(k) to an IRA will allow 72t distributions. 72t does not apply to 401(k)s directly. Remember, in using qualified programs the real concern along with market results, is the future taxation of these plans. If you are depositing money while in the current tax bracket, but may have to pay a higher tax in the future, is this a good strategy?

 

On Trial: Financial Beliefs

What is on trial here is a belief system: The fast paced, get-rich-while-you-can mentality, where the solution is based upon products, not knowledge. There is nothing wrong with most investment products, but products are not the only answer to securing your financial future. We have become so mesmerized by rates of return, we fail to use common sense, which costs us a lot of money. Have we become so busy that we just look the other way when giving away our money? I believe we have been systematically trained to do just that. From our education system, to banks, brokers, investment companies, the government to tax preparers, we are told very little about how to manage our personal finances. But we are blindly guided down this narrow path and eventually left hanging out to dry, for one reason and one reason only: So that others can profit.

 

 Relying On Stupidity

I can’t blame these institutions and companies for wanting profits. If the public is willing to freely give away their money, then more power to them. No one is being forced to do anything. The concept of making money out of nothing is ingenious. Motivated by the emotions of fear and greed, love and hate, people will freely throw money away. If anyone dare throw common sense into this mix, they would probably be labeled as cold and calculating. As long as people are willing to give their money away, someone will take it. One thing I am positive of: this will never change. PT Barnum said it best, “There’s a sucker born every minute.” People have been duped so long, they are afraid of change in the fear of being duped again. The only thing that will stop this madness is knowledge. Until that happens, billions of dollars will be made from us, the public, by simply relying on our stupidity.

 

Financial Puppets

Because of this lack of knowledge, you will, willingly or unwillingly, stay financially tied to these institutions for the rest of your life. The money you will transfer away is enormous. Reducing these transfers will help create personal wealth for you. Achieving some financial freedom in your life should be a personal goal. If financial institutions had their way, you would remain captive to them forever. For that reason, they don’t want to educate you too much. Rather, they want to create a dependency on them.

 

POVERTY PLANNING:

IT TAKES NO TIME

IT TAKES NO EFFORT

RESULTS* ARE GUARANTEED

* Results may vary depending on luck

 

All too often I see people doing the very basics, financially. Their heads buried in the sand, they take the ostrich approach to planning. The “wait-and-see” retirement strategy suits them well. Then, with this limited or non-existent knowledge, they attempt to survive in a world created for them by the government. They have been told that their pension and retirement savings will be enough to live on in their golden years. Let us not forget social security. But the ever-increasing cost of living, increased taxation and increased cost of insurance, drains the basics of their planning away. They all too often end up looking for part-time jobs after retirement. Pride, fear, and laziness fuel the ignorance of poverty planning. They received financial advice from their friends and neighbors, but remain skeptical of anyone with professional knowledge. They work and work and never get ahead. Unfortunately, these are the same financial lessons they pass on to their children.

 

Tax Cuts And The Rich

Another common misconception is that tax cuts are for the rich. This is nothing more than political “get-me-re-elected” talk. It is obvious that the rich make up such a small portion of the tax paying population, the politicians view this as a small group of voters. There are more poor, middle class, and upper middle class voters then there are rich voters. So don’t be surprised when a politician favors the area where there are more voters. The tactic is as old as dirt. Divide and conquer, blame someone else for your problems, so you will vote for them. These are not poor or middle class people running for office. Remember, these people will spend millions to get elected to get a position that pays a couple of hundred thousand dollars a year. Makes sense, right? I would like to compare our system of paying taxes to ten people going out to dinner. The common belief is the rich get more back than us ordinary tax payers and that is not fair. The reality is, the rich pay more so they should get more back.

If ten people went out to dinner, and when the bill came we used the rules of the tax code to pay this bill, it would look something like this: The bill for dinner for ten came to $100.00; Persons #1 through #4 would pay nothing; Person#5 would pay $1.00; Person #6 would pay $3.00; Person #7 would pay $7.00; Person #8 would pay $12.00; Person #9 would pay $18.00, and; Person #10 (the richest person) would pay $59.00. If the restaurant owner decided to give the group a 20% discount, the dinner for 10 is only $80.00. How should they divide up the $20.00 savings? Remember, the first 4 paid nothing to begin with, so the savings should be divided between the remaining six.

Twenty dollars divided by six equals $3.33 each. If you subtracted that amount from those six people’s share, then persons #5 and #6 would be paid to eat their meals. This doesn’t seem fair, so the equitable answer is to reduce each person’s bill by the same percentage. The results look like this: Persons #1 through #5 would pay nothing; Person #6 would pay $2.00; Person #7 would pay $5.00; Person #8 would pay $9.00; Person #9 would pay $12.00; Person #10 (the richest person) would pay $52.00 instead of $59.00.

Now everyone starts comparing and complaining. Person #6 complains because he only got $1.00 back and Person #10 got $7.00 back. “Why should he get $7.00 back when I only got $2.00?” shouted person #7. “Why should the wealthy get all the breaks?” Person #1 through #4 yelled “We didn’t get anything back. This system exploits the poor!” Then the nine people surrounded Person #10 and beat him up. That seemed to satisfy them. The next time they went out to dinner, Person #10 did not show up, so they sat down and ate without him. When they were finished the bill came and they discovered they were $52.00 short.

The people who pay the highest taxes get the most benefit from a tax deduction. It’s common sense math. If you tax them too much and attack them for being wealthy, they may decide not to show up at the table anymore. For everyone involved that would create an unintended consequence. Everyone would have to pay more.

 

For more information call Benefit Consultant Inc. in Chino, CA at 909-548-7444 or email Contact@BenefitCI.com

ARTICLES

MISGUIDED WISDOM – Thinking Minus Logic

More Than One Solution

Traditional financial thinking of the past has always emphasized the rate of return on our investments. The faster you want your money to grow, the greater the risk you would have to take. Many words have been spoken and written about risk tolerance and risk management, so I am not going to rehash popular current financial thinking. I do think the element of risk is important, but only to the extent that if you did not have to take a risk, and could receive positive rates of return, would you pursue that course of planning?

It is a popular belief that the only way to make your money grow is to get higher rates of return. Every time I hear “higher rate of return,” I ask a question: “Who is at risk, you or the one making the recommendation?” There is another way to increase your wealth without the worry of risk. It is called the Efficiency of Money. Now I am not talking about strict budgets, buying off-brands, and doing without. I am talking about the complete opposite. You should have the finer things in life and enjoy them. The only thing stopping you from improving your lifestyle is money, and more precisely, transferred money. We unknowingly and unnecessarily transfer away most of our wealth and it is out of control. Have you ever stood in a supermarket line with that ½ gallon of ice cream you forgot to get for the kid’s birthday party, only to have the person in front of you contest the cost of one of their items? The argument starts out polite enough over this $.10 difference in cost, and escalates into a conflict between the store manager and a cell phone call to the shopper’s attorney. Finally, it is resolved with some U.N. intervention. Meanwhile, your fudge swirl delight is dripping down your arm and onto your new shoes. The shopper leaves the store victorious in battle, proud and happy, eager to share the success of their confrontation with all who will listen.

Did I get off track there? Not really. If we had the passion and the knowledge to confront the transfers of our wealth, we would surprisingly win most of the battles. Instead of a $.10 victory, the savings could be in the thousands of dollars with no risk of loss.
There are eleven major transfers of your wealth.

1. Taxes

2. Tax Refunds

3. Qualified

4. Retirement Plans

5. Owning a Home

6. Financial Planning

7. Life Insurance

8. Disability

9. Purchasing Cars

10. Credit Cards

11. Investments

We will be discussing some of them in great detail. It will take some encouragement by me for you to begin thinking a layer deeper than you are accustomed to. Remember, the purpose of taking you a layer deeper is not to uncover defects in your thinking, but to expand your thought process through knowledge so you will be able to make better financial decisions. Without this process, you may suffer unintended consequences in your financial future.

When we are finished, you will have a defining moment in the way you think about money. You will have a greater appreciation of opportunities that you did not have before. Let us face it, finance companies, banks, the government, credit card companies, mortgage companies, etc. are all standing in line for their share of your money. Where do you and your family stand in this line? At the end! We will change this. However, in order to change it your thought process must change.

Popular Beliefs

About 6,000 months ago, it was a widely accepted scientific fact that our planet, the Earth, was flat. About 600 months ago, my father was told he would probably retire to two-thirds of his income, thus, he would be in a lower tax bracket. About 60 months ago, we were told of such enormous surpluses controlled by the federal government that our society would prosper from increased government programs. All of these beliefs turned out not to be true. Tax reform acts designed to relieve tax burdens on the public, actually resulted in the government collecting more revenue than ever from its citizens, you and me. The shell game of lowering tax rates while eliminating deductions has been very profitable for the government. Back in our grandparents’ day, Social Security was the save-all safety net they needed in lieu of the lack of retirement plans. Although well intended it was the first step of a long journey of dependency on the government.

The 16th Amendment of the U. S. Constitution allowed taxation of income of its citizens.

A. Originally, the idea of income tax was ruled unconstitutional in the 1890’s. Article 1, Section 9 of the Constitution states clearly that no direct tax “shall be laid, unless in proportion to the census or enumeration herein before directed to be taken.”

B. The 16th Amendment gave new powers to the federal government that conflicted with the 10th Amendment that reserves any other power, other than stated in the Constitution, to the individual states.

C. In 1913, 400 pages of tax law were created. Today almost 47,000 pages of tax codes and rulings exist. We will continue, later on, to look into transfers of your wealth to the government that were created by the government.

Four score and several years ago our forefathers brought forth onto this continent a new notion, that all men are created equal…when it comes to taxes. Once again, most of the popular beliefs have been handed down generation to generation, father to son, and mother to daughter with very little effort given to studying these beliefs. Now we are at a point where there is confusion between myth, opinion, and fact. Misinformation has caused all of us enormous amounts of lost money, in the form of transfers that we have made unknowingly and unnecessarily.

The government isn’t the only player trying to share your wealth. Banks are notorious for dipping into your wallet. One rule of the bank you must understand. If a bank is late on doing something it is called a “process.” If you are late with the bank it is called a “fee.” Most recently, a bank charged me a $360.00 fee for not doing something – for not setting up an escrow account for a mortgage. Think about it, $360.00 for doing nothing. When they were questioned about this fee, they said it was simply part of the process of the mortgage. The process of setting up nothing. When asked where that money goes . . . well, the silence was deafening. I could actually hear the crickets chirping.

1. U. S. Constitution, Amendment XVI. 2 U.S. Constitution, Article 1, Section 9. 3 U.S. Constitution, Amendment X.

Besides mortgages, other spin-offs of their creations, such as credit cards, home loans, auto loans, ATM’s, checking accounts, saving accounts, and certificates of deposit (CD) all create fees. Late fees, early withdrawal fees, minimum balance fees, debit fees, and in some cases, a fee to talk to a teller. On credit cards, it’s almost the goal that you be a couple of days late on your payments. Late fees are big business, and so are charge-offs from bad debts. To create higher possibilities of late payments, the billing cycle has been shortened. Instead of sending out your billing 14 days before the due date, it is sent out 10 days before the due date, and the due date is probably on a weekend. Would it not be terrific if we could be the bank? If you are interested in creating your own personal bank and eliminating regular commercial banks from your life, you must read on.

The Banks

It is truly reassuring and comforting to know that your bank savings, should the bank fail, is insured by an agency of our federal government that is over $6 trillion dollars in debt itself. Someone once said, “Banks will lend you money if you can prove to them you do not need it. A banker is a fellow who lends you his umbrella when the sun is shining and wants it back the minute it begins to rain.”

IT IS DIFFICULT TO GET THE RIGHT SOLUTIONS WHEN YOU START OUT WITH THE WRONG PREMISE

Never Go Into A Bank Without A Ten Foot Pole

Let us get one thing straight here. You, by putting money into a bank, are lending money to that bank, so they can lend it to someone else. They earn interest from that loan and charge fees to it on a regular basis. In return for you “lending” the money to the bank, you receive a pitiful interest rate, but they also charge you fees to keep that account open at their bank. Think about it . . . you put the money in their savings account and receive 2% earnings. You may also be charged fees for that savings account. They take your money and lend it to someone in the form of a credit card and receive 18% interest and receive fees on a monthly basis for that credit card.

Not only do they charge us interest, but they charge fees. They raise existing fees, invent new ones and make it harder to avoid them by raising minimum balance requirements. Looking through my bank records and the documents given to me when I opened my accounts, I found and identified over one hundred separate fees banks impose on their customers. Over the past few years the size of the fees rose twice the rate of inflation. Charges and fees account for more than 40% of the banks revenues. The banks have become a fee-based operation. They consider you naive when it comes to the sophisticated business of banking. They determine there are certain things you do not “need to know.”

Here is a partial list of fees and charges I found:

• Saving account fee
• Check cashing fee
• Monthly account fee
• Automated transaction fee
• Manual transaction fee
• Monthly overdraft mgmt. fee
• Automatic payment amend fee
• VISA account fee
• Withdrawal fee
• Automatic payment fee
• Set up fee
• Unpaid bill payment fee
• Checking account fee
• Account special request fee
• Checking overnight fee
• Stop payment checking fee
• Checking account statement fee
• Dishonor fee
• Customer investigation fee
• Overdraft application fee
• Online banking fee
• ATM fees
• International service fee
• Traveler’s checks fees
• Bank draft fee
• International money transfers fee
• Safe deposit fee
• Home loan application fee
• Personal loan fee
• Credit card replacement fee
• Credit card collection fee
• Cash advance fee
• Telephone call center fee
• Account closure fee
• Wire transfer fee
• Garnishment fee
• Notary fee
• Levies
• Special statement cutoff fee
• Telephone transfer fee
• Night deposit fee
• Analyzed business fee
• Loan processing fee
• Tax service fee
• Appraisal fee
• Credit report fee
• Survey fee
• Closing title company fee
• Recording fee
• Escrow waiver fee
• Inspection fee
• Underwriting fee
• Courier fee
• Document prep fee
• Attorney fee
• Late payment fee
• Early payoff fee

You would think the government would step in and help protect its citizens. That is what they are paid to do, right? WRONG! You see, the government needs the banks. The Federal Reserve, which represents banks in this country, prints our dollars and lends them to the Federal Government, which in turn creates the ever-growing federal debt. The government pays interest on these loans. This debt is passed on to you and me in the form of taxation. If this debt continues to grow will your taxes ever go down? No. Who is happy with this whole scenario? Yes, the banks. They charge interest on that debt. It costs the banks very little to print the money to give to the government. It costs the government very little to dole out this money. However, we will spend our entire lives paying on this debt in the form of taxes, without ever coming close to paying it off completely. That is why you will never see the government aggressively go after the banks. They need each other!

15 vs. 30

The two most common types of mortgages sold today are the 15-year and 30-year mortgages. Once again, misinformation clouds the choice between these two types of mortgages. In the 15-year mortgages, people assume the shorter the loan period, the less they will have to pay. Secondly, they believe they will save interest payments. With this line of thinking, you must conclude that, once again, the best alternative would be paying cash for the house. Let us get out the microscope and take a look at these two mortgages.

Person A chose a 30-year mortgage for $150,000.00 with a 6.5% loan rate. She knows that under those terms her monthly payment will be $948.10. Person B obtained a 15-year mortgage for $150,000.00 with a 6.5% loan rate. He knows that his monthly payment for that loan will be $1,306.66. Person A believes that her monthly payment at $948.10 is a good deal because it is $358.56 per month cheaper than the $1,306.66 payment for the 15-year mortgage. She is going to invest the savings of $358.56 per month into an account that averages a 6.5% return for 30 years. This grows to a tidy sum of $396,630. Person B, who wasn’t born yesterday, plans to save $1306.66 a month for 15 years after he makes the last payment on his 15-year mortgage. He too predicts a 6.5% average return for those 15 years, and his investment would grow to an impressive $396,630.00. NOTE: It is the same amount as Person A’s account. I have to ask you: Which person would you rather be?

In making the above comparison, I assumed a 6.5% mortgage loan rate and a 6.5% rate of return on their monthly payments. What would happen if both Persons A and B thought they could get an 8% average rate of return over that period of time on their investments? Person A’s $358.56 per month for 30 years at 8% would grow to $534,382.00. Person B’s $1,306.66 per month for 15 years would total $452,155 at an 8% earning rate. That is a difference of $82,227.00 in the favor of Person A. The compounding of interest works in Person A’s account, causing the money to grow to a larger sum. Remember, Person B’s banker told him he would save money with a 15-year mortgage.

Hold on there, Kemosabe. You are thinking, “If I took a 15 year mortgage, my interest rate might be lower than that 6.5% 30-year note.” You are right. Let us say the interest rate was 6.0% on that 15-year mortgage. Then both Person A and Person B invested the difference at 8% return just as we described above. You are probably thinking, “Ah hah! Got you!” Try again. Person A’s savings still ends up $35,697.00 greater than Person B’s account. Do not forget, Person A also received 15 more years of tax deductions that created an even greater savings.

Enough Is Enough

Elderly people will be grilled by bank employees when trying to withdraw large sums of money. They will be asked what they intend to do with it. The banks will use scare tactics to imply that what the clients are planning to do with the money is crazy or ill-advised. In reality, it is none of their business what someone wants to do with their money. The bank’s aim is to hold your money as long as they possibly can, since every day they hold it is one more day of earnings to be made from your money. Also, getting financial information and advice from a bank can be a huge mistake.

Their focus is to control your money and collect interest and charge fees WHENEVER they can. They will steer you to their bank products when it comes to investments and saving, not because those products are the best choice for you, but because they profit from sales of their products. Also, the financial consultants housed in banks cannot sell other company’s investments or products, even if another company’s product is better suited for you and your financial profile. But they do not tell you that, they merely give you the idea that their bank’s products are the best for you. The less informed you are the better bank client you become. No one is safe. If you need “banking service” (that is an oxymoron, by the way), find yourself a local credit union. It is the lesser of two evils. As discussed in previous chapters the ideal solution would be to create your own “banks.” Follow the rules of basic banking. Learn to pay your banks back, save the interest and whenever possible, deduct interest payments when the law allows. Your “banks” will be funded by eliminating or reducing the ten major transfers of your wealth.
Your savings could be staggering!

The Federal Reserve ~ Bridging The Gap To Plunder

The central core of banking under the guide of the Federal Reserve is very simple:
An ability to print money at very little cost, which has no real value, no backing of gold or silver, and loan it out to purchase things that do have value. This in return provides value to the un-backed money printed. Holding property liens on things you purchased gives the banks the right to book these as bank assets, minus the balance of the debt. All the money that has been created by the banks is created out of nothing.

In November, 1910, a secret meeting was held on Jekyll Island in the State of Georgia.
Present at this meeting were Senator Nelson Aldrich, Chairman of the National Monetary Commission, associate of JP Morgan, father-in-law to John D. Rockefeller Jr. Also present were: Abraham Pratt Andrew, Assistant secretary of the U.S. Treasury; Frank A. Vanderlip, President of the National City Bank of New York, representing William Rockefeller and the international banking house of Kuhn, Loeb, and Company; Henry P. Davison, Senior partner of JP Morgan Company; Charles D. Norton, President of JP Morgan’s First National Bank of New York; Benjamin Strong, head of JP Morgan’s Bankers Trust Company, and; Paul M. Warburg, partner in Kuhn, Loeb, and Company, a representative of the Rothschild banking dynasty in England and France, brother to Max Warburg, head of the Warburg banking consortium in Germany and the Netherlands.

Every one of the participants was pledged to secrecy. It was only after many years and much research that the meeting and its purpose was uncovered. What formed out of this meeting was a banking cartel, a proposed monopoly of the industry. By doing this they would create control of the financial monetary systems; yours, mine, and the government’s. Even creating a name for this cartel was well thought out. They agreed that the word “bank” should not be used in its title. Thus, the birth of the Federal Reserve, a cartel agreement with five objectives:

1) Stop the growing competition from the nation’s newer banks;
2) obtain a franchise to create money out of nothing for the purpose of lending;

3) Get control of the reserves of all banks so that the more reckless ones would not be exposed to currency drains and banks runs;

4) Get the taxpayers to pick up the cartel’s inevitable losses, and;

5) Convince Congress that the purpose was to protect the public.

Specifically, the Federal Reserve was designed as a legal private monopoly of the money supply, operated for the benefit of the monopolists under the guise of protecting and promoting the public welfare.
Constitutional restraints prohibited the federal government from printing paper fiat money.4 Fiat money is money that has no valuable asset; gold, silver, etc., to back it. However, there is no such restraint on the Federal Reserve. But, the banks, i.e. the Federal Reserve, wanted the government to have a system to pay for the money they printed for the government. Say the magic words: Sixteenth Amendment. This amendment allowed the government to charge a tax on income.

At that time, the federal gold and silver reserves were still sufficient to back all its printed money. As the country continued to grow and the advent of government social spending increased, the government surpassed the ability to back its fiat money. In its own wisdom, the government eliminated its gold and silver standards. Remember the days when our printed money stated that it was a silver certificate right on the front of the bill? That’s gone. So are our gold and silver stockpiles. Now the printed money says “Federal Reserve Note” across the top. Since that change, the national debt (not the deficit, they are two different things) has spiraled out of control. Our country’s debt is compounded because the Federal Reserve charges interest on that debt, which is repaid by the tax revenues collected by the government.

The connection between the banks and the government is an interesting one. I would recommend the reading of the book The Creature from Jekyll Island by G. Edward Griffin. It is an in-depth look at the Federal Reserve. Understanding how the government, banks, and Federal Reserve relate to each other will open your eyes to the transfers of your wealth that they have created, controlled, and profited from. Remember, they are the ones constantly reminding us that they will help us financially. The reality is, between the three of them, we transfer away over two-thirds of our wealth over our lifetimes. All the plans and products they support create unintended consequences for us and more profits for them.

Fuzzy Wuzzy Thinking

It has been a long time since I have seen an investment broker, accountant, or talk show financial expert prove mathematically that any of their opinions work. I am not talking about the one-sided comparison where they blow off any idea contrary to theirs as stupid. (Meaning, if you don’t do it their way, you must be lacking intellectually). By disarming those who even dare to think outside their box as “stupid,” these self-proclaimed experts do not have to prove a thing. People, in general, take offense to being called stupid, so they tend to take the their-opinion-must-be-fact of these experts as gospel, fearing the wrath of being labelled.

4. United States Constitution, 10th Amendment.
5. United States Constitution, 16th Amendment.

Imagine being confronted by two salesmen selling laundry detergent. The first salesman says, “Well, you would be stupid to buy a detergent that does not create enough suds to clean.” The other salesman says, “You are stupid if you believe what the first guy said.” Great comparison, eh? No matter what you do, you are stupid by someone’s account. I have heard professionals in the financial industry tell clients essentially the same thing. “You would have to be dumb to pass this up.” “It would not take a rocket scientist to figure this out.” “How long do you want to be ripped off?” There are hundreds of statements like these made every day implying that you are stupid.

I was watching one of these so-called financial expert’s TV show, we’ll call her Ms. Fuzzy, and I was amazed how many times she implied the callers were stupid. She did it in a nice way, but the implication was that the caller was stupid, and she was not.

Ninety percent of what she told people was simply her opinion, NOT fact. To be an expert, Ms. Fuzzy knows she must deal with lower intellects to maintain her lofty title of “expert.” But when cornered, Ms. Fuzzy reverts to belittling the caller rather than giving the caller a legitimate answer. Then she dismisses the caller’s ideas as “dumb” and frowns at the television audience to emphasize the point.

Ms. Fuzzy received a call from someone who had bought life insurance, the “wrong kind,” according to Ms. Fuzzy. Her conclusion went something like this, “Get rid of that and the guy that sold it to you.” (You are stupid.) “He is a salesman” (You are really stupid.)

“A S-A-L-E-S-M-A-N, that is all!” (You have moved from the stupid class to the idiots class.) Great reasoning, Ms. Fuzzy! Nice comparison, filled with knowledge and facts.

One question for you Ms. Fuzzy: Is it salesmen that you hate? Probably just about everything Ms. Fuzzy owns, she purchased from a S-A-L-E-S-M-A-N. Does that make her stupid also?
To come to her conclusions for this caller, Ms. Fuzzy used no math, no facts, no research, and no independent studies. There was no discussion about income, cost, age, family status, amount of insurance, the person’s personal debt, their tax bracket, the love of his family, or quality of the company. NOTHING, NOTHING, NOTHING to justify her “conclusion,” just Ms. Fuzzy’s opinion. How one can have such a strong opinion, without knowing all the facts about the caller, in my OPINION, is stupidity at its finest.

But the public sucks it up. The failure to think a layer deeper about financial concepts is causing the transfer of thousands of dollars of your wealth to someone else. Over the past twenty-five years, so-called modern day financial planning has had mixed reviews. Let us face it, people became and continued to become millionaires long before financial planning became vogue. The thought of making millions by buying the right investments is right up there percentage wise with winning the lotto. Is there any correlation between financial planning over the last 25 years and the monetary predicament John Q. Public is in today? As Americans moved to investing in the markets, there also appeared larger sums of personal debt. Although the two are separate, it is all within the same time frame. What happened? Personal debt and bankruptcies and foreclosures are at an all time high and growing. Is it that personal income has not been able to keep pace with inflation and taxation? Possibly, increases in taxation have grown far greater than incomes. What happened? You would think that with all this professional financial help out there, the magazines, financial TV shows, investment brokers, and financial consultants (planners) that these problems would not exist. Or have they actually created more problems in the last 25 years?

In order to improve your life you had to learn to change. You learn to eat differently to control your cholesterol. You learn to workout to stay in shape. You even learn to improve your golf game by taking lessons. All of these lessons require you to make changes in the way you used to do things. If you have a bad golf swing, buying a new driver won’t improve your game (trust me on that one). Yet golf club manufacturers will always tell you different. Now what changes have you made financially? Banks and investment companies continue to insist that changing products, not your thinking, is your only solution to your financial problems.
Tax Cuts And The Rich

Another common misconception is that tax cuts are for the rich. This is nothing more than political “get-me-re-elected” talk. It is obvious that the rich make up such a small portion of the tax paying population, the politicians view this as a small group of voters. There are more poor, middle class, and upper middle class voters then there are rich voters. So do not be surprised when a politician favors the area where there are more voters. The tactic is as old as dirt. Divide and conquer, blame someone else for your problems, so you will vote for them. These are not poor or middle class people running for office. Remember, these people will spend millions to get elected to a position that pays a couple of hundred thousand dollars a year. Makes sense, right?

I would like to compare our system of paying taxes to ten people going out to dinner. The common belief is the rich get more back than us ordinary tax payers and that is not fair. The reality is, the rich pay more so they should get more back.

If ten people went out to dinner, and when the bill came we used the rules of the tax code to pay this bill, it would look something like this: The bill for dinner for ten came to $100.00; Persons #1 through #4 would pay nothing; Person#5 would pay $1.00; Person #6 would pay $3.00; Person #7 would pay $7.00; Person #8 would pay $12.00; Person #9 would pay $18.00, and; Person #10 (the richest person) would pay $59.00.
If the restaurant owner decided to give the group a 20% discount, the dinner for 10 is only $80.00. How should they divide up the $20.00 savings? Remember, the first 4 paid nothing to begin with, so the savings should be divided between the remaining six.
Twenty dollars divided by six equals $3.33 each. If you subtracted that amount from those six people’s share, then persons #5 and #6 would be paid to eat their meals. This doesn’t seem fair, so the equitable answer is to reduce each person’s bill by the same percentage. The results look like this: Persons #1 through #5 would pay nothing; Person #6 would pay $2.00; Person #7 would pay $5.00; Person #8 would pay $9.00; Person #9 would pay $12.00; Person #10 (the richest person) would pay $52.00 instead of $59.00.
Now everyone starts comparing and complaining. Person #6 complains because he only got $1.00 back and Person #10 got $7.00 back. “Why should he get $7.00 back when I only got $2.00?” shouted person #7. “Why should the wealthy get all the breaks?” Person #1 through #4 yelled “We didn’t get anything back. This system exploits the poor!” Then the nine people surrounded Person #10 and beat him up. That seemed to satisfy them. The next time they went out to dinner, Person #10 did not show up, so they sat down and ate without him.
When they were finished the bill came and they discovered they were $52.00 short!

The people who pay the highest taxes get the most benefit from a tax deduction. It is common sense math. If you tax them too much and attack them for being wealthy, they may decide not to show up at the table anymore. For everyone involved that would create an unintended consequence. Everyone would have to pay more.
Don’t Limit 401(k) Deductions To The Amount Matched. . .

I found the following sage advice in a local newspaper: Even though the company matches only part of the 401(k) contribution, it is to your benefit to put the most away in your 401(k) plan as you can, since 401(k) plans are an excellent way to save for retirement. The author of the article went on to profess that often many investors contribute only up to the company match within their 401(k) plan, and do not take advantage of their 401(k) plan if the company does not match, and he states that this is a mistake. He finalizes this train of thought by stating that with a 401(k) plan, an investor receives a double tax benefit. Not only is someone not taxed on contributions into a 401(k) plan, but all the income continues to grow on a tax deferred basis.
Half The Story
These are the types of planning strategies we are presented with all the time. It is “surface thinking” at its simplest. I kept looking for the rest of the article that would tell the whole story and the truth. This was another example of someone deciding that the public didn’t need to know the “rest of the story.” They decided that it was not important to discuss the taxation issues of these strategies with the public.

The article should have concluded as follows: Although accumulating money for retirement should be everyone’s goal, there are things that should be taken into consideration. A qualified plan simply defers the tax, as well as the tax table, to a later date. The assumption that you will retire to a lower tax bracket than the tax bracket you were in when you deposited the money is flawed. Studying the country’s demographics, debt, and the history of the federal marginal tax bracket could lead you to the conclusion that it is very possible that you may retire to a higher tax bracket. If that is so, then the strategy of using a 401(k) as your main retirement savings vehicle may be a losing one. You are at the mercy of the Federal Government. When was the last time the government allowed you, as this planner cited, a double tax benefit without their ability to recoup those taxes, if not more, at a later date?

This article left a lot of questions unanswered. Failure to mention the effects of taxation on this 401(k) money could be considered an omission of the facts. Unintended consequences could result if you feel that taxes will go up in the future. I’m not saying all retirement plans are bad. I feel that when loading up or overloading qualified retirement plans and exposing yourself to future taxation, whatever level that may be, you should think at least twice about it. Once again, whose future are you financing, yours or the government’s?

Fee-Only Advisors And Conflicts Of Interest

I found more “wise” financial advice in a local periodical indicating that because of the pace of change in the market environment in tax laws and other areas, it is getting more difficult for the average person to manage their portfolio. Therefore, the idea of dealing with a professional makes sense. The author promoted the use of a fee-only advisor as opposed to a salesperson, since a true fee-only financial advisor will not have the conflict of interest inherent with commissioned salespeople.

As I mentioned previously, the investment industry has fought this battle for a long time. All too often planners want to put the client in the middle regarding the fee based or commission question.

There Is A Cost When Dealing With Garbage, There Is A Fee For Picking It Up

The assumption that planners who charge their clients a fee to talk to them are the only planners who are professional and truly care about their clients, smells. I have had the opportunity to read and listen to such pompous ramblings. Along with losing investment picks, half-truth solutions and opinionists’ “wanna-be” facts, they have the gall to charge client fees.
Make no mistake, a fee is no different than a commission. Fee-based planners would like us to assume that they are not motivated by money. Fees, commissions, and management and expense charges are all transfers of one’s personal wealth. The “holier than thou” attitude assumes everyone who disagrees with them is not a professional. However, as an educator to students, clients and financial professionals, I have found that many of the sanctions against financial planners imposed by the SEC and NASD were and are against fee-based planners. You see, a crook is a crook. Bad fee-based planners and gouging commissioned planners make great cell mates.
More often than not, if I decide to wrestle with a skunk, I know I can win but I’ll end up smelling funny. Remember, there are many professionals that charge fees. There are fees, sales charges, commissions and loads associated with every product a financial professional, whether fee-based or commissioned, promotes. How about some “no load, no fee” information?

Overpayment

It always amazes me how people react to money. I recently observed people lined up at a gas station to buy gas that was a nickel cheaper than the station just across the street. They would wait ten minutes in line for this savings. Even if they had a 17 gallon gas tank they would save 85 cents. If these people filled their tank once a week, they would only realize a savings of $3.40 per month. When they finish pumping their gas, most of them hop back in their cars and are off to work where they allow the government to deduct $50.00 more than they will owe for taxes from their paychecks each week. On a monthly basis, this comes to an overpayment of about $200 per month. For some reason, this has become perfectly acceptable.
Not only do these people wait in line for 10 to 15 minutes for gas, they also wait up to 12 months for the refund of the overpayment of their taxes. Now I am not saying that you should not find good prices on things you buy, just do not confuse a tax refund with a winning strategy. It is not a windfall. You overpaid for something and fought to get it back, only to find out it belonged to you in the first place. The government got to use your money all year for free. When was the last time you got to use someone else’s money at no charge?
Just Thinking
There are all observations and opinions, but most misguided wisdom runs in a different direction than logic. The purpose here was to try to make you think. Most people have thoughts, but have lost the ability to think. They have taken 20 second sound bites about finances and become convinced that’s all they need to know. All too often someone else is determining what you need to know. Why? If you had all the information you needed to make better financial decisions you may not need some of these professionals and in turn they would lose money.

For more information call Benefit Consultant Inc. in Chino, CA at 909-548-7444 or email: Contact@BenefitCI.com

TRANSFERS – The Evolution of Transferring Your Wealth Away

Major Transfers Of Your Wealth

In your everyday existence, you are confronted with transfers of your wealth.  You continuously, unknowingly and unnecessarily, give or transfer money away. Not only do you give this money away but you also lose the ability to earn money on that money once it is transferred. This compounds your loss. To eliminate or reduce these transfers, you must first learn to recognize them and then understand how directly or indirectly they cost you money. You may have to confront conventional financial wisdom. Remember, the ones giving you these financial programs tend to profit from them. Always ask, who would profit from these transfers? Here is a list of the transfers of your wealth we will be discussing:

  • Taxes
  • Tax Refunds
  • Qualified Retirement Plans
  • Owning A Home
  • Financial Planning
  • Life Insurance
  • Disability
  • Purchasing Cars
  • Credit Cards
  • Investments

These ten transfers can create financial losses for you. You should study each one and determine how they will affect you. On the surface, the transfers seem pretty basic. It is not until you think a layer deeper that you find that these transfers may cause unintended consequences in the future. The future demographics of the country will affect everyone’s financial future.

Taxes ~ The Largest Transfer Of Your Wealth. . . Are You Financing Your Future, Or The Government’s

A common definition of the word “tax” might be: “A contribution for the support of a government, required of persons, groups, or businesses within the domain of that government.” “A burdensome or excessive demand, a strain.” The only power an elected official has is his ability to spend money, our money. The one thing the government does well is collect taxes. The problem is they spend more than they collect. The government now spends a majority of its time trying to raise revenue through taxes in order to continue their increased spending. Forty percent of your income now goes to some form of tax, which is more than the average family spends on food, clothing and housing. According to a study conducted in 1996 by the Family Research Council, since 1948 for a family of four with an average income, Federal tax rates are up 1,250%.

1.  Over the past 10 years, state and local government taxes have increased 168% faster than national incomes.

Overall, we are now being taxed at a higher rate than when we threw tea into the harbor, with no end of increases in sight. Now include the understanding of the demographics of our nation, and that light at the end of the tunnel is not a ray of sunshine, but a train coming our way and we’re on the tracks.

Income taxes have been the central focus of many debates. Most financial planners mention only a couple of taxes that may affect a client’s future. These are usually the income tax and the estate tax. These two taxes are formidable foes of wealth, yet they represent only the tip of the iceberg when it comes to the overall taxation that really exists. Here is a list of taxes that you are confronted with on a daily basis:

FEDERAL INCOME TAX SOCIAL SECURITY TAX STATE TAX CITY TAX
COUNTY TAX PROPERTY TAX PERSONAL PROPERTY TAX  SCHOOL TAX
LONG CAPITAL GAINS TAX SHORT CAPITAL GAINS TAX SALES TAX ESTATE TAX
GASOLINE TAX WATER TAX  SEWER TAX TAX ON ENERGY
GAS ELECTRIC HEATING OIL BUSINESS TAX
AIRPORT TAX TELEPHONE TAX LICENSE PLATE TAX HOTEL TAX
CABLE TV TAX USER TAXES UNEMPLOYMENT TAX WORKERS COMP. TAX
 100’S OF REGULATORY FEES  CIGARETTE TAX  CORPORATE INCOME TAX  INHERITANCE TAX
 ACCOUNTS RECEIVABLE TAX  INVENTORY TAX  MARRIAGE LICENSE TAX  LIQUOR TAX
 BUILDING PERMIT TAX  MEDICARE TAX  FISHING LICENSE TAX  REAL ESTATE TAX
 FOOD LICENSE TAX  FUEL PERMIT TAX  HUNTING LICENSE TAX  ROAD USAGE TAX (TRUCKERS)
 LUXURY TAX  RECREATIONAL VEHICLE TAX  UTILITY TAX  SEPTIC PERMIT TAX
 WELL PERMIT TAX  ROAD TOLL BOOTH TAX  VEHICLE SALES TAX  WORKERS COMPENSATION TAX
 TRAILER REGISTRATION TAX  WATERCRAFT REGISTRATION TAX  LONG TERM CAPITAL GAINS TAX  SHORT TERM CAPITAL GAINS TAX
 TELEPHONE FEDERAL EXCISE TAX  TELEPHONE STATE AND LOCAL TAX  TELEPHONE USAGE CHARGE TAX  TELEPHONE FEDERAL UNIVERSAL SERVICE FEE TAX

1  Michael Hodges, Tax Report – A chapter of the Grandfather Economic Reports, April, 2002

It is probably safe to say that if something is not taxed it must be illegal.  Drugs, prostitution, theft, money laundering, etc. would be at the top of the non-taxed industries.

After examining this list of taxes one could come to the conclusion that taxes, now and in the future, represent the largest transfer you will face in your life and possibly after your death. If instead of taking taxes out of our paychecks and taxing us for our purchases, they sent everyone a tax bill at the end of each month for us to pay, there would be a revolution!

No One Told Me

If it came to your attention that you were unknowingly and unnecessarily paying a tax you didn’t have to, would you continue to pay it? If you were told to pay a certain amount of tax, would you purposely overpay that amount due? If you could legally recapture or keep some of the money you pay in taxes, would you do it? If no one has taught you techniques of reducing taxation when you can, that is truly unfortunate. The most common belief is that using qualified plans is the best way to reduce taxation. This is what you are told to believe. Don’t be surprised to find out that this is not necessarily true. The tax savings we’re talking about here is not about loading up your IRA or 401(k) plans. Once again it may be quite the opposite.

It’s Only Temporary

In 1913, the 16th Amendment of the U. S. Constitution was passed, allowing the federal government to impose an income tax on the citizens of the United States.  Ironically, 20 years prior to that, as part of a trade bill, the government passed into law an income tax that the Supreme Court struck down as unconstitutional. But persistence paid off, and Congress ratified the 16th amendment in October, 1913.   The tax measure was passed as a temporary measure. The original federal marginal tax was around 6%, and initially only about 5% of the population had to file tax statements.

Clearly, the federal government wasn’t shy about raising income taxes. During World War I and World War II, the marginal tax rates were high and remained at a level of over 50% for almost 50 years.

Understanding The Math

Recently, I happened to come across my father’s 1960 tax return. The federal marginal tax rate that year was 87%. I thought, how did my parents ever survive with four kids and a dog? My father worked two jobs and we survived without having to eat the dog. Back then he was told the same story that we sometimes hear today about retirement income: That he would probably retire to two-thirds of his income, thus being in a lower tax bracket. In 1960, although the marginal tax rate was 87%, just about everything my father purchased was deductible on his tax return. After his deductions, his realized tax bracket was around 12%.  Twenty-five years later, my father did retire to two-thirds of his income, but retired to a 28% tax bracket. Now, you might say that the difference between a 12% tax bracket and a 28% tax bracket is just 16%. Not quite. It was an increase of almost 140% in his taxation level. Soon after retirement the dog disappeared.

In the tax reform acts of the 1980’s, the government professed to give its citizens one of the lowest federal tax brackets in the history of the country. Numerically they did, but they quietly took away most of the deductions. It created one of the largest windfalls in the government’s taxation history. It was amazing . . . politicians proclaimed lower taxes while we actually paid more. The next leader came in and said “Read my lips, no new taxes.” The next thing you know the federal marginal tax rate went from 31% to 39%. Check your math. Is that an eight percent increase? NO! It’s about a 27% increase in taxation. Remember, all those increases were put in place with no tax deductions. A double whammy. Once again, even with the record tax revenues being collected, the country’s debt continues to grow. In the near future, the demographics of the country will compound the taxation issues causing major problems. Does anyone really believe taxes will go down in the future? If your income is so small when you retire that your taxes actually go down, I feel sorry for you. Get help. No matter how you look at it, taxes will continue to be the largest transfer of your wealth now and in the future. If you believe what the government tells you about its retirement plans and deferring taxation to a later date, I would encourage you once again to study the demographics of the country.

I believe the government’s main objective is to thrive and survive. Meanwhile, on the streets of America, we the public struggle to do the same thing. Remember, you and I the taxpayers, are the only ones paying for this. There is no such thing as a free lunch. Every time you earn a dollar, spend a dollar, and save a dollar, you face possible taxation. Any attempt by you to thrive or survive will be taxed. The real unfortunate fact is, they can change the tax rules anytime it suits or profits them. Trying to plan your financial future without understanding the inevitable changes the government must make, is like building a home on quicksand. Is the government’s goal to finance their future or yours? Their plans may also create unintended consequences for you.

Sit Doggy Sit

Around and around he went as fast as he could with the never ending quest of catching his tail. At first, watching a dog chase his tail is sort of funny. As the dog persists and starts panting it becomes less humorous. Pretty soon you feel sorry for the animal and try to stop him. “Sit doggy sit.” He stops for a second then starts all over again, chasing his tail. You think to yourself what would he do if he caught it? What’s the point? First of all, this dog needs help, but to him it’s a normal way of life. To me, the dog catching his tail is like someone trying to get a tax refund. You go round and round, get dizzy, work really hard pursuing it, spend a lot of time and effort to get it, only to find out it was yours in the first place.

Tax Refunds

Avoiding Tax Exuberance

The concept of overpaying for something really makes my blood boil. Have you ever been on an airplane and overheard the couple next to you say they spent $200 less than you did for your ticket on CheapTickets.com? First you’re mad, then you feel stupid. You would have to be tortured to admit you overpaid. I can never understand the exuberance people feel when they get a tax refund.

They worked all year and paid taxes then went round and round, got dizzy, worked hard to get it back, spent a lot of time doing it, only to find out it was theirs all along. They act as if they won something when in all actuality, they lost.

What is the rate of return the government gives you on over-payment of taxes, otherwise known as a refund? Zero percent. In some cases, you have to hire an accountant to help you get this over-payment back. After they used your money all year long, did you even get a thank you letter? Let me get this straight. You gave them too much money. They gave you a zero percent rate of return. You had to pay an accountant to help you get it back and they didn’t say thanks. You will have to torture me to admit that I received a tax refund.

The average refund is almost enough to make a car payment every month for the whole year. A $3,000 refund would create $250 a month to improve your standard of living. You would also have the opportunity to invest it and earn even more money. The most important result of adjusting your withholding on your paycheck is that you would have liquidity, use, and control of your money that you normally would have overpaid to the government. I would rather owe the government $100 on April 15th than have them owe me something.

Say you go to a clothing store and find a jacket that you like. You walk to the cashier to pay for the $110.00 garment, hand her $200.00 and she rings it up. She comes back and says, “Thank you. Your change will be mailed to you in about a year.” You in turn say, “That will be fine.” Yeah right! But isn’t that the way the government deals with us? Make sure your withholding’s are adjusted properly so you won’t suffer from tax exuberance.

The Problem Is The Solution And The Solution Is The Problem

The government SEEMS to have gone out of its way to help you save money and taxes. The important word there is “seems.” They have created savings programs with the idea you will save taxes by participating in them. Why? Possibly out of guilt for having overtaxed you in the first place. Possibly because high current taxation has forced us, as a country, to save at a negative rate. Possibly the government’s own fear that social security and other social programs will be forced to change dramatically. Possibly because the government understands the demographics of the changing population and the effects it will have on social programs. Possibly to shift the blame for less retirement income from them to you. Possibly because introducing these programs may help them get re-elected. Maybe, just maybe, they are interested in financing their future not yours.

Everyone will agree that tax deferred savings is a good idea. But the government will decide what rate of taxation will be assessed when you take withdrawals. Wouldn’t it be a coincidence if the government were able to collect more tax revenues from you by using these programs? If they were truly that concerned about our savings, wouldn’t they simply lower taxes? If they were that concerned, why do they even tax what little we are able to save?

Who Pays?

There are many types of government-sponsored savings plans. They allow you to save money, if you qualify, in tax-deferred programs. Some of these plans such as defined benefit, defined contribution, and profit sharing plans to name a few, require the employer to make contributions to these plans on your behalf. The plans are disappearing more and more because it is becoming very costly for companies to maintain them. This first group of plans, although laden with regulation, is a great benefit to the employee. None of the workers’ money goes directly into these plans.

These plans are funded by the employer.

The second type of plan enables the employer and the employee both to contribute to the plan, with restrictions of course. The employer will match a certain dollar amount or percentage of the employee contribution. Matching contributions by the employer is an option. It is not uncommon for the employer not to contribute anything.

One of the most familiar plans that fall into this category is the 401(k). The 401(k) made it easier and less expensive than the old traditional retirement plans for the employer. Why? For the cost of administering the plan, a company can proclaim that it offers benefits for its employees. Even though the employee is funding most, if not all, of the plan.

The third type of plan that was created is one where the participant funds the entire program. IRAs, 401(k)s, and others are the most widely used plans by most individuals. Since these are the most commonly used I am going to focus on these plans.

When it comes to transfers of your wealth I want to simplistically separate these plans by one factor: Who pays for these programs. If you can get someone to help fund your retirement with money, terrific, do it! But as for the money you contribute into these plans without company matches, I want you to start thinking a layer deeper. If you’re funding the full amount for these plans, there are things you need to know in considering whether or not to participate in them. My intent here is not to explain and describe how these plans work and all their complexities, but simply to examine where the funding is coming from, and to discover who is encouraging the use of these plans and why.

Magician’s Assistant

Step right up, come one come all, to the greatest disappearing act ever performed.

Watch in amazement as the master of deception makes things disappear with the help of his assistants. Watch as entire fortunes vanish into thin air. Your participation is mandatory and our assistants will prepare you for the show. Welcome to the greatest show on earth.

The government creates the plans, and financial professionals deliver them. With little or no questioning, it is believed that life can not exist without government savings plans. They are marketed by banks, accountants, brokers, insurance and investment companies. All of these companies promote these savings programs because they profit from their existence. It would also be logical that the ones who created them would also profit. The popularity of these plans is based on blind faith. It is assumed, if the government and all these professionals support these programs, they must be good. Even companies offer these programs as a benefit to their employees. All of these seem to be tremendous tools for saving for retirement. When you get to retirement, HOCUS POCUS, POOF! A whole lot of your money disappears, along with the magician and the assistants.

The Government Your Partner In Life And Death

God created morons, he also created politicians. I’m sorry, I’ve repeated myself.

The passion of politicians, and the harm that they cause, leads me to wonder why more of them don’t commit suicide. We have invented the government of compromise. For the past 100 years or so, the government has passed on compromised solutions to our problems. Years later even the compromises are compromised. This, over a period of time, waters down the original solution, thus creating loopholes in the law that now need new compromises to close up the loopholes. If the Ten Commandments had been compromised over the years in this fashion, you would end up with the rules for big time wrestling.

In my opinion, there is greater disdain for the government and its failures by the public in general than ever before. Two monolithic political parties bent on destroying each other and willing to use the public as pawns, fight for ultimate control and power.

Their goal is to fulfill their agenda, not the public’s. I am tempted to run for president in the next election, independently of course, under the name of Mr. Neither. Mr. I. M. Neither. I bet the votes would flow in. I believe that NONE OF THE ABOVE should also be a choice for voters. This would give politicians time to reflect just how disconnected from reality politicians can get.

Other than what I stated above, I believe our form of government is almost perfect. Remember, our country’s decisions are being made by a small minority of the population. Only 50% of eligible voters vote, and the winners of the election average 53% of the votes by 50% of the voters, thus about 26% of the public voted for the winner.

When you take into account the people who never registered to vote, the winning politicians move to Washington with only about 15% of the people believing in them.

Soon, all that may be left are compromised fragments of a once promising, powerful society.

Something For Nothing

Every time the government concedes to do something, it costs you money. No matter how impractical or how generous government programs sound, they are expensive. With the proper amount of media exposure and a loud special interest group, a politician would promote a hog-calling contest in Alaska at your expense. This is a government that believes it can produce medical benefit coverage for elderly people for about $50.00 per month. The going rate for that coverage in the private sector is about $500.00 per month. They continue to foolishly and recklessly spend money and create more debt. Here are just a few of the bargains we’re getting for our money, from Martin L. Gross’ book, The Government Racket 2000 and Beyond:

• A $1,000,000 study on how to cross the street in Utah

• $90,000 to study the social life of vegetarians

• Millions to fund over 150 government owned golf courses

• Hundreds of thousands of dollars to fund the National First Ladies Library

• Over $200,000 to study horseflies’ sex lives

• Over $20 million to study mail delivery

• Over $25 million for political conventions

• Over $20,000 for 3 elevator floors in congress

• Over $300,000 for a barber shop and beauty salon in congress

• Over $200,000 on a study why women smile more than men

• Over $100,000 for the plans to design an outhouse in Delaware. (Over $300,000 to build it.)

• $4 million for a parking lot in Illinois

• $40 million for the National Animal Disease Center in Ames, Iowa

• $400,000 for manure management research at the National Swine Research Center

• $800,000 for a project on red imported fire ants

• $880,000 for cotton research in Texas

• $5,670,000 for wood utilization research

• $484,000 to the University of Connecticut for Food Marketing Policy Center

• $260,000 for asparagus technology in Washington

• $239,000 for fruit practices in Michigan

• $1 million for University of Alaska Stellar Sea Lion recovery

• $750,000 to prevent Atlantic salmon from escaping state stream in Alaska

• $250,000 to prepare discussions regarding Columbia River’s hydro system in Alaska

• $3,350,000 for Institute of Politics in New Hampshire

• $3 million for Hawaiian Sea Turtles

• $300,000 to develop a virtual business incubator at Lewis and Clark College

• $50,000 for a tattoo removal program in California

• $15 million for financial aid at the Citadel in South Carolina

• $1 million for math teacher leadership

• $750,000 for minority aviation training at William Lehman Aviation Center (this money goes to only 12 students, making Florida Memorial College more expensive than Harvard or Yale)

• $2 million for the House of Food and Friends (This program is being run by a convicted criminal who had previously stolen money from another charity)

• $5 million for computer equipment and internet access for schools in Armenia

• $1 million for the Conflict Transformation Across Cultures program at the school of International Training. Problem is only 40 students per year participate making this a $25,000 per student subsidy.

Gross, Martin L., The Government Racket 2000 and Beyond. New York: Harper- Collins Publishers, Inc., 2000.

Thousands of these government giveaways happen every year. These drive up the country’s debt, which you and I are responsible for paying. Ironically, the politicians want to tell us what we should be doing financially. The real problem is every time you try to financially help yourself and your family, you’re taxed. If we followed their model of fiscal responsibility, the country would collapse economically. Historically, we saw the fall of the U.S.S.R. due in part to the cost of the “Cold War.” Their debt buried them.

I fear our country’s debt, compounded by personal debt, leaves very little wiggle room for the government to do the things they are promising to do. The problem is compounded by the future demographics of our country. With individuals carrying record amounts of debt, politicians feel they may be committing political suicide by adding more debt to the public in the form of tax increases.

Financially Speaking

The reason I have brought all this up is this: The largest financial transfers of your wealth are created by the government in the form of taxes. Their actions will affect your money more than anything else in your entire life. The real bad news is they can make up the rules as they go along. There is an interesting debate simmering. Is the money we earn ours, or does it belong to the government and we are just using it? Think about it.

The uncertainty of taxation rates in the future continues to be a problem. The growing aging population problem, over-spending, growing debt, increased costs of health care, the never ending war on terror, increased spending on security, will all affect the amount of money that you will be able to keep and spend in the future.

Qualified retirement savings plans could become a bigger tax revenue target in the future. Just understanding that this could happen and searching out alternative savings for retirement could save you thousands of tax dollars in the future. The government has a vested interest in all the money you are saving. They are taking it seriously.  You should too.

For more information call Benefit Consultant Inc. in Chino, CA at 909-548-7444 or email: Contact@BenefitCI.com

THE THOUGHT PROCESS – Changing Traditional Financial Thinking

It is difficult to get the right solution when you start out with the wrong premise. If we center ourselves in a false belief system, we become what we believe. An example of that false belief system existed until 1954, just about 600 months ago. It was common belief that no human could run a mile in less than four minutes and live to tell about it.

Medically, it was believed at that time that to attempt to run a mile in less than four minutes would bring about certain disaster to the human body. No one in the history of mankind was ever timed running a sub-four minute mile. . . no one, that is, until Roger Banister. On a sunny Saturday morning, the young Englishman defeated a belief system and certain death by running one mile in 3:59:40. Now recently, record performances in the mile have been run in 3:47:48, and 6 to 10 times daily someone runs a sub-four minute mile.

The real lesson here is that our lives are shaped by this simple fact: We become what we believe. Financially, we assume things to be true that are not, simply because others told us they were true. Many financial organizations stand to profit from these misconceptions, since they create a fear that if you don’t use their services, you will fail. Their real fear is that you don’t need them. They’re the ones who created the idea that change is bad.

Become A Table Dancer

Go home, walk into your kitchen, what do you see? You have probably been in that room thousands of times. Now do something different, stand on your kitchen table. Look around. You will see the room from a different perspective. You will notice things you have never seen before even though physically, nothing has changed. I want to challenge you to stand on your table of knowledge about your finances. Take a new look around. Now, do you see things differently? Without more knowledge and different perspectives about what you are doing financially, possibly not. But by learning new ideas and concepts about money, your view will change. If something you thought to be true wasn’t true, when would you want to know about it? Right away? It still amazes me that some people continue down the same path, knowing it was wrong for them but refuse to change because they would have to confront their mistakes. But the decisions to follow these losing financial strategies were based on limited knowledge. Had they been given more knowledge, their lives would have changed. In order to change, we must study how, when, and where we received all of our financial knowledge. We can learn a lot about what we know about finances by studying where we get our information. First, we learned from our parents, who learned from their parents and so on and so on. From our parents we learned the basic principles of saving money, but these lessons were loaded with an enormous amount of fear. Going back two generations, we see that their experiences of stock market crashes, bank failures, business closings, massive unemployment, depression, families losing homes and farms, and world wars left very little to be positive about. People living in this era were in the survival mode because there was no other mode to be in. What, if any, positive lessons were branded into their kids? Work hard, save what you can, and pay off your house as fast as you can so you don’t lose it. The next generation cherished their hard earned lessons, fought off a couple of wars, and came home to raise families with a new reassurance that the government would provide Social Security – a retirement income for them. Unions became forefront in industry, adopting ideas from the railroads and establishing retirement benefits for workers. There was great expansion in American society. The new learned financial lesson: Don’t worry we will take care of you. If you can’t take care of yourself, don’t worry, we will help provide for you (social programs). This was great, but it created dependency. Lessons learned? Finish high school, get a good job with benefits, and pay the house off as soon as you can. By the time my generation came along, the lessons were go to college, get a good job with benefits, save what you can, pay off your house as soon as you can, and retire early.

The generation we are now producing has some real financial lessons they can sink their teeth into: Have your parents pay for college, complete a four year degree in six years, get a job you like, live with your parents as long as you can, encourage your parents to pay off their house and accumulate a nice retirement fund, and then commit them into a home as soon as you can and take over their money. Oh, I forgot, retire now and become a day trader.

Of course, to some extent, I’m kidding . . . or does some of this sound familiar? Did I forget to mention all those great financial lessons the banks taught us, all those money saving lessons from the government, all those hours accountants spent teaching how to create wealth? How about the money lessons in personal finance classes in college? All you got when you graduated was a lot of debt and an unbalanced checkbook. Ahh, success! With all that financial support you get from these groups, you can count on one thing: controlled failure.

To become successful financially, all you have to do is shed some of the historical bias which we have been branded with. The solution is a thought process not a product purchase. We will teach you new concepts and knowledge so you can make better financial decisions. You will have a defining moment in the way you think about money.

Are you willing to change?

 Establishing Your Banks

One of the goals is to help you see the transfers of wealth that you are involved in. These transfers could cost you hundreds of thousands of dollars. If you have the ability to save that money instead of giving it away, it would dramatically change your financial picture. In going through your finances, when we eliminate or reduce these transfers, you will save money. Since most of these transfers occur on a monthly basis, any money you save will be on an ongoing basis. The task of finding these transfers and reducing or eliminating them takes some time. Some changes may be necessary, but don’t panic.

You must stay committed to completing this task. Remember you will not spend one more dime than you are already spending.

Once we find your savings, I will refer to these savings as “banks.” These “banks” are pools of money that you now own. When I refer to your “banks,” I’m not talking about a physical, brick and mortar building. I’m talking about a pool of money that you will use strategically, for the rest of your life. It will not be uncommon to create two or three “banks” or pools of money for one person. Each “bank” that is created will have different characteristics. Some “banks” will be tax-free, some will be tax-sheltered.

However, all of these “banks” will create liquidity, use, and control of your money. We want your “banks” to be very efficient.

 Generational Banking

These techniques are not limited to just the parents of a family but also the grandparents. Gifts to minors has been a popular option for grandparents to give money to their children or grandchildren. Creating personal “banks” between the grandparents, children and grandchildren really opens up some financial doors that could prove to be very valuable. If the grandparents are financially secure, they too may discover a defining moment in their approach to money that they were going to leave to their families anyway upon death. You don’t have to die to do this.

 Identifying The Transfers Of Your Wealth

To build the equity in your banks, we will be discussing the transfers of your wealth that occur everyday. Learning to identify your transfers is important. I will be discussing the most common transfers of wealth that many people face. When you recognize a transfer that you may be currently experiencing and how to reduce or eliminate it, you will be surprised. You will experience that defining moment in the way you think about money. Finding the transfers is only the first step. Building upon your savings is the second step, learning to utilize your savings is the third step, and replacing the savings after using them is the final lesson. By learning this cycle, you will create the velocity of money. This is a technique that banks, lending institutions, and credit card companies use everyday to transfer wealth from you to them. I personally have used my banks to purchase cars, take vacations, pay for education, help my children get a start in life, buy furniture, and make home improvements. I have always paid my banks back so the pool of money is always there when I need or want it.

 Major Transfers Of Your Wealth

In your everyday existence, you are confronted with transfers of your wealth. You continuously, unknowingly and unnecessarily, give or transfer money away. Not only do you give this money away but you also lose the ability to earn money on that money once it is transferred. This compounds your loss. To eliminate or reduce these transfers, you must first learn to recognize them and then understand how directly or indirectly they cost you money. You may have to confront conventional financial wisdom. Remember, the ones giving you these financial programs tend to profit from them. Always ask, who would profit from these transfers? Here is a list of the transfers of your wealth we will be discussing:

● Taxes ● Tax Refunds

● Qualified Retirement Plans ● Owning A Home

● Financial Planning ● Life Insurance

● Disability ● Purchasing Cars

● Credit Cards ● Investments

These ten transfers can create financial losses for you. You should study each one and determine how they will affect you. On the surface, the transfers seem pretty basic. It is not until you think a layer deeper that you find that these transfers may cause unintended consequences in the future. The future demographics of the country will affect everyone’s financial future.

Lost Opportunity Cost: The Forgotten Factor In Financial Calculations 

The definition of Lost Opportunity Cost (LOC) is this: If you spend a dollar, not only do you lose that dollar, but also the ability to earn money from that dollar. To give you an example of Lost Opportunity Cost (LOC), let’s use the example of the cost of a wedding. The first lesson you must learn and remember is the mathematical Rule of 72. It works like this: If you can get a 10% rate of return, your money will double every 7.2 years. If you get a 7.2% rate of return, your money will double every 10 years. This equation will come in very handy from here on out.

The S&P 500

Let’s take a look at a wedding. If you have ever planned one of these things, the first thing you must do is narrow it down to your closest 500 friends. I call them the special and privileged 500. Invitations, caterers, banquet halls, photographers, video  photographers, entertainment, limos, wedding dresses, and fifty other things I can’t remember push the cost close to the budget of a small city. Let’s say the first down payment is $20,000. Let’s also assume the bride and groom-to-be are 25 years old. If we use the Rule of 72, that $20,000 would double its value every 7.2 years if it earned a constant 10% rate of return. Watch how the values grow. . .

Age at 10% earning rate

Values Age at 7.2% earning rate

25.0 $ 20,000 25

32.2 $ 40,000 35

39.4 $ 80,000 45

46.6 $ 160,000 55

53.8 $ 320,000 65

61.0 $ 640,000 75

68.2 $1,280,000 85

Now that you can see how the Rule of 72 works, let’s take a look at Lost Opportunity Cost (LOC). If the $20,000 could have grown to $1,280,000, the LOC would be the difference between the $20,000 you spent and the $1,280,000 it could have become if you hadn’t spent it. The future value of that $20,000 would have created substantial wealth if it had not been spent. The lost opportunity cost on the cost of the wedding is $1,260,000 (Lost Opportunity $1,280,000.00 minus Cost $20,000.00). Now that’s a wedding!

Any purchases or transfers of your money via taxes, interest rates, fees, etc., create lost opportunity costs. Would it not be a wise decision to eliminate or reduce as many of these transfers as you can? In reducing these transfers you can truly watch your wealth grow. You can keep more of the money that you were unknowingly and unnecessarily giving away. Remember, in our example of the wedding couple, every dollar saved would grow to $64 by the time they were 68, assuming a 10% earnings rate. This leads me to the next definition. The power of your money is useless unless you have liquidity, use, and control (LUC) of it. It’s not where your money is deposited that is important, rather it’s what you can do with it that is. There are so many vehicles that tie up our money: Mortgages, qualified plans, and instruments of debt.

Whenever possible, you want your money to be liquid. Liquidity means being able to get your money whenever you want, without penalties or fees. Use of your money means being able to use your money any way you want. Control of your money means you don’t have to go through a third party to get your money. I can best explain LUC by saying it will create options and opportunities for you, now and in the future. If an opportunity comes your way and you have no money to take advantage of it because all your money is tied up and not liquid, well, that is truly unfortunate.

Do opportunities ever wait for you?

Rarely. You must be financially ready. If you’re not, you’re at the mercy of lending institutions.

 Now That’s An Ugly Baby!

In order to make solid financial decisions, it is important to be able to recognize the difference between opinions and facts. If you have ever been to a maternity ward and viewed the newborn babies, I bet you can pick out one that in a cute way, is sort of ugly. The thing is, you will never be able to convince the mother that her child is ugly. You see, one’s opinion can sometimes outweigh the facts. If we have done a chore the same way our entire lives, we believe that our way is the only way to do that chore. Does being comfortable with things we do make it a fact that it is the best way to do it? No, over a period of time we simply create an inability to change. To give you an example, I believe my father had four kids just to change stations on the TV for him. I know he was the last person in the U. S. to buy a remote control for his TV. Even then, my mother believed that if not properly aimed, you could break things or knock pictures off the wall with the remote. I even caught my dad aiming it at my mother once.

 The fact is that people don’t know the facts.

In finances, some may believe that stuffing the mattresses full with money is the best way to save. To them, it’s the only way they know to save, so it becomes a fact. I think their savings could go up in smoke, but that’s only my opinion.

 Give Me A Shovel

As a society, we are given so much information it is almost impossible to decipher between opinion and fact. There is an enormous amount of misinformation that has been passed on, passed down, or advertised that is not fully the truth or fact. We receive bits and pieces upon which our decisions are based. When it comes to finances, misinformation or half truths may lead us down a path toward unintended consequences. You must learn to dig A LAYER DEEPER. Every one of your financial decisions creates opportunities either for you or others. Unfortunately, it’s usually the latter. The process of learning to think A LAYER DEEPER will create more wealth for you by reducing the money you transfer to third parties. In thinking a LAYER DEEPER, you will use your newfound tools of knowledge, the Rule of 72, LUC and LOC to uncover the information you need to make better financial decisions. How will these decisions play out when it comes to the demographics of the country?

 Is this the right decision for you? 

YOU ARE NOW STARTING TO THINK FOR YOURSELF, INSTEAD OF BEING TOLD WHAT TO THINK. It’s not difficult. What is difficult is being able to decipher opinion from fact, myth from reality, without the proper use of common sense and knowledge. The lack of knowledge is your largest wealth transfer. She Only Drove It To Church On Sundays More often than not, we make decisions based on what we know, whether we know a lot or very little. We rely on the information that is given to us by others to help us make these decisions. Many times, when something is sold we are told the positive aspects of the sale item. The seller stands to profit and, unfortunately, any negative aspects of the sale will be underplayed. The seller’s intent may be honorable but you must understand how to decipher what isn’t said. That comes with knowledge. You see, many people have thoughts but don’t know how to think. What effect would it have on a buyer if the used car salesperson said, “She only drove the car to church on Sundays,” only to find out later that after church, she had to have the car towed back to her house every week? Without all the information, the sales person deprived you the opportunity to make well thought-out financial decisions.

 Your Need To Know

Confusion Between Opinion And Fact As I said before, some people have thoughts, but don’t know how to think. It’s hard to get the right solution when you start out with the wrong premise. We have been told very little when it comes to transferring our wealth away unknowingly and unnecessarily. The government professes to have your best interests at heart. If they did, don’t you think they would sponsor infomercials every week on how to greatly reduce your taxes? I’m sure they could do that if they wanted to. But why should they? They are in the business of collecting taxes. Do they have your best interests in mind? Does the 47,000 pages of tax code affect your need to know? Do banks sponsor infomercials about reducing the interest that they charge you? NO. Does your accountant spend hours and hours with you teaching you how to be efficient with your money? NO. Why won’t these groups help you do this? Because there is no money in it for them and it would affect the amount of money they can collect from you. Do you think they want to control YOUR NEED TO KNOW so they can increase their profits on tax revenues? YES! Do these people give us financial advice? YES! Does something smell funny here? Think about it. Do you think the government, banks, and accounting firms are interested in financing your future or theirs? There could be a conflict of interest here.

 A Real Work Of Art

Picture a little Mexican boy dressed in a sombrero and poncho, tattered and worn. He is sitting on a log, shoe-less, dirty, with a somber look on his face. Our first impression might be poverty in Mexico. Now, if you were able to enlarge the picture around this little boy, you would find out that he is a little boy playing with his friends in Central Park. Often we are given only a glimpse of the financial picture we should see.

If given the opportunity to see the whole picture, we might come up with different financial conclusions. Unfortunately, others are determining what you should see. Not being able to see whole pictures may cause unintended consequences for you in the future.

 Dumb And Dumber

Every step of our education has been centered on what to think, rather than how to think. We have been dumbed-down as a society. When it comes to finances, the less we know, the more we are exposed to misinformation. All the financial information that is available to us today has created some wealth, but has also created a debt-ridden society with record numbers of bankruptcies. Where are the financial lessons and who is teaching them? Are we getting the whole story? The solution is the understanding that knowledge is power and you must learn concepts that put you in control of your financial future.

 Crystal Ball For Sale

I’m going to step out on a ledge here. I really don’t believe in the way financial planning is being sold to the American public. That’s not to say I don’t believe in financial planning, I just don’t believe in the way it is being packaged, marketed, and sold. There are some great people in the industry that do tremendous, honest work.

There are also many who call themselves financial planners who are about as smart as a bag full of hammers. In a world full of “wanna-be’s,” the title financial planner has been bounced around more than a beach ball at a rock concert. Their solution to your financial future is based on the sales goals of their companies. Their assumptions and recommendations are less accurate than a six year old predicting the weather.

Yet they produce 15 pages of numbers, charts, and graphs in multiple colors that looks as if they are really serious about what they do. The problem is, by the time the ink is dry and reviewed by the victim, I mean client, the numbers are wrong. The second problem is that there is no knowledge in that report, just assumptions and guesses at future results. If someone broke the crystal ball, we would have to rely on knowledge and there is very little of that floating around. Understanding the future demographics we must face, knowledge about liquidity, use, and control of your money, lost opportunity costs, why you aren’t being told what you need to know, and the difference between opinion and fact

will shape a new foundation in the way you think about finances. None of these lessons will be found on a page full of numbers and graphs. Just as buying a couple of investments from a financial planner doesn’t solve all of your financial problems.

 Who’s The Boss Here?

I learned a long time ago that the situation you confront is always the boss. You face different challenges everyday, but in most cases you have the knowledge and flexibility to conquer them. Without knowledge and flexibility, your problems will control you and you will no longer be the boss of those challenges. This is true of your finances also. You need knowledge that will create options, in order to stay in control of the never ending changes in your financial landscape.

 It’s Not As Hard As It Looks

Many times planners make things much more complicated than they need to be. The first step in getting a grasp on your finances is to understand there are only three types of money – lifestyle money, accumulated money, and transferred money.

 Lifestyle Money

Lifestyle money is the amount of money needed to maintain your standard of living. The house you live in, the cars, vacations, the country club, all the comforts you are accustomed to. You work really hard and deserve some affordable quality of life. You are very aware of this type of money because you live with it everyday. All of your financial decisions are based around your lifestyle or standard of living. Everyone I know would like to improve their lifestyle for themselves and their families. If you live above these standards, you run the risk of overbearing debt and some future unintended consequences with your accumulated money.

 Accumulated Money

Accumulated money is money you save in vehicles such as savings programs, retirement plans, and bank savings. It is here, in accumulated money, where almost everyone’s attention is focused. Banks, financial planners, investment brokers, financial magazines, news articles, and those who consider themselves a financial wizard are active in this area. Confusion reigns supreme here. Trying to separate the opinions from fact, the myth from reality, and the truth from fiction is an impossibility. Misinformation and slight of hand are used as tools of the trade and sound bites make good headlines. Greed and ambition motivate individuals and corporations to forego the truth whenever it is convenient and profitable. Enron, Arthur Andersen, WorldCom, and Kmart are just a few examples of the lengths some will go to succeed, at the price of others. Yogi Berra said it: “The future isn’t what it used to be.” He’s right. In your accumulated money, it is important to get good, sound financial help. Having someone who understands the transfers of your wealth, demographics, LUC, and LOC is a must. They will be skilled in the area of reducing or eliminating transfers of your wealth that you make everyday, unknowingly and unnecessarily.

 Transferred Money

The third type of money is transferred money. We transfer most of our wealth away every day, unknowingly and unnecessarily. Transfers appear in the form of taxes, interest rates, fees, finance charges, maintenance fees, management fees, etc., etc. The recipients of these transfers are the Federal, State, and local governments, banks, loan companies, mortgage companies, and investment companies. We will be discussing some of these in detail, but for now understand that transfers consume a lot of your money. Understanding this third type of money is the secret. While everyone is focusing on accumulated money, the answers to increasing your wealth lay hidden in your transfers. Here you can create more wealth without spending a single additional dime or facing any market risks. We can recapture some of that transferred money, and use it to finance your future and increase your standard of living.

 Three Types

All of the money you have ends up in one of the aforementioned three types: Lifestyle; Accumulated, or; Transferred. A common goal of almost everyone is to have their wealth grow. Unfortunately, when we increase our incomes, improve our standard of living, and save more money for the future, we also trigger some unintended consequences. As we experience growth, we also increase taxation and the possibility of greater taxation down the road. Even increasing our savings for retirement will create greater amounts of taxation. It seems every time we try to save a dollar, we will have to give another dollar away.

While expanding our standard of living, we purchase new homes, cars, televisions, and furniture mostly on credit, which creates greater amounts of debt and higher interest payments transferred to others. Let’s face it, almost all our purchases are depreciating assets. When you drive the new car off the showroom floor, its value drops 30% and continues to drop in value year after year. Your new home may increase in value, but it is surrounded by transfers in the form of interest rates, property tax, school tax, water and sewer tax, maintenance, and comfort improvements. Banks and credit companies look at this as, “a dollar for you, a dollar for me” opportunity. Unfortunately, with the exception of mortgage interest, debt interest is not tax deductible. If you had the opportunity to recapture some of these dollars you are transferring to others, would you do it? Absolutely! But most people don’t know how. No one is teaching you how to do it, with reason. If a bank taught you how to reduce interest payments, they would be lowering their profit levels, so they are not going to do it.

The problem of increasing your standard of living creates the unintended consequence of increasing your money transfers. Some people would look at the problem of debt by simply paying cash for something, thinking they will eliminate interest transfers to the bank. Here lies another hidden problem. If you’re 40 years old and pay $5,000.00 cash for something, not only do you lose the $5,000.00, but also the ability to earn money from that $5,000.00. A lost opportunity cost. At a 7% earning rate, the value of that $5,000.00 is $20,000.00 in 20 years. You must learn the difference, the value to you, whether you use your money for a purchase or someone else’s (the banks).

You must learn how to make these decisions. When you do, your wealth will grow. Now, if the interest paid on your debt was deductible from your taxes, it might change your thought process about paying cash for an item.

 Congratulations, You’ve Become A More Perfect Taxpayer

Remember who created these programs, the government and banks. They stand to profit the most if you involve yourself in their traps, I mean plans. Transfers, transfers, transfers, will kill financial growth.

 Guaranteed

Compliance officers get really nervous when they see this word. When it comes to investing this word, the “G” word, disappears. In discussing transfers, I am allowed to use this word in the following example. If someone is earning $75,000.00 in income per year and is saving  $5,000.00, they would have $70,000.00 of residual income. This $70,000.00 is spent on mortgage payments, car payments, clothes, food, taxes, etc., to sustain their standard of living. Like most average families, at the end of the year, the $70,000.00 has been spent. If I showed them how to save just 1% of that $70,000.00, it would create $700.00 in savings. That savings represents a 14% increase on the $5,000.00 they were saving. That’s right, a 14% increase, guaranteed, with no market risk. Most people, when they learn how to do this, save a lot more than 1%. When applied properly, savings of 5% to 7% are achievable from your transferred money.

 Focusing On 4%

Unfortunately most planners focus in on the 3% or 4% of money people think they can save from their lifestyle money. Most planners will advise you to try to save even more money than that, reducing your standard of living money to grow your accumulated money. When more money flows out of your lifestyle money, your standard of living is decreased. Do you think it would be important to find the money for savings from somewhere other than your lifestyle? If you continue to divert money only from your lifestyle, pretty soon you can’t afford to go on vacation, buy a new car, or make home improvements.

 Your Dollar

To examine how your money is affected by transfers, you really have to think many layers deeper. First, you have to obtain a job or career. Your services or labor have value to the employer and you will be compensated for it. The employer already knows what they can afford to pay you. Their determination of your pay comes from many different equations, most of which are transfers of company profits that ultimately affect your pay scale. Company profits determine whether or not they can afford to pay you. The level of company profits is determined after all expenses have been paid. Expenses include not only everyday business activities, but also corporate taxes, payroll taxes, government regulations and fees (taxes), property taxes, unemployment taxes, workman’s comp taxes, possible sales tax, operating licenses, utilities that include taxes (passed on to the consumer), water, gas, electric, city and state tax. Of course this company, like all others, will pass off the cost of its taxation by raising the price of anything it sells to you and me, the consumer.

 So You Got The Job. . . Let’s Party

After they have tapped the corporation for taxes, the government moves on to much easier prey: You. You decide to throw a party upon receiving your first paycheck. The government shows up, and it congratulates you on your new position by taking about 30% of your pay. That’s just the Feds. The state also crashes the party, and takes its cut of your money, along with the city in which you live. A few more show up for your first check-cashing party. The county people are there with their hands out for county taxes. The entire school board shows up in their limos looking for their share. They are the ones looking underneath your couch cushions for loose change. The water and sewer guys show up too. Good thing only one of them came in while the other five wait out in the truck for a couple of hours. The gas and electric people are also there, saying their fees and taxes are included in the monthly statement. You look around and think, “I better go cash this check so I can afford all of this.” You go to the bank and, yep, there’s a check cashing fee, even though you have your mortgage with them and $200.00 in their savings account paying you a whopping 1½%. By the way, the government makes you pay a tax on the money you make on that too.

You know the company that hired you has passed on its cost and taxes to you, the employee, indirectly, by paying you less. The balance is passed on to the consumers. The federal, state, county, and city governments pass on the expenses to you as a taxpayer. The utility companies do the same thing and they include their fees and taxes billed directly to you. The school board (property taxes), pass everything they do, and I mean everything, onto the consumer. The party is over!!!

 Important Questions

Who do you pass your expenses on to? What relief do you have to recapture these dollars? None? Would you agree these transfers are killing you financially? Do you feel hundreds of people are profiting from you with no relief in sight? If you could learn to reduce these transfers and keep the money, your money, for yourself, would you do it?

You take what little is left of your money and make your car payment. The payment includes interest to the lender. Simply driving the car creates other transfers.

Gas prices which include several taxes. A fee (tax) to renew your driver’s license, license plate fees (tax) due every year, insurance premiums in which the insurance company’s fees and taxes are passed on to you and any maintenance needed, parts and labor which is also taxed. Also, the value of this car does decrease every year. You finally figure out the only way you can pass on your expenses to someone else and pay for all of this is to ask for a raise from your employer. This solution may also have unintended consequences. The employer may decide they can’t afford you and lets you go. Or you get a raise only to find out it increases the amount of taxes you pay. Study the transfers of your wealth that you are making, obtain the knowledge, make changes, and reduce the transfers.

 Hidden Transfers

Not only is just about everything you buy a depreciating asset, it will probably have to be replaced in the future. Another form of tax on your wealth is inflation. When you replace these goods in the future, they will most likely cost more. Personal and corporate taxes and government regulations have more to do with prices going up than the old standard: “corporate greed.” In the same breath, corporations will do just about anything to show profits to their shareholders. Once again, the added factor of the changing demographics of our nation will also complicate the challenge of you trying to hang on to your money.

For more information call Benefit Consultant Inc. in Chino, CA at 909-548-7444 or email: Contact@BenefitCI.com

Hidden Home Costs

Are you in the market for your first home? Congratulations! A home offers security and stability, but it can also be a big financial responsibility. If you’ve never owned a home before, you may be surprised to find out that there are many additional monthly costs associated with owning a home. When you first start looking at your price range, make sure that you have a good idea of all potential costs, not just the monthly mortgage payment. Here are a couple of hidden costs to keep in mind:

Home Owner’s Fee

You may be expected to pay hundreds of dollars each month to support your home owner’s association or to keep up common areas in the neighborhood. This can be a big expense if you weren’t expecting it.

Home Insurance

You’ll need insurance to protect your home against fire and other potential damages. In certain areas of the country you may also need to purchase hazard insurance policies that cover additional risks, such as earthquake damage, flood damage and windstorm damage.

Mortgage Insurance

If you are unable to provide a 20% down payment for your home, you will most likely be asked to pay monthly mortgage insurance to guard against the risk of default.

Utilities

If you’ve rented an apartment before, then you have probably had to pay gas, electric and water bills. These same utilities apply for a home, but if your home is larger than your apartment, it will probably take more energy to heat and cool, leading to larger electric bills.

Property Tax

Every year you will be expected to pay a tax on your property, which can add up to a few thousand dollars. The good news is that property tax is tax deductible, but it can still take a big chunk out of your wallet if you weren’t expecting it.