Tag Archives: Taxes

When a Loved One Passes…from Gurdayal Singh’s Office

Estate Ideas

June 1, 2016

WHEN A LOVED ONE PASSES…

In order to relieve loved ones of additional stress, anxiety and expense at the time of a death in the family, consider recording as much information as possible in advance and providing copies to family members. Using our When a Loved One Dies Life Guide, you’ll be able to record and share the following information:

 

  • Names and contact information of your professional advisors.

 

  • Your vital statistics.

 

  • Your specific funeral instructions.

 

  • Historical information for your obituary.

 

  • People and organizations to be notified about a death.

  • Locations of vital documents.

  • Important banking and insurance information.

  • Your wishes for the disposition of personal property.

  • Any special requests and/or instructions.

 

 

MESSAGES
from the Masters…

PROBLEM SOLVING

by Zig Ziglar

Fortunately, problems are an everyday part of our life. Consider this: If there were no problems, most of us would be unemployed. Realistically, the more problems we have and the larger they are, the greater our value to our employer.

Of course, some problems are small, like opening a ketchup bottle. Others are monumental like a seriously ill or injured child or mate, which present ongoing, daily complications. Successful living comes when we learn to handle those business and personal problems with as little fanfare as possible.

The successful business executive can handle challenges and solve problems at a remarkable clip. He/she makes quick and final decisions as a result of years of experience. The homemaker with small children at home handles many “catastrophes” each hour with the same dispatch.

Many people use counter-productive methods to deal with problems: They refuse to recognize them, deny responsibility for them, pretend they will go away if they ignore them, or are just flat insensitive to them.

The first step in solving a problem is to recognize that it does exist. Next, we determine whether the problem is our responsibility. If the answer is yes, we must determine how serious and/or urgent it is. When that last determination is made, we either take immediate action if the problem is simple and quickly solvable or develop a plan of action and prioritize it if the solution is more difficult and time-consuming.

Problem solving becomes a very important part of our makeup as we grow into maturity or move up the corporate ladder. I encourage you to take the time to define the problem correctly, learn the skill of quick analysis and remember, if it weren’t for problems in your life, your position might not be necessary in the first place. Ironing out the wrinkles and solving the problems is what most jobs are about. Think about it!

 

QUOTES
from the Masters…

On Reflection

“Evaluation of the past is the first step toward vision for the future.”

— Chris Widener

“At the end of each day, you should play back the tapes of your performance. The results should either applaud you or prod you.”

— Jim Rohn

“Let us not look back in anger, nor forward in fear, but around us in awareness.”

— Leland Val Vandewall

On Trust

“A man who doesn’t trust himself can never really trust anyone else.”

-– Cardinal De Retz

“I think we may safely trust a good deal more than we do.”

-– Henry David Thoreau

“Trust men and they will be true to you; treat them greatly and they will show themselves great.”

— Ralph Waldo Emerson

Fixing The Value of Your Business…From the Desk of Gurdayal Singh

Business Briefs

May 25, 2016

business shingle

FIXING THE VALUE OF YOUR BUSINESS FOR ESTATE TAX PURPOSES

What Conditions Must Be Met to Fix the Value of Your Business for Estate Tax Purposes?

If certain conditions are met, a binding buy-sell agreement may fix the value of a business interest for estate tax purposes. The purchase price, whether a fixed amount or one determined by a formula, can be accepted as the estate tax valuation if these conditions are met:

1. The buy-sell agreement must create an enforceable obligation on the part of the estate of the deceased owner to sell and the buyer to purchase the business interest.

2. The buy-sell agreement must prohibit the owner from disposing of his or her business interest during lifetime without first offering it to the other parties to the agreement at a price not higher than the price (fixed or formula) specified in the agreement.

3. The buy-sell agreement must be the result of an “arm’s length” transaction, meaning that the price must be fair and adequate at the time of the agreement or any subsequent reevaluation.

Without a binding buy-sell agreement, there can be a great deal of additional detail and uncertainty as to the valuation of a business interest at the owner’s death, adding to the time and expense required to settle the estate, as well as making it difficult to predict and plan for any estate taxes that may become payable.

MESSAGES

from the Masters…

SUCCESS IS EASY, BUT SO IS NEGLECT by Jim Rohn

People often ask me how I became successful in that six-year period of time while many of the people I knew did not. The answer is simple: The things I found to be easy to do, they found to be easy not to do. I found it easy to set the goals that could change my life. They found it easy not to. I found it easy to read the books that could affect my thinking and my ideas. They found that easy not to. I found it easy to attend the classes and the seminars, and to get around other successful people. They said it probably really wouldn’t matter. If I had to sum it up, I would say what I found to be easy to do, they found to be easy not to do. Six years later, I’m a millionaire and they are all still blaming the economy, the government, and company policies, yet they neglected to do the basic, easy things.

In fact, the primary reason most people are not doing as well as they could and should, can be summed up in a single word: neglect.

It is not the lack of money – banks are full of money. It is not the lack of opportunity – America, and much of the Free World, continues to offer the most unprecedented and abundant opportunities in the last six thousand years of recorded history. It is not the lack of books – libraries are full of books – and they are free! It is not the schools – the classrooms are full of good teachers. We have plenty of ministers, leaders, counselors and advisors.

Everything we would ever need to become rich and powerful and sophisticated is within our reach. The major reason that so few take advantage of all that we have is, simply, neglect.

Neglect is like an infection. Left unchecked it will spread throughout our entire system of disciplines and eventually lead to a complete breakdown of a potentially joy-filled and prosperous human life.

Not doing the things we know we should do causes us to feel guilty and guilt leads to an erosion of self-confidence. As our self-confidence diminishes, so does the level of our activity. And as our activity diminishes, our results inevitably decline. And as our results suffer, our attitude begins to weaken. And as our attitude begins the slow shift from positive to negative, our self-confidence diminishes even more…and on and on it goes.

So my suggestion is that when given the choice of “easy to” and “easy not to,” you do not neglect to do the simple, basic, “easy,” but potentially life-changing activities and disciplines.

To Your Success,
Jim Rohn

QUOTES
from the Masters…

 

On Leadership

“A good objective of leadership is to help those who are doing poorly to do well and to help those who are doing well to do even better.”

— Jim Rohn

“Leaders think and talk about the solutions. Followers think and talk about the problems.”

— Brian Tracy

“Leadership is the ability to decide what has to be done and then get people to want to do it.”

— Patricia Fripp

On Expectation

 

“Today I live in the quiet, joyous expectation of good.”

— Ernest Holmen

“The real winners in life are the people who look at every situation with an expectation that they can make it work or make it better.”

— Barbara Pletcher

“You always act in a manner consistent with your expectations, and your expectations influence the attitudes and behaviors of the people around you.”

— Brian Tracy

Fun Friday – April 15, 2016 – Taxes & Procrastination

3 Powerful Techniques To Beat Procrastination

 

You still have three days to file your taxes!

Earth Day, April 22,  2016

Next Friday is Earth Day and EarthDay.org is asking for 2016, participate in their theme “Trees for the Earth.” Over the next five years, as Earth Day moves closer to its 50th anniversary, they’re calling on you to help achieve one of their most ambitious goals yet — planting 7.8 billion trees. Trees will be the first of five major goals they are undertaking in honor of the five-year countdown to Earth Day’s 50th anniversary. On their own and together, these initiatives will make a significant and measurable impact on the Earth and will serve as the foundation of a cleaner, healthier and more sustainable planet for all.  

Why Trees? Trees help combat climate change. They absorb excess and harmful CO2 from our atmosphere. In fact, in a single year, an acre of mature trees absorbs the same amount of CO2 produced by driving the average car 26,000 miles. Trees help us breathe clean air. Trees absorb odors and pollutant gases (nitrogen oxides, ammonia, sulfur dioxide and ozone) and filter particulates out of the air by trapping them on their leaves and bark. Trees help communities. Trees help communities achieve long-term economic and environmental sustainability and provide food, energy and income. Plant a tree. Make a donation. Activate your friends and social networks using the hashtag #trees4earth.

HAPPY EASTER!

Happy Easter!

This weekend’s holiday is celebrated in many  countries and cultures worldwide.

Click the pic and learn about 10 bunny-free Easter traditions from around the world (and some are a little strange!)…

 

Boiling Eggs has never been funnier…

We did find a unique way to color eggs by hard boiling them in water with different foods. Below is a list of what things turns the shells different colors. We can’t guarantee what the eggs will taste like!

Spinach Leafs = Green

Beetroot = Red

Tea Bag = Dark Brown

Onion Skin = Yellow / Gold

Red Cabbage Leaves = Light Blue

All that Chocolate! 

What actually happens to your body when you eat chocolate Easter Eggs…

 

DEMOGRAPHICS – The Changing Financial Landscape

Intro

Your economic situation is a matter of choice, not a matter of chance. Misguided and self-inflicted, it is centered on the lack of knowledge. Driven by fear, cautious of change and paralyzed by perceptions, financial decisions are made by default, without knowledge, unaware of unintended consequences. Today, the vast majority of people are troubled and confused about the economy. They have been bombarded by the media, bullied by sales people, and bewildered by the millions of things they feel they need to know. Over the past eight years, they have seen all the financial lessons they learned in the 1980s, 1990s and even recently, fail them. They know they can’t live on four and five percent rates of return, yet they are scared and hesitant to make crucial decisions necessary to survive in today’s economy. To make matters worse, right now, 90 million Americans are faced with the most critical investment challenges of their lives.

We are going to shed some light on this darkness. We will break this problem down and analyze it carefully. Then, you will have a clear view of choices open to you. You will feel more confident and prepared to make financial decisions. If something you thought to be true wasn’t true, when would you want to know about it? That defining moment in your financial world comes with the understanding of the efficiency of money. It is a simple yet effective method of uncovering and reducing transfers of your wealth that occur everyday, unknowingly and unnecessarily. The financial savings are staggering.

Setting The Stage

Traditionally, we have been taught that there is only one way to make money grow: To get a higher rate of return on the money. But who is the one at risk in this quest? You, or the one making the recommendation? There is another way to make your money grow, but it is often overlooked. It is called the Efficiency of Money. To get a better understanding of this, you must look deeper to get a clearer view of what is happening in your financial world. First, you must understand that there are only three types of money in your life . . . lifestyle, accumulated, and transferred money. Your lifestyle money is the money you spend to maintain your standard of living. Accumulated money is the money you try to save, and transferred money is the money that you spend and give away, sometimes unknowingly and unnecessarily. It is in transferred money where you lose most of your wealth. This is where your perceptions become greater than your knowledge.

There are many forms of transfers, but the largest by far is taxes. The average household hands out about 50% of its earned wealth for direct and indirect taxes. For whose benefit do we labor, ours, the banks’, or the government’s? Financial advice given by the government and the banks has created record profits for banks and record tax revenues collected by the government. It is no longer enough to simply invest money without understanding the unintended consequences that will confront you financially in the future. Understanding the changes that are going to occur in the near future could dramatically affect any financial planning that you may have considered. If several years ago someone would have given us warning signs that the market would be depressed, that we would be involved in a war, that the Twin Towers in New York would be attacked and destroyed, that thousands of people would die, that we would have terror alerts every day, that entire industries would be near financial collapse, that scandals would rock Enron, Kmart, Arthur Andersen, WorldCom and the airline industry, would we have made some changes? Having that information in advance could have eliminated huge personal financial losses.

Today we have uncovered some of the problems that we will have to confront in the near future. They could affect your personal finances tremendously. Given this information now could help you eliminate or reduce future financial trauma. This is not about the financial products you own, rather what you know about controlling your money. Without this knowledge, you may simply become the perfect taxpayer.

One of the problems we have is that we confuse assumed rates of return with facts. A fact is something we know is going to happen. In preparing your financial future you need more facts than estimated guesses. Wouldn’t you agree that having the facts would be a good place to start planning your financial future?

Demographics

In 3000 days, about two-thirds of the now-working population will be 60 years old or older. This is a certainty! Unfortunately, this leaves one-third of the now-working population to pay for all the government social programs for a majority of retired citizens. To compound the problem, the costs of social programs such as Medicaid, Medicare, and Social Security increase every year. This leaves little doubt that increased taxation will be needed to maintain these programs. Increased life expectancy of retirees also adds to the cost of these programs. According to the 2000 U.S. Census, there was a 12% increase in people 65 years of age or older during that decade from 1990 to 2000. It is estimated that by 2040, the elderly population will represent 20.7% of the total population. The largest segment of the population that grew the fastest was people between the ages of 90 and 94, which increased 44.6% since 1990.2 Overall, the number of people between the ages of 80 and 94 increased 25.7% since 1990. A 65-year-old woman in the U.S. as of the year 2000 could expect to live another 19.2 years and a 65-year-old man could expect to live another 16.3 years. In 1900, the average life expectancy was 47.3 years.

This shift in the demographics creates other problems we must face. As elderly people retire, they have a tendency to shift their investments from stocks to more secure positions. Alan Greenspan addressed this issue in February 2002. Greenspan stated that because of the demographics of the country, it will be a real challenge to maintain the value of these retirement assets. He states, “This ever larger retired population will have to be fed, clothed, housed, and serviced by a workforce growing far less rapidly.

1. The retirees may have accumulated a large stock of retirement savings, but the goods and services needed to redeem those savings must be produced by an active workforce assisted by a stock of plant and equipment sufficiently productive to meet the needs both of retirees and a workforce expecting an ever increasing standard of living.”

2. He goes on to say that “. . . the focus of the economy as a whole, of necessity, must be on producing the real resources needed to redeem the financial assets.”

3. In that same speech, Greenspan goes on to state that “[i]f the Social Security Trust Fund is depleted, the law requires that benefits are paid only to the extent that they can be financed out of current payroll tax receipts.”4 Do you really think a politician will allow this to happen? No, but it will take increased taxation and less benefits to keep them in existence. If retirees move to more secure investments, it leaves only one-third of the now-working population to buy the stocks being sold off. The problem is, when there are more stocks to sell than buyers to buy them, prices fall. Future retirement accounts could plummet again. Compounding this problem is the fact that companies rely on stock revenues for future research and development. This loss of revenue could stifle future economic growth and profits. Relying only on stocks for retirement could result in unintended consequences, caused by taxation, unstable market conditions, and the inability to maintain the value in stocks as we now know them.

Along with shifting age demographics, the government itself plays a role in diminishing our future wealth. Over the last 30 years, the only thing the government has done consistently is overspend the amount of money it has taken in. The government’s central focus has become collecting revenues, a/k/a taxes. The government is very good at it, but the financial burdens are passed on to us. We are expected to follow the 47,000 pages of tax law under the threat of penalty or imprisonment. Another problem is that, in 3,000 days, there will be fewer workers to pay for the government’s increases in spending, along with the cost of social programs. This will leave an enormous cost burden for the workers to pay, along with the challenge of trying to improve their own standard of living. Diminishing benefits and increasing costs will leave no one satisfied.

To survive, the government will have to raise taxes. Let’s take a look at what the government has said they have done to help us. Recently they raised the amount of money you can put into the government qualified retirement plans. Why? Why? Why?

To secure your financial future, or theirs? It sounds like you will save on taxes but you most likely won’t. We have left it to them to decide at what rate they will tax this money in the future when we retire. Will it be lower, likely not! Just look at the dilemma they have created for themselves.

This is imperative: DO NOT BECOME THE PERFECT TAXPAYER.

If We Know Something For Certain Once again, why did the government recently increase the levels that an individual can contribute to 401(k) plans and IRAs? Was this change initiated because they were concerned about your financial future OR THEIRS? A 401(k) or IRA simply defers taxation to a later date. It would be a different story if the government would guarantee that you would be taxed at the same tax level you were at when you put the money into these plans. Will they ever do that? No! They need and want as much of that money as they can get.

I can still hear the words echoing in the halls of financial wisdom “You will probably retire to two-thirds of your income, and thus be in a lower tax bracket.” Don’t count on it! Many professional planners believe that you can retire to two-thirds of your current income. Be cautious of this thinking. They are telling you to retire with less money so you pay fewer taxes. Not a great solution. When you add the changing demographics, do you really think that, at any level, taxation is going to be lower in the future?

Now let’s look at government spending. To get current levels of the public debt, go to: http://www.treasurydirect.gov/NP/debt/current. There, the current public debt of the government is listed daily. Look for the years in which large government surpluses were proclaimed and look for payments against this debt. Can you find any?

2015 $18,922,179,009,420.89

2014 $18,141,444,135,563.30

2013 $17,351,970,784,950.15

2012 $16,432,730,050,569.12

2011 $15,125,898,976,397.11

2010 $14,025,215,218,708.52

2009 $12,011,838,881,463.68

2008 $10,699,804,864,612.13

2007 $9,229,172,659,218.31

2006 $8,680,224,380,086.18

2005 $7,932,709,661,723.50

2004 $7,379,052,696,330.32

2003 $6,783,231,062,743.62

2002 $6,228,235,965,597.16

2001 $5,807,463,412,200.06

2000 $5,674,178,209,886.86

1999 $5,656,270,901,615.43

1998 $5,526,193,008,897.62

1997 $5,413,146,011,397.34

1996 $5,224,810,939,135.73

1995 $4,973,982,900,709.39

Now do you think that with this increasing debt to be paid, and the changing demographics of the country, that future taxation will be lower?

People should be hesitant to put money into government-sponsored retirement plans (401(k)s and IRAs) at a 28% tax bracket, knowing that upon retirement the tax levels could be, at that time, 35% or higher. Is that a 7% increase in taxes? No, that’s almost a 30% increase in tax levels. One thing you do need to know for certain, taxes will be waiting for you in the future. There will be fewer workers and more retirees and possible increases in government social programs and spending.

Doctor, It Hurts When I Do This

If it hurts you, don’t do it. The government’s doctor says don’t worry about the pain (paying unnecessary taxes) keep doing it until you die. Even then, taxes will be due but at least you won’t feel the pain. Today, you need more knowledge so you are capable of making better financial decisions. The more you know the less pain you will suffer financially. The solutions to a rewarding financial future are not found just in the stock market. But that’s what most people believe. Why? Because that’s all they know. IT IS DIFFICULT TO GET THE RIGHT SOLUTION WHEN YOU START OUT WITH THE WRONG PREMISE.

Remember Who You Are

Not only must you invest wisely but you must learn about the Efficiency of Money and wealth transfers. Your investments must be intertwined with these lessons to maximize your wealth no matter what level of wealth you are at. REMEMBER: The government sees you as a taxpayer. The bank sees you as a borrower. Investment companies see you as a fee payer. If you don’t utilize the lessons of efficiency, these organizations, the government, the banks, and investment companies, will be first and foremost in your entire financial life. There will be no financial freedom until you can loosen the burdens in dealing with them.

The Last Picture Show

Imagine taking your spouse and kids to see a movie. You go into the theater, buy some popcorn and snacks. You find seats with no tall people in front of you and you start to relax. Looking around you notice an IRS agent that you’re acquainted with. His family is with him. You continue looking around the theater and you notice your banker and his family are also there. A few rows behind them are your investment broker and her family. What a small world! The lights dim and the movie begins. About five minutes into the movie an usher comes down the main aisle and the lights come up.

“Ladies and gentlemen we have a problem. There is a small fire in the lobby and we want everyone to leave calmly using the emergency exits.” You’re stunned. You look at your spouse and kids and say, “Don’t worry, everything will be okay. Wait right here for one minute.” You run over to the IRS agent and his family and help them out of the theater. Running back to your family you say “just one more minute,” and you run back to help your banker and his family to the exits. This time on your way back you don’t even stop at your family but simply give them that gesture with your index finger meaning you’ll be right back. You continue running to assist your investment broker and her kids out of harms way. Finally, you get back to your family to secure their safety. They have that dumbfounded look on their faces and you realize you may have lost a few votes for the Parent of the Year Award.

First, Not Last

This story may be irrational from a humane, loving standpoint. But from a financial standpoint, it is very true more times than not. The government, the banks, and investment companies have remedies to make sure that, in the event of something happening to you, they will still get paid…FIRST. Your family’s outcome is of little consequence to them. Sustaining their financial future is more important to them than yours is. You must learn financial concepts and ideas that will put you and your family and your financial goals first. You must develop liquidity, use, and control of your money. You must also learn about lost opportunity cost. These concepts will increase your wisdom in making financial decisions. Knowing this, the next time your family is faced with a crisis or even new opportunities they will be first, not last.

You’re Hooked

Nevertheless, we continue to load up 401(k)s and IRAs without any clue what future tax rates on these programs will be. The government is like a casino owner, they know they are going to win. You must learn the difference between government debt and government deficit. You must also learn and know how to plan for retirement besides using government-sponsored programs.

Handwriting On The Wall

The government knows it is between a rock and a hard place on the issue of Social Security. Greenspan’s comments are an “I told you so” type of statement. “In addressing the impending retirement of those born just after WWII, we will need to consider whether Social Security should better align itself with the funding provisions of our private pension and annuity system. Policy makers need to consider these issues now if we are to ensure a comfortable retirement for the post-war generation, while at the same time according due consideration to the needs of the later generations that now make up our work force.”

The problem is the politicians spend our Social Security revenues faster than they are collected. If they would create a Social Security system with a public investment option, the government would lose control of that money. Remember, they consider it their money, not yours.

They Do It Well

In recent years, the government has become obsessed with imposing and collecting taxes. The collection of taxes has become job one and they do their job well. We are now being taxed at the highest levels in our history. Yet, even after collecting historical amounts of revenue in the form of taxes, the government continues to outspend these revenues and posts record amounts of debt. Even with all the proclaimed surpluses of the 90’s, did taxes or government debt go down?

One could argue that we have experienced tremendous growth in our standard of living. However, those increased standards have been fueled by a record amount of personal debt. Personal bankruptcies are at all time highs along with credit card debt. For the last several years, the average household has saved at a negative rate. Any sustained economic downturns or lethargic stock market results, or both, will do serious damage to future savings.

Demograph X

Without understanding the demographics of our society, any attempt to financially plan our future will be doomed and filled with unintended consequences. My spelling of demographX with an “X” represents a missing factor. The “X” represents all the necessary changes that will have to be made by the government in order for it to survive. This will dramatically affect our personal retirement wealth. Demographics have been basically ignored in most financial planning. This will create major flaws in any future financial projections, and could leave us exposed to many financial hazards.

Not only will it be difficult to achieve the goal of preserving our own financial future, we must also provide for the government’s ever increasing financial future. Even with very clear warning signs, the government continues in its record levels of spending. The debt of the nation continues to spiral upward, out of control, for future generations to figure out. Let’s face it, the only power our Federal Representatives have is their ability to spend our money and we have given them a blank check to do it. If I could tell you the exact day that your retirement account will suffer its greatest losses, would you want to know that day? Then, in having that information, if you could do something now to prevent those losses, would you do it? You see, the day you retire and start receiving income from these accounts is the day your retirement accounts will suffer their greatest losses due to taxes. Another victim of the changing demographics could be the housing industry. The idea that the value of homes will always increase is wrong. People today often miscalculate the increased values of their homes. They don’t take into consideration the cost of maintenance, improvements, insurance, and taxes that are paid while they live there. The average homeowner may experience only a 2% or 3% growth rate of return, even though the value of their home may have increased by 40% in a ten year period.  The numbers can be deceiving. As an example let’s take a couple who purchased a small starter home ten years ago. The purchase price of this home was $110,000. Today, ten years later, the home is valued at $150,000. Overall the couple believes that the value of their home increased over 30%. They would also agree that while they lived there they also spent another $5,000 on the home for improvements and maintenance. In reality the annual rate of retire in the growth of the value of their home for those ten years was 2.69%. Remember this doesn’t include the cost of the property taxes and insurance. The inflation rate alone generally averages between 2.5 – 3.0%. Yet this couple had been led to believe, by everyone, that buying their home would be one of their greatest investments.

Getting Older

After all, a 6,000 square foot home requires a lot of maintenance and upkeep, not to mention the increasing cost and upward-spiraling property taxes. If the aging population sells their larger homes and builders continue to build larger homes at a record pace . . . who will buy them? The younger generation? In 3,000 days, with two-thirds of the now working population being 60 years old or older, we will be dealing with a smaller number of new buyers. This young group of buyers will also want to build new homes for themselves. This will create an overabundance of larger homes in the marketplace. The rules of supply and demand may take over. Too much product and not enough buyers equal lower prices. The government and the banks will have to get more creative when it comes to buying a home. After all, this is a source of revenue for both of them. Having this information, it may not be in your best interest to pay your house off as fast as you can. This could cause major unintended consequences in the future. The key is to maintain liquidity, use and control of your money. Owning a home is the most misunderstood American dream. You should look at home ownership very carefully, and understand your options. If the experts giving you advice could be proven wrong, would you want to know about it?

Your dream home could be a financial nightmare.

These are a few of the many demographic changes that could affect your finances in the near future. Following a natural and logical course of events, these things we discussed will most likely happen. Their effect on your current financial planning could leave you exposed to financial loss. Your exposure to these losses is a matter of choice, not a matter of chance.

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

TAXES – The Largest Transfer of Your Wealth

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.2 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 & LOCAL TAX
  • TELEPHONE USAGE TAX
  • TELEPHONE FEDERAL UNIVERSAL SERVICE TAX

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 is 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 overpayment of taxes, otherwise known as a refund? Zero percent. In some cases, you have to hire an accountant to help you get this overpayment 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 withholdings 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