If You Like it Then You Better Put a Tax On It
Taxes are right around the corner. Most of us hope we get a decent return, while others just hope they don’t have to drain their savings to cover the bill. But have you ever really given thought to how much of your money actually goes to taxes? It’s amazing that we have any money left, especially for expensive like homes, cars, and toys—oh wait, we don’t.
Our biggest life expense is taxes. As soon as we receive our paycheck we are taxed. Our biggest expense is the federal tax, followed by a few other bills not always associated with taxes, but basically are like Medicare. Then, your state takes its fair share.
With the money you have left you are taxed. We pay sales tax on items that we HAVE to have to survive like food and utility bills. Of course, we also pay taxes on toys that we just want. Then we about twice a year we are asked to pay yet another hefty tax bill, coming in the form of property tax.
Taxes have you taxed? Wait, there’s more. Let’s say you are lucky enough to have a few dollars left to invest in the stock market. Hopefully you don’t make too much because your profits are taxed. If your investments aren’t in a tax sheltered account, then you pay taxes twice on the same amount. Once when you received your paycheck and yet again when you sell your investment.
As you can see, taxes are one of the biggest expenses of our lives, and it takes proper planning to keep paying the piper. Get a jump start on 2009 by appropriately stocking away money for future bills. $
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Rich Investors Deserve Better Investor Protections
The Bernie Madoff scandal has exposed gaps in our federal securities laws, in addition to the pocketbooks of wealthy investors, including fund managers. The idea that rich investors have any more ability to avoid frauds than the everyday main street investor is ridiculous, and the Madoff case should end with strong regulation changes.
I have a hard time understanding the need or appropriateness of the accredited investor standard that has been written into our securities laws. The law basically assumes that rich individuals are somehow more capable of investing their money, especially in complex investments, like hedge funds. An Accredited investor must have a net worth of at least one million US dollars or have made at least $200,000 each year for the last two years ($300,000 with his or her spouse if married) and have the expectation to make the same amount this year.
This standard should be removed going forward. The Madoff scandal has taught us that if anything, rich investors have more to lose and should be regulated as such. All investors should enjoy the same protections against scammers like Madoff and a dollar amount of your net worth should not be the determining factor between federal protection or not.
Michael Jordan was an extremely talented basketball player, and thus has made a lot of money throughout his career. This doesn’t make him a talent derivatives investor and exempt him from federal laws does it? Warren Buffet is one of the best investor of all time, but this doesn’t mean he should receive less protection in other areas of his life like on the surgery table does it? We don’t exempt the rich in any other regulated area in our society, so why is investing any different? $
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Back to Basics in 2009
For many a new year brings a new hope. It means that your taxes are just about ready to be filed, and new resolutions are ready to be attempted. My take on resolutions are that they shouldn’t be tied to jsut the beginning of the year but should be laid in place and maintained with discipline year round. For me there is less pressure and my goals are much more attainable.
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For personal finance, however, this should be the time for you to re-evaluate what it is you are spending your hard earned money on. Going back to basics means that you stop superferlous spending and not just because the holidays are over. Holidays should be no excuse for imprudent budgeting. Its a time for a clean slate and new financial objectives.
- How is your emergency fund?
- Are you ready to max out your IRA?
- Have you started looking to see if you can get any deductions on your taxes? (W-2’s will be out soon!)
- Make a list of what you will need to get for the holidays next year and stick to it. Purchase slowly over the course of the year and stop when the list has been completed.
- Start a new calendar with your bills and their due dates. Display where you will see it often. When I have something long term I need to be ready for, I will use a dry erase marker on our bathroom mirror. Its easy to clean when I am done, and I see it everyday, and not everyone else has to see it.
- Check out Mint.com and see how it can get you started. Its a secure as logging in to your own bank, but don’t feel obligated to act on their credit card suggestions.
- Set your own credit cards to be paid automatically and make a note in your budget that that money is already spent. You should be at least below 49% especially if you are eyeing the real estate market.
That should be enough to get your year kicked off, and speaking of which, I am going to go back to watching Penn State struggle against the formidable Trojans. JoePa: Maybe we need you downstairs with the team?
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Where is Your Savings/Emergency Fund Parked?
The idea that your savings/emergency fund is supposed to be in a very liquid account is an idea I hope everyone understands and practices. However, where is the best place to park your savings?
Until the credit crisis, money market funds were enjoying returns around 5%, but now are seeing their yields sink below 2%. On top of the declining return, money market funds have scared savers into believing their money is not completely safe. Because the funds in a money market fund are invested (kinda), they are not FDIC insured, so it is possible you could lose your money, although the chance has historically and should remain very slim.
I have recently moved my money out of a money market fund and into an ING Orange Savings Account. For me, I enjoy the FDIC insurance on my emergency savings, and at the current time, the return is higher than a money market fund at 2.75%. However, I would stress that savings/emergency funds are NOT investments. Try not to chase the highest rate of return all the time and especially do not lock up your savings in an investment promising a slightly higher yield.
Because ING and Sharebuilder have recently teamed up, I enjoy the Orange Account because it is linked to my Sharebuilder account, an option that can be used to increase returns on money waiting to be invested. If you’re in the market for a finding a safer place to park your emergency fund and are interested in starting an Orange account, you can get a $25 bonus if you enter the following reference code at startup: SM424/VNZZ2RR5. If this code does not work, open up any money magazine in a supermarket and you will likely find an up to date advertisement with a newer code to use.
Where do you have your savings? $
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Madoff’s Ponzi Scheme
Christopher Cox just cannotwait to get out of office at the SEC. While Bernard Madoff’s ponzi scheme was going on far longer than he was in tenure in Washington, it looks bad for him to be head commish when it blew up.
For those that are just joining, a ponzi scheme, in simple terms is when someone buys and sells shares with unrealistic returns using later funds to pay earlier investors. Check out the link to get more background.
If this is such an old method to illegally make money, how in this day and age did this occur? Was no one paying attention? The short answer is yes.
Harry Markopolos has been trumpeting from anything he can stand on since 1999 that this was going on. Now that the final tab has amounted to $50 Billion dollars, he is seen somewhat as a prophet. He was assigned to do competitive research on Bernard L. Madoff investment Securities and became curious when he saw the competitor having far better returns. He complained to the SEC’s Boston office in May 1999.
No major league baseball hitter bats .960, no NFL team has ever gone 96 wins and only 4 losses over a 100 game span, and you can bet everything you own that no money manager is up 96% of the months either,” he said.
Now things are getting more spicy as the U.S. Attorney General (Michael Mukasey) removed himself from the probe, and the SEC is looking into the relationship between Madoff’s niece and a former SEC attorney who reviewed Madoff’s business.
The Securities Investor Protection Corp. announced today that it is liquidating Madoff’s brokerage and named Irving Picard, a lawyer at Gibbons PC in New York, trustee to return cash and securities to customers. While the Washington-based SIPC provides as much as $500,000 in insurance for any missing money in individual brokerage accounts, it does not protect against investment losses.
[Edit: As stated on SIPC's website, there is no claim form "yet" for making a Madoff claim.]
In New York, Madoff showed up at the federal courthouse to sign some papers in his case, wearing a baseball cap and walking silently past a reporter who asked Madoff whether he had anything to say to his alleged victims. Free on $10 million bail, Madoff now has a curfew and an ankle-bracelet to monitor his movements.
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