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Poll: How Much Time Do You Spend on Investing?

Zero tax payment

Zero tax payment. I'm sure that most small business owners and individual investors would love to here those words from their accountants come tax time.

Recently, GE made headlines for their 2010 tax payment (or lack thereof - click here for the details - G.E.’s Strategies Let It Avoid Taxes Altogether).

Let me start by stating that tax law is ridiculously complex, and I do not claim to know all the in's and out's.

What I do know, is that GE received part of the government bailout, so it seems totally unfair that they can earn almost $6 Billion from US operations without paying federal taxes.

Click on the image for a full size version.


But as we all know, life isn't fair. And let's be honest; if there were a way for you and I to use to do it, we would also use the tax code to our advantage.

In fact, we all could have purchased GE stock, in which case few people would complain about fairness as long as they made a profit.

Rather than harp on GE specifically, take a look at the "how"; how corporations are able to pay zero federal income taxes.


Via: OnlineMBA.com

Hat Tip to Business Pundit, and The Big Picture.

Blaming GE is akin to shooting the messenger. GE is the messenger; they told us that the rules of the game allow them to operate a certain way. They did not break any laws, and gamed the system while staying competitive (but that doesn't mean I like it).

If we don't like the results, then we must change the rules. And if we want to change the rules, the graphic above suggests that the first step is to resist the efforts of lobbyists.

Maybe giving American corporations a significantly lowered corporate tax rate would work...if it came with the price tag of no more lobbying!

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Someone is Stealing from Your 401k!

Do you know that right now, someone is stealing from your 401k? And you are letting them!

Cost control is an important concept for safe investing. But when it comes to your 401k, a majority of the fees and expenses are not "in your face" so to speak.

Your 401k probably doesn't have a huge billboard advertising commissions (like a discount broker), and you won't get a statement of how much you pay in fees every month (like a credit card statement).

Just like your personal expenses have a HUGE impact on your personal finances, hidden fees and transaction costs can make or break your ability to invest profitably over a long period of time.

As reported by Penelope Wang from CNN Money:

"As the GAO has reported, a plan charging 1.5% annually is likely to return 17% less over 20 years than a plan that costs just 0.5% — a difference that can amount to a $100,000 or more for a typical retiree."

So what can you do? How do you find out more about those hidden 401k fees?

You might find something digging though your 401k provider's website. But since I'm also here to save you time, that doesn't seem like a good choice.

Wang goes on to discuss a start-up called BrightScope. This company offers a free report that grades the 401k plans of many companies on things such as expenses and fees. Using the site is pretty straightforward, and I've always found it interesting to see how I compare with other companies.

But the real question is: what can you do if your plan has high expenses?

You could petition your company to switch to a new provider with lower fees. But I'm guessing that creating extra work for the HR department won't go over well.

The path of least resistance is to move your money to a low-cost retirement investment account.

Moving your money around has some risk, because if you don't do it correctly, you could end up with a large tax bill next year! So be sure to check with your tax consultant or accountant beforehand.

Sources:

---

Finally! Your hidden 401(k) fees revealed
Penelope Wang - CNN Money
http://moremoney.blogs.money.cnn.com/2010/01/19/finally-your-hidden-401k-fees-revealed/

Discount Brokers
Invest-Safely.com
http://www.invest-safely.com/discount-broker.html

Retirement Investment Accout
Invest-Safely.com
http://www.invest-safely.com/retirement-investment.html

The Falling Dollar

Easter Egg of the Day: Jim Rohn

"If you don’t know what a financial statement is, make it a priority to find out without further delay.  It’s very important to know exactly where you are financially, without kidding yourself. Only when you know where your are can you possibly have a good plan for going forward to where you want to be."

Where are you?

If you need a roadmap, click here for a page explaining corporate and personal financial statements.

Already know where you want to go, but need some help?

Invest-Safely.com offers FREE templates to help you get started on your personal income statement and personal balance sheet.

Visit Invest-Safely.com

Tax Refunds: Spend, Save, or Invest?

I’ve seen several articles on tax refunds (specifically how to spend them) come across my desk lately. With the tax filing deadline a week away, that is not too surprising.

It IS surprising that none of the pieces say, “Take a look at your personal financial goals, and see which one you can make progress towards achieving.” Instead, most of them have some generic tips and advice, like pay down credit card debt or put it in your emergency savings account.
Both are good ways to use the money…but how would YOU decide between the two?

I don’t know your personal situation, but I suggest the following steps if you’re not sure where to begin:

1. Pay Yourself First
2. Open and Invest in an Emergency Fund
3. Pay-off Debt (High Interest Rates)
4. Open and Invest in a Roth IRA
5. Pay-off Debt (Low Interest Rates)
6. Save a Down-Payment for a Home (if necessary)

Spend?

---

Your tax refund is your money; you actually overpaid the government (actually, your company overpaid the government with your money).


So if you’re not yet paying yourself 10% of your pre-tax income, take some of your refund and spend it on whatever you want.

Seriously, if you constantly deprive yourself and don’t enjoy the fruits of your labor, your money will end up stressing you out and causing conflict.

Save?

---

Again, depending on your situation, your tax refund may go a long way in creating an emergency fund.


With savings account interest rates at less than 1% and credit card interest rates between 10% and 60%(!), it may be tempting to use the money elsewhere. Remember, your emergency fund is a safety net and should cover ALL your expenses (including mortgage and credit card payments) regardless of interest rate.

Invest?

---

If you’re all set on spending and comfortable with your emergency fund, investing your money is a great way to go.


By invest, I mean putting the money towards your Roth IRA, paying down debt, or reducing the amount of debt you need to make a purchase.

If you go through your goals, you’ll quickly see where the money is needed most and make the best decision for YOU!
As Jim Rohn once said,

“If you don’t design your own life plan, chances are you’ll fall into someone else’s. And guess what they have planned for you?
Not much.”

Sources:
Personal Finance Goals
Invest-Safely
http://www.invest-safely.com/personal-finance-goals.html

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FREE Personal Income Statement Template Now Available

Need help tracking your income and expenses? Not sure how to start?
Download the new Personal Income Statement Template at Invest-Safely.com!

Personal Income Statement | Invest-Safely.com
http://www.invest-safely.com/personal-income-statement.html

Return to Invest-Safely.com

FREE Personal Balance Sheet Template Now Available

Need help creating a personal balance sheet?
Download the new Personal Balance Sheet Template at Invest-Safely.com!

Personal Balance Sheet | Invest-Safely.com
http://www.invest-safely.com/personal-balance-sheet.html

Investing Success - SMART Goal Setting - T is for timely

The final step in the SMART goal process is "T"; A SMART goal is Timely.

Setting a timeframe or end date is the last checkpoint for a SMART goal. An end point on your SMART goal gives you a clear target to work towards.

Without a time period, you won't feel any urgency to take action, and therefore you won't commit.

Back in December 2009, when Ed Whitacer became CEO of General Motors, he did not say that GM would pay back its loans. Instead, he said that GM would pay back $6.7 billion in governament loans by June 2010...part of the reason it was not "business as usual" down at "The Tubes" (hat tip to www.Autoextremist.com for coining that term over a decade ago)

Examples of a timely goal can include "within the next week", "for the next three months", "by the end of the year", etc.

Today, we complete our ongoing example. Here are a few ways to make the goal timely:

• Save $250 per month by the end of the year (good timeframe if you're working towards a certain level of savings)
• Save $250 per month for the next 6 months (good timeframe if you're trying to set aside money consistently)
• Save $57.69 per week for the next 12 weeks (good timeframe if you're living paycheck to paycheck)

Choose a timeframe based on your personal financial statements so that your goal is also realistic.

You can also used your personal financial statements to measure your progress, hold yourself accountable, and make changes if necessary.

Saving $3,000 per year has the same end result as saving $250 per month for 12 months. But a monthly timeframe requires more attention and provides you with more chances to be successful!

Hopefully you've found this week's series on goal setting useful for your 2011 investing goals, as well as any other goals you set for yourself.

Good Luck!

Need help setting goals?

Download the new SMART Goal Template at Invest-Safely.com!

---

Source:
SMART Goals Make Investing Plain and Simple
http://www.invest-safely.com/smart-goals.html

Investing Success - SMART Goal Setting - R is for realistic

"R" is the fourth step in our goal setting process; A SMART goal is Realistic.

SMART goals will require a reasonable amount of effort to attain. Realistic does not mean easy. Spend some time thinking about the goal and whether or not you have the ability to pull it off.

Within the automotive industry (particularly General Motors), this type of planning was used to develop personal "stretch goals".

Imagine you're trying to grab something that is JUST out of your reach; that could be a stretch goal (literally and figuratively).

Just because you can't reach it on your own does not mean you can't use a stool, ladder, or some other tool to get your prize.

So resist the temptation to set goals that you already know you can achieve for the sake of being "realistic".

If we return to this week's running example, making an achievable goal created a few changes. We now have a choice to make:

1. Decrease the dollar amount of the SMART goal
   
   • Save $250 per month
2. Increase your monthly income
   
   • Earn $5,000 per month (This goal is also specific and measurable)

You may chose to increase your earned income to $5,000 per month. But given the state of the economy lately (particularly that of the Metro Detroit area), your employer probably handed out pay cuts and pink slips to stay in business over the past few years.

If the environment really has stabilized, there are going to be a lot of people looking to recoup their losses. So increasing your salary (i.e. earned income) might require some extraordinary effort on your part just to get noticed!

And being realistic I'm assuming a raise of 6-10% (some might even argue that percentage is too high to be realistic).

Since extraordinary is usually much more than reasonable, the specific, measurable, achievable, and realistic goal is saving $250 per month.

Need help setting goals?

Download the new SMART Goal Template at Invest-Safely.com!

---

Source:
SMART Goals Make Investing Plain and Simple
http://www.invest-safely.com/smart-goals.html

Investing Success - SMART Goal Setting - A is for achievable

Our third topic focuses on "A"; A SMART goal is Achievable.

A SMART goal is achievable when it meets the following criteria:

1. The goal is something that you can personally influence (fixing Michigan's budget issue is probably outside of your range - unless your Rick Snyder)
2. The goal is important to you

Targets that are outside of your control decrease motivation. Imagine you're a high school teacher, and you have tell a group of honor roll students that regardless of their individual effort, all will receive a "D" at the end of the semester.

How much energy and enthusiasm will they put towards your class?

If you're trying to save $2,000 per month, and your current, pre-tax income is $4,000 per month, attaining this personal finance goal will be extremely difficult and frustrating.

But all is not lost. A specific, measurable, attainable goal can still be created.

Here are two sample options:

1. Decrease the dollar amount of your SMART goal
   
   1. Save $250 per month
2. Increase your monthly income
   
   1. Earn $5,000 per month (This goal is also specific and measurable)

Need help setting goals?

Download the new SMART Goal Template at Invest-Safely.com!

---

Source:
SMART Goals Make Investing Plain and Simple
http://www.invest-safely.com/smart-goals.html

Investing Success - SMART Goal Setting - M is for measureable

For the second topic in this series, we'll focus on "M"; A SMART goal is Measureable.

You'll need some sort of system, process, or procedure that allows you to record progress toward a SMART goal.

If your job required answering a phone, you might have a goal to answer the phone within the first two rings. But how would you know how often you met your goal?

You need some way to record the number of rings for each call.

Lets continue with the example we started yesterday (saving $24,000 per year). If you save towards this goal in any type of account (bank account, savings account, trading account, etc.), you'll probably have access to a paper or electronic statement that can use to measure the account balance over time.

Or, if you are disciplined enough, you could diligently balance your check book...

Right, lets let the bank handle this one! But don't forget about your personal financial statements! As your account grows, you will also be keeping track of it using your personal balance sheet.

Need help setting goals?

Download the new SMART Goal Template at Invest-Safely.com!

---

Source:
SMART Goals Make Investing Plain and Simple
http://www.invest-safely.com/smart-goals.html

Investing Success - SMART Goal Setting - S is for specific

It is that time of year again!

Yes, I'm talking about those new goals you're going to achieve in 2011. The two most important things you can do to increase your success are:

1. Put pen/pencil to paper and write down your goal, then post it somewhere you can see it
2. Make sure your goal is SMART

The first step is easy enough. But in order to have a SMART goal, you need to meet the following criteria:

Specific

Can you create a clear and concise description of your goal, using a number, percentage, rate or frequency?

Measurable

Is there a way for you to measure progress towards your goal?

Achievable

Do you have the necessary knowledge, authority and skill to achieve this goal?

Realistic

Can you achieve the objective with a reasonable amount of effort?

Timely

Can you clearly define a beginning and end date or time period for this goal?

Today, I'll focus on "S"; A SMART goal is Specific.

"Specific" goals describe an observable action, behavior or achievement that is linked to a rate, number, percentage or frequency.

A statement such as "buy a house" could be considered specific, because you can clearly see whether you've purchased a home or not. But you should go the extra mile, and tweak this example a little bit: "buy one house".

If we focus on personal fiance, setting a goal like "I want to be rich" is WAY too vague. The term "rich" means different things to different people, and you're definition may even change over time. Besides, setting the goal to be rich in 2011 may be a little too aggressive.

Instead, you could use an account balance, a percent return, a savings rate, cashflow per month/quarter, or even a maximum loss/minimum profit per investment.

For example, you could create a goal to "save $24,000 per year"; the dollar amount ($24,000) and rate (per year) make the objective specific.

Need help setting goals?

Download the new SMART Goal Template at Invest-Safely.com!

---

Source:
SMART Goals Make Investing Plain and Simple
http://www.invest-safely.com/smart-goals.html

FREE SMART Goal Template Now Available

Need help setting goals?

Download the new SMART Goal Template at Invest-Safely.com!

SMART Goals
http://www.invest-safely.com/smart-goals.html