Tag Archives: Taxes

Life, Money

Ten Great Time, Money, and Fun Facts

Life is full of interesting facts, tricks, and shortcuts. Here are 10 of the greatest regarding time, money, and fun.

Time

Money

  • If you can get someone to agree to the following pay scheme you will have $10 million in a month. Just ask them for a penny on day 1, two cents on day two, four on day three, and so on.
  • In a Ponzi scheme like Social Security, the rate of return is equal to the growth rate of members. With the US population growth rate and Social Security returns around 1% (before considering SS money is spent for other things), you could make significantly more money investing your Social Security tax in basic mutual funds or savings accounts.
  • Assuming you are the average American, your national debt burden is greater than $43K.
  • Income mobility is better than most people think. Between 1999 and 2007, people moved up from the bottom quintile of income earners 60% of the time and down from the top quintile 40% of the time. This is partly due to the fact that the top quintile pays nearly 80% of our taxes and the bottom quintile pays roughly 1%.

Fun

  • If you have just 23 people in a room, there is more than a 50% chance that two will have the same birthday.  With just 50 people, there is a 97% chance. This is known as the birthday paradox.
  • You can count to 31 using just one hand and to 1023 using two hands. Check it out on YouTube.
  • Despite being the best selling movie of all time, Avatar doesn’t even break the top 10 when revenue is adjusted for the times. Top three are Gone with the Wind, Star Wars, and The Sound of Music.

Know any cool facts or stats that didn’t make my top 10? Let us know in the comments.

(photo sam_churchill)
Featured, Life, Money

What to Know About the US National Debt

A reader asked recently, “What is national debt? It seems both complex and simple. How will it affect the future?”

Indeed, the US national debt is a complicated issue and this is evident in how the nations top economists continue to debate the significance of our debt and its impact on the nation.  As the US national debt continues to swell, many people are seeking to understand the issue better.  Here are some basic principles and strategies that should set your foundation for understanding the subject.

Types of US Debt

The US national debt can be looked at in two main ways.
First is the “public debt.”

  • Public debt can be viewed as the actual amount of money the US owes through loans to individuals, groups, and governments.
  • This is what the government pays interest on right now.

The second type is “gross debt.”

  • Gross debt includes future obligations like Social Security.
  • Although future obligations may be covered by future taxes, current tax rates will not bring in enough revenue to cover them.

Today’s public and gross debt levels relative to the size of the US economy (GDP) are higher than they have been since WWII.  This has happened since the Iraq invasion around 2003 and can be largely attributed to the post 9/11 economy and recent “Great Recession.”  Entitlement spending (Social Security, Welfare, Medicare) has also had a significant impact on the rising gross debt as population growth has slowed and the ratio of people on entitlement programs to those paying for it has increased.

How the US Debt Will Impact Us

As obligations increase, the US government must continue to raise interest rates so that investors are willing to loan the US money.  Alternatively, taxes must increase across the board.  Either scenario can be harmful to the economy and thus limiting job opportunities and people’s ability to spend effectively.  This creates a few potential problems.

  1. As the US government increases interest rates to raise more money, investors may move money out of corporations leading to more government power and inflation.
  2. As interest obligations to debt holders increase, taxes are no longer used to improve the country but instead go to other nations.
  3. If a decrease in infrastructure programs happens before a decrease in entitlement spending then taxes become less and less an investment in economic growth and more of a temporary solution to support those in need.
  4. American companies are considered more risky as the US debt increases causing prices to rise which creates inflation.

What You Can Do

As time passes, the US will either have to cut programs or increase taxes to pay for the problems.  Simply increasing debt is not exclusive of these options since it will increase interest payments which decreases the amount of money going to programs.  Even if the government never goes bankrupt, its power on the international scale will diminish slowly over time making living in the US less of an advantage.  Here are some strategies you can consider to be prepared.

  1. Be thankful that you live in a great economy that provides you with many more advantages than other places.  How many people honestly are completely independent from everything else?  Even if our country one day fails us, we’ve been very blessed until now.  You have to appreciate the benefits along with the losses.
  2. Get financially sound in case you’re required to live on less.  Practice the basics like saving for an emergency, spending less than you make, and investing in yourself.  For more frequent advice, read some good financial blogs like MoneyCrashers.com or ChristianPF.com
  3. Vote for politicians whom you believe will best spend your taxes for the good of the country.  Tell your friends to vote for them too.
  4. Lose your dependence on money by giving some away and seeing it as a tool for other things.  When possible, find ways to enjoy life and make a difference without needing lots of money.
  5. Look outside.  Even when the stock market drops the sky is still blue (or gray but I don’t think there’s any relationship there).

Have your own question to submit?  Submit your time, money, or fun question here and get it posted on the Obsessed Analytic blog.  If you have any thoughts to add, then share with others in the comments below.

This post is featured in the Carnival of Personal Finance Edition #270.

Featured, Money

Should I Worry About The Expiring Bush Tax Cuts

It’s always funny to watch people get jumpy over a fifty-cent coupon on their next pizza purchase and then not worry about the fact that their largest expenses (taxes and healthcare) may change by thousands of dollars one year to the next.

People definitely delight in the occasional saving.  It’s a personal “win” and makes you feel like you beat the system.  However, if your goal is to use your money a little more effectively, it’s worth knowing the impact of political changes so that you can react (and vote) accordingly.

What Are the Bush Tax Cuts

For starters, the tax cuts passed in the early 2000s had a few significant impacts.  Based on 2010 brackets here are the noteworthy numbers versus pre-Bush tax levels.

  • You will save 5% on the first $8375 you make (~$419)
  • Plus 3% on income over $34,000 (another $480 for someone making $50K)
  • Plus $500 per kid (raised child credit from $500 to $1000)
  • Plus 5% on stock gains and 25% on dividends

Remember that your taxable income is far less than your salary.  Just for breathing, the government exempts $3,650 (personal exemption), and because the government knows your a generous giver they assume you have at least $5,700 in deductions (granted if you have more you can deduct that too).  So to be taxed as a $50K earner you would really need to make at least $59,350.

What You Can Do

Nothing. It’s politics. Or stop having kids just to get the child credit (I’ve heard they cost more than $1,000 per year to raise anyway).

No, actually there are some worthwhile moves.  First and foremost, be knowledgeable.  If the tax cuts don’t get extended, you (the average American) will likely bring home $400-800 less in income next year.  For those of you who simply spend the amount of money in your bank account each month, you will be fine but you will end up buying less and continuing your saving achievements of zero.  If you have a budget on the other hand, you may need to make some minor tweaks, but you should be ok.

Second, read the news.  The Democrats basically control the situation right now in D.C.  They want to raise taxes but don’t want to mess with people making under $200K.  If that’s you, then you’ll likely see no changes in taxes (healthcare is another issue).  If you make more than $200K then be afraid, kinda afraid.  Your taxes will likely increase by a few thousand dollars and your inability to lavishly spend, donate, or save like you used to may hurt the economy, but that’s up for debate.

Sigh of Relief

So it looks like the pending doom of slightly higher taxes won’t hit/hurt most of us, yet.  Larger concerns for your immediate finances are healthcare changes, but I’ll save that discussion for next week.  Do be aware that the national debt is swelling quickly and the long term impact is unknown.  Even if taxes don’t go up this year, they will go up eventually.

Got a better question for me to answer?  Submit it here and I will forever thank you!

Photo Credit (alancleaver_2000)
Generous Information Sources
Carnival

The Best of Money Carnival #48: My Top 10

10 Comments

To all my readers new and old, it’s a pleasure to be hosting the Best of Money Carnival this week. This carnival is one of the most well known in the personal finance blogosphere and always features a great collection of personal finance articles. After perusing a long list of outstanding articles, I have picked my favorites. Thanks to all the entries and continue to enter for a chance to be featured.

My Top 10 and Thoughts

Starting with the best, here they are.

  1. The Winner! 11 Great 40 Dollar Investments – A great simple list of ways to spend 40 dollars well. A nice article without all the overwhelming information you see in other blogs.
  2. It’s Never Too Early to Teach Children Good Money Habits – Teaching your children about finance should be a top priority today (or when you have them).
  3. How To Get More Value Out of Your College Education – Too many people go to college because everyone else is going. Understanding why college is important and how to get the most out of it can set you far ahead of the crowd.
  4. What is a 529 College Savings Plan? – In line with the last two articles, be sure to save for your kids college one day. Here’s a good summary on how to get started and what to expect.
  5. Wipe Away Debt Problems With Debt Snowflakes – An interesting micro version on the popular “Snowball” theory Dave Ramsey followers know of.
  6. 5 Ways to Ask Your Boss for a Raise – Learning how to get the most money for your work make improve your balance sheet than any other savings advice.
  7. When Your Dual Income is Cut in Half – In a recession it’s important to know how to react when you lose a job. Here are some ideas to consider.
  8. Costs In Buying A Home Besides Your Mortgage – Buying a house comes with a lot of responsibility. Be prepared with this great checklist before committing.
  9. Living frugally for early retirement – We often overwhelm are lives with too much stuff. Here’s a fun perspective on a simple life in retirement.
  10. Avoiding Online Money Making Scams – A few good reminders on what to avoid when walking through the financial world online.

Be sure to check out all the posts. If you would like to take part in a similar carnival that’s just getting started take a look at the Find Time, Save Money, and Have Fun Carnival page.

Money

Save Five Grand in Five Hours with Tax Deductions

5 Comments

Taxes aren’t easy.  We can all agree on that, but given that we have to do them let’s make the most of it.  If I told you that I would pay you $5,000 for 5 hours of your time would you take it? You might ask, “What’s the catch?”  The catch is, you have to actually think about your taxes for a few hours, calculate your deductions, and enter it into your tax software.  If you do, your tax refund may increase by $5,000 or more.
Continue reading Save Five Grand in Five Hours with Tax Deductions →

Money

Learning What to Spend and Where to Save – Part 1

3 Comments

When you first get a job, change your income, or just start thinking about where to put your money it’s easy to get lost. It’s easy to spend, but if you’re reading this you probably know it’s wise to save. Where should I put my money? How much can I spend? Do I put more in Long term or Short Term savings? All are great questions.

Continue reading Learning What to Spend and Where to Save – Part 1 →

Money

How To Do Your Taxes – Getting Started

5 Comments

“Two things are certain in life, death and taxes” – Ben Franklin. Get ready to get out the old calculator, pencil, and tax book and spend the next few months figuring out how to file your taxes with Uncle Sam. Better yet, I’m putting together a guide to help make sure taxes this year are as painless as possible. So start here and come back every week for a new tip.

Continue reading How To Do Your Taxes – Getting Started →