The Hidden Riches inside of your Cash Flow

Most people only have two bank accounts they utilize in their lives.  Those two accounts are usually a checking and savings account.  Your paycheck gets deposited into your checking account, you then pay bills and if there is anything left the balance goes into a savings account.

According to www.tradingeconomics.com the national savings rate is 3%.  It will be bordering on impossible to accumulate any real wealth with such a pitiful savings rate.  Of course, there will be a handful of people who acquire wealth because they bought a certain company at a certain time and it went way up in value thus giving them a form of wealth.  Those will be few and far between the broke people who can never retire or even cut back on work to enjoy other things that life has to offer.

Let me give you a simple system to increase your savings and wealth.  First, you’re going to use more than just two bank accounts.  Most people dump all their money in their primary checking account up front and then give the money to everyone but themselves first and only keep the tip money if there is any money left.  Many people have even given up on saving money and don’t even have a savings account.  This is a huge mistake!

Stop that madness by immediately paying yourself 10% into your savings account the day you get paid.  Technology makes this so simple these days if you’ll use what is available to you right on your smartphone. Simply make sure your bank has an online app you can use on your phone. If they don’t, fire them and get a new bank. It’s just that simple.

Let’s assume you receive a $1,000 net paycheck as an employee every Friday. (More for self-employed or business owners below)   When you’re at lunch, on a break, or when you get home on Friday open up your banking app and immediately transfer $100.00 into your savings account.  Can’t afford that?  Bullshavic!  Everyone can afford it if it’s done first thing and up front.  It’s when you let your cash all go into one spot and spend first instead of transfer first you can’t afford it.  I have written articles on 50 ways to save $100.00 per month so you can absolutely afford it and many of you even more.

Now once you have done that successfully for 6 months open up another savings account for any special expenses you are saving for in the future.  College educations, a piece of needed equipment, dream vacation etc.   Also, make sure you hook your new savings account to that banking app!  Could you now save just 12% instead of 10%?  If not, consider starting a small business to qualify for many tax deductions that would give you the increase in “net pay” that you need.  Let’s assume you could save that additional 2% for our example.

Now keep putting away your 10% into your primary savings for the next 6 months.  In addition transfer 2% into your special account on payday every week!  This entire process won’t take you 45 seconds per week!  Let’s look at results after the first year.

Your every Friday transfer of just that $100.00 has given you $5,200 in your primary savings account and the truth is you didn’t even miss it from your life.  You extra special savings account that you started 6 months into this program has $520.00 in the account. So you’re approaching $6,000 in total savings from this simple plan.  Don’t spend any of it at this point.  Short of needing it to actually save yours or your family’s lives, the money stays put!

You’re now starting to create momentum in your financial life and it must be maintained.  Can you now even put in more?  Would you miss an extra 1 or 2% of your income?  Could you get to a 15% savings rate?  Let’s assume you could for this example and let’s go to the end of year 2 in the program. You’re still putting 10% inside of your main savings account so you would have $10,400 plus a little bit of interest but with today’s savings rate it will be peanuts.  But that special savings account will have an additional $2,600 plus the $520 from last year for a total of $3,120 in your special account.

So starting from scratch and using just a little knowledge, discipline, and simple technology you have approaching $14,000 in savings!  Now it might be time to fund an investment account of some kind.  We are partial to investment grade life insurance but there are many other options we don’t have time for today.  The main point is to divide your income and separate it the minute it comes into the door.  Try it and you’ll be amazed.

If you’re self-employed and get gross dollars paid to you without taxes getting taken out, open up an additional savings account (attached to your smartphone of course) and use it for nothing more than savings for future taxes.  Depending on your income, transfer over 20 to 25% of your gross income over to that savings account.  Because you’re a business owner (even if you’re not incorporated) you qualify for many business deductions that will affect your actual net tax rate.  So let’s say you gross $150,000 you will have put $30,000 into your future tax account at years end.  Is that enough to handle your taxes?  I bet that it’s more than enough.

Remember, you don’t pay taxes on your gross but on your net.  So if by using totally legal and ethical tax strategies and business deductions you get your gross income down to $70,000 adjusted gross you will owe self-employment tax of approximately 15% (but you get a credit of 50% of the self-employment tax on your income further reducing your actual net) But for easy example, let’s say you paid the feds $10,500 in self-employment tax (goes to your SSI, as well as Medicare and Medicaid).  That $70,000 goes over to your personal return, where you now deduct your standard deduction, mortgage interest, kids, and various other taxes paid to get to your taxable income.  Let’s assume your taxable income is $30,000 for a family of 4 putting you at between 0 and 15% of that taxable income owed in taxes.  Let’s take the worst example which would be 15% of that income due as tax.  That’s an additional $4,500 owed in tax to the IRS. (Won’t be that much but stick with me)  Now also assume you pay an additional $1,000 in state income taxes for a total of $5,500 in total income taxes owed.

This is combined with the self-employment tax amount due of $10,500 totals $16,000 of total liability to the government.  However, you saved $30,000 in your tax account leaving you with $14,000 to do with as you see fit! (Spend some of it and save some of it)  This separate tax account is critical for self-employed, commissioned salespeople, and business owners.  The last person you want chasing you down as a creditor is the IRS.  They have unbelievable power to make your life miserable and confiscate all you own.  Use this system and never worry again.

By taking control of your cash flow and segmenting the income into separate accounts you’re going to be way ahead in your financial life.  Start this week or you’ll never start at all!  If you decide to put some of your funds into an investment grade life insurance policy, contact us directly to help you set it up in the proper way and with the proper insurance carrier to give you maximum benefits.  Email us at colleen@wealthwithoutstocks.com

How you are losing your A—Even though the Stock Market is way up!

As I write this article the stock market has had a fantastic rebound from its last serious downturn and most investors seem to have a little more bounce in their step than several years ago.  It seems that the market is hitting new all-time highs every other day.   I am happy that people’s investments and retirement accounts are doing better and I hope they continue to do so in the future.  However, as we all know the stock market goes up and goes down and the timing of your entrance and exit on certain investments can have a huge effect on your actual gains and losses. (never forget 1999,2001, 2008 just in recent history)

The stock market and all the emphasis put on it by almost everybody can act like a giant Magic show where you are paying attention to what the market is doing in the left hand but totally oblivious to what your overall financial picture is doing in all other parts of your life.  The traditional media’s focus on stock market investing almost to the exclusion of everything else has made most Americans singularly focused on that one part of their financial life while not paying attention to where most of their wealth is being eaten up systematically month after month and year after year.  This cannibalization of wealth happens no matter if the stock market is up or in the tank.  I call these massive wealth drains and there are 4 huge ones (along with several other smaller ones) we will cover briefly in this article.

The first and biggest expense people have over their lifetime are income and other taxes.    Even with that fact most people really have no clue how the tax system operates and that is by design by our old Uncle Sam.  Books have been written on how to reduce taxes but since our time is limited take a couple of points away from this article.  Since taxes are such a huge expense maybe you should spend some time studying one of those many books by a credible tested source and figure out how to reduce your taxes.  The only thing I have time for today is to give you this huge general idea.  The tax system is set up to penalize hourly and salaried workers while rewarding entrepreneurs and business owners.  Salaried workers pay taxes based on that they gross while business owners pay taxes based on what they net for income.  When that statement is made most people think of the fortune 400 companies getting something over on the little guys.  Keep in mind you don’t have to be a massive business to get great tax advantages.  Even the little businesses and start-up businesses get huge tax benefits.  So since that is the case, rather than complain about it and say “oh well I guess I am out of luck because I have a normal job” dig a little deeper and realize that everyone should have a small business even if you run it from your home office or kitchen table.  To qualify for tax deductions in that business The IRS says that you have to have the intent to make a profit and work in that business for a reasonable amount of time (he never defines reasonable).  When that standard is met you automatically qualify for dozens of tax deductions that you don’t get to take as an individual.  If you have losses and start-up expenses much of them can be written off against your other income from your job (limits apply so get a good business CPA to work with you) Realize that nobody (even your CPA or tax preparer) cares how much you are paying in taxes and if you don’t take time to know how it works and use it effectively you will cost yourself tens and hundreds of thousands of dollars in lost income over your lifetime plus the compounded growth that lost money would have given you over time.

Another huge wealth drain is market losses on any investment capital that you control.  So when the stock market or a piece of real estate drops significantly in value it could take years for your money just to get back to even and of course, there are certainly no guarantees that it will come back during your investment lifetime.  Compound interest is an amazing beast that even Einstein had trouble grasping so I will keep it brief.  If the compounding curve of your money is broken by market losses or premature withdrawals it has a massive effect on your final pool of wealth.  Just for fun, if you were offered a job that only lasted 36 days and you had two choices on the pay plan which one would you take?  First, you could be paid $5,000 per day at the end of every day for 36 days for a total of $180,000 of income.  Not bad for just over a month’s work!  The second option is you would be paid one cent starting on day one but that one cent would be compounded by 100% daily and payable at the end of those 36 days.  Well if you jumped at the $180,000 you missed the power of true compounding of money.  If your coworker doing the same job chose the compounding penny they would not be a millionaire…………….they would be a stinking filthy rich multi-millionaire with a check of $343,597,384!  Do the math and then tell me when you want to break your compounding curve with big losses or withdrawals. (did you know you can have money invested tracking the market without it being subject to any market losses?)

Next massive wealth drain is interest and fees paid to banks or finance companies over your lifetime.  Loaning of money (financing) has been around in some form for thousands of years.  Since the time you could pull your ox into the temple you could get a loan on it if you paid more back than you borrowed and left the ox as collateral.  Any business model that has been around that long is a winner!  However, when you’re on the borrower side of the transaction it is a wealth drain especially if most of your borrowed money is on depreciating assets such as cars, boats, equipment and any other item that goes down in value.  Now people will tell you that if you can borrow money cheap and invest in something that makes more money than you pay in interest back to the bank then you are using leverage properly.  That theory can be true but it comes with many caveats and other lessons we cannot cover here this week.  Do a simple exercise and add up all the money you have paid out over your lifetime in monthly payments on everything.  Then compare that number to the amount of money you have saved for retirement and tell me which one is bigger.  Leave your results in the comment section.  Then decide you should know more about how to be the lender and not the borrower.

Last massive wealth loss is depreciation (money lost) on items such as cars, boats, equipment, appliances and almost any other large asset we buy over our lifetimes.  Almost nobody discusses this (except me of course) and yet did you know that most people will lose more money on just their cars during their lifetime than they can ever save for retirement let alone all the other depreciation?   Do your own math on your life and find out the truth.

Think of your financial life as a big pie and as such it has many pieces to the entire pie.  Don’t fall for the magic trick of only paying attention to what is happening to your one slice of pie, which are your investment gains or losses.  Pay attention to the entire pie and start to slow down and stop your 4 massive wealth drains.

John Jamieson is the #1 Bestselling author of two books “The Perpetual Wealth System” and “Wealth Without Stocks or Mutual Funds” as well as a nationwide wealth strategist with clients in dozens of states.  Contact him at john@wealthwithoutstocks.com  or visit his site at www.wealthwithoutstocks.com

Can You Really Afford Your Car Lease?

Part two of three part series.

 

Last week I wrote an article talking about how to save boat loads of money by purchasing the car of your dreams but only after it is two to three years old.  For that article go here http://wealthwithoutstocksblog.com/2017/09/how-to-win-the-financial-battle-vs-your-automobile-2/ This week I want to talk about how leasing a car really works and some tips to save you more money on that next car purchase or lease.

What is a lease?  A lease is an agreement you enter into to rent your car for a predetermined length of time (usually 24 to 36 months) for a predetermined monthly payment, and for a set number of miles.  These payments are always less than the payment would be if you purchased the same car on the same day.  The lower payment means that the car looks more affordable on the surface but inside of that lease agreement are all kinds of terms that can cost you far more than just the lease payments.

To begin with, why is the payment less expensive with a lease than with a loan for the same car?  When you lease you are only paying for the estimated depreciation during the length of that lease rather than the entire loan balance you would pay back during that same time frame.  As an example, you borrow $25,000 and sign a 36 month loan agreement at 5% giving you a payment of $749.00 which is a very hefty car payment by today’s standards and for many people that payment is not an option based on their income and budget.  However, if you could swing that payment for those 36 months you now have a free and clear car with a lot of life left in it and if you were smart and disciplined you would continue to make that big payment but now into a tax-free account.  (More on this in next week’s part 3)

In contrast, when you sign a lease on that same car for 36 months your payment might only be $300.00 for a 36 month lease which is much easier on your pocketbook.  However, after the 36 month lease, you still have a balance to pay off if you want to own the car.  This balance is called the residual value and must be paid off either by cash or with a new loan.  Most people will not have the cash to pay off the car and so if they decide to own the car they now take on another loan for several more years to actually get the car paid off.  Most people do neither of the above but turn the car in and get the next newest model and take another lease payment and so on and so on until they are old and gray.

In essence, a lease allows you to extend your payments on a car for 6 to 8 years paying far more in payments and interest (yes there is a hidden interest rate with a lease) for the same car.  You have less of a monthly payment, but way more of them totaling more money out of your bank account.  So how about we actually have a strategy for our next car purchase instead of just winging it?  If you can’t afford the 3-year payment then how about committing to no more than a 5-year note on your car?  Can’t afford that payment either?  Then the truth is you really can’t afford that car.  Shop for something less expensive and possibly a model year or two older http://wealthwithoutstocksblog.com/2017/09/how-to-win-the-financial-battle-vs-your-automobile-2/  Now make a commitment and plan that after you pay off the car you will not buy another one for just two more years but you will continue to make a car payment to yourself into a tax-free account.   According to www.polk.com the average length of time people hang on to a car is almost 6 years so you will go one extra year for good reason.

It will look like this in real numbers.  You borrow $25,000 at 5% for 5 years on your next car creating a $470.00 payment which you pay for 5 years.  Now you own the car free and clear but what will you do with the payment you were making?  Blow it on junk if you’re like most people but you are not like most people.  You have a plan that you are working.  So now you still write that payment from your checking account every month but now the money goes to a bank (or pool of money) that you control.  You will do this for the next 24 months accumulating $11,322 plus the growth on that money (guaranteed and tax-free if we do it right) which would put you at a total of about $13,000 you have saved for yourself and your family.  That $13,000 in a tax-free account that just gets 5% compound interest will be over $35,000 for you in 20 years.  Could you do that on every car you and your spouse ever own?  If you will do it you will have a couple hundred thousand dollars more for your family!  According to The Employee Benefit Research Institute www.ebri.org  the average American only has $56,000 in savings by the time they are 65 years old.  So by mastering this car strategy, you could have 4 or 5 times that amount over your lifetime depending on when you start.

Yes, John but why do I need to make a payment back to myself instead of just letting the unused money sit in m checking account?  Simple, human nature will not allow you to truly “save” your car payments unless you get the money out of your day to day cash flow and super easy access.  Money is only saved if it is focused and not frittered away on other things we really don’t want or need.

Focused cash flow is the key to wealth and the disposition and growth of that cash flow are critical if you want to get ahead and have more options later in life.  Did you ever “save” money on a big item?  Where are those savings now?  Precisely!  Get in the habit of taking “savings” and truly making them savings by taking them out of your cash flow account and into a separate tax-free account.

Automobile ownership is a luxurious necessity in this fast paced world (in most places) and is a source of pride in owning a nice automobile.  However, the dollars at stake here are massive over time and you need a strategy on how to stop the wealth drains of depreciation and interest on these purchases.

Next week we will show you a proven system on how to actually make money on every car you ever own which is a game changing piece of information.  You can also get a jump on next week by watching a video on this very topic. Make sure you sign up for my Youtube page when you’re there watching this video! https://www.youtube.com/watch?v=JjERU7KY16c&t=74s 

 

 

https://www.polk.com/company/news/u.s._consumers_hold_on_to_new_vehicles_nearly_six_years_an_all_time_high

Why your teachers thought you were stupid – Part 2

This is a two part article that continues from Part 1 published last week.

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  • Interpersonal intelligence: Are you usually liked naturally by most people almost immediately? Have you been told you have “something” or have “charisma”?  That in itself is a form of intelligence and can in fact be one of the highest paid geniuses.  Do people seem to trust you almost right away, without a good reason?  This means you have a magnetic personality and might be a great candidate to sell goods and services that you believe in to others.  Good sales people are not born, they are trained, but if you naturally possess a want to be around people and are genuinely interested in what makes them tick, you might have a leg up in this arena.  Selling can be one of the highest paid, most rewarding careers for the right person.  No matter what you do in life, thank a sales person because nothing in this world happens until something is sold!  I personally have always been blessed with the ability to make friends and maintain those relationships over long period of time.  I made it a point to also study sales techniques and strategies, and combining those two have given me a solid measure of success and income. One caveat with this intelligence: charming people with no true moral compass or sense of right and wrong are sociopaths.  Many a pure sociopath has been super charming and able to bilk people out of money for their own greedy purpose.  Make sure you use your power for good and not evil.  You can make money, help people, and not end up in jail!
  • Intrapersonal intelligence: Are you extremely self aware and have a natural ability to sense things about yourself and others? Can you help others explore and find tune their own inner workings?  Are you particularly spiritual?  Could you help people make big changes in their lives as a coach or mentor of some sort?  There are many people who don’t possess this ability naturally and if you do there is always a big demand for these types of services from those of us who are not gifted in this area.  I enjoy teaching and helping people but don’t believe I have any extra gift in this area.
  • Entrepreneurial intelligence: Do you have the ability to see a need in the marketplace and quickly develop a way to satisfy that need or want?  Do you get excited about the thought of launching your own business enterprise?  Would you like to bring your own (or maybe help others) bring their own goods and services to the market?   Would you like to have equity in your own business venture?  Being an entrepreneur is almost never measured by traditional tests but can be a very high paying and rewarding expertise to possess.  There is a saying that whoever knows “how” can always find a job, the person who knows “why” will almost always be their boss.  I wasn’t naturally born with this form of intelligence but have been able to develop a reasonably good talent for it in my adult years.  Just because you’re not a born natural, doesn’t mean you cannot be a success and even genius at being an Entrepreneur.  It will just require passion and work on your part.
  • Intuitive intelligence: Do you have the ability to forecast and look ahead? Do you have a natural gift to just know what to do and be right most of the time?  Do you have the ability to recognize what problems are within relationships?  Have you always been the peacemaker or go to person when people have troubles? Have you ever heard “blessed are the peacemakers?”  The ability to be intuitive with people’s emotions and know what they really need at their core has tremendous value in the market place.
  • Abstract or conceptual intelligence: This is the kind of brilliance that Einstein had but people didn’t know it for many years! The ability to think and map out things that don’t even exist yet or conceptualize easily what most people can never see in a hundred years.  This would be what is traditionally considered genius but with Einstein (and many other traditional geniuses) their early teachers didn’t see them as geniuses and they struggled with regular class work.  This will be much rarer than the other 9 geniuses but if you possess this kind of ability you could be paid great money to think light years ahead for society.  I can make no claim at all to this kind of intelligence. Can you?

Decide what areas you naturally possess gifts in and play to those strengths and stop working on your total weak areas.  This goes against traditional thinking but traditional thinking gets you traditional results.  If I were to waste my time with intelligence’s I don’t actually possess I can only achieve below average results at best even with much hard work on my part.  What will that actually get me in life? Nothing but frustration!

However, if I work on strengths I more naturally possess I might be able to achieve genius level in one or several areas and let others play to their strengths to help my weakness and vice versa.  Spend time making your natural intelligence’s even better and you will achieve genius level and have a happy and productive life.

Why your teachers thought you were stupid – Part 1

More than test score

When I was in elementary and high school I was a terrible student. I was an average elementary student and beyond a terrible high school student.  There are many factors that contributed to those (mostly me as the only factor that really mattered) results that aren’t important to this discussion.

I recall taking standardized tests that were truly designed to put all of us into a few groups and classifications.  I believe most of this organizing is done with our best interests at heart but some are also done for the ease and convenience of the teachers and staff.  If you’re classified as a dope early on you seem to be put into classes with other dopes.  While this is necessary to keep students in classes with people who are at similar levels in their academics, it is dream crushing to most students in the “dope” classes.  It can also be fools gold for those students in the “smart” classes.

What teachers and administrators never tell you (because they can’t tell you what they don’t know) are that there are at least 10 areas of intelligence and only a couple can be determined by school and standardized tests.  If you’re diligent, a straightforward thinker, listen reasonably well, have a decent memory you should do well in traditional school.  If you aren’t particular good in some or all of those areas you can be made to feel stupid or inadequate.

Howard Gardner of Harvard University said there were 7 areas of intelligence and only a couple of areas were part of traditional education and tracked by schools.  Since that study, 3 more areas of intelligence have been identified by leading researchers in human development.  We will name them in a minute and spend time on each one is subsequent articles.

However, before we get into that it’s important to equip parents, children, and teachers (when possible) to understand that there are many talents children posses or can acquire in many areas that aren’t on the educational systems radar.  Children should be encouraged to do their best in the traditional world of studies but even more importantly they should be assisted in finding their other intelligence’s (we all have more than just one) and time and effort be given to those areas so they might achieve “genius” levels in a couple of the intelligence’s.

As a young boy I was always disappointed that I never achieved extraordinary grades as many of my friends and classmates achieved.  Many achieved these grades with seeming ease and others worked diligently to pull great grades.  I was always the classic C student and often less than a C student.  This meant I spent many years feeling less than my class mates in the intelligence department and many of my teachers were alright with me understanding my place (or their place for me) in the world.

I remember being 13 years old and taking a standardized test and at the end the test suggested 3 areas that I would be suited to pursue and I recall not being thrilled with any of the 3 as all were relatively low paying and none were anything near prestigious.  This was disappointing and at such a young age it could have shot my confidence straight to hell.

Keep this in mind; always remember the success of the person telling you that you probably won’t amount to much and not to get your hopes up.  That person will always be low on the success scale themselves.  How do I know that?  It’s simple, people who are positive about themselves and others would never presume to tell someone that they don’t measure up and to prepare for a future of struggle and being unfulfilled.  Only unsuccessful people would think they have the market cornered on possibilities and attempt to put clamps on your future and ability.

Successful teachers and school administrators (not necessarily financially successful because those jobs are only going to pay so much, but rather successful with thriving students and adoring parents) who are great at what they do will certainly discuss the academic results with their students but always in an uplifting possibility driven conversation.

If people in a non teaching capacity are telling you how to be successful always be careful if you accept their advice. Are they successful in their own right?  Should you be taking advice from them at all or in any capacity?  Were they at one time successful but not as much now?  What could you learn from their mistakes?  Always decide the source of the feedback you’ve been given to see if it has any legitimacy.

Here are 5 of the 10 areas of knowledge and potential genius: (I will give you my assessment of my own ability in these areas and I hope you will do the same for yourself)

  • Math skills (ease with numbers in engineering, problem solving, or with money math including percentages and pro formas and other projections and planning). In my own case I failed many traditional math classes but yet now am considered an expert in money math and financial strategies. Most teachers told me to stay away from any kind of math. This would have been a multi-million dollar mistake for me, how about for you?  My results changed with numbers once I found areas that excited my mind and I could then see how these numbers talents could help me down my own path of life.
  • Verbal skills: This must be broken down into two categories:
  1. Traditional ability to spell, dissect, place, and copyright the written language
  2. The ability to speak and present the written word but in verbal form for presentations. You might be lousy with the written word but very talented at speaking and presenting.  I am above average with the written word and very good at presenting from a platform and training and selling. You? In school you get a huge dose of topic A and almost none of topic B which is a shame because B pays much better.
  • Physical: The ability to be fleet of foot, coordinated, strong, and work diligently at your physicality. While it is true we are all born with certain physical gifts (or not born) those gifts can be made infinitely stronger with diligent practice. I was born coordinated and a decent athlete but never worked on any area diligently enough to go above a moderate level  of success beyond what I was born with at the beginning
  • Musical: The ability to sing, dance, arrange music, write music, or even produce music for others is an area given little attention in traditional education.  Many are born with a natural gift for all or some of the above and other learn how to be experts with many hours of instruction and practice.  I love all kinds of music but don’t know the first thing on how to create it or produce a show of music and or dance. How about you?
  • Vision and space: Do you have a natural talent to look at a space and envision what that space could be either on a small or large scale? To know how things fit into certain spaces?  Can you just look at a space or a piece of land and get a great vision of what its highest and best use could be and how to make it happen?  People will pay big money for people who are talented at this and very few have this gift.  I myself am a total incompetent at this and always hire people who have this gift to give me the physical vision of a certain space.

 

Tune into the next article when we cover the other 5 categories of potential genius and how to develop each area in which you have a gift.

Black Friday = Early Retirement?

BlackFriday

Here comes the flood of sale advertising; from black Friday sales (which has now morphed into Thanksgiving day) all the way to Christmas Eve there will be loads of “money saving” opportunities. Then there will be the first of the year “lowest prices of the year” sales on everything from soaps to automobiles.

The question you need to ask yourself is, are you a “saver” or a “wealth builder”? There is a huge difference because most “savers” die broke and “wealth builders” die wealthy and live a wealthier lifestyle, especially in later years. So this holiday season and for 2016 try this little trick to get ahead and be a “wealth builder”.

When you are shopping for bargains this holiday season on gifts, food, wrapping paper, etc. save as much money as you can off of normal retail. Do this by shopping as wisely as time will permit either online or at some of the special sales events by retailers. So let’s assume you would have spent $1,000 on average this holiday season on gifts and holiday extras like meals and wrapping paper. According to the November 2015 Gallup poll the average American spends $830 dollars just on gifts so the $1,000 is very realistic when you factor in food, decorations and wrapping paper.

Now assume you are a good shopper and you are able to save $300.00 off of your total retail bill of $1,000. That is fantastic but what happened to the $300.00 you saved or did not spend? For most of us it stayed in our checking account and we spent it on other items that were “non holiday” items. So the goal is not just to save money but to use those savings to create wealth. We only will accomplish this goal by focusing cash flow and getting it out of the spending account once it is saved. If you don’t do this the money is not “saved” contrary to popular belief but it’s just spent on something else.

Let’s use technology to our advantage when it comes to cash flow. First of all make sure you have a checking and a savings account at the same bank. Then pay for your items and run your life out of your checking account. Get set up for online banking and if possible mobile banking on your smart phone. Now you just have to do a little fourth grade math twice per week. Keep track of every item you buy on sale or use a coupon for and make a note of its retail or close to retail price. Then add up what you actually paid versus what you would have paid without the discount. The difference goes into your “wealth account” which is your savings account. This whole process will take no more than 10 to 15 minutes twice per week and does not even require a trip to the bank. So during the week you were going to spend $500.00 anyway on different items but you got discounts or used coupons and got that bill down to $400.00. Now take the wealth step and go on your mobile banking application and move that $100.00 savings over to your “savings account” and have it start to build wealth for your future. You pull out your smart phone and do a 15 second transfer from your checking to your savings account and without breaking a sweat or missing the money you are taking the first steps on creating more wealth.

In the Christmas example above that $300.00 savings is put away and generates even a 6% compounded rate of return will turn into almost $1,000 in 20 years if it is first put away and then put somewhere where it will grow. So if this is done for one year faithfully and you are able to “save” $5,000 and move it over to your savings and then invest it at the 6% rate of return you will have an extra $16,500 in 20 years for your retirement savings. Now do this every year and get better at it and you will have saved hundreds of thousands of dollars for your retirement years because you focused your savings. You’re not just a “saver” like every other shopper out there you are a “Wealth Creator”!

So next time you get a discount on something make sure you pay yourself the difference and you will very quickly establish a savings account and fund your retirement savings with tens or hundreds of thousands of extra dollars for you and your family. Now make this a truly Happy Thanksgiving, Merry Christmas and Wonderful Holiday Season!

Giving Yourself a Pay Raise

The way to get a substantial pay raise in 2015 is to focus on your net income — not your gross income — by reducing your income tax liability.

Small Business
The first step is to understand how the tax system works. The current system is set up to benefit business owners at the expense of salaried or hourly employees. The only d eductions the average family receives are for having children and interest and other expenses incurred for home-ownership.

On the other hand, small business owners receives dozens of legal deductions, with many personal expenses recategorized as a business purpose. For example, automobiles used for personal use are not deductible in any way (except for moving, medical and charity miles) — but the part of the automobile use for your small business becomes a legitimate deduction. Say you drive 30,000 miles a way (yes, that’s a lot), and 15,000 were used for business. You could write off half of the expenses on the car. Most people use the government’s mileage calculation — in 2014, 56 cents per mile — meaning $8,400 of expenses deducted off of the business gross income.

What If I Don’t Have a Small Business?

Start one immediately and have the intent to make a profit. Many things then may be deductible, such as:

  • Automobiles.
  • Meals and entertainment.
  • Business trips and travel.
  • Catering.
  • Salaries paid to qualifying children.
  • Medical expenses.
  • Small business equipment.
  • Utilities used in conjunction with running a business even if using your home as place of business.

Be warned: If your intent is just to create tax deductions — and you have no real intent to transact business or try to make a profit — then you are creating fraud.

You don’t need to rent office space and incur thousands of dollars of expenses for your new venture. Your venture could be started at your kitchen table on a shoestring. Think of all the legendary businesses that started out this way.

Be Like Dell or Gates

Michael Dell started Dell computers out of his dorm room, and Bill Gates started Microsoft (MSFT) from his parents’ garage. Millions of other businesses started this way, creating billions of dollars in salaries and benefits for employees and profits for the business owners. This is why the tax system is set up to benefit small business — which can create jobs and wealth. Some sample businesses that could be launched on a shoestring:

  • Consulting on an area where you have expertise.
  • Internet sales and marketing. You can have an Internet store running in a few hours.
  • Network marketing companies. Gone are the days of ordering loads of stuff and trying to resell to friends and family members. Most companies handle all the shipping and order taking themselves and ship directly (assuming there is a physical product for sale) to your customer.
  • Being a referral agent for an existing business. Many businesses will be happy to pay you a referral commission if you send them business. Depending on the type of business, some licensing may be required.

Nobody will ever care more about your money than you so find a tax preparer/ accountant who understands these concepts who you can work with for years to come.

Earn Extra Money Renting Out Your Stocks

Stocks

Many investors rent out their stocks every month to generate potentially larger returns. Of course, when they do that, they don’t call it renting: The term they use is a “covered call.” That’s when you sell an option to another investor to buy your stock at an agreed-upon figure, called a strike price.

Why would you rent your stock? Let’s consider a hypothetical example: Maybe you bought 1,000 shares of a company some time ago for $18, and the stock has performed nicely, but now seems to be stuck in a range, hovering around its current price of $23. You don’t mind owning the stock. But it’s not doing much.

A bullish investor could pay $23,000 to buy the shares from you on the open market. Or he could buy 10 call options for $2 per share, or $2,000 total investment. Each call option gives the right but not the obligation to buy 100 shares of the stock by a certain date at a specific price. Only some stocks are optionable, via the Chicago Board of Options Exchange.

As Time Goes By

The value of those call options will generally rise and fall with the value of the stock. So if that stock hits $27, the investor can use the option and buy all the stock or can just sell the option without ever owning the stock. So if that investor bought October $25 calls for $2, they could now be worth $3.50 each, or $3,500. That’s a nice profit of $1,500 on a $2,000 investment. (This example excludes commissions and the difference between the bid and the ask price. And yes, the valuation of options is complicated.)

But remember, every day that passes toward the option’s expiration day means these options become worth a little less money. If that stock goes down, the options become worthless, and the total investment of $2,000 could be lost.

If the stock rises to the strike price of $25 or higher, you will probably be called, which means you have to sell your stock at $25, which is not terrible because you bought it for $18 — plus you received $2,000 for the option. If that stock does not make it to $25, then you keep the $2,000 and the stock.

You could sell the next month’s call option at $25 for maybe another $2,000 — or sell a call further into the future for more money. This could be a good strategy if you are long (meaning you already own it). But it might not be optimal. After all, if you bought the stock at $18 and think it’s heading toward $40, then it would not be advisable to sell it at $25.

Some Other Considerations

  • Stocks that are more volatile have higher options pricing.
  • You must be approved to trade covered calls by your broker. With experience, you can also be approved to deal in advanced option trades.
  • A “covered call” means you have covered your option sell by actually owning the stock before you sold the call. Uncovered calls could be riskier.
  • Selling a covered call is no more risky than owning the individual stock, so it is allowed inside of individual retirement accounts. Buying calls and put options (options bought when you are betting that a stock will go down in value) are riskier and are not allowed with retirement funds.

Never buy a stock just to sell the call. Make sure you like the stock on its own merits, because if you buy it to sell a call, and the stock tanks, you could still lose much of your investment, regardless of the extra you could make on renting it out.

Are you in the Retirement Danger Zone?

retirement sign

A bad investment can be a serious wealth stealer, but as much as it matters how much you lose, it can matter equally when the loss occurs. As you approach or enter your retirement years, declines in the value of your portfolio can be especially devastating.

“Dollar-cost averaging” describes how you can benefit even when the market goes backwards — if you don’t need to withdraw your money anytime soon, and continue to regularly invest when prices are low. Let’s say you invest $500 a month in a mutual fund. When the fund is $15 a share, you’re buying more share than when it’s $20. Then when the market comes back and your fund hopefully goes up, you own more shares, so your gains will be bigger.

However, dollar-cost averaging assumes that you are in the accumulation phase of life and will keep putting in fresh money toward retirement for awhile. It also assumes you have enough time before you’ll need the money to allow your portfolio to rebound from any significant downturns.

If you’re in the distribution phase of life and are taking funds out of that mutual fund, what you run up against is the phenomenon of “reverse dollar cost averaging.” If you are taking out $3,000 a month to help cover your retirement expenses, and you have to sell shares at the lower $15 apiece price, you’ll need to sell more of them, which means you won’t be holding them when they recover. And sales like that can cause you to run out of money quicker.

Enter the Retirement Danger Zone

The retirement danger zone begins when you get within 10 years of your scheduled retirement date, and lasts for the remainder of your life. Any losses you take during this phase can dramatically affect the quality of your later years. Many older people who experienced such pains to their portfolios in 2007 and 2008 found that they couldn’t afford to retire on schedule, or had to go back to work to supplement their income. According to the Federal Reserve, the median net worth for Americans ages 55 to 64 went down approximately 33 percent from 2007 to 2010.

Stock indexes are hitting records again now, and enthusiasm may be causing some people to forget just how fast the market can turn. It is critical for those in the retirement danger zone to begin to reallocate more of their retirement funds toward rock-solid products that remove any risk of market loss. Below are some places you could reallocate money from stock and bond mutual funds to places with much less volatility. The old rule of thumb is that you will sacrifice decent growth to preserve your principal. In many cases, that is true.

  • Savings accounts have a pitiful rate of growth and should be used strictly for a liquid emergency fund. The principal is protected and FDIC-insured.
  • Money market accounts are usually very safe and offer a higher — but still low — growth rate than savings accounts. They are very liquid.
  • Fixed annuities offer better rates than above but are not liquid. Annuities come built in with an early withdrawal penalty that can wipe out modest gains if funds are needed sooner than expected. Don’t confuse a fixed annuity with a variable annuity that tracks the markets and hence are subject to large losses. Variable annuities are not a place for retirement danger zone money.
  • Certificates of deposit offer more interest than savings accounts but take away liquidity. CDs are for defined periods from 30 days to a number of years. The longer you agree to not touch the money, the more interest the bank will pay.
  • Fixed indexed annuities are a hybrid of fixed and variable annuities that will protect your principal in down markets but allow you to participate in a portion of the gains in up markets. You can also buy a lifetime income rider that will assure a certain income for you and your spouse’s lifetime. They are illiquid for the first seven to 10 years, depending on the product. They could be a great place for IRA funds to grow safely.
  • Cash accounts allow people to deposit funds with some life insurance companies on a fixed rate of return that is usually more attractive than what banks offers. When banks are paying 0.5 percent, some of these accounts pay 3 percent. These accounts are generally liquid — but if you withdraw from the account, you must withdraw the entire balance.