Another Cut

The Feds have cut $ rates another .5 yesterday. After two rate cuts in 8 or 9 days, the rate stands now at 3%.

This rate was last 3% in May 2005.

Now we wait to see the effect on the economy. We know the rebate checks which are still being considered in Congress will not be issued until late spring.

The effects of these rebates will not be known until August.

I guess we wait and see. And maybe that's the attitude the market will take as well. Wait and see.

There is much discussion that illegal aliens will also receive tax rebates. I still wonder how that is. If they are working here illegally, how are they making taxable wages which I understand is the trigger for the rebates. The rebates are meant for tax payers.

I do know if the illegals are working on W2s, they may already be getting illegal rebates in the form of earned income credit! The poor who work qualify for these credits - they are paid by the government through tax reporting.

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How Dare They!

The rich are cutting back on spending due to recent economic market woes. Aw, that's too bad.

Less prime rib? Less shoe shopping? Less dining out? Cancelled ski trips? Putting off ordering new lawn furniture?

Who the hell cares about them anyway?

Those fat cats need to be brought down a few pegs. Let them do without like the rest of us scraping together the next mortgage payment.

Feels good that they are not spending too.

No? What?

I say spend, Mr. Rich Man, spend. Spend loads, buy things, go places, satisfy your every need. Mr. and Mrs. Average benefit as you buy their products, use their services, and hire them for jobs.

It ends up better than any tax increase or any rebate from Uncle Sam.

Move $ is a good thing for everyone.

Spend, Mr. Rich Man, spend.

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History Lesson

Our federal income tax system was first suggested in 1912 and promoted as a "voluntary" system.

When Congress voted to accept the voluntary tax system, it was argued that a 1.5% cap should be placed on what the government could raise in income taxes. That resolution was quickly and soundly defeated because Americans would never allow the feds to take such large sums from their wages.

The feds and their state level counterparts control much more of our wages. They take 6.2% for Social Security (our employers match this amount), 1.45% for Medicare (again, employer matched), 15%-36% federal income tax (based on the number of exemptions we claim on the W4 forms we provide our employers), and state rates (0%-12%).

The extremes leave some earners with less than 1/2 of their wages. The self-employed cover the match of Social Security and Medicare on top of that.

And to think we volunteered for this system.

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Dependent

I know a few adults with families of their own who are still quite dependent on financial help from their parents.

Some got help with down payments on their homes because Mom or Dad wanted them in a certain neighborhood.

I know one man with three kids whose father-in-law pays for several nice vacations each year. Of course, her dad makes most of the decisions and comes along.

Do you see this type of dependence comes with indebtedness? Adults who live such that their lifestyles require $ from others who have a voice or power in their life choices are in debt and are dependent.

Freedom equals independent debt-free living. I believe there are generations of people (capable, bright people) who know only dependence on our government to make their lifestyles better and are indebted to the "system", so committed to the system that they do not see or understand that they are actually enslaved to the system.

Uncle Sam has become their Uncle Tom. Democrats perpetuate and preach that the government has to care for a portion of our population. Keep them dependent on government $, keep them ignorant of true freedom - the freedom of Dr. King's dream.

To be free, to be independent, to be debt-free.

There was a church leader who prayed: "Lord, we'll keep the preacher poor. You keep him humble."

The Dems treat the poor as dependent and needy. If the poor only know dependence, they will always be enslaved, kept in the dark, and never realize true freedom.

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Wisdom of Solomon

"Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth." (Ecclesiastes 11:2).

"Don't put all your eggs in one basket."

Diversification in investing means different types of instruments (bond, stocks) and different groups (general obligation, zero coupon, healthcare sector, financial sector, etc.).

One of the most secure investments is in government bonds. There are E bonds, EE bonds, and I bonds. I own an I bond purchased in the fall of 2001 which matures in 2031 and is currently paying 5.46%.

I heard but have not confirmed that the government is lowering the amount of $ one can invest in savings bonds each year. I think the limit was $30,000 per social security number per year in I bonds. They have lowered the amount to $5,000 per year?

I do not understand the reasoning? I will pursue clarification on the matter and let you know if this report is not correct.

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Expected/Replacement Savings

Third Type

There are three kinds of saving. An emergency fund equal to 6 months of living expenses, long term goals such as retirement, and replacement savings.

Things wear out. A car, given regular maintenance and low miles, can last 10-15 years. Part of our budget should include set asides toward your next car purchase.

Other necessities with expected lives are: microwaves (10 year life), refrigerators (17 year life), water heater (11-14 year life), and asphalt shingled roof (15-25 year life).

Knowing that our roof was reshingled in the fall of 1989, we can project that we will face that huge expense in the next 6-8 years. We also know that in 1989 we reshingled and we will probably have to remove the older shingle layers as well.

If that will cost us $12,000, we should have been saving about $600 a year. Of course, costs rise and our horizon can lengthen. Even more reason to budget $ toward expected replacement expenses.

If it is your nature to replace your car every 5 years and you spend about $30,000 per car, your month set aside should be in the range of $300. In 5 years, your trade-in may have a value of $10,000. If not, you will need to set aside more $ each month, assuming you want to pay cash for the vehicle.

Three types of savings: emergency for the short term, long term such as retirement, and replacement/expected needs.

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Long Term

Long term savings have time horizons of a minimum of 8-10 years. Savings for a child's college tuition and for retirement are the big long term goals most of us face.

To your advantage are investments that grow tax free. Take advantage of employer's retirement arrangements including SEP, 401(k), 403(b), and the new Roth 401(k). If your employer offers any matching funds, do not lose out. These matches are gifts that will make a huge difference over time.

Also, taking advantage of IRAs even if they are not tax deductible. Your $ still grows tax deferred which, given years, will make a difference in your lifestyle after your working career.

Tomorrow, the third type of saving.

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Three Types

There are three types of saving. The first is emergency savings for the unexpected like a job layoff or an illness.

The generally accepted emergency savings should be three months of basic living expenses like food, housing, transportation; however, I would suggest 6 months. The average successful professional job hunt takes more than 90 days.

These funds should be accessible. Do not tie them up in CDs but place them in safe, risk-free accounts like money markets.

I suggest money market accounts (preferably at a mutual fund company) versus the bank's offering of money market because of the rates of return. We use the Prime Money Market at Vanguard which was paying over 5%.

With the rate adjustments, I expect it to fall to 3.25% very soon. Still, we take no risks with that $.

I'll cover the three other types of savings in the future.

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More Cuts?

The Feds are meeting next week. The word I heard yesterday was that they are expected to cut interest rates another 1/4%! A total of 1% slash in less than ten days.

Not sure why these drastic measures were necessary, assuming the Feds are the protectors of inflation/recession. Were they asleep? Or novices?

What to do about all this? I have little idea except we are not changing our holdings.

Gripping the armrests and staying strapped in.

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Bumpy Ride

The markets around the world slid down down yesterday. All eyes are on Wall Street. Just now the Fed fix is in. Interest rates lowered 3/4% to 3.5%.

Is this just a bandaid? Is it enough to hold the bleeding?

With a market trading on fear, will this be enough to remove all fears? I doubt it. I think we're in for a bumpy ride this whole week.

Stay tuned.

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MLK

Today we remember a young minister who struggled to be heard. His message was peace. His vision was simple. His legacy lives on.

Rev. King was like John the Baptist, a voice in the wilderness proclaiming peace and changing lives.

Let us take a moment to remember or learn more about the man and his message. This young pastor reached beyond his congregation to his community and his country.

Doctor King gave his life for what he believed in. Where does one find that strength of conviction?

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Stimulate

There seems to be a consensus that the economy needs a stimulus package. People are all abuzz about rebate checks. Many would save it or put it toward personal debt. Neither would have the effect needed on the economy.

Do you remember the old adage about teaching a man to fish and he'll be able to feed himself and his family?

Sure, lots of people need and will spend a rebate check; however, wouldn't it be better to stimulate job creations and thereby growth opportunities?

A tax cut for businesses and/or a tax cut for individuals, especially reducing or eliminating the double taxation of corporate dividends, would go a longer way.

If there is such a need, why haven't the Feds reduced the interest rates? They seem to be putting it off in some kind of wait-and-see mentality. Aren't they the overseers of inflation and such things? They do not have to wait for their scheduled meetings. If action is called for, do it.

One of my financial gurus said yesterday that this stock market is trading on fear. Why not dissuade those fears?

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Keeping Up

Do you spend thoughts and $ considering how to keep up with the neighbors? Do you long for a new car? Are you forever comparing your yard with the Jones? Do you avoid being seen at WalMart or Kmart?

Ben Franklin is quoted: "It's the eyes of others that destroy us. If all others were blind, what need would I have for fine clothes and a fine house?"

C.S. Lewis: "It's not really about greed, it's pride - I want more than the other person. What other than pride would lead to huge houses with 2 1/2 story atrium entries with 2 adults and one child living in them."

Pride or envy or to prove self worth, it's an endless road. Contentment is not found in granite counter tops, groomed landscaping, a new Cadillac, etc.

Let's try to stop spending our time and thoughts on those things. Let's find better things to set our focus upon.

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More Out Of Pocket

Tax Increase Gifted

The mass transit system in Chicagoland is bankrupt, basically. With costs going up including fuel for all those buses, a fare increase makes sense, basically.

The sales tax in Cook County will increase 1/4% and the sales tax in the five collar counties will increase 1/2%. There. Solution.

But wait. The governor, probably feeling wealthy from the projected tax sales windfall, is giving away part of it!

No kidding. He's giving free rides to senior citizens (no means test) and the disabled (no definition yet).

It's easy to play Santa Claus with someone else's $. It's our $.

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Good Cuts!

The word is out that the Feds will cut interest rates later this month. This will stimulate the economy.

May I ask a question?

Would/could another tax rate cut also stimulate the economy?

Of course, it would. Of course, it has historically.

Why do we accept one reduction as a positive while the other will be reversed as soon as Hillary is sworn into office? The Dems will correct all that is wrong by taxing and taxing?

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Gray Winter

Software

I bought my package of TaxCut software yesterday. Because I had already done the 4th quarter payroll returns and confirmed the year's grand totals, I printed out our W2s and have the W3 ready to mail.

With the year's P&L and balance sheet in hand, I worked 2 hours on the corporate return. The first run looks good but I'll let it sit for a few days. I have a little research to do on line at irs.gov.

Plus, the state of Illinois has not confirmed with the software company so there's no state update ready yet. It'll take them until early February so we can't file the return yet.

I keep a plastic envelope near the kitchen phone to collect all the tax documents as they come in the mail this month. We have a few things already.

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New Exemption

The good news is out. Marny and Jeff are expecting their first child in July. A brand new exemption!

This is one of those life events that can impact income tax returns. This exemption born in July will count as an exemption all year long.

My nephew Buddy was born 12/31. My sister and her husband took him as a full year exemption back on their 1986 tax returns (that's right, he celebrated his 21st on New Years Eve).

Exemptions are what you claim on your W4 which you file with your employer. The employer withholds income tax from your paychecks based on the exemption number you provide.

This number affects your paycheck. There is no need to claim all available exemptions. If you have unearned income during the year, you can claim less or zero exemptions with your W4 and have more income tax withheld to cover what you will owe.

In fact if you have income outside of your paychecks (dividends, interest, etc.), you can have your employer withhold extra specific amounts of income taxes on your W4. The other way to pay taxes - remember, Uncle Sam wants to be paid as you go - is with quarterly payments.

These are due 4/15, 6/15, 9/15, and 1/15 to spread the collections over the year. The January payment which is due today is actually meant to cover income from the last quarter of last year.

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Sweat Equity

Our church has been finishing the interior northside of our building. We had professionals do the plumbing and electrical work. Now the church family is adding sweat equity.

We figure we are saving many thousands using volunteers. Our building budget is very very tight so we need to rely upon ourselves to do the finish work.

During the week in the evenings and many hours on Saturday, the place is a swarm of worker bees. It is taking a long time because the progress depends on the workers and the hours.

The drywall is up and taped. The mudding is partially done. Soon the sanding and remudding and sanding to finish the walls smooth will happen.

Not everyone has talents for this part of the work but those folks will take up a brush to paint or stain in the future. Many have brought in meals. Others are available for clean ups.

We are a family where each one has his/her own talents. To achieve our goal we need everyone. Like in our own homes, not everyone can fix a toilet or replace a light fixture.

But each one has skills that can be useful. What skills do you have that save your own budget $?

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Terrible News?

It was one more piece of bad news that set the stock market downward. But listening to the press and the talking heads these past 10 days, I believed it was the terrible unemployment figure that was sending us straight into a recession.

I visited the US Department of Labor Bureau of Labor Statistics to discover than the average unemployment of 4.6% for 2007 was not terrible.

The average rate of 2006 was 4.6%. It was 5.6% in 2000 when George W. took office, 6.9% in 1993 and 7.5% in 1992. So, 4.6% isn't that outstandingly terrible.

Unemployment in Europe averages just under 9%.

Granted, this number (4.6% annual average and 5% for December 2007 alone) is not good news but just part of the picture that Wall Street is responding to.

Two financial gurus I have listened to have proclaimed little or no growth the first half of 2008. Another respected talking head expects the Fed to cut interest rates at least .5% later this month and that will turn things around.

I'll stay tuned, won't you?

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For Retirement

If you haven't already, you can set aside $ to grow tax deferred until you retire.

For 2007, you have until the day your file your taxes or 4/15/08, to put $ in an IRA. For 2007 you can stash away $4,000 ($5,000 if you are 50 or greater).

For 2008, you can contribute $5,000 (or $6,000 if you will be 50 or greater by 12/31/08).

If your income level is too high (check irs.gov), you can contribute to a non-deductible IRA. You will need to keep track of the $ you place in a non-deductible IRA as there's more paperwork when you take it out in retirement.

The limit last year for your 401(k) is the same for this year. The limit is $15,500 plus another $5,000 if you are 50 or greater.

The best IRA (Individual Retirement Arrangement - not account as is so frequently quoted) is a Roth IRA. The Roth is not tax deductible and has income levels the reduce or eliminate what you can set aside.

The Roth is not taxed when it comes out - your contribution has already been taxed but what it has earned is never taxed. Also, it is exempt from the mandated required distributions beginning near the age of 70 1/2. A nest egg left to grow and grow.

Set aside what you can now for the future. The sooner, the better.

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Expansive Habit

If you set aside your smoking habit $ at 4% compounding monthly, it would grow to over $29,000 in 10 years. You would owe tax on the increase every year.

However, if you put that $2,400 annually in an IRA it would grow to over $103,000 in 25 years at the same rate. Its growth would be tax free each year.

You would realize more savings if it were a deductible IRA, reducing your tax bill each year. There are more savings if you put it in a Roth IRA.

A Roth IRA at 59.5 years of age, comes out tax free. Your annual contributions are taxed each year you contribute but the $ comes out tax free along with all that it has earned over those years.

A Roth IRA has one other benefit. It can continue to grow and never has to be drawn from. Other IRAs require distributions each year after the age of 70.5.

My example uses 4% annual interest rate. Historically the stock market has returned closer to 9%.

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Expensive Habit

What does your smoking habit cost?

If you smoke 2 packs a day or 60 a month, that's 6 cartons. At $40 a carton, that's $240 a month.

So if you make $10 an hour that's 24 hours a month to afford those, right? Wrong.

If you are in the 15% federal bracket (a low bracket) and 3% state income tax rate (some states have no income tax and others have rates of 9% and up), you need to earn over $290 or work 29 hours a month.

Quit now and save big $ - nearly enough to cover a high deductible group health care policy.

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Not Best Situation

It's not the best situation when you can not search out competition and comparatively shop.

One tree at the lake has grown up and encompassed the power wires as they pass from the the pole across the street to the southside of our house.

We found one tree expert in that part of the county. There was another but we did not have time to get his quote before we left this morning.

He gave us a "discount from his normal minimum" and will get the job done later this week or early next. He seemed like an honest man. He described what he would do including take away the branches cut. He said it was an ornamental tree that should be kept shorter and tightly pruned. He warned us that it'll look quite different when we see it again.

No luxury of time to get another quote. No bargain I'm sure.

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Penny Saved

Bob uses and needs a dandruff shampoo. He prefers Head and Shoulders. I look for it on sale.

I used a special shampoo for a while but it cost $6 a bottle! It was nice but I truly could tell little difference so I went back to "sale" shampoo.

I can usually fine Suave at less than $2 but the other day I found a wonderful VO5 for less than a buck! I picked up a few bottles.

I encourage you to look for deals when you can. Don't be afraid to stock up on nonperishable things like soaps.

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Software

It's time to buy our tax software. Again this year it will be TaxCut which has the full backing of H&R Block. It's the only software I've used at home since I quit doing them by hand back in the late 90s.

TaxCut has a version that suits us great. It includes the ability to print W2s and create the return for our Sub S Corporation.

The version that costs $90 also does personal returns.

Since we used it last year, it will take those returns and bring them forward. No need to reenter names, addresses, ID numbers, etc. It carries over such things as name of charities, names of banks, employer names from previous W2s.

My sister uses Turbo Tax and she likes it. Both do a fine job doing the math but remember the old adage:

"Garbage in, garbage out."

There are some tax events that call for professional help.

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Jobs

It was the job's report on Friday that set the market downward. December's unemployment hit 5%. That's not good. It doesn't bode well and can be an indicator of stagnant growth at best.

I would guess that during the holidays there should have been more jobs available, especially in retail. It also seems early to have confirmed unemployment for a month that just ended. It's probably based on unemployment claims received or unemployment payouts.

Bob Brinker predicts no growth until the third quarter of the year. If you are interested in his indicators, you can check out his website at bobbrinker.com.

He's on the radio again this afternoon at 3pm central time.

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At 12,800

The market was d-o-w-n yesterday big time. I'm not completely sure why. Some reports were negative is all I can figure.

Let's reflect on 2007 when the market hit a high mark at 13,000. That's right, 13,000 was a record last year.

It went on to touch at 14,000 but that passed quickly.

What do I think? For now, we are in the market long term. Our largest holdings are in mutual funds that are either an index of the Russell 2,000 or are balanced mutual funds with stock holdings that are in large cap stocks.

Let me just tell you that we just mail in our 2007 Roth contributions (into the index fund) and our 2008 HSA contributions (into one of the balanced funds).

Let's hope we hit a buying opportunity.

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Best Friend's Gift

My best friend and I shared our Christmas gifts on Wednesday. We give each other a day together. It's become something we each look forward to and always "fits."

There's a special shop in Geneva IL where many of the holiday items were 70% off. I bought 2 medium sized baskets for a total of $4.15. We both found very nice ornaments.

Then off to the Home Goods store. More deals. She found the perfect plate to mount on her dining room wall. Just perfect - the right colors and all of them.

Lunch was at a pub where we both enjoy the blue cheese burgers and the atmosphere.

This year we added a new feature to our day and one we both say we might include each year. We saw PS I Love You at the discount theater.

It was a wonderful gift! Just the best. Bargains and time with a friend!

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Iowa/ New Hampshire

What wide open fields. Leads changing, promises mounting, and a long night ahead.

Also, a long winter as more states hold their form of primaries and a long year as we are promised more.

Why do I think the government sounds like it has become our parent, our benefactor, our Santa?

Are we still a government of the people and for the people?

Are we the government? Wait, I think we are.

We pay the bills, we support the agencies that hand out our $.

Do we want the government governing our healthcare? They already govern the healthcare of the largest portion of us through medicare. How wonderfully they have done that.

They govern our schools and teachers are unmotivatedly turning out students who can pretty much read, feeling completely adequate in our world. Where's the quality we need and have paid for?

More government, more outstanding results.

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Real Estate Values

I use zillow.com to value our house on our balance sheet. The site does not cover all cities but it does cover ours.

It uses comparables to set the value of a house. It also shows prices of recent sales in the neighborhood and the asking prices of houses currently on the market.

Over the last 2 quarters our house has lost over 5% on zillow which is probably a real assessment.

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Improving

Speaking of assets, let me take account of the priceless ones in my life.

My husband who endures life with me and has for nearly 33 years.

My daughter who has always been my joy and as an adult a friend.

My son-in-law who is a delightful talented calm and confident rock who makes my daughter so very very happy.

My friend with whom I can laugh and cry with abandon.

My sisters and my brother with whom I share the legacy of parents and grandparents including physical traits which make us unique yet connected.

My extended family spread from Missouri to New York. Friends spread across the country as well. All very special and dear.

My Lord and Savior who loves me best.

These assets, these relationships, I resolve to care for better in this new year.

Happy, Healthy, Prosperous 2008.

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