Archive for the ‘Wealth building’ Category

Reduce taxes, Incorporate, Women's Council of Realtors


“This is too difficult for a mathematician. It takes a philosopher.”

That’s Albert Einstein talking about out tax code.

Formally, federal tax law is a particular chapter (Title 26) of the United States Code. The federal tax law contains 11 subtitles, which among them comprise 9,833 sections.

The number of words in the tax code? No one knows. Seriously, no one knows. The lower bound seems to be 16,000 pages, and even that’s not definite. A conservative 250 words per page, and that’s 4 million words. Even counting the number of sections is exhausting. They go from 1 to 9873, and counting, but plenty of numbers are missing.

Politicians may tout the virtues of our “progressive” tax system, but it doesn’t really favor the poor over the rich.
Nor does it favor the rich over the poor, not when 40% of federal tax receipts come from 1% of the population. Fairly or otherwise, the tax system favors the diligent over the unprepared. (As most things in life, so maybe the system is fair.)

Specifically, the system favors independent businesspeople over salaried workers.

You can do what almost everyone can but few bother to: play the IRS’ game. Only make sure you’re on the winning team.  Read my recent article in the Women’s Council of REALTORS e-newsletter.


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From a utilitarian perspective, giving gifts makes no sense. Generally speaking, you buy gifts for people who are likely to buy you gifts – hence the term “exchanging”. Receive a gift from someone you had no intention of buying anything for, and you’re selfish and inconsiderate. Do the opposite and you’re a sucker or a suck-up. And if you do buy something for someone who buys something for you, custom dictates that the gifts can’t be of disparate value: hence the ludicrous practice of removing price labels. After all, nothing ruins the joy of receiving a thoughtful and apposite gift than finding out the donor spent too little on it.

Think about it: you spend money to get people things that you hope they’ll like. If they don’t, you’ve wasted your time and resources. Thus the most useful possible gift is the one perfectly adaptable one: cash. But again, the suitability of cash runs into the brick wall of decorum. ‘Tis the season to be gauche. And again, if the recipient adopts the same logic about gift-giving, you end up exchanging cash for cash. Reduced to its fundamentals, the transaction is easy if quotidian: instead of you buying me a $150 gift and me buying you a $160 one, I should just give you $10. Then we can spend the next year discussing how I’m tacky and you’re cheap.

If you’re the parent of a young adult, or otherwise have someone in your life whose net worth isn’t yet where yours is, here’s a mutually beneficial idea for a decidedly American gift that isn’t cash: the next best thing, credit.

The average college graduate receives that bachelor’s degree with a five-digit Sallie Mae obligation. As for the prudent and responsible students who manage to graduate with no or minimal student loans, doing so usually means there’s hardly enough money remaining to create any kind of nest egg. The wealth-building years have begun in earnest, but there’s almost nothing to lay a foundation with. Renting an apartment for the next few years (an investment with a guaranteed rate of return of -100%) wipes away much of the equity a young person could be building.

If you can afford it, lend your upwardly mobile kid enough to cover the down payment on a modest little domicile. Even buying the tiniest of townhomes gives him or her the opportunity to build equity, and to exercise the care and consideration for one’s things that renters have no incentive to.

Say you find an $80,000 condo that requires a 20% down payment to avoid private mortgage insurance costs. Financing the remaining $64,000 at today’s 4.24% 15-year rates means your kid would write monthly checks for $481.13, which makes far more sense than spending $800 on a larger rental house in a fancier part of town.

Remember, this isn’t a gift in the traditional sense. As the giver, you’re expecting something in return – regular payments, with interest. If you can give your kid a 100-basis point break on market rates, she could pay back that $16,000 loan back to you in $112.35 monthly installments. Which should be pretty easy to do, especially if she’s collecting rent from a roommate. Of course, we’re assuming she’ll be making gradually more money throughout the life of her concurrent loans.

The real “gift” in this situation is something intangible but vital: an introduction to real-world finance, and a chance to exercise responsibility. It’s the ideal meeting of a recipient whose ambitions outweigh her wherewithal, and a donor with the ability to make the recipient’s transition into the world of commerce run a little more smoothly.

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Your customer doesn’t care what title is on your business card, what school you went to or what your grade point average was.  He wants one thing:

His problem solved.

It sounds so simple, yet most companies can’t do it.

So often, we tell customers what we think they should want instead of listening to them.

How to succeed in 3 easy steps:

1) Understand exactly what your customer’s problem is:

Mr. & Mrs. Smith want to buy a restored 1965 blue Mustang convertible for  $35,000.

2) Honestly assess if you can solve it:

Tom Dealer has connections with rare auto dealers across the nation and can find the best vintage cars at the lowest prices.

3) Determine if you’re willing to – and if you can do it quickly, cheaply, and/or with the best service:

The Smiths and Tom Dealer seem compatible. But if Tom doesn’t act, the Smiths will find someone who can.

This is a variation of finding the job no one wants and excelling at it.

Anyone can say she’s going to solve the problem.
Be different: actually do it.

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“They used to call me valued customer, now they are sending me hate mail.”

Becky Bloomwood Confessions of a Shopaholic

Every year, 1½ million Americans file for bankruptcy.

Imagine a widow with infant triplets who renews her health insurance policy the minute her old policy expires. She can’t get an internet connection, and she doesn’t want to risk being uninsured, so she gets up from the chair, only to trip over the power cord and fall headfirst onto a hardwood floor. She breaks 8 teeth and dislodges her lower vertebrae, requiring tens of thousands of dollars of dental work, surgery and rehab. She works as a model, so now she can’t draw a paycheck for the year. Two years ago, her husband died when he happened to be driving along a faultline as an 8.0 earthquake hit, so his life insurance didn’t pay out because it was an Act of God. The triplets’ grandparents all live in the Czech Republic, and the woman lives on a ranch in southern Oregon, miles from any neighbor who could help her get back on her feet. So she declares bankruptcy.

How many of last year’s bankruptcy claimants have similar stories, and how many bought too much junk on credit and never bothered to budget?

This might not sound kind, but most people in bad financial straits are there because they chose to be. Not in the sense that they said “I can’t wait to be broke,” but in that when they were buying cars with 8.9% financing and spending $100 a week on cigarettes, they didn’t think about where it would inevitably lead.

No one wants to die in a car accident, but if you drive through enough stop signs while talking on the phone, you can’t be surprised if it happens. (Of course you can’t be surprised, the part of your brain that senses surprise[1] is now on the asphalt next to your cerebrum and your hippocampus.)

Personal responsibility is neither quaint nor outmoded. When enough people fail to exercise it, it leads to macroeconomic calamity. Of all the financial disasters of the last few years – the subprime mortgage crisis, the monster budget deficit, the stock market losing half its value, centuries-old investment banks going out of business – every last one happened because people who could have taken responsibility for their money chose to do something else instead.

“People tell you life is short. Life is long. Especially if you make the wrong decisions.”

-Chris Rock

Come check out Control Your Cash for one reason: your relationship with money is almost certainly dysfunctional. You don’t know what you don’t know, probably because nobody ever taught you.

Join, read, comment, share ideas. You can stop letting money act on you – and actually take charge of it.

[1] The amygdala, if you care.

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wedding planning guides

**UPDATE #2**

Is this a good idea?

**UPDATE #1**

Economist Brad DeLong did the math calculating that the author and his wife saved spent $90,000 in equity, unpaid rent and tax benefits.  A comment in this same post reveals that a $30,000 advance was paid for the book which I’m sure the author immediately sent to his mortgage company.

Boy meets girl.
Boy marries girl.
Boy and girl buy a house they can’t afford.
Boy writes a book about the evil mortgage company that made him buy a house he couldn’t afford.

I’m leaving out a few pesky details (two divorces, two bankruptcies, four kids, the inability to either control their spending or tell the truth), but so did he.  The author doesn’t let the truth stand in the way of a good story or an advance that will pay his delinquent mortgage payments.

Seriously, DON’T buy this book.  Rewarding the author’s stupidity is like giving your money to a failing auto company. (Well, you’re doing the latter whether you want to or not. With the former, at least you have a choice.)

Instead, let’s learn from this reprehensible person’s mistakes:

#1: He got married. Twice.
If you charge your wedding expenses, you’ll be in the hole from day one of your marriage. Even if you don’t, you can still screw yourself over financially.

Divorce, long–term health problems and job loss are the top 3 underlying reasons cited in bankruptcy cases.  The author feel in love with a woman who: 1) he wasn’t married to; and 2) didn’t work , which led to alimony & child support payments.  This didn’t leave much money for the second wife, who was unwilling to forgo a dream house, Starbucks habit and name-brand clothes.

#2: He didn’t talk about money with the second wife.
He knew his wife had declared bankruptcy during her previous marriage, because her ex-husband (allegedly) failed to file (or pay) taxes.  Did the author read the bankruptcy filing?  If he did, did he have absolutely no questions about it?  Here’s one he could have asked: why were so many consumer loans included in the bankruptcy if it was only to clear tax liens?

Forget about which table to sit your ex-felon uncle at or whether to serve fish or chicken; the conversation you and your betrothed need to have is the one about money.  Who has what, who owes whom and what goals you’re going to pursue.
If one partner is profligate and the other a spendthrift, that’s a far bigger discrepancy than any black/white or Christian/Jew marriage.  If your fiancé has current money problems, think with your brain instead of your heart and don’t marry him/her.  If the thought of such irresponsibility hasn’t turned you off, you can still date the person. Just don’t set a wedding date until the debts are paid off and the credit cleaned up.  If you’re a man, she’ll either get it together or find another sucker.  Either way, you’re now free to build a future with someone responsible.

Mistake #3: He didn’t pay attention to his fiancée’s spending and saving habits.
He either didn’t know or didn’t care that his wife was carrying debt that she either couldn’t pay or didn’t feel like paying.

I have a friend who peeks at the signed check at the end of a first dinner date. She swears she can tell everything about a man by how much he tips. Our relationship with money is often wrapped up in our self-worth, which can lead to overspending or stinginess.  People with money issues often lie, too: about how much they spend, what they owe on their credit cards and what they buy.

Mistake #4:  He treated his wife like a child.
Other than to request or demand things, she wasn’t involved in the financial decisions.  He made the money and paid the bills.  His wife isn’t even on the loan documents for the house, which might mean she’s not on the title either.  When money got tight, he didn’t tell her she had to stop spending. When he finally let her in on the stress he was feeling, she didn’t care – probably because he’d always taken care of things and she expected him to continue.

Do you want an equal partner?  Why would you think about marrying someone who isn’t willing and able to handle his or her own finances?  Your partner to be should be self-sufficient in every way, but especially financially.  A marriage should be between equals who create something greater than the sum of its parts.  If you’re a dependent partner, you’re setting yourself up for disaster. Not only do half of marriages end in divorce, the average woman’s net worth declines 27%* after one.

Mistake #5, the most annoying one of all: He presented himself as a victim.

The primary determinants of everything you are and everything you have are your daily actions. Until you claim responsibility for creating your own destiny, you’ll always feel victimized.  Own your life, and demand that the people you love own theirs.

*National Marriage Project, Rutgers University 2001

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3351670683_7aa80b2415**This post has been featured on the Calvacade of Risk carnival**

Have you ever missed out on a great investment because you didn’t know how to quantify its risk and return? Or even worse, because you didn’t even know what to ask to make an informed decision?

If you fancy yourself an investor, you need written investment criteria you can refer to when someone offers you an opportunity.  Here’s a sample.  Once you fill it out, answer these questions:

What type of investment is it?
Real estate

If I buy it, how will it affect my allocation distribution?

But what if it didn’t? Will you sell an asset? Buy other assets?

Estimated Return on Investment:
4½%-8%, plus appreciation (estimated to be 0 for the next 3-5 years.)

A 2nd floor, 1-bedroom/1-bath 770 ft2 condo in southwest Las Vegas.  It’s listed at $50,000 and approved for a short sale.  Monthly rents in the area are $650-$750.  Annual expenses are per the attached Annual Property Operating Data worksheet.

The APOD lists multiple scenarios that affect the ROI, including varying rents and whether you (or your business partner) plans to live in the condo. If you do, you can include the federal $8,000 first-time homeowner credit if you buy before December 1.

Here are 2 ways you can construct a joint venture between you and whomever’s bringing you the proposal:

#1: Bought by owner-occupant. This is perfect for a parent who wants to help her kid buy a home, yet still reap an ROI.

You lend the entire price of the condo, without interest.
Say the monthly market rent is $700. You’d charge 80% of that to your daughter, which is $560.

-$490 goes to you
-$70 goes to a reserve account for property maintenance.

Your daughter saves 20% off fair market rent. In return, you get to write the property expenses off on your tax return instead of she.

#2: Bought by LLC. Investment partners would use this proposal when one partner (the Finder) has the time & expertise to find the property and the other (you) has the money to finance it.

Again, you lend the entire price of the condo, without interest. However, you’ll rent it out to some stranger at the full market price of $700.

-$490 goes to you
-$70 goes to a reserve account for property maintenance.
-$140 goes to the Finder.

Describe the worst-case scenario:

-Property values may continue to fall. You might have to hold the condo for 5 years to break even.
-If the condo doesn’t rent immediately, the return will decline.
-The condo could get damaged. (So you need a security deposit.)
-You and your partner might disagree on management or sale of the property. (So you need a properly worded operating agreement.)

Since you’re creating a partnership, I recommend an operating agreement clarifying these issues:
•    Whose name will the condo be in? (You can own it outright, your partner can own it outright, you can own 63% and your partner 37%, etc.)
•    When you sell, how will you split the profits?
•    Who will manage the condo and rent it out?

The answers depend on whether your partner will be your kid or someone else.
If you’re setting this up as a business arrangement, create an LLC to hold title to the property.  In the LLC’s operating agreement, you can set out details such as who gets to write the property expenses off and what each partner’s duties are.  The LLC also protects against liability if your tenant or a visitor gets litigious.

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Nice to know that the always eloquent Michelle Malkin agrees with me:

“While the Rev. Al Sharpton screamed “Thank you, Michael! Thank you, Michael!” at the grotesque Staples Center memorial on Tuesday, many of us whispered in prayer: Thank you, Justin. Thank you, Aaron. Thank you, Brian. The real American heroes won’t be forgotten.”

Her column is worth reading in full.

A few people took umbrage with my disdain over the media circus that surrounds Michael Jackson’s death & memorial.  He’s a “hero” and a “role model” and that even if I disapprove of his personal life, I should respect him for his talent & charitable endeavors.

Here’s my idea of a hero:


Mike Murphy was a US Navy SEAL awarded the Medal of Honor for his actions during a firefight in Afghanistan. The fight killed 3 members of Murphy’s 4-man team…including Murphy.  The remaining SEAL, Marcus Luttrell, recounts the bravery of Murphy, Danny Dietz & Matthew Axelson in Lone Survivor .
You can read about Murphy and other real American heroes who fought, and in many cases died, to protect and defend you & me here

And for a role model?pzumboww2id
How about a man who came to this country at the age of 15 with $12 in his pocket? He didn’t speak English, nor could he write or read in his native Italian.  But he was willing to follow the rules, work hard and make a better life for his children.  The illiteracy kept Pasquale Zumbo a resident alien for life, but didn’t stop him from becoming a landowner, husband and grandfather.   He paid his taxes, took care of his family, paid his bills on time, wouldn’t have dreamt of taking government assistance, & literally worked until the day he died.

Someone in your life is a model of independence, hard work & responsibility.  It’s probably not a man who became dependent on drugs, was overextended financially & didn’t take the time to get his estate in order.

Here are the lessons I take from the death of Michael Jackson:

– Live your life today.  Tomorrow’s memorial service could be yours.
– Real heroes don’t travel with an entourage.  (Well, maybe Dwight Eisenhower.)
– Choose role models who make you want to be a better person.
– If you’re given a gift, share it.
– Even multimillionaires run out of money. Control Your Cash.
– The greatest gift you can give your family is a completed will or trust.

What lessons did you learn?


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