Wednesday, September 26, 2012

Your Net Worth vs Joe Biden’s

“They may be the most powerful couples in the world and rub shoulders with the likes of George Clooney and the Queen of England, but the Obamas and Bidens face many of the same financial challenges as the rest of us – neglect, inertia, poor diversification and spotty investments.”

I came across a July article of Kiplinger magazine disclosing an amazing fact about VP Joe Biden. He has a total net worth of only $215,000. The whole purpose of the article was to show that even the powerful politicians should be paying closer attention to their money.

Obamas and Bidens Finances
  • Both the Obamas and Bidens have high-interest loans. Obama has a mortgage on his old Chicago house at 5.625% interest, and Biden has other loans over $65,000 in the 7.5% and 9.9% range. Maybe no one has told him that rates are at historic lows?
  • The Bidens also have 9 total checking and/or savings accounts in their names ranging from anywhere between $1,000 to $15,000. Umm... maybe it’s time for some consolidation?
  • The Obamas are far too conservative and poorly diversified, while the Bidens are too spread out.
  • The Obamas have 92% of their money in cash at around $4.7 Million but only $325,000 in mutual funds.  In fact, they only own 1 fund: The Vanguard Index 500.
  • The Bidens have 6 small cash-value life insurance policies, of which they’ve taken loans out against between 5%-8%, and also looks like they have a variable annuity.
  • The Obamas have between $100,000 and $200,000 in each of the girls’ 529 college savings accounts. Least he's doing something right!
Looks like even if you have the “Gift of Gab” to be elected the leader of the free world, you can be still be dumb enough to make bonehead financial decisions. Maybe it’s not entirely his fault? His financial advisor may be a commission-based financial hack job! So he didn’t build that...

Love him or hate him, Mitt Romney has been dang good with his money. His net worth is estimated at about $250 million.

Who would you rather have as the CEO of our country?

If you want to make sure you aren’t making the same mistakes as the Obamas and Bidens, work with a Fee-Only Certified Financial Planner like me ;D

Friday, September 21, 2012

Selecting The Right Business Entity

Whether you are a new business or an existing business, selecting the best legal entity affects not only profitability and operations, but also your tax bill and your risk exposure. Proper business planning should tie together your business strategies with your personal tax, investment and estate planning goals. Apart from protecting the owners from liabilities, income taxation is probably the most important factor when choosing an entity structure. There are 4 main types of business entities: C-corp, S-corp, Partnership, and an LLC. 

The C corporation or “regular” corporation is subject to “double taxation.” This means that the corporation pays tax on its net profits, and when dividends are paid to its shareholders, the shareholders also pay tax on those dividends. If a C corporation has net losses, it must use them against its own income, either carrying the losses back to obtain refunds of prior years’ taxes, or carrying them forward to offset future years’ income, or both. C corporation shareholder/employees generally receive income as either salary or dividends. The corporation can deduct compensation paid to employees, while dividends are not deductible, and therefore are paid after tax. At the employee level, wages will generally be taxed at a higher rate than dividends because wages are ordinary income with rates up to 35 percent, and they are also subject to employment tax. Qualified dividends, on the other hand, are currently taxed at a maximum federal rate of 15 percent, without employment tax. Remember that dividends must be paid to all shareholders pro rata, while compensation can be customized. 

S corporations, partnerships and limited liability companies (LLCs) generally are “pass-through” entities for tax purposes. This means that the net profits or losses of the entity are reported directly on the owners’ individual income tax returns, and the entity pays no tax itself. 

When considering which entity is best for you, do not limit your consideration exclusively to the tax benefits with the various entity structures. Think ahead to what types of assets the business will have, how you will finance the business, what will happen when you are winding down or liquidating the business and how or when you intend to take distributions from the business. Sometimes it makes sense to change your business structure after you have been operating in your initial form in order to accommodate new goals or facts. Make certain you thoroughly understand the tax consequences before making a change. For more details on business entities read the CBIZ Business Tax Planning Guide.

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Tuesday, September 11, 2012

How To Protect Your Child From Identity Theft

Imagine this: Your daughter has finally flown the nest! She applies for her first mortgage or car loan, and she's denied. Turns out, her identity was stolen years ago, and she’s thousands of dollars in debt.

Child identity theft is more common than you think. Stats suggest that as many as 1 out of every 10 kids will be a victim. In fact, kids today are 50 times more susceptible than their parents.

Scammers target children—even infants!—so they have years to use the identity (racking up credit card debt, buying a home or car, getting a job or driver’s license) before being discovered.

Fortunately, parents can help protect their kids. Here’s how:

Be a Little Nosy
In the era of “helicopter” parenting, no one wants to be accused of hovering too closely. But parents should be aware of the websites their children visit, especially elementary schoolers surfing the Internet alone.

Decide which websites are appropriate, and block any inappropriate sites using parental control software. Set a few ground rules: don’t buy anything online without permission, never open emails from a stranger, and never click on pop-up ads.

Set Rules About Sharing
Over-sharing on social networks like Facebook can be risky. Make it a rule that your child never gives out any personal information like her birth-date, address, phone number, or school when on the computer.

Thieves often only need your name and the last four digits of your Social Security number and voila, they’re able to call your bank and request a change of address—meaning they start receiving your sensitive documents.

Explain that scammers use Social Security numbers or other information to open credit cards or create fake documents, racking up way more debt than she will ever have her piggy bank.

Be On Fraud Alert
To make sure your kids are in the clear, contact each of the credit reporting agencies (TransUnion, Experian, and Equifax) every few years and ask if your child has a credit report. If yes, check it for fraud or errors. No report means there’s no problem.

Make Kids Street Smart
Start a conversation about identity theft by reviewing the tips at And for more ways to safeguard your child’s financial future, visit

At the very least, following these four steps will ensure that once your kids are older, they won’t be naive enough to post photos of their debit or credit cards on Twitter. (Yes, folks are really doing that!)
Contributed by Beth Kobliner

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Wednesday, September 5, 2012

Are We Hard-Wired to Make Bad Financial Choices?

Proper financial planning that provides for our financial needs in retirement is perhaps the prototypical example of “willful blindness”. We all know that most people have not saved enough to provide for a sustainable long-term income in retirement. The core issue here is that we (as a society and as individuals) are making consistently bad financial decisions that affect our futures, beginning with how we pay for college.

Sure, it’s always easier to simply ignore the long-term issues and plan to deal with them later in life.  As humans, we have an enormous behavioral bias to focus on the now and not on the future.  In his recent Ted talk, Shlomo Benartzi estimates that only 11% of Americans are saving enough to meet their future financial needs. This is, in my opinion, a disaster in the works.

What are we thinking?

Benartzi explores the ways that our innate behavioral biases allow us to ignore the looming crisis. He frames the question of how and why people make consistently bad decisions in a range of example, like taking out a mortgage you can’t afford. Using a series of lab experiments, he explains how we seem to have some hard-wired (neurological) biases that tend to make us totally discount our future needs in favor of current consumption. To quote Benartzi:

Self-control is not a problem in the future. It’s only a problem now when the chocolate is next to us.

Economist Daniel Goldstein, characterizes this problem as the conflict between our present and future selves.  His main thesis is that we have an incredibly difficult time actually envisioning future outcomes.  Because we cannot see our future selves, we are less likely to save on his or her behalf. Our choices today are implicitly a conflict between our own interests and the interests of some other person—meaning our future selves. Our future self is someone that we don’t even know—some old, gray-haired stranger.

The fundamental issue here is that consumption is instantly gratifying while denying ourselves in the present is not. Denying our impulses to consume requires effort, whereas consuming is both easy and pleasurable. Yet, there are plenty of people who manage to train themselves to eat healthy, to exercise, or to save for retirement. The problem is how we, as a society, motivate more people towards making better, and (sometimes harder) decisions.

The Implications of Poor Financial Choices

When society does not teach high school students that their choices about what they spend on a college education are directly tied to a potential substantial debt that their future selves will have to repay, it is no wonder that so many young people take on such enormous debt burdens without grasping the personal implications.

When mortgage brokers and realtors talk home buyers into a larger house that they can’t afford (or even that buying as large a house as possible is a good investment, which they have been known to do) we cannot be surprised when they take on an unsustainably large mortgage. The thought here is that it does not take a lot of convincing to get someone to make a choice that they want to make in the first place.

The field of behavioral economics is fascinating and I hope it will help policy makers figure out new ways to motivate people to make better financial decisions. The problems of inadequate savings and the propensity to take on too much debt, have enormous implications for our society. The research into why it is easier (or perhaps more natural) to make bad financial decisions does not alleviate that individual responsibility.

We all have to choose the harder path of consuming less and saving more.

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