Minimizing Taxes On Funds

Today’s article will enable you to understand how to select tax-friendly mutual fundscomposite triple beat when investing outside of retirement accounts. The key is to use tax-free money market and bond funds. Certain kinds of money market and bond funds invest only in bonds issued by governments, and depending on the type of government entity they invest in, their dividends may not be subject to state and/or federal tax. Such funds are typically identified by the word “Treasury” or “municipal” in their fund titles.

A Treasury fund buys federal government-issued Treasury bonds (also called Treasuries), and its dividends (although federally taxable) are free of state taxes. The dividends of a municipal bond fund, which invests in local and state government bonds, are free of federal tax, and if the fund’s investments are limited to one state and you live in that state, the dividends are free of state taxes as well.

The catch: Because everybody knows that Treasuries спални and municipal bonds are not subject to complete taxation, the governments issuing these bonds can pay a lower rate of interest than, say, comparable corporate bonds (the dividends on which are fully taxable to bondholders). Therefore, before taxes are taken into account, tax-free bond and money market funds yield less than their taxable equivalents. However, after taxes are taken into account, you may find that with tax-free money market or bond funds, you come out ahead of comparable taxable funds if your tax bracket is high enough. Because of the difference in taxes, the earnings from tax-free investments can end up being greater than what you’re left with from comparable taxable investments.

If you’re in the 28 percent federal bracket or higher, don’t buy tax-free funds Inside retirement accounts. Your returns inside a retirement account are already sheltered from taxation. You can ignore the taxability of funds and go for the highest yields.

Unfortunately, stock mutual funds don’t have a tax-free version like bond and money market funds do. Unless they’re held inside a retirement account, stock fund distributions are always taxable, period. If you’re in a high enough tax bracket and a stock fund makes large distributions, these stock distributions can be a significant tax burden. Unfortunately, with stock funds more than any other type of fund, investors often focus exclusively on the pre-tax historical return, ignoring the tax implications of their fund picks.

Popularity: 78% [?]

Financial goals must be set early

There are no goals that are more important than financial goals. They can be set at any time of life but the best time to set them is when you are young. This gives you a long enough horizon to achieve them.

Your first aim should be to set short-term goals. These should focus on the money you need to save every month, and the financial instruments in which you need to invest this money. You should also define the credit card spends so that your debts do not go out of hand.

Your long term goals should include the kind of wealth that you plan to generate over the next ten years or so. You must write out the methods by which you plan to do so. This will keep your goals realistic, and achievable. Maybe, you can even consult a financial expert to help your plan your long-term expenditure and savings.

Also remember that no one can work indefinitely. There comes a time in every man’s life when he becomes too old to work. There must be a financial plan for such a stage in your life. This should take into account leakages like tax payments and inflation.

If you want to be successful then your goals must be specific. You can’t say that your goal is to be rich. It is much better to say that I want to be able to spend $5,000 on travel every three years. The latter gives an idea of how much you need to earn during the course of three years to generate this kind of disposable income.

After that you have to prioritize your expenditures. You will have to divert a part of income into your travel kitty. You can’t hope the travel bank to become full on it own. There has to be some sacrifice, and some discipline to achieve the goal.

So get out a pen and paper and start listing your goals. You will feel better right away!

Popularity: 24% [?]

Do You Sacrifice Integrity For Short Term Financial Gains?

It has been often said that an honest person has no opportunity to become rich in the Western world. This is an untruth fabricated by uninspired, dishonest people. In fact, studies indicate that one of the most important factors for the success of self-made millionaires is their unwavering honesty in their business affairs. Moreover, many disadvantaged people acquire an impressive amount of wealth by working in respectable careers and displaying integrity in all their financial affairs. Personal integrity is essential to achieving prosperity and financial freedom. Prosperity-conscious people seldom compromise their integrity for money. When they do, it’s at a weak moment when they aren’t paying attention. They immediately get themselves back on the right track.

Lazy Achievers don’t sacrifice peace of mind and reputation to earn money in dubious ways. They don’t have to resort to dishonesty. Having confidence in their own abilities, they capitalize on some of the many opportunities available for making an honest and decent living. When questioned, every one of us would declare that we are honest; yet, each of us has at least a little bit of the crook in us. Everyone is dishonest at one time or another, simply because no one is perfect. Where we draw the line to put ourselves back on the right track determines how much integrity we have.

The best policy is to be as committed to honesty and integrity as we can possibly be, regardless of any opportunities we have to make easy money. Rationally, we may ask ourselves: What harm is there in taking a few moral liberties now and then so we can stiff some sucker for a few bucks? The answer? A great deal of harm may be done in due time.

First, the law of karma should keep us from dishonesty: what we do to others will eventually come back to us in some form or another. With this in mind, we should be committed to total honesty, even when it means our short term financial position could suffer. The need to be true to ourselves is also at issue. Values are only worth something when we act rigidly upon them and follow them at all times. This requires that we be as scrupulously honest with all people as we can be. The payoff is peace of mind and the satisfaction that we haven’t resorted to cheating or swindling to make money. Henry Miller observed, “What distinguishes the majority of men from the few is their inability to act according to their beliefs.” If your values comprise honesty, integrity, ethics, and decency, it’s best to live your life in this manner, regardless of how many of your friends and acquaintances show disrespect for these values.

From the occupational perspective, the best policy is never to get involved in a job, business activity, or other financial endeavor that depends upon a product of dubious value. This applies even if you think that you may be able to make a lot of money at the business. Giving someone the rough end of a business deal may seem like an easy way to pocket some quick cash. Selling just a bit of your soul for $10,000 today, however, will cost you much more later on.

Popularity: 22% [?]

Simple Ways To Increase Your Savings: Part 2

1. Skip one big expense a year. You might be able to realize some meaty savings simply by skipping your winter vacation, trading in your turbocharged sports car for an economy-type, or ditching your upscale health club membership and switching to the YMCA.

2. Hold a garage sale to raise cash. By getting rid of an old computer, TV, stereo, dining set, or exercise machine, you could earn $300 to $3,000 more in just a day or two.

3. Use your flexible spending account (FSA), if you have one. Don’t pass up the opportunity to pay medical and dependent-care expenses with pretax dollars through these accounts. A family of four is almost certain to spend $1,000 a year on doctors, dentists, and prescription medicines. Your tax savings if you pay these bills from an FSA can be at least $280.

4. Make higher down payments. When financing your next major purchase (a new car, new kitchen, etc.) put up as much money as you can and keep your borrowing down. By not financing $500 at 12% over three years, you can keep $98 jingling in your pocket; not financing $5,000 saves you $979.

5. Use a home equity loan to pay off high-rate debts. Replace consumer debts at, say, 18% with a home equity loan at 12%, and you’ll cut your interest costs by a third. In addition, the interest on a home equity loan can be fully deductible on your income tax return. Let’s say you consolidate $10,000 in car payments and credit card cash advances with a home equity loan. Counting the tax break, a taxpayer in the 28% bracket will save $936.

6. Pay in cash. This high-discipline technique will teach you a lot about the difference between what you want and what you really need. Moreover, by paying in cash, you avoid paying finance charges. For example, trimming your credit card balances by $500 this year can save you almost $100 in interest if your card issuer charges 18.6% interest.

7. Don’t pay for financial services you could get for free. Using only no-fee checking accounts, no-fee credit cards, and no-load mutual funds can save you $100 a year or more. For instance, checking accounts often run $60 a year; annual fees for credit cards typically range from $15 to $50.

8. Squirrel away your next raise. This tip is an example of the rule financial planners love to tout: Pay yourself first. To squeeze out money for your savings, earmark your next raise as savings toward a specific goal. If you earn $40,000, for instance, a 5% raise will give you $2,000 to set aside toward your baby’s college fund.

Popularity: 17% [?]

Simple Ways To Increase Your Savings: Part 1

1. Pay yourself back, with interest. If you have to tap your savings, aim to pay yourself back with interest. For instance, say you need to withdraw $250 of your savings and you figure it will take you two months to pay it back. At the end of two months, throw into your savings another $40 or so.

2. Moonlight for money: Figure out what you could do in your spare time to bring in some extra cash. Then take some or all of that found money and save it toward an important financial goal. Here are five moonlighting jobs and what they typically pay: kid’s party clown ($75 an hour and up); house-painter ($13 an hour); word processor ($8.45 an hour); pet or house-sitter ($5.50 an hour); and baby sitter ($5.25 an hour).

3. Earn a higher return on your savings: The higher the interest rate on your savings, the less you have to salt away each month to meet your goals. One way to earn more interest on your savings is to put your money in a CD or bond with a longer term than you had originally planned. Another idea: Make your annual IRA contribution every January instead of at the start of the following year. That way your savings will earn an extra 12 months’ interest tax-deferred.

4. Deposit your stash where you can’t easily get at it. The biggest enemy of savers may very well be the automated teller machine, or ATM. Sure it’s convenient and easy to use. But that’s just the problem. Your ATM lets you have instant access to your money any time of the day or night, and the more you withdraw, the less you have left in your savings. So try to limit your ATM visits to one a week. If you are saving for a short-term goal and like the idea of keeping your money at a federally insured institution, consider CDs, which carry penalties of up to six months’ interest on early withdrawals.

Those lock-up penalties actually serve as a useful deterrent against unnecessary savings withdrawals. If you are saving for a longer-term goal, take advantage of a tax-deferred savings plan. It will also discourage you from pulling money out by slapping you with a 10% penalty for withdrawals before age 591/2; in some cases you won’t be able to withdraw cash at all unless you can prove financial hardship.

Popularity: 15% [?]

The Truth About Living A Life Of Security

One way to overcome the perceived need to work hard, instead of smart and creative, is to come to grips with the issue of security. In a world filled with much uncertainty, material wealth is the one thing that is supposed to provide the economic, physical, and emotional security everyone so much desires. Accountants, stockbrokers, financial planners, bankers, and retirement consultants will convince you that building an impressive portfolio of real estate, stocks, bonds, and T- bills is the only way to deal with all this uncertainty.

Security, as traditionally defined, doesn’t contribute nearly as much to emotional comfort as most people believe. Security based on materialistic and monetary pursuits is tenuous at best. The super rich can be killed in car accidents and terrorist attacks just as easily as the poor can be. Their health can fail at a much earlier age than that of someone with less money. And most rich people worry about losing their money in the event of a monetary collapse. On one hand, we want and strive for security; on the other, there may not be anything that even closely resembles security.

To get a better idea of how much security we can get through money, take a hard look at the type of individuals who are most obsessed with security. Security-minded individuals tend to be rigid, unbending, unadaptable, and uncreative. Their expenditures are usually limited to basic food, heat, clothing, and shelter. They won’t part with their money even for necessities, unless they know they are getting the best possible deal. Decreasing their bank accounts for a big expenditure brings extreme anxiety, worry, and fear and a sense of vulnerability. Every dollar spent seems to rob them of some inner sense of comfort.

To some, security is a steady job with normal work hours, unambiguous activities, strictly defined duties, and a foreseeable future. These people need a steady paycheck and will settle for a regular income with modest increases in pay. They don’t realize that holding on to a job does not bring true security. Jobs in modern times aren’t as secure as the jobs of just a few years ago. A job may mean security for paying bills today, but when security-minded people lose their jobs, they lose their security.

It’s no wonder that Tennessee Williams declared, “Security is a kind of death.” The security minded individual demonstrates, better than anyone else, that preoccupation with security is incompatible with living a relaxed, prosperous life. Paradoxically, to feel more secure in this ever-changing world, people must become less concerned with security as defined in the modern-day sense.

You may be surprised to learn that the present-day concept of security is far different from the original meaning of the word. If anyone in this world has security, as originally defined, that security isn’t based on money and material possessions. The word security actually means “without care” which has Latin origin. In this regard, true security is an internal state of being, not determined by how much money an individual is able to acquire.

Popularity: 15% [?]

4 Reasons Why Real Estate Is A Good Investment

Many years ago, the humorist Will Rogers said that real estate is the best investment in the world because it is the only thing they’re not making anymore. Today, even after a decade of roller-coaster real estate prices, it’s easy to see that Will wasn’t joking. From 1974 to 1994, real estate values in this country increased nearly 15-fold, out-pacing both the stock and bond markets. Real estate, however, has more than a limited supply and TV infomercials going for it. In fact, there at least four reasons why individual investors should consider sinking some cash into real estate once they’ve built a solid portfolio of stocks and bonds:

1. Real estate is an inflation hedge. When overall consumer prices rise, the value of so-called paper investments such as bonds sometimes fails to keep pace. Historically, however, the values of “hard” assets like real estate have kept pace with or outrun inflation. That’s because real estate, as a basic necessity, will always maintain its relative value against other assets as their prices rise.

2. Real estate historically lowers your overall investment risk and raises your returns. Less risk, but bigger returns? Sounds like a mistake, right? It’s not. Earl Osborn at the investment advisory firm Bingham Osborn & Scarborough in San Francisco has done numerous studies showing that real estate actually stabilizes an investment portfolio while increasing returns. For example, an investor who put 80% of his money into stocks and 20% into real estate from 1970 to 1993 would have earned more than 12% a year. Had he stuck solely with stocks, his annualized return would have averaged around 11.5%. What is more important, the portfolio with real estate in the mix actually experienced 6% less volatility. That’s a fancy way of saying that his investments didn’t bounce up and down as much as the stock-only portfolio. It’s worth noting, however, that Osborn defines real estate as shares of real estate investment trusts, a type of stock, which is among the safest ways for individuals to play the real estate game.

3. Real estate generates income. Buildings and apartments can produce significant and reliable cash flow when they are rented out to other people who live or work in them. This is true whether you own the property yourself or invest passively through real estate trusts, mutual funds, or limited partnerships. And reliable income is extremely valuable for investors.

4. Real estate is stable. Forget the recent upheavals in home prices. Over the long run, real estate has proven to be quicker to rise in value than to fall. Barring war or natural disaster, real estate holds its value or rises steadily in price over time. You can’t say that about all investment alternatives.

Popularity: 15% [?]

Are You Financially Insane?

It’s a lot easier to avoid trouble than to get out of trouble. Yet most of us go to great extremes to invite trouble into our lives. Mishandling money is one of our favorite ways to get ourselves into difficulty. We seem easily to forget that each spending choice we make determines how much money we need in our lives and how much we have to work for.

Unfortunately, money is more often misused and abused than it is used intelligently. Most people haven’t figured out how to use money wisely to truly enhance their lives. Most, it seems, act rationally with their money only when they can’t dream up any more irrational ways to spend it.

The problem is that our spending habits do not reflect our deepest values and desires. We waste our funds on questionable material possessions at the expense of things that we cherish, such as freedom and financial independence. We may save meticulously for a sabbatical or a retirement, for example, but then, after a year or two, blow the entire $10,000 in a moment of weakness on a new stereo system, which we hardly use, because we don’t have time for it.

Alternatively, we may buy a new wardrobe that will be out of fashion in just one season. If you believe that you are over and above irrational behavior with money, you are probably in denial about the issue. Perhaps a strange and confusing relationship exists between how hard you work to earn your money and how easily you spend it at times. You may pinch pennies when buying food at the market on payday, but later blow what’s left on gadgets that you could easily do without. In fact, many people spend most of their paychecks on the best junk money can buy. Worse, they tend to buy this junk with money they haven’t yet earned.

Will Rogers stated it well: “Too many people spend money they haven’t earned, to buy things they don’t want, to impress people they don’t like,” Although we don’t want to admit it, each of us exhibits at least a little bit of this insanity. Money, unfortunately, brings out the eccentricity in each of us. An occasional quirk or peculiarity in our spending habits is normal. But consistent irrational behavior with money is detrimental to our personal and financial well-being. We end up working long and hard hours to earn money but don’t experience much happiness and satisfaction from the things we buy.

Behind every irrational spending urge is a profound emotional need that requires attention. That need can be for power, status, fame, freedom, revenge, respect, security, or self-respect. It can even be for love. We must be able to deal with these needs head-on, because in most cases, the purchase won’t make things better.

Popularity: 21% [?]

What To Do If You’re Already A Victim Of Financial Fraud

The only good news about the rise in identity theft is that there are now more resources than ever before to help victims. You still need to guard yourself for battle with credit bureaus, creditors, and even collection agencies, but you’re not out there alone.

The Federal Trade Commission has extensive information for ID theft victims at www.consumer.gov/idtheft, or you can call 1-877-FTC-HELP (1-877-382-4357) to get free information. You also can find helpful resources at the Identity Theft Resource Center (www.idtheftcenter.org or 1-858-693-7935) and the Privacy Rights Clearinghouse (www.privacyrights.org or 1-619-298-3396), among other locations.

Some financial institutions are remarkably responsive to identity theft victims, whereas others presume that anyone reporting ID theft is a liar until proven otherwise. Either way, you’ll want to be assertive, persistent, and relentless in your efforts to clear your name. The Privacy Rights Clearing-house, the California Public Interest Research Group, and the Identity Theft Resource Center suggest that you take the steps outlined in the next sections.

Popularity: 16% [?]

How To Invest Wisely

Why should you bother investing at all when your neighborhood bank is a nice, safe place to put your money? The answer: inflation and taxes. If your savings, after taxes, doesn’t grow faster than the cost of living, its purchasing power will steadily erode. Put another way, if you don’t find a way to put your money to work for you effectively, you’ll never be able to reach the financial goals you cherish. In short, after you take care of your emergency savings fund, you need to become an investor. The following example, which doesn’t even account for the take of taxes, will show you why:

Had your grandmother stashed $90 under her mattress 50 years ago, (the price of a decent-quality, three-piece bedroom set in 1945) that money today would buy little more than a set of sheets. If she had invested that $90 in a bank savings account that kept even with inflation, she could still afford that roomful of furniture. But if she had put her 90 bucks in the stock market, it would have grown to more than $25,000 today: enough not only for that bedroom set, but for a down payment on a second home to put it in.

If that story doesn’t impress you, here’s a scarier one: Investing wisely can mean the difference between retiring to a cushy house on the 18th green or retiring to a state-run oldsters’ home. Saving, while extremely important, is essentially just putting money away for safekeeping. Investing, by contrast, is using your money to produce more money.

Are you thinking that you need a lot of money to invest? You don’t. Many equity mutual funds, which pool money from small investors and use it to buy stocks, accept initial investments as low as $500 or even $250. More than 140 fund families let you in with $100 or less. Most funds also let you invest as little as $50 or $100 a month. You can also see what it’s like to be a stock investor buy purchasing a single share of a company for, say, $30.

If you haven’t invested a dime in your life, you’re not alone. Millions of Americans don’t own any stocks or mutual funds. Some of them have just decided that they don’t know enough to invest intelligently. Others think that investing is too scary and worry about the possibility that they’ll lose money. Still others think that investing in stocks and mutual funds is no different from playing the craps tables. The truth is, it isn’t hard to learn how to invest, putting money into stocks or stock funds isn’t scary, and by investing defensively, you can protect yourself from losing money. As for the craps analogy, it’s flat wrong. Winning at dice means having good luck. Winning as an investor means using your brains.

Popularity: 29% [?]

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