Category Archives: Accounting Talk

The “Real” Power of Gas Buddy

This App WILL save you money!

This App WILL save you money!

When it comes to saving money, we’re always looking for new and insightful things to share with our clients. Bring in Gas Buddy; a website and App for your phone that tells you the gas prices at a specific station, in REAL TIME. So what’s so good/powerful about this tool? Keep reading.

Recently you’ve probably heard the term “big data” being tossed around a lot. It’s a popular term used to describe the exponential growth and availability of data, both structured and unstructured. This is important to both businesses and individuals, as individuals in Finance already know, more data “may” lead to more accurate analyses.

Big data defined
As far back as 2001, industry analyst Doug Laney (currently with Gartner) articulated the now mainstream definition of big data as the three Vs: volume, velocity and variety. Below is a list of what caused changes in each over the past decade or so.

Volume.   Many factors contributed to the increase in data volume. Transaction-based data was stored in increasing amounts through the years. Unstructured data began streaming more frequently via social media. Increasing amounts of sensor and machine-to-machine data began to be collected. All the above resulted in increased data volume.

Velocity.  Data is streaming in at unprecedented speed and must be dealt with in a timely manner. RFID tags, sensors and smart metering are driving the need to deal with torrents of data in near-real time. Reacting quickly enough to deal with data velocity has become a challenge for most organizations.

Variety.  Data today comes in all types of formats. Structured numeric data in traditional databases. Information created from line-of-business applications. Unstructured text documents, email, video, audio, stock ticker data and financial transactions all floating around the web (can someone say cat video). Managing, merging and governing different varieties of data is something many organizations still grapple with.

Gas Buddy’s Part
So where Gas Buddy fits into this equation is that it allows for two things to happen in the big data realm. Firstly, it allows users to gather data (i.e. gas prices) so that it may be housed in a centralized place. Secondly, it provides visibility to that data where in the past it would have been cost ineffective for consumers to gather it on their own (e.g. driving around to gas stations to see which one has the cheapest price). The outcome of these two things is where the real power of Gas Buddy lies:

The Knowledge To Make Informed Decisions
Our CEO Jared lives about 7 miles from the Indiana boarder. Anyone in the Chicago area knows that there is a significant difference in prices between Illinois and Indiana. Thus, for years Jared would simply go to Indiana to purchase gas “knowing” that he was saving money. How much money? That’s where Gas Buddy helped to clarify some things. Let’s take a look at a hypothetical example. We’ll try to keep it simple so as to not use too many numbers.

Real time pricing at your fingertips.

Real time pricing at your fingertips.

Let’s say that Jared has to fill up his car which holds 10 gallons of gas. He knows that the station closest to his house is charging $3.79 a gallon. So if he filled up there he would spend $37.90 for a tank of gas. Now he goes to Indiana enough to know that the prices across the border are about $0.30 cheaper per gallon. So if he buys gas for $3.49 he would spend $34.90. Thus his tank of gas cost him $3.00 less. But the real savings isn’t $3.00 because he had to drive 20 miles round trip to get the gas. Let’s say he burned 2/3 a gallon of gas to make the trip. Ignoring the cost of the gas in the tank and what he purchased, if we assume he spent $2.33 (2/3 of $3.49) on gas driving to get the cheaper gas, then his savings would “really” be $0.77 ($3.00 tank savings less the $2.33 spent to get it).

Not much savings for all that driving right? Well, with Gas Buddy now Jared has visibility 1) into the prices being charged by all the stations he wants to know about and 2) when they are changing (which is key).

Now Jared doesn’t have to assume that he can save $0.30 when he goes to Indiana. He can now compare the cheapest stations where he is currently located (you can get prices nearest you with Gas Buddy) to ALL the cheapest stations. Thus, it may turn out that the station near his house that charges $3.79 is simply overcharging for the area. There may be a station that is 2 miles from his house that only charges $3.59. This narrows the Indiana gap to only $0.10 ($3.59 vs. $3.49). This would make it unprofitable for him to go to Indiana to get gas as the savings wouldn’t outweigh the cost of getting the gas.

He can also see that the station out in the burbs, where he is working on a client engagement, is charging $3.45 for a gallon of petro. This is $0.04 cheaper than Indiana! The result? Jared may just wait to get his gas when he goes to the client site in the morning and get it for cheaper than his beloved Indiana gas.

So there you have it. The lesson to be learned from this? That whole “knowledge is power” adage. The more information that you have at your disposal, the more informed you are when making decisions. The more informed your decisions, the greater the probability of a more bountiful or fruitful outcome.

Until next time…

5 Credit Card Essentials

Lots of articles steer you to the best credit card by categories – one if you want airline miles, another if you need to transfer a balance and a third if you are looking for the lowest interest rates.  This is not one of those articles.  The millionaire mindset does not want airline miles and doesn’t carry a balance.  And the sooner you start thinking like a millionaire, the sooner you will become one.

Principle number 1: The credit card company’s job is to make as much money as possible, and your job is to keep as much money as possible .  They are very good at their job.

Principle number 2: The defaults should all be in your favor.  Avoid any credit card that requires you to work against them.  They will win, and you will forget to do some important piece of work.

Putting these principles into practice, here are the five key features to look for in a credit card.

No annual fee.  No amount of rewards and bonuses can make up for an annual fee.  If you start $75 in the hole, you have to spend $7,500 and get 1% cash back just to break even.  No annual fee for the first year isn’t enough for whatever rewards are offered.

As much cash back as possible on everything you purchase.  Forget every other system of rewards.  With immediate cash back, you are definitely getting something valuable.  And you don’t have to decide to use the rewards; they are simply deposited in your account.  In the best of all scenarios, they are deposited into a savings or brokerage account.  An immediate 1% cash back on every purchase is the minimum you should settle for.  The best we have seen is if you can get 2% on everything.

Purchase protection, free extended warranty and return protection.  If you’ve had a store that has not given you a fair deal and then gave you a hard time, having made the purchase with a credit card can often help.  If the original U.S.  warranty is 5 years or less, some cards increase the warranty by up to a year.  And credit cards often allow you to return anything purchased in the United States within 90 days from the date you bought it regardless of a store’s policies.

In addition to these features, making purchases with a credit card can save you a tremendous hassle because a process is in place for disputes.

The dispute process is a powerful tool of leverage for the consumer, when you are in a back-and-forth with a merchant.  Merchants get knocked by their merchant providers for customers disputing them, so use it with caution — but it’s definitely a process which puts you in the driver’s seat.

Onetime-use credit card numbers.  This feature, called “ShopSafe” by Bank of America, allows you to create a unique temporary credit card number every time you make an online purchase.  This number acts exactly like your real credit card number except it has a lower limit and a quick expiration date.  For example, if you are purchasing a $35 item, you can create a temporary number with a $40 credit limit that expires in two months.

Merchants won’t know the difference, but if their lack of security compromises the number you use, the thieves will find themselves with $5 more credit on a card that may already be expired.

Easily downloadable information.  Entering every transaction into a budget by hand is a great way to create good spending habits.  But once those have become routine, it is still wise to know what you have spent without all that manual labor.  Many credit cards allow you to download a file and import it directly into QuickBooks or other budgeting software.  Purchases from your usual vendors are automatically coded into their proper budgeting categories.  Only new vendors need to be assigned a category.

Financial Rules For Marriage

Many failed marriages often cite financial troubles as a major factor in the breakup. This isn’t surprising because the way we use our time and money often reflects our values. Without a strong set of shared values, marriages can drift apart. But, dealing with finances together can bring a couple closer. With that said, here are some principles that you can use to help build wealth and strengthen your marriage.

Start as newlyweds. There’s no better time to establish the rules of a relationship than at the beginning. Furthermore, every seven years you delay starting a savings plan cuts in half your ultimate net worth in retirement. Chances are you know someone who’s getting
married this year (of even this month) so send them a copy of this blog post.  It may be more valuable than the check you write.

Budget as a team. Shared activities help you build and integrate your values and keep your finances in sync with the rest of your life. Couples that share philanthropic causes or other activities often do better financially because their common vision allow them to work together instead of pulling in different directions.

The more opportunities to forge shared values, the better the marriage team. Even the simple process of creating and
adjusting a family budget, provides a forum for discussion of what is really important to the family.

Realize that a budget gives you freedom. Partners without a budget can, and often do, fight about every dollar spent. Every purchase is an opportunity for values and priorities to clash. Yet couples who have worked together on a budget are already in agreement on the big picture. Once the difficult decisions are made about what will help further the family’s values, the specific purchases in each category are much less relevant.

Additionally, couples with a budget do not get concerned about spending until a category goes over the budgeted amount. Having decided how much money the family can afford to spend on clothes for him or her, the scrutiny over if he prefers lots of inexpensive clothes and she prefers a few nice pieces tends to diminish.  Thus, a budget allows discretion and freedom to prevail within cooperation and teamwork.

Pay yourself first. The best way to achieve your financial goals is by moderating your spending and staying on track with your savings needs. Only after you have saved several times your annual salary does the rate of appreciation become more important than the rate of savings.

To pay yourself first, set up an automatic monthly transfer from your checking account to an investment account where your contribution is automatically invested in a diversified portfolio. Even a small amount makes a big difference. Just five hundred dollars a month (just $6,000 a year) at 11.5% each year will compound to a million dollars by the middle of the 26th year. Money makes money. And the money that money makes, makes even more money.

Limit spending unless you both agree. A single mistake can undo months of frugality and sacrifice. Therefore, big purchases require both members of the team to agree. Honoring each other in this way helps avoid resentment and disgust.

When a couple is just starting out, this dollar limit may be very small, perhaps only fifty dollars. As the couple matures, they will grow to anticipate each other’s wisdom and values; plus, they will likely be able to increase their discretionary spending limits.

Differentiate your needs from wants. In the US, nearly all of our purchases are wants, not needs. Humans really need little more than food, shelter and clothing to survive. It is easy to fall into the
misconception that we deserve nice things because we work hard. But “true” wealth is what you save, not what you spend. The textbook definition of capital is deferred consumption, and wealthy people learn to value financial security over immediate gratification.

Our company has worked with families with very modest incomes who, through saving and investing, have grown to be millionaires. On the other hand, we have worked with couples who spent every dollar of dual six-figure incomes. The difference in achieving financial success is separating needs from wants.

Everyone should own a piece of the budget. Both members of a marriage should have a slice of the budget which is completely at their discretion. So long as their spending stays within this thin slice of the budget pie, they can be completely frivolous. Perhaps it is only 0.5% of your total budget, but it will provide a place to put purchases that otherwise might cause marital strife.

If one partner collects Strawberry Shortcake dolls and the other signed collectible baseball cards, they can both enjoy their frivolous
expenditures without jeopardizing budget items that are more
important to the family.

Couples that learn to live proportionately maintain their balance whether they are rich or poor. No matter the circumstances, they include some fun, some gifting, and some investing as a reflection of their shared family values.

Ensuring You Don’t Miss Business Expense Deductions

When you run a small business, saving money on your tax return sometimes comes down to little more than keeping good records.   Unfortunately that means tracking all those little expenses, because they can add up throughout the year.  The question is, are you capturing all those small expenses?  If not, here are some tips on how to ensure you’re not leaving money on the table.

Frequently Forgotten Expenses

It’s staggering how much goes into running a small business, and how quickly things can become tangled between business and personal accounts – especially for sole proprietors.  Think about it.  You’re doing your grocery shopping and remember you need a new desk calendar, so you toss one in your cart.  Or you’re Christmas shopping on Amazon and see a good deal on printer ink, so you stock up.  Or maybe you’re meeting a potential client for breakfast and while you remembered to deduct your meal, you forgot about the mileage to get there.

These types of common, but small, expenses can quickly add up to a major tax deduction.  The trick is remembering to deduct them.  Some of the most common (and often overlooked) business expenses include:

  • PayPal and other payment processing fees.  If you get paid via PayPal, then you know they charge around 3% of each transaction for the service.  These fees quickly add up so make sure you’re keeping track and adding them to your tax return as “bank fees.”
  • Dues and subscriptions.  Do you belong to paid forums or membership sites related to your business? These charges are deductible as well.
  • Small Office supplies.  This includes the stuff like paper, pencils, staples, etc.  It’s not uncommon to forget that you bought these things or to purchase them during a trip where you’re also buying personal items.
  • Domain names and hosting.  Your Hostgator bill, GoDaddy purchases, etc.
  • Advertising.  Whether you do pay-per-click via Google or Facebook, buy mailing lists, or pay for ad placement on other websites, it’s all deductible.
  • Commissions.  Do you have sales staff? Deduct those payments!
  • Business Mileage.  Remember that trip to get the office supplies above?  You did deduct the mileage right?  Is tracking your miles too hard?  Consider getting an app for your phone like Tap2Track Mileage which uses GPS to do all the calculating.
  • Depreciation.  Most of the time your accountant will do this without any input from you.  But if you use equipment or a vehicle in your business, you should check that deprecation is being calculated and included on your return.

Keeping Good Records

So once you know what expenses to track, the key to getting the biggest tax deductions lies in keeping good records.  For most small businesses, the simplest solution is to use a software program set up specifically for this purpose, such as Quickbooks or Peachtree.  However, if you’re not that disciplined then make sure you charge your business expenses only to your business credit or bank card.  That way, they are at least in one place.  And if you’re not that disciplined?  Heck, just throw all the receipts in a box and give them to your accountant at the end of the year.

No matter what solution you choose, though, make sure you consistently record your expenses.  The last thing you want to do is scramble at the end of the year to find receipts and enter data.  That would be a nightmare.  Instead, set aside time each week (or more often, if necessary) to update your books.  If you find it overwhelming and you tend to put it off, consider hiring someone to maintain your accounts for you.  Remember – what you pay him or her is deductible as well!

Finding all those overlooked expenses can mean the difference between a huge tax bill and one that is more manageable.  While the things listed here will get you started, it’s a good idea to also speak with a tax professional.  Make sure he or she fully understands the nature of your business, so he or she can ask the right questions and make appropriate recommendations for your business write-offs.

The Affordable Health Care Act and 2014

Come January 1st 2014, nearly all Americans will be required to have health insurance as mandated by the Affordable Care Act.  But just what exactly does this mean for individuals and businesses?

Well, on June 28th Rice University’s Baker Institute for Public Policy hosted a presentation by Vivian Ho, Ph.D., a professor of economics at Rice University and a professor of health services research at Baylor College of Medicine. The presentation addressed some of the highlights of what is considered by many as a “very complex piece of legislation.”  Below are some of the highlights.

THE UNINSURED

Those without health insurance are required to have it or buy it by Jan. 1, 2014, or face a penalty. The penalty will be $285 per family or 1 percent of income, whichever is greater. By 2016, the penalty increases to $2,085 per family or 2.5 percent of income.

According to the U.S. Census Bureau, more than 40 million Americans lack health insurance, often because they are part-time workers, unemployed or self-employed, or they are full-time employees whose employers don’t provide coverage.

All 50 states must create an exchange, which Ho says is like a big shopping mall, with individual insurance stores inside. Consumers “visit” each store, and compare all the different insurance plans offered through the exchange, then select the one that best suits their needs and the needs of their families.

“The exchanges will serve as an insurance marketplace, a one-stop-shop for those who do not have employer coverage and are looking for private coverage,” Ho said.  All 50 state exchanges must be operational by Oct. 1, 2013 to begin open enrollment for the 2014 plan year.

The government will provide subsidies to low- and middle-income Americans to help them buy insurance through these health exchanges – the individual pays a part of the insurance premium, and the government pays the rest.

THE ALREADY INSURED

Under the Affordable Care Act, insurance companies are no longer allowed to set an individual’s premium cost based on gender or health status. The act also prohibits insurance companies from dropping coverage or capping coverage for people who develop long-term illnesses or disabilities – a measure that has already been in existence in some states, and now should offer peace of mind to many more, Ho said.

However, policies purchased through a health exchange are allowed, under the Affordable Care Act, to cost three times more for an older person than a younger person.  “Currently, older individuals are charged about four or five times higher than younger people,” Ho said. “The new three-to-one ratio will likely cause premiums to go up for younger individuals.”

The new law also requires insurance companies to cover the children of insured parents up to age 26 – this provision went into effect in 2010, the year the act was signed into law.

PEOPLE WITH PRE-EXISTING CONDITIONS

Starting in 2014, the law makes it illegal for any health insurance plan to use pre-existing conditions to exclude, limit or set unrealistic premium rates on coverage for adults – the requirement to cover children under age 19 for pre-existing conditions began in 2010.

EMPLOYERS

Employers in the United States are not currently required by law to provide health insurance coverage to employees. However, the Affordable Care Act changes that, by requiring employers with 50 or more workers to provide those workers with affordable and adequate health coverage, or face fines.

That provision was set to go into effect Jan. 1, 2014, but on July 2, the Obama administration pushed it back by a year. The delay resulted from business groups’ complaints that the law was too complicated and they needed more time to update technology and to plan how they would offer health coverage to employees without yet knowing how much the coverage would cost. Like individuals, businesses can also purchase insurance policies through state exchanges for their employees, but not all state exchanges are in place yet.

Businesses with fewer than 50 workers will be exempt from providing health insurance to their employees, and those employees likely will look for private insurance on state exchanges.

When the delay concludes and employers must provide their employees with health coverage, larger employers won’t be affected as much, but middle-sized firms with 100 to 1,000 employees will likely experience a price increase in providing coverage for their employees, Ho said.

“This is mainly because many of these companies didn’t offer health insurance,” she explained, “or they offered health insurance that had extremely high deductibles and didn’t cover many standard services.”

Small firms with 100 or fewer employees will likely experience a decline in the amount spent on each employee’s coverage, she said.

“A lot of people don’t realize there are actually subsidies available for small employers – especially for those with 25 or fewer workers – to purchase health insurance,” Ho said, “and that will make it more affordable for these small companies.”

Getting Rid of Debt

Debt – an obligation owed by one party (the debtor) to a second party (the creditor).  Yeah, that’s the technical definition.  However, the definition that most are familiar with is that little monkey in your wallet that keeps throwing all your cash into thin air.  But just how can you get that monkey to stop?  This post will offer you the basic outline of how to make it all happen.

Our very own Jared Rogers is no stranger to debt and the effects it can have on your life.  While never a big spender, he did manage to rack up some debt when he was beginning his professional career.  You know the new car necessary for work. Then there were the student loans taken out for business school.  Then there was the condo and the merging of finances when he got married.  However, after a few years of dedicated work, he and his wife eliminated most of their debt (with the exception of the mortgage) by following a simple formula.  How much debt?  Somewhere in the neighborhood of $65,000.

Jared just recently signed up to be a debt coach to a family over at The Debt Movement.  Here are the simple steps that he suggests to those looking to get rid of that debt monkey for once and for all:

Track Your Spending.  If you don’t know where you’ve been, how will you know where you are going?  The first step in any debt elimination process is to know where all the money is being spent.  This can be done with something as simple as a spending journal that you carry in your pocket or as elaborate as using financial software.  However you do it, it is imperative that you actually identify where your hard earned dollars are seeping out of your bank account.  Many individuals think they know what they spend their money on, yet are often shocked when they find out how much when analyzed by category.

Determine Your Profit.  Now that you know what you’re spending money on, you need to determine if it is more or less than the income you take in.  If your spending is like the government, you will see a nice big fat deficit that you will have to balance.  Unfortunately, unlike Uncle Sam, you can’t just sell your debt to China and keep on operating like business as usual!  So the next step is to look at your spending and identify the discretionary categories (e.g. entertainment, clothing, etc.) that appear to be out of whack or excessive.

Balance The Budget.  Once you know where the problem areas are, you must next get them in line.  Everyone’s living expenses will vary depending on where you live and the associated cost of living.  For example, a resident of New York City might spend 50% of their monthly budget on housing costs while someone in Mexico Missouri might only spend 25%.  However, there are certain “standards” that you can start with to put you on the right path.  The next step would be to try and align as many categories as you can with the ideal budget.

Pay Yourself First.  One thing that gets us all in trouble is the unexpected emergency.  But just like they say, expect the unexpected.  With that being said, you should always pay yourself first.  It doesn’t matter if it’s 5% or 10% of what you make, but you should put that away (preferably in a separate account) for a rainy day.  But why first?  Well, it will ensure you don’t have to tap high interest credit cards or take out a pay-day loan when the car’s engine implodes and you need to get to work.  Additionally, it will ensure you do it.  When the money for the month is spent, but there are still bills, someone doesn’t get paid right?  Stop making that someone you and pay yourself before the phone, electric and cable companies all take their cut.  Ideally, if you get your check direct deposited into your bank account, why not have them split it between your checking and savings?  You can’t spend what you don’t miss and if your savings is out of sight, it will be out of mind.

Apply The Debt Accelerator.  The reality for most of us is that we make more than enough money to handle our debt obligations.  The world of credit is based on ratios and lenders do a pretty good job of making sure you can pay them.  The corrupter/interrupter is often the mismanagement of one’s discretionary spending.  However, if you put yourself on a budget, you can easily start to generate a monthly profit (i.e. income greater than expenses) that you can then apply to your debt (a.k.a  the debt accelerator).  From here you simply tally all your debts and calculate how long it would take to pay off the smallest debt using the normal payment plus the debt accelerator.  Then you simply get to work paying extra on that debt until it is gone.  Once vanquished, you take that old payment and apply it to the next debt that can be paid off the quickest.  This is what is known as debt snowballing and is a tried and true technique to eliminate your debt.

That’s it; there really is nothing more to it when it comes to getting rid of debt. Sure, you can make the process complicated, but it’s really just as simple as outlined above.  The hard part is staying committed to the plan and not giving up when you hit a setback.  If you do, simply brush yourself off and get back on the road to financial freedom.  The sooner you do, the quicker you can leave the debt monkey on the side of the road to hitchhike with someone else!

Just what exactly is the Fiscal Cliff?

Lately there has been a lot of talk about the impending Fiscal Cliff and its potential to derail the current fragile US economy.  However, there hasn’t been a lot of talk explaining exactly what it is or how it even came to be.  In this post we’ll take a deeper look at the situation to determine if things are really all “doom and gloom” or if things are just being blown out of proportion.

The Fiscal Cliff Explained

In short, the “Fiscal Cliff” is a term used to describe the conundrum that the U.S. government will face at the end of 2012, when the terms of the Budget Control Act of 2011 are scheduled to go into effect.  The following provisions of current law are what have brought us to this point:

  • Expiration of the Bush tax cuts extended by President Obama in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010;
  • Across-the-board spending cuts (“sequestration”) to most discretionary programs as directed by the Budget Control Act of 2011;
  • Reversion of the Alternative Minimum Tax thresholds to their 2000 tax year levels;
  • Expiration of measures delaying the Medicare Sustainable Growth Rate from going into effect (the “doc fix”), most recently extended by the Middle Class Tax Relief and Job Creation Act of 2012 (MCTRJCA);
  • Expiration of the 2% Social Security payroll tax cut, most recently extended by MCTRJCA;
  • Expiration of federal unemployment benefits, most recently extended by MCTRJCA and
  • New taxes imposed by the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010.

Possible Effects of the Fiscal Cliff

The major concern behind all the “doom and gloom” talk is that if the current laws slated for 2013 go into effect, the impact on the economy could be dramatic.  While the combination of higher taxes and spending cuts would reduce the deficit by an estimated $487 billion, the Congressional Budget Office (CBO) estimates that gross domestic product (GDP) would be cut by four percentage points in 2013, sending the economy into a recession (i.e., negative growth).  At the same time, it predicts unemployment would rise by almost a full percentage point, with a loss of about two million jobs.   The nice little info graphic below illustrates all the components in play and what happens if lawmakers let all the policies go into effect (left side) vs. if some type of tax and spending concessions are made (right side).

Dealing with the Cliff

Generally speaking,  U.S. lawmakers have three choices to deal with the Fiscal Cliff, each of which brings about a different outcome as it pertains to economic growth and budget deficits:

  1. They can let the current policy scheduled for the beginning of 2013 – which features a number of tax increases and spending cuts that are expected to weigh heavily on growth and possibly drive the economy back into a recession – go into effect. The plus side: the deficit, as a percentage of GDP, would be cut in half.
  2. They can cancel some or all of the scheduled tax increases and spending cuts, which would add to the deficit and increase the odds that the United States could face a crisis similar to that which is occurring in Europe. The flip side of this, of course, is that the United States’ debt will continue to grow.
  3. They could take a middle course, opting for an approach that would address the budget issues to a limited extent, but that would have a more modest impact on growth.

Anticipated Outcome?

Given how late Congress acted in 2011 regarding the debt ceiling (i.e. item number two under “The Fiscal Cliff Explained” above), the cost of indecision is likely to have an effect on the economy before 2013 even begins. The CBO anticipates that a lack of resolution will cause households and businesses to begin changing their spending in anticipation of the changes, possible reducing GDP before 2012 is even over.

Having said this, it’s important to keep in mind that while the term “cliff” indicates an immediate disaster, the impact of the changes will be gradual at first.  What’s more, Congress can act to change laws retroactively after the deadline.   As a result, the fiscal cliff won’t necessarily be an impediment to growth even if Congress doesn’t address the issue until after 2013 has already begun.

However, one thing to note is that the US debt picture is not in a good place currently.  Pictured below are some nice graphs on projected budget deficits and historic US federal debt levels to help put things in perspective.  We can only hope that our politicians and lawmakers will sit down NOW and make those difficult decisions to help right a situation that could potentially get much worse in the years to come.

Budget deficits, projected through 2022. The “CBO Baseline” shows the effects of the fiscal cliff under current law. The “Alternative Scenario” represents what would happen if Congress extends the Bush tax cuts and repeals the Budget Control Act-mandated spending reductions beyond the end of 2012.

US federal debt from 1940 to 2022. The right side of the diagram projects what would happen to the debt if Congress (a) allows current laws to take effect and reduce the deficit (the baseline) or (b) extends the current policies, such as keeping tax cuts in place (the alternative).

Dealing With Identity Theft

Occasionally bad things happen to good people.  Despite all of our efforts to secure that data which is so precious to us, sometimes it winds up in the wrong people’s hands.  Where do you begin when you think that you may be susceptible to, or worse the victim of, identity fraud?  Read on to find out some of the critical first steps that one should take.

Notify credit bureaus and establish fraud alerts.  If you have credit cards, the first stop is to report the situation to the fraud department of the three credit reporting companies – Experian, Equifax, and TransUnion.  When you notify one bureau that you are at risk of being a victim of identity theft, it will notify the other two for you.  Placing the fraud alert on your file means that it will be flagged and that creditors are required to call you before extending credit.  The initial alert is valid for only 90 days, however you can request that it be extended to 7 years.   You must have evidence of attempts to open fraudulent accounts and an identity theft report (police report) to establish the seven-year alert. You may cancel the fraud alerts at any time.

Contact banking institutions.  If your ATM or debit card has been stolen or compromised, report it immediately.  ATM and debit card transactions are subject to the Electronic Fund Transfer Act (15 USC §1693). Even if you are a victim of identity theft, your liability for charges can increase the longer the crime goes unreported. For more on EFTA and your liability for fraudulent use of your ATM/Debit Cards, see the following  FTC guide.  If you have had checks stolen or bank accounts set up fraudulently, ask your bank to report it to ChexSystems, a consumer reporting agency that compiles reports on checking accounts. Also, place a security alert on your file

Dealing with brokerage accounts.  You do not have the same protections against loss with brokerage accounts as you do with credit and debit card or bank accounts. The Securities Investor Protection Corporation restores customer funds only when a brokerage firm fails. If an identity thief or other fraudster targets your brokerage account, refer to your account agreement for information on what to do.  Immediately report the incident to the brokerage company and notify the Securities and Exchange Commission.  Also notify the Financial Industry Regulatory Association. To protect against fraud, put a password on each of your investment accounts.

Social Security number (SSN) misuse.  The Social Security Administration (SSA) does not in most cases provide assistance to identity theft victims. But be sure to contact the SSA Inspector General to report Social Security benefit fraud, employment fraud, or welfare fraud.

  • Social Security Administration online complaint form: www.socialsecurity.gov/oig
  • SSA fraud hotline: (800) 269-0271
  • By mail: SSA Fraud Hotline, P.O. Box 17768, Baltimore, MD 21235

 SSN misuse and tax returns.  If you are a victim of tax-related identity theft (or a potential victim because someone has wrongfully obtained your Social Security number), you must file Form 14039, Identity Theft Affidavit, with the IRS.   Once the form is filed and your identity verified, then the IRS will send you IRS Letter 4869CS, which will provide you with a six-digit identity protection personal identification number (IP PIN) and instructions for its use.  For electronic returns, the software will indicate where to insert the IP PIN.  For paper returns, enter the IP PIN in the six boxes to the right of the spouse’s occupation in the signature section.

Unlike your SSN, the ID PIN is not a permanent identification number. Rather, it is like the security code found on the back of most credit cards. The ID PIN you receive in one year will be valid only for returns filed for that tax year.   For more information on what to do with tax identity theft, please refer to this one page guide.

Keep good records and monitor your credit files. In dealing with the authorities and financial companies, keep a log of all conversations, including dates, names, and phone numbers.  Note the time you spent and any expenses incurred in case you are able to seek restitution at a later date. You may be able to obtain tax deductions for theft-related expenses (consult your accountant).   Make sure you confirm all conversations in writing and send correspondence using certified mail with return receipt requested.   Keep copies of all letters and documents and actively monitor your credit files going forward.  If you need times on organizing your case check out these helpful sites:

FTC’s guide Take Charge

Identity Theft Resource Center

The Benefits Of Mutual Funds

Mutual fund ownership by U.S. households has grown appreciably over the past three decades. Forty-four percent of all U.S. households owned mutual funds in 2011.  In 1980, this same figure was less than 6 percent.   Furthermore, approximately 89 percent of total mutual fund assets were owned by these same estimated 90 million individual investors.  So just what is it about mutual funds that make them such an attractive investment option?

Diversification.  Mutual funds invest in a broad spectrum of securities and debt instruments.  Thus, an investor can potentially limit their investment risk by reducing the effect of a decline in any single security.  For example, if you own 100 shares of XYZ stock and it all tanks, you lose your shirt.  However, if you own 100 shares of ABC mutual fund which is comprised of 5% XYZ stock, when the stock declines, your portfolio won’t feel the full brunt of it.  Another benefit of diversification is that one can gain ownership to more companies and industries with a lower overall purchase price when compared to purchasing outright individual shares.

Professional Management.  Most investors don’t have the time or wherewithal to perform the necessary research and continual analysis required to protect their investment.  By pooling the money of many investors, mutual funds are a way to receive full-time professional management that few investors would be able to otherwise afford.  These “fund managers” have teams of analyst and researchers who routinely update them and provide recommendations as to how the fund can achieve its goals.  Thus, by investing in mutual funds you can rest assured that someone is continually monitoring you investments performance and making the necessary adjustments when warranted.

Liquidity.  Buying and selling shares in a mutual fund is just as easy as it is to purchase shares of an individual stock.  Most people can either invest or divest of their holdings within the same business day.  This makes this vehicle extremely attractive for those who may need “relatively” quick access to their funds.

Convenience and Simplicity.  Instead of having to track down and purchase each individual share, you only have to keep track of one; that of the mutual fund itself.  Additionally, you will still receive the benefits of owning a diversified portfolio and a wide range of services including:

  • The ability to purchase or sale your shares via mail, telephone or internet
  • Minimal investment floors; allowing you to invest with as little as $50-$100 per month
  • The ability to schedule automatic investments/transfers into or out of the fund via your bank account