Category: MoneyCrashers

Posted on

10 Ways to Minimize Your Transportation Costs and Save Money


Whatever your beliefs, owning and operating an automobile is expensive. For those who might be thinking about giving up their vehicles entirely, consider the pros and cons of living without a car. Cutting the strings of ownership is easier if you live in one of the ten best cities to live without a car.
 
For most Americans, transportation costs are a significant part of everyone’s budget. Few people are fortunate enough to live within walking distance to work, shops, schools, and churches. According to the BLS, transportation costs run between 15% to 20% of a household budget. But there are a few tricks you can use to cut down on transportation expenses.

How to Save on Your Transportation Costs

1. Walk When Possible


Someone once said a pedestrian is a person who just parked their car. It is, unfortunately, true that Americans are more likely to drive a car than walk, even for short distances. Research from the University of Glasgow suggests most people of all ages prefer to drive any distance greater than would be covered by a 15-minute walk, especially if they own an automobile and parking is readily available. According to a National Household Travel Survey, the majority of trips under a mile are in an automobile.
 
Walking is available to everyone in most environments. In addition to saving money on automobile trips, walking is one of the easiest and most inexpensive methods to achieve good health. Tom Hodgkinson, a British writer and journalist, claims the biggest benefit of walking is the freedom to think: “When walking, you see things that you miss in a motor car or on the train. You give your mind space to ponder.”
 
Read More . . .

Posted on

Investing & Financial Advice for Millennials – 6 Principles to Build Wealth

Atlantic Magazine asserts that Millennials are the “best-educated generation in American history,” with more than a third holding a bachelor’s degree or higher. Nevertheless, they may become the first generation of Americans to be worse off than their parents, with lower incomes, more debt, and higher poverty rates.

To succeed, Millennials will need some major preparation, especially considering the world around them is changing constantly. This article will answer three questions that are critical to the success of every Millennial:

  1. Which obstacles will this generation face during their careers?
  2. Who can Millennials trust for financial advice?
  3. What are the most important, time-tested strategies for building wealth?

Millennials Face Mounting Challenges

The challenges facing young people born between 1976-1996 are unlike those faced by any previous generation. The workplace of this generation has drastically changed from the one encountered by their grandparents and parents:

Slower Economic Growth

For the working careers of most Millennials (2010-2060), economic growth measured by gross domestic product (GDP) will average 2.08% annually, according to projections by the Organization for Economic Co-operation and Development (OECD). This rate is less than half the rate of GDP growth of 6.86% experienced in the previous half-century (1960-2010) calculated from figures supplied by the Federal Reserve Bank of St. Louis.

Increased Skill Requirements

Physical work requiring little to no formal training is quickly disappearing as intelligent machines assume more of the tasks formerly done by humans. According to figures compiled by the Brookings Institute, the manufacturing sector’s share of GDP accounted for 12.1% of annual real GDP during the period 1960-2010, while its proportion of the workforce fell from approximately 25% to 8.8%.

Expanded Workplace Automation

Routine tasks are increasingly becoming mechanized. Some experts found that 47% of workers in America had jobs at high risk of automation. The jobs at risk include taxi and delivery drivers, receptionists, programmers, telemarketers, and accountants.

Reduced Employee Benefits

Defined contribution retirement plans have replaced defined benefit plans (pensions), while more employers are transferring health care costs to employees in the form of higher insurance premiums, co-pays, and limited coverages.

Extended Nontraditional Employment

Contract labor is replacing employees as companies seek to lower fixed costs and increase flexibility. One report estimates that more than 40% of the American workforce – 60 million workers – will be self-employed as freelancers, contractors, or temporary employees by 2020.

Escalated Income Inequality

The historical link between productivity and pay is disappearing, exacerbating the disparity between the “haves” and “have-nots.” In 1970, almost two-thirds of Americans were considered middle class, reflecting the link between productivity and pay between 1948 and 1973. Although productivity has continued to increase, about half of American families were considered “middle class” in 2014, according to the Pew Research Center. Rising income inequality is likely here to stay.

Fragile Social Programs

The survival of social safety nets, such as Social Security and Medicare is uncertain as Federal and local governments wrestle with unprecedented national debt levels. Simply put, neither Social Security nor Medicare is guaranteed for future beneficiaries without significant changes in the programs.
 
Eugene Steeple of the Urban Institute predicts that Millennials are likely to experience cuts in benefits for themselves and their children, higher taxes, and reduced government services. This is partially a consequence of financing much of America’s growth and increased standard of living during the last 50 years with borrowed funds. According to Pew Research, most American households are vulnerable to financial disaster:
 
1. Family Income Is Increasingly Volatile. More than 40% of families experience an income gain or drop of more than 25% every two years. While drops and gains have balanced out in recent years (about the same number increasing income as those losing income), only two-thirds of those families suffering a drop recover their previous income level within the next decade.
 
2. Emergency Savings Are Virtually Nonexistent. Most households (75%) lack sufficient emergency funds to replace their income for a 30-day period. The top quarter of households have savings to cover just 52 days of income. Liquidating their investments and retirement funds would increase this to an estimated 98 days of protection. In other words, three-quarters of American families could cover only four months of their income (without selling their homes) if a major economic shock occurred.
 
3. Almost Half of Families Spend More Than They Earn. As a consequence, they are unable to save and rely on borrowing to make ends meet. One in 11 Americans now pays more than 40% of their income on interest and debt repayment.
 
In addition to an uncertain economic future, Millennials begin their working careers with greater student debt than any previous generation: $16,500 for a 1999 graduate, rising to $37,172 for a 2016 graduate. In other words, the average Millennial graduate is shackled to a $23,000 ball and chain (the average debt for graduates during the period) that will impact retirement savings, homeownership, and the age of marriage and parenthood.
 
Read more . . .

Posted on

How Warren Buffett Makes Decisions – The Secret to His Investing Success

Warren Buffett is considered by many to be the most successful stock investor ever. Despite the occasional mistake, Buffett’s investing strategies are unrivaled. In 1956, at age 26, his net worth was estimated at $140,000. MarketWatch estimated his net worth at the end of 2016 to be $73.1 billion, an astounding compound annual growth rate of 24.5%. By contrast, the S&P 500 has grown at an average rate of 6.79% and most mutual funds have failed to equal the annual S&P 500 return consistently.

Buffett has achieved these returns while most of his competition failed. According to John Bogle, one of the founders and former Chairman of The Vanguard Group, “The evidence is compelling that equity fund returns lag the stock market by a substantial amount, largely accounted for by cost, and that fund investor returns lag fund returns by a substantial amount, largely accounted for by counterproductive market timing and fund selection.”

Since the evidence shows that Buffet has been an exceptional investor, market observers and psychologists have searched for an explanation to his success. Why has Warren Buffett achieved extraordinary gains compared to his peers? What is his secret?

A Long-Term Perspective

Do you know anyone who has owned the same stock for 20 years? Warren Buffett has held three stocks —Coca-Cola, Wells Fargo, and American Express—for more than 20 years. He has owned one stock—Moody’s—for 15 years, and three other stocks—Proctor & Gamble, Wal-Mart, and U.S. Bancorp—for over a decade.

To be sure, Mr. Buffett’s 50-year track record is not perfect, as he has pointed out from time to time:
 
Berkshire Hathaway: Pique at CEO Seabird Stanton motivated his takeover of the failing textile company. Buffett later admitted the purchase was “the dumbest stock I ever bought.”
 
Energy Future Holding: Buffett lost a billion dollars in bonds of the bankrupt Texas electric utility. He admitted he made a huge mistake not consulting his long-term business partner Charlie Munger before closing the purchase: “I would be unwilling to share the credit for my decision to invest with anyone else. That was just a mistake – a significant mistake.”
 
Wal-Mart: At the 2003 Berkshire Hathaway shareholder meeting, Buffet admitted his attempt to time the market had backfired: “We bought a little, and it moved up a little, and I thought maybe it would come back. That thumb-sucking has cost us in the current area of $10 billion.”
 
Even with these mistakes, Buffett has focused on making big bets that he intends to hold for decades to come. A longer time horizon has allowed him to take advantage of opportunities few others have the patience for. But how has he been able to make these successful bets in the first place?
 
Read more . . .

Posted on

Should the U.S. Adopt a V.A.T.?

Many Americans do not understand how an American VAT might affect them, or its possible economic consequences on GDP and the national debt. Congress is currently exploring tax reform in order to spur economic growth and protect American businesses. Their proposal includes a controversial Border Adjustment Tax that some claim is a VAT in disguise.
 
What will be its effects if adopted?

What Is a Value-Added Tax?

In a 2010 interview with the Atlantic Magazine, William Gale, Co-Director of the Brookings Tax Policy Center, proposed a federal Value-Added Tax (VAT) as a way to raise government revenues, eliminate deficits, and pay down the national debt without harming economic growth.
 
While Gale was speaking during the early recovery of the Great Recession (2007-2009), some tax and economic experts proposed that tax reform should include an American version of the VAT. Columbia Law Professor Michael Graetz, in a 2016 article in the Wall Street Journal, claims that a VAT would:
 
1. free more than 150 million Americans from ever having to file tax returns or deal with the Internal Revenue Service;
 
2. cut our corporate income-tax rate to compete with the lowest in the world without shifting the burden away from those who can most afford to pay;
 
3. spur economic growth, increasing U.S. GDP by as much as 5% in the long run; and
 
4. stimulate jobs and investments and induce companies to base their headquarters in the U.S. rather than abroad.
 
In many ways, a value-added tax is similar to a national sales tax. Ultimately, both are based on the consumption of a product and add to the final cost to the consumer. The primary difference between a sales tax and a VAT is that the former is collected on the final sale to the consumer, while the latter is paid during each stage of the supply chain. In other words, the latter is a combination of direct and indirect taxes.

What Is Sales Tax?

Sales tax is added to the purchase price when the consumer purchases the goods. The retailer selling the product collects the tax and remits the proceeds to the taxing authority. The buyer is aware of the extra cost since it applies to the purchase price of the product. For example, a product selling for $100 subject to a 10% tax costs the consumer $110 – $10 in tax plus $100 to the retailer.
 
Currently, the U.S. does not have a federal sales tax, but 45 states now employ them as a revenue source. In addition to the state sales tax, many counties and cities tack on additional sales tax to the state charge. According to the Tax Foundation, combined sale tax rates range from a low of 1.76% in Alaska to 9.45% in Tennessee. JustFacts calculated that sales tax collections in the United States are about one-third of the taxes (over $600 billion) collected by state and local governments.
 
Read more . . .