I get Dr. Andrew Jackson’s newsletter on a regular basis and the most recent one contained a few nice tidbits of info about the U.S. government and their spending habits.
These are a few of the nuggets from the newsletter that I thought were useful or interesting…
What do we mean by the words deficit and debt?
The deficit reveals whether the government has balanced the budget in any year. Our federal government is addicted to deficits. The federal government has spent more on programs and services than it has collected in taxes thirty-one out of the last thirty-five years. But, don’t be fooled by any news headlines boasting about balance the budget. Simply balancing the budget, although it helps not to add to the overall debt, will not solve the long-term financial problems of Social Security and Medicare.
The debt of the federal government reveals how much money the government has borrowed in total.What are the federal government’s primary sources of revenue?
The federal government’s four primary sources of revenue are (1) Individual income taxes at 43.4% (2) Social insurance and retirement receipts at 34.8% (3) Corporation - big & small - income taxes at 14.7% (4) Excise - alcohol, tobacco, gas - taxes at 3.1% and (4) other at 4.1%. The federal government receives approximately $2.4 trillion each year in revenue. Since individual income taxes is the largest source of federal revenue, approximately 50%, it is important to know what “individuals” are really paying income taxes. Well, approximately 52 million Americans pay little or no income taxes at all because of their income level.
What does the federal government spends its money on?
The federal government spends its money in six primary areas (2006): (1) Non-Defense Discretionary at 31.9% (2) Security Security at 20.7% (3) Defense at 19.7% (4) Medicare at 12.4% (5) Medicaid at 6.8% (6) Interest on Debt at 8.5%. To clarify things even more, the federal government spends approximately 68% of its revenue on five things: Social Security, national defense, Medicare, Medicaid, and interest on the money borrowed.
What percentage of federal spending goes to programs for the retirees/elderly?
It is estimated that about 46% of the domestic federal spending goes for programs for the elderly (Social Security, Medicare, and Medicaid).
Are all federal government programs equal in nature?
No. Not all federal government programs are equal in nature, there is a big difference between discretionary and entitlement programs. Some are “discretionary,” meaning the government can give and take away (education, defense, veteran’s programs, space program etc.), and others are “entitlements,” meaning that government has no choice but to pay (for example, Social Security, Medicare, and also, in a sense, the interest on the national debt since it is off limits). Entitlements are on autopilot and Congress has no responsibility to review them as part of the budget process and make any spending decisions.
I am blown away by the amount that the U.S. government spends on interest for debts. If they receive $2.4 trillion dollars in revenue each year and pays 8.5% of that amount (actually more - how often does the government live within it’s means?), that is $204 billion dollars each year.
I know it must be challenging managing our country’s finances, but can you imagine the possible benefits of our government being debt-free? An extra $204 billion dollars each year!! I can think of a few things to spend it on - how about you?
Related posts
This is a guest post from Chad over at GoingGazelle. Chad is a volunteer Financial Peace University coordinator and a volunteer Crown Money Map Coach.
IIAS Flexible Spending Accounts: Swipe Twice & Reduce Your Taxes!
A lesson in Personal Finance from a Wal-Mart Cashier
I wish I could tell you my vast knowledge of Personal Finance led me to discover and write this tip. However, this post was driven by a lesson from a Wal-Mart cashier. My wife accidentally used her FSA debit card to pay for some purchases instead of our normal debit card. We had some Tums and Dora the Explorer Band-aids in the cart. The Wal-Mart register recognized those two items were approved for FSA and debited them from the FSA account. The rest of the materials we had to pay for by swiping a normal debit card or pay cash.
The cashier then explained that their register system was “smart” enough to allow us to pay for FSA reimbursable materials with some types of FSA debit cards. Because the approval took place at the point of sale, we no longer had to submit receipts for items purchased at Wal-Mart. I didn’t even realize that either item would be approved as an FSA expense.
The original FSA programs work like this. Your employer deducts money from your pay check tax free and put into a savings account with an FSA vendor. You would go out buy items, track all of your receipts, mail or fax them in and wait for approval. The FSA company would manually look through your receipts, if the expenses were allowed, they would mail you back a refund check. In essence, any approved health care expenses were paid for with tax free income. It is small bit of a paperwork, but worth the hassle in my opinion.
Then FSA vendors improved their services by issuing Visa or Mastercard branded debit cards which you could pay for health care services. Instead of paying out of pocket and seeking reimbursement, you can use the FSA debit card at the merchant to pay for the item. No cash out of pocket. You only had to mail in or fax back the receipt. Every transaction on the debit card had to be supported by mailing in paperwork. Again the FSA vendor would manually review the paperwork and approve each transaction. If you used the debit card for an unapproved expense you had to mail them a check for that amount of money.
Welcome to the new standard: Inventory Inventory Approval System - IIAS
Now the FSA vendors have worked out a point-of-sale approval system with major retailers such as Wal-Mart, CVS Pharmacy and Walgreens. Every item in the store is evaluated to see if it meets federal FSA reimbursement guidelines. The register system now knows which items are approved by the government for FSA account purchases.
When you use an IIAS debit card at Wal-Mart, it only allows you to pay for the items approved by the Federal government. By automating the approval at the Point-of-Sale, the consumer does NOT have to fill out forms and submit paperwork any more. The FSA vendor does not have to manually verify that paperwork. This makes life easier on the consumer and the FSA vendor. (Its always a good idea to keep receipts just in case).
The IIAS system went into effect on January 1st, 2008. The list of IIAS approved FSA administrators and merchants is growing. The next time open enrollment comes around. Check out your employer’s FSA options. Tax reductions are getting hard and harder to come by.
If you are lucky enough to have an IIAS administrator of your FSA, when shopping at Wal-Mart or any other IIAS merchant, swipe the FSA card first and see what happens to be in your basket that the government will let you purchase with tax free income. Our family has been doing this for about a month. We’re amazed at how many items we normally purchase quality for this tax reduction measure.
Click for more information about IIAS FSAs
Related posts
This is a guest post by Kent E. Irwin. Kent is the founder of eFinPLAN, an online comprehensive financial planning for software for consumers. He is also a Chartered Financial Consultant (ChFC), a Chartered Advisor in Philanthropy (CAP) and a Chartered Life Underwriter (CLU).
Money Merge Accounts Promote a System to Pay Mortgage off Early
What Are They and Do They Work?
Several firms promote home mortgage payment systems commonly known as Money Merge Accounts which assist in early mortgage payoff. I have been approached socially, professionally and at church by individuals marketing these programs, therefore I wanted to learn more about them. This article reports what I found out about them. I feel it is important to note that I have never marketed such programs and have tried to keep this article as informative and free of bias as possible.
The Money Merge Account Overview:
Money merge accounts originated in Australia and over the last few years have gained in popularity in the US. Several companies under different names market them, and each one may be a little different. For simplicity I will refer to them all as MMA and not discuss the differences of each program. They are early home mortgage payment systems offered as an alternative to traditional ways of making extra mortgage payments or bi-monthly payment plans.
Characteristics of money merge accounts – MMA:
- Money merge accounts are a system and software to pay off mortgages early using the combination of four elements:
- Regular fixed first mortgage
- Home-equity loan/line of credit
- Monthly earned income
- Monthly bills
- The service consists of software which estimates the cost savings, and manages the cash flow and transfer of money between the four elements listed above. They provide telephonic and web based support.
- Software and service as explained to me, provides mathematical cost savings by: making advance mortgage payments, using different loan accounts to move money back and forth to minimize interest costs, and precise timing of both.
- The services usually are front-loaded, meaning you pay 100% up-front for unlimited software use and service that doesn’t terminate in time, compared to paying a small up-front charge and annual maintenance charges.
- The cost is between $2,000 and $4,500.
- The services are marketed by financial professionals, including mortgage brokers, realtors, insurance and financial advisors, and through multi-level marketing programs. Depending upon the agent’s level, commissions can range from several hundred to several thousands of dollars per sale.
- MMA plans are marketed through one-on-one meetings, very convincing seminars, and there seems to be networking in some churches.
Money Merge Account Claims:
Some of the claims of MMAs are: Early mortgage pay-off, superior to other early mortgage pay-off plans, and complex software necessary to manage all of the moving parts. Advocates justify the cost due to complexity and ongoing needed service.
It appears that this plan does indeed work. I hope that these programs help many people to save thousands, however pay close attention to pay-off estimates and assumptions to be sure that cost savings claims are not over-estimated. Does the complexity and service justify the cost? The pay-off may indeed exceed the investment, but are there companies entering the MMA market with lower costs? If popularity of these plans grows, this may happen.
Ask for full information; obtain independent advice from financial and accounting advisors as to the viability of such programs. As with all long term financial commitments, it is wise to read everything in minute detail, including refund policy if not satisfied, and ask for an explanation of anything you don’t understand. Ask for advice from legal advisors before signing a contract. You may want to obtain advice from tax advisors as to your individual tax implications, and lastly contact your state’s attorney general for information about the company you may be considering.
The conclusion on Money Merge Accounts
Given the current mortgage crisis and depreciating real estate values it may be wise to approach such programs cautiously. They are probably not appropriate for everyone, including those with cash flow (living paycheck-to-paycheck) or credit problems. When it comes to making decisions always remember three things: 1. Seek advice from many people (Proverbs 15:22 “Plans fail for lack of counsel, but with many advisers they succeed)”. 2. Nothing ever purchased lives up to all of the initial hype, and 3. Pay attention to your gut instinct. Lastly, I am always concerned when multi-level marketing programs network through churches. If the programs don’t work out for some people, it could negatively affect the church.
Please comment if: you are aware of companies entering the MMA market with lower costs, or if you know of any independent consumer magazines or accounting firms who have fully audited the computations and published the full results. It would also be good to hear from users of such programs as to the level of service and results they have received.
this article was included in the carnival of personal finance
Technorati Tags: Money merge account
Related posts
I previously wrote a post called What is an IRA?, but I have had some inquiries about IRA’s, so I will try to keep it simple and explain Individiual Retirement Accounts a bit further for the beginners.
What is an IRA anyway?
- Well, an Individual Retirement Account (IRA) is basically an account that provides huge tax benefits when used to save money for retirement.
- It is an ACCOUNT that HOLDS investments IN it. I find that some people get this part confused, so remember IRAs are NOT investments themselves, they are only the ACCOUNT that holds the investments. Within the account you can invest in stocks, mutual funds, CDs, money market funds, and many others.
- IRAs can be opened at brokerage firms (Merrill Lynch, Edward Jones, etc.), online brokers (Zecco, Scottrade, ETrade), mutual fund companies (TRowe Price, Vanguard), and most banking institutions.
- You get to choose which investments go in the account. Keeping that in mind, many banks will not give you the freedom to invest in stocks and mutual funds, because they do not offer brokerage services (I know the larger ones do, so if you bank with them, go for it). But YOU are the one who decides what investments go in your account.
- You CAN open multiple IRA accounts at different places - keep in mind that there is a maximum amount that you are allowed to put in to your IRA each year ($4000 for 2007). I don’t recommend it; it gets messy. I know from experience. You have to keep track of how much you put in each one each year and make sure the combined amount doesn’t exceed the IRS limit. Another reason for not having multiple IRAs opened up is that…
- There is an annual fee of $30-40 charged by the brokerage firm or bank that you have your IRA with. Some are more, and some are less, but this is a good ballpark figure.
Roth IRA or Traditional IRA?
Of the two most common and basic IRAs, there are two types; ROTH and Traditional. The main advantage of the Roth IRA is that you use after-tax money to fund it, so when you reach retirement age you will not pay ANY taxes on the withdrawals.
The Traditional IRA, on the other hand, offers an up-front tax deduction, but commands taxes to be paid in retirement.
It is generally a safe assumption that the ROTH is usually is the better choice for most people. However, there are major differences between the two, so in order to get the best advice for your particular situation talk to a financial advisor.
There is a whole lot more to learn about ROTH IRAs and Traditional IRAs, but if you can honestly admit that you do not want to spend the time or energy to figure out which one will work better for your situation, then just pick one and start saving. It is far better to start saving, than do nothing while you try to figure out what to do.
Where can I open a Roth IRA?
So, you have learned the basics about IRA’s and you know that now is as good of a time as ever to start one, but where do you go to open one?
Really, you can open them just about anywhere: banks, brokerage firms, discount brokers, some mutual fund companies etc.
Just be aware that WHERE you open it may impact what investments are available to you. For instance, some banks only offer CDs in their IRA’s. www.TradeKing.com is a discount broker that I like (that is just about one of the cheapest places you can go). They allow you to buy mutual funds, stocks, bonds and more.
Questions to ask
No matter where you open your IRA, you should find out the answers to a few questions…
- Is there a minimum initial investment? How about minimum contributions?
- What types of fees are charged?
- Does the company offer automatic contributions?
- What investment options are available? Stocks? Bonds? Mutual funds? CDs?
If you open the account online, you should be able to find the answers to these and any other questions you may have on the company’s website. If not, feel free to call them. Most of them are so excited to have new customers that they will make the process as painless as possible.
(added 04/21/08) Zecco is another option for opening an IRA. They actually offer free stock trades. I haven’t opened an account with them yet, but I am going to be opening one soon. I will write more about it when I do…
Just find some place that you feel comfortable with to open your IRA. As I mentioned the options are endless, but even if you decide you want to move your IRA - you can without much hassle. I will have to go over IRA rollovers later.
Just remember, the hardest part is just taking the first step. It may take you an hour or two to open an account, but it will be well worth it when you look back in 20 years.
del.icio.us Tags: What is an IRA account?
Related posts
A friend of mine recently asked me what a CD is, so I thought I would spell it out here as well. Other than a wonderful alternative to cassette tapes, a certificate of deposit (CD) is an agreement with someone (normally a bank) to give them X amount of dollars for Y amount of time.
That “someone” to whom you gave your money will, after Y days or years, give your money back to you with interest added in. Under normal market conditions you will generally receive a higher interest rate the longer you agree to give up your money.
Common CD terms are 3 month, 6 month, 12 month, 2 year, 3 year, and 5 year.
A few notes about CDs:
- CDs will almost always pay more than a savings or money market account, but as mentioned earlier the trade off is the lack of liquidity.
- A CD is often a good option if you know you will need that exact amount of money on a specific date in the future. (i.e. vacation)
- Normally deposits are not allowed once the CD has been opened.
- Early redemptions of CDs are allowed, but you will often times have to pay back all the interest you have earned and sometimes even a bit more.
- CDs purchased at a bank will most likely be [tag]FDIC insured[/tag].
- You can find the best rates on CDs at Bankrate.com
Related posts
If you are asking this question now - I am sorry. You have missed out on, in my opinion, the 3rd best advancement in banking in the last 15 years (behind the debit card and high-yielding savings accounts). [tag]Bill Pay[/tag] is a service offered by just about every bank or credit union under the sun. It does just what the name implies; it allows you to pay your bills via your bank online.
Your bank foots the bill for the stamps and sends your payment from your checking account to whatever address you specify. Some banks charge a few bucks a month for this service, but most offer it for free. It saves just about every user 2-3 hours every month. Not to mention the money that you save on postage as well.
At my credit union I use this form to add a new merchant to send bills to. 
Once that has been set up you are ready to pay bills with the click of a button. Then, when it comes time to pay a bill, I simply fill out the form below and don’t think about it for another month.
Thats it. It is that simple. As far as security, I can say is that I have used it for 6 years and never not had a bill get to where it was supposed to go. I worked in a bank for about 3 years and never had anyone come into my branch with any kind of security problems related to bill pay. Please leave me comments if you have had any negative experiences with it.
Related posts
What exactly is a stock you ask?
Well, a stock is a certificate that shows that you own a small fraction of a corporation. When you buy a stock, you are paying for a small percentage of everything that that company owns; buildings, chairs, computers, etc.
As a part owner of the company, the amount of stock that you own determines the amount of ownership that you have.
For example, if a company has 10,000 shares of stock outstanding and one person owns 100 shares, that person would own and have claim to 1% of the company’s assets. The benefit of owning stock in a corporation is that whenever the corporation profits, you profit as well. Therefore, the risk is that the company could do poorly or even go bankrupt (normally not a good thing for stockholders).
There are two main types of stock: common and preferred…
- Common stock usually entitles the owner to vote at shareholders’ meetings and to receive dividends.
- Preferred stock generally does not have voting rights, but has a higher claim on assets and earnings than the common shares. For example, owners of preferred stock receive dividends before common shareholders and have priority in the event that a company goes bankrupt and is liquidated.
A few notes on stocks:
- Although they are potentially riskier than some other investments, a key benefit is that stocks have no limit to how high they can go in price. The most you can lose is the amount you invested.
- Historically, stocks have outperformed most other investments over the long run.
- You can now purchase most stocks at many online brokers for under $10 a trade and some online brokers offer free online trading.
Related posts
CU 101. A credit union (CU) is a financial institution that often provides just as many similar services as your local bank. The main difference is that generally banks are for-profit institutions, while CUs are owned by its members.
As a not-for-profit the CU does not have profitability as its top priority. Banks on the other hand (especially large ones) are primarily focused on profits. The CU is obligated to use the “profit” to pay back the members or go back into the organization to make it better in some way.
What does this mean for you and I? Lower (or no) fees and better rates. Credit unions still may charge fees for services to generate income, but the difference is the CUs are striving to generate just enough income to meet their expenses, whereas banks may try to make as much profit as they can without losing the customer.
The downside to many CUs is that they are outdated and offer fewer products and services than the big banks. Most of the CUs I have stepped into looked like they were decorated with the hand-me-downs from the local DMV.
The exceptions to this rule seem to be the larger CUs. The more branches that a CU has is usually a good indication of the amount of comparable services offered. The largest CUs tend to offer the same products and services as the big banks for a lower overall cost to the customer.
Related posts
A Money Market Deposit Account (MMDA) is similar to a savings account, but normally allows a limited number of checks to be written off the account. Money markets typically pay better rates than savings accounts, which may be why they typically have higher minimum balances than savings accounts. A few notes about MMDAs:
- only six withdrawal transactions to third parties are permitted per month, only three of which may be paid by check
- some banks limit their customers to six total transactions. ATM transactions may or may not be counted as part of the six.
- make sure they are FDIC insured
You can find the best rates currently at Bankrate.com.
Related posts
The Federal Deposit Insurance Corporation (FDIC) is a U.S. government corporation that was established as a result of the numerous bank failures from the Great Depression. FDIC insurance covers checking and savings deposits at any FDIC insured bank. If the bank were to go belly-up, your bank accounts would insured up to $100,000. The following types of accounts are covered by FDIC insurance:
- Checking accounts
- Savings accounts
- Money Market deposit accounts
- CDs
- Cashier’s Checks
An important key to remember is that accounts at different banks are insured separately. You can get $100,000 of insurance at each bank you have deposits. Also, accounts in different ownerships (i.e. joint accounts and trust accounts) can be considered separately for the $100,000 insurance limit.
>
Related posts
