GOLD, SILVER...

In recent weeks we have seen some remarkable events. The recent IndyMac bank failure was the second largest bank failure in the history of the United States. It was incredible and almost surreal to witness a run on the bank in 2008. In the book The Creature From Jekyll Island, by Ed Griffin, it is apparent that bank failures are quite common in our nation's history.

The Book of Mormon alluded to the treasures of people becoming slippery. The stock market goes up and down like a roller coaster, and the price of a barrel of oil follows the same pattern. The current subprime mortgage crisis has led to another bailout of incredible proportions. The financial markets are in turmoil. The federal reserve, and fractional reserve banking is the leading culprit in these tumultuous times.

Wise men and women in my life have taught me the importance of being prepared for the unexpected. My many years as a Boy Scout ingrained into my mind the motto: "Be Prepared". After viewing all of these events, I need to put into practice what I have been taught on a much more urgent level. Food storage, financial reserves, and disaster preparation are necessary subjects to be familiar with.

One subject I plan to study more is investing in real money, (i.e. Gold and Silver) instead of the slippery fiat currency our government forces us to use. In the future, my posts will include material related to my findings. Needless to say, make sure you have your financial house in order as soon as possible. Even if nothing happens (which I doubt), peace of mind is one of the greatest treasures you can have!

JFK AND TAX CUTS

Here is one of my favorite quotes from John F. Kennedy: "It is a paradoxical truth that tax rates are too high and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now...Cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus." What Kennedy is saying is that this concept of tax cuts resulting in a revenue increase for the government is a paradox.

A paradox is defined by Webster as: 1. A tenant contrary to received opinion. 2. A statement that is seemingly contradictory or opposed to common sense and yet is perhaps true.

Kennedy believed that if the government wanted to increase revenue (from tax collection) it should reduce the tax rate. This seems like a contradictory statement yet each time the government has reduced tax rates in our nation's history, its revenues have shortly increased. President Kennedy proposed a significant tax cut which was subsequently passed by the Democrat led congress. Kennedy believed that cutting the tax rate would lead to increased private investment (resulting in job creation),and increased consumer spending, which would lead to increased revenues. History proves Kennedy's policy of tax rate cuts to be true.

Ronald Reagan signed into law tax cuts which led to a twofold increase in government annual revenue from approximately 500 billion at the beginning of his term to 1 trillion at the end. Unfortunately he did a tremendous disservice to this concept by increasing government spending and increasing the national debt threefold during the same time. The national debt increased from $908 in 1980 billion to $3.2 trillion in 1990. [1]. These actions gave people the impression that tax cuts resulted in the large increase in the national debt. The real culprit was increased spending. The tax cuts made by President Bush have also increased government revenues, but again, spending has not been reigned in.

If I began to spend more than I make each month, I would soon become insolvent. If I receive a large raise, but increase my spending beyond the level of the raise I would also soon become insolvent. You CANNOT spend more than you make in the long run, it is a principle of nature.

Kennedy was right. Tax cuts do increase government revenues in the long run. When people have less of their own money stolen taxed, they have more to spend, more to invest, more to save, more to do with it what they will. When people have more of their money stolen taxed, then have less incentive to work harder or invest. This has been proven time and time again by both political parties actions. [2].

[1] - http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt_histo4.htm

[2] - When I say stolen it refers to income taxation. I do not consider duties, tariff's, or consumption taxes as theft.

MANAGE YOUR FINANCES

One of my favorite subjects (believe it or not) is budgeting. This is probably why the accounting profession suits me nicely. In July of 2005, I found a program that is unlike any other budgeting program before encountered. The program is simple, easy to use, and has changed the way my family manages money. Managing your finances effectively is a principle of personal liberty.

Most programs that budget money does so in a way that is time consuming, frustrating, and ineffective. Ask most people whether or not they keep a family budget, and they will say no. Managing your money, is managing your past, present, and future. You are managing the resources you have acquired through your hard work and effort. Don’t let them go to waste!

The program I found is called YNAB, which stands for You Need A Budget. Below, I will offer a summary of the program, but you can also link to the company’s website here for an even more detailed description (and pretty pictures):

For fast, effective, financial relief: You Need A Budget

The budgeting program itself is based on four principles that are so simple; you will wonder why you did not think of them before.

1. Stop Living Paycheck to Paycheck
2. Give Every Dollar A Job
3. Prepare for Rain
4. Roll With the Punches

1. Stop Living Paycheck to Paycheck

The money you make today is what you will spend tomorrow. Let’s say you make $5,000 every month. The money you earn this month is the amount you have to spend in the next. So let’s say you earned $5,000 in January. This is the amount of money you will have available to spend in February. This principle requires that you have at least one month’s worth of income saved up. If you don’t the program can help you get there.

This principle is especially great if you have a commission based income where the amount you earn every month is not equal.

2. Give Every Dollar a Job

So you’ve earned $5,000 in January, February comes along, and you have $5,000 to spend. You are going to give everyone of those dollars something to do. You budget out your rent payment for $1,000. This leaves you with $4,000 to assign. Groceries, $500, now you have $3,500, ect, ect.

Assume that after you have gone through all of your normal expenses, and (hopefully) you still have some money left to assign. Let’s say $100. Put it to work! Put it in savings, in to a vacation fund, a future desired purchase, pay down debt; the point is to assign everyone of the $5,000 you started with something to do.

3. Prepare for Rain

The DMV requires that I pay them $170 each year for our van and $78 for our other car. Both payments are conveniently (sarcasm) due in the month of February. That is a $256 expense that occurs only once a year! That is a good chunk of the budget!

To prepare for such expenditures, you set aside $21.33 each month for twelve months. When February comes around, I will have $256 saved up to pay for the expense.

Example:

In March I set aside $21.33 as Car Registration Expense, when I don’t spend it, the balance of $21.33 remains. April comes along and I set aside $21.33 again. When I don’t spend it (because it is due next February) the balance is now $42.66. I continue this until next February when over the course of the year I have saved up $256 to pay the DMV. Since I have prepared for this expense, the large payment out of my budget is just the same as every other month. The $256 balance I have saved is now removed, and I start all over preparing for next year.

This principle smooths out your expenses over the course of the year. I cannot tell you how wonderful this principle is!

4. Roll With the Punches

Since my family has started using YNAB, my concern over monetary issues (aka financial stress) has decreased dramatically. I remember one instance (before we started YNAB) when my wife brought home a couple of toys she had purchased for our kids. I didn’t get mad at her, but in my mind I thought: “We are done for; we don’t have the money to keep buying such things!” The toy only cost $5, and I thought it was the end of the world. (I hope people can relate to this feeling).

Now that we set aside $100 a month for child expenses, my wife knows how much she can spend, and I know how much we can spend. When such a toy is purchased, I don’t stress out about it, because I now we have set the money aside just for that.

But let’s say we had set aside $500 for groceries. Family shows up from out of town, and you need to purchase some extra food. At the end of the month you realize that you went $50 over budget on groceries. (You spent $550 when you had budgeted only $500). Roll with the punches my friends.

Anytime you go over budget, the amount by which you went over budget is subtracted from next month’s available money. Remember principle’s 1 and 2. You make $5K in January, which means you have $5K for February. But since you went over budget in January by spending $550 for groceries, the $50 you went over budget by, will now be deducted from February’s available money. Instead of $5,000 you will now have $4,950 available to spend. You will make mistakes! This principle helps you deal with it.

Conclusion

Much of the stress we face in life nowadays is caused by financial worries. I promise you this program has made the stress of family finances almost non existent. Again here is the link to the program:

For fast, effective, financial relief: You Need A Budget

There are instructions and detailed video demos of how the program works. Do not be a slave to your personal financial shortcomings. Take charge and make your money work for you! If you need any help or have any questions, shoot me an email. I am not kidding when I say I love to help people manage their money well!