Month: February 2015

The Percentage-Based Budget

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Several hundred publicly traded companies will report their quarterly earnings this week. Some of the names are ones you might recognize, such as Domino’s Pizza, Hewlett-Packard and Home Depot, while most others are companies you didn’t know existed, starting with Aixtron SE and ending with ZAGG Inc.

All of these companies, regardless of sector or size, share one distinct commonality: a detailed balance sheet. In layman’s terms, all publicly traded companies share their budgets, plotting total assets and against total liabilities, for regulatory purposes and shareholder examination.

Fortunately, our personal finances are not held up to such intense scrutiny, although it may not be a bad thing. Income level aside, if your accounting practices were held up to the light, would your budget pass the Securities and Exchange Commission’s test?

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Refocusing Amidst the Chaos

The sun rises slowly at our house. My preferred alarm clock most mornings is the creak of a bed down the hallway, followed by the soft thud of my four-year-old daughter’s feet hitting the floor. Next comes the pitter-patter that you often read about in books and hear about in songs, although the sound is even more pure when it’s your child in your home. The footsteps grow louder with each passing second, like an oncoming freight train, although in the early morning hours, my daughter is more fleet of foot than any rolling cylinder of metal. Rarely is there a better way to start the day than with the soft whisper of a child asking, gently, “Daddy?”

She comes to my side of the bed not because she loves me more, but because she knows I require less convincing. Even at her young age, she can effortlessly coax me out of bed to fetch apple juice and a cereal bar as a precursor to breakfast; an appetizer, of sorts. The sensible adult decision as I stagger downstairs in my predawn fog would be to reach over and turn on the Keurig before opening the refrigerator and absorbing that temporary, yet harsh burst of light. Time is at a premium these days. Just read any handful of blog posts and articles detailing the importance of multitasking in manufacturing 26 hours in a 24-hour clock. An early morning start would help accomplish just that.

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The Hidden Benefit of the Roth IRA

If the 401(k) is the granddaddy of retirement investing, then the Roth IRA is the cool kid next door. The 401(k) emerged from the Revenue Act of 1978, which included a provision that employees would not be taxed on a portion of their income they elect to receive as deferred compensation. The money you funnel into your 401(k) is sliced off the top of your taxable income, thereby lowering your current tax bill, and those funds are tax-deferred until you withdraw them after 59 ½. The Roth IRA arrived nearly 20 years later in the Taxpayer Relief Act of 1997 and was named after its chief sponsor, Senator William Roth of Delaware. Contributions are not tax-deductible, although the beauty of the Roth IRA is that withdrawals are tax-free after 59½.

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Post-Holiday Credit Card Blues

If you were one of the millions of Americans frantically purchasing gifts for family and friends in the chaotic days leading up to Christmas, your day of reckoning is upon you. Now that the December billing cycle has come to a close, the reality of your purchases come to fruition with the credit card due date that hits around the start of February.

The pure evil genius behind credit cards has gradually been exposed over the last four decades. One example of the dangers of plastic is explained in a paper by MIT economists Drazen Prelec and George Loewenstein published in 1998 – “The Red and the Black: Mental Accounting of Savings and Debt.” At the crux of their findings was the pain of paying concept; the notion that cash purchases “undermine the pleasure derived from consumption.” If you walk into a store with only a $20 bill in your pocket, your selection process for how to spend that money will likely be meticulous and at times stressful. It’s a rite of passage for high school boys to gather their part-time job savings for date night only to have the available fund balance detract from the evening due to constant calculations. Splurge on the molten lava cake for dessert, or save money for popcorn at the movie theatre? Put an extra gallon of gas in the car or use that extra $3 for a shared Coke and say a prayer that you don’t have to call her father to explain why you ran out of gas after curfew?

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