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$50,000 of income and $315,000 in Credit Card debt – What are you thinking???


Government spending

Government spending (Photo credit: 401(K) 2013)

I think that we can all agree that if we had a friend who only made $50,000 each year, but had $315,000 in credit card debt, we would be worried about that person’s mental health…

If they asked you for help, would you recommend that they work 6 jobs so that they can continue spending the same amount of money and never get out of debt?  Or would you recommend that they take on one extra job while drastically reducing their spending while trying to pay off their credit cards?

Of course, you would likely do the latter.  When you have a spending problem, it is okay to want more income, but controlling your spending is an absolute must in order to get your house back in order.

If the United States Government was a person, they would be this person!

Unfortunately, our government has chosen neither of the options outlined above.  They have basically taken on a few extra hours at work (in the form of more taxes) while deciding to spend even more than ever before (in the form of ObamaCare).

The Democrats have decided that they do not want to cut spending, because they think they can raise enough taxes to get out of this mess.  Here is the truth, they could raise everyone’s taxes by 25% right this second, and use that money solely to pay off the debt, and it would still take 15 years to get back to even.  That doesn’t even count the Trillions of dollars they are adding to the debt each year.

Conclusion:  The debt is too big to tackle by raising revenue without cutting spending.

The Republicans believe that we can stop cut spending, without raising taxes, and get this mess under control.  Here is the truth, in order to make this work, the government would have to cut 90% of its spending for the next 20 years in order to achieve this goal.

Conclusion:  The debt is too big to tackle by cutting spending without raising revenue.

The sooner we can all agree to these simple facts, the sooner we can help our dysfunctional friend get back on their feet.

We do not need conservatives, we do not need liberals, we just need people who know how to do math.  Anyone out there fit that description?

If so…Please, Please, Please run for congress!

This is not about political parties, this is about a person who is riddled in debt looking themselves in the mirror and deciding that today is the day to stop living a lie.  Today is the day when they cut back on what they can live without.  Today is the day when they decide to spend more of their time working hard to make some more money so they can pay off some of their debt.  Today is the day to make a plan, execute a plan, and endure some tough years on their way to achieving the American Dream.

If they don’t, the American dream as we know it will not be available to any one of us in the future…

I am the future 1% – Why do you hate me?


This is an essay from someone who is destined to be in the 1% before long.  This group, the 1%, has been vilified in the media, eviscerated by Liberal groups, and demonized through political rhetoric during the Obama years.  Are these people really the devil?  Or is it possible that they are exactly the kind of hardworking, down-to-earth, creative-thinking people who we need to pull our country out of the hole that we have dug ourselves?

 

–          I am the future 1% – This is my story

–          I’m 5 foot 2 – Studies indicate I will make $237K less than the avg. 6 foot tall man in my lifetime

–          I started working at 14 at a fast food restaurant – I rode my bike to work every day

–          I did not make over $5/hour until I had gotten three raises and an assistant manager promotion

–          I worked full-time in High School while competing in sports and making the honor roll

–          I never did drugs, partied, or drank in High School

 

–          I am the future 1% – Should I have enjoyed High School more?  Worked less?  Partied harder?

–          I got a promotion to manager at the age of 18, after working at the same place for 4+ years

–          I didn’t get into my preferred college – I went to another school, quit for 1 yr before returning

–          I was arrested for drinking underage during college – I decided not to let it define who I was

 

–          I am the future 1% – Should I have given up when adversity struck for the first time?

–          I worked full-time and slowly finished college in 6 years after much prodding from my parents

–          I took a 100% commission job at a Fortune 500 company, fought hard for every meal for a year

–          I was arrested again – I decided to make myself a better person instead of spiraling downward

 

 

–          I am the future 1% – Should I have given up when everything seemed to be going against me?

–          I got promoted after a year of outstanding work – putting in more hours than anyone else

–          I moved to another Fortune 500 company, this time as a Bank Manager

–          I bought a house at the height of the housing boom – I am currently still $50K underwater on it

–          I took out over 80K in loans so I could quit my job and go back to school for my MBA

 

–          I am the future 1% – Should I have saved my money, settled down, and stopped progressing?

–          I received a Manager offer from another Fortune 500 company after business school

–          I got married to the love of my life and bought another house in a small town

–          I turned around two struggling business units, and quickly got promoted to Senior Manager

–          I am the future 1% – Should I have just enjoyed the ride and collected a paycheck?

–          I welcomed my first child into our family, and named him after my Grandfather

–          My wife runs a small business while raising our son full-time – She is absolutely amazing

–          Our current Net Worth is still below zero, though we are starting to catch up

–          I am currently in the top 13th income percentile at age 32…

 

–          I am the future 1% – Should I feel bad about what I have accomplished?

–          Would you rather I fell apart after the arrests and became a burden on society?

–          Would you rather I didn’t graduate college?

 

–          I am the future 1% – Should I feel bad about working hard to get ahead?

–          Would you rather I didn’t make an $80K bet on myself and my abilities?

–          Would you rather I coasted along in mediocrity without ever offering my employers value?

 

–          I am the future 1% – Why do you hate me?

Could a provision in the Fiscal Cliff deal help you retire with more money?


Money

Money (Photo credit: 401(K) 2013)

I will, for the moment, stay away from the politics of the Fiscal Cliff deal and focus solely on one unexpected upside that arose from the recently negotiated bill – The Roth 401(k) provision.

Opportunity

The new Fiscal Cliff bill allows employees to make a one-time, large transfer from a traditional 401(k) to a Roth 401(k).  This could be a huge advantage to certain people during retirement, and it is something that we all should be evaluating whether or not to take advantage of in the wake of the contentious Fiscal Cliff debate.

Warning To All Readers

This article is not meant for your enjoyment, it is hard to write about financial things and make it fun.  However, if you invest the next five boring minutes into reading and evaluating this article, you may save yourself hundreds of thousands of dollars during retirement.

Traditional 401(k) vs. Roth 401(k)

For those of you who are not familiar, your 401(k) are pre-tax dollars, which means you don’t pay taxes on them now, but you do pay taxes on them during retirement.  A Roth 401(k) allows you to invest after-tax dollars.  This means that you don’t get the tax benefits now, but you will get to withdraw the money tax-free during retirement, which can be an enormous advantage in your later years.

Who Should Take Advantage Of This?

The first step is to find out if your company offers a Roth 401(k) option.  Almost 50% of companies offer one, though only around 5% of employees take advantage in this phenomenal savings tool.  After you confirm that your company does offer a Roth 401(k), you need to determine if you fall into one of these three groups:

1)      Younger workers with cash on hand

2)       People who are in lower tax brackets and have extra cash on hand

3)      People with cash on hand who believe their tax rate will be higher in retirement than it is today

You may have caught on to the “cash on hand” requirement in each group.  The reason that is important is that you will be required to pay the taxes on the converted amount this year, which means this option is only right for people who have some savings that can be used to pay for those extra 2013 tax dollars.

Major Upside To Converting To a Roth 401(k)

In almost every scenario, the Roth 401(k) makes more sense in the long-run.  The only scenario where it typically will not work out is if you are in a very high tax bracket today, and an extremely low tax bracket during retirement.  Take a look at this example:

Jimmy is 35 years old, he is in the 28% tax bracket, and he puts 10K/year into his 401(k) each year.

Scenario 1)  Jimmy is in the 15% tax bracket today, and will retire in the 25% tax bracket at 65

Outcome:  The Roth 401(k) option will net Jimmy $368,500 more during Retirement

Scenario 2) Jimmy is in the 25% tax bracket today, and will retire in the 25% tax bracket at 65

Outcome:  The Roth 401(k) option will net Jimmy $257,740 more during Retirement

 

Scenario 3)  Jimmy is in the 25% tax bracket today, and will retire in the 15% tax bracket at 65

Outcome:  The Traditional 401(k) option will net Jimmy$15,560 more during Retirement

As you can see, the only scenario where Jimmy comes out worse-off after choosing the Roth 401(k) is if he is in a high tax bracket today, and he retires in a low tax-bracket.  The truth is that most people who are ready for retirement will retire in a similar tax bracket as they are in right now, because they will become used to living off of that same amount of money.  In addition, taxes are historically low at this point, and with our National Debt rising with no end in sight, it is almost impossible to foresee a scenario where our tax rates will be lower in 30 years than they are right now (I promise that will be my only political comment in this article).

Major Downside To Converting To a Roth 401(k)

If you convert your Traditional 401(k) dollars into a Roth 401(k), you are responsible for the taxes during that year.  For example, if you have $50,000 saved up in your 401(k), here is what it could look like:

Scenario 1:  Tim is in the 15% tax bracket and converts $50,000.  Tim owes $7,500 in taxes in 2013.

Scenario 2:  Sally is in the 25% tax bracket and converts $50,000.  Sally owes $12,500 in taxes in 2013.

Conclusion

The math is not nearly as simple as I made it in this article, but it is directionally-correct.  For the most part, converting your Traditional 401(k) to a Roth 401(k) will benefit you in the long run.  It is always a huge decision to part with cash on hand now in order to avoid paying more taxes later, but these are the types of decisions that financially successful people make every single day.  If you are interested in executing one of these conversions, please do your own research, do your own math, and make your own decisions.  Financial decisions are never easy, but when an opportunity presents itself that could save you hundreds of thousands of dollars throughout your lifetime, you owe it to yourself to spend some time looking into it.  Please feel free to reach out to me with any questions or comments.  Good Luck!

It Is Time For America To Relearn The ABC’s – Always Be Cutting!


Tax

Tax (Photo credit: 401(K) 2013)

In the wake of a $16 Trillion dollar debt that is growing every day, a congress who refuses to say no to spending, and a tide of politicians who want to increase taxes so that they can justify going even deeper into debt….it is time for a change!

Americans need to embrace a new view of government…a much smaller view.

Politicians need to revolutionize how they look at our government, and it all starts by re-learning the ABC’s.

A – Always

B – Be

C – Cutting

We need to take this mantra to the Federal Government, every State Government, all the way down to our Local Governments.

We need to CUT the size of Government!

We need to CUT taxes!

We need to CUT the debt!

We need to CUT spending!

We need to CUT needless regulations!

We need to CUT Foreign Aid during our recession!

If we replace our elected officials with legislators with this mindset, we will soon see this tide of irresponsibility begin to turn.

Balancing our budget will no longer be considered “extreme” politics.

Our paychecks will start going towards helping our families, rather than paying China back for the interest on our National Debt.

Government will be relegated to serving and protecting the people, rather than participating in the race to bring home the bacon to their own states.

Businesses will be free to use their hard-earned money to drive new innovation, new products, at better costs….rather than using that same money to comply with regulations that add no value to the consumer or the economy.

If you believe in this message, please share it with EVERY single one of your friends and family.  This is that important.  America is at a key crossroads in our history.  We can either relearn our ABC’s, or we will very soon find out that it is too late to turn this ship around.

SHARE this article TODAY!

Need Wasteful Spending Examples? Use These Examples In Your Political Arguments!


Here is a (short) list of some of the projects that you should quote when making your arguments that government spending has gotten out of control. The next time you are arguing with a big-government individual, drop some of these tidbits at them, then come back and post their response for us here at toddhagopian.com.  This should be fun!  Enjoy!

Wasteful Spending Examples

$600K to study what makes chimps want to throw their feces at each other (I am NOT joking)

$600K study on online dating habits

$200K study on whether tweeting and friending makes you happy

$440K to have attendants push buttons in elevators on capitol hill

$1.3 Billion in farm subsidies checks were sent to Urban addresses…including “farmers” in Beverly Hills, Los Angeles, Miami, Washington DC, and New York City

Over $380 million every year is spent sending politicians and bureaucrats around on non-commercial planes, even though commercial routes exist.

10 years ago, the government owned 430,000 vehicles, and the Grace Commission proposed cutting that number to 215,000 vehicles….the Government now owns 560,000 cars, trucks, and LIMOUSINES!

113K for a video game preservation center in New York

$10 million for a remake of “Sesame Street: (yes…the tv show) for Pakistan

550K for a documentary on how rock music contributed to the fall of the Soviet Union

$600 million has been accidentally paid out to dead federal employees over the last 5 years

China is our biggest debt holder, but we gave them $18 million in foreign aid in 2011

$500K for a study to see if you should trust random people’s tweets on twitter

$1.35 million to train new entrepreneurs sounds good….but it might have been cheaper if it was not in BARBADOS!

$200K for a government version of Farmville (supposedly to teach kids about nutrition)

Other projects include:

A study on whether playing Farmville on facebook helps people have more solid relationships in real life

A study on why the same teams constantly dominate March Madness

A study on whether online dating site users are racist in their dating habits

 

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