Needs Based Planning

           Probably the most popular and naturally flawed form of financial planning is called needs based planning. This method is widely accepted and commonly practiced. 95% of financial planners and advisors would likely use this method. It very logically calculates what your monthly expenses will be at retirement by adjusting your current monthly expenses for inflation. Then, using your estimate of the time between retirement and death, it calculates how much money you will need at retirement in order to have income for the rest of your life. Then, again discounting for your planed rate of return, it calculates how much money you will have to invest every month in order to reach your goal. Below is an example of a needs based plan.

Current Monthly Expenses                                     $5000.00

Years Till Retirement                                                   30

Estimated Inflation                                                     4%

 Monthly Expenses at Retirement =                        $16,217

(This is how much your living expenses will be in 30 years when you retire)

Estimated Years in Retirement                                    20

Estimated Need for Retirement =                        $2,676,167

(This is a lump sum you will need in order to retire)

Estimated Rate of Return                                          10%

Monthly Investments Required =                            $1,176

            If you notice how many times estimates are included in the calculation (4 times) you will begin to see the first and most basic flaw.  It is all an estimate assuming that some very volatile things will remain consistent. If any one of these things is off in the slightest way it could mean disaster. In this case disaster means going back to work or moving in with your children during retirement. Neither of these things would be the end of the world, but neither are they ideal. Over the few weeks I plan to discuss a number of these variables, and other variables that aren't so obvious. I'll discuss where we have been and where we are headed. Email me with requests that you might have for topics that will be discussed first. bbowman@richestmaninzion.com

Backdoor Taxes to hit middle Class

This Article was ran by Reuters, and followed by a number of other media, but every article was quickly retracted after heated calls from the White House. The article was not retracted because of misinformation, but merely because the White House doesn't want you to know.

Backdoor taxes to hit middle class

By Terri Cullen Terri Cullen Mon Feb 1, 4:09 pm ET

NEW YORK (Reuters.com) –The Obama administration’s plan to cut more than $1 trillion from the deficit over the next decade relies heavily on so-called backdoor tax increases that will result in a bigger tax bill for middle-class families.

In the 2010 budget tabled by President Barack Obama on Monday, the White House wants to let billions of dollars in tax breaks expire by the end of the year — effectively a tax hike by stealth.

While the administration is focusing its proposal on eliminating tax breaks for individuals who earn $250,000 a year or more, middle-class families will face a slew of these backdoor increases.

The targeted tax provisions were enacted under the Bush administration’s Economic Growth and Tax Relief Reconciliation Act of 2001. Among other things, the law lowered individual tax rates, slashed taxes on capital gains and dividends, and steadily scaled back the estate tax to zero in 2010.

If the provisions are allowed to expire on December 31, the top-tier personal income tax rate will rise to 39.6 percent from 35 percent. But lower-income families will pay more as well: the 25 percent tax bracket will revert back to 28 percent; the 28 percent bracket will increase to 31 percent; and the 33 percent bracket will increase to 36 percent. The special 10 percent bracket is eliminated.

Investors will pay more on their earnings next year as well, with the tax on dividends jumping to 39.6 percent from 15 percent and the capital-gains tax increasing to 20 percent from 15 percent. The estate tax is eliminated this year, but it will return in 2011 — though there has been talk about reinstating the death tax sooner.

Millions of middle-class households already may be facing higher taxes in 2010 because Congress has failed to extend tax breaks that expired on January 1, most notably a “patch” that limited the impact of the alternative minimum tax. The AMT, initially designed to prevent the very rich from avoiding income taxes, was never indexed for inflation. Now the tax is affecting millions of middle-income households, but lawmakers have been reluctant to repeal it because it has become a key source of revenue.

Without annual legislation to renew the patch this year, the AMT could affect an estimated 25 million taxpayers with incomes as low as $33,750 (or $45,000 for joint filers). Even if the patch is extended to last year’s levels, the tax will hit American families that can hardly be considered wealthy — the AMT exemption for 2009 was $46,700 for singles and $70,950 for married couples filing jointly.

Middle-class families also will find fewer tax breaks available to them in 2010 if other popular tax provisions are allowed to expire. Among them:

* Taxpayers who itemize will lose the option to deduct state sales-tax payments instead of state and local income taxes;

* The $250 teacher tax credit for classroom supplies;

* The tax deduction for up to $4,000 of college tuition and expenses;

* Individuals who don’t itemize will no longer be able to increase their standard deduction by up to $1,000 for property taxes paid;

* The first $2,400 of unemployment benefits are taxable, in 2009 that amount was tax-free

Tax Withholdings

Unless you are a business owner or self employed, the government withholds expected taxes from your paycheck. If the government withholds money on your income and you consistently get a significant tax return, it means that they are withholding too much. Would you lend that money to a stranger for free? Essentially you are giving the Federal Government a 0% interest loan. What if you claimed tax exempt on your W4. Then you automatically put what the government normally withdrawals into an online savings account at 3% interest. Then even if you have to pay taxes at the end of the year, you have made 3% interest on the money during the year. Below is a comparison of the two ideas.

Income $ 100,000.00 Interest 3%

Month          Total            Savings           Interest
              Withholding
   1           $ 1,666.67      $ 1,666.67        $ 50.00
   2           $ 3,333.33      $ 3,383.33      $ 101.50
   3           $ 5,000.00      $ 5,151.50      $ 154.55
   4           $ 6,666.67      $ 6,972.71      $ 209.18
   5           $ 8,333.33      $ 8,848.56      $ 265.46
   6         $ 10,000.00     $ 10,780.68     $ 323.42
   7         $ 11,666.67     $ 12,770.77     $ 383.12
   8         $ 13,333.33     $ 14,820.56     $ 444.62
   9         $ 15,000.00     $ 16,931.84     $ 507.96
  10       $ 16,666.67     $ 19,106.47     $ 573.19
  11       $ 18,333.33     $ 21,346.33     $ 640.39
  12       $ 20,000.00     $ 23,653.38     $ 709.60
Taxes
Owed    $ 15,000.00     $15,000.00
Return       $5,000.00      $8,653.38

Difference $3,653.38

As you see above, the person that puts their withholdings in a savings account has just over $3,653 more than the person who gave the government a 0% loan. Keep in mind that this method takes a very disciplined individual because if you spend the money instead of saving it you may end up owing more taxes then you have money to pay for. Also keep in mind that you will receive Form 1099 from your bank account showing the interest you have made. Be sure this will not change your tax bracket. Most likely it will not, but if it is significant enough to do so you might want to consider doing something else. Keep in mind that I am not a CPA. You should always consult a tax profession when making tax decisions.

Power to Protect and Defend

There are many things to consider when giving. I will discuss those later. At this time I would like to discuss advantages of seeking after worldly wealth. That is the power to protect and defend. This is my single greatest motivation for gaining wealth. Money can give you the power and influence you may someday need in order to protect your family and or others.

I met a family in a small town in Colorado called La Poudre. This family was a hard working honest family with a modest home that matched their modest living. When their oldest child got married and had two children, they felt very blessed. These new grandparents were able to spend a lot of time with their grandchildren because they lived close to them. The other grandparents lived in Texas, so their grand children grew and became very close to their grandparents in Colorado.

Then one day the unthinkable happened. Their son in-law murdered their daughter. It wasn’t one of those things where they just accused their son in-law, or that there was suspicion that he did it. He was in jail and guilty.

In the small amount of time between their daughter’s death and their son in-law’s arrest, he took their grandchildren to Texas. After the son in-law’s arrest the grand children were left in the custody of the Texan grandparents. Not that the Texan grandparents are bad, but the grandchildren had been cared for and nurtured by their grandparents from Colorado. Now they were in a strange place, with people they barely knew, and with the parents of the man that violently killed their mother. They lost their parents and were taken away from the two closest family members they knew.

Obviously the people these children should be with are the grandparents from Colorado. But the grandparents from Texas decided differently, and because the children were already in Texas, the custody battle occurred in Texas. This family didn’t make a lot of money as is, now in order to even have the chance of caring for their grandchildren they had to travel to Texas multiple times, and pay for a lawyer to represent them. It was a nasty custody battle that took months, put them $10,000’s in debt, and in the end they lost. I suspect probably because the Texan grandparents had more money and could afford better lawyers.

This is just one example of the power money can buy. When it comes to my family, if they are wrongfully accused, or flagrantly sued, I want to have the money I need to protect them.

The Root of All Evil

I propose that money is not the root of all evil. I would say that greed is the root of all evil; greed for power, money, and possessions. Money itself is not evil and cannot keep you out of heaven. It is the love of money that will keep you out of the Kingdom of God. The love of any possession can keep you out of the Kingdom of God if you love the possession more than Christ.

In the story of the man that came to Christ in Mark chapter 10, verses 17-22, Christ does not tell the man to repent for owning numerous expensive things. He tells him to sell his things and give the money to the poor, and come follow Him. It was a test. The man loved his stuff so much that he could not give it to the poor, and therefore could not take up the cross and follow Christ. In other words he loved possessions more than Christ, and therefore failed the test.

Further evidence that money is not actually the root of all evil is found in the Old Testament. King David, the second King of Israel, author of many of the psalms found in the Book of Psalms, was known as a righteous and great king. Though he did have his faults, wealth was not one of him. The Bible says that “he died in a good old age, full of days, riches, and honor.” (1 Chronicles 29:28)

A story of even more wealth and righteousness is that of King Solomon. He was the third King of Israel, the son of King David, and very likely the richest prophet of God found in the Bible. Towards the beginning of his reign he prayed to God and asked,
“Give therefore thy servant an understanding heart to judge thy people, that I may discern between good and bad…And God said unto him, Because thou hast asked this thing, and hast not asked for thyself long life; neither hast asked riches for thyself, nor hast asked the life of thine enemies; but hast asked for thyself understanding to discern judgment; Behold, I have done according to thy words…and I have also given thee that which thou hast not asked, both riches, and honor: so that there shall not be any among the kings like unto thee all thy days.” (1 Kings 3:9-14)

Later in 1 King 10:23 we learn that, “king Solomon exceeded all the kings of the earth for riches and for wisdom.” Was this righteous? Should he have given his wealth away to the poor and needy? He could have given food and comfort to hundreds of thousands.

His wealth was a direct blessing from the Lord. God chose to bless him with great wealth. Much of it came in the form of gifts from kings and queens for his wisdom. If money is the root of all evil then why would God bless His prophet and king with so much of it? Money may be the root of some evil, but in itself money is not evil. Both of these Kings of Israel did have faults and did commit sin, but their sin was not wealth. Their sins were a result of corruption by lust.