** DEMC ** Volume V No. 44 **
Often Imitated, But Never Bettered
Serving the Internet Since November 1995
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What’s In This Issue - Features
- Editor's Note: "Financial Planning"
- Business Insights: "Social Security Birthday Letter"
- Marketplace Classifieds
- Feature Article: "Your Consumer Mentality. Is It Pushing Your Buttons?"
- Clippings: “An End To The Death Tax?”
- DEMC's - Advertising Information
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As a small business owner, I expect many of you like myself, become so absorbed in working your business and creating strategies for future business endeavors that you neglect to keep in mind the bigger picture.
You need to remember why you are working hard and why you started your own business. I expect you'll recall it is to gain financial freedom. So how is your financial freedom? Have you even set-up a financial plan? Are you managing your personal money and investments wisely? How about your retirement, do you have a game plan?
If you intend to achieve the financial success about which you've dreamed it is important to manage your finances properly. Therefore to help you in put your finances in order and reach your goals DEMC has arranged for an experienced financial planner to become a "Featured
Writer" for DEMC.
Stuart Pearl of Pearl Financial and Insurance Advisory will contribute a monthly column to DEMC E-Magazine which will offer useful tips and techniques for small business owners that will assist you in managing and investing your money. You will find Stuart Pearl's first
contribution below in our "Business Insights" column.
Today's issue then continues our discussion about the necessity for financial planning in our "Feature Article." This next article is well worth reading, as it explains a key factor you need to understand about your finances if you intend to become wealthy.
Please enjoy the issue and as always feel free to provide us with your feedback. Thank you for your support.
"Social Security Birthday Letter"
By Stuart Pearl
If you're within three months of your next birthday and are over age 25, the Social Security Administration will be mailing to you, your personal social security statement which will estimate how much you can expect to receive in social security benefits when you stop working because of death, retirement or disability.
The letter from Social Security Commissioner Kenneth S. Apfel starts friendly enough, "...social security is here to help you when you need it most." The letter then quickly turns ugly by saying, "social security plays a major role in keeping people out of poverty, but we're not intended to be the only source of income for you and your family when you retire. You'll need to
supplement your benefits from pension, savings or investments."
Earlier this year Social Security unveiled a new online retirement planner to help people prepare for their financial future. The online service will let people compute estimates of their social security benefits.
The Social Security Administration's website can be found on the internet at, www.ssa.gov. Much like your warm and friendly birthday letter, Commissioner Apfel quickly makes the point that you'll need approximately 70 percent of your pre-retirement earnings to comfortably maintain your pre-retirement standard of living count on us for only about 40%.
There's also the little problem of solvency. Social Security currently takes in more in taxes than it pays out. The excess money is put into the Social Security trust fund. The trust fund is expected to grow to over $4 trillion before it needs to be touched to pay benefits.
Unfortunately, $4 trillion doesn't go as far as it used to. In 2015, Social Security is expected to pay out in benefits more than it collects in taxes. By 2037, the $4 trillion trust fund is expected to be exhausted. For anyone currently age 50 or under, this could definitely affect your future food buying decisions. Will my major source of protein be coming from steak or cans of cat food?
Let's gander over to the www.ssa.gov website and see what a person age 39 can expect to receive from their social security benefit at retirement. Not surprising there's a smattering of fine print that goes into calculating a retirement benefit.
Unlike many major corporations who base your pension on your best 5 years of compensation, social security bases your benefit on a 35 year average of earnings. What that means is, if you started your career at the bottom of the ladder and gradually through hard work and perseverance received pay raises and promotions, your 35 year income average and social security benefit will probably weigh in lower than the average of your last five years on the job. Thus giving you a lower monthly benefit from social security at retirement.
Another small spec of fine print states when you are eligible to receive full retirement benefits. Anyone born in 1937 or earlier no problem, age 65 is your number. If you were born in 1955, full retirement benefits begin at age 66 and 2 months. Born in 1960 or later? Age 67 becomes your magic number. You can still take retirement at any age between age 62 and full retirement age. However, if you start at one of these earlier ages, your benefits are reduced a fraction of a
percent for each month before your full retirement age.
We're ready for our actual example off the SSA website. Let's look at a person currently age 39, born in 1961. Our person makes a reasonable income and contributed up to the taxable maximum of $76,200. By taking full retirement at age 67, the monthly benefit amount in today's dollars will be $1,793 or $21,516 annualized. Assuming early retirement at age 62, the monthly benefit would be $1,246 or $14,952 for a 30 percent benefit reduction for taking an early
Social Security Commissioner Kenneth Apfel tries to drive home the point that, "whether you're 25, 35, 45 or 55, it's never too early to plan for your future retirement."
If you're age 25, this news might induce you to start saving now for retirement. A married couple age 25, who each contribute $2000 annually to an IRA that achieves an 11 percent rate of return will have amassed $2.6 million at age 65.
Unfortunately according to AARP, it's estimated that over 30 percent of the 76 million baby boomers have done absolutely nothing yet to plan for their retirement. If the little light goes on for a married couple age 50 and they each put $2,000 into an IRA achieving 11 percent, at age 65 they would have only $152,000.
When you receive your birthday letter from the Social Security Administration the message Apfel conveys is clear, it's critical to plan, save and invest early and often for your retirement.
Stuart Pearl is owner of Pearl Financial and Insurance Advisory in Hamden, CT.
He can be called at (203) 281-4748
or written at 60-C Skiff St., Suite 765 Hamden, CT 06517.
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"Your Consumer Mentality. Is It Pushing Your Buttons?"
By Darren Roberts
The more income we earn the more we spend. Right? Unfortunately, yes. However, it doesn't need to be. In fact it really shouldn't be the case at all.
If you were living on a certain amount of income and you either get a promotion or find yourself fulfilling a niché where your income rises either marginally or substantially chances are fairly high that a change in consumer spending patterns will follow.
Examples of such consumer items are furniture for your house, a new car, a more upmarket holiday than usual. All of them amount to the same thing - a reduction of your extra income as if it hadn't been received in the first place.
Consumer items suffer from the "I Want It Now" or " I Must Have It Immediately" illnesses that, apparently, are only cured when you spend your money on items or assets that will give short or maybe even long term happiness but will definitely not increase in value. In other words -
A Depreciable Asset".
If you spend all of your excess $$$, ¥¥¥, £££ or Deutsche Marks on consumer items then after you've finished with the item you have an asset of substantially reduced value. It may even have no residual value at all! You have very little to show for your extra work if you spend most of your surplus income on such items. Sure, consumer items give us joy and happiness as we use them but do not put the cart before the horse. You must first build your wealth by spending it wisely. In fact we'll change the wording from "spending" to "investing".
Although both words ultimately mean that your cash is no longer at your disposal there is a huge difference in that one portrays the image that the money is gone (spent) while the other gives off the image that your money is actually working (investment) at producing some offspring to expand your money family.
Okay - so we now have an idea what consumer spending entails what's the alternative? On the investment side of parting with our cash is capital spending. It's called so as you are increasing your net worth i.e. capital. This involves putting your excess funds into assets that will appreciate
in value thus giving you more in return than you initially invested.
Examples of capital investment are units, land, residential housing and all other forms of Real Estate. Other examples include shares, funds, collector items, your own business and many others.
Many articles, books and manuals cover how to make money and market your product(s) to the world. This, naturally is very important. Equally as important is your style of spending
and investing. After all it makes little sense to work so hard for your income and then fritter it away on financial mismanagement.
You must learn to think with a wealthy mind and discipline yourself accordingly. It is only prudent to put a great amount of your liquid resources into areas that will grow. Your financial tree won't grow unless you plant it, water it and look after it carefully. If you try to cash your seeds in before they have bloomed or blossomed then you'll only get pennies and whittle what little there is away in no time at all.
To some diverting their resources is an opportunity to commence their own business. To others a more secure asset management fund may be the order of the day. Others may opt for property investments. It's way beyond the scope of this article to go into various investment options. You will need to do your own homework and do it thoroughly. Leave no stone
unturned, answer all of your questions and enact only when you are 110% sure that this is the way you'd like to go. Over time you will more than likely diversify your assets giving credence to most recognized forms of investment.
You have $100, Marks, Francs or Pounds in your pocket. Is the first thing on your mind to go and spend it on an extra pair of shoes, a night on the town or a fictional trilogy. If so then it will prove very difficult to get your tree into full bloom with healthy branches, leaves, buds and
blossoms. Instead you need to put yourself under the hammer and train yourself into putting at least 10% of your take home earnings into savings so you can then invest it into building your nest egg.
Too many of us retire with nothing. It is this consumer "must have now" mentality that is possessing and owning our lives. If you can do without it then do so until you have put yourself into a position where you have a tight grasp on your financial situation and are in a position where you can add the cart to the horse and enjoy the ride.
A quick test is to look at your current liquid assets by examining your bank account and your weekly cash flow statement. If your outgoings take up virtually all of your income and you're not really sure where it's all got to then it's probably safe to say that your consumer spending habits
are keeping you broke.
I know people on $100,000US/Year who have barely a penny to their name! Sad but true. I also had the privilege of meeting a very special lady a number of years ago in London in her mid 40's who was earning an average salary. In fact she had only just reached an income of £25,000 ($40,000US) and her net worth was £1.2million ($1.8m US). So it goes to show that a sound financial plan is paramount in giving you financial freedom.
She chose property dealings in central and southern London over a 20 year period to build herself up this level. She's built up a very healthy nest egg which allows her to indulge a little on consumer spending. After all she's earned it.
Get your financial plan into high gear today and you will reap the benefits tomorrow.
Written By: Darren Roberts
Subscribe to Darren's popular "Success and Self-Motivation" Weekly publication,
"AAvenues 2 Your Success" and receive his new E-Book "How To Build A Healthy Attitude" for FREE. Subscribe: URL: http://topliving.com
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* An End To The Death Tax? *
Last Friday the U.S. House of Representatives, in bi-partisan fashion, voted 279-136 to repeal inheritance taxes by 2010. The bill now goes to the Senate where a similar measure
S.1128-the Estate Tax Elimination Act-which would immediately eliminate federal death taxes, has also garnered bi-partisan support.
Presently, after an individual strives to build up a business and pays numerous taxes along the way, the federal government steps in upon death to grab up to 60% of the total assets of the estate.
Business groups praised the recent House vote. There's little doubt that killing off estate, gift and generation skipping taxes would be a huge boom to entrepreneurship, business owners, employees and job creation. In fact the Institute for Policy Innovation recently estimated that eliminating the federal death tax in 1999 would have generated 112,453 more jobs, $703 billion more in GDP and about $1.1 trillion more in capital stock between 1999 and 2008.
But don't get overly optimistic yet. President Clinton has promised a veto. And while the House vote was veto proof it is too early to tell whether the votes would remain to override the President.
What's the argument against ending the death tax? Opponents claim the "cost" would be too high. In other words, its another risky tax scheme. The mainstream press is widely reporting that the bill would cost $105 billion during the 10 year phase out. Nowhere has Clippings seen
the source of that number reported.
The press has neglected to inform the public about a 1998 study from the Joint Economic Committee in Congress which concluded the death tax nets the federal government next to
nothing - "The estate tax raises very little, if any, net revenue for the federal government. The distortionary effects of the estate tax result in losses under the income tax that are roughly the same size as estate tax revenues."
These facts leave just one justification for the continued existence of the estate tax - the sin of envy. Some people in our society seem to take comfort in punishing success. Here's a quote from a Representative arguing for the death tax.
"We take care of the problem, but we don't take care of the multibillion dollar estate,'' said Rep. Charles Rangel of New York, senior Democrat on the Ways and Means Committee.
Ending the death tax offers President Clinton an historic opportunity to create the legacy he so badly desires. After all, very few U.S. presidents have ended a whole category of taxes.
* How To Improve Your Online Sales *
A new report from Creative Good suggests that online retailers should concentrate on making the purchase process quick and easy in order to boost revenues.
The study suggests the B2C revenues could collectively increase (U.S.) $20 billion if Web sites improved their usability. Visitor to buyer conversion rates would also improve from the current average of 1.8% to 2.5%.
Online retailers were criticized in the report for having poor page design, a lengthy and confusing checkout process as well as placing too much information on individual pages.
* The Importance Of Brand Building *
The results of the "ebates.com Dot-Shopper Survey", conducted by Harris Interactive, underscore the importance of online brand building - 6 in 10 consumers directly input the
URL of a particular ecommerce Web site when shopping for a particular product.
Other survey results include the finding that banner advertisements attract the least sophisticated consumers and off-line advertising accounts for a mere 6% of online traffic.
Harris Interactive placed the online shopping population into 6 categories:
a. "Clicks & Mortar" (23%) - Tend to be female homemakers who research online but shop off-line due to privacy concerns.
b. "Time-Sensitive Materialists" (17%) - They shop online to save time.
c. "Hooked, Online & Single" (16%) - Tend to be young, single, early-adopting, high-income males.
d. "E-bivalent Newbies" (5%) - New to the Internet they are the least interested in ecommerce. They tend to be older and spend little time online.
e. "Hunter-Gatherers" (5%) - Likely to be married with children and in their thirties. These surfers frequent price comparison sites.
f. "Brand Loyalists" (5%) - They visited the sites of known and trusted businesses.
* Small Business Resources *
Many small business people make use of direct mail and/or email marketing as a major component to their marketing plan. Effective use of these marketing tactics requires the ability to
persuade recipients to read your offer. How do you get them to read it? Write an outstanding sales letter. And who has more experience with letters than the U.S. Postal Service?
USPS has set up an entire Web site filled with great advice on what it calls "Beginning Your Creative". For those who write sales material, the site is worth a look.
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