Category: Business Written by Damon Carr
I recently received mortgage solicitations in the mail from two different companies on the same day. As a player in the mortgage industry I like to see what my competition is doing. As a result I analyze all mortgage related marketing material that comes across my desk. For some reason both mail pieces were super hyper in selling their potential customer on the idea of the mortgage tax deductions. Both mail pieces expounded on the idea that by utilizing your home to finance various goals you will in effect reduce your tax bill. Ironically, as I was reading various financial publications I subscribe to, I came across an article written by a financial advisor who was illustrating the benefit of making minimum payments on mortgages while investing all you can in various investment vehicles. This financial consultant reasoned that since interest rates on mortgages were averaging 6-percent and that long-term investment vehicles were averaging 12 percent you are in effect netting a 6 percent return.
I hold a unique position. I’m one of few financial experts who are versed in multiple financial disciplines. That being saidçmy views oftentimes differ from financial professionals who operate in one zone whether it’s mortgages, insurance, real estate, taxes or investing. I will admit that to some degree the concept of the mortgage tax deduction and the concept of investing versus paying off the mortgage have merit. I will also admit that having a plan is better than having no plan at all. However, I question whether or not this is the most simple, efficient, risk tolerant way to manage your money.
The truth about your mortgage
interest tax deduction
Millions of consumers are sold on the idea that some large tax deduction exists when you pay interest on your mortgage. While it is true that by paying mortgage interest you reap a tax deduction, the question mark lies in the adjective “LARGE”. It is important to note that NO tax incentive will be equal to or greater than the interest expense that is paid. More importantly it should be pointed out that there are two types of deductions that exist—a standard deduction and an itemized deduction. When filing your taxes you have to choose one or the other. Naturally, you would want to choose the deduction type that yields a greater benefit. The standard deduction is a specified amount, indexed annually for inflation that may be claimed by taxpayers that do not itemize their deductions. The only time you will claim itemized deductions is if your itemized deductions exceed your standard deduction. The amount of the taxpayer’s deduction is based on filing status. For a married filing jointly taxpayer, the standard deduction in 2006 is $10,300. Given the fact that most deductions have to have a profit motive associated with them such as deductions available for investments or businesses. Deductions available for homeowners including property taxes and mortgage interest are the primary deductions available for the average person. For the sake of simplicity, let’s assume you’re married filing jointly and that other than mortgage interest, you have no other itemized deductions. Let’s further assume that you are in the 25 percent marginal tax bracket. Given this scenario, you will have to pay interest over and above $10,300 (amount needed to exceed standard deduction) before the itemized deduction will began to benefit you. Assuming you paid $12,000 in interest for the year, you may reason that you reaped a $3,000 tax deduction ($12,000 x 25 percent tax rate = $3,000). The reality in this scenario is you would have gotten a $10,300 deduction whether or not you paid interest. Therefore, the benefit should be calculated on $12,000-$10,300 which is $1,700. The actual tax saving in this example paying $12,000 in interest is a whopping $425 ($1,700 x 25 percent tax rate = $425) If I lost you in the financial jargon, simply ask yourself does it make sense to pay $12,000 in interest to get a $425 tax savings? I hear a resounding NO.
You can earn a greater return paying off debt than you can earn in the stock market
If nothing I say following this sentence makes sense remember this statement, “No investment is as secure as a paid off debt.” Although the stock market has averaged a 12 percent rate of return over a long-term track record, whenever you’re forecasting stock returns, you’re talking about potential after tax returns. However whenever you’re forecasting paying off debt, you’re talking about a guaranteed tax-free return. In reality given the fact that the risk elements in paying off debt versus investing are at opposite ends of the spectrum, you really cannot compare the two. So often people rationalize it makes more sense to invest whatever extra money they could come up with and earn a 15 percent return versus paying off a mortgage with a lower interest rate. For comparison sake it’s worth giving mathematical value to a paid off debt. Let’s assume that the Jones family has a household income of $52,740 per year or $4,395 per month. Conventional wisdom suggests that we save and then later invest 10 percent of our income. 10 percent of $4,395 per month is $440. Instead of investing the $440 per month, the Jones family decided to leverage this money to get completely out of debt. They currently have monthly debt payments of $1,597 per month with a total debt balance of $118,000. By following a systematic debt elimination plan, using the extra $440 to accelerate the payoff process by paying off one debt at a time and using a snowball, domino effect to eventually payoff all debts, they can be debt free in 7-years. This will save them tens of thousands of dollars in interest expenses—not to mention the immeasurable return on investment called peace of mind. More importantly it will free up their old monthly obligation of $1,597 per month. That’s like having a nest egg of $191,640 earning 10-percent per year. To build a nest egg of $191,640 investing $440 per month over 7-years, you will need to yield a rate of return of 43.68-percent per year. I don’t know of many stocks yielding that type of return.
(Mortgage and Money Coach Damon Carr is the owner of ACE Financial. Damon can be reached at 412-216-1013.)
Last Updated on Thursday, 07 March 2013 10:37
Category: Business Written by Diane I. Daniels
GROWING POSSIBILITIES—Bill Strickland, executive director of Bidwell Cultural Center and Governor Aregbesola share a moment in the Green house. (Photo by Diane I. Daniels)
Ogbeni Rauf Aregbesola, governor of Osun State, Nigeria described his recent visit to Allegheny County as very fulfilling and beneficial from the beginning to the end. Already planning a return trip he said, “I am looking forward to building on the relationships I have made.”
In the region last month, the purpose of the visit from Aregbesola and high ranking members of his administration was to meet with government officials, business and community leaders from Allegheny County to discuss, strategize about and learn ways the two areas can work together and learn from each other.
The second visit to the area for delegates of Aregbesola’s administration, the goal of this stopover was to continue establishing partnerships in the areas of transformational leadership practices, business-to-business partnerships and win-win investment opportunities, educational exchange programs, import and export relationships, green technology and environment, health care, agriculture and cultural exchange and tours.
The purpose of previous visits has been to learn from Pittsburgh’s transformation from a heavily polluted smoky city to a city now globally recognized as a green leader that has successfully managed to improve its economy and environmental stewardship.
While in the region last month, the Governor met with Allegheny County Executive Rich Fitzgerald and officials from Carnegie Mellon University. He visited and toured the sites of the Manchester Bidwell Training Center, the Braddock Pot Shop and also strengthened relationships with LavaLux LED.
A Roundtable Business Forum was held at the Kingsley Center co-hosted by Christian Evangelistic Economic Development and the Allegheny County Department of Minority, Women and Disadvantaged Business Enterprise, headed by Ruth Byrd-Smith.
The Forum provided the opportunity for discussions to occur about current business opportunities in Nigeria and possible international trade partnerships, and investment opportunities for small businesses. “The Roundtable was the second in our series of meetings to connect Southwestern Pennsylvania small businesses and institutions to the dynamic global market,” said Rufus Idris, executive director of CEED.
“The governors visit was successful,” Idris said. “The relationships that were established will be beneficial to both regions.” One relationship he is referring to is the signing of a mutual agreement between the governor and county executive to conduct business. “I see many similarities between our two regions,” pointed out Fitzgerald. “Twenty to 30 years ago young people were leaving the area, but now they are returning because the region is revitalizing. That would not be happening if it were not for the collaboration of government, universities and public and private entities. The lessons learned are that if you don’t work together you can’t move forward.”
Aregbesola pointed out that Osun State also has devised a strategy to empower their youth that makes up more than 45 percent of their population. He said through the Osun Youth Empowerment Scheme they have engaged 20,000 youth volunteers to provide community services in exchange for a monthly stipend. They too are partnering with the private sector and the education system.
Developing a mutual respect for one another and impressed with their successes, Aregbesola, Bill Strickland, executive director of the Bidwell Training Center, Richard Wukich of the Braddock Pot Shop and officials of LavaluxLED are negotiating to conduct business. Sharing his philosophy that the development of human capacity is the most important responsibility of any serious government, he says as governor of Osun, he has focused on strengthening the state in the areas of agriculture, economic development, youth employment, education and security. The three regional organizations fit within his scope of focus.
Bidwell, located on the North Side, offers training in specialized technology, culinary arts, horticulture technology and the medical industry. The Braddock Pot Shop, a ceramics program based in the basement of the Carnegie Library in Braddock, is also a water filter factory. LavaluxLED based in Ambridge is a manufacturer and supplier of LED lighting products for indoor and outdoor applications.
Considered a rising star in the Nigerian political firmament, Gov. Aregbesola is an engineer and political activist who between 1999 and 2007 superintended the bold beginnings of the infrastructural transformation of Lagos, one of the world’s largest megacities. Widely acknowledged as an exceptional grassroots campaigner and mobilizer, he has served as governor since 2010.
As governor of Osun, his bold vision for the state is encapsulated in a Six Point Integral Action Plan to banish poverty, hunger and unemployment; to restore healthy living; to promote functional education and to enhance communal peace and progress. His plan seeks to ensure that the fruits of economic development positively impact as many lives as possible.
Aregbesola’s interest in politics dates back to his undergraduate days, when he served as the Speaker of the Students’ Union Parliament at The Polytechnic, Ibadan, his alma mater. His interest, which is anchored in values, again came to the forefront during Nigeria’s bloody struggles against military rule in the 1990s when he emerged as a leading light of the pro-democracy movement. It continues to manifest today in his advocacy for fiscal federalism and regional integration as means of attaining sustainable economic development and peaceful coexistence in the fractious Nigerian federation.
Believing that he has sewn seeds of collaboration within the Allegheny County region, Aregbesola’s message to entrepreneurs and organizational leaders is to develop strong links to Africa. “One must explore by conducting test cases and inquiring about opportunities within the Country.” He stressed that constant communication with CEED is a way to keep abreast of their activities.
CEED is a 501(c)(3) non-profit organization that provides free micro-enterprise and small business start-up support to area businesses, both in the City of Pittsburgh and the 10 surrounding counties. They work to create opportunities for community growth and economic sustainability throughout Southwestern Pennsylvania using a small business assistance program called SKILLS TO WEALTH.
The various meetings and events throughout the governors visit were sponsored by CEED, the Allegheny County MWDBE Department, the Kinsley Association, Union of African Communities in Southwestern Pennsylvania and the Osun State Government.
Pleased with the outcome of the governors visit, Rev. Ray Parker founder of CEED said he looks forward to the relationships and possibilities that lay ahead. “We will continue to serve as the lead agency and liaison to spearhead activities between Osun State and this region.”
Last Updated on Wednesday, 06 March 2013 10:05
Category: Business Written by CNN
by Tami Luhby
NEW YORK (CNNMoney) -- When Debbie Bruister buys a gallon of milk at her local Kroger supermarket, she pays $3.69, up 70 cents from what she paid last year.
Getting to the store costs more, too. Gas in Corinth, Miss., her hometown, costs $3.51 a gallon now, compared to less than three bucks in 2012. That really hurts, considering her husband's 112-mile daily round-trip commute to his job as a pharmacist.
Bruister, a mother of four, received a $1,160 raise this school year at her job as an eighth-grade computer teacher. The extra cash -- about $97 a month, before taxes and other deductions -- isn't enough for her and her husband to keep up with their rising costs, especially after the elimination of the payroll tax break. Its loss shrunk their paychecks by more than $270 a month.
"If you look at how much prices are going up, you get in the hole really quick," Bruister said. "It's a constant squeeze."
In the wake of the Great Recession, millions of middle-class people are being pinched by stagnating incomes and the increased cost of living. America's median household income has dropped by more than $4,000 since 2000, after adjusting for inflation, and the typical trappings of middle-class life are slipping out of financial reach for many families.
Families with young kids are struggling to afford childcare and save for the ever-climbing costs of college. Those nearing retirement are scrambling to sock away funds so they don't have to work forever. A weak labor market means that employed Americans aren't getting the pay raises they need to keep up -- especially with big-ticket items such as health care eating away at their paychecks.
Economists say it boils down to two core problems: jobs and wages. The traditional "middle-class job" is disappearing.
Mid-wage occupations such as office managers and truck drivers accounted for 60% of the job losses during the recession, but only 22% of the gains during the recovery, according to a National Employment Law Project analysis of Labor Department data. Low-wage positions, on the other hand, soared 58%.
Uncertainty and insecurity are weighing down the middle class, even those who haven't had a break in employment. More than 40% of those surveyed in a recent Rutgers University study said they were "very concerned" about job security.
They're also not very optimistic about the near future. Fewer than one-third believe that economic conditions will improve next year, and an equal number think they will get worse, according to the Rutgers survey, conducted by the university's Heldrich Center for Workforce Development. Only 19% believe that job, career and employment opportunities will be better for the next generation.
The survey's title sums it up: "Diminished Lives and Futures: A Portrait of America in the Great-Recession Era."
Dan Heiden of Eagan, Minn., embodies that life. Before 2007, the union supermarket worker owned an apartment and socked away funds in the bank and in a retirement account.
Then the store cut his hours.
"The economy tanked," said Heiden, who now works no more than 30 hours a week. "They aren't hiring full-time any more because they can pay less."
The 37-year-old had to sell his apartment and move into his parents' basement. He has also curtailed his social life, eating out less and hanging out with friends at their homes instead of going to bars. He's depending more on credit cards and is no longer able to save much for retirement.
"Luckily, I don't have a family, because then it would be a tighter squeeze," Heiden said. "I just pray and hope the economy turns around."
Full-time employment is one casualty of the recession. The number of people working part-time for economic reasons -- meaning that they would like longer hours but can't find work -- has soared to nearly 8 million, up from 4.8 million five years ago.
Those with full-time jobs are also feeling the pressure.
Take Lois Karhinen, 55, who has been working since she was a teen. A state employee in New York, she's worried she and her husband won't have enough money saved by the time she wants to retire in 11 years.
Her husband is a government contract worker, and they fear his job could disappear any day. Their income has taken a hit because she has been furloughed several days since 2011. At the same time, her health insurance payments, union dues and other expenses have gone up.
The couple is no longer able to cover all of their monthly expenses -- including the mortgage, car loans, home repair loans and student debt -- with their paychecks alone.
"I watch every month our savings deplete," said Karhinen, who lives in Queensbury, N.Y. "I'm realizing we're not young enough to save a lot."
The downturn in the housing market also hurts. The couple bought their house in 2006, hoping it would serve as an investment and help support their retirement. But now, they would only break even if they sold it, she says -- if they were lucky.
The mortgage crisis "hollowed out" the middle class, said Tamara Draut, vice president of policy and research at Demos, a public policy research organization. Much of their wealth is tied into home values, but national home prices are still 29% below their mid-2006 high, according to S&P Case-Shiller.
That means some folks have lost all their home equity and may never get it back. Others can't take out loans to finance repairs, college for the kids and other expenses.
There's one more big squeeze hitting households: health care. Since 2002, insurance premiums have increased 97%, rising three times as fast as wages, according to Kaiser Family Foundation/Health Research & Educational Trust.
In Mississippi, Bruister now has an $1,800 deductible, compared to $500 a few years ago. When she goes to the doctor, the bill typically tops $100 -- so she tries to avoid going.
"Health care for me has turned into more of a luxury item," said Bruister, 52. "I go every year for the checkups my insurance pays, but after that you just tough out the other illnesses."
Economists say they don't expect much improvement for the middle class any time soon. The recession is officially over, but the recovery is fragile, and its gains aren't evenly spread. Between 1993 and 2011, the top 1% of America's earners saw their income soar by 58%, while everyone else only got a 6% bump.
That's making it even harder for most households to get ahead.
"The middle class was always synonymous with economic security and stability," Draut said. "Now it's synonymous with economic anxiety."
Last Updated on Tuesday, 05 March 2013 14:31
Category: Business Written by Courier Newsroom
MARCH 7—The MWDBE Governmental Committee will host the 12th Annual Conference for Minority, Women and Disadvantage Business Enterprises from 9 a.m.-2 p.m. at the IBEW Conference Center, 3 Hot Metal St., South Side. The theme is “Mind Your Ps: Preparation, Process, Procurement and Performance.” Guest panelists will be Greg Spencer, Barbara Weaver, Elizabeth Bowers, Deborah Wojcik and Nathan Heitzman. Registration is required. For more information, call 412-402-2460.
The First Step
Risk Only Money
Brown Bag Lunch
Business Women Reception/
Last Updated on Wednesday, 06 March 2013 10:03
Category: Business Written by Associated Press
WORLD”S RICHEST-- Mexican telecommunications tycoon Carlos Slim speaks during news conference at the Soumaya museum in Mexico City. (AP Photo/Dario Lopez-Mills, File)
Last Updated on Monday, 04 March 2013 18:18
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