James Hendrickson is an internet entrepreneur, blogging junky, hunter and personal finance geek. When he’s not lurking in coffee shops in Portland, Oregon, you’ll find him in the Pacific Northwest’s great outdoors. James has a masters degree in Sociology from the University of Maryland at College Park and a Bachelors degree on Sociology from Earlham College. He loves individual stocks, bonds and precious metals.
This posting is for readers who want some solid data on which streams of income the wealthy actually have. This is a non-trivial question because if you’re building wealth, you’ll want to see what’s been done successfully in the past. And, most articles on this topic rely less on fact and more on speculation and anecdotes.
So, what streams of income do the wealthy actually have?
To help answer this question, I asked an expert and looked at the academic research.
Tom Corley On The Streams of Income Of The Wealthy
If you write about finance long enough, you end up getting connected with others in the business. Here is a quick exchange with Tom Corley, author of “Rich Habits: The Daily Success Habits Of America’s Wealthy“. Corley is an expert in the behavior of the rich, so his comments bear weight on this topic. In it, he pulls some information about exactly which streams of income the wealthy have. Per Corley, they are:
Commercial/residential real estate rentals
REITS
TICs (tenancy in common)
Triple Net Leases
Stock/Mutual Fund assets
Annuities
Seasonal real estate rentals
Private equity
Part ownership of side businesses
Royalties
For more on Corley’s thoughts on what you need to do to build income, read his CNBC article on creating multiple income streams.
The one good exception to the lack of fact-based discussions of this topic is an IRS working paper. In 2014 Jenny Bourne and Lise Rosenmerkel analyzed historical return data for 6,053 tax filers who had died between 1996 and 2002. They compared taxpayers who filed form a F706 (decedent estate) versus those who didn’t file form F706. What they found was F706 filers had higher levels of income than non-filers in the following areas:
Dividends
Rental real estate, royalties, partnerships, S corporations, estates, trusts, and real estate mortgage investment conduits
Wage income
Taxable pensions and annuities
Tax exempt interest income
Business income from sole proprietorships
Whats interesting about the IRS study, is unlike most discussions on the internet, the IRS also tells you which source of income was most strongly related to wealth. The answer is:dividends.
The photo below shows some statistical models from the Bourne and Rosenmerkel paper. Without going into too much detail, they basically show that income is positively associated with wealth (table 2) – and of the various types of income reported in IRS filings, dividends had the biggest effect on estate value at death (table 3).
So, according to IRS data, the wealthy have a broad income streams, of these wage income and dividends are the most important.
Whats nice is both sources show similar streams of income of the wealthy. Real estate, business income, dividends and annuities are common in both lists.
For more great dinks articles on building wealth, read these:
If you’re into passive income, do yourself a favor and get SavvyConnect. What is SavvyConnect, you might be asking yourself? Its a piece of software that you install on your computer which collects data as you surf the web. For every computer or mobile device you have it on, you’ll get $5 per month.
Big tech and pretty much all the apps on your mobile phone are already tracking you, so you’re not really losing any of your privacy. Once you have your software installed and working, they’ll email you when your five bucks has been credited, all you pretty much have to do is login and collect. They’ll send you a check in a few weeks.
It’s no brainer passive income. I’ve been using them reliably for about a year and a half, and the checks are coming on a regular basis.
Here is an example of stub from the check that was waiting for me in my mailbox when I got home.
The world of taxes is ever-evolving, with the tax code undergoing periodic changes that have a significant impact on individuals and businesses alike. The recent revisions to the tax code introduced a plethora of changes, and with them, opportunities for tax savings. While these alterations can seem intimidating at first, with the right strategies in place, they can be advantageous for taxpayers.
In this blog post, we will uncover strategies to maximize tax savings under the new tax code. With each point, you’ll be armed with the information needed to navigate the taxing landscape confidently.
Consult With A Tax Professional
One of the most immediate and effective ways to navigate the intricate tax landscape is to consult with a tax professional. They possess the expertise and insights to offer tailored advice, ensuring you make the most of the new provisions.
Among the many professional services available, Tax Law Advocates services stand out for their comprehensive approach to tax law. Their team provides guidance on a range of tax-related issues, ensuring that their clients are well-equipped to maximize deductions and credits available under the new code.
Leverage The Increased Standard Deduction
The new tax code has increased the standard deduction. This can benefit taxpayers, especially those who don’t have enough itemized deductions to surpass the standard amount. By understanding how the new standard deduction figures work and comparing them to potential itemized deductions, you can choose the most beneficial method for you.
Consider Bunching Deductions
With the limitation on certain itemized deductions under the new tax code, taxpayers might find it beneficial to ‘bunch’ their deductions.
This strategy involves timing your deductible expenses so they fall within a single tax year, maximizing your itemized deductions. For instance, if you’re planning significant charitable contributions, consider making them in one particular year instead of spreading them out, so they combine with other deductions to provide maximum tax benefits.
Reassess Retirement Contributions
Retirement accounts, such as 401(k)s and IRAs, continue to offer tax benefits. Contributions to these accounts can reduce your taxable income, and the new tax code has made adjustments to the contribution limits. By maximizing your contributions, you can optimize your tax savings while simultaneously bolstering your retirement nest egg.
Monitor Your Investment Portfolio
The tax treatment of investments has always been a critical aspect of tax planning. With changes in the tax code, it’s essential to keep an eye on your investment portfolio. Consider strategies like tax-loss harvesting, where you offset capital gains with capital losses. Always be aware of the holding periods for investments to ensure you qualify for the more favorable long-term capital gains rates.
Explore Business Deduction Opportunities
For business owners, the new tax code has introduced several changes to deductions and credits. Understand the adjustments to Section 179 expensing and the new rules surrounding the Qualified Business Income (QBI) deduction.
These can significantly impact your tax liability, so ensure you’re familiar with the requirements and maximize any available benefits.
Stay Updated On State Tax Implications
While much of the focus is on federal tax changes, it’s essential not to overlook state tax implications. Each state may interpret and react to the federal changes differently. Staying updated on your state’s tax code, in addition to the federal one, ensures you don’t miss out on any state-specific tax-saving opportunities.
Revisit Estate And Gift Tax Strategies
The new tax code also brought changes to estate and gift tax provisions. If you have considerable assets, it’s a good time to reassess your estate planning strategies to ensure they align with the updated regulations and that you’re leveraging any available tax-saving opportunities.
Monitor Tax Code Updates And Changes
Tax laws are continually changing. Even after a significant overhaul like the one we’ve experienced, minor changes, clarifications, and corrections can emerge. Stay informed about any new developments to ensure that you’re always positioned to make the most advantageous tax decisions.
Conclusion
The new tax code, while complex, offers multiple avenues for taxpayers to maximize their savings. From individual deductions to business-specific benefits, understanding these changes can significantly impact one’s financial health. It’s crucial, especially in times of change, to be proactive.
By consulting experts, leveraging the latest strategies, and staying informed, you can navigate the new tax landscape with confidence and assurance. Remember, tax planning is not a one-time activity but an ongoing process. Stay diligent, seek advice, and make the tax code work for you.
I rarely go out on a limb like this because I’m no great prognosticator of future events.
I think the war in Ukraine is likely to spread in a matter of a few weeks. Here is why I think this:
Nato is, by degrees, involving themselves in the Ukraine conflict. The United States, United Kingdom, France and Germany are all openly supplying arms to Ukraine. They are almost certainly clandestinely providing intelligence and logistical support where feasible.
War seductively infects people’s thinking. It allows people to experience feelings of purpose, of meaning and a reason for living – at least at first. This kind of thinking appears to have taken hold in the west. Large sections of the U.S. Federal government and German Federal administration appear to be substantially influenced by a desire to punish Russia. Thought leaders in finance such as Bill Ackman and the US public (here) at large all appear to want war. Unfortunately, most of these policy makers have never experienced war first hand, are under the mistaken impression that it will be easy, costless and quick. In short, they simply don’t understand what they are doing.
To avoid defeat, Ukraine will attempt to involve other countries. Ukraine alone can’t win. Russia has an economy that is nine times larger and a population that is three times the size of Ukraine. Also, Ukraine’s domestic economy has been severely disrupted and a large percentage of their population has fled. In the long run Ukraine will get ground down – but they’ll try their best to get other countries involved as much as possible before they’re defeated.
What all this adds up to is a situation where there is tremendous interest in fighting Russia, so it will be hard for policymakers to avoid the siren call to get further involved.
How To Invest To Capitalize On This?
If you agree that we’re heading into a broader conflict here some investing moves to consider:
Go Long On European Defense Stocks
European defense budgets are likely to increase substantially, especially in Eastern Europe. In fact, the German and UK governments currently plan to double their defense spending. The major challenge here is most US brokerages can’t trade in European ETFs due to regulatory and reporting issues. So, if you want to go long on European defense stocks, you’ll have to buy individual companies. And it’s an expensive hassle to do it.
Here is a list of companies to look at, along with their ticker symbols:
Hensoldt (NHSDF)
Rheinmetall (RNMBF)
Leonardo (FINMY)
Thales (THLLY)
Chemring (CMGMY)
Airbus (EADSY)
Dassault Aviation’s (DASTY)
The major trouble is that while most of these have an ADR (which is the American clone of the European shares), trading the ADR is expensive. ADRs for these particular stocks have relatively high commissions, with low trading volume and large bid/ask differences – which means it’s harder to get good prices on the securities.
Buying US Companies With European Exposure
Some US companies have exposure to European markets:
BAE Systems (BAESY)
Lockheed Martin (LMT)
Boeing (BA)
Short Selling Russian ETFs
The imposition of sanctions will almost certainly harm the Russian economy. A smart move would be to short sell the ETF funds that track it. However, sanctions in the US and Canada make that extremely difficult. This is unlikely to change until the conflict in Ukraine is concluded and diplomatic relationship renew. So, this idea is effectively out.
Shorting The Ukranian Hryvnia
The Ukranian hryvnia is likely to inflate.
Ukraine is a very difficult spot economically, roughly a third of their economy has been destroyed in the invasion and nearly a quarter of their population has fled abroad. Usually during wars governments have options for raising revenue – including borrowing, levying taxes or creating more currency. Ukraine’s economic situation will make it difficult for them to raise taxes. War is also extremely risky, which means that Ukraine’s government may not be able to borrow at pre-war norms. If these situations occur – are they are likely to – then the administration in Ukraine will likely turn to the printing press.
Example of Ukrainian paper money.
This means that shorting the hryvnia is probably a good move. To this this you’d need a currency trading account and you’d need to learn to short currency – which happens all the time. A good resource for starting is here.
Pray
This last point isn’t really about making money, but Russia is a nuclear armed power and in the event of a broader war with Europe, the consequences could be significant. So, in the unfortunate event that the conflict spreads, some prayer wouldn’t hurt.
It’s a no-brainer that some degree of education is necessary to get ahead, so I’m including a list of the best personal finance books worth reading. The list only has five, but all of them are well worth the read and can help you transform your relationship with money.
These are all mostly related to investing. But if you’ve got your budgeting and saving act together, these are excellent reads that will help build your knowledge and hopefully
Its halfway through the summer, so here are some ideas to help you with your cash stacking this year. We’ve touched on these in other postings on this site, but the ideas are good, so they bear repeating. Here are some free and mostly low cost ways to stack some extra cash.
Use Rebate Site When Stacking Cash
First, rebate sites. Use them. Here’s how they work: you sign up for an account and then browse the site for participating retailers. When you find a retailer you want to shop with, you click through to their site and make your purchase. Once the purchase is complete, the retailer pays the rebate site a commission, which the site splits with you.
Be sure you stack what the rebate site gives you with a credit card that gives you points or cash back. There is nothing immoral or unethical about this kind of double dipping, so do it.
Get some Extra Cash from Receipt Scanning
Second, consider scanning your receipts. There five or six good receipt scanning apps. They all generally work in the same way. First, you take a photo of your receipt. The app then uses optical character recognition to extract the relevant information, such as the date, time, store name, and purchase amount. The app company then bundles the information and sells it to major retailers to help them improve their marketing. In return the app gives you cash or store rewards cards for your data.
Receipt scanning apps are a slow money maker, but they are a good way to save some extra dollars.
Of these, Frisbee and Amazon Shopper Panel are the best. Frisbee has generous payouts in the form of Amazon giftcards and the Amazon Shopper Panel gives you $1 in Amazon credit (up to $10) for each receipt you scan. The others are less valuable from a time invested/income received standpoint.
Need Money When Stacking Cash? Cut Your Costs
Third, regularly cut your costs. Ever few months or so, you should look at your fixed expenses and see where you can cut back. Things like your Netflix bill, your utilities, your rent, etc. – all have a habit of creeping up. For example, sometimes companies regularly increase their rates and charge their customers credit cards. Or, you might sign up for more than one streaming service and forget to cancel it. You should periodically review all your bills and see where you can cut them.
Utilize Your Unused Computing Resources
Old laptops or desktops have economic value beyond just resale. You can use them to sell your internet bandwidth, sell your personal data, help mine crypto, or be part of a distributed computing network. The only real limitation here is your ability to learn quickly.
If you want to sell your spare bandwidth, there are a couple of decent apps that work reliably. These are:
I’ve been running both on my computer for a year. So far, its been good for a couple of bucks a month with no issues with my computers performance or ISPs.
Buy CDs, Bonds and Stocks
There are a number of ways to stack cash, but some methods are more effective than others. One popular method is to invest in short-term CDs or money market accounts. These accounts tend to offer higher interest rates than traditional savings accounts, which can help you earn more money on your deposited funds. Another option is to purchase high-yield bonds, which offer higher returns than most other types of bonds. Finally, you could also consider investing in stocks, which can provide both income from dividends and appreciation over time. If you want a listing of which dividend paying stocks to look at suredividend.com has a good curated list.
While there are no guarantees when it comes to investing, these are all potentially good options for those into stacking cash.
Small Savings Add Up, Especially When You Invest
Small savings add up to large amounts.
According the Bureau of Labor statistics, in 2020 the average American spent about $61,334 per year (here). If you were able to reduce this by 1 percent, and you were aggressive about stacking cash once you’d saved it, you’d have $613.34 to invest. If you did this consistently for five years and you invested the money, you’d have about $4,491.56. This is enough for a car down payment or a nice trip. So, when it comes to stacking cash, even small amounts add up over time.
Source: Investor.gov. Accessed August 2nd, 2022. Assumes compounding at 8% annually for 5 years.
Have you tried any of these methods to stack cash? Let us know in the comments below how it went.
Embarking upon a new relationship is a wonderful time in life—emotions are running high and you have ton of optimism about the future you will build together. The last thing you want to do is jeopardize your love by discussing mundane things like who brings home the bacon. But when you are getting together issues related to money are inevitably going to come up. Whether you are a same sex couple or not, or just cohabitating, you might consider discussing your finances together. (more…)
I really like Kiplinger’s personal finance. Its mostly pretty solid advice from people who know what they are talking about. So, for today’s posting here is a quick three minute video with four finance tips for newlyweds. While the tips are designed for people who are newly a couple – they can apply to anyone in a committed relationship who wants to better integrate their finances.
Since not all of our readers have access to video, the tips are summarized below:
1. Live on one salary and save the other. Don’t assume your earnings will be consistent. After all, you never know what could happen. One partner might want to go back to school or one of you might get laid off. If you have enough savings to replace your lost salary, you have a lot more options.
2. Max out on retirement savings. Nobody but you will cover your retirement. Make your savings goal at least 10% of your combined gross incomes.
3. Don’t succumb to lifestyle inflation. Instead of spending more money on consumer electronics or eating out, focus on budgeting your incomes to pay down debt and build your savings.
4. Get some insurance. You’ll need protection against catastrophic health/medical bills or long term disability. Life insurance can come later.
5. Meet regularly and talk about money. Set a time every week or every two weeks to talk about what’s going on in your marriage financially.
It was inevitable that this topic would come up on a personal finance blog about couple’s finance.
Like or not, Dave Ramsey is one of the nation’s best known personal finance gurus. I wanted to review his take on marriage and money, then share what he’s getting right and what he misses.
Here is a quick clip where Ramsey outlines his views on marriage and finances.
The finance and insurance sector makes up nearly 8% of the U.S. GDP, which is worth more than $2 trillion. It is by far one of the most crucial sectors as it supports not just the national economy, but also enables businesses to streamline operations.
As of June 2023, almost 7 million Americans are employed in various capacities within the financial services sector. With the advent of technology, finance jobs are evolving in every industry, with sophisticated tools and processes streamlining the workflow.
There are still roughly 375,000 jobs available in the industry right now. These include a diverse range of roles that are equally prospective and sustainable. While these stats provide a positive overview of the sector, they don’t assure a successful career since that is more of an individual effort. In order to resolve that, here are some tips that can allow you to become successful in the field of finance:
Start by cementing your foundation
In order to be successful in any career, you must have strong basics of the field. Whether it is accounting, general business finance, trade, wealth, or portfolio management that you want to explore as a field, you must start spending time on getting the fundamentals right. This includes developing a clear understanding of key concepts as well as appropriate implementation.
Over time, degrees and courses in finance have evolved significantly to cater to this essential purpose. Modern academic programs like Bachelor’s in Business Administration in Finance courses have extensive curricula to ensure every graduating student has the knowledge, understanding, and expertise they need to fit effectively into the corporate jigsaw puzzle.
For finance and accounting jobs, you need to have strong knowledge of mathematical reasoning too. This allows you to comprehend local and global financial developments and important documents like balance sheets, income statements, and other reports. You can only make your mark as a finance professional with a strong background.
Polish financial modeling skills and knowledge
One of a finance professional’s main responsibilities is financial modeling. Corporations and financial institutions are continuously looking for employees with strong budgeting skills. Financial modeling also entails data-backed forecasting and projections to determine the feasibility of various projects, among other things.
Financial modeling expertise is useful for simplifying an organization’s spending. Additionally, proficiency in financial modeling can contribute to the effective utilization of the resources at hand to realize long-term corporate objectives and improve performance. It also contributes to better budgeting and cost-savings across several fronts.
Professional chances are greater for those who can design financial models for organizations with ability. Therefore, if you want to become a finance expert, you should start by honing your financial modeling skills. There are several ways to do this, including looking at online tutorials and practicing via case studies and real-world scenarios.
Data analysis needs to be your strong suit
Data is one of the most valuable currencies of the 21st century. Many organizations with their sights on the future are extensively using data to guide strategic decision-making not just in finance, but also in other domains like marketing, supply chain, and even human resource management. In order to emerge as a competent finance professional, your data analysis skills need to be top-notch.
Financial organizations actively use data analysis tools in areas like equity research, feasibility studies, and investment banking. They also put data to use when forecasting trends in several local as well as international markets. Therefore, it is no surprise that candidates with proficiency in data analysis are in high demand.
Most organizations these days have sophisticated tools that can run data analytics, but without a finance professional to make sense of this analysis and report it in a form that can facilitate decision-making, the programs are only half measures. This distinct prowess in you as a financial expert can propel you to executive roles, and companies often offer promotions to people who are well-versed in data analysis.
Make sure you know how to read and analyze financial reports
As a finance professional, it is important to develop your financial reporting skills because they are essential to providing wise economic and investment guidance. For those holding higher positions, such as chief financial officers and managers, reporting expertise is a requirement. Finance professionals can benefit greatly from having a solid understanding of financial reporting in order to comprehend data.
Knowledge of financial reporting can aid in making strategic decisions and providing answers to important questions. Even if you are not looking for a position in core accounting, gaining experience in financial reporting might benefit you in your endeavors as a finance professional.
Brush up your knowledge about the FinTech ecosystem
As digitalization and IT integration continue to dominate global industries, the incorporation of tech in finance is something that can’t be ignored. In fact, the term has already been coined, and FinTech ventures raised a whopping $79 billion globally in 2022, with the single largest deal alone totaling $27.9 billion. If you want to become a successful finance professional, these are developments to keep tabs on.
Moreover, it’s not just about knowing that progress is being made but also understanding what FinTech actually is. It is an innovation that is being touted to transform global financial ecosystems with platforms like Blockchain, microfinance, and a wide range of others. Your true competency lies in learning as much about the workings of fintech as you can.
Dive deep into the basics of forecasting
In finance, the future has one of the most vital roles to play in terms of investments. Knowing how markets will perform in the times to come, the potential factors that can influence them drastically, and elements that aid future projections are imperative for a finance professional.
In the past, forecasting was done through conventional mediums, but times have changed. Today, data is the basis of building projections and forecasting models. It naturally provides a more robust basis for the predictions about the market. Therefore, how well you understand and make forecasts sets you apart as a financial professional.
Conclusion
Finding success as a finance professional relies heavily on your understanding of technological advancements and using them in a way that allows the organization to meet certain objectives. If you can show proficiency in this aspect, you can rise to great heights as a financial expert. Use the tips mentioned above to get started on your journey.
