The road to financial independence is not a simple one. Lisa Smith, writing for Investopedia, outline the issues and dilemmas we face on that journey in the following article. With over 20 years as a financial writer, Ms. Smith offers a very clear analysis of the pitfalls that can slow or even divert us on our way to financial freedom. FFN Editors
Two Roads: Debt Or Financial Independence?
- Get a job
- Start to save
- Get raises
- Save as salary increases
- Take advantage of dollar-cost averaging (DCA)
- Benefit from a bull market
- Hit magic number
It sounds simple and straightforward on paper, but in reality, earning a high income does not automatically translate into a high net worth. This article will explain why.
Income and Expenses
When most people are starting out, they rent a small apartment. Getting married or setting up a living arrangement with a significant other generally results in a higher income, but it is also likely to lead to the desire for more space – often at the cost of the desire to make maximum contributions to a pair of individual retirement accounts (IRAs) or 401(k) plans. Unfortunately,there are many things that people may not know about an IRA, and the opportunity to increase savings often takes a back seat as living accommodations are upgraded to a single family home.
After a decision is made to have children, buying a minivan, paying for clothes, toys, soccer, hockey, ballet, and other associated costs results in an increased outlay of cash, not only eliminating the ability to save more, but potentially resulting in a diminished savings rate. Having children can also result in moving to a larger home in a better school district and,the decision to pay for tuition at a private school, and then maybe even a college education. All of these things start to take precedent over funding your own retirement savings.
Lifestyle decisions can also have negative impacts on savings rates, even as income increases. Scrimping and saving simply isn’t fun. If we can afford to take a luxurious vacation, buy that sports car, upgrade the wardrobe, spend a weekend at the spa, buy that place at the beach or chalet in the mountains, don’t we deserve it for all the hard work we have done?
The desire to spend instead of save is also fostered by a quick look at the shenanigans on Wall Street and the poor investment returns in our portfolios. Anybody holding Enron, Worldcom or dozens of other failed firms in their portfolio aren’t likely to be singing the praises of savings. A look at most investment statements during a bear market also serves as a reminder that a 20% loss is not recovered by a 20% gain. If we’re going to be cheated by the firms we invest in and watch our portfolios decline in value even when we diversify, it’s easy to justify the purchase of something we will at least be able to enjoy in exchange for our money.
Geography can also work against the ability to save. In Silicon Valley, a modest ranch house can sell for $500,000. In New York City, private school tuition for three children can reach six figures and mortgage payments of $150,000 per year are not uncommon. Moving up in the world also places one in a different position on the socioeconomic scale.
If you are living the upscale lifestyle of an investment banker to the rich and famous, driving to a client meeting in a Ford Focus is out of the question. Similarly, if everyone in your social network has a housekeeper and vacations in the Hamptons, those items become an expected part of the lifestyle in order to maintain your social network and class. That correlation between standard of living vs. quality of life is very common.
The Eye of the Beholder
Although it might sound extravagant to those of us earning the national median of around $50,000 (according to Census Bureau figures), having more money (even much more money), doesn’t always put people farther ahead. In fact, those earning more almost always have a lifestyle that leaves them with more things to pay for. That said, before class envy takes hold, those of us at the lower end are also not skipping our lattes, nights on the town, cable television, cell phones, cigarettes, alcohol, new cars, and other nice-to-have-but not-strictly-necessary expenses.
In the end, everybody wants whatever they can afford, and instant gratification is a whole lot more fun than watching a quarterly brokerage statement for 20 years or more. As a result, most of us end up financing our lifestyles with debt. And many are worried that standard of living vs. quality of life is very common.
The Bottom Line
Sticking to the seemingly simple plan of earning more and saving more requires serious discipline and sacrifice. It means living below your means, regardless of the level of your means, and making savings a priority. If requires having a plan, saving and maximizing the amount you invest in our 401(k) and other savings vehicles before spending on the extras. It may not sound like fun, but years from now, when you look back at all the people who seemed to have it all but were really just getting by, you’ll be one of the ones laughing all the way to the bank
Our featured article in this edition of Financial Freedom News recommends a very different approach to the idea of planning for retirement. Richard Eisenberg, a contributing writer for Forbes magazine, recommends that we focus on attaining financial independence instead of planning for retirement. In this two-part article Richard outlines his views on how to make this goal a reality.
In this article, we are given the 5 rules for declaring our financial independence. The second part of this article, in our next edition, will discuss several types of retirement calculators and their role in the planning process. FFN Editors
Plan For Financial Independence, Not Retirement
Richard Eisenberg, Contributor to Forbes Magazine Personal Finance Section (www.forbes.com)
Declaring your Financial Independence Day is a better idea than trying to come up with “the number” you need to retire, especially if you’re in your 50s or 60s and don’t have much time to pump up your savings.
What exactly is financial independence or, as some call it, financial freedom? That depends on your own definition.
In a new Capital One 360 survey, 44% of U.S. adults said financial freedom meant not having any debt, 26% said it meant having enough saved for emergencies and 10% defined it as being able to retire early.
I go with Jonathan Chevreau, the Toronto-based author of the new U.S. edition of Findependence Day, a “fictional finance” book, and creator of the Findependenceday.com site. His novel is about a young debt-ridden couple, Jamie and Sheena Morelli, and their road to reaching you know what.
Chevreau says that when you’re financially independent, you work because you want to, not because you have to. “Findependence is necessary for retirement,” he says. “You can be findependent and not retired, but you can’t be retired without being findependent.”
Chevreau targeted April 6, 2013 – his 60th birthday – as his Findependence Day and reached that goal, but he still edits Canada’s MoneySense magazine. “I have a job I like, so why would I quit?” he asks.
5 Rules to Declare Your Findependence
Chevreau’s five rules for achieving findependence:
1. Pay off your home in full. “That’s really the foundation,” he says.
2. Find multiple sources of income for retirement. These can include interest and dividends from your investment portfolio; rental real estate; freelance or consulting work; Social Security; an annuity; and perhaps a guaranteed pension.
3. Develop “guerrilla frugality” habits. Chevreau calls this “becoming a Frooger.” Keeping expenses low while working full-time will make it easy to live that way in retirement and reduce the amount of savings you’ll need for a comfortable retirement.
“If you spend like a millionaire, you’ll end up a pauper,” says his book’s protagonist, Jamie. “Spend like a pauper and you have a shot of becoming a millionaire.”
4. Save 20% of your gross income. This will be impossible for many people, but not for others. If you can’t save 20%, try for 15 or 10%.
5. Invest with a “Lazy ETF” portfolio. That means selecting, say, three exchange traded funds– a U.S. stock fund, an international stock fund and a U.S. bond fund – and holding onto them.
Review their performance once a year. Then rebalance your portfolio if the markets shift and you discover you have a higher percentage in one of these asset classes than you want. (Use index funds instead of ETFs, if you prefer.)
Women, Men and Money
At the risk of overgeneralizing, I think many women gravitate toward the concept of financial independence, while men often prefer focusing on “the number.”
In the initial episode of the two-part Consuelo Mack WealthTrack public television series on Women, Investing and Retirement that premiered June 28, Jewelle Bickford, senior strategist for GenSpring Family Offices, said the first question her male clients ask in their monthly or quarterly meeting is “how has their portfolio done, whereas the women tend to think: ‘Will I have enough?’”
(This ends part 1 of this article. Part 2 will follow in our next post). FFN Editors
Let us know your thoughts iregarding this nformation in the Reply Section below. Also, please click “Like” and “Share” this artilcle with others who may be interested in achieving financial freedom.
(Disclaimer: The views in the above article are strictly those of the author. They do no necessarily represent those of FFN. Please use due diligence prior to applying the concepts, recommendations and/or in purchasing any products or services offered by the author). FFN Editors
Does your goal of retiring seem farther away than ever. Well, you aren’t alone. The reality for many is that normal retirement at age 65 is being postponed to some later date. As a result of the financial crisis of 2007/2008 and the widespread lack of retirement preparation, many have to work longer to reach the financial level necessary to retire.
Putting a retirement plan into effect is a critical step in making retirement a reality. Trent Hamm writing in The Simple Dollar outlines several steps that can get your plan underway. And, perhaps close to where it should be if it has been side-tracked.
Let us know your thoughts about this information in the Comments section at the end of this page. Also, please “Like” and “Share” this information with others you may be interested in achieving financial freedom. FFN Editors
How to Approach Retirement Catch-Up
By Trent Hamm for The Simple Dollar
December 10, 2013
It’s well established that if you start saving about 10 percent of your income for retirement starting at age 25, you’re going to be in excellent shape for retirement when you hit age 65. This fact should be emblazoned on every single college and trade school diploma issued in the United States today: start saving for retirement now, not later.
Unfortunately, that fact doesn’t represent reality. Quite a few of us didn’t save at all during our 20s, and some of us didn’t save during our 30s, either. All the time, I hear from readers in their late 30s or early 40s (or even later) who are just now realizing that they need to start saving for retirement or they’re going to work forever.
If this describes you, the obvious answer is to start saving immediately. Right now. If you’re reading this article and you’re a professional adult without any retirement plan in place, you need to start a retirement plan.
If your employer offers a 401(k) program with matching contributions, run (don’t walk) to the HR office and sign up for that plan. Contribute enough to get every dime of that matching money because it’s essentially free retirement savings for you. If your employer doesn’t offer matching in their 401(k) program, look into opening an individual retirement account. I recommend contributing 10 percent of your income to that IRA, for starters.
So, you’re saving. Now what? The first thing to think about is time. If you’re only contributing 10 percent of your income per year to a typical retirement fund, it’s going to take about 40 years of saving before you can safely retire. Like it or not, that’s the reality of it.
If you’re 30 when you start, that means you’re looking at retiring when you’re 70. If you’re 40 when you start, that means you’re looking at retiring when you’re 80.
Another problem is that simply doubling the contribution doesn’t mean that you can halve the time. You can’t expect to contribute 20 percent for 20 years and match what you would get out of 10 percent over 40 years. That would only work if you were getting no return on your money – in other words, if your retirement plan involves stuffing cash into a mattress.
Saving for retirement once you’re behind the curve looks quite scary. Thankfully, there are a few things you can do to help improve your situation.
1. Get a Social Security estimate. The average American earns 40 percent of his or her retirement income from Social Security benefits, so knowing what you have coming to you can go a long way toward soothing retirement fears. The Social Security Administration offers a calculator to help you figure out how much you’re going to receive in benefits. It’s a good idea to wait until you’re as old as possible to start collecting benefits so you can maximize the income.
2. Look for ways to boost your income. Many mid-career folks find opportunities for freelance work and side businesses that can supplement their current income. Instead of simply spending that money, however, channel all of it into retirement savings (or into a mix of retirement savings and debt repayment). If you’re unsure where to start, visit your local library for information on side businesses and freelance opportunities related to your career path.
3. Hike up your savings. If you wish to retire earlier than 40 years from now, you’re going to have to save more. That means stowing away a higher percentage of your income. A good quick rule to use is that for every 10 years you want to shave off your goal, you need to double how much you’re saving. If you want to make it in 30 years, shoot for 20 percent per year. Twenty years? You should be saving 40 percent of your income per year. You need that boost to make up for the time you lost.
4. Cut out unnecessary expenses. Finally – and this is the tough part – you may have to consider some cutbacks. If you’re living a lifestyle that makes saving for retirement inconceivable, then you’re simply living beyond your means. You can’t assume that your ship will come in someday and everything will be OK. Everyone has expenses that they can cut from their life.
The road to retirement is a challenging road – but it’s not an impossible one.
Trent Hamm is the founder of the personal finance website TheSimpleDollar.com, which provides consumers with resources and tools to make informed financial decisions
(Disclaimer: The views expressed in the above article are strictly those of the author. They do not necessarily represent those of FFN. Please use due diligence prior to applying the concepts, recommendations and/or in purchasing any products or services offered by the author) FFN Editors
A key component in achieving financial freedom is reducing and controlling debt. Some financial freedom seekers have been able to shrink debt to an absolute minimum…even to zero. Most of us, however, will have debt in our lives. Managing that debt becomes critical in our ability to realize financial independence.
Our featured article by the GreenPath organization addresses this issue. GreenPath Debt Solutions, a nationwide, non-profit credit counseling and education organization, has come up with a list of ways to work your way out of debt in the New Year.
Let us know your thoughts about this article. Also, please “Like” and “Share” this information with others who may be interested. FFN Editors
Quick Tips On Getting Debt Under Control In 2014
SOURCE: GreenPath Debt Solutions. (GreenPath Debt Solutions shares ways to tame credit card bills and other debts).
FARMINGTON HILLS, Mich., Dec. 18, 2013 /PRNewswire-USNewswire/ —
The New Year is only a few weeks away, and after the holiday gifts and decorations are packed away, mailboxes will soon be packed with credit card bills.
“In early January, we really see a surge in calls from people worried about their holiday bills,” said David Flores, GreenPath personal finance counselor. “Once the excitement of the holidays has passed, they realize they need to get serious about paying off their debt in the New Year.”
Plan Your Finances – This is an important first step to take in the New Year. An active financial plan is a tool that helps reduce spending and increase savings.
“You shouldn’t simply be content with having money left over in your checking account, at the end of each month,” said Flores. Developing a plan will allow more financial freedom and enable you to get through financial emergencies.
Create a Budget – A budget forces you to get your spending under control, and to “live below your means,” which is exactly what you’ll need to do to start eliminating your debt. Making little adjustments to your lifestyle can add up to big savings. “Be sure to give yourself a bit of breathing room in your budget for unexpected expenses,” said Flores.
Prioritize Your Debts – “Debts that take first priority are the ones directly related to your ability to survive, such as mortgages or auto loans,” said Flores. “If you don’t pay these loans, you can face foreclosure or repossession.” Flores recommends prioritizing payments into three categories: high priority (housing, child support, utilities, car loans); medium priority (personal secured loans, student loans, home improvement loans); and low priority (loans for household goods, credit cards, doctor’s bills).
Estimate Available Income – Income can be a weekly paycheck, pensions, public assistance and investments. After you subtract taxes and other deductions from your total income, you will have your available income that you can work with each month.
Check Your Spending – Identify your past spending patterns by reviewing cancelled checks, receipts, and charge statements, for the past two to three months. Place expenses in “fixed” or “flexible” categories. Fixed expenses occur at specific times and rarely change (car note or mortgage). Flexible expenses fluctuate from month to month, and may possibly be altered to balance the plan (credit card bills, electric bill).
Use Cash for New Purchases – Unless you pay off the entire balance every month, you are probably paying interest on new purchases from the date of the purchase. If you stop using your credit cards all together, you will be able to reduce your debt more quickly. Because of compounded daily interest, it is far better to use cash for the things you need and adjust your budget to accommodate those expenses, rather than to use credit cards and then struggle to send large payments.
Review Your Plan – You should review your plan about every two to three months. Do not be surprised if, in the beginning, actual expenses are quite different from what you initially listed. Your plan will become more realistic as you continue the process.
Planning ahead early in the New Year can set you on a path to being debt-free in 2014.
For more information on GreenPath, or to receive a free counseling session and budget plan, log on to http://www.greenpath.org or call (866) 648-8122.
GreenPath Debt Solutions is a nationwide, non-profit financial organization that assists consumers with credit card debt, housing debt and bankruptcy concerns. Our customized services and attainable solutions have been helping people achieve their financial goals since 1961. Headquartered in Farmington Hills, Michigan, GreenPath operates 50 full-time branch offices in 11 states.
They also deliver licensed services throughout the United States over the Internet and telephone. GreenPath is a member of the National Foundation for Credit Counseling (NFCC). Our professional counselors are certified by the NFCC, and we are accredited by the Council on Accreditation (COA). For more information, visit us at http://www.greenpath.org.
©2012 PR Newswire. All Rights Reserved.
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(Disclaimer: The views in the above article are strictly those of the author. They do not necessarily represent those of FFN. Please us due diligence in applying any of the concepts, recommendations and/or in the purchase of products or services offered by the author). FNN Editors
You have probably heard of bitcoins. They are mentioned quite often in the media lately. But, you may not be sure what this so-called new form of currency actually is. So, we are featuring an article from the Investopedia staff published in Forbes magazine that does an excellent job of explaining the nature and use of bitcoins.
Let us know your thoughts about this information in the Comments section at the end of the page. Also, please “Like” and “Share” this information with others who may be interested. FNN Editors
“How Bitcoin Works”
By Investopedia Staff originally in Forbes magazine
Bitcoin is a digital currency that exists almost wholly in the virtual realm, unlike physical currencies like dollars and euros. A growing number of proponents support its use as an alternative currency that can pay for goods and services much like conventional currencies. Bitcoin is the first and easily the most popular cryptocurrency, or currency that uses cryptography1 (see “Definitions and Key Concepts” at end of article) to control its creation, administration and security.
Bitcoin was set up in 2009 by a mysterious individual or group with the pseudonym Satoshi Nakamoto, whose true identity is yet to be revealed and who left the project in 2010. It rocketed to prominence in 2013, when the value of a Bitcoin soared more than 10-fold in a two-month period, from $22 in February to a record $266 in April. At its peak, based on more than 10 million bitcoins issued, the cryptocurrency boasted a market value of over $2 billion.
Bitcoin Versus Conventional Currencies
Bitcoin differs from conventional currencies in some very fundamental ways, as noted below (for the sake of simplicity, we use the U.S. dollar as a proxy for conventional currencies).
•Bitcoin uses P2P technology without a central authority: Bitcoin is a decentralized currency managed by peer-to-peer technology (P2P2), without a central authority. All functions such as Bitcoin issuance, transaction processing and verification are carried out collectively by the network, without a central supervisor or agency to oversee operations. In contrast, a conventional currency is issued by a central bank as part of its mandate to manage national monetary policy. In the U.S., only the Federal Reserve has the power to issue dollars; it is also the central authority that conducts monetary policy, supervises banks, maintains financial system stability, and provides financial services to depository institutions.
•Bitcoin is primarily digital: Although physical Bitcoins are available from companies such as Casascius and BitBills, Bitcoin has been designed primarily to be a digital currency. Physical Bitcoins are somewhat of a novelty, and the very idea of a tangible form defeats the purpose of a digital currency, according to the most ardent supporters of the concept. Conversely, your dollars exist primarily in physical form; the balances that you hold at your bank and online brokerage can be converted into physical dollars within minutes if you so desire.
•Bitcoin has a maximum 21 million limit: The total number of Bitcoins that will be issued is capped at 21 million. The Bitcoin “mining”3 process presently creates 25 Bitcoins every 10 minutes (the number created will be halved every four years), so that limit will not be reached until the year 2140. While Bitcoin critics argue that the maximum limit is not large enough, supporters maintain that since each Bitcoin is divisible to eight decimal places, the number of fractional Bitcoins (called “satoshis”) – at 21 x 1014 – will be more than enough for all conceivable applications. Conventional currencies, on the other hand, can be issued without limit.
•Bitcoin is a complex product: The concepts of cryptocurrencies in general are abstruse and abstract, and understanding how and why Bitcoin works requires a fair degree of technological knowledge.
•Bitcoin has limited acceptance: It has limited acceptance so far and cannot be used at many brick-and-mortar storefronts, although that may eventually change if it continues to gain traction. The dollar, on the other hand, has near-universal acceptance as the world’s global reserve currency.
•Bitcoin transactions have limitations: A Bitcoin transaction can take as long as 10 minutes to confirm. Transactions are also irreversible and can only be refunded by the Bitcoin recipient. These limitations do not exist with conventional currencies, where debit and credit transactions are confirmed within seconds; certain transactions can also be reversed for valid reasons by the originator, without having to rely on the recipient’s largesse.
•Bitcoin balances are not insured: This means that if you lose your Bitcoins for any reason – for example, your hard drive crashes, or a hacker steals the digital wallet in which your Bitcoins are stored, or the Bitcoin exchange where you held a balance went out of business – you have little recourse. Currency balances held at banks, on the other hand, are insured against certain events such as bank failure by agencies like the Federal Deposit Insurance Corporation in the U.S.
How Bitcoin Works
Let’s say you want to test the Bitcoin waters. The first thing you need to do as a new user is install a digital wallet on your computer or mobile device. This wallet is simply a free, open-source software program that will generate your first and subsequent Bitcoin addresses. There are three types of wallets – a software wallet (installed on your computer), a mobile wallet (which resides on your mobile device) or a Web wallet (located on the website of a service provider that hosts bitcoins).
Bitcoin uses public key encryption4 techniques for security. This means that when a new Bitcoin address is created, a cryptographic key pair consisting of a public key and private key – which are essentially unique, long strings of letters and numbers – is generated.
Each address has its own Bitcoins balance, so all you need to do is acquire a number of Bitcoins that will be held at one of the addresses in your wallet. You can acquire Bitcoins through a number of ways – by buying them from a Bitcoin currency exchange such as Mt. Gox or Bitstamp, or through a service like BitInstant that enables fund transfers between Bitcoin exchanges and supports various payment mechanisms.
Note that all Bitcoin transactions are stored publicly and permanently on the Bitcoin network, which means that the balance and transactions of any Bitcoin address are visible to anyone. Experts therefore recommend that Bitcoin owners create a new address for each transaction as a means of ensuring privacy and enhancing security.
Once you have created a Bitcoin address and have acquired Bitcoins, you can use them for an online transaction with a company that accepts Bitcoins as a payment mode. The company will send you the Bitcoin address to which you can send your Bitcoin payment. You direct the payment to that address; while the transaction takes place within seconds, verification can take 10 minutes or longer.
All Bitcoin transactions, without exception, are included in a shared public transaction log known as a “block chain”. This is to confirm that the party spending the Bitcoins really owns them, and also to prevent fraud and double-spending.
Why does transaction verification or confirmation take so long? Because the complex algorithms involved in Bitcoin mining (see description below) take time to solve, even with immense computing power at one’s disposal.
An Example of a Bitcoin Transaction
Let’s assume you want to make an online payment to a company – call it BitChamp – using 5 Bitcoins that you have in an address in your digital wallet. Here are the steps in the transaction:
1.BitChamp creates a new Bitcoin address and directs you to send your payment to it. This creates a private key (known only to BitChamp) and a public key (available to you and anyone else). Note that just as a seller does not need to know your physical identity if you pay cash, you do not need to disclose your real identity to BitChamp and can remain anonymous.
2.You instruct your Bitcoin client (the free Bitcoin software you first installed on your computer) to transfer 5 Bitcoins from your wallet to the BitChamp address. This is the transaction message.
3.Your Bitcoin client will electronically “sign” the transaction request with the private key of the address from where you are transferring the Bitcoins. Recall that your public key is available to anyone for signature verification.
4.Your transaction is broadcast to the Bitcoin network and will be verified in a few minutes. The 5 Bitcoins have been successfully transferred from your address to the BitChamp address.
Note that only the first two steps involve action by the seller and you respectively. The latter two steps are automatically executed by the Bitcoin client software and Bitcoin network. As well, storing the private key attached to an address safely and securely is of the utmost importance; otherwise, anyone who obtains the private key can control the Bitcoins at that address and use them fraudulently.
Bitcoin Pros and Cons
Bitcoin has a number of advantages:
•As the first cryptocurrency to capture the public imagination, Bitcoin has “first mover” advantage and a head start over the competition.
•Total issuance is limited to 21 million, so it is unlikely to be devalued because of the prospect of a massive influx of new bitcoins.
•As a decentralized currency, Bitcoin is free from government interference and manipulation.
•Transaction costs are much lower than with conventional currencies.
On the flip side, Bitcoin’s disadvantages include:•The price of a Bitcoin has been increasingly volatile, making it difficult to assess its real value and increasing the risk of losses for investors in the cryptocurrency.
•The relative anonymity of Bitcoin may encourage its use for illegal and illicit activities such as tax evasion, weapons procurement, gambling and circumvention of currency controls.
•The fact that bitcoins exist primarily in digital form renders them vulnerable to loss.
Bitcoin has made significant progress in its adoption and usage since it was unveiled in 2009. Its evolution over the next few years will determine whether this leading cryptocurrency will become an integral part of the global financial system, or whether it is destined to remain a niche player.
Definitions and Key Concepts
1 Cryptography refers to the practice and technique of using encryption for secure communication and transmission of data and information.
2 In a P2P network, a group of computers is connected to enable the sharing of resources and information by users, and there is no central location for the network. This is diametrically opposed to a typical client-server network, where the central server controls the level of access by users to shared network resources. Popular applications of the P2P concept are Skype and file-sharing services such as BitTorrent.
3 Bitcoin mining refers to the computationally-intensive task of generating Bitcoins. While any computer can be put to the task of Bitcoin mining by using a free mining application, in reality a great deal of computing power is required to solve the extremely complex algorithms involved and to share those solutions with the entire Bitcoin network. The mining process is quite complicated and involves advanced concepts such as cryptographic hashes and nonces.
In simple terms, Bitcoin miners use powerful computers to track and compile pending Bitcoin transactions every 10 minutes into a new block. These miners then set to work doing the intensive number-crunching required to verify all the transactions in the block. This is a competitive process, and the first miner to solve the algorithms and verify the transactions transmits the results to the entire Bitcoin network.
Upon confirmation by the rest of the network, the block is then added to the block chain. Each block includes a certain number of Bitcoins in a “coinbase” transaction that is paid out to the successful miner. This reward was set at 50 Bitcoins when the system first commenced operations in 2009, but was halved to 25 Bitcoins in November 2012, and will reduce by 50% approximately every four years.
4 Public key encryption combines a public key and a private key. While the public key is available to anyone, the matching private key is stored securely in the digital wallet and is generally password-protected. Each Bitcoin transaction is signed by the private key of the initiating user, providing mathematical proof that it has indeed originated from the owner of the address, and preventing the transaction from being altered once it has been issued. Since the key pair is mathematically related, any data or information encrypted with a private key may only be decrypted or deciphered with the corresponding public key and vice versa.
5 Double-spending means spending the same digital currency twice, something that is impossible with physical currencies.
(Disclaimer: The views in the above article are stictly those of the author. They do now necessarily represent those of FFN. Please use du diligence prior to applying the concepts, recommendations and/or in purchasing any productsor services from the author.) FFN Editors
As we head rapidly towards the end of 2013, this is the perfect time to give serious consideration to setting your 2014 goals. Not only your financial goals but your overall life goals, as well. Here’s a great brain teaser from Jason Nazar, the co-owner of Docstoc and a contributing writer for Forbes magazine.
Jason has developed 35 questions that will help spark your thinking about all aspects of your life. These are often simple questions but if given careful thought they will cause you to really look deeply at how your life is unfolding. And, if it’s moving in the direction you want.
Let us know your thoughts about this information. And, please “Like” and ‘Share” this with others who may have an interest in shaping their future.
35 Questions That Will Change Your Life
“Judge a man by his questions rather than his answers.” – Voltaire
“We make our world significant by the courage of our questions and by the depth of our answers.” – Carl Sagan
“The question isn’t who is going to let me; it’s who is going to stop me.” – Ayn Rand
As I turn 35 and think of my life so far and what’s to come, I realize how much I’m shaped by the questions I ask. I’ve always been insatiably curious. These are the 35 questions that have made the biggest impact on my life.
What are you pretending not to know? This was perhaps the most powerful question I was ever asked (by my best friend @bengleib). All possibilities open up when we stop deceiving ourselves.
Why don’t you do the things you know you should be doing? Life isn’t about figuring out what to do. The real challenge is (not so) simply doing the things we know we should be doing.
What are your values and are you being true to them? Write down the 3 most important aspects of each of these areas: family, romantic relationships, friends, work, health, sex and spirituality. These are your values. When we don’t act congruently with what we value, symptoms of discomfort arise.
In what ways are you being perceived, that you’re not aware of? Perception is reality. Make sure, for better or worse, you know what people really think of you. (TIP: Watch “How to Persuade People”)
What don’t you know, that you don’t know? It’s always the obstacles that we don’t even see coming that are the biggest challenges in life. Get in the habit of asking people that have been there and done it before for guidance.
Happiness / Peace of Mind
Are your “shoulds” getting in the way of your happiness? The desires of our ego are often in conflict with the emotions of our heart. You’ll always have what you want, if you want what you have.
If you achieved all of your life’s goals how would you feel? How can you feel that along the way? The discipline of delayed gratification is one of the most powerful habits of successful individuals. But most actions we take are meant to elicit an emotion in the now. We’re happier striving for our goals when we let ourselves feel that which we want to feel when our outcome is achieved.
What did I learn today? Who did I love? What made me laugh? I try to ask myself these 3 questions at the end of each day. Regardless of anything else that happens, if you learned something new, loved a good person and got to laugh heartily, it was a day worth having and remembering.
If you weren’t scared what would you do? Use the rocking chair test. What would your 90-year-old self, looking back on your own life, advise you to do in the moment?
If you were dying, would you worry about this? We so easily lose perspective on what takes up our energy and focus. We’re all dying. Sometimes we need to remind ourselves of this to enjoy living. (TIP: Read “The Last Lecture” and “Tuesdays with Morrie”)
Should you be focused on today or tomorrow? Savor the present but don’t forget your future. Life is a balance of knowing when to enjoy the moment vs. when to plant seeds for tomorrow’s harvest.
Influence / Achievement
Why not? What would happen if…? Don’t accept that things just are the way they are. Question why something can’t be done. And when you get pushback to these questions, reframe the negative answers with possibilities. (TIP: Watch “Steve Job’s Vision of the World”)
What/Who did you make better today? The way to measure your worth may just be to give more than you take. Asking what/who you made better each day is a simple litmus test we can all measure ourselves by.
What do you want your life to be in 5 years? If you don’t know where you’re going, you’ll never get there – Lewis Carroll. Write down 5-year goals. They’re close enough to grasp for, yet far off enough to achieve almost anything.
What can you do today to improve? Consistent, incremental improvement is the secret to achieving the greatest of feats.
Business / Entrepreneurship
What’s your WHY? If you have a big enough WHY you’ll always figure out the What and the How. If you don’t have a BIG WHY, you’ll always use the What and the How as an excuse for not doing that thing you said you were going to do. (Watch “What’s Your Why”)
What’s the one most important thing to get done today/ this week/month? Write this down on a Post-it note at the beginning of each day/week, and hold yourself accountable for completing this above all other Stuff To Do.
What questions must you consider before starting a business? See my list by watching “The 10 Questions” or reading the document.
What’s the potential upside? What’s the effort involved? What’s the likelihood of success? What’s the strategic value? This is the framework I came up with 3 years ago on “How to Make the Right Business Decisions”. Whenever there is an opportunity cost, I have my team go through this exercise.
What are we talking about? What problem are we solving? I try to start off every meeting by putting this on the whiteboard. In group settings we too often we find ourselves having completely different conversations. Sometimes when answers are difficult to come by, it’s helpful to question if we’re solving for the right problem.
Can you get it done now? If something is important or urgent and you can get it done now, do it. (TIP: Read “Getting Things Done” from the productivity guru David Allen)
What do you need to make it happen? This is one of my favorite questions to ask as a manager. It creates ownership to make sure the goals will be achieved. And it creates a shared responsibility to provide the resources required (time, money, talent, etc.) to achieve those goals.
If we could wave a magic wand and do anything together, what would that look like? I use this question all the time with potential business partners. By removing the perceived constraints that bind us and focusing on mutually desired outcomes, we often discover new pathways of possibility.
How would your role models act and carry themselves? Act as if. Act as if you have the experience, wisdom and swagger of your role model, and you’ll often find even the most unchartered of situations more navigable.
When can we meet? We’re often this one question away from engaging with someone who can open up limitless avenues of possibility. The most important aspect of business is still to always get it done in person. (TIP: Read “Business Development Advice”)
Will you be my mentor? It’s one question that, when asked in earnest, almost nobody will turn down. Reach out to a person in a position and industry you admire, and ask them if you can take them to coffee and hear about how they got there.
What will I only know about you after we’ve worked together for a year? This interview question comes from the awesome Wendy Lea (CEO, GetSatisfaction). This may be the best interview question I’ve ever heard. (Watch “Fireside Chat with Wendy Lea” and check out my previous 8 Awesome Interview Questions)
What would get you interested in our product/service? Selling is the art of asking good questions, listening, and matching your value to people’s needs. Sales is very easy when others explain what they want and need from you. (Watch “The 5 Step Sales Process”)
What else? Such a simple but powerful question with so may applications.
Now share yours. What are the questions that made the biggest difference in your life? Comments encouraged.
(Disclaimer: The views expressed above are strictly those of the author. The do not necessarily represent those of FFN. Please use due diligence prior to using any of the concepts, recommendations and/or in the purchase of products or services offered by the author). FFN Editors
Here are a dozen money actions to consider taking before closing out 2013. Deborah Jacobs of Forbes magazine offers an insightful collections of financial steps to both protect your current wealth and set a course for increasing it.
Let us know your thoughts about this article and “Like” and “Share” with others who would wish to take advantage of this information.
“12 Smart Money Moves To Make Before The End Of 2013”
Deborah L. Jacobs, Senior Editor, Forbes Magazine, 12/02/2013
Many people, rushing to make holiday plans, would like to take a vacation from thinking about money. Not so fast. In the process you could whiz by some crucial financial deadlines on Dec. 31. Miss them and you might get hit with substantial penalties or lose the opportunity to take advantage of some smart money-saving moves. Here are strategies to consider in the countdown to 2014.
1. Fund employer-sponsored retirement plans.
For 2013, you can contribute up to $17,500 to a 401(k) plan, or $23,000 if you’re 50 or older. These dollars can be put in a pretax 401(k), cutting your current tax bill. Or if your employer offers the option and you believe tax rates will rise, put some of those dollars in a Roth 401(k). The money goes into a Roth after taxes, saving you nothing now. But the Roth grows tax-free. You can withdraw from it tax-free when you retire or before that if you leave the company, have had the account for at least five years and are 59 ½ or older.
Think it’s too late to top up your 2013 contributions? Maybe not. Ask your employer to withhold extra dollars from your last couple of paychecks.
Self-employed? Set up a one-person 401(k). So long as you create it by Dec. 31 you can make contributions for 2013 until the due date of your 1040 with extensions – as late as Oct. 15, 2014.
2. Buy business equipment.
Here’s another tax goodie if you’re a business owner or moonlighter. Instead of recovering the cost of new equipment by depreciating it over a period of years, you’re allowed to deduct the entire cost of most new business property in the year you acquire it. Currently, the limit is a generous $500,000, which comes in handy if you’re in the market for computer equipment, furniture, or a car, for example, but it’s scheduled to drop to $25,000 Jan. 1. For the current rules on this Section 179 Deduction, check IRS Publication 946, which downloads here as a PDF.
3. Accelerate income tax deductions.
The most obvious examples are property taxes and state and local income tax. That’s assuming, however, you’re not paying (or in danger of paying) the fiendishly complicated alternative minimum tax, which can turn that traditional advice on its head. For example, since state and local taxes aren’t deductible in AMT, you might delay the payment of your fourth-quarter state taxes until 2014 – if you’re stuck in AMT this year but likely won’t be for 2014.
4. Take required distributions from your own IRA.
You are considered the owner of an IRA that you set up and funded – either through annual contributions or the rollover of a 401(k). Unless the account is a Roth, you must take yearly minimum distributions starting at age 70 ½. You have until April 1 of the year after you turn 70 ½ to take the first one. After that, you must take distributions by Dec. 31 of each year.
The payout is based on the account balance on Dec. 31 of the previous year divided by your expectancy, as listed in one of three different IRS tables (really) contained in Appendix C of IRS Publication 590, “Individual Retirement Arrangements (IRAs),” downloadable as a PDF here. After doing the calculation the mandatory withdrawal is expressed as a dollar value. You are required to pay income tax on this amount.
5. Take required distributions from an inherited IRA.
Generally, non-spousal IRA heirs must withdraw a minimum amount each year, starting by Dec. 31 of the year after the IRA owner died. Note: This is true whether it’s a traditional IRA or a Roth (a common misconception).
To calculate this distribution, you take the balance on Dec. 31 of the previous year and divide it by the individual’s life expectancy, as listed in the IRS’ “Single Life Expectancy” table (see p. 88 of IRS Publication 590. Unless the account is a Roth, there is income tax on this required payout.
Don’t make the mistake, as some people do, of using the number from the table to figure a percentage. In subsequent years, you simply take the number you used in the first year and reduce it by one before doing the division.
6. Split inherited IRAs that have more than one beneficiary.
Co-beneficiaries must take distributions over the life expectancy of the oldest beneficiary. It’s better to split it into separate inherited IRAs. That avoids investment squabbles and allows a longer payout period for the younger heirs. But you must take this step before Dec. 31 of the year following the year of the IRA owner’s death. If you don’t, the payout schedule will continue to be based on the life expectancy of the oldest beneficiary.
7. Make yearly tax-free gifts.
You can give anyone (and everyone) $14,000 annually without eating into your lifetime exemption from gift or estate tax. (That exemption is currently $5.25 million and goes up to $5.34 million in 2014.) Couples can combine this annual exclusion to jointly give $28,000. Just make sure 2013 gifts are complete (received and, in the case of a check, either deposited or cashed) by Dec. 31.
8. Fund 529 state college savings plans.
A popular use of the annual exclusion is to fund these plans. The main appeal of a 529 is income tax savings: You put money in one of these plans and you don’t have to pay federal or state income tax on the earnings, provided the cash is withdrawn to pay for college or graduate school tuition, fees, room and board, or books. In some cases you also get a state income tax deduction for your contribution. To take advantage of that tax break your contribution checks must be postmarked by Dec. 31; if you contribute by electronic bank transfer, your online request must be submitted before 11:59 p.m. on Dec. 31.
When it comes to 529s, there’s a special twist with annual exclusion gifts: You can make a lump-sum deposit of as much as $70,000 ($140,000 for a couple) and treat it as five years’ worth of annual $14,000 gifts. To do this you must file a gift tax return, and if you die before the five years is up a pro rata part of the gift goes back into your estate. Still, it’s a good way to get a large lump of college money into a 529, where it can grow tax-free.
9. Harvest capital gains and losses.
A popular way to reduce the tax on investment gains is to take capital losses to offset them. Should you go this route, beware of the “wash-sale” rule of the Internal Revenue Code. It prohibits deduction of losses if you either buy back the property you just sold or buy “substantially identical” securities 30 days before or after the trade. If you violate the rule, you can’t deduct the loss until you sell the new shares.
10. Pay estimated taxes.
This is relevant to people who are self-employed, have a business on the side, or have taxable investment income. To avoid underpayment penalties for the 2013 tax year, you must prepay on a quarterly basis 100% of what you owed in 2012 or 110% if your adjusted gross income in 2012 was more than $150,000.
11. Make charitable donations.
Publicly traded appreciated securities – assuming you have any – are by far the most tax-efficient asset to donate to charity. You can deduct their full fair market value at the time of your gift (offsetting up to 30% of your AGI), yet you don’t have to recognize the appreciation as income. If you want a 2013 deduction but don’t yet have a charitable recipient in mind, transfer those securities to a donor-advised fund. You can claim your deduction now, then recommend grants to your favorite causes later. (Fidelity, Vanguard and Schwab all have affiliated charitable funds.)
If you’re 70 ½ or older and still need to take a 2013 required minimum distribution from your IRA, consider transferring the payout (or part of it) directly to your favorite charity (it can’t be a donor advised fund). You won’t get a charitable deduction, but you also won’t have to recognize this “charitable rollover” as income, which has other benefits. For example, it might hold down the amount of extra income-based Medicare premiums you must pay in 2013.
Even if you’ve already taken your RMD, you can do a charitable rollover for up to $100,000 – before Dec. 31. This provision expires at the end of 2013. For details about how to do this, and pitfalls to avoid, see “The Dollars And Sense Of Giving IRA Assets To Charity.”
12. Schedule checkups and stock up on meds.
All the more so if you have met your deductible for 2013. In that case prescription refills that cost you nothing now may add up to considerably more starting Jan. 1 until you have met your deductible for 2014. Likewise, if you need surgery and have a choice about whether to schedule it this year or early next year, you might be better off financially having the operation this year.
A similar strategy applies if you have incurred enough unreimbursed medical expenses this year for them to be deductible on your federal income tax return. Medical expenses are generally deductible if they exceed 10% of your adjusted gross income – 7.5% if you or your spouse is 65 or older.
Deborah L. Jacobs, a lawyer and journalist, is the author of Estate Planning Smarts: A Practical, User-Friendly, Action-Oriented Guide, now available in the third edition.
(Disclaimer: The views expressed in the above article are strictly those of the author. They are not necessarily those of FFN. Please use due diligence in applying any of the concepts, recommendations and/or the purchase of products or services offered by the author) FFN