Posts by Keith Taxguy

The IRS Issues Proposed Regulations on the Qualified Business Income (QBI) Deduction

The IRS is true to their word when they said they’d issue regulations on the Qualified Business Income Deduction, otherwise known as QBI, by the end of summer. In the past week proposed regulations were published, coming in at 184 pages. Remember these are “proposed” regulations. Final regulations come after guys like me pick it apart. Most of what you see probably survives so it is a good time to start the planning process.

Accountants who wanted to get a jump-start advising clients on ways to maximize the deduction are in for a rude surprise. Most schemes are out. At the end of this post I will outline what can be done to maximize the deduction.

The 184 pages of proposed regs cover more than just QBI. We will discuss the most relevant here. Consider consulting with a tax professional to review how your personal situation is affected by these proposed regulations.

If I find any other juicy tidbits, I’ll publish. If not, I’ll wait until the final regs are issued.




Who Qualifies?

First, let’s clarify what the QBI deduction is. The QBI deduction is a 20% non-cash deduction for qualified business income (generally profits) for small businesses (sole proprietors, LLCs, S corporations, partnerships and some trusts) and income property investors.

The IRS confirmed what I suspected when they said QBI applies to self-employed persons, along with pass-through entities (S corps, partnerships, LLCs) and certain trusts. I think there is room for debate of the sole proprietor issues, but if the IRS gives the green light I’m happy to oblige. QBI is also available for income property owners with somewhat different rules.

Some issues the IRS clarified are pretty straight forward from H.R. 1. Phase out of the deduction starts at $315,000 for joint returns and $157,500 for the rest of the crowd if the business is in a listed field. The deduction is reduced to zero for that business once income exceeds $415,000 for joint returns; $207,500 for other returns.

The fields restricted by the above phase out are:

  • Health
  • Law
  • Accounting
  • Consulting
  • Performing Arts
  • Actuarial Science
  • Athletics
  • Financial/Brokerage/Investment Management/Securities Trading/Securities Dealers

One issue worth pointing out is the phase out is applied per business! This opens a potential planning opportunity where you break a larger company into parts to fall under the limits. Except the IRS knows this trick already and nixed it.

You deserve every legal deduction allowed. Pat the lowest amount of taxes legally, including the new tax bill. Investment property owners and small businesses have more deductions than ever, included non-cash deductions. #cash #deduction #taxes #taxdeductions #legaldeductionsThis doesn’t mean you can’t have multiple businesses. QBI is calculated separately for each business, but if the same owner/s has two or more similar businesses they are combined in many cases! The “bust the company into a bunch of littler companies” idea doesn’t work.

Small businesses are still punished in a way for raising employee wagesItems I published previously are correct.

And talking about wages: enterprising tax professionals may have advised you to fire employees and hire them back as independent contractors. This way the old employees are really business owners and get a 20% deduction on their wages. The IRS has made clear this will NOT be allowed. This and similar schemes will be pursued and denied by Revenue. Penalties and interest will apply. You’ve been warned.

Investors in Real Estate Investment Trusts (REITs) have clarity with the proposed regs when claiming QBI. I’ll discuss this in a future post closer to tax season as the planning opportunities are limited for most taxpayers.

S corporations exclude reasonable compensation to owners when calculating QBI. The same applies to guaranteed payments to partners. Every idea I’ve seen to game the system involving owner’s compensation is clarified in the proposed regs and not allowed. But there are legal ways to maximize QBI.




Legal Ways to Increase QBI

Fancy footwork may seem the way to go when dealing with the new tax rules, but the old reliable methods of reducing income have a better chance having stood the test of time.

Lowering your income if you are already below the phase out has less benefit than in the past as business deductions are technically only worth 80 cents on the dollar. (You get a 20% deduction anyway if you don’t invest in the expense.) Below the phase out you need to consider the long-term effects on your tax situation. Additional equipment purchases or promotional expenses may not be the best choice when you consider the reduced profits mean a reduced QBI deduction. Example: You elect to spend an additional $10,000 on advertising. The additional deduction is only $8,000 since you would have received a $2,000 QBI deduction anyway.

The phase out is where things really get interesting. If you’re reasonably close to the phase out threshold, a modest amount of planning could make the difference between the full QBI deduction and no deduction at all. Remember, you can’t just increase your paycheck (assuming you are an owner receiving reasonable compensation) to reduce the company profits since reasonable compensation isn’t considered when calculating QBI. Let’s start with some small things and work up to large deductions you can take to qualify for the QBI deduction.

Office in the home: Sole proprietors can deduction a regular and exclusive office in the home using actual expenses or the safe harbor of $5 per square foot, up to 300 square feet. This is more valuable than in the part with the standard deduction much higher and state and local taxes (SALT) deductions limited on Schedule A.

The qualified business income deduction is complicated. Guarantee you get the maximum value for your tax deduction. Tax planning can save more than ever. Maximize your QBI deduction here. #QBI #qualifiedbusinessincomededuction #tax #taxes #taxdeductions #business #businessdeductionsMissing deductions: It might sound strange, but many business owners forget to take all their deductions. Business miles are deductible. Keep a log book in your vehicle so every mile is counted. Small cash payments for business expenses add up. Track them all.  Any expense related to the business should be included. The IRS used “ordinary and necessary” as their term for what is allowed as a business expense. This is a wide road.

Section 1.263(a)-1(f) de minimis election: The de minimis election allows you to deduct all items that would normally be depreciated under $2,500. This is per item! For businesses this doesn’t mean much as bonus depreciation (more on this later) allows much larger deductions. But income property owners benefit mightily! Most stoves and refrigerators are under $2,500. Expensing anything connected to real estate under Section 179 isn’t allowed, even stoves and refrigerators. For most taxpayers this is a moot point as bonus depreciation counts for all assets with a class life of 20 years or less. But, many states limit Section 179 depreciation or don’t exactly follow federal tax rules for bonus depreciation. To my knowledge, all states follow this de minimis election, thereby bypassing Section 179 and bonus depreciation issues. Note: you can clean your depreciation schedule, too. Previous items under $2,500 can be currently expensed if the election is made. This could be a sizable deduction if you have a lot of small items on your depreciation schedule from prior years.

Repair Regs: Section 1.263(a)-3(h) election: This election allows for a deduction of up to $10,000 for an improvement as a repair. Property improvements do not fall under the bonus depreciation rules. Example: a bathroom or kitchen in an office or income property is probably an improvement by most measures and therefore depreciated over 27.5 or 39 years. If the remodel is $10,000 or less (per remodel or improvement) you can elect to treat the improvement as a repair and expense the entire amount. This is important. You might have a deck on a property replaced for $3,000, a roof for $9,000 and a minor bathroom remodel for $6,000. Each is a separate event. Each is under $10,000. You can elect for each improvement (you make multiple elections for multiple improvements) to deduct the amount as a repair expense. In this case the total repair expense deducted is $18,000.

Bonus depreciation: Bonus depreciation is back at 100% for assets with a class life of 20 years or less. This is by far the easiest way to chew huge chunks of reportable profit from a business. The decision for a machine shop to purchase a new piece of equipment this year or next for $200,000 will require a review of the current circumstances. If this year’s profits are too high for the QBI deduction, it might be advantageous to purchase the equipment this year. If not, you can save the purchase for next year. Facts and circumstances will prevail. If there is one area to get creative, it’s here. One caveat: restaurant, retail and leasehold improvements (qualified improvement property) acquired and placed in service between September 28, 2017 and December 31, 2017 get the 100% bonus depreciation, but not afterwards unless the tax law glitch is fixed. Don’t hold your breath.

 

I don’t want to get any longer on such a technical post. I just want you to understand there are many ways to take advantage of the current tax environment. The proposed regulations cover a wide variety of material. When the regs finalize I’ll publish more.

Until then, feel free to leave questions in the comments. I’ll answer the best I can with the limited information you provide me and as time permits. As previously noted, the proposed regs run 184 pages. I focused on the issues affecting my clients most. There are lesser issues that also affect clients I didn’t touch on. For example, I didn’t touch on the “reputation or skill” clause as it relates to QBI.

To keep this blog readable I’ll break up the technical tax posts with plenty of entertaining and useful wealth building, early retirement, side hustle and frugal living posts. It’s always good to have a family friendly blog.

 

More Wealth Building Resources

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

PeerSteet is an alternative way to invest in the real estate market without the hassle of management. Investing in mortgages has never been easier. 7-12% historical APRs. Here is my review of PeerStreet.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

A cost segregation study can save $100,000 for income property owners. Here is my review of how cost segregations studies work and how to get one yourself.

Amazon is a good way to control costs by comparison shopping. The cost of a product includes travel to the store. When you start a shopping trip to Amazon here it also supports this blog. Thank you very much!



The Day Jordan Peterson Schooled the FIRE Community

The day Jordan Peterson schooled the early retirement community. Follow your dreams, but beware the world's advice to check out. Life isn't travel and sleeping on the beach. #FIRE #jordanpeterson #planning #changing #livingright #dreamjobMost people familiar with Jordan Peterson and his work comes from the litany of YouTube videos. From college classroom lectures to podcasts to interviews, Peterson has covered a wide variety of topics. Sometimes he is controversial in his stance, bringing him viral traffic. Most of the time his presentations are extraordinarily deep probes of the human psyche.

Whether you love or hate him, the one thing we should all agree on is that he makes us think. His latest book (12 Rules for Life: An Antidote to Chaos) is must-read material. Unlike most books, this one you must own. A library copy will not be enough. You will read and re-read this material again. The message is so deep that one reading only scratches the surface. As I read Peterson’s book I could rarely finish a page without stopping to think about what I just read. Sometime I had to walk away and make sense of what I was just presented. By far, this is the slowest reading of a book for me in over a decade.

For over 730,000 words I’ve been trying to convey a message with this blog. While reading 12 Rules I discovered Peterson said more clearly what I intended in only 500 words. (Yeah, I feel exactly how you would expect.)

For home-gamers following along, we will be discussing pages 210 and 211 of the hardcover edition. Jordan Peterson put into perfect format the essence of the early retirement and financial independence movement (FIRE). In effect, he schooled all of us and if we are smart we would listen.

When I read the two pages listed I was so moved by it I had to take a walk around the block to work it off. It was 11:30 at night and here in the boondocks of Wisconsin a walk around the block is 4.85 miles. When I finished my walk I wasn’t’ done talking it trough with myself so I turned around and walked back. By the time I stopped walking around the block and around the back acres of the farm the eastern horizon was beginning to brighten.




Do You Really Want That?

The issues at hand come under Rule #8: Tell the Truth—Or at Least Don’t Lie. Of all the lessons in the book this was the hardest to internalize. I consider myself an honest person, but Peterson quickly pointed out how I might be deluding myself. Then it got personal. Peterson writes:

I have seen people define their utopia and then bend their lives into knots trying to make it reality.

The yellow highlighter came out. This was important and I knew it. Not only am I guilty of this periodically, but I see it abundantly within the FIRE community. Bloggers and readers alike build this mental idea of what life should be like. Financial independence isn’t enough. Early retirement is the only badge of respect.

Time to stop crying and complaining about all the things wrong with your life. Reach financial independence,. Live your life on your terms. #stepforward #jordanpeterson #earlyretirement #retirement #newjob #sidegig #sidehustleI’ve preached a different story from the first day of this blog. Retirement is a trap! This idea of you are a failure if you haven’t retired by age 30 is insane. Yes, Mr. Money Mustache did it. As much as it hurts to say it, he isn’t the gold standard. Early retirement isn’t for everyone! I’ve toyed with quitting for decades and every time I think of it I changed my mind. I’m doing what I want to do and gain tremendous pleasure from my work. I might change gears, but formal retirement isn’t in the cards. (Disclaimer: Mr. Money Mustache is my client.)

This whole concept of retiring as early as possible and traveling the world seems silly to me. I tend to avoid travel whenever possible. Business will get me on a plane. I’ve also been known to travel for pleasure. But in the end it feels best when I’m in familiar surroundings doing what I do best: working with clients and writing.

Here are Peterson’s words that hit me between the eyes:

An eighteen-year–old decides, arbitrarily, that she wants to retire at fifty-two. She works for three decades to make that happen, failing to notice that she made that decision when she was little more than a child. (Emphasis mine.) What did she know about her fifty-two-year-old self, when still a teenager? Even now, many years later, she has only the vaguest, low-resolution idea of her post-work Eden. She refuses to notice. What did her life mean, if that initial goal was wrong?

This encapsulates a lot of what I see in the FIRE community. People setting immutable goals at an early age and feeling disappointed when things don’t work exactly as planned. The real goal seems to be retirement. For some reason the community I firmly reside in has a central tenant of not working. But then what? If the goal is to not work, what will you fill your days with? Idle chit-chat with friends and neighbors?




Reality Check

I’ve been preaching the gospel for some time now. The goal of financial independence is something I understand. Having the financial resources to pursue the path in life that most enlightens you is a worthy goal. Travel is fine. Time off to recharge is also part of a responsible lifestyle. Peterson again:

A naively formulated goal transmutes, with time, into the sinister form of the life-lie.

And this is where I felt the stab of truth pierce deep. How often have we subverted our own desires to satisfy the demands of family or a friend? I was lucky in breaking away from the family business to follow my dream. But I didn’t avoid the entire life-lie! Sometimes I took a path in my business that went against my personal agenda. I did what I thought others wanted me to do. Every time I took such a path I was disappointed. Worse, my performance was subpar and I wasted a portion of my life, a portion I can never get back.

It would be easy to tell you how easy it was for me to follow my path. It wasn’t. I fought hard to find my true meaning in life. I experimented often. People accused me of changing my mind a lot. Well, I did! I evolved and quickly. If I examined a course and discovered it to be wanting I moved on. Even today I am still growing and evolving. What tickles my fancy as we speak might be drudgery in the future. I have the right, no, actually, the obligation to change when reason dictates. More money can’t be the driving force once a reasonable level of wealth is accumulated. Afterwards, my work better do more than add to an already bloated pile of financial largess.

Peterson continues:

One forty-something client told me his vision, formulated by his younger self: “I see myself retired, sitting on a tropical beach, drinking margaritas in the sunshine.” That’s not a plan. That’s a travel poster.

If you are honest you see this attitude writ large in the FIRE community. The desire to check out is high. The idea is to travel to exotic places while sharing on social media so anyone you have ever known is jealous able to enjoy your good fortune. It also serves to pay forward to delusion life is only an ass planted in the beach sucking down sweet drinks.

But Peterson gets more brutal:

After eight margaritas, you’re fit only to await the hangover. After three weeks of margarita-filled days, if you have any sense, you’re bored stiff and self-disgusted. In a year, or less, you’re pathetic. It’s just not a sustainable approach to later life. This kind of oversimplification and falsification is particularly typical of ideologues.

Can Peterson be more graphic? His point is clear and dead-on. The goal to checking out is not conducive to a fulfilling life. Travel is wonderful in moderate doses. Some people travel better than others. Forcing yourself to travel to satisfy a group is over the line into the realm of insanity.




Sustainable Approach to Life

Peterson’s words probably hit you as hard as they smacked me. If the general goals of the FIRE community are short-sighted, then what should we do? This is what I had to think about as I walked around the long rural block and back. Financial independence is an honorable goal and Peterson did nothing to dissuade my opinion in that matter.

You're not married to decisions you made in youth. You can change, evolve, into something better. Live the life you want, not the life others expect of you. Jordan Peterson teaches you how to live your life. #jordanpeterson #millennials #goals #financialplansI already knew there was something wrong with this early retirement idea, but didn’t know out to clearly communicate the message. Peterson put it into focus. It took hours of self-debate to reach a coherent meaning on the issue.

Checking out as soon as you can is a meaningless life. If you don’t do something productive and constructive on a regular basis you will lose meaning in your life. Human beings are social creatures. We need to interact and create. When we work, as much as some jobs are drudgery, we produce something of value. Nothing is worse than a dead-end job with days filled with meaningless activities, or worse, no activity at all.

Financial independence gives you additional options. Jumping ship the first chance you get seems foolish to this country accountant. Quitting your job should only happen after you have seriously reviewed why you want to quit. If you hate your job, you need to ask: What would make my job more nurturing? If you have valid reasons for quitting (bad boss, not the kind of work you want to do, only took the job for money), then quit. But don’t bow out. Instead, move up. Find the job that will cause you to jump out of bed each morning excited to be alive. Or, start the business you always wanted to.

Remember, your dreams are not immutable. If you don’t change, evolve, you will decay. Once upon a time I thought it a good idea to own lots of real estate. It was somebody else’s idea of what I should do. I did it for money and hated every step. You may love investment properties. Excellent! Somebody has to do it so it may as well be you. If I ever dip my toe back into investment properties it will be as a buyer only. All the management will be performed by managers.

What you thought was a good idea yesterday can change today. Changing your career path is the right thing to do when you discover you're no longer interested in your current path. #jordanpeterson #college #career #quitjobYour work should have meaning for you. Growing up on a farm I hated cleaning the barn. Pushing manure around for hours wasn’t the highlight of my life. After the family farm dissolved I moved away and started my practice. They say you can take the boy from the country, but you can’t take the country from the boy. Truer words were never spoken. Years later I bought a small farm and raised beef. Then, after a couple decades of cow punching, it was time to evolve. I miss my boys and loved the work. But it was time to move on.

I will always have the memories of each step of my evolution. Plenty of mistakes were made along the way. The mistakes taught me valuable lessons I could apply as I evolved to the next level. (Notice I didn’t say higher level. The next level isn’t always higher. Sometimes a step down is needed to grow to new heights.)

In conclusion, I strongly encourage purchase of Jordan Peterson’s book. It really is that good. Don’t get hung up on dreams you had as a child. Not every dream should be realized. Not every dream will deliver the pleasure you think when you walk the steps in real life.

Find meaningful activities to you. Don’t let anyone dictate how you should live your life. As long as you pursue a legal, moral and ethical path you have my blessing. Meaningful work, meaningful activities, lead to a productive, happy and joyful life. And I think that’s a rule even Jordan Peterson would appreciate.

 

More Wealth Building Resources

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

PeerSteet is an alternative way to invest in the real estate market without the hassle of management. Investing in mortgages has never been easier. 7-12% historical APRs. Here is my review of PeerStreet.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

A cost segregation study can save $100,000 for income property owners. Here is my review of how cost segregations studies work and how to get one yourself.

Amazon is a good way to control costs by comparison shopping. The cost of a product includes travel to the store. When you start a shopping trip to Amazon here it also supports this blog. Thank you very much!



How Debt Spurs Economic Growth

Debt is harsh taskmaster. End the stress of student loans, credit card debt and mortgages. Break the chains of debt. Live debt-free. #daveramsey #debtproblems #stress #studentloans #creditcarddebtAs mankind evolved they needed a way to store value that wasn’t cumbersome. Sure, trading a cow for supplies seems like a good idea, but what about wages? Do you get a cow or a peck of barley for a good day of labor? Well actually, yes. That is exactly what happened. It held back commerce because you needed an immediate need between two or more parties to have an equitable exchange of value. And God forbid you were really good at mass-producing something. The oversupply of that item would make it worthless.

Even before mankind invented money as a store of wealth, people were able to borrow. Rather than make an equitable trade now, you would promise to provide a good or service later. And you better keep up your end of the bargain. The punishment for reneging on a debt was severe. You could lose a hand, be imprisoned, forced into servitude (slavery) or outright killed. No, in the early days of money and prior, it was best to honor your commitments. The alternative was unthinkable.

Slavery was a common result for nonpayment of debts. Debt was not entered into lightly as it put your freedom at risk. The Old Testament of the Bible has several passages which show how ancient man dealt with debt absconders. They were merciless.




The Invention of Money and How It Works

Debt has lost much of its fearsomeness nowadays. I promise not to get religious on y’all, but need I remind you around half of the parables of Jesus dealt with money and wealth. Money is important. People knew it two thousand years ago and they know it today. Unfortunately, people don’t understand it much better than the Classical Greeks did as they tried to come to terms with the new way to store and transfer value.

Free yourself from the slavery of debt. End the burden and interest expense adding stress to your life. End debt. #enddebt #debtfree #nomoredebt #studentloans #paydayloansMankind has gone from, “Neither a borrower, nor a lender be”, to, “You need a good credit score to live in modern society.” The dividing line happened somewhere between the Shakespearean play Hamlet—where the above phrase comes from—and today. Lending was always considered risky business for all parties involved.

Money makes it easier to borrow (and cheat). Governments have been debasing money since its invention. Don’t worry. The proletariat figured out how to shave coins before the first day was out. A deal between two people needed to be honored and violence could result if one party felt the other party cut corners on their end of the deal if both ends of the transaction happened at different times. The horse you promised in six months for the purchase of twenty acres of land might have developed a lame hoof. Negotiations took a decidedly more hostile approach afterwards.

The more people started to understand money the worse it got. Money requires a level of trust. If most people refused to accept the item used as money at a set rate of value it becomes useless. That’s why precious metals and other small valuable items were the first forms of money. Government debasement and coin shaving was a serious issue. Debasement destroyed trust in government issued coins and coin shaving was a crime because it was honing in on the government’s debasement turf.

Then somebody got the idea to create fiat money. Fiat money is declared valuable by the government by decree. I sometimes call cryptocurrencies fiat money when in fact they are not. My argument is cryptocurrencies are declared by decree of the blockchain rather than the government. Both declare value for something that has none and gets us all to agree the fantasy is real. That is why money has value today; because we all agree to pretend it does. Fiat money in not backed by anything of value, just faith in the issuing government. Good luck with that.




The Problem with Debt

In modern times debt seems a reasonably risk-free way to transact business. In my office we frequently bypass even fiat money for a check which we trust the bank will honor with fiat money or we allow the client to take a loan from their credit card company which once again pays us in fiat money. It’s all based on trust.

But risk-free (or nearly so) transactions are relatively modern. Reneging on a debt was a serious matter for good reason. The lender would have a hard time replacing the lost value promised. Powerful banking families and governments were also the ones doing the lending so they were inspired to formulate laws with serious consequences for not upholding your end of the obligation. And as bad as people knew debt was, they could still get in trouble. The landlord wanted rent, the church wanted a tithe and the government wanted taxes. You were a serf or risked your eternal soul. And your taxes were an implied debt forced upon you.

And still the government loves debt!

Why the Government Wants You to be a Slave Go into Debt

Economists falsely believe that more debt lubricates an economy. It doesn’t. It sucks interest from productive labor and gives nothing in return. Think about it for a second. Human beings dreamed up a store of wealth based on trust and that had only pretend value. Then, we convinced people if we let them use the fantasy value for a short while they would have to go into slavery get a job and earn imaginary value to repay the pretend money. The only “real” thing in this whole process is the part where you trade part of your life to satisfy your obligation based on fiat money. (Bet you feel kinda foolish right now, don’tcha?)

Well, if debt doesn’t lubricate economic growth as the government and economists all tell us, why is it so darn important for the Federal Reserve to encourage people to borrow more? The answer is in the above lecture! Slavery!

Yes, borrowed money is generally spent instantly, causing the short-term illusion of economic growth. Heck, when you put a vacation on the credit card it’s all fun and games. PARTY TIME! When you get back from vacation it still feels good. Then the payments come due. Still okay, but not as much fun. Then you have a serious need for funds and you are saddled with debt. The car breaks down or medical bills arrive and Katy bar the door. Debt now has you firmly in its grip. A serious matter is made worse because the other side of party time just came home to roost.

The root of the word mortgage is “death pledge”. Is that a graphic enough term for you? People knew from early times a mortgage wasn’t a home loan—the soft language we use today for a death pledge. It was something a lot more serious.




A World without Debt

It sounds melodramatic when you echo the warning over debt. Most people today either have debt or once upon a time did. Bankruptcy laws are generous these days. And why not? If the banks get in trouble the government bails them out by creating more money out of thin air, or as we say on the farm, by fiat.

My family has always been business owners. My dad has an agricultural repair business. While it pains me to admit my dear ol’ dad might be right, he did make an observation decades ago I never forgot. He noticed employees loaded with debt were a double edged sword. First, the debt kept’em coming to work. They had no other choice. In short, their debt made them a slave to my dad’s business. Self inflicted slavery, for sure. But slavery all the same. But second, the debt load made for high drama employees. It takes time and massive energy to juggle a debt burden. Paying the boat and car loan, mortgage or rent, Jet Ski payment, cottage payment and credit card bills are exhausting work. These people were under severe stress and it showed. They got sick more often and tended to have other bad habits (smoking, drinking and/or drugs) to relieve the stress. The stress drove them to the unhealthy lifestyle.

People walk free-willing, eyes open, into debt. Then reality strikes. You’ve been enslaved by your own doing!

Break free from debt today! The stress of debt is killing you. Get the plan and motivation to end debt in your life today. Regain your financial freedom. #financialfreedom #debtfree #studentloans #creditcarddebt #debt #stressThe economic imprint the borrowed money caused is long gone. Only the pain remains. And the pain lasts a lot longer than the pleasure did!

The government knows all this. They know your debt fueled spending is ointment that quickly wears off. The government also knows you are now left with two unpleasant options: sell a large part of your life and freedom to satisfy those debts, plus interest, or declare bankruptcy where they restrict you financially for a time. Bankruptcy doesn’t solve the problem; it only eases the pressure a bit so it’s possible to claw your way back. Part of your life is getting sold, slave. Get used to it.

And there’s your answer to how debt spurs economic growth. It forces you to work more than you have to. It wasn’t the debt fueled spending; it was your forced servitude to satisfy your obligation. In debt, they (government and employers) own you. You have to work. And you only keep a portion of the benefit! You are forced to work for a lower wage because you need money now! Debt comes first, eating second. That is why we have homeless and starving people in the richest nation in the history of mankind.

Interest sucks a portion of your hard-earned labor, too. Not only are you forced to work and accept a lower wage, you give up some of the remainder to the lender in interest. Remember interest? The stuff created out of thin air—fiat money—now requires you to repay a fantasy debt you agreed to with flesh and blood.




Coda

When I write these kinds of posts I get a lot of complaints I sound like Dave Ramsey. Well, for the record, I was a Dave Ramsey Endorsed Local Provider for many years. And I consider it a compliment when compared to Dave and his simple, yet powerful message. A lot to like in the guy.

I’ll make a deal with you. When the you guys stop telling me how smart and responsible with debt you are, I’ll stop taking the sledgehammer to your skull on this issue. Debt can be a powerful tool, no doubt. But debt is enslavement, as we illustrated above. Stop telling Dave and me we’re wrong.

Get your life back. Live your dream. The bank is the largest expense in most households. Big income and nothing left to live on. Insane! I beg you, kind readers. In these awesome economic times it isn’t the place to become complacent. Debt feels good now because it mentally feels like tax-free money. Paying it back means you have to make more money to repay the debt and pay tax on that money, too. You don’t need much to live a good life, but a boatload of income to pay all your debt obligations. More required income to cover debt and living means more taxes for the government.

And that is why the government tells us debt fuels economic growth. By the way, only a fool believes what the government tells him.

 

More Wealth Building Resources

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

PeerSteet is an alternative way to invest in the real estate market without the hassle of management. Investing in mortgages has never been easier. 7-12% historical APRs. Here is my review of PeerStreet.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

A cost segregation study can save $100,000 for income property owners. Here is my review of how cost segregations studies work and how to get one yourself.

Amazon is a good way to control costs by comparison shopping. The cost of a product includes travel to the store. When you start a shopping trip to Amazon here it also supports this blog. Thank you very much!



The Minimum Wage and Inflation

Does minimum wage cause job loss, inflation? Income inequality is an issue important to everyone. The benefits of increasing the minimum wage are greater than first thought. #minimumwage #incomeinequality #fairwage #workingwageEconomic growth is pushing towards 10 years as of this writing. The 2008-09 recession was deep and slow in recovery. Fewer jobs at lower wages coupled with the long time frame unemployed people had to wait to even get a job at any wage caused tempers to flare. The minimum wage was raised in 2007, 2008 and 2009 to the current federal rate we have today.

Jobs available as the recession eased were not of the same quality as jobs lost. More workers were among the working poor, earning minimum wage or close to it. Eventually a vocal crowd demanded a $15 an hour minimum wage. It all sounded good. And fair to workers making less. Business owners also made powerful points. In the end nothing of consequence came of the movement. The expanding economy lifted wages, nullifying the demands of the activists. Better jobs with higher wages started appearing, too. People used to a higher income had greater opportunity to explore a pay increase at a new employer if their current employer refused..

The issues never went away; they’re just hibernating until the next opportune moment. Many myths cropped up during the debate. Does a modestly higher minimum wage cost jobs? Does it increase automation, eliminating the job completely? Do worker deserve a fair wage? A higher wage than $10 or so?

I did some research to see if the minimum wage causes inflation, another of the complaints against increasing the minimum wage. Of course, most people agree workers should be paid fairly. We all want to earn more for our efforts. Even business owners understand employees need a living wage.

We will explore some of these myths and how they affect your personal finance decisions. As with most issues, the answers aren’t as clear as activists claim; businesses, either. The debate gets steeped in politics when economic matters are considered. This article will explain the truth behind the myths and what government and you can do about it.

First we address the myths.




Myth #1: The Minimum Wage would be $22.50 an Hour if it kept Up With Inflation

At first I accepted this claim at face value. After thinking about it for a while I began to doubt the claim. Protesters claimed the minimum wage would be somewhere in the neighborhood of $22.50 an hour if the minimum wage had kept up with inflation from a certain date. Extraordinary claims require extraordinary proof! Fortunately we have actual data to determine if the minimum wage now is lower than in the past, adjusting for inflation.

I will do the heavy lifting for you. I’ve included links if you wish to dig deeper into how the minimum wage has fared against inflation. We will test this claim by looking back to 2009, 1990 (a date protesters sometimes used in their claim), 1978 (another date used by protesters) and all the way back to the beginning on October 24th, 1938 when the first federal minimum wage was instituted in the U.S.

Disclaimer: Several states have their own higher minimum wage. We are discussing the federal minimum wage only. Minimum wage data was used from the U.S Department of Labor and the Consumer Price Index-U (all urban areas) was used in calculating the inflation adjusted minimum wage.  We will not address salaried workers, restaurant workers or individuals under age 20 first starting a job, all of which have a different minimum wage.

Has the minimum wage kept up with inflation? The answer might surprise you. And if the minimum wage is increased at the right time is sparks economic growth while crushing deflation. An honest day's pay for an honest day's work. #work #wages #minimumwageAdjusted Minimum Wage from 2009: The current federal minimum wage is $7.25 an hour. There are other rates based on age and occupation. To keep this post brief I will focus on 1938 Act until 1978 where I use the all nonexempt workers rate.

The federal minimum wage was last increased, effective July 24th, 2009. The CPI index stood at 215.351 in July of 2009. The latest reading for June 2018 is 251.989. The index has increased 36.638 points since the last minimum wage increase, or about 17%. If the minimum wage were indexed to inflation the minimum wage would now stand at $8.48 per hour. My guess is that in the near future the federal minimum wage will be increased to $8.50 – $9.00 per hour. This would accurately reflect the increase in average consumer prices over the time period.

So, the argument the minimum wage should be $22.50 doesn’t work calculating from 2009.

Adjusted Minimum Wage from 1990: The minimum wage was increased on April 1st, 1990 to $3.80 per hour. The CPI was 128.9. The CPI increased 123.089 points since April 1990, or a 95.49% increase. Adding 95.49% to the then minimum wage of $3.80 gives us $7.43 an hour, pretty close to the current minimum wage. Maybe we need to go back further.

Adjusted Minimum Wage from 1978: The minimum wage was increased at the beginning of 1978 to $2.65 an hour. The CPI stood at 62.5 in January, 1978. This is an increase of 189.489 points or 303%. Increase the then current minimum wage of $2.65 by 303% and we get $8.03 an hour. Hmmm. Maybe we need to go back all the way to the beginning.

Adjusted Minimum Wage from 1938: The first federal minimum wage in the U.S. began October 24, 1938 at $.25. Yes, that is 25 cents an hour. The next year they raised it to $.30 an hour. We will still use that original minimum wage starting point to determine if the minimum wage is worse today than it was in the past.

The CPI stood at 14 in October of 1938. The index has climbed an additional 237.989 points since. The CPI is a whopping 18 times what it was in October 1938! This means the original minimum wage, adjusted for inflation was {drum roll}: $4.50 an hour.

Oh-oh. The claim minimum wage should be over $20 an hour now doesn’t hold up. But this isn’t the only myth batted around.




Myth #2: Increasing the Minimum Wage Causes Job Loss

This scare tactic crops up every time a minimum wage increase is mentioned. As you can see from Myth #1 above, the minimum wage has been a minimum burden on business since the beginning. Since 1938 technology and productivity have increased massively. If business can’t keep up with the barely minimal minimum wage increasing at somewhere in the vicinity of the inflation rate, business needs to do something else.

Does increasing the minimum wage cost jobs? Well, business tells us if we increase the minimum wage business will automate the jobs away, eliminating the entire labor cost. McDonald’s and Wal-Mart gave us this song and dance. For the record, in the last 10 years Wal-Mart has replaced a large percentage of cashiers, requiring customers to check themselves out. McDonald’s is replacing workers fast with automated order taking (similar to Wal-Mart’s check-out kiosks) and cooking robots. The minimum wage remained static for a decade and automation happened anyway! The minimum wage had little to no bearing on that corporate decision; finding qualified workers willing to work at minimal wages was.

Of course, the economic professor in me says that when prices increase, demand drops. It’s Macro Economics 201 (or is it 202, it’s been a long time since my college course). A higher minimum wage does reduce jobs minimally! Wages tracking inflation is NOT a REAL wage increase. So what is business talking about? They’re talking about maximizing profits on the back of minimum wage workers. I get it, but it’s still a myth jobs are lost when wages increase. Higher wages increase inflation, not demand for labor. Demand for labor is based on economic conditions.

Myth #3: Workers Paid Minimum Wage Aren’t Getting a Working Wage

Even business owners agree a person should be paid a reasonable wage for their labor. The question revolves around “working wage”. Are workers paid near minimum or minimum wage paid a working wage? Well, I’ll be the first to admit $7.25 an hour isn’t a lot and lacks the motivational ability to move the crowds. For young people starting out its fine, but even then, what’s the motivation to perform maximum when the pay is minimum? Just asking.

But the minimum wage isn’t the only source of income for these workers. The tax code provides an Earned Income Credit for workers with low income. The EIC is a refundable credit and tax-free to the recipient. Many states also add to the federal Earned Income Credit.

All this combined is still hard time. Full-time (40 hours per week) at $7.25 an hour is only $290 per week. Ouch! Payroll taxes take 7.65% off the top. Good thing there is an Earned Income Credit! This equates to $15,080 a year without a pay increase in site.

I never said it was pretty. Then again, the minimum wage was never called a working wage (unless they said it back in 1938).




The Federal Reserve’s Money Printing Problem

Now we can put some of this knowledge to work.

Interest rates peaked well into the double digits in the early 1980’s. Rates have steadily declines, with only temporary increases, since. Anyone under age 35 has never lived through a serious increase in inflation and/or interest rates! This is nearly two generations who have never experienced how bad, bad can get.

We've been looking for income inequality in the wrong place. The minimum wage can level the playing field, even for those earning much more. Equal pay for equal work. The minimum wage and inflation are a correlation. #inflation #wages #minimumwage #equalpay #equalrights #equalopportunityFrom the early 1980s until the mid-2000s the Federal Reserve was able to nudge the economy along by lowering interest rates through a variety of lending facilities. The Great Recession which started in 2008 brought interest rates to zero and the economy still only limped along. The solution the Fed settled on was Quantitative Easing where the Fed bought up massive quantities of Treasuries and mortgage securities. The buying was in the trillions! The Fed balance sheet swelled from around $800 billion to the $4.5 trillion neighborhood. And they couldn’t get a pulse from inflation no matter how many smelling salts were used.

I’ve argued in the past on the reasons why all the money printing around the world didn’t cause runaway inflation. In short, much of the newly created money never entered the economy. Money center banks and central banks around the world stuffed their vaults with digital cash. It made the books look better so banks could lend if necessary. The result? The economy limped slowly out of the Great Recession in fits and starts, but finally grew to record length proportions. It’s been a long recovery and new heights have been reached.

But interest rates are still very low. If another recession arrives (some might say we are due), the Fed will not have much room to maneuver. If they try the old “print more money” strategy used last time it could compound the issues.

This is where the Fed and elected officials need to review the data for additional options. And I have a powerful one.




Getting Inflation (and Economic Growth) the Federal Reserve Wants without Printing More Money

The chart you see in this section I put together with data from the U.S. Department of Labor, the Bureau of Labor and Statistics and InflationData.com. When I asked the question: Does increasing the minimum wage cause inflation? I had to dig further than the available charts. It was necessary to determine if there was a correlation between inflation and the minimum wage. If there is a correlation the monetary and fiscal implications are significant. It also effects personal finance decisions in a serious way.

This exercise is more than a macro-economic research project. If a correlation exists, the Federal Reserve and Congress will want to act appropriately in the future. It also means everything we know about the rate of the minimum wage is wrong!

If you examine the chart closely there does appear to be a modest correlation between a minimum wage increase and the rate of inflation. However, the correlation isn’t clear. In the 1970’s, the increasing minimum wage supported inflation rather than lead to inflation. In the Great Recession it seems like the minimum wage increase had no effect at all.

In the same way astrophysicists glean the data for a slight wobble in a star to determine if a planet orbits said star, I had to push away all the noise and look for a wobble in the inflation data. Productivity, Fed policy and economic conditions provided plenty of background noise to distract for the data. But I did find a wobble.

Raising the minimum wage at the right time benefits workers and employers. A fair wage,a working wage is vital to a strong economy. The $15 minimum wage movement was right, even if their timing was wrong. #$15anhour #workingwage #inequality #wages #salary The minimum wage was instituted during the tail end of the Great Depression. Adjusted for inflation, the first federal minimum wage was around $4.50, but a year later it increased to an inflation adjusted $5.40 an hour. This new minimum wage was started in what many call the second Great Depression. From 1929 to 1932 the economy collapsed at a rapid pace. Recovery was incomplete by 1937 when the Fed started raising interest rates causing the economy to once again slow and the stock market to decline hard.

Then we get a new minimum wage in 1938 and prices start to climb. The data used in the chart only includes average inflation for each year. The data detail (found using the link above from InflationData.com) reveals a more immediate response. The chart makes it look like the minimum wage could have caused some inflation, but in reality World War II had a lot to do with the price levels at the time.

Deflation was a serious issue early in the Great Recession. Prices were actually declining! Inflation is bad, but deflation makes it incredibly hard to spur economic growth since waiting to purchase a good or service is likely to be cheaper tomorrow.

The Fed had its hands full with declining prices, high unemployment and the banking industry in ruins. Interest rates dropped to zero percent. Some countries experimented with negative interest rates to no avail. The economy was growing at an anemic pace (still declining in some countries) with virtually no inflation. Creating massive quantities of new money didn’t do the trick hoped for. It in the end did save the day, but at what cost. The next time we need help from monetary policy we are out of bullets. Do we keep creating more money? How far do we push the economic system out of balance? What if we can’t kick the can further down the road?

The wobble is in the data! Increasing the minimum wage does cause mild inflation very quickly. Unfortunately, the lift is short lived. But it is another planning tool for the government and a key point you, kind readers, need to understand.

The minimum wage was increased during the Great Recession and it kept prices stable. Only after the wage increase subsided into the past did prices start to fall. The printing press was all we had. Even in the second leg of the Great Depression the new minimum wage didn’t harm the economy. Few jobs, if any, were lost. Prices started to increase, encouraging demand and production, creating even more jobs.

Armed with this information the government should avoid raising the minimum wage during economic “good times”. Rather, when business says they can least afford it is when it needs to be done. Inflation is sparked by demand. Since the minimum wage is increased after long periods of flat lining, the increase tends to be a larger than average percentage. People earning minimum wage spend all their paycheck and quickly. The added demand encourages more production and helps reduce deflationary pressures.

How does this affect you? Well, the best time to increase the minimum wage is when the most people need it. Myth #2 is clear; increasing the minimum wage reduces very few jobs. Business can afford an increased minimum wage during an economic slowdown. It’s been done before without serious disruption. It also lays the foundation to renewed economic growth and increased business profits. It’s in business’s best interest to raise the minimum wage as the economy begins to cool. This encourages more demand while spurring mild price inflation; a catalyst encouraging continued growth.

You can use this information in your personal finance decisions as well. An increase in the minimum wage will increase business activity, a good sign for investors. If everyone digs in their heels and refuses to increase the minimum wage when this data suggests its value, get ready for a long economic war with no winner until somebody blinks.

 

 

More Wealth Building Resources

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

PeerSteet is an alternative way to invest in the real estate market without the hassle of management. Investing in mortgages has never been easier. 7-12% historical APRs. Here is my review of PeerStreet.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

A cost segregation study can save $100,000 for income property owners. Here is my review of how cost segregations studies work and how to get one yourself.

Amazon is a good way to control costs by comparison shopping. The cost of a product includes travel to the store. When you start a shopping trip to Amazon here it also supports this blog. Thank you very much!

 

 



How To Help A Senior Loved One With Financial And Legal Decisions

Note: Today we have a short guest post from Lucille Rosetti. Her blog, The Bereaved, is an excellent resource for people struggling with elderly parents and family or friends suffering illness or struggling with old age or the loss of a loved one. She also has a book on the subject: Life After Death: A Wellness Guide for the BereavedThe financial ramifications are significant. The best laid financial plan is straw in the wind when age and illness enter the scene. Please consider Lucille’s message.

 

How To Help A Senior Loved One With Financial And Legal Decisions

 

When a senior loses a spouse, their lives change dramatically. No longer do they have a partner to help make major decisions; not only that, they also have to make hard choices about their finances and lifestyle during a period of grief. It can be physically and emotionally draining, which can take a toll after a while. That’s why it’s so important to help your loved one emotionally and with both financial and legal decisions that could affect them for years to come.

Caring for an elder loved one is one of the most difficult challenges in life. An elderly parent frequently needs help with financial and legal issues. #eldercare #lovedones #estateplanning #legal

Photo via Pixabay by Longleanna (Artwork by The Wealthy Accountant)

Not only will your loved one need help planning for the funeral and other services, they need assistance with small things, like grocery shopping and paying bills on time. The loss of a spouse is a major blow that can lead to depression, stress, and anxiety, and few people have the capacity to think about the details during such a trying time. It’s also important for you to help them figure out their legal needs, such as creating a will, naming an executor of their estate, handing over power of attorney, and naming a health care surrogate.

Keep reading for more information on how to help your senior loved one manage financial and legal decisions after the loss of a spouse.

Take Care of the Most Pressing Matters First

While there’s certainly a lot to think about after losing a spouse, it’s important for your loved one to only take care of the most pressing matters first. There just isn’t room to carry grief, worries about the future, and attention to detail at the same time, so make sure they handle the most important things before sweating the small stuff. This means paying the mortgage and other bills that are due immediately, taking care of the deceased’s life insurance policy, and handling the funeral. Just about everything else can wait.

Obtain an Advance Directive

An advance directive is a legal document that names specific people as a durable power of attorney, a health-care surrogate, or an executor of the estate. It’s important for your loved one to have these documents — along with a living will — so that someone will be responsible for overseeing applications for Medicare or long-term healthcare, selling real estate, and accessing medical info and retirement benefits on behalf of your loved one. This will help your loved one in the long-term and will ensure that when they pass, there will be no lengthy, stressful legal battles over property, finances, or medical care.

Advise Them Not to Make Rash Decisions

One of the worst things a senior can do after losing a spouse is a rushed decision to sell the house. While they may want to downsize to save money or to have less to take care of, it’s best to make sure the market isn’t flat first; this will prevent their home from sitting on the market too long. They may not have the funds to keep paying the mortgage on their current home and make a move into something smaller simultaneously, so timing is important.

Watch Closely for Signs of Depression

After losing a loved one, many seniors find their grief never dissipates. They may feel sad and lonely much of the time, which can lead to depression, substance abuse, and even suicidal thoughts. Watch closely for symptoms of these issues, which may include withdrawing from friends and family, not eating well, sleeping too much or too little, and losing or gaining a lot of weight in a short period of time.

Helping a senior loved one make such big decisions is never easy, but it’s important to find ways to protect their best interests during such a hard time. With a good plan and a little research, you can make sure your loved one is well taken care of even during the darkest of times.

 

More Wealth Building Resources

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

PeerSteet is an alternative way to invest in the real estate market without the hassle of management. Investing in mortgages has never been easier. 7-12% historical APRs. Here is my review of PeerStreet.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

A cost segregation study can save $100,000 for income property owners. Here is my review of how cost segregations studies work and how to get one yourself.

Amazon is a good way to control costs by comparison shopping. The cost of a product includes travel to the store. When you start a shopping trip to Amazon here it also supports this blog. Thank you very much!

 



Planning a Spending Fast

A spending fast is as vital as a food fast, rejuvenating your financial muscles. Personal finance and financial independence require a spending fast. #spendingfast #spending #personlfinance #earlyretirementFasting is a refreshing way to reset your body’s internal regulation. The benefits of fasting include weight loss and energy gain. Intermittent fasting can give you the same benefits of longer term fasting without shocking your body so hard.

Fasting is necessary for most people due to awful eating habits. Processed foods and sweeteners wear the body down, requiring a fast to cleanse the toxins out. Periodic long-term (multiple day) fasts are punctuated by several shorter fasts. Continuous intermittent fasting can train your body to burn fat while reducing cravings and increasing energy.

Bad habits are solved with a reset. You start small so success is higher. Starting with a four-day or longer fast is certain to end in failure for all but the most determined. The longer fasts also require medical supervision. Starting with intermittent fasting or a one-day fast makes a lot of sense. The timeframe is reasonable and most people can stick with it, therefore, the benefits are received.

As much as the body needs cleansing, so do your financial habits. Spending fasts have been around as long as money. Spending fasts were a natural part of money management until modern times where spending opportunities are everywhere.

Mass media and opportunities to spend at every corner (and most spots in between) encourage the growth of terrible spending habits. Left unchecked, these habits will be a cancer on your financial life. Dreams of financial independence and early retirement will burn with the bad habits. The natural cure is a spending fast and you don’t even need a doctor’s note.




Ground Rules

Like regular fasting, a spending fast has different levels of commitment. The idea is to start small, building your financial muscles before advancing to the next level. As your financial skills increase, you can engage in some truly historical spending fasts. And the good news is you get to keep all the money.

Before we begin I must point out spending fasts are not about frugality or cutting spending. The fast is designed to train you mentally and socially to live a normal life without money as part of every step. Enjoying a walk in the park with a significant other is an awesome and free experience. You can leave the wallet at home. Another lesson to learn is to walk out of a retail store without buying anything (or stealing it) if the item you were looking for wasn’t available. Shopping for the sake of finding a “good deal” is the mother of poverty.

I will outline 5 spending fasts starting with a simple financial purge all the way to the hardcore. I recommend starting small and working up. If you never manage a Level 5 Spending Fast in your life you are still a good person! Not everyone can handle a dietary fast of a week. Most will never manage it. Your health may not allow. The same applies to money. Anyone can manage the first few lower levels, but struggle as they approach the highest level. You may not want to attempt Level 5 in the same way you may never attempt to go without eating for a full week. It’s okay. Each spending fast level will help you recharge your financial muscles worn out by the constant bombardment from mass media. All fast levels are beneficial!

Also, use common sense. Turning off the heat in January in northern Minnesota is not a spending fast; it’s stupid. The idea of the fast is learn money doesn’t buy everything, even the most important things. Your geographic location will determine additional rules from those presented here. Safety first! If you require medication, you follow doctor’s orders. Don’t do anything that risks your health or that of your family or anyone else. Got it? Good.

Let’s get started.




Level 1: The Starter Fast

Breakfast (break the fast) is so named because it is the first meal of the day after not eating since dinnertime, 12 or more hours in the past. Technically you engaged in a mini-fast every day.

A spending fast doesn't have to be a lonely road. Discover all you're missing when you put your credit card down. #spendingfast #spending #creditcard #frugal livingYour starter fast should be just as simple. Brown bag lunch to work. Better yet, leave your money at home one day per week. Driving is still technically spending, but you will plan ahead and avoid the need to buy gas the day of your fast.

The Starter Fast is short-term and in most cases less than a day. You need identification and/or driver’s license when driving or away from home, but cash, credit/debit cards and the checkbook stay at home. You can still pay regular bills as always. The light bill still gets paid. The idea is to strengthen your financial legs; learning to say no to minor spending habits. The first step is to stop spending at least a few days a month at work. No office pools, dining out or other crazy spending that takes place where you work. Work can be darn expensive and it destroys your financial goals! Your work should support your dreams and goals, not suck the financial life out of you.

Level 2: Serious Spending Fast

Level 1 is the training wheels level. Everyone should practice Level 1 fasting often, in fact, virtually every day.

From this level on we will engage in a full day or longer spending fast. At Level 2 you are allowed to plan ahead. Fill the car with gas beforehand. Stock up on staples to take you through the fast. Your habits will not change much yet at this level. The cable is still ticking away; so is the electric bill. You pay those bills timely; late fees are considered spending at this level and are punished with a stern look. Your spending fast at this level is more a shuffling of expenses. Gas is paid for before and after the fast, but the consumption is still the same. The real benefit is avoiding foolish spending. Lunch at work comes from the home fridge. No tavern detour on the way home from the office. Office coffee instead of a Starbucks detour

Level 2 can start at a full 24 hours and move up. Try one day where no spending is allowed for a full day. This is more than just a “leave your money at home when you go to work” plan. Online shopping is not allowed. Money is stripped from your daily lifestyle. Now is a good time to see what’s hidden at the bottom of the freezer. Past spending will fuel your daily needs. If you run out of something, you find a substitute or do without. The exception is safety related issues. Medicine is still purchased if necessary. If injury requires medical treatment you get said treatment. Yes, it’s spending, but this program is to teach financial skills, not harm you.

Once you start building your financial muscle, work from one day to two, then three, until you can handle an entire week spending fast, including weekends. Yes, even at Level 2 the challenge starts to make the muscles sore. That only means its working. Once you can do a week at Level 2 it’s time to move to Level 3.




Level 3: The Power Fast

Now we get serious. Once again we start at a single 24-hour period and move up to a week or longer. Pre-paying for certain items isn’t allowed. For example, driving the car is an expense regardless when you fill the tank so biking or walking to work is the only option.

Ideally, you want this fast to go for several days. The light bill and cable will still operate, but most everything else will require consuming only what you have at hand. The fridge and freezer will be your food supply. The rent or mortgage payment of course still get paid; the same with other debt. In fact, since you are spending on nothing else it might be a good idea to bury that money in debt reduction. Most people at this level will not have debt so the money will go to the First National Bank of Wallet, aka, your index fund. Saving isn’t spending; neither is paying off debt. Interest accumulating on debt is spending so I recommend taking an ax to it.

Level 3 is a lifestyle change. At this level you will start to learn how to live without money. Money becomes a tool only, instead of a means of distracting you from life. Acceptable spending is limited to minor recurring bills like utilities (phone, light, heat, Netflix).

Level 4: The Lifestyle Fast

Remember all the stuff you didn’t buy in Level 3? Well, I bet you found a way around the spending problem by shifting it to somebody else.

At Level 4 you are not allowed to accept spending from others. You might have accepted a meal from a co-worker as a work-around. If the weather was hot you might have used that as an excuse to enjoy air conditioning in a public building. Shifted spending ends now! The shifted spending mindset is the same one that tells you to steal all the soap from your hotel room, justifying the action by claiming it’s a minor thing. Unfortunately you are stealing and it is a form of shifted spending we don’t tolerate around here. Getting someone else to foot the bill is still spending! All you’ve done is shift your spend thrifty ways to somebody else’s pocketbook. Good friend you are.

Plan your spending fast the right way and start living the good life. Control your finance; control your future. #spendingfast #frugal #frugalliving #freedom #money #moneyfreedonOnly the barest of necessities are allowed at this level. If you truly emptied all food sources in the house you may consider (I said consider) buying the most basic of food. This will be the healthiest and most basic stuff. I’m talking lentil soup folks. Maybe beans, the ones you soak all night and simmer all the next day. You’ll live.

The ultimate goal is to power through a month at Level 4. I encourage multiple food fasts at the same time. This is about living life at its most basic, where the real living takes place.

Level 5: The Insanity Spending Fast

This level is so diabolical my fingers are bleeding as I type. Level 5 requires a minimum of one week and ideally a full month. And everything goes.

Cable and Netflix are gone and unless your local climate doesn’t allow, you pop the main breaker to the house. No heat, air conditioning or electricity. This is brutal! Electricity is the ultimate shifting of spending. Electricity is cheap and versatile. For this fast you will learn to live in harmony with nature rather than forcing the world to your demands on the back of energy resources.

Once again, if your climate or health doesn’t allow for such extreme fasting, then don’t do it. You still need to take and fill prescriptions. If it’s well below freezing you still need to heat the house to above freezing. Broken pipes are spending! But don’t use climate as an excuse for your minor discomfort. A cool house (or humid and warm in the summer months) is no excuse to fudge on the fast. Beginners might want to plan this spending fast around a time of year where they experience the least discomfort and where utilities are least needed.

In addition to the fasting from Level 4, you will need to adjust to nature. When the sun goes down; you go down. Artificial lighting has given us a false sense of reality. This fast will break that illusion. Without electricity, TV and the computer will no longer occupy a large part of your day. You will rediscover library books and books from your personal library. You’ll also rediscover the lost art of communicating with neighbors and friends. If you have a significant other she will buck this fasting idea you have until she discovers you pay more attention to her. Real, undivided attention. It’s not a brave new world, just the one that existed from the beginning of time until the advent of modern society a hundred or so years ago.




Recap

A final recap of each fasting level is in order.

Level 1:

  • A simple short-term fast similar to intermittent fasting
  • This is more a “leave your money at home” fast for the workday.
  • Most spending is still allowed.
  • Driving to work is allowed; the stop on the way for Starbucks coffee is out. Drink office coffee. You will not die.

Level 2:

  • The minimum is one-day for this fast and ideally a week or more is needed.
  • Fill the car and stock the fridge because when it’s gone it’s gone.
  • Medical is always allowed since we practice safety first.
  • You still have Netflix and/or cable to entertain you.
  • No stops at the tavern on the way home from work.
  • You can accept gifts that are disguised as spending (co-worker buy lunch) if you must.

Level 3:

  • Stockpiling is out except for food for home preparation.
  • Burning gas still in the tank is de facto spending so walking or biking to work is your only option.
  • You always pay the rent and mortgage because late fees and penalties are spending. You also still pay your taxes on time since interest and penalties are once again spending.
  • You are encouraged to use the extra money you’re not spending to reduce and/or eliminate debt. If no debt, then invest in your index funds. Investing isn’t spending.

Level 4:

  • Level 3 is still in effect.
  • Shifting spending is out. Someone else spending on you is shifting your consumptions habits to others. How rude!
  • Basic, simple, nutritious food only is allowed. Stock piling doesn’t help at this level. Lentil soup and other simple and healthy fare is your diet during this spending fast.
  • You are reaching Stoic levels.

Level 5:

  • Level 3 and 4 restrictions still apply.
  • Cable and Netflix are out.
  • If climate and health allow, pop the circuit breaker for the house. Electricity is still spending.
  • Ideally you want at least a week to a month for this fast.
  • Learn to live in harmony with the environment.
  • Read more.
  • Spend real, quality time with friends, family and loved ones. Spend real deep emotional time with your significant other. Without the distractions of modern life she will be the center of your world. I bet you’ll love what you find.

There is still one unmentioned level: Level 6. I’m numb just thinking about it. If you think you are ready for an even more rejuvenating spending fast you’ll have to take lessons from this guy.

 

More Wealth Building Resources

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

PeerSteet is an alternative way to invest in the real estate market without the hassle of management. Investing in mortgages has never been easier. 7-12% historical APRs. Here is my review of PeerStreet.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

A cost segregation study can save $100,000 for income property owners. Here is my review of how cost segregations studies work and how to get one yourself.

Amazon is a good way to control costs by comparison shopping. The cost of a product includes travel to the store. When you start a shopping trip to Amazon here it also supports this blog. Thank you very much!

 



Easy is the Hardest Thing in the World if You Want to Be Rich

This moment was brought to you by hard times. Difficulties and challenges make you stronger. The only way to have an easy life is to embrace hard times. #easy #financialindependence #easystreet #success #motivationRichard Branson outlined in his autobiography, Finding My Virginity: The New Autobiography, 75 times he had close calls in his life. Recently he published number 76 on his blog. It seems strange for such a successful man to have had so many close calls. Branson has several successful businesses and a life most can only dream of. He is living the dream.

From the outside it always seems easier. I hear the same thing from readers. “You make it sound so easy, Keith.” To which I respond, “Then you haven’t been reading close enough.” Life has been anything but easy for me. Most people have difficult lives. It is these difficulties that define us. We either rise to the occasion and grow or wither and die. One path leads to a sense of accomplishment, the other pain and loss.

The challenges are endless. To outline a few highlights of my life’s plights: heart disease and a heart operation at age 13, shot in a hunting accident at age 13 which led to the discovery of my heart disease, numerous attempts at business ideas that failed, two daughters with serious medical conditions. Need I remind of the attempt to destroy my business only a decade after its inception? The attempt almost succeeded. Now might be a good time to repeat the millions of words I wrote and published over the years before I attracted even a modest following. No, kind readers, it was never easy.




Beg for Hard Times

From an early age, telling me “No!” was nearly a virtual guarantee I’d check it out. Don’t climb that haymow. Don’t walk to the creek alone. Don’t play with the vase! {crash} “Sorry.” And then the tears.

I was blessed (or cursed if you see things that way) with an insatiable curiosity. The only way to grow, to succeed, is to do what nobody wants you to do. And that means plenty of painful moments.

My dad wanted me to work in the family business working in agriculture. Our family has a long history in agriculture. I wanted something different. When I announced my intentions of going full-time in taxes and accounting my dad told a neighbor, “You won’t believe what my idiot son is going to do.” I have a great relationship with my parents, but that one hurt. The neighbor he told ended up an employee for two decades. (Clients: Remember Bev? She still comes in every year.)

Even people you love and trust will sometimes cause pain and make it harder. They mean well, but they don’t understand. Readers around here have stories to tell about their family’s reaction when they pursued early retirement and world travel. It’s never easy.




Burn the Ships

In 1519, Captain Hernan Cortez arrived in the New World at Veracruz. The first thing he did was order his men to burn the ships. Cortez knew his men would always hold back when retreat was an option. With nowhere to retreat, Cortez and his men pushed forward. What other option was there?

Early adulthood had me wondering what I was going to do with my life. Fortune (and frugality) allowed me to build a nice nest egg. If I watched my spending close I probably could have checked out in my early to mid 20s. That wasn’t my intention or goal.

Working in the family business wasn’t for me. I grew up on the family farm and had no intention of working in agriculture the rest of my life. (Now I live on a farm and have raised many animals. How times do change.) The family farm ended in bankruptcy the year I graduated from high school so the family business in ag repair was my only option. (It was the Rust Belt in 1982. There were few options.) For anyone looking for the easy road; I wasn’t on it.

Then I met Mrs. Accountant. If anything went according to plan, my relationship with the awesome and adorable Mrs. A was it! It’s about the only thing that went off without a hiccup. (Actually, if you get us in the corner we could share some stories. It would be inappropriate to share publically on a blog.)

Marriage also had challenges. Easy wasn’t in the lexicon. We worked hard to build a solid relationship.

The marriage process threw a massive wrench into the works. I was slumming when I met Mrs. A: enjoying loads of good books and a few college courses to round out my days. A good husband, the minister who married us said, needs to provide for his family. So I was hired as the janitor for the church.

Fourteen months later I quit to move full-time in my tax/accounting practice. I was young and foolish. Like Cortez, I burned the ships. I knew if I had an escape route I might take it. There could be no going back.

My client list was less than 50 when I started. Since I moved into town I left most of my regular clients behind. No problem, I thought. I know exactly how to get more clients. I quit my janitor job January 31, 1989. February 1st I was living the dream as a full-time business owner. I worked out of my home. What could be better?

Two and a half months later, on April 15th, I stared out my bay winder and thought, Oh, Sh{beep}! I didn’t exactly replace all the lost clients. To be exact, I had 48 clients and ~$3,000 in revenue. (I said revenue.)

Don’t tell me about easy. There was no easy in that moment. Looking back it seems foreordained. It was anything but! My nest egg was hit hard by startup expenses. The ships were burned. I HAD to move forward. My wife counted on me. To say I was nervous and worried would be an understatement.




Kick’em When they’re Up, Kick’em When They’re Down

You know how the story ends. I survived and even thrived. That’s why I’m here. That means my story is colored by survivor bias. The ones who didn’t make it aren’t talking to you on a blog about it.

Richard Branson had some really close calls in his life. I’m sure there are many more we don’t know of. Every business, every marriage, every relationship, every parent has stories to tell. After the fact it looks easy because all the while we are listening we know the endgame. In the warzone it was anything but clear how things would turn out.

There was no guarantee I would survive heart surgery in 1978. My cardiologist died of AIDS later. One nick of the glove and you’d be reading something else right now. I was a third of a millimeter away from a very short life.

Tempering make the iron stronger and more pliable. People, too. Difficulties and hard times give you the strength to grow. #success #motivation #life #lifelessons #personalfinance #freedom #growth #strengthThe hunting accident also put life in perspective. First, it saved my life by exposing my condition. Without that I would have died of a massive coronary sometime in my 20s, or at the latest, early 30s. It would’ve been just one of those things. Family would have spoken of the tragedy for years until I was all but forgotten. But I was shot. And if one of those pellets would have been a half inch deeper I would have died before anyone knew I had a medical problem. Luck does play a role.

Luck didn’t make me feel invincible; it made me feel vulnerable, like I was living on borrowed time. I tried everything. Burning the ships was a natural act. Prodding myself, forcing myself to move ahead was exactly the situation I set up.

Here is the secret: Every failure, every painful moment, drove my harder. My life appears easy because it has been so hard. I’ve been kicked and beaten unfairly and if you want a really painful story pull me to the side sometime when I’ve had a couple so my defenses are down. You’ll find out how easy it really was.

Zig Ziglar once said we should pray for hard times and difficulties. He understood. Ziglar went on to say hard times and difficulties make for an easy life and easy makes for a very, very hard life. The message was clear. Iron is brittle until you heat and hammer it. Fire and stress harden and strengthen the iron. With the right ingredients you get steel. But there is no chance for strong steel until you apply heat. It is the tempering which makes the metal strong.

And so it is with people. I know you have dreams. That is why you are here. Your goals of financial independence and/or early retirement need nurturing. Starting your dream business will not be easy. I can tell you what to do and it will not be enough. You will need to adjust, try different things, to succeed. Frugality is challenging. An awesome marriage is work. Some days it doesn’t work. Then you try something else and if that doesn’t work you try something else, and on and until you win.

In relationships it is easier. The endless effort is noticed by all parties involved. It makes a difference. My marriage isn’t great because I’m so good. No. My marriage to Mrs. A is awesome because I never stopped trying to make our marriage more alive. Mrs. A and I work daily on our relationship. Even when we don’t feel like it. (That happens, too, even in solid marriages.)

You will get kicked and hard. Thank God for that! If you never took a groin shot you would never grow. I know from experience I grew and learned the least when things were humming along. It was the challenges that strengthened me. All the idiots of the world who attempted to tear me down made me the success I am today. Don’t stop hating me now. I’ve got new heights to climb.

Pray for the same. Pray for money problems so you can learn really money lessons; pray for marital problems so you can appreciate your significant other and build a more solid foundation; pray for a bad economy and job loss; pray for bad weather. Pray to whatever god you believe in and ask for hard times.

It’s the only way to have an easy life.

 

 

More Wealth Building Resources

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email Darren@TradelineSupply.com or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

PeerSteet is an alternative way to invest in the real estate market without the hassle of management. Investing in mortgages has never been easier. 7-12% historical APRs. Here is my review of PeerStreet.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

A cost segregation study can save $100,000 for income property owners. Here is my review of how cost segregations studies work and how to get one yourself.

Amazon is a good way to control costs by comparison shopping. The cost of a product includes travel to the store. When you start a shopping trip to Amazon here it also supports this blog. Thank you very much!

 



Stalking the Accountant: Housecleaning

Vote for The Wealthy Accountant , says Pinky.

I have three short bits for your review. It will only take a minute, but still important stuff.

 

Plutus Awards: The Plutus guys wanted me to inform my readers nominations are closing July 31st. If you haven’t made your nominations known do so quickly or forever hold your piece. I’d encourage you to consider this blog for Blog of the Year. It’s okay if you choose someone else, but if you do my cat Pinky will have a stern “meow” for you.

 

Copyright Issues: A lot of things go on behind the scenes of a blog; what you see is only the tip of the iceberg. One of the increasing demands on my time involves copyright issues. Many of the tax issues I cover (and other subject matter, too) is in demand by certain media outlets and academic papers. Several requests per week show up. I point them to my post allowing use of my material. Not good enough, they say. They need copyright paperwork in place. This requires reading contracts which is very time consuming.

When I was slow in responding to a few requests this blog was reported to ACI Information Group, formerly Newstex. ACI handles copyright issues for large organization like Business Insider. It was an easy choice. By signing up I dealt with all copyright issues one time and now can wash my hands. You are still welcome to use any of my material, but if you need copyright permissions you can go to ACI and get what you need. I have signed all necessary documentation with them so you can report to your organization you have secured copyright permissions.

 

Golden Nugget: Have you ever wondered where writers like Stephen King get their ideas? Have you ever wondered what they read? Well, I don’t know about Steve, but I can share something I found and am really enjoying.

I found this blog, Debt Free Dr, and was instantly pulled in. His style is crisp and informative. When you get a chance, check it out. You don’t need to be a doctor to benefit; if financial freedom is something that interests you then do yourself a favor and check out Debt Free Dr.

How did I find this awesome blog? you may ask. Well, it wasn’t any special talent on my part. The guy who writes the thing asked for a consulting session. I had to check it out, of course. It is really good. I gained as much or more out of that consulting session as my client.

 

Enjoy your weekend.