New Car or Used Car: What is the Best Option for You?

 

Comparing a new car and a used car can be like comparing a shiny treasure chest filled with possibilities to a worn-out map leading to hidden treasures.

 

Henry Ford's Model T, which came out in 1908, changed how cars were made. He used an assembly line to build them, which made it much faster and cheaper. This meant that more people could afford to buy a car, so they had more options to choose from when they wanted to buy one. Today, when you are getting a car, there are even more choices and other things to think about. Simply put, it is really not just about choosing what kind of car and model you want, but also deciding if you want to buy a car that has never been used before or one that someone else owned. A brand-new car might have a really good guarantee and all the newest gadgets, but it will probably cost more money than a used car, and it will lose its value faster over time. Sometimes it can be like choosing between a shiny new toy that costs a lot but loses its value quickly, and a pre-owned toy that costs less and keeps its value longer. I will put all the cards on the table for you here.

 

Choosing the Right Ride: The Differences Between New vs. Used Car Explained

If we want to know the differences between a used car and a new car, we will consider things like warranty, price, insurance, technology, maintenance, and depreciation.

Warranty

Buying a new car instead of a used one has its advantages, just like catching a shiny new ball during a game. When you buy a new car, it usually comes with a warranty. This warranty is like a shield that protects you from most big problems and repairs that might show up in the first few years. However, new cars don't usually need many repairs during that time, so you mostly have to focus on taking good care of it, like watering a little plant.

On the other hand, buying a used car is a bit like adopting a furry friend who has been around for a while. It might not be as reliable as a brand-new car because of its age. You might need to fix more things on a used car, but those repairs won't be covered by a warranty like they would be with a new car.

But wait! There's another option called a certified pre-owned car, or CPO car for short. Buying a CPO is like finding a treasure that has been inspected and fixed up by the manufacturer. Some CPO cars even come with a warranty, like a safety net for unexpected troubles. However, if you decide to go with a used car, it is a good idea to save a little money each month, just in case you need to pay for repairs. You can also read Consumer Reports and other reviews from people who don't take sides to help you pick a car that has been doing well.

With all the advancements in technology, cars have become more reliable, like a trustworthy friend. Many models don't need repairs until they have been driven for more than 100,000 miles, which is equivalent to traveling around the world a few times. By that time, the car might be close to 10 years old. So, if you buy a used car that is three years old, you can drive it for five years without worrying too much about major repairs. You might even be able to sell it for a price very close to what you paid, like passing it on to someone else who will take good care of it.

Top of Form

 

Price

When it comes to price, new cars usually put a bigger dent in your wallet compared to used cars. It is like buying a brand-new video game console versus a gently used one. To sweeten the deal, the dealer might even offer you a special financing plan for new cars with a lower interest rate. This is like getting a discount on the interest you have to pay over time. In fact, some dealerships might go all out and offer you a loan with zero interest for new cars. And that is like having a magical money genie granting your wishes!

But hold on, don't lose hope if you  are eyeing a used car instead. While you won't find those zero-interest loans for used cars, there are still good financing options available through your local bank or credit union.

The truth is that your options for buying a car might depend on whether you can get a loan or if you will  need to pay in cash. It is a bit like playing a game where you have to meet certain requirements to move to the next level. If you qualify for a loan, it opens up more possibilities for you. But if you are planning to pay in cash, it might be easier to save up for a used car since they usually come with a smaller price tag.

Insurance

Did you know that the type of car you choose can affect how much you pay for insurance? One can say that this is just like picking between two different paths with different costs. If you go for a used car, depending on the model, your insurance rates might be lower compared to a new car. One reason for this is that it doesn't cost as much to replace an older car as it does to replace a brand-new one. Since it is cheaper to replace an older car, insurance companies may charge you less money for coverage. It's like catching a break and paying less.

Now, if you are in your early twenties and facing high insurance rates just because of your age, there's a way to save some money. Instead of buying a new car, consider buying and insuring a used car. By choosing a used car, you might be able to lower those high insurance rates and keep more money in your wallet.

Technology

New cars come with the newest technology, and that can bring some cool benefits. One advantage is that new cars often have better gas mileage, which means they use less fuel and save you money at the gas station. It's like having a car that sips fuel instead of guzzling it down. Not only that, new cars also tend to have lower emissions. That means they produce fewer harmful gases that can harm the environment. Another great thing about new cars is that there are more options for hybrid cars. These cars use a combination of electricity and gasoline, and they can save you even more money on transportation costs. It is like having a super-smart car that knows how to save you money while getting you around. Oh, and let's not forget about the improved technology in new cars. Today, buying a new car is basically similar to buying a mini-computer on wheels! You can easily connect your smartphone to the car's system, listen to your favorite tunes, and even use GPS to find your way around. Owning a new car in this decade is like having a personal assistant right in your car, helping you stay connected and entertained on your journeys.

Depreciation

One important thing to understand is this: buying a car isn't like making an investment that grows over time. Cars are like special possessions called assets, but they lose value as time goes on. It's a bit like having a toy that becomes less valuable as you play with it. When you buy a brand-new car, it starts losing value as soon as you drive it away from the car dealership. Here's another interesting fact: a new car experiences its biggest drop in value during the first two to three years. It's like the car is in a race to become less valuable quickly. So, if you decide to buy a new car, be prepared for it to lose its worth pretty fast.

Now, let us turn our attention to the used cars. When you buy a used car, you let the previous owner take the biggest hit in depreciation. They are basically the brave ones who take the initial drop in value for you. By purchasing a used car and taking good care of it, you might be able to get back a good chunk of your money when you sell it in the future. So, remember, cars lose value over time, but if you choose a used car wisely and maintain it well, you might be able to recoup a lot of your costs when it's time to say goodbye to your four-wheeled friend.

Maintenance

When it comes to taking care of cars, used cars can sometimes be more expensive to maintain. Thus owning a used car is similar to having a pet that needs more attention and care because it is old. Since used cars have been driven before, they might need more repairs and replacements for parts that wear out over time. Because used cars have already been on the road for a while, there's a chance that certain parts may need to be fixed or replaced sooner than in a new car. It's a bit like needing to visit the doctor more often as you grow older. The cost of maintaining a used car can add up over time, so it is important to be prepared for these additional expenses.

However, it is worth mentioning that the cost of maintenance can vary depending on the specific car and how well it has been taken care of by its previous owners. Some used cars may require more attention and money for maintenance, while others might have been well-maintained and need fewer repairs.

To avoid surprises, it is a good idea to have some money set aside for maintenance when you buy a used car. Taking care of a used car properly and getting regular maintenance can help keep it running smoothly and potentially reduce the overall costs of repairs in the long run.

So, What’s Your Pleasure?

If you care more about having the latest technology than the price, then a new car might be the right choice for you. Plus, if having a warranty is important to you, then a new car makes a lot of sense. However, there's an exception to consider: you can also choose a certified pre-owned car that comes with a warranty. This will be like having the best of both worlds. On the other hand, if getting a good deal and a low price are your main priorities, then buying a used car might be a better option. Used cars can offer great value for your money.

No matter what decision you make, it is important to either pay for the car with cash or make sure you can afford the monthly payments if you choose to finance it. A good rule to follow is that you should be able to pay off the car completely within three years. If the monthly payments are too high and you can't pay it off within that time, then it is likely that the car is too expensive for your budget. Before making a final decision, do some research on the model you are interested in. Check out reviews and find out if the car is reliable. If you are not very knowledgeable about cars, it's a good idea to have a trusted mechanic look at the car, especially if it is a used car.

Lastly, don't forget to shop around for the best loan if you need to borrow money to buy the car. And don't be afraid to negotiate the price with the seller to get the best deal possible.

 

 

 

 

 

 

Notes

Caldwell , M., & James, M. (2022, April 1). Buying a New Car vs. Buying a Used Car: Which Should You Choose? Retrieved from The Balance: https://www.thebalancemoney.com/buying-a-new-car-or-used-car-2385961

Commonwealth Bank of Australia. (2023). Should You Buy a New or Used Car? Retrieved from https://www.commbank.com.au/articles/car-insurance/buying-new-or-used-car.html

Ford Motor Company. (2020). The Model T. Retrieved from https://corporate.ford.com/articles/history/the-model-t.html#:~:text=The%20Model%20T%20was%20introduced,of%20manufacturing%20the%20universal%20car.

Progressive Casualty Insurance Company. (2023). Should I Buy a New or Used Car? Retrieved from https://www.progressive.com/answers/buying-a-new-vs-used-car/

 

 

Coupon Renaissance: How Coupons Can Help You Stretch Your Budget!"

 

 

A new culture of frugality has emerged in America, one in which thriftiness and the pursuit of deals have supplanted traditional brand loyalty as the norm. More than three-quarters of Americans currently report that they look through circulars and cut coupons before going shopping.

 

Adam Smith reportedly made the observation that humans are the only animal that can strike a deal. This is especially relevant during times of economic contraction. According to Valassis, a large corporation that specializes in coupon services, consumers in the United States redeemed 3.2 billion coupons in 2009, which is a 23% increase from the previous year. Since 2010, there has been a steady increase in both the distribution of promotional coupons and their utilization. In 2017 and 2018, the percentage of customers who made use of coupons reached 90 and 94 respectively. In 2019, 92% of people utilized coupons, and 45% of those people used coupons either often or very often. Just 8% of Americans said that they never utilize coupons of any kind when they purchase.

In the midst of the COVID-19 outbreak, over half of all Americans (46%) searched for coupons for various household items. Other popular coupon categories among Americans include restaurants (41%), groceries (40%), and electronics (37%), according to patterns found in the June 2020 Coronavirus survey of coupon usage. Thirty-five percent of shoppers also looked for coupons in the beauty and health categories, 24% in the fashion category, and 23% in the health category, respectively.

Although paper coupons of the traditional sort are experiencing a renaissance, online coupons are garnering all of the attention. According to research that has been published, the total value of redeemed digital coupons was $47 billion in 2017. In the year 2020, digital coupons saw an increase of five share points, bringing their total share of coupons redeemed in the United States up to 27%. The entire amount of money redeemed through coupons in the United States in 2022 was around $91 billion.

At a time when almost 8 in ten 10 Americans report that they are living paycheck to paycheck and U.S. inflation rate is at 6.04% (which is higher than its long-term average of 3.28%), it is possible that a renaissance in the use of coupons is to be expected. According to Nielsen, a market research company, the households who had an income of at least $100,000 in 2009 were the ones that redeemed the most coupons. This finding may come as a surprise to you, but those that are better off are the ones who utilize them the most.

 

From Paper to Pixels

Observers of the market have come to the conclusion that there must be some truth to the assertions that the most recent COVID-19 pandemic recession and the most recent spike in the pricing of consumer goods had a long-lasting impact on American consumers. It is believed that a new culture of frugality has emerged, one in which thriftiness and the pursuit of deals have supplanted traditional brand loyalty as the norm. More than three-quarters of customers currently report that they look through circulars and cut coupons before going shopping, according to the research that has been published so far. If consumers continue to behave in this manner even as the price of gasoline continues to climb, as is to be expected, coupons will have solidified their position as one of the most powerful weapons in the arsenal of the marketing industry.

Paper coupons, especially those of the traditional variety, have been the primary beneficiaries of consumers' efforts to save money through couponing so far, despite the fact that digital couponing companies like Groupon and others in its digital dealmaking ilk are currently the darlings of the media. Approximately 85% of them are disseminated as loose inserts or booklets, which are then secretly smuggled into periodicals, most notably Sunday newspapers.

This is an extremely unusual piece of positive information for the newspaper industry, which is doing everything in its power to maintain such a rich auxiliary sideline. According to a study that was  published by the Newspaper National Network (NNN), which is a consortium of 25 newspaper companies, clip-out coupons printed on newspapers' own pages (as opposed to loose ones that fall out when you turn the page) are the most effective at getting users to switch brands, trade up, or try something new. A significant proportion of marketers make insufficient use of the clip-out coupons printed on newspapers' own pages.

It's possible. Nonetheless, it is abundantly evident that digital coupons are the way of the future. When compared to paper coupons, redemptions of digital or internet coupons accounted for 33% of all coupon redemptions in the first half of 2021, while paper coupons only accounted for 24%. There is a proliferation of online coupon aggregators, and print coupon producers are setting up internet venues to sell their products. Users of digital technology are more likely to be male, wealthy, and receptive to trying new things. The marketing that reaches a consumer just as he or she is reaching for their wallet is the most influential form of marketing there is. Discounts that are provided either by smart phone or on-site kiosks are extremely powerful. When retailers implement the increasingly common strategy of letting customers download digital coupons onto their loyalty cards, it becomes much simpler to monitor customers' buying habits. This is especially true for digital coupons.

As was the case with newspapers' classified ads, newspapers are generally licking their wounds as  another significant source of commercial revenue became lost to the internet. Yet there is some good news for people who are addicted to clipping coupons: it appears that the number of promotional offers and the diversity of those offers will continue to expand.

 

Save Big on Groceries with These Top Coupon Websites and Apps

Are you looking for ways to reduce the cost of your weekly shopping bill? These coupon websites and apps are quite cutting-edge methods to save a lot of money on food and household items. You are familiar with the tried-and-true methods for reducing the cost of food, such as planning weekly menus, scouring circulars, clipping coupons, and building stockpiles of discount items. And sure, we are aware that this is a lot simpler to say than it is to actually execute. To our great relief, there are ingenious new tools that take the strain—not to mention the scissors—out of the saving process. Free money, in a single phrase!

 

Food On the Table App

Enter your family's cuisine preferences (no fish, passionate about Italian) and your favorite retailers into the Food on the Table app. The app will then use the GPS in your phone to search through the circulars for you and make recipe recommendations based on the sales that are currently being offered. Have a menu planned out already? Simply go to shortcuts.com, select the recipe you want to make, and type in the items you don't have at home. This will bring you a list of the retailers in your area that sell them at the lowest price. It will even search for coupons and add them directly to your loyalty card at the grocery shop if it finds any.

 

Grocery IQ

There are a lot of interesting list applications, but Grocery IQ takes it to the next level by integrating coupons from coupons.com. There are a lot of cool list apps. When you add something to your cart, you will be notified if there are coupons that you can either print off or load onto your loyalty card at the grocery store. When you create a shopping list or scan bar codes inside of a store using the more recent PushPins app (which is linked with more than 6,000 retailers), the app will instantly add coupons to your loyalty card and propose weekly deals.

 

Safeway (Just for U)

Let coupons come to you. One of the chains that is now releasing apps that provide customers with personalized digital coupons based on their shopping patterns is Safeway (Just for U). For instance, if you use SCAN IT!, you will be able to scan and bag your items as you shop. You should always link your plastic loyalty card to the store's digital coupon center (these days, the majority of retail chains have one on their online), so that you don't miss out on simple opportunities to save money when you're checking out.

 

The Grocery Smarts Coupon Shopper Apps

The Grocery Smarts Coupon Shopper app simplifies the process of saving money at the grocery store by combining store circulars (from retailers like as Target, CVS, Rite-Aid, and Walgreens) with coupons that are currently available to display the total amount you will save. It might provide you with downloadable coupons or inform you of the dates for the advertisements in the newspaper circulars. Use your store discount card in addition to it for a triple play of savings. Are you often failing to remember the one you require? With the CardStar app, you may centralize all of them on your mobile device.

 

Grocery Rewards or Loyalty Cards Option

You should look at "grocery rewards" credit card possibilities on a comparison website like nerdwallet.com or cardbenefit.com if you are the type of person who is able to pay off their credit card payment in full each month. This will help you determine which one of these cards is best for you (some offer 6 percent cash back). In addition, register your store loyalty cards at the website for tuition savings known as upromise.com. This will enable you to earn an effortless 1 to 3 percent back on groceries that can be applied to your kid's college account. Additionally, you can download coupons from the website to nab additional college dollars.

Notes

 

Balancing Everything. (2023). Coupon Statistics. Retrieved from https://balancingeverything.com/coupon-statistics/

Gillen, M. (2020). The Best Grocery Coupon Websites and Apps. Retrieved from Parenting: https://www.parenting.com/food-recipes/coupon-websites-apps/

Real Wire. (2021, December 29). New Research Shows Strong Influence of Digital Coupons. Retrieved from https://retailwire.com/discussion/new-research-shows-strong-influence-of-digital-coupons/

The Economist. (2010, December 24). Retrieved from https://www.economist.com/newsbook/2010/12/24/return-of-the-coupon-clippers

Valassis. (2021). Universal Digital Coupons. Retrieved from https://valassis.com/wp-content/uploads/2022/02/Universal-Coupon-Infographic2.pdf

YCharts. (2023). US Inflation Rate. Retrieved from https://ycharts.com/indicators/us_inflation_rate#:~:text=US%20Inflation%20Rate%20is%20at,long%20term%20average%20of%203.28%25.

 

 

To college graduates: ‘Salut!”

So you’ve graduated from college? Congratulations! Your hard work have brought you to this moment. You are now one of us. But remember: your real life begins this today.

As you are aware by now, a college degree is required for succeeding in life these days. So you now have your degree? What’s the next step? This is actually the time you wake up to your life. As a college graduate I’m sure you won’t like to sleep-walk through your life or to live a lifestyle that is based on other people’s expectations. Of course it is your right to throw your cap in the air or  to stage an Instagram photo of you throwing your cap in the air. However, never forget that life after graduations brings more responsibilities. This is the time to start developing and putting your financial plans into action. So, I’m going to share some things that will help you to develop a financial plan for living a life of purpose and greatness, free from financial headaches. Here’s how.

Get a job fast!

If you haven’t done so yet, this is the time to do it: get a job. If you couldn’t find your dream job  fast enough, it is perfectly fine to take any part-time job that would help you to pay the bills and get by, while searching for your dream job. There’s both nobility and dignity in doing that. As a matter of fact, it is much better than living in your parents basement until you are 30 or 40, waiting for your dream job to drop into your lap.

You will need to create a cash flow

Creating and managing a cash flow is very important in your life. Creating a cash flows begins with a job: your wages or salary will be your cash inflow. Next, you will need a process for tracking what’s coming in and going out. Any method you use to track the movement of cash in your work life is just fine, provided that it provides you with a way to find the money to fund your various financial priorities. Many banks offers apps that can help you with this exercise.¹ Alternatively, you may use other resources  like Digit,² Mint, or You Need A Budget.³ The bottom line here is that, when you manage your cash flow properly, you can get more out of life. Believe me, sometimes a lack of money can be a problem without equal.

Review your credit report

It is very important that you form the habit of visiting AnnuaCreditReport.com periodically to make sure it is in good shape. Remember that the law entitles you to check your credit reports from each major credit reporting agencies for free once a year. If you find any mistake, such as social security numbers that don’t belong to you or accounts that are not yours, notify the credit reporting agency immediately. To review your credit report free of charge, visit AnnualCreditReport.com or call 1-877-322-8228.⁴ Reviewing your credit report at least once a year will help you not only to prevent misuse of your identity but is also an important part of managing your personal finances: your credit score may affect your job application, your mortgage rate, credit card approvals, and even your apartment requests.

Get rid of your debt

Having too much debts hanging on your neck is a difficult and stressful way to live. So your first priority when you get a job should be to get out of debt fast. The truth is that  debts of any kind  are not cool. So, paying them off is more important than going on vacation. If you are really determined to get out of debt then you should realize that things like going to movies every week, eating out or getting the premium cable package are less important. Note that avoiding these things while getting out of debt, though difficult to do, are just temporary sacrifices. Once you are debt-free, you can create more room in your budget for dinning out and movie dates.

Build a healthy emergency fund

An emergency fund simply means a savings account where you accumulate cash for the sole purpose helping you to maintain a normal life despite the emergencies that life hands you. Never forget that there will always be a rainy day. You may lose your job. Your car may need an expensive repair. You may need a security deposit for an apartment rental. If any of these things happens you will have some room to breathe and hence will not panic if you have emergency fund locked away in a savings account. Financial planners recommend having as much as eight month of living expenses stashed away in a savings account.⁵ This way you will have sufficient cash to pay for unexpected expenses, rather than relying on credit cards and drowning yourself in debt.

References

¹Schlesinger, J. (2017, May 21). Congratulations Graduate! Now Start A Money Plan. Baltimore Sun, p. 20.

²Gensler, L. (2017, April 11). Digit Is Testing Its Users' Loyalty With A New Monthly Fee. Forbes. Retrieved from https://www.forbes.com/sites/laurengensler/2017/04/11/digit-savings-app-introduces-monthly-fee/#4df9513c2842

³Ravenscraft, E. (2016, March 13). Budgeting Software Showdown: Mint vs. You Need a Budget. Life Hacker. Retrieved from http://lifehacker.com/budgeting-software-showdown-mint-vs-you-need-a-budget-1764607246

⁴Skowronski, J. (2016, October 24). Does Checking My Credit Score Hurt My Credit? Credit.com Inc. Retrieved from https://www.credit.com/credit-scores/does-checking-my-credit-score-hurt-my-credit/

⁵Hamm, T. (2014, August 26). A Step-By-Step Guide to Building a Big, Healthy Emergency Fund. The Simple Dollar. Retrieved from http://www.thesimpledollar.com/a-step-by-step-guide-to-building-a-big-healthy-emergency-fund/

How to avoid IRS audit

Now, don’t get me wrong: the truth is that there’s no sure way to avoid an IRS audit. However, there are some red flags that can shield you from unwanted attention from the IRS.

I have seen a lot of people freak out every April. The problem? Taxes! As a matter of fact, I knew a lot of Americans who would rather have root canal surgery than an Internal Revenue Service (IRS) audit. They are not entirely wrong. I mean, we hear the stories all the time from relatives, neighbors, friends or friends of friends, and even wealthy politicians and celebrities getting caught up with the tax man for not reporting, inaccurate reporting or  underreporting their incomes on their tax returns. When things like this happens, the people involved either pay stiff penalties to the IRS or are sent to jail over bad tax reporting. And if the people affected this way are celebrities, politicians or wealthy people, it can become a major news that instills fears over an IRS  agent showing up on our own doorstep. Ideally, that’s exactly how the IRS wants it: fear increases compliance. But, in spite of that, the agency doesn’t really want to put people in jail for the simple reason that they benefit more when taxpayers are out there working and bringing in more revenue.

I still remember the day I came back from work and saw a thick white envelope from the IRS in my mailbox. At first I was too scared to open it. Jesus H. Christ! What have I done this time? Am I being audited? Later on, I tied my courage to the post and opened it. It wasn’t that bad: it was about a little money I made from winning a second position in a national essay in 2014. I forgot to report this income in my tax return and the letter stated that I owed taxes on that income plus the penalty that was applied. Not a big deal: I made a payment arrangement with IRS and paid it off. End of story.

But for some people, it could be too bad. Even the legendary mob boss Alfonse Capone was sent to jail for tax evasion.¹ So it is not surprising that a lot of people get heart palpations whenever they receive a letter from the IRS. One thing is for certain: whatever your tax problems, don’t be scared. There will  always be a safe resolution provided that you are willing to work with IRS to meet their deadlines. It is important, though, to understand why IRS may be interested in eyeballing your tax return.

4 Big IRS red flags that could lead to tax audit

Without putting it in so many words, the only reason to worry about IRS audit is if you are fudging on your taxes or if you are not paying your taxes. The IRS is short on personnel and funding and, as a result, they audited only 0.86% of all individual returns in 2014.²  In 2015, they audited about 0.84% of returns while in 2016 IRS audited only 0.70% of all individual tax returns.³ So, as you can see, the chances that your return will be singled out for review is pretty low. While there’s no sure way to avoid an IRS audit, the following red flags may attract them to you.

If you make a lot of money

Generally speaking, the overall individual audit rate is only about one in 143 tax returns. However, your chances of attracting IRS examination of your tax returns increase dramatically as your income goes up. According to IRS statistics for 2016, if your income is $200,000 per year or higher, then your chances of being audited by the IRS is 1.01%, or about one out of every 60 returns; and  you have a roughly 1 in 5 chance of getting audited if you earn $10 million or more(see table 1).⁴ Now, I’m not trying to discourage you from making more money.

Table 1: Percentage of Individual Returns Audited in 2016

Size of Adjusted Gross Income	Returns Audited
No adjusted gross income	3.25%
Under $25,000	0.80%
$25,000 - $49,999	0.49%
$50,000 - $74,999	0.41%
$75,000 - $99,999	0.52%
$100,000 - $199,999	0.62%
$200,000 - $499,999	1.01%
$500,000 - $999,999	2.06%
$1,000,000 - $4,999,999	4.60%
$5,000,000 - $9,999,999	10.46%
10,000,000 or more	18.79%

Source: Internal Revenue Service Data Book, 2016

Like everyone else, you definitely want to be rich. But it is important to understand that you are more likely to hear from IRS if more income shows up in your tax return.

Failure to report all income on tax return

You are required by law to report all the income you earned in a given year to the IRS on an annual tax return. In any case, the IRS also receive copies of all of the 1099s and W-2s that you receive so don’t think you can outsmart them. So you can imagine what would happen if you did not report all required income in your return. Now, because the IRS computers are very good at matching the numbers on the forms with the income shown on your return, any mismatch will immediately light up a red flag. And this will cause the IRS computers to spit out a bill.⁵  If, for some reason you receive a 1099 listing incorrect income, or a 1099 that shows income that isn’t yours, contact the issuer immediately and get them to file a correct form to the IRS. This way you can avoid unnecessary headaches and penalties.

Are your tax deductions too big?

You could be flirting with IRS audit if the deductions on your return are disproportionately large compared with an income. Here’s a better way of putting this: if you are claiming out sized deductions it will raise red flags and the IRS may pull your return for review. So be sure to have the proper documentation for your deductions. If you do this, then you shouldn’t be afraid to claim them.

If you are running a small business

Most small business owners and self-employed individuals know that Schedule C is a treasure trove of tax deductions. But what a lot of them don’t know is that Schedule C is also a gold mine for the IRS agents. It is important to state here that IRS agents are very smart people, and they know from experience that self-employed people sometimes claim excessive deductions and don’t report all their incomes. The IRS agents are like the ‘middle school principal’  that watches over  both the higher-grossing sole proprietorship and smaller ones.

Some businesses are called cash-intensive businesses because they receive significant amount of their incomes in cash. Good examples are taxis, restaurants, hair salons, car washes, bars, and so on.⁶ If you own that type of business you will receive special scrutiny from IRS especially if you report a substantial net loss on Schedule C.

Each to their own

Next time you get those envelopes, don’t get scared. Just stay calm and remember there’s always a safe resolution. And as a taxpayer you have your rights. Take a deep breath and know that you don’t have to fear being bullied or confused by the IRS. Keep in mind that you can get some help if you need it. For example, Taxpayer Advocate is an independent organization within the IRS that have vowed to help taxpayers like you resolve their tax problems.

References

¹Crime lord Al Capone, Known As Scarface, is Found Guilty for Tax Evasion in 1931. (2016, October 17). New York Daily News. Retrieved April 24, 2017 from http://www.nydailynews.com/news/crime/crime-lord-al-capone-found-guilty-tax-evasion-1931-article-1.2833965

²Tax Debt Help(2015). IRS Audit Statistics: Rates and Chances of Receiving A Tax Audit. Retrieved April 25, 2017 from http://www.taxdebthelp.com/tax-problems/tax-audit/irs-audit-statistics

³Taylor J.(2017). 17 Red Flags for IRS Auditors. Kiplinger. Retrieved April 25, 2017 from http://www.kiplinger.com/slideshow/taxes/T056-S011-red-flags-that-can-raise-your-irs-audit-risk/index.html

⁴Bell K.(2017). 2017 Tax Guide. Bank Rate. Retrieved April 25, 2017 from http://www.bankrate.com/finance/taxes/red-flags-that-tempt-the-tax-auditor-1.aspx

⁵Taylor, op. cit., para. 3

⁶Internal Revenue Service(n. d.). Cash Intensive Business Audit Techniques. Retrieved April 26, 2017 from https://www.irs.gov/pub/irs-utl/cashchapter1_210627.pdf

Coupon Economics: Getting rich with grocery coupons

Using coupons is not just about saving money at Walmart, J.C. Penny, or at your local grocery store. Having a coupon mindset goes much further than that since it means living a lifestyle that is centered around saving on almost everything that is purchased. In this day and age of continuous rising cost of living, that do indeed counts for something.

The other day I went to Weis, a grocery store in my neighborhood. At the checkout counter, the lady in front of me had a cart filled to the brim with groceries. She was also holding a bundle of coupons on her hand - it looked like she had a coupon for every item in her cart. And I said to myself, “Oh my God! I’m going to spend the rest of my life standing here today, waiting for this lady’s coupons and items to be checked by the clerk.” But it wasn’t as bad as I thought. As I watch the grocery clerk scan the lady’s grocery, I saw that the lady bought items worth $345.76. Then she handed her coupons to the grocery clerk and, after she scanned them, the lady’s bill came down to $188. My eyes nearly popped when I saw this. Did this really happened, or was I dreaming? Well, I knew I wasn’t dreaming when the lady handed the grocery clerk nine $20 bills and eight $1 bills. That really got my attention, and I said to myself, “Why was I born handsome instead of rich?”  Indeed, it was that moment that I realized how powerful grocery coupons are.

Stooping to conquer

I will start with the most basic question of all: is all that tedious coupon-clipping worth it? As I found out from my experience with the ‘coupon lady’ the last time I was at Weis, the answer is yes. I am convinced that it is a good thing to spend time scouring for and sorting those 65-cent-off rectangles rather than spending almost half of your paycheck at the grocery store. Why, even millionaires clip coupons as part of their saving strategies. As a matter of fact, the idea that many millionaires live frugal lifestyles and do clip coupons was the basis for the book The Millionaire Next Door¹ – a 1998 bestseller written by Thomas Stanley and William Danko. In that book, the authors noted that people with high income, specifically the millionaires, do cut coupons and do also stick to their shopping list so as to save money and have more money to do things they enjoy. In a similar book, namely The Millionaire Mind,² Thomas Stanley narrated more surprising truth about millionaires: many of them actually live frugal lifestyles. For example, a lot of millionaires choose to repurpose their furniture rather than buy new, and have their cars fixed rather than buying new ones. According to the book, the millionaires always look at the big picture. For them, clipping coupons or living a frugal lifestyle means saving more money to re-invest to create more wealth. This naturally explain why many of them do meal planning and prepare shopping lists that match their available coupons.³

First – and last – pay attention

So, if rich people use coupons, why then do so many low income families don’t use them? The reasons a lot of them gave are really absurd: They are too embarrassed to use coupons because they think using it will either define them as cheapskate, make them look poor or cause cashiers to scoff, or simply because they are too busy. Hence, in general, only a small percentage of shoppers (about 1 percent) redeem coupons. As Ms. Montaldo, a writer for The Balance, a personal finance publication, put it:

U.S. Consumer Packaged Goods (CPG) marketers reportedly distributed coupons valued at $470 billion for products used daily like food, beverages, clothing, tobacco, and household items. The average coupon had a face value of $1.54. Only $4.6 billion coupons were redeemed. Coupons valued at $465 billion went unused.⁴

The fact still remains that shoppers who use coupons religiously can save significant amount of money, sometimes as much as $60 per week depending on the size of their shopping list and their level of coupon involvement. This can add up to $3,120 a year. Does this catches your attention? I hope it does.

Gains foretold

These days almost everyone claims to be too busy. It is indeed true: a lot of people are all on the run keeping up with the kids, education, jobs, maintaining their homes, you name it. This also means that snagging an extra time to relax can sometimes be a challenge. So, it is not surprising that the thought of adding coupon clipping to their schedule seems impossible to some people. This, however, does not mean that finding and using coupons cannot be streamlined or made easy. What many people don’t know is that using coupons does not always involve coupon clipping: they can save while shopping in their local grocery store by simply handing a cashier their customer card and having any applicable coupons automatically deducted from their grocery bill. But, to do this, they will need to apply for the grocery’s customer or reward card first.

Using online resources for printable coupons, such as coupons.com or SmartSource.com, are also super convenient. Not only that, one can get good deals by searching for printable coupons on the websites of most malls and outlet stores. The good news is that websites with printable grocery coupons abound, and they are simple to search and use. By doing a quick search on the internet, one can easily locate coupons for national stores like Walmart, Walgreens, Macy’s, and so on. Some stores even go beyond that: shoppers can find information about discounts that credit cards are giving by simply shopping in them. Online shoppers can now rejoice because there are now thousands of coupon codes listed daily for extra savings so long as they buy things online.

Here’s my take: you can save a lot of money by using coupons. Using coupons is not just about saving money at Walmart, J.C. Penny, or at your local grocery store. Having a coupon mindset goes much further than that since it means living a lifestyle that is centered around saving on almost everything that is purchased. In this day and age of continuous rising cost of living, that do indeed counts for something.

References

¹Stanley T.J., Danko W.D. (2010). The Millionaire Next Door: The Surprising Secrets of America’s Wealthy. Lanham, MD: Taylor Trade Publishing.

²Stanley T.J. (2001). The Millionaire Mind. Kansas City, MO: Andrews McMeel Publishing.

³Montaldo D.L. (2017). Why Shoppers Should Use Coupons. The Balance. Retrieved March 31, 2017 from https://www.thebalance.com/why-consumers-should-use-coupons-939628

⁴Ibid, para. 6

Wannabe entrepreneurs: Invest in haste, repent in leisure

While media reports glamorize successful entrepreneurs such as Google’s Larry Page and Facebook’s Mark Zuckerberg, the truth remains that most parts of being an entrepreneur suck.

Everybody like successful entrepreneurs. People  always sensationalize their achievements. At business schools, professors like to romanticize and celebrate the geniuses who break the rules and changed the world: Steve Jobs, Ted Turner, Larry Page, Sergey, and Mark Zuckerberg, among others. Worldwide, politicians praise them because they create wealth that generate jobs. How about glossy magazines? Of course they are part of the band wagon: they drool over the mansions belonging to popular entrepreneurs like Mark Zuckerberg and Richard Branson.

Obviously being an entrepreneur can be fun and rewarding: one would experience the freedom of being able to chase big dreams and the thrills of building empires. But the reality is that being an entrepreneur or a business founder can be grueling, spirit breaking and tough: business founders have the money worries of chronic gamblers, the social life of hermits and the job security of zero-hour contract workers. Unfortunately, this is the back side to entrepreneurship nobody – including the business school professors – likes to talk much about. So we shouldn’t be surprise when more than 90 percent of start-ups and small businesses go bankrupt within five to 10 years. As a matter of fact, the U.S. Bureau of Labor Statistics estimates that of the 172,000 new businesses created in 2010, at least 225,000 went bankrupt. A similar trend has been observed in previous years, implying that for most years, while new business establishments entered the economy, older businesses exited the economy in greater  numbers.¹

Just  consider this scenario: Six years ago Mbaso (not his real name) left his full time job at a large bank to strike out on his own. He doesn’t like corporate life anymore. Besides, he wants to test his business acumen. Unfortunately for Mbaso, being an entrepreneur proved far harder than he had imagined. First, instead of enjoying a road to prosperity, he encountered a succession of potholes, speed bumps and dead ends. When he was with the bank, he had free access to certain things, including administrative support, a social network, plus a regular bi-weekly paycheck, among others. Now he had to provide these by his own effort. Second, he suddenly realized that he had to learn how to do all sort of things, some of which he had not thought about before. For instance, he now has the responsibility of meeting bi-weekly payrolls – a task that was very overwhelming. One thing that worries him most was how he could afford to keep his car, pay his monthly mortgage on his house, and pay his utility bills – worries that were all-consuming. He never knew that being his own boss was this challenging. Soon he took to drinking, lost his levers of control and his company collapsed.

Mbaso’s story is a familiar one. Being your own boss is an amazingly difficult work. Those that made it had lots of sad stories to tell. While building the business, most of them had no life balance, no family time, and no social life. A lot of them had to spend years sleeping on mattresses in their offices, living off sandwiches, spaghetti hoops and instant noodles. So it is not a surprise why Vivek Wadhwa, an entrepreneur who became an academic, suffered a heart attack at the age of 45 after he revived a company and took another company public.²

Entrepreneur’s bitter pill

Not many aspiring entrepreneurs realize how lonely it is at the top. Thus being your own boss can turn into a different sort of failure. Generally speaking, the best way aspiring entrepreneurs can avoid loneliness is to found their companies with a friend. But this kind of partnership has its own downside: if you decide to go into business with a friend, then you should also be ready to deal with quarrels about money, titles or power. We saw that with the story about Facebook. Should an entrepreneur decides not to follow this path, there is another option: take on more investors and introduce more professional managers. This approach makes it easier to cope with the growth of the company. But, just like the partnership model, this approach also has its demerits: it can lead to a loss of control over the company. Hence it is not a surprise that only a few founders are still the CEOs when their companies go public.³

These types of “roller-coasters” can make the life of most aspiring entrepreneurs very miserable, especially when their progress is slow, no matter how balanced their lives may be. No wonder almost every average entrepreneur is far from balanced. This fact also explained why John Gartner, a professor of psychiatry at John Hopkins University noted that a large percentage of entrepreneurs may suffer from hypo-mania, which makes them to be too energetic, over-optimistic and overconfident. This, he explains, increases their restlessness and make them over-willing to take high risks.

A natural question to ask at this point is what can be done to deal with the dark side of being one’s boss. First, every company founder should understand and appreciate the importance of having regular medical checkups, learning how to relax, and making time to exercise. After all, health is wealth. The fact remains that, while a business founder may not believe in anything called a work-life balance, his or her body certainly does. The bottom line is that it can be very dangerous to neglect or downplay this important fact. Second, the idea that a business founder can succeed in splendid isolation is a dangerous illusion. Simply put, if you must be your own boss and start your own company, then you must do some hard work to construct social networks. You will need good friends to lean on. You will also need mentors to guide you.⁴ Luckily there are many organizations that can help any aspiring entrepreneur or business founder in these areas. The Entrepreneurs’ Organization(EO), for instance, is a global network exclusively for entrepreneurs.⁵ With more than 10,000 members in 46 countries, the EO organizes meetings in which entrepreneurs can talk about their emotional as well as their business problems. The Kauffman Foundation is another organization that would be helpful. This nonprofit organization studies and promotes entrepreneurship. It also provide courses that are offered online – courses that teaches how entrepreneurs can survive in the global business environment.

Knowing how to manage failure is important too. But this can only be done if, and only if, the entrepreneur have a more realistic assessment of what it is like to fail. Many published resources can be helpful in that regard: management literature is teeming with stories and testimonies about how entrepreneurs should deal with failure as a learning experience. It is quite understandable why entrepreneurs hate failures. As an entrepreneur, the failure of your business dream or idea can put you into a state of mind  that is similar to grieving after a death or a divorce. In spite of that, it is not the best to continue to fixate on your loss. If you really want to restore your fortunes after a business failure, your goal standard must be to force yourself to be failure-friendly: you must know how to “fail yourself to success” by identifying what you know you did wrong and being conscious not to repeat your mistakes. In addition, don’t hide your mistakes so that you can learn from others.  As Jane Porter of the Entrepreneur magazine puts it in one of her articles: “Be proud that you were brave enough to take a risk in the first place. By being forthright about your mistakes, you open yourself up to learning from others.”⁶

 

 

References

¹U.S.Bureau of Labor Statistics(n.d): Business Employment Dynamics. Retrieved February 4, 2015 from http://www.bls.gov/bdm/entrepreneurship/entrepreneurship.htm

²O’Brien C.(2012): Vivek Wadhwa Emerges As Silicon Valley’s Most Provocative Voice. San Jose Mercury News. Retrieved February 8, 2015 from http://www.mercurynews.com/ci_19779516?source=infinite

³Entrepreneur Anonymous.(2014, September 20). The Economist. Retrieved February 6, 2015 from http://www.economist.com/news/business/21618816-instead-romanticising-entrepreneurs-people-should-understand-how-hard-their-lives-can

⁴Ibid

⁵Entrepreneurs’ Organization(2015): Discover EO. Retrieved February 8, 2015 from http://www.eonetwork.org/about/

⁶ Porter J.(2013): How Failure Made These Entrepreneurs Millions. The Entrepreneur. Retrieved February 10, 2015 from http://www.entrepreneur.com/article/227011