How to cut your Debt?

You are fed up with your debt and want to start all over again? Tired of collection calls and worry about what would happen tomorrow? Tired of living pay day to pay day?

You are not alone. Each and every human being takes a debt atleast once in their lifetimes in one way or the other. The key to get out of debt is self-discipline. The best part about this is that you do not have to depend on financial advisor or some wall street guru or anyone else to get your life back on track. So, let us take a look at how it can be done.

Professionals often say that we should pre-pay our mortgage or you should keep paying the minimum due to the credit card companies but not the full amount due. Their argument is that if you have extra cash, you are better off investing in the stocks, bonds, real estate, gold etc etc for a better return rather than paying off your debt. 

Well, this is true in some cases who have enough cash to pay off their debt in a flash. For others like me, I would prefer to pay off any debt I have. Investing in the market in any instrument like stocks, bonds, precious metals, real-estate etc in no guarantee to get returns. Rather, we could loose that money pretty quickly especially in this volatile market. However, what is guaranteed is that we are paying interest on our mortgage every month until that is paid off. Most importantly, having no debt on your shoulders, just changing your life. It gives you confidence to try out new ventures and in your abilities to manage your debt.

Let us consider a very simple example. Banks lend us money at a mere 3.5%-4% these days. Banks are guaranteed to keep collecting 3.5-4% interest on the their loans every month in the normal situation. If there are 10 such loans they are guaranteed on collect 35-40% income on their investment.
Banks have enough smart people working for them. If we were to follow the so-called financial experts, banks should not make lend money on just 4% rather they should invest in hot items like stocks, bonds and real-estate and that will generate a very high return.

Guess what! Banks followed their advice in 2008 and we all know what happened.

Again, There are no guarantees on the returns in any investment. However, any interest charges/late charges etc are guaranteed every month if there is any outstanding dues against you.

So, save some money every month and focus on reducing or eliminating your debt before we start investing. You will have more success and more favorable results.

Have a question? Please leave a comment and I would be glad to answer.

Should we worry about income taxes?

Are income taxes really too high? Should we be worried about income taxes? Should we focus on ways to reduce income taxes?

There is enough debate on personal and business income taxes these days on almost all the news channels and websites. They have now become a talk point for the upcoming elections.

Should we really be scared about our taxes and focus on findings ways to reduce our taxable earnings and thus focus on getting in on the lower tax bracket. Well, I don't think so.

We pay income taxes only if we are making a profit. That is the first principle. So, let us assume that we are making $100 in profit and we are in 20% tax bracket. That means for every $100 we generate in profit, we keep $80 and give away $20 in taxes.

So, should we focus on saving $20 somehow by findings loop holes in tax codes, manipulating our expenses and somehow lowering our tax brackets or should we focus on generating hundreds more in profits thus keeping $80 for every $100.

If I were to choose, I would certainly focus on growing my business to be able to keep $80 out of every $100 I generate in revenue. Even if my tax goes to $30, I am still keeping $70 out of every $100, I am generating in profits.

So, unless my taxes are more than 51% of profits, I would still focus on growing more earnings for my family. Simply because, controlling taxes is not in my hands but exploring ways to generate more income certainly is.

Taxable Earnings	Tax Bracket	Taxes	After Taxes
100000	20	20000	80000
110000	22	24200	85800
120000	24	28800	91200
130000	26	33800	96200
140000	28	39200	100800
150000	30	45000	105000

As we see clearly, With more earnings, the tax bracket went up and so did the taxes. When we had $100,000 as taxable earnings, we were paying $20,000 in taxes. When we jumped to $150,000, our taxes went to $45,000.
However, the key point here is that when we had $100,000 in earnings, we took home only $80,000. When our business did good or we got promoted resulting in earnings to $150,000, we took home $105,000 which is a lot more than $80,000.

To conclude, I would prey for my income tax to increase and not decrease. Because if my income tax has increased, that simply means my income has grown too. I have more money to keep now.

I know we can go on and on on this topic but I would just say it is the way we look at things in our life. Opportunity comes in difficult times. Rather than getting depressed about the rise in income tax, I think about ways to add more income and writing blogs is one way to do that :)