Rick Kahler's Financial Awakenings

“I’ve always been careful about big purchases, but I’ve never considered before that saving small amounts here and there can make a big difference.” That comment came from one of the participants in the January 24 teleclass.

Kathleen Fox, who is co-author with Rick of Conscious Finance, talked about the difference between “stingy” and “thrifty” and emphasized the value of spending consciously. She shared some of the money-saving strategies that have served her well, first as a single mom and later as the money manager for a blended family of seven.

To listen to Kathleen’s usefull hints and advice, click here to go to the KFG Client Only section of our website. Use your password to log in, then search under “Teleclass.” If you do not have a password or are having trouble with your current password, call Lindsay at 605-343-1400 and she will assist you.

If you go to a bank or credit union to get a loan to buy a house, you don’t necessarily think of yourself as a customer in the same way you do when you go to the supermarket to buy groceries. We don’t generally see money as a consumer product or a commodity like sugar, rice, or coffee.

Yet, when you take out a loan, what you’re actually doing is renting someone else’s money. The interest on the loan is the “rent” the lender, who is the owner or the “landlord,” receives for allowing you to use that money.

It makes sense, then, to comparison shop for loans in the same way you might comparison shop for oranges or hamburger. Credit Union A might offer a slightly lower interest rate or more appealing payment schedule than Bank B or Mortgage Company C. By comparing loan costs instead of simply dealing with one lending institution, you might end up saving money. This process is very familiar to almost anyone who has ever borrowed money to buy a home. Failing to shop for the best interest rate on a home loan is just poor stewardship.

Yet currently in South Dakota, when a city or other governing body issues bonds, it is not required to do that common-sense comparison shopping. Government spending in other areas—from buying vehicles, to fueling those vehicles, to constructing or repairing buildings, to purchasing office supplies—is done competitively. Suppliers are required to submit bids in order to insure that the taxpayer’s money is being spent wisely.

Professional services, such as legal and financial advice, are exempt from the competitive bidding process. Bond issues and borrowing have been treated as financial services and have come under that same exemption. This simply makes no sense.

Senate Bill 120 is intended to remove the exemption. In part, it reads as follows: “No governing body may sell or enter into any contract for the sale of any issue of its bonds in an amount exceeding one million dollars, for whatever purpose issued, without first advertising for bids in the manner prescribed by section 2 of this Act.”

The bill separates financial advice related to the sale of bonds from the actual sale. The advice would remain exempt from the bidding requirements, but the sale itself would have to be conducted competitively.

There are exceptions to the requirement. Some exceptions are intended to protect transactions that might need to be conducted privately. I’ve been told that only about five percent of all bonding situations would fall into this category. Others are designed to allow governing bodies to conduct routine business without restrictions that would prove burdensome or that might add to taxpayers’ costs.

Along with several other members or former members of the South Dakota Investment Council, I fully support SB120. Competitive bidding requirements are intended to save money for the taxpayers of the state. It makes no sense to exempt borrowing money from those requirements. Renting money is a business transaction no different from contracting for a construction project or buying computers. In fact, borrowing can include some of the largest transactions that governing bodies make. Requiring suppliers of money to submit competitive bids is a long-overdue reform. It is one more way to protect taxpayers from possible backroom deals and to insure that tax funds are spent wisely.

The complete text of this bill is available at the South Dakota website. To read it, go to http://legis.state.sd.us/sessions/2008/Bills/SB120P.htm.

I would like to introduce myself to those of you who are new to Kahler Financial Group and to reacquaint myself with those of you I have already met. My name is Laura Longville. I am a financial counselor who works with Rick and his clients at KFG. We are partners in providing you with a holistic approach to your life and finances.

Once a month I will post an article exploring the benefits of financial coaching and how financial coaching and therapy can help you live a more compelling and fulfilling life. I know you have heard Rick talk about those benefits, but it’s a new year and a great time to review them.

Financial coaching is useful when:

• You feel “stuck” with a financial decision or with life in general.

• You may not understand why you do what you do.

• You’ve had this dream of……. but have not taken the time to do it.

• You’re waiting until retirement to do ……

• You have some changes going on in your life—retirement, financial loss, lifestyle changes, career moves—and you’re not quite sure what to do next.

• Maybe you’re ready to reinvent yourself.

• You know there is more to life than a 401(k) plan.

If you recognize yourself in one or more of these statements, I can help. You are significant and you have much to offer the world—so don’t wait any longer. Give me a call at 605-343-1400, and we can discuss how I can coach you toward living fully alive and living on purpose.

Laura Longville

Coaching from Success into Significance

I am always amused when politicians play the greed and class cards to convince middle and lower income Americans that the rich are getting richer and are not paying their fair share in taxes. A typical example was a December speech by Hillary Clinton in Ottumwa, Iowa, in which she said the tax code was “totally tilted towards the wealthiest Americans.” Being the inquisitive person I am, I decided to check her facts.

According to the most recent information available from the IRS, those Americans earning the top 1% of income paid 39% of the total revenue collected by the US government from personal income taxes. The top 5% paid 60% of the income tax burden, and the top 10% paid 70%. The top 50% of income earners paid 97% of the entire income tax burden. That means that 50% of all Americans paid only 3%.

I would agree with Senator Clinton that the income tax code is “totally tilted.” It’s just not tilted in the direction she suggests.

What about the argument that the rich are getting richer? Let’s check the facts as reported by the Treasury Department in October 2007. In 2000, the end of Bill Clinton’s term in office, the richest 1% of Americans earned 21% of all income and paid 37% of all income taxes. In 2007, the richest 1% of Americans still earned 21% of all income and paid slightly more, or 39%, of all income taxes. It looks to me as if the rich actually got slightly poorer during the Bush Administration.

Another statement that plays well in stump speeches is bludgeoning US corporations for earning “obscene” profits, suggesting that corporate America is not paying its “fair share.” Another check of the facts finds that the U.S. levies the second highest corporate taxes in the world. We tax corporate profits at 39.3% (Kiplinger Newsletter). Japan is slightly higher at 39.5%.

Perhaps some of those crying for higher taxes on corporations forget that their retirement depends upon corporate profits. Lower corporate profits spell lower returns on equities, which spell lower returns (and perhaps years of losses) for 401(k) and IRA plans.

An important factor in creating wealth, trade, and a strong economy is plenty of economic incentives, including a moderate to low income tax structure. A low tax structure played an important part in the US becoming a world economic power. The US didn’t even have an income tax until 1913.

Today, Americans at the highest level pay 40% of their income to the federal government, plus state income taxes. Still, our total tax load as a country is one of the lowest in the world. When you consider corporate taxes, income taxes, FICA taxes, and sales taxes, the US has the 12th least miserable tax burden in the world, according to Forbes 2007 “Misery Index.” (Unfortunately, we have fallen from 6th in 2005.) The United Arab Emirates had the least miserable tax burden, while France ranked as most miserable.

A married couple in the US earning $70,000 would keep about 83.46% of their gross income, 10th highest net in the world. Higher income earners don’t fare as well. Married couples earning $300,000 a year only keep 72.8% of their income and slip to number 14 worldwide.

Most Americans don’t have much to complain about when it comes to taxes. While we certainly don’t pay the world’s lowest income taxes, we pay nowhere near the total taxes of much of the world. However, given the current political temperament of our electorate, I expect our tax load to move up on the global scale. If we want to remain a world economic power, we should be moving in the opposite direction.