Why track expenses?

One of the primary things that we suggest to clients is to track expenses. In some cases, this means noting down each expense as you make it, daily, so that even the incidental cash outlays are tracked.

Another way to do this is to use an automated method, one of the many apps available, to monitor your expenses through your credit card and bank accounts.

Either way, when you track expenses there are a couple of outcomes that can have a positive influence on your financial life.

The first is that you become more aware of each outlay of money, whether in cash or from a credit card. Since you track expenses they don’t just pass by, they have a record that you can see and refer to. That coffee you bought on a whim has a life now, and you can see the impact that the purchase had on your life.

The second positive outcome is that once you track expenses and summarize them, you begin to see a picture of your priorities. Whatever you’re spending money on is a priority, and the more you spend, the higher the priority.

These are also reasons why the concept of bullet-journaling is so popular and effective. If you track your every activity on a day-to-day basis, you have a record of all the things you spend your time on. And, as when you track expenses, you can review the history of your time spent – showing your priorities in terms of time. Whatever you spend your time on is a priority, and the more time you spend, the higher the priority.

Knowing where your priorities are historically gives you a chance to address these priorities for the future.

And since you’re taking note of your spending (in time or money) regularly, you can make decisions about how that spending is done. In some cases the decision can be made in the moment – deciding not to spend your precious time or money on that particular item – or making long-term decisions about spending time or money.

For example, you might make the conscious choice to no longer spend time with repetitive tasks by automating or outsourcing. And when you track expenses, you might make decisions about trimming back or eliminating frivolous incidentals, like lottery tickets.

The point is, whether you track expenses or track your time, summarizing this historical record gives you the opportunity to make decisions about how you spend those precious resources in the future. You can control your priorities only if you pay attention to what they actually are.

The post Why track expenses? appeared first on Getting Your Financial Ducks In A Row.


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This Week on TRB

The Hogsalt Hospitality group of restaurants finally opened their Chicago sensation Au Cheval in New York City this week so Bill Sweet, Nick Maggiulli, Blair duQuesnay, Michael Batnick and I raced down to Tribeca to check it out. The burger was amazing, just as it is at the original – which we checked out this past spring when visiting our CHI office. If you’re in New York, get over there asap, and don’…
Source: https://thereformedbroker.com/2019/03/16/this-week-on-trb-285/

Monopolies Consumers ❤️

The Hill asked me to weigh in on Senator Elizabeth Warren’s proposal to break up America’s biggest and most successful tech companies. I think she makes some valid points about the advantages that each of them have, but the issues with Apple are very different from the issues with Facebook, the Google conundrum is not the same as what’s happening at Amazon. What rule could possibly be written that would …
Source: https://thereformedbroker.com/2019/03/15/monopolies-consumers-love/

Taxation of Income, Capital Gains, and Interest

When you receive income, it’s likely going to be subject to
taxation. However, the type of income
will determine the specific tax treatment, and ultimately determine how much
you get to keep.

We can break income down into three basic types: ordinary
income, capital gains income, and interest income. Here’s a breakdown of each.

  • Ordinary Income – Ordinary income (OI) is income
    received that is subject to ordinary income tax rates. These tax rates are the
    rates individuals pay on incremental amounts of income. Rates can be as low as
    10% and as high as 37%. Income typically subject to OI rates is income from
    your wages (W2, self-employment), taxable bond interest, taxable retirement
    income, and annuity income.
  • Capital Gains Income – Capital gains income occurs
    from the sale of assets such as stocks, bonds, mutual funds, ETFs, real estate*,
    and other assets. Depending on how long the assets were held determines if
    capital gains are taxed at OI rates or more favorable long-term rates. Assets
    held for one year or less and then sold, have any gain subject to OI rates.
    Asset held longer than one year and then sold have gains taxed at long term
    capital gains (LTCG) rates – which are either 0%, 15%, or 20% – depending on
    your total income. The higher your total income, the higher the LTCG rate
    you’ll pay. Qualified dividends from stocks are generally taxed at the
    favorable LTCG rates.
  • Interest Income – Interest income is income from
    assets that generate interest such as bonds, savings accounts, CDs, treasuries
    (savings bonds, T-bills, etc.), and money market accounts. In most cases this
    income is taxed at OI rates. One exception is interest from municipal bonds
    issued by city or state governments. Interest on these bonds is not taxable at
    the federal level and may avoid state and local taxation as well.

Knowing how specific income is
taxed can help with the process of where to hold specific assets and in which
accounts – called asset location (discussed later). This can improve your tax
efficiency. Additionally, capital losses (selling an asset for less than you
paid for it) may be used to offset other income, also improving tax efficiency.

These are the basics of income.
Naturally, there are going to be exceptions and complexities that may apply to
you. To avoid costly mistakes, you may benefit from the advice of a tax
professional -usually a CPA who specializes in tax, an Enrolled Agent (EA – enrolled
to represent taxpayers before the IRS), or a tax attorney.

*Gains on the sale of your
primary residence may not be taxed up to $250,000 for single and up to $500,000
for married tax filers. Specific rules app

The post Taxation of Income, Capital Gains, and Interest appeared first on Getting Your Financial Ducks In A Row.


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All eyes on the NIPA profit margins

Earnings are a key driver of equity returns. That’s why we care about profit margins, which we expect to fall this year.

But not all profit margin data are created equal, we find. We base our analysis on the profit margins in the national accounts data (NIPA) from the U.S. Bureau of Economic Analysis. We prefer to focus on this profit margin data for several reasons, as we write in our Macro and market perspectives Profit margins under pressure.

1. Profit margins derived from NIPA data tend to lead the S&P 500-based profit margins. Over the past the 30 years, turning points in NIPA margins have preceded those for the S&P by an average of three quarters. See the chart below. NIPA data feature a larger and more comprehensive sample of companies –including private, unlisted companies that play a greater role in the economy.

192039T_BIIMacroFeb_NIPA_Twitter_800x800

2. NIPA data have a longer history than S&P 500 data.

3. NIPA data separate domestic and repatriated foreign profits, while the S&P 500 data only separate revenues. Given the rising role of China in global growth, S&P 500 companies are increasingly sensitive to foreign earnings.

4. NIPA’s accounting methods ensure uniform depreciation schedules are being applied, while excluding one-off debt write-downs and land depreciation.

5. NIPA data are based on a broader set of data sources than just regulatory filings. NIPA data can be revised regularly and materially. But we find that unrevised NIPA profit margins still lead S&P 500 margins similar to the chart above, so we don’t view this as a major drawback.

The outlook for NIPA profit margins

Where are these NIPA profit margins headed as we enter the late phase of the U.S. business cycle? The chart below shows NIPA profit margins “detrended” – stripped from the influence of long-term secular shifts such as globalization and increased industry concentration. We do this so we can see the cyclical swings in profit margins more clearly. Next to this on the chart is a forecast (see the “Estimated and expected margin” line) of this detrended margin over time. This forecast is made using a statistical model that includes measures of economic overheating (the output gap), measures of real unit labor cost growth, measures of output price inflation and measures of output growth.192039T_BIIMacroFeb_MarginsHeadingSouth_Twitter_800x800

Historically, profit margins have dropped from their peaks in the late phase of the economic cycle. This may sound counter-intuitive: textbook economics would suggest that companies have more pricing power when the economy operates at or above full capacity and inflation picks up. But under imperfect competition (the norm in most markets), companies tend to give up pricing power to gain or defend market share. The willingness to give up pricing power will likely reflect adjustment costs in both capital and labor.

Theory shows that the more monopolistic markets become, the more companies tend to eat into margins to defend market share when revenue growth starts to slow. The more margins fall, the lower inflationary pressures are – possibly further extending the economic expansion.

icon-pointer.svg Find more macro insights in our Macro and market perspectives.

The stage of the cycle also matters: for most of the business cycle, margins move with the output gap. Profit margins expand in the mid-cycle phase as the output gap converges to zero and full capacity is reached. But in the late-cycle stage, margins move in the opposite direction of the output gap. The more the economy overheats, the lower the margins. During the late cycle, costs tend to rise most quickly just as revenue growth heads lower, overwhelming the increased output price inflation.

Bottom Line

Our estimates show that margins are likely to decline this year, falling further below their secular uptrend. Much of this is due to rising overall capacity utilization – the stage of the business cycle – which we expect to rise further during 2019. Together with a rise in unit labor costs, this will outweigh the projected increase in the GDP deflator, a measure of price inflation. Read more macro insights in our latest Macro and market perspectives.

Elga Bartsch, Head of Economic and Markets Research for the BlackRock Investment Institute, is a regular contributor to The Blog.

Investing involves risks, including possible loss of principal.

Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments. Non-investment-grade debt securities (high-yield/junk bonds) may be subject to greater market fluctuations, risk of default or loss of income and principal than higher-rated securities.

International investing involves special risks including, but not limited to currency fluctuations, illiquidity and volatility. These risks may be heightened for investments in emerging markets.

This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of March 2019 and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and non-proprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this post is at the sole discretion of the reader. Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.

©2019 BlackRock, Inc. All rights reserved. BLACKROCK is a registered trademark of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. All other marks are the property of their respective owners.

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Source: https://www.blackrockblog.com/2019/03/15/nipa-profit-margins/