Finance
long-term收入构成
top 1 % household 年收入 $400,000（月均 $33k），税收贡献 40%
top 5 % household 年收入 $160,000（月均 $13k），税收贡献 60%
top 10 % household 年收入 $113,000（月均 $9k），税收贡献 70%
bottom 47% household 无需缴税
bottom 10% household 依靠政府补助
Net worth
if you sell everything you have, and subtract all the debts, how much money do you have?
4.9% of households have 100 million net worth.
Good Debt vs Bad Debt
Good Debt:
Education 教育
Car 车
Mortgage 购房抵押
Starting a well thought business
Bad Debt:
Borrowing money to support a lifestyle beyond one's means
Shopping to feel good on a bad day
Borrowing more than you can repay
Shopping to kill time
Keeping up with, or ahead of, your peers
Good debt is investing in yourself; while bad debt is sheer consumption.
Credit Card
Credit card is an unsecured line of credit.
Paying cash does not establish good credit.
The best time to establish credit is when you don't need it.
Want to keep dept-to-credit ratio around 30%
one can negotiate the interest rate down
can use three sentences: “Hi, my name is ____. I am a good customer, but I have recently received a couple of pre-approved offers in the mail from other credit card companies with lower APRs and zero balance transfer fees. I want a lower rate of interest on my card, or I will have to cancel my card and switch companies.”
Credit Report
Three major reporting agencies, each one can offer 1 free credit report per year:
FICO score formula
35% record of paying bills on time over time
30% debt-to-credit ratio (total balance on credit card and other loans verses the total credit limit)
15% length of credit history
10% new accounts and recent applications for credit
10% mix of credit cards and loans
Improving FICO score
pay at least the minimum balance due
keep debt-credit ratio below 30%
preserve history, cancel new credit cards first
have a mix of credits (do not have only credit cards)
do not apply for a lot of new credit at once
Social Security Program
The employer and employee contribute equally to the program
Employer's contribution to the program is tax deductible, while the employees' are not.
Total rate of social security tax is 12.4% of total earned income up to the maximum annual salary cap.
85% of social security benefits are currently taxable to individual.
Medicare Program
Medicare is a three-part healthcare entitlement program available to most people at age 65.
Part A is free to seniors who apply
Part A of medicare tax is 2.9% of total earned income without salary cap.
Part B is optional and means tested
Saving Money
Out of all the after-tax income:
save 6 months of "must-have" expenses as an emergency fund. Keep emergency fund in savings accounts or money market accounts.
i.e. monthly spending $4,000 -> emergency fund $24,000.
save 20% for long-term savings.
1-2-3-4 rule:
10% for short term spending
20% for insurances
30% for high-risk investing
40% for stable long-term investing
Automating savings
Sign up for 401k plan
Set up your own retirement account (IRA or Roth IRA)
Save more tomorrow ---- increase savings rate when getting a raise etc.
Start with saving something
Tax
Filing Status
single / married filing jointly / married filing separately / head of household / widower with dependent child
Earned Income
wages, salary, bonous, commissions, royalties, tips, and other money received from personal service. These are evidenced by W-2 form from employer
Unearned Income
taxable interest, ordinary, qualified dividends, business profits / losses, capital gains / losses, pension receipts, tax refunds, Social Security benefits, unemployment compensations, individual retuirement account distributions, real estate activities, partnership income.
Qualified Stock Dividend
For stock that has been held for at least 61 days. Tax rate is
20% for single with taxable income > $425,800
15% otherwise
0% with taxable income < $38,600
Nonqualified Dividend
For stock that has been held for less than 61 days, and ordinary dividends
Reported by Form 1040, are taxed as ordinary income
Total Income
= earned income + unearned income
Adjusted Gross Income
= total income - contribution to retirement plan - student loan interest - health saving account - self-employment tax
Capital Gains Tax
The profit gained from the sale of an asset
Short Term Capital Gains: for assets owned 12 months or less, maximum tax rate is 37%
Long Term Capital Gains: for assets owned over 12 months, maximum tax rate is 20%
Capital losses can be used to offset gains
Can use up to $3,000 of losses to reduce taxable ordinary income per year
Wash Sale Rule
The loss on a security if you purchase the identical security within 30 days cannot be used as tax deductible loss
Tax Deduction
Standard deduction:
$12,000 if single
$24,000 if married filing jointly
Itemized deduction:
itemized on Form 1040
Tax Credit
Tax credit are worth more than tax deduction:
Tax deduction reduce the total taxable income
Tax credit reduce the amount of tax, dollar to dollar
Dependent tax credit ($500 for non-child), child tax credit (for child under 17), alternative energy credit, earned income credit (for low-income earners), education credit
Gift Tax
Investment
And Jack Bogle, who founded both Vanguard and the first indexed mutual fund, recommends that the percentage of your portfolio invested in the bonds be roughly equal to your age and the percentage in stocks roughly 100 minus your age.
Business Structure 商业实体种类
Sole Proprietorship 个人独资
If owner dies, the business dies.
The proprietor has unlimited personal liability.
Partnership 合伙
General partner has unlimited liability; Limited partner has limited liability, which is the amount of their investment
Partnership does not pay federal income tax
Form K-1 is used for filing tax
Corporation 企业
Dividends: distribute a part of the corporation's after-tax profit to its shareholders --> dividends are taxed twice
Charter Corporation (C-Corp): Most common one, pay dividends to shareholders
Subchapter S Corporation (S-Corp): do not pay dividends, tax is reported directly by shareholders similar to a partnership
Limited Liability Corporation (LLC): do not pay dividends, usually well suited for single owner
Bonds
obligate the issuer to pay a specified amount of interest for a specified amount of time, and then repay the bond holder the face amount of bond.
Bonds issued by corporations (corporate bonds) are secured by corporate asset. Interest is tax-deductible to the corporation as expense, and taxable to bondholder as ordinary income.
Bonds issued by state and local government (municipal bonds) are secured by assets, taxes, revenue, or assessments. Insterest is free from federal income tax.
When interest rate rise, existing bonds decline in market value; when interest rate fall, existing bonds rise in market value.
Mutual Fund
professionally managed portfolios consist of stocks, bonds, and other investment divided into shares.
NAV: total value of fund's holdings divided by the number of fund's shares.
Stock Discipline
Never borrow money to buy stock
Do not try to predict market timing and trend
Invest in stocks with money you don't need in 5 years
Dollar-cost averaging - invest a fixed amount of money in shares of a stock on a regular time schedule
Rebalancing the stock portfolio at least every year
Market Cap
= price of single share x total number of shares
P/E ratio
Price per earnings ratio = price of a single share divided by the earnings of that share
It tells what the market is currently paying for each dollar of earnings
PEG rate
P/E ratio / expected growth rate
Form W-4
Contains the information about the employee (married? income? dependents? etc.) the employers need to know to correctly calculate and file the amount of tax for the employee.
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