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DEPRECIATION

Uncategorized Apr 10, 2019

Definition

Depreciation is when an asset loses its value over time.  It has various methods and treatments according to the companies' policy.


Why It's Important

Cars are an asset that depreciates rather quickly.  That is why they say once you drive off the lot, it has already lost some of its value.  Some conventional wisdom uses the 3 year rule:  Only buy a car that is 3 years or older because the first 3 years is when it loses most of its value.  Why not let someone else take that hit instead of you?  If you do get a new car, go for a brand that depreciates slowly.  For instance, I used to have a 2016 Honda CRV that I bought new off the lot (Read about its ending here).  When I got rid of it in 2018, I was only in the negative $3,000!  That is a huge deal being that the average loss is 31% by year 2.  Here is a good article on car depreciation from Edmunds: How Fast Does My Car Lose Value

Cars aren't the only things that...

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DON'T BLOW YOUR TAX MONEY! MONEY MOVES TO MAKE NOW BEFORE IT'S ALL GONE

Uncategorized Mar 31, 2019

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I have been getting questions lately on what people should do with their tax money, so I wanted to compile a list of some of my favorite tax money moves:

PAY OFF DEBT
OMG!  This is my personal favorite way to use my tax money because that is currently where I am in my money journey.  I throw almost every single penny towards debt now.  Why? Because I have a goal to accomplish!  When it comes to my goals, I am all in 100% until it is completed.  So, yes, I probably could spent my money on other things but debt payoff is my top priority so it goes there.  

Pay up your rent
If you are renting your home, put that extra money towards paying up your rent.  When I was barely making it, I would take my refund and pay my rent for 3-5 months.  It was such a relief to have one of my most significant expenses taken care of so I could finally breathe a little bit.

Buy that car
I see people getting a lot of flack for buying a car with their tax money....

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EPS

Uncategorized Mar 27, 2019

Definition

EPS stands for earnings per share.  This is how much of the company's profit they are sharing with stockholders on a per share basis.


Why It's Important

EPS holds a lot of weight when investors are evaluating stocks.  I think an example will better illustrate why:

Let's say we hold share of Walmart.  As a market (collection of potential buyers), we think Walmart's EPS will be $1.00.  Walmart posts their earnings and *shocker* the real EPS is only $0.50.  Walmart's stock then goes down because they are not making as much profit as the market thought they were and investors start selling to get out of the bad investment.  It also works in the opposite direction.  Let's take the same example but they really post earnings of $1.50.  Now, the stock will go up because more people are buying.  Walmart is more profitable than the market thought.

When evaluating stocks, it's important to see how profitable a company is before you dive...

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EBITDA

Uncategorized Mar 20, 2019

Definition

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. 


Why It's Important

This is one measure you can use to determine a firm's financial performance.  What does this have to do with personal finance?  Well, if you are evaluating investments you would want to invest in companies with strong financial performance.  You would look at a variety of factors including the EBITDA.  

The equation for calculating it looks like this:

EBITDA = Net Income + Interest + Taxes + Depreciation

You are adding back in some values that the net income already took out.  Unfortunately, not all measures are perfect.  If they were, I would be extremely rich by now!  EBITDA does not account for the cost of capital (land, machines, equipment) so it can be a little misleading especially if the business relies on credit a lot to make those purchases.

When you are conducting research, always make sure you are evaluating the target company...

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TAX DEDUCTIONS

Uncategorized Mar 13, 2019

Definition

A tax deduction lowers a taxpayer's tax liability by reducing the amount of taxable income.



Why It's Important

You have probably heard a lot about tax deductions and tax credits during tax season, so I wanted to debunk what they are.  I covered tax credits so now it's all about deductions.  Deductions are usually expenses that you pay throughout the year that can be subtracted from your gross income.

All taxpayers can either take the standard deduction or itemize their deductions.  You can't do both!  If itemizing your deductions gives you a bigger tax break, that's the route you would want to go! 

Some examples of deductions would be charitable donations and business expenses.  Let's look at a simplified example:


Income: $30,000
Donations: $300
Business Expenses: $2,000

Taxable income (from subtracting all deductions): $27,700
Uncle Sam will only tax $27,700 of the $30,000 I made. 

I highly recommend talking to a tax...

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TAX CREDIT

Uncategorized Mar 06, 2019

Definition

A tax credit is an amount of money that taxpayers can subtract from what they owe the government


Why It's Important

You have probably heard a lot about tax deductions and tax credits during tax season, so I wanted to debunk what they are.  I will cover deductions next week.  Tax credits are available for anything from going to school to making energy efficient upgrades to your home and many things in between.  

As I mentioned, tax credits lower the amount of tax you owe so, what if you don't have a tax liability (owe)?  Well, there are two different types of tax credits.  

Non-refundable tax credits, like mortgage interest and adoption, do not apply if your tax liability is 0.  

Refundable tax credits, like the earned income tax credit, still apply even if it lowers your tax liability to below 0.  Refundable tax credits are the most beneficial because you get the full dollar amount regardless of your tax liability or income, therefore, raising...

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DEBT CONSOLIDATION

Uncategorized Feb 27, 2019

Definition

Debt consolidation is when you take several debts and get a loan to pay them off, therefore, providing you with one monthly payment instead of multiple payments


Why It's Important

I will probably do an article soon on debt consolidation and credit card balance transfers since they kind of fall under the same boat.  


The premise is that you are just restructuring your debt (moving it around) instead of paying it off.  If you have a bigger balance outstanding, then more than likely your interest payments will be, therefore, keeping you in debt longer than if you just paid them off individually.  

Additionally, they may restructure your debt to a longer term, thus, reducing your payments, so you think you are getting a deal.  In reality, you are just signing up to be in debt longer.  

Don't play around with debt, just get rid of it!  

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BANKRUPTCY

Uncategorized Feb 20, 2019

Definition

Bankruptcy is a legal preceding that involves a person (or business) that is unable to repay their outstanding debts

Why It's Important

Declaring bankruptcy gives the filer a chance at regaining financial traction after a hard fall.  Depending on the type filed, some or all of the debts could be discharged.  All bankruptcies have a negative effect on your credit score for up to 7 years!  So, this should be a last resort!  I hope that none of my followers get to this point but if you do, it is good to know your options.  There are three popular types of bankruptcies:

Chapter 7 - This is the most common type of bankruptcy.  It allows the filer to have all of their debts forgiven after their "non-exempt" assets are sold and the proceeds are used to pay off as much as possible.

Chapter 11 - This is only for businesses.  I won't go into detail but it allows businesses to restructure their assets and debts.  The business also stays...

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HOW I SAVED MORE THAN 1000$ LAST YEAR AT THE GROCERY STORE

Uncategorized Feb 08, 2019

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OK, so I felt like this was a timely post in light of the government shutdown and the possibility of families not receiving food assistance in the coming months.  If you aren't aware of all the changes, you can read about it here.  I want to keep this post focused on how families can save money whether they receive government assistance or not.  It is essential to squeeze every penny at the grocery store because eating is a necessity and is usually one of our most significant monthly expenses. Let's begin...

Plan Your Meals
Grocery shopping starts before you even walk into the store.  Thinking ahead of time about what you plan to cook for the week is extremely important.  I usually have my meals laid out for the week, OR I will opt to cook whatever is available in the house.  Either way, I have a plan!  Disaster strikes when you go to the store without a list and start picking up random items.  Then, you get home and realize nothing goes...

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INCOME TAX

Uncategorized Feb 06, 2019

Definition

Income tax is a tax that the government imposes on both individuals and businesses.  These funds go to support our government infrastructure. 

Why It's Important

Because it's tax season, I thought it would be appropriate to discuss income taxes.  You probably get them taken out of your check every payday but do you really know how it works?  When you start a job, you fill out a W4 and a state tax form (i.e. NC-4).  On this form you are declaring how many exemptions you would like to take to therefore lower the amount of income tax taken out of each check.  If you put 0 exemptions, you will have the maximum amount taken out every pay check.  This money is then forwarded to the government by your employer.  Every year, employees and businesses file tax returns to see what their tax obligation to the government is.  If they paid too much throughout the year, they get a refund.  If they didn't pay enough, they end up owing. ...

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