Friday, September 22, 2006

What Would I Do With $1 Million?

Yesterday on Free Money Finance, FMF asked What Would You Do with $1 Million? That is a powerful question. For a lot of people that have financial problems, this situation would seem to be a blessing. However, there are a lot of people who receive windfalls and are soon in the same situation. Remember the old saying, "a fool and his money are soon parted."

So, what would I do? Well, there are plenty of things that I would like to do. Following is a list of the things I would definately do:

  • Pay off my mortgage
  • Pay off all other outstanding debt, except for my student loans
  • Begin gifting $10K a year to each of my three children
  • Make a one time gift of $10K each to my mother-in-law and father-in-law
  • Begin fully-funding my own IRA and my wife's IRA
  • Max out my contributions to my 401(k) (I currently contribute enough to get the full employer match
  • Put $50K in some I-Series US Savings Bonds
  • Feel much less stress at work

Now, I would definately keep working at my current job, at least until I am fully vested in the profit-sharing match in my 401(k), which is substantial (one more year, here we come). So, in one year, I would be me down about $208K in disposable cash from that $1 million, not considering taxes. But what would I do after that? Well, ~$800K, minus taxes, would not be enough to live off of for the rest of my life, I don't think (even considering that my 401(k) would be about $100K, the $50K in the savings bonds, and my children having substantial cash).

On my future wish-list, I want to complete an MBA and a JD. I am considering Indiana University for each, as they are not Top Ten, but they are very good (Top 25) and very afforable and convenient (within 20 minutes drive), for those programs. However, I always wanted to attend Notre Dame. So, I could see myself pursuing one or both programs at Notre Dame. I already plan to semi-retire at 35 for a few years (nine years from now) in order to attend law school, so this would make it much easier, and possibly sooner.

One of the goals that my wife and I hold is to take care of her parents. While we are fairly young (almost 26), her parents were on their second families when she came along, so they are getting very close to the retirement years and have saved very litte (that is what a combined eight children will do to your savings if you aren't already wealthy). So, we have been looking for land and a home that would give us the space we will want, and need, to live comfortably and have them with us. So, we would probably begin that process. I have this soft spot for not filling up all the land in the world with little vinyl villages. I live in the Metro Indianapolis area, and considering that it is the 13th largest metro area in the US, there is still rural farm land where I live, but it doesn't appear that this will stand true within the next ten years. I want to buy up a decent chunk of land and develop it, but I want to space out the houses and keep mature trees and green area around. The ideal situation would be able to have lots between 3 and 5 acres in size. I would also like to become the "utility company" for this development. I would handle everything expect for natural gas. I would want a decent sized creek on the land and be able to build a dam for some hydro-electric power, and throw up a few solar panels. We would require that all homes be designed for passive solar efficiency, use only CFL or LED lighting, and use Energy Star rated appliances. I would also run Internet, telephone, and television service for the community over fiber-optic cabling. This is a dream that I think I could make happen without a $1 million windfall, but it would be a heck of a lot easier with it in hand (so I wouldn't have to find willing investors).

Early on, I would probably look for a few investment properties near college campuses that could generate a little positive cash flow. These are properties that I think are still quite sound investments, although it really depends on the nature of the campus. Indianapolis has a very large campus and several small campuses in town. However, none of them have a substantial amount of dorm space available, since many students usually live in-town with their parents, or are adults going back to school. This leaves a great opportunity for rentals for college students. Obviously, being college students, there are many potential headaches, but c'est la vie. I would let a property management company handle it as much as possible. And given the nature of the area, the colleges have offices for housing and they deal with rental properties often, given their low number of dorms.

That is probably what I would do. If I did leave my job in a year, however, I would either work for myself or move to an upper-level IT management position, as that is my next work goal, anyhow. And, yes, that probably seems very ambitious, to say the least, for someone that is nearly 26, but I have been working professionally in IT (meaning not as a hobbyist) since three months after I was 18. So, given my age, I have a long work history in my field, and I now have college (mostly... still have three courses left), certifications, connections, and experience under my belt.

Wednesday, September 06, 2006

More Buzz Around Executive Pay

Well, the 2006 election cycle is in full swing now since the Labor Day weekend. We will probably see a lot of legislative "miracles" in the coming weeks. There have been some serious cries from the Left about executive pay packages. There is a certain appeal involved with being critical of executive pay. Surely, these executives are making more money than they can ever spend, so why should they be getting paid this much when so many people are struggling to get by?

Truth be told, as a stockholder, I am not too thrilled with some of the exhorbinant pay packages for executives. I would like to see more money paid out in the form of dividends. However, I do not hold much weight in corporate voting because I do not hold a large enough stake in any company. Honestly, I only own stock in one company, directly; the rest of my ownership is through mutual funds and index funds. The executives of these companies tend to have a pretty large chunk of stock vested in their employer, so they have considerable pull, themselves.

Senator Charles E. Grassley (R-Iowa) is proposing the repeal of a 1993 tax break that makes executive pay over $1 million to be tax deductible if it is tied to performance. Please note, in most all situations, employee pay is deductible as a business expense, so this is not something that was made especially for executives, and not normal employees; as a matter of fact, this was meant to provide a compromised way to end special legislation made against executives. Effectively, companies are paying their executives with stock options to get around paying a lot of taxes. And further, executives get the ability to have lower tax rates with this approach because they get their personal revenues from capital gains, rather than a salary. This allows them to by-pass a lot of standard income tax, as well as some payroll taxes. This has never been more apparent than in situations where executives are only taking $1 in salary. Strictly speaking, these stunts are mostly public relations tools, and the rest of it is for tax benefits to the employee and the employer. Ironically, the executives that tend to pull the "benevolent" $1 salaries tend to be the more liberal bunch that just want to put on a dog-and-pony show to put them in the good graces of their loyal followers. Examples include Steve Jobs (Apple and Pixar), and Eric Schmidt, Larry Page, and Sergey Brin (Google).

So, the big debate is that more rich people are getting out of paying their "fair share" of taxes. Considering that the absolute majority of taxes are paid the wealthy, I just don't buy that. The politicians on the Left are putting on their own dog-and-pony show pretending that they care about the poor and middle class in an effort to buy votes. While the Democratic Party seems to be leaning to the left, I still think the politicians are out more for their own personal well-being than anything. So, they scream about executive pay and they get their constituents all worked up, and hopefully earn some more votes. But, they are not the only politicians putting a dog-and-pony show. Senator Grassley, a Republican, is doing just that by proposing this repeal. The reasoning cited here is that the government could get more tax revenue from this situation. However, given the findings, it would only generate about $3 billion in additional revenue by taxing the extra $10 billion from these corporations. To average citizens, $3 billion sounds like a lot of money... and it certainly is. However, in the grand scheme of things, the Federal Budget, it is a miniscule drop in the bucket that will have nearly a zero sum effect. So, this is just more evidence that this is another dog-and-pony show. The only effect I can see from this is that the stock market is going to take a hit from it, like it always does when congress is in session; and that is going to hurt average citizens who are trying to save for their retirements in 401(k) and IRA plans.

Saturday, September 02, 2006

IRS Telephone Tax Refund

On May 25, 2006, the IRS announced that it would be refunding taxes paid on long-distance services paid after February 28, 2003 and before August 1, 2006. This is a refund of an excise tax that was instituted during the Spanish-American War. The refund is available to all taxpayers who paid this tax (individuals, businesses, and non-profits). It appeared that it would be a difficult task for many individuals, as they may not have saved their bills; that is, until a few days ago.

On August 31, 2006, the IRS announced Standard Amounts for Telephone Tax Refunds. Essentially, this change allows individuals to claim a standard amount of $30 for the telephone tax refund, without itemizing or providing documentation. You can claim $40 if you have two exemptions, $50 if you have three exemptions, and $60 if you have four or more exemptions.

There will be one line to claim this deduction on the 2006 tax forms. And remember, this will only be for 2006. If you have any questions, you can email the IRS at, or you can visit the Telephone Tax Refund Questions and Answers page.