Payoff Debt: Avalanche or Snowball

Posted on May 3, 2012 by fulcherben

There are three ways to get out of debt, pay it off per the loan agreement, debt snowball, or a debt avalanche. We all know about having to pay off debt the normal way (well most of  us), so we aren’t going to cover that. However, we are going to talk about the advantages and disadvantages of these two different debt payoff methods.

The first and most common way is called a debt snowball, this method was made popular by Dave Ramsey. The way to use a debt snowball is to pay your minimum payment on all your debts, but then pay as much as you can afford to the debt with the smallest balance. After you eliminate the smallest debt apply what you were applying to the smallest debt and apply it to the next biggest balance. This debt snowball will continue by taking out larger and larger debt balances as it continues, kinda like a snowball rolling down a hill (ha ha). The advantage of using the debt snowball is the psychological victory of seeing debts disappear.The downside to the snowball is that you typically pay more interest than with the avalanche method.

The debt avalanche is very similar to the debt snowball but has a small mutation. Instead of paying extra on the smallest balances you pay more towards the debt with the highest interest rate, these would be considered your most damaging/expensive debts. After eliminating the high interest debt focus your payments on the debt with the next highest interest rate.  Using the avalanche method is a more efficient and economical. The downside is that you don’t get the mental victory of getting small balances out of the way.

Both methods are effective debt pay down strategies. Which one is best for you? Well that’s for you to decide. You can use Unbury.me to simulate how each of these methods would work with your particular situation.

Posted in Debt Advice | Leave a comment

Free Ebook

Posted on April 29, 2012 by fulcherben

Recently, I was contacted by a man named Alan Akina. Alan had just finished writing a book and wanted to offer it you the readers here at Cents of Freedom. His book is called, The Super Duper Simple Book on Money. I looked over it and it is an easy read with some great financial resources included. On Tuesday May 1st, you can get a free copy of this e-book at www.superdupersimplebooks.com.

Posted in Uncategorized | Leave a comment

CPA Exam: Regulation

Posted on April 25, 2012 by fulcherben

Regulation covers two broad topics of business law and taxation. The American Institute of Public Accountants (AICPA) set what are called content specification outlines (CSOs). These outlines let you know how each topic will be covered on the exam and in what proportions.

The Regulation CSO is:

  • Ethics, Professional, & Legal Responsibilities (17%)
  • Business Law (19%)
    • Agency
    • Contracts
    • Uniform Commercial Code (UCC)
    • Debtor-Creditor Relationships
    • Government Regulation of Business
    • Business Structure
  • Federal Tax Process, Procedures, Accounting, & Planning (13%)
  • Federal Taxation of Property (14%)
    • Types of Assets
    • Basis and Holding Periods
    • Cost Recovery (Depreciation etc.)
    • Taxable and Nontaxable Sales and Exchanges
    • Amount and Character of Gains, Losses, and the Netting Process
    • Related Party Transactions
    • Estate and Gift Taxation
  • Federal Taxation of Individuals (16%)
    • Gross Income (Inclusions & Exclusions)
    • Items from Pass-Through Entities
    • Adjustments and Deductions to Arrive at Taxable Income
    • Passive Activity Losses
    • Loss Limitations
    • Taxation of Retirement Plan Benefits
    • Filing Status and Exemptions
    • Tax Computations and Credits
    • Alternative Minimum Tax (AMT)
  • Federal Taxation of Entities (21%)
    • Similarities and Distinctions in Tax Treatments
    • Differences Between Tax and Financial Accounting
    • C Corporations
    • S Corporations
    • Partnerships
    • Trusts and Estates
    • Tax Exempt Organizations

The regulation exam is 3 hours long and contains 3 testlets of 24 multiple choice question and one simulation with 6 tasks. The multiple choice portion of the test is weighted 60% and the simulation is weighted 40%

Posted in Uncategorized | Leave a comment

What is a CPA

Posted on April 22, 2012 by fulcherben

A CPA is a Certified Public Accountant. A CPA is licensed to practice accounting for the public. In our society CPAs do many tasks and provide many services, but they are known for three main services. These services are Tax, Assurance, and consulting.

Most of you are probably familiar with the services that a CPA provides in the tax arena. They help us avoid running afoul with the IRS and to stay in compliance with our obtuse  tax code. Some common tax services that CPAs provide is individual tax returns, corporate tax returns, estate planning etc. Some of the services involved in taxation involve calculating basis, taxable gains, and taxable income.

Assurance services is a large umbrella that includes other services including attestation services and audits. Assurance services help to improve the quality of information for users. A good example of an assurance service is in the state lottos, CPA firms will make sure that the procedures of the lotto do things like make sure all the balls are the same weight, and that the procedures provide for a fair drawing. An attestation service is when a CPA reports on the reliability of financial information prepared by someone else. An Audit is when a CPA reports on the presentation of financial statements. Governments and publicly traded companies are required to provide financial statements yearly and the CPA do tests to look for large errors or frauds in the financial statements. CPAs are the only ones licensed to give an opinion to the public on financial statements.

The last and broadest service that CPAs provide is advisory services, or more simply consulting. Due to a CPA’s knowledge of business processes and environments it provides them with the knowledge to consult with people about many different financial and business decisions.

Posted in Uncategorized | Leave a comment

Get Exposure to Stocks.

Posted on April 18, 2012 by fulcherben

In the long run stocks are the key to building wealth, and should be a part of your savings plan. Today, the stock market is much more accessible than it was twenty years ago with the spread of the Internet and personal computers. Today, there are so many different vehicles to invest in stocks it can be dizzying. Each investing avenue has its own advantages and disadvantages. There are four main ways to invest in stocks brokerage account, mutual fund, ETFs, and DRIPs.

Brokerage accounts provide the most flexibility to you the investor, but also the most responsibility. A brokerage account allows you to pick which companies you want to purchase stock in. When you deposit money into your brokerage you communicate to your broker what stocks you want them to purchase or sell, and they charge you a nominal fee called a commission. Brokerages allow great flexibility to access the stock market. The downside to the brokerage choice is the responsibility of evaluating the companies that you choose to invest in.

Mutual Funds are probably the predominate way to invest in the stock market. A mutual fund is a vehicle that allows people to pool there money together to purchase large baskets of stock. Mutual Funds are run by a fund manager that is responsible for choosing the what to invest in. Fund managers will choose a strategy whether it be growth, value, dividend payers, large cap, small cap, etc. The advantage of mutual funds is a set it and forget it way to invest since the fund manager is responsible for investing the money. Some  of the downsides include management fees, and minimum initial investments.

ETFs have become much more popular in recent years. ETF stands for exchange traded funds. An ETF is very similar to a mutual funds were you can invest in a large basket of stock. The key difference is the fact that the funds are traded on an exchange. This means that you can buy and sell ETFs through your brokerage. ETFs provide tax and accessibility advantages that you wont find in these other investment alternatives.

DRIP stands for dividend reinvestment plan. These are often run by large companies that allow you to invest in their stock and they will reinvest your dividends in the stock. This is a popular set it and forget it method. The downside is that you don’t get access to multiple stocks, also the companies that you can invest in is limited.

These are the predominate ways to invest in stock and each has its advantages and disadvantages. Which is best for you? Well you or, you and your investment adviser should figure that out. However, now you have some options to start looking into.

Posted in Stock Investing | Leave a comment