Author: A.T.

I realize this is not the average guy’s or gal’s problem. But an acquaintance of mine recently regained control of his checkbook, after years of having an accountant pay his bills. Some high-income “creative” people do this — sports figures, actors, writers. (In Hollywood, it’s a status symbol.)

It’s also a little crazy, now that a computer can make the whole job so easy. But my friend only recently got into computers, only recently got the software to turn his Citibank account into the kind of account where he can now pay his bills on-line and take control of his life.

For years, all his bills would go to his accountant in New Jersey. And his paycheck would be direct-deposited into an account on which she had signing privileges. He never really looked at any of it. This is the joy of having someone else do it for you if you’re creative. And it cost him “only” 5% of his income — the standard fee for this service — which worked out to around $10,000 a year. Not being a deductible expense, that meant he had to earn nearly $20,000, before federal, state and city taxes, to pay for it.

After endless prodding, he finally did the uncreative thing. He terminated the accountant and started paying his own bills. Now that he’s set up with the computer, it couldn’t be more than an hour or two a month, tops — 25 hours a year to “earn” the extra $20,000 (pre-tax) she was costing him. Not bad: $800 an hour.

But it’s better than that, because in taking control of this himself he noticed some things his accountant hadn’t. For example, he noticed he’d been paying for a health club membership he hadn’t used in years. Oops. There was a couple thousand dollars down the drain.

Obviously, this is not a problem most of us have. But it does speak to the value of taking control of your own finances, running your eye down your own credit card bill to see if you’re still being charged for some $9.95-a-month service you long ago stopped using, let alone a $600-a-year health club membership.

Hey: it ain’t easy being creative!

Tomorrow: Borrowing Tip

Yesterday I scared you with a few words about check fraud. I don’t know if I scared you enough to get you actually to reconcile your checkbook promptly each month, but I tried.

Today, a story my good friend Sherman Robbins uncovered for South Florida Magazine. “A shivering vagrant who had crawled into an Alamo Rent-A-Car trash container one evening,” writes Sherman, “left his shelter next morning with credit card information on the company’s customers. For $30 he rented a mail drop, and soon he was dialing the toll-free numbers of mail-order computer vendors.”

He ordered a ton of stuff, sold it to pawn shops, and made enough money to rent a nice apartment. (That’s one solution to the homeless problem.) Unfortunately (if you’ve chosen to root for the vagrant), he tripped himself up. He tried to use the same card number a second time, and Fort Lauderdale Detective Kevin Allen nabbed him.

“Most Dumpster divers are professionals who know what they’re looking for,” Sherm quoted Detective Allen, “but this guy wouldn’t even have known how to turn on a computer.”

Moral: “Reconcile” your credit card statements, too — or at least verify each of the charges when the statement arrives. This is especially true if you’re one of those people who has someone else — an accountant or a spouse — pay the bills. They may just assume you really did buy a computer or some new clothes, when you and I know you did nothing of the kind.

Tomorrow: Problems of the Rich and Creative

Watch where you keep your blank checks. Hide them! There were more than a million cases of check fraud in the U.S. in 1993. If someone filches a few checks from the middle or the back of your checkbook, it could be months before you noticed, if ever. Then it’s just a matter of getting your signature (how hard is that? They may already have it from a letter or check you paid them with already, or by grabbing a piece of outgoing mail from your mailbox) and forging the check.

The best way to catch fraud: Reconcile your checkbook promptly each month. Better still, switch to an on-line checking account of the type now becoming available through Citibank or linked through Quicken or Managing Your Money. You’ll be able to see your transactions promptly — and spot any that seem bogus. What’s more, most of them will be electronic to begin with. No checks, no check fraud.

Also, make a note someplace of the checks you’ve got in your wallet, so if it’s stolen you know which are gone and can stop payment without having to close out your whole account. Each time you grab some new blank checks for your wallet, update that note. (A good place for it: right there with your main stash of checks.)

Yes, your liability is limited when it comes to forged checks. But that assumes (a) you even notice you’ve been robbed (if you don’t reconcile, you may never know) and (b) that you ignore value your time (straightening out a mess like this can be a nightmare).

Tomorrow: Dumpster Divers

I collect quotes and snippets.

“Many [New York City co-operative apartment building managing agents] promote arbitration and mediation. This would prevent cases like the recent one in which $130,000 in legal fees were exhausted to decide who should pay for window bars costing $924.” — The New York Times, October, 1995

I like this one because I’m working this month to help California pass three ballot measures — Props 200, 201, and 202 — that would modestly discourage unnecessary litigation.

”Don’t worry about people stealing your ideas. If your ideas are any good, you’ll have to ram them down people’s throats.” — Howard Aiken

Part of the problem we’re having in California.

“If you think it’s messy there,” said Albert Einstein of his paper-strewn office, “you should see it up here,” he smiled, pointing to his head.

If only we could get him to endorse our three Propositions. We have the chairman of Intel and the co-creator of Quicken and the co-creator of Managing Your Money (well, me) and Peter Norton of Norton Utilities and half the CEOs in Silicon Valley. But Einstein? Can you imagine the weight he would carry in the high tech community? And in the community at large? The lawyers have Ralph Nader on their side, and that sways a lot of people (it used to sway me, too, but on this issue Ralph is wrong). But Einstein? No contest. Einstein would score a first-round knock out.

Tomorrow: Check Fraud

The thing is: We already have a flat tax. It’s called the Social Security tax. For more than half of us, it’s actually a bigger bite than the income tax. And, amazingly, it’s not just flat. As Michael Dukakis and others have pointed out, it’s downward sloped. Above a certain level, you don’t have to pay it.

For someone who earns $20,000 a year, it’s a flat 7.65%. For someone who earns $1 million a year, it works out to just one half of one percent. (Double both those percentages if you’re self-employed.)

The tax is 7.65% on the first $62,700, or about $5,000. Then it stops. On $1 million income, it’s still about $5,000 — one half of one percent.

Actually, it’s no longer quite so stark. A few years ago the ceiling was removed on the taxable Medicare portion of the Social Security tax. That portion (1.45%, or 2.9% if self-employed) now applies to every dollar we earn.

But the bulk of the tax cuts out at $62,700.

And we don’t pay any Social Security tax on investment income. So here is a tax that a family of four scraping to get by on a $20,000 income pays, but that a nonworking millionaire earning $185,000 a year on his investments does not.

Now, I know the reasons for this. I know the historical background. I know that Social Security benefits top out at a certain level, so it’s not fair to have a high-income person pay more for his or her benefits than a lower income person.

But I also know that America is not guaranteed a bright future; we have to make it happen. We have to find the resources to balance the budget (or come fairly close), yet build a nation of well educated, skilled, reasonably harmonious, happy healthy citizens — or else slide gradually into the sort of economy with some superrich at the top, a small merchant class in the middle, machine-gun toting guards at the edges of our gated communities, and everyone else outside, scampering out of the way as our limos drive through the crowded streets.

To find the resources we need, we may have to look to those who have the resources, whether it’s done through charities and orphanages or through a graduated income tax.

And now that Social Security is such a huge part of the national tax structure, attention might rightly be paid to the notion that it’s not only not graduated, it slopes downward. The more you make, beyond $62,700, the lower the percentage you pay.

I know I’m swimming against the tide here. But there are an awful lot of people working very hard to make ends meet, unable to save anything, who in an earlier era, working this hard, would have been more comfortably middle class.

If we drive the great middle-middle class into the great lower-middle class and the great lower-middle class down to the poverty level, at some point the votes might be there to raise tax brackets on the rich back up to counterproductive, vengeful levels — like the 70% rate that prevailed until 1980.

If we think it’s OK for a family earning $35,000 a year to pay a flat 7.65% in Social Security tax — tough, but necessary — then perhaps a family earning $400,000 would be able to afford it, too.

Tomorrow: Einstein

A reader writes: “In your disclaimer, you make a point of saying that most people should be in no-load mutual funds, not individual stocks. I would be quite interested in hearing your criteria for when individual is better. The big advantages I see for individual stocks are better control of taxes and better capability to allocate assets into various classes.”

Good question. It’s true that “tax-control” has its advantages.

For example, if I have a stock that goes up five-fold (I don’t have many) and another that goes to zero (I have quite few), I can give the big winner to charity — which is a cheaper way to give than giving actual cash — and sell the other for a tax loss, deductible up to $3,000 a year against my ordinary income. In a mutual fund, the gains and losses might have largely cancelled each other out, giving me little tax advantage in giving shares of the mutual fund to charity (since I might have only a modest capital gain in those shares overall), and no tax advantage from the loss within the fund (unless I sold my fund shares at a loss).

I’m not sure I buy your other “big advantage” — “better capability to allocate assets into various classes.” I think you can do most of the asset allocating you want by choosing the right funds.

Other advantages to going it alone choosing individual stocks: it’s more fun and interesting, and that may be worth something to you (although it’s not so much fun if you do really badly at it, as more than a few bright people do) . . . you can sometimes take advantage of your expertise in a particular niche (but do be careful of abusing inside information) . . . you can sometimes beat the pros, either because you’re just really good at investing (but few can, including few pros) . . . you can tread where most mutual funds dare not — namely, the stocks of companies too small for most funds to invest in (but these can languish for years and are often the riskiest stocks with the highest “transaction costs” for getting in and out — the widest spreads between the bid and the asked).

If parts of this comment are hard to follow, please feel free to ask more questions! On this, or any other topic. My answers will normally worth about what you pay for them.

Tomorrow: We Have a Flat Tax

Welcome to my “daily comment.” The ground rules Ceres and I have agreed to are simple. I can write whatever I want, ranging from a sentence to an epic, and nothing is off limits. I can even say things like, “Don’t trade stocks yourself — for most people, it’s smarter to invest through no-load mutual funds.” Which it is.

By the time you read this the excitement will be over, and the helicopters will be back in their hangars, but picture the scene:

My mother — the kind of energetic optimist who can get cars with frozen batteries to start when no one else can (“the triumph of black magic over science,” said my father once, years ago, after he had given it up as impossible and called Triple-A), and who sees almost any glass as more than half full — is leaving for a long cruise. Where you or I would be worried about passports and visa requirements (the cruise stops in Vietnam; do you need a visa?) and how much to bring and a million other things, she is worried that she will be gone the day they pick the Publishers Clearinghouse Sweepstakes winner. Because you know, she tells me, you have to be home to win. I don’t know if this is true, but she believes that if you’re not there to jump up and down for the camera, they’ll pass you by.

She is kidding, I assume, and even she must realize on some level she is kidding. But after the third or fourth time she mentions this, I suggest she simply end her phone machine message with, “. . . and if this is the Publisher’s Clearinghouse Sweepstakes, call 011-873-110-4507 and we will return immediately.” And so she does exactly that.

It’s very expensive calling “ship to shore” (or, in this case, shore to ship). But the assumption is that with $10 million at stake — or $11 million, which was the other prize she had signed up for — someone can spring for the $10-a-minute call. At which point Mom would say, “Stop the ship! Get me a helicopter! I’ve got to get home for Ed McMahon!”

Just what they will make of this in Ho Chi Minh City I have no idea.

For three weeks, anyone who called got that message, even after the Super Bowl (and the prize winner announcement) were long over. And no, she didn’t win. This year. But she came awfully close. (Like everyone else, she made “the final round.”) And she was ready.

I don’t participate in the Sweepstakes myself because the cost — a 32-cent stamp — exceeds the expected return. (Ten million dollars spread out over 20 years is worth about $5 million today before taxes, maybe $3 million after. If 20 million people send in the sweepstakes form, then the chance of winning is worth one twenty-millionth of $3 million, or 15 cents — a net loss of 17 cents. I don’t actually know that 20 million people DO send in the form, but in the interests of time, I have decided not to research this more thoroughly.)

I also suspect that the computer that chooses the winner is programmed to nix certain zip codes, like 90210 (Beverly Hills) and 10021 (Manhattan’s Upper East Side), because the image of Leona Helmsley or Zsa Zsa Gabor jumping up and down when the cameras arrive to inform her she’s won may not be the sort of shot they’re after. I don’t happen to live in one of those zip codes, but I still don’t picture them coming to my door.

Tomorrow: Tuna Prices