Friday Financial Five – December 11, 2015
Friday, December 11, 2015
Small businesses face an uphill battle, as less than 20 percent of new businesses survive five years and less than 40% of solo owners make more than $25,000 per year. To ensure viability, owners should evaluate corporate structure yearly, from a liability, cash flow, and tax perspective. Many small businesses are shifting health care plans toward the coupling of high-deductible and Health Savings Accounts. Managing risk involves business interruption and key man insurance and the formulation of a succession plan. Finally, owners may set up a retirement plan and forget it, unaware that there may be a better option that helps from a savings and tax perspective.
Job creation may not mean higher property growth
According to recent lists of hot real estate markets for 2016, there seems to be minimal connection between cities that are growing jobs and areas expected to experience the highest real estate appreciation in 2016. Fortune cites a Realtor.com prediction that Providence, RI and St. Louis will lead the pack of growing cities. San Diego and Sacramento round out the top 4 and Boston comes in tenth. A separate projection from a Trulia economist expects Grand Rapids, MI to lead the way, with Charleston, SC and Austin, TX placing behind. Compare this with the Milken Institute’s “2015 Best Performing Cities” (http://www.best-cities.org/best-performing-cities-press-release-2015.html ) which ranks locations that create and sustain jobs. That list is technology heavy, with San Jose and San Francisco on top. Austin does appear at number three, but the remaining cities appear absent from several lists of expected real estate growth.
CBO reviews the budget and it isn’t pretty
According to the Congressional Budget Office, fiscal year 2016 started off with a $200 billion deficit. That represents a deficit $22 billion higher than from the same period last year. Tax revenue increased by three percent, while spending increased by six percent. Workers paid an increase of $16 billion in income and payroll taxes while corporate taxes decreased. Meanwhile, Social Security, Medicare, and Medicaid spending increased by a total of $21 billion.
Large bank cross-selling under scrutiny
As the Federal Reserve continues to make big-bank oversight tougher and more uniform, any new methods financial institutions use to generate income will come under higher scrutiny. “Cross-selling” is the practice of trying to sell an established customer another product from a different business line. For banks’ that engage in multiple lines of business, high pressure sales are not looked upon favorably, especially for proprietary products. In a bit of good news for big banks, Bank of America finally passed the 2015 stress-test after revision of the company’s capital plan. The Fed noted it is still looking for continued progress in 2016.
Getting more bang for the bank buck
Any opportunity to boost bank interest income should perk up depositors. An option for consideration is MaxMyInterest, a technology driven cash management system that systematically allocates cash to accounts with the best interest rates on FDIC insured bank deposits. Not only will interest income increase, but this removes the hassle of constantly monitoring changing rates or managing cash balances manually. Consumers still maintain their accounts with “bricks and mortar” banks, but the program treats all linked accounts as one virtual account. The system’s “optimization engine” continually shifts cash to the best rates offered, while keeping the balance at each bank at $249,500 to ensure each account has the maximum FDIC insurance coverage. Subscribers can still maintain full control over accounts, but there is a membership fee auto-deducted on a quarterly basis.
Dan Forbes, a CFP Board Ambassador, is a regular contributor on financial issues. He leads the firm Forbes Financial Planning, Inc in East Greenwich, RI and can be reached at [email protected].
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