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The Inevitable: Understanding the 12 Technological Forces That Will Shape Our Future









    There are 12 technological forces that will shape our future. Click links to see videos by Kevin Kelly discussing each of the 12 forces:

    1. Becoming – everything we make is changing
    2. Cognifying – we are making things smarter
    3. Flowing – every business is a data business
    4. Screening – screens will be on everything
    5. Accessing – switch from ownership to accessing
    6. Sharing – we are are going to share at a planetary scale
    7. Filtering – too many new things; not enough good personalized filters
    8. Remixing – unbundling and recombining of what’s best to make something better
    9. Interacting – all products will actively interact and engage with us or else they will be dumb
    10. Tracking – anything that can be tracked will be tracked
    11. Questioning – since answers are free questions are now more valuable
    12. Beginning – 20 years from now we look at today and realize that this was just the beginning

    Becoming

    • The world is in a protopian mode and things are better today than they were yesterday, although only a little better.
    • Technology is a slow creep of incremental improvements and mild progresses that ultimately add up to something large.
    • What we all missed with the internet is that formerly dismissed passive consumers have now become active creators of content.

    Cognifying

    • We are making things smarter every signal day.
    • The advantages gained from cognifying inert things will be 100x more disruptive to our lives than the transformations gained by industrialization.
    • The playbook over the next couple of decades will be to “take X and add AI” to it.
    • The three largest breakthroughs for AI come from the following:

      1. Cheap parallel computation
      2. Big Data
      3. Better Algorithims

    • Over the next 10 years, 99% of AI will be narrowly specific and the next couple of decades will go as follows:

      1. First machines will consolidate their gains in already automated industries
      2. Next, more dexterous chores like cleaning offices and schools will be taken over by late-night robots
      3. By 2050 most truck driving will be non-human

    • The cycle of how robots will replace humans will go as follows:

      1. Jobs humans can do but robots can do even better
      2. Jobs humans can’t do but robots can
      3. Jobs we didn’t know we wanted done
      4. Jobs only humans can do at first

    • All of this is a positive. Industrialization extended the average human lifespan. Cognifying will expand the realm of leisurely work.

    Flowing

    • We have moved fro daily to real-time as the default mode and thus the prime units of measure are flows and streams now… Think Twitter.
    • Eternal constant flow of data will be the new norm and content will become “freer”
    • In the state of flow, copies will become ubiquitous and things that can’t be copied will have more value like trust
    • How can one still add value in a world where content is freely copied:
      1. Immediacy
      2. Personalization
      3. Interpretation
      4. Authenticity
      5. Accesibility
      6. Embodiment
      7. Patronage
      8. Discoverability
    • The Four Stages of Flowing:
      1. Fixed. Rare
      2. Free. Ubiquitous
      3. Flowing. Sharing
      4. Opening. Becoming

    Screening

    • Cover the world in screens and see what human ingenuity can do.
    • A world with screens everywhere will lead to a world that is deeply interconnected (even more so than today).
    • Two major projects that will be undertaken over the next decades:
      1. Digital interlinking of literature – think networked reading
      2. Universal digital library

    Accessing

    • We will switch from ownership of property and goods to subscribing to access of property and goods.
    • Five major trends that are leading to this increase and rush towards access over ownership:
      1. Dematerialization
        • The amount of mass needed to produce one unity of GDP has fallen from 4 kg in 1870 to 1 kg in 1930.
      2. Real-Time on Demand
        • There are more ways to be a service than there are to be/develop products and our appetite for instant is insatiable.
      3. Decentralization
        • The decentralized internet has now become a central public commons.
      4. Platform Synergy
        • Think multi-sided platforms —> Apple, Microsoft, Google, Facebook.
      5. Clouds
        • The cloud is really just hyperlinked data with outstanding computational reliability .
    • As we continue to increase dematerialization, decentralization, simultaneity, platforms, and the could, access will continue to displace ownership.

    Sharing

    • We are moving towards a new socialism or dot-communism where our workforce is composed of entirely free agents.
    • The four levels of digital socialism are:
      1. Sharing – mildest form of digital socialism
      2. Cooperation
      3. Collaboration
      4. Collectivism 
    • Rather than viewing technological socialism as one side of a zero-sum trade-off between free-market individualism and centralized authority, technological sharing can be seen as a new political operating system that elevates both the individual and group at once.
    • The goal of sharing technology is to maximize both the autonomy of the individual and the power of people working together.
    • The power of sharing is not just about the nonprofit sector. Three of the largest creators of commercial wealth in the last decade – Google, Facebook, and Twitter – derive their value from sharing.

    Filtering

    • In a world of abundant information, human attention is scarce.
    • In the U.S. TV still captures most of our attention.
    • The average cost to consume one hour of media to the consumer was $3.08 in 1995, $2.69 in 2010, and $3.37 in 2015.
    • The BIG OPPORTUNITY is to harness filtering technology to cultivate higher quality attention at scale.
    • “We will use technology to produce commodities, and we’ll make experiences in order to avoid becoming a commodity ourselves.”

    Remixing

    • Remixing is the rearrangement and reuse of existing pieces.
    • In 30 years, the most important cultural works and the most powerful mediums will be those that have been remixed the most.

    Interacting

    • The dumbest objects will be vastly improved in the future with sensors to make them interactive.
    • Anything that is not intensively interactive will be considered broken over the next 30 years.

    Tracking

    • Self tracking turns us into a quantified self
    • The constant-stream of data flowing form all of our sensors will eventually lead to a need for new and more sensors.
    • Everything we do will show up in our Lifestreams.
    • We are on our way to manufacturing 54 billion sensors every year by 2020.
    • Metadata is the new wealth because the value of bits increases when they are linked to other bits.
    • 5 years ago humanity stored several hundred exabytes of information. This is the equivalent of each person on the planet having 80 Library of Alexandria.
      • Today we average 320 libraries each.

    Questioning

    • Cisco estimates that there will be 50 billion devices on the internet by 2020.
    • Even though our knowledge is expanding exponentially, our questions are expanding exponentially faster. 
    • Questions are the new power currency in the future with answers free, cheap and quick.

    Beginning

    • We a knitting a large scale global platform of connected devices, people, and companies. We are at the Beginning of the Beginning.
    • Right now, in this Beginning, this imperfect mesh spans 51 billion hectares, touches 15 billion machines, engages 4 billion human minds in real time, consumes 5 percent of the planet’s electricity, runs at inhuman speeds, tracks half our daytime hours, and is the conduit for the majority flow of our money.

    Brian Nwokedi’s Book Review on Goodreads
    Brian Nwokedi’s Twitter

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    Three Apartments … Need to Choose One

    Purpose of this article: to help a graduate school student choose between three apartments.

    Overview:

    Sienna Nelson is on her way to UT Austin College of Pharmacy this coming Fall where she is pursuing her Pharm.D. degree. As mentioned before, the estimated total cost of attendance is $172,886 of which about $88,000 is budgeted for her cost of living (about $22,000 a year).

    With a tight living budget, Sienna is trying to decide between three apartments with different monthly costs, levels of amenities, and distance to school.

    Below is a quick cash outflow analysis created to help her decide which apartment to go with. Excel file has been attached below and can be sent upon request.

    Apartment 1: $945 monthly rent, no laundry or dryer:

    Apartment 1 is a 5-minute walk from the bus stop that Sienna will take into school each day. Since she is very close to the bus stop, her plan is to save on fuel costs by walking to the park and ride each morning and taking the bus into school each day. The good thing for UT Students in Austin is that bus transportation is free for all students with an I.D.

    Because her apartment under this scenario is a 5-minute walk from the bus, Sienna will walk to the park and ride each morning and not incur any additional travel cost.

    Since her apartment under this scenario doesn’t have a laundry or dryer machine in her unit, she will have to use the shared laundry and dryer machines downstairs. We estimate that it will cost her $30 a month. On top of that, every 3 months she will have to spend an additional $26 on detergent and dryer sheets.

    Apartment 1, laundry, and travel to school each day is estimated to cost Sienna $11,752 each year. Over the next four years of school, that equates to $47,008.

    Please note that these costs do not include utilities like electricity, heat, a/c, cable and internet, as we assume these expenses would be roughly the same in each scenario since the apartments are similar sized.

    Apartment 2: $1,033 monthly rent, laundry & dryer:

    Apartment 2 is a 1-mile drive from the bus stop that Sienna will take into school each day. Since she is semi-close to the bus stop, her plan is to save on fuel costs by driving a short distance to the park and ride each morning and taking the bus into school each day. The good thing for UT Students in Austin, is that bus transportation is free for all students with an I.D.

    Because her apartment under this scenario is 1-mile away from the bus stop, Sienna will need to drive to the park and ride each morning. We estimate that will cost her $6 a month in fuel.

    Since her apartment under this scenario does have a laundry and dryer machine in her unit, she will be able to save some. We estimate that it will cost her $8 a month in energy to wash and dry her clothing. On top of that, every 3 months she will have to spend an additional $26 on detergent and dryer sheets.

    Apartment 2, laundry, and travel to school each day is estimated to cost Sienna $12,611 each year. Over the next four years of school, that equates to $50,445.

    Please note that these costs do not include utilities like electricity, heat, a/c, cable and internet, as we assume these expenses would be roughly the same in each scenario since the apartments are similar sized.

    Apartment 3: $940 monthly rent, laundry & dryer:

    Apartment 3 is a 3-mile drive from the bus stop that Sienna will take into school each day. Since she is semi-close to the bus stop, her plan is to save on fuel costs by driving a short distance to the park and ride each morning and taking the bus into school each day. The good thing for UT Students in Austin, is that bus transportation is free for all students with an I.D.

    Because her apartment under this scenario is 3-miles away from the bus stop, Sienna will need to drive to the park and ride each morning. We estimate that will cost her $18 a month in fuel.

    Since her apartment under this scenario does have a laundry and dryer machine in her unit, she will be able to save some. We estimate that it will cost her $8 a month in energy to wash and dry her clothing. On top of that, every 3 months she will have to spend an additional $26 on detergent and dryer sheets.

    Apartment 3, laundry, and travel to school each day is estimated to cost Sienna $11,639 each year. Over the next four years of school, that equates to $46,557.

    Please note that these costs do not include utilities like electricity, heat, a/c, cable and internet, as we assume these expenses would be roughly the same in each scenario since the apartments are similar sized

    Which Apartment Should She Choose?

    Based on our pure financial analysis, we recommend that Sienna choose Apartment 3. It is -1.0% and -7.7% cheaper than Apartment 1 and Apartment 2 respectively. The summary table below shows a side by side comparison of the total cost of each apartment:

    An argument could be made that Apartment 1 might be worth it holistically to Sienna because the difference in cost is only $113 a year, but it’s much closer to the bus stop and ultimately school. What we can all agree upon is that Apartment 2 is out of the equation and ultimately Sienna now has the tools necessary to make the best decision for herself!

    Everyone’s situation is slightly different but please know that we at Blue Elephant Financial Services are here to help you make the best financial decisions possible.

     

    Excel Link:  Sienna Nelson – 3 Apartment Choices

     

     

     

     

     

     

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    Graduate School is Worth It… Most of the Time

    Purpose of this article: to help you figure out if going back to school for your master’s degree is worth it.

    Bullet Point Summary

    • Graduate school is worth it for most people that pursue business, law, or medicine because these professions have a high degree of pay back.
    • In order for graduate school to be worth it for you, you have to know what you plan to pursue after your graduate degree.
    • You must look at your current income and compare that to your potential future income post graduate degree.

    Overview

    Let me start by saying I have a bias towards graduate school being that I received my master’s degree in business administration. That being said, nowadays it certainly feels as though the bachelor’s degree is no longer enough to get a decent paying job. In 1950, some 34% of adults had completed high school; today, more than 30% have completed a bachelor’s.

    To be clear though, the stats absolutely still show that having a college degree of any kind is better monetarily than not having a degree:

    But there is definitely a glut of young people entering the work force with bachelor’s degrees. So, with bachelor’s degrees so commonplace is the master’s degree worth your time? The long answer is it depends on your field of expertise. Below I will show you a couple examples of some clients of mine who have had to wrestle with this decision.

    Scenario 1: Sienna Nelson, Pharmacy Technician

    Sienna Nelson, 23, is currently a Pharmacy Technician at CVS Health in Houston Texas. Her current yearly salary is $40,000. She has been accepted to the UT Austin College of Pharmacy where she is considering pursuing her Pharm.D. degree. Yearly tuition for this program is $21,126, with an additional $15,638 estimated a year for living expenses, and the degree will take her four years to obtain plus two years of paid residency. After doing some research (see here), she has decided to take out $136,760 in loans from the federal government (interest rate of roughly 6% to 7%), which after four years will cost an estimated $172,886 (includes accrued interest during the time she is in school).

    As a pharmacist, the profession Sienna plans to pursue after her degree, she stands to make on average $130,000, with a low point of $105,000 and a high point of $150,000. Her plan is to pay off her graduate school loans in 17 years. Is graduate school worth it for Sienna Nelson?

    The long and the short answer for her is a resounding YES!

    Assuming that Sienna’s income before graduate school grows at a steady 3% each year (roughly the rate of inflation), in 25 years, she will have a gross yearly income of $81,312 (started at $40,000). Her 25-year period gross earnings will total $1,458,371 (before taxes and living expenses).

    By leaving her current job to pursue her Pharm.D. degree, assuming the same steady 3% growth each year, and a starting salary of $105,000 in year 7 after her residency is completed, Sienna stands to make $2,510,337 after debt repayments (before taxes and living expenses) over the same 25-year period. This includes four years where she makes $0 while in school as well as an average of $49,681 each year over the two-year period when she is in residency.

    Put simply, by taking on $172,886 in debt, Sienna has grown her total 25-year earnings by $1,051,966 or +72%. And even though the total amount she will repay in debt is $226,295 because of the interest, she is still in a much better situation than before. The return on her investment in herself is a whopping +365% and her decision to go back to school is a no-brainer!

    Scenario 2: Natalia Bessemer, Audit Manager

    Natalia Bessemer, 26, is currently an Audit Manager at Ernst & Young in Arlington, Virginia. Her current yearly salary is $75,000. She has been accepted to the University of Virginia, Darden School of Business where she is considering pursuing her MBA. Yearly tuition for this program is $68,350, with an additional $26,674 estimated a year for living expenses, and the degree will take her two years to obtain. After doing some research (see here), she has decided to take out the full $190,048 in loans from the federal government (interest rate of roughly 6% to 7%), which after two years will cost an estimated $216,713 (includes accrued interest during the time she is in school).

    As a brand manager, the profession Natalia plans to pursue after her degree, she stands to make on average $115,000, with a low point of $100,000 and a high point of $125,000. Her plan is to pay off her graduate school loans in 19 years. Is graduate school worth it for Natalia Bessemer?

    The long and the short answer for her is a PROBABLY.

    Assuming that Natalia’s income before graduate school grows at a steady 3% each year (roughly the rate of inflation), in 25 years, she will have a gross yearly income of $152,460 (started at $75,000). Her 25-year period gross earnings will total $2,734,445 (before taxes and living expenses).

    By leaving her current job to pursue her MBA, assuming the same steady 3% growth each year, and a starting salary of $110,000, Natalia stands to make $3,238,399 after debt repayments (before taxes and living expenses) over the same 25-year period. This includes two years where she makes $0 while in school.

    Put another way, by taking on $190,048 in debt, Natalia has grown her total 25-year earnings by $503,954 or +18%. And even though the total amount she will repay in debt is $331,420 because of the interest, she is in a better situation than before. But unlike Sienna, Natalia’s return on investment is only +52%. So, going back to school isn’t the same “no-brainer” that is for Sienna.

    Side by Side Comparison of Sienna and Natalia

    Closing

    Going back to Graduate School is time consuming and a significant financial commitment. As we have shown in the two examples prior, both Sienna’s and Natalia’s decisions to go back to school pay off financially over a 25-year period on paper. But going back to school is bigger than just the financial return. You have to weigh all the pros and cons that often times do not show up in an excel model. Everyone’s situation is slightly different and life happens, but regardless, please know that we at Blue Elephant Financial Services are here to help you decide if graduate school is right for you.

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    Best Options to Use to Pay for Graduate School

    Purpose of this article: to explain some options you have to come up with the funds to go to your dream graduate school.

    Overview:

    You have just been accepted to graduate school, and while you already know the return on investment is high, you have some questions on how to pay for this. The article below will give you some of the best tactical strategies to come up with the money for graduate school.

    Strategy 1: Contact the financial aid officers at your school and ask about Fellowships or Scholarships

    Many business schools offer lucrative merit-based and/or need-based fellowship awards, and similar to scholarships, these awards do not need to be repaid. On top of fellowships, most schools offer a number of merit-based and/or need-based scholarships. Eligibility for these awards is based on a variety of factors like previous educational achievement, GMAT or GRE scores, and other career related factors.

    The stats show that one of the best schools for fellowships is the Harvard Business School. According to the school’s website, “HBS Fellowships are gifts that do not need to be paid back, and nearly 50% of the class receives a fellowship award. The average HBS Fellowship is approximately $37,000 per year, or $74,000 total. All students are encouraged to apply for an HBS Fellowship after being admitted to the program.”

    So regardless of your background and career interests, your best bet toward obtaining one of these lucrative offers is to talk with the financial aid department of your respective school as soon as you apply/know that you are getting in. These awards a typically limited and are given out pretty quickly.

    Strategy 2: Borrow smartly from the Federal Government

    In order to be eligible for federal loans, you will need to be a U.S. citizen and file a form called the Free Application for Student Aid (FAFSA). Once filled out, this form will give you access to federal student loans. Your options from a federal loan standpoint are:

    • Stafford Loans (Federal Direct Unsubsidized Loans)
    • Graduate PLUS Loans

    The following details the characteristics of each of these federal loans:

    Stafford Loans (Federal Direct Unsubsidized Loans)
    • You can borrow $20,500 annually and $138,500 max lifetime for non-health fields like business

    • You can borrow $41,167 annually and $224,000 max lifetime for health fields

    • The interest rate is fixed at 6.0% as of June 1, 2017. New rates will be determined on June 1, 2018

    • There is a 1.066% origination fee that is deducted proportionally from the loan disbursements. This means that you will receive less money that the amount you actually borrowed

    • This loan is Unsubsidized which means interest accrues during the entire time you are enrolled in school

    • You do not need to demonstrate financial need to qualify and you don’t need good credit to obtain

    • Repayment of this loan is delayed for 6-month after your gradation date and is ultimately unavoidable unless you are eligible for loan discharge or forgiveness

    Graduate PLUS Loans
    • You must borrow the full amount ($20,500) of the Stafford Loan first, before borrowing any of the Graduate PLUS Loan.

    • Once you borrow the full amount of the Stafford Loan, you can then borrow up to the remaining cost of attendance.

    • The interest rate is fixed at 7.0% as of June 1, 2017. New rates will be determined on June 1, 2018.

    • There is a 4.264% origination fee that is deducted proportionally from the loan disbursement similar to the Stafford Loan

    • You do need to demonstrate good credit to obtain and the government does reject applicants who have had significant financial trouble

    • Repayment of this loan is delayed for 6-month after your gradation date and is ultimately unavoidable unless you are eligible for loan discharge or forgiveness

    So, in summary the federal student loan options for graduate students are as follows:

    Strategy 3: Carefully consider if a private loan is a viable option for you 

    Borrowing funds for graduate school from private sources like banks or Sallie Mae can be an option for you. But my honest advice will be to opt for loans from the federal government because the interest rates and origination fees are typically better. And from a repayment option, the federal government loans give you more flexibility with plans like income driven repayment.

    Nevertheless, if you are still interested in pursuing private lenders, here are some options from NerdWallet.

    Strategy 4: Follow one of these three alternative options to finance your degree 

    If you find yourself unable to secure funds from fellowships, scholarships or student loans, the following three options could serve as a last resort:

    1. Graduate Assistantships – under this method, you would work as a graduate assistant for the university while enrolled in your MBA program. Click here to see an example of Michigan State University graduate assistantship program

    2. Industry specific scholarships – just like it sounds, based on what you are pursuing, there can be a ton of industry specific type scholarships. Just note that they are usually in small denominations of $1,000 to $5,000 so you will have to collect a lot of different types to fund the full cost of attendance

    3. Employer Sponsorship – companies often have tuition assistance programs as well as full on sponsorship programs for high performing individuals. The “catch” though is you usually have to return to that same company for a certain period of time.

    Closing 

    Financing your graduate degree is more than possible and will more than likely take a combined approach. The best-case scenario would be to get a fellowship or scholarship through your university. But the most likely scenario will be funding our education with a combination of student loans from the federal government. My hope in writing this article is that after reading this, you will feel more confident in finding the funds necessary to finance your graduate degree.

    Aside:  If you are an international student, the type of loans your can apply for depends upon whether or not you have a U.S. cosigner. With a U.S. cosigner, you will be eligible to borrow from a number of different lenders. Without one, your options are very limited and usually gravitate towards the private student loan variety.

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    Choose an LLC as your business structure

    Purpose of this article: to explain why the Limited Liability Company (LLC) business format is the best for most small business owners

    Overview:

    By default, most businesses end up getting set up as a sole proprietorship. And while the benefits of a sole proprietorship like ease of formation are there, the disadvantages far outweigh these benefits. Specifically, as a sole proprietorship, you bear significant liability risk to your personal assets and from a tax perspective, you are not optimized. The rest of this document will walk you through my recommendation to set your business up as an LLC.

    Why You Should Avoid Sole Proprietorship

    The main disadvantage of a sole proprietorship as a business format is in regards to liability. As the owner of the sole proprietorship you are PERSONALLY LIABLE for all debts and actions of your business. No matter what you do, this business form links all personal wealth to the business. And this liability is unlimited in nature which means creditors can come after all of your personal assets to satisfy your outstanding debts

    On top of this unlimited personal liability, the sole proprietorship isn’t as tax advantaged as some of the other business forms. Specifically, at net income generated by your business is subjected to the 15.3% SECA tax (self-employment tax). You then list your remaining net income on your personal income tax on Form 1040 Schedule C and this net income is subjected to your personal income tax rate.

    Lastly, because of this business form, it is very difficult for you to raise longer-term capital since you are unable to sell interests or shares in your business. Investors like tax advantaged investment vehicles, and the sole proprietorship isn’t one of them

    Benefits of the LLC Structure

    Given the disadvantages of the sole proprietorship, my recommendation would be for you to consider an single-member managed LLC for your business format. An LLC business format is sort of a hybrid between the partnership and the corporate business forms. The LLC allows the liability protection of a corporation with the tax advantages of a partnership. Once you set up your LLC, it is considered a separate business entity that is owned by investors known as members. In your case, your LLC would be a single-member owned (which is you), and is managed by you as well.

    Especially when compared to the sole proprietorship, the LLC limits the liability of the member to the amount of their investment in the LLC. Therefore, a member of an LLC is not personally liable for the debts of the LLC. Under the sole proprietorship business format as I mentioned before, the sole proprietor is liable for all debts incurred by the business. In essence, creditors can go after your home, car, and other personal property to satisfy debts. Hence it’s imperative as a small business owner to at least form an LLC in the minimum. In general, the biggest reason you want to go with an LLC is the tax benefit you get due to the pass through nature of the income generated in the business with the liability protection of the business form.

    Longer Term… LLC Filing as an S-Corporation

    As mentioned before, the biggest tax benefit of forming an LLC is the pass through nature of the income generated in your business. When structured properly, the income from your LLC is taxed direction to the members at their own personal tax rates.

    But there is an even more optimal way to streamline and potentially reduce your business tax liability even further as an LLC. The IRS allows LLC that have been formed to be treated as an S-Corporation for tax filing purposes.
    The reason an LLC would want to file as an S-Corporation would be to avoid the 15.3% Self-Employment Tax that is charged on LLC for all income generated. Put another way, the S-Corporation is the only business form that makes it possible for you as the owner of your business to save on Social Security and Medicare taxes.

    Below, I give you a tangible business example:

     

    Under this hypothetical scenario where you drive $100,000 in net income and pay yourself a $50,000 wage you would be better off by 24% under the S-Corporation. Please note that there are some major assumptions regarding your wage and effective tax rate, but the argument is the same regardless of the actual numbers.

    Filing as an S-Corporation will allow you to avoid the additional tax that is levied on LLC for Social Security and Medicare. But before we get here, let’s get you set up as an LLC first!

    How to Get Your LLC Set Up

    In order to get your LLC off the group, you will need to complete the following:

    – Talk with Blue Elephant Financial Services.

    – Decide on a name for your business.

    – Find a business address. Typically I recommend to my clients to go to the UPS store and rent a PO Box. Most states will allow you to use this as your business address. This can run you anywhere from $100 to $200 annually.

    – Double check that your business name isn’t already registered with another person and is available in your state. Note that your name will need to contain LLC at the end. Click here for South Carolina and here for North Carolina.

    – Verify that the URL and domain name of your company is available. Even if you don’t plan on making a website right this moment, you will want to buy the domain name in order to prevent others from acquiring it. Personally, NorthLake Digital LLC is one of my favorite companies for this task.

    – Find a registered agent. I typically advise using a digital option like MyLLC.com. This will cost you around $99 annually. Click here for a direct link to this company.

    – File the Articles of Incorporation with your state. North Carolina will cost $125 and South Carolina will cost $110.

    – Draft an LLC Operating Agreement. In some states this is required and in others it is option. Regardless this is good practice because this document outlines the ownership and operating procedures of your LLC.

    – Register your business with the IRS to get an EIN tax ID number which will be used for tax filling needs. Click here for direct link.

    – Apply for a new business bank account that is separate from your personal account. This will force you to separate personal assets from the LLC.

    – Consider getting a business credit card. This too will force you to separate personal expenses from the LLC.

    – Apply for any pertinent business licenses or permits (depends on your services)

    – Complete your annual report (necessary in North Carolina and not necessary in South Carolina) and report your LLC business income on Form 1065 Partnership Return.

    Closing

    In closing, establishing your business as an LLC will help reduce any personal liabilities and will give you the longer-term potential tax benefit (if we file your tax returns as an LLC filing as S-Corporation). My hope in writing this article is that after reading this, you will take the steps to create your own business using the LLC format. I wish you the best of luck in getting your business off the ground and look forward to hopefully serving your needs in a much deeper capacity than just this article.

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    Opt-Out of Prescreened Credit Card and Insurance Offers

    Purpose of this Article: to explain how and why you should opt out of credit card and insurance offers through the mail

    Overview:

    Have you ever wondered why so many credit card and insurance companies can send you “pre-qualified” offers through the mail? While these unsolicited offers might seem like a good thing, in reality they are unnecessary especially if you are not in the market for a new insurance policy or credit card.

    When you have good credit, you are a candidate for these types of unsolicited offers. Oftentimes, these companies access your credit information through on the of the three large credit bureaus (Equifax, TransUnion, and Experian) to send you these prescreened, prequalified offers.

    Put simply, Equifax, TransUnion, and Experian sell your financial data to credit card and insurance companies without your express permission. Essentially since you have not opted-out, you have opted-in.

    Should I Care About These Offers?

    Unless you are actively in the market for a new credit card or insurance policy, these unsolicited offers are bad because:

    1. You risk your personal information being stolen.

    2. These offers clutter your mailbox with junk mail that ends up in the trash

    3. They tempt you to open up new credit cards

    By opting out, fewer companies have access to your credit file and that is a good thing as the Equifax hack has shown (see here)

    How Can I Stop These Offers?

    Opting out takes less than five minutes, is completely free, and can be done completely online (unless you opt for the permanent option). To opt-out follow these steps:

    1.  Visit https://www.optoutprescreen.com/?rf=t

    2. Gather your full name, address, social security number, and date of birth

    3. Decide between a five year or permanent opt-out

    4. The five year option will allow you to complete the entire application online

    5. For the permanent option, you will print out the application and mail in to:

    Opt-Out Department
    P.O. Box 2033
    Rock Island, IL 61204-2033

    The following screen shot below shows you what the Opt-Out screen looks like (see below):

    Once you completed the opt-out application you are done!

    My hope in writing this article is that after reading this, you will take some steps to protect yourself and your family from unsolicited credit card and insurance policy offers. As the Equifax hack continues to show (see here) your personal data is far from safe. Every little step you can do to protect it is well worth it.

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    Health Savings Accounts (HSAs)

    Purpose of this Article: to explain the basics of HSAs and the benefits of using them if offered by your employer

    Overview:

    HSAs were created in 2003 specifically to give individuals with high-deductible health plans a tax break. As an individual, you are eligible to enroll in an HSA if you meet the following four criterion:

    1.  You enroll in a high-deductible health plan

       2.  You aren’t covered by a spouse’s health plan that isn’t high-deductible

       3.  You are not enrolled in Medicare

       4.  You cannot be claimed as a dependent on someone else’s tax return

    Contribution Limits:

    Similar to an IRA or 401(k) there is an annual contribution limits for both you and your employer. Each year the annual contribution limits may change but for 2017 the limits are as follows:

    $3,400 for individual plans
    $6,750 for family plans

    And similar to an IRA, there is an additional $1,000 catch up contribution that can be made for people 55 or older.

    HSAs matter more because high-deductible healthcare plans are on the rise…

    As healthcare and insurance costs continue to rise, more companies are looking for ways to cut their costs.
    Consequently more employers are switching their sponsored healthcare plans to high-deductible plans. This move ultimately shifts more of the financial responsibility for paying for health care away from the companies to the individuals.

    Put more simply, a higher deductible plan means that you as the individual are responsible for a larger amount of your health care cost. This means that your monthly contribution from your paycheck is less, but you have higher out of pocket maximum contributions when the time comes (i.e. Higher deductible).

    In 2017, the annual out-of-pocket payments for individual and family plans are $1,300 and $2,600 respectively as defined by the IRS. For more info see here.

    It is expected that over the next 5 to 10 years, more people will find themselves facing higher-deductible health plans, as more employers switch their base healthcare plans to higher deductible plans. This means it is very likely that you will be facing HSAs as an option in your employer benefits package.

    Triple-Tax Advantage of HSAs:

    HSAs are a way for people with high-deductible health plans to set money aside for medical expenses. These savings accounts are considered “tax-advantaged” because the money you set aside is “before tax” and thus free of federal taxes. Money saved within an HSA is allowed to grow free of federal tax, and can also be invested free of tax consequences. And finally, when money is withdrawn specifically to pay qualified medical expenses, there is no tax penalty either. On an aside, see here for a complete list of qualified medical expenses

    So in practice, an HSA offers its owner three specific tax benefits:
    1.    Money can be set aside before taxes thus reducing your taxable base
    2.   Money can grow tax free
    3.   Money used from the account for qualified medical expenses are tax free

    HSAs are better than Healthcare Flexible Spending Accounts (FSAs):

    While both HSAs and FSAs allow you to set aside pre-tax money today future health care expenses, there are some key differences that make HSAs slightly better:

    1.    You cannot take an FSA with you to your new job if you change. Your unused funds are forfeited. This is not the case with HSAs as the money saved goes with you into future jobs.

    2.    If you do not use the total amount contributed to an FSA during the calendar year, you will lose it. Your unused funds are forfeited. This is not the case with HSAs as the money saved can be spent in future years.

    3.    Anyone can open an FSA as there are no special eligibility requirements. This is not the case with HSAs as you must be in a high-deductible health plan to qualify for this type of account.

    4.    If you die with money still in your HSA account, you can leave it to your spouse (who can use the money free of estate taxes, and tax-free for non-medical expenses) or other heirs (who would pay taxes on the money they inherit). This is not the case with FSAs.

    5.    You can use funds from an HSA account to pay for prior period medical expenses (i.e. Expenses that occurred in 2016).

    6.    Technically once you reach the age of 65 or older, you can take HSA money and use it for non-medical expenses without incurring a 20% penalty. This “loophole” only exists for HSAs

     

    My hope in writing this article is that after reading this, you can now see the benefits of an HSA. Chances are, you’ll be experiencing one really soon.

     

     

     

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    5 Steps That Will Help Protect You in the Face of the Equifax Hack

    UPDATE (9-15-17): There is technically a forth credit agency known as Innovis that also has a credit freeze option. Here is a link to their online application to freeze your credit report with this agency.

    Purpose of this Article: to explain five actions that you can take to reduce your exposure and protect yourself after the Equifax data breach.

    Overview:

    Earlier this year Equifax, one of the nation’s three major credit reporting agencies, was hacked by thieves who stole the personal information of 143 million U.S. consumers. And while the company scrambles to figure what happened and how to respond, the reality of this breach doesn’t change: the burden to protect oneself will fall mostly on the individual consumers.

    This article provides some steps that you can take to protect yourself in the face on one of the most brazen failures to protect consumer data.

    What Can I Do Today?

    Step 1: Freeze your credit and place a fraud alert on your file.
    Known as a security freeze, this tool allows you to restrict access to your credit report, which in turn makes it more difficult for identify thieves to open new accounts in your name. Put simply, this will prevent someone trying to establish a new credit account in your name. For more detailed information on a credit freeze, please see here.

    Please note that a credit freeze doesn’t negatively impact your credit score and fees for freezing your credit at all three agencies (Equifax, Experian, & TransUnion) will cost you $5 to $10 each. Here is a state by state list of the fees you will pay here.

    Step 2: Don’t sign up for the Equifax free credit monitoring service. Instead, use a free monitoring service like Credit Karma.

    First things first, the last thing you want to do is trust Equifax to monitor your credit. This is the same company that allowed 143 million U.S. consumer personal data to get into the hands of thieves. They also haven’t been very transparent and forthcoming with information regarding this breach.

    Instead, sign up for Credit Karma. They offer free credit monitoring which allows you to stay on top of changes to your credit. They also have a smart phone app that makes this very seamless. For more information on this service see here.

    Step 3: Review your free credit report annually from Equifax, Experian, and TransUnion.

    You can access this by visiting http://www.annualcreditreport.com. Each year you are entitled to three free credit reports from each of these agencies. Request them and review them looking for accounts or activity that you do not recognize. If you find anything out of the ordinary, report this unusual activity to the FTC’s http://www.IdentityTheft.gov website.

    Step 4: Regularly monitor your bank statements and credit card statements for fraudulent activity.

    Most banks and credit card companies often offer fraud detection services free of charge but the onus is on you to consistently monitor your existing credit card and bank accounts. Personally, I check my accounts every other day, and at a minimum, you should check them weekly.

    Step 5: File your income taxes with the IRS as early as possible.

    By filling as early as possible, you prevent and reduce the likelihood that your information will be used to fraudulently file your tax returns. Most thieves do this to try to steal your tax return.

    What NOT TO DO:

    Lastly, whatever you do please DO NOT sign up for Equifax’s TrustedID Premier Service. Even though this is a complimentary identity theft protection and credit file monitoring service, the data breach is so severe that criminals will be able to use the information they stole for decades to come. One year of TrustedID Premier Service is simply not enough to stop the potential risk of identity theft.

    Furthermore, there is some legal fine print that states once you sign up for this service; you waive the right to sue Equifax later on. If you want more information on this, see this article here.

    Closing:

    The unfortunate truth is that there is never complete certainty associated with these security measures. But the fact remains that doing nothing will expose you to as much or more risk. Never assume and trust any of these organizations to protect your own data and take it in your hands to protect yourself.

    My hope in writing this article is that after reading this, you can now implement some strategies to protect yourself for identity theft in general, but also specific to the Equifax data breach.

     

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    A Simple & Legal Strategy to Reduce Your Tax Burden Today

    Purpose of this article: to explain an effective strategy to reduce your taxable income and lower your annual taxes.

    Overview:

    Each year during tax planning with my clients, the inevitable question always arises:

    How can I reduce my yearly tax bill?

    And while it can seem like a daunting task, the reality is you can trim your tax bill right now by following this one simple and legal strategy:

    Increase your contribution to your employer sponsored retirement plan (i.e. 401(k), 403(b) or other retirement plan).

    This simple but effective strategy will allow you to reduce your taxable income and save for retirement at the SAME TIME!

    How Does This Actually Work?

    The rules of the 401(k) employee sponsored retirement plan are such that you are legally allowed to contribute up to $18,000 annually before tax. And if you are 50 or older, the contribution max grows to $24,000. Each paycheck, your employer will take out money from your paycheck and put it directly into your 401(k) account. Since the money is taken “before tax” it isn’t counted as taxable income when you file your taxes in April.

    By increasing your 401(k) contribution, you are effectively deferring tax to a later date in retirement (thus reducing your tax today) because the money you put into the 401(k) goes in tax free, and isn’t taxed until you withdraw in retirement. Furthermore, you not only reduce the total amount you pay in income taxes, but also jump-start your retirement portfolio by putting all of your savings to work immediately.

    Financial Example: Bess Napier

    Bess makes $50,000 annually and has a 25% tax rate. She decides that she will contribute the maximum $18,000 annually to her 401(k). By doing this she reduces her taxable income down to $32,000 before any itemized deductions or credits, and she saves for retirement!

    Put more specifically, investing $18,000 directly into a 401(k) each year grows your retirement nest egg quicker than getting paid the $18,000, paying 25% in taxes, and investing the $13,500 that is left.

    For married couples, the math is exactly the same. Each person can contribute $18,000 taking the combined maximum to as much as $36,000. And a married couple over 50 can contribute a maximum of $48,000 ($24,000 each person).

    Other Types of Employee Sponsored Retirement Plans

    Please note that other employer sponsored retirement plans like a SIMPLE IRAs will have different contribution limits but function the same way as the 401(k). So if you are not maxing out your annual contribution amount, you are paying more taxes than you should. The chart below courtesy of Vanguard has all of the limits:

    Courtesy of https://personal.vanguard.com/us/insights/taxcenter/contribution-limits

    How can I get this same benefit if my employer doesn’t sponsor a retirement plan?

    If you work for a company that does not have a sponsored retirement plan you can still take advantage of some tax deferral. You can open up an Individual Retirement Account (IRA) and make tax-deductible contribution to the IRA. The max contribution here is only $5,500, ($6,500 if 50 and over) which is much lower than the employee sponsored plans, but it is still better than nothing. The only potential problem with an IRA is the fact that tax deductibility phases out for individuals and couples at different levels of modified gross income. The following chart shows all of the various income ranges that cause IRA tax deductibility phase out:

    Courtesy of the Hawaii Employees Council

    While there are many factors to consider when determining whether or not you are subject to the income-phase out restrictions for IRAs, the point I want to make here is that there are many ways to reduce your taxable income and the best and simplest way to do this is to invest in some retirement vehicle before taxes (i.e. . 401(k), 403(b), other retirement plan, or Traditional IRA).

    My hope in writing this article is that after reading this, you can now see the tax benefit of contributing to a retirement savings account. There is not easier way to reduce your tax liability today!

     

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    Is A Tax Refund Good or Bad Thing?

    Purpose of this article: to explain why tax refunds can be seen as good and bad.

    Overview:

    I’d like to take a moment to explain something my clients often ask me: Is getting a tax refund each year a good or bad thing?

    Each year when you file your tax return with the IRS, one of two things will happen:

    1.     You will owe money and have to pay the IRS or

    2.     The IRS will owe you money and you will get a refund.

    When you get a refund from the IRS this means that each paycheck you received during the year had too much tax withheld and taken upfront. In essence, you have overpaid your taxes during the year.

    When you have to pay the IRS this means that each paycheck you received during the year had too little tax withheld and not enough was taken upfront. In essence, you have underpaid your taxes during the year.

    The rate/amount that the IRS takes away from each paycheck is determined by Form W-4 [Direct Link to Form: Here], which you typically complete and file with the payroll department of your employer on day 1 of your job, and never revisit.

    On an aside … I will complete another detailed write up on how to properly fill out Tax Form W-4, but the point I want to make here is this form determines a big portion of whether or not you will get a refund or pay come April.

    Team Bad: Getting a refund is bad because…

    • When the IRS writes your refund check, they are just giving you back your own money they owe you, without any interest.

    • You have overpaid on taxes throughout the year. It’s your cash that the federal government took from you and is now returning to after months of holding on to it. Oh and they aren’t giving you interest!

    • It isn’t the most effective use of your cash flow because you are giving the IRS an interest free loan.

    • When we get large sums of money, we tend to splurge because of the Windfall Syndrome. This is because emotionally, our tax refund feels like a windfall, even though this is simply the government returning our money back to us, with no interest.

    Team Good: Getting a refund is good because…

    • Psychologically speaking, there is no better feeling than getting cash back. Especially large sums of cash.

    • If you are disciplined, this huge tax refund can effectively force you to save if you can earmark the refund and send it to a savings account. Same argument can be applied to using the refund to pay down debt.

    Blue Elephant’s Verdict:

    Getting a refund is economically bad but psychologically good.

    In 2015, the average tax refund was roughly $2,860 and approximately 70% of all tax returns resulted in refund checks being issued. The 2016 numbers are not yet published but there is a high degree of likelihood that they will match the 2015 numbers.

    Put another way, 7 out of 10 US households that were issued refunds,gave the government $238 each month interest free. This is money that could have been spent building an emergency savings fund. And even if it earned 1% in an Ally Online Savings Account, that would be better than nothing. On top of this, this is money that could have been spent paying down high interest credit card debt.

    No matter how you slice it, getting a tax refund is not the best economic use of your precious resource known as cash. But it’s clear that the vast majority of Americans will continue to love their tax refunds. My hope in writing this article is that after reading this, you can now see the economic benefits of saving NO to the tax refund!