Handling Finances

Corporations have no guaranteed rights. Corporations are simply legal constructs that allow people to limit their taxes and to limit their liability in business arrangements. Corporations are also not inherently evil, but as citizens with constitutionally guaranteed rights, we have to be careful not to treat corporations as if they’re more important than citizens.

What’s the big deal?

When I see how much corporations are contributing to political campaigns (and not toward one political position) I worry that the corporations have become as influential or perhaps even more influential than citizens in our political system. It’s often argued that strong corporations help the masses through a strong economy, but I think that misses the point. As corporations are owned by citizens, it’s really strong citizens who are willing to invest in business that produce a strong economy.

One thing that consistently bothers me is when corporations are handed money from our government when they perform poorly. We are essentially rewarding inefficiency — if a company can become large enough that bankruptcy would negatively affect a large portion of a state’s employees, that company no longer has to worry about efficiently producing a product. It can simply threaten to lay off thousands of citizens and we are happy to give them our tax money to keep them employed. Instead of rewarding inefficiency, wouldn’t it be much more effective to allow poorly-run companies, or companies that make unwanted products to go bankrupt and put that money toward helping unemployed citizens find and become trained for new jobs?

Similarly, when we pass laws to make it much more difficult to declare bankruptcy or limit the amount of money that can be awarded in negligence lawsuits, we are again saying that the corporations should have more protection than the citizens. Do we really think that there are more citizens trying to fraudulently declare bankruptcy than there are banks that are selling loans they know their customers can’t afford?

I’m not saying corporations should be powerless, or that citizens are blameless. However, corporations are much better organized and focus much more of their resources toward favorable laws than citizens. As citizens, it’s just important to remember that while we have rights given by the constitution (in America anyway), if we fail to exercise those rights through understanding the issues and voting, we can give those rights up to non-entities that only care about profits and shareholders.

What can we do?

In the upcoming elections, consider the implications of giving rights to corporations in your decision to vote and be sure to vote no matter how disillusioned you are with politics. Unless citizens band together and become better organized and better funded than corporations (something I find highly unlikely) our greatest tool toward preserving our rights as citizens will be our votes.

Comments?

I’d love to hear other views on this subject — especially ones that disagree with part or all of my conclusions. I’m far from certain where the best balance between citizen rights and corporate protection lies so although I might have some basic opinions, I think it’s incredibly important to keep learning and listening so my votes can be as informed as possible.

In a recent post, Psychology Trumps Math in Finances, I discussed how as emotional creatures, we aren’t always capable of making the best financial decisions. Unless we learn to deeply value making decisions based on numbers and real statistics, we’ll simply make decisions that feel right — like when people refuse to fly for fear of crashing but drive to work daily, utterly ignoring the statistical realities of fatalities in transportation.

Sometimes, however, we can use our feelings to help us achieve our financial goals. PaidTwice recently published a blog post where she urges readers to make sure snowflakes stay snowflakes. The idea is that when you come across some extra savings or a little extra income, you should keep the extra out of your budget so it can be used as an addition to debt payments or to savings.

In math, this strategy has zero value. It neither increases your income, nor does it decrease your expenses. However, I think there a couple of key reasons that PaidTwice left unspoken which makes this strategy valuable for many of us.

1. Keeping extra savings or extra income ‘extra’ reduces the temptation to spend it. Some people struggle not to spend every dollar they touch and even after establishing a budget, if the budget says they’ll have an extra $20 a week, there’s a huge temptation to blow it rather than accelerating debt payments. Personally, I’d just increase my weekly allocation toward debt repayment, but that’s just because I’m a math geek. If you can help yourself to reach financial goals through keeping extra money out of the budget, go for it!

2. Extra money feels like a reward. Especially if you work hard for the extra money — perhaps with a part-time job or by carefully planning grocery lists — it can be extremely rewarding to keep this money separate. Every month, you can look at your budget and see your hard work paying off by reducing debt or increasing savings by more than you’d planned. Again, since I’m more comfortable with balance sheets than “naming each dollar” in a budget, this wouldn’t be very effective for me. This time, I’ll blame my nerdy parents who got me interested in reading profit/loss statements for companies my dad helped me buy in college.

3. It just works. With a zero-sum budget, you allocate all your income before it’s spent. PaidTwice makes the comment that if you eliminate the additional money in the future, you’ll still be working within the budget. She’s not strictly adhering to a zero-sum budget where she would allocate this extra income toward debt repayment and simply adjust the budget to have lower debt payments if the extra income dried up. But the important point is that it’s not a particular budgeting system that’s important but the results.

PaidTwice has found that tweaking her budgeting habits to fit her feelings results in faster debt repayment (her current major goal). Instead of giving in to her temptations and simply spending the extra money after it became regular, and instead of simply following the letter of a budgeting system that didn’t quite feel right, she built her own rules that made sense to her. It’s vital, when learning about budgeting and achieving financial goals, that we don’t try to force ourselves into uncomfortable molds. Keeping a budget takes time and effort, but the form of the budget and the goals at the end are entirely up to you. If you find budgeting to be more an annoyance than a useful tool, try to look at which details are causing the problem and simply do a little tailoring so the budget fits you like the worn-in sneakers you just can’t bear to throw away.

As I was finishing up my taxes for the year (using TurboTax) I was once again invited to e-file for the low, low price of $19.99.  I was indignant that the IRS should still be charging us to make their job of data entry easier… and then I learned that the IRS charges no fee for e-filing!  I still think it’s a horrible deal, but I’m not nearly as annoyed by the IRS as I used to be.

E-filing is actually a great idea.  It reduces errors as there’s one less time somebody has to type the numbers into a computer, it reduces cost as the IRS no longer has to pay that person to type numbers into a computer (not to mention the reduced mailing costs) and to top it off, the taxpayer receives proof that their tax information is received within 48 hours, and tax refunds are sent much faster!

 So why isn’t e-filing free?

TurboTax is asking me to shell out $20 on top of the $75 I already paid for the program (the basic version is much cheaper, but my convoluted and changing investment decisions require the more capable Premier version).  How can they get away with it?  Well e-filing is only available to a select group of tax preparers and taxpayers who make under $54,000 a year and prepare their taxes for free through www.irs.gov/efile

I assume that the IRS has good reasons to limit access to their e-filing program, and I appreciate that they offer it free to lower-income taxpayers, but since e-filing must be done through a tax professional, that means that most of us simply have to pay whatever our tax-preparers (or tax preparing software) charges.

Don’t Spend a penny on e-filing!

If you have your taxes professional prepared, you’re probably paying a couple of hundred dollars already and very often e-filing is included in the price.  If it’s offered as an option, however, it just doesn’t make financial sense to pay the preparers $20 to get your refund a month sooner!  Even if your refund is $2000, you’d have to be making 12% a year on your money to make e-filing worth the cost, and you’re further encouraging the tax preparers to charge for a service that costs them very little.

The simple solution is to do as millions of taxpayers have done for decades — send your tax returns by mail.  If I were to e-file through TurboTax today, I would be rewarding TurboTax for overcharging for this basic service and while I firmly believe they have a right to make money by charging for e-filing, I would rather pay more for the basic package than get hit with fees when I’ve finished my tax preparation.

There might be circumstances where you need your refund money ASAP which would make the e-filing a good option for you.  I just suggest that you keep track of your finances, and if you encounter similar emergencies year after year, consider changing your tax withholding and your spending habits instead of paying your tax preparer for the ‘privilege’ of receiving the yearly illusion of temporary financial relief.