How much money do you need to call yourself rich? Thanks to Obama’s tax proposal, we don’t have to wonder much longer. His plan is to make the Bush tax cuts permanent for everyone except the “rich.”

So if you make $200,000 or you’re a couple that makes more than $250,000, congratulations! You’re in the top 2% of earners in this country and that means you’re rich!

Unfortunately, that means the tax cuts won’t expire for you and you’re tax rate will go up to either 36% or 39.6% (from 33% and 35%).

This has been in the news a lot and apparently there is TONS of debate going on about Obama’s plan. As usual, it has to do with party lines. Democrats say that the national debt is so out of control that this needs to be done. Republican think that the tax cuts should be extended for everyone, even the top 2%. They say that small-business owners will be affected and the economy as a whole might lurch (even more) due to the tax increase.

And I just don’t get it: why is this such a big story when so few of us are impacted?

From the NY Times:

Analyses from the Joint Committee on Taxation and the Tax Policy Center, a nonpartisan research organization, show that less than 3 percent of filers with small-business income pay at the top two income tax rates, and many of those are doctors and lawyers in partnerships.

I’m not naive, I know that these types of studies and committees can be very biased, but even if that number is 10% or 20%, that still means that a small minority of Americans will have to pay more taxes. And not just higher taxes—just what they used to pay before the tax cuts were put into place. So it’s not like taxes are going up for them, they’re going back to where they were.

As you can tell, I don’t make anywhere near $200,000 (though I’m working on it), so it’s easy for me to dismiss this whole issue and act surprised that it’s such a big deal.

What I don’t understand is how this isn’t a much simpler issue. If you had Americans vote on it, I would expect this to be resolved rather quickly. Everyone that makes under $200,000/$250,000 would be like “yeah raise taxes, I don’t care” and that would be the end of it.

Right?

The government needs money to run itself and the national debt is getting out of control. We need more money so why not take it back from the people who have oodles of it in the first place?

Which way would you vote? I’m curious if people out there not making “rich” money would still vote to keep the tax cuts for the rich. If so, I want to hear from you. Why? Is it because you think you might get to that level at some point and don’t want to pay those taxes? Wouldn’t you be so thrilled to get to that tax bracket that you wouldn’t care about paying a little more in taxes? I remember when I moved up from the lowest tax bracket to the next lowest and I was all excited: more money meant more taxes, sure, but it still meant more money.

I really want to hear from people on this because my goal is to understand. If you’re going to spout Democrat/Republican party lines, please don’t bother me. If you want to try to explain it to me like I’m a five-year old, then please do because I’m stumped.

Tags: obama, rich, tax cuts

I’ve read a lot of books about investing, and the general assumption that’s made for long-term investors is that the market will return an average of 8% per year. Some people get greedy and punch 10% into their compound-interest calculators, but if you look back far enough at the history of the overall market, you’ll find 8% is a much more accurate average.

Besides, it’s better to lower your expectations in case you’re wrong. When you’re 75 and out of money, it won’t do you any good to whine that your math was wrong.

The difference between 8% and 10% (and over time this is a HUGE difference), however, will rarely have anything to do with how good we are at picking stocks or knowing when to buy and sell them. As this Yahoo Finance story says, it’s all about luck. The article’s subtitle says it all: Start early, save aggressively, and hope.

A study by Ibbotson Associates found that the amount of money you make in a given 30-year period changes dramatically.

For instance, $100,000 invested in 1946 would have grown to about $1.15 million in 1976, but the same amount invested in 1976 would have delivered about $2.27 million in 2006.

If you’re lucky, you’ll be alive during a 30-year period where the stock market in general has “a good run.”

It might be pretty scary to think that your retirement is more dependent on luck than on your stock-picking prowess or your ability to re-balance your portfolio every year. But hey, that’s investing for you.

Even Warren Buffett hints at the important role that luck plays in our lives, and he’s one of the greatest stock pickers in the world.

Beyond Investing

The more I thought about this, the more I realized that luck plays a HUGE role in our lives. And that’s kind of scary. What if you work hard, do your best, say all the right things, make all the right moves, and you don’t get any luck coming your way? What if you’re struck with insurmountable bad luck that keeps you from improving yourself and your life?

It’s a depressing thought.

When I look back at the jobs I’ve had and the bosses I’ve had, I consider myself incredibly lucky. They have each contributed to my growth as a person and as an employee—I wouldn’t be where I am today without them.

For example, three years ago I was working in publishing at a job I didn’t really like. But my co-workers were awesome and my boss was the best. The job made me realize that I needed to get out. So I did: I got a job as a writer (thanks mostly to this blog) for a company that was starting a new site that taught people how to invest.

That situation propelled me into something totally different: first as an ad copywriter (which is/was awesome) and then a position as a product manager. If I would’ve applied for a job anywhere else as a product manager back then, I would’ve gotten laughed out of the room—I didn’t have any experience and I didn’t even know what that was. But because of some of the work I’d done in my own projects (this blog included), I had a teeny little sliver of experience in my background.

And my bosses had faith in me. So they took a chance and gave me a shot—without that chance I would’ve been let go a long time ago.

I was lucky.

What Can We Do?

The cliché phrase here is to be ready to receive good luck. Just like a minor-league baseball player has to be ready to take advantage of getting called up to the big leagues to make the most out of the opportunity, that’s what we all have to do.

We need to be in a perpetual state of readiness.

Or as a guy on MTV once said, “If you stay ready, you ain’t got to get ready.”

Image by kaibara87

Tags: Investing, luck

Welcome to the August 16, 2010 edition of the Carnival of Money Stories! There’s no better way to learn new ways of saving or making money than by hearing how other regular people like ourselves are doing them. Think about it: business schools are obsessed with case studies and lawyers use previous “stories” to cite precedent to make their cases. In short: what other people have done in the past and how they’ve done it is crucial.

With that, here are the most crucial stories for this week’s Carnival:

Investing

Big Cajun Man presents The Good Wine: A Personal Finance Parable posted at Canadian Personal Finance Blog. Wine and retirement should both get better with age, but sometimes things are a little “off.”

Credit

Julie Sherrier presents Is my new frugality anything like yours? posted at Taking Charge. Will these five new behaviors evaporate after the recession or will people learn their lessons?

Net Worth

GrrlScientist presents Free Money? posted at This Scientific Life. The saga of trying to clean up some unfair black marks on an otherwise solid credit report.

Joe Plemon presents Create Your “No” Policies Before You Need Them posted at Personal Finance By The Book. It’s important to have “the talk” about as many topics as you can to avoid weird situations like this one.

Silicon Valley Blogger presents Tracking Your Personal Net Worth posted at The Digerati Life. Interesting notes on the importance of anonymity in a world where everyone likes to share their net worth online.

Housing

Jeff Rose, CFP presents Dave Ramsey FPU 12 Real Estate and Mortgages posted at Jeff Rose. Get an inside peek at Dave Ramsey’s Financial Peace University and what he thinks about real estate.

J. Money presents Think You Could Live in a Houseboat? posted at Budgets Are Sexy. Living on a houseboat does seem pretty sweet, but I’m sure the reality isn’t as appealing…

Ryan @ CML presents How to Stage Your Home For Sale posted at Cash Money Life. Ryan has some good tips on what worked for him when he staged his home before putting it on the market.

Shopping

Madison DuPaix presents Back-to-School Shopping Tips to Stretch Your Budget posted at My Dollar Plan. Madison’s tips were impossible to follow when she was a kid, but now you can and should follow them.

Unclassifiable

FMF presents Something I Like: Applebee’s 2 for $20 posted at Free Money Finance. You have to give credit where credit is due: Applebee’s 2 for $20 is a pretty sweet deal.

PT presents Maintaining a Car Past 100,000 Miles posted at PT Money. PT just pushed his car over 100,000 miles and he has some tips on how to help you get this much use out of your car.

Images by derekGavey, Andres Rueda, respres, schizoform, DerrikT

Tags: credit, investings, net worth, Real Estate

Brad Marley, who provided a great guest post on parenting last week interviewed me for his site, so if you’re curious to learn more about the mystery man behind this site, check it out.

I think I come off rather well, although it was interesting thinking about these questions because it made me realize a couple of things:

1. I really love books and haven’t been reading enough of them lately
2. Being interesting is very hard, but incredibly important

Tags: brad marley, interview