income

Social Security

Social security is the world’s largest program which pays out benefits and social insurance to the people after their retirement. Other incomes through this system of social security include disability income, Medicare income and death and survivorship benefits to the spouses of people.
This program was started in 1935 by President Franklin D. Roosevelt. This program was a part of the President’s New Deal plan to lift the US economy out the Great Depression.

Social security is the world’s largest program which pays out benefits and social insurance to the people after their retirement.

The basic funding of the Social Security System comes from the payroll taxes paid by the employees and employers. The workers contribute 6.2% of their annual income towards Social Security System and their employers also match this amount. Self-employed workers need to contribute 12.4% of their annual income towards this system.

You get the benefits of this system at your retirement. The full retirement age at which you can take benefits from these savings is 67. You can even start it at the age of 62, but then your monthly payments would be less. But if you claim the benefits at a later stage say even 70, you can get the highest monthly payments. The average income that you get from this system will depend on your average wages you earn during the working lifetime.
The payments are managed by the government and the Federal Reserve Board and they are saved in the Social Security Trust Fund.

Another important thing you should be aware of is that the payments are adjusted every year to keep up with the levels of inflation prevalent in the economy. You need not worry about the payments you will get on your future if you see inflation rates rising steeply.

This system also helps people who cannot work after some time if they become disabled.
In case of the death of the spouse, the remaining spouse gets the social security payments, and in fact if both the spouses work and one of them dies, and the remaining spouse delays payments till 70 years of age then the remaining spouse can get higher benefits. Ex-spouses can also claim benefits from the Social Security system if the marriage lasted for more than 10 years.

Although, this system has proper collection channels for funding, but still it faces the threat if becoming insolvent. The major factors can be longer life expectancies, inflation and a large amount of population entering retirement age.

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The Disadvantages of a Flexible Budget

by Kylee Sanders

Trying to get your head around budgeting can be stressful and time consuming, especially if your performance is linked to evaluating your sales performance! There are many types of budgets that can be used the most common being; Static Budget and Flexible budget also known as a flex budget.

Trying to get your head around budgeting can be stressful and time consuming, especially if your performance is linked to evaluating your sales performance!

There are also:

Fixed budgets
Rolling budgets
Continuous Budges

A static budget is the option of choice when you have a reasonably predictable known sales and expenses over a fixed period and that they are not expected to change much through that period.

A flexible budget on the other hand is an option for when the expectation is more fluid, where the situation could change substantially making comparisons of results to the static budget would not be relevant. When a flexible budget is in operation a number of formulas are used, these look at actual real time revenues for expenses and other activities and adjust the budget accordingly; rather than using fixed numbers for the expenses it uses percentages of revenue. This allows for an unlimited number of changes in the budgeted expenses that is linked into the actual revenue that is earned. However one of the disadvantages of a flexible budget is that it does not always take into account the changes that occur due to revenue variations, unless a more complicated format is used to take account of step costs. This is where costs do not alter on a regular basis but rather at fixed points in the budgets calendar. When deciding on your budgeting approach be it one or the other or a combination it is a good idea to weigh the advantages and disadvantages of a flexible budget, some of these bear considerations:

Can you accounting team manage the intricacies of the flexible budget? Do they have the time, resources and experience?
Flexible budget actually needs some sales figures to be put into to operation so not always the appropriate choice at start up of a business.
A flexible budget can create an additional level of stress on sales performance as time scales are vastly reduced.
A flexible budget tends to be only used with relatively limited revenue.
Many costs are not variable and as such have difficulty fitting into this budget style.
Depending on your accounting team resources, time and experience, step costs are limited due to the management and administration of a large number of these.
Time delays between step costs and revenue received may occur.

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Master Budget: everything you need to know

by Kylee Sanders

Master budget is the aggregation of the various lower-level budgets of a company. The master budget includes the budgets of the various functional areas of the company, as well as other budgeted financial statements, forecast of the cash inflows and outflows and a financial plan. It usually covers the entire fiscal year of the company, but is presented either in a monthly or quarterly format. It is the strategic plan of the future of the company.

The planning and controlling of various factors of production can be done with regard to the master plan and the performance of the company can then be compared at the end of the year by looking at the master budget and corrective actions can thus be taken.

Master Budget: everything you need to know

A master budget includes the finacial and operational budget of a company

There are basically two components of the budgets which are further divided into other parts. The two main components are:

Operational Budget
Financial budget

The operational or the operating budget basically comprises of seven other budget planning schedules. The first one to be prepared here is the sales budget which will be determined by the sales forecast. These two may not be exactly same as the sales forecast will be determined by the judgement of the management.

The next thing to be covered is the production schedule, based on the sales budget it will be decided how much production will take place. Next will be the direct materials purchase budget, to buy the raw materials. Also, there is the direct labour budget and the overhead budget (including the fixed as well as variable overhead costs to be incurred). Then the selling and administrative expenses budget and finally the cost of goods manufactured budget will be included in the operational budget.

The financial budget of the company has five components. This budget shows the inflows and outflows of the cash and the other elements which can be considered a part of the firm’s financial position. The components of the financial budget are:

Schedule of expected cash receipts from the customers
Schedule of expected cash payments to suppliers
Cash Budget
Budgeted Income Statement
Budgeted balance sheet

Though all these elements are covered in the master budget of any company but some elements may be left out, for example a services firm need not include the production budgets.

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The Best 5 IRA Investment Options

by Kylee Sanders

An Individual Retirement Account (IRA) is basically the savings account which allows individuals to save for retirement with big tax breaks. These accounts can be opened in different types of financial institutions, and basically act as baskets through which investments can be made in stocks, bonds, certificates of deposit (CDs), mutual funds and exchange traded funds (ETFs).

The major types of IRAs are – Roth IRA, Traditional IRA, and Rollover IRA

Types of IRAs

The major types of IRAs are – Roth IRA, Traditional IRA, and Rollover IRA. Roth IRAs are best for young adults with small incomes who want flexible investment options. Traditional IRAs are mostly opened by adults who start an IRA later in life and want to reduce their taxable income each year. Rollover IRA is basically an action of transferring retirement funds into traditional or Roth IRAs. Common rollovers are 401k and a 403b.

If you are planning to open an IRA during this tax season, then we give you some of the IRA offerings by different companies:

1. Vanguard – This company gives one of best IRA investment options. It offers a wide range of mutual funds and ETFs at extremely low costs. With a minimum limit of $1000 to open an account, Vanguard’s brokerage units enables investors to purchase ETFs, by other financial institutions, bonds, stocks and the cost per trade is minimum.

2. Scottrade – It is an online broker of IRAs with around 500 branches across the nation. There is no minimum deposit requirement to open an IRA in Scottrade. It offers access to 3,100 mutual funds with no transaction fees.

3. E*Trade – It is also a very popular broker giving one of the best IRA investment options by offering access to every investment product you could ever need. With no account minimum, you can invest in over 8,000 mutual funds, with 1,300 of them having no transaction fee. E* Trade was ranked No.1 in 2012 by Kiplinger. The only limitation in opening an IRA here is the trading commission which can get double, when compared with players of the trade.

4. Betterment – It is one of the first ‘robo advisors’, helping investors with a robust set of tools in making investment decisions. Here an account can be made online and deposits made via a transfer from a bank account. Though with no account minimum, it charges additional fee on top of the cost of ETFs.

5. Tradeking- It is an online broker which has a low trading fee of $ 4.95 per stock or options trade. It has been ranked No.1 in customer service by Smart Money.

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