Things You should Keep in Your Brain’s Ready-Reference

It’s true information is more available to individuals than it has ever been. It’s true that information is relatively inexpensive compared to past forms of data collection. It’s true that more information is available to us intentionally manipulated either for business purposes or deliberately maligned to influence us with falsehoods and premeditated lies. Each of us needs a small ready-reference to keep our head straight about reality and rationality. Mariner offers a few samples that not only provide guidance but are the kind of values that tell us who we are as well.

  • Asset/Debt Ratio (A/DR)…..For example, the net worth of your home, your car, all your savings and investments, and your bank balances (say a total $150K) divided by all your debt balances – mortgage, car, furniture, credit cards, loans, outstanding betting slips, and any other debts outstanding (say a total $80K). Divide 150K by 80K = 1.875. This quotient is your Asset/Debt Ratio.

Track this number every time you complete a budget cycle, probably monthly. If you live within your normal cash flow without changing budget credits, perhaps quarterly may be frequently enough. Why it is important to have your A/DR in your ready-reference is to compare it to the new A/DR. Rule one: under normal circumstances, it should never be below 1.0; that means you are not worth anything; you have no assets. Rule two: it should not drop three months in a row without investigating why. If either rule is broken, you must identify the cause and move to repair it as much as possible.

  • Know your income tax bracket. It is an important tool to analyze the real value of all sorts of things.A part of an IRS web site is copied below.[1] .

Federal Tax Brackets

Your tax bracket is the rate you pay on the “last dollar” you earn; but as a percentage of your income, your tax rate is generally less than that. Here are the tax brackets and the income ranges where they apply:

Taxable Income          Tax Bracket

$0 – $9.275                        10%

$9.275 – $37.650               15%

$37.650 – $91.150              25%

$91.150 – $190.150            28%

$190.150 – $413.350          33%

$413.350 – $413.350          35%

$415.050 and above           39.6%

As a value in our ready-reference, it is used simply as a constant. One would say, “If I win 400m in the lottery, that will put me in the 39.6 tax bracket; I’ll only keep 241.6m.”

On the other hand, if a discretionary fund item, say 1b aid to college enrollment, and the article says that’s .003 cents of every tax dollar, you can whip out your tax rate and determine that the nation’s college assistance program will use your paid taxes, at a typical 25% tax rate – your sample tax bill (25x40K=$1,000) the 1b will cost you three dollars of your paid income taxes. Unless the IRS raises tax rates, your taxes don’t go up; it’s just that of your taxes, $3.00 will be allocated to the college fund line item.

The huge numbers in governments need your tax rate from your ready-reference to put some perspective on surrealistic values.

  • Another ready-reference in this post is to know the inflation rate. In years gone by fluctuating inflation had a serious impact in everything from groceries and gasoline to housing and automobiles; mariner remembers an annual rise of 14% during the seventies. Soon, inflation will be in the news. It’s one of the reasons the big banks are hyper. For the most part, inflation also is a constant used to evaluate savings and investment interest. Savings banks pay interest just a tiny bit above inflation (but not always) and if you don’t keep track, you may be losing money against inflation. Another common situation is converting a large investment CD. If you know your inflation rate, you’ll know the penalty for cashing the CD early is less than the interest you will lose to inflation over the remaining time for the CD.
  • The final ready-reference in this post is to know how dependable your data source is. Keep a check step in your ready-reference that causes you to think about the source you are using to improve your knowledge. The last election suffered greatly because social media became a source of undependable opinion and fact. Of course this is easily true because anyone can say anything without authorization or validation. Are you using PBS or reading a reputable paper or magazine? Your chances are decent that the information is true and not skewed or missing too much. On the other hand, private websites (like this one), commercial websites, ideological websites, Facebook, twitter, et al are wide open to manipulation, garbage opinions and destructive lies.

There are other values to keep in your brain’s ready-reference. We’ll go back to them at some point.

This has been a nice diversion. Don’t look out the window – Donald is out there.

Ancient Mariner

[1] See: http://www.moneychimp.com/features/tax_brackets.htm

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