Three financial traps to avoid

Some say you don't actually have to pay your income taxes, or that a certain company or investment is sure to make you rich. Beware these three financial traps, Hamm writes.

By , Guest blogger

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    24-karat gold bars are seen at the United States West Point Mint facility in West Point, N.Y.
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I get a lot of email from readers. Most of them are from people either writing to comment on an article privately or to ask a question for the reader mailbag.

Some, though, write in to encourage me to post an article on a certain topic. Sometimes, it’s because they want to promote a product. Other times, it’s because they truly believe in an idea and want me to share it.

Quite often, I can file the “true believer” requests into several different groups. Today, I’m going to address three of the most frequent ones.

Recommended: Can you manage your money? A personal finance quiz.

You Don’t Have to Pay Income Taxes!
Quite often, tax protesters will write in, encouraging me to announce on The Simple Dollar that people don’t actually have to pay their income taxes. 

They make a lot of different arguments for this idea. Some argue that the law states that income taxes are voluntary. Others argue that there is no single law requiring you to pay. Still others have said that ignorance of income tax is a viable defense for not paying, so I should never mention income taxes at all. Yet others write about the definitions of the word “state” and “include.” Others write about it as a form of protest. I’ve also read that the Constitution forbids it in Article I, Sections 8 and 9.

All of these arguments are on extremely faulty ground at best. There is a clearly stated law that makes the average American liable to pay income taxes. It is in Section 1 of the Internal Revenue Code, 26 U.S.C. § 1. It states, in short: “There is hereby imposed on the taxable income of [most citizens] a tax determined in accordance with the following table:” (and I’ll omit the table for brevity’s sake). The Sixteenth Amendment to the Constitution makes this law about as ironclad as can be.

You occasionally might find a judge who will let you get away with these types of arguments. The thing is, once you fail to pay again, the IRS will just take you to court again and eventually the hammer will come down on you. It will not be pretty.

Pay your taxes. It’s the law.

This Multi-Level Marketing Company Will Make Us Both Rich!
I’ll just list a pile of the companies readers have asked me to join up with. AdvoCare. Amway. Avon. Herbalife. Discovery Toys. LifeVantage. MonaVie. The Pampered Chef. Scentsy. I’m sure there are others if I dug deep into the email archives.

All of these companies – and many others – use multi-level marketing as a method for earning money.

Here’s how it works: someone else signs you up for the program and trains you to sell a product. You often have to put up some money to buy some product at cost from the parent company, then you sell the product to whoever you can, often friends and family. The person who signed you up gets a portion of the income from your sale. If you sell everything you pick up, you’ll make some money, as will the person who signs you up.

Sounds great, right? It fails in a bunch of ways. For starters, if you can’t sell enough of the product, you’re going to take it on the chin. You’re also making a relatively low cut yourself. The only low-risk way to make money with this system is to recruit others, not to sell yourself. So, the people who make a mint at this are the ones who simply sign up tons of people.

It’s a people recruiting business, in other words, not a product-based business. In the end, salespeople at the end of the chain either just sell to family and friends or they work their tail off only to see some of the proceeds go to the person who signed them up.

Sure, you can make money with a multi-level marketing company, but there are better ways to earn money for the effort you put in, plus you don’t have to tap your friends and family to buy products from you that they don’t really want.

All of Your Readers Need to Switch to This “Safe” Investment!
Ever since mid-2008, I’ve seen a steady stream of people writing to me claiming that the dollar is on the verge of collapse and that I need to warn readers.

Of course, most of them have a great solution for what you should do with that money. Usually, this comes coupled with a link to a website that’s pretty obviously selling an investment or brokering the sale of an investment. Quite often, they’re blogs in which every third article or so ends up discussing how investing in this particular item is the only way to save yourself.

If you want fear and panic, go elsewhere. Regardless of my own feelings on the future of the U.S. dollar and the economy, I find it largely useless to talk about or focus on fear, and I find it particularly dangerous to make risky financial moves in advance of something that may or may not happen.

As I’ve said many times on this site, the only thing we have to fear is fear itself.

Beyond that, it’s always a good general principle to never fully believe a salesman. Don’t take the words of someone who is trying to sell you something as fact and don’t take any “sources” they give you as fact, either.

Beyond that, most “alternative” investments are incredibly volatile. Gold, for example, has dropped almost 40% over the past year. I fully expect that someday it will spike like a freight train again, and I also expect that someday it’ll drop like a rock again. Why? It’s incredibly volatile and it always has been. The same is true with silver. It’s even more true for things like Bitcoin.

Look, if you want to invest a little of your money in these types of “hedges,” feel free. They can provide a small portion of your portfolio. Putting all your money in gold or some other specific investment, though, is incredibly dangerous. You open your entire future up to these kinds of rapid swings in value.

The best investment advice I can give anyone is to diversify. It is always a mistake to have all of your money in one or two things, no matter what those things are.

The post No Income Taxes? Multi-Level Marketing? Hedging Against the Dollar? Beware. appeared first onThe Simple Dollar.

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