Economic Freedom
True individual freedom cannot exist without economic security and independence.
Theodore Roosevelt
“I think that nothing is so important for freedom as recognizing in the law each individual’s natural right to property, and giving individuals a sense that they own something that they’re responsible for, that they have control over, and that they can dispose of.”
― Milton Friedman
There can be no liberty unless there is economic liberty. Margaret Thatcher
According to Adam Smith, the expectation of profit from "improving one's stock of capital" rests on private property rights. It is an assumption central to capitalism that property rights encourage their holders to develop the property, generate wealth, and efficiently allocate resources based on the operation of markets. From this has evolved the modern conception of property as a right enforced by positive law, in the expectation that this will produce more wealth and better standards of living
Capitalism is an economic system that is based on private ownership of the means of production and the production of goods or services for profit.(1)Other elements central to capitalism include capital accumulation and often competitive markets.(2)
Capitalism is defined as a social and economic system where capital assets are mainly owned and controlled by private persons, where labor is purchased for money wages, capital gains accrue to private owners
Free-market capitalism refers to an economic system where prices for goods and services are set freely by the forces of supply and demand and are allowed to reach their point of equilibrium without intervention by government policy. It typically entails support for highly-competitive markets, private ownership of productive enterprises. laissez-faire is a more extensive form of free-market capitalism where the role of the state is limited to protecting property rights.
- [1] Chris Jenks. Core Sociological Dichotomies. London, England, UK; Thousand Oaks, California, USA; New Delhi, India: SAGE. Pp. 383.
- [2[ Heilbroner, Robert L. "capitalism." The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008. The New Palgrave Dictionary of Economics Online. Palgrave Macmillan. 29 August 2012 <http://www.dictionaryofeconomics.com/article?id=pde2008_C000053> doi:10.1057/9780230226203.0198
Assets In financial accounting are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset. Simply stated, assets represent value of ownership that can be converted into cash (although cash itself is also considered an asset).[1]
[1]Sullivan, Arthur; Steven M. Sheffrin (2003). Economics: Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. pp. 272. ISBN 0-13-063085-3.
Personal property is generally considered private property that is movable,[1] as opposed to real property or real estate. In the common law systems personal property may also be called chattels or personalty. In the civil law systems personal property is often called movable property or movables - any property that can be moved from one location to another. This term is in distinction with immovable property or immovables, such as land and buildings. Movable property on land, that which was not automatically sold with the land, included for example larger livestock (wildlife and smaller livestock like chickens, by contrast, was often sold as part of the land). In fact the wordcattle is the Old Norman variant of Old French chatel (derived from Latin capitalis, “of the head”), which was once synonymous with general movable personal property.[2]
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Property is any physical or intangible entity that is owned by a person or jointly by a group of people or a legal entity like a corporation.[citation needed] Depending on the nature of the property, an owner of property has the right toconsume, sell, rent, mortgage, transfer, exchange or destroy it, or to exclude others from doing these things.[1][2][3]
Important widely recognized types of property include real property (the combination of land and any improvements to or on the land), personal property (physical possessions belonging to a person), private property. (property owned by legal persons or business entities), public property, (state owned or publicly owned and available possessions) and intellectual property, (exclusive rights over artistic creations, inventions, etc.), although the latter is not always as widely recognized or enforced.[4] A title, or a right of ownership, establishes the relation between the property and other persons, assuring the owner the right to dispose of the property as the owner sees fit.
Personal property is generally considered private property that is movable,[1] as opposed to real property or real estate. In the common law systems personal property may also be called chattels or personalty. In the civil law systems personal property is often called movable property or movables - any property that can be moved from one location to another. This term is in distinction with immovable property or immovables, such as land and buildings. Movable property on land, that which was not automatically sold with the land, included for example larger livestock (wildlife and smaller livestock like chickens, by contrast, was often sold as part of the land). In fact the wordcattle is the Old Norman variant of Old French chatel (derived from Latin capitalis, “of the head”), which was once synonymous with general movable personal property.[2]
- [1] "Personal property". Sir Robert Harry Inglis Palgrave. Dictionary of political economy, Volume 3. 1908. p. 96
- [2] Origin of chattel, accessed August 15, 2009
real property, real estate, realty, or immovable property is any subset of land that has been legally defined and the improvements to it made by human efforts: any buildings, machinery, wells, dams, ponds, mines, canals, roads, etc. Real property and personal property are the two main sub-units of property in English Common Law.
In countries with personal ownership of real property, civil law protects the status of real property in real-estate markets, where licensed agents, realtors, work in the market of buying and selling real estate.
Each U.S. State has its own laws governing real property and the estates therein, grounded in the common law. Real property is generally defined as land and the things permanently attached to the land. Things that are permanently attached to the land, which also can be referred to as improvements, include homes, garages, and buildings.
Identification of real property
To be of any value a claim to any property must be accompanied by a verifiable and legal property description. Such a description usually makes use of natural or man made boundaries such as seacoasts, rivers, streams, the crests of ridges, lake shores, highways, roads, and railroad tracks, and/or purpose-built artificial markers such as cairns, surveyor's posts, fences, official government surveying marks (such as ones affixed by the U.S. Geodetic Survey ( U.S,G.S,), and so forth.
Estates and ownership interests defined
The law recognizes different sorts of interests, called estates, in real property. The type of estate is generally determined by the language of the deed, lease, bill of sale, will, land grant, etc., through which the estate was acquired. Estates are distinguished by the varying property rights that vest in each, and that determine the duration and transferability of the various estates. A party enjoying an estate is called a "tenant."
Real estate is "Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this; (also) an item of real property; (more generally) buildings or housing in general. Also: the business of real estate; the profession of buying, selling, or renting land, buildings or housing."[1]
In the laws of the United States of America, the 'real' in 'real estate' means relating to a thing (res/'rei', thing, from O.Fr. 'reel', from L.L. 'realis' 'actual', from Latin. 'res', 'matter, thing'),[3] as distinguished from a person. Thus the law broadly distinguishes between 'real' property (land and anything affixed to it) and 'personal' property or chattels (everything else, e.g., clothing, furniture, money). The conceptual difference was between 'immovable property', which would transfer title along with the land, and 'movable property', which a person could lawfully take and would retain title to on disposal of the land.
[1]"Real estate": Oxford English Dictionary online: Retrieved September 18, 2011
[3] "Real" – Online Etymological Dictionary Retrieved July 12, 2008
Personal finance refers to the
financial decisions which an individual or a family unit is required to make to
obtain, budget,
save, and spend monetary resources over time, taking into account various
financial risks and future life events.[1]
When planning personal finances the individual would consider the suitability
to his or her needs of a range of banking products (checking,
savings
accounts, credit cards
and consumer loans)
or investment (stock market,
bonds,
mutual funds)
and insurance (life insurance,
health
insurance, disability
insurance) products or participation and monitoring of individual-
or employer-sponsored retirement
plans, social
security benefits, and income tax
management.
Personal financial planning process
A key component of personal finance is financial planning,
which is a dynamic process that requires regular monitoring and reevaluation.
In general, it involves five steps:[2]
1.
Assessment: A person's
financial situation is assessed by compiling simplified versions of financial
statements including balance sheets
and income
statements. A personal balance sheet lists the values of personal assets (e.g., car, house,
clothes, stocks, bank account), along with personal liabilities
(e.g., credit card debt, bank loan, mortgage). A personal income
statement lists personal income and expenses.
2.
Goal setting: Having
multiple goals is common, including a mix of short term and long term goals.
For example, a long-term goal would be to "retire at age 65 with a
personal net worth of $1,000,000," while a short-term goal would be to
"save up for a new computer in the next month." Setting financial
goals helps to direct financial planning. Goal setting is done with an
objective to meet certain financial requirements.
3.
Creating a plan: The financial
plan details how to accomplish the goals. It could include, for example,
reducing unnecessary expenses, increasing the employment income, or investing
in the stock market.
4.
Execution: Execution of
a financial plan often requires discipline and perseverance. Many people obtain
assistance from professionals such as accountants,
financial
planners, investment
advisers, and lawyers.
5.
Monitoring and reassessment:
As time passes, the financial plan must be monitored for possible adjustments
or reassessments.
Typical goals most adults and young adults have are paying
off credit card and/or student loan debt, investing for retirement, investing
for college costs for children, paying medical expenses, and planning for
passing on their property to their heirs (which is known as estate
planning).
Areas of focus
The six key areas of personal financial planning, as
suggested by the Financial Planning Standards Board, are:[3]
1.
Financial position: is
concerned with understanding the personal resources available by examining net
worth and household cash flow. Net worth is a person's balance sheet,
calculated by adding up all assets under that person's control, minus all
liabilities of the household, at one point in time. Household cash flow totals
up all the expected sources of income within a year, minus all expected
expenses within the same year. From this analysis, the financial planner can
determine to what degree and in what time the personal goals can be
accomplished.
2.
Adequate
protection: the analysis of how to protect a household from
unforeseen risks. These risks can be divided into liability, property, death,
disability, health and long term care. Some of these risks may be
self-insurable, while most will require the purchase of an insurance contract.
Determining how much insurance to get, at the most cost effective terms
requires knowledge of the market for personal insurance. Business owners,
professionals, athletes and entertainers require specialized insurance
professionals to adequately protect themselves. Since insurance also enjoys
some tax benefits, utilizing insurance investment products may be a critical piece
of the overall investment planning.
3.
Tax planning: typically
the income tax is the single largest expense in a household. Managing taxes is
not a question of if you will pay taxes, but when and how much. Government
gives many incentives in the form of tax deductions and credits, which can be
used to reduce the lifetime tax burden. Most modern governments use a
progressive tax. Typically, as one's income grows, a higher marginal rate of
tax must be paid. Understanding how to take advantage of the myriad tax breaks
when planning one's personal finances can make a significant impact.
4.
Investment and accumulation
goals: planning how to accumulate enough money for large purchases, and
life events is what most people consider to be financial planning. Major reasons
to accumulate assets include, purchasing a house or car, starting a business,
paying for education expenses, and saving for retirement.
Achieving these goals requires projecting what
they will cost, and when you need to withdraw funds. A major risk to the
household in achieving their accumulation goal is the rate of price increases
over time, or inflation.
Using net present value calculators, the financial planner will suggest a combination
of asset earmarking and regular savings to be invested in a variety of
investments. In order to overcome the rate of inflation, the investment
portfolio has to get a higher rate of return, which typically will subject the
portfolio to a number of risks. Managing these portfolio risks is most often
accomplished using asset allocation, which seeks to diversify investment risk
and opportunity. This asset allocation will prescribe a percentage allocation
to be invested in stocks, bonds, cash and alternative investments. The
allocation should also take into consideration the personal risk profile of
every investor, since risk attitudes vary from person to person.
5.
Retirement planning is
the process of understanding how much it costs to live at retirement, and
coming up with a plan to distribute assets to meet any income shortfall.
Methods for retirement plan include taking advantage of government allowed
structures to manage tax liability including: individual (IRA)
structures, or employer sponsored retirement
plans.
6.
Estate
planning involves planning for the disposition of one's
assets after death. Typically, there is a tax due to the state or federal
government at your death. Avoiding these taxes means that more of your assets
will be distributed to your heirs. You can leave your assets to family, friends
or charitable groups.
Personal budgeting, while not particularly difficult, tends
to carry a negative connotation among many consumers. Sticking to a few basic
concepts helps to avoid several common pitfalls of budgeting.
Purpose
A budget should have a purpose or defined goal that is
achieved within a certain time period. Knowing the source and amount of income
and the amounts allocated to expense events are as important as when those cash
flow events occur.
Simplicity
The more complicated the budgeting process is, the less
likely a person is to keep up with it. The purpose of a personal budget is to identify
where income and expenditure is present in the common household; it is not to
identify each individual purchase ahead of time. How simplicity is defined with
regards to the use of budgeting categories varies from family to family, but
many small purchases can generally be lumped into one category (Car, Household
items, etc.).
Flexibility
The budgeting process is designed to be flexible; the
consumer should have an expectation that a budget will change from month to
month, and will require monthly review. Cost overruns in one category of a
budget should in the next month be accounted for or prevented. For example, if
a family spends $40 more than they planned on food in spite of their best
efforts, next month's budget should reflect an approximate $40 increase and
corresponding decrease in other parts of the budget.
"Busting the budget" is a common pitfall in
personal budgeting; frequently busting the budget can allow consumers to fall
into pre-budgeting spending habits. Anticipating budget-busting events (and
underspending in other categories), and modifying the budget accordingly,
allows consumers a level of flexibility with their incomes and expenses.
Budgeting for irregular income
Special precautions need to be taken for families operating
on an irregular income. Households with an irregular income should keep two
common major pitfalls in mind when planning their finances: spending more than
their average income, and running out of money even when income is on average.
Clearly, a household's need to estimate their average
(yearly) income is paramount; spending, which will be relatively constant,
needs to be maintained below that amount. A budget being an approximate
estimation, room for error should always be allowed so keeping expenses 5% or
10% below the estimated income is a prudent approach. When done correctly,
households should end any given year with about 5% of their income left over.
Of course, the better the estimates, the better the results will be.
To avoid running out of money because expenses occur before
the money actually arrives (known as a cash flow problem in business jargon) a
"safety cushion" of excess cash (to cover those months when actual
income is below estimations) should be established. There is no easy way to
develop a safety cushion, so families frequently have to spend less than they
earn until they have accumulated a cushion. This can be a challenging task
particularly when starting during a low spot in the earning cycle, although
this is how most budgets begin. In general, households that start out with
expenses that are 5% or 10% below their average income should slowly develop a
cushion of savings that can be accessed when earnings are below average.
Whether this rate of building a cushion is fast enough for a given financial
situation depends on how variable income is, and whether the budgeting process
starts at a high or low point during the earnings cycles.
Allocation guidelines
There are several guidelines to use when allocating money for
a budget as well. Past spending is one of the most important priorities; a
critical step in most personal budgeting strategies involves keeping track of
expenses via receipts over the past month so that spending for the month can be
reconciled with budgeted spending for the next month. Any of the following
allocation guidelines may be used; choose one that will work well with your
situation.
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"Use it up, Wear it Out, Make it do...or Do without." This homily was brought to the USA by immigrants from Great Britain in the early 1900's or before. Those who migrated were poor and this served to remind them to be thrifty. The saying is used frequently by those who lived through the Great Depression and their children.
Capitalism is not merely a system for motivating work or distributing rewards in proportion to value created; it is also a system for creating new wealth, and there is no more obvious way to do that than through inventions and technology.
America's focus on the entrepreneur has produced the most inventive and entrepreneurial society in history, which has benefited not just business-owners but workers and ordinary people.
Capitalism channels greed in such a way that it is placed at the service of the wants and needs of others. Under capitalism, helping others is the best way of helping yourself. Capitalism provides a virtue to prosperity.
Res ipsa loquitur
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If your outgo exceeds your income, then your upkeep will be your downfall.
Capitalism is not merely a system for motivating work or distributing rewards in proportion to value created; it is also a system for creating new wealth, and there is no more obvious way to do that than through inventions and technology.
America's focus on the entrepreneur has produced the most inventive and entrepreneurial society in history, which has benefited not just business-owners but workers and ordinary people.
Capitalism channels greed in such a way that it is placed at the service of the wants and needs of others. Under capitalism, helping others is the best way of helping yourself. Capitalism provides a virtue to prosperity.
Dinesh D'Souz
Res ipsa loquitur
"The Thing Speaks for Itself"
