Accounting Ethics: Why Sarbanes Oxley and Corporate Governance is so important to financial accuracy

Posted on January 15, 2026 by yoselkbaez36ck

The Sarbanes-Oxley Act of 2002 – normally referred to as SOX – is a landmark piece of legislation enacted in response to major corporate scandals in the United States, including those involving Enron and WorldCom. The act was designed to enhance corporate governance and restore public confidence in the nation’s financial markets by imposing stringent regulations on financial reporting and accountability practices for public companies. Sounds like a heavy topic, right? But stick with me, because this law affects every accountant who works for a publicly traded company, and trust me, it’s something that you’ll definitely want to know about. Here’s the cool part: it’s not just for big corporations.

Even many not-for-profits are  jumping on the Sarbanes-Oxley bandwagon because it shows they’re serious about tight financial  controls. This is especially important if they want to raise funds and build trust with donors.  So, let’s get into how SOX shapes the way companies keep their financials in order! Alright, here’s the scoop: The Sarbanes–Oxley Act of 2002, was passed in response to some massive corporate scandals—we’re talking about Enron, WorldCom, and others.

These scandals really shook the public’s faith in corporate America, and the U.S.

government was like, “Enough is enough!“SOX is all about trust. It’s the U.S. government’s way of saying, “We’re going to make sure companies are playing fair and being transparent.” The Act was passed with overwhelming support—423 votes in favor in the House, and a nearly unanimous 99 votes in the Senate.

President George W. Bush called it “the most far-reaching reforms of American business practices since FDR. SOX is packed with 11 sections that lay out the rules of the game for public companies, their boards of directors, and the auditors they work with. It even extends to privately held companies in some areas, like the destruction of evidence in federal investigations. So why did it come into play? Well, people were outraged by the lack of accountability in companies that crashed and burned, costing investors and employees their hard-earned money.

SOX was passed to rebuild investor confidence by ensuring companies report honestly and hold their executives accountable.  But not everyone was thrilled. Some critics argue that the costs of compliance are too high, especially for small companies. On the other hand, financial experts argue that it’s been a game changer—making financial reporting more reliable and transparent, and bringing back trust. Let’s get into the nitty-gritty—what are the key sections of SOX that every accountant should have on their radar? Here we go:

• Section 301: This one’s big.

This Section focuses on audit committees and their responsibility to oversee the integrity of financial reporting.

Specifically, it mandates that public companies establish procedures to handle employee complaints related to questionable accounting or auditing matters, with an emphasis on protecting whistleblowers.

• Section 302: This is the section where the CEO and CFO now must certify that the financial statements are accurate and free of material errors. This also means they’re personally responsible for making sure internal controls are in place and effective.

If things go south, they’re on the hook. It’s no longer “I didn’t know. “And “on the hook” means all their personal assets, house, cars, etc are at risk as well. In many large corporations, the CEO and CFO require that all Finance leaders “sub-certify” first – meaning that the CFO and CEO won’t sign until their direct reports have signed off as well. When I worked in large corporations, I had to sign off on a long SOX statement that basically said that I wasn’t aware of any hidden issues. And guess what, I was signing off as well with my personal assets on the line. So, it’s something to taken very seriously and you certainly don’t want to work for a company that doesn’t take SOX seriously.

• Section 404: is all about internal controls over financial reporting.  Public companies must now include a report on internal controls in their annual reports, and guess what? External auditors must verify that the company’s internal controls are actually working. Talk about a check-and-balance system! • Section 406: is for the senior financial officers and promotes honesty, accuracy, and compliance.

It’s not just about looking good on paper; it’s about setting the tone for ethical behavior across the company. Now, let’s talk about why Sarbanes-Oxley is taken so seriously—it packs a punch when it comes to penalties.

• Section 802: If you’re caught altering, destroying, or concealing documents with the intent to obstruct a legal investigation? You could face up to 20 years in prison. That’s not just a slap on the wrist. It’s a serious penalty, and it’s meant to stop anyone from trying to cover up fraud or wrongdoing.

• Section 806: This section is a whistleblower’s best friend. If you report fraud or illegal activities and you face retaliation from your employer, you’re protected.

Even better, the Department of Justice can step in and criminally charge those responsible for retaliation.  Transparency is king, and SOX has got your back.

• Section 906: The CEO and CFO can’t just sign off on financial reports without consequence anymore. Under this section, they must certify that the financial statements fairly present the company’s condition.


If they knowingly sign off on  inaccurate info, they could face up to $1 million in fines or 10 years in prison. And if they  willfully certify false info? The penalties skyrocket to up to $5 million and 20 years behind bars. Talk about serious accountability! So, here’s the big takeaway: Sarbanes-Oxley might seem like a set of dry regulations, but it’s shaping the future of corporate governance.

It’s pushing companies to be transparent, accountable, and ethical. And for accountants?

It’s a non-negotiable part of the job, especially if you’re working with publicly traded companies.

SOX is rebuilding trust in the business world, ensuring that when companies report their financials, they’re doing it honestly and accurately. So, the next time you hear about corporate governance or financial reporting, remember that SOX is the law that ensures companies aren’t cutting corners or pulling the wool over investors’ eyes…

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What a Forensic Accountant does (A complete guide to forensic accounting)

Posted on January 15, 2026 by yoselkbaez36ck

Have you ever watched the Klan show CSI the forensic scientist flashlights in hand comes  every inch of the murder scene two clues well forensic accountants do the same kind of work  but in the financial rules we investigate allegations of fraud forensic accountants  are quite often considered accounting pathologists our our job is to come in  and tell the story of how the crime happened the incriminating evidence comes from bank  statements and Ledger’s why because the numbers tell the story in this video.

I’m  going to explain what a forensic accountant.

Does how to become a forensic accountant  what you need to consider when selecting a forensic accountant and discuss the risk  in dabbling what you learn in this video you will be able to use straight away so let’s go you every transaction is a potential clip on a case I worked a big company suspected  one of its executives of embezzling money but didn’t have the proof from investigating the  company’s travel and entertainment expenses it was easy for the fraudster to hide a few small  transactions especially since the tickets were for a destination where the company does business but  the company did not do business at Christmastime and tickets weren’t purchased for five people  they were usually purchased for one and staff aren’t allowed to travel on the same plate for  disaster risk mitigation purposes to confirm that.

I was on to something I turned to social media between Facebook Instagram and Twitter.

I was able to review the most lavish breathtaking and  captivating holiday pictures posted by the wife and son I mean this was the real lifestyles of the  rich and famous in fact they both had tagged their dad the executive in the pictures this process led  me to the real story people leave bread crumbs everywhere no matter how sophisticated the crime  take the Bernie Madoff investigation by the federal government in 2009 for example what’s  so interesting about Madoff is how simple it really was simple considering.

That Madoff had  been successfully running a massive Ponzi scheme for twenty years he’d stolen billions of dollars  with clients whose investments he was managing everything was fake and none of the transactions  that he claims to have done were real but his firm backdated fake stock trades to make them look real  and then kept track of the fraud on posters but was those little post-it notes that really helped  the investigators figure out everything that was going on in recent years financial scandals like  Madoff Ponzi scheme have shown how important trained experienced financial investigators  really are.

In the era of globalization big data and deregulation there’s a lot of temptation to  make a fast buck or take advantage of consumers trust for a bigger payday and to make it worse  there is a global shortage of forensic accountants this is key to take note of for any of you looking  for a career to fight corruption and to keep matters fair there is an ever-growing need  for forensic accountants who can find analyze and communicate fraud and deception to the authorities  business owners company executives.

The media and to the public however it’s not all fraud  and deception granted that’s the exciting stuff but forensic accountants have a role in all sorts  of financial business and legal settings but you’ll have to watch my other videos for me to  get tuned to that so here’s a quick plug for you to subscribe to my youtube channel uncover fraud  let’s talk a bit about the forensic accounting Job Description forensic accountants go through a  three step process discovery finding the evidence when there is a suspicion of wrongdoing analysis  examining the evidence to figure out who did what.


To whom and how and reporting this is where the  storytelling comes in laying out the evidence for clarity and explaining every aspect of the  case in detail the responsibilities of a forensic accountant include preparing at findings with.

The  understanding that our research will probably be used in court either in a civil suit or criminal  prosecution a forensic accountant will provide litigation support and this can entail calculating  the economic damage for example when somebody violates a written contract in addition he or she  will provide what is referred to as investigative account this can involve assignments related to  insurance or securities fraud wrongdoing related to kickbacks employee theft and more a forensic  accountant needs to possess all the skills to conduct in-depth examinations of complex  financial records and accounts.

And he or she must be available to communicate with other members.

Of the legal investigation team.

To keep them up to date as developments occur a major part of the forensic accountant job description is the ability to effectively convey financial information in a manner that is appropriate for court room setting explaining complex situations.

In a simple to understand manner is key having life experiences to pull from to draw analogies having great communication skills really makes the difference a lot of what forensic accountants do is the same thing investigators detectives and the police have done always look for clues establish patterns.

And find motivation but computer technology has transformed the business.

And  along with it transforms financial crime of course it’s also transformed a financial investigation  a strong forensic accountant will have strong skills in data collection data analytics and  data visualization as blockchain technology impacts accounting data skills may become the  most important aspect of forensic accounting as a forensic accountant you’ll find yourself  conducting audits the first type forensic audits examine a company’s finances for signs of fraud  cover-ups or just plain incompetence an example of this would be the analysis of rent payment  receipts compared to unit occupancy if there are more units occupied than rent collected  there may be a problem.

I hope that makes sense remember internal audits are reports that have been prepared by companies.

Own auditing team to review their financial protocol operations and  procedures external audits are those performed by an outside source to provide credibility and  authority to the legal assertions being made in many cases the culmination of the forensic  accountants investigation will be a summary of findings breaking down complex financial  transactions into simple language to understand let me tell you some other interesting stuff  forensic accountants must be knowledgeable with various computer software programs these are a  must Microsoft Word Excel and PowerPoint for the purposes of gathering analyzing information those.

Are just the basics use a couple of works books and look into programs like ASAP utilities and  you’ll become a guru in no time ethics plays a large role in forensic accounting and experts  need to display a high level of personal integrity while conducting their work there are colleagues  around the world offering programs that specialize in forensic accounting the most recognized global  certification is the Certified Fraud examiner issued by the Association of Certified Fraud  examiner’s students learn theory on planning a forensic engagement gathering information  forensic interview protocols creating reports.

And providing court testimony experience in general accounting and auditing is key as they will need to disentangle complex embezzlement schemes detect money laundering and find hidden assets forensic accountants can find employment.

Working in law enforcement insurance companies’ private companies.

And even government agencies  also there are forensic accounting jobs to be had in banks financial houses and investment firms the  highest paid jobs are generally found working for the SEC or after forensic accountants have  advanced to higher levels of upper management this field is expected to grow by 10 percent between  2016 and 2026 according to the Bureau of Labor Statistics and experts believe that the average  wage could rise from 80,000 to 85,000 by the end of this decade people who already have degrees in  accounting can easily qualify for a higher wage by completing the coursework.

To receive their financial forensics credentials yes forensic accounting.

Is extremely exciting and sometimes it can be hard to leave a job at the office as fraud continues to grow more opportunity for new forensic accountants is the natural evolution my name is David Malan to find out more about me and the services we offer, please visit uncover fraud, as well if you’re interested in becoming.

A forensic accountant please subscribe to my YouTube channel there are articles and fraud videos regularly being published that will help you throughout your career thank you.

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listen to learn accounting basics | podcast

Posted on January 15, 2026 by yoselkbaez36ck

Accounting is relevant in all walks of life and it’s absolutely essential in the world of business  accountants are the bookkeepers and scorekeepers of Business Without accounting a business couldn’t  function it wouldn’t know whether it’s making a profit and it wouldn’t know its financial  situation whether we know it or not we all have a stake in the profit performance of businesses  we deal with the importance of profit to employees customers investors and government isn’t generally appreciated bookkeeping the recordkeeping part of accounting must be done well to make sure that the  financial information needed to run the business is complete accurate and reliable especially the  numbers reported in financial statements and tax returns wrong numbers in financial reports and tax  returns can cause all sorts of trouble accounting EX extends into virtually every Walk of Life  you’re doing accounting when you make entries in your checkbook.

And when you fill out your federal  income tax return when you sign a mortgage on your home you should understand the accounting  method the lender uses to calculate the interest amount charged on your loan each period individual  investors need to understand some Accounting in order to figure out their return on invested  capital and every organization profit motivated or not needs to know how it stands financially  many different kinds of accounting are done by many different kinds of persons and entities  for many different purposes accounting for organizations.

And accounting for individuals  accounting for profit motivated businesses and accounting for nonprofit organizations such as  hospitals homeowners associations churches credit unions and colleges income tax accounting while  you’re living and estate tax accounting after you die accounting for farmers who grow their  products accounting for miners who extract their products from the earth accounting for producers  who manufacture products and accounting for retailers who sell products that others make  accounting for businesses and professional firms that sell Services rather than products such as  the entertainment transportation and Healthcare Industries past historical based accounting and  future forecast oriented accounting that is budgeting and financial planning accounting  where periodic financial statements are mandatory businesses are the primary example and accounting  where such formal accounting reports aren’t required accounting that adheres to cost  mainly most businesses.

And accounting that records changes in market value mutual funds.

For example  Accounting in the private sector of the economy and accounting in the public government sector  accounting for going concerned businesses that will be around for some time and accounting for  businesses in bankruptcy that may not be around tomorrow accounting is necessary in a free market  capitalist economic system it’s equally necessary in a centrally controlled socialist economic  system.

All economic activity requires information the more developed the economic system the more  the system depends on information much of the information comes from the accounting systems  used by the businesses individuals institutions and other players in the economic system some of  the earliest records of History are the accounts of wealth and trading activity and the need for  accounting information was a main incentive in the development of the numbering system we use today now I discuss what bookkeepers and accountants do mainly so you can make sure  that the information coming out of your accounting system is complete timely and accurate bookkeeping  refers mainly.

To the recordkeeping aspects of accounting it is essentially the process some  would say the drudgery of recording all the information regarding the transactions and  financial activities of a business or other organization venture or project bookkeeping  is an indispensable subset of accounting the term accounting is much broader going  into the realm of Designing the bookkeeping system establishing controls to make sure that the system  is working well and analyzing and verifying the recorded information bookkeepers follow  orders accountants give orders you can think of accounting as what goes on before before and after  bookkeeping accountants prepare reports based on the information accumulated by the bookkeeping  process financial statements tax returns.


And various confidential reports to managers measuring  profit is a critical task that accountants perform a task that depends on the accuracy  of the information recorded by the bookkeeper the accountant decides how to measure sales revenue  and expenses to determine the profit or loss for the period the tough questions about profit  how you measure it in our complex and advanced economic environment and what profit consists  of can’t be answered through bookkeeping alone bookkeepers prepare Source documents for all  transactions operations and other events of the business source documents are the starting point  in the bookkeeping process.

When buying products a business gets a purchase invoice from the  supplier when borrowing money from the bank a business signs a note payable a copy of which  the business keeps when a customer uses a credit card to buy the business’s product the business  gets the credit card slip as evidence of the transaction when preparing payroll checks a  business depends on salary rosters and time cards all of these key business forms serve as sources  of information into the bookkeeping system in other words information the bookkeeper uses in  recording the financial effects of the activities of the business bookkeepers determine and enter in  Source documents.

The financial effects of the transactions and other events of the business  transactions have Financial effects that must be recorded the business is better off worse  off or at least different off as the result of its transactions examples of typical business  transactions include paying employees making sales to customers borrowing money from the bank and  buying products that will be sold to customers the bookkeeping process begins by determining  the relevant information about each transaction the accounting officer of the business establishes  the rules and methods for measuring the financial effects of transactions of course the bookkeeper  should comply with these rules.

And methods bookkeepers make entries of financial effects into journals and accounts with appropriate references to Source documents using the source document or documents for every transaction the bookkeeper makes the first or original entry into a journal and then into the business’s accounts only an official established chart of accounts should.

Be used in recording transactions a journal is a chronological  record of transactions in the order in which they occur like a very detailed Personal Diary in  contrast an account is a separate record or page as it were for each asset each liability and so  on one transaction affects two or more accounts the journal entry records the whole transaction  in one place then each piece is recorded in the two or more accounts that are affected by the  transaction bookkeepers perform end of period procedures the critical steps for getting the  accounting records up to date and ready for the preparation of accounting reports tax returns and  financial statements a period is a stretch of time from one day to 1 month to one quarter 3 months to  one year that.

Is to determined by the needs of the business a year is the longest period of time that  a business would wait to prepare its financial statements most businesses need accounting  reports and financial statements at the end of each quarter and many need monthly financial  statements before the accounting reports can be prepared at the end of the period the bookkeeper  needs to bring the accounts of the business up to date and complete the bookkeeping process one  step for example is recording the depreciation expense for the period another step is getting  an actual count of the business’s inventory so that the inventory records can be adjusted to  account for shoplifting employee theft and so on the accountant needs to take the final step.

And check for errors in the business’s accounts data entry clerks and bookkeepers may not fully  understand the unusual nature of some business transactions and may have entered transactions  incorrectly one reason for establishing internal controls is to keep errors to an  absolute minimum ideally accounts should contain very few errors at the end of the period but the  accountant can’t make any assumptions and should make a final check for any errors that may have  fallen through the cracks bookkeepers compile the adjusted trial balance for the accountant which is  the basis for preparing reports tax returns and financial statements after all the end of period  procedures have been completed.

The bookkeeper compiles a complete listing of all accounts  which is called the adjusted trial balance modes sized businesses maintain hundreds of accounts for  their various assets liabilities owner’s equity revenue and expenses larger businesses keep  thousands of accounts and very large businesses may keep more than 10,000 accounts.

In contrast  external financial statements tax returns and internal accounting reports to managers contain  a relatively small number of accounts for for example a typical external balance sheet reports  only 25 to 30 accounts maybe even fewer and a typical income tax return contains a relatively  small number of accounts the accountant takes the adjusted trial balance and telescopes similar  accounts into one summary account that is reported in a financial report or tax return for example a  business may keep hundreds of separate inventory accounts every one of which is listed in the  adjusted trial balance the accountant collapses all these accounts into one summary inventory  account.

That is presented in the external balance sheet of the business.

In grouping the accounts.

The accountant should comply with established financial reporting standards and income tax  requirements bookkeepers close the books bring the bookkeeping for the fiscal year just ended  to a close and get things ready to begin the bookkeeping process for the coming fiscal year  books is the common term for a business’s compl complete set of accounts a business’s transactions  are a constant stream of activities that don’t end tidily on the last day of the year which  can make preparing financial statements.

And tax returns challenging the business has to draw a  clear line of demarcation between activities for the year the 12-month accounting period ended and  the year yet to come by closing the books for one year and starting with fresh books for the  next year most medium-size and larger businesses have an accounting manual that spells out in great  detail the specific accounts and procedures for recording transactions but all businesses  change over time and they occasionally need to review their accounting system and make  revisions companies don’t take this task lightly discontinuities.

In the accounting system can be  major shocks and have to be carefully thought out nevertheless bookkeeping and accounting  systems can’t remain static for very long if these systems were never changed bookkeepers  would still be sitting on high stools making entries with quill pens and ink and leatherbound ledgers accountants prepare certain basic financial statements for a business the  three basic financial statements they prepare are income statement a summary of sales revenue and  expenses that determine the profit or loss for the period just ended alternative titles include  the statement of operations and the statement of earnings inside a business but not in its external  Financial reports an income statement may be called a profit and loss statement or p&l report  statement of financial condition or balance sheet a summary of a business’s assets liabilities and  owner’s equity in order to present its financial position at the end of the period statement of  cash flows a summary of cash sources and uses for the period just ended in short business  managers at all levels from the chief executive down to the lower rungs on the management ladder  and especially managers of smaller businesses…..

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What does an accountant do and why is it so important?

Posted on January 15, 2026 by yoselkbaez36ck

Accounting is cooler than you think. It’s way more important, too and here’s why. Let’s say you work for a company that makes ballpoint pens. You guys are good at making pens and you’re turning a profit. Now, let’s say you’re in a meeting and someone asks, “Hey, should we make markers, too?” Well, your factory can produce them, and your marketing team can sell them, but should you make them? Or should you just keep making pens? Everyone turns to the boss and the boss, if he’s smart, will turn to the accountant.

Yup, the accountant. At this point, the accountant might just be the smartest person in the room and certainly the most important.

The accountant will talk with key partners like the marketing, sales, manufacturing and finance teams to determine fixed and variable costs, market size and potential revenue. She’ll build a pro forma income statement to forecast profits and to determine how long it will take to recoup the initial investment and she’ll consider the impacts on the balance sheets that investors use to assess the financial health of your company.

Assuming it all looks good, she’ll determine that making markers is a sound decision and then she will tell the boss, very clearly and concisely, to go forth and conquer. It’s time to celebrate. You guys are making markers because making markers makes sense and dollars.
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Econ Duel: Rent or Buy?

Posted on January 15, 2026 by yoselkbaez36ck

 

Often people ask me, well what is it that we know about investment and investment advice anyway? Now, we’ve already talked about equities, but as economists do we have anything else to tell people? Let’s talk a little bit about housing, because housing is one of these areas where there’s a lot of myths around it. People in America, it’s part of the American Dream.

And one thing I think people don’t realize is that over the long run, house prices are certainly not guaranteed to go up. I mean we saw in the financial crisis that house prices came way down.

But there’s still this kind of idea that people have in their heads that they’re not making any more land, so in the long run house prices have to go up. And we know from our understanding of assets that you should not expect your house to be a great financial investment. But isn’t there a tax reason to buy a home?

So if I borrow money for a mortgage, and I’m paying income tax and itemizing my deductions, I can write off a lot of that mortgage interest and get some of the money back. And that means it could be cheaper or more advantageous to buy the home because of taxes. But don’t forget, a lot of that tax advantage is going to be captured not by the buyer, but by the seller.

What the tax advantage means is it pushes up the prices of homes. It’s already built into a higher price, so you, as the buyer, don’t always get that gain.

Often it’s the seller. Well, but think of this in terms of elasticity. Say I live in an area, like many parts of Texas or Florida, where I get this tax break that increases the demand for homes, yes. But then suppliers build more homes and they drive the price back down again. And it seems that in a lot of states actually, the buyer should be reaping a lot of that tax break.

Yes, No? If only there were more places in the United States like that, I would tend to agree. But one of the big problems we have in the United States today is that the demand for housing goes up and you’re in some place like San Francisco, or New York, or Boston where it’s impossible to get permits to build more housing.

And when the demand goes up, all that means is the price of the house goes up. So all of those gains, whether it’s from the tax system, or whether it’s from people wanting to move to San Francisco, all of those gains go to the land owners.

And that’s actually a big problem we have in the United States today. But I do see a stability reason to own a home.


Say you’re 37 years old; you have 2 kids in school; you want them to go to a good high school district. You don’t want to be told, “You’re going to have to move.” You want to arrange your backyard the way you see fit.

And you don’t want to have to renegotiate a rent contract. All of those factors militate in favor of buying a home. So I think you’re right for those people. But one thing you’ve got to keep in mind is that on average, houses are not going to be a great financial investment. So you have to be exactly one of those people who wants extra stability, more stability than the average person.

That’s when you’re going to gain from buying a house. And, keep in mind, that when you buy a house and that heating system collapses and you’ve got to repair that, that’s a big problem.

When you’re hit by a lightning strike and you’ve got to repair the roof, that’s a big expense as well. So when people say, “I’m only worried about the rent going up.” Well that’s fine.

They may be worried about that, but don’t forget, you’ve got to be worried about replacing the roof every 20 years, as well.

So, it’s really a marginal question, you’re saying. Like at the margin, do you need the tax break more than the typical buyer? At the margin, do you value the good high school district more than the typical buyer? And at the margin, are you better at fixing the broken roof or hiring someone to do it than the average buyer?

And those things may or may not apply to you, but that’s the right way to think about it? Exactly right, so if you want that tax advantage, you’ve got to be earning more income than average. You’ve got to be itemizing your deductions. If you’re not one of those people in the upper middle class, you’re not going to get that tax advantage. If you’ve got one kid, maybe the school is not so important.

Maybe you have to have two before you really get that advantage from the schooling.

So yeah, you’ve got to be thinking about how you’re different from the average. If you really want to buy a home, you’ve got to love buying a home. I think of people as needing to save more typically, that we’re programmed to think about the here and now, we’re a bit impatient. Perhaps we haven’t evolved to think well enough about the more distant future.

If you buy a home, pay off your mortgage at the end of 30, or one hopes 15 years, you own something. In the meantime, you’re saving. and you get into a routine that doesn’t even feel like saving. It’s more savings than if you’re writing a rent check every month. So maybe it’s our own imperfections.

We need to lock ourselves into a higher savings regime, and that’s another possible reason to buy a home. Yeah, I do think the forth savings argument has got something to it. But there’s a big problem, especially in the United States today, and that is there’s such an encouragement to buy houses with no money down, even after the financial crisis. If you really are concerned about savings, the key point is to have a 20% down payment. So save up for that down payment.

And that is really what is going to be the forth savings aspect of buying the house. You know, I think the biggest piece of advice I’d give to people is just to be on that wealthier side of the equation, so that owning a home makes sense for you. Don’t forget our earlier investment rule: Diversify, diversify, diversify. And yet, when it comes to housing, people are encouraged to put a huge amount of their wealth into one asset, in one place in the country. That could be a terrible decision.

If you’re in a small town with only one employer, and you have a house and that employer goes bust, well your house price is going to fall, you might lose your job, your income is all going to fall, and it’s all going to be happening concentrated, all in one place all at one time.

What do you think? To see previous episodes of Econ Duel, check out our playlists. Or if you’re craving more financial advice, click to find out if mutual funds are a good investment.

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