Pay Yourself First – Action Plan

This following is a post by MPFJ staff writer, Jeff. Jeff writes about sustainable living and finances at his website, Sustainable Life Blog. Jeff really enjoys traveling with his wife as much as he can, to wherever he can.

Have you ever heard the saying “pay yourself first”?

If you’ve ever had a job, I’m sure that you have. I’ve been having that information pounded into my head for about 15 years now, ever since I got my first job as a lifeguard. My parents said it to me, and so did relatives that were older and trying to steer me towards good habits. I appreciated the advice and I took it heart, building up a nice savings before going off to college (which I promptly spent most of).

15 years later though, even after I’ve set up automatic withdraws from my checking to my savings account on every payday, I look at my check and notice that I’m still not being paid first. If you’re not sure what I’m talking about, grab your most recent pay stub and have a look at it and you’ll see what I’m talking about.

• I pay federal income taxes of $987.52
• I pay medicare taxes of $78.54
• I pay Social Security Taxes of $227.50
• I’m single, so my employer pays for my share of the health insurance. If I wasn’t, a percentage of my check would be going to cover my health insurance premiums.
• This totals up to $1,293.56

Despite taking the advice I was given, there are 3 (or 4) people getting paid out of my wages before I do. Since I would rather keep more of my money than let them have it, I’ve been trying to figure out ways to put my name ahead of all those other groups siphoning money from my check. If you’re interested in that as well, here’s what you can do.

How to Pay Yourself First

The first (and probably most important thing you can do is contribute to a pre-tax retirement account, such as a 401k or a Traditional IRA. Most employers have a 401k option, and you can contribute to that account to the tune of $17,500 in 2014, or $18,000 in 2015 and beyond.

Even if you can’t fully fund your 401k each year, every dollar that you set aside will be a dollar that is truly going to you first. Once your 401k deduction gets taken out, then your taxes will follow (SSA, Medicare and Federal Income Taxes), but the taxes will be computed on a lower income. Using the above example, and assuming we will begin contributing the maximum to our 401k in 2015, here’s what it would look like. Your income would drop from 65,000 per year down to 47,000 per year, which would then be the basis for calculating the above taxes. Here’s how it would shake out:

• Federal income taxes will be $636.98
• Medicare & Social Security Taxes of 299.66
• Total is 936.64, less than just the income tax rate in the above scenario

The income tax is a lot lower because it is based in a sliding scale, while medicare and social security taxes are at a fixed rate. In this situation, we are truly paying ourselves first, instead of paying the government first and paying ourselves second. Now, if you’re already maximizing your 401k contributions and are looking for more ways to pay yourself first, there are a few other options, but you’ll have to check with your employer. If you don’t have the opportunity to have a 401k with your employer, a 457 or a 403b plan will serve the same purpose. If none of those are available to you, then you’ll be able to use a traditional IRA, though the limits are much lower ($5,500, or 6,500 if you’re over 50).

Other Ways to Pay Yourself First

There are a few different ways to keep the good times rolling, and they may (or may not be) offered by your employer.

In addition to retirement benefits, you may also be able to pay for a few more things with pre-tax dollars, lowering your tax liability even further. In IRS terms, these are called Section 125 plans, but are more commonly called cafeteria plans. You may be able to deduct expenses related to some (or all) of the following things:

• Health insurance expenses
• Commuting or Parking (if you’re traveling on public transit)
• Dependent care (day care)
• Adoption (expenses related to adopting a child)
• Group term life coverage
• Health Savings Accounts

Obviously, not all of these will be useful to you, but if your employer offers them all and you’re already paying for things such as day care and commuting, it’s in your best interest to pay for those with tax free dollars so that you can lower your tax liability.

Even though we are paying for everything with pre-tax dollars, it’s still wise to pay yourself after the government takes their cut because of early withdraw rules for 401k’s and other retirement plans.

How about you all? How much do you pay for with pre-tax dollars vs post-tax?

Share your experiences by commenting below! 

***Photo courtesy of http://www.flickr.com/photos/76657755@N04/6881508144/in/

Improving Business Functionality

The following post is by Derek Boser. Enjoy!

Functionality is your business’s ability to perform well according to its intended purpose. There are two ways to help your small business increase functionality. Either you need to have more employees who are working longer hours to get more done, or they must find better ways of doing the job. For most small businesses, hiring more employees or extending employee hours is not a practical option. It increases business expenses and those costs may outweigh the overall benefits, particularly when functionality is already strained. If your profit margin is shrinking, it may seem counterintuitive to spend more money. However, by investing in high-quality barcode scanners and a system to organize them, you can greatly increase efficiency in several areas of business. Startup costs are low and you can see a return on your investment relatively quickly.

Barcode Scanners in the Shipping and Receiving Area

Barcodes can help with new shipments upon arrival before they are placed in storage, as well as organizing outgoing shipments to e-commerce customers. “Laser barcode scanning is a simple, easy-to-use and affordable process that offers a large scanning area and working range,” points out Material Handling and Logistics news writer Jorge Schuster. He recommends using the latest technology for the most accuracy in scanning. It may cost slightly more, but it will save time messing with sloppy machines.

When new shipments of product come in, they can be immediately scanned and added to inventory. This means they can also be distributed quickly, rather than waiting or becoming misplaced in a quick “out of the way” area. Likewise, the barcodes on items can be scanned before shipping to keep track of what has left the facility and what has not. For businesses that hold inventory for both in-store and online sales, this is important. Tracking sales in both areas means that inventory needs to be accurate for both as well. Having a high-quality barcode printer at your facility means that you can quickly and efficiently print new barcodes as needed.

Barcode Scanners in the Warehouse

Barcodes make a big difference in organization for warehouses and storage areas. Unless your business includes only a few products, keeping an accurate count of what you have requires attention to detail. Many small businesses still use spreadsheets to track inventory. However, a barcode system can simplify this process and help guarantee that those number are accurate up to the minute. When a warehouse barcode system is coordinated with point-of-sale registers, the result is a constantly accurate evaluation of real data.

When you are conducting an annual audit, the process can be time-consuming and require many employees. An example showed that a business which typically required 25 employees over a weekend could perform the same task using barcode scanners with just four employees in only five hours. For all businesses, time is money. When a barcode system can cut your time to a fraction, the overall savings are significant.

Barcode Scanners at the POS Checkout

Utilizing a barcode scanner at the checkout can improve your point-of-sale activity in multiple ways. First, a barcode ensures that the price on the product is accurate. There is no need to price check an item or key in the price by hand when a simple scan puts all the relevant information at your fingertips.Inevitably, when an individual is responsible for accuracy, mistakes are going to be made. Most barcode scanners are easy to use and require only minimal training. When the checkout moves smoothly, customers are happy and more likely to return.

Second, a barcode scanner can help track sales information and calculate taxes. According to Entrepreneur.com, “Perhaps the most valuable way POS systems help you gain better control of your business is through their reporting features.” The  POS system can be synchronized with QuickBooks to maintain accounting records. Each sale is tracked using the software, giving users access to daily sales totals and at-a-glance tax amounts. Use this to analyze the most popular products, compare in-store sales with online sales, and see which payment methods are preferred.

Choosing the Right Barcode Scanner

For small businesses owners, a barcode scanner needs to be fairly inexpensive, simple to use, and compatible with existing hardware. The point-of-sale system offers an all-in-one solution for upgrading all technology at once. It requires only a single iPod to coordinate and barcode technology uses the most up-to-date scanning capabilities. The Socket Mobile 1D barcode scanner is wireless, connects with your computer using Bluetooth technology, and has a battery life of up to 19 hours. Get more done throughout your shop every day. This sleek and efficient device offers a lot of benefits in a little package. It is also compatible with most other hardware, including both PC and Mac Computers.

Are You Two Financially Compatible?

The following is a post by MPFJ staff writer, Derek Sall. Derek is the owner of the blog, LifeAndMyFinances.com, where he teaches people how to get out of debt, save money, and become wealthy.

It was about 6 years ago now that my fiancé and I attended a class and took a test to see if we were compatible. Basically, the test told us that we were not all that compatible and should reconsider our marriage to one another. I brushed off the test as a faulty result because we were most certainly in love and there was nothing that was going to break us apart.

After getting married, I soon realized that the test may have had more validity than I thought. We constantly had arguments about trust, respect, and of course, money. She was a spender and I was a saver, and the difference in our financial personalities was driving us apart. And, indeed, it did end up killing our relationship. We should have seen the signs and taken them more seriously.

How Do You Know If You Are Financially Compatible?

So how do you know if you and your girlfriend/boyfriend are financially compatible? What questions should you be asking yourself as you try to objectively study your relationship? Start out with the basics. Ask yourself these questions:

1. Would I rather have money in the bank or would I rather spend my money as I receive it?
2. Does my partner tend to buy things for short term happiness or do they like to stock money away for emergencies or investments?
3. When talking about money with your partner, are you typically talking about what you can buy today, or how you should handle the money for the long-term?
4. Do either of you typically have money in your bank accounts? Or do you tend to spend everything you make?

When I started college, I had $6,000 in the bank, owned my own vehicle, and already covered all of my own expenses like insurance, food, my cell phone bill, and gas for my car. My partner often had about $10 (or less) in her bank account, drove a car given to her by her mom and dad, and basically had no expenses because they were covered by her parents. She enjoyed eating out, buying clothes, and having fun at the bar. I enjoyed earning money through my side business, learning how to invest, and dreamt about how compound interest would grow my money in the future years. I don’t think we could have been any different financially, and it hurt us dearly. I thought my way of handling money was right, she thought her way of handling money was right, and we often fought about it. Don’t let this happen to you.

Are you a saver, but your partner is a spender? Before making that life-long commitment, talk with him/her about money and review how you both tend to save and spend. As awkward as it may be, look at each other’s bank accounts together and go over different transactions. If you think your partner is wasting money, talk with them about it. It’s better that you discuss these differences now than when it’s too late.

My friend Kevin was engaged to a beautiful woman a few years ago and she was fed up with her old car. She wanted a new one and was willing to finance it. Kevin believed that vehicles should never be financed and told her that if she went through with this purchase, he would likely break up with her (since it basically meant that they were financially incompatible). She did not take him seriously and went ahead with her $25,000 purchase, even though she only had about $500 to her name. He was disappointed because he liked her very much, but still went through with the break-up. As difficult as that was, I was proud of Kevin and very impressed with his decision. Today, Kevin is married to a woman that shares many of his beliefs (including financial) and they are incredibly happy together.

If you are in a situation where your partner is your financial opposite, you have a difficult decision to make. Either you believe that they will change (which often doesn’t happen – not for the long term anyway), or you should make a clean break because your future is destined to have a lifetime of financial arguments. Choose your mate carefully and be sure that many of your major beliefs align. If they do, you will likely have a very happy and rewarding life together.

How about you all? Are you and your partner financial opposites? Do you plan on continuing the relationship?

Share your experiences by commenting below.

***Photo courtesy of http://www.flickr.com/photos/26023255@N03/8612002388/

Setting Goals for Financial Success

The following post is by Kevin Fullerton. Enjoy!

America is a country in debt. More than 160 million Americans have credit cards, and the average cardholder is $15,000 in debt. Fortunately, it’s never too late to turn around and start making wise financial decisions. Follow these five tips to start getting out of debt, find ways to save for the future, and get on the path to financial success.

Start With Small Changes

You don’t have to completely give up your way of life in order achieve financial stability. Set a goal to save $100 a month on groceries or stay in one night a week instead of going out. You really only need to save $20-$25 per grocery trip to reach $100, and staying in instead of eating out or going to the bar will save at least $10-20 per instance.

Time crunched the numbers found that bringing lunch to work at least one day a week instead of buying can save you $500 annually, and bringing food three days a week instead of buying saves $2,500. The same financial gains come with replacing a Starbucks latte with home-brewed or office coffee. Start small by bringing your own coffee and lunch once a week, and then challenge yourself to do it twice a week next month. Soon the savings will add up.

Cut Unnecessary Spending

Track your spending to get a clear picture of where your money is going. You would be surprised how many hidden charges and “convenience fees,” are added to Internet purchases and other bills. There are plenty of ways to cut back on these unnecessary fees. You could consider switching banks to one with better locations if you’re hit with ATM fees.

Spenders looking to cut back on their budgets might also need to make some tough cuts in order to save in the short run. Consider breaking up with your cable provider if you already subscribe to Hulu, Netflix, and Amazon Prime. Also, cutting just one of those streaming services can save you $100 annually, so end your service with the one you use the least often.

Start Paying With Cash

Psychologists have identified an occurrence called “coupling,” where consumers feel both happiness and loss when they make a purchase. The brain feels happy about the new item, but it also feels bad about losing money. Unfortunately, “de-coupling” occurs when we pay with credit cards, meaning the brain experiences the pleasure of a purchase without any of the pain. De-coupling also occurs with one-click and in-app purchases, where people buy items online without having to think about it.

To avoid credit card debt, pay in cash as often as possible. This way you only buy what you can afford at the moment, and you experience the pain and pleasure that comes with coupling.

Save to Make Purchases in Full

It may be tempting to buy a new car or finance furniture to redecorate your new home, especially when stores and car lots offer seemingly cheap deals. They may say you won’t pay interest for the first couple of years, but you’ll make up for it after the interest kicks in. Buying upfront will keep you out of debt and save you hundreds, or even thousands, in the long run when you don’t have to pay interest. Yes, it means you’re not driving a nice car for a while, but your credit and bank accounts will thank you.

Saving is a Marathon, Not a Sprint

One thing to remember as you start out on this journey to financial stability is that saving and climbing out of debt is a process. Bringing your lunch once a week adds up over time, not overnight. Saving to avoid financing your furniture will take months, and you might not see the results for years. Instead of following a couple quick tips to save, change your spending habits to make better decisions in the long run.

Different saving tips work for different people. Some can’t live without their lattes, while others need Netflix. Find what works for you and get on the path to financial stability today.

***Image via Flickr by 401(K) 2013

Five Reasons to Buy Less House Than You Can Afford

The following is a post by MPFJ staff writer, Kevin Mercadante, who is a professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry.

The American Way to buy a house seems to be to buy as much house as your income and financial circumstances will allow. We are nothing if not a nation of optimists! The assumption is always that income will rise in the future, enabling us to more easily afford that which we can barely cover right now.

I’m going to suggest something that may be downright anti-American – that you resist the predominant trend, and buy less house than you can afford. Here are five reasons why you should consider doing exactly that.

1. To Allow Breathing Room So You Can Enjoy Life

The idea of buying a house at the upper limits of your ability to afford one, then making up for it by furnishing it with wooden boxes and eating canned beans for food every night to make up for the difference, is a romantic hoax. It’s the equivalent of living like a homeless person so that you can afford a house.

Rest assured, that once you buy a house, you will still have most of the same preferences that you did before you were a happy homeowner. You must leave room in your budget to accommodate those preferences!

Most people overestimate their ability to go on a financial diet, particularly after buying a house. And even somewhat ironically, buying a house usually triggers a series of major non-housing purchases. This could include new furniture, window treatments, minor (and not so minor) improvements to the property, landscaping, and often a new car to go in the driveway of the new house. None of that is conducive to successful budget.

The point is, don’t overestimate your ability to live on less money once you buy a house. You’ll still want an occasional dinner out, a shopping spree, and a night out on the town. You need to be prepared for all of that.

2. To Take a Step Back – If That’s What You Need to Go Forward

If you’re looking to change jobs, or to make a career change, that often involves taking a reduction in salary. If your budget is already tightly stretched by an outsized house payment, you probably won’t be able to give up the extra income to pursue what could ultimately be a better opportunity.

And that’s an important point. There’s a saying – sometimes you have to take a step back to go forward – that applies to a lot of career situations. In order to take a position that will ultimately prepare you for a major advance, you sometimes have to first accept a lower paying job. It is there that you will gain the experience necessary, or even transition over to a more successful organization.

The situation will be magnified the event that you want to start your own business. A high house payment will be a major obstacle to starting a business. Becoming an entrepreneur often means starting out with little or no income. But that’s a step you may never be able to take because of your high house payment.

Make sure any house you buy affords you some level of economic flexibility, just in case you decide to make a major career change. Your house should be an asset, not an obstacle to your progress.

3. To Leave Yourself More Money For Savings and Investments

While most people think of owning a home as being an investment, we also know that it’s important to have non-housing type investments. This includes not just tax-sheltered retirement plans, but also investments in mutual funds, certificates of deposit, and stocks that are held outside of a retirement plan. In addition, life is always better, easier, and more secure if you have a well-stocked emergency fund.

But if too much of your income is being eaten up by your house payment – and by other expenses related to your home – you’ll have little if any money available for any of these investments.

Savings and investments should be a line-item in your household budget, even and especially when you’re planning to buy a house. Owning a home and paying down the mortgage is one type of investment, but you also must have financial investments in order to achieve any level of financial independence. Buying too much house will close the door on the independence.

4. To Enable You to Better Withstand Financial Crisis

When you buy a home at the maximum level of your affordability, you’ll be effectively removing any flexibility in the event that you will face a financial crisis.

What might that financial crisis involve? It could be the loss of a job, a medical catastrophe, or the sudden need to take care of an extended family member. In all of our plans, including the purchase of a home, we need to leave room in the budget to cover such a contingency.

5. To Give Yourself More Room to Payoff Your Mortgage Early

Now that real estate appreciation is no longer a given, the pay down and payoff of your mortgage becomes a critical component of the success of your housing investment. But if your budget is too tightly stretched by your basic house payment, it will be very difficult to come up with extra money to accelerate the payoff of your loan.

By buying less house than you can afford, your basic house payment will be well below your income, and that will allow you extra funds to pay the mortgage off more quickly.

In today’s housing market, that can be more critical than ever. By paying your mortgage down ahead of schedule, you’re creating more equity in your home. That will make it much easier for you to sell the property in the event that you need to take a job in another city, or to move for some other reason.

If you’re facing the decision to buy a home, take the unconventional approach, and buy less house than you can afford. Though it may be a blow to your ego, it will be a boon to your financial situation. Having more money will give you far more options than owning the nicest house you can possibly afford.

How about you all? When you purchased a home, what % of your pre-tax income did the mortgage payment represent? Did it allow you to meet your various other savings/investing/retirement goals?

Share your experiences by commenting below! 

***Photo courtesy of http://www.flickr.com/photos/usdagov/6383550119/in/

Can I Buy Property Without Conducting a Title Search?

The following is a guest post. Enjoy! 

Performing a title search on a property before you make an offer on it reveals if anyone else has any claims to the property. Neglecting to ensure that the title is free and clear could cause problems for you later. In effect, any claims against the property that were the responsibility of the former owner will be transferred to you.

This is a huge risk to be assuming as a new property owner, and one that is wholly unnecessary, as well. Real estate professionals make it simple to perform a thorough title search before the settlement, so there is simply no reason to forgo a title search.

Establishing that the property is free and clear of any liens or title disputes might be more complicated than it seems. It’s not necessarily the case that the former owner is “pulling one over” on the new property buyer. In fact, the previous owner might be completely unaware of any liens against the property.

Liens against the property can include current taxes as well as delinquent past taxes, strata fees, utility bills such as sewer and water bills, and outstanding interest, just to name a few. And these liens can go back several owners, so it might be be possible that the current owner has no idea that there are any liens on the property.

Nearly one-third of all title searches reveal some type of problem that needs to be resolved. Things as simple as unpaid bills to contractors and repairmen can crop up during these title searches and it’s important to reveal them before you have committed to purchasing the property.

The potential problems with the title might not even be as malicious as the current owner trying to skip out on a contractor bill, either. Problems with the title could be as simple as errors in the previous deeds or undetected forgery from the past.

This is why conducting a title search on a property isn’t just recommended, it’s essential. If you’re using a real estate practitioner to complete your settlement, they will almost certainly insist on performing a title search beforehand.

This leaves them free of any liability and provides you with the peace of mind you should have when purchasing a new property. If you’re going to invest in a new piece of real estate, it just makes sense to perform a simple routine title check It’s a small expense that can prevent a huge liability later.

The great news is that real estate practitioners are excellent at doing property title searches. Not only do they know what to look for and where to look, many companies provide search services that make it simple for the real estate professionals to do their jobs quickly and efficiently. With one simple click of a button, they can order many land title searches at once, meaning that it’s possible to verify the title on many properties at the same time. With a process this simple that can save you so much hassle later, why not be safe rather than sorry?

Divorce and Your Finances

The following is a post by MPFJ staff writer, Derek Sall. Derek is the owner of the blog, LifeAndMyFinances.com, where he teaches people how to get out of debt, save money, and become wealthy.

Divorce is running rampant throughout the U.S. and in other parts of the world as well. It no doubt affects us emotionally, and we struggle with the fact that our young love is now an adult hatred. But, divorce can also have a terrible impact on our finances.

I should know, since my wife divorced me two years ago.

The Hurt, the Pain, and the Debt

There is no such thing as a clean and neat break. Divorce is hardly ever mutual and it is hurtful for both the divorcer and the divorcee. There is often a lasting pain and scarring from these terrible relationships, but the scars do begin to heal after a while.

The pain that hardly anyone talks about after a divorce is the financial difficulty. Without a doubt, there is typically one person that benefits greatly from the divorce, and one person that suffers (and may even lead them into bankruptcy). I, unfortunately, did not benefit emotionally or financially from my divorce. I didn’t want to separate, and I certainly didn’t want to owe my ex money after the split. But, that wasn’t for me to decide.

My Divorce Experience

When my ex-wife said the words, “I just want out – I want a divorce,” I knew she meant it. There was no going back. After meeting with the mediation agency, I learned that she expected to receive half of our net worth. Since she was the spender and had nothing to do with the money we had saved up (I practically had to hide it in order to keep anything in our account) this really burned me up inside. But, if I would have tried to fight it, I would have spent just as much money paying a lawyer to fight on my behalf, so the even split was agreed on.

At the time, our estate basically comprised of two paid-for vehicles and some equity in the house, which gave us a net worth of approximately $60,000. Not too shabby for a 27 year old and a 24 year old. Since she was going to keep the $10,000 VW Beetle, this meant that I still owed her $20,000, and she wanted it in six months. Yikes!

I didn’t necessarily have to agree to her short time-frame, but I honestly didn’t want to think about this divorce any longer than I had to. The sooner I could get this payment over with the better.

To earn the necessary funds, I did nothing fun, cut back on my expenses, and did everything possible to earn more money. I flipped two cars, wrote hundreds of articles, worked hard at my job, and accepted many advertisements on my website to earn the short-term dollars. To make a long story short, I made it. I scrounged up $20,000 in six short months and was completely free from my venomous ex.

Divorce and the Financial Impact

If you are currently going through a divorce, I am terrible sorry. It is probably one of the worst things I have ever encountered and it still messes with my emotional decisions today. If your finances are negatively impacted, then I am doubly sorry. Not only do you have to suffer through the emotional heartache of losing someone you once loved so dearly, but you also have to live like hermit to have any chance of paying your ex half of your estate. Or, worse yet, you might have to sell your home in order to divide the assets evenly. Your world will be flipped upside-down in every way imaginable, and it will seem like hell for quite some time. But, there is a light at the end of the tunnel.

After I got through paying that $20,000, I realized just how quickly I could earn a substantial amount of money. And, I now knew of many ways that I could earn even more! This allowed me to boldly set a goal for myself in 2014. I wanted to pay off my mortgage completely within the year – all $54,500 of it. So far, I have paid off about $28,000 and I’m actually still on pace to pay off the remaining balance by December 31^st.

Once the mortgage is paid off, I have a goal to buy a rental property with cash in 2015. From there, financial success is certain to come my way!

If you are currently struggling through the financial sorrows that come with divorce, pick your head up and try to look at the bright side. It may leave you happier and more wealthy than ever before!

How about you all? Have you gone through or are you currently going through a divorce? What sort of financial impact did it have on you?

Share your experiences by commenting below! 

***Photo courtesy of http://www.flickr.com/photos/superstrikertwo/4079339001/in/

Why Being Your Own Boss Can Be Kind Of…Lousy

The following is a post by MPFJ staff writer, Kevin Mercadante, who is a professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry.

Self-employment…Unlimited income. Plenty of free time. No boss giving you a hard time. No co-workers sabotaging your career. Answering to no one. Taking a vacation anytime you want. Selling your business for a fortune and retiring rich – before you’re 50. It’s easy to see why millions of people would be absolutely delighted to be their own boss.

Or so they think.

Sorry to burst your bubble, but the opening description of self-employment is more the TV version. In the real world, being your own boss can be kind of…lousy. There’s more going on with being self-employed than most salaried folks think, and on deeper analysis, not everyone is cut out to be their own boss.

Here are just a few reasons why…

You Are Responsible for Everything

In a typical employment situations, you have a boss and multiple coworkers. When things get busy, or there are obstacles, there is a staff to fall back on. But when you’re your own boss, it’s all up to you.

Not only will it fall on your shoulders to deal with busy and stressful situations, but failure to adequately handle a crisis could hit you directly in your bank account.

The stakes are always higher when you’re self-employed. When you work for someone else, you could have a bad day, but by the end of the week you’ll still get paid. Self-employment means that a bad day can cost you a lot of money.

You will also need to be a serious multi-tasker, especially when your business is new. Where in a typical employment situation, you will be primarily responsible for one, two, or three primary functions, being your own boss means you’re responsible for every detail of your business. And even if you hire people to handle some of those details, it will fall on you to be the backup person in the event they are unable to complete a task, or if they do it wrong.

Cash Flow Is an Ongoing Problem

It’s a fundamental rule of self-employment that no cash flow = no business. For this reason, the majority of your time will be spent generating cash flow, unless you find a way to create automatic income streams. And in a highly competitive economy, that’s not nearly as easy as it sounds.

This means that you will have to be at least part salesman all the time. Though you will have multiple responsibilities in running your business, marketing and sales will always be your primary function. If you’re not comfortable with this reality, or with making it happen, your business will not last long.

You May Find Yourself Working More Hours Than Ever

Remember at the beginning I mentioned “plenty of free time” and “taking a vacation any time you want“? That’s what a lot of people believe the self-employed enjoy. The reality is usually much different.

It’s not at all unusual to work more hours being your own boss then you ever worked when you were employed by someone else. When you have a job, you can go home at five o’clock, or on a Friday afternoon, and enjoy your evening or weekend. As your own boss, evenings and weekends are often your work overflow time. That’s the time that you allocate to taking care of the many tasks that you simply didn’t have time for during regular business hours.

You Trade Having a Boss For Having Many Bosses

One of the biggest motivators for the would-be self-employed is not having a boss to answer to. While it’s true that you won’t have a single boss who will have something approaching absolute control over your career progress, usually you have multiple bosses. These are your clients and customers, and some of the larger ones can end up being something like the boss you hope to get away from.

The reason for this is that if you fail to satisfy your major clients, it could end up costing you money in the form of lost business. This is especially true if you are in the type of business where most or all of your income is being derived from a small number of large clients.

Then Why Be Self-Employed?

With all these negatives, why then would anyone ever want to become self-employed? Well, many are in fact drawn by the TV image that we talked about at the outset. The fantasy draws them in, and if they can’t deal with the harsh realities of self-employment, they’ll be out soon enough.

But if you have a solid grip on the realities of self-employment, you might take the plunge for one or more of the following reasons:

• You’re fiercely independent, and you’re absolutely certain that you can do better working for yourself.
• You have the capability to bring in business, even if you’re not using that skill in your current job.
• The prospect of unlimited income excites you, though you are fully aware that it may take several years before you reach that level.
• You realize that being your own boss will require that you work more hours than you would on a job, but you also appreciate that you will have greater control over your time even if you are working longer hours.
• You have a burning desire to “build a better mousetrap” – that is, there is something you believe you can improve on, and you’re willing to make the effort.
• Accomplishment means at least as much to you as money does.

Being your own boss definitely has its own virtues. You just have to be aware of the difficulties you will face before you reach the point where those virtues will provide the benefits that you hope they will. If you have a firm grasp of that, you’re probably ready to take a stab at being your own boss.

How about you all? What other obstacles to being your own boss can you think of? What other benefits do you see?

Share your experiences by commenting below! 

***Photo courtesy of http://www.flickr.com/photos/gds-productions/6528081483

Do Credit Cards Really Help You Save?

The following is a guest post by blog reader, Audrey Clark. Audrey is a freelance blogger covering a range of topics from careers and finance to travel and leisure, along with everything in-between. When not writing, she’s always on the lookout for her next adventure. Connect with Audrey on Twitter and Google+.

We all know that irresponsible use of credit cards can cost us hundreds or even tens of thousands of dollars in unnecessary debt. But used wisely, credit cards can actually help put money into your wallet. That’s right, credit cards can help you save money.

According to TransUnion, credit card companies are changing the way they do business in response to consumer concerns. While banks are obviously still in business to make a profit, even lenders know that consumers who go bankrupt because of overwhelming debt don’t make good repeat customers. If the new wave of benefit offers is any indication, credit card companies are more interested than ever in keeping their customers happy.

Cash-back, rebates, college-savings rewards, pay-back planners and loan consolidation are just a few of the carrots lenders are dangling in front of our noses. Not all of these enticements can actually save you money, but some can. The three easiest ways to make credit cards work for you are through rewards, expense tracking and consumer protection.

Rewards

Also called “points” or “bonuses” rewards are an incentive program to encourage you to use your credit card. A certain percentage of your spending is paid back in the form of cash, points towards good, air miles or some other attractive prize. To take the best advantage of rewards you must do three simple things:

1. Find a card that offers rewards you can actually use.
2. Use your credit card to buy everyday goods you’d normally pay for with cash such as groceries or gasoline.
3. Pay off the balance each month. Keeping a zero balance on your card is crucial if you want to save money.

For example, let’s say your credit card offers one percent cash back on all purchases. So you spend 100 dollars in groceries and earn one dollar. That’s not a phenomenal savings, but how much money do you spend in groceries every month? How much do you spend on gasoline? Depending on your habits, you could save hundreds per year by paying with a credit card instead of cash. But to realize those savings, you must pay the bill in full each month to avoid interest fees. And that should be easy to do–simply use the cash you would have used in the first place.

The cards you already have may not be the ones that offer the best benefits. Investigate the rewards your current credit cards offer against some of the more popular options on the market. Bankrate is a reliable and unbiased source for credit card information. When making comparisons, remember to consider these factors:

• The interest rate
• Annual fees
• Deals that change too quickly
• Cards with travel benefits probably won’t save you money if you rarely travel
• Bonus or reward points save you money only if they can be used for goods you actually need, not luxuries
• Cash-back plans offer the best potential for savings

Expense Tracking

You can’t cut unnecessary expenses of you don’t know what they are. As Debit Card Tracking explains, credit cards sometimes provide more thorough statements than banks. If you pay for everyday items with a credit card instead of cash it will be easy to see exactly what your expenditures are because it’s all right there on the credit card statement. While “living” on your credit card may not be the best practice, using your card to get a realistic view of how much you spend and where can be a great benefit when trying to tighten the budget.

Consumer Protection

Having a credit card stolen from you is a big inconvenience, but not as much as having cash go missing. Using a credit card instead of cash when you travel or need spending power for any reason provides protection against loss or theft. Stolen cash can’t be recovered, but stolen credit cards can be canceled without holding you accountable for fraudulent activity. And according to Creditnet, credit cards also save you money on defective purchases or purchases that fail to be delivered. Lenders will withhold payment until your transaction is satisfactory.

Credit cards really do help you save money if you use them correctly. Be smart with your cards and they can be a valuable asset in your long-term financial planning.

How about you all? Do you have a favorite rewards card that you’d recommend to others?

Share your experiences by commenting below!

***Photo courtesy of http://www.flickr.com/photos/consumerist/422358899/in/

First Time Home Buyers – Top 5 Thoughts to Avoid When Investing Into Real Estate

The following is a guest post by Anna Suzdenkova. Anna resides in Toronto, where she works for a major financial institution, runs her own financial blog, Vostro Financial Help, and manages a summer driveway maintenance business. Currently, she’s writing her own personal blog on tips and tricks to better control your finances, stay aware of your path in life, and reach your financial goals sooner. She loves helping people stay out of the dark when it comes to personal finances. Enjoy! 

Purchasing a property is one of many people’s dreams. It is the biggest purchase many of us will make in our lives. The decision to buy a property isn’t an easy one. When it comes to deciding what is best suitable for you and your family, the options are numerous and there is a lot to consider. Location, schools, work distance, number of rooms etc are all basic considerations you should make before investing into real estate but which thoughts should you avoid? I hear people talk about real estate with fear and intimidation, as if the decision to buy is bigger than them and can potentially control their lives. What thoughts should you stay away from before diving into the real estate market?

1. Fear of Ownership – The Pressures of Being a Landlord

Being a landlord does have its share of responsibilities, but relative to being a tenant it’s not a significant difference. As a landlord you will be calling the shots on what needs repair, replacement and other maintenance decisions. The living conditions of your house will be in your hands. You’ve been making decisions all your life, what’s to stop you from making household decisions in your own home? There are many resources out there to help you with ownership including local classifieds, YouTube tutorials, online forums, friends and family etc. Being in charge doesn’t have to be difficult, it becomes easier when you know how to use your above resources when looking for answers.

2. Thinking Your Savings Account will be Depleted for the Downpayment

A few of my friends mentioned the reason they don’t want to purchase a condo or a house is because they won’t have any savings left and will have to start saving from zero. This is the biggest misconception when it comes to purchasing property. Meanwhile the same friends are buying the latest technology, cars and are depleting their savings in a slower way. Your downpayment isn’t depleting your savings account, you’re simply moving your money from a bank account into a real estate account, kind of like from one of your pockets to another. Your savings is still in your hands in the form of real estate, which means your money is being invested, likely at a much higher interest rate. Real estate price growth varies, depending on the state or province, regardless of the rate if you are investing long term the value of your property is bound to increase over time. In Toronto, Canada, the average price of a house increases by 8.9% over one year as of August 2014. This kind of rate of return cannot be found in a savings account.

3. You’re Unprepared for Unexpected Costs

Ownership comes with responsibilities. These include maintenance, repairs, utility price increases, property tax hikes etc. All these items the landlord would be responsible for. When something breaks unexpectedly, it would be up to the landlord to fix. For example, if the roof is leaking all of a sudden, of course there is home insurance which can cover some of the cost of the damages but it would be at the owner’s expense to replace the roof. These scenarios would have to be taken into consideration before purchasing property. A good way to prevent most of the unexpected expenses is to do a home inspection before closing the purchase. It’s also good to have emergency funds available so you can be better prepared. As a homeowner, these expenses are seldom and if they do come up, it’s usually something small such as a leaky faucet or a broken washing machine, which can be fixed for cheap throughout the local classifieds.

4. Wanting to Travel or “Enjoy Life” First

Why not do both? If you want to travel and explore the world, that’s great. Remember though, it’s easier to save money for a downpayment when you’re younger because you have less expenses and more discretionary income, so rather than spending money on extravagant trips consider downgrading the trips and saving the extra money for a downpayment. Once you’re moved out and on your own the bills come rolling in and so does the rent. Travelling is great, as a home owner I still travel, but I downgrade on the destination. I choose cheaper destination and always look for deals or last minute vacation discounts. I believe both travelling and owning property can be done simultaneously, the fancier destinations can wait until I am more established and have a higher income or even when I’m retired. Having a plan, managing your money wisely and having a travel account can help tremendously. Setting money aside, even $20 a month, for travelling will add up quickly and mean taking a vacation sooner.

5. I can’t Afford Buying A Property

We all have the same 24 hours as anyone else does, so how come some of us can manage to afford real estate and some of us can’t? The answer lies in three factors: income, existing debt and credit score. These are the top three things the bank looks at when reviewing your mortgage application. Some of us don’t earn enough to be able to afford a house, the solution is to downgrade to a townhouse or a condo, which can be more affordable. Some of us have a lot of existing debt which prevents us from acquiring more credit such as a mortgage. The solution to that is to consolidate all debt into one loan, make one monthly payment and attempt to pay off the debt faster. And some of us have a low credit score, which can be improved by paying bills on time, having less credit applications and not using credit cards too often to show we are not dependent on them. If you have a combination problem, such as having too much debt, low credit score and low income, attempt to change this around by seeking a higher paid job though a job agency, attaining a consolidation loan and making your payments on time. Everyone can afford a property in due time, whatever your financial situation is, the trick is to turn it around with solutions and steer onto the road of success.

How about you all? What helped you overcome any of the above thoughts regarding investing in real estate or home ownership?

Share your experiences by commenting below! 

***Photo courtesy of http://www.flickr.com/photos/axiomestates/3200993224/in/