You know spring is in the air when people start thinking about home buying. I recently got questions from several people asking about buying a home. One of the most common is how much to put down. Let’s look at a few things to consider: Continue reading “How Much Should You Put Down On a Home?”
Have you heard about the 52 week savings challenge? Apparently this challenge has been pretty popular on social media sites and there are some pretty creative money jars out there on Pinterest and Facebook. It wasn’t until a recent financial planning consultation that I’d ever talked to someone actually using this approach and it came up again in multiple sessions with others just last week. Continue reading “Are You Doing the 52 Week Savings Challenge?”
It makes me sick to my stomach to see to see my savings just sitting there earning point one percent interest – not one percent mind you but point one. On the other hand, this is my “safe” money. These are funds I don’t expect to use but need to have a principal guarantee and want to have some access to in case of a job loss or some major emergency. The funds can’t be invested in stocks due to the fluctuation of principal, and if there is any chance I might need the funds in a year, it’s the absolute worst time to buy bond funds with interest rates being so low. Continue reading “Point One Percent Interest in a Savings Account? How to Do Better!”
Are you struggling with credit card debt? If so, you’re not alone. Paying off credit cards and other higher interest debt is one of the most common goals that people try to save for. Unfortunately, having to pay off a large amount of debt with ridiculously high interest rates can make you feel hopeless, especially if your budget is already stretched. But it turns out that you don’t necessarily need to make huge sacrifices to become debt free much sooner than you may have thought was possible. Continue reading “Painless Ways to Pay off High Interest Debt”
With both home prices and mortgage rates still near historic lows, is now the right to buy a home? That’s a question many would-be first time home buyers are asking themselves, myself included. For most of the first few years of my career, I was working on a full-commission basis and my unstable income and need to maintain a large savings account balance made me reluctant to commit to the upfront costs and monthly mortgage payments associated with home ownership. By the time my income was more stable, I was living in NYC, where buying just didn’t make sense to me, and then I was in law school with barely any income at all. As a result, I missed both the rise and the collapse of the real estate bubble. Continue reading “Is it the Right Time to Buy a Home?”
While most of what we do at Financial Finesse centers around helping employees, we sometimes get questions on our financial Helpline from people who are interested in starting a business on the side. We recently received a question on our blog about how to start a poultry farm. While I’m certainly no expert in poultry farming (or anything remotely like farming), there are some basic financial steps you can take before you start any type of business.
As important as budgeting and saving are, they will become even more important if you’re self-employed. That’s because without a steady paycheck, your income could see lots of ups and downs and probably a lot more downs than ups in the early years.
The key will be discipline, not just when times are bad but also when times are good. I remember that when I first started working on commission and had a big payday, I tended to celebrate by splurging and buying something expensive that I really wanted. When the good times were followed by the not-so-good times, I quickly learned the importance of saving that extra cash for the next rainy day. See some of my earlier posts for ideas on how to minimize your expenses, pay off any high-interest debt you may have, and…
Speaking of saving extra cash, having lots of cash will become even more important. In an earlier post, I wrote about how the size of your emergency fund should be based on how risky your income is. Well, few things are as risky as starting your own business. Not only may you need to cover personal emergencies and income shortfalls, you may need to pay for some business emergencies and other costs out-of-pocket too. Aim for at least 1 year of expenses and ideally 3-5 years somewhere safe and accessible.
This is one personal expense that’s likely to go up when you’re self-employed. Under COBRA, you can keep your group health insurance for about 18 months after you leave your job (but generally without your employer’s subsidy so the rates are likely to be higher than what you’re used to paying) and then after that, you’re on your own.
One way to reduce your premiums is to choose a high-deductible plan, especially if you’re in good health and have enough savings to pay for that high deductible. On the other hand, an individual plan could be out of reach if you have pre-existing conditions or are in poor health. In that case, as much as you may come to dislike the President’s health care plan as a future employer, you may love it as someone who may benefit from the regulations and the subsidies that could make individual health insurance more affordable.
In addition to savings, you’ll probably need access to credit of some kind. The trouble is that it will be harder to get once you don’t have a regular income. If you can benefit from refinancing your mortgage, do it before you leave your company. The same goes for signing up for a home equity line of credit. You might also want to start developing positive relationships with your local bankers.
Since you won’t have much income to show, more weight will be put on your credit score. If you haven’t gotten a free copy of your credit report in the last 12 months, order one from each bureau at annualcreditreport.com and fix any errors you find. You can also use sites like creditkarma.com and quizzle.com to get a free copy of your credit score and see what other steps you can take to improve it.
When Warren Buffett was asked why he didn’t invest in tech stocks before the dot com bubble burst, he said that it was because he didn’t understand them. This is even more true when it comes to investing in your own business. Study the industry you’re entering into as much as you can and find a mentor that you can learn from. You can also get general information on starting a business from the Small Business Administration. It’s good to learn from your mistakes but it’s even better to learn from someone else’s.
Even if you know everything there is to running your business, you can easily get tripped up by taxes, lawsuits, and regulations. You’ll need to decide whether to set your business up as a sole proprietorship, partnership, LLC, or corporation. The LLC has become particularly popular as a way to shield you from both the personal liability of a sole proprietorship or partnership and the double taxation and regulatory burdens of forming a corporation.
You’ll also want to get a tax identification number from the IRS, register your business name with your state and find out about your state’s tax, worker’s compensation, unemployment, and disability insurance requirements, check local zoning laws before choosing a location, make sure you have the proper licenses and permits from all those various levels of government, and keep your personal and business finances separate.
Depending on the complexity of your situation, you may want to hire a business attorney and/or an accountant to help you with all this.
Once your business becomes profitable, you’ll want to start protecting those profits from the tax man. If you have a high deductible health insurance plan, you can contribute to a health savings account. In addition, there are a myriad of tax-sheltered retirement accounts for small business owners like SEP-IRAs, Simple plans, and Individual 401(k)s. These accounts will also help diversify your wealth away from your business.
Starting a business is exciting but as I’m sure you realize by now, these initial steps can be a lot of tedious work. After all, we’re just scratching the surface here. (We didn’t even get to talk about the chickens!) Just remember that your sacrifices today can save you from catastrophe tomorrow and eventually make your dreams come true.
