The Dollar Dance

Federal Tax Forms For Employee Payroll

2009-06-10T13:04:00.002-05:00

Trust me, I don’t enjoy being the bearer of such obnoxious and boring information, but being on top of your employee payroll and taxes is very important.

First of all, it will keep you out of trouble. The IRS is quick to tack on extra penalties for late filing and interest charges. Second, if you have this aspect of your business under control, you will be able to focus on your core business, rather than being bogged down by the stress of not knowing how to handle these things.

Yesterday, I covered the forms necessary for hiring a new employee, and previously, I went over the withholding that is taken out of each paycheck. Today, I will summarize the forms necessary for reporting and paying the employee taxes that are owed to the federal government.

To complete all of these forms by hand and to submit them by mail is probably not the best use of your time and resources. QuickBooks offers a very easy-to-use payroll add-on for about $250 per year. This will also make electronic filing a lot simpler.

Form 941 – Due Jan 31, Apr 30, Jul 31, Oct 31 (for IRS)
Quarterly form that reports all wages and withholding paid that quarter. If your employees are seasonal and you do not have taxable wages every quarter, be sure to check the “seasonal employer” box on line 19. You only need to file this form when you have paid wages for the quarter.

Form 944 – Due Jan 31 (for IRS)
Annual wages report. You may be told to complete this form if your wages drop beneath a certain amount. Do not complete this form unless you are directed by the IRS.

Form 940 – Due Jan 31 (for IRS)
Annual form that summarizes unemployment withholding from previous year.

Form W2 – Due Jan 31 (for employee)
Form you present to employee summarizing wages paid for previous year. Your employee(s) uses this form to complete his/her personal income taxes.

Form 1099 – Due Jan 31 (for independent contractor)
Form given to independent contractors, summarizing what you paid them the previous year.

Form W3 – Paper copy due Feb 28 OR e-file due Mar 31 (for SSA)
Summary of wages paid from previous year to be submitted to Social Security Administration. Along with this form, you should also submit copies of each W2 and 1099 forms that you presented to your employees and independent contractors.

These are only the federal forms required. You will want to also check your specific state requirements. Also, I will talk more about the differences between employees and independent contractors in the future.

Legal Documents For New Employees

2009-06-09T10:13:00.003-05:00

So you’ve made the decision to take on a new employee. You put word out there, conducted your interviews, and narrowed it down to one. Now what?

Here is some info on what you need to do to properly and legally hire a new employee.

W-4 Form
Have your employee complete this form. It is a federal form that collects pertinent information and determines how much withholding should be taken from each paycheck.

I-9 Form
Another federal form that verifies the employee is legally allowed to work in the States. You will need to make a copy of a valid ID and attach. You must keep this on file and available for any government agency to verify.

New Hire Reporting
Each state has its own policies on how this should be done. Wisconsin has a website for employers to submit new employee information. They request a copy of the W-4 form as well. Also note the time frame in which this should be done.

As far as getting your new employee up and running, you only have to complete these three items. The next step you will want to take care of is setting up a payroll system. Look for instructions on that in a future post.

Today Only! QuickBooks Pro 65% off!

2009-06-01T11:39:00.003-05:00

OfficeMax.com is offering QuickBooks Pro for only $69.99 (regularly priced at $200). This is a one-day offer and is only available on their website.

I've talked about QuickBooks in the past, and it is definitely the best financial and accounting software for small business owners. Don't feel intimidated. You can use the software in its most basic form, and use the advanced features as you become more acquainted with how it works. I'm also available to answer any questions you may have along the way.

Even if you don't want to start using the software right away, you do not want to pass on this great opportunity.

Producing a Positive Monthly Cash Flow

2009-05-29T10:27:00.001-05:00

Cash flow is a key indicator of the strength and vitality of any business. It is defined as the net amount of money your business takes in or spends in a given time frame. If you specify the time frame as one year, you are essentially calculating your annual net profit.

The wedding industry can be very seasonal, depending on the specific business you conduct and/or the part of the country in which you reside. “Engagement season” may mean a lot of deposits, “planning season” will bring about additional expenses, and “wedding season” means final payments, but also additional payroll expenses. You may even have a fourth season in there that results in no cash flow at all!

I want to challenge you to strategize your business in a way that will allow it to produce a positive monthly cash flow.

Now, I am not saying that this is necessary for a business to be successful. Perhaps you take three months off during the winter and don’t want to worry about anything during that time. Trust me, I understand. I make 60% of my annual income in 6 weeks out of the year.

I am recommending this strategy for someone who conducts business all year-round and is looking for a way to stay profitable through the slow times, rather than stressing out and dreading tax day.

So what can you do during your slower months to boost your revenue? As a wedding planner, offer hourly consultations. Maybe you can package three or four together and guarantee your client will come back for four consecutive months. How about engagement planning? Photographers can create customized Christmas cards for their clients over the past year. If a stationer, create your own greeting card line and sell them at local boutiques, or online for that matter.

The idea is basically to be making some sort of profit every month. If you set a monthly goal with which you are satisfied, you will no longer depend on the big months, but rather enjoy the extra income they bring.

What are some things you have done to increase your monthly cash flow?

The Extra Costs of Having Employees

2009-05-21T12:15:00.001-05:00

If you are considering hiring an employee and are unsure of the extra costs that this would incur, this post is for you.

You are probably already aware that if you hire an assistant or an intern, you need to factor in more than just their base pay. But how much? If you are going to do it right (legally), below are some things you should consider:

[Some expenses below vary by state. For ease of explanation, I used Wisconsin rates as an example. I would be happy to research your own state for you if you are interested. Please inquire!]

Base Pay: This is the one thing you can control! What can you afford? What is your employee worth?

Social Security: This is a federal tax. The 2009 rate requires you to withhold 6.2% of the gross pay from the employees check and requires you to pay an equal amount (6.2%) out of your own pocket.

Medicare: This works the same way as Social Security. The rate is 1.45% for both you and your employee.

Unemployment Insurance:
Federal: Maximum tax of $56 per employee per year (the amount could be less based on gross wages and/or how long the employee works for you)
State: This rate definitely varies. For newer businesses in WI the rate is 3.25%.
Unemployment Insurance payments are paid out of the employer’s pocket, not employee withholding.

Workman’s Compensation Insurance: The purpose of this insurance is to cover your employees if they are injured on the job. It is required in every state (except Texas), but rates will vary. We pay $0.72 per $100 of gross wages. Wisconsin requires that a minimum premium amount be met. After all is said and done, it amounts to about 2% of gross wages.

NOTE: Work comp. rates are heavily determined by the type of tasks your employees will be performing. (There is obviously more risk for someone who does on-site installations versus someone who does office work.) Do not let the insurance agency who handles your work comp. insurance enter a classification code that does not describe your employees’ tasks. This happened with our policy and I had to go through a long process of getting it changed. We ended up saving $800 by making sure everything was straight, so it was worth it.

When you add all of this up, it comes out to approximately 13% of gross pay. A $10 per hour job has just become $11.30. This obviously does not include extra costs such as health benefits, parking, payroll software, and much more depending on your specific business.

In a future post, I will cover the how-to of processing the necessary payroll paperwork.

What other expenses (direct or indirect) do you find yourself incurring with the hiring of employees?

Learning What You Need to Succeed RECAP

2009-05-20T11:18:00.001-05:00

As I mentioned in the beginning of this series, the five “keys to success” that I discussed were specific to my own needs as a business owner and entrepreneur. I realized these needs of mine through past business experiences and writing them down has helped me keep them on the forefront of my mind.

I hope you have been able to apply some of these strategies to your own life, and have also been able to come up with your own. If you take the time to look back at some key moments in your history, it won’t take long for you to recall some of your own strengths and weaknesses. Consider what those might be, and come up with an action plan to overcome those weaknesses and benefit from your strengths.

Think of a time when you received much praise, or were awarded something based on your achievements. What did you do to get to that point?

What about a time when you failed, or didn’t meet up to the expectations? Why not, and how can you surpass those expectations next time?

When do you feel most confident? When do you feel completely incapable?

What inspires you? What causes you to lose all motivation to move forward?

If you take the time to analyze these questions, you will learn so much about yourself, and will also be miles ahead of those who are afraid to face their own insecurities and tackle their weaknesses.

Are you willing to do what it takes to succeed?

Learning What You Need to Succeed Part 5

2009-05-18T20:30:00.000-05:00

5. Surround yourself with experts

I’ve always felt weird about the term “self-made millionaire”. In fact, the image it portrays in my head is quite sad. I picture a person who has finally “made it” (I use that in the loosest terms possible), and had no help or support from anyone along the way. I know I may be using a strict interpretation of the phrase, but it still provokes some interesting thought.

Will you one day be declared ‘self-made’ or will you be able to point to people and resources that have guided your success? Much wisdom can be gained from those who have gone before us. If you haven’t already, seek out a mentor that you can learn from and consider anything they may have to say. Look for someone in your industry that has years on you or has already retired.

The week before my rummage event took place I received a random phone call at night. The older gentleman on the other end of the line started asking me all about the event I was putting on. His questions were very pointed – almost like he was quizzing me.

It turns out that he was a very well-known promoter in our area since the early 70’s. He is no longer in the business, but is still very connected with those who are. As he was shooting down every response I had (apparently, I was doing everything wrong!), part of me wanted to dismiss him and continue on in my blind ways. But instead, I decided to keep listening, filtering everything he had to say.

In fact, all weekend I had curious promoters visiting my event to see what was going on. They each had their own ideas about what was going well and what could be done better. The best thing to do was to keep smiling and soak it all in.

Are you turning down potential quality advice from anyone? Don’t feel like you have to do this on your own.

Sure it says a lot about a person who went from rags to riches by their own will-power. But is the lonely journey to get there worth the title?

Learning What You Need to Succeed Part 4

2009-05-16T14:13:00.002-05:00

4. Manage your time

I will be the first to admit that time management is not in my top-five list of personal strengths. I could talk up the value of it all day long, though. And I am slowly, but surely getting better at it. My sister-in-law likes to say I operate on “Gill Standard Time”.

I have determined that my schedule gets out of whack when I either put off tasks that I don’t want to do, or take too long on tasks that I enjoy. Can you relate in any way?

So rather than giving you advice that lacks personal credibility, I want to refer you to postings by Liene Stevens of The Smart Planner and Ron Dawson of Cinematic Studios.

They explain, in detail, the advantages of using a block-scheduling format for planning out your day, week, and month. By the time you are done reading these two posts, you will be motivated to change your time-management habits.

Think of how many hours you waste in any given week. What else could you be doing with that time, and how much more successful could your business be if you were able to devote those hours toward something else?

Learning What You Need to Succeed Part 3

2009-05-15T12:49:00.001-05:00

As I talked about yesterday, it can be very difficult running a small business by yourself. You have to keep track of the marketing, sales, accounting, payroll, legal aspects, cleaning, maintenance, public relations, human resources, and not to mention, the actual business that you conduct.

What I have found, is that when one’s time and efforts are spread out between all of these things, the overall quality of each aspect declines. The quality of your main service that you offer will certainly decline if you cannot focus on that the majority of your working hours.

An important thing to remember if you want to grow your business without experiencing a nervous breakdown is to:

3. Know your limits

You must be able to admit to yourself that you are not excellent at everything. The time is going to come when you must hire someone on to fulfill your specific needs, or outsource to a specialist.

When you look to hire someone, don’t immediately seek the candidate who can do “a little bit of everything.” Determine your most pressing needs and find the person who will meet those needs even better than you could yourself.

One of the best examples of this is A Bryan Photo, out of Birmingham. This team of nine has two main photographers and seven staff members to keep the details in place. Each one has their specific roles that, when combined, create an incredible service and quality product for their clients.

It is sometimes difficult to hire a new staff member if the task you need fulfilled is short-term, seasonal, or requires minimal hours. In this case, consider contracting or outsourcing with another person or business.

If you are working on redeveloping your promo materials and neither you nor your staff are quality graphic designers, it’s time to find someone who is. If you are always buried by paperwork that needs to be filed or entered into QuickBooks, contract with someone to come in once a week and take care of it. Is it time to get a cleaning person? They’re all over Craigslist these days.

Maybe you would LOVE to implement some of these ideas, but there is no way your budget can cut it right now. Consider temporarily cutting back on some aspects of your business. If the design and quality of your website is doing more harm than good, and you aren’t in a place to a) design your own from a template or b) hire someone to do the job, you may be better off scrapping it. Focus on your blog instead. If drawing up new business is your highest concern right now, hire a sales person and put them on strict commission.

You can’t afford to run yourself ragged. If you can learn to delegate and outsource, you will have much more time and energy to put into what you do best.

Learning What You Need to Succeed Part 2

2009-05-14T16:26:00.001-05:00

When you run your own small business, and it’s a one man show, things can get VERY lonely. Everything hinges on you alone. The pressure from that can be extremely stressful and enthusiasm can die quickly. Have you ever asked yourself, “if I just ‘closed shop’ today, would anyone even notice or care?”

I started to feel this way toward the middle of this project, and knew something needed to change – which brings us to #2:

Obtain the right kind of support.

If you can gain this support on both a personal and professional level, you will most likely gain the motivation you have been lacking.

On a personal level, be sure to have two or three close friends or family members who have an interest in seeing you succeed. These people will typically know your strengths and weaknesses and can help you stay level-headed when times get tough. Allow them the opportunity to be honest with you, thanking them for their opinions when they are finished. If you shut down their ideas, or are quick to disagree with them, you are doing much harm to one of your greatest sources of feedback.

My wife, The Fabulous One, picked me up plenty of times during this process. When vendor applications were slow to come in, she was able to offer a new perspective on how to streamline the application process, which encouraged more vendors to sign up.

If you don’t currently have these kinds of people in your life, think about who you would like to have that role. Invest in those relationships and show a genuine interest in them and what they are pursuing. If that friendship builds, they will probably return the favor.

In addition to the personal support, you will definitely need professional support to keep your doors open. Are you networking? Do you have other businesses vouching for the services or products you offer? I’m not talking about trading links on a website here. Find a way to add value to other businesses you work with, and they may just do the same for you. If you are a wedding planner, do you simply pass on the name of a specific vendor to your brides, or are you passionately selling that bride on all of the great reasons she should hire them. The latter is definitely the way to go if you are going to build true partnerships with the other vendors in your industry.

If you are looking to start a new business, and don’t have these relationships in place, pause. Take the time to work on this. Work for someone else in the industry for a while, and not necessarily in the specific field you are pursuing. A lot of wisdom and perspective can be gained by being able to see things through the eyes of others. You don’t want to jump in prematurely.

A couple years ago I was looking into starting a business that rented out chiavari ballroom chairs. At the time, I had very few relationships built up with local wedding vendors and venues. I could have started the business and tried to work it from the ground up, but knew that it is a better investment to work on those relationships. If you do this, your start-up will be much smoother and word will spread about you much faster.

So remember, it will be very difficult to survive on your own. Reach out, build up your relationships, and experience the benefits of learning from others.

Learning What You Need to Succeed Part 1

2009-05-13T15:26:00.002-05:00

Below are five things I have learned recently that I need for success. Your list may be a little different than mine, but what’s important is that you know what you need.

1. Believe in whatever you pursue
2. Obtain the right kind of support
3. Know your limits
4. Manage your time
5. Surround yourself with “experts”

Over the next week, I am going to explain each of these needs in reference to a project I just completed last month.

I took on the task of promoting a large-scale rummage/flea market event that was marketed to the Greater Milwaukee area as kind of a “kick-off” to the rummage sale season. Although I have worked in and around events, I have never done something quite like this before.

The concept is quite simple, but the details were many. Rent out a building/space, sub-rent 10’x10’ spaces to vendors, advertise, and charge a small fee for admission. Where’s the difficulty in that, right?

Well it turned out to be quite the emotional roller coaster as things began to unfold. You don’t really know if you have a show or not until you have enough vendors to fill the space. And it’s hard to get vendors for a first-time show because they don’t want to risk it being a flop. It is also difficult to know how much money to spend on advertising because you don’t know what your total revenue will be in the end.

After this constant balancing act, the final product turned out extremely well. We had over 3,000 customers, over 6,000 food donations, happy vendors, and I was even on the news on Saturday morning. In fact, I actually turned a profit! But what was more valuable than the money I made, were the lessons I had learned.

1. Believe in whatever you pursue.

Being a promoter for this type of event is a perfectly legitimate business. The popularity of these events is even growing with the economic times we are experiencing. But, I came to find that my heart just wasn’t in it and it didn’t feel true to who I am. I don’t know how else to explain it but by saying I was nowhere near waking up every morning (or any morning, for that matter) excited to work on this project. I realize there are days when this will be the case for any business. But if your business or job is depressing you, it’s time to get out – fast!

I already had vendors in place, investments in advertising, and a reputation to keep, so I knew I had to finish it out. And even though this event has a lot of potential for growth and profit, I’m deciding to call it quits. Many people think I’m crazy for doing so, but there are other worthwhile (and personally meaningful) projects ahead.

Do you believe in what you are pursuing and is it true to who you are?

Tomorrow: Obtain the right kind of support.

What Do YOU Need To Succeed?

2009-05-12T09:49:00.004-05:00

There are thousands (upon thousands) of business ideas out there. And it only takes ONE to be successful. But which one is it going to be? That’s the million-dollar question, right?

Take a look at this list of 999 business ideas drafted up by Seth Godin’s Alternative MBA team.

If you are anything like me, as you go down the list you are blown away by all the great ideas and think your head is going to burst because you don’t know which one to pursue first.

But the point this team is trying to make is if you don’t act on an idea nothing will come of it. The truth is most people won’t act on a good business idea. Even entrepreneurs will never follow up on every eureka moment they experience in their lives.

So what does it take to make an idea work? That’s the REAL million-dollar question.

And the answer will be slightly different for each individual. Given your personality, availability, financial situation, strengths, and weaknesses, what has to happen for you to succeed?

Tomorrow, I will share a few things I have recently learned that I need to succeed, in hopes that it will help you determine your own needs.

[Until then, don’t get too caught up in your 15 new ideas you pulled from SAMBA!]

A New Direction

2009-05-08T22:43:00.002-05:00

[This post is a response to the continual support of my wife and Molly to keep at it.]

I know it has been way too long since my last posting. To those of you who still check up on me every once in a while or still have me in your Reader, I am humbled.

The truth is, over the last couple months, I have not only been finishing up a new business venture (which I will go into more detail about soon), but have also been seriously considering the direction and focus of this blog.

I have enjoyed being able to offer financial advice to my readers over the last year or so. But, I have recently come to the conclusion that there are many personal finance blogs out there that offer sound wisdom for those looking to eliminate debt, save for retirement, and get the most out of their dollar.

Therefore, I have decided to shift the current focus of The Dollar Dance, and will begin a transition into something new. With the mentality of finding a need and striving to meet that need, I am certain that I will be able to accomplish more through this blog than ever before.

I invite you to join me as I turn the page. If you own your own business, or play a key role in handling the finances of a small business, I think you will like what is to come.

As I continue to work through this process, I will be sharing some life lessons I have recently learned that, quite frankly, must be experienced in order for them to be truly grasped.

Looking forward to it!

Tim

Peapod...Survey says...

2009-04-04T11:52:00.005-05:00

I did not forget about my promised Peapod review.

The Fabulous One and I started using Peapod a couple months ago for two reasons:

1. To help us keep our grocery shopping held within a strict budget.

2. To save us some time as our lives were so busy we needed every hour we could get.

I must say, both of these needs were met in very large ways. We were able to plan exactly what we wanted to buy. There were no surprises at the checkout, no gravitational pulls toward the Drumsticks, and I wasn't circling the store four times to find a "small jar of capers".

After establishing our food budget, we planned on spending about 70% of it on Peapod and the other 30% was to be spent at the grocery store if we needed a quick 1/2 gallon of milk or a loaf of bread.

We found the Peapod delivery drivers to be very friendly. They showed up in the time frame that was established, and carried the bags of groceries right to the middle of our kitchen. If this seems a little too intimate and/or creepy to you, you will certainly appreciate their unattended delivery where they leave your groceries in very sturdy boxes next to your door. The refrigerated items are in an insulated cooler with ice packs and the frozen food is stored in a cooler with dry ice. I was quite impressed!

Peapod also offers weekly specials that were unexpected. One week we were able to choose one of three frozen entrees (to be cooked in the oven) for free ($12 value). It was very good and there was plenty left over for lunch the next day.

Okay, so what was the catch? The expected downside is that the prices do tend to run more expensive than the stores. I couldn't calculate a consistent markup. But you do definitely get less food for your money.

Also, the delivery charges range between $7 and $10 depending on your order amount. We simply built this charge into our budget.

Our schedules have since eased up a bit and we are not currently using Peapod on a regular basis. I do however, see us taking advantage of this service again this summer when our businesses really pick up.

That's my two cents. Are there any other opinions out there?

Understanding The Financial Credit Crisis

2009-03-04T18:01:00.003-06:00

Here is a visual aide to help you understand how we got into this financial crisis. The political aspects of everything have been left out of this video. It is more of a visualization to explain the process that happened. Many thanks to Brandon Meves for finding the video.

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

One Month Down

2009-01-31T11:26:00.004-06:00

As you may recall, my wife and I have declared this the year of getting out of debt. January has come and gone, and it has been an interesting ride thus far.

I cannot say we made significant progress in decreasing our liabilities. This is mainly due to the fact that our businesses are extremely seasonal (winter being our low season). And, while our income is at a minimum, our bills and expenses continue to be the same. Add to this some advertising opportunities we wanted to take advantage of.

Therefore, this month's focus was on monitoring our spending. We only spent money on that which was necessary. We kept a very close eye on our grocery budget and only ate out (fast food) when we had no other choice.

This month we said "No" to:

A Friday fish fry (and going out to eat in general) x10
New cell phones
The Wynn's $109/night deal (not really!)
Arby's
Drumstick ice cream bars
Going to the movies
A Juicy Couture swimsuit (for Monica)
Using a really good coupon to Express for Men
Bath & Body Works hand soap
A couple books

We've found that staying out of the malls and stores has helped a lot. Even staying out of the grocery store has kept us from buying unnecessary food, thanks to Peapod.

I have been working a part-time job and am also working on a new business idea that should help us make significant strides.

This month has taught me the importance of discipline. In order to balance everything I have going on in my life while keeping a close eye on our spending, I need to keep a thorough calendar of each day's events. I'm trying the block schedule approach suggested by Liene from The Smart Planner.

It's hard to say what February's focus will be. My income will go up this next month compared to January. With this extra income, I think the trick will be deciding how much should go toward our debt and how much should be saved for future expenses.

How has your year started financially? Have you been monitoring your spending more closely?

Peapod

2009-01-21T20:38:00.003-06:00

In an attempt at being more precise in our grocery budgeting, we are seriously considering using Peapod, the grocery delivery service. We received an offer in the mail for $20 off our first purchase and free delivery for 60 days.

We have been working on comparing prices on the website to those we normally pay at the grocery store. So far we have found that some things are more expensive and some are less.

There are delivery charges we need to factor in, but at the same time we are considering the time we will save by not making long trips to the store.

We also figure that by having a running total at the top of the screen as we add items to our "cart", we know exactly how much we are spending and won't have any surprises at the checkout line. Also, there won't be those tempting sale items or mid-shopping cravings that cause us to grab a bag of Oreos. (Tell me I'm not the only one)

We have been told the produce is very fresh so we figure we won't be throwing out as much food as we have in the past.

Peapod also has their own sales at times and also accept manufacturer's coupons.

So, why not give it a try? I'll give you the report after all is said and done. In the meantime, have you used Peapod before? Please let me know what you're thoughts are.

A Wedding B-B-B-Budget

2009-01-11T15:47:00.005-06:00

Engagement season has passed and wedding planning season is well under way. In the beginning stages of planning your wedding, the first topic you consider should be the budget. This may sound very elementary, but it is astounding how many couples start their planning without determining even a range for their budget.

If you are currently in this situation, I highly recommend you read three blog posts that will help put things into perspective for you.

First, Money Matters Not So Much was written by Monica to explain to brides that a budget is inevitable. If you don't talk about it, you are putting yourself at serious risk. Once you set your budget, you have at least some sort of framework in which to start your planning. Prioritization will obviously be necessary with any budget. Visit Monica at The White Box of Wedding Design if you need further inspiration or ideas.

Second, The $28,000 question: Why are we all hypocrites about weddings? was written by Ramit Sethi of I Will Teach You To Be Rich. Ramit takes a very realistic approach in this article as to how wedding budgets escalate as the planning process progresses. His biggest point made is for those who are currently not planning a wedding, but foresee one happening in the not-too-distant future...Plan Ahead! Start saving this month if you know you are going to be paying for the wedding yourself. This applies not only to weddings, but to cars, houses, furniture, appliances...anything!

Third, Liene Stevens of Blue Orchid Designs wrote Your Wedding Budget Does Not Define You. Don't be ashamed of your budget. Work with what you have and be fabulous no matter what. Liene will show you how.

SO, the moral of the story:

1. If you're engaged, set a budget for your wedding.
2. If you're engaged and live in Milwaukee (or are visiting), check out The White Box. You will certainly NOT regret it.

Suze Orman on Oprah - Free ebook

2009-01-08T15:15:00.003-06:00

Suze Orman will be on Oprah today as part of Oprah's Best Life series. She will be talking about how to best deal with the financially hard times we are experiencing. Orman is well known for her sound financial advice and clear-headed ways of thinking.

She also has an ebook that can be downloaded for free on the Oprah Winfrey website. Download Orman's 2009 Action Plan here.

The Smart Planner

2009-01-07T14:00:00.000-06:00

I'm being featured today on a great blog called The Smart Planner. Liene Stevens is the founder of this blog that focuses on helping wedding planners build their businesses in a purposeful and logical way. It is already obvious that Liene has made a difference in the wedding planning industry. Even if you are not a wedding planner, you can still gain some great insight on leadership and managament from this blog and also her unique Twitter series.

I will occassionaly make guest appearances on The Smart Planner and will gear my posts toward helping planners make the best financial decisions as they grow their businesses. Check out my post today about the advantages of using QuickBooks software to manage the financial aspects of your business.

Twitter Series

2009-01-07T10:30:00.000-06:00

If you are a Twitter user, be sure to look for a short series of tweets called $Money Talks$. I will be featuring some interesting quotations from some popular financial gurus. Follow me at www.twitter.com/timgill.

$$ for your old ink cartridges

2009-01-06T16:45:00.003-06:00

You may already be familiar with Office Max's incentive program MaxPerks. If not, it's basically a card you swipe with every purchase and you receive 5% back to spend on more office supplies. (The shopping list is always endless, right?) Occasionally, they will offer up to 25% back on certain brands or items. If this isn't worth it, the valuable coupons they send out definitely seal the deal.

Also, I found out the other day that for every empty ink or toner cartridge you turn in at the store, they put a $3 credit on your reward balance. You can turn in up to ten cartridges a week. This can really add up over time - especially if you have access to some cartridges from the office or elsewhere that are getting thrown away anyway.

The Emergency Fund

2009-01-05T17:03:00.004-06:00

Upon completion of putting together your household budget and taking a close analysis of your financial situation, build up an emergency fund. Or, as Dave likes to call it, the "rainy day" fund.

A well-funded emergency fund will cover expenses of anywhere between three and six months of living. Depending on how much job security you have or how difficult it would be for you to obtain a new job, you may want to adjust your goal accordingly.

It will definitely take time to fully fund this account, but I recommend you make a goal of saving up $1000 as fast as you can to get the ball rolling. For some, this may be easy as you already have at least that much in the bank. For others, you may have never had that much money to your name - ever. Well, it is possible, and after doing so I trust you will have the motivation and momentum to keep saving more.

Do whatever it takes to save up this money. Get a second job. Sell stuff on eBay or on Craigslist. Shovel sidewalks. Deliver newspapers. Babysit. Clean houses. Anything.

Once you have your $1000, put it in a place that is accessible, but not too tempting to take advantage of.

Now the big question - What counts as an emergency?

Only use your emergency fund for unexpected occurrences that you cannot plan for.

Examples: an unexpected pregnancy, you suddenly lose your job, you blow the engine on your car, an emergency room visit, the furnace breaks down.

Examples of non-emergencies: routine car maintenance (oil change, new tires, new belts, etc.), your TV broke, a 75% off clearance sale at Banana Republic, an annual doctor visit, the need for new furniture, craving a mocha frappuccino, you get the idea...

Once you reach your $1000 goal, you can smile big for a day, but the battle is just beginning. After that, it's time to tackle that debt of yours and continue to fully fund the emergency account. Please feel free to share any ideas you have on how to build up your $1000.

First Things First - Start with a Budget

2009-01-03T20:36:00.005-06:00

If you're going to work at getting out of debt, you need to take a very serious and precise approach to the way you handle your money. Consider what you own, what you owe, and what you spend.

The key to creating a budget that makes sense is to assign every dollar you make to a specific category. Some categories are straight forward, such as a grocery budget. Every week you put aside a specific amount for food and each week you spend that amount. Other categories, such as automobile expenses can vary each week or month. Even though you change the oil in the car every three months, you should still put aside 1/3 of that cost each month. Perhaps you pay a life insurance premium annually. Be consistent in putting aside 1/12 of that amount each month.

Always remember, if an expense is expected, it is not an emergency. Plan ahead and you won't be caught off guard with these expenses. Any money that may be left over at the end of your budget, put toward an emergency fund until you have at least $1,000 on hand just in case the unexpected does happen. This could be an emergency room visit or perhaps the need for a new furnace.

You may fill out your entire budget and come to realize your spending outweighs your income. This is a serious problem, especially if it continues for a number of months. This issue must be addressed as soon as possible. Analyze the situation. Can you cut back on entertainment and eating out? I think so. Is your mortgage over 25% of your income? Maybe it's time to move to a smaller house.

On the other hand, how can you raise the top line? Can you work a second job? Deliver pizzas? Sell stuff on eBay? Plainly stated, if your expenses are more than your income, you need to either make more money or start spending less. It's that simple. The rest comes down to creativity.

I do not intend to sound unsympathetic. I understand people have all sorts of different financial situations. But, financial freedom IS possible. We have the privilege of living in a country where opportunity is boundless. If you feel so overwhelmed with the debt on your plate, that you have no idea what to do, contact a financial advisor who can look at your situation and help you out on a one-on-one basis. If you are in this situation, now is not the time to be investing money in the stock market or saving for your kid's college fund. It's time to prioritize and eliminate this debt one dollar at a time.

Use this form from Dave Ramsey to help you keep track of your monthly cash flow. Remember, the bottom number should be ZERO. Have a plan for EVERY dollar you make.

Next time, I'll go into a little more detail about the emergency fund and why you want to have it.

The Cost of Interest

2008-12-31T09:00:00.000-06:00

Perhaps you have been thinking about my challenge to you yesterday to come up with financial goals for 2009. Part of you may be thinking that sounds like a great idea to eliminate your debt fast. But, you may also be thinking that it's kind of nice to only be paying your minimum monthly payments. In fact, you may be getting along just fine by doing so. When you look at your monthly cashflow situation, you can eat out, buy new clothes, and you still have money left over at the end of the month.

Well, consider how much more money you would have each month if you weren't making payments to the credit card companies and toward your student loans. Don't just think about the interest you pay each month, but the entire amount of your payments. Once you pay your debts off, you will free up a lot of cash for savings, investing, college funds, etc.

If you want a clearer idea of what the interest is costing you, please check out the two links below. Input your information and it will give you some startling results.

Cost of paying minimum payments
What will it take to pay off your balance

Say you have a credit card with a $5000 balance, with an 18% interest rate. It will take you 26 years to pay off that card if you only pay the minimum amount due. You will also end up paying over $7100 in interest over that time. And this is assuming you never use the card again in your life.

After you find out how much you will pay in interest, consider what you can do with that money if you invest it. What a difference!

My intention is not to end the year with depressing information, but to motivate you for the exciting days ahead.

Happy New Year, everyone!

Are you sick and tired of being sick and tired?

2008-12-30T13:25:00.003-06:00

If you are familiar with Dave Ramsey, you know what I’m talking about. Are you sick and tired of monthly credit card bills? A mortgage that you feel you are making no progress on? Student loans? Constantly monitoring your checking account balance so you don’t overdraw? Do you feel guilty spending $100 at the grocery store even though the food you buy is actually healthy for you? I will be honest here. I have felt all of these things at one point or another, and I’ve had enough!

My wife and I have made the decision that 2009 will be a memorable year in our lives. We are making it our goal to eliminate all of our debt (except our mortgage) this year.

Are you capable of the same?

Maybe you just got married and still have to pay off the wedding. Or, you overspent this Christmas (and the last 5 Christmas’) and the bills are going to be coming in soon. Are you looking to finally rid yourself of your student loans and begin having a positive monthly cash flow? Minimum payments are no longer the answer. It’s time to get your hands dirty and eliminate this debt. If the borrower is a slave to the lender, then 2009 will truly be a year of freedom.

As my wife and I take on this adventure, I will be sure to keep you up-to-date with not only our personal progress, but with the process as well. This isn’t something you can do without a well-devised plan. My challenge to you over these next two days is to assess your own financial situation. Talk it over with your spouse or significant other. You will only achieve your goal if everyone in the household is involved. This means the kids, too, if they are in the picture.

Get motivated, and come up with financial goals for 2009. I’m excited, and I hope you are too!

Be Smarter than the Average Bear

2008-12-29T20:34:00.004-06:00

I have talked in the past about how incredible it is that the malls and restaurants are packed during these "hard economic times". I was struck with this realization again yesterday, but in a new way. In the past, I was wondering if the economy was really as bad as the media was making it out to be. I have since been convinced that we truly are in a recession and things are going to get a lot worse before they get better.

As I was looking for a parking spot at [the looks-like-it's-December-23rd-packed-full] Best Buy last night, I was amazed once again at all of the money being spent on so-so food and soon-to-be out of date gadgets. I understand there are some crazy steals out there, and they are very hard to pass up. But if you don't have the money, (or don't really need the item to begin with) just say "no"! A penny saved, is a penny earned, right?

My biggest concern is that people are aware of the hard times we are in, yet they choose to spend their money carelessly anyway. Where does this end? Are we, as the American people hoping to get into so much debt that we also qualify for a government bailout?

Supposedly, the average American is behind in mortgage payments and up to his eyeballs in consumer debt. Even if this is not the case, and everyone out shopping this weekend is current with their monthly payments, will this continue to be the case in the coming months? Why spend that Christmas bonus when the clouds are predicting a rainy day to come?

Now is the time to make decisions about how your money will be spent - while you are at home with a clear mind. Don't wait until you are in the middle of Macy's contemplating the 70% off sale.

My wife and I have recently made the decision to make a drastic change in our spending habits, which I am excited to share about in the days to come. I hope there are others of you out there who have already made these hard decisions or are also wanting to make this change. The only way we are going to survive these times is to make wiser decisions than those who are spending their money rampantly. It can be done! I look forward to the discussions that will take place here in 2009.

Don't Buy Stuff You Can't Afford!

2008-12-26T22:55:00.004-06:00

I'm sure you've noticed all of the deep discounts in the stores. But take this into account.

Sometimes things can be confusing when they are put into the simplest of terms. Hopefully, we as Americans can let this one sink in...

Merry Christmas!

2008-12-25T01:11:00.002-06:00

Merry Christmas, everyone!

This has been an exciting year for my wife and me. With the launch of our wedding planning studio and expansion of my concessions business, it has been a busy one to say the least. In this coming year, I have both some new business goals and personal goals that I am excited to share in the near future.

May you and yours enjoy this season and always remember the reason for which we celebrate.

A Visual Aide

2008-12-17T11:47:00.003-06:00

This is worth a couple laughs. As a followup to my advice yesterday to sell things on eBay, Dwight, from The Office, has the same idea...Check it out.

Extra Holiday Cash

2008-12-16T22:23:00.003-06:00

So I said I would give my own suggestions for making some extra cash in hard times. This was in response to the ridiculous article I read in Travel & Leisure. Running a seasonal business, my mind is trained to think outside the box on how to produce additional revenue streams. Here are a few ideas...please feel free to suggest your own in the comments section.

1. eBay, eBay, eBay. A marketplace to the world. Search your basement for things you can get rid of. I recently pulled out the Handspring Visors my wife and I had in high school. (Trust me, they were cool back then!) I can't say they will bring a lot in an auction, but the longer I wait, the less value they will have. After you sell off your extra possessions, think about other things that would sell on eBay. Last year, there were some very popular Sports Illustrated Magazines featuring Brett Favre. These were in high demand in Wisconsin at the time, and I took advantage of that. As I found them on the magazine rack, I bought them all and sold them on eBay. It sounds pretty crazy, but I made a mortgage payment in the process. What's in high demand right now, and in your specific area? Nintendo Wii or Wii Fit? The latest Barbie? Think about it.

2. Deliver pizzas. For you Dave Ramsey fans out there, you know exactly what I'm talking about. The holidays are a perfect time to pick up this short-term or maybe long-term position. If you work a 9 to 5 this will work out even better. You might argue that you won't have any time for your spouse if you take on this extra job. The two of you can do this together! While this isn't the most practical method, at least you can spend this time with each other. Play some podcasts of Dave Ramsey in the car while you're at it.

3. This falls close in line with number one, but consider how popular Craigslist is. For those bulkier items or even pieces of furniture, offer them for sale in your local community. You don't have to worry about listing fees or shipping. They can pick them up right away and you'll have cash in your pocket.

4. On the flip side of selling stuff on eBay and Craigslist, think about all the things you can purchase on these sites. I challenge you to take inventory of everything you purchase in a two-week period and then search for those items on eBay. You will be amazed at the savings. You will certainly have to think ahead on some purchases, but it won't take long to get into the habit. An example I have of this are my Gillette razor cartridges. At Target they sell for $15.50 for a 5-pack. I can get them on eBay for under $1 a piece. Considering they last me less than a week, this adds up fast.

I will leave you with these four ideas for now and add more in the future. The opportunities are out there. But it won't always be a breeze. As I like to say, if it were easy, everyone would be doing it. It's simple to talk about doing one of these things, but go ahead and take action. Your work will pay off in the end.

Christmas Bailout

2008-12-14T11:02:00.003-06:00

With all the talk of the auto bailout and every other industry trying to get their hand in the pot, it looks like Santa Claus is in the same predicament...

Check this article out: U.S. Says It Will Bail Out Christmas

Happy Thanksgiving!

2008-11-27T10:54:00.002-06:00

A few things I am thankful for...

An all-loving, all-powerful Creator, God

A beautiful wife who inspires me to reach further than I could do on my own

My friends near and far who I wish I could see more often

This country which was founded on solid, biblical principles

Happy Thanksgiving everyone! Enjoy your time with family and friends.

Need cash now?

2008-11-20T16:50:00.004-06:00

I was reading the latest issue of Kiplinger's Personal Finance magazine today and came across an article that discusses "A Dozen Timely Ideas on How to Pay Unexpected Bills and Weather Tough Times". I must say, I was actually excited (in an extremely nerdy way) to read the article and was hoping to read about something I never thought of. After all, it is my slower time of year and extra cash is always a good thing.

To my extreme disappointment, the article was full of unwise and impractical solutions. Six of the twelve "ideas" involved borrowing money in some way. What a novel idea--If you need some extra cash to pay your bills, ask your friends and family. Or better yet, idea #10--Borrow From Strangers. They then went on to describe a kid who mass emailed 10,000 people (illegal) and asked them to each donate $2.50 for his college tuition.

Other ideas involved taking money out of your retirement funds (which you can do, but for a penalty) and selling your investments (horrible time for that). And the worst idea of them all--Cash Convenience Checks. You are setting yourself up for disaster by using one of those blank checks that come with your credit card statement. The interest rate is usually very high and there is typically a fee you need to pay just for the convenience (around 3%-4%). And in some cases, when you pay credit card company back, your payment will be applied to your normal credit card purchases first, then toward the convenience check.

Number 12 on the list was "Sell Your Stuff". Finally, something that makes sense. I'm pretty sure I would donate plasma before doing anything else on the list. This article got me thinking and I will be working on my own list of things you can do to make some extra cash for the holidays or just to help make ends meet.

You're going to charge me to pay you?!

2008-11-13T17:38:00.004-06:00

Have you every tried to pay for something with a credit card only to find out that you were going to be charged a "small" fee to do so? Or maybe there was a minimum purchase requirement and you were forced to purchase something else only to "qualify" to use plastic? Well, I'm sorry to say you have been taken advantage of.

Terrica, of Fabuluxe Events in Georgia, has a great post today that goes into detail about the terms that merchants agree to when they allow credit card purchases. Be sure to read this information so that if you are ever confronted with this situation you can make a knowledgeable and sound argument.

Smart Couples Finish Rich

2008-11-11T18:54:00.003-06:00

I would like to recommend a great book for those couples who are ready to do what it takes to get out of debt and do what it takes to have a bright financial future. Smart Couples Finish Rich, by David Bach, helps couples learn how to work together with common goals. Bach shares practical ways to save today and how to build those savings into future wealth. You'll love the simplicity of "The Latte Factor" and you'll be intrigued by the chapter entitled "Increase Your Income by 10 Percent in Nine Weeks".

This isn't just for people who own their own businesses. In fact, if you receive a weekly or bi-weekly paycheck, it should be even easier for you to budget your dollars and start putting away savings today.

Go on and take the challenge. Your patience and determination will be well worth it. If not for yourself, do it for your kids and future generations.

Black Friday Already?

2008-11-07T12:10:00.003-06:00

This infamous day will be upon us shortly. In fact, some stores have already begun their deep-discounted holiday sales. Of course, one way to find out about all of the sales is to wait until Thanksgiving for the six-inch paper with all of the ads. Or, you can check this site out and get a heads up on your holiday "deals and steals". (I use that term jokingly because I think it is so corny. Add to that "tips and tricks".)

The argument is out there that it is wise to start your Christmas shopping early because it spreads the expenses out over a longer amount of time. This is more psychological than anything, but whatever works.

For me, I try to get all my shopping done early so I can actually enjoy the season without the stress of overrun malls and picked over merchandise. Maybe you feel it is too early for Christmas shopping and you can't get in the mood. If that is the case, turn on one of your local radio stations that is already playing Christmas music and get a peppermint hot chocolate from Starbucks and you'll be ready to go.

Change.

2008-11-05T23:39:00.003-06:00

No one can deny that history was indeed made yesterday. Whether you woke up today with a fresh bounce in your step or a new fear in your heart, it is clear that our country will face significant change over the next years. As new issues come up and proposals are made, I will do my best to explain them to you, my readers, and how they will effect your lives.

Election Perks

2008-11-03T20:34:00.003-06:00

Well, tomorrow is Election Day. If you are still undecided about who you will vote for, contact me, and I would be happy to talk things through with you.

In case you haven't heard, there are a few establishments celebrating Election Day tomorrow and they would like to reward you for performing your civic duty.

Stop by Starbucks anytime tomorrow and get a free tall cup of brew just for saying you voted.

Ben & Jerry's is giving away a free scoop of ice cream.

Pick up a free star-shaped doughnut at Krispy Kreme...but don't forget your "I Voted" sticker.

There are also a lot of local restaurants taking on the same idea. Take advantage of one or all.

Happy Voting!

Life Insurance

2008-10-30T23:19:00.003-05:00

Perhaps this is a topic that newlywed couples are afraid to talk about. But I urge you to start the conversation today...

It can be awkward to talk about death, but I will do my best to explain life insurance in the most general terms.

If you have a life insurance policy in place when you die, the benefactor (spouse, children, parents, siblings - it's your choice) will receive a sum of money equal to that which was agreed upon when the policy was put into place.

Like any kind of insurance, the cost of this type of policy depends on some determining factors.

There are two basic kinds of life insurance. I will explain the first, Term Life Insurance, in more detail as it is the choice I highly recommend to anyone.

If I have a 20 year term life policy for $500,000, and I die within 20 years, my wife will receive a check for $500,000. The determining factors I mentioned are the length of the term (usually 15, 20, or 30 years) and the amount the policy pays out.

For a young couple with no kids, I recommend getting a policy that pays 5 to 10 times the annual salary for the breadwinner, and at least enough to cover funeral costs and grieving time for the other spouse. After kids enter the scene, especially if one spouse is at home, I would increase the breadwinner's policy to at least 10 times the salary. For the spouse at home, consider the costs of a nanny or not working for a few years.

Obviously, the younger and healthier you are, the cheaper it will be for you to obtain this kind of insurance. I should mention that at the end of the designated term, any money you paid in is gone. But this is no reason to be upset considering you are still alive and well.

There is a second type of life insurance category called Investment Policies (whole life, universal life, variable life) where you pay into it on the same regular basis, but the premium will be higher. The premiums are invested by the insurance company and you can even take out a loan against the cash value of the policy. People see this as an investment opportunity, but I disagree. The increased premiums are not worth the high-risk investment.

With Term Life the premiums are fixed (and cheaper) and you can invest the extra money you would have paid into an Investment Policy into something more stable.

Baby Bills

2008-10-28T14:12:00.004-05:00

My wife, Monica, and I have noticed a good number of couples we know are either new parents, almost new parents, or thinking of becoming so.

Some dear friends of ours recently had their first child and we were discussing with them the costs associated with having a newborn. A good portion of their doctor visits and hospital bills were covered through their employer's health insurance plan. But, not everyone enjoys the benefits of a quality health insurance plan, so it might be a good idea to know what expenses to expect if you find you are with child.

Because my wife and I both have our own businesses, we purchased a health insurance plan from an independent insurance agent who compares lots of different plans and helps us find the best fit. We have a high deductible insurance plan (aka disaster relief only insurance) because we are both young and in good health and don't have any children that may need to visit the doctor many times a year.

When we signed up for this plan we had the option of adding maternity coverage that would pay for the costs incurred during pregnancy up to a certain amount. This "certain amount" would increase every year, but ultimately doesn't add up to much more than the premiums we would pay for the coverage. Therefore, if you find yourself in this situation, it makes sense to start putting money away now, so that you will have it when you need it.

I got some information from my insurance agent, Jim, with The House of Insurance. (If you live in the Milwaukee area and are looking for any kind of insurance, do give him a call.)

For a natural birth with no complications you can expect to pay between $5,000 and $9,000. A cesarean can cost up to $12,000. Don't forget about general expenses as well (doing up a baby room, clothes, food, toys, car seat, etc.). Also, think about any time away from work the husband or wife will experience. All of these little things can certainly add up.

What suffering economy?

2008-10-26T16:35:00.002-05:00

I don't have a lot of time to post today, but I do want to make note of an observation I have made over the last couple weeks. Things are supposedly doing terrible in regards to our economy. The stock market is way down, foreclosures are through the roof, and personal debt is as high as ever. But drive by your local mall and you will see a full parking lot. The restaurants are full of people. Is everyone in denial? Maybe people haven't felt the effects yet?

Granted, every store in the mall right now is having some sort of sale. And don't get me wrong. I'm not bitter or anything like that -- just amazed. I was one of those people this weekend at the mall and out to dinner. I wonder what it will actually take for people as a whole to start cutting back on personal spending and dining out. I don't think we'll be able to plow through this recession without cutting back on at least some of life's luxuries.

What do you think? What have you cut back on in recent days?

Cost to Drive

2008-10-25T13:48:00.004-05:00

I came across this website today that calculates the cost (of fuel) to drive from one point to another. Enter the start and finish addresses and your car model and it calculates it all for you based on the distance travelled, fuel efficiency of your car, and the average price of gas in your area. It isn't exact, but it's close enough to possibly give you a new perspective on travelling across town to enjoy your favorite barbecue joint...

...then again, maybe not!

An Excuse to Drink Starbucks

2008-10-23T19:42:00.004-05:00

I cannot say I am addicted to coffee or ever need a Starbucks "fix". But I do enjoy a caramel macchiato every once in a while and I definitely fall for the overall atmosphere of the place.

What's more is I don't feel guilty about spending the extra $3.50 because of my Starbucks Duetto Card. It's both a Visa card and Starbucks card in one. 1% of all purchases is loaded onto the "Starbucks side" of the card. If this isn't enough of an incentive, you automatically receive $25 loaded onto the card after your first Visa purchase.

I only recommend this, of course, to someone who plans on paying off the bill every month. I certainly don't condone a credit card bill that rolls over each month. So please, use with caution.

There are obviously other credit cards with cash-back and other perks available. This just happens to be one that works with my lifestyle.

Do any readers use this card or use other credit cards with points or cash-back? Please share.

Yahoo Finance

2008-10-22T16:56:00.002-05:00

As I have been talking about the stock market over the last few days, you may have had some questions about how the stock market works or wondered about some terms that were used. Please feel free to post your questions and I would be happy to answer them.

Another great resource for digging deeper is Yahoo Finance. On the top, you will see the tab "Investing". When that drops down click on "Education". There they go over a lot of basics and even further if you wish. The "Personal Finance" tab also gives a lot of good advice.

This is also a great website if you are interested in tracking specific stocks or reading articles about the financial markets.

Economic Downturn: Part III

2008-10-21T13:43:00.002-05:00

The most talked-about topic over these last few weeks has been the 700 billion dollar bailout/rescue plan that was proposed by the President and passed by Congress. I must admit, I have been dreading this post because I have yet to make clear sense of it in my own mind. Even my dad, to whom I look at times to glean economic and financial wisdom, said "Good luck with that one".

The first question is, what is the need for the bailout/rescue plan? What would happen if no plan were put into place?

I should preface with the fact that the amount of money a bank is able to loan out is regulated by the Federal Reserve System (The Federal Reserve System, or The Fed, is the central banking system of The United States, headquartered in Washington, D.C.) based on the amount of cash and the value of assets owned by that bank. As I mentioned in previous posts, the value of investments held by large investment banks has fallen dramatically, largely due to foreclosures and declining home values. Therefore, banks are not able to loan out as much money as they try to balance their assets to loan ratio. When banks become more strict in their lending policies, it becomes more difficult for someone to purchase a car, get a home loan, or receive a small business loan. You can imagine how this effects the auto industry and home construction industry. But this also keeps new businesses from starting or expanding, resulting in fewer jobs being available and so on.

Add to this the general fear that people had about the future of the economy. People were wanting to pull a lot of cash out of their bank accounts just for safe keeping. Cash is an asset for banks, and when their cash levels decline, it only worsens their lending ability. This is why one of the first things done by the Federal Reserve was to increase the Federal Deposit Insurance Company's (FDIC) limit on insured cash at a single bank from $100,000 to $250,000. (Basically, what it means to be FDIC insured is when you have a savings or checking account, and the bank is shut down or collapses, you are guaranteed to receive your cash up to the FDIC insured limit.)

Without the proposal of some sort of market protection plan, the financial markets' rapid decline mixed with increased fear would have sent our country straight back to 1929.

That brings us to the second question: What do we do now, and/or how should this $700 billion dollars be spent? That question is why I have taken two days to write this post. I have been reading opinions and recommendations from all sides and have yet to form a solid argument. Generally speaking, it has been determined that the majority of these funds will be used to buy up bad mortgages. The government will hold on to the rights of these properties until the values of the homes increase and they can be sold [ideally] at a profit. But how all of this will be played out is yet to be determined.

Phew! I think tomorrow's post will be a little lighter.

Economic Downturn: Part II

2008-10-18T11:20:00.003-05:00

Following the government rescue of Fannie Mae and Freddie Mac in early September was the collapse of some of our largest investment banks in the country. On September 15th, Lehman Brothers, a global financial services firm, filed for bankruptcy. This was the largest bankruptcy filing in U.S. history. The biggest factor contributing to Lehman Brothers' collapse was the increasing number of failed home loans that I discussed in yesterday's post. Because of the incredible size of this company and the large effects it had in the financial market, stock prices fell dramatically on that Monday morning. Not only the stock price of Lehman Brothers, but a lot of other financial firms as well. If Lehman Brothers went under, who could be next?

And because the stock market's ups and downs are largely determined by the optimism or pessimism of where the economy is headed, the entire market took a huge hit that day and the days to follow. Every morning for two weeks I was looking at the paper to see which bank might be the next to go.

One financial firm that was suffering was AIG, one of the largest insurance companies in the world. You might ask how an insurance company is involved in mortgages and investments. Good question. In order for an insurance company to maximize its profits, (besides mailing you little pamphlets on how to be a safer driver) they invest the money they receive from their insured clients in many different ways - mortgages being one of them. Apparently, AIG could not find private funding to help them through their hard times, so the government loaned them up to 85 billion dollars for an 80% stake in the business. This is why you, as a taxpayer, now own an insurance company, and why it should bother you that a lot of wasteful spending is going on within the business.

Don't get me wrong. I'm all for private business and for the right of those businesses to pay their employees any salary they choose. But if you don't play by the rules, you're going to get kicked out of the game.

Next time, I will talk about the 700 billion dollar proposed rescue plan and what that means for us as taxpayers and citizens.

What's going on?!

2008-10-17T19:50:00.013-05:00

In light of the recent economic downturn, I felt it necessary to return to this blog and help out those who are seeking to make the most of these times. More so, I was encouraged today when I found out that a gentleman I had just met yesterday has been following The Dave Ramsey plan with his wife--all because of this blog.

Some may be wondering how our country has gotten into this situation, why the stock market keeps falling, who is Freddie Mac and Fannie Mae, and how will one be effected by all of this if he does not own a single share of stock.

Let's start with Freddie Mac and Fannie Mae. Say I have some money that I want to invest, while at the same time, you are looking to buy a house. I know you, you have a decent job, and you seem relatively trustworthy. I decide to loan you $150,000 at the going interest rate. You make a payment to me every month, and we are both happy. As you probably know, with every investment comes risk. I am taking on the risk that you might not make your monthly payments. Maybe you lose your job or come down with a fatal illness. In order to reduce my risk as an investor, it would make more sense for me to invest in 10 homes instead of one. If one home defaults, it isn't the end of the world.

Essentially, this is what Freddie Mac and Fannie Mae do. They are both government sponsored enterprises which mean they were charted by the government, but are actually privately owned. A mortgage company will sell its signed mortgages to Freddie Mac or Fannie Mae, who will then package them together (say 100 of them), and then sell them to investors in the secondary market. They refer to these investments as "mortgage-backed securities" because they are worth the values of the homes they represent.

Naturally, some of the mortgages in the pool of 100 will default, or at least be behind in their mortgage payments. But, the decline of Freddie Mac and Fannie Mae started when more and more people fell behind in their payments than usual and foreclosures became much more common. Add to this the decline of home values. For so long, home values were on the rise. $150,000 was paid for a home that is now worth only $125,000.

For a while, interest rates were so low that everyone was buying a new home (or 2 or 3). There were also mortgages put into place that start the home buyer at a low interest rate, only to increase that rate to 8 or 10 percent after three years. (These are referred to as Adjustable Rate Mortgages, or ARMs) And on top of that, government policies were put into place that made it possible for people to buy a home with little to no money down for a deposit.

Unfortunately, this was all spotted too late in the game. The government paid a large sum of money to help Freddie and Fannie during this time. If the government did not do this, a snowball effect would have occurred, and the entire financial system would probably have tanked by now.

I just hope we have all learned our lesson on this one.

IRA - Traditional...Roth...what is this about?

2008-04-28T23:09:00.002-05:00

You may have heard me mention the term IRA in some of my past posts. Even if you don't know what it means, you have probably determined that it is 1. a good way to invest your money for the future and 2. something you don't want to think about until ten years from now. Let me explain it to you and hopefully next time you hear someone talking about it you will be able to chime in intelligently.

IRA - Individual Retirement Account

The government has setup this retirement savings program to encourage people to save for retirement before it is too late.

This year, if you are age 49 or below, you can contribute up to $5000 of your own money into your IRA account (up to $6000 if you are 50 or above). This account can be set up with most any financial institution. Each year, the maximum amount that can be deposited into your account increases due to inflation. Once you put money into your IRA you cannot withdraw the funds until you reach the age of 59 1/2. There are a couple circumstances where you can withdraw earlier than that (if you become disabled or want to contribute up to $10,000 toward a residence), otherwise you will face an early withdrawal penalty.

The advantage for a traditional IRA is that any money you pay into your account is tax-deductable. If you put in $5000, you will only pay income tax on your annual income minus the $5000. Once you put the money into your IRA, it is up to you on how you want to invest it. You can use it to purchase specific stocks, mutual funds, or other investments. Once you begin withdrawing your funds after the age of 59 1/2, you will then be required to pay taxes on those funds.

The Roth IRA is different in that you put money into the account that you have already paid income taxes on. You can still make your own decisions on how you want to invest your money until you begin withdrawing the funds. The advantage of the Roth IRA is that you don't need to pay any taxes on your profits when you retire.

The best way to determine whether you should do a traditional IRA or a Roth IRA is to consider the tax bracket you are in now compared with the tax bracket you see yourself being in when you retire. The more money you make, the higher your tax bracket will be. And most people intend to make more money in the future than they do today. That said, the Roth IRA is becoming a more popular choice, especially among younger people.

If you are wondering why you would want to put this money into an account you can't access for decades, think about how it would work if you just put your money into a regular investment account. If you invest your money in a basic money market account (non IRA) you will have to pay income tax on your profits every time you sell a stock or mutual fund. Over the course of many years, all of the money paid to the IRS would have added up to a lot if you were able to reinvest it.

It takes a lot of discipline to save an extra couple thousand dollars every year, but if you can do so, and make that money work for you, you will be happy in the end.

I'm out of debt!...now what?

2008-03-11T22:30:00.004-05:00

I received an email from a reader last week and I would like to respond to some questions she had. So often these days, the only kind of financial advice you see deals with getting out of debt. But what about those of you who have worked hard to save your money and have not spent more than you have in your bank account?

Dave Ramsey is a financial guru who has excellent advice concerning getting out of debt and saving for a brighter future. You'll find a link to his website here at The Dollar Dance. Check it out and listen to his radio show. Listen to him for just one week and your whole mindset of money will completely change.

Whether you have debt or not, one of the first things you want to do is set some money aside as an emergency backup. It is most often the unexpected and unfortunate circumstances that put us behind financially. Take note though, groceries and an oil change are not emergencies. Any expenses you expect, even potential car repairs, should be built into your budget. Some things that do qualify as emergencies would be an unexpected medical operation, a deductible from a car accident or an unfortunate death in the family.

After this is established, (assuming all debt is paid off) start contributing money toward a down payment on a house, or your kids' college funds. Also, it's never too early to start saving for retirement. If your employer offers a 401(k) program, take advantage of the matched contributions. A Roth IRA account is also a very good way to set aside savings every year.

I realize I just threw out a lot of terms and have certainly brought up more questions. Over my next few posts I will go over each of these things starting with setting up a budget. Until then, start listening to Dave and keep the questions coming!

Together or not Together

2008-02-21T19:46:00.002-06:00

I would like to respond to the blog I linked to the other day entitled, “Get Your Act Together, Sisters!”

I want to first address the question regarding the effects marriage has on one’s credit score. I won’t go into detail today about what factors go into calculating a credit score, but you should know that your credit report is tied to your social security number. Even after marriage, each spouse has their own credit score. There is no “average score” or anything like that. The financial decisions each of you have made up until marriage are completely separate. Now, after you say “I do,” things can start to change once you open accounts together.

I highly advocate joint checking and savings accounts (for married couples) for a few reasons:

1. It forces communication between the two of you and provides accountability.
2. It gives you a common goal together as you work to improve your financial situation.
3. It serves as a reminder that the two of you have become one and are committed to a lifetime together.

I would also argue that financial management is just plain easier with fewer accounts to manage, especially if one person is doing the majority of the banking.

Now for a more controversial topic…

I think it is most wise for an engaged couple to keep their finances separate until marriage. I realize an engagement is a huge commitment, but it is not a binding one before God or the state.

One of the main reasons I advocate this is that it forces both of you to live within your means. If one of you can’t afford to pay rent on your own, maybe you should be looking for a cheaper apartment. If you’re struggling to make your own car payments, perhaps you should sell the car. If both of you are living within your means, you should be able to survive independently through your engagement. Then, after you are married, you will see a financial benefit and will be in a much better position to contribute to your savings.

Maybe you are thinking, “What’s the difference? We’ll be married in less than a year anyway.”

Well, it doesn’t make much sense to have the benefits of marriage without the commitment of marriage.

Please comment with any ideas or questions you may have!

Who controls the money?

2008-02-14T18:33:00.004-06:00

Hello,

I read a blog post today regarding finances within the marriage (and engagement, as well). I will post my thoughts on the topic in the days to come. But for now, I would like you all to read it and get a head start on the topic. And also, PLEASE email any questions you have on the topic. It will give me a better idea of what my readers are looking for.

Happy Valentine's Day!

Blog Post: Get your act together Sisters

High Yield Savings Account Part II

2008-02-10T22:45:00.000-06:00

Hello All,

Sorry I did not post yesterday. I'm a partner in a concessions stand and we had a big event this weekend. Sales were good...so I guess I'm not that sorry ;)

I have found the top four high yield savings account offerings. (If you find something that I missed, please let me know.)

1. Etrade.com 4.40%
2. Hsbcdirect.com 3.55%
3. Capitalone.com 3.50% *Includes free checks and ATM card
4. Ingdirect.com 3.40%

Etrade seems like an obvious winner, especially if you are already looking for a place to trade stocks and mutual funds online. The free checks and ATM card with Capital One are also a very nice bonus. Don't forget that these are introductory rates and will most likely go down a bit after the first couple months.

Ultimately though, the interest rates are determined by the Federal Reserve. The government is currently trying to boost the economy in order to get out of the slump we have been in. They have lowered interest rates, which has given consumers less reason to save their money, and more reason to spend it (by means of lower loan rates) on houses, cars, and the like. I can explain this more at a later date, and how it effects the decisions you make regarding your life and money.

Hope this helps!

What to do with cash savings

2008-02-08T23:43:00.000-06:00

You’ve always been told that you should save your money, put it in the bank, and earn interest. That’s how you will become rich – compound interest. It sounds like a wonderful (even inspiring) plan until you get your bank statement in the mail and realize you are earning only 0.10%. But don’t worry, as soon as your account reaches $10,000, you will earn a whopping 0.80%. Even at that rate, your interest earned will equate to just $80 a year.

There must be some mistake here. Inflation is reported to be around 3% and the banks are offering a mere tenth of one percent!

Say hello to High Yield Savings Accounts.

High Yield Savings Accounts offer a much higher rate of return and are typically done through online banks. I have a high yield account with Capital One. My last statement shows it is paying an annual percentage rate of 4.41%. That is down slightly from the introductory rate of 5%.

How are online banks able to offer such a high rate of return when brick and mortar banks do not?

It mostly has to do with overhead costs. Online banks don’t have to keep up with building maintenance, landscaping, and staffing hundreds of locations. Plus, I’m sure they wouldn’t mind if you signed up for a credit card or two ;)

If the high interest rate is the obvious advantage, what are the disadvantages?

You will have to get over your fear of online banking.
It takes about three days to transfer money from your High Yield Savings account to your original account.

I recommend keeping just enough cash in your checking account to cover bills, expenses, entertainment, et cetera, and then put the rest in your high yield savings.

Check back tomorrow for current rates from the most popular online banks. I’ll do a little research in the meantime…

Quicken Financial Software

2008-02-07T18:08:00.000-06:00

One of the best things I have done to keep a good handle on our finances was to purchase Quicken Financial Software. If you currently do online banking with your bills, bank cards, and credit cards, you will find it is very simple to use. Some of the advantages to the software include:

Automatic uploading of all transactions in your online accounts

A budgeting feature that will not only help you form one but also keep to your goals

Customizable categories that help you keep track of spending in areas like groceries, dining out, fuel, and entertainment

You can also keep track of assets (investments or your house, for example) and liabilities (loans or credit card debt), and ultimately keep track of your net worth.

There is nothing more valuable in financial planning than being able to see exactly where every dollar is going. At the end of a week, month, or year, you can see what you spent in each category and make adjustments to your budget if necessary.

Quicken also has a section that helps you determine what you need to save today in order to achieve specific long-term goals.

The Starter Edition is only $30 and is perfect for the couple who wants to get organized and be in control of their finances.

The Dollar Dance

2008-02-06T14:14:00.000-06:00

Whether you had one of these at your wedding reception or not, I don't really care. There are many other blogs that will debate the etiquette and/or audacity of them.

I am here to discuss the post-nuptial dollar dance. The wedding is over and the honeymoon bliss is a fading memory. Two bank accounts have now become one. In this blog I will talk about the many different questions and issues that arise not only for new marriage relationships, but for anyone who wants to do it right.

It's time I put my finance major and love of this topic to use. As we go, please email me any questions you would like me to answer regarding banking, investing, credit, budgeting, and the like.

The purpose of this blog is to stop dancing around the subject of money and to start making educated decisions that will lead to a brighter, more financially independent future.

Let's go!