Wednesday, December 3, 2014

Why I’m not Getting Greedy with My Retirement Account Returns

Stock markets have been on the rise lately, and some have even hit all-time highs in 2014.  This doesn’t mean I’m getting greedy with my retirement account returns though.

A recent US New & World Report article noted, “Dave Ramsey has become famous for a startling claim. He says stocks have returned an average of 12 percent over the long term. And he expects a 12 percent return over the long run going forward, too. On his website he dedicates at least two pages to his claim.”

It goes on to note, “In one article, “The 12% Reality”, we learn that Ramsey is "using a real number that's based on the historical average annual return of the S&P 500." The article claims that the "current average annual return from 1926, the year of the S&P's inception, through 2011 is 11.69 percent." In a second article, Ramsey declares you can find mutual funds with a track record of 12 percent returns for the past 70 years.”

12% returns sound great, but I know that to get them, I might be taking some risks with my money.  And while it would certainly further my retirement account balance to get such returns, I’m not going to chance them in the name of greed. 

The greater the upside, the greater the downside
Over the years, I’ve realized that when it comes to the stock market, where there is greater chance for reward, there is also often greater side for potential risk as well.  While this isn’t necessarily the case in every type of market investment, for me personally, when the returns seem too good to be true, they often are.  And even if they are good while the market is up, the losses can be just as big when the market is on the decline.  Therefore, while a 12 percent return sounds great, and may be possible when the market is on the rise, I’ve seen just how quickly the trend can reserve itself (i.e. the financial crisis) to quickly eat away at those big returns and then some when the market falls.

Stable rates of dividend reinvestments
With stock market volatility one of my investment concerns, and the main reason I tend not to get greedy with my retirement account returns, I prefer something that offers me stable returns over the long haul and has the ability to grow my money at steady rates.  This is why I like dividend reinvestment funds.

The fund that I chose for my retirement account has been around for over 40 years, has proved itself over time, rises and falls with the stock market’s hills and valleys, yet not with as much volatility as certain riskier funds, and pays out monthly dividends that yield in the range of 5 to 6 percent annually.

Dollar cost averaging over time
As a self-employed individual with little spare income to devote to retirement savings, I enjoy having a dividend reinvestment fund at my side when it comes to retirement planning.  With monthly dividends paid out, and then reinvested into the fund as additional shares, I’m able to grow fund value, buying shares at a variety of prices, thereby enabling me to dollar-cost-average my fund purchases over time and over share price without putting an additional dollars of my own at risk.

This is a true benefit for someone like myself, and keeps me from getting greedy with my retirement account returns since the whole thing kind of takes care of itself without my having to meddle in it.



Disclaimer:

The author is not a licensed financial professional.  This article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

Tuesday, November 4, 2014

Getting More Financial Information from Article Comments than the Article Itself

Sometimes I’ll read an article online – about money or otherwise – and wonder why I even bothered.  Sometimes there’s nothing useful in the article or it’s filled with information that I already know.  However, rather than click the close button on my browser in disgust, I might just scroll down to the bottom of the page until I hit the comments.  Once there, I sometimes find that things have devolved into a shouting match between two or three hotheaded comment makers or internet trolls.  But other times, this is where I glean some of biggest takeaways from the article page.

Learning from people who actually leave their homes occasionally
As a freelance writer myself, I know just how secluded I can be from normal society at times.  There are weeks (especially during the winter here in Chicago) when I only leave the house a few times.  And I realize that over time, writers can become somewhat insulated and cut off from the real world and build their own sort of personal reality, whether it’s a realistic one or not.

This is why I find the comments of others so informative.  Many times they come from people in other jobs, careers and industries.  They come from people who work from home, work outside the home, work 12-hour days, or don’t work at all.  And in this way, I’m able to expand upon my own at times, sheltered existence.  

New ideas and reaffirmation of existing ideas
Sometimes it’s nice to see new ideas or have reaffirmation of existing ones.  It feels good to know that I’m not the only one out there thinking a particular way and have a little support in my outlook on life, personal finance, the economy or whatever.

Take for example a comment on a recent article at DollarCollapse.com on an article entitled, “Welcome to the Third World, Part 13: Suburbs Become Ghettos”.  The comment comes from BroccoliSoupTown and reads, “I've been told by plenty of friends and family that they don't know how my family of 5 can possibly get by when they see our modest 1150 sq. ft. house and 15-year-old cars. They think a programmer ought to be able to afford nicer things. They don't realize that the "rich" people they're comparing us to only have a bigger house and newer cars than we do because they got it by going deep in debt. And if you can only afford something by going into debt, you can't actually afford it!”

Our family of four is in the same sort of situation as BroccoliSoupTown, living in a small, two bedroom one bath condo and driving a vehicle that’s 12 years old.  However, by forgoing the bigger and the newer, we’re also able to forgo debt.

Mr. BroccoliSoupTown and I are supported in our views by a recent article comment on CNBC entitled, “U.S. household debt jumps for third straight quarter: survey” that was pulled from Reuters.com
.
The comment comes from Americannovice and reads, “The rich stay rich because they act poor. The poor stay poor because they act rich.”

I like the way the person put it…short, sweet, and to the point.

Different perspectives and opinions
But while finding the same or similar perspectives and opinions as mine in comments is nice, it’s not always the most constructive.  Sometimes I like a new outlook on life, and this is where article comments can be extremely useful.  New ideas on how to save, new opportunities for investment, income or employment, and different thoughts and theories on the stock market and economy in general can broaden my horizons or at least – if I don’t agree – can give me a better idea of how others might be viewing the situation so that I can write about or discuss these topics in a more informed way.



Disclaimer:

The author is not a licensed financial professional.  This article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

Wednesday, October 15, 2014

5 Elements of a Retirement Drawdown Plan

Having watched several relatives prepare for retirement, I’ve seen that it can be an exciting, yet somewhat scary process.  And there can be a variety of elements that go into preparing for retirement.  Signing up for Social Security and Medicare, determining how much expenses will be, ensuring that you have things to stay occupied, and figuring out whether you’ll have enough income to cover expenses are a few of the more major items that may crop up on that retirement to-do list.   
And ensuring that income is being derived in the correct amounts and from the proper sources can be key to a successful retirement. 

Fixed income
Maybe the most stable source of income for a retirement drawdown plan is that of fixed income.  Things like a pension or Social Security can make for very secure income streams, and while such payments could be subject to future reductions, they are typically more reliable than many other retirement income options.

Stock market investments
Stock market investments such as individual stocks, an IRA (Roth or regular), 401(k), or 403(b) can be a crucial element of a retirement drawdown plan.  However, it’s important to bear in mind that with stock market-based investments, while the returns can be good when the markets are up, the hits to your personal finances and retirement income can be severe when the market is down substantially.  The variability and risk involved in stock market investments may mean that its reliability as a retirement source of income may not be a strong as with things like cash or fixed income assets.

Cash
Cash can prove a valuable portion of a retirement income drawdown plan.  With cash in a savings, checking or money market account, you likely won’t have to worry about paying taxes on withdrawals or suffering delays waiting for funds to be distributed.  On the downside, such money may not earn much if anything in interest or dividends and will likely be “asleep” in such accounts until you choose to put it to work.

Earnings – both real and potential
Moving into retirement with some backup sources of income may not only alleviate financial strain, but decrease some of the stress over retirement finances.  Whether it’s current income from things like side jobs or hobbies like collecting or online selling that make you a little extra money, or it’s available income from things you already own that can be converted to cash, available earnings – both real and potential – can make for a nice financial reserve in retirement.

Expenses
Having an extremely good handle on expenses can be another critical element to forming a retirement drawdown plan.  Just ensuring that you have stable income streams might not be enough if they don’t outweigh expenses.  Doing a tally of existing and potential expenses not just before retirement, but moving into and during your golden years can provide a better handle upon just how much you’ll need in income and from where those funds should derive.



Disclaimer:

The author is not a licensed financial professional.  This article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

Friday, October 3, 2014

Microjobs: A Strange Juxtaposition of Independence and Lack of Freedom

As a freelance writer who has bolstered his income over the years with a number of side jobs and work roles, I know just how important microjobs can be to the self-employed.  However, while the idea of microjobs might to some seem a wonderful way to free themselves from the normal work routine, they can at the same time find them to be a strange juxtaposition of independence and lack of freedom.

According to a Yahoo.com article on the subject, “Odd-jobbers and freelancers are nothing new, of course, but modern microjobs are an outgrowth of digital technology that brings laborers and hirers together more efficiently than ever, often via smartphone.”

It goes on to note, “Yet for all the attention they’re getting, microjobs seem unlikely to solve pernicious problems such as low pay for many workers and a shortage of entry-level positions that allow college grads to put their education to good use. Plus, microjobs rarely come with benefits, and juggling a variety of part-time jobs requires more adept time-management than showing up at an office day after day.”

A role in which you’re the boss
As a holder of multiple microjobs, you might in some instances realize that you’re not just an employee now, you’re the boss.  While you might not own the company or companies for which you are working, as a freelancer, you could find yourself in charge of your hours, how hard you work, and how much time and energy you put into your endeavors.

While this can be a great thing in some ways, it also means that you may be assuming more responsibilities.  And it also means that while in a regular work role, you could find yourself going home at night and escaping your boss and work responsibilities, as your own boss, you never truly escape, which can at times be an aggravating situation.  Sitting on the couch watching television or trying to relax and hearing that voice in the back of your head nagging at you to “get back to work” could mean that even times when you’re attempting leisure activities are now ruined with the thoughts of work and work responsibilities.

More hats that you ever expected
While microjobs can provide independence from a regular job, you might find them binding in other ways, since now instead of just one work role to focus upon, you might have three, five, ten or more.  You could find yourself handling logistics, accounting, finance, marketing and advertising activities, sales, customer relations, information technology duties, and more.

This could work out in your favor or not.  It could be that now, rather than one boring work role, you’re able to spread your focus over multiple duties, finding that this is more interesting and that it keeps your mind busier and more occupied than before.  Or, it could be that rather than becoming really good at one sort of role and being able to get through the days on cruise control, you’re being pulled in eight or ten different directions at once, finding yourself frazzled and exhausted by the end of the day. 

Still tied to benefits
Sadly, in this day and age, and even with Obamacare supposedly there to “free us from our jobs”, many of us are still tied to employer-sponsored benefits.  And when working in the microjob environment, you may find that such benefits are sorely lacking.  But it’s not just health-related benefits that you could be on your own to find.  As a micro-jobber, you could be saddled with funding your own retirement plan, handling your own employment taxes, and dealing with similar benefits that might once have just seemed commonplace and were just a part of a “normal” job.

So before you jump on the microjob bandwagon, you might first want to consider whether it’s the right sort of work for you and that not everything might be as fantastically freeing as some people make it out to be.



Disclaimer:

The author is not a licensed financial professional or career advisor.  This article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

Monday, September 1, 2014

Finding Ways to Make up for ‘Shrinkflation’

As an MSN Money article notes, “Whether it's ice cream, chocolate, cheese or yogurt, CNBC highlights some of the consumer goods that have slimmed down in recent years globally, but have stayed near the same price point.”

It goes on to say that, “Rob Dickerson, senior global packaged food analyst at Consumer Edge Research told CNBC via telephone that he's seen a growing trend in the last three years of these cutbacks in food.

Dickerson notes, “Poor harvests in the U.S., rising supplier costs, growing demand from China and the general fallout from the economic crisis are just some of the reasons Dickerson gives for the squeeze. Each individual nation also has varying factors, he added.”

Our family has explored several options in an effort to make up for the effects of this ‘shrinkflation’.

Extend-a-meal
A meal doesn’t necessarily have to be expensive to be satisfying and filling.  We often find ourselves taking smaller portions of a main course – chicken, beef, or pork – and extending them with fillers.  From veggies that might be on sale that week at the grocery store to things like rice, beans, potatoes, pasta, breads, and more, we extend our higher-cost meal items with affordable, yet often still nutritious and delicious menu fillers that we can season to our taste or to fit the particular meal.

Re-portion
We often find that the sizes in which a company or store portions particular items are still greater than we need or want.  In such instances, we tend to break up these larger-sized portions into smaller portions.  This not only helps us trim our waistlines, but it keeps us from wasting by cooking more than we need.  We often do this with things like ground beef and other meats, certain pre-packaged fruits and veggies, pastas, and some dairy products.

Freezing extras
To help us ensure that we don’t waste items that we buy in bulk or that are packaged in greater quantities than we immediately need, we often freeze some of our extras.  This is particularly helpful when it comes to things that don’t last as long such as fruits, vegetables, meats, and some dairy products like butter and certain cheeses.

Stockpiling
While product sizes might be getting smaller, it doesn’t mean that we can’t load up when certain items are on sale.  We like to stockpile certain longer-lasting items or items that we can freeze when the price is right.  This allows us to save a bit of cash over the long run and helps battle shrinkflation.  In order to keep our stockpiled items current and from spoiling, we do our best to rotate our stock, ensuring that we use the oldest products first and keep waste to a minimum. 

Substituting and un-branding
But sometimes, when it comes to certain products we’re used to consuming, it’s hard to fight the packaging and pricing changes made by stores or companies.  Therefore, it might be necessary to consider moving to a different brand or non-name brand, or even substituting another product altogether.  Most recently we’ve done this with beef and bacon.  For steaks and sliced beef, we’ve instead substituted pork and chicken.  For bacon, we’ve instead gone with sausages for breakfast.  While it may not be the perfect fix, it certainly helps us keep our food costs lower as costs per pound increase or particular product portion sizes continue to shrink. 



Disclaimer:

The author is not a licensed financial, culinary or health professional.  This article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

Monday, August 18, 2014

Tactics to “Go it Alone” in Retirement

A recent MSN Money article noted a Charles Schwab Corp. survey that reported, “Of those surveyed, 89 percent said they are relying on themselves for retirement funds once they stop working full time. Five percent said that they are relying on the government and 4 percent said that they are relying on a spouse. Sixty-one percent of respondents said that their 401(k) savings will be their only or largest source of retirement savings.”

It went on to say that, “The figures are based on an online survey of 1,004 workers, between the ages of 25 and 75, who contribute to their employer's 401(k) plans.”

As someone who is on the cusp of the Generation X/Y intersection, I find myself pondering how exactly my retirement will look in another 30 or so years.  The way the government is digging this country ever deeper into debt at an alarming rate, I have a feeling that I could largely be going my retirement alone.

Asset diversification
Many analysts and advisors advocate investing heavily in stocks, but I find that this is easy to do when you’re playing with someone else’s money.  While I have money in stock-related investments through my IRA, I also like things like cash, bonds, commodities, and tangible property.

Diversifying assets spread over a variety of types and risk levels can help balance out the unexpected such as housing market bubbles, tech market implosions, financial crises, and recessions, not that these things happen very often (note the sarcasm).  Spreading retirement savings over a variety of areas can minimize the risk that a major collapse in any one or two areas could completely destroy a retirement nest egg.

Reverse investing
Carrying debt into retirement can be an additional financial burden at a time when income may already be reduced.  By paying off debt and remaining debt-free as retirement nears, it’s just another way that I can cut costs and reduce my dependency upon outside sources of income.

Moving into retirement without a mortgage, without vehicle loans, without student loan debt (for us or the kids), and without other sources of consumer debt, we hope to limit the number of expenses that we will have during our golden years.  Not only will eliminating such debt now allow us to put more money toward retirement savings, but it reduces the amount we must pay in interest on such debt. 

According to an infographic on creditloan.com the average American’s interest payments on debt is $600,000 over the course of a lifetime.  This is why we’re looking to avoid the majority of this additional cost slowing us down on our path to retirement and making it hard to go it alone in old age.

Dividend reinvesting
I’m a big fan of dividends and reinvesting those dividends over time.  This is why I have my IRA funding a dividend reinvestment plan that spreads its investments over a variety of stocks -- both foreign and domestic -- bonds, and cash, and that pays a regular monthly dividend that generally yields in the six percent range annually.

In this way, I not only allow this aspect of my retirement to move with the stock market but dollar cost average with the monthly dividends being reinvested into the fund at various levels as the stock market rises and falls. 



Disclaimer:
The author is not a licensed financial professional.  The information provided in this article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.


Rent vs. Buy: Taking a Mortgage out of the Equation

Sometimes we make the rent vs. buy decision harder than it needs to be.  We can get stuck on the question of mortgage costs, payment lengths, interest rates, and similar issues, but sometimes the question of whether to rent or buy doesn’t even have to hinge upon a mortgage at all.  Sure, a mortgage can certainly form the backbone of many of the rent vs. buy discussions; however, sometimes the debate can be solved more easily by taking this factor out of the equation.

15-year mortgage? 30-year mortgage? Does it even matter?
It might seem like a mortgage is the biggest decision in the rent vs. buy equation; and for some, it could be.  But it doesn’t always have to be.  For example, the first home we bought was almost as costly even without our mortgage as the apartment that we were renting.  Had we paid more attention to this, we might have avoided an expensive home purchase mistake without ever having to make a decision upon what sort of mortgage was best.

Regular home expenses can outpace rent
In the example of our first home, it was all the extras that really killed our budget.  We could easily have had the same or similar monthly payment (about $800) with a mortgage as we did with our regular rent, but there wasn’t much we could do about all the extras that came along with our home and that we didn’t have with our apartment. 

For example, here are some of the items for which we paid more at our home than our apartment and by how much each month:

  • Property taxes: $400/month
  • Repairs and maintenance: $200/month
  • Higher utilities: $125/month
  • Higher insurance: $25/month

At the time, we were paying $765 in rent each month.  This means that these additional amounts that we were paying to live in a home and that equated to about $750 a month more than what we’d pay for them as renters were almost as high as our rent itself before even factoring in the cost of our mortgage.

Appreciation, depreciation, inflation, and stagnation
Many people talk about a home as an investment.  They mention a home’s potential for appreciation, but seldom -- until we hit a period like the housing market collapse -- do we hear about home price depreciation or stagnation.  Of course how a home’s price changes throughout the years can be largely dependant upon location.

However, there are a few assumptions that I tend to make when considering these factors and that again, have nothing to do with a mortgage.  First off, as renters, we can pretty much assume that a landlord is going to bump up the rent a couple percentage points every couple of years to account for inflation.  I also tend to assume through our experience in the Chicagoland area, that whether or not property values are going up on a home, a municipality is likely to increase property taxes.  This increase in home carrying costs can negate that potential rise in rent.  It’s also likely that the costs of materials and/or labor to maintain a home, and things like utilities will also go up to account for inflation, while a home’s value could remain relatively stable or even decline.

Therefore, before only just considering mortgage rates, terms, lengths, and costs, consider thinking about other aspects of owning a home.  They may open your eyes to the true costs of home ownership more than a mortgage cost calculator ever could.



Disclaimer:

The author is not a licensed financial, mortgage or real estate professional.  The information provided in this article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

Monday, July 21, 2014

Keeping Consumer Spending Low

Our family has been long-time budget spenders; however, lately we’ve been working harder than ever to keep costs down.  With two small children, and income tight, we’ve been avoiding the temptation to go out and spend our hard-earned money frivolously.

And according to CNBC, we’re not the only ones keeping our money close to the belt. 
A recent article on CNBC.com noted that “U.S. consumer spending has remained largely flat for the last three months, Gallup reported on Monday, despite other indicators that suggest consumers keep spending at a brisk clip.”

It went on to say, “The polling agency found that "self-reported" daily consumer spending was $89 in July, unchanged from the $90 of June and May. Based on a series of tracking interviews with more than 14,000 Americans during July, Gallup said that flat spending was perceptible across income levels.”

Our family fits this trend of not increasing consumer spending, and we might have even reduced spending in certain areas.

Overall economic uncertainty
There is a reason why we’re not getting overly excited about spending even though we’re being told the economy is in a recovery.  The stock market has lately been cruising to new highs, the housing market seems to be going higher (at least in certain regions of the country), and jobs are supposedly being created.

However, having studied statistics in college, I know better than to just listen to numbers.  Things like part-time service jobs being created rather than full-time higher paying roles, housing prices skyrocketing in places like Arizona and California but stagnating in other areas, and the Federal Reserve’s “easy money” monetary policy can skew the numbers.  And now with Chicago and other cities beginning to look kind of like Detroit when it comes to finances and pensions, we’re tending to play a more conservative hand when it comes to our personal finances.  Economic uncertainty has us keeping our spending limited, at least for the moment.

Kids and clothing
TLC.com notes that, “A North Dakota State University study from 2010 found that the average American household spends about 3.8 percent of their income on clothing. The Census Bureau states that the average household income is about $50,000 per year, so that means roughly $2,000 per year, per household.”

We don’t spend nearly this much on clothing.  In fact, we spend but a fraction of that $2,000 total on our entire household’s clothing needs.  When it comes to our shopping needs, we tend to go the resale and hand-me-down route, especially for the kids who tend to burn through or outgrow clothing faster than us older people.  Hitting resale shops and garage sales is effective not only for keeping our family clothing budget between $300 and $400 a year, but also for regaining some of that expense later.  Having garage sales helps us recoup some of our expenses, and making use of lightly used children’s stores like Once Upon a Child -- where we just pulled in $38 for some of our gently used kid stuff -- also helps minimize our costs in this budget area.

Travel and entertainment
We’ve also been working to keep our travel and entertainment costs lower as well as we work to reduce our consumer spending.  This year, we’ve started using gasbuddy.com to check area gas prices before buying, often saving us 5 to 10 cents a gallon on gas.  We’ve also been spending more time with family, visiting the set of grandparents who live nearby so that we can let the kids play in their yard and enjoy family time together as well as combining meal efforts, saving money in the process.

Our three-week summer vacation this year only cost us about $1,000 for our family of four since we were able to stay with family.  So pairing up with other friends and family members can help cut costs in a number a ways as well as potentially build relationships.



Disclaimer:

The author is not a licensed financial professional.  The information provided in this article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

Thursday, July 10, 2014

If We Move Back to a Single-family Home, I’m Starting Our own Association Fee

I’m pretty good about keeping home repair and maintenance costs to a minimum.  Even then, such expenses ran about $200 a month in our previous, single-family home.  Add in another $250 for our average utility bills, and we were dropping some decent cash in regular home-related expenses, and we weren’t even getting crazy about things like updates, new appliances and the likes. 

Now we live in a condominium, and many such items are covered by our $300 monthly association fee.  I like this fee structure and I think that if we ever move back into a single-family home, I would institute a similar program to cover related expenses.

A fixed monthly allotment
A certain amount of peace of mind can come with knowing just how much we’ll be paying for the majority of our repair and upkeep costs.  In our previous single-family home, we might go for two months without spending a dollar on repairs and then be hit with an $800 bill out of the blue.

Such financial hits were harder to plan for and recover from than our current situation of just putting $300 a month toward our association fee that covers most repairs and maintenance.  In the future, I would continue to put this amount -- or a similar amount based upon our housing situation -- toward this purpose.

Covering repairs, maintenance, and home modifications without touching savings
By continuing the association fee-style payment even once we’re back in a single-family home, I can prepare for a variety of expected and unexpected repair, maintenance and home modification items without having to dip into our emergency fund for such costs.

I’d like to break down our home association fee into categories like repairs, lawn equipment, new appliances, roof replacement, HVAC repairs, etc.  Along with associated dollar amounts, it kind of sets aside money for such items for frugal people like me who consider a dollar saved a dollar earned and therefore have a harder time putting money aside specifically for such items.

Adding a reserve fund
Maybe the best thing about continuing the association fee-style structure -- even after condo life -- could be putting a portion of this money toward a reserve fund.  Taking out 10 or even 20 percent of my monthly self-charged fee and putting it aside for unforeseen repairs and maintenance projects means that we’re prepared when the unexpected strikes.  Sump pump goes out, we’ve got it covered.  Water heater dies, we’ve got it covered.  Air conditioning goes out on a 90 degree day, we’ve got it covered. 

With this money set aside in a separate account and only to be touched for home-related emergencies, it makes the shock of such repair costs less substantial, helps cheapskates like me bite the bullet and make repairs when they crop up rather than trying to put them off (sometimes making things even worse), and adds peace of mind regarding such costs when they arise.


Disclaimer:

The author is not a licensed financial or real estate professional.  The information provided in this article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

Tuesday, July 8, 2014

Microjobs: A Strange Juxtaposition of Independence and Lack of Freedom

As a freelance writer who has bolstered his income over the years with a number of side jobs and work roles, I know just how important microjobs can be to the self-employed.  However, while the idea of microjobs might to some seem a wonderful way to free themselves from the normal work routine, they can at the same time be a strange juxtaposition of independence and lack of freedom.

According to a Yahoo.com article on the subject, “Odd-jobbers and freelancers are nothing new, of course, but modern microjobs are an outgrowth of digital technology that brings laborers and hirers together more efficiently than ever, often via smartphone.”

It goes on to note, “Yet for all the attention they’re getting, microjobs seem unlikely to solve pernicious problems such as low pay for many workers and a shortage of entry-level positions that allow college grads to put their education to good use. Plus, microjobs rarely come with benefits, and juggling a variety of part-time jobs requires more adept time-management than showing up at an office day after day.”

A role in which you’re the boss
As a holder of multiple microjobs, you might in some instances realize that you’re not just an employee now, you’re the boss.  While you might not own the company or companies for which you are working, as a freelancer, you could find yourself in charge of your hours, how hard you work, and how much time and energy you put into your endeavors.

While this can be a great thing in some ways, it also means that you may be assuming more responsibilities.  And it also means that while in a regular work role, you could find yourself going home at night and escaping your boss and work responsibilities, as your own boss, you never truly escape, which can at times be an aggravating situation.  Sitting on the couch watching television or trying to relax and hearing that voice in the back of your head nagging at you to “get back to work” could mean that even times when you’re attempting leisure activities are now ruined with the thoughts of work and work responsibilities.

More hats that you ever expected
While microjobs can provide independence from a regular job, you might find them binding in other ways, since now instead of just one work role to focus upon, you might have three, five, ten or more.  You could find yourself handling logistics, accounting, finance, marketing and advertising activities, sales, customer relations, information technology duties, and more.

This could work out in your favor or not.  It could be that now, rather than one boring work role, you’re able to spread your focus over multiple duties, finding that this is more interesting and that it keeps your mind busier and more occupied than before.  Or, it could be that rather than becoming really good at one sort of role and being able to get through the days on cruise control, you’re being pulled in eight or ten different directions at once, finding yourself frazzled and exhausted by the end of the day. 

Still tied to benefits
Sadly, in this day and age, and even with Obamacare supposedly there to “free us from our jobs”, many of us are still tied to employer-sponsored benefits.  And when working in the microjob environment, you may find that such benefits are sorely lacking.  But it’s not just health-related benefits that you could be on your own to find.  As a micro-jobber, you could be saddled with funding your own retirement plan, handling your own employment taxes, and dealing with similar benefits that might once have just seemed commonplace and were just a part of a “normal” job.

So before you jump on the microjob bandwagon, you might first want to consider whether it’s the right sort of work for you and that not everything might be as fantastically freeing as some people make it out to be.



Disclaimer:

The author is not a licensed financial professional.  This article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

Saturday, July 5, 2014

Understanding Mortgages Motivated Us not to have one

During and even after the housing market collapse there was a lot of talk about people not understanding mortgages.  With adjustable rate mortgages of different timeframes and types, I can understand this ignorance to a point.  However, understanding a general mortgage is really not all that difficult. 

By learning about and educating my own family regarding the standard mortgage, we in essence motivated ourselves to work hard at not having one, ridding ourselves of the burden of being indebted to a financial institution for the privilege of living in our home.

3 key components of a mortgage
In a standard mortgage, there are three major components that it can be important to have a clear understanding of and that can help clarify just how costly a mortgage will be over time.

These include:

  • Interest rate
  • Loan amount
  • Number of payments

These components interrelate, as the length of a mortgage can affect the level of interest rate and payment amounts significantly.  Someone taking on a 15-year fixed rate mortgage could find themselves getting an interest rate well below the rate of a 30-year mortgage, which means they could pay less in interest over the course of the loan.  However, doing so might mean that the shorter payoff timeframe increases the payment amount so that it’s almost doubled compared to the longer-term loan.

Even a good down-payment doesn’t mean a mortgage comes cheap
We put a large down-payment on our first home.  However, the amount that we had to take on as a mortgage was still significant.  While a hefty down-payment was helpful in reducing our mortgage payments, it didn’t mean that we still didn’t have a hefty monthly mortgage bill or that over time the costs wouldn’t add up.

While we ended up selling our home before the term of our loan was completed, and we had a shorter-term, 15-year mortgage, had we maintained our loan until completion, we would have paid over $70,000 in interest on a $165,000 mortgage.  While this isn’t bad compared to some, it’s still a lot of money to pay to a financial institution for the right to borrow their money.

Extra payments are good, but…
Don’t get me wrong, making extra payments on our mortgage had us on track for cutting almost $20,000 in interest off the total interest on our loan.  We signed up for a bi-weekly mortgage plan as well as making extra payments occasionally on our own when we had a little extra cash available.  However, now that we are mortgage free, we’re finding that no mortgage at all is even better than paying one down quicker.

By knowing how costly a mortgage can be, we decided to downsize our living situation to a condo about half the size of our previous single-family home.  Better yet, this home was also about half the price, which meant we could eliminate our mortgage altogether.  Not only does this mean we no longer have that $1,350 monthly mortgage bill hanging over our heads, but our home equity that we maintain acts as a sort of monetary reserve or cushion in the event of a financial emergency, which increases our peace of mind as well.


Disclaimer:

The author is not a licensed financial, mortgage or real estate professional.  The information provided in this article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

Friday, July 4, 2014

Potentially Costly Pitfalls of a Job Offer

Getting that first job offer was an amazing feeling.  However, a first job can also come with a variety of costs.  While these expenses weren’t enough to make me not accept the job, they were enough to be costly and somewhat frustrating.

Here are some of the issues that came into play with my first full-time role out of college that had both me and my wallet somewhat feeling the pain.

Location: Putting the cart before the horse
I’ll admit that I screwed up big time when I accepted my first job out of college.  Being the naive college graduate, I accepted for fact what the recruiter told me about being placed in a particular location of the city to which I was relocating after graduation.  Therefore, I signed a year’s lease in that location that was about a quarter mile from the location at which I was expecting to be placed to work.  Come to find out though, about a month later I was told that I would actually be placed at a location more than 30 miles away.

This was a big blow that meant not only did I have about an hour’s commute each way ahead of me every work day, but there was the frustration of the drive, not to mention the cost of gas involved with this commute.  It was a valuable lesson though not to jump the gun when it came to choosing a living location before finding out exactly where I would be working.

Dress code
Jumping the gun when it came to buying my new work wardrobe was another rookie financial mistake I made.  Again, I ended up asking the wrong person when it came to this aspect of my new work.  I asked a recruiter rather than someone who was in operations and actually out working in the trenches.  Therefore, I ended up spending hundreds of dollars on work attire that I couldn’t use for this particular work role since there was a very uniform (no pun intended) uniform standard.

Transportation and parking
After I ditched my first work role after college, I found a job in my dream industry…the hotel business.  My work was located in a busy section of downtown and I enjoyed being around the hustle and bustle of the urban environment.  What I failed to realize was that getting back and forth to work in this area could be costly. 

Not only was there the stop-and-go traffic city which added additional wear and tear to my vehicle as well as lowering my gas mileage, but there was also the cost of parking downtown, which was expensive.  Thankfully, my work provided a parking pass for free downtown parking as one of the perks of the role; otherwise, parking costs would have added thousands of dollars each year to the cost of my work.  Therefore, transportation to and from a job can be another important aspect to consider before jumping the gun and taking a role in a particular location.



Disclaimer:

The author is not a licensed financial professional or career advisor.  The information provided in this article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

Wednesday, July 2, 2014

Buying Gold or Silver…and How?

It often seems like investors either love gold and silver or hate them.  I’m constantly seeing articles about how these metals are soon going to “pop” or how they’re about to “drop”.  And in my opinion, silver often gets overshadowed as a metal investment by its bigger brother, gold. 

A recent MSN Money article notes, “Traders often substitute silver for gold because the two have a strong correlation with each other. However, the commodities are very different and should not be used interchangeably despite the seeming correlation.”

So which way do I go in this debate.  Well, I’ll tell you; and I have several reasons to back up my choice.

Gold or silver?
As I’m not a person of means, it’s not easy for me to go and buy a couple ounces of gold.  Meanwhile, I can quickly and easily pop in the local coin shop or buy a few ounces of silver online for around $23 (at current market prices plus markup over spot value) an ounce (at current prices) if the mood hits.  So personally, I’m more a fan of silver than gold. 

I also like that silver is used for a variety of industrial purposes, is often offered in US minted coin form (pre-1965 dimes and quarters as well as certain half dollars and war-time minted nickels) with such coins being easily recognizable to the average person, and it is still widely available in coin form.

Paper or physical
The nice thing about buying metals in paper form through an ETF or mining stock is that there is the option to trade it relatively quickly, which is great for short-term investors.  You can buy on a dip and sell on a rise or buy and hold for a while in hopes of greater returns.  The commission or fees on such trades might be lower as well as compared to dealing in physical metals.

With buying physical gold and silver, it could be a little more difficult as you might have to find a buyer/seller of such items either at a physical location such as a coin or pawn shop or trade show or buy/sell online.  Either way, it can take a bit more time and effort than it does to just hit a few buttons on the computer or call a broker.  And there can be commissions involved on both the purchase and sale of the physical goods, which can take a large chunk of any profits.

Still, as someone with a longer-term outlook, I prefer the physical metals since they provide something of actual value in return for my money, is educational for the kids, and can maintain a collector’s -- or numismatic -- value in addition to the dollar value of the actual metal itself.

Bars are, well…meh
Gold and silver bars might look pretty, but when it comes to the excitement factor, well, they’re just not all that interesting.  There’s really no numismatic value (unless they’re from a Spanish galleon or have some sort of provenance factor attached to them), they typically don’t have interesting images or dates, and unlike coins, they can be bulky, heavier and more difficult to transport.

Therefore, when I look to buy, I tend to go with coins.  Their dates give them a sense of history and a potential story.  Their look gives them come character, and their size makes them easy to transport and share with others or even sell online if or when the time comes.



Disclaimer:
The author is not a licensed financial, commodities or metals professional.  The information provided in this article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.


Monday, June 9, 2014

Our Vehicle Buying Strategy

Our current vehicle is near the end of its useful life.  While we’ve been doing our best to keep it in safe running condition, after 11 years, we know the end will likely be coming soon.  While we’re hoping for the best in our vehicle situation, we’re planning for the worst.  However, there is hope.  According to a recent MSN Money article, “Used car prices have been falling since 2011…”  Therefore, we’ve come up with a strategy for planning our new vehicle purchase.

Gauging repair costs on current vehicles and trying to wait things out
I have a feeling that the “Cash for clunkers” program back in 2009 sopped up much of the used car inventory.  We’ve been trying to wait things out since then in order to let some of those with newer vehicles get to the point where they’re ready to trade them in and upgrade.  According to that same MSN Money article, “The average retail price of a used car fell by $1,000 per car in the last half of 2012.”  Therefore, we’re currently in “wait-and-see” mode.  We’re gauging potential issues with our current vehicle and watching repair costs, while at the same time watching for deals in the newer used car inventory.

Bolstering emergency savings
We don’t know exactly when our current vehicle will become more costly to maintain than it’s worth, but we know the day will eventually come.  Therefore, we’re trying to set money aside a little bit at a time month by month so that we can bolster our emergency fund for when our current vehicle is finally kaput.

Much like a car payment structure, just setting an extra $50 or $100 aside each month adds up overtime, and being able to stretch our savings timeframe by a year or two could add an extra $1,200 to $2,400 to our available car-buying budget. 

Watching available options and knowing good buys
We scan the “cars” section of the local newspaper regularly for deals and pricing.  We also visit area used car dealerships online and review the inventory at our local CarMax location to see what’s selling in the new and newer used car categories.  In this way, we stay apprised of current pricing levels, have a background upon what is selling and any great deals out there, and generally increase our education on what vehicles might be right for our family’s needs.

Doing a gas cost analysis
As vehicles become more fuel efficient, this also plays a role in our decision of what sort of vehicle to buy.  Being a family of four in the Chicagoland area means that it’s nice to have a larger vehicle, but city driving and lower fuel mileage rates can hit us where it hurts…the wallet.

Over the years, I’ve gauged our own vehicle’s fuel consumption rates when it comes both to city and highway driving.  In this way, I can have a better idea when it comes to looking at new or newer vehicles of how much we’ll spend on gas based upon their estimated fuel mileage compared to what we spend now.  Even just $400 a year in fuel savings can add up when we’re talking about having a vehicle for seven or eight years or longer.

And in these ways, we are better prepared for buying our new vehicle when the time comes and we aren’t left scrambling to make a decision and just buying something to fill the vehicle void.


Disclaimer:

The author is not a licensed financial professional.  The information provided in this article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

Tuesday, June 3, 2014

Forecasting Long-term Housing Costs

Having a longer-term outlook can open your eyes to many of the housing expenses that might not be easily recognizable when you first purchase a home.  Up front, a home owner might see things like the price of a home, the cost of obtaining a mortgage, the expense of having a home inspection, and the time, money and effort involved in finding the right home.  However, forecasting for those longer-term expenses that won’t arrive – or won’t arrive in full – until long after the home is yours can help better prepare you for the full financial ramifications of homeownership.

Mortgage interest costs
Sometimes it might seem like getting the lowest monthly payment on a home could be the best result as a homeowner.  However, lowering that payment by extending it out over additional years can make the cost of interest on a mortgage skyrocket.

According to creditloan.com, “After 30 years of making payments, a homeowner with a $240,000 mortgage loan will have paid over $580,000 on his/her house.”

In the case of our first home, taking our $165,000 mortgage over a 30-year year term at 6.375 percent would have totaled nearly $209,000 in interest along.  This amount however, came closer to $76,000 in interest for our loan based upon a 15-year payoff term at 5.375 percent. 

Maintenance and repairs
Many times, people don’t fully consider the cost of the new roof that will be needed in five or ten years.  The HVAC system that will need to be replaced in five or six years or the driveway that will need to be repaved in a year or two; that’s stuff that “will just need to be done later”.  However, it’s also stuff that can be expensive and that can add significant costs to the overall cost of homeownership.

Doing a long-term budget with forecasted timeframes on major repairs can better prepare homeowners for repair and maintenance costs.  As homeowners, we had a list that included items such as new appliances, hot water heater replacement, HVAC replacement, front walk repair, and garage roof replacement over a five-year period.  This helped us spread our budget out over this timeframe, and helped us avoid having to cover the costs of all such replacements at once while being able to tackle one big project each year or when we could afford it.

Closing costs
Closing costs might seem a distant consideration when you’re buying a home, but they can be an expensive consideration too.  Things like real estate agent commission, back property taxes, title insurance and title company costs, credits to buyers, and other fees can add thousands or even tens of thousands of dollars to the cost of selling a home, which with staging, repairs, and other preparations which in themselves can be costly.
According to Zillow.com, “Typically, home buyers will pay between about 2 and 5 percent of the purchase price of their home in closing costs. So, if your home cost $150,000, you might pay between $3,000 and $7,500 in closing costs.”

Creating a closing cost budget can help you ready yourself for the eventual costs of selling a home and outline just how much additional funds will be put toward the process of homeownership.  Closing costs and amounts can vary from state to state.  To get a better idea of how much you might one day be paying, consider seeing if a friend or family member who owns in your area would be willing to share their closing statement with you so that you can see the breakdown of costs ahead of time.


Disclaimer:

The author is not a licensed financial, mortgage or real estate professional.  This article is for informational purposes only and does not constitute advice of any kind.  Calculations have not been verified by a professional.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

Thursday, May 22, 2014

Simple Ways to Save When Just Sitting Around the House

As a work-at-home dad, I sometimes find that I have more time on my hands than I expect.  When the little one’s asleep and I have a reprieve from work, I try to maximize my free time.  And over the years I’ve found that putting this free time to use rather than wasting it can not only be productive but save us money too.  So if you’re looking for some ways to save cash when lounging around the house, here are a few ideas.

Turn things off…or better yet, unplug them
It’s simple to just turn a few things off – whether it’s lights, televisions, appliances or whatever – when sitting around the house.  However, it might be even better to unplug them.  Even when they’re not in active use, things like cable boxes, appliances and the likes can continue to use energy.  And while it might not seem like much, even a dollar or two in energy costs saved each day can add up to hundreds of dollars in savings every year.

Adjust windows, blinds, doors, and thermostats
Whether summer, winter or somewhere in between, making some minor adjustments to your home heating and cooling situation can add up to sizeable savings.  Opening and closing windows or blinds, turning ceiling and box fans on or off, opening or closing off rooms or vents, and adjusting thermostats by just a few degrees can have energy savings adding up and your home feeling more comfortable at the same time.

Make a dinner menu
Whether it’s for the evening’s meal or for the entire week, making a dinner menu can better prioritize food consumption which can lead to more organized shopping when at the store and decreased food waste.  By having an outline for your nightly meals, you can utilize leftovers, make use of food that will go bad the quickest, and avoid going out to eat or getting takeout, which can significantly reduce overall food costs.

Make a shopping list
When making your dinner menu, you might also find the opportunity to create a shopping list.  Shopping lists can help you better organize your meal plan and what you need to execute that plan.  Such lists can also assist in keeping you on track when at the store, help avoid forgetting items, and reduce impulse buys.

Rotate stock
Whether it’s in the refrigerator, freezer, cupboards, cabinets, or even clothing for the kids and adults in dressers and closets, rotating stock can be a great way to go through things, get organized, and keep perishables from spoiling.  Clothing and other goods might be donated or prepared for resale through a lightly-used resale shop or garage sale.  Meanwhile, foods that are nearing their expiration date can be used up or possibly frozen.  

Clip/search coupons
Coupons can make a sizable difference in just how much you save when buying a variety of items or taking part in numerous activities.  Whether it’s a 15 percent discount at your favorite restaurant, $50 off on a HVAC system or plumbing repair, a two-for-one at the local mini-golf course, or a dollar off on paper towel rolls at the store, coupons can save you money in a variety of situations.


Disclaimer:

The author is not a licensed financial professional.  This article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

Wednesday, March 19, 2014

How We Compensate for Expenses We Tend to Forget

I’m willing to bet that just about everyone has forgotten about an upcoming expense or bill that arrives suddenly, catching them off guard.  I know that we have.  However, over the years, we’ve learned what to watch out for and how to compensate to keep these costs from doing too much damage to our financial planning.  Therefore, while we’ll never be able to catch every expense before it hits, we’ve developed a pretty good plan to minimize the effects of such costs.

Items we tend to forget
We’re pretty good at remembering most regular monthly costs; however, it’s those more irregularly occurring expenses that tend to catch us by surprise…or at least used to.  Items like our vehicle and condo insurance, annual family zoo pass, oil changes and vehicle maintenance, vision/dental costs, and safe deposit box fees are some of the costs to make this list.  Those bi-annual property tax bills can also come as an unpleasant and costly surprise.

Our new budget reserve
We compensate for our surprise expenses in several ways.  First off, we have our emergency fund.  And while this fund provides cash if we need it, we don’t like to dip into it if at all possible.  Therefore, we’ve created smaller, monthly reserve funds that are built into our budget.

These reserves only total about $200 a month, but in many cases they do the trick in compensating for our forgotten expenses.  A wedding present, birthday gift, surprise bill, or minor home or car repair can often be covered by this amount and keeps us from having to draw upon our real emergency fund.

Expense tracking and regular budget improvement
We also try to compensate for our forgotten expenses by tracking costs and improving our budget as we learn more about it over time.  By tracking our expenses over months and years, we begin to get a better feel not only for our regular expenses but those surprise irregular expenses as well.  While such expenses might only come along once or twice a month, seeing them over and over again year after year will eventually have us prepared for their arrival, and in turn, budgeting more accurately.



Disclaimer:

The author is not a licensed financial professional.  This article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

Sunday, March 2, 2014

Silver was Down More than 30 Percent in 2013, but am I Worried? Heck, no!

2013 was a tough year for silver.  Some might even call it a disastrous year. 

I’ve liked silver as a form of investment since I got my first Silver Eagle coin as a child.  I look at it as the “poor man’s gold”, since it’s much more affordable than its golden-boy brother.  However, I like silver in its physical form, not paper.  This is why the plummeting of silver’s price from over $30 an ounce at the beginning of 2013, to under $20 an ounce by year’s end, didn’t particularly bother me.

Buying the ‘right’ silver
Don’t get me wrong, I don’t have treasure chests of silver just lying around or anything like that, but when I have a little extra money at the end of the month (which isn’t often these days), I might pick up a few ounces at our local coin shop. 

But I don’t buy just any kind of silver; I tend to buy pre-1965, 90 percent silver dimes, quarters, and 50 cent pieces.  I’ve found that there tends to be more collector interest in such coins, which means a greater numismatic (collector) value.  This also provides a greater chance to discover mint flaws that can push the value of the coin even higher.

Understanding silver
More than gold, silver has many industrial and medical-related uses. 

According to geology.com, “Because it is the best thermal and electrical conductor of all the metals, silver is ideal for electrical applications. It's antimicrobial, non-toxic qualities make it useful in medicine and consumer products. Its high luster and reflectivity make it perfect for jewelry, silverware, and mirrors.”

The site goes on to say, “Its malleability, which allows it to be flattened into sheets, and ductility, which allows it to be drawn into thin, flexible wire, make it the best choice for numerous industrial applications. Meanwhile, its photosensitivity has given it a place in film photography.”

This means that even if investor value is tanking, demand may be propped up by industrial consumption, which can play a crucial role in silver recovering some of its lost value.

Knowing resale options
It’s not hard to resell silver coins.  If you don’t believe me, just take a minute to search “US silver coins” on eBay, and see how many thousands of listings are available.  Such research not only provides information on how to list such items (descriptive terminology, pricing, etc.) but can provide valuations on what certain coins are selling for dependant upon year, condition, mint location, flaws, and more.

Understanding where and how to resell such coins, whether it’s online or at the local coin or pawn shop, as well as what the costs involved are (commission, taxes, listing fees, etc.), makes it easier to sell if or when I want to and get the best price for my coins in the process.



Disclaimer:

The author is not a licensed financial professional or precious metals expert.  This article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

Wednesday, February 12, 2014

A Simple Fix for an Inefficient Accounts Receivable System

Proper accounts receivable techniques can make a huge difference in the overall financial success of a business or organization.  Leaving outstanding credit to linger longer than necessary can limit cashflow and have accounts thinking they can take their time when it comes to paying off their debt.

Sometimes it’s not the account’s fault though that they aren’t paying on a timely basis; sometimes it’s the creditor’s fault.  As someone who came into an inefficiently utilized accounts receivable system when I took over my finance job in the hotel business, I know just how bad a poorly handled system can hurt collection efforts.

Inefficient use of an AR system
I walked in to an accounts receivable situation in which there was about $500,000 in outstanding receivables.  More than half this outstanding credit was over 60 days.  Suffice to say, I had a lot of work to do.  Worse yet, I found that the AR system wasn’t being properly utilized and was very inefficient…or at least was being used inefficiently.

The simplest of things – assigning invoice numbers – was missing from the system structure, and was creating confusion on all fronts.

Confusion can hamper both sides
Without invoice numbers, we were up a creek without a paddle.  I’d get payments with no reference as to which portion of a bill the payments were to be applied to, and customers would get bills with no invoice number with which to reference their payment or to note what they’d already paid.  Needless to say, it was a mess for both sides.

Something needed to be done and be done quickly.  Payments were being misapplied.  Customers weren’t paying due to confusion or thinking they had already paid.  And the outstanding items on the “Over 90 days” section of our AR sheet was growing rapidly.

Developing a simpler working system
A successful accounts receivable system doesn’t necessarily have to be complex to be efficient and effective.  To maximize efficiency, staying on top of collections can be most helpful.  My system involved a multi-step process:

·         Sending bills (complete with invoice numbers) to customers within 3 business days of when these bills were finalized.
·         Creating a file with invoices, statements, and contact forms (a record of phone calls and emails with dates, times, and company contacts) for each customer.
·         Making a follow-up call within one week after sending an invoice to ensure it was received by the customer, which also helped with relationship building with regular customers.
·         Following up regularly after that first week if payment was not received to find out when payments were planned or if there were any payment issues or billing questions.
·         Maintaining all records after payment was received for future billing reference.

In a little over a year, I’d gotten our AR total down to about $30,000, the lowest it’d ever been, and our “Over 90 days” total was virtually non-existent.  And in the process, I’d made my job easier and made our billing systems easier to understand and more consistent for our customers.



Disclaimer:

The author is not a licensed financial professional.  This article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

Saturday, February 8, 2014

2013 Indy Lights Freedom 100 Finish


Couldn't help but post this.  The off-season racing withdrawal is obviously getting too me.  Plus, you just don't see racing like this too often!  Great stuff!

Wednesday, February 5, 2014

Spending Money for the Right Reasons

Spending money is something that many people like to do.  I’m not one of them.  Therefore, when I have to spend money, I do so for the right reasons.  You might be wondering how there are “right” and “wrong” reasons for spending money.  Well, there are.  And our family has learned that knowing right from wrong when it comes to spending our hard-earned money can add up to big savings and increased financial stability.

We use a coupon to save; we don’t spend to use a coupon
A close relative of ours often uses coupons to justify spending.  Whether it’s on food, clothes, or sundries, a coupon is an excuse to spend in this person’s mind.

This is what retailers expect; that’s why there are so many coupons out there.  But this sort of attitude can be dangerous to personal finances, and it’s exactly why we only use coupons when they are for products or services we already purchase and are one of the best values for our dollar.

For example, when we go out to eat, we already know the spots that give us the best bang for our buck.  However, if we can pair such a locale with a coupon when we’re planning to go, all the better; but we won’t go just because we have the coupon.  This keeps our monthly dining budget close to $50, where as according to Bundle.com, “The average monthly cost of Dining Out for people in the U.S. is $281”, and the median monthly expense is $135.”

We get rewards to use our credit card; we don’t use our credit card to get rewards
I see commercials for credit cards with people vying to purchase products with their cards so that they can get the rewards.  While rewards for card usage can certainly be a perk, it’s not why we would utilize a credit card.  Rather, we look at rewards as a benefit that comes with the convenience -- and at times safety -- of credit card use, not as a reason to use a credit card. 

Maybe this is why according to CreditCards.com -- and based off the TransUnion analysis of May 2013 credit files -- the average credit card debt per U.S. adult, excluding zero-balance cards and store cards is at $4,878, while our family’s credit card debt is at zero.

We buy used to save; we don’t save to buy used
We don’t have to buy used; we prefer to.  It’s not that we’ve spent all our money and are forced to save just to buy used, but if we have the option to buy something used, (but still in good condition) for pennies on the dollar of what we’d purchase it for in a retail setting, in most instances we will.

This helps us keep things like our clothing budget between $300 and $400 annually for our family of four (most being spent on shoes and undergarments), and buy things like books, video games, movies, toys, and even certain home furnishings for just pennies on the dollar compared to their retail counterparts.

I go on vacation to work; I don’t work to go on vacation
I know it might sound weird, but I get some of my best work done on vacation.  Having the motivation of getting out to the beach or pool to enjoy time with the kids often pushes me not only to be productive, but puts me in a better mood which seems to heighten my work output and quality.

Some people save all year to go on vacation for a week, maybe two weeks if they’re really lucky.  That used to be me.  I’d kill myself all year for a chance at a week of enjoyment.  And while I made better money back then, frankly, my life was pretty crummy.  Therefore, I made the move to self-employment.  Now I don’t have to work just for that one week, but instead enjoy my life and my work so that I don’t mind taking my work on vacation with me and I continue to earn even while enjoying time with the family.



Disclaimer:

The author is not a licensed financial professional.  This article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.