JANUARY 21ST, 2010
By CPA SAM
There’s an interesting article today in the American Express Open Small Business section entitled “Creating Your First Small Business Budget.”
The basic tenet is that most small business owners are not financial gurus. They are experts in whatever industry the business operates. However, without being able to plan for income and expenditures for the year, there is no way to know how the company is doing. Is a particular product eating up excessive amounts of cash? Are your payroll expenses too high in relation to total expenses?
I encourage you to click the link above and read the actual article. Here are the main points.
- First, the purpose of a budget is to simply consider carefully how you’re spending your money
- Second, a budget plots your financial path to where you want to be
- Third, don’t get bogged down in formality. One of my colleagues stresses that budgeting uses a very specific technique called guessing. He uses a crystal ball that is almost always wrong. Budgeting needs to be a close as you can get, but it will be wrong.
- Fourth, remember that this is a living document. Things change during the year. Unexpected expenses arise. Proper budgeting will have built in extra funds to handle large surprises.
- Finally, seek some help if you’re feeling overwhelmed by all of this. Find yourself one of those financial gurus to help you walk through the process.
The link to the article is here. It’s still early in the year, now is the perfect time to begin this exercise.
OCTOBER 21ST, 2009
By CPA SAM
When an employee is hired in the United States, in most cases, the employer is required to pay a minimum amount per hour for the services of that employee. As of 7/24/09, that amount is $7.25 per hour. If that employee works 40 hours per week and 52 weeks per year, the total gross wages of a full-time minimum wage worker will be $15,080.
The IRS actually collected about $2.74 trillion in 2008 (the latest year for which data exists). For 2008 the governments minimum wage equates to$1,317,307,692.31 per hour. With a US workforce of 150 million, we pay on average $8.78 per worker, per hour to the government, the government minimum wage.
On October 16, 2009, the US Treasury Department released official figures of the national budget deficit. Keep in mind that the deficit is the amount the US Government spends beyond what it takes in. That number was an astounding $1.42 trillion. Written out that is $1,420,000,000,000. Actual spending is somewhere in the range of $4.16 trillion dollars. If we divide that by the 2080 hours that the average worker actually spends at his/her job, we see that our government spends about $2 billion per hour. If we divide that by 365 days in a typical year, we see spending of almost $12.4 billion per day.
I read a book about a year ago called “Secrets of the Temple: How the Federal Reserve Runs the Country.” This book contains a very good discussion of the economic conditions surrounding the Carter and Reagan administrations. According to the author, the Federal Reserve and Congress worked against each other as they both attempted to fix the economic crisis of the day. Because the situation was so dire with runaway inflation and economic recession, the two really needed to work together to fix the problem.
Back to the present, news reports say the Fed is looking at drafting the policy going forward of slowly removing the money used to prop up the financial system. Other news reports talk of increased Congressional spending. It sounds like these two groups are getting ready to repeat the same errors. Job growth has always lagged economic recovery. Let’s hope the policies put in place do not discourage job growth in the next recovery.
How does this apply to you? By keeping your financial house in order and spending less than you take in, you are able to better withstand the storms of economic change the those who spend everything they make plus accumulate extra debt. You never know when a health, repair or job crisis will hit. It’s best to be prepared for those events when you can.
OCTOBER 14TH, 2009
By CPA SAM
During my lunch break, I usually read news articles and opinions from various news sites. One thing that is always fascinating is the paradox of how many people want to be like the various celebrities in the news, yet how out of touch those same celebrities are with real people’s lives. So many magazines at the checkout stand in the grocery store offer “new” ways to attract men or make yourself more attractive, or drop pounds and even change your body in a few easy steps. Unfortunately, nothing in life is that easy whether it be finances, dieting or your career.
As part of a successful personal financial plan, it is important to keep your focus on your ultimate goal, getting out of debt and planning for both unforeseen problems and retirement. It is also important to ignore the temptations around you that try to get you back into your old ways of overspending. I think the current economic climate has taught many Americans that buying on credit is simply not the smart way to go regardless what everyone else is doing. What happens if you lose your job or your income is reduced? A good budget will help you work your way out of debt while still affording a few small “rewards” along the way to keep you motivated. It also provides a bit of accountability
To get started in a budget, the first thing that needs to happen is to stop reading about celebrities and fashion. They make “crazy money” as Angelina Jolie once said for doing very little. They have essentially unlimited resources that the rest of us don’t! Book after book has been written on how stuff and money simply does not bring happiness. I invite you to spend more time with friends and family. Getting to know people and making an impact in someone else’s life is a pursuit that brings lasting rewards. Soon the stuff you bought will be broken or obsolete anyway. Why bother with more of it?
Fashion houses and designers will tell us that our wardrobes all need to be refreshed each season with the latest styles. Why? Is that pair of pants any less useful now that someone else has declared it “out of style?” I know, coming from a CPA (traditionally fashion-challenged people), it’s hard to take fashion advice. Think how much extra money you could put toward paying off debt if your closet didn’t look like a department store! Wearing clothes for more than one year and dressing in classic styles can save hundreds of dollars. Think how much less stress you can have sitting on your couch watching a movie from RedBox ($1) in last year’s jeans and t-shirt with a cup of hot cocoa (6 pack from grocery store for $4). You have created a relaxing quiet evening in without worrying about how you will pay for all the new stuff you just bought.
JULY 1ST, 2009
By CPA SAM
Q. I want to start the budget process but it’s overwhelming. Where do I start?
A. Good for you for seeing the importance of budgeting. Don’t be overwhelmed by what everyone says you should include in your budget. The best place to start is to look at your income. Since I come from a payroll background, I’ll try to take you to a more exact starting point than most planners do.
Let’s just assume you make $2,000 per paycheck and that you are paid twice per month. Twice per month is the same as semi-monthly. You are single and your W-4 says to claim 2 allowances. You claim 2 allowances in California also. Your budget does not start with $4,000. Most planners will have you take a percentage of your income as taxes. Since that percentage changes as you move up and down the income scale, I prefer to use a more exact method. Head on over to PaycheckCity.com and select the “Salary Paycheck Calculator” under the Basic heading. After selecting your state and entering all the information, you get a per check take home pay of $1,529.93. This is your starting number. Because you are paid twice per month, you double this amount to $3059.86. That is the amount you have to spend each month. This must be divided between fixed costs like mortgage/rent, car payments, insurances, food, gas, utilities and entertainment as well as general personal needs. I’ll discuss splitting this up in the next post next week.
This amount could change based on any pre-tax items you may have taken from your check. Health insurance and 401(k) plans generally fall into this category. It is very important to know exactly how much you take home before starting this process. Also, if you are getting huge refund at tax filing time, perhaps you should adjust up your allowance numbers. This increases you take home pay and adds to your budget. Check with your CPA or tax planner for details.
JUNE 30TH, 2009
By ENEWENDORP
Insurance agents offer a very personal and important service. They serve as advisors and consultants. Their job is to recommend products and services that help you protect your possessions and secure your financial security.
Good agents never use a cookie-cutter approach; they look individually at their clients. They listen first, and then offer solutions. They never try to sell a product or service; they instead only recommend those that will truly help you and your individual situation.
It’s important to select an agent who has the skills, knowledge, dedication and reputation to provide the service you deserve.
Develop A Relationship
The best agents focus on building relationships with their customers. Only through the development of a relationship can an agent become sensitive to changing life needs and anticipate the kinds of insurance and financial products and services you may need at different stages of your life.
As a result, you want to choose someone you can depend on, and someone you feel will have a continued interest in you and your affairs.
Qualities Of A Good Agent
Agents should be focused on you and work hard on your behalf. Consider the following qualities when choosing an agent:
- References – Ask for references from other people in your age and income bracket, as well as from family, friends, and social or business acquaintances.
- Credentials – Find out if the agent has any professional education and training credentials, and advanced insurance designations such as Chartered Life Underwriter (CLU), Chartered Property/Casualty Underwriter (CPCU), or Chartered Financial Consultant (ChFC). Also, is the agent a member of any professional organizations, such as the National Association of Insurance and Financial Advisors?
- Knowledge and Honesty – Insurance can be confusing. Your agent should be able to provide you with up-to-date information on new product developments and should use terms you understand when explaining insurance policies and financial products. Most importantly, an agent should tell you when a policy or service isn’t a good fit for you.
- Trustworthiness – Above all, your insurance agent should be someone you trust, either through recommendations from people you respect, or from your own knowledge of the person. You should be able to communicate with the agent and get the answers to your questions in language you can understand.
- Integrity – Agents should listen to you and be up front about everything they say and do. Quality insurance agents don’t focus on selling, instead, they concentrate on providing for your needs and helping others.
- Stability and Dedication – Through the years, your needs will change. Your agent should provide annual reviews to help you determine whether the policies and services you have in place are still meeting your insurance and financial needs and goals.
Look Beyond The Agent
You must also look at the companies the agent represents. Are the companies financially sound? What are their financial ratings from major ratings organizations, such as A.M. Best and TheStreet.com? Do they offer a broad range of high quality insurance and financial products and services?
Price should not be the lone reason for choosing an agent or company; consider the products available and the service of both the agent and the company. Your personal knowledge of both the company’s and the agent’s reputation for good service is a significant consideration.
Do your homework when choosing an agent. Finding someone with whom you are comfortable is the first step in creating a relationship that will help you through your lifetime.
APRIL 22ND, 2009
By CPA SAM
One of my recent posts mentioned using software for managing your checkbook and tracking your spending. Several readers have asked for further suggestions on programs that they can use.
I have been using software since the mid-1990s to manage my own finances. First came Quicken. After installing updates for several years, I noticed that the interface was becoming much less intuitive (pun intended). About 5 or 6 years ago, I switched to Microsoft Money. While it is much easier to use, the reporting feature is still kind of strange. Since that is what users need to understand their spending, I started on a task to find something easier. I have no financial interest nor do I receive any commission from the developers of any of these programs. I only mention them after doing extensive research to find them.
Following are some web-based programs you can use for personal finance management. With these programs, you install nothing. All your data is encrypted and secured on a website. Customization is typically not available. Many of them are completely free. I welcome comments from readers who have experience with them.
The following is a list of programs that you actually install on your computer. Some of them are Open Source and are actually free. Some of them cost a little bit and some cost a little bit more.
I hope this list can help some of you get started in your trek toward financial freedom. Software can store years of spending data and give you insight into how well you have improved your finances since you have focused on this task.
APRIL 9TH, 2009
By CPA SAM
Q. I’m a small business owner on the East Coast. I’m trying to make sure I’m spending my company’s money right. We are expanding and I want to avoid laying off the new employees that are coming on board now. Any tips?
A. To answer your question in detail, it would take up more space than a normal college textbook. However, because you focused on spending, this edition is going to cover budgeting. These concepts can be applied to personal financial situations as well.
First, you need to be able to get a rough forecast of your income. That is the driving force behind any budget. Look at your bank statements for a good starting point. Bank statements are like a cash-basis financial statement. You can see income and outgo all in one place. This gives you a good starting point as you try to identify months where you have more can than average that you can use on months that do not have as much inflow.
Next you need to have a good expense identification plan in place. Do you use financial software like QuickBooks, Peachtree Accounting or Microsoft Small Business Accounting? By entering and categorizing every expense, you can begin to see where you spend your money. Are you seeing increases in inventory costs or benefit costs or supplies? What about employee salaries? Are you budgeting enough to handle raises for those who have provided you with the labor needed to run the business effectively. Without records, you must make an educated guess as to the amount of these expenses. Over time, you will again see trends and be able to determine where the “fat” is in your organization.
To make an initial educated guess, you should be searching in industry trade publications for expense estimates. For instance, service organizations will spend more of there income on salaries and benefits. Manufacturing and retail would be spending more on inventory and cost of goods to produce a sellable product.
As a small business owner, you may also wish to join up with your local chapter of the NFIB, National Federation of Independent Business. They have great resources to get owners educated on the issues in business. They also lobby Washington on behalf of small businesses. The US Small Business Administration is another good resource for those running smaller businesses. They provide links to discussion on the many areas that small business owners need to keep in mind.
JANUARY 7TH, 2009
By CPA SAM
While not a question from my readers, I thought it would good to go over something new that will help first-time home buyers. For those who purchase a home between April 8, 2008 and July 1, 2009 and who did not own another primary home for three years prior to the purchase that falls into that time frame, you are eligible for an interest free loan from the government!
Here’s how it works. You get a credit of the greater of Read more »
DECEMBER 31ST, 2008
By CPA SAM
Don’t you just enjoy the passing of an old year? 2008 brought many challenges from a financial perspective. Large and small corporations, retailers, stockholders, investors and regular employees all felt some pain. This post will have two major points. First, the biggest question everyone has is why did this happen. Last year, I was reading a book entitled “Secrets of the Temple: How the Federal Reserve Runs the Country” by William Greider. While the book is a bit heavy to read for most people, it does a very good job of describing the role of the Fed and the economic turmoil of the late 1970s through the 1980s. There is also some Read more »
DECEMBER 24TH, 2008
By CPA SAM
Q. What are some things I should be thinking about now that a new year is about to start in regards to my financial situation?
A. That is a really broad question and extremely difficult to answer. I can probably break this question down into three general areas where you need to evaluate your financial position if you are looking to make some changes.
1. Look at your budget. Are you spending more than you take home? Keep in mind that your budget begins with the take home pay or net pay on your paycheck. You cannot live on the gross pay simply because taxes come out first and reduce Read more »
