Category Archives: Finance
Every business needs to earn money to keep itself going. In a standard, for-profit company, your profit margin — the difference between your sales revenue and business expenses — often dictates your ability to grow and expand. But as a small company, how can you gain the momentum you need to increase that margin?
Whether you want to get your startup on the path to profitability or simply increase your overall profit margin, here are five ways you may not have thought of.
Focus on your customer experience
The people who purchase your products or services are the reason you have profits at all. It makes sense, then, that increasing those profits begins with honing in on the customer experience, said Yossi Caspi, general manager of North America for Nanorep, a provider of customer self-service solutions.
“Customer service can have a big impact on revenue, with data showing that more than half (52 percent) of consumers have switched providers due to poor customer service,” Caspi said. “A better customer experience will lead to lower purchase abandonment and higher loyalty, ultimately resulting in increased customer retention, brand recognition and profitability.”
Kestrel Linder, CEO of GiveCampus, a crowdfunding platform for schools, agreed, adding that customer sentiment, particularly about your product, can have a greater impact on your profit margin than your business model does. [See Related Story: Want to Boost Sales? Hire a Diverse Team]
“You must prioritize your product and your user,” Linder said. “If you build a great product that people badly want, you create time and space to refine the business model to go with it. By contrast, if you don’t make something people want, no business model can save you.”
Carefully track and justify your expenses
Starting a business comes with a lot of risk and variables, but one thing that’s entirely in your control is how much you spend. Linder noted that keeping a close eye on your finances — and making tough decisions about spending when necessary — can help keep your budget in check.
“You should know where every penny goes and what you get for it,” Linder said. “At GiveCampus, we routinely review all of our expenditures and force ourselves to justify each one in terms of the value that comes from it. We discuss how the expenditure is helping us grow [and] how it is helping us build a better product. If we can’t answer these questions in specific and precise terms, we cut the expenditure.”
“Identify where you’re spending your money … and then ruthlessly strip expenses that aren’t necessary,” added Harj Taggar, CEO of Triplebyte and a former Y Combinator partner. “Start by looking at every recurring charge you have to see if you need every subscription, or if you can renegotiate rates on existing services you’re subscribed to.”
Omar Aguilar, Americas strategy and operations leader and global strategic cost transformation leader at Deloitte Consulting LLP, added that cost-efficient practices can make things easier. These can include demand-based spending on travel and energy usage, and evaluating fixed expenses like your commercial lease, he said.
“Making more costs variable, rather than fixed, will also help address these challenges,” Aguilar said.
Look for partnership opportunities
A startup’s smaller scale can often make becoming cost-efficient a challenge, said Aguilar.
“Generally, they don’t have … [the] developed practices to spur growth like larger companies, so it can be more difficult for them to be cost-efficient,” Aguilar said. “For example, when a company buys more products, it receives more savings, but small companies have [smaller-scale] buying power than larger ones.”
One solution, Aguilar said, is to reduce the complexity of your operations. You may be able to consolidate suppliers, negotiate with vendors and suppliers, or participate in a shopping co-op to pool resources with others and buy things at lower cost.
Let data drive your decisions
Businesses generate mountains of data about their customers, sales, marketing campaigns and other key operational areas, just over the course of a regular day. Guy Amisano, CEO of Salient Management Company, a provider of retail-focused analytics tools, said the answer to increasing profits can be found in all this data. The key, he said, is to use the data to effectively drive the action.
Businesses need to “get specific and timely intelligence to the hands of decision makers,” Amisano told Business News Daily. “A better understanding of the history of investment and return can drive better, more effective decisions, and thus better results, over time.”
He added that granting data access to all levels of management “dramatically shortens the time-eating circuitry of communication and consensus by instantly exposing outlier behaviors and the root causes of variation.”
Understand (and increase) your value
Last, but certainly not least, your company needs to understand what makes it unique and different from other companies, and leverage that difference to justify a higher price than some of your larger competitors.
“The healthiest way to improve profits is by charging your customers more money and not see any drop-off [in sales], because they’re getting so much value from the product,” Taggar said. “This means you can boost profits without sacrificing your growth rate at all.”
Aguilar noted that innovative business models can help smaller businesses provide more value to customers.
“Small companies can consider alternative concepts and explore digital tools to help differentiate themselves,” he said. “Given their scale, small companies can go into digital models faster and focus more on innovation, enabling them to be more disruptive. Companies that have made it, and made a big impact in the marketplace, have been successful with different models.”
With the beginning of tax season just a few weeks away, many business owners will soon be turning their attention to their tax returns. One concern that inevitably creeps into many taxpayers’ minds is the possibility of being audited by the IRS.
A tax audit is an examination of an organization’s or individual’s tax return to verify that financial information is being reported correctly. While the chances of being singled out for closer scrutiny are statistically low, there are factors that could increase your odds of receiving an audit notice. Fortunately, there are measures you can take now to minimize future problems.
What triggers an audit?
A variety of potential “triggers” in tax returns tend to raise questions and attract unwanted attention from the IRS. The IRS uses a computer scoring system, called the Discriminant Information Function (DIF) system, which analyzes tax deductions, compares taxpayer data, and is often the basis for initiating an audit.
According to TurboTax, issues can crop up when income is not fully reported or business operating losses are considered out of the ordinary. Other audit triggers may include errors or inconsistencies in the return, omissions, lavish business-expense deductions for meals and entertainment, and a sharp drop in reported income from one year to the next. Exceptionally large charitable deductions can sometimes trigger an IRS audit, but they’re usually allowed when a taxpayer has receipts and documentation to back them up.
Another item likely to prompt the IRS to dig deeper is having money in a foreign bank account. Examiners also pay closer attention to cash-intensive businesses such as restaurants and convenience stores, which generate a lot of cash receipts from smaller transactions. [See Related Story: Getting Audited? How to Handle It Like a Pro]
Although most business owners and other taxpayers cringe at the idea of having to defend their tax return in an IRS audit, there’s usually little reason to worry. In its 2015 Data Book, the IRS reported that most audits (72.6 percent) were resolved via correspondence, rather than face-to-face meetings. The remaining 27.4 percent were conducted in the field (at the taxpayer’s place of business or CPA’s office) or at an IRS facility. While nearly 1.4 million tax returns were examined, that number represents a relatively small percentage (less than 1 percent) of the more than 150 million individual returns received and processed every year.
Scott Berger, a CPA and principal at the Boca Raton, Florida, office of Kaufman Rossin, said the IRS is moving more toward correspondence audits, which can impact individual taxpayers, small businesses and sole proprietorships. With this type of audit, the taxpayer receives a notice from the IRS saying that the agency is examining a tax return and has questions about specific line items. The purpose of the notification is usually to request supporting documentation for the line items being questioned.
How to minimize risk
Berger said one of the best ways to reduce your chances of being audited is to keep detailed records. This also helps ensure that if you are questioned by the IRS, you’ll be able to substantiate deductions, income and other information. He recommended organizing bookkeeping systems to create a clear and accurate record of all transactions, as well as maintaining and preserving the source documents used for accounting and tax preparation.
“The other thing I would recommend that somebody do is hire a bookkeeper,” Berger said. “Look at what it’s going to save you, not what it’s going to cost you.”
With the assistance of a knowledgeable bookkeeper or tax preparer, “issues will be vetted before [they’re] presented on a tax return,” Berger said. Accounting and bookkeeping professionals can also help substantiate and validate information reported to the IRS, he added.
What to do if you get an audit notice
Berger and other tax professionals said they generally advise against communicating directly with the IRS if you do receive an audit letter. Berger said his clients often tell him that because they have nothing to hide, they want to call the IRS and let them know that. Based on his nearly 30 years as a CPA, Berger thinks that’s a bad idea.
“Generally speaking, nothing good ever comes out of that,” he said. “Yes, they have nothing to hide; the return is all on the up and up, but this person on the other side of the phone has a job to do, and their job is to make sure the government collects all the taxes that it [legitimately] can.”
Berger also cautioned that IRS audit letters are always sent by postal mail, so phone calls or notifications sent via email are invariably scams.
Martin Press, a tax attorney with Gunster law firm, agrees that clients should not represent themselves in tax audits. As soon as a small business owner receives an audit notice in the mail, they should immediately contact their CPA and provide him or her with a signed power-of-attorney form (#2848), he said. This authorizes either a CPA, tax attorney or enrolled agent to contact the IRS and handle the audit, without the taxpayer needing to be present. He also said the audit examination should be held at the CPA’s office and not the taxpayer’s place of business.
Press said clients are always relieved when he informs them that they do not have to appear before the IRS — either initially or at any time down the road.
“The IRS, many times, claims that they have to start out with an interview of the taxpayer,” Press said. “There is no obligation for a taxpayer to do an interview at the beginning of a tax examination. Under what we call a Taxpayer Bill of Rights, they may never have to give an interview with the Internal Revenue Service.”
Although taxpayers are not required to meet directly with the IRS, an examination of a small business taxpayer is usually not over quickly; it often takes a minimum of six months to a year to resolve, Press said. If no resolution is reached, however, or if taxpayers wish to dispute the outcome of the initial audit, they do have a right to appeal it. Statistics released in the IRS’ 2015 Data Book show that a relatively small percentage of audited taxpayers decide to pursue further action. “Of the almost 1.4 million examinations of tax returns, nearly 28,000 taxpayers did not agree with the IRS examiner’s determination,” the report said.
For many businesses, the end of the calendar year means the beginning of tax season. As you prepare your receipts, invoices and other financial documents from the past 12 months, you may be concerned about the possibility of a dreaded tax audit.
As stressful and overwhelming as an audit may seem, there’s no need to panic. It does need to be taken seriously, but audits often deal with simple data or reporting errors that the IRS suspects may have occurred, said Frank Pohl, an attorney at Gunster law firm. He reminded business owners that not all tax audits end adversely for taxpayers.
If you do receive an audit notice, here’s what to do to make the process go as smoothly as possible, and to minimize any negative impact on your business. [See Related Story: 5 Tax Deductions That Could Get You Audited]
1. Review the audit letter carefully.
Open the letter promptly, and understand what information the IRS needs from you, Pohl said. If you don’t have a designated financial adviser, hire an accountant or tax attorney to help you go through the audit letter and identify the issues the IRS has flagged. Pohl also warned not to delay action or ignore the letter.
“The IRS will not go away, and not acting promptly may only make the auditor suspicious or antagonistic,” he said.
For security purposes, if you are being audited, you will receive a mailed letter, Pohl said. Scammers will often masquerade as the IRS by sending emails or leaving phone messages in an attempt to get your personal data, but the real IRS does not communicate with taxpayers in these ways, Pohl said.
2. Get your records organized.
Before you and your tax professional respond to the IRS and/or meet with an auditor, take the time to dig up and organize all of your business records from the past tax year, said Kimberly Foss, a certified financial planner (CFP) and author of “Wealthy by Design” (Greenleaf Book Group Press, 2013). This includes receipts and invoices for income and expenses, bank statements and canceled checks, accounting books and ledgers, hard copies of tax-prep data, and leases or titles for business property, she said. If the IRS has requested specific documents to review, be sure you have those readily accessible as well.
3. Answer the auditor’s questions (and that’s it).
When you sit down with the auditor, you’ll be asked numerous questions about the information reported on your tax return. Our expert sources agreed that you should not volunteer any information you are not required to give.
“Just respond with the information [that is] requested,” Pohl told Business News Daily. “Providing unneeded or unasked-for information may lead to more questions … and additional issues.”
“Be straightforward in responding to questions, but don’t manufacture excuses,” Foss added.
Similarly, an article on NOLO.com advises not to bring or discuss any documents from previous tax years unless asked: “Don’t give copies of other years’ tax returns to the auditor. In fact, don’t bring … any documents that do not pertain to the year under audit or were not specifically requested by the audit notice,” said the article.
Keeping your tax professional involved
Dealing with the IRS can be stressful, and if you’re concerned about what you might say, it’s wise to let your tax professional do the talking for you. Sandy Gohlke, a CPA, chartered global management accountant and principal at Rehmann financial services company, advised giving the IRS a signed power-of-attorney agreement that will allow the IRS to deal directly with your tax professional. That takes you out of the loop and puts them in, she said.
Pohl agreed, and said that even if your tax professional doesn’t have power of attorney, you should still have him or her present when you meet with an IRS auditor. He also advised business owners not to get defensive or hostile during the interview.
“The auditor … cannot and will not forgive and tax debt or mistakes, and any admissions you make can be used against you,” Pohl said. “Adopting an antagonistic attitude risks alienating the auditor, [which] will not be in your best interest.”
Avoiding future audits
Gohlke reminded business owners that audits are generally random, and you can’t prevent them entirely. However, some companies are selected because of certain “red flag” expenses — either amounts or types — that are out of the ordinary and would cause a second look, she said.
Foss noted that bank transfers and other financial records beyond your receipts should be tracked, and anything that can’t be explained on the standard IRS form should be explained on paper. She also advised double-checking all of your math before filing.
“Keep proper documentation, and only deduct ordinary and necessary business expenses that are allowed by the IRS,” Gohlke added. “Even if you are selected for an audit, you will know you have nothing to worry about.”
In 2014 my father was diagnosed with Lewy Body Dementia, which is the second most common type of dementia after Alzheimer’s disease. Little did my family know the difficult road that would lie ahead to provide my father with appropriate care as the disease continues to progress. As a financial advisor, I find comfort in being able to alleviate the stress my mother has had managing their finances through this difficult situation.
My father never liked to seek outside help with his personal finances. But five years ago, while he was still well enough to make his own decisions, he brought me down to his office in the basement to go over his accounts in case his health were to diminish. At the time, I was a trader on Wall Street and knew very little about how a retiree should manage their finances. But if I knew what I now know, this is what I would have told him on that day.
For Your Family’s Sake, Consolidate
The binder my father used to keep track of his accounts was always up to date and accurate. But as I thumbed through the graph paper with numbers carefully penciled in, I noticed that as time went on the pages weren’t as detailed and the time between entries was further apart. I didn’t know it at the time, but this was one of the earliest signs of his cognitive issues. When his condition worsened and I took over managing the accounts, there were checking and savings accounts at several banks, CDs reinvesting at almost no interest, paper savings bonds stashed away with no copies stored online or in another physical location, and a portfolio which had very little direction comprised of investments that were collected over the years that were never revisited to determine if they were still suitable.
We have since consolidated these accounts and come up with a portfolio that reflects their current needs. At any time, my mother has online access to a snapshot of her accounts where she can see everything in one place. This has given her great peace of mind.
Dust Off Those Estate Plans
It isn’t uncommon for a young family to establish their estate plans when they get married or have their first child and never revisit them again. This is a mistake. I cannot emphasize enough how important it is to have a durable power of attorney with clear direction. The power of attorney has been an important tool in managing my father’s finances. His will and health care proxy will take a lot of the difficult decisions away from our family. We are able to spend our time with him and focus on providing him with the best quality of life that we can, knowing what his wishes are.
Long-Term Care Isn’t Cheap, So What’s the Plan?
The cost of long-term care can easily dwarf the cost of attending a four-year university. We spend years planning how we are going to pay for our children’s education, but very little time is spent on how we will manage the cost to maintain our own quality of life in our later years. Long-term care insurance isn’t always feasible but if added to the picture, it can be an extremely valuable tool. In most cases, some form of it should be considered sooner rather than later as policies become more cost prohibitive as one gets older. My father does not have a long-term care policy and it would have made the planning process easier.
Can Anyone Help Pay the Bills?
In addition to long-term care insurance, other options to subsidize the cost of long-term care include Medicaid, VA benefits, and certain supplemental insurance policies. These were all areas that we explored after my father was already sick and in the early days it took time away from getting him the proper help. Understand these programs and policies before you actually need them to see if they will be available to you. Even if you are eligible, the paperwork can be overwhelming and it is better to be prepared.
Work With the Pros
Talking to your children about your finances and wishes in case your health were to decline is a great first step, but have a team of professionals and their contact information available for your family members so they can step in and do the heavy lifting when needed. A financial planner can act as the quarterback for your family and work between you and the other professionals that you entrusted. I was fortunate to work with my family’s estate attorney and accountant to guide me through the planning process. A geriatric social worker or elder care consultant could also be a valuable resource.
Nobody wants to think about the possibility of losing their cognitive abilities, but establishing a plan will assist your loved ones in the event that they need to oversee your care. Reacting to unfortunate events leads to worse outcomes than ahead planning for their possibility. Take the initiative, and speak with a qualified professional to assist you with your plan.
The first quarter of the year may be the height of tax prep activities for many business owners, but you shouldn’t only be thinking about your taxes right before the April 15 deadline. Day-to-day decisions can have a significant impact on your overall tax obligations, so you should be planning throughout the year to make sure you’re ready.
“When a small business owner plans for tax season strategically and consistently throughout the year, they can create a much better financial outcome for their company,” Jamal Ayyad, vice president of service delivery for SurePayroll, said in a statement.
Whether you’re preparing to file your 2016 tax return or you just want to plan smart for the current year, here are six “checkups” you can do to make sure you’re always on top of your taxes.
1. Ensure that ownership records and hiring/employment practices are up-to-date
In order to guarantee that your business is complying with guidelines that are constantly changing, plan regular reviews of documents and applicable rules, said Scott Augustine, a shareholder with Chamberlain Hrdlicka law firm.
2. Calculate your projected payroll taxes
Small businesses that are having trouble paying their payroll taxes may be able to take advantage of an IRS installment plan, Ayyad said. If you owe less than $25,000 in combined tax, penalties and interest, and filed all required returns, you may be eligible. Visit the IRS website for more details.
3. Do a compliance checkup
The Affordable Care Act, the IRS and the U.S. Department of Labor have rules regarding independent contractors or 1099 employees. Make sure your firm or organization operations are in compliance to avoid costly penalties and fees, Augustine said.
4. Keep up with your home state’s tax issues
Some states take loans from the federal government to meet unemployment benefits liabilities. Ayyad noted that if your state has taken, but not repaid those loans, there will be a reduction in the credit against the Federal Unemployment Tax Act tax rate. This means employers in those states will have to pay more. A number of states may be affected, including Arizona, Arkansas, California, Connecticut, Delaware, Indiana, Kentucky, New York, North Carolina, Ohio, Rhode Island and South Carolina, as well as the U.S. Virgin Islands.
5. Review non-competes and confidentiality agreements
This is especially important for those that have been written by attorneys outside your state of operation to avoid possible theft of important assets, Augustine said. As part of this, he also advised reassessing document-retention policies to make sure they balance exposure with business needs. This will help you avoid issues in tax matter and litigation, he said.
6. Think about succession planning
What would happen to your business if you had an unexpected health crisis or accident? Augustine said business owners should be discussing and determining what actions may need to be taken to ensure the firm continues on. There are also tax benefits to succession planning, so discuss with both your attorney and your accountant, he added.
Organizing tax records now can make filing taxes much easier and faster later on, Ayyad said.
“When small business owners get their information together well ahead of time, they greatly improve the odds of filing a complete and accurate return,” he said. “Being compliant is the law, but instead of merely checking taxes off of a list of things to do at the end of the year, a savvy small business owner knows that preparation and planning ahead are key components of success.”
Although you know when tax season is coming, you may not always be prepared for it. If you’re a brand new business or have a limited budget, you may not be able to afford accountant, which means you may be stuck doing your taxes on your own.
Thankfully, with your smart phone or tablet — and the right apps — tax season doesn’t have to be a headache. Here are seven free mobile apps to help you stop stressing and start filing.
1. IRS2Go (iOS, Android)
This is the official mobile app of the IRS and is great for new business owners who want verified and expert tax advice right from the source. With IRS2Go, you can check the status of your federal income tax refund, make a payment on any taxes that you end up owing, and get free tax preparation assistance from an IRS Volunteer Income Tax Assistant in your area. You can also request tax return information and account transcripts through the app.
2. H&R Block Mobile (iOS, Android)
The H&R Block mobile app connects you directly to tax professionals to make the filing process easier. You can take a picture of your W-2 and the app will instantly import your information. You can upload any other documents and send them to a tax pro. The app can also created a personalized checklist of required documents, and lets you view tax returns from previous years. In addition, the app lets you check the status of your federal tax return, and estimate the amount of your return with a built-in calculator. If you are constantly switching between devices throughout your day, this app lets you go from your phone or tablet to your computer and back again with ease.
3. TurboTax (iOS, Android)
Intuit’s TurboTax walks you through the process of filing your taxes. You snap a photo of your tax documents and the app coaches you through every step of the filing process, double-checking to ensure that you have entered all information correctly. You can be connected with an expert live and on-screen to get answers as soon as you need them and when you input all of your information, it is saved with secure encryption and always password protected. TurboTax also checks for deductions and credits, and once your return arrives, it gets stored in the TurboTax Cloud. TurboTax is free to download, but there are costs for federal and state filing.
4. TaxCaster (iOS, Android, Windows Phone)
This income tax calculator by Intuit allows you to accurately forecast your federal income taxes before you file to see how much you may get back, or how much you may owe. Just enter the basic information about your lifestyle and business, and TaxCaster will make the estimations based on that information. Since this is an Intuit product, the app uses the same tax calculator you’ll find in the desktop version of TurboTax to provide the estimates. Based on the information you provide, it can also recommend a product to help you complete the filing process.
5. Shoeboxed (iOS, Android)
With Shoeboxed, keeping your receipts, bills, and other financial documents organized is as easy as taking a picture. Once you upload your document in the app, it automatically spots the important information, such as vendor, date, total and payment type. This then creates a fully searchable digital database of your transactions. For small business owners, Shoeboxed will pay off at tax time. The app can save you time and money by managing your paper documents for you, as opposed to needing to hire someone else to do it.
6. Evernote (iOS, Android, Windows Phone)
Evernote is more than just your run-of-the-mill note-taking tool. It also offers a way to manage the documents you’ll need to file your taxes. Because Evernote lets you easily store and organize images, you can scan in your receipts and then trash them, and since the app can read printed text, it’s easy to search for a specific receipt. To get your receipts into Evernote, there are two options: The ScanSnap scanner is the pricier option, but it is made by the Evernote developer, so it will directly scan high-quality images and automatically uploads them to your Evernote account. For a cheaper option, there is the DocScanner app for iOS and Android, which you can use to “scan” in receipts by snapping a photo with your smartphone or tablet.
7. iDonatedIt (iOS)
Charitable donations are tax-deductible expenses and can reduce your taxable income to ultimately lower your tax bill. Tracking your donations throughout the year can be a hassle, but apps like iDonatedIt are there to help. The app streamlines the process by helping you document your donations quickly and easily. Whenever you donate a non-cash item to charity, use the app to track the donation date, the charity you donated to and the fair-market value of the item. By tax day, you will have a complete and permanent record of donated items that meets IRS compliance requirements. You can also attach photos of donated items and email the detailed donation report to yourself, or an accountant.
Today’s job market is as competitive as ever. You need to be able to effectively communicate your skill set so that you will give yourself the best competitive advantage to secure employment. During the interview process, you want to highlight as many of your strengths as possible.
An easy way to do this is by slipping a few simple phrases into your next job interview. Here are seven things you should say in an interview.
1. I am very familiar with what your company does.
Letting a prospective employer know that you are familiar with what a company does shows that you have a legitimate interest in the business and are not just wasting their time. Do your homework before arriving for an interview. Check out the company website for information about products and services. Search for the latest transactions and pertinent business news.
Be sure to let the interviewer know that you are familiar with the newest company acquisition or the latest product that was just developed. Explain how your skills and experience are a perfect fit for the employer.
2. I am flexible.
Work environments are always changing. Prospective employers are looking for candidates that are open to change and can adapt at a moment’s notice. In today’s fast-paced business world, employees must have the ability to multi-task.
Stating that you are adaptable lets an employer know that you are willing to do whatever is necessary to get the job done. This may mean working additional hours or taking on additional job duties in a crunch. Show your potential employer that you are equipped to deal with any crisis situation that may arise.
3. I am energetic and have a positive attitude.
Employers are looking for candidates with optimism and a “can-do” attitude. Attitudes are contagious and have a direct affect on company morale. Let the optimist in you shine during the interview process.
Be sure to always speak positively about past employers. Negative comments and sarcastic statements about past employers and co-workers will make you look petty. If you bad-mouth your past company, employers are liable to believe that you will do the same thing to them.
4. I have a great deal of experience.
This is your chance to shine. Highlight any previous job duties that relate directly to your new job. If it is a management position, state every time that you were responsible for the supervision, training and development of other employees. Discuss your motivational techniques and specific examples of how you increased productivity. Feel free to list any training classes or seminars that you have attended.
5. I am a team player.
Do you remember when you were young and your teacher wanted to know if you could work well with others? Well the job market is no different! Companies are looking for employees that are cooperative and get along well with other employees. Mentioning that you are a team player lets your prospective employer know that you can flourish in group situations.
Employers are looking for workers that can be productive with limited supervision and have the ability to work well with others.
6. I am seeking to become an expert in my field.
Employers love applicants that are increasing their knowledge base to make themselves the best employees possible. Stating that you are aiming to become an expert causes employers to view you as an asset and not a liability. You are a resource that other employees can learn from.
This is also a subtle way of illustrating that you have an attitude of excellence. You are aiming to be the best at what you do! This will let employers know that you are not just a fly-by-night employee, but in it for the long run.
7. I am highly motivated.
A motivated employee is a productive employee. Talk about how your high level of motivation has led you to accomplish many things. If you are a meticulous worker, discuss your organizational skills and attention to detail. Companies are always looking for dependable employees that they can count upon.
Many popular personal finance gurus espouse a philosophy of avoiding debt at all cost. They point to all the negative consequences of abusing credit, with an overarching theme of how big, evil credit card companies and banks take advantage of ordinary people and drive them into a lifetime of modern-day slavery to their credit card debt.
But what they won’t tell you is that there’s actually such a thing as “good debt.”
Why Debt Can Be Good
Credit, used responsibly and in moderation, is good for the overall economy because it can help facilitate more transactions and allow for a faster transfer of goods and services. However, it can also be very bad for your financial health if abused. And abusing credit is extremely easy to do because money is constantly thrown at us by banks and other lenders.
The good news is there is a very easy way to determine if something is potentially good debt or bad debt. The key is to take a closer look at what debt really is—it’s simply spending your future income to buy something today. So it stands to reason that the only time you should borrow money against your future income is if you use it to buy something that will enhance your future income.
When you buy a latte using a credit card, for example, you’re borrowing from your future self’s income to buy that coffee today. You don’t have the cash to buy that coffee, so you charge it and go on your merry way. It’s your future self’s problem, right?
The problem with this is not, in and of itself, the fact that you bought something on credit. The problem is that what you bought on credit doesn’t increase your future income, which is what you will use to actually pay for that coffee. But if, on the other hand, you borrow money to buy something that will produce income in the future, then you’ll have the money to pay back the debt plus the interest. The key is to buy something that pays enough additional income (or that appreciates in value) to do that and still have more leftover.
For example, let’s assume you used credit to buy a rental property. That property receives income every month, right? Therefore, you’ve increased your future income by buying that property, even though you didn’t have the full amount in cash to buy it.
That is the fundamental difference between “good” debt and “bad” debt.
Examples of Good Debt
Here are a few examples of what I consider potentially good debt, if used responsibly. Now, you can probably find an exception to these broad categories. For example, while I list student loans as potentially a good debt because, in theory, it increases your future income, a degree in the humanities that costs $200,000 may not fit that mold. But generally speaking, student loans can be good debt if they help you build skills to compete in the job market and earn a good income. The key is considering whether the future payoff is enough to warrant the cost.
Mortgages on rental property
Business loans (Again, like any debt, these can be easily abused. But if the business is successful then, obviously, using debt is a lot quicker way to get started.)
Credit cards – but only if you pay off your credit card in full every month, on time. If used this way, you can rack up tons of rewards and also build your credit.
Benefits of Good Debt
Some of the everyday benefits of using debt wisely include building a good credit score, getting perks and rewards such as airline miles and cash back, and tax advantages (on mortgage interest and student loans, for example.) But the most powerful benefit of credit is the concept of leverage. An in-depth discussion of leverage is beyond the scope of this article, but I’ll say here that leverage is just what it sounds like—it works like a lever to increase your investment return over what you could achieve with cash alone.
As an example, let’s assume that you buy a rental house for $100,000 and put down 20% for the down payment, so $20,000. This particular property rents for $1,000 per month, and your total expenses including mortgage interest, maintenance, taxes, and insurance are $800 per month So, you make $200 each month from this property, which is an annual return of 12% on your original cash investment.
Now let’s compare that to if you had not borrowed the 80% to buy the property, but instead paid for the whole thing with your own cash. In this case, you do not have to pay the mortgage payment, and therefore can “net” much more from each rent payment. Let’s assume you now get about $600 net each month in rent.
You’re making more money, right?
While you are making more in dollar terms, you actually earn less as a percentage of your initial investment. Believe it or not, your investment return has actually gone down. Why? Because the mortgage acts as a lever to increase your return. In this case, the un-leveraged rate of return would be 7.2% ($600 per month times 12, divided by your investment of $100,000.)
While Debt Can Increase Returns, It Also Increases Risk
Lest I give you an overly rosy picture about debt, let me add one more clarifying detail. In the above example, I showed how the return on a rental property can be almost doubled by adding leverage. While that is true, and a well-known financial principle, it should be noted that leverage works both on the up-side and the down. The recent financial crisis is a classic example of this. Many investment banks were highly leveraged with complex mortgage-based financial instruments, and when the economy turned, they went bankrupt or had to be bailed out. It works that way on a personal level too. Debt can be a powerful tool, both for good and for bad. If you decide to employ good debt, please use it responsibly and with caution.
Can you have perfect abs in just six minutes a day? It’s hard to say for sure, but you can have a solid budget in six months. One of the challenges with proper budgeting is that it has to become habitual in order to be effective. You can survive without knowing how to budget if you manage to keep more money coming in rather than flowing out or have credit cards to cover the gap, but this won’t last forever. People often resort to budgeting after they’ve already been dealing with expenses and income in a back-of-the-envelope kind of way.
The crux of this six-month plan is the emergency fund. In general, traditional budgeting starts with tracking expenses, eliminating debt and, once the budget is balanced, building an emergency fund. To speed up the process, we are going to start by building a partial emergency fund. Ideally, everyone should have a minimum of a few months’ wages sitting in a liquid account for any unpleasant surprises. This emergency fund acts as a buffer as the rest of the budget is put in place, and should replace the use of credit cards for emergency situations.
You will want to build your emergency fund as quickly as possible. For someone who lives in a rented home and has only a modest amount of debt, an emergency fund of $600 may work fine. If you own a house, a car and other things that can unexpectedly require cash infusions, then your emergency fund will need to be bigger. The key is to build the fund at regular intervals, consistently devoting a certain percentage of each paycheck toward it and, if possible, putting in whatever you can spare on top. This will speed up the process and get you to think about your spending.
What’s an Emergency?
Here’s where it can get a little trickier. You should only use the emergency money for true emergencies: like when you drive to work but your muffler stays at home, or your water heater starts to hiss and spit green bile like Linda Blair in The Exorcist. Covering regular purchases like clothes and food do not count, even if you used your credit card to buy them. It may help to keep the account at another bank or, better yet, an online savings account, where you can’t access the money as easily and where it will get higher interest than a normal savings account.
While it’s true that you would save money if you used your emergency fund to eliminate credit card debt, the purpose of the fund is to prevent you from having to use your credit card for paying for the ugly things that life throws at you. With a proper emergency fund, you will not need your credit card to float you when something goes wrong.
Downsize and Substitute
Now that you have a buffer between you and more high-interest debt, it is time to start the process of downsizing. It is odd that the natural solution to “not enough money” seems to be increasing income rather than decreasing spending, but this backwards approach is very familiar to debt counselors. The more space you can create between your expenses and your income, the more income you will have to pay down debt and invest.
This can be a process of substitution as much as elimination. For example, if you have a $60 per month gym membership, cancel it and use half of the money you save to invest or pay down debt and save the other half to begin building a home gym in your basement. If you buy coffee from a fancy coffee shop every morning, you could just as easily purchase a coffee maker with a grinder and make your own, saving more money over the long term. Although eliminating expenses entirely is the fastest way to a solid budget, substitution tends to have more lasting effects. People often cut too deep and end up making a budget that they can’t keep because it feels like they are giving up everything. Substitution, in contrast, keeps the basics while cutting down the costs.
Focus on Rewards
If you are constantly looking at what you have to cut and give up, the very act of budgeting will become distasteful. A mixture of long- and short-term goals will help keep you motivated. This can be as simple as saving for a small luxury, or even something bigger like buying a car with cash. Some of your long-term rewards may just be benchmarks on the way to your overall goals. For example, you may want to sock away $10,000 in a retirement account before you turn 30 or be debt-free in five years. Watching these goals slowly but surely become a reality can be very satisfying and provide further motivation to work harder at your budget.
Find New Sources of Income
Why isn’t this the first step? If you simply increase your income without a budget to handle the extra cash properly, the gains tend to slip through the cracks and vanish. Once you have your budget in place and have more money coming in than going out (along with the buffer of an emergency fund), you can start investing to create more income. It is better to have no debt before you begin investing. If you are young, however, the rewards of investing higher-risk, high-return vehicles like stocks can outweigh most low-interest debt over time.
Much like the disclaimers that come with exercise tapes promising to make you look like a body builder in just six minutes a day, it is possible that it will take you more than six months to get your budget balanced out. This all depends on your situation, including how much or what kind of debt you have. On the upside, just like people who begin exercising for the first time tend to see results sooner than regulars, you may find that your improved budget has immediate benefits for you. Even if it does take you longer than six months to get your budget turned around, it is time well spent.
Tuition-free colleges? Is that insane or even possible? A quality college education doesn’t have to be insanely expensive. Parents and students should not be bankrupting themselves now or jeopardizing their futures by going into an insane amount of debt.
With some planning and a diligent college search, you can find at least 20 tuition-free colleges that may rescue your family from years of paying back student loans. And while scholarships are fine, we’re not talking about that. We’re talking 100% tuition-free, leave your checkbook at home colleges. (For more, see: A Roth IRA or 529 Plan for a Grandchild’s College?)
Rising Costs of Higher Education
Since 1978, the cost of college has risen by more than 1,225% compared to inflation as measured by the Consumer Price Index (CPI), which has “only” risen by 279%, according to www.strategiesforcollege.com. While the cost of a college education has risen four times as fast as inflation, it has even outpaced the other exorbitant family expense: health care. At least we’ve been seeing medical expense inflation slow. Not so with college tuition, yet.
There may be a lot of reasons for college costs to rise so much. Campuses have certainly added lots of new buildings and taken on debt to upgrade facilities. Concrete block dorms have been replaced by sleek apartment suites. Simple gymnasiums have been upgraded to facilities that rival many Olympic training centers. Simple student lounges with a few couches have been given a total makeover to include bistros, baristas and bowling alleys. But one of the biggest expenses on many campuses has been the number of non-teaching faculty, managers and support personnel.
College costs continue to skyrocket at more than 4% each year, higher than general inflation. It’s a depressing thought that a family with a toddler may be looking at spending far more to educate one child than the cost of their first house. And for some families with three toddlers (me included), this can be more than a depressing thought.
How can families try to cope with this expense? If you’re open minded and plan ahead, you can find one of these many tuition-free colleges may fit the bill without the high price tag.
Free: The New Price of a College Degree in America
How does free sound to you? It sounds pretty darn good to me. If you were free from the financial worries of trying to pay for college, then you could fund your retirement, pay down other debt, and – if you’re a graduating college student – you’d be in a better position to launch into your own life and take a seat at the adult table.
And even though neither Bernie Sanders nor Hillary Clinton will be occupying the White House, there are still ways to make the dream of free college come true for some. You have some options to join the trend toward online education using Massive Open Online Courses or MOOCs. Using technology, these programs are revolutionizing distance education in initiatives such as Ed-X. For a more complete list of courses and programs, you can visit www.mooc-list.com.
Traditionally, students have had options of getting free college tuition by getting accepted to a military service academy or joining the military or National Guard. More recently, there have been options for individuals working in non-profits or in education or as a first responder to get student loan debt relief.
Some private schools have implemented a “no loans” policy which means that they provide grants instead of loans to fill any gap between a family’s Expected Family Contribution (EFC) and the advertised cost of school. While not free, this does significantly reduce the cost to a family. One such option includes Davidson College, a highly selective independent liberal arts college with just 1,900 students north of Charlotte, North Carolina.
But what I’m talking about here are schools that offer a quality education for free – absolutely nothing. These outliers can be very selective and in return, some require that a student work on a ranch or help build container ships.
Some schools offer tuition-free college educations or other financial assistance to families that have incomes below certain targets. And there are several Ivy League colleges that have implemented programs to remove economic barriers. At Harvard University, if your family’s adjusted gross income (AGI) is at or below $65,000 per year, parents will pay nothing. For more information, check out Harvard’s Financial Aid Initiative.
Here is a partial list of schools that offer this unique opportunity.
Alice Lloyd College: A Christian-centered liberal arts college with just 600 students highly ranked by U.S. News & World Report, requires students to work on campus or in the community in exchange for free tuition.
Antioch College: A private liberal arts college in Ohio, has a required co-op program for all students. The tuition-free package is worth at least $121,000.
Barclay College: Located in Kansas, offers a Bible-centered education on a campus of about 250 students and nearly a 50% acceptance rate for applicants.
Berea College: Located in Kentucky, is a private liberal arts college with about 1,500 undergraduate students and requires all students to work at least 10 hours per week in campus-approved jobs.
College of the Ozarks: A private, Christian liberal arts school in Missouri with about 1,500 students ranked 10 by U.S. News & World Report for Midwest colleges that also require students to work on campus.
Curtis Institute of Music: Located in Philadelphia, is focused on music performance and boasts a highly selective application process.
Deep Springs College: Offers an alternate education program for a two-year degree that prepares students for successful transfer to schools like Harvard University, Princeton University and Yale University.
Macaulay Honors College at City University of New York (CUNY): A liberal arts college that requires community service in exchange for free tuition.
Webb Institute: Located in New York, known for its engineering programs devoted to ship-building and design.
Williamson College of the Trades: Formerly the Williamson Free School of Mechanical Trades, is the only men’s only trade school in the U.S. that provides 100% full scholarships to cover all textbooks, tuition and room and board.
Free Tuition Colleges Based on Family Income
There are also a number of colleges which offer free tuition for families that have limited income or assets. These include selective schools such as:
Massachusetts Institute of Technology
Texas A&M University
University of North Carolina at Chapel Hill
Almost all the colleges on these two lists are highly selective. Each has a different learning environment that may not be suited for all students. This is why it’s important your college search process should go beyond a college visit. Parents and students really need to consider the question of paying for college and add an assessment that helps match up a student’s abilities, motivations and learning style with the right school. A more motivated student who is in the right learning environment will be less inclined to drop out, change majors or transfer, which will save you and your student a ton of money in the end if that tuition doesn’t turn out to be free.