Budgeting, Tips

Understanding Debt & Interest

Do you understand how much you are paying in interest each year on your debts? Understanding debt and interest will help you get motivated to get out of debt. When you see the information, you will see how you could be spending your money in other ways.

Before taking out any loan, you should understand exactly what you will be paying in interest, APR, and how long you will be paying. There are some easy to use debt calculators online that will calculate your interest.

Interest. Interest is the extra amount you will be paying for using someone else’s money. When you have a savings account, interest is the amount that you are receiving for letting someone else borrow your money. Savings rates are usually much lower and so most debt-free people paid off their debt first, then built savings.

APR. This stands for Annual Percentage Rate. This is the interest rate you are paying. You should get the lowest APR you can. APR takes into account any loan fees and compounding interest. When you understand APR and increase your credit score, you can use those as tools to pay less interest. The chart below shows how much interest you pay at different interest rates (in blue). The red shows how much interest you would pay if you paid a $2,000 lump sum payment at the first of the loan but kept paying the same amount.

How long will you be paying for these loans? The chart above calculates interest on a 5 year loan of $10,000. Ask yourself if you can really afford to make those payments for 5 years. By paying upfront of $2,000, you can reduce the payback period. The 20% loan only took 45 months to pay off instead of 60. That is paying the same payment but putting down $2,000 upfront.

If you also add extra payments, you will be out of debt a lot quicker, increase your credit score, and be able to save yourself hundreds or thousands of dollars. It is so important to understand these aspects of debt and interest as you start on a journey to lower/eliminate debt, increase your credit score and learn how to save.

Budgeting, expenses, Tips

Late Fees are a Big Price to Pay

Today, I’d like to talk to you about paying late fees and other sneaky ways companies charge you big prices. Do not pay late fees. Make sure that as you’re paying down your debt, your first priority is always paying everything on time.

  • Many companies, raise your rate and charge a late fee. Make sure if this happens, you call and complain about the rate. You can also, depending on your history, ask them to waive the late fee. Occasionally, some companies will waive the late fee.
  • Regular late fees can really add up to a lot of money. Analyze how much you’ve paid in late fees this year. And, make a goal to start paying all of your bills on time and even a little early.

Paying late fees is similar to one step forward, two steps back. It is important to pay your bills on time every month.

Also, let’s talk about check cashing companies. I can’t believe these are still in business. Yet, they’re building a brand new one by my house. The interest rates on cashing post-dated checks are astronomical. And, they suck you in making it nearly impossible to pay it off the next month. So, you just stay in this cycle and continue to pay the high interest rates. Make a goal to get out of this debt first.

Don’t pay late fees and don’t pay check cashing fees. Your financial life will be better when you’re not sucked into these high interest fees and charges.

I can calculate how much these crazy fees and interest are costing you. Contact me for a budget coaching session. I can also e-mail you the loan calculator that helps you see how quickly you can pay off your current loans.

Budgeting, Tips

5 Reasons a Budget Will Help You.

According to a 2013 Gallup Poll, only 1 in 3 Americans prepare a detailed written or computerized budget. It further states that most of the people preparing budgets have a college degree or make more than $75,000 a year. People with lower income need to budget even more.

Some people say, I track all of my money in Mint so I don’t need to set a budget. While apps are great to track your expenses, you need to make sure that you set reasonable limits for yourself and stick to them.

My goal is not to have all of your debt paid off in a small amount of time. I just want to get you started on the path toward financial freedom. I consider financial freedom as good debt management, a secure savings and emergency fund.

  1. Financial freedom comes as you aren’t living paycheck-to-paycheck and you know where all of your money is going before you receive it. If your expenses are exceeding your income even by a little each month, you will never have financial freedom.
  2. Evaluating each month. Each month, you should be looking at your expenses. If one area continues to exceed your budget, do you want to increase that budget and decrease another area? Or is there a way you can decrease the expenses in that area? Either option works fine, but you can’t keep exceeding expenses and expect to get out of your old cycle.
  3. Large, irregular expenses. You always know which areas you can adjust. When Christmas is coming or a birthday, generally you need to lessen some expenses in another area to get ready. If you follow a budget, it is easy to see where you can adjust.
  4. Emergencies. We all have emergencies come up. We’ve been trying to save for a new furnace for over a year. But, little things keep breaking around the house, too. So, we are always grateful for our emergency fund. When something happens, if we don’t have enough money to cover it, we can usually figure out a way to make up for it in the next month or two because we follow our budget.
  5. Retirement. It is always important to be saving for retirement. Many strict budget programs don’t want you to save for retirement until all of your debt is paid off. Three main reasons not to do that:
    1. Time value of money. Yes, you are likely paying more in interest than you can receive as a return on investment. However, the sooner you start saving for your retirement the more money you will have. Even if you start small, and try to increase as you go along, your money will grow.
    2. Taxes. Saving for retirement can have tax savings now or in the future. If you wait and try to put away too much each year after your debt is paid off, you could lose some tax benefit due to the caps on contributions yearly.
    3. Employer Matching. Many companies offer employer matching on 401(k) plans. This is like free money. So, not utilizing this matching program every year and in every paycheck is like giving money back to the company.

Budgeting and planning gives you the financial freedom later in life. But, it can also be helpful in many areas right now. As stated above, I don’t usually worry too much when things come up. Money doesn’t keep me up at night because I know exactly where my money goes and that I have enough whenever something comes up.

Budgeting, expenses, Tips

Starting a budget.

In a poll of New Year’s Resolutions for 2018, 37% of people said they would include saving more money this year. If that includes you, and you haven’t done anything now is the time to start. So, where is the best place to start?

  1. Start by looking at your expenses for the last two to three months. Make categories for different types of expenses. Open a google sheet or spreadsheet and start entering the amounts spent in each category. This will show you where you are spending your money.
  2. Calculate the total for each of your different categories. You can have a lot of categories or just a few.
  3. Evaluate which categories you could cut back on. Is it eating out, coffee in the morning, grocery store or just shopping in general? Planning to cut back is the first step in organizing your budget.
  4. Find a focus. Decide what your focus should be for your finances. Do you need to pay off debt, establish a savings account or start retirement savings? Focus on one area at a time. Take the cutbacks you calculated in step three, and put any extra money into your focus area.

When I am focused on debt, I like to make a chart that shows my progress month to month. If financial security is your goal, you should always start by making a measurable and attainable goal. I believe in working on your financial goals a little at a time. So, start by creating a plan.

I offer budget evaluation services for as little as $50. Contact me today to discuss your options.

Bookkeeping, expenses, income, taxes, Tips

Business Tax Organizer-Get Taxes Prepared

Do you have a business and need to claim the income and expenses on your return? I will file a Schedule C for you. If you already have a system of tracking your income, get me a copy of that. But, if you just keep your receipts, please fill out this form and the filing of the Schedule C will go quicker which will save you money on preparation.

The PDF Version is found at:

business-tax-organizer

The Excel Version is found at:

business-tax-organizer

 

income, taxes, Tips, Uncategorized

3 Ways to Make Tax Time Easier

Everybody talks about taxes for two or three months every year. And, it’s usually negative. Accountants talk about taxes all year long. Working on your taxes a little at a time throughout the year will help you organize at the end of the year. I’m going to give you some tips to make your taxes a little easier for next year.

Track Income

I will talk about this in another post. But, start thinking about income. If you write a blog, sometimes you receive gifts and merchandise instead of payments. The IRS classifies these items as income. So, if you try to go back through your records for the whole year, it can be difficult to track income. Instead if you spend a little time each month or even as soon as you receive things, you will spend less time sorting through your records.

Track Expenses

Many small businesses use their personal checking accounts to pay for all expenses. Then, at the end of the year, you need to go through your checking account and pull out the items that include business expenses. If you use the same account for personal and business expenses, even if you use an accountant, they will expect you to send them a list of the business only expenses. Additionally, the IRS can require receipts in an audit. So, each month you should start organizing the receipts in a system that works for you. You can organize them by month, alphabetically or keep all similar items together.  Waiting until the end of the year could make it so receipts are lost, not organized or difficult to read.

Track Other Items

Here are some other items to track throughout the year. Mileage tracking and business use of home should also be tracked through the year.

First of all, it is easy to see why tracking mileage throughout the year is much easier. Some people that go to the same places regularly can easily write down the location and date. Then at the end of the year, you can look up the mileage for those places and then add up the mileage. If you go different places all of the time, you should track mileage every time you use your car for business purposes. Depending on how many miles you travel, you might want to add up your mileage each month.

If you use a portion of your home for business, you need to track your utilities and rent or mortgage interest. These are items that aren’t had to find at the end of the year but it is still easier to track throughout the year.

Tracking these items throughout the year will help make your life a little easier at tax time. So, decide now to spend a little time once a week, month or quarter in order to keep all of your tax items organized.

 

 

 

 

Tips

Personal and Business Expenses

When you own a business, expenses can quickly add up. Businesses should try to keep personal and business expenses separate. Sometimes, that proves difficult for small businesses. So, if you do keep expenses together, keep all business receipts. Then, make a notation or category for business expenses so you can easily find those at tax time. 

“Business expenses are the costs of carrying on a trade or business, and they are usually deductible if the business is operated for a profit.” IRS Pub 535

Expenses should be ordinary and necessary. Ordinary means common and acceptable in your industry. The expense should also be appropriate and helpful. It is easy to find examples of expenses that the taxpayer disagreed with the IRS as to ordinary and necessary. 

For example, the IRS closely watches cell phone usage. You can only claim the business portion of expenses. So, you must calculate the portion of business usage because you likely use it for both.

“Generally, you cannot deduct personal, living, or family expenses.” IRS Pub 535

You should be careful to save receipts from large retailers, i.e. Costco, Amazon. In an audit the IRS will generally want proof that these expenses are for business purposes. 

Some additional expenses that can be tricky include:

  • Business Use of Home. If you use part of your home for business, you may be able to deduct expenses. The area of your home must be used regularly and exclusively for business. Calculate the percentage of your home used for business and then you can deduct this portion of mortgage interest, insurance, utilities, repairs, and depreciation. 
  • Business use of your car. If you use your car for both personal and business purposes, you must divide expenses based on actual mileage. Look at my post on this subject for more information.
  • Interest. If you borrow money and use part of the money for personal and part for business, figure out a percentage for each and only deduct the business portion of the interest you paid.

Always be careful when claiming expenses that they are for business purposes. In the weeks to come, I will add more information to help you complete most of your own accounting.