Category Archives: Finance

Get Paid Sooner

One of the nice things about being a contractor to big business or government agencies is that you can assume that you will get paid and the check won’t bounce as long as you perform the work according to contract specifications.

What you can’t be so sure of is when you’ll get paid. Red tape and minor glitches can cause delays of six months or more between the time an invoice is supposed to get paid and when the check actually arrives.

Although there are some delays you have no control over, others can be prevented. Take these steps to minimize the chance for error so you get paid sooner:

 

  1. Make sure your bill includes necessary details, such as the purchase order or contract number, the name of the project, your company name, your employer ID (or social security number), your address and telephone number, a detailed list of products of services delivered (and the item numbers if appropriate), and the invoice price. Double check the purchase order to be sure that each item on your invoice matches what was specified.
  2. Get your contact to sign off that you have delivered the work as specified.Include that note with your billing. It’s also a good idea to include a copy of the purchase order with your invoice.
  3. Make any discount for early payment (say a 2 percent discount for payment in 10 days) prominently visible on your invoice. Big businesses may act sooner on such invoices to keep costs down.
  4. Submit the invoice exactly as your contract specifies. If the contract says to submit the bill to account payables, don’t send it to your contact. It might sit for weeks on his desk before he forwards it to the right department.
  5. Be sure your customers have a current W9 for your company. If you’re working with a business for the first time, ask them if their accounting department will need a W9 – or just send it automatically with your first invoice.

 

  1. Be willing to accept payment using whatever system your client prefers. For big corporations, that may mean you have to sign up on a platform like Paymode-x.
  2. If you are billilng a federal agency for work, be sure you know and exactly follow their instructions for submitting invoices. These instructions can be very specific and detailed (see the EPA’s instructions for submitting invoices, for example.) If you don’t follow the instructions exactly your invoice may be rejected.
  3. Be willing to accept direct ACH payments from larger customers. Yes, you’ll  have to provide the customer with your banking information, but you should be able to set things up with your bank so they can only transfer money in, not out. You could also set up a separate business account just for receiving ACH transfers, and then move the money out as soon as it’s received. That would keep your main operating account unaccessible to companies transferring money to you.
  4. Be willing to accept credit card payments and PayPal payments from your customers. Any processing fee you’ll need to pay may cut into your profits slightly, but chances are you’ll get paid sooner than if your customer has to send a check.  Some customers may not purchase from you at all if you only accept cash and checks.

Some Questions You’ve Wanted to Ask About Investing

As the saying goes, there’s no such thing as a dumb question—and that’s especially true when it comes to investing.

After all, putting your hard-earned dollars into an investment account isn’t the same as simply stashing it away in a checking or savings account.

You’ve got decisions to think about: What will I invest in? How do I manage my investments? What do I do if the financial news gives me the jitters?

Well, we’re glad you asked because a good way to learn about your finances is to fearlessly ask all of the things that make you scratch your head when you’re just learning to build a portfolio.

That’s why we’ve compiled ten of the most common questions we’ve heard about beginning investing, and then asked a few financial professionals to weigh in with some answers to help you boost your investing smarts.

1. Investing seems complicated. How do I get started?

The first step is to determine what you want to achieve with your investing, whether it’s in the short-term or long-term, says Hans-Christian Winkler, a CFP® with Seattle-based independent advisory firm ClaraPHI. Are you primarily saving for retirement, which means you may not access that money for decades? Or is there some other major goal, like an expensive dream trip, that you’d like to take in a few years?

Next, you should think about how hands-on you want to be with your investing, says David Blaylock, CFP® with LearnVest Planning Services. “And there’s no wrong answer to this,” he adds. “Ask yourself, ‘Do I want to get into the nitty-gritty, evaluating multiple investments, and agree to do that regularly? Or would I rather set it and forget it?’ ”

If you’re saving for retirement, for instance, you may choose to invest in a target-date fund, a type of mutual fund that automatically adjusts your investment mix based on your age and how soon you’d like to retire. If you want to be more hands-on, then you’d probably have to do more research on the types of investments that make sense for your timeline and risk tolerance, and consider rebalancing your portfolio as time goes by.

One thing you should keep in mind, however, says Blaylock, is that money in an investment account is typically better earmarked for a goal that’s at least five years away because you’re probably subjecting your money to some level of risk. Any shorter time frame than that, he adds, “and I would consider steering back toward safer investments, like a CD, savings account or bonds.”

Wealth Transfer Could Be Costly Blunder for Beneficiaries

Anyone who just inherited a deceased parent’s IRA or 401(k) could be about to commit a costly blunder.

You can take the money from that retirement account in one big lump sum, no matter how young you are, but that will trigger a tax bill – probably a hefty one.

“It’s tempting to take the lump sum, especially if it represents a huge windfall of cash for you,” says wealth management advisor Rebecca Walser of Walser Wealth (www.walserwealth.com). “But you should be aware it’s also a windfall for the IRS.”

Walser, a successful tax attorney and certified financial planner who specializes in working with high net worth clients, says this issue will become an even more common one in the coming years as the aging Baby Boomers die off, transferring their wealth to their Generation X and Millennial offspring.

Some have called it the greatest wealth transfer in history, as over the next few decades the Boomers are expected to leave about $30 trillion in assets to their children and grandchildren.

Part of that money is in tax-deferred retirement plans such as a traditional IRA or an employee-sponsored 401(k) that Baby Boomers have been contributing to for decades.

They didn’t have to pay taxes on the money they contributed to those plans until they started withdrawing the money in retirement. But just to ensure those taxes aren’t deferred forever, the government requires a minimum withdrawal each year once the account holder reaches age 70½.

The IRS also isn’t picky about who does the paying, Walser says. It’s fine with collecting the taxes from heirs if the retiree dies before spending all the money.

A spouse who inherits such an account falls under different rules, but Walser has advice for anyone else who finds themselves in this situation:
  • Consider a tax strategy. If you inherit an IRA, think about your need for these gifted funds. If there is no need for the funds for at least five years, consider repositioning them into a tax-advantaged vehicle over the next five years and save yourself thousands of dollars in taxes over your lifetime. “We always prepare an RMD analysis and find that paying the tax man over the next five years, while we still have the second lowest tax base in U.S. history, is much more appealing than deferring the tax and then being trapped into paying them in a rising tax rate climate,” Walser says. Taxes must inevitably go up in the future, she says, because of our current federal debt of $20 Trillion combined with the concurrent retirement of the Boomers in mass.
  • Understand what kind of account you inherited. The rules for a Roth IRA are different from the rules for a traditional IRA. Taxes were already paid on the money that was contributed to a Roth. If the Roth was funded more than five years before the person died, you won’t need to pay taxes when you take distributions.
  • Don’t rush into a bad decision. You will face deadlines for when you have to make decisions (the IRS won’t remain patient forever), but there’s no need to be hasty and do something you’ll regret later, Walser says. If you don’t have a financial advisor, she says, it would be wise to find one who can help you figure out what the best tax strategy will be for your situation.

“Maybe you really do need the money, so taking the lump sum makes sense,” Walser says. “But I think most people who do that are going to regret it later, especially if they just blow all the money right away and don’t have anything to show for their inheritance.”

Some Things You’re Embarrassed to Ask About Saving

Saving, in theory, seems simple: You put some money away and keep your hands off it for a while. But when you have so many other competing real-world demands on your money—from student loans to a desperately needed car repair, exactly how you apply the principles of saving gets more complicated.

We’ve put together a list of some of the most common savings-related questions you’ll need to understand to start saving responsibly.

1. What should I be saving for?

Separate your savings into three main categories: emergency fund, retirement, and goals.

  • Your emergency fund will help you handle unexpected situations, like a hospital bill or a pink slip, without going into debt. To figure out how big your financial safety net should be, multiply your monthly take-home pay by six; if you save that amount, you’ll be able to cover your expenses for six months.
  • Retirement can seem far away, but you’ll probably need enough money saved up to pay yourself somewhere between 70% to 90% of your current annual income for each year that you’re retired. Calculate how much you’ll need for retirement with the ING Retirement Needs Calculator, but don’t be intimidated by the number. Investing your money should help it grow over time—and the earlier you start saving, the better, because time is one of the most crucial ingredients to building up retirement savings. (See how time can increase your nest egg here. And read more about retirement here.)
  • Your short-term savings goals are up to you. Saving isn’t about stockpiling cash—it’s about making sure that you’re spending in a way that reflects the things you really value. It’s the difference between an armful of flea market finds you’ll love for two weeks, and finally buying your dream home. Create savings accounts for tangible goals like travel or home renovation, and put money toward them each month.

2. How much of my paycheck should I be saving every month?

Use the 50/20/30 rule for designing your monthly budget. Your living expenses, like housing, food and transportation, shouldn’t exceed half of your income—that’s the 50%.

The next 20% should go toward your money priorities, like paying back debt and building up savings. How you break it down is up to you and your financial situation. Are you desperate to get rid of credit card debt? Or are you debt-free but lacking an emergency fund? Either way, you should allocate at least a fifth of your paycheck to financial obligations.

RELATED: How Much of My Paycheck Should I Save Each Month?

Then, consider that last 30% discretionary spending—that is, fun stuff, like going out with your friends. (Learn more about how to set up a budget here.)

3. But how can I save when I can barely afford rent?

Between your sky-high rent or mortgage payment and your student loan payments, it may feel like you can’t spare a cent for your savings account. A solution could be in your spending habits.

Take a closer look at your monthly expenses, which you can easily see at a glance using the My Money Center. Look for ways to spend leaner, whether it’s by downsizing your apartment or house or cutting down on restaurant dining. Planning your purchases and spending more mindfully will help you free up funds for your savings. Take our Cut Your Costs Bootcamp for ideas on how to trim expenses in every area of your life. If that still doesn’t free up enough money, look for ways to increase your income, by picking up freelance gigs or working toward a raise. Make saving a priority and you can find—or create—a place for it in your monthly budget.

4. I’m still working on a car loan and student loans. How should I balance saving and paying off debt?

You might feel tempted to cash out your savings to get out of debt. After all, it can be frustrating to hold onto a few hundred bucks a month when you could be shoveling it toward your high-interest payments. How you choose to allocate your funds between savings and debt payments is up to you, but it’s important to do both at the same time, even if that means you start small with the savings. That way, if you encounter an unexpected expense, you’ll have money in the bank to protect you from sliding back into debt.

5. What should I do first: build up an emergency fund or start contributing to retirement?

Your emergency fund and your retirement savings are equally important to your financial security. Your emergency fund will protect you if something unexpected comes up in the immediate future, so start building it as soon as you can. Even if retirement seems far away, it’s also important to begin saving now, because the sooner you start, the easier it will be to amass the amount of money you need.

Start saving for these two major goals now, and increase your savings rate as you’re able. Then, once you’ve built up an emergency fund, you can start contributing even more to guaranteeing your stress-free, hobby-filled retirement in the Caribbean.

6. Why can’t I keep my savings in my checking account with my other money?

It might seem easier to just keep all your cash in your checking account, where you can use it as you need to. But besides missing out on potentially higher interest rates, you’ll be making it harder to maintain and protect your savings.

Your checking is where you hold money that you intend to use in the next month or so. Keep savings elsewhere so it is protected from everyday temptations. LearnVest also recommends you go with an online savings account that allows you to create separate sub-accounts for each of your savings goals, including your emergency fund. That will help you keep track of how much money you have for each goal and prevent you from fuzzy mental accounting that allocates one sum of money for two purposes. Sub-accounts will keep you from having to loot your emergency fund to pay for your vacation.

7. What does APY mean? Is it the same as an interest rate?

An APY, or annual percentage yield, tells you how much you’ll earn from your savings account in a year. Your account’s APY takes your interest rate and factors in compounding over time, so it’ll be higher than the interest rate itself.

Here’s how compounding works. If your bank offers an interest rate of 10%, compounded annually, and you have $5,000 in your account, you can expect it to grow to $5,500 in one year. If interest is compounded semiannually, though, you’ll have $5,250 halfway through the year. For the next half of the year, interest will be calculated on that higher balance, which will leave you with $5,512.50 at the end of the year–about $12 more. So your APY, with 10% interest compounded twice a year, is 10.25%. But at today’s ultra-low rates, where 10% is a dream, they look pretty similar.

8. What are all the different types of savings accounts, and how are they different?

When it comes to stashing your savings, a piggybank won’t cut it. Your bank or credit union offers three options when it comes to savings accounts.

  • A traditional savings account is just an account that lets you regularly deposit money. You’ll typically earn more interest than you would in a checking account, but it’s not a whole lot.
  • CDs, or certificates of deposit, promise greater returns, but there’s a catch—by putting your money in a CD, you’re pledging to lock it away for a set term. Terms can vary from three months to five years, with interest rates rising the longer you commit. Withdrawing funds before your CD matures can result in a penalty.
  • Money market accounts offer a compromise: high interest rates and greater flexibility. But they often require a high minimum balance and limit your withdrawals.

9. When is it okay to use my emergency fund?

It’s called an emergency fund for a reason, but an emergency can mean a lot of things. Do you use it when you need a new computer or when your best college friends suddenly decide to take a trip to Mexico next month?

Unfortunately, not the latter. Your financial safety net is for real crises: situations where your health, living situation, or financial security is at risk. For instance, if you lose your job or your car (which you need for work) breaks down, you’ll need to rely on these funds. Don’t even think of dipping into it for some quick cash or an “emergency” massage. But keep in mind that emergencies differ from person to person: A broken computer could be a legitimate financial emergency for a freelancer who doesn’t have a work computer, but a non-emergency for someone who only uses their home computer to watch YouTube videos. No matter what you use it for, remember to replace any money you’ve taken out of your emergency fund as soon as you can.

10. Is it possible to have too much money in my savings account?

If you’re comfortable with your emergency fund, and you’ve already met all your other savings goals, you might be wondering what to do with that extra dough.

By leaving it in your savings account, you’re missing out on opportunities to make your money grow. What’s worse, in a typical savings account, your money could even be losing value because of inflation, which raises average prices over time. Keep just as much as you need for emergencies and goals in your savings accounts, but put the extra dollars to work in investments.

Know More About The Biology Behind Our Investing Decisions

You may not go around grunting in a loincloth, but when it comes to managing your money, your behavior may not be much more advanced than a caveman’s.

At least that’s the implication of new research, which suggests that humans have evolved to be more tolerant of risk at certain times of the year. Specifically, we tend to be relatively risk averse during the fall and winter and more risk tolerant in the spring and summer.

In the study, researchers observed that people are more likely to invest in money market and government bond mutual funds in the fall and equity funds in the spring. (Money market and bond funds are typically considered safer because they provide regular monthly returns, while equity funds invest in public stocks and have more long-term growth potential.)

That means the market is much more volatile during the spring and summer, which is why investors are often advised to “sell in May and go away”—or get rid of their stock holdings and avoid the market until it calms down around October.

So what’s the caveman connection? Writing on PsychologyToday.com, study co-author Lisa Kramer explains that variations in investing behavior are actually based on our ancestors’ survival strategy. Millions of years ago, it made sense for people to stock up on resources like food during the warmer months so they’d have something to eat during the cold seasons. Those who neglected to save up in the spring and summer were unlikely to make it through the winter.

The choice to sell your stock holdings may not be a life-or-death situation like foraging for food, but this research still has some important takeaways for modern-day investors. For one, it’s a good idea to simply be aware of how your preference for risk (and, consequently, your investing habits) varies throughout the year.

Some Financial Terms Everyone Should Know

Do you know your AGI from your ARM from your PMI? Or does the mere mention of those acronyms make you go, “Huh?”

If you don’t speak personal finance, don’t worry—we’re here to help.

We know that managing your money can sometimes make you feel like you’re learning a foreign language. So we compiled a handy glossary of must-know money terms that affect all aspects of your financial life.

Whether you’re confused about amortization or not sure what escrow, exactly, is good for, this primer will help you get up to financial speed.

Handy Banking and Credit Terms

1. Compound interest When you’re investing or saving, this is the interest that you earn on the amount you deposit, plus any interest you’ve accumulated over time. When you’re borrowing, it’s the interest that is charged on the original amount you are loaned, as well as the interest charges that are added to your outstanding balance over time.

Think of it as “interest on interest.” It will make your savings or debt grow at a faster rate than simple interest, which is calculated on the principal amount alone.

2. FICO score A number used by banks and other financial institutions to measure a borrower’s credit worthiness. FICO is an acronym for the Fair Isaac Corporation, a company that came up with the methodology for calculating a credit score based on several factors, including payment history, length of credit history and total amount owed.

FICO scores range from 300 to 850, and the higher the score, the better the terms you may receive on your next loan or credit card. People with scores below 620 may have a harder time securing credit at a favorable interest rate.

3. Net worth The difference between your assets and liabilities. You can calculate yours by adding up all of the money or investments you have, including the current market value of your home and car, as well as the balances in any checking, savings, retirement or other investment accounts. Then subtract all of your debt, including your mortgage balance, credit card balances and any other loans or obligations. The resulting net worth number helps you take the pulse on your overall financial health.

RELATED: Net Worth: Why You Need to Know It—and Grow It

Handy Investing Terms

4. Asset allocation The process by which you choose what proportion of your portfolio you’d like to dedicate to various asset classes, based on your goals, personal risk tolerance and time horizon. Stocks, bonds, and cash or cash equivalents (like certificates of deposit) make up the three major types of asset classes, and each of these reacts differently to market cycles and economic conditions.

Stocks, for instance, have the potential to provide strong growth over time, but may also be more volatile. Bonds tend to have slower growth, but are generally perceived to have less risk. A common investment strategy is to diversify your portfolio across multiple asset classes in order to spread out risk while taking advantage of growth.

5. Bonds Commonly referred to as fixed-income securities, bonds are essentially debt investments. When you buy a bond, you lend money to an entity, typically the government or a corporation, for a specified period of time at a fixed interest rate (also called a coupon). You then receive periodic interest payments over time, and get back the loaned amount at the bond’s maturity date.

6. Capital gains The increase in the value of an asset or investment—like a stock or real estate—above its original purchase price. The gain, however, is only on paper until the asset is actually sold. A capital loss, by contrast, is a decrease in the asset’s or investment’s value.

You pay taxes on both short-term capital gains (a year or less) and long-term capital gains (more than a year) when you sell an investment. By contrast, a capital loss could help reduce your taxes.

Know More About College Fund

And yet, when it comes to socking away for future tuition, fewer than half of all parents are making the grade.

A new study by Sallie Mae reveals that just 48% of moms and dads are actively contributing to their kids’ college funds.

This stat is a new low for Sallie Mae’s annual survey, which saw a peak of 62% of parents saving in 2009. By 2013, the percentage of parents socking away for tuition had dipped to just 50%.
What’s more, those college caches are looking leaner than ever.

The average amount saved is now just $10,040, a significant 25% decrease from the $13,408 socked away in 2014—and the lowest amount in five years.

Curiously, despite their lack of sackings, the study found that nine out of 10 parents do believe that building a college fund is an important investment in their child’s future.

So what’s stopping them from socking away?

Not surprisingly, 61% of parents cited lack of resources as the number one reason for their savings shortfall. But almost two-thirds also said they believe their kid will score enough in scholarships to cover college costs.

And even those parents who are saving are making a few key mistakes as well, Sallie Mae found. Most significantly, just 27% are taking advantage of tax-favored 529 plans—nearly half are simply socking away for college in general accounts.

Still, there was some good news on the savings front: the study also found that many parents are working on building better money habits. For example, 41% of moms and dads are now using an auto-deposit service to make the savings process routine. Plus, 31% set aside a certain amount from their paychecks for college—up from 26% in the past year.

Know more About Money Confidence Killer

Overall, financial confidence seems to be finally making a comeback.

After all, whether you’re looking at increased savings among Millennials, fuzzier feelings toward retirement or even soaring credit scores, the news shows some pretty sunny stats.

And numbers from the latest COUNTRY Financial Security Index now only help to back up this sentiment—to a certain extent.

The index, which measures Americans’ overall attitudes toward their money, jumped 2.1 points this year to 66.9—a record high since the Great Recession.

Of the survey participants, half reported that their overall level of financial security was good or excellent. Even better, about four out of five said their finances were on track to stabilize or even become better in the future.

That’s thanks to a number of improving benchmarks: 78% now feel they can pay off their debts as bills come due, 50% are setting aside money for savings, and 58% believe they’re on track for a comfortable retirement.

But there is one area where all that optimism comes to a dead halt: the ability to finance the ballooning costs of college.

In fact, the index found that a mere 18% of Americans feel confident they have enough funds to send their students to college—a stat that actually fell 12% during just the first half of 2015.

And with the average graduate leaving with more than $35,000 in debt, it’s no surprise that only 37% of Millennials feel confident they can pay back those student loans as they come due.

Learn More About Super Saver

It seems like every time the words “Millennials” and “money” appear in the news, they’re connected by a phrase like  … “don’t have any.”

But new research paints a slightly sunnier picture of young adults’ finances, giving us reason to believe that they’re actually more stable than many others.

We know: It sounds implausible. But the eighth annual America Saves Week survey, conducted by the Consumer Federation of America, suggests that Millennials are saving more than almost any other generation.

According to the survey, 56% of people ages 18 to 34 are socking away at least 5% of their income, compared to 52% of the general population. Young adults also showed significant improvement in their savings rates—in 2014, just 50% of them were saving at least 5%.

Millennials are making progress on other financial fronts, too. Nearly two-thirds have an emergency fund to cover unexpected expenses, compared to just 53% last year.

What’s more, the portion of Millennials who have savings plans increased from 43% to 47% since 2014. That’s especially important, given that the survey found those with financial plans are more likely to hit their money goals.

So what’s driving Millennials’ positive financial behavior? While this survey didn’t look specifically at people’s motivation for saving, other research suggests that Millennials learned key lessons from the recent recession, like the idea that it’s important to save now to prevent future financial disaster.

The Reason Millennials Are Nitpicky About Their Portfolios

Catch a glimpse of a Millennial fiddling with his smartphone and you might think he’s updating his social media circles on what he ate for breakfast.

But there’s a good chance he’s absorbed in something a bit more productive—checking up on his portfolio.

According to recent research, young adults are much more vigilant about tending to their investments than older generations: As many as 56% of Millennials polled in a BlackRock survey said they regularly monitor their investments, compared to 46% of Baby Boomers. Millennials spend about seven hours a month on this activity, while Boomers spend just two.

What’s spurring young adults to be so attentive to the market?

The convenience of digital technology is a major factor. Research from E-Trade suggests people under age 35 are one of the most likely demos to use online tools to monitor their investments—meaning they can review their portfolio anytime they like, instead of waiting for quarterly reports to arrive via snail mail.

“Millennials are accustomed to interacting in every aspect of their life with technology,” Tom White, C.E.O. and co-founder of iQuantifi, a virtual financial platform, told MainStreet. “With the abundance of technology tools available to them, it is not surprising that checking their portfolio is a part of their daily routine.”

But the availability of so many new, online tools to manage investments can become overwhelming. Perhaps as a result, as many as two-thirds of Millennials in the BlackRock survey said they’re keeping a large percentage of their portfolios in cash—at least until they figure out the right way to allocate those funds.