Wednesday, October 14, 2009

More Money Less Angst: Don't Max Out Your 401(k)

Latest information from Bridget Sullivan Mermel - one of our favorite financial planners. Get on her mailing list if you can. You won't regret it!

If you were to get on the Internet and poll the financial gurus, the message you would get load and clear is: Save Money. No matter how much you've saved, you will be woefully short when you get to retirement.

The first suggestion of these pundits? Put money in your 401(k). (I will use "401(k) as a surrogate for all retirement savings plans: 401(k), 403(b), SEP, SIMPLE etc.) I'm not against 401(k)s. Actually, I'm a big fan. However, I think the advice is wrong.

Here's my message: Save 10% of your income. Put your money in a savings account. This will become your emergency fund. Accumulate 10% of your annual income in your emergency fund if you've got a regular job. 20% if you worry you're on the brink of losing your job or are self-employed.

For the first 6 months or so, this amount might seem measly and the whole project might seem like it's not worth it. You can supplement your saving by putting in money from any cash gifts, tax refunds, or other windfalls. Don't put 100% of the unexpected money in your saving. Put 33% to your savings, 33% toward your credit cards or other debt, and 33% go out and spend. If you don't have any debt, the proportion is 50/50.

Once you're got a fully funded emergency fund, start saving in your 401(k). But even then, don't max out your 401(k). Find out what your company match is. (Your company match is how much your company puts into your 401(k) for every dollar you do.) Instead of putting the 10% of your saving into your emergency fund, contribute to your 401(k) up to the company match. If your company doesn't have a match, start putting 3% into your 401(k). With the other 7% of the earnings you are setting aside, start saving for a house.

Don't max out your 401(k) until:

  • You have an emergency fund
  • You have paid off your credit cards
  • You have bought a house or condo (or know that you either have enough saved for a down payment, or that you will never buy a house.)
That means that if you are maxing out your 401(k) now and don't have an emergency fund, stop maxing out your 401(k). Does this sound like heresy? I'll say it again. STOP.

I recommend this because the number one thing you can do lower your financial angst is to have an adequate emergency fund. Grow up and stop living paycheck to paycheck. Adding to your 401(k) won't lessen your current angst, establishing an emergency fund will.

What if you try this and, after a year, you haven't accumulated any savings? In other words, what if you're incapable of leaving the money alone? Cut up your credit cards. Start paying for everything with cash. A colleague of mine, Ken Robinson, has a terrific book that just came out about how to start saving. It's called Don't Make a Budget. If you can't figure out how to save, or if you try and you just can't do it, get his book.

Sometimes people object to this advice. But Bridget, they say, money in a savings account isn't doing anything. It's just sitting there.

I tell them, instead of thinking your money is just sitting there, think it's meditating. Your money is meditating so you can relax.

Besides, these days, with the Internet, there are high-interest savings accounts. I like INGDirect, and a lot of advisors I know recommend Emigrant Direct.

These are online savings accounts that make it easy to transfer money from your checking account, are insured up to $250,000 per account by the FDIC, and offer a higher interest rate as part of their marketing strategy. The two banks I mentioned have offered high rates for more than 5 years, so I don't believe their interest rates are one-time teasers.

What's the difference? ING Direct is paying 1.3 percent now. I saw a recent Fidelity statement showing a money account earning .07 percent. Chase currently pays .01 percent for the standard savings account. That means that if you have $10,000 in your savings account, you'd make $130 a year at ING Direct, $7 at Fidelity, and $1 at Chase. At Chase, you could argue your money wouldn't be doing much.

But one thing you know for sure is that it won't be going down. There's some charm in that. People who have lost money in the stock market plunge can see a lot of charm in that.

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New on Bridget's website: www.sullivanmermel.com
The latest Financial Focus including the following articles:

A Lost Decade?
Read Any Good Ones Lately?
Holidays and Gifts
Saving Our Economy the Old-Fashioned Way

Any Good Ones Lately, by Linda Leitz, is a review of personal finance books. This article struck me; I've read all of the books on her list and agree 100% with her assessments.

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Shameless self-promotion
I've been invited to contribute articles to the FI Guide, which is a blog of fee-only financial planners. My recent article "Is Now the Time to Get Into Real Estate?" is their number one viewed article. Check it out!

This information was provided by: Sullivan Mermel, Inc., 3744 N. Southport Ave., Chicago, IL 60613

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posted by The Office Grapevine at 12:23 PM 0 comments

Thursday, March 12, 2009

Big costs to your firm hidden in the stimulus in two expensive acronyms: SBP v. ABP

More valuable information from AIPB (American Institute of Professional Bookkeepers).

It was unintended, but in helping unemployeds, the stimulus ended up adding new payroll costs. Here's one buried cost:

Currently, most states use a standard base period (SBP) to determine eligibility for unemployment benefits. Under the new law, one-third of the federal incentive funding (available through federal fiscal year-end 2011) for state benefits is available to states that use - or agree to use - the alternate base period (ABP). The remaining two-thirds of the incentive goest to states that have or will have at least 2 of 4 other provisions.

The current system: SBP. The SBP is the first 4 of the last 5 completed calendar quarters (in Massachusetts, the last 4 completed calendar quarters). Every state requires that an employee earn a certain amount in wages over a certain period, generally, 1 year (4 calendar quarters), to qualify for unemployment payments.

Case Example: Your former employee Joe files a claim for unemployment benefits in February 2009 (1st q. 2009). Your state's SBP runs from 4th q. of 2007 through the 3rd q. of 2008. Thus, 4th q. 2008 (the "lag" quarter) and 1st q. 2009 are not used in the eligibility calculation.

The new system: ABP. There are incentives for states to use ABP, under which the last 4 completed calendar quarters determine eligibility for benefits. The base period for an employee terminating in February 2009 is the 4 quarters of 2008. But when the last 4 completed calendar quarters determine eligibility, claimants' most recent paid work history is included, substantially increasing the likelihood of qualifying for benefits and receiving higher payment amounts.

Bottom line: If - more likely, when - your state adopts the ABP, your company's SUI account will be charged for more unemployment payments and your SUI rate could rise in response to more charges to your account.

The administrative burden: When your state adopts the ABP, it will need your last calendar quarter wage reports much sooner to determine claimants' eligibility. For example, say that you now file 4th q. unemployment wage reports by Jan. 31. If your state adopts the ABP, it will need this data immediately. Thus, instead of using your filings to evaluate claimant eligibility, it may start asking you for data on former employees before you file. This can be time consuming.

Alternative: States adopting the ABP can accelerate due dates for wage reports and/or mandate electronic reporting - e.g., a state might require quarterly wage detail by the 15th of the month following the quarter - or set lower thresholds, such as only 25 employees - before you must report electronically. Faster wage report filing puts time pressure on employers, particularly multi-state employers.

Be certain to discuss your obligations with either your accountant or payroll company.

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posted by The Office Grapevine at 12:09 AM 0 comments

Wednesday, March 11, 2009

Hidden stimulus traps — how federal COBRA subsidies can choke company cash flow

This is something I received recently from AIPB (American Institute of Professional Bookkeepers).

The new law includes a 65% federally funded COBRA continuation subsidy that lasts up to 9 months for workers (and their families) involuntarily terminated from Sept. 1, 2008 - Dec. 31, 2009. The subsidy terminates when the former employee is offered employer-sponsored health care coverage by a new employer, or becomes eligible for Medicare; or has COBRA coverage that has expired.

Notify within 60 days of Feb. 17 former employees involuntarily separated between Sept. 1, 2008 - Feb. 17, 2009. Notify those who elected COBRA that they are entitled to a lower premium starting in the first coverage period after Feb. 17. Notify those who rejected COBRA that they have have 60 days to elect COBRA and receive the subsidy. You can let former employees choose a less expensive plan. No subsidy is available to former employees whos income is over $125,000 a year or a family income over $250,000 a year, but employers are not required to monitor for the income phaseout.

The impact on small businesses: Because the new law allows employers to collect from qualified COBRA participants only 35% of the premium cost (instead of the current 102%), employers must recover the federally funded 65% by reducing their federal employment tax deposit. Result: Monthly and quarterly depositors must advance 65% of the premium cost for each COBRA enrollee for as long as it takes to offset in their tax deposits the amount due them. Problem: When the subsidies add up to more than your company's tax deposit, your company must request reimbursement from the U.S. Treasury. At this point, there is no way to know how long you will have to wait for reimbursement.

Administrative burdens: Subsidized health care premiums may be due as soon as Mar. 1, leaving you little time to compute the lower premiums and issue the required notices.

Contact your health insurer (and payroll service, if applicable) to assure the fastest possible COBRA subsidy refund. Any delay may cause you bigger cash flow problems.

The first period for reporting COBRA subsidy refund requests is 1st q. 2009, with your 941. For timely filing, make sure you are familiar with changes in Form 941 and related guidance.

Be ready for the IRS to require reports of annual COBRA participant subsides. Because of the subsidy's income phaseout, the IRS may also ask you to file an annual 1099 or W-2, Box 12 data to report total premium subsidies for COBRA participants receiving the subsidies.

Be sure to review with your accountant how this and other tax changes impact your business.

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posted by The Office Grapevine at 11:43 PM 0 comments

Thursday, February 12, 2009

Ways to Twitter - I have 11, Can You Add to My List?

Because I work as a virtual assistant within real estate and bookkeeping, primarily with small businesses, I am being asked a lot about Twitter, Facebook, LinkedIn, etc. How should I use these platforms? Should I use them? What do you suggest?

Below are some ideas that I share with all my clients because the reality is that if you don't use these platforms on a consistent basis then you won't get anything out of them either. Like anything else in your business, consistency and clarity of information is necessary as well as a plan.

11 Ways To Twitter

1) What you're working on right now

2) Links to interesting websites or articles you've found

3) Announce a new product or service you're preparing to launch

4) Links to cool tools or services you've found helpful

5) Thanking people that have recently inspired you or helped you with something

6) Questions about something you want to know about, like an issue you're having with something

7) Send out a poll or link to a survey. The answers can be the subject of your next blog post or video

8) Mention how cool it is to be working on "x". This highlights the type of work you do, and people looking for this type of help will be able to find you

9) Announce to your tweeps that something great just happened to you.
--you just received an award or nomination
--you been asked to speak at a big seminar
--you just landed a huge client
--you just finished completing a certification course
--you been contacted to do an interview about your business

10) Schedule a series of tips as individual tweets

11) If you're at an event, tweet about the experience as it's happening

So what other suggestions do you have for your Tweeting practices? I'd love to learn more.

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posted by The Office Grapevine at 7:18 AM 0 comments

Wednesday, December 03, 2008

December 2008 Accounting Tip - Payroll Accruals

I just got this from one of my many newsletters and wanted to pass it along to those of you who do your own bookkeeping. It comes to us from AIPB (American Institute of Professional Bookkeepers).

The last day of 2008 is Wednesday, December 31. The first day of 2009 is Thursday, January 1. If your company is on the accrual basis, GAAP requires accruing an expense in the year it is incurred.

Thus if you pay employees for the last week in December on Friday, January 2, you must book Monday-Wednesday (Dec 29-31) as 2008 wage or salary expense and Thursday-Friday (Jan 1-2) as 2009 wage or salary expense.

Example:
Your company's workweek is Monday-Friday, your payroll is $25,000, and you distribute your payroll on Fridays. How do you book your payroll for the last week of December 2008?

On Wednesday, Dec. 31, 2008, record the journal entry to accrue wage expense for Monday-Wednesday (Dec 29-31, 2008). This expense will be 3/5, or 60%, of that workweek.

To compute this amount:
$25,000 weekly payroll x 60% = $15,000 accrued payroll expense for 2008.

For the journal entry, contact me and I'll send you the journal entry.

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posted by The Office Grapevine at 7:27 AM 0 comments

Wednesday, February 21, 2007

Small Business Bookkeeping and the IRS

Whether you are a sole proprietor or a Limited Liability Company you are required to report all income and pay taxes on that income.

Your saving grace is your bookkeeping. Why you say?

Each of the above is asked to attach a Schedule C to their personal income taxes in order to show profit or loss from operating a business. This form believe it or not can help you become organized in your company records and help make important purchasing decisions.

Tell me, Cathy, how? On the Schedule C you are required to post all of your gross income, which if that is all you had done all year is collect fees and not had one expense or cost of goods sold you would have to pay taxes on all of that.

But here is the saving grace. Business expenses incurred that are deductible lowers the amount of tax due. Thank goodness huh?

For instance we'll take line 8 on the Schedule C which is advertising. Hmmmmm advertising? What all does that cover? What is deductible? Is placing a banner on a friend's website going to reduce my taxes? Well yes a banner is deductible! In addition if you pay someone to design, update, write and host a web site for your business, these costs are also deductible as advertising. Paying someone to proof read an advertisement is also deductible on line 8 therefore decreasing your tax due.

But did you know that postage for shipping out your flyers, post cards, and other advertisements are not added to line 8 advertising but is reported on line 48 other expenses.

Yep there other instances of advertising deductions you may not have thought of. That is why it is so important to maintain your company's books correctly or to have a good bookkeeper keep those transactions straight for you.

During tax season is not a good time to discover that you owe more tax than your business can afford to pay. At the beginning of the year as it is now is the perfect time to set your books up properly or look for that bookkeeper that can offer you assistance in an area that might not be familiar to you and show you the deductions you could be missing in order to lower your taxes.

The IRS will be looking more closely at small businesses than usual as stated here: http://www.contracostatimes.com/mld/cctimes/business/16265628.htm

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posted by The Office Grapevine at 1:09 AM 0 comments

QuickBooks and Windows Vista

Have you been enjoying the latest and greatest MAC vs. PC commercials? Here's details about QuickBooks and Windows Vista direct from QuickBooks.

Since QuickBooks 2006 and earlier versions were developedand released before the introduction of Windows Vista,these versions may be adversely affected when used ona computer running Windows Vista. This will impact Simple Start, Basic, Pro, Premier, Payroll and Point of Sale, as well as other QuickBooks products and services. We recognize that your QuickBooks software is an important business tool and apologize for any inconvenience this may cause you. If you choose to upgrade to Windows Vista, We recommend that you use QuickBooks 2007 (and Point of Sale v6.0, if applicable). QuickBooks 2007 is the only version of the software built to run on the new Windows Vista operating system

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posted by The Office Grapevine at 1:06 AM 0 comments