Category Archives: Money Management

Should I Hire Employees or Contractors?

Definitely had this question when my small business started to grow--should I hire an employee or a contractor?

Women-owned businesses are growing disproportionately to small businesses in the rest of the economy.

These businesses tend to start out as an entity of one. But when you experience growth, you need to get more hands on deck to handle the workload.

At this point, you’re faced with a question: do I hire employees, or do I contract it out?

Hiring Employees

Hiring employees means establishing loyalty and priority, but those things come at a cost.

Cons

  • You’ll have to pay payroll taxes.
  • In all likelihood, you’ll have to pay for healthcare.
  • To be competitive, you may have to offer a retirement plan.
  • Once you get big enough, you’ll have to hire someone to manage all those people.
  • Unless you have a completely remote staff, you’ll have to rent a bigger space.

Pros

It’s not all bad, though. There are some added benefits of having a staff that’s W-2’d:

  • All those benefits mean people are likely to stick around longer.
  • Less competing priorities.
  • More ability to delegate without renegotiating contracts.
  • Though you may need a manager or have to become one yourself, your team will be far easier to coordinate than a group of freelancers.

Hiring employees? Be sure you follow this 12-step process to keep everything legit.

Contractors

I operate primarily as a contractor. When I’ve needed assistance in my business, I’ve hired contractors rather than full- or part-time employees. While there’s good things about us, there are some undeniable hangups, as well.

Cons

  • Because there are no benefits, contractors don’t have as many scruples hopping from one job to the next. In fact, you probably aren’t your contractor’s only client.
  • Because you aren’t their only client, you may not always be priority #1. While I always try to make each of my clients feel like priority #1 and have been able to maintain some decently long relationships because of it, the fact remains that in order to pay the bills you almost always have to have more than one project going.
  • It’s difficult to coordinate contractors. They’re not all required to be in the same place at the same time for meetings, so communication may get fractured across different aspects of your project.
  • If you add tasks to a contractor’s workload, expect a conversation about contract renegotiations.

Pros

  • Contractors are cheap–even if you pay them more than you would a typical employee. No payroll taxes. No obligation for healthcare. No one’s expecting a 401(k) nonetheless a match.
  • Contractors tend to be extremely self-motivated. While coordinating between different aspects of a project may be difficult, once you sic them on a task they’ll likely require less management than a group of employees.
  • Contractors are much more likely to work remotely, reducing your overhead costs for rented space.
  • If you run into a budgeting problem, you can cut a contractor–or their hours–within the legal scope of your contract. This makes trimming costs easier when things are lean, and because you know they probably have other things going on in the background, you don’t necessarily have to feel like you’re putting them out of house and home (in most cases.)

The Best Way to Retain Workers

Once you’ve found good help,  you want to keep it, whether it’s coming from an employee or a contractor. The best ways to do this are to be fair in your compensation, flexible in your workplace structure and kind even in those teachable moments.

No matter who you hire, we’re all human beings, and the respect that breeds loyalty is a two-way street.

How have you handled new hires as your business grows?

 

Top 4 Reasons You May Need a Travel Credit Card

Huh. I didn't know credit cards were so much more secure for travel.

Using a credit card is a convenient and reliable means of payment if you’d like to travel overseas. You can book hotel rooms, buy tickets, rent a car, and pay in restaurants and stores.

In addition, if you take a credit card on your journeys you do not need to worry about:

  • Declaring cash at customs. There is no need to report the line of credit in your pocket when you travel with a credit card.
  • Safer than carrying cash. If your cash is stolen and you don’t have another form of payment on you, you’ll be stuck with no access to money for the rest of your trip. Cash has no protections, while credit cards do provide liability protections.
  • The safety of your funds. If the card is lost or stolen, it will be frozen when you report it. Liability measures provide much stronger protection for credit cards versus debit cards.

You need to pay attention to the best points credit cards for travelers if you want to select the most appropriate one.

Everything you need to know to get the maximum benefit from using a credit card

When traveling, remember that not all cards are accepted everywhere. Note that some European countries accept only “chip” cards, which provide the highest level of payment security. Make sure you know your accompanying PIN. Many American retailers only require a signature, so you might not be familiar. and that within Europe, some brands aren’t accepted at all. Such cards provide the highest level of payment security.

It’s also wise to carry an additional credit card in case you lose your main card, or in case it the issuer freezes it, mistakenly thinking your travels abroad are an indication of fraud. It’s convenient to carry cards of two payment systems (e.g. MasterCard Gold as the main, Visa Classic as additional). Moreover, Gold and Platinum class cards provide medical insurance for traveling abroad. Be sure to check your card’s policy before disembarking.

To avoid additional costs associated with currency conversion, it would be better for you to open an account in euros or US dollars depending on the region you are going to visit.

How to protect yourself from fraudulent transactions

To protect yourself from fraudulent transactions, take advantage of any SMS service your card issuer may provide. It will allow you to get all the information about the transactions associated with your account in real time.

If you become a victim of fraud, and realize it in real time, call your financial institution right away. If you don’t realize it until you read your statement, call them as soon as you are aware. You should follow up by writing a letter to your financial institution. You will be asked to specify the date of the suspicious transaction, the number in the system of payment as well as the code of the terminal. All this data can be found in your SMS or card statement. The financial institution will in turn consider all of this information, investigate, and determine the way of compensation.

There’s much more to learn about protection from credit card fraud. The FTC goes into greater detail here.

Other useful tips

Before going on a trip, find out whether the use of credit cards is widespread in your destination country. Countries like Finland are paradise for tourists in this regard. Even in a small town you can pay for a purchase using a credit card.

However, in some countries it is much more convenient to pay in cash. For example, it will be difficult to impossible to use a credit card in rural Egypt. In the Czech Republic, cards are accepted in large shopping malls and hotels. However, in small cafes and restaurants it would be better to pay in cash.

 

This article is brought to you and contributed by George Wolfson.

Broke Millennial: Get Your Financial Life Together

Inside: all the personal finance education you needed but didn't get in high school. Broke Millennial.

I was extremely fortunate to have parents that taught me lots of money lessons growing up. I was encouraged to save from a young age. When it came time to buy things like car insurance, they made me shop around so I could find out for myself how much cheaper it would be to just add me onto their policy. I also learned that I never wanted to be in debt, and, conversely, that a credit score was an extremely important tool to be kept pristine.

Unfortunately, I was a young adult when the Recession happened. Even though I knew about investing, the stock market’s plunge scared me out of my wits. My aversion to debt led to a delayed education so I could do it debt free, which may have been a wise decision, but definitely led to a lower income as a young adult.

The things I learned at home, and the things I didn’t, could have easily been addressed in a personal finance class, which didn’t exist back then–at least as far as I was aware. I’m not alone in my lack of a formal education. A lot of millennials struggle with their money as they face their generation’s unique financial challenges.

Enter a book so new that you can’t even get your hands on it until tomorrow: Broke Millennial.

Really Real Financial Education

The book’s author, Erin Lowry, and I had some similar fortunes in our at-home financial education. Though I’d argue her parents addressed the topics of investing and debt with a lot more finesse.

In Broke Millennial, she passes on this education to the masses. She’s spent a good portion of her adult life as a financial writer, which has allowed her to learn even more about the nitty gritty of the financial world, and she shares her insights with humor, slang and pop culture references that keep a Gen Y audience engaged and paying attention.

It is way too easy to talk down to millennials. After the Recession, hoards of young adults returned home when they couldn’t find employment after graduation. The participation trophies we got in soccer when we were six somehow make us fair game for derogatory adjectives like “entitled” and “whiny.”

While those adjectives may be accurate in some cases, Lowry gives a nod to the stereotypes while simultaneously addressing the very real issues this generation faces like crushing student loan debt and retirement savings without Social Security benefits. While it’s void of patronization, there is no whining, either–it’s all about getting the financial knowledge you need to take charge of your situation and get your financial life together.

Not Just for Novices

While this book may be best suited for millennials, or even older members of Gen Z who are headed out into the real world with no background in personal finance, it’s not purely for novices.

In the third chapter, Lowry gives readers the option of either reading the book straight through, picking and choosing chapters as they’re interested, or choosing which chapters to read based on level of experience.

I chose to read the entire thing through, and found myself learning new little tidbits as I went. Some examples of things I didn’t know, despite what is now a pretty decent background in personal finance:

  • When a collection item shows up on your credit report, it doesn’t hold the same weight for the entire time it’s on there.
  • “Opt-out” or auto-enroll 401(k)s may not offer you the full employer match. You may have to “opt in” in order to take full advantage.
  • Mathematical formulas for how much you should have in retirement savings per your age.

Order Early, Get a Freebie

When you pre-order Broke Millennial, you’ll get a free bonus chapter simply by emailing your receipt to info {at} brokemillennial {dot} com. Today is the last day to pre-order, though, as copies hit shelves tomorrow!

 

 

*I was provided with a free copy of this book for review purposes. Regardless, all opinions are 100% honest and my own.*

Alternatives to Payday Loans

Super smart alternative to payday loans!

Ever had a car break down with no other way to get to work?

How about an unexpected medical expense?

Want to fly home to help out in a family emergency, but don’t have the cash on hand for a plane ticket?

In all of these instances, you should turn to your emergency fund. Ideally, you already have one that holds enough money to cover 3-6 months of expenses.

Realistically, though? Only forty-one percent of Americans turn to their savings account in a time of financial emergency. That means that over half of us are using alternative methods to get through rough fiscal periods, and all too often we look at high-interest financing as the solution.

In these situations, one of the better solutions is a personal loan. They can be used for just about any expense you may incur and the interest rates tend to be significantly lower than other financing options. Let’s compare.

Credit Cards vs Personal Loans

If you have a line of credit available to you, it really can be a lifesaver. Charging your emergency is only viable, though, if you can pay it off in full before it accrues any interest.

Many credit cards charge 15.99%-24.99% APR. Currently, PenFed Credit Union offers personal loans for rates as low as 9.99% APR.  That’s a major difference in interest rates.

On top of that, when you take out a personal loan, you’re paying a fixed balance. Every month that you pay your fixed monthly payment, your balance will go down and a set portion of your payment will go towards interest.

Credit cards have no fixed monthly payments. While minimum payments are required, these amounts are dependent on your balance. If you can pay your balance off quickly, you’ll pay less interest than if you only chipped away via minimum payments. But if you could pay it off quickly, you probably wouldn’t be charging an emergency in the first place.

Cash Advances vs Personal Loans

Sometimes you may not be able to charge your next big expense. Let’s say you spent $1,000 on your latest emergency, but now you need to pay rent. It is also $1,000, and because of your own series of unfortunate events, you don’t have the cash on hand to write the landlord a check.

In these situations, there is a common temptation to yet again pull out the credit card—this time for a cash advance. This is even less advantageous than charging your card. Cash advances typically come with associated fees.

They also charge interest. While the rate is usually the same as for traditional purchase, you don’t have the luxury of waiting for your statement to close and become due before interest accrues. On cash advances, interest starts building up the day you make your purchase.

So to review, with a cash advance, you’ll start incurring interest right away, making it more expensive than charging something to your credit card as a purchase. In many situations, you’ll also have to pay cash advance fees, making it even more expensive.

Because the personal loan in our example is cheaper than purchasing on a credit card with minimum payments, it is most certainly cheaper than doing the same with a cash advance.

Payday Loans vs Personal Loans

If it is ever at all humanly possible, stay away from payday loans. Their interest rates are usually significantly higher than personal loans offered by credit unions or banks. Also, the computed interest rate could be triple digits.

For example, you may see rates advertised as a “low 15%”, but what these companies don’t advertise is that the interest is charged weekly. That makes your effective APR 400%.

Four hundred percent.

Exhaust the personal loan option first. Remember in our example that the effective rate on a PenFed personal loan is as low as 9.99% APR, and the payment structure is far more reliable than payday loans, which often balloon even higher with excessive fees that are unfortunately easy to accrue.

Note: If you need to borrow less than $500, you may not qualify for a personal loan. That does not mean you should turn to a payday lender. Check out this alternative.

Build Your Emergency Fund

If you don’t have an emergency fund, you’re obviously not alone. But that doesn’t mean you can’t start to improve your financial situation today.

Even if you live paycheck-to-paycheck, you can start socking small amounts of money away quickly. If 3-6 months’ worth of expenses sounds like too big of a number, set a lower goal. Maybe $500. Maybe $1,000.

Once you’ve reached your goal, by all means keep going. But by setting something achievable from the start, you’re more likely to stick with it.

Fun fact: If you set aside $25 every other week, you will have a $650 emergency fund after twelve months—not bad!

This post is in collaboration with PenFed Credit Union.

To receive any advertised product, you must become a member of PenFed Credit Union

Rate and offers current as of April 21, 2017 and are subject to change. Federally insured by the NCUA.

 

How to Invest in ABLE Accounts

In honor of Autism Acceptance Month, Femme Frugality is running a series of Monday articles focusing on the triumphs and challenges those diagnosed with autism conquer as related to their finances and careers.

Joining us for the third post in our series is Tara Falcone, CFP®. Falcone is a CERTIFIED FINANCIAL PLANNER™, former Wall Street analyst, and founder of ReisUP LLC.

ReisUP is an early-stage financial services company dedicated to increasing investing education and access for everyday investors. Her mission is to empower people to “rise up” and play a more active role in achieving their financial goals. 

Totally sending this to my sister! How to invest in ABLE accounts.

A couple of weeks ago, we kicked off our Autism Acceptance Series by looking into a new financial vehicle: ABLE Accounts.

ABLE accounts allow individuals with disabilities, or their guardians, to stash away some money without having to worry about failing an asset test when they go to apply for state or federal benefits. These accounts can also be used to grow your savings tax free.

There are currently nineteen states that offer ABLE accounts. For simplicity’s sake, we’ll be looking at only Pennsylvania’s investment options today, though the same concepts can be applied in generality.

What are ABLE investment options?

The PA ABLE account has the following seven allocation options:

  • High-yield checking account
  • Conservative Investment Portfolio
  • Moderately Conservative Investment Portfolio
  • Moderate Investment Portfolio
  • Growth Investment Portfolio
  • Moderately Aggressive Investment Portfolio
  • Aggressive Investment Portfolio

“The Conservative and Moderately Conservative options invest 70-90% of their portfolios in cash and bonds, with the rest (10-30%) invested in a variety of stocks,” says Tara Falcone, CFP® of ReisUP LLC.

“The primary goal of these investment options is to preserve your principal, which is the money you deposit into your ABLE account, while offering limited to small returns on your investment. Small potential risk equates to small potential reward.

“The Moderate and Growth options’ portfolios are split roughly 50/50 between bonds and stocks. These investment strategies focus less on principal protection and more on generating a slightly higher return on the invested assets. Moderate potential risk means moderate potential reward.

“Finally, the Moderately Aggressive and Aggressive options are invested primarily in stocks (75-90%) with a small portion of the portfolios invested in bonds (10-25%). These options’ primary goal is to achieve the highest growth possible with little regard for principal preservation.”

Figure Out Why and How to Invest

Before making any investment, it’s important to identify why you’re investing, and what limitations your specific life situation may impose. Falcone advises looking at the following factors before choosing your allocation strategy.

Risk Tolerance

Investments are not stagnant. At times they’ll go up, and at others they’ll go down. Your risk tolerance is how much sleep you’ll lose over that fact.

“Generally, more conservative investment options are less volatile, meaning your account balance fluctuates less,” Falcone explains. “However, that also means it’s unlikely to grow as much since less risk yields less reward.”

“Meanwhile, aggressive options typically generate larger investment returns, but also subject your account balance to bigger positive and negative swings. This could put you at risk of not having sufficient funds to cover expenses when you need it.”

Time Horizon

How long can you let your money sit without touching it? That’s your time horizon.

“If a beneficiary needs to access a large portion of his or her ABLE account every year to pay for qualified expenses, a conservative investment strategy is likely more appropriate,” explains Falcone. “If someone in this situation were invested more aggressively, they may discover that their account balance has decreased in a market downturn, leaving them unable to pay for current expenses.”

If, however, you’re saving to provide for your child after you’re gone, you may have a longer investing horizon.

“Someone with a longer investing horizon who doesn’t need to withdraw a large portion of their account for five or more years may want to consider a moderate or aggressive option,” says Falcone.

“The larger growth potential inherent in these investment strategies could allow that person to take greater advantage of the tax-free growth nature of ABLE accounts. In this case, the beneficiary should consider reallocating to a more conservative strategy as the time when they will need to withdraw money from their account approaches.”

Savings Ability

“In theory,” Falcone continues, “the more someone can deposit into their ABLE account every year relative to their expected expenses, the more aggressive they can afford to be from an investment perspective.”

Check out this example with Ella and Ari:

This article is PACKED with helpful info for people deciding how to invest in their ABLE account for people with "disabilities."

 

Overall Goal

There are two basic reasons ABLE accounts are so attractive. The reason you were drawn to it probably says a lot about your overall goal.

Reason #1: Savings isn’t counted for asset tests.

If you’re applying for government benefits like Medicaid or SNAP, savings in your ABLE account will almost never count against you. This is important when you’re trying to build up savings for medical equipment, therapies, or even just a basic emergency fund that you will need in the near future. In these cases, Falcone notes that a conservative approach is probably the best fit.

Reason #2: You’re taking advantage of the tax-free growth.

If you’re saving for your child’s future but don’t have a large enough nest egg to justify a special needs trust, ABLE accounts are particularly attractive due to their tax-free growth. Falcone notes that any time you’re making a longer-term investment, you can afford to be more aggressive.

It is possible that you’re taking advantage of both perks. You’re saving large sums of money for a date far off in the future, but are only able to do so because that savings won’t count against you in an asset test. In these cases, Falcone says you can yet again afford to be more aggressive.

Risk Capacity

While risk tolerance is how you feel about the volatility of your investments, risk capacity looks at the risk you can take on from a concrete, objective perspective.

“Due to the assets test that owners/beneficiaries of ABLE accounts must pass in order to qualify for Medicaid and other social programs, risk capacity is arguably the most important factor to consider in these unique circumstances,” notes Falcone.

“Asset tests often prevent families with disabilities from building substantial emergency funds that could cover expenses temporarily should the ABLE account balance drop in a market downturn. Therefore, even though someone may be comfortable with more investment risk, he or she may not be able to afford being exposed to such risk due to lack of other cash sources.”

If you have friends and family who want to contribute, but you also want to extend your investment time horizon, you may want to direct them to specific bills that they can pay rather than making contributions to the ABLE account.

Falcone points out that this keeps your money in your account as a long-term investment while keeping it out of your regular checking account where it would be counted in an asset test.

How should I invest with my ABLE account?

Wondering what you should do in your specific situation? Below you’ll find Falcone’s recommendations for some common circumstances individuals or families may find themselves in.

While this advice speaks to generic situations, it’s always advisable to talk with a professional about your own, unique set of circumstances before making any investment.

High-Yield Checking Account

  • Someone with no risk tolerance. They are not willing to put any of their funds at risk to earn even a small return.
  • Someone who needs the ability to withdraw funds immediately. Otherwise, withdrawal proceeds can take 3-10 days to reach the beneficiary in Pennsylvania, per the Program Disclosure Statement.
  • Someone who is already the beneficiary of a special needs trust or has some other fund/account/support to help pay for future expenses. They don’t need the benefit of the tax-free growth nature of an ABLE account, but want to shelter more funds from the asset test.
  • A disabled adult with current cash need, desire to shelter some assets from the asset test, and/or desire for some financial independence to purchase/pay for things on their own.

Conservative Investment Portfolio

  • Someone with very low risk tolerance.
  • Someone with no or insufficient emergency fund (i.e. low risk capacity.)
  • Someone with potentially large unexpected expenses.
  • Someone with a present need for cash (i.e. short investing horizon of less than 2 to 5 years.)
  • Someone whose primary goal is to shelter funds from the asset test, not earn a substantial return on those funds.

Moderately Conservative Investment Portfolio

This investor will display similar criteria to Conservative, but is willing to give up some principal protection for slightly more current income.

Moderate Investment Portfolio

  • Someone with moderate risk tolerance and moderate risk capacity.
  • Someone with high risk tolerance and low risk capacity. They’re comfortable with volatility, but can’t necessarily afford to lose money in the short-to-medium term.
  • Someone with low risk tolerance but high risk capacity. They’re not as comfortable with investment volatility, but can afford to take on some risk to earn a potential return.
  • Someone with infrequent but potentially large unexpected expenses.
  • Someone with a medium-length investing horizon of 5 to 20 years–perhaps a parent saving for their child’s future expenses, including education.
  • Someone who wants their money to earn a slightly higher return.
  • Someone who has access to other cash sources or temporary support in the event of a market downturn.

Growth Investment Portfolio

Will display similar criteria to Moderate, but is willing to take on slightly more risk for slightly more capital appreciation potential.

Moderately Aggressive Investment Portfolio

  • Someone with a high risk tolerance.
  • Someone with a high risk capacity (i.e. sufficient emergency funds or other cash/support sources.)
  • Someone with a long investing horizon and desire to benefit most from ABLE’s tax-advantaged growth. This could be parents who want to set aside funds for their child’s future needs and want those funds to earn a substantial return.
  • Someone who already has a special needs trust or is seeking an alternative to a special needs trust. One example is parents with a young disabled child or young adult.
  • Someone who has a low savings capacity now, but a large future capital or income need. One group that may fit this profile is parents wanting to establish a fund to pay for their child’s needs upon their death.

Aggressive Investment Portfolio

These investors will display similar criteria to Moderately Aggressive, but to a larger extent for each point. Even more comfortable with risk, even longer investing horizon, even greater future income or capital need, even more sources of additional support, etc.

Evaluate, but don’t mix and match.

Falcone advises against investing in multiple different portfolios at one time.

“Allocate 100% of your account balance and future contributions to whichever investment option you choose,” she says. “Mixing them changes the overall allocation and therefore the resulting investment strategy. For example, allocating half of your account to the Conservative option and half to the Aggressive option results in a combined portfolio similar to the Moderate investment option.”

She says the only exception would be if you needed some cash on hand in the high-yield checking account, but wanted to invest the surplus.

Falcone leaves us with these final words of wisdom:

“No matter which option you choose, make sure to re-evaluate your choice every year and make appropriate adjustments if your circumstances and/or goals have changed.”

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