You’re Earning It; Here’s How to Keep It
By William J. Lynott
Money: It’s a part of our lives from the first day Mommy tucks lunch money into our backpacks until we finally shuffle off this mortal coil. How much of the stuff we manage to earn, how much of it we save, what we do with it — these things will help to determine how successful we will be in today’s financially oriented society.
Money and our ability to manage it determine how comfortably we will live, how well we will be able to care for our families, how well we’ll sleep at night and, yes, how well we will enjoy our golden years. That’s why it’s so important for you to be skilled in the basics of business and personal money management.
Here are eight tips for becoming a better manager of the income generated by your home-based business.
1. Always Pay Yourself First
Please read the above line again; it contains what may be the four most important words in personal financial management.
2. Don’t Neglect the Stock Market
If you are to accumulate significant wealth, you must respect the importance of this principle. Put these words into effect now, and you are on your way to greater personal wealth. Ignore them at your financial peril.
If you have ever said, “After I pay all my bills, there is nothing left to save,” you are in need of emergency treatment. The shrewdest money managers understand the losing psychology of “back-door” savings. That is, putting savings aside only after all other needs are taken care of. That philosophy all but guarantees that there will never be anything left to save.
So, always pay yourself first. Decide now on how much money you intend to save each month and put that money aside first. What is left is what is available for you to live on. Even a small amount of money saved on a regular basis can grow to astonishing totals, thanks to the magic of compound interest.
Virtually all financial professionals agree that investment in stocks is an important part of building a solid financial future. However, when it comes to investing in the stock market, human nature likes to play tricks on us. When the market is reaching new peaks, we can’t wait to jump in. When it stumbles and falls, we stop investing, or worse, we start selling. As a result, the typical investor tends to buy-high and sell-low — exactly the opposite strategy needed for profitable investing.
It’s better to invest regularly, without regard for the general condition of the economy or the direction of the stock market. Timing the market — trying to determine the best time to buy specific stocks — rarely works. You might get lucky once in a while, but your luck isn’t likely to last.
Waiting for stocks to hit “bottom” before you buy or hit the “top” before you sell has long since proven to be a loser’s game for investors. Select the stocks or mutual funds that you buy only on the basis of sound fundamentals.
3. Don’t Be Afraid Of Credit
Extensive use of credit for personal affairs can be problematic. When it comes to business, however, careful use of credit can be one of your most effective money management tools. It makes more sense to spread the cost of capital purchases out over time than to put stress on your cash flow by laying out large amounts of cash that you could put to productive business use. In addition, the costs of borrowing are legitimate tax deductions for businesses.
Credit, used in a sensible manner, can be a powerful profit enhancer. Once you make use of business credit, though, it’s essential that you protect your credit reputation by keeping a spotless credit history.
4. Be Careful with Debit Cards
Be aware of the unique risks of debit cards and how they differ from credit cards. When you use a debit card for your business or personal transactions, you must already have the money in your bank account. Debit cards give you no grace period for paying your bill; the bank deducts the money from your account immediately each time you use it.
Unless you’re a fastidious record keeper, keeping your account in balance can be a problem. It’s easy to misplace a receipt and forget to notate the transaction in your check register. That can result in overdrawn accounts and financial penalties.
With credit cards, you may dispute errors or unauthorized charges and withhold payments until the matters are resolved. With a debit card, you have spent the money the moment you complete the transaction.
If you’re a “convenience user” of business credit — someone who pays off credit card balances in full each month — the last thing you need is a debit card. You’re now enjoying up to 30 days of free use of someone else’s money. This is an example of “using the float,” taking advantage of the period between the purchase date and when the money is actually withdrawn from your account. In this case, you should congratulate yourself on your financial acumen and hang on to those credit cards.
5. Beware of Consolidating Credit Card Debt
Once you allow yourself to fall into unmanageable debt, there’s no easy way out. Debt consolidation may sound like an easy cure, but even successful professionals have found that this choice often leads to an even more burdensome debt load.
Before you consider debt consolidation, you should ask yourself how you got into debt trouble. Overspending almost always involves emotional and psychological issues that aren’t going to go away by treating the symptoms.
You can find further information on debt counselling at the Web site of the National Federation for Consumer Counselling: http://www.nfcc.org/
6. Pass up Credit Life Insurance If You Take Out a Loan
Credit life insurance is expensive, more expensive than most other types of insurance. Although such a policy does offer some protection to the borrower, the prime beneficiary is the lender. If you die before you pay off the loan, the proceeds of the policy will go directly to the lender. Nothing goes to your estate even though you paid the premiums.
Most financial advisors suggest that you offer a firm “no” when offered credit life insurance.
7. Consider Leasing
Leasing products like cars or trucks for personal use is generally not economically advantageous. Most accountants agree that leasing is the most expensive way to maintain a car exclusively for personal use.
However, the rules of the game are different for business. The nature of business accounting is such that leasing can be the most sensible approach to many types of capital investment. It can make sense to lease if you will be able to use the cash in your business or in your investments to earn a better return than the cost of leasing.
Talk to your tax advisor about this the next time you’re considering any purchase of capital equipment that might be available on a lease basis.
For more information on this subject, log on to: http://www.leaseguide.com/lease03.htm
8. Scams and Other Untidy Behavior
It is said that the two most powerful motivators in the human equation are fear and greed. No one understands this better than those shady characters who devote their lives to the job of separating you from your money.
Never allow yourself to forget that there are people out there whose primary objective is, and always will be, to take whatever they can from you — legally or otherwise. And where you are most likely to meet one of these bad actors in today’s age of technology is in your e-mail inbox.
Never, ever, click on a link in an e-mail unless you know and trust the sender. Even then, if it’s one of those “forward this to everyone you know” e-mails, play it safe and hit the delete button right away.
How much money we earn is the yardstick by which many of us measure financial success. For those in the know, however, earnings are only one-half of the money equation. Equally important is the manner in which we manage those earnings. Making the right money decisions is an essential ingredient in the recipe for long-term financial security. HBM
William J. Lynott is a veteran freelance writer who specializes in business management as well as personal and business finance. His work appears regularly in leading trade publications and newspapers as well as consumer magazines including Reader’s Digest, AARP Bulletin, and Family Circle. For samples of his work and more information about Bill, log on to his web site: www.blynott.com.