Saving money by picking up the phone

As I was perusing my Mint account the other day, I noticed that for the first time ever I had incurred a fee from my amazing bank, Charles Schwab. What? Didn’t they read my post about how much I adore their fee-free services?

It turns out that I had deposited a check that bounced. Now, this is the first time this has happened to me and it seems like a pretty unfair situation…I had no idea how much money the check writer had in her account, so how was I supposed to know the check was no good? And then I was charged a fee? I picked up the phone, called my favorite bank (24-7 customer service that employs Americans to work their call centers) and had the fee waived within three minutes. I didn’t even have to ask, they just fixed it for me! Charles Schwab maintains its gold-medal banking status! Hooray!

The lesson for you all is that when companies charge you fees- maybe you accidentally missed a payment, or there is a minimum balance that you didn’t meet- don’t just blindly pay the fees. Pick up the phone and ask that the fees be waived! This is more likely to be successful if you don’t make a habit of whatever it is you were charged for. I have had high success with the phone call technique.

The reason why this works is because banks/credit cards spend an awful lot of money on advertising and recruiting new customers…a few hundred for every new customer. It is in their best interest to keep you happy.

Picking up the phone to call can also help you if you are having trouble making your payments. Calling your credit card company or your student loan manager and explaining that you can’t make the payment and you would like to see if they can help you out for a month or two is significantly better than not making your payments and having it impact your credit. Actually every time I call my student loan manager they ask right off if I can afford my payment and tell me that they can put my payments on hold for a few months if I need them to- I think it is part of the call center script!

Life happens and sometimes that means you incur a fee, but any bank interested in keeping you as their customer should be able to accommodate the occasional hiccup from an otherwise excellent customer. Don’t be shy, don’t be embarrassed- just pick up the phone and ask!

 

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A Freelancer’s Money Management Techniques

Guest post by my talented friend Becky, who very bravely started her own business a few years ago. Becky is even more knowledgeable about personal finance than I am (can you believe it?!) and she knows about managing a small business- something I know nothing about. Thanks, Becks!

You can follow Becky at @thebeckyhamm, if you love her advice already!

A Freelancer’s Money Management Techniques

I’ve owned my web design business for 2 years now. Going from a well-paying salaried position to freelance was a huge shift in the way I thought about money, but the basic principles remained the same. Here’s my general process.

Note: Since very small businesses is what I know best, this article is geared towards them. If you have a brick-and-mortar type location, your cost structure will be quite different.

Setting Things Up

As a freelancer, there are a few things you need to take care of before you get to the “making millions of dollars” portion of the job.

One warning: starting a business isn’t going to be as cheap as you think it will be. I’ll try to outline my costs for you so you can get a more realistic idea.

1. Register Your Business

If you are doing more that just babysitting on the side, I recommend you register for either an LLC or a corporation. This is best discussed with a tax accountant or an attorney (or very knowledgeable parents/friends/relatives). Incorporating your business limits your liability if something goes wrong down the road. Most states have an online portal these days where you can officially register. In Florida, it costs about $140/year to be registered in the state.

2. Get Your EIN

Get your EIN (employer identification number). This number is used for tax purposes for your business, and sometimes clients will ask for it. This is free! Yay!

3. Hire an Accountant

Hire an accountant. This can’t be said enough. You will not be able to fill out a 1040-EZ anymore as a small business owner, and taxes will turn into a giant headache. Yes they are more expensive than the DIY approach, but I can tell you from experience that they are DEFINITELY worth it. I saved over $5000 this year because I used an accountant. Depending on how much money you make, your accountant will help you file either a personal return or as an S-Corp. The difference can mean thousands of dollars for you.

Getting your tax return done by a professional can cost between $200 and $1500/year depending on how you file. Yep $1500 sounds like a lot, but you’ll save more in time and money by going with an accountant.

4. Separate Your Business $$ from your Personal $$

Open a business checking and savings account. I am a self-professed hater of Big Banks and their ridiculous fees, so make sure you check out your local banks and credit unions for good accounts with no minimum balances or weird rules. At credit unions, opening an account is usually free!

5. Track Your Expenses

For my first couple of years, I tracked expenses in Excel. I kept all of my receipts in one place and matched them up against my business checking account to make sure everything was gravy. However, I just started using Quickbooks Online, and holy crap my life is so much easier now. Since it connects to my business account, all I have to do is enter mileage. Awesome! It’s worth the $11/mo for me.

Income

There’s one main rule with your income: deposit all of your hard earned money into your business checking account. I highly recommend NOT putting it straight into your personal bank account. It’s much easier to keep business expenses separate from personal expenses this way.

Taxes

You may be scraping the bottom of the barrel your first 6 months (or year…or two years) as a new business owner, so it is very tempting to just “think about taxes later”. Unfortunately, Uncle Sam doesn’t agree.

It sucks, but you need to take out a good chunk of that payment you received and keep it for taxes. Here’s what I do:

  1. Once your see your deposit show up in your business checking account (because you did open a business account, didn’t you?), immediately transfer 25-35% of it into your business savings account. That savings account is for Uncle Sam.
  2. If you want to keep things more separate, open 2 business savings accounts – one for true business-related “savings”, and one for ol’ Sammy.
  3. Consider how much “spending money” you want to keep in your business checking account for expenses like software programs, notepads, conferences (airfare, hotels, food, etc.), and any other regular expense. I leave a minimum in my account for that purpose. Depending on a lot of different factors, my business expenses range from $2000-$5000/year.
  4. After you’ve transfered away much of your hard earned cash or determined to leave some for expenses, then feel free to move the remaining money over to your personal accounts. You can do this by setting up a transfer between your accounts, or just write yourself a check.

Every quarter, I pay the IRS my quarterly estimated taxes. Edit: I used to do that. Now I talk to my accountant to figure out whether I need to submit estimated taxes, “payroll” taxes, or pay at at the end of the year. If you do submit quarterly taxes you can send Sam a check via snail mail, or send it online through EFTPS (the Electronic Federal Tax Payment System).

Saving and Investing

As Kate has so thoroughly described on her blog, saving is massively important. What will you do when your transmission fails? Or your dog swallows a rock and needs surgery? Or your computer implodes? Your first line of defense should be your emergency fund, followed by your regular checking account, followed by your credit card (because I sure don’t know anyone who enjoys paying interest).

Emergency Fund

As a freelancer, there will be times when you have just enough money to pay your rent and you have NOTHING EXTRA for savings. Yep, it happens to everybody. It’s ok. There will be other months when you are rollin’ in the dough, a la Scrooge McDuck (though perhaps on a smaller scale), and you can use that extra income to plan for your leaner months. For example, in my business I’ve learned that my 4th quarter is slow. So this year I’m saving more to compensate.

Accounting for these ups and downs take a little more effort than if you were getting a steady paycheck, but it is still relatively simple in the grand scheme of things. I have a few general rules that I follow when determining when and how to save.

  1. Look at your checking account. Does the amount in there add up to at least a month and a half of your expenses? This is the point where I take out 30% of the amount I pay myself and transfer it to my personal savings. Yep, 30%. Yes it hurts, but not so much if you do it right away and just pretend it wasn’t in your checking account to begin with. Even better, you can transfer money DIRECTLY from your business checking into your savings. Ta da! You’ve tricked yourself and helped your future self all the same time.
  2. I have some semi-regular contract gigs that I receive checks for each month, and one or two side gigs that are irregular. Sometimes I put the entire side gig check (sans tax) straight into savings. I don’t miss it from my “regular” income pool, and I’m preparing for any emergencies.
  3. By the way, the bank I use for my personal accounts is Charles Schwab. Guys, they are seriously the best. I turned Kate on to them. If you’re going to be putting your hard earned money somewhere, make sure it’s somewhere that isn’t charging you any dumb “maintenance” fees, minimum balance fees, foreign transaction fees, ATM fees, check fees, etc. Schwab charges nothing, you get all ATM fees refunded to you each month (you can use any ATM in the world), and their customer service is stellar. If they had business checking accounts, I’d be on it like white on rice.

Investing

When I worked at my old company, I had a 401(k) and a Roth IRA. As Kate says, a 401(k) is essentially the closest thing you’ll ever get to free money, so if you still have access to one, TAKE ADVANTAGE OF IT.

Now that I work for myself, I do not have the option for a regular 401(k) but there are other options like Individual 401(k)s or SEP-IRAs (Self-Employed IRAs). Do your due diligence: if you don’t already invest, talk to some of the more reputable (note I said reputable, not famous) investment firms and see what they have to offer. Personally I use Vanguard, but I hear good things about T Rowe Price and Fidelity.

If you can swing a 401(k) with matching by paying yourself and then matching yourself (another good reason to talk to an accountant), then start there. If you “max out” your pre-tax investing, then add anything else you want to invest to your Roth IRA.

Now you’re ready to manage your money as a freelancer! I told you it was easy. The hard part comes next – you have to make money in order to manage it. Best of luck!

How to open a Roth IRA

My good friend Kimberlyn and I were talking about personal finance at a party (what else? I am a really fun party guest). Kimberlyn told me that when she was in college she had a professor who told everyone they should open up a Roth IRA immediately. Kimberlyn’s amazing response?

I couldn’t even afford crackers, how was I supposed to save for retirement?

I hear ya, Kimberlyn. Not only is it pretty intimidating to open up a new type of money account for the first time, but you were told to do it when you had no ca$h money at all. I worked two jobs in college and I was still super broke- it’s not an easy time, financially, and it is hard to think about saving long term when you are buying store brand saltines.

But Kimberlyn’s professor was right, starting a Roth IRA as early as possible will pay off hugely in the long run (because of compound interest. Do I sound like a broken record yet?)

I opened my Roth IRA in 2010 when I was living in a double wide trailer making about $1200 a month. If I managed to do it, you can do it, too!

Lots of Roth IRAs have a minimum deposit of $1000-$3000 before you can even open an account. I have (to this day) never had $1000-$3000 sitting around, and you better believe that double wide lifestyle was never going to allow me to save up $1000 to get started. Luckily, I found an easier way to get started.

At the time, ING Direct had a program that allowed you to put in  $50 a month as long as you set up automatic deposits. I had $50 a month, I already loved automatic deposits- boom! Roth IRA was set up and my compound interest makes me happy every day! $50 a month= $600 a year, which is not a ton of money, but that cashola has grown quite a bit! I didn’t have time or the money to muck around with trading stocks and paying fees (“um, I would like to buy 1 share of stock X for $14. Oh the fee to trade is $6 per transaction? Huh.”), so I chose to put all of my money into the 2050 retirement fund and I stick to it. The 2050 retirement fund is a plan already set up by ING Direct that invests my money more aggressively (aka, takes more risks) now, because I am young. When I get closer to retirement (in 2050…the year I will be 65) the money will be moved over to more conservative investments. I don’t have to do anything at all!

 

The bad news: ING Direct is now Capital One. And they don’t offer the awesome $50/month sign up deal anymore…so you guys can’t copy what I did exactly.

The good news: I will still tell you how to open a Roth IRA without needing $1000-$3000 in your piggy bank.

TD Ameritrade has no minimum and no annual fees (I HATE fees!) and they have a number of funds that you can trade around for free, if you are into that sort of thing. You can still set up automatic $50 (or $5…whatever you can afford) deposits, so it is kind of like you can do exactly what I did four years later!

It is worth it to give it a whirl. Start with an amount you won’t miss. I like to think of the money I invest as “night out equivalents.” If I went out for dinner and to a movie twice a month, that would cost me (more than) $50. I think it is snugglier (and cheaper) to make homemade (or frozen) pizza, buy a 6 pack, and rent a Redbox to watch with friends on the couch twice a month. Look at that! I saved for retirement!

Remember that unlike savings account it is not risk-free. But, you will have access to the original capital you put in at any time without penalty, so it’s like a secret emergency savings account. However, you will not see your money benefit from compound interest if you don’t take risks with it, and it is nearly impossible for the average Joe to retire if he has not invested his ca$h.

There you go! How to open a Roth IRA (relatively) painlessly. It will pay off tenfold when you are ready to retire, so it is worth it to get started now!

 

Saving for Retirement without a 401k

So far in my life, I have had some pretty stellar jobs (one year I wrote “shark wrestler” when describing my job to the IRS on my tax forms).

Stellar jobs, yes…but so far no 401k has come my way. I am very aware that investing early will lead to much more wealth in retirement because of the miracle of compound interest. I don’t want to miss out on that extra giant pot of money, but how are you supposed to save for retirement without a job that gives you benefits?

The answer is a Roth IRA. It is named after Senator William Roth (DE), who led the fight to help create this awesome savings tool. IRA stands for Individual Retirement Account. Not so tricky!

A Roth IRA is the best choice for twentysomethings. A Roth IRA is a diversified set of investments (similar to a 401k in this way), but the biggest difference between a Roth IRA and a 401k is that a 401k is funded with pre-tax money, and then you are taxed when you take the funds out. A Roth IRA is funded with money you have already paid taxes on. You let the ca$h money sit in there for at least 5 years, and when you take the money out (as long as you are older than 59 1/2) YOU DO NOT HAVE TO PAY ANY TAXES ON IT. NONE. You don’t even have to pay taxes on the compound interest that you have earned. This is an awesome deal!

There is also something called a traditional IRA, but if you are young and expect to make a ton in compound interest (which you do)- then go for a Roth IRA. A traditional IRA is funded by money that is not taxed when you put it in, but when you take the money out you pay normal income tax.

I am a full-fledged Roth IRA fan but there are (very few) reasons why you would choose a traditional IRA instead.

  • Roth IRAs have income limits. If you make over $95k individually or $150k as a couple, you can’t get a Roth IRA. So go with traditional.
  • If you are making a lot of ca$h money now, but you expect to be in a lower income bracket when you retire, you can save on your tax bill by not paying taxes on your investment now (in the higher bracket) and paying them later (when you retire). If you are in your 20s, however, your interest should be massive and you will pay a lot of taxes on that interest (and also can you say for certain what kind of money you will be making when you retire? Please. Just go for the Roth IRA)

Are you convinced a Roth IRA is an excellent choice? Me too. Here are some things to know:

  • In 2014, you can contribute up to $5,500 to your Roth IRA each year. The more you invest at an early age, the better your compound interest will treat you!
  • If you are married, both you and your spouse can have a Roth IRA even if you only have one income (which means double the potential for investing!)
  • You can always take out the initial contribution that you had invested without penalty. This makes the Roth IRA kind of like a secret savings account for yourself- except compound interest is so good I do not recommend that you do this except in extreme emergencies (you have already tapped out all of your other savings accounts)
  • You can set up your Roth IRA to automatically reduce the risk in your portfolio as you get closer to retirement, so you don’t even have to worry about anything. I just picked that option when I opened my Roth IRA and I don’t ever have to fiddle with it (unless I want to, of course!). Extremely low maintenance.

If you want to take out more than your initial contribution (the interest that your money has earned) you will pay a 10% penalty if you are not 59 1/2 yet unless you are taking it out for any of the following reasons:

  • Educational expenses
  • Medical expenses that are over 7.5% of your adjusted gross income
  • First time homebuyers can take out up to $10,000
  • Costs of a sudden disability

So you still have access to all of this money in case of a big emergency. However, if you spend your retirement what will you do when you retire? Also, remember that each $1000 you put in today could be worth over $10k when it is time to retire. I don’t want to rob my future self of that easy money! I pretend that the money is GONE and I have promised myself that I am not touching it. It does make me feel better, though, to have a source of backup funds just in case all of my other financial strategies get tapped out.

Stay tuned for next time- we can talk about HOW you actually set one of these suckers up.

New Year’s Budget Resolution Revolution Reminder!

Just a reminder to all my savvy readers who are becoming the boss of their finances:

Today is the suggested deadline to set up a checking account and a savings account (that you are thrilled with). Can you believe it has been two weeks since New Year’s? My resolution to do squats while brushing my teeth has already flown out the window (it really wasn’t that fun, after all). Hopefuly you are doing better than I am by following the easy-peasy step-by-step plan!

If you have set up your bank accounts already, HOORAY! You are an amazing rockstar and you are well on your way to financial success!

If you haven’t done this yet- take a half hour and do it! You will be glad you did. Think of all the worry and anxiety you will save yourself by setting up your own personal finance system.

Next up: Set up automatic bill pay by January 31. That one will make your life much easier!

New Year’s Budget Revolution Resolution!

The number two resolution for 2014 is to make a budget (right behind weight loss, which I have no advice about other than: stop eating so much ice cream for breakfast).

Hopefully you have already been reading my brilliant blog and are taking all of my amazing advice immediately. Right? Right?!?

If, instead, you have just been reading my brilliant blog and then intending to take my amazing advice at a later date….that’s ok too. But things won’t improve unless you take action, so let’s use New Year’s as an excuse for some action! Yeah! Plus isn’t improving the state of your bank account more appealing than getting up at 5 am in the icy cold tomorrow to run 5 miles? (why the heck do people do that??!)

Here is your New Year’s Budget Revolution Resolution Plan:

1. Set up at least two bank accounts: one for checking and (at least) one for saving. Make sure you aren’t paying any extra fees (because that is NOT a good way to start the New Year). Might I recommend Charles Schwab for checking and Ally or Capital One 360 for savings? Fill out the forms and call the excellent customer service numbers if you need help. This one takes a few days for the paperwork to go through, but it is worth it!

New Year’s Budget Revolution Resolution deadline: January 15. Yeah! Pour yourself a hot toddy, this was the most annoying part of your whole resolution!

2. Set up automatic bill pay for all of your bills. Never pay late fees again! Pat yourself on the back for being a financial whiz kid!

New Year’s Budget Revolution Resolution deadline: January 31.

3. Start tracking your spending. This one is ongoing, but thanks to Mint (or whichever tracking software you use) it should be painless (and if you are like me you will think it is fun to play with the graphs).

New Year’s Budget Revolution Resolution deadline: set up a budget tracking system by February 15.

4. Make your best guess at a budget (based on your spending) and do your best to follow it. Don’t worry if you don’t get it right at first, it is a marathon, not a sprint!

New Year’s Budget Revolution Resolution deadline: make a budget by March 15 (beware the Ides of March!)

5. Start paying off your credit card balance and use automatic bill pay to pay off more than the minimum each month. This will feel awesome! Make a plan and stick to it, and you can beat the system!

New Year’s Budget Revolution Resolution deadline: April 1.

6. Start an emergency fund. Again- marathon, not a sprint. You won’t suddenly wake up with a rainy day fund of savings- this may take a year or two to accomplish. When you start it, have money automatically transfer into your savings and then poof! You have completed step 6 of your Budget Revolution Resolution!

New Year’s Budget Revolution Resolution deadline: April 15 (tax day, boo!)

7. Start investing to earn some sexy compound interest! More information coming soon on where you actually are putting your money when you invest it.

New Year’s Budget Revolution Resolution deadline: May 15.

8. Review your budget and tweak it. In the red? Try slenderizing your spending (stopping eating ice cream for breakfast works here too, your ice cream bill will go down).

New Year’s Budget Revolution Resolution deadline: June 1.

What is this? Just halfway through the year and you are already done with your New Year’s Resolution?!?! You didn’t even have to get up at 5 am in the icy cold to go running? YOU ARE AMAZING!

Obviously some of these items will need updating or monitoring as your finances change in the future, but the hardest part is getting a system set up. Six months of baby steps to set up a system that will lead you on the path to long-term financial confidence- that is an awesome resolution!

Here’s to a financially savvy 2014!

My Love Affair with my Checking Account

Let me tell you a story. One weekend, I went to an Earth day festival. A national bank had set up a booth to try to get new customers. I started chatting with the man at the booth, and he tried to pitch me his bank.

I told him I will never change banks, because I have Charles Schwab and I am obsessed with it and I try to convert everyone I know.

The bank employee looked around and then pulled me to the side, whipped out his wallet, and showed me that he has Charles Schwab, too! It is the best bank!

I am going to share with you all the reasons why I love Charles Schwab for my checking account, but there are other options out there. Even though I am pretty passionately in love with my bank, it might not be right for you. But…it actually probably is. Here’s why:

-All of my banking is done online, and you can either scan checks in with the handy-dandy app and then they are automatically deposited for you, or you can mail in paper checks with the pre-paid, pre-addressed, pre-return-with-my-name–already-addressed envelopes that they provide for free.

-I can use any ATM pretty much worldwide and I get reimbursed for all of the fees. This year I have saved $105 in ATM fees…heheh. I have never paid for an ATM so the places where this is not covered must not be places I go!

-Checks are free.

-When you travel abroad you don’t have to pay any currency conversion fees (many banks charge a percentage of whatever it is you are withdrawing).

-There are no fees. Actually, I have paid one fee. That is because my debit card was stolen and I was going abroad in 3 days and I chose to pay $15 for Charles Schwab to rush Fed-Ex my new debit card. But, compared with other banks that charge you monthly fees just for the honor of them holding onto YOUR money for you…that is pretty good.

-I earn interest on my checking! It isn’t very much (.1%), but earning interest on checking is actually pretty rare. Most banks are charging you fees and you are getting nothing back in return. Some interest is better than no interest, and some interest is way better than paying someone else to make money off of what is yours!

The only thing that is somewhat intimidating about Charles Schwab is that when you open a checking account you also have to open a brokerage account (for investing). However, you don’t actually have to put any money into the brokerage account until you feel ready to commit (or ever, actually). I have had Charles Schwab for 4 years now and my brokerage account is still $0.00. And Charles Schwab still treats me like a VIP!

My sister told me that she and her husband were taken out to dinner by their Schwab financial advisor and he gave them free financial advice all night. Disclaimer: they only got the free dinner because my brother-in-law is friends with the advisor, but the financial advice is always free from Charles Schwab!

Here is how I feel when I use Charles Schwab: super financially savvy. Because I don’t pay for things that other suckers pay for. And that is the point of this blog.

The Basics of Banks

I once had a (lovely) boyfriend who didn’t believe in banks. And by he didn’t believe in banks, I mean that one day I came over and found him sitting on the bed surrounded by $30,000 in cash like Scrooge McDuck*. I almost had a heart attack.

You have to really have a massive distrust in the government and the economy in general to make a safe in your closet even a reasonable place to store $30,000. (And if you distrust the government and economy that much then if something terrible happens then your money will be worthless anyway, so either way you’re screwed and you would have been better off investing in a zombie apocalypse survival kit.)

How do banks work?

Have you seen “It’s a Wonderful Life?” when George and Mary have to spend their honeymoon money to keep the town afloat when the banks crash? They had to do that because banks don’t physically have all of the cash that has been invested in them on hand.

Banks take their client’s money and they invest it. Clients get security (you don’t even have to buy your own closet safe!), access to cash (ATMs, bank tellers), checking services, and advice from real live bankers. Banks do a lot of other things too, like notarize forms and help with loans. Really good banks will pay you some interest for putting your money into their system, and really crappy banks will charge you fees so that they can make more money even though they already make money off of your money.

Banks are making money off of you, and you get some things back in return. If you have faith in the government and/or the economy, the scene from “It’s a Wonderful Life” should never happen again, because almost all banks (any bank that you should feel good about using) are FDIC insured.

This sounds complicated but it really just means that if your bank crashes the Federal government will reimburse you up to $250,000. If you have more money than that sitting around in the bank, I appreciate you reading my blog, but this is probably not the most useful site for you.

So, the conclusion of this post is:

You have to use banks if you want to excel at personal finance (unless you truly don’t believe in society, in which case…why are you on the internet?)

*He used all that cash to invest in his own small business. That is a good investment. A better investment than leaving that cash in your safe in the closet.

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