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:

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.
If you want to keep things more separate, open 2 business savings accounts – one for true business-related “savings”, and one for ol’ Sammy.
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.
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.

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.
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.
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.

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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!

My Failed Small Business

While I was funemployed I had big plans for how to fill my time and bring in a little cash. One of these plans was to start my own Etsy shop. I love Etsy because a. Everything on there is so cool and b. It is a great way to support small businesses (and people who may be funemployed like me) and c. they have extremely low fees so it is easy to get started.

I have had an idea for a while now, inspired by my wonderful ex-roommate, Willow. Willow is very environmentally-minded, and she used to complain to me that she felt so wasteful throwing out makeup remover pads every day. (To those who don’t wear makeup: it’s a thing. Like a little felt circle that helps you take off mascara so you don’t wreck your hand towels.)

So I thought it would be great to make reusable flannel makeup remover pads. I googled it, and there are already a ton of those on Etsy. Good! But they didn’t have any sort of practical system for washing the pads. Some people said you can hand wash them weekly (that snort you just heard was me laughing at the idea of remembering to hand wash makeup pads before they run out). Other people said you can just toss them in the washer (um hello, if a washer makes my socks disappear, do you think my tiny little flannel pads are going to fare any better?). Finally I found a shop that sells mesh bags to wash the pads in….but you had to buy it separately.

Plus…where do you store the clean ones? How do you keep them separate from the dirty ones?

I decided to start my own Etsy shop that sells the pads, the mesh bag and a zip-up storage bag all together. I thought $20 would be reasonable for the set. Having an environmental background, I have a lot of friends who would buy the product (not just because they love me, but also because they buy things from Etsy and they don’t like filling up landfills).

I got a sewing machine (borrowed from my sister, thanks Anne!), bought some fabric for $40 (I just wasn’t together enough to make nice things out of Goodwill flannel shirts, but it would have upped the appeal in the environmental community, let me tell you!) I found a (sort of) pattern. I was ready! Want to see the results?

I loved it! I was super happy with my results. They look great, are practical, and I was sure lots of people would want them.

Except…it took me about 8 hours to make the whole thing. I’m sure I would get faster, but 8 hours + cost of materials = not worth selling them for $20 each. Waah wah. It doesn’t look like I will be a successfully self-employed craftster after all.

Instead, I think they will make lovely gifts (if I ever have time to make them!). In the meantime, any of you who are craft-minded can make your own and stop using disposable makeup pads and/or make your own Etsy shop with my idea (you have my blessing!)

March 5, 2014 4

The Power of Compound Interest

A reminder to my readers:

Compound interest is truly amazing. Compound interest is when your interest starts earning interest, and your investments grow like crazy!

In case you didn’t believe me the first time I wrote about it, here is a visual from my investments.

Since March of 2010, I have been investing $50 a month in my Roth IRA. That is $600 a year- not even a month’s rent for me. Four years of investing $600 a year= $2400 invested. Not a whole lot. Less than dinner and a movie once a month.

But…please look at the amount of compound interest I have earned. The gray line is the amount I initially put in, and the green line is the amount I have earned in interest.

If you eyeball it, you will notice my investment is worth about a third more than I put in out of my own money. See how the green part is growing bigger and bigger and bigger relative to the gray part? That is compound interest! (The dips are just market variations, I don’t worry about those because I don’t need this money for a long time). This picture is only showing one year’s worth of growth- so imagine what the growth will look like when I retire in 37 years!

I’ll send you a picture of my compound interest when I retire from my tropical island.

February 13, 2014 0

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.

February 7, 2014 6

How to be Successfully Funemployed

I am at the end of a fantastic yearlong fellowship. This means that I (and quite a number of my fellow fellows) are now officially unemployed. This post is dedicated to them- but I know there are many other unemployed people out there who hopefully can learn from my experience.

This is what I know: It is going to be alright. How do I know? Because I have done this before.

I graduated in May of 2008 after a successful academic experience at a highly ranked university. I worked two jobs while in college, played a sport, had internships every summer, won awards and volunteered during undergrad. I did everything “right.”

I spent the summer after I graduated volunteering at a position that would have turned into a job, except that after volunteering for the summer it had become clear to me that the job was a horrible fit for me. I started job hunting in late September…exactly a week before the market crashed.

No one would hire me. At every interview I did, the employers all said the same thing, “A month ago we would have hired you, but now… we have a hiring freeze that may last a few years.” I must have gone on 30 interviews. I wore out the lining of my new suit.

It was no fun. It was actually very, very depressing. After it became clear to me that a traditional job with benefits was not in the cards, I had to try something else.

Luckily, I had a roommate who worked as a gardener for a truly wonderful woman who ran her own upscale garden design business. I was able to get a part time job gardening and I LOVED IT. I hope when I get older I am able to work as a gardener again. It was lovely to work outside, a great way to keep moving instead of sitting all day, extremely low stress and the worst thing that ever happened was a bee sting (which actually really hurt!) My boss was a fantastic mentor and was extremely understanding, flexible, supportive and generous. Gardening was definitely not the prestigious job that I had expected for myself straight out of school based on my grades and ambition…but it turned out to be a huge blessing that gave me the time and flexibility to think about what I really wanted to do next, rather than blindly apply to any job I could find.

Gardening for 15-20 hours a week was not quite enough to pay my bills (even though my boss was extremely generous), and as winter rolled around our hours were reduced. I knew I had to look for other ways to supplement my income, because still…no one was hiring.

One Friday afternoon, I was feeling really desperate. My bank account balance was frighteningly low. I was driving around the city (using up gas I could barely afford), asking all of the restaurants if they were hiring. I happened to drive by a temp agency and decided to see what kind of agency it was (I had no idea these things even existed, but they had the word “employment” on the sign). I walked in with my resume in hand, and I walked out with a two-day temp job writing Christmas cards for a company the very next week. I did a great job at my first placement and after that I had many more temp jobs (some of them relatively long term positions) with that agency. Working for that temp agency really helped to supplement my income, and I think that walking in wearing professional clothes with my resume in hand is what got my foot in the door.

After a while, I started using some of my skills from academia. One of my freakish skills is that I happen to be awesome at standardized tests. This had been useful twice in my life: for the SATs and for the GREs. I decided to cash in on my underused standardized test skills and I started tutoring the SATs a few hours a week. Each hour I tutored I was paid double what I was paid at my other jobs. It wasn’t that many hours, but it meant that I could pay all of my bills and not have to worry about where next month’s rent was coming from. I really liked working with the students (generally they were nice, hardworking kids who were just trying to get into good colleges/get scholarships) and it was rewarding to see them succeed.

I was gardening, temping and tutoring- all while applying to jobs and internships- anything to get my foot in the door. As you can imagine, many months of applying for jobs and getting rejections, interviews and then rejections, or not hearing anything at all can be very depressing. Despite my three part time jobs, I still sometimes found myself with a lot of free time. After a few months without much happening on the job front, I decided I needed to shift my attitude. I wasn’t unemployed, I was funemployed. Being funemployed means that you look at the free time as a gift, a gift that helps you improve yourself.

I had lots of time to read, cultivate friendships, cook new meals, go to museums without the crowds, join a church group, grow vegetables, stay out late at my friend’s weeknight concerts, watch movies, exercise and take naps. I don’t have time to do half of those things when I am working 40 hours a week, so I tried to spend a lot of time doing low-budget activities that I enjoyed. Even though it was great to be able to do all of those things, it also was sometimes difficult when I had a week ahead of me with only 10 hours of work scheduled. I do better and I get more done with structure in my schedule- so I started volunteering on a regular basis for an organization that allowed me to practice my Spanish while also helping others- a win win.

Finally, after nine months of being funemployed- I got a job offer. The job offer was fantastic. At my new job, I made some of my best friends, learned a ton, and set the stage for grad school and for this fellowship. If I hadn’t had that job when I did and if I hadn’t worked with the people I worked with, my life would be very different today. Nine months of funemployment sounds terrible- but it wasn’t all bad, and it led me to some wonderful things (including teaching me how to survive on not a lot of money, and now I can pass that information on to you!). In some ways, it was an amazing growing and learning experience.

Here is my advice for surviving funemployment for my fellow funemployed fellows (and any funemployed readers out there):

90% of why you do not get a job doesn’t have anything to do with you (especially if you have been successful in academia and in your past jobs). Put your best out there, but if someone else is an internal hire or has more experience or whatever…there is nothing you can do about it and it is not a reflection on you. It doesn’t mean that you did anything wrong (either in the application process or in life). There is just a lot of competition out there.
Another dream job posting is right around the corner. Don’t get your heart set on any one job. (This advice is also good for apartment hunting. And blind dates).
Add some structure to your days. Make yourself get out of the house at least once a day.
I get more done the busier I am. Stay busy= apply to more jobs.
Make plans with your friends, either during the day or at night. See your funemployed friends even more and commiserate together. It is super important that you get out and aren’t isolating yourself.
Go see the touristy things in your town that are usually too crowded on the weekend.
Find a volunteer opportunity that fits with your skills and interests. Try to make a regular schedule.
Find a part time (or full time) temporary job that can help with the finances for a bit.
Exercise every day. Set yourself a fitness goal that you otherwise might not have time to reach. You will feel better.
Start a project! Want to learn to draw? This is how I learned. Or learn to make websites, start a blog, write a book, learn to take photographs, organize your closets, start a garden, read a series of books, learn to sew or knit or make candles, watch all of Hitchcock’s movies. Whatever you want.
Time to learn to cook!
Now would be a great time to get your financial goals settled and organized 🙂
Join a club. Start a club! I love my book club.
Now there is no such thing as a school night. Check out some live weekday music or some late night happy hours.
Visit family that you don’t normally have time to see.
Networking is always cited as the key to successful job hunting. You can’t network if you don’t leave your house. Look into professional societies and go to happy hours/volunteer events/public talks/free conferences.
Take care of chores. Sometimes when you sit around all day the house can become a wreck without you even noticing. I like to do big piles of dishes first thing in the morning so I feel accomplished right off of the bat.
There are tons of free online courses and tutorials available. Are you looking at jobs that need a certain software skill set? Brush up (or learn) from youtube, even if you don’t own the software yourself.
If you can afford it, now you have plenty of time to travel. Try to have internet access so you can keep job hunting.
This is an awesome time for self improvement, whether it is professional or personal. Think about your bucket list and get to the less-expensive, more time-intensive tasks. Learn a language, join Toastmasters, start that novel.
Be aware that if you live with a partner, this can be an extremely trying time for relationships. Try to channel some of your unfocused energy into doing loving things for your significant other. (Also if you are home all day and they are working, pay extra attention to doing the chores.)
Go for a hike on a Tuesday.
Be nice to yourself. This is a difficult time, and it’s ok if you occasionally spend 8 hours watching Netflix marathons or sometimes feel sorry for yourself. Just remember- when you are done being blue- think of this time as a gift and an opportunity- you are funemployed, after all.

It’s going to be just fine. I promise.

PS: If you feel like you want to hire me or any of my wicked smart fellow fellows (I’m talking phds in subjects you didn’t even know existed!) just drop me a line. We would be happy to hear from you and we all already own suits!

February 1, 2014 9

Salary Negotiations

If you pay peanuts, you get monkeys.

I feel very strongly about negotiating salaries. When you are offered a position, negotiating your salary is the single easiest way to earn more money at your job. Think of it as the world’s most awkward 10 minute conversation….but you can come out of it $5,000 richer. That is $500 per awkward minute. Totally worth it. Be brave and go for it!

And to my dear female readers…I am leading a personal crusade to reduce the income gap between men and women. In case you did not know, ladies, we make $.77 for every $1.00 that a man doing the EXACT SAME JOB makes. There are some factors that skew this data a bit (like taking time off to have babies and an imbalance between male and female engineers*)- but if you are in an office with the same skills and in the exact same job as a man, you should be making the exact same amount as that man is. Because it is 2014. Time to move society forward, people. Women are badass and it is time we get paid for it.

One of the reasons people say that women make less than men is their reluctance to negotiate for more money. Do you have the same experience, education and skills as that man over there? Then you should be making the same. Period. So think about all of the awkward crap that women have to deal with in their lives- doctors appointments, running into ex-boyfriends, bikini waxes- all much worse than talking with your boss about how valuable you are and why your pay should reflect what you are worth. $500 per awkward minute. You can do it!

Men- I want you to negotiate too because I want everyone to succeed and make the most out of their time and energy. I just think women need to step up their game a little bit.

Once you have been offered the job, the tables have turned. You have gone from being the “seller” to being the “buyer.” Before, you were trying to sell yourself to the company. As soon as they agreed to hire you, things changed. Now you have the upper hand. You get to decide whether the salary, benefits and job are right for you. The best way to succeed at negotiating salary is to mentally shift your attitude. You should go from feeling like you are giving your number out to every man at the bar to feeling like every man at the bar is giving you his number.

Reasons why it is important to negotiate your salary:

you are confirming to your employer that you are as valuable an asset as they believe you are.
the higher a salary you start with, the higher your earning potential in future jobs. If you stay in the same field, you should expect to increase your salary with experience. If you start at a higher salary, you will make more throughout your life. Negotiating $5,000 more early on could turn into $600,000 more in earnings throughout your career. It’s as if someone said to you, “At this job you can make $1,000,000 over your lifetime, or you can make $1,600,000 in your lifetime at the same job doing the same thing- and all you have to do is have one awkward conversation.” How is this even a question?!?
If you are worried about the company not being able to afford a few thousand, there won’t be much job security at a company with such tight finances.
You making more money reflects well on yourself, your education and your school (and your gender earning potential).
Um. Obviously….You get more money for doing the same job you would be doing anyway.

But how do you negotiate for more money?

1. Do your research ahead of time. This means:

Figure out the minimum you are able to survive on (while saving for retirement and emergencies. Don’t forget to factor in income tax. You don’t actually get to take home all that the salary says you are getting). Give yourself a little wiggle room. Do not accept less than this unless you want to be working two jobs or are able to reduce your expenses. Your dream job is not worth it if you can’t pay the rent while you are working there.
Try to figure out a typical salary at that organization for someone with your same experience and job title (see if you can get location-specific information, as well). Glassdoor.com is an extremely helpful resource for this sort of information.

2. Mentally prepare to ask for the high end of the range that you have researched. Read some scripts to figure out what to say without being awkward and uncomfortable. Do a mock negotiation with your mom or your dad or your roommate so you can ask for more money without squirming (I am serious. $5,000 is at stake!). Practice like you would practice a speech.

3. Try to put off the salary discussion until a job offer has been made in writing. (I cannot stress the importance of getting an offer in writing enough. I have had it happen to me and I have heard multiple stories were people were verbally hired and then verbally unhired. It is a terrible, terrible thing that unfortunately happens all the time. Do not discuss money until you have a letter in hand offering you the job).

Wait until your employer says a number. If they insist that you give a number first, give a wide (I’m talking $20k) reasonable range starting with your minimum.

4. Do not accept that number. Always go higher. Remember this is a negotiation so if you shoot higher than you actually want/expect you will end up where you want to be. Don’t go crazy, but also do not undersell yourself- you don’t look greedy, you look smart. They have already decided that they want you, and they expect you to negotiate. Show them that you are really worth what they think you are worth. This will feel awkward (remember $500 a minute to feel squirmy), but you are basically doing another mini interview explaining again to them why you are worth what you (and they) think you are worth. Things to bring up again:

Experience
Education
History of success
Skills specific to this job
Salary history
Future potential for success at this job. What will you bring to the table?
Industry salary averages (you did this research already on glassdoor.com, now ask for more than the average because you are an above average hire, right?)

Check out this empowering script as an example.

5. Be polite, listen, ask questions, don’t get upset, and don’t bring up personal reasons why you need more money. If you can’t pay your bills with this job, it is probably not the right job for you.

6. If a higher salary is really not on the table, there are other things you can negotiate for. These things include:

more vacation/sick days or even unpaid time off, if their vacation package is skimpy and/or you already have things planned. My good friend just got a job across the country and hasn’t built up any vacation. In the next 6 months she has her sister’s bridal shower, bachelorette party and wedding and she also has to go home to celebrate her grandparents’ 60th wedding anniversary. She negotiated a for-six-months-only amount of unpaid time off so that she can fulfill her family obligations.
signing bonus
paid moving expenses
performance review with potential for a raise in 3-6 months (and subsequent reviews every 6 months after)
end of year/performance bonus
flexible work hours (an example from my grad school included a student who negotiated not having to come into work until 10 am when the surf was good)
telecommute options
parking/public transportation reimbursements
see if your company will pay your student loans (your office may have a designated “professional education/development” pot of money that they can tap into- it is worth asking to see if they can use that money to help with your loans. This might be especially agreeable if you agree to stay on for a certain number of years)
other types of professional development
stock options

7. Sometimes the answer will just be no. In this case, try to shoot for scheduling a performance review for future raises (you should be making approximately 3% more each year to keep up with inflation, so performance reviews should be standard). If you can’t afford the job without a higher salary, you can always walk away. Otherwise, take the job (and the lessons learned during salary negotiations) as an important learning experience.

The point is- you will never know if you don’t ask. The company wants you. If you don’t have the conversation, you could be cheating yourself out of the easiest money you’ve ever made. Women- step it up! Let’s get over the awkward awfulness and just do it. It won’t be that bad. When you are done successfully negotiating you can toast yourself (and that large step for womenkind) with a huge margarita- made with top shelf tequila- because you really earned it!

*If you are in college right now and you don’t know what to do with your life, just give a few engineering courses a try. If you are good at it and you like it, you will never have trouble finding a job and you will be well paid forever.

January 27, 2014 6

The 401k…aka FREE MONEY.

“I would never sign up for a 401k because there is no way I can run that far.”- my hilarious boyfriend

Back in the day, almost all companies provided their employees with a pension. This meant that after they retired, the retirees would get a certain percentage of their former salary (usually 50%) every year until they kicked the bucket. As you can imagine, a pension is a pretty desirable thing to have because you never have to worry about running out of money!

But then. People started living longer. Which meant that it was costing companies a lot more to provide pensions to their employees. So nowadays it is extremely hard to find a job that will give you a pension (except for military, firefighters and policemen and a few other jobs). If you have a pension coming to you, YOU ARE THE RETIREMENT WINNER. DON’T QUIT YOUR JOB.

Everyone else who gets retirement benefits from their company probably have a 401k. The name 401k comes from a tax code, which is boring and kind of confusing (my boyfriend is still lacing up his running shoes), so from now on I will be referring to a 401k as what it really is and that is FREE MONEY (well, it’s a little more complicated but there is free money involved, so let’s just call it that.)

~~401k~~ FREE MONEY is meant as an alternative to pensions to help you save for retirement. They are investment plans that usually include a broad portfolio of investments including stocks, bonds and money market investments. Here are a few basic pieces of info about ~~401k~~ FREE MONEY:

~~401k~~ are called FREE MONEY (by me) because when you invest in a ~~401k~~ FREE MONEY, most companies will match your contribution up to a certain percentage of your income (usually 3%). So, if you make $100,000 a year and you invest $3,000 per year in your ~~401k~~ FREE MONEY, your company will also put $3,000 into your retirement. That means that you now have $6,000 in your retirement (but you only paid for $3,000). Your company is really paying you $103,000 per year instead of $100,000 (you just got a raise even though you can’t access it yet!) This is why it is called free money. Because it is money. That is free. You don’t have to do anything except sign up for it (which you should do IMMEDIATELY).
~~401k~~ FREE MONEY has an added benefit for those of us who love automation, and that is that your contribution to your ~~401k~~ FREE MONEY is pre-taxed and it is automatic. You never get the money in your bank account so you will never be tempted to spend it.
You can usually contribute more than your company’s match (this is recommended unless you are drowning in debt or you have super tight finances).
If you are paying off high interest debt (most likely credit card debt), deciding whether to contribute to a ~~401k~~ FREE MONEY or to pay down your debt can be tricky. You should still be putting in enough to take full advantage of your company’s match policy (it’s like earning 100% plus some extra interest on your ~~401k~~ FREE MONEY, kids! That is a much better rate than whatever your credit card is charging you). You may want to hold off on investing more than the matched amount until your debt is managed.
Your ~~401k~~ FREE MONEY is earning compound interest. This means that not only are you doubling your investment right away (amazing!) but also, given a little time, your doubled money will start earning interest on its interest (ooh, aaah!) See how it can add up?

Remember the example I gave about investing $1000 for 40 years at 6% interest? Here is what happens to that $1000 if the initial investment was matched by an employer:

Number of years	Take your income home and keep it in your mattress	Invest it at 6% on your own	Invest it at 6% with your employer’s matching program
0	$1000	$1000	$2000
20	$1000	$3,207	$6,414
40	$1000	$10,285	$20,571

Each strategy still costs you $1000, but now you can expect to get double the returns! Lovely.

~~401k~~ FREE MONEY can get complicated. This is because the rules are written by lawyers who want you to be intimated by the confusing language and complicated (boring) paperwork. It is in the company’s best interest to provide you with access to ~~401k~~ FREE MONEY because that is an incentive for you to come work for them…but they hope you don’t take full advantage of it because then they have to give you FREE MONEY. So the language is written by lawyers to make it confusing, but as part of having a ~~401k~~ FREE MONEY plan your company will have an administrator whose job it is to help you with that language. So make friends with your administrator.
Because of the stupid lawyer language, there are lots of rules about when you can access your FREE MONEY (not till retirement unless you want to pay steep fees). There is also a Federal limit as to how much you can contribute each year to your ~~401k~~ FREE MONEY (in 2013 it was $17,500). There are different contribution rules if you are over 50.
Because you put the money in without paying taxes on it, you are going to have to pay the piper eventually. This means that when you do retire, Uncle Sam will take income taxes out of your withdrawal from your ~~401k~~ FREE MONEY. If you take the money out before retirement age you will pay taxes PLUS a 10% penalty. Boogers. Try to avoid that.
If you are looking at all the different ~~401k~~ FREE MONEY plans that you can choose from, it can be overwhelming to compare risk vs payoff vs timing…they can become high maintenance! But fortunately for you, there are some easy choices including something called a target-date fund, which invests more conservatively as you get closer to retirement (your “target-date.” Get it?).
Don’t forget to name a beneficiary (the person who benefits in case you die early in a freak accident). Otherwise the money gets torn up into little pieces and flushed down the toilet. I’m serious. You can name me as your beneficiary, if you want.
Finally, if your company goes belly-up before you retire, never fear! Your ~~401k~~ FREE MONEY is safe. Just take the money and roll it over into an Individual Retirement Account (IRA) so that you don’t have to pay the 10% withdrawal fee. More on IRAs later. They are pretty awesome too.

Here is the take-away: 401ks give you FREE MONEY. No other way of saving will give you free money right off the bat. So, (if you haven’t already) take a deep breath and put on your big-kid panties to prepare yourself for dealing with some complicated rules, call your company’s ~~401k~~ FREE MONEY administrator to get your ~~401k~~ FREE MONEY, make the full contribution that will be matched, and get ready for retirement on your own tropical island, you savvy saver you!

Don’t have access to ~~401k~~ FREE MONEY through your job? Me neither. (One day, fingers crossed!) That means you can set up your own retirement account so that you can be just as savvy as all those lucky ducks with access to ~~401k~~ FREE MONEY. I’ll tell you all about it soon.

January 10, 2014 8

Make Mo’ Ca$h Money

You’re tracking your spending, you’ve set up your budget, you’re slenderizing your spending…but still, things aren’t adding up. The alternative to spending less is to make more, but sometimes your lifestyle just isn’t conducive to switching jobs or adding another job into the mix of awesomeness that is your life.

There are a few ways to increase your income that don’t require major lifestyle changes. It all depends what you are looking for, so choose what works for you.

Some ideas:

Are you a cat whisperer, dog whisperer or baby whisperer? Try pet sitting or babysitting. Worked to bring in money when you were 14, still works to bring in money now.
I used to work as a caterer for super fancy weddings when I was in college. They were almost all on Saturday nights in the spring and summer, so it didn’t interfere with my weekday schoolwork and activities. I was in a pool of servers so if I couldn’t work then they would just call the next person on the list. Unlike normal waitressing, you make pretty high base pay, everyone is eating the same thing so it’s really easy and you also get tips. The whole event takes between 8-10 hours. Not too bad. Just don’t spill lobster on the mother of the bride like I did my first day (It came out of her dress and I didn’t even get fired, don’t worry about it!)
Are you a math whiz? A master wordsmith? In love with history? Somewhere out there, there is a student struggling in the subject you loved and he or she has parents who are willing to pay to help that kid get an A. Get into tutoring! You can sign up with a local tutoring company, post on Craigslist or on local college websites (or email professors), or drop flyers off at local school (with permission, of course. Don’t get yourself arrested for trespassing in schools!) The pay is awesome, the hours are flexible, and you are helping someone out.
Do you have a hobby? Could that hobby turn into money? Crafty or artsy people might want to open up an Etsy.com shop or contract out a booth at a local fair or festival. Musical people (depending on the instrument and your level of skill) might want to play for weddings or funerals. Be creative- I love refinishing furniture that I find at yard sales. I have sold some of my furniture for profit after I had rescued it and refinished it. I didn’t have to set up a store, I just sold it on Craigslist and enjoyed doing the work!
Many churches need help only on Sunday mornings. Sometimes they need help with childcare or they need someone to come in early to turn on lights or heat or make coffee. This is another job that won’t interfere with your weekday schedule! Check out your local churches and other religious institutions in the area.
What do you do at your day job? Could you sell those services as an independent consultant? (make sure you aren’t breaking any rules at your work, please). While I was working as an administrative assistant I got paid to format my friend’s PhD dissertation because I am a whiz at Word, thanks to my nitpicky admin experience. Once I had done one dissertation I had the tricky formatting rules down and I could have marketed myself as the PhD dissertation formatting expert of the university!(…but I had other life plans for myself so I didn’t!)
Are you a computer master? Can you make websites? People pay a lot of ca$h money for those skillz.
Look around your house. Do you have a lot of stuff? Books, board games, nice clothes, electronics, dvds, sports equipment…pretty much anything you are tired of that is in good shape can be sold. Try setting up an ebay account- just keep in mind that ebay charges some fees and shipping expenses can add up, so if the item is listed for too low of a price it might not be worth your time.
Neat freak? Offer your cleaning or organizational services for a fee.
If you have a flexible schedule but just aren’t ready to commit to a permanent job, try temping. There are always a ton of administrative jobs that anyone with basic computer skills, attention to detail and customer service skills can do. Sometimes the jobs are temp-to-hire so if you are a good fit for the company and if you like the job they might hire you on full time! Otherwise, it can help keep the lights on while you are waiting for your dream job to come through or for school to start up again. A benefit is that you get to work in a variety of offices and see what different workplaces are like. You also can pick up some skills that look great on a resume.
Own a truck? Try offering your services as a moving assistant.
I had a friend who started her own company as a “helper.” If you need help prepping for a party- she will help you! If you need help going grocery shopping- call her up! Need someone to help you with the laundry because you have a new baby and who knew tiny clothes took so long to fold? She is the woman for you! It is a lovely idea for a side business.

The main point of these ideas is that there are ways to supplement your income if you are willing to work for them. Play to your strengths- I hate babysitting so I will NEVER advertise my babysitting services. I love working with people so I don’t mind answering phones for the day as a temp. Be creative about how you get the word out about your new endeavors- Craigslist, bulletin boards, word of mouth- they all work well.

If you are looking at this post because you are job hunting- here is my last piece of advice. Get out there and volunteer in the field you are trying to get into. It will get you out of the house, it will give you experience and references that you can put on a resume, and it will help other people. It may or may not lead to a permanent job (don’t go into volunteering expecting to get a job in return)- but meeting more people (and letting them know you are looking for a job) and getting experience is always a good plan. For a while I volunteered a few hours every Friday at a museum where I created educational material for the public. Guess what real job I got hired for a few months later? A job making educational materials for the public (not at the same place I volunteered at, but this time I got a lovely salary!) I got the job because I already had experience! You never know where volunteering will lead you.

If there isn’t a formal volunteer program in the field you want to work in, try to create your own position. People generally say yes to enthusiastic and motivated free help! Even a few hours a week counts as experience.

You won’t get rich off of these ideas (well, maybe you will, in which case you are cleverer than I!) but hopefully they will take some of the pressure off of your finances while you are out living your awesome life.

Good luck!

January 7, 2014 2

Compound Interest- a Modern Day Miracle!

Albert Einstein — ‘Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.’

This is my favorite and least favorite topic, depending on whether we are discussing investments or debt. For the sake of keeping this post awesome, my examples will be all about investments, but remember that compound interest works just as effectively against you if it is debt.

Say I am 25 years old, and I invest $1,000 and I get a 6% return each year. The first year, I am going to get $1,060. That’s not really that awesome, but it’s not so bad. $60 is better than $0. But then the next year, $1060 gets invested instead of $1,000, and you end up with $1123. Not too shabby… Your interest starts earning interest. You could almost call it…compounded!
If you leave your $1,000 alone (and if the interest rate is steady at 6%, for the sake of this example) in 40 years you will have $10,285. TEN TIMES AS MUCH MONEY AND YOU DIDN’T DO ANYTHING AT ALL.

Number of years	Keep it in your mattress	Keep it in your checking (.25% interest)	Keep it in your savings (.8% interest)	Invest it at 6%
0	$1000	$1000	$1000	$1000
20	$1000	$1111	$1233	$3207
40	$1000	$1168	$1446	$10,285

The first time I learned about compound interest, the author I read wrote that it didn’t really matter how much money you invest, as long as you invest something.
I thought, “Well, this author obviously doesn’t understand that if you invest more money you get more money at the end.” I felt like I didn’t have enough money to start investing and that investments are for people who already have money and if that isn’t a horrible catch-22 I don’t know what is!

But you know what? He was right and I was completely wrong. Because what I had at 25 (ok, what I still have because I am only 28) is time. If you wait until you are 45 with a higher income to invest, you will be making 1/3 of the money you could have made if you started now. Even though I expect to make more money and to be able to invest more at 45, I will never make as much compound interest on the money invested at 45 as I would have on a lot less money at 25.

Examples like this used to piss me off, because I never had $1,000 to invest, and I still don’t have $1,000 sitting in my bank account just waiting to be invested. When I was 24 I was living in a double wide trailer in rural Alabama (true story). A big activity for me was driving an hour to go to Walmart. I barely had any income at all, but you know what I did have? Fifty bucks. I put $50 into a retirement account every month (automatically! I don’t even miss it!), and I just let it sit. And you know what? Compound interest works on $50 too! If I stick to this schedule, in 40 years I will have put in $24,000 (and hardly noticed it was missing, because I automatically moved it) and I will have $93,206. That first $600 from the first year will be worth $6,171. WHAT? Awesome.

Imagine what I could have done if I had started at 18!
(Actually, the answer to that is that I would have paid $28,200 out of pocket and I would have $144,650 by the time I retire at 65. That extra $4,200 and seven years would be worth $51,400! Learn from my missed opportunities, all you 18 year old readers!)

December 26, 2013 9