Then segue into more about the investor's rational "Manage your own irrational mind". Andresen's point is one where extremes distort us from our primary objectives. This view makes Dollars and Common Sense stand out from many prominent guru books. Andresen writes on perfectionism, the idea that you avoid imagining how your portfolio can be in a downturn - and on preventing scam. The nice perspective he brings is placing the ego in check:. The difference between them and everybody else is how they deal with it. Andresen advocates budgeting, but takes that ethos beyond the topic of reducing debt into conservative suggestions regarding investment choices.
Common Sense Guidelines for Managing Your Money
Chapter 5 suggests investing only in mutual funds, followed with detailed chapters on differing mutual funds classes. I am not sure using the phrase "only" is a trump card for all investing, but given the amount of the exotic instruments unleashed on the American public, Andersen works to take you towards a manageable selection of investments. Andresen is against the complexity that investment banks have wrought on the public.
It's the velocity of these instruments that have come into question, and Andersen does a good job explaining how that velocity came to be institutionalized:. There were those who spoke out. Nassim Nicholas Taleb wrote his books on the Black Swan, the effects of the unexpected. Robert Schiller wrote about Unbridled Exuberance. So we were warned, but their voices were drowned out in a sea of marketing disguised as advice…..
It was a perfect storm. There was nowhere to hide, except Treasury bonds… The bottom line is that the rules of the last 30 years don't appear to have worked. Getting your nails done? Probably not. For example, paying off debt is another major financial goal. If they have a ton of debt to pay down, you may have to decide that you are okay scrimping in certain spending areas to help them achieve that goal. For that matter, combining finances or not comes down mainly to personal preference. You may feel like you need to protect yourselves by keeping your finances separate.
Others, however, might prefer setting up joint accounts to simplify things as much as possible. When you start having these conversations, of course, depends on you and your specific relationship, but many would argue that earlier is better than later. NEXT: How one couple saved their marriage by asking each other a simple question. Want more tips like these? Sign up for our newsletter. Follow better. Get the Better newsletter. Material, labor and overhead costs are included in the cost components. Labor costs are calculated based on the total work put into preparing the product.
To determine the direct labor costs, you multiply the cost of labor per hour by the number of personnel hours necessary to finish the job. Be sure to include the dollar value of fringe benefits as well as the hourly wage, which include workers' compensation, retirement benefits, social security, insurance, unemployment compensation, etc. Overhead costs cannot be easily identified with a product. They consist of indirect materials, such as depreciation, supplies, advertising, heat and light, taxes, rent, insurance, and transportation. Indirect labor costs, such as legal, clerical, and janitorial services are also included in overhead costs.
There are different individual costs for each component of your service or product Limited liability companies LLCs , limited partnerships, limited liability partnerships LLPs and corporations are the most common forms. General partnerships and sole proprietorships don't restrict owners' liability, whereas limited partnerships limit liability of some partners such as limited partners and not others like general partners.
Limited liability companies LLCs , limited partnerships, limited liability partnerships LLPs and corporations are the most common forms A "corporate double tax" happens when a business corporation or an entity that is treated as a business corporation for tax purposes pays a federal tax on its income, and then its owners pay another tax as they collect corporate profits. The "entity level tax" is the tax on the corporation and so an entity taxed in this way is called a "C corporation" or C corp. A "corporate double tax" happens when a business corporation or an entity that is treated as a business corporation for tax purposes pays a federal tax on its income, and then its owners pay another tax as they collect corporate profits Each business is different, although to save on overall taxes a "pass-through" entity is generally best, as it eliminates tax at the entity level.
Owners of pass-through entities are taxed on the profits of the entity that they own. Owners are able to make tax deductions for startup and operating losses, against the income from other businesses or investments. Each business is different, although to save on overall taxes a "pass-through" entity is generally best You have a lot of power over whether or not your entity is treated as a pass-through for federal tax purposes.
If you have a partnership of any type or a limited liability company, it is possible to choose if your business functions as a corporation or partnership for tax purposes. This is called the "check-the-box" system by tax and business advisors. You can qualify to have it treated as a pass-through by choosing S corp.
This decision is binding. This means if you select one entity one year and a different one the next, you will have to pay the taxes as though last year's entity was sold and use those profits towards this year. Assuming you don't select to have them function as corporations, the following types will avoid double tax and limit liability: LLPs, LLCs, and limited partnerships only for the limited partners. An S Corporation is usually another option. Assuming you don't select to have them function as corporations, the following types will avoid double tax and limit liability Limited liability and pass-through tax treatment are both combined in LLCs.
This provides benefits that are unavailable from S Corps. The main benefits are:. LLCs are sometimes permitted to have a single owner - laws vary by state. If permitted, the owner has the opportunity to elect to be under the check-the-box rules. This structure will also defer tax, in comparison to LLCs, when a corporate giant is buying out the business.
Limited liability and pass-through tax treatment are both combined in LLCs A major concern is the limitation of liability, especially malpractice liability. Against the liability of your own malpractice, there is no entity that will protect you. Depending on the state law, Professionals Corporations PCs might not offer protection from liability for a co-owner's malpractice. A major concern is the limitation of liability, especially malpractice liability A change of entity is an event that may need to be carefully planned and implemented to avoid a taxable event.
It also may have significant future tax implications. You should consult with a professional before making any changes or decisions to your business organization. A change of entity is an event that may need to be carefully planned and implemented to avoid a taxable event Bear in mind the differences between state tax law and state business law. Whatever tax status you select for your entity beneath the federal check-the-box system, keep in mind that you may be considered a different type of entity for state business law purposes.
This means that if you choose corporate tax treatment for a partnership, it will not necessarily bring corporate limited liability. A state normally treats the entity selected under federal check-the-box as the entity acknowledged for state tax purposes, but this is not always the case. The law of a state may agree to pass-through status for an entity like an S Corp or an LLC, but still enforce some sort of tax on the entity. Bear in mind the differences between state tax law and state business law A legal entity that exists independently of its owners is a corporation.
When correctly filled out articles of incorporation are filed with the proper state authority and all fees are paid, a corporation is created. Every corporation begins as a "C" corporation and must pay income tax on the taxable income made by the corporation. The net income or loss of an "S" corporation is included in their personal tax returns and are "passed-through" to the shareholders. There is no double taxation as with "C" corporations because income tax is not taxed at the corporate level. Also known as Subchapter "S" corporations, they are limited to shareholders. Every corporation begins as a "C" corporation and must pay income tax on the taxable income made by the corporation Obtaining a lawyer is not a necessity to incorporate except in South Carolina, where an attorney's signature is required.
You can fill out and file the articles of incorporation by yourself in every other state. However, you should be completely briefed on all aspects of the law beforehand. A good corporate attorney can be an irreplaceable resource to a small business despite the expensive hourly rates. A one-hour consultation can be very beneficial if you are unsure of the process, or if there isn't time for research. Prepare a list of questions before the consultation.
Obtaining a lawyer is not a necessity to incorporate except in South Carolina, where an attorney's signature is required Take time to think about a name for your corporation. The most common rule for naming your corporation is that it cannot be misleadingly similar to a company that is already formed, but each state has their own rules. A suffix must be included in the corporation name such as "Incorporated", "Inc. Limiting your liability to the assets of the corporation is the primary advantage of incorporating.
It is common that shareholders are not responsible for the debts or obligations of the corporation. Unless you didn't personally sign for the loan and your corporation defaults on it, your personal assets are safe.
1. The “This Is What My Money Looks Like” Conversation
With a sole proprietorship or partnership, this is not the case. There are many tax advantages that are available to corporations and not sole proprietors. Limiting your liability to the assets of the corporation is the primary advantage of incorporating In the majority of states, a corporation is required to name a "registered agent. The registered agent must be accessible during regular business hours to receive official state documents or service of process. In the majority of states, a corporation is required to name a "registered agent" Most states permit one person to function as director, shareholder, and all officer roles.
Most states permit one person to function as director, shareholder, and all officer roles You may select any quantity that you wish. The par value is either "No Par Value" or any dollar amount per share as you choose. In some states you must issue the stock for no less than the par value. Some states establish their fees from the amount of shares approved, multiplied by the par value.
If your director s have yet to be designated in the articles, you will need to hold your first shareholder meeting to select your director s. After that, you will need to hold the first organizational meeting of directors. During this meeting, you will hold elections for officers, approve the company's bylaws and issue your stock, as well as other actions. If your director s have yet to be designated in the articles, you will need to hold your first shareholder meeting to select your director s If you are worried about personal exposure to lawsuits that arise from your company, you should think about forming an LLC Limited Liability Company.
For instance, you might be concerned that your commercial liability insurance will not completely protect your personal assets from possible slip-and-fall lawsuits or claims by your suppliers for unpaid invoices if you open a storefront business that works directly with the public. An LLC gives you personal protection from these and other possible claims against your business.
However, not every business can function as an LLC. Businesses typically prohibited from establishing LLCs are those in the banking, trust and insurance industries. If you are worried about personal exposure to lawsuits that arise from your company, you should think about forming an LLC Limited Liability Company Even though the special tax status of the S corporation does away with double taxation, it doesn't have the elasticity of an LLC in distributing income to the owners.
Various classes of membership interests are offered with an LLC, whereas you can only have one type of stock with an S corporation. In an LLC, a variety of individuals or entities may have interests, although the number of shareholders who can have ownership interest is restricted to no more than C corporations, many trusts, LLCs, nonresident aliens, partnerships, or other S corporations may not have ownership of S corporations.
It is also important to note that LLCs are permitted to have subsidiaries without limitations. Even though the special tax status of the S corporation does away with double taxation, it doesn't have the elasticity of an LLC in distributing income to the owners It allows you to structure your financial and working relations with your co-owners in a way that best fits your company.
It allows you to structure your financial and working relations with your co-owners in a way that best fits your company It is possible to have a written operating agreement in most states, but you are not advised to begin a business without one. The following are a few reasons why an operating agreement is necessary:. It is possible to have a written operating agreement in most states, but you are not advised to begin a business without one Failure to have shareholder or director meetings can cause the corporation to be subject to alter ego liability, although this is not typical of LLCs in most states.
For example, in California the failure of an LLC to have meetings with members or managers is normally not regarded as grounds for enforcing the alter ego doctrine if the LLCs Articles of Organization or Operating Agreement do not state the requirement of said meetings. Failure to have shareholder or director meetings can cause the corporation to be subject to alter ego liability Even though LLC owners enjoy the benefits of limited personal liability for many transactions of their business, it is important to note that this protection is not absolute.
The most important is the final exception. There are times when a court may declare that an LLC isn't real and find that its owners are actually conducting business as individuals who are in fact responsible for their actions. To prevent this, be sure that your co-owners and you:. When your limited liability protection doesn't shield your personal assets, a good liability insurance policy will help. For example, if you are a massage therapist and you hurt a customer's back by accident, you will be covered by your liability insurance policy.
This insurance also comes into play to protect your personal assets in the event that the court ignores your limited liability status. This insurance can also protect your corporate assets from claims and lawsuits, as well as protect your personal assets in certain situations. However, it is important to realize that commercial insurance typically doesn't protect corporate or personal assets from unpaid debts of the business, whether they're personally insured or not. Even though LLC owners enjoy the benefits of limited personal liability for many transactions of their business Here are a few possible remedies to this problem: Sell off the company.
End the business. Remain as the owner, but contract others to manage.
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Keep ownership and management within the family. The most common causes for failure of the transition of the small business are as follows: There is no strategy. The business is missing energy. The owner lacks the motivation to change the business. The coming generations are not interested in working with the business. The family must do the following to attempt to have a worthwhile transition: Formulate a strategy focused on the family.
Formulate a strategy focused on the business. Make a Succession Plan, which includes setting dates for retirement and the training for who will follow. Make an Estate Plan. What is a strategy focused on the family? What is a strategy focused on the business? What is involved in a Succession Plan? What is contained in an Estate Plan? In the introduction of the business strategy, what should I incorporate? In the marketing portion of the business strategy, what should I incorporate? In the financial management segment of the business strategy, what should I incorporate?
In the operations segment of the business strategy, what should I incorporate? In the closing statement of the business strategy, what should I incorporate? There are several options for increasing cash reserves: Accounts receivables: Properly control your accounts receivables and retrieve overdue accounts as quickly as possible. If you are not aggressive with collection, profits are lost. Having stricter credit standards: With the tightening of credit and terms, more clients are paying for their purchases in cash, which leads to more cash on hand and lowering the bad-debt expense.
Although this is beneficial in the short term, it may not be as appealing in the long term. Less strict credit policies permit more clients to purchase the products or services. Take advantage of the market: A common problem is many small businesses price their products lower than the market and do not make a profit. You should research the product's market, distribution costs and the competition before deciding on prices. Constantly keep an eye on the aspects that play a role on pricing and make adjustments when necessary. Make use of short-term loans: Taking a loan from a financial institution can solve short-term cash flow problems.
The common forms of credit used in these circumstances are revolving credit lines and equity loans. Boost sales: One way to increase the cash flow is to boost sales. Take into account, when a large amount of your sales are credit sales, sales are boosted as well as accounts receivable , but not cash on hand. This causes your inventory to diminish. Due to receivables not being collected until 30 days after the sale, a significant increase in credit sales will diminish the company's cash reserves fast.
There are several options for increasing cash reserves The following should be considered when determining if an attorney is necessary: Is this a difficult legal dispute or will I end up in court? What is involved in terms of money, property, or time? Positive answers demonstrate the need for an attorney. Does a book exist that will be able to help me so I don't have to hire an attorney?
Some problems can be resolved with little help. Have you looked for non-Lawyer legal resources to help? Before beginning a consultation, the following questions should be asked: Is the first consultation free? How long have you been an attorney? Do you have a lot of cases that are like mine? Try to find an attorney that has experience in your problem area.
Are there references, such as trust officers in banks or other attorneys that I can contact? Are there any clients or special-interest groups that you work for that may cause a conflict of interest? Can we make a fee agreement? May we discuss the fees?
Using the waterfall money management system
Is there anything in particular that I should bring to the first consultation? Here are a few factors that play a role in the decision: What can you afford? Is this a routine case or do I need someone with special experience? What is the going rate for the attorneys in my area? What can I take care of without the attorney? The following are basic fee agreements in use by attorneys: Flat fee: There is a specific total that will be charged for work on your case.
Idea: Make sure to ask if copies, transcribing and other expenses are included in this rate. This is normally offered only if the case is simple or routine. Note: Litigation is not usually a flat fee, but an attorney can give you a fair estimate beforehand. Idea: If you decide on an hourly rate, find out how much expertise the attorney has in your particular problem area. Someone who is less experienced will need more hours to complete the work, even though the hourly rate is lower.
The size of the firm also affects the price. Smaller firms and urban lawyers usually charge a higher hourly rate than lawyers in rural areas and large law firms charge the most. Idea: Find out what is included in the hourly rate. Will you be charged for other staff members time put into the case and if so, how? Are there any other expenses that I will be billed for besides the hourly rate?