Personal Finance Ology

The better you organize your finances the easier it will be to utilize tax strategies that will allow you to keep more of your earnings for yourself. You have to create an entity that will draw in revenue and allow you to write off certain things as an expense.
There are a few options and you should definitely look over your situation and decide which entity best meets your needs.

1. Limited Liability Corporation
A Limited Liability Corporation, or an LLC, is like a combination of the best parts of a partnership and a corporation. It offers the owners protection from personal liability for any debts the LLC may incur. In this way it is similar to a corporation. It differs from a corporation in the way it is taxed. An LLC doesn’t pay it’s own taxes it is considered a pass-through tax entity. This means any profits or losses of the LLC passes through to the owners. The owners in turn will report them on their tax returns.
Along with the passing through of any profits or losses, the owners of an LLC are protected from personal liability for any debts the business incurs or any claims filed against the business. In other words, if your LLC is unable to pay a creditor that creditor cannot come after any of your personal possessions. This is where the “limited liability” comes from.
Now even though your personal possessions are protected under the “limited liability” there are some instances where you can become liable. If you yourself directly injure someone, personally guarantee a bank loan, fail to deposit taxes withheld from your employees wages, intentionally perform fraudulent acts that cause harm to the company, use the LLC as an extension of your personal affairs this will cause you to become liable for your actions.
It is very important that, if you choose to form an LLC, you treat it as it’s own business and keep it separate from your personal affairs.

Tax Outlook
The key tax advantage of creating an LLC is that you don’t have to pay taxes on the money that your business spends. Legitimate expenses to your business can be deducted or “written off” from your business income. This will lower the profits of your business that you have to report to the IRS and in turn decrease the taxes you will be required to pay.

2. Corporations
A Corporation is a legal entity separate from its owners. Like an LLC, it has liability protection. Therefore your personal assets are separate from that of the Corporation and you aren’t held liable for the debts of the company. The difference between Corporations and an LLC is that with Corporations you can raise capital by selling shares of stocks.
There are also some additional responsibilities that are involved with Corporations. For instance, in order to remain a Corporation you must hold an annual meeting and take Corporate minutes and appoint the appropriate officers.

Tax Outlook
Aside from being able to write off the expenses of your business, a Corporation is also an independent tax entity, separate from the owners and anyone who may control and/or manage it. Therefore, the owners will not use their personal tax returns to pay tax on any of the Corporations’ profits. The Corporation will pay the taxes on these profits itself. The owners will pay income taxes only on salaries or bonuses received from the Corporation.

Filed under: business by admin - 57 Comments →

There are many different types of business entities that you can set up if you have started your own business. Some include: Limited Liability Corporations,  C-Corp and an S-Corp. Regardless of which formation you decide is best for you, there are advantages in forming an entity. More on the different types of Corporations later.

Personal Asset Protection
This is a biggie! This is probably the main reason anyone starts a corporation. If you get sued, or the business just tanks, you are not liable for the losses. Meaning your personal funds are not at risk. This  allows your personal affairs to be separate from the companies. This leaves you free and clear from any debts or claims incurred by the company.

Professional Appearance
The appearance of Inc. or LLC after your business name can add authority and convey an image of seriousness and dependability. This will make a potential customer feel comfortable in doing business with you. Plus this will make you feel special too. There is something to be said for owning your own business. If you can put LLC or Inc. at the end of your business name, it makes you special(or at least feel special).

Name Protection
In the majority of states, no other business can form a Corporation or LLC using the same name of your Corporation or LLC. That means if you start up a business called Widgets-R-Us, no one can do business under that same name. This is good protection to have incase someone with a big wallet tries to steal your business model and customers.

Deductions
Normal business expenses can be used as deductions from the profits of the company allowing for a decrease in taxes. You can actually claim deductions if you are just a sole proprietor as long as you are not doing it as a hobby, which can sometimes be hard to prove. If you are incorporated, you are obviously a business.

Remember, I am no tax pro, so if you plan on starting your own business you should probably see a professional to verify the facts. It may cost a few hundred bucks to go from sole proprietor to corporation but the peace of mind from these benefits probably makes it worth it.

Filed under: Uncategorized, business by admin - 94 Comments →

It’s better to always remember that money attracts more money and more money attracts more opportunities. Therefore, if every time you make a profit from one of your investments and you use it in a way that will not bring you anymore profit you have simply wasted your previous efforts of obtaining that money in the first place.
Here’s an example, let’s say you work hard for a solid month straight saving every penny you could so that you could use it for, after careful research, an investment opportunity which you find to be very lucrative. Now the end of the month has come and you invest everything you worked so hard for into this opportunity. A couple of months go by and you find that your earnings from your investment have doubled. So you take which you have earned and go out celebrating until every penny is gone. Get where I’m going here? Exactly!! What you have done here is taken your earnings and spent them on things that cannot bring you any more money. You pretty much threw your entire months work and the opportunity to gain more money to a night of celebration and fun.
Now I’m not saying you have to hold tight to every penny you receive from investments but I am saying you should think wisely about what you do with your profits rather than just blowing them off.
A better way of utilizing those earnings would have been to leave what you initially invested in the opportunity there and take the profits from your investment and research another investment opportunity.
That way you are creating ways for more money to come into your life. Remember money attracts money. Therefore, if you spend all of your earnings you leave nothing for money to be attracted to however if you use it wisely in money creating ventures it will come back to you over and over again. It will also afford you the opportunity at more than just one night of celebrating. If you continue to work in this manner you can very well find yourself in a position to have all that your heart desires.

Follow The Leader
A great way to get started in any arena you are not familiar or comfortable is to seek out the path of those that are successful in that area. Read about certain things they did or how they paved a way for themselves. Were they trailblazers? Did they follow a certain pattern? Did they stay inside the box? Really take a moment to learn of those well accomplished in the field.
After ample research choose whichever one is similar to you in personality. Which one responded in a way you would. Or did things the way you do them now. Once you have narrowed your search down you can use this person as a personal finance mentor until you find someone.
Find out what types of investments they were apart of. How did they get started? What are they doing now? All of this can help you in your efforts to becoming financially stable.

Photo by: Heather Mladek

Filed under: Uncategorized, money by admin - 148 Comments →

Most loans fall into three major categories: Fixed-Rate, Adjustable-Rate, and Hybrid Loans, these combine features of both.

Fixed-Rate Mortgages

A fixed-rate mortgage carries the same interest rate for the full length of the loan. Due to their fixed monthly payment a lot of homeowners opt for this mortgage. It makes it easier t o budget your money knowing that your mortgage payment is going to be the same every month. This option can also help protect against inflation being that the interest rate is locked in. Fixed-rate mortgages are most common in 30-year and 15-year terms. However, more lenders have begun offering even 40-year loans.

Adjustable-Rate Mortgages (ARM)

Adjustable-rate mortgages have an interest rate that can change over the length of the loan. This is because the interest rate is tied to an index, measure of interest rate changes used to determine changes in the loan’s interest rate over the term of the loan, which may rise or fall over time causing your monthly payment to change as well. ARM loans usually have caps that limit the rate from rising above a certain amount between adjustment periods, the length of time between interest rate changes. This is usually no more than 3 percent a year. For example, a one-year ARM-interest payment would change annually. There is also a ceiling on how much the rate can go up during the life of the loan. This is no more than 6 percent. These caps protect you against dramatic increases in the rate. With these protections and low introductory rates, ARM loans have become the most widely accepted alternative to fixed-rate mortgages. One last important to note is that some ARM loans have what is called a conversion clause. This is a provision in some loans that enables you to change an ARM to a Fixed-Rate loan. However, you usually cannot do this until after the first adjustment period and you may have to pay additional fees.

Hybrid Loans

Hybrid loans combine the features of both fixed-rate and adjustable-rate mortgages. Usually, a hybrid loan may start with a fixed-rate for a certain length of time and then later convert to an adjustable-rate mortgage. This may seem like the perfect situation for you, however be sure to find out how much the rate will increase once it is converted to an adjustable-rate mortgage. Alongside knowing this, you should also be aware that some hybrid loans do not have interest rate caps for the first adjustment period.

I would caution you to be very careful when choosing a hybrid loan. They can be very tricky. Some lenders will charge an introductory interest rate that is lower than a competing fixed-rate loan just to get you to choose their loan. However, this interest rate may later change to another, usually higher fixed interest rate for the time left on the loan. So before choosing a hybrid loan, be sure to consider all of these facts and ask as many questions as you need to get a full understanding of the terms of the loan.

This article certainly talks about a lot of different loans. However, it is important to gain a full understanding of the decision you are making when you are committing yourself to such a long-term agreement. Be sure you understand everything you are signing and why you have to sign. And with that said here’s to the progression of financially responsible homeownership!

Filed under: mortgage by admin - 113 Comments →