Dollars & Sense Education

Don’t get me wrong, I love to shop, buy a new outfit or two, but I have never been the type of woman who stands in front of my closet saying…I have nothing to wear.  Maybe it is my oversized sense of self or just my decisive nature, but it is just something I don’t do.  Many of my friends agonize over this decision daily, ultimately resulting in the purchase of more (and more and more and more) stuff.

The thing about stuff is, you will NEVER have enough, there never comes a point where you will say, yep, that’s it.  Anyone remember Amelda Marcos, the wife of a Philipino dictator in the 80s?  She had 3,500 paris of shoes.  Nuff said.

If you are trying to get ahead financially, this infinite money suck, called your closet, is not an asset to your financial health.  My suggestion is, set a monthly clothing number.  You will probably spend it the first week of the month, I always do!  And the number will vary wildly from person to person based on your income and other monthly outlays but setting up monthly limits will tame your inner Imelda and help release your inner Warren Buffett:)

Please contact Dollars & Sense Education to bring our seminars to your company or organization!

Dollars & Sense Education - Raising Your Financial IQ!
www.daseducation.com
nicole@daseducation.com
215-499-3834

The Golden Rule is a fundamental moral principle which simply means, “Treat others as they would treat you.”  It is arguably the essential basis for human rights.  Similarly, in my mind there is a Golden Rule for Personal Finance.  Like the moral Golden Rule, it doesn’t encompass everything you need to know but unless you tackle it, the rest is moot. 

Golden Rule of Personal Finance:  You must earn more income than what you spend.

Sounds simple enough but so many folks don’t follow this rule.  Check out this link to an awesome skit on SNL.

[youtube=http://www.youtube.com/v/cmAm8GNJ_IA&rel]

My one pet peeve with MOST personal finance blogs out there is their almost religious commitment to being thrifty.  I have read articles lately about refilling toothpaste bottles and reusing cereal liners.  In my opinion that’s not personal finance, that is borderline homelessness. 

I know there are people out there that are mired in debt and need to use these gorilla tactics to crawl out of the hole they are in.  I have been at those points in my life where I had to stretch every dollar reeeeeeeeeeeeaaaaaaaaaaaallllllllllllllyyyyyyyy far.  However, I suspect that there is another group of individuals out there that are so turned off by the “personal finance paupers” that they eschew personal finance blogs, articles and tv shows.  My belief is that you can still have a comfortable life and build wealth.  You just need to budget accordingly.

I have a confession to make: I eat out every day.  That’s right.  Every day.  No, I don’t buy my food in bulk at Sam’s Club.  And you know what else, I drink alot of beer at bars.  I have budgeted these things into my life because they make me happy.  Could I sock a little bit more into my savings account if I ate at home and drank a six pack all by my self.  Sure, but what fun would that be?  I have been able to invest a hell of alot of money from age 22-29 without living a boring life.  Does it help that I am single with no children? Sure.  Does it help that I live in a city with a low cost of living (Philly)? Sure.  Does it help that I have made a decent salary over the last few years? Sure.  But I am convinced you can have your cake and eat it too.  In college, I made $12,000/year.  My pay was able to cover rent, electric, gas, car insurance, food and alot of partying.  Did I have to skimp on luxuries? Obviously.  But I budgeted around my priorities and 12K went a long way.

My view is personal finance should be about finding the sweet spot between growing your net worth and living a fulfilling life.  Just my 2 cents.

 Please contact Dollars & Sense Education to bring our seminars to your company or organization!

Dollars & Sense Education - Raising Your Financial IQ!
www.daseducation.com
nicole@daseducation.com
215-499-3834

So for all you self employed folks out there, this week is for you!  I am laying out all of your retirement plan options in gory detail.  For everyone else, take the week off from reading.  Grab a beer.  Watch Heroes:)  The first installment of this series discussed the SEP IRA.  Part 2 of this series explores another popular option: the Solo 401K. The next two entries will describe the other options available to the self employed and the last entry will discuss what options are appropriate for you according to the kind of business you have and your goals!

Do I Qualify For A SOLO 401K?

Any type of business with no employees, can establish an individual 401(k) plan – generally referred to as a Self-Employed 401(k), or Solo 401(k).  The business can be brand new or old. It can be a sole proprietorship, LLC, partnership, or corporation.

Where Do I Set Up a SOLO 401K?

Fidelity and T. Rowe Price offer SOLO 401Ks or 401kBrokers.com.

How Much Can I Contribute Annually to a SOLO 401K for myself?

For the tax year 2007 you can contribute up to $15,500 plus 20% of your business income, with a maximum contribution of $45,000 in 2007. You can make an extra $5,000 catch-up contribution if you’re 50 or older.
 

Why Not Just Open a Traditional or Roth IRA?

Do Both!   

When Do I Set This Up?

Each Self-Employed 401(k) must be set up no later than December 31, to be eligible for tax deductions for that tax year.

What If I Already Participate In My (Other) Employers Plan?

If you have a regular 401(k) through an employer and have some freelance earnings on the side, then your solo 401(k) limits will be reduced by any contributions you’ve made to a regular 401(k). But that only affects the first $15,500 of contributions, not the 20% of business income. So if you contributed $10,000 to a regular 401(k) through your employer, for example, then your solo 401(k) contributions will be limited to $5,500 plus 20% of your business income.

Do I Have to Put Away the Same Amount of Money Every Year?

No!

What If I Have Employees?

If you have employees you are not eligible for a SOLO 401K unless it is your spouse.

Anything Else?

Keep in mind that the eligibility requirements for having a self-employed 401k plan are quite strict. It’s not widely offered by most investment companies and those that do offer it provide limited investment options. And once you add a single employee outside of your spouse, you must convert to a traditional or SIMPLE 401k plan. 

Summary 

If work for yourself take full advantage of the tax benefits that affords you! A Solo 401K allows you to defer a significant portion of your retirement savings from taxes. Don’t let Uncle Sam get more than his fair share!

In the next installment of this series (Part 3 of 5) I will describe another kind of retirement account for the self-employed - The SIMPLE IRA!

Other great blog entries on Solo 401Ks:

http://www.mymoneyblog.com/archives/2007/10/fidelity-self-employed-401k-account-review.html

http://www.my-personal-finance-blog.com/2006/12/28/set-up-my-solo-401k/

http://taxplaya.typepad.com/tax_playa/2007/03/selfemployed_40.html

For the last article:

http://daseducation.wordpress.com/2007/10/08/a-retirement-accounts-for-the-self-employed-part-1-of-5-the-sep-ira/