Finance2007   Finance for personal business

Sadly, we dont live in a world where one can realistically be expected to save their money. It just doesnt happen anymore! A few decades ago that could have happened but not any more. It used to be that your income was far greater than your expenses and you could put quite a bit away. But now our income is often outstripped by our expenses! Our income has not kept up with rising prices and rising taxes.

So were forced to make due with our current income. Sure we can try to increase that income over time, through pay raises or moonlighting or getting a better job, but the reality for many of us is that we have to figure out a different way. One of those ways is to intelligently use loans to help you with your finances.

Perhaps it means getting a payday loan to bridge us to the next paycheck. Or maybe other times it means using our credit cards to consolidate our monthly expenditures and paying it back once at the end of the month. And still other times it means getting a loan to help us buy the things we need.

There are two types of loans. An unsecured loan is money that a lending agency gives to you based on their assessment of your risk. Your credit rating is one of the ways they make that decision. And since they lose their money if you default on your payment, the risk is higher so the interest rate is higher.

However, if you need to borrow more money or you want a loan at a more attractive interest rate, or you want some flexibility with the repayment terms, then borrowing against your assets is the way to go.

Some examples of assets, or equity, that you just might be able to use include your house your car, your stock certificates, or some other kind of valuable possession. Borrowing against these assets assures the lending institute that they can recoup their losses if you fail to make your payments since there is an alternate form of payment.

Lending agencies like this because it minimizes the risk they take. And youll love it because it increases the amount of money you can potentially borrow, it lowers the interest rate youll have to pay, and it lengthens the amount of time youre expected to pay the loan back! What could be better than that?

Some excellent uses for secured loans include such things as debt consolidation or house improvement loans. In both cases, youll find that a secured loan gives you a good amount of money at an attractive rate so you can reduce your debt payments or increase the value of your house affordably!

We live in a world that expects us to borrow now and then. Dont you think that a secured loan is the way to go the next time you need to borrow?

Most people dream of making a lot of money. The question is, what does that mean?

The truth is that money is highly subjective. Certainly, a billion dollars is a lot of money; there are only a handful of billionaires in the world. Is a million dollars a lot? In terms of total wealth, no; a significant minority of the population has a million dollars or more in total assets to leave to their heirs, largely due to the appreciation of real estate. Were one to make a million dollars a year, however, that person would be among the most highly paid in the world.

Personal perception has a significant role in determining the amount of money that a person can expect to make. The reason for this is that the two factors that most influence earnings–level of demonstrable skill, and payment requested from an employer–are very dependent upon the individual. Moreover, while skill is partially based on individual confidence and partially dependent upon innate ability, the amount of money that a person asks an employer to provide is solely based on the individual.

Of course, the two are related. One cannot have a minimal skillset and expect to receive a high salary. However, many people have excellent skillsets yet are paid comparatively little versus their peers. Why?

The truth is, they probably didn’t ask–or if they did, they didn’t ask in a way that conveyed they really thought that they deserved what they wanted. In many cases, the boss knows the most that he or she can pay, but will be pleased to pay less if an employee will accept it.

Of course, the boss will not tell the employee what he or she can actually afford to pay. But dealing with that is comparatively easy in the Information Age: there are salary guidelines for given locales and positions available on the Internet. The real challenge is not asking a high level of compensation, but feeling that you deserve the high level of compensation for which you are asking.

To do that, one must understand the relative value of money. We have established that being a billionaire is truly remarkable, and that accumulating a million dollars over a lifetime is not but that making a million dollars per year is. What about lower income levels–the sort that we tend to see in everyday life?

How much is a lot?

The U.S. Department of Health and Human Services Federal Poverty Guideline for a family of four in 2006 is $20,000. A family that makes this amount or less is, by definition, poor.

The median income reported for a family of four in 2006, however, ranged from a low of $45,867 in New Mexico to a high of $87,412 in New Jersey. These figures include single- and multi-earner households.

Consider a candidate in New Jersey who holds a degree in a moderate-demand field. Will he or she accept a salary of $20,000? Probably not. Expecting a salary of $87,412 may seem excessive, though, because he or she would, as a single earner, be requesting the average income of a family of four.

But is it excessive? Actually, no; if $87,412 is the median salary–meaning there are an equal number of earners above and below that mark–the candidate could, in fact, confidently request $90,000 or more. The reaction from a hiring manager would depend in part on the industry and also in part of the applicant’s specific skillset. Another candidate, in another job, however, could ask for it and get it. The trick is to have the audacity to ask.

A real-life story

Shortly after I finished college, someone I knew earned $40,000 a year. His stated goal was to reach a salary of $50,000. He worked hard to apply himself to education and professional development, and volunteered for special projects to expand his skillset.

His next job offer caught him off-guard: $73,000. He took it, of course, astonished at how much he now made. Within a few months, though, he realized that others in the field made considerably more. He stayed active in professional development and worked hard to master new skills.

A year into the job, he requested an increase in salary, providing his employer with salary survey data and other information. He received a raise to $89,000 and was offered an incentive plan based on performance.

After three years, he decided to leave. He interviewed at a number of top companies that were excited to meet him. He had an offer from one for $110,000 and then got an offer from another for $115,000. Deciding that he prefered the first company, he asked if they would increase their offer. Knowing that this would require approval, however, he offered to take an initial salary of $100,000 until he finished his probationary period. They accepted.

Four years ago, he aspired to someday make $50,000. Today, he makes $115,000–and considers $200,000 to be easily within reach given a few more years. And why?

Because he asked.

A 401(k) plan is an employer sponsored plan. The employer makes direct contributions to the account that are deducted from the employee’s paycheck. Most companies will match the paycheck contribution up to a certain percentage. In general, the contributions are before tax dollars and grow tax deferred until they are withdrawn. After-tax contributions are also allowed.

You should contribute as much as you can to your 401(k). Don’t overextend yourself, but you don’t want to waste the opportunity to deposit tax free, tax deferred money and have it matched. The amount the company matches you for is free money. Don’t let it go.

In 2005, the maximum before tax annual contribution that an employee can make is 14,000. If the employee is over 50 years of age, he or she can contribute 16,000. The limit is set to increase by 1,000 in 2006.

Your 401(k) is simply an account; you chose the investments within the account. There is usually an array of mutual funds presented to you, but you must decide the allocations. There is no one to advice you when it comes to role fees and expenses that will affect your overall returns.

First, decide how much risk you are willing to assume. How much volatility within the portfolio can you stand?

If you are in your 20’s and early 30’s you have the time to be aggressive with your investments. The time factor allows you to recover from slumps in the stock market. As you age, your investments should become more conservative to protect your earnings.

Many 401(k) plans have tools, such as online calculators and worksheets, which help you in determining how much risk you should accept. The best tool is often to seek the advice of a competent financial planner. It is worth it to hire a planner to evaluate your assets and earning ability if the end result is a comfortable retirement.

If you find that you are in need of money, most plans will allow you to borrow up to 50% of your vested balance, but not over 50,000. You usually have to repay the money with interest within five years. The interest payments go into your account, so you are paying yourself the interest. There are downsides, though.

The money you have withdrawn as a loan isn’t appreciating. The original contributions were made with pre-tax dollars, but the money you payback is after-tax. If you don’t pay back the money it will be considered a normal distribution, and taxed and penalized.

If you leave the company, in most cases you will want to take your 401(k) with you. You can role it over into another company’s 401(k) plan program or into your own IRA at a brokerage. With an IRA, you will have more control over your account, and better investment options.

Whatever you do with your IRA, make sure that you follow all procedures to the point. You don’t want to accidentally withdraw your money and have to pay the taxes and penalties. This is a very costly mistake.

If you are an entrepreneur, you can open an individual 401(k). This gives you the option of investing thousands of dollars more than in other kinds of self-employment retirement accounts. An individual, or solo, 401(k) is available to businesses that only have the owner and spouse as employees. This means that if you work for someone else and have a business on the side, you can open an individual 401(k).