Beating Broke

Personal Finance from the Broke Perspective

Making New Years Resolutions That Will Stick

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HAPPY NEW YEAR !!!!
It’s that time of year again!  That wonderful time when everybody is all hopeful and cheery and bright.  We go about spreading our cheer and hope and then declaring it to the world by making New Years Resolutions. Each year we resolve to lose the weight, quit the smoking, work less, and so on.   And each year, we all make it to about the 15th of January before we give up on those resolutions.  Not only do we go back to where we were before the new year, but some of us get even worse!

The problem isn’t that we’re weak.  It isn’t even that we make bad resolutions, although that sometimes is part of it.  What really, really kills those resolutions is the scale.  We fumble and stumble over the sheer breadth of our resolutions.  And that is almost directly a response to the overwhelming hope that we feel going into a new year.  Hope is good, don’t get me wrong, but we have to learn to channel it and control it so that it works for us, instead of against us by laying traps.

Think carefully about the resolutions you’ve made before.  They almost always go something like this: “I resolve to lose 100 pounds this year!”.  And they almost always fail.  But, like I said, it’s all about scale.  Instead of resolving to lose all 100 pounds this year, try making the resolutions scalable.  Something that has smaller increments and can be used as a checkpoint through out the year.  When you haven’t lost 10 pounds by the middle of January, you aren’t as disappointed, and you can keep working instead of giving up and going on a binge.  Try something like “I resolve to eat less this year”, or “I resolve to lose a pound a week this year”.  If you miss a day or two, or even a week or two, you can still catch up.  Or, you can just forgive yourself those few days or weeks and continue on the next day or week.  The same can go for smoking.  Instead of resolving to quit smoking entirely this year, and then giving up the first week, because you tried to go cold turkey, resolve to smoke one less cigarette each week than you did the previous week.  You might not quit as quickly, but it helps you taper, and it gives you goals that are achievable.

Use these same principles to modify the resolutions that you give yourself for your finances.  Instead of jumping right to the max contribution to your 401(k), maybe increase it a percentage or two so each quarter so that you’re at the max by the end of the year.  Instead of trying to save the full amount you want to out of your paycheck, do the same and increase it slightly each paycheck.  Not only will it still achieve your goals, but because you’re doing it gradually, it won’t produce the same shock to the system that it would if  you tried to do it all at once.

This new year, give yourself a fighting chance.  And remember, just because you want something, and you make a resolution about it, doesn’t mean it’s gonna just fall into your lap.  You’ll still have to work for it in any case.

photo credit: jazzlog

Bye, Bye Pension; Your Opinion Needed

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We were recently told that our defined benefits plan was being taken away.  For those that are confused, a defined benefits plan is what is normally called a pension.  For me, I haven’t been around long enough for it to really affect me.  Some, who have been around for a very long time and are nearing retirement, it will mean a rather significant chunk of the money that they thought they would have for retirement will be gone.  To their credit, our employer is doing it the right way.

Rather than just declaring the fund bankrupt, or letting it run until it was bankrupt, they’ve decided to shut it down gracefully.  What that means is that those of us who are vested in the plan will receive a payout of the amount we have vested.  And, as part of that, we need to decide what to do with that money.  We have four options:

  1. Buy an Annuity.  Annuities basically work like this: You give them a lump sum of money, and they agree to pay you a monthly amount back.  The total of the payments is equal to some amount greater than the amount that you gave them.  It’s usually based on current interest rates.
  2. Roll the money into the company 401(k).  I’m already participating in the 401(k), so this would be a logical place to go with it.
  3. Roll the money into an IRA.  Also a logical way to use the money.  Could be rolled over into a Roth IRA as well.  Either way, I have far more control of the money than I would in my 401(k).  Also, I don’t believe I’d have to worry about IRA Contribution Limits if I roll it over.
  4. Take a cash payout.  They’d just write me a check, minus the 10% early withdrawal penalty from the IRS.

I’ve ruled out option 1 as it doesn’t make any sense to do with the interest rates where they are.  Most likely, I’ll be using option 2.  But, I just can’t come to a concrete solution.  If I take option 2, I add a significant amount of money to my 401(k).  More is always better.  But, I have no more control of that money than I do with the current money that’s in there. Wall Street's Cut of Your 401(k) Pie If I take option 3, I still retain the same amount of money in a retirement account, plus I have far more control of where the money is invested than I do in the 401(k).  That’s also the con of this option though.  I’m no investment expert.  I could look to invest in a stocks and shares ISA but as a general rule, most of the investments I’ve made aren’t all that great.  Which means it would have to be limited to EFTs and Mutuals which doesn’t afford that much more control than in the 401(k).  The final option would be to take the money in a check.  The big downside there is that the IRS takes 10% off the top as a penalty.  Then, it’s counted as income which gets taxed as income.  In our tax bracket, that could mean an extra 15% in tax liability.  If it bumps us up into a new bracket, it could mean some of it could be 25% in tax liability.  So, I’d pay an instant (or nearly so) 25-35% if I took a check.  But, that still means I would receive a lump sum of several thousand dollars.  That money could be used to pay off at least one credit card, if not two, and alleviate some of the monthly burden that our debt gives us.

I know that the safest (rightest) answer is to put it into one of the retirement accounts, but having the cash to dump some of our debt would also be very advantageous.

What would you do?  If you were in my situation, would you play it safe and roll the money into your 401(k)?  Would you take the cash and pay something off to reduce your monthly expenses?  Tell me how you would handle this!

photo credit: House Committee on Education and Labor

My Wife Quit Her Job: Business Insurance

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As I’ve covered before, shortly after my wife quit her job, she joined a couple of her previous coworkers in starting a business of their own.  As anyone who has started a business of their own knows, there are many, many unexpected things that can come up.  With proper planning, many of those things can become less of a shock when they happen.  One way to do that, and one that the accountant that was helping my wife and her partners get started required, is business insurance.

What is business insurance?

insuranceIt can come in many small variations, but in general terms, it is insurance that helps protect you and your company against liability and litigation.  It also can act as insurance against interruptions in business.  If your store floods, and you have to close for a few days, it will help defray those costs.  Your coffee burns someones tongue off?  It’ll help with that as well.

With the particular type of business that my wife and her partners were building, liability insurance was the most important part of their business insurance package.  They work daily with clients in a variety of locations and scenarios and as such, need an insurance that will cover them for liability if someone were to get injured while at one of the locations or in transport to the location.  That part of the insurance was much more important than having insurance for a office location (at least right away since they didn’t have an office for several months.).

Where do I get business insurance?

Getting business insurance isn’t as difficult as it may seem.  In fact, it might be as easy as getting a referral, like my wife and her partners did.  A quick look through your local phone book will likely get you some prospects as well.  And in many cases, if the agent you talk to doesn’t offer business insurance, they’ll happily refer you to someone who does.  Much like any other type of insurance, there are plenty of websites that offer quotes and services.  And, much like any other type of insurance website, it’s difficult to weed out the ones that are really there to help and which are there to make themselves a quick buck.

Much like anything else involving your business, business insurance really needs to fit your business.  Your responsibility as the business owner is to check and double check to make sure that the coverage fits your business and will cover all the necessary situations.  Getting a sub-standard insurance just because it was the cheapest could cost you money, or worse, your business.

insurance by alancleaver_2000, on Flickr