February 2017 - WiseDollar

Archive for February 2017

How to Budget When Your Income Fluctuates

February 27, 2017 Wise Dollar Budgeting 2 comments

One of the scariest things about leaving my job to run my own business was learning how to budget when your income fluctuates.

Having a steady income that comes in every two weeks like clockwork makes it easy to set up a budget. You know exactly how much money you’ll earn, when you’ll get paid and how you need to spend it according to your budget.

But when your income fluctuates from month to month because you are self-employed, or you have a commission-based job, it can be more difficult to budget. Notice however that I did not say it’s impossible to budget when your income fluctuates. Because it’s not. Here’s how you can budget when your income fluctuates.

Record All Monthly Expenses

Recording all of your monthly expenses is the first step in any budget, no matter if your income fluctuates or is steady from month to month. Start with the necessities such as your rent or house payment, utilities, loans and debt payments, groceries, etc. Once this is completed be sure to include additional expenses such as clothes, eating out, trips, etc.

Note which expenses are monthly and which are weekly. Once tallied subtract these from your current income. This is how much you have left or how much you need to make up. From here you can decide what can go and what stays in your monthly budget.

Average Your Lowest Income

This sounds simple, but when your income fluctuates, it can be more tricky. The hardest part about a fluctuating income is having low months. So when you budget, make sure you aren’t budgeting off of a high income month.

Take a few of the months where you have made the least and average it out. This will the basis for your bare-bones budget, the lowest you have to have to live?off of. This way you’ll be able to cover you budgeted expenses as long as your income doesn’t drop below the current low average.

If your income doesn?t fluctuate too severely, or your income is continually growing, you might be able create a rolling 12 month average to use for your budget instead. But, there is more risk in using this method.

Open a Holding Account

This budgeting method is great for those who don’t earn the same amount all year and have known periods when work and income may be slow. Open a new account and deposit all of your income into it each month. Then take a set amount from the account each month to cover the budget you created. Don?t take more when you have a good month so?you aren?t tempted to spend it or splurge.

If you continue to out-earn your monthly pull, or you no longer have a slow season, you may be able to use the “extra” in the account to make a lump sum payment toward debt, or as a savings for a large purchase, like car or a down payment on a house.

Start an Emergency Fund

Everyone should have an emergency fund, no matter how much money they have or earn. By saving three to six months of expenses, you can use this to live off of should the unexpected happen or if an emergency pops up. Work your way up to this amount by putting money into your emergency fund every month. Add?a line item into your budget for saving so you don’t forget to do it.

Stick to Your Budget!

This is the most important thing to do when your income fluctuates. Stay within your budget even if you happen to have a good month of income. Without splurging during high income months, you will continue to have savings and money for when things get slow. Be wary of elevating your lifestyle based on?a month of inflated income. This can be unsustainable if you don?t earn the same the next month.

You can make your budget work even though your income may fluctuate?from month to month. By planning ahead and sticking with it, you can meet your financial goals and be set for whatever comes your way.

Does your income fluctuate? How do you handle budgeting with a fluctuating income?

Photo courtesy of: Unsplash

How These 3 Emotions Affect Your Finances

February 22, 2017 Wise Dollar Lifestyle 2 comments

In an ideal world, the topics of finances and emotions would not mix. You would be able to handle your finances strictly by making clear, logical decisions without any influence from the emotional side of your brain.

Of course, this is not an ideal world. Your emotions are very likely to get in the way of clear decision making from time to time. Human beings are emotional creatures. So, don’t be too hard on yourself if you do make an emotional choice on occasion.

With that said, understanding how emotion can influence your financial decisions is a good way to avoid making major mistakes. The list below contains three emotions that you need to watch out for while dealing with the financial side of life as these emotions affect your finances.

Frustration

If you get frustrated with your financial situation, you might end up taking actions that are not in your best interest over the long term.

For example, if you are not making as money as you would like, you might find yourself investing in risky ventures with the hope of hitting a big return. Of course, that kind of strategy is more likely to lead to you losing money than anything else. But your judgement may be clouded by your feelings of frustration.

If you do find yourself feeling frustrated about your financial life, take a step back and hold off on making any decisions until you have cooled off.

Excitement

While the emotion of excitement is generally a good one, it can still lead to some poor decisions with regard to your financial well-being. Imagine you have just earned a big raise at work thanks to your contributions to a big project ? that?s great news! Any increase in income is going to be a significant boon to your financial life. Of course, that is only true if you manage that money wisely.

If, while feeling excited about your raise, you go out and purchase a new car or make some other big purchase, you will quickly have wiped out your progress. As is the case with any other emotions, it is best to let things settle down before you spend any significant amount of money.

Disappointment

Some people choose to spend money in an effort to feel better about something else that is going on in life. In fact, the term ?retail therapy? has developed to describe this exact kind of behavior. While it might not be the worst thing in the world to take yourself out to dinner after a disappointing day, you don?t want to get too carried away with this kind of spending.

If you fall into a pattern of spending money every time you find yourself disappointed in life, it will be difficult to keep your budget under control as the months go by. Life is naturally filled with ups and downs, and you are going to need to find ways to ride out those waves without the assistance of your credit card.

Have you ever had these emotions affect your finances??Have you seen other emotions affect your finances?

Photo courtesy of: Alexas_Fotos

How Rent Control Works in San Francisco

February 20, 2017 Wise Dollar Real Estate No comments

San Francisco is a unique city no matter how you look at it. With its hilly, foggy charm and host of world-renowned sites?the Golden Gate bridge, Alcatraz, Lombard Street, and many more?this waterfront city is a popular place to vacation, and has also been one of the fastest growing areas in the U.S. thanks in part to the tech boom. The San Francisco Bay Area includes some of the most prominent companies today?Silicon Valley or otherwise? like Google, Apple, and Facebook, to name just a few. How has this recent expansion affected the housing market over time?

Rent Control

One popular debate when it comes to San Francisco is how it should proceed in regard to housing. Some preservationists vehemently oppose building too many new units, while others insist that it would stabilize the market by tweaking supply and demand. In 2016, ?The City? topped Business Insider?s 20 Most Expensive U.S. Cities for Renters list with a median one-bedroom cost of $3,590. Outsiders may be shocked to see such a staggering price tag, and may be curious as to how San Francisco rent control affects tenants and landlords.

The San Francisco Tenants Union lays out the basic components of rent control, which covers apartments built before June of 1979:

-Landlords can only raise rent in accordance with inflation. They can petition for additional increases if they make improvements that affect the tenant capped at 10 percent, or increased upkeep costs capped at 7 percent. The Rent Board must approve these petitions.

-Tenants have the right to petition the Rent Board if they can prove that the landlord does not meet the conditions of their lease agreement. Examples of this may include ignoring safety issues.

-Landlords can only evict tenants for ?just causes.?

According to statistics from nonprofit housing advocacy group SPUR, approximately 172,000 units in San Francisco are rent controlled. About two thirds of residents in The City are renters.

When Rent Control Goes Wrong

What about when rent control goes wrong? While these sanctions are in place to protect tenants against sudden spikes in rent, there are loopholes that make certain areas of rent regulations difficult to predict. The Ellis Act gives landlords the right to evict tenants to ?go out of business,? namely if they take all the units in a building off the market. One San Francisco resident found out how this can affect renters the hard way.

Curbed San Francisco reports how Deb Follingstad received a notice that rent on her two-bedroom apartment would increase from $2,145 per month to $8,900 per month. Usually if landlords want to evict tenants with the Ellis Act as their reasoning, they will receive relocation payments. In Follingstad?s case, her landlord converted the recently vacated lower unit in her building into ?storage? by removing the appliances and plumbing, thus transforming her building into a single-family dwelling that evaded rent control protection. Follingstad called rent-controlled apartments a ?ticking time bomb.?

Needless to say, interpreting the rent control policies in San Francisco requires wading through multiple layers of jurisdiction, exceptions, and responsibilities. To ensure legality and avoid disputes with tenants, many landlords rely on end-to-end property management companies like Onerent to navigate the rental market in San Francisco. It can be an exciting market to get involved in, but takes extra care and research to list rental properties, communicate with tenants, and collect proper rent payments, and everything else it takes to secure profitability in such a competitive market.

While challenges facing the housing market in The City won?t resolve themselves overnight?some people blame tech transplants for the tough market, while others continue to hold protectionists and their unwillingness to allow new growth responsible?San Francisco is still home to many vibrant communities and shows a lot of promise for the future. If you?re a landlord or tenant in the Bay Area, use all the resources at your disposal to conduct proper research and make sure that you know your rights and responsibilities.

Do you live in a rent controlled city? How does rent control work there?

Photo courtesy of: tpsdave

Why You Shouldn’t Request a Tax Refund Advance

February 20, 2017 Wise Dollar Money Management 3 comments

Tax season is officially upon us. As we scramble to collect all of our W-2s, 1099s, receipts, etc., we start to think about our tax refund.

Remember that getting a tax refund from the government means you paid too much money in taxes throughout the year. They are giving you back the money that they borrowed.

If you are getting a large tax refund, you should discuss your withholdings with your tax preparer or accountant so you can lower them. Lowering your withholdings will decrease your tax refund next year, but it will give you more money in your take home pay every month.

Getting a large tax refund is bad enough, but I’ve gotten several advertisements in my mailbox over the past few days encouraging me to borrow against my expected tax refund by requesting a tax refund advance. If you are expecting a refund and need money immediately, you could apply for a tax refund advance. But, here’s why getting a tax refund advance is NOT a good idea.

It?s a Short Term Fix

If you are strapped for cash and need money now you can get it with a tax refund advance. This advance is similar to the payday advance loans. You?ll get the money now, but when you need it later you won?t have it.

Getting advances of money is a?the struggle because you’ll have to come up with more money to pay off the advances when they come due. Chances are high that you won’t have any money then either. It’s a vicious cycle that’s best avoided. Start budgeting and saving an emergency fund so you can avoid these options and have the relief knowing you are covered should something come up.

Your Taxes Must Be Prepared by That Company

Due to a law passed in 2012, these tax refund advance companies can?t charge fees or interest in order to protect you. To get around this companies have made it mandatory you have them file your taxes. The gotcha is that they can charge you more for their services, and they may try to get you to pay for unnecessary services you don’t even need. Once your tax refund comes in, you won?t get the full amount. Instead, you?ll get the amount minus what you were advanced.

What Happens If Your Tax Refund Advance is Denied?

Even if your tax refund advance is denied, you still have to pay the tax preparer for their services. If you think you?ll get a tax refund advance and you have your taxes prepared, you may not have the cash to pay the preparer is you are denied an advance. This can put you farther in the hole as you?ll need more money that you don?t have.

Fees Add Up

A tax refund advance is usually placed on a debit card of some sort. Most ATMs charge a $2.50 to withdraw your money. If you make multiple withdrawals, your fees can easily add up and the amount you?ll have to spend is less.

While there are no lending fees or interest due for a tax refund advance, it is still like a loan. It is still money you will have to pay back when you get your actual tax refund. A tax refund advance should only be used as a last resort.?Even then, it should be used with caution.

It?s easy to get swept up in the cash you have now and not plan ahead for when you’ll have to repay the advance. A better alternative is to budget and save up an emergency fund, so you never have to count on a tax refund to help your finances. This way any refund you get will be a cherry on top of your already good personal finances.

Have you ever gotten a tax refund advance? Do you expect a tax refund this year?

Photo courtesy of: Cobanams

Will I Ever Need To Apply For A New EIN For The Same Business?

February 17, 2017 Wise Dollar Business One comment

Starting a business can be exciting- but also a bit overwhelming. There are lots of things you need to think about, like how to raise capital to start your business, how you’ll run your business, what types of products or services you’ll offer, and more. The biggest consideration for a business is usually related to taxes and legal status.

One thing that you will need to do as you get started is apply for a federal tax ID for your business. This ID is also known as an EIN number and will henceforth identify your business in the eyes of the law. Here is a bit more information and why you?ll never need to apply for a second EIN.

How do I Apply for an EIN?

You can get an EIN in minutes by applying online, or you can wait a few weeks and apply by fax or mail. The EIN application is on the IRS website and can be filled out by yourself as the business owner, or by a trusted accountant. If you allow another individual to apply for an EIN on behalf of your business, make sure it is someone whom you trust.

How Binding is the EIN?

The EIN for your business is essentially its security number. Just as you have a record of your social security number on your social security cards, you should have a record of your EIN for tax and business identification purposes. Having your EIN stored in a safe place will help prevent fraud and give you an easy reference point for when you need to check your tax ID.

What if I Loose my EIN?

Your EIN is present on your business? paperwork, including taxes and any business associated bank account. You can also check your tax ID by calling the IRS directly. It may take some time to reach the IRS, so try getting your old records before getting on the phone.

What if I Close and Re-Open my Business?

Sometimes businesses close or delay opening after applying for an EIN number. If this is the case for your business, what should you do?

If you apply for an EIN but then close, or hold off on opening your business, you can close your business account with the IRS. This will let the IRS know that your business is no longer operational. Keep in mind that the EIN will still be linked to that business, so you?ll have to open another account once you are ready with the same EIN number.

It?s important to secure your EIN number and to ensure that you file properly during tax season to avoid a headache with the IRS, which could result in an audit.

As you can see, on the tax and legal side of running a business, there are lots of things to think about and make decisions about while setting up and running your business.

Do you have an EIN for your business? Why or why not?

Photo courtesy of: Pictures of Money

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