Money Management

I knew there would be costs in starting a business. Read on to see which one really caught me off guard. 

When you start a small business, there are different expenses that can come up during those early days. My accountant had to file certain paperwork with the state to get my venture up and running. And, as expected, I had to pay for the associated filing fees as well as his time. I also had to engage a payroll service so that I, as my company’s sole employee, could get paid through official channels.

These were expenses I knew to expect, and so I’d saved for them accordingly. But there was one expense I encountered when I started my business that really threw me for a loop. And to this day, I resent having to cover it.

When you’re paying for something you feel you get no benefit from

One thing I didn’t know about starting a business is that as a rule, you have to maintain workers compensation insurance. The purpose of this is to protect your business from a lawsuit in the event that one of your employees gets injured while on the job.

This rule certainly makes sense for companies with actual employees. The reason it surprised me — and annoys me to this day — is that I’m my company’s only employee. I didn’t think you needed workers compensation insurance when you don’t have workers other than yourself.

Meanwhile, the Hartford says that most of its customers with less than $300,000 in annual payroll expenses pay an average of $70 a month for workers compensation insurance. That’s fairly in line with what I pay. But still, we’re talking about spending more than $800 a year on a policy that protects my company in case I sue myself. And I have no reason to do that.

The way my business is set up, I can take distributions from my profits when I want to. So if I were to get hurt on the job and sue myself, the damages would come out of my own business bank account.

Plus, I own a content-writing business. And while accidents can certainly happen anywhere, it’s not as if sitting at a desk hammering away on a laptop is particularly dangerous work. To be fair, though, the requirement for workers compensation applies no matter the nature of your business.

It’s important to go in prepared

I wish I would’ve known before starting a business that I’d have to bear the expense of workers compensation insurance. I don’t think that would’ve stopped me from starting my company, but it would’ve been a nice thing to plan for.

If you’re gearing up to start a business, I highly recommend talking to people you know who have gone the same route so you can see what their experience was like. Just as importantly, set up a meeting with your accountant to review the specific expenses you’re likely to face in the course of setting your business up. That way, you can budget more accurately and avoid surprises.

Starting a business is stressful and time-consuming even when everything goes smoothly. You don’t need unexpected costs throwing your finances for a loop.

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Retirement in five years may seem like a long way off, but it will be here before you know it. Make sure you take these steps to retire confidently. 

Retirement is a time we all look forward to — the chance to enjoy life without the burden of work. But before you can embrace your golden years, you need to ensure that you’ve taken the necessary steps to retire comfortably.

If you’re retiring in five years, you may be wondering what steps you can take to prepare for this next chapter in your life. The key is to give yourself enough runway to ensure that you’re financially secure when the time comes. Here are some steps you can take to prepare for retirement in five years.

Five years out

When getting ready for retirement, start with these steps.

1. Build an emergency fund

The first step to ensuring a secure retirement is to build an emergency fund and cash reserves. Experts suggest having at least a year’s worth of expenses in the bank to tap during market downturns in retirement.

Start by setting a goal of saving 10% of your income every month in an account, specifically designated for your emergency fund.

2. Max out your retirement plan contributions

Starting at age 50, you can “catch up” on retirement savings by increasing contributions to your retirement savings accounts. Maxing out these contributions before retirement will yield more wealth for your future.

For 2023, individuals who are 50 or over can make annual catch-up contributions up to $7,500 for an IRA. Participants in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan who are 50 and older can contribute up to $30,000, and in SIMPLE IRAs, $3,500.

If you’re eligible, consider contributing as much as possible to your 401(k), IRA, or other retirement accounts. If you have disposable income and have an eligible retirement plan, use a mega backdoor Roth IRA to save a significant amount of tax-free money for your retirement.

Four years out

Here are your next steps with four years to go.

3. Work with a professional

If you don’t have one already, consider working with a financial advisor or accountant to go over your retirement savings plan. A professional can help you optimize your savings according to your needs and investments and firm up retirement cash flow projections.

4. Pay off debts

Eliminate as much debt as possible before retirement, particularly high-interest debts. You don’t want to be contributing to debts in retirement, as it will detract from the experience. Decide if you want to pay off your mortgage and review other debt you might be carrying.

If you have debt, create a plan to pay it off using available resources before you retire. Additionally, don’t forget to pay off any loans from 401(k)s or other qualified plans. Doing so may create a taxable event, which qualifies as ordinary income.

Three years out

Getting closer to retirement…

5. Budget for major purchases

If you anticipate needing a car, remodeling your home, or buying high-priced appliances, now is the time to make any significant purchases while you’re still employed. This way, you’ll either have these items paid off before you retire, or can adjust your savings and budget while still earning an income.

6. Educate yourself and get certified

It’s also a good opportunity to look into certification programs or other training and educational programs if you plan on working part-time in retirement or turning a hobby into a business.

Two years out

Retirement is almost here; look to these steps next.

7. Update your estate plan

This includes updating wills and reviewing power of attorney, health care proxies, and beneficiaries. You’ll want to update your estate plan, including wills and life insurance policies, regularly.

Create a trust if you want to protect assets and leave a legacy. You must specify your beneficiary and executor in preparing a comprehensive estate plan.

One year out

It’s crucial to make these moves in the last year before retirement.

8. Verify financial assets and retirement income

At this stage, confirm all financial resources, such as pensions, profit sharing, Social Security, and other income. Pre-retirees should also call previous employers to see if they left behind any unclaimed retirement benefits and check with the state treasurer’s office for any unclaimed property.

Do a retirement lifestyle dry run. This will give you a better idea of what life will be like and if you need to make any adjustments.

9. Confirm final finances and get all copies of important documents

Gather copies of all retirement plan documents so you can refer to them when you need to. It’s easier to get any work-related documents while still employed. Keep copies in your home, as a digital format, or both for easy access.

Confirm your final financial compensation with HR, as well as your final paycheck, including the corresponding pay period, the amount, and the timeline for payment of vacation and medical leave balances. This includes obtaining up-to-date details about your 401(k), profit sharing, and balances in vested or unvested plans.

Additionally, verify your total balance of vacation and sick leave and consult the company’s employment policy to explore the possibility of cashing in unused leave upon retirement. For pre-retirees who are relocating, provide human resources with your final mailing address to receive important documents like W2s.

Retirement day!

Congratulations, you made it!

10. Celebrate!

Don’t forget to take time to celebrate the end of a successful career and the beginning of your golden years. Acknowledge your success in sticking with the plan and refocusing on new life goals.

Retirement is an exciting time, but it can also be daunting. These steps serve as a roadmap as you plan and prepare for retirement; consider them guidance for making the necessary mindset changes to support your retirement journey.

While specifics may vary, there’s no doubt that giving yourself enough time to plan will increase the likelihood of achieving your financial goals and securing a happy and enjoyable retirement. Some of the items on the checklist should be ongoing tasks, such as building cash reserves and reviewing your portfolio. No matter where you are in the retirement planning process, it’s never too late to start.

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Tracking your spending isn’t the only way to stay on top of your finances. Learn what one writer does instead to save time. 

Most of us have heard about the importance of making a budget and tracking our spending. It’s financial advice that gets repeated ad nauseam, to the point where it seems like something you have to do.

But it’s not. Here’s my dirty little secret as a personal finance writer — I don’t have a budget, and I don’t track my spending. It’s boring, it’s time consuming, and I’d be miserable relying on a budget to see what I can afford.

Despite all that, my finances are in pretty good shape. I have an emergency fund and a retirement fund, and I don’t stress about money. Since tracking my spending definitely doesn’t work for me, I found another method that did.

How I manage money without a budget

My method for managing money is simple. I set monthly savings and investing targets for myself. I make sure that I reach those targets, and that I can pay all my monthly bills from my income, without dipping into my savings account. As long as I can do that, I don’t worry about my spending, because I know I’m on track with my financial goals.

If you’re interested in trying this, there are two ways you can set savings and investing goals:

Use dollar amounts. For example, you could decide to save $400 per month and invest $600. This works well if you have stable income.Use percentages of your income. For example, you could save 5% of your income and invest 10%. This works well if you have income that fluctuates each month.

Let’s say you take home $6,000 per month. You decide you want to save 10% of your income and invest another 10% ($600 each and $1,200 total). You’d be left with $4,800 to use as you please for your bills and other expenses.

Here’s the key to making this work: Leave yourself some wiggle room. Continuing the example above, let’s say that you usually spend about $4,000 on your monthly expenses (with a take-home pay of $6,000). I wouldn’t recommend setting savings and investing targets of $1,000 each. If you have a month where you spend more than usual, you’re not going to be able to hit your goals.

Some people like the “give every dollar a job” approach, where you plan where all your money will go. I prefer simplicity and not having to micromanage my money. My monthly expenses normally aren’t more than 50% of my income, and my savings/investing target is 30% of my income. Normally, I end up investing what’s left over. But if I want to spend more, I do, without feeling guilty about it. If I’m saving as much as I want, investing as much as I want, and paying off my credit cards every month, then I’m happy.

Find a method that works for you

Tracking spending and following a budget works for those who like to stay on top of everything financially. If it works for you, great! But if it doesn’t, that’s alright, too.

Even though there’s a ton of advice that recommends budgeting, there are plenty of people who just don’t like to do it. In fact, according to a 2013 Gallup survey, only 32% of households said they prepared a detailed budget every month.

You don’t need to track where every dollar goes. There are really only a few things that are important when managing money:

Earning more money than you spendHaving money to save and invest every month (20% total, divided how you like between savings and investments, is a good number to aim for)Staying out of high-interest debt, such as credit card debt

Would I have more money saved if I was stricter about my spending and kept a budget? Probably. But I wouldn’t have as much free time, and my lifestyle could suffer. However you choose to manage your money, it’s important to have a balance between financial security and quality of life.

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There was a time when I bonds appealed to me. Read on to see why that’s no longer the case. 

Last year, when inflation surged, many people rushed to purchase I bonds. And I did the same.

I bonds are government-backed securities whose interest rates are tied to inflation. Since inflation levels were ultra-high last year, I bonds were appealing to me due to the generous interest rate they were paying.

But now that inflation is cooling, I bonds make a lot less sense for me — especially since I can actually get a better rate on my money in a high-yield savings account.

An investment that no longer pays

The nice thing about I bonds is that they’re a safe investment. Because they’re backed by the U.S. government, you’re not taking the same risk as you are by investing in stocks.

But these days, I bonds don’t appeal to me so much since they’re not paying a whole lot of interest. The interest rate on I bonds resets every six months. Now through the end of October, they’re paying 4.3%.

Generally speaking, that’s not a bad rate for a low-risk investment (some might even call it a no-risk investment, though I’m personally hesitant to call any investment no-risk). But because savings accounts and CDs are paying so generously right now, I can’t justify an I bonds purchase.

Once you buy I bonds, you’re required to hold them for at least a year — there’s no option to cash them out prior to the 12-month mark. And if you redeem your I bonds before having held them for five years, you’ll face a penalty.

Meanwhile, cashing out a CD early comes with penalties, too. But it’s possible to open a six-month or one-year CD so you’re not committing to as long a time frame. And since CDs today are paying more interest than I bonds, they make more sense to me.

Heck, even regular savings accounts are paying a little more interest than 4.3% (this doesn’t mean every bank is paying more, but many are). And with a savings account, you have zero restrictions. You can withdraw your money at any time and penalties won’t come into play.

Even if you’re not interested in a CD, if you’re looking for a safe place to put your money today, a savings account makes more sense than I bonds. And to be clear, if you bank at an FDIC-insured institution, your deposits of up to $250,000 are protected ($500,000 if it’s a joint account).

Things could change

A big reason I’m not interested in I bonds now has to do with the high interest rates banks are paying. If that changes in time, I may, in turn, change my tune on I bonds. But for now, I’m not looking to buy them.

If you’re someone who’s searching for a safe investment, you may be inclined to purchase I bonds. But before you do, look at savings accounts and CD rates to see what makes more sense.

Also, do note that come Nov. 1, the interest rate on I bonds is going to reset. And it will likely reset to a lower amount. So if you’re still inclined to purchase I bonds despite the fact that banks are paying more, you may want to move before the end of October.

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Halloween hit the warehouse stores early this year. But is it still there? Here’s the scoop on which warehouse club is still sporting spooky supplies. 

For many folks, the holiday season doesn’t start with Thanksgiving. No, it’s Halloween that truly sets off the holidays.

If you’re a warehouse store fan and a Halloween aficionado, you could scratch both itches at once at either Costco or Sam’s Club. But while both stores offer your finances some decent deals, which store is actually the better place to get your Halloween on?

Sam’s Club holding out, but stock is slimming down at Costco

The good news is that we spotted Halloween items hitting the shelves weeks ago. The bad news? It looks like they’re already on their way out of the stores. Countless reports indicate that both Costco and Sam’s Club are pushing Halloween aside for their Christmas displays.

That’s not to say you can’t still find Halloween decor or candy in your local warehouse store. Sam’s Club, in particular, seems to have a good selection — though not its full offering — of indoor and outdoor decor available online for pickup in stores. And social media shoppers are still posting videos of Halloween and fall decor in local stores.

And the candy. You can find a huge variety of Halloween candy, including themed packs perfect for trick-or-treaters. (Oh, and there’s plenty of pumpkin spice everything!)

It’s Costco that’s a little more concerning here. Some reports indicate that most of the decor is already gone or on its way out (we’ve seen mentions of Hallloween items with clearance markdowns). While Costco candy seems to still be in stores, the variety doesn’t compare to what’s at Sam’s Club.

Halloween is still alive online

Where both warehouse stores are doing better is online, though even here Sam’s Club beats out Costco. Costco.com offers a dozen or so different costumes, and a roughly equal amount of decor items — and that’s about it. Oh, there are a few black and orange candy box towers, but if you’re looking for candy to hand out, it’s not on Costco’s website.

The Sam’s Club website is a much different story. You can find most of Sam’s Club Halloween decor online, including both indoor and outdoor decor. (I’m a big fan of these Musical Skeletons in particular!) And if you want costumes, Sam’s Club’s website has a good selection of both children’s and adult options in a range of sizes.

It’s also worth noting that you can see Sam’s Club’s candy variety on the website, but it’s not available for shipping (it’s melting, it’s melllllllting). You can order online for store pickup — free for Plus members — or take advantage of same-day delivery, though.

Finding Halloween deals

It feels like Halloween is hitting stores earlier these days — but it’s leaving them nearly as fast. And nothing kills the Halloween spirit like being surrounded by Christmas in September.

It’s not so great for the bank account, either. Halloween deals can be hard to find when the shelves start emptying before October (you know, when most people are thinking about Halloween).

For this, you may need to simply forgo the warehouse deals and head to your local big box store. Target and Walmart tend to keep Halloween on the shelves a little longer. Even the local hardware megastores can offer a decent Halloween selection through October — though they’re also rolling out their Christmas displays.

In the end, you might have to rely on other methods to save on Halloween supplies. My go-to is credit card rewards. By maximizing my rewards, I can knock 5% or more off my decor and candy. Pair that with a well-timed grocery store buy-one-get-one, and I can restock my candy stash without scaring the pants off my savings account.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Brittney Myers has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale, Target, and Walmart. The Motley Fool has a disclosure policy.

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Money doesn’t buy investment omnipotence. Here are some of the mistakes even the wealthiest investors make. 

As modern society is quick to highlight, everyone makes mistakes. We all stumble at some point, and we do so in every aspect of our lives. Even education and training can’t prevent every misstep.

So, when we talk about mistakes in investing, it’s not just the everyday salaried worker and their retirement fund. We can also talk about the mistakes of high net worth investors whose decisions command millions of dollars’ worth of investments.

Oddly enough, though, the conversation isn’t that different.

Many of the general investing mistakes made by the wealthy are also those being made by your everyday investor. Here are three common examples.

1. Being too self-reliant

The problem: A few things are at play here. For one thing, many high net worth investors also own or run businesses. They’re used to making a lot of big calls on their own, so managing their own investments feels like par for the course. Moreover, the thought process may be, “If I can grow a business, I have the financial acumen to handle investing.”

It’s hard to dedicate a substantial amount of time to managing your investments if you’re also running a business. Plus, the knowledge you need to build a business is very different from the knowledge and experience it takes to successfully invest. Stock brokers and other financial advisors have specialized training that typically makes them better suited to the task.

What we can learn: Many of us are just as guilty of this one as the wealthy, and often for similar reasons. “I watched a YouTube video, how hard can it be?” But it could also be due to the perceived costs; hiring a specialist of any kind is rarely cheap.

In general, sure, a simple retirement account that you rebalance once in a while doesn’t need an Ivy-League-educated wealth management specialist. But there are many situations where you really do want to consult a financial professional.

For example, if you’re maxing out your retirement contributions and are ready for an investment account, a one-time session with an advisor could help you decide how to best reach your long-term financial goals. Consider the fee as part of your investment; ideally, it will pay off in actionable advice for the future.

2. Failing to diversify

The problem: One common issue faced by many high net worth investors is that a lot of their assets will be tied up in a single business (their own). While this makes sense — reinvesting back into your business is what makes it grow — it’s not the safest investment strategy.

“Don’t put all of your eggs in one basket.” This is time-honored advice, not just for transporting ovum, but also for investing. Basically, the more diversified your assets are, the less likely you are to suffer irreparable losses when something goes wrong. If the market turns and your business suffers, your overall wealth can also be greatly impacted if most of it is tied up in said business.

What we can learn: Everyone should have some diversity in their portfolio regardless of its size. Your 401(k) or IRA shouldn’t be 100% stocks or 100% bonds, for example. Most online brokerages will help you choose an asset mix based on your own risk tolerance when you set up your account to ensure your investments aren’t overly concentrated. Just be sure to check up on your account regularly and rebalance when needed.

3. Collecting instead of investing

The problem: Ultra wealthy investors really like alternative investments. (These are basically all the things people invest in that aren’t stocks and bonds. This includes things like real estate, private equity, and art.) According to one study, ultra-high-net-worth investors have around 50% of their assets in alternative investments.

However, as we’ve all seen in the headlines, sometimes these “alternative investments” are less about investing wisely, and more about growing a collection. It might be sports cars or expensive wines, or even multimillion-dollar estates. While these collections can certainly hold value, they’re not always the best use of investible dollars.

What we can learn: The rich aren’t the only people letting their collections drive their spending. Bags, shoes, movies, books, dice, cat figurines, superhero t-shirts… Most of us collect something, and a lot of us overspend on those collections to the point that they can easily overwhelm our living spaces as much as our bank accounts.

It can be especially bad when we’re convinced our collectibles are going to appreciate in value. But the occasional action figure or stuffed bear aside, most of what we accumulate is only valuable to us. So, while it’s all well and good to buy some things simply because they make our inner gremlins happy, be sure you’re not harming your ability to reach your financial goals.

Don’t be afraid to make mistakes

Rich, poor, college-education or school of hard knocks — everyone is going to make mistakes, even (or perhaps especially) with their finances.

It’s not about never making mistakes, it’s about having the tenacity to bounce back from them when they happen. So, don’t kick yourself when you’re down; learn from the mistake, move on — and make new ones next time.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
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