Today, we want to share some breaking news with you regarding government contracts.

According to the SBA, the federal government just handed out over $145 billion dollars in government contracts for small businesses.

For some context, this exceeds what the government spent in the prior year by over $13 billion dollars.

The federal government is clearly ramping up its spending to protect the backbone of the economy – small businesses.

And for thousands of entrepreneurs, this spending turns into revenue that they can use to build wealth and increase profits.

So if you want a piece of the pie, read until the end for the full scoop.

Because in this post, we will be talking about these billions of dollars worth of government contracts for small businesses.

But before we do that, let’s talk about government contracts first.

First of all, it’s important to note that government spending represents over ⅓ of all spending in the United States.

For example, in 2020 the government spent over $6.5 trillion dollars.

The U.S. government is, quite literally, the world’s largest customer. 

We are notorious for spending trillions of dollars, printing money, and making it go BRRRRRR. 

And sometimes, we’re guilty of doing a little bit too much of that. 

But technically, this money is supposed to be spent on programs to ensure the well-being of our citizens.

And one of those programs includes government contracting to small businesses.

The government sets aside billions of dollars each year to contract small businesses, women-owned businesses, and other disadvantaged businesses.

To further explain, let’s take a look at a quote from SBA Administrator, Isabel Guzman:

“We’re committed to increasing these opportunities and lowering barriers to give our small businesses a chance to grow their revenues through contracting.

Our goal this year, and every year, is to make sure that small businesses can be like the giants they are in our economy and to create conditions to guarantee their success.”

So basically, the federal government wants to do business with small businesses. They want to support them and help them prosper in our economy. 

And the record-breaking numbers indicate that they are doing just that.

As you can see in the second column of this table, the federal government sets a goal for how much money they want to spend on government contracts for eligible small businesses.

For example, the goal for small businesses was to spend 23% of their budget on small business contracts.

And they exceeded this goal and spent over 26% of their budget on small business contracts.

And according to the White House, they want to increase the share of contracts awarded to small businesses by 50 percent over the next 5 years.

In fact, President Biden made an executive order to remove barriers and make it easier for small businesses to procure government contracting opportunities.

So, what does this mean for you?

It means that you can earn thousands, if not millions, of dollars through government contracts.

For example, we met the owner of a small business that became one of the fastest-growing companies in the U.S. through government contracts.

He provided engineering services and made millions of dollars per year by using government contracts.

So trust us, you can definitely do this for your business. But that’s just one benefit.

Another major benefit of pursuing government contracts is that your competition is limited. 

Unlike the private sector, you do not have to compete against large enterprises and Fortune 500 companies to earn business from the government.

As you just saw, the federal government must contract a specific percentage of small businesses every year.

So if you fit the criteria, you will only be bidding against other small businesses as well, which improves your chances of being rewarded with government contracts.

And contrary to what you might think, it is not very difficult to become a government contractor.

All you have to do is register and once you are approved, you can start bidding on open contract opportunities.

We even went through this process ourselves for one of our small businesses and was accepted as a government contractor.

If you are interested in learning more about how to become a government contractor, then read our post on How to Get Government Contracts.

In this post, we will walk you through, step-by-step, how to procure government contracts.

But for now, we just wanted to let you know that the government is spending more and more money on government contracting for small businesses.

And as the world’s largest customer, you may be able to grow your business by contracting with them, especially as they are trying to make this process as easy as possible for you.

If you want to learn more ways to increase your profits or save on taxes…

…then check out our CFO services or talk to one of our CPA tax experts today.

We would love to hear from you!

The post Billions of Government Contracts for Small Businesses appeared first on Small Business Accounting & Finance Blog.

In just a moment, we’re going to show you a reliable set of steps to fix bad credit fast. 

This post is for you if you have no credit, bad credit, or just want to boost your scores as high as humanly possible.

Probably similar to you, most parents never told their kids about the importance of good credit or what it takes to boost your credit score…

…and the truth is that, having bad credit is downright expensive. 

Not only are you denied the best credit cards out there, but you also get the worst terms on car loans and home loans.

Or you may not be able to qualify for a car loan, home loan, or apartment at all.

So we’re on a mission to change that, and by the end of this post, you will know the simple steps you need to take on how to fix a bad credit score fast.

The best part about it is that all the steps are free. 

Seriously, follow these steps and you are sure to boost your score in no time. Let’s get into it.

How To Find Out If You Have A Bad Credit Score

Step 1: Pull Credit Reports

Before doing anything else, you must know where you are, and what you have to work with

You can pull your credit report for all three major credit bureaus (Equifax, TransUnion, and Experian) for free by going to annualcreditreport.com.

We’ve also found that you can view your credit report for free by visiting the official sites of each credit bureau and starting a dispute online. 

Lastly, you can view your credit report by signing up for a credit monitoring service such as Credit Karma.

In short, you shouldn’t have to pay to get a credit report. 

The purpose is to find out what items in your credit report are causing your score to be so low. 

In doing so, make sure you get a credit report for all three credit bureaus.

Generally, they will contain the same information, but they tend to show and report different things on each.

For example, you may have a collection on one report that does not show up on another, and that is something you don’t want to miss.

Step 2: Check For Errors 

The next step on how to fix a bad credit score is checking for errors.

Nearly 25% of all credit reports contain errors that may be harming your credit score without you knowing. 

So, now that you have your report, here are the errors we want you to look out for: 

• Wrong personal information (name misspellings, wrong addresses, etc.)
• Missing accounts (on-time payments that are not showing – this is a huge one)
• Accounts that do not belong to you
• Incorrect dates 
• False inquires 
• Incorrect bankruptcies or foreclosures
• Duplicate accounts
• Incorrect account status, delinquencies or derogatory marks (closed when supposed to be open or late 90 days when it should only be late 60 days)

Make note of them as we learn in a second how to get rid of them. 

Step 3: Check for Negative Marks

In this step on how to fix a bad credit score, we want you to make note of the derogatory marks that actually belong to you. 

We will be showing you the best methods to resolve these negative marks in just a moment, so start  looking for these items: 

a. No credit history or very little history

We’ve all heard the phrase, “It takes credit to build credit”.

We think that actually had to do with money, but either way, it’s true for credit as well. 

To get a FICO score, you need to have at least six months of credit history and one credit bureau reporting your activity.

To get the highest credit scores, you will have to have credit for at least 7 years. 

b. Late payments

Payments are typically not reported late until 30 days after the due date and will be in your credit report for 7½ years. 

c. Collections

Collections hurt your score a lot and are basically unpaid debt that is sold to collection agencies for pennies on the dollar.

You know, the ones that call you all day and night from 20 different numbers.

Collections typically happen after 5 to 6 months of late payments and stay on your report for 7 years. 

d. Account charge-offs

After a period of time (after you fail to resolve the debt or can not pay), the lender will simply call it a wash aka charge it off.

Account charge-offs stay on your report for 7 years

e. High Utilization

When it comes to your credit score, high utilization is considered using more than 30% of your total credit limit available to you. 

f. Repossession

When you can’t pay for an item such as a car, the lender has the right to repossess the item aka come get it back from you.

Repossessions will stay on your credit report for 7 years. 

g. Student loan delinquency or default

Private student loans that are late by more than 30 days can show up on your credit report and student loans that are late more than 90 days can show as well.

Student loan delinquencies stay on your report for 7 years. 

h. Bankruptcy

Different forms of bankruptcy will stay on your credit report for different lengths:

• 7 years for Chapter 13 bankruptcy will stay on your credit report for 7 years, and
• Chapter 7 for 10 years. 

i. Foreclosures 

This occurs when the bank takes the house back after failing to make payments. Foreclosures stay on your report for 7 years. 

So we now know what to fix, let’s talk about how to fix a bad credit score. Here’s exactly what to do. 

How To Fix A Bad Credit Score: With Report Errors

If you see items on your report that are either not accurate or “not yours”, you have the right to dispute it.

You can dispute anything you see with each individual credit reporting agency via writing or online using the dispute forms on their websites. 

Credit Reporting Agencies are required to verify that information with the creditor within 30 days by law.

If the errors can not be verified, they must be deleted. 

So simple rule, not yours or not accurate –  dispute it. 

Even if it is accurate, you should try and dispute it. Many creditors won’t go through the hassle of verifying, and you may get an easy removal just by trying. 

We’re not necessarily recommending it, but there is literally no harm in trying. 

How To Fix A Bad Credit Score: No Credit History or Short Credit History

If you have a short credit history, do these 4 things to help your credit score. 

a. Take out a secured credit card. 

Secured cards require a cash deposit, which then acts as your credit line. This means if you deposit $200 your line of credit will be $200. 

The good news is that the secured credit cards report on your credit report which can improve your payment history and your length of credit. 

Once your credit is improved enough, you can ask the credit card issuer to convert the secured card into a regular credit card. 

The best part is that your account will remain during the transfer keeping your length of credit in place. 

b. Get a credit builder loan.

They were made to actually help those with little to no credit history or those with bad credit in general. 

They don’t require you to have good credit to get approved, but do require you to have the income necessary for repayment.

Speaking of loans, if you want to learn more about business loans, be sure to read this post next.

c. Become an authorized user on someone’s credit card.

This means that you are not responsible for the payments, but the account is reported on your credit report. 

So, it is best to become an authorized user with someone you know has good credit-building habits as both the positive and negative will be reported. 

Also, make sure the bank actually reports authorized user activity to the credit bureaus. Most do, but some do not.

According to Nerd Wallet, here are the banks that do report:

d. Report non-debt items on your credit report. 

Most people don’t know, but you can actually request that your on-time rent payments show up on you your Experian credit report through Experian RentBureau. 

This can be done by asking your landlord or using a third-party rent payment service. 

Additionally, you can sign up for Experian Boost which can add up to 24 months of positive cellphone, utility, and streaming device payments to your Experian credit report.  

How To Fix A Bad Credit Score: Late Payments

Now let’s talk about what you can do to improve your credit if you have late payments. 

a. Make payment as soon as possible. 

Payment history is the most important part of your credit score making up 35% of your total score making it the fastest way to help or hurt your score. 

And the longer a payment is late, the more it hurts your score because 180 days late is worse than being 90 days late. 

We understand that it may not be the most immediate thing you can do, but as soon as possible, at a minimum, make minimum payments. 

b. Ask for a “Goodwill Adjustment”.

You’d be surprised how far you can get by simply asking a creditor to remove late payments as a goodwill gesture. 

It works especially well after being on time for a while, as it proves good-faith. 

Just call or mail the creditor a forgiveness letter explaining your situation. Here’s a template that you can use:

The best thing that can happen is a question away. 

c. Negotiate removal by signing up for auto payments.

Does this really work? Yes, it can and it is worth it to try. But only attempt this knowing you will have the funds to cover the automatic payment. 

How To Fix A Bad Credit Score: High Utilization

If you have a high utilization rate, meaning over 30%, on a monthly basis, lowering it to under 30% can improve your score dramatically.

Here are a few ways to do it: 

a. Ask your issuer when they report

Many credit card companies report your balance and payment history every 30 days. 

But the day they report is not always the same as your bill due date.

It could be before or after, which means you could be paying your bill on time and still showing a high utilization rate. 

To help fight this, ask your credit card issuer what day they report to the credit card agencies.

Armed with the correct date, you will when and how often to pay your card so you always show the best utilization percentage. 

b. Ask for an increased credit limit

There are times when your credit card issuer will raise your credit limit without your request but it doesn’t happen often. 

Take matters into your own hands by asking for an increase either online or via phone. 

By increasing your credit limit you automatically decrease your utilization rate. 

Note that there may be qualifications to get an increase accepted as well as a hard inquiry.

So, make sure you have a good chance of qualifying before risking the hard inquiry.

Check out this post next to learn how to get business credit quickly.

c. Ask to be an authorized user on someone’s credit card. 

If someone with a consistently great payment history and utilization rate allows you to be an authorized user on their account…

…it will automatically help your utilization rate as well.

d. Open a new credit card  

When you get a new card, you increase your credit limit, and therefore, decrease your total utilization. 

The downside of applying for a new card is that it will likely result in a hard inquiry on your credit report and can affect your average length of credit. 

We don’t typically suggest this route unless you have a very long credit history and the ability to qualify for a card. 

A bonus tip for your utilization is to not close unused cards.

Closing a card can result in a lower credit limit which pushes your utilization up and can lower your average length of credit if you had the card for a while. 

How To Fix A Bad Credit Score: Charge-Offs / Collections

If you hate charge-offs and collections, you are not alone. Here are a few ways to deal with them on your credit report: 

a. Dispute it if there is an error. 

You want to check for things such as:

• wrong account number,
• outdated status,
• wrong date of delinquency, or
• a date past 7 years ago. 

If any of these things appear go ahead and file a dispute based on the incorrect information. 

As mentioned previously, in many cases, creditors and collection agencies are too lazy to fight the dispute. 

b. Ask for a goodwill deletion.

When dealing with charge-offs and collections, ask and you shall receive – sometimes. 

Go ahead and send a letter to the original creditor explaining your situation and asking them to remove the collection or charge-off.

A well-written one that points to a specific circumstance may get it removed for you. 

This usually works best after you have paid the debt.

c. Write a pay for delete letter  

Try sending the charge-off creditor or collection agency a pay for delete letter that explains that you will pay the debt if they remove it from your credit report. 

In a sense, they need you just as much as you need them. If you don’t pay, they don’t make money on their debt purchase. 

It’s not guaranteed to work, but it’s definitely a win-win scenario and something you should try. 

d. Ask for a lower payoff 

Remember that most debt is bought for pennies on the dollar.

This means the collection agency will likely attempt to recover the total debt amount even though they bought it at a discount. 

We mean, always ask for the payoff to be reduced if you decide to pay the collection or charge off.

Explain that you do not have the money to pay the amount and if they are willing to take a number lower than 50% of the debt. 

Once again, they need you to pay to make money so this tactic nearly always works. 

Just know that paying off a charge-off or collections will have a minimal impact on your credit score but can help in getting a goodwill letter accepted and qualifying for other loans and lines of credit in the future.  

Also, if you are close to the 7-year mark when the collection will be removed, it may not make financial sense to pay the debt off. Something to think consider. 

How To Fix A Bad Credit Score: Student Loan Delinquency/Repossessions/Bankruptcy/Foreclosure

For all other negative remarks, getting them removed is nearly impossible. 

a. Dispute all incorrect information

You will want to comb through these with a fine-tooth comb as information being wrong is your best bet for a miracle removal. 

If you do find something that is wrong, dispute it. 

2. Simply wait for them to be removed from your credit report. 

Remember most of them should be removed in 7 years with the exception of Chapter 7 bankruptcy which stays on your credit report for 10 years. 

3. The best thing that you can do is work to improve everything else. 

That means working overtime to improve your payment history, your utilization rate, your mix of credit, and your inquiry count. 

3 Extra Tips on How to Fix a Bad Credit Fast

Tip 1: Visit the credit repair subreddit on Reddit.com

If you never heard of Reddit, it is the world’s largest forum where people come together to discuss certain topics – in this case, credit repair. 

As of the time of this recording, the Credit Repair subreddit called CRedit, has over 73.1k members.

It has hundreds of posts with people just like you detailing exactly how they fixed their credit. 

So you need to definitely need to take a look if you haven’t already. 

Tip 2: Limit the amount new and closed accounts 

As mentioned previously, when you open a new account your risk ruining the other categories of your credit score – length of credit history and Inquiries. 

When you close an account, you also may negatively affect your utilization and length of credit history if the account has been around for a long time. 

Tip 3: Use Experian Boost

We do believe that it can be a good tool for improving your score. 

Experian Boost adds up to 24 months of positive cellphone, utility, and streaming device payments to your Experian credit report. 

If you have been making on-time payments with these accounts, it can provide a major boost to the heaviest weighted category of your credit score – payment history. 

Check it out. 

Well, there you have it – everything you need to know on how to fix a bad credit score.

If you need help with your particular financial situation, check out our CFO services today.

We have a team of financial experts who are always ready to help individuals and businesses like yours.

The post How to Fix a Bad Credit Score Fast and For Free appeared first on Small Business Accounting & Finance Blog.

In today’s post, we’re going to settle the great debate once and for all – and that is the answer to one question:

Which is the better investment – stocks vs real estate?

Read until the end of this post for the pros and cons of both, and our opinion as someone who has invested and advised people in both asset classes.

It’s no secret that real estate investing has created 90% of the world’s millionaires.

And right now, there are over $95 trillion dollars invested in the stock market, which is a whole lot of money.

Which is Better- Stocks vs. Real Estate Investing?

So which is better between stocks vs. real estate investing? We’re going to look at several areas to determine this such as:

1. Appreciation
2. Income from Dividends or Cash Flow
3. Tax Advantages
4. Liquidity
5. Tangibility
6. Ease and Simplicity
7. Control

So let’s start with appreciation.

1. Appreciation

It basically means that the asset you invest in will increase in value over time.

Both, stocks and real estate appreciate in value. But one more than the other.

According to Business Insider, the stock market has appreciated almost 3x as much as the housing market since the 08 recession.

Appreciation is a very important factor when you determine what asset you invest in because it allows you to take advantage of compound interest.

Appreciation is why billionaire investors like Warren Buffet recommend investing in stock funds like the S&P 500 as the single-best stock investment for most people.

For example, the S&P index fund, which is composed of 500 of the largest companies in the United States, had an average annualized return of 10% since its inception in 1926.

Because of compound interest, this means that your money would double in 7 years at this rate.

So if you invested $100,000 today, you would have $200,000 in 7 years, and $400,000 in 14 years.

Or let’s say you’re starting with absolutely nothing right now…

…if you started investing $1,000 per month with a 10% growth rate, you would have over $1.3 million dollars in 25 years.

That’s how powerful compound interest and appreciation is. And historically speaking, the stock market has appreciated more than the real estate market.

So that’s 1 point for the stock market.

2. income

Both, stocks vs. real estate investing can provide consistent income to you as an investor.

In the stock market, income is paid to you in the form of a dividend. There are stocks with very high dividends, and some stocks that do not pay dividends at all.

If you invest in a group of stocks, like the S&P 500 for example, then you would receive an average of all of the dividends paid out from that group.

Historically, the S&P 500 has paid a dividend yield of about 1.88% per year, which is about $1800 on a $100,000 investment.

This isn’t life-changing if we’re being honest, but to be fair, you can invest in stocks with higher dividends, but those typically appreciate less in value.

On the other hand, when you invest in real estate, income is paid to you in the form of cash flow from rent.

Typically, real estate investors will make at least 8-12% in rental income on their cash investment.

And we’ve even seen returns as high as 15-20%.

Now, of course, there’s the argument that there is a lot of work in real estate investing and it certainly can be, but it doesn’t have to be.

Especially not today.

These days, you can easily passively invest in real estate through platforms like Fundrise…

…or CrowdStreet and let someone else do all of the work for you.

Or you can buy properties and hire a really good property management company to manage your property for you.

So ultimately, when it comes to passive income, real estate investing wins by far.

So let’s give real estate 1 point on our scoreboard here.

Now we’re tied up.

3. Tax Advantages

So let’s take a look at the tax side of things – our favorite part of the equation by far.

When you invest in stocks, you only pay taxes when you sell your stocks, not when it increases in value.

When you sell your stocks, you would pay either short-term or long-term capital gains. And this is treated very differently for tax purposes.

Short-term capital gains are taxed just like your ordinary income, which is the highest type of income tax that exists. Ordinary income tax brackets can range from 0-40%.

While on the other hand, long-term capital gains are taxed at a much lower rate, which can range from 0-20%.

So how do you pay long-term capital gains tax on your stocks?

It’s simple – all you have to do is hold your stocks for more than 1 year and you can take advantage of the lower tax rate.

This means if you’re day-trading and buying and selling stocks every day, you’re going to pay short-term capital gains taxes, which is much higher than long-term capital gains.

So there are some tax advantages of investing in stocks, as long as you hold your stocks for a longer period of time.

Now, let’s take a look at the tax advantages of real estate.

The tax advantages associated with real estate alone may single-handedly make real estate the best investment of all time.

You can literally earn money tax-free, and even avoid taxes legally.

You can take advantage of the depreciation, which works like magic, because it allows you to claim an expense for something that does not cost you any money.

It’s the only tax deduction that can lower your income without actually costing you a dollar.

So hypothetically, you can earn rental income from real estate and report a loss to the IRS after claiming depreciation.

And this isn’t a tax loophole, it’s literally a part of the tax law.

The government wants to provide affordable housing and wants to encourage people to invest in real estate.

They even allow you to accelerate the rate of depreciation expense you take on your real estate investments.

Check out this post next to learn more about real estate depreciation.

But what happens when you sell the property?

Technically, you would pay capital gains tax on your property when you sell it, just like a stock.

But fortunately, there’s this tax code called the 1031 exchange.

The 1031 exchange allows you to sell one property without paying capital gains taxes, as long as you buy a similar property.

It’s kind of like you’re “swapping” one investment for another. But the beauty is in the fact that you can keep “swapping” into higher-value properties.

For example, let’s say you bought a $100,000 home. And 5 years later, the home is worth $150,000, so you decide to sell it.

Well now, when you sell it, you have $50,000 more than what you paid for it. Now you can buy a $150,000 property and not pay any taxes on that gain.

You’re effectively growing your wealth, but you aren’t paying any taxes to grow your wealth.

This is why we love real estate investing. Here’s our post on 1031 exchange explained that you can read after.

If you sell a stock in the stock market, you’re going to be taxed on it even if you buy another stock.

The tax code highly favors real estate investing, and a lot of millionaires use it to pay little to no taxes at all.

And by the way, taxes are the single greatest expense that most people will pay over the course of their lifetime.

So by mitigating this, you can grow your wealth exponentially.

Let’s go ahead and give real estate a point here.

Now for this stock vs. real estate investing debate, let’s bring everything together here and address some of the elephants in the room.

In general, real estate has a higher return than stocks when you consider all things – tax savings, cash flow, and appreciation.

This is why 90% of millionaires invest in real estate.

However, there are some non-financial reasons why people decide not to invest in real estate or stocks that are worth mentioning as well here.

So let’s address it.

4. Liquidity

Real estate is an illiquid asset. Once you invest in real estate, you cannot get your money out of it easily.

So if you invest in real estate, the only cash you can rely on is the cash flow coming in from rental income.

And if that’s not enough, then you might find yourself in a very uncomfortable situation.

Stocks, on the other hand, are very liquid. If you need your money now, you can get it immediately.

This is very beneficial in the case of an emergency or you find out that you need to make a big purchase.

So let’s give stocks a point for liquidity.

Now, we should also mention that liquidity can be a double-edged sword.

You generally do not want to interrupt the compounding nature of your investments.

Or make emotional decisions that cause you to panic sell or panic buy something.

Whenever you invest, it should be for the long-term.

Both, stocks vs. real estate investing, operate in markets and these markets go up and down over time.

And you don’t want to find yourself selling assets in a downturn.

So regardless of what you invest in, we’d suggest making sure a small % of your portfolio is liquid in cash or another asset that you can rely on when needed.

5. Tangibility

Stocks are intangible assets.

You can’t touch or feel it. Its value is driven up when people buy the stock and it can crash down if everyone sells the stock.

This is a major risk of investing in stocks.

If the companies you invest in fail, then you could lose all of your money with nothing to show for it.

Now, of course, you can mitigate this risk by investing in a diversified portfolio that includes a lot of quality companies.

However, the fact of the matter is that it is still an intangible asset and the entire market can crash & leave you with nothing left to show for your investment.

Whereas with real estate, on the other hand, you are investing in a real, tangible asset.

Even if your rental business fails, you still have a tangible asset that is going to be worth something at the end of the day.

With that said, let’s give real estate a point.

6. Ease and Simplicity

Real estate investing can be overwhelming, especially if you’re going at it alone.

You have to save up cash for a down payment, take out debt to buy the home, and take care of the home, which can require a lot of work.

Now, you can simplify this by passively investing in REITS or private equity.

However, you still need to understand the nuances and risks associated with those types of offerings.

Whereas with stocks, it’s pretty straightforward.

You can make a deposit and buy a good index fund in an instant. And then your money is working for you on auto-pilot.

You don’t even have to think about anything as long as you construct your portfolio correctly.

You can even set up automatic transfers to buy stocks every time you get paid from work or your business.

So let’s give stocks a point for ease of use.

7. Control

With stocks, you are not in control of what happens to your investment.

The stock market is like a roller coaster and you have to know how to ride it.

If you invest in individual stocks, the company could make one wrong decision that leads to a massive sell-off that crashes your investment.

And even if you invest in highly diversified mutual funds, the entire stock market could still crash due to a few headlines that have nothing to do with the businesses you’re invested in.

All it takes is a few downturns for you to realize how volatile the market is.

Like history says the stock market has gone up over time, but does that really mean that it’s going to go up forever?

For instance, what would happen if everyone just pulled all of their money out of the stock market right now?

That would be a disaster, right?

It’s the complete opposite with real estate.

Once you close on that property, it’s yours. You can do whatever you want with it.

You control the prices you charge, the tenants you accept, and the strategies you deploy to build wealth.

Real estate is just more stable and controllable at the end of the day.

So let’s give real estate a point for control.

Stocks vs. Real Estate Investing: The Winner

So the final scoreboard here is 4-3 in favor of real estate.

This means real estate would be the better investment vehicle in our opinion.

The overall returns are undeniably better once you factor in tax savings, and we personally like the stability of the market in comparison to the stock market overall.

Diversify your Portfolio

But whatever you invest in, always keep in mind that diversification is very important.

You shouldn’t just diversify across different sectors in the assets you buy, but you should also diversify across different types of assets out there.

We love real estate investing, so our portfolio leans that way.

But we also invest in stocks, and even throw a few coins at crypto sometimes.

Diversification is never a bad strategy when it comes to investing.

But hopefully, this post helps you understand some of the pros and cons between stocks vs. real estate investing.

If you want more tips to lower your taxes and increase your wealth, get our wealth management services today!

The post Stocks vs. Real Estate Investing – Which is Better in 2021? appeared first on Small Business Accounting & Finance Blog.

Today, we’re going over the best credit cards for bad credit and building credit.

Because having little to no credit can make it tough to find credit cards with great approval odds, and being denied a credit card can make your credit worse.

But here’s the truth!

If you currently have bad credit or little to no credit, there are options available for you with very high chances of approval.

That’s even if you have a credit score between 300 and 629.

And when you combine the right card with superb habits, you have the best formula for building great credit.

By the way, if you want to learn how to get business credit quickly, be sure to read this post next.

Now let’s dive into the best credit cards for bad credit and building credit.

Credit Card Characteristics

For reference, our choices for the top picks came down to three things:

1. Features
2. No or low annual fees
3. Approval odds

So let’s go ahead and list them down!

Top 3 Credit Cards For Bad Credits

1. Discover it® Secured Credit Card

For many reasons, the Discover it® Secured Credit Card is one of the best (if not the best) credit-building companions for those with little to no credit.

• Pros

First, there is no annual fee, which leaves money in your pocket.

It reports to all three credit bureaus, giving you the opportunity to build and fix credit across all Bureaus.

Unlike most secured cards, it actually provides cashback rewards of:

• 2% at gas stations,
• restaurants up to $1,000 per quarter, and
• unlimited 1% cashback on all other purchases.

By the way, they currently have a welcome bonus called Discover’s Cash Back Match that will double all cashback rewards earned at the end of the first year.

And… ready for the finishing move?

After 8 months, Discover automatically reviews your account for transition to an unsecured card and return of your deposit.

Yes, automatic review. This means with responsible use, you have the chance to move to an unsecured card in less than a year.

Note that, secured cards do require you to submit a deposit that acts as your credit limit, and the minimum deposit for this card is $200 – which is pretty standard.

• Cons

There are two cons of this credit card.

The first one is that the card is not widely accepted outside the United States, which could be an issue for those who travel internationally often.

The second is that the initial deposit for your credit limit must come from a bank account so those without one won’t be able to make use of this card.

Overall, the Discover it® Secured Credit Card is hands down, one of the best credit cards for bad credit and building credit that was ever created.

2. Secured Mastercard® from Capital One

• Pros

This is another no annual fee secured card with clever features that is a no-brainer for those who would like to build and repair their credit.

Here’s why.

As mentioned previously, secured credit cards require a security deposit that becomes your credit limit.

And while the Secured Mastercard® from Capital One does require a deposit like all the rest, Capital One does it differently. Capital One does it better.

You see, while other secured card credit limits match your deposit, if you qualify, this card allows you to have a higher credit limit than what you deposit.

Which is unheard of for secured cards.

For example, you can make a deposit of $49, $99, or $200 to receive a credit line of $200.

It can increase your limit up to $1,000 when you make more than the minimum deposit before you activate your account.

But wait, there’s more.

You don’t have to pay the deposit upfront.

Capital One allows you to pay your deposit in installments of $20 or more, as long as it is paid in full by the 35th day after you are approved.

If you are tight on a budget but still want to build your credit, this is a major plus for this card.

With this card, when you make consistent monthly payments on time, you have the opportunity to have your credit limit increased automatically.

That is without needing to deposit more money. Thus, giving you access to more cash than you used as collateral.

Another big plus is that Capital One is widely accepted outside the United States, which makes this card a good option for international travelers.

Sounds good, right?

• Cons

But let’s now discuss two cons of this card that we want you to be aware of.

The first con is that there are no rewards, unlike the Discover it® Secured Credit Card.

The second con is that the APR on this card is pretty high, at an ongoing Variable APR of 26.99%. Which only affects you if you do not pay your card in full on a monthly basis.

The third con is that a bank account is required to qualify, which renders this card useless for those without one.

Overall, the Secured Mastercard® from Capital One is an outstanding option for those who prioritize lower deposits and higher credit limits over rewards like cashback.

3. OpenSky Secured Visa Card

This secured credit card has two major features that set it apart from the Discover it® Secured Credit Card and Secured Mastercard® from Capital One.

• Pros

The first major feature is that the OpenSky Secured Visa Card is a rare card that allows you to qualify for the secured credit card without a credit check.

Yup, you read that right.

So if you are struggling to get approved for a secured credit card, this is an outstanding option for you.

The second major feature of the OpenSky Secured Visa Card is that it does not require you to have a bank account to qualify like most other secured credit cards do.

Therefore, giving those without bank accounts an uncommon opportunity to get a secured card.

In addition, this card reports to all three credit bureaus TransUnion, Equifax, and Experian.

• Cons

There are three cons to keep in mind with the OpenSky Secured Visa card.

The first con is that there is a 35% annual fee which makes it the only card on our list with an annual fee.

But when put into perspective, the $35 annual fee is on the cheaper side when compared to other annual fees for secured credit cards.

The second con, and likely the most impactful, is that you do not have the ability to upgrade to an unsecured card.

This leaves you two options once you do improve your credit:

• You will have to close it which may affect your credit utilization and length of credit history.
• You will have to keep it open and pay the annual fee.

For this reason, if you can qualify for one of the other cards mentioned, they are 100% a better option.

If you are not able to qualify either because of your credit or lack of bank account, the OpenSky Secured Visa card is a stellar option.

4 Credit Card Tips

So before we let you go, we want to share 4 credit card tips to help you maximize your efforts to repair and build your credit.

Tip #1: If you choose an unsecured credit card, be sure to choose an issuer that reports to all three credit bureaus.

Tip #2: If you can qualify for a bank account, it’s worth applying for a low-fee checking account or a second chance checking account that will help you qualify for the secured credit cards that require a bank account.

Tip #3: If you incur a late payment fee, try calling and asking for it to be removed as a courtesy. You may be surprised by how willing your credit card issuer is to work with you on fees.

Tip #4: Keep your credit card usage below 30% utilization for the best credit scores. This means if you have a credit limit of $200, you want to keep your balance, below $60 which is 30% of $200.

Conclusion

Well, there you have it, the 3 best credit cards for bad credit and building credit.

Now if you don’t have bad credit (or need to build one), here’s our post on the best business credit cards for everyone.

Or if you want to see the best business checking accounts, be sure to read it after.

If you need more help with your current financial situation, work with our CFO services today! Our team of experts is always ready to help.

Give us a call now!

The post Best Credit Cards for Bad Credit [Instant Approval] appeared first on Small Business Accounting & Finance Blog.

“Should I have multiple LLCs for real estate investing?”

Let’s talk about it. Of course, there are going to be some pros and cons of having multiple LLCs for real estate investing.

So in this post, we want to just briefly answer the question, do some math and calculations with you and try our best to help you make the best decision possible.

Keep reading!

So do you need more than one LLC for your rental properties? Here are the factors we have to look at together.

3 Factors to Consider If You Want Multiple LLCs for Real Estate Investing

1. The number of properties you want.
2. The management of having multiple LLCs.
3. The costs of having multiple LLCs.

Now, we’re not going to talk about how to buy rental properties with an LLC, or reasons why you should or should not because we already made a post on that.

Check out this post to learn more about the disadvantages of LLC and find out if it’s the best choice for you.

So in this post, we’ll be evaluating each of these factors by comparing each one side by side.

Let’s start off by quickly answering…

Why Would You Want Multiple LLCs for Real Estate Investing?

The biggest reason is going to be separation, right?

You separate one property completely from another property. So what does this mean?

Well, as a real estate investor, you are going to have limited liability protection for all your properties.

For example, if one property losses a lawsuit against a tenant then only that property or that LLC is going to be responsible for the legal damages.

On the other hand, if you had all your properties in one LLC then one bad lawsuit could put all your other properties at risk.

On top of that, having separation or multiple LLCs for each rental property means that it also separates the financials and taxes more.

So that leads us to our first factor.

Factor #1: How Many Properties Do You Want to Acquire?

And we say want because you should project out into the future and start with a solid process now.

This is so you don’t have to go back later and go through the hassle of “untangling everything.”

Now, of course, the more properties you own, the more LLCs you may need.

But there is a certain threshold where we would say, you should start highly considering having multiple LLCs for each property.

And we would say do this when you have more than 4 properties or over $1 million dollars in real estate assets.

Here’s why: When you have 4 properties or less, you are going to be dealing with fewer tenants, so there are going to be fewer transactions to deal with.

That’s why keeping track will be easier while at the same time exposing you to less legal risk.

And usually, almost any person with about 5 hours a week can easily manage 1-4 rental properties.

However, when you start to cross over to dealing with more than 5, 10, 25 properties then things start to get a little bit more chaotic.

So you’re going to want things a little bit more organized, right?

You’re going to want the transactions for property 1 to be separated from property 11.

This means each property should have its own LLC with its own EIN number, bank account, credit cards, etc.

And of course, dealing with 25 tenants instead of 2 is going to expose you to more legal risk, which means you need more limited liability protection.

So that was the first factor to consider if you want to have multiple LLCs for real estate investing.

These are important things to think about:

Factor #2: The Management of Having Multiple LLCs

So while there are a lot of benefits of having multiple LLCs for real estate investing, you have to think about the management of that.

Having multiple LLCs mean that you have more documentation and multiple bank and credit accounts.

So again, a lot of things to juggle and to look at. Ultimately, this part is more mental than anything else.

Just trying to keep up in your mind different account balances, what document is for what property, and organizing it all can be a bit of a pain.

So if you can simplify your life, why not right?

Factor #3: Costs of Having Multiple LLCs

Most people don’t think about this part, but when you have multiple LLCs you also have separate fees for each one.

For example, LLCs have annual filings that are required for them to remain active. These filings can be expensive (up to $500 per year).

But perhaps, the biggest expense will come at tax time.

Most tax franchises and accountants will charge you for each LLC you have.

This means, if you have 8 LLCs and the account charges $1000 for each one, you’re going to have an $8,000 tax bill.

And if you do it yourself then you’re also going to spend a lot of hours filing each individual LLC return.

Lastly, you are going to have some minor costs that just come up with having multiple LLCs for your rental properties.

For example, if your bank has maintenance fees then you will be paying that each individual LLC or property.

Or if you sign up for a website to list your property, you may have to pay separate monthly fees for each account you set up, for each of your LLCs.

So overall, yes you have separate limited liability protection, but you also have separate fees that you must pay as well.

And this is why we say that you should consider having multiple LLCs if you own more than $1M in real estate assets…

…because at that point, you are probably crossing the threshold where you can actually afford to pay for the LLCs without it digging too much into your profits.

Now since you made it this far, we have additional bonus tips for you!

Bonus Tips If You Have Multiple LLCs for Real Estate Investing

Bonus tip 1: Protect yourself in your lease agreement.

However, there are some “tenant-friendly states” and there are some “landlord-friendly states.”

So, you also need to be aware of your state’s own laws around rental properties so that your lease terms are not negated by the state laws.

Bonus tip 2: Understand the impact on your track record.

Just like any person or business, your track records such as credit history, on-time payments, and income play a big role in you receiving funding.

So one of the biggest benefits of having one LLC is that the track record for that LLC will be much more expansive. This makes it more borrow-worthy and less of a risk for lenders.

So is raising capital one of your weak points? Then definitely keep this in mind as well.

The Bottom Line

Now should you have multiple LLCs for real estate investing? Well, of course, it depends.

There’s no way we can give you a direct answer to that because everyone’s financial situation is a little bit different.

Additionally, there are specific market conditions and property types that may play a factor as well.

You should weigh all the pros and cons, and consider the best option for you.

The post How Many LLCs Do You Need for Real Estate Investing? appeared first on Small Business Accounting & Finance Blog.

Let’s talk about how to buy rental properties with an LLC, otherwise known as a limited liability company.

Now whether you are an aspiring real estate investor or a current real estate investor, you may want an LLC for various different reasons like having a tenant that’s a little “sketchy?”

Now spoiler alert: Buying a rental property with an LLC is a lot easier than you may think, especially if you are a new investor because you don’t have to go backward.

So in this post, we’re going to give you everything you need to know on how to buy rental properties with an LLC.

As well as review the pros and cons of doing using an LLC. Keep reading!

We love real estate investing because it gives you some major tax benefits such as depreciation and tax-free passive income. 

But before we dive in, let us first briefly go over this…

What Is An LLC and Do You Need One?

So there are plenty of real estate investors that buy and own their rental properties under an limited liability company.

This is simply because it separates the legal liability between your personal assets and your company’s assets (aka the rental property).

So, if one of your tenants slips and falls in the bathroom and decides to sue you, the most you could lose would be your rental property, instead of your personal assets like your house or your car.

Now whether or not you need an LLC really depends on your personal situation.

And we think this is a good place to mention that this is not financial advice. This is simply for information and education purposes, but we’re sure you’re going to learn a lot.

You can check out our CFO services for better advice regarding your specific situation.

So if you want to buy rental properties with an LLC, here are some of the things you need to consider before actually deciding to own an LLC.

1. If you have personal assets you are trying to protect, then of course you should have an LLC.

But oftentimes when we investigate the assets that our younger clients have to protect, they often don’t have many assets.

In fact, unfortunately, some people have more debt and negative net worth.

So if you don’t have a lot of assets, that may be a reason not to rush into an LLC and save yourself some money.

2. If you are buying real estate with a business partner.

It may be a good idea to have an LLC because that will open up more ways for partnership.

For example, real estate LLCs make it possible for foreign ownership.

Speaking of foreign ownership, we have a post here that tackles the foreign earned income inclusions that you might want to read next.

3. Financing a property (or getting a loan for a property) can be much more challenging than buying a property as an individual.

That’s because as an individual you have a track record like you have income, your credit history, etc.

On top of that, you would likely have to get a commercial loan that has less favorable financing terms such as:

• higher interest rates,
• larger down payments, and
• a shorter-term loan (no 30-year fixed terms).

This means that you will have higher payments and potentially less profit.

So those would be our 3 top reasons why you may want to or may not want to buy rental properties with an LLC.

One other big question that we want to cover for existing investors is “can you transfer an investment property you already own to an LLC?”

And the answer is yes.

However, an existing property requires a few additional steps and it usually involves working directly with your mortgage lender.

The biggest thing to look out for here is that sometimes there is a clause in your mortgage agreement called “due on sale” which would be similar to selling your property to someone else.

But in this case, you’re like selling it to yourself…

And basically, you may incur closing costs, have to pay a higher interest rate than before, and even pay a title transfer tax.

So yes, you can do it but make sure you are weighing all the pros and cons.

Steps on How to Buy Rental Properties With an LLC

Step 1: Understand the business structure

If you buy rental properties with an LLC that means your company will operate as the landlord, not you as the individual.

So that means you will need to completely separate your personal expenses from your LLC expenses.

And this is very very important because if you mix all your expenses together, then in some courts (like Nevada) you will lose your limited liability protection and be exposed to having your personal assets ceased.

Step 2: Get setup

Here are the things you need to do. Now it sounds a little intimidating at first but all of these things are very easy.

a. Register your LLC

This one’s a no-brainer. If you don’t know how to do it, start by going to your secretary of state website and start the process.

b. Get an EIN number

EIN stands for employer identification number.

This is basically like a social security number but for your business. You’re going to need this number for important documents and setting up assets.

To apply for EIN, simply visit this IRS page.

c. Setting up your business bank account

So remember we want to keep everything separate and business bank accounts are how to do it.

Some you want to set up a business account for all your transactions such as the rental income you collect and the expenses you incur like advertising fees.

So get an account, a debit card, or if you’re comfortable with it a business credit card for all your related rental property transactions, go ahead and get one.

4. Put together an operating agreement

Your lender may want to see a copy of your operating agreement to get your percentage of the business owned and make sure your company is legit.

We have a post on how to set up an LLC operating agreement so be sure to check it out right after you finish this one.

Step 3: Get a mortgage loan under your LLC’s name

There are three types of loans we want to talk about for your LLC.

• Conventional mortgage

So you can get a conventional mortgage under your LLC name and get pretty good interest rates too. But it is definitely a hassle.

Of course, most conventional lenders don’t want to write a mortgage for an LLC, they aren’t designed for it and make it super difficult for you.

On top of that, most conventional lenders will report the mortgage on your personal credit report.

And this is a problem because you are typically only allowed four mortgages on your credit report before they stop lending to you.

So if you plan to build a portfolio of rental properties then you are going to hit a ceiling. But again, you can still talk to your current lender and try to make it happen.

• Portfolio loan

A portfolio loan is a loan that the lender keeps in-house, within their own portfolio, rather than selling it off on the open market like conventional lenders.

With a portfolio lender, they don’t report mortgages on your personal credit report which means there is no limit to the properties you can buy.

In fact, you actually get rewarded for having more properties in the way of getting lower interest rates.

They will recognize that you have more experience and in their eyes, you would be a less risky borrower.

And the icing on the cake is that getting portfolio loans is cheaper, faster, and more flexible.

For example, not only can you get a mortgage under your LLC name, but you can get mortgages under other types of legal entities as well.

So portfolio loans are more closely related to commercial loans with great advantages.

• Rehab loans

Lastly, for properties that need to be renovated, you have a few options, but a popular one is getting a purchase-rehab loan.

Rehab loans often come from hard money lenders, crowdfunding websites, portfolio lenders, community banks, and even private investors.

These are typically short-term loans that just help you get through a renovation or rehab project, so the interest rates you pay are a lot higher.

And after the loan ends, you still need to get a long-term loan so you would need to refinance or apply for a loan likely by using one of the first two options.

So that’s how to buy rental properties with an LLC. Now since you made it this far, we have a few bonus tips for you if you end up using an LLC.

Bonus Tips If You Buy Rental Properties With An LLC

Tip 1: Keep cash reserves

Many new investors focus only on the down payment and minor costs to acquire the home, but don’t there are other fees to consider.

For example, the lender may have administrative fees, processing fees, settlement fees, and “we’re charging because we can fees.”

On top of that, some lenders may require you have cash reserves for at least six months in the event that something unexpected happens.

Of course, even if the lender doesn’t require it, it’s still something you should have because you never know when you may have unexpected expenses such as:

• long-term vaccines,
• repairs,
• legal fees

…and so on.

Tip 2: Are you completely protected if you default on your LLC mortgage?

Now just to clarify, this question is talking about if you just stop paying your mortgage, not in the case where something like a tenant sues you.

So again, this is especially for new investors who don’t have a track record yet.

Because many lenders will have a clause that says something along the lines of even though the LLC is the borrower of the loan, you are personally guaranteeing the payments.

Therefore, you are personally liable for the mortgage, meaning the lending company can come after you and your personal assets.

So moral of the story, don’t think you’re off the hook for the loan just because its in an LLC name and make sure you read your mortgage agreement.

Wrapping Up

We’ll close with agreeing that setting up an LLC is pretty easy to do, but just comes with a few extra steps and costs for that extra limited liability protection.

So always make sure that you personally weigh the pros and cons to make the best decision for you.

If you need help with your wealth management, our team of LYFE savers is here to help you out. Get in touch with us today!

The post How to Buy Rental Properties With An LLC: 3 Simple Steps appeared first on Small Business Accounting & Finance Blog.

Should you buy your home?

Or rent forever?

For some of you, it might be obvious to buy a home because that’s what your parents did, or you might think that renting is just throwing away money.

For others, you might think that renting is better because you have more flexibility in where you live.

Or the peace of mind knowing when something breaks, all you have to do is call the landlord and everything magically gets fixed.

Both sides have really good arguments, but this has been a long-standing debate, and ultimately, you have to do what’s best for you and your family.

Because whatever you decide, it will impact your life and financial wealth. It is literally one of, if not, the biggest financial decisions you’ll make.

So in this post, we will explain the difference between buying a home and renting.

And by the end of it, you will understand the financial impacts of both.

If that sounds good to you, let’s dive in!

Buying a Home Advantages

Oftentimes, people associate homeownership with living the “American dream”, and there are a few reasons why, such as:

• The ability to accumulate wealth.
• The average net worth of homeowners is 80 times larger than renters according to the U.S. Census Bureau.

If you own a home, this is likely your largest asset and it is directly tied to your net worth.

And owning a home encourages intergenerational homeownership and wealth.

Children of homeowners tend to transition to homeownership sooner which extends the time period they can accumulate their wealth and pass down even more to their children.

All of that sounds good but let us give you solid financial advantages of owning a home.

1. It is usually a good investment.

In general, real estate appreciates in value over time. About 3-4% annually is the average. So if you buy a home for $400,000, it should be worth about $475,000 in 5 years.

And if you choose to sell your home at that point, you would not have to pay any capital gains tax on the sale, up to $500,000 for married couples.

2. Hedges your risk against inflation

Right now, we see that inflation is at an all-time high. And if you don’t know, inflation is a decrease in purchasing power.

Basically, a dollar doesn’t buy you as much as it used to a few years ago. And this is shown in the increase in the price of things like interest rates.

When you own a home, you can lock in a fixed interest rate. So as inflation and interest rates increase, you can avoid paying higher interest rates later on.

And as with any good or service that increases in price with inflation, rent is included. In fact, rent tends to increase on average 3 to 5 percent annually.

When you own a home, you are not exposed to rising rent. Your cost of living is fixed, regardless of the market and inflation.

If you want to learn more about inflation tax, then read this post next.

3. Building equity

Equity is the portion of the home that you have already paid off. So if you had a 20% down payment, your starting equity would be 20% of the home value.

As you make your monthly mortgage payments, your home equity grows and gives you more borrowing power.

So this means as a homeowner, you have the flexibility to take money out of your home in the form of a home equity loan.

These loans can be used to fund:

• home improvements projects,
• your kid’s education,
• an emergency fund,
• a new car,

…or anything else for that matter.

You essentially have more access to cash when you own a home.

4. There are tax incentives for homeownership.

You are able to deduct your mortgage interest and property taxes on your annual tax return.

During the first several years of paying a mortgage, most of your monthly payments are going toward interest.

This means at the end of the year, there is a large tax deduction you can take.

You’re also able to deduct what you paid in property taxes as well.

Check out this post next to know more about how you can pay less in property taxes.

*These tax incentives are dependent on if you take the standard deduction or itemize your deductions so do keep that in mind.

Buying a Home Disadvantages

So you have the financial advantages of owning a home but what are the disadvantages?

1. There are higher upfront costs to homeownership.

When you buy a home, you typically need 20% of the purchase price as a down payment. This could easily mean at least $30,000.

Not to mention the costs of an appraisal (which is required to secure a mortgage), mortgage underwriting fees, and home inspection costs.

Probably one of the biggest financial disadvantages to owning a home is the maintenance costs.

It doesn’t matter if the AC goes out, the sink is leaking, or if you stumbled across a pest issue in the basement. You are solely responsible.

There isn’t a landlord to call, in fact, you can think of yourself as the landlord when you own a home.

And if you think you won’t have much to fix or those problems are far and few between…

…we can tell you that 99% of the time, there is usually always something that needs to be fixed, updated, or routinely maintained in a home.

Besides just repairs, there are also potential costs like lawn maintenance, shoveling snow, and cleaning the gutters.

The 1% rule says you’ll pay about 1 percent of the home’s purchase price in maintenance annually.

2. Long term commitment

Life happens and maybe you change jobs or go through a divorce and your household income is just not as high as it was when you first bought a home.

Those facts would not change your mortgage payment or property tax obligations.

You could sell your house or refinance your mortgage in these circumstances, but doing so would come at a cost as well in form of refinancing fees and the selling costs to sell a home.

So there’s another disadvantage to owning we want to talk about.

It’s not really one of your “traditional” disadvantages you hear people talking about, but we think it’s worth bringing up. And that’s the…

3. Opportunity Cost of Owning

Think of opportunity costs as the loss of potential gain from other alternatives when one alternative is chosen.

So what potential gain are you missing out on by owning?

What other opportunities could you take advantage of with money saved that could go to a down payment but instead goes to something else?

Well, for it to be better than buying a house, it would have to be some kind of investment vehicle, like the stock market.

The argument here is that it’s possible that you could earn more from investing in the stock market or other investments than from buying a home.

For example, let’s say you invested $30,000 in the stock market today. Based on the average growth rate of the stock market at 7%, you would have over $55,000 10 years from now.

If that $30,000 went to a down payment, it would be locked in the value of the home. And it certainly would not be worth a penny over $30,000.

The bottom line is, there is an opportunity cost to owning and it is completely possible to earn returns from investing in other vehicles besides your residence.

Renting a Home Advantages

Now let’s move on to the advantages and disadvantages of renting a home, starting first with the advantages.

1. Lower upfront costs

Renting does not require a traditional down payment like owning does. There’s no need to save up $30,000 to rent an apartment

Most landlords do require some kind of security deposit that’s usually first or last month’s rent but that’s normally it.

And if the unit is in good condition at the end of your lease, you can expect to get that deposit back.

2. No maintenance or repair costs

When you rent, your landlord is responsible for all maintenance, repairs, and improvements.

If something breaks or stops working, you call the landlord and they are required to fix it.

Depending on your lease, you might be required to contribute to repairs that are a direct result of your actions. But if you’re taking care of the unit, this shouldn’t be the case.

3. You don’t have to pay property taxes.

Renters don’t pay property taxes. Property taxes can be a huge burden on homeowners.

Property taxes are calculated by estimating property value, the amount of land the property sits on, and location.

And depending on these factors, not paying property taxes is a major cost-saving.

4. Renters typically have lower utility and insurance costs.

Many landlords cover some of the utility costs for tenants like garbage, water, and even internet.

Furthermore, rental units typically have more efficient floor plans which make them cheaper to heat and power than a traditional single-family home.

Insurance costs also tend to be lower with renting than owning. Homeowner’s insurance is required when owning and usually does not cover everything inside the home.

Renters insurance, however, is much cheaper than homeowners insurance and basically covers everything inside your unit.

The average cost of homeowners insurance is around $1300 per year compared to $180 per year for renters insurance.

Renting a Home Disadvantages

1. It isn’t an investment.

You aren’t building any equity in the rental property.

All you take with you when you leave is yourself and your belongings. Basically, it’s your home but it is not your asset.

2. There aren’t any tax incentives for renting.

You can’t write off your rent payments.

And as we know with owning a home, you can write off the interest portion of your mortgage payments.

3. Rent costs are not fixed.

Landlords can increase the rent at any time. You don’t know if they’ll increase by $20 or $200 or more. You’re pretty much at their mercy.

In addition to raising your rent, they can decide to sell the property at any time.

Thus, forcing you to look for a new place to live and incur additional moving costs.

Buying vs Renting: Recap of Both

So, we just gave you a lot of financial information to think about when considering buying or renting a home.

You learned that buying is an investment with real estate generally going up in value over time.

You build equity in a home by making your mortgage payments which allow you to take money out of your home, if needed.

You also hedge against inflation and there are some tax incentives.

Buying also comes at a cost that includes property taxes, maintenance costs, and higher upfront costs.

Renting can also be a good thing since there are no maintenance costs, no property taxes, and lower upfront costs.

The pitfall of renting is the fact that it is not an investment, there aren’t any tax incentives and rent costs are not fixed.

Got it?

Nonfinancial Considerations of Buying vs Renting

Lastly, we want to mention some of the non-financial, lifestyle pros and cons of buying and renting.

With owning a home, there’s pride associated with that.

It’s your property. It’s your community.

9 times out 10, when you buy a home you are planning on staying in that home for at least 5 to 10 years or more. It’s a more stable environment for you.

You’re also free to re-decorate and renovate your property as you wish.

With all of that, buying does come with its fair share of stress.

Stress when looking for a property, buying a property, renovating a property or even just when something breaks, it is your responsibility and all of that can be stressful for homeowners.

This brings us to renting…

There’s a certain peace of mind you have with renting.

You don’t have to worry about how things are going to get fixed or maintaining a yard.

You’re free to move as often as you’d like. If after living somewhere and you don’t like it, you are not obligated to stay there.

Or maybe you travel a lot and don’t want all of the responsibilities of owning.

Renting will definitely be a lot less stressful.

Also, if you like the amenities that usually come with renting this is also a benefit. Having a gym, pool, or game room might be something you really want to have on a day-to-day basis.

But with that, you’re also having to share these spaces with others and it is not customized to your liking.

And you’re also not able to really customize and decorate your unit how you’d like.

Wrapping Up

Hopefully, we were able to clear up the major financial and nonfinancial differences between buying vs renting a home.

Ultimately, you should not only seriously consider the financial impacts of both, but the non-financial, lifestyle considerations as well.

We offer CFO services and wealth management services if you need any help with managing your investments and finances. Get in touch with us!

The post Buying vs Renting a Home | Which One Should You Choose? appeared first on Small Business Accounting & Finance Blog.

How to start a business without money?

Let us start out by being completely real with you. Building a new business is hard and building a business without money is even harder.

But it’s definitely possible. In fact, when we started our first business, the only money one of our founders had was a $250 deposit into a business checking account.

And to be honest, he said he never even planned to use that money. It was just a deposit he had to make to ensure the account would get opened without incurring fees.

But fast forward to today, and that company went on to make over $10M dollars throughout the last decade, and is listed as an Inc 5000’s fastest-growing company in 2020.

So in this post, we want to share what we learned on how to start a business without money.

This is so you know exactly what you could do if you were in the same position as we were.

Now the tips we are going to share with you today build off of one another, so make sure you read this entire post so you completely understand what to do.

Let’s dive straight into the first step on how to start a business without money.

10 Steps on How to Start a Business Without Money

Step 1: Start a Service Company

So if you don’t have any money, we are going to recommend the first business you start is a service business.

And that is because you can start a service business with very little capital when compared against product or tech companies.

Now if you do want to raise money, get investors or a loan, and overall get in debt to start your business, then that’s a whole different story. That’s for another post.

However, if you are a new entrepreneur, like you’ve never started a business before, and you don’t have a huge business social network…

…we highly highly recommend that you do start with a service business anyway because there is much lower risk, and you have the luxury of making mistakes.

And this is what you definitely will if it’s your first business.

Step 2: Pick the Right Service Business for You

There are a lot of different types of service businesses you can start.

You could be a personal trainer, a makeup artist, pet sitter, handyman, graphic designer, tutor, YouTuber, lawn care specialist, auto mechanic, etc.

And because there are so many options, what we see a lot of people default to is picking the service business that will make them the most money.

And that is exactly what you do not want to do.

Choose something that you are passionate about as opposed to picking something that you think will make money.

And yes, we know this is difficult because money is so important when you don’t have a lot.

But believe us, when you actually care about what you are doing, the money will be much easier to make.

For example, if you run the numbers on how much money you can make as a technology consulting company, and how much you can make as a dog care company…

…you would easily choose to start a technology consulting business because they generally make more money per client.

However, we have a client who is passionate about dogs and runs million-dollar dog care companies.

On the other hand, we also have clients who run information technology companies and barely make 6 figures.

So choose something that you’re passionate about, something that you would enjoy learning about, reading on weekends about, watching YouTube videos about, etc.

Step 3: Develop a Valuable Skill

So maybe you decided to start a service business (or maybe not) but either way this step applies to you.

That’s because whether you have a service, product, or tech, you have to be able to set yourself apart from the competition.

And the best way to do this, if you want to start a business without money, is to be the most knowledgeable about your industry and have the most technical skill around it.

And it’s because when you have undeniable skills and talent, people will develop more trust in you and your company.

For example, if we go back to the dog care company, that is something that would seem like anyone can do, right? Like walking a dog, entertaining them, and grooming them can seem so simple.

But when you can show your expertise around, for instance, this dog has this kind of fur, so they need these grooming products.

Or, this breed of dog is sensitive to these types of food so they need to eat this.

You would be immediately separating yourself from someone who is just like “yeah, I can wash your dog.”

And then eventually, establishing yourself as someone who can take care of someone’s dog in the best possible way.

And guess what, it’s okay if you don’t have a valuable skill now.

You can take your time and develop skills while still following the next few steps in this post.

Step 4: Choose Your Business Entity

So in some states, like Georgia for example, you can establish a sole proprietorship without filing any legal documents with the Georgia Secretary of State.

This means, if you don’t have any money for your business (or just want to be very conservative), then you can start a sole proprietorship or general partnership completely for free.

And then, start working on your business right away.

The main thing you are going to want to obtain is to get an EIN which stands for Employer Identification Number. This is like a social security number but for your business.

You’re going to need an EIN number to set up a business bank account, pay employees, etc.

Now typically, we see people rushing to start an LLC because they want limited liability protection for their personal assets.

But only when we ask “what personal assets are you trying to protect?” do people start to realize they have very few assets to protect.

So sometimes starting an LLC is not a good idea but then again sometimes it can be.

Read this post next to learn about the disadvantages of LLC and find out if this is the best entity for you.

Step 5: Trade Your Time

When you want to start a business without money, time is your most valuable asset.

You can trade your time in 3 ways. You can trade time for experience, money, and growth.

Let’s briefly talk about how you can do it.

• Trading your time for experience

So when we started our first company, we did marketing and we had no clients.

And every time we pitched someone a marketing program, they wanted to see some of our past work and results. But we never had anything to show them.

So we continued to work on our pitch by working on what we would say and the overall design of our slides, but we still came up short.

Until finally, we decided to offer our services for free.

And at that time, we feel like saying, “Hey, we didn’t start this company not to make money.”

We started thinking that they are probably using us, they will take what they can get and leave us hanging.

But, the exact opposite happened.

We generated so many results that our first client started paying us to continue the marketing program.

And we had real results to show other potential clients, which helped us land more clients as well.

Now we have to admit, we were incredibly lucky.

But we stand firm on the idea of if you don’t have past results, or clients then start out by working for free, i.e. trading your time for money.

• Trading your time for money

We don’t have a lot to say here, other than it’s time to grind.

This is where you’re going to have to put up with some needy clients, work late nights, and even on the weekends.

You’re going to feel like a workaholic.

But as long as you are gaining momentum, you will eventually be able to use the money you earned to get back more of your time.

• Trading your time for growth

So once you start rolling, there are going to be some opportunities that just fall in your lap. And sometimes, you’re going to have to trade your time for that opportunity.

It may be an opportunity to speak at an event or network with other like-minded entrepreneurs.

And sometimes, you’ll even have to sacrifice taking on a new client for this growth opportunity.

Step 6: Start Organic Digital Marketing

Now steps 5 and 6 are closely related because they both involve using your own time.

Of course, if you have a new company and no one knows you, then you’ve got to start getting your name out there.

The problem is that most marketing and advertising out there is either:

1. very expensive, or
2. very ineffective.

So as we mentioned, we run a marketing company and one of the things we did to grow was to use organic marketing strategies.

What is organic marketing, by the way?

Well, it is a simple way that allows people to discover who you are, without you paying for that reach whether it is through sponsorships or advertisements.

The two biggest forms of organic marketing are social media marketing and search engine marketing.

It costs you absolutely nothing to post on social media, write comments, use hashtags, and send direct messages.

And it costs you nothing to write a great blog or article around your industry that could show up in search engine rankings.

Being aggressive with social media and search engines can help you to explode your reach and get massive brand awareness without money.

Step 7: Track Your Financials

So at this part in your journey, you may have started a service business, you have skills, you’re incorporated and you are starting to land some clients.

So what’s next?

Track your finances because as you’re operating, you probably are going to find some necessities or just some really cool tools that will help you maximize your workflow.

Now keeping track of your transaction is important for two reasons.

1. You are going to need to report your business income when you file your taxes and you definitely want to report everything correctly to the IRS.
2. It’s important for you, as the entrepreneur, to know exactly what is going on with your money so you can make important business decisions.

If you need help with tracking your financials, work with our bookkeeping and accounting services today.

Step 8: Reinvesting Your Profits

You started this business with no money, so don’t jump too quickly into spending the money you make. And that’s the biggest mistake new entrepreneurs make.

They start upgrading their lifestyle so they go out and get a new car, a new house, etc.

So try not to upgrade your lifestyle unless you need to because remember, you are likely trading your time for money and we want to take back some of your time now that you have money.

So what does that mean? It’s time to reinvest profits.

Now there are a lot of reasons why you may want to reinvest profits. For example, maybe you want to reinvest into an advertising campaign that could bring on more profits.

But the two big ways that we would suggest you start reinvesting profits are to hire people or buy technology.

Hiring people is a no-brainer.

If you are finding yourself working 12 hours a day or just constantly saying to yourself, “I’m too busy”, “I don’t have time”, “I wish I had some help”… then you need to hire someone.

Even if you’re just hiring an intern, contractor, part-time employee, or outsourcing to a company…

…you can take back some of the time that you may be spending on entry-level tasks and start back focusing on business growth.

The second big reinvestment we’d recommend is buying technology.

People, of course, are not the only way to save time. Especially today, you have so much artificial intelligence and tools that can save hundreds of hours in a month.

Now the type of technology to buy/rent will be different for everyone.

But in general, if you find something that can legitimately save you time, then it may be a good investment for your business.

Step 9: Don’t Stop Learning

If you had money then you may be able to get away with hiring a consultant to help you navigate uncharted territory but still, consultants are expensive.

So the advice we have for people who want to learn how to start a business without money is to do exactly what you are doing now.

Consume as much free content from reputable people that you can.

Now, a quick disclaimer on free content: you have to be careful because some people use their free content as a way to get you into their paid content, which is of course smart.

So what you need to know is that, most of the time, with some of the free content you consume, there are going to be holes left unfilled.

Or in other words, you won’t get a complete lesson.

But you can still fill in those holes, but learning more and consuming more free content from other places.

Even today, we try to read at least one business book or self-improvement book every month. And we are constantly consuming business content on TV, social media, and YouTube.

Step 10: Review and Optimize

Our last step on how to start a business without money is to review and optimize.

After about 1-2 years of running your business, you should have accumulated enough time and data to make thoughtful decisions.

So now is the time to access.

Are you happy with what you do? Are you passionate about it as much as you thought you would be?

Yes? Then, are you making money? Are you profitable?

Yes? Next, what’s stopping you from growing more? Do you need people? Is it time to reinvest?

Take the time to stop, review and optimize.

As entrepreneurs, we get so caught up in doing the next thing… but we think it’s Bill Gates who takes a week off every year to reflect, reassess, and plan for the future.

If everything is going great then congratulations, you have officially joined the bootstrapped club of starting a business without money! We can’t wait to see what you go on to do.

The post How to Start a Business Without Money (2021 Tips & Ideas) appeared first on Small Business Accounting & Finance Blog.

Starting a business from scratch is not the only way to start a business.

In fact, in a lot of instances, it is much easier to buy an existing business than starting from ground zero.

For example, when you buy an existing business you already have things like recurring revenue, an established customer base, and a track record to go off of.

In this post, we will explain the 6 general steps of buying an existing business and what to look out for when choosing a business to buy.

Now let’s get started with how you can buy a business.

6 Steps on How to Buy a Business

Step 1: Figure out what you’re budget is

The good news is that most businesses that are bought are acquired using some form of financing.

You can do this either through debt financing using a bank business loan or seller financing where you and the seller come to an agreement on payment terms.

Read this post next if you want to learn more about business loans.

Anyway, in either case, you should have some capital saved as a down payment on purchasing a business. At the very least 15-20% of the purchase price.

Now the cost of a business varies greatly with size, location, and industry.

But we can say the average sales price of a business is between $150 to $200,000.

However, you can easily find businesses in the $15 to $30,000 range.

Again, it depends on the size and type of business.

If you want to buy a small flower shop or dry cleaners, this would be significantly cheaper than buying a gym or management company.

The bottom line is, you need to know how much you have to spend on buying a business.

As well as the type of business you’re interested in, so you can choose the business that is the best fit for you.

Step 2: Determine what type of business you want to buy

What industry interests you the most? What industry is likely to continue to grow 5, 10, 20 years down the road?

These are just a few of the questions you should ask yourself.

Ultimately, it makes the most sense to choose a business or industry that you have worked or have experience in.

For example, if you’re a hairstylist, you could look for hair salons to buy.

Or if you are a lawyer and have always wanted your own practice, you can look into law firms for sale.

When you choose an industry that you have experience in, the transition from employee to owner is much easier.

That is when compared to buying a business you know very little about.

Also, when you buy a business you’ve worked for, you’ll be better equipped to spot those businesses that have operational red flags.

Step 3: Do your research

You can look at sites like BizBuySell and search for businesses for sale by location, price, industry, and more.

If you need more help in finding the right business to buy, consider contacting a business broker.

They charge between 5 and 10 percent commission of the business purchase price, but can help you in several ways by:

1. Helping you decide on the type of business you should buy.

In some cases, it comes down to more than just the industry, but also some business details. For instance, how many employees and customers they have.

You may learn that you don’t want to manage a certain number of employees, or don’t want to serve a particular customer base.

A broker can help you think through these sorts of details.

2. They can help with vetting businesses for you.

Brokers help businesses buy and sell all of the time.

They know what questions to ask to make sure only qualified businesses come to your attention which can save you a lot of time.

They are also experienced in analyzing the market and assessing if a particular business is a good deal or not.

3. They can also help you with negotiating prices.

This is to make sure that both you and the seller agree on a price that will make everyone happy.

After you completed your research, hopefully, you have a business or 2 that meets your criteria.

Step 4: Reach out to the seller

In order to move forward with the deal, they’ll likely require you to sign a letter of intent.

A letter of intent is a non-binding agreement that allows you (the buyer) to do a more thorough review of the business and prevents the seller from negotiating with other buyers during this time.

It also demonstrates the seriousness level of both the buyer and seller.

The seller may also request that you sign a nondisclosure agreement.

By signing a nondisclosure agreement, you would agree to not disclose any confidential information that you may find during due diligence.

Step 5: Due diligence

Due diligence is the process of gathering as much information about the business before actually buying.

If you own a home, then you already know that before buying it, you had a week or two for due diligence.

And it was during this time, that you were able to investigate further into the home you were considering.

The same process is true with purchasing a business.

Some of the business documents that should be requested during due diligence are:

1. Organizational paperwork – like the articles of incorporation or articles of organization. You should also request a certificate of good standing from the state.

2. Business licenses and permits – depending on the business industry, certain licenses and permits are required.

So you want to make sure that the business has what it needs to operate.

3. Leases and contracts – you want to learn who the business is legally tied to.

You’ll want to know of any landlords it has, and if they would be willing to transfer the lease to you.

And also, if there are any outstanding contracts with customers and vendors.

Here you could learn if most, or all, of its supplies come from a single vendor or if half of the business revenue is from a single customer.

Both of these things would be a red flag but wouldn’t come to light without first reviewing the outstanding contracts the business has.

4. Business financials – like tax returns, profit and loss statements, cash flow statements, and balance sheets.

Here is where you learn about the company’s revenue, expenses, profitability, outstanding debt, accounts receivable, business assets and other pertinent information.

A concern here is that most people don’t know how to interpret financial statements so to mitigate this risk.

So, you should consider hiring CPAs like LYFE Accounting to help with reviewing the financials.

Multiple financial periods should be reviewed to analyze any trends and to clarify questions with the seller regarding ups and downs.

Reviewing the financials is a certain way to learn if the business is priced correctly.

A CPA or business valuation specialist should be able to take the financials and value the business based on a few different methods.

You don’t want to buy a business that is overpriced.

Also, if applicable, you should also request inventory information such as how much is on hand and its condition.

5. Organization Chart – shows employee rankings and relationships among job roles.

This also includes any employee compensation information, operating procedures and processes, insurance, benefits, and vacation policies.

Step 6: Close the deal

So you’ve found the right business for you, completed due diligence, and have the capital you need to close the deal.

All that needs to be done, is that both the seller and buyer sign the bill of sale.

The bill of sale is an important document that shows the sale price and transfer of ownership.

As the buyer, you may also want the seller to sign a non-compete agreement.

Just think about this for a second. The seller ran the very business you’re buying and is the most knowledgeable on how to operate and grow that business.

This person could easily become a competitor and take revenue away from you.

But if you have them sign a non-compete agreement, you can eliminate this risk.

Other Considerations When Buying a Business

1. Training and support

It is best to have the owner around for a period of time to help you get transitioned and acclimated to the business.

Usually, sellers are willing to stay on board with you on a part-time basis to train and support you.

Make sure to get this in writing though. If a seller is unwilling to do this, that’s normally a red flag.

2. Type of sale

There are 2 types of sales in buying a business, and those are an asset sale or a share sale.

An asset sale means that the original business and all of its liabilities cease to exist when you buy the business. This tends to be the preference among buyers.

And a share sale means you would inherit all of the business’s outstanding liabilities.

Sellers tend to prefer a share sale since the liabilities would no longer be theirs, and there are some tax advantages for sellers of a share sale.

3. Reputation of the business

This can obviously be reviewed during due diligence, like looking up any company reviews that are out there and potentially speaking with a few references.

But it’s also important to assess if the business is dependent on the individual owner’s brand.

Some customers may like a business solely because of its owner which presents a problem to potential buyers.

On the flip side, when looking at the company’s reputation, there could be some negative perceptions out there.

The bottom line is you should know the company’s brand and reputation with the community and its customers.

4. Consider if you want to buy a business or open a franchise

Buying a franchise is somewhat similar to buying a business but the main difference is buying a franchise gives you less control.

This is because the franchisor is really selling the rights to use their logo, name, and business model.

This leaves little to no room for changes and creativity within the business.

But, this could also be a good thing since you have more guidance on how to operate the business.

Buying a business gives you more control but less guidance.

You can choose how to run the business and the direction of it. But there is not as much ongoing guidance that a franchise would provide.

Those are just a few things to think about when buying a business.

And if you’re looking for someone to help you manage your investments, then check out our investment advisory services here.

The post 6 Easy Steps on How to Buy a Business in 2021 appeared first on Small Business Accounting & Finance Blog.

What’s the first thing that comes to mind when you hear ‘net worth’?

We know most people probably first think of celebrities or really wealthy people.

Perhaps you’ve Googled other people’s net worth. But, have you ever been curious about your own?

You definitely should be. When you track it over time, you are forced to face where you are financially.

This can give you the motivation to continue in the right direction, or give you the wake-up call you desperately need to get on track.

Either way, everyone has a net worth and should be aware of it.

In this post, we will explain what net worth is, how to calculate your own, and ways to increase it with some very simple steps.

Sound good? Let’s dive in!

What is Net Worth?

Net worth is your assets minus liabilities. That’s it.

You can think of your assets as what you own, and your liabilities are what you owe

So simply put, it is what you own minus what you owe.

Contrary to popular belief, it is not what your salary is or what kind of car you drive.

And, it is definitely not tied to if you wear designer clothes or expensive jewelry.

We think sometimes we might look at someone who drives or wears fancy things and think, “Oh wow, they must be wealthy or have a high net worth!”

This couldn’t be any more false!

If you take nothing else away from this post, please understand this.

It is not derived from shiny things. And having a high net worth does not just look one certain way.

How is Net Worth Calculated?

It’s honestly pretty simple.

You need to add up all of your assets and add up all of your liabilities. Then, subtract your total liabilities from your total assets.

You can do this yourself on a piece of paper. Just draw a line down the middle.

One side for assets and the other side for liabilities.

Some things you could include on your asset side are the current market values of:

• Your home
• Investments (stocks, bonds)
• Retirement accounts
• Vehicles
• Jewelry or precious metals
• Cash value of certain life insurance policies
• Cash

Basically, anything valuable that you own that can be converted to cash is going to be your assets.

Make sure to be conservative with assets you’re estimating, like your home and vehicle values. It might look better on paper but doesn’t accurately reflect your net worth.

On the liabilities side, some things you might include are:

• Mortgages
• Auto loans
• Student loans
• Credit card debt

Your liabilities are going to be any financial obligation you owe to someone else.

Now there are some things you should not include in your net worth.

Those are things like rent or lease payments, and most insurance. Anything that is purely an expense should not be included.

Once you have the totals of both your assets and liabilities, you know your net worth.

For some, you may have a negative net worth which is completely possible.

But don’t worry… it’s ok, that doesn’t make you a bad person or bad with money.

It’s good to be aware of this and to start moving it towards a positive direction.

Net Worth Example

Starting with assets.

• Let’s say, you own your home and it’s worth $250,000.
• You have a car valued at $9,000.
• You have some retirement savings of $16,000.
• Lastly, all balances in your accounts add up to $5,000.

This gives you a total asset value of $280,000.

Now, let’s move to liabilities.

• The house mortgage is $175,000.
• The car note is $6,000.
• Student loan has an outstanding balance of $12,000.
• And you have some credit card balances totaling $3,000.

Your total liabilities here would be $196,000

In this case, total net worth would be $84,000 ($280,000 minus $196,000)! Make sense?

Tips to Increase Your Net Worth

So let’s say you did calculate your net worth and it is negative, or just not as high as you’d like.

There are steps you can take right now to increase your bottom line.

1. Increasing your assets

You can do this by opening a retirement account and maxing out your contributions.

Having a retirement account does 2 things to increase your net worth.

• They defer your taxable income. So less of your cash is going to taxes. And having more cash increases it.
• And because less cash is going to taxes and is going to a retirement account or asset, you’re also increasing your overall asset value and net worth.

And speaking of retirement, check out this post next to learn more about the IRA tax break.

2. Having a side business or doing some freelance work, also known as a side hustle

Owning a business is considered an asset for net worth purposes.

So if you do own a business, be sure to include its value on the asset side of your net worth.

And if you don’t have a business, consider starting one on the side to increase your cash flow.

3. Reducing your liabilities

This is probably the simplest way you can do to increase it.

Take inventory of all of your outstanding debt and make some extra payments on them.

It’s wise to focus on the debts with the highest interest rates and pay off the lower interest rates debts along the way.

Also, consider consolidating or refinancing your debts at lower interest rates. This can help you pay off your debt faster.

4. Cutting your expenses

We know that this is much easier said than done, but may be a necessary step to boost net worth.

Analyze your monthly expenses and see if there are any that you can cut back on.

A trick you can do is when considering buying something that may be a splurge and not really necessary is asking yourself, “Can I buy this item 5 times right now?”

If the answer is no. You probably can’t afford it, and should not be buying it.

And if the answer is yes, then great! Kudos to you. But, you probably still shouldn’t buy it because it is not a need.

The key to remember here is by not spending a dollar, you are accumulating a dollar more in net worth.

5. Tracking it at least once a month

There’s no way to know if it is increasing or decreasing if you’re not reviewing it regularly.

There are actually apps you can use that will automatically track your net worth for you.

But the process does not have to be complicated. You can literally do it on a piece of paper and compare it to the last time you calculated your net worth.

If things are going in a positive direction, then great! Keep doing what you’re doing.

If it is going in a negative direction, at least you’re aware and can take corrective action.

Average Net Worth by Age Group

We found this chart on the Federal Reserve website and it is interesting, to say the least. These numbers are thousands by the way.

As you can see, all age groups under the age of 54 have lower average net worths now than they did just 30 years ago in 1989.

Why do you think this is the case?

We believe this has largely to do with inflation.

Not only has the cost of living today dramatically increased, but wages have not kept up with the rate of inflation.

So things cost more, but you’re not getting paid more.

Student debt also has a lot to do with it.

The average student loan debt in 1990 was just $6,700. While the average student loan debt in 2020 was $37,000.

That is a huge difference. And as we all know, student debt negatively affects net worth.

Whatever the reason is, we want you to take the necessary steps to increase and build your net worth, from wherever you are today.

And if you need some help with wealth management, we’re just a call away! Go ahead and contact us now.

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