Archive for September, 2010
One of the major causes of bankruptcy for many individuals today is credit card debt. And the reason for this is that most people do not perform requisite research before getting a credit card, they usually just reach out for the nearest or most convenient one to them. This is a bad way of accessing a credit card. They do not do in-depth reading and research to see any underlying charge or fee associated and by the time they find out, they are already encumbered. Another cause of bad credit is over spending.
A lot of people fail to realize that a moment of reckless behavior can add up and cause you years of anguish later on. People with credit cards go on shopping sprees and accumulate items that are useless to them just because that credit is available to them. It is wiser to buy consumables with cash and keep the credit card for projects which usually have long run value. Most times people want to blame everything else for their credit card situation except themselves. Be wise with your finances because once you mess up your financial health, it messes up a great percentage of your entire life.
Getting out of debt is something that can be done. Just cut down your spending, spend less than what you earn and you will see yourself getting out of debt gradually. It takes a strong will power to be able to say no to spending, but it can be done. Strive, no matter how hard it gets not to spend. Master your finances; learn how to cut your coat according to your size, that,is the key to managing your bad credit.
The powers of the retirement plan transcend tax planning, giving their owners super-enhanced investment options and shielding them from bankruptcy. If you plan of becoming wealthy, and you shouldn’t be reading this if you don’t, then you absolutely must tap into the power of retirement tax planning to help propel you to your ideal lifestyle.
Tax Protection
A dollar saved by avoiding taxes is even better than a dollar earned, mostly because you would have had to pay on that dollar earned, anyway! Plus, it always brings a smile to my face when I am able to keep a few of my hard-earned bucks out of Uncle Sam’s greedy grasp.
The advantages of investing through a tax deferred plan aren’t just spiritual, however, and they go beyond the immediate tax deferment of income.
* Opens up different kinds of investments that might not make sense if they were not tax advantaged. For example, while your assets are inside their tax protected shell all earnings and capital gains on them have no immediate tax effect; which is not the case for investments held outside a retirement plan. Therefore I can invest in assets without having a tax bite every time I buy or sell. If you’re interested in trading or even if you’re only rebalancing your portfolio, which you ought to do anyway, there will be no tax to pay as long as you keep those assets inside the plan. My wife and I have assets both inside and outside our retirement plans and our money outside is for more long-term investments while we like to look for deals and growth with our money inside the plans.
* Puts portfolio growth into hyperdrive. Look, you don’t have to have a MBA in finance to understand that if you have to pay taxes on gains every time you sell an investment or receive a dividend then your money will grow more slowly than if you were able to do the same transaction tax free. This is the unappreciated benefit of a retirement plan contribution as people fixate on the immediate tax savings instead of the long term savings.
Bankruptcy Protection
Owning your own business is risky business. You get sued, the economy tanks and takes your business with it, your supplier steals your designs or your partner goes bankrupt and leaves you with a big bill. One day your on top of the world and the next day you’re on the breadline and its happened to many smart entrepreneurs with much more experience than yourself; Donald Trump, Henry Ford, and George Foreman have taken the walk of shame only to come back bigger and badder than ever. Most retirement plans, done right and not abused, can shelter assets from bankruptcy and provide a nice, soft cushion to fall upon before building your next business.
Diversification
There is stereotype of the entrepreneur as a hyper-testosteroned type A guy that bets everything on his business, including the family farm and his first born. As you learn the ropes, you quickly find out that this is absolute nonsense. Obviously, many successful entrepreneurs are female and virtually 100% of entrepreneurs that have been in the game for any amount of time carefully diversify their money across various business and investment opportunities.
Every entrepreneur that I have had the honor to work with and learn from has had a passion for their business and laser intense focus on making it successful. It is because of the focus and attention to detail that they should be stuffing every dime that they are able to or are allowed to into a retirement plan. Most retirement plans can be set up to be very low maintenance. Just make the maximum contribution allowable into one or more index funds and forget about it. This is what makes it so special to the entrepreneur, no sweat, no hassle, no losing focus on their most important investment, their business. Keep the current economic crisis in your mind and remember that businesses really can be floating in a sea of cash one day and then high and dry the next.
You Are Not Immortal
When your mother gave birth to you she simultaneously condemned you to your death. We will all die and most of us will grow old or become ill before we finally kick the bucket. When you’re a new entrepreneur everything is exciting and the sky is the limit and you don’t really think about that, but it’s there, hovering over everything that you do. The fact is that your enthusiasm for business and entrepreneurship will fade and you will tire and wish to devote time to other pursuits, whether its spending more time with your family or traveling the world or running away with the circus. An industrious and fortunate few of us will cash out Paul Allen style and the chicken feed that we have saved through our retirement plan will almost be an afterthought, a little gas money for the yacht. Savor that thought for a moment. Now, 95% of entrepreneurs I know, and I’m including people with successful, multi-million dollar businesses, use their retirement plans to at least supplement their incomes when they choose to slow the pace down a little (few actually totally retire). Also, should you lose the longevity lottery and slip into the deep sleep prematurely, then those retirement funds could help sustain the loved ones that you leave behind.
If you don’t max out your retirement plan contribution, or at least give until it bleeds, 2010 is the time to really make this a priority. Even if you are in the start-up stage and cash is hard to come by you need to “pay yourself first” and not neglect this important tax and finance tool.
