It’s time for another edition of Dollar and Cents. This is where I answer one of your questions.

If you have a question, either use the contact form on the blog or use my Facebook Fanpage.

This week question brings up something I’m semi-obsessed with – the Roth IRA!

If you rollover a 401k into an IRA is this amount subtracted from what you are able to contribute that year? So if I rollover my 401k next year if I leave my current employer, will I still be able to contribute to my IRA as usual up to the limit or will the rollover affect this?

Resources:

With each Dollars and Cents video we want to provide some follow up links where you can get some additional information on the topic. If you are interested in learning about doing a 401k rollover into a Roth IRA, check out these reads:

• 7 Things You MUST Know About the Roth IRA for 2013 – There is a ton of great info in here for you. Before you open your Roth IRA you need to know if you even qualify. (Most people do, but still check!) Not sure how to rollover your 401k? Don’t worry, that’s in here, too. A must read on Roth IRAs.
• Best Places to Open a Roth IRA - With so many brokerage firms to choose from, how do you find the one that is right for you? This handy post breaks down costs for the major brokerages out there.
• Best Online Stock Broker Sign Up Bonuses – If you’re going to open up a Roth IRA with one of the brokerage firms you might as well get the biggest bonus that you can for opening the account!
• Can You Rollover Your 401k to a Roth IRA? – A complete breakdown of how to rollover your 401k into a Roth IRA.
• Start Saving For Retirement Today: Best IRA Online Brokers – Did you know you can open an IRA to do peer-to-peer lending?

Waking up in a place of your own with the birds chirping right outside your window is a great feeling.

You go outside and enjoy your coffee on the back porch, simply enjoying the quiet that comes with not living in an apartment.

Your neighbors are friendly, the sun is shining, and you know it is going to be another great day of owning a home.

Everything is going great… until the peaceful morning is ruined by the sound of your air conditioner going out.

As romanticized as owning a home has become in America, there are some significant costs associated with buying, owning, and maintaining a place of your own.

The True Cost of Home Ownership

Let’s break down some of the areas on how to value home ownership. There are some obvious costs like your monthly mortgage payment, but hidden costs sneak in there and can break the bank.

Obvious Home Cost: Principal and Interest

For most, the cost and financial benefits of renting versus homeownership are the deciding elements. The traditional logic is that renters are throwing away their money by paying someone else’s mortgage. Though true, this is a simplistic view.

On a $150,000 home purchase with 20% down (so a mortgage loan of $120,000) at 3.5 percent APR, the monthly principle and interest payment is $538.35 per month.

This sounds like a smart deal since most houses increase in value over time, while the monthly payment lowers the principle balance and increases the equity. If you are paying $600 per month in rent, owning your own home for about the same amount sounds like a great deal.

While principal and interest is a big chunk of your monthly costs of owning a home, there are a lot of other costs to consider.

Hidden Home Cost: Property Tax and Insurance

When you speak to a real estate agent about looking at homes, they generally speak of how much a home is going to cost you in a monthly payment. Many agents will focus on quoting you prices based just on the principal and interest because it means they can get you into a more expensive home — pulling you toward that dream home — thus earning a larger commission check on the sale.

Unfortunately, your monthly payment will have other costs associated with it, namely property tax and homeowners insurance. Depending on the area, these costs can increase the payment significantly. Unlike principal and interest, taxes and insurance payments is money that you are not getting back.

You might pay an extra $150 to $450 per month in tax and insurance cost depending on the area you live in, what the tax structure is, and how much insurers charge to protect your home’s area.

Tax and insurance costs are not fixed unlike your principal and interest payments (assuming you get a fixed rate mortgage). Your local municipality can raise taxes over the years, and homeowners insurance companies are constantly changing annual premiums.

Some states have homestead exemptions that lower a homeowner’s tax burden, so check to see if your state allows this.

Obvious Home Cost: Down Payment

When you rent an apartment your only costs are an application fee, security deposit, and your first month’s rent. With just a few thousand dollars you can be completely moved in and setup in an apartment or rental home.

When you purchase a home of your own you need to save up money for a down payment. Back in the heyday of the housing boom you could buy a property with little or no money down.

Those days are gone. (This is a good thing!)

Home ownership is a serious commitment and requires serious cash to get started. Many lenders want to see you have a 20% down payment in order to be approved for a loan. On a $150,000 home that means you need $30,000 in straight cash sitting in an account waiting to be used once you find a home.

Still not sure if you should keep renting or buy your first home?  Use this nifty calculator to help you decide:

Hidden Home Cost: Home Maintenance and Upkeep

Owning your own home means you get to decide how your home looks inside and out, including the property’s landscaping. Unless the home is in a designated historic neighborhood, or one with zoning restrictions or homeowners association rules, homeowners are generally free to apply for permits and make changes to a home’s look, structure and more.

It also means you get the “honor” of mowing, trimming, dealing with weeds, and footing the cost of repairs.

Rental properties usually outsource a maintenance crew for maintenance and lawn care so you don’t have to spend time on those items. While a homeowner may have to spring for a new Husqvarna, he or she can landscape as desired. Just remember, it takes time and money to keep up the home and yard.

Most rental management companies will have an itemized checklist of all appliances, flooring quality and states of repair. Often these will be accompanied by photos. Any changes to the rental property outside of normal wear and tear need to be put back to the original state. Renters usually can’t make material changes to the property.

This is not the case for a purchased home property. You can change what you like, but all of the cost comes from your pocket.

How much money should you have on hand for home maintenance? A general rule of thumb is to have at least 1% or 2% set aside for home repairs. If you own a $150,000 home that means having $1,500 or $3,000 set aside for when the roof leaks or the HVAC unit goes out in the middle of summer.

Even that amount of money won’t cover major repairs, but it is better to have a starting point in paying the repair bill than to be starting from scratch.

You might create a separate category in your budget to hold maintenance money and a separate category to hold money for landscaping or yard maintenance.

Hidden Home Cost: Higher Utility Bills

Living in a 800 square foot apartment can keep your utility bills down simply because you don’t have much space to heat or cool. There can be some financial shock when you get your first set of utility bills after moving into a much larger home.

If you are used to spending $600 on rent and $100 on monthly utilities, buying a home with a $600 mortgage payment leaves you with the same amount of money to heat and cool a much larger space. Depending on how old the home is your HVAC unit might be older than the one in your apartment building and thus be less efficient. A less efficient unit combined with a larger square foot area can result in some shocking utility bills.

How much should you anticipate to spend on utilities? Ask the sellers.

Pro Tip: When looking at homes ask the sellers to provide utility bills for the last 12 months and a description of where they kept the temperature set. This can give you a rough idea of what you’ll be spending each month. Even if your exact use of the area isn’t the same — they set it at 73 degrees and you prefer 71 — you’ll at least have a ballpark figure.

Hidden Home Cost: Termite Protection

It’d be nice if we could buy a home and never have to worry about termites ruining the structure. Unfortunately this is one of those hidden costs that many people don’t think of.

You can get a termite bond to protect your home. When you purchase a termite bond (usually a couple hundred of dollars) the termite extermination company comes out to inspect your entire house inside and out for signs of termites. Assuming none is found, they spray a preventative down and right a bond that essentially guarantees against termites.

Each year the company comes back to renew the bond for a smaller fee, does another inspection, and sprays again if necessary.

After the initial cost of the bond it is usually $50 to $100 to renew the termite bond. That doesn’t sound like much, but it is just another hidden cost that you need to prepare for.

Hidden Home Cost: Realtor Fees

Where a home can be the cornerstone for growth for some, it can be an anchor that prevents movement for others. Housing markets fluctuate. The housing values and mortgage rates that make it ideal to purchase a home now may not be there five years from now. When purchasing a house, be prepared to stay with it for at least five year or else plan on losing money.

Selling a home is a giant unknown that you need to consider when first purchasing the home.

• Can you live here long term?
• What happens if the housing market tanks around you?
• Can you afford to pay 6% realtor commissions if you use a real estate agency to sell the home?

The commissions paid to realtors are a hidden cost that reach into the thousands of dollars. A 6% realtor commission (3% for the buying realtor and 3% for the listing agent) is $9,000 on a $150,000 home. That means your home has to go up by at least that much in value if you want to sell it, and that’s assuming home prices are going up in your area.

Anticipating Home Ownership Costs: Use a Budget

Putting together a budget is one of the best things you can do before you even begin to consider purchasing a home of your own. You need to have a solid understanding of where you are currently spending money each month. Having a baseline for your current costs will make it a lot easier to compare to potential home ownership costs than if you are just shooting in the dark.

Is Owning a Home Worth It?

Don’t underestimate the security and stability of a family home. According to a study from the Pew Research Center, housing stability shows the world you are stable, dependable and devoted to the community.

Other studies have shown that children of homeowners tend to be better at math and reading, have fewer behavioral problems, and stay in school longer. This is linked to the safety that a child feels when they have a stable home. Since a house is a long term investment that can have a mortgage of 40 year or beyond, a house becomes very closely linked to a family’s architecture, community standing, stability and more.

A Look at the Future

What will life look like in five years? Ten years? Fifty years? Whether playing the role of savvy investor or new couple thinking about a family, these are the questions that need to be addressed. Of course, without a time machine or a crystal ball, there are no certainties as to what will happen with the housing market in your area.

But those weighing the pros and cons of home ownership must have an idea of how they want to spend their future. The online real estate database, Zillow, recommends having a plan before jumping into the home buying jungle.

If you plan to live in one area for a long time then buying a home is a great decision that provides stability to your family. If you don’t know if you will be in the same area five years from now it usually makes sense to keep renting.

Either way, having an understanding of the true cost of owning a home can help you crunch the numbers to make a housing decision.

Many of us identify as middle class. It provides us with an identity that is respectable, and implies that we are “normal.”

After all, if you are middle class, you aren’t stuck with some of the stigmas that can come with being poor, and you are painted with the elitist brush for being rich. Middle class is a comfortable place to be for many of us.

It also helps, too, that middle class identity is probably deeply ingrained in your psyche. Many of the children of Baby Boomers (I’m one) grew up in the middle class, espousing “middle class values.” My experience was one of being poor until I was about 12, since my parents got married relatively young and started having kids.

Then, once my dad finished school and began making more money, we moved into a middle class neighborhood, able to afford the necessities of life, and some of the luxuries. The middle class mentality, for many in my generation, is based on similar experiences: Remembering the poor life as our parents initially struggled, but enjoying greater comfort as they began earning more.

But middle class is more than just your own mindset. It also includes numbers. Many of those who have a middle class mentality might not actually be considered middle class when it gets right down to income.

How is a Middle Class Income Defined?

It’s actually harder to define a middle class income that you might expect. Here are four different ways (and there are probably more points of view) to look at your income in terms of whether or not it’s middle class:

1. Economic Percentile: Rather than just looking at arbitrary cutoffs, some economists consider middle class according to percentile. If you are in the top 20% of income earners, you are considered to have an upper class income, or be rich. Those whose incomes fall in the bottom 20% are considered poor. Everyone else (the middle 60%) is middle class.
   
2. Income Range: There are some economists who say that anyone who makes between $25,000 and $100,000 a year is middle class. That might be surprising to some, though.
3. Median Income: Others take a look at the median annual income, and then go $20,000 to either side. In 2010, the Census Bureau reports that the median income in the United States was $49,445, so if you go a little lower or higher, you get a middle class range of between about $30,000 and $70,000 a year.
4. Tax Policies: Of course, if you look at tax policies, the middle class grows substantially. For many tax policies, the cutoff often discussed is $250,000 (even though the fiscal cliff deal used $400,000 as the point for higher taxes), suggesting that some think that you can be considered to have a middle class income as long as you make less than $250,000 a year. For other taxes like the Alternative Minimum Tax the original income cutoff was never indexed to inflation and is now hitting families in the middle class.

Another Take

Others sub-divide what’s considered middle class to provide a more nuanced picture. Many of those who make less than $75,000 a year consider someone who makes more than $100,000 a year “rich” — and definitely outside the middle class. However, if you make $150,000 a year, you might not feel “rich.” Instead, you might still feel part of the average American middle class. As a result, the term “upper middle class” is often used to describe those who make between $100,000 and $250,000 a year.

Pinpointing what constitutes a middle class income is further complicated by the fact that location plays a role in your spending power.

With my income, I’m considered fairly well-off in my relatively small semi-rural community. There’s a low cost of living, and my money goes further. However, if I were to move to a larger city, like Seattle, my money wouldn’t go as far. And if I moved to a place like New York City, I’d almost be poor.

In many ways, “rich,” “poor,” and “middle class” are relative. Additionally, there is a strong psychological element. Pinpointing whether or not you actually have a middle class income involves the complex interaction between what you actually make, and how you feel about what you make.

photo credit: pixieclipx via photopin cc

If you’re married or in a serious relationship, then you’ve probably already heard all the advice about how to manage your finances together: communicate, create goals together, don’t hide information from each other. This advice all sounds easy to do – and it’s certainly easy to give! But people aren’t perfect and neither are relationships. So what do you do if you simply can’t see eye to eye with your partner on your finances?

Defeat Defeatism

It can be a scary moment when you and your partner first realize that you don’t see eye to eye on your finances. You might see him or her in a whole different light. How could your seemingly logical fiance really believe that she should go shopping every month? How can your normally frugal husband think it’s okay to purchase lunch out every day? See what I mean?

First, try to suspend judgement. We all have something in life that we like to do that isn’t logical. I, for example, refuse to buy lunch out every day. But if a long day calls for an afternoon mocha from the local coffee shop…I’m probably not going to say no. So rather than think that this disagreement is a foreboding sign for your relationship, remember that we all have little splurges that don’t always make sense. It doesn’t make us bad people – it just makes us people.

Once you let go of judgement, then the defeatist attitude should drift away as well. You and your partner probably don’t always agree on which food to buy, what music to listen to, and what kind of house to live in. Most likely some sort of compromise has to come into play on all of your decisions. So too, compromise needs to happen in the financial talks.

Forget the “What” and Ask Each Other “Why”

Now that judgement and defeatism are out of the way, you and your partner can sit down and have a few honest talks. Yes, I did mean to write “talks” in plural. As nice as it would be to come to an agreement at once, it probably won’t happen. It might take several months to really understand where the other is coming from. The fact that you’re listening is what’s important.

The most important aspect of listening to each other is not just asking what your partner thinks, but also asking why. If your husband wants to put all of your bills on a credit card each month it could be that he thinks it’s worth paying off the balance each month and gaining rewards. That doesn’t mean you have to agree with this idea, it just means that you should not assume he thinks it’s okay to rack up debt. Again, you likely won’t reach a compromise during the first talk. So just open the conversation and seek answers from each other to get closer to an understanding.

Step Outside of Your Own Shoes

When you’ve been in a long relationship it can be very easy to forget that you and your partner come from different backgrounds. You two have been building a life together for so long that your background may feel like a distant memory. But boy does that stuff come up during disagreements!

For example, you might nearly faint when you hear about your girlfriend’s student loan debt for the first time. However, if her family couldn’t afford to pay for college then it might make more sense why this debt was necessary. Your partner could also wonder why you have the financial philosophy you do. When you and your partner have your money talks and ask the ever-important why, just remember to put yourself in your partner’s shoes so you can meet his or her most important needs in the compromise.

Forgive Past Mistakes and Prevent Future Ones

True difficulty can come when financial mistakes have already been made. Maybe your partner slipped up on the budget you both set. Perhaps you kept some financial secrets from your partner and they started to snowball. Whatever the case may be, a relationship has to be a place of openness, honesty, and trust. That means in finance too. If a mistake has happened and your partner is committed to ensuring it doesn’t happen again, then move forward together.

Just Like Your Relationship, Let Your Financial Philosophy Evolve

A relationship must evolve as each individual grows. So it should come as no surprise that your couples financial plan should evolve as well. You two should check in on your plan, progress, and goals regularly to make sure you’re still on the same page. This not only helps you reach your goals, but it’s a great way to check in on each other’s financial philosophy.

For example, years of working together on finances could bring a couple together who used to be total opposites on the financial spectrum. That’s the beauty of having multiple talks and accepting that you won’t necessarily understand each other the first time! You almost have to experience ups and downs together to see your partner’s point of view more clearly.

Planning finances on your own is hard enough. When you add another person into the mix, well, let’s just say it isn’t always smooth sailing. Realize it’s okay that planning your finances together might get frustrating, confusing, and maybe even a little upsetting. But with open communication and compromise, there is a good chance that you’ll be able grow together and see eye to eye.

photo credit: Anant N S (www.thelensor.tumblr.com) via photopin cc

If you’re like me, you like to get every tax credit that you can. Why not, right? It’s like buying something that you know you are going to have to buy and having a coupon for it. It would be silly not to use it.

The only problem with tax credits is that it’s hard to keep track of them all. One such credit is the Child Tax Credit. Here are the rules behind the tax credit of 2013 to see if you qualify.

Who Can Claim the Child Tax Credit?

Families who earn under $130,000 a year and have one or more dependent children under the age of 17 may take advantage of the Child Care Tax Credit on their tax return.

Do You Qualify for this Credit?

There are, of course, several further conditions that must be examined in order to be certain that you qualify for all or some of the Child Tax Credit. They are as follows:

• Only those families that make less than $110,000 annually are eligible for the full credit. Families making between $110,00 and $130,000 receive a reduced credit (specifically $50 per $1,000 made over $110,000).
• Individuals who are unmarried must have earned under $75,000 to qualify for this credit. Taxpayers who are married but filing separate returns must have made no more than $55,000.
• Qualifying children must be citizens or residents of the United States who can be claimed as dependents by the taxpayer. They also must not have reached the age of 17 by the end of the tax year. Children may be your blood children, grandchildren, step children, and / or adopted children. Foster children also fall under this category as long as they have lived in your home for the entire year in question.

How Much Can You Claim?

Taxpayers who make under the $110,000 per year are currently still allowed to claim $1,000 per child as their Child Tax Credit. This is one of the many tax cuts instituted by President George W. Bush early in his first term. When the Child Tax Credit came into existence in 1998 the per child amount was $400. Over the years, it has been increased to the current $1,000 per child.

Can You Receive The Child Tax Credit as Part of Your Refund?

The Child Tax Credit is helpful for those qualifying families. Generally speaking, it functions as a credit against what the taxpayer owes in taxes. Sometimes, however, it can translate into an actual tax refund or tax rebate.

For a small percentage of families in the United States, the Child Tax Credit will be larger than their tax liability. In this case, the unused part of the Child Tax Credit can be refundable as an additional Child Tax Credit.

The portion that is available for a refund depends on the number of children you have, your total earned income, and, sometimes, the amount of taxes you have paid over the year to Social Security and Medicare. Refer to IRS form 8812 for specific instructions.

In Summary

As always, it is important to check current tax laws. The Child Tax Credit may change in the future; make sure you reference IRS Publication 972 for the latest information.

There is plenty of information available that will help you get the maximum amount of deductions and credits. In today’s economy, every dollar counts.

It’s time for another edition of Dollar and Cents. This is where I answer one of your questions.

If you have a question, either use the contact form on the blog or use my Facebook Fanpage.

Today’s question comes from Allison:

My fiance and I are getting married in August, we just bought a house (no furniture yet). But I am graduating from college in May and he has been working for a year. What can we do to afford all of the expenses that we have and save up money for our future. Just looking at numbers doesn’t really mean anything, but its hard to figure out how much we should save and towards what.

Resources:

• Building a Solid Relationship with Money and Each Other – Some tips on having the money talk with your spouse and managing your finances together.
• Top 5 Online Savings Accounts – Store your emergency fund in a place where you won’t spend it like a high yield online savings account with Capital One 360.
• Emergency Fund to the Rescue – Don’t go through life without an emergency fund. Having money set aside for a rainy day can rescue you when something unexpected happens.
• Best Places to Open a Roth IRA – Opening a Roth IRA can be confusing. We’ve broken down all of the offers to give you a simple way to compare different brokers. This is a great place to get started with investing.

Life Insurance Agent:  Do you participate in any high risk activities?

Person seeking life insurance:  I’m getting ready to base jump of a 10,000 foot mountain this weekend.  Does that count?

Life Insurance Agent:  <Silence>

When you’re trying to get cheap life insurance, participating in “high risk” activities is not going to do any favors to your checking account.

High risk, as viewed by a life insurance company, doesn’t just look at base jumpers, sky divers, or deep water scuba divers.   Being high risk can also mean you have high blood pressure, diabetes, sleep apnea, and a host of other medical conditions.

Being a high risk candidate basically guarantees your premiums will be much higher, but when you have beneficiaries or a spouse that needs to be taken care of no matter what happens to you, buying a life insurance policy is critical.

If you are not an ideal candidate for life insurance, it may be difficult to get approved for a policy. In some cases, you can still get approved for high risk life insurance, depending on your situation.

Working in a risky profession or if your health isn’t that great, you fall into a category known as impaired risk. If you find yourself in a situation, there are steps that you can take to increase your chances of getting approved for a life insurance policy.

Here are a few factors to consider about high risk life insurance.

High Risk Insurance Basics

In the area of life insurance, insurance companies look at the amount of risk that comes with every policy. They determine how much that you’ll have to pay in premiums based on the level of risk that you bring to the table. Many insurance companies will simply deny a life insurance application if you are considered to be too risky. Others will throw you over into another high risk category.

At that point, you can pay more for a high risk policy or you may be denied for a policy. If you qualify for a high risk life insurance policy easily, then you simply have to start paying your premiums and the policy will be yours. If it’s not that simple for you, you may have to jump through a few hoops (just don’t jump off any cliffs!) before you can be approved for a high risk life insurance policy.

Shopping Around

When you find yourself lumped into a high risk category, you might have to shop around a little bit before you can find a company that is comfortable with your type of risk. The best way to do this is working with an independent life insurance agent that is able work with several different carriers.  Trust me when I say “the more the better”.

An independent agent can also help you switch insurance companies for other products like home and auto coverage to guarantee you are getting the most affordable rates for your coverage levels. They’ll be able to quote multiple insurance companies to make sure you are getting enough life insurance.

I’ve learned many captive agents — those are the agents that are tied to one company — have much stricter underwriting guidelines and without the ability to shop around either leave you stuck with a much higher rate than you should be paying or getting declined and having no life insurance coverage.

Some companies may not touch people in a certain category, while others will welcome them with open arms. This means that if you have a problem getting approved for a life insurance policy, you’ll simply have to do a little bit of research and find out which companies are comfortable with your brand of risk. Then again, this what the experienced independent life agent should be doing for you.

I have countless examples where life insurance companies will rate individuals differently based on their conditions.  Many consumer don’t realize that.  One recent example was a young female who was in good health applying for coverage with me.  On the surface there was no reason that she should not have been approved at preferred plus (the highest rating class possible).  Turns out her mom had passed away early due to breast cancer which made her more of a high risk with most insurance carriers.  The keyword is “most”.

While most carriers would not give her the preferred plus rating class, there are a few companies that will.  If you’re not working with an independent agent this might be something you would never know.

Show That You Can Control It

If the reason that you were considered to be high risk initially can be controlled, then you have a better chance of getting approved for a high risk policy. If the risk controls you and is completely unpredictable, then it will be much more difficult to get you approved.

For example, if the life insurance company rejected your application because of your high level of cholesterol, then you need to be able to demonstrate that you can get it under control again. This may simply mean changing your diet and engaging in a healthier lifestyle. At that point, you can be retested by the life insurance company to see if your cholesterol has improved. (Before you re-take the test make sure to check out 10 tips on preparing for your life insurance medical exam.)

If it has, then they will reconsider your application for a life insurance policy. If it has not improved, then your application will be rejected again. At that point, you may have to wait a certain amount of time before you can reapply for another policy.

Utilize a Trial Offer

In life insurance, there are trial offers that you can sometimes take advantage of which will allow you to qualify for a policy without having perfect health. To participate in this type of scenario, you will work with a life insurance broker or agent who can gather your health information. They’ll ask you a series of questions and determine exactly how healthy you are. At that point, they can send your information to many different life insurance companies at the same time and see if anyone is willing to bite on the risk.

If a company is comfortable with the risk that you present, they will send back a trial offer and a rate for you to consider. If you like the terms, then you can go ahead and fill out a formal application and attach the tentative trial offer to it. At that point, as long as nothing changes on your end by the time the application is processed, you can be approved for the policy.

How Much Do You Really Need?

One of the realities of purchasing high risk life insurance is that the cost will be much more. How much more depends on your exact condition. Before you start shopping around for your policy, you first need to get an idea how much life insurance you need.

Use the calculator below to see the proper amount you should purchase.

Getting High Risk Life Insurance

Getting high risk life insurance isn’t always easy, but it can be done if you are persistent and willing to work a little bit. Once you have a policy, you can rest a little easier knowing that your family is taken care of.

photo credit: GoneBush via photopin cc

This will sound contradictory but the same traits that make you a successful business owner could also cause you to fail. If you understand why, you won’t join the legions of entrepreneurs that had the drive and passion to succeed but ended up going back to work for somebody else.

It’s all about leverage and if you’ve never studied how this largely misunderstood word is pivotal to your success, now is the time.

What are these personality traits?

According to Entrepreneur Magazine, successful entrepreneurs have certain personality traits in common.

• They are curious. They’re always reading the latest article, they’re the person who asks all of the questions at the conference, and they never miss a chance to meet somebody new and ask, “How did you do it?”
• They are controllers. They don’t want somebody else controlling their destiny and they want the autonomy to create their own vision and execute it in a way that they think is right.
• They have tunnel vision. A little bit of adversity is fuel. It makes them work harder because it never enters their mind that they might fail.

These are all traits that lead to success but those same traits can limit growth if taken to extremes.

What is Leverage?

You probably learned about leverage in your high school science classes. Remember how simple machines like levers and pulley could multiply your strength?

Leverage in business works the same way. If you multiply your resources, you gain an advantage and allow your business to grow. In business, there are three main types of leverage.

Leverage somebody’s time.

Regardless of who you are, you share a limitation with everybody else in the world: You only have 24 hours in each day. You have to sleep, eat, spend time with your family, and tend to your growing business. At some point, probably sooner than you think, you’re going to reach a point where you can’t get everything done.

With your experience and education, how much are you worth per hour? Anybody who has started and grown a business has unique skills that are worth more than the average laborer. Would you say that you’re worth at least $50 per hour?

If your business were to hire somebody like you at a rate of $50 per hour, would you use their talents and experience to grow your business by gaining new clients, streamlining a manufacturing process, or advising you on how to negotiate better vendor terms or would you have them answer the phone, update the Facebook page, and perform data entry?

Those lower level business tasks are essential but you can hire somebody to do all of those duties for less than $50 per hour. The question becomes, if you wouldn’t pay somebody $50 per hour to do those tasks, why is your business paying you such a large amount to complete them?

By hiring somebody to do those tasks, you’re able to free up time in your schedule to grow your business. In order for your business to grow, you have to delegate tasks to others. You have to transform from the primary laborer to the manager or CEO. Until you do that, your business will only grow as much as you can handle on your own in a 24-hour day.

Leverage somebody’s labor.

There are tools on the Internet for just about everything and as a result, business owners sometimes believe that it’s faster and cheaper to perform professional tasks in-house. You can build a website, create a flyer, read an article that gives you step-by-step instructions for fixing a refrigerator, and more. Is there anything you can’t find online?

The Internet hasn’t put professionals out of business because successful business owners know that hiring professionals to do professional work not only produces standout results, it saves time in the process. What took you six hours to learn online would take somebody with experience half that time or less. How many hours did you spend attempting to save money?

Hiring professionals will produce better results in less time.

Leverage somebody’s money.

Here’s a hypothetical situation: You own a self-storage business on the north end of town. It’s so successful that it’s nearly at capacity but even if you were to add more storage units to your current property, you still couldn’t gain business from people who live in the southern portion of your community.

The owner of a self-storage facility in the south end of town is planning to retire. His location is ideally situated but he’s never had the success that you’ve found.

You would like to buy his business but you’ve never believed in taking on debt and paying cash isn’t an option.

Assuming that you’ve done an exhaustive analysis of the business by “leveraging” experts that can help you evaluate the business, leveraging a bank’s money by paying a little interest to make a much larger return is a sound business decision.

Turning away from debt should be applauded but when opportunity appears, debt isn’t always a negative. Most companies grow by leveraging somebody’s money.

Bottom Line

An entrepreneur that can’t give up control and embrace the concept of leverage is one that will always wonder why their business never grew to the size they envisioned. At the beginning stages, performing all business tasks on your own probably made sense but as you grow, you have to embrace leverage. Only then will you see the exponential growth you always expected.

Gerrid Smith is CEO of the charity-focused coupon website, Save1. They provide coupons and deals from over 5,000 online stores! Each time a coupon is used, they provide a meal to a child in need. You can connect with Save1 on Twitter, Facebook and Google+. 

I love my garden. My husband and I aren’t serious gardeners, but we grow tomatoes, cucumbers, a variety of bell peppers, herbs, and berries. We also have four fruit trees in the back yard, although only the gala apple tree has provided us with something substantial so far.

We’re not alone, either. The National Gardening Association reports that about 43 million Americans grow some of their own food. Gardening can be a great way to grow your own food, improve your health, and save money. If you are wondering if you should start gardening, here are 5 good reasons to start a garden this year:

1. Save Money on Your Favorite Foods

Berries are my favorite. I love raspberries, strawberries, and blackberries. Unfortunately, berries are also expensive — even when they are in season. Herbs can also get rather pricey, as can sweet bell peppers. Since these are some of my favorite foods, I grow them in the garden. Instead of paying between $2.99 and $4.99 for a pint (depending on whether or not they are in season) for berries, I walk outside and pick them for free.

The same is true of herbs. I can prepare entrees and salads with fresh herbs for a very small portion of what it costs to buy herbs in the store. If your favorite foods grow well in your locale, consider planting them in your garden.

It’s also possible to preserve much of your produce for later. I dry my herbs for use during winter, and make applesauce with our apples. Berries can be frozen and tomatoes bottled. Find out how you can preserve your foods for year-round enjoyment, and you’ll cut your grocery bill.

2. Eat Healthier Without the Processing and Chemicals

Many of the foods bought in the grocery store are processed. On top of that, much of the produce is sprayed with harmful chemicals. If you want to know that your food is organically and safely grown, grow it yourself. Learn how to prepare and eat fresh fruits and vegetables, and you can enjoy a healthier diet. Plus, if you learn the principles of organic gardening, you can keep pests down and grow delicious produce without the need for harmful chemicals.

Additionally, some believe that you can get the best nutrient value from produce when you pick it at “peak ripeness.” Produce that is transported has to be picked unripe, and some think that reduces the nutrients involved. You might be getting healthier produce when you pick it at home, when it has the highest nutrient content.

3. Reduce Your Carbon Footprint

If sustainability is important to you, growing a garden can help you reduce your carbon footprint. Local produce reduces the amount of travel fruits and veggies undergo to reach your table. Less fuel is needed to deliver local produce, and it doesn’t get more local than your own backyard. With savvy water practices, and attention to composting and other environmentally-friendly gardening practices, you can reduce your carbon footprint and feel better about how you are treating the earth.

4. Boost Your Health with Exercise

Gardening requires that you get out there and be active. Planting, weeding, and watering, as well as harvesting, all encourage physical activity. You can use gardening as a way to increase the amount of exercise you get. On top of that, you are getting your exercise in the open air. There’s something about being outside that can boost your health and your mood. Gardening — the close association with nature and the physical exercise — can actually help your mental health as well as your physical health. If you want a healthier year, add gardening to your exercise rotation.

5. Family Bonding Time

Some of my fondest memories are of working in my parents’ large garden. We all worked together to plant, care for, and harvest the produce. My husband has similar happy memories of growing fruits and vegetables with his own father. If you want a great family activity that can produce good memories (without costing very much) gardening can be a great choice.

Your garden can provide you with a number of opportunities to improve your finances and your health.

Do you like gardening? Why or why not?

The holiday season is already behind us but that doesn’t mean you still can’t give the perfect gift.

In the financial world, the term gift has a whole new meaning as it pertains to estate planning. Many investors look to “gift” a portion of their estate to prevent having to pay a hefty estate tax down the road.

If you want the bottom line about the gifting tax here it is: If you make gifts to friends or family that is large enough, there is the possibility that you may owe the federal government some tax money.

Of course, you probably want more information about the current regulations of the federal gift tax. Keep reading and I’ll share a few of the major points for 2013 and beyond. Sorry if this isn’t as exciting as the Nutcracker.

First, and perhaps foremost for some, is the fact that you, as the giver, are not going to be taxed (unless you exceed the gift tax exemption). It is the recipients who will have to pay taxes. For taxes to figure into the equation at all, you will have to have given away in excess of $5 million in cash or other assets over the course of your life.

Plus, if you have a spouse they have their own separate exemption for the same amount. What this means is that most people will never have worry about the federal gift tax at all.

The gift tax also includes the annual gift tax exclusion. This exclusion allows you to gift up to $14,000 during a calendar year – without counting against that $5 million lifetime limit. Currently, the figure remains the same now for 2013 and there is every indication that this exclusion will remain the same for the foreseeable future. If you exceed $14,000 the difference is applied to your lifetime exemption.

Gift Splitting

Another important point is the capabilities of gift splitting. If the husband and wife are both living and one child (for example), the husband can gift $14,000 to the child and the wife can gift $14,000 to the same child and not affect your lifetime income limit. One other important point regarding gift splitting is that for it to work, each spouse must consent to splitting of the gift. This is done with the appropriate form which I’ll discuss next.

IRS Form 709 – Gift Tax Return

Another question that I get is: what paperwork do you have to file with the IRS if you do gift? The good news is that if you don’t exceed the $14,000 annual gifting amount, no paperwork is needed – how sweet is that! The two instances that do require the IRS Form 709 are:

You gave your spouse an interest in property that will be ended by some future event.

You can read more about the IRS Form 709 in IRS Publication 950.

Federal Estate Tax Portability for Spouse

This provision allows you to leave up to $5.25 million that is free of federal estate taxes. As with the lifetime federal gift tax exemption, if you have a spouse they are allowed a separate exemption giving a couple a total exemption of $10.5 million. The provision allows any unused exemption from the spouse that dies first to be given to the surviving spouse. For example, a wife dies and the estate is worth $4.25 million. No estate tax is due, and the husband’s estate may now be $6.25 million when he passes without being hit by the estate tax. His $6.25 million exemption is from his original $5.25 million exemption plus the remaining $1 million of his wife’s exemption.

Additionally, any gifts that you make during your life will decrease your taxable estate. Those gifts that exceed the yearly exclusion will lower your estate tax exemption. The point here is that if you make annual gifts that fall within the constraints of the exclusion, you can actually reduce your taxable estate without suffering negative repercussions.

You can also look at setting up a family trust in order to avoid some estate taxes.

Gifting and 529 Plans

There a special provision in the federal gift tax guidelines that address 529 plan contributions. These are college saving plans that can be used by a future student to pay tuition and other educational expenses. The rule allows you to give lump sums as gifts that are then spread over a certain period of time (typically 5 years). This can be done without affecting the lifetime gift tax exemption or the estate tax exemption.

Gifts Can Be Tax Exempt

You will also find a listing of instances where your gifts can be considered tax-exempt. This means you can offer unlimited gifts in these areas without worrying about the gift tax or the estate tax. They include gifts given to spouses (assuming U.S. citizenship), to cover another person’s medical expenses, and someone else’s tuition expenses if paid directly to the college or university (some exceptions may apply).

There are also stipulations for filing a gift tax return.

This applies if you make a taxable gift that exceeds the annual exclusion rate. You would then be required a Form 709: U.S. Gift (and Generation-Skipping Transfer) Tax Return. You are required to fill it out even if you don’t owe taxes because of the $5 million exemption. There are certain filing rules based on your marital status and any gifts you want to claim on a return. Spouses will have to file their own returns, though some may choose to split gifts on the separate returns.

Gifting Deadline

If you’re planning on gifting assets held at a brokerage firm, I strongly suggest you check their policies regarding gifting certain securities. While you have until the end of the year to technically give the gift, certain firms may have sooner deadlines. Here’s an example of what you might see:

With the process and the desire for clients to complete gifting by year-end, Brokerage XYZ must receive client signed instructions in good order no later than December 17, 20xx, to ensure that the gifting of shares takes place and settles in the desired account. Any requests received on or after December 20, 20xx, will be processed on a best efforts basis.

Common Reader Question Regarding Gifting Rules

I seem to get some variation of the following question, so I wanted to share the answer for all.

I understand that my parents can gift me $14,000.00 from each of them which
the total will be $28,000.00.

Can they also gift the $28,000 to my spouse or this gift is only for the
their children?

As you can see, the question refers to the concept of gift-splitting as each parent may gift $14,000 each (in 2013). The second part of the question is where most of the confusion comes in.

There does not have to be a relation between the giftor and giftee. Heck, you could give it to the local UPS driver if you so choose. Hope that clears that up!

Gifting Strategy Right For You?

If you are considering gifting as part of your estate planning, I strongly encourage you to meet with a qualified estate planning attorney. Recently, I had a client that questions on gifting (more advanced case) and I placed a call to a local attorney. I was dumbfounded on how so many of the rules that I was familiar with had changed. Lesson learned: it pays to have someone on your side who knows what’s going on. Don’t go at it alone.