When Dad Speaks, I Listen…

September 30th, 2014

father and daughter picWhen my dad speaks, I listen.  He is not E.F. Hutton but he is the best I have.  My dad is pretty soft spoken so you need to pay attention.

Recently I was reading an article that made me think of my dad.  Another daughter had a conversation with her father in which he shared his go-to mantra:  “A big part of wealth building is to spend less and live within your means.  When the good years come along, sock away as much as you possibly can, because you never know when a bad patch might arise.”

My father shared with me to put money in an IRA annually.  At the time it was $166.66 per month and then there was benefit at income tax time too.  By doing that 30 plus years ago – and compounding and the time value of money – I have a nice pool of money for retirement.

Another lesson learned from my father was the process of buying a car.  I personally hate that it takes much longer than I think it should.  When I was in college, my dad was purchasing a car for my sister and we were in the showroom for four plus hours. – Does my dad like to dicker? – Yes.  I remember when the papers were signed that he was within $200 of an earlier offer.  I learned it pays to do your homework!  Decades later, the Internet helps with that homework, so you can go in with a game plan – knowing what your vehicle is worth as well as what the sticker price is before you buy.

Dad does present lessons to remember.

~ Susan

Consumer Knowledge, Credit, Retirement, Saving, Smart shopping, Spending plans

More on the Finances of Freelancing

September 25th, 2014

business card

Freelancing has advantages and disadvantages.  Some people prefer it, while others turn to it out of necessity.  Either way, it requires financial discipline and planning in order to be successful.  Earlier this week we discussed one factor: setting your fees based on full recognition of the financial realities you’ll face.  Here is a second major consideration.

You’ll need strong financial reserves and an annually-based financial plan. Your income will be irregular. Even if you’re working steadily, with lots of “billable hours,” the payments won’t come in on a regular weekly or monthly basis.  And if your work load is sporadic, you’ll see even more irregularity in income.


  • This means you will need to project your income for a whole year, and figure what “salary” you can draw each month.  In months when business income is above your “salary” you will bank the extra  so that you can draw from it in months when business income is lower.  Starting out with good financial reserves will improve your financial stabiliy.
  • You will also need to project business-related expenses for the year, including quarterly payments for income and self-employment taxes.  Use IRS form 1040-ES to calculate the amount you’ll need to set aside each month and send in each quarter during the year.  For Iowa, the self-employment income tax form is also called 1040-ES.  In other states, check with your Department of Revenue.  If your business involves other annual or quarterly expenses (insurance, licensing fees, etc), be sure to plan for them as well before deciding what monthly “salary” you can draw from your business.
  • Build retirement savings into your budget.  As a free-lancer, you don’t have a pension, so your later-life financial security is in your own hands.  Don’t assume that Social Security income will be enough to live on in retirement – you’ll need your own investments too.  Tax-advantaged options are available: an IRA or Roth IRA allows you to put away $5500/year (more after age 50); a Simplified Employee Pension (SEP)  or a solo 401(k) allows much higher contributions. 

 A good business plan is essential if freelancing becomes a way of life.  Contact your local Small Business Development Center  for guidance.  ~Barb

Source: portions of this article were based on an article by Barbara O’Neill (2014). “Managing Labor Market Changes: Essential Skills for Entrepreneurs and Intrapreneurs,” Journal of Family and Consumer Sciences, 106 (2) 9-15. 

Spending plans , , ,

Freelancing as a Way of Life

September 23rd, 2014


In certain lines of business, people start out knowing they’re going to be self-employed (local plumbers and electricians, for example, or independent cosmetologists or private practice attorneys).  However, other people find themselves self-employed unexpectedly, as accountants or engineers or in other fields where they might have expected to be salaried employees.

An increasing percentage of American workers are now freelancers, piecing together their income by contracting with several different companies who need their services on a part-time or temporary basis.  Writer Helaine Olen coined the term “gig economy” to describe a situation where a worker goes from one “gig” to the next, with no regular paycheck.  

If you find yourself in a “permanent freelance” situation, whether by choice or by circumstance, you’ll face unique financial challenges which require strong financial management skills and plenty of good planning.

You’ll need to charge a higher hourly rate than you might expect.  Maybe your old job paid $50,000/year, so you decide to charge the equivalent, which is $25/hour.  If you do so, you will find yourself notably poorer than you expect, for a couple of reasons:

  • You face higher costs. As a self-employed person you pay 100% of your health and disability insurance and 100% of your social security and medicare taxes.  In addition, you need insurance related to your business.  You may also have additional costs, depending on the nature of your work.
  • You don’t get paid for every hour.  You’ll spend some of your time marketing your services to potential clients, and some of your time handling billing and collections and other administrative tasks.  In addition, when you’re sick or take time off work, you don’t have paid leave provided.  So the fees you collect from your clients need to cover some of the general time you spend  on your business as part of your “overhead costs.”
  • Without a pension, you’re responsible for your own retirement well-being, and you’ll need to draw from your current income to set aside money to create your own “pension.”

Stay tuned later this week for more key considerations for those who make freelancing a way of life.


Spending plans , ,

More Month than Money

September 18th, 2014

quarters small

If you just pulled the cushions out of the sofa, or checked for quarters in the change container, or recognized that you needed to stretch the items in your cupboards this month to pay that unexpected bill, then you should congratulate yourself!

That may sound odd, but if you are taking those steps it means you are finding ways to stretch your resources.  These solutions may work this time, but it might be worth it to take some steps to make sure the situation doesn’t occur on a regular basis.   [After all, there are only so many lost quarters in that sofa!]

A place to start is to keep track of your spending.  Accounting for what you spend and where you are spending your money can sometimes result in “aha” discoveries. It also makes you aware of bills that only occur once or twice a year, like real estate taxes or a vehicle license.  If you add those “once-in-a-while expenses” together and divide by 12, you’ll find out you can’t spend all the money you earn each month – some of it needs to be set aside for these expenses. If the paycheck is stretched thin, then you’ll have a reason to not spend all next year’s tax refund or to splurge any time you have some bonus cash.

Want to learn more about finances?  Take Control of Your Money is a free self-paced source of information. Iowa State University Extension and Outreach, Human Sciences,  also offers an online course on the first Monday of each month. Your Money, Your Future  and as a face to face class. Find a class near you by contacting a family finance educator or visit the local Extension office for a brochure for the online class. You’ll need to find about 60 quarters to pay the registration fee, but it comes with some time with an instructor who would really like to help you stretch your money.



Saving, Spending plans


September 16th, 2014

Woman with Shopping BagsIs shoplifting a game? It appears so, and the game is described as addicting. You visit various stores and try to steal items without being detected by the security cameras. Shoplifting is also a “How To” topic. After a quick internet search, I learned how to make a “booster bag” and other ways to take merchandise without paying. To make you feel better about perfecting this art, one writer stated, “the stores charge too much for the merchandise anyway.”

Every hour $1 to $1.1 million in merchandise is stolen, a total of $9-$10 billion each year. You and I can each tack on $400 annually in higher prices to cover the cost. For businesses with low profit margins, such as groceries or one-stop discount stores, the impact is dramatic: every time a consumer walks out the door with a $7.00 stolen item, the business will have to sell $700 in merchandise to other customers to make up for the loss.

Maybe it will help to personalize the impact. I have a friend who works as a cashier for a business that is often cited as a minimum wage employer. The hours are irregular, affecting the family in many ways:  shifting responsibilities for getting meals on the table or homework completed; leaving notes for important messages when they are not home at the same time; and the family can count on holiday disruptions. The wages wouldn’t support the family if my friend’s paycheck was the only source of income.

I suppose it never occurred to anyone that the business might be able to give their staff a raise if they weren’t part of the “shoplifting game”.



Consumer Knowledge, Smart shopping ,

Direct-Pay Health Care

September 11th, 2014

Between Mason City and Rudd, where I live, Mercy North Iowa has a billboard that reads, “Refer a Physician Earn $5000.” Demand for primary care services is projected to increase through 2020, largely because of the aging population and an increase in health insurance coverage following the implementation of the Affordable Care Act.


With necessity being the mother of invention, some new models for delivering healthcare have come on the scene. One model gaining popularity, in which there is a direct financial relationship between the medical practice and the patient, is referred to by many terms including: concierge medicine, direct primary care (DPC), retainer-based, or membership medicine.[1] As the supply of doctors diminishes, this model strengthens the commitment between doctors and participating patients, ensuring patients’ access to services.

Concierge Medicine Iowa of Des Moines (first of its kind in Iowa) is part of a growing trend that has grown five-fold nationwide in the past five years. Concierge medicine is an approach to providing primary care in which the patient submits an annual or monthly fee or retainer to the physician directly. Fees range between $1200 to $10,000 per year depending on the practice and the patient’s age and marital status.

Women’s Wellness and West Side Family Medicine in Dubuque is one of 4,400 Direct Primary Care practices in the U.S[2], and is also the first of its kind in Iowa. There were only 756 DPCs in 2010 and even fewer in 2005 (146)[3]. In the last year, there has been a 30% increase the number of Direct Pay clinics. Instead of paying a deductible through health insurance, clients pay a monthly fee whether they visit the doctor or not. Similar to concierge medicine, the services covered by a physician vary, but patients can generally expect 24/7 access to doctors including same day appointments and the ability to reach doctors by email and/or phone. Additionally, office visits are longer (at least 30 minutes) and basic medical tests are no additional charge.

Neither DPCs nor concierge medicine have co-pays, deductibles, or co-insurance fees. The difference between a concierge medical practice and a DPC is that DPCs do not accept insurance; whereas retainer-based concierge might accept insurance.

The monthly fee paid to the medical practice essentially serves as a substitute for insurance coverage on the services provided.  However, in a medical emergency or if need arose for specialty services outside those provided by the practice, the patient would have no coverage.  Therefore, to meet the mandate for health insurance under the Affordable Care Act, individuals utilizing DPCs must also carry a catastrophic health insurance plan. The same would be true for participants in concierge medicine if they did not have other health coverage.  Catastrophic plans typically have significantly lower premiums than the standard Bronze, Silver, Gold or Platinum insurance plans.

Some of these new forms of health care may seem expensive, but may actually not be much different than the cost of health care premiums plus deductibles and co-payments.  Even if it does cost more, some consumers may decide it is worth the money if access to care is an issue. The cost is expected to drop as the availability of these models increases. ~Brenda

[1] Tetreault, M. (2014, February 20). Concierge medicine’s best kept secret, the price (revised). Concierge Medicine Today and Direct Primary Care Journal. Retrieved from http://conciergemedicinenews.wordpress.com/2014/02/20/concierge-medicines-best-kept-secret-the-price-revised/

[2]  http://www.marketwatch.com/story/why-concierge-medicine-will-get-bigger-2013-01-17

[3] Chris Silva, “Concierge Medicine a Mere Blip on Medicare Radar,” American Medical News, September 30, 2010, http://www.amednews.com/article/20100930/government/309309997/8/ (accessed June 16, 2014)

Insurance, Smart shopping , ,

A Bit More On Bitcoins

September 9th, 2014

bitcoin1Yes, it is only September, and yes, I am already thinking about tax season, including some serious new forms we can expect.  In the midst of those serious thoughts, I stumbled on something that made me laugh.

The IRS released Virtual Currency Guidance on March 25, requiring Bitcoin to be treated as property instead of currency. (Note: Bitcoin was discussed in blogs posted on 5/21/14 and 5/27/14)

This means Bitcoin is subject to capital gains tax or could count as a loss if the value dips. “Mined” Bitcoin is taxed as gross income. “Paperless” takes on a whole new meaning when you think about the taxpayer being responsible for maintaining the virtual paper trail for this virtual currency.  Lost or stolen Bitcoins can potentially be tax deductible as a casualty loss deduction, though it might be a little tricky calculating the cost basis of Bitcoin.

I find it funny thinking of the IRS writing rules to address gains, losses, potential theft and the need to maintain a paper trail of imaginary money;  however, it is not funny to think about just how volatile and risky this new form of money and investment can be. More than 850,000 Bitcoins were recently lost (presumed to be stolen) from the largest Bitcoin exchange and there is no FDIC (Federal Deposit Insurance Corporation) there to recover your losses.

As with all investments, it is important to know your risks; when it comes to risky investments… invest only what you can afford to lose. ~Brenda

Consumer Knowledge

Saving Money in College

September 4th, 2014


Whether you are in college, or have a student in college, or one about to head that way or you are considering entering college yourself, consider this question: Can you save money while in college?

The answer can be yes if you use these key strategies:

Pay your bills on time.  This impacts your credit history too.

Save for things that you need.  Try to pay cash rather than putting the purchase on plastic.

Track your spending – it will help you detect your spending patterns.

Save receipts -  they help you verify credit/banking statements, and can be used to compare your spending this year to last year.

Guard your vital stats – social security number, credit card info – this information can become ugly in the hands of ID thieves.

Textbooks – When you can, buy used textbooks or find out if you need the book or consider renting some textbooks.

Transportation – Try to live without a car; gasoline, maintenance, insurance, registration and parking all add up. If mass transit is available and you are close to campus, try it.  Maybe your bicycle will work.  Pool rides if you need to go home for the weekend.

Campus offers many activities. Since you paid an activity fee, get the most from your student ID:  free movies, art exhibits, sporting events and lecture series!

~ Susan

Saving, Spending plans

What’s Your Number to Start Saving for Retirement?

September 2nd, 2014

6870886851_76c9703cca_z retirement savings

So you just got your first job and you think retirement is a long time from now.  But saving money towards retirement today means you will put in less than if you wait to start your retirement fund.  What?

The chart and explanation below explain how this works.

Annual Savings Rate
Required by middle-income family replacing 70% of pre-retirement income

At age:  
                   % of income to save if starting at age:

                                 age 25                age 35                   age 45

62                              15%                      24%                           44%

65                              10%                      15%                           27%

67                                7%                       12%                           20%

70                                4%                       6%                             10%

                                                                      Source: Boston College Center for Retirement Research

A recent study from Boston College Center for Retirement Research found that 50% of working families won’t have a big enough nest egg to maintain their standard of living in retirement. Two reasons behind the lack of nest egg are low saving rates and lower stock market returns.

Consider a middle income person who wants to retire at age 65.  As the chart shows, he needs to save 15% of his preretirement income annually, starting at age 35. Note: that pace of savings assumes that the retirement account earns 4% a year more than inflation.

There are huge benefits by starting the saving and investing earlier as well as big benefit in delaying retirement:

  • If that middle income person starts at age 25 instead of 10 years later, he can reach his nest egg target size by saving just 10% a year.
  • But someone who does not start until age 45 must sock away a daunting 27% of income to retire at 65 or 20% to stop at age 67.

The data view someone who is 54 to 56 years old to be middle income if he earns $45,500 to $97,500. At ages 30 to 32, that range is $36,500 to $68,500.

By delaying retirement, you give yourself longer to contribute and can put in a smaller amount.  To illustrate, let’s return to that middle income person who starts saving at age 35 and needs to save 15% annually if he retires at age 65.  Delaying retirement will help.  If he wait until 67 to retire, he will need to save 12% a year, according to the Boston College study. If he keeps working until age 70, a 6% yearly savings rate will get the job done.

Iowa State University Extension and Outreach has updated Retirement publications. Retirement: Secure Your Future materials are available at www.extension.iastate.edu/humansciences/retirement.

Happy Saving – Susan

Goals, Retirement, Saving

Couples and Money

August 29th, 2014

YMYF-CoupleBankFormThis week I saw a report from a respected source which found that within couples, dishonesty about money is surprisingly common.  A third of those who manage money jointly admitted to hiding financial information from their partner – even hiding bank accounts!

Money management is a central element in any household.  Being straightforward and cooperative with your partner on money management brings at least three benefits:

  • Stronger finances and more progress toward financial goals.
  • Stronger, healthier relationship.
  • Children in the household will learn healthier money attitudes and develop stronger money skills.

Both partners in any couple need to be very aware of the household’s finances, including: how much money do you have, how much do you owe, what are the monthly bills, what insurance coverage you have and why, and where are important papers kept.  This is true even if one partner actually takes care of most financial tasks.  Why?

  • Survival – if something happened to one partner, the other needs to be able to find information and take care of business.
  • Shared power – any time all or most of the power (including power over finances) rests with one partner, the relationship is at risk.

Some strategies that can help you build joint money management and awareness include:

  • Shared financial goals, discussed and written down, then reviewed periodically.
  • Regular meetings (weekly, bi-weekly, or monthly) to plan for upcoming financial decisions and needs.
  • Equal access to account information (printed statements or on-line account access) – for bank and investment accounts and also for credit and debt accounts.

Sometimes people resist sharing all information because one partner gets irritated by certain small spending habits of the other (such as regular coffee purchases, or picking up magazines).  In addition, it can be tedious to keep track and report ever purchase of an ice cream cone or a new pair of socks.  When you think about it, It would be difficult to purchase gifts for each other if all spending must be disclosed!

A nice way to allow each partner some freedom for independent spending is for each to have an allowance.  (did you think allowances were just for kids?  Nope! They can be great for adults too!)  Then each partner has some autonomy, and some financial privacy within limits.

If you manage money with a partner, what can you do to make sure your financial relationship is cooperative and straightforward?