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How To Lower Your Monthly Mortgage Payment

We all have good intentions when we set out to buy a home and budget for it. We imagine getting paid the amount we’ve come to expect and we anticipate paying bills on time … until life happens and things change. Careers change, things break down over time and pretty soon our monthly budget is a distant memory of good intentions. Maybe you’re looking to take control of your finances and you want to tighten up your budget and save some cash.

Whatever the reasoning, saving money on your monthly mortgage expenses is possible. We’ve pulled together a few strategies you can try to do just that.

What Goes Into A Monthly Mortgage Payment

Monthly mortgage payments are typically made up of five key components: principal, interest, mortgage insurance (if you put less than 20% down), homeowners insurance and property taxes. It’s important to note that actual costs depend on the lender and loan type and these are just a few examples of costs you might see on your mortgage statement.

Principal And Interest

For most, in the beginning of homeownership, the majority of your mortgage payment goes toward paying interest. As time goes on, more of your payment will go to the principal of the loan or the amount owed.

Insurance And Taxes

As a home buyer, you’re taking a risk by purchasing a home and lenders are taking risks by lending significant amounts of money to the public. Because of this, your lender will likely require a monthly fee to protect their investment. Private mortgage insurance or PMI protects the lender if a homeowner defaults on their mortgage. On an FHA loan, it’s referred to as mortgage insurance premium or (MIP).

Lenders will also require you to keep homeowners insurance current and to their specifications for the life of the loan. Lenders want to be sure that the home will maintain its value in case it needs to be sold to recover any past due balance if a homeowner defaults on their home mortgage.

Lenders also prefer that taxes are paid when they’re due. Lenders will hold the funds in escrow to ensure they are paid on time and are current. While a homeowner’s mortgage may be paid and current, if taxes are not paid, there could be a lien placed on the home.

Now that we have an idea of what makes up a monthly mortgage payment, let’s dive into how we can lower that amount.

Refinance Your Home

Refinancing your home is a great way to reduce your monthly mortgage payment if you’re in the position to do it. You’ll want to keep a close eye on the market. When rates are lower than your current mortgage interest rate, call your lender and discuss refinancing. If your current lender’s rates aren’t as low as you’d like, take the time to shop for the right loan product and interest rate that fit your financial goals.

A lower interest rate could be all the savings you need to make your budget bearable.

For example, Sam purchased a home for $200,000 with a 30-year fixed loan. Sam’s current interest rate is 4% and their lender can lock in a 3% interest rate. If Sam chooses to refinance, they could save $112 a month.

Buying Down The Interest Rate With Points

If Sam wanted to save even more, they could buy down their rate with points. Mortgage points are upfront prepaid interest paid as part of your closing costs to get a lower rate. Each point is equal to 1% of the loan amount. For example, on a $200,000 loan like Sam’s, one point would cost them $2,000 at closing. One mortgage point generally results in an interest rate reduction of .25% – .5%.

Refinancing can save you money, but be sure you’re looking at the bigger picture. If you plan to live in your home for a long time, buying points to reduce your rate could save you thousands over the life of your loan. If you plan to sell in the near future, it might not be worth the additional cost.

Consider An AdjustableRate Mortgage

If you do plan to refinance, you could consider an ARM. An adjustable-rate mortgage is a home loan with an interest rate that can change periodically if the market shifts. Typically, the initial interest rate is lower than conventional loan rates for a fixed period. After the fixed rate period is over, the interest rates on an ARM can fluctuate based on the interest rate index your lender follows.

You’ve probably heard of a 5/6 ARM, which has a 5-year introductory rate period where the rate is fixed. After 5 years, the interest rate can change every 6 months. Many lenders offer 5-, 7- and 10-year options.

You should ask your lender to explain how much the payments could increase after the introductory period before committing, depending on how long you plan to stay in the home.

Make Extra Payments

If you have funds to work with, you can apply it to your mortgage in a few ways to lower your monthly expenses.

Make A Larger Down Payment

When purchasing a home, the down payment plays a huge part in the future costs of the home. The larger the down payment on a home, the less money the home buyer will have to pay back. Putting down 20% or more of the sale price of a home will give you access to better loan terms, interest rates, and it will reduce your monthly payment.

Make More Payments

If you have a little extra money coming in from a side hustle or new job, you can make extra payments on your existing mortgage. If you do this, make sure to tell your lender you would like the extra payment to be applied to your principal. This won’t help with immediate financial distress, but over time these payments add up and can reduce your monthly mortgage amount. You’ll also be able to own your home faster or at least shave years off the loan which will save you money in the long run.

Get Rid Of PMI

If your down payment for a conventional loan was less than 20% of the sale price, it’s likely that you paid or are currently still paying PMI. Once a homeowner has accumulated 20% or more in equity, they can contact their lender to have PMI removed from their mortgage. Otherwise, it will come off automatically once 22% equity is reached in the home.

PMI ranges between .05% – 1% of the total loan amount.

For example, for a $250,000 home with a 10% down payment and a 4% interest rate, the monthly PMI premium would cost about $140 a month or $1,687 for 1 year.

To remove PMI, lenders have to follow the rules of Fannie Mae and Freddie Mac for conforming loans. If you believe you’ve reached the 20% equity requirement through making additional payments, increasing the home value through renovation, or if you feel that your home’s reached a level of appreciation to put you over the 20% threshold, apply or request for early PMI removal.

Government-Backed Loans

Government-backed loans like FHA, USDA, or VA don’t charge PMI. Instead, they may have mortgage insurance premiums, guarantee fees and funding fees, respectively.

FHA borrowers who were able to make a down payment of 10% or more must pay annual mortgage insurance premium for 11 years. If the borrower made a down payment of less than 10%, they will be required to pay the annualized fee for the entire life of the loan.

With a USDA loan, you pay an upfront guarantee fee which is equal to 1% of the loan amount and an annual fee. Rocket Mortgage® does not offer USDA loans.

VA loans have a funding fee attached. If the home buyer is a disabled vet (or the qualifying family member is disabled) and receiving disability benefits, they may qualify for the funding fee to be waived. If a veteran or qualifying member of the household closed on a home loan before receiving benefits, they might be eligible for a refund of the funding fees.

Comparison Shop For New Homeowners Insurance

Like we mentioned before, lenders will likely require a homeowners policy to be active and up to their coverage requirements for the life of the loan. Homeowners insurance premium costs vary state to state. The home type and its location play a big part in the monthly premium costs as well.

You can shop around for a better deal on your homeowners insurance policy premiums. When you’re getting a quote, be sure to let the agent know if you’ve upgraded your security system or made significant renovations that may have reduced your exposure to risk. The safer your home is from the elements, natural disasters and intruders, the more affordable your insurance premiums could be.

It’s always a good idea to call your lender prior to starting your search for new homeowners insurance. Lenders have minimum requirements that your new policy will need to meet. You’ll also want to ask how to change your homeowners policy because they may require certain forms or additional coverage. Be thorough in your planning and you can save money and time.

Challenge Your Property Tax Assessment

Many homeowners don’t know they can challenge their property tax assessments. Your tax bill is based on the assessment of the home’s value by the local municipality. If a homeowner feels their property has been assessed too high, they can challenge the property assessment.

Many towns have a policy that states if a homeowner doesn’t grant full access to the property, the assessor will automatically assign the highest value possible for the property type. Check with the assessor’s office and see if you’re able to walk the property with the assessor and give them access to the interior and any other areas you think might be able to prove your valuation is too high.

If you’ve exhausted options on your own, you can file a tax appeal. Filing an appeal will likely include a small fee. Some homeowners opt to have a lawyer file their appeal to ensure all deadlines are met and documentation is prepared properly. You may hear something from the assessor’s office right away, but in most cases prepare to wait. These types of appeals could take weeks to months for the reviewers to render a decision.

The Bottom Line: Stay Focused

When looking to save some money in your budget, you might be able to lower your mortgage payment by refinancing, getting rid of mortgage insurance, or shopping for better loan rates. With so many options, it’s important to focus on your long-term financial goals to guide you to success.

If you’re ready to explore options, talk to Rocket Mortgage through the Mint experience to see how you could lower your monthly mortgage payment.

 

The post How To Lower Your Monthly Mortgage Payment appeared first on MintLife Blog.

WTFinance is Company Valuation?

Image editing software company Canva recently raised another round of financing that valued the company at $40 billion dollars. 40 billion is a lot of dollars, so what does that mean exactly. How are companies valued, and what does that mean for investors? An everyday investor doesn’t need to know all of the details of company valuation in order to be successful. Still, it makes sense to have a basic understanding of how companies are valued.

What is Company Valuation?

A company’s valuation is a measure of how much the total company was worth. There are many different ways to value a company. This includes historical earnings, future earnings potential, or the sum of its assets minus any liabilities. 

Historically, it was common for a company’s stock price to be a multiple of their net annual earnings. If General Motors earned $3 billion in a year and had 600 million shares of stock, they would have annual earnings per share (EPS) of $5.00. In current times, it is less common for stocks to be only valued based on historical earnings. This is especially true for startups that may actually not be profitable at all. Instead, they are valued based on their potential for future earnings.

How Are Public Companies Valued?

Determining the total value of a publicly traded company is a fairly simple calculation and possible given publicly available information. To calculate the valuation of a public company, take its stock price multiplied by the total number of shares of stock in the company. This is also known as its market capitalization or market cap for short. 

Returning to our historical (and fictional) example of General Motors from the previous section. In our example, there were 600 million shares of stock trading at a price of $60 to $75. This would give our fictional General Motors company a market cap of 36 to 45 billion dollars.

You might also hear about “large-cap” or “small-cap” stocks. These determinations are based on the stock or company’s total market capitalization. Large cap stocks are typically those that have a market capitalization of 10 billion dollars or higher. Small cap stocks are those with market caps of about $300 million to $2 billion. Mid cap stocks are companies with market capitalizations that are in between.

How Are Private Companies Valued?

There are some similarities with how private and public companies are valued. The difference is that privately-held companies do not have to publicly disclose how many shares of stock that they have. In fact, private companies don’t even have to issue shares of stock (though most do). Additionally, unlike public companies, the shares of stock of private companies are not traded openly, so their value is not determined by the market.

Despite this major difference, a private company is typically valued in much the same way that a public company is. You just don’t know how many shares of stock a private company has. So when the news reports that Canva raised $200 million in new funding at a $40 billion valuation, it might be that the investors got 100 million shares of stock at a price of $2 per share or 20 million shares of stock at $10 per share, or anywhere in between.

Whatever the price per share that these investors paid for their shares of Canva stock, when you multiply that by the total number of outstanding shares issued by the company, it equals $40 billion. Since Canva is a private company, we don’t know exactly how many total shares there are, but for most people it doesn’t really matter. The average investor can’t buy shares in Canva (or any private company), so the stock price is whatever Canva and their investors say it is.

The Bottom Line — What Does Company Valuation Mean for Investors?

So you might be wondering, what does all this mean for me as a casual investor? The good news is that for most investors, a company’s valuation is not something you have to spend a lot of time worrying about. It’s good to know a little bit about it so that you’re familiar with the concept, but there are other concepts that are more important, like compound interest or sticking to a budget.

This is especially if you’re a beginner investor just starting out, you can just invest in index funds as a great way to start your investing career. As you get more experience and want to start investing in individual stocks, you can use a company’s valuation as a tool to help you decide if a given stock is a good investment. Look for companies whose valuation you think is lower than it should be — those can make for good investments.

The post WTFinance is Company Valuation? appeared first on MintLife Blog.

Cost of Goods Sold Formula: A Step-by-Step Guide

Cost Of Goods Sold Definition
Cost of goods sold (COGS) is the cost of producing the goods sold by a company. It accounts for the cost of materials and labor directly related to that good and for a designated accounting period.

As a company selling products, you need to know the costs of creating those products. That’s where the cost of goods sold (COGS) formula comes in. Beyond calculating the costs to produce a good, the COGS formula can also unveil profits for an accounting period, if price changes are necessary, or whether you need to cut down on production costs.

Whether you fancy yourself as a business owner or a consumer or both, understanding how to calculate cost of goods sold can help you feel more informed about the products you’re purchasing — or producing.

What Is Cost of Goods Sold?

Cost of goods sold is the cost of producing the goods sold by a company. It includes the cost of materials and labor directly related to that good. However, it excludes indirect expenses such as distribution and sales force costs.

What Is the Cost of Goods Sold Formula?

 

Four illustrations help explain the cost of goods sold formula, which accounts for beginning inventory, purchases, and ending inventory.

 

When selling a product, you need to understand the production costs associated with it in a given period, ​​which could be a month, quarter, or year. You can do that by using the cost of goods sold formula. It’s a straightforward calculation that accounts for the beginning and ending inventory, and purchases during the accounting period. Here is a simple breakdown of the cost of goods sold formula:

COGS = beginning inventory + purchases during the period – ending inventory

 

How Do You Calculate Cost of Goods Sold?

To calculate cost of goods sold, you have to determine your beginning inventory — meaning your merchandise, including raw materials and supplies, for instance — at the beginning of your accounting period. Then add in the new inventory purchased during that period and subtract the ending inventory — meaning the inventory leftover at the end for your accounting period. The extended COGS formula also accounts for returns, allowances, discounts, and freight charges, but we’re sticking to the basics in this explanation.

Taking it one step at a time can help you understand the COGS formula and find the true cost behind the goods being sold. Here is how you do it:

Step 1: Identify Direct and Indirect Costs

Whether you manufacture or resell products, the COGS formula allows you to deduct all of the costs associated with them. The first step is to differentiate the direct costs, which are included in the COGS calculation, from indirect costs, which are not.

Direct Costs

Direct costs are the costs tied to the production or purchase of a product. These costs can fluctuate depending on the production level. Here are some direct costs examples:

  • Direct labor
  • Direct materials
  • Manufacturing supplies
  • Fuel consumption
  • Power consumption
  • Production staff wages

Indirect Costs

Indirect costs go beyond costs tied to the production of a product. They include the costs involved in maintaining and running the company. There can be fixed indirect costs, such as rent, and fluctuating costs, such as electricity. Indirect costs are not included in the COGS calculation. Here are some examples:

  • Utilities
  • Marketing campaigns
  • Office supplies
  • Accounting and payroll services
  • Insurance costs
  • Employee benefits and perks

Step 2: Determine Beginning Inventory

Now it’s time to determine your beginning inventory. The beginning inventory will be the amount of inventory leftover from the previous time period, which could be a month, quarter, or year. Beginning inventory is your merchandise, including raw materials, supplies, and finished and unfinished products that were not sold in the previous period.

Keep in mind that your beginning inventory cost for that time period should be exactly the same as the ending inventory from the previous period.

Step 3: Tally Up Items Added to Your Inventory

After determining your beginning inventory, you also have to account for any inventory purchases throughout the period. It’s important to keep track of the cost of shipment and manufacturing for each product, which adds to the inventory costs during the period.

Step 4: Determine Ending Inventory

The ending inventory is the cost of merchandise leftover in the current period. It can be determined by taking a physical inventory of products or estimating that amount. The ending inventory costs can also be reduced if any inventory is damaged, obsolete, or worthless.

Step 5: Plug It Into the Cost of Goods Sold Equation

Now that you have all the information to calculate cost of goods sold, all there’s left to do is plug it into the COGS formula.

An Example of The Cost of Goods Sold Formula

Let’s say you want to calculate the cost of goods sold in a monthly period. After accounting for the direct costs, you find out that you have a beginning inventory amounting to $30,000. Throughout the month, you purchase an additional $5,000 worth of inventory. Finally, after taking inventory of the products you have at the end of the month, you find that there’s $2,000 worth of ending inventory.

Using the cost of goods sold equation, you can plug those numbers in as such and discover your cost of goods sold is $33,000:

 

COGS = beginning inventory + purchases during the period – ending inventory
COGS = $30,000 + $5,000 – $2,000
COGS = $33,000

Accounting for Cost of Goods Sold

There are different accounting methods used to record the level of inventory during an accounting period. The accounting method chosen can influence the value of the cost of goods sold. The three main methods of accounting for the cost of goods sold are FIFO, LIFO, and the average cost method.

Two illustrations help explain the difference between FIFO and LIFO, which is an inventory method of accounting for the cost of goods sold.

FIFO: First In, First Out

The first in, first out method, also known as FIFO, is when the earliest goods that were purchased are sold first. Since merchandise prices have a tendency of going up, by using the FIFO method, the company would be selling the least expensive item first. This translates into a lower COGS compared to the LIFO method. In this case, the net income will increase over time.

LIFO: Last In, First Out

The last in, first out method, also known as LIFO, is when the most recent goods added to the inventory are sold first. If there’s a rise in prices, a company using the LIFO method would be essentially selling the goods with the highest cost first. This leads to a higher COGS compared to the FIFO method. By using this method, the net income tends to decrease over time.

Average Cost Method

The average cost method is when a company uses the average price of all goods in stock to calculate the beginning and ending inventory costs. This means that there will be less of an impact in the COGS by higher costs when purchasing inventory.

Considerations for Cost of Goods Sold

When calculating cost of goods sold, there are a few other factors to consider.

COGS vs. Operating Expenses

Business owners are likely familiar with the term “operating expenses.” However, this shouldn’t be confused with the cost of goods sold. Although they are both company expenditures, operating expenses are not directly tied to the production of goods.

Operating expenses are indirect costs that keep a company up and running, and can include rent, equipment, insurance, salaries, marketing, and office supplies.

COGS and Inventory

The COGS calculation focuses on the inventory of your business. Inventory can be items purchased or made yourself, which is why manufacturing costs are only sometimes considered in the direct costs associated with your COGS.

Cost of Revenue vs. COGS

Another thing to consider when calculating COGS is that it’s not the same as cost of revenue. Cost of revenue takes into consideration some of the indirect costs associated with sales, such as marketing and distribution, while COGS does not take any indirect costs into consideration.

Exclusions From COGS Deduction

Since service companies do not have an inventory to sell and COGS accounts for the cost of inventory, they can’t use COGS because they don’t sell a product — they would instead calculate the cost of services. Examples of service companies are accounting firms, law offices, consultants, and real estate appraisers.

The Bottom Line

Running a business requires many moving parts. To ensure a company is making a profit and everyone’s paid a fair salary, business owners should have a well-rounded view of the costs associated with their goods sold. Following this step-by-step guide to learn how to use the cost of goods sold formula is a good starting point. As always, it’s important to consult an expert, such as an accountant, when doing these calculations to make sure everything is accounted for.

Sources: QuickBooks

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Why You Should Celebrate National Buy Nothing Day Instead of Black Friday

You’ve probably already noticed it in recent years – the tide is turning against Black Friday. Public perception of the shopping-focused holiday has soured, largely due to a growing distaste for consumerism and concerns about the welfare of retail workers.

If you’re on the fence about Black Friday, you might be interested in National Buy Nothing Day. We’ll explain how it works, and offer some ideas on how to celebrate.

What is Buy Nothing Day?

A few years ago, when Black Friday started expanding to Thanksgiving Day and beyond, some retailers and consumers started protesting the changes. That’s when Buy Nothing Day started to gain wider recognition. Originally started in 1992, Buy Nothing Day is exactly what it sounds like: a holiday that is celebrated by not spending money, both in physical and online stores.

Consumers have different reasons for celebrating Buy Nothing Day, including environmental and ethical concerns. Others may also use Buy Nothing Day as a way to avoid the emotional pull of shopping on Black Friday.

How to Celebrate Buy Nothing Day

Here are some ideas on how to integrate Buy Nothing Day into your life this year:

Cancel Subscriptions

The average person spends $273 a month on subscription services. If you subscribe to various streaming and physical services, consider how many of those you actually use regularly.

Go through your bank account and credit card statements to identify the recurring subscriptions. Then, separate each subscription into three categories: regularly use, sometimes use and rarely use. Be honest about your consumption and enjoyment of these services. If you can’t remember the last time you watched a movie on Hulu, consider canceling it.

Pro-tip: Mint app will automatically detect subscriptions to help you detect the ones you have and remind you about subscriptions you may have forgotten about.

After cancelling the subscriptions you rarely or never use, look at the subscriptions you sometimes use. Can you reduce those services or find a way to consolidate or spend less on them? Many subscriptions let you pause for a month or two. Try doing that to test how much you actually miss the service.

Once you cancel or reduce your subscriptions, decide what to do with the extra money. Some ideas include saving for a down payment, investing for retirement or paying down debt. Set up automatic transfers or payments with the exact amount you’ve cut from your budget. This allows you to funnel the money saved into your highest financial priorities.

Declutter Your House

If you’re like most people, you probably have too much stuff in your house. Use Buy Nothing Day as an opportunity to Marie Kondo your space – it might even lead to unexpected benefits for your mental and physical health.

After decluttering, you can donate the items to a charity, put them on the curb with a “free” sign or sell them. Sites like Poshmark, eBay, Craigslist and ThredUp are popular places to list your items, allowing you to earn some extra cash from your clutter.

Get Outside

Another great option on National Buy Nothing Day is to get out and literally do anything else. That hike you’ve been talking about going on? Get out there! The dog park you keep saying you’re going to take your pup to? Grab the ball and let’s go! Or even a chill day at home relaxing. Namaste in. Whatever you decide to do we hope you find joy in celebrating National Buy Nothing Day.

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6 Budget Friendly Ways to Support Small Businesses

When it comes to helping out small businesses, cash is king. The best way to make sure your local mom-and-pop bookstore or coffee shop stays in business is by shopping there as possible.

But for those of us on a budget, extravagant spending sprees aren’t always an option. So let’s take a look at some budget-friendly strategies to support your favorite small businesses.

Write Positive Reviews

During the height of the Covid-19 pandemic, one of my favorite local restaurants requested that customers leave positive reviews on Google and Yelp. Several people had recently left negative reviews, complaining about the restaurant’s mask policy. These negative reviews were dragging down their rating average.

I went online, left a five-star review and noticed that several other people had also left positive reviews. Pretty soon, their average rating was higher than it had ever been. Posting positive reviews can have huge implications for a small business to attract more visitors, especially if they’ve just opened.

If you want to support your favorite businesses without dropping massive amounts of cash, leave a review on Google, Yelp, Facebook and TripAdvisor. If you’re reviewing a restaurant, you can also go to delivery apps like DoorDash, GrubHub and PostMates to leave a review there as well.

Search for the business on Google and see where they’re listed, then post a review on as many of those platforms as possible. For example, if you bought a pair of earrings from a local maker at a craft fair, find their Etsy site and leave a review.

Make sure to be descriptive and post pictures if possible. Encourage your friends, neighbors and coworkers to also leave reviews. In a time when many small businesses are struggling to stay afloat, a few positive reviews can make a huge difference.

Share on Social Media

When you buy something from a small business, one of the best things you can do is to post a photo of the item and tag them on social media. This strategy may encourage your followers to check out the small business, follow them and even buy something.

You can try this out even if it’s been weeks or months since you purchased something. For example, if you bought a novel at your local bookstore, post a picture of you with a caption like, “Just finished this amazing book. Thanks to My Local Bookstore for always having my favorite authors in stock!”

Sometimes a business will even offer you a special coupon if you tag them, so it can help you save money on your next purchase. Not every business will offer a discount so don’t expect a special reward, but every once and awhile you may get a nice surprise or thank you from the business.

Interact with Their Social Media

Social media platforms like Facebook and Instagram don’t show posts in a linear order. They only show them based on relevancy. If Instagram thinks you won’t like a post, they may not show it to you.

Unfortunately, social media algorithms can make it hard for small businesses, especially new ones, to gain new followers. It’s much harder for them to successfully advertise if potential customers don’t see their posts.

One of the best ways to help a small business for free is to interact with them on social media. Regularly engaging with a business will show the social media algorithms that their posts deserve to be shown to more people.

You can engage by following the account, liking their posts, leaving a comment, tagging friends, watching their videos and more. Find out which social channels your favorite business uses and follow them on all of those sites.

Mention this strategy to others, because the more people that engage, the more traffic will be driven to their posts.

Answer Google Review Questions

If you ever look at Google Reviews, you may see questions from users about local businesses. If you know the answer, you can respond to the question and help drive more customers to that business. For example, if someone asks if a restaurant offers vegan entrees, you can respond if you know the answer.

Replying to these questions may seem trivial, but it spreads more information about the business and makes hesitant customers more likely to give them a try. At the very least, it can prevent the kind of unnecessary confusion that ultimately leads to a negative review.

Buy Gift Certificates

If you want to support small businesses but don’t need anything from them right now, you can buy a gift card to use later on. Before doing this, make sure their gift certificates don’t have a strict expiration date.

If you’re shopping for a friend’s bridal shower, birthday or baby shower, consider getting them a gift certificate to a small business. With the holidays coming up, you can even implement this strategy with your loved ones. They may actually appreciate the chance to pick out their own gift.

Offer Help

One of the best ways to help a small business is to volunteer your time. For example, if you’re a graphic designer, you could ask if they have design needs. Make it clear you don’t expect to be paid for your work, though they may offer you a gift card or store credit in exchange.

Sometimes you don’t even need to have special skills. Recently, a local record store needed help moving boxes from its basement to a storage unit. Anyone could come and help, and it was a free way to support the business.

What are your favorite ways to support small businesses? Let us know below in the comments!

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New Tech is Coming! Here’s What’s Worth Budgeting For

Apple’s recent announcement of the new iPhone 13 is one of several new tech items that have been announced or introduced recently. The Google Pixel 6 and the Samsung Galaxy S22 are two other phones that you might have your eye on. In addition to new phones, there are plenty of laptops, TVs, wearable items and other tech that are sure to make many Christmas shopping lists. If you or someone you love is a techie, here are some things to think about as you budget for new tech.

Most technology items are depreciating assets

The first thing to remember is that most technology items are depreciating assets. What that means is that it loses value over time. Like buying a new car, most tech items will never be worth more than it is at the time of its initial sale. Just like you might lose a third of your new car’s value as soon as you drive it off the car lot, your new phone might lose a third of its value as soon as you walk out of the Verizon or Apple store.

A new phone

Technological advances in cell phone technology have been nearly exponential since the original iPhone was introduced in June 2007. Every year, phone manufacturers seem to come up with additional features. Larger and more vibrant screens, bigger and more precise cameras and faster processors are just a sampling of the changes that are announced each year.

While there’s no doubt that a new cell phone today is significantly better than the original iPhone from 2007, those innovations come at a price. The new iPhone 13 comes with a suggested retail price of $699 to $1399, depending on the model. And that’s assuming you can actually buy an iPhone for its retail price, given the global chip shortages that are affecting supply chains.

Other new gadgets

Cell phones are not the only new gadgets that many people get interested in. New laptops, tablets, TVs and wearable technology are other things that have the highest value they’ll ever have when they first come out. If you want to be on the bleeding edge and always have the latest technology, you’ll definitely pay a premium.

Budgeting for new tech

So does the fact that most new tech gadgets are depreciating mean that you should never buy them? As with most personal finance decisions, the answer is that it depends on your specific situation. Remember that the whole point of a budget is to not spend money on things that are not important to you, so that you still have money to spend on the things that ARE important to you.

If new gadgets truly bring joy to your life, by all means, get every latest gadget the moment it comes out. Just make sure to include it in your budget so it doesn’t wreck the rest of your financial picture. A sinking fund can be a great way to do this, especially for items that are announced well in advance of the date they’ll be available for purchase. If you want to budget $1000 towards a new phone every year, set up your sinking fund to save $83 each month. Then when you’re ready for your new phone, you’ll have the $1000 that you need.

Alternatives to always buying the latest tech

If you’ve decided to hold off on buying the latest version of a particular gadget, here are a few alternatives. The easiest thing to do is take a look at the previous year’s model. Everyone that wants the one that just came out will be looking to sell their previous year’s version. That will drive down the resale price and you may be able to pick up a relative bargain.

Another alternative is to wait it out for a few months. Companies like Apple, Google and Samsung know there is a large market that wants the latest model of products. They also know that those people are willing to pay whatever it takes to get them as soon a possible. After a few months, it’s common for the price to drop anywhere from 25-50%

The Bottom Line

New technology and gadgets will continue to arrive every year at a remarkable pace. But just because a new version comes out doesn’t mean you have to be the first to buy it. Remember that most technology gadgets (including cell phones) are depreciating assets — they lose value over time. But if having the newest technology is important to you, make sure to plan for it in your budget. A sinking fund or other high-yield savings account is a good place to save up your money.

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4 Ways to Save on Winter Sports

As the calendar turns to winter and temperatures drop, some people can think of nothing but sitting inside next to the fireplace with hot chocolate and a good book. Others however start planning their winter sports getaway. Whether your passion is the ski slopes, snowboarding or snowmobiling, winter sports can get expensive. If you’re looking to play in the snow, here are a few tips to save on winter sports.

Buying vs. Renting Equipment

Winter sports equipment can get expensive, no matter what type of sport you’re looking at. Skis, special snow boots, snowboards, snowmobiles can make your budget really feel the pain. One way that you can save on this equipment is to buy used. Paying top dollar for new equipment will be the most expensive, and many times you can find used equipment that is just as good for a fraction of the price. Just think of all the friends who bought a snowboard, used it one or two times and let it sit in their room for a couple years. Search offerup, Facebook Marketplace and other similar sites to find user gear and save.

Another thing to consider is renting your equipment rather than buying it. Of course whether renting is feasible depends on a variety of factors, including what equipment you’re talking about. You’re much more likely to rent a $2,000 snowmobile than a $100 pair of boots. One factor to consider in the buy vs. rent decision is the cost of transportation. Many of the equipment we’re talking about (snow skis, boots, snowboards) are big and bulky and if you’re flying to your destination, the bag fees will start adding up. Renting may be expensive, but if it’s something that you don’t use that often, it may still be cheaper for you.

Creative Ways to Save on a Ski Trip

A traditional ski trip where you fly to your location, stay in a lodge on the mountaintop and ski out of your hotel room onto the slopes is convenient, but pricey. The more convenience that you opt for on your trip, the more money it will cost. And if paying for those conveniences is what you have budgeted for, then go for it!

But if you’ve got more time than money, you might be looking for a few creative ways to save on winter sports. A few ideas might be:

  • Drive to your skiing location instead of flying
  • Pool your money with other families to rent a house instead of each paying for hotel rooms
  • If you do rent a hotel room, you can save money by booking your room further away from the actual lodge itself

As with everything in life, you can decide how much time you want to trade off for a higher cost.

Use Credit Card Rewards to Save On Your Trip

Another way to save money on your trip is to maximize your credit card rewards. Many credit cards offer not only rewards for ongoing spending but initial welcome offers worth hundreds or even thousands of dollars. Many airlines and hotel brands offer credit cards that give rewards and miles or points that you can use for free travel.

Take a look at the different rewards credit cards that are out there and see which ones might work for your trip. If you plan on flying Delta to your destination, look at one of the Delta co-branded airline cards from American Express. If you want to stay at a Hyatt resort, there is a Hyatt hotel credit card issued by Chase. Signing up for some of these credit cards might give you elite status or rewards that you can use towards free flights or hotel nights.

Be Creative in the Outdoors

If you’re looking to save on winter sports, you can also consider how you can incorporate other winter sports into your leisure time. There are many different sports that you can do in the winter time, and not all of them have to be expensive. There are many national parks that offer plenty of activities that you can do in the winter time.

If you are a ski nut that just can’t get enough of the mountains, consider interspersing your ski days with days where you do other activities. Or you may want to incorporate rest days during your ski vacation. That will help stretch out your vacation time but keep you under your budget.

The Bottom Line

Ski passes, equipment and traveling in the winter can be expensive, but it doesn’t have to be. You are in control over how much you save and like most things, the important thing to remember is to budget for the things that are most important to you. Spend your money where it will bring you joy and save money in other areas. These tips can help you make magical winter memories to remember.

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The Entrepreneur Salary: 5 Steps to Paying Yourself First

Being your own boss, bringing ideas to life, and hustling to hit goals are just some of the thrills of entrepreneurial pursuit. And while it might be easy to picture yourself having your own business, getting it to prosper takes hard work and time. One way to factor in your success is to establish an entrepreneur salary.

It’s worth mentioning that only 49 percent of entrepreneurs pay themselves a salary, and those who do make an average of $44,000 a year in the United States. If you want to maximize your earnings by paying yourself first, follow this guide to learn how much entrepreneurs make in each city, and what the steps are to building an entrepreneurship salary.

 

See Average U.S. Salaries

 

What Is the Salary of an Entrepreneur?

The average entrepreneur salary in the United States is $44,000, though salary can vary between $16,500 to $184,500 and depends on various factors including skills, experience, and location. As you gain more experience, your entrepreneur salary has a chance of increasing as well.

Why Should You Pay Yourself a Salary?

Many entrepreneurs see owning a business as a passion and might forgo paying themselves a salary. However, establishing an entrepreneur salary can be seen as a way to reward your hard work and accomplishments. After all, you put a lot of work into your business, and you deserve to be paid for it.

Still, it’s important to draw a boundary between the business and your personal finances and create a strategy to pay yourself a salary. Not paying yourself can distort your company’s true earnings, since your salary should be a part of the company budget.

5 Steps to Building an Entrepreneur Salary

Rewarding yourself for your hard work does come with some planning. When it comes time to manage your business finances, follow these steps to set your entrepreneurship salary:

Step 1: Separate Your Personal and Business Finances

It can be easy to mix up your personal and business finances if there’s not a defined line between the two. Having a set plan to track your business income and expenses is the first step to building your entrepreneur salary.

Start with opening a business bank account, and move all of your company’s income and expenses to it. You can also apply for a business credit card to help build credit.

Step 2: Find Out How to Pay Yourself First

Paying yourself an entrepreneurship salary can prove that your financial well-being depends on the success of your business, and shows to employees and investors that you are committed to it. In addition to that, it indicates to the IRS that your business is legitimate.

Establishing an entrepreneur salary from the beginning will help you keep accurate financial records and help you paint a better picture of what the company’s costs are and what issues need to be addressed.

Reasonable Compensation

It takes some research to figure out how much you should be paying yourself. According to the IRS, all employers must receive a reasonable compensation, which is essentially something comparable to wages of employees with a role similar to yours.

Start your research by looking at how much similar entrepreneurs are being compensated for in your area. You can also research positions that align with yours in other companies or ask other business owners in your industry.

It can also be beneficial to take a look at your personal finances and figure out what you need to cover basic living expenses. You might also consider setting your entrepreneur salary as a percentage of your business’s profits, in case you’re concerned about covering fluctuating expenses.

Taxes

When deciding how much to pay yourself, it’s important to take taxes into account. There are advantages and disadvantages of taking a payout or reinvesting in your company.

Consulting with an accountant can be a good way to figure out which tax regulations affect your type of business entity. They will guide you through how to make the most of your deductions, shareholder distributions, and any other tax breaks.

Payday

Now it’s time to plan when you will be getting paid. Scheduling your paychecks will help you manage your business’s expenses better.

Generally, companies will schedule employees’ pay on a weekly or monthly basis. Talking to your accountant can help you decide if it’s better to pay yourself weekly, twice a month, or monthly.

Having a consistent schedule can also help you manage your finances. Additionally, it will assure the IRS that everything is being accounted for since inconsistent withdrawals could potentially trigger a tax audit of your company.

Step 3: Pick a Payment Method

You also need to decide how you will pay yourself. It’s worth noting that IRS ownership compensation requirements differ depending on your type of business entity:

  • Sole proprietorship: One person or a married couple is the sole business owner.
  • General partnership: An entity with two or more business owners. They agree to unlimited liability and all of them assist with day-to-day operations.
  • Limited partnership: An entity with two or more business owners, with at least one being a limited partner. They agree to limited liability and the limited partner doesn’t assist with day-to-day operations.
  • C corporation: An independent legal entity separate from the business owners.
  • S corporation: An independent legal entity separate from the business owners; owners report revenue as personal income.
  • Limited liability company (LLC): Combines the simplicity of a partnership with the personal liability protection of a corporation.

Once you’ve identified the type of business you have, you can choose between the two main methods to pay yourself an entrepreneur salary.

 

An explanation of the difference between the salary method and the draw method that business owners have to take into consideration when setting an entrepreneur salary for themselves

The Salary Method

Paying yourself through the salary method is essentially the same as getting paid in the workforce. You’ll be paid on a regular schedule and it will be a fixed amount or based on the hours worked.

Keep in mind that, if your business is registered as a C corporation or an S corporation, you are legally required to receive a regular salary. This means it will include withholdings for Medicare, Social Security, and federal and state income taxes.

Business entities that can use the salary method:

  • C corporation
  • S corporation
  • LLC (if treated as a corporation for tax purposes)

The Draw Method

When using the owner’s draw method, you will withdraw money from your business revenue to pay your entrepreneur salary as you see fit. Instead of a regular fixed income, this allows for greater flexibility and the possibility of adjusting how much money you earn depending on your business performance.

Although you could withdraw as much as you want for your salary, make sure to account for all business expenses before doing so. Keep in mind that taxes aren’t automatically deducted with this method, meaning you will have to self-report the withdrawals and pay taxes on them. This requires more tax planning, which includes quarterly tax estimates and self-employment taxes.

Business entities that can use the draw method:

  • Sole proprietorship
  • General partnership
  • Limited partnership
  • LLC

Step 4: Consider Factors That Affect Your Compensation

After researching a reasonable compensation for yourself and considering taxes and your payment schedule, there are a few other factors to consider that may affect your compensation.

Employee Compensation

If you have one or more employees, you’ll want to consider their salary and what was promised to them. Calculate how much you will have to pay your employees, as well as if they were promised equity compensation, such as options, restricted stocks, and performance shares, or any potential bonuses down the line. This will help you have a better understanding of what you’ll be able to budget for your own compensation.

Cash Flow

Successful business owners have a clear understanding of their company’s financial reports. Before you decide your entrepreneur salary, gain more insight into your company’s cash flow, even if that means talking to an accountant.

Although your business will likely not be very profitable in the beginning, making sure your basic expenses are being covered can help you better manage for future growth.

Growth Rate

Planning for growth is important for your business to keep flourishing. With growth comes new costs, so taking a larger than necessary amount for your salary can hinder the business’s potential earnings. It’s important to take your business needs into account before building your salary, and avoid being short on money at the end of the month.

Personal Finance

One last thing to consider when setting your entrepreneurship salary is what you can afford. Taking a look at your personal finances can help you figure out how much money you need to at least cover basic costs.

Some people might not need the extra capital to pay for personal expenses, whether it’s because they have enough savings or their spouse’s salary is sufficient. If that’s the case, you could instead decide to take out the minimum amount and reinvest the rest back into your business.

Others will solely rely on this income to pay for their living expenses, so it’s important to plan ahead so both your personal and business expenses are being taken care of.

Step 5: Calculate Your Entrepreneur Salary

There’s no magic formula to calculate your entrepreneur salary. But with enough research and planning, you can indeed grow your business in tandem with your personal wealth.

Now it’s time to put all these steps into action and figure out the salary you deserve. After all, hard work does pay off.

Average Entrepreneur Salary by City

Your entrepreneur salary will vary depending on where you live due to the cost of living as well as the market’s acceptance of new and small businesses. Here are the average salaries of an entrepreneur in different cities throughout the United States:

 

City Average Salary
San Francisco Metro Area $85,500
New York Metro Area $69,500
Boston Metro Area $67,500
Chicago Metro Area $61,500
Austin Metro Area $50,000
Phoenix Metro Area $48,000
Los Angeles Metro Area $46,500
Seattle Metro Area $45,000
Miami Metro Area $36,500
Dallas Metro Area $35,500
Atlanta Metro Area $32,000

 

How Entrepreneur Salaries Compare to Similar Careers

There’s not a set salary for entrepreneurs since it varies by location and field of work — this is a fine starting point to also determine your entrepreneur salary. Pore over this list of titles across different fields to help inform what your salary should be.

 

Paying yourself as an entrepreneur can show your investors and employees that you are fully dedicated to the company, plus it’s a great reward for your hard work. Establishing an entrepreneur salary and staying committed to your personal and business finances can help you pursue your dream of owning a business, and also get paid for it.

 

An infographic serves as an ultimate guide to entrepreneur salaries, including the steps to establishing an entrepreneur salary as a business owner and entrepreneur salaries by cities and compared to other industries

 

Sources: Guidant | Business News Daily | Entrepreneurship Monitor

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Crushing Your Financial Goals Through Consistency and Transparency

Hersh, a production finance executive from Los Angeles shared with us his experience using Mint, and how it helped him to achieve his financial goals.

We love hearing about how people are leveraging the power of Mint to stay on top of their finances. Whether it’s acing your savings goals, or paying off your credit card debt, every win counts and we love celebrating those wins with you all.

Read on to learn about his #EmpowerMint story.

I downloaded Mint in 2012 and have since used it to review my finances on a monthly basis. However, I didn’t really properly start using it until 2018 when I decided to aggressively start paying off my grad student debt. 

I had around $80K of $125K loans left at the time after paying down $45K in about 2 years. Knowing it would take some effort and massive action in paying off such a large sum within my new 5 year goal, I decided to use Mint’s budgeting and expense tracking features to make sure I was staying within my means and putting every extra dollar towards paying down my loan. I needed a platform where I could see all my credit card, bank, and investment accounts in one place, and Mint provided me with that and more.

I paid off $125K in student debt in a little over 3 years with Mint’s help because I was able to better manage my finances using Mint’s budgeting and expense tracking features. I went from a 5 year goal to achieving it in 3+ years. Achieving this goal also led me to becoming a financial coach to help even more individuals pay off their student debt, better manage their personal finances and start investing. I make sure my clients download and track their expenses in Mint so they too can benefit like I did.

I love that Mint offers programs and opportunities for users to win cash towards their expenses by simply using the app more frequently. I already use the app everyday, and I find this feature helpful in spreading more financial awareness and frequency of managing our personal finances proactively.

If it wasn’t for Mint helping me aggregate my accounts and create a budget all in one place, I would have never seen my finances from an aerial view or been motivated to aggressively pay off $125K of my student debt in 3 years. It’s the one app I use everyday to track my Net Worth progress and one I always recommend to all my coaching clients.

Take it from Hersh, consistent tracking and hard work definitely pays off. Comment below with how Mint has helped you and if you’d like to share your story, reach out to us on social!

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How Much to Spend on Gifts This Holiday Season

Holiday spending can be a delicate subject. No one wants to be the least generous gift-giver in their family or group of friends, but just about everyone is looking for ways to cut back on holiday expenses.

Finding that balance requires some finesse, but determining your holiday budget doesn’t have to be a guessing game. Here are some simple strategies to find a spending limit you’re comfortable with.

How Much to Spend on Gifts

Data from the National Retail Federation (NRF) found that in 2020 the average American planned to spend $650 on gifts for family members, friends and coworkers. Other data from 2020 showed that the average consumer spent $850 on gifts.

While the right amount to spend will differ based on your income, cultural norms and other factors, a basic rule of thumb is to spend between $50 and $100 on a gift for a family member and between $20 and $50 for a friend. Buying a gift for a coworker, like an assistant or a boss, usually runs between $20 and $50.

How to Determine Your Gift Budget

Trying to figure out how much to spend on holiday presents this year? Use the questions below to help you choose the right amount:

1.   How Much Do You Currently Have in Savings?

To determine your holiday budget, look at your checking and savings accounts to see how much you can allocate for holiday gifts. Don’t spend your rent money or decrease retirement contributions; just use what you already have that’s not earmarked for another upcoming event or expense.

If you have any gift cards or rewards points, you can add those amounts to the total gift budget to reduce the impact on your budget.

2.   Are You Getting any Windfalls Soon?

If your employer doles out Christmas bonuses to employees, you can allocate those funds toward gifts. One possible hiccup in this strategy is that your employer may suddenly change or eliminate their bonus policy (like what happened to Chevy Chase from “National Lampoon’s Christmas Vacation.”)

A safe strategy is to spend 50% of last year’s bonus on gifts. If you end up receiving more, you can top off your gift budget or just save it for next year’s holidays.

3.   How Many People are You Shopping For?

To draft a gift budget, write down everyone you’re buying a gift for. Start by only listing those who will definitely get a gift, like your parents, significant other, siblings, nieces and nephews. Include any mandatory gift-giving events like your office’s white elephant exchange or your book club’s Secret Santa party.

Next to each person’s name, write how much you plan to spend on each gift. Add those figures to come up with a total. That will be your basic gift budget. If you end up having more money to spend, you can make a second list of other people you want to shop for, like close friends or neighbors.

4.   What Are Your Other Holiday Expenses?

Most of us think spending money around the holidays only means buying gifts, but don’t forget about other expenses like travel, holiday parties and decorations. If you’re flying home, you might easily spend more on airfare alone than on gifts.

Pro-tip: Use Mint’s travel budget calculator to help you plan your holiday trip.

5.   What are Your Upcoming Expenses?

Before you drop hundreds on holiday presents, look at credit card and bank statements from last year to see if you have any major upcoming expenses like a biannual car insurance premium or annual vet check-up.

If you’ll be able to comfortably afford those costs along with your planned holiday spending, then you can rest easy. If not, you’ll need to trim your holiday budget to make room.

Don’t Succumb to Peer Pressure

No one wants to be considered cheap – especially by their closest friends and family members – but here’s something to keep in mind. In 2020, about a third of Americans borrowed money to pay for the holidays. So while it may be tempting to go over budget to match what your friends and family members give, consider the possibility that they might be going into debt to pay for it all.

If you lost your job, were furloughed or incurred costly medical bills this year, don’t feel pressured to spend as much as you normally do. Your loved ones will understand that your budget priorities have shifted and that you need to cut back.

Start a Sinking Fund

If planning for holiday shopping stresses you out, consider starting a sinking fund to make next year easier. A sinking fund is a savings account designed for a specific goal, like holiday gifts, car repairs or vet bills.

When you set aside money every month for a sinking fund, you’ll have enough to cover whatever you’re saving for. Here’s how it works. Add up how much you want to spend on holiday gifts and divide that by 12. Then, create automatic transfers for that amount from your checking account to a savings account reserved for holiday gifts. When the next holiday season rolls around, you’ll already have the money you need.

Talk to Loved Ones Before You Shop

If you’re unsure or insecure about your gift budget, consider bringing it up with your family members and friends. They may be one of the millions of Americans who use a credit card or personal loan to pay for the holidays, and floating the idea of spending less might be the best gift you could give them.

You can also suggest a Secret Santa gift exchange where each person buys one gift instead of several. This works best with large extended families and friend groups, because most people don’t really want to shop for a dozen people.

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