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Month: November 2018

Explaining The Income Statement

Explaining The Income Statement

The nature of the income statement is that it is a reflection of operations over a period of time, i.e., “for the month ended June 30, 2006”, or “for the year ended December 31, 2006”. This is different from the balance sheet, which reflects a certain point in time. Income statements contain what is known as “temporary” accounts and the balance sheet contains “permanent” accounts. Temporary accounts such as sales revenues and expenses are “closed out”, net income/loss is determined and this net amount ends up in an owner’s equity account. The accounts are closed at the end of one period, reopened and reused for the next period.

The income statement is revenues less cost of goods sold, less expenses, equals the net income or loss. Revenues are the sales of items normally sold in your business; what are you selling? Do you sell goods? Do you sell services? It is the selling price times the number of items sold. Sales are usually shown as net sales and some adjustment to sales would include sales discounts, sales returns and allowances.

If the business sells goods, the next part of the income statement would be the cost of goods sold section. If the business sells services, it won’t have this section. Because this is such a large part of expenses for a retail establishment, while it is an expense, it is broken out separately from other expenses. The business will need to know how much inventory it started with and how much inventory it had during the end of the period. Additionally, it will need to know how much inventory was purchased during the period. There are a number of ways to value inventory, such as Fifo (first in, first out), Lifo (last in, first out), average cost, specific identification, etc. Since we are taking a high-level glance at the income statement, it is just important at this time to note that, because of subjectivity of inventory methods, this can be more of an art than a science. Beginning inventory plus goods purchased equals goods available for sale; goods available for sale minus ending inventory will give you the cost of goods sold.

Expenses are outflows of cash necessary to the operation of the business. Some expenses are easily identified, such as rent or mortgage, utilities, office salaries, supplies, etc. and these are referred to as selling and administrative expenses. Selling expenses are costs related to selling goods, such as the salesperson’s salaries, shipping, freight, advertising, etc. Research and development costs are also valid expenses. If you own the building, vehicles, or equipment, there are depreciation costs. That just means if you own an asset that lasts for a couple of years, you can write off part of the cost of that asset as a depreciation expense for a certain number of years. Like inventory costs, there are a number of ways to subjectively determine depreciation, such as straight line, accelerated depreciation methods, etc. so there isn’t just one possible answer to determine depreciation costs.

To determine net income or loss, you take revenues minus cost of goods sold minus expenses. If this number is positive, it is net income. If this number is negative, it is net loss. This amount is closed to an equity account, such as an owner’s capital account for a sole proprietorship or stockholder’s equity for a corporation.

Expenses and/or income outside the realm of usual business operations should be included in its own separate section. For example, the business is a shoe store and they sell one of their buildings or part of their vacant lot, which creates an inflow of money. This is not what you would expect a shoe store to do. In order to make income statements comparable by year, this special income will need to be shown in a separate section above net income.

Budget Money Carefully

Budget Money Carefully

Always Be Aware Of How Much Money Is In Your Bank Account

Most banks will allow you to see your statement online. This is very useful as it allows you to access how much money you have in your account at all times. You should always be aware of how much money you have so that you know how much you can spend. Financial problems often occur when people spend money and are not aware of how much they are spending and how much money they actually have to spend. The main takeaway from this method is always be aware of how much you have available to spend.

If You Use A Credit Card, Always Check Your Statement Online At Least Once A Week

Most Americans probably own and use a credit card whenever they make purchases, either because it’s convenient and/or because they can get reward points for it. Most Americans are probably aware of the countless stories and articles about credit card debt. However, most credit card debt could be avoided if one pays attention every week to their credit card statements every week.

Whenever I look at my credit card statement every week, I can see how much my balance is as well as what I am spending my money on. When you take a look at what you are spending money on, you can see what expenses you are acquiring that are not always necessary such as eating out or buying things you might not need. It is always important to keep track of your purchases so you can understand where your money is going and if you are making purchases that you can try and trim down a little. The main takeaway from this method is always be aware of how much you are spending.

Maximize Your Savings

Maximize Your Savings

Money- the means of our livelihood

Over the years, due to several reasons like recession and inflation the value of money has only increased and this trend is likely to continue in the foreseeable future. However, its abundance is unlimited, not everyone is entitled to be a millionaire in their lives. Unless you inherit it from your ancestors, you have to earn every penny.

It’s one thing to earn money and another to keep it

With the right experience and talent, anyone can earn money but the toughest part is to save them. Every individual is subjected to some kind of temptation or the other which they like to indulge in now and then. This is mainly the reason why most people fail to save a substantial amount in their lives. Yes, the basic reason to earn money is to support our standard of living but it’s not the end of it. You are not going to earn forever; there will come a time when you have to retire and this is the period when you will require money the most. It can be frustrating time for you if you do not have any savings which is why it is imperative to take necessary steps in ensuring that your future is secured.

Important things you should consider now to ensure a better future

  • Curb your expenses: We are all tempted to spend our money on things we like which is why it is necessary to curb your expenses from now on. Stop spending on something which you won’t use much or is likely to be perishable in the near future.
  • Plan your monthly budget: For salaried employees, it is vital to plan their monthly budget. This budget should include food, maintenance, bills and other miscellaneous expenses.
  • Use banking services: One of the best ways to save money is to deposit it in banks. You can choose any kind of account from fixed deposit to current to savings.
  • Investment: Though it’s a bit risky, you can expect higher returns by investing in mutual fund, real estate, shares and other mediums.
Pension Crisis

Pension Crisis

In reality, if you want to have a comfortable life after retirement and you wish to be independent rather that dependent on your children, it would be best that you start preparing for that phase of life early enough. It helps to have savings and investments to back up your pension and any social security benefits you are entitled to. You can only say that you are ready for retirement when you have much more than pension to look up to for that comfortable living. Fortunately, it’s never too late to start preparing for retirement; there are so many small changes you can make today in preparation for a good retirement.

When preparing for retirement, the first thing you should think about is a personal savings reserve. This will save you from rising living expected that can render your pension insufficient. You also need to remember that social security and pension benefits can only cater for up to 60% of your needs and hence the rest would need to come from income or personal savings.

The other thing you must start thinking about is your health. Remember that as you age, you become more prone to illnesses and they can cost you quite a bit of your pension and savings that you have. Start adopting a healthy lifestyle today and you will have a long life with fewer health issues to worry you and your finances. The last thing you want to do is to run out of money in your last days when you actually need it the most so make every possible plan today to secure that future.

Start reducing debt and as much as possible, avoid getting into any new debt. This is a great approach, especially if you are a decade or two from your retirement. Paying off your debt early before retirement secures you from worrying monthly bills when you retire. Get your debts together and come up with a strategy to start paying them and get your expenses in line so you are able to avoid incurring any new debt.

As far as social security goes, it is advisable that you don’t start collecting your benefits until it is absolutely necessary. These are tempting benefits because they can be enjoyed even before retirement, but it is best that you delay the collecting for as long as you can so you can use them when the need arises. The longer you delay, the larger the monthly check.

New Year New Financial Plan

New Year New Financial Plan

There are a few simple steps you can take on your own to improve your financial situation. The obvious one, of course, is to get control of your spending. While that seems simple enough, it’s surprising how overwhelming this can seem. So start with the basics. Make a list of all your required monthly expenses; not your wants, but your must have’s. Include things such as:

  • Rent or mortgage payment
  • Home or renter insurance
  • Property taxes
  • Utilities including hydro, phone, internet, tv
  • Auto insurance
  • Fuel and/or bus pass
  • Food

Once you’ve calculated all your required expenses, subtract that from your net income for the month. Now you know what you have to put aside every month just to get manage your obligations and how much you have left to make decisions on. From here, set an entertainment budget. In the days of digital currency, it’s easy to tap your bank card into debt. One tip is to withdraw your entertainment money in cash on every pay date and then store your bank card. Once the cash is gone, you know you need to find free entertainment options.

Now that you’ve covered the basics, it’s time to think bigger picture. What do you want your money to do for you? The options to achieve your goals are quite vast and you want to make sure you’re making the responsible choice to attain them. If you’re looking at larger purchases or long-term financial planning, this might be the right time to talk to a professional. Financial Planners are able to look at the entire picture and present the best options for your dollars. Not only is it okay to ask for help, it’s the first step in the progression of the new you.

Get Your Free Credit Rating Online

Get Your Free Credit Rating Online

Your report will then be used by a new lender to make a final decision on your credit application. For example if you make a credit application for a new credit card. The credit card provider will first obtain your report from one of the three agencies above and take a look at the information it holds. It is primarily this information that will influence the lenders decision to approve or decline your application. However it also has secondary effects. For example your lender may decide that you can be approved, however due to a negative entry, they are only prepared to offer you the credit with a higher interest rate. This means that the information found on your credit report will directly affect the amount you will be repaying.

Many individuals are now beginning to realise the importance of checking their credit reports to ensure they are accurate, fair and up to date. In 2007 it was reported that 7 in every 10 credit reports requested were found to have an error of some description. This could be a simple case of a misspelled name or incorrect zip code, or it could be something more serious such as an account that you do not recognise! This is often a sign that you are the unfortunate victim of identity theft, so the faster you identify any dubious entries, the better.

It is also important to realise that you do not have just one credit report. In fact you have a credit report with each of the three bureau’s – Experian, Equifax and TransUnion. Although each of these should contain exactly the same information, in reality this is not always the case. As each of the bureau’s is responsible for collecting their own data, you may find inconsistencies or even different entries altogether! This is why it is crucial to obtain a copy of your credit report from each bureau. Not only will this allow you to see the bigger picture when it comes to lending, (as you won’t know which bureau will be used by your lender!) but it will also allow you make certain all of your reports contain the same accurate, up to date information.

Budget Can Pay Off

Budget Can Pay Off

  1. Let you decide. When you allocate dollars as part of a budget, you give yourself a chance to be thoughtful about where your money is going and to make adjustments, if needed. For example, if you are shocked by how much you’re spending dining out or buying new clothes, you can curtail spending in those areas. Ultimately, knowing your spending patterns gives you the power to put your dollars toward the things that mean the most to you, and help you reach your long-term goals.
  2. Take the pain out of daily decisions. Daily temptations to overspend become easier to navigate when you have a framework and guidance in black and white. Setting a budget equips you with the power to say “yes” or “no” to a purchase without guilt. You’ll be able to see what’s within your price range and get a clear view of how each purchase will impact your savings plan. The more specific your budget is, the better.
  3. Make it easier to see the value of every dollar. When you’re cavalier about your spending, you’re discounting the effort it takes to earn money. In contrast, when you consider everything that goes into earning a paycheck, and the expenses you’re incurring for your home, food, clothing, entertainment and so on, you’ll have a clearer picture of your daily financial life. It’s also important to consider the potential long-term benefits of investing some of your hard-earned savings. It’s likely this will you’ll bolster your resolve even more.
  4. Help you make larger financial goals possible. Large purchases can seem out of reach when you’re not tracking your spending patterns. Creating a budget gives you a roadmap to follow, making it clear what trade-offs are possible if you’d like to reach your goal sooner.
Budget-Friendly Holiday

Budget-Friendly Holiday

Holiday Decorations: Many families have wonderful gently-used holiday decorations that for whatever reason they’ve decided to part with. They could be choosing to do this as they wish to change their holiday color scheme, down-size their load of holiday decorations or–like a lot of people I know–have always purchased more than they can reasonably use and only find this out close to the holidays. So help a family out by purchasing their still very good condition decorations instead of brand new.

Games, Toys: There are an incredible amount of games and toys out there that only get used one or two seasons and then are stored. Someone could be choosing to sell a used holiday item because of lack of interest on the child’s part of merely because children regularly change their interests. But should all those items end up in landfills? No. They could make beautiful gifts for another child and have a new life as a re-purposed item.

Clothing: Who out there doesn’t buy clothing in some way shape or form for their children for the holiday? Why buy brand new when there are so many families whose children outgrow them in a matter of months? These items are still in great shape. They still have those beautiful, expensive, brand-name labels as your kids are looking for, but they come with a price tag that won’t make you feel that you have to take out a loan to pay for them.

Top Financial Tips for Millennials

Top Financial Tips for Millennials

Are you a millennial who feels overwhelmed trying to manage your finances? Are you getting the most out of your money? Financial literacy is not often taught in schools and they don’t do a great job preparing their graduates to manage their finances. So when you’re out of college and start real life, it can be a little overwhelming and it is easy to get yourselves into debt and other financial trouble.

Personal finance

Most millennials are currently in their 20s and 30s – a time when many young people are ready to make major financial decisions in their lives, like home ownership, long-term investment activity, etc. If you’re currently a part of this generation here’s your crash course on what you should do to improve your financial wellness:

Take online financial courses

Since most young adults have the propensity for technology it is suggested you take a few basic online courses in economics, accounting, and any other financial topics that may be of interest to you.

Embrace Technology

When it comes down to managing your money there is probably an app. To help you do that. These apps. Can categorize your spending habits and help you manage your spending. These insights can help you save money each month and then transfer that money directly to your savings. Online financial apps can help you make a workable budget for your lifestyle and ultimately change your net worth.

When it comes down to managing your money there is probably an app to help you do that. Mobile apps like Clarity Money can help you track any wasteful spending habits. Digit and Stash can recommend where you can save money each month and then transfer that money directly to your savings. Online financial apps can help you make a workable budget for your lifestyle and ultimately change your net worth.

Examine Your Current Bank Accounts

Are you paying fees? If so, for what? Monthly maintenance and minimum balance fees should never be a fee on your account statement. Free checking accounts are available, especially at credit unions and these accounts will help you keep more of your own money in your pockets. So don’t settle for anything else.

Build Your Credit and Understand the Impact of your Credit Score

Early on, you may only have a student loan or a credit card on your credit report. But now it’s time to start building your credit. Ask your credit union about a Credit Builder Loan to help jumpstart your credit. And if you already have some active loans, make sure you’re making payments on time every month. You’ll need that good credit history when you want to make big purchases in the future like a car, rent an apartment, or get a mortgage for your first home.

It’s also important to know that if you are planning on opening up a business your personal credit may be the defining factor in your ability to access necessary working capital.

Repay Debt Tactically

Since we are on the topic of credit, a lot of young adults have credit cards with very high-interest rates. Focus on paying off those debts first! If possible, transfer those balances to a lower-rate credit card. It’s much easier to pay down debt when more is going toward the balance.

Track everything to obtain your whole financial picture

Just as businesses manage their cash flow, individuals need to do the same by tracking their income, expenses, assets, and liabilities. There are many online tools to help you like Mint, Quicken and Personal Capital.

Build an Emergency Fund

Unplanned/unfair/unfortunate events can happen in the blink of an eye. You may get in a car accident, have unforeseen medical expenses or lose your job. That’s why it’s important for everyone to have an emergency fund. The best way is to set up an automatic savings plan where you pay yourself first by depositing a portion of your paycheck into a separate savings account. If you forget it’s there you won’t be tempted to spend it.

Create a Long-Term Savings Strategy

An emergency fund is a short-term strategy, but you also can’t forget the big picture. Does your employer offer a matching 401(k)? If so, be sure to take advantage of that opportunity. It’s fundamentally free money, and it’s an investment in your future.

Get yourself a financial mentor

Even though there is an overabundance of information and apps on the Internet to help with your financial security, it is far superior to pick the brain and bounce questions off a trusted friend or colleague. Their pertinent insights will most likely be tailored to your specific requirements.

Use these financial tips listed above to get your finances on track while you’re still young. You’ve got a bright future ahead – so start now and stick with it. Your financial well-being will thank you! Although these tips are targeted at millennials, they’re useful for all ages.

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About Debt Strategy That Works

About Debt Strategy That Works

Every once in a while there is an article floating around about using your home equity to invest in stocks. Home equity loans cost more than first mortgages, and are often adjustable in rate. Your paying interest on money to earn you interest. For example, if you are paying 12% to the bank, but making a return of 13%, is it really worth it. You are only 1% ahead. You should save your home-equity for other things, such as home improvements or emergencies. The key is to let your equity remain in your home. That way, if you sell, you have more to put towards your next home.

A lot of new college grads complain about student loan debt. I will admit, it is awful. But a lot of people say that you should wait and pay it off last. I actually agree — if your rate is low enough. During the first five years of repayment, the interest may be tax deductible. You are better off saving or putting money into an investment. For example, I have an interest rate of under 3% on my student loans. I’m paying them off as the last thing, because they are my lowest interest rate loans.

And, of course, you should pay off all of your credit cards as soon as possible. There is nothing useful to this debt. Often, it goes to buy little things that add no real value to your assets. Dinner, vacation, clothes and groceries are things that don’t make you more wealthy. Cut up the cards if you can’t help but charge on them.

Sit down and write out a plan for getting out of debt. The debt strategy that works is taking every debt and listing it in order of payoff. Just go down the list, paying things off. I like to start with the highest interest rates. This means you spend less in the long run. Others suggest starting with the smallest debt, as it brings faster gratification. Whatever works for you is fine. Just make sure you include every debt to your list. Save your mortgage and student loans for last. Get to work. Pay it off and get on with your life.