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2 Basic Personal Finance Fundamentals That Don’t Change

I like keeping up with basic personal finance fundamentals, learning about them, keeping up with trends, applying them and talking about them.

There are various levels within this subject matter, and as I have seen the trends change over time given the introduction of new products and services, the basic personal finance fundamentals have not changed and arguably will never in the future.

I also follow several “experts” in the personal finance field such as Dave Ramsey and Suze Orman, and have noticed no change in the underlying fundamentals of what they teach and preach.

It is overwhelming for me to observe the number of individuals that reach out to these professionals for help, and how the core of the responses mostly boils down to two basic concepts:

2 Basic Personal Finance Fundamentals

1) Save more and spend less, or spend less than you make

What’s the difference anyway?

2) Develop personal discipline to save steadily and consistently over time

These two are IT and it frankly doesn’t get much simpler than that.  Sure there are ways to expedite building wealth, strategically cutting corners and developing advanced “money smarts”, but I consider all these icing on the cake.  Change starts from within, and the discipline, or commitment to saving is most core or fundamental to changing our financial situation.

Some may say basic personal finance is common sense, and I would agree that it is. Yet so many experts are making a very good living reiterating the same message in different variations.

Many blogs online are doing very well discussing personal finance. Maybe it is not common sense after all? I do know however that these basic personal finance fundamentals were true yesterday, are today and will be tomorrow.

The subject of personal finance is not rocket science in my opinion.  Yet we have a hundreds of personal finance blogs because millions have no control or poor control over this important aspect of their lives.

Readers: Am I out of line in my rationale?  How has your view of basic personal finance changed over the years?  What contributed to that change? How would you further simplify the fundamental message behind personal finance to someone new to the topic?

A List of Tax Benefits of Starting a Home Business & Getting Ahead in Life

I have always believed that starting a home business is the best tax planning strategy and because the biggest expense in our lifetime is the income taxes we pay, thus the best way to get ahead in life.

If you are an entrepreneur operating from your home, don’t be shy to claim the rightful tax deductions you are entitled to.  While this article is specific to the United States tax code, most income taxing jurisdictions follow the same general theme, favoring businesses over individuals from a taxing perspective.

If you are a blogger, internet marketer or an online business owner of any sort and work out of your home for at least part of the year, consider taking advantage of the tax benefits for starting a home business.

This article is also inspired by a woman’s story I read in a magazine yesterday while getting my hair cut.  In the story, the woman opted to start a home based babysitting business so she could raise her daughter and not have to send her to a day care.

Here are some of the ways how starting a home business led to significant tax advantages for her family:

Home Office Deduction

Most business owners, part time or full time are afraid of taking this deduction because they fear being audited by the IRS.  That is rubbish. Make sure you take this deduction if you are starting a home business.

First of all, merely claiming a home office deduction is not a red flag in itself. Second, even if it was, what do you have to be afraid of? I have been audited by the IRS multiple times.  I have never had to pay additional taxes, fees or penalties. In fact, I ended up getting more money back on two occasions, plus an apology for wasting my valuable time.

When you are operating a home business, you are entitled to deduct a portion of your rent or mortgage payment, as well as other bills that pertain to operating your home such as security systems, phone bills, cable TV, yard maintenance, property taxes, etc.

Medical Expense Deductions

When you have a home based business, you can take advantage of medical expense deductions through a reimbursement plan adopted by your business.

Most medical expenses such as cosmetic treatments, braces and LASIK surgery fall under the “non reimbursable medical expense” category. Not if you operate a home business however.

With a medical expense reimbursement plan, you can employ your spouse and their children (therefore your children) and cover expenses like braces, LASIK and routine purchases at the local CVS or Wallgreens pharmacy.

You can read more about taking advantage of the medical expense deduction that is available to you when starting a home business.

Vehicle Deduction

Usage of your personal vehicle for your home business related tasks is also fully deductible under the tax code.  When you use your vehicle for business, such as picking up and dropping off people or stuff, or making business related purchases, meeting clients for lunches, you qualify for the vehicle deduction when filing your taxes.

You can either claim the deduction by stating the miles drive attributed to business  use, or actual expenses incurred as part of doing business.  The prior is the easier method which most people opt for, but make sure you optimize your vehicle deduction as much as possible by analyzing actual costs.  Many people leave far too much money on the table by opting for the easier route.

Meals, Entertainment & Travel

Meals, entertainment and travel expenses incurred in the name of business are also deductible.  Starting a home business doesn’t mean you are always at home.  For example, if you took a family trip (say a vacation) somewhere exotic and decided to spend a few hours conducting business, you can officially deduct a part or all of your trip’s expenses as a business expense.

Meals and entertainment expenses picked up while in transit during business hours, or wining and dining clients are also deductible.  Make sure to keep all your receipts. Better yet, use one credit card for all business related expenses.

Retirement Plans

A typical W2 employee can usually stash retirement cash away in a 401k plan and an IRA (Individual  Retirement Account).  The limit for each as of the time of this post is $16,000+ and $5,000 per year.

As a home business owner, you are entitled to a more aggressive deferred tax plan such as the SEP plan.  As of the time of this post, you are allowed to pump up to $46,000 into that account.  Oh yeah!

Other Cost Savings of Starting a Home Business

One of the most interesting benefits of operating a home based business in my opinion are the ancillary savings that result from you simply operating from home as opposed to driving to an office space to work.

For example, if you have children, you may be able to save on day care expenses, which is the largest expense after rent for many families. In some cases, it is just as much if not more than the rent they pay!  You save on gasoline bills.  You depreciate your car less. If your route involves toll charges and parking at work, you get to avoid all those, and then some.

You don’t have dry cleaning bills because you no longer have to wear that freshly cleaned and steam ironed shirt to work.  You avoid spending 200% more on lunches because you have to dine out. Can you think of more collateral benefits of simply working from home?

Concluding Thoughts on Starting a Home Business

I understand that these benefits pertain specifically to those who primarily own their own business.  However, thes advantages of a starting a home business apply to those working full time and running a side business (read why you should!) at the same time as well. That said, all of the above are just a handful of benefits of operating your own business. There is a lot more to it that is well worth looking into.

Although the example in this article is specific to babysitting, it really applies to any home business.  For example, this can apply to tutoring, data entry, transcribing, bookkeeping, blogging, Internet marketing and all sorts of other home based businesses.

This post also further reinforces why owning a side business is the best tax planning strategy, and yet one which a majority of Americans either don’t know about, understand or don’t act upon (some just don’t want to for various reasons).

Readers: Are you taking legal advantage of the tax code? Or are you giving away more than half your income away to uncle Sam?  How do you file your taxes?  Do you hire a CPA? As entrepreneurs who work from home, do you feel you need more guidance or assistance in ensuring that you are maximizing your tax benefits and legally paying the least amount in income taxes?

How I Made $4,220 FREE in Just 2 Hours from Credit Card Points Redemptions

I made $1,110 per hour, or $4,220 total for 2 cumulative hours of credit card points redemption. I want to share with you how and the nitty-gritty details in this article.

I am super excited to write this post because I couldn’t believe how much extra money I made from credit card points redemption when I sat down to tally the total last week.

Companies of all kinds offer of all types of credit card perks these days. Whatever you are into, traveling, shopping, eating, and even FREE CASH, chances are there is a credit card company willing and able to give you exactly that.

I mean who would turn down extra money? Especially when it is free!  Most people use credit cards anyway.  Most people also have ongoing bills to pay on a month to month basis anyway, so why not earn some extra cash in the process of doing what you do anyway?

Breakdown of My Credit Card Points Redemption Activity

AMEX American Airlines – 75,000 miles ($750 monetary value)

AMEX American Airlines – 75,000 miles ($750 monetary value)

My Citi Premiere Thank You 250 – $250

My Wife’s Citi Premiere Thank You – $250

My Chase Southwest Card – Free Ticket ($250 monetary value)

My Wife’s Chase Southwest Card – Free Ticket ($250 monetary value)

My AMEX Starwood Card – 10,000 points ($250 monetary value

My Wife’s AMEX Starwood Card – 10,000 points ($250 monetary value

My Chase Saphire Card – $500 Cash back

My Wife’s Chase Saphire – $500 Cash back

Miscellaneous – $220 (I’ll explain below)

GRAND TOTAL: $4,220

Cumulative Time Investment: 2 Hours (application, activation, modification of online bill pay records, award claim / credit card points transfers, deactivation)

Hourly Income: $1,110 (Wonder if I need to claim for income tax purposes?)

What we missed out on which I would do anything to claw back on:

100,000 Miles Chase British Airways Giveaway ($1,000 monetary value)

Note: These credit card points promotions may or may not be active as of this post. The estimated monetary values for the non monetary redemptions are ultra conservative. True cash value may be mush more than disclosed.

How I Responsibly Abused These Credit Card Points Programs

Working hard to establish good credit pays off. Having good credit and not needing it pays off even more.  This is an important point because doing what I did would’ve hurt me had I needed an auto or mortgage loan at the time I was abusing these credit card points programs.

The liberty to royally abuse at will is yet another benefit of being debt free. Stated better, money saved is money earned, and though the dynamics between saving and earning are different, the bottom line impact is the same.

This is why I pursue these credit card points promotions. The personal finance beast in me brought about this craze. The numbers junkie in me is looking at pure ROI. How much can I benefit and what do I have to give up to get it? Sure, it’s not passive income, but it’s a darn good effective hourly wage.

Each time a credit card points promotion that intrigued me came up, I signed up for it, met the minimum spending requirement (typically you have to spend a total of X dollars within the first Y months of getting it). Each time I met the requirement, I signed up my wife for the same credit card. Not sure if our different last names helped the process of getting approved?

Each time we both met the criteria for a particular credit card points promotion, we moved on to the next one.  We simply rotated from one to another one at a time, thereby avoiding the chance of rejection due to excessive credit limit or capacity outstanding. I know because I eventually got rejected from the biggest credit card points promotion program. I missed out on 100,000 miles from British Airways. Nooooooooo!

What to Keep in Mind When Playing the Credit Card Points Promotion Game

In my experience, there are three key things you have to keep in mind if you want to capitalize on similar promotional credit card points programs.  I will go over each briefly.

Annual Fees – Some of the credit cards I signed up for had annual fees while others did not. For the most part I don’t believe in paying annual fees on credit cards. That said, the ones that had them were waived for the first year. Knowing that I’d meet the spending minimum in less than a year, I knew I wouldn’t be paying annual fees.

Credit card companies are fighting for the best customers.  Because of this, they will try to keep your business when you get around to canceling your credit card (after you have met the minimum and redeemed your credit card points). When this happens, you need to be respectful but very firm. You need to close the account and move on to the next one.

There are some exceptions to this. Often times credit card companies will try to keep you buy extending you additional perks such as an $85 credit when you use your credit card for at least three more transactions.  This happened to me.  The $220 miscellaneous that you see above is a composition of two $85 credits with American Express and one $50 credit with Citi I believe.

Credit Score Impact – I mentioned above that this won’t work when you plan to borrow money or utilize your credit.  When you open and close all sorts of credit cards on an ongoing basis, there will be a short term negative impact on your credit score resulting from the inquiries. However, this should normalize relatively quickly. This game is definitely not for everyone, especially when you are close to a big ticket purchase on credit.

To demonstrate the impact of a temporary hit on your credit, I was denied the grand daddy of all credit card points promotions, the 100,000 miles British Airways giveaway.  I guess Chase figured out what I was up to and slammed the door on my face. Oh well…

Discipline and Organization– Finally, discipline and organization is important because as you pile on the promotions, things can get scattered and somewhat overwhelming.  I always maintained a spreadsheet that detailed the credit card points program I was signed up for, as well as various milestones such as spend limit, date I met the limit, award request, award receipt, account closure etc.

Each time I updated the spreadsheet, I emailed myself a fresh copy and deleted the older one. In addition to a master spreadsheet, I religiously set calendar reminders online as well as on my phone to ensure critical milestones were met on time.

Concluding Thoughts

Sounds fun and dandy doesn’t it? Not if you own a business and take credit cards for customer payments.  The business side of this equation is dark. As a small business owner who takes credit card payments, I get to see the other side of this game.

If you are wondering how credit card companies are able to fund such an expensive campaign, don’t wonder anymore because they are not. It is the business who swipes the customer’s credit card who is paying up da wazooo.

A business that swipes a high credit card perks card as form of customer payment also pays higher credit card fees for that transaction. Ever wonder why some stores don’t accept American Express or Discover? Those credit card companies have some of the most lavish credit card points programs out there, therefore resulting in higher fees for the merchant.

There are some new regulations around the corner that give retailers a choice when it comes to accepting credit cards by essentially allowing them to discriminate what credit card to accept. But think about this for a moment.  Would a retailer really exercise the right to discriminate at the expense of a lost sale? Likely not, I know I won’t. Gotta love how the double edged sword works here.

But as a consumer, fret not, there are a ton more credit card points programs on my target list and I am inching closer to each and every one of them.

Note: I am not advocating you do this for yourself, nor am I disseminating any advice. This article is a recollection of my personal experience with credit card points redemption programs. Each one of us decides what’s best for us.

Readers: Have you royally abused credit card points programs like I do? What are your thoughts on this method to make extra money?

 

Here are my additional thoughts on earning credit card points for doing what you already do anyway.

Here is a Business Idea: If you are developer who can come up with an application where a user inputs all their personal information once and have the application interface with various vendor bill pay systems, then there might be an opportunity here for you. There are many individuals like me who like to take advantage of credit card promotions. How about enabling them to change their credit card payment information to all the vendors they pay online much easier than having to go into each account manually and making the change? I’d happily pay $25 for this application. Something to think about? I’d be happy to discuss further if you are interested…

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