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Credit scores are one of the most elusive calculations to Americans in the modern financial world. Up there with income taxes in their complexity, understand one’s credit score and how it rises and falls is a common frustration for businesses and families alike.

Primarily citing the FICO score, used in over 90% of all credit and lending calculations, the factors that affect one’s credit score are broken down into five primary data points, each with their percentage of how much a score based on one particular point. This post is the second of a five-part series:

Balance Owed:  30%

This factor can be very misleading. Many assume if a decent sum of money is owed, one’s credit score must be low.

However, lender are much more interested in the percentage of credit being used, as opposed to the raw total. For instance, two individuals might be carrying the same amount of tangible debt, say $3,000 on a credit card, that does not mean their respective credit scores are affected the same way.

If person A owes $3,000 on a $5,000 credit limit, that will not have near the negative effect of an individual who carries $3,000 in debt on a card that maxes out at $3,000. Creditors want to see that credit users are not over-extended in their borrowing; that leads to late payments and non-payments, which refers back to the primary issue of consistency.

This is good news for households who do carry debt, but still have some credit to their name. Many people with very high credit scores do in fact have debt against them, but that amount of debt simply is not an overwhelming percentage in comparison to their total available credit.

Word to the wise:  Avoid maxing out credit cards; that show’s lenders you are over-extended, and prone to mispayment.

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Credit scores are one of the most elusive calculations to Americans in the modern financial world. Up there with income taxes in their complexity, understand one’s credit score and how it rises and falls is a common frustration for businesses and families alike.

Primarily citing the FICO score, used in over 90% of all credit and lending calculations, the factors that affect one’s credit score are broken down into five primary data points, each with their percentage of how much a score based on one particular point. We’ll start with the most pressing, and work our way down:

Payment History:  35%

Yes, you read that correctly. 35%, nearly half of the entire credit calculation, focuses on payment history. The single most important factor affecting one’s credit score is whether or not credit payments are made on-time, and in full.

Above all else, creditors care about getting paid. Like any investor, as soon as consistent payment cannot be guaranteed, just about everything else tends to fall through. Consequently, the best way to boost a credit score is simply to do everything in your power to pay in a timely manner, and the full required amount.

There is good news regarding this factor. Because creditors are looking for consistent payment, scores do not drop tremendously on a single missed or late payment. Credit card users can rest assured that a single mistake or accident in paying their bills will not destroy their credit rating. With that said, as soon as two or more mispayments occur within a relatively short period of time, scores are likely to tumble in a hurry.

Word to the wise: To boost credit, the single best thing to do is consistently pay debts on time.

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Debate goes back and forth between financial experts about the best ways to pay off debt. In particular, how individuals, families, and businesses pay down credit card balances is of particular interest.

The basic premise of the argument is between whether paying off the largest debt first is ultimately more beneficial for the debtor, or if starting with the smaller debts first is the better option. The two discussion points are expounded upon below:

Option 1: Paying the larger debt first lowers the amount of interest paid, and therefore is more cost-effective

Let’s use a fictitious example of an individual consumer named Jim who has his spending under control, and has started paying off his debts. Jim has accumulated $6,000 in credit card debt, $1,000 on card A, $2,000 on card B, and $3,000 on card C. We’ll also assume the interest rates on these three cards are the same (although that wouldn’t have to be the case for this discussion to be viable…even with heavier rates on the larger cards, the ideas remain the same):

Proponents for Option 1 would use a mathematical approach, and clearly dictate that larger balances incur larger amounts of interest owed, and therefore to save money, one pays the largest balance first, and let the smaller balance incur the lesser interest.

Option 2: Paying the debts from smallest to largest encourages the debtor to continue paying off their debts

Dave Ramsey is one example of a proponent for Option 2. He posits that the hardest part of paying off debt is being consistent, and the hardest part of being consistent is not seeing the fruits of one’s labors. Although larger debts obviously incur more interest, an argument can be made that paying the larger amount does not in fact save money in the long term, because by paying the smaller debt off much quicker, that money that would have been spent paying interest can go towards paying off more debt.

 

We hope you enjoyed this blog post! For any accounting or bookkeeping questions, call us at (480) 467 3475 or visit bookkeepingvalleywide.com!

 

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For many, ‘investing’ is a word that means success, prosperity, and financial strength, but besides that, is quite foreign. Investing is something that smart, wealthy people do to make more money than the average person. It brings people to mind like bankers, real estate tycoons, Fortune 500 CEOs, and stock brokers. Unless one finds themselves employed in one of these fields, learning how to invest can seem like learning an entirely new language.

However, we all invest. We all calculate and decide which of the options laid before us are ‘worth it’ or not. Choosing where to live, what career path to follow, even which route to take to work, involve fundamental principles of investing. Listed below are three factors that are a part of every invest decision ever made, large or small:

Time

Unlike money, you cannot get more. Time is something that is finite, limited, and not up for debate. Seeing time as more valuable than money is critical; it allows an individual to realize time is something that is always being paid, always being used. Understanding time as a fixed expenditure helps you realize that, just because something is cheap, doesn’t mean it’s the best option. A real estate investor is making a mistake if he/she buys a home that’s slightly less expensive, but requires significantly more time investment in order to improve and resell it than it’s marginally pricier counterpart.

Energy

Hundreds of seminars and thousands of books and training courses are devoted to employers and employees learning better time management practices and methods. However, the effort and energy needed to use that time effectively is often left out of the picture entirely. This is where the difference between hard work and smart work becomes evident. Often people fall into the trap of working very hard, but at the rate they’re going, they’ll burn out or have to sacrifice other resources in order to reach their goals. The ability to sustain one’s efforts is just as necessary as making the time to do those things in the first place.

Risk

Entire essays and papers could be written as to the importance of risk assessment and management (and they have been written), but the bottom line in risk is that although a certain amount is of course necessary to be accomplishing anything of worth, no sum of cash is worth large amounts of fear, doubt, and/or anxiety. Yes, take risks, but take the right ones. At some point, “high-risk investing” becomes code for gambling. Have the guts to do what you feel called to do, but recognize that most success stories aren’t lottery tickets…they’re a series of small, calculated steps that lead to measurable success.

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If you are feeling the weight of extra holiday debt then you aren’t alone. There are many Americans who overspend on the holidays just to take care of travel and gift giving. Now that the holidays are over, it is time to focus on paying off those debts as quickly as possible. Here are three things you can do to recover from debt incurred over the holidays:

  • Pay off the small cards first- If you opened a bunch of new store cards, or charged existing cards to pay for gifts and expenses over the holidays then you should work to pay off the smallest ones first. They will have the lowest minimum monthly payment, and by adding some to each payment, or even doubling your payments you can get the balance to zero quickly. Once you have those smaller cards paid off, you should take all of the money that you were paying toward the smaller cards and apply it to the remaining balances.
  • Sell your old stuff- Since you probably just got a bunch of new stuff over the holidays, now you can take some of your old items and sell them. You can hold a garage sale, list the items on Craigslist, or even ask your friends and family members if they are interested. Even though you won’t be able to get all the money back that you spent on those items originally, you may be able to make enough money to pay off some of your holiday debt. In the end it might be best to combine this option with one of the others in order to completely payoff your debt.
  • Ask for a raise- If you worked hard all last year and can prove how valuable you are to a company then the new year is a great time to ask for a raise. Go to your employer and show them what you have accomplished and how much money you have earned the company. If you do your homework and prepare, there is no reason why you can’t get a nice raise. With a little extra cash in your pocket you can start to pay off your debt more quickly. Remember that no matter what you do, it is going to take time so you need to be patient.

The key to paying off your holiday debt is consistency. Even if you feel like you aren’t making any progress, you need to stick to your plan. In the long run you will be able to make a huge dent in the amount of money that you owe. Before too many months go by, it is a good idea to speak with an experienced bookkeeper or accountant to see where you can make improvements. To learn more about what you can do to get your finances in order again, contact Bookkeeping Valleywide today! (480) 467-3475

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Starting a new business can be very exciting, but it is definitely hard work too. If you want to turn your business idea into a reality, then you have your work cut out for you. Here are five things that you should put on  your new business checklist to make sure you don’t forget anything important:

  1. Have your employees fill out proper tax forms– One of the first things you need to do is have all of your employees fill out the proper tax forms. The tax forms that they fill out will be determined largely by what business structure you choose to create. You want to make sure that they fill everything out completely so that you aren’t held responsible for anything that you could have prevented with proper forms.
  2. Obtain federal, state, and local tax information- Aside from getting your employees setup with the proper tax forms, you want to make sure that your business is properly registered for taxes. You need to make sure you obtain federal, state, and any local tax information that will be necessary for your business to be completely. Once all of this is taken care of you’ll get to focus on the more exciting parts of starting a business.
  3. Select the business structure- One of the biggest decisions you will make with your business is what kind of structure you want. Do you want to create and LLC, become incorporated, or a partnership. What you plan on doing with your business and the goals that you have will determine which business structure you go with. You want to choose something that will allow you to grow and will also protect you financially as the business owner.
  4. Write a proper business plan- Just as you wouldn’t head into the NBA Finals without a game plan, you don’t want to start a business without having a plan of where you want to go. Your business plan should include a plan for spending and expenses so that you can make sure enough funds are in place to get you off the ground. You also want to make sure you have clear plans for growth and marketing so that you keep moving forward. The more thorough you can be with your plan, the better you’ll be able to identify and solve potential problems before they happen.
  5. Get the space- Once you have everything in place to start your business, then you want to start looking for office space. Choosing the right office is a really important decision because you will likely have to sign a long-term lease. Once you find a space that you think will work, negotiate with the landlord to get the best deal possible.

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Starting a business can be exciting and stressful at the same time. You’ll be thrilled about the prospect of being your own boss and making more money, and at same time worried about all the things that you need to take care of to ensure that you don’t fail. One of the biggest things that you will need to get squared away is finances. To give you a better idea of what is available to work with, here are three financial tools for you to consider:

  • Keep it simple with Paypal- If you are just starting a small business you probably don’t need to invest too much money into financial software. One of the cheapest solutions is just to use Paypal until you need something better. With Paypal you can send invoices, see your payments sent and received, transfer to a bank account and more. You can even setup a debit account with them so that you can spend the funds in your account without having to transfer them to your bank.
  • Move up to QuickBooks- As your company grows you’ll start to need a more powerful solution for handling the finances. One of the most trusted names in the software game is QuickBooks. This software will allow you to do all kinds of specialized things and can really keep your books in order. There is a bit of a learning curve with this product, however, so if you are thinking about purchasing you should set aside some time to learn your away around all of the features. As you get more and more comfortable with the software you’ll see just how powerful it is.
  • Hire a professional bookkeeper– One of the best solutions for handling business finances is to hire a professional bookkeeper. When it comes to hiring a bookkeeper you can either get someone to work in house or get a third party company to do it for you. Generally you can save a lot of money if you outsource the work to a company that handles accounting services. They’ll be able to do things for you like setup your payroll, prepare your taxes, and keep track of your billing. A lot of business owners really enjoy this option because it is completely hands-off. They are able to focus on the things that they love to do and that help grow their business, without getting bogged down by the minor details.

Every business is different and will need an individualized solution when it comes to finances. Make sure that you thoroughly consider all of your needs and options before you make a choice as to which route you are going to go.

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Choosing a career is a big decision that everyone has to make at some point or another in their life. While there are hundreds of different career paths to choose from, one of the best routes that a person can take is a career in finances. If you are considering a career working with finances, here are three jobs that you may enjoy:

  • Become a banker- If you are looking for a career that deals with finances then you should take a good look at becoming a banker. There are a lot of entry level banker positions at banks that you can apply for and the more experience you have the more you can expect to get paid. With a good degree and a few years of working experience you can have a nice career as a banker. One of the best parts about being a banker is that you will get a chance to work with all sorts of people and help them with their financial situations. Everyone will have a different situation and with your expertise you could help them overcome their trials.
  • Be an accountant– A good accountant can be really hard to come by, so if you decide to be an accountant an get really good at it. You can either look at opening up your own accounting firm or you can try and become an accountant for a larger company. There are plenty of big businesses that need an accountant that they can count on. If you open up your own agency then there is probably more opportunity to make money and possibly more freedom because you will be your own boss. For those of you that don’t want the stress of starting and managing your own business then you may be better of working for someone else. There is a lot of job security that can come from working for a large business and you will always know that you have a pay check coming.
  • Work for an investment firm- If you are looking for a career dealing with finances, then you may want to consider working for an investment firm. There are plenty of companies that work with businesses and individuals who are looking to invest their money and create a sound future. Working with them will allow you to help others and also get to work with numbers with is probably one of the reasons why you like finances to begin with. Many of these investment firms work with a simple base salary and then pay based on commission. This means that the better you get and the more you help others the more you will be able to earn.

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The new year is here already which means that once again it is time to start thinking about taxes. Even though filing taxes isn’t the most exciting thing in the world, it is required. If you are normally one to procrastinate, here are three reasons why you should consider getting your taxes done early:

  • Easier to find professional help- One of the first reasons why you should file your taxes early, is so that you can find the right professional to help you. Being able to work with the right bookkeeper or accountant can make your life a whole lot easier. Tax law is really complex and someone who knows the ins and outs will be able to help you file everything correctly.
  • Get your refund sooner- One of the biggest benefits to filing your taxes sooner is that you will get your refund sooner. If you are expecting to get money back this year, then the quicker you get everything submitted, the quicker you can expect your check to come.
  • Avoid late penalties- Even though you are able to file an extension on paying your taxes, getting things taken care of early can help to save you money in the long run. You never know when something will go wrong and unexpected expenses will arise in life. Having to take care of extra bills can keep you form being able to file your taxes on time. There are plenty of penalties that come to those who don’t pay, so it is better to stay on top of things.

Taking care of taxes can be really tedious and time consuming. If you are looking for a helping hand this year, Bookkeeping Valleywide can help. We work with both businesses and individuals and can help alleviate the stress of doing taxes. Give us a call today to find out more about how we can help you this tax season! (480) 467-3745

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2013 is here which means that many people will be making New Year’s resolutions for things that they want to improve. If you are a business owner, you can also get into the spirit of the new year by making some resolutions for your business. Here are three ideas of the types of goals you can set for your business in 2013:

1. Grow with new employees- One of the best New Year’s resolutions you can make for your business is to hire new employees. Hiring new employees will mean that you are growing your business and taking on so much new work that you need more people to help. A goal to hire one or two more employees over the course of the year will help you reach for new heights with your business.
2. Get a new office- If you are going to be growing your company and hiring a few new employees, then you may have to start looking at new office space. In today’s market there are a lot of commercial real estate buildings open for lease so you should have a lot of office spaces to choose from. Take your time finding the right place that will allow you to grow and also give you adequate room to do your work, at a price that you can handle.
3. Sign up for direct deposit- If you are part of a start-up or small, growing company then you may not have direct deposit at the moment. One of the best resolutions that business owners can make is to provide their employees with direct deposit. Direct deposit will require you to have the money for paychecks ready a few days in advance, but other than that will be a great route. Your employees will be happy not to have to take more trips to the bank, and you’ll save money on the cost of checks and envelopes. You can speak with an accountant and get your business setup with direct deposit for the new year.

If you are looking to setup direct deposit for your business, Bookkeeping Valleywide can help. We offer a wide variety of solutions for businesses of all sizes! (480) 467-3475

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