10 Things to Consider Before Quitting Your Job to Start Your Own Business

(This is a guest article by Andrew Wang*)

Starting your own business is more often than not a stressful and risky proposition. These days, it is an unfortunate fact that most small businesses are doomed from the very start, for whatever reason. Recent statistics found that 7 out of 10 small enterprises close down within two years of opening, and a further 1 of the 10 will shut down within 5 years. There is however some hope, in the fact that 20 - 30% of businesses do find success somewhere down the track. In this article, I will give you 10 things to do before you quit your job and put all your effort in to a particular business idea. Getting these 10 things done properly will substantially assist you in your entrepreneurial endeavors - and may just be enough to keep your business afloat, through both the good times, and the bad.

1. Know The Lingo:


Don't quit your job until you know the lingo. By "lingo", I mean all the terms, information, and expertise that business owners are expected to have. You MUST know what your liability level is, should your finances take a turn for the worse. Learn about the stock market, how big business works, and how small business differs from mainstream corporate affairs. The internet is a great resource here - so use it, and gain the knowledge necessary to advance.


2. Research:


Don't quit your job until you have enough research behind you to prove that your business model can be successful. One of the biggest mistakes people make is that they get all excited about the prospect of owing a business, and hastily rush in to things. If you don't know the statistics, industry trends, and consumer behavior surrounding your area of business - how can you possibly sell your products or services?


3. Sort Out The Legal Aspects:


Don't quit your job until you know that your business is not going to give you legal issues. To be blatantly honest, legal issues cost money, waste time, and will very possibly lead to business failure if you get caught up in one. Know the rights, responsibilities, and obligations you will be taking on when you leave your job and focus on your own business.


4. Analyze The Marketplace:


Don't quit your job until you understand the marketplace and what your industry is really like. What quality and service standards are expected in this area of business? Are you able to provide that standard or higher? If not, take a serious look at your business plan, and try to determine if the idea as a whole will be appealing to the market.


5. Find An Accountant & An Attorney:


Don't quit your job until you have an attorney and an accountant. Trying to find a cost effective solution to accounting and legal aspects of your business will be like finding the holy grail of money making schemes. However, it is unfortunately a necessary step in any strong, forward looking business. Get these two sides of the business sorted early, and you will have a lifeline on hand, should it be needed in the future.


6. Read Past Success Stories:


Don't quit your job until you have a rough idea of how others succeeded before you. Remember - unless your business is highly unique, you're probably not the first person to have had the idea. Consult business journals, look on the internet to find related business stories, and see what key attributes and features defined failure from overall success.


7. Work Out Who Your Competitors Are:


Don't quit your job without doing a bit of background work. If your idea is to start a corner dairy or convenience store - is there really going to be enough demand out there to generate more profits than you are currently earning? Remember - what is the point in quitting your job to earn less than you were previously?


8. Get The Right Training:


Don't quit your job until you can confidently say that you are an expert in your area of business. Anything less than expert knowledge will leave gaps for other people to steal away your market. Just imagine a potential customer rings you and asks a somewhat complex, yet relevant question - which you are unable to answer. Put yourself in the other persons shoes, and imagine how you would react.


9. Determine The Real Demand For Your Product or Service:


Don't quit your job until you are 100 percent certain that people will buy or want your goods. See, there is a big difference between what your opinion of your own product / service is, and how the rest of the public feels. Just because you believe your product is a wonderful and useful thing, this doesn't mean that other consumers will. Quiz people as to whether they would be interested in your goods, find faults, make improvements, and when its time - take the best possible product to market.


10. Make A Sale Or Two:


Don't quit your job until you have solid proof you can run your business successfully. Have you made any efforts to sell the product in the past? A few sales would be preferable before you stop receiving your current income stream, and focus solely on generating income with your new business. By having a brief yet reliable sales history prior to dedicating all your time, you can prove to yourself and others that this is not just a spur of the moment decision, which you might live to regret.

That concludes our list of the 10 things to do before quitting your job. Of course, not all 10 things will be applicable to everyone, so to give a closing remark, I want you to think about one big thing. Be careful, logical, and practical. Creating and growing a business is not as easy as it's made out to be. Ensure have the skills, resources, and energy to get things off the ground, and who knows - you may be the next success story just waiting to happen.

*About the author: This article was contributed by Andrew Wang. Andrew lives in the Seattle area. He manages the blog Travel Reward Credit Card.

*Image Credit: Photograph by Ayres no graces [via Flickr Creative Commons]

Do Children Need To Know About Family Finances?

(This is a guest article by Trisha Wagner*)

Specifically should you talk to your children if you are experiencing a financial hardship? Just as each family is different each situation is unique and there is not one easy answer to this question. I have a three year old and while we ran to the store this weekend to pick up a new router for my new work at home job, I was faced with some difficult questions from my toddler (since this is my only child, I am still amazed at how hard it is to answer some of his questions). It made me think: how much do our kids have to know about our finances? Is it possible to give them too much or too little information? In my case, the answer is a bit simpler. There is only so much a three year old can wrap his head around. There is no need to go into budgets, the credit crunch or why mommy has to wait and see how her new job pans out before spending money that might be needed for other things. He simply doesn't care and doesn't have the ability to comprehend you can only have ONE thing and it can't cost more than ten dollars. I get that. But what if you have older children.....kids old enough to have the basic gist of how money works and how important it is in keeping the household running?

If the current economy has you on your toes when it comes to the family finances it is likely your kids already sense something is amiss. Before you start worrying about how or if you should discuss a financial hardship with them you must realize that a child of any age first needs to know that they are safe, secure and loved. In their world, those things are more important than money and it is your job as a parent to explain to them that regardless of what may be going on with the household budget they can feel confident in those three things.

That being said you definitely should consider having a family meeting to discuss what is going on with your children in an age appropriate way. Some children will feel more secure by being included and you will also have the opportunity to prepare them for any possible changes that may be in the cards due to the economy. However, there is no need to go overboard and burden your kids with too much adult information which they may not be able to process. In doing this you are simply adding to their fears and feelings of insecurity instead of easing them.

Since the economy is not likely to turn around just because we have crossed over into a new year, it will be important to keep the lines of communication open with your children. If you or your spouse have lost a job or anticipate significant changes in your life due to finances, consider having a regularly scheduled family meeting to briefly go over information and answer any questions your children might have.

Many families are facing tough times but most will be able to weather the storm. Make sure you take the steps necessary to ensure your kids don't worry needlessly or have increased negative effects due to too little or too much information.

*About the author: This article was contributed by Trisha Wagner. Trisha Wagner is a freelance writer for DestroyDebt.com, a debt community featuring debt forums. Trisha writes regularly on the topics of getting out of debt and personal finance.

*Image Credit: Photograph by lucias_clay [via Flickr Creative Commons]

How to Properly Pay Down Your Credit Cards

(This is a guest article by Elise Degrass*)

Even in an economic downturn, the widespread available of credit to consumers is staggering: nearly anyone can apply for, and receive, a credit card today. With the growing ease of use (you no longer have to even sign for many transactions) and the vast number of businesses which accept credit transactions, fiscal responsibility with credit cards can be as difficult as ever. Keeping disciplined in your spending, as well as your payments, will help you to stay out of debt in the long run.

As a first step, consider working through a complete review of all of your existing credit card debt. If you have multiple cards, a spreadsheet may be an effective way to keep track of all of the data, from minimum payment amounts to due dates and interest rates. Also, it's important to note any variability in interest payments,
especially if an introductory rate becomes much higher after a certain point. Once you have collected data on your debt burden, you can begin taking steps to pay down your credit cards.

Prioritize your payments on cards which have the highest interest rates, and make a plan to shift your spending to cards with lower rates. Figure out your monthly expenses and determine which you can pay off with cash to reduce further interest rate payments. Additionally, you may want to consider looking at your overall expenses to prioritize repayment of debts over unnecessary purchases, especially for vacations and other upscale expenses.

As part of a larger budgeting process, ensure that you can meet all of the minimum payments while planning to consolidate your debt into just a few cards in the long-run; having fewer cards will simplify the budgeting process, as well as making it easier to keep track of your purchases. Working with a debt counselor to devise a long run plan, as well as working with credit card companies to negotiate lower rates, will help you on the path to a debt-free future.

*About the author: This article was contributed by Elise Degrass. Elise is a new writer who currently is blogging about cell phones.

*Image Credit: Photograph by Andres Rueda [via Flickr Creative Commons]

Money Management Tips For Women

(This is a guest article by Trisha Wagner*)
As all women know, one size does not fit all. The same is true regarding financial advice. Every situation is unique and requires personal advice and not surprisingly the advice for women differs slightly from advice for men. Although women have made huge strides in the last century, regrettably we are sometimes considered fickle emotional creatures unable to handle the complex issues such as finance. In reality woman are more than capable of handling these issues both at home and in a corporate setting, nevertheless the fact remains a large percentage of women do not have control of over their own financial situations. The following tips can help get you back on track and in control of your finances as well as your future.

• Educate yourself. The more you know about finances and the investment process, the more likely you will feel confident dealing with personal finance issues. After generations of men having control of household budgets, saving, retirement and investments, women have assumed the role in many households. Unfortunately we don't have a long line of role models to look to for example and many women feel ill prepared and even resentful of being in charge of finances and count on a spouse or partner to make the right decisions. Take advantage of the information available on line, in books, community or college classes and even from other women to educate yourself on financial matters. The more knowledgeable you are- the more confident you will feel in your decisions.


• Pay yourself. As the New Year looms closer, consider a new approach to beef up your savings account. Consider paying yourself at the start of each day. Start with just one dollar a day and increase that amount by one dollar at the beginning of each month. Women are quite accomplished at finding ways to take care of everyone else's needs first. It might be the needs of their spouse, children, employer, friends and family; we find a way to make sure everyone is taken care of. Apply the same thought and determination towards providing for you financially.


• Pad your retirement account. Saving for retirement should begin the day you begin working, but in the real world people tend to start later. It is especially important for women who are more likely than men to enter and leave the work force while raising their families to begin saving for retirement early. You will also want to take advantage of the increased amount of money you are permitted to contribute to your 401k after the age of 50. By contributing the maximum amount allowable, you will ensure you have a comfortable nest egg to live off of in your golden years.


• Use credit wisely. Credit is a good thing. Irresponsible use of credit is a bad thing. Resist the urge to help others out by co-signing or loaning money to family and friends. Do not use money or possessions as a means to feel self worth. You will find happiness comes from living well, not spending more.

*About the author:Trisha Wagner is a freelance writer for DestroyDebt.com, a debt community featuring debt forums. Trisha writes regularly on the topics of getting out of debt and personal finance.

*Image Credit: Photograph by red5standingby [via Flickr Creative Commons] of Faile Lost In Glimmering Shadows show at Lilian Baylis school in Kennington.

Make Your Paperwork Work for You

(This is a guest article by Melanie Taylor*)

Who says paperwork isn’t fun? What could be more fun than producing conclusive evidence that proves that YOU are 100% right? It’s all the more satisfying when being right means you’re saving money.

Blazing a paper trail...

Our lives are full of paperwork. Master it and you’ll find your finances run more smoothly. Let’s look at three of the most important paperwork categories…

Category One – Receipts

How many times have you had a ‘guaranteed’ product break within months of buying it?

One thing’s always guaranteed: the shop will be festooned with ‘No receipt, no returns’ signs, carefully placed within convenient finger-tapping range of the employee(s) you’re haggling with.

Argue, plead, point out that no other shop within 1,000 miles even sells that product – it all makes no difference in the face of that simple four-word logic. More frustrating yet, even manufacturers’ warranties can require proof of purchase!

If only you’d kept the receipt, you could be turning that broken product into cash, not trash.

Action: Never throw away receipts. Keep them in a dedicated drawer / folder, under whatever kind of filing system helps you locate them at need.

Category Two – Bank (and Credit Card) Statements

In this golden age of technology, it’s tempting to assume that all orders will be obeyed, all payments paid, all transactions transacted – on time and to n decimal places.

Yet banks, like all companies, are run by humans, inevitably the source of all human errors. Whatever instructions you’ve issued – whether by phone, online, or in person – there’ll always be a human involved somewhere down the line. It could be the person who takes your phone call, the ‘techie’ overseeing the online database, or the cashier who ferries your requests to the bank’s system.

This isn’t a criticism of banks. It’s an acknowledgement that human error is as ubiquitous as humans. However impressive the security checks, no organization anywhere on the planet can guarantee 100% safety.

Then there are the technical errors, computer errors, software errors... Whatever label they come with, they can all result in problems with your payments: problems which can affect your credit rating, saddle you with fines for late payment, and potentially land you in debt that you are responsible for clearing.

Which is why you should take the time to check your bank (and credit card) statements. Not just to look for hints that you’re the victim of fraud, but to make sure your planned transactions have been carried out on time and in full.

Action: Check your statements, then file them in date order, so you can refer back to specific instances whenever necessary.

Category Three – Letters

Disagreements can be terrible things, however trivial the subject matter. When it comes to finance, verbal agreements are often described as being ‘worth the paper they’re written on’.

So when you agree something with a creditor / debtor / customer / supplier, get them to put it in writing. When it arrives, keep it. Scan it, file it – do whatever makes it easy for you to find it quickly.

Nothing settles an argument quicker than: “In your letter, dated May 5th, you state – and I quote…”

Similarly, keep copies of everything you send them. If you think it’s necessary, send it registered, and keep the receipt stapled to the copy.

Action: Keep – and file – copies of everything.

A Final Thought

Like it or not, we live in bureaucratic times. Paperwork is everywhere, so learning to deal with it effectively is an important part of modern life.

The better you do that, the more you’ll save on three of the most valuable commodities in your life – time, money, and patience.

*About the author: This article was contributed by Melanie Taylor of Think Money, who provide debt help & advice.

*Image Credit: Photograph by lejoe [via Flickr Creative Commons]

Vanishing Act of the Thin Line between "Want" and "Need"...

Our little baby girl is here! She is such an angel! We are getting settled in and things are beginning to fall in place. Knock on wood. I have a lot of help and support from my family and the "better half" has shown that he truly deserves that name :) But still, somehow, there seems to be no time for anything else, other than learning to be parents! Posting on this blog is going to continue to be pretty sparse, unless I have some guest posts to publish.

A quick note on the personal finance front - it seems to me like the thin line between "want" and "need" has started pulling a vanishing act on us. For instance, we have a very good crib (for upstairs) and a pack 'n play which acts as a bassinet (for downstairs). But within the first two days of bringing our baby home, we ran out to get a co-sleeper so we can put her on the bed with us. She would neither sleep in the crib nor the bassinet and I don't know what made us think the co-sleeper would work... To cut a long story short, now in addition to the crib and bassinet, we have a co-sleeper that she won't sleep in.

There are so many other things we have done this with! Her grand parents have got her a tonne of newborn clothes and we had gone and bought a few too. Within a few days of bringing her home though, we realized that the most convenient clothes were ones that did not have to be slipped over her head and did not have zippers or lace etc. So we ran out and got more sets of the one type of outfit that we like, while the rest of the clothes are just sitting in the closet, waiting for her to outgrow them.

We have gone from a household of two part-time residents (we did spend a lot of time at the office!!!) to a household of five full-time residents (at least until the better half returned to work), and the cost of everything from utilities to groceries has more than tripled! I was expecting the costs to increase (though not as much!) and have a buffer for it. What is completely unexpected though is this sudden inability to distinguish between what we really need and the sleep-deprivation induced urge to buy stuff with the hopes that they will magically make things smoother! Oh well, it ain't everyday that you have a precious little baby, so roll with it the way it goes for the next few months (years?) I guess...

Eight Questions about 529 Accounts for Jonah Keegan, the Founder of Freshman Fund

These days, whenever I get some time, I have been thinking and reading about 529 plans and trying to determine if we should have one for our baby. Coincidentally, I was recently contacted by Jonah Keegan about an interview to introduce his site Freshman Fund to the readers of this blog. Since its a good chance for me to get some of my questions answered, I quickly took up the offer! I hope some of these questions and answers will be helpful to you readers as well. If you have more questions, I have added the contact information for Jonah at the bottom of the interview - please feel free to contact him directly.

Jonah Keegan is the founder of Freshman Fund. Freshman Fund helps parents save for college by giving them a free online gift registry for their college fund. When you register your 529 college savings plan at Freshman Fund, gifts from friends and family go directly into the plan.

OK. Here we go...

ISPF: With so many different 529 accounts available, how can one determine which plan is the best for them?

Jonah: Like Smokey and the Miracles say, "You Gotta Shop Around." The best 529 is going to be different for each family depending on their child's age, their investment pattern and other factors. Similar to big-ticket purchases like a computer or television, you will find that there are a large number of plans that fit your basic needs, and from there it's a matter of doing some research or working with your financial advisor to determine the best choice for your family.

The good news is that if you do want to enroll in a 529 directly, there are some great online tools for comparison-shopping.

The number-one industry expert is Joe Hurley, and his site SavingForCollege.com has great features that let you look at the plans available in your state, run comparisons on different plans or plan features, and see what he thinks are the current top-rated plans.

ISPF: How can parents pass word to relatives and friends that they would prefer to receive the gifts in the form of contribution to the 529 accounts?

Freshman Fund makes this easy in two ways.

First, we have a contacts manager that lets you import your webmail or social network address book. This makes it easy to build and manage messages on our site, as well as discover if anyone in your address book is already using Freshman Fund.

Second, we've included a notification message that you can send right from your Freshman Fund account. Login, and you will see a "Notifed" link next to your student. Clicking the link takes you to our notifications page (Tip: Import your contacts first and adding message recipients is as easy as clicking on their names, right from your message page). We provide a default message, but you can customize it however you like before you send.

ISPF: What are the limits on how much can be saved in a 529 account each year? How do contributions from friends and family effect this?

The limit on 529 savings for each student is set by the IRS gift tax exclusion limit, currently $12,000. This is a limit per student and not per donor, so parents who save or receive gifts at or near this amount need to keep an eye on their annual savings. Also, this is not a per plan limit, so if a student has multiple 529s in their name, they will also need to keep track of their account balances.

In part, this is one of the problems we started Freshman Fund to solve. Parents were telling us that between grandparents, godparents and themselves, they had multiple 529s open for their children and no idea how much money was actually being saved each year. Freshman Fund lets parents consolidate 529 savings to a single account to better plan for the future (and avoid a visit from the tax man!).

Oh, and most plans have a maximum contribution limit as well, it varies from plan to plan, but on average it's more than $250,000 per account.


ISPF: How does a 529 account affect a child's federal financial aid?

The impact of a 529 on a student's financial aid depends on who owns the plan (the beneficiary of a 529 is always the student, but the owner could be the parents, grandparents or the student themself).

If the 529 is owned by the parent or another non-beneficiary, it is treated as a parental asset, and assessed at a 5.64% rate when calculating financial aid awards.

If the 529 owner and beneficiary are the same, the rate could be as high as 20% for the 2008-09 school year because the funds are treated as a student asset, but starting with the 2009-10 school year, they will be treated as a parental asset whether or not the parent owns the 529, and will be assessed at the 5.64% rate.

Also, 529 distributions are not counted as income for that year, which helps when next year's financial aid eligibility is calculated.

ISPF: What happens if my child does not want to go to college?

Parents with a child who does not attend college can transfer the account to a sibling, grandchild, step-sibling, cousin, niece, nephew or in-law without incurring any taxes or penalties.

Other transfers would be viewed as "non-qualified withdrawals" by the IRS, and the account would be subject to federal (and possibly state) income tax on any account earnings, as well as a 10% federal penalty tax on earnings.

ISPF: What qualifying expenses can be paid with 529 savings without incurring a penalty?

The easy ones are the following: tuition, room & board, any mandatory college fees, books, and a computer (if required).

From there, it varies from plan to plan and state to state, if you have a question about something that is not on the list above, consult with your plan manager or financial advisor.

ISPF: Does investing in a 529 make sense for families who may possibly return to their home country before the children start college?

Much like the question "What's the best 529 for my family?" there is no one answer to this question, families who foresee this scenario in their future should research all of the available college savings options, including 529s, or talk to their financial advisor before making a choice.

I can tell you that 529 savings may be used to pay for many non-U.S. colleges, you can search a list of eligible institutions at http://www.savingforcollege.com/eligible_institutions/, in the STATE: drop-down list, choose Canada for a Canadian college, or Foreign Country for any other international school.

ISPF: What are some alternatives to 529 accounts?

Here are some of the more popular college savings options. Space, time and the limits of my expertise prevent me from including every feature of these savings options, but here are a few highlights.

MUM (Money Under the Mattress... or in a no-interest savings account)
Very rarely a wise choice for any type of savings, and college savings are no exception. Loses ~3% per year at the current rate of inflation, and if it's earmarked for college then you're in even worse luck, as college costs inflate at about twice that rate, or ~6% per year.

U.S. Education Savings Bonds
Savings bonds can have tax benefits at both the federal and state level, but the exact nature of the benefit varies depending on the exact type of bond purchased. Unlike 529 gifts, savings bonds are not covered by the gift exclusion. Also, to qualify for the tax benefit, savings bonds may only be used for tuition and fees, whereas 529 distributions can be used for the broader array of expenses mentioned above. The annual limit on bond purchases is $5,000 per owner per type of bond, or $90,000 over the 18 years of a typical future freshman's life. In contrast, 529 plans have an average lifetime maximum contribution of more than $250,000.

UGMA/UTMA
The Uniform Gift to Minors Act and Uniform Transfer for Minors Act are custodian accounts set up for minors by a donor, usually a parent or guardian. The donor is the custodian of the fund, but the donations are an irrevocable gift and must be used for the benefit of the minor. Further, custodianship terminates when the minor reaches the legal age (18 or 21 depending on the state of residence) and may be spent on whatever the beneficiary desires. As you might expect, UGMA/UTMAs are treated as student assets when making financial aid determinations.

Coverdell Education Savings Accounts (ESA)
An education savings account that is more flexible than an UGMA/UTMA, and unlike 529s, can be used for pre-college education expenses. HOWEVER, the ability to use Coverdell ESAs for pre-college expenses will expire at the end of 2010 unless Congress intervenes to preserve this feature. Two other things to note with Coverdell ESAs is that only $2,000 per year may be saved in a beneficiary's name, regardless of who owns the account or how many accounts exist for the beneficiary, and the government steps that limit down, ultimately to zero, starting with incomes of at least $190,000 per year for couples or $95,000 for single filers.

I would like to thank Jonah for taking the time to answer my questions. If you have any additional questions about Freshman Fund, please feel free to contact Jonah at jonah dot keegan at freshmanfund dot com, or 347-416-6498. Please note that he is not a financial advisor, so while he can provide information, he cannot make recommendations. For specific advice, please consult with a financial advisor or tax professional.