Crackerjack Greenback Prudent Advice for a Prosperous Future

February 19, 2009

Rethinking Retirement

Filed under: Contentment,Earning,Goals,Retirement Planning,Values — Paul Williams @ Crackerjack Greenback @ 11:36 am

       Mike at The Oblivious Investor has a thought-provoking article today titled Don’t Retire., which was inspired by Stephen Pollan and Mark Levine’s book Die Broke: A Radical Four-Part Financial Plan. Mike discusses why retirement as we imagine it today is probably an unreachable goal for most Baby Boomers and subsequent generations. Given the fact that many workers no longer receive pensions and don’t seem to be very good at saving on their own, I’d have to agree.

The History of Retirement

       The idea of retiring when you’re older is relatively new. It only seems to have become popular in the last century. There are several possible explanations for this, but the most likely ones are higher incomes (we enjoy a standard of living about eight times higher than Americans a century ago) and the creation of Social Security and pension programs (though the future of Social Security is unclear, and pensions are largely a thing of the past). If you’d like to read more about the history of retirement, I suggest these articles:

Economic History of Retirement in the United States (a more academic article)
The History of Retirement, From Early Man to A.A.R.P. (not quite as dry as the first)

       The truth is, retirement was never really an option for our earlier ancestors. They didn’t have very long lives or the economic systems we have today. We also find no discussion of retirement in the Bible as we think of it today. There is one reference to the priests (Levites) retiring at age 50 from temple service, but they were to stay on to help the younger men (probably in giving advice and guidance). The only other semblance of retirement we see in the Bible is old men sitting at the city gate. The city gate was a place of honor, and those who sat there offered advice and counsel to those in the city. Again, the older people didn’t really retire but found other ways to serve their communities. Instead of working, they lived with their children and received support from them. But that’s rare today (unless you’re Amish).

How Should Christians View Retirement Today?

       Given the nature of the labor force today and the interaction of families, we do need to be saving for a time when we won’t be able to produce as much income as we can when we’re younger. Children are moving farther away from their parents for jobs or other reasons than they did in the past (or in the Bible). Several generations of a family living in the same house or very close to each other is no longer the norm. And the complication of health problems and other issues when you’re older can definitely impact your ability to earn income.

       However, the American view of retirement is far from God’s ideal for His followers. How does spending every day on the golf course, or sipping sweet tea on the back porch every day, or traveling the world for pleasure glorify God? The work of the kingdom of God is never ending. By focusing our entire lives on a retirement where we sit around, do whatever we want, and relax, we miss the picture of what God could be calling us to do when we no longer have to work as much to earn all of our money. On the other hand, a Christian retirement focused on contentment and serving God can allow for some leisure (just as during your working years) without neglecting the valuable work we can do to further God’s kingdom and show His love to the world.

       22 Then, turning to his disciples, Jesus said, “That is why I tell you not to worry about everyday life-whether you have enough food to eat or enough clothes to wear. 23 For life is more than food, and your body more than clothing. 24 Look at the ravens. They don’t plant or harvest or store food in barns, for God feeds them. And you are far more valuable to him than any birds! 25 Can all your worries add a single moment to your life? 26 And if worry can’t accomplish a little thing like that, what’s the use of worrying over bigger things?

       27 “Look at the lilies and how they grow. They don’t work or make their clothing, yet Solomon in all his glory was not dressed as beautifully as they are. 28 And if God cares so wonderfully for flowers that are here today and thrown into the fire tomorrow, he will certainly care for you. Why do you have so little faith?

       29 “And don’t be concerned about what to eat and what to drink. Don’t worry about such things. 30 These things dominate the thoughts of unbelievers all over the world, but your Father already knows your needs. 31 Seek the Kingdom of God above all else, and he will give you everything you need.

Luke 12:22-31 (NLT)

       We are not to seek a life that’s merely full of the pleasures of this world. God calls us to seek His kingdom first. When we put our focus on God and trust in Him, we no longer have to worry about our retirement accounts, government policies, economic disasters, or any other worries. When we have the glorious gift of Jesus Christ, we remain wealthy despite what happens to us in this life. We have riches that cannot fail, that cannot disappear, and that will never leave us—even after death.

A Different Retirement

       I’m not saying you should stop saving and investing for the future. There will most likely come a time when you will not be able to earn all the money necessary to cover your needs. It is prudent and wise to save for such a time, and the Bible commends and encourages such wisdom. But you should rethink your hopes of buying that second home, taking luxury cruises three times a year, or endless rounds of golf during retirement.

       A Christian can most definitely follow God’s teaching and will if they save up for retirement and reduce or eliminate their workload. But a Christian retirement should be focused on meeting your needs (not extravagant needs, but your daily bread—just enough) and then using your abundance of time to do God’s work. Minister to the needy, volunteer more, visit the sick and those in prison, comfort those in mourning, reach out to those on the margins of society, pray and study God’s Word—these are all wonderful activities to fill a Christian retirement. But seeking a permanent vacation, a time when you do little that is useful or glorifies God, is only a product of greed, selfishness, and the World—it is a tool used by Satan to distract you from furthering God’s kingdom. Flee from it, and seek God’s counsel for your older years. Ask Him to guide you and show you His ways so that you can continue to glorify Him.

The Results

       This new view of retirement has profound implications for your life—now and when you’re older.

  • You no longer need to be obsessed with saving and investing all of your money. You’re free to be extremely generous—following God’s teaching on giving. You won’t have to save as much, but you should still save prudently.
  • You will avoid the depression that often comes at retirement. Many workers realize they actually enjoyed the interaction with their coworkers or the public and feel lost after they retire.
  • You’re free to do work that you enjoy even though it may not pay well. You don’t have to run after the highest paying job just so you can secure the retirement you’re told to dream about.
  • You don’t need to be a workaholic. You can focus on family and serving God during your working years—glorifying God much more than if you spent 80+ hours a week working. This also leaves you with more time to develop your relationship with God.

       Seeking a retirement where you can glorify God even more than you did while you were working brings you much closer to God than a retirement where you spend every day out on the boat. I challenge you to reconsider your ideas about retirement. Rethink retirement, and pray for God to show you what His will is for the later years of your life. Let God transform and renew your mind—clearing out the messages the World and Satan have planted in there and putting His teaching and will in your heart. Then plan and save for a retirement that glorifies God.

P.S. Yesterday marked Crackerjack Greenback’s 100th post! I’ve had 7,044 visitors and 193 comments since November 2008. Thank you for reading and visiting! If you’ve enjoyed what you’ve read so far, please tell your family and friends about Crackerjack Greenback!

February 6, 2009

How to Start a Corporation in Pennsylvania

Filed under: Earning,Starting a Business — Paul Williams @ Crackerjack Greenback @ 4:00 am

       In January 2009, I incorporated Crackerjack Greenback. I’m now Chairman of the Board, President, Secretary, Chief Financial Officer, and owner of my very own corporation. And I incorporated for a total cost of $260! How did I do it? Through research and a couple helpful websites, I was able to find all the information I needed to incorporate without the help of a lawyer or paid incorporation service.

       This guide is a review of the steps I took to incorporate in Pennsylvania. This guide is primarily for people who want to do business in Pennsylvania and want to incorporate in Pennsylvania as well, though most states have a similar process. (You don’t have to incorporate in the state you do business in.) While it is not a replacement for specific advice from an attorney and an accountant, it should familiarize you with the process of incorporation and prepare you for the steps you’ll need to take. I incorporated on my own, but I have a pretty good understanding of accounting, taxes, and business law. You may or may not wish to do everything on your own. Regardless of what you choose, I am not responsible for what you do with the following information. This information is not to be taken as legal advice.

       The most helpful website I found for starting a corporation in Pennsylvania came from the Citizen Media Law Project. Their page about forming a corporation in Pennsylvania is quite extensive. However, I’m reviewing the steps I took for my benefit and yours. I’m also linking to a better source of the Pennsylvania Consolidated Statutes. (The links they use at Citizen Media Law Project are slow and difficult to navigate.)

1. Choose the Business Name

       When you choose a name for your business, you need to consider two aspects. First, you have the marketing aspect. Does your business name describe your product or service effectively and help you achieve your marketing goals? has a good article about how to name your business which covers the marketing aspect and some of the legal aspects.

       From a legal aspect, you need to make sure that your business name meets the following requirements:

  • Meets State Law Requirements – In Pennsylvania, a corporation’s name must contain the word “corporation,” “company,” “incorporated” or “limited,” an abbreviation of any of these words, or words or abbreviations of like import in languages other than English. There are also some limitations on which words your corporate name can contain. You can find all of those limitations in 15 Pa. Cons. Stat. § 1303.
  • The Name Is Available – You can check to see if the name is being used by another corporation in Pennsylvania using the Corporation Search from the Department of State. Your name must be distinguishable from other corporate names according to the guidelines outlined here. The Department of State also has additional information regarding name availability.
  • Does Not Violate Federal or State Trademarks – Read up a little on trademark law. Then you’ll want to search for trademarks that others may have registered. You can search for federal trademarks using TESS, the federal trademark database. Click “Search” under “Get a Trademark Registration…” to access TESS. Pennsylvania does not have an online database of registered trademarks. To check for trademarks in Pennsylvania, you’ll have to call the Department of State at (717) 787-1057.

       You may want to register a trademark for your business name. You can find out more information in Citizen Media Law Project’s article about registering trademarks. If you’re going through the trouble of registering a trademark for your business, you might as well register federally with the U.S. Patent and Trademark Office. I didn’t do this for my business. There is some common law protection for unregistered trademarks, but it can be prudent to register your trademarks.

2. Recruit a Director or Directors for the Corporation

       Pennsylvania requires all corporations to have at least one director. Directors must be 18 (eighteen) years old, but they do not need to be residents of Pennsylvania or shareholders in the corporation. You can set requirements for directors in your corporate bylaws, but they are not necessary. When you write the corporate bylaws (in a later step), you should state how many directors the corporation will have. If you don’t state how many directors you will have, Pennsylvania law requires 3 (three) directors. You can be the director of your corporation and hold all the offices for the corporation. I chose to be the director of my corporation.

3. File the Articles of Incorporation

       In Pennsylvania, you can file your articles of incorporation online through the Online Business Registration Interview (OBRI). Most of the application process is self-explanatory, but here are a few key things to keep in mind:

  • Most corporations will be “for profit” “stock” corporations. If you’re creating a different kind of corporation, this guide will not cover everything you may need to know.
  • When choosing how many shares you will authorize, 1500 is a good number because it is easily divisible by 2, 3, 4, 5, 6, 10, 12, 15, 20, and 25.
  • If you choose to publicly trade your stock, you will need to meet additional requirements that are not covered here. For a small business run by a single owner, you do not need to publicly trade your stock.
  • During the registration process, you are asked if the corporation will be an S corporation. There are some advantages to making your corporation an S corporation. You can read more than you’ll ever want to know about S corporations with a simple Google search. It’s relatively easy to elect S corporation status if you meet the requirements, and an S corporation is taxed similar to partnerships. That means the corporation doesn’t pay income taxes. It all flows through to the shareholders. I elected S corporation status for Crackerjack Greenback, Inc.
  • As long as your corporation will not do business under any name than its legal name, you do not need to file a fictitious business name registration.
  • You do not need a commercial registered office provider unless you do not have a physical location or mailing address in the Commonwealth of Pennsylvania.
  • You can register for taxes and some licenses in OBRI as well. You’ll need to sign up for at least the Employer Withholding Tax, Unemployment Compensation, and Workers’ Compensation. Even as an officer of the corporation, you will be considered an employee and you’ll have to pay employer withholding taxes and unemployment compensation taxes. However, there is an exception for Workers’ Compensation for those employees who are officers and shareholders of the corporation. You’ll need to call the Bureau of Workers’ Compensation at (717) 783-5421 and request forms LIBC-509 and LIBC-513. You may need to sign up for additional taxes and licenses, and this is where an accountant or attorney may be able to help you. This guide does not cover every possible situation.
  • The fee for filing your articles of incorporation is $125.

4. File a Docketing Statement

       After you file your articles of incorporation, you’ll want to send in a Docketing Statement. It’s a very simple, one-page form. You should send it in to the Corporation Bureau. Their contact information is at the bottom of this page. Once your application has been received and approved, you’ll receive an official acceptance letter from the Department of State. However, your corporation’s existence begins when you file the articles of incorporation—not when the Department of State accepts them.

5. Fulfill the Advertising Requirement

       Your next step is to fulfill the advertising requirement. You are required to publish notice of incorporation in two newspapers of “general circulation”, one of which should be a legal journal if possible. This just means you need to publish in your closest major newspaper and the legal journal for your region. Your notice must simply state the name of the corporation and the fact that you have incorporated or will incorporate under the laws of Pennsylvania. Here’s my example:

Notice is hereby given that: Crackerjack Greenback, Inc. has been incorporated under the provisions of the Pennsylvania Business Corporation Law of 1988.

       Since I’m in Lancaster County, I published in the Lancaster newspaper through their website. You’ll want to publish in the legal notices section of the classifieds. The Pennsylvania Department of State has a geographical listing of legal publications with contact information for legal journals. It cost me about $30 to publish in the local newspaper and $78 to publish in the legal journal for Lancaster County.

       You don’t need to send in proof of publication to the Department of State. Just make sure you file it away with your corporate documents. I created a folder to hold all my important corporate documents: articles of incorporation, corporate bylaws, meeting minutes, corporate resolutions, and other important papers.

6. Write the Corporate Bylaws

       There are no requirements for your corporate bylaws, but they’ll typically cover things like: existence and responsibilities of corporate offices (the officers), size of the board of directors and how they’re elected, length of term for a director, how and when board and shareholder meetings are held, who may call the meetings, and how the board of directors will function. The Citizen Media Law Project has more information about corporate bylaws.

       To save you some time, I’m going to share the corporate bylaws for Crackerjack Greenback, Inc. with you. These may not include all of the bylaws you’ll want for your corporation, but they’re a good start. I’ve also highlighted all of the sections you may want to change to fit your needs. I’ve listed four corporate offices in my bylaws: Chairman, President, Secretary, and Chief Financial Officer (or Treasurer). The names don’t matter very much, but the duties of the offices must be completed by someone. See 15 Pa. Cons. Stat. § 1732 for more information. Click the link to download a copy of Crackerjack Greenback, Inc.’s Corporate Bylaws in Microsoft Word Document format.

7. Purchase a Corporate Seal

       Many documents will require the Corporate Seal to prove that the board of directors has officially adopted, signed, or otherwise recognized the document as binding to the corporation. You can purchase a Corporate Seal online quite easily for about $30. I purchased a self-inking stamp for about $27 after adding shipping and handling. Your corporate seal must have your corporation’s full legal name, the year of its incorporation, and the words “Corporate Seal” and “Pennsylvania”. You’ll need it to officially adopt your meeting minutes and issue stock certificates in the steps below.

8. Hold the Organization Meeting

       The first official meeting for your corporation will be the organization meeting. This meeting allows the incorporators or initial directors (if named in the articles of incorporation) to adopt the corporate bylaws, elect directors if they are not listed in the articles of incorporation, and handle any other business necessary. You must keep formal meeting minutes to prove that this meeting actually occurred and that the corporation is being run correctly. Failure to do so could dissolve your corporate status in a future lawsuit.

       Pennsylvania law requires that the incorporator who calls the organization meeting notify all other incorporators in writing at least 5 days prior to the meeting. However, there is a provision in the law for any corporate meeting that allows the attendees to sign a written waiver of notice to get around this formality. I’m including here a copy of the minutes of the organization meeting for Crackerjack Greenback, Inc. which has a written waiver of notice included. You’ll want to read through it carefully to understand the minimum that should happen at your organization meeting and to determine if you’ll need to conduct additional business. Click the link to download a copy of the Minutes of the Organization Meeting of the Incorporators of Crackerjack Greenback, Inc. in Microsoft Word Document format.

9. Hold the First Meeting of the Board of Directors

       Immediately after you have held the organization meeting and have elected the directors, the directors may hold their first meeting. If you’re the only director, feel free to meet with yourself. Just keep the arguments to a minimum. During the first meeting of the board of directors, you’ll approve the minutes of the organization meeting, elect corporate officers, adopt a stock certificate form, adopt your corporate seal, give the corporate officers the power to open a bank account, and authorize the issuance of stock certificates.

       Again, I’ll offer you the meeting minutes, stock certificate forms, and bank resolution I used for Crackerjack Greenback, Inc. First, the Minutes of the First Meeting of the Board of Directors for Crackerjack Greenback, Inc. in Microsoft Word Document Format. Next, a blank stock certificate in Adobe PDF format that meets the requirements of 15 Pa. Cons. Stat. § 1528. Finally, a sample bank resolution in Microsoft Word Document format authorizing the officers to open a bank account for the corporation.

       The price you issue your stock certificates for will depend on how much initial capital you need to have in your corporation. You can always contribute more and increase the shareholder’s capital contributions account, but if you don’t understand that concept you’ll want to hire an accountant. Make sure you fill out the stock certificate correctly by filling in the shareholder’s name and address, the number of shares, the full legal name of the corporation, and the date. Have the President of the corporation sign the certificate and affix the corporate seal. The Secretary of the corporation should then record this information in the corporate stock ledger including the date the shares were issued, the shareholder’s name and address, the price per share, and the total number of shares. You may also want to track the shareholder’s Social Security number, especially if you’ll be electing S corporation status (you’ll need all shareholders’ Social Security numbers).

10. Request a Federal EIN for the Corporation

       You can do this easily via the IRS online application. There is no fee and you can print your confirmation letter after you complete the application. The IRS will let you know which tax forms you will need to file and when. If you need help with the tax and accounting side of things, hire an accountant.

11. Take Care of Employee Hiring Paperwork

       Any time you hire an employee, there are certain steps you must take to gather information about them. Corporate officers are considered employees of the corporation. The IRS requires that you complete a Form I-9 (Employment Eligibility) and a Form W-4 (Withholding Certificate) for each employee. You don’t need to file these with the IRS, but you should keep them with your other records.

       Each state has new hire reporting requirements to enforce child support orders. Here is Pennsylvania’s New Hire Reporting website. You’ll need to report all employees (including corporate officers).

12. Open a Bank Account for the Corporation

       You should keep all of the corporations finances separate from your own. The best way to do this is to open a separate bank account for the corporation. You’ll most likely need your Federal EIN, a copy of your articles of incorporation, and either your own or the bank’s version of a corporate resolution. If your business is small and won’t involve a lot of financial transactions each month, you may want to look into a free business checking account. Just about every major bank offers a free business checking account, and your local bank may offer one as well. Check around to find one that suits your needs.

S Corporation Election

       If you’ve decided that becoming an S corporation is right for you, you’ll just need to fill out Form 2553 and send it in to the IRS. If you’re going to elect S corporation status, you should do it within 2 months and 15 days after filing your articles of incorporation in Pennsylvania. Federal S Corporations are automatically considered S corporations in Pennsylvania, so you’ll need to let the Pennsylvania Department of Revenue know if you don’t want to be taxed as an S corporation in Pennsylvania. Once you receive confirmation from the IRS for your S corporation election, send a copy to the Pennsylvania Department of Revenue to notify them. You should send notification to:

PO BOX 280705
HARRISBURG PA 17128-0705

       If you don’t understand the accounting and tax requirements for an S corporation, hire an accountant.

Ongoing Maintenance of the Corporation

       You should continue to hold the board of directors meetings and annual shareholders’ meetings as outlined in the corporate bylaws. Additionally, Pennsylvania law requires that certain records be kept at the corporation’s place of business. See 15 Pa. Cons. Stat. § 1508 for a list of the required documents. These documents must be made available to any shareholder who wishes to examine them.

Final Thoughts

       If you’re starting a simple one-person corporation, you can probably follow these steps and do just fine. However, if your situation is more complicated in any way you may want to hire an attorney. If you don’t understand the accounting and tax requirements of running a corporation, then strongly consider hiring an accountant to help you. It’s not worth going through all the trouble of incorporating if you’re going to neglect the requirements you need to meet to maintain the corporate veil of limited liability.

       I hope you found this guide helpful. If you have any suggestions or additional notes, please feel free to leave them in the comments section below.

December 11, 2008

The Way to Wealth – Nuggets of Wisdom from Benjamin Franklin: Leisure

Filed under: Earning,The Basics,The Way to Wealth,Values — Paul Williams @ Crackerjack Greenback @ 4:00 am

       Last week, we talked about Little Strokes in Benjamin Franklin’s The Way to Wealth. By diligently working towards our goals little by little, we can accomplish great things. Does all this talk about diligence, hard work, and industry make you feel like Franklin doesn’t expect us to ever take time for leisure? Here is today’s quote:

       Methinks I hear some of you say, must a man afford himself no leisure? I will tell thee, my friend, what Poor Richard says, employ thy time well if thou meanest to gain leisure; and, since thou art not sure of a minute, throw not away an hour. Leisure is time for doing something useful; this leisure the diligent man will obtain, but the lazy man never; so that, as Poor Richard says, a life of leisure and a life of laziness are two things.

The Way to Wealth – Benjamin Franklin

Yipeeee!!! by lepiaf.geo on Flickr       Much of Franklin’s writing is devoted to the power of industry and frugality, but what about fun? Without hard work, you’ll never have much time at all for leisure and pastimes. If you don’t work hard enough to save some money while covering your basic expenses, how do you ever expect to be able to take time off for relaxing (and be able to afford it)?

       Instead of viewing leisure and laziness as the ultimate goal in life, focus on using your time well and profitably. Labor brings more comfort than idleness. When we’re bored or idle, we often get ourselves in trouble. And we can’t sit around on the couch all day forever—eventually, we’ll need to work for something lest we starve or go homeless. Though the life of idleness and no work sounds appealing, it often leads to a lack of meaning and complete boredom. This is why many people find out retirement isn’t as great as they had once thought while they were slaving away at a job they hated.

       Find useful things to do with your time that you enjoy and work hard at them. Once you begin to enjoy your work and the results of your labor, you may start to view leisure in a different light. Success is likely to follow your hard work, and you’ll get the leisure time you’ve been dreaming of.

December 6, 2008

Weekend Reading: Best of the Carnival of Personal Finance #181 – Cyber Monday 2008 Edition

Filed under: Earning,Investing,Random Stuff — Paul Williams @ Crackerjack Greenback @ 4:00 am

       My article, “Ripped Off: Can You Trust Your Financial Adviser?” was included in the most recent Carnival of Personal Finance hosted by Mighty Bargain Hunter. Here are some of the best posts this week, in my opinion:

       In other news, The Oblivious Investor asks “Why Not Go 100% into Stocks?” Young investors should consider his post.

       Thanks for reading, and have a great weekend!

November 29, 2008

Do It Yourself: Why Your Time Is Not Worth As Much As You Think

Filed under: Earning,Frugality,Saving Money,Spending,The Basics — Paul Williams @ Crackerjack Greenback @ 4:00 am

       J.D. Roth at Get Rich Slowly has some good articles on how to figure out your real hourly wage. The first one titled “How to Compute Your REAL Hourly Wage” is a good start to calculating this number, but it leaves out taxes. The second article titled “Beyond “Real Hourly Wage”: How Much Time Does Stuff Actually Cost?” gets closer to a more accurate number, but I personally think you should do it a little differently.

We Still Work by furryscaly on Flickr       J.D. talks about deducting your fixed expenses to calculate your real hourly wage to figure out how many hours things cost in terms of your disposable income. I think this is a good number to keep in mind, but you should also consider your hourly wage in terms of net income as well (income minus work related expenses and taxes). This net income hourly wage can help you see how much of your time is spent paying for your necessities and put those costs in perspective. This is mostly just an interesting experiment, but it can help you realize that your time is worth something and spending money means giving up your time.

       However, what I really want to talk about is the discussion that came up following J.D.’s article about Things It’s Cheaper to Do Yourself. Some commenters contend that if a task would cost less per hour to outsource than you can earn in an hour then you’re better off paying someone else to do it for you. However, this logic is often flawed once you consider reality. This is a topic that’s been on my mind for a while, but J.D.’s article and the discussion prompted me to go ahead with my post.

What Are You Doing Instead?

       When I pay someone to change my oil, what do I do while I wait? I’m usually stuck sitting in a waiting room or browsing through the store (if I’m at Pep Boys or Walmart). I don’t earn any money while I’m waiting, so I can’t say I’m saving money or time by paying someone else to change my oil for me. If I can drop my car off and go do some income-producing activity, then it might be better for me to outsource the oil change. Even then, I need to make sure that my net after-tax hourly rate is going to be large enough to offset the cost of paying someone else to change my oil. If it’s not, then I’m better off changing the oil myself.

       The same can be said of many other activities we outsource. It’s easy to say, “Yeah, I’ll pay Jim $30 to mow my yard because it would take me 3 hours and I can earn $10/hour.” But this logic only works out if we take the time we would have spent mowing the yard and use it to earn money or provide ourselves with some other sort of value. This could mean enjoying a leisure activity or spending time with family. If mowing the yard would have prevented us from those (non-income producing) activities, then paying someone else to mow our yard might make sense depending on how much we value that time.

Sometimes It’s Better to Hire a Professional

Beautiful Tools by geishaboy500 on Flickr       Another exception would be projects that are better completed by a professional. If you do not have the ability to complete a project, then it’s probably best to pay a professional. You’ll save more money by having someone do it right the first time than having to go back and fix the mistakes you made trying to do it yourself. This can also be true if a project requires very specialized tools that we may never use again. This is the same logic we apply when we realize it’s better to rent a bulldozer to dig a hole than to buy it if we’re probably not going to use it again.

       However, it’s sometimes better to do a job yourself because you’ll know the quality of your work. When you hire someone else, you can get unlucky and end up with a “professional” who does shoddy work. With careful research and good referrals, you can usually avoid such misfortune. But if you know how to do a project and can do it well, you’re likely to get better results by doing it yourself than by hiring a “professional”.

What’s It Worth to You?       My point is that most of the time it makes sense to do it yourself. There are a few exceptions where this is not true, but simply valuing our time based on our gross hourly wage is flawed. We have to look at the value of our time spent in the replacement activity (the thing we’re doing instead of the DIY project). If the value of our replacement activity outweighs the cost of outsourcing, then we can safely say it’s better to outsource. This still neglects the benefits of learning new skills and the satisfaction that many people experience when they do something themselves, but that’s a very subjective benefit.

       Just as every other personal finance decision needs to be considered in light of your personal situation, so does weighing the option of doing something yourself or paying someone else to do it. Depending on the value of your time, the activity you’ll do instead of doing it yourself, your skill set, and your desire to do it yourself, it may or may not make sense to outsource a project. Be sure you consider these factors before you say you’re saving yourself money or time by outsourcing.

November 27, 2008

The Way to Wealth – Nuggets of Wisdom from Benjamin Franklin: Time Management

Filed under: Earning,The Basics,The Way to Wealth,Values — Paul Williams @ Crackerjack Greenback @ 4:00 am

       Last week, we talked about Wasting Time in Benjamin Franklin’s The Way to Wealth. Part of the solution to wasting time is time management. Here is today’s quote:

       Sloth makes all things difficult, but industry all easy, as Poor Richard says; and he that riseth late, must trot all day, and shall scarce overtake his business at night. While laziness travels so slowly, that poverty soon overtakes him, as we read in Poor Richard, who adds, drive thy business, let not that drive thee; and early to bed, and early to rise, makes a man healthy, wealthy and wise.

The Way to Wealth – Benjamin Franklin

       By carefully managing our time and working hard, we make it much easier to get things done. If we get a late start to the day, we can hardly catch up. Keeping a schedule and giving time to the tasks we need to accomplish helps us avoid wasting time and get more done in a day than if we wander around aimlessly.

Time by John-Morgan on Flickr       Having control over your business and keeping track of your plans is important to successful work. If you let emergencies and interruptions dictate your activities for a day, you’ll probably find it difficult to do any of the stuff you wanted to. Distractions destroy our focus and make it tough to do anything very well. This is part of the reason why multitasking is a myth.

       Finally, we have one of Franklin’s most famous quotes. Getting enough rest at night is very important to keeping our bodies healthy and our minds clear. If we avoid sleeping in late we have more time to work, which invariably leads to wealth if successful. Franklin’s point in this quote is that careful time management makes our lives easier and less stressful, and hard work is bound to make us successful when combined with time management.

       If you have some time you’d like to spend learning more about personal finance, make sure you check out this week’s Carnival of Personal Finance. But make sure you don’t neglect the more important things you might need to do right now!

October 28, 2008

Three Financial Formulas You Need to Know and Understand

Filed under: Earning,Spending,The Basics — Paul Williams @ Crackerjack Greenback @ 4:00 am

       If you can remember and understand the following three financial formulas, you’ll be well on your way to building wealth. They’re not complicated, they’re not fancy, but they will put you ahead of 90% of the population. Well, I don’t really know that 90% figure is true, but it sure seems that way!

Formula One: The Debt Formula
The Debt Formula

       In simple terms, 2 – 3 = DEBT. If you spend more money (represented by the 3 piles of money) than you earn (represented by the 2 piles of money), you will go into debt. There is no way around it. Spending even one dollar more than you earn is bound to lead to financial destruction if carried out over a long enough period of time.

Formula Two: The Broke Formula
The Broke Formula

       Once again in simple terms, 2 – 2 = BROKE. If you spend every penny you make, you will be broke. There is no way around it. You will be living paycheck-to-paycheck until you can break the cycle and begin following Formula Three.

Formula Three: The Wealth Formula
The Wealth Formula

       OK, this one is a little more complicated, so pay attention! 2 – 1 = SAVINGS. If you spend less than you earn, you’ll have money left over to save. If you take that savings and invest it, you get WEALTH. How do you invest it? There are numerous ways, but here are a few:

  • Pay off debt!
  • Invest in yourself! (Education & Training)
  • Invest in the Stock Market! (In a low-cost, tax-efficient, diversified portfolio)
  • Invest in Real Estate! (Be careful with this one!)
  • Start a Business! (Probably the best option if you have entrepreneurial skills and a good business idea)

That’s All the Math You Need!

       Well, there is one other formula you’ll need to understand – compound interest. We’ll talk about that later though. For now, just figure out how you can start following The Wealth Formula if you’re not already. Oh, and don’t spend any more time trying to figure out other financial formulas just yet. This will be all you need for a while!

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