How do I determine my long-term financial goals?

The first step is to decide what you realistically want to achieve financially. Financial goals might include early retirement, travel, a vacation home, securing your family’s financial comfort on the death of a bread-winner, planning for the care of elderly relatives or building a family business.

What pieces of paper do I need to keep in order to do my taxes?

Keep detailed records of your income, expenses, and other information you report on your tax return. A good set of records can help you save money when you do your taxes and will be your trusty ally in case you are audited.

There are several types of records that you should keep. Most experts believe it’s wise to keep most types of records for at least seven years, and some you should keep indefinitely.

What type of records do I need to keep?

Keep records of all your current year income and deductible expenses. These are the records that an auditor will ask for if the IRS selects you for an audit.

Here’s a list of the kinds of tax records and receipts to keep that relate to your current year income and deductions:

  • Income (wages, interest/dividends, etc.)
  • Exemptions (cost of support)
  • Medical expenses
  • Taxes
  • Interest
  • Charitable contributions
  • Child care
  • Business expenses
  • Professional and union dues
  • Uniforms and job supplies
  • Education, if it is deductible for income taxes
  • Automobile, if you use your automobile for deductible activities, such as business or charity
  • Travel, if you travel for business and are able to deduct the costs on your tax return

While you’re storing your current year’s income and expense records, be sure to keep your bank account and loan records too, even though you don’t report them on your tax return. If the IRS believes you’ve underreported your taxable income because your lifestyle appears to be more comfortable than your taxable income would allow, having these loan and bank records may be just the thing to save you.

How long should I keep these records?

Keep the records of your current year’s income and expenses for as long as you may be called upon to prove the income or deduction if you’re audited.

For federal tax purposes, this is generally three years from the date you file your return (or the date it’s due, if that’s later), or two years from the date you actually pay the tax that’s due, if the date you pay the tax is later than the due date. IRS requirements for record keeping are as follows:

  • You owe additional tax and situations (2), (3), and (4), below, do not apply to you; keep records for 3 years.
  • You do not report income that you should report, and it is more than 25 percent of the gross income shown on your return; keep records for 6 years.
  • You file a fraudulent return; keep records indefinitely.
  • You do not file a return; keep records indefinitely.
  • You file a claim for credit or refund* after you file your return; keep records for 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later.
  • You file a claim for a loss from worthless securities or bad debt deduction; keep records for 7 years.
  • Keep all employment tax records for at least 4 years after the date that the tax becomes due or is paid, whichever is later.

What kind of records do I need to keep in my business?

Complete and accurate financial record keeping is crucial to your business success. Good records provide the financial data that help you operate more efficiently. Accurate and complete records enable you to identify all your business assets, liabilities, income and expenses. That information helps you pinpoint both the strong and weak phases of your business operations.

Moreover, good records are essential for the preparation of current financial statements, such as the income statement (profit and loss) and cash-flow projection. These statements, in turn, are critical for maintaining good relations with your banker. Finally, good records help you avoid underpaying or overpaying your taxes. In addition, good records are essential during an Internal Revenue Service audit, if you hope to answer questions accurately and to the satisfaction of the IRS.

To assure your success, your financial records should show how much income you are generating now and project how much income you can expect to generate in the future. They should inform you of the amount of cash tied up in accounts receivable. Records also need to indicate what you owe for merchandise, rent, utilities, and equipment, as well as such expenses as payroll, payroll taxes, advertising, equipment and facilities maintenance, and benefit plans for yourself and employees. Records will tell you how much cash is on hand and how much is tied-up in inventory. They should reveal which of your product lines, departments, or services are making a profit, as well as your gross and net profit.

The Basic Recordkeeping System

A basic record-keeping system needs a basic journal to record transactions, accounts receivable records, accounts payable records, payroll records, petty cash records, and inventory records.

An accountant can develop the entire system most suitable for your business needs and train you in maintaining these records on a regular basis. These records will form the basis of your financial statements and tax returns.

How can I tell whether I have too much debt?

If you answer yes to any one of the following questions, you should take action:

  • Have you run several credit cards up to the limit?
  • Do you frequently make only the minimum monthly payments?
  • Do you apply for almost any credit card you are offered–without checking out the terms?
  • Have you used the cash advance feature from one card to pay the minimum payment on another?
  • Do you use cash advances (or a credit card) for living expenses such as food, rent, or utilities?
  • Are you unable to say what your total debt is?
  • Are you unable to say how long it would take you to pay off all your current debts (excluding mortgages and cars) at the rate you have been paying?

If you find several of these statements describe your credit habits, it may be that you need to take steps to manage your debt before bill collectors start calling and your credit history is endangered.

How can I get the most benefit from my credit cards?

Here are some suggestions for the use of credit cards:

    1. Pay bills promptly to keep finance charges as low as possible.

Tip: Keep copies of sales slips and promptly compare charges when your bills arrive

    1. Keep a list of your credit card account numbers and the telephone numbers of each card issuer in a safe place in case your cards are lost or stolen.
    2. Protect your credit cards and account numbers to prevent unauthorized use.

Tip: Draw a line through blank spaces above the total when you sign receipts. Rip up or retain carbons.

    1. Deal only with reliable firms. Check with your local consumer protection agency or the Better Business Bureau (BBB) closest to where the business is located. Study the advertising offer carefully and always ask the company about its refund and exchange policies as well as product warranties offered.

Tip: Pay by money order, check, charge or credit card so you have a record of your purchase.

  1. Never send cash. Keep the ad you responded to and a copy of the order form. If there is no order form, make your own notes with the company’s name, address, phone number, date, amount, the item you purchased, and any delivery date that may have been promised.
  2. Never give out your credit, debit, charge card or bank account numbers unless you’ve checked out the company or have done business with it before.

What factors affect my credit rating?

Your credit rating is affected by a number of different factors, some obvious and others few consumers are aware of. The following factors are discussed below:

  • Whether you have a credit card or use another person’s credit card
  • Whether you have a bank checking or savings account
  • Where you live
  • Your age
  • Your debt-income ratio
  • Whether you have declared bankruptcy or have had “charge-offs” to your account
  • Whether you are delinquent in any child support payments
  • Whether you have “too much” credit available

What do banks look for when considering a loan request?

When reviewing a loan request, the bank official is primarily concerned about repayment. To help determine this ability, many loan officers will order a copy of your business credit report from a credit-reporting agency.

Using the credit report and the information you have provided, the lending officer will consider the following issues:

  • Have you invested savings or personal equity in your business totaling at least 25 percent to 50 percent of the loan you are requesting? Remember, a lender or investor will not finance 100 percent of your business.
  • Do you have a sound record of credit-worthiness as indicated by your credit report, work history and letters of recommendation? This is very important.
  • Do you have sufficient experience and training to operate a successful business?
  • Have you prepared a loan proposal and business plan that demonstrate your understanding of and commitment to the success of the business?
  • Does the business have sufficient cash flow to make the monthly payments on the amount of the loan request?

How should I determine which of several loan alternatives is best?

Use the legally-required disclosures of loan terms to compare the costs of home equity loans.

The Truth in Lending Act requires lenders to disclose the important terms and costs of their home equity plans, including the APR, miscellaneous charges, the payment terms, and information about any variable-rate feature. In general, neither the lender nor anyone else may charge a fee until after you have this information.

You usually get these disclosures when you receive an application form, and you will get additional disclosures before the plan is opened. If any term has changed before the plan is opened (other than a variable-rate feature), the lender must return all fees if you decide not enter into the plan because of the changed term.

Credit costs vary. By remembering two terms, you can compare credit prices from different sources. Under Truth in Lending, the creditor must tell you-in writing and before you sign any agreement-the finance charge and the annual percentage rate.

The finance charge is the total dollar amount you pay to use credit. It includes interest costs, and other costs, such as service charges and some credit-related insurance premiums.

For example, borrowing $100 for a year might cost you $10 in interest. If there were also a service charge of $1, the finance charge would be $11.

The annual percentage rate (APR) is the percentage cost (or relative cost) of credit on a yearly basis. This is your key to comparing costs, regardless of the amount of credit or how long you have to repay it:

Example: You borrow $100 for one year and pay a finance charge of $10. If you can keep the entire $100 for the whole year and then pay back $110 at the end of the year, you are paying an APR of 10 percent. But, if you repay the $100 and finance charge (a total of $110) in twelve equal monthly installments, you don’t really get to use $100 for the whole year. In fact, you get to use less and less of that $100 each month. In this case, the $10 charge for credit amounts to an APR of 18 percent.

All creditors-banks, stores, car dealers, credit card companies, finance companies- must state the cost of their credit in terms of the finance charge and the APR. Federal law does not set interest rates or other credit charges. But it does require their disclosure–before you sign a credit contract or use a credit card–so you can compare costs.