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SEP Savings

Not looking forward to sharing your hard-earned business profits with the IRS this year? One way you might be able to keep more for yourself is to establish a Simplified Employee Pension (SEP) plan.

With a SEP, you make tax-deductible contributions to individual retirement accounts (IRAs) established for yourself and your eligible employees. You don't have to contribute to a SEP plan every year, but if you make a contribution for yourself, you also have to contribute to each eligible employee's account (generally a uniform percentage of compensation). For 2011, you may contribute as much as 25% of compensation (maximum contribution of $49,000) for yourself and each participating employee.

A SEP has fewer administrative requirements than many other retirement plans. You have until your business tax-filing deadline (including extensions) to open a SEP and make your contribution.

It's hard to imagine not using credit cards. As long as you have a handle on things and keep your debt under control, there shouldn't be a problem. But get behind and you could end up paying -- in more ways than one.

The Good

Buying on credit is convenient. How many people do you know who wait to buy something until they have the cash in hand? Probably very few. Want that new 3-D television? It's easy -- just charge it. And what about all those everyday things you pay for by credit card? You have the money to cover your purchases, but paying with plastic is easier.

The Bad

However, using credit takes discipline. Let's say you go on a spending spree and charge more than you can afford to pay off in one billing cycle. Result: You owe interest on the balance. If something happens and you can't pay off your balance the next month, more interest is added. Now you're paying interest on the interest. If you happen to pay your bill late one month, you may get hit with a finance charge. You could end up paying interest on that amount, too.

The Ugly

Mounting credit card bills could stress your finances to the point where you're only able to pay the minimum amounts due each billing cycle. And, if that happens, it could take years to dig yourself out of debt. Over time, you could end up paying more in interest and fees than the cost of the items you charged.

Besides being expensive, too much debt could take its toll in another way. It could lower your credit score, which might make it difficult to get affordable insurance or a reasonable rate on a mortgage or car loan.

The Solution

If you're saddled with too much debt, it's time to rein in your spending. Cut up your credit cards and use cash for purchases. Pay as much as you can each month on your credit card bills. Focus on the card with the highest interest rate first, while making minimum payments on all the others. Then whittle down your other balances, one by one. And always pay your bills on time.

October 2011 Newsletter |

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October 2011 Newsletter