Launching a new website on personal finance: Tippyfi

A few days ago, I started a new WordPress website called Tippyfi, with the tagline “making financial independence typical, one person at a time.” This will be a financial education website that I eventually hope to turn into a venture that provides financial advice in an innovative way. While I wrap up my Ph.D. in Education at University of Central Florida over the next 18 months, my goal is to write 100 really useful articles for the site (so far, I have three).

I have written quite a bit about personal finance here on, but I often write in a manner that is not accessible to the public. With Tippyfi, I am writing more accessible, edgy, image-laden pieces that develop, extend, and provide concrete examples for the financial benefit of my readers. Some of my articles will be “deep dives,” such as my new article on how credit card interest is actually calculated (hint: it’s unfavorable to the customer).

Join me over at Tippyfi as I start this new journey.

Graph of typical version of timing the market where people wait for a bigger drop, the market goes up a lot, the investor gives in and buys high, and then the market dips and the investor sells in a panic

6 Easy Ways to Finance Your Seasonal Business

Not all businesses operate with full steam around the year. There are seasonal businesses which have periods of high sales followed by lower cycles. This cyclical nature can add to the challenge of running a business – especially when it comes to financing.

Since seasonal businesses tend to have money coming in sporadically, it’s important to find ways to manage the cash flow and finance the business. The good news for anyone considering launching a seasonal business is that solutions are out there. Here are six ways to finance your seasonal business.

1. Getting a business line of credit

Seasonal businesses should consider getting a business line of credit. It allows you to draw funds against a predetermined credit line instead of receiving a lump sum such as in a traditional loan. The good analogy for a business line of credit would be to compare it to a credit card – you can use it as you need and pay only for the amount you actually use.

2. Utilising your credit card

Speaking of credit cards, special small business credit cards can be a good financing option for a seasonal business. If you are able to get a maximum credit line, it could allow your business to draw anything from a few thousand to tens of thousands. You’ll also only need to pay back what you need and the credit card will reward early repayment. The extra benefit of a business credit card can be the introduction of reward points and cash back opportunities.

3. Applying for a short term business loan

Short term loans are another good option to consider, as these loans usually allow up to 6 months to repay the loan, allowing lending of anything between a few hundred to a few thousand. The interest rates can be relatively high but short term loans don’t have strict qualifications and they can positively impact your credit score. Short term loans are a viable solution for getting past the initial cash flow hiccups.

4. Opting for invoice financing

You could also consider invoice financing. This method means financing your business using your own invoices. An invoice financing service will pay unpaid invoice into your account and your business will pay these back over the course of the next weeks. This can ensure you get a steady stream of money to finance running business needs without having to worry about when your invoices are paid.

5. Using Merchant Cash Advances (MCAs)

MCAs are another easy-to-obtain financing option. They are available for business with bad credit score and you don’t need to have any collateral to get it. You don’t have to pay at the same rate and therefore, having slower cash flow won’t necessarily hurt your repayment. However, you do need to continue paying it on a regular basis and the interest rates for MCAs can be higher than some of the other means on the list.

6. Checking out equipment financing

Finally, you might want to consider an equipment financing plan. These are suitable for seasonal businesses with valuable assets, such as cars, machinery or other such equipment. You will, essentially, receive a loan with the asset as collateral. It’s similar to a traditional loan in everything except this aspect – having your assets as the collateral and taking the risk of losing them if things don’t go according to plan.

Running a seasonal business can be trickier than launching a traditional business – there is quite a bit of risk you must manage. The highs and lows of cash flow are a challenge and they require careful attention. But you can smoothen your journey by using all or some of the above ways to finance your seasonal business.

A few thoughts on time management

Here are a few quick thoughts on time management I wrote on 2018-02-01 in response to a private discussion topic:

Time blocks are good to avoid Parkinson’s law: “Work expands so as to fill the time available for its completion.” If you have two weeks to do something, even if it could be done in a day, it often ends up taking two weeks to get it done. Procrastinators like myself often wait until the last day before putting concentrated effort into meeting a deadline. However, this is obviously not ideal.

I have heard good things from productivity podcasts about the Pomodoro timer method for time-blocking your workday, but have yet to actually try it.

Of course, another critical piece is saying “no” to unnecessary distractions. For example, as a Ph.D. student I decided to give up Toastmasters, as I had been a club president and achieved many certifications there, so I felt the returns were diminishing and my time was better spent elsewhere. Life should not be looked at as a competition to impress others by being the most “busy” person. In fact, having fewer things that you do very well is usually preferable.

Tax-Exempt Retirement Contributions and the Bucket Analogy

Here, I am continuing my prior post and other writings. Even though I am financially competent, tax-exempt retirement accounts are complex and I have only just discovered that Roth 401(k)s, which have only been available since 2006, actually have different contribution limits from Roth individual retirement accounts (IRAs; which have been available since 1997). Before, I had incorrectly thought that the combined limits between the two were $5500. Actually, the limit for a Roth IRA is $5500 per year (under Age 50) and for a Roth 401(k), an additional $18,000 (under Age 50; increasing to $18,500 in 2018). For Americans Age 50 and above, the limits are $6500 and $24,000 (the latter increases to $24,500 in 2018), respectively. Although I work for a university on a stipend (not fellowship) consisting of earned income via an assistantship (graduate teaching associate), I did not discover until recently I can contribute to a 403(b), the non-profit equivalent of a 401(k), in addition to a Roth IRA.

For the uninitiated, Roth accounts require you to have earned income for which you pay income tax now, but in retirement (above Age 59.5), all capital gains taxes are waived. There are also a few other situations such as medical expenses, education expenses, and first-time home-buying that allow you to make withdraws with waived capital gains taxes before Age 59.5. Depending on your tax bracket when the withdraws are made, under the new 2018 tax laws, your capital gains tax (which would be long-term due to investments being held over one year) could be 0%, 15%, or 20% depending on your income, but most likely 15%.

Roth 401(k)s can only be contributed to via employee contributions, which come out of your paycheck. Notably, your contribution is tax-exempt while any employer matching funds are tax-deferred like with a traditional 401(k). Employers usually have retirement programs with companies such as Fidelity whereby employees can pick a percentage of their pay to contribute. Roth accounts are especially applicable to low-income workers (i.e., in the 12% tax bracket) because they might be in a higher tax bracket at Age 59.5+, so tax exemption benefits them more. However, even for those with higher incomes, capital gains can far outstrip the initial contribution over many decades. Furthermore, anyone who has cashed out a U.S. savings bond knows the IRS gives no consideration to inflation when calculating the unearned interest income derived forthwith. Monetary inflation is also not considered for capital gains, which is a reason tax-exempt accounts are especially valuable.

Roth IRAs can only be contributed to via a person with earned income setting up one on his/her own, such as with Vanguard. Employers cannot offer Roth IRAs. Those with earned income can contribute up to $5500 per year to Roth IRAs, tax exempt, in addition to contributing up to $18,000 to a Roth 401(k) if their employer offers one.

Both traditional and Roth retirement accounts are wrappers for other types of investments. You could put your money in a money market account or certificate of deposit, bonds, or equities. Over long time periods (e.g., 15+ years), stocks are the best of these three types of investments. You can change how your retirement fund is invested at any time. Many financial advisers advocate for putting most of your money in an index fund of the S&P 500 or whole U.S. stock market while young, with a transition toward bonds as you near retirement, which offer less risk of loss but less potential for gains.

Sadly, both traditional and Roth retirement accounts grossly favor the wealthy and well-informed, perpetuating wealth inequality. Most Americans cannot being to approach the $18,000 annual limits on 401(k) contributions. Many do not even have an emergency fund. Wages are too low and expenses too high for them to contribute anywhere near $5500 per year to an IRA, as well. Nonetheless, every year that goes by is a missed opportunity to contribute, because there is no “catching up” on prior years’ annual contribution limits (besides being allowed to contribute for a prior year up until tax day—even after you have filed your taxes for Roth IRAs).

The ideal way to build wealth would be to contribute annually to your IRA as follows, and to your 401(k) too if you have the funds available:

Full annual contributions

However, even financially savvy Americans do not typically have enough money available to put $5500 in their IRAs nor $18,000 in their 401(k)s per year. If they are above-average, their contributions might look like this:

Varying partial annual contributions

However, the rules to withdraw retirement monies are complex and fraught with taxes and penalties. Most Americans cannot say with assuredness that they won’t “need” thousands of dollars until Age 59.5+. Contributing to a retirement account only to cash it out a few years later is common, often with penalties. Even without penalties, such behavior harshly perpetuates wealth inequality because there is no way to put the piggy bank back together after hammering it open (i.e., one cannot withdraw money and then make up for this later, and taking a loan from your retirement account comes with unsavory fees). Consequently, the statistical mode for American retirement contributions is as follows:

No annual contributions

Stocks go up and down. When we look at this S&P 500 chart from Wikipedia, it is clear that one could invest at a market peak and be upside-down for many years:

66-year S&P 500 chart

However, being invested over a long duration of time results in a near-guarantee of returns that exceed money market accounts, certificates of deposits, or bonds. Without thinking about tax-advantaged retirement accounts, one would think that late-bloomers to retirement saving can simply catch up by putting in a lot of money now. However, the annual contribution limits for these accounts, shown through the imagery of buckets, prevent late bloomers from catching up. Although one can contribute the maximum per year starting now, there is no way to go back and contribute for prior years—even at current market levels. Therefore, the typical American suffers the double whammy of missing out on tax-exempt or tax-deferred retirement savings and market gains. This situation is insufferable.

Updated 2018-01-30 to note graduate assistants can contribute to a 403(b) and to note $500 increase to 401(k) annual contribution limits in 2018.

Thoughts on Financial Education, Retirement, Starbucks Partners

These are ideas I wrote on 2018-01-27 about financial education and retirement accounts for Starbucks partners (employees). I am thinking about starting a financial education corporation or not-for-profit after finishing my Education Ph.D. in August 2019.

Giving financial advice is largely unregulated, but investment advice as basic as “put 50% of your money in VTSMX” is regulated. A firm must be an Registered Investment Adviser (RIA) with one or more Investment Adviser Representatives (IARs) to proffer such advice. Becoming an IAR requires passing the FINRA Series 65 exam for $175, and an RIA can have just one IAR. The RIA must be registered with FINRA and the U.S. states it does business in (or, for huge firms RIAs, with the SEC), which costs several hundred dollars more. For instance, LearnVest, Inc. has a subsidiary called LearnVest Planning Services LLC that is an RIA. Becoming a Certified Financial Planner (CFP) or other achievement is not required. The Series 65 exam can be studied for in a week or less and only 72% is required to pass. It is offered at Prometric testing centers. LearnVest, and my venture, would share the characteristic of just advising clients on what to do with their money, but not managing their money. We would both have zero assets under management (AUM) meaning we just advise on what type of accounts to open, what companies to use (e.g., Vanguard), and what moves to make. These “moves” would largely be related to general financial planning and tax avoidance, but not timing the market or picking sectors or individual stocks.

In particular, the mobile apps available for learning about personal finance are shockingly pathetic. Most focus on particular areas (e.g., You Need a Budget, Mint, Personal Capital) rather than being comprehensive. LearnVest’s mobile app is particularly egregious, being available only for iOS and not having been updated for four years.

An example: A Starbucks employee should probably have a Fidelity Roth IRA (“Partner Roast“) contributing at least 5% of each paycheck for the 100% “safe harbor” employer match on up to 5% contributed, but then additionally should have a Vanguard Roth IRA to contribute more money each year. If they can only muster $1000, they can use the STAR fund (VGTSX, $1000 min), or more preferably the total stock market index fund (VTSMX) if they have $3000 to spare (note: Vanguard ETFs may be an option for smaller balances). The additional Roth IRA is needed because a Starbucks employee who makes $25,000 per year would only be contributing $2500 to their Roth IRA even with the partner match, while the max per year to contribute to Roth IRAs is $5500. While the partner could contribute more than 5% of income, it can be difficult to predict one’s future financial situation or exact income at the start of the year. If a Starbucks partner starts out contributing 15% of income + 5% match but then has to reduce to zero later in the year, they lose out on the safe harbor match for the duration of pay periods where they reduced their contribution to zero. However, like most employer-sponsored retirement savings plans, the Starbucks–Fidelity offering does not allow Starbucks partners to contribute from their checking account! They can only contribute from payroll by setting the percentage in advance. However, it is perfectly lawful to have two Roth IRA accounts as long as the combined contributions don’t exceed $5500 for the year (or $6500 if Age 50+). Further, Americans can contribute for the prior year up to the tax deadline (e.g., until 2018-04-17 for Year 2017). I speculate that 95%+ Starbucks partners don’t know this. Further, the majority probably don’t even have a 3-month emergency fund. Finally, Starbucks offers many benefits, but not a financial wellness program.

Writing on education, finance, psychology, et cetera