Maricopa Chamber Finance Blog

Jul 1

Financial Strategies for Small-business Owners

Filed Under Uncategorized

Last modified: July 1, 2008

Submitted By: Jake Romero
Chase Bank Financial
Vice President of the Chamber Board

If you’re a small-business owner, you put your heart, soul - and most of your time - into your business. Unfortunately, sheer hard work doesn’t always translate into financial security - so you’ll need to take some additional steps.

Here are a few to consider:

Protect your business against the loss of a key employee. If you have an employee with valuable management or sales skills, and this person were to die unexpectedly, your business could suffer. That’s why you may want to write a “key-person” life insurance plan on this employee. In its simplest form, key-person coverage pays cash to your company, which is usually the policy beneficiary, when the designated employee dies or becomes disabled.

Key-person insurance also can be structured to fund deferred-compensation arrangements or buyout agreements between partners.

Avoid “raiding” business coffers to pay for personal expenses. Try to keep six to 12 months’ worth of living expenses in a liquid account. Once you have established this “emergency fund,” you’ll be less likely to tap into your business’ income or assets to pay for unexpected personal expenses, such as a new appliance, a costly car repair or a large medical bill.

Create a retirement plan for yourself. As a business owner, you’re responsible for establishing your own retirement account. Fortunately, you have some attractive choices, including the following:

SEP-IRA - You can contribute up to 25 percent of your compensation - as much as $46,000 - to a SEP-IRA. Your contributions are tax deductible and your earnings have the potential to grow tax-deferred until withdrawn. This plan offers you significant flexibility in making contributions for yourself and your employees. Plus, as an employer, you can generally deduct, as business expenses, any contributions you make on behalf of your plan participants.

SIMPLE IRA - You can put in up to $10,500 - or $13,000 if you’re 50 or older - to a SIMPLE IRA. As is the case with the SEP-IRA, your earnings have the potential to grow tax deferred. You can match your employees’
contributions dollar for dollar, up to three percent of compensation, but no more than $10,500 (or $13,000 for employees 50 and over). Alternatively, you could contribute two percent of each eligible employee’s compensation each year, up to a maximum of $4,600, regardless of whether the employee contributes or not. Contributions to your employees are tax deductible.

“Owner-only” 401(k) plan - If you have no employees other than your spouse, you can establish an “owner-only” 401(k) plan. Between salary deferral and profit sharing, you can contribute up to $46,000, in pre-tax dollars, to your owner-only 401(k), or $51,000 if you’re 50 or older. Like a SEP-IRA and SIMPLE IRA, a 401(k) provides the potential to accumulate tax-deferred earnings. But if you open a Roth 401(k) your earnings have the potential to grow tax free, provided you’ve had your account at least five years and you don’t start taking withdrawals until you’re at least 59-1/2. (However, you make Roth 401(k) contributions with after-tax dollars.)

Your tax or financial advisor can help you decide which retirement plan is right for your business. But don’t wait too long to choose one, or to make the other moves necessary to help you make progress toward your financial goals. When you own a business, time flies - so make the right moves today.

Mar 26

What Do Those Economic Indicators Mean, Anyway?

Filed Under Uncategorized

Last modified: March 26, 2008

Submitted By: Jake Romero
Chase Bank Financial &
Vice President of the Chamber Board

If you follow the news regularly, you will see many different reports on the state of the economy. Government officials and economists closely watch these reports - and, as an investor, maybe you should, too.

Here are a few of the most important economic indicators to consider:

Employment Situation Report - This monthly report, issued by the Bureau of Labor Statistics, shows the unemployment rate, new jobs created, the average weekly hours worked and the average hourly earnings. Economists and policymakers watch this report closely because employment drives consumer spending - a key factor in economic growth. Furthermore, low employment figures can cause the Federal Reserve to lower interest rates, while high employment figures can signal an overheated economy, which may lead the Fed to raise rates. Higher interest rates can have an effect on all your investments. When rates rise, it’s more difficult for companies to borrow to expand their businesses, which can hurt their stock prices. Also, higher interest rates will likely cause the value of your bonds to drop.

Housing Starts - Around the middle of every month, the Commerce Department releases a report on housing starts for the previous month. Economists consider housing starts to be a leading indicator of recessions and recoveries - and both those events can have an impact on interest rates.

Advance Monthly Retail Sales - Each month, the Census Bureau reports on retail sales for the previous month. This indicator tracks the merchandise sold by companies, large and small, within the retail industry. Each month’s report shows the percent change from the previous month. This indicator can affect some important areas of the financial markets, particularly retail stocks.

Consumer Price Index (CPI) - Released mid-month by the Bureau of Labor Statistics, the CPI is considered the most widely used measure of inflation. Basically, the CPI tracks the monthly change in price of a “basket” of consumer goods and services. Generally speaking, the financial markets anticipate the CPI will rise at an annual rate of 1 percent to 2 percent; any larger increase is seen as a signal of inflation heating up too much. (Keep in mind that the “core rate” of inflation excludes food and energy prices, which are often volatile.)

Producer Price Index (PPI) - Generated each month by the Bureau of Labor Statistics, the PPI is not as commonly used as the CPI, but it is also considered a reasonably good indicator of inflation. The PPI is essentially a basket of various indexes covering a wide range of industries, including manufacturing and agriculture. Because the PPI includes goods being produced, it is often seen as a “forecast” of future CPI reports.

When it comes to investing, no one has a “crystal ball.” But by paying close attention to these and other economic indicators, your investment professional can acquire valuable information that may well help you make the right moves at the right time.

Oct 15

Is buying a Home a Good Idea in Today’s Economy?

Filed Under Uncategorized

Last modified: October 15, 2007

Guest Writer: Don Reitz, Dan Schwartz Realty

As a long term investment, homeownership is still one of the best investments an individual can make. Headlines and other media say that the housing market is down and out, with defaults rising at an alarming rate, and mortgage markets so frozen that buyers can’t get a home loan at any price.

The fact is, there is no “credit crunch” for qualified buyers taking out a loan of under $417,000. Loans up to that amount are backed by government sponsored companies like Fannie Mae or Freddie MAC. There are a lot of new-home builders that offer a great selection of homes below that price. The sub-prime mortgage turmoil we hear about is only about 13 percent of the $10.4 trillion outstanding loans today.

If you have a good credit, a job and a steady income, you will find that there is plenty of mortgage credit to be had at good rates. For well qualified buyers, rates are running about 6.5 percent, which is fantastic on a historic basis. In 1984, fixed rate mortgage interest was as high as 14.75 percent. Even as recently as six years ago, interest rates ranged from 8 to 8.5 percent. A half percent rate difference on a $200,000 mortgage, from 6.5 percent to 7 percent, translates into an increase in monthly mortgage payments of $66.00.. When rates are this attractive, it just makes sense to buy. Another thing to keep in mind is that there are a lot of homes for sale – more than there have been in a long time. That means you have a great selection from which to choose and should have no problem finding exactly what you’re looking for and, you’re in a very good position to negotiate a good deal.

What buyers need to realize is housing markets inevitably have their ups and downs and homeownership has a track record that virtually is unmatched by any other purchase in terms of real benefits. The long-term fundamentals for housing remain the same. To make the argument that prices will keep going down, you have to believe that the cost of building a home is going to go down. That won’t happen. Land, material, and labor costs only will keep getting higher. So the price of new homes will increase overall and the price of existing homes, due to market competitiveness, will go up as well. First and foremost a house should be a place in which to live and raise your family. Too many people recently got carried away with the idea of making a quick buck by purchasing a home or condo and reselling it right away for a profit. Those days are gone.

The bottom line is this: If you are looking for a place to live and for a solid long-term investment, now is a good time to by a home.

Don Rietz, Dan Schwartz Realty, Inc
Email: DonAZland@Qwest.net