The benefits of appropriate timing when building wealth

The primary difference between the wealthy and everyone else is time management.  The wealthy tend to plan their purchases and because they are not so desperate they never fall prey to the penalties of quick money.   It is important to note that there is a difference between the wealthy and the rich.   The rich are still trying to figure things out and are not totally immune to some of disadvantages faced by the middle class.

 For the poor on the other hand their purchases are more demand based.   The poorer a person is the more last minute their purchases tend to be and unfortunately there is always a premium attached their access to money.  Ideally people need to always factor in the cost of borrowing to get a better picture of their spending patterns.  It is not enough to know that you are meeting all you bills each month, take it a step further.  Every penny counts when building wealth.  If you think you have been overcharged take a moment to ask for a breakdown of the costs.  Just because someone is providing a service it does not naturally follow that they have carte blanche.   After all it is a free economy and pricing flexibility is fully in play – willing buyer vs willing seller – there is always room to negotiate.  Some companies now offer you a menu of services that have a corresponding price structure. If you are selecting from a 'menu" then it isn't enough to just buy for price, a discount today might turn out to be a premium tomorrow.

Fundamentally a person’s basic needs will remain the same over their lifetime, its only the quality the changes due to circumstances.  Without an intimate relationship with our finances and goals we will always think that need and availability of funding determine our how, where and how much we spend earnings.  Once you train yourself into having a long-term, well managed view of your future you will realize you have a lot more flexibility in what you can do, reducing expenses and increasing savings accordingly.

Ignorance is not a valid form of defense - Small business & retirement plan compliance

Conventional wisdom says do your research before embarking on a new business.   For some starting a new business is overwhelming, fear of failure becomes a barrier.  For others the adventure and thrill are their driving force that pushes them to surge ahead.  Fortunately there are the cautious few that read all the right books, visit the websites but better still will seek the counsel of those in the know.  Another group fully acknowledges their shortcomings and partner up with people who complete them.  It is these to last two groups that will eventually make up that successful 33%.   

There are numerous organizations (both government and private), books and websites giving a mired of tips on starting a new business.  Regardless of the guidelines showing you pitfalls to avoid, the percentage of businesses that fail within the first three years remains pretty much the same.  So if it isn't lack of available information, what then leaves us wanting? The need for knowledge does not end here. 

  

With every stage of growth in business comes with it a greater need for compliance and it is here where danger awaits the unsuspecting business owner.  For those entrepreneurs driven into business either by sheer passion to fulfill a need for a service that was beckoning or a simple need for independence and growth, hiring a competent administrator would be a step in the right direction.  Being good at one thing it does not necessarily follow that you can run the business all on your own while still meeting the need that drove to this point in the first place.  No one of yearns to be jack of all trades but instead we all want excel in our chosen field.  

They say ignorance is not a valid line of defense.  So as a business owner you are required to be in compliance with all governing bodies which apply to your chosen entity type.  From payroll and income taxes to whatever tax shelters your accountant might suggest, being on the one right side of the rules may save you a lot aggravation and unnecessary penalties.  Retirement plan compliance is a current favorite of the IRS audits and you would be well served to pay attention to their guidelines on Operating a Simple IRA if this is what you opted for. You hear "Simple IRA" as tax shelter for retirement planning but it is anything but simple - Saving Incentive Match Plan Employees.  The simplicity is only in the fact that the required tax reporting of regular Profit Sharing Plans and 401(k) Plans is not required for a Simple Plan.  The plan works basically like an IRA and in most cases you use a prototype document that the mutual fund company has already obtained document approval from the IRS.

Basic advantages are:

• Easy to set up and maintain – usual mutual fund company handles most of the details.
• Tax deferred contributions for employees through payroll deductions.
• Employer is not tied down to one option, can either simply match only participating employees or alternatively employer can elect to contribute a fixed percentage of all eligible employees’ pay.
• Tax credit of up to $500 per year for each of the first 3 years for the cost of starting a SIMPLE IRA plan.
• No requirement for annual reporting
• Low administrative costs

Most employers fail on disclosures documents to all eligible participants as well as the calculation and timely deposit of contributions. An example given to me by a well seasoned third party administrator, Terrence Ronczkowski of Pension Administrators based in Inverness, Illinois. When calculating annual compensation Section 125 Cafeteria Plan for Simple Plans only is not to be consider in compensation but even though it is for all other retirement plans.  If an error is picked up during an audit the IRS' treatment of the error will depend on who is on the receiving end of the benefit.  If it is the owner then you are required to withdraw the excess contribution.  However if it is an employer who is not highly compensated then the error will not require correcting.  This treatment mirrors the nondiscrimination requirements on other retirement plans..  

While the initial audit might be random but when the IRS selects a year to audit the year before and the after the period under examination are fair game. Compliance, compliance, compliance - I really could not emphasize this more.  Good record keeping goes hand in hand with compliance, if you are required to give all eligible employees plan documents it does not hurt to have copies of acknowledgement of receipt of said documents on file.  An opt-out form from an employee is just as important as an opt-in, file both accordingly.  

Like anything else it is tedious and cumbersome when you are initially familiarizing yourself with all the rules and regulations but once you get a hang of it all the simplicity does become real.