Paying for Business Expenses Applying for a business credit card is something a small business should seriously consider for itself. Business credit cards can provide a range of benefits to a business. They allow a company to build up credit for better borrowing conditions down the road. They’re also quite easy to apply for. In this article, we’ll go over how to apply for a business credit card and other important points to note. What Is a Business Credit Card? A business credit card is a credit card that is intended for business expenses. These cards are not meant for any individual’s personal use, but they are available to businesses of all sizes. What Is a Business Credit Card Used For? Business credit cards are meant for business expenses, and as such, they come with several perks that you wouldn’t get with a normal credit card. Business credit cards typically have far higher credit limits than normal cards, but they are also harder to qualify for. [youmaylike] As a business phenomenon, business credit cards vary their offers greatly, and certain cards are meant for certain businesses. They are also highly customizable when it comes to individual payment terms. Businesses don't always have consistent incomes like individuals do, and business credit cards handle this problem. These cards are used to gain access to a long line of credit, to control employee spending on business expenses and more. One of their other common uses is to make accounting easier, as putting all business expenses on one separate account makes reporting to the Internal Revenue Service easier. In the end, there are many uses for a business credit card. Why Would I Need a Business Credit Card? You might not need one, but if you run a business, you’ll be leaving money on the table by not at least looking into them. Business credit cards can solve many of the problems business owners face. If you need employees to make purchases for the business, a business credit card is the safest option. These cards can be given to authorized users, a status you can easily give to any of your employees. From here, these cards make it easy to monitor employee spending and spot any discrepancies. You can attach customized user privileges to each card to limit spending and place limits on where the card can be used. As mentioned, if you feel like your credit is too limited, business credit cards are a sure way around low credit. According to the American Bankers Association, the average monthly payment on a business credit card is twice as high as the average payment on a normal one. If you’ve found yourself annoyed with the Internal Revenue Service over the complicated reporting processes for business owners, you’re not alone. This is where a business credit card can solve another problem. Simply handing over your business credit card statements to your accountant will make them love you. It will also provide them with the information they need to predict future spending. Another great use for a business credit card is lifting your liability for debts. Liability for credit card debt is determined by the liability offered by the card. If you’re using a personal credit card for business expenses, you are liable for all debts. On the other hand, if you use a business credit card with commercial liability, your business is liable for any debts, which changes the game. Keep in mind that some cards offer joint liability, which leaves both you and your business liable for any debts. Make sure you know what you’re getting into before signing any paperwork. Lastly, just as personal credit cards offer rewards programs, so do business cards. The main difference here is that business credit card rewards are tailored to your business needs. How to Apply for a Business Credit Card Before you apply for a business credit card, you should make sure you’re eligible. For the most part, you only require the following to be able to apply for one: A legal name for your business. A business structure to apply with, such as a Limited Liability Corporation. An explanation of the nature of your business. You’ll typically be given a list of industry types to choose from. A tax ID number issued by the Internal Revenue Service Your roll in the business you’re representing Various business/financial information including: Annual revenue. Number of employees. Length of time in business. Estimated monthly expenses. If you have this information ready, you can apply for a business credit card. At this point, it would be wise to shop around and find the best option for your business. Your decision on the business credit card you choose will have larger ramifications than your choice of a personal credit card. Applying for a business credit card is much the same as applying for a personal one. There are a few differences, but the main thing to remember is that business credit cards are taken more seriously than normal ones, so you’ll have to face a higher bar of entry. This doesn’t mean getting a business credit card is hard, but it does mean you need to arrive more well-prepared than you normally would. To make things easier, you can prepare for certain obstacles in advance. You may need to sign a personal guarantee that you will pay off any debts. Also keep in mind that if you’re the one applying for a business credit card, and your business doesn’t already have one, they will conduct a personal credit check. It may be best to try to optimize your personal credit if you plan on applying for a business credit card in the future. Some Options at a Glance Here are some of the most popular options for small business credit cards: Chase Inc Business Preferred This is a great option for a few reasons. With the Business Preferred card from Chase Inc, you get 80,000 ultimate reward points when you spend $5,000 with the card in the first three months. The card also provides generic, but highly useful benefits for business owners. Business Platinum Card from American Express The Business Platinum is ideal for businesses that spend a lot on flights and travel. This card offers numerous rewards on flight and hotel expenses and makes sure you get something serious back if you use it for these expenses. Chase Inc Business Unlimited The Chase Inc Business Unlimited offers unlimited 1.5% cash back. While we’ve said enough already, they also offer several other perks that are overshadowed by their first one.
Building Your Savings
Succeeding at personal finance is less about the physical steps to get there and more about why you’re saving. In other words, it’s a mental problem, not a physical problem.
Let me explain. Making smart choices, spending less or saving up money are pointless without a reason why. Working toward a specific goal will always be more motivating than saving up because it’s one of those things you “should” do. These days, financial independence is a common goal, with many people willing to create a big savings rate in exchange for being able to retire a couple of decades before the usual age.
Others don’t want to wait nearly that long. These folks are saving for various short- to medium-term goals. Maybe they want a new car. Perhaps they have a dream trip in mind. Or maybe they’ve always dreamed of place they can truly call their own, and are focusing on saving a down payment.
It doesn’t matter what the goal is. It can be as serious or frivolous as you’d want. All that matters is the goal is important to you. It needs to motivate you when life gets a little tough.
Most money goals aren’t easy. But the result is worth it. There’s no better feeling than knowing you’ve saved up for something and paid for it using your own money. And like with any goal, extra-difficult money ambitions feel extra good when you pull them off.
We’ve built a savings calculator that can help make all your monetary dreams come true. Let’s take a closer look at how it works.
This calculator will show you the wonders of consistent saving. Here are the various parts of the form you’ll have to fill out:
This is the easy one. This is exactly how much money you’re starting out with. It can be as little as $1 if you haven’t started saving. Starting out with more will make the ultimate goal much easier, but don’t sweat it. What you do going forward is going to determine your savings path.
This is how much you can expect to save each month. The more you can save, the better.
A word of caution before you fill out this amount. Many non-savers will find a calculator like this and suddenly proclaim themselves as frugal champions, able to put away $1,000 per month or even more. Don’t fall into that trap, or you’ll find yourself deprived in no time. Pick an achievable savings goal for best long-term success.
Perhaps gradually working toward your savings goal is best. A few months of feeling deprived is a formula for failure. It’s exactly why crash diets don’t work.
Simply put, this is the rate of return you can expect from your investment.
Different investments will deliver vastly different rates of long-term returns. Remember, risk and potential reward are related. An investment with a great deal of risk has the potential to be more profitable than a safer one. Just remember that a risky investment could easily lose money, too.
For example, a savings account at a bank is guaranteed by the federal government, up to a maximum of $250,000 per depositor per institution. Since the principal is 100% guaranteed, these accounts don’t give much interest. Investors who put their cash in a savings account are more worried about keeping that money safe versus earning much on it.
High-yield savings accounts are offered by certain banks as an attempt to lure depositors to that particular company. These are typically offered by online banks that don’t have any physical branches, which is a big downfall for some folks. These accounts offer much better rates than regular savings accounts, usually in the 2-3% range. They also come with the same principal guarantee, meaning you’ll never need to worry about the security of your bank. The cash will be there.
Many people will keep their emergency fund in a high-yield savings account, a nice compromise that allows them to earn a little interest off their money while keeping it easily accessible.
Another relatively safe investment choice is bonds, which are instruments used by governments or companies to borrow money. These are secured either by specific assets or, more commonly, the general credit-worthiness of the issuer. The yield depends on the security of the issuer. An ultra-safe bond will pay around the same as a high-yield savings account, while riskier ones will offer 6-8% returns.
Real estate and stocks offer the best potential returns, but both come with a great deal of risk. Both of these asset classes tend to offer approximately 8-10% total returns annually over the long-term, but with individual years fluctuating wildly. For instance, in 2013, the S&P 500 delivered a 29.60% return. Yet just a few years before that, in 2008, that same index fell more than 38%.
These kinds of volatile returns are fine if you’re willing to hang on during downturns. The stock market will inevitably go up over time. Short-term concerns eventually become nothing but a distant memory. Just make sure to hang on and not sell at the bottom of a correction. If anything, that’s the time to buy.
Real estate itself tends to move a little less than stocks, but the asset class still has risks. A landlord renting out a house has many different threats that could cause the investment to temporarily perform badly. A tenant might move out and slow economic times mean there are few replacements looking for a new place. Or the property can be damaged, either by a natural disaster or a disgruntled renter. All of these things can temporarily depress returns, which is made all the more risky by borrowed money.
Number of Years
Another simple category. Just input how many years you plan to save.
I’d encourage savers to play around with this category to see the impact of compounding over time. It’s amazing how large your savings can become over a few decades, especially if you’re getting 8-10% long-term returns. Financial independence may be closer than you think.
How to Increase Your Savings
It takes a long time to save up for an expensive goal if you’re just putting $100 or $200 per month away. Here are some easy ways you can dramatically increase the amount you’re able to save.
The most important thing to remember is that there are three main expenses, costs that will usually eat up at least half of your budget. If you can get your housing, transportation and food expenditures down, that’ll immediately help increase your savings rate in a big way.
Let’s start with housing. If you’re comfortably saving money each month, then it’s okay to spend a little extra on a nice place or one with extra room. If you’re struggling to get ahead, it’s time to slash this expense. You’ll either want to move to a cheaper part of town — closer to work, ideally — or get a roommate to help offset some costs. Yes, this is a sacrifice, but you’ll free up hundreds of dollars each month.
Transportation is another big one. Moving closer to work is a great option, since that’ll cut down on transport costs and free up time. You’ll also want to explore public transport. If your city doesn’t offer acceptable bus or train schedules, look at splitting commuting costs with a coworker. You’ll both save money and have company for the long ride to work.
Food is usually an easy category to slash. The solution is simply cutting back on restaurant meals and eating more at home. Drinks are also a budget killer; it’s easy to spend $100 on a nice meal out with a few drinks. You can cut that by 80-90% by making your own meals and enjoying drinks at home. If drinking alone doesn’t appeal to you, feel free to invite your friends over.
Cutting back on groceries isn’t hard, either. The key is to plan your meals around sales — especially those on the front of the flyer — rather than planning your meals and then buying whatever you feel like.
Buy Less Stuff
Aside from these three categories, another simple way to cut back on expenses is to buy less stuff. Before putting new clothes or some upgraded electronic device in your cart, ask yourself if you really need it. If the answer is no, delay the purchase for a while.
Experts agree that a 10% savings rate is the minimum you should strive for.
Taxable versus Non-Taxable Accounts
Where you save your money matters. Some accounts offer the ability to shield taxes, while others will force you to report any profits to the IRS.
A taxable account is one without any special tax privileges. You’ll be forced to pay the tax man his share on any of your gains each year. Note that you’ll have to pay taxes on both earned income from the investment (like interest or dividends) as well as on any capital gains when a profitable investment is sold. The good news is that capital gains are taxed at a favorable rate, something the feds put in to encourage investment in the stock market.
As a general rule, any long-term saving — like for retirement — should be done in tax-sheltered accounts. You’d use a taxable account for any short-term goals, remembering that you don’t want to take major risks with money you’ll need right away. This cash is usually kept in savings accounts.
There are two main retirement accounts you’ll use for long-term saving: Roth IRAs and 401Ks.
Let’s start with a Roth IRA, which is a retirement account that is funded using after-tax dollars. Any amount put into a Roth can be withdrawn without a tax penalty, but the earnings on those contributions do carry a withdrawal penalty if you’re under the age of 59.5. You’ll also have to wait until your Roth account is at least five years old before you can withdraw any earnings without penalty.
A Roth IRA offers nice flexibility. You’ll just have to be a little bit careful making sure you follow the rules.
Roth IRAs are limited to a $6,000 annual contribution, and some high-income earners make too much to be eligible for the savings account. The limit for single folks is just over $120,000 per year, with the maximum for couples at just under $200,000 per year. These folks can still contribute to different kinds of IRAs, but they’re shut out of Roth IRAs.
The other main tax-deferred savings account Americans will use is their 401K, an account that is funded by pre-tax dollars. Employer-sponsored 401Ks are common, with some employers contributing 5% (or more) of their worker’s salary as a 401K match.
Savers also get an immediate tax break when they contribute to their 401K account. Here’s how it works. If you make $70,000 and contribute $5,000 to your 401K, the government will tax you like you made $65,000. This usually translates into a tax refund, which is always a nice bonus. This tax refund can then be immediately reinvested — like into a Roth IRA — to really help give your savings a boost.
There’s just one catch. You’ll have to pay taxes on 401Ks when you withdraw the cash. The strategy works best when you contribute during high tax years and take cash out slowly during low tax years. A little planning during your golden years can really help bring the overall tax bill down.
The Bottom Line
Having the desire to save up for a big purchase is great. Most people wouldn’t save without this motivation. It doesn’t matter what you’re saving up for, as long as it’s important to you. It can be as frivolous as you desire.
But dreaming can only get you so far. At some point you’ll have to execute your vision. That’s where this calculator really shines. It shows you just how much you’ll need to put away every month to follow your dreams. Some of you might use the calculator and realize you’re right on track to accomplish your goals. Others might need it to provide a much needed kick in the pants.
Go ahead and live your life. Just pay for it first. A life wallowing in debt isn’t a lot of fun.