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My Employer is Eliminating 401(k) Matches

retirement Companies are responding aggressively to the bad economic news. Layoffs, hiring freezes, and salary freezes have been some of the most common actions so far.

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Now, more and more employers are looking at eliminating the matching of 401(k) contributions. According to a survey by Watson Wyatt, the global human resources and financial services firm, things are changing quickly. In October, 2% of firms said they had already cut back on these matches and 4% said they planned to. Two months later, in December, 3% had already made the cut and 7% said they intended to.

And these are large companies. Established brands that we all know. Motorola, FedEx, Kodak, and Starbucks just to name a few.

They’re usually using the word “suspend” rather than “eliminate” when they announce these cuts. But it raises a question:

If my employer stops matching my contribution to my
401(k), should I still keep making contributions myself?

It forces us to save

This is perhaps the biggest reason to keep making contributions. Financial planners have said for years that we should pay ourselves first. Investing it before we get it, as we do with our 401(k), is the best way to make sure that happens.

Most people report that they don’t really miss the money. It’s like the taxes that are deducted from our paychecks – the government knows most of us won’t miss the money if we don’t see it.

Of course, there are ways to set up an automatic deduction from our checking or savings account for investments outside of a 401(k). That’s really close to having it deducted from our paycheck, but it’s not quite the same. That little variation can make a bigg difference for some people. You have to judge that for yourself.

Higher limits

The next best option to a 401(k) for most people would be an IRA because contributions may also be deductible. You should check with your financial advisor about the specifics of your situation.

Because you invest before paying taxes, it’s as if the government is making part of the contribution for you. For example, if you made a $1,000 contribution to one of these retirement plans and you’re in the 25% tax bracket, you would pay $250 less in taxes. So, in essence, you’re only out of pocket $750.

With either plan, you don’t pay taxes on the money you earn on your investments until you pull it out. Deductible and deferred – that’s a pretty powerful combination.

Where the 401(k) gains favor is that it has higher maximum limits – your contributions to your 401(k) can total up to $16,500 in 2009 ($22,000 if you’re over 50). You can’t contribute more than $5,000 to an IRA in most cases.

If my employer cuts or eliminates my 401(k) match, are there
reasons to fund my retirement through another vehicle?

A lot of 401(k) plans offer fairly limited investment options and you may pay lower fees in a plan that’s not a 401(k). 

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The bigger issue

It’s not like we don’t already have a sense of it. But recent months have reinforced this paradigm. We can’t count on anyone or anything for any part of our financial future. We must take full control of our own finances. We have to build our own safety nets to make sure we are financially secure.

How much will you have at retirement?

It really boils down to three factors:

  • how much we invest
  • how much we earn on our investment (after all fees and taxes)
  • how long it is invested

From these three factors, we see that we have three options if we don’t want to retire on less money:

1st – We can try to earn more on the money we invest.
That involves taking more risk and we don’t have much appetite for that right now. So this probably isn’t going to fly with most of us.

2nd – We can postpone our retirement.
This buys us more time. People who are really close to retirement right now may not have much of a choice. They may have to do this. But if you still have some time on your side, there may be a better way.

3rd – We can increase our contributions.
Look at your budget and see if there is any way you can make up for the investment your company was making.

If your employer reinstates matching contributions, you can stop contributing at the increased rate and enjoy the extra money in your budget … or …

… you can keep making your higher contributions to give your retirement a kick!

To all our readers in Australia, happy Australia Day! And we hope our friends in India enjoy Republic Day!

And thank you so much for spending time with us today. Join us next time when we discuss extreme multi-tasking. Until then, here’s to your bigg success!

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Finding Your Passion One Week at a Time

at_the_topToday, we welcomed Sean Aiken to The Bigg Success Show. Sean graduated from college a little over a year ago but didn’t know what he wanted to do. So he decided to work a different job one week, every week,  for one year. In the process, he raised over $20,000 for charity. His journey has been covered by the Canadian Broadcasting Corp, The New York Times, Good Morning America, Radio France, The Australian Radio Network, and too many more to mention.

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Read more

Don’t Fear the Banker!

A lot of us are very uncomfortable talking about money, whether that means negotiating your salary, asking for a sale, or asking for a loan. So the thought of going to the bank to get a loan can be very intimidating.

The loan process seems somewhat mysterious. Wouldn’t it by nice to know where bankers are coming from? Then you would be better positioned to get the money you need.

3 things to understand about your banker

#1 – Banks can’t afford to lose money.
A lot of people don’t realize that banks operate on relatively thin profit margins. So, contrary to popular belief, they don’t make that much money on every loan.

The biggest question every banker has when looking at every loan proposal is …

Will we get paid back?

They’re more concerned about the return OF their investment than the return ON their investment. That comes later.

#2 – Banks don’t fund start-ups.

This is perhaps one of the biggest misperceptions in the business world. People think the bank is the best place to go for money they need to start a business.

To which we say, reread our first point! Bankers are relatively risk averse for the reasons stated above and more. So banks don’t tend to lend money to new, unproven firms.

You might be saying, “But I know people who got money to start their business from a bank.” Here’s the distinction – the bank wasn’t loaning money to their BUSINESS; they loaned them money as individuals FOR their business. If you look deeper, you’ll find that, in almost every case, they secured the loan with equity in their house or some other asset.

#3 – Banks need to lend money.
That’s their business. So if you need money, and you can prove that you can pay it back, and you have some assets to secure the loan, go to the bank with confidence!

Your bank is just like your favorite video store.
Video stores rent DVDs for a fee. Banks rent money for a fee. So going to the bank is just like renting a movie. You have to return the movie and pay a fee. And hey, unlike video stores, bankers don’t charge their fees upfront!

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Our bigg quote today is by the great Stephen Covey:

“Seek first to understand, then to be understood.”

Understand your banker’s needs so you stand to get your money needs. 

Next time, we’ll discuss how to offer criticism without being critical. Until then, here’s to your bigg success!

Subscribe to The Bigg Success Show in iTunes. 

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(Image by svilen001)

Don't Fear the Banker!

A lot of us are very uncomfortable talking about money, whether that means negotiating your salary, asking for a sale, or asking for a loan. So the thought of going to the bank to get a loan can be very intimidating.

The loan process seems somewhat mysterious. Wouldn’t it by nice to know where bankers are coming from? Then you would be better positioned to get the money you need.

3 things to understand about your banker

#1 – Banks can’t afford to lose money.
A lot of people don’t realize that banks operate on relatively thin profit margins. So, contrary to popular belief, they don’t make that much money on every loan.

The biggest question every banker has when looking at every loan proposal is …

Will we get paid back?

They’re more concerned about the return OF their investment than the return ON their investment. That comes later.

#2 – Banks don’t fund start-ups.

This is perhaps one of the biggest misperceptions in the business world. People think the bank is the best place to go for money they need to start a business.

To which we say, reread our first point! Bankers are relatively risk averse for the reasons stated above and more. So banks don’t tend to lend money to new, unproven firms.

You might be saying, “But I know people who got money to start their business from a bank.” Here’s the distinction – the bank wasn’t loaning money to their BUSINESS; they loaned them money as individuals FOR their business. If you look deeper, you’ll find that, in almost every case, they secured the loan with equity in their house or some other asset.

#3 – Banks need to lend money.
That’s their business. So if you need money, and you can prove that you can pay it back, and you have some assets to secure the loan, go to the bank with confidence!

Your bank is just like your favorite video store.
Video stores rent DVDs for a fee. Banks rent money for a fee. So going to the bank is just like renting a movie. You have to return the movie and pay a fee. And hey, unlike video stores, bankers don’t charge their fees upfront!

Click on our Comment link below to share your thoughts on today's post
Click on the Share This button below to Digg, Stumble, Mixx more

Our bigg quote today is by the great Stephen Covey:

“Seek first to understand, then to be understood.”

Understand your banker’s needs so you stand to get your money needs. 

Next time, we’ll discuss how to offer criticism without being critical. Until then, here’s to your bigg success!

Subscribe to The Bigg Success Show in iTunes. 

Subscribe to the Bigg Success feed.

Related posts 

How To Become A Millionaire

Good Debt vs. Bad Debt

How To Get Your Customers To Finance Your Business

5 Places to Find Cash for Your Business Today

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(Image by svilen001)

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Got Milk? Young Mom Finds Her Mission

By Bigg Success Staff
05-06-08

Inspirational Stories

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Jill Youse had a supply problem – she had too much! She had been freezing extra breast milk for her new baby girl, but she knew she didn’t need it all. So she searched the internet for a place to donate her reserve milk.

She only found one organization in South Africa that provided breast milk to orphans. So she contacted them, but they told her that they couldn’t make it work logistically.

But Jill Youse is a very determined person. She found a way to make it work, and in doing so, launched the International Breast Milk Project (IBMP).

Now two years later, she has been featured on Oprah and ABC News, in Women’s Health and Time , by Daryn Kagan in her book What’s Possible, and on well-known web sites such as Freakonomics, Gimundo, and now Bigg Success!

According to UNICEF, babies in the developing world are six times more likely to survive their first two months if they are fed breast milk. The IBMP says that approximately four million infants worldwide die before they reach four weeks in age.

Breast milk helps boost their immune system better than any other alternative. Delaying breast milk feeding just one day can double the infant’s chances of dying before one month.

The IBMP was the first organization in the world to provide breast milk from the United States to orphans in Africa. Today, approximately one-fourth of the milk donated goes to Africa. The rest goes to critically ill infants in the United States.

This IBMP makes money from the milk that stays in the United States to support other initiatives – such as funding rain water harvesting tanks and a water purification system for a children’s home in Kenya and a healthcare center in Tanzania.

Jill’s organization has received the Charities Review Council Seal for meeting all sixteen of its Accountability Standards. According to the IBMP’s web site, 99 percent of all monies received go to programming, with less than one percent for management and fundraising expenses. Now that’s efficiency!

The IBMP’s next shipment is scheduled for this month – over 55,000 ounces of mothers’ milk will be delivered to Africa. That’s the result of thousands of woman donating their excess breast milk. In the process, they become philanthropists who are making a bigg difference.

You can help out the IBMP by donating milk, money or mind power! They are growing rapidly and need any resources you’re willing to offer. Check out their web site for more details!

Jill started with a small problem and turned it into an opportunity to solve a large one, ounce by ounce. She’s a mom on a mission! 

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Hear today's lesson and laugh on The Bigg Success Show. 

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Answer These 3 Questions to Get Money for Your Business

By Bigg Success Staff
04-30-08

Bigg Success in Business

jockey 

Most businesses need some outside financing to succeed. Yet attracting capital isn’t always easy to do. Money people – angel investors, bankers, venture capitalists – bet on jockeys, not horses. They bet on you, not your business.

That’s not to say that you don’t need a good business idea to attract outside funding. Great managers in troubled industries usually lose the fight. Good managers in great businesses will probably do just fine.

So financiers definitely do consider the “horse” as well.

However, all else equal, it’s the “jockey” that wins the race. So they ultimately put their money behind you.

What’s your track record?
Ideally, you’re seeking financing because your business is already successful and you need money to take it to the next level. If that’s not the case, don’t despair. If you’ve successfully run a similar business before, your odds are still good. It’s also important to maintain a good credit score. 

How will you handle adversity?

Your financiers will be trying to determine how you will respond during the inevitable tough times. They want to know that you will work with them, not keep them at bay. Discuss how you overcame past hurdles to put their mind at ease.

Can they work with you?
This is the ultimate question. They want to feel like the chemistry with you is good. You will listen when they offer advice. You will cooperate with all reasonable requests. You will care for your interests by watching out for theirs.

Hear today's lesson and laugh on The Bigg Success Show. 

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There’s Gold In Them There … Customers!

By Bigg Success Staff
02-13-08

Bigg on Small Business

sifting_for_gold_jpg 

One of the biggest assets in your business doesn’t show up on your Balance Sheet. It’s your prospects and customers. Do you have a system in place to mine the gold in your database?

Panning for Gold
You have to know what you’re looking for. After all, you don’t want “fool’s gold”! You want to find nuggets of information that you can turn into money!

To find those nuggets, you have to develop an information-gathering system. What you use will depend on your business.

For example, think about a car dealership. Customers bring their cars in for service. They park their cars and turn over their keys. One of the employees of the dealership pulls the car into the garage when they’re ready to service it.

Is there gold in that process? At least one car dealer we know of found some!

The employees paid attention to what radio station was playing when they turned on the car. They developed a system to record this information.

With that information in hand, they could look for the bands of gold!

Bands of Gold
What do your customers have in common? In the example of the car dealership mentioned above, they found what radio stations their customers commonly listened to. Now they knew where to advertise!

As you get good at gathering and systematizing information, you may find a number of “bands”.

For instance, let’s assume that you have a business that appeals equally to males and females. You may find that the men tend to buy certain products of your business and the women buy a different set of products.

Some customers may only respond to special offers, whereas others always buy “the best” – your most expensive product or service.

The specifics will depend on your business. The key is to develop a system that helps you find common elements within your contact list.

Gold Mining
Now that you’ve discovered the gold, you have to mine it. It doesn’t do you any good otherwise!

Your marketing efforts are likely to be much-more cost effective now. For example, if you have customers who always respond to special-offers, offer them something special! If you have customers that only buy the best, show them more of the best!

If the men buy certain types of products and the women buy a different set, promote the respective products only to that target.

Sounds simple, doesn’t it? It’s a simple idea that’s not necessarily easy to execute.

However, mining your contact database will likely be much more productive than mass-marketing. Consider getting professionals involved to help you design the right campaign to get the most gold!

Find out when we post new articles. Subscribe to the Bigg Success Weekly.

Hear today's lesson and laugh on The Bigg Success Show. 

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How To Make $3 Billion A Year

By Bigg Success Staff
01-23-08

Success Story

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Unless you’re the Wall Street-type, you’ve probably never heard of John Paulson. You may be familiar with Henry Paulson, the United States Secretary of the Treasury. Well, they’re not related.

We’ll bet that you are familiar with the subprime mortgage mess. John knows it well. He manages his own hedge fund, which made huge bets in the subprime market last year.

In 2007, he made over $3 billion! Yes, we wrote that right. BILLION!

Gregory Zuckerman wrote an excellent article for The Wall Street Journal Online called Wall Street Trader Paulson Made Billions on Subprime. He does a fantastic job describing the details of how John made his billions. It’s definitely worth the read, particularly if you’re a serious investor.

Going against the grain
John bucked the herd mentality with his subprime bet. Most people in the business were still very upbeat about the market. John believed that he had a lot of upside potential with very little downside risk. It turns out he was right.

The biggest winners are often “contrarians”. But be careful – find ways to minimize your risk without sacrificing your reward too much.

The outsider’s perspective
John wasn’t an expert in the subprime market. They were all still highly optimistic. Because John was an outsider, he was able to see an opportunity that the insiders missed.

Usually it pays to have special insight into your market. However, sometimes insiders know too much. That’s when outsiders find opportunities because they’re looking at things with a fresh set of eyes.

Pay the price
John worked long and late, pouring over data to confirm his suspicions. He had a hunch – but he didn’t just play it. He continued looking at the evidence.

You have to pay the price if you want to make millions … or billions! Learn about the market. Look for inconsistencies. But then you have to … 

Go!
John had a bigg idea. It turns out that it was a $3 billion idea! But it’s not the idea that made him the money. He had the courage of his convictions. He took action!

This is one of the hardest parts of success. You have to put yourself out there. You have to take risk. You’ll never get anywhere until you take a step.  

Persist
John placed his bet … and he lost money! His advisors discouraged him from pressing on. They reminded him that experienced traders were still very enthusiastic about the market. John didn’t listen – he invested more!

You will face obstacles on your path to success, just like John did. If you’re confident in your idea, you have to find a way to push on. It won’t always work out …. but, you never know, you might just make $3 billion!

The rest of the story
At times during this ride, John faced so much stress that he just had to get away from it all. He went on long runs. Find a way to relieve your stress so you can keep going. Get away from it all somehow.

John started his firm with $2 million under management. Now, from his success last year, new money has poured into his firm. He is now managing $28 billion, becoming one of the world’s largest fund firms. Everybody loves a winner!

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How To Get Your Customers To Finance Your Business

By Bigg Success Staff
01-18-08 

Bigg on Small Business

money_rose_jpg

You either treasure your customers or you go out of business. Ultimately, customers pay your bills, one transaction at a time. In addition to that, customers can finance your business.

Of course, all industries have standard protocols within which you must remain. Or do you? What if you thought creatively? What if you could find a way to win customers and get funding for your business at the same time?

Look at related industries for ideas. Do they follow the same practices as yours? Talk to your customers. What would entice them to consider a creative payment arrangement?

It may be that the customer helps finance your business by the strength of their credit and the commitments they have given you. You don’t care where the money comes from … as long as it comes!

4 ways customers can get you money fast, even if you have bad credit.

#1 – Customer deposits
Wouldn’t it be nice if your customers paid you in advance? Many businesses operate under this model, if you think about it! Even if only a portion of your revenue is prepaid, wouldn’t it make a huge difference to your cash flow?

A marina owner we know employs this concept. One of his primary sources of revenue is dock rentals. He offers his customers a huge discount if they pay for their entire year’s rental a year ahead. Most of his customers take advantage of this offer. He never worries about cash flow.

#2 – Purchase order financing
What if the customer isn’t willing to pay in advance? You may still be able to get funded upfront by using their purchase order as collateral. This won’t work for just any customer – they need to be a company with good credit. 

To turn this pre-receivable into funding, your purchase order must pass two tests. First, it must be non-cancelable and verifiable. Second, you need a gross profit margin of at least 20 percent.

This is not cheap financing – expect a discount between four and seven percent of the purchase order amount. However, isn’t 93% of an order better than no order at all?

You’ll need to pay your purchase order financier off once the order turns from a pre-receivable to a receivable. That’s where the next source comes in.

#3 – Factoring
If you accept credit cards, you’re familiar with the concept of factoring. You get paid now by a financier who gets paid by your mutual customer later. Factoring is only slightly different. 

Factoring can work in a number of ways – let’s assume that you want to completely outsource your credit and collection process. This is expensive money, but you don’t have to worry about payment. The factor takes care of it! You’ll need customers with good credit ratings.

Depending on a number of factors, expect a discount between one and fifteen percent of the invoice amount. Sounds expensive, doesn’t it? However, you won’t wait for your money. You don’t need a credit and collections department. You won’t write off any bad debt. Is it starting to sound reasonable?

#4 – Strategic partnering
What if your customer became your partner? This arrangement has worked for a lot of businesses. Be careful because your relationships with other customers may be affected.

We know a man who owned a specialty printing company. His largest customer was a fundraising company – they sold goods through organizations wanting to raise money. His customer wanted to offer a new product that required special equipment. He negotiated for them to pay for the equipment in exchange for a royalty on all sales produced by that equipment.

The customer effectively got a rebate on all their purchases of that product. Plus, a participation in sales from the machine they bought. The owner had a whole new profit center, with no financial risk.

So look to your customers if you need money for your business. You might get paid even before you make the sale!

How have your customers financed your business? Share your bigg ideas with us!

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