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Tag: Money & Finance

  • What Is a Roth IRA? How It Works and How to Get One Started

    What Is a Roth IRA? How It Works and How to Get One Started

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    When it comes to retirement, saving sooner is better than saving later. But if you’ve already maxed out your 401(k) or don’t have the option to use a 401(k), you’ll have to turn to an IRA or individual retirement account.

    Traditional IRAs are just one of your options, however. You can instead put money into a Roth IRA. Financial advisors can help you navigate the ins and outs; however, knowing about Roth IRA withdrawal restrictions and annual contribution limits is essential before investing in this type of account.

    This article will explain a Roth IRA, how it works and how you can start one at the earliest opportunity.

    Related: When converting from an IRA to a Roth, do I have to file self-employment tax?

    What is a Roth IRA?

    A Roth IRA is a type of individual retirement account. As a tax-advantaged individual retirement account, Roth IRAs allow you to contribute after-tax dollars. The best way to understand a Roth IRA is to compare it to a traditional IRA.

    A traditional IRA is a tax-deferred account. You contribute money to a regular IRA pre-tax, so you don’t have to pay income taxes on any of those contributions (lowering your gross income).

    You can deduct contributions from your IRA each tax year. However, when you withdraw money from your regular IRA, you must pay taxes on those withdrawals since they are no longer tax-deductible.

    A Roth IRA is the opposite. You contribute money to the Roth IRA and are taxed on those contributions, just like the rest of your regular income.

    However, since that money is taxable income, you don’t owe any taxes when you withdraw money from your Roth IRA. You walk away with more money in Roth IRA income than traditional IRAs.

    You can still only take penalty-free withdrawals (or qualified distributions) after you are 59 1/2 years old, according to the SIPC. Still, Roth IRAs are excellent for securing tax-free income when you’re older, regardless of filing status. Roth IRAs are also FDIC-insured in most cases, usually up to $250,000.

    Roth IRAs are primarily advantageous if you think you’ll be in a higher tax bracket when you withdraw your money (which is true for many Americans). For instance, if you don’t have much money in your 20s and 30s but earn much more in your 60s, you’ll have to pay more taxes on your withdrawals if you use a traditional IRA.

    A Roth IRA allows you to circumvent this downside and have more retirement savings for your golden years. Thus, opening a Roth IRA at a trusted brokerage could be a great way to enjoy tax-free growth of your savings.

    How does a Roth IRA work?

    A Roth IRA works very similarly to a traditional IRA. You sign up for a Roth IRA account at a financing institution, like Fidelity or Vanguard, and regularly contribute to the account.

    Depending on your preferences, you can select your investments individually or have a fund manager take care of them. You can find a Roth IRA from many different financial sources, including:

    You have access to many different investment options through a Roth IRA, even if you do a Roth IRA conversion from another account.

    Note that all standard Roth IRA contributions have to be made in cash. Therefore, you can’t contribute money to your Roth IRA in the form of property or securities; you have to report those contributions, so they’re taxed according to your tax rate.

    Just like regular IRAs, Roth IRA investments grow tax-free. Notably, Roth IRAs are much less restrictive compared to other retirement accounts. You can maintain your Roth IRA indefinitely, and unlike traditional IRAs, there aren’t any required minimum distributions (RMDs).

    The early withdrawal penalty for this type of IRA is the same as with a standard IRA, even if you have a brokerage account handle it.

    Related: Do You Know the Difference Between a Traditional IRA, a Roth IRA, and a 401k?

    Are Roth IRAs insured?

    It depends. If your Roth IRA is at a bank, it may be classified under a separate insurance category compared to regular deposit accounts. Because of this, insurance coverage for most IRA accounts isn’t as comprehensive or robust.

    That said, the Federal Deposit Insurance Corp. (or FDIC) does provide insurance protection worth up to $250,000 for both traditional and Roth IRAs. Note that account balances are combined instead of protected individually, however.

    Contribution rules for Roth IRAs

    Roth IRAs, like other IRAs and retirement accounts like 401(k)s, have contribution limits. Roth IRA contribution limits prevent account holders from investing too much money into their accounts at once.

    For instance, in 2023, the total yearly contribution you can make to a Roth IRA is $6500 if you are under 50. If you are 50 or older, you can contribute another $1500 to your account as a catch-up contribution.

    Withdrawing from a Roth IRA

    Just like a traditional IRA, Roth IRAs have specific rules around withdrawals. Specifically, you cannot withdraw any earnings from your Roth IRA without incurring fees unless you are 59 ½ or older.

    Note that that’s not the same thing as contributions; you can withdraw contributions (such as the original amount of money you put into the account) at any point. This earnings withdrawal limit prevents people from using their Roth IRA as a traditional investment or stock trading account.

    Since most people retire around 59 ½, the government charges a 10% penalty and other taxation fees if you withdraw any earnings or gain money from your Roth IRA early.

    In addition, there’s a “five-year rule” to keep in mind. If you start your Roth IRA late in life, you can withdraw your earnings tax-free only if you withdraw that money five years after your first contribution to any Roth IRA under your name.

    The five-year time clock begins with your first contribution to any Roth IRA, not just the one from which you want to withdraw funds.

    Of course, there are some exceptions to these rules. You could avoid the 10% taxation and penalty rate if you use the earnings from your Roth IRA to buy a home for the first time. But in this case, you can only take out $10,000.

    Furthermore, if you have a permanent disability or pass away, you or your beneficiary can take money out of your Roth IRA.

    Bottom line: Try to plan that won’t be withdrawing money from your Roth IRA until you retire.

    Related: Should I Use a Roth IRA to Pay for College?

    What can you invest in with a Roth IRA?

    Once you open a Roth IRA, you can invest in a wide range of funds, stocks, assets and other investments. You can invest in the following:

    • Stocks

    • Mutual funds

    • Bonds

    • Exchange-traded funds or ETFs

    • Certificates of deposit or CDs

    • Money market funds

    • Cryptocurrencies, but remember that the IRS does not let you contribute cryptocurrency directly to your Roth IRA (unless you use a new type of Bitcoin IRA)

    Related: Best Retirement Plans – Broken Down By Rankings

    What are the benefits of Roth IRAs?

    Many people open Roth IRAs in conjunction with a 401(k) or instead of traditional IRAs, as Roth accounts offer particular advantages. Some of these include:

    • No minimum distributions are required: You don’t have to contribute a certain amount each year when you have a Roth IRA.

    • No income tax for inherited Roth IRAs: Therefore, if you pass your Roth IRA to an error or beneficiary, they can also get tax-free withdrawals (provided that you meet the five-year rule).

    • Easier withdrawals: With a Roth IRA, you can withdraw any contribution money without taxes or penalties (though you may face penalties if you withdraw investment earnings before the age of 59 ½).

    • Flexible contribution schedules: You can decide how much you contribute to a Roth IRA and when.

    • Plenty of time to add contributions: You have until the tax deadline each year to contribute more money into your Roth IRA to reach the $6500 limit.

    • Extra savings for retirement: You can combine your Roth IRA contributions with a 401(k) retirement plan.

    • Tax-free distributions: After you’ve held your Roth IRA for five years and are 59 ½ years old, you can take any distributions, including investment earnings, from your Roth IRA without paying federal taxes.

    • Open at any age: Anyone can open a Roth IRA at any age, provided they have earned income.

    How can you start a Roth IRA?

    Knowing how to start one for yourself and your retirement future is essential, given the benefits and importance of a Roth IRA.

    Check eligibility

    Your first step is ensuring you are eligible to open a Roth IRA account. Note that you must have earned some income for the current tax year — this does not include any inheritance money you may have received from others.

    Furthermore, income limits may prevent you from opening a Roth IRA. For instance, in the 2023 tax year, the income “phase-out” range (the income bracket allowed to make reduced contributions) is $138,000 and $153,000 as an individual or $218,000-$228,000 as a couple filing jointly.

    Remember, too, that there are limits on how much you can invest into your Roth IRA each year.

    Related: Learn How to Invest Beyond Stocks, FDs, Property And Gold

    Find an investment platform

    Your next step is finding the right investment platform to open a Roth IRA. Practically every stock investment company offers Roth IRA accounts. If you already have a 401(k) or traditional IRA account, you can open a Roth IRA at the same organization, which may be easier than finding another organization.

    Regardless, if you find a good platform or financial institution, ask questions like:

    • Whether there are fees to open or maintain your account (such as annual fees).

    • What kind of customer service the company provides.

    • What types of investments the company offers for your Roth IRA.

    • Whether it costs money to trade with your IRA, which could be important if you plan to buy and sell stocks or securities with your account.

    Examples of institutions that offer Roth IRAs include Fidelity Investments, Vanguard and Charles Schwab.

    Apply for a Roth IRA

    Now it’s time to complete the necessary paperwork and apply for a Roth IRA. You can usually do this online or in person if there’s a local branch of your financial institution nearby.

    In any case, you’ll need a few pieces of key information to complete the process:

    • Your Social Security number or SSN.

    • Your driver’s license or some other type of photo ID.

    • The bank routing number and checking or savings account number that you want to use to contribute money to your account.

    • The name and address of your employer.

    • The name, address and Social Security number for your plan beneficiary; this is the person who can receive money in your Roth IRA if you die.

    Choose your investments

    After opening your Roth IRA, you get to pick your investments. Most financial institutions have advisors to help you choose suitable investments for your portfolio based on your goals.

    For instance, if you want to grow your Roth IRA slowly but surely, your investment advisor may recommend that you choose safe investments.

    If, on the other hand, you are young and looking to save aggressively, they may recommend more aggressive, risky investments since you have time to make up for any lost income.

    Because many people live longer than before, it may be wise to keep many stocks in your portfolio as you age. Since you live longer, it could be wise to continue holding assets in your Roth IRA even after you retire so you can continue making money to pull from.

    Related: Roth IRA – Entrepreneur Small Business Encyclopedia

    Make contributions

    Now, you have to make regular contributions to your Roth IRA. Remember, there are no limits on when you can make contributions; you just have to contribute up to the limit to maximize your portfolio’s growth.

    As you can see, there’s a lot to like about Roth IRAs, and getting one started is just as easy as starting a traditional IRA. Consider your options carefully before contributing to any retirement account, as the penalty for withdrawing ahead of retirement can make switching your plans more costly than you think.

    Looking for more? Explore Entrepreneur’s vast library of professional and business resources here.

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    Entrepreneur Staff

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  • 9 Lessons Entrepreneurship Will Teach You

    9 Lessons Entrepreneurship Will Teach You

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    Opinions expressed by Entrepreneur contributors are their own.

    Once upon a time, my wife Jenna and I and our three kids under ten moved from San Francisco to Los Angeles, had another baby, and bought our first house together. This, we thought, is the perfect time to quit our jobs and start a business! [eyeroll]

    The idea of our company, Be Courageous, was born during the facilitation of a client session when the team was at odds with each other while exploring the future of their business. This quote from George Prince was on the wall: “Another word for creativity is courage.”

    I realized many of us stay trapped in old thinking and actions when we lack the conditions to be creative and courageous.

    A question emerged for me, “What would a world with an abundance of courage look like? How can I help create it?”

    With my experience in marketing, strategy and facilitation, and Jenna’s in psychology, human resources and operations, we founded our business consultancy, Be Courageous. Every year we’ve grown. Every year our impact has expanded. Every year we’ve learned.

    Here are some of our biggest learnings for those of you on your entrepreneurial journey.

    Related: The 7 Business Lessons You Should Learn by 30

    9 lessons from five years of learning

    As any reader here knows, starting and running a business is a piece of cake. Ha!

    For real, here is what we learned, having grown our U.S. business of two to a worldwide organization with dozens of clients and 35+ network partners while positively impacting nearly 1 million people in 82 countries.

    1. Agility

    One of our most in-demand programs with Fortune 500 companies this year has been our training on agile leadership. When you own your own business — the unexpected will happen. A successful entrepreneur adapts to new challenges and situations and creates lemonade from lemons.

    We have created programs we never thought we would in response to what the world has needed from us.

    Have a solid plan, but be flexible.

    Related: These Are the Core Elements Needed to Successfully Pivot Your Business

    2. Purpose

    We aim to activate courage in companies worldwide and align them with a planet-beneficial future. Yours might be to improve humanity’s mental health or lessen people’s stress by building an easier-to-use product. Whatever your purpose is, make sure you’re deeply passionate about it and that it fuels your actions.

    Use the strength of your purpose to courage through challenges.

    3. Superpowers (and kryptonite)

    We found more success when we identified and focused on our greatest strengths. We aligned our strengths with our values and the services we wanted to provide to our clients to solve a problem they faced.

    For example, my superpower is guiding businesses to realize their potential and future. My kryptonite is getting tripped up in the micro-details of spreadsheets. That’s where Jenna comes in. She leads operations with her superpower of keeping our company financially stable, growing and on the ground. I’m the visionary, and she makes it possible.

    Align your superpowers with your business goals and values. Find people who have superpowers you lack.

    Related: Find Your Flow Through Deep Work and Unlock Your Superpower

    4. Curiosity

    In an exponentially-changing world, having an open mind is the key to running a successful business. Be curious about skills you don’t have and new ways to solve problems. Challenges will arise, but if your curiosity remains peaked, you’ll always get to the solution positively. Ask, “What is the courage needed in this situation?”

    Curiosity may have killed the cat, but it feeds company growth. (We’re a dog company, anyway, no offense to cats.)

    5. Healthy company culture

    Create a team that feels safe, strong, empowered and able to share and receive ideas. When you foster personal connections with your team and your clients (yes, business is personal), you will thrive beyond competitors who are only in it for the buck.

    Develop a positive company culture to unlock the full potential of your team.

    Related: 4 Ways Leaders Can Create Award-Winning Corporate Culture

    6. Operational foundation

    While you don’t want to get bogged down in systems and processes, your business won’t thrive without a solid operational foundation. Get an understanding of legal, financial and team infrastructure.

    Stay pragmatic and, as we like to say, “aggressively conservative.” We make leaps, but only with a net.

    Develop systems to streamline your business, so you can focus on serving your customers.

    7. Integrity

    Many people make empty promises, which erodes trust over time. It’s far better to over-deliver on your word. Pay what you say you will, earlier than you say you will. We’ve established deep, trusting relationships with our clients. We foster community.

    We get callbacks five years after doing one program with a client because we don’t burn bridges; we build them.

    Show up with your heart, don’t be a jerk, and honor your word.

    Related: Understanding the Burden of Trust for Business Leaders

    8. Optimism

    Never doubt what you can achieve, yet don’t be disillusioned. Approach everyone you can as a holistic human being, putting aside bias. Presume positive intent and look for positive solutions. Expect people to be their best until proven otherwise. And even then, be graceful about terminating any relationships.

    Work and live from a place of abundance, not scarcity.

    9. Mindful hiring

    Be thoughtful about who you bring into your organization.

    We hire a type of person — not only for the exact level of expertise we need. We hire people in love with our vision. A person who can be adaptive and learn with us. Who is willing to put in the work for a shared purpose.

    Hire the right puzzle piece for your vision, not just how they look on paper.

    Related: Why Kindness Should Be Part of Your Hiring Process

    Bottom line

    Owning your own business isn’t for the faint of heart. It’s an ebb and flow of successes and learnings. But 20 years from now, if you look back, would you regret not doing something about your big and burning idea?

    Fear will never go away, but when the desire to fulfill your purpose outweighs the fear of risks involved, that’s when you know you’re made to be an entrepreneur.

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    Kyle Hermans

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  • 5 Predictions for 2023 Following the Downward Spiral in Tech

    5 Predictions for 2023 Following the Downward Spiral in Tech

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    Opinions expressed by Entrepreneur contributors are their own.

    At the beginning of the quarter, one share of Meta Platforms Inc, the parent company of Facebook, Instagram and WhatsApp, was traded at $378. Less than two months in, the technological juggernaut collapsed to under $89 a share — reaching the trading levels of 2015.

    But Meta is not alone. The Nasdaq 100 took a 38% hit from its peak.

    Layoffs have followed suit across the titans of technology — with tens of thousands of employees losing jobs across Meta, Amazon, Microsoft and Twitter alone.

    Heading into 2023, the future is tumultuous. What geoeconomic changes are about to resurface in the new year?

    Related: VCs Are Missing Out on New, Innovative Ideas. Here’s Why (and What They Can Do About It).

    1. Reassessment of the “Hockey Stick.”

    A favorite trend of venture capital funds and investors is the promise of the “hockey stick” growth curve. This translates to a predictable and scalable influx of new users (or revenue) subject to doubling down on sales or paid acquisition channels.

    The premise is straightforward — market penetration or even domination. Obtaining unicorn status and acquiring users at all costs. The model works in theory, but in the land of funding, this usually comes at the expense of piles of debt and no profit whatsoever.

    It’s easy to scale a business with a freemium model that gets funded by investors. But infrastructure, staff, warehouses and vendors are entitled to their own funding. And unless this model converts at the same pace as a standard business cost plus a profit margin, companies will face severe consequences.

    Prioritizing profitability again will become a reality check of 2023.

    Related: How to Maintain Profitability in a Changing Market

    2. More layoffs

    Over 910 tech companies laid off over 143,000 employees in 2022 alone. The tracker relies on public data that doesn’t account for medium and large businesses outside the public purview (whereas the numbers are likely to exceed 200,000 or even 250,000 at the time).

    Financial scrutiny, combined with unfavored financing tools thanks to the aggressive interest rate hikes by the Federal Reserve, is limiting access to funding to combat the effects of hyperinflation.

    With unlimited resources, it’s easy to get sidetracked and keep pouring more people, money and servers into a problem. This anecdotally conflicts with Brooks’s law (a known adagio in project and product management), where adding workforce to a software project that’s running late is dragging it even further.

    While unemployment rates are still normalized, the pressure on high-tech and communications will disrupt the current numbers over the first two quarters of 2023.

    Related: Amazon CEO Andy Jassy Announces ‘Most Difficult Decision’ in More Bad News for the Tech Giant Next Year

    3. Salary normalization in IT

    TCI Fund Management, an Alphabet (Google’s parent company) stakeholder, issued an open letter to CEO Sundar Pichai. Billionaire Christopher Hohn called out Google’s overhiring practices and its passive actions compared to other industry leaders.

    Moreover, the letter pointed at the disparity of salaries in high tech and even among Google compared to other competitive companies where “median compensation totaled $295,884 in 2021”. Hohn’s further analysis quantified the comp offer as “67% higher than at Microsoft and 153% higher than the 20 largest listed technology companies in the US.”

    Competitive salaries are a key instrument for leading brands to acquire top talent. However, scrutinizing the future of existing business models — such as the downside of advertising businesses in social companies or tens of billions invested in the metaverse by Meta requires careful consideration and getting back to operational efficiency first and foremost.

    Related: Are We Headed for a Recession? It’s Complicated.

    4. Pushback on remote work

    Remote work has been a conflicting topic at best. In 2010, I was openly advocating for the adoption of remote work, quoting Cisco’s 2009 study of cost savings and employee satisfaction and success stories by companies like Automattic or Basecamp.

    As the 2020 pandemic made it possible for office jobs, it was a blessing to tens of millions of workers. However, several conflicts arose:

    • Public records on social media and interviews with employees taking endless lunch breaks, leaving their computers on, or casually responding to emails while playing video games or at the gym
    • Managers trying to combat the lack of remote principles with endless waves of Zoom and Teams meetings, taking over 20 hours a week for senior leaders and experts
    • The goal of becoming “over employed” while being shielded from office peers or monitoring gathered over 120,000 disciples on Reddit alone
    • Workers moving across the country or even internationally – causing actual employment violations in adhering to insurance or health policies in most countries, lacking working permits, and masking their locations

    During the boom of 2021, corporations negating remote work opportunities were dismissed or even publicly banished. With a recession coming in, this talent pool is the first one to crack for many business leaders.

    Related: Why 2022 Is All About Asynchronous Communication

    5. Limited innovation

    The reality check and the renowned focus on profitability come at the hidden cost of innovation. A key reason why most technology leaders are taking a hit is a dip in revenue.

    Facebook, Instagram, Twitter, Snapchat and YouTube rely heavily on ads to support their freemium networks. Other businesses are also pressured to cut costs due to limited business opportunities and expectations of salary raises. For many, sales and marketing (especially advertising) expenses are the first lines of cuts.

    Microsoft’s computer sales plummeted, and Amazon’s shipped revenue is declining as hyperinflation raises costs while employees’ net worth stays flat.

    The international energy crisis is fueling inflation further, making the problem worse.

    As tech companies get pressured, and layoffs occur, this often starts with sectors that lose money. Innovation and R&D — think of autonomous vehicles, the Metaverse, new cryptocurrencies or digital wallets, or blockchain adoption for networks that currently operate on a client-server model — slow down or get frozen for the time being.

    As spare money is no longer available, this hits consumers and other tangible markets — from the broader crypto world (with several large exchanges filing for bankruptcy) to a massive dip in selling NFTs or any unproven asset classes only made popular due to stable income and influx of capital during the past few years.

    Everyone is affected

    The most important takeaway here is that everyone is affected by the recent crash in tech.

    The Great Recession of 2008 started with real estate and banking, but this carried over consumers losing their households due to interest hikes, construction companies going out of business, unemployment rates going from 5 to 10%, and negative GDP affecting retail, restaurants, travel, logistics, manufacturing. The house of cards trickles down to dependent people and businesses.

    Even if your business appears to be doing well at the time, buckle up and keep an eye on the latest industry news. Recessions come and go – and making the most out of the coming year would set you up for success forward.

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    Mario Peshev

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  • This Web3 Data Warehouse Wants to Bring Big Data Analytics to the Blockchain

    This Web3 Data Warehouse Wants to Bring Big Data Analytics to the Blockchain

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    Nate Holiday is the co-founder and CEO of Space and Time. He sat down with Jessica Abo to talk about his company and the intersection of data and blockchains.

    Jessica Abo: Nate, tell us a little bit about Space and Time.

    Space and Time is a decentralized data warehouse. If you think about data warehouses, it’s where businesses are processing data in order to better interact with their consumers on a regular basis. Companies all over the world run their data analytics in data warehouses. That ability to power applications and power businesses is something that’s been around for a long time. We’re now decentralizing that process, and that data, to interact and run with blockchain data in decentralized applications.

    And why is that important?

    There are a lot of different types of blockchains all over the world, and more and more people are starting to interact with various blockchains. And so it’s really important for businesses that are building on the blockchain, or businesses that are what we call ‘off-chain’ or Web2, to start interacting with that data because that’s where their customers are.

    If you want to understand your customers better, to be able to interact with that data and to understand what they’re doing with the different types of applications and services that are provided through blockchain, it’s really important to have tools and analytics and capabilities that can combine both on-chain data from a blockchain with off-chain data from enterprise systems.

    Your company is aiming to move enterprise companies’ data analytics to the blockchain. Why would someone do that?

    That’s a fair question. Look, I don’t think that enterprises are moving to the blockchain wholeheartedly. They have years and years of data infrastructure and analytic architectures that have been built. They spent billions of dollars building this data architecture and infrastructure. And so taking all of that capability that they have built and just moving it all and repurposing that for the blockchain is something that I don’t believe is going to happen. But what is going to happen is that they need blockchain data to be able to interact and integrate into their large investments that they’ve made over multiple years and billions of dollars.

    So we provide this bridge. We allow them to take all the blockchain data, have it cleared and indexed in relational data stores, and bring familiar tools that they can integrate into their overall system. So now they can combine all the years of architecture and data and analytics that they’ve built up over that period of time with new data that’s coming from analytics, and from blockchains, and combine this into a single cluster and provide analytics at scale.

    Taking a step back from this for a second, what do you think is wrong with how big data analytics is carried out today?

    Well, the first thing I would point out is that it’s all centralized. So if you think over the last couple of years, everyone’s been migrating all of their data analytics and infrastructure to the cloud and the cloud service providers are all centralized. There are a lot of points where data can be manipulated in that architecture.

    First, cloud service providers can determine what applications and what software run within their cloud, and you see it all over the world where they decide on certain types of software to run; while certain types of companies can participate in their cloud, others can’t. Since companies are building this software in the cloud the service providers now have access to all this data. They’re able to manipulate and control the data if they so choose.

    Now, if you’re building a company that has customer data in the software that’s on that cloud provider, and companies have access to a tremendous amount of data that is also centralized. So if you think along this data lineage of cloud service providers, software creators, companies that capture and use data of their customers, then obviously these companies have employees that have access to all this data. And when you think about do no harm, always do good in a centralized data architecture, you have all these points of failure where it’s centralized and it can be manipulated and tampered with.

    And what would be the benefits of decentralized data analytics?

    Space and Time offer an alternative to the centralized data architectures that the world has built. And that is, first of all, the servers that we run the analytics on. We don’t own all the servers. They’re decentralized. Nobody can own all the servers in a decentralized network, which would defeat the purpose. So, therefore, anyone can participate in the node operations and the servers that run the actual software. The software that we’re building is geared toward open-source software. And so as the software runs on all these nodes, we don’t actually have access or capability to manipulate or tamper with the actual software.

    In addition to that, we have built cryptographic guarantees. As data is being processed in Space and Time, if anyone changes or manipulates or inserts, or deletes data during a query process, then the cryptographic proofs would fail. This means you wouldn’t actually be able to deliver data back to, for example, a smart contract on the blockchain, which requires tamper-proof delivery of data; this is why we’re building this cryptographic proof, which we call Proof of SQL. People can’t interact with the data as bad actors to change, manipulate or transform data favorable to them and not toward the customer.

    Nate, can you tell us about some of your partners?

    We have really strong partnerships within the Web3 / blockchain space. Chainlink is helping us bring data to and from the blockchain. So as you want to interact with smart contracts, you need decentralized oracles. Data coming to and from smart contracts requires those oracles – that is really important. And Chainlink is a leader in the space around data and decentralization of oracles.

    We’re also working with Polygon, Mystenlabs and Avalanche on bringing Web2customers to the blockchain. You see more and more news articles about Web2 companies that are starting to utilize blockchain data.

    One of the most exciting partnerships that we just announced was with Microsoft, and M12 Ventures investing in Space and Time. I think why it’s so important is that you’re starting to see the leaders of the data industry – like Microsoft from a Web2 perspective, and Chainlink from the Web3 industry – that are starting to look at how we bridge all of this data together. How do we bring best-in-class capabilities from off-chain data analytics and on-chain data to a single platform, of just data in general, that interacts with blockchains and interacts with customers — wherever those customers are.

    Finally, what do you want to say to the people out there who are skeptical about all of this?

    One thing I always say is don’t confuse blockchain technology with crypto. There are a lot of things in the news today about crypto exchanges, about trading exchanges, where you have bad actors that are participating in centralized formats. If you think about, for example, these exchanges that are failing, they’re all centralized. Blockchain technology, Web3 technology, was built to decentralize all this. And as we think about the data infrastructure that we’re building to decentralize further the ability to own your data, to own your funds. And so, all of these play a factor in what blockchain was built for and what Web3 technology was built for.

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    Jessica Abo

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  • Subsidized vs. Unsubsidized Student Loans: What to Borrow?

    Subsidized vs. Unsubsidized Student Loans: What to Borrow?

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    Disclaimer: This article is for informational purposes only. It should not be considered legal or financial advice. You should consult with an attorney or other financial professional to determine what may be best for your individual needs.

    A college education in the U.S. might be expensive, but it’s still accessible to many American students thanks to federal student loans. The only problem: It can be tough to know which student loans to choose from, mainly subsidized vs. unsubsidized student loans.

    If you’re unsure what to borrow or the difference between these student loan types, you’ve come to the right place. Read on for more information about subsidized and unsubsidized student loans.

    What are subsidized student loans?

    A subsidized student loan, also called a direct subsidized loan, is a federal student loan available to undergraduate students if they show sufficient financial need.

    Being subsidized means interest rates are temporarily paid for or halted by the government, and are generally much lower than unsubsidized loans. This allows students to focus on education without worrying about interest accruing on them for some of their terms.

    More specifically, the US Department of Education pays all of the interest on subsidized student loans so long as the borrower is enrolled at least half-time in school. This arrangement continues for six months after graduation and during other applicable deferment periods.

    What are unsubsidized student loans?

    An unsubsidized student loan is also a kind of federal student loan. But unlike subsidized loans, the interest rates for unsubsidized loans begin accruing as soon as money is distributed to a borrower’s school.

    However, this doesn’t mean that students need to pay the interest right off the bat. Students can choose not to pay the interest while in school and throughout a six-month grace period after graduation. However, unpaid interest accumulates during this time and constantly adds to the borrower’s total balance.

    Main differences between subsidized and unsubsidized student loans

    To recap: Subsidized student loans’ interest is paid for by the government while students are in school and for six months after graduation.

    The government does not pay for unsubsidized student loans’ interest at any point, so it consistently accumulates. Graduate students only have eligibility for unsubsidized loans, and only in some cases.

    However, there are many differences between subsidized and unsubsidized student loans aside from the above basic breakdown. Here’s a closer look at those differences.

    Loan limits and qualifications

    Direct subsidized student loans have lower annual loan limits than direct unsubsidized loans. For example, first-year dependent undergraduate students can borrow $3500 in subsidized loans and $5500 in unsubsidized loans. Both contribute to a total federal student loan limit of $23,000.

    Furthermore, students must demonstrate sufficient financial need to qualify for subsidized types of loans. You can apply via the FAFSA or Free Application for Federal Student Aid. In contrast, unsubsidized student loans are available to any student borrower, no matter their financial need.

    Interest and fees

    As mentioned above, the most significant difference between subsidized and unsubsidized student loans is how interest is handled. Subsidized student loans have their interest paid by the government for a while, but unsubsidized loans do not.

    There are other differences as well, however. Subsidized federal student loans have fixed annual percentage rates or APRs of 4.99% for all loans disbursed from July 1, 2022, through June 30, 2023. These apply to loan payments (usually monthly payments) required over the life of the loan.

    Unsubsidized federal student loans have fixed APRs of 4.99% for undergraduate loans, 6.54% for graduate or professional student loans, and 7.54% for PLUS loans. These rates apply for the same timeframe as subsidized loans.

    Meanwhile, subsidized and unsubsidized loans have fees of 1.057% for all loans disbursed between October 1, 2020, and October 1, 2021.

    Grace periods and deferment

    Subsidized and unsubsidized federal student loans have six-month grace periods, or periods of deferment, meaning student loan repayment won’t begin until six months after graduation.

    However, unsubsidized loans’ interest capitalizes, meaning that it is added to the original loan amount. That’s because, as stated above, the federal government doesn’t pay the interest fees for unsubsidized student loans.

    Unfortunately, this can lead to a spiraling and costly effect. The larger the principal loan balance gets, for example, the more each successive interest charge adds to the pile. Therefore, prospective students should be careful about using too many unsubsidized federal student loans.

    As far as deferment is concerned, the Education Department pays interest for all subsidized loans during deferment periods, like the recent one for Covid-19. Unsubsidized loans, of course, have their interest continue to be collected during deferment.

    Recently, the U.S. government released a student loan debt relief program. U.S. citizens could qualify for loan forgiveness. However, this program is currently blocked.

    How much money can you borrow?

    Now that you know the significant differences between subsidized and unsubsidized student loans, you might wonder what the maximum amount you can borrow is.

    Dependent first-year undergraduate students can borrow $5500 in student loans, of which no more than $3,500 can be subsidized. Independent students, meanwhile, can borrow up to $9,500. Again, only up to $3,500 can be in subsidized loans.

    The loan rates increase for each successive year of schooling. Here’s a breakdown:

    • Dependent second-year undergraduate students: $4,500 in subsidized loans, $6,500 total.
    • Independent second-year undergraduate students: $4,500 in subsidized loans, $10,500 total.
    • Dependent third-year and beyond undergraduate students: $5,500 in subsidized loans, $7,500 total.
    • Independent third-year and beyond undergraduate students: $5,500 in subsidized loans, $12,500 total.

    As you can see, you can only take out a certain amount of money in loans per year from the federal government. If you have more financial needs, you’ll have to seek financial aid through scholarships, grants or loans from private lenders or other institutions.

    Which should you use: subsidized or unsubsidized student loans?

    Given all this information, you might ask yourself whether you should prioritize subsidized unsubsidized student loans.

    For most American students, the answer is clear: Subsidized student loans are superior because you don’t have to worry about interest accruing while you are at school and through any grace or deferment periods.

    In this way, you’ll pay less for subsidized loans over their lifespans than unsubsidized loans. However, you can’t take out as much money in federal direct subsidized loans as you can in unsubsidized loans.

    The most followed strategy is this:

    • Apply for as many federal student-subsidized loans as you can. Take out as much money through this system as possible, as it is the most cost-effective way to pay for your education and benefit from plentiful repayment options.
    • Then, only if you still need a little more money, take out extra unsubsidized federal student loans for the remainder of the academic year to pay for the cost of attendance.
    • Alternatively, pursue other means of financial aid, like scholarships, grants, and other loans with low-interest rates from secondary financial institutions and lenders like banks or credit unions.

    If you do this, you’ll negate as many of your future interest payments as possible and walk away with as much financial aid as possible.

    Related: Don’t Be a Victim: 4 Ways You Can Take Charge of Your Student Loans

    Should you take out federal or private student loans?

    Given the potentially high costs of unsubsidized federal student loans, some students might wonder whether private loans are better.

    It’s almost always better to borrow federally first. Why? Private loans, even those offered by trustworthy financial institutions, usually have higher interest rates. They also usually require cosigners if student borrowers don’t have credit histories, which is very common for first-time college students.

    Related: Private and Federal Student Loans for College: Which Works Best for Your Child?

    Meanwhile, subsidized and unsubsidized federal student loans offer more forgiveness and refinancing options, borrower repayment plans and extra flexibility compared to private loans.

    In the worst-case scenario, if you default on your loans and have a ton of student debt, you’ll have an easier time resolving things with federal student loans than with private student loans.

    You should only use private student loans if you have to fill unexpected payment gaps to meet college expenses or if you find an excellent deal with a low-interest rate. In that case, a private student loan might be slightly better compared to an unsubsidized student loan, but that’s rarer than not.

    Summary

    In many ways, subsidized student loans might be superior to unsubsidized loans. Still, both could allow you to acquire a college education and open up new professional pathways for your future.

    If you qualify for student loans, it may be best to take them, provided you plan to pay them back once you graduate. Additionally, consult your college’s financial aid office to receive more personalized counseling.

    Looking for more resources to expand your financial knowledge? Explore Entrepreneur’s Money & Finance articles here

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  • 9 States With No Income Tax: Everything To Know

    9 States With No Income Tax: Everything To Know

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    Income tax can take a big bite out of your wallet and your business’s bottom line. But not every state in the union charges income tax. Some states, like Texas, have become well-known as business havens for budget-minded entrepreneurs partly because they don’t charge income tax.

    For comparison, here are the nine states with the highest income tax rates:

    1. California – 13.30%
    2. Hawaii – 11.00%
    3. New York – 10.90%
    4. New Jersey – 10.75%
    5. Oregon – 9.90%
    6. Minnesota – 9.85%
    7. Vermont – 8.75%
    8. Iowa – 8.53%
    9. Wisconsin – 7.65%

    This article will look at nine states with no income tax and explore everything taxpayers need to know about these tax-reduced territories.

    What is income tax?

    Income tax is a crucial source of revenue for state and federal governments worldwide. There are several types of income tax that you might have to pay depending on where you live.

    An individual income tax is levied on individuals’ wages, salaries or other income. States usually impose these.

    Corporate income taxes are levied against businesses and their income from business operations.

    Meanwhile, state and local income taxes are other forms of income tax that states have more power over. These are distinct from federal income taxes and subject to each state’s specific tax code. Some states, such as California, impose significant income taxes, while others levy no additional income tax.

    Related: States With the Lowest Corporate Income Tax Rates

    Why do some states charge income tax?

    Income tax is a very reliable source of income. People have to earn money to spend money, which means that levying an income tax provides local and federal governments with enough funding to build schools, maintain roads, pay law enforcement officers and fund all other types of government operations.

    Related: Plan Ahead to Avoid Tax Time Surprises

    Which U.S. states don’t have to pay taxes on income?

    Only some states charge income tax to their citizens.

    Nine states either don’t have an income tax or are set to phase out income tax shortly. These states are:

    • Alaska
    • Florida
    • Nevada
    • New Hampshire — technically, New Hampshire makes tax investment and interest income, but those taxes will be gone in 2023.
    • South Dakota
    • Tennessee
    • Texas
    • Washington State — note that Washington does charge income tax for investment income and capital gains taxes, but only for those who earn a certain amount of money.
    • Wyoming

    If you live in any of these states, you’ll take home more of your money from most sources of income, like your salaries and tips.

    Related: Taxes on Small Businesses Across the Globe, Mapped: See Where Rates Are High, Low — and Nonexistent

    Comparing states with no income tax

    Does that mean you should immediately pack your bags and try to move to one of the above states? Not necessarily. Keep reading to review each state with no income tax and compare them based on their total tax burden and other factors.

    Alaska

    Alaska is both a cheap and expensive place to live. For instance, it has no state income tax or sales tax. The total tax burden for Alaska is 5.10% — the lowest of all 50 states. On top of that, all Alaskan residents get an annual payment from the Alaska Permanent Fund Corp.

    Still, the cost of living in Alaska is higher than average because of its distance from manufacturing centers and the relative remoteness of its cities. So you can expect to pay more for things like groceries and gas.

    Florida

    Florida is a popular snowbird state thanks to its population of retirees and its warm temperatures. While the excise and sales taxes in Florida are higher than the national average, the total tax burden on Florida residents is 6.97%.

    It does have higher-than-average housing costs, but on the plus side, Florida is a relatively cheap state to live in if you want to go to school.

    Related: An Underwater Property in Florida Is Going for $43 Million. The Developer Calls It a ‘Unicorn.’

    Nevada

    Nevada’s total tax burden is 8.23%. Citizens don’t have to worry about income tax because there are high sales taxes on alcohol, gambling, purchasing groceries, buying clothes, casinos and hotels.

    New Hampshire

    Then there is New Hampshire. As mentioned above, New Hampshire doesn’t charge general income tax, but it does charge income taxes on certain things. The total tax burden for New Hampshire residents hovers at around 6.84%, which is relatively low compared to other states.

    New Hampshire is a relatively small state, and the cost of living can vary depending on where you live.

    South Dakota

    South Dakota has a total tax burden of 7.37% for its filers. Even though it doesn’t charge income tax, it does charge heavy taxes on things like cigarettes and alcohol.

    It also charges very high sales taxes and has higher than average property tax rates, making it costly to live here if you don’t have a good source of income.

    Tennessee

    Tennessee’s total tax burden on its residents is 5.74%. Due to legislation passed in 2016, Tennessee lowered taxes for unearned income for its citizens. But this only resulted in a higher sales tax rate and the overall highest beer tax rate for any state in the union, measuring in at $1.29 per gallon.

    Texas

    Texas has a total tax burden of 8.19%. Most of its taxes come from excise taxes and sales taxes because the residents hate the idea of income taxes. Note that sales taxes can be up to 8.25%in certain jurisdictions.

    Furthermore, property taxes in Texas are higher here than in most other states. Even with all that, there’s no denying that Texas has a relatively low tax burden compared to other conditions.

    Related: A Texas farmer offers Elon Musk 100 acres of land to move Twitter offices from California to Texas

    Washington

    Washington has a relatively young population and an average tax burden of 8.34%. Many residents pay high sales and excise taxes, and you’ll find that gasoline prices at the pump are also higher than average.

    Combine that with higher-than-average living costs and high housing costs, and it’s clear that Washington is not among the most affordable states, even if it doesn’t charge income tax (for most).

    Wyoming

    Lastly, Wyoming is a very unpopulated state. It charges a total tax burden of 6.14% on its citizens, which includes excise, sales, (some) income and property taxes.

    While Wyoming might be cheap, keep in mind that it’s only suitable for those who are fans of the frontier lifestyle. This empty state has little going on in terms of metropolitan areas or tourist attractions besides national parks.

    Should you move to a state with no income tax?

    Moving to a state with no income tax is an attractive prospect. No one likes getting a check from their work only to see what the government takes to pay for necessary services.

    While you might rationally understand the purpose of income taxes, you might instinctively feel despondent to see your hard-earned money taken away right as you get it.

    But while it can be tempting to move to a state with no income tax, you should consider the total tax burden each state levies on its residents before proceeding. You should also consider what each state has to offer.

    Related: 4 Effective Strategies to Reduce Your Income Taxes

    For example, many people move to California, which is widely understood to be one of the most expensive states to live in. Why? It’s a beautiful state, with lots to do and job opportunities, particularly in the entertainment and tech industries.

    Similar states, like New York, Hawaii or Minnesota, might have high federal income tax rates for all taxable income and additional taxes to boot but counteract that with low local sales tax rates.

    In contrast, Wyoming might place a low tax burden on its residents. But you must have a job in farming, ranching or mining. There isn’t much to see and do in Wyoming if you aren’t a fan of the great outdoors.

    Then you have to keep business taxes in mind. Self-employed individuals might find some states better than others regarding the final tax bill or their state sales tax brackets.

    Factors like healthcare, pensions and dividend income can make states like Alabama, New Jersey, Illinois and others throughout the United States attractive places to live and work.

    Therefore, don’t immediately pick one of these states and move just because it doesn’t have personal income tax on your earned income. Income taxes are valuable and vital for the government, and in many cases, they can help to fund some of the most enjoyable and profitable parts of state economies.

    What’s the bottom line on states with no income tax?

    There are plenty of states you can move to throughout the US without an income tax. These might be ideal states to move to in the future or states in which to start a business.

    But remember that these no-income tax states have advantages and disadvantages; consider the total tax burden imposed on you and future businesses in each state before setting out for “greener” pastures.

    Looking for more helpful articles to expand your financial knowledge? Check out Entrepreneur’s Money & Finance resources here.

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  • What Is Equity and How Do You Calculate It for Shareholders?

    What Is Equity and How Do You Calculate It for Shareholders?

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    Almost everyone understands home equity — this private equity is the percentage of your home you own after paying down your mortgage. More technically, it’s the value of an asset, like property, minus its liabilities, like debt.

    But the term “equity” also applies to things like businesses. As a business owner and entrepreneur, you need to know how equity affects your enterprises and how to calculate it for your shareholders, mainly before you go public. This article will discuss how to calculate equity for shareholders in detail.

    How equity works

    Equity is the value of an asset without its liabilities.

    For example, say that you own a business building, like a retail storefront, worth $500,000. You’ve paid down $300,000 of that property’s mortgage, leaving you with $200,000 plus interest in liabilities. Thus, the equity in the property is (roughly) the $300,000 you own of the building.

    This is a basic example, of course. You can look for and calculate the equity in everything from basic items to business enterprises and stock portfolios. Regardless, equity is vital so that investors, shareholders and other interested parties can determine the actual value of an asset.

    Related: How to Safely Tap Home Equity in a Financial Emergency

    Shareholders’ equity explained

    Shareholders’ equity, therefore, is the net worth or total dollar value of the company that would be returned to shareholders of the company’s stock if:

    • The company’s assets were to be liquidated.
    • The company’s debts were to be paid off.

    Put more simply, shareholders’ equity is the total equity left over that shareholders would have to divvy up between themselves if a company was liquidated entirely to settle any outstanding debts.

    You can also think of stockholders’ equity (or SE) as the owners’ collective residual claim on company assets only after outstanding debts are satisfied. Shareholders’ equity is the same as a firm’s total assets minus its total liabilities.

    It’s essential to know how to calculate share owners’ equity for a variety of reasons:

    • Investors and analysts may need to determine the market value of a company and make suitable equity investments.
    • A business’s board of directors can use this information to determine the business’s valuation for financial statements accurately.

    While similar, shareholder equity is not the same thing as liquidation value. The company’s liquidation value is affected by the asset values of physical things like equipment or supplies.

    Related: Debt vs. Equity Financing: Which Way Should Your Business Go?

    Shareholders’ equity example

    Here’s an example of shareholders’ equity:

    Imagine that you have Company A, with total assets of $3 million. You have total liabilities of $1.2 million. If the company was liquidated, and its assets turned into $3 million, you would use some of that money to pay off the $1.2 million in liabilities.

    What does that leave the shareholders? Approximately $1.8 million.

    What components are included in shareholders’ equity?

    For any given company, shareholders’ equity could be comprised of many different components. These include:

    • Stock components, such as common, preferred and treasury stocks.
    • Retained earnings — this is the percentage of net earnings not paid to shareholders as dividends (yet).
    • Unrealized gains and losses.
    • Contributed capital.
    • Physical assets like business equipment and products.

    When calculating shareholders’ equity using either of the below two formulas, it’s essential to add up all of these components when calculating the total asset value of a firm.

    Related: Use a Balance Sheet to Evaluate the Health of Your Business

    Positive vs. negative shareholders’ equity

    Things can even get a little more complicated. There are positive and negative types of equity.

    Positive shareholders’ equity means a company has enough assets to cover its debts or liabilities. Negative shareholders’ equity, on the other hand, means that the liabilities of a firm exceed its total asset value.

    If the shareholders’ equity in a company stays negative, the balance sheet may display it as insolvent. In other words, the company could not liquidate itself and all of its assets and still pay off its debts, which could spell financial trouble for investors, shareholders, business owners and executives.

    Many investors look at companies with negative shareholder equity as risky investments. While shareholder equity isn’t the only indicator of the financial hole for a company, you can use it in conjunction with other metrics or tools. When used with those tools, investors and potential shareholders can get a more accurate picture of the financial health of almost any enterprise.

    While retained earnings are an essential part of shareholders’ equity (as the current percentage of net earnings is not given to shareholders as dividends), they should not be confused with liquid assets like cash. You can use several years of retained earnings for assets, expenses or other purposes to grow a business. It’s not “realized” cash at the moment.

    How to calculate equity for shareholders

    Fortunately, calculating equity for shareholders is relatively straightforward. Remember, equity is just the total asset value of the company minus its liabilities. You can calculate shareholder equity using the information found on any corporate balance sheet.

    Here’s the formula:

    Shareholder equity = total assets – total liabilities

    Also called the balance sheet or accounting equation, the shareholder equity equation is one of the most critical tools when analyzing the company’s health.

    Here’s how to calculate shareholder equity step-by-step:

    • First, determine the company’s total assets on the balance sheet for a given period, such as one fiscal year. Be sure to add up all these assets carefully and correctly, or use an up-to-date balance sheet.
    • Next, add up all of the total liabilities. Any up-to-date balance sheet should include this information. Liabilities include debts and outstanding expenses.
    • Then determine the total shareholder equity, and add that number to the total liabilities.
    • The remaining assets should equal the sum of total shareholder equity and liabilities.

    A note when calculating total assets includes both current and noncurrent assets. If you aren’t aware, current assets are any assets you can convert to cash within one fiscal year.

    This includes cash, inventory and accounts receivable. Noncurrent or long-term assets you can’t convert into cash in the same timeframe, such as patents, property and plant and equipment (PPE).

    A note when calculating total liabilities: Liabilities also include both current and long-term liabilities. In keeping with the above, current liabilities are any debts due within one year, such as accounts payable or outstanding taxes.

    Long-term liabilities are any debts or other obligations due for repayment later than one year in advance, such as leases, bonds payable and pension obligations.

    Related: How to Protect Your Personal Finances From Business Risks

    Secondary formula

    The above shareholder equity formula should serve you well in most cases. Still, there’s a secondary formula that might be helpful as well.

    Here’s the secondary formula:

    Shareholders’ equity = share capital + retained earnings – treasury stock

    This “share capital method” of calculating shareholders’ equity is also known as the investor’s equation. This formula sums up all the retained earnings of a business and the share capital, then subtracts treasury shares.

    The retained earnings in this formula are the sum of a company’s total or cumulative profits after they pay dividends. Most shareholders receive balance sheets that display this number in the “shareholders’ equity” section.

    This formula can give a slightly more accurate picture of what shareholders may expect if forced/decided to liquidate a company or exit. However, you can use both formulas to calculate equity for shareholders equally well.

    The value of equity for shareholders

    Equity is essential for shareholders for several reasons.

    For starters, shareholder equity tells you the total return on investment versus the amount invested by equity investors.

    Ratios such as return on equity, or ROE (the company’s net income divided by shareholder equity), can be used to measure how well the management team for a company uses equity from investors to generate a profit. ROE can tell investors how capable current executives are at taking investment cash and turning it into more money.

    A company with positive shareholders’ equity has enough assets to cover liabilities. In an emergency, shareholders or investors could theoretically exit without taking substantial financial losses.

    As mentioned earlier, you can also use SE with other financial metrics or ratios to accurately determine whether a company is a wise investment.

    These metrics include share price, capital gains, real estate value, the company’s total assets and other vital elements of private companies. Because equity is essential for shareholders, it’s also crucial for business owners and people on executive boards to calculate.

    Furthermore, equity affects the value of startups on the stock market. Suitable asset allocation will help businesses grow, resulting in a higher amount of money from stock purchasers and ETF managers.

    Return on equity in detail

    Here’s a deeper dive into return on equity. Analysts and investors use this metric to determine if a company uses equity or investment cash to profit efficiently and effectively.

    Say that you have a choice to invest in a company and want to check out its return on equity before making a decision. You look at the company’s balance sheet and figure out that the return on equity is 12% and has stayed at 12% for several years.

    Related: Debt vs. Equity Financing: Which Way Should Your Business Go?

    That’s a pretty good return on any investment. It may indicate that the company is worth putting your own money into.

    On the other hand, if the return on equity is low, like 1%, and the current shareholders’ equity for a company is negative, it’s a surefire sign that your investment dollars will be worth more if you invest them elsewhere.

    Calculating equity is essential when propositioning investors for more funding and advising your shareholders. Now you know how to calculate equity for shareholders with two distinct formulas.

    Looking for more resources to expand your professional financial knowledge? Explore Entrepreneur’s Money & Finance guides here

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  • What Is a Recession and How Do You Prepare for One?

    What Is a Recession and How Do You Prepare for One?

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    The news is abuzz with rumors of the next recession coming in 2023 or 2024. But for most Americans, all of that triggers a sudden panic and a desperate need to look at one’s bank account.

    What is a recession, what does it mean, and how can you prepare yourself and your family’s finances for one? This article will answer each of these questions and more. By the end, you’ll know what to expect and how to prepare for a recession.

    What is a recession?

    According to economists working for the National Bureau of Economic Research, a recession is a prolonged period of economic downturn or declining economic activity.

    It affects a nation’s or the world’s entire economy and lasts for a few months or more. In some ways, the best way to understand the recession is to compare it to “regular” or positive economic activity and GDP.

    GDP (gross domestic product) is essentially the combined value of the goods and services made by an economy, like the American economy. The country’s GDP grows a bit each day/week/month in a standard economy.

    When a recession kicks in, there is no economic expansion. Instead, the GDP is negative — the value of goods and services in the economy decreases — for more than two quarters or approximately six months. People stop spending as much money when this happens because the dollar’s value decreases.

    Related: Are We in a Recession? Here’s What Economists Say

    This decrease in consumer demand triggers a decline in industrial production, exacerbating the spiral effect and making a recession last longer. A significant decline in the business cycle, characterized by many consecutive quarters of lower consumer spending, may lead to job losses or a high unemployment rate.

    Several past recessions have stalled economic growth and led to the depletion of the Federal Reserve or the “Fed.”

    These include the recession leading into World War II, the Great Recession financial crisis, which occurred in 2008 from speculation on real estate, and the most recent recession brought on by the Covid-19 pandemic and the necessary cutback/slowdown on retail sales in the U.S. economy.

    Signs of a recession

    Aside from this recession indicator, some typical economic indicators also have other signs and symptoms to pay attention to.

    These signs include:

    • More layoffs than average, a tighter labor market.
    • A general, widespread decline in stock market stock prices.
    • More businesses are going bankrupt than usual.
    • Fewer raises or promotions for workers.

    Related: Are We Headed for a Recession? It’s Complicated.

    As for GDP? According to some sources, the American GDP was -1.6% in the first quarter of 2022 and -0.9% in the second quarter of 2022. Technically, this means there is currently a recession, regardless of what people say.

    Note that a recession differs from a depression, which is much more severe. In a depression, the economy tanks significantly, and many more people may lose their jobs and money.

    In contrast, a recession is usually relatively short-lived. Some people may not feel a recession’s impact, depending on how much money they have saved up and their financial situation before the recession occurs.

    In any case, a recession is never good news, which could signify that you must prepare accordingly.

    How to prepare for a recession

    Fortunately, there are multiple ways in which you can prepare for a recession. Good recession prep can keep your finances secure until the recession recedes, allowing you to maintain your investments, keep your savings account intact and provide your family with peace of mind.

    Knock out as much debt as possible (and avoid new debt)

    Your priority should be to get rid of as much debt in your name as possible. You should already be trying to clear debt aggressively. The longer you leave it hanging around, the worse your credit will be and the more interest fees you’ll pay over time — it’s lost funds.

    As you put more of your money toward knocking out your debt, prioritize high-interest debt, such as credit cards and loans with high-interest rates. When you get rid of as much debt as possible, you set yourself up for financial success during the potentially turbulent economic times ahead.

    Avoid taking out any unnecessary loans or opening up new credit accounts during this timeframe. If you avoid further debt, you’ll have more money to spend on savings or necessities, which may be necessary soon.

    Related: How to Recession-Proof Your Business

    Keep saving aggressively

    Speaking of saving, you should continue to save aggressively or even save more money than you were previously.

    You might not get an unexpected promotion or pay raise during the recession. Even worse, your job could be at risk if you recently joined a company or are at the beginning of your professional career.

    In these cases and others, your income streams could dry up unexpectedly. If you save aggressively before that happens, you’ll be well-positioned to get back on your feet and weather this economic storm until clear skies return.

    Try to save as aggressively as possible and put that money into a secure savings account. That way, you’ll earn interest on those savings and avoid accidentally spending the money.

    Diversify investments

    Plunging numbers and red lines on charts are not reasons to withdraw all of your investments or blow up your portfolio if you’re invested in the stock market. You should keep your money in the market; after all, the stock market will eventually rebound just like it always does.

    Instead of panicking, diversify your investments by distributing your money into different stocks, funds, and other securities and assets. When you diversify your portfolio further, you protect it from economic damage, even from recessions.

    Plus, if you diversify your investments instead of withdrawing from the market, you’ll prevent yourself from losing money in the short term.

    Every time a recession occurs, some Americans invested in the market sell all of their securities, which only lowers prices for those securities. Then they regret this panicked decision as the market inevitably rebounds, with many stocks achieving higher prices than they reached previously.

    Bottom line: keep your investments in the market and keep your eye on the prize, particularly for long-term gains. A recession will eventually pass. Your current positions may be unattainable the next time you have money to invest in the market.

    Related: Worried About a Recession? Do This to Prepare Your Company.

    Bump up your credit

    Your credit score is also essential during a recession. You should improve your credit score before and during a recession whenever possible, primarily by eliminating high-interest debt such as credit card debt.

    If necessary, move any high-interest debt to a new credit card with an introductory 0% APR offer for any balance transfer funds. This can be an excellent way to quickly pay down any other debt in your name (in keeping with the tip above) without paying extra interest.

    In any case, try to improve your credit so you can take out emergency loans if necessary, and so any other fees or financial strain you face over the next few months, reduce your credit by as little as possible. Many people feel the aftereffects of recessions for years to come, primarily because it damages their savings accounts or credit scores.

    Don’t panic

    Do not panic if and when a recession occurs or when the news anchors start talking about it. Contrary to what some may believe, recessions are standard parts of the economic cycles inherent in capitalism.

    Simply put, recessions are inevitable declines in economic activity that eventually fade away. Once people stop panicking about the effects of a recession, economic activity should return to normal, and businesses will start to boom again.

    Just thinking of a recession in this light — a regular element of the economy and not something to necessarily be feared — will help you keep your head straight as you plan.

    Not panicking is crucial, so you keep spending and saving money, which are essential actions to do your part to prevent the economy from spiraling downward even further.

    Summary

    Recessions might be financially uncomfortable, but they are far from devastating if you take the right steps beforehand. The proper prep and patience will go a long way toward shoring up your bank accounts and protecting your finances throughout the upcoming recession until the market upswings again.

    Looking to expand your financial knowledge with more articles like this one? Explore more of Entrepreneur’s Money & Finance articles here.

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  • How To Fill Out a Money Order: Step-by-Step Guide

    How To Fill Out a Money Order: Step-by-Step Guide

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    When you can’t send a check but don’t want to rely on something as insecure as cash, a money order could be just the ticket.

    It’s essential to know how to send and fill out a money order step-by-step in case you ever need to pay a bill, send money to a relative or transfer money discreetly from one place to another.

    What is a money order?

    A money order is very similar to a check. It allows you to send or receive payments securely, unlike cash.

    However, money orders are prepaid. Instead of money leaving your account when someone catches a check, money leaves your account the minute you fill out a money order and deposit it at an appropriate institution.

    When should you use a money order?

    It can be wise to use a money order whenever you need to pay someone securely but can’t use a smartphone app like MoneyGram, online platform, check or cash (or you don’t want to use any of those methods).

    Related: This is How We Can Transfer Money Online Without Hassle

    This form of payment is accepted practically anywhere because they are automatically prepaid, so there’s no risk of the money “bouncing,” which can happen with a check. Furthermore, there’s no identity theft risk, like when you wire money from a checking account.

    You can use a money order when you need to:

    • Send money to a family member or friend.
    • Pay a bill for your business.
    • Receive money from your workplace or someone else.

    However, remember that you can only send $1,000 in a single money order. You can send multiple money orders in the same shipment, though.

    Banks and other financial institutions can offer this personal finance service, just like they can send cashier’s checks and personal checks. Other financial institutions also provide money orders, including credit unions such as Western Union or anywhere you can have a bank account or get a credit card/debit card.

    Related: Business plan, business – Money Order

    How to fill out a money order

    Fortunately, filling out a money order is very straightforward and not at all difficult. You can get a money order from a location that sells them, such as pharmacies (including Walmart and CVS) or, more commonly, any of the 31,300 United States Postal Service retail offices. Conveniently, you can also send money orders from U.S. Postal Service offices.

    Note that purchasing a money order involves a fee. The fee can vary from place to place; for instance, Walmart usually charges one dollar to send a money order, whereas the USPS can charge anywhere from $1.65 to $2.20 depending on how much you need to send.

    You’ll need a few pieces of information to fill out a money order:

    • The payee’s name.
    • The payee or recipient’s address.
    • The payment amount.
    • Your name and current mailing address.
    • The reason or billing account number for the money order.

    You don’t need to list the issuer of the money order or the location of the post office/convenience store from which you send it on the memo line.

    Step 1: Fill in the recipient’s name

    Once you have a money order, write the name of the person to whom you are paying money in the “pay to the order of” or “pay to” fields, depending on which field your money order has. You should include the full name of the recipient or the full name of the business you are paying.

    Step 2: Add your address

    The next step is to add your address to the purchaser’s address field. This is the address of the person purchasing the money order — in this case, you. You’ll also add the payee’s address.

    Step 3: Fill in the “memo” field

    Then you need to fill in the “memo” field. This is a line or field where you can describe what you’ll use the money order for. If you’re using it to pay a bill, you’ll put the billing account number in this field.

    Step 4: Sign your name

    Last, you must sign your name on the front of the money order where it is indicated. When signing the purchaser’s signature, leave the back of the money order blank. That’s where the payee or recipient will endorse it, similar to endorsing a check.

    There you have it — it should only take you a few minutes to fill out a money order from start to finish, provided you have all the necessary information.

    Where and how to deliver a money order

    After you have filled out the money order, detach the receipt. The receipt is vital for your records and allows you to track whether the recipient ever cashed the money order.

    Hand-deliver the money order to the recipient or mail it to your recipient using the postal service of your choice. Only the recipient will be able to cash it.

    Remember that, unlike a check, whatever money you have designated for the money order will be gone from your account before the recipient cashes the money order.

    Can you cancel a money order?

    Yes. To do this, you should immediately contact the person or party that issued the money order (i.e., USPS or Walmart). Ask for a cancellation request form and fill it out.

    You’ll need to have your receipt from the money order and show it to do this. Then you’ll have to pay a fee to cancel the money order. This process is the same if you want to replace the money order or get a cash refund.

    What else do you need to know about filling out money orders?

    Now you know how to fill out a money order step-by-step. Money orders can be critical financial tools from time to time, and they can come in handy if you need to send funds securely and quickly from one place to another.

    Looking for more informational articles like this? Explore Entrepreneur’s Money & Finance articles here

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    Entrepreneur Staff

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  • How Much Does an Oil Change Cost? That Depends.

    How Much Does an Oil Change Cost? That Depends.

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    Keeping your car maintained and working well is crucial to saving money in the long run. After all, if you don’t take your car into the shop from time to time, it’ll eventually break down and require much more costly fixes — or a replacement.

    One of the most important regular maintenance tasks is changing your car’s oil. But if you’ve never done this before, you might wonder how much an oil change costs. Read on for the answer to this question and more.

    Why do you need to change your vehicle’s oil?

    Simply put, the oil for your vehicle’s engine is a lubricant that prevents all metallic and mechanical parts from grinding against one another, causing corrosion, damage and malfunctions. Without engine oil, your vehicle wouldn’t run very smoothly, if at all.

    However, your engine oil gradually accumulates debris, grit, dirt and other bits of matter. Furthermore, your engine oil loses some of its lubricity or its state of slipperiness. This can accelerate wear and tear on the internal components of your engines.

    When you replace your vehicle’s oil, the fresh oil minimizes friction and allows all the mechanical parts inside the engine to spin around without issues. In addition, new oil helps fuel economy by allowing your vehicle to run more efficiently (thus expending less gasoline per mile driven).

    So, in summary, you must change your vehicle’s oil regularly to avoid engine wear and tear and ensure your vehicle runs as smoothly as possible. It’s about car care, engine protection and a healthy automotive maintenance schedule.

    What does an oil change service include?

    An oil change service may include a variety of specific actions or services depending on who you hire and what’s involved.

    At a bare minimum, an oil change involves:

    • Removing the drain plug from the bottom of your vehicle’s oil pan.
    • Allowing gravity to drain oil completely into another pan called a catch pan. This old oil is then discarded in a legal, environmentally safe way.
    • Replacing the drain plug.
    • Changing the oil filter.
    • Replacing the old oil with new oil. The majority of car engines take about 5 quarts of oil.

    As you can see, a conventional oil change service is relatively straightforward. That said, it’s not a good idea to do this crucial maintenance task if you are unprepared for it or if you don’t have any experience.

    Related: Automotive Repair & Maintenance Services Franchises

    How much is an oil change?

    There’s no universal price for an oil change service. Your oil change will typically cost anywhere between $30 to $100 if you take it into a lubricant shop or a car dealership. Alternatively, it will typically cost anywhere between $30 and $50 if you change your oil yourself.

    Generally, the higher cost of an oil change will come from a higher cost of labor (which is dependent on where you live), differences in filter quality and any additional services being performed (tire rotation, etc.). For the most part, oil costs won’t differ between locations for the same vehicle.

    Factors that affect oil change cost

    The price of an oil change can vary depending on several important factors:

    Oil type

    First, the type of oil used will affect how much it costs to change your oil, whether you take it to an expert or do it yourself.

    There are two basic types of oil used for most oil changes:

    • Conventional oil is standard and more affordable but is more common for older vehicles. It’s the traditional type of oil used to lubricate engines and mechanical components.
    • Synthetic oil is required by most modern vehicles and is more expensive. A synthetic blend oil is typically seen as better than conventional motor oil because it is specially formulated to improve lubricity and engine quality over time. You can get a full synthetic oil change at most service centers, and it’s also included in many car warranties.

    If your car does not explicitly require synthetic oil, you can pick between them when you take your vehicle into the shop or change your oil personally.

    Synthetic oil is almost always better for your car, however. It wears down your engine less harshly and lasts longer. Therefore, depending on how often you need your oil changed in the first place, paying a little extra for synthetic oil could save you more money in aggregate.

    The most significant price difference between conventional and synthetic high-mileage oil is about $32, so it doesn’t break the bank. What should you do? Go synthetic whenever possible, and read your vehicle’s owner’s manual to know which type of oil your car needs.

    Car type

    Vehicle type can also impact the cost of an oil change. Some vehicle models require a specific type of oil to be used, such as a particular brand of synthetic oil. This is more frequent with luxury vehicles.

    In addition, your car type can impact how much oil you need for a full oil change. For instance, a large truck that drives hundreds of miles daily will need much more oil per change than a small sedan that only goes a few miles daily.

    Location

    Lastly, the location where you get your oil changed can impact its cost. If you live in a more expensive area, an oil change will also be more significant since the car dealership or lube shop service has to pay more for its rent and related costs.

    Note that if you change your oil yourself, location is unlikely to affect the overall price you’ll pay.

    Quick lube shops vs. dealerships

    When you need professional help to change your oil (recommended if you don’t have any experience doing this), you have two options: Take your car to a lube shop or a dealership.

    A dealership may know more about your vehicle’s make or model, mainly if you take it to a dealership for your vehicle’s brand. Therefore, it could be wise to take your car to the dealership to get its oil changed.

    As a side benefit, the dealership can look at other aspects of your car and tell you whether you need to change your tires or other replacement parts. It may be wise to go to the dealership for a biannual checkup on the health of your vehicle in general.

    In contrast, a quick lube shop might be a more cost-effective, fast solution. You can find quick lube shops in most major metropolitan areas; some are even mobile.

    These don’t specialize in any specific type of vehicle, but they can change your car’s oil in a matter of minutes if you come at the right time.

    A quick lube shop might be the best solution if you need your oil changed more frequently due to long commutes or other factors. Many quick lube shops also sell the right oil you need for your vehicle, but you should call ahead to check just to be sure.

    How often should you change your oil?

    That depends on the make and model of your vehicle, as well as the type of oil you have. Generally, better oil varieties allow you to change your oil less frequently. But it’s still a good idea to change your oil after about 5,000 to 7,000 miles, depending on your vehicle’s manufacturer recommendations.

    You should get your oil changed twice yearly, assuming you drive your car daily. If you drive your vehicle many miles daily, you’ll need the oil changed more frequently.

    When in doubt, speak to the local dealership or oil change expert you hired to do this service. Based on the oil they provide and the make and model of your vehicle, they should know how often you need to change your oil to prevent significant issues.

    How to lower the cost of an oil change

    Although an oil change shouldn’t be too much of a burden on your wallet, you can lower the cost of that oil change with a few smart tips and strategies.

    Firstly, look up coupons or discounts in your local area, particularly if you just need an oil change and don’t need all the bells and whistles from a related car maintenance service. If a quick lube shop has a discount, you can visit that shop and get your oil changed on the cheap.

    Secondly, look into learning how to change your oil yourself. Knowing how to change your oil is an important life skill and will help you get back on the road if your car breaks down in the middle of nowhere.

    Furthermore, it’s not very difficult; once you learn how to do it, you can save yourself $50 or more by changing your own oil instead of taking your car to a shop or dealership.

    Related: Startup Helps Fend Off Car Repair Ripoffs

    Thirdly, take care of your vehicle in general. If you run your vehicle all the time or don’t take care of it, the oil will need to be changed more frequently.

    But if you take care of your vehicle, get it inspected by a maintenance technician regularly, and practice good driving habits, your oil will only need to be changed once in a while, saving you money.

    Summary

    Ultimately, an oil change will cost you anywhere from $20-$100 or more, depending on the quality you expect, the type of oil you need, and a handful of other factors.

    Even if it is an inconvenient expense, get your car’s oil changed when needed; otherwise, you’ll set your car up for a more expensive fix later down the road.

    Looking for more informational articles like this? Explore Entrepreneur’s other resources here

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  • 14 Tax Deductions Your Small Business Might Be Overlooking

    14 Tax Deductions Your Small Business Might Be Overlooking

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    Opinions expressed by Entrepreneur contributors are their own.

    While there are other benefits, one of the most important reasons you’re in business is to make money. And it stands to reason that if you’re in business, you’d like to keep as much of what you generate as possible. That could be why so many people hate paying taxes.

    But if you’re doing your bookkeeping correctly, you’ll find there are ways to keep some of the value your business generates. All you want to do is pay your fair share. And keep what’s left to run a successful small business or grow that business into something even bigger.

    Above all, remember that you pay taxes on your profit, and your profit is your income minus your ordinary expenses; you report this to the IRS every year on Schedule C. So when you sit down to do your taxes or hand your information over to your tax accountant, you should be sure you’ve tracked every single business expense.

    Related: These Are the Top Tax Filing Mistakes Made by Small Business Owners (and How to Avoid Them)

    What deductions are obvious? Anything you buy that directly affects your business and is used for your business. If you’re in construction, it’s the cost of your equipment and raw materials. If you’re a web designer, it’s the software you use. Look at Schedule C and you’ll see the obvious ones: advertising, office expenses, licenses, utilities and more.

    You need to be careful defining some expenses, especially if you’re running your business out of your home. Yes, you can deduct the part of your home that you use exclusively and regularly for business. But if you work weekdays at your home office and watch football from it on Sunday, it’s not exclusive to your business. If you only do your month-end bookkeeping in it — even if that’s all you do in it — once-a-month office use is not considered regular use.

    But when you’re assembling your receipts or downloading expense data from your small business financial management system to provide to your tax accountant, there are certainly some expenses that you might not have thought to include. There may be other expenses you claim that are not eligible deductions. If filed in error, these mistakes could cost you fines — or worse — if you’ve deducted more than you should have or are permitted to.

    Related: Here’s Why It Pays to Track Every Tiny Business Expense

    Tax deductions you might be missing

    While Schedule C enumerates 21 types of expenses, you still might miss some perfectly legal deductions. For instance:

    1. Repairs or alterations to your home office: If you’re there all the time, then expenses like painting, re-flooring and brighter light fixtures would be deductible. Having a cleaning service for your office would be as well. The desk and file cabinets you use would also be deductible — as would the repair to the wall after your desk chair banged it up.
    2. Education: Any education or training related to what you do to earn money is deductible. Many professionals require professional development courses to keep their licenses current. Others take classes to learn how to improve their business. If it’s relevant, it’s deductible.
    3. Local travel: When you visit a client and pay to park in the lot across the street, that parking fee is deductible. If you take a toll bridge to cross the river to visit your client’s office, that bridge toll is deductible. And so is your mileage, assuming your client doesn’t reimburse you for those costs.
    4. Your website: A website is a must-have to find and connect with new and existing customers. All related costs can be deductible — paying the person who creates it for you, paying for the website to be hosted, paying for its security, paying for the pictures and copy you post to it, etc. It’s all part of advertising, which is more than paying to run a small ad on your local radio or television station.
    5. Startup costs: If this is your first year, the legal and professional fees you pay to complete and file your paperwork are deductible. Fees above the $5,000 first-year limit can be amortized over the succeeding 15 years.
    6. Research and development: If you’re creating a new product, the expenses relevant to bringing that product to market are deductible.
    7. Interest on debts: A loan you take for business purposes is tax-deductible as long as it’s an arms-length transaction. Keep track of the interest costs so you can deduct them at tax time. Your business credit card interest is also deductible.
    8. Industry publication subscriptions: Every trade has a publication that keeps its practitioners current, from Advertising Age to Chain Store Age to Industry Week. Online subscriptions are also deductible.
    9. Retirement savings for self-employed business owners: These include self-employed simplified employee pension (SEP) plans, solo 401(k) plans and Keogh or HR-10 plans.
    10. Business gifts: There’s a limit of $25 per person per year for gifts to clients. But, 100 percent of the cost of employee meals at events such as holiday parties and company picnics is deductible.
    11. Perks for your employees: Coffee in the office? That candy bowl at the front desk? 100 percent deductible. Lunch brought into the office can be fully deductible, while taking the team out for lunch is only 50 percent deductible.
    12. Club or organization membership fees: The organization must be business- or community-related, such as a chamber of commerce, trade association or a professional organization.
    13. Lawn mowing: If you receive clients at your home office, keeping the entrance to your house clean and presentable may be deductible.
    14. Childcare for solo professionals: If you’re a parent and have a home office but you need to meet a client outside the home, childcare is deductible. If you’re leaving the house to go shopping, it’s not.

    Related: 75 Items You May Be Able to Deduct from Your Taxes

    Just remember, you can’t deduct what you aren’t tracking. Prior to the 1980s, you didn’t have many options — record-keeping systems included paper, pencils and file cabinets. The late 20th century made spreadsheets an option, which required ensuring formulas were put into the correct cells as well as remembering where the related backup documentation was saved.

    The modern era has given way to even better ways of tracking information, and distilling years of accounting and bookkeeping know-how into an easy-to-use software platform. Now you can stay on top of all of the purchase orders, invoices and receipts you’ll need as a backup to your accounting records. And, have them all safe in a cloud-based system. Files, images, emails and scanned paper documents can be captured from a mobile device or a computer and stored safely online. You can categorize all transactions easily by account category and relevant tax schedule for subsequent reporting and filing.

    These systems can be accessed from anywhere your business takes you, from home office to factory floor to out-of-state business pitch. You can pull them up when needed (such as for a loan application, a meeting with your accountant or deciding on financing a business improvement).

    Consider financial document management solutions that can also automatically extract data from these documents. Instead of keying these numbers into a spreadsheet or paying your tax accountant to do this manual work, systems like Neat automatically feed financial data to accounting and tax software. These systems can make it easier to account for all of your business expenses — the obvious ones and those that can be often overlooked.

    Related: The Most Forgotten Tax Deductions Business Owners Should Take

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    Jim Conroy

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  • VCs Are Missing Out on New, Innovative Ideas. Here’s Why (and What They Can Do About It).

    VCs Are Missing Out on New, Innovative Ideas. Here’s Why (and What They Can Do About It).

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    Opinions expressed by Entrepreneur contributors are their own.

    It has been a challenging time for technology investing. S&P and NASDAQ are down, and crypto is down considerably. S&P 500 declined by 19% earlier in the year, and NASDAQ, which is tech-heavy, has lost almost 30% of its value in the same period, with some of the biggest tech giants reporting disappointing earnings.

    The crypto winter continues with Bitcoin and Ethereum prices tanking following the collapse of FTX earlier this month, with around $200 billion being wiped off the crypto market in just days. It goes without saying that on the surface, it may seem like this is not a good time for tech investing, and many investors have indeed dropped their big tech stock in favor of “old economy” stocks. Still, could this be an opportunity to invest in companies with a discount?

    Related: 6 Important Factors Venture Capitalists Consider Before Investing

    Tier 1 wastage

    For large VC funds, investors are often looking to partner with startups that can achieve more than a $50B outcome in order to get a return of 3-5 times the fund. However, with only 48 public tech companies currently valued at more than $50B and over 1000 venture funds gunning for these few, this is a challenging situation.

    Furthermore, since VCs only typically take on 20 or 30 companies per fund, they often use “pattern recognition,” whereby they use experiences from the past to make more efficient decisions about current investments. However, what can happen is that their portfolio companies all look pretty similar.

    This can be problematic for entrepreneurs applying for VC funding who do not fit the “tried and tested” criteria many VCs use to decide whether to invest or not. In fact, we see that the majority of U.S. venture funding goes to white, Ivy-League-type entrepreneurs. In Q3 of this year, only 0.12% of venture funding went to Black entrepreneurs.

    Even if these startups have the potential to be the next biggest thing, their idea will struggle to get off the ground just because they cannot get the venture capital. Furthermore, VCs also stand to lose out, simply because they are only focusing on that small segment of startups and not on the potential of others that perhaps do not fit the bill on paper.

    Opportunity for disruption in the market

    However, while many VCs are focusing on targeting increasingly large outcomes, this provides an abundance of opportunities for what is left. By targeting the underfunded startups, you can invest in businesses that have an 80% chance of a $300M outcome and gradually move upmarket from there.

    Not only will this provide a funding opportunity for entrepreneurs who would normally have been seen as outside the box, but it can drive innovation and new ideas. Different people can solve different problems, so it stands to reason that funding a wider spectrum of people will create new, innovative solutions — potentially serving a wider, more diverse population.

    Related: How We Can Beat Venture Capital’s Diversity Problem

    A need for a change of perspective

    It is not that venture capitalists have made bad decisions or ignored critical data. They haven’t, but it is rather the culmination of multiple parties making rational decisions that have resulted in systemic levels of risk.

    If we look at U.S. venture performance, the majority of returns are generated by a very small subset of players, with the top 5% of funds significantly outpacing the median.

    This is also the case with startups, where you will usually have just one from the VC fund’s portfolio bringing in the overwhelming majority of the returns if not all. When successful, VCs can see a return of 5-10x of their money back, and founders can become billionaires.

    Yet, we now find ourselves in a post-Power Law meta, which opens up an opportunity for a new perspective and to start making new rational decisions. This shift has seen a substantial increase in both the VC fund count and value in the U.S., with 2021 proving to be a record-breaking year.

    Approximately $329B was invested across 17.054 deals last year, a record for both deal count and value. Investors also passed the $100B mark for the first time ever, raising $128.3B.

    How should venture work?

    However, although we would like to think that this influx of funding is going to the entrepreneurs who could not otherwise get funding, this is not the reality of the situation.

    A funding round in a startup will usually comprise 3-5 major funds and a variety of smaller checks putting capital in. However, a recent analysis by venture fund, Social Capital, has shown that there is a significant overlap of VCs co-investing with each other.

    Additionally, funds over $500M accounted for 77% of capital raised by venture funds in H1 2022, with an average fund size of $317M. The returns are predominantly concentrated on those few companies and a few key investors.

    Related: You Can’t Get VC Funding for Your Startup. Now, What?

    What is the solution?

    Many things can go wrong with startups once they have accepted venture capital, and they are typically left with two options: to shut down or pivot. Limited partners’ fund managers are generally not going to consider risky bets, opting to look for consistent winners within their allocation. Furthermore, you have to look at what would incentivize them to diversify when they have received huge returns over the past decade.

    Still, this provides an opportunity for an alternative product to invest in companies with limited fund size and equity optionality through redemption clauses or equity buybacks. As a serial entrepreneur myself, I have built multiple businesses in the last few years. Some failed, and a couple of them succeeded in multi-million dollar companies with offices on a global scale.

    Now as Co-Founder and Managing Partner at Venturerock The Valley, we aim to support startups from seed to scale and decrease the high failure rate for startups. We are not looking to sell products, but rather to focus on startups that create a big impact and really solve a problem using emerging technologies such as blockchain, AI and IoT. All our partners combined have accelerated more than 700 startups to date.

    While many still focus on the big few, they risk missing out on new innovative ideas and breakthrough technologies simply because they did not fit the mold. Even though these startups may not turn out to be the next $50B company, they can still bring great value to the table, be very successful and create a big impact. These companies deserve to be supported on their journeys and to see their visions come to fruition.

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    Danny Cortenraede

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  • 3 Ways to Save on Car Insurance During a Recession

    3 Ways to Save on Car Insurance During a Recession

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    Opinions expressed by Entrepreneur contributors are their own.

    In the face of a recession, it can be hard to keep up with the rising costs of vehicle ownership. The average American is spending 17% more on car insurance coverage in 2022 than they were in 2020, and that expense is driving Americans to extreme extents in order to save money. It may be tempting to save money by cutting coverage with your current insurance company. However, I recommend keeping adequate coverage and using alternative methods to save money so you don’t make your problems worse in the event of an accident.

    While 16% of drivers are considering moving to a location with better public transportation and walkability, you do not have to relocate or surrender your car to save during a recession. By implementing these simple tips, you can significantly cut down on your monthly payments without sacrificing much convenience or comfort.

    Related: 8 Tricks for Solopreneurs to Cut the Cost of Auto Insurance

    1. Shop for car insurance every 6 months

    While some insurers would suggest drivers shop for car insurance on an annual basis, a recession can cause your finances to change on a whim. Shopping for car insurance every six months ensures that you’re getting the best deal for your financial situation. Car insurance comparison platforms will automatically shop for you every six months and before your policy renewal, so you can stay updated on the best policy options.

    If you prefer to conduct your own shopping research, you should start by assessing your own coverage. As you shop, you should compare the rates of other policies that offer coverage that mirrors yours. Make sure you include any applicable discounts (e.g., homeownership, education, safety devices, etc.) in your comparison shopping.

    2. Consider usage-based insurance

    Usage-based insurance (UBI) lets insurers charge lower premiums for people who drive less often or in safer ways. There are two main types of UBI: driving-based programs and mileage-based programs.

    Driving-based programs involve a device being installed in your car that monitors how and when you drive, with the goal of lowering your rates according to how safe you are behind the wheel. Your rates will be determined by factors like how hard you brake, how quickly you accelerate and the time of day that you drive. If your insurer offers a driving-based program, you should avoid driving after midnight, drive less often, and don’t multitask while driving — otherwise, you risk your rates increasing.

    Alternatively, there are mileage-based programs that consider the total miles driven each year. Your insurer will calculate your premium based only on how many miles you drive. Even though not all insurers offer this type of plan, if you work remotely or are retired, it might be a good option for you.

    Related: Save Time and Energy With AI-Powered Car Insurance

    3. Opt for a higher deductible

    Your insurance deductible is the amount you have to cover out of pocket before your insurance company will chip in. This can mean that if you get into an accident and need repairs, you would be responsible for paying them out of pocket — unless the damage falls below your deductible level.

    Many people avoid having a high deductible because they worry that they would not be able to cover it if something happened. They fear they will end up being stuck with the bill and unable to afford their car repairs or medical treatment without going into debt or taking out a loan.

    But here’s the thing: There are many benefits to having a higher deductible. Generally, you will see lower premiums for higher deductibles; and having more money in your pocket each month could help offset any unexpected costs from accidents or emergencies. Keep in mind, savings vary by company, so before you choose an insurance provider, compare quotes with different deductibles to maximize savings.

    4. Take a defensive driving course

    Taking a defensive driving course can result in a discount of 5-10%. This can also help you remove DMV points from your record, which will further reduce your insurance costs. If you have taken a defensive driving course due to a court mandate, you won’t be eligible for the discount. Taking an approved course voluntarily is worthwhile, however.

    Not all insurance companies honor this discount, so you should check with your provider beforehand. Allstate, GEICO and State Farm are among the national auto insurance agencies that do offer this discount for drivers, so long as you take an approved program.

    Related: Find the Best Car Insurance Rates in Your Area with ‘The Zebra’

    These simple tips will prove useful both now and in the years to come, allowing you to make smart, informed decisions about insurance coverage regardless of your financial situation. It is hard to know for certain what economic conditions will look like in 2023 and beyond, but it is important to be prepared nonetheless. By implementing these four, easy practices, you can save money and reduce your risk of being overcharged by an insurance company that doesn’t understand your personal finances.

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    Paul Moss

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  • 4 Holiday Side-Hustles for Extra Cash

    4 Holiday Side-Hustles for Extra Cash

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    Opinions expressed by Entrepreneur contributors are their own.

    The holiday season is such a busy time that you might not think of taking on a side hustling gig. It’s the perfect time to do so because you are not the only one whose time is stretched to the limit. Everyone is going in ten directions at once; now’s your chance to step in, lend a hand, and make some excellent side-hustle money. Maybe you’d like to earn for that weekend getaway during the cold winter months or pay off those smoking-hot credit cards after your busy shopping season. Let’s look at some tremendous seasonal side hustles that also let you enjoy the fun of the holidays.

    Related: The Holiday Season Means More People Take on Side Hustles — the Difference This Year? They Don’t Plan to Quit Anytime Soon.

    1. Take your e-business live at a show or festival

    The holiday season is bustling with craft fairs and shopping festivals. Here’s your chance to combine a side hustle with valuable business research. My company, Hollywood Sensation Jewelry, has been an online business from the start. This year, my ingenious husband Anthony Hood suggested we participate in the Sunset Market, a huge outdoor market in Oceanside.

    Quite economically, we rented a booth, set up a tent and spent four hours selling Hollywood Sensation merchandise in public. I admit I had doubts about whether this would work for us, and I was even nervous about the public interaction. But, if you’ll forgive the pun, the results were sensational! We sold more than enough to offset our expenses. More than that, however, we got live feedback from real customers with whom we could speak one-on-one.

    If you have a product you’ve never taken out of the e-store, check your community calendar for upcoming festivals, conventions and fairs to get in on a new revenue stream and free market research. The cost of renting a booth will vary depending on the popularity and turnout of the event. I recommend starting small and scaling up if things go well. Be certain that you select an event that jibes with your brand. We might not want to take Hollywood Sensation Jewelry to a plumbing expo, but that sunset beach atmosphere was perfect for some glamor.

    Related: Unlike Many Things That Are a Lot of Work, Trade Shows Are Worth It

    2. Take your skills to the masses

    Do you have a knack for holiday décor? Fancy gift-wrapping? Event planning? Delectable baked goods? Well, not everybody does, and that’s why they need your services, especially at this time of year. Maybe you have a holiday cake or cookie recipe that gets rave reviews everywhere you go. Let folks at the office potluck and the church social know you’re available to bake one for them, too.

    Utilize social media to get your name out there as someone who can put up a beautiful Christmas tree (indoors or outdoors) and otherwise deck the halls. And don’t forget – while many people love to decorate for Christmas, almost no one loves taking it all back down again. Are you willing to do the untangling, repackaging and boxing of all that holly and mistletoe? Maybe you have a pickup truck and can haul away trees for responsible disposal.

    Sites like TaskRabbit.com let you create an account as a helping hand for a limitless variety of tasks and get customer reviews to build your reputation and bring in even more business. For example, TaskRabbit offers the following average costs for these services: “Party Clean Up” for $49-$80, “Toy Assembly” for $40-$99 and “Christmas Decorating” for $48-$86. You can even get paid to stand in line for someone else. I am not kidding!

    Related: 44 Profitable Ideas to Make Extra Money on the Side

    3. Reap the perks of a seasonal job

    Stores and delivery businesses always seek reliable help for the season. Showing yourself as an excellent seasonal employee means you can almost certainly be welcomed back the following year. And don’t forget – many stores offer their regular employee discounts to seasonal workers. If you’ve got your eye on an expensive purchase, you might get another 10% or more off the cost. My friend worked for five weeks at a home furnishings store and saved his family a bundle on new flooring and a refrigerator.

    Here’s another option: party companies are slammed this time of year, and they need people to prep, decorate, serve, check in guests, take coats, valet cars, conduct table games and clean up afterward. I have a friend who deals blackjack at holiday parties and enjoys it. She attends several fancy parties each year, hears the bands, meets fun people who are all having a great time and gets paid for doing it.

    Seasonal job salaries depend on your location, but here are some examples. On average, delivery companies pay about $16.00 per hour, warehouses about $13.80, and store gift wrappers earn around $12.00 an hour. When applying at retail stores with an eye on purchases, ask if their employee discount extends to seasonal help.

    Related: Start an Amazon Side Hustle and Earn Extra Money

    4. Be a sitter

    What do the holidays bring besides good cheer? Travelers! People have places to go and things to do, whether for an evening party, a busy shopping day away from the children or two weeks out of town. Ease their travel stress by being the person who holds down the fort. Reliable and friendly childcare, eldercare, housesitting and pet care take a load off everyone’s mind.

    It’s a relief to know someone is there to keep an eye on the house or check in on older relations to ensure all is safe. Once more, multiple gig websites let you register as a sitter (check out Rover.com or Care.com, for example). Or, get established in one neighborhood as a terrific house — or pet-sitter, and you’ll get more offers. Word gets around on the homeowners’ websites fast, and having multiple gigs in the same neighborhood adds to your convenience.

    Enjoy your holidays

    A holiday side hustle is more than just a way to supplement your income. Getting out into the holiday atmosphere is a great way to enjoy the season’s spirit, ease the stress for others and help create wonderful memories. Of course, giving is better than receiving, but if you can do both simultaneously with a holiday side hustle, that’s quite a reason to celebrate.

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    Mary Hood

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  • Metta World Peace: NBA All-Star-Turned-Web3 Investor Has This Advice for Entrepreneurs Launching a Startup

    Metta World Peace: NBA All-Star-Turned-Web3 Investor Has This Advice for Entrepreneurs Launching a Startup

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    Opinions expressed by Entrepreneur contributors are their own.

    If you’re reading this, then chances are you’ll agree: Starting a Web3 business feels daunting and confusing. At least, that’s how I felt when I first started funding my business with Web3 solutions for early-stage crowdfunding. The learning curve felt almost out of reach. My perspective changed, however, after sitting with my friend Metta World Peace — yes, the former Lakers legend who brought home an NBA Championship in 2010. He coached me on how his targeted $1 billion venture capital fund Tru evaluates his portfolio investments.

    “There are two types of founders,” Metta told me, the ones who “have the experience and education and then there are the founders that are the visionaries who know exactly where they want to be.” The founders he’s looking to invest in, he says, take calculated risks. “You want to take it step by step, make sure you’re building a good product, test it out before you spend too much money building the wrong tech architecture, and be careful not to blow through your investment money because I’ve seen so many people lose so much money so fast.”

    A calculated approach is more than necessary in today’s volatile market. Despite the recent bankruptcy filing by crypto exchange FTX, entrepreneurs are building and innovating in the sector — and why shouldn’t they? The global blockchain market is still expected to be valued at around $67 billion by 2026 according to recent Cornell University research. Even as Bitcoin falls, the total crypto market cap stands around $900 billion, and hundreds of Web3 projects have raised billions in funding. Despite the uncertain economic times, Metta still sees opportunity in this growing and emerging market and he’s investing in blockchain technology projects today as a result.

    Not everyone sees it that way though — venture capital investment money has plummeted in half. That’s why many entrepreneurs are turning to alternative funding options in addition to raising venture capital.

    1. Raising funds and finding investors

    Have you ever invested in a traditional startup or even a crypto startup? Investing in new cryptocurrency projects is highly accessible. Too easy, some might say, so you have to be really careful when using these products. There are many fraudulent new projects in this Industry, so make sure to do your own research before losing money in the attempt to make it.

    On the other hand, raising funds for yourself can be easier using crowdfunding tools versus in a traditional finance setting. “Using crowdfunding tools is a new way founders are going about raising money. That’s attractive to founders who don’t have connections to investors, angels or venture capitalists,” Metta explained. In Silicon Valley, for example, raising money from cold emails can be a challenge and often requires a relationship with an investor to get a foot in the door. When you consider the hurdles and obstacles you need to overcome to meet with investors without a preexisting network, in addition to the legal paperwork that goes into term sheets, it can be a lot of hassle to navigate the venture capital world. So many founders are looking to crowdfunding as an alternative to venture capital or in addition to it.

    Metta World Peace understands how important crowd-sourcing startups are to the future of Web2 as it enters Web3. Since his unofficial retirement in 2017, Metta has shifted his focus to the entrepreneurial and tech industries, where he is an investor as well as a spokesperson for several startups and small businesses.

    For example, Orbiiit Technology is a company in Metta’s investment portfolio where he was an early investor. The company launched a virtual competition called “The Pitch,” which officially launched in late October 2022 and wraps up on November 28, 2022. The competition sets out to find the next up-and-coming unicorn startup founder. Metta is participating in the competition as a startup judge.

    Think Shark Tank — but online. Startups compete to win capital and in-kind prizes to help them grow their businesses without losing any equity. Metta judges the contest alongside Orbiiit founder Nader Navabi. Together, they will evaluate the top 10 final contestants, who will be selected through a public online voting process. The first-place winner will receive $25,000 cash and a one-on-one Zoom mentoring session with Metta and the investment committee.

    Not everyone can raise funds, however, or compete in “The Pitch,” for that matter — which is why saving and investing could be the way to go.

    2. Saving and investing

    Many new entrepreneurs get their start after saving, investing and then getting started when their nest egg is ready to hatch. To get ahead, Metta says “you want to get a revenue stream as early on as possible.” Being strategic about the job or side hustle you choose can also set you off on the right path to achieving your entrepreneurial goals.

    “Let’s say you’re building a coffee company. Go work at Starbucks to learn their systems, so you can also make some money through a day job. If you want to start a FinTech app, get a job at a VC, start in the mail room. Do whatever you’ve got to do to learn something that can impact your own company in a meaningful way,” he said. “Do this while you’re also gradually saving money to self-finance your business because the more you bootstrap your company the more equity you can hold on to and improve your business,” he continued.

    To survive, Metta says, you always need additional money coming in. Selling digital goods is one way to earn passive income to fund your startup, let’s say, for example, you’re selling original IP or you profit on secondary sales by buying low and selling high. “You can also save on payroll by paying your employees in equity, tokens or even NFTs in addition to cash.” Finally, if you’re sitting on digital assets then you can put your money to work by locking them up in decentralized finance platforms to earn yield — but remember to be very careful with the platforms you chose because this option is very risky.

    3. Build connections

    “Building connections helps founders raise money,” says Metta. “If you don’t have connections it’s going to be hard for you to get the startup capital you need. Web3 gives the opportunity for platforms to decentralize the way the money is raised.”

    We live in a highly social world. With so much opportunity, it can be easy to make the right connections if you stay active and do your best to learn more. The most common way that founders go about raising money when they don’t have connections to investors is by bringing on seed investors and advisors who do. For example, in an insular community like Silicon Valley, it is less about how many people you know and more about who you know. You can know few people yet if you know the right people in venture capital those relationships can go a long way. Bringing on an advisor who can make vetted introductions is a common way to get pitch meetings scheduled. Give the advisor a small equity package and they will work hard and long hours to open up their network to help secure valuable pitch meetings.

    Even if the investor passes, you can always follow up to ask the investor if they mind making an introduction to another investor friend of theirs who they think might make a better fit. Always research the investor’s portfolio of startups to understand common themes, sectors, and stage of investment fit into that investor’s existing portfolio and what motivates them to invest. Also, remember to keep the dollar value range within their typical check size because if it’s outside their typical range then the chances are higher that they’ll pass.

    It’s still early. Good ideas rise to the top. If you have innovative concepts in mind but don’t know how to integrate them into the traditional market, it may be time to get started as an entrepreneur. Who knows, maybe Metta World Peace will invest in your company?

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    Sarah Austin

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  • 6 Effective Real Estate Investment Strategies

    6 Effective Real Estate Investment Strategies

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    Opinions expressed by Entrepreneur contributors are their own.

    As a real estate investor, you might encounter varying advice about investing on the internet, social media and from other investors. Some of these sources may claim they know best, but there are many effective strategies for investing in real estate. There isn’t a single strategy that is the best approach for every landlord. In fact, your real estate investing strategy should reflect your personal long-term goals, available resources and current circumstances.

    Plus, your investing strategy can — and should — change as your needs change. The success of your rentals isn’t tied to one investing strategy, but rather the skills you’ve built, the tactics you’ve learned and your ability to shift between different strategies when needed.

    Below are six great real estate investing strategies you may use at various points in your investing career:

    Related: Master These 6 Skills to Succeed as a Real Estate Investor

    1. House hacking

    House hacking is a popular investing strategy wherein you buy a property, live in half and rent the other half out. The rental income you receive helps reduce your monthly mortgage payments on the property.

    This strategy works well with duplexes and other multiplexes because you can maintain a clear division between your and your tenant’s spaces. However, some investors also rent out a basement or bedroom from their single-family home (SFH).

    House hacking is a trendy and widely used investing strategy for several reasons. For one, it’s an excellent way to transition to real estate investing for new landlords. This is especially true if you learn to manage your rented unit or bedroom with property management software. Software helps you carefully track your income and expenses while you establish your business. Another benefit of house hacking is that it allows you to get a residential mortgage because you’ll be living on the property as well.

    In the long run, this strategy’s aim is to make it possible for you to move out and transition the property into a full-blown rental.

    2. BRRRR deal

    BRRRR investing is another effective strategy made popular by Brandon Turner on Bigger Pockets. BRRRR stands for buy, rehab, rent, refinance and repeat:

    • Buy: Buy a property at below-market value.

    • Rehab: Renovate and improve the property by adding value.

    • Rent: Rent out the property to cover the mortgage.

    • Refinance: Get the property reappraised, then use cash-out refinancing to secure an advantageous mortgage.

    • Repeat: Use the capital you recovered from the deal to invest in more properties.

    With BRRRR, the idea is to capitalize on a property others may have overlooked due to its low face value or apparent lack of potential.

    To use the BRRRR strategy, target properties that are sound investments despite needing some work. Focus on improvements that increase value: installing hardwood flooring, adding extra bedrooms or remodeling kitchens and bathrooms. The value added from these improvements will improve your property appraisal and help you secure more funds to invest elsewhere.

    Related: 5 Tips for New Investors Who Want to Make Money With Real Estate

    3. Wholesaling/driving for dollars

    Wholesaling is a strategy many investors use to capitalize on great deals. In this strategy, you find a property that will make a good deal, facilitate a sale between a buyer and seller, and then collect the difference between the seller’s price and the amount the buyer pays.

    To succeed with this strategy, you need to be informed about which properties are currently on the market. You can use popular listing sites, the Multiple Listing Service (MLS) or a strategy known as “driving for dollars.” This involves manually searching neighborhoods for properties that look promising.

    One downside of wholesaling is that you need strong marketing and sales skills. If you don’t have this skill set and don’t want to work to acquire it, wholesaling might not be for you.

    4. Flipping properties

    Flipping properties is like BRRRR in that you buy, renovate and improve a property. However, with house flipping, the end goal is to sell the property, not rent it out.

    House flipping works best when you renovate and flip as quickly as possible. The longer you wait to sell, the more mortgage payments you must make. Like BRRRR, house flipping works best with properties listed at below-market value or those that are easy to improve at low costs. This way, improvements can significantly increase the property’s value and lead to quick turnovers.

    One downside to this strategy is that you’ll have higher capital gains taxes because you sold the property so quickly. You’ll also need help to successfully pull off house flipping — specifically, you’ll need a team of builders and renovators and access to high-quality materials at a relatively low cost.

    5. Syndications

    Syndication is often considered a more passive real estate investing strategy. However, with careful decision-making and an active eye on the process, syndication can lead to great gains. The main idea with the syndication strategy is to pool your funds with other accredited investors to buy real estate.

    Here’s how it works: You pay syndicators to locate and manage most deals, then benefit from the profit. Syndication can be public or private. Public syndication is usually operationalized through a syndication marketplace, while private syndication is managed manually by investors.

    Crowdfunding is a specific type of syndication investing that involves accredited and non-accredited investors alike who contribute and profit from deals. If you choose the crowdfunding path, you’ll work with a broader range of investors. You also won’t be expected to contribute as much entry capital as you would with traditional syndication (typically only around $50-$1,000 is required).

    If you choose the syndication route, be picky about who you work with. You want to ensure your investments are in good hands, even if you didn’t contribute as much initially.

    Related: 7 Common Mistakes Made By New Real Estate Investors

    6. Live-in-then-rent

    The live-in-then-rent strategy is a modified house-flipping scenario. Essentially, your property is a SFH (usually) that you live in initially and then turn into a rental after you move out. The main difference between live-in-then-rent and house hacking is that you don’t live in the property and rent it at the same time. Instead, these are two separate phases.

    Live-in-then-rent is a great strategy for people who don’t want to live closely with their renters but still want to participate in real estate investing on their budget.

    With so many ways to invest in real estate, it may seem challenging to devise a strategy that meets all your needs. However, by catering your investing strategy to your particular goals, you can successfully cultivate your real estate business.

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    Dave Spooner

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  • 4 Ways Small Business Owners Should View Money

    4 Ways Small Business Owners Should View Money

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    Opinions expressed by Entrepreneur contributors are their own.

    One discussion I have immediately with my new small business clients is that of how they plan to send, receive, save and protect their funds to make sure that all of their financial needs and goals will be met without delay or disruption to their daily operations. When broken down, this all falls into four categories: money in, money out, money held and money protected. Let’s break down these four categories and discuss how small business owners should interact with their funds for maximum efficiency.

    Money in

    This is asking the question: How do you, the business owner, plan on collecting funds from your customers when the payment is due? Will you send an invoice via snail mail or email? Wait for a check in the mail? Take cash? Will you take credit cards, debit cards, ACH, wires, Zelle or Cash App/Venmo? How much will all of those various methods of collecting funds cost? How long does it take? What steps will you take if your customer’s check bounces? How will delays in collecting customer funds impact the operations of your business? Is there a cost to a delay in collecting the funds? What’s the quickest? What’s the safest? What’s the most affordable? Have you ever considered any of this?

    I have one customer who doesn’t want to spend money on using a method to collect debit/credit cards, and he is constantly having customer checks bounce on him. He, of course, gets a fee for each returned check, but worse yet is that there is always a long delay in getting those funds from the customer. But hey, at least he’s not paying a small fee for the credit card service.

    If you own a small business, taking time to consider how you will be collecting funds from customers can go a long way. Far too many small business owners think about how much something costs to see if it’s worth it — don’t do that when it comes to collecting your money! Instead, think about how quickly you can get your funds. THAT is by far the most important aspect of collecting funds.

    Here are some things that you’ll want to ask your bank when it comes to collecting funds:

    • Do they have an invoicing system that allows for collecting immediate ACH payments and interfaces with common software systems?

    • Do they help you collect debit cards and credit cards and beat other services in cost?

    • Do they offer larger amounts for Zelle and mobile deposits for businesses?

    • Do they offer ways to avoid high fees for wires you initiate?

    If they don’t do all of that, find a bank that does. And remember, there is a cost that YOU pay while you’re waiting for your customers to send in their payments that far outweighs any service-related cost involved.

    Related: 6 Common Financial Mistakes That Can Destroy Your Small Business

    Money out

    This second aspect of fund usage is asking the business owner: “How will you send money in the safest and fastest possible manner?”

    Did you know that over 60% of all fraud in businesses is through the checking account due to the usage of checks? That’s right, from checks. How is this possible you ask? Think about it: every time you send or hand someone a check, you are providing that individual your account number, routing number, handwriting samples and your personal signature (fraudsters love you for this, by the way). A better question to ask is: Why are you still using an outdated, high-risk method to pay your bills and vendors?”

    To send your company’s funds safely, here are a few ways that decrease risk and increase efficiency:

    • Bill pay: It’s free, easy to use and easy to set up. You can even make recurring payments for a certain dollar amount and for a particular number of payments. Best of all, your company’s account info will NOT be on these checks as the bank will use its own account info.

    • ACH: This is a great option to safely send funds to employees and/or vendors because you can just enter their account and routing information, and the money is sent electronically on that day or the next. There are no delays and nearly zero risks involved.

    • Wire: This is a safe method and goes directly into the account that you provide the information for, usually the same day or the next. Key Bank, for example, has a great service that includes wires for a flat fee each month, and you can do as many as you need.

    • Electronic invoicing: This service allows the business owner to create and send an invoice via email to the customer. The invoice also has an embedded link for the customer to provide their bank account info, and then their payment is made immediately to your operating account via ACH. This way, you can avoid delays and extra costs because of a check bouncing.

    • Merchant services: This provides a way for the business to collect funds via debit and credit cards. You can use a small card reader that fits into your phone, a handheld device, and you can even get a full tilt point of sale (POS) system that can come with an inventory system and more.

    • ALSO, all banks charge you for the cash you deposit. Why? Because it’s labor-intensive for the branch (and no, we’re not rolling your coin for you). The old phrase “cash is king” is simply not true anymore. Cash is always looked at heavily by the government, and yes, cash costs you just as much (sometimes more) as any other form of collecting payments for your business.

    Related: The 7 Financial Habits of the Most Successful Small Business Owners

    Money held

    This aspect of a business’s funds is looking at moving your money from the operating accounts to the profit and/or taxes accounts (secretively known as a savings account). I can recall when I owned my businesses, I was paying the previous year’s taxes with the current year’s profits — big mistake. A smart business owner will make sure that they take 10-15% of each sale and place it into a savings account where the funds cannot be easily used or accessed like they can in an operating account. I usually suggest that the business owner also open an additional savings account for emergency funds and even one for profits to go into as well. Having savings accounts with large amounts can also provide other benefits such as making you look more financially secure when you are applying for a business loan or line of credit.

    Here are some ways to hold your funds and reasons why it can be beneficial:

    • Have a savings account for just taxes. Place 10-15% from each sale into the account immediately.

    • Have a savings account for just profits. This will make you feel REAL good!

    • Have an emergency savings account because, well, you just never know.

    • Keeping these funds away from the operating (checking) account will provide a level of safety due to fraud in checking accounts.

    • Having the funds in a separate account also helps to avoid overspending and financial risk.

    Related: These Financial Practices Can Help Small Business Owners Grow

    Money protected

    As mentioned previously, fraud happens. Fraudsters are looking to get money from you, whether you are a good person or a bad person and whether you have been in business for a long time or a short time. And they usually target your operating/checking account because most small business owners keep all of the funds in those accounts and do not have any savings accounts.

    At this point, you may be wondering: “Why don’t the banks keep my funds safe?” Well, the banks do as much as they can, and honestly, they all do a pretty darn good job. But when a business owner sends checks in the mail, and someone intercepts that check and has all of your info, it’s not the bank’s fault that you use checks. When a small business owner gives someone their debit card and PIN number to make a deposit, that is not the bank’s fault. When a small business owner provides their username and password to an employee or anyone else, that is not the bank’s fault. When you use your debit or credit card, and there is a skimmer taking all of your information, that is not the bank’s fault.

    Here are some crazy statistics, as well as basic ways to keep your account information and funds as safe as possible:

    • 60%-70% of fraud on businesses is from checks on the checking account.

    • 30%-40% of the other types of fraud are:

      • 36% card testing: When a fraudster makes a small purchase to test if a card is active and if the purchase avoids the merchant’s fraud prevention measures.

      • 28% botnets: One of the most prevalent forms of fraud, a botnet is a network of computers infected with malware and controlled without the user being aware, typically for nefarious activities such as digital ad fraud.

      • 37% account takeover: When a cyber attacker gains control of a legitimate account, enabling them to assume an employee’s identity and defraud customers and business partners.

    • Positive pay: This is when someone presents a check from your business at your own bank to cash. When it is run through the teller system, it will pop up as either “OK” or “NO GOOD.” This is when the business owner is required to input the check number into a system. If that check number being presented is not on the system, the bank cannot negotiate the check. This is a VERY beneficial service for a business that still writes checks.

    • Ghost account: This enables a business to continue to write checks as they normally do. However, these checks will have a fake account number printed on them that will be completely useless to fraudsters.

    • CC and debit card in person: Use the EMV chip, and have the customer input their PIN.

    • CC and debit cards online: Consider all fraud features including CVV #, AVS, velocity thresholds, and collect IP addresses.

    • CAPTCHA: A simple way to help tell humans from fraud bots

    Pro tip: Make having this conversation with your business banker a goal that you must complete by the end of the month. Call your business banker at your bank, sit down, get all of this info, and make sure that all of these needs are being met. If they cannot meet with you, get a new bank.

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    John Kyle

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  • 7 Common Mistakes Made By New Real Estate Investors

    7 Common Mistakes Made By New Real Estate Investors

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    Opinions expressed by Entrepreneur contributors are their own.

    Real estate is one of the safest ways to create lasting wealth, and it is attracting more and more people each year. Investing in real estate is an exciting and lucrative adventure, provided that you don’t fall into the pitfalls of the sector. The lack of experience of beginner investors can cause them to fall for many tricks. So, here are seven common mistakes to avoid at all costs if you’re a beginner who wants to succeed in the real estate industry:

    1. Thinking that you will get rich quickly

    One of the major mistakes beginner real estate investors make is that they often think that the results will be tangible quickly. That is the outcome of the internet phenomenon: The public wants everything right away and without making any effort. Many industry gurus focus their communication in this direction, and they do not show that in order to succeed, it is necessary to have a spirit of self-sacrifice and also to work hard. In reality, patience and perseverance are required in this type of investment. Just searching for a profitable property can take several months if you don’t have a keen eye. Moreover, rushing into an investment without checking the property in question is often a bad omen.

    Related: A Beginner’s Guide to the 5 Easiest Ways to Become a Real Estate Investor

    2. Not having a strategy

    Some real estate investors prefer to take projects one day at a time, without having a precise plan of action. In this case, the risk is to end up with several properties which do not correspond to their profile. These investors embark on all sorts of projects without measuring the consequences, and they often find themselves ruined because of their poor investment choices. Having a well-defined strategy allows you to go in a precise direction. Following a strategy means ensuring that you don’t venture out in all directions and that you move in the right direction.

    3. Focusing your research on a specific city

    Another major mistake often made by beginner investors is focusing on a specific city — often close to their home or in a particular city because they have been told that its profitability is good. In reality, this way of searching drastically reduces the opportunities since these investors will feel obliged to buy a property in that city, even if the profitability is not there. On the contrary, it is necessary to expand the search in order to not miss any opportunities. It is easy to optimize the profitability of a property that is already profitable beforehand. On the other hand, a property that is not profitable will harm your project, even if you set up some optimization strategies.

    4. Omitting the negotiation stage

    In real estate, negotiation is a key step that takes place at different levels. In particular, it intervenes at the time of purchase of the property. Many real estate investors forget that a good deal is made at the time of purchase. If they buy at a too high price, that will impact the profitability of their project, whether it is a rental or a resale project. The purchase price constitutes an important variable in a real estate investment project. Keep in mind that if you don’t get a good deal at the time of the purchase, it is very likely that you won’t get a good deal on the resale.

    Related: How to Avoid the Common Pitfalls of Real Estate Investing

    5. Underestimating the cost and the scope of the work

    It is important to seek the help of professionals when you are tackling work related to real estate because costs can quickly become overwhelming. Often, beginner investors have no idea of the scope of the work to be done, and therefore they underestimate their costs. They only have a global or a partial vision of what they want to achieve, and they do not realize that the work can be much more consequent.

    6. Not checking the condition of the property

    Even if virtual visits are at the present time facilitated by technology, seeing the condition of a property in person allows you to check if it corresponds to your expectations. There is no point that can be neglected at this stage. It is particularly necessary to check the state of the common parts as well as the state of the roof, for example, with the help of a drone in order to be more precise. While visiting a property, it is also important to check the condition of the neighborhood. All this is done in order to avoid very high costs of work.

    7. Thinking that you can handle everything yourself

    In the real estate field, beginner investors tend to think that they can handle everything, either to make a bigger profit or simply because they find it difficult to delegate some of their work. This is a common mistake, as the time spent in the management of a property is valuable time that they can allocate to tasks that are more within their reach, such as searching for other properties or finding some solutions to optimize the profitability of a property they possess. In some cases, delegating this responsibility to professionals is a better solution. But be careful, delegating does not mean not controlling. It is necessary to think of always monitoring the state of the work.

    Related: Master These 6 Skills to Succeed as a Real Estate Investor

    If you’re just getting started in real estate investing, use these tips to avoid common mistakes. Remember this: It takes time to see results, don’t go in without a strategy, don’t limit your search, don’t skip the negotiation stage, don’t underestimate the cost or the work, thoroughly check the condition of the property, and don’t hesitate to delegate the work.

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    Xavier PRETERIT

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  • 6 Tempting Investments To Avoid

    6 Tempting Investments To Avoid

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    Opinions expressed by Entrepreneur contributors are their own.

    As investors, we’re often told to be active and diversified. But are some investments not worth your time or money? Indeed, certain types of investments should be avoided at all costs. Here’s a list of common financial products and how they might affect your portfolio.

    1. Whole life insurance

    Whole life insurance costs substantially more than term insurance. Whole life premiums are typically much higher than term premiums, and the cost of whole life policies can be even higher for older individuals. It’s also important to note that since whole life policies cannot be cashed out, you can’t use them as collateral if you decide you need money from your investments in the future. Additionally, if someone dies before their policy expires (which often happens with whole life policies), their beneficiaries only receive a fraction of what they were expecting because of how much this type of insurance costs.

    In addition to these issues with cost-effectiveness and liquidity, whole life insurance also offers fewer death benefits than other types of investments due to its nature as an annuity contract instead of a mutual fund or stock portfolio; this means that there won’t be any growth potential after purchasing your plan which would otherwise come from investing in other funds or stocks over time.

    2. Low-interest saving accounts

    A low-interest savings account is an investment you can make with money that you don’t need to use immediately. Savings accounts are generally insured by the government and offer a slight interest, which is often lower than inflation. These accounts are not liquid, meaning you cannot withdraw your savings without penalty if you need them for something else. They also have high fees attached to them and may even charge high minimum balances if you aren’t putting enough money in there every month. Furthermore, since these types of investments don’t earn much interest on the cash inside them, they may lose value over time due to inflation.

    Related: How Generation Z Can Jump-start Savings (Advice Anyone Can Use)

    3. Penny stocks

    Penny stocks are low-priced shares of small companies that trade over the counter rather than through an exchange. They can be risky investments because they aren’t regulated by the Securities and Exchange Commission (SEC). This means that penny stocks are not required to follow the same strict rules as other investments, which makes them more likely to be scams.

    Penny stock investors don’t have many options for selling their shares — penny stocks typically don’t trade on any of the major exchanges where investors can sell them for cash. If you want to sell your shares, you’ll usually need to find someone who wants them badly enough that they’ll accept less than market value. And since most people have no idea what these “spare” shares are worth, it’s easy for folks posing as brokers who say they’ll buy your shares at an inflated price (or even just a flat rate) without even checking if there’s any demand for those particular shares on an actual exchange somewhere else in the world.

    Related: 5 Things Millionaires Do That Most People Don’t

    4. Gold coins

    Gold coins are not a good investment. They’re essentially just a store of value, like other precious metals. While some people may see this as an advantage in that it can be bought and sold easily (which is true), it does not generate income as stocks or bonds do — and it can also lose value if gold prices go down. If you want to buy something tangible, buy silver instead: It’s cheaper than gold on an ounce-by-ounce basis, has more industrial uses (such as being used to manufacture electronics), and has been less volatile over time than gold has been.

    Related: Why It’s Never a Bad Time to Invest in Precious Metals

    5. Hyper-aggressive growth mutual funds

    A hyper-aggressive growth fund invests in companies with high growth potential. These funds tend to invest in risky stocks, meaning they could quickly lose value if the company’s stock price falls or the economy goes into recession. The risks of these types of funds are twofold: first, there are times when the market will crash, and your investment will be lost entirely; second, even under normal conditions, you may see an overall loss over time because these types of investments tend to fluctuate in value more than other investments (like bonds). If you’re looking for an aggressive option with a chance of making some serious money, consider an aggressive growth fund instead.

    6. Complex private limited partnerships

    There are some types of investments you should avoid at all costs. One such type is a complex private limited partnership. These investments are dangerous because they often have hidden risks that can lead to significant financial losses. A good example is the Madoff Ponzi scheme, which ended with many investors losing their savings.

    Another reason you should avoid these types of investments is that they involve high tax implications, which can be challenging to understand and may require professional assistance from an accountant or other expert to comprehensively comprehend the tax laws governing them. Some companies may also try to sell you investment opportunities with very little information about what exactly it is that they’re offering. These products are often sold by unscrupulous individuals who will take advantage of people’s lack of knowledge about financial products to make quick cash off their victims’ backs without ever completing any work on their behalf (which means no profits).

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    Christopher Massimine

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  • Act Now on Your Year-End Tax Strategy to Save in 2023

    Act Now on Your Year-End Tax Strategy to Save in 2023

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    Opinions expressed by Entrepreneur contributors are their own.

    Come January 3, a new Congress will convene in Washington, DC, setting the stage for potential tax changes that could impact small and medium-sized businesses. With that in mind, it’s important for businesses to engage in certain tax planning strategies and to take advantage of tax credits that will soon expire or be phased out.

    The Employee Retention Credit (ERC) is one such credit. Created in 2020 to provide economic relief during the Covid-19 pandemic, the ERC lets businesses claim thousands of dollars in refundable tax credits to compensate for losses experienced in 2020 and 2021 while they continued to pay employees. Businesses subject to a full or partial shutdown or significant decline in gross receipts can qualify.

    Many small and midsize businesses I know are eligible for two quarters or more of credits, which can range as high as $7,000 per quarter per employee in 2020, with higher per-employee limits in 2021. But the time frame for claiming this credit is shrinking. Start planning now.

    Businesses have just three years from the time they filed their 2020 and 2021 quarterly tax returns to claim the credit. Even if you received funds from the Paycheck Protection Program (PPP) previously you can qualify for the ERC credit, but you’ll need time to gather all the necessary documentation before filing the required amended return.

    Related article: How to Obtain the Employee Retention Tax Credit (ERTC) Under the Second Round of Covid Relief

    Beware of companies advertising huge ERC payouts that are “too good to be true,” as the IRS noted in a special warning. The agency further cautioned that “improperly claiming the ERC could result in taxpayers being required to repay the credit along with penalties and interest.”

    Know how to find someone who can help you if a problem arises. I had a client who signed a contract with a firm that promised an ERC credit twice as large as what we projected along with lifetime audit protection, but the firm was cagey about how to handle a prospective audit and did not list addresses and phone numbers. A red flag for sure, and a reminder that taxpayers should never get too greedy.

    The importance of tax planning

    How many business owners can honestly say their accountants are advising them on tax planning, like the ERC benefit, rather than merely doing their taxes? Is yours building a tax-strategy foundation that generates recurring savings year after year?

    Take the initiative and ask your accountant what plans they have in place to generate savings year in and year out, plus what strategies they’re using to accomplish that.

    Don’t make the mistake of merely asking your accountant how you can save on taxes just before the year’s end. If you do, you may be advised to buy a vehicle for your business because the cost can be fully written off using a bonus depreciation. This is not an example of a great, forward-thinking tax strategy. And that particular deduction, by the way, will lose 20% of its value in each of the next four years, starting in 2023. It’ll be completely phased out by 2027.

    Related article: How to Give Yourself a Tax Cut

    Accountants should have a plethora of strategies to help small and midsize businesses and their owners save on taxes. For example, ask yours about research and development credits, or credits for hiring veterans and disabled individuals and members of other groups that the government has identified as facing employment barriers.

    How to avoid an audit

    It’s more important than ever to use only legal ways to limit your tax liability. Here’s a list of some dos and don’ts:

    • Don’t put your family vacation on your company’s books. If there is a business purpose for a partial business/family trip and that purpose constitutes more than 50% of the trip, document it and proportionally deduct your costs. Include notes about the purpose of the travel, your itinerary, the agendas of meetings and conferences, whom you met with, etc. The IRS has heightened record-keeping requirements for travel deductions.
    • Keep original receipts, not just credit card statements. Taxpayers often assume a credit card statement constitutes a receipt. It does not. Your expense items on a credit card receipt only will likely be denied.
    • Get in a habit of documenting all relevant expenses while you’re incurring them; and consider assigning an employee for that purpose or use technology. You’ve got to document the business reasons for the deductions claimed because there are heightened documentation requirements for business travel and for meals. You probably won’t remember all these necessary details if the IRS audits you two or three years after an event has taken place. If you fail to document actual expenses, you should deduct IRS-published travel per diems by city.
    • Don’t pay personal expenses through your company. Write a check to yourself from the company for a legitimate reason like a salary, wages or distribution. Then pay personal bills for your mortgage and electric bill out of your checkbook, not the company’s.

    Related article: The IRS Hates Telling Entrepreneurs Anything About Taxes.

    The messages are slowly sinking in. Four clients so far have told me they’ve completely revamped their internal processes to take better records. They’re spending the time to do this now because they understand it could be riskier in the future.

    Nobody knows what tax changes, if any, are in store, but there are changes already on the books that business owners should be aware of, including benefits that are slated to disappear. Act now before it’s too late.

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    Bruce Willey

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