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When Big Credit Card Companies Reject You Because You Have Limited Credit History, Turn to the Petal Card

Purpose of this article: to give you a strategy to turn to when you can’t get a credit card because of limited or no credit history. Please note that we are not paid to recommend products like this, and our decision to do so is solely based on our experiences and our client’s experiences with this product.

Overview

Building credit from scratch is one of the hardest financial things you will embark on as you start your financial well-being journey. Credit card companies want you to have a solid credit history, but it’s simply hard to start building the needed history when no one will give you a card in the first place. 

In our post entitled “How to Build Credit from Scratch” we suggest that even though you are just starting out, you should apply for a credit card even with limited or no credit history. For some of you, this strategy will work in your favor and you will be able to obtain a store credit card or an unsecured credit card (traditional credit card). But for some of you, this strategy doesn’t work and you are left going back to the drawing board on how to build your credit history.

The following article will introduce you to the Petal Card which will allow you to start building your credit history even though you may not have the necessary history to obtain a traditional credit card.

What Is the Petal Card?

The Petal Card was founded by Jason Gross who was looking to solve one of finances basic paradigms: It takes credit to build credit. Consequently, he set out to design a card specifically for people who have no credit scores. Their approach is simple enough: They look at your income and analyze your spending to create a digital financial record.

By analyzing your bank account transactions (with your permission of course) Petal gets a better sense for your monthly cash flows than any credit score would ever give. As a result, this approach can open up sound credit options to many people who simply don’t qualify under the traditional means of deciding credit worthiness.

On top of this algorithmic and data driven approach to making decision on your credit worthiness, the Petal Card doesn’t believe in tacking on petty annual fees or other security deposit type fees.

Will I Get a Credit Limit?

Similar to traditional credit cards you will get a set credit limit. This credit limit will be set based on your income levels and your spending patterns. Put simply, the Petal Card looks at your digital financial record to determine what credit limit you need. Based on our work with some of our clients, we have seen credit limits as low as $500 to as high as $5,000.

One thing to note about this credit limit is it’s not static. The Petal Card consistently checks your digital financial record to see if there are any updates to your income levels or spending patterns. As both factors change, your credit limit can be bumped!

Drawbacks to the Petal Card

Currently the single largest drawback to the Petal Card is that its availability is capped by the waiting list. Eventually the plan by the Petal Card team is to make this product available to all consumers. But right now, you have to join the waitlist. To apply now click here. ***As of October 2018 the credit card is now open to the general public. Waitlist will no longer apply.

The second drawback is in regards to the lack of rewards that this card will offer you. Unlike traditional credit cards, the Petal Card won’t offer you cash back or travel points. But in our opinion, this is a minor drawback. The major reward of the Petal Card is the fact that it gives you the chance to start building credit when you otherwise wouldn’t have been able to. It also allows you to build credit within a reasonable cost structure as the interest rates associated with the Petal Card are reasonable.

The last drawback we see is in regards to the sharing of your data. In this day of age of data breaches and hacks, giving up your bank account information can be a scary hurdle to overcome. However, the company will not be able to alter your account information or change anything. 

Closing

The Petal Card is a really good option for you if you are looking for a credit card that is simple and has no fees. It will give you a chance to build the necessary credit history that you otherwise will not be able to do with traditional credit cards.

Get the Petal Card if you want to build your credit history from scratch and cannot obtain a traditional credit card or a store credit card. With the Petal Card, you will get access to a decent credit limit, you will avoid those pesky fees, and you will be well on your way to building your credit history.


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Doughnut Economics

Macroeconomics Explained Using Doughnuts

Matt Groening was once said, “Donuts. Is there anything they can’t do?” And for Kate Raworth, doughnutsare rewriting everything you ever learned in Economics 101. Her book, Doughnut Economics, is a simple referendum on modern day economics. Her thesis is quite simple:
Leaders of 2050 are being taught an economic mindset that is rooted in the textbooks of 1950, which in turn are rooted in the theories of 1850.
This “archaic” economic mindset has led our current world astray, and thus a new way of thinking for the 21st Century is much needed.

Enter the Doughnut

The essence of the doughnut is a social foundation of well-being that no one should fall below, and an ecological ceiling of planetary pressure that we should never go beyond. It is in between these two layers that lies a safe and just space for us all:
In order to remain within the boundaries of the doughnut, current economic thinkers and policy makers need to change their default modus operandi. Raworth identifies seven specific ways to change economic thinking and policy making for the better: 
1.      Change the Goal from GDP to the Doughnut
2.     See the Big Picture from self-containing market to embedded economy 
3.     Nurture Human Nature from rational economic man to social adaptable humans

4.     Get Savvy with Systems from mechanical equilibrium to dynamic complexity
5.     Design to Distribute from ‘growth will even it up again’ to distributive by design
6.     Create to Regenerate from ‘growth will clean it up again’ to regenerative by design
7.      Be Agnostic about Growth from growth addicted to growth agnostic
The following picture is my visual representation of what Doughnut Economics represents to me.
 
 
 

Shifting from Conventional Economics to Doughnut Economics Will Help Planet Earth and All Humankind Thrive

The current economic pursuit of GDP first pushes every consumer in our global economy to spend money they don’t have on things they don’t really need (think consumerism 101). It’s an endless hamster wheel of more for the sake of more, and it requires continual growth in income and output to support it.

By changing the goal of our global economy from GDP to the Doughnut we ignore conventional economic theory that posits every citizen’s satisfaction or happiness is based on the consumption of more goods. And this switch in focus will allow us to better advance the richness of human life on earth.
Underlying the big shift in economic focus is another underlying shift in the characterization of humans and their nature. Conventional economic theory posits that humans are rational and make decisions that solely maximize their utility which equates to driving satisfaction through consumption.
But the reality of life for each of us is we are far from solitary figures. Instead, we are social adaptive beings that thrive best in environments where we can relate to each other. Thus, our global economic machine is best served by putting the collective “WE” at the focus instead of growth in “GDP” at the focus.

It’s Clear We Have an Economic Design Problem … The Question is Will We Fix It?

In the 21stcentury, we have transgressed at least four planetary boundaries and have created a global economy that has left billions of people still facing extreme deprivation. On top of that, the current global economy has allowed the richest 1% to own half of the world’s financial wealth.
At the heart of income and wealth inequality lies a simple design question: who owns the enterprise, and so captures the value that workers generate? Our current economic system is designed in such a way that shareholders own the enterprise and thus capture the value generated by workers as evidenced by the following:
From 2002 – 2012 worker productivity grew +30% while real wage growth remained practically non-existent. This trend was so dreadful that economists have dubbed this ten-year period the “Lost Decade for Wages.” Meanwhile, returns to shareholders grew faster than the economy as a whole.
Furthermore, it’s beyond clear now that our economic system is the actual root cause of the ecological crisis that we currently face as humankind on this Earth (see hereand here). At the heart of Earth’s ecological decline lies a simple design flaw in our current global economy:
We extract Earth’s minerals, metals, biomass, and fossil fuels and manufacture them into products. These products are eventually sold to consumers who use then but eventually throw them away. The very essence of this cradle-to-grave type industrial economic system is destructive to Earth’s ecological system. 
Given the societal and ecological challenges we face, it’s up to us to decide whether or not we want to fix the economic design problem we have.

In Closing

In 2015, world GDP was $80 trillion. An expectation of 3% indefinite growth would mean that …
(1)   By 2050 the world economy would be 3x bigger than 2015
(2)  By 2100 the world economy would be 10x bigger than 2015
(3)  By 2200 the world economy would be 240x bigger than 2015
It’s beyond clear that this expectation of indefinite growth can not be possible without destroying our Earth and society! Alarm bells should be going off in each and every one of us from citizens to politicians.
It’s time for us to accept the fact that we have reached the logical conclusion of our expansionist economic paradigm, and redesign a global economy that is focused on the promotion of human prosperity whether GDP is going up or down. This will be an extremely hard shift in paradigm, but it will be absolutely vital if we are going to make it as a planet and society for the next 100 years.

Extras

Brian Nwokedi’s Book Review on Goodreads
Brian Nwokedi’s Twitter
Direct Link to Book: Doughnut Economics
Author’s Website: Doughnut Economics
Author’s Twitter: @KateRaworth
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How to Build Credit from Scratch

Purpose of this article: to give you some tips to start building your credit history and explain why building up credit history is important to your financial well-being.

Overview

Credit is one of those tricky things … you need to have a solid credit history to get a decent credit card or a loan, but it’s hard to start building history when no one will give you credit in the first place. So what options do you have to establish credit history without credit in the first place? The following article will walk you through some solid options for building your credit history from scratch.

Option 1: Apply for credit card even with limited/no history

The best credit cards with the best interest rates are usually reserved for people with extended years of good credit history. If you are just starting out though, there are still a couple of credit card options for you even with limited or no credit history:

• Apply for a store credit card

Oftentimes stores extend credit cards to their customers with little to no credit history. These cards typically have very low credit limits and high interest rates, but they do give you a chance to prove that you can handle your finances in a responsible fashion. Once of my favorite store credit cards is the Target REDcard because it gives you 5% off every purchase every time and gives you free online shipping.

• Apply for an unsecured credit card (traditional credit card)

Traditional unsecured credit cards are not off the table when you have limited credit history. It just usually means that your credit card will have lower limits, more fees, and a higher interest rate associated with it. Credit card companies like to be compensated for taking on risk, and cardholders with limited to no histories bear the brunt of this. Credit Karma has a good list of unsecured credit cards for 2018.

• Apply for a secured credit card

If you are unsuccessful in opening a store credit card or a traditional unsecured credit card, your last credit card option is a secured credit card. With a secured credit card, you make a cash deposit upfront, say $300. This cash deposit serves as collateral against the credit card. You then charge the card accordingly and pay the card off each month. If you don’t make payments in full, you incur interest. The cash deposit is returned to you when you close the credit card. The key with secured credit cards is their duration of use should be short and only long enough to give you enough credit history to qualify for a better unsecured credit card. NerdWallet has a list of the best secured credit cards for 2018.

Option 2: Get a Co-signer or become an Authorized User

You have heard the adage that sharing is caring and with the co-signer or authorized user strategy, this adage really rings true. This is because when someone agrees to be your co-signer or allows you to be an authorized user on their credit card, they are ultimately committing to repaying your debts should you be unable to.

When someone agrees to be a co-signer to your loan they ultimately agree to pay off the loan if you cannot make the payments. When someone allows you to be an authorized user on their credit card they allow you to use their credit card and build history. But ultimately, they are legally obligated to pay for any charges unpaid.

Both situations require a huge degree of trust and should not be entertained lightly.

Option 3: Use your monthly rent to build credit history

Assuming you do not have a monthly mortgage payment (since you are just starting to build your credit history), you can use your on-time monthly rent payment to your landlord to build credit history.

Some landlords report positive payment history to the credit reporting agencies, and even if your landlord doesn’t, you can use a variety of rent-reporting services to get your positive payment history reported.

The only downfall of the rent-reporting services is that they aren’t free. I guess there is no such thing as a free lunch.

Option 4: Use your monthly student-loan payment to build credit history

The average student loan debt hover around $37,172 per person. If you happen to be one of the many citizens burdened with student loans, you can at least use your monthly on-time payments to build some positive credit history. This is because student loans are considered installment loans that are paid back over a set period of time.

So, paying back your student loans on time will positively impact your credit history, and just staying on top of your loans each month is enough to boost your credit score into the 700+ range over time.

Closing

Your credit history good or bad can impact your ability to buy a home, purchase a car, get a better credit card, get cellphone coverage, and even impact the type of employment opportunities you may have.

Building and maintaining positive credit history takes some time. Remember that your credit history is really just a story that tells future lenders how you manage your financial affairs. If you are just starting out on your credit journey, you can use the strategies discussed above to navigate this process.

My hope in writing this article is that after reading this, you will take some steps towards successfully building your credit history.

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The Amazon Way

The Simplicity of the Amazon Way

 
The Amazon Way is a book by a former executive on the 14 leadership principles that drive their success. Above all though, it is clear the only thing that really matters is the customer. At the core of everything Amazon does from systems to the way in which they compensate their employees is this obsession over the customer. The Amazon Way is your guide into how Jeff Bezos built the Everything Store that now dominates.

14 Principles of Leadership Determine it All for Amazon

At the core of everything they do lies 14 leadership principles:
1.      Obsess Over the Customer
2.     Take Ownership of Results
3.     Invent and Simplify
4.     Leaders Are Right-A lot
5.     Learn and Be Curios
6.     Hire and Develop the Best
7.      Insist on the Highest Standards
8.     Think Big
9.     Have a Bias for Action
10.  Practice Frugality
11.   Earn the Trust of Others
12.   Deep Dive
13.   Have a Backbone – Disagree and Commit
14.   Deliver Results
These 14 leadership principles make up The Amazon Way. The following picture is my visual representation of what the Amazon Way represents to me.
The 14 Leadership Principles that make up the Amazon Way exist solely to put the customer first above all else. By obsessing over the customerfirst and working backwards from what they need, Amazon has built a rocket-ship of a company that is light years ahead of the competition.
Outsiders to the organization usually focus their attention on Amazon’s holy trinity of (1) pricing of products (2) selection of products and (3) availability of products. And while this trinity of competencies is formidable, Amazon’s true strength lies in the fact that they have built a frictionless, highly intuitive, and completely self-service platform that drives customer trust and loyalty.
As an owner of the business, each Amazon employee is expected to fully master their domain, and tenaciously manage every potential business-derailing dependency. And since they hire and develop the best, Amazon has created an organization of A-players that take complete ownership of their results.
In closing, the real scary proposition for anyone competing with Amazon is that fact that at its core, is an organization that has a pervasive fear of turning into a Day 2 company. As a result, no one is ever satisfied with what they have accomplished, and no one there seems to willingly rest on their laurels. At Amazon, it’s always Day 1 and everyone there seems to embrace this mentality. Most organizations can’t instill this relentless desire to keep learning, and this is the real challenge when it comes to competing with them head on.


Extras…

Brian Nwokedi’s Book Review on Goodreads
Brian Nwokedi’s Twitter
Direct Link to Book: The Amazon Way
Author’s Website: THE AMAZON WAY
Author’s Twitter:@johnerossman


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Your Credit Score… Three Digits Can Mean A Whole Lot

 

Purpose of this article: to explain what goes into your credit score and give you tips to improve your overall credit score.

Overview

Your credit score is a number that approximates how likely you are to repay your debt. This number is used by lenders to decide whether or not to approve you for new loans. And while your overall credit history is captured and maintained by the three main credit bureaus (Equifax, Experian, and TransUnion), the actual score is calculated by the VantageScore and FICO models.

Credit scores range from 300-850 and your score within this range is based on many factors such as how often you make payments on time, and how many accounts you have in “good-standing.”

It is possible at any given time to have different scores given the various scoring models that are in place, but the bottom line is that your score is based on the information within your credit report. It’s a good habit to review this information annually to ensure that it is correct. You can access your free annual credit reports from here.

The Main Factors that Affect Your Score

The factors that are generally considered when calculating your credit score are as follows:

• Payment history – do you pay your bills on time every time?

• Length of credit – how long have you had your accounts open?

• Type of credit – are your loans auto, student, mortgage, credit cards, etc.

• Use of credit limits – how much of your available credit limits is currently used up?

• Number of hard inquiries on your credit report

Why Does Your Credit Score Matter?

Since credit is simply borrowed money provided in the form of a loan, credit issuers like banks or other financial institutions want to make sure of your likelihood to repay. Consequently, they use your credit score as this indicator. Low scores indicate lower degree of repayment while higher scores indicate a higher degree of paying on time.

The amount of money you can borrow as well as the interest that you will be charged is primarily determined by your credit score rating and where you fall in the range. This is why your credit score really matters!

The following score range comes from Credit Sesame:

You don’t necessarily need perfect credit to get the best interest rates and borrowing options, but the closer you are to the 700+ range the better off you will be.

The Formula to Getting a Better Score

Given everything we have talked about the formula to getting a better credit score is pretty simple:

1. Payment History (35%) 

Pay all of your bills on time… no exceptions!

2. Credit Utilization (30%)

Do not use more than 30% of your available credit at any given time. If you are above 30% today, call up your credit card companies and ask them to increase your available credit. Doing so can instantly drop your utilization rate!

3. Age of Credit (15%)

Hold off on closing down old accounts because longer credit history is beneficial to your credit score

4. Type of Credit Outstanding (10%)

Mix the type of loans you have. Credit card debt (i.e. revolving credit lines) are penalized more than mortgage, auto, personal, and or student loans. Put another way, debt that is usually not tied to an asset is penalized more from a credit score standpoint.

5. Number of Hard Inquiries (10%)

Don’t open more than 2 credit cards a year. Usually new credit cards require a hard inquiry into your credit history and that negatively impacts your credit score

 

*Please note that this breakdown is based on the FICO scoring system. The VantageScore 3.0 credit scoring system weight each variable slightly different but Payment History is still the most important under both scoring systems.

Closing

Your credit score is one of the most important three-digit numbers you will manage in your financial life. It really can mean the difference between thousands of dollars paid over the life of a loan. When it comes to maximizing your credit score, the steps detailed within this article are the easiest and most effective ways to do so. If you only do two things, please make sure you pay your bills on time and call your credit card company today to ask for more available credit. My hope in writing this article is that after reading this, you will take some steps towards improving your credit score.

On an aside: If you currently do not use a credit monitoring service, please sign up for Credit Karma as soon as possible. It’s free to use, very effective, and can help protect you from fraudulent activity on your credit reports. Given the Equifax hack that occurred earlier this year, it’s imperative that we all monitor our credit more closely these days.

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My Financial Habit: Coffee Shops and Lattes

Purpose of this article: to show how my afternoon latte habit adds up and give you some thoughts on things to consider if you have a similar financial habit in your life

Overview

I have a financial confession to make… I love afternoon lattes and it’s costing me dearly! And like many of you out there, I know every single time I buy my latte, I am overpaying severely. According to USA Today’s coffee calculator, the markup on my latte can be as high as 300% depending on the coffee shop. But I will not deny that there is something quite special about a hot off the press latte!

How Much Is My Latte Habit Costing Me?

Based on an analysis of my spending over the last 535 days here are my financial stats:

• I have visited my local Charlotte coffee shops 71 different times, and have spent a total of $643 on afternoon lattes. The cost per trip is $9.04 (my goodness!)

• My average monthly spend over the last 18 months is $35.67

• The most I spent in one month was $81.23 in November 2017

• Over this time period, I spent roughly $1.20 a day on my latte habit.

At a 300% markup, my afternoon latte habit should have only costed $215 if I was disciplined enough to brew my own coffee. This is a difference of $428 extra that I have spent over the last 18 months.

What Could I have Done with the $428?

So, what could I have down with this additional $428? Here are a few things I could have done with that money…

• During the time period of 3/1/17 to 8/18/18 the S&P 500 returned an approximate +19.6%. Had I invested my $428 during this time period, I could be roughly $84 richer.

• Based on the Bureau of Transportation, I could have taken a round trip ticket to almost any US city. The average round trip price during the first three months of 2018 was $346.49.

• I could have used that money to pad my emergency savings account. Recent studies show that very few of us Americans have enough savings to cover a $1,000 emergency.

There are countless other more positive money management actions I could have pursued instead of spending this extra money on my afternoon latte habit. The point I am trying to make here isn’t to pass judgement on this money spending habits. It’s to make myself more aware of an area of spending that may not truly be worth it in the long run.

If you are like me, you probably have some areas of money management that you wish you were better at. I hope my financial habit confession was helpful for you to hear. Please let us know what financial habits you have and wish to break.

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Open an Ally Online Savings Account NOW

Purpose of this article: to explain why you should open an Online Savings Account with Ally Bank today

UPDATE (12/20/19): the current annual percentage yield (APY) for the online savings account with Ally as of December 2019 is 1.60%.

UPDATE (6/20/19): the current annual percentage yield (APY) for the online savings account with Ally as of June 2019 is 2.20%.

Bullet Point Summary

  • Ally continues to be one of the few financial institutions that consistently gives returns back to its customers.
  • The APY that Ally offers for its online savings account is one of the best out there.
  • The Online Savings Account is easy to use, with no maintenance fees, and very few restrictions.
  • Your deposits are insured by the FDIC up to the maximum allowed by law which is $250,000.
  • The only thing to watch out for is that you will owe taxes on the interest you receive within this account. Ally will send you a 1099-INT.

Overview

Ally Bank recently announced an increase to their annual percentage yield (APY) which is the interest rate they pay you on your savings deposits with them. Over the past 12 months, they have increased this rate from 1.0% to 1.80% and have one of the highest rates of all banks out there:

With no minimum deposit requirements, and a seamless online experience, everyone should maximize their savings by opening an account with Ally Bank today.

It’s Simple… Your Money Grows More with Ally Bank

Because Ally pays a higher interest rate than most banks, your money grows much faster with Ally. The following graph shows what $1,000 is worth in 30 years across a sample of different banks. Please note that inflation has not been considered and thus the 30-year returns have not been adjusted downwards for simplicities sake:

Before consideration of the impact of inflation, a $1,000 deposit with Ally Bank today would net you $1,708 in 30 years!

Compare to the average of the big banks (PNC, Wells Fargo, and Bank of America to name a few), Ally Bank is a NO BRAINER!!!

Features of the Online Savings Account

*Taken directly from the Ally Bank website. See link here:

• No monthly maintenance fees
• Earn a rate 20x higher than the national average
• Deposit checks remotely with Ally eCheck Deposit
• Grow your money faster with interest compounded daily
• Six transactions limit per statement cycle
• Your deposits are insured by the FDIC up to the maximum allowed by law which is $250,000
• Protect your legacy. Open this account for a Trust. Learn more

Closing

Very rarely are money management decisions this easy. When it comes to maximizing your savings, an Online Savings Account with Ally Bank is simplest and most effective way to go. My hope in writing this article is that after reading this, you will visit Ally Bank and open an Online Savings Account. Your future-self thanks you!

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The Inner Game of Tennis

Introduction

The Inner Game of Tennis by W. Timothy Gallwey is a book about more than just tennis. It’s the ultimate guide to gaining peak performance in the mental aspects of life itself, and this is a must-read book for anyone who is interested in gaining complete mental control over their self. For a deeper dive into this material, visit The Inner Game website.
Deep within our mind, we have two inner selves battling for control over our actions and thoughts. Self-1 is an egocentric and control-minded being that lives to tell and judge. Self-2 is a natural reactor and learner from experiences. It’s the ultimate doer by nature and can be seen as our subconscious mind. 
 
The relationship that exists between Self-1 and Self-2 is the primary factor in determining our ability to navigate the complexities of this world. Better tennis and life lie in improving the relationship between the conscious teller in Self-1 and the natural being of Self-2.

What’s the Real “Problem” with Self-1?

Generally speaking, the vast majority of us are constantly thinking or ruminating over the past and future, forgetting to live in the present moment. Self-1 overly influences and overwhelms the natural capabilities of Self-2 by exerting control over situations through self-judgement, over-thinking, and trying too hard. This constant thinking, assessing, and judging are the real problem with Self-1.
 
 

One Major Key to Overcoming Self-1 … Let Go of Self-Judgement

Judgement is the act of assigning a negative or positive value to an event, and are thus very much personal in nature. Our judgements start with our thinking process and can easily spiral out of control as our ego reacts to sights, sounds, feeling and thoughts within our experience. Letting go of judgements doesn’t men ignoring errors. It simply means learning to see events as they are and not adding anything to them (i.e. positive or negative values).

Concluding Thoughts…

The world is rapidly changing every single day and this change can feel at times unsettling. The Inner Game of Tennis offers indispensable tools that when put into practice, will give you the ability to remain calm in the midst of this rapid and unsettling change. The ultimate goal of winning the inner game is to overcome the telling nature of Self-1 to allow the Doer of Self-2 to dictate your actions.  
 

Extras…

 
Brian Nwokedi’s Book Review on Goodreads
Brian Nwokedi’s Twitter
Direct Link to Book: The Inner Game of Tennis
Author’s Website: THE INNER GAME
Author’s Twitter: @the_innergame
Video on Quieting Self-1

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How to Complete Tax Form W-4

Purpose of this article: to help you feel confident in completing your Tax Form W-4

Bullet Point Summary

  • Form W-4 is the form that determines how much federal income tax is withheld from your paycheck.
  • In general, the more personal allowances you take, the less tax will be withheld from each of your paychecks.
  • This form can be updated throughout the year as your situation changes. For example, getting married and having kids during the year changes your filing status and number of dependents.
  • Given the tax reforms passed in 2018, it is vital that you review this document and ensure that you are withholding the appropriate amount. Millions of Americans faced unexpected tax surprises earlier this year.

Overview

The purpose of Tax Form W-4 is to help your employer withhold the correct amount of federal income tax from your paycheck. But if you are like most of us, you submit this form once with your employer upon being hired and never revisit it. This article will talk through why you should revisit this tax form every time your personal financial situations change.

How Does It Really Work?

In general, Form W-4 is focused on honing in on the number of “personal allowances” that you will take. The more personal allowances you take, the less tax will be withheld from each of your paychecks. Conversely, if you claim zero personal allowances you will have the most tax withheld from your take-home pay.

So, it is very important to get the right balance of personal allowances claimed. Claiming too little will mean that too much tax is sent to the government ending in a refund. But claiming too many will lead to too little tax being sent to the government ending in a possible large tax bill come April.

In order to figure out how many allowances to claim, you will need to consider the following:

1. What is your tax filing status?
(a) Married filing jointly
(b) Married filing separately
(c) Qualifying widow(er)
(d) Head of household
(e) Single

2. How many jobs do you have?

3. Do you have any dependents?

4. Will you take any credit for child tax or other dependents?

Once you gather the answers to the three questions above, you are ready to fill out the Personal Allowances Worksheet on Form W-4. Below is a screen shot of what the Personal Allowances worksheet looks like on the actual Form W-4. The next section will walk you through how to complete this form.

How Should I Fill Out Form W-4?

The following video below will walk you through how to fill out Form W-4. Please note that the assumption within this video is that you will not take itemized deductions and you will not need to fill out the Two-Earners/Multiple Jobs Worksheet on Page 4 of Form W-4.

With the new GOP tax plan, the standard deductions have increased so a lot of you may choose this route over itemizing. Always remember though, you should itemize deductions if your allowable itemized deductions are greater than your standard deduction.

[embedyt] https://www.youtube.com/watch?v=Dw8bWZsMsyc[/embedyt]

Closing

The vast majority of people will usually end up with 2 allowances (1 for themselves in Line A and 1 for their filling status in Line B-D), as the video above shows. The purpose of Form W-4 is to help ensure that you pay enough tax upfront so you don’t owe additional taxes later on in April, but this form is far from perfect as it can’t account for every single persons’ tax situation. As a result, I suggest that you always do the following at the beginning of each tax year:

1.      Use the IRS withholding calculator (see here) to calculate how much tax    you should withhold. Fill out Form W-4 with 0 allowances and withhold any additional tax needed from your paycheck by filling out Line 6.

Real example of using the IRS Withholding Calculator. Download PDF here: Mae Mae Nguyen – IRS Withholding Calculator Example.

2.      Use the Federal Income Tax Calculator (see here) from Smart Asset to further analyze your tax liability for the coming calendar year. You want to hone in on the sweet spot where you pay the correct amount upfront and neither owe nor get a refund check in April.

3.      Come see us at Blue Elephant Financial Services with any of your tax planning and tax related questions.

My hope in writing this article is that after reading this, you now feel a bit more comfortable with taxes. Filling out Form W-4 correctly will ensure a less bothersome tax season for you.

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Plain Talk: Lessons From A Business Maverick

There are nine principles of management that Ken Iverson holds himself to. These nine areas of focus helped him build a strong and long-term oriented company at Nucor:

1. Establish a higher cause
2. Empower your employees to trust their instincts
3. Destroy the hierarchy
4. Employees are the engine of progress
5. Give your people a stake in the business
6. Stay small
7. Take smart risk
8. Ethics > Politics
9. Cash performance = long-term survival

 









Establish a higher cause within your organization that employees and managers can rally around.

 













Give your employees a consistent set of tools that will empower them to trust their instincts and intuition.

 












Destroy the hierarchy and focus on establishing an egalitarian business culture that can sustain employee motivation.














Dedicate your management career to creating an environment in which employees can stretch for higher levels of performance because they are the true engines of progress.

 










Give your employees a simple stake in the business. The more they produce, the more they should earn.

 













Small businesses allow for things to really get done. That’s the virtue of smallness.


 













Aversion to risk can be deadly in business. Managers who avoid risk and fear failure spend a lot of time cheating themselves, their people, and their companies from good risks and adventures.
 
 












Place ethics over politics… simple enough








What really matters in a business is bottom-line performance and long-term survival. Focus your efforts there.