On My Own Two Feet: More financial rockstar advice from Manisha and Sharon

January 4th, 2008

onmyowntwofeet.jpgYesterday I posted part 1 of my Q&A with personal finance goddesses Manisha Thakor and Sharon Kedar, authors of On My Own Two Feet: A Modern Girl’s Guide to Personal Finance, a book which I cannot recommend highly enough. If I had my way, it would be required reading in every high school, college, and workplace in America. (Who knows how much financial heartache and credit card debt I might have avoided had this book been around when I was in my twenties?)

In today’s post, Manisha and Sharon answer my questions about whether to use cash or credit, managing that blasted quarterly-tax stash, and buying a home as a single, self-employed gal. (You can read part 1 of my interview with Manisha and Sharon here, where we discuss savings and investments.) And if any of you have a personal finance question you’d like Manisha and Sharon to answer, feel free to post it in the comments. They’ll pick five questions to answer on this blog next week.

Q. When it comes to making business purchases for which you have the cash in hand, are you a fan of using ATM cards and checks, or credit cards all the way? I know a lot of freelancers and small business owners try to put all expenses on one credit card to make for cleaner expense records (myself included). Any pitfalls to watch out for?

A. It’s a personal choice — and personally, we prefer using one credit card for all business related expenses provided you always pay off the card on time and in full. Using the credit card can provide an extra layer of protection in case a vendor doesn’t come through with a service (because you can lodge a complaint with the credit card company and stop payment). It also makes for easy record keeping. If the thought of using plastic, however, makes you stay up at night, the world won’t fall apart if you use debit cards or checks.

Q. As a freelance writer, my business overhead is low low low. In the past I’ve had a separate business checking account, but eventually I decided it was a waste of hidden fees and closed it. Is there any reason I should have a business checking account that I’m not thinking of?

A. The main reason to have a separate business checking account if you are self-employed is to help reduce the temptation to spend money you need for work and to keep your record keeping simple. If you’ve got the willpower not to touch money set aside for your work expenses and your record keeping is straightforward, by all means reduce those fees and have just one account.

Q. For years I’ve used a savings account to store the portion of my freelance (1099) income that I need to send to Uncle Sam four times a year for my quarterly estimated tax payments. But I’m starting to think I should be keeping this cash in a money market that has check-writing privileges, where I can earn about 3 percent higher interest. Are there any pitfalls to doing this?

A. So long as the money market is at a reputable financial institution (that means FDIC insured if it’s a bank) or a nationwide presence if it’s a discount brokerage house (like a Vanguard, Fidelity, or Charles Schwab), you’re in good hands!

Q. When I bought a house a couple years back, I had to show the bank three years’ worth of federal tax returns because I was single and self-employed and my income was unpredictable. I remember sitting across the desk from my mortgage broker, wondering if I should have claimed less business expenses on my annual tax returns and maybe taken a little extra work for a year or two before buying the house, just to beef up my business profit margin (and in turn, annual income). Is this a wise strategy for small business owners, especially now that mortgages aren’t as easy to get?

A. It’s a strategy, but we wouldn’t call it wise — we’d call it aggressive. Mortgages that you can’t afford are hard to get these days. But if you are looking to buy a house the “old-fashioned way” — with a 20% down payment, and a 15- or 30-year fixed-rate mortgage — and if you have good credit, you’ll be fine.

Said slightly differently, if you have to contort your finances to get a mortgage, that’s a sign that what needs work is your finances. When you strip away all the media buzz, the truth of the matter is that what’s hard now is to get a mortgage for a house with less than 20% down and/or if you have bad credit. And if that’s your situation, we’d say you’re not ready to buy a house yet. Tough love, but meant to protect the self-employed gal over the long run!

Want more? You can read part 1 of my interview with Manisha and Sharon here. You can buy their fabulous book here. And if you have a personal finance question you’d like Manisha and Sharon to answer next week, post it in the comments. They’ll pick five of the best questions to answer on this site next week.

Entry Filed under: Money honey,Q&As

2 Comments Add your own

  • 1. Finance guide » On &hellip  |  January 4th, 2008 at 9:41 am

    [...] Original post by Michelle Goodman and software by Elliott Back This entry is filed under Finance guide. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site. Prev/Next Posts « It’s better to be safe than sorry | Home | Warning on insurance lies – This is Money » Leave a Reply [...]

  • 2. dave mason  |  January 18th, 2008 at 12:47 pm

    Great advice on the mortgages. I think too many people bought homes hoping it would all work out. The liars loans are what are responsible for killing the real estate market. The old rules are the best for buying a home. If you can’t put 10% down, you shouldn’t be in the home buying market. I do think it is a good time to buy now.

    Debt Free Dave

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Hi, my name's Michelle Goodman and I've been freelancing since 1992. I'm author of My So-Called Freelance Life and The Anti 9-to-5 Guide. Read my full bio here.

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