Lots of news floating around about how a new legislative proposal where the federal government would take 10% of a student’s wages as an automatic payment for student loans, basically a garnishment, and this may affect many of the current 44 Million borrowers. This suggestion has drawn fire from many consumer law advocates, like myself, who feel that this plan would allow the government to prioritize student loan debt above necessary living expenses; food, utilities, shelter, and transportation. But this proposal also has me thinking about the state of current student loan garnishment structure.

Garnishment is simply a “forced” withholding of part of a consumer’s income in response to a debt. Federal Student Loans are subject to “administrative wage garnishment” and will not need a court order if the borrower is in default. The current percentage of wages which is subject to administrative wage garnishment is 15% of a borrower’s “disposable income”, defined as the net check, or income after withholding taxes and other deductions. But this 15% is after mandatory minimum amounts that are protected from any garnishment. I will cover both consumers earning regular wages, and then consumers on fixed Social Security income.

Please note that PRIVATE student loans require a court order and a judgement against the borrower before the lender can garnish. Also note that the total amount of garnishment for debt allowed by law is 25% of the debtor’s wages… meaning, I am going to talk at the 15% rate in this article, but if the consumer already has a garnishment from somewhere else, the total garnishment cannot exceed 25%, so the federal student loan garnishment may be less than the full 15%.

For Consumers Earning Wages

The rule is 15% of wages after deductions, but what exactly does that mean? First of all, there are minimum amounts that are “exempt from levy” meaning, that amount cannot be touched for any reason by federal student loan garnishment. The current amount, as of this article, is 30 times the minimum wage after deductions. This means, at the current minimum wage, which is at $7.25 an hour (15 USC §1673), the consumer “keeps” the first $217.50 per week. That is the amount “exempted” from any garnishment calculation. The government can then take the LESSER of either the amount that is left after the $217.50, OR 15% of the consumer’s total income. It can be confusing, so a few examples are in order.

A. Consumer’s net income is $300.00 per week. After the exempted $217.50, the consumer has $82.50 left over. 15% of the $300.00 is $45.00. The government can take the LESSER amount, or $45.00 per week. In perspective, out of $1200.00 net income per month, the government can take $180.00. (This is why us student loan/ consumer law types want to do everything possible within the law to prevent garnishment for student loan delinquency.)

B. Consumer’s net income is $500.00 per week. After the exempted $217.50, the consumer has $282.50. But, 15% of $500 is $75.00, so the LESSER is $75.00 a week, or $300.00 per month. Another ouch. This is one reason that over a certain threshold, the calculation is almost always just 15% of disposable income.

One more thing, both Federal Pension and Private Retirement payments that are exempted from garnishment for debts in most states, is also subject to garnishment for delinquent student loans.

For Consumers on Social Security Retirement and Social Security Disability

Unfortunately, most of the time when I run into the “offset” (garnishment) of social security payments, it is because the consumer co-signed someone else’s student loan. If the borrower becomes permanently disabled, there are administrative actions that can be taken towards forgiveness of the federal loan debt. This is true for federal loans where the student passes away as well. But there are many cases where the Department of Education is offsetting Social Security Retirement Income (SSRI) and Social Security Disability Income (SSDI) payments. SSI, the program for the indigent, is exempted from “offset”.

Social Security Retirement and Disability are subject to an “offset” to recover federal debts since 2001 under the “Debt Collection Improvement Act of 1996.” The Department of Education can offset up to 15% (31 USC §3716). The amount offset is the LESSER of 1. The total amount of the debt 2. The amount that exceeds $750.00 per month, OR 3. 15% of the total benefit amount.
Here are the actual examples from the legislation:

Example 1:
A debtor receives a monthly benefit payment of $850. The amount that is offset is the lesser of $127.50 (15% of 850) or $100 (the amount by which $850 exceeds $750). In this example, $100 would be offset.
Example 2:
A debtor receives a monthly benefit of $1250. The amount that is offset is the lesser of $187.50 (15% of 1250) or $500 (the amount by which 1250 exceeds 750). In this example, the offset amount is $187.50 (assuming the debt is $187.50 or more).
If the recipient receives $750 or less, nothing will be offset.

(from: 31 C.F.R. § 285.4(e)(3)(i), 31 C.F.R. § 285.4(e)(3)(ii), & 31 C.F.R. § 285.4(e)(3)(iii))

Alternatives to Default, Garnishment or Offset

I have covered in previous articles how dangerous it is to a consumer’s financial future if they default on student loans. There are currently nine, that is right, NINE repayment options available through the Department of Education for student loans, and while nobody qualifies for all of them, many qualify for more than two. So PLEASE readers, know your options. Please do not let your student loans go 269 days past due. Call your servicer or a student loan attorney if you need help. If you have private student loans, the payment options may be limited. But contact the lender if there is a problem making your payment. As for the topic that inspired this article, legislation proposing the 10% monthly payment option. You can see how it would begin to prevent defaults, and the amount proposed is less than the current garnishment scheme. But then again, I believe consumers should control their income and not have to choose between food and federal debts. A garnishment is imposed because federal student loan notices were ignored, or nine total monthly payments were missed in a row.

The National Consumer Law Center (NCLC) recently published a report on debt collections and complaints surrounding those collection actions for 2018. This report includes an online interactive map, which can be searched by state, showing the statistics on the percentage of the state residents in collections, along with the top complaint types against debt collectors. Honestly, it’s an ugly state of affairs. And if you, my reader, are currently in collections, you may want to take a look at the information for your state. I promise, you are NOT alone in the frustration and fear surrounding collections, particularly when bad actors break the law. The top three complaints reported by the NCLC?

> “Calls After Getting ‘Stop Calling’ Notice” (227,917 complaints),
> “Calls Repeatedly” (210,238 complaints),
> “Makes False Representation about Debt” (192,704 complaints),

I also promise you, dear reader, these numbers are way underreported. A vast number of consumers won’t complain. Won’t assert their rights. And collectors know this, which is why they continue to violate federal law. The Urban Institute reported in July 2018 that 71 million American adults had at least one account in collections. 71 million Americans in collections, yet under one million complaints against collection agencies who violate the law.

There is a very honorable, yet misguided reason, many people won’t report harassment from collectors. Because they owe the money. But do they really? One of the biggest complaints is that consumers are harassed about debts that don’t owe, or that are time-barred form a lawsuit when the statute of limitations runs out. That’s right. The debt can become too old for a lawsuit. Still on the consumer’s report? Sure. Consumer still technically owes the money? Sure. But the consumer cannot be sued in court.

This is a huge distinction under the law and there is one mistake many consumers make. The statute of limitations will be restated if any payment is made on the account, no matter how small. Let me reiterate that very important point: Collectors will harass, call, and threaten a consumer for just, “any payment at all” because if the consumer gives them even a dollar on a debt that is too old to sue on, THE CONSUMER WILL RESTART THE STATUTE OF LIMITATIONS.

And they won’t warn the consumer that the debt they are calling on is too old, sometimes called a “zombie” debt. Why? Because it is part of their business model. They aren’t obligated by the law to tell the debtor. They will call and ask the consumer to settle. If the consumer makes ANY payment or promise, and revives they statute of limitations, the consumer is again are at risk for a lawsuit. Even if the debt was only days from being time-barred. So they do it. Call on very, very old debt. And they will harass the consumer to try to get them to settle again, or start to threaten with a lawsuit. And make no mistake, threatening a lawsuit when they do not intend to follow through is a violation of the law. Credit.com has an interactive map with the statute of limitations for each state. It’s possible that the collector may, however, still report a time-barred debt to the credit bureaus. Unless the debt is too old for the collector to do that either. And they won’t tell the consumer that tidbit either when they call.

But, there is some good news, and some maybe not good news on the horizon for 2019. First, the good news. Many states have debt collection laws that are stronger than the Federal Debt Collection Practices Act. Ans some states are taking aggressive action to force collectors to tell consumers when the debts are too old. California, for example, recently enacted legislation that require collectors to place specific notices on communications to ensure consumers know when the collector is trying to collect a time-barred debt, including an additional notification if the debt is so old it can no longer be reported to the credit bureaus under the Fair Credit Reporting Act. Many states have an “Unfair Practices Act” type set of laws as well that have protections for consumers, these vary by state.

Now, for the maybe good news. On the national level, The Consumer Financial Protection Bureau is expected to take steps this March and release some changes to the rules around debt collection practices on the federal level. Consumer advocates are pushing for those changes to include a rule requiring Collectors give written notification to consumers when a debt is too old for a law suit or too old to be reported on the consumer’s credit report. I’ll let you know what comes out. For now, there are a few things to remember to do if you are in this situation:

1. Check your state statute of limitation for consumer debt before making ANY payment, no matter how small, to a collector.

2. If you are being harassed, or a collector is trying to get a payment on a debt you do not owe, contact a consumer advocacy agency or attorney and find out the federal and state laws available to protect you.

It’s close enough to Black Friday, Small Business Saturday, and Cyber Monday to talk a bit about online shopping. Some very scary statistics from 2017 showed a marked increase in online shopping fraud, using stolen credit and debit card numbers. This is not necessarily surprising because consumers are starting to trust online ordering, and the total number of “eCommerce” transactions were up by 19% over 2016 numbers. Sadly, the number of fraudulent transactions during the 2017 holiday season also increased, to 22% over 2016. And a staggering 1 in 85 transactions online was an attempted fraud. GAH!

Online retailers are taking steps to prevent fraud such as collecting IP addresses and requiring the “CVV” or verification code on the back of the card used for a purchase. But, while they do their part to protect their businesses from fraud (yes, they sustain incredible losses from fraud, it isn’t only the consumer), there are easy steps you can take to minimize the risk of being a victim of credit or debit card fraud:

1. Use Unique Usernames and Passwords for Each Merchant

Never reuse usernames and passwords for multiple merchants. If the retailer is compromised, and your login is stolen, thieves can log in to other sites using your information and make unauthorized purchases. This time of year, shipping and billing addresses often differ, so that delivery address discrepancy may not trigger a “potential fraud” flag on the merchant side. Yes, it can be a pain, but so can losing all of your holiday money temporarily until the bank refunds your fraudulent losses.

2. Check the HTTP (S)

The “s” at the end of the hypertext transfer protocol (you bet I had to look that one up) means, https://www.entrepreneur.com/article/281633 “secure.” The security includes data encryption. When you are on a site with only, “http” the data sent to the site can be intercepted by a third party.

3. Use the Code on the Back of the Card

The three or four digit verification number on your credit or debit card is requested to prove that you have the physical card in your possession when making a purchase. In addition to a billing address and card number match, the code can help reduce fraud by requiring a third data point for a purchase.

4. Limit the Potential Financial Loss

This is particularly important for debit card users who shop online this holiday season. Have a second (free) checking account with a debit card for online purchases, and only put enough in the account to cover your shopping budget. This limits the potential loss if the card used online is compromised. And always use the same card, tied to the dedicated account, when shopping online, or traveling.

5. Keep Copies of Everything and Watch Your Accounts and Statements

Print out copies of invoices and receipts. This way you have confirmation of what you ordered, and the total amount paid. If your card is compromised, you will be able to flag unauthorized purchases, while confirming the ones you actually made. And watch your statements and account carefully. Some financial institutions have a feature where you can receive an alert (we get a text) if there is a purchase made over a specific threshold. One word of caution, however, my husband was alerted to his holiday gift by this feature. The bank let him know when I purchased his gift.

There is a real emotional toll on consumers who have lost money and had to file fraud reports over the holidays. Nobody needs that stress and frustration while trying to buy gifts or make travel arrangements. There is one other layer of protection available you should consider: make sure you take advantage of the FREE credit freeze to limit access to your personal information, reducing the risk of a fraudster opening a new account using your identity.

 

flickr.com

It’s November! Tis the season for increased identity theft. The increased risk is due to the sheer number of transactions, hacking attempts, and ecommerce fraud attempts, which is staggering. Even more staggering? According to a report by the Identity Theft Resource Center, while most consumers detect identity theft within three months about 16% of consumers won’t detect identity theft for three years. Wow.

One of the more surprising things I read on this topic is that stolen personal information was widely used to purchase very authentic looking “fake” paychecks and other documents online, which thieves used to open accounts and even rent apartments. Since chip cards are making it harder to commit credit card fraud, auto loan fraud is growing. And the thieves are creating “synthetic identities” where the fraudsters steal some of a consumers real information and combine it with fake information, such as using a new address for statements.

The consistent thread in all identity theft schemes is that a fraudster has a consumer’s personal information. Maybe not everything, but enough to convince someone else that the thief is really the identity of the victim. And the credit bureaus have that personal information. They have it all. The three credit reporting bureaus are goldmines for personal information for ID thieves, and these keepers of your info have been hacked by savvy criminals to get it.

The only option is to freeze your credit report. A “credit freeze” restricts access to your credit reports to themselves and currently open accounts. But not everyone took the steps required to freeze accounts, even if they were not looking to open new credit, because those freezes averaged about $30.00 and were only free AFTER they were a victim of ID theft. And there were additional fees to “thaw” the account for access by new lenders for a specified period of time. But now all of those fees are gone. You do not have to pay a fee anymore. New credit law changes, effective September 21, 2018, mean any consumer can freeze and unfreeze their credit file for free. Here’s what you need to know.

1. You have to contact each bureau individually to have the freeze placed on each.
Here are the contact links and numbers to do so. You will have to verify your identity with personal info to freeze your reports, so have that ready.

Equifax or 800-349-9960
Experian or 888-397-3742
TransUnion or 888-909-8872

2. You can get a free freeze for your children who are under 16. And you can also place a free freeze for anyone that you have a valid power of attorney for, when you are a fiduciary, guardian or a conservator.

3. You can still access your own credit reporting records and can order your free annual credit reports from www.annualcreditreport.com. Make sure you only use Annual Credit report, that’s the free one authorized by federal law.

4. Any current creditors or debt collectors will continue to have access after the freeze is placed.

For more information, you can read the Frequently Asked Questions (FAQ’s) directly from the Federal Trade Commission. I encourage every consumer to set aside time before the holidays to put freezes on their credit reports, which will help to protect themselves, their children, and people at risk, from identity theft.

 

Continue reading “Great News- We Now Get FREE Credit Freezes”

The Fair Issacs Corporation, the creators of the mysteriously calculated FICO Credit Score, are changing the scoring method using new criteria, again. In early 2019, a new scoring method will allow consumers to contribute their banking information to a third party, Finicity, which, “allows Americans to benefit from positive financial behaviors.” The idea is that if you are newer to credit, or have a lower score, the credit bureau can have a look at your checking, savings, and money market accounts to check your credit worthiness. One argument in support of this new approach is that consumers do not currently have any input into their credit scores, because the FICO is calculated only on debt account data submitted by creditors and lenders.

Fair enough. What could possibly go wrong?

From my lowly perch, a lot. First of all, while the consumer will have a choice of accounts to include, they will not have any control over how it is collected, and whether the information is kept by the credit bureau. The process, as published in the Wall Street Journal, is as follows,“Experian will compile consumers’ banking information with help from financial-technology firm Finicity and will distribute the new score to lenders.” Yeah, read that again, Experian will send a summary of consumer bank accounts to lenders. FICO won’t keep any of that information after the score is calculated, but the credit bureau will have your banking Information.

Anyone hear about the hack on Equifax? Anyone? Of course, you have. Well, have you heard about the Experian hack? 15 Million T-Mobile customers personal data was hacked via Experian, including social security and passport numbers. Lovely. Since I don’t use T-Mobile, I am already standing in line to provide my banking info. Eyeroll. It’s already happened once, and they will not be less of a target if they are the bureau with your bank accounts.

Cybersecurity aside, who here believes that when the UltraFICO is available, creditors will accept the FICO? Lenders know the consumer can opt in banking information, so why not rely on the UltraFICO for lending decisions? This is the plot from the classic children’s book by Laura Joffe Numeroff, If You Give a Mouse a Cookie. The lesson? If you give a mouse a cookie, he will want a glass of milk, then a straw, then a napkin, and on and on.

So, why the change? Benevolent Credit Bureaus? Hardly. Since the housing melt down, the pool of traditionally “highly qualified” borrowers shrunk. The change is due to lenders requesting, “credit-reporting firms and FICO to figure out a way to help them boost lending without taking on significantly more risk.” Oh.

As a consumer law advocate, I see danger ahead. Who would be “at fault” if banking information is compromised? Any hack could mean consumer’s accounts are cleaned out until the necessary fraud investigations are completed, and the money is returned by the bank. Missed or late mortgage, car payments, or utility bills can have consequences and mean financial insecurity for the most basic needs of a family. Will your mortgage company waive the late fee if it isn’t your fault? Will the electric company leave the lights on? If not, late fees on every bill owed by the American family could add up to hundreds of dollars. And over 75% of families already live paycheck to paycheck. In my humble opinion, a “free” 12-month credit monitoring product is not going to repair that mess. Or, maybe I am just a cynic and Fair Isaacs is looking out for consumers.

 

photo:credit.org

In many states, the driver’s license and car registration expire on your birthday. The not so gentle reminder that you are a year older, and they want money. When you stop and really think about it, there are probably a few things that are renewed annually. My Microsoft 365 for example, some insurance types, etc. These are not necessarily discretionary items- many of us need computer programs and certain insurances to work and protect our property. So, because I am a nerd, I started to think about the annual fees we pay, and when they are due.

Lawyering bar fees and practice related fees aside (which are also annual) our family pays roughly $468.00 a year for various things. Our computer programs, including virus and malware stuff, state registration renewal on two vehicles, and yes, I have Amazon Prime (I can explain, but I don’t want to). The due dates are sprinkled throughout the year, with some due in November, March, July… you get the idea. Since we know these fees are coming every year, we should plan for them. Lots of people plan for Christmas, birthdays, holidays and may save a bit aside, but not for our expected, routine, boring annual commitments.

If we round up our annual commitments to $500.00 a year, and divide that by twelve, I have to save roughly $42.00 a month to cover these fees. If I receive 26 paychecks a year (paid bi-weekly) I have to save about $19.25 each payday to meet our commitments. This is the basic idea of a “sinking fund,” aptly named because businesses deposit money into these accounts to “sink the debt” (fun fact)**.

Placing the estimated amount of money into a “holding” type account or reserving them separately in your checking account will allow you to have the funds available when the payments are due. Here are a few things to consider when you decide to start a sinking fund, and save a little each payday for your expected annual expenses:

1. Make sure IF you open a separate CHECKING account at the bank, you have a FREE account. Service fees will eat up what you put aside and cause you to go a bit backwards. I recommend a small(ish) regional bank or credit union for these accounts.

2. Do NOT open a SAVINGS type account if you will make frequent withdrawals to pay these bills as they come due. “Regulation D” is a federal rule that limits the amount to free transfers or withdrawals to six, afterward, you can be charged a fee for each additional .

3. Have that baby emergency fund,$500-$1000.00 saved, BEFORE you start a sinking fund. Those pesky little emergencies, such as the need to buy a tire or repair a leaking faucet, can quickly eat up the money you allocated for other expenses.

4. In the beginning, you may have a bit of overlap with what’s due and what is saved, so you may have to pay a bit more and continue saving. I know if you are living paycheck to paycheck this doesn’t always allow much room, but if you don’t start soon enough before the next expense, you may have to stretch. Example: You have $85.00 due in three months. You typically put away $21.00/ month. In three months, you have $63.00 saved, but are $21.00 short. Pay the $85.00, but still try to put away the $21.00 so you are on track for the next expense due.

It’s so easy to get frustrated we forget when the annual bills come due, and of course they still come due. Consider the sinking fund as a way to put a little away each check to cover what you will need. The stress is really reduced when the amount you need for an expected expense isn’t squeezed 100% from the same paycheck.

**And for all of you bond asset types, yes, there is a sinking fund term meaning to pay a trustee an amount to retire bond debts before they come due… though most of us have no idea what that even means. I just don’t want angry email.

This past weekend consisted of various discussion with the (grown) children about Halloween costumes for the grands and some early planning for the holidays, and it hit me, we are close to the 2018 holiday season. This year has flown by, way too quickly. And now there are only 12 weeks until Black Friday, or for many people, six paydays. But before you close this article, call me “scrooge”, and delete me from your friends list because I want to chat about the Black Friday in September, give me a moment, and I will explain. So why is “Black Friday” my measure of the season and not the actual festivities on, say, Christmas or Hanukah?? Because that shopping day after the turkey traditionally “kicks off” the holiday season. And the spending begins for many. And we love to spend.

In 2017, consumers spent an average of $967.00, between Black Friday and Cyber Monday, accounting for approximately 20% of ALL annual online shopping those days. The amount budgeted on gifts for children has averaged about $500.00 per child, relatively unchanged over the last few years. But gifts aside, there are other expenses around the big season from food, wrapping paper, shipping costs, travel expenses, and new outfits that don’t always make it into the average household budget. In fact, last year almost two-thirds of the average holiday budget went to “non-gift” spending.

All these articles quaintly mention the “holiday budget” as if this was planned in advance. I really don’t know anyone, myself included, who likes a holiday budget. Because sometimes I see something and think, “wow, this is great for…”and want to purchase that thing. For many people, the total holiday cost is really only unveiled after the revelry as the statements start coming in the mail. And the reality comes in January that for too many people, they blew out past the budget, and accumulated quite a bit of debt for the season. The average American woke up in January 2018 with over $1050.00 in DEBT. Not what was spent as a whole, but what they spent in the hole to finance the season. For the 78% of average American families living paycheck to paycheck, an additional $1000.00 in debt, and at incredibly high interest rates, is a burden.

Good news, we all have twelve weeks, or an average of six paychecks to squirrel away some cash. But even better? Companies with seasonal hiring opportunities are at the best it has been in years, and with low unemployment, retailers are competing for seasonal employees. The reported average wage is $12.00/ hour for temps, but Costco is reportedly paying $20.00 and hour!

It’s not too early to start to plan the season. And not just where you are going for dinner on which days. It’s time to think about how to pay for it. Too many people raid emergency funds and take loans from retirement accounts to fund the holidays. And because these holidays come every year, it can become a vicious cycle. But, with all this time available before the shopping and revelry begins, that second job, or extra shift, or part-time side hustle may be just what you need to make this season “Merry and Bright.”

source: imtresidential.com

 

Around this time last year, the three credit reporting agencies had to change their rules (due to an agreement with several state’s attorney generals in 2015) surrounding reporting of a consumer’s medical debt in collections. Now, they basically have to give consumers a standard 180 day “grace period” before reporting medical collections on the consumer credit report. Another reporting change requires the bureaus to remove a past due medical bill that is later paid by insurance.

For many Americans, the increase in medical debt is due to higher deductibles and out of pocket costs for healthcare, timely payment by insurance to providers, and the decision by insurers that a provider was “out of network” resulting in a lower reimbursement and the outstanding costs passed on to the consumer. A fun little statistic related to the rules change is that up to 80% of bills submitted by providers to insurers are incorrect the first time. So insurance doesn’t pay them, the bills must be corrected and resubmitted for payment. This results in delays in settling medical bills. Sometimes for months.

The 180-day reporting delay is good for consumers with medical debt because these bills are often passed to collections quickly, within 30-60 days after the payment was due. Faster than many creditors will pass off non-medical debt accounts. This allows time for consumers to deal with insurance, pay their medical bills, and work on billing disputes even if the account is with collectors.

It is important to note that, while it is true that it will no longer have as big an impact on the “FICO” and VantageScore credit scoring models for 180 days, other credit scoring models that lenders use have not adopted this approach. So, you still need to watch your credit report if you are facing medical debts in collections.

Here are a few other things to consider if you or someone you know is facing medical debt:

• You are not alone. Around 43 million Americans had medical debt on their credit reports last year. The average amount of medical debt in collections was $579.00 last year. With 78% of Americans living paycheck to paycheck, this is a large enough number to cause financial hardship.

• While medical debt should NOT be ignored, if you are struggling with debt, it should be given a lower priority than other consumer debt, such as credit cards and personal loans. To do this, the medical debt must remain a “medical-debt,” meaning do not borrow or pay these debts with a credit card.

• Collectors will often try to push you to pay the bill, even suggesting you just put the balance on a card. But if you pay the medical debt with a credit card, you can limit your ability to settle the debt, or seek financial assistance from the hospital or other agency. You can stop collectors from calling by making your request in writing. You just need to send a letter.

• There are statutes that protect consumers who owe medical debt from being turned away from the emergency room for medical care. And, according to the National Consumer Law Center:

“If you request financial assistance from a nonprofit hospital, the hospital cannot deny you care in any part of the hospital because of an old bill until it determines whether you are eligible for financial assistance. You usually have about eight months (240 days) from when you first received the old bill to request such financial assistance.”

• Medical debt is a big reason for bankruptcy, but not why you think. When people are too ill to work, income plummets, savings can be exhausted and often medical debt was transferred to credit cards.

Remember, you now have 180 days to get medical bills handled before they hit your Equifax, Experian, or TransUnion credit report. You can dispute anything erroneously reported and have the records of medical bills that were paid by insurance removed.

In a recent trend, I am learning that more and more entrepreneurs do not have a bright line separation between their business budget and their personal budget. And you NEED to have both. Separately. The written business budget is the plan to spend the businesses money. You need a business budget to know what you “must make” each month to cover all overhead and expenses. A personal written budget is the plan to spend your personal money. You need to make a written personal budget, so you know what your minimum “take home” salary needs to be. And yes, that “side hustle” is a small business, so even if it is “only” worked part-time, you must have a separate budget.

Once you know what the business needs to make and what you personally need to take home, you can prevent “co-mingling” your business and personal money. And it takes only a moment to fix: just write yourself a “reasonable salary” paycheck. On the personal side, after your paycheck, set aside the amount for your personal taxes. Have an accountant help you figure out your quarterly deposits but set aside each month (or each payday) towards your quarterly. Pay yourself on a regular basis (yes, for startups this can be hard). However, if you pay yourself a paycheck, on a regular cycle, you can budget personally.

If that sounds like an unnecessary “extra step” because it’s really all “your money anyway” you are skipping an opportunity to manage your finances better on both sides of the table. Many businesses have an “ebb and flow” of income and expenses. Proper budgeting allows for the buildup of a business emergency fund, the “management reserve” if you will. This is any money that the business has earned that is not needed for current expenses. This “extra” money, so to speak, should be set aside for lean months, when you are struggling to meet your minimums. By making yourself an expense, instead of just a “leftover” you know what you must do to make sure a regular paycheck comes in.

Why am I so adamant about this? Because we made this mistake early on as business owners. Using the business cash out of the till as it comes in, without tracking, can become a huge issue for taxes, as well as making overhead payments on time. What bills are you paying? Did you pay personal self-employment taxes on your draw? Do you know how much you’ve taken this week? Month? In fact, debt and taxes doom many small businesses. And you should know where it’s all going. This can be a huge challenge when you are just starting up, but you can make the decision early to schedule yourself in the budget, wait between paydays, and do not just write business checks for personal bills. Happy entrepreneuring!

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