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How to Start a Corporation in Pennsylvania (and Most Other States, Too)

Corey —  May 20, 2010

       In January 2009, I incorporated a company called Crackerjack Greenback for my original website. I later set up Provident Planning, Inc. as a fictitious name (like a DBA). I’m Chairman of the Board, President, Secretary, Chief Financial Officer, and owner of my very own corporation. And I incorporated for a total cost of $260! How did I do it? Through research and a couple helpful websites, I was able to find all the information I needed to incorporate without the help of a lawyer or paid incorporation service. (Their fees would be on top of the $260 I had to pay.)

       This guide is a review of the steps I took to incorporate in Pennsylvania. This guide is primarily for people who want to do business in Pennsylvania and want to incorporate in Pennsylvania as well, though most states have a similar process. (You don’t have to incorporate in the state you do business in.) While this guide is not a replacement for specific advice from an attorney and an accountant, it should familiarize you with the process of incorporation and prepare you for the steps you’ll need to take. I incorporated on my own, but I have a pretty good understanding of accounting, taxes, and business law due to my training in financial planning. You may or may not wish to do everything on your own. Regardless of what you choose, I am not responsible for what you do with the following information. This information is not to be taken as legal advice. This also does not mean that I recommend everyone incorporate when starting a business. Your specific situation and needs will determine the best business structure for you.

       The most helpful website I found for starting a corporation in Pennsylvania came from the Citizen Media Law Project. Their page about forming a corporation in Pennsylvania is quite extensive. However, I’m reviewing the steps I took for my benefit and yours. I’m also linking to a better source of the Pennsylvania Consolidated Statutes. (The links they use at Citizen Media Law Project are slow and difficult to navigate.)

1. Choose the Business Name

       When you choose a name for your business, you need to consider two aspects. First, you have the marketing aspect. Does your business name describe your product or service effectively and help you achieve your marketing goals? Entrepreneur.com has a good article about how to name your business which covers the marketing aspect and some of the legal aspects.

       From a legal perspective, you need to make sure that your business name meets the following requirements:

  • Meets State Law Requirements – In Pennsylvania, a corporation’s name must contain the word “corporation,” “company,” “incorporated” or “limited,” an abbreviation of any of these words, or words or abbreviations of like import in languages other than English. There are also some limitations on which words your corporate name can contain. You can find all of those limitations in 15 Pa. Cons. Stat. § 1303.

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  • The Name Is Available – You can check to see if the name is being used by another corporation in Pennsylvania using the Corporation Search from the Department of State. Your name must be distinguishable from other corporate names according to the guidelines outlined here. The Department of State also has additional information regarding name availability.

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  • Does Not Violate Federal or State Trademarks – Read up a little on trademark law. Then you’ll want to search for trademarks that others may have registered. You can search for federal trademarks using TESS, the federal trademark database. Pennsylvania does not have an online database of registered trademarks. To check for trademarks in Pennsylvania, you’ll have to call the Department of State at (717) 787-1057.

       You may want to register a trademark for your business name. You can find out more information in Citizen Media Law Project’s article about registering trademarks. If you’re going through the trouble of registering a trademark for your business, you might as well register federally with the U.S. Patent and Trademark Office. I didn’t do this for my business. There is some common law protection for unregistered trademarks, but it can be prudent to register your trademarks.

2. Recruit a Director or Directors for the Corporation

       Pennsylvania requires all corporations to have at least one director. Directors must be at least 18 years old, but they do not need to be residents of Pennsylvania or shareholders in the corporation. You can set requirements for directors in your corporate bylaws, but they are not necessary. When you write the corporate bylaws (in a later step), you should state how many directors the corporation will have. If you don’t state how many directors you will have, Pennsylvania law requires 3 (three) directors. You can be the director of your corporation and hold all the offices for the corporation. I chose to be the director of my corporation.

3. File the Articles of Incorporation

       In Pennsylvania, you can file your articles of incorporation online through the Online Business Registration Interview (OBRI). Most of the application process is self-explanatory, but here are a few key things to keep in mind:

  • Most corporations will be “for profit” “stock” corporations. If you’re creating a different kind of corporation, this guide will not cover everything you may need to know.

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  • When choosing how many shares you will authorize, 1500 is a good number because it is easily divisible by 2, 3, 4, 5, 6, 10, 12, 15, 20, and 25.

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  • If you choose to publicly trade your stock, you will need to meet additional requirements that are not covered here. For a small business run by a single owner, you do not need to publicly trade your stock.

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  • During the registration process, you are asked if the corporation will be an S corporation. There are some advantages to making your corporation an S corporation. You can read more than you’ll ever want to know about S corporations with a simple Google search. It’s relatively easy to elect S corporation status if you meet the requirements, and an S corporation is taxed similar to partnerships. That means the corporation doesn’t pay income taxes. It all flows through to the shareholders. I elected S corporation status for Crackerjack Greenback, Inc.

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  • As long as your corporation will not do business under any name other than its legal name, you do not need to file a fictitious business name registration.

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  • You do not need a commercial registered office provider unless you do not have a physical location or mailing address in the Commonwealth of Pennsylvania.

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  • You can register for taxes and some licenses in OBRI as well. You’ll need to sign up for at least the Employer Withholding Tax, Unemployment Compensation, and Workers’ Compensation. Even as an officer of the corporation, you will be considered an employee and you’ll have to pay employer withholding taxes and unemployment compensation taxes. However, there is an exception for Workers’ Compensation for those employees who are officers and shareholders of the corporation. You’ll need to call the Bureau of Workers’ Compensation at (717) 783-5421 and request forms LIBC-509 and LIBC-513. You may need to sign up for additional taxes and licenses, and this is where an accountant or attorney may be able to help you. This guide does not cover every possible situation.

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  • The fee for filing your articles of incorporation is $125.

4. File a Docketing Statement

       After you file your articles of incorporation, you’ll want to send in a Docketing Statement. It’s a very simple, one-page form. You should send it in to the Corporation Bureau. Their contact information is on this page. Once your application has been received and approved, you’ll receive an official acceptance letter from the Department of State. However, your corporation’s existence begins when you file the articles of incorporation – not when the Department of State accepts them.

5. Fulfill the Advertising Requirement

       Your next step is to fulfill the advertising requirement. You are required to publish notice of incorporation in two newspapers of “general circulation”, one of which should be a legal journal if possible. This just means you need to publish in your closest major newspaper and the legal journal for your region. Your notice must simply state the name of the corporation and the fact that you have incorporated or will incorporate under the laws of Pennsylvania. You can see examples by checking the legal notices section of your local newspaper. Here’s my example:

Notice is hereby given that: Crackerjack Greenback, Inc. has been incorporated under the provisions of the Pennsylvania Business Corporation Law of 1988.

       Since I’m in Lancaster County, I published in the Lancaster newspaper through their website. You’ll want to publish in the legal notices section of the classifieds. The Pennsylvania Department of State has a geographical listing of legal publications with contact information for legal journals. It cost me about $30 to publish in the local newspaper and $78 to publish in the legal journal for Lancaster County.

       You don’t need to send in proof of publication to the Department of State. Just make sure you file it away with your corporate documents. I created a folder to hold all my important corporate documents: articles of incorporation, corporate bylaws, meeting minutes, corporate resolutions, and other important papers.

6. Write the Corporate Bylaws

       There are no requirements for your corporate bylaws, but they’ll typically cover things like: existence and responsibilities of corporate offices (the officers), size of the board of directors and how they’re elected, length of term for a director, how and when board and shareholder meetings are held, who may call the meetings, and how the board of directors will function. The Citizen Media Law Project has more information about corporate bylaws.

       To save you some time, I’m going to share the corporate bylaws for Crackerjack Greenback, Inc. with you. These may not include all of the bylaws you’ll want for your corporation, but they’re a good start. I’ve also highlighted all of the sections you may want to change to fit your needs. I’ve listed four corporate offices in my bylaws: Chairman, President, Secretary, and Chief Financial Officer (or Treasurer). The names don’t matter very much, but the duties of the offices must be completed by someone. See 15 Pa. Cons. Stat. § 1732 for more information. Click the link to download a copy of Crackerjack Greenback, Inc.’s Corporate Bylaws in Microsoft Word Document format.

7. Purchase a Corporate Seal

       Many documents will require the Corporate Seal to prove that the board of directors has officially adopted, signed, or otherwise recognized the document as binding to the corporation. You can purchase a Corporate Seal online quite easily for about $30. I purchased a self-inking stamp for about $27 after adding shipping and handling. Your corporate seal must have your corporation’s full legal name, the year of its incorporation, and the words “Corporate Seal” and “Pennsylvania”. You’ll need it to officially adopt your meeting minutes and issue stock certificates in the steps below.

8. Hold the Organization Meeting

       The first official meeting for your corporation will be the organization meeting. This meeting allows the incorporators or initial directors (if named in the articles of incorporation) to adopt the corporate bylaws, elect directors if they are not listed in the articles of incorporation, and handle any other business necessary. You must keep formal meeting minutes to prove that this meeting actually occurred and that the corporation is being run correctly. Failure to do so could dissolve your corporate status in a future lawsuit.

       Pennsylvania law requires that the incorporator who calls the organization meeting notify all other incorporators in writing at least 5 days prior to the meeting. However, there is a provision in the law for any corporate meeting that allows the attendees to sign a written waiver of notice to get around this formality. I’m including here a copy of the minutes of the organization meeting for Crackerjack Greenback, Inc. which has a written waiver of notice included. You’ll want to read through it carefully to understand the minimum that should happen at your organization meeting and to determine if you’ll need to conduct additional business. Click the link to download a copy of the Minutes of the Organization Meeting of the Incorporators of Crackerjack Greenback, Inc. in Microsoft Word Document format.

9. Hold the First Meeting of the Board of Directors

       Immediately after you have held the organization meeting and have elected the directors, the directors may hold their first meeting. If you’re the only director, feel free to meet with yourself. Just keep the arguments to a minimum. During the first meeting of the board of directors, you’ll approve the minutes of the organization meeting, elect corporate officers, adopt a stock certificate form, adopt your corporate seal, give the corporate officers the power to open a bank account, and authorize the issuance of stock certificates.

       Again, I’ll offer you the meeting minutes, stock certificate forms, and bank resolution I used for Crackerjack Greenback, Inc. First, the Minutes of the First Meeting of the Board of Directors for Crackerjack Greenback, Inc. in Microsoft Word Document Format. Next, a blank stock certificate in Adobe PDF format that meets the requirements of 15 Pa. Cons. Stat. § 1528. Finally, a sample bank resolution in Microsoft Word Document format authorizing the officers to open a bank account for the corporation.

       The price you issue your stock certificates for will depend on how much initial capital you need to have in your corporation. You can always contribute more and increase the shareholder’s capital contributions account, but if you don’t understand that concept you’ll want to hire an accountant. Make sure you fill out the stock certificate correctly by filling in the shareholder’s name and address, the number of shares, the full legal name of the corporation, and the date. Have the President of the corporation sign the certificate and affix the corporate seal. The Secretary of the corporation should then record this information in the corporate stock ledger including the date the shares were issued, the shareholder’s name and address, the price per share, and the total number of shares. You may also want to track the shareholder’s Social Security number, especially if you’ll be electing S corporation status (you’ll need all shareholders’ Social Security numbers).

10. Request a Federal EIN for the Corporation

       You can do this easily via the IRS online application. There is no fee and you can print your confirmation letter after you complete the application. The IRS will let you know which tax forms you will need to file and when. If you need help with the tax and accounting side of things, hire an accountant.

11. Take Care of Employee Hiring Paperwork

       Any time you hire an employee, there are certain steps you must take to gather information about them. Corporate officers are considered employees of the corporation. The IRS requires that you complete a Form I-9 (Employment Eligibility) and a Form W-4 (Withholding Certificate) for each employee. You don’t need to file these with the IRS, but you should keep them with your other records.

       Each state has new hire reporting requirements to enforce child support orders. Here is Pennsylvania’s New Hire Reporting website. You’ll need to report all employees (including corporate officers).

12. Open a Bank Account for the Corporation

       You should keep all of the corporations finances separate from your own. The best way to do this is to open a separate bank account for the corporation. You’ll most likely need your Federal EIN, a copy of your articles of incorporation, and either your own or the bank’s version of a corporate resolution. If your business is small and won’t involve a lot of financial transactions each month, you may want to look into a free business checking account. Just about every major bank offers a free business checking account, and your local bank may offer one as well. Check around to find one that suits your needs.

S Corporation Election

       If you’ve decided that becoming an S corporation is right for you, you’ll just need to fill out Form 2553 (instructions here)and send it in to the IRS. If you’re going to elect S corporation status, you should do it within 2 months and 15 days after filing your articles of incorporation in Pennsylvania. Federal S Corporations are automatically considered S corporations in Pennsylvania, so you’ll need to let the Pennsylvania Department of Revenue know if you don’t want to be taxed as an S corporation in Pennsylvania. Once you receive confirmation from the IRS for your S corporation election, send a copy to the Pennsylvania Department of Revenue to notify them. You should send notification to:

PA DEPARTMENT OF REVENUE
BUREAU OF CORPORATION TAXES
PA S UNIT
PO BOX 280705
HARRISBURG PA 17128-0705

       If you don’t understand the accounting and tax requirements for an S corporation, hire an accountant.

Ongoing Maintenance of the Corporation

       You should continue to hold the board of directors meetings and annual shareholders’ meetings as outlined in the corporate bylaws. Additionally, Pennsylvania law requires that certain records be kept at the corporation’s place of business. See 15 Pa. Cons. Stat. § 1508 for a list of the required documents. These documents must be made available to any shareholder who wishes to examine them.

Final Thoughts

       If you’re starting a simple one-person corporation, you can probably follow these steps and do just fine. However, if your situation is more complicated in any way you may want to hire an attorney. If you don’t understand the accounting and tax requirements of running a corporation, then strongly consider hiring an accountant to help you. It’s not worth going through all the trouble of incorporating if you’re going to neglect the requirements you need to meet to maintain the corporate veil of limited liability.

       I hope you found this guide helpful. If you have any suggestions or additional notes, please feel free to leave them in the comments section below.

In Work
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Negotiation Skills: How to Increase Your Salary, Lower Your Bills, & Avoid Bogus Fees

Corey —  May 18, 2010

       Negotiation skills are a powerful asset in life. Understanding how to negotiate will help you get raises and promotions, get a better deal, and get out of paying stupid fees. These five steps will help you learn how to negotiate better and smarter.

1. Prepare

       Before you begin negotiating (meeting with your boss or calling a company), take time to prepare for the negotiation. Think about what you want to accomplish and make it a concrete goal. “I want a 10% raise” is better than “I want more money”.

       Then, take some time to look at it from the other person’s point of view. Why should they be willing to give you what you want? In the case of getting a raise, have you proven yourself to be a valuable asset to the company? If you’re dealing with a business you buy from, have you been a customer for a long time or is it difficult to get new customers?

       The key is to list your accomplishments and reasons why you should get what you want. If you’ve saved your company money or taken on new responsibilities, write down exactly what you have done. Good examples would be “saved the company $20,000 a year by reducing waste in …” or “supervising ten more employees than last year”. Be ready to justify your request with reasons that will appeal to the other person.

       If you’ve been hit with a bogus fee, review your situation and be ready to explain what happened and why you don’t think you should be charged. If you were misinformed by an employee of the company, make that clear when you call. This is also why it’s smart to keep a record of when and to whom you speak when you call a company. You can easily reference the conversation and the person if a problem arises in the future.

2. Choose the Right Time

       Timing can greatly help your changes of negotiating successfully. If you’re asking for a raise, try to do it right after you finished a major accomplishment or as you take on new responsibilities. Your boss will have a difficult time overlooking the current circumstances – making it easier to give you a raise.

       Trying to get a better deal on your cell phone? Wait until your contract is just about to expire. (This works for other bills, too.) Businesses often spend quite a bit of money to get customers, so they’ll often do what they can to keep you. Negotiating when you’ll have the option to cancel gives you more power.

3. Be Firm & Confident but Polite

       Even if you are nervous or unsure, act confident and be firm as you negotiate. Weakness (real or perceived) puts the negotiating power back in the other person’s hands, so avoid it at all costs. This simply means you should not act timid when making your request. If you know you deserve a raise, act like it!

       However, this doesn’t mean you should be rude. Nobody likes a jerk. If you become hostile or impolite, people may refuse your request simply because they don’t like you. Be pleasant, kind, and patient and you will be rewarded.

       Another strategy is to use praise to your advantage. When negotiating a raise, show that you enjoy working there and are aligned with the company’s interest. If you’re trying to get a good deal with a company, comment on how you’ve enjoyed using their product in the past. Let people know you appreciate their time and help and they’ll be happy to help you again.

4. Be Ready to Respond

       You should be ready to respond to any number of reactions you get. If the answer is yes, then express your thanks. If the person needs to get someone else’s approval, let them know you appreciate their support. If the answer is no, things get a little trickier.

       If you’re trying to lower your bills or get rid of bogus fees, don’t give up at the first “no”. Restate one of your reasons for why you should get what you’re asking and follow that up with a leading question. Here’s an example: “Well, I’ve been a customer for 3 years and I’d hate to have to switch to [competitor]. What can you do to help me lower my bill (or get this fee waived)?” Do not follow up with a question that can be easily answered with a “yes” or “no”. Push for a “what else” or “how” type question rather than simply saying “Are you sure?” or “OK”.

       Dealing with your employer is a bit different because you don’t want to be so pushy you lose your job. If you think your boss is being unreasonable in denying your raise (i.e., you actually do deserve it), don’t be afraid to ask for more details and insist on your accomplishments once again. Be polite but firm. “After saving the company $25,000/year and increasing efficiency by 15%, a 10% raise is a reasonable award. In addition, comparable positions pay 20% more than my current salary so it is still good for the company.”

       If your boss still won’t (or can’t) budge, offer some alternatives that might not cost more money but are still beneficial to you. Increased vacation time, flexible hours, or the option to telecommute one day a week are a few examples. If these don’t go over well, ask for concrete goals you can achieve to earn a raise and get an appointment to renegotiate in a few months.

5. Be Ready to Walk Away

       Finally, you must be prepared to walk away if necessary. If a company won’t offer you a discount, let them know you can get a better deal elsewhere (be specific) and thank them for their time. That’s often enough to get what you ask for right away (but you shouldn’t abuse it).

       If you are significantly underpaid, work very hard, and have not been able to get a raise, be ready to leave your employer and go elsewhere. I wouldn’t use this as a negotiation tactic though. Even if your current employer offers to increase your salary, they’ll know you aren’t loyal to the company and they may look to replace you. Your best bet is to start looking for a new job without letting your current boss know. Turn in your resignation after you have a firm offer from a new employer and move on.

These Tips Do Work!

       If you think these tips don’t work, I’m proof that they do. Using these strategies, I’ve gotten 10% raises, lowered several of my bills, and had bogus fees waived several times. Again, preparation and confidence are key. You must know why you deserve to get what you’re asking for and be willing to push for it if necessary. Many times, simply asking will get what you want because so many people fail to take that step.

       Have you successfully negotiated a raise, lower bills, or fee waivers? Share your tips and stories in the comments!

In Budgeting, Debt, Frugality, Insurance, Psychology, Work
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Preaching Christ Crucified

Corey —  May 11, 2010

       I want to apologize.

       I want to apologize for anything I have taught that did not point to Christ crucified.

       If I have written about giving without emphasizing that giving does not make you righteous, I have missed the point. If I have ever implied that your generosity will please God, I have been wrong. If I have suggested that you can find contentment through your own power, I was in error.

       All too often in “Christian” personal finance (and Christianity in general), we fail to emphasize the fact that Christ accomplished all on the Cross. We can put heavy burdens on readers and listeners because we may teach that your choices and your determination will glorify God.

       There is a choice you must make. But that choice is not to change your heart of greed to a heart of generosity, your heart of laziness to a heart of diligence, or your heart of covetousness to a heart of contentment.

       The only choice you must make is to accept the forgiveness, grace, and mercy that Christ offers us through His death on the Cross for our sins. Until you accept that Gift, nothing will make you right before God – in your finances or any other area of your life.

       Tithing will not make you holy. Generous, sacrificial giving will not make you righteous. Contentment will not bring you salvation. Diligence cannot save your soul. Only Christ can.

       The evidence of a Christ-filled life is not in your choosing to be generous. Generosity flows out of your choosing to follow Christ. Contentment does not come by your choosing to live simply and reject consumerism. Contentment comes from your choosing to focus solely on Christ and the rich Gift He gives.

       If I ever teach that you will glorify God through your finances by doing certain things, living a certain way, or giving a certain amount, I am wrong. You will glorify God through your finances as Christ lives in you and pours out His love through your life. Contentment, diligence, stewardship, and generosity will result as you look to Jesus’ example and follow Him – not as you make specific choices and fulfill certain objectives.

       Do not be misled by what I am saying. Faith without works is certainly dead. How can our response to Jesus be anything other than contentment, diligence, stewardship, and generosity? But neither are we saved by our works. And it is not our power that produces these good things within us. It is Jesus who saves us and the power of God’s Spirit that produces whatever good we see in our lives. This does not relieve us from responsibility for our actions. We are called to seek holy lives in light of our new life in Christ. If we are not following and obeying Jesus, how can we call ourselves His disciples?

       I ask you to keep me honest to this truth. If you see me teach anything other than Christ crucified, call me out on it! If I teach that you will please God by doing specific things, remind me that God is pleased when we listen to His Son and follow Him. Yes, this requires action on our part. But it is action that flows out of faith (faith that works) – not action that precedes faith or salvation. Show me my error and refute it. Do not allow me to continue in a lie or lead others in it either. I pray that we may all remember how powerless and fallen we are and that we will learn to rely only on the salvation Jesus gives and the example He taught and lived.

       22 For Jews ask for signs, Greeks seek after wisdom, 23 but we preach Christ crucified; a stumbling block to Jews, and foolishness to Greeks, 24 but to those who are called, both Jews and Greeks, Christ is the power of God and the wisdom of God. 25 Because the foolishness of God is wiser than men, and the weakness of God is stronger than men.

1 Corinthians 1:22-25 (WEB)

In Contentment, Giving, Personal Finance Bible Study, Personal Finance Bible Verses, Prosperity, Stewardship, Work
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Extreme Early Retirement or Extreme Generosity?

Corey —  April 29, 2010

       I recently discovered Jacob at Early Retirement Extreme. I’m not sure how I got there – maybe from this post at Monevator – but I’m glad I did.

       Jacob is a bit of an anomaly in our culture – he’s a retired 34 year old, but he’s not rich (based on typical standards). He was able to retire early by saving 70-80% of his income for five years. He did not make a ton of money during that time. I think his salary was around $40,000-50,000/year while he was saving. He simply lived very frugally and saved the rest. Now, he still lives frugally but no longer needs to work to cover his expenses. Despite the fact that he doesn’t need to work, he does – and he makes enough to cover his expenses.

Cheap Living

       Jacob lives on about $7,000 per year. He’s able to do this because he’s learned to live cheaply – especially when it comes to the major areas of most budgets (housing, transportation, food, etc.). He doesn’t have a car, finds cheap/free forms of entertainment, and eats healthy meals with little to no meat. He currently lives in an RV with his wife, but he admits it’s not a necessary choice to duplicate his results.

Should We Retire Extremely Early?

       I don’t highlight Jacob as an example to be followed for extreme early retirement. I don’t think early retirement as a goal in and of itself as admirable or desirable for a Christian. (I also don’t dismiss it as a goal because I can see how God could use a person in this situation for full-time volunteer work or missionary work – a self-funded missionary if you will.) I’m highlighting Jacob and his choices because he offers insights that Christians can use to question the cultural norms and make choices that can lead to extreme generosity.

       For example, Jacob’s views on housing, insurance, and “sacrifice” greatly coincide with my own. (I don’t really agree with him on investing, but that’s irrelevant.) He doesn’t see money as necessary to have fun or live comfortably. He avoids waste. He learns new skills so he can make and do more stuff himself. His approach to living cheaply so he could retire extremely early can be adapted by Christians who want to give generously.

       If you want to get a better feeling for what Jacob did and why, check out his frequently asked questions, about himself page, and about Early Retirement Extreme. You can also see his best posts of 2008 and 2009.

How Can We Use Jacob’s Examples to Honor God?

       What I ask is that you read his articles from the perspective of how they can help you better serve God in your finances. Unless God has a specific purpose for you retiring early, that’s probably not a goal that will glorify Him. But we can use the same ideas Jacob used to enable extreme generosity in our lives by reducing our expenses and questioning the cultural norms. If you find something particularly insightful or helpful on his website, please feel free to share it in the comments below.

In Budgeting, Contentment, Frugality, Giving, Retirement, Work
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Advice to a Young Professional

Corey —  April 22, 2010

Benjamin Franklin by cliff1066TM on Flickr       In 1748, Benjamin Franklin wrote a great little letter entitled Advice to a Young Tradesman. It’s packed with wise advice, but the language is outdated for most readers today. So without much ado, here’s an updated version of Ben Franklin’s “Advice to a Young Tradesman”.

TO MY FRIEND, Y.P.:

       You asked me for my advice, so I’ve written these tips for you. They worked well for me, and they’ll work for you if you’ll follow them.

       Don’t forget, time is money. Let’s say you can earn $200/day. Now if you sit and watch TV for half the day, you can’t count the $3 you spent for cable as your only expense. You’ve really spent – actually, you wasted – $100 besides that.

       Don’t forget, credit is money. If a man is late collecting the money I owe him, he’s giving me the interest that can be earned on it. This extra interest can add up if we’re talking about a lot of money.

       Don’t forget, money can compound. Money can give birth to money, and its babies can give birth to more, and so on. A hundred dollars used well can become two hundred. That two hundred can become four hundred, and so on until you have ten thousand dollars. The more money you have, the more you can make each time you use it well. Then your profits will increase faster and faster. But if you kill the goose that lays the golden eggs, you destroy all the eggs you would have gotten in the future. If you murder a hundred dollars, you destroy all that it might have produced, even ten thousand dollars.

       Don’t forget, that $1,825 a year is only $5 a day. For that small amount (which you can easily waste in time or money) a man with good credit could cover the interest on a personal loan of $20,000. That much money put to quick work by a diligent man gives a great head start.

       Remember this saying, “The man who pays his loans on time owns another man’s bank account.” If you always pay on time and as you promised, you’ll never have trouble borrowing more money. This can be very useful. After hard work and frugality, nothing brings more success to a young man than punctuality and justice in all he does. So never keep borrowed money an hour longer than you promised. A bad mark on your credit history could close the bank for a long time.

       Pay attention to even the smallest things that can affect your credit. If your creditor knows you’re working hard, he’ll give you a break. But if he sees that you’re being lazy and not trying to pay him back, he’ll be demanding you pay him back all of his money tomorrow.

       Your diligent work and long hours will show that you remember what you owe. It also makes you appear to be a careful and honest man, and that will improve your credit as well.

       Don’t live like everything you have belongs to you. Too many people with a credit card make this mistake. To avoid it, carefully track your income and expenses for several months. If you take the time at the beginning to track even the smallest things, you’ll have great results. Here’s why. You’ll see how tiny amounts pile up into larger amounts of money. Then you’ll know where you’ve wasted money and how you can save it in the future with very little inconvenience.

       Here’s what it boils down to. The way to wealth, if you really want to know it, is as clear as the way to Target. It depends mainly on just two things – diligent work and frugality. Waste neither time nor money. Make the best use of both. Without hard work and frugality you’ll get nowhere. But with them, you can go anywhere. The man who gets all he can honestly and saves all he gets (except what he needs to live) will definitely become rich. Provided, of course, that God (whom everyone should ask for blessing on their honest work) doesn’t have other plans for that man.

An Old Pro

In Budgeting, Debt, Frugality, Investing, Miscellaneous, Saving, Work
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You Don’t Need to Be an Expert to Be Successful

Corey —  April 20, 2010

       While knowledge isn’t really a hindrance to success, you don’t need to know everything to accomplish your goals. After you reach a basic understanding of an area you want to be successful in, you need to start taking action. Continuing your learning after that point is wise, too. But if you never act on what you learn, you’ll never be successful.

First, Learn the Basics

       This is especially true in personal finance. You don’t have to be a seasoned financial planner to begin finding success. You don’t even need to spend a ton of time to understand the basics. They’re simple. Spend less. Earn more. Save and invest. Be wise and cautious when making purchases (goods, services, or investments). Plan ahead. Don’t pay things you don’t have to (like extra taxes). And so on. A basic education is all you need to start finding success in your personal finances.

       You don’t need an accounting degree to make a budget. You don’t have to be Warren Buffet to start investing. You don’t have to go to law school to get your estate documents in place.

Then, Take Action

       Success in personal finance is not necessarily about knowing all the right answers. It’s about taking action. Those who only read about the benefits of budgeting will never be as successful as those who actually try to make a budget and stick to it. This is true even if the doers are not successful the first time.

       You can learn by reading about the experiences of others – but only so much. Until you start creating your own experiences, the information will just be knowledge in your head. You must start using it yourself!

       Don’t think I’m discounting the value of learning, education, and research. To be truly successful, you’ll have to keep learning. But you can’t get started on the road to success unless you follow a pattern of learning, doing, learning, doing, and so on.

Avoid Danger Areas!

       I’ll end with a few cautions especially true in personal finance. In some areas of personal finance, there are unscrupulous people who will try to take advantage of your lack of education. Insurance, investing, and debt are the most common places you’ll run into this, but you can really find it anywhere. Here’s the key: Before doing something, make sure you’re aware of the possible problems/pitfalls and educate yourself on how to avoid them.

       Here’s an example. In investing and insurance, you must be aware of how advisors and salesmen get paid. If it’s commissions, know what conflicts of interest might exist. In other words, learn how people might try to rip you off and be on the lookout for those techniques.

       Even though there are risks to the learn, do, learn method, you can avoid most major mistakes by learning first about the danger areas and how to avoid them. In personal finance, be aware of those who earn commissions, learn the math of debt, and read the academic research on investing.

Now Do Something!!!

       So get out there and start doing the needed things to achieve success. Stop reading about budgeting and do it! Stop worrying about having enough for retirement and start saving! Stop dreaming of starting your own business and do it! You’re never going to get anywhere until you take action.

P.S. I think I wrote this as much for me as for anyone else. I have the curse of perfectionism, and I must battle it every day. There is no such thing as perfect in this world. Only God is perfect. So I need to stop worrying about doing everything perfectly and just start doing. What about you?

In Budgeting, Debt, Estate Planning, Frugality, Insurance, Investing, Retirement, Saving, Taxes, Work
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Rethinking Retirement

Corey —  March 8, 2010

       Mike at The Oblivious Investor had a thought-provoking article titled Don’t Retire., which was inspired by Stephen Pollan and Mark Levine’s book Die Broke: A Radical Four-Part Financial Plan. Mike discusses why retirement as we imagine it today is probably an unreachable goal for most Baby Boomers and subsequent generations. Given the fact that many workers no longer receive pensions and don’t seem to be very good at saving on their own, I’d have to agree.

The History of Retirement

       The idea of retiring when you’re older is relatively new. It only seems to have become popular in the last century. There are several possible explanations for this, but the most likely ones are higher incomes (we enjoy a standard of living about eight times higher than Americans a century ago) and the creation of Social Security and pension programs (though the future of Social Security is unclear, and pensions are largely a thing of the past). If you’d like to read more about the history of retirement, I suggest these articles:

Economic History of Retirement in the United States (a more academic article)
The History of Retirement, From Early Man to A.A.R.P. (not quite as dry as the first)

       The truth is retirement was never really an option for our earlier ancestors. They didn’t have very long lives or the economic systems we have today. We also find no discussion of retirement in the Bible as we think of it today. There is one reference to the priests (Levites) retiring at age 50 from temple service, but they were to stay on to help the younger men (probably in giving advice and guidance). The only other semblance of retirement we see in the Bible is old men sitting at the city gate. The city gate was a place of honor, and those who sat there offered advice and counsel to those in the city. Again, the older people didn’t really retire but found other ways to serve their communities. Instead of working, they lived with their children and received support from them. But that’s rare today (unless you’re Amish).

How Should Christians View Retirement Today?

       Given the nature of the labor force today and the interaction of families, we do need to be saving for a time when we won’t be able to produce as much income as we can when we’re younger. Children are moving farther away from their parents for jobs or other reasons than they did in the past (or in the Bible). Several generations of a family living in the same house or very close to each other is no longer the norm. And the complication of health problems and other issues when you’re older can definitely impact your ability to earn income.

       However, the American view of retirement is far from God’s ideal for His followers. How does spending every day on the golf course, or sipping sweet tea on the back porch every day, or traveling the world for pleasure glorify God? The work of the kingdom of God is never ending. By focusing our entire lives on a retirement where we sit around, do whatever we want, and relax, we miss the picture of what God could be calling us to do when we no longer have to work as much to earn all of our money. On the other hand, a Christian retirement focused on contentment and serving God can allow for some leisure (just as during your working years) without neglecting the valuable work we can do to further God’s kingdom and show His love to the world.

       22 Then, turning to his disciples, Jesus said, “That is why I tell you not to worry about everyday life—whether you have enough food to eat or enough clothes to wear. 23 For life is more than food, and your body more than clothing. 24 Look at the ravens. They don’t plant or harvest or store food in barns, for God feeds them. And you are far more valuable to him than any birds! 25 Can all your worries add a single moment to your life? 26 And if worry can’t accomplish a little thing like that, what’s the use of worrying over bigger things?

       27 “Look at the lilies and how they grow. They don’t work or make their clothing, yet Solomon in all his glory was not dressed as beautifully as they are. 28 And if God cares so wonderfully for flowers that are here today and thrown into the fire tomorrow, he will certainly care for you. Why do you have so little faith?

       29 “And don’t be concerned about what to eat and what to drink. Don’t worry about such things. 30 These things dominate the thoughts of unbelievers all over the world, but your Father already knows your needs. 31 Seek the Kingdom of God above all else, and he will give you everything you need.

Luke 12:22-31 (NLT)

       We are not to seek a life that’s merely full of the pleasures of this world. God calls us to seek His kingdom first. When we put our focus on God and trust in Him, we no longer have to worry about our retirement accounts, government policies, economic disasters, or any other worries. When we have the glorious gift of Jesus Christ, we remain wealthy despite what happens to us in this life. We have riches that cannot fail, that cannot disappear, and that will never leave us—even after death.

A Different Retirement

       I’m not saying you should stop saving and investing for the future. There will most likely come a time when you will not be able to earn all the money necessary to cover your needs. It is prudent and wise to save for such a time, and the Bible commends and encourages such wisdom. But you should rethink your hopes of buying that second home, taking luxury cruises three times a year, or endless rounds of golf during retirement.

       A Christian can most definitely follow God’s teaching and will if they save up for retirement and reduce or eliminate their workload. But a Christian retirement should be focused on meeting your needs (not extravagant needs, but your daily bread—just enough) and then using your abundance of time to do God’s work. Minister to the needy, volunteer more, visit the sick and those in prison, comfort those in mourning, reach out to those on the margins of society, pray and study God’s Word—these are all wonderful activities to fill a Christian retirement. But seeking a permanent vacation, a time when you do little that is useful or glorifies God, is only a product of greed, selfishness, and the World—it is a tool used by Satan to distract you from furthering God’s kingdom. Flee from it, and seek God’s counsel for your older years. Ask Him to guide you and show you His ways so that you can continue to glorify Him.

The Results

       This new view of retirement has profound implications for your life—now and when you’re older.

  • You no longer need to be obsessed with saving and investing all of your money. You’re free to be extremely generous—following God’s teaching on giving. You won’t have to save as much, but you should still save prudently.
  • You will avoid the depression that often comes at retirement. Many workers realize they actually enjoyed the interaction with their coworkers or the public and feel lost after they retire.
  • You’re free to do work that you enjoy even though it may not pay well. You don’t have to run after the highest paying job just so you can secure the retirement you’re told to dream about.
  • You don’t need to be a workaholic. You can focus on family and serving God during your working years—glorifying God much more than if you spent 80+ hours a week working. This also leaves you with more time to develop your relationship with God.

       Seeking a retirement where you can glorify God even more than you did while you were working brings you much closer to God than a retirement where you spend every day out on the boat. I challenge you to reconsider your ideas about retirement. Rethink retirement, and pray for God to show you what His will is for the later years of your life. Let God transform and renew your mind—clearing out the messages the World and Satan have planted there and putting His teaching and will in your heart. Then plan and save for a retirement that glorifies God.

In Contentment, Retirement, Work
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