how to

How to Break the Cycle of Making Bad Financial Decisions by Paco de Leon

Even if you have all the right practical, rational information, when you're in a state of fear, anxiety, or stress, it is impossible to make sound, rational decisions. These states are innately emotional states where cognition is bypassed. When you're afraid, a part of your brain (amygdala) releases hormones that prepare your body for a "fight or flight" response. Humans struggle with having control when we're in these states because the amygdala has few connections to the rational parts of our brain, like our cortex.

Read More

How to Pay Yourself From Your S Corp: What is a Reasonable Salary? by Paco de Leon

So you’ve discovered that tax saving wonder known as the S Corp. You’re ready to start kicking the tires by learning what this “Reasonable Salary” thing is all about. Let’s discuss what it means, why it matters, and the best way to find yours.

A reasonable salary for an S Corporation's shareholder-employee is the part of their compensation that must be treated as employee wages. The IRS requires you to be paid an appropriate wage for the services you provide your corporation because provides needed funding for Social Security and Medicare. It’s best to work with an experienced tax professional to set your optimal reasonable salary, but this article will be a great primer to get acquainted with what a reasonable salary is.

Read More

How to Feel Better About Spending Less by Paco de Leon

In 1930, John Maynard Keynes, who is considered the father of modern economics, wrote an essay titled, Economic Possibilities for Our Grandchildren. In that essay, he describes his prediction for what life would be like for future generations. He predicts that economic prosperity will be so great and abundant that our need to work across all of society will diminish. And since the vast majority of people will no longer need to "sell themselves for the means of life," he warns that humanity's next great challenge will be how to look forward to and not dread the "age of leisure."

While he predicts there will be some people who have an "intense, unsatisfied purposiveness" that causes them to continue to pursue wealth blindly, he goes on to imagine that the vast majority of society will have a shift in moral codes. That we will recognize that loving money as a possession, as opposed to as a means for the realities and enjoyments of life, will finally be collectively viewed in the harsh light of truth; that it is disgusting, morbid, semi-pathological and semi-criminal.

Read More

How to Absorb Inevitable Financial Shocks by Paco de Leon

Imagine that your financial life is a sandcastle you’re building on the beach. You can learn what works for building it up, and in the good times, when the threats to your progress are manageable, you take for granted that it’s easier to build in those conditions. Now imagine the tide rising, the waves start coming in, getting closer and putting your sandcastle in danger of being damaged or worse, being washed away. In this analogy, the tide is a financial shock. The thing about the tides - and economic shocks - is they will always come in. Sometimes very quickly and suddenly as if out of the blue and other times, you can feel it gradually creeping in. Experiencing a financial shock is not a matter of if; it’s a matter of when and to what severity. Shocks can come in the form of global recessions, pandemics that freeze the economy, you lose your job, your kid getting very sick, a parent dying, the industry you’ve worked in for decades slowly getting cannibalized by new technology or war.

Read More

How Not to Freak Out About Your Finances During a Global Pandemic (or Any Crisis) by Paco de Leon

In the financial world, we call things like the current pandemic a black swan event. A black swan is an unpredictable event with potentially severe consequences. The name comes from the rare sightings of black swans in nature. They exist, but seeing them is exceptional. So while the financial world has terms for these types of events, how we deal with them isn't always the same. Take the 2008 housing crisis. It was the result of a perfect storm of things: sub-prime mortgages, derivatives, hubris, and the lax, or often fraudulent practices within the real estate, mortgage and lending sectors. Finding a way out of the crisis was terrifying, but pointing to the causes gave us a sense of certainty.

I want to be clear: what we're experiencing today is very different from the housing crisis of 2008. Although there is one similarity: we didn't have a playbook for dealing with the crisis then, and it goes without saying, we don't have one today. While it's true, the world has experienced pandemics in the past, our modern economy, in all of its globally connected glory, has not experienced something of this scale. I have no idea what is to come in the approaching days, weeks, or months. I'll do my best to help you all understand our changing reality through the lens of money, finance, and economics.

Here are my thoughts on how to not freak out about your finances during a global pandemic.

Read More

Here's How to Outsource Your Bookkeeping: A Practical Guide by Paco de Leon

Bookkeeping isn't that fun. Seeing how much money your business made and watching profitability grow can be fun. But the actual act of accounting is mildly satisfying, at best, and frustrating to the point of tears, at worst. Even though bookkeeping software has become user-friendly, you still might end up making costly mistakes if you don't have some accounting chops to help you understand how to troubleshoot and fix things.

It's probably time to outsource your bookkeeping if any of the following are true:

  • You've tried to set up your chart of accounts, only to quit after getting stuck deep inside a Google hole.

  • You can't figure out why the bank balances don't match, and so you never reconciled your accounts.

  • Your business is doing so well that you don't have time to sit down and focus on the bookkeeping.

Read More

How to Have a Smooth and Worry-Free Tax Season by Paco de Leon

Written by Luke Frye

Tax time is coming again — you can feel it, can’t you? Like a vibration on a train track.

It’s unstoppable, yes, but that doesn’t mean you have to be flattened. Learning about how to handle your taxes is the best way to avoid a nightmare scenario. The good news is that there are some basic principles, and it doesn’t take a wizard to learn them.

Here are four ways to have a smooth tax season, no locomotives involved.

Read More

How to Have a Better Relationship with Money by Paco de Leon

Everything is connected. Your relationship with money impacts both your inner world and your external world. In your outer world, outside of you, your feelings about money can impact how you see the world, how you act in the world, and how you interpret experiences in the world. In your inner world, your relationship with money can impact how you feel. You cannot wholly compartmentalize your financial life; as much as you may have convinced yourself you can. How you feel about your financial life and your relationship with money, impacts how you feel about yourself. How you think about yourself affects the choices you make. And all the choices you make, create who you are, what you're able to do, and who you will allow yourself to be.

Read More

How To Keep Receipts For People Who Hate Keeping Receipts by Paco de Leon

I moved to LA when I was 22, having just landed a job as an assistant at a boutique business consulting firm. Part of my job was driving around Los Angeles to run all sorts of errands. I'd deposit checks for clients at various banks all over town. I'd go to the post office to send tax returns via certified mail. I'd pick up lunch for the office, and go shopping for my boss. Keeping receipts for everything was easy. I didn't have very much responsibility, so whenever I got back in the office from one of my field trips, I had time to organize all the receipts. It was easy to make it a priority, especially when I had an employer who was in charge.

If you fast forward to recent years, I had gotten considerably crappier at keeping my receipts organized. For an embarrassingly long time, I was finding faded receipts at the bottom of my backpack or crumpled up in my back pocket, or the worst scenario of all - some would be lost and never found.

Read More

Your Cash Is Losing It's Value. This Is What You Can Do About It by Paco de Leon

How many times have you thrown a penny away? Like you saw a penny on your desk, or you got it as a change, and instead of putting it in your pocket to use later, you throw it in the actual garbage? I'm not trying to judge you; I'm just trying to illustrate how the penny has lost its value over time.

In 1909, you could buy a copy of the New York Tribune for one cent. And in 1932, you could travel a mile in Southern Railway System. And I'm sure you might have heard a grandparent speak of buying candy at a local five-and-dime for a penny.

How does a penny go from getting you an entire newspaper to being so annoying that you'd rather throw them away than carry them around?

When money becomes less valuable, it's usually due to inflation.

Read More