Low-cost help for the self-employed

Dear Liz: I read with great interest your recent advice for the struggling self-employed. I was curious, though, why you did not mention Small Business Development Centers as an option for them to explore.

The Small Business Development Centers are a national group of affiliated centers that are sponsored by grants from the Small Business Administration and various colleges and universities. The centers provide free consulting to owners of small businesses in the areas of law, accounting, grants and loans, Web design, marketing, green optimization, import-export, business-plan writing and related areas. They also give low-cost, three-hour classes in these areas for time-pressed businesspeople with limited resources.

Answer: Thanks for highlighting this wonderful resource, which helps more than 1 million small-business owners every year with free, one-on-one consultations and low-cost training. Readers, you can find out more about these centers at the Assn. of Small Business Development Centers’ website at http://www.asbdc-us.org. You can search by ZIP Code or state to find a center near you.

Money priorities: Put retirement savings first

Dear Liz: It’s still not clear to me how I should prioritize saving for retirement, paying down (massive) student loan debt and buying or building a modest house, even though I have read a number of your articles and answers to many other readers’ questions. Once I pay off what is left of my credit card debt and build up an emergency fund, what then? Do I put retirement first, paying down student loans second and a modest house last? Or should I pay my student loans last — for instance, by opting for an income-based repayment rather than the higher, regular payment amount and going for the house instead?

Answer: You should put retirement saving first now, even before you pay off your debt. If you don’t get a relatively early start putting away money for retirement you’re unlikely to be able to catch up later. Those who start saving after age 35 have a very tough time putting away enough money to comfortably retire, says Roger Ibbotson, founder of Ibbotson Associates financial research firm and a Yale School of Management professor. The ideal time to start saving for retirement is with your first job.

Prioritizing retirement means you’ll have less money for other goals, so paying down your debt and building up an emergency fund will take longer, but so be it. The amount of extra interest you pay on your debt will be overshadowed by the tax breaks and investment gains you’ll make in the long run in your retirement accounts.

After paying off your credit card debt, your next goals will depend on your individual situation. If all your education debt is federal student loans rather than private loans, then you needn’t be in a rush to pay it off. That’s because federal student loans have relatively low, fixed rates and many flexible repayment options. You also may qualify for student loan forgiveness in 10 years if you work in public service or 25 years if you don’t. An income-based repayment plan would allow you to minimize your payments so you could put money toward other goals. You can research your repayment options at FinAid.org, a financial aid and student loan education site.

If, on the other hand, you have some private student loans, you’ll probably want to make paying that off a priority since the rates are variable and you don’t have as many repayment options. (You probably wouldn’t be able to make income-based payments, for example.)

When to prioritize a home purchase depends, again, on your individual situation. If you’re sure you’re where you want to be for the next 10 years or so and are eager to own a home, you could start a down payment fund as soon as you finish paying off the credit card debt.

Gift lists may stave off gift cards

Dear Liz: I recently read your article about why gift cards aren’t really gifts. Now I know I am not the only one who feels that way. I seldom give gift cards, especially at Christmastime. Whenever I have, I haven’t really felt good about it. I like the thinking and planning it takes to find a special something for someone. My two grown sons love gift cards, but I am trying to get them to see that it is shallow giving indeed. Yes, it is difficult finding a gift for someone sometimes, especially of the opposite sex. That’s why in my family I always insist on a Christmas list with at least five items. It helps. Thanks again for putting into words so wonderfully what I had been feeling about gift cards.

Answer: Many people love to give and get gift cards precisely because they circumvent the thoughtfulness and planning you so enjoy. But others use them to cope with near-impossible gift situations, such as the following:

Gifts for troublesome relatives

Dear Liz: I have to disagree with you on the gift cards. When you have a mother-in-law who responds to “What would you like for Christmas?” with a list of things not to buy, I think a gift card is in order. I have often taken the “not to buy” list and worked from that, but usually what I buy her then ends up on next year’s “not to buy” list. If not gift cards, then what?

Answer: How about a donation to a charity in her honor? She’ll hate it just as she hates every other gift you’ve gotten her, but at least you could get a tax deduction for your trouble.

3 things to do by midnight tonight

You have just a few hours left to make these money-smart moves:

Spend what’s left in your flexible spending account. FSAs are workplace plans that allow you to save pretax money to cover medical expenses not paid for by your insurance, and many require that you incur eligible expenses by midnight Dec. 31. Furthermore, starting Jan. 1, you will no longer be able to use your FSA money for over-the-counter drugs without a doctor’s note. So today’s the day to stock up on aspirin, decongestants, first aid kits and other soon-to-be-ineligible expenses (for Aetna’s list per the IRS, click HERE).

Make those last charitable contributions. If you itemize your deductions, you can get a tax break for giving to legitimate charities by midnight. You can charge the donation today with a credit card; as always, just make sure you can pay the bill in full when it arrives. Check out the charity at Charity Navigator or similar sites. Bankrate has this article on getting the most of your charitable deductions.

Boost your retirement contribution. If you pay Social Security taxes, you’ll be getting a one-year, 2% tax cut starting Jan. 1. Consider using that break to boost your 401(k) or 403(b) contibutions. If you’re at work today, you can arrange that with your human resources department. Otherwise, make a note on your calendar to do so as soon as you return to work.