|
|
Truckers' Bucks
Saving paves the road to financial security.
By Mardy Fones
The truth about saving and building a life that's financially secure is this — you do it day by day and one dollar at a time. There are no tricks. No secret formulas. No clever, get-rich-quick schemes that magically transform the average driver from a person on the road to a person on easy street.
Even so, a national poll done by the Consumer Federation of America and Primerica, a financial services firm, found that 51% of Americans who made $35,000 a year or less believe they have a better chance of accumulating $500,000 by winning a lottery or sweepstakes than by saving and investing. According to a CFA representative, the net result, when combined with high credit card debt, is that half the nation's households have less than $1,000 in net financial assets.
It doesn't have to be that way.
A Saving Primer
Living month-to-month, paycheck to paycheck is a familiar approach for many in the business of driving loads from here to there. And with good reason. The industry focus is on the short-term, the next load, on this week's schedule. But, while you're busy worrying about tomorrow, planning for next year or for 20 years from now seems only faintly urgent. But without savings and without a personal plan, many drivers are one check away from personal and professional financial disaster.
According to Randy Schoen of Q-Carriers, a trucking firm based in Shakopee, Minn., "The biggest problem with truckers is they don't have a plan. That contributes to living week to week or month to month." Q-Carriers includes as part of its driver orientation a program designed to teach truckers how to manage their business and personal finances.
"It starts out with a budget sheet that lists all their personal and business expenses so they know what they have to have to cover living and business expenses and expenses down the road," says Schoen. Money set aside for savings to meet immediate, unexpected expenses as well as for long-term goals such as a home, college for the kids and retirement are essential parts of the budget.
"You can't develop the habit of saving unless you budget," observes Todd Spencer, president of the Owner/Operator Independent Drivers Association. "If you don't have savings, hard times are imminent." Those hard times could take the form of having to provide for the care of an elderly family member or an injury to a child. They could be a natural disaster that devastates your home or truck or an accident that puts the driver out of commission and the truck off the road.
"It's absolutely critical," says Spencer, "to have savings for truck maintenance and expenses and to realize those expenses vary, depending upon the age of your truck." So while a new truck may only cost 10 to 12 cents a mile in maintenance, an older truck can set you back more. He says that needs to be balanced against the fact that while the payment on an older truck may be lower, the repair costs will be higher.
"If you're going to be a successful owner/operator, you have to understand the difference between fixed and variable expenses," says Spencer. "Some people believe it doesn't cost them anything if their trucks aren't on the road, but that's wrong, because they have fixed expenses such as truck and trailer payments, insurance, licenses and registration fees, highway use taxes, and all the others. Those are costs you have to deal with every day, whether the wheels move or not."
He says the rule of thumb for people in non-trucking jobs is to sock away cash equal to three to six months of expenses. He advises truckers to look seriously at that figure and then adjust it for their own personal and business situations. "Truckers will have more expenses," he says.
Saving for a Rainy Day
Saving, say the experts, is multi-faceted and ongoing. While it means setting aside predetermined amounts of money for short and long-term goals, it also means looking for ways to reduce existing expenses.
That's where somebody like Dave Weckerle of Blair Tax Consulting, Vero Beach, Fla. (888-882-5247, or www.blairtax com), comes in. He specializes in doing the state and federal tax returns for people in the transportation industry and says paying attention to the details can save drivers big money over time.
"I tell drivers I want a receipt for every single thing they buy when they're on the road," says Weckerle, who jokes about the number of receipts he gets "with a foot print in the middle, 'cause a driver was trying to keep it from flying out the window. And if the wife gets paper towels and Windex to clean the truck, I want to see that receipt, too," he says.
If you use the family car to pick up parts for the truck, there's an available mileage deduction at a rate of 32.5 cents per mile. That goes for everything from new floor mats to load statements, quarterly tax payments, service charges and the driver's truck lease or purchase agreement and insurance. Again, keep records.
Then there's the question of whether to incorporate. "There's no real advantage for an individual driver to incorporate," says Weckerle. For one thing, he notes that at Blair, tax preparation for an individual is $594 a year. Once the driver incorporates, the tax-preparer's work increases dramatically, so that figure jumps to $1,500. "But once the driver gets a second truck on the road and hires someone to drive or hires someone with a truck to drive for him, it's important to incorporate because it, in part, will protect him in the event of a law suit," says Weckerle.
Even decisions as simple as whether to own your own trailer can affect opportunities to save. "What you have to remember is that most carriers will add 10% to the line haul to cover the cost of an owner/operator's trailer," says Weckerle.
"That 10% won't cover the cost of trailer maintenance. In my experience, 80% of the time, within a year of buying a trailer, it goes up for sale because the driver can't afford the upkeep. In selling it, the driver's out the expenses and the value of the trailer has depreciated." The lesson? One way to save money is simply not to spend it, he says.
Behold, a Miracle
Smart business practices on the road and a conservative lifestyle at home can provide the liquid capital necessary to do serious saving. Saving is a habit you can't afford to break. Financial professionals say the key is just do it.
So, use your budget to figure how much you can save each month and make that deposit no matter what. Never miss a month. Never cutback. Never promise you'll make it up next month. It gives a whole new meaning to the concept of "paying yourself first."
Think you're too young to start saving for a home or retirement? The fact is, the earlier you start saving, the more you benefit from the phenomenon some people call the "magic of compound interest." According to CFA and Prima, it works like this: If you saved $25 a week and invested it weekly for 40 years at 7% interest, it would yield more than $286,000. And if those savings were increased to $50 a week at 9% interest, the total would be more than $1 million. The bottom line? Even small deposits made at moderate levels of interest multiply over time to yield substantial results.
According to Howard Abrams of PBS Tax and Bookkeeping, in Los Angeles, Calif., (800-697-5153, or www.pbstax.com) saving, especially for retirement, has a double impact. "Retirement planning is one of the best ways to save money on taxes and at the same time build up a nest egg," says Abrams. "Depending on the retirement plan you develop, you can often deduct the money you put aside from your income tax." This benefits you now as well as when you retire.
Tucking some money away in a traditional savings account may be a good plan for cash to which you want immediate access in case of an emergency. But Abrams says it's not a path that will lead to significant returns. "You need to protect yourself from inflation, and money in the bank that's only earning 3% to 5% interest doesn't do that."
Because each driver's financial and family situation is different, Abrams recommends a variety of saving approaches and advises drivers to explore all the options and choose ones right for them. "If you have a Keogh [retirement plan], you can put up to 20% of net income away," he says. "Then there's something new called a SIMPLE account. It allows you to put away up to 100% of earned income up to $6,000."
Individual Retirement Accounts (IRA), both traditional and Roth, are other potential saving tools. "The Roth IRA doesn't provide an immediate tax deduction," says Abrams. "But when you take the money out, it's tax-free." In contrast, tax is due on a traditional IRA when you take it out. Both plans allow individuals to save a total of $2,000 a year. Couples can save $4,000.
Which plan is better for you? Abrams offers these general parameters. "If there's a trucker who is young, 30s to 40s, and he's in the 15% income tax bracket, I'd say go with a Roth. If he's in the 30% bracket, I'd say it's debatable, maybe yes if he's still young. If you're over 40, go with a traditional IRA. If you're unsure which to choose, talk with your tax advisor." The simplified employee pension plan is another possibility. Also known as SEP-IRA, it allows you to set aside up to 13% of your net income if you are an individual and sole proprietor, says Abrams.
Worried about paying for college for your kids or other family members? The Education IRA is another saving approach. It allows families to begin protecting funds for a child's college education from the day the child is born. Whether it's a better approach than other techniques is unclear. However, it can formalize your saving plan. It also includes options that let other family members set up such accounts and siblings to tap funds unused by others in the family.
No matter which option or combination of options you choose, Abrams notes. "You're better off to save something rather than nothing because in retirement, you won't be able to depend on Social Security ." While experts quibble over the viability of Social Security in the long haul, what isn't debatable is that Social Security was never intended to fully fund anyone's retirement. Since inception, it was earmarked to supplement one's cache of retirement dollars.
"If you think you don't have any money to save, look at it this way. You survived (without the extra cash) before because you were spending it. That also means you'll survive now by saving it," says Abrams.
Are You 401(k) Okay?
Some trucking firms make it easy for drivers to save for retirement by offering a 401(k). While employer-sponsored 401(k)s differ from one another, they have in common the saving incentive of allowing employees to contribute pretax dollars to an interest-bearing fund. In many cases, such as at Superior Carriers, Oak Brook, Ill., the company matches a portion of the employee's contribution.
According to Diane Wright, a human resources administrator at Superior, about 82% to 87% of the company's full-time drivers and others who meet certain criteria participate in the 401(k).
"With a 401(k), any employee can get immediate tax relief because contributing to it lowers gross earnings," she says. "So if you made $50,000 and put $2,000 away, your taxable base is $48,000. If you're in a 28% tax bracket and have $100 a week paid into your 401(k), only $76 is actually withdrawn because there's no tax on that portion."
Superior matches driver contributions at a rate of 50 cents on dollars up to the first $1,200 contributed in a calendar year. "So, if you put in just $23.08 a week you'll come up with a full $600 in matching funds," says Wright.
"When an employee's total contributions equal $1,200, at the end of the year, they'd end up with $1,800," she explains. Superior's plan allows employees to contribute between 2% and 15%, based on gross wages. Penalties can apply if the employee withdraws the money before retirement, although exceptions may be made such as in the case of high medical bills.
"We've had our 401(k) since 1987 and some of the people who started out with it then now have well over $250,000 invested," says Wright. It's that growth that motivates employees to get involved and stay there, she explains. She urges young employees who are reluctant to chip in to just give it a try at $5 a week. "It's the cost of lunch," she says. "How can you go wrong? And you sure don't want to pass up on the matching money from the company."
In the Bag
Two drivers build financial security, a dime at a time.
Make a dime, spend a dime — handle your money that way and you'll never get ahead, says Ralph Jordan, 44, president of Jordan Trucking Inc. in Los Angeles. "In this business, you've got to have capital set aside to work with. If you call that savings, yes, well, then I save. But my relatives just call me cheap."
The financial slander of family aside, Jordan says he cultivated the saving habit early and has never regretted it. "I've always tried to be prepared because in this business, you never know what's coming down the road — breakdowns, blowouts," he says. "If you're not financially prepared, you can go belly up."
It's a matter of looking at the big picture, declares Dave Mayavski, an owner/operator leased to Q-Carriers, St. Cloud, Minn.
"The wife and I are careful about budgeting. We've paid off all our credit cards, and I use a debit card while on the road," he says. He explains that a debit card looks and works exactly like a credit card, but it draws funds from his truck account to pay for fuel, repairs and other work-related expenses.
The result? He always knows exactly where he is financially and doesn't have credit card bills or the high interest charges that can accompany them.
Jordan has three trucks on the road and incorporated his business in 1999. He takes a strategic approach to money. "A lot of drivers think because they can get $6,000 for a cross-country run, that's $6,000 in their pocket, but you have to figure in the overhead.
"If it costs you $4,500 (in fuel, repairs and depreciation on the truck), you're really only making $1,500." And then you've got to find a load to pay for the return trip, Jordan adds.
Jordan says incorporating made good financial sense. "My revenues had been going up and up, but as a single entity, I was paying taxes on all that revenues. Now, that income comes in under the corporation and the corporation pays me a salary," he says. Incorporating helps separate personal assets from business assets, and protects personal assets if legal action were taken against the company.
Budget basics
Carefully calculating monthly business and personal expenses is the key to saving, say both men. "I know exactly which bills are coming in, how much I'm spending on gas and tires and maintenance," Jordan says.
"So all I have to do is bring in a gross revenue greater than the overhead. I'm not comfortable calling that savings. It sounds too official. The way I figure it, if I'm not spending (the difference between income and budget) than I must be saving," Jordan says.
Mayavski says his budget calls for putting about 50% of his earnings into supporting his family. "Of the other 50%, 75% goes into the truck account and 25% into savings," he says.
Via online banking, Mayavski stays on top of his personal and business finances on a daily basis. Along the way, he's educating his 8-year-old son about money by paying him to do odd jobs around the house. "If he wants to rent a Nintendo game, he knows he has to pay for it himself. I want him to understand the value of a dollar. That's an important lesson for kids to learn," says Mayavski. He admits he's lucky his son's grandparents have made an investment in the child's name for college tuition.
Neither man claims being fiscally responsible is easy or even fun. "Sure, I get tempted to spend," says Jordan. "I see new Peterbilts and get enough offers for credit that I could go and buy whatever I want. But I know if I spend $115,000 on a truck, it has to be paid for. Sure, I'd look good in a new truck, but just because it goes down the road and is shiny doesn't mean it's the best thing for me."
Revving Up for Retirement
Both men take seriously the need to set money aside for retirement. "If I.don't look out for my future with my Keogh and stock investments, I'll be out on a spider web. I'll get to the end [of my working life] and there won't be anything there. Then it would be shame on me," says Jordan, who has both a Roth and a regular IRA.
"Saving is a struggle sometimes," Jordan says. "What with the fluctuation of revenues and the seasonal nature of this work, you have to be prepared. And when you know you have a nest egg to fall back on, well, it makes you feel pretty good." He estimates he socks away 20% of his income into savings.
Look at the big picture, says Mayavski. He's been down the free-spending path and confesses until he married nine years ago, he pretty much lived from paycheck to paycheck. Now he has an IRA which he fully funds with $100 each month plus a portion of his annual bonus.
His wife, who is fully vested at the auto parts company where she works, has a profit-sharing plan that helps feed the family's retirement plans. "You've got to be on top of your money and not spending it all the time," says Mayavski. "That means keeping your eye on the big picture."
Tips for Personal Financial Management
If you're ready to begin saving, here are the fundamentals from David Rye, author of "1,001 Ways to Save, Grow and Invest Your Money" (Career Press Inc., 1999). This and other books meant to help average people build a strong financial future are available at bookstores and public libraries. Here are the basics:
Save Every Month Even if it means doing without something.
Stay Out of Debt Trash credit cards and pay cash, or do without.
Be Insurance Savvy Shop insurance rates. Look for companies or policies that give reduced rates based on profession or lifestyle.
Minimize Taxes Get advice on ways to reduce the tax bite.
Don't Let College Expenses Sink You Start planning early for college costs. Options include an Education IRA, federal grants and school-sponsored programs.
Minimize Spending on Cars Keep your current vehicle running well; considering replacing with a low-mileage, used vehicle.
Buy a Home A home can be a terrific investment. It can be a tax shelter now and an anchor in your retirement plan.
Invest Wisely Stop looking for get-rich-quick schemes. Instead, read up on stable investments that also can be tax shelters.
Plan for Retirement Create and maintain a plan for building the savings you need for the kind of retirement you're dreaming of.
For Truckers Only
Along with the above suggestions, truckers need to factor in what they spend on their trucks and their runs. For example, carefully consider purchases for your truck. More lights and chrome look snazzy, but won't make you money. Also look into how you can finance a truck if you're an owner/operator and especially if it's your first rig.
The Owner/Operator Independent Driver Association [OOIDA], (800) 444-5791, has a financing program it says can beat commercial and dealer financing offers. OOIDA will also review financing deals offered to members to see if there are any hidden clauses that could bite you.
Money Tools Software such as Managing Your Money, Microsoft Money and Intuit's Quicken can help you chart, track and project your business and personal expenses and investments. Also, free or low-cost courses are often available locally at community colleges and financial institutions, as well as at non-profit organizations such as the county extension service, the YWCA and others. These are designed to give you the tools you need to manage money and save for the future.
Money in Cyberspace The Internet provides plenty of resources and information to help you understand saving, retirement planning, money management and credit. Here are just a few web sites worth visiting.
But remember, no one knows your financial situation better than you do. So review the information these sites provide carefully and talk with a knowledgeable financial professional about saving strategies that are right for you.
http://www.consumercredit.com
http://www.cc-bc.com
http://www.invest-faq.com
http://www.finplan.com/finplan/
http://www.pbs.org/moneymoves/
http://www.quicken.ca/
http://www.womenswire.com/money/
http://www.theWhiz.com/home/default.asp
http://www.ralphphillips.com/personalfinance/
http://www.401kforum.com
http://www.kiplinger.com/
|
|
|
