There is a strange, yet popular phenomenon here in Hollywood. People hire a business manager to pay their bills and handle other money matters. The going rate is 5% of the person’s gross income. Yes, gross income (before taxes), not net income (after taxes). So, if you grossed $500,000, you’d pay $25,000 a year for this service. Make $1 million, and you are paying $50,000 a year, and so on…
In return, you never deal with any of your bills. I’ve had friends tell me that their business managers handled the purchases of their cars and homes. They may even do your taxes and set up retirement accounts. For that price, they should draw your nightly bath and tuck you in bed.
I’ll give you some examples of how my friends got hurt by this arrangement. I’ll tell you how to do exactly what a business manager does – at a fraction of the cost.
I Was Drafted Into Service
Recently, a friend told me his business manager was giving him the boot because he wasn’t making enough to afford them. They wanted to bill at least $1,500 per month. At 5% of his gross, that meant he’d have to earn at least $360,000 a year.
So my friend asked me to be his bookkeeper. I have done it for myself and family but I have never hung out my shingle. I agreed to give my weird interest a whirl at an hourly rate, to see how we both liked the new situation.
What I discovered got me angry. I got more fired-up about this than my friend did!
The Cost – First of all, no one was analyzing my friend’s bills. The biz manager got the bills and invoices, paid them without question, and didn’t think twice.
- His gardener was getting 3-4 times the going rate, and tacked on charges for things that were supposed to be included. We’re talking an extra $4,000-$5,000 a year. God bless gardeners, but you should not get paid $100 an hour to do the job a 5th grader can do.
- The month before I took over, the old business manager was late making my friend’s credit card payment. We got that late fee refunded. How many other times that happened, we do not know.
- My friend had multiple credit cards open that were charging annual fees. He was not even using some of those cards. We got those cards downgraded to free versions and annual fees reimbursed. We kept the cards alive because that helps one’s credit score.
- I noticed recurring charges that smelled of a trial offer that was never cancelled. We stopped that madness. The old business manager didn’t care or mention it.
- My friend lives out of the United States for part of the year. When he used his credit card, he had to pay a foreign exchange fee of 3% on top of the purchase price. I got him a card with no foreign exchange fees. Chase Sapphire and Chase Ink cards are great for this.
Click on “Chip’s Favorite Credit Card Offers” at the top right side of this website for up-to-date deals, terms, and conditions on these cards and more. Email me if you have any questions!
This was all some basic stuff that the old biz manager had no interest in worrying about.
Secondly, write offs were being missed
- The business manager has no idea whether a credit card charge was a business expense or personal. He’d get the credit card bills but did not contact my friend to ask. He just guessed. The IRS LOVES people who guess. It can help to have a business credit card and a personal credit card, but that is not always possible. Was that Harry & David charge a gift basket for a business associate or chocolate covered strawberries for Valentine’s Day? Was that a business lunch or personal?
Thirdly, and this is a big thirdly, are you in the right retirement plan?
- My buddy wanted to use the money he set aside in his retirement plan, to buy and sell stocks. He could have achieved this, and had the same contribution limits, at no cost with a SEP IRA. Instead, his business manager hooked him up with a pension company who set up a super flexible Cadillac of 401(k) plans. That cost him over $1,100 – $1,300 per year to have it “administered”. That meant filing this form, which is free to do. You’d think a business manager might give you the heads-up about a no-cost way to achieve your financial goals. But noooooo.
- We rolled his 401(k) into a SEP IRA. We did this at E*Trade where they gave him almost $2,000 in bonuses. If this interests you, you can open accounts for an IRA as well as a stock brokerage account. Click on those links to investigate what bonuses you may get.
If you have a business manager, you should poke your nose around a bit and ask some questions. It’s your money.
I don’t want to sound like a jerk here, but if you want someone to find a house for you, that is what a realtor does.
If you want to get a great deal on a car, Google “Auto Broker”. You will pay these guys a few hundred bucks, but they will save you more than that, finding you the exact car you want.
Be Your Own Business Manager
Tip #1 – Pay as many bills as possible with your credit card. Put recurring charges like telephone, internet, cable/satellite, water & power, insurance (home, auto, umbrella, etc.), on auto-payment by your credit card. You do this by signing into the utility provider’s website and setting up “Automatic Payment”.
This way, you never have to worry about whether you paid the bill or not. It is automatically charged to your credit card when it is due. Instead of paying a handful of monthly bills, you make only one payment to your credit card.
I am able to use a credit card, without any fee, to pay for all of my bills except the gas bill, mortgage, property taxes, and income taxes.
PayUSATax is an IRS approved website that enables you to pay your income taxes with a credit card, but they have a 1.87% surcharge. You might use PayUSATax for convenience. I use my Fidelity Amex for this because the 2% cash back it gives me covers the fee. I actually make a few bucks on the transaction. Most importantly, you know the payment got to the IRS – not lost in the mail.
If you don’t ever want to think about your credit card bill, you can set up Auto-Pay to pay off your credit card bill in full every month from your bank account. If you do this, make sure that the account you are using to pay off the credit card bill has lots o’ dough in it and/or Overdraft Protection. You don’t want to overdraft your bank account.
If you need a credit card, check out “Chip’s Favorite Credit Card Offers” at the top right side of this website. Start with a No Annual Fee card that earns cash back for every dollar spent. I like Chase Freedom or Citi Dividend Platinum Select for that. If you work through a business entity like an S-corp, C-Corp, or LLC, the Chase Ink Cash Business card is a No Annual Fee cash back credit card.
Tip #2 – Go Paperless. I suggest selecting “Paperless billing” for all of your billing accounts. Then the bills will show up in your email instead of your mailbox. Some folks like getting paper statements as a reminder to pay the bill. The email is enough for me.
Tip #3 – I suggest that you still look at your credit card statement to make sure all your charges are yours. I use Quicken to monitor all of my accounts and automatically download any transactions. Read my review “I Feel Like Quicken Tonight” for more info.
Here’s to you keeping more of your hard-earned money!