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Dear Penny: I'll Never Marry My Boyfriend, So Can I Hide My Debt?

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Dear Penny,
My boyfriend and I are 71 and 72. He’s been divorced three times, and I’ve been widowed twice. We both have our own homes and good incomes. 

The problem is, I’m in debt due to my last husband. My boyfriend always talks about how he is debt-free except for his mortgage. We are in love and committed to each other. 

Do I have to tell him about my debt when we have said we don’t want to remarry? I am embarrassed about the debt.

-L.

Dear L.,

You aren’t obligated to disclose every single aspect of your life and finances to your boyfriend. Of course you’d need to tell him you have debt if you were talking about marrying or moving in together. That’s not the case here.

As long as your debt isn’t impacting him, you shouldn’t feel guilty for not telling him. But I wonder if you’d feel better if you told him.

I’m going to paraphrase Dan Savage, the legendary love and sex advice columnist, and give you the advice he often repeats when someone is scared to reveal something about themselves to a partner: If you tell your boyfriend about your debt, you’ll be revealing one thing about yourself. His reaction will reveal everything about him.

What I’m hoping is that you’re underestimating your boyfriend. You say he “always” talks about being debt-free aside from his mortgage. It may be that he’s simply more open to discussing money than you, so it feels like he’s constantly talking about his lack of debt.

Context matters a lot here, too. Is he bringing it up because he’s proud of the accomplishment? Or because he’s excited about all the things he can do because his expenses are low? That’s a lot different than if he’s the type of person who thinks that just because he’s debt-free, anyone else who has debt is irresponsible.

Your boyfriend’s reaction isn’t the only thing to consider when you make this decision. Be honest with yourself: By keeping this secret, are you spending more money because you’re trying to pretend like you don’t have any obligations? When you’re not upfront about your financial situation, you often wind up with a lifestyle you can’t afford. You say yes to the vacations and restaurants that are out of your budget because you don’t want anyone to suspect that you’re struggling.

I have no idea if this is happening here. You don’t say how much debt you have or whether it’s manageable. But if this debt eats up a significant part of your income and you’re a couple who tends to split things relatively equally when you go out on dates or travel together, it’s something you need to seriously consider.

One benefit of telling your boyfriend is that opening up can be a relief. Keeping a bad situation secret only compounds the stress. When you look at something through the lens of shame, it often becomes so much worse than it actually is in your mind.

If you haven’t told anyone about this lingering debt, consider telling a trusted friend or family member first. Doing so could help you gauge your boyfriend’s reaction. You may also discover that talking about this isn’t as scary as you’ve imagined.

Regardless of how you proceed with your boyfriend, I hope you recognize that not talking about this debt isn’t going to make it disappear. You need a plan for how to conquer this debt, whether that involves paying it off as quickly as possible or keeping the monthly payments as manageable as possible. If you haven’t done so, consider making an appointment with a financial planner or counselor to make sure your plan is solid. You may feel better about telling your boyfriend you have debt if you can also talk with confidence about how you’re handling it.

Not to add to your pressure, but the longer you keep this a secret, the harder it will be should you eventually open up. Even the most sympathetic partner may be hurt to learn that you’ve been keeping debt a secret for years because you were afraid of their reaction. Conversely if he doesn’t react well, your pain will be exacerbated after investing many years together.

I won’t try to pretend that learning your debt is a deal-breaker for him wouldn’t be incredibly painful. I certainly understand why the easiest thing to do is not to talk about this when you’re happy and in love. Still, I think it’s important to know whether he cares more about you or your net worth.

Whatever you choose, I hope you can stop feeling embarrassed about your debt. It’s not a character flaw. Life can throw a lot of unexpected hurdles at you. Sometimes your battle wounds come in the form of debt. Hopefully after seven decades in the world, your boyfriend is wise enough to recognize that.

Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to AskPenny@thepennyhoarder.com.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

Here’s How to Upcycle Clothes and Revamp Your Wardrobe

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Have you ever stared into the depths of your closet and thought: “I have absolutely nothing to wear?”

If your normal inclination is to dejectedly sift through what you already have, it turns out that there is a better way  — and it doesn’t involve buying anything new. Enter the world of upcycling.

Here’s how to upcycle clothing and give yourself a whole new(ish) wardrobe.

First, What is Upcycling?

The term ‘upcycling’ comes from the idea of recycling an old item, but with a twist. Upcycling is not just reusing something, but tweaking that item to make it better than before.

An upcycled garment often bears little resemblance to its former state. Take Colorado-based designer Maggie Henricks of Create Good Company. She crafts boyfriend skirts out of men’s dress shirts. With patterns ranging from plaid and polka dots to bright Hawaiian florals, Henricks’ designs make for an interesting cross between masculine and feminine fashion norms.

Halima Garrett, who runs Thread of Habit out of New Jersey, got into upcycling by way of her love of vintage clothing. Garrett had amassed so much clothing over the years that she simply didn’t know what to do with it all. Finally, she decided the best option was to rework some pieces.

Even though she calls her sewing skills “basic,” Garrett was able to make wrap pants out of a vintage skirt and estate sale fabric. In fact, her website boasts an entire lingerie collection — each reworked piece contains at least one vintage lingerie item.

A woman creates a new outfit out of an old skirt and an old purple shirt.

Here’s the best part about upcycling: your clothing will be one of a kind. And if you want to give a friend an inexpensive gift that they’ll cherish, upcycling an item for them is a great idea. You don’t even need to have a sewing machine, and all of these DIY projects can be done from your own home. There’s an exclusivity to it that might be enough to make even the least sewing-inclined person want to upcycle clothing.

For those of us who don’t want to sell our upcycled clothes but do want to wear them, Garrett and Henricks have some tips and tricks to take your grandmother’s nightgown — or whatever you want to redo — from frumpy to fancy.

1. Know What to Salvage and What to Cut Up.

If you’re working with vintage clothing or just old clothes in your closet, Garrett advises assessing what you’re cutting up before you take the scissors to your favorite jeans.

If an item has stains on the armpit or a hole that’s too big to mend, by all means, cut.

But if you’ve rescued a pre-1970s item from Goodwill’s bins and you want to preserve its original quality, it may be better to choose a different item to upcycle. The same goes for an item with sentimental value. Ask your mom — and yourself — before you cut up her old wedding dress.

2. Start Simple.

Garrett has proven that it’s possible to upcycle old clothes without the skills of an advanced seamstress. The easiest way to dip your toes into upcycled clothing is by starting small. Try cutting a pair of pants into shorts or cutting a long-sleeve shirt into a short-sleeve T-shirt.

FROM THE SAVE MONEY FORUM

3. Use Your Wardrobe as Inspiration.

Is there something in your closet that you absolutely love? Would you love to replicate it? That’s a great place to start when upcycling. Use the garment you love as a model for how you want another item to fit. Or if you like the color combination of an outfit, consider using that combination in an upcycled piece. After all, imitation is the sincerest form of flattery.

Another way to reimagine what you already have is looking at what something could be if it were a different type of garment. Do you love the fabric of a dress but hate the fit? Make it into a two-piece set with a tank top and skirt. Are you sick of your old jeans but they still fit well? Try sewing on a patch of fabric to the knee.

4. Look at Your Old Clothes as Parts of a Whole, not as a Single Garment.

Henricks always thinks of any item as different pieces of fabric rather than a shirt, a skirt or a dress. That helps her to get inspiration.

Measuring the size of your garment can help to think of a way to creatively rework it. And if you don’t have enough to make something new out of one piece, think about combining multiple into one.

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“It’s important to think away from what it is now,” says Henricks, “and focus more on the fabric and patterns that you have available in the material.”

5. Youtube Tutorials are Your Friend.

Youtube videos are usually the best place to start for any technical skill. Garrett recommends searching for tutorials on “no-sew upcycle” or “minimal sewing upcycle.”

The fact that videos under that designation exist shows that no-sewing upcycling is possible. Three of Garrett’s favorites are Angelina of BlueprintDIY, Mimi G Style and Shania O. Mason.

Pro Tip

You can do a lot to your clothes by mastering these 4 simple sewing skills.

6. When Looking for Guidance, Be as Specific as Possible.

When looking at the piece you want to remake, think about what it is specifically that you want to change. Do you want to make the top or pants tighter? Do you want to put slits in a dress?

Once you have a tentative visual in mind, that makes it easier to search online for guidance. You can then find a specific tutorial in line with the exact alterations you want to make.

7. When You Find Your Niche, Stick With it.

Have success reworking one item? You don’t necessarily have to branch out. Stay there and see what else you can do within that framework.

Henricks is focused on the men’s dress shirts arena. And she has found inventive ways to upcycle different aspects: not only does she make boyfriend skirts from the shirts, but she also makes dog collars from the shirt collars and crop tops. She is a great example that finding your fashion lane and sticking to it can yield some of the most inventive and creative ideas.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

Reboot Your Budget to Prepare for Reopening

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Picture cruising your car deep into 2021 and never glancing in the rearview mirror. Vaccines, travel and a hope of normalcy are finally on the horizon.

With so much to look forward to in the future, it’s understandable to not want to look back.

But returning to typical day-to-day life will be a transition. And from a financial standpoint, you’ll want to assess your past budgeting behavior to prepare for more normal days ahead.

Review past and current spending

Last year’s spending didn’t look like 2019. And 2021 won’t look like either 2020 or 2019. But you’ll need this historical insight to inform your future spending, especially as you start reintroducing expenses that used to be ordinary, like concert tickets, plane tickets and so forth.

Some people’s spending decreased dramatically last year (either from necessity or choice). But others faced comparable expenses, says Molly Laughter, certified financial planner and founder of Laughter Financial LLC in Dallas.

Remember that jungle gym for the kids to play on in the backyard? Or the Xbox for long nights of playing video games? They may have been great ways to keep you occupied and comfortable at home, but now you’ll need to find a way to balance these newer expenses with your past spending on the activities you hope to return to.

Since many of us are already taking a close look at our finances right now as we file taxes, Laughter suggests using this opportunity to review year-end financial summaries from your credit cards and bank accounts.

Size up each category. How much did you spend? Was it worth that amount? Would you want to continue spending that much?

Play favorites

Ever since COVID-19 became part of our vocabulary, there’s been talk that life would never return to normal. Laughter anticipates your future spending will be a “new normal.” Sure, you may introduce dinners out — and possibly even a trip — to the mix, but expect to continue paying for quarantine life staples like deliveries and at-home activities.

According to Vid Ponnapalli, CFP and owner of Unique Financial Advisors based in Holmdel, New Jersey, “There is going to be a paradigm shift with respect to how budgeting in the future will be compared to how it was pre-COVID.”

This new balance means you’ll need to play favorites with your finances. After all, you can’t keep up the amount you’ve been dropping on at-home entertainment and food deliveries while also upping the amount you spend on indoor dining and live shows. It just won’t all fit in the budget. Select the expenses you benefit from most.

To make the necessary adjustments, Laughter suggests looking at the big picture. Don’t get too caught up in specific line items. (For example, if you’re spending 25% less on grocery orders, you don’t have to redirect that exact amount to dinners out.)

Instead, once your needs and savings are accounted for, set a dollar figure you can afford each month for discretionary expenses, then spend it on whatever you want. You may never add back in some things you used to spend money on.

As Ponnapalli says, we’ve all figured out new ways to spend less money and still have fun. Dropping thousands of dollars on concert tickets may not feel worth it anymore when you compare it with watching a (much cheaper) livestream at home.

Plan for future goals

Life hasn’t returned to normal by any means. But for many Americans, the prospect of getting a vaccine is mere weeks or months away. Use the time between now and then to prepare for what’s to come.

Laughter says to think of it like advance notice. “The vaccines aren’t getting out as quickly as we’d like,” she says. “So start your clock.” Begin setting aside a certain amount monthly to accomplish a goal when it’s all said and done.

For example, if you want to travel again by a certain date, use the next few months to funnel funds into a designated savings account. If your student loan payment is on hold, make a plan for how you’ll strategically spend those extra funds in the meantime. And prepare for that added bill when it’s reintroduced.

Whatever financial decisions you make, remember, whether we’re in a pandemic or not, the fundamentals of finances don’t go away. Spread your money between things you need, things you want and savings.

Your allocations may change, but “the name of the game is the same as it was before — budgeting, budgeting, budgeting,” Ponnapalli says.

Here’s to better days and better budgets ahead.

This article was written by NerdWallet and was originally published by The Associated Press.

Want to Buy Ethereum? Here’s What to Consider

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Ethereum, which is second only to Bitcoin in terms of global market capitalization, has seen its share of surges and crashes since its launch in 2015. But the cryptocurrency has been turning heads recently amid a rush of interest in the crypto space in general, hitting new highs in April 2021.

So what is Ethereum and why is everyone talking about it? Is it the same as “ether”? What gives it value, and what is its long-term investment potential? And how do you actually buy it?

Here are a few things to consider regarding Ethereum, and — if you decide it’s something you’re interested in — some common ways to buy, hold or trade the cryptocurrency.

Ethereum’s investment potential

What gives Ethereum value?

When you’re buying Ethereum, technically you’re converting your U.S. dollars into “ether,” or ETH, which is the currency of the Ethereum blockchain. In order to use the Ethereum blockchain (which includes sending ETH as a form of payment or using an application that runs on Ethereum), you’ll need ETH to pay a transaction fee.

So what can you do on the Ethereum blockchain? While the technology is still very young — and frankly, untested in many ways — people can use Ethereum to run “decentralized applications,” or dapps. Dapps essentially cut out the middleman in industries where middlemen have for the most part always existed, relying instead on “smart contracts” that run on Ethereum. To use these applications, you’ll need ETH to pay for the cost of “gas” — a measurement of how much computing power is needed to run the application. Examples of dapps include:

  • Direct peer lending that earns interest.

  • Insurance without the insurance company.

  • Payments without the payment processing company.

  • Music streaming in which the money goes directly to the artist, not a streaming platform or record label.

  • Art auctions without an auctioneer.

  • Marketplaces for nonfungible tokens, or NFTs.

  • Online gaming.

  • Code collaboration without a central server.

This is all extremely complex, so if you’re confused, don’t worry. That’s normal. But put very simply, when you’re investing in Ethereum, you’re betting that people are going to keep adopting and using new Ethereum-based technologies like the ones listed above, which could possibly drive demand for ETH — and its market value — higher.

Are you comfortable with Ethereum’s volatility?

Cryptocurrencies are dominating the headlines, but the truth is if you’re viewing them strictly as an investment, they’re still a highly volatile alternative asset. It’s generally wise to treat them as such in your portfolio.

In ETH’s case, we’ve seen enormous price swings: In 2016, it bounced around between roughly $5 and $15. By the early days of 2018, the price had soared to nearly $1,500, but after that, ETH began a bumpy downhill road, dropping to less than $100 by December 2018.

And the kicker? The price of ETH never got back above $500 until November 2020, bringing a thaw to what many referred to as the “crypto winter.”

So, imagine this: You bought ETH during the January 2018 hype only to see your investment’s value crater throughout the year. 2019 comes and goes, and you still haven’t made your money back. After two years, would you have cut your losses and taken whatever cash you could get? If so, Ethereum’s volatility may mean it’s a bit risky for you.

Are there any red flags?

Just as you would heavily research a company to look for any red flags before investing, you can do the same for cryptocurrencies. And since the launch of Ethereum, issues have arisen.

It gets a bit complicated, but currently, one pressing issue is that gas — that transaction fee that keeps the system up and running — is more expensive than it used to be. A lot more expensive.

In early 2019, it would have cost you around 10 cents to perform a transaction on Ethereum. And today? That fee is around $20.

How Ethereum fits into your portfolio

Before you consider buying Ethereum, take a look at your portfolio to determine if cryptocurrency has a place in it. Generally, a combination of stock mutual funds (such as index funds and exchange-traded funds), bonds or bond funds and cash make up the core of a highly diversified portfolio. Finding the right mix of these assets based on your personal risk tolerance, timeline and investment goals is known as asset allocation. Before diving into an alternative asset like crypto, it may be a good idea to make sure the fundamentals of a long-term portfolio are in place.

But if you already have a highly diversified, balanced portfolio, a cryptocurrency like ETH could give you even more diversification. Because the performance of cryptocurrencies generally doesn’t correlate with the performance of the stock market, adding crypto into the mix could theoretically act as a cushion if the stock market dips but the crypto market remains steady.

That said, the volatility of cryptocurrencies is still a huge factor to consider, despite the potential advantages. What’s more, we only have a few years of data to find correlations between cryptocurrencies and traditional markets; it’s possible the current trend could shift.

How much ETH you can afford

Before putting cash into any investment (including stocks), it’s wise to make sure you have adequate emergency cash savings. You should be comfortable living without the money you plan to invest for the foreseeable future — say, the next five years. Remember the “crypto winter” referenced above? There’s always a chance there will be another one, and you should have a plan in place to endure it.

One way to determine the right amount of ETH for your portfolio is to think of it as any other risky alternative asset. From this lens, you could decide to allocate a small portion of your portfolio — some experts might refer to this as a “casino fund” — toward cryptocurrencies.

And if you’re not sure how much to invest, or are nervous about a price crash shortly after purchasing, you could always borrow a tried-and-true strategy from traditional investing: dollar-cost averaging. Like any investment, it may be a good idea to start small to learn the mechanics of buying ETH (which we’ll explain below).

Where to buy ETH, and how to store it

Once you’ve done your research and found there’s a place for ETH in your portfolio, you’ll need to decide where — and how — you’ll buy and store the cryptocurrency. On a basic level, there are two requirements for buying and holding ETH:

  • An exchange: This is where you can buy crypto with U.S. dollars or trade one cryptocurrency for another.

  • An ETH wallet: This is where the currency is digitally stored. A wallet also has a public address you use to send or receive ETH.

Here are a few options for buying ETH, and how exchanges and wallets are involved in each method.

Online stock brokers

Buying cryptocurrency from an online brokerage that offers it is one of the easiest ways, but it can come with serious drawbacks. While online brokers have made it easy and cheap to turn your cash into crypto and vice versa, check the fine print to see if the brokerage gives you access to your wallet or lets you move coins in and out of the account — some brokers don’t. In the eyes of crypto purists, this essentially nullifies the entire point of owning a digital currency.

Crypto brokerages with hosted wallets

Crypto brokers with hosted wallets let you buy ETH and other coins with U.S. dollars and store them safely in a wallet hosted by the brokerage. For investors new to cryptocurrency, this makes the buying process simple and streamlined, and you have the ability to send and receive coins.

With a hosted wallet, you don’t have to worry about losing the private key to your wallet or forgetting a password — a real problem that has cost people millions of dollars. Rather, the host stores this information for you. A common analogy is that it’s like a bank holding and securing your funds for you. But you likely won’t get the full benefits of cryptocurrency, such as using the dapps listed above, nor will you have complete control over your wallet and the crypto it holds.

Centralized exchanges and non-custodial wallets

This is a more advanced way to buy, hold and trade crypto, and gives you more control over your funds and wallet.

One way to do this is to set up your own ETH wallet for storage and purchase ETH with cash on a centralized exchange (such as Binance.US or Coinbase Pro). However, for security purposes, it’s generally not a good idea to hold large sums for extended periods on exchanges; while security has come a long way, historically, exchanges have been big targets for hackers. This is why you’ll want your own wallet where you can send your ETH after buying it on an exchange.

There are a ton of wallets out there to choose from, ranging from online “hot” wallets to physical, offline devices known as “cold” wallets. One of the best places to start is the Find a Wallet feature on Ethereum.org, which filters wallets based on your specific preferences.

Once your wallet is set up and ready to receive ETH, you’ll want to choose an exchange. Centralized exchanges are relatively straightforward; if you’ve used an intermediate-level stock trading platform before, these will look familiar. And considering the popularity of ETH, you’ll likely be able to buy ETH with U.S. dollars on most centralized exchanges. However, if you’re looking to trade one cryptocurrency for another, you’ll want to do a bit more research to see what pairings are available and what’s listed on the exchange.

» Nerdy tip: Here’s a directory of exchanges that allow trading fiat money (such as U.S. dollars) for ETH.

Decentralized exchanges

If you have your own wallet, you can trade your ETH in a decentralized exchange, or DEX. In a sense, a DEX is the truest way to trade cryptocurrencies in that there is no third party whatsoever. Centralized exchanges require you to deposit the coins or dollars you want to trade on the market into a trading account. But with DEXs, you retain full control over your funds and trade directly with a buyer or seller.

However, DEXs can be confusing to navigate and are mostly used for trading one cryptocurrency for another, rather than buying ETH with cash. In short, they’re not beginner-friendly.

Choosing what’s best for you

Choosing the right way to buy and hold ETH comes down to experience, comfort, what you want to accomplish with your ETH, and how much you plan to buy or hold. It’s entirely possible to use a combination of the methods above; perhaps using one platform for convenient trading and another for long-term holding. For beginners, it may be best to start with a crypto brokerage or stock broker. Then you could consider working your way up to the more advanced, decentralized platforms.

14 Business Startup Costs Business Owners Need to Know

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Deciding to start a business is exciting, but can also be daunting if you’re a new entrepreneur. Calculating business startup costs, worrying about long-term profitability, securing startup funding—it can all be pretty stressful.

14 common small business startup costs

  1. Equipment: $10,000 to $125,000

  2. Incorporation fees: Under $300

  3. Office space: $100 to $1,000 per employee per month

  4. Inventory: 17% to 25% of total budget

  5. Marketing: 0% to 10% of total budget

  6. Website: About $40 per month

  7. Office furniture and supplies: 10% of total budget

  8. Utilities: About $2 per square foot of office space

  9. Payroll: 25% to 50% of total budget

  10. Professional consultants: $1,000 to $5,000 per year

  11. Insurance: An average of $1,200 per year

  12. Taxes: Variable, but 21% corporate tax rate

  13. Travel: Variable

  14. Shipping: Variable

Still, the question “how much does it cost to start a business?” is critical because the initial investment can be significant. A Kauffman Foundations study shows the average cost to be around $30,000, and costs tend to increase each year.

Fortunately, certain types of businesses, such as micro-businesses and home-based companies, have lower financial entry barriers. Here, we’ve put together a list of 14 different types of business startup costs you’ll need to consider when launching your company.

How to calculate the cost of starting a business

Drafting a business plan is the best way to estimate your business startup costs. Within your plan, the financial projections section should estimate your revenue, profit, and expenses for the next three to five years.

There are other resources to estimate your finances as well, such as the SBA’s startup costs worksheet or our very own small business budget template. These templates will help you estimate your initial investment costs, so you know how much capital you should request when you seek startup funding.

Keep in mind that many of the business startup costs we list below are recurring. You’ll need to cover these costs over a monthly, quarterly, or annual basis—think rent, office supplies, and payroll. Other expenses, like the incorporation fee or office furniture, are one-time costs.

When calculating your business startup costs, a good rule of thumb is to be able to cover six months’ worth of expenses upfront. So don’t count on your business’s revenue to start easing your costs until at least after that early period is over. You’ll want a cushion while you get your feet under you and work on attracting business.

Average startup costs

STARTUP EXPENSE
ESTIMATED COST

$10,000 to $125,000

Incorporation fees

Under $300

Office space

$100 to $1,000 per employee per month

17% to 25% of total budget

0% to 10% of total budget

About $40 per month

Office furniture and supplies

10% of total budget

About $2 per square foot of total office space

25% to 50% of total budget

Professional consultants

$1,000 to $5,000 per year

An average of $1,200 per year

Variable, but 21% corporate tax rate

14 business startup costs to plan for

Although this is a typical list of business startup costs, your actual startup expenses depend entirely upon your specific business and industry.

Here are some typical business startup costs to plan for:

1. Equipment: $10,000 to $125,000

Almost every business will need to finance equipment immediately. Equipment costs for startups can range anywhere from $10,000 to $125,000, depending on the industry and size of the company.

For example, if you’re starting your own moving or shipping company, you’ll need to finance a truck. If you’re opening a restaurant, you’ll need commercial-grade ovens, stoves, dishware, and cooking utensils. If you own a hair salon, you’ll need styling chairs. And nearly any business will require computers.

Of course, these costs range according to your industry and the size of your business. Hiring employees will incur additional costs, as you may need to secure individual equipment, as well.

2. Incorporation fees: Under $300

One of your first to-dos when setting up a business is to choose a business entity, which has tax, legal, and financial implications.

If you decide to incorporate your business or form a limited liability company, you’ll need to file articles of incorporation or articles of organization, respectively, with your state. The filing fee can range from as low as $50 to as high as $725 depending on the state. However, the fee is under $300 in the majority of states.

Even if you’re not incorporating, you’ll probably need to apply for federal or state licensing or permits. The types of documentation you’ll need will vary based on your industry and location. For example, businesses within the agriculture or aviation sectors require federal licensing. Service-based sectors may need to have trade-specific licenses. And retail companies will likely need sales tax licenses or permits.

3. Office space: $100 to $1,000 per employee per month

Renting an office or retail space will be a sizeable portion of your fixed costs, whether you rent or buy. You might spend between $100 per employee per month up to $1,000 per employee per month—again, it will depend on the type of space you’re using.

You can mitigate these costs if you work from home in the beginning, or look into coworking spaces—both ideal for smaller businesses. And if you own a service-based business, you can travel directly to clients to further decrease overhead costs.

4. Inventory: 17% to 25% of your total budget

If you’re in the retail, wholesale, manufacturing, or distribution sector, you’ll likely need to secure inventory to sell, as soon as you possibly can.

Knowing how much inventory to carry can be tricky: If you have too much inventory, you risk spoilage or damage. If you have too little, you risk losing customers who won’t wait for items on backorder. This is especially true for seasonal businesses where inventory can vary drastically year-round.

You should allocate between 17% to 25% of your budget to inventory, depending on your industry. When you’re first starting out, consider securing more inventory. You’ll want to attract customers and generate as much revenue as you can in your company’s early stages.

5. Marketing: Below 10% of your total budget (even 0%)

Marketing materials might include physical materials, like signs, banners, and business cards. You might also consider paid advertisements, as well as more creative options, like videos and giveaways, that might require you to hire a consultant or a video producer.

Courtney Barbee, COO at The Bookkeeper, recommends keeping overall marketing costs to a minimum. Specifically, strive to keep your ad materials under 10% of your budget.

The good news? You can do the bulk of your small business marketing, for free. Thanks to social media and other online marketing strategies, advertising costs are often much lower for small businesses just starting now than they would have been 20 years ago.

6. Website: Around $40 per month

When building your business website, you’ll want it to look professional, be easy to navigate, and display information about your services, products, hours, and contact information.

Fortunately, services like Wix, Squarespace, and Weebly, make creating a website easy and cost-effective. These content management systems (CMS) are sometimes free, but their premium plans will come at a monthly or yearly subscription cost:

  • Wix: $13 to $39 per month for a premium plan

  • Squarespace: $12 to $18 per month billed annually, or $26 billed month to month

  • Weebly: $5 to $25 per month

Wix and Weebly also offer basic, free website builders. If you’re relatively tech-savvy, it’s easy to build a website through one of these services, no coding background required. But if you’re not very familiar with computers, you may want to hire someone to build the website—which, of course, is an additional cost (although it might become a worthwhile investment).

7. Office furniture and supplies: 10% of your total budget

Office furniture and supplies add up fast. If you’re operating in a traditional nine-to-five office environment, then every employee will need a desk, a chair, a computer, and a phone. Add in break room appliances, small office supplies, and computer programs, like your accounting software, and you’ll reach a hefty sum.

Again, that sum varies depending on the tools your business needs to operate, and the number of employees you need to outfit. Nate Masterson, the marketing manager at Maple Holistics, estimates that the total cost for office furniture and supplies would be around $5,000. In all, though, Masterson recommends keeping your furniture and supply costs to approximately 10% of your budget.

8. Utilities: Around $2 per square foot of office space

In addition to the fixed costs of rent and a down payment, you’ll be responsible for paying the electric, gas, water, internet, and phone bills for your office space. According to Iota Communications, the average cost of utilities for commercial buildings is $2.10 per square foot.

If you intend to install HVAC units, that will incur an additional cost—usually a couple of thousand dollars, not including installation fees and upkeep.

9. Payroll: 25% to 50% of your total budget

You need to pay your employees, even in the early stages, where you’re not bringing in much revenue. Remember, payroll includes all of the following:

  • Commissions

  • Overtime pay

  • Paid time off

Of course, payroll costs will vary across startups. Typically, an employee will cost 1.25x to 1.4x their salary. For example, an employee on a $40,000 salary will actually cost you around $54,000 after factoring in various payroll tax costs and insurance.

A conservative payroll budget could work if you’re a sole proprietor, or if you’re running a small enterprise and use mostly 1099 contractors—and either is a pretty likely scenario for most startups.

10. Professional consultants: Between $1,000 and $5,000 per year

It’s tempting to take a DIY approach for all your business operations. After all, who knows your business best? But working with experts and professionals can be worth the investment.

For example, certified public accountants (CPAs) can explain the different legal structures, help you choose an employee benefit program, and ensure you’re fulfilling your responsibilities as an employer. When tax season rolls around, they’ll prepare your tax returns and help you save on your taxes.

You don’t need to hire a full-time accountant either. But it’s often a good idea to consult with your accountant on a monthly, quarterly, or annual basis to review your financial statements, and for general financial guidance and advice. Consulting with an attorney regularly can also save you from major legal mistakes like failing to trademark your logo or developing relationships with vendors without a contract in place.

Every CPA and lawyer charges different hourly rates. Rates and additional fees vary depending on the number and level of difficulty involved in the tasks you need outsourced, the time it takes to complete your projects, and your consultant’s tenure. However, you can mitigate these costs by taking on some basic tasks yourself, only outsourcing the most complicated projects. There are even some options to get free business legal advice.

And with the help of good business accounting software, you can handle basic bookkeeping, like processing and managing payroll, creating and tracking invoices, and managing your business bank account.

According to SCORE, all told, the majority of small business owners spend between $1,000 and $5,000 per year on administration tasks, including accounting and legal fees. But as a startup—and by taking advantage of those cost-cutting tactics we mentioned—you’ll probably err on the lower end of that spectrum.

11. Insurance: Average of $1,200 per year

Your business needs the same protections you provide to your health, home, and car. There are many different kinds of business insurance, including protection from customers that file a lawsuit against you and disaster insurance for potential fires that can shut down your restaurant for weeks.

The type of insurance your startup needs is entirely dependent on your business, industry, number of employees, and other risk factors. For instance, a sole proprietor running an online business has far fewer insurance requirements than a construction company with several employees.

But here’s some context: In a recent study, Insureon found that the average small business spends about $1,281 per year on all types of insurance. Again, every startup requires different kinds of insurance. However, there are a few essential forms of insurance you should look into to protect yourself, and policy costs vary according to several different factors:

  • General liability insurance: About $400 to $800 per year. Your industry’s riskiness will be the most significant factor influencing the cost of your policy.

  • Commercial property insurance: Anywhere from $300 to $2,500+, depending on the value of the property and its assets, and a risk factor dependent upon the nature of the business and the location of the property.

  • Workers compensation insurance: Approximately $0.75 to $2.74 per $100 of payroll, depending on the business’s size, location, payroll, and risk.

  • Errors and omissions insurance: Approximately $2,000 to $5,000 per year, depending on your business’s size, industry, location, revenue, legal history, and the quality of your contracts and employee training procedures.

12. Taxes: Variable, but 21% corporate tax rate

When planning your budget, determining the exact amount to allocate toward business taxes can be confusing. It depends on your revenue (which is difficult to predict), your deductible expenses, and your business entity.

Under current federal law, corporations pay a flat 21% corporate income tax. For pass-through entities, business income and losses pass through to the owners’ personal tax returns. Pass-through entities can claim a 20% deduction on income before paying their business taxes.

But know that you can often save money and time by working with a CPA. A skilled CPA will determine what you can deduct so that you pay as little as possible.

13. Travel: Variable

Not every new entrepreneur needs to factor travel into their business startup costs. But if you have a consulting business or you visit your customers directly, you will be traveling a lot. You’ll need to factor in the price of transportation, food, and lodging—multiply these costs if you have multiple employees traveling. Be mindful of how quickly those costs add up.

Try to keep total travel costs to an absolute minimum so that you can allocate your revenue toward bigger expenses, like payroll and rent. And to make some returns on all that time on the road or in the air, consider using a travel business credit card, which can earn you points and miles for every dollar you spend. If you do have to travel frequently, keep the non-essentials like business class tickets to a minimum.

14. Shipping: Variable

Service-based businesses can probably stop reading here. But if you’re in retail, you might be shipping products to customers. If so, you’ll need to factor shipping into your startup costs, including packing materials and postage. Depending on what you’re sending, these costs can reach into the thousands of dollars.

Services like Stamps.com can ease the burden of shipping costs on small business owners. With this service, you can print postage without having to buy a costly postage meter. If possible, you can secure free or low-cost shipping boxes from your shipping service of choice.

How to save on startup costs

The costs of starting a business can certainly add up, with many expenses being non-negotiable. Do your research before you splurge on high-ticket purchases, and recognize that there are ways to take care of some of these startup costs on the cheap.

For example, using software like QuickBooks can save on the costs of hiring a professional bookkeeper. Working from home or using a coworking space is a cost-effective alternative to leasing office space. And leveraging social media can mitigate your marketing costs.

That said, some costs are worth the investment. Don’t buy poor-quality equipment just because it’s cheaper—you’ll lose time and money making repairs and eventually need to purchase new equipment. Hire a legal or accounting expert if you’re confused or lost. And make sure your website and advertising campaigns are professional-looking and effective.

Secure funding

If you’ve calculated your business startup costs and now feel overwhelmed, know that there are plenty of resources to help you find startup financing.

Your initial funding will likely come from a combination of debt and equity financing. But keep in mind that debt financing options—small business loans—are relatively limited for brand-new businesses. Most lenders only feel comfortable offering loans to established companies with hard evidence of profitability, as well as healthy credit, which most startups simply don’t have yet.

Some lenders work with startup business owners, so don’t completely rule it out if you think it’s your best option. Check out more information on how to get a loan to start a business if you think debt financing is the right move for you.

Get a business credit card

Once you’ve established a legal entity for your business, we recommend applying for a business credit card.

The application is simple, and a business credit card is usually easier to qualify for than a traditional business loan. Also, you typically gain access to a higher credit limit than your personal card. More importantly, a business credit of card keeps your personal and business finances separate—essential if you wish to maintain your personal liability protections after forming an LLC or corporation.

Just make sure you’re not maxing out your credit card or charging more than you can repay. Both can harm your credit score, which might hurt your chances of securing a small business loan down the line.

Frequently asked questions

1. What is the average cost to start a small business?

The cost of starting a small business depends on the type and size of business you’re opening and your industry. For example, opening a McDonald’s franchise can cost you $1 million, while starting a social media consulting company may cost less than $10,000. Therefore, the average cost will vary on a case-by-case basis.

2. How do you calculate startup costs?

The most straightforward method for calculating your startup costs is to use a budget template. Your budget will break down your startup costs and recurring expenses—rent, office supplies, payroll, and more.

It’s prudent to cover six months’ worth of expenses minimum upfront; this financial cushion will support you in your business’s early stages when your profit margins might be slim.

3. Are business startup costs tax-deductible?

While the IRS does not recognize startup costs as capital expenditures, they do state that you can deduct $5,000 of business startup and $5,000 of organizational costs paid or incurred after October 22, 2004, but only if your total startup costs are $50,000 or less.

You can review IRS Publication 535 or consult a business accountant for additional information.

4. What is considered a startup cost?

A startup cost is any expense incurred when starting a new business. Startup costs will include equipment, incorporation fees, insurance, taxes, and payroll.

Although startup costs will vary by your business type and industry—an expense for one company may not apply to another. For example, a brick-and-mortar business will need to pay to rent a separate business location, unlike a home-based online consulting company.

The bottom line

Planning your business budget is one of the most stressful parts of entrepreneurship, we know. But being realistic about estimating your business startup costs—and how much money you may need to borrow right away—will go a long way toward getting your company up and running.

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