Hard Financial Choices
The average credit card debt held by owner-operators today is $12,363, according to the 2009 Overdrive Owner-Operator Market Behavior Report, which Brady authors. For a transportation business where “guys might be throwing fuel bills on it monthly, and purchasing equipment,” this amount could be better managed at lower levels, he says. Focusing on any excess short-term debt in lieu of extra saving or investing is by far the best choice. “First get your cash in a good situation,” Brady says, before hunting out any decent investment opportunities.
Owner-operator credit card balance profile
Number of outstanding credit cards balance
1, business only $12,509
3, business only $13,125
All business and personal cards $12,261
These numbers reflect the general practice among owner-operators of using credit cards as a business tool. Besides being convenient, cards help in expense record-keeping and often offer affiliation benefit programs.
Refrain from credit cards or use for affiliation benefits?
This one is something of a no-brainer, with one important caveat: that you pay the credit card balance in full monthly. Benefits from credit card use extend beyond discounts on credit fuel purchases. Some cards offer cash back on every purchase, credits for airline or other travel use, or other givebacks.
For instance, the average FleetOne fuel card, the company claims, will save you $400 a year on fuel at 20,000 gallons purchased, via rebates granted in $15 increments. Add the $1,400 you’ve saved by getting the cash diesel price with the card, and that’s a total savings of $1,800 a year.
By comparison, consider the same amount of fuel purchased with the business/consumer Miles by Discover card, which offers credits for all purchases to be put toward travel expenses. At $2.62 a gallon for diesel, the national average Aug. 10, 20,000 gallons ($52,400) in fuel purchases would net you 52,400 miles at the base rate of a mile per dollar in purchases. With each 10,000 miles worth $100 in travel purchases, your fuel purchases alone would net you $524 in yearly travel benefits. Discover’s Miles and certain other cards also offer double-mile promotions, so annual benefits could be even higher.
Some users prefer straight cash-back programs because the benefit is not limited to travel or gifts.
Take Social Security early or late?
You have a choice whether to begin receiving Social Security benefits early (age 62) or at full retirement age (at 66 if you were born between 1943 and 1959, at 67 if 1960 and later). Say you’re 62 and, like the average owner-operator, with a working income of $51,000 averaged over enough years to qualify, you would be eligible for $1,050 a month now or $1,393 a month in 2013, at age 66.
As illustrated in the graph, if you start now, by the time you turn 66, you’ll have collected $50,400 in benefits. If you start at 66, you’ll need to live through age 78 and a half to make up for those missed benefits; beyond that, the higher payments would be to your advantage. (SS payments are taxable at varying levels depending on your income, which can skew these calculations a bit; if you want to do this precisely for your situation, take it into consideration and get with your accountant. Or visit ssa.gov/planners for some good calculators.)
The average male life expectancy is 81, according to the Social Security Administration. For women, it’s 84.
If you’re healthy and can continue working, it’s probably best to wait. “It isn’t a hard and fast rule,” says ATBS’ Miller. “It’s a personal value decision.” Balancing your needs with those of your spouse, as well as evaluating your life expectancy, will likewise figure into your decision.
Traditional IRA or Roth IRA
A contribution to a traditional Individual Retirement Account has the benefit of avoiding income tax in the year the money was earned, as well as during the years the investment appreciates, but it is taxed when you take the money out. A Roth IRA contribution offers the opposite scenario: tax due for the year it was earned, but no tax later.
Assuming equivalent returns on a traditional IRA and a Roth IRA, the Roth is generally the better choice after all taxes are paid. For the traditional IRA to produce a better yield, you would have to determine how much you saved by deferring taxes each year and then invest all of it, getting a rate of return generally above 5 percent. n