Fix Your Finances

The path to being a millionaire starts with good understanding and control of your business.

Owner-operator Daniel Garner says if he could change one thing about himself, he’d be a millionaire. Though it may seem like an unrealistic goal, who doesn’t want to have a better financial situation? Many times, improving your financial well-being is easier and less scary than you think. The hardest part of dealing with finances often isfinding the discipline to begin and maintain good habits, but it pays off in the end. Here are five key areas for improving your bottom line:

  1. CREATE A BUSINESS PLAN AND KEEP IT UPDATED. “Less than 10 percent of owner-operators have ever made out a business plan,” says Jeff Amen, who runs American Truck Business Services with his brother Todd.

    “The failure rate for truckers with business plans is a lot lower,” says Todd Amen. “Having one forces you to pay attention to all aspects of your business.”

    A business plan can help you guide your operation long-term by predicting costs and income, and giving you the critical information you need to make wise decisions. A typical trucking business plan will include information on your budget, how you plan to pay for your truck, the kind of freight you plan to haul, the company you lease to (or if independent, the companies you haul for) and how many miles you expect to drive. The plan will also lay out your expectations for business cycles and set a schedule for time off.

  2. UNDERSTAND AND MANAGE CASH FLOW. Too many owner-operators fly by the seat of their pants and don’t budget for predictable expenses, such as tires. “If they don’t do that, there aren’t very good odds that they’ll have the money,” says Kevin Rutherford of The Alliance.

    Experts recommend saving money each month to cover not only tires, but major maintenance and big-ticket emergencies.

    In addition, Howard Abrams of PBS Tax & Bookkeeping Service in Tarzana, Calif., recommends saving up to six months’ pay to cover your normal living expenses in case you find yourself out of work and without income. If you’re running low on self-discipline, set up an automatic draft from your checking account into a savings account, money market account or conservative mutual fund to build and maintain adequate reserve funds.

  3. WORK TO CUT FUEL COSTS. With diesel prices remaining high, no owner-operator can ignore fuel for potential cost savings.

    First, pay attention to your speed. According to Kenworth research, you lose one tenth of a mile per gallon for every mile per hour increase over 50 mph.

    Shifting at the optimal rpm or investing in an automatic transmission can cut fuel costs by 3 percent to 5 percent. Even simple practices, such as slow stops and starts, can boost your mpg.

    Focus on idling. Most engines use one gallon of diesel an hour when idling. If your engine idles five hours a day, that’s about $3,100 a year if diesel costs $1.70. Bump that up to eight hours during peak summer or winter months, and you could be spending $4,000 or $5,000 a year in fuel when the wheels aren’t turning.

    Maintain proper tire pressure. Tires underinflated by 10 percent to 15 percent increase your fuel costs by 3 percent to 5 percent.

    Finally, spec with a “gear fast, run slow” approach. This means the powertrain is spec’d for a high top speed, but you run at generally slower speeds, thereby keeping the engine in an efficient, low-rpm range.

  4. ASSESS PERSONAL SPENDING. “Everyone says, ‘I’m not making enough money,’ but usually it’s because they haven’t taken the time to do a personal budget to see how much they are spending,” says Rutherford. “Really, they just aren’t making enough to support their lifestyle.”

    Experts recommend keeping personal finances distinct by maintaining separate checking and credit card accounts. Not only does this help you rein in discretionary spending, but it provides more clear-cut records for tax purposes. If you get advances, use them strictly for business purposes.

  5. CONSULT TRUCKING SPECIALISTS. Seek sound advice from trucking specialists – professionals such as accountants or lawyers who specialize in the trucking industry – when making important decisions such as which truck to buy, which fleet to lease to, or whether to expand beyond one truck. Consult a trucking tax specialist, for example, before changing from a sole proprietorship to a corporation, says Abrams.

Keeping track of your receipts not only helps you know how much you’re spending on what, but it also makes things easier at tax time.

“He who has the most receipts wins,” says Perry Wiseman, president of the Truckers Accounting Service in Omaha, Neb.

Organize them by trip, by month or by any other system you and your accountant work out. Keep a notebook to write down small expenses, such as coin-operated laundry machines, that have no receipt.

“If you ever get audited, you need to have support for every item you’re deducting,” Wiseman says.

So you think you can’t find ways to save money? Here are five ways to jump-start your savings.

BUY IN BULK. Buy cases of sodas or snacks instead of buying them one at a time at every stop. In restaurants, order water; skip cobbler and ice cream and enjoy a soda and a few pieces of candy in the truck.

SCALE BACK. If you have an expensive habit, such as smoking, try to cut back a little bit every week. It saves money and improves your health.

SETTLE FOR USED. Thrift stores and the Internet are great for buying used books, magazines, movies and music. You can often find the entertainment you’re looking for at less than half the price of new.

PAY ON TIME. Simply paying attention to late fees and interest rates on your credit cards and bills, and then paying on time, will save a lot. To save even more on credit cards: Pay a little more than the minimum due each month.

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FIGHT IMPULSES. Instead of carrying to the checkout that T-shirt that caught your eye, leave it on the shelf. If you are still thinking of it before you check out, then consider buying it. When you’re in the market for a big-ticket item, especially a brand-name item carried by many vendors, shop online to make sure you’re getting the best price.

Are you still writing checks and stamping envelopes to pay your bills each month? For someone in an over-the-road operation, online bill paying can be more convenient and cost-effective, and it can reduce the mound of bills that accumulates in your mailbox while you’re on the road. If you occasionally get charged for overdue payments because you’re not home to pay the bill, you could save a bundle by making remote payments from the road.

With many banks eliminating fees and improving services to lure more online bill payers, this may be the perfect time to sign up and start clicking.

Banks such as Citibank and Bank of America allow you to control your online payments by selecting a payee and entering the amount due. Or, you can have your bills automatically debited from your account.

Despite the benefits, Richard Blatter, an owner-operator from Maud, Texas, says he wouldn’t consider paying bills online. “I’m not comfortable with the security of the Internet yet,” he says.

While such concerns are valid, security has improved, and most banks say their customers have zero liability if they lose money due to fraud. Consumers who bank online reduce the risk of identity theft by more than 10 percent because they create fewer paper statements, according to Javelin Strategy and Research.

Covering the business skills required to succeed as an owner-operator takes more than a magazine article. That’s where Overdrive’s Partners in Business comes in.

The manual is for owner-operators who are just getting started, as well as seasoned independents who want to reinforce their business skills.

The updated 2004 edition will contain several easy-to-use worksheets to help you with budgeting, business plans and other aspects of your business. It will be available in September. To reserve a copy, call (800) 633-5953, ext. 1342.

You can also benefit from attending Partners in Business seminars each day of the Great American Trucking Show in Dallas, Sept. 10-12.

Financial Planning Association
(800) 322-4237

National Association of Enrolled Agents
(800) 424-4339

National Association of Independent Truckers
(800) 821-8014

National Association of Personal Financial Advisors
(888) 333-6659

Owner-Operator Independent Drivers Association
(800) 444-5791

Debt – it’s another nasty four-letter word. If you’ve managed to avoid it, you’re among the minority, but all it takes is one slip to slide down that slippery slope. Those rectangular pieces of plastic in your wallet can get you there fast, and once you’re in credit card debt, it can seem impossible to get out.

If your credit card balances are large and growing, you’re losing thousands of dollars a year in interest payments. It’s time to stop ignoring your predicament.

Here are some pointers for paying off your debt, from Suze Orman’s 9 Steps to Financial Freedom:

  • Cut up all but one credit card for emergencies.
  • Pay off the credit card with the highest interest rate first, and then pay off the rest in descending order.
  • Pay as much more than the minimum payment as you possibly can every month. If you owe $5,000 at 18 percent interest and all you do is pay the minimum, it will take over 30 years to pay it off.
  • Negotiate the best interest rates, even if you have to switch credit cards every six months.
  • Understand everything about how your credit card works, including fees and how the company charges you.
  • If you lack the self-discipline for these steps, contact the Consumer Credit Counseling Service at (800) 388-2227 or this site. The agency helps you organize and consolidate your debt.

Russell Fullingim of Truckers Financial Service in Corning, Calif., was an owner-operator before he ventured into the world of finance. When a serious trucking accident landed him in the hospital for three months, his disability insurance enabled him and his family to stay afloat.

“My wife was in college at the time, and her son was in college,” he says. “Because I had taken out disability, we never lost the car or the house, and they didn’t have to quit school.”

Now, Fullingim advises his clients to invest in income replacement insurance. “I always hear, ‘I can’t afford it, I can’t afford it,'” he says. “Well, then you need to be doing something differently.”

Income replacement insurance varies in cost and coverage. The main factors are how long you must wait to receive benefits, how large the benefits are, and how long you continue to receive benefits. Personal factors, too, will influence the premium – income, age, health status, bad habits, gender, leased or independent status, and type of loads you haul.

“I’d say two out of 10 guys are putting anything away for retirement, which is scary,” says Perry Wiseman of Truckers Accounting Service in Omaha, Neb.

Sean Hall, an owner-operator from Heflin, Ala., who has been driving trucks for 20 years, says he started saving for retirement only one year ago. He wishes he had started sooner.

In fact, experts say the best way to build enough savings to retire is to start early. The earlier you invest, the more time your money has to grow. If a 25-year-old puts $400 into a retirement fund every month until he reaches age 65, and his money grows 10 percent a year, he will retire with almost $2.5 million.

Five major retirement plans are available for self-employed individuals – traditional Individual Retirement Accounts, Roth IRAs, Simple IRAs, SEP IRAs and Keoghs. Talk to your accountant or a financial planner about which type best suits you.