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An IOU (I Owe yoU) is an acknowledgment of debt, normally specifying debtor, the amount owed, and sometimes the creditor.  A Promissory Note is a contract specifying unconditional terms on how to pay the debt, including interest (if any) and time of repayment.  The State of California is issuing IOUs to their vendors (essentially telling them I owe you money, without specifying when or how to repay).  However, when possible, you may want to require a Promissory Note rather than an IOU.

NOTE: If you want to provide someone a loan, make sure you do charge an interest.  Otherwise, it may be subject to gift taxes if the note is larger than the gift exemption (currently $13,000).  Current rates (in the USA) are published by the IRS.  (When reading them: short term is less than three (3) years, mid term is less than nine (9), and anything over nine (9) is long term.)

NOTE: Do I need to sign in front of a Notary or Witness?

A1. Generally speaking, there is no requirement for a witness or notary public to witness the signing of the Promissory Note. However, depending on the nature of the note and the governing law of the jurisdiction in which you’re entering into the note, you may be required to have witnesses or a notary public witness the Promissory Note. Even if it is not required, having an objective third party witness the signing of the note will be better evidence when you need to enforce the repayment of the note. Signing the note in front of a notary public is the best evidence that the Borrower signed the note.– Law Depot

A2. General Laws of Massachusetts do not require Promissory Notes to be signed by a Notary.  However, there seem to be some benefits when enforcing them when they are signed in front of a Witness — especially on family/probate situations.  Other states laws may vary.  Always consult qualified legal advice before making a decision.

If you need to enter into a binding Promissory Note, you can create one by using many of the available templates online.

• USALS (Free Sample)
• Microsoft Office Template
• DocStoc (Free Samples)
• LawDepot – Promissory Note. (Charges $5.00).
• Documatica – Promissory Note. (Charges $25.00)

An alternative to being laid off could be a reduction in salary. Companies are doing it when they do not want to lose trained and valuable employees, but they do have to reduce costs. I do not think I would advice a company to do so. A salary reduction makes everyone unhappy. And we do not want angry employees. Besides, the good employees will leave for better paying companies, while the bad employees will be contempt with the reduced salary.

However, in the event you are the one receiving the salary reduction, what should you do? In my opinion, and in short: leave for a better opportunity as soon as possible: you are not considered a valuable member of the team – not in “this individual is above everyone else” terms. If you value your career, you do want to be perceived as someone better and above everyone else: that is why they call it a ‘career’ – someone has to win the race.

Life is not perfect. There is a chance that you are left without choice: maybe no one else is hiring people like you, or you ended up on a dead end career – just like many people permanently lost their jobs when the computers and word processors where invented. What options do you have?

• Above All, Explain You Are Not Happy. This doesn’t mean that you will tell everyone you will leave – and not do it. But you should explain that “this is a temporary setback in your career and it just gives you double the incentive to remediate it at the next available opportunity“.  If you do not let your boss and your boss boss and your boss boss boss know… they may even think you are just too happy to still have a job even when your ex-coworkers may not have one.
• Negotiate Other Forms of Compensation - Companies may be willing to compensate in other ways. Extra vacation weeks? Reduced hours? Training (valuable one)? Education reimbursement for a degree? Relocation to a less expensive zone/plant? Ability to work from home? Company car? Restricted stocks, technical shares, options? You would be surprised where companies do have budget even if they can’t pay salaries. And remember that no matter how little an extra benefit may be… it may be better than $0.
• Any chance of going off as a contractor? The company is not doing great anyways. You should be looking for a job. It is a bit risky. But maybe you can negotiate the same compensation you had before, but without the job security. There is no job security on a company that is reducing salaries anyways!
• Time for excellence! If you haven’t been doing your best job, this may be the time to do so. If the company recovers everyone is safe. If the company doesn’t … next time may mean job cuts. You do not want to be on the bottom of the performance list.
• Retrain for a different job description. Your job may not be in the same demand as it used to be. That may be why you haven’t been able to switch to another company even when they reduced your salary on this one. Maybe it is time to think about a career switch – time to reinvent yourself. Training. Practicing new skills. Trying things you avoided before.
• Switch to a different job inside the company. Any new hire has more visibility than someone else who have been on the same position for a while. Yes, the new guy is the lower one on the job security schedule – but there is no job security at a company that is firing employees.

In the end, the best option may be to move to a different company. Keep that in mind. Keep looking. Keep making yourself desirable to other companies.

Then again… you may have your reasons for staying with the company who just showed you that “they are not that into you“. Maybe you have a good reason. And I have seen a few people who have benefited from staying on a company that shows them no love.  Only you can decide on your own future.

In an age of around 10% unemployment, a question comes up to my mind: Why do we want to give the impression that everyone needs to be employed? It doesn’t even reflect current practice. Half of the people are completely happy with the idea of not working. And I do not even think it is healthy to be employed 100% of the time, even if it is for a 30 or 40 year window of time that most of us call “career”. In fact, most of us are never employed 100% of the time anyways: we have the nights and weekends in the middle – and as silly as that could sound at first, some careers do not have weekends and work extremely long shifts or work-weeks – like the merchant marine, oil rigs, active duty military, etc.

We have 306 million people in the US (almost 7 Billion in the world). The number of unemployed people is at 14.5 million (or 4.7% of the population), yet unemployment is 9.4%. It is easy to understand. Our Civilian labor force is 155 million (All members of the population aged 16 or over in the United States who are not in the military or institutions such as prisons or mental hospitals and who are either employed or are unemployed and actively seeking and available for work.) Where are the other 150 million? Students, stay-at-home parents, retirees, discouraged workers, or simply those who have decided not to be part of the workforce. Some of these people have decided to stay out of the workforce to create opportunities for themselves: students. Others have done so to enjoy life (be with their child or retire).

An involuntary window of time without a job could be an opportunity to pursue some of the things that you always wanted, but didn’t had the time. However, one thing many employees are afraid of is an involuntary window of time without a steady paycheck – to support a paycheck to paycheck life. A situation caused by the impression that everyone is expected to be fully employed during the 30 or 40 year window called career. Maybe if we destroy that notion, we start reducing frivolous expenses and increasing a savings rate that will help us support ourselves and our society in a fully funded way.

For my business accounting I use QuickBooks Pro.  But to tell you the truth, chances are I would be equally happy with the QuickBooks Simple Start Free Edition 2009.  I have less than 20 customers (big ones).  And most of what I do need accounting for is create invoices, pay bills and print checks – and I do not even print checks, I fill them out by hand.  Good thing I got my Pro version for about $30 bucks on an online offer, and those where $30 bucks well spent.  Previous to that my invoices where done on Google Documents, as well as my business accounting.  That is an equally effective tool, but QuickBooks takes a lot less.

Most people, including myself, have no clue about business accounting when we start a business.  The first time a customer asked me to send them an invoice I didn’t know how one should look like.  I had to ask a colleague for a template that he got from another colleague.  I didn’t have clue either about how to record money spent, money owed, money people owed me.  Most importantly, it was easy for me to loose track of who owed me what and what was the due date for what they did owed me.  A real mess.

If you are starting a business, do yourself a favor:  Get accounting software. For your financial sake… and because it makes it easier at tax time.

I am still deciding about getting a bookkeeper.   Most bookkeeper can handle QuickBooks files and they can make it very easy to exchange information between the business owner, the bookeeper and the tax accountant.  More on that later.

It used to be that American Airlines was the only one giving miles.  Then all airlines started giving them, followed by hotel chains.  Then the credit cards, and lately the stores.  Everyone seems to be giving points or miles for every dollar you purchase.  Over time you end up accumulating a bunch of ‘currency’ that you neither asked for, neither need, nor know exactly what to do with it.  Worse, if you want to use it, you will probably end up spending money while using it:  even a free airline ticket incurrs in expenses because of the travel itself (hotels, meals) and all of the fees they attach to what used to be free.

I shouldn’t complaint that much.  Many of my pleasure trips around the world with my wife have been paid by points.  American Airlines have provided many business class trips and Hilton has provided many free nights at the executive floor; making my wife think I am a hero and missing me less when I went on business trips.  Yet, I wasn’t always able to accumulate points in the chains I wanted to, so I ended up with a phletora of accounts.  Some of them have even closed/expired automatically due to lack of use.  Others, I can see the value of the potential rewards depreciating over time (a point isn’t worth what it used to).

Lately I have been collecting a lot of those points in the way of Gift Cards for the stores I frequent the most.  Home Depot, Amazon.com, Best Buy, Starbucks.  Not a bad idea in my opinion.  The best value is using the services of the company offering the points.  However, if you are very far from achieving the goal level needed for that dream vacation – say, at this rate it will happen in year 2200 – you may want to get the alternative gift and enjoy it now.

We still hold on to the points and miles on American Airlines and Hilton HHonors.  I am sure I will use them later.

I have had this Capital One Visa for years, about 10 to be precise.  Great card.  7.9% fixed interest rate.  That is, until now when they tell me they will hike it up to 13.9%.  All in their right.  They have given advanced notice and allowed me to reject the terms of the change (which will require closing the account in the near future).

All in all, the card has been good.  They used to allow no fee balance transfers, and they gave me what at that time used to be a good credit limit ($7,000 in year 2000 was a lot of limit for me)..  No wonders that when I started my business I used it for big ticket purchases that where being expensed/charged to my clients.  (I may need to wait up to six months before my clients pay, so a low APR may be a good idea.

The issues started when they decided to refuse a few credit increases.  No good for business any more.  The rate increase just put the lid on the coffin.

Now I am looking for a card more suitable for business.  Debating between the American Express Plum or the American Express Gold OPEN for Business.  Too bad neither of them offer such low rates — they are charge cards, and must be paid in full at the end of the month.  Bigger limits, though… and they do allow for purchases to be held on special sections of the card for longer times, at rates that are not something to call home about.  They do compensate what they do by reducing paperwork, having a stronger travel insurance, and providing a few more tools for business.  Not to mention the rewards program.

Goodbye Capital One.  This change may prove once again that you do not want to mess with a perfectly good customer.  The customer may not be receiving what he really wants… but as long as you keep some of the old favorable terms you had with him, he will continue being loyal.

We just opened the Child’s first bank account. A regular savings account will do, under Uniform Transfers to Minors Act.

“In most states, minors do not have the right to contract, and so cannot own stocks, bonds, mutual funds, annuities and life insurance policies. In particular, parents cannot simply transfer assets to their minor children, but instead must transfer the assets to a trust. The most common trust for a minor is known as a custodial account (an UGMA or UTMA account).“– FinAid

We chose the UTMA structure mainly for tax purposes.  A child’s income tax bracket may be more beneficial than the tax bracket imposed to successful and hardworking people. There seems to be around $900 of income that could be shielded from taxes there.  Small change, but still good in principle.

The disadvantage of an UTMA is that the money is on child’s property.  The FAFSA (Financial Aid) will penalize him for having money and will reduce his financial aid in the future.  If we continue being successful, his financial aid will be reduced anyways, so this may not be such a big deal.

We placed the money in a savings account both, for the small ammount of the initial investment, and because the person who gave the gift is adverse to riskier investments.

Sorrow and Joy. Sorrow because the Federal government has decided to start normalizing our child – converting him into a traceable number. At the same time, it allows us to do things like open bank accounts for him and deduct him from taxes (if only we where not phased out). One thing for sure: this portion of our friendly Federal Government sure is efficient and quick.

Funny things we found on the Social Security card (I do not even know where mine is, and I remember seeing it only once in my life). It says it should not be signed until child is 18 years old, or when he gets his first job. I would imagine it is for Selective Service purposes and tax paying purposes respectively. Why give them out if not to be signed? What makes a person capable of signing something? Being an adult (18 years) or having a job? Raises many questions beyond this small snippet of information.

Too bad that by the time I get my Social Security, it will be bankrupt. By the time our child gets his Social Security…. well, it will be a joke. Maybe a bad taste joke.

We got our first child in the last few weeks. A lot of excitement and joy. As this blog is about financial matters, we will probably discuss the financial decisions we take in this process.

Fortunately we haven’t really had any major expenses so far. A few diapers and a crib that we bought. Everything else was a gift or a loan from friends: and I mean lots of things. The whole kit. From car seat to pack and plays, with all of the little clothing and linen items in between. I guess we have been fortunate for having so many great friends: of for having our child late in life, after everyone has finished having theirs.

What about hospital bills? We haven’t seen them yet. I am sure we will be seeing them soon. It is never as low as the $500 they promise on the insurance sheet. Hospitals always find ways to charge more for something. We may have to talk about those as well. Who knows, we may be lucky!

So far so good.

Some banks are returning the money they got from government. Promised returns may not show up. Should the government invest Taxpayer’s money?

We do invest already, in a variety of ways. First of all, let’s define the bounds of the idea of investing. Dictionary.com first definition is “the investing of money or capital in order to gain profitable returns, as interest, income, or appreciation in value.” That is the one I am sticking with, while excluding intangible or difficult to measure ideas of “investing in our future through education”, or “investing in our health”. While noble goals, they are beyond the scope of this article.

The Troubled Asset Relief Program (TARP) is the most recent example of investing. The government invested $700 billion dollars. However, we have had many other investment based bailouts, from the AIG crisis to the Car crisis in 2009 and everything in between, with bailouts now measured in the order of trillions rather than billions of dollars. Investment based bailouts are not new either: they have been used many times in history, some of them used in the Great Depression. The Social Security Administration invests the excess contributions into government backed securities – an entity investing into their own structure. Even some of the thirteen original colonies that preceded the United States of America used an investment/ownership based bailout when they converted from Charter Colonies to Royal Colonies.

One of the ways in which government officials sell bailouts ideas to the public is by promising the possibility of returns on the investment. The idea being that when you buy a troubled asset that no one else wants to buy, you stand the chance that the asset will recover and will be worth more than the amount of money you paid for it. A difficult idea sale when you think that the best investors decided to avoid the asset and now the government tells you they are a sound investment. The only reason I could start believing the government that they are indeed a sound investment is because the government has some powers to force people to buy from his own investments, and also has the power to make life easier to the companies they own.

Some of the over five hundred (500) financial companies that received bailouts on the current crisis are trying to return the money to the government while their stock share prices are still low. They feel confident that they will soon be in a stable financial environment and they do not want the government having a governing interest on them. Can’t blame them, as it is difficult to avoid a conflict of interest from the government when they both want to make their property profitable and their citizens (clients of their property) get the best possible value.
The problem here is that by returning the money, the government is left out of any potential earnings they would have had in the future. Essentially the government is being forced to sell their best investments while keeping the not so good ones: the ones that will not produce earnings or may even go belly up, wiping out the taxpayer’s money invested on them. Not a good investment strategy.

An individual investor would be outraged if the companies they owned forced them to sell out their stake. Then again, they probably can, if a majority of the voting shareholders (as is the case in these kinds of investments) did. In reality, the government has little option but to accept the payment for their shares (unless they want to invent any new laws against that).

It seems that this bank bailout will not provide too many returns. However, let’s see the other side of the coin: at least we are cutting our losses. We took a big loan to invest all this money, in the way of Treasury Bonds. Not only we will pay interest on that loan, but our currency can devaluate and our economy may suffer inflation. Getting some money back may allow us to pay off some of the loans we have (or avoid taking more debt in the near future).

The big question still remains: is there any way in which investing the taxpayer’s money makes sense? I did supported and still support, Bill Clinton’s idea of investing some of the Social’s Security over contributions on stocks rather than in the U.S. Government (see below). However, I would imagine that most people would not be so happy with it right now when the market is considerably down from its 2007 high. The natural reaction of people is not to invest when things are undervalued and invest when they are overvalued.

In my experience with investments I have found that even the most educated people are incapable of being right all the time. In fact, some of the smartest people end up broke now and then (ask Trump, Jim Cramer, or Kiyosaki). Individual, still able people, may recover from going broke, but a government could be in a more vulnerable situation if it goes broke, thus the risk of investment is greater than the risk of any individual investing. For that reason, I would rather see the government not investing, not even in themselves as it is being done in the Social Security Administration.

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