Why Updating Your Financial Forms is So Important

The reason updating your financial forms is so important is best explained by way of example.

A couple of years back there was a gentleman who, before he died of cancer, make sure that the balance of his retirement funds would go to his children by working with financial advisors and his attorney.

The gentleman however, unfortunately, made a mistake on his IRA beneficiary form. Where he should have specifically listed his children’s names and the percentage of money he was designating each of them, he simply wrote “to be distributed pursuant to my last will and testament”.

Since the form was filled out incorrectly, the man’s surviving spouse (who had married him just two months before his death) became the sole beneficiary of all of his money by default, all $400,000 of it, and his children got nothing.

The problem in this case was that the gentleman had forgotten to update his beneficiary forms, which likely would have led to the discovery that they were filled out incorrectly. Oftentimes this happens when people have major life changes.

It’s important to note that the designation on your IRA outranks any stipulations in your will. The reason is that your estate is actually governed separately from any beneficiary accounts like retirement accounts, bank accounts, CDs, stocks, bonds, mutual funds, insurance policies and annuity contracts.

It’s also vitally important to remember that there are no automatic reminders to update these forms, and thus you need to somehow remind yourself to do it regularly. The tips below can help you to do that.

First, you should set aside a regular time at least once a year to update any beneficiary forms that might have. Since they override your will 99% of the time, it’s vitally important to keep them up-to-date and make sure that they don’t contradict other beneficiary forms.

It’s also important that you designate specific percentages for your beneficiaries. If you want your beneficiaries to get the same amount, you can write “in equal shares” on the form. If you want to make sure that the descendants of your beneficiaries get the funds, then you should write the term “per stirpes” which means “bloodline” in Latin.

If a bank that you’re using changes its name or merges with another bank, you should definitely fill out new forms to make sure that the new bank’s name is on your new forms. In many cases forms with the name of the old bank will be invalid and, unfortunately, most banks won’t bend over backwards to tell you.

You should also have an emergency file in your home where you keep hard copies of all of your beneficiary forms. This should include forms like your “payable on death” and “transfer on death” forms. This should be done even if you have all of your forms online. Simply print them out and keep hardcopies at home.

Finally, you may wish to hire a certified estate planner as, simply put, many financial planners and attorneys don’t know the laws well enough to avoid making mistakes when filling out these vitally important documents.

Why you should swear off debt, but not swear off credit cards

While getting out of debt is no doubt a good thing, many consumers are surprised to see their credit scores fall after finally paying off their debt. That’s led to a bit of a misconception about needing debt in order to have “good” credit but, while using credit is a good way to increase your credit score, there are certainly good and bad ways to do it.

For example, if you use credit cards and pay them off in full every month you won’t have debt and you’ll also be building good credit. The lesson? Avoid debt but don’t avoid credit cards.

Many people fall into the trap of paying off their credit cards and then promising themselves that they’ll “never go into debt again.” While staying out of debt is definitely an excellent plan, cutting up your credit cards and never using them again isn’t, and could leave you with either a low or no credit score.

While there are different credit scoring models and the way they figure out your score isn’t always the same, in order to have a credit score you need to have had at least some recent activity on your credit report. Not using your credit card after you pay off the outstanding balance will likely cause the card issuer to close your account due to inactivity and, once that’s done, they won’t report anything to the major credit bureaus. If that card happened to be your only type of active credit, you will lose your credit score altogether.

The easiest way to work around this is to use your credit card occasionally and, when the bill comes due, paid it off in full immediately. If you’ve just emerged from heavy debt and didn’t have a credit card, getting a secured card and using the same strategy is an excellent idea.

The fact is that, depending on what type of debt you have and what you did to pay it off, paying off your credit card debt in full can cause a number of different shifts in your credit score. If, for example, a high percentage of your credit limit was being used before, your credit score might actually improve because your “debt to credit ratio” will be lowered.

If you stop using the card completely however, as we mentioned above, the card issuer may close your account. What this does is reduce the available credit that you have, something that could hurt your “credit utilization ratio” and lower your credit score.

The type of accounts that you are using at the same time, or the “mix” of credit that you have, can also affect your credit score. If, for example, you had credit card debt and student loan debt and you’ve recently paid off your student loans, your credit score may go down because you don’t have any active installment loans on your credit report. On the other hand, paying your credit bills on time and keeping your credit utilization rate as low as possible is much more important to your credit score.

Having an understanding of how your various credit accounts affect your credit standing, as well as how credit scores work, is always a good idea. If your goal is to get out of debt without hurting your credit score, use the advice above and do your own research as well so that you’ll not only be debt-free but also keep your credit rating healthy.

Budgeting Tips to Help You Buy a New Car

For new car buyers, it’s a common mistake to get caught up in the asking price while forgetting about the overall cost of car ownership. If you’re in the market for a new vehicle, start thinking about running costs in addition to the sticker price as you work out a feasible budget. You may see a great deal on a convertible sports car that seems impossible to resist, but will you really be able to afford the cost of fuel and maintenance? It’s important to take the following factors into consideration as you create your initial car-buying budget.

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Starting Price

Naturally, the first thing you’ll need to do is narrow down your options to a range of starting prices that you can afford. Seemingly similar cars can vary in price, as you can see in this article comparing the Audi A3 Sedan to more expensive competition. Think about whether or not you’ll be taking out a loan to pay for this car. If so, look at what monthly payments might look like. How much can you really afford to put aside each month to repay a car loan? Don’t stray from that figure at the dealership.

Fuel

Fuel is one of the most significant running costs that will impact your finances on a daily basis. Rugged SUVs can be surprisingly affordable, but oftentimes they make up for it with less than perfect fuel economy. New cars come with an official MPG figure, but it’s better to use these for comparison purposes rather than as a realistic figure. The only way to see what type of fuel economy you can really expect is to take the car for a test drive. Take a look at the CO2 emission rating as well, as this will impact road tax.

Insurance

Car insurance is another necessary running expense that should be added to your budget. Insurance will vary widely depending on the make and model of car, your driving record, and even your occupation. To work this into your budget, try running the details of the car you’re interested into an insurance price comparison website (or several).

Repairs and Maintenance

If you’re purchasing a brand new car, it should be covered for at least a year under a manufacturer’s warranty. This will take care of any repairs for the first few years. If you’re buying used, you can expect to pay repairs and maintenance out of pocket. Factor in the cost of annual servicing, which should include a thorough check-up and oil change. The cost of servicing is another factor that can vary, so it’s worth shopping around to find a reliable garage with fair prices. Independent garages may offer better deals than dealer garages, for example.

Depreciation

It’s often overlooked, but one of the biggest costs of car ownership is actually depreciation in value. When you buy a new car, it starts losing value the minute you drive it off the lot. As a result, many models have lost half of their starting value only three years after the initial purchase. If you’re planning to buy a car that will last you for the next decade, this won’t be too much of a worry. However, if you plan to trade your car in only three years down the line, this is a very important budgeting factor.

These are all ongoing costs that should be added to your budget before you start shopping around. This allows you to see the big picture and avoid any costly mistakes.

Survey finds that many Parents don’t feel Comfortable Teaching their Children about Finances

While it’s a fact that the average parent wants to be a good financial role model for their child, many parents today don’t know where to start as they face financial difficulties of their own.

According to a survey by investment management firm T. Rowe Price, over two thirds of parents said that, when it comes to setting a good financial example for their children, they are “very or extremely concerned” about doing it. Even worse, nearly 25% of parents surveyed admitted that they are “not good with money” and don’t believe that they should be the ones to teach their kids about how to handle it.

Many parents admitted in the survey that they simply don’t want to talk to kids about finances because they don’t want them to worry about financial challenges that their family might be facing, while others believe that they’re simply not prepared well

“A lot of parents think they don’t know enough about money themselves, so they’re reluctant to talk about it,” said Stacy Francis, a New York certified financial planner who is also founder of “Savvy Ladies,” a nonprofit financial empowerment organization for women.

“Parents in huge amounts of debt or living paycheck to paycheck think they’re least qualified to talk to their kids when they may be most qualified,” Francis said. “They can share what’s been working and what’s not been working.”

Unfortunately, many parents believe that in order to explain finances to their child they need to have all the answers. Most financial advisors will say that this isn’t necessary and what’s more important is that they simply encourage their children to have good financial behavior, although that’s sometimes not easy to explain.

Stuart Ritter, a certified financial planner with T Rowe Price, says that ”the relationship with parents, kids and money is pretty complicated.” He goes on to say that “One of the things we learned from parents is they’ll borrow money from their kids to tip the babysitter. Hopefully they’re putting it back. And they’re bribing their kids. They’re using the money as a reward.”

Indeed, one thing that’s problematic is that, according to the T. Rowe Price report, 50% of the parents surveyed admitted that they  bribe their children with money to encourage them to do the right thing. Nearly a third of them also admitted that, when things get a little “shaky” financially, they sometimes “borrow” money from financial accounts that they have set up for their children like college education funds.

Interestingly, having a “piggybank” and using cash is something that, for today’s child, isn’t nearly as prominent as it was for their parents. 924 children aged 8 to 14 were surveyed by T. Rowe Price and over half of them said that they’ve used mobile apps to make purchases and over 60% said that they’ve shopped online. A third of the parents surveyed said that they feel that cash has become obsolete.

Francis says however that getting a conversation started about finances is still easy to do with an allowance, something that might be a little old-fashioned but still works. “It’s a good way for kids to start to learn responsibility—allowing them to spend a portion now, save some for a big goal, save some for college and give a portion to charity.”

Parents have the opportunity to teach their kids about finances on a regular basis and simply need to be more proactive about it and, when it comes to money matters, incorporate them more frequently into family conversations.

 

What wealthy women do differently than wealthy men

Today’s blog is a little bit different than usual. We’re going to be taking just a quick look at how women differ from them when it comes to creating wealth, based on recent research. It might not help you in your financial affairs, but it’s quite interesting.

The Forbes list of billionaires has 1645 people, 172 of whom are women. Of that 172, 32 of the women are “self-made” and the rest made their money either from marriage or an inheritance.

This begs a number of questions, including how come there aren’t more women billionaires, given that women have made such great strides overall in the rest of the economy? Also, is there a difference in how men and women create wealth?

A recent study from Spectrem Group asked millionaires, both men and women, about the factors that led to their extreme wealth and the results suggest that, when it comes to creating that wealth, the perspective that women have, as well as their experience, is quite different.

For example, when it comes to building wealth, most women will cite family connections and astute financial advice, as well as frugality. On the other hand men talk more about running their own businesses, taking risks and even a bit of luck.

When it comes to frugality for example, while just over 75% of men cited it as one of the reasons for their wealth, almost 85% of women did, nearly 10% more. Decisions made by financial advisors were cited 46% of the time as opposed to 34 by men, and 11% of women cited family connections as the source of their wealth as opposed to only 7% of men.

Interestingly, when it comes to the “luck factor”, over 40% of men said that it had a lot to do with their wealth whereas just over 30% of women claimed the same.

Spectrem Group, is a wealth building research firm, and their President George Walper says that, when it comes to wealth, women face much different obstacles then men, and many different factors

“Because of the unique financial challenges women face, such as salary inequality, that can impact retirement savings, they are more likely than men to credit frugality,” he said. “Men, on the other hand, are generally less risk-averse and more aggressive investors than women and more likely to pat themselves on the back for risk taking.”

Walper also added that, when it comes to taking credit for their wealth, many more women will give the credit to their financial advisor than men will. Most wealthy men tend to take credit for the investment decisions that they made themselves rather than give it to someone else.

It just goes to show that, when you finally become a wealthy person, make sure to thank the little people.

 

Is there anything a taxpayer can do to avoid the Alternative Minimum Tax?

It’s estimated that nearly 4,000,000 American consumers will get stuck paying the Alternative Minimum Tax this year, more commonly known as the “dreaded AMT”. According to the Tax Policy Center, that means approximately $6,600 in extra tax costs on average.

Unfortunately, there are still many taxpayers who don’t even realize that there’s a two tax system in the United States and that, depending on several factors, they will have to pay whichever of those two tax amounts is higher.

The good news is that a certain portion of your income is exempt from the AMT.  Married couples, for example, receive around $80,800 for the full exemption and, for single taxpayers, it’s approximately $51,900. Unfortunately the “AMT exemption” will, as your income gets higher, be phased out, meaning that single people and married couples earn between $200,000 and $500,000 are the ones that will more than likely be facing the tax this year.

What “triggers” put you at a higher risk of facing the AMT?

Many of the deductions that you might qualify for on your “regular” federal income tax return are allowed with the AMT, including personal exemptions, standard deductions and also deductions for state and local income taxes.

For example,  when you live in a state where state and local taxes are high and you normally would take a big deduction on your regular taxes, or when you end up having many miscellaneous deductions or have several children (which usually means a number of personal exemptions), these deductions are instead adjusted downward or, in some cases, eliminated entirely when it comes to calculating the AMT.

Unfortunately, if you normally take these deductions, the AMT liability may be triggered by them. There are other “triggers” as well including exercising, but not selling, your stock options, reporting on your taxes that you have a large investment expense and also claiming accelerated depreciation on something. You could also put yourself at risk for the AMT liability if you use a home equity loan or line of credit for anything other than actually improving your home.

What can be done to avoid the AMT?

Frankly, you need to be careful when bunching your itemized deductions if you’re a borderline candidate for the AMT because they might end up losing their value. Shifting some deductions to a year when you won’t be subject to the AMT is what most tax expert advise, if possible.

Unfortunately, many upper middle-class taxpayers may not be able to do much if they are firmly in the “AMT zone” except prepare to pay higher taxes.

Who needs an Emergency Fund? If these things happen, you do.

If you’ve been an adult for any length of time you know that life is full of surprises, some good and some, well, not so good. Some of the “not so good” surprises include major car repairs, unforeseen illnesses and getting laid off from the job, all of which can catch you completely off-guard and leave you financially strapped.

When that happens, one of the best things that you can possibly have to help you is an Emergency Fund of cash set up to fix those repairs, pay those bills or see you through until you get your next job.

The so-called “experts” in finance will tell you that having an emergency fund of 3 months’ worth of money is a good idea, but frankly having 6 months or even 12 months’ worth of cash put aside “just in case” is much better. That means if you make $2000 a month after taxes, you need at least $6000 in your emergency fund to cover you for three months, $12,000 to cover you for six months or $24,000 to cover you for a full year. Is that a lot of money for many people? Yes. Will it save your behind if you have a financial emergency? Undoubtedly!

So what kind of emergencies are we talking about here? Let’s take a look, shall we.

First there is the loss of your job. Whether you’ve been laid off, fired or need to leave for personal reasons, your emergency fund will provide a much-needed “safety net” to help get you through until you get started working again.

Then there’s the dreaded medical emergency. The fact is, even if you already have health insurance it doesn’t cover all of the costs of care, especially if an ambulance ride is necessary or things like major surgery and physical therapy are needed. Also, don’t forget about your pets needing emergency medical help, something that can be just as costly, and just as big as a financial shocker.

If you suddenly have to move because you’re being kicked out of your apartment, your boss needs you in another state or for some other unforeseen reason, having an emergency fund will help to pay for moving expenses which, frankly, can be quite high. Not only that but if you need temporary housing, new furniture or need to put your things in storage for a few weeks or even months, having your emergency fund to pay for those extra costs will be a godsend.

Don’t even get us started about unexpected car repairs,  which always seem to come at the very worst time. An engine blows, a  timing belt goes or something else that costs hundreds, or even thousands of dollars, and insurance doesn’t pay for those things now, does it? Even worse, if you’re stuck having to purchase a new car entirely, having that emergency fund will at least take some of the sting out of your situation.

Speaking of repairs, let’s say that your refrigerator suddenly conks out, your washing machine goes on the fritz or a wind storm blows off half your roof. Sure, you might have homeowners insurance but if your deductible is really high you’re going to be left paying a lot of those repairs out-of-pocket. If you do, you’ll be glad to have the emergency fund handy to help out.

Then of course there is the last one on our list, unexpected travel. If your dear grandmother passes and she lives in California but you live in New York, going to her funeral is going to cost a pretty penny. The same thing can be said for any emergency travel that you need to make and, if your emergency fund is well-stocked, at least you’ll have the extra cash to cover the expenses.

The bottom line, dear readers, is simply this; having an emergency fund is basically “saving for a rainy day”. Since you really never know when it’s going to rain, or when a sudden financial expense is going to pop up, having that emergency fund handy and full of easy to access cash may very well be the only lifesaver you’ve got.

So do yourselves a favor and, even if it’s only 50 or $60 a week, start putting money aside into the emergency fund today. The fact is, you never know what tomorrow’s going to bring.

 

A case of Mistaken Identity? What to do if Debt Collectors start Calling for something you Don’t Owe

It’s happening more and more across the country; consumers receiving phone calls from collection agencies about bills that they don’t actually owe. In fact, the problem has grown so excessive that it’s now the #2 complaint that the Consumer Financial Protection Bureau is receiving. If you’re keen on understanding why it’s happening, and what to do about it if you find yourself getting these types of calls, read below and find out. Enjoy.

Simply put, people who don’t pay their bills expect to hear from a debt collector but what they don’t expect is to get calls or letters from a collection agency for debts that aren’t theirs. The question that this growing number of consumers have is what to do about it if it does happen, and the first thing that they should do is contact the Consumer Financial Protection Bureau or CFPB. In 2013 they started accepting complaints from consumers who were getting calls or collection notices that were unwarranted and, in the first six months, they got over 11,000 of them.

The most common complaint was mistaken identity, or collection agencies trying to collect on a debt from a person who didn’t actually owe the debt. The US PIRG, another consumer advocacy group, analyzed all of the complaints and found that the collection problems were already a major source of them, second only to complaints about mortgages during the same period of time.

Some of the other complaints from consumers about the collectors included;

What exactly are your rights?

Although it’s hard to have sympathy for them, the fact is that that collectors have a very tough job. Very few people actually want to talk to them so many of their calls and letters go unanswered or completely ignored. This of course makes it extremely difficult for them to verify information. Also, many consumers feel that if they simply ignore their calls and letters and don’t respond, collection agencies will go away.

The first thing that you should do if you’re getting calls from an unknown collection agency is to simply inform the caller that you won’t do anything until a “validation notice” is sent to you, something that’s required by federal law. They are required to send you that validation notice by the Fair That Collection Practices Act, and to do it within 5 days of their first contact with any consumer. The notice must include the name of the creditor to whom you supposedly owe money as well as information on how to proceed if you believe that the debt is not owed by you.

“You should do that in writing as soon as possible, preferably within 30 days of your first contact with the debt collector,” explained Christopher Koegel, an assistant director at the Federal Trade Commission. “Once they get that letter, the collector is not supposed to continue collection attempts until it can verify that you are the right person.”

One of the reasons you need to address this type of problem as quickly as possible is that many debt collectors will have this debt, whether it’s yours or not, and add it to your credit report, something that could lower your credit score. That’s why getting your free credit report every year from annualcreditreport.com is so important, so that you can find any incorrect information, dispute it in writing and get it taken off of your report.

By law if you inform a debt collecting agency that you want them to stop calling they must, but it’s best to do this in writing. If you actually do owe the debt it won’t make it go away, and the debt collecting agency could decide to take you to court, but the harassing phone calls to stop.

3 Steps to Set up a Budget

We’ve talked about this many times in the past and, simply put, the big difference between financially secure people and those who are not usually boils down to one specific thing; a budget. People who create and, of course, use a budget are usually more secure financially, have less debt and have higher credit scores then people who don’t.

If you still don’t have a budget and really don’t have a clue as to how you should start, the tips below will get you there and allow you to begin taking better control of your finances right now, today. Enjoy.

Your 1st  step is to look at the exact amount of money you spent per month over the last three or four months. If you primarily use a credit or debit card for the majority of your purposes, finding out this number is as simple as logging into your bank’s dashboard to see your transaction history. If you’re the kind of person that uses cash for most of your transactions and purchases however, it will be a little bit more involved as you’ll need to look at how much money came in, and how much money you had left at the end of the last two or three months, in order to determine how much you spent.

If that’s not possible, then at the beginning of the next month you should get a paper notebook or app and start keeping track of everything, and every purchase, that you make. (Yes, it might be slightly tedious but it’s vital to your financial future.)

What you’re looking for is where exactly your money has been going.  This is the information you need to figure out if you’ve been spending too much on certain things like entertainment, eating out, clothes and other “non- essential” items. Knowing exactly what you’ve spent is a vital part of putting together your first budget but, frankly, the next step is more important.

That 2nd step is making a plan to address your overspending.

Let’s say, for the sake of example, that you make $2400 after taxes every month. Now let’s say that you spend;

  • $1100 on housing
  • Florida dollars on groceries
  • $300 on entertainment
  • $100 on your phone
  • $750 on other expenses

Guess what bucko, you’re spending $2650 a month or $250 more than you actually make! Looking at those numbers is easy to see that there’s a problem, but the question that’s more important is how to address it, change it and fix it.

Since a budget is basically a spending plan what you’ll need to do is write down how much you’re willing to spend on each of those categories the following month and, more importantly, decide where to eliminate or at least cut back on spending. Will you eat out less, spend less on entertainment or change your phone plan?  What about clothing and $7.00 lattes at Starbucks?

Whatever you need to do to whittle that spending down to $2400 (or less if possible), you’ll need to do it if you want to get your spending and your finances under control and stay in control.

Your 3rd  step is to simply track your spending. Once you’ve categorized your spending (and you can make as many categories as you like) you need a system to track it. That’s about as simple as it gets these days with the plethora of spreadsheet programs or online budgeting apps available. Frankly, without one of these you’ll never be able to stick your budget so do yourself a favor and pick one up ASAP.

Actually, you might find out that keeping a budget is actually a bit of fun, especially when you see how much money you’re actually managing to save.

Every day, or at least once a week, check your spreadsheet and make sure that you’re not over your budget on any one particular category. Did you spend $80 today on groceries? Make sure you noted on your spreadsheet and see how much you have left for the rest of the month. Once you get the hang of it you’ll actually become quite skilled at making your money last longer, something that will inevitably help you to start putting away into a retirement account, paying down your debt or funding an emergency account.

Should you consider refinancing a student loan?

One of the biggest debts that the average American has is their student loans from college. Recently there’s been a lot of talk about “refinancing” a student loan and today  we’ll take a look at a number of different factors that you should know about before making a decision on whether to do this or not. Enjoy.

The first question is simply this; should someone refinance their private student loan into a loan with a lower rate? Most private student loans feature variable interest rates that have been based on a specific borrower’s credit history. When that person first takes out their private student loan, he or she probably has a limited credit profile and will be treated as a higher credit risk by most lenders. What this means is that, for most student loan borrowers, a private student loan comes with interest rates that are quite high.

That being said, there are a number of borrowers who, after graduation, and obtained a job and gotten excellent credit. These people may be able to qualify for a refinance of their existing private student loan and turn it into a new private loan at a much lower rate.

For many borrowers however the situation is, unfortunately, not available. Not only that but there are few financial institutions that actually offer this type of financial product. If you do happen to find one there are a number of things to consider.

First, look closely at the APR. While the monthly payment on your new student loan might well be lower, the interest rate could actually be higher due to the fact that your new long-term may be spread out over a longer period of years. If you are an active-duty service member, you might wish to consider that if you refinance its possible you’ll lose the rate benefits on your pre-service obligations.

You also need to closely consider the tax consequences as your new loan may not be considered a student loan and might not qualify for the interest tax deductions that student loan’s qualify for. If claiming this deduction is something you do every year you definitely will want to take a look at whether or not you’ll be able to continue doing the same.

As far as federal student loans are concerned, refinancing them as private student loans with a lower rate depends on a number of factors. The fact is, Congress has not lowered the rate on federal student loans in quite some time, including the most common loan the Unsubsidized Stafford Loan. If you’re a borrower with excellent credit you may be able to qualify to refinance your federal student loan with a newer one at a lower rate.

There are a number of risks however. First you need to look closely at whether you’ll be switching from a fixed loan to a variable rate loan. Since most federal loans have fixed rates you won’t have to worry about your monthly payment increasing if interest rates rise but, if you’ve switched to a variable rate loan and interest rates rise, your loan amount could rise with them.

Lastly you want to be sure to understand what you’re giving up with your federal student loan before you make the choice to change it into a new private student loan, mostly forgiveness options. On the other hand, if you have sufficient emergency savings, a strong credit history, a secure job and likely won’t need any forgiveness options, refinancing to a new private student loan may well be worth considering.

Indeed, it could help you take advantage of today’s historically low interest rates as well as the improved credit profile that you (hopefully) have today. It’s definitely a useful way to lower your monthly college loan payments as well as build your savings and retirement fund, but you need to closely consider all of the risks before signing on any dotted line.

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