Your Money Matters - Archive - July - December, 2010

Your Money Matters - Archive - January - June, 2010

Your Money Matters - Archive - July - December, 2009

Your Money Matters - Archive - January - June, 2009

Your Money Matters
A Consumer Financial Column

Why you need renters insurance
June 27, 2011

By Jason Alderman

One common misconception among many people who rent their homes is that they are covered under their landlord’s insurance in case of an accident, burglary, or other disaster. Let me dispel that myth: Landlords typically only insure the building and any fixtures they own, so renters are responsible for lost or damaged possessions. And, if someone has an accident in your apartment, you’re liable.

Given this level of risk exposure, it’s surprising that up to two-thirds of renters don’t have insurance. You may feel your belongings aren’t worth insuring, but suppose you had an electrical fire or burst pipe: Think how much it would cost to replace your possessions – not to mention pay for alternate housing during repairs.

Here are a few tips for finding the right coverage:

Ask what’s covered. Renter’s insurance commonly covers property that’s lost, damaged or stolen due to most occurrences including fire, lightning, windstorms, hail, explosions, smoke, vandalism, theft, plumbing leaks, electrical surges or falling objects.

You’re also usually covered away from home – for example, if something is stolen from your car or hotel room, or if you get mugged. However, flood, hurricane and earthquake damage usually isn’t covered, so you’ll need a separate rider.

Catalog everything you own and how much it would cost to replace. Consider furniture, clothing, electronics, jewelry, art and other collectibles, books and CDs, sports equipment, etc. Many insurance companies and personal financial software packages provide free inventory forms. To settle claims faster and verify losses for tax purposes, save receipts and photograph or videotape everything; then store copies in a safe deposit box or other offsite location.

Compare payout options. “Actual cash value” (ACV) coverage pays the amount needed to repair or replace your belongings, minus depreciation and your deductible. The alternative method, “replacement cost” coverage, pays the amount needed to replace the items in today’s dollars, minus deductible.

Here’s the difference: A five-year-old TV that cost $500 is worth a fraction of that today. ACV would pay that depreciated amount, while replacement coverage would pay enough to buy a comparable new television. Replacement cost coverage is slightly more expensive, but often worth it.

Personal liability coverage protects you if someone files a claim alleging you caused them bodily injury or property damage, provided it’s not vehicle-related or tied to business activities. Consider coverage well above the minimum amount, especially if you own significant assets.

Loss-of-use coverage. Many policies pay an allowance for housing and living expenses if you’re forced to move out temporarily. Check whether this coverage is included or costs extra and what the limits are.

High-value items. Standard policies typically place limits on how much they’ll pay to replace certain expensive items like jewelry, antiques, art, electronics and computer equipment – often well below replacement value. You’ll probably want to purchase additional riders to fully cover these items.

Here are tips for lowering your premium:

• Raise your deductible.
• Ask about discounts for non-smokers or added security devices like deadbolt locks, alarms and smoke detectors.
• Many carriers offer multi-line discounts if you also purchase car insurance through them.
• Insurance is a competitive business, so shop around.

 

One last tip: If your elderly parents live in an apartment or assisted-living facility, make sure they’re covered as well.

Jason Alderman directs Visa’s financial education programs. To Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney.

 

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Video games aren’t so bad after all
June 20, 2011

 

By Jason Alderman

 

Next time you’re tempted to lecture your kids about wasting too much time on video games, first check out which games they’re playing – it turns out they may actually be learning important life lessons.

Much research has been done on whether online games and other interactive educational tools can teach people how to make better decisions regarding personal finances, including an exciting new study called “Improving American’s Financial Literacy: Educational Tools at Work,” by Lisa A. Donnini, PhD, KayAnn Miller and Kitch Walker.

The authors compared the credit performance of thousands of college students who opened Wells Fargo credit card accounts in two categories: Those who completed an online financial tutorial on the wise use of credit prior to being issued their card; and those who did not. The tutorial was based on content from Practical Money Skills for Life, a free financial literacy program run by Visa Inc.

Wells Fargo analyzed each account’s performance more than a year after they were opened and found that cardholders who took the tutorial demonstrated dramatically better credit behavior than those who did not. The results were eye-opening. Those who completed the tutorial:

• Had revolving monthly balances that were 20 percent lower than those who did not.
• Were 44 percent less likely to be 60 days delinquent on payments.
• Experienced FICO credit score increases that were 240 percent better.
• Were 23 less likely to have late fees.
• Were 51 percent less likely to file for bankruptcy.

 

These data provide tangible evidence of what many financial literacy practitioners have long believed: that financial education intervention given at the right teachable moment – in this case, immediately prior to opening a credit account – works.

So what has this to do with video games? According to Dr. Donnini, “Children have always learned through play and today, digital media has resulted in increasingly more sophisticated games that can engage youth while at the same time encouraging learning.”

In fact, many would suggest that the key components of good video games, including immediate feedback, rewards, motivation and goal-setting, may be a better fit for the high-technology, global world in which today’s kids live than the more traditional types of learning often found in the classroom.

Some of the better educational video games I’ve seen include several found at Visa’s Practical Money Skills for Life (www.practicalmoneyskills.com/games):

• Financial Soccer, a free, fast-paced, multilingual video game jointly developed with the Federation Internationale de Football Association (FIFA), which incorporates soccer’s structure and rules to teach children and young adults the knowledge and tools they’ll need to establish and maintain sound financial habits over a lifetime.
• Financial Football, a similar game jointly developed with the National Football League.
• Money Metropolis, where kids ages 7 to 12 navigate a multi-dimensional world, making life decisions that will affect whether their virtual bank account shrinks or grows.
• Peter Pig’s Money Counter, where kids ages 4 to7 can practice sorting and counting coins with the help of wise Peter Pig.

Other good games include: Bad Credit Hotel (www.controlyourcredit.gov), Planet Orange (www.orangekids.com), You Are Here (www.ftc.gov/youarehere), and Hands on Banking (www.handsonbanking.org). 

Bottom line: Although nothing beats playing in fresh air, there are plenty of electronic games that can teach your kids the skills they’ll need to manage their personal finances.

Jason Alderman directs Visa’s financial education programs. To Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney.

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Financial  advice for graduates
June 13, 2011

By Jason Alderman

If you – or one of your kids – are about to graduate from college or high school, congratulations on successfully navigating the twists and turns of the education system. You don’t need me to tell you what a challenging, rewarding and expensive road it has been.

But, as someone who’s learned a few financial lessons the hard way, I would like to share a few steps you can take now to ensure you’ll start the next chapter of life on sound economic footing.

First, live within your means. Unless you sailed through college on a full scholarship, you’re probably already saddled with thousands of dollars in student loan debt. (If you’re about to enter college, avoiding future loan debt is something to keep in mind.)

Add in rent, car payments, credit card and personal loan balances and other monthly bills – not to mention payroll taxes – and your new salary may not go as far as you’d hoped.

If you don’t already have a budget, start one now. Many free budgeting tools are available online at sites such as MyMoney.gov (www.mymoney.gov), the National Foundation for Credit Counseling (www.nfcc.org), and Practical Money Skills for Life (www.practicalmoneyskills.com/budgeting), a free personal financial management program run by Visa Inc.

Speaking of student loans, here are a few repayment tips:

• Most federal loans offer grace periods before repayment must begin, but many private loans do not. Carefully review your loan documents to see where you stand.
• Ask if your lender will reduce the interest rate if you agree to automatic monthly payments or after you’ve made a certain number of on-time payments.
• If you anticipate repayment difficulties, contact your lender immediately to try and work out an agreement to defer payments, extend the loan’s term or refinance at a lower rate.
• Many people with federal loans who are low-income, unemployed or working at low-paying, “public service” jobs in education, government or non-profits qualify for income-based repayment, where monthly payments are capped relative to adjusted gross income, family size and state of residence. To learn more, visit www.studentaid.ed.gov/ibr.

 

Many people don’t realize the impact their credit score has on their financial future until after it’s been seriously damaged from making late payments, bouncing checks, opening too many accounts or exceeding credit limits. This can haunt you later when you try to borrow money for a house or car, rent an apartment or apply for a job.

Find out where you stand by ordering credit reports from each major credit bureau – Equifax, Experian and TransUnion. You can order one free credit report per year from each bureau from www.annualcreditreport.com; otherwise you’ll pay a small fee.

To learn more about the importance of understanding and improving your credit score, visit What’s My Score (www.whatsmyscore.org), a financial literacy program for young adults run by Visa Inc. It features a free, downloadable workbook called Money 101: A Crash Course in Better Money Management, a free tool to estimate your FICO credit score and “Welcome to the Real World” money guides on topics such as student loan repayment, finding a job and budgeting.

You’ve worked hard to earn your degree; now put it to work for you. Just make sure you don’t sabotage your efforts by starting out on the wrong financial footing.

Jason Alderman directs Visa’s financial education programs. To Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney.

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Financial advice for fathers
June 6, 2011

 

By Jason Alderman

 

With Father’s Day upon us, dads everywhere are gearing up for an avalanche of gifts and “I love yous” from their spouses and kids. If you really want to return their affection, think about what you can do to protect your family financially. All it takes is a little organization and learning how to correctly allocate your resources.

First, get insured. If your family depends on your income, you must be prepared for life’s unexpected events whether an accident, illness, unemployment or death. Make sure you’ve got adequate coverage for:

• Health insurance. Everyone needs medical insurance, no matter how young or healthy. Just remember: Lower-premium medical plans aren’t necessarily cheaper overall; you also need to factor in copayment, deductible and prescription amounts, in- and out-of-network charges, coverage limits and exclusions when choosing a policy.

• Homeowner/renter’s insurance. Don’t let theft, fire, faulty plumbing or other catastrophes leave your family without a home or possessions.
• Life insurance. Depending on your family’s size and ages, you’ll probably want coverage worth at least five to 10 times your annual pay; more, if you want to cover college costs. And don’t forget to insure your spouse’s life so you’ll be protected as well.

• Disability insurance. Millions of Americans suffer a disability at some point during their working years that is sufficiently serious to make them miss work for months or years at a time; yet many forego disability insurance, potentially leaving them without an income after a serious accident or illness. Learn details of your employer’s sick leave and short-term disability benefits ahead of time, and if long-term disability is offered, it’s probably a worthwhile investment.

 

Start saving. To ensure your family’s financial security, you need to make regular contributions to several savings vehicles:

• Establish an emergency fund with enough cash to cover at least six months of living expenses. If that goal seems unattainable, start small: Have $50 a month from your paycheck or checking account automatically deposited into a separate savings account.
• Even if retirement is decades away, the sooner you start saving and compounding your interest, the faster your savings will grow. If your employer offers 401(k) matching contributions, contribute at least enough to take full advantage of the match: A 50 percent match is the same as earning 50 percent interest on savings.
• Once those two accounts are well-established, open a 529 Qualified State Tuition Plan or a Coverdell Education Savings Account to start saving for your children’s education.

 

Get organized. Make sure your affairs in order in case something should happen to you. With your spouse, organize files for:

• Medical, homeowner/renter, auto, life, disability and long-term care insurance policies.
• Banking, credit card and loan accounts, including passwords.
• A will (and possibly a trust) outlining how you want your estate managed after death.
• Durable power of attorney and health care proxy specifying who will make your financial and medical decisions if you become incapacitated. Also, a living will tells doctors which medical treatments and life-support procedures you do or don’t want performed.
• Birth certificate, marriage license, Social Security card, funeral and burial plans, safe deposit box information and other important paperwork.

 

Take these few steps to protect your family now and believe me, you’ll sleep better at night.

Jason Alderman directs Visa’s financial education programs. To Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney.

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Ways Consumers Waste Money
May 31, 2011

We’ve all heard the line, “Money doesn’t buy happiness.” For most of us that’s probably true, but wasting the money that we’ve worked hard to earn certainly isn’t a recipe for bliss either.

If you’re like many Americans, the money from your paycheck often disappears quickly. Even if you’re not living paycheck to paycheck, money always seems scarce, especially these days. Consumers most often waste money by making poor buying decisions or simply neglecting to take advantage of easy and obvious savings opportunities.

But there are ways to save money – sometimes lots of money – without sacrificing your lifestyle.

Do this: Buy a used car.
Not this: Buy a new car. Cars depreciate fastest during the first three years. And you can increasingly find quality used cars that are only a year or two old – at considerable savings over a new model.

Do this: Pay your bills on time and stick to your contracts.
Not this: Pay unnecessary late fees or early termination fees. Paying your bills on time makes sense. But also avoid terminating contracts early and incurring fees, especially for cell phones or cable. And, if possible, pay down credit cards early to avoid unnecessary interest charges.

Do this: Compare prices for home owners and auto insurance.
Not this: Pay what you’ve always paid because it’s too much hassle to switch. Insurance rates can vary widely from company to company for comparable coverage. Compare rates, even if you’ve always gotten a good rate from your current company. And take advantage of discount opportunities, such as buying multiple policies from the same company.

Do this: Apply for rebates.
Not this: Throw away the rebate form. Marketing firms estimate that 50 to 60 percent of buyers fail to submit rebate forms. Waiting six to eight weeks to receive a rebate is unpleasant, but the money back makes it worthwhile.

Do this: Clip coupons.
Not this: Throw out the ads from your newspaper without looking at them. And be sure to look for coupons online. More and more retailers are discretely placing coupons on their Web sites, and discerning shoppers can save a bundle by checking ahead of time for the latest deals.

Do this: Participate in your employer’s flexible spending account (FSA).
Not this: Figure it all costs the same and forget about it. Not using pretax dollars for medical expenses is throwing money out the window. Consult your employer’s HR professional to better understand how to maximize these benefits.

 

Seniors vulnerable to Internet scams

May 30, 2011

By Jason Alderman

 

We’re forever warning teenagers to be careful online – don’t reveal personal information to strangers, avoid scams, report bullying behavior. The same advice may be appropriate for grandma and grandpa as well. Seniors are the fastest-growing segment of new Internet users, as they’ve discovered email, online shopping and banking, social networking, traveling planning and other online conveniences.

Even the most tech-savvy among us sometimes fall prey to online scammers, so if your parents or grandparents have recently taken the online plunge, here are some safety tips you can share:

Update security software. Make sure their computers have anti-virus and anti-spyware software and show them how to update it regularly.

Think like the bad guys. Even the best software isn’t 100 percent foolproof, so teach them how to anticipate and ward off annoying – or criminal – behavior. For example:

• Only open or download information from trusted sites to which you navigated yourself. Don’t assume a link contained in an email, even from a friend, will necessarily take you to a company’s legitimate website.
• Don't click on pop-up windows or banners that appear when you’re browsing a site.
• Common email scams that target seniors include offers for discounted drugs and low-cost insurance, and supposed warnings from the IRS – which incidentally, never contacts taxpayers by email.
• Financial institutions never email customers asking for verification of account or password information.
• When shopping online, look for safety symbols such as a padlock icon in the browser’s status bar, an “s” after "http" in the URL address, or the words "Secure Sockets Layer” (SSL) or “Transport Layer Security” (TLS). These are signs that the merchant is using a secure page for transmitting personal information.

 

These are all common tricks used to infect your computer with viruses or to install spyware that records your keystrokes to obtain account or other confidential information.

Use strong passwords. Believe it or not, the most frequently used password is “password.” Other common, easy-to-crack passwords include simple numeric sequences and names of pets, spouses and children. For more secure passwords:

• Use at least seven characters with a mixture of upper and lower-case letters, numbers and symbols.
• Use unique passwords for each account in case one gets compromised. 
• Change passwords frequently.

 

Protect personal information. Never post sensitive information on any website (or share via email, mail or phone) unless you initiated the contact. This might include numbers for credit cards, bank accounts, Social Security, Medicare and driver’s license, address/phone and full birthdate.

Set privacy controls. On social networking sites, carefully review privacy settings that let you limit who has access to your personal information. Similarly, always review a company’s privacy policy to ensure you agree with how it may share your information with affiliate organizations.

Be skeptical of "free” anything. Before signing up for free trials, especially via pop-up windows or banner ads, make sure you understand all terms and conditions. Pay particular attention to pre-checked boxes in online offers before submitting payment card information for an order. Failing to un-check the boxes may bind you to contracts you don’t want.

For more tips protecting personal and account information and preventing online fraud, visit www.VisaSecuritySense.com, which features tips on preventing fraud online, when traveling, at retail establishments and ATMs, deceptive marketing practices, and more.

 

Jason Alderman directs Visa’s financial education programs. To Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney.

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Use Financial Windfalls Wisely
May 23, 2011

By Jason Alderman

 

If you’re lucky enough to win a multimillion-dollar lottery, you don’t need this column; you need a team of legal and financial experts to make sure you don’t blow your chance for lifetime financial security. But if you receive a considerably smaller monetary windfall, whether a tax refund, divorce settlement, inheritance or work bonus, there are actions you can take to positively impact on your current financial situation

First, take a breath. Before going on a spending spree, stash the money in a savings account until you’ve examined your total financial picture. Weigh existing debts, upcoming expenses and future needs to make sure you apply the money where it’s needed most.

Wake up and smell the tax windfall.  Working Americans have larger paychecks this year due to a tax break that cuts their share of Social Security payroll taxes by close to one-third. However, a recent poll on the National Foundation for Credit Counseling (NFCC) website revealed that nearly half of the respondents were unaware of this windfall.

“Some people will see an extra $2,000 in their paychecks this year, but regardless of the amount, put this money to good use while you have it, as the tax cut was only approved for 2011,” said Gail Cunningham, spokesperson for the NFCC.

Save for emergencies. To protect your family against the impact of a layoff or other unexpected financial crisis (such as a medical emergency, car accident or theft), set aside enough cash to cover at least six months of living expenses.

Pay off debt. Before investing the money, paying off outstanding debt first might be better – things like credit cards, car and student loans, and home equity loans/lines of credit. Start with debts having the highest interest rates first, then work your way down. But remember: Interest for certain types of loans, such as federally insured student loans, mortgages and home equity loans/lines of credit may be tax-deductible.

Save for retirement. Many people chronically underfund their retirement savings. One relatively painless strategy is to contribute a portion of your windfall into an IRA or 401(k) plan. It’s easy to have the money automatically withdrawn from your paycheck or bank account and the tax advantages these plans offer will make your savings grow even faster.

Finance college. If you’ve got kids, you’re probably already worrying about paying for college. Although your own retirement security should come first (you can always borrow for education, but not for retirement), if you do get a windfall, consider opening a 529 Qualified State Tuition Plan or a Coverdell Education Savings Account – two savings methods that offer terrific tax advantages.

Budget. Once you’ve used your windfall to pay off debt or start a savings plan, don’t slip back into bad habits. Numerous free budgeting tools, including interactive budget calculators, are available online at sites such as the U.S. Financial Literacy and Education Commission’s MyMoney.gov (www.mymoney.gov), the National Foundation for Credit Counseling (www.nfcc.org) and Practical Money Skills for Life, (www.practicalmoneyskills.com), a free personal financial management program run by Visa Inc.

And finally, don’t forget to reward yourself for having the discipline to use your financial windfall wisely. I like the 90/10 rule, where 90 percent goes for debt payoff or savings and 10 percent is to splurge on something fun. 

Jason Alderman directs Visa’s financial education programs. To Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney.

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Senior year sticker shock
May 16, 2011

By Jason Alderman

Parents, if your high-school senior is about to graduate, you have my heart-felt congratulations – and my sympathy. As your checkbook can attest, this has been an expensive year and it’s not over yet. You’re probably still facing senior prom, graduation gifts and many other expenses.

For those whose children are juniors, start planning and budgeting now for next year. Here are some expenses you can anticipate:

Senior prom can be one of the year’s biggest expenditures. According to a recent national survey conducted by Visa Inc., families expect to spend an average of $807 on prom-related expenses this year. These might include:

• New prom dresses often cost $100 to $500 or more.
• Another couple hundred for shoes, accessories, flowers and professionally styled hair, nails and make-up.
• New tuxedos cost several hundred dollars, not to mention formal shirt, tie, studs and shoes. Even renting them could run over $150.
• Figure at least $100 an hour plus tip to rent a limousine for a minimum of four hours.
• Prom tickets typically cost $50 to $150 per person, depending on venue, entertainment, meals, etc.
• Budget at least $40 for a nice meal.
• After-parties can run anywhere from a few bucks at the bowling alley to hundreds for group hotel suites.

 

Prom is only one component of the senior-year experience. Talk to recent graduates and their parents about expenses they faced and their lessons learned. Decide early on which expenses are essential and which ones you can do without.

For example, if your child is college bound, entrance exams, study guides and tutoring are important, but can quickly add up:

• The Scholastic Aptitude Test (SAT) costs $47 each time it’s taken, plus an additional $10 to $21 per individual subject test.
• American College Testing (ACT) costs $33, plus another $15 for the writing test.

• A comprehensive online SAT review course from the Princeton Review will set you back $599.
• Personalized individual and small group tutoring sessions can cost thousands of dollars.

 

Other common senior year expenses include:

• College application fees – often $40 to $80 per institution.
• For site visits at schools outside the area, costs can vary widely. Don’t forget airfare, gas, lodging, meals, local transportation, etc.

• Senior portraits and prints often cost hundreds of dollars.
• Graduation announcements, thank-you notes and postage – could be $100-plus.
• Senior class dues.
• Yearbooks can run $35 to $85, plus additional fees if you take out a congratulatory ad.
• Class rings – different styles often run $100 to $500 or more.
• Cap and gown – usually $25 to $50.
• Graduation gift and party – it’s up to you to manage expectations.

 

You want to ensure your child has a memorable senior year, but not at the expense of your overall budget. Before the school year begins, create a senior-year budget and get your kid involved in the tough decisions, prioritizing expenses from vital to non-essential. Learning the importance of setting and sticking to a budget is a valuable life lesson for your kids.

If you need help making a budget, numerous online tools are available online at sites such as the U.S. Financial Literacy and Education Commission’s MyMoney.gov (www.mymoney.gov), the National Foundation for Credit Counseling (www.nfcc.org) and Practical Money Skills for Life (www.practicalmoneyskills.com), a free personal financial management program run by Visa Inc.

Jason Alderman directs Visa’s financial education programs. To Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney.

 

Trim your vacation costs
May 9, 2011

By Jason Alderman

To paraphrase Yogi Berra, when it comes to gas prices, this is like déjà vu all over again. Instability in Africa and the Middle East, among other factors, has driven up pump prices to levels we haven’t seen since the summer of 2008.

Unfortunately for those planning their summer vacations, higher fuel prices are impacting many travel-related costs:

• If you’re driving, the cost to fill the tank has increased exponentially since last summer.
• Airfares, which are largely driven by fuel costs, are way up.
• Food is generally more expensive to account for increased shipping costs.
• Hotels and other businesses are also passing along their increased energy costs to consumers.

 

Because the last few years have been stressful on everyone, you probably need to recharge your batteries now more than ever. Here are a few tips for planning a vacation that won’t break the bank:

First, be realistic about what you can afford. Racking up debt can be almost as stressful as no vacation at all, so examine how vacation spending will affect your overall budget. Create a trip budget and try to anticipate all potential expenses. It’s amazing how quickly unanticipated expenses can torpedo your budget. Consider things like:

• Airfare – include taxes, fees for extra or overweight baggage, transportation to and from the airport, in-flight meals and entertainment, etc.
• Car rentals – factor in taxes, gas, fill-up penalties and insurance (although check your auto insurance and credit card policies to ensure you don’t pay for duplicate coverage).
• Hotel/lodging – don’t forget taxes and other local fees, charges for phone/internet, room service, tips, etc.
• Entertainment – include meals, event admission and ticket-ordering charges, transit passes or taxis, sporting equipment rental, babysitters and special clothing or accessory requirements (sunscreen, etc.)
• Cell phone roaming charges, especially in foreign countries, remote locations and at sea. Ask your carrier ahead of time to avoid nasty surprises.

 

Practical Money Skills for Life, a free personal financial management program run by Visa Inc., has a handy web-based travel calculator that can help you estimate travel costs and rejigger them to meet your budget needs (www.practicalmoneyskills.com/travel). It’s also available as a free iPhone app, which you can download from iTunes.

Search for deals on flights, hotels and rental cars at popular sites such as Orbitz, Travelocity, Kayak, Expedia, Priceline and Travelzoo. But beware: Before clicking “confirm,” make sure the final price matches the initial quote and that your seat is still available.

Consider a “staycation,” where you become a tourist in your own area and save on travel and lodging costs. Make sure you treat it like a true vacation, however, and don’t get trapped doing routine chores. If you’re at a loss for what to do, here are a few suggestions:

• Read reviews of local restaurants, museums, spas and more at www.yelp.com.
• Search for local attractions you’ve never visited at www.roadsideamerica.com or www.usatourist.com.
• Browse upcoming local events at www.eventful.com.
• If gardening relaxes you, dedicate time to sprucing up your yard. If you hate it, splurge on a gardener.

• Use money you save by not traveling to hire a housecleaner after your staycation so you won’t have to think about cleaning.

 

Don’t pass up a vacation – you’ve earned it. Just be cautious about how expenses can add up.

Jason Alderman directs Visa’s financial education programs. To Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney.

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Financial literacy teachable moments come at all ages
May 2, 2011

By Jason Alderman

 

I learned lots of valuable information in high school, but one subject that wasn’t on the curriculum was personal financial management. We didn’t learn how to balance a checkbook, why budgeting is important or how credit card interest works, among other life lessons.

Fast forward a couple of decades and technological advances have resulted in an exponential increase in financial products available to consumers, making financial decision-making all the more difficult; yet financial literacy courses are mandatory for high school graduation in only four states.

This was one of many issues tackled at the fifth annual Financial Literacy and Education Summit, hosted by the Federal Reserve Bank of Chicago and Visa Inc., on April 4, 2011. Leading experts, including key members of President Obama’s Advisory Council on Financial Capability (ACFC), also discussed:

• Government’s role in improving global financial literacy.
• How can financial literacy levels be improved in the current economy?
• How can government, the private sector and educators implement an effective, coordinated strategy for reaching consumers and equipping them with the necessary tools and resources to make wise financial decisions?

 

Panelists shared insights, success stories and personal examples gleaned from their endeavors in advancing financial literacy. Here’s a brief sampling:

• The Financial Literacy and Education Commission, a consortium of 22 federal government agencies and bureaus, has developed the framework for an overarching financial literacy strategy, establishing concrete goals for public and private sectors.
• Parents should look for teachable moments. When kids clamor for a new Nintendo, use it as a springboard to discuss the relationship between money and time.
• Financial education is a continuous process, from children’s allowances to retirement decisions, but age-appropriate timing is the key: Yes, you can teach teenagers how mortgages work, but they’re much more interested in learning how to buy a car.
• Make it fun. Research by the University of Florida, among others, has shown that students who played educational video games like Visa’s Financial Football scored better on benchmark exams those who did not. 
• There’s a huge opportunity for teachable moments in the workplace. Research shows that 70 percent of employees would like to have financial education provided by their employer. The ACFC currently is exploring ways to engage corporations in this effort.
• Many teachers feel they don’t have the skills, background or classroom time to adequately teach financial literacy, yet 89 percent of teachers surveyed (and 85 percent of parents), feel that it’s important to have financial education programs in the schools, whether it’s part of the formal curriculum, after-school programs, games, etc.
• Encourage local schools to offer relevant financial curriculum that will prepare students for financial challenges they’ll face as adults. One panelist noted, “I took years of French in high school and college but I’ve only been to France three times in 30 years. I didn’t take a single course teaching me anything about the stock market or compound interest or investing.”
• Panelists urged employers to create meaningful part-time jobs for high school students so that they can begin to equate how long they have to work to pay for things. Research has shown that kids who have jobs are much more likely to be high savers.

 

To watch a free webcast of the 2011 Financial Literacy and Education Summit, go to www.practicalmoneyskills.com/summit2011.

Jason Alderman directs Visa’s financial education programs. To Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney.

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Crime Can Happen Anywhere – Don’t Be an Easy Target
April 28, 2011

Recently, criminals in Madison stole valuables and personal information from a number of unlocked cars parked at a local health club, and used that information to withdraw a total of $20,000 from multiple accounts at several branches of local financial institutions.

The victims of these crimes did the right thing by keeping their savings in an account at their local financial institution. But they also made the all too common mistake of leaving other valuables unattended and unsecured, leaving themselves vulnerable to what’s known as “victim-assisted crime.”

It may seem like common sense to lock the doors to your house and car when you’re not around, but people everywhere are victimized each day through sheer negligence. In fact, according to recent FBI statistics, a car is stolen every 40 seconds – that’s nearly 800,000 cars stolen in a year. Most of those cars are left unlocked, and many still have the keys in the ignition.

These crimes eat up police resources and cause insurance rates to rise, so preventing them is in everyone’s best interest.

Most crimes are “crimes of opportunity.” A criminal often targets the easiest home to enter, the easiest car to break into, or the easiest purse to snatch. You can reduce your risk of becoming a crime victim by reducing the opportunity. Here are some ideas:

• Keep car doors locked, even when left unattended for short periods of time.
• When fueling, lock your car doors and close the windows – especially if you leave to pay.
• Before leaving home or going to sleep, lock all doors and windows. Even the best locks provide no protection if left unlocked. Securely lock your home even if you plan to be away for only minutes.
• Don’t leave belongings in plain view – in your car or home. This is an open invitation to thieves.
• Close and lock garage doors. An open garage door is a clear invitation to a burglar, especially if the garage is used to store such items as bicycles, power mowers, golf clubs and other easily stolen property.
• Don’t leave personal items like bicycles, strollers, toys and other belongings outside or in places like porches and patio areas.
• Don't leave garage door openers in unlocked vehicles parked at your home.

Fewer than 13 percent of burglaries are solved, according to the FBI. Nobody wants to see burglaries in their neighborhood or community. But they do happen. By taking simple precautions, you can decrease the chances that your home or car will be burglarized – and protect yourself and your possessions in the process.

For Mother’s Day, help mom get organized
April 25, 2011

By Jason Alderman

 

Mother’s Day is May 8. In addition to traditional gifts like candy and flowers, consider spending a few hours helping your mom organize her financial, legal and medical records so she – and you – know where she stands. Being prepared will make it much easier to take appropriate actions should an issue ever arise.

Here are a few key areas to sort out:

Retirement income sources. Gather these documents so your mom will know better how much income will be available throughout retirement:

• If she’s still working, your mom should already receive an annual statement from Social Security showing estimated benefits at varying retirement ages. (You’ll also need your dad’s statement to determine any potential spousal or survivor benefits for which she might be eligible.)
• Annual statements from pension plans for which she’s eligible, showing updated benefit estimates. This might also include potential spousal death benefits if your father has a pension.
• IRA, 401(k) or other retirement savings plan statements.
• Bank statements for checking, savings, money market and CD accounts.
• Company stock and bond certificates and statements for other investment accounts.

 

Outstanding debts. Also gather monthly statements and outstanding balances owed for major expenses including home mortgage or other property loans, home equity loan or line of credit, car loan or lease, credit cards, medical bills and personal loans.

Other important documents. Your mom should have documents instructing how she’d like her affairs handled, both while she’s living and after death. Look for:

• Medical, homeowner/renter, auto, life, disability and long-term care insurance policies.
• A will (and possibly a trust) outlining how she wants her estate managed after death.
• Durable power of attorney and health care proxy specifying who will make her financial and medical decisions if she becomes incapacitated. Also, a living will tells doctors which medical treatments and life-support procedures she does or doesn’t want performed.
• Birth certificate, marriage license, Social Security card, funeral and burial plans, safe deposit box information and other important paperwork.

• Contact information for professional service providers, including doctors, dentist, pharmacy, lawyer, financial advisor, bank or credit union, insurance companies, pharmacy, etc. Also give these providers your own contact information in case of emergencies.

 

Review all important documents regularly and make updates whenever her situation changes. For example, make sure that designated beneficiaries for your mom’s will, life insurance and retirement plans accurately reflect her current wishes.

If you need help guiding discussions on your mom’s current and future needs, Social Security’s special website for women provides information on retirement, disability and other issues (www.ssa.gov/women). They also have a Retirement Estimator that automatically enters her earnings information from its records to estimate her projected Social Security benefits under different scenarios, such as age at retirement, future earnings projections, etc. (www.ssa.gov/estimator).

Another good resource is the Women’s Savings Initiative, a program jointly developed by Heinz Family Philanthropies, the Women’s Institute for a Secure Retirement and Visa Inc. This free program features a book called “What Women Need to Know at Retirement,” which you can order on CD or download as a PDF or audio file at www.practicalmoneyskills.com/resources.

Discussing finances may not be as much fun as candy and flowers, but your mom will appreciate your concern for her financial future.

Jason Alderman directs Visa’s financial education programs. To Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney.

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Teach your kids about interest rates
April 18, 2011

 

By Jason Alderman

 

One of the most valuable financial lessons you can share with your kids before they leave the nest is to explain what interest rates are and how they work. The important financial transactions they’ll conduct as adults will likely be affected in some way by interest rates, whether as a lender or a borrower.

Here’s some background information to help guide those conversations:

Interest rates for lenders. Anyone who has a savings account or owns government or business bonds is, in effect, lending money to those institutions and earning interest on the loan. Unless you buy tax-free municipal bonds, however, this interest income is probably taxable, so shop around for favorable rates to maximize your earnings and help offset inflation. Compare bank CD, savings and checking account interest rates at www.bankrate.com; to find credit unions for which you’re eligible, visit www.creditunion.coop.

Interest rates for borrowers. Interest rates have even more impact on you as a borrower, especially for large purchases. For example: Most mortgages are for 15 to 30 years, so reducing the interest rate by a point or two could save tens or hundreds of thousands of dollars over the life of the loan. And credit card rates may vary by 10 points or more, depending on your credit rating.

Most borrower interest rates are expressed in terms of annual percentage rate (APR). With credit cards, the issuer may charge a fixed APR, or change it as bank interest rates vary (“variable rate”). Each billing period, the company charges a fraction of the annual rate, called the “periodic rate,” on outstanding balances. With mortgages, the APR also factors in points, origination fees, mortgage insurance premiums and other fees.

Interest rates also depend on:

• Whether the loan is “secured” (secured by collateral such as a house or car) or “unsecured” (not tied to collateral – like credit cards – so the lender relies on your promise to pay it back). Because they’re riskier for the lender, unsecured loans typically have higher interest rates.
• Credit score – people with higher credit scores are deemed less risky and therefore get much more favorable rates.
• Term length – long-term loan rates are usually higher than short-term rates, because the longer the loan, the greater the risk to the lender that you might default.

 

Fixed vs. adjustable. Home mortgage interest rates are either fixed for the life of the loan, or adjustable at predetermined intervals for part or all of the loan period. They’re usually tied to an index such as the 10-Year Treasury Note. When rate indexes are relatively high, many opt for an adjustable rate mortgage (ARM), which typically has a lower beginning rate and is therefore more affordable initially. However, when rates climb due to inflation or other factors, monthly ARM payments can rise sharply, which is why many people prefer the more dependable fixed rate.

Bottom line: Many factors in setting interest rates are beyond our individual control; however, teach your kids that they can control their own credit score, which can have a tremendous impact – good or bad – on interest rates.

Many good resources teach how to protect – or repair – your credit score, including MyFICO.com’s Credit Education Center (www.myfico.com/CreditEducation)  and What’s My Score (www.whatsmyscore.org), a financial literacy program run by, Visa Inc.

 

Jason Alderman directs Visa’s financial education programs. To Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney.

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Having a baby? Get your finances in order
April 11, 2011

 

By Jason Alderman

I wouldn’t trade the experience of raising my two kids for anything, but I must admit that when my wife and I started planning our family, we had no idea how expensive it would be. According to a Department of Agriculture report, a typical middle-income family will spend over $280,000 in inflation-adjusted dollars to raise a child born in 2009 until age 18 – and that doesn’t even include prenatal care or college costs.

Take it from one who knows, you’ll want to have “the money talk” well before the baby is born and you’re bleary-eyed from lack of sleep. Here are a few budgeting tips:

Create a health budget. Before the baby is born, find out what benefits your insurance will cover taking into account monthly premiums, deductibles and copayments. For example, are prenatal exams, baby check-ups and immunizations covered? Ask what your share of delivery costs will be. If complications arise, such as needing a Caesarian delivery or premature baby incubation, costs could skyrocket.

Parental leave.  Learn your employer’s policies, since some require up to a year’s employment before certain benefits like paid leave, short-term disability and unpaid leave kick in. In addition, the federal Family and Medical Leave Act allows up to 12 weeks of unpaid leave for births or adoptions, so check with your benefits department to see if you’re eligible.

Know what things cost. We were amazed how many “things” our babies needed. Must-haves include a car seat (required by law), crib and bedding, stroller, diapers, baby formula, medical and grooming supplies, clothing and home baby-proofing. Add in things like a baby bathtub, baby monitor and safety gates and we’re talking thousands of dollars before the kid is even crawling. Practical Money Skills for Life, a free personal financial management program run by Visa Inc., contains a handy calculator that can help estimate baby-related expenses (www.practicalmoneyskills.com).

 

Anticipate lost wages. When budgeting for living costs, factor in lost earnings that typically occur when a parent either temporarily leaves the workplace or chooses a job more open to flex hours or part-time work. Down the road, you’ll also need to weigh the cost of child care versus returning to work.

Investigate tax advantages. Ask whether your employer offers health care and dependent care flexible spending accounts (FSAs). These accounts let you pay for eligible out-of-pocket medical and child care expenses on a pre-tax basis – that is, before federal, state and Social Security taxes have been deducted. This lowers your taxable income, and therefore, your taxes.

You could save hundreds or thousands of dollars on expenses you’d have to pay for anyway. And remember, you’re typically allowed to change benefit coverage after having a baby, so you could probably add FSAs midyear.

Depending on your income, number of eligible dependents and other factors, the dependent care tax credit for federal income taxes may be preferable, although Dependent Care FSAs usually provide the greater tax advantage for most people, especially at higher incomes. IRS Form 2441 at www.irs.gov can help you calculate whether the tax credit is preferable. Or, ask your tax advisor which method is best for you.

Raising a family is one of life’s most rewarding experiences. Just be sure you plan carefully for the financial bumps in the road.

Jason Alderman directs Visa’s financial education programs. To Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney.

 

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Learning to Save is a Life-Long Lesson
April 4, 2011

The hardest thing for financial literacy advocates is measuring its success.

Students still receive, on average, failing grades on tests designed to show off their personal finance knowledge. Consumers still make financial blunders that have costly, long-lasting impacts on their credit. Families still struggle to avoid debt. Business owners still go bankrupt.

So how, then, can we tell if any of the efforts to teach financial literacy are having an effect? Results are best judged one person at a time.

April is Financial Literacy for Youth Month. But youths are far from the only people in need of a lesson in personal finance. It’s important for everyone – adults and children alike – to be educated to make good financial decisions, and recognize and avoid bad ones. But it’s far easier to learn those lessons at a young age than it is when you’re older and already in over your head.

Wisconsin’s bankers have been visiting students of all grade levels for decades, talking to classrooms full of children about the basics of saving money, how to balance a checkbook, the pros and cons of credit cards, and responsible spending habits, to name just a few topics.

Here are some tips about how you can teach your kids to save:

• Be a financial role model and make responsible saving and spending decisions.

• Discuss money and financial choices with your kids.

• Set spending limits and stick to them.

• Allow your children to manage some of their own money and learn the consequences of their financial decisions while they’re young.

• Teach children to divide their money and always set aside a percentage in savings.

April 12 is National Teach Children to Save Day, and bankers from across the state will be talking to students about personal finance and economics, just as they do throughout the year. Our state and national economies depend on a solid understanding of finances and making smart, responsible financial decisions. On April 12 choose to make a smart investment in your financial future by talking to your kids about the value of savings. Your children will thank you.

Smart uses for your tax refund
April 4, 2011

 

Each spring, millions of Americans look forward to receiving a hefty income tax refund. And it truly is “hefty” with the average federal refund in 2010 hovering around $3,000. That’s a lot of money to be giving the government through what is essentially a year-long, interest-free loan.

If you regularly receive large refunds, you’re probably having too much tax withheld from your paycheck. Instead, you might want to withhold less and put the money to work for you, by either saving or investing a comparable amount each month, or using it to pay down debt. Your goal should be to receive little or no refund at the end of the year.

Ask your employer for a new W-4 form and recalculate your withholding allowance using the IRS Withholding Calculator available at www.irs.gov. This is also a good idea whenever your pay or family situation changes significantly (e.g., pay increase, marriage, divorce, new child, etc.) Just be careful, because if too little is deducted, you might end up owing more tax next April, and possibly even interest or penalty fees. IRS Publication 919 can help guide you through the decision-making process.

Some people received larger-than-normal tax refunds in 2009 and 2010 thanks to the Making Work Pay credit, which expired December 31, 2010. In its place, most taxpayers will see a 2 percent reduction in the amount being withheld for Social Security in 2011 paychecks.

Another change this year was a Treasury Department pilot program that offered 600,000 randomly selected low- and moderate-income families an opportunity to have their tax refunds direct- deposited into a prepaid debit card issued through Bonneville Bank. The pilot explored ways to save the government money (direct deposits cost 1/10th as much to process as paper checks) as well as to give people with no bank account easier and more cost-effective access to their tax refunds.

Here are ways to put your refund to good use:

 

Pay down debt. By increasing your payment amount on outstanding loan or credit card balances you can significantly lower the total amount of interest paid. Say you’re paying $80 a month on a $2,000 credit card balance at 18 percent interest. By doubling your payment to $160, you’ll reduce the payoff time from 32 months to 14, and shave $295 off the total amount of interest paid.

Start an emergency fund. To protect your family against the impact of a layoff or other unexpected financial crisis (such as a medical emergency, car accident or theft), set aside enough cash to cover at least six months of living expenses.

Save for retirement. If your debt and emergency savings are under control, add to your IRA or 401(k) accounts, particularly if your employer matches contributions – a 50 percent match corresponds to a 50 percent rate of return. 

Invest in yourself. Enroll in college courses or vocational training to ensure you have additional skills to fall back on should you lose your job or want to change careers.

Invest in your family’s future. Another good use for your refund is to set up a 529 Qualified State Tuition Plan or a Coverdell Education Savings Account to fund your children’s or grandchildren’s education – all while ensuring your contributions will grow tax-free until withdrawn.

Jason Alderman directs Visa’s financial education programs. To Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney.

 

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Procrastinators pay
March 28, 2011

By Jason Alderman

I’m the last person to cast aspersions on anyone who procrastinates, given my own occasional lapses in that area. I’ll leave it to the self-help gurus to supply behavior-modification techniques. What I will say, however, is that procrastination can be a very costly habit.

Here’s how putting off the inevitable can reap unpleasant financial consequences:

Nuisance fees. Simply failing to pay fines for overdue library books or parking violations can escalate far beyond the original penalties and interest they accrue. Many local governments trying to balance their budgets are increasingly aggressive at collecting such fees – sometimes even turning them over to collection agencies.

Tax penalties. Everybody knows income taxes are due on April 15 (or in this year’s case, April 18). If your tax return or request for an extension isn’t filed by then, the penalty on any taxes you owe increases dramatically. You’ll pay an additional 5 percent of taxes owed for each full or partial month you’re late, plus interest, up to a maximum penalty of 25 percent.

However, if you file your return or at least ask for an extension request on time, the penalty drops to 0.5 percent per month, plus interest. So, even if you can’t calculate your taxes by the deadline, at the very least, file for an extension.

Student loan deadlines. Anyone wanting to apply for federal student loans must first complete a Free Application for Federal Student Aid (FAFSA), available at www.fafsa.ed.gov. This time-consuming process involves gathering lots of financial data, so it’s understandable that many people put it off. But, by missing the filing deadline, you could forfeit thousands of dollars in assistance.

And, what many people realize too late is that although the federal application deadline is June 30, deadlines for aid from many states and individual colleges are often much earlier. It really pays to start your research in the fall for the following year.

401(k) participation. Even though they know their retirement savings are inadequate, many people still postpone contributing to their employer’s 401(k) plan or IRA. I can’t afford it, the investment options are too complicated – the list of excuses goes on. But the simple fact is: The sooner you start saving, the faster – and larger – your account can grow.

If your employer offers matching contributions (often 50 percent or more of the first 3 percent of pay you save) you should at least contribute enough to reach that match. Where else will you get a 50 percent return on your investment?

Here are a few other ways procrastination can nip your wallet:

• Miss the vehicle registration or emissions check deadlines and you could get a ticket.
• Not keeping up with preventive car maintenance could result in costly repairs later on.
• The same goes for your body: Get regular dental exams and physicals to prevent serious medical conditions or catch them early.
• Always notify billers of your new address right away. Missing payments can lead to late fees and even increased interest rates.

 

If any of these scenarios ring a bell, see if you can’t knock off at least one of them. Who knows, you may get on a roll.

Jason Alderman directs Visa’s financial education programs. To participate in a free, online Financial Literacy and Education Summit on April 4, 2011, go to www.practicalmoneyskills.com/summit2011.

 

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Social Security looms for Baby Boomers
March 21, 2011

By Jason Alderman

Talk about a stampede: The first wave of Baby Boomers begins turning 65 in 2011, which means they’ll soon be tapping Social Security retirement benefits, if they haven’t already. If you’re a Boomer and haven’t yet investigated how this program works, this may be a good time to learn the ropes.

When you work and pay Social Security taxes, you earn up to four “credits” per year based on net income. In 2011, it takes $1,120 in income to earn one credit. You must accumulate at least 40 credits over your lifetime to qualify for a benefit; however, those who haven’t earned sufficient credits sometimes qualify based on their spouse’s work record.

Retirement benefits are calculated based on earnings during 40 years of work. The five lowest-earning years are dropped and each year not worked counts as zero. “Full retirement age” increases gradually from 65 for those born before 1938 to 67 if born after 1959.

If eligible, you may begin drawing benefits at 62; however, doing so may reduce your benefit by up to 30 percent. The percentage reduction gradually lessens as you approach full retirement age. Alternatively, if you postpone participating until after reaching full retirement age, your benefit increases by 7 to 8 percent per year, up to age 70.

You can use the Retirement Planner tools at www.socialsecurity.gov/retire2 to estimate your retirement benefit under different earnings, age and life-expectancy scenarios.

If you’re married and your earned benefit is less than 50 percent of your spouse’s, you’re eligible for a benefit equal to half of theirs. Spousal benefits also are available if you’re divorced, provided: your marriage lasted at least 10 years; you remained unmarried before age 60 (or that marriage also ended); and you’re at least 62. If you remarried after age 60 (or 50, if disabled), you can still collect benefits based on your former spouse’s record.

If your spouse dies and was benefits-eligible, you and your children may be eligible for survivor benefits. Amounts vary depending on age, disability status and other factors. Read the Survivors Planner at www.ssa.gov/survivorplan/ifyou.htm for details.

Know that if you begin collecting Social Security before full retirement age yet continue to work, your benefit may be reduced. In 2011, you’ll lose one dollar in benefits for every two dollars you earn over $14,160. (Note: Investment income doesn’t count.)

However, if you reach full retirement age in 2011, the formula changes: $1 will be deducted from your benefits for each $3 you earn above $37,680 until the month you reach full retirement age. After that, no further reductions.

Thus, if you think you’ll need to continue working, it might be wiser to hold off collecting Social Security until reaching full retirement age. These benefit reductions are not completely lost, however: Your Social Security benefit will be increased upon reaching full retirement age to account for benefits withheld due to earlier earnings.

And finally, although Social Security benefits aren’t taxed by many states, they are considered taxable income by the federal government. So, depending on your income, you may owe federal income tax on a portion of your benefit. For more details, read IRS Tax Topic 423 and Publication 915 at www.irs.gov.

Jason Alderman directs Visa’s financial education programs. To participate in a free, online Financial Literacy and Education Summit on April 4, 2011, go to www.practicalmoneyskills.com/summit2011.

 

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Read contracts carefully
March 14, 2011

By Jason Alderman

How often are you asked to sign something? I don’t mean autographs or birthday cards, but legally and financially binding documents – everything from endorsing a check to signing a sales receipt to buying a house. Either way, they’re all contracts.

In broad terms, contracts are mutually binding agreements between two or more parties to do – or not do – something. Once a contract is in force, it generally cannot be altered unless all parties agree. And, with very few exceptions they cannot easily be broken.

Sometimes contracts are formal, signed documents that outline specific conditions and penalties if those conditions are not met: For example, if you don’t make your mortgage payments, the lender can foreclose on your house. Other times they are verbal or implied agreements: If you buy spoiled milk, you can ask for a refund.

Before you enter into a contractual agreement, try to anticipate what could go wrong. For example:

• You sign a lease but later decide you can’t afford the rent or don’t like the neighborhood.
• You buy a car you can’t afford, but when you try to sell it, the car is worth less than your outstanding loan balance.
• You buy something on sale and don’t notice the store’s “No returns on sale items” policy.
• You co-sign a lease with a roommate who later backs out, leaving you responsible for the rent.
• You rent a car and later learn you accidentally agreed to optional insurance coverage or other features you didn’t want or need.
• You agree to cosign a loan and the other person stops making payments, leaving you responsible for the full amount – otherwise your credit will suffer.
• You buy a car and later notice that the sales agreement includes an extended warranty or other features you didn’t verbally authorize.
• You buy a two-year cell phone plan, but after the grace period ends, discover that you have spotty reception.

 

Financially inexperienced teenagers and young adults often make such mistakes, so be sure to discuss the implications of signing contracts with your kids before they turn 18.

A few additional tips:

• Make sure anything you sign contains no unfilled blank spaces, even if the other party promises to fill them in a certain way.
• Don’t be afraid to ask to take a contract aside or bring it home for more careful analysis or to get a second opinion. A lawyer or financial advisor can help.
• Don’t be pressured into signing anything: If salespeople try that tactic, walk away.
• Make sure everything you were promised verbally appears in writing. This is particularly important for terms and conditions such as interest rates, down payments, discounts and penalties.
• Keep a copy of every document you sign. This will be especially important in cases of contested rental deposits, damaged merchandise, insurance claims, extended warranties, etc.
• Pay attention to pre-checked boxes in online offers before submitting payment information for an order; they could bind you to terms you don’t want.
• Take along a “wingman” when renting an apartment or buying a car.

 

Remember, contracts are designed to protect both parties. Just make sure you fully understand all details before signing on the dotted line.

Jason Alderman directs Visa’s financial education programs. To participate in a free, online Financial Literacy and Education Summit on April 4, 2011, go to www.practicalmoneyskills.com/summit2011.

Tax Filing Deadline Looms
March 7, 2011

 

By Jason Alderman

Nobody likes being nagged, but I’m going to risk reader displeasure by reminding everyone that there are hefty financial consequences if you owe income taxes and do not file a return on time – or at least request a filing extension.

Ordinarily, the federal income tax deadline is April 15; but this year the IRS has granted a reprieve until April 18. Nevertheless, here’s why procrastinating is a bad idea:

If your 2010 federal tax return (or extension request) isn’t postmarked or electronically filed by April 18, the penalty on any taxes you owe increases dramatically. Generally, you’ll have to pay an additional 5 percent for each full or partial month you’re late, plus interest, up to a maximum penalty of 25 percent. However, if you file your return or request an extension on time, the penalty drops to 0.5 percent per month, plus interest.

Here’s how it can add up: Say you owe $2,000 in federal income tax. If you haven’t requested an extension, you would be charged an additional $100 (5 percent) for each month you’re late. Had you filed for an extension, the penalty would drop to only $10 a month (0.5 percent).

Contact the IRS early if you won’t be able to pay on time. They may even waive the penalty, depending on your circumstances. Call 800-829-1040 or visit www.irs.gov for more information.

Another way to avoid a penalty: The IRS accepts payment by credit or debit card, with a small convenience fee that is tax deductible if you itemize expenses. Just be sure to pay off your card balance within a few months, or the interest accrued might exceed the penalty.

A few additional tax-filing tips:

Find out what’s new. Because the tax code changes every year, scan the IRS’ Tax Information for Individuals website for updates before diving in. Many of your questions are likely answered in its Frequently Asked Questions section.

Make sure your return is accurate. Common tax-filing errors include:

• Omitting or filling in incorrect/illegible taxpayer ID numbers, filing status, dependent names and Social Security numbers
• Documentation not attached (W-2s, supplemental forms, etc.)
• Omitting income items
• Tax return not signed and dated
• Information entered on the wrong lines
• Child tax credit incorrectly calculated
• Math errors. (Tax software does the math, but you’re still responsible for entering correct numbers initially.)

 

Ask for help. If calculating your own taxes is too confusing or time-consuming, consider using tax-completion software like Turbo Tax, or hire a tax professional. A sharp preparer could save you a bundle by finding hidden credits or deductions.

If cost is an issue, several free options are available to seniors, military and low- and middle-income taxpayers:

• The IRS sponsors the Volunteer Income Tax Assistance Program (VITA) and Tax Counseling for the Elderly (TCE). Read Free Tax Preparation on the IRS website for information.
• AARP Tax-Aide volunteers, who are trained by the IRS, provide free tax preparation to low- and middle-income taxpayers, with special attention to people over age 60. Go to www.aarp.org/taxaide for information.
• Military personnel and their families worldwide can get free assistance through a program offered through VITA. Check with your base for details.

 

Jason Alderman directs Visa’s financial education programs. To participate in a free, online Financial Literacy and Education Summit on April 4, 2011, go to www.practicalmoneyskills.com/summit2011.

 

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Think twice before tapping retirement plans
February 28, 2011

By Jason Alderman

Before the housing crisis, it wasn’t uncommon for people to raid their home-equity piggybanks to pay off bills. Plummeting home values and tougher lending standards helped curb that practice, leading some people to engage in a far more disturbing habit: borrowing or withdrawing money from their retirement accounts to cope with financial hardship.

There may be times when a loan or withdrawal from an IRA or 401(k) plan is your best or only option, but you should be aware of the possible impacts to your taxes and long-term savings objectives before raiding your nest egg:

401(k) loans. Many 401(k) plans let participants borrow from their account to buy a home, pay education or medical expenses, or prevent eviction or mortgage default. Generally, you may be allowed to borrow up to half your vested balance up to a maximum of $50,000 – or less if you have other outstanding 401(k) loans. 

Loans usually must be repaid within five years, although the deadline may be extended if it’s used to purchase your primary residence.

Potential drawbacks to 401(k) loans include:

• If you leave your job, even involuntarily, you must pay off the loan immediately (usually within 30 to 90 days) or you’ll owe income tax on the remainder – as well as a 10 percent early distribution penalty if you’re under age 59 ½.
• You might be tempted to reduce your monthly 401(k) contribution, thereby significantly reducing your potential long-term savings.

 

401(k) plan and IRA withdrawals. Many 401(k) plans allow hardship withdrawals to pay for certain medical or higher education expenses, funerals, buying or repairing your home or to prevent eviction or foreclosure. You’ll owe income tax on the withdrawal – and often the 10 percent penalty as well.

Unlike employer plans, with traditional IRAs you’re allowed to withdraw from your account at any time for any reason. However, you’ll pay income tax on the withdrawal – and often the 10 percent penalty as well.

With Roth IRAs, you can withdraw contributions at any time, since they’ve already been taxed. However, if you withdraw interest earnings before 59 ½, you’ll likely face that 10 percent penalty.

Further tax implications. With 401(k) and traditional IRA withdrawals, the money is added to your taxable income, which could bump you into a higher tax bracket or even jeopardize certain tax credits, deductions and exemptions tied to your adjusted gross income (AGI). All told, you could end up paying half or more of your withdrawal in taxes, penalties and lost or reduced tax benefits.

Losing compound earnings. Finally, if you borrow or withdraw your retirement savings, you’ll lose out on the power of compounding, where interest earned on your savings is reinvested and in turn generates more earnings. You’ll lose out on any gains those funds would have earned for you, which over a couple of decades could add up to tens or hundreds of thousands of dollars in lost income.

Bottom line: Think long and hard before tapping your retirement savings for anything other than retirement itself. If that’s your only recourse, be sure to consult a financial professional about the tax implications.

Jason Alderman directs Visa’s financial education programs. To participate in a free, online Financial Literacy and Education Summit on April 4, 2011, go to www.practicalmoneyskills.com/summit2011.

 

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Insurance reality check
February 21, 2011

By Jason Alderman

When it comes to insurance, many people face the Goldilocks dilemma: Am I buying too much coverage, not enough, or just the right amount? How do you determine your proper insurance levels while ensuring you don't waste money on unneeded coverage - or worse, leave your family exposed?

Here are a few considerations:

Everyone needs medical insurance. One serious accident or illness could wipe out your savings and plunge you into debt or bankruptcy. If covered through your employer, carefully compare all plans offered. The one with the lowest premium may not be your best option. Consider how other factors add up - deductibles, copayments, allowed/disallowed benefits, out-of-network charges, medication charges, etc. Also compare options available through your spouse's job.

If you're not covered, explore other options:
" If recently laid off, ask about COBRA continuation coverage through your former employer.
" If under age 26, you may be able to enroll in a parent's plan. Visit www.healthcare.gov for details.
" High-deductible plans provide comprehensive coverage for catastrophic illnesses at much lower premiums than comparable low-deductible plans.
" Most states provide high-risk insurance for people who don't qualify for private insurance. It's costly, but no one can be denied. Visit www.naschip.org for information.

Life insurance. If you're single with no dependents, you may get by with minimal or no life insurance. But if family depends on your income, many experts recommend buying coverage worth at least five to 10 times your salary. After your kids are grown you may be able to lower your coverage; but carefully consider your spouse's retirement needs.

Car insurance. Most states require car insurance for good reason: It protects you financially should you cause an accident or be hit by an uninsured driver. Rates vary considerably depending on: coverage and deductible levels for liability, uninsured motorist and collision; age and driving record; vehicle year and model; number of insured family members; and security features (alarm, airbags, secured parking, etc.)

To lower car insurance costs, Ruth Stroup, a Farmers Insurance Group agent from Oakland, California, suggests:
" Comparison shop with other carriers.
" Increasing your deductibles from $250 to $1,000 might lower your premium by 15 to 30 percent.
" Ask about discounts for safe drivers, age 55+, linked homeowners/renters insurance, etc.

Stroup adds, "My biggest tip on auto insurance is to make sure your liability insurance relates to your net worth and income. It only takes one accident to wipe out your savings. Transferring this risk to an insurance company is very inexpensive for good drivers."

Homeowners insurance. Your home is probably your largest investment, so don't risk losing it and its contents through an unforeseen disaster, accident or robbery. Renters also need insurance: Although the building is insured by the owner, your contents are not. A few tips:
" Review your coverage periodically to adjust for inflation, home improvements, new possessions, change in marital/family status, etc.
" Compare your rate with other insurance carriers, but get "apples to apples" quotes, since policies may have varying provisions.
" Buy additional coverage on expensive items like jewelry, art and computers, which may have limited coverage.

Don't forego critical coverage to save a few bucks: It's not worth it in the long run.

Jason Alderman directs Visa's financial education programs. To participate in a free, online Financial Literacy and Education Summit on April 4, 2011, go to www.practicalmoneyskills.com/summit2011.

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Transitioning From the Military
February 14, 2011

By Jason Alderman

Reentering the civilian workforce after a career in the armed forces can be challenging even during the best of times. But with today’s economic uncertainty and high unemployment rates, retiring and discharged military personnel may need extra help to develop a game plan and manage their personal finances during that transition.

The issue has gained increased visibility with the recent creation of the Consumer Financial Protection Bureau’s Office for Service Member Affairs, to be headed up by Holly Patraeus, wife of Gen. David Patraeus and long-time advocate for educating military families on consumer issues.

Here are a few resources to help with the important financial and job-transition decisions you may face:

Transition Assistance. The government provides an intensive three-day Transition Assistance Program (www.taonline.com/TAPOffice) to separating or retiring service members and their spouses. Workshop attendees learn about setting career objectives, conducting job searches, current occupational and labor market conditions, resume preparation and interviewing techniques.

The Department of Veterans Affairs’ VetSuccess Program (www.vetsuccess.gov) provides additional assistance to military personnel released because of service-connected disabilities. For those whose disability is so severe they cannot immediately consider work, VetSuccess offers services to improve their ability to live as independently as possible.

Finding a job. Although expertise acquired during military service often translates readily into marketable civilian job skills, it sometimes takes extra effort to make those links more apparent. Consider these tactics:

• Begin your research well before you leave the military – a year or more, ideally.
• Contact organizations that link job seekers with military-friendly employers such as Hire a Hero (www.hireahero.org), Military Exits (www.militaryexits.com), Helmets to Hardhats (www.helmetstohardhats.com) and Vetjobs.com (www.vetjobs.com).
• Make your resume civilian-friendly – watch out for military jargon that might be hard to understand.
• Become acquainted with and post your resume on popular online job sites such as Monster.com (www.monster.com), Careerbuilder.com (www.careerbuilder.com) and USAJOBS.com, the government’s official job site (www.usajobs.com).
• Many service members have one government-provided relocation left when they leave the service; so if a potential job entails a move and you’re flexible about where to live, use that free relocation to your competitive advantage.

 

Continuing education. While investigating career options, learn what additional required education or certifications you lack so you can begin acquiring those skills now – or at least map out a game plan for how to proceed after you leave the military.

The Post 9/11 GI Bill (www.gibill.va.gov) provides financial support for education and housing to military veterans, including undergraduate and graduate degrees and vocational/technical training. Other VA-sponsored education assistance programs include:

• Reserve Educational Assistance Program for reservists called up to active duty.
• Survivors and Dependents Assistance for eligible dependents of certain veterans.
• VA Work-Study Allowance Program for full- or three-quarter-time students in college degree, vocational or professional programs. 

 

One last tip: Money could be tight during your transition, so it’s vital to develop a budget you can live with. Numerous free budgeting tools, including interactive budget calculators, are available online at sites such as the U.S. Financial Literacy and Education Commission’s www.mymoney.gov, the National Foundation for Credit Counseling (www.nfcc.org), www.mint.com, and Practical Money Skills for Life (www.practicalmoneyskills.com), a free personal financial management site run by Visa Inc.

Jason Alderman directs Visa’s financial education programs. To participate in a free, online Financial Literacy and Education Summit on April 4, 2011, go to www.practicalmoneyskills.com/summit2011.

Get ready for America Saves Week
February 7, 2011

By Jason Alderman

So many expenses, so few dollars saved. That’s the dilemma faced by millions of Americans – everyone from struggling college students to young families saving for a down payment to baby boomers approaching retirement.

During severe recessions, people tend to curtail spending and increase saving as a hedge against potential – or real – hardship. In fact, the average personal savings rate as a percentage of disposable income has risen to about 5 percent, compared to an all-time low of negative 0.5 percent in 2005. Back then, the economy was booming and many people assumed that the stock market and home values would climb indefinitely. How wrong we were.

It’s probably too early to tell, but some worry that the strong 2010 holiday shopping season may signal a return to old spending habits. Here’s hoping we’ve learned our lesson about living beyond our means and the importance of saving for a rainy day.

There are many reasons why it’s important to develop and maintain sound savings habits during good times and bad:

• You could lose your job or see your hours cut. Most experts recommend having at least six months’ income readily available for emergencies.
• Those approaching retirement need to boost their net worth slashed by plummeting home and retirement account values.
• Costs for high-ticket items like medical expenses, college and retirement continue to far outpace the rate of inflation.
• Many fear that future funding for government-provided benefits like Social Security and Medicare is at risk.

 

Although many believe that low- and moderate-income families cannot afford to save and build wealth, research shows that there are "savers" and "spenders" in all income classes. To help encourage people to learn sound saving habits, a broad coalition of non-profit, government, military and corporate organizations formed the America Saves campaign in 2001 (www.americasaves.org).

Last year, some 2,000 of these member groups sponsored the fourth annual America Saves Week. Millions of Americans were reached through their campaigns – everything from educational events at military installations outside the U.S., to financial planning seminars hosted by participating employers, to free tax preparation assistance.

This year’s America Saves Week is slated for the week of February 20-27, 2011.

America Saves offers many tools for learning more about the importance of saving, including:

• Use the America Saves interactive Personal Wealth Estimator to determine your current net worth and then estimate your future net worth.
• Sign up to receive monthly savings messages from national financial experts on topics such as money management, investment basics, building wealth through home ownership, saving during tax time and ways to get out of debt.
• Test your savings knowledge by taking their “Test Your Savings Knowledge” quiz. Did you know that families that have a savings plan in place save about twice as much as those with no plan?
• Read tips for saving on everything from food and household items to medications to banking and insurance products
• Handy links to numerous other websites that feature financial education materials.

 

Chances are that economic prosperity is still a ways off; but when it eventually comes, I hope we all remember the harsh lessons of the past few years and retain the thrifty habits learned out of necessity.

 

Your “Grandchild” Wants Your Money, Not Your Help
February 3, 2011

“Hi, Grandma!”

“Jimmy, is that you?”

“Yeah, Grandma, it’s me. I’m in some trouble, and I don’t know who else I can ask for help …”

As a loving grandparent, you’d do anything for your grandchildren if they were in trouble, no questions asked, right? That may be your natural reaction, but asking a few questions first could save you from getting scammed.

That’s because a call like this is probably not from your grandchild. It’s from a scammer looking to con you out of thousands of dollars. And they’re preying on your kindness.

In the “grandparent scam,” a caller pretending to be your grandchild will say that he or she is in trouble, usually in a foreign country, and either in jail or a hospital. Your “grandchild” will beg you to wire money right away and to keep the request confidential. The amount of money asked for will total thousands of dollars. By now some serious red flags should be raised.

However, victims of this scam often don’t realize they’ve made a mistake until days later. By then, the money is not only long gone, but also irretrievable. People who pull this scam usually pressure people to wire money through commercial money transfer companies like Western Union and Money Gram because wiring money is the same as sending cash. The chances of recovery are slim to none.

In some cases, the fake relatives or friends may actually know the names of family members and manage a clever impersonation. In others, they trick a grandparent into giving up the grandchild’s name. Sometimes, another person gets in the act, pretending to be a police officer or bondsman to confirm the bogus story.

If you get a call from a family member asking you to wire money, don’t panic – and do resist the urge to act immediately. Don’t let emotions overtake reason. Here are some suggestions for handling a call like this:

• Try to verify the caller’s identity by asking personal questions a stranger couldn’t answer.
• Don’t fill in the blanks. Refrain from mentioning other family members’ names or personal information. If the caller says, “It’s your granddaughter,” respond with “Which one?” Most likely, the caller will then hang up.
• Remember that some impostors research the people they are posing as and can answer basic questions about them.
• Resist the pressure to act immediately. Try to contact the grandchild at a number that you know is accurate such as a home or cell phone number before transferring money. If you don’t have your grandchild’s phone numbers, get in touch with their parent, spouse or another close family member to check out the story before you send any money, even if you’ve been asked to keep the call a secret.
• If you can’t reach a family member and still aren’t sure what to do, call the local police on the non-emergency line. They can help you sort things out.
• Never provide your bank or credit card account numbers to any caller – regardless of the reason.

No matter how dramatic the story sounds, don’t wire money. Don’t send a check or money order by overnight delivery or courier, either. Con artists recommend these services so they can get your money before you realize you’ve been cheated.

If you receive repeated fraudulent calls, contact your local telephone company for assistance in tracking down harassing calls. Also, file a complaint with the police immediately.

Don’t let a layoff catch you unprepared
January 31, 2011

By Jason Alderman

Chances are you or someone you know have been laid off recently. Being unemployed is difficult enough, but in a cruel twist, the longer you’re out of work, the harder it can be to find a job. And, when work does finally materialize, it’s often a lower-paying position. This double whammy can damage your finances for years to come.

If you’ve recently been laid off or worry your job may be in jeopardy, there are several steps you should take immediately to protect yourself financially:

Investigate severance benefits. Employers aren’t obligated to provide severance unless it’s part of an employment agreement, but it doesn’t hurt to ask. Use knowledge of your company’s severance policies – and what others have gotten – to negotiate a better package.

Common severance benefits include:

• Severance pay, usually based on annual wages and years of service.
• Extended health care insurance and assistance paying premiums.
• Temporary use of company resources, such as office space or equipment.
• Outplacement counseling.

 

Apply for unemployment. Depending on your length of employment and other factors, you may qualify for unemployment insurance payments. The waiting period is based on the date you file, not when you lose your job, so apply immediately.

Rein in expenses. Even if you’ve built up a considerable emergency war chest, long-term unemployment can devastate your savings. Analyze your budget carefully and track all expenses, looking for non-essentials to trim (unnecessary vehicles, eating out, cable TV, new clothes, etc.)

Manage your bills. Ordinarily, making extra mortgage, loan and credit card payments is a great financial strategy, but if you’re facing unemployment, it may make sense to scale back payments to boost your available savings to pay bills. Just be sure to always make at least minimum payments – on time; otherwise, you risk facing higher interest rates and damaging your credit score.

Also, this may be the one time it makes sense to suspend 401(k) contributions to accumulate more cash. If you later determine your job is safe, ask whether your employer will allow a year-end catch-up contribution.

Protect your 401(k). After being laid off, you have several options for your 401(k) balance:

• If allowed, leave it in your former employer’s plan, (Although, if it’s less than $5,000, you may be required to close the account.)
• Roll it over into a new employer’s plan, if it has one.
• Roll it over into a regular or Roth IRA. (With a Roth, you’ll pay income tax on the amount when filing this year’s taxes; however, you won’t be taxed on subsequent earnings at retirement).
• Take a lump-sum cash payout. (Rarely a good idea. It significantly reduces your retirement savings and you’ll owe income tax on the amount plus a 10 percent early withdrawal penalty unless you’re over age 55 or disabled.)

 

Also note that outstanding 401(k) loans must be repaid, usually within 30 days of leaving your job, or you’ll owe taxes and an early distribution penalty if you’re under age 59 ½. Consult a financial professional to learn more about the financial consequences of 401(k) distributions.

Being laid off can be very stressful and expensive, but if you’re prepared with a good game plan, you can minimize the damage to your financial well being.

Jason Alderman directs Visa’s financial education programs. To Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney.

 

Understanding Credit Scores
January 24, 2011

By Jason Alderman

If you’ve tried to take out a loan or open a new credit account recently, you know that the days of easy credit are long gone. Lenders, insurers, landlords and even some employers are more diligently scrutinizing your credit history to see if you’re a worthwhile risk.

A low credit score can cost a small fortune over the course of a lifetime. What often happens to people with poor, or even fair, credit scores is:

• It’s harder to qualify for a mortgage, you’ll need a bigger down payment and you’ll pay a higher interest rate, which adds up over time. Someone with poor credit might pay an extra $100,000 in interest over the life of a typical 30-year, $300,000 mortgage.
• Similarly, someone with a poor score might pay an additional $10,500 in interest on a 60-month, $25,000 auto loan.
• Credit card interest rates can be 10 or more percentage points higher and credit limits are typically much smaller.
• Although credit scores aren’t factored into federal student loan interest rates, they are with private student loans, often resulting in rates several percentage points higher.

 

Here are a few key concepts:

Credit bureaus. Each major credit bureau – Equifax (www.equifax.com), Experian (www.experian.com) and TransUnion (www.transunion.com) – compiles information from lenders who’ve extended you credit, tracking the number and types of credit accounts you use, how long they’ve been open and whether you’ve paid your bills on time.

Credit report. Upon request from you or a potential lender (and, increasingly, employers and landlords), bureaus assemble a report showing your credit history to date. Among other things, it contains a summary of open and closed accounts, outstanding balances, recent inquiries and negative items (late/missed payments, bankruptcy, tax liens, etc.)

Credit scores. When you apply for new credit, the lender will ask a credit bureau to compile a three-digit credit score, based on information in your credit report – essentially a snapshot of your credit profile at that moment. The lender uses your credit score to supplement its own selection criteria to determine whether you are a worthy credit risk.

Five factors are used to determine your credit score: payment history (usually around 35 percent of your score), amount owed (30 percent), length of credit history (15 percent), newly opened credit accounts (10 percent), and types of credit used (10 percent). These five categories may be weighted differently depending on your individual circumstances.

You can order one free credit report a year from each bureau. (Order through the government-authorized www.annualcreditreport.com; otherwise you’ll pay a small fee.) This helps you identify bad credit behavior and spot fraudulent activity or errors before they damage your credit.

A good strategy is to rotate ordering a free report from one bureau every four months; that way, you’ll keep year-round tabs on what’s being reported about you. You can also order individual credit scores for around $15.

Many good resources share what you can do to protect – or repair – your credit scores, including the Credit Education center at www.myfico.com, the Federal Trade Commission’s Credit & Loans page under “Consumer Protection” at www.ftc.gov, and What’s My Score, a financial literacy program run by Visa Inc., which also features a free FICO Score Estimator that can help you approximate your score (www.whatsmyscore.org).

Jason Alderman directs Visa’s financial education programs. To Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney.

 

Financial Fitness for 2011
January 20, 2011

As we begin a new year, many of us are focused on shedding those extra holiday pounds and getting in better physical shape – or at least those of us who haven’t already given up on our New Year’s resolutions. But it’s also a good time to plan to get financially fit (and no, that doesn’t necessarily mean cutting your gym membership).

Like physical fitness, financial fitness requires you to set a plan and stick to it throughout your life. In order to be successful, you need to make your plan manageable – starting with baby steps rather than making wholesale changes overnight. A great way to do this is to pick just three to five things, write them down on a piece of paper that you can keep in a visible place, like your refrigerator door, and once you have routinely accomplished those activities add a few more to the list.

So what kinds of things can you start your list with?

• Round up your regular installment payments on all of your loans, including car payments, credit card payments and mortgage payments. This won’t change the amount due the next month, but it will reduce the amount of interest you pay over the life of that loan, saving you money.
• Save your pocket change at home in a jar and once it’s filled take it to the bank. Put the money in an account that you cannot easily access with an ATM or debit card. You might be surprised how spare change can add up.
• Put your spending on a diet. Watch your expenses, especially in non-essential categories, and make cuts where you can.
• Maximize retirement benefits at work, such as 401(k) matching programs.
• Continue saving money every month, no matter how small, for future needs, such as college or retirement. If you have to cut back the amount you save, never cut back to $0.
• Review your tax deductions and plan ahead for the coming year.
• Use coupons for food and items you normally would buy. But don’t just buy something because you have a coupon!
• Follow up on rebate offers.

Much like keeping physically fit, staying financially fit requires motivation to get yourself in shape and stay that way. Sometimes the help of an expert can make it easier to stay motivated and find new ways keep fit. If you’ve tried cutting expenses on your own but still can’t seem to get out of debt, visit your local banker or other financial advisor. Talk with a professional who will help you set a budget and stay on track toward achieving your financial goals. And if you’re struggling to make your payments, in addition to your banker, seek help from a licensed, reputable credit counselor.

Feeling the pinch? Try these belt-tightening tips
January 17, 2011

By Jason Alderman

Between holiday shopping bills now coming due, increased winter heating bills and the upcoming income tax season, many people are feeling the pinch. Your best bet for getting back on track is probably to trim expenses.

Here are several ideas – big and small – that might do the trick:

 

• Lower your thermostat. Each degree you lower it saves up to 3 percent on your heating bill. Turning down your thermostat 10 to 15 degrees for eight hours at night can save about 5 to 15 percent. For a $300 monthly heating bill, that’s up to $45 in savings.
• Up to 30 percent of heated or cooled air can be lost through leaks, so add insulation, apply weather stripping around windows and doors and caulk around ducts, plumbing bypasses and other openings.
• Water heating is the third-largest home energy expense, so try lowering your water heater temperature to 120º F or lower to see if it’s still comfortable.
• Energy Star products consume up to 50 percent less energy and water than standard models (visit www.energystar.gov).
• Compact fluorescent lamps use up to 75 percent less energy than incandescent bulbs and last three to 10 times longer. Although initially more expensive, they last six to 15 times longer.
• A faucet leaking one drop per second wastes about 2,000 gallons a year.
• If you have low-deductible home, renter’s or auto insurance (say $250), ask your insurer how much your premiums would drop by raising the deductible to $500 or $1,000. Many save 15 to 30 percent or more.
• Balance your checkbook to avoid fees for overdrawn accounts and returned checks. Ask your bank about phone or email alerts when your balance drops below a certain level or payments are due.

• Switch to free checking. You can shop rates for banks at www.bankrate.com and find credit unions for which you’re eligible at the Credit Union National Association (www.cuna.org).
• Consider generic vs. brand-name drugs; copayments are usually much lower.

• Ask whether your insurance offers quantity discounts for mail-order prescriptions. Often, the copayment for a 60- or 90-day supply will equal a 30-day supply at a regular pharmacy.
• Ask your doctor or pharmacist about pharmaceutical companies’ drug assistance programs for uninsured or low-income people. There’s a lot of paperwork involved, but you could save thousands of dollars if you qualify.
• Examine your phone bill for services you’re not using like call waiting, call forwarding or caller ID. Dropping them could save $100 a year or more, depending on your plan.

• Slow down. Fuel efficiency drops about 5 mpg for each 10-mile speed increase over 55 mph.

 

And finally, this may be my favorite off-the-wall tip: By switching from Ariel, the most common type font, to Century Gothic, someone printing 25 pages a week on their home printer could save $20 a year in ink costs.

For more cost-saving ideas:

• AARP has great tips on the “Budgeting & Saving” site (www.aarp.org).
• America Saves is full of savings strategies and links to other resources (www.americasaves.org).
• Visa Inc.’s free personal financial management program Practical Money Skills for Life (www.practicalmoneyskills.com) offers numerous savings and budgeting tools.

 

Jason Alderman directs Visa’s financial education programs. To Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney.

 

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Get the Most Out of Your Gift Cards
January 10, 2011

By Jason Alderman

If someone gave you a $50 bill, you probably wouldn’t just stick it in a drawer and forget it. But that’s essentially what happens to billions of dollars worth of gift cards each year – people either lose or forget about them, or never use up their balances.

                                      

Here’s how gift cards work. There are two basic types:

• Retail gift cards, used to buy goods or services at a single merchant or affiliated group of merchants.
• Network-branded gift cards, issued by a bank and carrying the logo of a payment card network (like Visa, MasterCard or American Express) and can be used at any location accepting cards from that network.

 

Account information is stored in the card’s magnetic strip. If you’re not sure of the remaining balance, ask the merchant to scan the card, call the toll-free number on the card or verify it on the card issuer’s website provided. Some store-branded cards can be reloaded; and most can be replaced if lost or stolen – although you may have to provide proof of purchase and pay a replacement fee.

The 2009 Credit Card Accountability, Responsibility and Disclosure Act changed laws governing gift cards sold on or after August 22, 2010. It requires that:

• Money loaded on gift cards must not expire for at least five years from date of purchase or after funds were last reloaded.
• If the card expires but the underlying funds have not, you can request a free replacement card.
• Inactivity, account maintenance and service fees may not be charged until after 12 months of inactivity; after that, only one such fee may be deducted from the balance each month. (Fees for activation or lost/stolen card replacement are exempt.)
• Fees must be clearly disclosed on the card or its packaging.

 

Here are a few tips to get the most out of your gift cards:

• Use them quickly; the longer you wait, the more likely you are to forget or misplace them.
• Treat them like cash; and write down the account and toll-free numbers to report lost or stolen cards.
• Ask if the retailer will honor the card for online purchases, if that’s your preferred shopping method.
• Be sure to use up the entire account balance, or ask if a cash refund is available. You may be able to use multiple cards for a single purchase – say you have several low-balance Starbucks cards.

 

If you don’t care for a particular retailer, consider trading gift cards with friends. Or check out some of the websites that have sprung up where you can buy, sell or swap certain kinds of gift cards, such as CardHub (www.cardhub.com), Plastic Jungle (www.plasticjungle.com), and Swapagift.com (www.swapagift.com). Just make sure you understand any transaction or registration fees or commissions that may be charged.

A few additional safeguards:

• If you have a retail gift card and the company goes out of business, you may forfeit the balance.
• Be cautious when trading cards with strangers. For example, if using a third-party exchange site, ask about their verification policies and check with the Better Business Bureau (www.bbb.org) for complaints.
• Avoid unsolicited offers for free cards that sound too good to be true. By following spam links you could jeopardize your personal information.

Jason Alderman directs Visa’s financial education programs. To Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney.

 

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Retirement Contribution Limits Largely Unchanged
January 3, 2011

By Jason Alderman

You’ll probably hate me for bringing this up, but it’s time to begin planning for your 2011 taxes – or at least, about the tax implications of your retirement account contributions. 

For the second year in a row, one widely used inflation measurement, the Department of Labor’s Consumer Price Index for Urban Consumers (CPI-U), remained flat for the quarter ending September 30, 2010, compared to the same period a year earlier. That’s important because the IRS uses this measurement to determine whether dozens of tax-related numbers will stay the same or increase from year to year.

Bottom line: In 2011, most contribution levels remain unchanged. Here’s an overview of common retirement savings plans:

Defined contribution plans. The maximum annual contribution to 401(k), 403(b), 457(b) and federal Thrift Savings plans remains unchanged at $16,500 (plus an additional $5,500 if you’re at least 50). Other factors to remember:

• Your plan may limit the percentage of pay you can contribute so, depending on your salary, your maximum contribution may actually be less.
• Company-matching contributions don’t count toward your maximum contribution.
• With pretax contributions, your account grows tax-free until withdrawn, at which point withdrawals are taxed at the rate then in effect.
• With after-tax contributions, you pay income tax on the money now, but your contributions and their earnings will not be taxed at retirement.

 

Individual Retirement Accounts (IRAs). The maximum annual contribution to IRAs remains unchanged at $5,000 (plus another $1,000 if 50 or older). Contributions to a regular IRA are not impacted by your income, but if your modified adjusted gross income (AGI) exceeds certain limits, the maximum contribution to Roth IRAs gradually phases out:

• For singles/heads of households the phase-out range is $107,000 to $122,000 in AGI (up from $105,000 to $120,000 in 2010).
• For married couples filing jointly, it’s $169,000 to $179,000 (up from $167,000 to $177,000).

 

A few rules on deducting IRA contributions on your tax return:

• If you’re single, a head of household or married and neither spouse is covered by an employer-provided retirement plan, you can deduct the full IRA contribution, regardless of income.
• If you are covered by an employer plan and are single/head of household, the tax deduction phases out for AGI between $56,000 and $66,000 (unchanged from 2010); if married and filing jointly, it’s $90,000 to $110,000 (up from $89,000 to $109,000 in 2010).
• If you’re married and aren’t covered by an employer plan but your spouse is, the IRA deduction is phased out if your combined AGI is between $160,000 (s/b $169,000) and $179,000 (up from $167,000 to $177,000).
• For more details, read IRS Publication 590 at www.irs.gov.

 

A final note: As an incentive for low- and moderate-income workers to save for retirement through an IRA or company-sponsored plan, many are eligible for a savers credit of up to $1,000 ($2,000 if filing jointly). This credit lowers your tax bill, dollar for dollar, in addition to any other tax deduction you already receive for your contribution.

Qualifying income ceiling limits for the Retirement Savers’ Tax Credit increased in 2011 to $55,600 for joint filers, $42,375 for heads of household, and $28,250 for singles or married persons filing separately. Consult IRS Form 8880 for more information.

Jason Alderman directs Visa’s financial education programs. To Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney.

 

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