Your Money Matters
A Consumer Financial Column
Take ‘America Saves Week’ to heart
February 6, 2012
By Jason Alderman
After four years of coping with a stagnant economy, probably the last thing you want to hear is how important it is to sock away money for a rainy day – you already know that. But hear me out, just in case.
Those who struggle with long-term unemployment or under-employment often simply don’t have spare cash available to save. Others, worn out by years of being frugal, just want to buy things again.
Even as we wait for economic recovery it’s still good to remember – or perhaps learn for the first time – why saving is so vital:
- You could lose your job or see your wages cut. Most financial experts recommend having at least six to nine months’ income saved for emergencies, but even $500 could help bail you out of a sticky situation.
- Medical care, retirement and college tuition far outpace inflation. In fact, the average college graduate now carries $25,000 in outstanding loans – debt that can’t be discharged through bankruptcy and has no statute of limitations.
- If you’re approaching or in retirement, your net worth has probably been hammered by plummeting home and retirement account values in recent years.
- If nothing else, you can teach your children good financial habits that will serve them well during hard times.
So where can you learn sound savings habits? One great resource is America Saves (www.americasaves.org), a national campaign sponsored by more than 1,000 non-profit, government and corporate organizations. Their goal is to encourage people from all income levels to save money and build personal wealth using their free financial tools, savings services, advice and other resources, including:
- A Personal Wealth Estimator that helps you calculate your current net worth and estimate your future net worth.
- 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 getting out of debt.
- Tips for saving money on everything from groceries to utilities to insurance premiums.
- Links to numerous websites offering financial education materials.
Last year, more than 2,000 organizations, including non-profits, employers, government agencies, educational institutions and unions participated in the fifth annual America Saves Week, reaching millions of Americans – everything from local banks offering low-fee savings accounts and higher-rate CDs to new savers, to free tax preparation assistance and credit counseling, to worldwide Military Saves drives to encourage savings by military families.
This year’s America Saves Week, “Set a Goal, Make a Plan, Save Automatically,” is slated for February 19-26, 2012.
Here are some great ways to start saving that first $500:
- Direct deposit part or all of your federal tax refund into a savings account or savings bond.
- Avoid overdraft and late fees by regularly monitoring your bank and credit card accounts.
- Brown-bag it to work more often. If you saved $5 a week, you’d be half-way there.
- Kick bad habits. Smoking a pack of cigarettes a day might cost $2,000-plus a year.
- If you have low-deductible homeowners, renters or auto insurance, consider raising the deductible to $500 or $1,000. Many save 15 to 30 percent or more on their premiums.
Saving can be a tough habit to start, but once you’re hooked, you’ll never go back.
Jason Alderman directs Visa’s financial education programs. To participate in a free, online Financial Literacy and Education Summit on April 23, 2012, go to www.practicalmoneyskills.com/summit2012.
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Talking Finances with Your Valentine
January 30, 2012
By Jason Alderman
As you and your spouse celebrate Valentine’s Day over a candle-lit dinner, you may want to avoid romance-killing topics like, “Honey, let’s talk about our financial future.” But you really should have that conversation sooner rather than later to keep your relationship on a healthy footing.
Major life changes may require you to reassess how you manage the family finances. Unfortunately, many couples don’t make time to plan ahead and are later caught off guard around issues like having children, aging parents, planning for emergencies and changing career and retirement goals.
If you haven’t had a financial heart-to-heart lately and aren’t sure what to do next, here are a few suggestions:
Make a financial “date.” Even if you’re in complete agreement on money matters, the family “accountant” should keep his or her spouse in the loop – if nothing else, so they can easily take over in an emergency. Set up regular meetings to discuss bill payments, progress or setbacks regarding savings goals, budgeting for upcoming expenses, and strategies for coping with unforeseen expenses.
Don’t postpone uncomfortable discussions. Should one of you accidentally bounce a check or miss a payment, don’t wait until your next powwow to address it or try to hide the problem. You’ll only make matters worse and create an atmosphere of mistrust. Fess up and deal with the issue right away – you might even save yourself additional late fees or penalties.
Be united. When the news isn’t good – say your 401(k) balances tanked last quarter or one of you got laid off – communication is all the more important. Whether you need to temporarily tighten the budget or make a major life-altering decision like postponing retirement, talk it through and be prepared to compromise so neither party becomes the bad guy.
Reaffirm your goals. Couples often start out with one game plan but then life deals an unexpected hand and goals change. Touch base periodically on how you both feel about such major issues as family size, home ownership, career changes, financing college for your kids (or yourselves), financial risk appetite, when and where you’ll retire, and taking care of elderly parents.
Update legal documents. Make sure your legal and financial documents are up to date and reflect your current wishes, including wills, financial and medical powers of attorney, life insurance policies, retirement accounts, investment funds and any other accounts where beneficiaries or people who control your health or finances are named.
Follow your budget. Some of the worst marital disagreements occur when one or both parties sabotage the family budget. If you don’t already have a budget, many free tools are available. Check out the U.S. Treasury Department’s www.mymoney,gov, www.mint.com and Practical Money Skills for Life, a free personal financial management site run by Visa Inc. (www.practicalmoneyskills.com).
Seek help. If you discover that you’ve gotten off track or need help realigning your financial goals, a number of outside resources are available:
- The NFCC can help you locate a free or low-cost credit counselor.
- You can find a financial planner or advisor through the Financial Planning Association (www.fpnet.org), the Certified Financial Planner Board of Standards (www.cfp.net), or the National Association of Personal Financial Advisors (www.napfa.org).
Jason Alderman directs Visa’s financial education programs. To participate in a free, online Financial Literacy and Education Summit on April 23, 2012, go to www.practicalmoneyskills.com/summit2012.
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Tax strategies in a tough economy
January 22, 2012
By Jason Alderman
For most of us, income tax calculations don’t change much from year to year. But thanks to the roller coaster economy of the past few years, many people have undergone major life changes that can have a significant impact – good or bad – on their taxable income and how they should file taxes.
Even though April 17 (this year’s tax-filing deadline) is a ways off, it’s never too soon to start planning your strategy, particularly if you experienced financial hardships in 2011 that could affect your taxes. The IRS has a handy guide called “The What Ifs of an Economic Downturn” (search www.irs.gov) that reviews the tax impacts of different scenarios such as job loss, debt forgiveness or tapping a retirement fund.
Here’s a roundup of common economic challenges you may be facing and their possible tax implications:
You lost your job. Remember that unemployment benefits, severance pay and payout of accumulated vacation or sick leave are all considered taxable income, so if you didn’t have taxes withheld from these payments, be prepared for a potentially nasty tax bill.
If you withdrew money from your regular IRA or 401(k) account to cover expenses, you’ll owe income tax on the amount, plus an additional 10 percent penalty unless you’re over age 59 ½ or meet special circumstances. Also, outstanding 401(k) loans must be repaid (usually within 60 to 90 days of termination) or they’ll be counted taxable income – plus be subject to the same 10 percent penalty.
The good news is that many public assistance benefits such as welfare, food stamps and disaster relief payments don’t count toward taxable income. Read the IRS’s “Tax Impact of Job Loss” for details (www.irs.gov/pub/irs-pdf/p4128.pdf).
Lowered income. If you took a big pay cut or lost your job in 2011, it might lower your adjusted gross income (AGI) enough to qualify for the Earned Income Tax Credit (EITC). EITC is a “refundable” tax credit, which means that if you owe less in income tax than your eligible credit, you’ll not only pay no tax, but actually get a refund for the difference. To learn more, search EITC at www.irs.gov.
Forgiven debt. Many people don’t realize that when you borrow money from a bank or other commercial lender and the lender “forgives” the debt, you generally must count the forgiven amount as taxable income.
There are several exceptions to the rule, however: For example, the Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude up to $2 million in forgiven mortgage debt ($1 million if married filing separately) on their principal residence if it came through mortgage restructuring, foreclosure or a short sale. The mortgage exclusion is set to expire at the end of 2012 unless Congress intervenes.
Other exceptions include: Debts discharged through bankruptcy; or, if you are insolvent when the debt is cancelled, some or all of it may not be taxable. (Insolvency means your total debts are greater than the fair market value of your total assets.) For more information, search for Mortgage Debt Forgiveness at www.irs.gov.
Taxes are the last thing you want to worry about when facing financial hardships. Just be sure you’re prepared for the possible tax implications if your income or debt situation has changed in the past year.
Jason Alderman directs Visa’s financial education programs. To Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney.
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Beware of mystery shopper scams
January 16, 2012
By Jason Alderman
Getting paid to go shopping may sound like a dream job, but buyer beware: For each legitimate mystery or secret shopper opportunity, probably hundreds more are scams. In fact, the National Consumers League (NCL) says complaints regarding fraudulent mystery shopper and work-at-home schemes were up nearly 9 percent during the past six months.
Why the increase? It’s due in part to our nation’s high unemployment rates and how desperate people are to earn money while seeking full-time employment. Plus, many people are lured by offers that sound too good to be true (and are).
Here are tips for spotting bogus mystery shopper programs:
Many retailers hire marketing research companies to gauge their employees’ quality of customer service. Those companies in turn hire mystery shoppers to make purchases anonymously and fill out questionnaires documenting their experience. Many research firms belong to the Mystery Shopping Providers Association (www.mysteryshop.org), a trade organization that links businesses with mystery shopping providers. (MSPA also provides a search engine where people can register for mystery shopping assignments.)
Unfortunately, scammers increasingly are using newspaper and Internet job ads, emails and phone calls to snare unsuspecting consumers with promises of quick, easy money for minimal effort. Here’s how a typical mystery shopping scam might work:
You answer an ad and are “hired” as a mystery shopper to evaluate its clients’ businesses. The company sends an official-looking employment packet containing the business evaluation forms you’ll supposedly use. But first, you’ll be required to complete a so-called training assignment to make sure you’re a suitable employee. That’s where the fraud comes in:
- The company claims it’s evaluating a money transfer service like Western Union.
- They send you a large check with instructions to deposit it in your personal checking account.
- You are told to keep a certain amount as your fee and then to pose as a customer by wiring the balance to a third party – usually within 48 hours.
- You then submit a report about your customer experience.
What you may not realize is that the original check was fake. Scammers know that by law, banks generally must make deposited funds under $5,000 available within a few days. They count on your completing the transaction before the check has been cleared by the issuing bank, which may take several weeks. Once your bank discovers the fraud, it will bounce the check and you are on the hook for the whole amount you wired – plus your wasted time.
Common red flags include:
- Legitimate companies will never ask you to send a money transfer for any purpose.
- Legitimate companies don’t charge shoppers a fee to work for them.
- Be suspicious if you’re hired on the basis of an email or phone call without any interview or background checks.
- Companies that promise you can make a lot of money as a mystery shopper are almost certainly scams.
- If mystery shoppers are asked to make purchases, it’s usually for very small amounts for which they will be reimbursed.
- Mystery shoppers are paid after completing their assignments and returning the questionnaires. Shoppers never receive checks upfront.
Good resources to learn more about bogus mystery shopper and other fake check scams, include the FBI (www.fbi.gov/scams-safety), the Federal Trade Commission (www.ftc.gov), the Consumer Federation of America (www.consumerfed.org), and the National Consumers League (www.fakechecks.org/index2.html).
Jason Alderman directs Visa’s financial education programs. To Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney.
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Women and personal finances
January 9, 2012
By Jason Alderman
By many measures, women’s lives have changed substantially in recent decades. According to a comprehensive government report called “Women in America” (www.whitehouse.gov/data-on-women), although certain social and economic situations for women have improved, when it comes to personal finances, many women still face challenging hurdles.
Key report findings include:
- Women live longer than men but are much more likely to experience critical health problems that hamper their ability to work – and to pass up needed care due to cost.
- Although the earnings gap between women and men continues to narrow, it’s still significant: Among full-time workers, women’s weekly earnings as a percentage of men’s have increased from 62 percent in 1979 to 80 percent in 2009.
- More women than men now graduate high school and college, but far fewer earn degrees in engineering, computer sciences and other higher-paying fields.
- Women increasingly marry later, have fewer children or remain childless, yet still are more likely to live in poverty, particularly single-mother families.
- Women are less likely than men to work outside the home (61 percent vs. 75 percent in 2009) and are much more likely to work part-time and to take time off to raise children or care for aging relatives.
In a nutshell: Women generally earn less and live longer than men, so at retirement they often have less in savings, receive smaller retirement and Social Security benefits and must spread out their money longer. Clearly, women need to take charge of their financial wellbeing. Here are a few places to start:
Develop a budget to track income and expenses. Either download a budget spreadsheet template or investigate software packages and online account management services like Quicken (www.quicken.com), Mint.com (www.mint.com), Yodlee (www.yodlee.com) and Mvlopes (www.mvlopes.com).
Plan for retirement. Time is your biggest ally when it comes to retirement savings, so get cracking. Start estimating your retirement needs:
- Social Security’s Retirement Estimator (www.ssa.gov/estimator), which automatically enters your earnings information from its records to estimate your projected Social Security benefits under different scenarios, such as age at retirement, future earnings projections, etc.
- Check whether your 401(k) plan administrator’s website has a calculator to estimate how much you will accumulate under various contribution and investment scenarios. If not, try the retirement calculators at Bankrate.com and AARP to determine your current financial status and what you’ll need to save to meet your retirement needs.
Do your research. Many helpful personal financial education and management tools are available online, including:
- The National Foundation of Credit Counseling’s MyMoneyCheckUp™ program offers a step-by-step assessment of your overall financial health and behavior in four personal finance areas: budgeting and credit management, saving and investing, planning for retirement and managing home equity (www.mymoneycheckup.org).
- Social Security’s Website for Women provides information on retirement, disability and other issues. You can also order or download their informative, free publication, “What Every Woman Should Know” (www.ssa.gov/women).
- The Women’s Savings Initiative, a program jointly developed by Heinz Family Philanthropies, the Women’s Institute for a Secure Retirement (WISER) and Visa Inc. (www.practicalmoneyskills.com/womensave). This free program features an audio- and e-book called “What Women Need to Know About Retirement,” which you can order on CD or download as a PDF or audio file from Practical Money Skills for Life, a free personal financial management program run by Visa (www.practicalmoneyskills.com/resources).
Jason Alderman directs Visa’s financial education programs. To Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney.
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Easing student loan repayments
January
2, 2012
By Jason Alderman
College costs are out of control. Total outstanding student loans hover around $1 trillion, second only to home mortgages. Student loan repayment takes a hefty toll on starting salaries even during good economic times. But with so many recent graduates unable to find a decent job – or any job – repayment can be a nightmare.
You can’t walk away from student loan debt. It’s practically impossible to get it discharged through bankruptcy and there’s no statute of limitations on how long lenders can pursue you through collections. Indeed, the government can withhold tax refunds and garnish wages indefinitely.
The Obama administration recently accelerated improvements to a readily available, yet underused, student loan repayment plan called Income-Based Repayment (IBR) that had been slated to begin in 2014.
IBR is available for many federally guaranteed student loans and can be particularly beneficial for low-income families, the unemployed and people with lower-paying, “public service” jobs in education, government or non-profit organizations.
Under IBR, monthly payments are capped at an affordable level relative to your adjusted gross income, family size and state of residence. For example, if you earn less than 150 percent of the government’s poverty level for your family size, you would pay zero. You still owe the money, but are not required to begin making payments until your income increases. As your income increases, so will your monthly payment – but up to no more than 15 percent of income that exceeds that same 150 percent of poverty level.
In addition, the government will forgive debt still owed after 25 years of consistent repayment. And those with qualifying public service jobs must only repay for 10 years before the balance is discharged.
Under the recent IBR enhancements, for students who took out their first loan during or after 2008 and open at least one additional loan during or after 2012, the cap will drop from 15 to 10 percent and the forgiveness period drop to 20 years. Those with older loans can still benefit from the original IBR terms.
Other IBR features include:
- All Stafford, PLUS and Consolidation Loans made under either the Direct Loan program or the Federal Family Education Loan (FFEL) program qualify for IBR, except loans in default, Parent PLUS Loans or Consolidation Loans containing Parent PLUS Loans.
- You must submit updated income documentation each year. If your income rises, so will your payment amount, although never above what you’d otherwise pay under a standard 10-year repayment schedule.
- Because IBR will likely extend the term of your loan, you’ll probably accrue more interest than under a standard 10-year payoff.
- Private student loans don’t qualify for IBR.
Borrowers with two different types of federal loans – at least one each issued under the Direct Loan and FFEL programs – may consolidate their loans under a new Special Direct Consolidations Loans program between January 1, 2012, and June 30, 2012. This will lower FFEL loan rates by 0.25 percent, plus an additional 0.25 percent discount if you sign up for automatic payments. Visit www.studentaid.ed.gov/specialconsolidation for details.
If you expect your financial hardship to be temporary, other loan repayment options, including economic hardship deferment, forbearance and extended repayment, may be better options. For details, visit the Federal Student Aid site, www.studentaid.ed.gov and search “Postponing Repayment.” Other good resources include www.finaid.org and the Project on Student Debt (www.projectonstudentdebt.org).
Jason Alderman directs Visa’s financial education programs. To Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney.
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