Your Money Matters
A Consumer Financial Column
Low inflation leaves tax deductions mostly unchanged
December 28, 2009
By Jason Alderman
When it comes to inflation, 2009 was a good news/bad news kind of year – with a few mixed messages thrown in for good measure.
According to one widely used inflation measurement, the Department of Labor’s Consumer Price Index for urban consumers (CPI-U), the rate of inflation actually fell for the quarter ending September 30, 2009, compared to the same period a year earlier. (Remember, gasoline prices, which spiked during 2008 and impacted numerous other expenses, subsided considerably in 2009.)
Those whose bills have continued to rise probably would debate whether it was actually cheaper to live in 2009 than in 2008. Regardless, this is an important statistic because the IRS uses the third-quarter CPI-U to determine whether dozens of tax-related numbers such as income tax bracket limits and maximum retirement savings plan contributions will stay the same or increase in the following tax year.
The good news is that although many savers feared that retirement plan contribution limits might actually drop for the first time ever, the IRS determined that provisions in the Social Security Act prohibit such reductions. The bad news, for those who would have liked to increase such contributions next year, is that they cannot do so.
Even worse, because inflation was so low, for the first time in decades, Social Security beneficiaries will not receive a cost-of-living benefit increase in 2010, even though Medicare Part D (prescription drug coverage) premiums are expected to rise.
On the mixed news front, the IRS left unchanged most tax deductions that are subject to annual inflation adjustments, although a few did creep up slightly. Here’s a summary of some common tax benchmarks:
- Federal personal tax exemptions remain constant at $3,650 per individual.
- The standard tax deduction for heads of households increases by just $50 to $8,400. It remains unchanged at $11,400 for married couples filing jointly and $5,700 for singles and those who are married but file separately.
- Various tax bracket thresholds will increase slightly – for example, the threshold between the 15 percent and 25 percent tax brackets for married couples filing jointly increases by $100 to $68,000.
- The annual gift tax exclusion remains unchanged at $13,000.
- The Social Security taxable wage base (upper income limit subject to Social Security taxes) remains unchanged at $106,800.
- The maximum annual contribution to 401(k), 403(b) and 457 plans remains unchanged at $16,500 (plus an additional $5,500 for those over age 50). The annual limit for combined employee and employer contributions to such plans remains at $49,000.
- The maximum contribution to a regular or Roth IRA remains unchanged at $5,000 (those aged 50 and older can contribute an additional $1,000).
- Married couples filing jointly will see the amount they can contribute to a Roth IRA gradually phased out if their adjusted gross income exceeds $167,000 – a $1,000 increase over 2009’s level; the phase-out limitation floor for others remains unchanged at $105,000.
- Check www.irs.gov for other 2010 tax changes.
Bottom line: In 2010, inflation pays a very minor role in terms of tax threshold changes compared to previous years.
Jason Alderman directs Visa’s financial education programs. To sign up for a free monthly personal finance e-Newsletter, go to www.practicalmoneyskills.com/newsletter.
Financial resolutions you can live with
December 7, 2009
By Jason Alderman
At this time of year, many people pause to reflect on what they’d like to change about their lives going forward – lose a few pounds, take a class, spend more time with the kids. Often, these goals revolve around personal finances.
But if you’ve been battered by economic forces beyond your control (as many have recently), it may be tough to craft financial resolutions ambitious enough to have a real impact on your situation – especially if you fear that unforeseen obstacles may later force you to scale them back or even lose ground.
That’s why I urge taking baby steps – setting small, meaningful objectives that provide a sense of accomplishment and that you can ramp up when your situation improves. Here are a few examples:
Scale back expenses. If you can’t make a big dent in your monthly costs, like refinancing your mortgage or selling an unneeded vehicle to eliminate a car payment, look for lots of little dents that can add up:
- Save $10 a week by having one less fast food meal and to-go coffee; or rent a DVD instead of going out to the movies – that might save about $500 a year.
- Lower the thermostat in the winter by 1 degree and save 3 to 5 percent on your utility bill – saving $5 a month equals $60 a year.
- Drive slower. Each 5 mph you drive over 60 mph costs about $0.24 per gallon of gas. Properly inflate your tires, keep the engine tuned and cut out aggressive driving habits and you’ll save even bigger bucks.
- Shop around for better home and car insurance rates, and consider raising low deductibles. (Just make sure your coverage has kept pace with inflation.)
- Balance your checkbook. Even though many banks have recently lowered fees for bounced checks and overdrafts, one a month at $25 a pop adds up to $300 a year.
Build an emergency fund. Financial experts usually recommend stowing three to six months’ expenses in an emergency fund. That’s a good long-term goal, but if it’s not currently realistic, don’t simply give up without trying – stash some of the cash you’re saving above, a few dollars each month. You won’t miss it and might just be saved from having to take out an expensive short-term loan to cover emergency car repairs or an overdue electric bill.
Get organized. Even if you can’t afford to pay off all bills in full each month, at least know where you stand regarding due dates, minimum payments due and credit limits so you don’t inadvertently rack up higher interest rates or damage your credit score. If you’re a chronic procrastinator, set up automatic bill payment with your bank – it’ll save on postage as well.
Stick to your budget. If you don’t have a budget, make this the year you create one. Numerous online tools are available to help. For example, Practical Money Skills for Life, Visa Inc.’s free personal financial management program (www.practicalmoneyskills.com/budgeting), features budgeting worksheets and calculators, guidelines for living within your means, budgeting recommendations for back-to-school, holiday spending, travel, and much more.
Jason Alderman directs Visa’s financial education programs. To sign up for a free monthly personal finance e-Newsletter, go to www.practicalmoneyskills.com/newsletter.
Make charitable contributions carefully
November 16, 2009
By Jason Alderman
Getting the most bang for your buck is a badge of honor these days, whether you’re car shopping, choosing a college or just comparing loaves of bread. One area where you really don’t want to misspend your hard-earned dollars is charitable donations.
There is no shortage of non-profit organizations competing for contributions, but quality and effectiveness vary significantly, so you should do a little research before donating your time or money. Here are a few suggestions:
Pick the right cause. Many people prefer to support organizations that champion issues close to their heart, whether it’s feeding the hungry, environmental protection or working to cure a disease. Also consider whether you want to target local organizations or prefer to have a more national or global impact.
Familiarize yourself with their operations. Study the organization’s website, annual report and mission statement. Speak to staff members or volunteers, or volunteer there yourself. Or, if you know someone who has used their services, ask for impressions of the organization’s efficiency and client helpfulness.
Do your homework. In these tough times, many non-profits are experiencing increased demand for their services in the face of declining contributions and government funding. Avoid charities that spend heavily on salaries, advertising, fund-raising and other administrative expenses (sometimes misreported as “program development,” “public education” or other euphemisms). Ideally, at least 75 percent of contributions should go directly to beneficiary programs.
Several online rating services can help with your research:
- Charity Navigator (www.charitynavigator.org) rates more than 5,400 large charities by financial strength and revenue spent on programs and services. They offer helpful “Top 10” lists and a well-structured “Tips and Resources” section. You can use their guidelines to formulate your own inquiries for smaller organizations not included in their ratings.
- GuideStar (www2.guidestar.org) rates more than 1.8 million IRS-recognized, tax-exempt organizations. Their basic search engine is free; or you can order more customized research for a fee. The site also features helpful questions to ask and tips for choosing a charity.
- The Better Business Bureau (www.give.org) rates whether organizations have met its standards of accountability, including ethical conduct and honest solicitation practices.
Be tax-smart. Although your kids’ little league may be a worthy cause, be aware that only contributions made to organizations identified in IRS Publication 78 qualify for tax deductions. Visit www.irs.gov/charities/contributors for a link to a search engine of qualified charities, as well as information on how to report and substantiate charitable deductions and other helpful tips.
Be on fraud alert. Unfortunately, some unscrupulous people and organizations will take advantage of your desire to help others – if you let them. A few tips:
- Ask for a copy of the organization’s IRS Form 990, which details how contributions are spent.
- Be suspicious of telemarketing and email solicitations. When in doubt, hang up and contact the organization yourself.
- Be aware that scammers often choose names that are similar to those of legitimate organizations.
- Never give out personal or credit card information unless you initiate the contact.
More people than ever need our charitable assistance. Just be sure you’re contributing to organizations that can do the most good.
Jason Alderman directs Visa’s financial education programs. To sign up for a free monthly personal finance e-Newsletter, go to www.practicalmoneyskills.com/newsletter.
Be realistic about holiday expenses
November 9, 2009
By Jason Alderman
When I was a kid, Christmas club savings accounts were quite common. Like their close cousin, the layaway plan, these accounts encouraged people to start saving far in advance for expenses they knew were coming.
In these tough economic times, a return to savings methods that worked so well for our parents might not be a bad idea. The basic fundamentals they understood included knowing what things really cost (including taxes and finance charges), prioritizing your expenses, and being willing to postpone or forgo purchases that will upset your overall budget.
The holidays are the most challenging time of year to curtail spending, thanks to long gift lists, frantic last-minute shopping and higher-than-usual travel and entertainment expenses. Here are a few tips that can help you rein in holiday spending:
Add up expected holiday-related expenses including gifts (for family, friends and coworkers), decorations, new clothes and accessories, gift-wrapping paper, cards, special meals and year-end gratuities. Don’t forget travel-related expenses if you plan to leave town, and try to recall unanticipated expenses from last year that might recur.
The flipside – and more important aspect – of holiday budgeting is to calculate how much you can actually afford to spend. If you are deeply in debt, having trouble paying regular monthly expenses, worried about being laid off or haven’t saved an emergency fund, this isn’t the time to rack up additional debt.
So, revisit your list and look for items to trim. A few thoughts:
- Arrange gift lotteries with family members and close friends so each of you can concentrate your time, effort and money on getting fewer, nicer gifts.
- Speak candidly with friends, coworkers and extended family about placing a moratorium on exchanging gifts. They’re probably feeling the pinch too.
- If the gift-giving gesture is important to you, suggest pooling your resources with others to make a sizeable contribution to a charitable cause you all believe in.
- If you’re traveling just to get away, consider a “staycation” this year.
Give the gift of time. Older relatives and friends don’t need another box of chocolates, but they could probably use your help with household chores, running errands or taking them to doctor’s appointments. Plus, they would probably appreciate your company. For harried young parents, offer to babysit so they can run a few errands or simply recharge their batteries.
If you need to scale back on purchases, try making some gifts and get your children involved. Whether you’re creating homemade cards or baking cookies for the neighbors, they’ll appreciate being able to spend more time together. Plus, you can use it as an opportunity to discuss the need for better budget management – and why gifts from the heart are so important.
If you need help creating a holiday budget, visit Visa’s free personal financial management program, Practical Money Skills for Life, (www.practicalmoneyskills.com/holiday) where you’ll find easy-to-follow budgeting, holiday entertaining and travel planning tips as well as interactive calculators to track your spending.
Take a page from your parents’ book: There are plenty of ways to enjoy the holidays without breaking the bank.
Jason Alderman directs Visa’s financial education programs. To sign up for a free monthly personal finance e-Newsletter, go to www.practicalmoneyskills.com/newsletter.
E-mail Claiming to Be From the FDIC
October 26, 2009
The Federal Deposit Insurance Corporation (FDIC) has received numerous reports of a fraudulent e-mail that has the appearance of being sent from the FDIC.
The subject line of the e-mail states: check your Bank Deposit Insurance Coverage. The e-mail tells recipients that, "You have received this message because you are a holder of a FDIC-insured bank account. Recently FDIC has officially named the bank you have opened your account with as a failed bank, thus, taking control of its assets."
The e-mail then asks recipients to "visit the official FDIC website and perform the following steps to check your Deposit Insurance Coverage (a fraudulent link is provided). It then instructs recipients to download and open your personal FDIC Insurance File to check your Deposit Insurance Coverage."
This e-mail and associated Web site are fraudulent. Recipients should consider the intent of this e-mail as an attempt to collect personal or confidential information, some of which may be used to gain unauthorized access to on-line banking services or to conduct identity theft.
The FDIC does not issue unsolicited e-mails to consumers. Financial institutions and consumers should NOT follow the link in the fraudulent e-mail.
Choosing the right Medicare drug plan
October 26, 2009
By Jason Alderman
Prescription drug costs can take a double toll on retirees, who often live on fixed incomes and are also likely to need more – and more costly – medications as they get older. That’s why the government created Medicare Part D, a voluntary program that subsidizes prescription drugs for Medicare recipients.
If you’re eligible for Medicare, be aware that the six-week annual Part D open enrollment period for 2010 takes place from November 15 through December 31, 2009. Except in a few circumstances, if you miss that window you’ll need to remain in your current plan until 2011.
Here are a few details on Medicare Part D:
Eligibility. If you’re 65 or older or have certain qualifying disabilities, you are eligible to participate in Medicare. (Go to www.medicare.gov for eligibility information.) To sign up for Medicare Part D you must also be enrolled in Part A (hospitalization), and/or Part B (doctor visits and outpatient services). Under Part C, people enroll in a private Medicare plan that usually provides limited prescription drug coverage – be sure to check before joining Part D.
Signing up. Even if you think you don’t currently need prescription drug coverage, remember you may face a late penalty that grows monthly if you don’t sign up within your initial enrollment period – typically the three months before and after the month you turn 65.
Alternate coverage. If you already have prescription drug coverage through an employer or union plan and it is considered “creditable” (equal or better coverage than Part D), you can stay in that plan without incurring a late penalty for later joining Part D. Ask your current provider if their plan is considered creditable; if so, weigh its costs and features carefully before switching to Part D – it may be a better bargain.
Choosing a plan. Dozens of Part D plans exist with widely varying costs, coverage and convenience. When comparing plans:
- First go to www.medicare.gov and click on “Prescription Drug Plan,” where you’ll find helpful information on how the plan works and factors to consider when choosing a plan.
- Use the interactive Drug Plan Finder to compare features of plans available in your area. (You can also do this by phone at 1-800-633-4227.)
- Each plan has a “formulary,” which is a list of drugs covered at varying copayment amounts. Formularies vary widely and can change from year to year, so it’s important to compare plans annually.
- Enter all your medications and dosages into the Finder for comparison. You may not find a plan that covers all your medications, but aim for one that at least covers the most expensive drugs. Also, note that they may cover generic versions, when available.
- Make sure the plans include your preferred pharmacies.
- Once you’ve entered your information into the Drug Plan Finder, you can compare plans side-by-side in terms of overall cost, deductible and copayment amounts, user ratings, and other factors.
In addition to the Medicare site, another good resource is AARP (www.aarp.org/medicare). Also, your doctor or pharmacist may be able to help you choose the most cost-effective plan for your situation.
Jason Alderman directs Visa’s financial education programs. To sign up for a free monthly personal finance e-Newsletter, go to www.practicalmoneyskills.com/newsletter.
Act now on expiring 2009 tax breaks
October 12, 2009
By Jason Alderman
In the depths of the recession the government passed the 2009 economic stimulus bill and tweaked the federal tax code to help boost consumer spending and assist people who were losing their jobs, homes and benefits. Now, several of those tax breaks, rebates and other incentives are due to expire at year’s end.
Congress and the Obama Administration may ultimately decide to retain some or all of these benefits. But just to be safe, here are a few you may want to tap now, if they make sense for your individual situation:
Homebuyer tax credit. If you haven’t owned a home in the past three years and meet certain income guidelines, you may qualify for a tax credit of up to $8,000 on homes purchased before December 1, 2009. This is a tax credit, not a deduction, which means your taxable income is reduced by the credit amount. For more details, search for the First-Time Homebuyer Question and Answers document posted on the IRS website (www.irs.gov).
Property tax standard deduction. If you don’t qualify to itemized deductions on your federal income tax but do pay state or local real estate taxes, you may qualify to add up to $500 ($1,000 for joint filers) in property taxes paid this year to your standard tax deduction. Rules and filing instructions are complex, so read IRS Tax Tip 2009-47 at www.irs.gov for details.
Sales tax deduction for new cars. If you buy a new car, light truck, RV or motorcycle before December 31, 2009, you may be able to deduct state and local sales and excise taxes on up to the first $49,500 of the purchase price, even if you don’t itemize deductions. The deduction gradually phases out for those whose adjusted gross income is over $125,000 ($250,000 for married couples filing jointly). Please note that this is different from last summer’s expired “Cash for Clunkers” program.
Health insurance. If you are laid off before December 31, 2009, and your employer has 20 or more employees and offers health insurance, you may qualify for a 65 percent subsidy of the cost to continue coverage through COBRA, the federal law that allows many people to retain such coverage at their own expense. Check with your human resources department and visit the Department of Labor’s website for more details (http://www.dol.gov/ebsa/cobra.html).
Deduction for education expenses. Through 2009, parents or students may deduct up to $4,000 for college or other post-secondary education tuition and other qualifying fees, even if they don’t itemize deductions. There are certain restrictions and income limits, so refer to the IRS’ “Top Ten Facts About the Tuition and Fees Deduction” for more details (www.irs.gov/newsroom/article/0,,id=205361,00.html).
Educator expenses. Teachers and other educators who work at least 900 hours during a school year may deduct up to $250 for eligible unreimbursed expenses they paid for out of pocket, including books, supplies, equipment and software used in the classroom. They may do so even if they don’t itemize deductions on IRS Schedule A. Read Topic 458 at www.irs.gov for details.
You may want to confer with your tax preparer or financial advisor to make sure you qualify before acting on these tax benefits.
Jason Alderman directs Visa’s financial education programs. To sign up for a free monthly personal finance e-Newsletter, go to www.practicalmoneyskills.com/newsletter.
Talking with kids about the recession
September 28, 2009
By Jason Alderman
The past year has been rough financially for many folks. You probably know people who have lost their jobs, seen their retirement savings evaporate or experienced home foreclosure – you may even be in a tough spot yourself.
It’s difficult enough to remain optimistic yourself, but if you’ve got children, the task is doubly hard: You want to be honest about why your family can’t afford the same things right now, but you don’t want to telegraph your anxieties and overwhelm them with dire news they may not understand and over which they have no control.
Rather than conveying panic, look for ways to reassure your kids that you are working hard to make things better and that the whole family can chip in to help.
My wife and I are using the current economic situation as an educational jumping-off point for our two children, ages 5 and 9. Here are a few of the strategies you might want to try:
Put prices into perspective. When your kids clamor for a new toy or treat and you’d rather not spend the money, don’t simply say you can’t afford it. Put the cost into perspective by noting how long they would have to save their allowance or how many additional chores it would take to pay for it.
This exercise helps kids better understand the process adults use to decide whether a purchase is worth making or not. (It works better with older kids, who more easily grasp the passage of time and the concept of delayed gratification.)
Involve children in everyday spending decisions. You probably bring your kids along when grocery shopping and like most of us, you’ve probably endured pleading for sugary snacks and cheap toys. Instead of racing through the store hoping to avoid conflict, use shopping as an opportunity to teach your kids the value of money.
Make them part of the decision-making process, starting with helping to create the shopping list (the best way to avoid impulse purchases) and clipping coupons. Share your shopping budget for the trip and explain the consequences of exceeding it. Then, once you’re at the store, enlist their help in making price comparisons and give them a voice when choosing one item over another – that way, you won’t arbitrarily be the “no” voice.
Get kids’ suggestions for ways to curtailing spending. Maybe it means checking out a DVD from the library rather than going to the movies, holding a garage sale or selling unwanted toys or clothes on eBay, or babysitting the neighbor’s kids to replace a temporarily reduced allowance. In short, make them part of the solution.
Share stories from your own childhood. Maybe one of your parents lost their job or your family had to move in with a relative temporarily. Share how that made you feel (frightened, sad, embarrassed), but let them know that by working together as a family things eventually worked out.
Get involved with charities. If they’re old enough, volunteer with your kids at a soup kitchen or homeless shelter. Nothing will make them appreciate their own situation like witnessing others who aren’t as fortunate.
Jason Alderman directs Visa’s financial education programs. To sign up for a free monthly personal finance e-Newsletter, go to www.practicalmoneyskills.com/newsletter.
A financial basics refresher
September 14, 2009
By Jason Alderman
Until you get in the habit, putting aside savings is never easy. But the sooner you start, the sooner you’ll start seeing results. As you’ll see below, when it comes to savings, time is your best friend:
The power of compounding. When you reinvest interest earned on savings accounts or other investment vehicles, the interest grows (compounds) the account’s value much faster than if you withdrew it. For example, a one-time $10,000 investment earning 6 percent a year would grow to $17,908 in 10 years if you reinvest the interest; after 20 years it would be worth $32,071 and $57,435 after 30 years.
Regular investments. You needn’t start with such a large initial investment to reap big rewards. Say you’re 21, start with a zero balance, save $100 a month, earn 6 percent annual interest and reinvest the interest. After 10 years you’d have $16,470; $46,435 after 20 years and $100,954 after 30 years. If you retire at age 66 your account would be worth over $276,978 – all for a $100-a-month investment.
Timing is important, however. Postponing your savings by only two years would reduce your balance in 20 years to only $38,929 – more than $7,500 less. Wait five years to begin saving and your balance would drop to $29,277 in 20 years.
Tax-deferred savings. Another way to accelerate earnings is to take advantage of tax savings offered by retirement savings programs like 401(k) plans and IRAs. With a 401(k), you can contribute up to $16,500 a year (or $22,000 for those 50 and older) on a pre-tax basis. This lowers your taxable income – and therefore your taxes – and allows your account to grow tax-free until you withdraw the money at retirement.
Regular IRAs offer similar pre-tax advantages; or, you can contribute to a Roth IRA using after-tax dollars and your earnings will be completely tax-free at retirement. The annual IRA contribution limit is $5,000 ($6,000 for 50 and older).
Practical Money Skills for Life, Visa Inc.’s free personal financial management program, features a guide to 401(k) plans at www.practicalmoneyskills.com/benefits. To learn more about IRAs, visit www.irs.gov.
Risk. The riskier an investment, the greater your potential gains – or losses. For example, savings accounts offer lower interest rates in exchange for minimal or no risk, whereas stocks potentially can earn double-digit investment rates over long periods of time, but at much higher risk.
Inflation. Inflation measures the rate at which goods and services increase in cost over time. If your investments earn 2 percent interest but the inflation rate is 3 percent, the net result is a 1 percent loss. That’s why many financial experts often recommend that people with at least five to 10 years until retirement keep a portion of their savings in higher-risk investments like stocks and bonds; otherwise, it’s hard to stay ahead of inflation.
Keep in mind that no matter how much interest your investments earn, if you carry forward credit card or loan balances (aside from tax-deductible mortgage interest), you’ll be eating into whatever profits you might make. For tips on managing credit cards and debt, visit Practical Money Skills for Life’s Credit and Debt site (www.practicalmoneyskills.com/credit).
Jason Alderman directs Visa’s financial education programs. To sign up for a free monthly personal finance e-Newsletter, go to www.practicalmoneyskills.com/newsletter.
Be cautious posting personal information online
September 7, 2009
By Jason Alderman
I have friends who swear by online social and professional networks like Facebook, MySpace and LinkedIn. Where else can you reconnect with long-lost former classmates, post vacation photos for friends around the world, share your resume with potential employers and perhaps even find love – all, without leaving your couch?
Although the Internet has made reaching out easier than ever, whenever you share personal information, a few cautions are in order. With your kids preparing for a new school year, this might be a good time to have a quick Privacy 101 discussion. And, since people over 30 are the fastest-growing social networking demographic, parents might benefit as well.
Keep in mind:
Email is forever. Deleting an email from your computer doesn’t mean it no longer exists. Chances are your email provider – or employer, if sent from work – will retain a record for years to come. Plus, recipients won’t necessarily delete the email and may in fact forward it to others. Worst case: Your words could even be used as evidence against you in court; so think twice before posting derogatory comments about people or employers.
Haunting photos. You’ve read about people who posted photos on their homepages they later regretted. It’s one thing for parents to learn about youthful indiscretions this way, but colleges and employers increasingly conduct online searches of potential candidates and use such information to rule them out for consideration.
Not to instill paranoia, but even photos or information about you that someone else has posted can turn up in such searches. My rule of thumb: If you wouldn’t want your grandmother to see it, don’t do or say it.
Too much information. Many people post personal or nostalgic information about themselves on their profiles – first pet’s name, childhood addresses, favorite pizza topping, etc. Keep in mind that many websites where you do business (like banks) ask these kinds of security questions to ascertain your identity before you can log in.
Identity thieves have been know to mine this information and combine it with a stolen credit card or Social Security number to open bogus accounts or even forge passports. Avoid posting:
- Current and past addresses
- Phone numbers and email addresses
- Birth date
- Personal information like the above examples that might be asked for security questions
- Upcoming vacation schedules (you could be targeted for a break-in)
Also, never use this type of information in your passwords.
One last – and serious – reminder: Sexual predators increasingly are using the Internet to target both child and adult victims by posing as peers or friends. Although software is available to help you track your children’s online activities, you can’t follow them 24/7. Have the “don’t talk with or email strangers” discussion with your kids as soon as they start using computers.
These are only a few of the precautions you and your kids should take when using social networking sites to protect your personal information and prevent identity theft. For more tips, visit Visa Inc.’s free personal financial management site, Practical Money Skills for Life (www.practicalmoneyskills.com/security).
Jason Alderman directs Visa’s financial education programs. To sign up for a free monthly personal finance e-Newsletter, go to www.practicalmoneyskills.com/newsletter.
‘Saving’ is the new ‘spending’
August 31, 2009
By Jason Alderman
One small silver lining from the recent economic downturn is that people have begun saving again. For decades personal savings rates hovered around 10 percent of after-tax income, but beginning in the late 1980s, rates steadily declined.
As the stock market soared, so did home values and 401(k) balances. Many people felt richer – at least on paper – and the lessons learned during the Great Depression about saving for hard times faded into distant memory.
But today, as usually happens during severe recessions, the average savings rate has begun rising again. Why this turnaround? Financial experts cite many reasons:
- People fear losing their jobs and want a financial safety net.
- Those approaching retirement need to boost their net worth slashed by plummeting home values and retirement accounts.
- Costs for high-ticket items like medical expenses, college and retirement have far outpaced the rate of inflation.
- Many fear future funding for government-provided benefits like Social Security and Medicare is at risk.
- Lending standards have become much more stringent, so qualifying for loans and credit is more difficult.
Although increasing savings during tough times would seem to be much more difficult than during prosperous times, clearly many people have figured out how. Here are a few strategies for building your savings:
- Track spending. Write down every cent you spend for a month on food, gas, clothes, entertainment – everything. Review the list and see what you could live without or at least reduce. For example, brown-bagging once a week would save 20 percent on your lunch budget – hundreds of dollars a year.
- Shop for better rates. Compare checking and savings account interest rates at www.bankrate.com/checking.aspx. Also, the Credit Union National Association can help you find credit unions you may be eligible to join (www.creditunion.coop/cu_locator).
- Reduce fees. Banking and credit card fees for things like overdrafts and late payments can quickly erode interest earnings, so carefully monitor your balances and account activity. Bouncing one less check a month could save hundreds of dollars a year.
- Pay down debt. Earning 2 percent on savings is quickly offset by interest paid on credit card balances carried forward, so always try to pay more than the minimum amount due.
- Review insurance policies. Shop around for better car and homeowner’s insurance rates; you can always ask your current carrier to match better rates found elsewhere. And consider raising deductibles, which can save hundreds of dollars.
- Avoid “retail therapy.” Before hitting the mall, shop your own closet for “had-to-have” outfits still on their original hangers. Check your pantry for duplicate products as well.
- Save energy. Visit www.energystar.gov for tips on reducing home energy consumption and to learn about relevant rebates and tax credits.
- Drive your car an extra couple of years – you’ll save thousands of dollars on depreciation and reduce your insurance premium.
For additional savings strategies, as well as links to other helpful sites, visit America Saves (www.americasaves.org). Another good resource is Practical Money Skills for Life, Visa Inc.’s free personal financial management program (www.practicalmoneyskills.com), where you’ll find a comprehensive guide to saving, budgeting and much more.
Jason Alderman directs Visa’s financial education programs. To sign up for a free monthly personal finance e-Newsletter, go to www.practicalmoneyskills.com/newsletter.
Don’t procrastinate: Make estate decisions now
August 24, 2009
By Jason Alderman
People naturally procrastinate when faced with difficult decisions. Take planning for your own demise: Only 40 percent of people recently polled by Visa Inc. have an up-to-date will.
Although wills aren’t mandatory, if you don’t have one when you die, the state will wind up making decisions regarding your affairs. Similarly, if you haven’t filed other key documents, someone else – not necessarily the person you wish – will make your financial and healthcare decisions should an accident or illness render you unable.
Not to dwell on the negative, but here are a few things that could go wrong if you don’t make your wishes known:
- Court-supervised probate could hold up your estate and result in costly fees.
- Because the state usually awards assets to surviving spouses, children and other relatives, your friends and favored charitable institutions could be left out.
- With no will, the state decides guardianship for minor children whose parents have died.
- Your preferences for things like life-support procedures and burial instructions may not be followed exactly.
Here are a few key documents you should consider to prevent these kinds of scenarios:
A Will declares who should receive your assets, chooses an executor to handle your estate and names a guardian for your minor children, among other decisions.
With a Revocable Living Trust you create a trust to which ownership of your assets is transferred. As trustee, you control the trust; as beneficiary, you own its assets. After you die, assets are transferred to your “successor beneficiaries” (heirs) without having to go through probate. Many folks also create a “back-up” or “pour-over” will, which essentially “pours” any newly acquired or additional property you owned at death into their trust, to avoid probate.
A Financial Durable Power of Attorney specifies who has the legal authority to pay your bills, manage assets and conduct other financial matters if you become incapacitated.
A Healthcare Durable Power of Attorney assigns someone to make your medical decisions if you’re unable. (Assign someone who would closely follow your wishes and can make tough decisions.)
A Living Will tells doctors and hospitals your wishes regarding which medical treatments and life-support procedures you do or don’t want. Have your doctor put a copy in your medical file.
There are a few additional considerations for any of these documents:
- Sign, date and notarize them and file for safekeeping.
- Review documents periodically, especially if your family situation changes (marriage, divorce, new child, death of a beneficiary, etc.)
- Compare will or trust beneficiaries to those named in your insurance or retirement plans to eliminate conflicts.
- Before naming an executor or power of attorney, make sure they are up to the task.
- Name alternate beneficiaries and executors in case anyone dies before you.
Do-it-yourself kits like Quicken WillMaker Plus are available to create these documents, although if trusts, complex estates or large assets are involved, consider hiring an attorney specializing in estate law to draft or at least review your documents.
Spare your family from having to deal with these issues when you’re gone by addressing them now.
Jason Alderman directs Visa’s financial education programs. To sign up for a free monthly personal finance e-Newsletter, go to www.practicalmoneyskills.com/newsletter.
Back-to-school bargain hunting
August 10, 2009
By Jason Alderman
As back-to-school shopping veterans, my wife and I have learned our share of money-saving tricks – plus methods to lessen meltdowns and frayed nerves that come with the territory. If you are new to this parental rite of passage or simply looking for a few new strategies, read on.
First, create a realistic budget. Calculate what you can afford to spend on school-related expenses without blowing your overall household budget. Scoring bargains won’t help your bottom line if you end up having to pay interest on unpaid balances.
Make a comprehensive shopping list. Gearing up for a new school year involves much more than simply buying a new backpack and a few outfits. Consider these expenses and strategies:
- Spread new clothing purchases throughout the year to foil sudden growth spurts.
- Many schools issue lists of supplies parents are expected to purchase – from pencils to paper to calculators. Share your overstocked supplies with other families or go in together on volume discounts.
- If your kids participate in athletics, band or other extracurricular activities, find out the financial commitment for uniforms, dues, field trips, etc. (Try renting that saxophone first until you know your kid will stick with it.)
- Factor in public transportation or school bus charges, if any. If you’re in a car pool, calculate your share of the gas.
- Learn what your school charges for meals and weigh their convenience (and nutritional value) against the cost for home-prepared food.
- Many schools require proof of childhood immunizations. Learn your school’s policy and see what’s covered by your insurance – or what you could access for free at health fairs or community clinics.
Prioritize. Once you’ve finalized an overall list, prioritize how to spend your budgeted amount. Get your kids involved in this process so they’ll learn the difference between “must-haves” and “nice-to-haves” as well as the art of compromise: If they truly want those designer jeans, together figure out a way they can earn the price difference.
Bargain hunting. After prioritizing expenses, start your research. First, look through the kids’ closets to see what’s still serviceable. Then:
- Compare notes with friends. They may be able to use your in-shape hand-me-downs, and vice versa.
- Check garage sales, consignment or thrift shops and online sites. While you’re at it, see what items you can sell or donate to make a few bucks and free-up space.
- Clip newspaper and online coupons. Many stores will match competitors’ prices even if their own items aren’t on sale.
- Wait for fall clearance sales to buy some items.
- Although comparison shopping online can save money, time and gas, before purchasing anything online, factor in any shipping or return costs that might undo your savings.
- Understand your school’s dress code so you don’t buy inappropriate clothing.
In these lean times, make sure you’ve got a sound battle plan before entering the back-to-school shopping fray.
Jason Alderman directs Visa’s financial education programs. To sign up for a free monthly personal finance e-Newsletter, go to www.practicalmoneyskills.com/newsletter.
Small Drips in Personal Budgets More Costly Than You Think
August 7, 2009
Everyone has spending holes in their personal budgets whether they know it or not. These are often small drips that go unnoticed over time and add up to some real money being wasted. You may have costly cell phone features that are never used or you are an impulse buyer. Whatever the case may be, the key to plugging these drips is better tracking of expenses.
The first step is to write down or enter into a spreadsheet every expense you incur on a daily basis. Divide these items into fixed or variable expenses. Fixed expenses are those that occur routinely every month, like loan payments, insurance costs or rent. Variable expenses are those that can change every month, such as gas, utilities, etc.
The next step is to keep all your receipts, bank and credit card statements for the same month in one marked envelope.
At the end of each month, compile your expense picture. This is the best way to begin to spot the leaks in your budget and develop a plan to plug them.
Typical spending holes in personal budgets include:
Spending money on convenience or fast foods and drinks.
Carrying a credit card balance rather than paying in cash.
Extra entertainment.
Cable with movie channels.
Buying books rather than using libraries.
Dining out frequently for meals rather than packing a lunch or eating at home.
Club memberships.
Extra cell phone features.
Buying on impulse rather than for need.
If you are having difficulty creating a financial plan for plugging these spending holes, you may want to consider seeking professional assistance. You will still need to track your spending information using the steps outlined above which you will then pass on to a banker, financial planner or counselor. This detailed information will give them the essential tools they will need for developing a financial plan specific to you and your situation.
Give yourself a financial tune-up
July 20, 2009
By Jason Alderman
As we move through one of the most financially tumultuous years in many decades, some economists feel the worst may be over. But today’s continuing high unemployment rates, troubled housing market and tight credit conditions leave many people feeling anxious about the future.
Against that backdrop, this is a good time to examine your current financial state. Ask yourself where you want to be by year’s end and how you may need to change course now in order to reach those goals. Here are a few action steps:
Reexamine your budget. A lot could have changed since you last examined your household budget. You may need to tweak your spending and saving habits to get back on track:
- Income: Has your pay increased or decreased significantly? Has overtime income diminished? Has interest income you count on from savings and investments dropped appreciably?
- Basic expenses: Examine how much you pay each month for rent/mortgage, food, insurance, utilities, gas, clothing and other basics compared to six months ago. Have you offset any increases by boosting your income, or do you need to trim a few expenses?
- Debt: Have you taken out new loans or amassed new credit card balances? If you carry forward balances, are you paying more in interest due to rising rates?
If you need a budget refresher course, Visa Inc.’s free personal financial management site, Practical Money Skills for Life, features a step-by-step guide to building a budget, including several interactive calculators (www.practicalmoneyskills.com/budgeting.)
Taxes. Nobody likes overpaying their taxes or underpaying and getting penalized the following April. Ask yourself:
- Did you receive an overly large tax refund or have to pay significantly more than was deducted from your paycheck? If so, you may want to fill out a new W-4 form with your employer and recalculate your withholding allowances.
- Do you expect significantly higher (or lower) deductions this year? (For example, deductible mortgage costs or medical expenses.)
- If you make quarterly tax filings, have you allocated enough to ensure you won’t pay a penalty next year?
- Has your home property value dropped significantly in recent years? If so, you may be able to request that your property taxes be reevaluated.
- If you plan to buy a home or new car this year, have you investigated tax credits for which you may be eligible? Go to www.irs.gov and search for “Recovery Act.”
Charitable contributions. If you don’t have charitable contributions automatically deducted, tally up what you’ve contributed so far and decide if it’s in line with your goal for the year. Don’t wait until the expensive month of December to make last-minute contributions.
Reimbursement accounts. If you participate in employer-sponsored health care or dependent care reimbursement accounts, determine whether you’re on track to exhaust your account balances. Again, don’t wait until year’s end to scramble for qualified expenses that will allow you to fully benefit from their tax advantages.
Regardless of whether the worst is behind us or not, it makes sense to get your own financial house in order to weather this economic storm and any future ones.
Jason Alderman directs Visa’s financial education programs. To sign up for a free monthly personal finance e-Newsletter, go to www.practicalmoneyskills.com/newsletter.
Don’t Be a Victim of Vishing
July 10, 2009
By now, most of us have become programmed to ignore the e-mail messages we receive from foreign princes promising to send us thousands of dollars in return for doing a simple favor.
These types of scams have been around for years and are a form of “phishing”; criminals trick people into handing over their bank account number, credit card information, Social Security number (SSN) or other valuable data using malicious e-mails or Web sites pretending to belong to banks or online auction sites.
But a similar, though less well-known type of scam – “vishing” – is becoming much more prevalent.
Voice phISHING, also called “VoIP phishing,” is the telephone equivalent to phishing. Vishing is a scam using voice over IP to gain access to a victim’s personal information.
Typically, victims receive a call from a recorded voice informing them that their bank account is frozen and also provides a toll-free number to utilize to reinstate the account. When you call that number, you will be asked to verify your personal information. Once you do that, you have provided the criminals with the data they need to steal money from your bank account, or steal your identity. And in the last couple of years vishing attacks have seemed to occur most often over a holiday when the bank is closed and there is no easy way to confirm the validity of the call.
Consumers need to be wary of such calls. If you receive such a call, you should:
Stop. Do not respond immediately. It is always best to be cautious and slow to respond.
Think about why your bank would be asking for this information. Remember, no legitimate business would request a customer to verify personal information such as PINs, bank account numbers or SSNs over the phone unless you initiated the contact with the institution using a phone number obtained from the phone book or a bank statement.
Call your bank directly the next business day they are open, and call local law enforcement to report the scam.
Criminals are constantly inventing new techniques or variations on old ones to steal personal information. If you are ever in doubt about a request, immediately contact the police and your financial institution. Both are well equipped to determine the legitimacy of the request and will be happy to offer assistance.
