Money Management

Equifax Fallout Begins

October 26, 2017 By Twila Van Leer

People who froze their credit to minimize financial damage in the wake of the hack of credit reporter Equifax are now realizing what that means.

The problem is massive. Equifax reported that 143 million Americans had their information, including Social Security numbers and other personal data, exposed in the hack. The company’s CEO resigned in the wake of the credit disaster and Congress is discussing how another such disaster might be avoided.

The aftermath is becoming apparent as people who reacted by freezing their credit try to buy things such as the new iPhone that is in high demand or other big-ticket items.

It is possible to unfreeze your credit if you are anticipating a large purchase and then freezing it again afterward. But that may take time and your credit is vulnerable during the interim.

Experts advise that you let the major credit bureau know several hours or at most several days before you apply for financing. The three bureaus are TransUnion, Experian and Equifax. You will likely be charged $3 to $10 for each action at each of the three bureaus.

Sellers, such as Apple and other wireless carriers, often asked for a credit report before they approve the sale of a new phone. The costs and the hassle of unfreezing and refreezing your credit information may make the acquisition of a new super-phone – or any other costly item – more trouble than it is worth to the consumer.

Citizens Financial Group of Providence, R.I., which runs the Apple financing program, has already announced that it will not new or existing customers who have frozen their credit, at least temporarily. Sprint, Verizon, 4:58 PM-Mobile and AT&T also run credit checks with the three credit agencies. Their policies vary, but it is one of the indications that the Equifax hack will affect the buying practices of many Americans.

ATM Fees at Record Highs

October 24, 2017 By Twila Van Leer

Makes you wonder, doesn’t it? Why should you pay a fee to access your own money. But the fact is that fees for withdrawing money from an out-of-network ATM are now 55 percent higher than they were 10 years ago – and rising.

The average cost now is a record $4.69 per transaction, according to Bankrate.com, which did a survey to reach its conclusions. And the fees are likely to continue rising, Bankrate officials say, as fewer people use cash and make fewer withdrawals from the automatic tellers.

Banks that have ATMs on the premises are charging more to non-customers who use the machines to make up the difference.

The five cities that have the highest charges for out-of-network ATM transactions are : Pittsburgh, $5.19; New York, $5.14; Washington D.C. and Cleveland, tied at $5.11; and Atlanta, $5.05.

Rises in overdraft fees also are costing consumers more to handle their money. The average fee hit a new high this year of $33.38 per bounce. Philadelphians pay the heftiest fee at $35.30, while in San Francisco, the fee is $31.44 on average.

You can avoid fees by being proactive about your money, Plan ahead if you need to make an ATM withdrawal and avoid machines that are not in your bank’s network. Be aware of where you can make free withdrawals or get change when you make purchases with your card. Use your phone to find out where the ATMs in your network are available. Make a habit of carrying a small amount of cash. Find a bank that doesn’t charge ATM fees.

Avoid overdrafts by keeping close tabs on your balances. It’s as easy as making a smartphone check.

Getting signed up for email or text alerts that let you know you are approaching the level where your balance is chancy is smart. Fees are a waste of your money, so avoid them every chance you get.

Middle Class Is Moving Up

October 22, 2017 By Twila Van Leer

“The national median household income rose to $59,039 — an increase of 3.2% from the previous year and the American middle class’ highest income level to date, beating the previous record of $58,655 in 1999 (all numbers are adjusted for inflation).” 2017 Business Insider

America’s middle class is moving up the financial ladder. But they can’t outpace the wealthiest Americans in economic growth, according to a Federal Reserve survey.

The figures show that the net worth of all American families rose 16 percent from 2013 to 2016. The median is the point at which half are above the figure and half below.

The time frame for the survey represents the recovery period after the 2008 recession. During that time, wealthy Americans saw more economic improvement than those in the middle class and whites saw more positive growth than either African-Americans or Latinos.

Two factors that have contributed to the improvement are the declining levels of unemployment and the recovery of the housing market, which has shown steady growth for the past few years.

The Survey of Consumer Finances still shows significant gaps between the middle class and the wealthy, economic gurus say. The middle tier is taking longer to recover from the recession. Those with wealth contribute more to the 16 percent improvement overall.

African-American families showed more improvement in net worth than did white families, the survey found. Median wealth for an African-American family was $17,600, up 29 percent since 2013. The increase for white families was 17 percent.

But white families enjoyed median wealth 10 times greater than for the African-Americans at $171,000. The white families also had median wealth eight times greater than Latinos. The median incomes for middle-class whites rose only 6 percent, but still easily outstripped the medians for other ethnic groups.

Median wealth for the richest 10 percent of the overall population rose by 40 percent, the survey showed, to $1.63 million, a disparity that would be hard to diminish quickly. That means that nearly 39 percent of all U.S. wealth is now held by 1 percent of the population.

The survey also divided people by where they live. City-dwellers saw median income increase by 10 percent and those outside cities just 2 percent.

What the Founding Fathers Said About Budgeting

October 8, 2017 By Twila Van Leer

This time of year, Americans look back to the beginnings of the country and honor those who sacrificed to make it happen. The Founding Fathers not only set the scene for a new nation, they also had cogent things to say about money and personal finances.
Here are a few of their bits of advice:

John Adams: “All the perplexities, confusion and distress in America arise not from the defects of the Constitution, not from want of honor or virtue, so much as from downright ignorance of the nature of coin, credit and circulation.” (Letter to Thomas Jefferson, 1787.)

Thomas Jefferson: “But I know nothing more important to inculcate into the minds of young people than the wisdom, the honor and the blessed comfort of living within their income, to calculate in good time how much less pain will cost them the plainest style of living which keeps them out of debt, than after a few years of splendor above their income, to have their property taken away for debt when they have a family growing up to maintain and provide for.” (Letter to Martha Jefferson Randolph, 1808.)

Benjamin Franklin: “It is a singular advantage of taxes on articles of consumption that they contain in their own nature a security against excess. They prescribe their own limit, which cannot be exceeded without defeating the end purpose, that is, an extension of the revenue.” (Federalist No. 21)

“In this world, nothing can be said to be certain, except death and taxes.” (Letter to French scientist Jean-Baptiste Leroy, 1798.)

“A penny saved is a penny earned.” (Poor Richard’s Almanac.)

Alexander Hamilton (as described in the currently-popular musical): “The ten-dollar founding father without a father got a lot farther by working a lot harder, by being a lot smarter, by being a self-starter. By fourteen, they placed him in charge of a trading charter.”

Abigail Adams: “Learning is not attained by chance, it must be sought for with ardor and attended to with diligence” (Letter to her son, John Quincy, 1780.)

George Washington: He was a man of few words, but a stickler for keeping track of his personal finances. Appointed commander-in-chief of the Continental Army in 1775, he did not accept a salary, but asked only for reimbursement of his expenses after the war. He then recorded everything from brooms to mutton to payment for his soldiers, meticulously keeping track of every penny in expenditures. He never went into debt, as some of his contemporaries did and died a rich man.

Marquis de Lafayette: “I read, I study, I examine, I listen, I think and out of all that I try to form an idea into which I put as much common sense as I can.” (Letter to his father, 1776) Though not officially a “founding father,” he was a trusted confidant of Washington and played a pivotal role in the colonists’ struggle for independence. He was the point man for the colonists’ relations with France and showed a great example of thrift and carefully money management.

Ways To Maximize Investment Earnings

October 4, 2017 By Twila Van Leer

It’s a sad statistic. Barely 8 percent of college students who responded to a survey regarding personal finance management could have received an A for doing it right. And in a 2014 survey among adults, only 18 percent showed top grade knowledge in personal finances.

It isn’t all that hard. One financial expert and University of Chicago professor reduced the basic elements to fit onto an index card.

To help, here are seven steps, compiled by Suzanne Woolley, to get you into the groove and keep you there:

First, save early and automatically. Some companies now enroll new hires directly into the company 401(k) so they are saving automatically. Others wait until the employee opts in on his own. If you can, save up to the maximum allowed by the employer so you get the benefit of their declared match. Many companies start to chip in when the employee savings reach 3 percent of their earnings. The benefit is that the money is withdrawn before you get a chance to see it, so you don’t miss it.

If your company does not offer a 401(k), start a savings account elsewhere, but aim for an automatic withdrawal of funds. Even a small amount, faithfully put aside, will grow over time. Try to find an option that offers the best interest. The idea is simply to make saving a habit.

Second, expect financial emergencies. It’s a rare individual who gets through life without one – or more. Almost half of those surveyed in a Federal Reserve analysis said they couldn’t cover a $400 emergency without selling something or borrowing.. However, experts caution that saving for an emergency should not come before saving for retirement. Do what you must to meet both needs, if it means eating Ramen for awhile. The older you are and the higher your salary, the larger your emergency stashes should be. Emergencies such as job loss, which often means the loss of health care coverage as well, are devastating. You should have enough savings tucked away that you could continue meeting expenses for at least six months if at all possible.

Third, set an asset allocation. It’s an investor’s most important decision. A rule of thumb is that your allocation should equal your age. Consider your risk tolerance and then be aware that you won’t really know what it is until it has been tested. The risk tolerance varies from one individual to the next. The market always holds risks, but a bad market, especially when you are already in retirement, can be disastrous.

Fourth, keep fees low. With the current expectation that future stock market returns will be dampened, the drive to keep fees low is greater than ever. If you are using an adviser who receives fees and commissions if you buy the products he or she recommends, your returns are likely to be at least 1 percentage point lower each year, according to the White House Council of Economic Advisers. The council estimated the cost of conflicted advise on IRA assets at about $17 billion per year. Keeping your investments simple and bypassing the advisers may save you money. Warren Buffet, in an annual publication, advised putting 10 percent of your money into short-term government bonds and 90 percent in a very low-cost S&P 500 index fund. The long-term results will likely be better than those attained under the advice of a high-cost manager, he says.

Fifth, if necessary, use an adviser who is a fiduciary. A clip from Last Week Tonight With John Oliver gives succinct advice: “Financial analyst is just a fancy term that doesn’t actually mean anything.” An adviser who gets a commission on an investment you make at his urging may be looking more to his own return than yours. Ask your potential adviser if he or she is fiduciary. If the answer is “no,” run, the clip advises.

Sixth, spend less than you earn. This basic, common sense advice seems unarguable. But some 23 percent of millennials and 19 percent of GenXers ignore it, spending above their earnings. No wonder they have no emergency fund. The end of every pay period is an emergency. Lifestyle creep – the tendency to spend more as we earn more – is a trap too many mid-lifers fall into. Saving really is easier than paying interest on a loan you have been forced into to take care of an emergency.

Seventh, maximize employee benefits. A career isn’t forever. The working years are when you need to build your retirement accounts. Financial Engines conducted a survey that showed only one in four employees had taken full advantage of their company’s 401(k) benefits. The survey was taken among 4.4 million participants at 533 companies. An average loss of $1,336 was experienced by those who failed to contribute the maximum their 401(k) allowed. That’s about 2.4 percent of annual income. Low salaries and budget constraints are the usual excuse given by employees who fail to make full use of the savings option, but even many employees in the upper reaches of the salary scale don’t do it. Most large companies also provide disability insurance as a benefit. If you choose to pay the premium, the tax-free provision could be big. Watch for changes in your employee benefits, such as the addition of flexible spending accounts, a health savings account or a commuter assistance program. Such perks lower the amount of salary on which you have to pay taxes.