Money Management

Don’t Let Mistakes Sabotage Your Retirement

April 11, 2012 By Twila Van Leer

The time to start planning for retirement is long before retirement becomes an immediate issue. And avoiding the pitfalls that trip up many Americans in their pursuit of financially healthy retirement years is essential. A recent Wall Street Journal column by Veronica Dagher posted five such mistakes.

Watch Your IRA Accounts

Don’t be complacent about your 401(k). Many employees who simply have their employer deduct the maximum possible amount to a 401(k) without asking any questions may be missing out on more productive alternatives, according to financial experts. In some instances, the fees charged by an investor’s 401(k) may be excessive. Investing in another alternative, such as a Roth individual retirement account could offer more choices and lower fees. Look at the entire financial picture before making decisions.

Careful Planning

Have a plan. Random decisions on retirement maybe counterproductive. There is the temptation to live in the moment, making decisions “on the fly.” Over the course of the usual working career, that could result in savings that will fall short when the job is done and retirement income has to cover all the bases. Start with small goals, if necessary, such as putting 5 percent of gross income into savings each month, then increase gradually until you are saving 15 percent, and do it within a year if possible. A pattern of constantly shorting the savings cushion seldom can be reversed as retirement looms.

Cut Back Expenditures

Think seriously of scaling back now. Downsizing your home and boosting savings often are two sides of the same coin, the experts suggest. Putting on blinders and delaying such moves until suddenly the 60s are upon you is a sure-fire way to ensure unpleasant surprises when the time comes. Thinking you still have time to reduce spending when retirement is just a few years away may result in too-tight budgets that complicate retirement for too many. As age inevitably takes a toll, you could be unpleasantly surprised to find that illness or other complications end your working days prematurely. Such seemingly small things as eating out less often and reducing optional spending will help you be prepared for living on less.

Consider Who You Are Bank Rolling

Resist the temptation to sacrifice your retirement security to pay for your kids’ college. When the offspring walk off with a diploma, you may find yourselves in the mid-50s. In some instances, the kids go into careers debt-free, but Mom and Pop suddenly find they are facing retirement without an adequate cushion. Although the urge to help the children get a higher education is hard to resist, if it isn’t financially feasible it may mean that those children will be called on to help you make it through retirement. Alternatives are paying only a pre-determined portion of the higher education costs or encouraging your students to get their education at a state or community college, if possible. Look ahead when they are still in public school. Save if you can while children are small to help alleviate the stress when you are suddenly faced with tuition and other costs. Encourage the kind of scholastic achievement that can lead to scholarships and other assistance.

Recognize Your Limitations

Don’t be fooled into thinking you will live forever. The plans you made for retirement can quickly go awry if one of the partners dies before you expected he or she would. Many a widow, particularly if there are still children at home, has been forced to sell the family home and retrench spending to the point of penury. Term life insurance for both partners is the most feasible way to avoid this kind of financial shock. Finding out the hard way that you are under-insured is a double-whammy for a surviving partner mourning a loss. A will should be prepared well before anything but a tragic accident could be expected to take either of the partners. Both spouses should be well informed about family financial realities and decisions should be made, as nearly as possible, well in advance.

Charting a course for something as tenuous as retirement is tricky, but those who are realistically preparing for the eventuality will be least likely to find themselves swamped when it comes.

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Tax Strategies For The Self-Employed

March 30, 2012 By Sherry Tingley

Are you prepared for tax season? Have you thought of using a (SEP-IRA) Self Employed Pension plan to help you reduce your tax liability and prepare for retirement?

In the past five years, job losses in the United States have given people incentives to start their own businesses. These self employed people have become successful financially and have never really been forced to think about how they are going to manage paying their own taxes. With additional money coming in, they need a tax strategy to help them plan for retirement.

The formula they might use in saving for taxes needs to benefit them the most in the long run. You could use the strategy of saving 25%-35% and just leaving the money in a savings account. This will earn you very little interest over the course of a year.

One very good tax strategy is to set up an account that is established as Self Employed Pension or SEP-IRA. These accounts will provide you a reduction in your net earnings and allow your money to grow through investments.

So what is a SEP-IRA? A SEP-IRA is an account set up at banks, insurance companies or financial institutions. You are allowed to make cash contributions up to a set limit per year. You need to check with your tax specialist about the amount limits for your situation. For 2011, the contributions cannot go over $49,000.

When you lower your net earnings from your business, you lower your tax liability. The net earnings from your business is your gross income minus allowable business deductions. This determines your taxable income. Contributions to SEP plans are an allowable deduction.

Setting up this type of account helps you in two ways. You reduce your net earnings and you are able to start contributing to your own retirement plan. Both of these benefits can save you thousands of dollars in the long run and with a good investment strategy for your cash contributions, you stand to earn money on your investments over time.

If you are new to being self-employed and want a good strategy to help you build your assets, consider using an SEP-IRA. You can set these up and contribute to them up until the date your taxes are due. Discuss this tax strategy with your tax preparer and determine if this would help your personal tax situation.

This article is meant as a guide for your education. Please counsel with your tax preparer before taking any action. For the government description of SEP-IRAs, please visit: http://www.irs.gov/pub/irs-pdf/p560.pdf

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Do I Need to Get a Job to Get a Credit Card?

March 20, 2012 By Guest

We all know the importance of a good credit score. Its benefits range from getting the best loan and credit card terms to being able to rent a home without a security deposit, lease a car and get hired for certain financial or government jobs. However, many of us aren’t so sure how the Federal Reserve’s new rules concerning household income affects stay-at-home spouses’ access to credit cards and thereby their ability to build credit under their own names as well. So what say we take a closer look at the matter?

The rule
In a move altering a long-held credit card underwriting practice, the Fed a year ago announced a final rule mandating that individual (and not household) income is to be used for the purpose of evaluating a credit card applicant’s worthiness. According to a press release issued by the nation’s central bank, “credit card applications generally cannot request a consumer’s ‘household income’ because that term is too vague to allow issuers to properly evaluate the consumer’s ability to pay. Instead, issuers must consider the consumer’s individual income or salary.” This rule change, one of a series made to clarify the implementation of the 2009 Credit CARD Act, took effect on October 1.

The reasoning
The Fed proposed and ultimately adopted this rule in order to create a more logical system of credit card underwriting, where one’s access to credit is a function of only his own ability to pay back what he owes, and thereby ultimately lower the incidence of overleveraging. Credit card overleveraging ran rampant in the run-up to the Great Recession, primarily because an imbalanced system was in place. While income was being considered on the household level, debt obligations were considered individually, which meant that one’s living situation had the potential to mask a lack of disposable income.

For example, a consumer with no income of his own but $150,000 in annual household income and $15,000 in outstanding student loans might on the surface appear to be a good candidate for a credit card with a $10,000 credit line. But what if that consumer’s wife also had $1 million in debt? The couple would have no disposable income and would therefore be extremely unqualified for the aforementioned credit card, though the card’s issuer would have no way of knowing. The bottom line therefore is that you simply cannot evaluate a credit card applicant without knowing exactly how much available cash he or she has. The Fed’s individual income requirement allows this by forcing an apples-to-apples comparison of assets and liabilities.

Your move
But does this new rule also cut certain demographics, namely stay-at-home spouses, off from credit? That is the question that most people are asking, and the answer is no. In fact, such people have two options when it comes to getting a credit card.

Option 1: Some credit card companies offer joint applications, allowing couples to use household income as well as household debts and liabilities in applying for a shared credit card account, for which both parties will be held legally responsible. Finding such an issuer therefore represents a good way for stay-at-home parents to both maintain their spending power and keep positive information flowing into their major credit reports each month.

Option 2: While someone who doesn’t have steady income for one reason or another might not be able to independently qualify for an unsecured credit card any longer, anyone with at least $200 in cash and a valid Social Security Number can indeed still gain access to credit by opening a secured credit card. Secured credit cards offer what amounts to guaranteed approval because they require a cash deposit (hence the $200) that serves the dual purpose of acting as your credit line and ensuring that issuers don’t have to worry about whether or not consumers will pay off their balances. Secured cards also report to the major credit bureaus on a monthly basis and are, in fact, indistinguishable from unsecured cards on your credit reports.

While neither of these options might be perfect for some people, it should give everyone peace of mind knowing that banks are now making smarter decisions across the board and that stay at-home-parents still have means of building and maintaining credit should complications arise in terms of either their marriage or the health of their significant other.

The author of this guest article is Odysseas Papadimitriou, CEO of Card Hub, a website that assists consumers in finding the best credit card deals.

Tips to Identify Debt Settlement Scam

March 12, 2012 By Guest

Like many other individuals, if you are drowning under the sea of outstanding debt and looking for a way to come out of it, it is advisable to enroll into a debt relief program, like debt consolidation and debt settlement. When you enroll into a debt consolidation program, a consolidation company negotiates with your creditors to reduce the interest rate on each debt. On the other hand, when you enroll into a debt settlement program, a settlement firm negotiates with creditors to reduce the pay-off amount. However, no matter whichever program you choose, you must be aware of the debt settlement scams. There are many companies who charge high front fees making alluring promises to settle the debt by up to 50 to 70 percent, but ultimately do nothing. To avoid such situation, you must be careful while hiring a settlement or consolidation company.

Let us here discuss how to identify a debt settlement fraud.

If a settlement company calls you too many times and asks you for services, ask for their contact information. If the company does not want to disclose its name and address, and insists you to enroll into their program, then you must understand it is a fraud. Legitimate companies will never contact you over phone and beg you to hire their services.

If you are thinking to hire the services of a debt settlement company, contact the Better Business Bureau to check its credential. The Better Business Bureau can tell you if there has been any complaint against the company you are considering. To know more about the company, you can also approach your state attorney general’s office that can provide with information about the reputation and experience of the firm.

Before signing up for a settlement company, ensure whether or not the company is a member of the Association of Settlement Companies. This association is a trade group that promotes good industry practices. If the company claims to be a member of the association, check the association’s website to ensure its membership.

Ask the company about the effects of debt settlement on credit ratings. If the company is legitimate, it will be honest about the fact that debt settlement affects the credit rating negatively. But if the company is questionable, it will assure you that no negative effect will occur.

Before you start working with a company, make sure you get everything in writing. Fraudulent firms will never put their terms in writing in a legally binding document, and will ask for hefty fees for services. Fraudulent companies will never cooperate with you and entertain your doubts and queries; they will only hurry you for signing on the paper work and enroll in their program.

In conclusion, consider the above mentioned tips in order identify fraudulent debt settlement companies.

Home Buying On The Upswing

March 8, 2012 By Twila Van Leer

After years of near-moribund status fueled by a prolonged recession and problems in federal assistance programs, America’s housing market trend appears to be up, at least in the Beehive state.

home-mortgages — Get The Best Mortgage Loan For Your Home

Alan Blood of Capital Financial Group, based in Bountiful, Utah, says that figures for the population-heavy Wasatch Front area of Utah show that there is reason to hope the market is stabilizing. Although there has been a 30% decrease in the number of homes on the market however there has been a 5 percent increase in loan applications in recent months. Good prices and quicker sales are evidence of a reviving market.

“At least in Utah, where $200,000 is the median price for a home, that’s good news for everybody,” said Blood. He talks about housing market realities every Friday from 9 to 10 a.m. on local K-TALK Radio, AM 630. (Visit K-TALK.com for details.)

A graduate in economics from BYU, Blood became a mortgage broker. He also received a degree in Law by attending Brigham Young University’s Law School. With the law degree under his belt, he re-examined his career goals. He found the study of law useful to continue his career in mortgage brokering which he really enjoys.

Based on long experience, Blood can offer some suggestions to those who are in the throes of buying a home or considering it in the near future:

Don’t Buy Too Small

It’s probably the most common mistake first-time buyers make, he says. Especially if the buyers are a new family with potential for growth, a small home can quickly become inadequate, calling for a new purchase in only a few years, before the initial costs of home-buying are recouped. There is little equity accrued, so too much of the new purchase goes into the front-end process, he says. If possible, it is wiser to look ahead at least ten years to allow for equity growth before taking the plunge again. The average time a family stays in a new home, according to Fannie Mae figures, is 4.2 years. And, also on average, the typical family makes six moves in a lifetime.

Don’t Focus Only On The Interest Rate

It’s understandable that with a long-term loan, the tendency would be to consider the interest rate to be the most pertinent consideration the buyer needs to look at.

In reality, the advantage of a very low interest rate can quickly be cancelled by higher closing costs. Spread over 30 years, for instance, the difference between an interest rate of 3.5 percent and 3.75 percent is just $3,250 —approximately $27 per month. “It takes your about 10 years to break even,” Blood says. Looking at every element of the purchase costs is essential to get the best deal overall.

Mortgage Brokers Can Help Get The Best Deals

“No bank will always have the best deal every day. Mortgage brokers work with as many as 18 banks in any given day,” Blood notes. Interest rates and other variables involved in a home purchase change frequently, often within a day’s time. In addition, federal law requires that mortgage brokers give the best rate a buyer can qualify for, a standard that banks and credit unions are not obliged to observe.

Gather Facts

In general, Blood advises that home buyers go into the search armed with as many facts as possible. It’s one of the most complex and demanding purchases a family is likely to make and it deserves some study and research. Begin the process educated and enlist a good broker to make recommendations. As the market continues to improve over the next few years, these are the buyers who will benefit from the rebound, he says. Contact him for more information about mortgage loans.