Tag Archives: personal finance

Is It Time To Ditch Your Bank?

The banking industry has never been as competitive as it is at this current time. This competitiveness creates an advantageous service and financial environment for consumers.

When a customer encounters a situation in which they believe that their bank is not providing them with the type of service or products they desire, they have the option to switch to a bank that offers products and services that are more in line with their expectations.

According to J.D. Power and Associates, approximately 9.6 percent of banking customers have switched banks over the past 12 months. This figure is on the rise, being significantly higher than the 8.7 percent from last year.

While the reasons that customers give for leaving their bank differ, there are certain indicators that are clear signs that it is time to leave your bank. Additionally, this move should be made expeditiously.

There are two key elements that are at the core of determining if it is time to ditch your bank, and they are the security associated with your money, and the level of satisfaction you are consistently experiencing.

Financial Strength

The financial strength of a bank is extremely important in providing security for the funds that are deposited by their customers.

Although the FDIC insures up to the first $250,000 per account holder who is a part of an FDIC-insured bank, no one wants to have to go through the process of filing a claim for their money. This is why customers should check the financial strength of their bank periodically.

This can be done by checking the Federal Deposit Insurance Corp’s website. This will allow you to confirm if the bank is maintaining its FDIC insurance.

If your bank is not maintaining its FDIC insurance, this should send up an immediate red flag. This means that if your bank should go under, you could lose all of the cash and certificates that you have deposited with the bank.

Excessive Fees

Currently, there is a push by larger banks to increase revenue by raising fees. These fee increases are an attempt to offset losses that have been incurred as a result of a loss in credit card fee revenue, which is a direct result of some significant regulatory changes.

This means that customers from some of the major banks will more than likely begin to see some changes in fees on checking accounts, ATM usage, debit cards, online banking and more.

All banks will vary in the fees that are charged for these services, however, traditionally, local banks have lower fee costs, and they may actually waive some of the traditional fees charged by larger banks.

Lifestyle Changes

Another important element that impacts customer satisfaction is convenience.

Maybe you are in a situation in which your bank no longer fits your lifestyle. Initially, your bank was ideal, providing operating hours and locations that effectively serviced your needs and preferences; however, certain changes in your life has created a number of conflicts that make your bank less attractive.

An example would be switching to a job that require you to travel substantially. If you are banking with a local bank with limited locations, this could present a problem. Finding a national bank might be more beneficial to your new lifestyle.

The same is applicable to banking hours. If you have a situation in which you are consistently leaving your office at 6:30 p.m. or later, the chances are that your bank’s branch office will be closed.

This is an instance where switching to a bank that can better accommodate your schedule might be in order.

Photo: Bryan Rosengrant / CC 2.0

Start Them Early: Teaching Kids Financial Responsibility

Teaching your children about financial responsibility isn’t one of the easiest parts of parenting, but with the right tools and strategies, it can be done.

Financial irresponsibility often leads to future credit and money problems, and it can even prevent your children from developing a savings plan for the later years in life.

These are unique ways you can help your children learn to use money wisely and responsibly.

1. Enlist the help of your children when managing bills. The Pennsylvania Association of Community Bankers suggests allowing your children to handle small aspects of the money flow in your home.

For example, you might consider letting them balance the family checkbook after all major bills have been paid. This helps children get a good look at how finances are affected once expenses have been paid.

2. Set up a matching goal. Depending on how old your children are, they may have already started talking about getting that prized first car once they turn 16.

Abby Hayes of AFCPE notes that one great method for encouraging kids to save their money is to propose a matching goal. This means that however much they save for a particular purchase, you promise to match a certain percentage of their savings.

This is often a great motivator for kids to begin saving and working hard for the things that they want.

3. Define needs and wants. One mistake that many parents often make is merely assuming that their children understand the difference between financial needs and wants.

Children don’t understand that a video game is a financial want, while making a mortgage payment is a financial need. Jacqueline Curtis of Money Crashers explains that it’s your responsibility to distinguish the two.

Start by noting expenses that are required for survival, such as the electric bill, your car payment, or groceries.

Next, list things that aren’t vital to survival, such as going out to eat or toys. Compare the priority levels of expenses to help your children understand the differences between essential and nonessential purchases.

4. Explain how bank accounts and ATMs work. It’s easy for children to underestimate the importance of money when they see their parents swiping their debit/credit cards or taking seemingly free money from an ATM slot.

Jason Alderman, Vice President of Visa Inc. tells parents that it’s important to teach their children that money isn’t free.

Help your children understand that the money you spend from a credit card or receive from an ATM isn’t conjured from thin air. It’s real, and it must be accounted for.

This is also a good time to explain what happens when too much money is withdrawn from an ATM, or too much money is spent using a debit/credit card.

5. Lastly, don’t stop at one piggy bank. You’ve probably already considered getting a piggy bank for your child.

However, Meadows Urquhart from Meadows Urquhart Acree & Cook LLP explains that you can teach your child an even more valuable life lesson by getting them multiple piggy banks.

This gives children a chance to break their money up into spending, savings, or item-specific goal accounts. This provides children with wonderful preparation for real bank accounts.

Photo: familytreasures / CC 2.0

Five Critical Financial Tips For Newlyweds

Getting married is one of the most exciting of life’s milestones.

However, it can be easy for some of the important details about married life to get lost in the rush of the getting married. This is especially true of the financial considerations of getting married.

There are many financial aspects that you must consider when you get married. To help you out, here are some financial tips for newlyweds that will make your life easier.

Sit Down and Have a Frank Financial Discussion

Ideally, this should be done before you tie the knot, but it is never too late to sit down with your spouse to have a frank discussion about your finances.

This should be a no-holds-barred discussion where you are completely honest about every aspect of your financial situation.

Talk about your debts. Talk about whether you are a paycheck-to-paycheck type of individual or a saver. Talk about how you would handle a sudden windfall of cash.

The key is to learn all you can about how each of you approach your finances. This will allow you to avoid surprises later on, and it will also help you plan how to be a financially successful couple.

Set Financial Goals

One of the most important parts of being a financial success is setting goals. When you are a couple, setting financial goals together will help to bring your closer.

There are all sorts of things that couples need for their lives together, and you can set savings goals for all of them. Think about saving for things like a down payment on a home, a vacation and furniture.

You should both be saving at least 10 percent of your paychecks towards your savings goals, but setting a higher goal of 20 percent savings is ideal.

Create a Budget

Setting aside your 10 to 20 percent savings is the first part of creating a monthly budget.

To create your budget, you first need to tally up your remaining income after you have set aside your monthly savings. You then need to subtract all of your regular monthly expenses like groceries, utilities, rent, car payments and student loan payments.

The remainder of your money should be split unto categories of discretionary spending like entertainment, eating out and shopping.

It is very important to stick to the budget. If for some reason you need to go over your budget, it is important that you discuss it with your spouse before you spend money to go over. That way, you can decide together if you really should go over your budget.

Creating and sticking to a budget is the best way to avoid financial problems and arguments when you are married.

Decide How to Set up Your Bank Accounts

When you are married, it is best to have multiple checking and savings accounts.

You should have a joint-savings account that you use for your savings goals. You should also have a joint-checking account that you can both access to pay for bills and things that are a part of your budget.

You also may want to each have separate checking accounts if you so desire.

Tax Considerations

One of the things you may not have considered is that getting married can affect your tax situation.

You can either file jointly as a married couple or file individually under the category of married filing separately.

Most couples choose to file a joint tax return because of the tax benefits. It is also simpler to file jointly.

However, you if your finances are complicated, you may wish to sit down with an accountant or tax attorney to decide which filing status will benefit you the most.

Photo: Sean Davis / CC 2.0

Six Personal Finance Mistakes That Could Have Serious Consequences

Finance is difficult even for trained professionals. Here are some serious personal finance mistakes that you should avoid making at all costs.

Not Setting Aside Money for an Emergency Fund

Yes, the first thing you should do when money is tight is to save more money. If you set aside a certain amount to pay yourself like it is a bill, you will not have to worry about any unexpected expenses.

The emergency fund is set up to keep you out of debt if something unexpected happens so that you will not have to pay late fees and penalties on top of any debt that you may have incurred.

Not Choosing a Plan to Pay Off Debt

There are two major ways in which you can pay off debt – the Snowball and the Avalanche.

The Snowball method of paying down debt involves throwing all of your resources at the smallest bill until it is paid off. This will give you a psychological lift for the next smallest bill, and so on and so forth.

The Avalanche method means that you pay off the bill with the highest interest rate first. This will save you money over the long term.

Not Buying Staples in Bulk

Certain items like bread, rice, bottled water, underwear and socks can be purchased in bulk from a warehouse.

This will leave you more money to put in your emergency fund or to pay down debt without having to diminish your lifestyle.

Not Giving Yourself a Grocery List

A great deal of the money that you spend in a month goes down the drain without you ever knowing where it went. This money goes towards impulse buys when you take trips to the store or the laundromat.

If you give yourself a definite list before you go out, you will be much less likely to spend these pennies on the impulse products that will quickly add up to substantial amounts of money.

Instead, put this money to work for you by paying down debt or by putting it into your emergency fund.

Not Cutting Out the Fat in the Budget

Much of the money that you spend is on convenience, not on products and services.

Case in point: You will spend almost 20% more money each month to go out to eat rather than staying home. When you go to the grocery store, purchase healthy foods that you can cook.

One specific way that you can lower your budget each month is to stay away from the convenience aisles in the grocery store. Fresh, raw fruits and vegetables cost much less than TV dinners, believe it or not.

Not Investing

This term can mean different things to different people. For one person, it can mean buying a coffee maker rather than going to a convenience coffee shop every day.

For another person, it can mean investing in stocks. Either way, having some accounts going up in value is a psychological lift that will help you to pay down your debt.

It will be even more of a stretch to set aside money to invest, but this goes along with the strategy of paying yourself first when money is tight anyway.

Five Myths About Tax Audits That You Should Forget Immediately

Getting a letter in the mail from the Internal Revenue Service is never a good day for anybody. After all, this is an organization that is set up specifically to take money from you.

However, there are many myths about tax audits that are created out of thin air, most of which encourage more fear than is truly necessary.

Myth: All tax audits are a matter of life and death

The truth about most tax audits is that they are a discrepancy of records. In many cases, the IRS is simply stating that its records do not show the same thing that you reported on your tax forms.

If it is a case of a mistake on their side, you send in the information, and you never even have to come in to see an agent.

Myth: 10% or more of people are audited in any given year

The truth is that less than 1% of people in any given year are audited. The IRS does not keep a tally on the percentage of people that it audits in any given year.

If there are more people who do not keep appropriate records, the more people will be audited that year. If there are less people that do this, then less people will be audited.

There is no such thing as an “audit quota.”

Myth: Having a professional file your taxes for you makes you completely audit proof

The truth of the matter is that you are responsible for all records that have your name on them no matter who files them.

Your professional filer may offer some sort of insurance for help with your representation if you get audited, but the final responsibility falls on you to correct any discrepancies in the records between you and the IRS.

Myth: If you keep your income below at certain threshold, you will not get audited

The IRS has been hiring more people to conduct more audits because of the discrepancy that it is found with records in the past.

However, many people believe that most of these agents are looking for people above a certain income threshold. This is not the case.

Additional audits are being conducted across the board, and just because you do not burn above a certain arbitrary threshold does not mean that you cannot be audited by the IRS.

Myth: If you file for certain deductions, you stand a better chance of being audited

Many people do not take deductions to which they are absolutely entitled because they believe that taking them will raise some sort of “red flag” with the IRS.

The truth is that any deduction that is in conjunction with the law is a deduction that you should take. IRS agents do not determine an audit simply based on the name of a certain deduction.

If you understand the true nature of what IRS audits are meant to do, you will realize that they are nothing to be scared of. Make sure that you keep all of your records as thorough as possible and report according to the law as closely as you can.

If this is your method of filing taxes with the IRS, then you will certainly be able to handle any queries that they may have about your records even if you do get audited at some point in the future.

Photo: James Morris / CC 2.0

Five Tax Myths That No One Should Ever Believe

February is here. And with tax season in full swing, you have probably started to hear those annual rumors about what’s acceptable and unacceptable when it comes to filing your taxes.

Around this time of the year, you can run into a lot of bad advice, so here’s a list of some of the most common tax myths that you should avoid:

Myth #1: Filing Taxes is Voluntary

Although this myth may seem counterintuitive, it’s surprising how many people are actually under the impression that filing taxes is completely voluntary because Form 1040 in the instruction book describes the tax system as “voluntary”.

However, Uncle Sam requires everyone to file taxes, even if you haven’t had any income all year.

Myth #2: Animals can Be Claimed as Dependents

Many people are under the impression that anything that’s alive and in your care can be claimed as a dependent, but that’s not the case.

No matter how you love your pet, you aren’t allowed to claim them as dependents.

And while it may be true that pets receive more than half of their financial support from their owners, they’re still not human, and you still can’t file taxes on an animal.

Myth #3: Illegal Activity is Not Taxable

Although it may not make much sense, criminal activity is taxable.

Regardless of whether you are a bank robber, drug dealer or con artist, the government still wants their cut of your income.

No matter how good you are at hiding your illicit activities, the government will eventually find out about it, and tax you on it. Al Capone is a prime example.

Myth #4: Money Made On the Internet is Tax Free

Since many people doing business online don’t report taxes for their income made online, it’s not hard to see how this rumor got started.

However, regardless of whether you generate money online or at a traditional job, the IRS still requires you to declare that income if it’s over 400 dollars per year.

Myth #5: I Don’t Make Enough Money to be Audited

The amount of money you make doesn’t have as much to do with being audited than you may think. There are many more factors that could possibly send up red flags when it comes to a tax audit.

And while it’s true that individuals who make more than 100,000 dollars per year get audited about twice as much as those who make less than that, those who make under 100,000 dollars per year still have a one percent chance of being audited, which is the national average.

To stay safe, it’s best to save any relevant receipts of anything that could be considered questionable income for three years.

Finding A Tax Professional To Get You Through Tax Season

It’s a new year, and that means it’s tax season once again.

Between now and the magic date of April 15, millions of Americans undergo the annual ritual of gathering documents, saving receipts, filling out forms, navigating the ever-changing rules and, hopefully, ending up with a refund.

If this adventure leaves you scrambling for help, you’re not alone. According to IRS figures, over half of all taxpayers in 2014 paid someone to do their returns, while another one-third used tax software.

Unless your taxes are quite simple or you have great numerical and research skills, the tax code is simply too complicated to tackle once per year. This has led to the growth of a massive tax-preparation industry over the past six decades, since the IRS stopped preparing returns for free in the mid-1950s.

Where To Start

This is a major purchase with long-term consequences. Start by asking around. Work is a good place to start, since many of your co-workers may have similar tax situations.

The Yellow Pages has an entire section filled with practitioners that compete for your business. Interviewing a few of them will give you an idea of their competence, fees and service level.

Several national tax preparation companies serve millions of taxpayers, including H&R Block, Jackson Hewitt, Liberty Tax and others. These companies hire mostly seasonal preparers and train them every year on the latest rules and software. All have both new and experienced preparers to choose from. When contacting them, look for a preparer with the experience that fits your situation.

Accounting and CPA firms are often open year-round and may provide a range of services, including payroll, bookkeeping, auditing and more. Taxes may or may not be one of their specialties, so prospective clients should ask specifically about their tax practice.

Higher Level Help

Several professional designations are used in the tax industry.

An Enrolled Agent is most desirable. This is a person who has passed a difficult exam and is qualified to practice before the IRS.

A Tax Attorney is a licensed, practicing attorney specializing in tax law.

These two professionals may represent taxpayers with the IRS in case of an audit. They are best hired for handling unusual or complex tax situations and are not typically needed for everyday tax returns.

What To Expect

Any competent tax preparer will ask about your personal situation, including marital status, dependents, work, school, home ownership and many other factors covered in the tax code.

Since this is sensitive personal information, taxpayers should look for a preparer with whom they feel confident and have rapport.

Many tax preparers and offices are available only from January through April. A reputable preparer offers tax help throughout the year, either personally or through their firm.

Do Your Homework

Like other occasional purchases, we choose tax services to take care of an essential need in our life.

It is critical to understand that no matter who prepares the return, the taxpayer is ultimately responsible for the results.

Look carefully, ask questions and pick the professional that best fits your needs.

Photo: John Morgan / CC 2.0

Three Resources For Getting Your Finances Under Control In 2015

Improving your grasp on personal financial is one of the most powerful things you can do for yourself at any age. Sound financial management frees more of your time and energy for improving your life in all areas.

Get started with the best personal financial resources to make your life easier. Whether you need to get out of debt or track your growing income, there’s a program, app or free information just a click away.

Mint

Mint ranks as one of the top finance programs for several reasons.

It’s relatively easy to use, even if you’ve never tried any kind of budgeting software. It autopopulates your account information, meaning you don’t have to make individual entries.

For anyone who has been using a spreadsheet online or keeping accounts offline in multiple registers or logs, Mint offers a major time savings. Its full suite of features mean you can trade in multiple ways of tracking and managing your money for one solution.

Mint puts all your accounts in one place, simplifying the process of tracking and managing your money. With this all-in-one budgeting tool you have the power to set bill reminders, watch your spending and keep tabs on your credit cards, checking and savings balances from one program.

This makes it an outstanding tool for people who need more organization and streamlining in their financial lives.

You Need A Budget

YNAB sets itself apart by offering training to go along with its budgeting software.

The principle behind the program is a sound one: it trains you to live on last month’s income. If you have difficulty meeting expenses month to month, are in debt, or see the prospect of debt looming, working with this program could solve your problems.

With its training modules, you get ongoing help with difficulties so you can get your money on track. It’s easy to make adjustments in the budget, so it adapts with you when spending or income changes.

The membership for YNAB costs $60. A free, no obligation trial period allows you to try out the software, receive training emails and have access to the website to see how it suits your needs.

For anyone in debt or who needs to get a better grasp of money management, YNAB is a refreshing option. The layout is simple enough to give you the big picture on where you stand at a glance, yet offers customization so you can create categories that fit your life.

With YNAB you learn to assess your financial standing before making decisions such as opting for a major expense or cutting back on spending categories that may be out of balance with your income.

More than budgeting software, YNAB offers a money management boot camp to help people make better financial decisions.

Kiplinger.com

Kiplinger’s stands out with authoritative information on key personal finance topics.

In addition to detailed articles that will improve your grasp of personal finance, you’ll learn about the larger world of money and how to make your money work for you. Here you can find advice and calculators for investment and retirement, and a handy link to FederalReserve.org.

The government’s financial education site covers key areas of personal finance.

From choosing a financial institution to managing a business, help yourself to free advise from the U.S. Federal Reserve.

Why You Should Never Put Off Doing Your Taxes

Nobody likes to think about doing their taxes. Many people find it an unpleasant experience best dealt with at the last minute. This approach may provide a few months of avoidance pleasure, but could cause problems.

It’s important for people to realize there are benefits to doing your taxes early.

Stress Reduction

Waiting until the last possible moment to file taxes can be stressful. This stress can be avoided by doing taxes early.

All the proper forms can easily be obtained further away from the filing deadline. When done early, there is no shortage of tax forms. People who prepare taxes are not yet stressed by doing last-minute returns for clients.

Doing taxes early provides extra time to review them and detect any problems. If a mistake is found, it can be easily corrected prior to the filing deadline. Doing taxes correctly can avoid a lot of unwanted stress.

Avoid Late Filing Penalties

The penalty for filing taxes late with the IRS is usually 5 percent of the unpaid taxes for each month or portion of a month the tax return is late. This penalty starts and begins to increase the day after tax returns are due. It usually isn’t more than 25 percent of the unpaid taxes. If a person files their return but does not pay their taxes owed by the deadline, they can face a failure-to-pay penalty. This amount to ½ of 1 percent of the unpaid tax balance.

Know Tax Liability

When a person does their taxes early, they may find that they owe the government a certain amount of money. In some cases, a person may need to arrange for payment.

Doing taxes early will enable a person to make the right payment amount. Depending on when they’re done, a person will have the necessary time to prepare to meet their tax obligation.

Receiving Refund Early

The sooner a person files their taxes, the quicker they get their refund. Waiting until the last minute may make a refund not available until summer.

There are many people who file their taxes late. When this is done, the time to process the tax refunds takes more time.

The IRS is usually overwhelmed with processing tax returns by the end of the tax filing season. This means issuing tax refunds take a longer time.

Avoid Identity Theft

Most people don’t realize there is a high rate of identity theft that occurs during the tax refund season. One of the best ways to avoid this problem is to file taxes early. This decreases the opportunity for someone to file a tax return in another person’s name.

When this does happen, the IRS will notify the person who filed their taxes earlier that another return has been filed in their name.

Avoid Post Office Problems

The IRS says that over 70 percent of taxpayers in the United States file their tax returns electronically. This means that approximately 30 percent of tax paying citizens are using the U.S. Post Office to mail their tax returns.

Some people mail their tax returns out of habit, others by design, and some because their circumstances require it. There are taxpayers who mistakenly believe paper tax filing decreases their chances of being audited.

Waiting until the last minute to mail a tax return could lead to a number of unexpected problems such as crowds, traffic, closing times and more.

Avoid Amended Returns

There are times when employers make mistakes. Companies have been known to make mistakes when they report their employee’s wages to the tax authorities.

If a person files their tax return based on incorrect information, they will have to refile an amended return with the correct information. When a tax return is filed early, a mistake like this can also be addressed and corrected early.

Photo: 401(K) 2012 / CC 2.0

Five New Years Resolutions For Improving Your Personal Finance

Our financial lives can always use an overhaul, and what better time than in the new year to refresh what’s become stale and unprofitable?

Rethinking how we manage our finances for a new year is one of those things that is worth our time and exploration. All sorts of good things can come from a personal finance reboot, so to speak.

Review Your Budget

One good way to start to rethink your finances is to take note of how you spend your money.

Learn how to take small financial steps that lead to big gains. Jot down, in a notepad, every penny that you spend on everything from the essentials to entertainment.

Being aware of where your money goes is much like a dieter looking at the scale to assess the weight they are losing. The only difference is that if you make adjustments to your frivolous ways of spending, your money will grow and you have everything to gain from that.

So for the New Year, a strong resolution is: gain money, not weight.

Set Specific Amounts to Save

No matter how dreaded the task may seem, learn to set specific financial goals such as contributing X amount to an emergency fund. This is a practice that pays off in the event of unforeseen expenditures.

Those who start the year setting measurable savings amounts for the coming months tend to repeat this smart practice each year and end up better off financially than those who don’t.

Resolve to set financial goals that are attainable and measurable, so you can protect yourself from financial storms.

Automatically Pay Yourself for Your Future
You can automatically set aside a percentage of your income, and this is a good way to contribute to any savings towards a home or car, retirement, 401(k), or college fund. Make it a habit to pull ten percent of your income out and pay yourself just like you would any bill. With discipline, your financial future may look brighter before you know it. So here’s a resolution: set up an automatic withdrawal from your bank account to an investment account. You will pay yourself automatically, and you probably won’t even notice that the money has left your bank account.

Switch Banks

With the onset of mobile banking and the use of apps, one suggestion is that you switch to a financial institution that provides optimum services and tools for your personal financing. The new year could be a prime time to do so.

If finding a bank that offers online personal financial management (PFM) tools helps you budget wisely and learn how to make your money work better for you, then that could be a New Year’s resolution worth looking into.

Resolve to Make a Resolution

More important than any single financial New Year’s resolution is the commitment to taking charge of your finances. Whatever resolution you make will be better than ignoring your finances altogether.

Once you get in the habit of paying attention to how you use your money, you may find that you actually enjoy managing finances, rather than dreading it. An easy way to get started is to write down three improvements you’d like to see in your finances, such as income, savings, paying bills on time, and so forth. Then think about the specific steps you would have to take to make those things happen.

Before you know it, you’ll be way ahead of the financial game.

At the end of next year, you’ll look back and congratulate yourself for making New Year’s resolutions that are practical and can shape your future.