Tag Archives: personal finance

Five Reasons Everyone Should Know How To Balance A Checkbook

5506576467_b0892cf304_zEvery generation wants to believe that it is the last, greatest generation. It believes that technology has never been better.

But here are 5 reasons that you should continue to balance your checkbook, even with all of the technological gains.

Fees, Charges & Penalties

Have you ever read the terms and conditions on your bank account? Do you really understand what the financial jargon means?

Banks must notify you usually about 30 days before they add on new fees, charges or penalties.

You should balance your checkbook to ensure that you don’t receive a “non-sufficient funds” (NSF) charge; the bank might have been subtracting money from your account for new fees and you bounced a check because you didn’t know how much was available.

Human Cashiers Still Make Mistakes

Many banks go through numerous customer service representatives in a short amount of time. One mistyped “0” can mean a big difference in your account.

People are only human, we all make mistakes. Balancing your checkbook can find these errors before they become big.

There may be a statute of limitations on certain errors. You want to bring mistakes to your bank’s attention as soon as possible.

Computer Errors

Computers are programmed by humans. While it is extremely rare, there may be a computer glitch in dealing with fractions that could effect your bank account.

Remember that your interest is a percentage of the value of money in your account. If the computer does not properly handle these mathematical calculations, there could be an error.

Your credit score could be unduly damaged by human or computer errors.

Cyber Criminals Are Clever

Malware allows hackers to steal millions every day according to federal cyber crime police.

One of the negatives of mobile banking is that the security features are still not completely safe.

Balancing your checkbook can lead you to becoming aware of hacking attacks or identity theft before these dangers can completely ruin your life.

Develop Financial Discipline

Wealth management skills are learned not innate. By continually balancing your checkbook, you become aware of how much you have, how much you added and any discrepancies in your account. Y

our bank account information remains in the forefront of your mind. You also develop better financial discipline. This can help you when there is an unexpected downturn in your financial situation.

Banking technology is better, but nothing is foolproof. Children and adults should learn how to balance a checkbook in order to manage their money. Wealth management skills can be the difference between life success and failure.

Photo: jridgewayphotography / CC 2.0

Buying Vs. Leasing A New Car: What Makes More Sense Financially?

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There is nothing more exciting than driving off the dealer’s lot in a brand new vehicle. However, before you can take the keys and drive home, you have to determine whether or not to buy the car or lease it.

Let’s take a look at a few of the factors that need to be considered before making such an important decision.

How Much Can You Afford to Spend?

If you don’t have a lot to spend each month, it may be best to lease the new vehicle. This is because the monthly payment is almost always lower when you lease as opposed to buy the vehicle.

However, you may need to pay a security deposit and an acquisition fee when you lease a vehicle that you don’t need to pay when you buy a car outright. Those who have a trade may be able to put their trade toward some or all of the money that needs to be paid upfront.

How Many Miles Do You Drive Each Year?

Those who drive more than 12,000 miles a year should consider buying instead of leasing. In most cases, the lease allows you to drive 12,000 miles a year before charging as much as 20 cents per mile or more after that.

Therefore, it could actually cost you more to lease if you have a long commute or travel regularly for any reason. The good news is that you may be able to prepay for additional miles if you think that you will need them.

How Long Do You Plan to Drive the Car?

Drivers who want to drive the latest model may want to consider a lease because they can simply turn in their current vehicle when the lease expires.

Whether you decide to buy or to lease, you get the same manufacturer’s warranty, which can be important if you want or need something that is reliable. As a general rule, if you don’t plan on driving the car for more than three years, opt for the lease.

Do You Know What You Want to Buy?

At any time during a lease, you can trade in the vehicle if you find something that you really want. You can also try to transfer the lease if you decide that your current driving arrangement isn’t working out.

When the lease expires, you can decide to buy the car at its residual value if you like it and can afford to keep making payments. By purchasing the car, you agree to pay for it until you sell it, trade it or make the final monthly payment.

Therefore, you are often better off leasing if you aren’t sure that you are ready to commit to a particular vehicle.

There is a lot to think about before deciding whether you want to buy or lease a vehicle. For those who aren’t ready to commit or can’t afford to make a large monthly payment, a lease may be the best decision.

However, if you plan on driving the car for a long time and rack up the miles each year, buying is probably the better option.

Photo: Joe Ross / CC 2.0

Is It Time To Ditch Your Bank?

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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

6551534889_9c8ae52997_zrTeaching 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

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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

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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.

Four Financially Responsible Suggestions For Your Tax Refund

13368794943_809d50b420_zFew people find the tax season pleasant or enjoyable. However, getting a return on your taxes can go a long way towards improving it.

There are many things on which to spend a tax return and most people have no trouble coming up with ideas for it.

However, it’s rarely wise to run out and spend that money immediately. That windfall needn’t be an opportunity to splurge.

Instead, why not turn it into a buffer between you and the world?

There are many fiscally responsible ways to use that tax return. Money isn’t easy to come by, so here are a few ways to use the extra cash to help you through the tough times to come.

Put it in your savings account

Put your tax return into a savings account and leave it there. Many experts recommend having a cash reservoir to tap into when you’re in trouble.

The specifics vary, but most agree that a thousand dollars should be your minimum for this emergency fund.

Putting your tax return into an emergency fund is the financial equivalent of buckling your seat-belt.

Invest it

If you want to use it now, consider investing it.

Remember, investing doesn’t just mean buying stocks. It can also mean investing in yourself by taking classes at the local college.

It can mean buying that new piece of equipment that will take your side-business to the next level.

It can mean repairing your house, your car, or otherwise improving your property. Investing that tax return in something that will create yet another return is just good business savvy.

Spend it on your family or your friends

Yes, that money is yours, but you never expected to see it again. Why not share your good fortune with others?

Even loaning it to someone who is hard up, free of interest, is a good use of that money.

Friendship and good will are always more valuable than any amount of cash.

Invest in precious metals.

Investing extra money in silver or gold is a good way to ensure that your money will keep its value. Buy when the costs are low and don’t sell it until you have to.

Precious metal prices have risen drastically in the last thirty years and all those investors who bought when silver was a few dollars an ounce have had the last laugh.

Even if you’re not planning three decades ahead, investments like this can help keep your money from losing its value to inflation.

Photo: eFile989 / CC 2.0

Five Myths About Tax Audits That You Should Forget Immediately

2592570286_b213acd1de_zGetting 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

5856708903_294549a95a_zFebruary 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

5524891107_e6420408a7_zIt’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