Friday, December 30, 2011

Frugal Festive Opportunities

Have you planned your New Year’s celebration yet? A little short on cash? Consider giving a last minute shout out to friends and acquaintances --The more random the better. Those that accept, have them pair up to provide a course of the meal. Each take turns serving, with one pair volunteering to do dishes. What you have is a gourmet evening with good company for the cost of making one dish at home. The entree to our last impromptu gathering this week was a hit (Chef Daniel Boulud's Pork Shoulder with Guinness, Dried Cherries, and Sweet Potatoes). 

All in all, it makes for a very frugal – very fun evening out. Hope you are gearing up to enjoy wrapping up 2011.

Monday, December 26, 2011

From the Heart

During the gifting season, it is sometimes difficult to find the ‘perfect’ present. Some of the best are those from the heart. Like the garden stone with our grandchildren’s’ foot prints, framed photos of special moments from the past year, lovely scarves from faraway places we have traveled. Sometimes the best gift can be the offer to undertake a dreaded task, like cleaning out and reorganizing a storage room or offering your services as dishwasher for your parent’s dinner party.

The very best gift is the present of presence, being there for one another, either in person or in heart. And to think – it doesn't cost a penny. How grand.

Saturday, December 24, 2011

Christmas Traditions

Every year, in place of buying gifts for one another, we take a family vacation for Christmas. This year was an exception. The year got away from us. With no extra funds set aside for travel, we decided to spend time together at home. To compensate for not traveling, we  exchanged gifts with one another. We made many of the gifts, but we still felt like we needed to buy everybody something. This was way more work than we remembered. Spending money in such a short window of time for so many people, and not knowing if it is something they would like, need or want --is stressful.

It was joyful being together and has been a very laid-back week. But we all agreed that from now on: 1) each Christmas, we will start planning for the next year's trip. When everyone is together, it is easier to negotiate the dates and destination selection. 2) We will budget a savings plan for the trip that stretches over a 12-month period. The ultimate gift you can give yourself is to pay for a trip out of savings vs. on credit. 3) We will go back to drawing names for a Secret Santa, with a dollar amount cap on spending.

We all agreed that in the future, if we feel tight on time or funds, we will find a way to at least take an overnight trip as a family. We didn't appreciate how much we enjoyed our Christmas vacations until deciding to not do it this year. What a great way to help us all gauge the value we find in the investment.

Hope all is joyful where you are at this holiday.

Wednesday, December 21, 2011

4 Days ‘til Christmas; 10 Days ‘til End of Year

As we rush around getting last minute gifts, we should also be mindful of the end of the year for tax reasons. Here are a few items to check off your list before 2012 rolls around.

- Last Minute Charitable Contributions: Time to get in the last minute charitable contributions for the 2011 tax year. Is it time to clean out your closet and make a donation to Good Will? Can you afford to give a little extra to a charitable cause? It has been a rough few years for a lot of people and your donation may be just what your favorite charity needs to help those in need.

Unreimbursed Medical and Dependent Care Accounts: These are your "use it or lose it" accounts. You have to use the money by the end of the year or you forfeit your balance. If you have money in these accounts, maybe it is time to get your eyes checked or a new pair of glasses. Make sure you have paid all of your dependent care expense and that your balance is zero. 

- 529 or Educational Savings Deposits: In some states, your contribution into an educational savings account or 529 plan is a deduction on your state taxes. Do you need to add a little more for next semester's U-bill? Consider adding a little more to receiving the deduction?

- Taxes: Do you have any tax bills due in December or January? These bills might be deductible on your taxes. You might consider paying your January taxes in December to take advantage of the deduction.

- Medical and Dental Expenses: Did you have a lot of medical expenses this year or are you going to have medical procedures next year? You may be able to deduct medical expenses on your taxes if the amount is greater than 7.5% of your adjusted gross income (AGI) and you itemize your taxes. A little tax planning can save you a lot of money.

- IRA Contributions and Future Tax Planning: You have until April 15, 2012 to maximize your IRA contributions. However, an IRA or 529 contribution to someone else might be a great last minute Christmas gift.

We wish you and your family a great and save safe holiday season. As always, check with your tax professional to see what strategies work best for your individual situation.

Wednesday, December 14, 2011

Upcycle Twinkle Time

It is the holidays and in the spirit of gifting and the joy of creating, make useful and fun things for family and friends this time a year. Tis the art of Upcycle: To make new from items that have lost their usefulness or value.

A few flavors of the day:

Paper bag stockings, perfect for gifts of movie passes, lottery tickets or gift certificates:

       Covering an old canvas so to gift a new painting:

Piecing together old jeans into a cozy blanket:

Everyone has a little elf inside them. Get out the glue and glitter and release your inner elf. Very fun. Very frugal.

Friday, December 9, 2011

OWS, Student Debt, Tuition Increases and Tuition Free Colleges

Higher tuition, more student loans, and greater access to higher education…what do we do? The Occupy Wall Streeters (OWS) say they are not going to repay student loans and are demonstrating on college and university campuses.  In today’s Inside Higher Ed daily updates, there is an article about how their energy might be misplaced.  This article argues that college and university administrator’s hands are tied because states are cutting funding to higher education and students are demanding quality student services and education.  They are feeling that their only or best choice is to raise tuition and fees, which ultimately increases the debt burden for college graduates.

According to there are 10 colleges and university with $0 tuition.  Yes that is right, $0.00 in tuition.  Perhaps we should look at these institutions to see if we can apply some best practices to reduce the cost of higher education.  Many require students to work on campus.  College of the Ozarks nicknamed “Hardwork U” requires 15 hours/week of work from the student to graduate tuition-free.  Berea College offers every student a full-tuition scholarship and a laptop computer while attending Berea and work-study to offset food, room and board.

Higher education is not free.  It is expensive to pay for buildings, professors, administrators, support staff, research and everything that makes college “the best years of your life.”  So the question is how do we lower the cost of higher education without additional taxes and reduced quality of education and services?

My answer is YOU!  Did you graduate from college?  Did you benefit from college?  If so, it is time to give back.  You can give back to a specific scholarship, start a scholarship, name a building or give to the general fund.  You can ask anyone who asks for donation, the amount is not important, but it is important that you get in the habit of giving.  We are all at different places in our financial lives, so whether you give $1 or $100 million, just give. This holiday season, think about giving your college or university a gift.  Contact your alumni association or foundation to see how you can help reduce the cost of higher education and designate your money to the area where you believe it would do the most good.

If you value higher education, and if our society values higher education, we need to put our money where our mouth is and give back.  College and university administrators, faculty and staff — You have a huge responsibility to do as your donors wish and be good stewards of the resources you are charged with managing.  That not only includes the fiscal responsibility, but the education you provide in the classroom and the support services in housing, recreational services and every service to the students. You are charged with providing the highest quality education and experience at a reasonable price.

I hope you have a happy holiday and take time to reflect on your personal values and where your money goes.  I’ve always said, “If you want to see what people really value, look at their checkbook and see where they spend their money.”  I hope your values and your checkbook are in agreement.

Wednesday, December 7, 2011

Frugal Fun and the Holidays

Frugal Fun”', “Holidays”: The two topics go hand-in-hand.  So much of the joy of the holidays is the time spent with love ones and surprising them with something special. The something special does not have to cost a mint. Gifts from the heart can be the least expensive and the most treasured.

Frugal-festive examples from our homestead this year include packets of homemade monogrammed stationary:
Stockings made from a fabric stash and old costume jewelry:
And grandparents teaming up with the grandchildren to make extra special surprises for the parents. These activities make the holiday glow -- from the joy of the planning, the making and the giving.

From our household to yours, we hope your holiday prep this year is joyful, frugal and fun. :)

Sunday, December 4, 2011

So Many Priorities, Never Enough Money

80-10-10: That is the budget we strive to achieve in our household. Live on 80%, save 10%, give 10% of our time, talents and treasure. We are not there yet but every year we get closer. Coming to the end of this year and heading into the next, we find that we have had, and will continue to have, more priority family fun than we originally budgeted for. How do we balance our priorities and our income?
  • Want to pay for it in cash and continue to keep our credit card balance at zero each month? -Yes
  • Want to take out of our savings or reduce our savings rate? -No
  • Consider backing down on our giving? -No.
Ideally, we should bring our life style within the limits of that 80%. Selling off an asset, such as an extra automobile, is one option we discussed. We have three vehicles (car, truck, van) between two drivers. For the most part, the truck and the van sit in the garage as we typically car pool. Why is it hard to part with assets we seldom use even though they cost us money? Even if a vehicle is paid for, it still costs you in maintenance, license, insurance and depreciation.

It’s hard. Yes, a van is handy at times and we love ‘Chitty’, with her ‘Truly Scrumptious’ navigation voice and leather, heated seats, back-up camera and warning sounds when her bumper gets close to another object – which makes parking in tight spots such a breeze. We named her ‘Chitty-Chitty-Bang-Bang’ because with her laser speed control, we felt she practically drove herself.

To balance our budget, do we:
Take from savings? Take from giving? Carry a credit card balance? Sell Chitty? Change spending habits elsewhere?

Whether you are striving to live on 90% of your income and save 10%, or aiming for the 80-10-10 split --how do you keep an every changing lifestyle balanced and in budget?  What recommendations do you have?  Thank you for sharing.

Saturday, December 3, 2011

Look Who’s Trying to Collect from Beyond the Grave

What happened to your debts when you die? As seniors increase their debt during retirement, you should know what happens to debts when you die.  According to “Nearly 40% of all seniors say they have accumulated debt in their retirement years with no plans to pay it off in their lifetime.  Are the heirs and next of kin responsible?

There is not an easy answer and it all depends on the situation.  The first thing to do in all cases is to notify all creditors of the death. Normally, the estate and the executor who handles the estate will liquidate the assets, pay creditors and distribute the proceeds according to your last will and testament or it will be distributed according to state laws.

If there is not enough money to pay all creditors, the general order of who gets their money is:
1.  Funeral expenses, taxes and administrative fees
2.  Secured creditors such as mortgage loans, car loans, etc.  These creditors have the rights to the assets securing the loan.
3. Unsecured creditors…if there is any money left.  If there is no money left, the creditor will contact the co-signer and the co-signer is legally responsible for the debt.  If the debt was just in the deceased name, most credit card companies will write off the debt.
However, more and more credit card companies are outsourcing their collections and contacting the next-of-kin trying to collect based on “moral obligation.”  Saturday’sWall Street Journal has an article describing how collection firms are targeting survivors to try to collect at least some of the debt.  According to this article, “Collectors are starting to realize just how much money you can get from someone when they are at their most vulnerable.” Many survivors pay some or all of the debts just to stop the collectors from calling and bringing on recent memories of the deceased, even though they are not legally obligated to pay.

Here are some of the facts you should know:
  • The Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 prohibits creditors from charging late fees or annual fees during estate settlement.
  • Not all monies are available to creditors.  Retirement accounts such as 401(k)s and IRAs don’t pass through the estate, but go directly to the beneficiary.
  • Under the FairDebt Collection Practices Act , collectors cannot do the following:
  •  Call before 8:00 a.m. or after 9:00 p.m.
  •  Call at work if you ask them not to
  • Harass you, use obscene or profane language or threaten the use of violence or other criminal means to harm you, your reputation, or your property
  •  Conceal his or her identity on the phone
  • Lie or falsely imply that you have committed a crime
  • Disregard a written request from you to cease further contact
  • Falsely represent the amount, character or legal status of debt
  • Continue to contact you if you ask them in writing to stop

If you feel you are being harassed, contact your state’s Attorney General’s office and the Federal Trade Commission with the details of the phone call or harassing activity.  You may not be liable for the debt and you have rights to keep you from being harassed.

Tuesday, November 22, 2011

OWS: Repay Student Loans?

Occupy Wall Street (OWS) protesters have decided not to pay back students loans as a way to protest the high cost of higher education.  Is this a good idea?  Check out what Prof Bob has to say.

Sunday, November 20, 2011

Credit, Deficit Super Committee, and You

Do you know what would have happen if we followed a federal balanced budget amendment?  We would all be speaking German.  Deficit spending allowed the federal government to finance World War II by selling “war bonds.”  Our nation’s monetary policy allows the government to borrow (by selling bonds) to finance necessities and to smooth out the ups and downs of natural business cycles.

The deficit Super Committee deadline is Monday, November 21st, 2011. As the committee meets, I hope they are listening to some of those in the 1% who say they would not mind paying their fair share in taxes. I hope they listen to the 99% who want to see fairness in the tax system. I hope they listen to the majority of economist who say we should be borrowing and investing in infrastructure.

Let’s think about it for a minute. We borrow money to fix our roads, bridges, schools, and dare I say, Internet, so all would have access to the World Wide Web via high speed connection.  We bridge the digital divide and make a path for easier access to education for everyone. We put people to work.  It’s a simple equation; the more people who are employed, the more tax revenue the government receives and the less that is spent in social programs.  The more people unemployed, the more the government spends on social programs and the less tax revenue it has coming in.

Interest rates are at an all-time low, which makes borrowing for the government (and for you) very inexpensive.  It is okay, and maybe even a good idea to borrow money if it is for an investment that will have lasting returns.  Borrowing for a college education, a home, and even for the government to put people to work and get our economy going are good ideas.  It is important to look at the long-term vision and payback when considering taking on credit.  Does the Super Committee have the vision and the guts to make the right decisions?  For the health of our country, I hope so.

Saturday, November 19, 2011

Credit, Debit or Cash - Holiday Shopping

Black Friday is less than a week away and there is no place I would rather NOT be than shopping at 4:00 a.m. when the stores open.  I will be in my bed sleeping off a good Thanksgiving meal of smoked turkey and ham with all the fixings.   But as we get into the season of spending, shopping and giving; here are some ideas to keep in mind.

When shopping for gifts make a list and check it twice.  Find out where you can get the best deal and make a budget for your gift giving. This may be a tougher holiday season financially so it is even more important than ever to keep both hands on your purse strings as you walk into stores playing holiday music and seeing displays that say “buy me!”  Using cash and the envelope system of budgeting keeps you within your budget.

Using credit cards provide some protection, however you may be tempted to spend beyond your budget. Credit cards are governed by the Fair Credit Billing Act which provides you specific rights to dispute your credit card charges when your purchases are not delivered as agreed.  You can also build rewards for using your credit card, whether airlines miles, cash back or points to use how you would like.  The major downside of using a credit card is that if you keep a balance, you could make the holidays last all year long or longer, trying to pay off what you purchased.

Cash and debit cards can keep you from having the credit card holiday hangover.  You will not receive monthly bills of unpaid balances.  This also helps you stay within your budget.  If you don’t have the cash, don’t buy it.  Debit cards do not offer the same as credit cards. Debit cards are regulated by the Electronic Funds Transfer Act (a federal law), and you only have a specified time to dispute charges.  If you wait too long, you may lose all of your money.

If you use cash, be sure you hang on to your receipts and keep track of what and where you spend money.  Sometimes my wallet is like a black hole.  I put money in and I don’t know where it went. Receipts can also help you in returning items.

You can also make holiday gifts if you have the time and talent, but that is a blog for another day. We hope you all have a great holiday season, spend your money, time and talents wisely and -- get a quiet moment to reflect on your blessings. Happy Thanksgiving!

Wednesday, November 9, 2011

The Stock Market Thriller

“Make sure your seatbelt is securely fastened and keep your hands and feet inside the vehicle at all times.” 

This is what you hear as you get on an amusement park roller coaster. Maybe your stock broker or financial advisor should also say this when you begin to invest in the stock market. In the spirit of full disclosure, should we formally address the stock market by its thrill ride name?

There is Disney’s The Twilight Zone Tower of Terror, Kings Island’s The Beast, Six Flags Great Adventure’s Kingda Ka, the Stratosphere Hotel and Casino in Las Vegas has Insanity, and the king of amusement park roller-coasters, Cedar Point in Sandusky, Ohio has Disaster Transport, Iron Dragon, Maverick, Mean Streak, Millennium Force, Raptor, Top Thrill Dragster and Wicked Twister. Any one of these names fit the gyrations, the ups and downs of the stock market.

Even with your seat belt securely fastened, it is a good time to reassess your risk tolerance and which investment options best fit your personal goals and ‘ride’ tolerance. Monday’s Wall Street Journal (11.7.11) has an entire section titled Investing In Funds which examines mutual fund investing and different opportunities. How to Rest Easy in a Crazy Market provides seven tips to help you “enjoy” the ride and make sure your portfolio stays on the tracks. Here are the seven points:

1. Get real about your tolerance for pain. We have all heard “the higher the risk, the higher the potential return” but we don’t hear “the higher the potential for loss.” Risk involves the ups and downs, and if we are in risky investments, we better be prepared for the downs and possible total loss of our investments.

2. Favor funds that cast a wider net. Spread your risk out by being diversified in your holdings or in funds that are more diversified. In other words, don’t put all your eggs in one basket, but diversify in different baskets composed of different eggs.

3. Hire a pilot who charts a smoother ride. All of the funds are going to have their ups and downs, but look at funds managers who reduce volatility to smooth out the ups and downs. Unless you like the ups and downs, make sure you have on your shoulder belts and HANS devise.

4. Don’t try to wager on where stocks are headed. Face it, you can’t time the market for peaks and valleys. Be a continuous investor, putting money in the market monthly where you don’t have to worry about the highs and lows and trying to time the market. Also rebalance your portfolio periodically to make sure you stay on track.

5. Fine-tune your cash stash to your family’s needs. With any investment, you need to think about when you will need to convert it to cash. Would you need to cash in your investments if you were to lose a job, buy a car, down payment for a house or pay for college? Everyone’s circumstances are different, but money that you will need with a short time horizon should not be in volatile investments.

6. Don’t assume that a stock-free portfolio is risk-free. Bonds, precious metals, commodities, houses, pork bellies as investments all carry risk. Know the risk of the investment and your investment objective before investing, not after the investment has declined in value and it is too late.

7. Don’t be ashamed to seek help. Investments are complicated and if you need help, there are personal finance classes offered at your local colleges and universities as well as financial advisers and planners that can help you determine and reach your financial goals. This is not to say that you don’t need to be concerned with your investments. No one is going to be more concerned about your investments and wellbeing than you. Be financially knowledgeable, financially literate, and monitor your progress towards achieving your goal.

You have the decision whether you are on one of the top 10 thrill masters or want to go for an easy ride in the park. Be knowledgeable, make wise decisions, go for your goals and enjoy the ride.

What is your favorite roller coaster name to best describe the stock market? We invite you to post your response in the comments.

Sunday, November 6, 2011

The Rising Cost of Auto Insurance

It seems like every time I turn on the television, I am bombarded with insurance commercials. I see Flow offering discounts for Progressive, a gecko advertising for Geico, Mayhem causing trouble -advertising for All State Insurance and countless others. Most of the insurance companies are advertising their low rates; others make their distinction on service.

Rates seem to continue to increase and it may not be my imagination. In the November 2011 issue if Smart Money, they state that auto insurance has increased 10% from 2008-2010, siting increases are due to the increased costs to repair a vehicle, soaring medical bills, increased probability of being in an accident, and increased number of uninsured motorist (now estimated at 16%).

So what is a person to do, to make sure they are covered with the correct amount of coverage and still keep their costs low? Here are some suggestions:

• Keep an eye on your credit score. Most insurance companies use your credit score to help estimate your risk and therefore your rate. By keeping your credit score high, you can keep your insurance rates low.

• Have the correct amount of coverage. Your state has a minimum coverage you must have. If you don't have enough insurance you could be putting other assets at risk if you get sued. By having too much insurance, you could be wasting your money.

• Shop around for different rates. It takes a little time, but may pay big dividends in savings to switch companies.

• Look at the deductible on your insurance. The higher your deductible, the more money you will have to pay out if you are in an accident, and the less the insurance company has to pay out.

• You could also give up some of your privacy and have your driving habits monitored. Progressive Insurance has "Snapshot" which monitors your driving habits. Your premium will be set on how you drive.

We all need to have insurance and the correct amount of insurance. Shop around on-line and/or talk to your insurance agent to make sure you are covered.

Thursday, October 27, 2011

Is Student Loan Forgiveness the Answer?

President Obama announced changes to the “Pay As You Earn” plan on Wednesday, October 26, 2011 that would/could ease the repayment of student loans. According to the College Board, the average public in-state tuition rates are increasing 8.3 percent for the 2011-12 year.

President Obama pointed out that the average college graduate owes $24,000 in student loans and that the 2011 graduates have an average debt load of $27,300. USA Today reported that outstanding student loans will reach $1 trillion ($1,000,000,000,000) before the end of the year. Currently, student loan debt in America has surpassed credit card debt. Is this our next financial crisis?

The highlights of the “Pay As You Earn” plans or income-based repayment plans are to:
·        Start this option is 2012 (vs. 2014)
·        Cap student loan payments to 10% of discretionary income (vs. 15% )
·        Forgive any remaining balance after 20 years (vs. 25 years)
·        Support consolidation of direct government student loans with government-backed private loans helping an estimated 5.8 million people. This would essentially allow refinance the private loans at lower government rates.

According to a White House fact sheet, a teacher $25,000 in debt and earning $30,000 a year will see their payments reduced to about $114 a month.

Student loans do not go away in bankruptcy unless under extreme circumstances and it looks like this could be one alternative to help people who have a lot of student loan debt. Current repayment plans include the options of 1) Standard Repayment plan of 10 years with a minimum payment of $50.00; 2) Extended Repayment plan if you have more than $30,000 in Direct Loan debt -repayment over 25 years; 3) Graduated Repayment letting you start out with low payments and increase your payment amount every two years; 4) ‘income contingent’ and 5) ‘income-based’ repayment plan.

As you take on student loan debt, you have to decide if and how you will be able to repay your loan. These new changes may not be right for everyone, especially if you do not have a lot of student loan debt and you get a high paying job after graduation.

Borrow wisely, study hard, have fun and pick the right repayment plan for you.

Monday, October 10, 2011

Making Sense of Occupy Wall Street

As a business professor I am torn about the Occupy Wall Street protest (OWS).  On one hand, the capitalism and free market economy enable people to “pull themselves up from their bootstraps” and become wealthy by inventing, creating, developing and delivering new and creative products and services that meet a need.  Doing this at a price consumers will pay while making money is an art and science.  For those who have this talent and gift, should they not be compensated for taking risks?  Isn’t that what makes American business great?  This is the land of opportunity….right?  Just look at what the late Steve Jobs did to help make your life better.  We didn’t have to buy an overpriced MP3 player, but Jobs had the gift to make the i-anything what we as Americans wanted to buy.
On the other hand, I read about executive compensation in the millions while the business is laying off workers or not giving them a raise and I wonder how many line jobs those millions of dollars to one person could pay for. I wonder what is “fair” compensation for CEOs who run corporations.  Is anyone worth $1 million a year, $5 million a year, $30 million a year or even $4 billion a year? Does greed cause us to “bend” the rules, influence decision that our more about us and not so much for the greater good?  Is it the corporation that should be concerned with the greater good?  I can argue with myself all night long about these issues and not come to a clear conclusion. 

Maybe that is what I am struggling with the OWS protest, I don’t know exactly what they want and when they will be satisfied enough to unoccupy Wall Street.  I don’t know if they have clearly stated what they want to see changed. 

From my desk, here are my suggestions for clarity of goals:
1.      Deal with executive compensation and fair pay. Limit executive compensation to a times average salary.  Whole Food touts CEO John Mackey’s salary and cash bonus to no more than 14 time the average worker’s salary.  This should also include stock options and differed compensation.  If the people on top want a raise, everyone should get a raise. This may develop a sense of teamwork, community and doing good for everyone.

2.      Limit the amount of contributions to political campaigns, politicians, and political organization.  Isn’t America to be governed for the people, by the people?  Take the all corporations out of politics and limit individual contributions so no one can buy influence.

3.      Make the tax code fair.  When Warren Buffett is saying it is not fair that he pays less in taxes as a percentage of income than his secretary, things need to be changes.  We need to simplify the tax code by getting rid of loop holes to where anyone can do their own income tax.

I know that these three things take time to work through and have to be done through corporate boards and acts of congress. Maybe the Occupy Wall Street protest will grab the attention of the civil unrest in this nation and steps can be taken to save our democracy and do good for the greater good.

Sunday, October 9, 2011

National Document Shredding Day?

There is not an official ‘National Document Shredding Day’ yet … And maybe that’s ok, because it is a good habit to take on daily. If you do not own a shredder, watch for local ‘shredding’ days that may be sponsored by a local bank or your city. On September 30, 2011, the whole state of Tennessee sponsored a document shedding day to promote identify theft awareness.

What should you be shredding? Anything that may contain personal identifying information such as Social Security numbers, your address, date of birth or passwords, cancelled checks, check registers, bank statements or receipts, loan documents, mortgage documents, brokerage statements, school records, credit card, mortgage and finance solicitations, credit card statements, contracts, personal business papers, and credit applications.

Not only are you protecting yourself from identity theft or fraud, often the shredded material will be recycled into items such as commercial grade paper towels, toilet paper and other paper products.

Tuesday, October 4, 2011

Free Checking a Thing of the Past?

The day has come. We are beginning to see the ramifications of the Durbin Amendment - Dodd-Frank Act, which became effective October 1, 2011. The amendment imposes limits on the fees that banks can charge merchants for each customer debit card purchase. To compensate, some banks are looking to make up for the lost revenue via other means, such as charging you a fee for the use of your debit card and/or checking account. You have options as to where you do your banking. It is important to select an institute where the service and products best match your needs.

ABC News has compiled a list of the 10 largest banks and how much each is charging for basic checking accounts and the debit cards. Additionally, you can learn about your local bank and credit union options online.

It only takes a few minutes to do a side-by-side comparison as to your options but can save you significantly over the long run.

Sunday, October 2, 2011

To Convert or Not Convert the IRA

This was the year long debate in our household. In 2010, the federal government dropped the income limit for moving savings from a traditional to a Roth IRA. Additionally, you had a one-time option to pay taxes on the current value of the converted funds over a two-year period. The converted asset then grows tax-free.

To get this tax break off any future earnings of the converted funds, you have to pay income tax on the value of the funds moved.

From Kelly Greene's Wall Street Journal article on 9.30.2011, "The federal government allows the tax-law equivalent of a do-over, says Maria Bruno, an investment analyst at fund giant Vanguard Group, whose customers converted more than 230,000 traditional IRAs to Roths last year, and which has processed 3,900 do-overs this year, as of Monday."

We are one of the 3,900 who converted back. This was a highly contested move in our household. Bob is sure with the current level of the national debt, that by the time we withdraw the retirement savings, we will be under the burden of a significantly higher tax rate. Kristy is pretty convinced we most likely will never retire so it will be a tax that our kids can cover when inheriting the asset. In the final hours.... Kristy won.

Investors who transferred traditional IRA holdings to a Roth in 2010 can move the funds back to a traditional IRA and avoid the tax up to October 17th. If you filed your 2010 tax returns already, you can amend them. We amended our tax returns last month. The weight of such an extra-large tax payment, even spread across a two-year time line seemed insurmountable to Kristy, given our number of other more short-term, family goals.

There were multiple steps to "reconvert", a waiting period, and then the "recharacterize" of the account as a traditional IRA. Calls to our tax advisor, calls to the IRA custodian...

The downside? We lose the one-time option for 2010 conversions of getting to spread the income involved across two tax returns. We lose out on the possible tax-free earnings of the converted fund. Up-side? Significant less tax to pay over the next two years.

Who was right? We will let you know in 30 years.

Sunday, September 25, 2011

Renters Insurance Is Assurance for Students

This morning, firefighters from cities across Johnson County, Iowa battled a large fire affecting multiple buildings in downtown Iowa City. There were apartments on their upper floors of the impacted buildings.  In the TV interview, one of the displaced student tenants said ‘Thank God for renter’s insurance’. Hopefully, all the tenants were as wise as the student being interviewed.

College students renting an off-campus apartment or house should consider purchasing renters insurance to protect their personal property (i.e., computer, television, bicycle,  furniture, clothing) in the event that it is damaged, destroyed or stolen.

Even if a student is a dependent under the parent’s insurance, the student’s personal property, in many cases, is not covered if the student lives off campus.  Your landlord’s insurance doesn’t cover your personal property in the event that your propriety is stolen or damaged as a result of a fire, theft or other unexpected circumstance.

Premiums for renters insurance average between $15 and $30 per month depending on the location and size of the rental unit and the policyholder’s possessions. For the price of a few lattes, you could have thousands of dollars of insurance.  Unusually expensive items, such as fine jewelry or an art collection, may require the renter to purchase additional coverage, called a “rider” or “floater”. Your insurance agent can help you determine if additional coverage is necessary.

Another important factor to look for when shopping for renters insurance is “actual cash value” vs. “replacement cost” coverage. Actual cash-value coverage will reimburse you for the value of the personal property (it's garage-sale price) at the time of your claim. Replacement cost coverage, on the other hand, will reimburse the full value of the new item, after you purchase the new items and submit your receipts. While the up-front cost is greater, you are more likely to receive accurate compensation for your possessions.

Bankruptcy and Student Loans

If you're having serious trouble paying back your student loan debt, bankruptcy is not a likely alternative for you. Student loans are usually not eligible for discharge from bankruptcy.

If you're having trouble making any of your payments, the first step is always to contact your lender, be honest and try to work toward a realistic payment plan. The lender would much rather be paid over a longer period of time then for you to default on repayment of your debt.

If your student loans are the largest part of your debt, you are better off to contact your student loan lenders and see if you can arrange an easier repayment plan or deferment of payments, over bankruptcy.
Bankruptcy filings stay on your credit report for 10 years and will likely limit your ability to get a mortgage, borrow money, or get a job. 

Saturday, September 24, 2011

Student Loan Default Rate Increases

Is the education worth the debt?  Is it worth going an extra year so you can work while going to college and not take on debt? First, a college education is worth the cost, but you have to look at the potential ROI (Return on Investment).  Different careers pay varying wages. With higher earnings, you are able to pay back a larger student loan debt with fewer sacrifices. 

The U.S. Bureau of Labor Statistics (BLS) publishes an OccupationalOutlook that lists occupations, the education required, and the potential salary range.  According to the BLS, the high your education, the more money you will make and the less chance you will be unemployed.  Choose your education, career and debt load carefully.

The cost of an extra year of college could be more costly than taking out a loan and finishing on time. To calculate this cost, add together the cost of tuition and books for one additional year of college plus your potential future salary, and then subtract your current salary.  If tuition and books cost $30,000 and your future salary is $35,000 upon graduating, and you are making $15,000 now, that extra year cost you $50,000 ($30,000 + $35,000 - $15,000).  Can you better afford the fifth year of $50,000 or take out a loan to get done in four years?

Choose your institution carefully.  You may think that private 4-year colleges and universities are the most expensive but if you calculate the true cost (tuition, room and board minus any grants and scholarships) it might be close to the cost of a state school.  If adding in the cost of getting done in four years compared to five or six, and placement rates for their graduates, it may be less expensive to attend a private college or university.
You can also receive credits from your local community college and usually transfer the credit to a 4-year college or university.  If considering this option, talk to the college or university you are planning to transfer to make sure all of your community college credits count towards graduation.
Using the Federal data for the 2009 cohort, the highest default rate for colleges and universities offering baccalaureate or above degrees is for for-profit schools with a 15.4% default rate, followed by public colleges or universities at 5.2% and then private colleges and universities at 4.5%. Student loan defaults do not go away on your credit report.

Being a federal loan, the government has more power to garnish wages (up to 25% of your wages), keep your federal and state income tax refunds, take your future lottery winnings, and garnish part of your social security.  Student loans are rarely discharged in bankruptcy.  So once you borrow the money, you will have to pay it back! 

If you are having trouble making your student loan payments, check out for information on deferment of payments. You can also check out a Wall Street Journal video for more information on student loan defaults.

Monday, September 12, 2011

Goals and Lotteries

We know it is better to save our money than to buy a lottery ticket. The odds of winning the Powerball are 1:195,249,054. Yet, when the payout climbs above a $100 million, we start to dream of what we would do with a winning jackpot.

Lotteries give us an excuse to dream of what we would do if we had an abundance of funds at our finger tips. What would you do? What would you buy? Where would you travel? These dreams provide motivation to set goals and to work to achieve these goals. It also helps you to get in touch with your values and to ask the question of what your really want out of life.

We know that we probably will not win the Lottery jackpot, but we have big dreams and goals to achieve. An entrepreneurship professor once said "if you are going to dream, dream big." and "be careful of what you dream for, it just might come true." So go ahead and dream of winning the lottery and what you would do with all the winnings. Then set goals based on your values and work to achieve your dreams.