New Article from Practical Money Matters: Put Your Tax Refund to Work

By Jason Alderman with Practical Money Matters

 Find the original article here courtesy of Visa, Inc.’s Practical Money Skills

If you’re among the millions of Americans expecting an income tax refund this year, you’ve probably already filed your 2011 return and are eagerly awaiting the money. But if you haven’t already mentally spent your refund on a guilty pleasure, here are several great ways to better put that money to work for you:

Pay down debt. Beefing up credit card and loan payments can significantly lower your long-term interest payments. Suppose you currently pay $120 a month toward a $3,000 credit card balance at 18 percent interest. At that pace it’ll take 32 months and $788 in interest to pay off, assuming no new purchases. By doubling your payment to $240 you’ll shave off 18 months and $441 in interest.

Start an emergency fund. To protect your family against the impact of a layoff or other unexpected financial crisis (e.g., medical emergency, major car repair, theft), set aside enough cash to cover six to nine months of living expenses. Seed the account with part of your refund and then set up automatic deductions from your paycheck or checking account.

Boost retirement savings. Beef up your 2012 IRA or 401(k) contribution, especially if your employer offers matching contributions; a 50 percent match corresponds to a 50 percent guaranteed rate of return – something you won’t likely find in any investment. 

Spend now to save later. Reap long-term savings on things you’ll eventually pay for anyway:

• Replace older appliances with energy-efficient models that will pay for themselves through lower utility bills. For example, replacing a 1980s refrigerator with an Energy Star model will save over $100 a year. The Energy Star website can help you find Energy Star products and estimate savings.
• Switching from traditional light bulbs to energy-efficient alternatives like CFLs and LEDs, while initially more expensive, can save about $6 per bulb in annual energy costs. Just make sure they are Energy Star-qualified models, which exceed minimum standards.
• Schedule routine car maintenance. According to AAA, simply changing your car’s air filter once a year can save over $270, while replacing older spark plugs can save $540 in wasted fuel.
• Ask whether your utility offers free or subsidized home energy audits. An audit will reveal which investments – such as increasing home insulation and replacing drafty windows and doors – will lower both winter and summer energy bills.

Finance education. Strengthen your career prospects and earnings potential by adding new skills through college courses or vocational training. Ask if your employer will help pay for job-related education. You can also set money aside for your children’s or grandchildren’s education by contributing to a 529 Qualified State Tuition Plan or Coverdell Education Savings Account. Bonus: Your contributions will grow tax-free until withdrawn.

Prepay bills. If you expect major expenses later this year (e.g., insurance premiums, orthodontia, college tuition), start setting money aside now so you won’t rack up interest charges later. Also, paying slightly more each month toward your mortgage principal can save thousands of dollars in interest over the life of the loan.

And finally, if you regularly receive large tax refunds, you’re probably having too much tax withheld from your paycheck – you’re essentially giving the government an interest-free loan. Ask your employer for a new W-4 form and recalculate your withholding allowance.

This article is intended to provide general information and should not be considered legal, tax or financial advice. It’s always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.

New Article from Practical Money Matters: Talking Finances with Your Valentine

By Jason Alderman with Practical Money Matters

Find the original article here courtesy of Visa, Inc.’s Practical Money Skills

As you and your spouse celebrate Valentine’s Day over a candle-lit dinner, you may want to avoid romance-killing topics like, “Honey, let’s talk about our financial future.” But you really should have that conversation sooner rather than later to keep your relationship on a healthy footing.

Major life changes may require you to reassess how you manage the family finances. Unfortunately, many couples don’t make time to plan ahead and are later caught off guard around issues like having children, aging parents, planning for emergencies and changing career and retirement goals.

If you haven’t had a financial heart-to-heart lately and aren’t sure what to do next, here are a few suggestions:

Make a financial “date.” Even if you’re in complete agreement on money matters, the family “accountant” should keep his or her spouse in the loop – if nothing else, so they can easily take over in an emergency. Set up regular meetings to discuss bill payments, progress or setbacks regarding savings goals, budgeting for upcoming expenses, and strategies for coping with unforeseen expenses.

Don’t postpone uncomfortable discussions. Should one of you accidentally bounce a check or miss a payment, don’t wait until your next powwow to address it or try to hide the problem. You’ll only make matters worse and create an atmosphere of mistrust. Fess up and deal with the issue right away – you might even save yourself additional late fees or penalties.

Be united. When the news isn’t good – say your 401(k) balances tanked last quarter or one of you got laid off – communication is all the more important. Whether you need to temporarily tighten the budget or make a major life-altering decision like postponing retirement, talk it through and be prepared to compromise so neither party becomes the bad guy.

Reaffirm your goals. Couples often start out with one game plan but then life deals an unexpected hand and goals change. Touch base periodically on how you both feel about such major issues as family size, home ownership, career changes, financing college for your kids (or yourselves), financial risk appetite, when and where you’ll retire, and taking care of elderly parents.

Update legal documents. Make sure your legal and financial documents are up to date and reflect your current wishes, including wills, financial and medical powers of attorney, life insurance policies, retirement accounts, investment funds and any other accounts where beneficiaries or people who control your health or finances are named.

Follow your budget. Some of the worst marital disagreements occur when one or both parties sabotage the family budget. If you don’t already have a budget, many free tools are available. Check out the U.S. Treasury Department’s http://www.mymoney.gov, www.mint.com and Practical Money Skills for Life, a free personal financial management site run by Visa Inc. (www.practicalmoneyskills.com).    

Seek help. If you discover that you’ve gotten off track or need help realigning your financial goals, a number of outside resources are available:

• The NFCC can help you locate a free or low-cost credit counselor.
• You can find a financial planner or advisor through the Financial Planning Association (www.fpnet.org), the Certified Financial Planner Board of Standards (www.cfp.net), or the National Association of Personal Financial Advisors (www.napfa.org).

This article is intended to provide general information and should not be considered legal, tax or financial advice. It’s always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.

New Article from Practical Money Matters: Women and Personal Finances

By Jason Alderman and Practical Money Matters

Find the original article here courtesy of Visa, Inc.’s Practical Money Skills

By many measures, women’s lives have changed substantially in recent decades. According to a comprehensive government report called “Women in America,” although certain social and economic situations for women have improved, when it comes to personal finances, many women still face challenging hurdles.

Key report findings include:

• Women live longer than men but are much more likely to experience critical health problems that hamper their ability to work – and to pass up needed care due to cost.
• Although the earnings gap between women and men continues to narrow, it’s still significant: Among full-time workers, women’s weekly earnings as a percentage of men’s have increased from 62 percent in 1979 to 80 percent in 2009.
• More women than men now graduate high school and college, but far fewer earn degrees in engineering, computer sciences and other higher-paying fields.
• Women increasingly marry later, have fewer children or remain childless, yet still are more likely to live in poverty, particularly single-mother families.
• Women are less likely than men to work outside the home (61 percent vs. 75 percent in 2009) and are much more likely to work part-time and to take time off to raise children or care for aging relatives.

In a nutshell: Women generally earn less and live longer than men, so at retirement they often have less in savings, receive smaller retirement and Social Security benefits and must spread out their money longer. Clearly, women need to take charge of their financial wellbeing. Here are a few places to start:

Develop a budget to track income and expenses. Either download a budget spreadsheet template or investigate software packages and online account management services like Quicken, Mint.com, Yodlee and Mvlopes.

Plan for retirement. Time is your biggest ally when it comes to retirement savings, so get cracking. Start estimating your retirement needs:

• Social Security’s Retirement Estimator, which automatically enters your earnings information from its records to estimate your projected Social Security benefits under different scenarios, such as age at retirement, future earnings projections, etc.
• Check whether your 401(k) plan administrator’s website has a calculator to estimate how much you will accumulate under various contribution and investment scenarios. If not, try the retirement calculators at Bankrate.com and AARP to determine your current financial status and what you’ll need to save to meet your retirement needs. 

Do your research. Many helpful personal financial education and management tools are available online, including:

• The National Foundation of Credit Counseling’s MyMoneyCheckUp™ program offers a step-by-step assessment of your overall financial health and behavior in four personal finance areas: budgeting and credit management, saving and investing, planning for retirement and managing home equity.
• Social Security’s Website for Women provides information on retirement, disability and other issues. You can also order or download their informative, free publication, “What Every Woman Should Know.”
• The Women’s Savings Initiative, a program jointly developed by Heinz Family Philanthropies, the Women’s Institute for a Secure Retirement (WISER) and Visa Inc. This free program features an audio- and e-book called “What Women Need to Know About Retirement,” which you can order on CD or download as a PDF or audio file from Practical Money Skills for Life, a free personal financial management program run by Visa.

This article is intended to provide general information and should not be considered legal, tax or financial advice. It’s always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.

Retired and Still Working

Do you expect to continue working after you retire? Join the crowd—so do three out of every four of today’s workers. A little more than half of these workers admit to having less than $25,000 in household savings and investments—if any—excluding home and pension.

Here’s how to take action, starting today, to reach a real retirement goal:

* Calculate how much money you’ll need. Use one of the many online retirement calculators to determine how much money you’ll need to provide a certain income at a certain age, given your financial resources. A rough projection of your future needs will allow you to set manageable saving and investment goals.

* Gather information. Take advantage of online educational resources and information to examine all your retirement and investment options. Then plot a course of action. There probably will be several different ways to accomplish your goal; the more you know about them, the better the plan you’ll devise.

* Start now. The younger you are when you begin retirement planning, the fewer sacrifices you’ll have to make to accumulate the nest egg that will keep you from having to return to the labor force.

If you need convincing on that last point, see for yourself: If two workers, one 55 years old and the other 25 years old, each want to amass $500,000 by age 65, watch what happens to their investments:

* The 55-year-old will need to save $380,000 total by setting aside $38,000 every year.
* The 25-year-old, in contrast, will have to save only $160,000 total by setting aside $4,000 every year.

These amounts assume their investments achieve average annual earnings of 5%.

Visit our website and look under Helpful Links to find helpful resources for financial management.

*The author of this article is not a registered investment adviser. Readers should seek independent professional advice before making investment decisions.

Putting Off Retirement Saving Could Cost You

It pays big to think about retirement now rather than later, and here’s why:

Let’s say your buddy begins saving for retirement at age 23 with just $100 a month until he’s 60. The total amount he will have saved is $44,400. But with a 10% average rate of return, the total amount he will have accumulated by age 60 is $465,983.

You decide to wait to start saving until you’re 30 years old. You also plan to save $100 until age 60. The total amount you’d save is $36,000. With that same 10% average rate of return, you’re looking at just $226,049. Not accounting for additional contributions or adjustment for inflation, your friend will come out $239,934 ahead of you at the age of 60. The cost of waiting until you’re 30 to start saving means you’d receive less than half of what your friend would receive because he started in his 20s.

It doesn’t take much to start saving. Begin by investing 10% to 15% of your income. If that’s too much for your budget, consider beginning with a smaller amount, such as $50 a month.

If your employer offers a 401(k) plan, sign up—it offers a consistent and automatic way to save. In addition to elective deferrals you make, your employer may also offer matching contributions up to a certain percentage. That’s free money to grow your retirement savings even faster.

You also might consider an Individual Retirement Account (IRA). There are two types of IRAs: the Roth IRA and the traditional IRA. Each option offers certain tax benefits, so think about consulting with a retirement specialist to see which option might be best for you.

It’s always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.

For Mother’s Day, help mom get organized

By Jason Alderman from Visa’s Practical Money Skills

Mother’s Day is May 8. In addition to traditional gifts like candy and flowers, consider spending a few hours helping your mom organize her financial, legal and medical records so she – and you – know where she stands. Being prepared will make it much easier to take appropriate actions should an issue ever arise.

Here are a few key areas to sort out:

Retirement income sources. Gather these documents so your mom will know better how much income will be available throughout retirement:

• If she’s still working, your mom should already receive an annual statement from Social Security showing estimated benefits at varying retirement ages. (You’ll also need your dad’s statement to determine any potential spousal or survivor benefits for which she might be eligible.)
• Annual statements from pension plans for which she’s eligible, showing updated benefit estimates. This might also include potential spousal death benefits if your father has a pension.
• IRA, 401(k) or other retirement savings plan statements.
• Bank statements for checking, savings, money market and CD accounts.
• Company stock and bond certificates and statements for other investment accounts.

Outstanding debts. Also gather monthly statements and outstanding balances owed for major expenses including home mortgage or other property loans, home equity loan or line of credit, car loan or lease, credit cards, medical bills and personal loans.

Other important documents. Your mom should have documents instructing how she’d like her affairs handled, both while she’s living and after death. Look for:

• Medical, homeowner/renter, auto, life, disability and long-term care insurance policies.
• A will (and possibly a trust) outlining how she wants her estate managed after death.
• Durable power of attorney and health care proxy specifying who will make her financial and medical decisions if she becomes incapacitated. Also, a living will tells doctors which medical treatments and life-support procedures she does or doesn’t want performed.
• Birth certificate, marriage license, Social Security card, funeral and burial plans, safe deposit box information and other important paperwork.
• Contact information for professional service providers, including doctors, dentist, pharmacy, lawyer, financial advisor, bank or credit union, insurance companies, pharmacy, etc. Also give these providers your own contact information in case of emergencies.

Review all important documents regularly and make updates whenever her situation changes. For example, make sure that designated beneficiaries for your mom’s will, life insurance and retirement plans accurately reflect her current wishes. 

If you need help guiding discussions on your mom’s current and future needs, Social Security’s special website for women provides information on retirement, disability and other issues (www.ssa.gov/women). They also have a Retirement Estimator that automatically enters her earnings information from its records to estimate her projected Social Security benefits under different scenarios, such as age at retirement, future earnings projections, etc. (www.ssa.gov/estimator).

Another good resource is the Women’s Savings Initiative, a program jointly developed by Heinz Family Philanthropies, the Women’s Institute for a Secure Retirement and Visa Inc. This free program features a book called “What Women Need to Know at Retirement,” which you can order on CD or download as a PDF or audio file at www.practicalmoneyskills.com/resources.

Discussing finances may not be as much fun as candy and flowers, but your mom will appreciate your concern for her financial future.

Creating a Retirement Plan

When you are just starting out on your career, buying your first home, starting a family and paying off student loans, it’s hard to imagine a time when all that will be old news and you’ll be retired. But retirement will come, and how prepared you are for it could depend on how early you start planning.

 The Plan

Your basic retirement plan can be extremely simple. It can be nothing more than just a time frame for retirement and an estimated income need with anticipated life expectancy. Generally speaking, you can determine what you will need as an annual income after retirement by multiplying your current annual income by about 70%. That will generally ensure that you will have a post-retirement lifestyle that is similar to the one you live now.

Of course, this is not an exact science and if you currently live at home with your parents the figures might need some adjustment for normal living expenses.

Why Plan?

The purpose of planning for your retirement now is not to give you a more clear vision for your daydreams; it is to help you understand just how much money you need to start setting aside in order to reach your goals. The younger you are when you start, the longer your money will have to earn interest and the less you’ll need to contribute out of today’s dollars to create tomorrow’s retirement.

As an example, let’s say you are 20 years old when you start saving for retirement and you set aside $200 per month toward retirement for the next 45 years, and it grows at a rate of 5% per year. By the time you are 65 you will have saved about $420,000. But if you wait until you are 30 to begin saving, you will have to save over $350 a month to achieve the same amount of retirement savings.

So start saving early; make a plan, make regular contributions to your retirement accounts, and wait for your retirement years to hit. Seriously, they come much faster than you’d think and in the future you will be thrilled that you were so proactive.

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