Spending Your Tax Refund the Right Way

It’s that time of year again and I’m not talking about spring. Its tax season and hopefully you are getting a nice surprise this year from Uncle Sam. But, don’t go blow it on that nice new 3D LED TV you’ve been lusting after. Take some time to plan things out and spend that refund wisely. Check out these five tips to manage that windfall of cash before it’s all gone:

 Make a budget before you do anything.

Extra money in your pocket seems to burn a hole in it and its gone before you know it. Take some time to plan out how you are going to spend that money so that you can spend it on things that are worthwhile instead of on impulse buys that you may regret later.

Don’t spend it before you’ve got it.

Don’t make purchases on your credit cards thinking that you’ll pay them off once your get your refund. Don’t make any down payments on anything either. We don’t know what unexpected things may come up and we don’t want to spend money that we don’t have yet.

Put a third away into savings right away.

It’s important to have ample savings for emergencies. You should have at least three to six months worth of income saved for the unexpected. You may also be saving for an important goal like retirement or a new car. Your refund is a great way to accelerate your progress on your savings.

Pick a debt to pay off.

Do you have a credit card bill that you have been struggling with for a while? Maybe you have a few medical bills that you are working on? Now is the time to get them paid off and get rid of the stress of having to make payments each month.

Splurge a little.

It’s okay to have some fun and live a little! Take the family out to dinner or buy yourself something you’ve been wanting. Just splurge in moderation. One rule of thumb would be to limit your splurge to 5% of your refund.

One last note on refunds: If you find yourself with a huge refund each year, but you struggle paycheck to paycheck each month, you may consider adjusting your withholdings so that you get more in your paycheck each month to cover your monthly expenses. Just talk to your payroll department to fill out a new W-4.

 

Tired of Bank Fees?

Change can be tough. I blame it on a Scandinavian heritage but it’s probably just “me.” I recently changed internet providers and dropped our landline at home. That was a lot of change – but in the end something that will reduce costs of the household budget and use the dollars more wisely that are spent on communication. I’ve used the same bank for almost 30 years – again, change is tough. But – looking at this article by Mary Hunt (from Everyday Cheapskate) on credit unions just may have me incorporating a little more change (cha-ching) in 2012.

Free Checking Accounts Still Out There

Many bank customers have been feeling nickeled-and-dimed by their banks for some time. And as banks scramble to make up for lost revenue, some are demanding even steeper fees. The country’s largest banks are charging consumers as much as $50 a month if they do not maintain minimum balances or meet other requirements for certain high-end checking and savings accounts. What lunacy! Why should we pay a cent to have access to our own money?

While free bank accounts are disappearing, there are still a few out there. You just have to know where to look. Hint: credit unions. While not all credit unions offer free accounts, many still do. In doing research for this column, I have discovered one that’s even better than free!

Firstmark Credit Union (FirstmarkCU.org) has one of the best free checking accounts I have ever seen. Firstmark is located in Texas, but anyone can join regardless of where they live or work.

What makes a Firstmark Credit Union checking account even better than free? Customers who use their debit card (unlike your humble columnist) earn 10 cents for every signature-based debit-card transaction. You can also earn $25 bonuses by receiving statements online, using their debit card, paying one bill with online bill pay and signing up for direct deposit. Do all four (use promo code GET100) and you can have $100 added to your balance. But there’s more: Firstmark’s free checking account pays 0.10 percent APY on your balance—not much, but better than nothing.

Firstmark offers 11 local branches in the San Antonio area, but anyone can join online. Go to FirstmarkCU.org, and click on “Open a Free Checking Account.” On the next page, look for “Become a Member.” In that list, select “Other Eligible Groups.” Use the pulldown menu and select “None of the above.” Whew! You’re almost there.

Ready for another bonus? You can join Firstmark by becoming a member of the Friends of the Park Foundation, a charitable group that supports the San Antonio Parks Foundation. Firstmark takes care of your first year’s dues, and you’re under no obligation to renew your membership for a second year. This means you qualify for membership at Firstmark by being a member of the Friends of the Park Foundation.

And the best part? Once you are a credit union member, you will enjoy “Once a Member, Always a Member.” You will be able to enjoy the benefits of Firstmark Credit Union for the rest of your life, including free checks, too.

Firstmark is part of the Allpoint network, which provides its members free use of 35,000 ATMs nationwide and 43,000 around the world. All of the ATMs in 7-Eleven, Target, Walgreens and Costco, for example, belong to Allpoint.

If you’re paying even a dime in bank fees, ask yourself this question: Why? Then get busy finding a better alternative that won’t cost you. And it just might pay you to make the switch, too!

Fun on a Budget

We all live on tight budgets, but we still need to have some fun. A budget with no fun will be unlivable over time. Think of your budget as a diet. If your diet only consists of carrots and celery, eventually you will break down and gorge yourself on a big juicy cheeseburger (or five) and your family will find you passed out on the floor in a cheeseburger coma. So, don’t be afraid to set a little aside in your budget each month to have some fun in moderation in order to keep your sanity.

Now taking the whole family out can be expensive. Dinner and a movie for a family can take up the whole month’s entertainment budget. But, with a little research and ingenuity, you can have a whole day’s worth of activities for the entire family for less than the cost of dinner at a restaurant and a movie at the theater. I did some research by looking through the community calendar in the local newspaper and came up with an itinerary to compare costs.

Dinner and a movie for a family of four:

Dinner at a restaurant- $50
Movie tickets – $32
Soda, popcorn, and candy – $25
Total – $107

Full day of activities on a budget:

Charity Brunch – $20
Red River Zoo admission- $23
Amateur Sporting event – Free
Community fish fry dinner – $25
High school Musical – $24
Total – $92

As you can see, you can have a full day of fun activities and two meals with the family for less than the cost of dinner and a movie. I encourage you to check out the community calendar in The Village Family Magazine free at your local grocery store or online at http://villagefamilymag.org/ for lots of low cost and free activities that will allow you to keep some fun in your budget without breaking the bank.

FINANCIAL LITERACY SURVEY EXPOSES GAPS IN PERSONAL FINANCE SKILLS

In recognition of Financial Literacy Month, the National Foundation for Credit Counseling (NFCC) and the Network Branded Prepaid Card Association (NBPCA) today released the results of the 2012 Financial Literacy Survey. In its sixth year, the survey annually provides data and trending around Americans’ attitudes and behaviors related to personal finance.

The 2012 survey revealed a disturbing lack of basic financial skills that are critical to building a stable financial future. Consider the following results in areas such as budgeting, saving, responsible bill-paying, and money management:

• More than half of U.S. adults, 56 percent, admit that they do not have a budget;

• One-third of U.S. adults, or more than 77 million Americans , do not pay all of their bills on time;

• Thirty-nine percent of adults carry credit card debt over from month-to-month;

• Two in five adults indicated that they are now saving less than they were one year ago, and 39 percent do not have any non-retirement savings; and,

• Twenty-five percent of those who do not currently have non-retirement savings indicated that, if they did begin to save, they would keep their savings at home in cash.

“This year’s survey unveiled some disturbing trends, showing that a significant number of Americans are saving less, spending more, and carrying credit card debt over from month-to-month, suggesting that the painful financial lessons of the past are quickly being forgotten,” said Susan C. Keating, president and CEO of the NFCC. “Coupled with the two in five adults who gave themselves a C, D, or F on their knowledge of personal finance, the need for an increase in financial education becomes not only clear, but urgent.”

Relieving Stress through Organization

Managing your finances can be stressful. But imagine if you had no idea who you owed, or how much. How much more stress would that create? When counseling, I often come across individuals who were stressed about their finances because they let disorganization get the best of them. They show up with shopping bags full of unopened mail because they are so overwhelmed that they can’t even bear to open the mail anymore.

I too struggled with disorganization. My wife and I had no system in place and had our bills scattered on the kitchen table, on top of the fridge, and even in old shoe boxes in the closet! One day I finally decided it needed to stop. I started trying to organize things, and I realized that we had been late in paying a few things. This freaked me out! How did things get so bad?

Now my situation was not as bad as I had thought, but the sheer disorganization had me scrambling. In that moment, I decided to develop a system for my wife and I to live by that would give us a simple and easy way to stay organized. Below is my organizational system that I live by and share with clients frequently.

Materials needed:

Hanging file folders

Plastic file storage box (you can also splurge on the fire/waterproof locking kind)

The system:

1. Put file folders into storage box and label the first one “unpaid bills” and the second “paid bills”. You will want to label the others for other important documents like insurance policies, medical records, investments, birth records, etc.

2. When you get a bill, put it into the “unpaid bills” folder.

3. Each week, pull out the “unpaid bills” folder and decide what needs to get paid that week. Document on the bill stub what date you paid it, how much you paid, and check number (or transaction number if paid electronically). Then file the stub in the “paid bills” folder.

4. At the end of the month when you get your bank statements, reconcile your account and use the stubs in the “paid bills” folder to help you balance the account. When finished, staple the bank statement, stubs from the “paid bills” folder, and any other receipts or documents you have saved together and file it away in another folder labeled “reconciled bank statements”.

This system allows you to keep organized and know exactly what has been paid and what has not. You will also have an organized record of payments and receipts that you can easily access if an issue about a payment arises. But most importantly, this is a very easy system to implement that will keep you from stressing out over not knowing who, what, when or how much needs to be paid.

 

Should You File Taxes Yourself?

During the first couple months of every year, I am frequently asked, “Where should I go to get my taxes done?” And I usually respond with the question, “Have you tried filing your return on your own?”

For those that haven’t tried filing their taxes on their own, it can be rather intimidating. Growing up watching the process my parents went through to file taxes made me think it would always be best to pay someone else to do it.

I remember tax days well. My parents would sit down at the kitchen table together for hours with a massive amount of paperwork. My 3 siblings and I always knew that tax day was the 1 day of the year that we had better be on our best behavior. In fact, we made a point to lay low and be as invisible as possible. None of us wanted to be the one that laid the last piece of straw on our dad’s back.

But, being the cheap person that I am, I decided to save some money and file taxes on my own, even having seen myself how frustrating it could be for my parents. With a number of years under my belt, I am quite comfortable filing taxes myself now and I actually look forward to it. There are a number of great computer programs out there that make the process very simple and fairly idiot proof (which is very important in my case). It a shame my dad never lived long enough to experience electronic tax filing. He would’ve experienced a whole lot less stress with today’s process.

The IRS has a great website (irs.gov) that can help to answer most tax questions. Most individuals can file their federal taxes for free using the tools available on their site. It can be a very simple process that takes me an hour at most. I just grab my tax documents (w-2, previous years taxes, student loan interest statements, etc.) and plug in the numbers that the program asks for.

Now, that being said, there are definitely times when it’s a good idea to get professional help. If your tax situation is particularly complex or if you are very concerned about not doing it right, by all means, hire a professional. But, if you have never tried it on your own, why not give it a shot?

What I really love about the tax programs available through the IRS is that you can fill in all of your information, review the results and then choose whether or not you wish to file them. If you are really nervous about going it on your own and feel that you really need a tax professional to do them, I would suggest you do just that. But before you have a professional file your taxes, go through the process yourself online without actually submitting your tax filing. That way, you can compare the results of your efforts on your own and those that were done professionally. If the results were the same, then go ahead a try it on your own next year and save yourself some money in the process.

However you choose to file your taxes, with just 3 weeks before the deadline, if you haven’t already taken care of it, you had best get on it.

 

Planning (or not) for Retirement

With a recent major birthday in our household, we were reminded that retirement is closer than ever. Just like planning for kids’ college and other major financial events in life, they come upon us too fast!

The difficult part about planning for retirement is that you don’t know how long you are going to live and what your health and housing needs will be. I’ve looked at numerous articles and planning materials that talk of how much retirement savings you need to generate the income you need, what your expenses might be factoring in inflation and all the other things to consider. Some people can choose when they retire and others may be forced into retirement for health or other reasons at a time that is not their choosing. Often it comes down to figuring out how you will manage on the income and assets you have. Even those who have saved and prepared for a long time did not anticipate their investments and homes losing so much value over the last few years. Savings that is not invested in the market is not generating anywhere near the income many retirees counted on with current low interest rates.

In working with people who have run into financial difficulties in retirement I have often seen a few common themes.

If married, one is going to outlive the other by a few or many years. So many have not planned for the reduction of income they will experience at that time, especially if social security is their main source of income. Household expenses will most likely not decrease by much but the income will decrease by at least the smaller social security amount. If the deceased spouse was still working even part-time, that income will also be gone. If pension income didn’t include survivor benefits at some level, that can also be a big hit for the surviving spouse.

If you are relying on extra part-time work to supplement your retirement income, few people will be able to continue doing that work forever. Some live a lifestyle that requires that earned income ongoing and that can be unrealistic. If you do continue working, you want it to be due to a satisfaction from working, not because you have to in order to financially cover expenses. You may be one of the lucky ones who can work well into old age, but most can’t. I see many retired people who desperately want to stop working or health conditions make it very difficult to keep working but can’t financially manage without that income.

Fixed incomes do not support debt payments. The most stable retirement picture is one with absolutely no debt. If your basic living expenses of food, utilities, insurance and other basic needs are covered by your basic fixed income from social security, pension or conservative withdrawal from low risk investments, you can more easily survive financial challenges. Other retirement savings can cover the other extras. It can be very difficult for income to cover a mortgage, car or credit card payments.

We may want to spend our last dime on the day we die but without a crystal ball in operation we need to make the best choices with what we have and be realistic about what the future may bring.

 

5 Common Financial Mistakes Young Adults Make

The below is from an extraordinary blogger named Ryan who pens about the trials and tribulations that face young adults at http://www.lifefreshout.com. LifeFreshOut is a site dedicated to discussing life as a young person in the ‘real world’ ranging from personal finance, careers, housings, and anything else relevant to 20-somethings.

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Young adults are notorious for making bad decisions in life. I’ve made plenty myself and I’m only a few years in. Here are five common ones I’ve seen myself and others make.

Underestimating the total cost of big-ticket items.
When I moved away from home to start my career, I had the car my parents and I shared while I was still at home. After a few months of working, I decided I wanted a change. I wanted to buy my own car. So after months of research, I went to a dealership and bought a brand new car. Now I had done quite a bit of calculations and decided that while a new car might not be the best financial decision, I could afford it. Here’s where I ran into a little trouble. All of my calculations were based on assumptions and not on reality. So when I got my first flat tire ever, I hadn’t planned on the uncommon tire size of the new car costing more to replace. Or that I would want to replace all four tires after my second tire problem a month later. Also, my previous car was a gas sipper and while the new one is still pretty economical, it’s not as efficient as I predicted. I underestimated the cost.

Not taking care of your health
It’s easy to just assume that your health is going to remain as strong as it was in your teens. As we get older, inevitably we are going to develop some problems. And these problems will end up costing us in money both in doctor visits and medication. At one point, I was feeling a little ill, but ignored it figuring it was nothing. Eventually it worried me enough that I went to the hospital. As I describe in a previous post , that ended up costing me big. A quick trip to the doctor earlier would have saved me a boatload.

Not paying enough/paying too much when buying small items
Many of us who read blogs like WLGYL are pretty conscious of our spending habits. We try to save where we can, but we also think that some things are ‘worth’ spending money on. Unfortunately, many times we get this wrong. I love to cook, so the kitchen is one area where I fall victim to this constantly. When I moved into my first apartment, I bought a large set of cooking utensils that came out to roughly $1 a piece. Thinking I was being frugal, I was pretty proud of myself. Obviously, these were pretty cheap, and many of the items bent and broke within a few months. I had to replace these and of course felt pretty dumb for wasting money. On the other side, I thought I would splurge and get a nice grill pan. I had never owned one before, so I burned a lot of food onto it within the first few weeks. Eventually it was ruined and I had to toss it.

It comes down to learning what items we should spend a little more money on, and what items we should get cheaper versions of to practice on first before upgrading to higher quality. Easier said than done.

Thinking things will last longer than they do
This one encompasses the previous three, but I think it’s worth its own special acknowledgment. I’ve been pretty proud of the fact that I drastically cut back on my spending on clothes once I started getting serious about budgeting. So much so that I don’t really even think about buying any new clothes most of the time. The truth of the matter is that I wear the same couple of pairs of jeans every week. Because of that…they are starting to get a little tattered and frayed, a few spots of spilled juice haven’t really washed out, and my style has matured a little making some of them less appropriate for me to keep wearing to work. Now that I realize I need some new clothes (with a little help from jokes from my friends), I also realize that I did not budget for replacing my wardrobe or really most things I own. I just kind of assumed they would last indefinitely once the initial purchase was made. Not realistic.

Paying avoidable fees
I picked up my first speeding ticket recently. It was completely avoidable, and was solely because I was annoyed at some traffic I had run into a few minutes earlier. That ticket cost me over $200 and could potentially increase my insurance premium for years. Other fees including bank fees, late fees on bills, and last minute shipping charges are also completely avoidable. A little planning and a little patience go a long way to saving money.

Most of these mistakes are from being young and inexperienced. So in the end all we can do is hope to make as few mistakes as possible, plan a little more in our budget than we think we’ll need, and then learn from the mistakes when we do unsurprisingly make them.

What is one or two avoidable mistakes you made/make as a young adult?

Post by Jesse Jurgenson, Financial Counselor

Fix It or Forget It?

My husband Jim was raised watching his Dad fix anything and everything. No project too big. It would take an act of God to actually pay someone else to come and do the job, if you had the ability to do it yourself (even if it takes twice as long.) Part of this I attribute to being extremely “strong-willed.”

Jim, being sufficiently tutored in the ways of his Father, uses the same approach if anything needs fixing or replacing. Out comes the tools, (this sometimes leads to the purchase of a new tool for the job), and he works and works and works on it.

We’ve been married for thirty years and I believe in that time he’s reluctantly agreed two or three times that “hired help” is needed. Bless his soul with his can-do approach…hmmm; maybe that’s why I started dying my hair at a young age.

See what Mary Hunt from Debt Proof Living has to say about it.  http://www.debtproofliving.com 

Should You Fix It or Nix It?

You’re worried that the washing machine is on its last spin cycle. It makes a horrible screeching sound and needs a lot of coaxing to make it all the way through a full cycle. It’s not like it’s still under warranty. You’ve had it for a long time and it wasn’t new when you got it.

You get an estimate for repair and discover it will cost $319 to get it back into tip top shape.

Should you give this old, inefficient machine the heave-ho in favor of a new model that will use less electricity and water?

A new name-brand front-loader is on sale for $899 plus tax and delivery. Should you basically throw away $319 now for a temporary fix, or bite the bullet and buy the new one now?

Here are some basic guidelines and suggestions to help you decide, based on costs for replacement and repairs and the advantages of new models.

If you cannot pay cash for the new replacement: You should get it repaired to buy yourself time to save up for the replacement. Even if the repairs will only keep this appliance going for a year or two, you’re far better off repairing and then saving for a new machine than to charge it and pay double-digit interest for the next three to five years.

If the appliance is eight years or older: Once an appliance becomes elderly, usually it makes sense to buy a new one. However, if you have a high-end, older appliance you may want to repair it provided it is not repair-prone.

If repairs are really expensive: If the repair bill is more than half the price of a new product, you are probably better advised to buy new than to replace it. But, here again, the deciding factor will be whether or not you will have to go into debt to buy new.

If the appliance is under warranty: Even if repairs will be only partially covered by a warranty or service contract, repairing is the way you should go. If it’s under warranty, call a factory-authorized repair shop. If not, an independent contractor is likely to offer better service at a lower cost.

The costs for diagnosing problems and making repairs on home appliances have gone up considerably in the last few years, which has made replacements with new models more common.

A word to the wise: Home appliances have built-in obsolescence. By design, life expectancy has gone down slowly over the years. Refrigerators used to last for 30 years or longer by design. These days you’ll be lucky to get 15 years and that’s with excellent maintenance and timely repairs.

Anticipate so you are not caught off guard. Your Freedom Account is the perfect way to anticipate the cost of repairs and eventual replacement of major home appliances. Setting aside a small amount of money every month will give you cash options to make wise decisions.

©Copyright 2012 Mary Hunt
Everyday Cheapskate is a Registered Trademark

No Dollar Days

Post by Ben Lien

When I was asked to write a blog for “Real Money”, I thought it would be a great opportunity. I enjoy writing and it is always good to share financial tips with other people. The only thing I was concerned about is that I’ve never blogged in my life. I don’t even have a Facebook account. I do spend time online, but blogs and social media never really sparked my interest. My immediate question was “What should I write about?”. Josh Huffman, the Financial Counseling Supervisor at The Village who asked me about writing a blog, answered “Whatever you think would be good information to share with people”. Well ok, here goes nothing.

My first thought was to explore financial management tricks I use myself. One thing I like to practice is to have ‘no dollar days’. These are days where I go about my normal daily routine of work, social life and past time activities, but do not spend a single dollar. It feels kind of good knowing at the end of the day that I did not spend any money on anything. I only saved my money for a time when I will really need it or simply put it away. Of course we all have to eat, use electricity, use water and maybe use gas (among other things) everyday, which of course is using resources (and spending money), but the idea behind ‘no dollar days’ is that no cash immediately leaves my pocket for a full day. It definitely takes a conscious effort to resist certain purchases on a day to day basis, but it can be done. It is very easy to spend a couple of bucks on coffee or a roll in the morning, $5 – $10 on lunch at noon, another $10 on dinner and to round the day out with $10 on some evening activities. Before you know it, $20, $30 maybe $40 is gone with nothing to really show for it.

Some ways I like to practice ‘no dollar days’ are to pay bills on the same day, run several errands in one or two trips, buy groceries for a couple weeks (or the entire month) at once, pack lunches for noon and resist the urge to spend carelessly (I really don’t need that Mt. Dew). The benefits of ‘no dollar days’ may not be immediate (beyond the satisfaction that I spent a day conserving my money), but I definitely see it at the end of the month. ‘No dollar days’ can also be used to discover new hobbies, perfect talents, get exercise, meet friends and spend time with family. Really, not spending money is a great way to eliminate distractions in our lives and connect with what is truly important in life. I encourage people to have their own ‘no dollar days’; not only for the sake of discovering where dollars can be saved on a day to day basis, but also to discover the impacts these days can have on their personal lives.