Farnoosh Torabi's Blog, page 67

TODAY: Store Credit Card Risks

Store credit cards are extremely enticing. Many offer an initial 20% or 30% discount when you sign-up. But are they worth it? I stopped by The Today Show with some pros and cons (mostly cons).

 

 

 

 

 

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Easy Ways to Spring Clean Your Car

[image error]With the spring season in swing, now's a smart time to give our vehicles some TLC. Our cars can take a real pounding in the wintertime, but taking a few measures to spruce up our wheels can help lighten the load in the coming months. Check out my latest episode of Financially Fit below:

Today Show: Retirement, Credit and Bounced Checks

This morning on the Today Show our Money 911 panel answered a number of your questions related to mortgages, credit cards and bounced checks. Must see TV!

 

 

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First-Time Buyer 2.0

In the early 1990s, my family built a Toll Brothers home in the quiet suburb town of Shrewsbury, Massachusetts. The 4-bedroom, brick-front Colonial had everything you'd expect it to have: a living room and separate sunken family room, a formal dining room, bathroom immediately to the right of the entrance, a home office to the left, a spiraling staircase, a big kitchen with marble countertops and a two-car garage. For my parents who'd immigrated to the United States just ten years prior, this home represented The American Dream with all its pride and glory.

But jumping ahead twenty years, today's first-time homebuyer has a vastly different vision of the perfect home. Many snicker at the McMansions and traditional homes their parents' lusted after. What's changed? It's partly a matter of mindset that's shifted since the Great Recession. Younger would-be homebuyers equate oversized homes and their accompanying million-dollar price tags with the real estate crash. "I think that what young people are realizing is that a home is not necessarily an investment," says Zac Bissonnette, a young homebuyer in his early 20 and author of Debt-Free U.  "What I looked for was, primarily, something where the numbers made sense: something that, even without appreciation, would be a good investment over the long-term in comparison with renting. That's the smart way to buy a home, and that's the way I think more young people are inclined to look at it."

David Senden, principal at KTGY Group, an architectural and planning firm based in Irvine, CA, agrees.  "It has become obvious to Gen Y that the generations that came before did not have all the answers," says Senden.  "The Boomers haven't got it all figured out. Gen Y is much more interested in following its own path."

That path involves choosing homes with functionality over flashy features. Risa Teksten and her husband, both in their early 30s, recently bought their first home in the Boston, MA area.  They were turned off by the over-done homes and attracted more to the smaller homes that just needed some extra TLC. "We looked at some homes that had souped-up kitchens, spas in their master baths…but we felt like there was 'too much house' that would force us into allocating more budget for furniture rather than value-add improvements," says Tieken. The couple ended up buying a home built in 1958 with smaller rooms and an open living plan. They're looking forward to making some DIY upgrades including upgrading the kitchen cabinets, adding tiles and a fun deck outside.

New homes in development are also being designed to meet the growing demands of young, future homebuyers. Marc Spector, principal with architecture and planning firm Spector Group based in New York, says he's receiving requests for homes with smaller square footage and fewer walls between public spaces. "As far as a floor plan goes the cookie-cutter model is all gone," he says. "The internal planning of houses has changed where you have virtually a clean open place for the public spaces…separated by furniture and lighting." The idea is that with an open space, homeowners can better furnish and customize their homes to meet their needs. "Builders and architects are offering a variety of set-ups and looks and feels, so people can feel [the home] is more personal to them and yet still feel proud of what they're getting," says Spector.

Eco-friendliness is another must-have. Homes today are being built with a greater focus on energy efficiency to attract some on-the-fence first-time buyers concerned about the high cost of maintaining a home. "We've done our best to reduce cost through sustainable design," says Spector.  The group is introducing solar and geothermal technologies to their new homes, installing better insulated windows and sealing basements and attics to prevent air from leaving the space.

Senden, whose firm is based on the West Coast, sees a similar trend. "The attitude now is to impress your friends by how much energy you save by using photovoltaic panels, or how much rainwater you capture to water plants. Conspicuous consumption has been replaced with a utilitarian stance aiming to conserve, reuse, and be thrifty," he says.

Energy-efficiency was a deal-maker for 23 year-old Lilly Pritula who is about to close on a new home around Ann Arbor, Michigan, after a long and arduous 10-month search that involved looking at close to 60 properties.  She ultimately chose a wel-built, 1,100 square foot home with no need for repairs. "Homeownership comes with a lot of responsibilities already, so choosing a home as a young buyer means that I am more concerned with how energy efficient and stable the place is, not how many updates and bells and whistles that it comes with."

Photo courtesy RWCOX123′s photostream on Flickr

Friends, Spills & Money

[image error]My college roommate and I used to share closets. What's hers was mine and vice versa. That said, we also shared a rule that if one of us stained or damaged the other's blouse, skirt or what have you, it was the borrower's responsibility to "make good" of the situation. That meant either getting it dry cleaned or helping pay to replace the item if it was lost. Certain delicate items – like Kate's baby pink silk tank that I absolutely adored – received a dry-cleaning after use, no matter its condition after being worn. (It's silk. You sweat. You get the picture.) And certain items were absolutely off limits.  For example, anything that hadn't been worn at least once by the owner was hands-off.

We were lucky we were able to agree on the sharing etiquette. But the fact is sticky situations can arise when borrowing clothes from friends. And aside from friends – what if a stranger accidentally spills a drink on you while out on the town. Or you commit a party fowl and damage a person's belongings?

Party Fouls…

If You Spill a Drink…and it splashes all over a stranger's outfit, here's what you should do. First, show you're sorry by being the first to grab some towels or napkins, club soda, whatever it takes to get the stain out.  Next, say you're terribly sorry and make an offer to pay for the dry cleaning bill. A stranger may not hold you up to your offer since it'll mean exchanging phone numbers, emails, and maybe addresses – but it's key that you make the suggestion. It's the right thing to do. If he or she insists it's not necessary, send over a complimentary drink as an I'm Sorry.

If Someone Spills on You…You hope they read the above advice and will know enough to make the offer to pay for the dry cleaning bill.  But of course, you can only hope for the best in these types of situations. The best solution is to take matters into your own hands. Blot the stain with a paper towel dipped in club soda as soon as possible to absorb the redness.  Sprinkle some table salt onto the stain, as well, to help with the absorption. Let it sit for a moment or two. Then dab a little white wine. If the stain is still present wash the garment when you get home (if it doesn't need to be dry cleaned) and apply some stain remover directly onto the spot before you toss it into the washing machine. Air-dry. For dry-clean only items make sure to bring attention to the stain when you bring in the garment.

Borrowing Clothes…

Before Borrowing…Let your friend know that you don't want the item if it's too valuable to her, or is an item that is absolutely irreplaceable in the even something terrible happens. After all, you (and your friend) would feel terrible if something happened and there was nothing you could do to make amends.

If the Item Gets Damaged…You must try everything to fix the situation. That's the risk you took when you borrowed the item (free of charge). If it was a super expensive dress, let this be your lesson to not take on more risk that you can afford. The hard truth is that you need to own up to your clumsiness. Know that your friend may be too shy to ask you to pay for the dry cleaning or to replace the item, so it's really your role to offer either to pay her for the entire dry cleaning or part (or all) of the replacement costs. Your friend may be too kind to let you pay, but do insist. If the stain doesn't come out offer to pay for half the replacement cost. So, if it was a $100 dress, offer to pay at least $50 to cover the damages. The lender should assume some risk since he or she agreed to let you borrow the item.

If your friend still pushes back on your offer to pay for the clean up or replacement, get her a gift card to the store where the item was from as a way to say, "I feel awful and you really deserve this." Otherwise, feelings of resentment are likely to abound – and rightly so.

Lending Clothes…

Take Collateral. Make a deal with the borrower, especially if what she's borrowing is of some value to you. If she wants to borrow your designer suit for a job interview, ask for a favor in return, like borrowing her iPod speakers for the weekend or whatever you think would be a fair trade. Holding onto something that belongs to your friend can act as a sort of security deposit or collateral until your item is safely returned. It should also prompt your friend to return the item to you.

Discuss Worst Case Scenarios. What if your friend accidentally lights up your Prada purse while smoking cigarette? What if you get your dress returned with a red wine stain? Have a candid conversation with your friend about what should be done in those scenarios.

[Photo courtesy: SamCatchesSides' Photo Stream on Flickr]

Skimming Scams: Protect Your Identity

[image error]You should always guard your card at the ATM, but with the recent uptick in skimming incidents it's important to take a few extra precautionary steps.

Skimming Defined: In general skimming occurs when ID thieves secretly install special equipment in credit card readers either at the ATM, gas pump machine or any other card swiping device to capture the personal information on your card each time you swipe.  The reader makes two copies of your credit or debit card information: one to process the transaction and one to later download the information to the ID thieves.  There's sometimes a hidden camera to record your pin, as well. There have been instances, too, where your information gets transmitted wirelessly to thieves. On average ID thieves rake in $30,000 per skimming incident, according to ADT Security Solutions.

Great. Just one more thing to worry about, right? No need to shred all your cards and commit to a cash-only existence. But you do want to follow these steps during your next visit to the ATM or gas pump.

Use Trusted ATM locations. Your bank's indoor ATM is a safe bet, since it's usually guarded with a security officer or camera. It's a lot more difficult for ID thieves to compromise an indoor bank ATM than say, a random ATM on the street corner outside a convenient store.

Guard Your Pin. Not just so to block off nosey onlookers, but so that ID thieves who may have installed cameras to help with their skimming operation can't access your debit card's special numerical code.

Check Your Surroundings.

Look for suspicious mirrors, loose wires or hidden camera lenses around the ATM. If you doubt your surroundings, head to a different ATM.

If Card is Denied, Use Another Machine.

Skimmers aren't efficient and may need you to punch in your pin more than once in order to fully record your information. If you get asked more than once to submit your information, cancel the transaction and move to a different machine.  If possible, notify a bank rep of the difficulty with the machine.

Check Your Card's Activity Regularly.

While we can't always prevent ID theft, we can be proactive in limiting the damage. Check your card's activity online daily to make sure the transactions are, in fact, legitimate.  Notify any suspicious activity to your bank as soon as possible. 

Money & Your Aging Parents

More than 30 million adults are taking care of their aging family or friends over the age of 50, including offering financial help, according to the AARP. Here is some advice to help you navigate this sensitive – but all too important – issue.

Don't Wait Long.

You may think that just because your parents are in their early 50s or 60s there's no need to have a serious talk about their finances yet. After all, you may just be getting financially settled, yourself.  But the sooner you start, the better especially if one of your parents has an illness or is disabled.

Be Persistent.

Naturally, your parents may be resistant to talking to you about their finances. Money is not exactly dinner table conversation growing up, which may make it even more awkward to discuss when you're an adult.  But don't let that deter you from getting the conversation going.  Who knows – your parents may in fact want your help – but are too shy or too old-fashioned to reach out. Or, indeed, they may simply feel it's none of your business. But more often than not – it does become your business.

Get Help from Other Relatives.

You may want to loop in a sibling or a close relative to help you communicate with your parents. The idea is not to ambush mom and dad, but to show that you support them and that you care. It helps to bring up examples of other relatives, say older uncles or aunts, who did (didn't) reach out to their children to discuss their finances, as well. That could be a familiar ice-breaker to open up your own dialogue and to point out what worked and what didn't.

Get Organized.

The AARP suggests adult children get the following financial information from their parents in case of an emergency:

Bank accounts and passwords
Their financial professionals like accountants, attorneys and brokers
List of current monthly bills and how to pay them
Insurance policies
Tax returns
Credit reports
Medical records and doctor contact information
Estate planning documents such as where they keep their will

Make Them Feel in Control.

For some parents, the idea of getting old and needing financial help from their children can be particularly daunting. They're still the parents and they're used to making the important decisions.  Put them in the driver's seat when talking to them about the "what ifs" of aging and not being able to manage their finances, rather than only telling what you think.

Seek Additional Help. 

You and your parents should seek third-party help to resolve unanswered questions and for additional guidance. If your parents have an estate-planning attorney or a financial advisor, you may want to get acquainted with the professionals that are helping to manage their finances. There's also online help available at the AARP Money Management Program (www.aarpmmp.org) and the National Council on Aging (www.benefitscheckup.org).

Last-Minute Tax Tips

The tax filing deadline is April 17 this year. Are you maximizing your return? Here are some of my last-minute tips that could put more money back in your wallet.

Invest in an IRA

Your IRA contribution can lower your taxable income and you have until the tax filing deadline to invest and claim that investment as a tax deduction in the 2011 tax season. Your IRA caps at $5,000 ($6,000 if you're over 50).

Add Up Your Medical Expenses.

This seems like a long shot for a lot of taxpayers but with health care costs only getting higher, you may actually qualify for a medical deduction after adding up all the numbers. The IRS lets you deduct out-of-pocket medical expenses, including doctor co-pays, prescriptions, dental work and elective surgeries like Lasik that exceed 7.5% of your adjusted gross income. So once your expenses total 7.5% of your income, anything above that can qualify as a deduction.  So if you earn $50,000 then anything you spend above $3,750 is tax-deductible.  Add up your receipts – you might be surprised!

Parents, Don't Forget!

Education Credit. The American Opportunity Credit lets taxpayers claim up to $2,500 for the first for years of college per student. The full credit is available to individuals whose adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return.


Child-Care Credit. More good news for parents: You can claim up to $3,000 for one child and up to $6,000 for two or more dependents for before-and-after school child care.


Alimony. If you're paying your ex a monthly stipend, you may be eligible for a tax deduction. Receiving alimony? It's taxable income!

File electronically

This is something we can all do. Last year nearly 100 million Americans opted to file online (80% of the tax filing population) – but that's still one in five who are doing this with a pen and paper. This can be a costly move. According to the IRS, electronic filers see an error rate of just 1% versus 20% for those who file on paper.  Not to mention, you can expect to get your return a lot quicker, within a couple of weeks. Also, if you earn $57,000 or less, you can e-file for free through the IRS website.

Consider Adjusting Your Withholding

Your withholding is equal to the amount of taxes taken out of each paycheck. If you're slated to get a major tax refund this year, consider adjusting your withholding to put more of that money back into your normal paycheck. While a refund can be a big financial relief, wouldn't you rather get portions of that money in your paycheck throughout the year. For the average tax payer who gets about a $3,000 refund, wouldn't you rather have an extra $250 a month? Why let the government hold onto your money  - interest free – all year? Go to irs.gov and in the search box type "withholding calculator." The first link should take you to a questionnaire that will tell you what you should be claiming on your W-4. The goal is to try to have your withholding match your actual tax liability. From there, you can work with your HR manager at work to change this figure on your W-4.

Can I Afford a Baby?

[image error]It will be some time until I ask myself this question, but if you're contemplating becoming a parent (or just received some exciting news) and wondering how to financially prepare, check out our latest Financially Fit video: Can I Afford a Baby?

 

Money 911: Taxes, Unemployment & Student Loans

[image error]This morning on Today's Money 911 we help viewers struggling with car buying decisions, what to do with a tax refund and how to consolidate student loans. Check out the clip. Below is my answer to a young family wondering what to do with their $5,000 tax refund.

 

 

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QUESTION:  Our tax return will be enough to pay off the second mortgage on our home, and therefore, allow us to refinance and save approximately $200/month. However, our emergency fund has been depleted to almost zero over the last year. We do plan on staying in our current home for the foreseeable future. Our question is how we should plan for this chunk of money. Do we reduce our mortgage payment making it easier to make ends meet every month or do we put the money in an emergency fund??

MY ANSWR: You're number one priority should be to boost savings. Your emergency fund should have 6 to 9 months reserved in case of an emergency like a job loss or any kind of major financial set back. I know that there's peace of mind in knowing that your second mortgage can be gone, but you'll be much happier to have savings because that will ultimately provide you with the wiggle room to live your life with some financial independence.

But that's not all! You're getting a really big refund – which we know you told us is $5,000. I want you to revisit your tax withholdings, which is equal to the amount of money you pay towards taxes out of every paycheck. The fact that you're getting this big of a return means you may be withholding TOO MUCH. You may want to reduce your withholding so that you get to keep that $400 or so in each monthly paycheck throughout the year. And going forward you can use that extra income to help pay down your second mortgage and better afford your life all year long.

Everyone should check their tax withholdings. Visit IRS.gov and in the search bar type: TAX WITHHOLDING CALCULATOR and the first search result should lead you to a worksheet where you can learn how to adjust your withholdings so that your monthly tax payments are about equal to your actual tax liability. Or speak with an HR manager at work and they can walk you through it and help you make the adjustment on your W-4.