Sharon Marchisello's Blog, page 17
February 13, 2017
Countdown to Financial Fitness: Are You a Saver or a Spender?
Countdown to Financial Fitness: Are You a Saver or a Spender?: Tomorrow is Valentine's Day, a popular time for couples in love to get married or engaged. But before your head gives in to the whims o...
Are You a Saver or a Spender?
Tomorrow is Valentine's Day, a popular time for couples in love to get married or engaged. But before your head gives in to the whims of your heart, find out if your attitudes about money are compatible. Finances are one of the major causes of friction in a relationship.
Some people are savers, some are spenders. Savers plan for the future and weigh the value and need for each purchase, trying to never pay more than necessary for anything. Spenders want instant gratification, without a lot of regard for how much something costs or how well it fits into the budget. (Budget? What's that?)
If your partnership consists of a spender and a saver, your habits may grate each other's nerves, perhaps to the point where the relationship doesn't survive. You will have to bite your tongue to refrain from making snide remarks and assigning derogatory nicknames. To the spender, the saver is stingy, penny-pinching, tight-fisted, nit-picky. To the saver, the spender is wasteful, frivolous, gluttonous, irresponsible. But no amount of nagging and needling will change a person who is not ready to change and has not asked for your help. You'll have to cope with the attitude differences if the relationship is to work.
If one spouse is a spender and the other a saver, each needs the respect and support of the other, and the freedom to operate without being judged, to feel in control. To ensure the bills get paid and agreed-upon financial goals are met, why not designate a separate, joint account for these functions, which each person agrees not to raid? Each person should also have his or her own funds—a bank account, credit card, prepaid debit card, whatever works best for your situation—to spend from and direct without oversight from the other.
Disagreement over money is one of the leading reasons for divorce. Not having enough of it is certainly stressful, but even if there's plenty, problems can arise if the couple can't agree on how that money should be managed.
Divorce is expensive, not to mention emotionally devastating. Don't ignore the red flags.
Are you a spender or a saver? And what about your significant other? I would love to hear your comments.
Sharon Marchisello is the author of Live Cheaply, Be Happy, Grow Wealthy.
Some people are savers, some are spenders. Savers plan for the future and weigh the value and need for each purchase, trying to never pay more than necessary for anything. Spenders want instant gratification, without a lot of regard for how much something costs or how well it fits into the budget. (Budget? What's that?)
If your partnership consists of a spender and a saver, your habits may grate each other's nerves, perhaps to the point where the relationship doesn't survive. You will have to bite your tongue to refrain from making snide remarks and assigning derogatory nicknames. To the spender, the saver is stingy, penny-pinching, tight-fisted, nit-picky. To the saver, the spender is wasteful, frivolous, gluttonous, irresponsible. But no amount of nagging and needling will change a person who is not ready to change and has not asked for your help. You'll have to cope with the attitude differences if the relationship is to work.
If one spouse is a spender and the other a saver, each needs the respect and support of the other, and the freedom to operate without being judged, to feel in control. To ensure the bills get paid and agreed-upon financial goals are met, why not designate a separate, joint account for these functions, which each person agrees not to raid? Each person should also have his or her own funds—a bank account, credit card, prepaid debit card, whatever works best for your situation—to spend from and direct without oversight from the other.
Disagreement over money is one of the leading reasons for divorce. Not having enough of it is certainly stressful, but even if there's plenty, problems can arise if the couple can't agree on how that money should be managed.
Divorce is expensive, not to mention emotionally devastating. Don't ignore the red flags.
Are you a spender or a saver? And what about your significant other? I would love to hear your comments.
Sharon Marchisello is the author of Live Cheaply, Be Happy, Grow Wealthy.
February 6, 2017
Countdown to Financial Fitness: Rapid Refund Ripoffs
Countdown to Financial Fitness: Rapid Refund Ripoffs: Back in the early nineties, I took a tax preparation course and then worked a season as an income tax preparer for a major tax preparation ...
Rapid Refund Ripoffs
Back in the early nineties, I took a tax preparation course and then worked a season as an income tax preparer for a major tax preparation firm. As soon as the W-2s were distributed, customers stormed our doors, anxious to file their tax returns and take advantage of their "Rapid Refund."
These poor souls paid tax preparation fees, processing fees, and interest in excess of 60% for the privilege of receiving their own money within a few days instead of waiting a couple of weeks for the IRS to process their returns and issue their refunds. Because the fees and interest were deducted from the anticipated tax refund, they didn't think about what this expedited service was costing them.
In addition to a full or partial refund of withholding, many of these taxpayers were eligible for the earned income credit, a government subsidy available to low-income workers with dependent children. Workers in this income category were least able to afford exorbitant convenience charges, siphoning away money that could have been better used to pay a utility bill or buy groceries.
Since the nineties, there has been a lot of criticism of these "rapid refunds" or, more accurately, "refund anticipation loans," which have been compared to usurious pay-day loans. Increased regulations now require tax preparation firms to be more transparent when disclosing the true costs of this loan product. Nevertheless, every year about this time I see ads for "Express Refund" and "Refund Advance" so customers must still be biting.
It's a choice. Everyone's situation is different.
But there are ways you can avoid unnecessary expenses and keep more of your hard-earned money in your pocket.
First of all, if your 2016 adjusted gross income was less than $64,000, you are eligible to file your return electronically with the IRS at no charge. Eliminate the middle man. The software is easy to use, but if you need help, the AARP and other organizations offer free tax preparation assistance. Check your local library for available services. Even if you don't meet the income eligibility requirements for free electronic filing with the IRS, you can still take advantage of free tax assistance from various volunteer groups if you plan to prepare your own return.
You'll find tax preparation fees at a professional firm much more reasonable if you opt for normal delivery and don't tack on the refund anticipation loan. It might seem painful to pay your preparation fee up front rather than have it deducted from your refund, but when you do receive your refund, it will be much larger. You've been managing all year without that money; surely you can hold on a few weeks longer.
And finally, if you're used to receiving big tax refunds every year, you are overpaying Uncle Sam. Instead of struggling to make ends meet each month, you could have extra funds in your pocket all along, simply by completing a new W-4 form with your employer to decrease the amount of tax withheld each pay period. Even if you live within your net income and look forward to a big refund each spring as a splurge, you'd be better off setting the extra money aside—perhaps via automatic transfer to a savings or investment account—on a regular basis. Why give the government an interest-free loan when you could be earning interest on the money?
What tips do you have for saving on tax preparation and filing? I'd love to hear your comments.
Sharon Marchisello is the author of Live Cheaply, Be Happy, Grow Wealthy.
These poor souls paid tax preparation fees, processing fees, and interest in excess of 60% for the privilege of receiving their own money within a few days instead of waiting a couple of weeks for the IRS to process their returns and issue their refunds. Because the fees and interest were deducted from the anticipated tax refund, they didn't think about what this expedited service was costing them.
In addition to a full or partial refund of withholding, many of these taxpayers were eligible for the earned income credit, a government subsidy available to low-income workers with dependent children. Workers in this income category were least able to afford exorbitant convenience charges, siphoning away money that could have been better used to pay a utility bill or buy groceries.
Since the nineties, there has been a lot of criticism of these "rapid refunds" or, more accurately, "refund anticipation loans," which have been compared to usurious pay-day loans. Increased regulations now require tax preparation firms to be more transparent when disclosing the true costs of this loan product. Nevertheless, every year about this time I see ads for "Express Refund" and "Refund Advance" so customers must still be biting.
It's a choice. Everyone's situation is different.
But there are ways you can avoid unnecessary expenses and keep more of your hard-earned money in your pocket.
First of all, if your 2016 adjusted gross income was less than $64,000, you are eligible to file your return electronically with the IRS at no charge. Eliminate the middle man. The software is easy to use, but if you need help, the AARP and other organizations offer free tax preparation assistance. Check your local library for available services. Even if you don't meet the income eligibility requirements for free electronic filing with the IRS, you can still take advantage of free tax assistance from various volunteer groups if you plan to prepare your own return.
You'll find tax preparation fees at a professional firm much more reasonable if you opt for normal delivery and don't tack on the refund anticipation loan. It might seem painful to pay your preparation fee up front rather than have it deducted from your refund, but when you do receive your refund, it will be much larger. You've been managing all year without that money; surely you can hold on a few weeks longer.
And finally, if you're used to receiving big tax refunds every year, you are overpaying Uncle Sam. Instead of struggling to make ends meet each month, you could have extra funds in your pocket all along, simply by completing a new W-4 form with your employer to decrease the amount of tax withheld each pay period. Even if you live within your net income and look forward to a big refund each spring as a splurge, you'd be better off setting the extra money aside—perhaps via automatic transfer to a savings or investment account—on a regular basis. Why give the government an interest-free loan when you could be earning interest on the money?
What tips do you have for saving on tax preparation and filing? I'd love to hear your comments.
Sharon Marchisello is the author of Live Cheaply, Be Happy, Grow Wealthy.
January 31, 2017
Countdown to Financial Fitness: Saving Money on Car Rentals
Countdown to Financial Fitness: Saving Money on Car Rentals: I just returned from a trip where we had to rent a car, which can be a transaction as complicated as doing taxes. We're not particularl...
Saving Money on Car Rentals
I just returned from a trip where we had to rent a car, which can be a transaction as complicated as doing taxes. We're not particularly brand-loyal. We shop around online, inquire about any discounts we might be eligible for, and we usually end up with a pretty good price.
Then comes the upsell. First, they want to change you to a bigger car. From economy to mid-size. Mid-size to full-size. Full-size to luxury. (Sometimes they're out of your category, and they'll give you a free upgrade if you don't take their offer to pay for one.) On this occasion, the counter agent said, "You're in luck. I can put you in a Mercedes convertible." My husband said, "Great. For the same price?" Well no, it was going to be about twice what we'd been quoted for our full-size sedan. No thanks, we'll stick with the Toyota Camry we reserved.
Do you need a GPS? Just a couple more dollars a day. No, we'll use the GPS on our phones, thank you. Car seat? No kids. Extra driver? Most companies don't charge extra to add a spouse, but if you're renting with an unrelated person, make sure you both plan to drive before adding this expense. I rented a car with two friends once, and they wanted us to pay an extra $10 a day for each additional driver. We did end up adding one extra driver, but we didn't need two.
Another time we rented a car in New Mexico, and when the agent handed over the contract for me to sign, I noticed the charges were higher than the quote I'd printed out. I asked her why. "Your quote didn't include the emergency roadside assistance. It's only two dollars a day, and everyone wants it." I had her remove it, as I already have that coverage through AAA (American Automobile Association).
Not filling up the car before you return it can be costly, and you'll be warned of this penalty at check-out. However, you may be offered the option of purchasing a tank of gas in advance at a per-gallon price lower than what you'll see at the pumps, and then returning the car empty. Only problem, you'll pay for the full tank of gas even if you only use half or less. Don't fall for this add-on unless you plan to drive far enough to burn through a whole tank and can actually return the car on fumes.
Luckily, the online quotes now list all the non-negotiable taxes and fees you'll be charged. For our most recent rental, we paid sales tax, vehicle license recovery, airport concession, and a California tourism fee. In the old days, when we got a quote over the phone of a daily rate "plus tax," I was always surprised at how much the bottom line increased by the time all those charges were added.
And then there's the insurance. A lot of agents ask questions like, "Do you want full coverage, or just the basic?" My answer is usually, "Neither."
The most common "basic" coverage car rental companies offer is CDW (Collision Damage Waiver) or LDW (Loss Damage Waiver). Adding this coverage can increase the cost of your rental contract by 25-30%, but counter agents will try to scare you into taking it, as otherwise, you are fully liable for theft or any damage to the vehicle, regardless of who is at fault.
And sometimes things happen. We've been fortunate in our travels so far, but we've come close to disaster a few times. Once, in Hawaii, we were parked on a street lined with palm trees. When we returned to our car, we noticed the car in front of ours had a huge dent in its roof—damaged by a falling coconut! It could just as easily have been us.
But if you have collision and comprehensive coverage on your own automobiles, check your insurance policy before you go, because there's a good chance you'll enjoy the same coverage in a rental car. (Especially in the United States; check the rules if you're renting a car in another country.) Also, many credit card companies provide CDW/LDW at no charge if you use that card for the rental and decline the car company's coverage. Check the fine print or call your credit card issuer, and pay with the card that provides the best coverage.
Other optional insurance you can buy includes personal accident insurance (covers your medical costs resulting from an accident) and personal effects coverage (damage or loss of personal property you place in the car). Again, check the coverage you already have. If you're renting a car in the United States, chances are your personal health insurance will cover your medical bills in case of an accident. And the liability portion of your automobile insurance policy will cover those of others who are injured. If you have homeowners or rental insurance, that policy may cover your personal effects.
If you're traveling abroad and are buying travel insurance for your vacation, it might be cheaper to add coverage for car rentals to that policy than to purchase the insurance separately from the rental car company. Do a little research before you leave.
By all means, don't put yourself at unnecessary risk. But you might be able to save money by avoiding the purchase of duplicate coverage and options you don't need.
What tips do you have for saving on car rentals? I'd love to hear your comments.
Sharon Marchisello is the author of Live Cheaply, Be Happy, Grow Wealthy.
Then comes the upsell. First, they want to change you to a bigger car. From economy to mid-size. Mid-size to full-size. Full-size to luxury. (Sometimes they're out of your category, and they'll give you a free upgrade if you don't take their offer to pay for one.) On this occasion, the counter agent said, "You're in luck. I can put you in a Mercedes convertible." My husband said, "Great. For the same price?" Well no, it was going to be about twice what we'd been quoted for our full-size sedan. No thanks, we'll stick with the Toyota Camry we reserved.
Do you need a GPS? Just a couple more dollars a day. No, we'll use the GPS on our phones, thank you. Car seat? No kids. Extra driver? Most companies don't charge extra to add a spouse, but if you're renting with an unrelated person, make sure you both plan to drive before adding this expense. I rented a car with two friends once, and they wanted us to pay an extra $10 a day for each additional driver. We did end up adding one extra driver, but we didn't need two.
Another time we rented a car in New Mexico, and when the agent handed over the contract for me to sign, I noticed the charges were higher than the quote I'd printed out. I asked her why. "Your quote didn't include the emergency roadside assistance. It's only two dollars a day, and everyone wants it." I had her remove it, as I already have that coverage through AAA (American Automobile Association).
Not filling up the car before you return it can be costly, and you'll be warned of this penalty at check-out. However, you may be offered the option of purchasing a tank of gas in advance at a per-gallon price lower than what you'll see at the pumps, and then returning the car empty. Only problem, you'll pay for the full tank of gas even if you only use half or less. Don't fall for this add-on unless you plan to drive far enough to burn through a whole tank and can actually return the car on fumes.
Luckily, the online quotes now list all the non-negotiable taxes and fees you'll be charged. For our most recent rental, we paid sales tax, vehicle license recovery, airport concession, and a California tourism fee. In the old days, when we got a quote over the phone of a daily rate "plus tax," I was always surprised at how much the bottom line increased by the time all those charges were added.
And then there's the insurance. A lot of agents ask questions like, "Do you want full coverage, or just the basic?" My answer is usually, "Neither."
The most common "basic" coverage car rental companies offer is CDW (Collision Damage Waiver) or LDW (Loss Damage Waiver). Adding this coverage can increase the cost of your rental contract by 25-30%, but counter agents will try to scare you into taking it, as otherwise, you are fully liable for theft or any damage to the vehicle, regardless of who is at fault.
And sometimes things happen. We've been fortunate in our travels so far, but we've come close to disaster a few times. Once, in Hawaii, we were parked on a street lined with palm trees. When we returned to our car, we noticed the car in front of ours had a huge dent in its roof—damaged by a falling coconut! It could just as easily have been us.
But if you have collision and comprehensive coverage on your own automobiles, check your insurance policy before you go, because there's a good chance you'll enjoy the same coverage in a rental car. (Especially in the United States; check the rules if you're renting a car in another country.) Also, many credit card companies provide CDW/LDW at no charge if you use that card for the rental and decline the car company's coverage. Check the fine print or call your credit card issuer, and pay with the card that provides the best coverage.
Other optional insurance you can buy includes personal accident insurance (covers your medical costs resulting from an accident) and personal effects coverage (damage or loss of personal property you place in the car). Again, check the coverage you already have. If you're renting a car in the United States, chances are your personal health insurance will cover your medical bills in case of an accident. And the liability portion of your automobile insurance policy will cover those of others who are injured. If you have homeowners or rental insurance, that policy may cover your personal effects.
If you're traveling abroad and are buying travel insurance for your vacation, it might be cheaper to add coverage for car rentals to that policy than to purchase the insurance separately from the rental car company. Do a little research before you leave.
By all means, don't put yourself at unnecessary risk. But you might be able to save money by avoiding the purchase of duplicate coverage and options you don't need.
What tips do you have for saving on car rentals? I'd love to hear your comments.
Sharon Marchisello is the author of Live Cheaply, Be Happy, Grow Wealthy.
January 23, 2017
Countdown to Financial Fitness: Do You Need an IRA? Traditional or Roth?
Countdown to Financial Fitness: Do You Need an IRA? Traditional or Roth?: While it's too late to max out your 401k account for 2016, it's not too late to open or fund an IRA (Individual Retirement Arrangem...
Do You Need an IRA? Traditional or Roth?
While it's too late to max out your 401k account for 2016, it's not too late to open or fund an IRA (Individual Retirement Arrangement). You have until April 17, 2017, to designate a contribution for 2016. You can contribute up to $5500—or $6500 if you're over age 50.
But if you already have access to a workplace retirement plan, do you need an IRA? And if so, should you fund a traditional IRA or a Roth?
That depends.
Anyone under age 70 1/2 with taxable compensation can contribute to a traditional IRA. If you're not covered by a workplace retirement plan, you can deduct your IRA contributions on your income tax return regardless of your income. Even if you have a workplace plan, you can deduct your contributions provided your income is under certain levels (depending on your filing status). If you don't qualify for deductible contributions, you can still make nondeductible contributions. This means you don't get a tax deduction in the year you fund the account, but when it comes time to withdraw the money, you'll only owe taxes on any gains. You're required to start withdrawing the money and paying the applicable taxes once you reach age 70 1/2 or you'll face stiff penalties... basically, the government will take it if you don't.
A Roth IRA is funded with after-tax money, but eligible withdrawals of contributions, as well as gains, are not taxed. You can continue to contribute to your Roth account at any age, as long as you meet the income requirements, and there's no minimum distribution rule for the original owner (i.e., as long as it's not a Roth account you inherited). To be eligible to contribute to a Roth, your modified adjusted gross income must be below certain amounts (depending on filing status). But since 2010, there's a loophole in the law that allows anyone, regardless of income, to convert a traditional IRA to a Roth after paying the applicable taxes.
If you don't qualify for a tax deduction for a contribution to a traditional IRA, but you do meet the income eligibility requirements for a Roth, it's a no-brainer. Go for the Roth. Otherwise, you have a decision to make: is it better to pay the taxes now or later? Do you think you'll be in a higher or lower tax bracket after you retire and begin making withdrawals? Many people believe taxes can only go up and thus, the Roth contribution or Roth conversion is the better move. But your situation could be different.
A financial planner once told me I was being irresponsible by maxing out my tax-deductible 401k account, that I should have made Roth contributions instead. One argument he gave is that a large traditional retirement plan can leave an unwanted tax burden on your heirs, whereas with a Roth, the tax has already been paid for them. But because I don't have children, my beneficiary will most likely be a charity, and the charity won't have to pay income taxes regardless of what type of account they inherit. However, if one of your financial goals is to leave a legacy for your heirs, consider a Roth. In fact, many 401k plans are now offering a Roth option, so workers can contribute after-tax money instead of the traditional pre-tax contributions.
I prefer to hedge my bets, so I have pre-tax 401k money (which since my retirement, has been rolled into a traditional IRA), as well as Roth accounts. I really don't know what my tax situation will be later, or how the tax laws will change.
If you can spare the money to contribute to both a workplace plan and an outside IRA, by all means, do both. If you can't max out both, I suggest contributing to your workplace plan at least up to any employer match (to do less is leaving free money on the table) and then putting additional money into a Roth IRA at a discount brokerage such as Fidelity, Vanguard, Schwab, etc., if you qualify. A large discount brokerage will most likely offer access to more diverse investment products than your workplace plan.
Whatever you decide, even if it turns out not to be the ideal choice, contributing something is better than contributing nothing. If you put away as much as you can whenever you're able, you'll increase your chances for a comfortable retirement.
What tips do you have for retirement contributions? I'd love to hear your comments.
Sharon Marchisello is the author of Live Cheaply, Be Happy, Grow Wealthy.
But if you already have access to a workplace retirement plan, do you need an IRA? And if so, should you fund a traditional IRA or a Roth?
That depends.
Anyone under age 70 1/2 with taxable compensation can contribute to a traditional IRA. If you're not covered by a workplace retirement plan, you can deduct your IRA contributions on your income tax return regardless of your income. Even if you have a workplace plan, you can deduct your contributions provided your income is under certain levels (depending on your filing status). If you don't qualify for deductible contributions, you can still make nondeductible contributions. This means you don't get a tax deduction in the year you fund the account, but when it comes time to withdraw the money, you'll only owe taxes on any gains. You're required to start withdrawing the money and paying the applicable taxes once you reach age 70 1/2 or you'll face stiff penalties... basically, the government will take it if you don't.
A Roth IRA is funded with after-tax money, but eligible withdrawals of contributions, as well as gains, are not taxed. You can continue to contribute to your Roth account at any age, as long as you meet the income requirements, and there's no minimum distribution rule for the original owner (i.e., as long as it's not a Roth account you inherited). To be eligible to contribute to a Roth, your modified adjusted gross income must be below certain amounts (depending on filing status). But since 2010, there's a loophole in the law that allows anyone, regardless of income, to convert a traditional IRA to a Roth after paying the applicable taxes.
If you don't qualify for a tax deduction for a contribution to a traditional IRA, but you do meet the income eligibility requirements for a Roth, it's a no-brainer. Go for the Roth. Otherwise, you have a decision to make: is it better to pay the taxes now or later? Do you think you'll be in a higher or lower tax bracket after you retire and begin making withdrawals? Many people believe taxes can only go up and thus, the Roth contribution or Roth conversion is the better move. But your situation could be different.
A financial planner once told me I was being irresponsible by maxing out my tax-deductible 401k account, that I should have made Roth contributions instead. One argument he gave is that a large traditional retirement plan can leave an unwanted tax burden on your heirs, whereas with a Roth, the tax has already been paid for them. But because I don't have children, my beneficiary will most likely be a charity, and the charity won't have to pay income taxes regardless of what type of account they inherit. However, if one of your financial goals is to leave a legacy for your heirs, consider a Roth. In fact, many 401k plans are now offering a Roth option, so workers can contribute after-tax money instead of the traditional pre-tax contributions.
I prefer to hedge my bets, so I have pre-tax 401k money (which since my retirement, has been rolled into a traditional IRA), as well as Roth accounts. I really don't know what my tax situation will be later, or how the tax laws will change.
If you can spare the money to contribute to both a workplace plan and an outside IRA, by all means, do both. If you can't max out both, I suggest contributing to your workplace plan at least up to any employer match (to do less is leaving free money on the table) and then putting additional money into a Roth IRA at a discount brokerage such as Fidelity, Vanguard, Schwab, etc., if you qualify. A large discount brokerage will most likely offer access to more diverse investment products than your workplace plan.
Whatever you decide, even if it turns out not to be the ideal choice, contributing something is better than contributing nothing. If you put away as much as you can whenever you're able, you'll increase your chances for a comfortable retirement.
What tips do you have for retirement contributions? I'd love to hear your comments.
Sharon Marchisello is the author of Live Cheaply, Be Happy, Grow Wealthy.
January 17, 2017
Writers Who Kill: Out-of-the Box Marketing, by Sharon Marchisello
Writers Who Kill: Out-of-the Box Marketing, by Sharon Marchisello: So many books are published every year, and when you're an unknown author, it's hard to get noticed. If you ...
Countdown to Financial Fitness: Shrink Your Financial Footprint
Countdown to Financial Fitness: Shrink Your Financial Footprint: In my personal finance e-book, Live Cheaply, Be Happy, Grow Wealthy , I often refer to "shrinking your financial footprint" as a ...
