SaveUp2013-05-18T06:42:17-04:00SaveUphttp://www.huffingtonpost.com/author/index.php?author=saveupCopyright 2008, HuffingtonPost.com, Inc.HuffingtonPost Blogger Feed for SaveUpGood old fashioned elbow grease.Retirement Basics: 401(k) vs. IRAtag:www.huffingtonpost.com,2013:/theblog//3.32480982013-05-10T12:14:56-04:002013-05-10T12:15:01-04:00SaveUphttp://www.huffingtonpost.com/saveup/ Similarities:
1. You must have earned income in order to contribute to either account.
2. Both are the type of retirement accounts where you put money in pre-tax. The account balance grows (we hope) and this growth is not taxed. When you take the money out after you've reached retirement age, it is taxed according to your income at that time.
1. Who sponsors the account - A 401(k) is offered through your employer, whereas an IRA, as the name implies, is an account that you open on your own at a brokerage house.
2. There are also different limits on the amount you can contribute. In 2013, that is $17,500 for an 401(k) and $5,500 for an IRA. There are also limited provisions for catch up contributions if you are over age 50.
3. Additionally, the investments you are able to hold in the account are different. In the case of a 401(k) investments are limited to the choices your employer offers. This is not necessarily a bad thing, but in some cases it is too limiting. IRAs can hold any type of asset including personally held real estate and art. It depends on the custodian you choose.
Which account should you contribute to? If your company matches 401(k) contributions, then your choice is easy. You'll want to contribute to your 401(k) at least enough to receive the full match. There are very few rules that apply ubiquitously in personal finance, but this is one of them. If you don't contribute and take advantage of an employers match, you're leaving money on the table.
However, not all employers offer a match. In that case the choice might not be as straightforward. If you know you will be able to contribute more than the IRA limit of $5,500, then the 401(k) looks more appealing. This way you will be able to put away more tax advantaged retirement savings. Also, your contribution to a 401(k) could affect the taxation of your IRA contributions if you have enough to make contributions to both accounts. Another option is to put some of the funds in a Roth IRA, which will covered in another post. Keep in mind that you can roll the funds in your 401(k) into an IRA when you leave your job.
No matter which strategy you choose, setting up an automatic deposit directly from your paycheck is helpful. This way you aren't tempted to spend the funds (because you never see them in your checking account) and you don't forget to make a contribution. Also keep in mind that contribution limits and other restrictions will change from year to year. Additionally, your personal tax situation changes each year, which could affect the type of account you choose to contribute to. The IRS website has detailed information on contributions, early withdrawal penalties and much more.
Be sure to check with a trusted financial professional if you have any questions. Regardless of which account you choose (maybe it's both), the important thing is that you SaveUp for retirement! Stay tuned for next week's post and more information on retirement accounts!
This post was written by SaveUp's personal finance contributing writer, Catherine Hawley, CFP.]]>How Much Should You Spend on a Wedding Gift?tag:www.huffingtonpost.com,2013:/theblog//3.32023522013-05-07T19:03:24-04:002013-05-07T19:00:51-04:00SaveUphttp://www.huffingtonpost.com/saveup/
While we love our friends and family and want to give them wedding gifts that will show our support and love, the costs of attending all these weddings can really add up. While one rule of thumb is to think about how much the couple as paid for you to be there, there are a few other factors to consider when searching for the perfect wedding gift that works with your budget!
What's your budget like? - The general consensus is that you should expect to spend at least $50 on a wedding gift. If you're a student or working with a tight budget, $50 is a perfectly acceptable amount to spend, regardless of how well you know the couple.
What's your relationship to the couple? - While the average gift ranges from $50 to $100 for those under 30, expect to spend $100 or more if you're close friends with the couple and are more established financially. For your nearest and dearest friends and relatives, gift costs can range from over a $100 to $200 or more. Of course this all depends on where you are financially and how much you're comfortable spending.
Are you bringing a guest? - Another factor to consider is whether or not you're bringing a guest. If you are bringing someone to the wedding, add a little extra as a courtesy.
Is it a destination wedding? - If you're flying across the country or halfway across the world to attend your friends' wedding, they'll understand if you spend a bit less on the gift. If you're willing to travel that far for this wedding, chances are they're pretty important to you, and you should still spend at least $50 to $100 on a gift.
Are you part of the bridal party? - Let's say you're a bridesmaid, and you're already spending on the bridal shower and bachelorette party in addition to the bridesmaid dress, beauty and hair prep. It can be quite a financial commitment! Instead of stressing out about all these expenses, make sure you communicate early on with the bride-to-be and the rest of the bridal party what your budget is.
What if you're not attending the wedding? - Even if you can't make it to the wedding because of your budget or other factors, it's still customary to send a gift. How much do you spend? This again depends on your relationship to the couple as well as your budget.
We hope these guidelines help you find the perfect gift and SaveUp at the same time! Stay tuned for more posts with tips to save during wedding season, whether you're planning or attending!
This post was written by Euna Kim from the SaveUp team. ]]>3 Ways to Spring Clean Your Financestag:www.huffingtonpost.com,2013:/theblog//3.32024272013-05-02T17:05:38-04:002013-05-02T17:42:55-04:00SaveUphttp://www.huffingtonpost.com/saveup/"Personal Financial Organization & Goal Setting," which you can view on SaveUp.
If you've already got that down, here are three simple but important things you can do to give your finances a tune-up and strengthen your financial position.
Review and Update Automatic Retirement Account Contributions -- Automatic retirement account contributions are one of the most effective ways I've seen clients save for retirement. Even if the amounts deposited each paycheck aren't large, the consistent nature of these deposits add up over time. Take the time (it won't be long) to establish these deposits. Perhaps you received a raise this past year, but didn't increase the amount deposited-make sure to increase your deposits accordingly. If your employer matches the funds in your account, be sure your contribution is at least equal to that figure. A rule of thumb for retirement savings is 10-20 percent of income. Be sure you don't exceed the maximum yearly contribution allowed for the account.
Request a Credit Report -- It's a best practice to request a copy of your credit report once a year. Fortunately, you can do so for free at annualcreditreport.com. According to marketplace.org, "It's the only authorized service for your free annual credit report." You have to be discerning about where you get your information. Credit Karma is another helpful resource. You can download the mobile app for free, monitor your credit score and get helpful tips to improve your credit health.
It's important to make sure your credit report is accurate because this information can be requested by a new employer, landlord or loan officer. If you see something suspicious, it might be a sign of identity theft which is another important reason to check it periodically. You can correct errors or omissions that occur for any reason. The Federal Trade Commission has detailed information on how to make a correction.
Confirm and Update your Beneficiary Designations -- Certain types of financial instruments (insurance policies, retirement accounts and annuities) have what is called a designated beneficiary. This means that upon your death, the funds in that account go directly to who you assign as your beneficiary. This is the person or persons (you can name more than one) who will benefit from the account. This designation overrides your other estate planning documents. For instance, if you state in your will that you want all your assets to be left to your mother, but your ex-boyfriend is the designated beneficiary on your 401(k) then, unfortunately, the funds in your 401(k) will go to your ex-boyfriend. These designations are very hard to contest, so its important to get them right.
Another place to check is your employee benefits, such as life insurance offered for free through your employer. Make sure those funds will be dispersed according to your wishes and coordinate your beneficiary designations with the rest of your estate planning documents. This means requesting a confirmation of your current beneficiary from each institution and then requesting a change of beneficiary form if you'd like to make an update. After the change has been processed ask for a confirmation of that update in writing and keep it with your other important documents.
It might seem obvious that improving your finances includes saving for retirement, but it's important to think of your financial plan in a broader way. It's also about putting protections in place. In this case, that means confirming your credit score and checking for identity theft. It's also about formally expressing your wishes to loved ones. Confirming your designated beneficiaries is one way to do this. Take a little time this spring to improve your finances by following the tips above and continue to SaveUp!
This post was written by SaveUp's personal finance contributing writer, Catherine Hawley, CFP®.]]>What If I Made a Mistake on My Taxes?tag:www.huffingtonpost.com,2013:/theblog//3.31507462013-04-25T16:32:21-04:002013-04-25T16:32:46-04:00SaveUphttp://www.huffingtonpost.com/saveup/Burr Pilger Mayer for her input, and below is a summary of her expert advice.
According to Meredith, "There are a number of reasons why a return might need to be corrected. Perhaps you received a corrected 1099 or W-2. Maybe you didn't realize that you were eligible for education credits, or you simply made a math error. The important thing is that you contact the IRS before they contact you, especially if the correction means that you will owe additional tax."
To correct the error, you need to file an amended return, called a 1040X. The first page looks like a table, where you indicate the following: 1. amounts shown on your original return 2. the amount of the change and 3. the correct amount. The second page has a place for you to write a brief summary regarding why you are amending the return. Then you'll attach a corrected return, with "Amended" written at the top, to the back of the 1040X. If the change results in additional tax due, enclose a check or money order for the amount you have calculated that you owe. Be sure you send it trackable...just in case.
Turbotax also addresses the process of correcting a mistake and amending your tax return. They emphasize that you don't have to redo the entire return. They go on to say that you, "Just show the necessary changes and adjust your tax liability accordingly." Also, you cannot file the amendment electronically.
Once you file it you'll have to be patient. It takes 8-12 weeks for a 1040X to be processed. This year the IRS offers a new online tool called, "Where's my Amended Return." It allows you to check on the processing status. So, even though you can't file electronically you can track it online.
Be sure to put some checks and balances in place, so that if this mistake was avoidable you don't repeat it again next year. This might include: establishing a more effective organizational system for your tax information, like an accordion folder for receipt categories or using a program like Quickbooks. Also, calendar a tax planning meeting in October so you're considering tax legislation and making decisions well before the year-end deadline. As I've mentioned before, everyone's tax situation is different. If you think this information might apply to you don't hesitate to reach out to a qualified tax professional for help. Taxes can be complex and filing your taxes correctly will put you in better financial standing and help you SaveUp!
This post was written by SaveUp's personal finance contributing writer, Catherine Hawley, CFP.]]>Surprise Finding: Young People Are Aggressively Saving Despite Shouldering High Amounts of Debt Early in Adulthoodtag:www.huffingtonpost.com,2013:/theblog//3.31505092013-04-25T11:37:28-04:002013-04-25T11:37:32-04:00SaveUphttp://www.huffingtonpost.com/saveup/Young adults are depositing more to savings accounts and paying down 57% more student loan debt than Gen X or Baby Boomers. Finger is pointing at the Great Recession.
San Francisco, CA, April 17, 2013 -- SaveUp (www.saveup.com), a national online financial rewards program for saving and paying down debt, today announced the findings of its April U.S. Consumer Savings and Debt Report. This month's major findings focus on the trends amongst young adults (22-32 years old) including recent college graduates.
Young adults, a generation scarred by financial turmoil, are demonstrating a fundamental shift in the way Americans approach personal finance. The combination of higher average savings account contributions and lower non-asset building debt indicates that young adults are taking a balanced approach to managing their finances.
Whilst young adults may be lower wage earners, those who have initiated savings are doing so aggressively in their 20s and early 30s as the data demonstrates below. The average annual savings account contribution reinforces the notion that young adult savers are more aggressive savers.
For young adults, the rate of contributions early in their careers is a promising sign that they are positioning themselves better for retirement than boomers. In a national survey, 27% of respondents aged 55-64 said that they intended to save money when prompted to make a new year's financial resolution, while 54% of respondents aged 18-34 intended to do so.**
Heavy focus on debt repayment is also an indicator of better financial habits among young adults. Despite having more student loan debt than the average American, young adults are paying down their debt more aggressively. In March, young adults paid off 1.2% of their student loans while others only paid down 0.7% even though young adults only carry an average of 4% more student debt. In March, the average young adult paid down 57% more student loan debt than older generations, $461 versus $294. In other categories of debt, young adults holding debt hold smaller mortgages, likely due to lower earnings.
While young adulthood is traditionally marked by independence, the Great Recession led to a 25.5% rise in young Americans moving in with their parents (between 2007 and 2011).* Living with one's parents precipitates different social behavior than living on one's own, but it also happens to induce a different approach to financial management. Moving back in with mom and dad means delaying home purchases and reducing financial constraints.
Not only did the Great Recession affect young adults' short-term financial goals, but many believe their mindsets will be impacted long term as well. The Great Recession caught Americans by storm, resulting in the loss of employment, underemployment, forced early retirements, and pay cuts for many. While the effects were certainly felt nationwide, data suggests that "the economic downturn can profoundly impact major life decisions and limit choices for people in their 20s and 30s: young Americans have high unemployment, are buying fewer homes, and putting off childbearing."** Scholars believe that this will result in a long-term cultural shift driven by a generation of young adults marred by financial woes, which becomes ever more transparent with data that indicates this is already evident.
"Perhaps the Great Recession was a wake-up call," says Priya Haji, CEO of SaveUp. "Young adults have more to thank than just the Great Recession for their sound financial planning though, as many younger demographics are more likely to use online tools and other financial resources to help them meet their goals. The threat of financial insecurity has instilled a permanent sense of financial awareness with this country's young adults. This new awareness spurs determination, drive, and openness to adopting new world technologies in order to solve old world problems."
Methodology
The SaveUp U.S. Consumer Savings and Debt Report analyzes current savings and debt levels of its user base and will make monthly comparisons pulled at least 30 days prior and no more than 90 days prior to the stated month. This month's report is based on the data of a representative sample of more than 25,000 SaveUp users' savings and debt balances.
About SaveUp
Founded in 2011, San Francisco-based SaveUp is the first free nationwide rewards program that encourages Americans to save money, pay down debt and make positive financial changes. By partnering with major consumer brands and financial institutions, SaveUp gives users the opportunity to win exciting prizes for performing positive financial actions. Individual user information is secure on the site with bank level encryption. Intuit provides the back-end aggregation technology and SaveUp has completed a bank-level security audit.
To get rewarded for your positive financial actions or to partner with SaveUp as a bank or sponsor, please visit us at www.saveup.com
Footnotes:
Non-asset building debt includes loans like credit cards, car loans, lines of credit and other loans.
Taxable investments are any investments of which taxes are not deferred, such as mutual funds, stocks, etc.
Account balances for each type of account mentioned represents the average account balance for participants in the data set who have that particular financial vehicle. Not all participants in the data set have every type of financial vehicle mentioned.
*U.S. News and World Report, 2011, Danielle Kurtzleben
**U.S. News and World Report, 2011, Kimberly Parker]]>How to Maximize Your Retirement Plan's Tax Benefitstag:www.huffingtonpost.com,2013:/theblog//3.30547632013-04-10T15:04:58-04:002013-04-11T12:59:16-04:00SaveUphttp://www.huffingtonpost.com/saveup/
Retirement is one of the most common financial planning topics, and it's never too early to start preparing for a secure retirement. There are various types of retirement accounts that have tax advantages that can help retirement funds grow over time. I'll cover a few of the most common types as they apply to taxes now and in the future.
What retirement plans can you still contribute to for your 2012 tax return?
Up until April 15, 2013 you can still contribute to a regular IRA (individual retirement account) or Roth IRA. According to the IRS the maximum contribution for 2012 is $5,000 annually to your IRAs ($6,000 if you are 50 or older by the end of the year), assuming you have at least $5,000 ($6,000) in earned income for the year. There are a variety of other retirement accounts so be sure to check on the timing of their contribution requirements.
How do retirement plan contributions help your taxes now?
If you contribute to an IRA or 401(k) (these are two of the most common types, but this also applies to 457 plans, 403(b) plans, SEP IRAs and SIMPLE IRAs as well), you will receive a tax advantage now. Earnings contributed to the account will lower your taxable income in the tax year contributions are made.
Which accounts don't help my current tax burden? Why might I contribute to them anyway?
Some accounts (like a Roth IRA) do not allow you to deduct your contributions for your current taxes. In other words, you pay tax on that money up front. However, that doesn't mean you shouldn't contribute. Roth IRAs have a number of advantages and are generally appropriate for workers who believe their income (and therefore their taxes will increase in the future). Or if you have a lot of funds built up in traditional retirement vehicles a Roth can give you more tax planning options when it comes time to pull money out of accounts for retirement.
How can you plan ahead for next year?
Make retirement a priority in some capacity. Even small amounts ($50 per month) contributed consistently can add up over time. One common mantra of financial planners is to "contribute early and often" to retirement plans. If possible, make automatic contributions from your paycheck directly into your retirement account. Try to put 10 to 20 percent of your paycheck toward retirement. Be aware of the contribution and salary limits for various types of accounts. If you've maxed out your retirement accounts (congratulations!) you can still put money in a brokerage account to continue to save (and invest) for retirement and your other goals.
The establishment of emergency savings is an important part of your overall plan and preserving your retirement savings. That way if something bad and unexpected happens, you're not dipping into retirement savings (and likely paying a steep penalty) in order to get through financial hardship. Even if you don't have to pay a penalty (like when taking principle out of a Roth account under certain conditions) you still want to avoid early withdrawals. It is very difficult to make up contributions to the account, so you will have fewer resources to grow over time.
Please remember that everyone's tax situation is a little different. If you think some of the ideas in this post apply to you, be sure to reach out to a qualified tax professional. Consider how to maximize your tax savings in conjunction with your retirement savings and coordinate the two to SaveUp!
This post was written by SaveUp's personal finance contributing writer, Catherine Hawley, CFP®.]]>How Not to Waste Your Tax Refundtag:www.huffingtonpost.com,2013:/theblog//3.30546592013-04-10T15:00:31-04:002013-04-11T12:50:40-04:00SaveUphttp://www.huffingtonpost.com/saveup/ 1. Debt Reduction - First, you want to pay off credit card debt or other high interest rate or short term debt. You can prioritize multiple loans by highest interest rate or lowest balance. Then put your return toward the loan that is at the top of your list.
If your credit card spending is out of control, wait 48 hours after you see an item you want and before you purchase it to think about whether it's something you actually need. Or you could freeze your credit cards in a block of ice-that way they aren't readily available for impulse spending.
One way or another, it's important to create a plan to address your debt. Another resource is a webinar I created on Getting Out of Credit Card Debt. To view it, login to SaveUp and click "webinars" on the left.
2. Emergency Fund - Even with a tax refund to get us started, most of us will have to build our emergency savings slowly but surely. However, even having a few hundred dollars available to us in case of an emergency is a good place to start. Eventually you want about 3-6 months of expenses set aside for emergencies. Remember, this fund is strictly for emergencies. If you are tempted to dip into it for vacations, shopping, etc., then make the funds harder to access. For example, open an account at an institution where you don't do your other banking and don't set up checking or an automatic transfer feature on this account. In other words, make it difficult for yourself to spend this money. You won't be as tempted to spend it!
3. Retirement Account - Contributing your tax refund to a retirement account is one way to grow those funds. I also recommend making consistent contributions throughout the year. Automatic deductions from your paycheck can be very effective. The post "How To Maximize Your Retirement Plan's Tax Benefits" goes into more detail.
4. Prioritize Multiple Goals - Most of us have short or mid-term goals that will cost money. Your tax refund can be set aside for those goals. Additionally, SaveUp has a number of prizes to help you in that arena too. Think of the amount you might need to save in the next 1-5 years. What would you like to accomplish or experience and what might it cost? Start saving now and put your refund toward these goals.
5. Strike a Balance - Spend some of your refund! That might not be the advice you expect to hear from a certified financial planner, but it's important to strike a balance and not be too restrictive. Designate a certain percentage or a dollar amount that goes towards an immediate purchase or experience. Put the remaining amount directly toward improving your finances.
These tips apply to any lump sum of money. My hope is that they will help you spend your money in a meaningful way and improve your finances. Be purposeful with your hard earned dollars, so that you can work towards your goals, strike a balance and of course, continue to SaveUp!
This post was written by SaveUp's personal finance contributing writer, Catherine Hawley, CFP®. ]]>'Leaning In': A Note From SaveUp's CEOtag:www.huffingtonpost.com,2013:/theblog//3.29665822013-03-28T15:43:49-04:002013-03-28T15:43:51-04:00SaveUphttp://www.huffingtonpost.com/saveup/Lean In. As she explains in her book, fewer than 3 percent of all the venture-backed companies in the world are led by women. As the CEO and co-founder of SaveUp, I am one of those few, and I feel a great call to action and responsibility -- not only to "lean in" myself -- but also to build SaveUp to be a tool that helps millions of Americans succeed financially.
For me, the idea of "leaning in" is not only applicable to my professional endeavors, but also my personal goals. In the past year, while I co-founded this start-up, raised a round of capital, and worked to build the company, I also made a big decision to become a mom, on my own. I am not married (because I have been busy focusing on my career to build socially responsible tech start-ups), and although I don't have that partner yet (whom I hope to have one day), I decided I did not want to miss out on being a mom. I am blessed with my son Zen, whose first 14 months have often included listening intently to his Mom's conference calls or traveling to tradeshows/speaking engagements. I love being a mom. My goal is to be 100 percent present with him when he is awake and get as much done as I can while he is asleep! I am pregnant with a second child now, and feel fully supported by my co-founder, investors and my team including an amazing nanny, and extended family in my effort to balance these commitments.
As the CEO of a personal finance company, I wondered if Sheryl's core message and the self-limiting frameworks she points out are affecting women's long term financial planning and security compared to men. As a result, we took a sample set of 20,000 individuals including men and women and analyzed the differences.
The results are a definite call to action -- men are significantly ahead of women in preparing for long term financial stability, although women live longer and therefore need more resources. What stood out to me is that much like Sheryl's broad thesis in her book, there are two forces at play: structural societal inequities as well as mental barriers that we as women put in our own way.
Structural barriers affecting the level of women's savings include wage inequality and less access to higher paying positions -- and these are certainly issues we must work to change.
At the same time, women are also making decisions that negatively affect their financial planning. Our study found we are taking on less market-risk, and hence less market earning potential. And furthermore, women tend to think we are better savers than men, when in fact men are saving more on absolute terms (certainly aided by their higher earnings). Most concerning to me was the data that showed women are actually aiming lower on the total amount they are aiming to save before retirement.
While we will all need to work together to change the bigger societal issues, I think the power of realizing the internal barriers to financial security that the data exposes is that we can work immediately and independently to make these changes. Let us commit to always negotiating for competitive wages. Always. Let us commit to taking appropriate financial advice on market exposure risk, and include that earning potential into our savings plans. Always. Let's aim higher to save more as we earn more. Always.
I think "leaning in" is all about showing up and driving at our goals with our full force. Building financial security for our families and ourselves is the way these sectors of career and family knit together. I want to make SaveUp a place where millions of American women lean in to their own success while I lean in to mine.
This post was written by Priya Haji, CEO & Co-Founder of SaveUp.]]>Preparing for a Child: A Financial Checklisttag:www.huffingtonpost.com,2013:/theblog//3.28853412013-03-18T11:47:39-04:002013-05-18T05:12:01-04:00SaveUphttp://www.huffingtonpost.com/saveup/U.S. Department of Agriculture's annual report, Expenditures on Children by Families, "a middle-income family with a child born in 2010 can expect to spend about $226,920 ($286,860 if projected inflation costs are factored in) for food, shelter and other necessities to raise that child over the next 17 years." That doesn't even include college! The USDA also has a calculator to help you determine what your personal child care costs might add up to. To help you get started, I've created a financial checklist.
Here are some things you can do to prepare for the expense of having a child:
⬰ Health Insurance - Review your health insurance to make sure it adequately covers the type of check ups and exams you will need as well as the birth. Consider switching insurers (if you have that option) or making adjustments to your coverage before you get pregnant or have children to ensure you have adequate coverage.
⬰ Estate Planning - Make sure you have guardianship provisions in place for the care of your new baby. That way, if something were to happen to you, you (not a court) is deciding who is caring for your child. There are other foundational documents such as a Will and Health Care Power of Attorney that you should also have in place. For more information on the subject check out my post titled Estate Planning Basics.
⬰ Life Insurance - This is an important tool to protect your family from the financial burden that would result from your death. Another past post of mine, Do I Need Life Insurance?, was devoted entirely to this topic. It examines the types of life insurance, amount to purchase and other key details.
⬰ Emergency Fund - A pool of money set aside for a true emergency is one of the most important things you can do to establish financial security. The general rule of thumb is to have three to six months of expenses allocated for this purpose. This becomes even more critical when you have kids. Pad your emergency savings account and bring it up to the full six months or maybe more. If just depends on your own personal comfort level.
⬰ Tax Changes - Include the Child Tax Credit when filing your next return. The IRS provides 11 tax tips here.
⬰ Spending Adjustments - As noted above, raising a child is expensive. So you'll need to adjust your budget. You might consider cutting back spending before the baby arrives and put those funds towards other checklist items. There are also helpful blogs for parents that include money saving tips and offers such as A Busy Mom Of Two.
⬰ College Savings - There are a number of college savings vehicles, but the most important factor is saving early and often. 529 College Savings Accounts are offered by each state. They have some restrictions; for instance, money can only be used for the cost of higher education, but they also have tax advantages. In order to be most effective, open an account when your child is young. Also, encourage friends and family to contribute to this account for holidays and birthdays in lieu of other gifts.
Check off the items on this list to prepare as much as possible for the latest addition to your family and continue to SaveUp!
This post was written by SaveUp's personal finance contributing writer, Catherine Hawley, CFP®.]]>5 Tax Changes for 2012 Filingtag:www.huffingtonpost.com,2013:/theblog//3.28624062013-03-13T18:08:12-04:002013-05-13T05:12:01-04:00SaveUphttp://www.huffingtonpost.com/saveup/IRS.gov is an informative website and a helpful resource. I'll summarize some of the primary changes to tax code found in this IRS article.
1. Tax Brackets rose due to inflation and range from 10 percent to 35 percent depending on income and filing status. The IRS gives this example, "For a married couple filing a joint return, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $70,700, up from $69,000 in 2011." A comprehensive 2012 tax table can be found here.
2. Standard Deductions also rose due to inflation. If you're not sure whether or not to take the standard deduction (or itemize), our recent post, "Standard vs. Itemized: Which Tax Deduction Do I Take?" will point you in the right direction. According to the IRS: "The new standard deduction is $11,900 (2012) for married couples filing a joint return, up $300, $5,950 for singles and married individuals filing separately, up $150, and $8,700 for heads of household, up $200."
3. Earned Income Tax Credit is $5,891 in 2012. That has risen a bit from $5,751 in 2011. This credit is meant to benefit low and moderate income workers and their families. It's important to note that, "The credit varies by family size, filing status and other factors, with the maximum credit going to joint filers with three or more qualifying children."
4. Lifetime Learning Credit allows you to claim up to $2,000 for qualified educational expenses assuming you are eligible. The phase out in 2012 begins at, "$104,000 for joint filers, up from $102,000, and $52,000 for singles and heads of household, up from $51,000."
5. Estate Tax, also known as a "death tax", has remained fairly steady. If a taxpayer passed away in 2012, the exclusion for their estate is $5,120,000. If the estate is above this amount it will be taxed. This is up from $5,000,000 in 2011; however, due to proposed legislative changes it's been difficult to know if there will be consistency in this figure from one year to the next.
One notable deduction that did not change is the additional standard deduction for blind people and senior citizens. It remains $1,150 for married individuals and $1,450 for singles and heads of household.
Be sure to check your state's laws to see how your taxes are affected. Above and beyond legislative tax changes, your personal income, expenses, etc. have the potential to have the most impact on your 2012 tax filing. Please remember that everyone's situation is a little different. If you think some of these tax changes apply to you, be sure to reach out to a qualified tax professional so you can maximize your tax savings.
This post was written by SaveUp's personal finance contributing writer, Catherine Hawley, CFP®.]]>Why You Absolutely Need an Emergency Fundtag:www.huffingtonpost.com,2013:/theblog//3.28242302013-03-07T11:11:38-05:002013-05-07T05:12:01-04:00SaveUphttp://www.huffingtonpost.com/saveup/NPR on the subject, "Study: Nearly Half In U.S. Lack Financial Safety Net." It emphasized the importance of saving up an emergency fund and the fact that far too many Americans still don't have one. An emergency fund must be in place before you can be effective with many other aspects of your finances.
If you're not convinced, here are three reasons why setting up an emergency fund is important:
1. You have something to fall back on when an unexpected expense arises.
2. You avoid going into debt or pulling from retirement accounts if you are in need of funds.
3. You have peace of mind that if something were to happen to your job you could maintain your lifestyle (for a given period of time).
Getting Started
You might have heard the general rule of thumb about an emergency savings account; set aside between 3-6 months of necessary expenses. Some of my clients feel more comfortable with a years worth on hand, and that's ok too. Be sure this money is accessible; put it in cash or a short-term savings vehicle. That is important because you want to be able to withdraw it today if necessary, and be sure it won't lose value.
It's not always easy to start an emergency savings account, and some folks are trying to change that, which I'll get to in a moment. Even if you only have a few hundred dollars to set aside that is a very important first step. If you just added $20 per week to your emergency account, after a year you'd have $1,040.
Rewards for Saving
Fortunately, there are things being done to promote savings and help people get ahead. Of course, SaveUp is one example, not only are they rewarding people to save, but some of their prizes are focused on the establishment of emergency savings such as a "Rainy Day Fund" worth $25,000 or a "Deposit to Savings" totaling $50,000. SaveUp's model is similar to prize linked savings mentioned in the NPR story. Prize linked savings is offered though some credit unions and you have the chance to win a grand prize when you save.
Other states and organizations are catching on too. Maryland has established a program called Maryland Cash. They partner with a variety of both public and private organizations to help working families establish financial security. The Corporation For Enterprise Development wants to help low-income Americans achieve the American dream and works with federal, state and local governments to form policy which will do so.
You can do your part by personally making emergency savings a priority, and of course, continue to SaveUp!
This post was written by SaveUp's personal finance contributing writer, Catherine Hawley, CFP.]]>Standardized vs. Itemized: Which Tax Deduction Do I Take?tag:www.huffingtonpost.com,2013:/theblog//3.27920612013-03-01T18:06:06-05:002013-05-01T05:12:01-04:00SaveUphttp://www.huffingtonpost.com/saveup/
The 2012 standard deductions for single and married filing jointly are $5,950 and $11,900, respectively. It's a little more if you're over 65 or legally blind. If your itemized deductions are higher than those amounts, then go ahead and itemize. It's just that simple! And you'll pay less in taxes.
To determine the amount of your itemized deductions consider how much you spend on the following during 2012.
1. Money Paid for Medical Care
This includes a number of items like medical and dental premiums, qualified long-term care premiums, doctor fees, prescription medication and eyeglasses. As part of the new health care law, the floor for medical deductions increases from 7.5 percent of AGI to 10 percent for those taxpayers under age 65 starting in 2013. For clients who are on the cusp, Sanae suggests you pay as many medical expenses as you can in 2012. But hurry-time is running out!
2. Mortgage Interest
You can deduct any loan that is secured by your main residence or a vacation home, too! Additionally, you can deduct any investment interest expense paid on a loan tied to property held for investment.
3. Taxes
You can select to deduct state and local income tax payments or sales tax payments. You may benefit by using the sales tax deduction if you had a large amount of purchases during 2012... think car, boat, aircraft, or major home renovation. Property tax also counts. Sanae had a client who had additional income due to Roth IRA conversion. He chose to pay two years' worth of real estate taxes and make an extra mortgage payment for the interest deduction so that he could bundle itemized deductions and reduce his taxable income. Pretty clever, if you ask me!
4. Charitable Contributions
Give to your favorite charity, and make sure it's registered as 501(c)(3)). If you have fluctuating income you will receive a greater tax benefit in years you have more income (i.e. you're in a higher tax bracket). Therefore, you should consider making charitable contribution in years with the highest amount of income. Another strategy is donating appreciated stock. Be sure it is held for more than one year (long-term capital gains) because this will allow you to receive a deduction for the fair market value of the stock and avoid paying tax on the capital gain. Unfortunately, you cannot deduct your time or the service you provided to a non-profit as a volunteer, but you may include any parking fees and tolls or other transportation expenses if you don't get reimbursed by the organization.
5. Casualty Losses
If you were affected by Sandy, then listen up! You can deduct any personal losses caused by floods, hurricanes, tornadoes, fire, theft, vandalism, even car or boat accidents, or money lost because of the bankruptcy of an institution.
6. Miscellaneous Deductions
There is a 2 percent floor for miscellaneous deductions. They include union dues, un-reimbursed employee expenses, tax preparation fees, job search expenses (must be in the same occupation), some legal fees (related to collecting income or keeping your job) and various fees related to the administration of investments.
If the total amount spent on the above categories is more than your standard deduction then you will likely benefit by itemizing. However, there is an exception to every rule. If you are a married couple filing separate returns and one spouse itemizes deductions, the other spouse must itemize his/her allowable deductions. This is the case even if his or her standard deduction is higher than the itemized deductions.
Fortunately, Sanae has some additional tax savings tips that apply whether or not you itemize. Perhaps you qualify for these common deductions and credits: IRA or retirement savings contribution, health saving account (HSA) contribution, student loan interest deduction, education credits, child care credits and the foreign tax credit.
Please remember that everyone's tax situation is a little different. If you think some of the ideas in this post apply to you, be sure to reach out to a qualified tax professional so you can maximize your tax savings in order to SaveUp!
This post was written by SaveUp's personal finance contributing writer, Catherine Hawley, CFP®.]]>How Will Obamacare Affect My Personal Finances?tag:www.huffingtonpost.com,2012:/theblog//3.22533912012-12-08T18:19:37-05:002013-02-07T05:12:02-05:00SaveUphttp://www.huffingtonpost.com/saveup/ Basic Stipulations
According to a summary of the new health care act, 94 percent of Americans will be covered. This is in comparison to the fact that 18.4 percent of Americans younger than 65 didn't have insurance in 2010 according to CNN. The Act is sure to provide coverage where none is available or affordable to the majority of those currently without insurance.
This legislation has a threefold strategy:
1. Elimination of preexisting conditions.
2. Americans must take part (with all but a few exceptions). It's thought that this will bring down costs because more healthy people (as well as unhealthy people) will be in the pool.
3. Tax-credits will make coverage affordable for those who currently can't make payments.
Notable Details
The Act was passed in 2010 and according to this timeline implementation will continue until completion on January 1, 2015.
Out-of-pocket requirements will be in line with Health Savings Accounts (effective 2014): HSA's can be used like an emergency fund for qualifying health care expenses, and they also have tax and other advantages. Ideally, the amount you deposit in the account will at least cover your deductible.
Children will be considered dependent until age 26 (currently in effect): This way a 24-year-old adult child can be covered under their parents' insurance. Young adults have an additional option for coverage when they're getting started. If you can't get coverage elsewhere, this stipulation insures that if a major medical expense does arise, it won't put you at a deficit when you're trying to forge your financial future.
Elimination of unreasonable benefit limits (partially in effect, full implementation 2014): Annual and lifetime coverage limits will be raised. This can have a profound impact on your finances if you have a serious medical issue that is extremely expensive. In other words, you'd be less likely to have to spend-down assets on medical expenses in a worst case scenario.
Straightforward comparisons of insurance policies will be made readily available (currently in effect): This should help you choose coverage with greater clarity and help you find an insurance plan that provides the best value for your unique medical and financial circumstances.
There will be fewer costs for basic preventative care (currently in effect): Services would include an annual doctor visit and a "personalized prevention plan" for seniors who qualify.
Keep your current insurance (currently in effect): If you like the coverage you have in place, you can "grandfather" it and continue its use without any penalty.
Long-term care insurance (effective October 2012): Voluntary long-term care insurance will be provided under the act called the "community living assistance services and support (CLASS program)." It will be interesting to see how competitive (in terms of costs and benefits) it will be in comparison to private offerings of long-term care coverage.
Nursing School (partially in effect, full implementation 2014): Federal student loans for primary care and nursing school will be made more accessible and appealing.
What are the penalties if you don't pay?
Most Americans will be required to hold nominal health insurance coverage or pay a fine of $95. That figure will rise quickly over the next two years to $350 in 2015 and $750 in 2016. However, there are some exceptions for religion and low income where you won't be required to pay the penalty.
From my perspective as a certified financial planner, you need health insurance coverage whether or not the law requires it. Managing risk is an important element of improving your finances. The right kind of insurance covers what you can't afford to lose. That way, if something catastrophic happens, it doesn't wipe out the assets you are accumulating. Generally, this is true for other types of insurance in addition to health insurance.
Almost certainly, there are other ways you might be affected by this legislation. For example, there will be provisions for rural communities. Also, coordination of services already offered under medicaid and medicare will be streamlined. The Patient Protection and Affordable Care Act is over 900 pages, so this post isn't a comprehensive overview. However, I hope it helps you stay informed so that you are in a better position when it comes to your personal and financial health!
This post was written by SaveUp's personal finance contributing writer, Catherine Hawley, CFP®.]]>Can Debt Be Good For Your Finances?tag:www.huffingtonpost.com,2012:/theblog//3.22534432012-12-07T16:42:52-05:002013-02-06T05:12:01-05:00SaveUphttp://www.huffingtonpost.com/saveup/
For instance, you can pay off debt consistently (like paying off a credit card in full each month) and establish good credit so that you can qualify to borrow money at lower interest rates in the future. Or, in a worst case scenario, you could get stuck in a payday lending scheme. These loans have high interest rates that are meant to be short-term. If the loan lasts longer than you anticipated, you may end up paying over 150 percent APR (or more). This could be damaging to your finances for years to come.
The Bad
There are certain types of debt we want to avoid. First on the list: any debt we can't afford to pay back. Perhaps the monthly payments are too large or the loan isn't amortized and there is a balloon payment that will be difficult for us to cover. We also want to avoid high interest rate debt (like credit cards or the payday loans mentioned above).
Additionally, we want to avoid consumer debt (think credit cards) or living beyond our means (like a home equity line to pay for a vacation). In these cases we're borrowing for lifestyle choices, which are not sound financial purposes. These are the types of items we should be able to forgo or save for. They might also be purchased from an emergency account if appropriate (e.g. when your refrigerator goes capoot).
The Good
Higher Education
The cost of a college education has become more and more expensive over time (outpacing inflation). Attending college commands higher salaries, increasing one's earning power. Additionally, there are less tangible but equally important benefits to attending college (e.g. the opportunity to pursue a fulfilling career). Debt for education can improve your position, but when incurring debt, we need to weigh potential advantages against the price and/or terms of the loan. Essentially, when selecting a school, we need to assess whether the cost outweighs the value.
Home Mortgage
The same applies when buying a home, which generally should not be considered an investment. Rather, it is a large purchase that will have an impact on your financial situation. The right mortgage can make a house affordable now, whereas saving for the entire amount for the same house might not be possible. With the right terms, a house can be paid for out of cash flow each month. If the monthly payments are truly affordable, over time you'll improve your financial position (even if housing prices don't go up) because eventually you'll own your house outright. You'll also be enjoying the use of the home over the entire length of the mortgage and beyond.
Borrowing to invest in a well-planned business you are launching is another example of an appropriate use of debt.
Terms, Cash Flow, and Affordability
Beyond the reasons for taking out a loan, the specifics of what the loan "looks like" are critical in assessing good vs. bad debt. You need to know the terms. This includes the amount you are borrowing, interest rate (fixed or variable), length (how long the loan lasts) as well as payment amount and frequency. It's not just about the amount you are borrowing. The terms of the loan will affect whether or not you can afford the loan and pay back the money.
Emotional Factors
In addition to the numbers, there are emotional factors to consider. Some people feel uncomfortable owing even small amounts to anyone. Emotionally, they don't want to be in debt even if it improves their financial position. Educating yourself about debt and how it might affect your financial situation might negate these feelings. However, you don't have to make decisions purely from a rational financial perspective. Taking your comfort level with debt into account is an important factor.
Be wise and purposeful when borrowing money and use "good" debt to your advantage. Continue to pay it off so that you can SaveUp!
This post was written by SaveUp's personal finance contributing writer, Catherine Hawley, CFP®.]]>Do I Need a Financial Planner?tag:www.huffingtonpost.com,2012:/theblog//3.22207512012-12-04T14:43:53-05:002013-02-03T05:12:01-05:00SaveUphttp://www.huffingtonpost.com/saveup/
So how do you know if you need one? The truth is, not everyone does. If you're the type of person who does your research, is always aware of where your money is going, and knows exactly how much you need to save each month towards your retirement and other goals, you'll most likely be fine without a financial planner. In this case, you might want to seek advice just to get a second opinion and confirm that you're on the right track. But for those of us that are newbies to the personal finance world with no time to do adequate research, we probably have more than a few blind spots, and a professional eye can really help.
This definitely doesn't mean you should go hire the cheapest financial planner you can find (or the most expensive). The costs of financial planners' services do not necessarily reflect their expertise. Remember to ask yourself a couple key questions:
-- Is this person adding value to my overall financial situation?
-- Am I receiving quality information and the assistance I need to improve my finances?
So How Do I Choose a Financial Planner?
Credentials/Experience: Basically anyone can claim to be a financial planner, but you'll want to make sure the person you hire knows what he or she is talking about! If there's a CFP after the name, that means the individual is credentialed by the Certified Financial Planner Board of Standards. This is a good indicator of a high level of financial education as well as a commitment to ethics. (Of course this shouldn't be the only factor you base your decision on).
Objectivity/Fee Structure: Some financial planners work for a commission, meaning every time they get you to purchase a particular financial product, they make money. Obviously this doesn't give them very much incentive to give you an honest opinion of your financial situation. Your best bet is to go with a financial adviser who is fee-only and/or charges an hourly rate.
Fiduciary: This fancy word means the financial planner has made a commitment to work in the clients' best interests at all times. This is the difference between a planner creating a financial plan that is acceptable for you versus building one that is tailored to your financial goals and current situation.
Specialty/Expertise: Financial planners can have different specialties, and you want to make sure that the one you choose is a good match for what you need. They can work primarily with retired clients or newly married couples, etc. What areas are they used to addressing? What types of clients make up the majority of their experience?
Finally, the last thing you should check off is whether or not you feel comfortable working with the person. Go with your gut! If something tells you this person is unsavory or untrustworthy, chances are that you're right. And even if that's not always true, you should definitely feel comfortable with the person who you're receiving financial advice from.
We hope this provides useful information for you on your financial journey! For more specifics on choosing a financial planner, check out this detailed guide from the Wall Street Journal.
This post was written by Euna Kim from the SaveUp team.]]>
