Buying a Home
It's Time for Your Year-End Homeowners Insurance Check-up
With everything we have going on in our financial lives the last thing most of us want to think about is our homeowner's insurance. But, if you buy it and then forget it, you could be leaving yourself vulnerable to increased costs and liability. Take five minutes to review your insurance policy using this checklist:
- Insurance premium rates are constantly being adjusted and carriers are becoming more competitive. It's always worthwhile to call around a get quotes. Just make sure you know what value you need to insure before calling. It's also a good time to update your coverage for the current value of your home and personal property.
- If you haven't already, check with you carrier and other carriers about discounts for combined auto and homeowners coverage.
- If you have acquired belongs and personal property since you took out your policy, make sure they are covered under your policy. Some items may need a special rider. And make sure that your items are covered for their replacement value, not their depreciated value. If you haven't done so, video tape your home's interior and its contents and make sure to store the video offsite.
- Consider raising your deductible. If your current deductible is $1000 you could raise it to $2500 and save on premiums. You will also avoid the possibility of your insurer raising your rates over even cancelling your policy over frequent claims. That's what an emergency fund is for.
Refinancing a Home
HARP 2.0 May Open the Doors for Borrowers Shut Out of HARP 1.0
Three years after the housing meltdown, millions of homeowners are still struggling with mortgage payments for their upside down homes. Among the initiatives launched by the government to assist homeowners was the Home Affordable Refinance Program which provided relief for borrowers whose equity exceeded their mortgage balance. The problem with HARP was that the requirements were too steep for many people, and few of the borrowers who actually needed the help were able to qualify. Late this year, the government rolled out HARP 2.0 which raises the cap on the loan-to-value which previously sat at 105%. So, now more homeowners can qualify.
Many of the other eligibility requirements remain, such as the requirement that your mortgage is owned by Fannie Mae or Freddie Mac. Also, your payments must be current with none misses in the last year. You also need to check to see if your PMI insurance is a part of your mortgage, because, if it's not, you may not qualify. You can check online to see if your loan is owned by Freddie (www.freddiemac.com/corporate) or Fannie (www.fanniemae.com/loanlookup), and you can check with your lender or your mortgage statement regarding your PMI insurance.
Because Freddie and Fannie need to update their computer systems to handle the new requirements, the new program may not be available until after the beginning of the year. You can check the Freddie Mac website to see a list of lenders who will be participating in the program.
Saving for College
Planning College Expenses Cut Textbook Costs by More than Half
A big part of a college savings plan is planning and controlling your expenses. Choosing cheaper colleges closer to home is, of course, a huge cost savings, but you can also dig deeper into the weeds of potential college expenses to see where you will be able to save, and one place often overlooked is in college textbooks. The cost of college textbooks has skyrocketed in recent years with the average per student increasing to about $2500 per year. One way to lower your costs is to buy them used via Amazon.com. It's possible to purchase well-used books at 75% of their original cost. Amazon will also buy back used texts. But the problem with buying used books is that, at some schools, professors are encouraged to update their books regularly rendering older editions unusable.
Another alternative has made its way to the Internet through textbook rental sites, such as CourseSmart.com and LocalTextbook.com. This can cut your textbook costs by nearly two-thirds. So when planning for all of your college expenses make sure to factor in a lower cost for textbooks.
Saving for Retirement
Give Yourselves a Social Security Income Bonus
When planning for retirement, the structuring of Social Security benefits often gets little attention, and, as a result, retirees are leaving tens of thousands of dollars on the table. The one area that creates the most confusion, and also has the most options to consider, is the spousal benefit. There are many different spousal benefit options to consider that can increase your overall benefit. For a working couple, one way is to collect spousal benefits while one of the spouses continues to work. Here's a brief explanation:
If one spouse stops working at age 62, he or she can start collecting benefits. If the other spouse wants to continue to work past age 66 in order to accrue a higher benefit, he or she can start collecting spousal benefits bases on the other spouse's Social Security amount. So, while he is working, he will receive half of his wife's benefit amount and his own benefits will be left to accrue. If he waits until age 70, he will receive a bonus of 8% per year on the accrued benefit, as substantial increase in income over what he would have received if he took payments starting at age 65.
Preparing for Taxes
Online Tax Preparation Programs
If you have been apprehensive about forgoing your annual visit with a tax professional in favor of an online tax filing program, you may now have the advantages of both. Tax filers who have come to rely upon a living, breathing human being to help them prepare their returns and answer their questions will now have access to the same when using one of the leading online tax preparation programs. Both H&R Block and Turbo Tax (Intuit) have introduced living, breathing human beings in the form of tax professionals, as part of their online help systems. Qualified tax experts will be available through live chat, messaging or text. H&R Block even plans to include live video chatting to give tax filers the same experience of meeting with a human being.
More than a third of all tax returns are filed online. Many of the filers who continue to see a tax professional, often paying five to ten times the fee charged by the online programs, do so for fear of making errors and not getting a maximum refund. H&R Block and Turbo Tax offer extremely user-friendly guidance and navigation and both are guaranteed to be error free (audit protection is an extra charge). If you still have some apprehensions, you could do what many filers do, and that is to use the online program to prepare your returns and then have a tax professional check them. You'll still save a small bundle and it will allow you to gain more confidence in the online program.
Starting a Family & Teaching Kids to Save
Prepare Your College Bound Teen for Credit Cards
If you haven’t given any thought to the idea of your kid using a credit card, you should. Because, whether you like the idea, or not, they will be offered credit cards once they enter college. So, if you don’t want to see your children drowning in debt, you should consider giving them some personal finance training wheels long before they head off to college.
Training should begin no later than their junior year in high school beginning with opening their own checking account and teaching them the basics of cash management and record keeping. You can get them used to carrying plastic by letting them use a debit card linked to the account.
You could then introduce them to credit cards. If they’re younger than 18 you will have to co-sign for the card. Be careful with this as you will be responsible for the debt. You could consider starting them out with a secured card until they demonstrate responsibility.
They need to be taught from the get-go that having a credit card is a privilege, and that its misuse will prevent them from obtaining one in the future. You could show them an interactive calculator that illustrates how 18% debt can grow out of control over a period of time. They need to clearly understand the realities of debt and its destructive power.
Once they’re off to college, they can sign for their own card, so you can only hope that their training leads to good decisions. But then, you’ve been preparing them all of their lives to do just that.
Building Good Credit
Don't Let Your Credit Cards Run Wild During the Holidays
Around holiday time the temptations are all around us to whip out our credit card and start taking care of year-end business. Whether it's to cover an annual donation to a charity, pop for a big impulse Christmas gift, or pay off some pesky medical bills, we find some reasons to run up our balances with the intent of getting back on top of it after the New Year. Not so fast. This is especially the time to rein it in for a number of reasons:
- Identity theft and fraud are at their rampant peak during the holidays. Avoid giving your card information over the phone to charities or unfamiliar vendors or ones that contact you. Do not order food over the phone using your credit card. Never let your credit card out of your sight at a restaurant or store.
- Keep your credit card balances below 30% of their credit limit. It's all too easy to run up the balances, and much more difficult to get them down to where they don't affect your credit score.
- Paying your taxes with your credit card is always tempting when you can pump your cash back or travel rewards. But, with the 2% surcharge you pay you wipe out any benefit.
- Impulse buys are all too common around the holidays a “guilt” gift, a lavish dinner with drinks, a holiday getaway. Unless you want to start off your New Year deep in the hole with nothing to show for it, keep your holiday spending within your budget and don't buy anything on your card unless you know you can pay it off in full.
Get Your Investment Plan Back on Track
It was a year most investors would just as soon forget. But, the biggest mistake you could make is to take your money and run for the hills. It's important to stay invested, otherwise you will just get further off track for your financial goals. Use this time to regroup and re-strategize. Follow these key tips to get your investment plan back on track:
- Enlighten yourself: Take responsibility for learning the fundamentals. When you are more knowledgeable about investing you will be able to make better decisions and you will less likely make any knee-jerk reactions that can hurt you in the long run.
- Manage your risks, not your returns: You really can't manage the return on your investments, but you can manage your risks. If you simply take all of your money out of the stock market and put it into CDs, you will eliminate your market risk, but you will increase your interest rate risk and inflation risk. They key is to devise a strategy consisting of different types of investments that can counter the different kinds of risk. Stocks and gold offset inflation risk. CDs offset market risk. Bonds perform better when stocks don't perform well. Diversification and balance is the key to long-term, stable returns.
- Don't try to time the market: You can try, but you'll be wrong most of the time. The biggest losses investors incur is when they yank their money out of the market after it has already declined substantially, and they fail to get back in until the market has already recovered its losses. People who stay in the market, but adjust their allocations, achieve better returns over time.
- Don't bother with benchmarks: You shouldn't care how well your stocks or mutual funds are performing against the S&P 500. All that matters is that your investment portfolio is achieving an average annual rate of return that will enable you to achieve your goals.
- Don't chase performance. Stay true to your financial goals and investment objectives.
Auto - Buying and Insurance
Thinking about a Car Lease? Things to Consider
The finances of car leases are somewhat convoluted, so it's hard to compare financing costs. The costs in some leases are loaded up front, while the costs of others are loaded on the back-end. Be sure to compare apples with apples.
Lease payments are typically lower than auto loans; however, you need to factor in the cost of owning nothing after your lease term expires.
Lease payments can be lowered by increasing the front-end costs or by increasing the residual value of the car, both of which can increase your overall costs.
A higher residual could cost you a bundle out-of-pocket if you get in an accident. The replacement cost your insurance company may be willing to pay may be much lower than the residual value.
If you drive more than 15,000 miles a year, the additional mileage could cost you as much as 15 cents a mile. Some leases allow you to “purchase” additional mileage. Either way it will increase your overall costs.
Save on Life Insurance Premiums by Buying from Top-Rated Companies
It used to be that, if you wanted get really cheap term insurance, you would go to a company that was considered to be less than high quality. They offer lower premiums because their investment portfolios were of lower quality which also generated higher yields. Higher quality life insurance companies were much more conservative with their investment portfolios, so they charged a higher premium to cover their more conservative assumptions. Nowadays, the tables have turned, and high quality insurance companies are generating the same or better returns as lower rated companies, and, through higher business volume are able to charge less, or, at least charge competitive premiums. Given the choice to buy something as important as life insurance from a highly rated company or a low-rated company, you would be well-advised to go with the highly rated company.
The way to compare term life insurance premiums is to compare the standard rates which are more apples to apples. A lot of companies will try to lure you in with really low “preferred” premium rates. But, very few people can actually qualify for their preferred rates. And, companies apply different formulas and criteria in calculating their preferred rates. So, if you want to see just how competitive a company's term rates are, always check the standard rates.
Safeguarding Your Financial Information and Identity
Your Credit Card Is Turning You Into Open Book
Whether you like it or not, your credit card use places you squarely on the grid for everyone to see what you do, where you shop, what you like to buy, and even predict what you might want to buy. Every swipe of your card unleashes a stream of data that is used by your bank and your retailers to build a profile of your shopping habits that can then be used to target you with ads, offers and discounts you are likely to want to see. The grocery chains have been doing this for some time with their club card programs which is how you end up with a coupon at checkout based on your preferences. Now the banks are working with retailers to do the same on just about any other type of purchase.
The major banks are now tracking your purchases and spending habits and creating shopping profiles that they sell to retailers who can then target customers based on those profiles. For instance, Bloomingdales would be interested in shoppers who frequent Nordstrom, so they can glean from the profiles Nordstrom shoppers who would be more likely to act on an offer from Bloomingdales. Consumers will then receive offers through the mail, email or even through text messages.
It's perfectly legal. We are assured that bank customers should not be concerned with privacy because the banks don't share any personal data. They only respond to a retailer's request for a certain profile. In the age of Facebook and Google, which have mastered the technology for harvesting your online information for advertising purposes, this new bank initiative is nothing new. In fact, for consumers who find themselves inundated with offers and ads, they may even find it more beneficial because, at least, they'll receive more relevant promotions.
Just thought you'd want to know.
Internet and Mobile Banking
Banks Are Tracking Your Every Move
Financial Organization, Planning, Budgeting
Why You Should Use a Fee-Only Financial Planner
Financial advisors come in different flavors with a wide range of qualifications and backgrounds. The most important criteria for choosing one should be whose interests they put first. Advisors who earn their income from commissions and fees paid by an employer, such as brokerage firm or bank, are usually limited to selling the products that their employers want them to sell. Advisors who generate their income directly from their clients in the form of a fee, only service the interests of their clients. Because they don't earn any commissions off of products, they are not bound to sell them to their clients. In fact, a true fee-only advisor doesn't sell products.
Many fee-only planners charge a percent of assets under management. Because most of them tend to only work with clients who have more than $250,000 or $500,000 of assets, the average person may not have access to these advisors. Instead, they can work with advisors who charge by the hour in the range of $200 or a flat fee for a financial plan in the range of $1500 to $2500.
If you know how to take full advantage of the resources available to you on the Internet in formulating your goals, organizing your finances, and understanding your risk tolerance, you could be much better off paying an advisor a fee once a year to make sure you are on the right track, as opposed to paying someone commissions and fees on every transaction you make. With discount commission online brokers, and no-load mutual funds or exchange-traded funds, there's no reason to pay a commission broker for something you can do for yourself.