Are You Fooling Yourself?

October 24th, 2014

jackolanternThe appearance of Halloween candy on store shelves reminds me that the expensive holiday season is upon us. It’s no coincidence that the holiday season is the most profitable season for many retail segments – they make high profits because consumers do some high-powered spending.

In a past life I worked one-on-one with families on financial issues, and I remember hearing people say things like this: “Everything was fine until the property taxes were due;” or “It was going smoothly up until the holidays.” When that happened a couple times in the same week, it struck me that they were fooling themselves.  They thought everything was fine up until the property taxes (or holidays, or car registration, or….) arose.  But if they weren’t ready for those expenses (which should not have been a surprise) then things were not fine.

Expenses which are predictable, but don’t come every month, are known as “periodic” or “occasional” expenses. Your finances simply cannot be considered “under control” unless you have a plan in place to deal with these expenses.  That includes holiday spending, which many families will experience in the next couple of months, and it also includes back-to-school season and birthdays, as well as bills like 6-month car insurance premiums, annual subscriptions or memberships, and more.

The most systematic way to be prepared is to make a list or chart of the periodic expenses that are due each month throughout the year. Total up your entire annual cost for these expenses, and divide by 12.  The result is a monthly average.  For example, if your periodic expenses for the year total $2400, that equals $200/month.  Saving $200/month toward those expenses is a systematic way to be ready.

The benefits of being prepared when these expenses arrive are many, including: less stress and drama in your life; reduced cost for late fees and interest; greater family stability. If you’re not prepared, that one extra expense has a ripple effect on all your other bills and expenses – you may end up being late (and paying a fee) on other bills, and borrowing money from friends, and putting groceries on a credit card.  In other words, the expense you weren’t prepared for can put you into a hole that can be tough to get out of.

Ask yourself: Am I well prepared for the periodic expenses I’ll face throughout the year?  If not, take steps to become prepared.  You’ll find a chart and spreadsheet for Periodic Expenses, along with other financial management tools, within the free ISU Extension and Outreach web course “Take Control of Your Money,” at www.extension.iastate.edu/humansciences/take-control.

~Barb

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Health Insurance Auto-Pilot?

October 21st, 2014

health costsIf you bought health insurance in the new Marketplace last year, you will automatically be reenrolled for the same coverage if you don’t log in to your account at www.healthcare.gov and make a change.  That may seem like the easiest route, but it could backfire.  Here are some reasons for avoiding the “automatic pilot” option:

  • Insurance policies can and do change from year to year.  Deductibles, co-payments and premiums can change, along with specific coverage details such as the list of preferred medications, the coverage of specific procedures, or whether you must meet the deductible before the plan will pay for particular services.   If you automatically renew, there is a chance that you may be caught by surprise.
  • Your health needs may have changed since last year.  Perhaps you chose a bronze plan last year because you didn’t expect many health expenses, but next year looks different because you may need surgery or some other kind of treatment or care.
  • Your income and family composition may have changed since last year.  If you do not log into your account and make adjustments in your profile, then the amount of your advance premium tax credit may be far off-target, causing financial hardship.

Now is the time to start thinking about your coverage options for next year.  If your current plan sends you information about changes in your policy for next year, be sure to study the changes planned.  In addition, think about your family’s health care needs — do you expect next year to be about the same as this year?

The Health Insurance Marketplace opens November 15.  It will remain open until February 15, 2015, but if you want to make changes or enroll in coverage that will be effective on January 1, you will need to log in and select your plan by December 15.

~Barb

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For Profit Schools

October 16th, 2014

graduation capDuring the past ten years access to higher education has undergone changes to accommodate non-traditional students.  The target group includes individuals who have realized an education could be valuable to them or need an additional degree for career advancement, but who geographically and financially can’t move to a college community to take classes.

This growing audience didn’t escape the attention of individuals looking for an opportunity to create a profit. Growth of for profit schools and the audience they have attracted is evident when you look at enrollment numbers that jumped 490% between 2002-2009. Public schools of higher learning grew by 30% and non-profit private schools had growth of 19% during the same time period. The programs offered by for-profit schools are often online and allow for flexibility of completion dates and class loads.

I’m a fan of life-long learning and have benefited from this new delivery model from a public university.  Data suggests, however, that perhaps  for profit schools should come with a label that states ” buyer beware.” Between 2004 and 2014 27 state attorney’s and 5 federal agencies have brought more than 61 investigations/lawsuits against for-profit higher education schools. The suits are often related to false claims of graduate placement rates or abuse of financial aid.

Smart consumers investigate before purchasing an education, just like any other purchase.  Are you curious about a school you have been considering? Here is a summary from the National Consumer Law Center : “Government Investigations and Lawsuits involving For Profit Schools” .

Joyce

Consumer Knowledge, Smart shopping

Resale Guide

October 14th, 2014

duck3Our small town now has a busy resale shop!  These shops can be great places to find a bargain. Who doesn’t want to buy a pair of jeans for less than $5.00, especially when the tag is still attached?!

As consumers, when we shop at resale shops we  accept the low price in exchange for some typical consumer rights, including the right to return the item.  Usually if it doesn’t fit or has a flaw we give it a toss or donate it back to the store. Both the seller and the buyer need to know, however, that a product that is banned by law must be removed from the shelves and left out of the donation sack.

The resale challenge of banned or unsafe products is being addressed by the Consumer Product Safety Commission through a new guide book: http://www.cpsc.gov/en/Business–Manufacturing/Business-Education/ResaleThrift-Stores-Information-Center/  I was aware that many cribs, child car seats, and garments with draw strings can’t be resold. Within the last 5 years, laws have also made it illegal to sell items that can contain lead and phthalates. Lead is most likely to occur in paints, children’s jewelry, clothing snaps, studs and zippers. Phthalates are a group of chemicals that are used, among other things, to make vinyl and other plastics soft and flexible. They are likely to be found in bath and pool toys, dolls, and vinyl books.

Before you fill the donation bag, you might want to check out the CPSC site to learn about items that have a recall or can no longer be sold. It applies to you as well as to retailers.

Joyce

Consumer Knowledge, Smart shopping

Predatory Lenders

October 9th, 2014

I often look at laws and imagine what someone did (and probably more than one someone) to make that law necessary — especially laws  designed to protect us from ourselves or from each other. This week my coworker, Joyce, brought to my attention recent Iowa laws that regulate Payday Lending and Advance Check Cashing.

PD loansOver the years, I have worked with individuals who have had up to five Payday Loans, some of which had been rolled over two and three times in an attempt to hang onto their home.  On Fridays I have observed a number of individuals standing in line at the service desk of my local grocery store waiting to cash their checks.  I cringe thinking of the amount of money they are throwing away on interest and fees.

Joyce shared with me that the changes in Iowa laws now prevent payday loan rollovers, and do not allow you to have more than two loans or advance checks being cashed at any one lender. Other rules in place include: You must be 18 and employed; No more than $500 per loan; For no longer than 31 days; No more than a $15 fee for the first $100 and $10 fee for each additional $100; A maximum APR of approximately 422%.

While I think it’s fine to pass laws that limit costs (sort of – is 422% APR really “limited?”), I worry more about consumers who make decisions without really thinking through the costs versus the benefits.  I’d rather focus on teaching consumers to understand the decisions they’re making and consider other alternatives beyond cash advances, such as:

  • Use a credit card – the APR is a lot lower
  • Sell something you: a) Do not use; b) Do not need; and/or c) Can’t afford
  • Ask for an extension
  • Borrow from family or a friend
  • Visit a food bank and shift grocery money to other needs

What other ideas do you have to make it to payday without seeking help from predatory lenders?

~Brenda

 

Consumer Knowledge, Credit, Smart shopping ,

SSI for Premies

October 7th, 2014

photoI now know more about Social Security Insurance (SSI) benefits for premature babies, than I ever wanted to know. After 10 days in the hospital, trying NOT to have a baby, my daughter began receiving visits from a Social Worker, informing her of all the services that were available to her, should she deliver her baby, which at that point would be 16 weeks early. My daughter only half listened because she had no intention of delivering for at least a month, and preferably not for another 2 or 3 months.

He arrived (26 weeks gestation) weighing 1# 13 oz and is amazing everyone as he is weaned from oxygen, glucose, insulin, ultraviolet light and more. Daily visits to the hospital to deliver the milk she has pumped and to spend time, skin to skin, with her little son will continue till he goes home on what should have been his due date, Jan. 2, assuming he reaches 4#, along with several other benchmarks.

The Hospital Social Worker paid her another visit…this time with paper work to apply for SSI benefits for her son. He will receive $30 a month which doesn’t sound like a lot, but when you think about the bills that will rack up over the next three months in a NICU, $30 is $30. A child born weighing under two pounds, ten ounces, is automatically entitled to SSI benefits as well as Medicaid coverage. Once dismissed from the hospital, Medicaid and Social Security will end. Should a child be disabled (blind, deaf, etc. for example) the benefits can again be applied for.

The Medicaid Insurance will be applied to bills that are not covered by his parent’s health insurance. Should both parents have health insurance through their employers, the policy that will be considered as primary would be decided by whose birthday comes first in the year.

In my daughter’s case, the hospital’s social worker informed my daughter about the benefits, brought the paperwork to her and assisted her with the applications. Not all hospitals provide that service. In that case, it would be the parent’s responsibility to visit the local Social Security office or go online to fill out the paperwork.

It is important to contact the Social Security Administration immediately after your child is discharged. You will be responsible to repay any benefits received after the discharge and it is not the hospital’s job to notifying the Social Security Administration.

For more information on applying for Social Security benefits for your preemie, the Social Security Administration has a great website with lots of information and tools as well as an office locator.  ~Brenda

Consumer Knowledge, Insurance , ,

Reason for Health Insurance

October 2nd, 2014

Emergency signThis summer, I had a friend who was not feeling well and felt that she needed to go to the convenient care at the local hospital. I drove her to the hospital.  Her situation was resolved after three hour wait.

I waited while she was being treated, and there was much excitement during that time.  Two people were having their blood pressure checked.  One person came in with pink eye and chronic dry cough.  One person had a rash on their face (poison ivy).  A child had fallen on the play equipment.  A two year old was chased by his siblings and encountered the night stand and his nose was bleeding from a gash.  Another person had issues with their vision.  One person had been in a weekend brawl and was not feeling well from it.  A gentleman in a wheelchair was needing some attention.   And more cases I don’t have space to mention.

I don’t know whether the people being served had work-based insurance, marketplace insurance, or if they had to pay the whole bill themselves. But the hours spent there reminded me vividly that  we have insurance to take care of the risks we encounter.  The young mother whose child had a bleeding nose had come from work as her child had been under the care of her mother; even situations that seem safe do involve risks.

Many of the patients were younger adults, who sometimes feel immune to health problems. I hope the ones I saw that day had insurance.

Next open enrollment will be November 15, 2014 – February 15, 2015.  ~Susan

 

Consumer Knowledge, Insurance, Saving

When Dad Speaks, I Listen…

September 30th, 2014

father and daughter picWhen my dad speaks, I listen.  He is not E.F. Hutton but he is the best I have.  My dad is pretty soft spoken so you need to pay attention.

Recently I was reading an article that made me think of my dad.  Another daughter had a conversation with her father in which he shared his go-to mantra:  “A big part of wealth building is to spend less and live within your means.  When the good years come along, sock away as much as you possibly can, because you never know when a bad patch might arise.”

My father shared with me to put money in an IRA annually.  At the time it was $166.66 per month and then there was benefit at income tax time too.  By doing that 30 plus years ago – and compounding and the time value of money – I have a nice pool of money for retirement.

Another lesson learned from my father was the process of buying a car.  I personally hate that it takes much longer than I think it should.  When I was in college, my dad was purchasing a car for my sister and we were in the showroom for four plus hours. – Does my dad like to dicker? – Yes.  I remember when the papers were signed that he was within $200 of an earlier offer.  I learned it pays to do your homework!  Decades later, the Internet helps with that homework, so you can go in with a game plan – knowing what your vehicle is worth as well as what the sticker price is before you buy.

Dad does present lessons to remember.

~ Susan

Consumer Knowledge, Credit, Retirement, Saving, Smart shopping, Spending plans

More on the Finances of Freelancing

September 25th, 2014

business card

Freelancing has advantages and disadvantages.  Some people prefer it, while others turn to it out of necessity.  Either way, it requires financial discipline and planning in order to be successful.  Earlier this week we discussed one factor: setting your fees based on full recognition of the financial realities you’ll face.  Here is a second major consideration.

You’ll need strong financial reserves and an annually-based financial plan. Your income will be irregular. Even if you’re working steadily, with lots of “billable hours,” the payments won’t come in on a regular weekly or monthly basis.  And if your work load is sporadic, you’ll see even more irregularity in income.

 

  • This means you will need to project your income for a whole year, and figure what “salary” you can draw each month.  In months when business income is above your “salary” you will bank the extra  so that you can draw from it in months when business income is lower.  Starting out with good financial reserves will improve your financial stabiliy.
  • You will also need to project business-related expenses for the year, including quarterly payments for income and self-employment taxes.  Use IRS form 1040-ES to calculate the amount you’ll need to set aside each month and send in each quarter during the year.  For Iowa, the self-employment income tax form is also called 1040-ES.  In other states, check with your Department of Revenue.  If your business involves other annual or quarterly expenses (insurance, licensing fees, etc), be sure to plan for them as well before deciding what monthly “salary” you can draw from your business.
  • Build retirement savings into your budget.  As a free-lancer, you don’t have a pension, so your later-life financial security is in your own hands.  Don’t assume that Social Security income will be enough to live on in retirement – you’ll need your own investments too.  Tax-advantaged options are available: an IRA or Roth IRA allows you to put away $5500/year (more after age 50); a Simplified Employee Pension (SEP)  or a solo 401(k) allows much higher contributions. 

 A good business plan is essential if freelancing becomes a way of life.  Contact your local Small Business Development Center  for guidance.  ~Barb

Source: portions of this article were based on an article by Barbara O’Neill (2014). “Managing Labor Market Changes: Essential Skills for Entrepreneurs and Intrapreneurs,” Journal of Family and Consumer Sciences, 106 (2) 9-15. 

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Freelancing as a Way of Life

September 23rd, 2014

BusinessWoman-Q

In certain lines of business, people start out knowing they’re going to be self-employed (local plumbers and electricians, for example, or independent cosmetologists or private practice attorneys).  However, other people find themselves self-employed unexpectedly, as accountants or engineers or in other fields where they might have expected to be salaried employees.

An increasing percentage of American workers are now freelancers, piecing together their income by contracting with several different companies who need their services on a part-time or temporary basis.  Writer Helaine Olen coined the term “gig economy” to describe a situation where a worker goes from one “gig” to the next, with no regular paycheck.  

If you find yourself in a “permanent freelance” situation, whether by choice or by circumstance, you’ll face unique financial challenges which require strong financial management skills and plenty of good planning.

You’ll need to charge a higher hourly rate than you might expect.  Maybe your old job paid $50,000/year, so you decide to charge the equivalent, which is $25/hour.  If you do so, you will find yourself notably poorer than you expect, for a couple of reasons:

  • You face higher costs. As a self-employed person you pay 100% of your health and disability insurance and 100% of your social security and medicare taxes.  In addition, you need insurance related to your business.  You may also have additional costs, depending on the nature of your work.
  • You don’t get paid for every hour.  You’ll spend some of your time marketing your services to potential clients, and some of your time handling billing and collections and other administrative tasks.  In addition, when you’re sick or take time off work, you don’t have paid leave provided.  So the fees you collect from your clients need to cover some of the general time you spend  on your business as part of your “overhead costs.”
  • Without a pension, you’re responsible for your own retirement well-being, and you’ll need to draw from your current income to set aside money to create your own “pension.”

Stay tuned later this week for more key considerations for those who make freelancing a way of life.

~Barb 

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