MoneyTip$

Since this is Money Smart Week, there’s no better time to do a personal financial check-up!  Extension specialists at Rutgers University (New Jersey) have developed a “Financial Fitness Quiz” to help you do exactly that.  www.njaes.rutgers.edu/money/ffquiz/

It’s called a “quiz” but it’s not about how much you know.  Instead it is a check-up of your financial status – your habits and the protections you have in place.  It takes less than 10 minutes, and gives you a score in when you are finished.  I encourage you to check it out!

Assessing where your finances are already strong, and what areas need improvement is the first step to improving your financial well-being!

~Barb

P.S. At www.njaes.rutgers.edu/money/ Rutgers has posted a few other financial assessment tools, as well, if you want to look deeper into a certain aspect of your finances.

Credit, Goals, Insurance, Retirement, Saving, Spending plans

Saving money is hard.  There may be a few ways to help you fill your “Pot of Gold.”

I’m not a coffee drinker but I have many friends who are difficult to be around without their cup of Joe – instead of going to the brand name coffee concern, shop around and support local cafes for a less expensive version and save thirty cents per cup. That equates to $100 per year – or even more if you make the coffee at home.

If you have filed your income taxes and you are receiving a tax refund – you may want to direct part of the refund towards your pot of gold.  These are long-term goals – vacation and or college, house or retirement funds.

Saving when you receive a pay increase – the difference can go straight to savings.

Another way to fill your pot is by washing your hands – you will avoid virus and bacteria and need for medical treatment and medicine and lost work days. This equates to $4000 saved.

Drinking water is a healthy benefit by eliminating over-eating and skips the expensive beverages.

Apply the 30 Day Rule by waiting 30 days before you make a purchase. Ask yourself before making a decision whether to buy a gadget or not. This can save you money too.

Hopefully your pot of gold will grow.  – Susan

Goals, Retirement, Saving

Many of you have included your health fitness in your New Year’s Resolutions.  Did you ever think that you may need to do the same for your finances?  Each year when we prepare to file our taxes we may look at our net worth and say: “I wish I would spend some time on this so I could make some progress.”  When we say that, we’re basically saying “I need to get financially fit.”

Looking at financial fitness means looking at: debt, (yes the credit card bills are coming in); and at progress toward goals (such as education funds for children, funds for a new vehicle, retirement planning, …).

Take one of the items mentioned above and spend a little time examining your situation and your options.  It may lead you to set up a 529 Education Plan for your child, or to meet with a financial planner to discuss plans for retirement – again it is never too soon to start.  Finding ways to reduce your debt is also important, since that will free up funds to work on your other goals.  A website called www.PowerPay.org can help with debt management and located at the same place is Power Save.   Fitness for Your Finances is just as important as for your health.

-Susan

Credit, Goals, Retirement, Saving

It is surprising how many dark clouds can turn out to have silver linings.  Even in a job loss, some good can be derived from the situation.

One way you can gain a “silver lining” benefit from reduced income is through income taxes.  In a year where your income is notably lower than normal (especially if it is low enough to have zero taxable income) you may be able to transfer funds from a “traditional” IRA or 401k to a “Roth” IRA — without paying the income tax you would normally pay on that conversion.

The only drawback to putting retirement funds into a Roth account is the fact that you pay income tax on the amount you deposit.  In every other way, Roth accounts are advantageous, since you don’t pay any income tax on qualified withdrawals, and you have complete flexibility about whether and when to withdraw funds in retirement.

Consider a married couple family of 4 in 2011: if their income was below $26,400, then they would have ZERO taxable income.   If their adjusted gross income was $22,000, then they could roll $4,400 from a traditional account into a Roth account and owe NO tax at all on the rollover.  They get all the benefits and none of the cost of that Roth.

No one seeks a reduction in income.  But if it happens, you might as well take advantage of that silver lining, right?  ~Barb

Note: even if you are not in a situation where you’ll owe zero tax, any reduced tax bracket may make it advantageous to convert a portion of a traditional account into a Roth account.

Retirement

I remember visiting once with a client who had fired her financial professional because he was not listening to her needs.  The financial professional had originally been hired by her husband, who had since passed away.  The advisor apparently failed to adapt  to the new situation, not meeting the needs and preferences of his new client.  As this woman’s story illustrates, a financial advisor is not a one-size-fits-all commodity; it is essential to hire an advisor who has the skills to suit your personal financial needs.

If you wish to seek help from a financial professional, a first step is to identify two or three possible candidates, and then interview them to make sure their style and experience are suitable for your goals.  Do you know the questions to ask?

First, ask about their qualifications. 

• Find out how long have they been working in this field, and in what different types of positions?  
• Inquire about their educational qualifications and any designations, licenses, or certifications that they hold.  NOTE: if you feel like you are drowning in alphabet soup, be sure to ask them to explain each type of  accreditation.
• Ask what types of continuing education they receive each year.

Learn about their typical clients and work experiences.  You’ll want to choose an advisor with experience that matches your needs.

• Ask what share of their work focuses on each of the following issues: Retirement planning; Investment and asset management; Tax preparation; Estate planning; Insurance; Elder and long-term care planning; College education funding; Comprehensive financial planning; or other goals. 
• Ask about the income, wealth and risk tolerance of their typical clients, to make sure they have experience working with clients whose situations are similar to yours.

Find out what specific services they offer, and how they are paid.  Financial advisors are typically paid by either: 1) a flat fee or 2) Commission on financial products sold.  Some advisors are paid through a combination of fee and commission, and other payment structures may also exist. 

• What steps will they take in creating financial recommendations to meet your personal needs?
• Will they provide a written plan?  What might it look like?
• How many times or how often will you meet with them?
• Will any potential conflicts of interests be disclosed in writing?
• What fee or commission amounts are typically charged for various services? 
• Do they provide a written agreement which includes fees and services?

By asking these questions of each potential financial professional, you will  better understand their qualifications, expertise and form of compensation.  Most importantly, you will select a financial advisor who is suitable to your needs.

Find more information at: http://www.extension.iastate.edu/investwisely/documents/news24.htm and http://www.extension.org/pages/11045/working-with-financial-professionals 

-Susan

Goals, Insurance, Retirement Insurance, retirement planning. goals

I recently  visited with a retired couple who shared that many of their long term CD’s would be maturing this year and they were concerned about losing the on-going income which has been created by the current 5% interest rate.  

Interest rates are projected to stay low through 2014.  The best rates available on CDs are 1% or less. That means individuals who rely on their CD’s and Treasury notes to generate retirement income (or any kind of income) will continue to see returns that aren’t even keeping up with inflation.  

What options are available?  The basic strategies available when managing finances are:  1) spend less, 2) increase income or 3) a combination of 1 & 2. If you have already reduced your living expenses as much as possible, then your only remaining option may be to consider investments that will generate a higher rate of return. 

Higher potential return means higher risk.  To generate increased income, you may need to invest your money in financial products where the principal could diminish in value.  If you have been using CDs, which are generally fully insured by the United States government, this may feel uncomfortable.  Keep in mind that it is not necessary to take high levels of risk in order to generate greater income; you still have some fairly conservative options available.  They are not, however, fully insured. 

Reputable sources suggest some alternatives to CDs for those willing to take on modest investment risk, including: 

• Dividend-paying stocks,
• Real Estate Investment Trusts (REITS), and
• Annuities. 

Before considering these investment options, be sure you are well-informed about the product and the risk generated by the choices.  Annuities, for example, should be selected based on guaranteed returns; do not rely on estimated returns, which are best-case scenario projections which make the products more attractive.

It’s better for you to seek out a professional advisor rather than to become involved with someone who contacts you looking for a new customer.  Visit your bank and see if they have an investment professional on staff, or if they would recommend someone.  Look for professional certification: Certified Financial Planner or an Accredited Financial Counselor. Many times there is no cost for an initial consultation. 

Watch for a post from Susan next week on how to choose a financial advisor.  And keep in mind that in today’s economy an investment statement that you will receive an 8 or 9% rate of return at no risk might be too good to be true.

 -Joyce Lash, Family Finance Specialist, lash@iastate.edu

Thank you Joyce for being our first “guest blogger!”

Retirement, Saving, Smart shopping CD, financial advisor, income, investing

Is a tax refund a major financial highlight of your year?  If so, are you making sure it provides some lasting benefit?

The last thing any of us wants is to look back in September and regret how we used our tax refund! 

I completely understand using your tax refund to make your life more pleasant…  it’s common to spend part of it on some comforts.  BUT if you also think ahead and use part of your refund in ways that will improve your well-being in the long run, I’m positive you’ll be glad you did.  Here are my “Top Three” suggestions for using your tax refund:

1. Pay off bills – pay the highest-interest bills first
2. Save for needs in the coming year
   Predictable Expenses (back-to-school, holidays, etc)
   Emergency Funds — in case you have some medical bills or need car repair, set aside some funds that would get you through those little crises that come up.
3. Long-term savings – it’s never too soon to save for retirement, for example!
   Does your employer have a plan?  Learn about it, and make sure to take advantage of any matching funds
   No employer plan?  You can open an IRA!
   *Even small amounts add up — contributing $500/year to an IRA for 30 years will give you an extra $40,000 in retirement (if your investment earns 6%).  That won’t make you rich, but $40,000 would pay some important bills after you retire!

For more ideas about using your tax refund, go to
http://www.extension.iastate.edu/finances/personal/money/tax_refund.htm

- Barb

Goals, Retirement, Spending plans, Uncategorized Tax Refund

When you think about great on-line tools, Social Security may not be the first source that comes to mind — but they really do have great tools.   Here’s one that is useful to all adults as they plan for retirement (and I don’t mean when you turn 60!  By your early 30′s, it’s generally time). I encourage you to check out the Retirement Estimator.

The Retirement Estimator is an easy way to get an instant, personalized estimate of your future Social Security benefits. Just key in some basic information and the Estimator will use information on your Social Security record, along with what you input, to give you a benefit estimate on the spot. You even can experiment with different scenarios, such as changing your future earnings and retirement date. Check it out at www.socialsecurity.gov/estimator

(It’s also available in Spanish at www.segurosocial.gov/calculador)

It’s easy and safe, and it’s an important step in making sure you’ll be ready when retirement rolls around!

- Barb

Goals, Retirement Retirement, Social Security

Grandparents are playing a bigger financial role in the lives of their grandchildren. Current economic stress is prompting more grandparents to pitch in and pay for everything from toys to insurance to college tuition.

For some grandparents this is a financial mistake that could put their own financial future in jeopardy. Promising too much to grandchildren, not saving enough for their own possible health-care needs and paying off their grandchildren’s loans are some of the mistakes I see well-meaning grandparents are making. Before lending financial support, it is important to do the math and figure out what you can actually afford to give. One of the biggest gifts a grandparent can give to their children is being able to afford his or her own care.

Among the biggest mistakes grandparents make is helping to pay off their grandchildren’s debt. It not only shrinks the grandparents’ balance sheet but it can also enable the grandchildren to make poor debt decisions down the road and ultimately prevent them from becoming financially healthy adults. While helping a grandchild with a school loan, within reason, may be appropriate, grandparents should think twice before helping pay off anybody’s credit-card bill. The key is to reward good choices, not bad ones.

Grandparents who want to help the next generation, but who may not be able to permanently part with their cash, may consider an informal loan agreement with their grandchild. Grandparents can either put a basic loan agreement in writing or do it simply with a handshake.   ~Brenda

Retirement, Spending plans