Is Your Spending Plan Working?

A spending plan (aka “budget”) is a key to taking control of your money. But it’s not enough to make a spending plan. To get results, you need to go the next step and work your plan.

Think about it: you could make a plan that works out perfectly on paper — all your bills are paid, you have enough money for needs like groceries and gas and also some fun, AND you also put some money toward your longer-term financial goals. However, if your plan calls for spending $500 a month on groceries, and you actually spend $700 on groceries, then your plan is wrecked. You’ll end up with unpaid bills, unmet needs, and/or zero progress toward your goals. Even a “perfect” plan is no good if you don’t follow it.

Following a spending plan doesn’t have to be difficult, but it does take some attention: you’ll need a strategy to help you stay within the spending limits of your plan. In other words, you’ll need some method of tracking or monitoring your spending.

Let’s stick with the grocery example above. Perhaps we go to the grocery store 6-8 times during a month. If we want to make sure we keep our grocery spending below $500, we’re going to need some type of on-going record of what we’re spending. Maybe we just keep a list of grocery spending. Maybe we use a paper ledger form, an excel spreadsheet or a purchased software program. Maybe we use an app on our phone designed for that purpose. We could even put $500 cash in an envelope and only buy groceries using that cash — that way we would be unable to spend more than we planned.

A note of realism: unexpected events can interfere with our plans. A grocery example: suppose relatives decide to come visit you for a weekend. Suddenly your original grocery allotment of $500 might no longer be sufficient. Your plan will need to change. It’s your plan – you are free to change it if you need or want to change it! And here’s the good news – that change doesn’t have to wreck your plan! By keeping track and being aware that you are spending extra on groceries, you will know that you need to reduce your spending in some other area to compensate for your extra grocery spending. You will adjust your overall plan intentionally to accommodate the change.

Finding the right tool. There are multiple tools and strategies available to help with following your plan; different tools suit different people, so consider what will be most workable for you. The ISU Extension publication “Tracking Your Spending” provides a helpful overview of basic methods. Because no publication can keep up with the ever-changing landscape of software and mobile applications, some online research will be needed if you want to explore and compare those options.

For Iowans who would like help with making and following a spending plan, Extension specialists are available for one-on-one consultations, either in person or via phone or zoom. Don’t hesitate to contact us!

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Thinking About Retiring Early? Things to Consider…Part 2

Welcome back for the second part of “Thinking About Retiring Early? Things to Consider”. Last month’s post focused on what happens to your income when retiring prior to the more common retirement ages of 55, 59 ½, 62, etc. This month will focus on how expenses are impacted when you decide to retire before you reach one of the ages mentioned above.

Historically speaking, “average” retirees may need approximately 80% of their pre-retirement income to maintain their current standard of living. The rationale behind this theory is that you will no longer have to pay for things like commuting, work attire, payroll taxes, certain employer-sponsored benefits, etc. While this may seem like a plus, things get a little tricky when you are looking to retire decades earlier than normal. Many retirees already have a difficult time stretching their funds over the course of a 20-year retirement (depending on your anticipated life expectancy) and tacking on another 20 years will only add to the complexity. This is primarily due to the additional estimation required in the retirement planning process, but also because of healthcare.

Managing the cost of healthcare

According to recent statistics from the Centers for Medicare and Medicaid Services, National Health Expenditures grew nearly 10%, or approximately $12,500 per person, in 2020 (partially due to the Covid-19 pandemic), and are projected to grow at an average annual rate of 5.4%, which outpaces inflation in most years. The problem for early retirees is that some of those costs are currently subsidized through their employer and/or the federal government; they will likely lose that subsidy with an early retirement. One option is the Healthcare Marketplace; however, eligibility for subsidies is impacted by income. The Health Insurance Marketplace Subsidy Calculator from the Kaiser Family Foundation can help to estimate your premium costs.

Whether you want to retire early or not, please remember that the decision is very personal, specific to your individual needs, and should not be based upon general guidance or the decisions of others. To learn more about the basics, visit our website at https://www.extension.iastate.edu/humansciences/money.

Ryan Stuart

Ryan is a Human Sciences Specialist in Family Wellbeing and an Accredited Financial Counselor®. He focuses on educating and empowering all Iowans to independently make positive financial decisions throughout their life course.

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Health Insurance Special Enrollment Period

Even though open enrollment ended months ago, health insurance for 2022 through the federal marketplace is still available to people with very low incomes! A few weeks ago, the government opened a special enrollment period for those whose incomes are below 150% of the poverty line: that’s $19,320 for a single individual: $26,130 for a household of two; and $39,750 for a household of four. I know those income limits exclude a lot of folks, but for those who are included, this can be important news. No ending date has been announced for the special enrollment period; it appears to be continuing throughout 2022.

This new special enrollment period is especially important for those whose income is near the top of the income range for their family size. Why? Because Iowa families with incomes below ~135% of poverty are eligible for free health coverage through the expanded Medicaid program. It is those who are above the Medicaid level who may especially need this opportunity. Here’s why:

During the COVID emergency, some households have been allowed to remain on the free Medicaid coverage even if their incomes grew beyond the authorized levels. When the COVID emergency designation ends, those families will likely lose that coverage. These are folks who will benefit from the new special opportunity for families with lower incomes.

Keep in mind that anyone can have a Special Enrollment Period in the health insurance Marketplace if they have a qualifying life event. The special enrollment period extends up to 60 days after the life event occurs. Examples of qualifying life events include:

  • Loss of health coverage (e.g. due to job loss, divorce, or other reason)
  • Change in household composition (e.g. birth or adoption, divorce or marriage, death of household member)
  • Change in residence
  • Other events (e.g. change in income, release from incarceration, and more)

Do you need health insurance? Find out today if you are eligible for a Special Enrollment Period! You can also inquire and apply by phone through the official Marketplace help line: 800-318-2596.

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Shrinkflation: How to Shop Proactively

Today’s guest blogger is Carol Ehlers, ISU Extension specialist in NW Iowa.

We’re used to our favorite cereal costing $3.50 per box so when the price goes up to $4 it’s something we notice. But do we notice when the box contains only 15 ounces instead of the 18 ounces it used to hold? From fewer toilet paper sheets to less toothpaste ounces, consumers are reporting ‘Shrinkflation’ – reduced product amounts for regular purchases due to inflation.

Understand How Shrinkflation Works- Because we pay more attention to price when we shop, we don’t notice subtle changes in packaging or read details about the size or weight of a product. During periods of high inflation, companies may downsize products so they can keep prices unchanged. This strategy is known as shrinkflation.

With US inflation figures from the Bureau of Labor Statistics showing prices increased 8.5% in the last 12 months, consumers may still not realize they’re paying more for most regular purchases than in 2021 and now they may have less product in the package as well.

Shop proactively using Unit Pricing; Unit pricing is a way to compare similar products to find the best value.

For example, carrots are available in different forms: full-sized and baby carrots. They are also available in different sized bags. Figuring the unit price can help you determine which carrots are the best value.

  • One pound baby carrots, $0.99 ($0.99 per pound)
  • Two pounds baby carrots, $1.89 ($0.94 per pound)
  • One pound full-sized carrots, $0.68 ($0.68 per pound)*

*The full-sized carrots are the best buy. Consider whether you have the time to get the carrots peeled and cut up this week. If so, save money by buying the full-sized carrots.

Check out Iowa State University ‘Spend Smart, Eat Smart’s’ Unit Pricing help at: https://spendsmart.extension.iastate.edu/shop/compare-unit-prices-best-buy/

Shrinkflation will have less impact when making decisions that include unit pricing.  Save money on groceries downloading the ISU ‘Spend Smart Eat Smart’  comparison calculator to find the best bargains – https://spendsmart.wpengine.com/shop/spend-smart-eat-smart-app/

Free financial counseling is also available to all Iowa residents through ISU Extension and Outreach’s Human Sciences Specialists in Family Finance. We can help revise budgets, prioritize spending and link you to community resources. To do so, contact Iowa Concern at 800-447-1985 and ask for free financial counseling, OR find your local specialist and contact them directly.

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Thinking About Retiring Early? Things to Consider…Part 1

This is not a new phenomenon, but the Financial Independence, Retire Early (FIRE) Movement gained quite a bit of momentum over the past few years. As the pandemic raged on, many people started to question their quality of life, workplace satisfaction, and their connection to family, friends, and the outside world in general. For most of us, this was a normal reaction to an extremely stressful situation; however, a handful throughout society decided they had had enough and hit the road for greener pastures.

Depending on which article you read on the internet (there are hundreds!), this may sound like a reality anyone can achieve, but I noticed quite a few details were either left out or not applicable to the general population. In order to cover this topic in full, I decided to break it up into two posts – one focusing on income, and the other focusing on expenses – so if you are thinking about retiring early…read on!

Income…. Where will it come from now?

News flash – your cash flow will be significantly impacted by retiring early. Gone are the days of receiving a regular paycheck from an employer. So, how do people make it work when we think of the typical “early retirement” age as 59 ½ or 62 (for Social Security purposes)?

  1. For starters, it is a little-known fact that there are MANY ways to retire before the age of 59 ½ without being hit with the dreadful 10% tax penalty, but you must qualify for it.
  2. You may read that some FIRE-achievers received severance packages, inheritances, own rental properties, and/or save upwards of 75% of their income (primarily in taxable brokerage accounts).
  3. And most importantly, many continue to work. Unlike their previous career, however, they typically work part-time through the gig/freelance/app economy, and/or their new work finally enables them to follow a passion.

Come back next month for the discussion on expenses (hint: it has a lot to do with the cost of healthcare!).

Ryan Stuart

Ryan is a Human Sciences Specialist in Family Wellbeing and an Accredited Financial Counselor®. He focuses on educating and empowering all Iowans to independently make positive financial decisions throughout their life course.

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Make the Most of Financial Literacy Month

April is Financial Literacy Month! This annual event reminds us ALL that we are never “done” with financial literacy. The world changes, financial products change, and our own needs change — that means we always need to keep learning about financial topics.

What do you want to learn more about when it comes to finances?

  • Is buying a home on your radar sometime in the next few years?
  • Do you need a retirement checkup to see if you are on track to meet your goals?
  • Do you want to start saving for your children’s education after high school?
  • Are you having trouble keeping up with your daily-weekly-monthly financial challenges?

Set a goal NOW to take steps toward being the informed consumer and financial manager you want to be! See below for ideas that will help you address the four questions above. And subscribe to MoneyTip$ to make sure you get ongoing reminders and updates on financial topics.

Remember that financial literacy is not just for young people, or for people who don’t know how to manage their money. Financial literacy is an ongoing topic for EVERYONE!

Ideas to help with the questions above:

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Get More for Your Driving Dollar

Guest blogger Phyllis Zalenski, ISU Extension

With gas prices at record highs, many of us are feeling financial pain at the pump and on our household budget. Although we cannot control soaring gas prices, there are ways to improve gas mileage. The U.S. Department of Energy offers the following driving and car maintenance tips to save you money.

Driving Tips:

  • Drive sensibly and avoid aggressive driving, such as speeding, rapid acceleration, and hard braking. Aggressive driving can lower your highway gas mileage by 15% to 30% and your city mileage by 10% to 40%.
  • Avoid driving at high speeds. Above 50 mph, gas mileage drops rapidly. For every 5 mph above 50 mph, it’s like paying an additional $0.25 or more per gallon of gasoline.
  • Combine errands. Several short trips, each one taken from a cold start, can use twice as much fuel as one trip covering the same distance when the engine is warm.
  • Use cruise control on the highway to maintain a constant speed and, in most cases, save gas.

Car Maintenance Tips:

  • Use the grade of motor oil your car’s manufacturer recommends. Using a different grade of motor oil can lower your gas mileage by 1%-2%.
  • Inflate your tires to the pressure listed in your owner’s manual or on a sticker that is either in the glove box or driver’s side door jamb. This number may differ from the maximum pressure listed on your tire’s sidewall.
  • Get regular maintenance checks to avoid fuel economy problems due to worn spark plugs, dragging brakes, sagging belts, low transmission fluid, or transmission problems. Fixing a serious maintenance problem, such as a faulty oxygen sensor, can improve mileage by as much as 40%.
  • Don’t ignore the check-engine light—it can alert you to problems that affect fuel economy as well as more serious problems, even when your vehicle seems to be running fine.

Learn more fuel saving tips and other ways to save money on www.fueleconomy.gov

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Are Annuities Good For Everyone?

After reading through previous blogs to help brainstorm for this week’s post, I found myself reflecting upon personal experiences that led me down the path to becoming a Financial Counselor. One such instance – that admittedly, I did not fully understand for several years after entering this profession – occurred when my father retired ten years ago.

He only had a small sum of money in his company’s 401(k). This was completely fine considering he also had a pension, Social Security, and little to no debt. In this situation, he received more than enough money from his “guaranteed” sources of income – the pension and Social Security – to cover his necessary living expenses and could use his 401(k) as a flexible source of income, if needed. This is ultimately what my mom did last year when she retired, but unfortunately, this is not what happened with him…

Like many families, my parents worked with an advisor at a local, for-profit financial institution. They ultimately decided to roll his 401(k) into a Traditional IRA that also included the following:

  • A deferred-annuity contract that allowed him to annuitize (turn the money into a lifetime stream of income) or pay a surrender fee if he later changed his mind – he did.
  • It offered a guaranteed 5.5% rate of return on the base amount of the rollover and a guaranteed death benefit; however, each of these “riders” cost 1.25%, which was deducted annually from his IRA balance.
  • The IRA balance was invested in four different mutual funds, all of which had an expense ratio over 1.0%.

Did he lose money because of this? Technically, no – last decade’s market return was quite impressive; however, those annual fees were costly for a financial product he never used. Am I judging my family, or their advisor’s decision? NO!! I was not a part of the conversation and do not know what factors played into it. My only goal here is to provide education on a very complex, and specific, financial product and how it should fit in to a retirement plan. You can also read this AARP article for a much more detailed summary on annuities.

Ryan Stuart

Ryan is a Human Sciences Specialist in Family Wellbeing and an Accredited Financial Counselor®. He focuses on educating and empowering all Iowans to independently make positive financial decisions throughout their life course.

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Avoid Excessive Tax Bills

In my work as a VITA volunteer, AND in my personal life, I’ve run across a larger-than-usual number of people this year whose tax returns left them with a need to pay extra to the IRS for 2021.

  • When it’s a small amount, it’s no big deal — in fact, some folks see that as the ideal situation. They’d prefer to owe Uncle Sam a little at the end of the year, rather than getting a big refund, which essentially means they have given a no-interest loan to Uncle Sam during the year.
  • But when people owe a large amount of income tax when they file, that means something has gone wrong with the system: not enough taxes have been withheld from their income throughout the year.

To AVOID owing substantial income tax at the time you file, your best step is to check the IRS Withholding Estimator. This easy-to-use tool allows you to make sure you are having an appropriate of federal income tax taken out of each paycheck. The tool asks you to enter information about your filing status and number of dependents, and then asks you to enter information from your most recent pay stubs — both year-to-date information AND information for the current pay period. Based on this information, the tool will help you see if you are having the appropriate amount of tax withheld from your paychecks.

Why does this happen and when do I especially need the withholding estimator? Checking on your tax withholding is especially helpful in certain situations:

  • When you have income from several different sources: if you have several different part-time jobs, or a mix of retirement income and employment income, OR if you have a spouse who also has income. In these situations, none of your income sources knows how much your total income for the year is likely to be. The problem with that is that they might withhold only a small amount of tax, on the assumption that this part-time job is your only income for the year. However, when you add up all those different sources, you may be in a higher tax bracket than any one of those sources would have guessed. The withholding estimator can help make up for the fact that no one income provider knows your whole income picture.
  • When your family situation changes: you get married, or are divorced or widowed, or you add new members to your tax household. In these cases, the withholdings you have had for years may now be inappropriate for your new situation. Some of the people I’ve seen this year who have gotten unexpectedly bad news with their tax return have been new widows. This was their first year filing single, and they owed more taxes than expected, due to the smaller standard deduction that applies to single people.

The IRS withholding estimator covers only federal income tax. When it comes to state income tax, Iowa has a Withholding Calculator that may be helpful. My impression is that it may not be quite as helpful, but it is worth checking out. Another option is to talk with your tax preparer or to attempt a tax calculation for 2022 using 2021 tax forms or software, since tax rates typically do not change dramatically from one year to the next.

Penalties. It is important to be aware that the United States tax code requires that taxes be paid throughout the year, not just at the end of the year. If you end up owing TOO much at the end of the year, you may be charged a penalty for not paying enough into the system throughout the year. Most people can avoid that penalty by paying in throughout the year an amount at least as much as their tax bill for the prior year. People with incomes over $150,000/year can avoid the penalty by paying in at least 110% of what their tax bill was for the prior year.

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Crypto Scam Beware!

I have heard some unbelievably sad stories this tax season and it is only the 3rd week we have been preparing and filing returns.

An older Iowan came to our Free Tax Prep site this week and showed me 2 police reports she had filed earlier this month. She received a call on a Sunday from someone informing her that the IRS was on their way to her home to arrest her because she owed $3000.  She was told that if she paid them immediately, the problem could be resolved.  Of course, the bank was not open but, she could pay them with Bitcoin and there happened to be a Bitcoin ATM just down the street from her home.  She was warned that she had to stay on the phone with them the entire time this transaction was being handled.  One ATM would not dispense the full amount, so the scammer stayed on the phone with her the whole time she drove to the next closest Bitcoin ATM which was in Minnesota. 

Her children got involved when she called them because she now had no money to pay rent or buy food or medications.  The two police reports did nothing to help her recover her losses so, her children helped her enroll in the SNAP program (Supplemental Nutrition Assistance Program) to ensure she had food and a friend lent her $300. 

BEWARE: For victims of a crypto scam, recovering funds is extremely unlikely.  Crypto scams are common. The Federal Trade Commission (FTC) received nearly 6,800 complaints of cryptocurrency investment scams from October 2020 through March 2021, up from 570 in the same period a year before. Reported losses grew more than tenfold to above $80 million.

Brenda Schmitt

A Iowa State University Extension and Outreach Family Finance Field Specialist helping North Central Iowans make the most of their money.

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