Money Management 101 for Single Parents Going it Alone

1. Determine What You Owe

As the head of the household, it’s up to you to make sure that your entire family’s needs are being met. In order to do that, you need to be extremely diligent when it comes to money management basics. This is not something that will happen by accident. Instead, you must plan for it and work toward it.

The first step is to set up your “office.” Gather all of your bills, a calculator, a pencil, and your checkbook.

I would also recommend that you grab an old binder that you can use to keep track of your financial data and a shoebox for storing paid bills.

Now you’re ready to begin:

  • Go through all of your bills, and pay anything that is due within the next week.
  • If you have bills coming due that you cannot pay, notify the company and ask them to set up a payment plan with you.
  • Print a copy of the chart “Paying Down My Debts” or make your own.
  • On the chart, list all of your debts, including any car loans, student loans, and credit card debt.
  • In addition, list the total balance left to be paid on all of these debts, and the percentage rate you are paying.
  • For now, leave the fourth column of the chart blank, and store it in your “Financial Data” binder.

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2. Eliminate Joint Debt

Before we create a plan for paying down your debt, it’s important to consider some special circumstances that may apply to you as a single parent. I asked LaToya Irby, Credit/Debt Management Expert, to share her expertise on handling joint debt:

Wolf: Let’s say a single mom still shares a credit card with her ex. What should she do?

Irby: Ideally, she would want her ex to transfer his portion of any joint balances onto his own credit card. That way, everyone is paying for their own debt.

Wolf: What about leaving both names on the account, and agreeing to pay part of the amount due? Is that ever advisable?

Irby: No. If you’ve made an agreement with your ex to split the debt payments on accounts that include your name, and your ex-misses a payment, it’s going to hurt your credit. If the ex-fails to pay altogether, the creditors and collectors will come after you. Not even a divorce decree can change the terms of a joint credit card agreement. In the credit card issuer’s eyes, you’re just as much responsible for post-divorce accounts as before.

Wolf: What about situations when a couple’s divorce decree mandates that one individual must pay off the joint credit card debt, but that person fails to do it?

Irby: You can always file contempt of court papers against him/her, but in the meantime, your credit score suffers. So I suggest paying off the debt to save your credit. If you can’t afford to pay the debt, at least make minimum payments to keep a positive payment history on your credit report.

Wolf: What about other accounts, such as utilities and cell phones?

Irby: The safest thing to do, if you have a service in your ex’s name, is to turn off the account and reestablish service in your name.

 

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3. Find Money to Pay Down Debt

Another thing we have to do before creating a plan to pay down your existing debt is to find money in your budget each month. To assist in this step, I contacted Erin Huffstetler, Frugal Living Expert.

Wolf: How much money do you think the average person can uncover just by being more intentional about spending and budgeting?

Huffstetler: The average person could easily uncover an extra $250 a month—and probably much more.

Wolf: What are the top 5 areas that you think people should look to first when they’re trying to cut their expenses?

Huffstetler:

  • Food spending (both groceries and eating out)
  • TV-related expenses (cable/satellite services, certainly; but also movie subscriptions and rentals)
  • Phone services (particularly extras like call waiting, caller id, long distance, and cell phones)
  • Insurance premiums
  • Miscellaneous spending (all those small amounts spent on coffee, vending machine snacks, and other indulgences)

Wolf: How can single parents, specifically, stretch their child support dollars and reduce child-related expenses?

Huffstetler: For single parents looking to stretch their child support dollars, creativity is the key. Look to children’s consignment shops and thrift stores to buy your kids’ clothes instead of department stores; sign them up for Parks and Rec-run activities instead of privately-run activities (which will always cost more); and don’t feel like you have to make up for being a single parent by buying them extra things—it’s you they need, not stuff.

 

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4. Pay Off Your Debt

The next step is creating a schedule for paying down your debt:

  1. Pay off the debts that charge you the highest interest first.Bob Hammond, author of Life Without Debt, recommends that you pay off the debts that are charging you the highest interest first since borrowing from those creditors is costing you the most money. “Concentrate on paying off the high-cost debts as soon as possible,” Hammond advises. LaToya Irby, Credit/Debt Management Expert, agrees. “Highest interest rate debts cost the most money, especially when those debts have high balances. So you’ll save money on interest charges when you pay off those high-interest rate debts first.”However, there are exceptions to this general rule. Irby notes, “If you’re likely to get discouraged because it’s taking a long time to pay off that high-interest rate debt, you can start with the lowest balance debt. Getting some small debts paid off will motivate you to keep going.”
  2. Pay more than the minimum payment. Aim for paying more than the suggested minimum payment, in order to pay off your debts as quickly as possible.Miriam Caldwell, Money in Your 20’s Expert, shares this advice:
    • Choose one debt to focus on.
    • Increase your payment on that debt by as much as you can.
    • Once you have paid off that debt, move all that you are paying on it to the next debt you want to pay off.
    • You’ll be surprised at how quickly you can get out of debt with this plan!
  3. Meanwhile, continue to pay the minimum balance due on all of your other debts.Record what you intend to pay toward each debt on the debt chart you made in Step 1.

 

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5. Budget Your Monthly Expenses

Now that you know where you stand financially, and you’ve created a plan for paying down your debts, it’s time to make sure that you’re making any other necessary adjustments so that you can keep up with your plan. And this means creating a budget.

I know this can be intimidating, but I’m going to make a suggestion for you: Sign up for Mint.com. It’s a free financial software program available on the Internet, and it will basically do your budgeting for you. It will create a visual pie chart showing how much you’re spending each month on housing, gas, food, entertainment, and more. This way, if it turns out that you’re spending a lot more on food than you really should, you can begin to make the necessary adjustments to get your spending under control.

If you would prefer to create your budget the traditional way, allotting a certain amount of money to each spending category, I’ve created an online budget calculator you can use, which includes categories for child support and other details specific to your life as a single parent.

Finally, in taking a look at where your money really goes each month, it’s important to know approximately how much money you “should” be spending in each category. Generally speaking, your net spendable income (after taxes) should be allocated as follows*:

  • Housing: 30%
  • Food: 12%
  • Auto: 14%
  • Insurance: 5%
  • Debt: 5%
  • Entertainment: 7%
  • Clothing: 6%
  • Savings: 5%
  • Medical/Dental: 4%
  • Miscellaneous: 7%
  • Child Care: 5%
  • Investments: 5%

 

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6. Set Financial Goals

Now that you’ve worked out a plan to pay down your debt, and you’ve created a budget, it’s time to determine your needs moving forward.

Specifically, as a single parent, you need to ask yourself some questions, such as:

  • Do you need to file for child support?
  • Do you need to get a higher-paying job?
  • Is it time to think about going back to school?
  • Do you need to consider moving into a home/rental that would reduce your overall monthly payments?
  • Are there alternatives, such as taking on another job or splitting expenses with another single parent family, that you need to consider at this point?

One of the things that I want you to know is that the ball is in your court. You determine where this goes from here on out. But unfortunately, you can’t do that if you’re ignoring your financial health, right?

So the fact that you’ve come this far in the process of getting a handle on your finances tells me that you’re determined to make the changes you need to make in order to provide for your family’s future.

So go ahead and ask yourself these questions. So much of single parenting is learning to roll with the punches and be creative in the face of adversity. If, indeed, you need to make some pretty major changes, now is the time to do it. Don’t incur any more debt where you are. Be resourceful, follow through, and do what you need to do to turn your financial situation around.

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7. Increase Your Net Worth

The next step is to determine your net worth and begin adding to it.

Determine Your Net Worth:

Your net worth is what you own minus what you owe. Programs such as Mint.com, Quicken, and Microsoft Money will calculate your net worth for you, automatically.

You can also determine your net worth simply by adding up all that you own, including all of your investments, the equity you may have paid into your home, the value of your car, and any other assets you possess; and subtracting what you owe in remaining debts.

Set Up a Savings Account:

Once you know where you stand, you’ll be ready to set up a savings account. You can do this through your regular bank, or begin investing in a mutual fund that pays interest.

Even if you can only afford to set aside $25 or $50 per month, it will begin to add up.

Before you know it, you’ll have an emergency savings plan in place, to protect you in the event that your car breaks down, or your home needs a major repair.

In addition, this regular savings will help you increase your net worth over time.

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8. Become Even More Frugal

Unfortunately, all of the work you’ve already done in steps 1-7 will have little lasting value if you don’t change your attitude toward money. Now is the time to become even more frugal and learn to live within your means.

Practice Discipline:

Stop imagining that more money is going to pour in tomorrow—through finally collecting on unpaid child support, winning the lottery, or getting a promotion. If those things happen, great! You’ll be even better off. But living as if they’re going to happen is causing you to spend money you don’t have.

Instead, force yourself to make purchases with cash only. Do not continue to pay outrageous interest payments toward credit cards for purchases you don’t absolutely need. You can get by without that new furniture, right? What else could you skip, in the interest of spending only what you have right now in the bank?

Try These Ideas:

  • Check Freecycle before you make another major purchase. Someone else may be giving away the very thing you’d like to buy!
  • When you’re getting ready to buy something specific, look for it on eBay first. I buy a lot of my clothes, new-with-tags, through online auctions!
  • Forget trying to keep up with “The Jones’s.” You already know your value; don’t get caught up trying to “prove” your worth to others by having “just the right” house, car, or appearance.
  • Do not use shopping, ever, to appease your emotions.
  • Finally, when you do go to make a big purchase, step back and give yourself a few days–or even a week–to think about it. There’s no reason to suffer through buyer’s remorse and try to justify to yourself purchases that you really can’t afford. Think it over carefully and make those purchases, when necessary, with cash.

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9. Schedule Your Own Weekly Financial Check-In

Grab your calendar and schedule a weekly financial update meeting with yourself. This is an extremely important step in managing your personal finances, and it’s one that you need to continue each and every week. During your “meeting” time:

  • Pay any bills that are due.
  • If your bank statement has arrived, take the time to balance your checkbook.
  • Check the balances of your checking and savings accounts.
  • Update your debt list to incorporate any recent payments.
  • This is also a good time to write out your grocery shopping list and check what’s on sale at your local grocery store this week (either using the store’s Web site or the sales circular that comes in the newspaper).
  • Finally, also make note of any upcoming expenses you need to anticipate and plan for.

An attitude of gratitude and finances.

 

 

References:
Irby, LaToya. Email interview. 24 Oct. 2008, 
Huffstetler, Erin. Email interview. 24 Oct. 2008. 
Sources:
Caldwell, Miriam. Email interview. 27 Oct. 2008, Hammond, Bob. “Debt Free Key: 10 Steps for Coping With Credit Problems.” Life Without Debt. Franklin Lakes, NJ: Career Press, 1995. 31-32, Irby, LaToya. Email interview. 24 Oct. 2008. 
“Spending Plan Online Calculator.” Crown Financial Ministries. 11 Oct. 2008.

Written By: Jennifer Wolf

Source: thebalance

 

 

 

Raising Kids to Be Smart About Money

Young minds are programmed to absorb and copy the behaviors around them, which means the sooner you instill proper money management skills, the more prone your kids are to become mature and responsible stewards of their own cash-flow in the future.
“Becoming financially literate early in life is fundamentally important to your financial well-being as an adult,” says Micah Fraim, award-winning CPA and best-selling author.

“I was pinching pennies at five years old, calculating the cost of grocery items per ounce, refusing to buy expensive clothes unless they were on-sale and foregoing scoops of ice cream from the ice cream shop, so I could buy multiple gallons at the grocery store,” Fraim says. “Now as an adult, I still have that same mindset and live well below my means.”

The following kid-approved strategies help you teach the core tenets of being financially savvy; in terms they’ll understand and appreciate. Consider how you can use them to teach your little ones to be smart about money.

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Find Opportunities for Lessons

At some point, your child will inevitably deplete their allowance on impulse purchases, rather than holding out for the more expensive item they’ve been asking for. Instead of giving them more money, or buying it for them, use this as an opportunity to demonstrate that money is a finite resource, which must be allocated over an extended period. Once you spend, it’s gone until you can make more.

Have a conversation about what else they could have done with that money, or how much longer they would have needed to save to get the big-ticket item they wanted. Perhaps give an example of when you spent foolishly, or better yet, saved enough money to buy something important, like your house or car.

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Demonstrate that Income Is Earned

Chores are an easy way to teach children that money must be earned. This tangible incentive for contributing to your household shows them that have to work for what they want, and even do things they may not want to do—i.e. vacuuming and doing the dishes.

The concept of having to earn your money is a positive outcome of rewarding children financially for completing chores. However, some parents find that this method doesn’t necessarily teach money management, making it a bad way to teach children how to be smart about money. The key to avoiding the latter is the set-up.

Susan Borowski, mother and author for Money Crashers, shares how she set this up with her teenage son:

“As a contributing member of the family, my 13-year-old son is expected to do certain chores around the house for free. He can earn money for tackling larger tasks, many of which he can choose, some of which he cannot; the amount he earns depends on the difficulty of the task or how long it takes. This forces us to discuss money each time he takes on a larger task.”

This shows them that they have control over how much they earn, rather than it being a given.

Secondly, keep chores focused on money management with an app like Chore Monster so children can track what they’ve done and earned. This is an easy way to establish a record-keeping system, for both chores and allowance, seeing increases or decreases in money earned over time.

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Establish a Record-Keeping System

When your child is consistently earning allowance or money for chores, it’s important that they’re able to account for what happens with that money. The more emphasis you put on this piece of the earning, the more they’ll see the value of managing their funds. They’ll start to notice wasteful spending habits and identify which pitfalls to avoid during their next allowance payout.

Designate a folder where they can stockpile receipts and a notebook where they can track all purchases. This simple method of financial reporting is an ideal precursor to balancing a checkbook, analyzing bank statements, or creating a monthly budget.

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Use Visual Aids to Your Advantage

Although the “piggy bank” is a time-honored childhood favorite, this approach to money management doesn’t allow your child to see the positive outcome of their coin stashing. For a more functional alternative, use a transparent mason jar or clear plastic Tupperware container, both of which gives them an unobstructed view of the progressive financial increase that comes from diligent and habitual saving. This tool makes the abstract concept of saving easy to see and understand.

You can also open a bank account for older children. This gives them a chance to become familiar with bank statements, which act as a visual aid. Each time a new statement comes in, they can sit down and look at how much money was put into the bank account and how that’s changed month-over-month. Many banks now offer online portals, as well, where your children can see progress represented in bar and pie graphs; these may be easier to understand and digest.

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Encourage Them to Set a Savings Goal

There’s a sense of accomplishment and empowerment in reaching a goal with no shortcuts taken or assistance received. Channel this mindset when encouraging your child to practice economical behaviors. Next time they express interest in the latest gadget, suggest they purchase it themselves and develop a step-by-step plan together, so they feel equipped for the undertaking. This process of setting aside money with a specific goal in mind reinforces the gratification gained from being smart about money and purchasing the item without any help.

It’s never too early to start teaching your kids about how to be financially savvy. Too many people don’t learn about personal finance until it’s too late — like when they’re buried in student loans — so teaching these skills early on is important for setting your children up for success later in life.

 

 

 

Written By: Jessica Thiefels
Source: PBS

7 Personal Finance Tips From Warren Buffett

Warren Buffett is generally considered to be the best long-term investor of all time, so it’s no wonder many people like to listen closely to Buffett’s words of wisdom, in order to apply them to their own lives. With that in mind, here are seven of the best personal finance lessons I’ve learned from Warren Buffett over the years.

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1. “Someone’s sitting in the shade today because someone planted a tree a long time ago”

The lesson here is to be a forward thinker when it comes to personal finance, whether you’re talking about investing, saving, or spending. When you’re deciding whether to put some more money aside for emergencies, think of a financial emergency actually happening and how much easier your life will be if you have enough money set aside.

Similarly, few people get rich quick by investing, and most people who try end up going broke. The most certain path to wealth (and the one Buffett took) is to build your portfolio one step at a time, and keep your focus on the long run.

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2. “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years”

In addition to this, one of my all-time favorite Warren Buffett quotes is “our favorite holding period is forever,” which is also one of the most misunderstood things he says. The point isn’t that Buffett only invests in stocks he’s going to buy and forget about — after all, Buffett’s company Berkshire Hathaway sells stocks regularly, and for a variety of reasons. Rather, what Buffett is saying is to invest in stable, established businesses that have durable competitive advantages. That is, approach your investments with the long term in mind, but keep an eye on them to make sure your original reasons for buying still apply.

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3. “Price is what you pay; value is what you get”

When you’re buying an investment (or anything else for that matter), the price you pay and the value you receive are often two very different things. In other words, you should buy a stock if you believe its share price is less than the intrinsic value of the business — not simply because you think the price is low.

For example, if a market correction hit tomorrow and a certain stock were to fall by 10% along with the overall market, would the business inherently be worth 10% less than it is today? Probably not. Similarly, if a stock rose rapidly, it wouldn’t necessarily mean that the value of the underlying business had risen as well. Be sure you consider value and price separately when making investing decisions.

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4. “Cash … is to a business as oxygen is to an individual: never thought about when it is present, the only thing in mind when it is absent”

One of the reasons Berkshire Hathaway not only survives recessions and crashes, but tends to come out of them even better than it went in, is that Warren Buffett understands the value of keeping an “emergency fund.” In fact, when the market was crashing in 2008, Berkshire had enough cash on hand to make several lucrative investments, such as its purchase of Goldman Sachs warrants.

Granted, Berkshire Hathaway’s rainy-day fund is probably a bit bigger than yours; Buffett insists on keeping a minimum of $20 billion in cash at all times, and the current total is around $85 billion. However, the same applies to your own financial health. If you have a decent stockpile of cash on the sidelines, you’ll be much better equipped to deal with whatever financial challenges and opportunities life throws at you.

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5. “Risk comes from not knowing what you’re doing”

In Buffett’s mind, one of the best investments you can make is in yourself and the knowledge you have. This is why Buffett spends hours of every day reading, and has done so for most of his life. The better educated you are on a topic, whether it’s investing or anything else, the better equipped you’ll be to make wise decisions and avoid unnecessary risks. As Buffett’s partner Charlie Munger has advised: “Go to bed smarter than when you woke up.”

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6. Most people should avoid individual stocks

This may seem like strange advice coming from Warren Buffett, since he’s widely regarded as one of the best stock-pickers of all time.

However, Buffett has said on several occasions that the best investment for most people is a basic, low-cost S&P 500 index fund, like the one he is using in a bet to outperform a basket of hedge funds. The idea is that investing in the S&P 500 is simply a bet on American business as a whole, which is almost certain to be a winner over time.

To be clear, Buffett isn’t against buying individual stocks if you have the time, knowledge, and desire to do it right. He’s said that if you have six to eight hours per week to dedicate to investing, individual stocks can be a smart idea. If not, you should probably stick with low-cost index funds.

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7. Remember to give back

Warren Buffett is a co-founder of and participant in The Giving Pledge, which encourages billionaires to give their fortunes away. Buffett plans to give virtually all of his money to charity, and since he signed the pledge, he has given away billions of dollars’ worth of his Berkshire shares to benefit various charitable organizations.

Buffett once said, “If you’re in the luckiest one percent of humanity, you owe it to the rest of humanity to think about the other 99 percent.” And even if you’re not a member of the 1%, it’s still important to find ways to give back.

 

 

 

Written By: Matthew Frankel
Source: The Motley Fool

How To Avoid A 401(k) Meltdown If The Trump Rally Fizzles

Millions of Americans are asking the wrong questions when it comes to their retirement plans. It’s not “how much should I invest now?” or “is the market safe?” You should invest as much as you can in every kind of market.

So forget about the question of whether the “Trump rally” is over, or taking a pause. If that’s your concern, you’re focused on the wrong thing.

Despite this reality, far too many investors are trying to find the right fund manager who can somehow predict and navigate the rocky seas the market will toss up. In rare cases, some managers get lucky and get in and out at the right time. But most don’t have this ability.

Most of us want to believe that professional money managers know just when to get in and out of stocks. We put a lot of faith in them — and mis-spend some $2 trillion in fees hoping that they’ll be right and protect our money.

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The numbers don’t lie, however. Most managers can’t do better than passive market averages and rarely outperform after you subtract their fees. So if you’re placing your trust in active management, you’re headed for a meltdown sooner or later.

A recent study by Jeff Ptak at Morningstar shows the folly of active management for most investors.

Ptak looked a the relationship between what actively managed funds return to the fees they charge for management. In most cases, expenses will cancel out most significant gains.

“Fees haven’t fallen that steeply, and, as a result more than two-thirds of U.S. stock funds levy annual expenses that would wipe out their estimated future pre-fee excess returns.”

What this means is that active managers who time the market aren’t likely to outperform passive baskets of stocks. When you subtract their fees, you’re not coming out ahead.

Fees take an even bigger bite when overall market returns are lower. If stocks return less than double digits, you’re going to feel the pain even more.

Ptak is blunt in his conclusion: “Many active stock funds are too expensive to succeed. The exceptions are small-cap funds, where it appears fees are still below estimated pre-fee excess returns.”

What can you do to avoid the meltdown of overpriced, actively managed funds? It’s a pretty simple process.

1) Find the lowest-cost index funds to cover U.S. and global stocks and bonds. Expense ratios shouldn’t be more than 0.20% annually (as opposed to 1% or more for active funds).

2) If you still want active funds in your portfolio, they should be highly-rated managers who invest in smaller companies.

3) Make sure that the “active” part of your portfolio is no more than 30% of your total holdings. While this is an arbitrary percentage, it will provide some buffer against market timing decisions.

You should also avoid the error of picking funds based on their past performance, which can never be guaranteed. So, instead of asking how they performed, you should ask “how many securities can they hold for the lowest-possible cost.”

 

29 Biggest Tax Problems For Married Couples

Preparing your annual income tax return is a chore. It’s even more complex when you’re married. You might have two sets of income, assets, debts and deductions. Further, if you were separated, widowed or divorced during the year, you might have a thorny tax situation.

A qualified accountant can advise you on the basic tax problems that married couples face. For a brief introduction, read through to see 29 of the most significant tax problems married people might encounter. Understanding these challenges can help you get more tax breaks this year.

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1. YOU’RE NOT SURE OF THE YOUR MARITAL STATUS FOR THE TAX YEAR

When preparing taxes, you first need to determine your marital status. It might seem like a straightforward task. However, life is not always so simple.

The IRS considers you to be married if you were lawfully wed on the last day of the tax year. For example, if you tied the knot at any time in the past and were still married on Dec. 31, 2016, you were married to your spouse for the entire year in the eyes of the IRS. The laws of the state where you live determine whether you were married or legally separated for the tax year.

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2. YOU’RE NOT SURE OF YOUR MARITAL STATUS IN A SAME-SEX RELATIONSHIP

Married, same-sex couples are treated the same as married, heterosexual couples for federal tax purposes. However, same-sex couples in a registered domestic partnership or civil union cannot choose to file as married couples, as state law doesn’t consider those types of couples to be married.

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3. YOU DON’T KNOW WHICH FILING STATUS TO CHOOSE

If you weren’t married on Dec. 31 of the tax year, the IRS considers you to be single, head of household or a qualified widow(er) for that year.

If you were married, there are three filing possibilities:

  • Married filing jointly
  • Married filing separately
  • Head of household

If more than one category might apply to you, the IRS permits you to pick the one that lets you pay the least amount in taxes.

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4. YOU CAN’T DECIDE WHETHER TO FILE JOINTLY OR SEPARATELY

If you’re married and don’t qualify to file as head of household, you typically have two choices: filing jointly or separately. It’s best to choose the one that allows you to pay the least amount in taxes, which all comes down to your particular circumstances.

Sometimes it makes sense to file separately, said Josh Zimmelman, owner of Westwood Tax & Consulting, a New York-based accounting firm. “A joint return means that your finances are linked, so you’re both liable for each other’s debts, penalties and liabilities,” he said. “So if either of you has some financial issues or baggage, then filing separately will better protect your spouse from your bad record, or vice versa.”

If you file jointly, you can’t later uncouple yourselves to file married filing separately. “On the other hand, if you file separate returns and then realize you should have filed jointly, you can amend your returns to file jointly, within three years,” Zimmelman said.

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5. YOU ASSUME MARRIED FILING JOINTLY IS ALWAYS THE BEST OPTION

Even if married filing jointly has been your best choice in the past, don’t assume it will always be that way. Do the calculations each year to determine whether filing singly or jointly will give you the best tax result.

Changes in your personal circumstances or new tax laws might make a new filing status more desirable. What was once a marriage tax break might turn into a reason to file separately, or vice versa.

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6. YOU’RE NOT CLEAR ABOUT HEALTHCARE REQUIREMENTS

The Patient Protection and Affordable Care Act — more commonly known as “Obamacare” — requires that you and your dependents have qualifying health care coverage throughout the year, unless you qualify for an exemption or make a shared responsibility payment.

Even if you lose your health insurance coverage because of divorce, you still need continued coverage for you and your dependents during the entire tax year.

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7. YOU CHANGED YOUR LAST NAME

If you want to change your last name after a marriage or divorce, you must officially inform the federal government. Your first stop is the Social Security Administration. Your name on your tax return must match your name in the SSA records. Otherwise, your tax refund might be delayed due to the mismatched records. Also, don’t forget to update the changed names of any dependents.

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8. YOUR SPOUSE DIED DURING THE TAX YEAR

If your spouse died during the year, you’ll need to figure out your filing status. If you didn’t marry someone else the same year, you may file with your deceased spouse as married filing jointly.

If you did remarry during that tax year, you and your new spouse may file jointly. However, in that case, you and your deceased spouse must file separately for the last tax year of the spouse’s life.

In addition, if you didn’t remarry during the tax year of your spouse’s death, you might be able to file as qualifying widow(er) with dependent child for the following two years if you meet certain conditions. This entitles you to use joint return tax rates and the highest standard deduction amount.

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9. YOU FILE JOINTLY AND YOU’RE BOTH LIABLE

If you use the status married filing jointly, each spouse is jointly and severally liable for all the tax on your combined income, said Gail Rosen, a Martinsville, N.J.-based certified public accountant. “This means that the IRS can come after either one of you to collect the full amount of the tax,” she said.

“If you are worried about your spouse and being responsible for their share of their taxes — including interest and penalties — then you might consider filing separately,’ she said.

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10. YOU FILE SEPARATELY AND LOSE TAX BENEFITS

Although filing separately might protect you from joint and several liabilities for your spouse’s mistakes, it does have some disadvantages.

For example, people who choose the married filing separately status might lose their ability to deduct student loan interest entirely. In addition, they’re not eligible to claim the Earned Income Tax Credit and they might also lose the ability to claim the Child and Dependent Care Credit or Adoption Tax Credit, said Eric Nisall, an accountant and founder of AccountLancer, which provides accounting services to freelancers.

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11. YOU DON’T MEET THE MEDICAL EXPENSE DEDUCTION THRESHOLD

To include non-reimbursed medical and dental expenses in itemized deductions, the expenses must meet a threshold of exceeding 10 percent of your adjusted gross income. However, when you file jointly — and thus report a larger combined income — it can make it more difficult for you to qualify.

A temporary exception to the 10 percent threshold for filers ages 65 or older ran through Dec. 31, 2016. Under this rule, individuals only need to exceed a lower 7.5 percent threshold before they are eligible for the deduction. The exception applies to married couples even if only one person in the marriage is 65 or older.

Starting Jan. 1, 2017, all filers must meet the 10 percent threshold for itemizing medical deductions, regardless of age.

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12. YOU DON’T TAKE ADVANTAGE OF THE MARRIAGE BONUS

Many people complain about the marriage tax penalty. “Married filing jointly may result in a higher tax bill for the couple versus when each spouse was filing single, especially if both spouses make roughly the same amount of income,” said Andrew Oswalt, a certified public accountant and tax analyst for TaxAct, a tax-preparation software company.

However, you might have an opportunity to pay less total tax — a marriage tax break — if one spouse earns significantly less. “When couples file jointly with largely differing income levels, this may result in a ‘marriage tax benefit,’ potentially resulting in less tax owed than when the spouses filed with a single filing status,” Oswalt said.

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13. YOU’RE DIVORCED BUT STILL NEED TO FILE A FINAL MARRIED RETURN

If your divorce became official during the tax year, you need to agree with your ex-spouse on your filing status for the prior year when you were still married. As to whether you should file your final return jointly or separately, there is no single correct answer. It partially depends on your relationship with your ex-spouse and whether you can agree on such potentially major financial decisions.

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14. YOU HAVE TO DETERMINE THE STATUS OF DEPENDENTS AFTER A DIVORCE

Tax laws about who qualifies as a dependent are quite complex. Divorcing parents might need to determine which parent gets to claim the exemption for dependent children.

Normally, the custodial parent takes the deduction, Zimmelman said. “So if your child lives with you more than half the year and you’re paying at least 50 percent of their support, then you should claim them as your dependent,” he said.

In cases of shared custody and support, you have a few options. “You might consider alternating every other year who gets to claim them,” said Zimmelman. Or if you have two children, each parent can decide to claim one child, he said.

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15. YOU DEDUCT VOLUNTARY ALIMONY PAYMENTS

If you want to deduct alimony payments you made to a former spouse, it must be in accordance with a legal divorce or separation decree. You can’t deduct payments you made on a voluntary basis.

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16. YOU DEDUCT CHILD SUPPORT PAYMENTS

Even if you don’t take the standard deduction and instead itemize your deductions, you can’t claim child support payments you paid to a custodial parent.

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17. YOU CLAIM CHILD SUPPORT PAYMENTS AS INCOME

Do not report court-ordered child support payments as part of your taxable income. You don’t need to report it anywhere on your tax return. On the other hand, you must report alimony you receive as income on line 11 of your Form 1040.

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18. YOU DON’T CLAIM ALIMONY YOU PAID AS A DEDUCTION

Unlike child support that isn’t tax deductible, you are permitted to deduct court-ordered alimony you paid to a former spouse. It’s a deduction you can take even if you don’t itemize your deductions.

Make sure you include your ex-spouse’s Social Security number or individual taxpayer identification number on line 31b of your own Form 1040. Otherwise, you might have to pay a $50 penalty and your deduction might be disallowed.

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19. YOUR SPOUSE DOESN’T WORK AND MISSES TAX SAVINGS

Saving for retirement is important. Contribute to a 401k plan and you will both save money for your golden years and lower your taxable income now. If your employer offers a 401k plan, you can contribute money on a pretax basis, subject to certain limits.

However, nonworking spouses can’t contribute to a 401k because they don’t have wages from an employer.

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20. YOU MISS QUARTERLY TAX PAYMENTS

Single or married, you might have to pay quarterly tax payments to the IRS, especially if you are self-employed. Make sure you know how to calculate estimated taxes. If you are required to make such payments but do not do so, you might have to pay an underpayment penalty, Rosen said.

All taxpayers must pay in taxes during the year equal to the lower of 90 percent of the tax owed for the current year, or 100 percent — 110 percent for higher-income taxpayers — of the tax shown on your tax return for the prior year, Rosen said. “The problem for married couples is that often they do not realize they owe more taxes due to the combining of the two incomes,” she said.

You should be proactive each year. “To avoid owing the underpayment penalty, make sure to do a projection of your potential tax for 2017 when you finish preparing your 2016 taxes,” she said, adding that you should make sure to comply with the payment rules outlined above.

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21. YOU PHASE OUT OF PASSIVE LOSSES

Crystal Stranger — a Los Angeles-based enrolled agent, president of 1st Tax and author of “The Small Business Tax Guide” — said she sees a lot of married couples who have issues with passive loss limitation rules.

“With these rules, if you have a passive loss from rental real estate or other investments, you are allowed to take up to $25,000 of passive losses against your other income,” she said. “But this amount phases out starting at $100,000 (of) adjusted gross income, and is fully lost by $150,000 (of) adjusted gross income.”

Married filers lose out, as the phaseout amount is the same for a single taxpayer as for a married couple. “This is a big marriage penalty existing in the tax code,” Stranger said. “It gets even worse if a married couple files separately. The phaseout then starts at $12,500, meaning almost no (married filing separately) filers will qualify.”

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22. YOU CLAIM A CHILD AS A DEPENDENT, BUT YOUR INCOME IS HIGH

You are not obligated to claim your kids as dependents on your own tax return. In fact, it might be beneficial not to claim them.

“High earners lose the personal exemption after crossing certain income thresholds,” said Nisall. So in some cases, it might make more sense to let working children claim the exemption for themselves on their own return, he said.

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23. YOU MISS OUT ON THE CHILD TAX CREDIT

Married couples might be able to claim the Child Tax Credit up to a limit of $1,000 for each qualifying child.

“The Child Tax Credit phases out starting at $55,000 for couples electing to use the married filing separately filing status, and (at) $110,000 for those choosing the married filing jointly status,” said Oswalt. “But married couples receive twice the standard deduction that individuals receive, so the phaseout limitations may not negatively impact a married couple’s return if they choose to file jointly.”

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24. YOU NEGLECT THE TAX BREAK FROM A HOME SALE

The IRS provides a tax break when you sell your home, subject to certain conditions. Generally, you must meet a minimum residency period by owning and living in the house for two of the five years previous to the sale.

A single person who owns a home that has increased in value can qualify to exclude up to $250,000 in gains from income, said Oswalt. However, married people can exclude up to $500,000 in gains. This rule can become tricky if one person in the couple purchased the house prior to marriage.

“If you are married when you sell the house, only one of you needs to meet the ownership test for the $250,000 exclusion,” Oswalt said. “You both must meet the residency period to exclude up to the full $500,000 of gain from your income, however.”

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25. YOU DON’T CLAIM THE CHILD AND DEPENDENT CARE CREDIT

Married tax filers might be eligible for the Child and Dependent Care Credit if they paid expenses for the care of a qualifying individual so that they could work or look for work. The rules for who can be a dependent and who can be a care provider are strict. This credit is not available if you file separately.

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26. YOU CAN’T DEDUCT STUDENT LOAN INTEREST

If you’re paying back student loans, you might be looking forward to taking the student loan interest deduction. However, if you’re married, it might not be so easy to do that.

“For a single filer, the deduction begins to phase out when the taxpayer’s adjusted gross income is greater than $65,000,” said Oswalt. “This amount is doubled to $130,000 when filing jointly.”

“So if both spouses are making $65,000 or less, then their deduction will not be affected by the phaseout,” he explained. “However, if one is making $60,000 and the other $75,000, the deduction begins to phase out, which will ultimately result in a larger tax bill.”

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27. YOU INCORRECTLY ACCOUNT FOR GAMBLING WINS AND LOSSES

Imagine a married couple where both spouses like to gamble in Las Vegas. He’s not so lucky and has losses, while she has winnings. If they file a joint return, they might have to report the gambling winnings as taxable income. Meanwhile, the losses might be deductible if the couple itemizes their deductions instead of taking the standard deduction.

However, they can’t take the amount of gambling winnings, subtract the losses and claim the net amount as winnings. Instead, they must report the entire amount of gambling winnings as income, whereas the losses are reported as an itemized deduction up to the amount of the winnings. The IRS requires you to keep accurate records of your winnings and losses.

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28. YOU BECAME A VICTIM OF TAX IDENTITY THEFT

Identify theft is a financial nightmare, no matter how it happens. Tax identity theft happens when someone files a tax return using one or both of the spouse’s Social Security numbers in hopes of scooping up your legitimate refund. If this happens to you, “contact the IRS immediately and fill out an identity-theft affidavit,” said Zimmelman. “You should also file a complaint with the Federal Trade Commission, contact your banks and credit card companies, and put a fraud alert on your and your spouse’s credit reports.”

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29. YOU CAN’T GET YOUR 2015 RETURN

The IRS and state tax agencies work to develop safeguards to avoid identity theft related to tax returns. In 2017, they will be particularly concerned about the implications of taxpayers who file using tax software.

The IRS has alerted taxpayers that they might need to have their 2015 adjusted gross income handy if they are changing software products this year. This number might be required to submit your return electronically.

Getting your 2015 adjusted gross income might be difficult if you are a member of a divorced couple that is not on positive terms, or that hasn’t even been in contact the past few years.

However, you still have options. You might be able to get the information if you go to the IRS website and use the Get Transcript service.

 

 

Written By: Valerie Rind
Source: GOBankingRates

Making $50,000 a Year? Here’s How Much to Invest

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Provided by Investopedia

No matter how much money you earn, the amount you invest each year should be based on your goals.

Your investment goals not only provide you with a target at which to aim, they also provide the motivation necessary to stick with your investing plan.

Your investment goals should also be based on how much you can afford to invest. With an income of $50,000, the constraints of living expenses may prevent you from investing as much as you would like initially, but if you stay focused on your goals, you should be able to increase the amount of your investments as your income increases.

By following four key financial planning steps, you can determine how much to invest in the beginning and have a plan for achieving your goals through gradual increases in the amount you invest. For purposes of illustration, this particular case involves a 30-year-old person earning $50,000 per year with an expected increase in income of 4% per year.

Set Your Goals

At age 30, you may have several goals you want to achieve, which could include starting a family, having children, providing those children with a college education and retiring on time. This is a lot to accomplish on a $50,000 income. However, it is safe to assume your income will increase over the years, so you should not let your current income constrain your goals. You just have to prioritize, and as you set up your investment plan, target each goal separately. For this example, assume the goal you want to target is to retire at age 65. After inputting some assumptions into a retirement calculator, this indicates a need for $1 million in capital. This is your target. Using a savings calculator, and assuming an average annual return of 6.5%, you need to save $500 per month starting at age 30. This is your savings goal. Your next step is to create a spending plan that allows you to meet this goal.

Create a Spending Plan

The mistake many people make when creating a personal spending plan is they determine their savings amounts around their monthly expenses, which means they save what they have left over after expenses. This invariably results in a sporadic investing plan, which could mean no money is available for investing when expenses run high in a particular month. People who are intent on achieving their goals reverse the process and determine their monthly expenses around their savings goals. If your savings goal is $500, this amount becomes your first expenditure. It is especially easy to do if you set up an automatic deduction from your paycheck for a qualified retirement plan. This forces you to manage your expenses on $500 less each month.

Lock in a Percentage of Your Income

A savings goal of $500 amounts to 10% of your income, which is considered an appropriate amount for your income level. Assuming your income increases by an average of 4% per year, this automatically increases your savings amount by 4%. In 10 years, your annual savings amount, which started out as $6,000 per year, will increase to $8,540 per year. By the time you are 55, your annual savings will increase to $16,000 per year. This is how you reach your goal of $1 million at age 65 starting out on a $50,000-per-year income.

Invest According to Your Risk Profile

This investment plan assumes an average annual rate of return of 6.5%, which is achievable based on the historical return of the stock market over the last 100 years. It assumes a moderate investment profile, investing in large-cap stocks. If you are adverse to risk or prefer to include investments that are less volatile than stocks, you will have to lower your assumed rate of return, which will require you to increase the amount you invest. At a younger age, you have a longer time horizon, which may allow you to assume a little more risk for the potential of higher returns. Then, as you get closer to your retirement target, you will probably want to reduce the volatility in your portfolio by adding more fixed-income investments. By staying focused on your benchmark of a 6.5% average annual rate of return, you should be able to construct a portfolio allocation that suits your evolving risk profile over time, which will allow you to maintain a constant monthly investment amount.

Written by Richard Best of Investopedia 

(Source: MSN)

5 Tips for Better Spending Habits

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Provided by US News & World Report

While 2016 is in full swing, if you haven’t thought about a resolution yet, don’t give up. Maybe it’s time to make one that has the potential to stick. If you’re often wondering how money slips out of your wallet, consider becoming the crash test dummy for better spending habits. Test drive some of these ideas below to develop better ones.

Be your own cheerleader.

Patting yourself on the back after following through on a behavior you want to increase goes a long way to help cement a behavior. Ginger Dean, psychotherapist and website owner of GirlsJustWannaHaveFunds.com explains the power of rewards: “When making smart money choices, celebrate them by rewarding yourself. Yes, make rewarding yourself a habit. For example, when you make it through a pay period and adhere to your spending plan, treat yourself to something nice that doesn’t break the bank.” She points out that this creates what we call positive reinforcement, which helps you connect good decisions with positive rewards.

According to research by Wendy Wood, a social psychologist and provost professor of psychology and business at the University of Southern California, a behavior only has to be rewarded initially to form a habit. So once the habit is established, you can relax and let momentum take over.

Cheat a little.

While it’s great to start the New Year off with a new idea, give yourself a lead and start with a familiar task. Repeat the task on a regular basis. Research shows you won’t have to train yourself to do the task, you just train yourself to do it repeatedly. For example, if you like drinking water when you eat at a restaurant, choose to do it more frequently. Set rules for yourself, like, “When I eat out, I will order water.” Before you know it, a small gesture will become a string of little actions that can have a big impact on how you spend. It can also do double duty for your bank account if you send the money you didn’t spend straight to savings. Once you establish one good habit, move on to another like trimming a little bit of your grocery budget every time you shop. Start with as little as five dollars and put that in savings, as well.

Keep using the Benjamins.

Let your dollars see the light of day and allow the real thing to get some exercise. Fans of carrying cash can do this more so in the New Year if it helps you control your spending. If you know you tend to do major dollar damage in just one swipe of a credit card, then this tip might work for you. Curtail the urge to go on a spending free-for-all when using a credit card as a short term loan and pay in cash whenever possible. Make using cash a habit if you find it keeps you on track. Choose a dollar amount to withdraw on a regular basis and challenge yourself to not to go beyond that amount.

Graduate from a spending spree.

Limit how much time you spend in a store. Research shows the slower you shop, the more you spend. Get what you need and go. Set a timer if you have to or have your eyes stay glued to your shopping list, then pay and skedaddle. This way you can avoid impulse buys and filling every nook and cranny of your shopping cart with items you didn’t plan to get. Side step a budget-busting aftermath and make it a habit to make short trips to stick with your spending plan.

Do a happy dance after checking out.

When you have carried out a small, smart money choice like spending less time in the store, celebrate it. As stated above, positive reinforcement can work wonders for habit formation. So if you accomplished all of your shopping in record time, celebrate your small win afterwards. So when you’re looking to applaud yourself for getting out of the store quickly, think of what Han Solo said in The Force Awakens when Finn and Rey reunited: “Escape now, hug later.”

If you originally couldn’t bear the thought of making a resolution, reconsider. Just know that people tend to stay with activities that are manageable. Consider following some of the ideas above to take a step in the right direction when it comes to spending this year. They can be beacons for long-term financial change and help you meet your goals. They can also help you shortcut your way to success by following research that gets results. Employ one of these tips to establish a money smart habit today.

Written by Karen Cordaway of U.S. News & World Report

(Source: U.S. News & World Report)

 

Investing in Your 30s: 3 Goals You Should Aim to Have

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In your 30s, your finances get real.

I remember putting money into a 401(k) in my 20s, and retirement was an abstraction: a far-away land that I would reach in another lifetime.

Now, in my 30s, I realize that I am halfway to retirement, and I only have 30 years left of my career. That starts to feel like a short amount of time.

Other things start to get real, too. If you’re like me, you may be feeling the same.

For instance, life isn’t as flexible to withstand a new career direction, or a move to a new city; you may need to build your career where you are. Living close to old friends and your parents likely becomes critical. Some might call this “putting down roots.”

I’m also getting older, physically: a late Friday night can now take all weekend to recover, not just the Saturday morning after.

Not that I have Friday nights anymore, since I had a baby—the most wonderful (yet most terrifying) thing that could happen to me. I had never worried so much about somebody’s respiratory system functioning before I had a newborn sleeping in the next room.

Having a child also brought into sharp focus the cost of college; some college calculators estimate that college can cost $600,000 for a private four-year college, and $300,000 for an in-state four-year public college.

With all of these new responsibilities, for the first time in my life I felt I absolutely required structured advice on how to handle the complex world of responsibilities in which I found myself.

My husband and I tried to talk about our looming financial obligations. I broached the topic on one weekend drive to my in-laws—one of the only reliable times we can talk because that’s when the baby sleeps. Nevertheless, it got a little touchy, as I was surprised to discover that we conceptualized our finances in very different ways.

I viewed our savings as goal-based; I have a goal for my retirement, a goal for a down payment for a house, a goal for my daughter’s college, and an emergency savings fund.

He saw our savings as one giant mass, and if we borrowed out of retirement savings to pay for the house, that was okay.

After talking with friends, it felt like nobody had a good answer on this. So I sat down with my colleague Alex Benke, a CERTIFIED FINANCIAL PLANNER™ and Director of Advice at Betterment, to get some free advice for many of us 30-somethings. I wanted to make sure I had my bases covered. The last thing I want is some unknown financial liability creeping up and crushing me.

Don’t Delay Having a Plan: Three Goals for Your 30s

Sit down and lay out your goals. If you’re cohabitating or in a committed relationship, discuss your goals with your partner.

Don’t worry, this isn’t set in stone: Life changes so you’ll update it over time. To get started, here are some typical goals for people in their 30s:

Emergency Fund

Sometimes your plan doesn’t go as planned, and having an adequate emergency fund can help ensure those hiccups don’t affect the rest of your goals.

An emergency fund (at Betterment, we call it a Safety Net Fund) should contain enough money to cover your basic expenses for a minimum of three to six months.

Even more may be required depending on how long you (or others in your line of work) are typically out of a job. Also, depending on how much risk you want to take with these funds, you may need a buffer on top of that amount. Follow this simple formula:

Monthly Expenditures x Re-Employment Period = Baseline Safety Net Amount

Retirement

You don’t want to work forever, do you? According to 2010 Census Bureau data reported by U.S. News and World Report, 30.8% of people from age 65 to 69 were still working full- or part-time jobs, which was up 9% from prior Census data.

If you think you could keep on working in your golden years, you might feel differently when you’re old with achy bones.

Major Purchases

A wedding, a house, a big trip. Each of these goals has a different amount needed, and a different time horizon. Our goal-based savings advice can help you figure out how to invest and how much to save each month to achieve them.

Understand the Impact of Your Long-Term Investments

Make sure you are saving enough to meet your goals, especially for retirement.

Use contributions to tax-advantaged accounts, like your 401(k) and IRA, to reduce the tax you owe through your lifetime. (RetireGuide also helps you figure out the most tax-efficient accounts to use for your personal situation.)

Make sure you are in a low-cost investment fund. Low fees are a critical to making sure your investments are going as far as they can.

Reduce leaks in your retirement plan: When you leave a job, it is a good idea to look into rolling your funds over to another retirement plan rather than withdrawing them; don’t just forget about them. Often, consolidating your old 401(k)s and IRAs into one account can make it easier to manage, and might even reduce your costs. You may wish to research further regarding consolidation and rollovers before you do so.

How to Cover Your Bases If You Have Kids

Life insurance. Generally you only need life insurance once someone is depending on your future income.

If you plan to have kids, you should start thinking about the situation your survivors would be in if you passed earlier than expected.

Life insurance can help pay off your mortgage or other debt, as well as provide assets for your survivors to live on. A service such as PolicyGenius helps you compare policies and determine how much you might need quickly and in a transparent way.

Estate plan. Think you’re too young? Think this doesn’t matter? Consider this: Everybody has a “default” estate plan at birth, defined by your state’s laws. When you die, your “estate” goes into a process called probate.

When someone passes away without a will, an “intestate estate”—formally known as a “Last Will and Testament”—kicks in. The probate law defines how the estate gets divided and disbursed, and is pursuant to some general rules.

For example, if you’re married, your spouse gets it all, and if your spouse isn’t around, your kids get it all. Some of these rules might be illogical depending on your situation.

And for kids, there are usually no default rules about guardians. Once I looked into the default rules for my state, I realized I wanted control over what happened to my estate when I pass away.

It is worth the awkwardness to think this through and plan. When thinking about this consider that you likely need a will, healthcare proxy, and durable power of attorney, the last of which is a legal document giving someone else the power to act on your behalf should you be unable, due to death or disability.

Dependent care deductions. Ask your HR department about these deductions. These can help pay for childcare, using pre-tax earnings.

Education. Start to save for education.

  • 529 college savings plans: You might have heard about this as a way to save tax-free for a kid’s education and maybe even get an income tax break. It’s sort of like an IRA for educational expenses. Some states let you deduct your 529 plan contributions on your state income tax return, up to your state’s limit. Contributions—from you, or grandma, or anyone else—are considered gifts, and subject to a gift tax-benefit maximum per donor. But keep in mind, if you don’t end up using that money toward your kids’ college, you could be penalized on the gains. Also, a 529 plan could affect financial aid.
  • If you don’t want restrictions on the savings for your kid’s education—and how you spend it—you might decide to just invest in a taxable goal.

Your Parents Might Become Your Responsibility One Day

As your parents get older, discuss their plans for healthcare and general care should they become infirm, before it’s too late. AARP has a decent checklist and tips for this uncomfortable but critical chat.

Knowing that I am at least thinking through these financial issues has given me some peace of mind—that’s the first step. Now to get myself over to yoga to delay physically aging to my next milestone—my 40s.

Written by Betterment

(Source: Betterment)

5 Steps to Save Your Financially Stressed Marriage

Do money troubles have you feeling like your marriage is circling the drain?

Don’t give up on your spouse yet!

Even financially stressed marriages can be salvaged, although it’s not always easy. Your family’s unique circumstances will determine how best to approach — and solve — money problems, but here are five steps to get you started.

Step 1: Air out your financial dirty laundry

© Jetta Productions/Getty Images

You’re upset that he spends an obscene amount with his friends each week, and he may be furious that you nit-pick every purchase he makes. Get it all out.

In my mind, this may be the most important step. You can’t move forward positively until you get rid of all the resentment and anger that linger over past mistakes.

“Bring everything to the table,” advises Anne Malec, a licensed marriage and family therapist and author of “Marriage in Modern Life.” “You need real openness and honesty to address the issue. Both sides need to be accountable.”

Well, you think, this surely sounds like a perfect recipe for a knock-down, drag-out fight. And you’re right. It can go horribly wrong, so you need to go about this carefully.

The best way is to go to a third party – a therapist, a financial planner, a pastor – who can act as a mediator for this emotional discussion.

If you believe that isn’t possible, you need to think long and hard about when and how best to bring up the subject with your spouse. Pick a low-key time and drop the accusatory tone. Use “I” statements whenever possible and take a soft approach to opening the discussion.

As in:

I feel frustrated that our bank account is always overdrawn. What can we do about that?

Not:

You need to man up, think of the family and stop spending so much!

Regardless of how nicely you put it, be prepared for them to respond with something critical about you and then seriously consider whether it has any merit. Remember you’re probably not perfect either, and you can’t make headway if you can’t admit your shortcomings.

Step 2: Have a monthly money meeting


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So now that you’ve cleared the air, it’s time to keep the lines of communication open. The best way to do that is to have a monthly money meeting.

“You look at how you’re doing this month compared to last month,” Malec says. “You work jointly as partners to address upcoming expenses.”

Step 3: Create a budget together

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If your finances are in the toilet, chances are you don’t have a budget. Or if you do have a budget, it’s one that one spouse created and then decreed the other spouse follow.

You need to identify your shared vision for what your family will look like. What are your goals? What are your priorities? Then work together to create a budget that supports those dreams.

Step 4: Give each spouse their own spending money

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Your budget isn’t done until it includes a little cash for each spouse to spend freely each month.

“Each couple gets an equal amount and gets to spend it without criticism or question from the other,” Malec says.

This is so important because spending is such a huge piece of the financial happiness puzzle. Zero spending cash can make a spouse feel stifled or controlled while unbridled spending can spell bankruptcy.

According to a survey conducted by Edelman Financial Services, 56 percent of those polled said spending was the main reason for money-related divorces. So agree that each partner can spend, within reason, and remember that you don’t get to say anything about how your better half uses their cash, even if you do think it’s ridiculous to blow $50 on pizza and beer.

Step 5: Commit to being a team

© Dann Tardif/LWA/Getty Images

Did you play a team sport in school? Do you remember what that was like?

You may have had one particular teammate who didn’t do such a great job. They might make a mistake and cost the team a point, but assuming you were a good team player, you’d still pat them on the back and tell them it was OK.

You need to have that same team attitude with your spouse. Don’t think of them as an adversary or an obstacle you need to overcome. Instead, play to their strengths and be their biggest fan, even when they make mistakes.

“A person who doesn’t want to talk about [money] may feel uneducated about money, may feel anxious about money or don’t want to be held accountable,” Malec says.

You need to figure out what’s going on with your spouse and develop a game plan to address it without making them feel like a total loser. Malec adds that those who become defensive or angry over money probably didn’t see healthy financial discussions growing up and may just be modeling bad behavior they witnessed as children.

Saving a financially stressed marriage involves a lot of hard work and compromise, but for those who come out the other side in happier marriages with better finances, the sacrifices are well worth the rewards.

Written by Maryalene LaPonsie of MoneyTalksNews

(Source: MoneyTalksNews)

3 Smart Ways Senior Citizens Can Save Money

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© Getty Images

If you’re a senior citizen, one of your primary financial goals should be to make sure the money you’ve saved lasts as long as you do. Of course, the most obvious ways to do this are to save as much as possible before you retire, and to use the money from your nest egg wisely. With that in mind, here are three smart ways you may be able to lower your expenses in retirement, and make your savings last as long as possible.

Take advantage of senior discounts

Don’t be afraid to ask for a senior discount when you’re out shopping or dining. Many establishments offer senior discounts, and not all of them are advertised.

Just as a reference, according to theseniorlist.com, there are about 100 restaurant, retail, and grocery store chains that offer senior discounts, and some are quite generous. To name just a few, seniors are entitled to

  • 15% off at Belk on the first Tuesday of each month
  • 20% off at Rite Aid on the first Wednesday of each month
  • 10% off at Chick-Fil-A, or a free drink or coffee
  • 10% off at Wendy’s
  • 5% off at Kroger one day per week

Finally, keep in mind that this just refers to the discounts offered by large chains. Thousands of local and regional businesses offer senior discounts as well. Many are offered to people as young as 55. So, whether or not you consider yourself to be a “senior citizen” just yet, those 10% and 15% discounts can add up to hundreds or even thousands in savings each year.

Join AARP

You can join AARP as early as age 50 at a cost of just $16 per year, and your membership can pay for itself many times over. For starters, many businesses offer additional discounts to AARP members beyond what is discussed above, such as 25% off at Papa John’s and 20% off at Denny’s.

Many travel discounts are available, such as 15% off from Starwood Hotels and Resorts and 5% off from Norwegian Cruise Lines. In addition, AARP runs its own travel center in partnership with Expedia, where members can enjoy discounted rental cars, flights, and hotel rooms that aren’t available to the general public.

AARP members are entitled to other potentially money-saving resources including:

  • Free tax help — the AARP Foundation’s Tax Aide helps 2.6 million taxpayers with their returns each year
  • Financial planning and estate planning resources
  • Free webinars covering topics such as Social Security and Medicare
  • Member-exclusive insurance programs offered through companies such as The Hartford and New York Life

Spend your money wisely

One of the smartest ways seniors can save money is with some responsible tax planning. Specifically, many seniors have their retirement savings spread among several different types of accounts, and the order in which you tap into these can make a big difference.

Any money you have saved in a traditional (taxable) brokerage account should be the first place you turn to withdraw money to meet your expenses. Tax-advantaged accounts like 401(k)s and IRAs should be left alone for as long as possible in order to take advantage of tax-free compounding (you don’t pay capital gains or dividend taxes each year in these accounts).

Once your taxable accounts are exhausted, then and only then does it make sense to tap into retirement accounts. First to go should be your tax-advantaged accounts, such as traditional IRAs and 401(k)s. These have required minimum distributions beginning when you are 70 1/2 years old, and your withdrawals are taxable, so it makes sense to use these next.

Finally, any money you were wise enough to save in Roth accounts should be used last. Roth accounts have no RMD requirements, and all withdrawals after age 59 1/2 are tax-free. So, it makes sense to take advantage of the tax-free growth in your Roth IRA for as long as possible.

The point here is that order matters when it comes to your retirement savings. If you’ve saved money in several account types, by tapping into your savings in a strategic manner, you can save yourself thousands of dollars in taxes over the course of your retirement.

Written by Matthew Frankel of The Motley Fool

(Source: The Motley Fool)

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