Financial Wellness

About Credit Scores

August 28, 2013

You know a credit score is important when you apply for a loan or credit card – but do you know exactly what it is and how it can affect your chances in getting the financing you want?

Creditors use a credit scoring system to help determine whether to give you credit, and how much to charge you for it. Your credit information like your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt and the age of your accounts is collected from your credit application and your credit report.

Using a statistical formula, creditors compare this information to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor. A total number of points — a credit score — helps predict how creditworthy you are; that is, how likely it is that you will repay a loan and make the payments on time. Generally, consumers who are good credit risks have higher credit scores.

You can get your credit score from the three nationwide credit reporting companies — Equifax, Experian and TransUnion — but you’ll have to pay a fee for it. Many other companies also offer credit scores for sale alone or as part of a package of products. You are allowed to get one free credit report per year. Get it for free here: AnnualCreditReport.com.

Investments

Can You Afford to Retire?

August 21, 2013

Have you ever sat down and figured out how much you’d need for a comfortable retirement? If not, don’t worry – you’re not alone! According to the U.S. Department of Labor (USDOL), fewer than half of all Americans have calculated how much they will need to save for retirement.

While it’s important to plan, it’s also important to set realistic, achievable goals. Know your options and ask questions. Set aside time to talk with your employer about retirement plans. Your employer may offer benefits like 401(k) plans which allow for an immediate tax deduction growth on your savings.

“While earlier generations of retirees relied on employer provided pensions, today’s workers will need to rely on their own work-related and personal savings for retirement,” said Stephen A. Cox, president and CEO of the Council of Better Business Bureaus. “That’s why it’s extremely important to have an alternate plan and save as much as possible.”

BBB and USDOL recommend that consumers consider the following to ensure a more financially comfortable retirement:

  • Get started. Start saving now and continue to stick to your savings goal — it’s never too late to start saving. Make a budget and use it! Saving can be fun if you think big and realize how much it will pay off when the times comes to retire.
  • Get realistic. According to the USDOL, you’ll need about 70% of your preretirement income. If you’re a lower earners, you’ll need 90% or more to maintain your standard of living when you stop working. The average retiree is in retirement for 20 years of their life. Plan ahead and learn how much you will need after factoring in Social Security and other sources of retirement income.
  • Take advantage. Of your employer’s retirement savings plans, that is. If your company offers a 401(k) plan, participate in it. There may even matche a percentage of your contribution. If your employer doesn’t offer a plan, think about opening an IRA or Roth IRA. You can put up to $5,000 a year into an Individual Retirement Account (IRA) and contribute even more if you are 50 or older.
  • Leave it alone. Avoid touching your retirement savings if at all possible. If you withdraw your retirement savings now, you’ll lose principal and interest and you may lose tax benefits or have to pay withdrawal penalties. If you change jobs, leave your savings in your current retirement plan, or roll them over to an IRA or your new employer’s plan.
Financial Wellness

Money Don’ts

August 14, 2013

Sometimes the difference between being eternally broke and financially comfortable is just a few simple things you shouldn’t do. Avoid these basic money mistakes:

  • Not tracking your spending – Pay attention to where your money goes. Your credit card statement will help you do this, but don’t forget all the incidentals you pay cash for. With this data, you’ll find it easier to stick to your budget. And speaking of budgets …
  • Not setting up a budget (and sticking to it) – This advice may seem really basic, but many smart people don’t take it seriously. Figure out how much money you realistically need to pay bills and buy needed supplies for a week or month, and don’t go over it.
  • No emergency fund – Set aside some money for emergencies, and don’t touch it for any other reason. Ten or 20 dollars a month can add up, especially if it’s growing interest.
  • Not shopping around – Take the time to look for the best prices and avoid those impulse buys. Stock up on essentials on sale, and always look for opportunities to negotiate a better deal.
  • Borrowing too much money – Don’t put more on your credit card than you can pay off at the end of the month. Resist the urge to buy more house than you can afford, and don’t be seduced by reward programs that entice you to buy extravagances in order to get bonus points.
  • Not watching your credit rating – Know your credit score so you can avoid problems when you really need to borrow money. Make sure all the information is correct, and watch out for signs that your identity has been stolen.
Financial Wellness

Are Rebates Worth it?

August 7, 2013

Has this ever happened to you? You go to the store to buy something — like a printer — and you find just the one you want. But right next to it is a printer that’s around the same price but has a rebate that knocks $50 off of it. You buy it, promising yourself that you’ll take care of the rebate in the tomorrow. But, of course, you don’t. Eventually the rebate expires and you’ve bought a printer that you didn’t really want in the first place.

Rebates are designed to be a hassle leading to most people never redeeming them. That’s why companies can afford to offer them and put strict and frustrating requirements on them. But, there are three things you can do to ensure that you get any rebate due to you:

  1. Don’t procrastinate. Fill out the forms and clip the bar codes as soon as you get home. Don’t get immersed in the new product you’ve just purchased before you take care of business.
  2. Read the offer’s fine print. If you make a mistake at this stage of the process, the company can deny your eligibility for a rebate.
  3. Make copies of everything. Whatever you’re required to send to the company—box tops, receipts, bar codes, coupons, letter—make a copy of each item in case you’re denied the rebate. With copies, you can appeal the company’s decision.
Home Banking

Go Green with Your Bills

July 31, 2013

Going green when paying your bills not only helps the environment, it can also greatly simplify your life. According to the Federal Reserve, nearly 50% of the checks written in the U.S. are written by consumers to businesses. American businesses mail about 26 billion bills and statements per year, and consumers mail 9 billion payments per year in paper form. All that paper mailing consumes 755 million pounds of paper, 9 million trees and 512 million gallons of gasoline.

Stuart Williams of CheckFree/Fiserv and a member of the PayItGreen Alliance says that the average American household gets 19 bills and statements per month and makes seven payments with checks each month. If just 20% of U.S. households switched to electronic statements and bill pay, it would save 150 million pounds of paper and avoid producing 3.9 billion pounds of greenhouse gases.

So why aren’t people switching over? Williams says it’s mostly because people are entrenched in their habits. But by breaking away from routine and switching over to electronic statements, the average American household would accomplish the following each year:

  • Save 6.6 pounds of paper
  • Save .08 trees
  • Prevent 63 gallons of wastewater from entering the environment
  • Save the 4.5 gallons of gasoline needed to transport bills, statements, and payments via mail service
  • Prevent 171 pounds of greenhouse gases from being produced, which is equivalent to:
    • Preserving 24 square feet of forest from deforestation
    • Not consuming 8.8 gallons of gasoline
    • Planting two tree seedlings and allowing them to grow for 10 years
    • Not driving 169 miles
Fraud Protection

How to Avoid Fraud

July 24, 2013

Consumer fraud seems to be everywhere these days, coming in a variety of forms: fake check scams, credit repair, free trip offers and sweepstakes. Here are some tips to help you avoid being a victim of consumer fraud:

  • Don’t give out personal information. If someone you don’t know asks for your Social Security number, birthdate, credit card number, bank account number, password or other personal data – that’s when you should become suspicious.
  • Don’t be intimidated. Be wary of calls or emails that want you to provide or verify personal information immediately. Tell them you’re not interested and hang up or delete the email without replying.
  • Monitor your accounts. Review bank and credit card statements frequently and carefully. Report any unauthorized transactions to your financial institution immediately.
  • Use a shredder. Tear or shred credit offers you receive in the mail, bank statements, insurance forms and other papers with personal information.
Financial Wellness Savings

Building a Rainy-day Fund

June 25, 2013

Financial prudence dictates that we stash away enough cash to cover living expenses for three to six months in case something catastrophic comes our way—a job loss, an unexpected illness or an unpredicted home expense.

Some items that also should be covered in such a fund include health and car insurance deductibles, rent or mortgage, food, energy bills, and phone bills. Get your rainy-day fund started by doing the following:

  • Aim low if you can’t amass the recommended cash. If you’re burdened with debt and your income is low, you can still set up a decent emergency fund. Aim for one that will cover at least one month of expenses. A cash reserve should be a priority—even over your 401(k) contributions.
  • Consolidate debt. Now stop using the credit card. Make the minimum monthly payment so you can build up savings for one month of living expenses. After you’ve done that, then you can turn your attention to other goals, such as retirement savings and paying down debt.
  • Steer clear of the stock market. You’ll want to put your emergency money in a place where you can easily get your hands on it. The two best options are a savings account at a credit union, or a money-market mutual fund. Note: Although a money-market fund isn’t federally insured, it typically has higher interest rates than a savings account.
Taxes

Taxes — What to Stash and What to Trash

June 16, 2013

What records and documents should you keep in case the IRS ever decides to audit you—and for how long should you keep them?

Here’s some advice to consider:

  • The standard statute of limitations is three years, but the IRS can audit up to six years after a filing if it suspects under-reporting of income by more than 25 percent.
  • If auditors find fraud, or if you fail to file a return at all, there is no statute of limitations. For this reason, many tax advisers recommend hanging on to your tax returns forever. Then, if the IRS claims it has no record of you filing for a certain year, you will have a copy to defend yourself.
  • It also makes sense to keep backup documents to your tax returns, such as W-2 forms, receipts for charitable donations, and other deductible expenses for at least six years.
  • As for investment statements, you only need to keep monthly or quarterly documents until you receive a year-end summary. These summaries, along with stock certificates and any documents related to investment purchases or sales, should be kept for as long as you own the investment plus an additional seven years after you file taxes reflecting the sale.
  • This same schedule applies to mortgages. Keep the monthly statements until the year-end statement arrives. Save these annual statements for the term of the mortgage, plus seven years.
  • Unless you are being audited, monthly bank and credit card statements can be discarded after a year.
Financial Wellness Savings

Coupons are a great way to save money — if you use them correctly.

June 6, 2013

Coupons are a great way to save money — if you use them correctly. The first obstacle to overcome is forgetting to use them. Keep them in a handy spot, like in your wallet. If you have dry-cleaning coupons, pin them to the dirty-laundry bag. If you have one for a restaurant, tack it onto the fridge or in your restaurant guidebook. Here are some other tips:

Use them only for items that you normally would buy.
Otherwise, you’re going to start spending more money. If you usually go with a generic brand of corn flakes, don’t buy a name-brand box just because you can save 35 cents—unless the reduced price of the name brand will be less than the price of the generic (for the same size of product).

Don’t buy more than you intended.
Coupons are there to promote certain products and services. If you get a coupon for an oil change, don’t let salespeople pressure you into getting a tune-up and a front-end alignment, too.

Always read the fine print.
Make sure you know all the terms at the beginning. Keep an eye out for things like, “Not valid with other offers,” or “Mention the ad when placing an order.”

Investments Savings

Considering a CD

May 28, 2013

Shopping at your credit union for a CD (certificate of deposit) isn’t quite as easy as going to the local music store for a CD (compact disc). But it’s a lot easier to choose than some other types of investments.

By definition, a CD or certificate of deposit is a time deposit. That means you deposit money into an account with your credit union or bank and agree to keep it there for a specific number of days. In exchange, you are guaranteed a predetermined interest rate and yield on your money. The most common CD accounts are opened for six, 12, 24, 36, 48 or 60 months.

There are two basic types of CDs, regular CDs and Individual Retirement Account (IRA) CDs. IRAs typically pay the same interest rate as regular CDs. However, IRAs offer additional federal insurance allowing investors to hold an IRA account up to $250,000. Additionally, the interest earned on IRA CDs isn’t taxed until you retire or reach the age of 59.5 years. This taxation relief is perfect for individuals who have determined that their CDs will be used for retirement only, rather than short-term, quick-return investments. However, it’s important to note that for an IRA to remain tax-free certain guidelines must be followed.

While CD interest rates are ever changing, those changes are a reflection of the economic health of the country. When general loan rates are high, CD rates will increase and vice versa. The length of time you commit to when you select a CD also affects your rate. Usually, the longer the term is, the higher the interest rate will be.

There are other factors which figure into the equation, and those factors aren’t always so predictable. For instance, competition between financial institutions can make a difference. Among the factors that can affect CD rates are consumer pricing and spending, where you live, and even how your financial institution is doing internally. “Comparison shopping” is the key.

Credit unions typically offer better rates than banks because credit unions are non-profit organizations focused on serving their members rather than paying stockholders. Also credit unions usually have lower overhead costs and pay a bit higher on CDs than at banks. It pays to take the time to monitor the market in your area for a couple of weeks and see who has the best rate for you.

Should you pick a short-term or long-term CD? To answer that you’ll need to determine how long you can let go of your money. Do you have any big purchases around the corner like a new car or a new home? Most CDs have penalties for early withdrawal which will cost you money. If you may need the money in six months or a year, pick a CD that will come up for renewal when you think you’ll need your money. If that’s not a problem, a longer-term CD may offer a better rate.

Knowing when to buy requires daily tracking of CD rates over two or three weeks. If they stay steady, go for the best deal offered and look to long term. Steady rates indicate a steady economy and show no sign of rapidly increasing rates. If they are rising slowly and suddenly take a half percentage point upwards—hold off a bit longer. This could indicate that interest rates haven’t peaked yet. In this situation wait until rates start to climb a bit slower or taper off completely. Gauge the market on your own observations; don’t make your decisions just on what specials are being advertised. If a bank recognizes that CD rates are going to increase, it is in their best interest to push long-term CDs while the rates are lower. Don’t be too hard on yourself if your timing isn’t perfect; even the professionals don’t hit it right every time.

When you’re ready to buy, the authors of The Complete Idiot’s Guide to Managing Your Money suggest you ask the following questions:

  • What are the rate and yield, and how is the interest compounded? “Rate” refers to the amount of interest added to your original amount. “Yield” is the amount paid to your account after the interest is included. “Compounded” refers to the interest that’s added to interest; the more often an account is compounded the better.
  • Is the rate fixed or variable? How long is the rate effective?
  • What is the minimum deposit necessary to open the account?
  • Can you add to the account later on—and if so, at what rate? Do the added rates mature at the same time as your original deposit?
  • How much will you receive in interest—in actual dollars and cents—when the account matures?
  • What is the penalty if you withdraw any of the funds before the account matures?
  • To avoid rolling a mature certificate of deposit over at the new interest rate, when and how do you handle the withdrawing of your money?
  • What other benefits do you receive as a CD customer? Will they waive any fees or charges on checking accounts, ATM transactions, or annual fees on credit cards?
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