Planning Archives - Page 8 of 14 - The Free Financial Advisor

Start Saving for Retirement Now (Yes, You) With These 5 Simple Tips

March 24, 2014 by Average Joe 8 Comments

Six out of 10 Americans don’t use a budget or track their spending, according to the 2013 Harris Interactive Consumer Financial Literacy Survey. This statistic jives with HelloWallet’s report from last October, which found that 60 percent of households are accumulating debt faster than retirement savings. No matter what stage of life you’re in, you need a plan to save for retirement. Start with the following tips:

Schedule Planning Time

As people grow older, they’re more willing to pay attention to their finances. Thirty-eight percent of Americans ages 25-32 say they’re too busy to think about long-term financial goals, and that number steadily declines to 13 percent for those over 66, Northwestern Mutual has found. However, the number who feel too rushed by society’s pace to stick to long-term goals grows from 61 to 75 percent over the same age margin. Together, these numbers paint a picture of an aging population increasingly aware of their urgent financial needs but too stressed out to take appropriate action.

To counteract this trend, make a commitment to yourself and your finances. Set aside some time to review your goals, ideally with the help of a professional advisor. Then get in the habit of taking 15 minutes a week to review your budget.

Steer by Long-Term Financial Goals

Use your long-term financial goals to guide your short-term budgeting. Fidelity Investments offers various calculators and tools to help you estimate how much you need to set aside each month to reach your retirement goals. Wells Fargo provides a worksheet to help you break down your financial goals into intervals of one year, two to five years, and five years and over.

Use a Budgeting Strategy

Yes, you need a budget. Consider following financial expert Elizabeth Warren’s 50/30/20 rule: Put 50 percent of your monthly after-tax income toward essential living expenses, 30 percent toward discretionary spending and 20 percent toward savings and debt repayment.

Pursue Saving and Debt Repayment Strategically

According to financial advisor Dave Ramsey, you should initially put the savings and debt repayment portion of your budget toward a $1,000 emergency fund and paying down your credit card balances before pursuing retirement and other savings goals. When applying this strategy, you can save for retirement faster by reducing your debt obligations. If you receive regular payments from an annuity or structured settlement, consider contacting a company that purchases future annuity payments for a lump sum of cash now. You can then use this money to help repay your debt.

Invest Your Savings Productively

To grow your savings, check if your employer offers a 401(k) plan or another retirement savings plan, and start contributing—especially if it’s a matching plan. If not, invest in a traditional IRA or Roth IRA. After that, the next place to invest is an index mutual fund, suggests the Wall Street Journal.

How I Learned To Love Pie Without The Charts

February 27, 2014 by Average Joe 8 Comments

You attend your first ever 401k meeting….and they hand you some pie charts.

Oh, no.

First of all, I should say I love pie. Especially apple pie.

But I hate generic pie charts in retirement plan books.

I can’t tell you the number of boring-ass financial meetings I’ve attended where some dude in a suit is plowing through a bunch of pie charts while his clients pretend to be awake.

Rule one of asset allocation: Chuck the pie chart.

Most of the time, these charts are based on your age and risk tolerance. Nothing like putting a few square pegs in round holes, huh? I’m sure yours will fit just nicely into this….oh, wait, it won’t fit? Let’s just

Jam it home.

What about your goal? What about “How much do I really need my money to earn?”

Nope.

Asset allocation, or (to use the five dollar word) “diversification”, starts with what you want for yourself, doesn’t it? Don’t you think you should try to achieve your real goal?

So, here’s the rocket science of 401k planning:

1) Write down what you want. I know that may seem like a shock to you. The National Endowment for Financial Education (NEFE), The Financial Industry Regulatory Authority (FINRA), the Securities and Exchange Commission (SEC) and the College for Financial Planning (FPA) all recommend starting with your goal.

You want to use a generic pie chart instead?

Good luck with that the next time the market drops.

2) Here’s the next amazing step: read through different types of investments to see which ones actually have historically met your goal. I think my head just exploded. Really? Who thought that you could actually look back at investments and see what they’ve accomplished?

Some thoughts:

Gold and Collectibles: Good for people who can actually predict the future. Ms. Cleo and Nostradamus should have loaded up. Gold is five times more volatile than the stock market. Think you know where it’s headed? Think again. (This doesn’t mean I don’t like gold. It means that you can’t tell me it’s going to be through the roof in three years, moron on Twitter…..).

Stocks: This is like saying that you should always have cake after dinner, but generally, ten years or more and you’re looking good with stocks. If you need the money next year, you’ve done about as well at the casino.

Bonds: Depending on the type, over five years.

….and so on.

Get the point? Real diversification, dear readers, is going to be based on your personal end-game. Start there. Or not. Avoid pie charts, but load up on pie. Yum.

The Market’s Coming Back! I’m Panicking Again!

February 20, 2014 by Average Joe 6 Comments

Here’s a quick lesson in human behavior:

Fed quantitative easing, problems in the Ukraine, soft volume numbers in the stock market. It seems like a recipe for more downer days in the stock market. It’s also a recipe for worriers to worry even more.

…Yet the market continues to roar back.

Did you get caught?

Did you move money to the sidelines when the market was low and then miss out on the upswing (essentially losing money and locking it in….).

A better question might be: did you do anything at all?

….and Action!!!!!

When I was an advisor we had some clients who wanted to see some action if the markets sank. We should be doing something, dammit!

The more experienced guys in the office insisted that we talk about re-diversifying the portfolio with our clients like the guy helping ease the suicidal lady off the window ledge. It didnt matter that we already had damned good diversification in our portfolios.

When the markets moved, here’s how we’d end meetings:

We’d move a few things around to prove to clients that we were doing something about it.

That was “the show.” Let me tell you what we were really doing:

…we were watching the market very closely and hoping that it rebounded soon. That way, the phone calls from clients would stop and we could quit pretending to be market gurus (even though we’d been insisting with our clients that we weren’t market gurus….AND that there’s really no such thing……).

At first I thought this was nonsense.

The Truth About Client/Advisor Relationships

Why would we move a few funds around if we believed they were the right places to invest? Why would we abandon the strategy? A friend of mine, we’ll call him Joe, told me everything I needed to know about human behavior my second year practicing.

He said, “Either they’ll get rid of the fund they don’t like or they’ll get rid of you. Which would you prefer?”

You know the answer to that one.

So, answering my own question, it was nonsense for the client, but made perfect sense for the advisor. Sadly, most clients thought that it made sense also.

Let’s set the record straight.

If you have a good fund with a track record and your long term diversification says to keep that fund, you should hold on to it. Don’t just hold on with your eyes closed and teeth clenched; hang on while knowing what you’re doing. Here is what you should know:

1) Make sure your fund is keeping up with its benchmark. Some funds track the S&P 500, while others follow the NASDAQ or a certain sector of the market. Use Morningstar.com to find out what your fund tracks and to see if it’s keeping up with ‘the Joneses.’

2) Is your goal still the same? If you have a fund, it’s really only a fuel for your goal, isn’t it? When your goals change, your diversification should also change. If you’re in the best fund in the wrong part of the market, you’ll never be able to use the fuel.

3) Pay attention to taxes and turnover. If your fund is outside of tax shelters, track a metric called turnover (also found at Morningstar.com or any of the reliable search engine sites). Turnover show how much of the portfolio your manager is churning to keep his head above water. This movement can create taxes and unnecessary expenses. Turnover of 100 percent means that all of your positions are changing in a twelve month period.

So the market’s been moving around…..what do you do now? Check out your funds to make sure you’re in the right spot to meet your goals, and then do nothing.

The 14 Leadership Traits of the Marine Corps and How They Can Make You a Better Investor

February 11, 2014 by The Other Guy 8 Comments

Once upon a time, I stood on the parade deck a mere stone’s throw from the San Diego airport. My mom, grandma and grandpa, and best friend’s sister were in the stands, but I couldn’t find them.

Eyes. Straight. Ahead.

After all the pomp and circumstance, we heard the final phrase we had been waiting to hear for nearly 14 weeks, “Marines! Dismissed!” To which we replied, “Aye-Aye, Sir!” took one step back, about face and done.

I had earned the title Marine.

One of the things we learned in the Marine Corps were the 14 leadership traits – they were beat into our brains (sometimes quite literally)– so they’ve stuck with me for almost two decades. Undoubtedly, my time as a Marine shaped who I am today, and despite the fact that I’m not active any more, I still talk with Marine buddies, and quite often reflect on my time; the acronym JJ DID TIE BUCKLE ringing in my head.

Without further ado, here are the 14 leadership traits, as taught to me by Uncle Sam, complete with their definition, and how I think they can make you a better investor:

Judgment: The ability to weigh facts and possible courses of action in order to make sound decisions.
Justice: Giving reward and punishment according to the merits of the case in question. The ability to administer a system of rewards and punishments impartially and consistently
Dependability: The certainty of proper performance of duty.
Initiative: Taking action in the absence of orders.
Decisiveness: Ability to make decisions promptly and to announce them in a clear, forceful manner.

Tact: The ability to deal with others in a manner that will maintain good relations and avoid offense. More simply stated, tact is the ability to say and do the right thing at the right time.
Integrity: Uprightness of character and soundness of moral principles. The quality of truthfulness and honesty.
Enthusiasm: The display of sincere interest and exuberance in the performance of duty.
Bearing: Creating a favorable impression in carriage, appearance, and personal conduct at all times.
Unselfishness: Avoidance of providing for one’s own comfort and personal advancement at the expense of others.
Courage: Courage is a mental quality that recognizes fear of danger or criticism, but enables a Marine to proceed in the face of danger with calmness and firmness.
Knowledge: Understanding of a science or an art. The range of one’s information, including professional knowledge and understanding of your Marines.
Loyalty: The quality of faithfulness to country, Corps, unit, seniors, subordinates and peers.
Endurance: The mental and physical stamina measured by the ability to withstand pain, fatigue, stress, and hardship.

Which of these should you practice while managing your investments?

Knowledge is an easy one, but which others?

I think Judgment and Decisiveness are most important in my investing plan. It’s important to know what to do (knowledge), exercise sound thinking on when to do it (judgment), but most importantly, you need to act (decisiveness). I can see many other leadership traits that would help me (and others) become better investors. This is a useful list for your investment plans and for your day-to-day interactions with others.

A lack of decisiveness holds people back too often. When you have multiple options, and they all look good, it’s important to pick one and move. In the Marines it’s a matter of life or death. Luckily for us, in investing, it’s a matter of compounding interest!

While not life or death, missing out on a few days of interest, over long periods of time, has an increasingly damaging affect on your money. Missing $100 today could be a couple thousand dollars lost during your retirement years.

Other than the ones I listed above, do you see any leadership traits that if applied would help you be a better investor?

photos: Semper Fidelis – Marine Corps Archives & Special Collections; Marine Engineers Resting After Firefight – DVIDSHUB

How the Repo Guy Nearly Took My Car

January 21, 2014 by The Other Guy 12 Comments

When people ask, “What do you really know about the average guy? You manage money for rich people?” I always smile. I’ve had the privilege of working through my share of wonderfully challenging personal financial situations. And when I say “challenging” I mean the worst timing and situation imaginable.

Here’s one you’ll love and can learn from:

I’ve been a member of an entrepreneurial coaching group for a long time. Early in my career I was getting ready to head out of town. My job was to pick up two additional participants and get the heck on the road since we were getting some pretty crappy winter weather. As I was just finishing loading my bags in the car, my phone rang:

“Hello, is this TheOtherGuy?” (clearly someone who doesn’t know me. They even pronounced TheOtherGuy incorrectly!)

I answered with the affirmative.

“Hi, this is Rick with American Recovery…”

“Hey, Rick, whatcha trying to recover?” I said, half jokingly…and kinda wondering who this guy was.

“Uh, let’s see here…an Acura. We need to get that picked up today.”

What? That was my car!

AT this point I’m sure what’s happening: My wife listens to a radio program in the morning where they call people and get them all riled up and then surprise them with the fact that it’s all a big joke. I’ve listened a couple of times and have told my wife that there was NO WAY I would ever fall for that stuff.

Ever.

So, immediately, I thought it was a joke. So I sort-of played along.

Then Rick says, “So, ’cause you filed bankruptcy, Acura wants the car back.”

Now it’s getting serious…I’m pretty sure I would remember filing bankruptcy. I assured Rick I had not ever (and would not ever) file for bankruptcy, and that he must have the wrong number.

Then he said the magic words…

“Who’s Sally?”

Mutha f*$#er.

Sally is my mom.

And here’s why that matters. Several years earlier, when I’d bought my nicely used car (doing the right thing…Dave Ramsey would be proud), I decided that I was smarter than the people who figure out interest rates. I was a young, aggressive financial planner and knew a thing or two about leverage. So, I figured out that if my MOM co-signed the loan, it would save me another 0.5% per year in interest, thus making it worthwhile for me to take the financing (instead of paying cash for the used car) and invest the difference in some investment that would beat the interest rate.

In fact, I distinctly remember thinking how smart I was.

As Julia Roberts said in Pretty Woman, “Big mistake. Huge.”

I figured that I could clear this whole thing up by calling Acura. You see, it was true. I’d just found out that my mom HAD filed (long story there, but a good reason) and not me!

Without boring everyone with all the details – I have never been treated worse in my whole life. The people on the phone at Acura actually said “Well, if you weren’t such a deadbeat and wouldn’t have filed bankruptcy, this wouldn’t be going on.”

It really didn’t matter that I HADN’T filed for anything. They kept repeating what a loser I was.

White. Hot. Burning. Rage.

Finally, I ask for solutions – they offer two:

Pay off the balance of $10,680
Have car repo’d

Obviously, I’m choosing option 1, so I inquire: Can I just wire you the money?

Their answer: “No. It must be Western Union.”

For those of you who don’t know, I found out that day that sending money via Western Union is a giant pain in the ass. Trust me.

Oh, and did I mention the joys of going to the bank to take a withdrawal of $10,700? The IRS likes those forms they make you fill out…they’re called Currency Transaction Reports. And, I happen to know that 100% of CTR’s are reviewed by an IRS Criminal Agent. Lovely.

All because I was too smart to just pay cash.

So, I went on my trip – worried the whole time that the repo dude was going to take my car while I was 800 miles from home. When I returned, I had to drive 4 hours round trip (since we bank online) to get $10,700 withdrawn from my bank account, then I filed out a CTR which basically invites the IRS over for dinner, I enjoyed standing in line at Walmart for 45 minutes…with TEN THOUSAND DOLLARS IN MY POCKET to fill out this long-ass form to Western Union a payment to Acura.

All because I didn’t pay cash.

…and because I thought I was smarter and could make a couple extra bucks on my own. I guarantee that the time, energy and stress associated with this incident taught me a lesson – it’s not worth the time.

So, yes, I manage money for rich people…and average people. But many of the lessons I’ve learned are because I’ve also been there myself.

The lesson for today? Pay cash for your car and be done with it.

That’s my lesson: What’s a costly lesson you’ve learned?

Photo: David Berkowitz

5 Steps Before Tying the Knot

October 1, 2013 by The Other Guy Leave a Comment

It’s your big day. Are you prepared financially?

We’ve all heard that statistics: many marriages end up in divorce. The #1 issue couples fight about is finance. Instead of ignoring these stats, why not meet them head on? There are clear steps you can take to ensure that your family will have a chance of succeeding where others fail.

Create a Debt Strategy

These days many people head into “wedded bliss” woefully unprepared for how to handle real life as a married couple. Quite often, one or both spouses have student loans or other debt that can be a drag on the beginning years of married life. Before tying the knot, sit down with your future spouse and walk through both of your credit reports. This will be a refreshing a “financial cleanse” right before the big day. Together, you can develop a plan to improve your scores (if necessary) before any large purchases. You can also put together a plan to eliminate debt as quickly as possible. You’ll have a much stronger chance as a couple if both people know the entire playing field before the wedding.

Set Up Your Budget

The budget discussion is one of the most challenging ones a couple can have. Depending on how long it’s been since college days, money can be tight during the early part of one’s career. You should both agree to the “family” financial meeting (Joe and I discuss this over and over and over again…) and make it a priority each week. Then, both of you are caught up on each bill, how you’re doing as a couple working toward your goals, and there are no surprises.

Plan For/Against Kids

Children are expensive. It’s that simple. You’ve probably already discussed your feelings with your future spouse about kids – how many, your favorite names, etc. – but it’s unlikely that you’ve had the chat about how much they cost. To put it in perspective, if a client came to me today and wanted to fully fund a 4-year public university degree for a newborn, they’d have to set aside around $400 per month from day one until the child’s 18^th birthday to be close. That’s a lot of money. Start now if possible – open a 529 plan in your own name, and then if you have children change the beneficiary to them.

Retirement Planning

Planning for the long-term seems so difficult at the beginning of any relationship, but it’s one that must be considered. Begin your married life by contributing as much as you can to your retirement plans – at least up to the company match, if offered – and plan to add a small increase each time your pay is increased. The road to millions of dollars starts at $100 a week into your 401(k) plan. Get started right away.

Commingling Finances

If you’ve been single for a long time, the thought of having someone else pouring over your bank statements questioning every transaction sounds like death by a thousand paper cuts. Simplify this by having the “his, hers, and ours” accounts and setting up through your budgeting process a small amount that each of you can spend – no questions asked – out of your own accounts. By using this approach, combined with budgeting together, your financial lives will be blissfully combined, yet separate as well.

Marriage is a big decision and a life changing one at that. By spending a few hours before you’re married discussing the financial impacts, you can spend more time enjoying your spouse and less time wondering if their credit score is going to make it impossible to buy a new house.

Photo: epSos.de

Gambling, Smoking and Other Fun Ways To Ruin Your Budget

June 4, 2013 by Stan Poores 14 Comments

Daniel Wesley is the founder and CEO of CreditLoan.com, a website that educates consumers about various personal finance issues. Among some of the topics discussed are bad credit loans, credit cards, auto financing, and many other credit and financial help issues. Connect with Daniel on Twitter and Google+.

Paychecks never seem to go as far as you think they should and your piggy bank is looking pretty empty these days. Some of the choices you make every day could be hurting you financially. By identifying the extraneous items you’re spending money on and eliminating those purchases, you can make a significant difference to your finances over the course of a few months or a year. Here are five common spending habits that could be wrecking your budget:

5 Spending Habits Wrecking Your Budget

– Gambling

It’s the thrill of a shot at winning it big, but whether it’s the lotto, casinos, or a work pool, you can waste a lot of money gambling. A few dollars here and there on scratch-off tickets when you fill up with gas start to add up quickly. Quit cold turkey, avoid situations where you might be tempted to gamble, or seek help if you think you might have an addiction. Think of it this way: you’re likely to make more money by investing than gambling it away.

– Smoking

Many people consider certain parts of their lifestyle a normal expense rather than a luxury, but cigarettes are expensive and costly to your overall health. Sit down and add up the amount you spend on cigarettes over the course of a week, month, and year. Many people will be shocked at the actual figure. Like gambling, there are ways to kick this habit. Stop on your own, seek a doctor’s assistance, or join a program. However you decide to eliminate this expense from your life, your body and wallet will thank you for it.

– Extraneous Spending on Beverages

Like most people, you probably look forward to a caffeinated pick-me-up at some point in the day, but consider how much you’re spending on extra beverages each month. From coffees in the morning to soft drinks when you’re out at dinner (which are usually the same price as a whole two-liter bottle at the store!), the cost of buying drinks at restaurants and convenience stores adds up fast. Find money-saving alternatives like refilling a sports bottle with water throughout the day or making your own coffee at home. However you work it out, if you stop buying beverages, you’ll save money at every meal.

– Eating Out

You might be surprised to learn that the average American spends approximately $2,500 per year eating away from home. Now multiply that number by the number of people in your household, and you’ll get a better idea of why eating out is not a smart move financially. This doesn’t mean you need to completely deprive yourself, but stick to going out for special occasions rather than a couple of times per week. Make more meals at home, and cook a variety of dishes to prevent boredom. Save (and use!) leftovers. Buy more store brands or stock up on items when they go on sale. Pack a lunch for work. All of these are great methods of cutting your food cost down considerably.

– Paying for Unnecessary Services

We often pay a lot for convenience, but how much of it is really necessary? Do you truly not have the time for some things, or do you simply not want to do them? If you make the effort to limit the services you pay for that you could actually do yourself, you’ll be shocked at how much you will save. Mow your own lawn. Clean your own pool and house. Change the oil in your vehicle yourself. Give yourself a pedicure. Learn how to groom your pet. It may not be as convenient, but the money you save will really add up.

Going On the Attack: Planning Your Future

Once you’ve identified and eliminated your bad spending habits, re-examine all of your monthly expenses and create a budget; the next time you go to the store, don’t allow yourself to spend money on things that will exceed that budget. Audit yourself and evaluate the true value of what you’re spending money on to find even more ways to cut back, whether it’s your cable package, your cell phone plan, or the magazines you subscribe to.

The last step is figuring out what to do with all the money you’re no longer throwing away. It probably goes without saying that the best thing to do is save. Having extra funds stored away is always a good idea; unforeseen expenses can quickly crumble your financial well-being, and having money saved away is the best way to protect yourself and your family.

Being mindful of your finances is important at every stage in life. Minimizing excess can be a difficult process, but cutting out unnecessary expenses can significantly ease financial pressure. Recognize your bad spending habits, find a way to eliminate them, and take steps to make better choices in the future. Your piggy bank will be filling up before you know it.

Photo: Stephanx80

5 Surprising Tips to Supersize Your Family Vacation

May 17, 2013 by Stan Poores 18 Comments

Memorial Day is right around the corner. Have you started planning your summer vacations yet?

Do you take a family vacation every year? Where do you typically go and how much does it cost you? What if I told you that you that for the same amount of money (or less), I could teach you how to go somewhere nicer or do more at that vacation spot you love. Yes, it is possible. Let’s check out the list!

My 5 “Not So Obvious” Family Vacation Tips

1) Stop Planning – I know, it almost sounds counterintuitive to what you should do to save money on your vacation. Typically, you’re taught to plan where you’re going in advance because if you wait until the last minute, everything will be much more expensive. While this is still the case for some items, there are benefits to waiting before choosing your exact destination. Websites such as TravelZoo or CheapCaribbean offer last minute deals on all-inclusive getaways and cruises all over the world. I once saw a weeklong trip to Aruba for only $800, which included the flight, the hotel stay, some events, and all of the food! Sometimes it pays to wait.

2) Stay Connected to Your Friends – With the help of Facebook, it’s pretty easy to stay connected to your friends today. And, since our world is becoming so globalized, your friends will most likely move to all corners of the world. While this may be tough to deal with at first (since you no longer get to see your friends every day), it provides a great reason to visit a new area on the globe and to do it for cheap (since you’ll be staying with your friend)! Just offer to pay for their food for the week and it’s suddenly a win-win situation.

3) Buy Groceries, Not Fine Dining – The purpose of your vacation is most likely to explore a new area that you’ve never experienced, not to eat at a chain restaurant that is prevalent in your own hometown. With a week-long vacation, it is much cheaper to go to the grocery store at the beginning of the trip than to eat out for every meal. This small tip could very easily save you $200-$400!

4) Learn From the Locals – No matter where you’re vacationing to, there will be “must see” attractions that are sent your way which aren’t really that great of an experience. Unfortunately, you won’t know this until your money is already spent! Do your due diligence on this one and try to learn from the locals. Whether your vacation is at the luxurious belmond cap juluca in Anguilla or a magnificent riad in Morocco, find a blog about local fun or connect with a friend of a friend that can give you some quick tips on what to see. Oftentimes, the best attractions are the ones that are free!

5) Explore, Then Do – For many of us, when we go on vacation we feel like we have to hurry up and do as much as we can, but this is no way to vacation at all. Once you finally get home, you’re more exhausted than when you left, and you’re way poorer than you expected too! Instead of charging forward and doing a bunch of activities that are presented to you that first day, take it easy and go for a stroll around the city. Make a mental note of what you’d like to do and see. Not only will you enjoy yourself more, but you’ll have save some of that money in your pocket.

How do you save money on family vacations without skimping on fun? Let’s share notes in the comments below….

Photo: Stevendepolo

5 Reasons Your Cash Reserve Isn’t Working

May 14, 2013 by Average Joe 28 Comments

All of us know that we’re supposed to have a cash reserve right? There are always going to be emergencies that come along that we didn’t expect, and that’s when our cash reserve is the most important. So, why is it that many of us struggle to even have a comma in our cash reserve? We’ve gone through our whole lives attempting to save, but we don’t even have a thousand bucks in cash. Here are five reasons why your cash reserve might not be working.

1) It’s Too Accessible – Many of us are just trying to beef up our checking account and keeping our emergency money in with the funds we use to pay bills. When you do this, it’s just way too easy to dip into your cash reserve. Instead, you need a completely separate account that you can’t spend with a debit card. If you really need to use the money, you’ll have to make a transfer either online or at the bank. This small barrier will help keep your reserve safe.

2) Not Enough Flexibility in Your Cash Flow – One of the biggest reasons we dip into our cash reserves is because we don’t have enough cash flow from month to month. Money is so tight that the slightest unexpected expense leads us into our reserve. To ensure that your cash fund doesn’t go anywhere, you need to reduce your monthly expenses.

3) Too Much Instant Gratification – We live in a world where everyone expects to get what they want right now! I urge you not to be that person. Most of the time, what we want and what we need are two totally separate things. If you don’t need that special something and you’re going to have to dip into your reserve to get it, just don’t buy it! I know it can be tough to walk away, but there are always deals to be had elsewhere.

4) You’re Feeling Rich, Time to Spend – Everyone has their number where they start to feel wealthy. For some, this is $1,000. For others, it’s $10,000. When their cash reserve reaches “their number”, they suddenly feel like they are rich and can afford to spend some money, rather than just leave it in their account for a rainy day. My friends recently did this when looking for a car. Initially, they were only going to spend $6,000, but when their cash reserve kept growing and growing, so did their “need” to have an expensive car! All of the sudden, they spent $13k on a car rather than their initial plan of $6k. Now they’re feeling tight with money. Go figure.

5) No Incentive to Keep It There – Saving money is honestly pretty boring. When you put that money into a savings account, it probably earns 0.05% interest, which equates to a few bucks a year. Your savings don’t have to earn such a low amount though. There are some banks out there that will pay more than 1.0% for your savings, and if you have the will-power to have your reserves in your checking account, you could earn more than 3% at some credit unions. Getting $20 or more per month is way more fun than a dollar or two.

I Forgot To File My Taxes

May 7, 2013 by Average Joe 16 Comments

Every year I meet a couple people who tell me “I forgot to file my taxes.” How do you forget to file???? Here’s the steps to make it all right with the government.

Did you file your taxes this year? Did you know that nearly 10 million U.S. citizens fail to file by April 15^th each year? Some avoid filing on purpose, but many just plain forget. So don’t worry. If it slipped your mind, you’re not alone.

If you still have yet to calculate your refund/payment, do this immediately. Even though you’re late, the process is still the same. Get the appropriate forms and gather all of your tax information and either head to your accountant or calculate your taxes yourself (whatever it is that you typically do). Once you know whether you owe money into the government or if you’re getting a refund, you can take the next steps to file.

What Is The Penalty?

For most of us, we plan on receiving a refund each year. Some of us even plan on getting as much back at $4,000 or more. This shouldn’t really be your goal since you’re basically allowing the government to use your extra money interest free, but that rant is for another article I suppose. If you have always received some money back each year, then you have absolutely nothing to worry about for filing late. There is no penalty. I was actually surprised to learn this, but it makes complete sense. Why should the government charge you if they just get to keep your money a little longer. In fact, they would probably rather that you never filed your taxes!

If, however, you typically owe money into the government each year, then you will most likely have to pay in a little extra for your late payment. There are three types of penalties that you’ll have to pay: Failure to File Penalty, Failure to Pay Penalty, and Interest.

Failure to File Penalty

This penalty occurs because you did not file your taxes by the deadline and you owe money to the government. The amount of money you owe depends on how late you are to file. If you’re a month late, then you owe and additional 5% on top of what you already owe. For each month that it’s late, you have to add an additional 5%, up to a maximum penalty of 25% (if you’re 5 months late or more).

Failure to Pay Penalty

This penalty occurs when you file, but you just don’t pay the amount you owe. The penalty is 0.5% for each month that you have still not paid in full. There is not maximum penalty, so it’s definitely best to pay the full amount as quickly as you can.

Interest

In addition to the traditional penalties, the government also want’s the money back with interest. While this amount changes all the time, it is currently set at 3% interest per year, but it is calculated based on every day that your return/payment is late. Again, it’s best to pay this sooner rather than later.

Basically, to sum it up, if the government owes you money, you have nothing to worry about. Just file your taxes and you’ll receive your check shortly, with no penalty. If you owe money in, then you’ll have to pay quite a few penalties. So, rather than play the “wait and see” game, you should calculate your taxes and file them as soon as possible.

Photo: 401(k) 2013

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