Six Irritating Year End Expenses that I Hate!

I usually try to write things of a positive nature here at Money Smart Life but I got our Home Owners Association year end bill in the mail today and it pissed me off! It seems everyone wants our money at the end of the year, which is usually when we have the least to spend. So here they are, my six least favorite year end expenses:

Home Owners Association Dues
What does my home owner’s association do for me that I should pay them $200 a year in fees?

TurboTax eFile Charges
You just get done giving all your money to the government, and you have to pay $20 to eFile? Talk about rubbing salt in an open wound!

Personal Property Taxes
I already have to pay gas, insurance, and repairs all year long on our cars. Then I’m hit with hundreds of dollars of property tax at the end of the year. Another reason to make my car last as long as possible, avoid the high property taxes on newer cars!

Recurring Subscriptions
Many services now offer a reduced monthly rate if you pay for a year at a time. I like to save money so sometimes I bite. I hate getting my credit card bill in December or January and seeing my annual charge pop up.

Escrow Charges
It seems every December I get a letter from my mortgage company informing me they’ll have to increase my monthly payments starting in January to help fund my escrow. Thanks to the real estate gains of the last few years, property taxes have increased and along with it my escrow payment. I really need to dispute the property revaluation the government does every year to help reduce the cost of this one.

Healthcare Costs
Have you ever gotten a letter from HR in October during open enrollment informing you of health care increases? Come January, you go to the doctor or pharmacy and surprise your co-pay is higher! I guess I should schedule all my appointments and prescriptions for December to beat the increases.

What expenses blindside you at the end of the year?


Your Financial Decisions – Tax Credit vs. Tax Deduction

Who likes paying taxes? Did you know that most people pay more in taxes than for all their other expenses combined? Tax credits and tax deductions are tools we can use to reduce this expense.

Summary
Credits are better than deductions. Comparing a $1,000 tax credit to a $1,000 tax deduction, assuming a person earns $60,000 a year and is in the 25% tax bracket, the credit will let you keep $750 more than the deduction.

Tax Credit
If you owe $15,000 in taxes a $1,000 credit will reduce the amount you owe to $14,000.

Tax Deduction
A deduction, on the other hand, only reduces the amount of your income that can be taxed. So a $1,000 deduction reduces your taxable income to $59,000 and you still owe $14,750

Bottom Line
Tax Credit – $14,000 owed
Tax Deduction – $14,750 owed

You Decide
Obviously we prefer tax credits to tax deductions. The trick to finding the credits is thinking ahead and going through the tax planning process. I recommend the book Lower Your Taxes Big Time!, 2007-2008 edition, to help navigate the tax laws.

Take Action!
Now you know the difference between tax credits and tax deductions. Make the decision to start your tax planning today!


The Little (Broke) Old Lady that Lived in a Shoe

My wife was watching an episode of “Sex in the City” last night where the main character, Carrie Bradshaw, needed to come up with thousands of dollars to buy an apartment.

As she bemoaned her financial woes, her friend made a good point. If she hadn’t been buying $400 shoes she might have the money for the apartment. As a matter of fact, her friend wanted to know how many $400 pairs of shoes did Carrie have in her closet?

As Carrie admitted to 100 pairs of shoes, some quick math revealed the money she’d spent on the shoes sitting in her closet would actually have paid for the apartment itself! The truth hurts, as Carrie says, “I may really end up as the old lady that lived in a shoe”!

I know, I know, it’s just television. But there are many of us that have a similar problem. It may not be as extreme, but whether its shoes, gadgets, or furniture does it make sense to buy all this stuff?

Next time you’re tempted to buy another, whatever, that you don’t need, think of Carrie Bradshaw and her Manhattan apartment overflowing with shoes that could pay the mortgage.


A Simple Approach to Saving Money on Christmas Pictures for Baby

How much money does the average parent spend to feature their kids on their Christmas card every year? I don’t know the answer but I do know I want to be below the average. As my wife and I prepare our first Christmas card with our new little guy, we tried a simple approach that worked magnificently. What you’ll need:

  • 1 Red Blanket
  • 1 Santa Hat
  • 1 Diaper

Lay the blanket in a well light room, put the hat on little one’s head, and start snapping photos. The diaper is optional but who wants a Christmas card of a naked baby? Plus, an accident during the shoot could get a little messy.

After lots of fun and lots of pictures we now have a charming holiday shot of his cute little face smiling up at the camera from under the Santa hat.

When you compare this method to the cost of buying a “Christmas outfit” for the picture and paying professional photographer fees, the simple approach is a clear winner. Plus it’s more fun!


How Persistence Will Make You Rich, Someday

“Patience and perseverance have a magical effect before which difficulties disappear and obstacles vanish.” – John Quincy Adams

In an effort to tighten up our budget in December, I called Comcast yesterday determined to reduce our monthly cable and TV bills.

After speaking with many different people, being transferred, and hung up on I finally I got what I was looking for. I heard “we can’t”, “the system won’t let me”, “not possible”, “not offered”, “call back later” but I kept on asking and eventually they cut my bill in half for the next 6 months.

Okay, so how will this make me rich? I was first alerted to this strategy about a year ago in an article in Smart Money magazine and since then have saved around $600. This alone will not make me rich. However, the good news is that many things in life are negotiable.

Whether you’re buying a home, car, or cable service there is always room for negotiation. When looking for a salary increase or a good deal on a purchase, persistence is key to putting and keeping money in your pocket. So while saving on my cable bill itself won’t make me wealthy, the compounding effect of hundreds of dollars annually multiplied by all the other negotiated savings over the course of decades will.

Next time you hear no for an answer, remember the words of Calvin Coolidge,

“Nothing in this world can take the place of persistence. Talent will not; nothing is more common than unsuccessful people with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent.”


Your Money Or Your Life? Money Isn’t Everything!

This site is dedicated to helping us find a good balance between managing money and living our lives. To help us figure it out, I’ll highlight articles every week that portray the ongoing struggle between handling money and living the life we want. Hopefully we can learn from the wisdom or mistakes of others!

One Frugal Girl reminds us that our physical health is more important than any amount of money. Unexpected health issues are a good example of why an emergency fund is so important. They can help prevent us from being stressed about money in while we’re dealing with sickness. I hope Frugal Girl feels better.

Blogging Away Debt shares a life experience that highlights the importance of family in our lives. It is an inspiration to the rest of us to keep debt in check so that we can be there for our family. Good luck to Tricia as she balances paying off her debt and being with her family!

Blueprint for Financial Prosperity talks about the relationship between money and happiness. Jim emphasizes that “You are not your income. You are not your assets.” and reminds us that “Life is about happiness, not money.” I think he hits the nail on the head when he says:

“See, life isn’t about making more money, it’s about being happy and enjoying the time that you have with the people that you care about. The funny thing about money is that if you let it become everything, you’ll find that you never have enough of it and you always want more.”

The Simple Dollar writes about figuring out what is valuable to you in life and prioritizing your finances accordingly. He wraps it up with:

“When I think about these goals and why I’m choosing to follow them, and compare them to the low-priority things I was using my money and time on before, I feel genuinely good inside for the first time in a very long time.”


The Dangers of Automated Online Bill Pay

My credit card bill was three weeks late! Due to an online bill pay snafu, I didn’t receive a bill and wasn’t aware of it until the following month’s bill!

Cost of Convenience
I’ve been a big fan of online bill pay over the last few years but it has it’s downsides as well. I use an automatic bill pay system for all my payments because it saves me time, creates great electronic records, and helps me avoid missed or late payments.

The hands off approach that automated online bill pay provides for me is convenient. However, this convenience can lead to cash flow issues or payment errors if not monitored properly. Following are some of the potential dangers of automated online bill pay to watch out for.

Paying a Bill You Don’t Owe Anymore
A good example of this would be cable TV or telephone service. If you cancel your service partway through the month the company may have already sent the bill to your bill pay service. If you don’t remember to stop the payment, the service will pay on a bill you don’t owe anymore. Good luck getting your money back once your former company has their hands on it.

Paying More Than You Owe
For example, I pay our daycare expenses with bill pay. Our babysitter doesn’t send me a bill; I just set the payments to go out automatically every week. Some weeks we may take our son fewer than 5 days for a variety of reasons. In our busy lives it’s easy for me to forget to update the payment to reflect the lower costs and easy for her to overlook payment for an extra day or two.

Paying a Bill You Don’t Have Money to Cover
The good thing about automatic bill pay is that it sends your payment for you. However, this can be a bad thing if you don’t have money to cover the payment! I always pay off my credit card balances in full every month but I do a lot of moving money between my ING Direct account and my checking account to fund the payments. There have been times when I had to do some last minute money maneuvering to make sure there was enough money in the account to pay the bill.

Assuming All Bills are Paid Automatically
I recently changed my website login for my credit card. As a result my online bill pay company was unable to retrieve my statement and the monthly credit card payment was not sent. Since my bills are usually paid automatically if they’re under a certain amount, I didn’t know I missed a payment until looking over the next month’s bill. I guess the moral is, check your statements regularly, even if the payments are automated!


Patching the Crack in Our Monthly Budget

Two things cracked on the way home from the store last night, our windshield, and with it, our monthly budget.

The Costly Crack
I sighed after my wife pointed out the crack. “That’s going to cost a few hundred to fix, just don’t buy me anything for Christmas”, I said.

“What?!”, she exclaimed. “I’ve already bought it! It’s the perfect gift, I’m sooo excited to give it to you!”

Such a display of the joy of giving! I didn’t want to ruin the spirit so after a moment I said, “Well, I guess I just won’t get you anything then.”

Obviously, this didn’t go over too well. So now we have to figure out how to fit Christmas presents and fixing a cracked windshield into our December budget.

Making Choices
As I thought about where the money would come from it reminded me that managing finances and controlling debt is all about making choices.

Sometimes it’s not easy because some of the choices have already been made for you. For example, I have to spend the money to fix the windshield because it’s a safety issue for my family. The problem is everything you “have to” spend money on shrinks the number of places you can cut back.

Of course the tricky part is that many of us get to the bottom of the expenses list and everything is labeled “have to” spend. Then we tinker with the idea of pulling out the plastic and the shadow of debt rears its ugly head.

We “Have To” Decide!
Now we have the battle of the “have to”s. On one side are all the things we “have to” spend our money on. On the other side is the fact we “have to” cut spending and avoid borrowing money. The only way to reduce or prevent debt is to make the right “have to” win every time!

Once we’ve determined to reduce spending then we move on to decide where to cut. I don’t think the most important thing is which decision you make but rather realizing you have to choose, making the choice, and sticking with it.

My plan for our family is to make small cuts in all categories to patch the budget instead of eliminating one thing entirely. I think we’re due for another promotional service discount from Comcast; maybe I’ll give them a call or try out this technique. I guess I can also scour the Festival of Frugality to find some money saving tips over Christmas.

If anyone knows where you can get glass for the front windshield for a Honda CRV at a good price please let me know!


What is Your 401k Provider Not Telling You?

The largest percentage of my family’s portfolio by far is in my 401k plan. So when I ran across “10 Things your 401k Provider Won’t Tell You” in this month’s edition of Smart Money magazine I took notice. Below are the things I took from the article and after each, questions we can ask our HR department on Monday morning.

Getting Fat With Us
Some 401k providers charge their administrative fees as a percentage of assets instead of a fixed cost. The administrative costs don’t really increase as the value of our investments do but the administrator keeps taking a cut of our earnings to do the same amount of work.

How are the administrative fees on my 401k charged, as a fixed cost or as a percentage of assets? If a percentage of assets, why and how can we change that?

Are they Using Pricing Power?
When you buy a mutual fund right from an investment company you typically buy investor shares. If the asset manager has enough holdings the company can often buy the same funds at an institutional level. The key is that fund fees should be lower at institutional level.

For example, the Vanguard 500 Index Fund offers Admiral Shares (VFIAX) and Investor Shares (VFINX). The current expense ratio on the Admiral Shares is .09% while the cost for the investor shares is twice that, .18%. Over the course of 30-40 years, this difference can really add up.

Does the 401k administrator buy investor shares or institutional shares? If they are investor, how come?

Diversify at Your Own Risk
Some administrators offer good funds for one or two categories but fall short in others. For example, they may have a great small cap fund but their international or bond funds stink. We all know one of the key pillars to successful investing is diversification. However, if the funds available in our 401k don’t offer well performing / low cost options across all categories what are we supposed to do?

I consider myself lucky; my plan actually offers good investments across the different categories. If yours doesn’t, call up HR and ask for funds you’d like to see added. Then call them back every day until they listen!

Don’t Put all Your Eggs in One Basket
According to the article one of the most popular investments in a 401k is company stock. Remember Enron? Your company already pays your salary and benefits, if it goes down in flames don’t let it take your retirement money with it as well.

This one is an action instead of a question. If the majority of your 401k holding are in company stock, diversify this week!

Roth 401k
I’ve been socking away a lot of money into my 401k over the last few years. Since I have such a long time frame until retirement and have no idea what tax rates will be like 40 years from now, I’d like to change over to a Roth 401k. The Pension Protection Act made the Roth 401(k) a permanent investment tool but many retirement plans don’t offer it, mine included.

This article talks about why many companies have been hesitant to offer the Roth 401k but the Smart Money article brings up a good point:

“Remember that a 401(k) plan is about having the most money possible in your pocket during retirement. If your plan doesn’t include the Roth and you think it’s the best option for attaining your goal, ask your benefits department why and what steps employees like you can take to get one. The logistics are their problem.”

How come a Roth 401k isn’t offered now? When will it be available? What needs to happen to put one in place? Don’t make me call the CEO!


SmartMoney Small Business Challenge

Smart Money magazine is accepting applications for their Smart Start Small Business Challenge now through January 31, 2007.

What a better way to start off the new year than by winning a prize package “consisting of $5,000, a laptop computer and $200,000 worth of SmartMoney and SmartMoney.com advertising for your new business”!

Resolving to Make a Difference
Planning out your New Year’s Resolutions yet? Why not make one of them to start a business that effects positive financial change in the lives of others? The current debt levels, low savings rate, and looming Social Security crisis provide a huge potential customer base, just waiting for us to help them!

The Challenge
Of course I can’t throw down the gauntlet without taking on the challenge myself. I formed my company several months ago and have been in the process of idea gathering and analyzing since then. The personal finance blogging community has been a great source of inspiration and ideas for me. What great concept has it generated for you?

While I can’t offer the big bucks like SmartMoney, I’ll do my part to inspire others. Over the weekend I’ll think about what challenge and incentive I can provide and will announce the Money Smart Life Small Business Challenge on Monday, stay tuned!



Page 184 of 190« First...102030...182183184185186...190...Last »