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Are you banking online yet?

Posted on: September 10th, 2013 by SaveMyRetirement
A few years ago, banking security was a legitimate concern for those of us that wanted the ease of banking from the comfort of our home.  Today, those security concerns have all but disappeared and online banking is easier than ever.  It is also a much less expensive way to bank.  There are numerous online-only banks and saving programs, but what about if you already have a bank you like.  You may be surprised by what your current bank can offer you in the way of savings and ease of use.  You should give them a call.
Years ago, when I was in college, in an attempt to save money, I signed up for a checking account that did not allow me to go into the bank.  Rather, I paid some fee for every single in-person transaction I conducted.  Why is that?  By teaching me to only use the ATM, emphasis on Automated, I was able to save the bank money by relying less on their brick and mortar shop and all of its expenses.  I deposited checks, took out cash, checked my balance and transferred funds all at the ATM.  I would generally call their customer service line once a year or so if I had a complicated problem or request that could not be handled by the ATM.  This system worked for both me and the bank.  They trained me to expect full access to my money 24 hours a day and to not require a live person to help me manage it.  Now, we are not talking about my investments, although I do that online as well.  For most of us, we simply want to know our balances, what deposits/checks have cleared, how much are we spending, etc.  All of which can be done online much easier than traditional ways of banking.
While a significant benefit of online banking is cost-savings to you, the other value is that you have constant access to your money and your money’s history.  I recently was able to update my budget by just going to my bank’s website and entering the actual amounts that I spend in various categories, and I was able to do this in minutes rather than frustrating hours spent looking for old cancelled checks, bank statements, calling the bank to check on recent transactions, etc.
As technology has changed, so has our banking.  Today, not only do I still use the ATM for all of my transactions, but I no longer even get paper notices from my bank.  I do everything online, and much of it even from my smartphone.  Some banks even offer to allow you to deposit checks from the comfort of your own home!  Given that we spend the bulk of our money online, doesn’t it make sense to manage it online as well?

Tax Day…Are you ready?

Posted on: March 3rd, 2013 by SaveMyRetirement

Do you know what your single greatest expense is?  No — it’s not your mortgage or car payment.  It’s your tax bill.  As Tax Day approaches on April 15, its important to review some of the most common income tax deductions, commonly missed tax deductions and the lesser thought of “charity-related” tax deductions.  Keep in mind we are not accountants or tax preparers, so this is strictly for information purposes only.

Common Federal Tax Deductions

The first list is technically an “adjustment” as opposed to a deduction since you can take them whether you itemize or not.  These are some of the most common deductions that most people qualify for (again — verify with a tax professional that you are eligible before claiming these deductions):

  1. Contributions to Retirement Accounts (Traditional or SEP-IRA, 401(k))
  2. Interest on Student Loans (you can deduct up to $2,500 a year on qualified loans)
  3. Capital Losses (realized losses can offset unlimited capital gains or $3,000 in income)
  4. Business Expenses (business owners and employees with certain unreimbursed expenses)

Then, here are some of the common deductions that you can take if you itemize:

  1. Home Mortgage Deduction (deduct your interest paid over the year)
  2. Home Equity Line of Credit Deduction (deduct interest paid over the year)
  3. State and Local taxes (or sales tax if that works out better for you)
  4. Charitable Contributions (cash AND property donated to a qualified organization)
  5. Medical Expenses (deduct those in excess of 7.5 percent of your Adjusted Gross Income (AGI))
  6. Personal Casualty and Theft Losses (deduct your loss minus insurance payments)

Note that some of these deductions are subject to income limitations or other restrictions (ask your tax expert). For a more complete list of federal income tax deductions and adjustments, as well as details relating to each of those listed above, see IRS Publication 17.

Most Commonly Missed Tax Deductions

Here is a list of tax deductions many qualify for, yet for one reason or another, many don’t take them.

Child Care Credit:  If you work outside the home and pay someone to take care of your children, you may qualify for a tax credit (even if you claim your childcare-related expenses through a tax-favored reimbursement account at work).

Donating Property to Charitable Organizations:  This is really a two-for-one.  You get to clean out your garage/attic/storage space AND take a nice tax deduction.  Most charitable organizations will give you an itemized receipt.  If an item is worth more than $500, get it appraised and attach it to the receipt.

Educator Expenses: Attention teachers! You can get a $250 “above the line” deduction for as much as $250 for the purchase of educational materials. Here again, if you qualify, you don’t have to itemize to take advantage of deduction.

Health Insurance Premiums: For now, health insurance premiums, along with long-term care insurance premiums, are added to your unreimbursed medical expenses and will be deducted to the extent that they exceed 7.5 percent of your AGI.  Self-employed individuals can deduct 100 percent of their health insurance premiums if they are not already covered by an employer-based plan. AND you don’t need to itemize to take this deduction.

Higher Education Expenses:  If your AGI is less than $65,000 (or $130,000 on a joint return), you can deduct as much as $4,000 for higher education expenses. And like self-employed health insurance premiums and educator expenses, you don’t have to itemize to take advantage of this deduction. You may also qualify for the Hope and/or Lifetime Learning Credit.  Check before you take the deduction as these credits can may be greater than the deduction.

Investment and Tax Planning Expenses:  Investment and tax planning expenses are tax deductible as miscellaneous itemized expenses to the extent that they exceed 2 percent of your AGI. These items can include things like safe deposit box rentals, broker’s fees, IRA custodial fees, investment publications, long distance calls to your broker, etc.  Be sure to verify with your professional tax preparer before taking any deductions.

Moving Expenses to Start Your New Job: While you are not able to deduct your job hunting expenses, you are able to deduct your moving expenses once you land that job!  Even if you don’t itemize, if you move more than 50 miles, you can deduct expenses related to getting yourself and your household possessions to your new city (including mileage).

New Points on Refinancing: Any points that you pay when you refinance your home can be deducted (on a monthly basis) over the life of the new loan.

Old Points on Refinancing: All unamortized mortgage points left over from prior years are deducted all at once if you end up refinancing your mortgage in any particular year.

Retirement Tax Credit:  Those low to moderate-income earners can take a credit of as much as 50 percent of the first $2,000 that they put into a retirement account. As a credit, this can be up to $1,000 off the top of your tax bill.  Plus, you still get the tax deduction that would otherwise be associated with the contribution. Contribution to your 401(k), 403(b), SEP, Traditional, or Roth IRAs qualify, though your AGI has to be less than $25,000 to qualify (or $50,000 for joint filers, and $37,500 for head of household).

State Sales Tax: If you live in a state without a state income tax, this deduction will make the most sense to you.  You’ll be relieved to know you don’t have to save receipts all year long to take advantage of this one.  You can use a tabled value instead but, even if you do, you can still claim certain major expenditures (such as sales tax on a new car or major appliances) as long as you have supporting documentation (for this, you will need to keep receipts!).

Charity-Related Tax Deductions:

Finally, we get to the charity-related deductions.  Here are things to consider when you do more than just write a check.

Mileage Related to Volunteering: While you cannot deduct the time you spend volunteering, you can deduct your travel expenses for getting to and from the volunteer location. And if you use your car once you get there (example: to deliver food to the elderly), that is deductible too. You can either claim the standard deduction of $0.14/mile or the actual cost of your gas. You can also include parking fees and/or tolls.

Out-of-Pocket Expenses: If you incur non-reimbursed expenses on behalf of a qualified organization, these expenses can be deducted as charitable contributions. And if your volunteer work requires that you wear uniform or special clothing, those costs, along with the laundering are deductible.

Gifts of Appreciated Property: Donating shares of stock (or any appreciated assets) provides a dual benefit in that you avoid paying the capital gains taxes that you would have incurred upon the sale of these assets AND you get to deduct the full value of the assets. You need to plan this deduction correctly because if you have owned the asset less than a year then you can only deduct what you paid for it.

Important Note: If your gift is worth $250 or more, you have to get a receipt from the organization to which you donated in order to substantiate your deduction. Also keep in mind that mileage-related deductions usually need to be documented.

To wrap things up, here is a list of charity-related things that you can not deduct:

  1. Contributions to an individual
  2. Contributions to a group created to lobby for changes in a law
  3. The value of your time or services (such as lost wages while volunteering)
  4. Personal expenses (such as the cost of meals while volunteering)
  5. Appraisal fees for determining the value of donated property

Again, this is not intended as financial advice, but some things to think about about and perhaps research to see if you are maximizing your tax savings.  Good luck!

Test drive your retirement…

Posted on: February 6th, 2013 by SaveMyRetirement

I have been bouncing this idea around for a few months, and have a number of drafts of this post already written.

My mother is ready to retire and trying to decide when she should begin collecting social security, and is not sure that she has taken sufficient steps to fully retire.  I think that she could retire, with minimal help from me.  So, I had suggested that she practice retirement.  In this case, I am really referring to living off of only her projected social security benefits and utilizing her savings for travel, as she has envisioned.  Rather like a test drive.  It seems to me that she can continue to work while she enjoys it and to supplement her income, but until she knows whether she can really live off of her social security and investments, she will continue to work out of fear.  She has not done it yet, is enjoying spending money on her grandchildren.  I would prefer her to stop spoiling them and begin spoiling herself, she has earned it.

However, today, I ran across this article in the Wall Street Journal, Before You Retire, Try Rehearsing.  And while I think it does a good job highlighting the need to be real about our retirement expenses and income, I disagree that this should be considered a game.  In a game, while fun, it is also not very serious.  In a game, there is no real penalty for cheating.  In a game, you have no pressure to learn or modify your behavior.  I would advise that you don’t treat this like a game, treat it like a test drive for the next stage of your life.  Commit to three months, or more if you feel comfortable.  However, commit to living off of your projected retirement income and make it work.  Perhaps you will go without on a number of things over these months, perhaps not.  The real value in this exercise is not in making it fun, but in having the confidence in your plan to know you can do it long term.

In my mother’s case, I have advised her to move all of her money, other than her monthly projected retirement income, out of her checking account.  (Her bank will not penalize her for a low balance, as long as there is money in her savings account.)  When she is ready, I will encourage her to completely live off of that money for a full three months.  Hopefully, she will find that she can live and save a tiny bit on that money, but if not, we will reassess and figure out what changes we should make both long term and short term to make it work.

I will post an update when we try this, I am hoping that she will agree sooner rather than later.

How to make sense of a loved ones online accounts

Posted on: February 5th, 2013 by SaveMyRetirement

We have all heard that we need to keep account numbers and contact information in the event of a tragedy.  In fact, we probably already share our banking passwords with our spouse, or in a safe place.  However, do you really keep all of those passwords in a readily accessible place?  Would you know how to contact the Employee Stock Option plan from your job from college?  Would you be able to cancel the monthly newsletters?  Odds are, if you are like me, the answer is no.  I do an exceptional job of tracking all of my passwords and keeping them in one safe place.  However, with security requirements so strict on many financial accounts, that is likely not enough.  In order to get access, you would also likely need the name of my first pet.  Now, is that my first pet ever?  My first pet as an adult?  My favorite pet?  Then, when you add the numerical and special character requirements, to make a strong password, there are a number of my accounts that would be impossible to figure out.

What is the solution?  It seems like the solution to give anyone else access in case of a tragedy are in conflict with the strengthening security rules.  In my case, I record all of my online accounts in one place and my financial records in another.  I try to make the questions literal and use the same whenever possible.  (In my case, this is not just about having this available for my family in case something happens to me, but for me as well.  I have lost money in not being able to roll over a CD in time, or cancel various bills.)

Here is an excellent article from the Wall Street Journal, What a Tangled Web We Leave, that spells out some of the problems in getting this access when a loved one passes.  I had never heard of a social-media will, but it is certainly worth looking into.  Particularly, since companies like Facebook are very hesitant to remove any profiles or attached updates, even with a death certificate.

I’d say, that this issue is no different from any other.  Communication with our family, good record keeping and thinking ahead will make this much easier.  Of course, that is much easier said than done, especially since this is an area that is seeing the rules and usage change on such a frequent basis.

 

How Will Baby Boomer Retirements Affect Future Returns in the Stock Market?

Posted on: February 4th, 2013 by SaveMyRetirement

Historically, the stock market has been the recommended investment vehicle for growth because stocks have offered — over time — much better returns than bonds.  As a stockholder, you are basically taking an ownership stake in the company and that ownership is represented by specialized instruments that are secured by a claim on the assets and profits of a company.

But what happens to the company and the value of its stock when a massive wave of stockholders, known as the baby boomers, begin to cash out their investments to fund their retirement?

A senior executive at asset management giant BlackRock, Inc. told an audience at a recent Reuters Global Wealth Management Summit in Boston that financial advisors should prepare themselves for the upheaval as baby boomers, controlling $10 trillion in assets, reach retirement age and begin to shift their investment priorities.

For the past few decades, the financial planning industry’s main client goal was accumulation — investing in assets that create the most value over time.   As the retirement wave continues to build momentum, the new goal for the baby boomer generation will be one of “decumulation,” or making their nest egg last for the 20 or more years they expect to live in retirement.  This $10 trillion decumulation will dictate a more conservative investment strategy and spending approach.

Author and Wharton School professor Jeremy J. Siegel also spoke about this upcoming trend back in 2006 to BusinessWeek.  His analysis is that boomers and retirees all over the industrialized world are in for a tough half-century.  He claimed that the value of their accumulated assets, including stocks, bonds and the value of their homes could drop 50 percent in value over their lifespan (this not even taking into account the upcoming collapse of the real estate bubble).  The reason he cited was not enough investors to purchase their assets, thus creating imbalance in supply and demand.

So where does that leave the retirement goals of the younger generations of stockholders who are still accumulating wealth?  One thing’s for sure — this younger generation is heading into uncharted territory and won’t be able to count on the old historic models of returns.

–SM

 

Cost of college education

Posted on: February 4th, 2013 by SaveMyRetirement

Many of us are:  (1) paying off our own student loans; (2) funding the college tuition for our older children or; (3) figuring out how to save enough to send our kids to college in the future.

We value a college education because we’ve heard for years this is the “right” thing to do because it is the safest path to a happy and successful future.  But with massive unemployment today — especially among the young — and years of future underemployment ahead, is this still true?  Will a degree in French literature, dance or even history really help future generations land that first job? A college education may not be worth as much as you think or as much as it once was.

College graduates, it has long been argued, would be able to build solid careers that would earn them far more than their high-school educated counterparts.   The numbers reported by the nonprofit College Board seemed to back this up. College grads, over their lifetimes, would earn an average of $800,000 over their high-school graduate counterparts.

But now, as tuition continues to skyrocket and many who are seeking a career change are heading back to school, some researchers are questioning the methodology behind the high projections.

Most researchers agree that college graduates, even in tough times such as today, usually do better than those with only a high-school diploma.  But just how much better off they are is still an open debate.

Just where did the $800,000 figure come from?  It all started with a 2002 Census Bureau report titled “The Big Payoff.”  The report found, based on 1999 data, the average college graduate makes $45,400, versus the average high-school graduate makes only $25,900 annually.  The Census Bureau subtracted the two figures and multiplied the difference ($19,500) by 40 years to come up with a result of $780,000 — or almost $800,000.

Eric Newburger, lead researcher at the Census and the paper’s co-author told The Wall Street Journal:  ”The idea was not to produce a definitive ‘This is what you’ll earn’ number, but to try and give some measure of the relative value of education attainments.  It’s not a statement about the future, it’s a statement about today.”

Mark Schneider, a vice president of the American Institutes for Research, a nonprofit research organization based in Washington, calls it “a million-dollar misunderstanding.”

One problem he sees with the estimates: They don’t take into account deductions from income taxes or breaks in employment. Nor do they factor in debt, particularly student debt loads, which have ballooned for both public and private colleges in recent years.

In addition, the income data used for the Census estimates is from 1999, when total expenses for tuition and fees at the average four-year private college were $15,518 per year. For the 2010-11 school year, that number has risen to $26,273, and it continues to increase at a rate higher than inflation.

In a 2009 report, Dr. Schneider estimated the lifetime-earnings advantage for a college degree is only $279,893.  He used actual salary data for graduates 10 years after they completed their degrees to measure incomes. Even among graduates of top-tier institutions, the earnings came in well below the million-dollar mark, he says.

And as for the $800,000 number cited by the College Board, it turns out this came from a footnote in a 2007 report titled, “Education Pays.”  However, when the report’s author, Skidmore College economics professor Sandy Baum, was interviewed by The Wall Street Journal, she told them (and other publications for more than a year) that she didn’t write the promotional text for the College Board’s Web site.  Baum says $450,000 in increased lifetime earnings for a college graduate is a more reasonable assumption.  Divided over 40 years, that ends up being only a difference of $11,250.

There are a lot of benefits of going to college.  Perhaps having a more interesting career, meeting new people and of course the knowledge that’s gained from attending classes are some of these benefits.

But today we are faced with a new set of circumstances not seen in my lifetime.  High unemployment, underwater mortgages, lost retirement packages and lost savings are putting increased pressure on parents with college-aged children.  Perhaps with this knowledge, parents can make a more informed decision and stop feeling guilty about dooming their kids to a life of substandard wages if they don’t attend college (or the “best” college).

 

 

 

Is That the Best You Can Do?

Posted on: January 31st, 2013 by SaveMyRetirement

I was reading an old transcript from a Glenn Beck radio interview with #1 New York Times best selling author Richard Paul Evans.  He has written numerous books, including The Five Lessons A Millionaire Taught Me and The Christmas Box. The topic of the conversation?

“Seven words that will change your course.  Seven words that will change, not only, I believe, your financial future, but also the course of your life.”

Those 7 magical words?  Is that the best you can do?

Period.

Embrace any silence that may follow.  These are seven powerful words.  They will cause you no embarrassment, you will feel no pain using them and you will likely end up saving a bundle of money.

Use this every place you pull out your debit card.  Use it at restaurants, retail outlets, hotels, airports — anywhere and everywhere.  Evans says it is a rule for every one of his employees to use that line whenever they are purchasing anything.

What you will find happens 90 percent of the time is that the person will come back (after having spoken with a manager or supervisor) and offer you some percentage off, and then most likely apologize for not being able to offer a bigger discount!

Try it in places where negotiating just never happens.  Try it at your doctor’s office or at the dry cleaner. You will be amazed at what happens!  And at the mom and pop shops you will find an even easier time being able to talk to the person that can actually make the decisions.

Evans tells a story about his brother who owed $1,500 in doctor bills. The brother did not believe it would work and wanted to prove him wrong.  He went to billing department with the check already made out for $1,500 when he asked the woman behind the desk “is that the best you can do?”

She went and checked with the manager and came back with an offer AND an apology. She said, “I’m sorry, sir, I can only give you 10 percent off.”  Well, think about it. That is $150 after-tax money he just saved for using seven simple words and he had a complete stranger apologize to him for not being able to give him more!

He also told a story of his best friend who had adopted a baby and they ended up with $20,000 of medical bills.  The new parents called the hospital and told them the situation and asked, “is that the best you can do,” and they came back to him and said, “we will cut the bill by 80 percent if you can pay it off in the next month.” And so they saved $18,000.

In the United States, we are taught to take prices at face value.  Unlike other cultures where negotiating is expected, here we just pull out our credit cards and pay the price listed.  Some of us are embarrassed to negotiate, believing others will think we are cheap or can not afford the item at full price.

But think of this — right after World War II, household debt was 22 percent of all of disposable income.  Today, it is a whopping 134 percent of disposable income.  What if you could shave 10 percent to 20 percent off all your purchases?  Would you be able to use the savings to help pay down your debt?  Or stay out of debt?

I recently tried using the seven magic words while clothes shopping at Ann Taylor Loft.  Everything I was purchasing, except for a pair of slacks, was on sale.  I asked the woman who was ringing me up, “is that the best you can do?”  She looked at the manager who said to me, “we can give you a 20 percent discount on the pants.”  Just like that I saved $12 for uttering 7 words!  Try it.  It works.

 

Three kitchen appliances that can save you $2,500 a year!

Posted on: January 24th, 2013 by SaveMyRetirement

Years ago, when my family decided to get serious about cutting our expenses in order to save more money for retirement and college, we knew we would have to cut back on the food bill—including groceries and eating out.   We also knew that in order to make it work, we needed to make it convenient.  If we all had the time or energy to spend hours in the kitchen, we would all be doing it (and stockpiling the savings in our 401(K) accounts)!

So I had to convince my husband to make a few “investments” in new kitchen appliances.  Here are three that have really worked out well for our family.  They may seem like an unnecessary splurge at first, but I assure you the savings I’m citing below are real!

Bread Machine

I know many of you may already have one sitting in a cabinet collecting dust.  The bread never came out right and it had a funny shape and your kids were embarrassed to take sandwiches made with home made bread to school, right?   Since the bread machine doesn’t just make bread, it’s time to take it out, dust it off and have it start saving your family a load of money.

If your family is like mine, you probably order a pizza once a week.  Every Saturday night we have Pizza & Movie night at our house.   The cost to order two pizzas with tax and tip ran us at least $20 a week, at the cheapest pizza places.  You may think this is not a lot of money, but when you substitute a homemade (and more delicious) alternative, it adds up!

I can make 2 pizzas at home for less than $3.  Add in the $54 cost of the bread maker that I purchased from Amazon.com (with no sales tax or shipping charges) and my total savings is $800 + the first year!

Annual cost of having 2 pizzas delivered once a week:         $1,040

Annual cost of making it at home:                                          $156

Total cost of bread maker:                                                      $ 54

Year 1 Savings:                                                                       $ 830

Here’s how the cost of the 2 pizzas breaks down:

Flour:               .75

Sauce:              .25

Cheese:       $1.00

Toppings:    $1.00

I get the cost down by purchasing the cheese and sauce at a restaurant supply store (like Costco).  I break it down into manageable portion sizes using plastic lunch bags (1 cup sauce and 1 cup cheese for 2 pizzas) and freeze them.

You can also purchase a pizza stone for less than $20 if you like an extra crispy crust.  I cook my pizzas on a pizza stone directly on the outside grill all year long.  This is especially useful in the summer months because I don’t have to heat up the house by turning on my ovens.  If you live in a cold climate, you may want to heat up your indoor ovens and the pizza stone will work fine there too.

I place the pizza stone directly on the grill (or in the oven) and let it heat up for about 5 minutes and then I put down the pizza dough.  Working quickly, I add the sauce, cheese and toppings. It cooks in less than 5 minutes and you will have the same results as a wood fired oven!

Grind-and-Brew Coffee Maker

I confess, I was like many Americans who stood in line at Starbucks every morning for my latte.  If I avoided buying a bagel and croissant, I walked out only $4 poorer.  I calculated that I spent around $1,460 a year just on my morning coffee!  I love coffee, but that cost is just impossible (and ridiculous) to justify in today’s economy.

So I first purchased a fancy and complicated stovetop Bialetti Mukka Express Cappuccino Maker.  But after the third time I created a latte geyser in my kitchen (that reached all the way up to the 12 foot ceiling), my husband quietly returned it and purchased a Cuisinart Grind-and-Brew 12-Cup Automatic Coffeemaker.  Yes, I could have just used my old coffee grinder and purchased a less expensive coffee maker to accompany it, but that’s one extra step every morning and all the excuse I would need to run to Starbucks.

The smell of the freshly ground beans persuade me to stay home for my coffee.  Even if you were to spend $30 a month on the most exotic-organic-shade grown-bird friendly-fair trade coffee beans, the combined cost of the beans and the Coffee Grinder/Maker combo would still save you more than $1,000 a year.

The Cuisinart Grind-and-Brew can be purchased at Amazon.com for $81 (with no sales tax or shipping charges).  It comes with a 60-ounce stainless carafe that keeps the coffee hot for hours without using a warming plate.  You can also use it with pre-ground coffee beans.

Annual cost of Starbucks (365 days x $4):                             $1,460

Annual cost of coffee beans ($30 a month):                           $360

Cost of Cuisinart Grind-and-Brew                                         $81

Annual Savings:                                                                    $1,019

Margaritaville Frozen Concoction Maker

At $240, you may be wondering if I lost my mind by adding this to the list.  I got this for my hubby as a Father’s Day gift a few years back — he’s a huge Jimmy Buffet and margarita fan.

We have small kids now who would require babysitters in order for us to go out, so happy hours at Mexican restaurants are pretty much out of our reach for now.  You get around 15 servings out of a bottle of Margaritaville Mixer at a cost of $1.50 each.  It’s also cheaper if you mix your own.

Annual cost of weekly happy hour drinks at $20 each per couple:                $1040

Annual cost of happy hour at home:                                                                    $156

Cost of Margaritaville Machine                                                                             $240

Annual Savings:                                                                                              $644

Plus because this is a “Frozen Concoction Maker,” you have the extra added benefit of being able to make frozen juice drinks or smoothies for the kids, alcoholic and non-alcoholic beverages including daiquiris, and snow cones if you use the “shave ice” feature only.   Just beware, it’s a fairly large appliance and will need a large shelf to store it.

I hope this made you also think about some of the appliances you may have sitting around in your kitchen, basement or garage.  Could you be putting them to use to save your family money?  Or should you be selling them at a garage sale and purchasing new ones — like the ones I described above — that will save you money and time?

-SM

Less Shopping, More Experiences

Posted on: January 21st, 2013 by SaveMyRetirement

A friend and I were having lunch right before Christmas and we discussed what we got our children this year.  Her kids are older — high school and college-aged. Mine are in preschool and kindergarten – so the wish lists were vastly different.  But what we had in common was the focus this year on “experiences” and not on tangible items.

My friend is a former senior executive at a high-tech firm who decided a decade ago to quit the rat race and focus on raising her family.  Her husband is not at high-risk of losing his job.  So lack of money wasn’t what motivated their decision this year to cut back on spending.  She explained that they discussed it as a family and decided that expensive gifts not only did not give them the great satisfaction that they once did, but they felt a little guilty about spending a ton of money when so many of their neighbors and friends were cutting back due to job losses.  So this year, the daughter got a skydiving “experience” and her son got a hunting trip with his grandfather and uncle.

Then I thought about the gifts Santa left under the tree for our kids.  Yes, there was a Barbie and a talking dinosaur.  There were also books and clothes under the tree.  But the gift I was most excited about was the annual family pass to our local zoo.  An annual pass allows you can go a couple of times a month and not feel like you have to stay all day or rush around to see everything.  We usually arrive right when they open and leave around lunch time — just in time to avoid the crowds and avoid having to buy an expensive, lackluster lunch!

The New York Times ran a story on January 2, 2010 talking about this new phenomenon of moving away from purchasing “goods and services” and focusing instead on “experiences” to share with family and friends.

“It’s a different kind of recession,” said Richard Florida, the author of several best-selling books about the economics of cities. “It’s not like in the ’30s when people stopped going to concerts. Now people seem to be keeping up with experience consumption and cutting back on other necessities.”

The article, titled In Recession, Americans Doing More, Buying Less, cites several recent studies to back up this trend including one new study that shows attendance at museums and cultural events dropped from 2002 to 2008, but it has climbed back up in 2009 at many major institutions, including the Museum of Modern Art in New York and the Art Institute of Chicago.

Movie attendance (which was the main source of entertainment during the Great Depression) was also up 5 percent in 2009.  And while the Walt Disney Company reported a drop in product sales, the company’s theme parks enjoyed a 3 percent increase in visitors last quarter.  In addition to the zoo passes, our family also has Disneyland passes.  Once we paid for annual admission, the only other expense we occur is gasoline to get to the park.  We have learned to pack our own lunch, snacks and drinks.

Maybe a few years ago, we would have been a little shy or embarrassed to do this, but it now seems like the trendy thing to do.  You see all around you — well-dressed moms pushing expensive strollers whipping out healthy lunches. You no longer have to feel alone in your stylish frugality.  And you can always spot the out-of-town tourists because they are the ones standing in line to buy a $6 slice of pizza.

A New York Times/CBS News poll found that the changing attitude toward cutting back on spending was found across all income groups. Nearly half of those surveyed said they were spending less time buying nonessential items. And interestingly, the poll found that Americans are not only getting by with less (not a good sign if economic recovery is dependent on consumer spending), but that they are spending more hours with friends and family doing outdoor activities, cooking, reading and exploring new hobbies.

The Department of Labor’s surveys show a similar shift in American’s behavior.  Compared with 2005, Americans spent less time in 2008 buying goods and services and more time cooking or taking part in “organizational, civic and religious activities.”

So is there some good to come out of the Great Recession?  If we learn to value the time spent with family and friends doing simple things and creating lasting, meaningful experiences, then I think we will all be better off as a society.

–I found this from some old blog posts and thought it was worth reposting.  My family still focuses on experiences rather than “things.”

Value of your credit score…

Posted on: January 11th, 2013 by SaveMyRetirement

I spent many years working in the mortgage industry and was regularly amazed at my many clients that would work so hard to budget, to save money and yet completely ignored their credit scores. They simply had no idea what a tremendous role their credit played in their current financial situation.  Not to mention, that most of us have at least a couple of things that we can easily do to increase our credit score.  For most of us, this is as simple as paying all of our bills on time.  Our credit score is the simplest way to affect the cash in your pocket at the end of every month as it is generally the most significant criteria taken into consideration by banks when determining the interest rate and loan amount they will offer you.  Your credit score does not make much difference for most of us when we have money on deposit, but makes a tremendous difference when we attempt to borrow money.

Imagine buying a house and getting a $200,000 mortgage.  The value of your house determines your taxes, but your credit score will affect both your homeowner’s insurance and your mortgage insurance rate.  For purposes of this calculation, I am ignoring those numbers and only looking at the actual amount you will pay for the mortgage itself, the principal and interest payment.  If you are a borrower with an excellent credit score in today’s market, you might get a rate of 3.25%, which would result in a payment of $870.41.  However, if you had a poor credit score, you might get a rate of 6.75, which would result in a payment of $1,297.20.  The only difference in this scenario is credit score.   Obviously, your rate is determined by more than credit score, but we are assuming that this is with the same amount of money down, income, etc.  That is for the same house, the only difference is the interest rate. Given that, don’t you think it is worth trying to keep your credit up?

Your credit score takes many things into consideration – payment history, current debt load, recent credit inquiries, collections/bk.  However, for many of us, the one that trips us up is the late payments.  It does not matter if that credit card payment is $50 or $500, a late payment reported to the credit bureaus will have a lasting and expensive impact on your life.

So, before you buy that extra latte or anything else, make sure you have the money to pay your bills first.  You may find that your utility company has far more leniency in credit reporting than do your credit cards, if that is the case and you are in a bind one month, pay the utility bill late.  They are not as quick to report you, as all they need to do is to discontinue your service, while a credit card company really has no other recourse but to ding your credit.  It is worth familiarizing yourself with your credit score and always ensuring that you are putting your best foot forward.

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