50 Ways to Cut Health Care Costs

Just ran across the article 50 Ways to Cut Health Care Costs on CNNMoney’s website. 

As fast as health care costs are rising, I think it’s a good idea to educate yourself about your health care costs and how to cut them.

#3 Pay up front, in cash - I have done this several times, and have gotten a 15% discount as a result.  If it’s a cost that won’t be covered by insurance (because you have a high deductible), then it benefits you to pay up front to get the discount.

#10 Visit a retail health clinic (such as CVS and Walmart) - I haven’t had any reason to do so yet, but it’s nice to know that I have somewhere else to go for poison ivy, the flu, or other small ailments that’s less costly than a visit to the doctor.

#18 Consider an HSA - although these aren’t right for everyone, I have an HSA and love the savings (lower premiums and a tax break).

Click here to read the full article: http://money.cnn.com/popups/2006/moneymag/healthcare/index.html

Beware the High Cost of Payday Loans

I noticed that a payday loan store moved into my neighborhood recently, then I looked around and realized there are several in my area.

This made me wonder… how profitable are these payday loan places, that they are popping up on every street corner? I’ve heard that payday loans charge high interest rates, but I had never really researched this info before now.

Here’s what I found out…

First, if you’re not familiar with payday loans, basically, they are short-term loans, usually in small amounts. Typically, you write a check for the amount of the loan plus fees, and the lender cashes the check on a specified date, usually one to four weeks later.

Here’s an example: you need $100 to pay your bills so you borrow $100 from a payday loan company. You write a check for $115 and leave it with the lender, to be cashed in two weeks. Your fee for that loan is $15 - that is an annual percentage rate (APR) of 391%.

Although the Truth in Lending Act requires lenders to disclose the finance charge, including the APR, many consumers do not understand the true cost of a payday loan. To continue the example above, let’s assume that you can’t pay the $115 when it comes due. The lender allows you to roll the loan over for another two weeks, but you pay another fee each time you do this. If you rollover the loan in the example above three times, your total finance charges would be $60, for a $100 loan. That equates to an APR of more than 1000%!

As you can see from the example this a very costly way to borrow, even when compared to high interest credit cards. If you find yourself in a cash bind, here are some alternatives to payday loans to consider: a personal loan from a bank or credit union, a personal loan from family or friends, a cash advance against your credit card, a cash advance from your employer, etc.

PMI Insurance: New Tax Break Helps with Mortgage Insurance Premiums

Uncle Sam is now going to help you pay your mortgage insurance premiums! 

Mortgage insurance is typically required when home buyers purchase a new home with less than 20 percent down. 

The newest tax legislation allows taxpayers to deduct premiums paid for mortgage insurance.  Mortgage insurance premiums typically range from $50 to $150 per month, which could mean a $600 to $1,800 deduction on your tax return.

This deduction is only available to taxpayers who itemize, but many home owners (especially if you’ve just purchased your home) have enough mortgage insurance, real estate tax, and other deductions to itemize.

Prior to this tax law, only the interest paid on a mortgage was deductible. 

This deduction won’t help everyone.  The deduction will be limited to taxpayers with adjusted gross income below $110,000.

Finally, you’re out of luck if you are already paying mortgage insurance.  This deduction will only apply to mortgage insurance contracts issued in 2007, and it’s set to expire on December 31, 2007.

For more information on the mortgage insurance premium deduction and the tax law, please visit:
http://www.mercurynews.com/mld/mercurynews/business/personal_finance/16217445.htm

Emergency Fund: Why You Need One

As a financial planner, I encourage my clients to have an emergency fund.  This is often met with the following questions:

1.  Why do I need an emergency fund? and
2.  How much should it be?

To answer the first question, you need an emergency fund for the following unexpected expenses or situations:

* Car repairs
* Home repairs or improvements
* Job loss
* Job downsize (forced to work fewer hours)
* Unexpected medical expenses

By having an emergency fund, you won’t be forced to turn to credit cards to pay for these unexpected bills.

The general rule of thumb is to save between three and six months of your living expenses in an emergency fund.  If you have no dependents, good credit, and a steady income, you can probably get by with three months; if you have a fluctuating income or work in a field that is not steady (home construction is a great example right now), you should aim for six months in your emergency fund.

One more thought… you should keep your emergency fund in a high interest money market or CDs (a portion, not all of your emergency fund) to earn a higher interest rate than your checking/savings account.

Educator Expense Deduction Extended

If you are a teacher, you probably know about the $250 deduction that is allowed on your income tax return.  While this is a very small tax break, every little bit helps. 

So, I was glad to see that Congress extended this deduction for two more years, until the end of 2007. 

If you’re not familiar with this tax deduction, here’s a brief summary:

Teachers can deduct up to $250 that they spend out of pocket to buy classroom supplies.  The deduction is an above the line deduction, which means you don’t have to itemize to take the deduction. 

The deduction is available to teachers, instructors, counselors, aides and other educators who work with classes from kindergarten through grade 12.

Costs that are deductible include books, supplies, computer equipment, software and other materials used in the classroom. 

To learn more, please visit:
http://www.bankrate.com/BRM/itax/tips/20030213a1.asp or
http://www.irs.gov/taxtopics/tc458.html

IRA withdrawal for 1st time home purchase

Q. I am making my first home purchase. Can I take money out of my IRA to help with the down payment?

A. Generally, withdrawals from a traditional IRA before the age of 59 ½ are subject to income tax and a 10% penalty. There are several exceptions to the 10% penalty, one of which is a distribution for a first time home purchase.

You can take up to $10,000 from your traditional IRA to purchase your first home without incurring the 10% penalty.

There are some rules to keep in mind, however:

1. The purchase must be for a principal residence – qualified costs include costs to build, buy or rebuild a home.

2. The person purchasing the residence must be the IRA account owner or a family member (within limits).

3. To qualify as a first-time homebuyer, you must not have owned a home at any time during the two years prior to the IRA withdrawal. If you are married, your spouse must also meet this requirement.

4. The 10% penalty exception only applies to the first $10,000 you withdraw from your IRA (this is a lifetime limit) – if you are married and both spouses qualify as first time homebuyers, you can each withdraw $10,000 from your IRAs penalty free.

5. You must use the IRA funds within 120 days of the withdrawal to qualify for the exception.