Smart Money Moves to Make in Tough Times
September 24, 2008
The recent financial news – banks failing, the Treasury taking over Fannie Mae and Freddie Mac, the stock market dropping several hundred points in one day – may have you feeling a bit helpless when it comes to your finances.
While you may not be able to make the market go back up or keep banks from failing, there are steps you can take to make your finances as strong as possible in these tough times:
1. Fund your emergency fund. It’s more important than ever to have an emergency fund, in case you lose your job, have unexpected medical expenses, or have a major house repair, so that you don’t have to sell investments (while they’re down), or rack up credit card debt. The general rule of thumb is to have three to six months of living expenses set aside for emergencies.
2. Reduce debt. If you have high interest credit card debt, the greatest return you can get right now is to pay off that debt. Start by calling your credit card companies and asking for a lower interest rate (if you have a good credit score, you could get your rates down to 8-12%, which is much better than paying 20+ percent). Then make the minimum payments on all of your credit cards except the highest interest rate card until paid off.
3. Review your spending. I’m always amazed at how many people have no idea where their money is going each month. How can you reach your goals if you don’t know where your money is going? If you aren’t already doing so, now is a great time to start tracking your spending using a software program (such as Quicken) or even spreadsheets that you create on your own.
4. Increase your retirement contributions. Many people panic and stop investing in their 401Ks or other retirement accounts when the market is down. When the market is down is actually the best time to invest. Remember “buy low, sell high”? Well, the time to buy low is when the market is down! Make sure that you are investing in a diversified portfolio that meets your risk tolerance, time frame and goals, and that you rebalance once a year.
Keeping Your Money Safe
September 24, 2008
With everything going on in the financial world lately – the Treasury taking over Fannie Mae and Freddie Mac, the collapse of Lehman Brothers and IndyMac Bank, and the government bailout of AIG – it’s no surprise that investors are wondering if their money is safe.
Thankfully, there are safety measures in place for various types of accounts and investments. Here is a rundown of the different safetynets in place for each type of account or investment you may have:
Banks: Bank deposits are ensured by the Federal Deposit Insurance Corporation (FDIC). Basically, the FDIC insures deposits up to $100,000 per owner, per bank. If you have $100,000 or less in your name at any FDIC-insured bank or savings association, you have nothing to fear. Since the limit is per owner, that means you could actually have more coverage than you think (for example, if you and your spouse have a joint account with $300,000 at one bank, $200,000 is insured – $100,000 for each “owner”).
In addition, if you have certain types of retirement accounts, such as an individual retirement account, you’re eligible for even more coverage – up to $250,000 per owner, per bank. However, the FDIC does not insure money invested in stocks, bonds, mutual funds, life insurance policies, annuities and municipal securities, even if you bought those investments at an FDIC insured bank.
If you want to make sure that your deposits are below the FDIC limits, please visit EDIE The Estimator. EDIE the Estimator can calculate your FDIC insurance coverage for each FDIC-insured bank where you have deposit accounts.
Credit unions have similar coverage through the National Credit Union Administration (NCUA).
What to Do with Your Tax Refund or Other “Found Money”
February 26, 2008
Garrett Planning Network Provides Thirteen Smart Ideas
(Lee’s Summit, MO) February 24, 2008 – After concluding their tax preparation activities, many people will see that they are entitled to a refund from Uncle Sam. “Whether you refund is large or small, you are wise to determine now what you will do when that check arrives,” says Sheryl Garrett, CFP®, author of Personal Finance Workbook For Dummies® (Wiley, November 2007) and founder of the Garrett Planning Network (www.GarrettPlanningNetwork.com). “Don’t fritter it away or spend it on a whim.”
On a recent teleconference, network members brainstormed thirteen ways taxpayers can put this “found money” to work:
1. Put the entire amount, up to the maximum allowed by law ($4000 for an individual in 2007 unless you are age 50+, then the maximum contribution is $5000; $5000 for an individual in 2008 unless you are age 50+, then the maximum is $6000), into a Roth IRA assuming your income falls below the government thresholds (the phase out for singles in 2007 is $99-$114,000 and in 2008 it’s $101-116,000; for married couples in 2007, the phase out is $156-166,000 and in 2008, it’s $159-$169,000).
If you are saving for higher education funding needs, withdrawals of regular contributions to a Roth IRA are not subject to tax or penalty and can be made at any time, and you can take a “qualified distribution” (one that is made after a 5 year holding period, beginning on the first day of the first year for which the contributions were made), if one of the following applies: (1) you are a first-time home buyer, (2) you are age 59 1/2 or older (3) the distribution is due to death or disability. If your earned income for 2007 is higher than the phase-out thresholds, put your “found money” into another qualified retirement plan such as a 401(k), 403(b) or 457 plan if your employer offers one. Consider contributing to a traditional IRA if you have maxed out contributions to your employer-sponsored plan or if a Roth IRA is not an option.
How to Get Your Free Credit Report
December 3, 2007
Unfortunately the holiday season usually brings an increase in credit card fraud and identity theft, so right after the holidays is a great time to check your credit report. Following is why, when and how to check your credit report…
Why you should check your credit report
- to check for errors
- to check for fraud and identity theft
- to get the best interest rates
- more and more people are relying on credit scores – car insurance, employers, etc.
When to check your credit report:
- Once a year if you have good credit and don’t anticipate any large purchases in the near future
- Before a major purchase, such as a new home, new car, etc. – should request your credit report 6 months ahead of a big purchase so you have time to correct any errors
- If you’ve been denied a credit card, loan or other product or service because of your credit (you are entitled to a free credit report if you have been denied credit based on information found in
your report) - If you suspect that your identity has been stolen
- If you are starting a plan to get out of debt or repair your credit.
Health Insurance for Early Retirees
June 14, 2007
by Kimberly Lankford of Kiplinger.com
Despite a limited income, I’ve invested wisely in my IRA over the years and could retire next year at age 62. However, I don’t know if I will be able to get medical insurance or how much it will cost after the COBRA provisions expire in 18 months. Given that I take medication for depression, it is likely that any future coverage would have major restrictions — that is, if I were able to get coverage at all. Are there any alternatives for health insurance for people like me?
You ask such a great question. So many of our readers have saved carefully through the years and could retire early, except for one unknown: How much they’ll have to pay for health insurance until they’re eligible for Medicare at age 65. You’re very wise to start thinking about that now and get an idea of how much those extra costs will be.
The good news is that several consumer-protection laws can help you qualify for health insurance on your own, even if you have medical conditions.
Your first step should be to continue coverage through your employer’s plan through COBRA, a federal law that requires employers with 20 or more employees to let them keep their coverage for up to 18 months after they leave their jobs. Your premiums will be a lot higher than they had been as an employee — after you leave the job you have to pay both the employer’s and employee’s share of the cost, and most employers subsidize about 75% of the premiums for employees. But at least you can’t be rejected or charged a higher rate because of your health.
If you’re healthy or have moderate medical conditions, check out your other options right away because you may find a better deal on your own. The prices and rules about covering medical conditions can vary enormously from insurer to insurer, so it’s a good idea to contact an insurance broker who knows which insurers in the area are likely to offer the best deal for someone with your condition (you can find a health insurance broker in your area through the National Association of Health Underwriters). You can also visit eHealthInsurance.com to get price quotes for several companies’ policies (or call 800-977-8860 if you have medical conditions to explain them up front).
If you have a medical condition, some insurers may reject you while others may offer you a decent rate. Or some may offer you a policy but exclude the condition, while others could boost your premiums by 25% to 150%. It’s generally better to pay extra than to accept an exclusion for a potentially expensive condition.
And if insurers do reject you, you generally have other options. Thirty-three states have high-risk pools, which must accept people with medical conditions who have been rejected elsewhere (for more information, go to the National Association of State Comprehensive Health Insurance Plans Web site. And a few states, such as New York, New Jersey and Massachusetts, must cover everyone regardless of their medical condition — this is called “guaranteed issue.” This leads to very expensive insurance for younger, healthier people, but does provide an option for people who have health problems.
A few states don’t offer high-risk pools or guaranteed issue policies, but you should still have some options if you’re coming off an eligible group policy. The Health Insurance Portability and Accountability Act of 1996 (HIPAA) requires that states provide some kind of coverage after you exhaust COBRA as long as you haven’t been without coverage for more than 63 days in the preceding 18 months. For more information, see Health Coverage for All.
The rules and strategies vary a lot from state to state, but you should be able to get a lot of information at your state insurance department Web site (go to our insurance page for links). The Georgetown University Health Policy Institute also publishes excellent consumer guides for getting and keeping coverage in each state.