One of the most obvious, of course, is whether you're having too little or too much withheld from your paycheck. Ideally, you don't want either situation. But perfect withholding is a tough target to hit because so many things can affect your tax liability.
Most Americans, however, don't even get within a thousand dollars of dead-on withholding. The Wall Street Journal has the early figures for this year.
As of March 4, the Internal Revenue Service had received about 60.5 million individual income-tax returns. It had issued more than 52 million refunds, up 1.1% from a year ago. Those refunds totaled $161 billion, an average of $3,070.
The WSJ's Tom Herman points out the downside of getting a big refund — and offers a suggestion.
Uncle Sam doesn't pay interest on routine refunds. Thus, these taxpayers effectively have given Washington large amounts of interest-free loans.
Instead of doing this year after year, these people should consider taking a few moments to recalculate their tax withholding for 2011, their estimated tax payments or both.
Sure, it's a nuisance, and it may not seem worth the effort since interest rates remain so low. But tax-preparation software can make the job much easier.... [Also, t]he IRS offers a withholding calculator — at no charge — on its website.
It would make a huge difference in lots of households if that average refund of $3,070 could be dropped to, say, about $600. That would mean an extra $200-a-month in take-home pay for millions of taxpayers. Who couldn't use that?
The March 4 edition of the IRS's filing season stats are shown below, with a comparison to roughly the same period last year.
We moved last year, and in our relocation process we gave away a lot of stuff: clothes, housewares, decor, and miscellaneous items. Never wanting to give the government more money than I have to, I'm always diligent about getting receipts, writing down items we've given, taking pictures, and so on. It's a little work, but as you'll soon see, well worth it.
The hardest part in the process is in determining fair market value for the items. I'm never too excited about doing this, but thanks to TurboTax's ItsDeductible, the process isn't as bad as it could be. ItsDeductible is the easiest and cheapest way I'm aware of to determine the market value. And it's free (they are hoping you'll then import the information when you file your taxes through TurboTax). So how does it work?
After logging in with your current TurboTax login info (or creating a free account), you can choose to track your current year's donations, add donations to the previous year, or adjust donations for an amended return from two years ago. I selected the second option.
From there, you are given four types of donations: Items | Money | Stock | Mileage.
I naturally selected "Items." After than you will add/select a charity name and the date of the donation. Then you look up the item you donated. This can be done via search box, or from a list of categories/sub-categories. I find it easier to do a search, then select the appropriate sub-category generated from the search.
Once you've located an item(s), you have the choice of quantity and value: High Value, Medium Value, and Low Value. (I'm have not idea why they include the low-value option; the Pension Protection Act of 2006 disallows tax deductions for any clothing and household items that are not in "good" used condition or better.)
Choosing the value is the hardest part as we don't typically record the exact condition of the item, so there is a judgment call involved. Since we don't give away items in poor condition, I'll usually put half of the items in High Value and half in Medium Value unless I can remember that item's exact condition. (Note to self: Next time, it would be helpful to put an H next to the High Value and an M next to the Medium Value items when then them down.)
Let's walk through an example:
Say you have some blankets you gave away. A search for the term "blanket" generates the following choices: Receiving Blankets, Bed Spreads, Blankets, Comforters, Duvet Covers, Quilts, and Quilt/Comforter. Since you just had a regular old blanket, you select "Blankets."
You're then taken to a few more choices, Electric and Non-Electric. And under each of those are even more options, from the size to the material. Since you remember that you gave away a really nice fleece blanket and a decent acrylic blanket, you put a "1" in the High Value box next to Fleece, and a "1" in the Medium Value box next to Acrylic.
Then you click "Add Items" and are taken to a summary screen showing what you've given so far and the value of it.
From there you can add more items or complete that donation. If you complete it, ItsDeductible shows a summary of all your donations and the estimated savings based on your tax bracket (which you selected in the sign-up process). You can also make edits from this screen, print individual donations, or be done with the donations.
If you're done, you're given a quick summary of all your donations, including any Cash, Stock, or Mileage donations you've entered, along with an option go to more-specific summaries that you can print. If you're not using TurboTax, you'll want to print the donations to include with your tax info.
It sounds like a lot of work, but it's not difficult, and you get faster with it as you do it more. I had it done in less than an hour. And it showed an estimated value of $2,193 worth of goods donated. Depending on your tax bracket, that's a savings of about $200-800... for an hour's worth of work! And that didn't include any Cash, Stock, or Mileage donations (and the miles to and from Goodwill can really add up).
So if you're not taking advantage of non-cash donations when you itemize your deductions, you're really doing yourself a disfavor — that is, unless, you make $200 or more an hour. In that case, hire someone to do it for you!
Concerned about how the Japanese earthquake, rising oil prices, or Middle East turmoil may affect your investments? You're certainly not alone!
Today for our PersonalFinanceFriday post, Sound Mind Investing founder and publisher Austin Pryor presents a brief audio commentary on what to do when the news of the day seems particularly unsettling.
To listen, click the arrow on the player below (2:00).
For the first Friday of each month, we invite a guest blogger to write our PersonalFinanceFriday feature. Today's guest writer is famed investor Warren Buffett!
Uh, perhaps we should explain that a bit more accurately. Once a year, Buffett — known as the "Oracle of Omaha" — issues a letter to the shareholders of his investment company, Nebraska-based Berkshire Hathaway. (For a list of the companies Berkshire Hathaway owns in whole or in part, go here.)
Buffet's latest letter (PDF) came out last weekend, and we thought we'd pass on a few of his comments about an important area of personal (and business) finance: debt.
So, here is our March 2011 SMI guest blogger (sort of) Warren Buffet!
♦ ♦ ♦
Unquestionably, some people have become very rich through the use of borrowed money. However, that's also been a way to get very poor. When leverage works, it magnifies your gains. Your spouse thinks you're clever, and your neighbors get envious.
But leverage is addictive. Once having profited from its wonders, very few people retreat to more conservative practices. And as we all learned in third grade — and some relearned in 2008 — any series of positive numbers, however impressive the numbers may be, evaporates when multiplied by a single zero. History tells us that leverage all too often produces zeroes, even when it is employed by very smart people.
Leverage, of course, can be lethal to businesses as well. Companies with large debts often assume that these obligations can be refinanced as they mature. That assumption is usually valid. Occasionally, though, either because of company-specific problems or a worldwide shortage of credit, maturities must actually be met by payment. For that, only cash will do the job.
Borrowers then learn that credit is like oxygen. When either is abundant, its presence goes unnoticed. When either is missing, that's all that is noticed. Even a short absence of credit can bring a company to its knees. In September 2008, in fact, its overnight disappearance in many sectors of the economy came dangerously close to bringing our entire country to its knees....
My grandfather's name was Ernest, and perhaps no man was more aptly named. No one worked for Ernest, even as a stock boy, without being shaped by the experience.
[Below] you can read a letter sent in 1939 by Ernest to his youngest son, my Uncle Fred. Similar letters went to his other four children.... Ernest never went to business school — he never in fact finished high school — but he understood the importance of liquidity as a condition for assured survival.
Over a period of a good many years I have known a great many people who at some time or other suffered in various ways simply because they did not have ready cash....
[E]veryone should have a reserve. I hope it never happens to you, but the chances are that some day you will need money and need it badly, and with this thought in view, I started a fund by placing $200.00 in an envelope, with your name on it, when you were married. Each year I added something to it, until there is now $1000.00 in the fund....
It is my wish that you place this envelope in your safety deposit box, and keep it for the purpose it was created for. Should the time come when you need part, I would suggest that you use as little as possible, and replace it as soon as possible.
You might feel that this should be invested and bring you an income. Forget it — the mental satisfaction of having $1000.00 laid away where you can put your hands on it, is worth more than what interest it might bring....
If in after years you feel this has been a good idea, you might repeat it with you own children.
♦ ♦ ♦
That's our PersonalFinanceFriday post for this week. Have a great weekend!
This month, our PersonalFinanceFriday guest blogger is a long-time friend of Sound Mind Investing, Mike Cave. Mike has more than 30 years of professional experience in financial planning and insurance, and he is also a Registered Investment Adviser.
For a number of years, Mike has been our go-to guy for articles on insurance topics in the SMI newsletter.
In addition, SMI founder Austin Pryor and others on our staff have used Mike's "Life Insurance Checkup" service for help in making choices about how much insurance is necessary (for example, see the June 2009 article: How I Saved a Ton of Money on Life Insurance.)
Below, Mike tackles an important question: Is buying lots of life insurance the best way to provide for your family?
♦ ♦ ♦
A good husband and father wants to care for his family. That's a given. But what is the best way to do that? Should he:
A) Buy more life insurance, or
B) Spend that same money to build an emergency fund, accelerate payments on a mortgage, or fund a Roth IRA?
We frail mortals are often more fear-driven and emotional than we would like to think. In the area of insurance, this often leads to overbuying — such as buying a $1 million policy when $500,000 would do. Or buying $500,000 when only $250,000 is needed.
Sometimes, as suggested above, such purchases may be motivated by the noble intentions of a husband. Or the overbuying might be related to anxiety on the part of a wife. Or it may be driven by the oft-repeated rule of thumb: "Buy 8-10 times your salary in life insurance."
Typically, those who make life insurance purchases do so without considering their overall financial picture. That picture may include other survivorship benefits, such as a death benefit under a pension plan. And, of course, there are Social Security Survivor's benefits.
Often, insurance agents (whose compensation is a percentage of premium collected) fail to explain to clients how much they are insured already (through other benefits). Nor do they explain how unlikely a client is to get a return on his or her premium dollar. And it is a rare agent indeed who will explain how those dollars could be better deployed to build long-term financial stability.
The paradox of overbuying is that, while having lots of life insurance creates an illusion of financial security, in most cases overlarge insurance purchases don't help the family. Indeed, more than 95% of 10-, 15-, and 20-year term policies expire before the insured does. They are paid for, the policy term ends, and the policy ends up in the trash can. It's somewhat like playing the lottery: for most people, it's a very bad bet.
This is not to say there isn't a genuine need for life insurance. To be sure, actuarial tables tell us that a man's wife is likely to become his widow eventually. On average, the life span of a man is five years shorter than that of a woman. And since wives are often slightly younger than their husbands, many women are likely to live quite a few years as widows.
The question is: what is the best way to address this financial need?
Ironically it's not through buying increased amounts of term life insurance. Look at some simple probabilities:
What's the source of these numbers?
Let's assume a $500k 20-year level-premium term policy for a 40-year-old costs $375/year for 20 years — totaling $7,500. Most consumers who buy such a policy will receive nothing. Out of 1,000 insureds, there may be only 15 deaths over a 20-year period. It is this small likelihood that accounts for the low average return on premium dollars.
An emergency fund doesn't earn much at today's rates, so you essentially get out what you pay in, perhaps a bit more or less, depending on interest rates and inflation.
A typical mortgage rate, after the tax deduction, costs about 4% compounded for 20 years.
The Roth IRA numbers shown above assume a 10% return — close to the average market return over time. (Actually, 10% is quite low compared to SMI's historic Sector Rotation return, which is more than 17% annualized since 1990. Admittedly, Sector Rotation is a more volatile approach that using Just-the-Basics, Fund Upgrading, or investing in either of the Sound Mind Investing mutual funds, SMIFX or SMILX.)
Here is what I'm getting at: if you were to pay just $50/month for term insurance rather than $100/month and put the difference in one of these alternatives, the result would be 50 to 150 times more likely to benefit your family (based on the numbers in the table above). Expressing it another way, an alternative approach would likely benefit them 50 to 150 times more!
Example: Suppose a 50-year-old husband, after a careful assessment of his "should-I-die-today" scenario, could save $50/month in premiums, either by reducing his death benefit or finding a less-expensive policy that has the same benefit.
Compounding $50/month savings at 10% annually for 20 years (which would yield about $38,000), and then compounding that total for 10 more years without further premium contribution (these 10 additional years put him closer to normal life expectancy) equals $103,000 in a Roth IRA for his wife's (or his) ultimate use, versus a term policy in the trash can.
Which do you think would be more beneficial to his future widow?
♦ ♦ ♦
Thanks, Mike.
As noted above, Mike's fee-only (i.e., no policies sold) Life Insurance Checkup helps people "right size" their insurance coverage, so they can lower costs and deploy their dollars more effectively.
Every year, the National Taxpayer Advocate sends a report to Congress filled with complaints about the U.S. income-tax system — really.
The latest report came out this week, and since income taxes can have a huge impact on personalfinance (to say the least), we thought we'd share a few excerpts from the report in our PersonalFinanceFriday post.
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that acts as an in-house critic. It is headed by Taxpayer Advocate Nina Olson.
Below is some of what she wrote in her 10th annual report to the U.S. Congress.
♦ ♦ ♦
The most serious problem facing taxpayers — and the IRS — is the complexity of the Internal Revenue Code.
A TAS analysis of IRS data shows that taxpayers and businesses spend 6.1 billion hours a year complying with tax-filing requirements. To place this in context, it would require more than three million full-time employees to work 6.1 billion hours, making "tax compliance" one of the largest industries in the United States....
Perhaps most troubling, tax law complexity leads to perverse results. On the one hand, taxpayers who honestly seek to comply with the law often make inadvertent errors, causing them to either overpay their tax or become subject to IRS enforcement action for mistaken underpayments. On the other hand, sophisticated taxpayers often find loopholes that enable them to reduce or eliminate their tax liabilities....
Because of tax complexity, taxpayers often suspect that the "special interests" are receiving tax breaks while they themselves are paying full freight. Tax simplification would go a long way toward addressing these concerns.
The most promising approach would involve reducing tax preferences (often referred to as "broadening the tax base") in exchange for lower rates. However, it is essential that the taxpaying public have a realistic sense of the difficult trade-offs involved....
[W]e must understand that, in exchange for lower rates, some tax breaks will be eliminated immediately and others will be phased out. If tax reform proceeds on a revenue-neutral basis, however, the average taxpayer's liability will not change, and we will end up with a tax system that is simpler, more transparent, and easier and cheaper for taxpayers to navigate....
The IRS needs automation to administer tax laws and tax-based social programs efficiently.... [But] automation can substitute for judgment and discretion, to the taxpayer's detriment....
[P]olicies programmed into decision-tree tools...can result in decisions and determinations that harm taxpayers and that IRS employees, following the law and their good judgment, would not arrive at....
A little human contact and conversation can work wonders in understanding the taxpayer’s financial circumstances....
[If the collection process is] not handled appropriately, real and lasting harm can be visited upon taxpayers — destroying people’s lives and businesses....
Since 1999, the IRS has increased annual lien filings from 168,000 to 1,096,000, a rise of 550 percent. Lien filings can badly damage or destroy a taxpayer's creditworthiness because they are picked up by the credit rating agencies and retained on the taxpayers' credit reports for seven years from the date the tax liability is resolved, or longer if it is not resolved.
If lien filings were clearly correlated with substantial increases in revenue collection, one could at least understand the IRS's position. But over the same period that the IRS has increased lien filings by 550 percent, revenue collected by the IRS's Collection function has remained flat.... By damaging taxpayers' creditworthiness, the IRS may even be reducing long-term revenue collection.
♦ ♦ ♦
The National Taxpayer Advocate's full report is online here.
Every few weeks, we invite a guest blogger to write our Personal Financial Friday post. Today, we're turning today to Ben Stroup of ChurchGivingMatters.com.
Ben is a former pastor who now represents GENERIS, a company that helps churches and ministries "to develop generosity — a generosity that permeates the culture."
He is a graduate of Belmont University, and he lives with his wife and two young sons near Nashville, Tenn.
We've asked to Ben to share what he's learned about generosity, both as a pastor and as a teacher/trainer in the area of generous giving.
Take it away, Ben!
♦ ♦ ♦
I have the privilege of traveling around the country and meeting with many people who stand in pulpits and many more who sit in the pews. And, yes, I talk with them about money and giving.
In many situations, I have been encouraged to see people exhibit an attitude of what the Bible calls "rich generosity" (2 Corinthians 8:2). Here three things in particular that I've noticed about many of the generous people I've come across:
Their generosity is an external response to an internal reality. For them, giving is not something they see as an obligation. Rather, they see it as the only appropriate response in light of their faith in Jesus Christ. Put another way, there is an interest and discipline related to generosity that doesn’t begin or end in the realm of human things.
Those with the greatest wealth are truly generous. Maybe we're too influenced by Charles Dickens' portrait of the miserly Ebenezer Scrooge, but often we think of wealthy people as being stingy. I’m consistently surprised at how the wealthy people I come across are like the transformed Scrooge at the end of the story! Indeed, in my experience, there seems to be a close connection between those who give the most and those who possess the greatest net worth. (Perhaps the best way to build your net worth is to give it away!)
Generous people are intentional about being good money managers. Those who choose to be generous know that by managing their money well, they can continue to be generous and perhaps even increase their level of generosity. I've met people who have built a "generosity plan" that rests alongside their personal investing plan.
No one becomes generous accidentally. Financial generosity is something we decide is important to us — and for us. We must find ways to leverage the margin we have to benefit others.
Socialism seeks to bring about change by forcing people give up what they have. Generosity, on the other hand, asks us to freely share with others, with the knowledge that we are simply God's vehicles through which His money passes.
The greatest challenge — and the greatest opportunity — to living a life of Christian generosity is embracing a lifestyle that acknowledges, "All that I have, all that I am, and all that I will ever become is a gift from God, a gift to be leveraged to advance the Kingdom."
How will you respond to that challenge — and amazing opportunity — in 2011?
Thanks, Ben! If you're a Twitterer, you can follow Ben @ben_stroup.
♦ ♦ ♦
Well, we know you may have a New Year's Eve get-together to get ready for, so here's just one more thing: Check out SMI's special end-of-the-year offer (good through today only!): a 30-day free trial Web membership.
People aren't stupid. If they see a way to earn a return with little risk, they'll act on it.
And that brings us to the topic of today's post: Did you know that for many years, some people have been getting interest-free loans from the Social Security Administration?
It's true. Social Security effectively allowed seniors to get temporary use of tens of thousands of dollars interest-free — until this week.
A little-known law allows Social Security recipients who are already collecting benefits to change their mind[s] and start over. An individual can claim Social Security at age 62 and then reclaim again for an enhanced payout at age 70, provided he or she pays back every cent already received.
No interest is charged on this "loan" from Social Security. So, an individual who doesn't need to spend their Social Security income on immediate expenses could feasibly invest the money and keep the interest. Upon paying back the principal, these investors will get higher Social Security checks for the rest of their life....
In order to take advantage of this zero-interest loan you need to be able to afford retirement without the monthly benefit. Boston College calculated that approximately 30 percent of men and 32 percent of women have enough financial assets in 401(k), IRAs, and other liquid investments to make it to age 70 without using their checks.
The Boston College study (PDF) referenced above didn't say how many households have been taking advantage of the claim/withdraw strategy, but it estimated that between $5.5 billion and $11 billion has been paid out annually to Social Security recipients who use the money for a while, earn a return on it, and then pay it back.
This week, however, the Social Security Administration slammed the door on that strategy, shortening the legal period between taking benefits and later withdrawing an application to one year. SSA also restricted the suspension period.
Here's an excerpt from a Social Security news release (PDF):
The Social Security Administration today published final rules, effective immediately, that limit the time period for beneficiaries to withdraw an application for retirement benefits to within 12 months of the first month of entitlement and to one withdrawal per lifetime.
In addition, beneficiaries entitled to retirement benefits may voluntarily suspend benefits only for the months beginning after the month in which the request is made.
The agency is changing its withdrawal policy because recent media articles have promoted the use of the current policy as a means for retired beneficiaries to acquire an "interest-free loan." However, this "free loan" costs the Social Security Trust Fund the use of money during the period the beneficiary is receiving benefits with the intent of later withdrawing the application and the interest earned on these funds.
The interesting thing is that Social Security rules have allowed for this "interest-free loan" arrangement since the 1960s, but the matter got little attention until the Boston College study mentioned above was published last year.
Here's something to think about: Were the people using the claim/withdraw strategy unethical? Or were they simply wise to use the regulations to their advantage?
Once a month, we invite a guest blogger to write our Personal Financial Friday post.
Today we're pleased to introduce you to Jason Price of OneMoneyDesign.com, a site aimed at helping people "achieve true financial freedom." The title of his blog comes from three key truths:
There is One owner of money (God);
Our job is to manage Money as stewards;
We can manage wisely if we follow God's Design.
Jason is also a Money Map Coach for Crown Financial Ministries and, in his spare time, he's pretty fair soccer player (so we're told). Jason and his family make their home in Texas — so, we take you now to the Lone Star State and Jason Price!
♦ ♦ ♦
No, it's mine! MINE, MINE, MINE!
Give it back to me! It's my toy!
If you have small children running around your house, you probably hear these words often. I have two little ones. The two-year-old is now old enough to walk over to his five-year-old sister and take something away from her when she's not looking. Within a few seconds, my wife and I starting hearing all the words I quoted above — and at a pretty loud volume!
Even if you don't have small children running around your house, I am sure you've heard strong claims to ownership. In fact, if you're like most of us, you've probably made such claims yourself.
The sense of ownership ("It's mine! Mine!") is buried deep within our imperfect human nature. Even as adults, we tend to have powerful feelings about owning our money and resources. Do any of these phrases ring a bell?
"It's my money and I'll do with it as I please."
"I've worked hard all week — now I'm going to go buy something with my money."
"I deserve it!"
But let me challenge these assumptions. Is what we have really "ours"? Is it really "our" money to do with as we please? God's Word tells a different story:
To the LORD your God belong the heavens, even the highest heavens, the earth and everything in it. (Deut. 10:14)
The earth is the LORD's, and everything in it, the world, and all who live in it. (Psalm 24:1)
Scripture says God has full ownership of this world. And yes, "our" money is included! A recent Crown Financial Ministries devotional discussed the implications of that truth:
Ownership: God or you?
Once you accept the fact that God owns everything, it's important to manage all you have according to His rules (emphasis added). It's how you manage money that determines how you will manage greater things.
"For we have brought nothing into the world, so we cannot take anything out of it either" (1 Timothy 6:7).
Even though God is the owner, He's entrusted money and resources into our care. He expects a lot from us in this area of life. As the Crown devotional suggests, perhaps he's testing us to see how we might manage greater responsibilities than a paycheck. Consider these verses.
Now it is required that those who have been given a trust must prove faithful. (1 Corinthians 4:2)
Whoever can be trusted with very little can also be trusted with much, and whoever is dishonest with very little will also be dishonest with much. (Luke 16:10)
In our personal money management, we prove ourselves to be good stewards of what belongs to God. And Scripture suggests that performing such financial duties faithfully puts us in a position that allows God to entrust us with even greater things.
These "greater things" may or may not be financial. That is up to the Lord. But regardless of the form they take, the Bible says that God looks to his trustworthy stewards to bear even greater responsibilities in His kingdom mission.
Are you claiming to be an owner? Or are you recognizing that you're a steward?
♦ ♦ ♦
Thanks, Jason!
Hey, if you're a financial blogger and would like to offer a guest post for our PersonalFinanceFriday slot, we'd love to hear from you. Just send us an e-mail with your idea for a post.
Just one more thing: Be sure to check out SMI's special Christmas offer: a 30-day free trial Web membership (offer good through Dec. 31)!
Wow! Another Christmas is just around the corner. How have you done thus far on your spending plan for 2010? If not great, don't lose heart, today's a new day. And for those who've done wonderfully, there's always room for improvement... especially around the holidays.
And with one of the busiest shopping days of the year upon us, I wanted to remind you of a series of posts we did last year entitled, The Ghost of Christmas Budgets Past, Present and Future.
In The Ghost of Christmas Budgets Past, I encouraged you to embrace your families' creative giving traditions while keeping the cost of past homemade gifts in mind: "So in your efforts to keep spending down this year, embrace the ghosts of Christmas budgets past. Listen to them and learn what you're getting yourself into."
One thing we did years ago was to decide that we should put more emphasis on individual birthdays than Christmas. That cut down the amount we budgeted for just one event. I think it made the individual attention that each of our 4 children got on their birthday more meaningful.
The second decision we made was that whatever we budgeted to spend on ourselves, we would budget the same amount to give to other ministries. Human nature being what it is, this went a long way toward keeping our splurges to a minimum. — Bob
We've always created a budget for Christmas, right down to the annual Christmas DVD we add to our collection each year, or postage for Christmas cards. We also budget an extra margin of around 10% — which comes in handy when the gift my mother-in-law would really love is $5 to $10 more than I budgeted and I can't find it on sale...
I want to recommend a site that's helped me keep Christmas organized and sane for several years now. It's called www.organizedChristmas.com. I made a binder with master copies of forms I use every year, such as master gift list, family wardrobe check, menu planner, etc. There's a master calendar with "countdown" weeks, so you can be totally done early in December and just enjoy the season. Checklists, too! Everything is free for the printing, and the website owner (now retired) is Christian, so many of the articles speak right to the heart of Christmas and are great for re-reading year after year. — Cate
As for me, next year I'll do a better job of looking at sites like dealnews.com (slogan: "Where every day is Black Friday") before I go out shopping. But I have to say, using these online saving tips paid off...
I'll also continue to use cell phone apps like have ShopSavvy which kept me from overpaying on more than one occasion. With ShopSavvy, you simply take a picture of a product bar code with your phone's camera, and within a few seconds you're shown a list of the best local and internet prices for that item.
And perhaps next year, I'll focus our September-November shopping on the non-toy presents. According to Dan de Grandpre, founder and chief executive of dealnews, the best time to buy toys is at least two weeks after Black Friday (or about two weeks before Christmas) when retailers, such as Toys 'R' Us, Wal-Mart and Amazon.com, slash prices to clear out unsold inventory.
So there you have it, some friendly reminders on how to stay in the black on Black Friday.
At Sound Mind Investing, we eat a lot of our own cooking. In other words, we actually do the things that we suggest to our readers!
Case in point: I wrote a piece a few months ago on the wisdom of having multiple savings accounts, with each account each earmarked for a specific purpose.
Here's a snippet from that article (subscribers' link), which appeared in the June issue of the SMI newsletter:
If all of us kept excellent records...there wouldn't be any need for [multiple,] dedicated accounts. You would know, for example, that $356 in your general savings account is earmarked for new curtains and $1,442 is for getting your driveway fixed.
But human nature being what it is, our record-keeping is sometimes haphazard and our "mental accounting" can get fuzzy. "How much of this money is for the next tuition bill and how much is for a new washer/dryer?"
So in the real world, a dedicated savings account is helpful. Indeed, multiple accounts — each with its own targeted purpose — can be even better....
At first, this sounds like a paperwork headache — and not too many years ago it would have been. But in these days of online savings accounts that link to your checking account, setting up multiple accumulation funds is a relatively simple matter. Furthermore, money can be transferred to each targeted fund (from your checking account) at pre-scheduled times.
Around the time I was working on that article, I had a problem with my heating and air conditioning system. Thankfully, the repair turned out to be minor, but the repair guy (who is also a friend) said something like, "Systems like this are usually good for about 15 years. How old is your house?"
"Uh, 15 years," I said, realizing the implication.
I priced what it would cost to replace the heating/cooling system, and a few days later set up a dedicated savings account. For the past six months or so, my wife and I have been diligently putting away money for the day when the HVAC system finally went ker-plunk.
Last week, it happened. Sure, I wish we had been able to save for another year before the system died, but I'm grateful we had a six-month head start. As it turned out, the money we had saved in our "heating/cooling fund" plus the $1,500 tax credit available (through Dec. 31) for energy upgrades brought us to about more than half the cost of replacement.
I had to dip into other savings to pay the rest of the amount, but guess what? Literally moments before I sat down to write the check, my eldest son sent me an online message: he had just been awarded a scholarship for his overseas study next year!
Remarkably, the scholarship amount was very close to the amount I had to take from other savings to pay the balance on the new heating/AC system. In other words, at the very time I had an expense I wasn't entirely prepared for, I got word that another big expense that is still a few months down the road won't be as large as I anticipated.
So here's what I learned: thinking ahead and saving in a dedicated account for future needs is a good thing indeed. Doing so with our heating/cooling need prompted us to keep saving, even though we weren't sure about the timing of when the system would go bad.
But I also was reminded that when you do your best to be a good steward by planning ahead and yet you still come up short, God often acts to make up the difference. This certainly isn't the first time I have witnessed His just-in-time provision.
When we get together with extended family next week for Thanksgiving, my wife and I will have a good story to tell about the wisdom of saving — and about the faithfulness of God.
♦ ♦ ♦
I discussed the practicalities and benefits of multiple savings accounts in an interview earlier this year on The Meeting House on Alabama's Faith Radio. You can hear that conversation, with host Bob Crittenden, below.
Wow, it's already almost mid-November, so today on SMI's PersonalFinanceFriday, we're offering a round-up of ideas for saving, getting, and giving during the upcoming Christmas season.
First up: Saving with free shipping. Wal-Mart has rolled out a special free shipping offer for items purchased online (through Dec. 20). But, as the Wall Street Journalnotes (subscribers' link), "the splashy promotion applies only to a fraction of Wal-Mart's items, meaning that consumers might still get a better deal shopping at other sites."
[The promotion] includes all electronics minus Apple Inc.'s iPads and iPods, but only limited items in categories such as toys, appliances and furniture.
Wal-Mart estimated it applied to roughly a fourth of the merchandise it sells via its website.
Target will be offering free shipping from Nov. 21 to Dec. 11 on more than 800,000 items (orders of at least $50). Amazon, of course, already includes free shipping on many orders over $25.
Next: Getting via reward points. SmartMoney offers a primer on how to pile up reward points in the next few weeks.
This holiday season, stores and credit-card issuers have rolled out temporary reward bonus programs that, in concert, can generate meaningful savings.
Some credit-card companies have increased their cash back or rewards points bonuses; some stores have increased the benefits of their loyalty programs by threefold; and more consumers are shopping via popular rewards portals (like an online shopping mall) to earn even more rewards. Combined, that can mean big savings.
And: Giving — the gift of stock. SmartMoney looks at the increasingly popular idea of giving kids and teens a share of stock, complete with certificate.
Giving stocks to children for the holidays is up roughly 20% from this time last year, says Rick Roman, co-owner of GiveAshare.com, which specializes in stock gifting....And yes, when it comes to giving stock, the holiday shopping season has already started: If you want a certificate to present, it’s best to order it by Nov. 15 to guarantee pre-holiday delivery of the actual certificate.
Not that an adult investor with an online account might have noticed, but stock certificates have become pretty cool. The mostly black-and-white certificates your parents collected decades ago have given way to colorful stock certificates from kid-friendly companies....
In addition to the standard info — number of shares purchased and the date — shares of Walt Disney Co. have pictures of Mickey Mouse, DreamWorks features Shrek, and Build-A-Bear Workshop is illustrated with stuffed animals. And there are more mature options like Nike, whose certificate features the Greek goddess for victory along with the company’s iconic swoosh logo.
Speaking of the Christmas holidays, we want find out some of your ideas and traditions related to Christmas gift-giving so we can include 'em in a future post! Details here.
Once a month, we invite a guest blogger to write our Personal Financial Friday post. Today we're pleased to introduce you to Craig Ford, founder of MoneyHelpForChristians.com, a site that promotes "a frugal, simple, debt-free, and generous lifestyle so Christians can faithfully maximize their resources by putting them at the disposal of God’s Kingdom."
Craig is also the author of the e-book, The Secret to a Successful Budget (more about that below).
One thing of particular interest about Craig is that he is a missionary, currently living in Papua New Guinea. So, we take you now to the Southwest Pacific and Craig Ford!
♦ ♦ ♦
If you're a regular Sound Mind Investing reader, you probably are already aware of the four financial "levels":
Level 1 – Get Debt-Free
Level 2 – Save for Future Needs
Level 3 – Invest Your Surplus
Level 4 – Diversify for Safety
In some ways, each new level requires a new body of knowledge and set of skills. What you need to know to get out of debt is different than what you need to know to wisely invest your surplus.
But no matter where you are in your financial journey, there's one tool that can help you keep financially healthy. It's the best financial tool of them all.
Are you ready for this? I call it — a budget. Yep, some folks try to be more subtle and give it a different name, but I’m gonna call it like I see it: it's a budget.
But a budget doesn't have to be the same for everyone. Too often, books on budgeting focus on numbers, techniques, and math. But what's essential is finding something that works for you, whether it aligns with anyone else's budget technique or not.
It really doesn't matter whether your system is low-tech or high-tech. All that really matters is that you come up with a system that:
helps you intentionally spend your hard-earned income;
helps you make informed spending decisions;
provides accountability for spending;
serves as a concrete reflection of your true priorities; and
helps you achieve your financial goals.
The goal of the budget is to help you spend less than you earn. If you have a money management system that accomplishes that, then it is an effective budget.
Because each person is different, I wrote a book on on budgeting (details below) that doesn't try to force everyone into a budgeting mold. Instead, I offer various ideas for systems that fit different personality types.
Whatever system you develop, here are three things to keep in mind as you get started on a budget:
Budgeting is a process, not an event. You won't wake up tomorrow with a highly effective budget. It takes time to get better.
There is no such thing as a failed budget. There are simply ample opportunities to improve! When you make a budgeting mistake, just make the necessary adjustments and keep on budgeting.
There is no such thing as a perfect budget. Make it your goal to have an effective budget, not a perfect budget.
So stop thinking about budgeting as drudgery and get out of your mind that it has to look a certain way. Instead, focus on the positives of having a workable plan.
I believe personalfinance is really about managing life, not money, so on the cover of my book, I put a picture of my daughter and me on a beach at the Gold Coast of Australia (that's southeast of where we live in Papua New Guinea). This picture reminds me why I budget. It reminds me that budgeting is not about saying "No." It's about choosing when to say "Yes."
Budgeting isn't an end in itself. It is simply an effective tool to help you use money wisely and make the most of what has God entrusted to you — all along life's financial journey.
♦ ♦ ♦
If you're interested in learning more about Craig's book, click here. Craig's offering a 30% discount (good through Nov. 12) for SMI readers. Just enter the coupon code “SMIblog” at checkout.
It's SMI's PersonalFinanceFriday, and today I'm bringing you a smorgasbord of articles to get your financial juices flowing.
Fitness Deals to Beat the New Year Rush: "It's true that you won't see splashy promotions right now, because most gyms wait to publicize big promotions until the New Year's resolution rush. But if you walk in and ask, you'll find they're very willing to give a discount to get you in the door..."
"'Dad, I need $40 for my new cross-country jersey and stuff,' he said. I fished out a fifty to pass over to him. He could give me the $10 change later.
"Whoa, just a second, I thought. 'Whatever happened to the change for the 30 bucks I gave you back in August?' I demanded.
"'What $30?' he responded..."
The Mall Goes High-Tech: "Back in August, the big retailer Gap decided to go where few large retailers have gone before — using a popular discount Web site to hold a nationwide sale. Shoppers had 24 hours to go online at Groupon.com and buy half-price shopping vouchers good for everything from jeans to trendy messenger bags.... [B]y day's end, almost 450,000 potential customers had bought into the deal.
"It's the new paradox for the American shopper: Just when buying online has become second nature for most consumers, retailers are shaking up the way they sell, now increasingly using the Internet to lure them back to Main Street or the mall."
Goodbye to All That Penny-Pinching: "The challenge for us lies not in knowing what to do, but in doing it. Despite our current economic travails, we live in a society of great wealth. Every time we drive past a shopping center or flip on the television, we are confronted with all the great products we don't own but could.
"Even for those inclined to be cheap, it's not so simple.... So, rather than providing helpful tips in my previous columns, I've used the space often to examine those two great forces that make us spend more than we should: seduction and compromise."
Future-Proof Your Phone's Data Plan: "Following AT&T's lead, both Verizon Wireless and T-Mobile are expected to unveil new cell phone data plans this week, offering lower prices for customers willing to give up their unlimited data plans. But the $15 savings might not be worth it — and if you switch, there could be no going back."
In our never-ending quest to equip you with tools and resources for better financial decision making, I'm back with two more. Now bear with me on these two, as they may not be as obvious in their money-saving potential.
The first up is Dropbox, a file-hosting service that lets you store files across the internet using file synchronization. They offer free storage of up 2 gigs, 50 gigs for $9.99/month, and 100 gigs for $19.99/month.
The setup is ridiculously easy: sign up and then install the Dropbox sync client on any computer (PC, Mac, or Linux) from which you'd like to be able to access the files. That's essentially it. Have a file you think you might want to access from both home and work? Just put it in in your Dropbox folder.
Dropbox also has apps for the iPhone, iPad, Android and Blackberry platforms. This came in handy the other day when I wanted to listen to a sermon I had put it in my Dropbox at work. I pulled out my phone and tapped the file. Within seconds, Andy Stanely was giving another brilliant sermon.
So how does Dropbox save money? For starters, remote-control software services such as GoToMyPC are overkill for my needs. I have the free (2 gig) Dropbox account and am currently using only 3% of my total capacity. So rather than paying GoToMyPC $20/month, I'm paying nothing. Secondly, it keeps me from having to burn files to portable media, saving me the time and money of doing so. Furthermore, since the files are synced, I can always know that I'm working with the most recently updated file (if you've ever saved an older file over a newer one, you know the frustration of having to redo it — and, as they say, time is money).
Dropbox is a dead-simple, practical service that's worth trying if you have file sharing needs.
Next up is PayPal. Now PayPal is really without peer for web-based payments and money transfers. I mean sure, Google Checkout lets you pay for things, but it's hardly as ubiquitous or robust.
PayPal has had apps for the iPhone, Android, and Blackberry platforms for a while. You could use these apps to send money to people, donate to a charity, or look at past transactions. But now iPhone users can deposit checks by taking a picture. Pretty wild. Simply snap a picture of a check via the PayPal app and the funds will be transmitted to your account within seven days.
Of course, banks such as USAA and Chase also allow you to do this kind of thing — provided you have an account with them. But PayPal's 226 million accounts makes its reach and accessibility vastly superior.
So how does this save you money? No more driving to the bank to make the deposit, a time and money waster. I didn't say it was gonna save you a ton of money, but every little bit adds up. And let's be honest... it's just really cool too.
That's our PersonalFinanceFriday for this week. Spend wisely — and have a great weekend!
It's PersonalFinanceFriday, and today we're focusing on preparing for retirement (plus we have a special freebie for you — read on!).
SMI has never endorsed the idea that when people arrive at certain age they should give up all productive endeavors and go spend every day on the golf course or at the lake. We think a person's later years can be spent in all kinds of productive enterprises, especially those that relate to strengthening family ties and advancing the Kingdom of God. And if your health is good, you might even want to keep working.
But even if you plan to keep earning an income well past normal "retirement age," it's wise (and good stewardship) to build up savings now so you will have adequate financial support later.
Regrettably, many people are failing to save enough when they are young or middle-aged, according to retirement-funding studies.
In the decades ahead, that lack of savings, when combined with possible cuts in Social Security benefits, is likely to mean that Americans will be forced to work longer, competing for a limited number of employment opportunities that may not pay as well as current employment.
To help you think through the realities of retirement planning, we've prepared a complimentary new report, IRAs, 401(k)s, and Social Security: A Retirement Planning Primer. The report explains the "three-legged stool" of retirement income: Social Security, private employer-sponsored retirement plans, and personal retirement savings. We believe it will help you craft a plan to ensure future financial stability.
The report includes:
An overview of the Social Security system — and why cuts are likely ahead;
A review of the pro and cons of different types of employer-sponsored plans;
An explanation of the differences between a "traditional" IRA and a "Roth" IRA;
A discussion of how to keep taxes to a minimum; and
Advice on why to consider an IRA, even if you have an employer-sponsored plan.
For details on how to get complimentary copy of IRAs, 401(k)s, and Social Security: A Retirement Planning Primer — or our other FREE report, Seven Key Principles for Christian Investing — click here.
♦ ♦ ♦
Next week's PersonalFinanceFriday post will look at two easy-to-use (and free!) services that can save you money and simplify your life. How 'bout that!
A few weeks back, we told you about three tools that could help you save money. Today, as part of SMI's new PersonalFinanceFriday series, I'm back this week with another one.
I'd like to introduce you to Ziplist. What is it? "ZipList is a free shopping list management tool that allows you to create and share grocery lists with family members." After registering for your free account, you can start building your lists by searching for items and adding them.
While the service is geared towards groceries, you can add clothes, home improvement items, essentially anything you want. There are fields for coupon information, notes, and the ability to mark an item as "Important." You can assign certain items to a preferred store and if a store you shop at isn't listed in your zip code, you can create it. You can even rearrange the store's aisles so that your list is geographically efficient.
Where Ziplist really shines is with its recipe functions. You can add recipes to your account and whenever you're ready to shop for them, simply find that recipe and click "Add to list" and the recipe's items will be added to your list. You can even add recipes you find on the web by installing a special link on your toolbar and clicking it when there's a recipe you want to keep. Very slick.
Furthermore, Ziplist has a free app for the iPhone so you can access your lists on the go. Additionally, you could build your lists using only your iPhone's camera by scanning the bar code of the items you'd like to add. Don't have an iPhone? There are options to access your list via text messaging, instant messaging, and email.
You can also share your lists. This is especially helpful for families. Say I remember that my wife is going to the store today and there is a certain melt-in-your-mouth-not-in-your-hands chocolate I'd like. I simply add it to the shared list (via the site, email, text, instant message, or my iPhone). When she pulls up the list on her phone, there's my candy, organized by category.
There are other services similar to Ziplist, like Grocery iQ. While Grocery iQ doesn't allow you to add items straight from your computer, the interface might be more intuitive for some. Furthermore, it has free apps for both the iPhone and the Android platforms. Overall, I have found Ziplist far more robust and feature-rich, but since they're both free, they're both worth trying out.
So you're saying to yourself, "This is all fine and dandy, but how does it help me save money?"
A few ways:
You aren't likely to buy items you already have or forget items and have to spend time and money (on gas) going back to the store to get the missed items.
Having a list keeps you more efficient — and, as they say, time is money.
But most importantly, sticking to lists is one of the first lines of attack against impulse buys. If you'll commit yourself to your list (and coupons), you won't likely walk out of Costco with a greenhouse they tempt you to impulse-buy while you wait (and wait and wait) in one of the only two lanes they have open!
Next Friday, we'll focus on preparing for retirement. Spend wisely — and have a great weekend!
Welcome to our new series, Personal Financial Friday!
Each week, as you head into the weekend, the SMI Visitor's Weblog will serve up several practical ideas on making the most of what the Lord has entrusted to you. And every so often, we'll call on of our favorite personalfinance (PF) bloggers to present a guest post.
In fact, we launch our series today with a post from one of the best in the PF blogopshere, Bob Lotich of ChristianPF — a personalfinance blog "dedicated to helping Christians become better stewards of what God has provided." Take it away, Bob!
♦ ♦ ♦
When the economy is good and jobs are secure, impulse buying is a feel-good luxury that reminds you of your success. But when credit-card debt starts to mount, the economy gets wobbly, and your next paycheck is less certain, impulse buying becomes a dangerous addiction that can lead to a precarious financial situation.
There's a simple beauty to be had from fun that comes for free. Recently, a friend who's been unemployed for the better part of a year told me he'd taken his wife for a walk by the riverside park in his city. Although they spent no money, it was the best fun the two of them had enjoyed in some time.
My friend used to be a big spender with a good paying job who tried to prove his love to his wife and family by giving them a big house with all the latest toys. Now, in a very different situation, he's discovered he must stop his impulse buying or perish.
How can you curb impulse buying? Here are five tips to get you started.
1. Avoid places that cause you to spend.
If one of your favorite pastimes is browsing Amazon.com and you know you can't afford the latest version of the Kindle, don't go there. Don't go to your favorite clothing stores, bookstores, online retail sites, and coffee shops.
You may tell yourself you won't get the $4.50 latte and just stick to the $1.75 drip coffee instead, or that you'll maintain the resolve not to click the “Add to cart” button, but why torture yourself with the temptation? If you don't go there, you can't buy it.
2. Have a yard sale.
What does cleaning out your closet, your garage, your attic, and your basement have to do with impulse spending? Consider what almost every person who has ever had a yard sale has realized: you have a lot of stuff that you bought but never use.
Just the process of sorting through the clothes you bought on a whim and only wore once, or the kitchen gadget you never take out of cabinet, teaches you a valuable lesson about impulse spending. Much of what we buy, we don't really need. Those things rarely make us happier, and even they do, it's often a short-lived thrill. Selling your unused impulse purchases in a yard sale puts cash back in your pocket, while freeing you from the burden of stuff weighing down your attic and your conscience.
3. Write down what you want.
Instead of buying an impulse item right away, write it down on a Santa-style list of wants. Put that list somewhere you can see it, somewhere you can add to it any time. Instead of making the purchase, leave the list alone for a period of time — at least a month. Give yourself permission to buy anything on the list after that period of time.
Something interesting is likely to happen. When you come back to the list after a month or so, you may laugh at some of the things you thought you "ABSOLUTELY HAD TO HAVE." It's quite possible that you'll no longer feel the need to purchase most of those things, and you'll wonder why you were so excited about them in the first place.
4. Save up.
Do you remember saving your allowance for a big purchase when you were a kid? It was fun to watch the change or the dollar bills in your piggy bank grow as you worked hard to put a little bit of your allowance aside each week or month.
Why stop saving as an adult? Instead of buying an item on impulse, open a savings account and set aside a little bit of money each week or month until you've saved enough to get the item. This method of purchasing allows you to enjoy those "want not need" items, but without the budget-destroying guilt trip.
5. The best things in life are free.
When it comes right down to it, happiness is a state of mind, not a new pair of shoes. As my friend discovered, our greatest enjoyments in life don't come from our credit cards anyway. Despite what marketing geniuses try to convince us of in commercials and advertisements, "more stuff" and "more food" are not the keys to happiness. Impulse buying won't solve relationship problems or improve self-esteem or make us more attractive.
The best way to cure impulse buying is to ask yourself what lies beneath your compulsion to spend. You might find that what you're really looking for is far less tangible than a new gadget.
Indeed, like my friend, you might discover that the best things in life really are free.
♦ ♦ ♦
Thanks, Bob!
Next Friday: A smart phone app that could save you money — if you use it wisely. Have a great weekend (and don't forget to check out the new October issue of the Sound Mind Investing newsletter)!
Blog
One of the most obvious, of course, is whether you're having too little or too much withheld from your paycheck. Ideally, you don't want either situation. But perfect withholding is a tough target to hit because so many things can affect your tax liability.
To the LORD your God belong the heavens, even the highest heavens, the earth and everything in it. (Deut. 10:14)
I had to dip into other savings to pay the rest of the amount, but guess what? Literally moments before I sat down to write the check, my eldest son sent me an online message: he had just been awarded a scholarship for his overseas study next year! 
