Jun 10 2015

Here’s the skinny on reverse mortgages

By |June 10th, 2015|General Personal Finance|Comments Off on Here’s the skinny on reverse mortgages|

Reverse mortgages tend to elicit extreme reactions. Proponents tout them as an essential retirement planning tool, offering income to seniors who are in dire need of it. Critics say that deceptive ads for reverse mortgages take advantage of a desperate population, giving seniors the idea that the money being paid to them is already theirs, or some sort of return on investment.

In my opinion, products are not inherently good or evil. That being said, reverse mortgages are one of those products that tend to be either a great idea or a terrible mistake, with very little middle ground. In order to see why, it is important to understand how they work.

Tapping your home’s equity

Reverse mortgages are available to those who are at least 62 years old. They resemble a home equity loan or line of credit in that they allow you to convert some of your home’s equity into cash. There are no restrictions on how that cash is used, which makes the reverse mortgage an appealing option for seniors who are worried about retirement income. The money can be taken as a lump sum or installments, and it doesn’t need to be repaid until you move, sell the home, or die.   There are few more fundamentals that must be understood before the reverse mortgage option is considered as part of a retirement plan, however.

They are expensive. Interest rates and closing costs on a reverse mortgage tend to be higher than on other mortgage or home equity products, which reduces the amount available to you.

You are still responsible for taxes, insurance, and maintenance on the home. Not much explanation required there, I don’t think.

Your heirs will not get your house unless they can pay back the reverse mortgage after you die. This might be viewed as a desirable outcome if you are worried about saddling your heirs with property they will then have to dispose of. But if your house represents a significant portion of your estate, it is important to understand that your children or other heirs may not get it.

Moving to a nursing home counts as moving out. Moving out means your reverse mortgage will need to be repaid. Long-term care is expensive, so locating the extra cash to make the mortgage payments may prove difficult.

A last resort

When you consider the drawbacks, reverse mortgages don’t look all that appealing. But they do have one feature that makes them something of a jewel among retirement options – they are available when nothing else is. By the time we reach age 62, the die is largely cast. There may be very few working years left to pad a nest egg, and the options have dwindled. Seniors who find themselves without adequate retirement savings can use reverse mortgages to supplement their income, pay off debt, fund medical expenses, or simply create an emergency fund.

Essentially, including a reverse mortgage in your long-term retirement plan is probably unwise. But as a last resort for those who reach retirement without enough savings, reverse mortgages can be a lifeline.

Jun 8 2015

When paying off debt, it pays to plan

By |June 8th, 2015|General Personal Finance|Comments Off on When paying off debt, it pays to plan|

Debt is like that toxic friend you’ve had for as long as you can remember; you know the situation needs to be addressed, but you put if off because the process will be unpleasant. However, with friends and finances, waiting until the situation refuses to be ignored can lead to catastrophic – and unnecessary – consequences.

Get over it

Often, the shame or embarrassment we feel about debt can hinder efforts to bring it under control. It’s easy to see why – for the most part, people who are prone to casual mention of a debt situation are those who want you to know they don’t have one.

If you are ashamed of your debt, it’s time to get over it. How you got there is irrelevant – once you have it, a student loan and a credit card balance are both negative lines in your net worth calculation. Face the facts and forget about what anyone else thinks – there is nothing to be gained there.

Turn off the faucet

If you find yourself spending on credit cards, figure out why. Write down all of your expenses for three months, both credit and cash. Then cross out the ones you could have lived without. If the resulting total exceeds your monthly income, cross out some more. Then use this information to build a budget going forward.

Finally, and this is the important part. TAKE YOUR CREDIT CARDS OUT OF YOUR WALLET. This simple advice saved me thousands of dollars at a time when I needed to get my spending under control. Freeze the cards in a cup of water, give them to your mother for safekeeping, or cut them up – it doesn’t matter.

Make your plan realistic

If you’re reading this, you probably love a good “get out of debt” story as much as I do. It’s easy to find examples of folks who tightened their belts, lived on beans and rice, and proudly and inspirationally detailed their experiences on the Internet. And really – my hat is off to them.

But it’s important to know yourself. Just as in managing, cash, understanding what will work for you is paramount to successful debt management. That’s not to say there won’t be sacrifices, but severely restricting your spending all at once is like extreme dieting. It feels like progress for a while, but for most of us it leads to a binge that could make all your efforts for naught.

Redefine the process

If you’re having trouble facing your debt, redefine it. Although debt is often the consequence of spending, paying it off actually belongs on the savings side. Putting aside the recommended 20% of income each month becomes easier if you count your extra debt payments as savings.

Think of your savings as a large bucket. Now imagine that someone cut out the bottom of the bucket and placed it on top of a large hole. Any money you try to put into the bucket will be swallowed by the hole. In order to start filling the bucket, you must first fill in the hole.

The reason that I like this analogy is that it allows you to plan for the long term. Rather than viewing paying off your debt as an isolated, overwhelming task, incorporate it into your long-term picture. Once the debt is paid, the money going to debt can be redirected toward savings goals.

Give yourself the best chance of long-term success

Of course, not all of your 20% savings should be going to debt, no matter how dire your situation. The best intentions in the world won’t help if you have to pull out your credit cards for an unexpected expense. Before you really dig into your debt, put aside at least $1000 for emergencies. If you have to tap into it, redirect your extra debt payments until you build it back up.

Also, you should always contribute at least a little bit to your retirement accounts, especially if you have an employer match. Once your debt is paid and you begin to redirect that monthly allocation, you can increase your contributions and try to make up any ground you lost filling in the holes.

Jun 4 2015

Accounting Software Must be Easy to Use

By |June 4th, 2015|General Personal Finance|Comments Off on Accounting Software Must be Easy to Use|

If your accounting software isn’t easy to use, it’s useless – here are some tips for how your accounting software should make your life easier.

accounting software

Ease of use is a key element of good small business accounting software. The reason is plain and obvious; most small businesses are small in size, with few people to do a lot of tasks. Time to spend on an extensive learning curve tends to be rare to non-existent. The software should, as nearly as possible, run well from the start with minimal advance user preparation. Most small business managers that act as bookkeepers and perform an accounting function do not do it by choice, but by necessity. These are vital functions, and the business would likely nor continue nor grow without them. However, in small business environments these tasks often take time and personnel away from the main business.

Accounting for Non-Accountants
The mantra of most small business managers is that I am not an accountant. The overall mission of most businesses does not involve financial products, and accounting expertise is often not on staff. Online accounting software can build-in the principles of data organization that contribute to reports and presentations that meet generally accepted accounting practices.

The Main Functions Must Be Clear and Simple
Most businesses have to keep records of accounts; they have to pay others and get paid by customers and clients. Accounting software can help the essential tasks of paying on time and getting paid promptly. Other main functions include payroll, tax records, and expenses. Invoice management is an essential function for most businesses because receivables are the primary source of revenue and a critical asset. Smaller businesses and micro-businesses often have simple accounting needs. If they begin to grow, their needs also expand. Multiple bank accounts, credit facilities, and expanded staff or outsourcing are but a few of the typical areas of growth. Expandable accounting software is ideal for these businesses; one can add or begin to use new features as needed. Continuity in accounting software is an added benefit, as expandable software avoids the need to change brands and start learning new systems.

Reports and Documents
There are many requirements and situations in which managers need reports. Using sources of financing, estimating taxes, and developing proposals are but a few instances for making financial reports. Some reports can be done automatically simply by setting categories and updating data on a frequent basis. Reports and documents are easier without the need to research and check data manually or in every instance. Automated data collection provides a great place to begin most reports.

Online Access Adds Versatility and Flexibility
The small business environment is increasingly an online environment providing access to markets and opportunities anywhere within the reach of the Web. Online access provides flexibility for owners and managers of small businesses. They can access the systems from remote locations and at any time. Using mobile devices such as phones and tablets, one is never away from the system, and this extends the locations for getting work done. One does not have to go to the office or even sit in front of a computer or workstation. Managers can stay on top of details while traveling. Mobile access permits collaboration and team input into problem-solving or work on projects. Many small businesses establish an online presence with a virtual office or executive suite; accounting software can integrate with these systems for effective presentations, Web pages, and dashboards.

Experience is the Teacher
Owners and managers can learn while using small business accounting software to adapt it to new uses and extend the benefits. The key is a simple and easy to use system that promotes a seamless system start-up. Once the user successfully initiates the system, they gain familiarity. Experienced users can apply the software tools to their individual situations, and many devise unique ways of handling problems and reducing time and effort. One can continue to learn from software provider’s resources as well as real-time activities.

Saving Time and Reducing Effort
Accounting software can perform many tasks that managers might otherwise do manually. They can replace spreadsheets and ledgers. They can perform the basics of double-entry bookkeeping and keep records in accordance with accepted accounting practices. When the business needs reports for internal management and external requirements, accounting software can provide easy access to current data on key categories like sales, bank balances, cash flow, payables, and receivables. The software is ideal for managing multiple bank accounts, credit cards, and lines of credit. It can display information on graphic forms that provide quick analysis of the condition of the business.

Technical Support is Vital

Small business owners and managers benefit from easy access to an extensive range of technical support for small business accounting software. The difference between frustrating failure and rewarding success can be a short phone call that helps orient the user correctly. Technical assistance providers with high levels of proficiency and experience can quickly point users away from points of confusion. If the provider seeks to offer a simple, straightforward small business accounting software system, then technical assistance must be an essential part of the overall service. Passive forms of technical assistance can be effective too. Questions and answers pages can add to understanding and demonstrate best practices.

Making the Right Choice

A trial and demonstration are excellent tools for selecting small business accounting software. One can project circumstances that occur in one’s business. Many small business managers note that too often a demonstration focuses on the strengths of the software rather than the needs of my business. Ease of use is a critical factor when selecting accounting software. Frequently the users have little time to learn and low levels of prior accounting knowledge. There are many helpful items on the Sage One website to determine the best fit for your small business accounting software. One can even have a hands-on demonstration at http://na.sage.com/us/sage-one

Jun 1 2015

Understanding who benefits from 529 plans

By |June 1st, 2015|General Personal Finance|Comments Off on Understanding who benefits from 529 plans|

I’m a big believer in getting bang for your buck. When it comes to saving for college, the 529 plan definitely deserves a place in your portfolio. There are reasons for this, which I’ve written about before, but there are also misconceptions that should be brought into the light.

As a savings solution for the middle class, 529 plans appear to have an image problem. Public perception seems to be that the high account limits and tax breaks offered by 529 plans benefit the wealthy, and certainly there is a great deal of truth to this. If your position is to oppose any sort of provision that benefits folks with lots of money, this probably isn’t in your wheelhouse.

The way I see it, there isn’t much logic in opposing something simply because it benefits someone else (I realize that this makes me almost un-American these days.)   The truth is that there is plenty for the rest of us to like about 529s, if only we pay attention.

Here are the major tax benefits of 529 plans, not coincidentally listed in order of the ascending income of those who benefit most. If you are planning on funding someone’s education, it’s important to understand this savings option.

Tax-free earnings

529 plans offer federal tax-free earnings on qualified withdrawals, i.e. withdrawals that are used to pay for college expenses. Additionally, many states offer this benefit, and some even offer deductible contributions (up to the limit set by the state.) Withdrawals taken to offset a scholarship, employer tuition assistance or veterans benefits are subject only to income tax on earnings, allowing the owner to reap the benefits of tax-deferral for those amounts.

Since the tax-free earning feature appears to be under fire lately, let’s look at what happens if taxes turn out to only be deferred. Consider an investment of $1,000, followed by monthly $100 investments, 7% return rate (net of fees, compounded monthly) over a period of ten years. For a person in the 25% tax bracket, a taxable account would earn $4,354. That same account, tax deferred, would earn $6,420. Taxes upon distribution would bring this number to $4,815 – about 10% more than the earnings in a taxable account.

In the worst case, nonqualified withdrawals are subject to the aforementioned tax on earnings and an additional 10% penalty those earnings. The 10% penalty would bring the earnings number to $4,173. The worst case scenario – where you don’t end up using the money for college at all – costs you $361 over ten years. This picture improves as your tax bracket goes up – at 30%, the numbers are close to equal. Not a terribly risky gamble to take with money that would otherwise be invested in a taxable account.

Accelerated Gifting

Another tax feature of 529 plans is accelerated gifting. For 2015, the gift tax exclusion limit is $14,000 per person. However, 529 plans allow you to front-load up to five years of gifting, so that you can contribute $70,000 to one beneficiary’s account without incurring gift tax.

I know. We’re back to the wealthy again. The degree to which this feature is touted probably feeds into popular misconceptions about who benefits from 529 plans. If you have $70k you’re looking to park somewhere – congratulations. Put the money to work all at once, rather than piecing it out over five years and missing out on potential gains (see my post on dollar cost averaging.)

But it’s important to remember that $70,000 is the high end. The gifting provision applies to any amount over $14,000 (and below $70,000), and I know a few grandparents with that kind of money to pass along. 529 plans allow them to gift money to grandchildren without actually giving it.

The accelerated gifting provision makes 529 plans a useful estate-planning tool, which brings me to my next point.

Estate Planning Benefits

Once assets are gifted through a 529 plan, they are removed from your estate for estate tax purposes (though if you die before the beginning of the fifth year, a pro-rated amount will revert back and be subject to estate tax.) However, since you are the owner of the account, you retain control of the assets. This is my favorite part – you can reduce your estate tax exposure and still keep your money. Furthermore, if you designate a successor account owner, those assets will pass into the hands of your designee without going through probate.

(And yes. The estate tax exclusion for an individual for 2015 is $5.34 million. This one benefits only the wealthy.)

The bottom line is that the tax benefits of 529 plans matter to anyone who might be planning to send a beneficiary to college. And the penalties for not using the money as intended are relatively minor.

May 29 2015

Big Party, Small Budget: 7 Ways to be an Awesome Host

By |May 29th, 2015|General Personal Finance|1 Comment|

042f44d52dce42799bb719736926769dHave you ever wanted to throw a party, but were afraid to because of the stress and price tag attached to it? Parties can be stressful and expensive, but it doesn’t have to be. Here are a few tips on how to keep your stress levels and expenses low while throwing an epic party.

1.     Do a little Planning

A little planning never hurt anybody. In fact, when you sit down and really plan your party to the last detail, you’re setting the stage for a worry free party where everything just works. Planning everything from the placement of drinks to contingency measures to deal with broken plates, spilled drinks and even backed up toilets so it won’t affect you too much and your party will go on without a hitch.

2.     Make a Budget

If you don’t want to get a budget hangover the next day, make sure you set a budget for your party and don’t go over it. Make a list of all the things you need and prioritize each one. If food is on the top of your list and printed balloons are at the bottom, serve your guests the best food you can make and just pick up cheap latex balloons you can mark with a pen. Be sure to leave some money for party necessities such as ice and drinks.

3.     Digital Invites

Don’t waste money on paper invitations and postage stamps. Services like Evite and Punchbowl are excellent for sending out cool invites to all your guests. These are customizable and you can even choose what type of party you’re having and what contribution your guests can bring. You can always use Facebook if you hate signing up, but the invites on those two look way cooler.

4.     Choose a Theme

Cowboys or Aliens? Choose a theme for your party! It doesn’t have to be a swashbuckling pirate party. A simple pajama party or Hawaiian shirt party can set the tone and give your guests something to talk about. Remember, the atmosphere has to be fun and the reason you’re throwing a party is for you and your guests to have a good time.

5.     Make it Potluck

You can cut your food costs down if you ask your guests to contribute their favorite dish. You can have a mini competition or ask them to just bring appetizers while you take care of the main course. Potluck adds diversity to your menu. You can theme your food as well by having a taco party, a pizza party or even an all American party of burgers and hotdogs!

6.     BYOB (Bring your own booze)

Drinks can put a huge dent in your budget. You can handle this three ways: ask your guests to bring a bottle of their favorite drink with them (BYOB) or if they prefer mixing it, they can provide the main ingredient and you can provide the rest.

 

Next, you can pick a theme drink like gin & tonic or Screwdriver and only stock up ingredients and liquor for that, while showing off your skills as a bartender. Lastly, you can just serve wine or beer by buying by the case at any Costco’s, where the discounts really make a difference.

7.     Set the Mood

Greet your guests with a smile and warm hug! It’s important that you’re all prepped up and done fixing your hair when your first guest arrives. Not rushing to and from the kitchen looking frazzled and overwhelmed helps too, so be sure to have all your food prepared way in advance.

 

Use your phone or computer to stream music from Pandora or Spotify to set the tone for your party. Set the drinks near the entrance too, because that’s the first thing thirsty guests will look for.

Party starts @ 7:00

Throwing a party shouldn’t be stressful. It should be loads of fun! The next time you’re thinking of throwing a party, make sure to do a little planning first and try to keep your costs down. And don’t forget to have a blast with your friends!

May 28 2015

The Beginner’s Guide to Binary Options

By |May 28th, 2015|General Personal Finance|1 Comment|

Binary options is fairly new in the stock market trading, more like in its infancy in the world financial trading arena. Binary options give the traders alternatives who are not exactly experts in the most complex financial instruments or for those who do not have the means to invest thousands of dollars on their first trade. This type of option is very feasible, especially for beginners.

With binary options, you can benefit from significant profits and at the same time, take advantage of of a minimal investment.

Since this type of trading is relatively new, we’d be giving you basic information on what you need to know to be able to trade and get started making money with binary options.

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What is Binary Options?

It is a very simple contract with fixed rewards and fixed risk. This is an upcoming financial trading method where this is only the two outcomes that you would expect from it. You, as the trader, will first sign up with a platform, like Binary Uno, and then will guess if the assets will increase or decrease by the time it expires. If you guessed it right, you get the profit and if not, you’ll lose your investment minus a percentage that remain in your account. It is not that complicated. When you think that the asset will go up, you select the Up option in most binary platforms and if you think that it will decrease, select the Down option and put in your price.

It means that for the average trader, it provides instant results and gratification. This type of trading also happens in a web-based environment so that you can do it from your own PC connected to the internet. The trading is a whole lot simpler and straightforward than any other kind of financial trading out there in the market. As for the benefits, this includes instant results, a simple trade, low risk, Web-based trading, a game-like experience and a prospect for huge profits.

There are three key ingredients to a binary option trade and that is:

  • Expiry Time – simply the length of time wherein from the moment you “buy” the option until it closes.
  • Strike Price – the price you were able to enter the trade. This determines whether your trade will win or lose.
  • Pay-out Offer – the offer of the binary option broker to you.

Is there any downside to Binary Options?

As much as it sounds extremely easy, the downside of this type of trading is that like any other market out there, if you venture into this trade without research or enough preparation, you can definitely lose money. If you treat this as a casino since it is fairly easy and fun to do, that can be also dangerous.

The risks are typically limited and pretty low, contrary to other financial markets. You will know exactly what you will get based on how much you want to invest and you can’t possibly lose more than that. Do keep in mind though, that you pay for losing trades — you lose your trade amount or the majority of it.

Now that you know the basics on binary options trading, another thing to consider as well is that you would need to find a reliable, trustworthy, dependable broker. If they offer excellent advice, the better. You will still need assistance no matter how easy this type of trading may sound. Be sure to look out for binary brokers that offer great customer service support, flexible in trading assets, and easy to navigate website for your convenience.

Would you try out binary options and add it to your investment portfolio?

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