Bad Money Ideas of the Young

You found the one to start a life with. You now share home, love – and your financial backgrounds with your new partner and family. Here’s what to know and how to tackle debt, budgeting and other aspects of your newly merged money matters.

Young couples and families often begin the journey together with a large amount of debt from student loans, car payments and perhaps one or both partners’ past credit card usage. The responsibilities of starting a family only deepen the hole.

If you are a young adult still looking for a high-paying job, who can’t afford a home or car and who constantly struggles with debt, then financial planning and effective debt management can help you. So can dispensing the following preconceived money notions common to young families.

We don’t need professional help. Young families with debt – especially those with children – need to think hard about meeting a financial planner to put finances in order. A planner can not only set a proper budget for you, but also advise you on how to invest for the best possible returns.

For example, planners can advise you on saving for a home, setting up a college fund for your kids and establishing a fund to handle unexpected emergencies.

What’s wrong with a little credit card debt? The greatest financial blunder a young family can make is carrying too many credit cards – and the accompanying huge bills and balances.

Mitigating and managing credit card debt becomes particularly tricky when these balances typically carry one of the highest rates of interest (often more than 17%). Inexperienced new adults with fresh plastic frequently make the mistake of paying only the monthly minimum. Continuing to do this means paying off the entire balance – assuming a family racks up no more debt on a given card, which is unlikely – will take more than a decade.

Attempt to make at least $100 more than the minimum payment on each card account and try to use cash instead of plastic as much as possible. If you or a member of your family has difficulty controlling card use, you can look for assistance from a credit counselor.

Let’s fly without a budget. Poor budgeting is close kin to any debt issue. Young couples tend to overspend mostly because they often underestimate expenses and practice the flawed habit of spending first and then planning to save what’s left. Unfortunately, spending incessantly rarely leaves anything at the end of the month.

Make (and follow sincerely) a frugal budget, keeping in mind all your daily expenses and saving plans, needs and intentions.

Retirement is far away. Many young adults just don’t understand the significance of saving for retirement and so skip investing in 401(k) workplace retirement plans or individual retirement accounts. These youngest wage earners literally labor under a misconception that the future is too far away to worry about, and instead focus on such short-term goals as buying a new car.

If you invest at least 15% of your income in retirement savings consistently from an early age, you’ll remain far ahead financially after retirement. Here’s timeless advice for all young adults: You’ll need that money sooner than you think.

4 Must-Reads on Debt

The lack of financial education is often the main reason behind debt problems. Here are some awesome books that help grow your financial knowledge and give you all the necessary tips and tricks to manage your debt.

Americans are drowning in credit card debt. Families in the U.S carry $600 billion in card debt, Equifax, one of the three credit bureaus, estimates. Millions of people looking for debt relief are feeling helpless.

Debt-strapped people should always keep themselves updated about the possible ways to get rid of debt. These four great books filled with tips and effective strategies to avoid and eliminate credit card debt can help you in a major way.

Building Wealth and Eliminating Debt. This exceptional book by Charles Carradine is your ticket to financial prosperity. It discusses many personal finance issues in a comprehensive manner. It is a literary manual which endeavors to improve your financial condition.

The author shares tips on a wide range of topics including avoiding debt, its impact on your credit score and protecting yourself from credit card scams. Carradine says that his aim is to educate the readers on how to stay clear to debt and correct poor financial behavior.

How to Settle Your Debts without Committing FinancialSuicide. Author Norman Perlmutter has the predicament of people who struggle with credit card debt in mind. Being a “get-out- of-debt coach,” Perlmutter treats topics like elimination of credit card debt, repairing of credit and reorganizing your finances with considerable expertise. He lists the dos and don’ts when dealing with creditors so that you can successfully settle your credit card debt and avoid bankruptcy.

The Total Money Makeover. Your financial education cannot be complete without reading this acclaimed book by Dave Ramsey. The immensely popular financial expert suggests a slow but steady seven-step strategy for you to attain financial freedom.

Ramsey advises maintaining a rainy day fund of at least $1,000 and following a snowball approach to get out of debt. The book also gives you 50 real-life examples as encouragement.

Life or Debt 2010: A New Path to Financial Freedom. This book by Stacy Johnson is dedicated to helping the debt-stricken get back on their feet. Here, Johnson discourses extensively on money management. He particularly emphasizes how to avoid money traps that push you toward debt. His no-nonsense approach to financial education will keep you from indulging in indiscreet use of credit cards.

Financial education is something that you cannot afford to slight, particularly during times of debt troubles. You need to know all the possible options available to keep yourself afloat. If you read the above books, staying clear of debt and avoiding debt relief programs like debt settlement and consolidation will be much easier.

New Investor Tips

Looking to grow your income to finance your hobbies, expand your business, or contribute to a nest egg, making your investments work for you is surprisingly simple.  Jumping into the investment market as a teen or a retiree makes no difference, there are both quick and slow ways to build up your investments.  Pick an investment type that works for you.

Types of Investments

Each type of investment carries its own set of risks (the probability of liability or loss) and potential gains (quick turn profit or growth over time).  Generally, the more risk involved, the higher potential there is for larger gains or loss.  Buying stocks and shares, for example, offer short-term gains but are a quick way to turn a profit.  Listed below are a few types of investments that people of all ages typically deal with:

Stocks and Shares:  With stocks and shares, the investor buys a percentage of ownership of a public business, therefore making them a part-owner of the business.  Stocks can be highly profitable—the more successful a company or a stock is, the more money you stand to make.  Stocks are high-risk, though, because the market is unpredictable, and the shareholder risks losing some of all of their investments. 

Bonds:  Bonds yield little risk, and therefore do not have a high potential for returns.  Bonds are like IOUs that you lend out to companies, councils or the government.  Interest is paid back to the lender on the amount loaned. 

Property: Buying, restoring, and renting or selling real estate can potentially net large sums.  Like stocks, however, the market is unpredictable.  Economists have been predicting a major recovery in the housing industry for 2013, though, so it would be best to look at trends in your local area if you’re looking to invest in property.

Certificates of Deposit (CD):  CDs are fixed-period investments with banks or savings and loan companies.  Like bonds, CDs rely on interest and carry a low risk. 

Commodities:  Commodities include gold, silver, jewelry and precious metals.  Like stocks, commodities are high risk because their value waxes and wanes in the unpredictable open market. 

Mutual Funds:  Mutual funds are a collection of assorted investments that may include stocks, bonds, properties and cash-equivalents, the purpose of which is to create a balanced portfolio.  Mutual funds contain both low-risk and high-risk investments, so sometimes investors consult outside agents to strategize their portfolio to try and achieve the highest potential for profit.

This is only a partial list of investment types.  Other types include but are not limited to: futures, cars, artwork, stamps, hedge funds and foreign exchange currencies.

Planning Appropriately Based on Your Age

If you’re a middle aged business owner that is looking to stretch out your earnings for a retirement plan, but do not have any experience with investing, where do you start?  Your investment trends should change over time.  The younger investor can afford high risk investments, while the older investor should play it safe and be conservative with their options to maximize their savings. 

The Young Upstart 

Young investors have the opportunity to learn the market from the ground up, so having a large portfolio is crucial to earning big.  Mutual funds provide a hassle free approach to investments with a high-yield potential.  They get you familiar with multiple investments.  Young investors should carry a higher percentage of stocks than bonds in their portfolios.  A good stocks/bonds percentage should look like 70/30 or 80/20. 

Mid-Life Planning

Middle-aged portfolio builders should begin to stay away from riskier investments.  Back off the stocks and mutual funds, and switch to safer, more predictable assets like CDs and bonds.  A middle aged portfolio should contain a stocks/bonds percentage close to a 50/50 split with a higher percentage of stocks at about 55 percent, and gradually reduce stocks down to 20 percent near retirement.

Finely Aged Entrepreneurs

If you are late in the game, don’t worry, there’s a plan for you.  To reduce stress, older investors can always hire a financial advisor that can help you work toward your goals and base a plan on your interests.  Beware of investment fraud.  Older people are often a common target for financial crime and scam artists.  Do not fall for high-pressure sales tactics, intimidation, limited offers, seminars, or “elderly specialists” with bogus certificates and accommodations.  As a rule, it’s best to stick with low-risk investments like bonds, CDs, smart real-estate, gold, fixed income cash investments and long-term care insurance.  A starting portfolio for older investors should be around 35 percent or lower in stocks and 65 percent or higher in bonds. Older investors should look into IRAs, which provide instant tax benefits with annual contributions.  Open a brokerage account with Charles Schwab, Scott-trade, E-Trade or other popular brokerages, they usually have fewer restrictions and give you more control over your investment.  

No matter your age, it is important to find an investment plan that works for you—there’s money to be made. 

Wonder Who Should Do Your Taxes?

Your payroll forms and stock records start to arrive in the mail and you begin to swear you’ll soon gather up all those receipts. Tax Day looms. Who’ll help file your 2014 return?

Every U.S. citizen living and working in this country or abroad must determine the federal income taxes he or she owes, as well as taxes owed to individual states or other local authorities. The deadline to pay those taxes for yearly salary earners falls on April 15 of most years, including 2015. If you pay taxes quarterly, you face deadlines in April, June, September and January.

Whichever category you find yourself in year to year, you must choose how to file a tax return before the deadline, as well as which filing status you qualify for. Generally, your choices for filing status are:

• Single or head of household, meaning you detail on tax forms only your income, deductions and tax breaks.
• Married filing jointly, meaning you and your spouse report your combined income and deduct your combined allowable expenses.
• Married filing separately, which absolves each of you for the other’s possible unintentional omissions or deliberate errors.

Because some filing statuses can be more advantageous for you than others, determine the filing path that best suits your personal and financial situation.

Next, decide who if anyone will help prepare and file your return. The average fee nationwide for preparing a tax return, including an itemized Internal Revenue Service Form 1040 with Schedule A (for itemized deductions) and a state tax return, is $273 this year, according to a survey by the National Society of Accountants.

Using a certified public accountant or tax preparer is a common way to address your tax situation well before a deadline but many people continue to prepare and file federal tax returns themselves.

CPAs versus tax preparers. Even though CPAs and tax preparers may have significant experience in completing and processing tax forms, there are differences between each type of professional.

CPAs, for example, must undergo rigorous education and certification to become experts in many areas outside of tax preparation, such as accounting matters or other financial services. While you may very well pay more for the services of a CPA than for a non-CPA tax preparer such as an enrolled agent or a registeredtax return preparer, the additional cost generally covers the expertise to analyze complex tax situations.

If you believe your tax situation is relatively straightforward and simple, choosing a tax preparer might be a more cost-efficient method to file. Another advantage: These professionals offer you a degree of protection. If one of these professionals makes a clear error or miscalculation on your return, the IRS often holds the preparer accountable before penalizing you.

Remember: Booking a professional preparer becomes harder the closer we get to the filing deadline.

Filing yourself. Individual or self-filing can be an option if you want to save money on hiring a CPA or preparer and especially if you’re experienced with tax filing. If you make less than $60,000 a year, you can find free forms and other tools on the IRS FreeFile page.

Several national tax chains, local and national organizations, and even makers of tax software offer free or low-cost preparationservices both in-person and online. Online services allow you to enter employment information that generates the necessary documentation needed to file both state and federal income taxes.

Among those that charge a fee, these alternatives generally cost $12 to $25, depending on the complexity of your return. While these services may be cost-efficient and user-friendly, you do risk incorrectly inputting data or taking an inappropriate deduction.

Complexity of your employment often dictates the best option. For example, if you hold a long-time job with the same company or organization and take a few standard deductions, you might simply go with a preparer or an online, self-filing service. If you changed jobs more than twice in a year or are an independentcontractor, you probably ought to consult a CPA or other experienced preparer.

Either way, start your preparing long before the tax deadline.

Kimberly J. Howard, CFP, CRPC, ADPA, is a Certified Financial Planner and the owner of KJH Financial Services, a Fee-Only practice located in Newton, Mass. and Denver

(781-413-4879). Please visit us at www.kjhfinancialservices.com or email Kim at kim@kjhfinancialservices.com. Follow on Twitter at @kimhowardcfp.

Interview with Kimberly J. Howard, CFP

Income Tax Deductions To Remember

At tax time, every possible deduction can help when money is tight. Yet many available legal deductions go unclaimed each year, simply because most Americans still don’t know they exist. From cost savings for eyeglasses to approved deductions for airline baggage fees, no matter who you are, you’re likely to find at least one applicable deduction on the list below—and odds are you qualify for more than one. So read carefully, the savings can add up…

• Job-hunting costs are applicable expenses that can be added to your itemized deductions. Did you spend out-of-pocket costs traveling to interviews or spend money stationery for resumes and cover letters? If so, deducting these items can make a big dent at tax time. And one doesn’t have to be officially unemployed to qualify. Searching for a better job, even while fully employed, is perfectly acceptable. Other applicable deductions include food and lodging for overnight stays, cab fares, and employment agency fees.

•If that new job is your first job, any incurred moving expenses may indeed be deductible. To qualify for the deduction, your first job must be 50 miles or more from your previous residence. Those who qualify can deduct the cost of moving and, if you drove your own vehicle for the move, deduct 23 cents a mile plus parking and tolls.

• While everyone recognizes that necessary medical items like wheelchairs and hearing aids may be deducted, few realize that eyeglasses and contacts also fall into the same category. While designer eyeglasses, or drug store magnifiers, may not seem like medical devices, the IRS does allow these deductions – a big cost savings at tax time.

• Though we all known charitable contributions are tax deductible – one of the most common ways that Americans gain tax deductions – many less obvious acts of charity also qualify, Out-of-pocket charity expenses such as the cost of paint and poster board for a school fundraiser, or the cost of delivering meals or chauffeuring other volunteers can be deducted. Such mileage deductions may be totaled at a rate of 14 cents per mile plus parking and toll fees. Deductions of more than $250 will require a written acknowledgement from the charity involved.

• Members of the National Guard or military reserve may claim a deduction for travel expenses to drills or meetings. In order to qualify, the service member must travel more than 100 miles from home on an overnight journey. Applicable deductions include lodging, meals, and 56 cents per mile plus parking and toll fees.

• For those employees who have served on juries in the past year, jury duty may represent a taxable deduction. Many employers continue to pay their employees during the time of jury proceedings, but require the employees to turn over jury pay as a recompense for the time away. To even things out, you can deduct the amount you give to your employer. In such cases, the write-off goes on line 36 – the line totaling up deductions that get their own lines. Add your jury fee total to your other write-offs and write "jury pay" on the line directly to the left.

• Airline baggage fees are another deduction that is rarely recognized by the American traveling public. All told, these fees can add up to serious costs. If you're self-employed and travelling on business, you can add those costs in as approved business deductions.

• While many tax credits for energy-saving home improvements have expired, the most valuable credits still exist until 2016. These applicable credits will effectively refund 30% of the of alternative energy upgrades such as solar hot water heaters and geothermal heat pumps.

• In most cases, one can only deduct mortgage or student-loan interests if one is legally required to repay the debt. But if you’re a non-dependent student who still receives help from mom and dad, you parent’s generosity may help you at tax time. If mom and dad pay your loans, the IRS treats the money as a gift to the child who used it to pay the debt. As such, a non-dependent child can qualify to deduct up to $2,500 of student-loan interest paid. Be advised, however, that mom and dad can't claim the interest deduction. Legally, it’s not their debt.

Just remember, in order to get the most out of your tax returns, you must stay as organized as possible, and do your research—no one likes getting audited. 

Tailor your Taxes: Which Service to Use When Filing Taxes

Every US citizen living and working in the United States or abroad must determine which federal income taxes he or she owes, if applicable. The deadline to pay those taxes for yearly salary earners falls on April 15^th of each year; for those who pay quarterly taxes, this date is generally the last day of the second quarter. Despite which category you may find yourself in from year to year, every working person must choose how they file their taxes before the April 15^th deadline. There are pros and cons to a variety of filing options which ultimately depend on the type of employment status workers procure.

Once you have determined whether or not you are required to file for federal income tax, you must figure out which filing status you qualify for. Because some filing statuses can be more advantageous for some individuals or families than others, it is important to determine the path that best suits your personal and financial situation. Approaching a certified public accountant (CPA) or taxpreparer is a common way to determine your tax situation before April 15^th, but a sizable portion of the American workforce continues to prepare and file their federal taxes themselves.

CPA versus Tax Preparers

Even though CPAs and tax preparers may have significant experience in completing and processing tax forms, there are differences between each role. CPAs, for example, are required to undergo state-mandated certification that make them experts in many areas outside of tax preparation such as accounting matters or other financial services. While customers may very well pay more for the services of a CPA than a tax preparer, the additional cost generally covers the expertise needed to analyze and prepare rather complex tax situations. If you find your tax situation is relatively straightforward and simple, choosing a tax preparer might be a more cost efficient method to file your federal income tax. Another advantage of using these services is the protection that comes with your taxes being filed by another business. In the event of a clear error or miscalculation by a CPA or tax preparer office, the IRS will often hold them accountable before penalizing the filing party.

Individual Filing

Individual or “self-filing” can be an option for those who wish to save money on hiring a CPA or tax preparer and who might also have due experience with the tax system. Those who understand how to file generally choose this option using free forms and other documents found on the website of the Internal Revenue Service. Online services also allow those to enter in their employment information in a wizard that will generate the necessary tax documentation needed to file both state and federal income taxes. These step-by-step online wizards generally charge between $12 and $25 depending on how complex one’s tax preparation is for the service. While these services may be cost efficient and user-friendly, filers run the risk of incorrectly inputting data or taking advantage of a deduction or strategy that could have been otherwise been advised by a CPA office.

The complexity of your employment situation will often dictate which option is best. Those who have changed jobs more than twice in a year or who are independent contractors should probably consult the services of a CPA, while those who have been employed with the same organization for a few years and have a few standard deductions might simply go with a tax preparer or online, self-filing option. Those who are required to file federal income tax should nevertheless conduct their own research well before the tax deadline in order to determine which option is the best for their financial situation.

How to Protect Your Greatest Asset – Your Home

Your biggest investment is likely your home. You can protect it – in ways that go beyond staying current on the mortgage.

A home is more than a financial investment. It is an emotional investment. The feeling of owing your dream house is the experience of a lifetime. You relish having something that's all yours – a place where your own style statement tells the world who you are.

If you are a cash-strapped consumer, debt relief must be your first step to secure this prize. Pay down your home loan, with the goal of being debt-free.

Beyond that, however, hazards lurk that are not strictly financial. They are physical. Failure to protect against them can turn your dream into a nightmare. Only through careful consideration of threats and a systematic approach can you protect your home.

There are three crucial areas to focus on: access control (security), fire prevention-response and maintenance.

Access Control. Break-ins are down in the U.S. by 3.7% last year, the latest in a multi-year slide, according to Justice Department statistics. Nevertheless, in terms of raw numbers, burglaries and home invasions still happen often.  By the tabulations from Safeguardtheworld.com, using federal numbers, 2.5 million break-ins occur annually in the nation or one every 13 seconds.

Keeping out criminals and other unwanted persons is very important. Security measures, from locks to alarms, determine who has access to what and when. They range for sophisticated to traditional, from door handle locks and deadbolts to electric or magnetic locks. You also can protect the home with adequate lighting system, near entry areas, to dissuade burglars from busting in. Then there are alarms, which alert the police or security companies that intruders are on the premises.

Crooks aren’t the only ones to worry about. Babysitters and maintenance people also have combinations for your alarms and locks because they have legitimate business in your house. But they won’t work for you forever. What if they – or someone they know – later look at your home as a target?

Keep changing your lock codes frequently in order to prevent a wanted guest from becoming an unwanted one later.

Fire Prevention and Quick Response. Fire is the single largest cause of property loss in the United States. The National Fire Protection Association says that, in 2013, the nation had 487,500 building fires, causing 3,240 civilian deaths, 15,925 civilian injuries and $11.5 billion in property damage.

Property insurance pays for replacing or repairing fire damage. But the better idea is to stop a fire from spreading and seriously harming your dwelling. Alarm systems linked to fire departments or security services are a big help, especially when you are away. In addition to smoke alarms, consider installing carbon monoxide sensors in the home, and heat sensors in the attic, as well. It gives an alert to dangerous heat levels in the home.

Maintenance. Little things can get out of hand: mildew, termites, drainage. Your house must be maintained from time to time to bolster its value in the market. It’s good to fix problems sooner rather than later.

You can arrange sprinkler systems to ensure proper landscaping and water consumption. Master control computers can remind you of repetitive maintenance, such as when to clean gutters and change HVAC filters.

Your home is your castle. But it needs a good moat.

Kimberly J. Howard, CFP, CRPC, ADPA, is the owner of KJH Financial Services, a fee-only practice located in Newton, Mass. and Denver, CO (781-413-4879). Please visit her at www.kjhfinancialservices.com or email Kim at kjh@kjhfinancialservices.com.