RSS FeedThe Importance of Estate Planning
No one likes to think about it, but we all know that at some point, we will pass away. When we do, we will likely leave family behind, and because of that, it is extremely important to have some estate planning in place well before anyone is in a position to need it. Regardless of your net worth – whether it’s a few hundred dollars or a few million – you need an estate plan to make sure your loved ones are taken care of to the best of your ability.
Basic estate plans generally contain three different parts: a will, a designation of power of attorney, and a designation of medical power of attorney/living will. There are federal laws governing these things, as well as individual state laws depending on where you live, so you will likely want to consult an attorney to make sure your estate plan is compliant with all applicable legal guidelines.
To get started putting your estate plan together, you need to take stock of your assets. Your assets include any real estate, insurance plans, savings, investments and anything else of that nature. The will in your estate plan outlines what you want to have done with your assets after you die, so you must then consider whom you want to have inherit your assets. If it is more than one person that will inherit them, then you must consider how they should be divided among those people.
Wills are not simply for allocating your assets, though. If you have children, then your will is also the place to outline who should take care of your children after you pass away. Setting this out clearly well before it’s something that’s necessary will ensure your children are taken care of, which is one main reason that estate planning is so very important, regardless of how much your estate is worth monetarily. Dying intestate – without a will – can create conflict within your family and means you have less say over what you want done after you’re gone.
Dying isn’t a subject most of us care to think about, especially when we’re young, but having a basic estate plan in place is the responsible thing to do, particularly if you have children. The plan will ensure that your assets are divided in the way you want them to be, and that your family and loved ones are taken care of after you’re gone, which is something we all need whether we’re rich or poor.
What are Leverage Strategies?
Leverage normally designates a strategy in which borrowed capital, or any other debt, is invested with the expectation of hopefully yielding a higher return to equity. In essence, leverage strategies potentially offer a superior return prospective or hedging opportunities, although these strategies are mainly intended for investors with high risk tolerances.
To acquire financial leverage, an investor is presented with two possible solutions. Investors will either utilize funds obtained by means of a normal loan or through the contraction of debt, the process of which will be reinvested. This strategy, if proved successful, will produce a higher return than the total cost of the debt together with interest. In this case the return on equity will have presented comparable benefits to the firm and a clear financial gain over not borrowing the funds.
It is evident that this strategy is only lucrative when the return is equal or larger than the total cost of the funds borrowed. Even if the direct return only equals the interest charged on the loan, a firm still stands to benefit since the investments acquired will produce return over and over again further on down the road. Additionally, leverage can provide a direct line of funds if a good business opportunity arises in a time when the firm has no funds of its own available to invest.
The common risks associated with leverage strategies should be considered since there are plenty of things that can go wrong, llike dealing with the problems of remortgage and trying to find solutions for financial loans. Interest rates are the most significant dilemma attached to this type of investment, especially if they are very high. If the borrower is unable to cover the expenses or the profits presented by the assets is lower than the interest on the capital, the return on equity is lower than if the firm had not borrowed the money. Cash flow obligations can also create strain since the money borrowed will be reinvested and the firm is required to make repayments on the funds. If repayment schedules are not met as stipulated, the firm might be forced to sell the assets prematurely, eliminating any compensation initially thought possible.
In the end, when undertaking an investment, it is important to understand the risks associated especially given that the funds needed to complete the venture can comprise an enormous expenditure for the firm. Making sure the leverage investment doesn’t exceed investors adequate risk tolerance levels can be the first line of defense.
Back to School Budgeting
It’s coming up on that time of year again. For many of us, the end of summer heralds the start of a new school year for our children, which is usually a happy time. No more kids laying around all day whining that they’re bored, less time and money spent on childcare, and more – there’s no doubt that Back to School Time is a good time.
Until you remember Back to School Time also means you’ve got to go shopping, that is. The price tags attached to the start of a new school year can be pretty daunting. New clothes, new backpacks, new supplies – this stuff can get pretty expensive. Fortunately, there are ways to keep the spending down while still getting the kids the items they need to start school off right.
The biggest expense related to the kids going back to school (aside from tuition, of course) is likely to be the new clothes they’ll need. This usually isn’t as big a financial burden if you have younger children as it can be if you have teenagers, but it can still get pricey. The first thing to do is set a cap on how much you will spend and then stick to it. If your older children insist they just have to have the hundred dollar sneakers, even if that eats up half of their allotted amount, you can let them make that decision if you want, but explain that once their budget is gone, it’s gone.
Another way to avoid overspending before school starts is to spread it out. Buy the kids a few things to get them started, and then pick more items up as you go along. There’s really no reason to buy an entire fall and winter wardrobe for a child in August. After all, they can’t wear everything at once. If you pick a few items up here and there as the weeks pass, you can plan your shopping around stores that are having sales and better budget your money, ensuring you get the most value for your dollar.
The start of a new school year can definitely be hard on the bank account, and budgeting will always help. It’s easy to spend more than you anticipated once you actually set foot into a store, but with some careful planning and setting limits you can stick to, you don’t have to go broke getting the kids outfitted for school.
Kids and Money
People often fall into two categories when it comes to managing finances: those whose parents taught them the value of a dollar and those whose parents didn’t. People falling into the former category are pretty lucky, and those that fall into the latter probably ran into some obstacles when they got out on their own to make their way in the world. The ability to effectively manage finances isn’t genetic – it’s something we need to be taught to do, and regardless of which category you personally fall into, if you have children or plan to have children, you can recognize the need to start teaching your kids early on the importance of not spending money like it grows on trees.
The sooner you begin teaching your kids about money, the better off they will be. Though very small children might not grasp the subtleties of financial planning, they can understand it in a broader sense. Starting off broad and narrowing the focus as they get older is the best approach. You can teach a very small child that money isn’t infinite – even though it seems like Mom or Dad just walk up to the ATM machine and magically get money after pushing a few buttons, you must endeavor to make them understand that the money is there because you worked for it. It’s not magic and it is the product of earning it.
To help them learn this lesson, you can give them an allowance that is based on their age and abilities. In order to get the allowance, they must do something for it – make the bed, pick up the toys, whatever chore you find is appropriate – and if they don’t do the work, they don’t get the allowance. If you institute a rule that allowance money must be used in order to get things your child wants, your child will eventually learn to save. After the first few times your child must go without something they really want because they’ve already impulsively spent their allowance on small nonsense things, the lesson will hit home – money isn’t infinite, it has a value attached to it, and if you really want something, you can’t spend what you have on things that are unrelated to that goal.
By sticking to your guns and teaching your kids, you can potentially head off major financial disasters in their lives in future. This isn’t to say that they won’t make mistakes, because they will. Mistakes are part of the learning process, after all. But instituting solid financial awareness from a young age will create people that grow up to be able to learn from their mistakes and eventually be capable money-managers.
Have a Fun Summer While Saving Money
When we think of summer it usually involves higher electricity bills, sweaty stinky days outside, no motivation to do much more than sit in the air conditioning and watch re-runs of I Love Lucy. But there are some money saving ideas that you may want to incorporate into your summer days as much as you can. While saving money all year round is ideal, the fact that it is warm outside opens up a few other possibilities that we don’t have available during the colder months.
Fire up that grill! There is nothing like cooking a steak and grilled potatoes and corn on the cob while the sun is setting. Using the inside stove and oven creates a lot of heat right where you don’t want it… inside. It’s already warm outside, so why not cook out there. Keep that oven and stove turned off so the air conditioner isn’t trying to work so hard. Make a family even out of it every couple of weekends. Have friends and family come over and all bring something for the meal. This makes a little less work on you, and gives you some quality time outside with the people you love. Chances are, they will appreciate not heating up their kitchen tonight as well!
Remember that old clothesline? Put it to use! No only does the dryer heat up the house, dryers pull a lot of electricity as well. Some people avoid using clothes lines because they like to use softer in the dryer. The best resolution to this is to use washing machine softer. Hanging your clothing outside to dry takes advantage of the natural sun and heat.
Cut off the AC. Don’t be miserable by any means, but be aware of what weather is ahead. For example if you know its going to a nice night cut the air conditioning off right before bed and open some windows. If it’s a nice, cool, rainy day crack the windows. You can also reverse the spin on your fans to pull in cool air from outside.
Lastly, near the end of summer prepare for next years landscaping and summer supplies. These items will be going on sale, and now will be the best time to buy them. Make a list of the things that you purchased this year that you will probably need for next and be sure and get them when they go on sale this Fall.
Certificates of Deposit 101
A certificate of deposit is one way of investing your money. When you put money into a certificate of deposit, it keeps that money at a set or fixed interest rate for a certain time period, depending on what type of CD you get. The fixed interest rate means it will not adjust for inflation, and remain the same throughout the entire term of the CD. Though interest rates for certificates of deposit are generally higher than the interest rates of a standard savings account or a standard money market account, the rate of return you get is generally considered to be low in comparison to the rates of return other types of investments pull in.
A certificate of deposit pays interest in one of several ways. Some will automatically deposit your interest monthly or quarterly into the account of your choice. Others will add the interest back into the certificate of deposit itself, and still others will pay the interest when the CD’s term or time period is over. Some CD plans will also roll over into a new CD automatically upon expiration of the term, investing it again at the current market rate. Since the interest rate on your CD is already fixed, it will not adjust up for inflation throughout its term, and if it automatically rolls over into a new CD at current market rate, you may get locked into another term with a rate that is not what you would like to see.
Since you cannot access the money you put into a CD for whatever the set time period is, CDs are not a good idea unless you know you will not need that money before the time limit expires. Withdrawing money from a certificate of deposit before the time period is over will leave you with early withdrawal fees and penalties that may not be worth the risk at all. And if your CD is one that will automatically roll over into a new one upon expiration of its term, you will certainly want to keep a close eye on it in order not to miss that day and have your money tied up for even longer.
To summarize, certificates of deposit are good low risk savings tools. If you do not need to take your money out early, getting a CD with a long term may prove to be a wise choice, but you must read the terms carefully, as with anything, before signing on the dotted line.
Heating Your Home Without Breaking the Bank
With fuel costs across the country skyrocketing, many of us are feeling the heat, as it were, when looking ahead to the coming winter. Natural gas prices have gone up steadily over the past few years, and in many areas, the jump this year has been even more drastic. This leaves the majority of us wondering how we will be able to keep our families comfortable when the cold weather hits and still manage to pay those high heating bills on time. Don’t panic, though. With a little preparation, you can head off some of those heating costs so this winter doesn’t wreak havoc on your personal finances.
There are the obvious steps to take, such as turning the thermostat down a few degrees. A few degrees lower won’t cause much noticeable difference in the comfort of the room, but it will show on your monthly heating bill – some estimates put it at a 2 to 3 percent savings per degree you lower it, which isn’t too shabby. Lowering the heat even more while you sleep – since you can pile on the blankets to keep warm – or while you are not in the house will also help. Just remember – never turn the heat off the whole way. Letting your house get cold will then make it take more energy to warm back up when you do come home or wake up in the morning.
Another step to take is to make sure your home is properly insulated. Having doors and windows that aren’t properly sealed and insulated is nearly as bad as leaving that door or window wide open in the middle of January. Weather stripping materials and caulk are inexpensive and easy to implement. Line drafty doors and windows with it, and you’ll go far towards reducing the amount of heat you lose and the amount of cold you let in. Make sure that your electrical outlets and light switches are also well-insulated. You can purchase foam gaskets that can block any cold air coming from exterior walls of your home through any such outlets.
These are just some of the small, easy steps you can take to improve how efficiently you can heat your home. Larger-scale projects, like installing all new windows, and having foam insulation blown into your walls by a contractor, are also obviously good ideas, if you can manage them, but every little bit helps you cut down on your heating costs, and any improvements you make now will still serve you well when fuel costs go back down.
Standard Deduction vs. Itemizing
Which one is better for you? First of all you need to understand the difference between the two. Unfortunately we do all have to file taxes. But we have the ability to file as accurately as we can to produce an end result that is in our better interest. To do this you need to have a solid understanding of basic tax filing methods, including the difference between the standard deductions and itemizing your deductions. Although you can still list your itemized deductions if you have your taxes prepared for you, it is an absolute must if you do your taxes yourself. First let’s look at the differences.
If you take the standard deduction amount, then you are accepting a flat amount to be deducted from you taxable income. This isn’t the same thing as exemptions, which you should be able to get where you itemize or take the standard deduction. Instead of taking the standard deduction, you can also choose to claim your actual deductions by itemizing. If your expenses are greater than the standard deduction amount, this will save you money on your return.
Decide if you should take the standard deduction or itemize by using Schedule A, which is included with the long version of Form 1040. This allows you to list all of your allowable expenses. Compare this total to the total of the standard deduction. (the standard deduction will vary depending on your filing status) If your allowable expenses are greater than the standard deduction, you certainly want to itemize.
While the list of allowable deductions has gotten smaller, making itemizing your deductions harder, mortgage interest continues to be the major allowable deduction for most. This certainly should make the list and chances are it is high enough that it alone puts your over the standard deduction allowing you to itemize.
Aside from mortgage interest there are still some main items that are still allowed to be claimed as a deduction. State and local income taxes can be considered. Also state and local personal property taxes based on the value of personal property such as cars or boats can be added. Even medical expenses (If they exceed 7.5% of your Adjusted Gross Income). Remember, also, that any charitable contribution can be itemized as well.
There may be other items that you can list on your taxes. This is one way of getting better results from your tax return. If you do your taxes yourself, you should still visit with a tax preparation professional that may know you personally. He or she may have other advice that could positively affect the outcome of your overall tax return.
Holiday Spending
Many people dread the holidays simply because of the gifts that are expected to be purchased, along with parties to give and/or attend, and decorations for the house. It has become necessary to save all year for just one day. You probably find it hard to look at your child’s face and say, “I’m sorry, but we just can’t afford that right now.” Should you just turn off your lights and hide until this nightmarish day has passed? Of course you don’t have to do that!
As in most things involving money, the key to succeeding is in planning. Your savings plan needs to begin in January. If you are already on a monthly budget, you will need to figure out just how much money you can put away each month for holiday spending. You don’t want to make yourself “savings poor,” however. The amount of money you save should not be so much that it creates a financial strain. That is where the planning comes in.
Start small if you need to. Get a large jar or container that will be used only for extra change. This is a way that everyone in the family can contribute. Instead of using that change on soda, candy, or whatever else you can live without, put it in the container. You will be surprised at just how fast it will all add up in 12 months.
Another way to build up your holiday spending fund is to put away any extra money that may come along during the month. If you have a bill or two that is less than your budgeted amount, take that left over money and add it to your fund. This is something else that will surprise you at how fast it can add up.
A lot of banks offer holiday savings accounts. These are pretty good because you are not allowed to withdraw any of the money put in there until right before the holidays. So, any money that is deposited in this account through the year will be safe because you cannot touch it.
Now, assuming that you do one, all, or a combination of some of these money saving methods, you will not be dreading the holidays so much this year. In fact, you may even find yourself looking forward to them, and to the smiles that your gifts will put on some special faces.
Money Market Funds 101
Money market funds are a very popular choice for investors across the country. These funds have been around for over 30 years, and offer benefits and advantages that standard accounts like savings, checking or certificates of deposit are unable to offer.
Money market funds are a kind of mutual fund for investing in short term debt securities. The agencies that your money market fund may invest in include banks, corporations, and the United States government. By “short term,” we mean less than a year, and the shares in your money market fund will be fixed at one dollar each.
Unlike certificates of deposit, there is no early withdrawal fee or penalty for taking your money out before the term expires. You can withdraw funds from it on short notice without suffering any penalties, and you can even write a certain number of checks a month that use your money market account’s funds. Interest on your money market funds will be calculated daily, and paid out at the end of the month. If, however, you sell the fund entirely before the end of the month, the interest will be paid out immediately.
If you plan to make a large purchase, such as a house or new car, a money market fund is a great place to put your money while you’re saving up. The interest rates your money will accrue will rival the usually high interest rates of a certificate of deposit, but because there are no penalties for taking the funds out, they are a much safer bet. Additionally, you run very little risk of losing your investments entirely, since money market funds generally invest in things like Treasury bills, also known as t-bills, which are government bonds issued by the United States Department of the Treasury. Any government based investment is likely to be very safe, since the government can raise taxes in order to meet its debt obligations. And though money market funds are not covered by the FDIC (Federal Deposit Insurance Company), most companies that handle mutual funds carry insurance of their own that will protect you.
All of these factors combine to make money market funds a good place to invest your money. Low risk, high yield and flexibility are all things that any smart investor should be looking for when it comes to finding a successful method of investing their funds, and money market funds have them all in spades.