PMW Says . . .

[ProfMoneyWise]

Personal finance advice or information worth what you pay for it to be posted on a regular basis.

Remember, no one will care about your money more than you so do your own research.

Budweiser does not really have frogs that can talk, Geico's little guy is not real, and th Aflac mascot is not all that intelligent on Aflac's products. Just because it is on the web, in print or on TV does not make it something you can take to the bank (pun intended).

This week's PMW Says . . .

credit-card-mail-may-be-boring-but-ignoring-it-could-cost-you: Personal Finance News from Yahoo! Finance

The much talked about legislation regarding protecting us from ourselves (ok, ok, from lenders but you get what I mean) will go into effect in February 2010. The lenders have been ramping up their efforts to skew agreements in thier favor the past few months as many know. New warnings to consumers are being issued now however. Why? We are distracted at present by the season and you can bet the creditors know many people just don't want to look at their bills that start showing up after Christmas. Hence, they don't want to look at the bill so what better time to slip one past them?

It's a game folks, at least know it is being played and if you have skin in the game you need to participate by paying attention. Many have opt'ed not to play at all by being debt-free. Again, to play or not? Personal choice.

 

[ProfMoneyWise]

New Year resolutions come and go but being debt-free lasts forever.

Your journey begins today. List all monthly income for your household. Next list all monthly expenses. Do the math. Are you in the red or the green? This is the first step to taking control.

Happy New Year!

 

[ProfMoneyWise]

PMW Says: "If I have $10,000 saved and have a $10,000 debt I have $0. I don't like the way that equation worked."

PMW Says: "I would rather have a $5,000 car and $40,000 in the bank than a $40,000 car and $5,000 in the bank?"

PMW Says: "To worry about market returns while in debt (other than a reasonable house loan) is to have missplaced concern. Get out of debt, then worry about how the market is doing."

PMW Says: "Every dollar of debt retired is an instant return on my dollar equal to the amount of interest assigned to that debt. Like many I too look for the sure thing but find the most obvious one often overlooked."

PMW Says: "Yes. If you are in debt (other than a reasonable house loan) you should stop investing. Yes. This means your 401K or other retirement investments. Yes. I mean give up the employer match until you get out of debt."

And finally: "Investing while debt-free allows for one to hit singles instead of always swinging for the fence to win. Less risk, less stress, less worry."

broke-invest-anyway: Personal Finance News from Yahoo! Finance

 

[ProfMoneyWise]

PMW Says: "Upon achieving a debt-free/no-borrowing mindset you will find a lot of angst leaves any personal finance decision making. You still have choices but if you use this mindset your choices are usually all different degrees of right answers. It really becomes a matter of preference, not either/or type choosing."

Debt-free folks will debate for hours about the benefit of their plan over another plan. In reality I have found they are arguing about a percentage between the two that is so small it is comical. One such argument is where to keep the Emergency Fund. Some keep it in money market accounts, some in on-line savings accounts. Last I checked all of these are paying around 1% - 3%. One $10K does 2% per year really matter? The fully funded emergency fund is not an investment . . . it is a shield.

Oh and the other choice made easy when achieving the debt-free mindset is you let your pocketbook be your guide. If you want something and you have the money you buy it. If you do not have the money you don't buy it.

 

[ProfMoneyWise]

PMW Says: If you loaned someone money, or provided a service for pay, and they refused to pay you back or for the service would you warn your friends not to get involved with this person? That is what a credit report is. Find out what others are saying about you . . . and if it is not true here is one place you can do something about it.

PMW Says: "You can only get incorrect information legally removed from your credit report. Key words here are "incorrect" and "legally." There are some who will take your money and tell you otherwise. They are wrong. If something is on your credit report that you do not like, but it is true, only time will work for you before this drops off the report."

https://www.annualcreditreport.com/cra/index.jsp

Link above gives you access to your "free" credit report. Every 12 months you are due a "free" credit report from each of the three major credit reporting agencies. If there is incorrect data on this report each will provide the mechanics as to how to dispute. But it will not be removed . . . unless you dispute it.

I recommend you pull one report now, get it cleaned up or otherwise ok'ed to your satisfaction.

Four months from now pull the next one.

Four months later, pull the next.

Four months later start the cycle all over again.

If they are talking about you at least find out what they are saying and if they are looking at you at least know what they are finding.

 

[czygvtwkr]

PMW Says: "Yes. If you are in debt (other than a reasonable house loan) you should stop investing. Yes. This means your 401K or other retirement investments. Yes. I mean give up the employer match until you get out of debt."

Completely disagree on this one. Maybe reduce your contribution, but never below what will get you max employer matching. Not only is the matching free money, what you put into your 401k is tax deferred, and you have lost all future returns on what you did not invest. Tighten the belt a little tighter before doing this.

 

[Pete]

Completely disagree on this one. Maybe reduce your contribution, but never below what will get you max employer matching. Not only is the matching free money, what you put into your 401k is tax deferred, and you have lost all future returns on what you did not invest. Tighten the belt a little tighter before doing this.

It doesn't sound very wise to give up an automatic 100% interest savings plan to pay off a 3 year note at 7% does it?

 

[czygvtwkr]

It doesn't sound very wise to give up an automatic 100% interest savings plan to pay off a 3 year note at 7% does it?

Even a 30% credit card bill it doesn't make sense to do for.

 

[ProfMoneyWise]

Fair Debt Collection Practices Act - Wikipedia, the free encyclopedia

PMW Says: Former smokers long for a cigarette. Those who have lost weight don't forget about chocolate cake. However, I have not met one person who rid themselves of debt, interest, fee's, monthly payments and working to make money to hand it over for things they have already done who wants to go back to those days.

Being debt-free is easy. Getting there is very hard. The roadmap resides between the ears . . . mindset and behavior are key and like losing weight, quitting smoking or anything else that involves us it takes "Effort, Discipline and Time."

Commit to never borrowing money again.

Read The Total Money Makeover by Dave Ramsey or Financial Peace Revisited by Dave Ramsey.

Get on a budget . . . today. If we aim at nothing we hit it every time.

Follow Dave's Babysteps. They work, they are proven, and those who have walked them have not solved all of the problems of life but they have removed a large chunk of them. The top 4 relationship killers are:

Money
Kids
Religion
In-Law's

Money fights and problems are number one. Get on the same page. The remaining three are hard and complex enough, at least get number one under control.

 

[ProfMoneyWise]

PMW Says: The IRS will never call you to initiate contact. They will always send a letter. Scammers will call, not the IRS. Don’t fall for it.

PMW Says: If you owe the IRS by all means work out a plan with them and pay them off first. You do not want to duck the IRS or have them in your financial life.

Various ways to track whether you are having too much withheld every payday as follows (in no particular order):

1. TurboTax® Tax Preparation Software, FREE Tax Filing, Efile Taxes, Income Tax Returns Taxcaster calculator.

2. Internal Revenue Service Withholding Calculator

3. Maryland Taxes - Individual Taxpayers Tax Calculators – Play with this one a bit and use the Quarterly Estimated Tax Calculator for the Tax Year in question.

4. Your most recent return

5. Certified Tax Professional for Hire.

There are others. PaycheckCity.com | Web-Based Paycheck Calculators is one I have heard about and Kiplinger.com has some tools folks have talked about as well.

Since it is tax time the best tool is the tax return you are working on now. The majority of us are not nearly as mysterious as we would like to think we are and our income is fairly predictable year to year.

If you are getting a lot back from State or Federal then you need to adjust your allowances. If you owe a bunch you need to adjust your allowances the other way. It is not HR’s job to know how much to hold back. And if your situation changes you can fill out a new W-4 at any time to adjust how much, or how little, is being held back for taxes.

No one is going to care about your money more than you so pay attention to all aspects regarding your money. I recommend re-running these numbers every 3 months to ensure all is still on track for the amount you care to owe, or get back. Don’t be surprised every year by something that is always there for you to see if you just take the time to look.

 

[ProfMoneyWise]

PMW Says: AVOID ID THEFT DURING THE 2010 CENSUS

Be aware of scam artists using the 2010 Census as a means to steal your personal information.

THE CENSUS will be mailed to 134 million households on March 1. The form has 10 questions about your age, date of birth, race and whether you rent or own a home. It does not ask for your social security number or information about your taxes and income. If you do not return a completed Census Form by April 1, it is likely that a Census Taker will either call you or come to your door to obtain the information.

BE CAUTIOUS AND USE THE FOLLOWING SAFETY TIPS:

1. The Census does not ask for your Social Security Number – do not give that information out to anyone claiming to be with the Census Bureau.
2. Never invite a Census Taker into your home.
3. All Census Takers carry official government badges marked with just their name, a Department of Commerce watermark, and an expiration date.
4. The Census Worker is supposed to provide you with a letter from the Census Director on official letterhead.
5. The Census Bureau will not contact you via email.
6. Do not click on any websites that pop up disguised as a census survey. The Census Bureau does not solicit information over the internet.
7. The Census does not ask for credit card or bank account information.


Visit the U.S. Census website at 2010 Census or call the U.S. Census Telephone Questionnaire Assistance Center at 1-866-872-6868 for additional information.

 

[ProfMoneyWise]

PMW Says: Quit being surprised by things you know are going to happen. If you know it is going to happen you must plan for it.

PMW Says: Don’t be one of those who is surprised Christmas happens every year.

PMW Says: So your car insurance is due every six months huh? Wonder when it will be due again?

From: http://simplemom.net/sinking-funds/

Sinking Funds:

Simply put, sinking funds are a reserve of money set aside for some purpose. It’s a commonly used business and government practice, and it should be part of a healthy personal budget as well. If you think of your family as a company that you’ve been assigned to manage, it would only make sense to make sure you have funds readily available for the many things that surface on any given year.

Think of all those non-monthly payments or purchases you face on a regular basis. For some people, auto insurance shows up once or twice a year. What about new school clothes for your kiddos? These aren’t things you spend money on each month, but you still need to pay for them when they show up.

Nothing can screw up a debt-free plan quite like these irregular expenses. In fact, I’ll bet that’s how many people find themselves in debt.

“What? Christmas is only three weeks away? There’s no money in the budget – I guess we’ll have to whip out the Master Card.”

“Why oh why did our insurance bill arrive just when we had to pay for Sally’s recital costume? Looks like it’s Visa to the rescue again.”

If you know these irregular expenses are headed your way, it would only make sense to set aside a small portion of each budget towards them. This, in a nutshell, is sinking funds.

Christmas is an easy example. Let’s say you calculate a need of $500 for your Christmas holiday (gifts, decorations, cards, extra food – the whole shebang). It’s now March 7, about nine months away until the next season. If you didn’t start saving for Christmas 08 in January 08, that means you have nine months to complete your Christmas 08 fund – and 500 divided by 9 is $55.56. That’s how much you should list in “Christmas” as part of your regular, monthly budget.


PMW here again with another take on the mechanics of setting up your own “Sinking Funds.”

1. Once a year, go through our bank logs, credit card bills, etc to identify all the non-monthly expenses. Determine if they will recur. If yes, anticipate the amount. Add all these figures up. The types of things that hit this category are vet bills, home association fees, annual tax bills, car tag renewals, software renewals, insurance bills, AAA auto, semi-annual clothing allowance for teens, etc. Also included are vacations, trips (funerals, weddings, baby showers, family reunions) and gifts in this category.

2. Anticipate Car, home, appliance maintenance - What will definitely need maintenance and what may need to be replaced. Car tires? Washing machine? Paint the exterior of the house? Anticipate these costs and add them to the figure above.

3. Divide your grand total by 12 or the number of pay periods. Automatically deduct this amount from your monthly take home pay and place it into a separate, not to be touched, account. When one of the bills arrives, transfer the money from this account to the checking account to cover the expense.

or

Some like to have separate accounts for their funds. I have an on-line savings account and they allow me to set up a main savings account and then have multiple accounts off-shoot from the main account. You can name the account as you wish and all accounts are linked to your checking account. Takes a couple of days to do the transfer to/from this account which is fine as this is not money you need to get your hands on very quick anyway as you know when the expense will come and now you know where the money will come from as well.

Either way these are things that will happen, do happen, and cost you money. The feeling knowing this money is set aside and ready for upcoming bills is one you need to try. And hey if you don't like this feeling of security you can always go back to being surprised by things that we all know are coming.

Yet another way to relieve the drama from Personal Finance.

 

[ProfMoneyWise]

PMW Says: Scene from "The Office." Michael purchases a condo with a 30 year mortgage. Dwight turns to the camera and says, "a 30 year mortgage at his age? He did not buy a place to live, he bought a coffin."

PMW Says: Buy it to live in it. If you should happen to make money on it someday great, but you need to like where you live in the meantime.

PMW Says: If you cannot fathom paying off your house you bought to much house.

Paying off your house?: Ok, you are out of debt, you have a fully funded emergency fund set aside, you are investing 15% of your take home in a retirement plan and if kids are in your family you are making some sort of provisions to help them with their education (note I said help, not pay in full, that is a different post in the future) so now what? How about paying off that house you are in? How about putting "extra principal" against that payment every month? How about someday saying, "this is my house" and meaning "ALL of it?"

There are three reasons why you should pay off your home that people rail against.

The first is that paying off the house lowers risk, which is something people don't factor in when dealing with finances. It gives you great security.

The second reason people say not to pay it off is because they say you can make money by borrowing money at a low interest rate on your house and investing it in the stock market. But by the time you adjust for risk and taxes, you don't come out ahead. I would never borrow on my home to invest.

The big reason that people say not to pay off your home is that you'll lose your tax deduction. If you have a $200,000 loan at 5% interest, you'd pay about $10,000 a year in interest, which would give you a $10,000 deduction. If you make $70,000 a year, that deduction is saving you $2,500 in taxes if you're in a 25% tax bracket. You are sending Countrywide Mortgage $10,000 to keep from sending the government $2,500. That's stupid. You are better off being debt-free and giving your church $10,000. You’ll save on taxes and do some good with the money.

A paid for home. Can you imagine? It is not as odd as you think, there are a lot of people out there and they are not all old that actually own their homes. As in free and clear.

Mull this one over someday and in case any looking in were wondering, this debt-free thing is all it is cracked up to be. Give it a try. If you don't like getting out of debt you can always go back in pretty quickly.

 

[ProfMoneyWise]

PMW Says: You can stop paying your bills, get sent to collections, put up with some phone calls, negotiate the amount you owe down to a smaller amount. You can even think you pulled something over on “the man.” But then you have to go look in the mirror. How that goes will be the measure of where you really stand.

PMW Says: You get up to your wahzoo in debt but find the answerr on late night cable advertising. They say if you have $10K (not sure where they came up with that number) of debt you have a right to pay less. A "right?" I have many rights but none of them say I can borrow money and have a right to pay less than I borrowed back. That is not a right that is just having no morals.

So what is all this about? Well you call the number and they tell you to quit paying your creditors and instead send the folks you called the money. Eventually those you are not paying get mad and call you. You tell them to call your new friends, the one's you are sending all your money to now.

Your new friends then do everything in their power to get your original creditor to either settle for less direct with them or send you to collections. Either way you keep sending money to your new friends and they keep "keeping your money." Oh they may send a smattering to a few of the original folks you really owe but the game is for them to send out as little as possible.

Eventually your original creditor will give up on you and settle for less than you owe. Your new friends will work this for you and for whatever the new settled amount is they will pay on your behalf and the bill supposedly goes away. They used your money to do it and took a hefty fee off the top to do all this for you. A less than reputable firm won't do any of this and will just take your money. Believe me it happens.

None of this really means you are really settled on this debt unless you have it in writing from the collector/original lender that states it is settled in full with no recourse.

Out of all this you may even actually pay less than you originally owed but you also get:

1. Wrecked credit.
2. Months, if not years of misery, anguish and stress.
3. Self knowledge that you did not honor your word.

Easier to go get a second (third, fourth, etc) job to make extra money. Easier to slash and burn your budget to nothing and use that money to pay your bills. Easier to sell things to come up with cash to meet your obligations. Easier to just not borrow money and not do things unless you can pay in full, up front, before you do the things to begin with.

Don't get me started on the Tax Guys that can get you out of trouble with the IRS. I mean messing with a credit card company is one thing but messing with someone that can take everything you own/make is another.

 

[ProfMoneyWise]

PMW Says: The reason your lender requires an escrow is because others screwed it up for the rest of us.

Most escrow accounts address two things. Your homeowners insurance and your property taxes. At the time you get your loan an estimate of your annual property taxes is added to your known homeowners insurance cost and divided by 12. The resulting number is what makes up your escrow amount and is added to your principal and interest and the result is the amount you send in every month to your lender.

The lender is not making money off of your escrow money. In fact you may get a 1099 come tax time for a few dollars and are perplexed as to why you got it. Do some research, this may be where your escrow was being held.

Every year an analysis of this amount is done by your lender. Don't be caught by surprise. Homeowners insurance rates go up every year and depending upon your locale so do property taxes. Your lender will send you the results of this analysis and your escrow amount may go up (sometimes down) which requires you to send in more with your payment.

Why can't you just do this yourself? Go back to the PMW Says opening of this post. Because others screwed it up for the rest of us and come tax or insurance payment time they did not have the money saved up. Also the taxes being paid and insurance on the home being current is something your lender has just a tad bit of interest in as you can imagine.

And for those of you who have paid off your homes remember to keep your own escrow savings account going. Just because you own your home does not mean you now get free homeowners insurance or are immune to taxes.

 

[ProfMoneyWise]

PMW Says: The last place you need to be worrying about money is a Doctor's waiting room.

PMW Says: Do not sleep on medical insurance . . . or you may end up losing the place where you sleep.

PMW Says: Everybody is healthy as a horse . . . the day before they get sick.

The number one cause of personal bankruptcy is medical bills. Numerous sources cite this statistic. And many of those who have health insurance don't take the time to really know what they have (or dont' have) and find out way too late what they had was not enough.

This is not a debate on health care costs or politics. This is a simple warning. If you have health insurance available to you do not turn the other way. This is a request to you that if you feel you cannot afford this in your budget to please re-work your budget to ensure you make room for this service.

Healthcare is not an entitlement. It is a service that must be paid for. I'll let others debate the cost and availability. My job is to shout from the rooftops one medical incident of any note can break you financially.

For example could your personal financial situation handle:

Emergency Gallbladder Surgery: $22,000
Broken Ankle Repair: $15,000
*Pain in the neck that began in 2005: $180K to date!

*Cervical Spine Stenosis . . . say what????

I'm sure you all have your own stories. And as Warren Buffett says, "Only when the tide goes out do you discover who's been swimming naked."

 

[ProfMoneyWise]

PMW Says: "Dumbo, Drano, Flame-O Fund." Things break, things plug, things need gas. These are not emergencies.

PMW Says: Quit being surprised by things you know are going to happen.

PMW Says: Ok, the $1000 deductible is a good idea. But do you have the $1,000?

PMW Says: Cheaper to own than rent huh? Not always. If you own it and call the landlord your other line rings.

Recommend 1% - 3% of your homes value be set aside yearly in a separate fund (or envelope) for home maintenance. If the home is older and exhibits the need for "a lot" of maintenance then lean towards the higher percentage.

Cash, not VISA, is the answer.

(Need one of these funds for car maintenance as well)

 

[ProfMoneyWise]

PMW Says: C'mon now. No one will know that you are doing it. Go ahead. Write down everything (cup of coffee, groceries, car tires, cocktail(s)) that you spend. One week. Then another week. Get yourself four weeks worth (or a month) and you have a good idea as to where that money went.

PMW Says; Want a raise? Many that become aware of where there money is going before it goes there state they end up with more money. Magic!

PMW Says: Cash is harder to spend. Don't believe me? Millions and millions of dollars goes into researching how to make spending easier on us. Cash is the hardest psychologically it has been found so they introduced us to swiping the card. Research has found that this is easier than cash but still requires an aggressive move. So the "wave" is coming and in some cases is already being tested. "Waving" the card is easier than swiping which is easier than cash. If you ever thought you were not being watched, studied, or manipulated think again.

PMW Says: Income minus outgo equals what is left. It is a simple math equation. Have you done the math?

Get on a budget and don't give up. You will find it takes about 3 months to get it right and you need to revisit said budget weekly. If you are a couple, you both need to be involved, aware, and in the know when it comes to where "YOUR" money is going.

Many, many, budgeting forms and information available if you look. I like the Dave Ramsey "Cash Flow Planning" method and "Zero Based Budgeting." He explains it eloquently and completely in The Total Money Makeover book (or audio CD's) and it is available at Dave Ramsey Homepage - daveramsey.com or at the library.

PMW Note: Kudo's to the local churches who are getting in the act by running Financial Peace University. If you can avail yourself of this course do so. TMMO and/or FPU will change your financial life. It happens but you have to let it happen.

To find a course go to Dave Ramsey Homepage - daveramsey.com and click on the Financial Peace University tab. Follow the cues from there.

 

[ProfMoneyWise]

Read this and make a copy for your files in case you need to refer to it someday. Maybe we should all take some of his advice! A corporate attorney sent the following out to the employees in his company:

1. Do not sign the back of your credit cards. Instead, put 'PHOTO ID REQUIRED.'

2. When you are writing checks to pay on your credit card accounts, DO NOT put the complete account number on the 'For' line. Instead, just put the last four numbers. The credit card company knows the rest of the number, and anyone who might be handling your check as it passes through all the check processing channels won't have access to it.

3. Put your work phone # on your checks instead of your home phone. If you have a PO Box use that instead of your home address.. If you do not have a PO Box, use your work address. Never have your SS# printed on your checks. (DUH!) You can add it if it is necessary. But if you have It printed, anyone can get it.

4. Place the contents of your wallet on a photocopy machine. Do both sides of each license, credit card, etc. You will know what you had in your wallet and all of the account numbers and phone numbers to call and cancel. Keep the photocopy in a safe place.

I also carry a photocopy of my passport when I travel either here or abroad. We've all heard horror stories about fraud that's committed on us in stealing a Name, address, Social Security number, credit cards.

Unfortunately, I, an attorney, have first hand knowledge because my wallet was stolen last month. Within a week, the thieves ordered an expensive monthly cell phone package, applied for a VISA credit card, had a credit line approved to buy a Gateway computer, received a PIN number from DMV to change my driving record information online, and more.

But here's some critical information to limit the damage in case this happens to you or someone you know:

5. We have been told we should cancel our credit cards immediately. But the key is having the toll free numbers and your card numbers handy so you know whom to call. Keep those where you can find them.

6. File a police report immediately in the jurisdiction where your credit cards, etc., were stolen. This proves to credit providers you were diligent, and this is a first step toward an investigation (if there ever is one).

But here's what is perhaps most important of all: (I never even thought to do this.)

7. Call the 3 national credit reporting organizations immediately to place a fraud alert on your name and also call the Social Security fraud line number. I had never heard of doing that until advised by a bank that called to tell me an application for credit was made over the internet in my name.

The alert means any company that checks your credit knows your information was stolen, and they have to contact you by phone to authorize new credit..

By the time I was advised to do this, almost two weeks after the theft, all the damage had been done. There are records of all the credit checks initiated by the thieves' purchases, none of which I knew about before placing the alert. Since then, no additional damage has been done, and the thieves threw my wallet away this weekend (someone turned it in). It seems to have stopped them dead in their tracks..

Now, here are the numbers you always need to contact about your wallet, if it has been stolen:

1.) Equifax:1-800-525-6285

2.) Experian(formerly TRW): 1-888-397-3742

3.) Trans Union : 1-800-680 7289

4.) Social Security Administration (fraud line):1-800-269-0271

 

[Sydney]

Great information!

And yes, the Fraud Alert is a great thing to have on your credit. Any time that your name and or social security number is used to obtain credit, you will be called by the credit bureau. So, if you apply for a mortgage or a car loan, the credit bureau is suppose to call you to ask if you've applied for credit with ABC Bank. It's the fastest way to keep fraud from appearing on your credit report.