I Got the Sweetest Hangover

By Jacquette Timmons

“I got the sweetest hangover, I don’t wanna get over.” That’s the hook from Diana Ross’ sultry disco hit of the 1970s. And she is right: A love hangover can be “sweet, sweet, sweet.”

However, if you’ve ever had an alcohol related hangover, you know it is anything but sweet. You wake up the next day, with a headache, perhaps feeling slightly nauseous and a bit parched and groggy. For those of you who don’t consumer alcohol, you may be surprised to learn that one doesn’t have to be a heavy drinker to experience a hangover.

Alcohol related hangovers are much like financial hangovers – by the time you realize you have one, it is long after there’s anything you can do to prevent it.

Similarly, by the time you read this post, there’s a strong chance you’ve exceeded your holiday spending budget and/or racked up more credit card debt than you planned. Therefore, it’s probably too late to share last minute tips and techniques that will be useful for managing your holiday budget. So instead, I’ll share five (5) choices you can make after the fact --- choices that will help you recover from a hangover you do want to get over!

1. Move from guilt to action

It’s easy to get mired in what you “shoulda, woulda, coulda” done differently but it is much more productive to acknowledge you exceeded your financial limits and commit to getting back on track immediately in the New Year. This is not the time to ‘close your eyes’ by not opening your banking and credit card statements.

2. Go on a spending fast

Hopefully, the holidays brought you all you needed and desired. Because depending upon the degree of your financial hangover, you may need to forego new, non-essential purchases for one to three months. And this applies whether you are using cash, debit or credit!!


3. Increase your credit card payment – even if just $5 or $10

It may not seem like a lot but even just paying an extra $5 or $10 dollars above your minimum payment can help your effort to reduce your credit card debt. On this front, however, be realistic about how quickly you’ll be able to pay off your credit card in full.

4. Shift your focus

When (notice I didn’t say “if”) doing steps 1-3 above become challenging, shift your focus to your goals for 2012. Redirecting your attention to what you really want will help you endure the temporary discomfort the above steps are likely to bring forth.

5. Prepare for next year…now

Much like making sure to eat a hearty meal, drinking plenty of water or increasing the span of time between drinks can lessen the probability of a hangover, being better financially prepared can help you avoid a financial hangover at the end of next year’s holiday season. Therefore, review your statements to count the cost of this year’s holiday and related (travel, hosting) expenses; see by how much you went over budget; use this information as a benchmark for creating your 2012 holiday budget today!
Two aspirins and a little extra sleep won’t help you too much with a financial hangover. But the five recommended choices above are an excellent antidote!

Happy Love Hangover…Happy Holidays!

N.B. If you want help creating a fresh (financial) start to 2012, check this out!



Smart Shopping + Smart Spending = Happy Holidays!

By Jacquette Timmons

Some of us start saving for the holiday shopping season a full-year in advance. While others of us are looking at the calendar with utter astonishment wondering, “OMG, how many more paychecks will I get before the holidays arrive?” Ironically, both approaches require the same thing.

Whether the economy is doing well or in a slump, budgets tend to get a bad rap. But the holidays seem to bring about an even deeper visceral response to the word and practice of budgeting – as if having and following one either means you don’t have enough money and/or that you are being cheap and frugal.

Quite the contrary!

Having a holiday shopping budget equals smart spending, smart shopping and happiness all around. Here’s why: A budget helps you manage the expectations of others, as well as your own!

Now, here’s how: Back into your budget by determining for how many people you want to buy gifts; how many gifts per person; what type of gift; and the price point per gift. Do an initial version that is unedited. If you have the resources to do your first draft stress-free (read: no new debt)…awesome! If not, revise your budget until you reach the dollar amount that you can realistically afford using cash and/or a credit card you can pay in full. Note: it is perfectly OK if you have to adjust your budget several times before reaching the sweet spot.

Remember, the goal is to give meaningful gifts to your loved ones, the cost of which won’t leave you feeling remorseful on January 2 -- after the holiday euphoria has worn off! Also, keep in mind that the joy of giving and stress cannot co-exist. So, plan your holiday shopping (where, when, what debit/credit card you plan to use) to minimize your stress with the shopping process – especially if your holiday plans also include traveling!

Holiday shopping shouldn’t break your bank, and it won’t if you are proactive. And it doesn’t matter if you started planning twelve months ago or are just getting started today. A budget consists of equal parts smart shopping and smart spending…the perfect mixture for a happy holiday!

Food. Diet. Money. Budget.

By Jacquette Timmons
 

Food and money have a lot in common. For starters, a healthy relationship with either requires a common sense approach – something that is often easier said than done. And, your relationship with food and money forecast to the world a great deal about your behavior, choices and mindset, and dare I be bold enough to say, your degree of self-love and self-esteem.

So it shouldn’t come as a surprise that diet is to food what budget is to money: Hard to do!

Especially during this waist and wallet bulging season – aka the holidays – when temptations abound.

The challenge with diets and budgets is that, by their nature, they are restrictive. You are saying “no” to a choice you would really rather say “yes” to.

Holiday season or not, people often fail at diets and budgets because neither is sustainable over the long-haul if you don’t approach them with the right intent, focus, and goal.

Here are a few tips to help you turn “diet” and “budget” – the terms and the practice - into your friends:

• Define “right.” People often approach diets and budgets as if one-size-fits-all. To truly achieve success, make sure you are tailoring the diets and budgets you are following to your particular set of circumstances.

• Define your success, yourself. If the first tip - “right” - is about process, then this tip is about outcome. Diets and budgets require discipline and dedication. Others can challenge you to stretch yourself, but you do the actually work and only you know what boundaries you can extend in a sustainable way. And don’t forget about acknowledging your milestones with treats! Rewards are good for your soul.

• You can substitute “diet” and “budget” with more friendly terms, e.g., food plan or spending plan, but the end result is still the end result: You are giving yourself a framework to help you decide to what you’ll say “yes” or “no.” The key is to determine if you are making a lifestyle choice or quick-fix one. When you approach a diet or budget as a quick-fix solution to reach a goal or to correct an unhealthy behavior, it is reactive; but when you approach the same as if you are making a lifestyle choice, you are thinking long-term and operating proactively. Proactive is always a healthier way to go!

• Lead with a system. As with food, so with money. Common sense wisdom rules: eat less than the energy you expend; spend less than the money you earn. Nothing new, but oh, so hard to follow at times. Having a system for doing what you know is the right thing to do will help you rebound faster when you fall off the proverbial wagon.

• Give yourself permission to (sometimes) cheat. There are moments when you actually do yourself a favor by just giving into the temptation. But only if you commit to doing it occasionally and for a limited time. As an example, the Thanksgiving holiday is later this week. Unless you are on a strict, physician-prescribed diet that says no sugar, allow yourself to have a slice of pie (or two)! Be sure to return to your diet after the holiday, though. Same for your budget. If you go a few dollars over your budget for gifts this season, avoid beating yourself up. Instead, identify ways to reduce your spending in the weeks ahead on other items.

• Where’s the joy? Before you begin any diet or budget, one of the first questions you’d benefit from asking yourself is: Why am I doing this? Your “why” factor is powerful…it is your source of joy. Don’t forget to look for and remember your joy factor! Otherwise, you will concentrate more on what you are being deprived of and you’ll become frustrated and you’ll abandon your game-plan at the precise moment when you have the most to lose – literally and figuratively.

Food is never just about food in the same way as money is never just about money. Wrapped up in our choices about both are our conscious and unconscious thoughts, perceptions and expectations. Diets and budgets frequently get a bad rap and aren’t sustainable not because of what they are, but due to how we approach and utilize them. Contrary to conventional wisdom, they actually can be sustainable over the long-haul if we get our intent, focus and goal right.

So, work on getting it right and while you are at it…have a Happy (and healthy) Thanksgiving!

 

 

 

 

 

 

 

 

 

When Can Your Side Job Become THE Job?

By Jacquette Timmons

If you have a side-business, it is probably your intention that someday it will no longer be a “side” gig. I suspect your dream is that one day you’ll be able to dedicate 100% of your time and resources to it and let go of your “day job.”

But how do you know when you are really ready to make that transition? What do you use to gauge if now is the right time to say good-bye to your “9-5” and let go of the (relatively) guaranteed bi-weekly check you have currently?

When I started my business in 1995, I didn’t start it as a side gig; although, there were times when I wish I had! The reasons for my occasional woe is me in the form of, “If I could do this over, I would…” represent the three factors you need to consider when deciding the best time to leave your primary job.

These factors are relevant regardless of your business (product, service, combo) and in almost equal measure determine your business’ success or failure: financial resources, support system and time.

Financial Resources

It’s common wisdom to save 6-12 months of living expenses for an unexpected, rainy day. To this number, I would add 6-12 months of business expenses. This approach assumes you aren’t commingling personal/business resources by depositing business receipts into your personal account. If you are, now is an ideal time to create a separate identity – legally and financially – for your business.

I’d also presume that some of your account receivables will be outstanding for sixty- to ninety days, regardless of your payment terms. This strategy will help you manage cash-flow if you have to “float” your business expenses using personal resources (cash or credit card). (I once waited six months for a check from a client!)

Remember, when you are working THE job, cash-flow takes on an importance it may not have had when you were also working the day-gig. Cash-flow can truly become more important than making a profit sometimes!

Support System

You’ll need a support system in two ways: emotional and infrastructure. Because you’ve been “doing” your side-job for awhile, you probably have most if not all the things you need, i.e., smartphone, laptop, printer/scanner, files/filing system. But as you imagine working from home full time or renting office space, how might your infrastructure needs change? Once you identify any gaps between what is and what will be, what is the cost of closing the gaps? (Be sure to add this number to your financial needs/resources above.)

I cannot emphasize enough the importance of a really good emotional support system…of a certain kind. If you currently spend most of your time with family and friends who work a traditional 9-5 job, make a commitment to surround thee (and quickly) with other entrepreneurs. Seriously. No matter how well intentioned your 9-5 crowd is, there are elements of running your own business that they will never understand (unless they at one time were also an entrepreneur). You’ll save yourself a lot of frustration by being in the company of, supported by, encouraged by, and challenged by fellow entrepreneurs who “get it.

Time

When you leave your day-gig to focus full-time on THE job, you get more time and lose it, simultaneously. Here’s why: i) When you are juggling both jobs, you are probably much more disciplined and protective about your calendar. As a result, you are probably extremely focused and productive. ii) However, when you are able to dedicate 100% of your time to THE job you at first feel like you have a ton of “free” time. For some, this time freedom renders them paralyzed with indecision about what to do and when and often comes with guilt about how you are using said time.

So before you leave your 9-5, get clear about how your choices with regards to time will change and begin to adjust your habits and patterns accordingly. In this way, the transition from “I only have two hours to get this done,” to “I have all day to finish this,” won’t feel so drastic.

Now, let me tell you a sobering reality about all that I’ve just shared: When it comes to financial resources, support system and time, you’ll actually probably under-estimate what and how much you really need because it always takes more than you forecasted!!! I’ve yet to meet an entrepreneur to say otherwise and I can attest to this personally.

However, don’t let this dissuade you. Instead, allow it to help you temper your expectations and to prepare as best you can. And, good luck!

Going cash-free: what does the future of payments look like?

By Josh Smith

“Cash is king!” may still ring true on Wall Street, but pretty soon technology will be telling us all that, “the buck stops here.”

Like it or not, the future of payments isn’t on printed bills and noisy coins, but rather on the other device you already carry in your pocket or purse -- your cell phone.

Other countries have been using their mobile phones to make small payments for years, but the U.S. is just now entering the game in a meaningful way.

So, what does a cash free future look like?

At the center of our future payments is our smartphone. This device will allow us to make payments in new ways and in new locations.

Making Payments

Google Wallet now lets owners of a specific phone make payments at the same tap to pay stations that have been accepting credit cards.

This technology is powered by NFC, a small chip that allows your phone to securely communicate to a terminal when it is nearby. You will still need to enter a PIN on your device to make this possible, but no more grabbing for your real wallet.

As you can see in this Google Wallet video, there are a number of other ways that you will benefit from a wallet that is part of your phone, such as coupons and loyalty programs that don’t require you to remember any cards or clippings.

Soon, your smartphone will come with this same technology. These payments tie into your credit and debit cards, as well as prepaid cards that you can load up for controlled spending or to give your kid an allowance on his phone.

We may also see stickers that attach to the back of your current phone to enable NFC transactions.

Another way you may be making payments is on someone else’s smartphone or tablet. The Square card reader is a small credit card reader that plugs into the headphone jack of Android phones, the iPad and the iPhone.

As you can see in this video, the square card reader will let you make a payment with the same credit card you have been using, but because it attaches to smartphones, you will be able to use your card in new locations. Think, at a festival or small business that didn’t typically accept credit cards. I know I can’t wait for my dry cleaner to get one of these.

Anyone can get a Square card reader, and start accepting payments, which means even you can start charging your friend’s when they ask you to pick up the tab because they don’t have any cash. Just keep in mind the 2.75% transaction fee.

There are a number of new payment ideas out there, but these are the closest to coming to your pocket and becoming a reality. As we move forward, I anticipate even more integration with our phones for payments, discounts and loyalty.

The Unusual Bottom Line Factor: Personal & Professional Development

By Jacquette Timmons

When it comes to talking about money, the discourse is typically centered on growing one’s earnings, savings, and investments, while reducing debt and careless spending. Rarely do we make a correlation between these aspirations and our own growth in terms of personal and professional development.

Yet, I believe a strong case can be made for this oft overlooked connection – especially for those of us who are not professional athletes and therefore not “trained” to see the connection between improved performance and one’s level of wealth.

Consider the small business owner who hires a coach because her business is faltering; or, the physician who attends the annual medical conference to obtain CMEs (Continuing Medical Education); or the middle manager taking firm-provided training to improve his chances for a promotion; or the artist who works for an arts-based non-profit and participates in an artist fellowship program; or the person who annually attends a yoga retreat. These are just some examples of how people invest in their personal or professional well-being.

But personal and professional development (P/PD) is about more than acquiring skills or knowledge in an absolute sense. It’s about the transformation you experience as a result of your newfound skill-set and expanded awareness and how you apply that to your career and life. And sometimes the line between what constitutes “personal” vs. “professional” development is so blurred it warrants an important question: “Who should pay for my development?”

The short answer: it depends. Sometimes your employer will pay for your training, whether that training is offered by the firm or by an external vendor, because it directly ties into your job function. At other times, you’ll need to pay for it. But whether you or your employer pays for your P/PD, you cannot underestimate the ripple effect of said investment beyond your expanded awareness, increased potential, and sharpened skills to your wallet! So from now on think of personal and professional development not only as a tool to manage your career and life, but to manage your wealth as well. It’s an unusual bottom line factor, but one to which everyone should pay more attention.

Is Real Estate (Still) a Worthy Investment…for Me?

By Jacquette Timmons

According to the U.S. Census Bureau, the rate of U.S. homeownership is down to 66.4%, the lowest since 1998. Yet, a recent Pew Research Center study revealed that 81% of adults agree that buying a home is the best long-term investment a person can make.

But are these statistics enough to answer the question: Is Real Estate (Still) a Worthy Investment…for Me?

As a result of the financial/mortgage crisis of 2008, today’s real estate market is significantly depressed as compared to its market value highs of the mid-2000’s. And quite a few current homeowners are underwater, i.e., their mortgage is greater than the current market value of their home. This combination has left a number of people skittish about real estate. So, if you are asking yourself the above question, the key to ascertaining if now is the right time for you to invest in real estate is know thyself, know thyself, know thyself!

Here are some key lessons from the crisis that will help you:

Know Thyself
Depressed real estate values coupled with low interest rates make this a buyers market. Not only do you as a buyer have more housing options from which to choose, you also probably have more negotiating room in terms of the purchase price. But “buyer beware.” It is important to have clarity as to whether the purchase you are making is a short-term real-estate “play” or for the long-term (e.g., you are buying a home you plan to live in for 15-20 years). Understanding your time horizon – which is not to be confused with attempting to time the real estate market – is paramount for real estate success and satisfaction.

Know Thyself
Understanding the “why” behind your purchase will help you manage your expectations with regards to appreciation. According to a Case-Shiller study the value of a home in the 100 years from 1900 to 2000 increased by 3.35% per year, just a little better than the rate of inflation. Another Case-Shiller study covering the period of 2000-2006 reports appreciation of 70%! It’ll probably be years upon years before we see appreciation values reach double-digits. So, temper your expectations of how much you’ll be able to sell your house for when it is time to sell.

Know Thyself
Your home is usually your biggest asset…or albatross. Take an honest look at your life-style; is it ideal for the responsibilities that come with homeownership? Or, would you be better off renting for the flexibility it provides – especially at it pertains to being able to easily and quickly relocate?

The truth: For someone, now is always a good to invest - whether in stocks or real estate. The critical question is whether the time is right for you.



Are mileage/rewards credit cards worth it?

By Josh Smith

Walk through an airport or open your mailbox and the odds are good that you’ll be confronted by at least one offer for airline miles or other credit card rewards.

Rewards credit cards give you miles or other incentives to use them for your purchases, but typically carry an annual fee. For the first year the annual fee is waived, and typically you can get bonus miles when you sign up, allowing you to earn a flight fairly quickly.

The presence of an annual fee is one reason why you might question the overall value of a mileage rewards card, but if you know how to play the game and are willing to invest the time, you can make out like a bandit.

Are Rewards Credit Cards Worth it?

If you don’t intend to pay off your balance every month, then stop right now – you will lose out in the long run. Rewards cards typically have higher interest rates, which will quickly eat into your saving and are compounded by annual fees.

If you can pay off your card every month, ask yourself if you will be able to use the miles. Look at reviews for the cards that interest you online to see if promises of no blackout dates are true.

There are plenty of people with extra miles on their credit card that go unused because they underestimated their ability to travel.

REWARD CREDIT CARD STRATEGIES

Casual Users and Travelers

If you are a casual user, your best bet for using a rewards card without getting taken for a ride is to stick to a single card.

The Capital One Venture card is a top pick from Money Magazine, and has a lower $59 annual fee, or look into an airline specific card if you can commit to flying with one airline.

By keeping things simple, you can reap the sign on bonuses, and keep track of your renewal dates and fees easier. It also allows you to commit to one card for racking up the miles.

All in Users and Travel Hackers

If you are here to maximize the miles, you can sign up for as many credit cards as will accept you and become a travel hacker. If you are committed to keeping track of bonus points and using the rewards enough that it covers the annual fees you can pull off amazing travel for next to nothing.

For example, Steve Kamb spent $418 to fly 35,000 miles and live it up like James Bond! This is extreme, but just like extreme couponing is a hobby, so is travel hacking.

Extras to consider

Mileage rewards cards aren’t only for miles; there are a number of other benefits given to users, especially for airline specific mile cards. If you travel a few times a year, you may be able to cover the cost of the annual fee with some of the following benefits.

• 1 Free checked bag
• Complimentary passes to Airline Clubs and Lounges
• Companion tickets 
• Priority boarding

In the case of free checked bags and day passes, you might be able to cover your annual fee if you fly twice a year.

 

Don’t Let Your Good Name Get Filched!

By Jacquette Timmons

Approximately 9 million Americans have their identity stolen each year according to the Federal Trade Commission. The crime of stealing someone’s identity isn’t new. But given the technological advances of the 21st century, it seems much more prevalent and much more probable. As a result, you and I need to be vigilant in protecting the aspects of our identity that can be filched for ill-gain.

Here’s a list of the common methods used by thieves to gain access to your personally identifiable information, along with corresponding ways to safeguard your name, social security number, credit card and other financial information:

• Dumpster Diving – This is the term used to describe the thieves who go through trash looking for anything containing your personal information.

Safeguarding Tactic #1– Shred all mail containing your name, social security number, banking and credit card numbers, or other account related details that can be linked to you (such as utility bill account numbers). Be sure to also shred the order forms from the catalogs you receive, where your name and address are typically pre-printed. You should also be sure to ask others (like your doctor) with whom you share information what they do to protect your data.

• Point-of-Transaction Skimming – This occurs when you use your credit or debit card and the insertion or swipe point has a device to skim your number and pin code.

Safeguarding Tactic #2 – Always select the “credit” option when using your debit card for purchases. Instead of entering your pin-code, opt for providing a wet or electronic signature. Also, avoid using the stand-alone, non-bank affiliated ATM machines. It’s not that professional criminals can’t clone your card at a legitimate ATM, but it’s less likely to occur.

• Phishing – As the name implies, “phishing” is a way of digging for information under false pretenses. Thieves will contact you pretending to be associated with a firm you trust to gain your trust…and access to your information.

Safeguarding Tactic #3 - Only open email messages – such as statement and payment alerts - that you are expecting from the financial institution/s with which you do business. Never provide your social security number or account number in response to an email inquiry or phone conversation you didn’t initiate.

As a matter of best-practice, even when dealing with a trusted source, you should never share these numbers electronically unless you have the ability to encrypt the email and/or the attachment containing said.

• Stolen credentials – Thieves can also pilfer your information if they steal your purse or wallet, or “re-direct” your credit/banking statements or utility bills.

Safeguarding Tactic #4 – Pay attention to your mail delivery and don’t easily disregard a missing statement. You might want to consider signing up to receive electronic statements. Elect to do this only if you are diligent with reviewing them for accuracy! It is beneficial to make a copy of the contents of your wallet to include your driver’s or non-driver’s license and credit cards you have (front and back). In the unlikely event your purse or wallet get stolen (or you lose it), you will be able to efficiently file a police report and contact the requisite financial institutions.

While you are proactively protecting your identity, make certain the elders in your life are protecting their identities. And sad as it may seem, do all you can to protect the identity of recently deceased loved ones. Unfortunately, this is a growing target for identity thieves.

In addition to the safeguarding tactics outlined above, I’d recommend subscribing to a credit monitoring and alerting service. Your bank may offer this service, or you can utilize a third-party provider, such as EZShield, Intersections, or Privacy Guard, to name a few. (Personally, and I don't get compensated for making this suggestion, I use Privacy Guard.)

Of the tactics listed, which do you do already? Which will begin to do post haste?

Debt ceiling crisis: what does it really mean for consumers?

By Josh Smith

If you’ve been paying attention to the news recently, or looked at your retirement account you’ve probably noticed that the government has been fighting to get the debt ceiling raised in order to keep borrowing. You’ve also probably witnessed a major dive in the stock market as the U.S. lost its AAA credit rating.

These two connected events can be difficult to put into perspective with our daily lives, but they can actually play a big role in several major areas. The good news is that you don’t need to panic, and it might even be a good time to buy stocks, if you can afford them.

What the Debt Ceiling Crisis Means for Consumers

  

Home loans – Initially, we assumed that mortgage rates were going to jump on the news of the lower U.S. credit rating, but the Fed has gone on record saying it wants to keep interest rates low through 2013. This means that if you’ve been exploring a home purchase or a refinance, it’s still a good time to do so.

Banks are still wary, so you may need to shop around, even with stellar credit. If you are thinking of a refinance or taking out a home loan, we suggest you lock in your rate as soon as you know you want it, as rates are more likely to rise than fall.

Bailouts – Because the government has a reduced credit rating, and still has a limited debt ceiling, don’t expect another round of bailout money for the average consumer. Now is as good a time as any to make sure you have some type of emergency savings at hand in case you hit a rough patch.

Employment – The bad news is that unemployed may have a tougher time finding a job thanks to cuts in spending at various stages of the government. We are already seeing states cut back on unemployment benefits, but the threats aren’t just confined to the already unemployed.

The slow economy isn’t going to grow any faster according to Mohamed El-Erian, chief executive of Pimco, which could translate into higher unemployment in the next 6 months, and unemployment times will last longer.

Social Security and Retirement – Social Security is going to get even tighter, so make sure you take advantage of any employer matching available for your retirement account. This would be a good time to sit down with a financial planner to make sure you are investing enough. Your employer may offer free counseling throughout the year, check with HR.

How to Save Hundreds By Asking

By Josh Smith

Don't you wish you could get discounts every time you shop? I can't help you save at Walmart, but I can tell you how to save big on almost any major purchase. Saving is actually really simple. You just have to ask for a better price. This is hard to do the fist few times, because we are so used to having other people tell is how much we should charge and how much we should pay, but after a few times it will be as natural as reaching for your debit card. I used this method to save $100 on a recent furniture purchase, just by asking for a cheaper price -- and that was on top of the already reduced clearance price.

How to Get a Better Deal by Asking:

Be Nice - When you go into the store, make friends with the sales person. This is as simple as repeating their name back to them when you say hello and ask how they are doing. Little things like this can go a long way, especially at the end of a busy day.

Bundle - If you need more that one thing find everything you want before you ask for a discount. This will help show you are willing to spend, you just want a better deal and allows the store to cut a price on a high margin item and still make a profit.

Be a Regular - For electronics, furniture and other items you will buy repeatedly, look for one local store to frequent. This may not be possible all the time due to low online prices, but it can help build a bond for bigger purchases.

Ask about Warranties - Stores make big bucks on extended warranties. If the sales staff thinks you are going to buy a high profit item like a warranty you may get a better deal. While purchasing furniture my discount was the same price as the warranty. Coincidence? I think not.

Ask Nicely - After you follow all the steps above, don't forget to ask nicely. A simple, "I know these items are already discounted, but can you bundle them or cut me a deal for buying more than one?" does wonders.

As you get more comfortable you can ask for discounts in a more straightforward manner. Remember, it never hurts to ask for a discount. It will feel weird the first time, but it is worth it in the long run. You will have the best luck at small businesses, but if you ask the right person at a chain store you can occasionally score a better deal if you bundle and play up your interest in the warranty.

Roth or Traditional IRA: How to Make the Call

By Carla Fried

It may not have the caché of boxers or briefs, but in retirement circles one of the big questions is whether you should invest in a Roth IRA or a Traditional IRA. And if you happen to work for one of the few companies that offers a Roth 401(k) option you’ve got to face this dilemma of which way to go with your 401(k) as well.

The math is pretty easy if you are young and haven’t yet reached your peak earnings. If you’re not yet in a high tax bracket, there’s not tremendous value in using a Traditional IRA or 401(k). Your contributions do indeed reduce the amount of taxable income you have for the year, but if you’re in a low tax bracket, then that’s not exactly a huge deal. I’d put a vote in for going with the Roth. You forego that upfront tax break on your contribution –all money you pile into a Roth is done with after-tax dollars –but oh what you pick up on the back end of the deal: Every dollar you withdraw from a traditional IRA or 401(k) is taxed at your ordinary income tax rate. Capital gains rates do not apply to IRA and 401(k) investments. But with a Roth you can withdraw every penny tax free in retirement. Free as in zero tax.

Now if you’re already in a high federal tax bracket and/or you’ve got a large state income tax to deal with, a Traditional IRA can still make a ton of sense; reducing your taxable income right now has plenty of value to you. That said, having some retirement income that will be yours to tap free of owing any tax is alluring as well. A popular approach used by many financial advisors these days is to recommend you have both types of retirement accounts. Think of it as tax diversification: you get the benefits of both the Traditional (up front tax break) and the Roth (no tax on withdrawals!). It's also a smart way to hedge your retirement portfolio against whatever may happen to our tax code in the coming years and decades. By having money in both types of retirement accounts you can rest a little easier that you won’t get whipsawed by any unforeseen policy change that impacts your tax bill.

Last-minute Tax Tips and Prep for Next Year

In this video, blogger Jacquette Timmons discusses specific last-minute tax tips and ways you can start preparing for next year now.

How to Avoid a Tax Audit

Carla Fried

In the broad spectrum of pain and dread, the prospect of an audit probably falls somewhere past a root canal. I mean, could there be anything less fun than having to defend yourself to the tax police? Sure, just 1 percent or so of all individual tax returns end up the focus of an audit—the rate rises along with your taxable income-but make any of the following filing flubs and you could find yourself among the unlucky:

1. Muffing up the Math. Sounds ridiculously simple, but if for some reason you aren't using software, or a CPA who uses software, any math error—no matter how innocent—will set off the IRS detection alarms. That just increases your odds that your return might then find its way into the “audit” pile. 
2. The value of your itemized deductions is suspiciously large given your income. The IRS has a secret computer sauce that kicks out returns for potential review if the value of deductions is out of whack with your income. If you are legitimately entitled to a deduction and you have the backup documentation to make your case, by all means claim it. Just know the IRS or your state tax authority may, um, have some questions.
3. Under-reporting income. If you have a side hobby or consulting work that brings in income that isn't subject to withholding tax, be extra careful you declare that money come tax time. Failure to report income that a client reported to the IRS was paid to you –remember you did give the client your W-9 with either your Social Security or Employer Identification Number for reporting purposes – is going to be a huge red flag. If you’re self-employed, be extra careful reporting all income; as a general rule the IRS tends to take an extra careful look at self-proprietors who file a Schedule C Profit/Loss with their 1040.
4. Non-Cash Charitable Contributions. Any non-cash donation (a car, a painting, designer clothes etc…) valued above $500 requires that you file a Form 8283. And when the IRS sees that form it tends to want to take a special look-see at your return. That’s not a reason to forego the donation; just be super straight-up in how you valued the donation, and make sure you have the necessary documentation to make your case.
5. Aggressive Home-Office Deductions. The fact that you sit on the couch in the den while pounding away on your laptop to complete a work project does not qualify the den as a home office. You must have a dedicated space that is exclusively used for work, to be able to legitimately claim the home-office deduction. 

What to Do With Your Tax Refund

Carla Fried

The average federal tax refund amount is more than $3,000. Don’t worry; I am not going to launch into a finger-wag on why it’s smarter to not get a tax refund by adjusting your withholding amount. Yes, I know that’s the standard advice, but hey, another way to look at this is that you just had Uncle Sam help you with some forced savings. And with bank savings rates so low, you didn't really lose out too much in foregone interest. The one caveat though is that you have to be extra smart in what you end up doing with your tax refund.

Here are my suggestions on how to get the most out of this year’s tax refund; I’ve listed them in order of their financial appeal:

• Pay down high interest credit card debt. A no-brainer, right?

• Invest in your 2011 IRA today. Rather than wait until early 2012 to get around to funding your 2011 IRA, do it now. That puts your money to work 9 months to a year earlier; giving you a leg up on compounding over years. And hey, if you just do it right now you don’t have to worry that other needs and wants will tug at your throughout the year and get in the way of funding your IRA. In 2011 anyone younger than 50 can invest up to $5,000 in an IRA; over 50 and you can contribute $6,000 this year.

• Put it in your home down payment fund. If you currently rent and have a goal to eventually own a home, the reality is you will need to save up for a down payment. Yes, FHA-insured mortgages require just a 3.5 percent down payment, but if you want to get a conventional mortgage –and the government is slowly trying to wean borrowers off of FHA-insured loans--lenders are now requiring down payments of 10 percent to 20 percent.

• Make an extra mortgage payment. Already own? Okay, if you’re in your mid to late 50s and you plan on living in your current home in retirement, getting the mortgage paid off before you stop working is a great way to eliminate one of your biggest monthly costs. Making one extra mortgage payment a year can reduce the payback time on a fresh 30-year mortgage to 22 years. Just be sure you nail down with your mortgage servicer that 100 percent of your extra payment is to go toward the loan principal; don’t let ‘em use a penny for interest.

• Take a Vacation. Yep, you read that right. Spend some money relaxing.  Recharging the batteries is how you stay ahead of the curve on the job. Over time those vacations are part of what makes you a candidate for raises and promotions. 

A Job-Switch Misstep That Can Cost You Thousands

Carla Fried

When you leave a job you could also be leaving behind tens of thousands of dollars.

I’m guessing that’s not a mistake you can’t afford. The good news is it’s incredibly easy to make sure you don’t fall into what I call the 401(k) inertia trap.

Here’s the deal: when you leave a job-whether it’s voluntary or not-you have the freedom to leave your 401(k) with you old employer’s plan (as long as you have $5,000 in the account), or you can move the 401(k) to your own investment account, what is called an IRA rollover.

Why Rollovers Rock

In most instances you should do the 401(k) rollover. When you are invested in a 401(k) at work you are limited to the investment choices offered in that plan. Now if you have a super-enlightened company that offers a terrific lineup of low-cost index funds, you might have an argument for staying put. But if your plan isn’t so cost-conscious, roll over the money and you have the freedom to invest in just about any low cost index mutual fund, exchange-traded fund (ETF), as well as any individual stocks or bonds. That gives you total control over costs, and make no mistake, low costs are a huge factor in your retirement planning success.

Let’s say you currently have $50,000 in a  401(k) at an old employer  and the average expense ratio of the funds you’re invested in is 1 percent. If your gross average annual return (before expenses) is 7 percent over the next 25 years,  your net 6 percent return after accounting for the one percent annual expense charge would result in an account balance of nearly $215,000. Not bad, right? But let’s say that you instead decide to do the rollover and you invest your accounts in lower-cost funds and ETFs with an average expense charge of just 0.50 percent.  Assuming the same gross return of 7 percent, your net (after-expense) return is 6.5 percent. Chump change of a difference? Think again. You would have more than $241,000 in 25 years. That’s an extra $26,000, or half of your current balance simply because you paid attention to fees.

And your savings could be even more. Let’s say your current 401(k) funds charge you an average 1.2 percent in annual expenses. And then let’s also assume you become a fee fiend and do a rollover and focus on ETFs and index funds with super low expense ratios of 0.30 percent or less (yep, plenty are that low.)  Your potential extra earnings by getting out of the expensive 401(k) and into your low-cost IRA Rollover portfolio could be $50,000. Having an extra $50,000 come retirement sounds like a pretty good move to me. Isn’t it time to rollover your old 401(k)s?

Is Recency Bias Hurting your Investment Performance?

Carla Fried

I don’t need to be an ophthalmologist to tell you you’re probably short-sighted when it comes to how you handle money.  And your outlook can cost you plenty.

Researchers have found that when it comes to making financial decisions we all tend to focus intently on events or information that are right in front of us rather than take the long and wide view. We overweight information from this week, or last month far more than the cumulative information across years and decades. Among behavioral economists - the folks who study the mind games that shape our attitudes and actions with money - this is known as recency bias. That is, whatever is most recent in our experience is what lords over our current actions.

And that bias can play nasty tricks on our financial decision making skills. For example, in good times (see: Internet bubble circa 1999) the tendency was to get so caught up in the outsize gains within the technology sector that you, um, may have forgotten about the basic rules of diversification and let your portfolio become way too overweight with high-growth tech stocks.

Of course, just the opposite may be at play these days. In the wake of the financial crisis and the deep bear market, investors bailed out of stocks and piled into bonds, missing out on the sharp stock market rebound that began in March 2009

How to Fight Your Recency Bias:

·   Process information. I am not one to suggest you completely tune out what is going on in the world. That seems a bit too simplistic. But what many of us can do a better job of is not immediately reacting – or often overreacting - to news. Sometimes the best action is no action.

·   Think mean. Regression to the mean, that is. The mean is the long-term historical average for a piece of data; whether it is mortgage rates, or the return of the S&P 500. When you see something that is wildly off its historical mean, you should be considering that the odds are that it will at some point - and the timing is unknown - revert to its mean. A lot of money has been lost through the decades and centuries betting that “this time is different.” It usually isn’t. We tend to circle back to long-term trends. So if something is abnormally cheap today, it may be less cheap in the future. If something is abnormally expensive today it will probably become less expensive in the future. Regression to the mean is a good concept to use as a constant reference point.

·   Rebalance. Okay, I know it’s not exactly sexy advice, but it is the single best way to make sure you don’t become too optimistic or pessimistic with your investments based on recent events. Check back in on your IRA and 401(k) at least once a year and make sure your overall asset allocation is still in sync with your long-term strategy. If not, make the necessary tweaks - you can move money around within your IRA and 401(k) without any tax bill – in order to get back to your target allocation.

Early and Small Wins Over Later and Bigger

Carla Fried

It makes me a bit nuts how talking heads and money experts insist on making investing sound so hard. It really isn’t. Sure, there are some key rules of the road to follow –diversify, pay attention to costs-but there’s also one incredibly simple truism that can lead you to riches: start saving early rather than later.

That’s it. No caveats. No arcane formulas or theories. The sooner you start to save, the more time your money will have to grow, and most importantly, the less you need to fork over to generate that future pot of gold you want.


Retirement Made Easier


I will make my case using a good old IRA, as saving for retirement is often the most challenging savings goal for many of us.


In 2011 if you’re under 50 years old you can invest a maximum of $5,000. That works out to a monthly $416 and change you can have automatically deposited from a bank account into a Roth account.


So let’s conjure up a scenario where at age 25 yousock away $416 a month and keep it up for the next 20 years. Assuming a 6 percent annualized rate of return you would have about $193,000. (Why 6 percent? Well, it’s just my sort-of-conservative guesstimate for a long-term diversified portfolio. By all means, feel free to plug in a different rate of return.)


Okay, so now you’re 45 with $193,000. Of course, the best move is to keep saving, but just for argument’s sake let’s say you get distracted by other financial concerns such as saving for your kids’ college, or helping your aging parents. So you stop your annual contributions and just leave your $193,000 balance to grow for another 25 years. At age 70-assuming the same 6 percent annualized return-your Roth IRA could be worth more than $825,000.

Not bad, eh? For 20 years, from age 25-45 you invested a total of $100,000. That’s all your skin in the game. And by age 70 it might be worth a tidy $825,000 or so.


The Cost of Playing Catch-Up


But let’s say you didn’t get focused on retirement saving until age 45. You’ve literally got nothing saved , but now you are ready to dive in with gusto. And you’re determined to end up with the same $825,000 by age 70. Sticking with our assumed 6 percent annualized rate of return, how much might you need to sock away each month if you start at age 45, to end up with $825,000?

About $1,180 a month. And that’s not a typo.


That is, you would need to save $1,180 a month for 25 years (from age 45 to age 70) to have a shot at an $825,000 balance. During that 25-year stretch you would have plunked down $354,000 of your own savings to generate that $825,000. That’s more than triple what you would have had to fork over ($100,000) had you started at age 25, and saved for just 20 years.


I know it’s never easy to find the money today to save for a long-term goal. But scouring your finances so you can find more to put away today is ultimately going to be the least painful way to reach that future goal.