Building Wealth on a Small Salary – Part Three

Hello and welcome back for Part 3 of our 3 Part blog series on building wealth on a small salary. If you’re ready to get some more excellent advice on how to build wealth, even if you’re not making a huge amount of income, get comfortable and let’s get going! Enjoy.

Staying out of debt, or paying down your debt as quickly as possible, should be one of the most important goals in your financial life. “Bad debt”, like credit card debt that charges very high interest rates, should be at the very top of your priority list to pay off because it will keep you from making progress on your other financial goals.

While paying down debt is important, it’s also important to have an emergency fund set up so that, if something happens, you don’t go further into debt to pay it. Car repairs are great example. No one really plans for a major car repair expense and, if you don’t have money set aside to pay for it, it can ruin any financial planning that you’ve made.

Experts believe that, when you’re paying down debt, it’s best to use 50% of the money that you have to pay down your debt on an emergency fund instead. So, for example, if you have $400 a month to pay down your debt, you should use $200 to pay that debt off and the other $200 should be put into your emergency fund until it’s equal to six months’ worth of pay. (12 months is actually better.)

Once your debt is paid off you should then keep your credit cards open but use them extremely sparingly and pay off any charges immediately when the bill comes due. This will help to keep your credit score high and keep those accounts from being closed for non-use by the card issuer,  something that can actually lower your credit score.

Next is, however possible, to increase your earnings. There are basically two ways to increase your net worth: spending less and saving more is the first, and the second is to earn more money.

One of the best ways to do this is to find part-time work. This second “income stream” can be used to help you pay off your debt, put more money into a retirement account or, if those goals are being met, can be used for fun things like vacation, new clothes and so forth. (But only if your other financial goals are being met.)

This can also include looking for investment opportunities that might come your way. Owning a second home that you rent out, if it’s financially feasible, is a great way to increase your financial streams and build equity at the same time. Selling things on eBay that you buy at garage sales, finding part-time work online in your particular industry and many other opportunities exist to increase your income, especially if you have some spare time during your day to do it.

Our final bit of advice for building wealth on a small income is to consider consulting a financial expert. While you’re already doing yourself a big favor by reading these blogs and doing research on your own, the fact is that sitting down with a financial expert can be extremely helpful in giving you some perspective and helping you to see the “big picture”.

Simply put, when it comes to finances there are a lot of emotions involved, and having a little bit of professional accountability, and an outside opinion, will help you to look at your finances much more objectively.

We hope you’ve enjoyed this 3 Part series and that the advice and information was helpful. We also hope that you now realize that it is possible to build wealth even if you aren’t earning income like a Rockefeller if you just put your mind to doing it, create good financial habits and stick to your plan consistently.

Of course if you have questions you can always contact us via email and we’ll get back to you ASAP with advice and answers.

Building Wealth on a Small Salary – Part Two

Hello and welcome back for Part 2 of our 3 Part Blog series on building wealth on a small salary. Hopefully the reason you’re here is that you found Part 1 informative and helpful. If you did, the good news is that we have more  of the same here on Part 2! So, without further ado, let’s get started! Enjoy.

One of the best ways to build wealth is to live well below your means.  What this means is that, even if you’re making enough money to, say, drive a high-end luxury vehicle and live in a five bedroom home, you instead drive a good car and live in a smaller home that fits your needs but isn’t over-the-top.

Dr. Thomas J Stanley, one of the co-authors of a book called “The Millionaire Next Door: The Surprising Secrets of America’s Wealthy”, says that many of America’s millionaires don’t “live large” but instead become diligent savers, live well below their means and don’t “flash” their money everywhere they go.

If you want some excellent advice from a surprising source, take it from LL Cool J, the famous rapper and actor. During an interview a few years back he was quoted as saying that “I lease a Honda Accord for $399 a month while other rappers are going broke”. That’s a perfect example of someone living below their means.

Our next bit of excellent advice is to start saving for retirement as soon as you start working full-time. Yes, retirement can seem like such a long time away when you’re in your 20s or 30s and may not seem like a “necessity”, but the longer you put off saving for retirement the harder it will be to actually reach your retirement goals, especially since you won’t have compounded interest to help you.

Just for the sake of example, let’s say that at age 30 you started putting $30 a month into a retirement account with a 7% return rate. In 30 years you would have $56,000. Now let’s say that you did the same thing but started at age 40. In order to reach that same amount of money, $56,000, you’d have to put more than triple in the bank, $110. a month.

As you can see, the difference in just 10 years is quite large. Extrapolate that out and you can see how putting aside, for example, $400 a month starting when you turn 30 will turn into quite a bit of money by the time you’re ready to retire, thanks to compound interest.

Our last piece of advice here in Part 2 is to know as specifically as possible what money is coming into your hands and what’s going out.

The simple truth is that, good intentions aside, if you don’t know what’s coming into your bank account as well as exactly what’s going out, which means tracking your income and your spending habitually, you’ll never know how much of that money you can devote to your financial goals.

In other words, there’s no way you can expect to change your financial reality if you have no idea what your finances actually look like. The good news is that tracking expenses is much easier today if you have a smart phone because you can download any one of a number of budgeting apps to help you.

One of the basic tenets of building wealth is to know everything possible about your money, and keeping track of your income and expenses is the best place to start.

Good stuff, yes?! Make sure to come back for our big finale, Part 3, and more excellent advice on how to build wealth on a small salary. See you then!

Building Wealth on a Small Salary – Part One

Welcome to our 3 Part series on Building Wealth on a Small Salary. Over these next 3 Blogs were going to show you different situations, and give you plenty of advice, on how to build wealth even if you’re not making a huge amount of money.

The simple fact is that your daily money habits often make more of a difference in building wealth than a huge income. (Yes, making a lot more money can help, but only if you know what to do with that money.)

The good news is that it’s definitely possible to build wealth and create a life for yourself that’s prosperous and free from constant financial anxiety. So let’s get started!

First things first, you need to reverse the way you think about money, and how you use it. The average consumer spends some of the money that they earn, pays their bills next and then saves what’s left over. The fact is that this habit is completely backwards.

In order to build wealth you should be saving for your financial goals first, paying your bills second and then, if anything is left over, spending that on things that aren’t necessities.

Many people also have a habit of waiting to start good money habits until their financial life “gets easier” and they start making more money. The only drawback here is that, for most people, once they start making more money they start spending more money as well.

Most financial advisors will tell you that it’s not about putting every single penny you make away and living like a pauper. Instead they would advise you to start small but consistently and, as your financial habits improve, you can build up your momentum and repeat those positive financial behaviors.

Most consumers, when they realize that it’s not as difficult as they thought, tend to start saving more and spending less on non-necessities.

Next you need to make a plan and stick to it. A five-year plan is a great place to start, creating specific money goals to achieve over the next five years as well as the specific steps needed to get there. Some of those goals could include setting up an emergency fund, putting aside money for your child’s college education and/or saving for the down payment on a new home.

Financial experts agree that having a specific goal can greatly increase a person’s ability to save money, no matter what that financial goal happens to be. Having the goal, writing it down and making an effort to reach that goal is what really matters. It’s similar to the old saying about “life not being about the destination, but about the journey”.

Another excellent way to build wealth is simply to create financial rules for yourself and stick to them. This is known as heuristics, or “rule of thumb” strategies that you can create for yourself and use every day. Things like not spending more than $10 on a toy for your child or no more than $40 for a pair of shoes can make your daily financial choices much easier and simpler.

In fact, “behavioral economists”, people who study the economic behavior of humans, believe that one of the best ways to develop excellent financial habits is to use heuristics in your daily financial life.

You can start with something as easy as not getting a shopping cart and Walmart. That will limit the amount of purchases you make because you won’t be able to carry everything. It might sound a bit silly but it actually works, just like a heuristic (rule) about only eating out once a week or only buying only one pair of new shoes a month.

It really does work if you work it.

Well, we’re off to a good start! Make sure to come back and join us for Part 2 and more information, advice and suggestions about how to build wealth on a small salary. See you then!

4 Places You Should NOT Swipe Your Debit Card

When we hear about massive data breaches at credit report company Experian or a department store like Target, it becomes apparent that debit card problems are spiraling out of control. For the average consumer, a debit card that has been compromised causes all sorts of problems, including obviously the theft of their money or problems with their credit.

The thing is, while cash is not practical for a lot of transactions, there are quite a few reasons to consider using it instead of debit cards. It’s also a good idea to be careful about exactly where you get your cash as ATM machines can be compromised as well. Below are four places where swiping your debit card can be hazardous to your financial health.

One of the worst places for devices called card skimmers are gas stations and they’re a favorite for thieves. A group of four men was arrested in 2013 for stealing over $2 million using skimmers at gas stations, devices that were installed inside the gas station pumps and  were even outfitted with Bluetooth so that the thieves could extract collected pin numbers wirelessly and use them to make purchases.

Unfortunately, eating out at your favorite restaurant can be a problem as well, as some servers have gotten into the nasty habit of using handheld card skimmers to steal your credit card info. Of course they don’t really need a machine to do it as they can simply write down your card numbers when they have your card for processing. Even worse is the fact that many restaurants are still using older computer systems to process debit cards, system that are easier for hackers to manipulate. In 2013 a group of Romanian hackers stole $10 million from 150 Subway restaurants.

Smaller stores can be a problem also and, for small purchases, you might wish to use cash instead of a debit card or, if possible, credit card instead. Remember that with a credit card you have a lot less liability if someone steals your information and uses your card than you do when you use a debit card.

Finally there’s shopping online where you can’t, of course, use cash but you should probably use either a credit card or an online payment system like PayPal. Some banks actually offer 1 time credit card numbers to make your online purchases and, since they only work once, aren’t of any interest to hackers at all.

While using cash certainly, as we mentioned above, isn’t nearly as convenient (or safe against pickpockets and other “real world” thieves) it doesn’t open you up to the risks that you have using a debit card.

If you don’t have any other choice, you can actually use your debit card at most grocery stores to get a cash advance and so you can make only one purchase with your debit card and then take out cash for the rest of the purchases that you have that week. It’s not perfect but it will lower your risk somewhat.

Good news for US homeowners as Foreclosures fall to lowest level since ‘07

There’s good news for homeowners in a report that says that foreclosures have fallen to their lowest quarterly level since 2007 and that the US housing market is slowly but steadily getting back on its feet as rising home prices, fewer troubled loans and steady job growth help it to get there.

More good news is that homeowners, in general, are doing better at keeping up with their mortgage payments, and this past March was the 42nd month in a row that foreclosure activity in the US has dropped. Foreclosure filings in the US dropped 23% in March also, bringing foreclosure activity, to its lowest level since the second quarter of 2007, a report from RealtyTrac showed.

The report also noted that just over 117,000 properties in the US had either default notices, scheduled auctions or bank repossessions in March. That helped to lift the overall foreclosure activity over February by 4%, when a seven-year low was posted. That was due in part to a 7% rise in foreclosure starts, the initial public notice that starts a property seizure process.

“Now that the foreclosure deluge has dried up, banks are turning their attention back to properties that have been sitting in foreclosure limbo for some time,” said Daren Blomquist, vice president at RealtyTrac.  He added that the lingering inventory of nearly 500,000 already foreclosed homes that still need to be sold will be the focus of more resources by banks in the near future.

More than half of all bank owned properties are actually still occupied by their former homeowners (or renters) and approximately 10% of them are still listed for sale. Almost 30,000 were also repossessed in March by lenders, which was down 5% from February and down 34% from a year ago, making this also the lowest level since 2007.

There were of course a couple of states that had to buck the trend, including Utah, Oregon and Colorado, where foreclosures and auctions actually increased from a year ago. The foreclosure process is intensive and costly and it’s because of these costs that the time needed to foreclose on a home has increased in many states, especially where there are a large volume of cases that have overburdened the courts.

There was still a little bad news too, as residents of Florida had the highest foreclosure rate among all states in March, followed closely by Maryland and then Nevada. While things are getting better as far as housing, foreclosures and mortgages are concerned, there are still a lot of problems that need to be fixed.


Are you the Victim of Identity Theft? Check the Signs

Nearly 17 million people were victimized by identity thieves in 2012 according to the US Justice Department, including 40% who were victimized through their credit cards and 37% through their bank accounts. It’s estimated that the cost was nearly $25 billion in not only direct but indirect losses as well.

Unfortunately, most people have no idea they’ve been the victim of an identity thief until their financial institution contacts them but, experts say that it’s not a good idea to rely on your credit card or bank to catch this problem and that, in order to be safer, consumers must take proactive steps to protect themselves. That’s why it’s so important to read today’s blog because we’re going to help you look for signs that your personal information has been stolen by identity thieves.

Incredibly, recent surveys show that almost 90% of consumers don’t check their financial statements, something that experts believe is highly irresponsible. The fact is, waiting for your bank, credit card or retailer to tell you that something’s wrong means it’s already too late. Unfortunately, most people check their Facebook status more than a check their financial statements.

One sign that you’ve been victimized is that a bill for goods or services appears on your statement that you didn’t make, even something very small. Many cyber and identity thieves will do a “test” first to see if your card works and, if it does, they will then start making even bigger purchases. No matter how small a charge might be, make sure you check it out completely.

If a statement appears in your mailbox for an unknown credit card account, you’ve probably been victimized by an identity thief who has applied for a credit card in your name and gone shopping before you caught them and closed that account. If a credit card that you never applied for shows up in your mail, don’t simply assume that it’s been a mistake, contact that credit card company right away.

The same thing goes if you start getting calls from debt collectors or collection notices, something that could signal that an identity thief has been using your personal information, purchasing things, and then of course not paying for them. If you have “good” credit and you apply for a new credit card but are denied, it might mean that an identity thief has damaged your credit and ruined your credit score.

Sometimes it won’t be a new or unknown bill that comes, it will be a normal bill that stops coming. If you’re monthly  statement suddenly stops arriving in your mailbox, it could mean that an identity thief has filed a change of address in order to keep that statement from arriving and alerting you to his or her criminal activity.

If you log on to the Identity Theft Resource Center online, you’ll find a full list of ID Theft Red Flags that will give you more information about how to spot identity thieves and make sure that they don’t ruin not just your credit or your credit score but your financial health as well. A few minutes of your time doing that, and checking your monthly statements as well as your credit reports, could save you a mountain of headaches and a lot of money.


Protect your Tax Refund from Identity Thieves

What could be worse than having to file your taxes this year? How about having an identity thief steal your tax return check?

The fact is, identity theft is already the number one complaint that the Federal Trade Commission sees and a very serious problem. Tax related identity theft is one of the major chunks of this growing crime spree. The numbers are startling. In 2010, for example, approximately 15% of identity theft complaints to the FTC had to do with tax returns. Last year, in 2013, that number skyrocketed to 43%.

According to Adam Levin, Chairman and founder of Identity Theft 911, “It’s a lucrative crime and relatively easy to commit.” He went on to say that “all you need is a social security number and some counterfeit documents. It’s much easier than selling drugs or stealing cars and a lot less risky for the bad guys.”

If that’s scary and you’re looking for a way to prevent it from happening, one of the best ways is to file your tax returns early. The reason? If you do, the IRS will possibly process your return before the identity thieves can strike.

The coordinator of the Identity Protection Program at the FTC, Steve Toporoff, said that “it really can be a race to the IRS,” adding that “thieves usually don’t have access to the W-2 forms, so they just make up income numbers and hope their phony return gets through the process.”

If an identity thief is successful, when you file your legitimate IRS tax return it will get kicked out of the system and denied by the IRS computers because it will show that your claim has already been processed and paid. In most cases you’ll get your money but it could be delayed for months, and the IRS says that typically it will take about 180 days to resolve an identity theft case.

The Federal Government is fighting back

One of the top priorities for the IRS today is identity theft and, on its website, the agency says it’s taking ”new steps and strong actions to protect taxpayers and help victims of identity theft and refund fraud.”

There are more than 3000 employees working for the IRS on identity theft issues and over 35,000 employees who deal with taxpayers regularly have already been trained to not only recognize fraudulent returns but also help identity theft victims when fraud occurs.

In 2013 the IRS commenced nearly 1500 criminal investigations into tax identity theft, an increase of 66% from 2012. Also the average prison term for identity theft has been increased to more than three years, almost doubling the prison sentence.

What are the warning signs of tax identity theft?

The first time most consumers find out that they’ve been the victim of identity theft is when the IRS sends them a letter saying that they’ve been denied because there tax return has already been processed and paid. Many times the IRS will inform the consumer that they’ve filed either more than one return or have earned wages from an unknown employer, a tipoff that shows that their Social Security number was stolen and then used by someone to get a job.

You should contact the IRS Identity Protection Specialized Unit right away if you receive a notice like this. They can be reached at 800-908=4490 at extension 245. Once you do you’ll need to fill in some paperwork and do it quickly because you’re already vulnerable to other types of identity theft fraud.

The reason is that once a person has filed a fraudulent tax return successfully, they will then have your social security number and enough information to start opening new lines of credit, committing medical identity and even taking over your other financial accounts.  These criminals may also try to claim a tax refund in your name again next year, meaning that you definitely should get a verification PIN code from the IRS to use in the future when you file future returns.

One last key bit of information to keep in mind is that you should never respond to emails or text messages from anyone claiming to be the IRS simply because the IRS does not send emails or text messages but always contacts consumers by mail.


3 Tips to Reduce Capital Gains Taxes when you Sell your Home

It’s probably not news to you that, during the financial crisis, home prices tanked completely. For example, the S&P Case-Shiller 20-City Home Price Index declined to about 30% to 140 and the 10-City Index fell by almost 34%. Within just a few short years the meteoric rise in home prices seen in the first half of the decade had plummeted.

Things have changed in the last couple of years however and the time to sell might be right again. Of course if you sell and make a profit you can expect old Uncle Sam to ask for his cut of the proceeds but luckily there are a number of tax code provisions that will help you lower your capital gains taxes and keep more of the profit where it belongs, in your own pocket. We’ve got 3 of the best of them below. Enjoy.

1. Selling your home, not a house

You are allowed to exclude a certain amount of profit that you make when you sell your home from your taxable income, up to $250,000 for an individual and $500,000 for married couples filing jointly. The exception to this rule however is that the house you sell must actually be your home, not just a house that you own.

It may seem like a silly difference but, from a tax standpoint, it’s not. You must have lived in that house for at least two of the last five years in order for it to be considered your home and, although these years don’t have to be consecutive, if it’s a vacation house that you use for 2 or 3 weeks a year it won’t qualify.

One thing that’s important to note is that several different types of residences can actually classify as a “home”. For example, a mobile home, condo, apartment or even a boat can be considered a home and qualify for the exclusion. You can claim this exclusion, with certain conditions, every two years but make sure that you do it correctly so that if Uncle Sam starts poking around you have a leg to stand on.

2.  Record everything in a Diary

All those thousands of receipts and any other documentation could prove very useful in minimizing your tax bill. When it comes to capital gains exclusions, you want to be able to take advantage of all of the exceptions and conditions that you can and a legible paper trail for the IRS to follow is a very good idea to have.

You can claim, for example, a partial exclusion if you’ve been forced to sell your home before you lived in it for two years due to an illness or accident that forced you to be hospitalized. Keeping receipts and other documentation from your doctor will help you to make your case to the IRS. While these documents don’t necessarily need to be submitted when you file your taxes, getting them at the time the services are performed is a lot easier than trying to find the doctor two years later and get them then.

3. Partial exclusions to the 2 year rule

When it comes to the rule saying you need to have lived in your home for 2 of the past 5 years, there are actually three exceptions that you can use to get around it.   We already mentioned the first which is due to medical concerns that force you to be hospitalized. The second are events like natural disasters that displace you from your home and the third is that your employer asks you to relocate for your job.

Whatever your particular situation happens to be, some of the profits they made on the sale of your home can be excluded (but only some of them). If you are forced to move out of your home for one of these three reasons you can exclude money in the amount of profit that’s relative to the time that you actually lived in that residence.

If, for example, you’re a single filer and you want to sell the condo you owned in California and lived in for 6 months, 25% of the $250,000 standard exclusion can be excluded, or $62,500.

So as you can see there are at least 3 excellent options that you have in order to reduce your capital gains taxes. We hope these have helped you and that, when it’s time to sell your home, you’re actually able to make a profit. Best of luck.

Considering Lending Money to a Family Member? If so, follow these 3 Basic Rules

While this may sound a bit harsh, the best rule of thumb when considering lending money to family or friends is simply this; Don’t. That, however, is much more easily said than done, especially when the person that’s asking for the money is your adult son or daughter, your brother or sister or your best friend from childhood. While it’s easy for us to sit back and say “that’s not a good idea”, the reality is that, unless a person is a real Scrooge, they want to help the people in their lives that they are closest to.

With that in mind, if someone you love comes to you during the holidays looking for a loan, use the rules below (and stick to them) to reduce any possible future problems and heartache that your loan might bring. Enjoy.

Rule #1) Make sure that you can afford to lend the money they are asking for. Simply put, you need to think very carefully about what this loan will do to your financial status. If it’s going to really strain your budget or put a lot more stress on your shoulders, you might just have to say no. Likewise, if it’s impossible view to give the loan without tapping into your retirement savings or your emergency fund,  it might be a good idea to decline. Of course, if you have the financial means and it won’t put you in any financial risk, considering that loan will be a lot easier.

Rule #2) Take into consideration what could happen if the person you lend to defaults on the loan. Interestingly, a Consumer survey found that nearly 33% of potential lenders would still lend money to a friend or family member even if they were aware that they would never see that money again. That being said, even though you might wish to believe that your brother would never leave you hanging, you need to fully consider what would happen if he was unable to repay the money that you are considering giving to him. If you can lend it without fear that you’ll go “broke” or worse, then by all means go right ahead. On the other hand, if non-repayment of your loan would leave you “up the creek without a paddle” then declining is probably your best bet. If you’ve already loaned money and the person is behind on payments, immediately address the problem and do your best to renegotiate any loan terms to make that debt more manageable.

Rule #3) Make sure that everything is in writing, signed and notarized. One of the biggest problems that causes family strife is when one person gives a loan and the other person, when it’s time to pay, disputes what the terms or conditions of the loan were to begin with. For that reason, writing down the terms of the loan and having both parties sign it is a must. This should include the terms, interest rate, payment schedule and length of the loan as well as any other specifications that you may want. Not only is this document legally binding but it also will give both parties a record of the original terms so that, if a dispute arises, it can quickly be put to rest. Recording each payment made on the loan is also an excellent idea.

The rules above are more for personal loans that you give to family members but, if you are considering cosigning a loan for someone, you can use them as well. One caveat is that, when cosigning a loan, be aware that if the person you are cosigning for defaults on the loan you will be 100% responsible for paying it back and, if you are unable to for any reason, your credit will take the hit, not theirs.

Should Widows and Widowers Claim Social Security Benefits? Yes they should

In 2009 the Social Security Period Life Table approximated that nearly 20% of the American population will die before the age of 67. What this means for nearly a quarter of the population is that all of their retirement plans are going to be thrown into chaos, making it extremely difficult to know if, and when, any Social Security benefits will become available.

The good news  (if you can call it that) is that Social Security provides survivor benefits for spouses, and even divorced spouses, of people who have passed away. Eligible widows and widowers as well as surviving divorced spouses qualify for the benefit (with a number of different stipulations of course) as well as for persons who are still caring for the child descendent who is either under 16 years of age or disabled in some way. Widows and widowers must’ve been married to their deceased spouse for at least nine months and people who qualify for getting Social Security benefits from their ex-wife or ex-husband need to have been married to them for at least 10 years.

Another good thing is that the qualifications to get these benefits are a bit less stringent than the benefits  that are normally in place. Indeed, many spouses who are aware that they would qualify for Social Security benefits  from their deceased spouse have found that that indeed they do and these benefits can be claimed from the age of 60 forward, two years before the normal minimum age that is usually required.

Even better, someone who may not qualify for Social Security benefits on his or her own record can actually start drawing income early from the benefits of their deceased spouse. Keep in mind that these benefits may be subject to taxation and talk to your financial advisor before you make any changes to your retirement cash flow and your tax planning. The benefits that you might gain from claiming your benefits before your full retirement age, especially if you plan to continue working, should be weighed also. Once you reach your full retirement age this earnings test will no longer need to be applied.

One strategy that can be used by a person who is already qualified to get their retirement benefits and is deferring those benefits is to apply for the benefits of their deceased spouse in advance. This will allow your own benefits to continue to grow but also give you an income from your deceased spouse’s benefits while you wait.

If you qualify for multiple benefits it’s imperative that you talk to a financial advisor to determine how best to claim them, and when. The fact is that planning for Social Security, and planning your retirement when you are a widow or a widower, can be quite complicated. There are many things that need to be taken into consideration and, as you can see, quite a few other benefits that you might not have even known about. Speaking with someone at your local Social Security office and your financial advisor is definitely a good idea before you make any big decisions.