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.

The O Word: Stop Overdrafts from Breaking the Bank

Overdrafts are a friend to no one, especially your bank account. Everyone has faced an overdraft at some point or another but it’s easy to fall into habits that make them a recurring problem. If you’re hoping to makes some changes and prevent the fees from piling on, take a look at a few helpful tips that could save you heaps in the future.

  • Stay Away from Automatic Payments. While automatic payments are a very convenient option for those who find it easy to let a bill slip through the cracks, it’s just as tricky to remember when your payments are scheduled. Try to stay away from automatic payments if you can help it as they can come through when you least expect them and wreak havoc on your bank account balance. Leave your payments set as manual and so you have the option of paying late rather than overdrawing your account. If your payment comes due and you don’t have the funds to cover it, search for other options like the payday loans offered through the wonga website. You can choose the length of time you’ll need the funds for and the faster you pay it off, the less you’re paying in interest. The fees associated with short-term loans like these are often less expensive than the per item charge you’ll receive if your account goes negative.
  • Set Up an Overdraft Account. Most banks now have options for overdraft service like a line of credit attached to your account that is automatically charged when your account falls below zero. Some also allow you to link your savings account so the funds can be taken out automatically in cases when a bill slipped your mind. This can be a dangerous strategy if you don’t make it a habit to check your balance though, seeing as your emergency fund is being used to take care of business. You run the risk of wiping out your fall back method when things get tough.
  • Don’t Opt In to Overdraft Service. New changes to the banking world are going to be making overdrafts significantly more costly, which makes it even more important you understand what’s available to you. Ask your bank to decline your transactions when you don’t have the money available, instead of letting you swipe away your debit card to your heart’s content. If you know yourself and know you can’t be trusted to keep an eye on your balance, don’t leave it up to chance. Some banks automatically opt you into their overdraft service, meaning your card will allow you to spend more than you have for dire situations when you need something and don’t have any other options. But overdrafts generally do more harm than good and if your bank can prevent those fees from snowballing by simply stopping the transaction, you may be better off.

You may not even realize that some of these are options, which is why speaking to your bank may help you get a better idea. But with overdrafts getting higher and higher, make it a priority to make some changes to your finances that will help in the long run.

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.


What’s being done to prevent Credit Card Fraud?

As credit card fraud becomes a multibillion-dollar problem, putting an exact figure on what’s become a huge nationwide problem isn’t exactly easy. “It’s difficult to quantify what the costs of fraud are,” said David Pommerehn, senior counsel for the Consumer Bankers Association. He points to the fact that, as far as what consumers and businesses are paying for the problem, fraud linked costs are wide-ranging and extremely high.

A recent report by a Javelin Strategy & Research called “2014 Identity Road Report” says that since 2012, credit card  fraud rose nearly $3 billion as it reached $11 billion total losses in 2013. Al Pascual, a senior analyst at Javelin, says that “We saw a significant jump from 2012 to 2013,”, in what experts are saying is the understatement of the year.

Pascual expects the problem to continue to grow until the day that credit card companies, as well as merchants, completely embrace cards with computer chips embedded in them. These EMV cards (for Europay, MasterCard and Visa) have computer chips that can be encrypted as well as security systems that can be tokenized, an ability that Pascual says will reduce fraud significantly.

In their report Javelin said that, in 2013, over 80% of all consumers nationwide had been somehow impacted by credit card fraud, to the tune of approximately $106 per incident. This number includes the money itself as well as other costs like taking time off to deal with the problem, legal costs, notary costs, mailing costs and so forth.

The only bit of good news is that, when it comes to covering these losses, consumers normally don’t have a lot of responsibility due to the fact that credit card purchases have extremely limited user liability. Credit card issuers, merchants and processors are the organizations that take the brunt of the losses.

Many of these losses include what are known as “card not present” purchases, those made via mail order, over the phone or online. In most cases, the payment processor such as merchants and acquirers are the ones who pay these fraudulent bills. When it comes to charges that are disputed by merchants and processers, called “chargebacks”, the issuing card is normally the one to absorb the losses.

There are other costs that are linked to the fraud as well, including reissuing cards to consumers who have had them stolen, something that costs between $2. and $10. apiece, as well as helping customers resolve these sticky situations.

“The pre-emptive cost of reissuing a portfolio comes at a great cost to the industry,” Pommerehn said.

EMV technology, which has been around for several years, is finally getting the push that it needs after the huge credit card fiasco at retailer Target last year. The reason that they’ve been dragging their feet for so long is that the cost to adopt the new technology is expected to be in the multi-billions of dollars, including upgrading ATM machines, point-of-sale systems and new credit cards. In many cases these are things that retailers themselves will need to purchase.

In the end however it seems that, finally and begrudgingly, many businesses are willing to spend the money needed to make the changes so that they can better protect their customers and, more importantly, their bottom line.

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.


Skip the flashy gadgets and Save Instead

Without going deeply into the mathematics of it, suffice to say that the difference between starting a savings program when you’re in your 20s versus doing the same when you’re in your 30s or even 40s represents a huge difference in what you will have in your retirement and savings accounts when it’s time to retire.

In other words, the longer a person waits to get started saving and putting money into retirement, 401(k) and other savings accounts, the bigger the hurdle will be to overcome in order for them to retire “comfortably”.

At the root of this problem (which, by the way, is widespread) is the complete lack of financial education that Americans receive either in high school or college. While the skills we need to get a job and earn money are being taught to us (more or less), saving and investing skills as well as prioritizing how our money is spent and saved are almost never dealt with.

Even worse is the fact that, at almost every turn, there seems to be something more “important” than saving money or saving for retirement. There’s always a nicer automobile, a better smartphone or tablet and a bigger television. Indeed, the examples are virtually endless. Another problem is that the further person is from retirement, the more important these luxuries seem to be.

The biggest problem is that, no matter how “awesome” they are, even the biggest pile of obsolete electronic products won’t pay the grocery, mortgage, doctor, heating and other bills once your retirement nest egg begins to run out.

Giving at least a little bit of thought to the long-term effects of your spending habits is thus vitally important. Even though having more choices is usually a good thing, many people make poor choices if they have too many options. Sadly, this can leave many of us with few or no choices later in life when we need them the most.

The inescapable truth is that as a person gets older, no matter who they are, their ability to earn money from working diminishes greatly. This can be due to many things including physical illnesses, mental weaknesses or even the simple fact that, after a person reaches a certain age, it gets much more difficult to find any job at all.

If a person hasn’t put away a sufficient amount of money into retirement plans like 401(k)s, IRAs and other investments, they won’t be choosing which new smartphone or flatscreen TV to buy, they’ll be choosing between whether or not to buy food or medicine.

The good news is that most people can remedy this harsh sounding situation by simply starting a savings plan as early as possible and then sticking to that plan vigilantly throughout the years.

If you’re not sure whether you’re saving enough, would like to know more about retirement savings plans or simply have questions about your best options, please let us know and we’ll get back to you with solid advice ASAP.


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.