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6 Ways to Avoid a Credit Card Catastrophe

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Do you feel like your credit card spending is out of control? Credit cards should be a convenient short-term way to pay, not a source of regular spending. Unfortunately, some people have a hard time staying true to this concept. Instead of paying off the entire balance due on the card each month, they let it grow and pay only the minimum amounts.

If this sounds all too familiar, it’s time to stop what you’re doing and start following these rules:

  1. Pay the entire balance due each month.
  2. If a balance remains unpaid at month’s end, do not use the card again.
  3. Do not use more than one credit card.
  4. Do not accept credit cards from specific retail stores.
  5. Do not pay off one credit card with another.
  6. Do not purchase gifts for people with your credit card. It’s often too easy to let your generosity exceed your ability to pay.

New Job? Four Choices for Your Existing 401(k)

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Changing jobs and companies can be an exciting opportunity, but you have a choice to make. What will you do with the retirement savings you have built in your 401(k)? Consider these four options:

  1. Withdraw the money and don’t reinvest it. This is usually the worst choice you can make. Generally, you’ll owe taxes on the distribution at ordinary income rates. (Special rules may apply if you own company stock in the plan.) Unless you’re over age 59½, you’ll pay a 10 percent penalty tax, too. More importantly, you’ll lose the opportunity for future tax-deferred growth of your retirement savings. And once you have the funds readily available, it’s all too easy to spend the money instead of saving for your retirement.
  2. Roll the money into an IRA. You can avoid immediate taxes and preserve the tax-favored status of your savings by rolling the money into an IRA. This option also gives you full control over how you invest the balances in the future. You have a 60-day window to complete the rollover from the time you close out your 401(k). However, you should always ask for a “trustee-to-trustee” rollover to avoid potential problems.
  3. Roll the balance into your new employer’s plan. If your new employer allows it, you can roll the balance into your new plan and invest it according to your new investment choices. However, there may be a waiting period before you can join your new plan.
  4. Leave the money in your old employer’s plan. You may be able to leave the balance in your old plan, at least temporarily. Then you can do a rollover to an IRA or a new plan later. Check with your employer to see if this is an option.

Call if you need help making the right choice for your particular circumstances.

Four Tips for Building an Emergency Fund

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When facing life’s inevitable bumps in the road, an emergency fund is essential to maintaining financial security. Planning for emergencies is like buying insurance: you pay into an account and hope you’ll never have to use it. But life happens. Cars break down. Roofs leak. Kids get injured. Having money in the bank to cover those unexpected expenses can reduce stress and keep you from relying on credit cards and loans to make ends meet.

Here are four easy and effective ways to establish and maintain an emergency fund.

  • Start small. Many financial planners advise setting aside enough money to cover at least six months of expenses. That’s a worthy goal. But for many people it’s also a daunting task, an objective that will take years – not months – to achieve. So set a realistic and achievable amount for your emergency fund, and then get in the habit of contributing regularly. Then don’t touch the account except for real emergencies. Leave it alone and it will grow.
  • Pump it up. When you get a bonus, cost-of-living adjustment, tax refund, or windfall, consider using a portion of that money to bolster your emergency account. Fight the temptation to increase spending with every new dollar that comes along.
  • Make it automatic. With online banking, it’s easy to set up routine transfers from your regular checking account to a separate savings account. If allowed by your employer, allocate a portion of each paycheck to an emergency fund. Consider establishing the account at a financial institution other than your regular bank. As the saying goes, “Out of sight, out of mind.” If the money never shows up in your regular checking account, you’ll be less likely to use it for everyday spending.
  • Sell stuff and slash expenses. Think about selling some of your unused stuff through yard sales, online auctions, or consignment shops. This can generate cash to bolster your emergency fund. Take a hard look at your budget and consider everything fair game: expensive dinners, vacations, cable television, and so on. You may find that a surprising number of dollars can be freed up and stashed away in savings. The key, of course, is to direct those savings – immediately, if possible – away from regular spending and into your emergency account.

If you’d like more ideas for setting financial goals or building up an emergency fund, give us a call.

Five Financial Lessons to Teach Your Children

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“Dad, I need some extra money to go to the movies with my friends.” If you are a parent, you’ve probably heard countless requests like this.

At some point your kids will discover they can no longer rely on you for all their financial needs. Because recent studies have found that teaching financial literacy is lacking in many schools, it’s up to parents to provide the fundamentals of finance to their children. Here are some concepts you can use to begin introducing your kids to the lessons of personal finance.

  • Spend a little, save a little. Whether receiving a birthday gift or allowance money, teach your kids to get into the habit of saving a portion of what they receive. Help them create savings goals like the purchase of a bike or creation of a college fund.
  • Don’t worry about what others have. Teach your children to avoid spending money to follow the crowd. Take a look at the unused toy bin to demonstrate the point. Chasing the need to own $200-$500 sneakers can lead poor financial habits in the future.
  • Be money mindful. Remind your child to think before they spend money. Help them understand that wanting something doesn’t always mean that they need to have it. You can also help them to prioritize their spending. For example, saving for the running shoes your child might need for track may be more important than the money he or she would spend on a night at the movies with friends.
  • Learning about finances is fun. Set aside some time each week to learn about a new personal finance topic together. You can help your child learn about checking accounts, setting up a budget, getting a small loan, or simple ways to start saving. Getting them interested in financial topics at a young age will help them throughout their lives.
  • Tax talk. If your child is old enough to earn a paycheck, teach them tax basics. Walk them through their paycheck. Social security, Medicare, and withholdings are new concepts for them. Help them understand how the money is used. Don’t overlook other taxes as well. They also need to know that sales tax should be factored into the cost of items they choose to purchase.

It’s important to keep the conversation going. Encourage your children to ask questions, and get them involved with your household spending. There are many ways you can help them develop a healthy understanding of personal finance.

How to be a Successful Saver

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How much money did you save last year? If your savings fell short of your goals, don’t give up. You can still take charge of your financial future. Here are tips to become a successful saver.

  • Set goals. Give your saving a purpose. Do you want to accumulate an emergency fund with enough cash to cover six months of living expenses? Other saving goals may include a college savings fund, vacation fund, or a fund for major purchases.
  • Treat your savings as your most important monthly bill. Write a check to savings first, or have your savings automatically deducted from your checking account or paycheck.
  • Take advantage of tax-deferred retirement accounts. If your employer offers a 401(k) or SIMPLE retirement plan, contribute the maximum amount allowed. No employer plan available? Contribute to an individual retirement account. The money you contribute can reduce your taxable income and grow tax-deferred.
  • Track your expenses. Highlight and eliminate unnecessary or wasteful spending. Control the use of your credit cards. The amount you pay each month in finance charges could go to savings instead. Get in the habit of giving yourself a regular cash allowance, and try to live with it.

For help in setting financial goals and developing a savings plan, call us.