July 31, 2008

Take the Money Quiz (Dinero Mania) from Fiesta del Sol in Chicago

This weekend, Chicago will be the site of one of the largest public events for Hispanics in the country – Fiesta del Sol. While there will be lots of music and entertainment, one booth will be focusing on financial education on Thursday and Friday. University of Illinois Extension will be offering Money Mania (Dinero Mania) where participants can test their knowledge about saving, IRAs, and other retirement plans.

You can take the quiz too! Read the questions below. (The English version appears first, then the questions are repeated in Spanish. I apologize that the editor for this blog did not recognize the special characters and accents needed for some of the Spanish words.) Choose your answers. Then scroll down to check your answers. Click on my name at the end of this post and let me know how you did!

This is all part of U of I Extension's effort to provide financial education, particularly about savings, investing, and retirement, to both English and Spanish speakers. To learn more, go to www.RetireWell.uiuc.edu or www.retirewell.uiuc.edu/Espanol.

In English:

1. You should have an emergency fund before you start investing or putting money into a retirement account.

2. You should help your child pay for college instead of saving money for your own retirement.

3. If I save $10 a week for the next ten years, I could have over $6000.

4. Having money deducted from your paycheck and deposited directly into a savings account or IRA (Individual Retirement Account) is the easiest way to save money.

5. If either you or your spouse is working, you are eligible to put money into an IRA.

6. There are two types of Individual Retirement Accounts: Traditional (tax-deferred) and Roth (tax free).

7. $100 is not enough to start an IRA.

8. You can name a beneficiary (the person who will inherit) for your IRA or other retirement accounts.

9. There are no retirement savings plans for self-employed persons.

10. If you file bankruptcy, you will lose the money in your IRA and other retirement plans.

En Espanol:

1. Debe tener un fondo de emergencia (dinero separado para emergencias) antes de empezar a invertir o depositar el dinero en una cuenta de jubilacion.

2. Debe ayudar a sus hijos a pagar la universidad en lugar de ahorrar dinero para su jubilacion.

3. Si ahorra $10 por semana en los proximos diez anos, podria ahorrar mas de $6000.

4. Deducir dinero de su cheque de pago y depositarlo directamente en una Cuenta de Jubilacion Individual (IRA en ingles) es la manera mas facil ahorrar dinero.

5. Si uno de los esposos esta trabajando, es elegible para contribuir dinero a una Cuenta de Jubilacion Individual (IRA en ingles).

6. Hay dos tipos de Cuentas de Jubilacion Individual: Tradicional (impuestos diferidos) y Roth (libre de impuestos).

7. $100 es insuficiente para empezar una cuenta de IRA.

8. Puede nombrar a un beneficiario de su Cuenta de Jubilacion Individual (IRA en ingles) u otras cuentas de jubilacion.

9. No hay planes de jubilacion para las personas que trabajan por cuenta propia.

10. Si se declara en bancarrota, perder�?????�????�???�??�?�¡ el dinero de su Cuenta de Jubilacion Individual (IRA en ingles) y otros planes de jubilacion.

Answers:

1. TRUE

2. FALSE
3. TRUE (at 4% interest, in an 18% tax bracket -15% federal, 3% state)
4. TRUE
5. TRUE
6. TRUE
7. FALSE
8. TRUE
9. FALSE
10. FALSE

Posted by Karen Chan at 1:10 PM | Permalink |

July 24, 2008

Take Control of Your Finances

Do you feel like the financial world is spinning out of control? I feel like every time I pick up the newspaper or read a blog that another financial disaster has occurred. I do think our national economic situation is very shaky right now, but I don't like feeling that the world is ending!

What can a person do? Most of us can't do anything about the stock market or stupid lending practices or the dollars' value on the world market, but we can take control of our own finances.

Now is a good time to go back to the basics and be sure that our financial life is in order.

1. Make bill payments on time. This has the biggest influence on your credit report score.

2. Take time to review your insurance policies and be sure that you are well covered. Comparison shop to be sure that your policy is providing the best coverage for the money you spend. One way to save money on premiums is to increase the deductible that you pay before the insurance company pays. Only do this if you can afford the higher deductible.

3. That brings us to emergency funds -- how is yours? Typically financial professionals recommend enough money in your fund to cover 3-6 months of essential spending. If you don't have this much money saved up, now is a good time to start! Check the Plan Well, Retire Well website for tips on how to get started or to increase your saving.

4. Pay down your credit. With the economy shaky, now is a good time to lower the amount of credit debt you have.

5. Stay with your investment plan. Historically people who have stayed in the stock market when the overall value is going down (rather than pulling money out) have done better in the long-run. You can check if your investments match your asset allocation goals. If not, then slowly make changes.

6. Take care of home maintenance. For most people their home value is an important part of their assets. Don't put off home maintenance so long that it costs more to fix the problem later!

While these six steps aren't "rocket science," they are positive steps that each of us can do to take control of your finances.

Posted by Kathy Sweedler at 1:23 PM | Permalink |

July 16, 2008

Bank Failures, FDIC Insurance, and What the Media ISN'T Telling You

It was all over the news Monday and Tuesday. IndyMac Bank failed and depositors were panicked, lining up to take out their money. The media broadcast numerous stories like this: "I had $240,000 in IndyMac Bank and I lost $50,000 of it."

I'd like to tell the other side of the story, the story of the people who didn't lose money and whose stories therefore weren't "newsworthy." I actually wonder how many depositors the media had to go through to find those who had lost money, because most of the stories would have gone like this:

"I had $3000 in my checking account, and I didn't lose a penny. There was just one day where I couldn't access my account, but that was all."

Or maybe like this:

"I'm 73 years old, and I have my life savings in that bank - over $200,000. Now I realize that was stupid. But I was lucky. All of my accounts at this bank are payable on my death to my three kids. I didn't realize it, but I get $100,000 of insurance for each of my 'beneficiaries', so we were covered! We aren't going to lose anything."

"I just sold my house two weeks ago and had $198,000 in this bank. I was sure I'd lost most of it. But the account was titled jointly in the names of my husband and me. Since both names were on the account, we were insured up to $200,000. We didn't lose anything! I'm so relieved!"

(Please note that all of these stories are fictional; I created them just for illustrative purposes.)

What's quoted all the time is oversimplified but true, that you're insured up to $100,000 in covered accounts at any single insured bank or savings association. (NCUA provides similar insurance for most credit unions.) But there are many instances, like in the "stories" I made up here, in which people had more insurance. How much insurance do you have? The FDIC's Electronic Deposit Insurance Estimator (EDIE) is a cool little tool that will let you figure that out. It will help if you have your statements right there in front of you, so you can see exactly how your accounts are titled. The FDIC also has a clearly written booklet with lots of examples that will help you understand all the ins and outs of account insurance.

But here's the deal: we as consumers have both rights and responsibilities. Here are what I believe are your responsibilities when you have an account at any financial institution, be it a bank, savings & loan, or credit union:

• Know who you're dealing with.
  • Is the bank legitimate? The neighborhood bank that's been there for 20 years is a no-brainer, but a storefront or internet bank you've never head of could be a fraud.
  • Is it insured? Seeing the FDIC sign, like the one at the beginning of this post, at the bank or on its website is a good sign. (For credit unions, look for the NCUA sign.) But even better, use the Bankfind tool on the FDIC website or call 1-877-275-3342 to verify that it is an insured institution. That will also verify that an unfamiliar bank is legit.
• Understand what type of account you have.
  • Depost accounts (checking, savings, money market accounts, CDs) are insured.
  • Investment accounts (mutual funds, annuities, stocks, and bonds) are not.
  • Contents of safe deposit boxes are not insured by the FDIC. They may be covered by your homeowner' policy; check with your insurer about what your policy covers.
• Pay attention to how each account is titled, including Payable on Death (POD) or other informal trust designations. These designations override any bequests made in your will for those accounts, so you should also review your overall estate plan.
• Don't keep more than $100,000 in one bank, unless you're certain that the titling of the accounts gives you additional insurance that covers all of your money. Move some money to an account at a different bank (NOT another branch of the same bank). Also, evaluate whether you are keeping too much of your portfolio in cash. Perhaps you should be diversifying and putting some of that money into investments such as stock mutual funds.
• Know the terms of your accounts:
  • minimum balance, how it is determined, and fees for dropping below that amount.
  • whether checks for which there are insufficient funds will be paid. If they are, what fees you'll owe for that service and whether you need to take specific steps to pay back that "loan."
  • other fees, including those for debit card usage.
  • any benefits to which the account entitles you, such as free money orders, travelers checks, etc.
• Make your accounts work for you. Check the interest rate and what balances earn that rate. Investigate whether a different type of account at that bank, or a similar account at another bank would pay you a higher rate.
• Read all correspondence from your bank, including announcements printed on your monthly statements. Fees and other terms of your account can change.
• Periodically check to see whether there are new accounts at this bank, or at other banks, that would meet your needs better.

What would you add to this list? What do you think about the news coverage of the IndyMac bank failure? Click on my name below and let me know what you think.

Posted by Karen Chan at 3:37 PM | Permalink |

July 15, 2008

Sticking with Your Investment Strategy in a Difficult Market

It's the middle of July, so by now everyone, even those who receive their investment performance information in the mail, has had a chance to look at the state of their fund holdings as of the middle of 2008.

For most of us the news isn't good or pleasant. Many people with significant equity holdings in their funds have seen the value of their mutual fund holdings drop in the range of 10 to 20 percent since January 1, 2008. Count yourself lucky if your losses in equities are much less than 10 percent in this time period.

With these losses staring us in the face, what should the average small investor who is saving and investing for retirement do at this time? Should he or she change strategy and move funds from equities to cash or bonds at this time?

I argue that this is the time when the average small investor should stick to his or her plan (assuming that you have a long-run investment strategy) and not try to time the market, particularly now. I say this for several reasons.

First, if you have a long-run dollar-cost averaging approach to investing for retirement and now you change to a market timing strategy, you may have picked the worse time to come out of equities and move into cash. Small investors often follow and lag the market in its movements and pay a corresponding penalty for being laggards in timing. While the market may come down some additional amount, it might also begin to pick up and increase in value. There is a risk at this point of not being involved in the market, in that you may miss out on future appreciation of equities.

Secondly, the middle of a market correction or the beginning of a recession is a poor time to change one's basic approach to investing. One important purpose of an investment strategy is to guide even in the face of adverse market developments. The reason this is important is that fear and psychological biases have historically affected small investors (both in bull and bear markets) and led some to make poorly timed reallocation decisions.

Thirdly, if you are feeling prompted to change your investment approach because of losses you have suffered (or, alternatively, market gains you feel you are missing out on), be sure that your investment behaviors and knowledge about investing match up with the approach you are taking. If you are considering more active timing of your fund purchases or allocations, are you following the financial press at a detailed level and do you have market valuation ratios or statistics that you follow?

The losses in equities over the first two quarters of 2008 really bring home the question of investment approach and personal philosophy of investing for all of us who are small-time investors for our savings and retirement funds. Do you have an investment approach? Can you write it down and describe it? Is it robust (by this I mean, is it able to survive and withstand market ups and downs) to market swings and shocks?

Posted by Paul McNamara at 12:49 PM | Permalink |

July 7, 2008

Help someone you know get their Rebate (Economic Stimulus Payment)

I was on vacation last week, visiting with my family in Virginia. That's why this post is late. While we were relaxing and chatting about different things, I discovered that my nephew did not have to file income taxes this year - but he would be eligible for a $300 Economic Stimulus Payment if he did! All he has to do is file, and it's not too late!

I'll bet that you know a friend, retiree, family member, or maybe even a part-time coworker who is also eligible for a rebate, even though they weren't required to file due to the amount or type of income they received. Generally, single people with gross income of less than $8750 and married couples with income of less than $17,500 don't have to file. (For details, see IRS Topic 351 - Who Must File?)

You need at least $3000 of qualifying income to get a rebate. According to the IRS Economic Stimulus Payments Information Center, these kinds of income count toward the $3000, even if the person paid no income tax last year:

• Social Security benefits
• veterans' disability compensation, pension or survivors' benefits from the Department of Veterans Affairs
• Railroad Retirement
• wages
• self-employed income
• military combat pay

If you have at least $3000 in total qualifying income, you're eligible for a $300 payment, or $600 for a married couple. You may also receive an additional $300 for each qualifying child.

However, you cannot get the rebate if you are a dependent of another taxpayer. So this doesn't apply to a 16 year-old who made $3000 mowing lawns or working at the community pool last summer if her parents claimed her on their tax return.

You have until October 15, 2008 to file your income taxes and qualify for your rebate check.

There's more good news: You can file online for free if you aren't normally required to file income taxes and the only reason you're filing is to get your rebate check. Find a list of Free File providers on the IRS website.

Or, just file a simple paper return. According to the IRS, here's all you have to do if you're a low income worker:

• Use either Form 1040A or Form 1040. Write the words "Stimulus Payment" at the top:

• Enter your name, address, Social Security number (SSN), and filing status on the form. Add qualifying children (dependents) and their SSNs to the Exemptions section.

• Enter your earned income on Line 7 of either form.

• Total up any of the other three types of qualifying income and write that total on line 14a if you use Form 1040A, or on line 20a of Form 1040.

• Sign and date the form. Then mail it to the IRS service center for your area.

For instructions specific to other types of income, view the fact sheets for Social Security, Veterans benefits, or Railroad Retirement. Each of these fact sheets is also available in Spanish. There is also a page about military combat pay.

Some people may not be eligible. You (and your spouse, if married) must have a Social Security number. Taxpayers with an Individual Taxpayer Identification Number (ITIN) instead of an SSN are not eligible to receive a stimulus payment except for the spouse or child of married military personnel.

Unless you owe additional taxes, there's no penalty for filing after April 15. If you weren't required to file, or if you are owed a refund, there is no penalty. Want to know more? Read the details.

Now, do someone a favor! Share this information and help some of your friends, clients, retirees, or family members get their money!

Posted by Karen Chan at 10:50 AM | Permalink |