Keep an eye on your credit
June 29, 2009 by Jean Keener, CRPC, CFDP · Leave a Comment
The Credit Card legislation passed last month should ultimately help consumers. However, in the short term, many people are being squeezed. We have a combination of factors:
- banks attempting to shore up their financial statements by reducing the available credit on credit cards, home equity lines of credit, and business credit lines
- credit card companies seizing the opportunity to raise rates and fees while they still can
- far fewer 0% and low-interest balance transfer offers available
What does this mean to you?
If you are carrying any consumer debt or rely on a line of credit for emergencies, you need to keep an eye on it. You need to read all your mail from lenders and especially watch for changes in your terms including interest rate changes, shortened grace periods, reduced credit limits, or increased fees.
If you’re carrying balances and your interest rates are going up, take action.
- Come up with a plan to pay off the debt as soon as possible.
- Investigate competitor’s offers.
- If you have cash in excess of your needed emergency funds, go ahead and pay off the balance now.
If you’re relying on a home equity line of credit for emergency funds and it’s reduced below what you need, take action.
Start accumulating a cash emergency fund immediately. Here are 10 tools to do this. Long-term, it doesn’t make sense to be at the whims of creditors for your financial security. Cash in hand is the only way to ensure you can handle the unexpected without doing long-term financial damage.
Bottom line, don’t just ignore changes in your credit terms. You need to be a conscious credit consumer. Your best best is to avoid credit card debt all together. But if you are carrying some revolving credit, take steps to ensure that current lending conditions don’t do permanent damage to your financial future.
Roth 401(k) and 403(b)
June 24, 2009 by Jean Keener, CRPC, CFDP · Leave a Comment
One of my fellow Garrett Planning Network members, Jim Blankenship in New Berlin, Illinois, did a great summary article on Roth 401(k)s and 403(b)s yesterday.
More and more companies are making the Roth 401(k) or 403(b) an option. Legislation was also recently signed allowing the Roth option to be made available for government employees in the TSP.
The Roth is not right for everyone, but it’s a truly fabulous option for many of us. You don’t get tax savings now, but your money is able to grow and be withdrawn tax-free in retirement (once you meet certain conditions). If it’s available now through your employer, I would definitely suggest taking a few moments to read Jim’s article and consider whether it makes sense for you. Let me know of any questions!
10 Tools to Build an Emergency Fund
June 22, 2009 by Jean Keener, CRPC, CFDP · 4 Comments
So, you know you need an emergency fund. You’ve been trying to build one, but just can’t seem to get there.
The percentage of people living paycheck to paycheck ranges depending on who’s surveying from 47% (Careerbuilder 2008 survey) to 71% (American Payroll Association 2008 survey). This issue isn’t unique to any particular income level — the Careerbuilder survey also shows 21% of Americans with $100K+ incomes living paycheck to paycheck. Whatever the actual percentage is, if you’re one of the people in the paycheck-to-paycheck boat, you know how challenging it can feel to change the situation.
If you’re determined to make this change, you have to do more than nickel and dime your emergency fund. More than the popular “save the change” program on your credit card (nothing wrong with this, it’s just not enough). The small things do add up, but it’s very slow and doesn’t really give you that sense of accomplishment most of us need to continue.
First, set a goal.
Ideally, you’d have 6 months’ of living expenses in an emergency fund. But for a true paycheck-to-paychecker, thinking about the ideal makes you laugh. So start with $1,000. Then when you get that, you can change your goal to one month’s expenses. Then three, etc.
Second, set a timetable.
Don’t give yourself a lot of time to save $1,000. You want a sense of urgency to achieve your first milestone. I’m not going to get specific here because depending on your income level, it might be reasonable to do it in one month or three months. But I wouldn’t suggest more than six months for anyone.
Third, pick 3 things on this list that you can do today.
1. Set up an automatic transfer from checking to savings on payday. Enough to be a little painful initially, but not so much that you can’t stick with it.
2. Take a one-month spending vacation. Don’t starve yourself or skip doctor’s appointments if you’re sick, but don’t buy anything that’s not absolutely necessary. Put everything you have left over in your emergency fund.
3. Have a garage sale (or sell your stuff on Craigslist, eBay, etc.). Some people can generate the $1,000 from this alone.
4. Use 3 paycheck or 5 paycheck months. If you get paid every other week, then there are 2 months a year when you have a 3rd paycheck. If you get paid every week, you have 1 month every 3 months with a 5th paycheck. Most people just kind of absorb this extra paycheck into their spending. Instead, make sure you’re living strictly on your regular number of paychecks each month, identify the months where you’ll receive an extra one, and put that money directly into your emergency fund on payday.
5. If you get a bonus, over-time, or extra commission, put it in your emergency fund.
6. If you get a raise, calculate how much extra you get on your first check after the raise, and increase your automatic transfer to your emergency fund by that amount. Don’t increase your spending.
7. Get a part-time job or start a small business (one without a lot of overhead) and save everything you earn from it.
8. Write down all of your expenses for an entire month. Pick at least two to eliminate or reduce.
9. If you’re part of the 21% of people earning more than $100K living paycheck to paycheck, when you max out on social security ($106,800 limit this year) and your paycheck goes up, put the extra money in the bank instead of spending it.
10. If the above aren’t enough to get you there, consider big changes like a less expensive car or place to live.
Fourth, write it down and show it to someone.
I will save $_______ by ______ (this date) by doing items 1)______________, 2)__________, and 3)____________. Your chances of success increase exponentially when you write your goals down and share them. Good luck!
Do Build America Bonds Make Sense for You?
June 19, 2009 by Jean Keener, CRPC, CFDP · Leave a Comment
Investors have a new mechanism for investing in municipal bonds, courtesy of the American Recovery and Reinvestment Act of 2009. As part of the Obama administration’s economic stimulus program, the bill authorized a subsidy for local and state governments that issue what are known as Build America Bonds (BABs) to finance capital expenditures.
Unlike most municipal bonds issued by a state or local government, the interest payments on a Build America Bond are taxable on your federal income tax return. However, the federal government subsidizes 35% of the interest payments on a BAB, which typically have relatively long maturities and must be issued before January 1, 2011. Those subsidies enable state and local governments to offer a higher interest rate to attract investors while at the same time reducing the cost of borrowing money to fund construction and infrastructure projects. Because of the subsidies, many muni bonds issued over the next two years are expected to be BABs.
There are several types of BABs; the governmental body that issues one determines which it will be. A Tax Credit BAB offers the bondholder a 35% federal income tax credit on the net coupon interest. A Direct Payment BAB pays the 35% subsidy directly to the issuer. Still a third type, known as a Recovery Zone Economic Development Bond, is a Direct Payment BAB that provides a 45% refundable tax credit to the governmental issuer.
Why buy a Build America Bond?
A BAB may offer some advantages that ordinary taxable municipal bonds don’t. The most obvious benefit comes from a Tax Credit BAB. Even though a BAB is a taxable bond, the 35% tax credit means that your after-tax return will be higher than the bond’s stated coupon rate. Also, the 35% tax credit may be especially valuable to investors whose marginal tax bracket is less than 35%, for whom the tax benefits of muni bonds may not previously have been as valuable. In some cases, a BAB’s net return may be as good or better than an equivalent corporate bond or an ordinary tax-free municipal bond. Your tax bracket will determine the extent to which you benefit from a Tax Credit BAB.
Even a BAB whose federal subsidy is paid to the issuer may provide benefits. The federal subsidy may enable an issuer to offer a higher coupon rate than it might otherwise have been able to afford. And though default is not impossible, munis have traditionally had a lower default rate than corporate bonds; the federal subsidies should enhance governments’ ability to meet their financial obligations.
Factors to consider
Before investing, make sure you understand whether a given BAB offers you the 35% tax credit and what that will mean given your tax bracket. Remember that the balance of those interest payments will be included as part of your taxable income, unlike most muni bonds. You may want to get assistance in determining whether a BAB makes sense for you.
New-issue BABs may be challenging for individuals to invest in. Some BAB auctions have focused on large institutional investors to the exclusion of individuals; it may be easier to find BABs being resold on the secondary market. As with any bond, BABs are affected by changes in interest rates. If interest rates rise, the value of an existing BAB with a lower coupon rate is likely to drop.
Forgiveness and Money
June 15, 2009 by Jean Keener, CRPC, CFDP · 1 Comment
I invited Kristin Robertson, president of Brio Leadership, to do a guest post on the Keener Financial Planning blog this morning about forgiveness.
As we seek to manage our money in smarter ways, many times our experiences with money in our past play a key role in the decisions we’re making today. We inherit attitudes about spending and saving from our parents and early childhood experiences. Sometimes we’ve personally made mistakes with money. Or we’ve seen people that we’re close to make mistakes, oftentimes in ways that significantly affected us.
These experiences all affect our ability to be fully effective for ourselves and our loved ones in our financial lives. Sometimes, until we’ve processed these experiences, it can be difficult to understand why we continue to overspend, or why we can’t enjoy spending the money we’ve saved for a vacation, or why we feel deprived even when we have plenty. As we process our attitudes toward money, we may discover that forgiving ourselves or someone else for past mistakes is important to letting go and moving forward to happier and more productive ways of managing money.
I hope you enjoy Kristin’s article. And don’t miss the links to her site and more information on her new book.
Forgiveness: 5 Reasons It’s Good for You
June 15, 2009 by Jean Keener, CRPC, CFDP · 1 Comment
By Guest Blogger Kristin Robertson, President, Brio Leadership
Remember how a nice warm bowl of chicken soup helps you feel better when you have the flu? Well forgiveness and have the same effect when what ails you is a grievance from the past.
Did you know that you really forgive others to help yourself — not to help the other person? Surprised? In my definition of forgiveness, the goal is to neutralize the emotional charge that you carry toward a person who has harmed you. Forgiveness is like letting yourself out of jail – you release the hateful, vengeful thoughts that imprison you and make you feel bad every time you remember the hurtful incident.
So if forgiveness is like chicken soup, what are the results of enjoying a steaming, savory bowl of the stuff? Here are five personal benefits to forgiving:
1. You are healthier.
You do your body a favor when you forgive. Recent research has shown that the act of forgiveness pays dividends in the form of less illness and physical maladies. Some schools of thought state that the lack of forgiveness is the root cause of all physical illness, and that the first thought you should have when you discover a physical ailment is, “Who or what do I need to forgive?”
2. You are happier and more peaceful.
A human being is an energy-producing and energy-consuming organism. The state of non-forgiveness, along with feelings of vengeance, hate and self-recrimination, drain you of energy – they divert large amounts of your daily energy allotment, leaving less power for positive emotions and for enjoying life. Once you learn to forgive, you free up the energy that was invested in maintaining your negative emotions. Now you have energy to invest in positive experiences and enjoyment of your many blessings.
3. You enjoy improved mental health.
Recent research shows that people who learn to forgive suffer from fewer incidents of depression than before. In addition, people who forgive experience less anxiety. Before learning forgiveness, your spirit is stuck in negative emotions such as anger, resentment, and vengeance. When you forgive, you make room for more positive emotions such as love and compassion.
4. Your stress level decreases.
Stress is your response to a perceived threat. What one person perceives as a threat is not a threat to another. If you remain in a state of non-forgiveness, you have less energy to devote to seeking other perceptions of a stressor and seeing it in a different light. A large cause of stress is a lack of control over a situation or your life. When you forgive, you are choosing a different response from the past, which gives you more control over your life and reduces your stress level.
5. It is easier to stay in the present moment.
The process of forgiveness frees you from the tyranny of remembering past hurts. Your spirit no longer is bound to the past, your mind stops reviewing and re-living grievances, and you stop clinging to a victim’s role. You are able to live in the present moment, which is the most spiritually mature way to live. When you live in the present moment, you live with a heart and a mind that are wide open to perceiving the wonders and blessings of life.
It is hard to contemplate an employee in today’s workplace who doesn’t have someone or something to forgive. Forgiveness opportunities range from relatively minor annoyances to major grievances. A minor annoyance at the office, especially in cubicle-land, is the allergic co-worker who sits in the next cube and loudly clears his throat all day in the most annoying way. Can you forgive him? Or what about the customer from hell who yells at you for something you have no control over? Is that forgivable? Consider the boss who repeatedly overlooks you for promotions that you clearly deserve or who gives you a bad performance review? That is not easy to forgive. An even bigger grievance is the boss or business partner who swindles you out of a large sum of money, or who sexually harasses you. Now, that’s a big deal.
Everyone constantly faces forgiveness opportunities – at work, at home, towards you and toward others.
In my new book, A Forgiveness Journal, I present a seven step process of forgiving, that includes identifying your feelings, talking it out, changing viewpoints, gaining perspective, writing to the other person, acting and blessing the other. By following these steps, you too can reap the benefits of forgiveness. It’s like eating chicken soup when you feel bad – you will feel better all over
If you like what you’ve read so far, you might check out my book, A Forgiveness Journal, put in on your bedside table, look at it every night before going to bed. Also, you’ll want to sign up for my free monthly newsletter at http://www.brioleadership.com
Kristin is President and Head Coach of Brio Leadership, a coaching, consulting and training firm that helps builds spiritually intelligent individuals and teams so they can live lives of integrity, meaning and fulfillment. She believes that incorporating spiritual intelligence in the workplace is a way to positively transform lives and create highly productive work environments.
Ways to Pay for Grad School
June 10, 2009 by Jean Keener, CRPC, CFDP · Leave a Comment
Are you thinking about going to graduate school? Whether you want to advance in your current field or move your career in a new direction, graduate school might open doors for you. But it isn’t cheap. Here are some suggestions on where to look for financial help.
Loans
Students attending graduate school can borrow from two sources: the federal government and private lenders. Uncle Sam’s three major loan programs–the Stafford loan, Perkins loan, and graduate PLUS loan–are all available to graduate students, provided they attend school on at least a half-time basis. The following chart highlights each loan program:
To apply for federal loans, students should file the government’s aid application, the FAFSA. It can be filed online at www.fafsa.ed.gov.
Students can also obtain loans from private lenders, though such loans typically carry higher, variable interest rates.
Scholarships and grants
At the graduate level, most scholarships and grants come from the school itself, 
rather than outside organizations, and are often awarded on the basis of merit, not need. So it’s always a good idea to contact the financial aid office of any school you’re considering to see what special scholarships and grants they offer for graduate students. Many scholarships and grants are awarded at the departmental level, so your chances might depend on what subject you plan to study.
Employer educational assistance
If you plan to work while you attend graduate school, check to see if your employer offers any educational assistance.
The first $5,250 of such assistance is exempt from federal income tax. But make sure to read your employer’s fine print: some may require that you maintain a certain grade, or that you remain at the company for a certain number of years after you obtain your degree.
Education tax benefits
Education tax benefits may not help you pay the upfront costs of tuition, but they might help defray some of those costs later on when you file your taxes. For more information, see IRS Publication 970, Tax Benefits for Education. In 2009, you may qualify for the:
Lifetime Learning credit–Is worth up to $2,000 for tuition and fees if your modified adjusted gross income (MAGI) is below $50,000 (single) or $100,000 (married filing jointly).
Deduction for qualified higher education expenses–Lets you deduct $4,000 in tuition and fees if your MAGI is below $65,000 (single) or $130,000 (married filing jointly).
Student loan interest deduction–Lets you deduct up to $2,500 of qualifying student loan interest if your income is $60,000 or less (single) or $120,000 or less (married filing jointly).
A partial credit/deduction is available for each of these tax benefits for filers with slightly higher incomes than those listed.
Look before you leap
Finally, before you make that first tuition payment, ask yourself whether a graduate degree makes sense for your long-term career goals. Will you be more marketable after getting your degree? Will the return on your investment be worthwhile? Do you plan to stay in this career going forward? Assuming the answers to these questions are yes, the expense of graduate school might be a worthwhile investment for you.
$250,000 Bank Deposit Account Insurance Limit Extended
June 8, 2009 by Jean Keener, CRPC, CFDP · Leave a Comment
On May 20, 2009, President Obama signed the Helping Families Save Their Homes Act of 2009. Included in the legislation was a provision that postpones until January 1, 2014 the expiration of the $250,000 limit on Federal Deposit Insurance Corp. (FDIC) insurance for bank deposit accounts. The limit was raised in 2008 from $100,000 per depositor at a given institution, and had been scheduled to revert to the previous $100,000 limit on December 31, 2009.
The legislation covers all account categories other than: (1) IRAs and certain other retirement accounts, which will continue to be covered up to $250,000 per owner after January 1, 2014, and (2) non-interest bearing transaction deposit accounts, which temporarily have unlimited coverage and are insured under the Transaction Account Guarantee Program, which is still scheduled to expire after December 31, 2009.
The Act also extended to January 1, 2014 the National Credit Union Share Insurance Fund’s $250,000 share insurance coverage of accounts at credit unions.
June 2009 Newsletter
June 2, 2009 by Jean Keener, CRPC, CFDP · Leave a Comment
The June 2009 newsletter is now available. It includes articles on the new credit card law provisions, energy-efficient tax credits, estate planning for second marriages, and social security planning. Click here to read it.
Investing in Low Interest Rate Environment
June 2, 2009 by Jean Keener, CRPC, CFDP · Leave a Comment
Low interest rates create a dilemma. Do you accept a low return because you feel you must protect your principal? Or do you take on greater investment risk in order to try for a higher return? In balancing those two concerns, here are some factors to think about.
Consider laddering your CDs