Take the Financial Compatibility Test for Couples: How Do You Match Up?

You’ve heard time and again that money is the number one source of strain in romantic relationships, but just how problematic are finances for couples?

A 2013 study by TD Ameritrade found couples fight about money five times per year, on average.

Interestingly, 40 percent of survey respondents said they do not trust partners to manage their combined finances fully, yet only 5 percent stated money was an important factor when choosing a partner.

There’s an apparent disconnect between what couples expect from each other financially, and how those expectations are communicated.

Undoubtedly, much of this arguing and distrust could be eliminated if couples would test their financial compatibility during the early stages of their relationships, rather than ignoring the subject of money until it becomes a source of tension.

That’s why we put together this simple financial compatibility test for couples.

Find out if you and your partner are a financial match made in heaven — or a money mess waiting to happen.

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Money Quiz: Financial Compatibility Test for Couples

Answer the questions below and keep track of which numbers you select (1-5) for each. The answer key on the next page will explain what your choices say about your financial compatibility.

How often do the two of you talk about your finances?

1. Never – Only one of us is in charge of the household finances so we don’t need to talk about them.

2. Rarely – We only talk about money if there’s a problem — and so far, so good.

3. Regularly – We maintain a budget and check in to keep each other accountable for sticking to it.

4. Constantly – Money is either tight, or one of us is not sticking to our budget — either way, finances are a constant topic of conversation.

5. Not applicable – We maintain separate finances, so there’s nothing to discuss.

I’m comfortable with how much money my partner spends.

1. True, I think – He/she has ups and downs that can mess up our budget every now and then, but overall I think my partner’s spending is okay.

2. False – I’d like it if my partner spent less on non-essentials.

3. True – When reviewing our finances, it’s clear he/she is responsible with money.

4. False – He/she is a shopaholic and spends way too much!

5. Not applicable – It is his/her money to spend — I stay out of it.

Have you set financial goals for the future and are working as a team to reach them?

1. Yes, maybe – We have goals to save for and I’m on track; hopefully, my partner is, too.

2. Not really – We set a few goals together, the only problem is one of us is holding us back from reaching them due to overspending or excessive debt.

3. Yes, definitely – We decided as a couple what we want to work jointly toward accomplishing financially, and are contributing and tracking progress together.

4. No – We never have any money leftover to save, so we haven’t bothered setting any goals yet.

5. Not applicable – We spend and save our own money as we see fit — my partner and I don’t share any financial goals.

Do you have any financial secrets that you’re hiding from your partner?

1. No – I don’t have any secrets — it’s my partner I’m worried about.

2. Yes – Sometimes I hide receipts or lie about how much something cost, but nothing huge.

3. No – We talk openly and honestly about money, and consult each other before making any big decisions that could affect us both.

4. Yes – I have a load of debt I’m hoping my partner won’t find out about.

5. Yes – I have my own bank accounts that my partner doesn’t know about — and they don’t need to know.

Have you saved an emergency fund together?

1. I’m not really sure what an emergency fund is — I hope we have one though!

2. Yes – We’re working on saving up the first $1,000.

3. Yes – We have about three months’ worth of expenses saved in case of a financial emergency.

4. No –  Between overspending and debt payments, we haven’t come close to starting an emergency fund.

5. No – I have plenty of savings in case I need it, but it’s up to my partner to save for their own emergencies.

Overall, I trust my partner to make smart financial decisions.

1. Yes – As far as I know, he/she has been making good decisions so far.

2. Not Really – I don’t think I’d be comfortable handing over the finances 100 percent.

3. Yes, Definitely – We are on the same page when it comes to our money, so I trust my partner’s judgement.

4. No Way – My partner is a disaster when it comes to managing money.

5. No – We keep our finances separate so we don’t have to worry about these things in the first place.

And my partner trusts me, too.

1. I’m not sure – I’ve never asked.

2. For the most part – I’m pretty good with our money and we rarely argue, so I assume my partner trusts me.

3. Yes – Our open communication lets me know my partner trusts me as much as I trust him/her.

4. Probably not – Considering how much we argue about money, I doubt my partner would trust me with the finances.

5. Doesn’t matter – It’s not my partner’s concern what I do with my money.

Answer Key

Which number did you chose most often?

Mostly #1: Clueless

Are you financially compatible? Who knows!? You take the “ignorance is bliss” approach to your finances.

If you want to ensure you are a fit financially, it’s time to sit down and get on the same page about money. Discuss how you both approach money management, your strengths and weaknesses, your goals and concerns, then devise a budget and individual responsibilities.

Mostly #2: Room for Improvement

There aren’t any big, glaring money issues between the two of you, but there could be potential problems down the road.

Remember, conversations about money don’t have to happen only when something’s wrong; set aside time to review your financial situation with your partner on a regular basis.

This will ensure you are both happy with where the household finances stand, and give you the chance to talk about areas for improvement before they blow up into major issues.

Mostly #3: A Perfect Match

You two understand and share each other’s goals and values when it comes to money. Communication is open and you both take responsibility for your finances.

Mostly #4: Financial Disaster

Your financial situation is a mess, and you’re both responsible. Whether you’re the one with spending problems or simply don’t speak up when your partner’s actions upset you, things can only get worse from here.

Don’t let them — it may be a good idea to see a financial planner or marriage counselor who can help you two sort things out and get on the right track with your money.

Mostly #5: Financially Uncommitted

The two of you lead financially independent lives. That’s not necessarily a bad thing, especially for couples who are not married, though some married couples choose to keep separate finances as well.

However, it’s important to at least talk about money and understand each other’s financial habits and goals, just in case you someday choose get married or merge finances, or face a situation that requires a joint financial decision (such as a home purchase or medical emergency) and can handle it with ease.

“Take the Financial Compatibility Quiz for Couples: How Do You Match Up?” was provided by GoBankingRates.com. 

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How to Manage Financial Stress

For most of us, some level of financial stress is unavoidable. You’ll always have bills to pay, a job to keep, and the occasional emergency expense to deal with. What really matters is how you cope with that stress.

With a little forethought and a lot of soul searching, even the most anxious consumer can start to gain a sense of control over their financial – and mental – health. Following these tips can go a long way towards putting you back in the driver’s seat.

Face the Music

A recent survey by Cushion found that more than 50% of Americans don’t know their bank account balance. The reason? They’re too scared to look.

The first step to managing financial stress is taking an honest appraisal of your situation. Make a list of every aspect of your financial life that’s stressing you out. Are you scared of all the credit card debt you’ve racked up? Are you worried that your paltry emergency fund won’t keep you afloat if you lose your job? Do you feel ashamed of not having a budget in place?

Then, start by organizing your financial accounts. Make sure you have online accounts created for each bank, investment, and credit account. Set up alerts for due dates so you don’t miss a payment.

Check your credit report for free at AnnualCreditReport.com. Your credit report will show all your current and active credit accounts in case you forgot any.

Then, set up a time to go over each account. If you have multiple bank accounts, consider consolidating them to simplify the process. Look for any recurring fees, subscriptions you no longer use, or fraudulent charges.

By shining a light on all the financial problems you’re scared to face, you’ll probably realize something important – none of these issues are as scary as they seem, and you’re more than capable of dealing with each and every one of them.

Create a Budget

Once you’ve gone over every account, take some time to track your expenses and create a budget. Using a budget will help you identify leaks in your spending where you could cut back.

The act of budgeting and tracking your expenses might seem like a punishment for your past spending mistakes but think of it as the road to salvation. If your main goal is to manage your financial stress, knowing where your dollars are going matters. Being able to direct your money toward savings or debt payoff with a budget will ultimately lead you to a healthier financial – and emotional – place.

If you’ve never budgeted before, don’t get discouraged if you overspend in a few categories at first. Budgeting is like cooking. Just because you don’t follow the recipe perfectly doesn’t mean the meal won’t taste good. Keep tweaking your budget until you find a happy medium.

Break Down Your Tasks

When you’re financially drowning, it can seem impossible to find a life raft. Instead of floundering aimlessly, it’s time to pick a direction and start swimming.

Get a notebook or computer and write down all the tasks that will help you feel better. Try to break them down into manageable assignments. For example, instead of writing down, “Consider taking out a personal loan,” write down, “Complete a personal loan application with three companies.”

The goal is to make the tasks less overwhelming, helping you feel more motivated to tackle them. Once you have everything written down, assign each task for a certain day. Allocate more time per task than you think it will take, in case you run into any problems.

If you do hit a snag, take a breath and brainstorm some possible solutions. Try to finish each task before starting a new one so you don’t get distracted.

Feel Your Feelings

When you’re feeling stressed, it’s easy to soothe yourself with food, alcohol, or binge-watching. While it’s important to relax, make sure you’re not using an unhealthy coping strategy to avoid processing your emotions.

Take some time to sit with your feelings, as hard as that may be. Go for a walk, sit on the porch or write in your journal. Feeling your feelings doesn’t mean wallowing in despair or sadness. It just means acknowledging what you’re feeling in an honest way.

Recognizing your feelings will also help you avoid using retail therapy, which is crucial if you’re on a budget, trying to pay off debt or living paycheck-to-paycheck.

Ask for Help

If debt is your main source of stress, the first step should be to contact your lenders and bill providers and ask how to reduce your monthly payments.

Start by calling your cell phone, car insurance, internet, and cable service providers to ask if there are any special discounts or rates you qualify for.

Make a list of all your lenders and contact each of them to see if there is a deferment or forbearance program. Since the Covid-19 pandemic, many lenders have been more understanding toward borrowers experiencing financial distress. Before signing up for a forbearance program, make sure you understand how interest will accrue during that time and if there are any special fees.

For example, most mortgage lenders will let you defer payments for a few months, but you’ll owe the full amount once the deferment period is over. This could come as a huge shock if you don’t plan ahead.

If you’re carrying a balance on any credit cards, contact each company and ask them for a lower interest rate. Remind them that you’ve been a reliable and loyal cardholder. If a company says no, set a reminder in your phone to ask them again in a few months.

Take Care of Your Mental Health

In a 2019 survey from the Money and Mental Health Policy Institute, 72% of respondents said their mental health problems worsened their financial situation. If this describes you, consider talking to a licensed mental health expert as a first step to developing a healthier relationship with your finances.

Use resources like the Open Path Collective, where therapists only charge between $30 and $60 for each session. The Substance Abuse and Mental Health Services Administration also has a list of community clinics that provide low-cost services. If you already have a therapist in mind, ask them if they offer a sliding scale payment system.

Many universities also offer therapy on a discounted or sliding scale. Contact the local psychology department and ask if they accept outside clients. Psychology Today has a therapist finder tool that lets you filter by price.

Depending on your particular healthcare policy, your insurance provider may also cover some sessions. Ask your HR department if your company has an employer assistance program that includes mental health counseling.

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How Professional SEO Services Can Help Your Website

Attracting customers to your website is very important for a strong online presence. Professional SEO services can help your website succeed.

By

Andrew Charles, Partner
April 16, 2021

major search engines. To do this, you should consider working with a professional SEO service. Professional SEO services can help your website in a variety of different ways.

No matter what type of business you are in today, having a strong online presence is very important.

Consultation for current website

When you hire a professional to help with SEO, the first thing that they will do is provide you with a consultation on your current website. The service will be able to provide you with data on where your visitors are coming from, how many visitors you are receiving and what is attracting visitors and customers to competitor’s websites as well. They can then help you identify what part of the website is attracting customers and what may be reducing visitation. They can show you what landing pages are effective and what landing pages could use some improvement.

Development of strategy

A professional SEO service can also provide you with the guidance to help you develop a strategy for your website. After assessing the strengths and weaknesses of your website, the team can help you develop a strategy that will be effective to maximize the SEO position of your website. This can include coming up with target phrases that will help you to attract your desired customer base and including content that will help improve the overall integrity and quality of your website. A lot of aspects of SEO require strategy and expertise, such as creating a landing page that converts. Professional SEO services know the best practices for landing pages and what is needed to improve SEO rankings and increase conversions.

Implementation of SEO strategy

Once you have agreed upon a strategy with the SEO service provider, the next thing that they will do is implement it for you. The SEO service will spend time altering content to include target keywords, placing new blog posts, and making website adjustments that will help to make your website more SEO-friendly. When this occurs, you will start to show up higher on the relevant search engines when people perform relevant keyword searches. The team will also add valuable content to your site and help you make your website a more enjoyable place to visit, which will help ensure people continue to come back after they have found your site.

Professional SEO services know the best practices for landing pages and what is needed to improve SEO rankings and increase conversions.

Evaluation and management of campaign

While implementing the initial SEO strategy is important, the plan and process do not stop there. To have an effective SEO plan in place, you will need to continue to monitor it on an ongoing basis. An SEO service will be able to provide you with real-time information about your visitation and other data. Based on this and changes in the search engine algorithms, the SEO service will be able to make additional changes to your website to ensure that you continue to show up high on the top search engines.

Identify other revenue streams

Once an effective SEO campaign has been implemented, it should help to drive more and more traffic to your website’s landing pages. If this happens, your website will be more attractive when it comes to receiving ad revenue and placing relevant outbound links. Both of these can be a great way to earn some additional income for your business, which could then be invested into other areas of your website or business in an attempt to help it grow.

Anyone that is going to try to improve their business needs to have a quality online presence. Part of this includes making sure that you are able to attract customers to your website. Through the use of professional SEO services, you can appear higher on the relevant search engines while also having a quality website that will keep customers coming back.


Source: quickanddirtytips.com

Financial Planning Investing

What You Should Do, Financially, Before Quitting Your Job

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At some point or another, quitting your job can seem like the best option. You might not be getting much out of your current position and want to explore other career options.

Or, you might want to devote more time at home to raising your kids. No matter what your reasons are for leaving your current position, you want to be sure that you are financially secure and that you’ll be able to maintain your standard of living.

Talk it Over

If you’re single and don’t have kids, you have more leeway when it comes to quitting your job. You don’t have to worry about how your decision will impact others.

But, if you are in a relationship or married, you need to discuss your plan with your partner before you quit. If you have kids, you need to remember their needs before you do anything, too.

Ideally, the two of you will hash out the different options you have and develop a plan that covers a number of financial bases:

Another thing to discuss is how long you plan on not working.

Are you going to look for a new job or go back to school to train for a different career? If you are leaving your job to become a full-time stay-at-home parent, when do you plan on returning to work (if at all)?

Money In

One of the most immediate concerns when quitting your job is finding a way to cope with the loss of income. If you have savings, do you plan on dipping into that to support yourself while you look for new work?

Figure out how long your savings can sustain you if you have no other source of income. It’s imperative that you are financially secure before you quit, which might mean you need to postpone your quit date for some time.

If you are looking for a new job after you quit, allow enough time to find your next one. The standard recommendation is to allow one month of searching for a job for every $10,000 you earn.

That means if you pull in $60,000 a year, you can expect to look for an average of six months, in a good job market. Remember that in a tougher market, it can take longer.

If your partner works, the big question becomes, can you both live on one source of income? Some couples find that is possible to do so, as long as the one partner earns significantly more than the other.

Switching to a single source of income can mean you need to adjust your spending habits, though, and pay more attention to your budget.

The B-Word

Review your budget before quitting your job so that you know how the switch to one income or to living on your savings will work. Although the goal is to maintain your standard of living, you might have to make some sacrifices when you quit your job.

But, if you find eventually find a career that you love, those sacrifices will pay off in the end and you’ll be back to your old standard of living soon enough.

Get Properly Insured

Insurance is a big issue when you quit work. Don’t leave your current job until you have a plan for replacing your health insurance, if offered by your employer.

Changing your health insurance plan might be as easy as joining the plan offered by your partner’s work. But if you don’t have a partner or your partner doesn’t have health insurance through his or her employer, you’ll need to weigh your options carefully.

Review several private insurance policies so that you end up with one that meets your needs without busting your budget.

Retirement Replacement

Depending on your situation, you might need to find a new home for your retirement savings. Figure out the best solution for your 401(k) before you leave your job and be proactive about any rollovers.

You don’t want to have to deal with the hassle and penalties of having your 401(k) automatically cashed out by your former employer.

Do you plan on contributing to your retirement plan while not working? If you are married, you can contribute to an IRA in your own name, as long as your spouse has earned income. If you aren’t married, you don’t have that option.

But, if you planned in advance and saved sufficiently, you may have enough in your retirement account to make up for any time you aren’t contributing.

Voluntarily leaving a job should never be a snap decision. Even if you are very unhappy at work, take the time to carefully plan your finances before your exit. You don’t want to quit your job only to end up finding a new job you like even less.

Kelly Anderson is a financial planner who blogs about financial advice you can use in your everyday life. Connect with her on Twitter, Facebook and Google+.

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Which Debt Repayment Strategy Is Right for You?

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We’ve focused on giving you the information you need to know to get rid of your credit card debt once and for all this month. So far, we’ve explained how to get your debts organized and how to balance building up your savings while paying down debt.

Today, we want to discuss how you can choose a debt repayment strategy to make sure you stay on track and reach debt freedom as soon as you can. These methods can help you power through and repay every last balance.

The Debt Snowball

The debt snowball is a debt repayment strategy popularized by financial guru Dave Ramsey. This method asks you to take stock of all your debts — loans, credit cards, mortgages, and other lines of credit with balances — and list them in order of smallest balance to biggest.

That’s the only factor you need to take into account. So, for example, if you have three student loans and owe $5,000, $10,000, and $15,000 respectively, that’s exactly the order you list them out in. And that’s the order you’d work to pay them off in, too.

The debt snowball has you put as much money as you can toward your debt with the lowest balance first, while still maintaining minimum payments on your other balances. Once you repay that first debt, you take the amount of money you were applying toward it, and combine it with the minimum payment you were making on the loan with the second-lowest balance.

Your payment on this second-lowest balance loan “snowballs,” because the payment is the combination of what you paid toward the first loan and the minimum payment you were already paying on the second.

You’ll continue to snowball your payments and knock out your debts one by one, until you’re debt free.

The Debt Avalanche

The debt avalanche is another system for repaying your debt. With this strategy, you again take stock of all your debts and list them out — but this time, you’ll order them by interest rate.

With the debt avalanche, you’ll list them out in order from highest interest rate to lowest (regardless of balance). Then you’ll work to repay the balances in that order, taking out the loan with the highest interest rate first, then the second-highest, and so on.

The only difference from the debt snowball is the order in which you repay your loans. The biggest advantage to the avalanche is, from a mathematical standpoint, you come out ahead because you’re getting rid of your most costly loans first. Because you’re knocking out loans by interest rate, you’ll gradually pay less in interest over your repayment period.

Choosing a Debt Repayment Strategy

There’s no “wrong” way to knock out balances and become debt-free. But there’s probably one strategy that works best for you over other options. So how do you choose the ideal system for your personal situation?

Start by understanding your own personality. The right strategy is likely the one that’s a good fit for you and the way you think. It’s not necessarily about the details of your debt.

The debt snowball does a good job of taking the emotional and behavioral part of personal finances into account. For many of us, money is about more than just the numbers — it’s how we feel and think about it.

The snowball can keep you on track because it gets you to a “win” quickly. Since you’re paying off the lowest balance first, this repayment strategy will likely knock out your first loan faster than other methods of paying down your debt.

This can be the difference between sticking to the hard work it takes to become debt free, and getting frustrated and overwhelmed by the process.

The debt avalanche is, mathematically speaking, usually better than the snowball. That’s because you focus on getting rid of the debt with the highest interest rate first, regardless of balance. This should save you money over the long-term because you’re lessening how much you’re paying in interest.

But if your highest-interest loan also comes with a bigger balance than your other loans, it’s going to take you longer to repay that debt than if you focused on knocking out loans with balances in order from smallest to largest. For some, it’s emotionally tough to have that first milestone be further down the road.

And that’s okay — it feels good to get rid of loans or balances on your lines of credit!

It all depends on what motivates you. If paying off your first loan ASAP will keep you going and prevent you from feeling discouraged or hopeless, choose the debt snowball. If you want to put an end to interest rates eating up your discretionary income, choose the debt avalanche.

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What About Debt Consolidation?

Debt consolidation is another strategy that may be helpful if you’re struggling to keep track of multiple loans and their payments, due dates, and other information. Consolidation can also help those who have high interest rate loans but good credit scores (be sure to check your credit score with a free credit report on a regular basis).

When you consolidate, you start by taking out a single loan for the total amount of the debt you want to repay. You take the borrowed money from the new loan and repay all the individual loans with balances you already had. Then, you work to repay the single, new loan.

This is a good option if you’re feeling overwhelmed because it simplifies your financial situation. Instead of having multiple loans to keep track of, consolidating leaves you with a single loan — with a single interest rate, monthly payment, and due date.

It’s also worth looking into if your current loans carry high interest rates that cost you money. There’s no guarantee, but you can shop around with different lenders to possibly consolidate existing loans for a lower interest rate. This not only simplifies your debts — since, again, there will only be one balance to keep up with — but it could also save you money if you can get a lower interest rate.

Just make sure you take all the fees into account. A new loan may come with a lower interest rate, but the loan origination fees may mean it’s a wash when it comes to saving money. Everyone’s situation is different, so do the math before making any decisions.

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Financial Planning Investing

Financial Resources for American Veterans

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It’s nearing Memorial Day weekend and as we prepare to remember the men and women who died serving in the United States Armed Forces, we also want to take a bit of time to give back to the veterans that are still with us.

One powerful thing that any person can have on their side is financial solvency and there are a number of financial services out there to help veterans keep their financial lives on track.

Here are some options and resources for veterans of all states of financial fitness.

National Association of American Veterans

The National Association of American Veterans is a nonprofit designed to assist veterans in just about any way that you can imagine.

Emergency assistance is available to veterans experiencing financial hardships.

If you need a little breathing room, you can get it from NAAV. They will also help with family counseling and individual counseling to help you and your family adjust after your return back from abroad.

U.S. Soldiers Foundation

Are you looking to buy a house after your discharge?

The U.S. Soldiers Foundation is a nonprofit designed specifically to help you find and buy the house of your dreams in the form of a low-cost mortgage.

USSF will also help you with life insurance, medical care, dental care, miscellaneous financial assistance, psychological counseling, job placement and education and training.

Disabled American Veterans

Disabled American Veterans is the place for veterans who have suffered disabling injuries and debilitating illnesses to go and get the assistance that they need.

There are over 100 DAV offices located throughout the United States and Puerto Rico where veterans can obtain assistance, which includes everything from a lift to treatment to help finding a job.

USA Cares

Seeing a need for younger veterans returning home from recent wars in Afghanistan and Iraq, USA Cares sought to fill those needs.

The nonprofit seeks to assist those who have recently returned from these aforementioned conflicts.

Specifically, it aims to help keep veterans in their homes and has been quite successful at doing so; It has provided assistance to over 13,000 military families and prevented foreclosure on 435 properties.

The organization provides grants, not loans, helping insolvent military families to get a second chance and get their heads above water again.

Reserve Aid

Reservists can go to Reserve Aid for the assistance that they seek.

Common financial assistance received from Reserve Aid includes rent and mortgage payments, utility bills, car payments and insurance and even Wal-Mart gift cards to help out with the gas and groceries.

With so many services available for regular military veterans, reservists might have trouble finding the resources they need to make ends meet. Look no further than Reserve Aid.

Operation Second Chance

Operation Second Chance exists for wounded, injured and sick veterans.

The organization helps people while they recover by finding out what services and support they need, then connecting them with it.

For Operation Second Chance, it’s not just about helping to pay the bills; They’re also known to put together care packages to lift the spirits of veterans while they recover.

They’ve even gone so far as to bring milkshakes to recovering vets.

National Resource Directory

The National Resource Directory is a one-stop clearinghouse for veteran’s assistance.

No matter what you need to get your life back on track or keep it there, you’re going to find through the National Resource Directory.

Everything from employment assistance to healthcare is available through the NRD.

Coalition to Salute America’s Heroes

The Coalition to Salute America’s Heroes is involved in a wide array of initiatives to provide assistance to our nation’s veterans.

This includes everything from welcome home parties and checks to help buy Christmas gifts for the kids to job training and emergency financial aid.

Making Veteran’s Day Count

Even if you’re not a veteran, the above list acts as a great checklist for places where you can volunteer your time and donate your finances.

What better way to give back to the nation’s armed forces?

“Financial Resources for American Veterans” was written by Nicholas Pell, a freelance writer based out of Los Angeles, CA. 

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Financial Planning Investing

The Basics of a 401(k) Retirement Plan

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Since its inception in 1978, the 401(k) plan has grown to be the most popular type of employer sponsored retirement plan in America.

Millions of workers depend on the money that they have saved in this plan to provide for their retirement years, and many employers use their 401(k) plans as a means of distributing company stock to employees.

Few other plans can match the relative flexibility that 401(k)s offer. In recent years, several variations of this plan have emerged, such as the SIMPLE 401(k) and the safe-harbor 401(k).

Here, we’ll go over 401(k)s and show you how they are helping millions of people prepare for retirement.

What Is a 401(k) Plan?

By definition, a 401(k) plan is an arrangement that allows an employee to choose between taking compensation in cash or deferring a percentage of it to an account under the plan.

The amount deferred is usually not taxable to the employee until it is withdrawn or distributed from the plan.

However, if the plan permits, an employee can make 401(k) contributions on an after-tax basis, and these amounts are tax-free when withdrawn.

401(k) plans are a type of retirement plan known as a qualified plan, which means that this plan is governed by the regulations stipulated in the Employee Retirement Income Security Act of 1974 and the tax code.

Qualified plans can be divided two different ways: they can be either defined-contribution or defined-benefit plans.

401(k) plans are a type of defined-contribution plan, which means that a participant’s balance is determined by contributions made to the plan and the performance of plan investments.

The employer is usually not required to make contributions to the plan as is usually the case with a pension plan.

However, many employers choose to match their employees’ contributions up to a certain percentage, and/or make contributions under a profit-sharing feature.

Contribution Limits

For 2013, the maximum amount of compensation that an employee can defer to a 401(k) plan is $17,500.

Employees age 50 by the end of the year and older can also make additional catch-up contributions of up to $5,500.

The maximum allowable employer/employee joint contribution limit remains at $51,000 for 2013 (or $56,500 for those aged 50 and older).

The employer component includes matching contributions, nonelective contributions and/or profit-sharing contributions.

Investments

Typically, plan contributions are invested in a portfolio of mutual funds, but can include stocks, bonds and other investment vehicles as permitted under the provisions of the governing plan document.

Distribution Rules

The distribution rules for 401(k) plans differ from those that apply to IRAs.

The money inside the plan does grow tax-deferred as with IRAs, but whereas IRA distributions can be made at any time, a triggering event must be satisfied in order for distributions to occur from a 401(k) plan.

As a result, 401(k) assets can usually be withdrawn only under the following conditions:

Required minimum distributions (RMDs) must also begin at age 70.5, unless the participant is still employed and the plan allows RMDs to be deferred until retirement.

Distributions will be counted as ordinary income and assessed a 10% early distribution penalty if the distribution occurs before age 59.5 unless an exceptions applies.

Exceptions include the following:

The exceptions for higher education expenses and first-time home purchases only apply to IRAs.

Of course, the majority of retirees who draw income from their 401(k)s choose to roll over the amounts to a Traditional IRA or Roth IRA.

A rollover allows them to escape the limited investment choices that are often presented in 401(k) accounts.

Employees who have employer stock in their plans are also eligible to take advantage of the “net unrealized appreciation” rule (NUA) and receive capital gains treatment on the earnings.

Loans

Plan loans are another way that employees can access their plan balances, but several restrictions apply.

First, the loan option is available at the employer’s discretion; therefore, if the employer chooses not to allow plan loans, then no loans will be available.

If this option is allowed, then up to 50% of the employee’s vested balance can be accessed, providing the amount does not exceed $50,000, and it must usually be repaid within five years.

However, loans used for primary home purchases can be repaid over longer periods. The interest rate must be comparable to the rate charged by lending institutions for similar loans.

Any unpaid balance left at the end of the term may be considered a distribution and will be taxed and penalized accordingly.

Limits for High-Income Earners

For most rank-and-file employees, the dollar contribution limits are sufficiently high enough to allow for adequate levels of income deferral.

But the dollar contribution limits imposed on 401(k) plans can be a handicap for employees who earn several hundred thousand dollars a year.

For instance, an employee who earns $750,000 in 2013 can only include the first $255,000 of income can be considered when computing the maximum possible contributions to a 401(k) plan.

Employers have the option of providing nonqualified plans, such as deferred compensation or executive bonus plans for these employees in order to allow them to save additional income for retirement.

The Bottom Line

401(k) plans will continue to play a major role in the retirement planning industry for years to come.

In this article, we have only touched on the major provisions of 401(k) plans.

For more specific information on the options available to you, check with your employer and plan provider.

“The Basics of a 401(k) Plan” was provided by Investopedia.com. 

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Is It Time to Incorporate?

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Except during bouts of insomnia, I’ve never given much thought to the issue of business structure.

Sure, I know in theory that a business can incorporate, and that incorporation provides the business with benefits such as tax flexibility, protecting the owners from personal liability, and raising money by selling stock.

Every time I’ve looked into whether I should incorporate my own business, however, it has never made sense.

It would require a stack of paperwork. I’d have to pay a registration fee and annual renewal fee to the state of Washington. It would make my taxes more complicated without saving me more than a few dollars, if that.

And because my business consists of one person writing columns, incorporating would be unlikely to provide me legal protection if I were to commit libel or otherwise get sued.

So I’ve stuck with the most common business type in the US: a sole proprietorship. According to the Census Bureau, about 71.5% of US businesses are sole props.

Tax-wise, being a sole prop is relatively simple.

You have to file quarterly estimated taxes with the IRS, and then file a Schedule C and Schedule SE with your 1040 in April, but TurboTax and other tax software makes it easy. The state business license cost me $15, and renewal is free.

Recently, however, one of my hobbies has turned into a business, and a sole proprietorship isn’t going to cut it. I’m going to have to learn about business structure, whether I like it or not.

Two heads are better than one, except for tax purposes

My friend Molly and I co-host a comedy podcast. I’m not going to mention the name because lord knows I’ve promoted my own stuff in this column enough lately.

We’ve been doing the podcast for over three years and, except for one advertisement from a local company in the early days, have never made any money at it.

But we’ve slowly built up a loyal audience of listeners around the world. (The fact that you can crack a joke in Seattle and make people laugh in Singapore is one of my favorite things about the modern world.)

A couple of months ago, perhaps inspired by that Amanda Palmer TED Talk, we realized, hey, we could ask our listeners for money.

For $5/month, we offered listeners a handwritten postcard and access to a growing library of premium content.

To our surprise, people actually signed up. Not a huge number, but enough that suddenly our dumb hobby was paying for itself.

Great for us, but we’d need to share the news of our minor success with our friends at the IRS, the Washington Department of Revenue, and the city of Seattle.

Easy, I said: I’ll just consider the podcast part of my sole proprietorship, pay Molly as a contractor, and issue her a 1099.

This is perfectly legal, but (a) it’s a pain to disentangle the podcast income and expenses from those of my writing business, and (b) it’s not especially fair, since the podcast isn’t really my business, it’s a joint effort.

Furthermore, if we wanted to hire a tax preparer to handle our business taxes (which we might want to do), it would be impossible to do so without also turning over responsibility for preparing my own tax return (which I don’t want to do).

So we need to look at a business structure that reflects Molly’s and my joint ownership of the enterprise (trust me, describing our show as an “enterprise” is droll) and separates the potentially hairy parts of the business taxes from my own taxes.

As the personal finance columnist in this business relationship, it falls to me to investigate the possibilities, and I’m looking at three.

A general partnership

A partnership is essentially the group version of a sole proprietorship. It requires no special paperwork to form one, just a business license.

Partnerships file a tax return with the IRS and pass all profit or loss on to the partners via the K-1 form. Partners are personally liable for all of the partnership’s debts.

A limited liability company (LLC)

An LLC, in most cases, works the same way as a partnership, but as the name implies, the legal liability of the owners is limited. If our company goes bankrupt, creditors can’t come after my personal funds unless I act negligently.

We don’t have any creditors at this point, but that could change when we decide to construct a theme park.

LLCs require more paperwork and fees than partnerships. In Washington State, the initial fee is about $200 and there’s an annual renewal fee of $69. The federal and state tax filing is similar to a partnership.

An S Corporation

The “S” actually stands for subchapter S of the Internal Revenue Code, but you can think of it as a “Small” corporation.

An S Corporation is limited to 100 or fewer stockholders and is restricted in other ways compared to (usually larger) C Corporations.

In exchange for meeting the restrictions, S Corporations can save their owners on taxes in various ways and are generally more flexible in structure than a partnership or LLC.

The fees for an S Corporation in Washington are the same as for an LLC, but the paperwork is much more heavy-duty.

You have to hold an annual board of directors meeting and take minutes (adult beverages may be served), and the corporation would have to file its own tax return and pay Molly and me as employees.

I’ve tentatively decided that an LLC makes the most sense.

It keeps the paperwork to a minimum while providing us some legal protection in the event that, well, I can’t actually think of how we could end up in debt since our business consists of sitting around and talking. But it couldn’t hurt.

Plus, we get to put “LLC” at the end of our business name, which sounds totally legit.

There are a lot of other nuances to the decision of when and how to incorporate. These are just the very basics.

(It’s possible, for example, to be an LLC but be taxed as an S Corporation and zzzz….)

For a more detailed but still gentle overview, I recommend Mike Piper’s book LLC vs. S-Corp vs. C-Corp Explained in 100 Pages or Less.

If you own a small business, how did you decide on a business structure, and have you been satisfied with the decision?

Matthew Amster-Burton is a personal finance columnist at Mint.com. His new book, Pretty Good Number One: An American Family Eats Tokyo, is available now. Find him on Twitter @Mint_Mamster.

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Watch Out for These 5 Financial Pitfalls

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“To err is human,” the famous Alexander Pope quote begins.

It’s a good reminder that everyone runs the risk of making a choice they may regret — even when it comes to finances.

As a matter of fact, the Consumer Federation of America reports that 67 percent of the American middle class admits having made a poor financial decision at least once, and 47 percent of those respondents made more than one bad decision.

The price tags of these costly decisions vary greatly, from a few thousand to hundreds of thousands of dollars.

Mistakes happen, but you can help avoid many of them with careful planning.

The trick is to identify where your troubles may arise, and to take appropriate action before a small hiccup takes a turn for the worse.

Of course, you may consider consulting a personal finance professional for advice specific to your situation, but here are five common pitfalls to avoid:

Living Without a Budget

A budget is a way to help keep control of your spending.

Ask yourself: How much would you enjoy driving cross-country in a car without a working fuel gauge?

It’s not overly romantic or exciting, but a budget is a lot like a car’s gas gauge.

Without one, you’d have to guess how much fuel is left in the tank — or money is left in your bank account — and hope you make it to your next pit stop — or paycheck.

And if you’re wrong, you’ve got a long walk ahead of you.

Setting a budget and sticking to it will help you make sure you have enough cash for your needs and wants — and that you won’t be left high and dry in your time of need.

Begin by accurately assessing your finances. Include all income, spending and surprise expenditures. Then set a realistic budget that you can stick to.

Carrying Credit Card Debt

You’re not alone if you’re carrying credit card debt month after month. America’s total credit card debt in May 2013 topped $847 billion.

By working hard to pay off your outstanding credit card bills, you’ll ultimately break a vicious cycle of paying high interest rates on balances you carried from month to month.

Sometimes debt consolidation is an option, as well.

No matter what course you take to get there, being free of credit card debt is a huge financial advantage.

Forgetting to Check Credit Reports

Some people wait until they’re applying for a car loan or home mortgage before checking their credit reports — but checking your credit report regularly can help head off a variety of problems.

Keeping tabs on your credit report can keep you aware of any mistakes and alert you to any fraudulent activity, allowing you to address any irregularities and take steps to strengthen your overall credit rating.

The Fair Credit Reporting Act (FCRA) requires each of the three national credit report companies—TransUnion, Experian and Equifax—to give you a free copy of your report every year.

All you have to do is request it.

Failing to Save Money

As Benjamin Franklin wrote in Poor Richard’s Almanac, “Beware of little expenses: a small leak will sink a great ship.”

Whether it’s a major home repair or pricey dental work, these “small leaks” can creep up in your life when you least expect it.

Regularly putting some money aside for emergency expenses can mean the difference between weathering a crisis relatively unscathed and being forced to rack up debt that will cost you even more money in the long run.

Out-of-Date Insurance Policies, Wills and Retirement Plans

Investing a little time now to get your financial, insurance and legal paperwork in order can help save you time and money in the future.

For example, have you recently changed jobs and have a shorter commute now?

It may be a good idea to call your insurance agent to make sure you’re receiving any available discounts — which mean more money in your pocket each month.

When was the last time you rebalanced your 401(k)?

If it’s been a while, you might want to consider checking your investments to make sure you get the highest return on investment possible.

What about your will — is it up to date?

By doing an annual review of these fiscally important documents, you’ll be doing yourself a big favor in the long run.

Avoiding financial pitfalls is easier when you’re informed. Keep an eye on your budget; don’t stop saving; and never be afraid to ask for financial planning advice from your bank or other trusted financial institution.

This guest post comes from the editors of The Allstate Blog, which helps people prepare for the unpredictability of life. 

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Family Matters: Affording Care for a Family Member

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Twenty-three year-old Emilie Lima Burke has started to save $20 per day.

It’s not for a vacation or her retirement fund. Instead, she’s preparing for the moment she expects she’ll need to take care of her aging dad and all his expenses.  Burke, who runs the site BurkeDoes.com, a financial, health and career resource for millennial women, says that her parents used to joke that she and her sister would be “their retirement plans.”

But that’s seems no longer a laughing matter.

“My dad has struggled with long bouts of unemployment…He has no money saved at all,” says the 23 year-old. “I know that at some point I will be [his caregiver]. When there is no retirement fund or any assets for aging parents to fall on, you just have to make a plan.”

We’re living longer these days, which means that many of us have the great fortune of growing older with our parents. The number of Americans ages 65 and older expected to nearly double by 2050, according to the U.S. Census.

With longevity, though, comes the increasing responsibility and financial pressure to care after our aging family members, especially, if like Burke, our family doesn’t have a financial plan already in place. The average working household has “virtually no retirement savings.”

It’s no surprise then that about one in four Americans (with parents ages 65 and older) is helping a parent with his or her affairs, offering financial help or caring after them.

And not to cause alarm, but more than half of the country – 29 states – have so-called “filial support” or “filial responsibility” laws that could potentially require adult children to pay for their parents’ care if they don’t have the means to do so for themselves.

If you’re struggling to support a family member or anticipate needing to care after a loved one down the road, here are some ways to help make your efforts more affordable.

Know Their Bottom Line

If a family member is turning to you for help, particularly financial help, then it’s more than appropriate to have a candid money talk – no matter how uncomfortable it may be.  Ask to see how much they have in the bank, as well as what other streams of income they may be receiving (e.g. social security, a pension, insurance payout, a portfolio distribution, etc.). Create a budget to pay for as much as possible with your parent’s income and assets before tapping your own bank account.

“I see people who take on credit card debt or stop paying their own bills to care for their parents, but a much better option is to first exhaust all of the resources that the parents can have access to,” says Belinda Rosenblum, a financial strategist at OwnYourMoney.com.

Having a paper trail of statements showing income and expenses will also prove helpful if your parent needs to apply for Medicaid, the health insurance program designed to help those with little money. Here’s where you can learn more about Medicaid eligibility.  Care facilities sometimes have a Medicaid expert on staff to assist with your application, too.

Reach Out to Local and National Resources

When business coach Amanda Abella’s grandmother was diagnosed with Alzheimer’s a year ago, her family needed to find a way to pay for her extra care. The adult day care alone, she estimates, would have cost $100 per day.

For guidance, they turned to her grandmother’s doctor and the social worker at the hospital and discovered the Alliance for Aging, a Florida-based private, not-for-profit that provides a range of services to older people, including personal care, legal help, transportation, meals, etc. After several rounds of interviews and almost a year of being on the wait list, Abella’s grandmother succeeded and now receives free nursing care.

The lesson: Never assume that you have to go it alone. Help is out there. Local and national resources offer grants and support to seniors. To start your search for funding visit: Family Caregiver Alliance and Paying For Senior Care.

Also worth mentioning: If your aging parents are veterans look into the Department of Veterans. “Often veterans overlook or are not aware of the benefits they are eligible for such as medical care or prescriptions, especially if they’ve been separated from the military for a long time,” says military money life coach Lacey Langford.

Look Into The Family and Medical Leave Act (FMLA)

If you need to take time off work to care for a family member, be it a parent, child or even yourself, but worried about losing your job in the process, you may benefit from the Family and Medical Leave Act (FMLA).

The federal law grants certain workers up to 12 weeks of unpaid leave per year with the promise of getting their jobs back. You can also keep your company health benefits during your time off. Some states such as California, New Jersey and Rhode Island allow qualified workers to earn at least part of their paycheck during this time.

Remember the Tax Deduction

Track expenses and if you afforded more than half of your parent’s needs during the tax year (including utilities, medical bills, food and general living expenses) and he or she earned less than $4,050 (not counting social security), then you may be able to claim mom or dad (or both) as a dependent on your 2016 tax return. Doing so offers you additional tax benefits. You can find more information on how to claim a parent as a dependent on TurboTax.com.

Keep in mind that whether or not your parent qualifies as a dependent, you might be able to deduct the medical expenses (including prescriptions and doctor visits) you paid for on his or her behalf from your taxable income. The IRS requires the total of these expenses to be more than 10% of your adjusted gross income in order to claim the deduction.

Consider Long-Term Care Insurance

If your parents have yet to reach the age where they may need some assistance, see if they’ve looked into long-term care insurance. This can come in handy if they think you may need to afford a nursing home or at-home care later down the road. (And about 70% of Americans who reach age 65 will likely need some time of long-term care before as they age). Medicare does not cover these costs and they can be very expensive.

For example, the average cost of a home health aid, which long-term care would cover, can be anywhere from $34,000 to $57,000 a year depending on where you live.  If your parents don’t have enough saved to cover this, it may fall on your shoulders. It’s just as beneficial to you for them to seriously consider long-term care.

You may decide to purchase a policy yourself and have your parent(s) be the beneficiary.

Keep in mind that the ideal time to buy long-term care is when your parents are in their 50’s and 60’s (specifically between 52 and 64). The younger and healthier the beneficiary is, the more likely he or she will qualify (and the lower the monthly premium). For a couple in good health applying for long-term health care in their mid-50s, the average annual cost is about $2,350 (or less than $200 a month).

Create a Family Fund

Finally, like Burke, it pays to start saving early for the financial what-ifs surrounding our family members.

You can hope for the best, but should also prepare for the worst. Tucking away even $10 or $15 a week for the next five or ten years while your parents are still able to take care of themselves could yield an essential nest egg for everybody when life takes a turn.

Have a question for Farnoosh? You can submit your questions via Twitter @Farnoosh, Facebook or email at farnoosh@farnoosh.tv (please note “Mint Blog” in the subject line).

Farnoosh Torabi is America’s leading personal finance authority hooked on helping Americans live their richest, happiest lives. From her early days reporting for Money Magazine to now hosting a primetime series on CNBC and writing monthly for O, The Oprah Magazine, she’s become our favorite go-to money expert and friend.

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