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Guardian Angels

Angel

The following is a staff writer post from MikeS.  He is a married father of 2.  So, with the cat, he ranks number 5 in the house.  He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.

I Must Be Lucky

I am beginning to think I have a guardian angel looking out for me, maybe more than one.  I opened our above-ground pool recently and in what seems to be an annual occurrence, I fell off the pool.  It is not that far down, but it is probably about a four foot fall.

We have been on the house for about four years and I’ve fallen off the pool at least 3 times.  Every time I have managed to escape serious injury.  I was thinking about this the other day during one of my morning runs.  I tend to have random thoughts when I am running for an hour.  I had landed on my right side this time and wasn’t really able to brace myself.  I thought this was lucky because had I used my right arm to brace, I likely would have broken it.  I then thought, even if I did break or if something worse happened, I am prepared for it.

Being Prepared

I have health insurance that would help pay for the medical expenses.  It is a high-deductible plan and my deductible is $7,000.  That is quite a bit of money, but I will have that and more in the HSA account by the end of the year.  I set aside the maximum amount allowable this year into the account, which was $6,650.  Since I had about $1,500 left in it at the end of last year, I will have more than enough to cover the deductible.  Should the medical expenses exceed what I have saved in the HSA, I have an emergency fund that I can tap into to cover the rest.  The medical insurance has an out-of-pocket maximum that I would hit before exhausting my emergency fund.

Work is Covered Too

Now what happens if I can’t work for either a short or long period of time?  My job is pretty flexible, so I could work from home if I needed to for a period of time. If my injuries were severe enough where I was unable to work at all, I would be ok.  I have short-term disability insurance through my employer.  It would cover me for the first 26 weeks of any absence.  After those first 26 weeks, my long-term disability policy through my company would kick in.  That policy would provide 60% of my current salary, which would be enough to cover my essential expenses.

Now, if the leave were to last longer than 52 weeks, that would be when my personal disability policy would begin to pay benefits.  I figured any disabilities that were to last that long would be severe and likely to last a significant time.  Thus, the personal disability policy is in place to provide additional money that I could save for retirement.

If the injuries proved to be fatal, I am not worrying about anything anymore.  My wife also will not have to worry about money.  I have enough life insurance to make sure she is comfortable.  My Social Security survivor benefits will provide nearly all of the income my wife would need.  I have the life insurance to cover the slight shortfall and to help fund retirement for my wife.  As my wife is raising our children, we have not been contributing to a retirement account for her.  Our retirement plan has been predicated on my income.  Therefore, no income from me and that likely creates a bleak retirement picture for my wife.  My life insurance makes that picture a whole lot rosier.

So, if my guardian angel or angels happen to be on a break the next time I am walking around the edge of my pool, I know I have the outcomes covered.  How prepared are you if your guardian angels are on a break?

Should You Hire An Accountant?

Accounting

The question probably comes up in your household every year when April rolls around. Should you hire an accountant to help with your taxes? This is a good question and the options are worth exploring.

The first thing to understand is that there’s a difference between a CPA (Certified Public Accountant), an accountant and a tax preparer. CPAs are repeatedly tested and regulated by the federal government, which may provide you with more peace of mind, but may also cost you more to hire. An accountant will have similar skills and knowledge, but not every accountant is a CPA, and you’ll want to research that person before putting your important financial needs in their hands. Likewise, a tax preparer is not necessarily a CPA either. They specialize primarily in personal tax preparation, which can be helpful come tax season, but won’t provide you with other financial services.

All are worth considering when it comes to doing your taxes every year because their knowledge and experience can be to your benefit. They know what can be written off and what can’t, as well as other things that you probably wouldn’t know on your own or find in tax preparation software.

Now, when it comes to overcoming tax debt or preparing for an audit, you’ll definitely want to consider professional help or options like Community Tax Resolution Services. This is where someone’s expertise and specialized knowledge can make a huge difference.

Let’s look at some advantages of hiring an accountant to handle your tax needs:

Saving Money

This is where many people get hung up because it will certainly cost you more out of pocket to hire a professional for their services. However, they may ultimately be able to help you save more money because of their expertise.

Experience & Knowledge

The reason you might hire an accountant to help with your taxes is the same reason you would hire a doctor to perform your surgery or a real estate agent to sell your house. This is their job and it’s what they are trained in. Odds are they’ll know a lot more about finances and tax preparation than you do, so you can put their expertise to work in your favor.

Saving Time

Preparing your own taxes—and preparing them properly—can take up a lot of your time and energy. Hiring someone else to do the job is certainly more convenient.

Objective Insight

It can be hard to manage your own finances because you are so closely tied to your money—how you earned, where you spend it and how much Uncle Sam is taking from you every year. An accountant can approach your finances from a more objective viewpoint and give you professional advice without any personal biases.

On the other hand, if you are knowledgeable and diligent in your preparation, there are advantages to doing your own taxes:

Saving Money

If you do your taxes right and are able to save the same amount of money as an accountant/tax preparer, then obviously you will not have to pay out of pocket for their services. If your tax situation is simple (single, no home ownership and no significant write-offs), then there may be no need for professional assistance.

Better Financial Understanding

The more you understand about your taxes and your own financial situation, the better equipped you will be to handle things on your own. If challenges arise, then you’ll be ready for them. Or even better, you can take a proactive approach to make sure those challenges never come up. Start a separate savings account to prepare for expenses like taxes to help you be more prepared.

Saving Time

Again, if your situation is simple and you know what you are doing, then preparing your taxes should be a simple endeavor and won’t take you much time at all. Download some sort of budgeting software to track of everything dollar you’ve made. This will help you, should you decide to do your own taxes.

So, we circle back to the original question. Should you hire an accountant to help with your taxes? Ultimately, it’s up to you. The more complex your situation is, especially if facing an audit or dealing with significant tax debt, the more likely professional services will be able to save you money and simplify your life. The more basic your needs, the more likely you can do things on your own to avoid those extra expenditures that come with hiring a professional.

The important thing to remember is to not procrastinate when tax season is upon you. Whether you take the reins on your own or put your finances in the hands of a trained professional, it’s important to be proactive and have a plan in place to make sure your tax needs are covered long before April 15 rolls around.

 

Planning for Retirement Care Can’t Begin Too Soon

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None of us like to think about the day when we’ll no longer be able to look after ourselves – not only because it’s a scary thought, but we have enough things to worry about in the present day, without thinking about the future.

But, with life expectancy soaring into the late 80s by 2030, the majority of us will to have to live with old age for longer. Which means the cost of retirement healthcare increases with every year you live and your pension will need to go further than ever – so planning for retirement care can’t begin too soon.

Depending on others no longer works

The average Brit is expected to enjoy roughly 65 years of good health, which leaves around 20 years where some kind of healthcare will be needed. Sadly, the NHS is at breaking point and the spiralling cost of elderly care means responsibility often falls on family members. However, an IPPR study says 2 million over-65s in the UK will have nobody to care for them by 2030.

Meanwhile, the rise of the ‘sandwich generation’ sees more middle aged people in the UK looking after elderly relatives, as well as their own children – 2.4 million, according to Aviva (PDF). So when state healthcare and families are both pushed to their limit, the only option left is for us to take responsibility for our own retirement care.

Planning for retirement care

The trouble is care for the elderly is incredibly expensive. In Norfolk the average cost of a care home is £522.69 per week, while £161.95 is the weekly rate for care provided at your own home (find your local averages here).

You can use a retirement budget calculator, for a more accurate idea of how much money you’ll need later on in life and an income calculator to work out your pension contributions or seek financial advice to help you reach your target figure – the important point is you start planning early and look at all your options.

Avoiding the care crisis

While the overall cost of retirement care may come as a shock, it’s a wake-up call that gives you the best chance of generating the funds without selling your home. Regular financial advice will also keep you up to date with all of your entitlements and the options you have available to fund your own retirement care – all of which can change over time.

The government has made changes designed to make care more affordable, but the truth is they don’t even come close to solving the problem. In fact, they are quite misleading and many could find themselves coming up short, only to realise when it’s too late.

All this means the only guaranteed way to avoid the care crisis yourself is to take control of your own retirement funds and find a way to generate the money you’ll need to make it through retirement.

Image credit.

On Top of It

Accounting

The following is a staff writer post from MikeS.  He is a married father of 2.  So, with the cat, he ranks number 5 in the house.  He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.

I know I tend to be a little overzealous when it comes to keeping track of my money.  However, I witnessed two events recently with two different coworkers that made me think that being overzealous is a good thing.  In both cases, there was a change to their paychecks that they did not monitor and the changes resulted in headaches for both of them.

Case #1

My first coworker received a promotion mid-year in 2014.  She went from an hourly employee to a salaried employee.  Along with that change, she also received a raise.  When she received her first post-raise check, it was higher than her normal check, so she thought everything was ok.  It turns out, everything was not ok.  You see, she had been paid before on a bi-weekly schedule as on hourly employee.  Salaried employees are paid bi-monthly.

So, even without a raise, her paycheck would have gone up, 26 paychecks to 24 paychecks.  She did not do the math to make sure that her gross paycheck was correct.  She did not notice there was a problem until the annual salary discussion occurred in 2015.  Only then did it come up that her paycheck never reflected the raise she was supposed to get with her promotion.  She will receive the back pay that she was owed, but I bet it would have been nicer to have that money in her pocket all along.

Case #2

My second coworker made an adjustment to her HSA contribution late in the year last year.  Her paycheck was ok, but the HSA account received too much funding from the company.  Part of her last contribution at the end of December was rejected because it would have put her over the IRS limit for the year.  She did not find out about this until February when she received a credit back in her paycheck.  It turns out the company had put an additional contribution in her account for her.  Her taxes were complex this year because she had to request a corrected W-2, as the numbers that were initially reported were incorrect.

It Pays to Pay Attention

In both cases, had they checked the numbers when a change occurred, they might have caught the mistakes sooner and been in a position to correct them before they caused any more problems.  Whenever I have a change to anything in my process, be it a salary change, 401k contribution change, anything like that,  I am always sure to check that first post-change check to ensure that everything was processed correctly.  I was able to catch a problem with my first paycheck this year.

Case #3

The benefits that I selected for 2015 did not make me eligible for a company contribution to my HSA.  I instead opted for a larger deductible and lower premiums.  Naturally with my first paycheck in 2015, I looked at not only my paystub, but also my HSA account to make sure everything was alright.  What I found was that the company had given me the contribution anyway.

Normally, I try not to look a gift horse in the mouth, but I needed to know what they were planning on doing with the erroneous contribution.  If they were going to leave it in the account, I needed to adjust my contributions, otherwise I would be over the limit for the year.  When I called HR about the problem, they were aware of it.  The same mistake had happened to over 2,000 other employees.  It was a literally a million dollar mistake by someone.  I still haven’t found out if they are going to take the money back yet or not.  My current plan is to wait until November to adjust my contributions.

Ever had a mistake with your paycheck?

How Would You Pay Off Debt?

Accounting

Let’s say you broke your arm and ended up owing a few thousand dollars unexpectedly. Or you have a running balance on a credit card and are tired of paying 10%-30% to use your own money over time. How would pay off that debt?

Emergency Fund

If you answered, “I’d use cash out of my emergency fund,” I’d give you a hug if I could. I personally would recommend a $5000+ emergency fund to absolutely anyone. More if you don’t have health insurance or have high deductible health insurance like me.

My husband and I keep a $15,000 savings account just in case we are in a bad accident and have to hit our health insurance maximum out-of-pocket level. Having cash on hand to keep you on financial track when life happens is my number one suggestion.

Other Options

If you don’t have a few thousand waiting around, here are some more options:

Earn extra money – get a part-time job or start a side hustle to earn extra cash. Sell stuff – this only works if you only do this once in a while and actually have stuff worth selling. Look into short term loans – look to see if they have a better interest rate or better payment options for you. Rent out space – we have roommates living in two extra bedrooms in our house to bring in extra money each month. Downsize – if you are falling behind financially, it may be time to get back to your broke-kid roots. Downsize your home, your vehicle, and your lifestyle if you just aren’t bringing in what you need to stay on top of your expenses and your savings for the future.

Honestly, it’s always best to live on less than you make so your savings can cover what you need. But like with everything else in life, there are options to look at and choices to make.

How would you pay off debt?

Woohoo!! Another Raise!!

Money Tree

The following is a staff writer post from MikeS.  He is a married father of 2.  So, with the cat, he ranks number 5 in the house.  He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.

Recently, I let you peek in on what I did with my performance bonus for this year.  Now, I am going to let you in on what I did with my salary increase for this year.  I find out both numbers at the same time, but the bonus is paid in March and the salary increase does not begin until the first April paycheck.  This year, I received a 2% increase on my base salary.  This translated in $1,900 more per year or just over $155 a month.  The next question is what did I do with the extra money?

Dividing the Extra

Over the last few years, raises generally have been used to help stabilize the budget and plug any deficits there may have been.  This year was different though.  I have been actively minimizing our expenses whenever possible.  The most notable one recently was my mortgage refinancing that I wrote about.  That freed up just over $300 a month, $200 of that went back into the mortgage payment, while the rest went to our monthly spending.  So, I did not need the raise to plug any budget holes this year.  That leaves me with a few options on to do with the raise.

I could increase our monthly spending categories.  We sent aside money every month for things like car expenses, kid expenses, house expenses or trips.  There is nothing wrong with a little lifestyle inflation; people should be able to enjoy the fruits of their labor after all.  I just felt that we could make our financial picture stronger rather than just increase our spending.  That means the bonus would be going towards savings.  Not all savings are the same though.

I consider our savings in roughly three categories, retirement, cash savings, and our brokerage account.  The cash savings are at Capital One 360 and the brokerage account is with Vanguard.  Between those two, we allocate about $150 a month, with a majority going to the Vanguard account.  Right now, I am comfortable with the balances of each.  I consider the two of them my emergency fund.  I have roughly 6 months of expenses saved in them.  Mind you, not all of it is purely dedicated to the emergency fund, but if I lost my job tomorrow, all of it becomes available for the emergency.  That means I don’t really want to up the monthly amount going into them.  That leaves retirement savings as the landing spot for the salary increase.

My company offers both a traditional 401k and a Roth 401k, so I need to choose which one I increase my contribution rate.  My current contribution rates are 6% for the traditional 401k and 1% for the Roth 401k.  I selected this allocation because the company only matches on the traditional plan and matches up to 6%.  So, anything less than the 6% and I am throwing away free money.  So, why contribute to the Roth at all?  I believe the tax treatment will allow the Roth to be better for me in the long run.   Currently, I take advantage of the income tax deduction for mortgage interest and tax credits for having children.  I likely will not be able to take advantage of these when I retire, because the house will be paid off and the kids will not be on my tax return anymore.  So, in all likelihood, I’ll be in a higher tax bracket upon retirement.  Going with that assumption, it makes the most sense to increase my Roth contribution by 1%.  This works out to $80.75 a month.  So, where did the remaining $74 a month go from the raise?  The short answer is taxes, mainly.  My tax bill is increasing by about $50 a month.  The remaining $25 went to increase our fun money, $10 a month for my wife and $15 for me.

It was nice to see the hard work of reducing the expenses pay off in the ability to increase my retirement savings.  Now, with the raise and increased savings, $15,500 a year will be going into the 401k.  This is pretty good considering that in 2009 I wasn’t contributing at all.  Did you receive a raise this year?  What did you do with it?

Bonus Time Again

Money

The following is a staff writer post from MikeS.  He is a married father of 2.  So, with the cat, he ranks number 5 in the house.  He loves numbers and helping people. Please leave any questions or comments below for either Mike or Crystal.

One of the benefits of working for a larger company is that there usually is a defined plan for an annual bonus.  Bonus plans can go by various names, but in the end they all boil down to extra money.  It is bonus time again where I work.

My Bonus History

I usually try to anticipate what bonus I might get and what I would do with the extra money. This year was a little harder for figure out what I might be getting.

Last year, I received a pretty big bonus of $20,000.  Our CEO had communicated a couple months back that the bonus pool would be larger this year compared with last year.  So, what did I guess?  I ran some calculations for a range of bonuses, $10,000 to $25,000.  I will admit the $25,000 was pretty optimistic, but I guy can dream, right?

I received on the lower end of the range, $14,000.  Which as it relates to the formal bonus plan is 5% above what I should receive.  I am never upset about receiving extra money, so I was not disappointed.  What did I do with the extra money?

Dividing Up My Bonus

The first thing that comes out of my bonus is actually my 401k contribution.  The same percentage that is applied to my paycheck is also applied to my bonus.  I could elect to either have a larger or smaller amount deposited, but the election would also carry over to my normal paycheck for one pay cycle as well.  Since I did not want anything different to happen, I decided to have the normal 6% regular 401k and 1% Roth 401k contributions taken out.  The company still matches the regular 401k contribution that it does in a normal paycheck.  Specifically, the company matches dollar for dollar up to 6% plus an additional 2% (in lieu of a pension) regardless of whether you contribute or not.  So, simply by contributing to my 401k, I effectively get a larger bonus, 6% of $14,000.  The net effect is that I put $2,100 into retirement savings.

Now, I wish that I still had most of the bonus to play with, but by the time the government takes their cut, the bonus doesn’t look as big anymore.  The net amount that was deposited into my checking account was roughly $7,700.  This feels like a far cry from the original $14,000, but there is not much I can do about it.

I wish I could say that all of the money went into my emergency fund or I deposited it all in my Vanguard account.  I did deposit it into my savings account, but it is allocated essentially for future spending.  I set aside $1,200 for our Disney vacation 3 years from now.  We have been setting aside roughly that number for the last few years and now have built that bucket up to $6,400.  Our target for the trip is $10,000 by 2018 and we are on track.

We also set aside money for my wife’s gym membership, as well as some personal training.  The total on that amount was $1,700.  Her monthly gym membership is about $60 a month and then we set aside an additional $1,000 to cover the training.  I’ve have been with my wife for over 20 years, married for almost 12.  Little things like the gym and personal training help keep her on board with the broader budget goals and savings.  So, while setting aside the money for those things might not seem wise to some, in the broader picture it makes perfect sense.

Since, we set aside $1,700 for things for my wife; we set aside $300 for me.  I took that money and added it to my secret 2nd honeymoon fund.  We earmarked $1,500 for a vacation this year.  This has been the amount we have bucketed the last few years and seems to be enough for now.

The ‘Kid’ category also received a $1,000 allocation.  This category for is for just about anything related to the kids, be it an activity, clothes, or anything else I deem related to the kids.  There always seems to be something coming up with them.

The last thing we carved the bonus up for was the house.  Initially I had been planning on using some of the bonus for an extra mortgage payment, probably about $1,500, then setting aside additional money for house maintenance.  However, the house money set aside may just be used for some new windows.  I haven’t made the final call on that yet, so the money is just earmarked in savings right now for the house.

In the past, any extra money had been used for either debt repayment or padding the emergency fund.  We are in a position now where we don’t have to use a bonus for those purposes anymore.  It feels nice to be making progress.  Do you anticipate and extra cash this year?  What do you think you will use it for?

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