Working with my daughter a benefit to my happiness and bank account

I recently wrote an article for Interest.com about how watching my daughter while I work saves a bundle in child care and creates quality time.

I’ve been working while I watch my daughter, who is now a year old, ever since she was born.

Although that’s required me to rethink how and when I do my job as a writer, it’s certainly saved me a bundle in day care.

How much?

According to a new report called “Parents and the High Cost of Child Care,” the annual cost of day care for preschool kids runs from $4,600 in Mississippi to a whopping $15,000 in Massachusetts.

The report also found that putting an infant in a professional child care center cost more than the median rent in 22 states. The cost for having two children in day care exceeded annual median rent payments in all 50 states.

No matter what income bracket you’re in, paying someone to watch your youngsters while you work can take a tremendous bite out of family budgets.

For parents in some states, day care can eat up half of their paycheck.

With those kinds of costs, I often wonder how most families get by.

Somehow they do it, but I’m willing to bet it that it leaves them little, if anything, to save for their own retirement or their child’s college education.

We’re facing many financial challenges these days, and I think the only way we’re going to survive is to get creative.

I’m one of the estimated 45 million Americans who work from home, and that flexibility has been invaluable as a parent.

I work while watching my daughter Madeleine two or three days a week. My father and stepmother watch her the other days.

My daughter and I hard at work in our New Orleans home.

I won’t say it’s been easy.

When my daughter was three months old, she was content sitting beside my desk all day. Most of her time was spent napping.

All that changed when she started crawling. And then all that changed again when she started walking. And things will likely change next month and next year.

Throughout it all, I’ve found creativity and flexibility to be the most important things in working with a child.

It’s futile to even attempt to make her conform to my work routine, so I make my business and schedule conform to her.

And I’ve done just about everything. I’ve worked with masks on my face. I’ve played nursery songs in my office. I take breaks to play peek-a-boo and read picture books.

Throughout the day, I move throughout the house with my laptop. We might be in the living room for an hour. Then we’re in her bedroom for a bit. Then we’re at the kitchen table. Then we’re on the porch. We go upstairs, downstairs, and I move around every hour to keep her from getting bored.

Wherever we go, we always have toys with us.

Lately, I’ve even started bringing my laptop to the playground.

I try to schedule my phone calls and interviews around her naptime.

I even made her a member at my gym. For only $25 per month, I get up to two free hours of child care a day.

Going by the costs in this study, that’s an amazing deal.

It gives me a half hour of workout time followed by an hour and a half of quality baby-free work in the café.

It’s a huge benefit for her too, because it gives her socialization with other kids that she doesn’t get when she’s with me or my parents.

Every time she has gone through a change and a stage, I adjust my work flow to meet her needs. What worked last month doesn’t work this month, and what works this month likely won’t work next month.

Sure, there have been some bad days. But they’re few and far between.

On those rare days, I just stop working, enjoy being a father and then handle my business later when my wife gets home.

I have had a slight dip in productivity, earning about 15% less than before I became a father. But we’re saving enough on day care to “earn back” at least half of that loss.

I’m also getting to spend valuable time with my daughter, something few fathers have the opportunity to do.

Before I became a father, everyone told me it was impossible to work with a child by my side. But 14 months into this, I’m still doing well. And I will do anything and everything it takes to keep doing it.

When she starts preschool in a couple of years, I should be able to get back into a more child-free work environment.

But to be able to make a living and take a Monday morning break to play games with my daughter is amazing.

You just can’t put a price on that.

Always fight your speeding tickets

I recently wrote an article for Mintlife.com on why you should always fight your traffic tickets. Whether you’re guilty or not, simply showing up in court or investigating a lesser plea means you could avoid up to $1,000 in surcharges on your auto insurance.

It’s a classic scenario: you’re cruising along at ten miles over the speed limit in an attempt to keep up with the rest of the cars on the road. You think you are simply going with the flow of traffic, when you suddenly see flashing lights in your rear view mirror. In an instant, you find yourself holding a $325 speeding ticket.

The headache of dealing with a traffic ticket doesn’t necessarily go away when you pay the fine. When points go on your driving record and your insurance company finds out, you could be hit with insurance surcharges of up to 30% for the next three years.

That’s why whether you’re guilty of an infraction or not, attorneys and legal experts say you should first investigate all legal options before you jump to pay that ticket. With a little homework and effort, you may be able to pay a reduced fine and avoid having it on your record.

A big expense for a little mistake

In many municipalities, traffic tickets are a big source of county revenues. John Bowman, Communications Director for the National Motorists Association, says fines collected from traffic tickets amount to billions of dollars. The association recommends that drivers always fight their tickets and it even publishes a 250-page guide on how to do it.

Bowman says whether you’re guilty or not, you should use every legal measure available to try to minimize your fine and, most importantly, try to prevent it from impacting your insurance premiums.

“Depending on the infraction and your driving record, it can cause your insurance premiums to rise by up to 30% for the next three years. The fine is just the beginning,” says Bowman.

Barry Kowitt of Unger and Kowitt Law Firm in Miami said that from start to finish, a simple traffic ticket could easily be “more than a $1,000 experience.” That includes the fine, court costs, and increased insurance premiums. For most drivers, that could amount to more than a week’s pay. Kowitt says he’s seen clients who have had to make the decision between paying the ticket and paying their rent.

“And that could be simply because you were doing ten miles over the speed limit to keep up with traffic. It is in your interest to fight it because your options are not that great,” says Kowitt.

Yet Bowman says perhaps only 5% of drivers actually contest their tickets. Because drivers may feel so hopeless in fighting the system or because they may think the $200 fine is the end of it, most simply pay the fine and then move on.

Explore your options before paying

When you immediately pay a ticket, you’re automatically admitting guilt and will voluntarily pay the highest fine. You’ll often have up to 90 days to enter a plea or pay the fine, so take some time to explore your options.

“Fighting” a ticket usually doesn’t mean going to court in front of a judge and district attorney. Bowman says, “In most cases, you’ll never go to trial anyway.”

If it’s your first ticket in the jurisdiction, you should ask the clerk if there is a special “no contest” plea for first-time offenders. In many cases, the district attorney will offer first-time offenders a reduced fine and will not release the citation to the insurance company.

If that’s not an option, start examining every piece of information on the ticket. This includes confirming all of your information, as well as the notes and documentation provided by the ticketing officer.

Ask yourself the following questions: Is the citation number correct? Is the intersection and location correct? What about the time of day? You can file a “discovery of motion” to request all the information about your case, including the officer’s notes, calibration certificates for the radar gun, and other details, which will help you in your investigation.

Kowitt says missing or incorrect information on a citation can often be grounds for dismissal.

“We see cases in this office on a regular basis, certainly weekly, that have [incorrect information]. In many cases, a little bit of homework can go a long way,” says Kowitt.

Minimizing fines and insurance impacts

“If you do have to make a court appearance, another option is to try to reschedule it to increase the odds that the ticketing officer doesn’t show,” says Alex Carroll, author of Beat the Cops. Because you have the legal right to question your accuser, a case will often be dismissed if a cop is a no-show.

You might also be able to approach the District Attorney and simply ask for a plea to a lesser infraction. “Most traffic courts are going to offer some level of flexibility,” says Scott Feifer, an attorney with Feifer and Greenberg in New York.

Feifer says while New York City doesn’t offer plea bargaining, most other counties around the country do. There can be a lot of overhead in taking a case to trial, which is why many courts allow you to simply pay a fine and move on.

“If you give the court the impression that you are serious about fighting the ticket, you are going to have a lot more leverage and control over the process,” says Bowman.

Because traffic courts might have to handle hundreds of cases per day, there just isn’t enough funding, staffing, and time to take every single one to trial. Merely showing up to the courthouse can make a big difference because no one wants you to clog the system.

A little effort fighting your violation can really pay off. For example, that $400 speeding ticket might get knocked down to a $125 equipment violation, which won’t impact your insurance rates.

If you received the speeding ticket in another town, another option might be to fight the ticket by mail –usually called a “trial by declaration.” Carroll says a reasonable and coherent argument can often result in a dismissal, because police officers are required to submit written rebuttals, which doesn’t always happen.

“You can never go wrong contesting a ticket if you have the time and energy, because you’re almost always going to come out ahead,” says Bowman.

Divorce can be financially devastating

I recently wrote an article for Mintlife.com and Business Insider about how divorce can be a financially devastating experience. Maritalstatus.com says an average divorce can run $20,000 but that’s only the beginning.

From legal fees and alimony payments, to the division of assets and possible tax consequences, the costs can grow even higher.

The expenses of a divorce are unlikely to deter a couple that truly needs to split, but experts say you should still be aware of just how high the bill can get. It some cases, the financial consequences can set you back decades.

Financial consequences for everyone

When it comes to divorce, Hollywood and pop culture often portray the highest-earning spouse being taken to the cleaners, but the reality is, both spouses face financial damage. Nathan Cobert, CFP, of Cobert Financial Group in San Francisco, said while a growing number of spouses both work and have comparable incomes, the majority of marriages still have a primary “resource spouse” and a “non-resource spouse.”

“There’s usually a spouse who is afraid they’re going to be bled dry and another who is afraid they’re going to be homeless. It’s always a financial problem for both,” said Nathan Cobert.

The first financial burden is the separation of one household into two. While one person may remain in the home, even if only temporarily, the other has to find a new place to live. Not only are there two rents or mortgages but two cable bills, two utility bills, two health insurance bills and there is no longer the bulk savings on things like groceries. Almost overnight, the living expenses for the couple double while their combined income likely remains the same.

“It’s a lot more expensive to maintain two separate households and you’re having to do it on the same amount of income,” said Jeff Landers, CDFA, President of Bedrock Divorce Advisors in New York.

Capital gains can be a killer

Divorce can come with big tax bills. In many cases, when a couple splits, they may immediately start scrambling to claim or divide assets. It’s not uncommon for a spouse to run and clear out bank accounts, cash in CDs and sell off stocks, bonds and other investments. Blinded by emotion and fear, Cobert said they can be hit with a harsh reality when tax time comes around.

“People are not often aware that there are consequences for taking out certain assets. Spouses may want to get the money or may need it for income, but the taxes can really add up,” said Cobert.

Let’s say the couple had $100,000 of investments in a joint account. If they liquidated portfolio and the cost basis of those stocks was $70,000, they could each be on the hook for $15,000 in capital gains. If the money was in a traditional IRA and they sold off the stock and took the money before they were age 59 ½, they could be not only on the hook for capital gains but an additional 10% penalty, as well.

Spousal support quickly adds up

The granting of alimony (also known as “spousal support”) and how it is calculated varies significantly from state to state. Alimony is usually paid to the less-advantaged spouse and is often seen as a temporary measure to help them stay on their feet during the separation.

Landers said the first determining factor is the length of the marriage. Although it can vary, in most jurisdictions a couple must have been married for at least ten years for alimony to be a consideration. Other factors include how old the spouse is, whether or not they have a job, how much they earn, any other assets they have, the nature of the dissolution of the marriage, and the need.

“There is no set formula. It’s very subjective. You could be in the same state, have two different judges, and the same set of circumstances, and end up with very different conclusions,” said Landers.

Cobert also said it can vary widely, but in general, the “resource spouse” might have to pay 50% of their income minus 40% of the income being earned by the non-income spouse. Others say it often works out to ensure that both homes have around the same average income. Often, if there is a child involved, child support is the priority and is calculated first. In any case, if alimony payments are awarded, the paying spouse could have to pay a significant amount of their income to the other spouse for a number of years.

“It’s usually determined by the judge. That’s why we recommend Alternative Dispute Resolution so both parties can come to a fair agreement,” said Cobert.

Don’t forget the legal fees 

No matter how amicable a divorce may be, there are going to be significant legal fees. Attorney fees add up quickly because, when combined, the couple is paying for not just one, but two legal teams. Even an amicable do-it-yourself-divorce can still cost over $1,500 in many jurisdictions. Landers said the problem is that when a relationship deteriorates to the point of divorce, very few couples do it amicably.

“If they were able to do it amicably, they might be able to go with mediation and it might not cost a lot of money. But if they were that amicable, they might not be getting a divorce,” said Landers.

And the more a couple disagrees and fights it out in court, the more expensive it becomes. Throw in a custody battle and a fight over alimony and assets, and legal fees could easily top $100,000 in many states. Things get even worse and more expensive when the spouses stop talking to one another and communicate only through their attorneys.

Cobert said ADR (Alternative Dispute Resolution) and mediation has grown more popular in recent years as a way to more amicably and cheaply handle divorce disputes. He also recommends the couple consult with a Certified Divorce Financial Analyst who can analyze their assets and circumstances and help them proceed with the separation in a way that makes the best financial sense for both.

“More people are using CDFAs to run the numbers and come up with optional settlements. It’s usually a lot better to try to keep it out of the courts,” he said.

Marriage does have some financial advantages

I recently wrote a piece for Interest.com about how a friend with benefits is nice but a spouse with benefits is better.

People spew a lot of negative stuff about marriage these days but the reality is that if you’re already in a long committed relationship and have been living together for years, there could be some great financial benefits with tying the knot. Of course, no one would suggest marrying for money or tax savings but there are a few advantages that come with making the commitment.

Advantage 1. Two is better than one.

Let’s face it. Whether you’re trying to lug a sofa upstairs or trying to save for a house, two is always better than one. It’s good when someone has your back and can lend you a hand. When you’re married, you’ve got two incomes and two brains working together.

Hopefully you have double the assets or at least a little more money than you would if you were single. It’s even better if you’re both on the same page about investing, saving for your future and staying out of debt. You get a lot more financial security in so many ways. Even if one spouse stays at home or is a student, there’s the potential for future earnings.

Some married couples keep their finances separate, some merge them. But in any case, you both will be working together for your common good. Through compounding, your investments can grow even faster if you’re saving twice the money. While you think you may have all of these things with a “friend with benefits,” your commitment is that much stronger when you’re married. You’re not only joined financially, emotionally and physically — you’re joined legally.

Advantage 2. You can have more health insurance options.

While more companies are offering benefits to unmarried partners nowadays, you still have the most options when you’re married. If you’re both employed at companies that offer health insurance, you then get two options to choose from. Pick the best and least-expensive coverage, then decline benefits at the other company. If you’re self-employed, having a spouse with health insurance benefits at work can be a lifesaver.

Because your only other option would be to get an individual plan on the open market, you may save 50% or more in premiums should you be insured through a spouse’s plan at an employer. Also, an employer’s plan usually isn’t going to decline you based on any preexisting conditions. Regardless of your medical history, you should get the same rate that other spouses would. How much you save will depend on the individual company plan. Some companies will cover up to 80% of an employee’s premiums but won’t cover anything for spouses.

Advantage 3. You can save big on taxes.

When you’re married, you have the option to file your taxes jointly or separately. What is best for you depends on your income, deductions and various other factors. But at least there is the opportunity that you can save on taxes. In some cases, it can add up to thousands of dollars.

Don’t listen to the talk about the “marriage penalty,” which has largely been erased by changing tax brackets and increased deductions. If you have two big earners, you could pay slightly more in taxes, but there’s not much of a difference for most people. If one spouse makes a fair bit more than the other, there could actually be considerable tax savings.

Let’s say one spouse makes $75,000 per year and the other, $35,000. As a single filer with the standard deduction and personal exemptions, the first spouse would owe $12,500 in taxes. The $35,000 earner as a single filer would owe $3,400. That’s a total of $15,900 for the both.

But if they were married filing jointly with $110,000 in income, they’d owe $15,000 in taxes. That’s $900 in savings in federal taxes alone.

And if one spouse is a stay-at-home parent, student or doesn’t work, the savings can be even greater. Let’s say you’re making $60,000 per year, your partner is making $0 per year, and you get married. The minute you get married, your standard deduction will double and you’ll drop from the 25% tax bracket to the 15% bracket. With a $60,000 income as a single filer, you’d owe $8,750 in federal taxes. But if you got married and your spouse had no income, you’d pay only $5,300 if you filed jointly.

Advantage 4. You can get a break on auto insurance.

Men, in particular, can see a massive reduction in their auto insurance premiums once they get married. Insurance companies make men in their 20s pay through the nose. But they seem to think that when you get married, you’re less likely to drive like a maniac. Your liability insurance could drop by 50% or more.

Insurance companies also provide more discounts when you combine policies with multiple cars and drivers, so the savings can add up more. In many cases, the couple may actually pay less when they come together on the same policy than they did on their individual policies. Of course, all the financial benefits of marriage assume you marry the right person at the right time for the right reasons.

Of course, just as marriage can offer many financial advantages, it can also be a financial catastrophe if it doesn’t work out. The average cost of a divorce is roughly $20,000. And that doesn’t even include things like alimony and division of assets. No one should ever get married for financial reasons or to save a few bucks. But if you’re already in a committed lifelong relationship, walking down the aisle can bring some financial security.

Save big and boost your financial security by driving your vehicle as long as you can

I recently wrote a post for Interest.com about how I’ve boosted my financial security by keeping my truck.

Sometime this month the odometer on my truck will hit 100,000 miles. 

It may not seem like a big deal for some people but surveys have found that many Americans trade in their vehicles and upgrade long before hitting this mark.

For me, hitting the six-figure mileage mark on my 2003 Nissan Frontier is only the beginning. I plan to drive it as long as possible. Certainly at least another 5 years and 65,000 miles. Hopefully beyond that.

I will buy a new truck when reliability becomes an issue or I have to spend too much on repairs. It’s not because I don’t have the money, it’s because I’ve made a conscious effort to forgo automotive luxury to boost my financial security.

Aside from a mortgage or rent, a car note can typically be one of a consumer’s biggest expenses. And if you don’t make your vehicle purchases wisely, it can be a lifelong financial drag.

While a vehicle is a necessity in many parts of the country, it’s a terrible depreciating asset that has high costs and can be next to worthless by the time you get rid of it.

On strictly financial terms, you want to spend as little as possible on a vehicle and drive it as long as you can. In a perfect world, you’d pay cash for your vehicle and not borrow a dime. But that’s not a possibility for most people. The next best step, depending on the interest rate you’re paying, is to pay off your loan as quickly as possible.

I paid off the loan on my current truck in 2007, two years sooner than the five year term was up. I can not tell you how wonderful it has been having no car note for five years.

During that time, that monthly payment, which would have otherwise gone to a lender, has been going to my Roth IRA, investments and a savings account I have set aside for a new vehicle.

I can honestly say that I owe a fair part of my financial security to my lack of a car note. I consider my truck not just a thing to get around but a tool that saves me money. Because every day, week, month and year longer I drive it means more money in my pocket.

If I were to buy a new vehicle today, I’d likely end up with a $300 monthly note based on the purchase price, my trade in and down payment. So the way I look at it, I’m saving $3,600 per year by continuing to drive my truck. This doesn’t even factor in the increased cost of my collision and comprehensive insurance for a new vehicle.

It is getting older and I do expect to have to put a little money into it. I’m going to need a new timing chain, a new clutch and possibly a few other repairs in the coming years. But even if I factor in $800 for an annual repair budget, that’s still $2,800 per year, or $233 per month I’m saving.

And since I save and invest that money rather than spend it, those savings add up even more. If I can earn a 6% average return on that $2,800 per year, that means in three years, I’ll have an extra $9,500 put away. If I can manage to drive my truck another five years that’s $16,730 I’ll have saved. Even if I have to dump another $2,000 in the truck over those years, that’s almost $15,000 I’ll have saved.

Not only can that money go to more important things like my Roth IRA, daughter’s education fund and emergency fund but I’ll have far more money for a down payment on my new vehicle.

When the time comes, I should be able to walk into a dealership and easily put down $10,000 to $15,000 on a new truck. That means I’ll borrow less, have less debt and will pay less in interest.

When you buy a new car every three to four years you are literally throwing thousands of dollars down the drain. Not only do you take massive hit on depreciation but you could also have more than $1,000 in tax, title and license costs.

Unless you’re raking in the big, big bucks, constantly chasing a newer car is undoubtedly taking away from other areas of your financial life. No matter how much money you make, 99% of us are constrained by some type of financial limits. You have to recognize those limits.

I can live with a few scratches, squeaks and outdated vehicle features. I’d rather provide for my family, save for stability, travel, spend money on having fun and sleep soundly at night rather than give all that up for a nice hunk of metal in my driveway. It’s just a matter of priorities.

4 main problems we face with our finances

I recently wrote an article for Mint.com that identified four main problems we face with our finances.

When the 2012 Consumer Financial Literacy Survey surveyed 1,000 adults on a variety of personal finance topics, the findings revealed that Americans may have a lot of room for improvement in managing their finances. From a lack of budgeting and a lack of savings, to carrying too much debt, I found four big problems identified in the survey.

We need to budget

The survey found that only 56% of respondents said they do not have a budget to keep track of how much they spend on things such as food, housing, and entertainment.

Bill Hammer, Jr., a Certified Financial Planner and Vice-President of Wealth Management at Vanderbilt Partners, said until they sit down and actually work out the numbers, many people are not aware how much they are spending every month. For the millions of Americans who spend more than they earn, the only way they can cover the difference is through debt.

While Hammer recommends that everyone have some type of budget, it doesn’t need to track every single penny. Hammer said, “a quick budget is better than no budget” and just having a rough idea will help lead you in the right direction. Sitting down for a half hour and outlining all of your estimated monthly expenses can be a decent start.

We need to save more

The survey also found that 39% of respondents have no savings, excluding retirement savings. This is up from 30% in 2010 and 33% in 2011. While it is likely that some of that decline in savings could be due to harder economic times, Americans have historically had low savings rates.

Brad Fortier, CFP, CEP, of Fortier Financial in New Orleans, La., said it’s essential to have emergency savings in place to handle unexpected expenses. This can include things like a car breaking down, a home repair, or even to cover you in the event of a job loss. He says, ”Life happens. It’s going to throw you some curve balls and an emergency account can help you maintain control of your life.

A common rule of thumb says you should have at least six months worth of living expenses set aside in your emergency fund. Figure out what you need, set the goal, and start saving. Even if it takes you a long time to reach that number, having something in emergency savings is certainly better than having nothing.

We need to get out of debt

When asked about debt, 39% of respondents said they carry credit card balances from month to month. 25% of those carry less than $2,500 while 9% said they carried more than $5,000 in credit card debt. Hammer said credit card debt is toxic and destructive because of the high interest rates.

Even on a low interest credit card, the average APR these days is about 13%. If you carry a $5,000 balance on that and only make a 3% minimum payment every month, it will take you about 13 years to pay it off. In that time, you’ll have spent more than $4,000 in interest.

“When you don’t save and you have credit card debt, it can be the kiss of death. And if you’re paying higher rates, like 20%, it’s just a hard hole to get out of,” said Hammer.

Hammer recommends that getting out of credit card debt come before anything else, even before savings. Because no matter how much money you have saved, those high interest rates can eat away at your net worth if you’re carrying a high balance. Hammer said paying down that debt gets you a guaranteed rate of return on that money, usually a return far higher than you would with any investment.

“You see people who might be saving diligently but they’re carrying $10,000 in credit card debt. Pay it off because you’re just paying interest on that,” he said.

We need to learn more about money

The survey also found that we need to learn a lot more about money. 42% of respondents in the survey gave themselves a grade C, D, or F in their knowledge of personal finance. Hammer pointed out that while high schools and colleges teach students about things like geometry, trigonometry, and algebra, they rarely teach about things like compound interest, how credit cards work, or why it’s important to save.

“Our overall financial literacy it pretty poor. Most people don’t learn these things in school and they go into adulthood not knowing the basics,” said Hammer.

Unfortunately, individuals can only take it upon themselves to improve and increase their financial literacy. Fortier said many people don’t change their ways until they run into a financial wall like maxing out their credit card, being late on a payment, or not having enough money to pay a bill.

“I think financial literacy is one of the most important social issues facing our country. The more people can awaken to the dysfunction they have been managing their financial affairs in, the less pain there is going to be in the repair process,” he said.

You can learn more about budgeting, saving, paying down debt and better managing your money at Mintlife.com.

 

Would you introduce your teens to credit cards?

I recently wrote an article for Interest.com about introducing your kids to credit cards.

When I’ve covered this in the past, I’ve often heard mixed reactions on the idea.

On the one hand, there are some who say it’s a horrific idea to ever introduce teenagers to credit cards. On the other, there’s the thought that by introducing them to credit cards under supervision and educating them on the dangers, it will help them handle credit cards responsibly when they’re old enough to get their own.

For many young people, a credit card is one of the only ways to start building their credit. You can tell them to avoid credit cards but at some point they’re going to get one. According to the 2010 Survey of Consumer Payment Choice, Americans hold an estimated 609.8 million credit cards with the average credit card holder having 3.5 cards. And the average age of which a consumer under 35 obtained their first credit card was age 21.

If you do introduce your child to credit cards, at what age do you do it?

The steps I highlight in the article include:

  • Giving them a crash course in credit.
  • Starting them out with a prepaid debit card.
  • Graduating them to a checking or savings account with a debit card.
  • Taking the training wheels off and getting them a real credit card.

Of course, the first step is probably one of the most important. Many teens (as well as many adults) don’t realize the devastating consequences of buying things on credit and making the mininum payments.

Some teens don’t understand that when you charge stuff on a credit card, a bill comes due at the end of the month. Even fewer teens understand interest and how it is calculated.

Review one of your credit card statements with them.

Explain the different elements such as interest rates, interest charges and minimum amount due.

Then have them play with an online debt calculator to figure out how long it would take to pay off your balance with just the minimum payment.

Next, have them plug in the cost of an item they want at a card’s interest rate to see how much it could truly end up costing to buy it on credit.

Throw in some big numbers and use it as a financial version of a “scared straight” program. Show them how a $100 shopping trip to the mall can turn into a $250 one with interest and late charges.

Illustrate the dark side of credit cards, and don’t be scared to instill in them a financially healthy fear of interest charges, unnecessary fees and runaway debt.

What would you do? Introduce them now as a high school senior? Wait for them to go to college? Never bring up the matter and tell them to never get a credit card?

Read the full article at Interest.com.

 

New tax laws and changes for 2012

I recently wrote an article for Quicken.com on new tax deductions and limits for 2012.

From higher tax bracket thresholds and standard deductions to an extension of the Social Security tax holiday, there are a number of new tax laws and adjustments in 2012. Here are just a few:

Higher federal income tax-bracket thresholds

A number of tax changes in 2012 have been due to standard inflation-related adjustments.

First, the federal income tax thresholds have risen for each filing status across the board. The threshold separating the 15% and 25% tax brackets is now $35,350 for singles and $70,700 for married couples, up from the 2011 amounts of $34,501 for singles and $69,001 for couples.

The jump from the 25% bracket to the 28% bracket is now $85,650 for singles and $142,700 for married couples. That’s up from $83,601 for singles and $139,351 for married couples.

Higher standard deductions and personal exemptions

There are also higher standard deductions. For singles it is now $5,950, up from $5,800 in 2011. Married couples can also squeak out $300 more on their standard deduction which is now set at $11,900.

Each personal and dependent exemption is now worth $3,800, one hundred dollars more than it was in 2011.

It really doesn’t amount to much (a savings of $37.50 for singles and $75 for married couples) but when it comes to handing over your money to Uncle Sam, every dollar counts.

Possibility of no patch for the AMT

The Tax Policy Center estimates that up to 31 million taxpayers will be exposed to a possible Alternative Minimum Tax this year because the annual patch has not yet been put in place to raise exemption levels.

Basically, you are required to calculate your taxes two ways and pay the larger of two amounts. This was originally created 40 years ago to stop the wealthy from getting massive tax breaks but it is now hitting a lot of middle-class taxpayers. In 2011, a single taxpayer and married couple triggered the AMT exemption at $48,450 and $74,450, respectively.

As of now, unless the patch is reinstated for 2012, the new exemption levels will fall back to $33,750 for singles and $45,000 for married couples.

Read the entire article at Quicken.com.

 

8 tricks up your auto dealer’s sleeve

Interest.com recently ran my article highlighting 8 tricks up your auto dealer’s sleeve.

One of their top tricks is to prey on your lack of information:

There’s nothing a dealer loves more than an uninformed consumer who’s going to negotiate a purchase based on nothing more than the car or truck’s sticker price.

You need to work from the wholesale price the dealer paid and the average transaction price, which are usually thousands of dollars less than the sticker price.

You want to be the smart buyer who pays a little less than the average transaction price, not the one who pays a little more.

Edmunds.com or Kelley Blue Book are the places to find the critical information you need.

Another one of the most common tricks is to lure you into a deal with low monthly payments. You need to run the numbers on your own and understand that a low monthly payment does not always mean it’s the best deal because they could be doing it by extending the terms:

Don’t tell them, because they’ll use that number to sell you a more expensive car or truck than you may have wanted and maximize the dealership’s profits on your sale.

The salesperson will figure out the most you can possibly spend by dragging out the payments for as long as possible and still hit that payment.

He or she will then show you cars and trucks in that price range, which is often higher than what you wanted to spend, while reassuring you that this fine vehicle is within your budget.

Let’s say you came in to buy a compact sedan that cost about $20,000 but let slip that you could afford a payment of $450 a month.

The salesperson immediately recognizes that a 60- or 72-month loan would allow you to buy a $25,000 midsize sedan and your payment would still be about $450 a month — and that is what he or she will try to sell you.

The bigger sticker price, and longer loan, both mean more money for the dealership.

For the full scoop on the 8 tricks up your auto dealer’s sleeve, read the full article here.

Get organized with your financial life

If you’re going to have any kind of decent financial life you have to stay organized. It’s hard to pay bills and know what’s coming in and what’s going out when you don’t even know what’s going on or can’t find the things you need.

Chris DeBarres is co-owner of Help Unlimited, Inc., a day-to-day money management company that helps people get their financial lives in order. He said that disorganization can cause many financial headaches and problems. Piles of bills and papers haphazardly stacked on tables, desks and on the floors often result in late payments, missed payments and a plethora of other problems.

If you live like that you’re less likely to know the balance in your accounts, how much you owe on your credit cards and when your utility bill is due. The big problem is that a mess like this ultimately causes you to lose money.

“If you are not organized with your personal finances, chances are you are throwing away money. It’s easier to miss payments and you’ll be incurring late fees and interest charges. And if you’re going along not reading your bills you could be missing things,” said DeBarres.

Phone companies, credit card companies and subscription services can be notorious for slipping new charges on your bills. If you don’t read them, you’re never going to notice.

DeBarres said there is no right or wrong way to get organized but in general you should have a file cabinet or box for paper statements and a file on your computer for digital statements.

There are also many apps available for the iPhone and Android that can help you get your financial life in better order. They’re great because they’re easy to use, let you access your finances wherever you are and don’t required you to rely on a stack of papers or folders.

A few good apps to consider include Accounts, Ace Budget and Home Budget. All of these apps can help you track your account balances, income, expenses and can give you detailed charts and graphs about your finances.

Finally, if you’re going to use apps to track your finances, be sure to institute some security measures like a password for your phone and be sure to back up the data regularly to a website or a laptop.