Times are tough.  The stock market appears to be regressing on an almost daily basis.  Oil prices continue to hover near all-time highs.  Foreclosures and job cuts are still haven’t fallen much.  Talks of recession are an almost daily occurrence.  You start to notice that while your expenses are increasing, your paychecks (if you are lucky) are staying the same and bills are starting to mount.  Do you seek help now in the hopes of avoiding financial disaster, or do you wait until the phone starts ringing off the hook with people looking to collect their money, or do you do nothing at all?

It is sometimes very difficult to seek out help.  It means swallowing your pride, admitting that you were wrong, or perhaps even admitting to failure.  If action is taken early enough, though, doing so generally prevents even more disastrous results such as losing a home or filing for bankruptcy.  Help does not always come in the form of asking for financial assistance.  It can be as easy as talking to someone who has been in a similar situation or working with a professional to gain a better understanding of how you got to this point, what steps to take in order to remedy it, and how to prevent another occurrence going forward.

Obviously, the worst time to accept the fact that you need assistance is when it is too late: when the bank has started foreclosure proceedings, your creditors are calling on a daily basis seeking payment, your bank accounts are negative.

If caught early enough, simple changes may be all that are necessary to begin the recovery process.  Applying for a credit card that provides for interest-free balance transfers and moving outstanding balances, starting an emergency fund in a high-yield savings account, developing a budget and an action plan to pay down the debt that has already built up are just some ways in which you can start the process.  No one method will work for everyone, and it may take a combination of steps for some people.

Should you decide that you need the help of a professional, choosing one that has a fee-only structure,and either hourly-based or project-based fees would be the recommended route.  Using credit counseling or debt-consolidation companies not only cost significantly more in the long run, but can also adversely affect your credit score.  Bankruptcy should always be the choice of last result since it is irreversible, and will take up to 7 years to completely come off of your credit reports.

It is always best to have a continually-updated financial plan, keeping a careful eye on spending habits with the goal of being able to foresee possible rough patches ahead.  If something should occur, you are then afforded the time to make adjustments to the plan in order to prevent problems from occurring or at the worst minimizing the effects of such unforeseen events.  No matter how you choose to deal with your finances, one thing remains clear: it is easier to admit that you need help than it is to deal with the consequences of being too prideful and allowing a situation to get too far out of hand.

So when is the right time to seek out help?  Have you waited until a situation got to the point where it was unmanageable?  Did you try to get out in front and attempt to cut off a potential problem before it fully developed?

Photo Credit: © MeHere

This article, When Do You Ask For Help With Finances? was originally published by DollarVersity, and may have been used without the owner's permission.

A couple of days ago, I found an article from Kiplinger Online called “20 Ways to Waste Your Money” which outlines a variety of ways in which people “waste” money.  My question is, these are “wastes” according to whose ideals and beliefs?  There are obviously people who have enough money to spend on anything they want, and those who don’t have the money to buy anything extra above the absolute necessities.  But what about the people who fall in the middle, who make a moderate amount of money and with proper planning can afford to make the purchases that the article “wastes”?  I am not going to run through the whole list, but rather, I am just going to touch on a couple of the points which I agree and disagree with the most.

To start, the first point on the list of how to waste money is to “Buy new instead of used“.  I could not disagree more about this suggestion.  For starters, when buying used there is no guaranty of a warranty should anything go wrong.  Secondly, unless it is something being purchased directly from the original owner, and a person whom you know personally, there is no way to tell what the real history of an item is, as it can even be third- or fourth-hand.  In the case of a car, electronic equipment, clothing, and furniture for example, you can never know just how well the items were cared for, and what conditions they were kept in.  What would happen if the car breaks down, the clothing falls apart in the washer, the furniture collapses under you, or the electronics short out?  You are essentially out of luck since you will have no true recourse other than an attempt to take the seller to small claims court, and even then it might not be worth the legal fees, not to mention the time required.  New items, however, will be covered by the selling store’s/dealer’s limited-time return policy, followed by the guaranteed manufacturer’s warranty since you have the original receipt showing the purchase from an authorized reseller.

Another item I take issue with is point nine, “Buy brand-name instead of generic”.  In some cases, as in many pantry food items, and lower-end clothing items there is no real value attained by purchasing brand names, especially since many of those products such as cereals, athletic sneakers, pastas, and lower-end garments are produced in the same factories and simply labeled differently.  However, when it comes to electronics, computer equipment,  better-quality clothing, etc. there is a true and recognizable difference in quality.  In these cases, the materials used in the productions are often-times of superior quality and offer longer lasting life in addition to better performance, and longer lasting.  In addition, with outlet stores, and specialty retailers such as Marshalls and TJ Maxx, you can find name-brand items at a significant discount to the manufacturer suggested retail price (MSRP), and sometimes the name-brands can be found at lower prices than the generic or “knock-off “versions.

The first points which I agree with are the second and fourth ones which suggest “Carry a credit-card balance“ and “Pay to use an ATM” as being major no-no’s.  I won’t go into much detail, as these are rather common guidelines for anyone to follow, regardless of income or tax bracket.  There is simply no reason to pay more than you have to in order to make a purchase.  The only time I can disagree with paying for ATM access is if you have an account which reimburses you for foreign ATM withdrawals.

The biggest point I agree with is number seventeen “Give Uncle Sam an interest-free loan“, and which is something I preach to clients all of the time.  Basically, by allowing yourself to pay in a substantially higher amount in federal income taxes with each paycheck, you are not only robbing yourself of the valuable spending power that having the money throughout the year will give you, but more importantly, you are giving up the earning power that comes along with that as well.  The way I explain it to clients, is removing the government from the equation and replacing it with a stranger and asking Would you ever hand over any sum of money on loan without having the borrower pay you interest in order to borrow the funds?”  I would say that 99% of the people I pose the question to say “no”, however they always qualify it by adding something along the lines of equating the tax refund to forced savings.  My view–if you want “forced savings” set up a savings account and have a set percentage or fixed amount automatically transferred from either your paycheck directly or from the account where the paycheck gets deposited to.  Out of sight, out of mind.

I’m sure that many people would both agree and disagree, just as I do with this article, and some of its major points.  However, as I have written in the past in articles such as “Financial advice is not a one size fits all proposition” not everyone’s views can apply to all people, or even a large subsection of the population.  Everyone needs to evaluate their own situation and make the decisions that best fit their own circumstances and budget.

Do you spend money on anything that others consider to be a waste?  Do you see others spending money on things that you would say are wasteful?  Who should get the final say anyway?

This article, 20 Ways to Waste Your Money…According to Who? was originally published by DollarVersity, and may have been used without the owner's permission.

While it may be a little early in the year for tax talk for some, I personally believe that it is never a bad time to plan or even talk about taxes.  Today, I happened to see a link to an article on Kiplinger’s Website for a section called 10 Ways To Lower Your Taxes.  I read it and was left wondering, first if the editors fact check this information since the author, Kimberly Lankford does not have anything regarding an accounting or tax background on her mini-bio (and no, I am not taking a shot at her personally) and secondly, why the entire story is not told about such deductions.  Articles like these, whether in financial magazines or on blogs geared toward personal financial topics seem to be guilty of stating a deduction, and then summarizing them without going into full detail including the drawbacks and limitations.  Below, I will mention just a few of the most common deductions that are mentioned which I feel need to be explained a bit further, and not all simply from a tax standpoint .

• Selling off investments that have lost value: This is a very bad idea right from the start.  The first reason is that you can only offset $3,000 of income after countering capital gains with the losses.  It would make sense if the advice was to sell enough losers to first wipe out any gains you may have had, and then just enough to reach the $3,000 limit.  You get no bonus points for carrying a loss forward, and there is no guarantee that you will even have any gains in the following years in order to use up and loss carry-forwards.  Simply because you want to save a little bit on your tax bill now is a terrible reason to sell stocks or funds that are down.  The second reason why it is a bad ideas is because there was a purpose behind investing in certain fund or individual stocks, and unless that purpose has changed, there is no need to dump it for a small benefit today. If the purpose of the purchase was because of the high dividend yield, then you will be giving up an even higher yield since the price is now lower but the rate is either the same or higher.

   

• Giving to charities: This is another one that confuses me.  To begin with, you can only take a deduction if you itemize, and that is a fact that escapes many people.  If you are looking to lower your tax bill, especially if it is due to the fact that you need the extra money in the refund, then why would you spend money to save even less on your return?  It is counter-intuitive. It is one thing to donate because you want to and can afford to, but if you are in such dire straits that you need to scratch and claw for every penny you can get back on your return then donating to charityis not the way to go about finding those extra pennies.  Also, what many advice articles do not mention is that the IRS has established guidelines for what are reasonable amounts of donations based on income levels, and anything above those figures may flag the return for a potential audit.  All will be fine if everything you reported is on the up and up (and not just when it comes to the donations), but if not you better be able to come up with a pretty good rationale for why you did report what you did or else face not only paying the tax that would have been due had the correct numbers been used, but also penalties and interest are attached.  Worse yet, once you are audited and found to be guilty of falsifying your return or abusing certain privileges, you will then be on the IRS watch list, and no one wants to be in that position.

   

• Prepaying mortgage : This is a simple one to explain.  Very plainly, the IRS has established guidelines that state that a deduction can only be claimed for the portion of the expense that was allocated to the current year.  In plain English that means if you pay your January mortgage in December, the 1098 will only contain the interest that was paid and applied up until December 31. If you report more and try to justify that you are including it due to the fact that you made the payment in the current year, guess what: you’re wrong.  Since the interest portion of your payment was originally allocated to the next year, you are disallowed from claiming it early.

   

• Real estate taxes: Another pretty simple one.  You cannot claim any deduction unless it was paid in the current year. Everyone knows that the assessments are sent out in August or September and that the bill goes out in November, but just because you were issued a bill does not allow you the right to claim the deduction.  You must have physically paidthe taxes by December 31 of the current year in order to get the deduction. There is a bright side, however, and if for some reason you do not have the ability to pay that bill in the current year, you are permitted to claim the deduction in the following year when you do finally pay it.

   

• Buying a home is a great tax write-off: I’m not sure where to even begin.  Many people, particularly the frugal will tell you that buying a home simply for the mortgage and real estate tax deduction is a horrible idea.  Beside the fact that you will generally take on a great deal of debt, certain other factors come into play.  If you happen to buy into an area that has a homeowners association, or if you purchase a condo, you will have to pay association fees which are not deductible.  Then you have guidelines by which you must follow in regard to upkeep and appearance such as: lawn maintenance, cleanliness of the sidewalks and roof, replacing damaged portions of the visible domicile (ie: driveway and roof).  And, in order to even receive the deduction for the real estate taxes, you must (as was mentioned previously) actually pay them, and this is one of the top areas in which people underestimate or even exclude from their budget when considering a home purchase.  If you can afford to do so, then a home certainly does provide many tax breaks, although the breaks alone do not justify making such a large investment.

   

• College/post-secondary expenses: This may be one of the more difficult deduction to figure out, especially since there are multiple deductions to choose from and the rules have recently changed.  But one thing is very clear: not every expense is allowed in the calculation of qualified expenses.  Tuition and associated fees are the only costs that are deductible, or to put it another way, only those costs that you pay to matriculate and sit in a class are deductible.  So what does that leave as non-deductible?  Well, pretty much everything else: room and board (including meal plans even though most freshman are required to buy them) or costs of living (if off campus); transportation fees; student life fees (sports and activities fees); books, supplies and lab fees, insurance and medical expenses. Unfortunately, that is the way it is, and equally unfortunate is the fact that this distinction is often left out of the discussion on the topic giving taxpayers false hope for a large deduction. 

Again, this is just a list of the more common deductions that are not often fully explained.  Almost every deduction has limitations of some sort, but many of the other major ones get full attention when it comes to their discussion.  The only thing you can do is to educate yourself to the best of your ability on the ones that apply to you, or pay an experienced professional to prepare your taxes and know that in most instances, they have a much better understanding of the tax code and will get you the deductions that you truly qualify to take and save you the risk of being audited by ignoring the ones that you have no business even going near.

Have you seen this kind of advice throw around in print media or online in this method?  Does the source of such advice make a difference to you or do you take anything that is written by mainstream media at face value?

This article, The Truth Behind Tax Deduction Advice was originally published by DollarVersity, and may have been used without the owner's permission.

Catchy title, huh? I thought it might catch your eye, and that’s a good thing. But, in this case it is simply that…a title aimed at getting attention.  You see, those aren’t my words exactly, but it is the feeling that many writers and bloggers have left me with recently.  I have noticed an increasing trend when it comes to journalists, personal finance blogs and many comments posted on such blogs, which inspired my choice of words.   You see, there are a great many blogs and articles dedicated to what people call “frugal living” and a great deal that also promote the “cash-only” lifestyle and it seems that many of the messages regarding these lifestyle choices are being interpreted (by me at least) as if each is the be all end all of personal finances and how people should behave when it comes to money.  It often times feels like authors and commentators are saying something to the effect of “This is what works for me, and it’s what I believe in, so you should too or else you’re an idiot”.  

Now I totally get that some people like to stir the proverbial pot and create drama in order to get attention or simply to make it easier for a conversation or debate to start, but that’s not what I’m getting at here.  I’m specifically talking about people who live a certain way or believe in a certain concept and feel that anyone who does anything different is wrong.  I’m talking about people who will never concede any point that goes against this way of living or concept no matter how valid or beneficial it may be.

Anyone who has, or will read my blog in the future can see that I am not a part of either of the aforementioned camps.  In fact, I do tend to take a hard line stance on certain subjects such as personal accountability and the benefits of credit, but never have I taken shots at anyone simply because their views differ from my own.  I prefer to take a more objective approach and kindly disagree while providing my reasons.  I prefer to enlighten and inform, letting people choose for themselves how to best take on their finances in ways that suit them.   A perfect example would be my post entitled Credit Is Not the Enemy, You Are! in which I argue the benefits of using credit as a tool.  I do not even once belittle or denigrate those who choose to live without credit, while still enforcing my point that those who misuse it have no one to blame but themselves.  It would be very easy, after all, to take shots at people 

I guess it is my background in accounting and financial advising that allows me to understand that being constructive with criticism is more useful that flat-out dismissing someone else’s viewpoints even if they conflict with my own.  I prefer to educate others on different matters rather than force my views upon them.  Maybe it is because many other bloggers are not in the field in which they write about, that they do not see their writings as preaching their own personal gospel on financial matters.   Or, perhaps like religion or politics, they feel so strongly about something that works for them and believe in, they cannot see any other viewpoint objectively.

In, Financial Advice is Not a One Size Fits All Proposition, which more closely matches the message that I am trying to convey here.   Financial advice is not something that can be applied to all people in all situations.  What works for one person or family may or may not work for another, even if the situations appear similar.   Everyone has to decide what works best for them, and although it may go against what another feels is right, should not be shot down on the simple basis of ideological differences.   Granted, one may have a very compelling case for disagreeing, but without backing it up intellectually and thoughtfully, such an argument can be interpreted as being a put down or an attack.  There are times when tough love and harsh words are are more poignant, like when someone is repeatedly making the same same choices that negatively impacts them, but when speaking to masses of reader in a general sense there is no way that spewing regurgitated advice and theories will be of any benefit.

There are two people whose blogs I do reading very much because they are able to strike an accord and see things from differing standpoints.  J.D. Roth from Get Rich Slowly specifically states this point in an addendum to a guest post entitled Three Reasons Cash is King as he writes:

I know that GRS readers are divided between the “cash only” and the “wise use of credit” camps. I believe both have their merits. Though I’ve elected to join the “wise use of credit” folks, I support those who opt for a cash-only lifestyle.

NCN from No Credit Needed has similar remarks in a post titled Top 10 Ways To Save Money – Number 3 – Avoid Paying Credit Card Interest where he writes:

Now, there are those who will reject my idea of paying cash and they will extol the virtues of credit cards, with low interest rates, and the power of using other people’s money. Hey, I’m cool. If others want to borrow money, that’s fine by me…I am very open to the idea that I am wrong, and I know that many of my personal finance blogging brothers and sisters love their credit cards, but I’m just not going to use them.

If only everyone could be so open-minded to varying views on any number of subjects, it would be much easier to read many of the blogs that are out there for the world to discover.  It will also give much more credibility to those who are attempting to take on an expert or leadership role for people to see that you can consider differing viewpoints yet still be able to make a case for why you feel a certain way in a more eloquent and well presented manner. 

Have you ever felt this way while reading a blog, article or a reaction to either?  Do you write and find that you have fallen into this practice at one point or another?  Comment on your experience and let’s see just how many people can relate to you.

This article, If You Don’t Think Like Me You Are An Idiot was originally published by DollarVersity, and may have been used without the owner's permission.

Nobody sets out to fail at any task in which they undertake, success is the ultimate goal.  The problem is that if you are afraid to fail, success is difficult to come by.  Many great entrepreneurial minds as well as inventors understood and embraced that concept, and so should you if you are truly dedicated to doing whatever it takes to succeed.  The key is recognizing what those past failures and mistakes were and learning from them in order to avoid repeating them.

Determination and drive are key character traits for any successful business person, in any field.  Those who possess such traits view their failures as an opportunity to re-assess ideas, theories, processes, etc. and to make the necessary adjustments and push even harder to reach their goals.  Thomas Edison once said when questioned about his numerous failed attempts at creating the storage battery, “I have not failed, I’ve just found 10,000 ways that won’t work”. In essence, he was saying that he did not view his failures as failures per se, rather they were lessons in how not to reach his goal which forced him to different paths until he finally invented the storage battery that worked.  This is a lesson that all people can apply to their own pursuits–learning from the wrong ways will eventually lead you to the right way.

Along the same lines, Henry Ford, who founded the Ford Motor Company was quoted as saying, “Failure is simply the opportunity to begin again, this time more intelligently.”  Taken literally, what this means is that with failure comes the chance to start from the beginning, but this time having the hindsight of knowing what did not work the last time and being able to avoid making the same mistakes again.

Donald Trump had several failed ventures during his real estate career yet he continued to develop more real estate projects.  Warren Buffett had what he considered a failure when he sold his shares of Cities Services, the first stock he ever purchased, for $40 only to see the stock reach $200 a few years later but learned that investing in good companies for the long-term was a better plan.  Sports teams such as the Boston Celtics, Detroit Red Wings, and New York Yankees, traditionally viewed as dynasties in their respective sports have had long periods of failure and disappointment before figuring out the formula to once again win championships.

Of course, these are just some of the well-known cases of people overcoming failure to become successful in their chosen tasks.  There a more likely than not numerous local stories as well which may have more relevance to you and your individual situation.  The ability to learn from prior failures combined with the drive and determination to not let setbacks derail them is what made these innovators, leaders, pioneers, groups/teams and countless others like them successful.  Not being afraid to fail, while understanding that failure is an inevitable part of business, sports, and life will make the bumps in the road easier to navigate.

What have you learned from your failures?  Have you been able to translate past shortcomings into current successes?

This article, Failure is a Necessary Step Along the Road to Success was originally published by DollarVersity, and may have been used without the owner's permission.