How to Start Saving For College

College Savings Accounts

College is expensive, even with loans. So, why not start the saving process early?  There are a few different ways that you can start saving early on that aren’t just a separate bank account. Here are three ways to start saving for college.

  1. 529 plan

Almost every state has its own 529 plan, also known as a Qualified Tuition Program, each coming with their own annual fees and operating costs. The great thing about a 529 plan is that you can put your money into any state’s plan. Spend some time looking around choose the state plan that you like best. The 529 plan also has tax advantages, the main one being that earning aren’t subject to federal taxes. You can usually begin with contributing small increments of cash. However, some state plans only allow for one adjustment to the account per year. When using this plan, you typically invest after-tax money. You can withdraw the money for qualified education expenses, such as tuition or textbooks. If your child ends up not going to college, you will face possible fees and tax penalties when withdrawing the funds.

You can also consider using a 529 college prepaid plan. For this plan, you can choose a college in your state and buy tuition credits and the current tuition rate. That way, you will not have to wait until your child is preparing to go to college and pay the going rate then. However, if your child does not want to go to the school you’ve chosen, you can get your money back, but it may not have grown as much as it would have in a different account.

  1. UTMA and UGMA account

UTMA and UGAM accounts are custodial accounts that act as a trust for your child. Assets like annuities, stocks, bonds, or cash can be put on reserve into one of these accounts. However, your child’s college of choice will take the amount of money in these accounts when considering financial aid. If you have a lot of money in one of these accounts, the school may not offer you a lot of financial aid. However, if you have a lot of money in the account, you may not need financial aid.

Before opening a UTMA or UGMA account, discuss it with a financial advisor. These accounts are considered your child’s asset, not yours. This means the money belongs to your child. Once your child turns 18, they can use the money for college or for something else.

  1. Coverdell Education Savings Account

Coverdell Education Savings Accounts are used specifically for your child’s education. However, the main downside of this type of account is that you can’t put more than $2,000 a year into one or multiple education savings accounts. The money in the account is typically tax-advantaged if the money is used to pay for educational expenses. If the funds are not used by the time your child turns 30, they may be subject to taxes.

A Coverdell education savings account is considered your asset, not your child’s. This means that it will have less of an impact on their chance at getting financial aid. In addition, the money in these accounts can be used to cover any educational expenses, including private school tuition for grades K-12.

Living a Cash-Only Lifestyle

How to Live a Cash-Only Lifestyle

If you have a habit of overspending, living a cash-only lifestyle may be a good option for you. Living within a definite budget helps you towards a debt-free lifestyle. If you would like to live a cash-only lifestyle, here are a few steps to follow.

  1. Categorize your spending

The first thing you need to do is determine what you’re spending and where. Divide all your expenses into categories and see how much of your paycheck is going towards those areas. If you don’t know how much you are spending, track your spending for a month using a notebook or a note taking app each time you go out to shop. The most logical categories to go cash-only on are those where you are consistently overspending. This may include groceries, entertainment, or clothing.

  1. Leave the debit card behind

Stop using your credit card for any of the categories that you determined in the step above. If you think you won’t be able to resist the temptation of the plastic, consider leaving your debit card behind for a few weeks to break the habit of using your card.

  1. Track your purchases

One way to track your purchase, or keep allotted cash separate from each other, is to use the envelope system. For each category, put a certain amount of money into the envelope and then put the receipts into the envelope so you can see what you spent at the end of the month.

  1. Take out cash only at a specified time

Limit the number of times you withdraw money from your bank account. Consider making the trip to the bank on payday. You can also ask your teller to give you your money in the correct denominations for each of your categories.

  1. Plan

It’s never a good idea to carry around a huge wad of money with you. Figure out where you are going for the day and plan out approximately how much money you are going to need and bring just that amount with you. This will also cut down on impulse purchases.

  1. Limit yourself and adjust accordingly

Don’t continue to spend money once you have gone through your allocated money for a category. If you find that you always have money left over in one category and always run out in another, adjust your money accordingly to fit your spending habits.

How to Avoid Bankruptcy

Avoiding Bankruptcy

Bankruptcy occurs when your liabilities exceed your assets or when you have an insufficient cash flow to service your debt. In other words, bankruptcy happens when you don’t have enough money to pay off your bills. Declaring bankruptcy has many consequences and can affect your credit for many years. If you feel that you are on the verge of this, here are a few things you can do to avoid having to declare bankruptcy.

  1. See what you can sell

Do you have unopened or unused items that have just been collecting dust on your shelves? Consider putting those on eBay or having a yard sale to get some extra money. Extra pieces of furniture and collectibles are great for a quick cash turnaround. Fashion items, such as brand-name sneakers, bags, and sunglasses, are also great for some extra money if they are in good condition.

  1. Say goodbye to unnecessary expenses

Cut out any unnecessary expenses, such as gym memberships, streaming services, eating out, and vacations. While this might seem intense, remember that this is only a temporary situation. A few months without the extras will be worth it if you don’t have to declare bankruptcy!

  1. Second job

If your current job isn’t enough to pay your bills, consider getting a second job. Even if you only have time on the weekends, the extra cash flow can definitely help you pay off your existing debts faster.

  1. Contact your creditors

While it may seem like your creditors would be the last entity you want to contact, they can actually help you. Many creditors may be interested in helping find a way to settle your situation. They would rather help you settle the situation rather than lose the money they sent you. See if they will lower your interest rate and work out a repayment plan.

  1. Switch to cash

Budgeting your income should become a large part of overcoming your debt. Set a weekly budget for your necessities and pay for them with cash. Put away the credit cards for now and don’t use them until you have more of a grasp on your debt.

  1. Borrow from friends or family

Use this a last resort situation. Borrowing from friends and family can make these relationships when it comes to paying back that money. If you know that this wouldn’t just be a temporary fix, this might be a good solution for you. Make sure that you plan out a repayment plan. Be as clear with the payback terms before you borrow the money.

Saving on Home Construction Costs

Home Construction Savings

Finding the perfect house can be difficult. If your home search is coming up empty, you may want to consider constructing your own home. As you may imagine, building a home comes with more costs than buying an already constructed one. However, here are a few things you can do to cut down home construction costs.

  • Expand up rather than out

You can start your saving by simplifying your home design. Excavation and foundation are typically the most significant costs when constructing a home. The more a home goes out, the more foundation you need to construct. Instead, consider building a two-story home that equals the square footage of the one-story that you originally want to build.

  • Hire the right home builder

In order to build a cheaper house, you need to hire the best home builder, even if they are a more expensive option. It may sound counterintuitive, but this does actually save you money. A home builder who is inexperienced, uninsured, or unlicensed can actually cost you more money in the long run. An experienced builder can save you money by predicting potential problems. Search for reputable contractors with experience completing the type of home you’d like. Make sure that they are properly licensed and insured.

  • Become a general contractor

If you want to get more hands-on with the project, you can become a general contractor yourself. This can save you up to 20% on the cost of building your home. Make sure to bring in subcontractors to do the work you may not be comfortable completing, such as electrical or plumbing.   

  • Energy-efficient materials

Energy-efficient appliances can mean rebates, tax credits, and more. While it may cost more initially, the long-term savings may be worth it.

  • Avoid change orders

A change order happens when you want to send back an item, such as an appliance or backsplash, and pick out a different one. This adds time to the schedule, as you are waiting for the items to arrive, and extra money to the budget.

  • Avoid site preparation charges

Choose the best site you can afford and design a plan that fits around the site or can be modified for the site. Extra work such as hauling in-fill dirt, clearing trees, blasting rock, and grading are expensive and add extra time to the schedule.

  • Buy a large lot – and split it

Do you have a family member or a friend who you would love to be neighbors with? If you find a property that you love but it too large for just yourself, split it with that person so each of you can build your dream home.

  • Waterfront property choices

Do you want a waterfront property? Oceanfront and lakefront lots are already more expensive than other lots. Instead, consider building your home on a canal or bay lot. They are less expensive but are still water accessible.

  • Submit paperwork on time

One of the most costly delays in construction is getting your plans approved. Seek input from the appropriate people to have the project signed off on early and ensure you’re filling out the paperwork in the correct way.

  • Be aware of the depth

Keep the depth of the construction at 32 feet or less. Any deeper and you’ll need to construct additional features, such as roof trusses. This can add to the additional cost of the overall building. As we mentioned before, if you want a larger house, consider adding another story.

How to: Save Up for a Vacation

Save Up For Vacation

Are you already dreaming of the perfect 2018 vacation? Here’s how to save up to get the biggest bang for your buck.

Before you start planning

  1. Open a vacation bank account

An easy way to save for a vacation is to open a dedicated savings account just for your vacation. You can even set up automatic payments to make sure money gets put into the account. An interest-bearing account may even grow your money while you’re planning your trip. While you can set up an account at your local bank, an online bank may make it easier to not dip into the temptation of using that money on something other than your vacation.

  1. Cut back on monthly food spending

Look at what you are spending each month on food. Save money on these costs by buying food in bulk, shopping at a farmer’s market, or planting a garden in your backyard! Additionally, look at what you are buying. Extra items, such as soda or ice cream, can be left out of the cart for now.

  1. Pick up a side job

One easy way to get extra money for a vacation is to pick up an extra job. Be it something more traditional, like babysitting, or otherwise, such as becoming an Uber or Lyft driver, extra money is always welcome! You can also consider short-term work opportunities. Around the holiday season, many retailers are looking for seasonal workers to help with the extra demand. During the summer, consider getting a job as a lifeguard or camp counselor.

  1. Spend less on your workout

Do you want to get in shape for your vacation? Instead of paying for an expensive gym membership, consider trying cheap or free alternatives instead. Find a fitness-focused YouTube channel, look for workouts on Pinterest, or find other similar sites online. If you work out better in a gym environment, look for deals on memberships and classes on sites like Groupon.

While you’re planning

  1. Book your ticket the right day

Many seasoned travelers may tell you the best day to purchase plane tickets is on Tuesday. However, that is not true! The cheapest fares for domestic and international economy flights were booked on a Sunday. In contrast, the most expensive day to book flights is Friday. For the best fares, book your flight more than 30 days in advance.

  1. Fly cheap days

For domestic flights, the cheapest days to fly are usually Tuesday, Wednesday, and sometimes Saturday. International flights typically are cheapest to fly on weekdays instead of weekdays. Nevertheless, be sure to check prices on other days to see if your trip will be the one to break away from the norm!

  1. Fly cheap times

Traveling at dawn and during the lunch or dinner hour is often cheaper than flying at another time.

  1. Fly cheap routes

Most times, non-stop flights are more expensive than those with connecting flights. In fact, connecting flights can be as much as 50% cheaper than non-stop ones.

  1. Fly with fewer fees

A few larger airlines are bringing food back into their economy class on long-haul flights. If your plane has no free food, save money by bringing your own snacks from home on the plane. You can also consider bringing just a carry-on for your vacation. In addition to being free, they stay by your side during the whole flight, so you don’t have to worry about them getting lost.

E-Filing Your Taxes

Tax Season: E-File Your Taxes

The time between January 1st and April 15th is tax season. During this time, individuals prepare their financial statements and reports from the previous year. By April 15th, individuals must file their annual tax return. One way to file your taxes is to e-file.

What is e-file?

E-file is a system that transmits completed tax returns in a format that IRS computers can accept. To file taxes online, you’ll need to use tax software companies or a tax professional that can access the IRS’ e-file system.

Why should you e-file?

There are a few different reasons to e-file. The four main reasons to e-file are:

  1. Faster refunds

E-filing allows you to get your tax refund faster. Since you are virtually sending your return, you don’t need to wait for the postal service to deliver your return to the IRS. In addition, paper returns are processed more slowly. Refunds for paper returns are typically given in six to eight weeks. Most refunds are issued within 21 days. The fastest way to get your money is to combine your e-filing with direct deposit. This way, you don’t have to wait to receive the paper check.

  1. Trackability

E-filing gives you the ability to better track the standing of your returns. After you e-file, the IRS will inform you when it receives your return, when your return Is approved, and when it sends your refund.

  1. Easier record-keeping

With e-filing, you don’t need to send the IRS a copy of your W-2.

  1. Pay later

If you’re ready to prepare, but unsure of how much you’ll owe or what you’ll be refunded, you can file early but pay later. As long as you pay before the April 15th deadline, you can file early.

How much does it cost to e-file?

The cost to e-file varies. In some cases, the cost may be included in the price of the software. In other cases, there may be an additional fee. There are a few ways that you may be able to file for free. They include:

  1. IRS’s Free File program

Free File is a list of software companies that offer free basic tax-prep software if your gross income is below a certain level.

  1. VITA

Volunteer Income Tax Assistance, or VITA, offers free e-filing if you earned $54,000 or less. In addition, the Tax Counseling for the Elderly programs can help people who are over the age of 60.

  1. State filing

Many states offer free filing options. Check the Federation of Tax Administrators to see a list of state filing options

When can’t you e-file?

Almost everyone can e-file. However, you won’t be able to e-file if:

  1. You are filing an amended return or a prior-year return
  2. You’re filing a form that e-file doesn’t support
  3. You’re claiming a dependent who is already on a different return

In these cases, you have to file your taxes the traditional way and print out and mail your return.

Financial Advisors vs. Financial Planners

Financial Advisors and Financial Planners

There are many different investment professionals that consumers can take advantage of. Two of these are a financial advisor and a financial planner. These two professionals help people manage their money.

What is a financial advisor?

A financial advisor is a broad term for any professional who helps you to manage your money. You hire a financial advisor, and in turn, they help you with any money-related tasks. They may help you to manage investments, broker the sale and purchase of stocks and funds, help to create an estate and tax plan, or any other financial tasks. An advisor that works with the public must hold a series 65 license. In addition to the series 65 license, a financial advisor may hold a variety of different credentials depending on the services they provide. A financial planner is a type of a financial advisor.

What is a financial planner?

A financial planner is a type of financial advisor who can help individuals meet long-term financial goals. They can have a specialization in investments, taxes, estate planning, and/or retirement. Additionally, they may hold various licenses or designations. To get the different licenses, a financial planner must complete a different form of education, examination, and work history requirements.

Financial planners are important because they understand often overlooked financial issues. These issues include complex tax laws, information about the investment landscape, and any changes in one part of your plan that can ruin another part. They also provide high-quality financial advice specific to your situation. To choose a financial planner, first, understand your financial planning landscape. Then, find a planner who best fits your needs, whether it is a broker, investment advisor, insurance agent, or one of the many others.

What’s the difference?

Every financial planner is a financial advisor. However, not every financial advisor is a financial planner. Consumers will ultimately choose which type of financial advisor is right for them.

What is an IRA?

An IRA

An individual retirement account, or IRA, is an account set up by a financial institution that allows someone to save for retirement with tax-free growth or on a tax-deferred basis. The main types of IRAs are:

  • Traditional IRA: With a traditional IRA, you make contributions with money, you may be able to deduct on your tax return. Any earnings can possibly grow tax-deferred until they are withdrawn in retirement. Since many retirees are in a lower tax bracket pre-retirement, the tax deferral means that it’s possible the money will be taxed at a lower rate.
  • Roth IRA: With a Roth IRA, your contributions are done with money that you have already paid taxes on. Provided that certain conditions are met, your money may be able to grow tax-free with tax-free withdrawals in retirement.
  • Rollover IRA: A rollover IRA is a traditional IRA intended for money that is “rolled over” from a retirement plan. Rollovers include any eligible assets from an employer-sponsored plan. This includes a 401(k) and a 403(b).

Why invest in an IRA?

An IRA helps you throughout retirement. Financial experts estimate that you potentially need 85% of your pre-retirement income into retirement. Employer-sponsored plans such as a 401(k) might not be enough to support this. However, you can contribute to both a 401(k) and an IRA.

Who can put money into an IRA?

Who can put money into an IRA depends on the type of IRA. With a traditional IRA, almost anyone can contribute. This is provided you (or your spouse) receive taxable income and are under the age of 70 ½. These contributions are tax-deductible if you meet certain qualifications. Roth IRA contributions are never tax deductible. Additionally, to contribute to a Roth IRA, you must meet certain income qualifications.

How much should I put in an IRA?

The amount you need to save depends on your financial plan. However, you should put as much as the government allows you to.

When can I access my IRA?

You can take money out of an IRA whenever you want. However, if you are under the age of 59 ½, you can be charged. A traditional IRA charges a 10% penalty on the amount you withdrawal in addition to the regular income tax you owe on a withdrawal. Roth IRA’s are more flexible. You are able to withdraw at any time, as long as you don’t withdraw earnings on your investments or dollars that were converted from a traditional IRA. If you are 59 ½ or older, you typically make penalty-free withdrawals from an IRA.

What is Modified Adjusted Gross Income?

Modified Adjusted Gross Income

What is Modified Adjusted Gross Income?

Modified adjusted gross income (MAGI) is used to determine whether an individual can qualify for certain tax deductions. It is also used to determine how much of the IRA contribution is deductible and if the individual is eligible for premium tax credits. The higher a person’s modified adjusted gross income is, the more the deductible amount is reduced. This can potentially be reduced to zero. In this case, a person is still able to contribute to an IRA plan, but the whole amount won’t be tax deductible. Many times, an individual’s MAGI will be similar to their adjusted gross income (AGI). However, it’s possible for there to be small differences. These differences greatly affect the overall tax return, as they dictate whether an individual is able to receive certain benefits.

How to Calculate Modified Adjusted Income

To begin, gross income is calculated. Gross income is an individual’s total income earned. This includes any wages, interest, dividends, capital gains, business income, rental and royalty income, and other similar activities.

After the gross income is calculated, the adjusted gross income must be calculated. To do this, an individual must subtract any of the qualified deductions from the gross income. These deductions are found on the front page of the tax form 1040. They are made up of standard adjustments, such as contributes to a retirement plan, self-employed health insurance plans, tuition for higher-education, and student-loan interest. The AGI is calculated before any deductions, credits, or exemptions are considered. Adjusted gross income decides tax credits and deductions an individual can apply for.

Finally, to calculate the MAGI, certain deductions are added back to the adjusted gross income. It is uncommon for a person’s MAGI to greatly differ from their AGI. Your MAGI determines whether you can take full advantage of premium tax credits.