Many of us have gotten into debt at one time or another. Some have paid it off or some are still carrying it in forms of credit card debt, a mortgage, home equity line of credit, or student loan debt. Carrying this debt can saddle your finances and put the rest of your financial life on hold. There are many reasons why you got into debt. Perhaps you didn’t have any savings, or you lived beyond your means or an emergency came up and you weren’t prepared. Don’t let your debt be the obstacle on your path to financial freedom. Regardless of the situation you are in, you need to change your financial habits and your approach to money.
While you will focus on paying your debt down with the majority of your extra money, you can start a savings account at the same time. There are differing thoughts to this approach, but seeing a savings account grow can truly install a sense of financial hope and motivate you to remain on a financially healthy path. At this time, recall why you got into debt in the first place. One reason might have been that an unexpected expense arose and you weren’t prepared. Having a savings account could have rescued you in that situation.
Making the savings account automatic will help you get back on the path to financial freedom without even thinking about it! Setup a savings account that is linked to your checking account and have the money automatically deducted every month. You will be earning interest in your sleep. To figure out how much you should be saving, come up with a total dollar amount of extra money that you have to pay down debt. For example, if that amount is $500 per month, then you could take $25 or $50 and use it for savings. Most of your extra cash flow will still be used to pay down your debt.
Consolidating your debt to one or two places will make this process much easier. You should also have a debt repayment plan. The practical goal is to pay down your debt as fast as possible. However, for this to happen you need to change how you think about your money. Having a savings account can be instrumental in motivating you to reach this goal.
Saving For Your Kid's Education
With the introduction and surge in popularity of 529 plans, more and more parents are focused on saving for their children’s college education. Before you begin, make sure you are contributing enough to your retirement fund. Your children can borrow money for college but you can not borrow money for retirement. Even if you plan on working for the rest of your life, you still want to be prepared in the event you do choose to retire.
Once you have your retirement plan set in place, you can now start preparing for your children’s future. An important decision to make is a Public or Private University for your child. If you feel confident you will be sending your child to Public University, verify if your state has a prepaid college savings plan. Your money will go much further, but your child must use the money for a state university.
If you aren’t sure whether to send your child to a Public or Private University and you want to leave your options open, then the 529 plan is a better choice. There are many great benefits to the 529 plan which include:
• When the money comes out for an accredited college, it is free of federal taxes.
• The money in the 529 plan grows tax deferred.
• Many states offer an upfront tax deduction on your contribution and a tax break when you take the money out (if you go with your state plan).
• The donor (usually the parent) has control.
• Very easy to use and can be made automatic. In fact, if you don’t have the minimum to invest, you can set up automatic contributions for as little as $25 a month.
• Most plans have an age-based investment option that makes it very easy for investors to build a properly diversified investment portfolio.
Visit www.savingforcollege.com for more information about your state’s plan. You can contribute up to $12,000 tax-free per child annually or $60,000 spread over five years under the gift tax law. Overall, you can contribute (or the account can grow) to more than $200,000.
Another way to get more bang for your buck is through Upromise (www.upromise.com). This company gets you free money for your 529 plan by shopping for everyday things from a long list of vendors (that you are probably using already). Get your family and friends involved. It won’t cost them a cent.
One final thing you can do to make the most out of your child’s college savings plan is to go online and use a savings calculator to see how much you should save. T. Rowe Price (www.troweprice.com) has a sophisticated yet easy-to-use site. Also, if you are concerned about the 529 plan hurting your child’s chances to receive financial aid, don’t worry. Investing in a 529 plan will have a minimal affect because the assets are in the name of the donor (the parent), not the child.
Once you have your retirement plan set in place, you can now start preparing for your children’s future. An important decision to make is a Public or Private University for your child. If you feel confident you will be sending your child to Public University, verify if your state has a prepaid college savings plan. Your money will go much further, but your child must use the money for a state university.
If you aren’t sure whether to send your child to a Public or Private University and you want to leave your options open, then the 529 plan is a better choice. There are many great benefits to the 529 plan which include:
• When the money comes out for an accredited college, it is free of federal taxes.
• The money in the 529 plan grows tax deferred.
• Many states offer an upfront tax deduction on your contribution and a tax break when you take the money out (if you go with your state plan).
• The donor (usually the parent) has control.
• Very easy to use and can be made automatic. In fact, if you don’t have the minimum to invest, you can set up automatic contributions for as little as $25 a month.
• Most plans have an age-based investment option that makes it very easy for investors to build a properly diversified investment portfolio.
Visit www.savingforcollege.com for more information about your state’s plan. You can contribute up to $12,000 tax-free per child annually or $60,000 spread over five years under the gift tax law. Overall, you can contribute (or the account can grow) to more than $200,000.
Another way to get more bang for your buck is through Upromise (www.upromise.com). This company gets you free money for your 529 plan by shopping for everyday things from a long list of vendors (that you are probably using already). Get your family and friends involved. It won’t cost them a cent.
One final thing you can do to make the most out of your child’s college savings plan is to go online and use a savings calculator to see how much you should save. T. Rowe Price (www.troweprice.com) has a sophisticated yet easy-to-use site. Also, if you are concerned about the 529 plan hurting your child’s chances to receive financial aid, don’t worry. Investing in a 529 plan will have a minimal affect because the assets are in the name of the donor (the parent), not the child.
Top Ten Ways Banks Make Mistakes
If you think politicians are the only ones that make mistakes with your hard earned cash then your thinking may be a little naive. Just because a bank is dealing with your home loan statements does not guarantee that they will be error free.
A recent survey in the Sydney Morning Herald stated some pretty frightening statistics. The study investigated 200 monthly mortgage statements and the critical findings were….
54% of loan statements had errors
84% of these were in the Banks favour
The average monthly error was a staggering $242
Remember that these are just monthly errors. Imagine this figure compounded over the life of your loan.
You could be like thousands of fellow Australians out there who are losing thousands of dollars to banking errors.
The question is how do these banks make these errors?
I have listed below the top ten ways banks make these mistakes.
1.The Wrong Interest Rate was Applied
e.g. 7.75% instead of 7.25% (If this was not discovered the resulting extra interest paid would come close to $10,000.)
2.The Interest was charged at least one day earlier than it should
This could potentially cost you thousands in extra interest.
3.The Interest was calculated on an Incorrect Balance
e.g. the loan balance used was $110,000 but the balance should have been $101,000. This could cost you at least $20,000.
4.A Payment was credited at least One Day to Late
Additional Interest like this, over the course of your loan would cost you thousands.
5.When Calculating Interest Wrong Dates are Used
The bank charges additional interest by calculating the interest debit on the daily balance one or two days prior to the date on the statement.
The bank pays less interest by calculating the interest credit on the daily balance one or two days after the date on the statement.
6.A wrong Amount is Credited to the Account
e.g. $22.50 is credited instead of $225.00
e.g. $1,075 is debited instead of $175.00
7.Your Repayment Amount Ends up credited to another account
This can happen easier than you think. A simple typo can see your payment end up in someone else’s account.
8.Charging Interest after every transaction
It is usual to charge interest at the end of the month but many banks are now charging interest whenever a deposit is made. This means that making extra payments is of no benefit as it effectively increases the interest rate on the loan.
9.Changing or Ignoring the Rules
Without informing you the bank changes your principal and interest loan to an interest loan only.
10.Payout Figure is Too High
The Outstanding balance is too high.
The wrong penalty formula is used.
The payout date is used for calculation resulting in an extra day’s interest being charged.
If you would like to know how to combat the bank’s mistakes and get back what your owed see my resource box.
A recent survey in the Sydney Morning Herald stated some pretty frightening statistics. The study investigated 200 monthly mortgage statements and the critical findings were….
54% of loan statements had errors
84% of these were in the Banks favour
The average monthly error was a staggering $242
Remember that these are just monthly errors. Imagine this figure compounded over the life of your loan.
You could be like thousands of fellow Australians out there who are losing thousands of dollars to banking errors.
The question is how do these banks make these errors?
I have listed below the top ten ways banks make these mistakes.
1.The Wrong Interest Rate was Applied
e.g. 7.75% instead of 7.25% (If this was not discovered the resulting extra interest paid would come close to $10,000.)
2.The Interest was charged at least one day earlier than it should
This could potentially cost you thousands in extra interest.
3.The Interest was calculated on an Incorrect Balance
e.g. the loan balance used was $110,000 but the balance should have been $101,000. This could cost you at least $20,000.
4.A Payment was credited at least One Day to Late
Additional Interest like this, over the course of your loan would cost you thousands.
5.When Calculating Interest Wrong Dates are Used
The bank charges additional interest by calculating the interest debit on the daily balance one or two days prior to the date on the statement.
The bank pays less interest by calculating the interest credit on the daily balance one or two days after the date on the statement.
6.A wrong Amount is Credited to the Account
e.g. $22.50 is credited instead of $225.00
e.g. $1,075 is debited instead of $175.00
7.Your Repayment Amount Ends up credited to another account
This can happen easier than you think. A simple typo can see your payment end up in someone else’s account.
8.Charging Interest after every transaction
It is usual to charge interest at the end of the month but many banks are now charging interest whenever a deposit is made. This means that making extra payments is of no benefit as it effectively increases the interest rate on the loan.
9.Changing or Ignoring the Rules
Without informing you the bank changes your principal and interest loan to an interest loan only.
10.Payout Figure is Too High
The Outstanding balance is too high.
The wrong penalty formula is used.
The payout date is used for calculation resulting in an extra day’s interest being charged.
If you would like to know how to combat the bank’s mistakes and get back what your owed see my resource box.
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