One of the great bamboozles created for the investment public is the creation of valuation. The broker, financial planner or stock analyst says this stock is undervalued or the market in general is overvalued.
What is even more confusing is the analyst at stock company “A” says a certain stock is overvalued while the analyst at another brokerage firm says the same stock is undervalued. How can that be when each one is working with the same information? Each analyst is right – for him, but there is only one correct answer. The computation, no matter how it was arrived at, will be proven if the price of the stock rises or falls per the prediction. Beautiful multiple page color slick reports are prepared for investors who believe what has been written and gamble (I did not say invest) their money on the outcome. Corporations pay tens of thousands of dollars for deep analytical reports on which their executives rely to make multimillion dollar decisions.
It is less than a 50/50 chance because many times a stock will go sideways, neither up nor down. Reputations of analysts are made on the outcome. A few are very good, but a very wise investor will always trade with an exit strategy to protect capital. Analysts examine P/E ratios (Price/Earnings), cash flow, industry performance of the company sector, general market direction, world conditions and technical analysis for guidance. Economists are particularly fond of Greek formulas, many of which have become famous such as the Black Scholes formula for option analysis. Nobel prizes have been awarded for formulas and theories only later to have been proven wrong. There are formulas such as Tobin’s Q that have proven accurate over the years that predict actual market value based on corporate wealth.
It measures the ratio of market value of a company to the replacement cost of its assets. It is better adapted to the general market then individual companies, but is slow moving. It is subject to judgment by each analyst. It still comes down to the fact that investing (call it trading if you wish and many call it gambling) is not a science, but an art. There are few great (rich) artists. Most of the very rich did their valuation analysis and then were bold enough to act on it. The old saying, “Beauty is in the eye of the beholder” holds true for stock selection, but is phrased somewhat differently.
“Valuation is in the mind of the investor.” When an investor receives a report from any analyst his concern should be with the analyst. Many of the reports sent to customers are merely a compilation of information put together by a college student intern. They are factual, but should be cautiously used for investment decisions. Brokers are not qualified to give valuation reports. Any stock or market valuation report must always be accepted with caution.
Creating a Budget - Step-by-Step Guide to Managing Money
It is not as complicated as it sounds nor is it as dreadful. I know the thoughts are running through your head right now of not being able to have fun or having the enjoyment of purchasing clothes, eating out, or participating in exciting activities. However, this couldn’t be farther from the truth. Establishing a budget not only allows you to see what you are spending your hard earned money on, but it also allows you to set aside money each month so that you can enjoy your leisure activities.
What Are You Spending Money On?
It is necessary to write down your spending habits for at least one month. Consistently recording your purchases and bill payments will allow you to see exactly how much money you spend on various expenditures. Daily, jot down how much you spent on food, gas, books, etc… Carry a binder or notebook with you so you can conveniently jot down the amount spent before you forget. Keeping a log will dramatically open your eyes to the amount of money you are spending on a daily basis and will allow you to adjust your budget accordingly.
Create Categories
Create a list of categories that you can organize your expenditures in. For example, you decided to eat lunch at Panera Bread and you spent $10.00. Create a Restaurant category and place this amount under that particular category. Not only will you be able to track your expenses, but you will be able to quickly see where you are spending the most of your money. You may also use a computer finance software program to keep track of your expenditures, whichever works best for you. Write down as many categories as you can think of. You may have 10 categories or you may have over 20, it all depends on your lifestyle.
See Your Results
At the end of the month, tally the results of your log. Pay attention to where you have spent the most money and where you spend the least. Having kept this log should dramatically open your eyes to see exactly where your money has been going during a month’s time. You may be shocked to see that you spent $15 in late charges for overdue books at the library or you noticed that you spend a large amount on fast food. Take some time and sit down and look at ways you can cut back in certain categories or eliminate all together.
What Are You Spending Money On?
It is necessary to write down your spending habits for at least one month. Consistently recording your purchases and bill payments will allow you to see exactly how much money you spend on various expenditures. Daily, jot down how much you spent on food, gas, books, etc… Carry a binder or notebook with you so you can conveniently jot down the amount spent before you forget. Keeping a log will dramatically open your eyes to the amount of money you are spending on a daily basis and will allow you to adjust your budget accordingly.
Create Categories
Create a list of categories that you can organize your expenditures in. For example, you decided to eat lunch at Panera Bread and you spent $10.00. Create a Restaurant category and place this amount under that particular category. Not only will you be able to track your expenses, but you will be able to quickly see where you are spending the most of your money. You may also use a computer finance software program to keep track of your expenditures, whichever works best for you. Write down as many categories as you can think of. You may have 10 categories or you may have over 20, it all depends on your lifestyle.
See Your Results
At the end of the month, tally the results of your log. Pay attention to where you have spent the most money and where you spend the least. Having kept this log should dramatically open your eyes to see exactly where your money has been going during a month’s time. You may be shocked to see that you spent $15 in late charges for overdue books at the library or you noticed that you spend a large amount on fast food. Take some time and sit down and look at ways you can cut back in certain categories or eliminate all together.
Predatory lending and the importance of financial readiness
Sailors often find themselves on a course of spiraling debt that is very difficult to recover from. If a Sailor lacks the cash to stretch between paydays, it is unlikely that Sailor will have the cash to stretch to the next payday--and pay off a super-high-interest loan as well.
The fees these tenders charge can add up quickly, but the lenders have an easy answer for that by rolling over those fees into a new loan. In doing so, a Sailor will find paying an annual percentage rate in some cases of more than 2,00 percent. As a result of turning toward the predatory lenders, Sailors often end up far worse off financially than before.
While junior Sailors with families often are easy targets for these predatory lenders, more senior Sailors have been caught in the spiraling interest trap of payday loans. In one survey of aspects of financial fitness in San Diego among our military members, 21 percent had used a predatory lender for a short-term loan, and 80 percent of those who did were in pay grades E-4 to E-6.
There is no doubt Sailors and their families who turn to the easy loans of payday lenders often suffer personally from the extremely high interest rate and fees charged on these loans. But there is a bigger concern in light of the long war in which we're fighting; Sailors performing the important missions we do shouldn't be distracted by the debt incurred from predatory loan establishments. In fact, the biggest factor in Sailors losing security clearances crucial to doing their jobs are financial problems.
Another way Sailors and families can avoid the temptation of turning to a predatory lender is building and maintaining an emergency savings account to help meet those unexpected expenses. While it may be challenging to save a small amount from each payday on a regular basis, an emergency fund also offers the peace of mind that comes with knowing you can weather a financial emergency. This could also prevent many Sailors from turning to a predatory lender in the first place.
To build an emergency fund, Sailors have to involve their whole family, explain the importance of emergency savings and have everyone help contribute in whatever way they can. Not only will that help you handle those emergency expenses, but it helps build a sense of teamwork in handling your financial fitness and a sense of confidence and freedom you and your family will enjoy.
The fees these tenders charge can add up quickly, but the lenders have an easy answer for that by rolling over those fees into a new loan. In doing so, a Sailor will find paying an annual percentage rate in some cases of more than 2,00 percent. As a result of turning toward the predatory lenders, Sailors often end up far worse off financially than before.
While junior Sailors with families often are easy targets for these predatory lenders, more senior Sailors have been caught in the spiraling interest trap of payday loans. In one survey of aspects of financial fitness in San Diego among our military members, 21 percent had used a predatory lender for a short-term loan, and 80 percent of those who did were in pay grades E-4 to E-6.
There is no doubt Sailors and their families who turn to the easy loans of payday lenders often suffer personally from the extremely high interest rate and fees charged on these loans. But there is a bigger concern in light of the long war in which we're fighting; Sailors performing the important missions we do shouldn't be distracted by the debt incurred from predatory loan establishments. In fact, the biggest factor in Sailors losing security clearances crucial to doing their jobs are financial problems.
Another way Sailors and families can avoid the temptation of turning to a predatory lender is building and maintaining an emergency savings account to help meet those unexpected expenses. While it may be challenging to save a small amount from each payday on a regular basis, an emergency fund also offers the peace of mind that comes with knowing you can weather a financial emergency. This could also prevent many Sailors from turning to a predatory lender in the first place.
To build an emergency fund, Sailors have to involve their whole family, explain the importance of emergency savings and have everyone help contribute in whatever way they can. Not only will that help you handle those emergency expenses, but it helps build a sense of teamwork in handling your financial fitness and a sense of confidence and freedom you and your family will enjoy.
Small business to large business: differences in lending practices: comparing how banks lend to small businesses, middle-market companies, and large c
The Small Business Customer: Hy & Dry Gutter Service
For the small business customer, the distinction between owner and firm is minimal, and commercial lending may seem more like retail lending, entailing many of the same requirements. Let's consider Hy & Dry Gutter Service.
Hy Roller has operated his small business in Springfield for six years and has $750,000 in annual sales. The Springfield branch of Hugo Bank has banked the company for five years, ever since Hy responded to an ad offering a free checking account and a below-market rate on an installment loan. His relationship manager is Bob Friendly, an acquaintance from community activities.
Hy requested a check-based $8,000 business line of credit, unsecured and renewable annually, to meet working capital requirements, as well as a $50,000 term loan to buy a building and a new Ford F-150 truck. He agreed to pledge the truck as collateral for the term loan, and the bank filed a mortgage on the building. While the borrower on both facilities is Hy & Dry, Hy personally guarantees both facilities. For the line of credit, he pays prime plus 1%on the line of credit, which has a 30-day "cleanup" period. The term loan has a 7%fixed rate and a five-year maturity with 20-year amortization. Bob had asked for a $500 fee on the term loan, but Hy considered the fee a breaking point for the relationship, saying he would contact Hugo Bank's competitors if Bob insisted on collecting the fee.
Before he received the credit facilities, Hy supplied Bob with his personal financial statement, personal and business tax returns, a business plan, and internally prepared historical business financial statements. Hy admitted that while he had done his best in preparing the personal financial statements and business plan, he was no accountant. After reviewing what Hy had supplied, Bob asked Hy a few questions about the numbers and accounts, but he did not dig too deeply into accounts Hy was clearly unfamiliar with. Bob also checked Hy's personal credit score, which was 725. The loan amount was within Bob's credit approval limit, and he was able to tell Hy that he would have the documents to sign and could give him his money the next day.
At the loan closing, Hy signed promissory notes for the line of credit and for the term loan, along with credit agreements for each, a mortgage, and a general business security agreement on the business assets. Hy was pleased that there were no covenants in the credit agreements, and he agreed to provide a copy of each year's business and personal tax return as well as financial statements whenever the bank requested them.
Hy and Bob were in frequent (business)contact when the credit facilities were first being approved, but not after. Hy was always busy at customer locations and had no need to talk to Bob; Bob called once to "check in " on the accounts, but Hy didn't see a need to respond. Hy used the bank's drive-up window and the ATM for deposits and cashing checks, and he mailed his monthly loan payment check to the bank's post office box. He also occasionally called the customer service number for transaction information. Bob's assistant sent a reminder letter each April, in response to which Hy mailed a copy of his tax return to Bob. When an acquaintance recently asked Hy where he banks, he replied that he banks with Bob Friendly at Hugo Bank.
Last week, Bob called Hy at home to say that he was now a commercial relationship manager at the Little Community Bank in Springfield. Bob said that Little Community Bank was a much better bank for small business people like Hy because everything is local--loan decision making and operations--and senior management is readily accessible. In fact, Bob wanted to introduce Hy to the bank's president, Sam Smart. Moreover, Bob wanted to propose to Hy a line at prime plus 0.25% and a mortgage at 6.25% fixed, with the maturity and terms otherwise the same. There would be no cost to Hy to switch the loans and open a business checking account. At their meeting, Hy agreed to switch his banking.
It's not that Hy feels any personal allegiance to Bob; nor did he have any problems with Hugo Bank. However, Bob had been helpful, Hy could save some interest, and Hy no longer knew anyone at Hugo Bank. Bob requested a payoff balance from Hugo Bank and sent them a check. Hy never talked to anyone at Hugo Bank to tell them he was thinking of changing his relationship, and he never said goodbye. Only after Hugo Bank was paid did Bob ask for financial information or have Hy sign any documentation. Hy wondered how Bob could move so quickly, but it really wasn't his concern.
For the small business customer, the distinction between owner and firm is minimal, and commercial lending may seem more like retail lending, entailing many of the same requirements. Let's consider Hy & Dry Gutter Service.
Hy Roller has operated his small business in Springfield for six years and has $750,000 in annual sales. The Springfield branch of Hugo Bank has banked the company for five years, ever since Hy responded to an ad offering a free checking account and a below-market rate on an installment loan. His relationship manager is Bob Friendly, an acquaintance from community activities.
Hy requested a check-based $8,000 business line of credit, unsecured and renewable annually, to meet working capital requirements, as well as a $50,000 term loan to buy a building and a new Ford F-150 truck. He agreed to pledge the truck as collateral for the term loan, and the bank filed a mortgage on the building. While the borrower on both facilities is Hy & Dry, Hy personally guarantees both facilities. For the line of credit, he pays prime plus 1%on the line of credit, which has a 30-day "cleanup" period. The term loan has a 7%fixed rate and a five-year maturity with 20-year amortization. Bob had asked for a $500 fee on the term loan, but Hy considered the fee a breaking point for the relationship, saying he would contact Hugo Bank's competitors if Bob insisted on collecting the fee.
Before he received the credit facilities, Hy supplied Bob with his personal financial statement, personal and business tax returns, a business plan, and internally prepared historical business financial statements. Hy admitted that while he had done his best in preparing the personal financial statements and business plan, he was no accountant. After reviewing what Hy had supplied, Bob asked Hy a few questions about the numbers and accounts, but he did not dig too deeply into accounts Hy was clearly unfamiliar with. Bob also checked Hy's personal credit score, which was 725. The loan amount was within Bob's credit approval limit, and he was able to tell Hy that he would have the documents to sign and could give him his money the next day.
At the loan closing, Hy signed promissory notes for the line of credit and for the term loan, along with credit agreements for each, a mortgage, and a general business security agreement on the business assets. Hy was pleased that there were no covenants in the credit agreements, and he agreed to provide a copy of each year's business and personal tax return as well as financial statements whenever the bank requested them.
Hy and Bob were in frequent (business)contact when the credit facilities were first being approved, but not after. Hy was always busy at customer locations and had no need to talk to Bob; Bob called once to "check in " on the accounts, but Hy didn't see a need to respond. Hy used the bank's drive-up window and the ATM for deposits and cashing checks, and he mailed his monthly loan payment check to the bank's post office box. He also occasionally called the customer service number for transaction information. Bob's assistant sent a reminder letter each April, in response to which Hy mailed a copy of his tax return to Bob. When an acquaintance recently asked Hy where he banks, he replied that he banks with Bob Friendly at Hugo Bank.
Last week, Bob called Hy at home to say that he was now a commercial relationship manager at the Little Community Bank in Springfield. Bob said that Little Community Bank was a much better bank for small business people like Hy because everything is local--loan decision making and operations--and senior management is readily accessible. In fact, Bob wanted to introduce Hy to the bank's president, Sam Smart. Moreover, Bob wanted to propose to Hy a line at prime plus 0.25% and a mortgage at 6.25% fixed, with the maturity and terms otherwise the same. There would be no cost to Hy to switch the loans and open a business checking account. At their meeting, Hy agreed to switch his banking.
It's not that Hy feels any personal allegiance to Bob; nor did he have any problems with Hugo Bank. However, Bob had been helpful, Hy could save some interest, and Hy no longer knew anyone at Hugo Bank. Bob requested a payoff balance from Hugo Bank and sent them a check. Hy never talked to anyone at Hugo Bank to tell them he was thinking of changing his relationship, and he never said goodbye. Only after Hugo Bank was paid did Bob ask for financial information or have Hy sign any documentation. Hy wondered how Bob could move so quickly, but it really wasn't his concern.
Comparison Sites - And Why You Should Use Them
In the bad old days businesses had the edge over consumers. The price you were quoted was the price you paid. Few people had the time or inclination to get more than a couple of quotes come insurance renewal time etc, and for most plain old loyalty (or is that inertia?) ruled the day.
The Internet changed all that. Now it was possible to get all the quotes you wanted from the comfort of your armchair, in minutes rather than hours or days.
Price comparison sites were an inevitable development in the evolution of Internet business. Essentially these sites are simply computer programs that collect your details once and submit them to multiple sites to find you the best deal - be it on insurance, consumer goods, utilities and just about everything else.
Price comparison sites are great and I unreservedly recommend them Here’s a couple of tips:
It’s always worth trying two or three such sites as not every site polls every supplier, but between them the top few will cover the vast majority.
Don’t just accept the cheapest deal you’re offered, be sure to read the small print to find out that it really does meet your demands, for example the cheapest insurance may have too high an excess or too many exclusions.
Rather bizarrely English insurance company Direct Line has chosen to exclude itself from price comparison sites and recently launched an advertising campaign deriding them as “middlemen”. In a manner of speaking that’s true, albeit automated rather than human ones. But who really cares about using a middleman so long as they get the best possible deal. My guess is Direct Line will eventually have to change its policy. Watch this space.
The Internet changed all that. Now it was possible to get all the quotes you wanted from the comfort of your armchair, in minutes rather than hours or days.
Price comparison sites were an inevitable development in the evolution of Internet business. Essentially these sites are simply computer programs that collect your details once and submit them to multiple sites to find you the best deal - be it on insurance, consumer goods, utilities and just about everything else.
Price comparison sites are great and I unreservedly recommend them Here’s a couple of tips:
It’s always worth trying two or three such sites as not every site polls every supplier, but between them the top few will cover the vast majority.
Don’t just accept the cheapest deal you’re offered, be sure to read the small print to find out that it really does meet your demands, for example the cheapest insurance may have too high an excess or too many exclusions.
Rather bizarrely English insurance company Direct Line has chosen to exclude itself from price comparison sites and recently launched an advertising campaign deriding them as “middlemen”. In a manner of speaking that’s true, albeit automated rather than human ones. But who really cares about using a middleman so long as they get the best possible deal. My guess is Direct Line will eventually have to change its policy. Watch this space.
Inertia - The Enemy Of Your Pocket
The other day I received a renewal quote for my house insurance for £430-odd (GBP). I was somewhat taken aback to find that my very modest home was being insured up to the value of £1,000,000 (GBP)!
Once I got over my shock I discovered that this was the maximum figure and had been applied to ensure that I remained covered despite England’s current rampant house price inflation. Fast though the cost of housing is rising, I think something pretty dramatic would have to happen for the 500% increase needed for me to take advantage of the maximum figure.
Of course I am sure that the insurance company quoted this figure with my best interests at heart, but I can’t help thinking that it is the poor that are subsidizing the rich by paying premiums for cover far in excess of what they need.
Anyway, to cut a long story short, I decided to take advantage of the Internet to shop around. With a few clicks I found in a couple of minutes was able to obtain a quote of £228 (GBP) including some very useful home emergency cover.
How many of us simply renew existing insurances and other contracts just because it’s convenient and we can’t be bothered to shop around? There may have been an excuse in the olden days, but now with the Internet, and the many fine price comparison sites we can find the best deal from the comfort of our armchair with a few clicks of the mouse and keyboard.
Inertia costs the consumer a small fortune and lines the pockets of service providers. Be a wise buyer, it’s easier than you think and may lead to significant savings.
[NB I do not work for moneysupermarket.com and do not receive any commissions from them for business arising from this posting]
Once I got over my shock I discovered that this was the maximum figure and had been applied to ensure that I remained covered despite England’s current rampant house price inflation. Fast though the cost of housing is rising, I think something pretty dramatic would have to happen for the 500% increase needed for me to take advantage of the maximum figure.
Of course I am sure that the insurance company quoted this figure with my best interests at heart, but I can’t help thinking that it is the poor that are subsidizing the rich by paying premiums for cover far in excess of what they need.
Anyway, to cut a long story short, I decided to take advantage of the Internet to shop around. With a few clicks I found in a couple of minutes was able to obtain a quote of £228 (GBP) including some very useful home emergency cover.
How many of us simply renew existing insurances and other contracts just because it’s convenient and we can’t be bothered to shop around? There may have been an excuse in the olden days, but now with the Internet, and the many fine price comparison sites we can find the best deal from the comfort of our armchair with a few clicks of the mouse and keyboard.
Inertia costs the consumer a small fortune and lines the pockets of service providers. Be a wise buyer, it’s easier than you think and may lead to significant savings.
[NB I do not work for moneysupermarket.com and do not receive any commissions from them for business arising from this posting]
Year End Financial Tips
When year-end is fast approaching, taking a few minutes to give your finances an once-over will help ease the post-holiday money hangover. By completing just a few tasks, you will save money on your taxes, make your tax preparation much less stressful and give you a bit more peace of mind during this hectic holiday season.
At Work
Use up your flex spending dollars at work. If you don’t, you will lose it! This is for those extra medical expenses (eyeglasses, prescriptions). Don't miss out on saving those hard earned dollars. Schedule those doctors’ appointments or get those new glasses you need. Plus, there are some over-the-counter drugs that some flex-plans cover, such as Claritin and Zantac. Check with your HR department about new items that are now covered. If your company offers a flex spending account and you don’t take advantage of it, you could be missing out on saving hard earned dollars. If you are self-employed, you can check out a medical savings account to get similar benefits. If you haven’t already, maximize your retirement contributions for your 401(k) or self-employed retirement plan. Also, if you have moved recently, let your employer (or previous) know therefore you can get all your W-2 forms together. This will save you so much time when you are doing your taxes.
At Home
It’s time to clean out your closet. Donate any clothing or other items you don't use any more to your favorite charity. It is a great tax deduction! Make sure you keep your receipts. You can also attend a charitable benefit (another reason to celebrate with friends and support a good cause). If you itemize your deductions, it should help save money on your taxes. Consider setting up an automatic savings plan. Why not get a head start on your New Year's Resolutions? Start small, $50 a month, and then raise it in 6 months. You will be saving so much money without even thinking about it. If you already have one, raise the monthly contributions by $100.
Your Investments If you are expecting a tax refund, get your paperwork together now (i.e. charitable donations, work-related expenses, brokerage account statements, medical receipts)! You will have a head start on collecting your refund - and putting it straight into the bank - which will save you time and get you your money sooner. Even if you are not expecting a refund, this is a good time to start collecting information for your taxes. You should also put off buying any mutual funds for your taxable accounts until January 1st. Many mutual funds declare capital gains in December and you could be hit with a tax bill right away.
At Work
Use up your flex spending dollars at work. If you don’t, you will lose it! This is for those extra medical expenses (eyeglasses, prescriptions). Don't miss out on saving those hard earned dollars. Schedule those doctors’ appointments or get those new glasses you need. Plus, there are some over-the-counter drugs that some flex-plans cover, such as Claritin and Zantac. Check with your HR department about new items that are now covered. If your company offers a flex spending account and you don’t take advantage of it, you could be missing out on saving hard earned dollars. If you are self-employed, you can check out a medical savings account to get similar benefits. If you haven’t already, maximize your retirement contributions for your 401(k) or self-employed retirement plan. Also, if you have moved recently, let your employer (or previous) know therefore you can get all your W-2 forms together. This will save you so much time when you are doing your taxes.
At Home
It’s time to clean out your closet. Donate any clothing or other items you don't use any more to your favorite charity. It is a great tax deduction! Make sure you keep your receipts. You can also attend a charitable benefit (another reason to celebrate with friends and support a good cause). If you itemize your deductions, it should help save money on your taxes. Consider setting up an automatic savings plan. Why not get a head start on your New Year's Resolutions? Start small, $50 a month, and then raise it in 6 months. You will be saving so much money without even thinking about it. If you already have one, raise the monthly contributions by $100.
Your Investments If you are expecting a tax refund, get your paperwork together now (i.e. charitable donations, work-related expenses, brokerage account statements, medical receipts)! You will have a head start on collecting your refund - and putting it straight into the bank - which will save you time and get you your money sooner. Even if you are not expecting a refund, this is a good time to start collecting information for your taxes. You should also put off buying any mutual funds for your taxable accounts until January 1st. Many mutual funds declare capital gains in December and you could be hit with a tax bill right away.
To ROTH Or Not To ROTH
Even though the ROTH IRA has been around for a few years, it still holds an allure and I am always asked about it. If you qualify, I am a big fan of the ROTH IRA. The ROTH IRA is an individual retirement account with special tax benefits. Your contributions are made with after-tax dollars, they grow tax-deferred but when you start withdrawing the money, it is TAX-FREE. Because it is an account, you can invest in whatever you like (mutual funds, stocks, bonds). As of 2006, you are able to contribute up to $4,000 per year. If you are over 50, you can contribute up to $5,000. This will continue to increase over the next few years.
You can only contribute to or open a ROTH IRA if you make less than $95,000 as a single person or $150,000 as a couple. If you make more than $95,000 the next year, you can't add any more money to your existing ROTH IRA. However, nothing will happen to your existing ROTH IRA. You have to open a Traditional IRA. If you have a year in the future where your income dips below $95,000 you can add to your ROTH IRA again.
You are eligible to start withdrawing money from your ROTH IRA penalty free after age 59 1/2. If you need the money before that, you will be charged a 10% penalty only on ROTH IRA earnings. One of the great benefits about a ROTH IRA is that there is no age where you are required to begin taking withdrawals. With other IRAs and 401ks, you are required to start taking a minimum distribution at age 70 1/2, but there is no age limit with the ROTH IRA. Another great thing about the ROTH IRA is that if the principal has been in the account for at least five years, you don't pay any penalty to take the money out. You also don't pay any penalty if it is used for a first home, qualified education expense or certain hardships.
If you currently have a Traditional IRA and want to convert it to a ROTH IRA, beware, because you will be hit with a tax bill. Make sure you understand the impact of taxes before making this decision. You can transfer your ROTH IRA from one firm to another. As long as it stays in it's ROTH IRA form, you can transfer it as much as you like. In addition, you can change the investments within your ROTH IRA whenever you like as well.
Other than that, a ROTH IRA is the same as a Traditional IRA or 401(k) in that the money grows tax-deferred and is a great retirement savings vehicle. To understand more about what to invest in an IRA or where to open an IRA, see “Making Your IRA Count”.
You can only contribute to or open a ROTH IRA if you make less than $95,000 as a single person or $150,000 as a couple. If you make more than $95,000 the next year, you can't add any more money to your existing ROTH IRA. However, nothing will happen to your existing ROTH IRA. You have to open a Traditional IRA. If you have a year in the future where your income dips below $95,000 you can add to your ROTH IRA again.
You are eligible to start withdrawing money from your ROTH IRA penalty free after age 59 1/2. If you need the money before that, you will be charged a 10% penalty only on ROTH IRA earnings. One of the great benefits about a ROTH IRA is that there is no age where you are required to begin taking withdrawals. With other IRAs and 401ks, you are required to start taking a minimum distribution at age 70 1/2, but there is no age limit with the ROTH IRA. Another great thing about the ROTH IRA is that if the principal has been in the account for at least five years, you don't pay any penalty to take the money out. You also don't pay any penalty if it is used for a first home, qualified education expense or certain hardships.
If you currently have a Traditional IRA and want to convert it to a ROTH IRA, beware, because you will be hit with a tax bill. Make sure you understand the impact of taxes before making this decision. You can transfer your ROTH IRA from one firm to another. As long as it stays in it's ROTH IRA form, you can transfer it as much as you like. In addition, you can change the investments within your ROTH IRA whenever you like as well.
Other than that, a ROTH IRA is the same as a Traditional IRA or 401(k) in that the money grows tax-deferred and is a great retirement savings vehicle. To understand more about what to invest in an IRA or where to open an IRA, see “Making Your IRA Count”.
Year End Financial Tips
When year-end is fast approaching, taking a few minutes to give your finances an once-over will help ease the post-holiday money hangover. By completing just a few tasks, you will save money on your taxes, make your tax preparation much less stressful and give you a bit more peace of mind during this hectic holiday season.
At Work
Use up your flex spending dollars at work. If you don’t, you will lose it! This is for those extra medical expenses (eyeglasses, prescriptions). Don't miss out on saving those hard earned dollars. Schedule those doctors’ appointments or get those new glasses you need. Plus, there are some over-the-counter drugs that some flex-plans cover, such as Claritin and Zantac. Check with your HR department about new items that are now covered. If your company offers a flex spending account and you don’t take advantage of it, you could be missing out on saving hard earned dollars. If you are self-employed, you can check out a medical savings account to get similar benefits. If you haven’t already, maximize your retirement contributions for your 401(k) or self-employed retirement plan. Also, if you have moved recently, let your employer (or previous) know therefore you can get all your W-2 forms together. This will save you so much time when you are doing your taxes.
At Home
It’s time to clean out your closet. Donate any clothing or other items you don't use any more to your favorite charity. It is a great tax deduction! Make sure you keep your receipts. You can also attend a charitable benefit (another reason to celebrate with friends and support a good cause). If you itemize your deductions, it should help save money on your taxes. Consider setting up an automatic savings plan. Why not get a head start on your New Year's Resolutions? Start small, $50 a month, and then raise it in 6 months. You will be saving so much money without even thinking about it. If you already have one, raise the monthly contributions by $100.
Your Investments If you are expecting a tax refund, get your paperwork together now (i.e. charitable donations, work-related expenses, brokerage account statements, medical receipts)! You will have a head start on collecting your refund - and putting it straight into the bank - which will save you time and get you your money sooner. Even if you are not expecting a refund, this is a good time to start collecting information for your taxes. You should also put off buying any mutual funds for your taxable accounts until January 1st. Many mutual funds declare capital gains in December and you could be hit with a tax bill right away.
At Work
Use up your flex spending dollars at work. If you don’t, you will lose it! This is for those extra medical expenses (eyeglasses, prescriptions). Don't miss out on saving those hard earned dollars. Schedule those doctors’ appointments or get those new glasses you need. Plus, there are some over-the-counter drugs that some flex-plans cover, such as Claritin and Zantac. Check with your HR department about new items that are now covered. If your company offers a flex spending account and you don’t take advantage of it, you could be missing out on saving hard earned dollars. If you are self-employed, you can check out a medical savings account to get similar benefits. If you haven’t already, maximize your retirement contributions for your 401(k) or self-employed retirement plan. Also, if you have moved recently, let your employer (or previous) know therefore you can get all your W-2 forms together. This will save you so much time when you are doing your taxes.
At Home
It’s time to clean out your closet. Donate any clothing or other items you don't use any more to your favorite charity. It is a great tax deduction! Make sure you keep your receipts. You can also attend a charitable benefit (another reason to celebrate with friends and support a good cause). If you itemize your deductions, it should help save money on your taxes. Consider setting up an automatic savings plan. Why not get a head start on your New Year's Resolutions? Start small, $50 a month, and then raise it in 6 months. You will be saving so much money without even thinking about it. If you already have one, raise the monthly contributions by $100.
Your Investments If you are expecting a tax refund, get your paperwork together now (i.e. charitable donations, work-related expenses, brokerage account statements, medical receipts)! You will have a head start on collecting your refund - and putting it straight into the bank - which will save you time and get you your money sooner. Even if you are not expecting a refund, this is a good time to start collecting information for your taxes. You should also put off buying any mutual funds for your taxable accounts until January 1st. Many mutual funds declare capital gains in December and you could be hit with a tax bill right away.
To ROTH Or Not To ROTH
Even though the ROTH IRA has been around for a few years, it still holds an allure and I am always asked about it. If you qualify, I am a big fan of the ROTH IRA. The ROTH IRA is an individual retirement account with special tax benefits. Your contributions are made with after-tax dollars, they grow tax-deferred but when you start withdrawing the money, it is TAX-FREE. Because it is an account, you can invest in whatever you like (mutual funds, stocks, bonds). As of 2006, you are able to contribute up to $4,000 per year. If you are over 50, you can contribute up to $5,000. This will continue to increase over the next few years.
You can only contribute to or open a ROTH IRA if you make less than $95,000 as a single person or $150,000 as a couple. If you make more than $95,000 the next year, you can't add any more money to your existing ROTH IRA. However, nothing will happen to your existing ROTH IRA. You have to open a Traditional IRA. If you have a year in the future where your income dips below $95,000 you can add to your ROTH IRA again.
You are eligible to start withdrawing money from your ROTH IRA penalty free after age 59 1/2. If you need the money before that, you will be charged a 10% penalty only on ROTH IRA earnings. One of the great benefits about a ROTH IRA is that there is no age where you are required to begin taking withdrawals. With other IRAs and 401ks, you are required to start taking a minimum distribution at age 70 1/2, but there is no age limit with the ROTH IRA. Another great thing about the ROTH IRA is that if the principal has been in the account for at least five years, you don't pay any penalty to take the money out. You also don't pay any penalty if it is used for a first home, qualified education expense or certain hardships.
If you currently have a Traditional IRA and want to convert it to a ROTH IRA, beware, because you will be hit with a tax bill. Make sure you understand the impact of taxes before making this decision. You can transfer your ROTH IRA from one firm to another. As long as it stays in it's ROTH IRA form, you can transfer it as much as you like. In addition, you can change the investments within your ROTH IRA whenever you like as well.
Other than that, a ROTH IRA is the same as a Traditional IRA or 401(k) in that the money grows tax-deferred and is a great retirement savings vehicle. To understand more about what to invest in an IRA or where to open an IRA, see “Making Your IRA Count”.
You can only contribute to or open a ROTH IRA if you make less than $95,000 as a single person or $150,000 as a couple. If you make more than $95,000 the next year, you can't add any more money to your existing ROTH IRA. However, nothing will happen to your existing ROTH IRA. You have to open a Traditional IRA. If you have a year in the future where your income dips below $95,000 you can add to your ROTH IRA again.
You are eligible to start withdrawing money from your ROTH IRA penalty free after age 59 1/2. If you need the money before that, you will be charged a 10% penalty only on ROTH IRA earnings. One of the great benefits about a ROTH IRA is that there is no age where you are required to begin taking withdrawals. With other IRAs and 401ks, you are required to start taking a minimum distribution at age 70 1/2, but there is no age limit with the ROTH IRA. Another great thing about the ROTH IRA is that if the principal has been in the account for at least five years, you don't pay any penalty to take the money out. You also don't pay any penalty if it is used for a first home, qualified education expense or certain hardships.
If you currently have a Traditional IRA and want to convert it to a ROTH IRA, beware, because you will be hit with a tax bill. Make sure you understand the impact of taxes before making this decision. You can transfer your ROTH IRA from one firm to another. As long as it stays in it's ROTH IRA form, you can transfer it as much as you like. In addition, you can change the investments within your ROTH IRA whenever you like as well.
Other than that, a ROTH IRA is the same as a Traditional IRA or 401(k) in that the money grows tax-deferred and is a great retirement savings vehicle. To understand more about what to invest in an IRA or where to open an IRA, see “Making Your IRA Count”.
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