WHY ARE YOU BROKE... ?

When contemplating financial success, my mind tends to focus on the knowledge and skills needed -- the "what should I be doing" in order to achieve financial success concepts.  This past week I read an interesting blog post from MoneyPlan SOS that focused instead on the common mistakes people make -- the "what should I not be doing" if I want to get ahead.

Many of the issues he raises are very commonplace, "average" ways of thinking about money.  Perhaps there is a good reason the "average" person isn't in a very enviable financial situation ... ??  Some food for thought at least.

Things people say that keep them broke ...

 1.  I'm too __________ (old, young, ... broke) to save money.

 2.  I deserve __________.

 3.  I did it to improve my credit score.

 4.  My student loan/mortgage is "Good debt."

 5.  He told me I would __________.

 6.  The "Little Man" can't get ahead.

 7.  I can write off the interest on my taxes.

 8.  How much a month?

 9.  I have retirement covered, Social Security __________.

10. When I __________, then I'll be able to __________.

RENTERS INSURANCE

(Source: Insurance Information Institute)

Did you know…
Nearly 2/3 of those living in U.S. rental properties are without renters insurance (Source: Independent Insurance Agents & Brokers of America).

Renters insurance provides financial protection against the loss or destruction of your possessions when you rent a house or apartment. While your landlord may be sympathetic to a burglary or a fire, destruction or loss of your possessions is not usually covered by your landlord’s insurance. Because in most cases, renters insurance covers only the value of your belongings, not the physical building, the premium is relatively inexpensive (usually about $150-$300 per year).

By purchasing renters insurance, your possessions are covered against losses from fire or smoke, lightning, vandalism, theft, explosion, windstorm and water damage (not including floods). Like homeowners insurance, renters insurance also covers your responsibility to other people injured at your home or elsewhere by you, a family member, or your pet, and pays legal defense costs if you are taken to court.

Renters insurance covers the additional living expenses if you are unable to live in your apartment because of a fire or other covered peril. Most policies will reimburse you the difference between your additional living expenses and your normal living expenses but still may set limits as to the amount they will pay.

There are two general types of renters insurance policies you may purchase:
1. Actual Cash Value – pays to replace your home or possessions minus a deduction for depreciation up to the limit of your policy.

2. Replacement Cost – pays the actual cost of replacing your home or possessions (no deduction for depreciation) up to the limit of your policy.

With either policy, you may want to consider purchasing a “floater.” A standard renters policy offers only limited coverage for expensive items such as jewelry. If you own property that exceeds these limits, it makes sense to supplement your policy with a floater. A floater is a separate policy that provides additional insurance for your valuables and covers them for perils not included in your policy such as accidental loss.

Other Resources:
Your State Department of Insurance is a great, informational resource:
Find your State's Department: http://www.naic.org/state_web_map.htm

FINANCIAL BENEFITS OF COMPETITION

In my life, I have found competition to be healthy - on the racquetball court, at work ... it motivates me to be better. I've also found it to be of great benefit in my financial life. Competition motivates companies to offer lower interest rates and fees, lower insurance premiums, lower commissions, better products, or suffer the consequences (lost business opportunities). That should be a pretty strong motivator!

Value of Competition.
Earlier in the week (05/04/10), Vanguard announced a dramatic reduction in their commissions charged on stock trades as well as commission-free trades on Vanguard ETF (exchange traded fund) transactions. Viewed in isolation, this would be big news. In reality, this is just one more domino to fall in the name of competition ... Vanguard was merely following the lead of Fidelity and Schwab, a couple of its primary rivals.

Fidelity Headline (February 3, 2010). "Trade 25 ETFs -- Commission Free" ...

Schwab Headline (November 2, 2009). "Schwab rolls out free-trade ETFs" ...

Healthy competition tends to bring out the best in individuals and companies. When companies compete, consumers win ...

A BEST WAY TO GET OUT OF DEBT?

Is one way better than another to get rid of debt? The answer to your question will likely differ depending on who you ask.

“FINANCIAL” METHOD. Nearly every "financial" person will advise that debts should be paid off in a particular order -- start with highest interest rate and move to the lowest interest rate (done by rolling the payment from one debt to another as debts are paid off). While this method makes perfect sense from a mathematical point of view, more and more people are finding that there is another method [often overlooked] that works better for their psyche ...

PSYCHOLOGICAL METHOD. This system of debt repayment, popularized by Dave Ramsey, is often referred to as the debt snowball. This method organizes one’s debt from the smallest balance to the largest balance. This method will not likely save the most money or time (as the interest rates are not likely to align in that manner), but many find this approach very empowering and motivating because they see progress quickly (envision being on a diet where you are seeing progress quickly ... becomes much easier to stick with it). Focusing on the smallest balance first will accomplish this end by providing some quick victories.

In using either of these methods, pay the minimum amount on all debts except for your “focus” debt (smallest balance in psychological method; highest interest rate in financial method); pay as much as possible on the focus debt until it is eliminated and then approach the next debt in the list with similar intensity. As debts are eliminated, the debt snowball will get bigger and bigger.

I’m not arguing against the merits of the financial method as outlined above. Obviously, if someone has the discipline to adhere to the plan, you’ll save the most time and the most in interest expenses by following its tenets. The psychological method merely takes a seemingly more “human” approach to finances that suggests that people will be more likely to stick with their ‘financial diet’ if they see those ‘debt pounds’ coming off quickly. That is what Personal Finance is all about – doing what works best for you - which very well may be something different than the next person. The point is to get out of debt [the end]; don't get caught up in the means to the end. How you decide to do it is much less important than actually doing it!

PowerPay, a free online tool developed by Utah State University Extension will allow you to play around with both of these debt repayment methods. I wrote a detailed explanation of the PowerPay system about a year ago if you're unfamiliar with it...

IDENTITY THEFT RESOURCES

Identity theft is an issue that is regularly in the news - over the past couple of years, I’ve written multiple financial tips on the potentially devastating effects of identity theft. It is frightening to think that there are more than 8 million "new" victims each year in the U.S. I’d like to review the general strategies available to consumers to help minimize ID theft that have been shared prior and discuss some resources.

Personally Viewing Your Credit Report. Every 12 months you can order a report from each credit reporting agency for free. Most consumer experts suggest staggering your reports (ordering one every four months). Use the free, official government site only: www.annualcreditreport.com, NOT freecreditreport.com.

Opt Out. One way to reduce the risk of ID theft is to reduce the number of solicitations you receive. You can opt out of credit card and phone solicitations easily - see tip post from earlier this month

Fraud Alert. This is a ‘flag’ you can place on your credit report after being victimized. This alerts potential creditors that you are a potential fraud victim. Unfortunately, creditors aren’t required to abide by [or even check] the alert.

Credit Monitoring Service. A service where an annual fee is assessed to tell you when people are viewing your credit file. Most services honestly don’t add much of a benefit beyond what you can do for free [see above].

Credit Freeze. This is a very intriguing option and the only viable option that allows you to stop ID theft before it happens rather than reacting to issues after they surface. Consumers Union has compiled a helpful Credit Freeze Guide that provides answers to frequently asked questions and discusses state by state procedures and information.

FDIC – “Don’t Be An On-line Victim” (free CD-ROM). Free resource on guarding yourself against internet thieves and electronic scams. The free CD-Rom can be ordered at the FDIC website.

The ID theft resource has seven sections:
- Introduction to identity theft
- Introduction to electronic scams
- Protecting your information
- Protecting your computer
- What to do if you are a victim
- Help for identity theft victims
- Resources

ADDITIONAL ID THEFT RESOURCES.
– Deter, Detect, Defend
– Fighting Back
– FTC ID Theft Site
– Guard Against Internet Fraud
– National Data
– Publications
– Resolving Specific Problems
– State Data
– Test Your Knowledge

OPTING OUT -- PHONE, MAIL, & CREDIT OFFERS

I don't think anyone would argue that being bombarded by solicitations can be extremely annoying. It's been almost two years since I shared resources for opting out of such unwanted solicitations and felt it was a good time for a reminder ...

The National Do Not Call Registry allows you to register both land lines and cell phones online at https://www.donotcall.gov or over the phone (1-888-382-1222 - calling from the number you are registering). Registration is free and used to be effective for five years. With the passing of the Do-Not-Call Improvement Act of 2007 (signed in Feb. 2008), numbers placed on the registry will be removed permanently (unless/until you opt in). Solicitors affected by the legislation are required to stop the calls to you within 31 days of registration.

Registration won't stop all telemarketer calls. Banks, phone companies, airlines, insurance companies, nonprofit charitable organizations, and politicians are not under the jurisdiction of the FTC, and won't be impacted by the list. In addition, the list only applies to calls across State lines. Sales calls within a State will still be permitted unless you also opt out of solicitations through your State do not call registry (a separate registration process unless your State integrated their list with the national one which some did when the Federal list was initiated in 2003). State info is available at: http://www.the-dma.org/government/donotcalllists.shtml.

Under the Fair Credit Reporting Act (FCRA), credit reporting agencies are permitted to include your name on lists used by creditors or insurers to make firm offers for credit or insurance. The FCRA also enables you to opt out, which prevents the credit reporting agencies from providing the information contained in your credit file to others if you so desire.

Here are two good ways to stop [or at least slow] offers for credit:

(1) Go to www.OptOutPrescreen.com (or call 888-5-optout). These are the credit reporting agencies opt in/opt out resources to stop the agencies from selling your information to direct marketers. You can opt out for a five-year period or permanently (you can always opt back in if you decide you miss the mail!). If you use the website provided, you can fill out a very brief, simple form to opt out. It will then provide a screen with the information you provided that you will need to print out, sign, and mail to the address provided in order to permanently opt out. If you don’t do that last step (print and mail), it will opt you out for a 5-year period instead.

(2) Direct Marketing Association (DMA) Do Not Mail file (https://www.dmachoice.org). The site also shares information for getting off of commercial e-mail lists.

Credit card companies get consumer information from other sources in addition to those mentioned above, so, while these two methods will considerably slow down credit card offers, the offers won't necessarily stop completely. For additional info, review the FAQ page for opting in/out at: https://www.optoutprescreen.com/faq.htm.

AVOID COMPOUNDING YOUR MISTAKES

About four years ago I wrote about a HORRIBLE investment product -- the H&R Block Express IRA. Anyone that has read anything I've written for any period of time knows how much I love the Roth IRA; a great way to save for retirement (making after-tax contributions that grow tax free)! H&R Block steered more than half a million people into a money losing IRA that the lawsuit that was filed against them described as an "unsuitable, fraudulently marketed, poorly performing, fee-ridden account that actually shrinks over time"... Fraudulently marketed seems pretty apparent given the fact that for the majority of participants, the fees exceeded their interest payments (that was the case for 85% of the accounts as of the time I wrote the original blog)! I've tried to wrap my arms around who this product might be appropriate for; sorry, I can't think of anyone who would be best served by a retirement account whose only investment option is a money market.

Obviously, the story of predators taking advantage of consumers is not a new one. It is painful given the fact that these are people that at a very base level did the right thing (investing their tax returns into an IRA). It is more painful because many of these people compounded their problem. When they realized the "scam" they pulled their money. Many of them closed their account, incurring termination fees from H&R Block, as well as tax penalties from the IRS since they cashed out the account rather than rolling it over to a "reputable" account.

I was pleased to read last month that H&R Block will refund nearly $20 million to those customers who bought the junky IRA product. If you are looking to roll over your account or open a new account. I have several past posts relating to quality companies - I've also supplied some additional links below.

Investing Resources
- Consumer-friendly Investment Company
- Financial Planning Resources

- Clark Howard Investing Guide
- Get Rich Slowly
- Mutual Fund Investor's Center

TAX ASSISTANCE

Numerous resources are available to assist the majority of taxpayers with free tax preparation assistance as well as free electronic filing of tax forms. Assistance is now available through the VITA (Volunteer Income Tax Assistance) Program, Tax Counseling for the Elderly (through AARP), and MilitaryOneSource (in addition to VITA) for members of the military. These free programs are a tremendous boon to consumers as they provide an avenue to avoid tax preparation fees as well as costly refund anticipation loans.

In addition to free assistance in preparing tax returns, most sites also provide free electronic tax filing (e-file). E-filing will also enable you to receive your refund more quickly; offering options for directly depositing the refund into checking, savings, IRAs, or splitting your refund between multiple accounts.

VITA.
The VITA Program offers free tax help to low- to moderate-income (generally, $49,000 and below) people needing assistance in preparing their own tax returns. VITA sites are generally located at community centers, libraries, schools, and other convenient/ accessible locations. To locate the nearest VITA site, call: 1-800-829-1040.

VITA FOR MILITARY PERSONNEL & FAMILIES.
The military also has a strong VITA Program. Marines, airmen, soldiers, sailors, guardsmen, and their families receive free tax preparation assistance at offices within their installations. These sites provide free tax information, tax preparation, and assistance to military members and their families. The primary distinction with this and other VITA sites is the ability to work with individuals that are trained and equipped to address military-specific tax issues.

TAX COUNSELING FOR THE ELDERLY.
The Tax Counseling for the Elderly (TCE) Program provides free tax help to people aged 60 and older. In conjunction with the IRS-sponsored TCE Program, AARP offers their Tax-Aide counseling program at more than 7,000 sites nationwide during the filing season (February 1 – April 15). Trained and certified AARP Tax-Aide volunteer counselors help people of low-to-middle income with special attention to those ages 60 and older. For more information on TCE call 1-800-829-1040. To locate the nearest AARP Tax-Aide site, call 1-888-227-7669 or visit the AARP Tax-Aide website.

ADDITIONAL TAX RESOURCES.
-- Current Tax Info (deductions, exemptions, tax brackets, etc.)
-- Do I Have To File? (often worthwhile even if you don’t “have to”)
-- Education Tax Benefits
-- Federal Tax Forms
-- Free File Online Tax Preparation Sites
-- State Tax Forms
-- Understanding Taxes (interactive IRS tutorial)

GETTING ORGANIZED

The beginning of a new year is a great time to put your financial house in order! Before discarding all of your files, however, you should know what documents to hold onto and for how long ...

The following are some general suggestions/guidelines about how long you should keep your personal finance records on file (Source -Bankrate.com)...

RECORD KEEPING RULES OF THUMB...

Bank Records. Keep from one year to permanently. Focus particular attention on those expenses related to taxes, such as business expenses and mortgage payments.

Bills. Keep from one year to permanently. In most cases, when the payment from a bill has cleared, you can get rid of the bill. Bills for large item purchases (jewelry, appliances, cars, furniture, computers, etc.) should be kept in an insurance file for proof of their value in the event of theft/loss or damage.

Brokerage Statements. Keep until you sell the securities. You need the purchase/sales slips from your stocks or mutual funds to prove whether you have capital gains or losses at tax time.

Credit Card Receipts and Statements. Keep from 45 days to 7 years. Keep your original receipts until you get your monthly statement; toss the receipts if the two match up. Keep the statements (with tax documents) for seven years if tax-related expenses are documented.

Home Documents. Keep from 6 years to permanently. Keep all records documenting the purchase price and the cost of all permanent improvements (remodeling, additions, and installations). Keep records of expenses incurred in selling and buying the property (such as legal fees and real estate commissions) for 6 years after you sell your home. Holding onto these records is important because any improvements you make on your house, as well as expenses in selling it are added to the original purchase price to determine your cost basis. This adds up to a greater profit when you sell your house, thus lowering your potential capital gains tax.

IRA Contributions. Keep indefinitely. If you have made a nondeductible contribution, keep the records indefinitely to prove that you already paid tax on this money when the time comes to withdraw.

Paycheck Stubs. Keep for one year. When you receive your annual earnings statement (W-2 or 1099) from your employer, make sure the information matches - if it does, toss the stubs, if it doesn't, request a corrected form.

Retirement Plan Statements. Keep from one year to permanently. Keep the quarterly statements from your 401(k) or other plan statements until you receive the annual summary ... if everything matches up, you can then toss the quarterly statements. Keep the annual summaries until you retire or close the account.

Tax Information. Keep returns, canceled checks/receipts, charitable contributions, mortgage interest and other information for 7 years. Why so long? The IRS has 3 years from your filing date to audit your return if it suspects good faith errors. They have 6 years to challenge your return if it thinks you underreported your gross income by 25% or more. There is no time limit if you failed to file or filed a fraudulent return.

ADDITIONAL RECORD KEEPING RESOURCES.
- Recordkeeping for Individuals (IRS Pub. 552)
- Record Keeping (Iowa State University Extension)

ARCHIVED TIPS (2009)

The beginning of a new year provides a great opportunity to look forward to the year ahead and identify areas for needed personal improvement; it also affords time to look back and review the financial and other missteps (growth opportunities) from the past year... As I have done in the past, I have created a topical/organized archive of tips from the past year. The links will allow you to easily review prior tips. You can also view a chronological archive of all my financial tips at the blog site or directly at:

--> 2008 Archive of Financial Tips
--> 2007 Archive of Financial Tips
--> 2006 Archive of Financial Tips


CREDIT MANAGEMENT.
- Credit C.A.R.D. Reform (05.2009)
- Disputing Credit Reporting Errors (01.2009)
- Fair Credit Billing Act (04.2009)
- First Wave of CC Changes (08.2009)
- FreeCreditReport .GOV (11.2009)
- Specialty Credit Reports (04.2009)
- Your Credit - What are Your Rights (03.2009)

DEBT MANAGEMENT.
- Debt Management Strategies (07.2009)
- Fair Debt Collection Practices Act (03.2009)
- Statute of Limitations on Debt (03.2009)

FINANCIAL/CONSUMER LITERACY.
- Becoming Financially Fit (12.2009)
- Consumer Action Handbook (07.2009)
- FINRA - Advocate for Investors (09.2009)
- 'My Money' Resources (05.2009)

FINANCIAL PLANNING.
- Consumer-Friendly Investment Company (11.2009)
- Free Planning Assistance (01.2009)
- Free Tax Assistance (02.2009)
- Index vs. Active Fund Management (05.2009)
- Mutual Funds (Prospectus into Perspective) (11.2009)
- Recharacterization = IRA 'Do-Over' (01.2009)
- Should You Convert (12.2009)
- 'Suitable' Investments (03.2009)
- What is Your 401(k) Costing You (08.2009)

INSURANCE.
- Creating a Home Inventory (04.2009)
- Gap Insurance (06.2009)

MONEY MANAGEMENT.
- $$ Information Hodge-Podge (09.2009)
- 2-1-1 - Locating Community Resources (09.2009)
- Financial Goals (08.2009)
- Flexible Spending Accounts (02.2009)
- High Yield Checking (04.2009)
- Is Extra Effort Worth it Financially (10.2009)
- Overdraft Fees - Constancy Amidst Change (10.2009)
- Rethinking Risk Tolerance (12.2009)
- Should I Refinance (05.2009)
- Staying Rational During an Emotional Time (02.2009)
- Truth in Lending (04.2009)

OTHER.
- Affinity Fraud (02.2009)
- Discount Travel Resources (06.2009)
- Financial Sites - My 'Faves' (10.2009)

STUDENT RESOURCES.
- Consolidating Private Student Loans (07.2009)
- Income-Based Repayment and Loan Forgiveness (06.2009)
- July 1 - Scheduled Student Loan Changes (06.2009)

FREE FINANCIAL PLANNING ASSISTANCE IN 2010

"JUMP-START YOUR RETIREMENT PLAN"
FREE FINANCIAL PLANNING ASSISTANCE

Kiplinger's Personal Finance & NAPFA
(FRIDAY, JANUARY 22 & TUESDAY, JANUARY 26)

For the ninth year, Kiplinger’s Personal Finance Magazine is working with the NAPFA (National Association of Personal Financial Advisors) Consumer Education Foundation to provide free, objective financial planning advice for consumers. The beginning of the New Year is a great time to get a financial checkup.

NAPFA (http://napfa.org) is the leading professional organization for fee-only financial advisors. Regardless of your current stage of life, this is a great opportunity to jumpstart your financial plan (and follow through on your New Years resolution!) and address questions you may have about retirement savings, estate planning, taxes, insurance, college savings, etc. Last year, thousands of people received assistance. Typically, fee-only planners charge an hourly rate of $150 to $300.

Make sure you have relevant documents on hand to make the most of your time. If your question(s) are too complex to be addressed on the spot, you may be directed to the NAPFA site to find a planner in your area. A planner can aid you in making rational [rather than emotional] financial decisions. The services are available to anyone.

Where do you go to obtain the free assistance?
*CALL – 888-919-2345
*ONLINE – http://www.kiplinger.com/links/jumpstart
Submit E-mail to enroll