How Many Credit Cards Should You Have?

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Credit cards are one financial topic that everyone has an opinion about.  Even people who don’t have much interest in finance will have some sort of take on credit cards.

Some people swear by them.  Other people swear AT them.  Some people use them for every transaction.  While others have never used one in their lives.

Credit cards are an ever present force in our society.  You can’t go on an airplane nowadays without being asked to sign up for the latest and greatest credit card.  Commercials, magazine ads and internet ads with credit card offers inundate us regularly.

And let’s not forget good old snail mail.  Everyone’s mailbox will eventually receive an offer for the latest sign up or balance transfer offer.  It’s inevitable.

I’ve written before about the utility of credit cards.  They are a tool, and just like any tool they can help you or hurt you depending on your use.

Almost all of us have credit cards.  The question is, how many should we have?  Can you have too many?  Or even too few?  Let’s take a look at the factors that will decide how many cards you should have.

1.  Life Experience

Right now, I have 36 credit cards open.  To most people, that may seem like a lot.  But believe it or not, to others that does not seem like that much.  You’ll find out later why that number is just right for me.

I got my first credit card at age 19.  It was a gas station credit card that gave a whopping 2% cash back at BP gas stations.  I didn’t know much about personal finance (or life) at 19, so I thought that card was all I needed.

I would not have been able to handle more than one card at that time, let alone 30+.  I just didn’t know enough about how life worked to be able to handle more.  So life experience is definitely a key ingredient for being able to handle many credit cards.

2.  *****Paying off your balance in full******

Notice the asterisks.  This is THE KEY factor that will determine if you can handle many credit cards, or none at all.  Being able to use credit cards is not a right but a privilege.  And the privilege comes from NOT being the type of person that gets into credit card debt.

Credit card debt is expensive.  It’s one of the most expensive type of debts out there short of owing a loan shark.  And most of Americans have it.

I won’t go all Dave Ramsey on you and say no one should have credit cards.  But if you routinely do not pay off your balances in full, you should not have a credit card.  Period.

Credit card interest rates are insane.  Cards on the “low end” will be about 8%, while many cards can easily approach 30%.  No one should be carrying this type of debt.  So if you carry any type of credit card debt, unless it’s a 0% promotional offer, you need to pay that off ASAP.

And don’t make it worse by racking up more credit card debt.

3.  Credit Score

When it comes to having credit cards, your credit score is a key factor.  If you want to be approved for many credit cards, you need to have a high credit score and a credit history clear of any delinquent activity.  A long history of on time payments helps too.

And contrary to popular belief, having lots of credit cards DOES NOT lower your credit score.  While opening up some new credit will temporarily lower your score by a few points, it will not hurt it in any appreciable way.

The most important factors in one’s credit score are on time payments and credit utilization ratio (this is straight from the people at FICO).  Having many credit cards helps BOTH of these categories.

Having lots of on time payments will help your credit score.  And having lots of cards, but not using most of them, will keep your credit utilization percentage very low.

My credit score has skyrocketed ever since I started applying for credit cards.  And that’s because I always try to pay on time and only use the cards when I need them.

4.  Rewards Chasing

This is the only, and most lucrative, reason anyone should have many credit cards.  As you can tell by just checking your mail once in a while, credit cards love offering sign up bonuses.  Those offers that say something like “Spend $2,000 in 3 months and get 10,000 points”.

These offers are real money makers for credit card companies.  While they are giving up a little in terms of points or cash back, they get that back and then some with swipe fees and interest payments.  And many people don’t even redeem their reward points anyway.  The credit card companies have everything to gain.

But if you’re disciplined enough not to overspend and always pay off your balance in full, the consumer stands to gain a little as well.  There are many really bad sign up offers.  But there are some great ones as well.  The key is to find the great ones, do just enough to meet the sign up offer, and then store the credit card away if it’s not useful for you. (Frequent Miler is my go to resource for this).

Using this method, I’ve been able to take my family on many flights and hotels for almost nothing.  I’ve also gotten a good amount of cash back rewards (which are tax free!).  So reward chasing has definitely been worth it.

But it’s only worth it if you maintain your great credit score and never carry a balance.  Interest rates on rewards credit cards are notoriously high.  If you end up carrying a balance on a rewards card, it will quickly negate any sort of rewards you earn.

5.  Organization

The last important thing you need in order to be able to handle many credit cards is being organized.  This is especially important for rewards cards since they can have annual fees that can be avoided if you close them on time.

A simple spreadsheet will do just fine.  I use one that has the date I applied for the card, the sign up bonus requirements, any annual fees and when I closed the card.  Trying to do all of this in your head will eventually lead to a mistake.

And you need a central place for all of your credit cards.  I currently store them in an old checkbook box.  But I think I may need to upgrade to a shoebox.  Or you can just have a drawer with all of your unused cards.  Just keep them all in one place away from your kids.

So how many cards SHOULD you have?

It depends.  I know, I hate that answer just as much as everybody else.  But it’s true.  There are some people that have no business having more than one card.  Or any cards at all.  People who regularly carry balances fall under this category.

And then there are others who can seamlessly handle 50 cards at any time.  It takes a good understanding of your personal financial system and a lot of organization.

Plus, it has to be worth your while.  And chasing the best of the best rewards can definitely be worth it.  So if you don’t feel you can handle many credit cards, no need to despair.  Just do what you’re comfortable with at the moment but make it a point to learn about the credit card industry and how you can use it to help your finances.

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Filed Under: Credit cards

My Favorite Student Loan Calculator

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This is going to be a short post, but it should help a lot of people.

Since I’m a finance nerd and think about debt payoff and investing a lot, financial calculators take up a lot of my time.  While there are a lot of good investing calculators out there, I could never find a nice debt payoff calculator.  Here’s what I look for in a good debt calculator:

-The ability to enter multiple loans with different interest rates.  This is really helpful for people with student loans.  Sadly, most calculators don’t even have this seemingly basic feature.

-A graphic representation of my current loans and when they will be paid off.

-The ability to see the effect of increasing or decreasing your extra loan payment on your loan payoff date.

Ready For Zero had a program that did exactly this, and it was great!  I used it for a few years until they suddenly stopped offering it this year.  Huge bummer.

I searched futilely for a similar calculator with no luck.  Recently, I tried to search for a calculator again and an old friend resurfaced…

Unbury.me

I wrote about unbury.me a few years back because the calculator had everything I wanted.  It even showed how much more time and money you’d save by using a debt avalanche instead of a snowball!  It was a very no frills and basic looking calculator but it got the job done.

Like Ready For Zero, it mysteriously disappeared.  But now it’s back with a nice updated look.  Here is a look at the home page:

Everything I want is right there on the home page looking all simple and clean.  From here you can add as many loans as you want and enter the balance, interest rate and monthly payment.  And you can select if you want to pay them off using the avalanche (highest interest loan first) or snowball (lowest balance loan first) method.

Once you enter your information, you’ll be redirected to a cool dashboard with a lot of nice colorful looking graphs.  It’s a nice little control center that gives you a ton of good information.

But the best part is the top of the dashboard which looks like this:

All the information I need in a nice little toolbar.  I love being able to see the exact month my loans will be gone (less than 2 years!)

There are a lot of other cool graphs and numbers to play with.  Number junkies like myself will spend a lot of time on this site.

Having a good student loan calculator like this can be a very motivating factor in paying off your loans quickly.  It’s great seeing the exact month you will be debt free and the powerful effect of paying more on your highest interest loan.

I recommend setting aside a nice half hour to enter all of your student loans and looking at all the nice graphs they have on here.  Another feature is that you can create a profile and save all of your info.  Saves having to re-enter all of your loans again.  Unbury.me is simply an awesome student loan calculator.  Enjoy!

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Filed Under: Student Loans

Pay Off Debt With a Strategy

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Debt is a way of life in America.  It’s easy to acquire and everyone has got it.  The vast majority of people buy homes and cars with debt.  It’s almost impossible to go to college with no student loan debt, especially for any type of graduate or professional school.

People are comfortable with debt, even high interest credit card debt.  And that is a problem.  But that’s for another post.

The problem I want to discuss in this post is how people pay off debt.  And the big problem is that many people, even high income professionals, have no debt payoff strategy.  They usually pay the minimum and then maybe (or maybe not) throw some extra money once in a while at the debt.

This is very inefficient since there are certain types of debt that should be paid off first and there are certain debts that are actually okay to have around.  Some debts should take priority in being paid off over others.

Having a clear debt payoff strategy will allow you to get out of debt faster and, most importantly, minimize the stress associated with having debt.  A debt payoff strategy will allow you to know how much you will end up paying in interest payments and how long you will be paying the debt off.

Here are three debt strategies to consider:

Strategy #1:  Pay the minimum and pray

This seems to be the strategy favored by most Americans.  Safe to say I don’t recommend it.

It can be soul crushing to just get by paying the minimum payment while knowing there are decades of debt in your future.  Probably why most people just try to forget their debt even though it’s eroding their wealth.

Let’s just move on to the next method.

Strategy#2:  Snowball method

The snowball method was popularized by Dave Ramsey and is perpetuated by his rabid followers.  I don’t agree with a lot of things Dave says (such as not having credit cards), but the snowball method is one of the good things he’s put forward.

(Quick tangent:  I’m not a big fan of these finance “icons” or “gurus” like Dave Ramsey or Suze Orman.  The reason is that they are not genuine.  They did not get wealthy by doing what they tell their followers.  Things like “save up a $1,000 emergency fund” and “get your 401k match!” is good advice, but it’s not how Dave Ramsey got rich.

He got rich by putting all of his energy into growing his business.  He got rich by selling products and building his empire, not by creating an emergency fund.  And I’m pretty certain he laughs at the idea of an emergency fund.  Same goes for Suze and any other larger than life finance guru.

They’re business people and they got wealthy by focusing on that.  I would respect these guys a lot more if they were sincere in helping people.  But all they do is create books and courses for the “working man” that have the same old advice in a shiny new package.  Rant over.)

I’m on to you Dave…

The snowball method is simply making a list of your debts by balance, and focusing on paying off the one with the lowest balance.  Obviously, you make the minimum payment on the rest of the loans to keep them current and avoid late fees.

But then you throw everything you can at the loan with the lowest balance.  When that is paid off, you roll (like a snowball!) the minimum payment of the paid off loan into the loan with the next lowest balance.  And proceed to obliterate it with all you have.

I used to dismiss the snowball method because technically it’s not the mathematically best way to get out of debt.  But money is so much about psychology that having a system like this that propels you forward is much better than being discouraged by debt and not having a strategy at all.

Seeing those low balance debts disappear does have a positive effect on your psyche and will keep you in the fight.  For debt payoff novices especially, I would recommend the snowball method.  Just put your head down and plug away at the lowest balance debt and move on to the next.

Strategy#3:  Avalanche method

The absolute mathematically quickest way to get out of debt is the Avalanche method.  It’s the method I use and it has saved me tons in interest.  I’m not sure who coined the term, but I like the idea of an avalanche destroying my debt as opposed to a snowball.

With the Avalanche method, you list your debts in order from highest interest rate to lowest.  Every month you would pay the minimum on all your debts, and focus on eliminating the debt with the highest interest rate.  Then you turn that minimum payment around into the debt with the next highest interest rate.

This is the quickest way to get out of debt.  There’s no argument about that.  But it does require some more upfront work with no apparent payoff in the form of more money.  But once you eliminate the first few higher interest debts, the rest will be engulfed in the avalanche in no time.

The best method

Too many people are in denial about their debt.  I see this a lot regarding student loans.  Doctors and lawyers usually have very high student loan debt.  We’re talking six figures easily.  This kind of debt can seem crushing and it would be easy to turn a blind eye and just make the minimum payment month after month.

That’s a surefire way to pay the most interest possible over your lifetime.  Having a debt payoff plan at all would be great progress for a lot of people.  So using either the snowball or avalanche method is fine by me.  But I think the best way to pay off the debt would be a hybrid version of the two.

How this would work is focus on paying off the first couple of low balance debts to get some progress under your belt.  Once you do that, shift your focus to your highest interest debt to really attack that total balance.  So start with the snowball and switch to the avalanche.  It’ll feel much better to be out of debt in a few years rather than a few decades!

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Filed Under: Investing, Personal Finance

Plan Out Your Paycheck

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The key to getting ahead financially is to spend less than you earn.  There is literally no other way to achieve financial freedom.  This applies to billionaires and regular old working people.

But it’s not easy.  We hear about the athletes and actors who are in debt because of overspending despite making millions of dollars over their careers. If you make $10 million but spend $11 million, you are not in good shape.

However, this is a problem for people of all income levels.  Things like credit cards, mortgages and other personal loans have made it super easy to spend more than you earn.  Easy access to credit makes people more greedy for things like fancy cars and big houses which can create more debt.

A big reason why Americans find it difficult to save our hard earned, and highly taxed (federal tax, state tax AND sales tax!) money is that very little planning is done when receiving that bi-weekly paycheck.  Everyone looks forward to Friday payday but for most people the money hits their checking account with no thought to where it’s going next.

And this is where the trouble begins.  Most of the time that money just gets spent on various bills.  And nothing is left over for savings.  Rinse lather and repeat every 2 weeks.

Now it’s easy to see why lack of planning is a big reason people have a hard time saving.  So what’s the solution?

Checking is the Central Hub

I like to think of my checking account as the control center of my finances.  Money goes in and is then distributed to where it needs to go.  It’s not a place where I like to park money since I like to have my money either invested or paying off debt.

This requires a mindset shift since most people, including my past self, just park their money in checking and paid bills as they came in and tried to save if possible.  Not a real financial strategy since most of the time you’re just trying to keep your head above water.

I consider this a very REACTIVE way to handle your paycheck.  You just kind of pay bills as they show up and have no real savings strategy.  Worse, any extra money that happens to be sitting in checking usually just gets spent.

A more PROACTIVE way to handle your paycheck is to have multiple destinations set up before the money arrives.  That way you can be sure money gets where it needs to be according to your financial goals.

Pay Yourself First Every time

Most people have heard the financial cliche “pay yourself first”.  It’s another core financial concept just like “spend less than you earn”.  While both of these sayings sound fun and useful, they can be difficult to implement.  While most people WANT to save, it just doesn’t end up happening (evidenced by the fact that the average American saves less than 5% of their income).

So if you can’t will your way to save, the next best thing is to get out of your own way and let robots do the work.  This is done through automatic saving and investment plans which are very easy to set up.

Want to save $500 a month in your emergency savings plan?  Set up an automatic monthly deposit.  Finally want to max out your Roth IRA?  Just start a monthly transfer from your brokers website for a $458.33 monthly transfer from your checking account (That’s the $5,500 IRA max divided by 12 months).

You can also set up automatic payments for your credit cards.  This way you’ll never have a late payment and you can use the full grace period the card issuer gives.

It might take a few months to get all of your major goals and bills set up but once you do, money will be moving in and out like clockwork.  You’ll be able to meet your financial goals with a minimal amount of maintenance needed.

And that’s the best way to pay yourself first.  Set up automatic transfers into all of the different accounts you want to save into.  Those transactions should shape how much you spend.  Unfortunately, most people just save whatever they can AFTER they have spent to their heart’s content.

There’s usually not much left for savings after that.

Conclusion

“Spend less than you earn” and “pay yourself first” are two common personal finance phrases that are difficult to put into action.  But these are the two things you have to do in order to meet your financial goals.

The best way I’ve found to do both of these things is to have a plan for any money that hits your checking account.  With technology today it takes a few clicks or smartphone taps to set up automatic transfers from your checking account into your savings account of choice (emergency savings, IRA, brokerage account, student loan accounts to name a few).

Once you get all of these transfers set up, managing your money becomes a breeze.  And you can meet your financial goals with minimal ongoing effort.

Treating your checking account like your money managing robot will make sure your spending less than you earn and paying yourself first month after month.

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Filed Under: Investing, Personal Finance

Disability Insurance: Yes, You Need It

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Insurance is one thing that everyone needs but very few want to sign up for.  And people who sell insurance aren’t exactly the most beloved people on the planet.  But the fact remains, we all need insurance.

There are many different types of insurance.  Everyone is familiar with car insurance and health insurance.  Life insurance is another important one.  (I previously wrote about my life insurance experience here.  Hopefully we’ll never have to use it but I’m glad it’s there.)

The thing with insurance is that we only need it when we need it.  But those times of need can be highly stressful on your family and finances.  Just think of the last time you or your family member got into a car accident.  Insurance was the last thing on your mind, but if you had good coverage, it really gave you piece of mind when the dust settled.

Which is why I highly advocate that everyone, especially high income professionals, get disability insurance.  Not only does it insure against the main engine of your life (your income), but the chances of becoming disabled are much higher than most people think.

Don’t Take A Chance

I’m an optometrist.  Anyone who has been to the optometrist knows that optometrists don’t have one of the more dangerous occupations out there.  It’s a pretty safe environment to practice.  I also am currently devoid of any major health problems such as high blood pressure and diabetes.  And I don’t do skydiving.  So it would seem my chances of a disability are pretty low.

But according to the calculator from the Council of Disability Awareness, I have a 13% chance of being disabled for 3 months or longer at some point in my life.  And the average length of a long term disability for someone with my profile is 78 months.

That’s 6 and a half years of no money being made.  I don’t think there are many families out there that could live off of savings for that amount of time.  This is why disability insurance is so important.  Not having it is putting you and your family at a very great and very real risk.

Like most insurances, disability insurance is a complex product with a lot of moving parts.  Most people would do well to talk to an independent agent and get as much information as they can.  There are also many online providers out there that will help you sign up for disability insurance.  I signed up with Quotacy, who I also used for life insurance.  The process was easy and the agent was very helpful every step of the way.

But two very important aspects of disability insurance, especially for high income earners, is knowing how much insurance you need and making sure you have a policy which gives you the most specific definition of being disabled, namely an “Own Occupation” policy.

How Much Should You Buy

Once you decide to sign up for any type of insurance, the next big question is to decide how much insurance you need.  Disability insurance is no different.

If you’re deemed disabled by the insurance company, they will pay out a monthly amount for the amount of time you remain disabled.  The question to answer is exactly how much of a benefit to sign up for.

Most people would assume that you should apply for a monthly amount similar to what you get paid while working.  This is not a good idea for a number of reasons.  One, insurance companies usually won’t even let you sign up for a monthly amount that meets 100% of your income.  They may come close, but that would make your monthly premiums very high.  Most insurers will limit you to 70 or 80% of your income.

Secondly, you probably won’t be spending as much money when you’re disabled as you do when you’re uh, abled.  Things like eating out and traveling probably won’t be on the top of your list as a disabled person.

Instead, you should focus on what you spend.  Tally up your fixed and necessary expenses like rent, food, electricity etc.  Add some for retirement savings if you would like as well.  This is how you should find an appropriate amount of insurance to sign up for.  Being overinsured will just lead to much higher monthly premiums and more money than you could possibly need while disabled.

Own Occupation FTW

Finally, a key aspect of disability insurance is the specific definition of disability by the insurance company.  The worst case scenario is that you become unable to do your job for some reason and the insurance company doesn’t pay out any benefits because you don’t meet their definition of a disability.

The way to avoid this is to look for an Own Occupation plan.  This is especially important for high income professionals like doctors and lawyers.  While they can come in slightly different flavors, an Own Occupation plan in general states that you are disabled if you can’t perform the duties of your specific occupation.  It is a strict definition and this is what you want in a disability plan.

For example, if a doctor and is disabled and can’t perform his duties, an own occupation policy would consider this a full disability and start making monthly payments.  But if the doctor didn’t have a specific Own Occupation policy, the insurance company could contend that he could do another job like a grocery store cashier or a suit salesman, and would refuse to make the monthly payments.  That sounds like a bad situation.

So it’s in your best interest to get a policy that has a definition of disability that is specific for your profession.  Specialists like surgeons should look for even more specific Specialty Own Occupation policies.

Conclusion

Disability insurance is a vital part to any working professionals insurance portfolio.  Becoming disabled is actually more common than people think.  Something as simple as a fall can cause a total disability.  It is essentially income protection in case the unthinkable happens and you aren’t able to work for an extended period of time.

Pay attention to your expenses when deciding how much insurance you’ll need.  You probably won’t be spending as much money while disabled.  Also, it’s important to sign up for an Own Occupation policy to ensure you will get the proper payout.

Finding disability insurance isn’t as easy as car or life insurance.  But it’s not that hard.  I used Quotacy and it was pretty easy to do it online.  You can also look for an independent agent that will shop policies for you as well.  A good policy isn’t as cheap as life insurance, but it is not too expensive and is definitely worth it for peace of mind for you and your family.

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Filed Under: Personal Finance

An Easy and Inexpensive Way to File Your Taxes

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Most people file their taxes online nowadays.  I have for the past 4 years.  The fact that I actually enjoy doing my own taxes is icing on the cake.

If you have a fairly simple tax return that has a low chance of being audited, filing online is a lot cheaper and easier than going to an accountant.  All you have to do is wait for all of your paperwork to come in, prepare your beverage of choice and take an hour or so to complete your return.

And if you are owed a refund or owe Uncle Sam some money, you can usually take care of that right away online.  In today’s streamlined and app friendly world, filing online is just the most convenient option for most people.

And when there are so many people filing online, competition will increase.  Everyone knows the big players like TurboTax and H&R Block.  How can you not know them since they are advertised everywhere?  I’ve used both TurboTax and H&R Block and both do a great job.  But they are also both on the pricier end of the tax software spectrum.

As technology and software becomes more sophisticated, more players have been appearing on the tax software scene.  Some are pretty bare bones but can offer very competitive pricing (sometimes even free!).  While others are just TurboTax clones that fizzle out after a while.  Time has filtered out some of the weaker companies, so there are a number of good options out there.

This year, I did my taxes with a company called FreeTaxUSA.  It sounds like a spammy company name, but they’ve actually been around for a while and this year they have taken their tax software to the next level.  And their pricing is incredible.

Federal returns are free.  State returns are $12.95.  And this is the case no matter how simple or complex your tax situation is (though if I had a full fledged business as my main income source, I would probably use an accountant.)

Here’s my review of my experience with FreeTaxUSA

Disclaimer:  I have no financial affiliation with FreeTaxUSA (FTU).  I wish I did but maybe next year.  This will actually be one of the few non-biased tax software reviews you will see on the internet.  

Navigation

TurboTax is known for its easy to navigate menus and streamlined interface.  They ask you tax questions interview style and you enter your numbers as you go along.  Ease of navigation is one of the big reasons TurboTax is the most popular tax software out there.  But FTU is very close behind.

There is actually very little difference between TurboTax and FTU when it comes to navigation.  FTU asks very similar style interview questions and will flag you when something doesn’t seem right.  It’s easy to find what number should go into what box on each form and then move on to the next section.

The menu is very clean and easy to navigate as well.  Income, deductions and filing options are clearly separated.  The only restriction I found is that you can’t jump ahead to the next section before completing your current section.  I didn’t find this as a big problem though since it helps keep you on track.  You can jump back to previous sections you have completed of course.

I actually found the interface a little easier and cleaner than TurboTax.  So ease of navigation is a huge plus.

Support

Having customer support is an important part of doing taxes.  When you have your own personal accountant, you can pepper them with as many questions as they have time for.  This support is what causes many people to hesitate doing their taxes with software.

Nowadays, online tax programs really excel in customer support.  You can always email an expert and get an answer, but many companies even have live chat or the option to have your return reviewed by a CPA.  So you’re never alone.

FTU has email support, but unfortunately no live support options.  I can’t comment too much on this because I didn’t really use the support services.  Our return is easy enough and I live and breathe this stuff anyway so I can find my answer pretty quickly if I needed too.  But for those that really value someone being available to help you throughout the filing process, TurboTax and HR Block are better options than FTU.

Pricing

Where FTU really shines among the competition is the pricing.  It’s a flat rate of $0 for your federal return and $12.95 for state.  No matter how complicated your return may be.  If you have out of the ordinary things like foreign accounts or large investment income in your kids name, you may be out of luck.  In cases like that I would want to see an accountant anyway.

But for the vast majority of Americans, the pricing would stand.  And it makes a huge difference.  Since we own a home and have some stock sales, the total with TurboTax would have been $59.99 for federal and about $35 for state.  That’s a total of $94.99 for TurboTax compared to $12.95 with FTU.  That’s a no brainer of a decision to me.

There is one totally free filing service I know of with Credit Karma.  But their interface seems clunky and they haven’t gotten very good reviews.  FTU is a very good product that has gotten great reviews, so $12.95 is an absolute steal.

Conclusion

With technology getting more and more sophisticated and streamlined, filing taxes online has never been easier.  While the big boys like TurboTax and H&R Block are always a great option, it’s worth it to see what other companies are up and coming in the tax software world.

FreeTaxUSA is definitely one of those companies.  I was able to do my taxes with no problem and it was a great experience all around.  I was able to get my refund direct deposited into my checking account very easily as well.  It’s not much different than TurboTax but it is much cheaper.  Very hard to beat $0 for a federal return and $12.95 for a state return.

It may not be the ideal solution for people who need live support or have very complicated returns.  But I believe the vast majority of people could save a lot of money having their taxes done with FTU.

Again, I have no financial affiliation with the company.  Just giving my honest review.  Click here to go to their home page and check it out.

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Easy Ways to Winterize Your Home and Save Money

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This is another guest post from my friend Anum Yoon who blogs over at Current on Currency.

Today’s practical post will discuss ways to save money by making your home more efficient in the cold weather.  Floridians and Texans, find another article!

The winter chill has set in. There aren’t too many parts of the country that have escaped the bitter cold and snow. You don’t want to go outside unless you absolutely have to — maybe a quick run to and from the car.

If you’re not a fan of winter, this is going to be a long three months or so. You’ll be inside more, and the only good news is that you’ll have more time to do some the things around the house you may have been putting off.

Also, winter isn’t a booming season for construction, so you might be able to get some discounted prices on materials or projects. Take a look around the house and see which rooms need your attention most.

Winter is a good time of year to attend to your DIY projects or hire out the ones that require professional help. Here are a few investments you can make in your home this winter to improve your living space and add value to your home.

Have Your Furnace Serviced

If your furnace is going to die, it’s probably going to happen on a weekend in the middle of the coldest part of winter. That’s just the way it goes. Better to pay to have it checked now than to pay a lot more later.

Hire a reliable, trusted professional to service your furnace and hot water tank yearly or as recommended. They will make sure both are in good working order and that the filters have been changed for optimum performance.

A professional service can identify any potential problems or maintenance issue before they cause you problems in the winter. If they recommend replacement, feel free to seek a second opinion, but don’t delay too long.

You don’t want to risk being without heat and all the problems that can cause. A new furnace will increase your home’s value and may generate some return on your investment at the time of sale.

Update or Replace Insulation

Your furnace is working hard to heat your home. What a waste of energy and money if the heat is escaping through your roof, wall spaces, or cracks and crevices throughout your home.

If you are confident in your abilities, it might be simple enough to add a few rolls of insulation in places where there is an apparent need. Another idea is to have a professional come out and inspect your insulation.

They may discover leaks you weren’t aware of. Some companies use tiny pieces of insulation that they can spray into your attic. These pieces fill in all the open cracks and areas where leaks can occur.

Other spots you can attend to yourself include the electrical outlets, hot water tank and hot water pipes. You can purchase DIY insulation kits for these areas and accomplish your goals with minimal effort. You can also caulk windows and doors and add weather stripping to stop cold drafts and leaks. The less cold air coming in, the less money going out.

Buy an Energy-Efficient Garage Door

While you are insulating the rest of your house, you might want to consider your garage as well, particularly the door. When that garage door comes open, it’s the biggest open space into your home. All that cold air comes rushing in and hits the outside walls of the interior.

While you have to open and close your garage door, you can cut down on energy costs by purchasing an insulated, energy-efficient garage door. You can keep the inside of your garage at a more consistent, comfortable temperature. It will make any garage projects more tolerable, even in the winter. Your furnace won’t have to work as hard to compensate for the cold air seeping in. It makes sense to have an insulated garage door even if it isn’t attached to your house.

Purchase Energy-Efficient Windows

You know if you have good windows or not. If your rooms stay relatively warm in the winter, they are quality windows. If it feels like the wind is blowing through your living room, your windows are either in poor condition or you left one open.

Investing in Energy Star rated windows will cost a lot of money, but it will save you an average of 12 percent on energy costs. You also may qualify for an energy rebate from your local utility company or state government for making the investment and saving energy. In time, they will pay for themselves. Rotting, drafty single pane windows will continue to deteriorate and, at some point, you will be forced to replace them.

If you think you might be selling your house soon, consider new windows a wise investment and selling point. There is no guarantee you will recoup your money, but your house will be more saleable than your similar neighbor’s house with old windows. Regardless of your intentions, it’s money well spent. It would just be nice if all that money could buy you a better view, too.

Hook up to Smart Thermostat

Instead of wasting money and energy heating your house while you’re at work, hook it up to a smart thermostat you can control online. You can set up a schedule so your thermostat lowers the temperature while you’re gone but starts heating back up before you come home. If you encounter a change in your schedule, you can just log in and make adjustments from your desk at work.

A smart thermostat potentially will save you money, but more importantly, it will give you the ability to control your energy use. You need to look no further than a family member to realize we all have a different idea of what a comfortable temperature is. You’ll still fight over the thermostat.

Improve Your Home This Winter

Things break down, and they don’t always work the way you want them to. But generally speaking, money invested in your house will make it more appealing, more comfortable and more valuable. Plus it’s your home. What better place is there to spend your hard-earned money? Winter will pass before you know it. Wouldn’t it be nice to go into spring already having accomplished some household projects for the year?

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Big Tax Changes You Need to Know About

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On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act (TCJA) into law.  This was one of his pet projects and something he has promising since his campaign.  He also promised that this law would give middle class families a huge tax break.  That remains to be seen.

The TCJA went into effect on January 1, 2018 and it comes with many big changes.  For some people, the effect will be large and there will be lots of planning that needs to get done.  For others, there might be a small change here and there but nothing that would require any real behavior change.

The TCJA provides the first sweeping tax change since the Reagan era.  So it’s important to know how it will effect you.  In this post, I’m going to go over some of the biggest changes in the tax law and what changes you need to make, if any.

If you want to read the bill in its entirety, be my guest.  Otherwise, here are the biggest changes you need to know about.

Much Bigger Standard Deduction

When you file your taxes at the beginning of the year, you have the option of taking the standard deduction or itemizing your deductions.  I’ve written about this before here, but the most common itemized deductions are mortgage interest, property taxes and charitable contributions.  If you have a high amount of these types of payments during the year, chances are you will save more on taxes by itemizing.

This will change for a lot of people this year.  For 2017, the standard deduction amount for single filers was $6,500 ($13,000 married).  The new standard deduction for 2018 will be $12,000 ($24,000 married).  Meaning there will be many more people choosing to take the standard deduction.  This simplifies the tax code in general, but it comes at the expense of other favorable tax treatment as I will explain below.

Behavior change: Most homeowners choose to itemize based on their mortgage interest deduction.  If you won’t be able to do that for 2018 because of the new standard deduction amounts, then the popular mortgage interest deduction doesn’t really provide any benefit.  Depending on your financial plan, it might be time to consider paying your mortgage off early.

State Income and Property Tax Limits Imposed

In 2017, you could itemize your deductions by writing off your state income tax and property tax.  This was an unlimited deduction for the most part.  Helpful for everyone, but especially for those with high state and property taxes.  But change is afoot.

For 2018, you can only deduct a maximum of $10,000 combined state income and property tax.  This is a huge change and will hit those who live in big coastal cities the hardest.  Homeowners in high tax states can easily pay $20K in state income tax and property tax combined.  This rule puts them in a real bind.

Behavior change:  Move or start renting.  For those who live in states like California or New York and have been contemplating a move to a cheaper part of the country, this will give you a little more motivation.

Elimination of Personal Exemptions

This is a key change that will hurt many working professionals with kids.  In 2017, for every member of your family (including yourself), you could take a tax deduction just for being alive.  The value was $4,050 for each family member.

So a family of 4 could take a deduction of $16,200.  This deduction is completely eliminated for 2018.  This is one reason the standard deduction for 2018 will be higher.  It will make the tax code simpler, but will hit couples with children the hardest.  It is slightly offset by the next change I will discuss.

Behavior change:  Not really much you can do here.

New and Improved Child Tax Credit

Tax credits are much better than deductions.  They provide a dollar for dollar reduction in the tax you owe, while a deduction simply adjusts your income a little lower.  The Child Tax Credit has been a nice one that has been around for about 20 years.  It provided families a $1,000 credit for each eligible child.

The problem was, the income phaseout limits were pretty restrictive for many professionals.  For married couples, once their income hit $110,000 the credit was reduced.  For high income professionals, the Child Tax Credit was a pipe dream.

But it is getting a big face lift for 2018.  The Child Tax Credit will now be worth $2,000 per eligible child.  Also, the income limit increases from $110,000 for married couples to $400,000.  

This will make the Child Tax Credit a reality for many couples.  It will also lessen the sting of the personal exemption elimination.  This change is a nice win for all.

Behavior change:  Have more kids!

Tax Bracket Adjustments

The tax bracket changes are another big one.  Essentially all the tax brackets (except the 10%) will be reduced.  And the 35% bracket is widened considerably, which will help high income couples.  Here is the old 2017 bracket:

Here is the new 2018 bracket:

So most people will see a slight decrease in their taxable income.  Not too bad.  This will be the way most people will see some tax savings.

Behavior change:  Employers should be adjusting paychecks to reflect the new tax changes by February.  Just take any extra money you find and add it to your savings and investment plan.  There is no use to have savings if you don’t use the money right?

Student Loan Interest Deduction

Just kidding!  No changes here thankfully.  The deduction maximum of $2,500 remains the same.  Though it would be nice if it was a little higher since tuition rates, and thus student loan balances, are constantly increasing.

Conclusion

The big winners of this tax reform seem to be large corporations, who saw their maximum tax rate changed from 35% to 21%.  Whether this will translate into more cash for employees and a healthier economy, only time will tell.  Families who can take advantage of the Child Tax Credit will also win.

The big losers are high income single filers who own homes in a high cost of living area.  They get hit on so many levels, but especially the state and property tax limit.  Another thing to consider is that these changes are not permanent for the most part.  Many of the big changes will “sunset” in 2027, which will then revert back to the old tax laws.  Nothing in politics is permanent after all.

These changes will affect our returns we do in 2019, so we still have some time to see what the effect on the country as a whole will be.  But it’s important to know the big changes and how you will have to change the way you approach money.  Stay tuned!

(Micheal Kitces CFP provides a great and detailed overview of the tax changes here.  If you want to dig in a little more, this is a great resource.)

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Filed Under: Investing, Student Loans

Do Some Charity Before It’s Too Late

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For most people, the end of the year is usually a time to take it slow and spend your days with family and friends.  Work takes a backseat until the start of the new year.

Working in the optical world is the complete opposite.  It’s a madhouse!  Appointment books are full and patience is thin as everyone and their mother (literally) is scrambling to get eye exams, glasses and contacts before their insurance benefits and flex spending dollars reset.

(This is one reason I favor Health Savings Accounts over FSA money.  HSA accounts are portable and never expires.)

But there is one other thing people should be rushing to do during the last week of the year…GIVE!  Give away to charity that is.

Giving to charity is something we should do anyways if we have the means.  The rich hoarding wealth is one of the main problems in the world today.  But if you’re eligible for a tax deduction, it can save you some money come tax time along with that warm and fuzzy feeling.

And with the next tax law coming into effect in 2018, many people should be looking to maximize charitable contributions this year.

Standard or Itemize?

Here is the official IRS statement on charitable contributions:

You can only deduct charitable contributions if you itemize deductions on Form 1040, Schedule A (PDF), Itemized Deductions.

To be deductible, you must make charitable contributions to qualified organizations. Contributions to individuals are never deductible. To determine if the organization that you contributed to qualifies as a charitable organization for income tax deduction purposes, refer to our Exempt Organizations Select Check tool. For more information, see Publication 526, Charitable Contributions and Can I Deduct My Charitable Contributions?

What this means is that if you want your charitable contributions to be tax deductible, you need to be able to itemize your deductions.  Common itemized deduction expenses include mortgage interest, state and local income taxes, property taxes, medical expenses and, of course, charitable contributions.

If the total of these expenses is greater than the standard deduction, than you would save more money on taxes by choosing to itemize your deductions.  If itemized deductions don’t exceed the standard deduction amount, you should go with the standard deduction.

For tax year 2017, the standard deduction for single filers is $6,350 and for married filers it is $12,700.  With the new tax plan that takes into effect in 2018 (thanks Trump), single filers will see a standard deduction of $12,000 and married filers will jump up to $24,000.

Contribute to Charity…Now!

Meaning that those people who normally take the standard deduction and don’t come close to meeting the necessary expenses in order to itemize…rejoice!  Your deduction will almost double with no effort on your part.  For these filers, the charitable contribution deduction never applied anyway.

But there will be many people who can itemize deductions in 2017 but won’t be able to in 2018.  For these people charitable contributions will be deductible for 2017 but not 2018.  That means they can deduct charity to their heart’s content for the last week of the year since they won’t be able to next year.

There are many things that can count as charitable contributions.  Cash is the easiest thing to donate, but you can also donate clothing, furniture, stocks and even your time.  Make a list of a few charities that resonate with you and contact them to see what is deductible.

All charitable contributions must be made in 2017 to be considered deductible when you do your taxes in April.  So take advantage of this last week to get that charity money in.  Just like FSA dollars, this time it’s use it or lose it!

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In-Credible Student Loan Refinancing

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Everybody with student loans should consider refinancing.  It might not be the right choice for everybody, but you’ll never know unless you take a look.

At worst, you get some quotes and realize it’s not worth the effort or you don’t want to give up Federal loan perks.  But at best, you can potentially save tens of thousands of dollars worth of interest payments and pay your loans off years earlier.

When you look at it that way, it doesn’t hurt to try now does it?

I’ve written before that my two favorite refinance companies are SoFi and Earnest.  That still stands.  I’ve personally refinanced loans with these companies and had a great experience.  People I’ve referred for refinancing have had great experiences as well.

But as with any industry, new players continue to pop up.  It would be a disservice not to mention quality companies in the student loan refinance arena.

One such company is Credible.  We used them to refinance my wife’s student loans and had a great customer service experience along with a great interest rate.  Plus they gave us a nice little sign up bonus.

If you’re already convinced, sign up here to get some quotes.  If you end up applying for a loan before December 31, you get a sweet $200 bonus sent your way.

Need a little more convincing?  Read on about how Credible provides a fantastic student loan refinance experience.

Choices.  So Many Choices

The thing I like about Credible is that they give you so many more loan choices than other companies.  You can essentially find any combination of interest rate, loan payoff time in a fixed or variable loan product.

This flexibility is amazing because not everyone wants or is able to go with the lowest possible interest rate with the shortest payoff term.  Many people have other goals such as investing for retirement, buying a house or funding a business.

These goals take money, so it’s a good idea to find the most manageable payment you can without sacrificing your other goals.

The dashboard neatly lays out all the different offers available to you.  After checking your credit and asking for some pieces of information, you will quickly be able to see what offers are available and find the best one for you.

Since Credible is more of a clearinghouse than a bank, you will see multiple offers from different institutions.  Most refinance companies will just give you their own rates.  So it’s nice to be able to compare rates from a number of companies.

Once you find the offer that works for you, Credible will do a little more background work and in a week or two the process should be complete.

Potentially huge interest savings and a nice $200 bonus to boot.

The Offer

If you sign up with this link and are approved for a loan by December 31, you will get a $200 bonus.  The normal bonus is $100, so it’s a great opportunity to look into refinancing if you’ve been on the fence.

Like I said before, there is no downside in looking into refinancing your student loans.  You can even get your quotes before your actual credit report is pulled.  So no need to worry about your credit score being dinged.

So check out your rates before the year is up.  There could be huge savings and a $200 bonus waiting for you.

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Filed Under: Student Loans
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