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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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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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Dollar Cost Averaging is the Best Way to Invest

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Ask the average American or young professional what things SHOULD be doing with their finances.  You’ll get the usual answers like budgeting and saving.  They will also talk about how they need to spend less on things like eating out and clothes.

One other thing you’ll almost always hear about is the desire to invest.  Most people know they need to invest for things like retirement or a future house down payment.

The problem isn’t that we aren’t interested in investing.  Or that we don’t want to invest.

The main problem is that people don’t know HOW to invest their money.  They want to know which types of accounts to open and how to transfer money to keep investments growing.

This post will outline what I think is the most efficient and effective way to invest: Dollar Cost Averaging.

Dollar Cost Averaging: Slow and Steady Wins

There are essentially three ways to invest your hard earned money:

1.  Invest a lump sum all at once:  Mathematically, this is the most efficient way to invest.  Having a large amount of money invested in things like stocks or mutual funds will give your investment growth a turbo boost.

And studies have shown this.  Lump sum investing will give you the highest return over any other method of deploying your money.    And I would agree if you have a large sum of money, put it to work all at once if you intend to invest it.  No need having cash on the sidelines not working for you.

While this is the best way to invest, it’s only applicable a few times in life.  If you get a large sum from an inheritance, selling a business or a large bonus, then you should employ this strategy.

But most people get paid their salary in small intervals throughout the year.  So lump sum investing is not really in the discussion.

2.  Dollar Cost Average (DCA):  We live in a monthly payment kind of world.  Almost all of our bills including mortgage, auto loans and cell phones are debited once a month.  We’re used to being dinged monthly for the services we use.  Why not use that same mindset when it comes to investing our money?

This is why I love DCA and why it is my own preferred investing strategy.  Instead of investing haphazardly or when we hear a hot stock tip from a co-worker, DCA takes the emotion out of investing and lets you stick to your investing plan for the long term.

How does it work?  Let’s use a Roth IRA for example.  You know you need to save a little more for retirement beyond your company 401k, so you would like to set up a Roth IRA to be invested in the stock market.

Once you set up the account and select your investments (my favorite is VTSAX but that’s a story for another post), you will be asked to link your checking account.  Then you select how much you want taken out monthly and set your withdrawal date.  And that’s all there is to it!

You will be dinged monthly just like you would for any other bill.  But this is a good ding since that money will be invested for you retirement instead of being spent on the latest iPhone insurance.

3.  Don’t invest at all:  This is not recommended.  But it seems like it’s the American way since 1 in 3 Americans have no money at all saved for retirement.

Buy Low and Sell High

The best way to make money selling things is buying at a low price and selling at a high price.  That’s the logic behind dumpster diving and being a garage sale vulture.  And that’s also the logic behind making money as an investor.

Being invested in the stock market can literally be a roller coaster ride.  There are going to be ups and downs.  Sometimes really big ups and downs.  But as long as the price of your investments is more than what you paid for it initially, you will make more money.

Buying your investments at a low price and selling at a higher price is what makes investors money.  Many people get spooked and sell their investments when the stock market takes a sharp dive, like it did in 2008.  As a result, they lose a lot of money by buying high and selling low.  This is bad.

The beauty of investing via DCA is that it FORCES you to buy low.  If you decide to invest $100 a month into a mutual fund that costs $10 a share, that $100 investment will get you 10 shares.  If the mutual fund doubles to $20 a share next month, you will end up with only 5 shares.

While that is still more expensive than last month’s investment, DCA allows you to scoop up more investments while the shares are cheap.  Most people will actually do the opposite.  They will put a large amount of money into a “hot” stock or mutual fund while it is expensive.  This is not the way to invest.

DCA keeps the emotion out of investing.  By investing in regular intervals, you will keep your accounts growing while ensuring you are not buying too many shares at inflated prices.  This will set you up for nice investment gains when it comes time to sell.

Conclusion

DCA is the preferred way to invest for young professionals.  Early in your career, you will probably not have a lump sum to invest immediately in the stock market.  So investing as you get your paycheck is the most efficient way to deploy your capital.

DCA can come in many forms.  It can be an automatic deduction from your paycheck into your 401k account every 2 weeks.  Or a monthly withdrawal from your checking account into an IRA.

No matter what form it takes, DCA will keep your investment accounts growing steadily and will allow you to get the most shares at the lowest price.  No need for market timing since it doesn’t work anyway!

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Avoid Stupid Bank Fees

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                                                                They’re making a killing off of us.

My first checking account was at the same local bank that my dad used and he helped me sign up for it.  Banks LOVE this since they are hoping to get your business for life and then I will do the same thing with my son.  They’re hoping people don’t catch on that there are great checking and savings options available and you aren’t beholden to your local bank.

Depositing your money into a checking account is the safest way to store your cash.  If you’re not careful, however, the fees can really stack up.  ATM fees, overdraft fees, insufficient balance fees, and even fees for talking to a human.  Navigating around these is essential to your finances, as these fees can really eat up your money and are easily avoidable.

While little account fees have always been there, they have been even more prevalent since the Great Recession of 2008.  Since banks can’t make as much of a killing (they still make a killing though) off of mortgages, they turned to ticky tack fees to make up the difference.

And make up the difference they did.  Chase, Bank of America and Wells Fargo, the three biggest banks in the country, made over $6 billion in 2016 from ATM and overdraft fees.  That’s pure profit for the big banks without providing any service.

And the banks will keep on charging fees since most of the country doesn’t know any better.  But these fees are easy to avoid.

Everything is Negotiable

If a bank tells you that there is now a monthly maintenance fee with your account, find a way to get around it or just ask to have it waived if you have been a long time customer.    Many banks will waive the fee if you sign up for direct deposit of your paycheck, for example.  Also, they will be more likely to change things if you talk with a branch manager.

If negotiating is getting nowhere, tell them you will take your business elsewhere.  And if they still don’t budge, close the account and just go elsewhere.  There are tons of options for bank accounts out there and if the bank you have stuck with for years doesn’t think it’s important to keep you as a customer, then find a bank that does.

One fee that is usually not negotiable is ATM fees.  Either you use your bank’s ATM or you don’t.  But nowadays you don’t have to use cash for pretty much anything.  Even going to the coffee shop is as simple as loading some money from your credit card to your smartphone app.  And you can pay bills and your friends easily through Bill Pay services with your bank or apps like PayPal or Venmo.

But the best way to avoid ATM fees is to switch to a different account altogether.

Consider an Online Bank

Internet only accounts have exploded in the last few years.  If you’re getting a raw deal from your current big bank, switching to a vastly superior online bank has never been easier.

Many online banks provide the same services as the big boys do.  You can direct deposit your check and pay bills easily.  But the most important difference is the lack of fees.

Many online banks will waive ATM fees.  Some are unlimited and some up to a certain amount.  Many of them also allow you to order checks for free, which is something that can cost $20 easily at most big banks.  There really is no reason not to consider an online bank if you’re being hit by fees from your current bank.

My favorite account has always been the checking account offered by Charles Schwab.  It has withstood the test of time and continues to offer unlimited ATM reimbursements, even internationally.  It truly is a no fee checking account that would serve anyone well.

Ally Bank also has a great online checking account that reimburses ATM fees up to a certain amount.  A nice website that will allow you to compare different online banks is Magnify Money.

The days of being beholden to the big banks are over.  While most of the country will probably never catch on to this, you need to.  There are lots of options out there and doing a little bit of research will lead you to find the perfect bank for you.

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Sweat the Big Things. Part 3: Taxes

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This is Part 3 of my three part series about housing, transportation and taxes.  These are the three things which I believe can make or break your finances.

Part 1 discussed housing and Part 2 talked about transportation.

In this Part 3 of this series, let’s save the best for last and talk about taxes!

In my experience talking with fellow doctors and professionals, the subject of taxes usually comes up.  But many people misunderstand taxes.  It is most likely the single biggest expense you will face every single year.

You need to get it right!

Depending on which state you live in (California *cough cough*), your entire income can be taxed at 50% if you’re not careful.

Everyone has to pay taxes.  There is just no way around it.  So it really pays to find out ways to keep your tax rate as low as possible.

While the tax code is pretty complex, there are two main things that most working professionals need to understand to avoid paying too much tax.

PROGRESSIVE Tax Brackets

If you understand this chart, you are far ahead of most Americans when it comes to understanding the tax code.

We all pay federal income tax.  Most of us pay state tax too, but that can vary between states.  So I will just focus on the federal brackets for now.

This chart is important and understanding it will give you a good idea about how much tax you will pay.  More importantly, it will drive some financial decisions throughout the year that will help you minimize your taxes.

The first thing to realize is that the tax brackets are progressive.  Meaning that the more income you have, the higher your tax rate will be.  But our entire income is NOT taxed at the highest rate.  Just the limits spelled out by the tax brackets.

As an example, a new doctor makes $200,000 the the first year out of residency.  Looking at this chart, he might be horrified to learn that he will fall in the 33% tax bracket.  That means he will owe $66,000 on his $200K income!

This is actually incorrect and it is how many people think the tax system works.  The doctor’s income does put him in the 33% bracket, but the entire income is not taxed at 33%, just the portion above the lower limit.

So according to the chart, our doctor would pay 33% on the part of his income above $191,650, which is $8,350.  His total tax would be 33% of $8,350 + $46,643.75 from the previous brackets.  The amount of tax owed is $49,399.25.  That’s a lot of tax but still sounds a lot better that $66,000.  In reality his tax would be even lower with the standard deduction and other deductions available, but there isn’t enough space in this post to get into that.

So with the progressive tax brackets, our entire income is not taxed at our highest bracket only the last dollars we make are.  How can we use this to our advantage for tax planning?  Reduce the amount of last dollars we make!

And by far the best way to do this is by contributing to a tax advantaged account.  This could be a 401k, Traditional IRA or even an HSA.  Money contributed to these accounts are taken off the top of our income, so we are not taxed at our highest tax rates.

In the case of the doctor, if he contributed just $10,000 to a 401k that year, his highest tax bracket would become 28% instead of 33%.  That’s thousands of dollars saved in taxes right off the bat.  We should be saving for our retirement anyway, but it’s nice to be able to save on taxes every year in the process.

Know Your 1040

 

 

The tax code can be difficult to navigate, but the IRS gives you some clarity on the 1040 form.  That is the form we all have to file for our personal taxes, and having a basic understanding of it can really help reduce your taxes.

The 1040 form provides a summary of our taxes.  It lists your income as well as any credit and deductions you receive.  It is a great line by line playbook of how taxes are paid in this country.  Knowing the ins and outs of this form gives insight on why you pay the amount of tax you do.

It would be too involved to go into each line of the 1040, so I will just mention a few things about the place where you get the biggest bang for your buck: above the line deductions.

The higher income you have, the more tax you will pay in general.  So you want to get that income as “low” as possible.  That doesn’t mean you work less or start slacking off.

What we need to do is make as much money as we can, and then try to make it look a lot less on our taxes.  This sounds shady, but it’s totally legal.  And above the line deductions are the best way.

The “line” I’m referring to is line 37 of Form 1040, which lists our adjusted gross income (AGI).  We are taxed on our AGI and not our actual earned income, so making this number lower is key.  And lines 23-36 tell us how to do just that.

Not all these lines will apply to everyone.  But find what applies to you and work on that.  For most working professionals, deductions for IRA contributions and the student loan interest deduction are two easy ones.  Check with your tax professional to see where you can maximize your deductions.

Know thy taxes

The last thing I would recommend for everyone is to find your tax return from last year and take some time to sit down and go through it line by line.  It is an enlightening exercise to see how certain calculations for deductions and credits are made.

And if you don’t like looking through your tax return as much as I do, then sit down with your CPA before the year is up and see where you can find ways to minimize your taxes.

Taxes are definitely complex, especially if you have a business.  But if you sift through the complexity you will be able to find ways to reduce your taxes that many people don’t think about.  Just be careful not to reduce them TOO much so the IRS doesn’t come poking around!

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The Investing Book That Won My Heart

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Reading books will make you a better investor.

This post may contain affiliate links

Life is a journey, but the beginning of that journey can have a profound effect on the rest.  Reading one book in particular completely changed the trajectory of my investing journey.

While you can learn to like new foods as an adult, most of our food preferences are formed when we are young.

Most sports fans, myself included, root for their hometown team.  I’m a born and raised New Yorker, so the Giants are my team.  If I was born anywhere else, I would most likely have rooted for that hometown team.  (Though never the Philadelphia Eagles.  NEVER.)

In the same way, while my views on investing have slightly evolved over time, my core investing philosophies came from a book I read years ago and immediately connected with.

That book is The Bogleheads Guide to Investing (hereafter referred to as The Guide).  I’ve read a few investment books before I read The Guide and they just didn’t connect with me.  I’ve read a bunch of investment books after I read The Guide and most of them were not as memorable.

The Guide was a life changing book for me because it presents an investing blueprint that made sense and was easy to implement.  The idea of technical analysis and digging through charts and graphs while following the comings and goings of companies doesn’t appeal to me.

(As a simple introduction, a Boglehead refers to a follower of the philosophy of John Bogle, the founder of The Vanguard Group.  This book as a comprehensive investing guide written by some big time Bogleheads.)

Here are the two reasons why this is my favorite investing book:

Investing Should Be Simple

If you want to make money off of the general public, keep them confused and helpless.  Electricians and plumbers want people to call them anytime they have a problem.  They can charge for materials and whatever they want for labor while we simply nod and hand over the check.

They DO NOT want you to go on YouTube and find out the solution to the problem on your own.  Contractors don’t want you to go online and get the materials you need at a cheaper price.  They will go out of business.

But the more you look up things on your own, the more knowledge you’ll gain and the simpler things will become.  You will also save a lot of money in the process.  And let’s face it, you don’t need to get a PhD in plumbing to become a good plumber.  You need to find solutions to various plumbing issues.  Doing this over time will make you an expert.

The investing industry is very similar.  Investment advisers and brokers have a (wait for it…) VESTED interest in keeping you confused.  They want you to think investing is a very complicated topic that requires decades of expertise to master.  That way, you will be forking over your hard earned money without question.

The Guide says otherwise.  It showed me that as long as you are aware of your financial goals and risk tolerance, knowing what to invest in becomes very simple.  The key is to stick to your plan despite the ups and downs along the way.

And there will be ups and downs.  That’s the nature of investing.  And this is where most investment companies will get you.  They will make you believe that only they know when the markets will go up or down and that’s why you need to keep paying them.

The simplicity of it all will shock you.  But it will also empower you to take control of your investments and focus your time and energy on everything else that matters in your life.

Investing Should Not Be Expensive

The aforementioned investment advisers and brokers who want to keep you confused and take your money?  They don’t come cheap.  Most financial advisers who manage your investments will take a cut of your assets every year, usually 1% or more.

Plus, they can potentially put you into investments that have high expense ratios while not offering you similar ones with lower expense ratios.  (An expense ratio is what you’re charged by the mutual fund company just to be invested in the fund.)  And advisers can receive a kickback from mutual fund companies for putting you in a certain investment.

This goes on top of the fee the adviser takes.  Not good.  The effect of high fees on your investment returns has been well documented.  Most mutual fund managers cannot beat the average market return in one year, let alone for decades.  So there is no way to justify high fees.

The worst part is that a lot of these fees are well hidden.  Most advisers and brokers just take the fee out of your returns rather than having you hand them over a physical check.  That way you don’t feel like you are paying anything.  It’s not illegal but it does seem slightly unethical.  So what’s an average investor to do?

The answer according to The Guide is to stick with mutual funds that have rock bottom fees and track the performance of the overall market you are looking to invest in.  In real terms, this means investing with index funds from Vanguard.  This will give you two major benefits:

1.  You will be paying very low fees

2.  Your investment portfolio will be very simple to manage

These two points will put you way ahead of the majority of investors.  Those investors are paying high fees and buy and sell at the whim of the market.  Investing with Vanguard index funds for the long term will allow you to fully take advantage of compound interest.

And you can do this all on your own without the help of an adviser.  Just sign up for an account with Vanguard and go from there.  No grubby hands trying to find their way into your wallet.

Conclusion

The Guide has taught me to focus exclusively on index funds from Vanguard, and that’s where the vast majority of my investments are.  The only exception is the 529 college plan for my son, which doesn’t contain any Vanguard funds.

Focusing on Vanguard index funds has provided a great return for my portfolio.  This can definitely be attributed to the recent near decade of growth for US stocks, which I’m primarily invested in.  But more importantly, The Guide has showed me that investing with in low cost index funds will give my money the best chance to grow over the long term because of low fees and simplicity.

If you can’t tell by now, I highly recommend this book.  It will set beginning investors on the right path while showing veteran investors that this is ultimately the best way to invest your money.  And it will turn you into a devoted Boglehead like me.

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Equifax Hack and the Botched Response

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Equifax, one of the big three credit reporting companies in the country, was recently hacked.  The company states that 143 million people were affected.  Which means a lot more people were most likely affected since they are probably reporting a conservatively low number.  They are a business after all.

The population of the US is a little over 300 million.  Meaning almost half of the citizens in the country had their vital information compromised.  What type of information was stolen exactly?

According to Equifax, your name, birthday, address, social security numbers, drivers license numbers and credit card numbers were all compromised.  So essentially all the information a hacker would need to sign up for any type of account.

I miss the days of hackers targeting Home Depot.

So what should we do?  The first thing we should NOT do is listen to Equifax.  Here are 2 reasons why:

1.  They set up a bogus help website that only helps themselves.

Soon after the hack was made public, Equifax set up a pretty crude looking website called equifaxsecurity2017.  That just looks like a fake URL off the bat.

On the site you can check if you’re “potentially impacted” by entering the last 6 digits of your SSN and your last name. Yes, you can check if your information has been compromised by entering even more information.

Once you enter that info, it will say you have been potentially affected.  No matter what you enter, it will say you are potentially affected.  Which means they have no idea if you are potentially affected.

But wait, there’s more!  If you’ve been affected, you get a free trial of TrustedID Premier, the credit monitoring service offered by Equifax.  You’ll get a free trial for a year and then be charged after that if you want to keep it.

So not only did they set up a dubious looking website to get even more of our information, they are trying to take our money after a massive data breach.

Please do NOT sign up for this service.  There are many ways to monitor your credit that are free and easy that I will mention at the end of the article.

As far as the second reason we shouldn’t listen to Equifax:

2.  Equifax execs sold their company stock before the hack was made public.

Like something out of Wolf of Wall Street, three Equifax executives sold their stock in the company before the hack was publicly disclosed.  The official company line was that they had no idea the data breach had occurred.

While I’m a cynic by nature, any rational person could see that is a bald faced lie.  How any executive of any company could not know that their company was exposed in the biggest data breach known to man makes no sense.  Let alone three executives.

While some conciliatory reasons were given such as they didn’t know, and they didn’t sell ALL of their stock (aka these guys are a lot richer than we can imagine), the fact is that this deceptive action did occur.

Because of this, I will have nothing to do with this company or their “TrustedID” program.  And if there ever is a class action lawsuit that I can be a part of, I will be sure to sign right up.

What You Should Do

So what steps should we take to ensure we don’t become victims of identity theft?  Unfortunately, there is no way to completely prevent ID theft.  These hackers are much smarter than us or any company out there.  Like a good defense in football, we need to prepare the best we can and react accordingly:

1.  Monitor your credit reports.  This can be done essentially for free through services like Credit Karma and Credit Sesame.  They will send you an alert whenever there is a change on your credit report.

The best thing we should all do is look at our credit reports.  Go to annualcreditreport.com and request a report from all 3 bureaus (yes, even Equifax).

2.  Submit an initial fraud alert.  This tells any business to take some extra steps to identify you in case there is an application submitted in your name.  This usually means you have to talk to someone when you apply for a credit card or bank account.

Some people say submit a credit freeze, but I don’t think this is necessary since hackers tend to sit on this information for a long time before they act on it.  You won’t be able to apply for any new accounts during that time either, so that’s your call.

3.  Submit your taxes early!!!  Most Americans are procrastinators when it comes to filing taxes.  Many even file extensions because they don’t want to do it by April.

Don’t do that next year.

Tax filing fraud is on the rise, and with this data breach it could potentially be a huge problem for the 2018 tax filing season.  We get most of the forms we need by February.  Once you get the necessary paperwork, just go ahead and file.  Especially if you’re expecting a refund.  Don’t let the government hold on to your money interest free!

Be vigilant about your credit and identity!

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Filed Under: blog

How to Kill your Credit Score

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Your credit score is one of the most overlooked parts of personal finance.  Most people don’t know what their credit score is, why it’s important, what contributes to your score and how you can improve it.  I will go into all of that and more.  If you take away only one thing from this discussion, it should be that improving your credit score is a sure fire way for you to save THOUSANDS of dollars across a lifetime.  This is because if you have a great credit score, you will get the best interest rates on mortgage and car loans.  Getting the best rate can save you tens of thousands of dollars on your mortgage alone.

Credit Score basics

Your credit score is a number between 300-850 that lenders use to determine if you are a risky borrower or not.  Generally speaking, the lower your credit score, the more risky you look to lenders.  Which means they will offer you the higher end of their interest rates.  The opposite holds true for those with high credit scores.  This means you will get a great rate for your mortgage, car loan and be accepted for all of the awesome credit cards available.

What goes into your credit score?  Let’s go straight to the source:  The Fair Isaac Corporation (FICO).  Your credit score is also called your FICO score, so it pays to listen to what they tell you.  Here is a nice little pie chart that lays it all out there for you:

Creditsesame

Looking at the chart, it’s easy to see what makes up the majority of your score: payment history, amounts owed and length of credit history.  So as long as you make your payments on time, don’t go near your credit limit on your cards and do that for a few years, your credit score will most likely be excellent.

Conversely, there are a few things that can absolutely KILL your credit score.  And it’s a lot easier and faster to lower your score than it is to increase it.  Making late payments is the #1 surefire way to kill your credit score.  Looking at the chart makes that obvious, but it also makes perfect sense from a lender’s point of view.

If you’re shopping for a home loan, the lenders will look at your credit score.  If your score is low, it tells them you probably don’t pay your bills on time.  While this may or may not be a fair judgement based on one number, a low credit score will nonetheless discourage them from offering you their lowest interest rates.

And late or missed payments can include anything:  Credit card bills, past mortgage payments, rent, car payments, cell phone bills, utility bills and student loan payments.  All of this stuff gets reported to the credit bureaus, so staying on top of your payments is vitally important.

Do Business Online

What’s the best way to make all of your payments on time?  Do everything online.  This makes things really easy as you can just bookmark all of your monthly bills and pay them right online.  Many also allow automatic payments, which pretty much guarantees on time payments.  Use technology to your advantage when it comes to your credit score.  Your future self will thank you.

Another way to hurt your credit score?  Getting really close to your credit limit.  This usually refers to credit cards, and it specifically refers to your credit utilization ratio.

If you have a $20,000 credit limit across all of your cards, and are consistently charging $19,999 every statement period, this shows lenders that you’re using too much credit.  You are a risky borrower in their eyes.  There are two ways to fix this.  The obvious one is don’t spend up to your credit limit!  Either switch to cash for some payments or go through your spending history and cut out the unnecessary stuff.

Another way is to request a credit limit increase.  Just call the number on the back of your credit cards and ask if you can get your limit increased.  Some will do it and some won’t.  But any increase in your credit availability will help your ratio.  Increasing your credit limits and decreasing your spending at the same time would be the ideal way to go.

Conclusion

According to the FICO pie chart, new credit and types of credit used also contribute to your score.  This is only 20% of your score, so it’s not really worth focusing a lot of your time on, especially if you have problems with late payments.  Opening a lot of lines of credit will temporarily decrease your score a few points, but it will go back up once they realize you’re still making your payments on time.  Focusing on late payments and high credit utilization ratios, the two credit score killers, is the quickest and most important way to improve your score.

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Filed Under: Credit cards

Why Doctors Tend to Have High Credit Scores

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(Hey everyone.  The following is a guest post from my friend Ryan, who specializes in financial planning for physicians.  He’s doing great work since many physicians and other health professionals are clueless when it comes to their finances.  In this post Ryan talks about a unique aspect of doctor’s credit scores.  Enjoy!)

As a financial planner who specializes in working with doctors and their families, I’ve realized over time that many doctors do have high credit scores. Having a high credit score enables doctors to get competitive interest rates on mortgages, car loans, and more. It also shows lenders that they’re not only accomplished physicians but responsible borrowers who pay their bills on time.

I’ll expand more why doctors typically have high credit scores by outlining how a credit score is actually calculated. That way, if you’re a doctor who wants to raise your credit score in anticipation of a big purchase, you’ll know the steps to take to increase your score to get the best opportunities available to you.

Here are some of the reasons why physicians typically have high credit scores:

1.  Length of Credit History

The length of your credit history definitely factors into your score. For many doctors, taking out student loans is the first step in establishing a credit history. If you start taking out loans as an undergraduate, you’ll have at least 7-8 years of credit history by the time you finish residency.

If you didn’t take out student loans as an undergraduate but you did as a graduate student or medical school student, you’ll still have a few years of credit history under your belt. This helps to improve your score.

2.  Payment History

Your payment history is probably the most important aspect of your credit score because it makes up a whopping 35% of your score. This is the part of your score that shows lenders you’re a worthy investment and that you’ll pay them back on time.

The great news is that once you take out student loans, you’ve started a credit file. Even if your student loans aren’t due yet, your account is in good standing month after month while you’re in school. Lenders love to see this.

If you have credit cards in addition to your student loans, be sure to pay these on time as well. Even if your student loan accounts are in good standing, missing a credit card payment will be detrimental to your score. So, make those payments on time every time solely because your payment history factors so heavily into your overall credit score.

3.  Debt Utilization

 Having a low debt utilization percentage is a fancy way of saying that you’re living within your means. Your debt utilization percentage is how much debt you have relative to the amount of credit available to you. So, if you have 5 maxed out credit cards, your debt utilization percentage will definitely hurt your credit score. However, the more available “space” you have on your revolving credit, like credit cards, the better your credit score will be.

The great news is that student loans are considered installment debt, not revolving debt. They’re a different type of debt than credit cards and thus aren’t factored into this debt utilization score. So, if you have hundreds of thousands of dollars in student loans but you’re not carrying a balance on your credit cards, your debt utilization percentage will be low, which is good for your credit score.

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Now that I’ve listed the three parts of a credit score where doctors typically excel, I want to take the time to write about what can hurt your credit score too.

After all, the goal in life is generally to become financially well off, self-sufficient, and happy. Having a strong credit score can enable you to get lower interest rates on some of your biggest purchases, saving your thousands and thousands of dollars over the course of your life. This, in turn, will allow you to use your hard earned money for the things you actually want to do.

So, be aware of these two parts of a credit score as well:

1.  Credit Mix

 Lenders actually want you have a few different types of loans, called a credit mix, because it shows them that you’re able to successfully handle various types of payments like a house payment, credit card payment, and a car payment.

If you only have student loans, this could lower your score, but if you mixed it up a bit (see what I did there?) you could raise your credit score by a few points.

For older doctors who own houses, cars, and have business loans, it’s easy to have a decent credit mix. However, newer doctors who are just finished training might not have many different types of loans.

Keep in mind that credit mix is a small portion of your score and you shouldn’t go and take out loans that you don’t need for the sole purpose of improving this part of your score. However, if you need to bump up your score a few points to qualify for a better mortgage interest rate, diversifying the types of loans you have is something you can try.

2.  New Accounts

This might seem a little counter-intuitive to the point mentioned previously, but it’s something worth mentioning. Basically, lenders don’t like it when you open a bunch of new accounts at once. It signals to them that you’re in need of a lot of credit quickly or that you’re somehow in need of financial help.

So, avoid opening several different credit cards in one year. At the same time, avoid closing your old accounts. Lenders might not like to see a lot of new accounts but they love seeing old accounts in good standing. It shows that for many years you’ve been good about having loans and paying them back on time.

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Keep in mind that as you go through your daily life, your credit score will fluctuate. It’ll fluctuate as you pay down debt. It’ll change if you refinance your student loans. It will also change if you get a new travel credit card or a new house. It’s okay for your score to go up and down some, as long as you’re consistently making your payments and checking your credit report regularly to ensure your identity is safe. I tell my clients to sign up for an account at Credit Karma because it’s free, you can check your score whenever you want, and you can dispute anything that’s not right your credit report easily and most importantly, quickly. After all, you don’t have a lot of free time to worry about your finances, right?

So, the good news for all the doctors reading this is that you probably have a high credit score already due to the points I mentioned above. However, if you don’t or if you’re looking to boost your score a few points, that’s absolutely possible by understanding how your credit score is calculated and knowing how you can improve it over time.

Ryan Inman is a fee-only financial planner who specializes in helping physicians and their families build a solid financial future through his firm, Physician Wealth Services. As the husband of a physician, Ryan has a unique insight into what it’s like to be a part of a physician family and thoroughly enjoys helping his clients. To schedule a free 30 minute consultation, feel free to contact Ryan at any time.

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Filed Under: Credit cards

4 Interest-ing Ways to Spend Your Tax Refund

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My first and only job before joining the optical field was as a Starbucks barista.  It was hard work but I enjoyed it and learned a lot.  We had to manually and carefully load espresso into the machines back then.  No push button lattes!

My first year of income led to a nice refund at tax time.  I didn’t know anything about withholding rates or how to do tax bracket calculations. Someone told me just put 1 on the W9 and you’re good to go.

And I got a bigger and bigger tax refund each year.  It was great!  I thought the government was so nice.

But after learning about the tax code, I realized I was just giving up my present income so the government could have some more money during the year.  I was giving them an interest free loan of a few thousand dollars every single year!

Now, I try to get my refund as close to zero as possible.  At the same time, I accordingly increase my savings and debt payoff contributions.  I’d rather have that money work for me throughout the year.

That being said, if you do receive a refund, you have to do something with the money.

Interesting Ways to Spend Your Refund

Here are 4 very interesting (and slightly questionable) ways to spend your tax refund:

1.  Buy an Apple Watch Space Black Stainless Steel Case with Space Black Link Bracelet.  Why spend hundreds of dollars on a run of the mill Apple Watch that tells the time and answers your phone?  Spend a thousand and now you can do the same with a space black link bracelet. ($1,099)

2.  Reserve the Tesla Model 3.  There is no car more coveted than the Tesla.  The Model 3 is a relatively affordable $35,000.  Put down the $1,000 reservation fee and figure out how to pay for it later when it arrives in 2018.

3.  Stay a few nights at a Trump Hotel.  Stay 3 nights at the Trump Hotel in Central Park.  Your friends will be so jealous.  It is the greatest, I mean absolutely the greatest most incredible hotel out there. ($1,500)

4.  Buy 50 shares of SNAP.  SNAP is the ticker symbol for Snap Inc. (very creative).  Snap is the parent company of Snapchat, which specializes in providing fun filters for our pictures.  It recently became a publicly traded company and is trading at $19.54 a share as of March 17, 2017.  Buy 50 shares and snap a picture of the confirmation email.  ($977)

While those are four pretty interesting ways to spend your tax refund, let me propose an alternative.  How about spend your tax refund on things that let interest work for you?  This will make your money go the extra mile.

Interest-ing Ways to Spend Your Refund

1.  Pay off your credit card debt.  The best thing to do when it comes to credit card debt is to avoid it.  The next best thing to do is to pay it off ASAP.  Credit cards charge extremely high interest rates.  The national average hovers around 15%, which is absurdly high.

This means that unless your investments are rocking and rolling and you’re getting a consistent 20%+ return year after year (which is nigh impossible), you need to get rid of that consumer debt FAST.  This will free up cash flow faster and save you a lot of money on interest payments.

2.  Increase your 401k contribution.  I like this suggestion.  I’m glad I thought of it.  The reason I like it is because it’s the most hands off and effective way to spend your refund.  If you already contribute to your 401k, just sign in to your account and increase your contribution percentage by a point or 2.  You will not miss the money trust me.

Once the tax refund hits your checking account, do nothing!  It’s as easy as that.  Your increased contribution rate will take that extra money throughout the year and get it invested.  You will save money on taxes and increase your retirement savings in one fell swoop.

3.  Fund a Roth IRA.  If you have maxed out your 401k, the next thing to focus on is your Roth IRA.  Combined with a pre tax 401k, the Roth IRA will allow you to withdraw money tax free, providing tax diversification for the future.  Because Donald Trump is the president so who knows what the future will bring?

The max contribution to a Roth IRA is $5,500 per year.  A tax refund of a thousand or so will get you almost 20% of the way there.  If you wish to max it out, you can set up automatic contributions for the rest of the year to get you there.

Another reason I like (love?) Roth IRA’s is that you can withdraw any contributions you’ve made to the account without penalty, as long as you’ve had the account for 5 years.  So it can serve as a quasi emergency fund if needed.

4.  Make an extra student loan or mortgage payment.  Depending on which of these debts has a higher interest rate, you can add rocket fuel to the payoff time with a nice lump sum payment.  Both of these debts can potentially give you some tax savings, so they’re not the WORST type of debt to have (see #1).

But debt is debt, and it should be paid off as soon as possible.  Just make sure to let your lender know that you want the payment to be applied to your principal amount ONLY.  Many lenders will pull a dirty trick of having it applied to interest first, which does nothing for you but everything for them.  Which is why it’s better to be debt free than continuing to do business with greedy banks!

Spend Your Refund Wisely

You can certainly spend your refund on the things on the first list.  It would make for a nice story and talking point.  But with all material things, the glamour fades very quickly.  And you’re right back to where you started financially.

Spend your refund on the second list, however, and you will provide a nice boost towards financial freedom.  In the end, that is truly what we’re all looking for.  Once you reach there, you can spend all the nights you wish at Trump Tower.

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Filed Under: Investing, Student Loans
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