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Thursday, January 31, 2019

Tips to Lease a Car for Less


After a house and college, a car is the largest purchase most families make. One of the decisions car buyers often consider is buying versus leasing. Car leases have lower monthly payments than car loans and are the primary way that luxury cars are financed. Their two major disadvantages are that lessees don’t get to keep their car at the end of the lease term and lease contract limits on the number of miles (e.g., 12,000 to 15,000) that can be driven annually without penalties.

Leases generally make the most sense for drivers who buy cars every 2 to 3 years (or always have car payments), drive fewer miles than the annual limit, and take good care of cars to avoid “excess wear and tear” charges. They do not make sense for drivers who want to economize and keep cars 7 to 10 years or more. Over time, the cost of leasing multiple cars will likely exceed the cost to buy one new one. Below are four tips to lease a car for less:
 Negotiate a Better Lease Deal- Request better terms than those that are advertised. For example, request a higher annual mileage limit if you have a long commute and a lower capitalized cost (similar to the purchase price of a car).
Follow “The Rule of Three”- Compare the residual value (estimated value of a car at the end of a lease), capitalized cost, fees (e.g., excess mileage) and money factor (similar to interest on car loans) for at least 3 different car dealers.

 
Purchase Gap Insurance- Cover the risk of having a car totaled in an accident or stolen and receiving less money from an insurance company (based on the car’s depreciated market value) than the cost of remaining lease payments.


Avoid Car Lease Penalties- Plan your lifestyle and driving habits (e.g., job tenure, length of commute, telecommuting frequency, and car care) to avoid fees charged for excessive mileage, excessive wear and tear, and early termination.

Friday, January 25, 2019

Tips to Buy a Car for Less



After a house and college education, a car is the largest purchase that many families make. With a $33,560 average price for a new car, it pays to take the time to shop around. Car buyers must weigh the pros and cons of new cars versus used and buying versus leasing. Below are three recommendations to consider:

  • Do Some Math- Compare low-interest, even zero interest, financing and cash rebate deals using an online calculator. The better alternative will depend on two main factors: how much below market interest rates the lower rate dealer financing is and the repayment period of the loan.
     
  • Do Some Research- Check out car pricing web sites such as www.edmunds.com and www.kbb.com before visiting dealer showrooms and review local auto advertisements. Find out the dealer invoice price or, better still, the dealer’s true cost after manufacturer bonuses and incentives.
     
  • Keep Transactions Separate- Negotiate each part of the transaction- car purchase price, financing, and car trade-in price- one at a time. Otherwise, it is easier for a car dealer to get a higher markup by offsetting a low price in one area with a higher price in another. Settle on the new car price first and get it in writing. Then get a price for a trade-in.















Friday, January 18, 2019

Financial Planning Tips for Women


The American Savings Education Council (ASEC) recently held a program about special considerations that women face in achieving financial security in later life. A key point was that the decisions women make early in their lives greatly affect their standard of living later. One speaker advised “Make a positive difference in your financial life because you will be the one that is stuck with it.” Below are six tips shared by several of the ASEC program speakers:

  • Figure Out How Much Retirement Will Cost- Use a simple planning tool such as the ASEC Ballpark Estimate calculator to figure out how much money you will need and how much you need to save annually to reach this goal. The Ballpark Estimate is available as both a downloadable worksheet and an online calculator.
  • Examine Social Security Options- Review your projected Social Security benefit by setting up an online account at https://www.ssa.gov/myaccount/. Carefully review benefit amounts available at ages 62, full retirement age, and 70 and weigh this data against personal factors (e.g., health status and financial need).
  • Avoid Giving Too Much Money to Adult Children- Set a cap on interfamily transfers to avoid diverting potential retirement savings for the living expenses of adult children (e.g., loan payments and cell phone bills).
  • Avoid Quitting a Job for Care-Giving- Keep income and grow future retirement savings by staying on the job. To balance work and family, explore options such as flexible work hours, telework, and adult day care.
  • Save Early and Often- Establish an emergency savings account. At the same time, start funding an employer-sponsored retirement plan and/or an individual retirement account (IRA). Both savings goals (an emergency fund and retirement savings) are very important, Try to multi-task them to maximize compound interest.
  • Learn the Rules- Study the rules of the systems that you plan to rely on for income in later life (e.g., Social Security, Medicare, a pension, and tax-deferred employer savings plan).
     

For additional information about women and personal finance, download the free Cooperative Extension workbook Moneytalk: A Financial Guide for Women.

Thursday, January 10, 2019

What to Do When an Emergency Fund Runs Out


Furloughs of U.S. workers during the 2007-2009 Great Recession and, most recently, during the federal government shutdown of 2018-2019 have highlighted the financial stress that many families face when their household income is cut off. Ideally, an emergency fund should be available to tide families over, but less than half of U.S. households have the recommended three to six months of expenses saved. Only 29% of households have 6+ months expenses set aside while 23% have no emergency savings, 22% have fewer than 3 months expenses, and 18% have 3 to 5 months expenses saved.

It’s fair to say that many household emergency funds won’t last very long. Then what? Ideally, people who have lost income have already cut back on discretionary spending and are living on less. Then what? Further spending cuts may be needed.

Then what? What happens next when a family’s emergency fund is completely gone?


Below are some other steps to consider to pay for living costs, depending on the specifics of the situation.

  • Develop a Side Hustle- Seek ways to earn freelance income during a period of no income or reduced income from an employer. Inventory your skill set and think about ways to convert your skills into an income stream.
     
  • Enlist the Aid of a Spouse- Determine if it would pay (considering child care and transportation costs) for an at-home spouse to enter the labor force and earn an income.
     
  • Borrow Money, If Necessary- During widespread income disruptions, such as a recession or government shutdown, some financial institutions may offer low-interest loan concessions. Other low-interest places to consider borrowing from are cash value life insurance policies, tax-deferred retirement savings plans, and/or close family members.
     
  • Take Advantage of Public Assistance Programs- Call 211 or visit www.211.org to find out about human services programs in your community and if you qualify. Examples include SNAP, energy assistance, and food pantries.

Friday, January 4, 2019

12 Steps to Review Your 2018 Income Tax Withholding


About one in 5 taxpayers are predicted to have insufficient tax withholding for 2018 for income earned from an employer and/or self-employment. This could result in a nasty tax bill by the April tax filing deadline or, worse yet, under-withholding penalties. Fortunately, there is still time to take action to address this situation. Follow the steps below to review your 2018 income tax withholding and make estimates for 2019.

Write down your 2018 federal income tax withholding as listed on your final 2018 paycheck.

Add any estimated quarterly tax payments made for Q1, Q2, and Q3 of 2018.

Add together the total of tax payments to date from Step 1 and Step 2.

Complete an AAII 2018 Tax Forecasting Worksheet with actual or best estimate numbers (using 2017 figures as a reference point): https://www.aaii.com/files/pdf/TaxGuide2018/worksheet.pdf .

Compare the Total Tax figure on the AAII worksheet with your 2018 withholding and Q1-Q3 estimates.

If you are projected to owe money, make sure that you have paid (through employer tax withholding and/or timely quarterly estimated tax payments) either:

a) At least 90% of what you are projected to owe for 2018 or

b) 100% (110% with a prior year adjusted gross income above $150,000) of your prior tax year’s (2017) tax liability.

These two guidelines are known as the “safe harbor rules” to avoid having to pay an under-withholding penalty. The latter is generally the easiest to calculate because the prior year’s tax number is a known number vs. early income estimates for 2018 income taxes.

If you don’t meet either of the safe harbor rules and will owe more than $1,000 in 2018 because your 2018 income tax withholding was insufficient, download IRS Form 1040-ES at https://www.irs.gov/pub/irs-pdf/f1040es.pdf.

Calculate the difference between your withholding to date (Step 3) and the amount that should be withheld as per safe harbor b (see Step 6, above).

Review the 1040-ES form and print out Payment Voucher 4 for fourth quarter estimated taxes due January 15, 2019.

Return Payment Voucher 4 with the amount that needs to be paid as per Step 8. Make sure that your payment is postmarked by January 15, 2019 or it will be considered late and you may be charged a penalty.

Adjust 2019 tax withholding according to the data described above. For example, if your income tax withholding was $2,600 short in 2018 and you receive 26 bi-weekly paychecks, have $100 more withheld from each 2019 paycheck.

Double-check your 2019 income tax withholding estimates using the online IRS Withholding Calculator: https://www.irs.gov/individuals/irs-withholding-calculator.

A few closing thoughts:

¨     Remember, the calculation described above is just designed to avoid having to pay the penalty for underpaying your taxes. When a complete tax return is prepared for the April 2019 tax filing deadline, it is possible that you could owe more money once you have exact figures for dividends, capital gains, and other “unpredictable” income sources.
¨     The federal underpayment penalty is calculated and assessed by the IRS quarterly. The first quarter 2019 interest rate will increase to 6%. If taxpayers don’t meet the safe harbor figures described above, interest is charged on the unpaid balance of taxes due for each payment period until they are paid or until the April tax filing date, whichever is earlier.

Red Flags of Investment Fraud

This week, I taught my Rutgers students about investment frauds like Pyramid and Ponzi schemes.  Each year, thousands of consumers lose ...