Tackling Your Credit Card Debt

Do you watch the Super Bowl for the game or for the commercials?  For me, it really depends on which teams are playing, but I can’t deny that those million dollar ads often keep me in my seat through the commercial breaks.  This year, Comcast reports that advertisers will pay about $3.5 million for a 30 second spot, but that figure seems like a drop in the bucket compared to $798 billion…that’s the amount Americans now owe on their credit cards.

Recent released Federal Reserve data indicates that consumer borrowing is again on the rise.  With increased spending in the last quarter of 2012, U.S. consumer credit card debt has now reached a staggering $798 billion.  In my last post, I recommended that each of us should access and review our free annual credit report at AnnualCreditReport.com.  If your credit report shows that you have credit card debt that contributes to this enormous U.S. consumer debt total, now is the time take action!

In the spirit of the upcoming NFL Super Bowl, now is the time for you to tackle your own credit card debt.  Follow these steps to move you down the field and toward the goal line of a (credit card) debt-free future:

(1)  Huddle up. Assess your current credit card debt status.  Use your credit report to gather information on your outstanding credit card balances, interest rates, minimum payments and due dates.

(2)  Review your playbook.  Assess the minimum payments on all outstanding credit cards and make sure cash flow allows you to stay current; determine if/how much cash flow allows for more than minimum payments.

(3)  Narrow down your potential plays and make the call.  Check into the possibility of combining outstanding card balances to a card with a 0% interest or at least one with a lower rate.  Determine your strategy for tackling outstanding balances.  From a purely numbers perspective, you will end up paying the least by directing allowable cash  flow to making extra payments on highest interest rate cards first.  However, you must choose the strategy that keeps you moving forward, so if paying off the smallest card first (even if the interest rate is lower) makes you feel like you’re making the most progress, that may be the best strategy for you.

(4)  Keep moving forward by avoiding penalties.  Keep making payments against your outstanding debt AND avoid moving backwards by charging more.  Put your credit card spending in time out until your credit card debt has been paid down.

As Tim Wyman mentioned in his recent post about your Net Worth, one way to positively affect your financial wealth is to decrease your debt.  Set yourself up to score on your Net Worth and plan to tackle your credit card debt in 2012.

Source:  http://online.wsj.com/article/SB10001424052970203899504577130940265401370.html

Keep Score with Your Own Net Worth

In my January 4, 2012 post I shared nine steps to get a start on improving your financial health in the New Year.  At the top of the list was:

Take score: review your net worth as compared to one year ago

I must admit, I don’t find myself playing too much golf these days.  However, when I do, I keep score to see how I am doing. A net worth statement is your financial scorecard.  In its simplest form, your net worth statement lists what you own, subtracts what you owe, and the balance is called your Net Worth.  While there is no ideal Net Worth, it certainly is better to have a larger positive Net Worth – thus owning more than you owe.  Next to establishing personal financial objectives, an evaluation of what you own and owe is probably the most important ingredient in creating a plan your financial future. 

From the information contained on your Net Worth statement, you can measure whether or not you have sufficient liquidity, calculate your debt/equity ratio, review the nature and diversification of your assets, and determine the impact of federal estate taxes on your estate.  Your Net Worth statement is also used in your Financial Independence analysis and in evaluating your insurance needs.  With proper planning, discipline and careful monitoring, your Net Worth is likely to appreciate in value over time. 

Even in a year when investment returns are flat, your net worth can increase if you are saving money and/or paying down debt such as a mortgage, college loans, auto loans, or dreaded credit card debt.  There are many resources online to help you keep score.  Even better yet, you can work with your financial advisor to begin tracking your progress. 

Schedule a Check-Up with Your Credit Report

As the famous American Proverb goes, “The best things in life are free”.  If you’re thinking a vacation home in Key West or a new sports car, then the Proverb might not ring true for you.  However, if one of your resolutions for 2012 was to get financially healthy…I have great news for you!  The annual credit report offered by the U.S. Government is FREE.  

AnnualCreditReport.com is the official, and only really free credit report that each of us can access on an annual basis (any of those other “free” sites that ask you to enter a credit or debit card may not really be free; be careful to read the fine print on such offers).

Your credit score is one of the key factors in determining your qualification for loans such as mortgages and car loans.  Even more than that, these days your credit score can be considered when you apply for life insurance or apply for employment!  Now, more than ever, it is important to make sure that your credit report is accurate.

Here are a few simple tips for reviewing your credit report:

(1)    Review the accounts listed.  Since accounts will remain on your report for up to seven years after they are closed, you may have inactive accounts listed.  However, if there are accounts listed that you don’t remember opening, you should contact the vendors immediately to investigate.

(2)    Review account limits and balances.  If your outstanding balance is more than 25% of your available credit, this could hurt your credit score.  Remember that the balances and or limits appearing on your report could be up to 30 days behind.

(3)    Review late payments on the accounts listed.  If there are late payments listed that you believe to be incorrect, contact the creditor immediately to clear up the discrepancy.  Late payments can adversely affect your credit score.

(4)    Review the entire report, including former names and addresses.  Make sure that any incorrect information is corrected –  if your credit report was somehow associated with someone else with a less than stellar credit history, you could be getting penalized for someone else’s credit miscues.  Contact the appropriate credit reporting agency to correct any errors.

Start the year off right by getting a check-up on your credit report.  Visit AnnualCreditReport.com today.

My next post will provide strategies for tackling outstanding credit card debt.

The Genetics of Saving

For all of you that find saving money for future goals a challenge – don’t worry – its genetics!  At least that’s what a recent study seems to suggest.  Stephan Siegal, assistant professor at the University of Washington, Foster School of Business in Seattle, concludes that based on his research that “genetics is the single greatest determinate of an individual’s propensity to either save or spend.”   Professor Siegal’s research and conclusions are sure to draw interest from the many individuals and advisors that just might think his explanation is a bit too simplistic.                                                 

In working with individuals who have accumulated the necessary wealth to meet their goals, such as financing a college education or funding a successful retirement, I have found that saving money is more than just dollars and cents.  Becoming a good saver (and meeting future financial goals) requires discipline, perseverance and sound strategies such as systematic savings plans like 401k’s, 403bs, and other automatic investment plans.

So, the next time you buy the 52” HDTV instead of fully funding your 401k blame your genetic makeup!  And then make sure you schedule your annual meeting with your financial planner to make sure your on track to meet your short and long-term financial goals.

Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

Actionable New Year’s Financial To Dos

Yes, it’s time to turn the page on 2011 and start anew!  There’s nothing like a fresh calendar to begin making plans for your envisioned future.  Last week, we provided you with some of our Center best ideas for creating financial planning based resolutions.  Here, we provide you with some very specific and actionable steps you can take now to get a start on improving your financial health: 

1. Take score: review your net worth as compared to one year ago
2. Review your cash flow: how much came in last year and how much went out (hint: it is better to have less go out than came in). 
3. Be intentional with your 2012 spending: also known as the dreaded budget – so think “spending plan” instead.
4. Review and update beneficiaries on IRA’s, 401k’s and life insurance: raise your hand if you want your ex spouse to receive your 401k
5. Review the titling of your non retirement accounts: consider a “transfer on death” designation, living trust, or joint ownership to avoid probate.
6. Revisit your portfolio’s asset allocation:
7. Review your Social Security Statement: if not yet retired you will need to go online – everyone’s trying to save a buck on printing and mailing costs
8. Check to see if your retirement plan is on track: plan your income need in retirement, review your expected sources of income, and plan for any shortfall.
9. Set up a regular review schedule with your advisor: an objective third party is best – but at a minimum set aside time on your own, with your spouse, or trusted friend to plan on improving your financial health.

So, after you promise to exercise more and eat less, get started on tackling your financial checklist!

In subsequent posts, we will elaborate on a few of these suggestions. Wishing you a prosperous New Year!

You Know You're from Michigan If...

As Jeff Foxworthy so eloquently phrased it, “You know you’re from Michigan if”:

You’ve ever had your heat and air conditioning on in the same day.

You can use your hand as a map.

You can drive 65 mph through 2 feet of snow and a raging blizzard…without flinching.

During Michigan/Michigan State week at least one member of your household disowns you.

To people who live and work in Michigan it has always been with a sense of pride that we talk about our State.  In fact, we have one of the highest percentages -- over 76% -- of people who were born in Michigan that still live in Michigan.  However, this may not be by choice alone.   Over the past few years, the state of Michigan has come upon harder times than most.  Michigan lost 860,000 jobs from 2000 to 2009, almost half in the final two years.  Add to that the fact that real estate prices are depressed, and you may have a lot of people feeling stuck. 

Unfortunately, much of our state hinges on the health of automotive production. 

When the automotive companies are struggling, so is the economy of the state.  While it may seem like the downswing is here to stay, there are several signs pointing to better times ahead.  Recently, a Bloomberg index that tracks the pace of state growth shows the pace of Michigan’s recovery surpassing all but North Dakota -- thanks mostly to automotive industry recovery.  While our unemployment average is still well above the national levels, it has improved a full percent over this time last year.   

And you never know with Michigan. This past summer, while ratings agencies were downgrading US Government debt, they were making positive comments about Michigan debt, citing a balanced budget and an improving economy as the catalyst.

While the last decade has indeed been a lost decade for Michigan, there is hope on the horizon.  So next time you are driving coast-to-coast -- that is Muskegon to Port Huron -- remember how wonderful life in Michigan can be.

Sources:  The Geography of Stuck, http://www.theatlanticcities.com/housing/2011/11/geography-stuck/534/

The Holidays – A Great Time for a Family Board Meeting

If your family is like most, the holidays are one of the few times during the year that the entire family gets together in the same place at the same time.  If you happen to be an adult child serving as a caregiver for an elderly parent (or parents), now is the perfect time to take charge as CEO of your “family care corporation” and schedule your annual board meeting.

Typically, if children are caring for aging parents, one of the children shoulders the burden more than the others.  If you are in this position, do what any corporate CEO would do…schedule a board meeting and do some strategic planning.  Manage the business of family caregiving by working with other members of the board (your siblings and your parents, if they are able) to make sure all parts of the business are being managed efficiently and that all parties are contributing to its success. 

Make sure the following job duties are covered by members of the board:

• Managing the finances.  Making sure that someone is overseeing the finances and making sure that bills are being paid.  With online bill pay and access to bank accounts from remote locations, this may be the perfect job for the out-of-town sibling that is demographically unable to handle other duties. 
• Managing the care.  If you are working with a Geriatric Care Manager or in-home care company, someone needs to be the primary contact for these services and communicate any developments to the rest of the family.
• Managing the day-to-day operations.  This is likely the job for the sibling that lives nearest. It includes running errands and accompanying elderly parents to medical appointments and getting groceries, amongst other things.

Once duties have been delegated, be sure that each sibling has the tools he or she needs to do their job.  Make sure necessary authorizations are in place, which may include legal documents including Durable Powers of Attorney for General/Financial and Durable Powers of Attorney for Health Care.  Schedule frequent reporting sessions so everyone can stay on the same page.  And make it a point to schedule family meetings with your parents’ professional advisors – financial planner, CPA, estate planning attorney, etc.  This group of professionals can serve as a crucial advisory board for you and your family.

A business cannot be successful if one person is trying to fill every position.  As the sibling who has chosen to take charge, make sure you empower your siblings to contribute to the success of your family care corporation.

A Holiday Shopping Three-Step Challenge

If you’re like millions of Americans, one of your after Thanksgiving dinner activities tomorrow will be making your holiday shopping list and browsing the Black Friday savings deals that are published in advance.  Your excitement will build as you anticipate the first store door opening on Friday morning.  You will prepare to feel the adrenaline rush as you dash in for the best buys of the season.  You are ready to save!  Or are you?

For most of us, we feel a great sense of accomplishment in finding great deals during the holidays.  In fact, many of us will buy an item that isn’t even on our list because the deal is just too good to pass up.  So, are we actually saving or just spending?  Wouldn’t it be a better strategy to find good deals on those items actually on our list, and save the rest?

My three step challenge for you this Black Friday (and the entire holiday shopping season) is this:

1. Make a list of those items you wish to buy for each person on your shopping list – before you leave home – and set a limit on what you can afford to spend.
2. Find the best deals you can find on those items you have listed, but avoid buying additional items just because the deal is too good to pass up.
3. If you find that you have money left over in your budget after your shopping list is completed, invest in yourself.  Put the extra dollars towards either a short-term savings goal (like a car) or a long-term savings goal (like retirement).  Add the cash to a savings account, investment account, or to your IRA or ROTH IRA (if you haven’t already contributed the maximum amount allowable this year).

Meeting the three step challenge will help you to cross of all of the items on your gift list, feel the accomplishment of finding great deals, and invest in yourself all at the same time!  So get ready, get set, and SAVE!

What Does a Social Security Raise Mean to You?

You may have heard that the Social Security Administration recently announced a 3.6% cost of living increase for Social Security recipients starting in 2012. This is good news for those receiving Social Security benefits, as the last increase came two years ago (5.8% in 2009).  If you are not yet drawing Social Security, you may be wondering what this raise means for you. 

While a PhD in Social Security benefits might be needed to calculate how, a fact that is less known is that those aged 62 or older who are not receiving benefits just yet also receive benefit of the 3.6% increase.  Essentially, Social Security benefits before age 60 are based on wage increases, but at age 62 they are based on price increases, i.e. the 3.6% cost of living adjustment. 

Other Social Security related changes courtesy of Horsesmouth.com include:

• The maximum taxable wage base rises to $110,100 in 2012, up from $106,800 in 2011.  This means that you do not pay Social Security tax on any wages over $110,100 next year.
• The earnings test before full retirement age rises to $14,640 in 2012, up from $14,160 in 2011.  If you are drawing Social Security before your full retirement age, you can earn $14,640 next year before your Social Security benefits will be reduced.
• The maximum Social Security benefit for a maximum earner retiring in 2012 will be $2,513/month, up from 2,366/month in 2011.

The bottom line is that Social Security benefits can have a meaningful impact during retirement and it is important to maximize those benefits to the extent possible.  Careful analysis based on your particular situation is therefore critical to your financial health.  Consult your financial advisor about maximizing your Social Security benefits.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.

The Gift that Keeps on Giving

As the holiday shopping season approaches, many of us struggle to make our gift lists.  This can be a frustrating exercise, particularly when it comes to you adult children and grandchildren.  What can we possibly give them that will be appreciated and not be sitting on the dresser in a week when the next new gadget comes along?  Why not consider a gift that will keep on giving long after your gone?

If your children or grandchild had earned income from employment during 2011, you can contribute up to $5,000 or 100% of their total earnings (whichever is less) in a ROTH IRA in the child’s name.  [Remember that what you put in to the ROTH IRA counts toward the $13,000 annual gift exclusion; $26k if your spouse contributes to the gift].

Why is the ROTH IRA such a great gift?

• It grows tax-free over time.  A $5k contribution to a 16 year-old’s ROTH IRA earning 8% each year will grow to $217,000 by age 65*.  If the child works summers during high school and college and contributes each year, the future balance in the account will likely be significantly larger.
• ROTH IRAs provide tax-free withdrawals after age 59 ½**.
• In some specific situations, the child can pull out contributions (not earnings) free of tax (i.e. for the purchase of a first home).

A Roth IRA can be one of the best gifts you can give…one that will be giving for years to come.

*This is a hypothetical illustration and is not intended to reflect the actual performance of any particular security.  Future performance cannot be guaranteed and investment yields will fluctuate with market conditions.

**Unless certain criteria are met, ROTH IRA owners must be 59 ½ or older and have held the IRA for five years before tax-free withdrawals are permitted.