Starting College – Financial Tips

college 2Parents hope for a better life for their kids and it starts with helping after high school. Along with newfound independence come new experiences and unknown responsibilities. One of the most important talks that should be had before young adults venture out on their own is how to manage money and especially how to handle credit. An in-depth conversation will prepare them for the eventual struggles that we all experience and help them set the stage for a secure financial future.

Many of the tips you should share may seem obvious but don’t make the mistake of leaving them unsaid because you think it’s simply common sense. Common sense is defined as a basic ability to perceive, understand and judge things, much of which is acquired through the experiences of others. Share mistakes you’ve made and explain how easy it can be to get into trouble but encourage them that there are corrective measures, if they’re committed to turning a bad decision around to protect their financial future.

Teach your young people that cash should be the main source of funding, if at all possible. Living within their means will prevent the accumulation of debt that will be difficult to pay off on a fixed income and a burden when they move into the real world after graduation. If a credit account becomes a necessity, limits must be put in place to only use it to finance absolute necessities when sufficient cash is unavailable or cannot be secured in any other way.

When Credit is a Necessity
The fact that borrowing on credit can be costly is a fact that everyone needs to understand but especially young people who may be more impulsive in their spending. How monthly interest is calculated should be demonstrated using simple math equations and how interest compounds should be explained. The importance of having a lengthy credit history and a high credit score should be stressed.

Lesson #1: How you handle a credit card will affect your future in ways that may not be obvious now. Over time everyone establishes a credit history that reflects how well they handle money. This information is collected into credit reports that are used to calculate your credit scores.

Lesson #2: Handled with care a credit card can have a positive effect on your credit scores.
Lenders use your credit scores to decide whether to approve an application for a mortgage, automobile loans, personal or other types of loans. Mismanage a credit card by maxing out your credit limit and making late payments, and the often, repeated advice to young people to avoid using credit will prove true. If, however, you’re responsible and conscientious in paying the balance in full each month and on time, the benefits to your credit scores and the ability to get credit in the future will be vastly improved.

Lesson #3: The financial success of life on your own lies in taking a genuine interest in the details. Whether you’re choosing a bank, investment firm, employer, credit card or anything other situation that deals with money, what are vital to understand are the details in the fine print. With credit cards, the terms and conditions of each agreement vary and can mean the difference between reasonable and outlandish charges incurred for the privilege of borrowing. Fees and rates can add up quickly.

Factors that should be examined to make a wise decision when choosing a credit card:

  • Annual Percentage Rate (APR): Look for a low rate; a high one will cost more.
  • Annual Fees: Rates range from $25 to $300. Look for a no or low fee card.
  • Penalty Fees: Pay late and you’ll be charged a maximum $25 fee. Go over your credit limit and pay another fee. A penalty rate increase can be imposed for late payments of more than 60 days and remain in effect for six months. Make three late payments and you’re stuck with the penalty rate.

Lesson #4: Using a credit card responsibly takes discipline and commitment. Limit yourself to one card for purchases you can pay off when the bill comes due. Never use a credit card for an impulsive purchase; if you can’t afford to pay with cash, you simply can’t afford it. Frivolous spending will result in an out-of-control balance that may be hard to pay down. Carefully examine every billing statement for errors before making the each payment on time.

Anyone under the age of 21 is required to have a co-signer or proof of sufficient income to make the payments before being approved for a credit card in their name. Sit down together and compare a number of student card offers and teach them how interest is calculated and the debt trouble that can ensue if care isn’t taken.

The Last Word
If your child pays attention to even half of the advice you offer, they’ll be ahead of their peers trying to navigate without any guidance. The right information and your willingness to oversee their efforts in learning to manage their own finances will help them avoid the hardship of learning the hard lessons on their own.

 

Filing Income Taxes Can Be Stressful

Tax Preparation ServicesIt’s often said that the winter holidays are the most stressful time of year, but I bet anyone who has to file an income tax return could easily argue against that contention. With mounting anxiety, Americans often procrastinate for weeks or months before rushing around to collect all the necessary paperwork they need to file. Finally they sit down to face the task – often unaware of which way their return will fall. Will they owe this year or get a tax refund?

 

The economic demands of our day make this season of stress even more challenging for many. With income barely meeting their needs and unexpected expenses straining an already tight budget, many people dread the thought of an additional tax bill. On the flip side is the relief felt when they find that they’ll be getting a refund check in the mail.

 

Knowing that the anxiety-inducing job of filing a tax return is inevitable simply means that postponing the task just adds to the stress. So no matter what you may expect, whether good or bad, the first step in easing the stress is to get down to business. Then, once you know the outcome, you’ll have time to decide how to ease the burden of a tax bill or the best use for a tax refund.

 

You owe the Taxman!

Taking the worst-case scenario first, finding that you owe the IRS. First off, don’t panic even if the amount is beyond your ability to pay within the 10 days allotted after the IRS has made the assessment of what you owe. You need to be proactive in finding a solution while protecting your assets. No one will come to arrest you, but you will begin to get threatening notices before you’ll be contacted by a revenue officer. Quick action will help prevent the harassment and additional penalties and interest.

 

The first question to ask is whether you actually owe the money. A simple mathematical error can mean the difference between a refund and a tax bill. Thoroughly review the forms you filed for discrepancies. Better yet, pay a professional tax preparer to go over your returns again. If you discover that you definitely owe the IRS, you have multiple options to repay. Some will reduce the net amount owed; others will increase your overall payout.

 

An installment plan is the option used by taxpayers who owe less than $25,000. Fill out IRS Form 9465, a straight forward, form used to request a monthly payment plan. Provide the total amount you owe, how much you are able to apply to the tax bill right now and the amount you can pay each month. The IRS then can adjust the agreement or offer other arrangements.

 

Other options for taxpayers who owe money include account receivable and bank levies, wage garnishment, penalty abatement and what’s called an ‘offer in compromise’ which lowers the amount owed. However you decide to address your obligation to the IRS, the sooner you pay it off, the less you’ll pay in interest and penalties.

 

Whoopee! A Refund!

While celebrating may be overkill, taxpayers who are getting a tax refund can breathe a sigh of relief for dodging a tax bill. They now have an opportunity to make wise use of a tax windfall.

 

  • Invest/Save: One of the most fiscally responsible uses would be to deposit it into a 401k or other investment fund that earns interest.
  • Pay off Debt: While increasing your investment accounts has obvious benefits, the decision to pay down debt is a stress reliever for anyone who carries a balance. Lower debt has the potential to move your credit score in a positive direction making future borrowing easier.

 

Experiencing less stress during tax season comes when you pursue excellent financial management all year long. Avoid becoming overwhelmed by consistently burning the midnight oil and sacrificing entire weekends to work. Focus on balancing work and your private life. Set financial goals and celebrate milestones.