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No Need To Rush. Get An Extension On Filing Your Taxes!

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This year, millions of Americans will sweat over doing our taxes during the final week before the April 18th deadline. Trying to find all of the paperwork, digging up and organizing charitable contributions, and searching for extra deductions takes time. What many are not aware of is that there is actually no need to hurry. You can get an extension on filing your taxes simply by utilizing one of many available options. The IRS will grant a six-month filing extension (to October 17, 2011) to just about any taxpayer who requests one by April 18, 2011.

Does That Mean I Get Extra Time To Write The Check For My Tax Bill?

Unfortunately, no. Otherwise, this would surely be a more popular option. The extension is only to prolong actually filing your taxes, not to paying them later. If you owe taxes, you will need to do at least a rough estimation of how much you are going to owe and then send that in. The amount you send must be at least 90% of what your final tax bill or you may owe the failure to pay penalty, but this penalty is significantly less than the late fees for not filing. The failure to pay penalty is 0.5 percent of the unpaid money for each month that you are late paying. If you were to not pay and not file the penalty would be 5% a month (25% maximum). Filing an extension gives you extra time to file your taxes and avoid the higher penalty. Of course, if you have a refund waiting, you cannot receive that refund until you file. If you incorrectly estimate the amount that you owe and send in too much money, you will be able to get the extra back when you file.

How Do I Get An Extension?

There are two basic options for getting an extension: you can either file the request form (4868: Application for Automatic Extension of Time To File U.S. Individual Income Tax Return) electronically or by mail, or you can simply send the IRS the amount of money that you estimate to owe them (using a credit card or debit card). Form 4868 has a worksheet to figure out what you owe and provides additional information.

File Electronically

Many tax programs include this extension form, so if you have already started your taxes with a tax program, you might be able to file through that program. Or, if your income is $58,000 or less, you can use the IRS’ Free File website. The service is free and very easy to use. (How to file taxes for free)

If you do not qualify to use Free File, be sure to only use a trusted and established tax program to file your extension; while this is one of the most simple forms that the IRS provides, there are many “services” on the web that will charge you a lot of money to file it for you, and it may not even go through at all.

File By Mail

The IRS will accept printed copies of IRS form 4868 through the mail. Make sure that the form is filled out completely and accurately. This includes double checking your Social Security number (and your spouse’s, if you file as “married filing jointly”) and make sure that your name is readable if completing it by hand. You must take these precautions because if your form is rejected for any reason, however minor, you will owe significant penalties on your now-late payments. If you have any tax due, be sure to include a check, money order or printout of your receipt from paying online.

Simply Pay Your Tax Bill

Sending the IRS your tax due will automatically provide you with you a six-month extension to filing your actual tax return itself. The IRS accepts credit and debit cards (although fees from the card issuer may apply), as well as direct transfers from your bank. If you can do a quick estimate of the tax bill you will owe, and you have paid or pay at least 90% of what you owe (through estimated payments, withholdings, or whatever you include with form 4868) then you will most likely be okay. However, if you do not owe any money or you are due a refund, you need to file a tax return, especially if you made more than the standard deduction.

Again, please remember that an extension on filing your taxes is not the same as an extension on paying your taxes. If you genuinely do not have the money, filing an extension will not allow you more time to pay, and you will still rack up penalties if you do not make a payment. If you cannot pay your tax bill, contact the IRS and ask for assistance and in most situations they will be happy to set up a monthly payment plan or some other type of payment arrangement. The IRS would rather work with you and get something set up now than wait for years while your penalties pile up.

So even if you are out of stamps, you are not out of time! File an extension and gain a little breathing room. At the very least, your accountant will thank you.

This guest post was provided by TaxDebtHelp.com, a site that provides news, tax tips and IRS debt help.

“Working” Retirement: Make Money Doing What You Love

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One of the things about retirement that has always somewhat bothered me is the idea of doing nothing. To me, the idea of sitting around without working doesn't hold any sort of appeal. Which is why I plan a sort of “working” retirement. I plan to continue writing, even when I am retired. Retirement doesn't have to mean sitting on your front porch, waiting for the grandkids to show up (unless you want to mean that, of course). You can still do something you love — and possibly make money at it.

Why Income Is A Good Idea In Retirement

Planning some sort of income for retirement is a good idea for just about anyone. While you can withdraw money from a nest egg and count that as income, it isn't always best to rely on your retirement account — as many found out in late 2008 and early 2009. A market crash can take its toll on your nest egg, and you don't actually know what will happen with Social Security in the future. This means that it can be a good idea to find other sources of income that can help you in retirement.

If you have another source of income, you won't need to take the same distributions from your retirement account, and that will ultimately help it last longer. Plan a “working” retirement, and you will be more firmly in control of your financial destiny, rather than being at the mercy of the market, or a collapsing Social Security system.

What You Can Do To Enjoy A Working Retirement

As I mentioned already, I plan to continue writing, even in “retirement.” I probably won't write as much. Or I will write from some fabulous and exotic locale, enjoying myself when I'm not writing. There are other jobs conducive to a semi-retirement lifestyle. Some of these include:

  • Consulting
  • Marketing and public relations (including social media marketing)
  • Other freelance options, such as graphic design, programming, and editing
  • Teaching (especially adjunct teaching at a local college)
  • Investing (building up an income portfolio)
  • Monetizing a web empire

Not only can these options provide you with a steady stream of income, but they can also ensure that you have something engaging to do. You will keep yourself busy and engaged, and probably enjoy your time more. Semi-retirement is all about doing something you enjoy, while still earning a little bit of money. This creates a situation that allows you to be more financially secure during retirement, while at the same time remaining active.

Helping Others During Retirement

Of course, it is still possible to be busy during semi-retirement and not do something that brings in money. Many people choose to devote their retirement years to service. There are a number of volunteer opportunities in your community and around the world. If you have some sort of expertise, you can use it help others, giving of your time and talents to make the world a better place. This can be a great way to use your retirement funds to enjoy this part of your life — while making a real difference. What your retirement looks like should largely depend on your financial priorities.

What do you want to do during retirement?

Can Identifying With Your Future Self Get You To Save More For Retirement?

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Our country is currently going through some hard economic times, with record numbers of people being unemployed, or out of the work force. So when folks finally get back into the workforce, it can be tough to even begin thinking about setting up a retirement plan and saving for retirement. The problem is, time waits for no man (or woman). People are in danger of having to drastically reduce their lifestyles in retirement out of necessity. In fact the Center for Retirement Research at Boston College found that 51% of American households are at risk of being unable to maintain their standard of living in retirement, up from 43% in 2004.

While we continue getting older, unless we're regularly saving for our retirement, our retirement is becoming less and less sure. So what is it that people need to get over that hump and be convinced that they need to be saving and investing for retirement? What are some things that can help make them more likely to save?

Visualizing Your Future Self

One thing that researchers have found is that people have a hard time thinking about the future because it seems so distant, because they don't know how to think about what their wants and needs will be in the future and because they can't really identify with where they'll be 20-30+ years in the future.    In other words, they can't identify with their future selves.  Excerpts from the WSJ:

Staring into a mirror today and seeing yourself as you will look in the year 2057 is unnerving. But that may be just what it takes to shock Americans into saving more. At Stanford and other universities, computer scientists, economists, neuroscientists and psychologists are teaming up to find innovative ways of turning impulsive spenders into patient savers…

Behavioral science offers at least a partial answer: To make long-term financial goals more achievable, you must make yourself feel as if the future is now.

The project underway at Stanford seeks to close this gap between the present self and the future self, without turning young people into misers. By enabling the young to see themselves as they will be when they are old, virtual-reality technology can transform their urge to spend for today into a willingness to save for tomorrow.

William Sharpe, the Nobel Prize-winning economist who co-founded Financial Engines Inc., a firm that provides investment advice to retirement savers, says, “The idea of getting people to feel sorry that ‘Poor old me, at age 70, is going to need help if I don't save more now'—I regard this not as persuasion, but as additional information.” After he heard about the technique, Prof. Sharpe asked to monitor the research and became a co-author of a forthcoming study on its effectiveness. “It's very promising work,” he says.

What they found was that when people were put in a situation where they had to identity with how they would look and act in the future, they were more likely to be open to investing for the future.  Why? Because of what they call the “Proteus Effect”

The Proteus Effect

So what is the Proteus Effect?  In it's simplest terms, it's behavioral alteration in the real world triggered by changes in how our bodies appear to us in a virtual world.  In other words, things that happen virtually have a very real effect on us.

Experiments have shown that if you are sent into a virtual-reality environment with a particularly good-looking “avatar,” or digital self-image, you are likely to become more sociable. Seeing your avatar exercising in a virtual world can spur you to add an hour a day to your exercise routine in the real world; people whose avatars do the dirty work of sawing down a virtual tree use less real paper later in the day. Given a taller avatar, you will act more confident and negotiate more selfishly.

What researchers also found was that when young people were shown future versions of themselves, they were much more likely to want to save for retirement, probably because they were more able to relate to their future selves, and realize they would have a need for money in the future.

“People who see their future selves end up being more patient,” says Hal Ersner-Hershfield, a psychologist at the Kellogg School of Management at Northwestern University, who led the project.

In one experiment, young people who saw their elderly avatars reported they would save twice as much as those who didn't. In another, students averaging 21 years of age viewed avatars of themselves that smiled when they saved more and frowned when they saved less. Those whose avatars were morphed to retirement age said they would save 30% more than those whose avatars weren't aged.

Real World Applications

So how can we take the knowledge that feeling more in tune with your future self can help you to save, and use it to our advantage?  For starters, why not create your own age morphed photo?

Create an aged picture of yourself to put on the refrigerator or on your computer – and use it to remind you of your need to save. One great site to do that at is In20Years.com.  You just upload a photo of yourself and it will instantly age you by 20 or 30 years.  It's quite eye opening to get an imagined version of yourself – that far in the future. Here are a couple of examples done using that site, with the originals in the lower right corner:

I know when I did it for myself, it certainly made me feel a bit more of a sense of urgency to save.

What are some other possible real world applications of age morphed photos?  The article suggests some:

  • Placing age morphed photos on a company's benefits site:  Encourage employees to save for retirement by placing an age morphed photo of them on the company's benefits page, with their approval of course.  It might be a good way to encourage savings.
  • Tool for financial advisors: Financial advisors could use age progressed photos as a part of their practice to help encourage people to think about the future.
  • Brokerages and mutual fund company sales tool:  Companies could of course use technology like this as a sales tool – which isn't necessarily all bad if it gets people to save.

Other Ways To Encourage Saving For Your Future Self

There are of course other things that you can do to feel more in tune with your “future self”, to encourage your savings.

  • Set an actual retirement date:   Studies have found that people are more willing to put off the benefit of future realized savings, if they can imagine an exact date that they will retire. So set an actual date that you would like to retire, and even name your accounts by that date!  For example, The “May 8th 2041 Fund”.
  • Monitor your progress regularly:  Set goals to save towards, and monitor your progress regularly. Even consider setting up prompts in Google Calendar or other software to remind you to go and update your progress on a regular basis.
  • Imagine how you would feel in a comfortable and worry-free retirement: Studies have shown that just taking 3-5 minutes to visualize a trouble free and relaxing retirement every once in a while and using that as a prompt to save works quite well.   People were found to be 25 percentage points more likely to increase their savings on the spot when engaging in such behavior.

What other ways can you think of that can help you to visualize your retirement, and encourage you to save today?  What tips and tricks do you use?  What do you think of the age morphed photos? Tell us in the comments!

Betterment.com Review: Making Investing As Easy As 1-2-3

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There's been quite a bit of buzz lately about a new investing and brokerage account through a website called Betterment.com.

A lot of personal finance blogs are writing about it because it takes a topic that can be confusing for a lot of people, and makes it accessible. 

They take the investing process and make it as simple as 1-2-3.  Sign up, fund and invest.

Ok, let's back up for just a moment. 

What is Betterment?

At it’s very core it’s just another of the online brokerages that we hear about all the time on this site and others.  They allow you to hold stocks and bonds as investments via ETFs, like an account through Scottrade or ShareBuilder. But it’s more than just a brokerage account.  It’s also a tool that helps automate the investing process,  to make it simpler for the average Joe. 

You can set up automatic investments every month, and it will also automatically re-allocate your investments for you on a regular basis. In essence it's a set it and forget it investing solution.

I recently signed up for Betterment to give it a run-through, and today I thought I'd do a quick review of Betterment.com.

Quick Navigation
Betterment History
Recognition & Awards
Simple Investing? How Simple Can It Get?
Forecasting And Visualization Tools
Portfolio Out Of Whack? Automatic Re-allocation To The Rescue
What Does It Cost?
I’ve Signed Up For Betterment

Betterment History

Betterment.com was founded back in 2008 by Jon Stein.  While it was founded back in 2008, Betterment.com only recently launched at TechCrunch Disrupt 2010 NYC. In December 2010 Betterment.com received $3 Million in a series A financing round from Bessemer Venture Partners (lead) and Anthemis Group.

Betterment LLC is a Registered Investment Advisor with the SEC and they’re SIPC insured.  You can be assured of the same protections as you would with a larger financial institution.  Of course since this is an investing account and not a savings account, there is no assurance of not losing your money.

Betterment only launched a few months ago, but because they've got such an innovative concept, it's receiving a ton of buzz.  They've received writeups in The New York Times, CNNMoney, Investment News, Mint.com and more.

Recognition & Awards

While Betterment has only been around since the end of last year, they've already started garnering a ton of attention, and a few awards for their trouble.

  • TechCrunch Disrupt NYC 2010 “Battlefield Finalist”
  • TechCrunch Disrupt NYC 2010 “Best NYC Startup”
  • FinovateFall 2010 “Best of Show”

So while they have just launched folks are already starting to recognize them and their concept as a powerful one.

Simple Investing? How Simple Can It Get?

So what's the idea behind Betterment?   Their basic idea is this – so many folks in this day and age are either too busy to get too involved or too intimidated by the complexity of investing that they just don't do anything at all.  Betterment looks to take all of that away by just making investing simple, and removing a lot of un-necessary choices. Here's a video run-down of how Betterment works:

http://www.youtube.com/watch?v=qArLnDl5YuY

So when you sign up for an investment account with Betterment, the process will be as simple as choosing:

  • How much to invest.
  • How much of your investment you want in equities (Stock Market).
  • How much you want in Treasury bonds (TIPs).

You can also set up automatic investments on a regular basis if you want to.

Within stocks and bonds, they divide up your holdings into a variety of ETFs so that you are diversified.   Here is what you get on the stocks side:

  • 10% SPDR Dow Jones Industrial Average ETF (DIA)
  • 20% iShares S&P 500 Value Index ETF (IVE)
  • 20% iShares S&P 1000 Value Index ETF (IWD)
  • 15% iShares Russell 2000 Value Index ETF (IWN)
  • 15% iShares Russell Midcap Value Index ETF (IWS)
  • 20% Vanguard Total Stock Market ETF (VTI)

For Treasury bonds, you get

  • 50% iShares Barclays 1-3 Year Treasury Bond Fund (SHY)
  • 50% iShares Barclays TIPS Bond Fund (TIP).

So the stocks and bonds you get will give you a nice diversified portfolio that will for the most part track index performance across various sectors.

Forecasting And Visualization Tools

One of the cool things in the Betterment account are the allocation and visualization tools that they have available. The tools make it easy for the average investor to see what kind of returns they might see (given historical returns)  if they invest with a 5, 10, 20 or even 30 year time horizon.   Once you come up with an allocation and time horizon that you are comfortable with, just hit the button to change your allocation, and within a few days your changes are made!  Check out their online demo here: (demo).

Let’s say that you have about $50,000 invested as the demo account does.   If you have 80% invested in stocks and 20% in bonds, given a 20 year time horizon it will show you a forecasted range of returns that you could expect to see – anywhere from $100,000-$600,000.  Change the percentages and time-line and it can drastically affect your results.  It's interesting to look at just how drastically things can changed based on the decisions you make.

So if you decide you want to change your allocation either to include more stocks or bonds, you just move the slider up or down, and then hit the “change” button, and Betterment will update your account holdings and purchasing decisions going forward.

Portfolio Out Of Whack? Automatic Re-allocation To The Rescue

One thing that often happens with traditional retirement accounts is that the account owner neglects to ever update his or her portfolio on a regular basis, and in the end their allocations get all out of whack.

One of the nice things about an account with Betterment is that you never have to re-allocate your money. It will automatically re-balance your portfolio for you every three months, or if your allocations ever drift more than 5% before that.  Without re-balancing your account can easily shift over time to have an allocation that is heavier on stocks or bonds than you want it to be. If you start out at say 90/10 stocks to bonds, if you don’t reallocate over time you could one day find that your account has an allocation more like 80/20 or 85/15.

This is one of those things that most investors neglect to do on a regular basis, so it’s nice to have that part of the account be automatic.

What Does It Cost?

What kind of fees can you expect to pay for using Betterment   Well first off, there are no minimums to invest, and there are no fees for trades.   The only fee Betterment charges is a pro-rated yearly fee that is in a range of 0.15% to 0.35%, depending on your account balance. For most beginning investors it will come out to .35% annually.

For starter accounts with a minimum balance of $0 and $100/month minimum deposit, you'll have a .35% annual fee.  Minimum balance of $10,000?   You'll get next day transfers and a  .25% annual fee.  Minimum balance of $100,000?   You'll get next day transfers and custom portfolio options along with a low .15% annual fee.

For an account where you'll be having someone manage your investments for you, re-allocating their portfolio every so often, and not having to worry about ever paying any other fees or charges for making trades – these are some pretty reasonable fees.  It makes the account a winner.   I think it definitely makes sense for most people.

I've Signed Up For Betterment

While I did have some reservations about the site back when they launched,  I went ahead and signed up for Betterment.com.  I'm gonna try it out for a while. One of the great things about the account is that it's more like a traditional bank account in that getting your money in and out of the account is as simple as withdrawing it. No fees associated with making trades. The only risk you take is the same risk that any investment in equities has.   Add to that they've got a account signup bonus now as well, and you've got nothing to lose. So why not try it out?

Personally I just really love the idea of making investing that much more simple as it will make it more accessible for a ton of other folks.  So we'll see how it goes – I'll probably report back in a while to give a rundown of what I think of the site after I've actually been investing – and playing with their tools for a couple of months.

Get a bonus when you open your Betterment account. Click here.

 Get StartedWith Betterment

Why Your Credit History Matters

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You've probably heard a lot about the importance of a good credit score. However, many people point out that they don't use credit cards, and they already have a house, and they buy used cars with cash. For those folks, it seems as though there is no need to worry about a credit history. The truth, though, is that even if you live an all-cash lifestyle, your credit history might still matter.

You Are Judged By Your Credit History

Fair or not, service providers and others make assumptions about you based on your credit history. Your credit history is no longer only a peek into how you have handled borrowed money in the past; it is also used to measure your general level of responsibility in various aspects of your life. Auto insurers think that your fiscal responsibility translates directly into your responsibility on the road. A lower credit score = a higher insurance premium.

Employers might decide that if your credit history shows what might be considered questionable financial habits, your work habits might not be desirable. On top of that, if you apply for a job of sensitivity, you might be suspected of being vulnerable to bribe attempts. What if you are required to handle cash? A sketchy credit history might red flag you as a potential embezzler.

None of this may be true, or fair, but it is a judgment that is made when people look at your credit history. Landlords and cable TV providers might also check your credit history. They want to know if you will cause potential problems when it comes time to make payments. Even some banks check your credit history before allowing you to open an account. A poor credit history can cost you more than just higher interest rates.

Be Prepared: What If You Do End Up Needing a Loan?

Even if you are convinced that your job is stable, you can live with a slightly higher insurance premium, and you don't need cable TV, you never know when circumstances might mean that you will need a loan, or to get a credit card. Your car may be unexpectedly totaled, and you may need to buy something else on short notice, necessitating an auto loan while you wait for the insurance check to arrive. You might end up with an emergency medical procedure that results in the need to have good credit to qualify for a payment plan.

There are any number of unexpected problems that can force you into getting a loan, even if it is only for a short period of time. Keeping up with your credit history, and making sure that it reflects your solid financial habits is part of financial preparedness. The good news is that building a good credit history doesn't have to mean going into debt. You can get a credit card and use it occasionally, for planned purchases, paying off the balance without paying interest. Make all your payments on time, and encourage your utilities and others to report to alternative consumer reporting agencies like PRBC.

Hopefully, with interest in alternative consumer reporting picking up steam, there will be more focus on good financial habits in general, and less on borrowing behaviors. But, until then, it's wise to be prepared and make sure you have a good credit history.

Get your free credit score now with GoFreeCredit: