Archives for June 2011

Improve Your Retirement Savings As A Couple: Spousal IRA

One of the things I love about contributing to my Roth IRA is that my earnings will grow tax-free, since contributions are made with after-tax income. One thing I dislike about my Roth IRA is that I am limited in the amount I can contribute. (There are the same contribution limits on a Traditional IRA.) For years, I have just contributed to my Roth IRA, and decided that, when my husband finished school and got a job, we'd open a 401k through whatever organization he was working with. However, what I should have been doing the last few years was contributing to a spousal IRA for my husband, so that we could be that much ahead for retirement.

What is a Spousal IRA?

Spousal IRA

In reality, a spousal IRA is just a “regular” IRA. Technically, what you are doing is making a spousal contribution to an IRA for a non-working spouse. This ability was created in recognition of the fact that there are a number of single-income households. What if a non-working spouse wanted a retirement account? The rules of the IRA require that contributions be made from earned income. However, in a single-income household, the staty-at-home partner does not have earned income. He or she is contributing in a meaningful way to the family, but the contribution isn't recognized by monetary compensation.

In order to provide a way for a non-working spouse to grow a nest egg, it is allowable for a working spouse to contribute some of his or her earned income to an IRA. It is important to note that a spousal IRA must be set up in the non-working partner's name. This means that the assets in it belong to that person. Once the working partner contributes the money, it is no longer in his or her control. For the most part, this doesn't matter, since you will presumably be together for the rest of your lives. But it is something you need to be aware of in the event of a divorce.

Advantages of the Spousal IRA

Clearly, one of the greatest advantages to the spousal IRA is that your partner can build up a retirement account. This provides your spouse with a measure of financial security that he or she deserves — especially since some of his or her financial potential is reduced due to the decision to take care of home and children.

The other advantage is that, as a couple, your ability to contribute to an IRA is doubled. If you like the Roth IRA idea, this can be especially beneficial. You are provided with a way to make twice the amount in contributions that will grow tax-free to your mutual benefit. When considering long-term retirement planning, a spousal IRA can be a smart decision. Instead of being limited to $5,000 in contributions for 2011, your household could contribute $10,000: $5,000 for you, and $5,000 for your spouse. This is a big improvement, and one that could make a huge difference when it comes time to retire.

Carefully consider your options and retirement goals, and then decide if you could benefit from a spousal IRA.

Saving Money On Health Care: Health Savings Accounts (HSA)

By Miranda Marquit 2 Comments

It's health plan renewal time for me. Every year, we go through this. In the last six years, my family's monthly insurance premium has nearly tripled — and our benefits have decreased. Have we had major health challenges? Nope. Each individual in my three-person family has only one or two doctor visits a year. We don't have new prescriptions. We don't have any pre-existing health conditions. We live a relatively healthy lifestyle. But the premiums keep going up.

Apparently, “administrative costs” are rising faster than anything else in the world of health care. (Maybe that's just my frustration talking.)

At any rate, this year I'm doing something about it. I've sent in a change of plan form, switching to a high deductible health plan that costs half as much as what I'm paying now. No, my current premium isn't a budget buster. But I am frustrated that so much money goes, with no benefit to me, into the pockets of insurance company execs. I figured out how much it would cost to pay everything out of pocket, and it's a fairly small fraction of what I've been paying in premiums for the last three years. The only reason I have health insurance is because of the worry that something expensive could happen. The new high deductible plan would help me keep more of my money for me, while at the same time making sure that my family is protected against unexpected health issues.

Health Savings Account

HSA: Saving Money On Health Care

There are a number of things you can do to save money on health care, from asking for discounts at hospitals and doctor offices, to joining a prescription plan. A Health Savings Account can help you put your money work to you. When you have a high deductible plan, you pay a lower monthly premium. I plan to put the amount that I save in premiums in the HSA. I'll still be paying the same amount, so it won't change my spending plan, but the money will be to my benefit. Here are some of the ways that a HSA can be of benefit:

Contributions are tax-deductible.
You can withdraw for medical expenses without tax liability.
Money rolls over year-to-year.
The HSA can act as a back-up IRA. It has the same rules as an IRA, so if you don't use the money for qualified medical expenses, you are subject to the same penalties if you aren't 59 1/2 (and to taxes if you are).
You can use the money in the account to pay out of pocket medical expenses, including co-pays.

It's important to realize, though, that a HSA isn't for everyone. It works best for those who are reasonably healthy, without chronic conditions. Because the high deductible means you will be responsible for more costs for longer, expensive chronic conditions can be even more expensive with this arrangement. So, carefully consider your options, and what would work best for your financial situation. In some cases, you might find that a high deductible plan, paired with a HSA, could help you control more of the money in your budget.

Do You Have Savings In Case Of An Emergency? 1 In 4 Americans Have Zero Emergency Savings

By Mr. Money 10 Comments

As the economy continues to be stagnant and the unemployment rate continues to be high, a recent poll by BankRate.com found that still far too few people are preparing for the possibility of a job loss or a long term financial emergency.

Over 6 million people have been out of work longer than six months, yet only 24 percent of Americans have at least six months' expenses in an emergency fund. An equal 24 percent have nothing tucked away for a rainy day. And 22 percent have some savings, but not enough to cover even three months' expenses. Those under age 30 and the lowest-income households were most likely to report having no emergency savings at all.

As the poll found, only 24 percent of Americans have saved a minimum of 6 months of expenses in an emergency fund or saving account of some kind. To be honest I guess I'm not surprised that in our credit focused society that only 1/4 of people have saved up 6 months of expenses, but to some degree it's still sad that so many people are unprepared. Are they hoping that someone else – or the government – will pick them back up when they've fallen? I wouldn't count on it.

emergency savings

Why Are Emergency Funds Important?

There are a variety of reasons why I think emergency funds are more important than ever.

Bad Things DO Happen

I think a lot of people have the outlook that bad things happen to other people, or that if something bad does happen, it won't be that big of a deal. The thing is, most of us are going to have a major negative event at some point.

Money magazine says that 78% of us will have a major negative event happen in any given 10-year period of time.

78% of us are going to have a major negative event to deal with in any 10 year period. I know that has certainly held true for our family has we've had to deal with several major negative health events. So if you haven't had one recently, you may be due.

Emergency Savings Help You Bounce Back Quicker

The fact that you have an emergency fund can help you to weather any number of storms from a layoff to a major health event. While you can't always avoid bad situations, when you have an emergency fund you're able to bounce back that much quicker. When you don't have an emergency fund the sad fact is that people end up in foreclosure, bankruptcy and other horrible situations I wouldn't wish on my worst enemy.

Why not plan ahead and avoid all those things?

Emergency Savings Give Peace Of Mind

When you have emergency savings you'll have a lot more peace of mind when the waves start to get higher and the adversity starts showing up. When you've got emergency savings, insurance and a backup plan, you won't be as worried about some of the bad things that can happen.

Have A Backup Plan

So many have not planned ahead for the negative events that will happen in life. They don't have emergency savings, they don't have insurance and they are just hoping that someone else will cover the bill for them. While in some cases that may happen, far too many will find that there isn't anyone there that they can rely on, including the government.

Do you have an emergency fund saved up? How much are you saving in case of an major negative event? Why do you think so few people save up in case of an emergency?

Look For Ways To Earn More Money

By Miranda Marquit 6 Comments

While I like feeling like I'm getting a good deal, it has always bothered me a little bit that a lot of emphasis is placed on spending less.

While I certainly don't think that you should let your tendencies to spend control you, I'm not convinced that the best way to create the lifestyle you want is to simply cut back on your spending.

To me, frugality is more like a lifestyle choice that involves getting the best value for my money and time, rather than a collection of actions that involve pinching pennies and “sacrificing” for the future.

Yes, you need to get out of debt, and yes, you need to spend your money wisely. But why all the focus on cutting back? What if you looked for ways to earn more money?

Ways To Earn More Money

Cultivating Income Streams

I'm not saying you have to run out and get a second, part-time job in order to earn more money. What would be the point of that? It would detract from time you could spend with your family. Instead, you could consider cultivating income streams that would eventually lead to you receiving a reliable source of income. If you have a couple hours a night, you can do this. I recently read a post on My Journey To Millions that encouraged you to ask yourself what you could be doing instead of watching TV. Cultivating extra income streams, that's what!

You can even get your spouse and other family members involved. Some of the things you can do to help cultivate extra income streams in your spare time include:

Starting a blog, and working toward monetizing it.
Getting involved in a worthwhile affiliate program.
Taking a hobby and trying to monetize it (this works especially well if you are a “crafty” person).
Freelancing or consulting (my husband did a statistical analysis as a consultant recently).
Researching solid dividend stocks and bonds, and building an income portfolio.

With the right plan, you could be well on your way to making more money. You could be taking your wasted time, and turning it into extra income — and you can do it as a family. A little creativity can win you some breathing room in your budget, so you won't have to worry so much about cutting back all the time.

Reality: Building Income Streams Takes Time And Effort

Of course, it is important to acknowledge the reality of income cultivation. Your income portfolio isn't going to suddenly manifest itself as a way for you to quit your day job. A successful blog requires that you take some time and effort to provide content, as well as use different tools to market your blog, and build networking connections with other bloggers. A freelancer or consultant needs to have some knowledge or expertise. It can take time to build these extra income streams, so you might have to continue pinching pennies for a while if that's what your budget demands. However, the idea is to work toward more creative ways to pay for the lifestyle you want.

Later on, your income streams can help you in retirement, and you will be well-placed to have a “working” retirement if that's what you want.

Is It Bad To Be A Spender?

By Miranda Marquit 2 Comments

It can be tempting to lump spenders into the “bad” category. When we talk about money personalities, the spender always comes up. Those who like to spend can be vilified in some circles. Even if it is unintentional, the focus that is so often placed on saving money, cutting spending, and being frugal can really put the pressure on spenders.

But is being a spender really so bad? Since I am, in fact, a spender, I'd like to think that it's not a bad thing at all. Like so many other things, it's in how you do it.

Spending Doesn't Have To Be A Dirty Word

In my mind, having a spender personality isn't a bad thing — unless your love of spending leads you into debt. Additionally, spending doesn't have to mean that you are using the money only for yourself. My husband is a spender as well, and he loves spending on other people. He likes buying gifts for others, and we both feel it is important to give to charity, and to our church.

Even spending on yourself doesn't have to be a bad thing. However, you have to draw the line when it comes to getting into debt to pay for your spending ways. As a college student, I often took my spending too far. I took out student loans — even though I had a full-tuition scholarship and a part-time on-campus job. I also got credit cards, and promptly proceed to max them out. Even though I had a number of advantages that should have made it easy for me to live within my means, I overspent every chance I had. I ended my undergraduate career with a great deal of debt.

I learned my lesson. My spending wasn't a bad thing; spending beyond my means was the problem. Now, I make sure that I live within my means. I have spending priorities, and make sure that I spend on those things first. If I run out of money, the spending stops. As long as my enjoyment of spending doesn't put my finances at risk, I think that my habits can be a way to help others, provide my son with valuable experiences, and help me find a little extra pleasure in life.

Preparing For The Future

Just because your spending is kept within your means, though, it doesn't mean that it's ok to put your future at risk. Before you spend on the “fun” things, it's a good idea to make sure your future is provided for. You should have an emergency fund, and you should be saving for retirement. If you have long-term goals, such as homeownership or sending your child to college, you need to plan for those things as well. You can use your love of spending to direct your resources into specific goals that can provide you with a more secure future.

In the end, being a spender doesn't doom you to a life of financial ruin. As with any other money personality, being a successful spender is about harnessing your impulses and desires so that you can use them to your advantage. Figure out what you want, and create a spending plan that helps you achieve your goals.

10 Regular Expenses That You Should Re-Examine To Find A Better Deal

By Mr. Money 4 Comments

Over the years one of the biggest mistakes that I've made that has cost me hundreds of dollars was becoming passive when it came to some of my regular expenses that I had to pay. There are a lot of regular expenses that we just pay every month without even thinking about it – just because we have always been doing it – or because we've become comfortable with the company we're currently using. Either that or we don't even realize that there is an alternative.

Today I want to look at a few expenses that we don't always revisit or look into saving money on – because we don't realize that we can, or we don't think we'll end up saving much. Not looking into those expenses is a mistake that could cost us hundreds, if not thousands of dollars.

Expenses To Regularly Revisit

Here are a few of the expenses that I've recently revisited and found that I could save a bunch of money.

Homeowners Insurance: I thought that I was getting a pretty decent deal with our homeowner's insurance, but recently we had our rates go up by over $100, when our home value has continued dropping. How is that possible? I'm currently looking into finding a better deal, and I'm confident I can save anywhere from $100-200 a year. If we needed to I'm sure we could reduce the amount of coverage or do other things to save.
Auto Insurance: The last time I switched insurance about 2 years ago I ended up saving a LOT. I saved about $1000/year over what I had been paying – through a family friend. Just goes to show you, trust but verify. I just rechecked our rates last month, and we could save, but only about $20/year – so not really worth it for the hassle.
Health Insurance: You can try finding lower costs on health insurance, and often you may not realize that you can find a better deal by buying your insurance individually. Several folks at our company found that since our company was so unhealthy they were able to find cheaper rates on their own. That wasn't the case for us as we're part of that “unhealthy” group at our company. You can also ask for a discount when paying your hospital bills.
Cable or Satellite TV: The last time we switched from Comcast cable to Dish Network we ended up saving around $20/month, along with getting more channels and Amazon gift cards. Over the year we saved hundreds by switching. When your initial signup deal expires, consider switching.
Cell Phone Bill: Last time we switched cell phone providers we moved from AT&T to a pre-paid plan with Virgin Mobile. We went from paying $40+/month for one cell phone to paying about $15/month for two phones. Since we're not big cell talkers we were able to save a ton of money and get an extra phone!
Internet: I hadn't checked on switching internet providers for a couple of years because in the past we had locked in a pretty decent deal for high speed internet that I wasn't seeing anyone beat. Well apparently things have changed because now we could save anywhere from $10-15/month by switching from our DSL to cable internet. Don't take for granted that you still have the best deal!
Property Taxes: Sometimes we don't realize that we can ask for a better deal on something we HAVE to pay – like property taxes. If your home's value has changed or is wrong on the government records, you may be able to appeal and save on your property taxes. Look to your county tax assessor or auditor's office for details on how to appeal your property taxes.
Mortgage: One thing that may have changed in the past few years due to the economic slowdown – is the rate you can find on a refinance for your mortgage. We refinanced last year and found that we could save almost $200/month on our mortgage for about $2000 in closing costs. The closing costs were paid back after just over one year, and now we're saving every month.
PMI: Are you paying PMI on your mortgage, but have since reached 80/20 loan to value ratio? If so, ask to have the PMI removed!
Life Insurance: If you've significantly improved your health, quit smoking or lost a bunch of weight, you may want to look into your insurance again and getting a reduction. I may be doing this once I'm done losing weight.

Last time we revisited all of these costs we ended up saving thousands of dollars a year. What could you do with a few thousand dollars extra? I know we could certainly use it.

Are there other expenses that you would suggest that people re-examine every so often? Tell us what they are in the comments. Also – how much did you save last time you re-examined regular expenses?

Main Menu