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How To Avoid Debit Card Fees

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Last year congress passed a bill that empowered the Fed to cap the fees large banks charge retailers for debit card transactions.  As a result, big banks have lost a significant source of revenue and have responded by increasing the fees they charge their customers.

By now you have probably heard all the commotion caused by Bank of America’s announcement that they will begin charging a $5 monthly fee to all their debit card customers.   The fee will go into effect in the new year and it’s reported that other big banks will soon follow.  While changing banks is one way to avoid the newly imposed fee, there is nothing preventing your new bank from adding a debit card fee, too.

So here are a few ways you can guarantee you won’t be hit with a debit card fee:

avoid debit card fees

Cash

One way to beat the fee is to adopt a cash only policy.  This method of money management has been around since the beginning of time and some think it’s the best way to manage your money.  The financial guru’s we know and love like Suze Orman and Dave Ramsey both have stated time and time again that using cash is better than using any sort of plastic.  There are no interest charges and sometimes just seeing your money leave your wallet is enough to keep your spending in check.

Credit Cards

While some think credit cards are just plain evil, there are may perks to paying for your purchases with a credit card.   For one, you can avoid the Bank of America fee and you can also save yourself some money if you use a cash back credit card.  Getting the most out of your card requires being responsible with your spending habits and always paying your balance off each month.  You can also build your credit with a credit card and many cards offer warranty programs to protect your purchases.

Prepaid Cards

Prepaid cards tend to get a bad wrap.  They have a reputation of catering to people with bad credit and those who can’t obtain a traditional bank account.  It appears the times are changing and now people of all credit ranges are using prepaid cards as a way to manage their spending.  Prepaid cards require the user to load money to the card before making a purchase.  As a result, the account can’t be over-drafted because you can only spend the amount on the card.  Some of the best prepaid cards come with no or limited fees.  And because prepaid cards were excluded from the Fed’s action on debit cards, it’s unlikely that banks will starting increasing the fees on these cards.

Credit Union

Some people swear by Credit Union’s because frequently they offer lower rates and have a tendency to give more personable service than the big banks.  Credit Unions are also able to avoid some of the red tape with their long time customers which makes borrowing a much simpler process.   They provide many of the same services banks provide, but often with no fees or significantly lower fees.

This is a guest post from Michal who is a senior editor at Dough Roller and Credit Card Offers IQ.

When To Take Social Security: A Question Of Cash Flow

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One of the biggest decisions you have to make as you approach retirement is when you want to begin taking your Social Security benefits. Indeed, this is an important consideration. For the most part, it depends a great deal on what you think your cash flow needs will be as you age.

Do You Need the Cash Now? Or Can You Wait?

You can start pulling on benefits at age 62. However, if you start taking benefits as soon as you can, your monthly payments will be lower than if you wait. Indeed, your payments will only be 75% of what you would get if you wait until age 66 (which is considered the “full” retirement age by the government). And, if you can wait even longer — to age 70 — you see an increase of benefits by 8% each year between 66 and 70. There is no additional benefit for waiting beyond age 70.

Timing Of Taking Social Security
Understand, though, that you aren't necessarily getting “more” in the sense that your overall total will be higher. Instead, the formula is worked out so that you should have roughly the same benefits over time if you start, no matter when you start taking Social Security, at age 66. The difference is that if you wait longer, the government will offer you a higher monthly payment amount to make up for the fact that you haven't been taking what you could for the past few years.
As you decide when to start taking social security benefits, you will need to consider your cash flow situation and any tax implications. If you are 62, and you need the money to help cover shortfalls in your tax advantaged retirement account, you might need the money now — even though you will be penalized for not waiting until the “full” retirement age. If you need the money to help you in your retirement, and you can't find other sources of income to help you, then taking Social Security earlier might be your only option.

However, if you can wait until later, it might be worth it. Later on, your expenses might increase as your health declines (and costs rise), or as your retirement fund starts to run a little lower. Being able to wait until later and receive more each month might be very helpful. If you can keep working in between, earning income and paying into the system, your benefit will increase as well. This can be a great help to you later on, when you might want a larger monthly income.

Bottom Line

Before you decide when to start taking Social Security, you need to consider your situation, and what you expect in the coming years. In some cases, you might be worried that benefits will be cut due to economic concerns and problems with the federal budget; in that case it might make sense to start receiving payments as soon as you can, in order to get what you can.

However, if you expect that you will receive your benefits as promised, you need to look at your situation. How much can you expect from various revenue streams, and your retirement accounts, and for how long can you expect to keep up the income pace? You should plan to take Social Security when it will most help your monthly cash flow.

2012 Federal Income Tax Brackets: Official IRS Marginal Tax Rates

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Last year around this time we were in the middle of tax bracket drama as our elected officials in Washington D.C. were fighting over whether they would be extending the Bush tax cuts of the early 2000s (making them the Obama tax cuts?), or whether they would allow them to expire and rates to go up for everyone who pays taxes.

In the end Obama and the Democrats agreed to extend the tax cuts and in exchange were able to get the following concessions from Republicans:

  • Extend Bush tax cuts for everyone, for 2 years.
  • Reduce Social Security tax levied on a worker’s wages from 6.2%  to 4.2% for one year.
  • Reinstatement of the estate tax at 35%
  • Extension of jobless benefits for another 13 months, beyond current 99 weeks.
  • Extend current tax rates on capital gains and dividends for two years, including for higher earners.
  • Extend a raft of business tax breaks, including credit for spending on research

2012 federal income tax ratesThe parts that affect most people include the extension of the rates for everyone (ensuring that taxes don't go up), and the reduction of the social security tax levied on worker's wages.

After this year, for the tax year 2012, social security tax levied on worker's income will be going back up to 6.2%.  Get ready for the outcry!

2012 Tax Rate Projections

For the 2012 tax year, the tax rates have not been released as of yet, but several groups have projected what the rates will be.  The rates are calculated by the IRS with a complicated formulate based on inflation rates among other things.  Thankfully we don't have to figure it out on our own.

As you can see, the rates haven't changed much from previous years, just some slight upticks in the lower and upper ends of each bracket.

2012 Tax BracketsSingleMarried Filing Jointly
10% Bracket$0 – $8,700$0 – $17,400
15% Bracket$8,700 – $35,350$17,400 – $70,700
25% Bracket$35,350 – $85,650$70,700 – $142,700
28% Bracket$85,650 – $178,650$142,700 – $217,450
33% Bracket$178,650 – $388,350$217,450 – $388,350
35% Bracket$388,350+$388,350+

For comparison's sake, here is a look at the tax rates for 2011.

2011 Tax BracketsSingleMarried Filing Jointly
10% Bracket$0 – $8,500$0 – $17,000
15% Bracket$8,500 – $34,500$17,000 – $69,000
25% Bracket$34,500 – $83,600$69,000 – $139,500
28% Bracket$83,600 – $174,400$139,500 – $212,300
33% Bracket$174,400 – $379,150$212,300 – $379,150
35% Bracket$379,150+$379,150+

Standard Deductions Rise

The standard deductions for married and single filers are projected to go up slightly as well.

  • The standard deduction for married filing jointly is projected to rise to $11,900 in 2012  from $11,600 in 2011.
  • The standard deduction for singles will rise to $5,950  in 2012  from $5,800  in 2011.
  • Personal exemption rises to $3,800 in 2012 from $3,700 in 2011.

No Drama This Year, But Wait Until Next Year

So while the rates are seeing only slight changes this year  due to inflation, next year could be shaping up for another battle. Not only will it be an election year, but the extension of the Bush tax rates will be up for debate again as they expire at the end of 2012.   Buckle your safety belts, it's gonna be a bumpy ride!

What are your thoughts on what we could see next year when it comes to the tax rates?  Will there be another battle about extending the rates?

Here Come the Holidays: Could Layaway Save Your Christmas Budget?

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The financial crisis, and the recession, prompted the return of of layaway. For years, many stores stopped offering the layaway option; it was pointless, since so many of them had co-branded credit cards and were more than willing to encourage people to use those to make purchases. (Not to mention the storage space multiple items on layaway take up.) However, the financial crisis served as a wake up call for many. Instead of just charging Christmas gifts, they began looking for another option.

Layaway For Christmas Gifts

Layaway

A layaway program allows you to reserve an item for future purchase. You make a payment up front, and then make period payments until the item is paid off, and you can take it home. With many layaway programs, you are charged no interest, so you don't have have to worry about borrowing the money. Some layaway programs are designed so that you pay each week, while others have you set up a certain number of payments within a certain timeframe, such as four payments over the course of two months.

The idea is that you can get an item at a good price (although some stores won't let you reserve certain sale items on layaway), and pay for it gradually, without the need to use credit and pay interest. You don't need to come up with all of the money up front, so it makes it easier to pay for big ticket items, since you can do it over time.

Using Layaway to Help Your Holiday Budget

If you want to reduce the strain on your Christmas budget, it is a good idea to begin planning now. You know that your holiday spending will add significantly to your budget. Indeed, many people find that their December expenses can balloon to the point where the entire budget for that month can explode.To avoid this, start now to plan. Whether you put together a Black Friday strategy now, or decide to set aside a certain amount of money each week from now until December to cover your costs, planning now can save you money in the long run.

Layaway can be part of your plan. Because it's a good way to spread out the cost of a higher-cost item, layaway can be ideal as a part of your plans. Find out which items on your list can be set aside, and focus on putting those on layaway, and then paying them off over time. Then, your available funds can toward items that can't be reserved for the future.

When using layaway, though, you need to be careful. Make sure you understand all of the terms and conditions. Know the payment process, and understand the penalties if you miss a payment or are late. You should also understand that some stores will charge a “restocking fee” if you change your mind, and decide you don't want an item after all. Additionally, while most stores don't charge fees or interest for layaway, there are some stores that might charge a fee for this service. Make sure you are clear about the procedure, and all of the charges, before you agree to a layaway.

If done right, a layaway can be a great part of your Christmas budget planning. You don't have to break your budget, or go into debt, to complete your holiday shopping.

Why I’m Not A Big Penny Pincher

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Anyone who really knows me, is well aware that I'm a spender. Penny pinching isn't my thing. That isn't to say that I'm flinging money about like water. What it does mean, though, is that I don't go out of my way to save a few cents — or even to save a few dollars. While I think that saving money, setting funds  aside for the future and emergencies, is important, I don't really think that I'm going to achieve financial freedom by clipping coupons and denying myself a weekly meal in a restaurant.

Sometimes It's Worth It To Pay More

One of the biggest reasons that I'm not a penny pincher is because I honestly believe that sometimes it's worth it to spend more money. Yes, I can go to the buffet chain restaurant and load up on mediocre food. I can save a lot of money doing that, too. But I don't enjoy it as much as I would a meal from the best restaurant in town. Since I enjoy food, and good food is a priority for me, I am willing to pay a little bit more for it.

This is true of some conveniences, such as flying at a time that I consider saner than taking a red-eye, and that allows me to see my son off to school before I leave. It's worth the extra $50 to me. Of course, there are things that I wouldn't spend as much money on. I'm not big into trinkets; buying a postcard or a cheap magnet to commemorate a trip is sufficient for me.

I'd Rather Make More Money

While I believe that it's important to get good value for my money, I don't like taking the time that it takes to be really successful at some of the techniques that are often used to pinch pennies. Yes, I look for bargains. But I'm not nitpicking over a couple bucks. And I don't enjoy the coupon game. While it works for some people, and I don't think there's anything wrong with being frugal and pinching pennies, it's not my preferred method of paying for what I want.

Instead, I prefer to make more money. I have to admit, though, that I am lucky and blessed in that it isn't usually very hard for me to make a little more. I can write an extra article or two, or take on an extra project. If I want a pedicure, I can write an extra article — there's no need for me to pinch pennies for three weeks with coupons, or skip my trip to the restaurant.

Bottom Line

We all have different priorities, and we all prefer to spend our money on different things. Perhaps I'm not being as disciplined as I could be, but as long as I have a general plan for the future, and I'm taking care of what needs to happen, I don't see any reason to pinch pennies if I don't have to. What do you think? Are you a penny pincher? Why or why not?

Are Your Emotions Getting In The Way Of Your Financial Success?

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It's impossible to completely keep emotions out of finances. After all, money is related to a number of emotions, especially fear and excitement. While it might not be advisable to completely eschew all emotions, you do need to acknowledge how they affect you — and watch out for indications that your emotions could be getting in the way of your financial success.

Emotions and Finances

Excitement

It is possible to let your excitement get away with you. Consider how you feel when you first get paid. Indeed, studies have shown that people are more willing to spend money on pay day — when they feel flush. So, even though you might be excited about pay day, or an unexpected windfall, it's important not to spend money when you are in that first flush of giddiness. Don't let your excitement, or your relief, overwhelm your good senses. Say no to extra spending, and take a step back. Examine your priorities and make sure that your excitement isn't leading you to make a poor decision.

Fear

My husband has a Ph.D. in experimental psychology, and one of the things that he says that studies show over and over again is that fear is a very strong motivator — especially in the short-term. Unfortunately, when it comes to money, the fear-based decision making of the short-term can have very long-term consequences. Making decisions based on fear, whether it's pulling out during a stock market drop or buying into a Ponzi scheme because you're afraid of missing out, can lose you a lot of money.

Your fear of loss can also work against you. If you have a huge fear of risk, you might miss out on opportunities to grow your wealth, or start your own business. While you want to limit your risk, and take calculated risks, you do have to be careful of avoiding risk altogether. That kind of paralyzing fear can keep you from reaching your financial goals.

Despair And Disappointment

One of the hardest things about getting out of debt is getting over the despair and disappointment. It is easy to look at the impossibility of the situation, and give up. Try not to let this despair cripple you, though. If you do, you can become trapped in a debt spiral. Instead, find a little optimism. Make a plan to help you get out of debt, and make progress toward your goals. Once you do that, you will be more likely to notice your progress, and avoid the debilitating emotions associated with giving up on your goals.

Sticking To Your Plan

Making a plan is a good idea no matter your situation. Whether you are creating an investment plan for retirement, or making a debt reduction plan, having a road map to follow can help you avoid the pitfalls of letting your emotions rule you. When you feel like spending money because of a sense of euphoria, or when you are ready to sell a stock because of a market crash, step back and refer to your plan. Having that to fall back on can help you keep your emotions in check — and your finances on the right path.