Articles by Miranda Marquit

Watch Out For Overdraft Fees. They Can Cost You Big

One of the ways that you might be leaking money is through overdraft fees. Bank fees have been the subject of much debate recently. Lately, Richard Cordray, the head of the new Consumer Financial Protection Bureau, has been taking aim at overdraft fees, looking at ways to better educate consumers on the costs of overdraft fees, and encouraging banks to share better information about how fees are incurred.

A main issue associated with overdraft fees is the way they are processed. In some cases, banks will process larger purchases first. This results in the account being overdrawn faster, and then smaller purchases end up triggering overdrafts — and their fees. The new bureau is considering the idea of requiring banks to change the order in which they process transactions, in order to reduce fees.

overdraft fees

Educating Consumers About Overdraft Fees

Right now, banks offer “standard” overdraft protection services. These services allow consumers to overdraw their accounts by a certain amount. Purchases are allowed to go through, rather than being denied at the register and causing embarrassment. As a result, a fee is charged. This fee can be anywhere between $15 and $45 (or more) for overdrafts. This means that a $2 overage can cost much, much more.

Cordray is considering whether or not to require banks to add disclosures to statements. These disclosures would clearly show the fee, as well as what triggered the fee. The hope is that requiring a disclosure would educate consumers to keep them from overdrawing their accounts as much.

But would showing consumers what they're paying in fees really help?

The Convenience Of Overdraft Fees

The fact of the matter is that many consumers would probably still overdraw their accounts — even if they had a clear idea of how much money is leaking from their accounts as a result of overdraft fees. This type of overdraft protection is highly convenient. Instead of worrying that you don't have quite enough money to complete a purchase, your transaction is simply allowed through. Many consumers are willing to pay the fee if it means the convenience of not being denied at the checkout counter, or if it means they can still make a few purchases even though they don't have the money in their checking accounts.

Some consumers likely use overdraft protection as part of their regular banking habits, factoring it into how they make decisions about purchases. Unfortunately, these fees can add up, leading to the payment of hundreds of dollars a year. For some, though, the convenience outweighs the cost. Instead of worrying about tracking spending and budgeting, it is easier to just spend money, and pay the fees when there are overdrafts.

Once in the cycle, though, it is difficult to break it. It's easy to fall behind, since you have to pay the fees to get back in the black with your account. So, that's money that comes out of your account, and that you don't have to use for other necessities. It can easily become a regular monthly cycle. Instead, you're better off breaking the cycle, and making efforts to track your spending and budgeting to live within your means.

Ready To Refinance? Here’s What You’ll Need

By Miranda Marquit 1 Comment

Mortgage rates are low right now. Really low. Indeed, for many homeowners, now is the perfect time to refinance.

Credit requirements have loosened up a bit (compared to what they were for a couple years after the financial crisis). As a result, many people are interested in refinancing their homes. Before you head to the bank to look for your refinance, though, you should be prepared.

Refinance Checklist

First: Check Your Credit

Before you apply for a mortgage refinance, you need to know your credit situation. Do you have a good credit score, or is it a bit low? In order to get the best terms on your refinance, you need to have excellent credit. Check your credit report to make sure that there aren't unpleasant surprises, such as fraudulent or duplicate accounts.

You should also be aware of how your credit utilization looks to lenders. If you are planning to refinance, it might be wise to stop using credit cards for awhile — even if you pay them off every month. Consider the information in your credit report, and get errors fixed. You can check your credit report for free once a year by visiting AnnualCreditReport.com.

Refinancing Checklist

Now that you have done what you can to get your credit squared away, it's time to prepare to refinance. Look at your loan-to-value (LTV) ratio. In some cases, you might not have the 80% or less LTV that many lenders require. If this is the case, check to see if you qualify for a government program to help you refinance. Once you have established that you are likely able to refinance, you need to gather your paperwork. Some of the items that you will probably need to complete your refinance include:

Proof of income and employment: You need to show that you can handle the new mortgage payments. This means proof of income and employment. Usually, this means pay stubs for the last 30 to 60 days, and a W-2. You might also need your tax returns. If you are self-employed, some lenders might require you to complete an income audit.
Asset information: Many lenders want to see what assets you have available to you right now. This means you will need to bring documentation related to your bank accounts (checking and savings), retirement accounts, and investment accounts.
Homeowners insurance policy: Lenders want to know that your home is adequately protected. Your homeowners policy is proof of that.
Title insurance: Additionally, your title insurance provides a description of the property, as well as the verifying you as the legal owner of the property. It will also serve to provide information about the taxes on the property.
Appraisal: Your home will probably need to be appraised before a lender approves your refinance. You can either have the appraisal done ahead of time, or you can wait until the lender asks for the appraisal. If you do the appraisal on your own, make sure that the lender will accept it, and be sure that the appraisal is relatively recent, within the last 30 to 60 days.

Lender requirements vary, so it's a good idea to call ahead of time and ask for what documentation the lender wants as part of the refinance process.

Could An Annuity Be The Ticket To Reliable Retirement Income?

By Miranda Marquit 2 Comments

With the 2008 financial crisis still fresh in some minds, one of the questions many are asking is this: Is there a way for me to protect my nest egg from market drops during retirement? One of the financial tools receiving a second look right now is the annuity. However, annuities have something of a bad name right now because so many of them are complex and costly.

But that doesn't mean that all annuities are bad, or that no one should ever get one. There are some annuities worth considering, and some retirees, with the right annuity, can do well incorporating one into the retirement strategy.

Indexed Annuity

One of the types of annuities gaining in popularity is the fixed indexed annuity. This is an annuity that promises a fixed rate of return (usually pretty low), but that also leaves the door open for greater returns because the annuity follows an index. So, you are protected from loss because there is a minimal rate of return, but at the same time there is room for you to see better returns because the annuity's performance is connected to how a specific index performs.

You can choose to invest in the annuity before retirement, and build up to a payout later, or you can choose to get an immediate annuity. With an immediate annuity, you take part or all of the money in your retirement account and use it to purchase an annuity which begins offering regular payouts immediately. You have a fixed income stream now, and it can be used to fund you during retirement.

Things to Consider Before Getting an Annuity

Of course, an annuity isn't for everyone. Before you agree to an annuity, you should consult with a knowledgeable and trusted financial professional. (Be wary of those pushing a specific annuity product, and receiving a commission for it.) You should consider the risks associated with annuities, as well as some of the complicated surrender policies and inheritance policies that come with some annuities. Here are a few things to keep in mind as you consider annuities:

Stability of the company: Annuities are offered by insurance companies. If the insurance company goes down, you risk losing your money. A minimum guaranteed rate of return is no good if the insurance company goes down. There are some state funds that offer insurance against this sort of loss, but you do need to be careful. Check ratings and determine the strength and stability of the company.
Costs: All annuities come with fees. However, some annuities have higher fees than others. Find out about total yearly costs, as well as costs associated with mortality and other issues. You might need to pay additional fees for extra features.
Inflation adjustment: Find out if the minimum guaranteed return will be adjusted for inflation. A 2% guaranteed annual return still results in a loss of spending power if inflation is at 3% or 4%. Look for annuities that offer inflation adjustments.
Surrender period: Make sure you are clear on this, and the terms of how you can withdraw money from your annuity. Otherwise, you might find yourself racking up extra fees.

Like many financial products, annuities aren't all bad. They are worth considering, and, when used properly, they can provide you with a way to ensure retirement income.

Are You Falling Victim To Price Anchoring?

By Miranda Marquit 5 Comments

One of the ways that you might be wasting your money could be due to the effects of anchoring. Anchoring is one way that retailers and others try to get you to spend more than you might normally spend. The effect of anchoring can also be seen in your other financial decisions, including investing decisions.

The idea of anchoring is that you use a value you know to make a decision about something you may not know about. Often the anchor price or value does not actually have a bearing on the actual value.

Price Anchoring Investopedia offers a great definition of anchoring:

When anchoring, people base decisions or estimates on events or values known to them, even though these facts may have no bearing on the actual event or value.

Anchoring can affect the way you make money decisions in your daily life, as well as in more long-term situation.

Spending More Money On Retail

One of the most common ways anchoring is used is to encourage you to spend more money than you normally would. This can be related to the idea of buying something in a “middle price range.” Something expensive will be presented next to something that is less expensive (but still not the least expensive). The idea is to get you to purchase something that is pricier than you would purchase normally.

Anchoring works at stores, when you see something expensive. That price for the item is “anchored” in your mind as something that you can expect to pay. So, when you see something next to it that is a little bit cheaper, that item suddenly seems like a good deal. The cheapest version of the item might work just as well, but it suddenly seems too cheap. Is there something wrong with the quality? Instead of getting the cheapest possible item, you go with the mid-range price. It feels like a good deal because you didn't pay the highest price, and you also feel good because you didn't “cheap out.” You feel like you got a good value, even if you probably would have saved money and still been fine with the lowest priced item.

Anchoring In Investing

Anchoring in investing is another issue. During times when your stock is losing value, Investopedia points out, you might be inclined to hold on to the stock because you want to at least “break even.” You don't want to sell until the stock at least reaches the price you paid for it. This is another form of anchoring. In your mind, the stock is “worth” a certain amount because that is the price at which you bought it. Even if the fundamentals have changed, and you should cut your losses (or harvest them for tax purposes), the “worth” of the stock is anchored in your mind.

Anchoring also works on a wider scale in the markets. A stock might remain stubbornly high because a certain expectation for price has been promoted. This could very well be seen in the Facebook IPO. There is already an expectation of what the stock should be valued at, so the market could easily adhere to the principle of anchoring when Facebook becomes publicly available.

Making Better Decisions

It's up to you to recognize anchoring situations. Instead of letting a fixed price set the value, consider what you want to pay before you head to a store or restaurant. Do research on investments to avoid letting your emotions rule you too far when making buy and sell decisions. Be aware of the effects of anchoring, and work to combat them.

Would You Use A Local Currency Instead Of A Federal Reserve Note?

By Miranda Marquit 6 Comments

As the economy continues to limp along, and with the recent announcement by the Federal Reserve that low interest rates are likely to continue into 2014, an increasing number of people are skeptical of the currency that we accept as legal tender. Federal Reserve notes are starting to fall out of favor. But what can take their place?

Some investors decide to invest in precious metals as a way to hedge against inflation and the loss of value expected of the U.S. dollar. Others, though, have decided to turn to local currencies in order to transact business.

local currency

Local Currencies

Local currencies have almost always been a part of the economic landscape in the United States. Indeed, even in Colonial times individual colonies, cities and even banks issued their own currency notes. The tradition has continued throughout the years, although the practice hasn't been much in vogue — until recently.

Since the most recent recession, local currencies have been on the rise again. Localities issue notes that can be used at businesses in a specific area, creating an economy that is more insular than that of the wider U.S. And, of course, because the currencies aren't accepted outside the retailers and tradespeople willing to accept the currency, more of the money stays in the local economy. There are even some digital currencies (beyond the money seen in virtual worlds like World of Warcraft and Second Life), used online amongst members who agree to honor the currencies.

Local currencies range from paper notes, to digital currencies, to metal-based. In some cases, states are drafting legislation that opens up the ability to use alternative forms of currency, usually gold and silver coins.

Most local currencies have a set exchange rate so that you can turn in your Federal Reserve notes for a specific value in local currency. You can then use the currency to make purchases, and choose to accept the currency for your own products or services. If you use the local currency, and amass value in the local currency, you will be protected to some degree in the event that the U.S. dollar as we know it now collapses.

Would You Use a Local Currency?

The idea does sound nice: You boost the local economy, and create a situation where a currency has more perceived value. Plus, you keep your options open — just in case the Federal Reserve System falls to pieces sometime soon.

However, there are downsides to a local currency. One of the biggest issues is that any system of exchange relies on the idea that people have faith in it. Even something tangible, like gold, requires that people agree on its “value.” All forms of money and investment are subject, in some degree, to public perception. If the public perception of a local currency falters, then it could become worthless. And, if you have exchanged a large number of your Federal Reserve notes for a local currency that tanks, your losses could be quite large.

What do you think? Would you use a local currency?

Should You Itemize Your Tax Deductions?

By Miranda Marquit 2 Comments

For years, my husband and I just took the standard tax deduction, and were happy with it. After all, that deduction is fairly hefty. Then, my home business started making money (and our contributions to our church rose correspondingly), and we bought a home.

Now, suddenly, we had a higher amount that we could deduct — and it was more than the standard deduction. We started itemizing our tax deductions.

should you Itemize deductions

Do Your Deductions Amount to More than the Standard Deduction?

It may seem like a pain to add up all of your deductions, but it can pay off in the end. If your itemized deductions add up to more than the standard deduction, your taxable income will be lowered by that much more. Some of deductions that you can itemize to help you reduce your income by a little bit more include:

Uninsured medical and dental expenses: If you paid out of pocket for medical and dental expenses, these can be deducted. Your expenses must exceed 7.5% of your Adjusted Gross Income, though, if you want to deduct them. For some, though, who have high deductibles, and for those who don't have dental insurance and had major work done, this can be a real help in offsetting some of the costs.
Interest and taxes on your home: The mortgage interest that you pay is tax deductible. Additionally, your property taxes are deductible. Unfortunately, as 2011 expires, so, too, does the tax deduction for PMI premiums paid. But, you can still get a fairly hefty deduction for interest and taxes on your home.
Unreimbursed employee business expenses: If you spent a great deal out of pocket on behalf of your employer, for business-related items, and you were not reimbursed, you can receive a tax deduction for that. Make sure that you keep good records of the expenses incurred, including receipts.
Miscellaneous deductions: In some cases, you might have large, unreimbursed expenses that don't readily fall into any category. With proper documentation, you can deduct these as well, but you might want to consult a tax professional before you do.
Uninsured losses due to theft or casualty: If your home was hit by a disaster, or if you have had a theft, you might be able to itemize those deductions. First of all, any theft or casualty tax deduction has to be on expenses that were not covered by your insurance company. If you insurance company paid for repairs, you can't deduct that amount. You can only deduct the amount using a formula provided by the IRS on losses not taken care of by insurance.
Charity donations: Large charity donations to qualified non-profits can be deducted as well. If you make large enough donations, it can overwhelm your standard deduction.

There are other eligible tax deductions as well. You don't need only one of the above to exceed your standard deduction in order to benefit from itemizing. You can add up as many items as necessary to get your total. It's this total that matters when determining whether or not you have more than the standard deduction. And, if it looks like you will have a larger number than the standard, it's a good idea to itemize in order to increase your tax efficiency.

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