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Articles by Miranda Marquit

Buying A Used Car? Watch Out For Flood Damage

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One of the ways you can save money when you purchase a car is to buy it used. Used cars can provide you with a great way to get from here to there — without breaking the bank. Plus, you avoid the instant depreciation that comes the moment you drive a new car off the lot.

You still need to be careful, though. Thanks to the high water in many parts of the country during the spring or hurricane season, there has been an increase in the number of used cars on the market that have been damaged by flooding.

Car With Flood Damage

Why You Don't Want A Car With Flood Damage

Before you buy a car, you need to understand that there are a number of problems that can come with flood damage to a car. When that much water infiltrates anything — especially if it sits — there can be very real problems. Some of the issues that comes with flooding include:

  • Mold and mildew: So much moisture can lead to mold and mildew in the car. This can ruin carpeting in your car, as well as smell nasty. Mold and mildew can also trigger allergies in some people, making it very unpleasant to be in your car, and further destroying what's left of the car's value.
  • Electrical problems: All that water in the car can damage electrical systems. This means that you could end up with shorts in the system, or components not working right. You might buy the car, only to find that it needs expensive repairs on the electrical system.
  • Body damage: Peeling paint can result from flood damage, but one of the real issues is rust. Flood damage can accelerate the rate at which the car rusts, and that can lead to expensive structural problems.

Sometimes, flood damage isn't obvious, though. Many sellers try to cover it up with new paint, and with other gimmicks. If you just give the car a once-over, you might not realize that the car has been in a flood.

Avoid Buying A Flood Damaged Car

Most states have laws that require that title documents reflect flood damage, or mention that a car has been through a flood. However, this doesn't protect you in instances when the state doesn't have such a law — or if someone flouts the law. You can check a Carfax report to see about flooding (most reputable dealers will provide you with a free Carfax), but sometimes the flooding happened too recently, or some method was used to avoid having the information reflected on Carfax. You can also get a free report at www.nicb.org, the site of the National Insurance Crime Bureau. Always inspect the title of the car, and ask for the former owner's contact information if you are buying from a dealer.

As you look over the car, check carefully for signs of possible water damage. You should also have your used car inspected by a mechanic you trust. This typically won't cost very much, and it can provide peace of mind as you buy the car. Plus, a good mechanic will be able to spot the tell-tale signs of flood damage — and attempts to cover it up.

Is Your Home Really Going To Be A Retirement Asset?

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Many of us were raised to believe that buying a home is the key to a stable financial future. It is true that your home is likely to be your biggest purchase, but it may not do to rely too heavily on your home's equity for retirement.

The theory is nice: You buy a house, pay it off over 30 years, and when it's time to retire you have this huge asset, which has appreciated in value, ready to be tapped. Before you get excited about the prospect, though, it's a good idea to take a step back and evaluate whether or not your home will really be the asset you think.

Home Equity

Will It Appreciate As Much As You Think?

The first thing you have to consider is whether or not your home will appreciate as much as you think. You will need to consider the costs of home ownership, including the interest that you pay, as well as maintenance and upkeep. You can expect to offset some of the costs of interest and property taxes with the help of tax breaks, but you can't expect those to last forever. You will have to consider the effects of inflation as well.

The other issue, of course, is whether or not a market crash happens just before you retire. Many people who had depended on their homes for retirement received a rather unpleasant surprise after the recent real estate bubble burst and home values plummeted. Suddenly, the expected value disappeared.

While your home can be an asset to draw on later, you might not want to rely too heavily on the expected equity in your home to fund your retirement. Like any other asset that we expect to appreciate in value, there is the risk of loss, and you can't predict what the market will do. A little diversity is usually in order.

Tapping Your Home Equity

One of the reasons that many buy a home is for the ability to tap the equity later. However, tapping your home's equity comes with its own costs. You will have to pay even more in interest, since you will have to borrow against the equity in your home to access it. If you are retired, you may have difficulty getting a traditional home equity loan, since you will need income. You might have to use a reverse mortgage. While you won't have to repay the mortgage until the house is sold, or you stop living in the house, many reverse mortgages have steep fees and interest rates, and can erode the amount you receive.

Of course, you can sell your home to downsize. If you have paid off your mortgage, you can sell, and then use the resulting capital to buy a smaller home, or invest the capital for income. (Or, if you have enough left over, you could buy a smaller home and invest.)

Bottom Line

If all goes to plan, it is quite possible that your home can be a place for you to live, as well as provide you with an asset to use to your advantage during retirement. However, it is important to understand that you might not end up with what you expect, and to consider making any real estate asset a part of your larger retirement portfolio, adding diversity.

Are You Prepared For A Stock Market Drop?

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The last few days have been quit volatile on the stock market. Big drops, big gains, bigger drops, more rallies, and more slides. With all this volatility, some people are in a panic, ready to sell. However, panic selling rarely does you any good when it comes to a long-term investing strategy. Being prepared for a stock market drop isn't about have stop loss orders ready to trigger; rather, it's about being ready to seize the opportunities that come in your way.

Bargain Hunting During Times Of Stock Market Decline

If you aren't maxing out your tax-advantaged retirement accounts, now might be a good time to add a little more. Over the long haul, the stock market has consistently gone up (of course, there's a first time for everything — including long-term stock market losses). This means that if you take the opportunity now to buy more for your retirement account, you have the chance to reap better tax-advantaged gains in the future. This is especially true if you happen to have a Roth account. Those bigger earnings could be tax-free when the time comes to withdraw.

Another way to bargain hunt during times of stock market decline is to look for good quality stocks with solid fundamentals. Dividend investing can be a great opportunity at this time. Many dividend stocks — especially dividend aristocrats — have a history of coming through tough times. These stocks are “on sale” during a market decline, and you can buy more shares for your dollar. This means that you have the chance to reap bigger gains on increases in stock prices, as well as owning more shares that pay dividends. If you want to boost your income portfolio, now might be the perfect opportunity.

Tax Planning During A Stock Market Drop

A down market isn't just great when it comes to bargain hunting. You can also use this as an opportunity to reduce your tax liability. As you know, you have to pay capital gains taxes on your earnings. The good news, though, is that you can offset your gains by losses. If you locked in some investment profits earlier this year, you can lock in some losses now to offset the income. You can use up to $3,000 in capital losses to offset capital gains each year. If your capital loss is more than $3,000, you can carry over the excess to another tax year, so that losses incurred this year can help offset capital gains in years to come.

You do have to be wary of the wash sale rule, though. If you buy the same security again within 30 days (before and after the sale), you will fall afoul of the IRS if you try to claim the loss. This prevents people from selling a stock at a loss and using it as an offset, and then turning around and buying the same (or a very similar) stock at a lower price to profit from later.

Bottom Line

One of the best things you can do for your finances is to order them so that you are prepared to take advantage of opportunities that come in your way. If you are properly prepared, either with capital to buy more stocks while they are on sale or a plan to sell at a loss to offset earlier gains, you can benefit from stock market declines.

Are You Maxing Out Your Tax-Advantaged Accounts?

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As you put together a plan for the future, and as you plan for your retirement, one of the things you should consider is whether or not you are maxing out your tax-advantaged accounts before investing in other accounts.

Part of getting the most out of your money is enjoying as many legal tax advantages as possible. Maxing out your tax-advantaged retirement accounts before turning to other accounts can help you make the most of your resources — and help you build up your wealth faster.

Maxing Out Tax Advantaged Accounts

Saving Money On Taxes

One of the ways you might be wasting money is by paying taxes you don't need to. While you should pay what you owe, obviously, you can keep more of your money by being aware of the tax breaks available to you. Some of those advantages come from the way you plan your retirement contributions. Some of the tax advantaged accounts you can use to save for retirement include:

  • IRA
  • Roth IRA
  • 401k
  • Roth 401k
For “regular” accounts, you can receive a tax deduction for your contributions. You contribute it without paying taxes on it, so the savings in your tax liability can be used now to increase the effectiveness of your investments. When it's time to withdraw your money, you pay taxes on the withdrawals.
Roth accounts, however, do not offer you an immediate tax advantage. You make contributions with after tax dollars. As a result, your money grows tax-free. When you withdraw it, you don't have to pay taxes on it. This means that you don't pay income tax on the gains from the investments in your Roth account. That can be a real advantage later, especially if you end up in a higher tax bracket. Here's a comparison between a Roth 401(k) and Roth IRA.
Before you open a regular investment account, it might be wiser to max out your tax-advantaged accounts first. If you can, max out your 401k, and an IRA, before turning to other investments accounts. Remember that your spouse can have his or her own investment account (including a spousal IRA if he or she doesn't have a job) as well. As a family, try to max out these accounts before turning to other investment accounts. Your money will go further, and you'll get to keep more of it in the long run (provided you're smart about low-fee accounts).

HSA: Another Tax-Advantaged Account

If you have a high deductible health plan, you have another option for a tax-advantaged account. You can make tax-deductible contributions to your Health Savings Account now, and reap the benefits later. If you use the money in the account later, as long as it is for qualified health and medical expenses, you never have to pay taxes on it. After the age of 59 1/2, you can make withdrawals for non-health costs using the same rules as a traditional IRA. You have to pay income taxes on the withdrawals, but, beforehand, you have the advantage of the tax deduction. Plus, your health care dollars can go further if you aren't paying taxes on them.
In the end, getting the most out of your money requires an understanding of your options. As you decide how to invest, consider maxing out tax-advantaged accounts before turning to investment accounts without the same tax benefits.

Is Money A Means To An End? Or An End Itself?

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One of the questions you have to ask yourself when you begin probing your relationship to money is this: Why do I want more money? It makes sense to want to earn more money, but why are you so interested in having more money?

Think about why you want more money, and try to define some of your reasons for making the effort to amass wealth. Your reasons for striving for more money can reveal a lot about you — and your level of happiness.

Do You View Money As The End Result?

It's easy for money to become the end result. If you want money just to buy more things, or just to have more money, you have made money the end. You may not have a plan for that money. Instead, it just sits there. And the more money you have, sitting without purpose, the more likely you are to be dissatisfied. In some cases, amassing wealth can become something of a hobby — or even a measure of status. When you begin to confuse net worth with personal worth, it becomes harder to be happy with what you have. After all, there is always someone with more, and you can never get all the money there is. Without a purpose for your money, you can quickly get caught up in deciding that money is the end result, rather than viewing money as a means to an end.

Money As A Means To An End

Most of us recognize that money is a necessity. We need money to buy clothing (or at least cloth to make our own clothing), and many of us have to buy at least some of our food, no matter how great our gardens grow. Additionally, we use money to pay costs associated with maintaining an adequate living space, and for other necessities of life. Having money can help you improve your quality of life, and it can provide you with the things you need. However, it helps to have a purpose for your money, so that you are using more effectively. Plus, you are more likely to enjoy your life more when your money is used for things that bring you pleasure and a sense of fulfillment, rather than having it just sit there, granting you some perceived social status.

The first thing to do, when you want to use money as a means to an end, is to figure out your priorities. Decide what's important to you, and then direct your financial resources in such a way as to make those important dreams a reality. Try to be as specific as possible. Sure, you want to save up money for a comfortable retirement. But what do you want to be comfortable doing? Consider what your ideal retirement would like, whether it's travel, volunteer work, or entertaining family. Then, make a plan for your money so that you can accomplish your goals. The same is true if you want to go back to school, pay down debt, donate more to charity, or build alternative income streams so that you can quite your day job.

Rather than looking at money as an end itself, consider money a tool to help you accomplish your goals. You'll be more likely to live the life you want — and have the financial resources to succeed.

Is College Worth The Cost Of Student Loans?

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One of the debates going on right now, thanks to the recession and the rising cost of college, is whether or not your degree is worth the money.

Earlier this year, outstanding student loan debt surpassed credit card debt. Rising levels of college debt, combined with a tough job market, have many questioning the cost of college. According to the COUNTRY Financial Security Index, 26% of those surveyed feel that college is no longer a good financial investment. This represents a drop from 81% to 58% of people feeling college is a good investment.

Not only are more people questioning the value of college, more expect that students will help bear more of the burden. 46% of those surveyed said that they put their own retirement savings ahead of paying for a child's college experience. 78% of Americans think that college students should work part-time to help pay for college. And, of course, most people accept that public and private student loans are likely to play a big part in covering college costs, especially if college savings and scholarships don't amount to enough to pay for university.

College Costs

What Makes College Worth the Cost?

When deciding whether or not college is worth the cost, there are different factors to consider. Some of them have to do with financial trade-offs, and other considerations are more about the experience, and some of the more intangible benefits. Here some of the things to think about as you consider whether or not college is worth it:

  • Do you prefer a trade or professional certification?: In some cases, you might be better off attending a trade school or getting a professional certification. Not everyone enjoys college, and not everyone needs a degree in order to succeed. If you can make money as a dental hygienist, radiology tech, mechanic, or with some other profession, and you think you would enjoy it more, it might be worth it to consider going that route.
  • Is it reasonable to assume you will make enough money when you graduate?: Your next task is to determine whether or not you will be able to afford to repay your student loans when you are done with school. Is the major you are choosing likely to allow you to repay your student loans? Part of that consideration is the school you go to. For example, will you go to a traditional university or an online school like Phoenix University? For undergrad, I went to a small state school. It was inexpensive (especially with a scholarship), and I did well. I attended a more expensive private school for my Masters (Vs. getting an online mba). My current profession allows me to easily keep up with student loan payments.  Consider the costs, and whether you will be able to repay them.
  • What experiences will you have?: In many cases, the value of your college education boils down to what you make of it. If you take the time to get involved in resume builders and network with others, this can add a layer of value to time spent in college. You can't put a price on the value of experience, connections and opportunities to grow. If you are willing to go a little off the beaten path to make your college experience a useful one, it might be worth the price you pay.
In the end, you have to decide whether or not college can help you meet your career and income goals. If you find that college is worth the cost of student loans, and you can keep your borrowing prudently under control, you might come out ahead in the end.