Archive for February, 2012

My Interest Rate Can Beat Your Inflation Rate!

February 27, 2012

By Leigh Guth, Lincoln County Extension Agent 

There’s a wonderful Extension curriculum, Money Talk for Women, which I use frequently. Throughout the curriculum, the author points out how, in general, women view money differently than men. Women tend to think about money as security for themselves and their children rather than a sign of power or achievement. Because women are concerned about their security, they may be more conservative with their money and investments. Furthermore, we know from research that women are, as a rule, more focused on relationships. So, putting these ideas together, look at the following scenario:

I am a woman making money decisions on my own for my family. I do my banking right down the street from my workplace; I may personally know a banker through my social circles. Based on my comfort level and relationship, I chose to invest my money at that institution in a CD earning 2.25%. I feel confident working with someone I know, and I feel that I can access my money at an institution right down the block. Besides, this is not risky like the stock market – I’m guaranteed a fixed interest rate.

In this situation, by leaning toward security through a fixed-rate CD, the investor will lose money. Yes, the balance will continue to rise as interest is added, but buying-power is decreasing. Inflation is the rate at which buying power decreases. For example, $100 today buys less than it did two years ago.  In 2010, the average inflation rate for the year was 1.5%. In 2011, the annual inflation was 3%. And in January 2012, it was 2.93%. Only in the year 2010 (rate of 1.5%) would this CD offering 2.25% in interest get the owner ahead because the interest rate earned was more than the rate of inflation:

CD Interest rate of           2.25%

Less Inflation                    -1.50%

Net interest gain               0.75%

In 2011 and January 2012, this CD earning 2.25% might be secure, meaning that the investor is not at risk for losing any of the principal and will earn a guaranteed return on the principal.  But it is important to realize that the owner would be losing buying power: 2.25 – 3.00= -.75%.  The money, principal and interest, that is withdrawn at the end of the CD term the money will buy almost one percent less (-0.75%) of goods or services than the investor could have purchased with the principal alone at the beginning of the CD term.

So the next time you are evaluating interest rates on potential investments look for the other rate – the inflation rate. Make sure your interest rate can beat your inflation rate. Other investment options to consider include:

  • Mutual funds, which diversify the money invested over several products in an effort to minimize risk
  • Tax-deferred investments which include retirement accounts such as a 401(k) or an IRA.
  • Savings bonds are US Treasury-backed securities that offer modest returns, but also offer tax benefits.

Leigh Guth will be offering a Money Talk for Women series April 17-20 and 24, from 9 a.m. to noon. To register or learn more contact Leigh at Leigh_Guth@ncsu.edu.

Extension Agents, have you used Money Talk for Women? Do you think this curriculum’s assumptions about women’s investment habits are accurate?

Core Competencies Discussed: Saving, Protecting.

Resources for Teaching Children Smart Money Skills

February 24, 2012

By Molly C. Herndon

The Military Families Learning Network recently hosted a web presentation called Talking to Military Kids About Money. Dr. Kate Fogarty and Anita McKinney, of Florida Extension, shared a wealth of resources for working with children to develop these important skills. If you are interested in viewing the recording of this session and copies of the slides to download, check http://learn.extension.org/events/441 . Online resources shared during the presentation included:

Books for young children include:

  • Alexander, Who Used To Be Rich Last Sunday by Judith Viorst
  • A Bargain For Frances by Russel Hoban
  • A Chair For My Mother by Vera Williams
  • Just Shopping With Mom by Mercer Mayer
  • My First Job by Julia Allen
  • Ox-Cart Man by Donald Hall
  • Sheep in a Shop by Nancy Shaw
  • Something Good by Robert Munsch
  • The Berenstain Bears & Mama’s New Job by Stan & Jan Berenstain
  • The Berenstain Bears’ Trouble With Money by Stan & Jan Berenstain
  • The Purse by Kathy Caple
  • Tight Times by Barbara Shook Hazen

Books for older children are:

  • All the Money in the World by Charles Robinson
  • Mall Mania by Stuart J. Murphy

What resources do you use in your work with parents and guardians teaching their children smart money skills?

IRS introduces a new tool to find nearest VITA location

February 17, 2012

By Molly C. Herndon

The IRS has introduced a new tool for taxpayers to use to find locations for help with filing their returns through the Volunteer Income Tax Assistance, or VITA, program. VITA locations typically offer free assistance with tax preparation for individuals with an income of $50,000 or less.
Click here to find the VITA tax preparation site nearest to you.

VITA was created in 1969, and in 2011, volunteers prepared more than 3 million tax returns through the VITA program and the sister program, Tax Counseling for the Elderly.

Another good program to be aware of is the Tax Counseling for the Elderly (TCE) program. This program provides priority tax preparation services for all taxpayers over age 60. Click here to find TCE locations.

In addition, the Internal Revenue Service just announced the North Carolina organizations funded to offer tax payer preparation assistance for low-income tax payers.
The organizations are:

  • Community Reinvestment Association of North Carolina – Durham $37,500
  • Legal Services of Southern Piedmont, Inc. – Charlotte $92,000
  • North Carolina Central University School of Law – Durham $75,000

Making the Most of Your Tax Refund

February 15, 2012

By Leigh Guth, Extension Agent, Lincoln County 

Palms get itchy this time of year with folks anticipating their tax refund. All too quickly the refund is here and gone again, spent as quickly as it came. It is important to remember, especially this time of year, that a tax refund is not “free money” – rather it is the return of earned income. Agents, this year, help others develop a plan for saving the bulk of their refund. For example, by taking a small amount – perhaps 20% – to use that for a fun purchase or a vacation. But, by saving the remaining 80% of the refund, taxpayers can begin improve their family’s financial situation. Here are some considerations to share with your clients:

Look at your financial health and consider the year ahead.

What debts are you paying off?  Do you have a high interest credit card or loan?  Check out PowerPay.org to see how much money you would save in interest by paying a lump sum toward your debt. Power Pay will show you which loan you should target and how much quicker you will pay off your debt by using your refund as a debt payment.

What crisis could come along?

Do you have six months’ worth of living expenses saved for an emergency?  What if you were to lose your job?  What if you need to repair your car, replace your washing machine, or have a major medical expense? Could you pay for those things without resorting to your credit card?  A tax refund is a great way to start an emergency fund that would help handle any of these events.

What big events are planned this year?

Is there a wedding, summer trip or a graduation in the future?  Use your tax refund to open a savings account for this purpose. With a lump sum to start you on your way, adding a small monthly amount can make saving for a special occasion a cinch.

Are you saving for your retirement or your child’s education?

This tax refund could make a great impact toward any savings goal and can have a positive effect on your taxes for next year.

As discussed in a recent post , by using direct deposit for your tax refund, you are already taking a step toward success!  Directly deposited refunds arrive faster than a mailed check. By using an IRS Form 8888, you can assign your refund to up to three different bank accounts.  So, you could send 20% of your tax refund amount to a checking account reserved for discretionary purchases, then, send the remaining amount to a retirement account or savings account. You can also use this form to purchase up to $5,000 of U.S. savings bonds to add to your retirement or education savings. Now, you are already on your way to improving your financial health in 2012!

Agents, the National Financial Management Core Competencies addressed in this blog are:

  • Saving: relationships with financial institutions, plan for retirement, child’s education, and other needs, plan for long-term goals
  • Borrowing: plan and meet your payment obligations
  • Protect: build up an emergency fund

As you can see, sharing the information in this blog with your clients will help them build competencies in three of the national competency areas: (1) Saving, (2) Borrowing, and (3) Protect.

What are some of the ways you can share this information with your clients?

Resources:

Bird, Carolyn L. Getting the Most from Your Tax Refund (FCS-528-01). Raleigh: North Carolina Cooperative Extension Service, NC State University.

Smart Uses for Your Tax Refund. North Dakota State University, Extension Service. December 2010. 

10 Tips to Make Filing Easier

February 13, 2012

By Molly C. Herndon

It’s that time of year once again – tax-filing time. Last week’s post discussed strategies for getting a smarter refund, and this week we’re offering tips to make the filing process easier. The North Carolina Department of Revenue has shared 10 tips that should making filing in NC easier this year. Extension Agents, please share this helpful list. 

Ten tips for filing taxes in North Carolina

Tax season is here and making it easy for taxpayers to understand and file their taxes is a top priority for the North Carolina Department of Revenue. Providing the correct information and remembering a few simple tips will help ensure you have an error-free tax return that can be processed quickly and correctly.

1. Extended filing date– Individual income taxpayers will have until April 17, 2012, to file returns, extensions and payments normally due on April 15. The extension is to accommodate Emancipation Day, a legal holiday in the District of Columbia. Get more details on the extension.

2. Gather all your income and tax documents before you file– Filing before you receive all W-2s and 1099s often leads to errors that require you to file amended returns once you have the correct information. Employers are required to mail W-2s and other documents by Jan.31.

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3. File electronically and request direct deposit for refunds-This is the most convenient, accurate and the fastest way to file your taxes. Electronic filing will identify common math errors and direct deposit to your bank account means you get your money sooner. Some taxpayers may qualify for free or low-cost electronic filing. Find out how to E-file and if you qualify for low-cost filing.  Some taxpayers with low-to moderate- incomes may qualify for free tax preparation through the Volunteer Tax Assistance Program. To locate the nearest VITA site, call 1-800-906-9887 or visit the IRS website.

4. File electronic federal and state returns at the same time-Failure to file both returns at the same time could require taxpayers to amend North Carolina returns if the IRS detects any errors with their federal return.

5. Check your address-Every year, thousands of refund checks are returned to the Department of Revenue because of incorrect addresses, and the law forbids the forwarding of those checks. Carefully check the mailing address you provide on your return.

6. Do not file photocopies of tax forms-Use pre-printed or downloaded forms from the department’s website. Photocopies may not scan correctly and could cause delays in processing your return. Taxpayers can request forms onlinedownload forms from the NCDOR website, or call 1-877-252-3052.

7. Make checks payable to the N.C. Department of Revenue if you owe state taxes-Some taxpayers mistakenly send checks made out to the Internal Revenue Service for their state taxes. Payments may also be made on-line through our secure website. Just visit www.dornc.com and click on Electronic Services for Individuals.

8. File on time regardless of ability to pay-Make sure you file on-time to avoid the automatic failure-to-file penalty of five percent per month, up to a maximum of 25% of what you owe in state taxes. You are better off filing your taxes by the April 17 deadline and contacting the department at 1-877-252-3052 to arrange a payment plan if you cannot pay all at once.

9. Check to see if you qualify for common credits, deductions or exemptions-You could qualify for popular credits such as the Earned Income Tax Credit both federally and with the state.  Some severance pay may also be exempt if you were laid off from your job.

10. Find and use a reputable tax preparer– Taxpayers get billed for millions of dollars in state taxes each year as a result of deliberate errors made on their returns by fraudulent tax preparers.  Be wary of preparers who: claim they can obtain larger refunds than others, ask you to sign a blank tax return, base their fees on a percentage of a taxpayer’s refund and who are reluctant to offer references.  If you see information on your return that is wrong or confusing, you should question the preparer and if not satisfied with their response, called the NC Department of Revenue at 1-800-232-4939.

Questions, need more information? If you have any questions or need more assistance, please call our Taxpayer Assistance Center at 1-877-252-3052.

Get a Smarter Tax Refund

February 10, 2012

By Joan Reid, Extension Agent, Family & Consumer Sciences, Granville County

“It’s not how much you earn that counts, but how much you keep.”

Extension Agents, it goes without saying that most of us hate filing our income tax returns, but we love getting money back from the government. While you don’t want to owe income tax, too big of a refund doesn’t work to your best advantage, either. So, how can you prepare your clients to best put their tax return to work for them? This post focuses on strategies you can share with clients that will help put their tax returns to work.

Make Your Refund Work for You

The much anticipated tax refund is not a windfall, but a return of earned income, which the government has been using all year. While many families regard this refund as forced savings, it may serve you better if you were to have access to that money throughout the year. Consider reviewing your annual withholding amount. If you decide to change your with­holding rate, submit a new Form W-4 Employee’s Withholding Allowance Certificate to your em­ployer. Be sure to discuss changing the withholding rate with your spouse if you are married. Coordinate your withholding rates so you do not accidentally under-pay your taxes, which would cause your household to owe money the following year.

To make your money work for you, develop a planfor that extra money that will be in each of your paychecks. If you don’t have a savings account, open one and move a set amount into it each month. Or have automatic transfers set up from your checking account into your savings account. This is a good way to develop an emergency fund if you don’t have one.

You can get started on saving with this year’s refund. When you prepare your tax return, simply use IRS Form 8888  to divide your refund into two or more accounts or financial institutions and/or to purchase U.S. Series I Savings Bonds.

Avoid Refund Anticipation Loans

Refund Anticipation Loans (RAL) provide early access to part of the refund amount you are expecting. The com­pany offering the RAL will charge a fee for lending you part of your tax refund until the actual refund is received. You can keep more money in your pocket by avoiding rapid refund offers and choosing to electronically file (e-file) your taxes. A tax refund can be received in 10 days or less with electronic filing. This is true whether you e-file through a Volunteer Income Tax Assistance, or VITA site, a paid tax preparer, or on your own through the IRS Web site.

Many folks sign up for a RAL because they either are desperate for the cash or don’t want to delay a desired purchase. You can prepare yourself to not be in that position next year by decreasing your withholding, as discussed above, and saving that amount. Then, you can keep your whole refund and earn at least a bit of interest throughout the year. If you have enough in emergency savings, you may want to put some of those savings into an IRA or other retirement account.

H&R Block Emerald Prepaid MasterCard® 

When you have your taxes completed at a participating H&R Block tax office, you can choose to have your tax refund or refund anticipation check funds proceeds loaded onto the H&R Block Emerald Card. 

The card can be used for everyday purchases, such as bill payments and ATM withdrawals, anywhere debit MasterCard cards are accepted. You can also add money to your card any time through payroll direct deposit or at participating retail reloading locations through the Green Dot®, MoneyGram® and Western Union® networks.

Emerald Card Fees

Although there is no fee to set up the card, there are some usage fees of which to be aware. ATMs in the Allpoint network are surcharge-free. If you use a non-Allpoint ATM for any transaction, including a balance inquiry, the ATM operator may charge you a fee even if you do not complete a withdrawal, this is in addition to the fees listed below:

  • $ 2.50 –  ATM Cash Withdrawal Fee (each/per occurrence)
  • $ 1.00 –  ATM Balance Inquiry/ATM Denial Fee (each/per occurrence)
  • $25.00 – Over the Counter Withdrawal Fee (each/per occurrence)
  • $2.50/month – Monthly Inactivity Fee

Visit the website for a complete listing of fees

Volunteer Income Tax Assistance (VITA)

The VITA program offers free income tax preparation for individuals and families with incomes up to about $42,000. Look in your community to find a free VITA tax preparation site or call 1-800-829-1040.

What tax refund advice do you typically share with interested clients?

References:

Bird, Carolyn L. Getting the Most from Your Tax Refund (FCS-528-01). Raleigh: North Carolina Cooperative Extension Service, NC State University.

Bird, Carolyn L. Smart Uses for Your Tax Refund (FCS-528-02). Raleigh: North Carolina Cooperative Extension Service, NC State University. 

H&R Block Emerald Prepaid MasterCard. 

Using “Auto-Pilot” to Start Budgeting

February 3, 2012


By Carolyn Bird with Molly Herndon

At the end of last year, a freelance reporter contacted me with a request to provide “steps that disorganized, messy, resolution-proof people can take to shore up and improve their financial situations.” In the reporter’s language, the information “is for people who are unlikely to make — much less keep a real budget.’

Here are some effective strategies to help your clients manage and improve their financial situation in the New Year. By investing a little time to put some systems in place, a person can save time and money throughout the year.

First, check to see how much money is coming in and how often. A good place to start is with “take home” pay. This is the amount that your client or her employer deposits into the client’s bank account.

Second, sort the bills into those that have the same amount due every month and those for which the amounts vary. The payments that do not change are called “fixed expenses” and include bills such as rent or mortgage payments. Some utilities may fall into this category as well, such as: cable television, Internet provider service, cell phone contract amount (if you stay within your plan). Even the electric and other utilities can be a fixed dollar amount each month if the provider offers a “budget plan” that averages annual usage over 12 months. Suggest that your clients check with their gas and/or electric service provider to see if a budget plan is available.

Third, if your client is paid more than once per month, decide which bills will be paid during each income period. Clients may need to allocate half of the amount from two pay periods during the month to pay the larger bills such as rent or mortgage.

Fourth, encourage clients to use the electronic bill pay service offered at their financial institution. Using the information on the company’s invoice or bill, clients can set up payment for each of the fixed payment bills. The key is to be sure to select a payment date so the payment will arrive on time. One final check after setting up accounts for payment is to remember to verify that each bill is accounted for in its income period. This will help avoid overspending for an income period.

Fifth, clients can use a calendar and mark “online dates” for paying bills. These dates will likely be close to the client’s payday. For example, if your client will be paid on February 1st, then February 1st or 2nd might be good days for an online date. On the selected date, your client can log into his account and approve the bills for payment. It is possible to set payments for automatic processing on a certain date, but I suggest that those new to budgeting use the manual processing procedure. Manual processing provides one more opportunity to double-check the numbers, and if there is an error, to avoid over-spending. Using this method will reduce the time needed to manage monthly finances and it will help the client avoid fees from late payments or bounced checks. For example, if your client carries a credit card balance, setting up an automatic payment for at least the minimum amount due will avoid late fees. Additional payments can always be made in the same or a different pay period.

If the due dates are too close to pay dates to allow the payments to arrive on-time, your client can contact each company and ask for a later due date. Be aware that it may take one or two billing cycles for the due date change to take place. Another technique to avoid account overdraft is to establish an account dedicated to bill payments. This is particularly useful for clients who don’t keep a running balance for the checking or transaction account. A separate bill-payment account can reduce bill-paying stress. Each pay period, the necessary amount of money to cover the bills or the amount of money to be allocated against a bill (like rent or mortgage) is transferred to the bill-payment account. This way, a forgotten ATM transaction will not jeopardize the ability to pay bills. A dedicated bill-payment account can be an effective way for dual income couples to contribute to and manage household bill payments.

Now that your client has identified how much income is devoted to fixed payments, the balance can be allocated across variable expenses.

Other tips for managing money on the go:

  • Set up an alert for notification when a deposit is made to an account.
  • Set up an automatic transfer from checking to savings; start with what you can afford and increase it overtime. This can be $5 or $10.
  • Set up an alert for when the account balance falls to a certain amount, it might $100, $50 or whatever number is meaningful for your client. What the alert means will be individual to your client. But in any case it is a signal to seriously consider each financial transaction.  How your client responds will vary from curtailing eating out, skipping an outing with friends, or resisting a clothing purchase. The important thing is for your client to decide what will help him to live within his income and to tailor the alert accordingly.

Lastly, these strategies are great steps toward establishing a budget. The budget is a tool that helps identify where the money goes each month. It offers an opportunity to decide if your money is really being spent the way you would like. The budget works for your client to help him meet financial goals. It may be useful to provide your client with a spending tracking tool, like this one .

A budget can also remind us that while a cost is fixed in the short run, it is variable in the long run. This means that if a utility expense (such as cell phone, cable, Internet, etc.) is too high, it may not be possible to reduce the rate right now but your client can shop for a better rate when the contract nears renewal. Or your client may decide to do away with a service for a while. Similarly, your client can look for a more reasonable place to live or one that is closer to work to reduce the cost of housing or transportation. By highlighting spending choices that may not be working so well, a budget can be used as a comparative tool when considering spending alternatives.

This blog focuses on the national core competency of “spending.” The competency behaviors discussed included: tracking spending and living within your means.

Are your clients or program participants using automatic banking features to help them better manage their finances? What tips and techniques are they using?