Reward cards: leverage for your planned purchases?
Photo by: Hsi-Pei Liao (Stock Exchange)

Savvy consumers like UWSA readers know that there are certain things you have to know before accepting any credit card offer.

Basic aspects of your credit agreement such as APR, maintenance fees, and overage charges can make a huge impact on future dangers of credit card debt.

A little while ago, we discussed how to use your debit card to help accumulate savings for small purchases and medium-term goals.

This time, we’ll talk about maximizing benefits from your credit lines.

Credit Card Features, Positive and Negative

Consumer credit is still sluggish at this phase in the recovery, but signs of improvement are starting to show up. Under today’s conditions, accepting credit offers that involve maintenance fees, prohibitive penalties on overages, or a lack of fraud protection is just plain unnecessary. Even if you’re at an early stage in your credit history, or have minor credit card debt issues in your past, don’t feel as if you have to take any offer that comes along. Even in responsible hands, a bad credit card is like a ticking time bomb, and it could very well do more harm than good to your finances in the end.

On the other hand, if you understand your buying habits well, you can use a credit card with strong benefits to your advantage, in conjunction with good debt management habits. This is one place where having a budget is good; it allows you to see the “hidden” places where your money goes, allowing you to understand and work with your spending patterns. However, some things about your budget may be more obvious than others. For example, if you know that you like to take international trips every year or two, a credit card that offers frequent flyer miles or “points” for purchases may be valuable to you.

Choosing (And Using) Special Credit Offers

Let’s take the frequent flyer example a little further. If you know that you are going to get a bonus in terms of “miles” for every purchase, then you gain something whenever you use the card. Treat the credit card like cash and pay it off immediately after every purchase; do not use it to go outside your usual spending habits, and definitely do not accrue credit card balances! Instead, look for ordinary purchases that you would normally make with cash, use the credit card, and pay the balance diligently – as soon as you get back from the store. You do not gather debt, and you end up minimizing, at least a little, the impact of big purchases you know are in your future. The same strategy can be used with cards that have other kinds of benefits and bonuses; just do not overdo it!

Of course, you should examine any benefits agreement closely and make sure you understand it well. Get a good sense of how the “points”, “miles”, or whatever else you’re getting translate to purchases in real terms, what’s required, and how you can redeem them. It’s no good to you if you can only use your accumulated benefits once a year, for example, or if you lose them after an extremely short time if you don’t use them. It is also a bad move if the benefits require a certain minimum balance or any other tricky provisions about the way your credit card actually works. Card benefits should work to enhance your spending profile, not complicate it – and credit cards should benefit you first and the company second. Do not let credit card companies “sell” you otherwise!

Your budget’s best friend ... or worst nightmare?
Photo by: Michal Ufniak (Stock Exchange)

Just get a fancy new smartphone? Hidden fees and costs from your phone plan can drive up your credit card balances and bloat your telecom bills beyond your worst nightmares.

But there are ways you can fight back to “trim the fat” and still benefit from the great features of modern phone technology. If you take a few steps to be savvy, you can enjoy your phone and keep your credit card payments low.

Here are a few tips.

Beware of “bundles”: In today’s telecom environment, your phone company often wants to be your cable company, internet service provider, and heaven knows what else. Before you agree to a “convenient” bundle with an introductory rate that’s bound to grow when you least expect it, compare all your options. It’s often the case that there are several companies competing for your business in all these categories, and you can get a better deal selecting single-service options from two or three providers. Don’t be fooled by “convenience” … with virtually all bills handy online, do you really need to save five minutes at the cost of $20, $30 or more a month?

Know your contract and your hidden fees: It’s tempting to skim over telecom contracts and assume we understand the basics: “the company reserves all rights, and if you don’t like it, tough.” But when it comes to phone bills, what you don’t know can hurt you. Recently, I upgraded to a terrific new phone that seems to do about everything but make toast; but I didn’t look up my town’s “communication service fee.” It’s almost as big as the state’s separate fee – and altogether, they add $15 a month to my bill. Go over the contract carefully, with a neutral third-party expert, and understand your rights in issues like billing disputes, plus trapdoor charges like roaming. Talk to others who have the same service and see if they’re satisfied.

Take advantage of cost-cutting features: If you have a smartphone with “apps”, you can often use them to slash your charges in unexpected ways. Plans for these phones have two interdependent parts: your voice plan (expressed in minutes) and your data plan. Depending on your usage patterns, you can use this to your advantage. Certain apps can shift many calls from your minutes to your data, for example. Others can set “alarms” so you know when you’ve passed a certain usage threshold. With the right tools, you can protect yourself from nasty surprises on your monthly bill.

Keep the kids away from those 1,000 texts a day: It may not be the “cool” thing to do, but you can use your children’s telephone use as a teachable moment for budgeting. With new reports estimating teen texting – often the most expensive “add-on” feature for a cell phone plan – at thousands of messages a month, you might want to pull the plug on some of those fancy features. A good way to control a teen’s telephone budget is to trust them with a pre-paid phone that you only fill up each month; these tend to be more basic, but they limit a user’s ability to get into financial trouble.

Use your computer to make your phone more cost-effective: There are a number of “phone alternative” services that can lower your costs by allowing you to take calls from your home desktop computer. Some of these are so rich in features that they can actually replace your cell phone, your landline, or both depending on your needs. Look into “voice over IP” to learn more – the technology behind it has matured, and the array of options is growing by the day

Money you don’t see can “fly away” before you know it
Photo by: Shaun W. (Stock Exchange)

Many experts contend that, for day to day expenses, cash is preferable to credit if you want to maintain a budget.

The reasons go beyond the obvious: if you regularly use cash instead of credit, you don’t have to worry about interest, fees, debt, or credit card payments, of course.

But there’s a bit more to it than that: handling cash gives us a tangible reminder of our budget and allows us to “see” money going to use.

With the rising number of people using PayPal for small business, bills, and more, it can be easy to lose money if you’re not careful about where it’s going!

What is PayPal?

Owned by eBay, PayPal is the multi-purpose e-commerce service largely responsible for making online purchases “respectable.” It offers business owners and private users a way to conduct transactions and send and receive money. The money can conveniently be added to your bank balance, and your bank balance can be used to fund your PayPal account. PayPal made credit card and “e-cash” transactions a reality for small business owners who would otherwise have to pay huge fees to accept cards; thousands of online merchants move millions of dollars in merchandise through PayPal payments annually.

How Does PayPal Relate to My Budget?

If you do any business online, you probably have a PayPal account. Now, PayPal is offering a range of investment and debit products, including debit cards that draw on your PayPal balance and offerings that pay dividends on your PayPal balance. What began as a simple and easy way to do business is slowly but surely becoming a new way to carry out ordinary banking functions, and even invest.

If you regularly receive payments through PayPal, you should be aware of the pros and cons of PayPal. While it’s an excellent, and credible service for day-to-day transactions, it can also seem like “invisible money” – never quite becoming part of your regular budget, and therefore, going out as quickly as it comes in. Here are a few tips on making PayPal as useful for savings and debt management as it is for selling and spending.

If you get a PayPal debit card, define how you’ll use it: Any time you deal with “invisible money” – money you don’t handle in your hands, that doesn’t make its way into your bank account – you’re at risk of losing it as fast as you get it. A PayPal debit card can make this process even faster, since you could find yourself using it for minor, day-to-day expenses. So before you get one, make a promise to yourself to only use it in certain, pre-defined ways. This will protect you from seeing too much of it, and not enough of your money.

Move your PayPal balance to your bank account regularly: The best way to make your money “visible” is to bring it back into your ordinary old bank account – the one you’re subconsciously used to using responsibly. After receiving money from PayPal every week, I tend to send it to my bank account right away, even though there’s a 3-5 business day delay between pressing the button and seeing the money “reappear” at your bank. This is inconvenient, but the long-term budget benefit is worth it.

Compare savings plans before going with PayPal: As of this writing, savings opportunities from PayPal are related to the performance of a money market fund managed by Barclay’s Global Investors. While Barclay’s is a big name, a successful rate of return is not a guarantee. Also remember that your PayPal balance, on which your returns depend, can be compromised. Hackers often target PayPal accounts, though PayPal itself is exceptionally proactive and helpful about returning stolen balances; when a thief transferred $500 from my PayPal account many months ago, the transfer was reversed and the account placed in protective lockdown before I’d even heard about it. Even so, look at your other options before going with the PayPal alternative.

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Owners of small and home-based businesses have a lot of issues to keep up with, and one of the ones that’s surrounded by confusion is the issue of keeping old financial records, especially receipts.

Some people swear by keeping each and every receipt.

Others consider the never-ending and always-expanding file of paperwork to be more a burden than a help when dealing with finances.

In this post, we’ll break down the basic facts for keeping your receipts and other major records.

Private persons …

If you don’t have a business, the bar is set fairly low on keeping receipts for routine expenses. Keeping copious archives of your transactions can help in special situations, such as launching a plan to consolidate your debts or reduce credit card debt. Beyond these scenarios, though, there are a few times that keeping receipts can help enormously.

Major expenses for home or car: Receipts reflecting major repair or renovation work should be kept with your tax records on a long-term basis, as they can help establish the value of your major assets and assist you in selling them.

Warranties, returns, and exchanges: It often happens that the one thing you would never expect to break down … breaks down. Lost, stolen, or damaged items might also be covered by particularly good warranties. You can’t take advantage of these benefits if you don’t have receipts. It’s the same story with returns and exchanges, which have gotten stricter as large retail chains confront the issue of loss.

Reimbursements: You may have work-related bills that your employer offers compensation for. If so, you’ll have to surrender the original receipt, so make a copy; with big companies, reimbursements can take a long time and can be lost in the system for quite a while before you see the money.

Tax deductions: It goes without saying that if you plan to benefit from tax deductions, you have to have adequate proof that you qualify. This often means receipts pertaining to the expense under consideration. Deduction eligibility can change, so consult an independent financial advisor before getting rid of anything you think you might need.

Businesses …

Businesses should plan to keep each and every receipt, just as you would keep invoices and other records that establish the scope of your activities. Your potential for tax deduction is huge compared to “John Q. Public”, and your likelihood of extended contact with the IRS is also higher than average. If you ever have to deal with an audit or any other kind of regulatory inquiry, receipts can only help you.

Generally, you should plan to keep records for seven or nine years; this represents the maximum amount of time the IRS might wish to look at, and the statute of limitations for most audits excluding suspicion of fraud. Assume the best and prepare for the worst – simple mistakes can mean you really do need records from nearly a decade ago.

What Other Records Should I Keep?

There are many kinds of records that might be important to your finances. Bank statements, insurance policies, and mutual fund statements should be held for at least three years. Notes, contracts, and leases should be held for seven years, and likewise for accident claims. This is true even if policies expire, contracts become void, and so on.

What do you need to hang on to for at least a year? Bank reconciliations, brokerage statements, pay stubs, and credit card statements fit the bill here. If you’re up to the challenge, keeping “anything and everything” can help with budgeting and debt management. We’ll explain how to use this strategy to your advantage later.

Retirement money
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Every time there’s a dip in the stock market or a big company falls into dire straits, you can hear people fretting about three things: debt, the mortgage, and the value of their 401(k). For many, a 401(k) is a critical part of retirement savings. For others, especially young folk entering the workforce or professionals for whom retirement is a long way away, the 401(k) is something else entirely: a mystery, off in the unforeseeable realm of the future.

But, as with any long-term savings goal, the sooner you start saving for retirement, the sooner you can plan to enjoy it. Since retirement can mean many years of your life – and there’s just no telling what kind of Social Security protections or other government programs will be healthy twenty, thirty, or forty years down the line – it’s important to start thinking about it now. So we begin with an introduction: just what is a 401(k)?

The 401(k) and You

Put simply, a 401(k) is a kind of savings plan that allows you to put money aside for retirement and protect that savings and its interest from taxation until you’re ready to use it. Until a worker reaches the age of 59.5 or is ready to leave company service for retirement, there are serious restrictions on withdrawing any funds from the plan. In practice, this is because companies, through a third-party plan administrator, are engaged in investing the value of employees’ 401(k) plans, and (hopefully) growing them.

Pros of the 401(k)

Though the amount of money an employee can contribute to their plan is capped at a certain percentage of their wages, every dollar you contribute reduces your taxable income and lowers your tax burden. Because no taxes are taken “off the top” of your contributions, your investment can start to accrue more interest sooner. And in many cases, companies will match your contribution on a percentage basis, chipping in a quarter or more for every dollar you add. That is a big deal, and compares favorably to investment opportunities that are taxed before the money starts really working for you.

Cons of the 401(k)

Over three-fourths of companies with 100 or more full-time employees offer a 401(k), but it still may not be the right investment tool for you. Because of stiff penalties against withdrawing from your 401(k), don’t expect to use the earnings to pay bills or reduce credit card balances, even if unforeseen circumstances require emergency spending. Further, and most frightening, 401(k) money can be endangered in a number of ways: if it’s heavily invested in the stock market, for example, it’s subject to the same risk as other non-diversified investments.

Conclusion

Overall, a 401(k) is a very strong long-term investment if backed by a reasonable rate of contribution matching from your employer. Lately, though, many major firms that used to provide strong matching have backed down in an effort to curb expenses. This can have a huge impact on your 401(k)’s earning potential over time, but there are still steps you can take to ensure a healthy fund for retirement. We’ll discuss more in a future post.

Photo By Declan Jewell(flickr)

Here’s another way to protect your budget – take advantage of the free account balance alert feature that many banks now offer. You can request an email you or a text message to your phone letting you know when your account balance falls below a level you specify or when your direct deposit paycheck has posted. They’ll also send reminders of when your bank payments are due, such as credit card debt or other lines of credit.

While there’s no guarantee the alerts will protect you from overdrawing your account or being charged fees you weren’t anticipating, they will let you know where you stand. If you do overdraw or get hit with fees, the alerts will allow you to take immediate steps to get back on track paying your bills if you break your budget.

You can prevent overdrawing your account, which is especially important if you’re still using a debit card. Instruct the bank to remove the ability to overspend from your debit card. Make sure the bank reduces the amount you can overdraw to $0. This is quite an important move for budget protection. It also keeps from getting into debt with the bank by having to worry about having an overdraft line of credit.

Once you’ve run out of funds, banks typically allow you to keep using your debt card as a credit card. Sometimes, they’ll even allow you to withdraw as much as $400 from ATM This allows them to charge you interest on the amount of the overdraft, which can be quite costly.

Probably the best way to limit overdrafts and otherwise spending more than your budget allows by getting rid of the credit and debit card. Just carry the amount of cash you have budgeted.

Similarly, avoid store credit cards. There’s so much advertising and so many incentives for consumers to apply for these cards and keep using them. But these are high interest credit lines that end up offering you no bargains. Not surprisingly, they are a bargain for the credit card company. You shave a few dollars off your purchase, they get hundreds in interest payments. That’s why you need to take only the money you’ve budgeted when you go shopping

These are all great ways to protect your budget and keep it working for you. Remember that it’s an important asset so you need to protect it from the biggest threat is has – your own ability to splurge and take yourself off track. .

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On paper, a budget may not look like much. Just a list of income and expenses. But if you’re doing your job and following that budget, you know what a critical asset it is. Your budget is keeping your finances – and your life – on track. So why not treat your budget like the precious asset it is by protecting it as you do with jewelry, a fine watch or a family heirloom?

Protecting your budget means following it. It means remembering to make payments when they’re due. It means saving and spending and donating according to a carefully crafted plan.

You can protect your budget in several ways. Here are some suggestions for the technically inclined and the not-so-technically inclined.

I use technology myself. I put my family’s budget into my computer’s Calendar. Then I sync it up with my digital organizer, which, in my case, is my cell phone. This way, I get automatic updates right on my cell phone every month when bills are due.

There are several software programs that do this too. You don’t even need a computer because even cheap cell phones usually include calendars which allow you to input recurring events.

On my cell phone, I get 2 notifications, the first one comes two days before a bill is due and the second one comes on the day the bill must be paid. This makes it very hard to forget when expenses need to be paid.

By due date, I mean the date I need to send a payment for it to get there in time. Some payments are mailed and others I handle online through my checking account.

For those who prefer not to deal with gadgets, paper calendars can work just fine. It’s best to put in expenses at least one month in advance and to check the calendar every day. Put it someplace that you’re sure to see it. And don’t forget to schedule the day to input your expenses for the next month or the next several months right in the budget calendar.

You can also use a personal date book. The important thing is whatever helps you to remember when expenses are due with enough time to make sure the funds are available for them.

Have you got a great method for staying on track with your budget? Tell us what’s working for you!