Personal Finance Answers

Archive for the ‘Saving & Investments’ Category

Usually we go to the bank to save our money for the future use, and the interest rates are usually pretty low. The annual interests only consist less than one percent of the principal that you put in the bank account initially. Therefore, this traditional way of saving money is not a way of making you money even more, not a high yield savings account, it is only a way of putting it away in some safe place and let somebody else benefit from it. Why is that? When you put your money in the bank, they don’t just put your money into a vault and wait for several years later for you to withdraw it. You know this is not correct. People at the bank take your money to invest into industries to exploit the benefits from the money you give them, and they only give you a small fraction of the total amount of money generated through investing. As this point you come to know how they could make a fountain. But the point is how you can make a fortune yourself. The answer is to put your money into a high yield savings account.

These accounts are quite different from the traditional bank accounts. Through this account, you can actually invest your money into company, and get the most from your own investment. Put your money in this sort of account is not like putting your money into a safe, and it stay the same several years later. It is more like make investment to generate the most from you own money. Putting your money into a high yield savings account can maximize your assets. It is wiser for you to do this than saving it into a traditional savings account. The traditional way of doing things is obsolete in today’s situations, and it should be abandoned for the new way of doing things. But these sort of savings accounts are difficult to find and fairly difficult to manage if you are not familiar with the financial matters. By investing into some wrong sections, you even can not get you principal back, let alone the interests. First you have to learn something about the economy, like how it works and which sector of economy can generate the most benefits. Then you can fully make use of the high yield savings account and make the most out of it.

I, myself, hold one bank account of this sort, and it takes a while everyday to manage it. But the result is good and satisfactory to me.

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A lot of Americans think they have a handle on their investments and income. In fact, according to a “National Financial Capability Study” commissioned by the Financial Industry Regulatory Authority Investor Education Foundation, 75 percent of Americans say they’re good at dealing with day-to-day financial matters and family investments. Family investing is possibly one of the most important things a family faces when it comes to their future.

However, only about 55 percent (a fail on a typical grading scale) got correct answers on 5 basic questions that were on the study that focused on their family investments. Can you get them right? Let’s see…

1) Suppose you have $100 in a savings account earning 2 percent interest a year. After five years, would you have more than $102, exactly $102, or less than $102?2) Imagine that the interest rate on your savings account is 1 percent a year and inflation is 2 percent a year. After one year, would the money in the account buy more than it does today, exactly the same or less than today?3) If interest rates rise, what will typically happen to bond prices? Rise, fall, stay the same, or is there no relationship?4) True or false: A 15-year mortgage typically requires higher monthly payments than a 30-year mortgage but the total interest over the life will be less.5) True or false: Buying a single company’s stock usually provides a safer return than a stock mutual fund.Not as easy as you might think? Family investment rarely is. Or possibly just as easy as you thought and you want us to tell you that you got them right? Well, the answers are as follows, along with the percentage of people who got them right.1) More than $102, 65 percent2) Less than today, 64 percent3) Fall, 21 percent4) True, 70 percent5) False, 52 percent

Family investment issues are a huge problem with today’s average American family because, according to the survey, people don’t know how to handle the four basic components of financial capabilities; making ends meet, planning ahead, managing financial products, and financial knowledge and decision-making.The survey was given to 1,488 Americans over the age of 18 and was developed with the U.S. Department of the Treasury and the President’s Advisory Council on Financial Literacy.

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The internet has singlehandedly become one of the biggest cost savings tools for consumers and businesses alike. While research, patience and diligence are required to net desired results; typically, the end savings are well worth the time investment. Internet savings can be found for online promotions, printed coupons and free product offerings. Product research can also net significant cost savings on brick-and-mortar purchases. Knowing where to find discount offers is imperative to successfully saving money online. A search engine queries for specific items, brands and coupon codes typically returns a list of options. For those more proficient at searching the net, specific websites and forums exist to collectively amass discount offers. With available coupon or promotion codes in hand, clicking through links or supplying the findings on a retailer’s website is the best way to save. Common offers include a percentage discount, dollar-off value or occasionally free accompanying merchandise. Given the rapid pace of information exchange on the internet, close attention should be paid to expiration dates and the fine print. The internet can be a source of savings for shopping Main Street. Vendors often make coupons available both on websites and through social networking sites with hopes of drawing foot traffic into establishments. Comparison shopping sites help locate items or services at the lowest price point. Consumers making large purchases should always turn to the internet instead of impulse buying to save money. For those with the patience and time to search out online deals and discounts, the internet offers a wealth of useful information. Using promotional codes online, printing coupons and performing cost comparisons are all strategic uses of internet information.

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Retirement is a necessary event which everyone faces in life. When one thinks of his income after retirement, several options arise. During his service, the person has to save some amount every month for his retired life. The person invests this amount in Annuity schemes which fetch him some periodical income so that after retirement he can lead a normal life. Before choosing the appropriate investment plan, the person has to evaluate his needs. His immediate commitments like education of children, expenses on health, renovation of house, legal expenses if any are some of the factors which may require careful consideration. The next question that he has to consider is the marriage of children, tour plans, etc.Where to invest the savings?

This is a vexing question that needs careful consideration. Many employees invest the amount with their employers. In return for this investment, the employer normally gives the employee a fixed amount periodically as Annuity. Of course in the beginning the Annuity which the employee gets would seem to be reasonable. But with inflation, the fixed annuity will not be sufficient in the coming years. Even with an inflation of about 3% every year, in about 4 to 5 years the person will feel the financial crunch.The alternative is to invest in Stock market. But this requires specialization and careful market analysis. Everyone may not have this quality. So this is a risky investment.As an alternative, the employee can consider the investment plans offered by different investment companies. Many of the investment agencies have several attractive plans like Annuity with health insurance coverage for the spouse, burglary insurance, etc. Such investment could be another better option to choose.Some persons may consider investing in real estate. But if such investment is made, the person may not have fixed returns unless the investment fetches him some amount by way of rent. If such investment is made when there is a favorable market, the value of real estate would appreciate and this may fetch attractive returns.

However, as far as investment plan is concerned, all that matters is the wisdom of the investor. Wherever necessary, he can take the guidance of professional investment planners who would be able to guide the investor appropriately.

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The Coverdell Education Savings Account is mainly designed as an Investment account to cover educational expenses only and it allows you to make an annual non deductible contribution to a particular Investment account. The beneficiary must be under 18 years of age when the ESA account is opened. This account will grow tax free and withdrawals from the account are also tax free. There are quite a few restrictions or limitations that apply to the Coverdell Education Savings Account that include: the contribution limit, contributor eligibility requirements, small maintenance fee irrespective of the low contribution limit, degree of control over the account and coordinating withdrawals with other benefits.

Advantages and disadvantages of ESA:You can contribute to any child towards his/her Education Savings Account for education expenses. There are no such restrictions like beneficiary must be your child or in any other relationship. The contribution can be invested in any type of qualifying investment options available through the sponsoring institute and there is no limit for the number of Education Savings Account that you can establish for a child with the total contribution not exceeding $2,000. Also corporations, partnership firms or any other organizations can make contributions towards a child’s education expenses in an Educational saving account. To a certain extent you can have control over the account, like you can also prevent your child from using the funds for something other than college expenses. You can also move funds from your child’s ESA account to a 529 plan.

The beneficiary of the Coverdell Education Savings Account can receive tax free distributions to pay qualified education expenses and are tax free to a certain amount that not exceeding the beneficiary’s qualified education expenses as such only a portion of the amount that exceeds the actual qualified education expenses are taxable. The Education Savings Account must be fully withdrawn when the beneficiary reaches the age of 30, if not the balance amount will be subject to tax with an additional penalty tax of 10% after 30 days.

Coverdell ESA providers:There are a number of Coverdell Education Savings Account providers all over the country. You can directly contact any one of them and the annual maintenance cost of the ESA account is about $10 or less than that. If you are associated with an Investment or Financial Advisor, then you can ask them to suggest an ESA provider. It is highly recommended to find answers and solutions for all your Investment options that are available to your child’s educational expenses from a registered Financial or Investment Advisory Agency. There are a number of Investment Advisors and agencies are operating all over the country that offers a range of advisory services on this.

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UGMA is an act implemented in some states of US and this act allows the minor to own securities without requiring any services of an attorney to prepare trust funds. This way the child can have a property aside for their benefit with some level of income tax benefits for their parents and can use them for any purpose once the child reaches the age maturity depending on the state. Uniform Transfers to Minors Act (UTMA) was recommended in 1986 and adopted by most states in US and this act is an extension of the Uniform Gifts to Minors Act in which gifts can be given to minor and doesn’t need a guardian to be appointed for a qualifying gift of up to $13,000 with an exclusion of gift tax.

Both the UGMA and UTMA accounts offer good tax advantages and additional benefits. The UTMA act allows the donor of gift to transfer the title to a custodian to manage and invest the property until the minor reaches the age of maturity and the custodian can also make payments towards the minor’s benefit out of the corpus of the gift. UTMA or the UGMA accounts allows the assets to be taxed only in the minor’s income tax bracket and only with the increase in age, the Kiddie tax is imposed on the assets. A custodial account either UTMA or UGMA counts a lot against a child’s financial aid application since it is mainly considered as an asset of the child.

There are few eligibility requirements and limitations that apply to both these custodial accounts UGMA and UTMA. This account can be opened for any child under the applicable age depending on the state. The custodian of the accounts has certain control and responsibilities, once the child reach the age of maturity, the custodian is responsible for transferring the funds to the minor. Anyone can make gifts to the child’s UGMA/UTMA account regardless of the income level and no contribution limits exists that you make annually during the calendar year.

The differences between both the custodial accounts are minimal. Only basic assets can be donated or made available as gifts to minors in UGMA accounts, whereas in UTMA, a range of assets can be contributed. The types of assets that are eligible in an UGMA/UTMA include savings accounts, bonds, and certificates of deposits, mutual funds and life insurance covers. It is highly suggested to consult a Registered Investment Advisor for advice on opening an account and to know on what assets the investments can be made.

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Stock Market investment is one of the best ways to protect your hard earned money. During recession most of the companies struggled to keep their heads above water and the majority of the regular citizens started to protect their savings from irreparable loss. Most of the regular stock buyers started to walk away from the share markets, but few people who are intelligent purchased the shares which were at an unbelievable lower price. When stock value of big companies fall you can purchase the stock at lower price and it is the best time to buy shares. Stock Market Investment is no more a mystery, thanks to the era of internet which helps you to set up your own account from home and start a modern way of investing in the stock market. In the past, people have to run after the share brokers to know about value of shares and to have a look at their account details. But these days everything has become transparent and you can have a view at your account details and the recent prices of the stocks from being at home comfortably. Here are few tips that help you to get more profits (a) Follow the thumb rule “never lose money”, so you have to be cautious while choosing the stocks. Choose a stock which is worthy. (b) It is always wise to have a margin of safety. The worth between the stock and its price is the margin of safety, if the price of the stock is 2 dollar and if you buy it for 1 dollar, then the margin of safety is 50%. Always purchase the stock at a lower price and maintain at least fifty percent margin of safety. (c) Invest the amount on a long term; if you invest for a short term then there are more chances of encountering a loss. Long term investment adds compounding value to your investment. (d) You must be well aware when to sell out and when to not sell your stocks, when price starts to increase you shouldn’t sell it immediately. You have to wait for a long period of time and watch until the stock reaches a higher value. (e) It is wise to keep the cash with you when there are no good stocks to buy. In addition it is always good to buy a worthy stock otherwise it may cause you loss in course of time. Also keeping cash with you helps to buy stocks whenever the price decreases for a higher value stock.

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Designed to promote financial responsibility and independence among pre-teen and teen club members, the Money Matters program helped the kids to build their money management skills.Over the course of five weeks, eight Boys and Girls Club members learned how to manage a checking account, budget, save and invest. They also learn about starting a small business and paying for college.

â??The Money Matters program goes beyond the basic elements of earning money and saving it. The kids learned about credit cards as well as about a variety of investment vehicles that would put their money to work and give them a good return. They also learned how to budget and better control their spending. When kids learn these lessons at a young age, they become financially successful adults,â? noted Joanna Degnan who is a CPA at Price Waterhouse Coopers and led the program.

â??I have learned so many things in this class.  I have even taught some to my family. The thing I enjoyed the most was learning about the credit cards,â? said 12-year old Marshfield resident Ben Quimby of the Money Matters program.

According to 10-year old Sydney Eastman, also a Marshfield resident, â??I enjoyed learning different ways to save money.  I just started earning an allowance and Miss Degnan gave us great ideas on how to save and spend our money the right way.â?

The kids utilized special program tools which included a Teen Personal Finance Guide containing practical tips and activities to help kids learn the important skills of balancing a checkbook, creating a budget and saving and investing for college and retirement. They also utilized the Money Matters website, an engaging online tool for building money management knowledge and skills through interactive activities, games and tools like a savings and financial aid calculator to plan for college.

Greg Langer, 12, of Marshfield said, â??I think the Money Matters Program will help me in the future to plan goals and spend my money more wisely.â?

The Money Matters program will be held again in May for club members who are age 15 and older. To learn more about the Money Matters program, contact Kathleen Newcomb at the Boys and Girls Club (781) 834-2582.

About the Boys and Girls Club

The Boys and Girls Club of Marshfieldâ??s purpose is to establish a safe haven for recreation, which includes a variety of supervised activities for greater than 4,000 youths (between the ages of 6 to 18 years old) within the town. The Boys and Girls Club of Marshfield has five Core Areas: Character and Leadership; Education and Career; Health, Sport Fitness Recreation and Life Skills; The Arts; and Technology. These Core Areas serve as the foundation for all programming.

As a privately-funded, non-profit organization, the Boys and Girls Club of Marshfield relies tremendously on the generous philanthropic support of individuals.  Financial gifts assist in providing the financial strength necessary to continue the clubâ??s mission â??to enable and inspire all young people to realize their full potential as productive and responsible citizens, as well as become tomorrowâ??s capable leaders.â?

For more information about the Boys and Girls Club of Marshfield, please contact (781) 834-CLUB (2582) or visit the website at www.MarshfieldBoysAndGirlsClub.com or write to the club at P.O. Box 311, Marshfield, MA 02050.

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A 401k is a good place to start in planning for your future retirement, no matter how far away you may be from the actual time. A 401k account is a special type of savings account that is funded directly through your paycheck each pay period. How it works is that you and your employer determine the amount that is to be deducted from each paycheck you receive, then the employer determines your pre-tax earnings and deducts your 401k funds from the paycheck prior to taxes.
Once deposited in the special savings account, the funds in the 401k are then invested into many different types of mutual funds, bonds, and stocks. The great thing about a 401k retirement plan is that all of these investments are completely free of taxes until the time comes for you to withdraw your money from the 401k account.
Beginning in the early part of the 1980’s congress created the 401k retirement plan to allow people to begin saving money before they retire from their employment. It works as something of a financial net, ready for you when the time arrives.
There are several advantages with a 401k other than simply being a tax-exempt method of savings. Your employer may also have a match program. With this program, your employer would match part of your contribution into 401k. This means that whatever you contribute to your 401k, your employer will match a portion of it each pay period. Additionally, some employers raise the amount of their contribution when you have worked for them a certain number of years.
Another exciting aspect of 401k is that you have the option to determine where your funds will go when it is invested. To some, this is important and gives them the opportunity to maximize their retirement savings.
Furthermore, 401k has portability. If you should ever change jobs, you have many different options available in regard to your 401k. One of these options is to simply leave your 401k with your previous employer. This is the easiest option. However, you should be aware that the plan administrators could charge you for maintaining the account records. Another option is to roll the 401k over to the new employer’s plan. This will allow you to continue to deposit money into your 401k to add to the money you have already earned and saved.
You may also be able to rollover the 401k into an IRA. This is a great option, especially if employers only offer limited investments. You would have greater control over where your money is invested. Last, you could opt to completely cash the 401k out. This option has a few drawbacks. When you cash out your 401k plan, you must pay the taxes on that money and you could also be accessed a penalty for early withdrawal.
It is extremely important that you fully understand all of your options. Weigh the results of each one prior to making any decision about your 401k. Being educated, practical and informed before making your decision will help benefit your 401k and retirement in the long run.
Permission is granted to reprint this article as long as no changes are made, and the entire resource box is included.

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It’s already December and most companies will require the 80C investment proofs by the end of January 2010. Do not leave this task for the last moment. Earlier you start the better it is. Investment decisions should never be made in a hurry.

InvestmentYogi tells you the investment avenues to maximize tax benefits available under Sec 80C & 80D.

But before you do this, do check what your contribution has been to the PF account, because that is also eligible under 80C. So, if your annual contribution to PF account is Rs.25,000 invest only the balance (Rs.75,000) for availing the 1 lakh deduction under Sec 80C.

In a nutshell:

- Check your PF contribution

- Check the principal component of the home loan payment

- Invest according to your financial goals

- Evaluate your insurance requirement

- Invest 1 lakh over the year not just the last 15 days

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