Sometimes you have to spend money to make money, said Meg Favreau in USNews.com. While frugal shoppers might fret over purchases, some can actually save money in the long run. If you live in an area where it’s feasible to forgo a car, buying a bike or transit pass will save thousands in car expenses each year. And with monthly cable bills averaging around $123, a one-time investment in a TV-streaming device like Apple TV, Roku, or Amazon Fire can add up to thousands in annual savings. For caffeine addicts, an espresso machine is a smart buy. While one “can cost anywhere between $100 and $1,200,” the initial investment will pay off down the road. Just think: “If you buy a $4 latte 250 days of the year, that’s $1,000,” and you still won’t have coffee on weekends.
How to build a college fund
If you’re planning to send a child to college some day, start saving now, said Dan Caplinger in DailyFinance.com. One of the best tools for building a college fund is a tax-advantaged 529 plan, which allows you to put away cash “on a tax-deferred basis, meaning that even if the investments you select pay interest, dividends, or other forms of income, you won’t have an immediate tax bill.” And if the money pays for educational expenses—tuition, fees, or housing—even the withdrawals are tax-exempt. Contribution limits vary from state to state, but most 529 plans have caps of between $235,000 and $400,000. That’s enough to “give most families all the flexibility they need to save for their children’s college education.”
Protect yourself from cybercrime
Your PIN isn’t the only number you need to keep safe, said Adam Levin in Credit.com. These days, data breaches are a “certainty in life.” But credit card numbers, email addresses, and passwords aren’t the only things hackers are “gunning for.” Phone numbers, significant dates—like birthdays and graduation dates—Social Security numbers, driver’s license numbers, and even IP addresses can all be exploited by identity thieves. The best defense is to avoid posting sensitive data online whenever possible. But as cybercrime becomes a fact of life, “the smartest thing you can do is assume the worst” and be vigilant about monitoring your accounts, bank statements, and credit reports for signs of fraud.
Deciding to retire early
Stocks have been on a tear, said Liz Moyer in The Wall Street Journal, and the five-year bull market has allowed many investors to “at least ponder the possibility” of retiring early. But there are some important questions to ask before you cash in your nest egg ahead of schedule. First, have you saved enough? The market will inevitably dip, so it’s important to “discount the current value of your portfolio” to account for future drops in the market. Retirement also means lifestyle changes, including learning to live on a leaner budget. Drawing on other accounts—like 401(k)s, IRAs, or Social Security—ahead of selling assets can make your money last longer. Finally, have a backup plan prepared. “Retirement isn’t for everyone,” and “resting early could leave you bored and restless.”
When to buy a new car
When is the right time to spring for new wheels? asked Gerri Detweiler in Credit .com. With the average car payment hovering around $350 a month, buying a new car is “not a decision to be taken lightly.” So before you head to a dealer, make sure the time is really right. Safety is first on the checklist. If your vehicle isn’t safe, or you fear it will break down and leave you stranded, it’s time for something more reliable. “Keep the hassle factor in mind as well.” If your car is racking up repairs, replacing it may be a better option for your budget. Finally, check that it fits your lifestyle. A new job or growing family could mean your current car no longer makes sense.
Beware of debit cards on campus
Debit card fees are the latest “campus peril” for college students, said Kelley Holland in CNBC.com. A new report from the Consumer Financial Protection Bureau has found that debit card issuers are frequently charging “hefty overdraft fees,” which “are hitting Millennials and college students especially hard.” That’s because debit cards are increasingly replacing credit cards on college campuses, partly because schools “have lucrative deals with outside companies to provide the cards in exchange for payments to the schools.” And while those products aren’t always a bad deal—many of the fees are “roughly in line with those of competing banks”—it’s still “important for students to make sure the card their school offers is the best one for them.”
Save money on winter heating
“Americans could save a fortune this winter, if only they understood their thermostats,” said Chris Mooney in WashingtonPost.com. Residential thermostats control an incredible 9 percent of all U.S. energy use, but even though money-saving programmable thermostats have been available for decades, only about 3 in 10 households have them installed. And many of those consumers “just don’t understand how to use” them. Thankfully, the latest generation of smart thermostats moves “beyond the realm of merely ‘programmable,’” automatically adjusting to a homeowner’s location. Honeywell’s Lyric thermostat, for instance, can be operated remotely from your phone, and Google’s Nest “‘learns’ your behavioral patterns—and selfprograms to save you energy.”
Year-end tips for retirement savers
Before we ring in the New Year, “retirement savers of all ages need to check their to-do lists,” said Mark Miller in Reuters.com. If you’ve already retired, make sure you take your required minimum distribution, which must be taken from all retirement accounts starting at age 70 and a half. “It’s important to get this right: Failure to take the correct distribution results in an onerous 50 percent tax—plus interest—on any required withdrawals you fail to take.” If you are near retirement, “consider moving part of your annual contribution” to a Roth IRA. Your aftertax savings will then grow tax free. And if you are young, make a resolution to increase your 401(k) savings for 2015. “Getting an early start is the single best thing you can do” for your future.
A safe, global portfolio
“Foreign stocks are in the red this year,” said Jason Zweig in WSJ.com, so it’s no surprise that many investors have pulled their money out of international-stock mutual funds in recent months. But “there are plenty of reasons for U.S. investors to hold foreign stocks.” For one, they can be “an effective hedge against a rise in U.S. interest rates.” You’ll also get more bang for your buck overseas, since “U.S. stocks have become much more expensive than those in the rest of the world.” For a safe international exposure, consider an exchangetraded fund like Schwab International Equity or Vanguard Total International Stock, both of which charge low fees. “Or you can opt for a low-cost mutual fund that also spreads its bets widely outside the U.S., such as Fidelity Diversified International.”
Is college choice important?
Your alma mater may not matter, said Mitchell D. Weiss in Credit.com. According to a new Gallup survey, while 80 percent of Americans think school choice is either “very” or “somewhat” important “when it comes to finding well-paying employment,” employers don’t always agree. “Of the 623 business leaders who were also surveyed, only 9 percent responded that where a job candidate earns a degree is very important, while 37 percent said it is somewhat so.” And as college tuitions continue to rise, “that’s good news for students and their families” feeling increasingly stressed by education expenses at brand-name schools.
Rethinking Roth IRAs
It may be time to rethink your Roth IRA, said Dan Caplinger in DailyFinance.com. While paying taxes up front on long-term savings may protect you from higher rates in the future, that benefit could come at “too high” a cost for many taxpayers. For instance, Roth IRAs are a good choice for workers “who are just getting started and are in low tax brackets,” since they’ll pay a lower tax rate on their savings now and get to withdraw their money tax-free later. But savers in the prime of their career who are currently getting taxed at high rates would be better served by the tax break they can get now with pretax contributions to IRAs or 401(k)s. And if your employer offers a 401(k) plan with matching contributions, that will help you build up your nest egg faster than contributing to a Roth on your own.
The ‘new math’ of car leases
When you’re shopping for a car, does it make more sense to buy or lease? asked AnnaMaria Andriotis in The Wall Street Journal. Many “automobile-makers are trying to make leasing a new car more appealing by lowering the cost of monthly payments,” which could translate to “significant savings” over the course of a standard three-year lease. But there are some significant pitfalls to be wary of. While leasing has become increasingly popular lately, it “makes less sense if you are looking at a brand that doesn’t retain its value,” if you are likely to exceed the mileage limit, or if you “plan on owning a car long-term.” But leasing may be worthwhile for drivers who are looking to frequently upgrade to new cars, which should also save on the cost of maintenance “since new cars tend to break down less often.”
Zombie bills can ruin your credit
Don’t let moving wreck your credit, said Gerri Detweiler in Credit.com. When you’re switching addresses, it’s important to make sure final or unexpected bills don’t go unnoticed. If accounts still have a balance and remain unpaid, they could go into collection and ding your credit score. To avoid that scenario, send a letter to any accounts you need to update or close and ask for a confirmation number. Remember to “check your balances the month you move, the month after you move, and six months after you move” to make sure no wayward bills or balances are lingering on your report. Monitor your credit, too, since “any unexpected drop in the score could indicate a problem.”
Life insurance mistakes to avoid
Common life insurance gaffes can cost you a bundle, said Hank Coleman in DailyFinance.com. For one, don’t “leave savings on the table by blindly renewing” your policies. If your insurance automatically renews, give your carrier a call to try to “negotiate a discount.” And remember to “re-examine your coverage” every few years, especially after any significant life events, such as the birth of a child, marriage, divorce, or major purchases like a new home. Finally, remember that there’s safety in numbers. “If you want a good deal on products and services, life insurance included, you need to get multiple quotes.” That includes premiums, but also benefits. “Read all of the clauses in your policy” and “understand exactly which perils” the insurance will cover. “While price of the premiums may be the same among many policies, the terms and clauses may be the differentiating factor.”
Using rewards cards responsibly
If you use credit cards to rack up rewards, beware, said Kristin Wong in Lifehacker.com. Many cards offer “great incentive programs,” but the rewards game can be “like playing with fire,” especially if you use the cards to pay for everyday expenses. Opening a new card can shave a few points off your credit score, but so can closing one, since it reduces your debt-to-income ratio. A better approach “is to leave the card open and simply not use it after you’ve earned whatever sign-up bonus it offers.” For heavy rewards cards users, the best way to protect your score is to pay the cards in full every month and never pay interest. Stick to your budget and never “use rewards as an excuse or reason to spend more.”
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