TedCo Software Financial Matters Blog

Have you ordered your free credit reports yet? The three big credit reporting agencies (TransUnion, Experian, and Equifax) will provide you one free credit report every year. You can order the reports through www.annualcreditreport.com. Consider ordering one report now, then one from another company in four months, and the last company four months after that. That way you can check on your credit report regularly throughout the year for no cost. It is not as effective as a regular credit monitoring service, but it is much less expensive. Also, if you need to make a correction it gives enough time between checks to see those corrections made.

Credit is a tool, a bit like fire. It is really useful, but if it gets out of control it can really hurt you. In addition to checking your report for errors, use the reports to take a look at how you use credit. Are you really using it in a way that helps you? This is more than how you use credit cards. What are you paying interest on and for? Some things just about require borrowing, like a home purchase. Most things don’t, though. It can be hard to avoid borrowing for a big purchase like a car. At a minimum you should have a plan for getting out from that sort of debt as soon as you reasonably can.  An excellent tool for figuring how fast you can pay a debt off early is LoanSpread Loan Calculator.  With LoanSpread, you can enter your loan information (loan amount, number of payments, rate, etc.), select the payment in the grid, and click the Amortize button on the toolbar to see your loan’s amortization schedule.  What’s really useful about the Amortization Schedule in LoanSpread is you can add “prepayments” to the schedule (prepayments are additional payments or “overpayments” you make toward the principal of your loan – typically added to your normal loan payment).  Once you have added your prepayments you can scroll down through the schedule to see how much sooner your loan will be paid off.  For example, if you were to make prepayments (or “overpayments”) of $50 a month on the loan pictured here, the loan would be paid off six and a half months early at a savings of about $47,000.  Plug in different prepayments to see what kind of results you can get for various prepayment amounts at various points in the loan’s life.  You can download and try LoanSpread free by clicking here.

Paying interest for consumables like meals and vacations is just a flat bad idea (there may be exceptions to that rule, but they are exceptional exceptions).  Learn to use and respect credit and it will be a help. Abuse it and you will pay a higher price than just interest.  

Jim Heitman, CFP®, is a writer, speaker, and Certified Financial Planning practitioner in Southern California.

Now that you have a better handle on your taxes for next year, take a look at line 22 “Total Income” on your Form 1040 (or the equivalent line on the “A” or “EZ”).  Yep, you really made that much last year.  Where did it all go?  Right now is a great time to start looking at how you spend your hard earned money.  You should have a solid three or four months of data for 2010.  Break your spending down into broad categories and look at the spending pattern.  Where is your money going, and is it going where you want it to (if you are looking for a budget planner, try the TedCo Software’s DebtDasher software)?  Maintaining a positive cash flow is the most important thing you can do to insure a solid financial future; conversely, a consistently negative cash flow is a near guaranteed road to ruin.  This may sound like a flash of the obvious, but nearly a third of our fellow Americans are running on a deficit.  The government can get away with it for a very long time, but we working (and unemployed) stiffs aren’t so lucky. 

Learning to stay on a budget is hard, but it is a needed step in the road to financial success.  Watching out for the little things means a lot.  We have all heard the stories about the ultimate cost of that Tall Latte (or Venti in my case).  As much as the latte habit, fast-food lunches, and fancy cable packages can hurt, they aren’t the real budget busters.  The big tickets are where most folks’ big problems really begin.  Over-spending on autos and homes, with their attendant big monthly payments, puts most people behind in the perpetual game of “get ahead”.  Try to make that car last a few more years and save up for the next (used) car.  Let somebody else spend all that money on a quickly depreciating new car.  While we are looking at this; do you really need a room for every man, woman, child, and pet in the family?  Don’t think just in terms of how much you can afford right now, but what you can afford if you lose one (or two) incomes.  How long will you be able to maintain payments if an income disaster strikes? 

What if you need all that room so you have some place to store your boat, sea-doos, motorcycles, rv, and trailers?  Well, you may need more help then just budgeting.  However, you’ll make me feel better about my venti white chocolate mocha habit.

Jim Heitman, CFP®, is a writer, speaker, and Certified Financial Planning practitioner in Southern California.

The weather is turning warmer here in sunny SoCal, and I hope you find the weather more to your liking where you are right now.  The sunny days, mild temps, and budding flowers inspire most of us to put on long neglected shorts and get outside for a bit (OK, where I live the shorts have been put away for about six weeks, but you get the point).  Before you do that, take a few minutes and start to think about your mid-year financial planning.  I think there are eight things you should look at, but we are just going to touch on one this time around: taxes.  I figure you have all those tax documents handy right now, so let’s take another look at them before you file them away for your grandchildren to throw away after you’ve died.

Did you get a sizable refund?  Yes?  Alright, there are two things to work on.  The first is what to do with the windfall.  Do you have a goal from last year that is not on schedule?  This may be the funds you need to get it back on track.  Think about paying down debt, adding to savings, or investing in something that will provide real returns (ie. Replacing a failing, expensive appliance with something that will provide a real return in reduced costs).  Second, figure out why you over-withheld.  Was there a one-time item or event that provided a big break?  If so, don’t assume it will happen again.  If you are just having too much taken out of your paycheck then change your withholding.  Just Say No to giving interest free loans to the government.

Are you on the other side of the tax return gambit and had to pay a penalty because you under-withheld?  Bummer!  Like step two from the prior paragraph, figure out why.  If there was truly some sort of one-time event (unlikely) then take steps to mitigate the problem.  If it is an issue of not paying enough in your quarterlies or payroll withholding then, (sorry) start paying more and making lifestyle adjustments to live within your new means.

If the math in any of the above makes you cross-eyed, consider engaging a certified tax professional like an Enrolled Agent (EAs can handle most normal individual situations) a CPA or (for the really complex problems) a tax attorney.

Jim Heitman, CFP®, is a writer, speaker, and Certified Financial Planning practitioner in Southern California.