January 2008 Archives

Avoiding the Evil Eight: Financial Traps that can separate you from your hard-earned cash


One of the most popular New Year’s resolutions many American’s make deals with their finances. Whether it is saving more, spending less, or reducing debt, the following evil eight dangers loom for the unsuspecting consumer that can quickly derail the most well-intentioned plans. 


  1. Check cashing services– families without bank accounts are charged a fee, often a percentage of the check’s face value to cash the check.
  2. Buy Here/Pay Here Car Dealers – ill-informed buyers pay 50-100% more than the actual value of the car which is sold based on the payment amount, often extending the loan with APR (annual percentage rates) in excess of 25%.
  3. “Courtesy” overdraft loans – charge to honor checks written when an account has insufficient funds and can be triggered when checks are processed in largest to smallest order and then deposits for the day are credited last.
  4. Payday loans – storefront, internet and telephone operations offer loans secured by a post-dated check. Fees typically run in the 650-780% APR range. For example a $500 loan for two weeks costs $650 to repay.
  5. Tax Refund Anticipation Loans –Taxpayers who electronically file their returns and have a bank account for direct deposit can expect their tax refunds within 7-14 days. Refund anticipation loans are short term loans offered by tax preparation firms that charge 235% APR to receive the money at the time the return is prepared.
  6. Rent-to-own – Small weekly payments that generally make the consumer goods 2-3 times more expensive with interest rates running between 100 and 300% APR.
  7. Sub-Prime Mortgage Loans – High interest, high fees, excessive insurance and points and unconventional terms that steer borrowers from conventional loans.
  8. Credit Cards – late fees, over the limit fees, cash advance and universal default are all techniques to extract cash from customers.


Don’t fall prey to the evil eight. Carefully consider the long-range impact of using any of the evil eight financial traps. Explore your money management practices and areas that you could improve on. Review your spending for the past month. What areas can you cut back on this month? Could you set aside some money for future expenses? Could you use this “saved” money to pay down debt?


Prior to entering into any financial agreement, make sure you fully understand and agree with the terms. Ask yourself if you really can afford this purchase. Understand what will happen if you can not fulfill the terms of the agreement. Remember your new year’s resolution? What steps are you taking to keep your resolution and achieve your goal?

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Savings: Your Key to Financial Security

Elaine A. Courtney, Family and Consumer Sciences Educator,

University of Florida Extension-Okaloosa County

Barbara O’Neill, Ph.D., CFP®, Extension Specialist in Financial Resource Management,

Rutgers Cooperative Extension


One of the most powerful ways to increase your financial security and grow wealth over time is to develop a “savings habit.”  Media reports and advertisements by financial firms provide lots of advice about how to become financially secure, but the simplest and most basic strategy is to “pay yourself first” and save a portion of your income on a regular basis.  In other words, treat savings like an important “bill” that has to get paid.


It is more important today than ever that Americans adopt this simple idea.  The U.S. savings rate is the lowest it has been since the Great Depression.  In addition, household debt levels and foreclosure and bankruptcy filing rates are high and housing values have declined in many areas of the country.  All of these factors support the need for savings.  In other words, “saving for a rainy day” means starting to save now!


So, why should you save?  There are many reasons for saving money:


·         Purchase “big ticket” items

·         Pay for high cost goals (e.g., house down payment, college education, car purchase)

·         Retire comfortably

·         Accumulate money to invest

·         For security and peace of mind

·         Build an emergency fund

Let’s talk some more about emergency funds.  You may think you can’t afford to have an emergency fund, but you can’t afford to be without one!  Why?  Stuff happens!  And most of the time, it costs money!!  By setting up an emergency fund, you protect yourself from the unknowns.  Think of this fund as your “safety net” just in case something happens (lose your job, car breaks down, broken arm, etc.).  Without this reserve, you may be tempted, or forced, to go into debt—debt that may take you years to pay off and cost you much more in the long run!  Having an emergency fund gives you more options to handle life’s unexpected events.


How much savings is enough for an emergency fund?  Most financial experts recommend having three to six months living expenses set aside.  The amount will depend on your personal situation (job security, income level, needs).  Some of this money should be kept in liquid accounts, such as a money market fund, while other funds could be tapped from a low-interest source such as a home equity loan.


Your emergency account should be easily accessible, just not too accessible!  Financial institutions offer a variety of savings accounts, such as passbook savings, money market funds, and short-term CDs, which work well for emergency savings. How do you get started?  One of the easiest ways is to make your savings automatic.  Check with your employer and bank or credit union about direct deposits or transfers from checking to savings.  You could also try saving a small amount each week and make deposits into your savings account.  


The most important thing is to get started now.  If you are already saving, try increasing the amount that you save.   The results, over time, will be amazing.  For additional information about the benefits of saving, visit the America Saves Web site at www.AmericaSaves.org. There, you can enroll as an American Saver at no cost and receive periodic motivational newsletters. The week of February 24 to March 2, 2008 has been designated as America Saves Week and will be marked with events promoting savings for both children and adults. For further information about America Saves Week, visit http://www.americasaves.org/national/saves_week.asp.

While it is still in the debate process at this writing, here are some thoughts to ponder about the President's proposed economic stimulus package and how it might impact individuals. Note I did NOT use the word "taxpayers". Preliminary plans are to send checks to folks who receive as little as $3,000 in income per year (excluding public benefits such as social security, cash assistance, or food stamps). Those earning as little as $3,000 would receive rebates of $300 and each child would also be worth $300 (no details on the age limit to qualify as a "child" for rebate purposes. As income rises the maximum rebate would be $600 per individual or $1200 for married filing jointly filers plus $300 per child. Phase out limits are single earning over $75,000 or married filing jointly of $150,000. An estimated 117 million families are expected to benefit from this plan. But... don't spend your check yet! The proposal has not passed and even if/when it does, it will take the Department of Revenue at least 10 weeks to BEGIN processing the checks. They will be processing Tax returns for the next few months COMPLICATED by the December AMT tax law changes.

This delay gives you time to plan for the best use of these funds for your family. While the intent of the checks is to promote MORE spending and thus improving the economy, paying down your family debt might improve your personal financial standing. If you are basically debt free (excluding mortgage and car loans) your might consider starting or adding to a ROTH or Traditional IRA. Saving toward a child’s college education is also an investment that will reap dividends in the future.

When filing your federal income tax return, you have 3 tax forms to choose from
1040EZ the simplest form if you are single or married filing jointly and don’t have dependents, have interest income of under $1,500, are under age 65 and not blind and have taxable income of less than $100,000.
The 1040A is for folks with taxable income of less than $100,000, have capital gains distributions, and are claiming certain deductions and certain tax credits.
1040 – The long form for more complicated returns such as folks earning over $100,000, can itemize deductions, report self-employment income and have income from the sale of property.

However, filing the simplest form might prevent you from claiming credits that are rightfully yours. For example, a couple filing jointly on a 1040EZ with $31,000 in income and $3,000 withholding would receive a refund of $1,652. The $3,000 they contributed to their IRA is not factored in on the form 1040EZ. Using the same facts on a long form 1040, on line 32, they include the $3,000 contributed to their IRA which reduces their Adjusted Gross Income to $28,000. They would owe $1053 in taxes which is cancelled by the retirement savers credit from form 8880 resulting in a refund of $3,000 instead of the $1,652 they would receive from filing a 1040EZ.

Financially speaking their retirement contributions didn’t “cost” them anything since they contributed $3,000 and received a $3,000 tax refund! If you are single and earning under $26,000 or married filing jointly and earning under $52,000, you could also take advantage of the retirement saver’s credit by filing form 8880 along with your 1040. Your results might not be as dramatic, but by deciding to save toward your retirement, you are avoiding taxes today while you build your nest egg for tomorrow.

Have you moved in the past 3 years? When you file your federal tax return do you do it yourself using paper and pen? Do you have someone else do your taxes manually without using a computer? Do you prefer to receive your refund check in the mail instead of using direct deposit? Could the IRS owe you money? If the answer to any of the first four questions is yes, then the answer to the last one might also be affirmative. According to the IRS, 115,478 people have not received refunds in the amount of $110 million because the checks were undeliverable. The average amount of these unclaimed checks is just under $1,000 per taxpayer. If you can't remember receiving your refund check or if any of the above questions apply to you - here's how to check to see if the IRS owes you money.

Prior to making an inquiry with the IRS about the status of missing refunds, collect the following information:
• The tax year for which you are making an inquiry
• Social Security Number
• Filing Status
• Exact amount of refund expected.
You can call the IRS to make the inquiry at 1-800-829-1954 or online at https://sa1.www4.irs.gov/irfof/lang/en/irfofgetstatus.jsp

Want to avoid this problem in the future? Consider having your refund check direct deposited in a bank account. Generally, this also means you’ll get your check within two weeks, faster than waiting for the check to be printed and mailed. Make sure the IRS and the U.S. Postal Service have your current address. Download form 8822 from www.irs.gov to correct your address with the IRS or request the form by calling 1-800-829-3676.

I will try to keep this listing updated
Family Economics and Financial Education http://www.fefe.arizona.edu/index.php
Cooperative State Research, Education and Extension Services
Pennsylvania's Money Education Website

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