Great Federal Programs For Boosting Your Savings

The following is a post by MPFJ staff writer, Toi Williams, who is a professional finance blogger for MarketBeat. She has backgrounds in personal finance, sales, and real estate.

Millions of Americans are having difficulty saving for their future. According to a report published in Forbes, roughly 63 percent of Americans say they would have difficulty coming up with $1,000 to handle a financial emergency.

The struggles of such a large segment of the populace has prompted the federal government to find ways to help. Government agencies have developed a number of programs designed to encourage saving by people of all ages.

Here are several of the most popular programs.

 

Saving For College

If you are planning on paying for college in the future, you might want to take advantage of a 529 plan. A 529 plan is a tax-advantaged savings plan designed to encourage saving for college costs. The plans are authorized by Section 529 of the Internal Revenue Code and are sponsored by states, state agencies, or educational institutions. All fifty states and the District of Columbia sponsor at least one type of 529 plan.

There are two types of 529 plans available, both with considerably different features. The first type is a pre-paid tuition plan, which allows savers to purchase units or credits at participating colleges and universities to lock in the current price. The credits can generally be used to cover tuition and mandatory fees. There may be exceptions for other qualified expenses provided by the plan’s sponsor.

Pre-paid tuition plans often have an age or grade limit for participants. The payments made from the plan are often based on the age of the student and the number of years of college tuition purchased. Depending on the plan chosen, the student will receive a lump sum or installment payments to pay for their college costs.

The second type of 529 plan is generally known as a college savings plan. These plans establish an account for the purpose of paying the student’s eligible college expenses. All qualified higher education expenses are covered, including tuition, mandatory fees, covered required supplies, and room and board. There are generally no age limits or residency requirements for these plans. Withdrawals from college savings plans can generally be used at any college or university.

College savings plans invest in stock mutual funds, bond mutual funds, and money market funds on behalf of the account holder. The investments in mutual funds are not guaranteed by state governments and are not federally insured, so losses are possible. However, earnings in 529 plans are not subject to federal tax as long as the withdrawals are used for eligible college expenses. They may not be subject to state tax either.

 

Saving For Retirement

The federal government is also trying to help more people save for retirement, which is an important goal for our country. About half of U.S. workers don’t get a pension or 401(k) from their employers and millions of workers do not have any retirement savings at all. As of the end of last year, 68 percent of America’s workforce reported that they are not participating in an employer-sponsored plan.

The United States Department of the Treasury developed myRA to remove common barriers to saving for retirement for people who don’t have access to an employer-sponsored retirement savings plans. myRA is a Roth IRA retirement savings account with no start-up cost, no fees, no minimum contribution requirement, and no risk of losing money. The plan is meant to be a starter account for long-term retirement savings. The idea is that participants will graduate to IRAs and employer-sponsored retirement plans once they get their retirement finances started with the myRA.

To be eligible for myRA, participants must make less than $131,000 a year (or $193,000 for married couples). People can contribute up to $5,500 per year to their myRA account (or $6,500 per year for those age 50 and over). The account maxes out at a balance of $15,000, but participants can keep a lower balance for up to 30 years. If either of those limits is reached, the savings will be transferred or rolled over into a private-sector Roth IRA.

Contributions can be made by linking a checking or savings account to the myRA, transferring after-tax dollars from a paycheck, or directing some of their federal tax refund to the account. Initial myRA investments are set at $25 with subsequent contribution limits set at $5. Most of the participants using myRA make monthly contributions that average between $50 and $100. If a participant changes jobs, they can keep contributing to the same myRA account without interruption.

Contributions are invested in a new United States Treasury security that earns interest at the same variable rate as investments in the government securities fund for federal employees. The Treasury Securities Fund offered a return of 2.9 percent over the past decade, which is still better than a typical savings account. Participants can pull out the money contributed (but not the interest) at any time without penalty. Barring specific exceptions, participants can only withdraw the earned interest free of tax and penalty if they are at least 59-1/2 years old and made their first contribution to the account at least five years ago.

 

Investing In Securities

The TreasuryDirect program allows US individual investors to purchase Treasury securities directly from the U.S. government. Participants can choose from Treasury Bills, Notes, Bonds, Inflation-Protected Securities, and Series I and EE Savings Bonds. The TreasuryDirect website is run by the Bureau of the Fiscal Service under the United States Department of the Treasury.

The TreasuryDirect program eliminates many of the hassles that come from handling physical securities. The securities are held in the account in paperless electronic form. Because they are stored online, they cannot be forgotten or lost and heirs will be able to easily locate them in the future. According to the Treasury Department, there are billions of dollars in matured savings bonds outstanding that have yet to be redeemed.

Users can manage their savings portfolio online as their needs or financial circumstances evolve. From the website, participants can deposit money from their personal bank accounts or withdraw money from the TreasuryDirect account. To redeem the purchased securities, the user selects what securities they want to sell on the website and what account they would like the proceeds to be deposited in. There are no redemption limits to worry about and no fees for purchases.

TreasuryDirect’s security system is top of the line, requiring user names and passwords as well as security codes from a plastic card that the Treasury provides for the account. The money in the account is backed by the full faith of the U.S. government. The website also allows the transferring and gifting of savings bonds, which is a great way to get children and grandchildren on the path to saving for the future.

How about you all? Have you used any of these programs? 

Please share your experiences by commenting below! 

***Photo courtesy of https://www.flickr.com/photos/brizzlebornandbred/5025896783/in/

5 Unexpected Benefits of Earning a Finance Degree

The following is a guest post. Enjoy! 

For most people who choose to study finance, their reasons are simple: They enjoy working with numbers, and there is significant earnings potential in the world of finance, making it a very attractive option for those who want to bring home a decent salary.

However, in addition to those benefits, there are others that you might not expect when you earn a master’s degree in finance. As it turns out, a healthy salary is only the tip of the iceberg when it comes to careers in finance, and most find that their investment in advanced education pays off in several ways.

1. A Wide Range of Career Options

The term “finance” is an umbrella covering a range of diverse career options. You can opt to work in personal financial services, which might mean working in insurance, real estate, or financial planning. You may opt to go into a financial analyst role, working as an underwriter or a manager for a business, or even work as a budget analyst, helping either the government or private enterprise develop and maintain workable budgets. Finance also encompasses investment banking, accounting, economics, and even entrepreneurship, but the bottom line is that nearly every industry and every business (and most individuals) has a need for a financial expert on staff, creating a diversity of opportunity for anyone with a finance degree.

2. Improved Personal Money Management

It only makes sense that after spending several years studying the principles of financial management and how the economy and markets work, you will have a better understanding of how to effectively manage your own money. While a finance degree is by no means a requirement to becoming financially sound, it certainly helps. You can put your knowledge to good use creating a personal financial plan and making good decisions to ensure that you have enough money both now and into the future.

3. The Chance to Help People

In some cases, financial professionals don’t always have the best reputation. However, getting a degree in finance actually opens up a number of opportunities for you to help others and make a difference in their lives. Whether you are a Realtor helping a young family purchase their first home, a financial planner working with older adults to ensure that they have all of the resources they need to retire comfortably, or a financial analyst with a major corporation identifying potential cost savings that can be passed on to customers, your skills can be used to help the greater good. Your degree will give you knowledge that can ensure financial security for others, and that is a major benefit for many.

4. Extensive Opportunities for Growth

It’s not difficult to move up the ladder in a finance career. Not only does the U.S. Bureau of Labor Statistics predict that the number of new job opportunities in the financial industry will increase by as much as 32 percent between now and 2024, there is also a great deal of potential for those working in the industry to move forward. If you do not already have a graduate degree in finance, earning one can make you eligible for new positions, as well as for advanced certifications, charters, and other distinguished designations, which can help you move into higher positions and earn more money.

5. The Ability to Stand Apart From Others

Earning any advanced degree is a powerful way to set yourself apart from the competition. Not only do you gain advanced knowledge and build your skills, going back to school and committing yourself to the investment of time and money to earn the degree tells employers and clients that you are serious and committed to the field. In fact, one of the most sought-after qualities among financial services firms is a willingness to continue learning and growing. While a master’s degree isn’t the end of the road in terms of your education, the fact that you put the effort into the degree is strong evidence that you want to be the best you can possibly be in your work.

The personal benefits of earning a degree in finance — or any subject, really — go well beyond the few listed here. The sense of achievement and pride in your accomplishment cannot be understated. However, if you are considering whether to go back to school or not, keep these benefits in mind and remember that it is about much more than the money.

7 Ways For New College Grads to Avoid Sabotaging Their Credit

The following is a post by MPFJ staff writer, Kevin Mercadante, who is a professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry.

Credit problems often start early in life, and it’s not just a coincidence. New college graduates can easily get involved in credit situations that can have very negative unintended consequences. Part of it is simply not knowing exactly how the credit world works. But another part is overconfidence – the assumption that you will be able to overcome any problems you can face.

But the best way to deal with problems, especially credit problems, is to not get into them in the first place. That’s because credit problems are much more easily avoided then they are repaired. Here are seven ways for new college grads to avoid sabotaging credit.

 

1. Learn the Fine Art of Delayed Gratification

Otherwise known as you don’t have to have it now! If you’ve struggled financially while you were in school, you may be tempted to “live a little” after graduation. After all, you worked so hard to get your degree, you deserve some of the finer things in life, right?

Wrong. You don’t deserve it until you can afford it. Commit that concept to memory. There’s nothing magical about landing your first job. Sure you now have a steady income, and hopefully a generous one at that. But you’ll also begin to watch your expenses rise in tandem.

It will be tough enough to pay for the necessities in life, let alone luxuries. Buy what you absolutely need to survive right now, and don’t begin living the life until you have the salary and bankroll to pay for it directly. A lot of young people go horribly wrong on this front when they begin paying for luxuries using plastic and various types of creative financing. It can end up being the beginning of credit hell. Don’t get into that trap.

 

2. Work Off the Debts You Already Have Before Racking Up New Ones

There’s a better-than-even chance that you already had debt when you graduated. There’s probably one or more student loans, perhaps a modest car loan, and maybe even a credit card balance or two.

Before you begin adding any more debt to the list, first concentrate on paying off the debt you already have. If you don’t, then you will end up stacking debt on top of debt. Even if you have a healthy income, debt has a way of outstripping income, at least in part because it’s so easy to get into it.

Once you clear the deck of existing debt – with perhaps the exception of your student loans – you can then begin to contemplate the conservative use of credit going forward.

 

3. Make Sure You Pay Your Non-Loan Obligations on Time

If you’ve read many articles on credit, you are aware of how important it is that your debts are paid on time. But debts aren’t the only obligations that need to be paid when due.

There are other expenses you are likely to incur that may not show up on your credit report if you make your payments on time. But if you leave a bill unpaid, the vendor might report it to the credit bureaus. It’s unfortunate but true.

This is not at all unusual when it comes to utilities and cell phone companies. It can also happen when it comes to rent. If you leave an unpaid balance on an account, perhaps after making a move, the account can go into collection, and that will show up on your credit report. If the balance is particularly large, it could even become a judgment.

Whether it is a collection or a judgment, it will hurt your credit score. Do your best to make sure this doesn’t happen by paying all bills.

 

4. You Know Those Credit Card Offers Flooding Your Mail? Ignore Them

Many credit card companies aggressively court new college graduates. They are willing to ignore the financial stresses that come with transitioning from student life to adult life, in attempts to get into the new graduate’s financial life on the ground floor. They assume that as your financial situation improves, their business relationship with you will expand.

That may be good for the lenders – and it might even make you feel good on an emotional level. But by accepting too many of these offers it can be a one-way ticket to bad credit. The temptation to run up the balances may be too great to resist.

You should be able to get by with just one or two credit lines early in life. If you already have those, throw all of the new offers in the trash.

 

5. Never Assume a Lender Will “Understand” Why You Can’t Make a Payment

As a student, you may have grown accustomed to begging off mercy with teachers and professors for late or insufficient assignments. But the credit world is not so forgiving. Never assume that a lender will understand, and agree to float you through a lean time or two. Yes, they may agree to it verbally, but they will almost certainly give a negative report on your credit report nonetheless, hurting your credit score.

 

6. Never Let Credit be a Substitute for Income

Speaking of lean times, should you fall into one you must resist the temptation to use credit to make up for the lost income. The problem is that when you rely on credit to replace income, your debts grow much more quickly than you can imagine. And once you do get back on your feet, your progress will be slowed by all of the new debt you acquired when your income was soft or nonexistent.

The better route is to make sure that you have emergency savings to cover income disruptions. You should also have some sort of Plan B in regard to income. That isn’t to say that you need to be perpetually working a second job, but it will help to have one ready just in case.

 

7. Never – Ever(!) – Cosign a Loan for Anyone

When you cosign a loan for someone else you effectively concede your credit performance to that person. How so? If they have a late payment, you have a late payment. If the account goes into collection, you have a collection. To add insult to injury, if the lender comes after the primary borrower for the balance, and the primary borrower can’t pay it, they’ll come after you next. That’s the whole purpose of having a cosigner on a loan in the first place.

Cosigning a loan for another person is an outstanding way to get a bad credit rating through no fault of your own. Think deeply about that the next time you’re persuaded to be the nice guy/girl in someone else’s life.

I realize that all seven of these strategies kind of go against the natural flow of life. But understand that when you are young, the potential is great to do long-term damage to your credit. And if you do, it can haunt you for years. Do your best to stay out of these situations, and you can avoid the worst of it.

How about you all? What mistakes have you made regarding your credit score / credit history?

Share your experiences by commenting below! 

***Photo courtesy of https://www.flickr.com/photos/83633410@N07/7658305438/in/

3 Ways for Parents of Current (or Future) College Students to Save Money For Their Education

These days, a college education is not exactly cheap.  In fact, it’s more expensive than ever to attend a university in the United States.

While this is rather daunting, there are ways that parents of current (or future) college students can save money to help finance their education.  Here are just three examples:

 

  • Have your student apply for scholarships:

There are a lot of different scholarship opportunities out there, and often times the ones closest to home are overlooked.  While there are larger national-level scholarships available, there are often scholarships available locally for students to apply for in order to help finance their college education.  These local scholarships are also often less competitive than larger regional or national scholarships, so your odds of getting one are greater.

  • Optimize your student’s meal plan:

When it comes to paying for your student’s meals on campus, make sure you’re not pouring money down the drain by having the wrong meal plan.  If you find you are ending up with a lot of extra meals at the end of the term, you should consider changing to a plan with fewer meals (and likely a cheaper price tag!).

On the other hand, if your student doesn’t currently have a meal plan, or he or she has a plan that doesn’t include enough meals to last the whole term and they’re spending more on groceries or take-out than they would if they had a larger meal plan, scale up.  Take a closer look at their budget (or what you’ve set for them) and if you find they are spending more money on outside meals than they would if they went for a larger meal plan, then consider upgrading to a meal plan that includes more meals per term.

  • Use a cash-back credit card:

While you need to be careful that you keep your spending in check and not let it get out of control, when you do use a credit card you should make sure you use one that offers cash-back.

For example, the Upromise MasterCard® is a great example of such a card, allowing you to save money or directly help pay off your child’s student loans while you spend. With over 850 participating online stores, over 10,000 restaurants, and several major travel sites, you can get up to 10% cash back on your purchases through Upromise.com simply by using the Upromise MasterCard. There are a lot of necessary items that you’ll need to purchase for your student, and with hundreds of online retailers participating, there’s no reason not to get cash back on what you spend. Similarly, if your student lives far, you’ll want him or her to travel and visit during school breaks, and with several major travel sites participating, you can get cash back when you book your travel plans using the Upromise MasterCard. Further, you can get up to 2% cash back at certain department stores and movie theaters. Finally, you can get up to 1% cash back on any other purchase you make, therefore no matter what you spend your money on, you’ll be able to get a little bit back each time to help you finance your child’s college education. If you’re interested in learning more about the Upromise MasterCard, take a look at the infographic at the link below!

Upromise MasterCard_How it Works

This post is sponsored by Upromise by Sallie Mae, opinions are my own and based on my experience with the program. Follow them on Twitter @upromise

 

The College Talk that You Need to Keep Having Every Year

graduation-cap-my-personal-finance-journeyThe following post is by MPFJ staff writer, Melissa Batai.  Melissa is a freelance writer who covers topics ranging from personal finance to business to organics to food.  She blogs at Mom’s Plans where she shares her family’s journey to healthier living and paying down debt.

I met with some of my friends a few nights ago.  One woman I’ll call Rose has a daughter who will be a senior in high school this year.  Rose is frustrated because her daughter has her heart set on attending one of three different colleges twelve or more hours away.

The distance away isn’t Rose’s concern.  She’s concerned that each of these colleges costs $40,000 to $50,000 a year, and her daughter will not consider any other options.  Rose and her husband refuse to go tens of thousands of dollars in debt for their child’s college education, and they don’t want their daughter to leave school saddled with debt, either.

Unfortunately, this scenario will be played out across the country as upcoming seniors set their sights on their dream colleges, which often cost a fortune.

However, your child doesn’t have to be one of these kids with unrealistic expectations, especially if you talk with him regularly from middle school on about what you can pay for college.

Here are some strategies you can use to help keep your child’s expectations in line with your financial reality:

Let them pay for their own expenses

Many high school seniors who have unrealistic expectations about attending a pricey college haven’t had to handle their own budget.  Their parents may supply them with a car and insurance when they’re teens.  When it’s time to go out with friends on Saturday, they just ask mom or dad for money.  This dependent relationship isn’t helping the parents or teens.

Instead, put your kids in charge of their own budget as early as possible.  When kids are in 7th grade, increase their allowance (perhaps based on the chores they do) and let them assume some of their own expenses.  Let them buy their own clothes and pay for their entertainment.  Don’t forget to also teach them to save.

Your child will quickly learn that she’s not earning enough money to meet all of her wants.  When she’s shopping for back to school clothes, maybe she’ll pass on the $90 jeans and instead by two pairs of the $30 jeans.  (True penny pinchers may even check out the thrift store.)

The earlier a child understands the concept of money and how far it can or cannot stretch, the more he will understand why a college that costs $50,000 a year is not feasible.

Match their own college savings

One easy way to motivate your children to save for college is to match their college savings contribution.  My husband and I want to help our children with college, but we don’t want to just hand them money that we alone have set aside for their college education because we don’t believe they’ll value the money or the education as much.  Instead, we want our kids to be invested in saving and paying for college.

Our son just turned 12, and for the last six months he’s been saving for college.  Of course, he’s also used his money for other things, but so far he’s saved $100, and we matched that amount.  We have it invested, and he gets excited seeing the money grow (even though at such a small amount it’s not earning much interest yet).  This strategy not only helps him invest in his own education, but it also teaches him about matching, which will be so important when he’s in his twenties and newly employed.  I’m quite sure, based on this experience, that he’ll take advantage of the company match on retirement savings.

Let them borrow money from you and pay it back with interest

At least once or twice, when your child’s wants are greater than her available money, let her borrow money from you with interest.  Put her on a payment plan, though make the repayment terms a bit aggressive.  Maybe she has to use 50% of her allowance per week to use to pay back her loan to you.  Also include interest.

While this tactic sounds mean, it teaches your child how constrictive student loan payments can be on a budget, especially when it’s a large student loan with steep monthly payments and the borrower is earning a relatively low salary when starting out.

Hopefully, after a time or two of borrowing money, your child will learn that it isn’t worthwhile.  If she doesn’t learn the lesson, however, feel free to turn her down for loans.  She also need to learn to stick to her budget so that she doesn’t constantly borrow money as an adult and stay in a never ending debt cycle.

Clearly outline what you can contribute to their college education

No parent likes to tell their child no, but for your own sake, you may need to.  Decide in advance with your spouse how much you plan to pay for college per child and then have a chat with your child, as early as possible, perhaps even as early as 8th grade and then repeat the conversation every year.

This talk will help your child understand how much is available when shopping colleges, and it may also motivate her to look more aggressively for scholarships or to pick more reasonably priced schools.

Remind them grad school might be time for the school of their dreams

If your child will need to attend grad school for his chosen career path, encourage him to choose a more reasonably priced college for undergrad.  Then, he might choose the college of his dreams that is best in his field for grad school.  There are more opportunities to help fund grad school such as assistantships than there are for an undergraduate degree.

Let them apply to the unrealistic college

Finally, if all else fails and your child is adamant about the unrealistic college choices, as my friend’s daughter is, let her apply to the schools.  Once accepted, she can then fill out the financial aid package.  This may be the time that your child finally accepts financial reality.  Or, it may be the time that you’re surprised by the generous financial aid package.

I went to a community college for the first two years of college.  When it was time to transfer, I looked at our local four year college and a more prestigious four year college several hours away.  I was shocked when I got the financial aid packages.  It was cheaper for me to attend the prestigious college after financial aid, even though that college cost about 50% more.  Turns out the college had generous alumni, so that school was able to offer more financial aid.

When it comes to raising your children, college is likely the biggest expense you’ll face.  However, if you regularly chat with your child about how much you can afford to pay for college AND if you teach your child financial responsibility from an early age, hopefully you can avoid a fight over which colleges your child should plan on attending.

Most importantly, stand your ground.  A child who doesn’t get to go to his dream college will likely understand years down the road and thank you, especially when say “no” to your child and expensive college parental loans means saying yes to your own retirement funding.

How about you all? How did you handle college choices and expenses with your child?  Or, if your child is not yet that old, how do you plan to handle this situation?

Share your experiences by commenting below!

****Photo courtesy https://pixabay.com/en/graduation-grads-cap-diploma-907565/