A Review of My 2014 Income Tax Results and 2015 Tax Planning

The past year has been quite a whirlwind. I finished my PhD program in Virginia, got married, went on an awesome honeymoon to Belize (great place to go by the way!), did the post-PhD job search/interview process, moved to Colorado to start the post-PhD job, bought a house in Colorado, and now have our first child on the way (due January 12th, his name is Alex – see picture below!).

Anyhow, all of that is to say that I am a bit behind on getting this post out. Normally, I do this post in around the April-May time-frame, but better late than never, right?!

In general, the results of filing my wife and my [married filing jointly] 2014 taxes were very good, as I felt like we leveraged the tax code to the best of our ability in order to maximize wealth. As has become my habit over the past few years, I feel that by analyzing some of the finer details/numbers, I can better plan for how to approach my tax planning for the 2015 and beyond year.

2014 Income Breakdown

Our combined total 2014 gross income can be broken down in to the following components:

• 47% from W2-reported wages / income.
• 8% from dividends, capital gains, and interest from investments.
• 25% from untaxed fellowship/wage income for my work as a graduate student.
• 20% from Schedule C self-employed business income.

2014 Deductions

Since the married-filing-jointly standard deduction was greater than our itemized deductions, we took the standard deduction of $12,400 for 2014.

After subtracting the 2 personal exemptions we get for myself and my wife (with no kids, filing jointly), we arrived at a taxable income that was only 68% of our original/total gross income that we started with.

2014 Federal Taxes

Having established our taxable income, our total personal federal taxes were computed. Next, self-employment taxes were added on top of the personal taxes.

This resulted in our total Federal taxes owed for 2014 being ~11% of our overall/total gross income.Nice! I am surprised this percentage is so low!

If we calculate this based on our AGI or taxable income, the percentages become 11% and 16%, respectively.

2014 State Taxes

Since we lived in Virginia January-November and then Colorado during December, we got to pay state taxes in two states for the respective portions of the year.

Our 2014 total state (combined for Virginia and Colorado) taxes owed was calculated to be 4% of my overall/total gross income. If we calculate this based on my federal AGI or federal taxable income, the percentages become 5% and 6%, respectively.

2014 Total (State + Federal) Taxes

If we put everything together from both state and federal taxes, we can find something useful for planning purposes going forward:

• We paid a total tax amount for 2014 equal to 15% of our overall/total gross income.
• Our marginal tax bracket was 15%.

2014 Taxes Owed / Tax Refunds Received

When everything was said and done, we unfortunately had overpaid quite significantly in taxes during the 2014 year. As a result, we received almost a $3,000 in federal tax refund, $800 in a Virginia state tax refund, and we owed $93 for Colorado state tax (since we underpaid slightly).

The primary root cause for the overpayment in federal taxes was paying too much quarterly estimated taxes for my self employment income. This was due to my self employed income dropping in 2014 compared to 2013, and my 2013 taxes owed still being used as the basis for calculating 2014 taxes.

2015 Estimated Taxes – Prospective Planning

One of the nice things that my accountant does do for me each year is to calculate/prepare my estimated taxes for the following tax year (so 2014 was prepared during the 2013 tax preparation round).

Due to our significant overpayment in both state and federal taxes in 2014, our accountant advised us in April 2015 that we did not need to pay quarterly estimated tax payments for our self-employed income for 2015. He did, however, recommend that if we were “having a banner year” and earning much more self employed income than previous years, that I would need to look in to increasing my tax withholding from my post-grad school W2 income.

2015 Estimated Taxes – How It Actually Happened

So, now let’s fast forward 6 months to October 1st, 2015. This is the day I had marked on my calendar to assess our self-employed income and my regular W2 income and tax withholding year-to-date to determine if we were paying enough taxes (since the accountant advised that we didn’t need to send quarterly estimated taxes for 2015).

I proceed to add up my projected W2 income, our combined self-employed income, taxable interest, ordinary dividends, and capital gains. I then subtracted out the deductible part of self employed income taxes, student loan interest deductions, the standard married filing jointly deduction, and our two personal exemptions.

Upon arriving at our approximate taxable income and taxes owed, I was quite surprised to find out that, without changes/intervention, we were en route to be $8-10k behind in federal taxes owed for 2015 (state taxes owed were on track). As this is greater than 10% of our total taxes owed for 2015, an underpayment penalty would apply come April 2016 when we file our 2015 tax return.

Clearly, some drastic changes were needed to correct this. As such, since October, our main focus financially has been to 1) increase the amount of taxes withheld from my regular W2 income and 2) decrease our taxable income to as close as we can possibly get to the 15% marginal tax bracket level.

Specifically, listed below are the actions we took starting in October:

• Dropped the number of exemptions for my W2 income from 2 to 0 to increase the amount of taxes withdrawn from each paycheck.
• Requested that $1,000 additional federal taxes be withheld from each of my biweekly paychecks.
• Contributed as much as possible to regular/pre-tax retirement accounts to reduce our taxable income:
  • As we had already maxed out our Roth IRA contributions this year, we could not contribute any additional funds to our regular IRAs.
  • We stopped contributing to my job’s Roth 401k and our Vanguard Self Employed Roth 401ks, and instead have been contributing to our regular 401ks.
    • $5,250 contributed YTD to my wife’s pre-tax self employed 401k.
    • $935 contributed YTD to my job’s pre-tax 401k.
    • $1,774 contributed YTD to my pre-tax self employed 401k.

With these drastic actions, my wife and I are now on track with our federal taxes and should not have to pay penalties when we file for 2015.

Plan for 2015 Tax Filing – Accountant or Online Software?

Overall, 2015 has been a year of big changes from a financial perspective, as I went from a graduate school income to having a real job and my wife has been earning more self-employment income the past few months, in spite of becoming increasingly pregnant! 🙂

Because of all these financial changes, it’s understandable that our taxes experienced a bit of a “windfall,” and we are now having to play a little catch-up. However, it sort of makes you wonder – should our accountant who did our 2014 tax return advised us a little better and anticipated these changes? After all, they did advise that estimated tax payment likely wouldn’t be required.

In thinking about it, I don’t blame the accountant for a lack of attention or not doing a complete job. However, at the same time, I am not overly impressed, and it does make me question the value proposition, especially given that the accountant tax prep fee for 2014 was $685, whereas in previous years, I was charged a prep fee of $250.

Given the considerations above and the fact that we have moved from Virginia to Colorado (and we do not yet have an accountant here in Colorado yet), I believe that I will try my hand at using an online tax preparation software for filing our 2015 taxes.

The question then becomes, which online platform should I use?

As I found in my previous detailed explorations of Tax Act, H&R Block, and Turbotax, my favorite online tax preparation platform was Tax Act. As such, I believe I will use Tax Act for filing my 2015 returns.

How about you all? Are you on track with your 2015 taxes? Do you expect to have a tax refund or owe taxes when you file? Will you file using an online tax prep platform or use an accountant?

Share your experiences by commenting below!

How to Plan for Retirement in Your 20’s

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

If you’re in your 20s, planning for retirement is probably not very high on your list of things to do. Starting and advancing your career certainly seems more relevant, as does buying the things that you need to live your life.

But somewhere in the mix there needs to be an emphasis on retirement planning. Retirement is one of those areas of life where the sooner you start, the better you finish. It has everything to do with the time value of money, and you should want to get that working in your favor as early in life as possible.

Here are some ways to plan for retirement in your 20s. Most don’t require a lot of money to do either, but are based instead on getting into good money habits.

Save Up to the Employer Match on Your 401(k) Plan

If you have an employer sponsored retirement plan, you should participate in it, at least at a very low level. The most important step when it comes to a savings plan of any kind is just getting started. If 2% of your pay is all that you can afford, then go with it, and increase it over time.

One way to do this is by increasing your retirement contribution each time you get a raise. Let’s say that you start contributing 2% of your pay into your employer’s 401(k) plan. One year from now you get a 2% increase in pay. Cut that in half, allocating 1% to your 401(k) plan contribution – increasing it to 3% – and keep the remaining 1% in your regular budget.

Under ideal circumstances, you should aim to participate in the employer plan to the point you maximize the employer matching contribution. For example, if your employer has a 50% match (3%) up to a contribution by you of 6%, your goal should be to contribute 6%. The employer match is like free money. You’ll get $1 added to your plan by your employer for every $2 that you contribute. That’s too good to a pass up.

If you delay participating in retirement savings until a time when you can afford it, you’ll probably never get started. Throughout your life, there will always be major expenses and challenges that will compete for your income. The only way to rise above it is to start saving money as soon as possible – as in now.

If You Don’t Have an Employer Plan Start an IRA – Even a Small One

Not all employers have a 401(k) plan. If yours doesn’t, create an alternative strategy by setting up a self-directed IRA. You can contribute up to $5,500 to an IRA each year, and your contributions will be tax-deductible if you do not have an employer plan (and may be partially or completely tax-deductible if your income is within certain limits).

Don’t worry that you can’t make the maximum contribution. Start by adding $50 per pay period. If you are paid twice a month, that will be $100 per month, or $1,200 per year. As your income increases, allocate a larger amount of money to go into your IRA.

Just as is the case with a 401(k), getting started is more than half the battle.

Make Getting Out of Debt a Priority

This is certainly a tall order when you’re in your 20s. After all, if you already have student loan debt, and you need to buy a car, you’re virtually guaranteed to be in debt. But as difficult as it is to avoid the debt trap as a young adult, avoid it you must.

There are two major reasons why getting out of debt is important when you’re in your 20s:

1. Debt becomes a pattern early in life – if you “get comfortable” being in debt in your 20s, you might spend the rest of your life there, and it can get progressively worse
2. By getting out of debt, you gain full control of your income, and free up money to invest for retirement and for your long-term prosperity.

This isn’t necessarily to say that you need to make getting out of debt an all-consuming activity – seeing it through until the last dollar of debt is paid in full. But you should establish a pattern of paying down your debts ahead of schedule. The idea to set a goal of getting out of debt within a specific time. You can make that five years from now, or at a certain age, say when you turn 30.

The sooner you defeat the debt monster, the easier it will be to do all things financial in your life, including preparing for retirement. And as you get your debt situation under control, be sure not to add any new debt to your life. Once again, you’re trying to avoid bad habits that can become a lifestyle.

Develop a Life of Thrift

Now is a good time to spend a couple of minutes on the topic of lifestyle inflation. If you’re in your 20s, you’re likely to see a steady increase in your income in the coming years. Lifestyle inflation describes a financial process in which your standard of living rises as your income increases. You get a promotion with a substantial increase in pay, and you upgrade your car, move into a more expensive living arrangement, and adopt some expensive hobbies.

That’s a typical pattern, but it’s also one of the major reasons why people find that they don’t have any more money even though they’re earning more, often a lot more. Lifestyle inflation is one of those habits that’s best avoided when planning for retirement, or working out any financial goal you can think of.

The basic idea should be to keep your living expenses as low as possible, while using pay increases to fund saving and investing, and getting out of debt. And again it’s important to remember that this point in your life, you should be trying to establish the kinds of habits that will enable you to move forward, rather than getting trapped in a financial mess.

Don’t Try to Beat the Market

Millions of people – including investment managers – try to beat the market, and fail miserably. Unless you work in investments professionally, it’s probably not worth your time to even try to figure it out. In fact, you can lose a lot of money trying to learn how to beat the market. That’s probably something you don’t want to try to do until you have a large portfolio, and can allocate a small percentage of it into a small secondary account where you can try your hand at it.

In the meantime, and especially as a new investor, stay with funds, particularly exchange traded index funds. You won’t beat the market with these, but you won’t get clobbered by it either.

And if you would like to try active management, look into low cost robo advisors, like Wealthfront and Betterment, that offer professional management at very low fees and are specifically tailored for new and small investors.

At this stage in your life, retirement may seem so far away that you have plenty of time to ignore it. But it’s worth repeating – when it comes to retirement planning, or any other financial endeavor, the sooner you start, the better you finish. Get working on retirement planning now.

How about you all? If you’re in your 20s, have you started saving for retirement? What age did you start your retirement planning process?

Share your experiences by commenting below! 

***Photo courtesy of https://www.flickr.com/photos/digitalsextant/4491928640/sizes/n/

Financial Planning for the Holiday Season

There is a chill in the air these days and in some parts of the country, it’s beginning to look a lot like Christmas and the holiday season! Thanksgiving is just around the corner, and before you know it, we’ll be decorating our Christmas trees, lighting our Menorahs, and spreading holiday cheer in general.

With the holiday season comes a lot of extra spending that we just don’t see during other parts of the year.  From heading out of town to see the in-laws (or to get away from them??) to planning and executing the perfect family Christmas dinner, budging for these extra expenses will go a long way in securing your financial health and keeping you sane during an otherwise stressful time of year.

Planning for Holiday Vacations

A lot of people travel over the holidays.  Going to Grandma’s house to be with the entire family this year?  Maybe you’re headed some place tropical to get away from the cold and blustery snow of home. Regardless of where you go, there is a lot that you need to plan in advance so you’re not seeing red on your credit card by the end of the year.

Before you head out anywhere, you’ll need to budget and allocate your finances appropriately.  How are you getting there?  Are you flying? Think about how much it will cost to park at the airport or take a shuttle or taxi in (as well as to your destination). How much will the flights cost? If you’re not staying with friends or family, you’ll need to factor in hotel, food, and entertainment costs. Even if you don’t have a solid itinerary, you still know you need to sleep somewhere and eat three times per day, so make some good estimates.

If you have been using a Discover it Miles card and earning 1.5x Miles for every dollar you spent, you can use those towards your holiday travel purchases to help with the cost.

Hosting Holiday Meals

Maybe you’re staying at home this year and everyone is coming to visit you! Now you don’t have to worry about flights, hotels, and other travel expenses, but now you have a new list of items to take into account.  What are you planning to cook over the holidays?  Plan your meals and use the ingredient list from the recipes to calculate how much it will cost for you to cook for whoever is coming to town to visit. Don’t forget about the wine or other adult beverages if you or your family enjoy such things. These items can add up, so try to find deals on multiple packs or bottles and try to pick brands that don’t cost an arm and a leg.

One way to save a little bit of money here would be to offer to “co-host” the holiday meals with another friend or family member.  Maybe one of you can purchase the food, while the other purchases the beverages.  Alternatively, if you have a lot of people coming from in town, consider hosting a potluck-style dinner where you provide the main dish while everyone else brings their favorite side dish and/or bottle of wine.

Budgeting for Gifts

Of course, what’s the holiday season without gifts? The more people you have in your family and close circle of friends, the more expensive gifts can become.  One way to avoid spending too much on gifts is to limit the amount that you spend per person.  Set a strict limit of $10-$20 (or more or less, depending upon your own financial abilities) per person, and do not go over that limit when purchasing gifts for each person.  Alternatively, if you have family or friends who are couples, consider purchasing just one gift for the two of them to share.

Holidays should be about more than just material gifts, so don’t feel obligated to “go all out” and buy everyone you know the most expensive thing you can find.

Check Your Credit History

Finally, with all these extra purchases this holiday season, you’re going to want to stay on top of your credit and make sure your credit history doesn’t take a big hit.  You want to budget all of your holiday spending appropriately so that you’re able to stay on top of paying your bills, and to make sure your credit score does not suffer.

Thankfully, the folks at Discover offer your FICO® Credit Score for free  on all monthly statements..

The most important thing this holiday season is to give thanks for all that you have, all your friends, family, and loved ones. It’s the company of friends and family that matter most, and everything else is just not worth hurting your credit score and sending you into debt.  Budget your holiday finances appropriately, and stay on top of your FICO® Credit Score  by checking it on your monthly statement or online.

Happy Holidays, all!

Disclosure: I am a paid brand Blogger for Discover Financial Services My views are my own and do not necessarily reflect the views of Discover Financial Services and its affiliates.

How Much Money Goes to Waste When Using Banks For Currency Services?

The following is a guest post. Enjoy! 

Banks can do a lot of things. But this doesn’t mean they do all things very well. Banks get a lot of business by being the only well-known game in town. They get more business by being a one-stop shop for all things financial. While this will be convenient for customers pressed for time and in need of a diverse set of financial goals, it’s not the best way to save money. This is nowhere better seen than when considering a bank’s currency transfer services.

Big banks are increasingly international. It’s very likely that at least one of the corporation that keeps or manages your money is, or is owned by, a multinational company commanding debt all over the planet. Because of this massive and far-reaching infrastructure, banks like this can easily convert one currency for another, anywhere their network reaches. For customers who have never explore the currency transfer industry, this may seem like the only way money is transferred across the globe. The reality couldn’t be further to the contrary. There are many alternatives to this model, and they’re used by the rich, the poor, and even national governments. If the Feds aren’t using Big Banks to transfer their money, why should you?

Because banks corner the market in a segment of this industry, they can charge what they want. While not entirely exorbitant, the typical fee associated with banking currency transfers is far too high, often causing average customers anywhere from 6-10% of their total transaction, if not more. This is a lot of money lost for anyone, especially if the money being transferred is for a friend or family member overseas, as in the remittance industry used by migrant workers and other people without much money to spare. The situation is no better for customers with a lot of money to send. If you’re sending tens or hundreds of thousands of dollars overseas, you can’t afford to lose the hundreds or thousands of dollars some banks charge for the simple procedure.

There is a new generation of money transfer companies. They offer dedicated dealers who can help you strike at the precise moment when exchange rates are at their most affordable. The transfers they perform are faster than the ones done by the typical bank. Their fees are typically very low, often waived if the amount you are sending is sufficient.

In conclusion, you lose money when transferring through banks, and you lose it in a few different ways. 1) You lose money when you pay a fee that is too high. 2) You lose money when the bank doesn’t help you find the best rate. 3) You lose money when the transfer takes too long (time is money). The conclusion is clear. With so many new companies clamoring for your service, take advantage of all of the ways they’ve made this industry so much better for the typical currency transfer customer.

Types of Loans for Home Renovations 

The following is a guest post. Enjoy!

Planning a home renovation requires the right type of loan and funding solutions. Depending on the situation and your goals, the best loan to help with renovation costs and managing the changes that you prefer will vary significantly. The key to finding the right renovation loans for your situation is focusing on the reasons you need the funds and any mortgage consideration.

The 203K Mortgage

Home renovation loans do not always mean that you already own the property. You can apply for a 203K mortgage loan and work on renovating a property after purchasing a home.

A 203K mortgage refers to a FHA loan that allows you to purchase a fixer-upper, or a house that requires repairs before you move into the property. The number of repairs, changes and renovations required for the property varies, but the loan allows you to take out extra funds above the value of the property and the basic mortgage so that you can make appropriate changes.

The loan allows individuals to take as much as $35,000 extra on a mortgage to pay for repairs and renovations on a property. The exact amount depends on your specific credit history, your financial situation and any other debts, so you must discuss your needs and options with a professional before starting the project.

A Jumbo Renovation Loan

A jumbo renovation loan focuses on improving the property by working on an appraiser required repair to the property. The loan follows similar patterns to any other loan process, but it allows individuals to make changes that ultimately add value to the property and improve the appearance of the property.

The primary downside of a jumbo renovation loan is that it will not pay for any structural repairs or damages. The loan primarily focuses on updating the space, adding more rooms or working on other renovations that improve or increase the value of the property.

Weather-Related Loans

A weather-related escrow, or a loan, allows individuals to make repairs to a property when a storm or similar weather-related situation causes damage to the property. For example, when a storm causes a tree branch to break through a window and damage the kitchen cabinets due to the force of the fall or water from the rain, a weather-related escrow allows an individual or family to work on repairing and improving the space with a funding solution.

Weather-related renovation loans focus on specific conditions and situations rather than personal preferences or increasing the value of the property. It only applies to the situation if the damage stems from the weather, but it applies to a FHA renovation loan or a conventional loan on the property.

Conventional Loans for Renovations

Conventional loans refer to any type of loan that does not specifically focus on just renovations. For example, taking out a personal loan or using a home equity line of credit allows an individual or family to make repairs and changes to the property without seeking more complicated funding solutions.

Generally, a conventional loan works well when an individual needs a small amount of funding for the renovation project. For example, paying for a bathroom renovation or repair project does not necessarily require a 203k mortgage or a new loan on the house when using home equity or alternative conventional forms of funding will provide the appropriate funding.

Before obtaining a conventional loan for a renovation project, clarify the costs of the loan and make sure that it works well with personal goals. Some conventional loans have a higher interest rate or higher fees when compared to other renovation loan options.

Security Enabled Chip Credit Cards

You may or may not have heard by now, but the credit card industry in the United States is moving over to what is known as EMV chip-enabled credit cards. You might have even received your replacement card in the mail by now, and may have already experienced the new way of paying in some stores that use updated credit card swiping equipment.

What are EMV Chip-Enabled Credit Cards?

EMV stands for “Europay, Mastercard, and Visa”, and utilizes a special computer microchip to authenticate purchases made by the card. In other words, EMV chip-enabled credit cards have an extra security measure in place to help prevent someone from stealing your card and to prevent credit card fraud.  These cards still have the magnetic strip on the back, which will still work if the retail establishment you are visiting does not yet have the technology to read the special EMV chip inside your card.

How is EMV different than traditional magnetic strip cards?

With traditional credit cards with just the magnetic strip on the back, whenever you swipe your card at the register, there is a certain amount of data that is transferred from the card to the merchant that never changes.  So, a thief or fraudster could in theory just need to steal your data on one random occasion and be able to use your credit card account over and over again.

However, with the EMV cards, the data that is transferred from your card to the merchant changes every single time you swipe your card.  Therefore, if a thief tries to steal this data, when they go to use it again for their own fraudulent purposes, it will not work and they will not be able to use your card, since the data has already been used once and cannot be used again.

Therefore, this new technology makes it much harder for credit card thieves to steal your information and wreak havoc on your credit!

How do you use the EMV card?

Not all merchants are equipped with the new readers for the cards yet, so for those places, you’ll just swipe your card like any other using the magnetic strip.

For those merchants that have the right technology, you’ll see a new slot in the bottom of the card scanner where you need to insert your card following the instructions on the machine.  Unlike the swiping method, you’ll actually leave your card in the machine for a few seconds and once the transaction is approved, it will tell you to remove your card.

Want more information?

Discover is one of many credit card companies that are excited to share this new technology with consumers. If you have more questions about EMV technology, the massive shift toward having every single credit card equipped with this technology, or if you want to just watch some videos on how to use the cards before you have to use them yourself, check out their EMV Resource Center online to find the answers to all your questions and concerns.

How Much and How to Save for Home Repairs and Maintenance

The 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.

My husband and I previously lived in an area where both home prices and annual property taxes were well outside our financial means, so we always rented.  When we moved to a new area of the country, we could finally afford a home, so, last year, my husband and I, both in our 40s, finally made the leap to home ownership.

We’ve now lived in our home for 13 months, and we’ve learned a lot, especially about the importance of saving for home repairs and maintenance.

Home Repairs—It All Has to Break at Once

The home we purchased is 18 years old.  We knew buying the place that it had its original central air conditioning unit, and with a lifespan of 15 to 20 years, we’d likely have to replace the unit sometime.  Since we live in Arizona, surviving without central air is not an option.  At $4,000 to $6,000 for a replacement, this home improvement is not a cheap one.

However, that was the only home repair we knew would be coming up soon; the rest of the house passed inspection with flying colors.

Since we moved in, we’ve had several issues that have come up.

The hot water heater burst the first week that we moved in–$560.  This went undetected for a few days, so the water leaked into our pantry.  The previous owners had given us a homeowner’s warranty, so part of the cost of repairing the hot water heater was covered, but we still had a significant amount to pay out of pocket.  In addition, the realtor nicely sent over her contractor to open up the drywall and dry the wet interior.  Unfortunately, he never came back to fix the job, so we still have a large hole in our drywall in the pantry and will need to get that fixed at some point.

Air conditioner repair/maintenance–$200.  Our first summer here, we didn’t have any trouble with the air conditioning.  This summer, I noticed that our air seemed to be running more often and that it wasn’t as cool in the house.  In July, our electric bill was $120 more than usual, so I called a repairman.  He replaced two pounds of Freon and charged us $200.

Yep, the air conditioner is about ready to give up the ghost, but it will probably bleed us to death financially first.

Home repair tools–$200.  Since we always rented, we had to buy basic home repair tools like a ladder, saw, leaf blower (we don’t have leaves but little pieces that drop from our trees and can’t be raked up because our “lawn” is not grass but rocks), etc.  My husband discovered that one of our trees was growing into our cement fence, so he had to buy tools to cut down the tree before the tree could push the cement blocks out of place, causing a more expensive repair.

We’ve also had other cosmetic issues that we’ve put off but that will need attention at some point:

Broken doorbell.  The doorbell worked during the home inspection, but it hasn’t worked since then.

Broken window treatments.  The previous owners left us two blinds that fall down if you try to pull them up.  They need to be replaced, but that hasn’t happened yet.

Patio paint.  The whole house’s exterior was repainted before we bought it.  Our outdoor patio has a roof over it.  The previous owners painted the cement ceiling that people can see above the patio.  In the 13 months that we’ve lived here, huge patches of paint have come off the ceiling.

How Much Should You Save for Home Repairs

According to US News, “On average, homeowners will spend between 1 to 4 percent of a home’s value annually on maintenance and repairs, which tend to increase as the house ages.”  That means if you bought a $200,000 home, you should be setting aside $2,000 to $8,000 annually for repairs, which is no small chunk of change.

However, most people don’t do that, and I can understand why.  That’s a lot of money to set aside for an emergency that may, or may not, happen this year.

“‘People know that if they ignore maintenance checks at the 30,000-mile mark on their car or don’t go to their dentist, they could have more serious and more expensive issues to contend with, but we don’t always give our homes the same preventative checks,’ says David Lupberger, a veteran contractor and principal at remodeling and contracting consultancy Remodel Force.  ‘The mindset is, if it’s not leaking or smoking, I have time’” (US News).

Considering “just 38 percent of Americans said they could cover an unexpected emergency room visit or even a $500 car repair with cash on hand in a checking or savings account” (CNBC), many, many of us are not saving for unexpected home repairs.

Why You Should Save 1 to 4% Per Year

When we’re talking so much money, why should you save 1 to 4% of your home’s purchase price per year?  The answer is simple.  Fairly easy repairs, like replacing a water heater, may only cost as much as 1% of your home’s purchase price, but other repairs, like a new roof, can cost much, much more.

If you save 1 to 4% per year, that will allow you to have cash for basic repairs while still saving for bigger repairs that will occur later, like replacing the air conditioning or heating or the roof.

How to Start Saving for Home Repairs and Maintenance

Let’s be honest, when it comes to home repairs it’s not a matter of IF a home repair will come up, but WHEN.

But many people can’t get beyond the sticker shock of saving 1 to 4% per year, especially if it means $2,000 to $8,000 or more annually!  However, there are strategies you can use to make it easier to save.

Save what you can.  If your budget is tight, like so many people’s, focus on what you can do.  Set aside a dollar amount to put into savings.  Right now, for my husband and I, that means setting aside $50 a month for home repairs.  Yes, that’s only $600 per year, but it’s better than saving nothing.  Start where you’re at.

Make your savings automatic.  Once you decide on an amount to set aside every month, make your savings automatic.  Set up automatic withdrawal from your checking account to a designated account so you don’t even have to think about saving the money.

Increase your savings with each raise you get.  As you earn more money, set aside a portion of the earnings to go to your home repair/maintenance fund.  Maybe this year, you can only save $50 a month, but maybe after a raise next year, you can bump that amount up to $75 a month.  Keep doing this year after year, and you’ll be well on your way to saving 1 to 4% of your home’s purchase price for repairs.

Bank unexpected money.  Rather than blowing your tax refund (if you get one) or any unexpected rebates or reimbursements that you get, put some or all of that money in your home repair/maintenance fund.

Invest the money.  You don’t want to invest your home repair/maintenance money in the stocks, but you could invest it in mutual funds or a checking or savings account that pays a higher rate of interest, especially as the amount you have grows.  By doing this, the money is still liquid, but you are earning more interest.

How about you all? Do you have a home repair/maintenance fund?  If so, what percentage of your home’s purchase price do you set aside per year? 

Share your experiences by commenting below!

***Photo courtesy of https://www.flickr.com/photos/vinzcha/3898537817/in/

Why Is Share Trading Profitable?

The following is a guest post. Enjoy! 

Share trading can be extremely profitable if you have a game plan and know what you are doing.  In addition, it is important to have a sound and fundamental strategy.  When one uses the term trading stocks they should thing of buying and selling securities within the stock market.

In today’s environment the trader has been equipped with the latest and greatest share trading platforms which allow he/she to take advantage of trading opportunities that traders in the past did not have access to.  Prior to on-line trading the best way for a trader to receive information and research a stock was to interact with a broker via the telephone.  Today the stock trader has the ability to research stocks both fundamentally as well as technically at the touch of a key stroke.

Presently, there are numerous trading platforms which offer the stock trader execution speed as well as a robust platform with numerous options.  The stock trader should do his/her homework to determine what trading options are best for them prior to executing their trades.  The term online stock order/trade is simply a set of instructions to either buy or sell a specific stock.  The trade is entered into what is called the stock order ticket.  The stock order ticket incorporates the action, the number of shares, the specified symbol to be traded, price and the length/duration of the trade.

Although there are many platforms presently available for share trading though trading organizations it is important that one has a general idea on the speed to which their orders are processed.  Many share traders today believe that they have a direct connection to the stock markets, however, this is the furthest from the truth.  Typically, when you execute a trade the order is sent via the internet directly to your broker who will then decide which stock market to send it to for execution.

As you can see share trade execution is extremely important and you want to be partnered with a broker that can process your trades at the drop of dime.  Trade execution is typically seamless but it does take time.  Also, prices can change abruptly, particularly in quick moving markets.  It is extremely important to understand the significant of order execution.  The longer it takes for your order to be placed the chance the trader can lose money on a transition.

There are a number of ways that a trader can develop a strategy focused on share trading.  You can evaluate individual stocks and use fundamental analysis and statistics such as earnings per share, and cash flow to determine the future value of a share price. You can also base your strategy off of historical price movements by using technical analysis.

In closing, a stock trader is at the mercy of the technology that he/she works with.  If the trader does his/her homework and knows the best tools to you to trade along with the fundamentals of share trading they are bound to be successful with hard work.

How to Build Credit as a College Student

College is amazing—lots of new experiences and new life changes. Even though you’ll be very busy, it is important to also understand that now is the best time to start building your credit for all the other financial changes that you’ll experience after college. From buying your first car to buying your first home, you want to build up your credit while you’re in college so you run into fewer difficulties when those important financial milestones come up.

Here are just a few ways to start building your credit now as a college student:

1. Put utility bills and student loans in your name.

If you have bills in your name that require regular payments, this will count toward your overall credit score. Paying cable, gas, water, electricity, or cell phone? Put them in your name! If your roommate(s) are also trying to establish good credit for themselves, consider each of you having one bill with your name on it so that you each can start building up your credit now.

If you have student loans, putting them in your name can also help build your credit.

The most important thing here is that you pay your bills ON TIME. By putting these bills or loans in your name, it is important that the bills are paid on time or else your credit score will suffer.

While you’re at it, be sure to pay off the balance on each bill every month.  Carrying over a balance might incur some interest charges as well as look bad to creditors.

2. Enroll in credit cards in your name:

Apply for your very own credit card in your name! Make sure you’re not applying for several all at once, and DO NOT under any circumstances agree to co-sign with your friends. If you co-sign on a friends’ card and they slip up by not paying a bill on time or they spend a lot more than they can afford, not only will your friends’ score suffer, but YOUR credit will also suffer.

The same goes for all your other bills in terms of how to maintain good credit with your new credit card:  pay your bills on time every month, and pay your balance in full.  Try to only use the card for emergencies or small purchases only in order to keep your spending in check and to be sure you can actually pay off the balance every month.

There are many ways to start building your credit early. By following these tips, you’ll be well on your way to financial independence during college and beyond!

5 Ways to Jump the Queue When You Want a New Job

The following is a guest post. Enjoy! 

Are you looking for ways to pay off your home loan more quickly? Perhaps you want to head off on a month-long overseas vacation? Or do you just want to be able to pay off your credit cards more quickly? No matter what your current personal finance goals may be, landing yourself a higher-paying job in the near future can be a great way to go about achieving your dreams.

However, with economies tight and advertised roles harder to come by than in the past, you have plenty of competition when trying to find a new position. One of the best ways, as a result, to land a dream role is to know how to hear about jobs before they’re actually made public. Read on for five ways you can jump the queue and get ahead of other job candidates when you’re ready to move on to a bigger and better role.

1. Get to Know Recruiters

You don’t need to restrict your communication with recruiters to just those times when you’re applying for an advertised job. Instead, contact a variety of recruitment companies that specialize in your field, and approach their team members to let them know about your background, education, skills and experience, and the type of position you’re after. It pays to mention your preferred places of employment too.

Getting to know recruiters can be a great way to hear the inside scoop on potential new job openings before they’re listed. Hiring managers speak to existing and potential clients regularly, so they tend to know about upcoming roles early on, and are always on the lookout for top candidates to fill roles. As a result, if they can find the right person without even having to advertise a position, they will spare themselves time and make their clients happy in the process.

When building relationships with recruiters, make sure you’re polite and respectful at all times. Keep in mind that their time is valuable — they can’t spend lots of it speaking to you and providing feedback, so keep conversations short and to the point.

2. Volunteer

Another helpful way to hear about new job openings before the general public is to volunteer your time at companies you’re interested in working for. Whether you enlist as a regular volunteer, or participate in an internship, having your “finger on the pulse” at a business and getting to know its employees and managers can be a great way to land a new role.

Working at a company for free can not only give you a chance to make contacts with the people working there (who can let you know if jobs come up), but it can also help you to impress decision-making hiring managers or owners who are in charge of recruitment. Spending some time learning the ins and outs of the business can stand you in good stead when positions become available. You already know how things run; have met potential colleagues; and have shown an interest in the company, so you are likely to become a front runner for any available roles.

3. Network

Networking with people who are in your arena can also supply you with potential job leads. Whether you network in person at industry events such as trade shows, conferences, workshops, and casual get-togethers, or utilize outlets like social media sites, networking can supply you with tips on jobs before they’re made public. Don’t forget that it also pays to stay in touch with alumni from your university, as well as keep up relationships with people from your past workplaces.

4. Make Use of Referrals

When looking for a new job, it is always a good idea to seek referrals from friends and family members too. Even though they might not be in the same industry as you, chances are that they might just know somebody who is looking for a new employee. People feel good when they help others out and like to refer those they admire and trust, so are usually keen to provide assistance where possible. This tactic can lead to some unexpected opportunities, so don’t discount it.

5. Be Proactive

Apart from the above suggestions, there are also other ways of being proactive that can give you access to jobs before they’re listed online. For example, if there are companies you’d love to work for, submit your resume to their HR department, even if no jobs are currently listed. You never know when something might pop up, and many hiring managers like to look through resumes they have on file before bothering to advertise a role.

***Photo courtesy of http://www.shutterstock.com/pic-153117149/stock-photo-business-people-waiting-for-job-interview.html?src=JFBCRkBQvCy3bn13olVoWg-1-1