Ted’s Blog

March 25, 2011

March is coming to a close and it’s almost April, you know what that means…..it’s time to do your taxes. I know that many people wrestle with the choice of doing their own taxes, going to a tax service, or hiring a local professional. I have found that most people’s taxes fit into three categories: very simple, fairly simple and not simple. Once you find out which category you fit into, your decision about finishing your taxes should be an easy one.

Very Simple: Most people have tax returns that are very simple—no itemized tax deductions, they make less than the current cut-offs of $1,500 a year in interest income, and $100,000 in total income—these can quickly and easily be completed yourself. You can go online to www.irs.gov and fill in and file form 1040EZ or 1040A and then file a simple version of the appropriate state return. Another option if your income is at or below $58,000, is to file federal taxes online for free using the software programs of companies participating in the Free File Service established by the IRS.

Fairly Simple: Some people don’t fit in the “very simple” group but still have a fairly straightforward financial picture and can still complete their tax return on their own. Consider using one of the major tax return systems such as TurboTax that includes both federal and state forms. It is a good idea, however to have a tax professional check your return the first time you do this and again every three to four years. The likelihood is that the tax preparer will catch things that will more than pay the fee.

Not Simple: For the self-employed with employees or individuals who have a complicated financial picture, the best choice is hiring a professional. There are several available options: a national tax return franchise, an online service, or an individual local tax professional such as a CPA or an Enrolled Agent (tested and background checked by the IRS). I advise going with an individual local tax professional for the following reasons:

The difference in fees is likely to be fairly small.
The national chain agents are usually part-timers and likely not as well trained and knowledgeable as the average CPA or enrolled agent.
Franchise and online preparers are less likely to be available for any questions that might arise during the year.
The turnover of franchise and online preparers is quite high; thereby reducing the chances you will have someone familiar with your tax situation on an ongoing basis.

Never hire anyone who bases a fee on a percentage of the refund amount, who claims the ability to obtain larger refunds than other preparers, or who requests signatures on blank tax forms to be filled in later. These are red flags that this is a preparer that should not be used.

Regardless of who prepares your return, you are the one responsible for paying the taxes. If someone improperly does a lowball return you will not only end up having to pay the correct taxes later on, you’ll also end up paying a penalty. It pays to do the research and do it right. Everyone has to pay taxes, pick your category and get it done; it will be *April 15^th before you know it.

*In observance of the DC holiday, Emancipation Day, Tax Day will be moved forward one business day this year, landing it on Monday, April 18. That’s the date your form has to be either submitted electronically or postmarked by for your tax return to be considered timely filed by the IRS.

by Ted Hunter

March 23, 2011

The earthquake, and the Tsunami that followed, in Japan were terrible and unfortunate events. As I see the images on TV and the internet, I ask myself what I can do. How can I help? Anyone who has read Money Smart knows I believe in giving back. I am a firm believer in giving and volunteering, not only of your money but your time. We have become a global community and it is important for us personally and globally to reach out and try to help.

Whenever you do chose to donate, however, be sure to make it count. Do some research online on the charity you choose. It pays to do a little bit of homework to insure that most of the donation is going to be used to help the cause, rather than go to fees and administration, and to be sure that it is going specifically to the cause of your choice rather than to the organization’s efforts in general.

Avoid giving money in response to a telephone solicitation. It is typically a solicitation company employee calling rather than someone who works for the charity. Commonly over 50% of a donation goes to the solicitation company rather than the charity it represents.

So give back whenever you can. Make that donation and make it count.

by Ted Hunter

March 22, 2011

I recently came across a blog post that offered such valuable advice I simply have to comment on it here. Thanks to the folks over at brokeprofessionals.com for sharing the story about a parent being duped into overpaying an exorbitant amount of money for insurance—a policy sold to them by a “friend.” This situation happens all too often, I’m afraid, but their story offers an opportunity for you to learn how to avoid falling into a similar trap. If nothing else, the Broke Professionals anecdote underscores a very important and often overlooked truth: No one cares more about your money than you do.

In order to safeguard yourself from scams and overpaying, follow a few simple steps. Do your homework. Research who you’re going to hire. Then, when you’re speaking with the candidate ask for references and a track record of their success. Even if the person you’re considering is a “friend,” acquaintance, or a “good guy”—you still need to protect yourself and your money.

Though I’m sorry this unfortunate incident happened, I hope that others can learn from it. Remember, no one is ever going to work as hard for your money or keep your best financial interests in mind than you are.

by Ted Hunter

March 3, 2011

Anyone sick of Charlie Sheen yet? I’ve watched with amazement at the media blitz on this troubled actor and at the rate that everyone, EVERYONE seems to be talking about it. I’ve got to admit it made me wonder, when did we embrace the crazy and forget common sense? Is following Charlie Sheen’s troubles as important as following the on-going struggle of so many Americans to put their financial lives together again? Of course not, but it can be a tantalizing distraction. Far too often that same attitude, giving in to the tempting impulse or distraction of the moment, has become a real problem when it comes to many people’s finances.

We need to turn away from the trend toward rash and impulsive buying that is evident in everything from small impulse purchases to buying expensive upgrades and a penchant for so-called retail therapy. Do it by taking a few minutes to write a prioritized shopping list of all the items you want, both large and small. When shopping, an impulse to purchase items not on the list should be considered a red flag and strictly avoided. Sleep on any decision before making a purchase. If you still want the item in the morning, look at your priority list and decide what you are willing to trade for it. It’s a simple, common sense approach that works as an antidote to this destructive tendency.

Let’s take this opportunity to turn away from bad habits and back to common sense. That’s one of the reasons I wrote Money Smart: to give hard working people some time-tested, common sense guidance on everything from spending to investing and creating financial freedom. Will we the American public always be fascinated by a celebrity meltdown? Probably, but we can also resist tempting distractions and embrace common sense to straighten out our financial lives.

by Ted Hunter

February 27, 2011

Everyone wants to be both debt-free and financially secure, but how do you prioritize the two? Is it best to hold-off with aggressive saving until you are debt-free? Or is having a savings cushion more important than getting rid of debt? It’s critical to pay down your debt, but it’s critical to create a plan that will build your bank accounts as well. To be smart about accomplishing both goals, you need to carefully prioritize your saving and debt-reduction efforts. Unless you have a very good reason not to, I recommend that you adhere to the following priority sequence:

1. Stop using credit cards and pay only the minimum payments until step four is reached.

2. Aggressively save for an emergency fund starting with at least one month’s expenses. This will create a cash cushion for emergencies rather than needing to pull out the credit card.

3. If an employer will match contributions to the company 401(k) plan, save the amount necessary to get the full matching dollars.

4. Allocate 50% of savings to an emergency fund, and 50% to debt reduction until four to six months’ of living expenses are covered in the emergency fund; four months for a two-income family, six months for one income.

5. Now focus on eliminating all debt except for home and car loans.

6. Build up annual savings until the maximum tax-deferred savings allowed by IRS guidelines is reached. Once you reach this point and are saving as much as you can pre-tax, throw a party and reward yourself with something very special. You’ve earned it!

7. Pay off any car loans, then start saving $250 a month in a new car fund.

8. Increase saving to at least 15% of pre-tax income. Save for home ownership If not currently in a home. Homeowners should also accelerate mortgage payments and continue until it is paid off. Also, during times when fixed-interest rates such as CDs have fallen below 3.5%, be aware that making extra mortgage payments provide a better after-tax return on your money.

9. Families with children might want to start a specific education fund based on the child’s abilities, needs and desires. (Please read “Paying for an Education” in chapter eight of Money Smart to see if this is something you should do.)

Small monthly changes can have a huge impact on savings and debt reduction, especially when you follow the right sequence. Be smart in setting your priorities and your Spending and Saving Plan will put you on the path to financial freedom in no time

by Ted Hunter

February 20, 2011

It is certainly possible that a four-year academic education can offer a better life through superior jobs, more money, and a life-enriching experience. But is it necessary? Is it worth the crippling debt-loads parents and students must often take on these days in order to get it? Most importantly, is it the best route to a successful and happy life for your kid? Many parents automatically assume that their children should go to college. Yet college dropout rates in this country are nothing short of disastrous, and that doesn’t begin to count all of the students who end up graduating even though they should never have gone in the first place.

A college education is no longer the end-all-be-all of education, nor is it a guarantee of success. There is no end to the number of careers and self-employment opportunities that do not require such an education and that can provide both a very good income and a very satisfying life. Obviously some fields require the standard academic route. If you want to be a doctor, lawyer, scientist, engineer, teacher, or architect, for example, it’s the only way to go. However, in my experience, many employers now value the skill set more than the proven ability to be taught. They no longer have the time or the money to invest in teaching the skills they need. They want people who will be productive the minute they walk through the door.

These skills can be acquired in more places than in a four-year academic institution. It may mean a two-year degree, an online degree or certification, trade or technical schooling, real-world work experience, or any combination of these. These alternatives may end up costing a lot less than a regular four-year college education and also provide a better entrance to the work force. Maybe the best path for your kid is to start his or her own small business. Although challenging, small business ownership is historically one of the most rewarding routes to both financial and personal success.

It so happens that the subject of whether or not to send a child to college is one I faced personally. My youngest son, Dan, is extremely bright and was designing video games in high school thirty years ago, back when they essentially didn’t even exist yet. His mother and I thought that he should go to college. Well Dan didn’t exactly see it that way. His college experience lasted a grand total of about two weeks, after which he pretty much cut every class, flunked out royally, and never went back. Dan knew college wasn’t for him and it was his life and his future and he wasn’t going back.

Don’t feel sorry for Dan. He went on to become one of what the techies call the “Masters of the Universe,” and is currently the “Architect” of a cutting-edge startup cloud software firm. Every time you use the Internet, or even your cell phone, Dan has probably been there somewhere. For Dan, the non-college route was his path to a very successful career. Best of all, he loves what he does.

In telling you this story I am by no means suggesting that your kid follow Dan’s path. Each person is unique, as should be his or her path in life. Is college necessary? It shouldn’t be an automatic yes, what it should be is a discussion between you and your child to try and find the right answer.

Newer Posts

Older Posts

It’s Almost April 15th – Who’s Doing Your Taxes?

Make Your Donation Count: Helping the Japanese Relief Effort

When “Friendship” Costs You Money

The Charlie Sheen Trend: Common Sense Vs. Crazy

Save Money AND Eliminate Debt? Yes, If You Know How to Prioritize

Is College Really Necessary?