Are You Wasting Money? Part 3: Taxes, Insurance, Not Bidding and/or Negotiating

So far in this series on wasting money (part 1 and part 2), we have looked at how people may overpay for housing, interest, transportation, food, clothing and entertainment. In this last part, we will look at a few more areas in which we may pay more than necessary—taxes, insurance, not obtaining bids for services, and not negotiating for large purchases.

While you may already be astute in these areas, sharing good financial practices like these with your children and/or grandchildren can be part of your legacy, as you help them prepare to be prudent and responsible beneficiaries. And, for tax management and risk management (via insurance coverage), your legal and advisory team can produce integrated tools to assist you in keeping more of your money within the family than having it leak out unnecessarily.

The Key Takeaways

• Any time you pay more for something than you have to, money is wasted.
• Reviewing tax deductions and insurance coverage, comparison shopping, bidding out services and repairs, and negotiating—these take time, but they can help save significantly.
• Any time you save money, you are being financially responsible and will find more money for the expenses in life that are really important to you.

Where People Waste Money…And Actions to Consider

1. Taxes. Take every deduction to which you are entitled. Even if a professional prepares your tax returns, it is a good idea to become familiar with allowable deductions. For example, charitable deductions, even small ones, add up—if you volunteer, keep track of your mileage and financial contributions; fill out the form when you make clothing and household donations; and instead of dropping cash into the offering box at your place of worship, write a check or set up automatic payments.  Of course, if you have significant charitable interests, trust-based strategies offer you cost effectiveness and a disciplined structure.

2. Insurance. Review your policies every year. Property values change, and it’s important to not over- (or under-) insure. For example, an older car may not need collision insurance. Increasing deductibles will save on premiums. Bundling various policies (home, autos, personal liability, jewelry) under one insurer will probably earn you discounts and save time.

3. Not getting bids when hiring workers. Asking friends and neighbors for references is a good start, but it is also important to get at least three estimates. And remember, the lowest price is not always the best value.

4. Not periodically rebidding current products and services. Being loyal is commendable, but not if it causes you to pay more than necessary. If you are able to find a lower price, your current provider may match it to keep you as a customer.

5. Not negotiating for large purchases. We all know there is profit margin built into pricing, and there is usually a larger margin on expensive items. Some vendors actually expect to negotiate. Learning how to negotiate fairly and respectfully will frequently save you some money.

What You Need to Know: It’s easy to get caught up in the current culture of instant gratification and impulse spending. We could all benefit from slowing down a bit and becoming better consumers. Taking the time to evaluate purchases and comparison shop will not only help avoid overspending and wasting money, but it results in satisfaction from being responsible and efficient with money. 

More Actions to Consider

• Evaluate how you may be overspending in these areas. Commit to following through on some of these suggestions and note how much money you save.
• Think where you could use that extra money. Would you like to pay off some debt, or save for a family vacation, car, home, college, or charitable gift?
• Start to prioritize spending and set some money-saving goals. Creating a budget and monitoring spending on a regular basis will help avoid wasting money and start meeting goals you set. (For more on this, read the previous blogs on budgeting and setting spending priorities.) 

Contact Bobby Sawyer at (704) 944.3275 or bobby@csjlawonline.com with any questions or issues, or if you would like to discuss some strategies for addressing this topic.

Are You Wasting Money? Part 2: Food, Clothing and Entertainment

In Part One of this series on wasting money, we looked at housing, interest and transportation—areas in which you or your loved ones may be wasting larger amounts of money. In Part Two, we will look at how money can be wasted in everyday areas of life—specifically food, clothing and entertainment.  

In many ways, it is the routine purchases that occur without planning that subsequently accumulate to large amounts. An area of high importance when making beneficiary distributions is for the money to be used in meaningful ways such as home purchases, education, and investing and not simply to cover shortfalls in month-to-month expenditures. These simple lessons are helpful reminders for everyone.

The Key Takeaways

• Money is wasted when we pay more for convenience, excess, impulse buying and bad habits.
• While this may be okay if it happens occasionally, living a lifestyle that consistently wastes money can cause people to live beyond their means and incur debt, which causes more money to be wasted by paying interest on that debt.
• Recognizing areas in which money is wasted, and taking steps to change buying habits, helps keep people out of debt and give more money to spend on the things that really matter.

Where People Waste Money…And Actions to Consider

Groceries. We’ve all been guilty of buying more at the grocery store than we intended. Here are a few tips that will likely fit within a current routine:

1. Plan meals for a week, make a shopping list and stick with it. Make an exception only if something regularly used is on sale. 
2. Use coupons only for items regularly purchased (and don’t buy things you don’t normally use, just to use the coupon). 
3. Buy in bulk; split the purchases with a friend if storage space is lacking. 
4. Shop without young children whenever possible to save money, time and frustration.

Eating out. If the amount of money spent in this area is unknown, track it for a month or two and consider other ways that this money could be spent. Socializing with friends over meals is important, but this is one area that usually can be reined in. Meet over lunch or an early dinner. Watch the alcohol; bar drinks are expensive, add up quickly and make an affordable meal completely unaffordable. Consider entertaining at home; it is less expensive and more personal.

Clothing. Take a look at how much is spent on clothing, especially on items purchased and not worn. Avoid shopping as a hobby or because of boredom; retailers are great at making people think something is needed.

Entertainment. Evaluate cable or satellite TV subscriptions and drop the premium channels not being used. Monitor cell phone bills. Investigate bundling phone, internet and TV services under one carrier. When going to the movie theater, go to early showings, buy discounted tickets, shop for bargain-priced theaters, and bring snacks. Check out community theater productions.

What You Need to Know:
Cash expenditures are usually the most difficult to track. Consider the envelope system (cash set aside in envelopes marked for specific cash purchases); place the receipts inside the envelope so it is easy to remember how cash was spent. Or use a debit card for even the smallest purchases.

More Actions to Consider

• Review how money is currently spent. If not using a personal accounting program like Quicken to track spending, now would be a good time to start. Carefully evaluate areas where overspending occurs.
• Start comparison shopping. Make a list of items bought regularly, including size and the last price paid. Keep the list handy for other shopping trips and compare prices. Then make a new shopping list for items at the stores with the best prices.
• Keep a running grocery list. As an item gets in short supply, add it to the list. This will make grocery shopping more efficient and save time by not having to make frequent trips.

Contact Bobby Sawyer at (704) 266.0727 or rsawyer@sawyer-law.com with any questions or issues, or if you would like to discuss some strategies for addressing this topic.

Are You Wasting Money? Part 1 - Housing, Interest and Transportation

Most of us are guilty of wasting money in one way or another. Often we are so busy that we pay too much for convenience, and we don’t comparison shop or look for bargains. Sometimes we waste money because we just stay in the same routines—shopping at the same stores, eating at the same places, using the same services. And sometimes, especially if we don’t keep good records of how we spend our money, we may not even realize how much money we are wasting.

In this three-part series, we look at ways that money is wasted. While it may not apply to you, there are others in your life such as children or grandchildren that will benefit from these lessons. For those with budgeting discipline, an element of your financial legacy is to teach and train others to live within their means. And, as these disciplines are learned by your beneficiaries, you gain greater comfort that valued purposes will be pursued with distributions.

The Key Takeaways

• Tracking and evaluating how money is spent helps illustrate areas of waste.
• Overspending can drive people into debt and prevent them from having money for things that really matter.
• Reducing wasteful spending helps people to live within their means and provide more money for things that are most important.

Major Spending Areas … And Actions to Consider

1. Housing. Living close to where one works definitely can save time and money on a commute, but moving to a neighborhood that is just a little farther out can save a bundle. If someone is retired or works from home, moving to a less expensive part of the country is an attractive option. 
2. Interest. Credit cards, student loans, car loans, home mortgage, home equity line of credit, other consumer loans—any time money is borrowed, interest payments accumulate. The most expensive of all is credit card debt. By renegotiating interest rates, not only are monthly payments reduced but considerable amounts of accumulated interest are also saved. Of course, great care needs to be taken when considering buying anything via debt.
3. Transportation. Car payments, insurance, gas, maintenance and repairs are necessary expenses, but there may be ways to economize. Some people can work from home one or two days a week. Since a new car depreciates the minute it is driven off the lot, buying a previously owned car can save thousands.

What You Need to Know: 

Eliminating wasteful spending is especially important for people who need to watch their expenses—retirees who may be on a fixed budget, those who have been laid off or are working part time, young families, and college graduates who are trying to start a career while repaying student loans. But even if plenty of money is at hand for living expenses, being a careful consumer helps money go further and adds important lessons to be passed to loved ones as a component of a financial legacy.

Other Actions to Consider

• Evaluate housing, interest and transportation expenses.
• Determine how much to spend in these high-cost areas and how much can be cut.
• Check out different neighborhoods and transportation options and see how much money can be saved.
• Call lenders and their competitors to see if better interest rates can be negotiated.
• Pay off debt as soon as possible. 

Contact Bobby Sawyer at (704) 266.0727 or rsawyer@sawyer-law.com with any questions or issues, or if you would like to discuss some strategies for addressing this topic.

Five Things You Need to Know About the Recently Enacted ABLE Act

On December 19, 2014, President Obama signed the Achieving a Better Life Experience Act (ABLE
Act) into law.  The ABLE Act will allow certain individuals with disabilities to establish tax-free savings accounts that can be used to cover expenses not otherwise covered by government sponsored programs. These accounts can be a great alternative or supplement to special needs or supplemental needs trusts.

Here are five important things you need to know about the ABLE Act.

1. What is an ABLE account?  An ABLE account is similar to a 529 education savings account that helps families save for college.  It is a tax-free, state-based private savings account that can be used to pay for the care of people with disabilities.  Although income earned in the account will not be taxed, contributions to the account will not be tax deductible.

2. Who is eligible for an ABLE account?  Eligibility will be limited to individuals with significant disabilities with an age of onset of disability before turning 26 years of age. If an individual meets these criteria and is also receiving benefits under SSI and/or SSDI, they are automatically eligible to establish an ABLE account.  If the individual is not a recipient of SSI and/or SSDI but still meets the age of onset disability requirement, they will still be eligible to open an ABLE account if the SSI criteria regarding significant functional limitations are met.  In addition, the disabled individual may be over the age of 26 and establish an account if the individual has documentation of their disability that shows the age of onset occurred before the age of 26.

3. What are the limits for contributions to an ABLE account?  Each individual state will determine the total limit that can be contributed to an ABLE account over time.  Although we’ll need to wait for regulations to know the exact amount that can be contributed, the Act states that any individual can make annual contributions to an ABLE account up to the gift tax exemption limit (which is $14,000 in 2015).  If the disabled individual is receiving SSI and Medicaid, the first $100,000 held in an ABLE account will be exempted from the SSI $2,000 individual resource limit.  If an ABLE account exceeds $100,000, the account beneficiary will be suspended from eligibility for SSI benefits but will continue to be eligible for Medicaid.  Upon the death of the account beneficiary, assets remaining in the ABLE account will be reimbursed to any state Medicaid plan that provided assistance from the day the ABLE account was established.

4. What types of expenses can be paid from an ABLE account?  An ABLE account may be used to pay for a “qualified disability expense,” which means any expense related to the beneficiary as a result of living with their disability.  These expenses may include medical and dental care, education, employment training, housing, assistive technology, personal support services, health care expenses, financial management, and administrative services.  

5. When will able accounts be available?  Although the ABLE Act was signed into law in December 2014, regulations will need to be established by the Department of Treasury before states can begin to set up procedures for managing ABLE accounts.  Once these regulations are issued (which is anticipated to occur later in 2015), each state will be responsible for establishing and operating their own ABLE program.

Since the money in an ABLE account can grow tax free and be accessed on a tax-free basis for qualifying expenses, these accounts could be a valuable resource for certain disabled individuals and their families. Although we’re waiting on regulations to be adopted, now is the time to begin thinking about whether an ABLE account is a good fit for your family’s circumstances. Please contact us today to learn more about ABLE accounts and disability planning.

Contact Bobby Sawyer at (704) 266.0727 or rsawyer@sawyer-law.com with any questions or issues, or if you would like to discuss some strategies for addressing this topic.

Budgeting, Part 3 - Instilling Money Values in Children and Grandchildren

Money values can be a guiding light that is a component of your legacy. If communicated frequently and purposefully, these values can be an important reference for your loved ones as they learn to handle money.

The Key Takeaways

• Having regular family discussions about household finances, shared money goals and general money concepts will, over time, communicate your values to your children and help them learn to be financially responsible adults. These discussions can also bring family members closer.
• Even young children can learn about setting spending priorities, working within a budget, saving for a larger purchase, and giving to others.

Family Meetings About Money

Money discussions can start when children are as young as ten years old. While there is no need to go into detail about income and specific expenses, you can explain that there is only a certain amount of money and everyone needs to be careful with how it is spent. You can talk about your budget in general terms and let them know that some things, like housing and food, are at the top of your priority list. You could let the family decide how to spend the monthly entertainment budget or which charity (or even a friend) should benefit from your giving budget. You can discuss where to go on a family vacation and how everyone could help save money for it. And, by your example, you can illustrate the importance of saving.

As your children mature, you can start to teach them money management principles—how to balance a checkbook; how credit cards work; how companies make money; how simple and compound interest works; how to make and follow a budget.

What You Need to Know

Parents often don’t want their children to know how much or how little money they have. But kids spend time in other kids’ homes, and they are quick to pick up on the differences. How you earn your money—and how you prioritize spending, saving and giving—says a lot about your values. Talking about this with your children and including them in the process will help them learn your values and guide them as they mature.

Actions to Consider

• Create a plan to purchase an item for your family, like a new TV or camping equipment. Include your children as you shop and compare prices in stores or online. Figure out how much your family would need to save each month to reach your goal, and encourage everyone to find ways to save. This will show your children how to plan to make large purchases without going into debt.
• Give your children allowances so they can learn to handle their own money. Some families give each child a small allowance just for being part of the family, with opportunities to perform household chores to earn more. You could give teenagers their clothing allowance for each school semester and let them make their own purchases. However, resist the temptation to bail them out if they overspend and run short of funds—you want them to learn responsibility and make smarter purchases next time.
• Have monthly family meetings. The regular frequency lets everyone feel they are truly involved with the family finances, gives them opportunities to ask questions, and lets them see progress and make adjustments in spending.
• If you see your finances are going to suffer (for example, if you are laid off or incur unexpected medical expenses), let your family know right away so they will all understand the situation. They may even have some creative ways to help cut expenses or increase income. 

Find Part 1 in this series here, and part 2 here.

Contact Bobby Sawyer at (704) 266.0727 or rsawyer@sawyer-law.com with any questions or issues, or if you would like to discuss some strategies for budgeting.

Budgeting, Part 2 - A Fulfilling Method for Setting Spending Priorities

Setting spending priorities will allow you to process your income in a rational way, while giving you the satisfaction that your wealth objectives are on their way to fulfillment.

The Key Takeaways

How you spend your money shows what you value in life.

• Setting spending priorities will help you align your spending with your values, resulting in a much more fulfilling life—financially, emotionally and spiritually.

How to Set Spending Priorities

Determine what is most important to you. Envision how you would like to see yourself living life. What kind of example do you want to be for your children? You may want to have enough money for retirement so you won’t be a burden to your children. Paying for your kids’ college may be a priority for you. You may want to pay off your mortgage, or pay off credit cards and live debt-free. Tithing may be important to you. Maybe you want to travel.

Next, look at how you are currently spending your money. Look for areas you currently spend money on that are not as important as your desires. Could you stop eating out as much and pay an extra $100 a month on your mortgage? Could you drive your current car a few years longer and apply the amount of a new car payment toward paying off credit card debt?

Now you are ready to work on a budget. Reallocate your income in ways that meet your priorities and values. What may have seemed impossible may actually be within reach, once you have your priorities and spending in synch.

What You Need to Know

If your income is reduced or your expenses increase (due to loss of a job, illness or medical emergency), set new spending priorities right away. Discretionary spending will probably have to be reduced in order to meet necessary expenses. Some necessary expenses may even need to be reduced, for example by moving to less expensive housing or temporarily sharing a car. Cutting expenses to match your income instead of running up credit card debt will be much more rewarding in the long run. Being frank with your family will help them understand the situation and give them opportunities to help save money and/or increase income.

Actions to Consider

• If you don’t know what you are currently spending, go back through credit card statements and checkbook registers and tally your spending by category. Using a computer accounting program like Quicken will make it easier to track expenses.
• Separate necessary expenses (like rent or mortgage, insurance, groceries, utilities) from discretionary expenses (clothing, dining out, entertainment, personal care, etc.).
• Annual expenses (like insurance or property taxes) should be broken down into monthly amounts and those amounts set aside into a separate account so the money will be available when needed.
• Look around your home and in your closets. How much do you think you have spent on clothing and furnishings? How much of that was unnecessarily spent? Could you do better in the future?
• Spouses need to talk openly about spending priorities; some compromises may need to be made, but sharing the same values, priorities and goals will help alleviate tensions about finances. 

Find Part 1 in this series here.

Bobby Sawyer at (704) 266.0727 or rsawyer@sawyer-law.com with any questions or issues, or if you would like to discuss some strategies for budgeting.

Budgeting, Part 1 - Budgeting is a Friend, Not a Foe

Budgets do control spending behavior. However, budgets also allocate resources to the areas of highest impact or interest. When a budget is structured based on priorities and values, much of the controlling element is removed.

Using budgets at work is understood and expected. A company has a limited amount of money and so must allocate that money based on priorities—by budgeting. But often the discipline workers use at work does not carry over at home. The result is often overspending, debt, arguments between spouses/partners, loss of control, and unrealized dreams and goals.

The Key Takeaways

• Using a budget helps to allocate limited resources to the areas that matter the most.
• The same discipline used to follow budgets at work can be used for budgets at home.

Making a Budget Your Friend

Creating and staying on budget can empower you and help you feel in control of your earnings, your spending and your future. When you and your spouse/partner are in agreement about spending priorities and have shared goals, your relationship is likely to be more harmonious and less stressful.

What You Need to Know

You probably already have the skills needed to set and follow a budget. Use your common sense to create a budget that helps you. 

Actions to Consider

• Draw upon your work experience with budgets.
• Determine spending priorities with your spouse or partner.
• Include dreams or goals to save toward together.
• Include fun in your budget. Everyone needs some fun, even if your budget is tight. Having separate fun money for each spouse/partner (with no questions or accountability) provides a little freedom and independence for both of you.
• Look for ways to reign in impulse spending and unnecessary expenses to fund your spending priorities.
• Don’t spend more than you bring in. If you cannot cut your budget enough to live within your means, think of ways to earn extra money.
• Start saving. Even small amounts saved consistently will grow into larger amounts.
• Review your budget and finances periodically to see how you are doing. Seeing progress toward your goals will make  you proud of your accomplishment!
• Reward yourself for staying on or under budget. Think of inexpensive or free ways to celebrate.

Bobby Sawyer at (704) 266.0727 or rsawyer@sawyer-law.com with any questions or issues, or if you would like to discuss some strategies for budgeting.