Holiday Spending: Make a Financial Plan and Avoid Going into Debt

With fall in full swing, it’s the perfect time to start drafting a financial game plan for the holidays in order to avoid overspending, plunging into debt, and piling stress on top of an already stressful season. Here’s how you can hatch a holiday plan for this year and start saving for next year.

Create a Holiday Budget

You’ll first need a solid understanding of your financial situation. How much do you have in savings, and how much of that can be allocated to holiday spending? Or maybe you don’t have enough in savings, or you don’t want to dip into savings, preferring to rely on your discretionary income after monthly bills have been paid? Once you have a full picture, create a budget that works with your current financial circumstances.

It also helps to be mindful of optional spending over the next couple of months. For example, cut back on dining out and retail therapy. You could even cancel some monthly subscription services until after the holidays.

Next, using your budget as a guide, make a list of the items that you’d like to get for everyone on your list along with a set price point for each item. This might take a little research, but having a specific gift in mind and knowing the average market price will help to avoid making impulse purchases. This will also help to cut through the noise of holiday ads and promotions and hone in on sales and discounts for only the items on your list.

Don’t Lose Sight of Additional Holiday Spending

Keep in mind that gifts aren’t the only expense that will cut into your budget. Plan to be frugal with holiday meal shopping, including extra treats and baked goods. Don’t purchase something simply for the sake of tradition and try instead to tailor your holiday meal planning around the actual likes of the people who will be attending your get-togethers. This cuts back on both food waste and money waste. Other often overlooked expenses include gift wrap, holiday cards, mailing costs, and travel expenses.

Make a Plan for Next Year

To make a plan for next holiday season, start by tracking your spending during this holiday season to get a blueprint for average expenses. Then, decide on which strategies you’ll employ for next year’s savings. Here are a few suggestions:

  • Open a holiday savings account. These are typically offered by credit unions, and they are often locked so you can’t access them until the holiday season.
  • Set aside a portion of every paycheck specifically for holiday spending. You can even set up automatic transfers into a separate savings account, building the habit of saving in a “set it and forget it” way.
  • Try the popular 52-week savings challenge. Start by saving $1 the first week of December, then $2 the next week, $3 the following week, and so on. By next holiday season you’ll have nearly $1,400 saved.

With a little foresight and preparation, holiday expenses don’t need to add stress to the festivities of the season.

How to Claim Social Security Survivor Benefits

The Social Security Administration sends survivor benefits to about 6 million Americans every month, directed to widows, widowers, and children who have experienced the loss of someone who has paid into the social security program. Read on to find out who is eligible to receive survivor benefits and how to collect them.

Who is Eligible to Receive Survivor Benefits?

If you were married to your spouse for at least nine months before their death, you are eligible for social security survivor benefits. (The one exception to this length-of-marriage stipulation is if you are caring for a child of the deceased who is under 16 years old). Children of the deceased who are under 18 years old may also receive survivor benefits, as can disabled children under the age of 22. Finally, parents, stepparents, or adoptive parents who are at least age 62 and were dependent upon the deceased could potentially qualify for survivor benefits.

When Can You Begin Social Security Survivor Benefits?

Surviving spouses can begin collecting survivor benefits as early as age 60, but this will result in only about 70% of the amount the survivor could get if they wait until their survivor full retirement age, which is 66 for people born between 1945-1956 and gradually increases to age 67 for those born in 1962 or later. There are some exceptions to this as well: if you are disabled, you may begin collecting survivor benefits at age 50; any surviving spouse can collect a one-time death benefit payment of $255 at any age; and as noted above, survivors who are caring for a child of the deceased who is under age 16 can collect at any age.

How to Claim Social Security Widow and Widower Benefits

First, the death needs to be reported, which is a task that most funeral homes include as part of their service as long as the social security number of the deceased is provided. Documents needed to apply for Social Security survivor benefits include:

  • Proof of death for the deceased in the form of a death certificate
  • Social Security number of the deceased
  • Social Security numbers of the survivor and any dependent children
  • Your birth certificate
  • Your marriage certificate
  • Most current W-2 forms of the deceased
  • Bank information for direct deposit

Once everything is submitted, you’ll be notified of your eligibility to receive survivor benefits.

How Much Will You Receive?

The amount you receive is determined by the deceased’s earnings and whether or not the deceased was collecting benefits (either full or reduced) at the time of death. The basic breakdown looks like this:

  • For couples who hadn’t started receiving benefits: it’s recommended for the highest earner of the two to wait until age 70 to begin Social Security benefits. This generates a larger monthly benefit amount that becomes the survivor benefit if and when the first spouse passes away.
  • If both spouses had already started claiming: the higher benefit amount becomes the survivor benefit while the lesser of the two benefit amounts will stop.
  • If the deceased spouse had already begun benefits, but the survivor had not:

The surviving spouse will need to decide when they will claim survivor benefits in a way that is likely to give them more lifetime income.

In addition to whether or not either spouse was already receiving Social Security benefits at the time of death, the actual dollar amount a survivor receives will depend on how much money the deceased spouse paid into Social Security over their lifetime.

How to Maximize a 529 Plan Amidst Increasing College Costs

Enrolling in a 529 plan is the first step toward conscious planning for your child’s college education, but don’t stop there. With college costs rising steadily — over 168 percent over the last 20 years, according to U.S. News — it’s important to maximize the value of your plan to ensure you reach your college savings goals.

First, it’s important to know the specifics of 529 plans. For instance, there are two different types of these state-sponsored plans available:

  • Probably the most well-known, the college savings plan allows your money to be invested in a variety of ways, such as mutual funds and the like, and it will compound interest over time. The account will go up or down in value based on the performance of the investment options.
  • A pre-paid tuition plan allows savers to purchase units on a credit-based system to put toward tuition and fees for campus living, excluding secondary expenses such as room and board. Because prepaid plans allow you to lock in current tuition prices, if budgeting is a priority, this plan might be the best fit. Just be sure to check which colleges and universities participate in the plan because not all do.

Start early

Because 529 plans compound tax-free over time, starting early gives you an advantage. The longer the money is in the account, the more time it has to grow.

Take Advantage of Automatic Contributions

Automatic contributions to 529 plans can commonly be withdrawn from a linked checking or savings account. This makes it easier to stay on track to reach your goal. If financial situations change, account holders can adjust this setting in their account and continue to make contributions when it’s practical.

Be Mindful of Rules and Fees

Like IRAs, you make yourself vulnerable to penalty fees if you withdraw earnings from a 529 plan too soon, like withdrawing funds before the beneficiary’s tuition bill is due, which could incur a 10% penalty fee. Likewise, withdrawing more than allotted for qualifying expenses that year will prompt a fee. Though non-qualifying expenses, like medical bills, will provoke a penalty fee, there are some exceptions to this rule, such as if the beneficiary receives a scholarship or another type of educational assistance.

Both prepaid and college savings plans typically include enrollment and administrative fees when you withdrawal funds, but college savings plans may also add an assessment management fee.

Cut the Middle Man—You

An effective way to use your 529 funds to ensure that you’re not taking out more than your expenses, and thereby causing a tax liability, is to have the plan pay the costs directly to the school with direct payment.

Know How Your State Operates

Individual states make their own rules for 529 plans, so in whichever state you set up your 529 plan, it’s important to understand that state’s benefits, drawbacks, rules, and fees. State income tax deductions will also vary by state.

Withdraw from the Correct Fund

If you have more than one 529 plan, be sure you’re not just randomly withdrawing from any of them, or simply withdrawing from the account with the highest balance. Gauge each plan’s growth potential to determine which one has the best investment growth rate, and tap into those savings to receive the best tax breaks.

Involve Extended Family

Relatives have the ability to contribute to or open a 529 plan to help alleviate the burden for parents and students, and the contributor is eligible to take a deduction as long as it’s offered by that state.

Knowing the ins and outs of a 529 plan can be complex, but the simplest way to maximize your plan is to start early, allowing the funds to accumulate over time.

How to Estimate Retirement Income Needs

Depending on where you are in life, trying to anticipate your financial needs in retirement and determining how exactly to get to that point could feel like a daunting task, or even a task that doesn’t need tackling yet. In fact, according to a study completed by The Alliance for Lifetime Income, only 28% of non-retired Americans have attempted to estimate their retirement income. Not as intimidating as it sounds, read on to learn how to estimate those needs.

Start with Your Current Income

If you’re living within your means and not depending on credit cards to maintain your lifestyle, using your paycheck as a benchmark is a sufficient starting point. This, of course, excludes contributions to a traditional 401(k) account as well as health insurance premiums that are deducted from your gross pay. A common and simple approach, then, is to set your desired annual retirement income at 60% to 90% of your current income. However, it doesn’t take a financial expert to note potential flaws with this approach. What if, for example, you plan to travel extensively during retirement? Planning for 60% to 90% of your current income might not be enough to fulfill your jet setting goals.

Forecast Retirement Expenses

Your annual retirement income should be more than enough to meet your daily living expenses. Keep in mind that the cost of living will increase over time, and insurance and health care could fluctuate. Having said that, some common retirement expenses to estimate include:

  • Food and clothing
  • Housing (mortgage, homeowners insurance, rent, property updates, repairs, etc.)
  • Utilities
  • Transportation (car payments, insurance, maintenance, gas, repairs, public transportation)
  • Insurance (medical, dental, life, etc.)
  • Health care costs not covered by insurance (deductibles, copayments, etc.)
  • Taxes
  • Debts and loans
  • Recreation such as travel, hobbies, and dining out

What to Do with Your Projected Retirement Income Needs?

A standard rule of thumb when talking about estimating retirement income needs is to have 25 times your anticipated annual expenses saved up by the time you retire. This is assuming you’re planning for a 30-year retirement. Theoretically, you could then withdraw 3% to 4% of your nest egg each year.

If you’re lacking additional sources of protected lifetime income, such as pensions or annuities, you may need to tap into savings in order to bridge the gap between social security checks and what you’ll need to live on. You could also buy a simple income annuity to cover part of that funding gap. These payments continue for life, thereby removing some of the guesswork of estimating retirement income needs and providing peace of mind.

The Best Apps and Platforms for Controlling Business Expenses

As a small business owner, the more you can stay organized, improve daily operations, control business expenses, and generally make life as an entrepreneur run a little more smoothly, the more proficient and prolific your business will become. Below are some top-rated apps and programs available to help you manage your business’s financial situation.

Mint

Though it’s intended mainly for individual users, this financial tracking app is effective for businesses too. Aside from tracking bills and cash flow, Mint also has Quicken MyBusiness, a tool for small businesses that helps categorize expenses, and gives you up-front information for tax filing.

QuickBooks

With the ability to connect to your bank account, PayPal, Square, credit cards, and more, you can use QuickBooks to track sales and expenses, view financial statements, pay employees and vendors, track unpaid invoices, maximize tax deductions, and more. With QuickBooks Online, you can access QuickBooks on both iOS and Android phones and tablets.

FreshBooks

For businesses and freelancers alike, cloud-based FreshBooks helps you create personalized invoices, with an option to automatically bill clients for recurring invoices, and generate customizable business reports, such as profit and loss statements. You can also automate tasks like organizing expenses and receipts, tracking your time, and following up with clients.

Wave

Created for businesses with nine or fewer employees, Wave is an accounting software platform that has the ability to track sales and expenses; manage invoices, customer payments, and payroll; scan receipts; and generate accounting reports. With Wave’s free apps for iOS and Android, you can send invoices on the go, and get notified when an invoice is viewed, becomes due, or gets paid. Also available through the platform is a free personal finance software to help small-business owners manage their finances in one place.

Truebill

Once you connect your accounts to the Truebill app, it will generate a report of where your money is going, categorizing and charting subscriptions and expenses. An added bonus with Truebill is a feature that compares your bills and subscriptions to average service levels, and with your initiation, will call providers and negotiate on your behalf.

Xero

Intended for small and mid-sized businesses, this accounting app (accessible by both desktop and mobile platforms) can handle payments and expenses, asset management, bank account reconciliation, invoicing and purchase orders, sales tax calculations, and multi-currency accounting.

PlanGuru

If you’re looking for a forecasting program to help with strategic planning and analysis, PlanGuru might be a good fit. It’s pricey, with business plans starting at $99 per month, but with an analytics dashboard, Excel add-on, a budget and forecasting platform, and training, it might be worth the cost to keep business spending in check.

Expensify

This simple expense tracker uses multiple platforms to keep tabs on expenses and mileage by reading and importing expenses from linked bank accounts and credit cards. And with the ability to scan and upload receipts, expenses can easily be submitted to employers.

InDinero

This bookkeeping service halts the need to invest in big bookkeepers and implements tax services for small businesses. It also helps with forecasting by syncing with bank accounts and credit cards to predict future cash flow determined by current trends and previous expenses.

How to Avoid Paying Capital Gains Tax When You Sell Your Home

Before 1997, once a homeowner reached the age of 55, they had the one-time option of excluding up to $125,000 of gain on the sale of their primary residence. Today any homeowner, regardless of age, has the option to exclude up to $250,000 of gain ($500,000 for married couples filing jointly) on the sale of a home.

What Is Capital Gains Tax?

When you sell property for more than you originally paid, it’s called a capital gain. You need to report your gain to the IRS, which will then tax the gain. Home sales can be excluded from this tax as long as the seller meets the criteria.

Who Qualifies for Capital Gains Tax Exemption?

In order to qualify a seller must meet the minimum IRS criteria:

  • You’ve owned the home for at least two years.
  • You’ve lived in the home as your primary residence for at least two years.
  • You haven’t exempted the gains on another home sale in the last two years.

How to Calculate Gains and Losses

By keeping records of the original purchase price, closing costs, and improvements put into the home (you’ll need to present records and receipts when submitting your taxes), you can avoid being taxed on a significant amount of the profit you make when selling your property.

If, for example, you buy your home for $150,000 and put $20,000 into qualifying upgrades, your cost basis would be $170,000. If you sell the home ten years later for $300,000, the ‘gain’ on your house would be $130,000 (sale price – cost basis), which would have no tax implications because you’d have met the required criteria.

What If You Have More than $250k ($500k for married couples) of Gains?

You’ll be taxed for the amount of gains above $250,000 or $500,000 for married couples filing jointly. To help reduce this amount, keep detailed records of any improvements you put into the home as some improvements can be added to your cost basis, and will thus lessen the amount that needs to be reported.