Budgeting

Your credit score impacts everything from how much money you can borrow, to what interest rate you’ll pay, to whether or not your application for a home or apartment rental will be accepted. Without proactive steps, your credit score can easily fall into a range where it makes it hard to succeed financially. If your credit score is less than ideal, here are some ways to raise it.

Check For Misinformation

Negative entries on your credit report prevent your credit score from going higher to a certain degree. Negative entries include things like late credit card payments, vehicle repossessions, late rent payments, bankruptcies and collections reports. Getting rid of them can instantly raise your credit score by a few points.
Credit reporting agencies won’t delete negative entries that are accurate. But they will delete them if there is wrong information. The good thing for you is that the wrong information can be anything from serious inaccuracies to innocuous incorrect addresses.

Pore over the negative entries on your credit report and look for misinformation. Check the accuracy of noted address and telephone numbers, dates and currency amounts. If you see something that’s wrong, even something small, you might be able to have it removed from your credit report. Any removal of negative entries will raise your credit score.

Every credit reporting agency has their own negative entry removal process, but in general, you will submit your report of the negative entry, along with the reason and any backup information you have to support your reason. The credit company (your credit card company, car loan loan company, etc.) has 30 days to dispute your claim. If they can’t prove that the negative entry is indeed correct, it will automatically come off your credit report.

Pay Off Credit Cards

Your credit score is calculated in part from your debt-to-income-ratio. Any reduction in your debt will result in a few points being added to your score. Therefore, if you pay down one or more debts, such as credit cards, your score will go up. You don’t even have to pay off the entire balance to see an increase in your credit score. But the more you pay down, the more points you’ll be rewarded. Remember, your credit score is constantly being recalculated based on current information. So once you pay down a credit card, don’t rack up charges on it again. Pay it down and keep it down in order to achieve the highest credit score possible.

Ask For a Credit Line Increase

Leveraging the same debt-to-income-ratio calculation, you can get a few points added to your credit score by getting a credit line increase on your credit card. Even if your debt balance remains the same, a credit line increase will raise your score because your debt-to-income-ratio will go down. Keep in mind that if you immediately charge against that new credit line increase, your score will not go up.

Pay on Time, Every Time

Your credit score is also partially calculated by your history of on-time payments. You can’t go back in time, but you can ensure that future payments are received on time, every time. While this may be a no-brainer, there are pitfalls to be aware of that didn’t exist years ago. First, some credit card companies, primarily those for “bad credit” customers, only accept online payments before 5 p.m. in the designated time zone. So if you go online to make a same day payment after 5 p.m., it may be recorded as a late payment, arriving on the next day. Another pitfall is using online bill payment services like BillPay.com. These companies send out your payment so you don’t have to, but they take extra days to arrive. This makes it very difficult to time your payments so that they arrive by the due date. If you have trouble getting payments in on time, take total control and set up your calendar and reminders and then pay your bills by yourself online, by the day before they are actually due.

Avoid Hard Credit Inquiries

Credit inquiries are notations on your credit report that indicate when a lender has delved into your credit report for the purposes of qualifying you for a loan. There are two kinds of credit inquiries; hard and soft. Soft credit inquiries are those where a lender has not “opened the door,” to your credit history, but they have taken a superficial look at your credit profile. Soft credit inquiries are not noted on your credit report. (Also, your own personal inquiries into your credit report are not noted.)
Hard inquiries are those where a lender is considering you for a loan and reviewing every detail of your credit report. Hard inquiries bring down your credit score by a few points. They indicate that you are searching for money or a line of credit, and hint that you might be having money problems.

Avoid these hard inquiries as much as possible. You may be looking for a car loan or a mortgage; this is fine and understandable. Just bear in mind that hard inquiries from places like credit card companies and personal loan lenders don’t look good on your report, and will bring down your credit score by a few points.

Note that changes to your credit score take time; typically about 30 days. Don’t give up. Taking the steps mentioned above will work. Going forward, the best way to raise and maintain your credit score is to monitor it closely so you can see firsthand how your actions are affecting your score. Consider subscribing to a credit monitoring service where you can see your credit score and report from all three credit reporting agencies. By monitoring credit and being vigilant where your credit is concerned, you’re virtually guaranteed to raise your credit score over time.

If you feel like you’re working as hard as you can and you still aren’t saving money, it’s likely that a household budget will help. Household budgets force you to take a hard look at how much you’re bringing in each month and how much you’re spending. You can use a variety of means to create a household budget, such as budgeting software, spreadsheet software or just a reliable pen and piece of paper. In other words, there are no obstacles to creating a household budget. The obstacles are sticking with it and being able to accept the fact of your own financial limitations when it comes to expenditures. Following are the steps to take to create a household budget, as well as tips for budgeting money.

Determine How Much You’d Like to Save Each Month

The point of budgeting is to save money and control expenditures. So the first step for successful budgeting is to determine how much money you’d like to put by each month. Start with a modest figure. You can always increase it after your budget is finished if you have extra money left over. But it will be hard to trim your budget if your savings figure ends up being overly ambitious.

Add Up Your Income

Add up all the money you’re taking in each month. This part will be easier, since you only have to refer to your bank statements or pay stubs. The trick here is to use your net income, not your gross. For household budgeting, you want to only consider the actual money that you have to spend, not the portion that goes to taxes and/or a retirement account.

Itemize Your Expenses

Write down or enter all your monthly, set expenses. This will include:

• Insurance
• Credit card bills
• Utility bills
• Vehicle payments
• Mortgage/rent payments

Next, list your recurring bills that fluctuate. This includes things like:

• Gasoline
• Groceries
• Medical/prescription
• Clothing
• Entertainment
• Subscriptions

A simple way to do this estimate is to look at the last three months of these expenditures and take an average. This will give you a pretty good idea of what you spend on these items each month. Now, tally up everything, and that basically gives you the amount you spend each month to live.

Allocate Your Income

Next, allocate the correct amount of your income to each category of expenditures. This will be according to how much you spend in each category, such as gasoline, rent, etc. If the figures you came up with for each category are an odd number, round up. It’s better to overestimate expenses than to underestimate them. Add a total line to the bottom so you have an idea of the total amount you spend each month.

Add a Miscellaneous Category

It’s important to add a miscellaneous category to your budget. Nearly every month, unexpected expenses arise that you need to be prepared for. Allocating for this ahead of time will help you stay within your budget constraints.

The difference between your net income and your budgeted expenses can go into your savings account. See how this final calculation compares with how much you want to save each month. You may be able to save more than you thought. If you’re shocked at how little you can put into savings, consider the following ideas for managing money in your household.

Tips For Managing a Household Budget

Each month, you should adhere to your household budget as much as you can. Here are some tips to save even more.

Save on Groceries

Food prices continue to rise and consumers have to be even more savvy in order to get by. Ideas for making your grocery allocation go further include:

Buy in bulk and freeze smaller portions. Bulk food prices are always less per pound. Invest in good freezer paper and buy the largest packages you can buy. At home, split into individual portions and freeze.

Skip the coupons and buy store brands. Store coupons are good, but it’s usually cheaper to just buy store brands. Often, brand name ingredients are simply relabeled as store brands, but it’s the same product on the inside.

Skip processed foods. Processed foods are more expensive than making things at home. Learn how to mix spices from your pantry to make your own poultry seasonings. If you “can’t” cook, buy yourself the most basic cookbook and just follow the instructions. You’ll save a lot of money just by cooking meals from scratch.

Save on Clothing

It’s cheaper to take good care of the clothing you already have than to buy new clothes each month. Ideas for this include:

• Avoid spills on clothing by eating at table for all meals
• Treat stains immediately so they don’t “set”
• Repair clothing instead of getting rid of it.
• Hang up clothes instead of tossing over chair
• Designate “work” clothing and only wear these pieces at work.

Save on Home Entertainment

The cost of home entertainment has gone up over the years. But there are ways to minimize the costs. Consider these ideas:
Cut the cable cord and stream instead. Cable is almost unnecessary now. You can stream free movies and shows with a smart TV, as long as you don’t mind a few commercials.
Consider Amazon Prime. With Prime, you get some free music streaming as well as some quality shows and movies with a smart TV. Even though the cost of Prime has recently increased, the extra cost can be saved by reducing the cost of cable services. Not to mention that you get free online shipping and access to some of the lowest prices available.

Creating a household budget offers a sense of well-being because you will have more control and knowledge over your money and where it goes. For more help with controlling your money and taxes, book an appointment with a CPA. Your CPA has extensive experience with helping people to ensure that they stay within their budget.

To succeed in business, small business owners must keep a close eye on expenses. Poor expense management can destroy your profit on a project or business venture. A component of expense management is expense tracking.

If you’re not keeping track of your expenses, it’s easy to go over budget. Even if you’re still making a profit and don’t think you need to pay close attention to them, if you don’t have good records you won’t be able to take all your allowable deductions on your taxes.

How important is it to Track Business Expenses?

Without detailed, monthly information on your business’ performance, it’s easy to be running at a loss for several months and not even be aware. Cash flows which don’t align, such as customers pay deposits or large sums before you incur expenses on those projects, can mask your businesses true financial health.

Tracking your expenses also helps you know if you’re on track with your financial goals. Did you want to increase your net income by 10% this year? Without detailed bookkeeping records, you may not know if you need to up your marketing efforts to hit that target.

Lastly, without strong expense tracking and excellent documentation, you won’t be able to deduct all your business expenses. If you have reconciled your bank accounts and kept receipts, as well as properly categorized your costs, it’ll be easy to hand your records over to your accountant and maximize your deductions. If everything is still in a shoebox under your desk, you’ll spend valuable time inputting data, tracking down support, and probably miss out on some deductions.

Not all receipts contain detailed information, and you might forget why you had a business meal back in June. Note that if you can clearly tie an expense to the revenue it generated you increase the odds that the IRS will let you deduct it. Spending just an hour a month making sure your expense entry is current will save you many headaches during tax seasons.

Which Types of Expenses are Deductible?

Not every business expense is 100% deductible, which is part of why accurate expense categorization is so important. Deductible expenses those that come out of your income before you pay taxes. The IRS provides some guidance on what is and isn’t allowable, but has said that deductible expenses should be helpful, appropriate, and reasonable for a business.

Standard expenses which have been acceptable in the past include; administrative expenses, auto expenses, employee benefits, and business-related travel and entertainment. These are current and can be deducted in the year they’re incurred. Other noncurrent expenses, such as depreciation on fixed assets, can only be deducted over time.

While most expenses are 100% deductible, travel and entertainment is only 50% deductible. This is because a portion of this expense is viewed as personal.  As well, the IRS seeks to prevent small business owners from abusing this deduction.

Why does Expense Categorization Matter?

Project-based businesses can’t judge a project’s net profit if they haven’t appropriately categorized related expenses. If you pass some expenses along to the client, you might not be able to if they’ve been filed or identified incorrectly in your accounting system. And miscategorized costs could impact your tax deductions.

When entering an expense into your accounting system, you should make sure that the individual responsible categorizes it correctly. It will help gauge your business’s profitability, or show you were you need to trim costs or find another vendor. Putting an expense in the wrong bucket could mean you might not get to deduct all of it, or the IRS throws it out.

And some expenses shouldn’t be expensed altogether.

Capitalizing vs. Expensing a Business Cost

A cost which is expensed goes to the Income Statement and is deducted from your revenue in the year it’s incurred. A capitalized cost goes towards capital expenditures on the Balance Sheet, and only its depreciation hits the Income Statement. How a business chooses to treat an expense can reduce or raise net income, and thus, the taxes they pay.

There are no mandatory IRS rules that address when to capitalize versus when to expense; however, you could be asked to justify your reasoning in an audit. Most businesses make this decision based on whether or not the asset purchased with the cost incurred produces future benefits. If there is no future benefit to the asset, it’s booked as an expense. If it has an ongoing, future benefit to the company, it’s capitalized.

Typically capitalized expenses could be the costs incurred to purchase a large piece of machinery, or a new building. An intangible asset, such as a copyright or trademark, would also qualify for capitalization. A restaurant meal with a client would count as an expense.

If you have any questions about whether or not to capitalize or expense a cost, talk to your accountant. Once a decision to capitalize and only book depreciation through the Income Statement has been made, it can’t be reversed at a later date.

What Documentation does a Small Business Owner Need to Keep?

While the rest of the world has gone digital, the IRS still prefers paper. Supporting documents that they consider acceptable include;

• Paid bills
• Sales slips
• Invoices
• Receipts
• Canceled checks
• Credit card statements
• Petty cash slips

The IRS stresses that you must keep these documents to support the entries on your books. In general, you should keep all documentation for a minimum of three years.

You might not be required to produce receipts for expenses less than $75, but since the IRS can require you to provide a receipt for any expense it’s still a good idea to keep it if you have one. When asking them to uphold a deduction under $75 without a receipt, you must be able to tell them the amount, where and when you incurred the expense, and its purpose.

What about Electronic Recordkeeping?

While you can keep electronic records, the IRS holds them to the same standards as physical recordkeeping.

Apps from accounting software companies such as QuickBooks and FreshBooks allow you to snap a photo of the receipt, upload it into your records, and associate it with a transaction when it passes through your accounts.

If you run a large, complex business, you might want to buy a dedicated document scanner into which your administrative assistant can scan your records. Or you can use a cloud storage site such as Dropbox or Google Drive to scan and store information.

The Final Word on Expense Tracking

Whatever you do, put in place a system for expense tracking and periodically check that it’s working correctly. Having policies and procedures in place will protect your business from accusations of impropriety in an audit, save you time and money on your tax preparation, and help you run a better organization.

In practice, the sharing economy is nothing new. It’s been around for a thousand years, in fact. Societies have always shared the use of assets.

But then the internet came along, and following close behind was Big Data.

These technologies have revolutionized the way asset owners can find each other to share resources in mutually beneficial agreements. In this modern digital context, this new dynamic is known as the shareconomy, collaborative economy, peer economy, collaborative consumption, and probably a dozen other terms that creative thinkers have dreamed up for it.

As Investopedia notes, sharing economies allow individuals and groups to make money from underused assets. In this way, physical assets are shared as services. Take for instance car sharing services like Lyft and Uber. According to data provided by the Brookings Institute, private vehicles go unused for 95% of their lifetime. The same report detailed Airbnb’s cost advantage over the hotel space as homeowners make use of spare bedrooms. Airbnb rates were reported to be between 30-60% cheaper than hotel rates around the world.

As Melissa Thompson observes in Small Biz Trends, running a small business has plenty of side-benefits. As she writes:

“A huge budget usually isn’t one of [the perks], so small businesses have to continually look for ways to stretch a dollar and make the most out of the operating budgets they do have. Finding ways to save on expenses while increasing profits is necessary to stay afloat. One way for small businesses to save on costs associated with running a business is to utilize today’s economy of sharing. With the nation’s workplaces being filled with Millennials, companies are changing the way they do business. Instead of larger corporations keeping their cubicles filled with life-long, dedicated employees, companies are now hiring employees who are more caring, sharing, and have a lower level of commitment than their older peers in the business world. For smaller businesses with fewer employees, this millennial mindset and the sharing economy, sometimes called ‘collaborative consumption,’ can save money on operating expenses and raise profits if done correctly.”

Joey Tyson of In Motion Ventures notes that for decades, owning a car was the sign of personal status. As he puts it, “it was as much a statement of social mobility as an indicator of financial stability.” It’s not like that anymore. For those in urban areas especially, it’s all about efficient, cheap travel that gets you from A to B as quickly as possible. It no longer matters how. As Tyson says:

"Any transport system – whether it be the rural buses that connect the villages of West Yorkshire or the underground trains that make London’s boroughs just minutes apart – has to achieve one simple goal in order to be considered successful: it must meet the needs of the many. With the global population growing at a rapid pace – the number of people living in London has increased by 12% since 2001; a recent census for New York found that the city is well on course to meet its 2020 population projection; and the World Economic Forum states that Shanghai welcomes 51 new citizens every hour – the transport infrastructure of cities and the way people travel within them has evolved."

This is just one example among many. Here are four ways that small businesses can benefit from the sharing economy:

1. Renting Unused Assets
2. Sharing Office Space with Freelancers and Entrepreneurs
3. Marketing Products and Services to a Wider Audience
4. Borrowing Money for Business Growth

In conclusion, it seems fair to say that the “Sharing Economy” offers a great deal of opportunity for those not yet taking advantage of it.

While recently assisting a friend who is researching assisted living options for a loved one, I was surprised to come across so much information available online discussing the option of retiring to live on a commercial cruise ship. I think just about everyone is familiar with the option of living in an assisted living home (i.e. retirement home or skilled nursing facility). But to see how popular this cruise ship option is--to take up permanent quarters on a cruise ship among so many retirees--came as a big surprise. The idea that a cruise is limited to short-term vacations just does not seem to be the case anymore.

Prior to doing any research, the first challenging reality (or so I thought it was challenging) that I expected to come along with living on a cruise ship was the cost. I based this supposition on the prices advertised on the Internet and on TV advertisements with high-end cruise lines for 7-day and 14-day trips--short-term cruises to expensive locations. Little did I know, but soon discovered, that a life at sea could cost significantly less than a typical retirement community.

Another drawback I thought there would be is that of feeling “confined” and lonely within the borders of the ship. But this, to my surprise, is not necessarily the case either.

As published by US News, the following six reasons to consider retirement on a cruise ship are an eye-opener for anyone giving serious thought to full-time retirement in this kind of setting:

• Socialization

  For all the folks on a cruise, there is a large amount of socialization and camaraderie with your fellow guests and the cruise staff. You’ll also associate with a bit more of a diverse age group on a cruise ship than you would at a retirement community.

• 
  

  Travel

  While a retirement community may have some local outings, the primary advantage of a cruise ship is retirees get to travel to nearly anywhere in the world they want to go.

• 
  

  Entertainment

  A cruise has a well-planned itinerary and hosts many events on the ship to entertain the guests.

• 
  

  Food

  You don’t have to shop or prepare meals while on board. There is a large diversity of dining options availability on the ship.

• 
  

  Service

  Typical cruise staff and cruise lines pride themselves for their reputation of giving extra attention to all passengers. Retirees will benefit from the extra attention that the cruise staff is willing to make to ensure they are enjoying their trip.

• 
  

  Price

  According to CNBC, a reservation on Princess Cruises, averages $135 per day with long-term and senior discounts, not including medical care or excursions, said Geraldine Ree, a senior vice president of Expedia Cruise Ship Centers, a travel agency specializing in cruises. On the other hand, it costs about $229 daily for a private room in a nursing home and $3,293 per month for a one-bedroom in an assisted living facility, according to LongtermCare.Gov. Independent living or retirement communities range from $1,500 to $3,500 a month, according to HelpGuide.org.

A study published in the Journal of the American Geriatrics Society found that when considered over a 20-year span, "cruises were comparably priced to assisted living centers and offered a better quality of life, "though land-based assisted living can vary greatly by facility, location and needs."

In conclusion, while cruising does offer a lot in terms of benefits and features for the retiree(s), it still may not be for everyone. However, cruising could be a compelling retirement alternative for some retirees who do not need significant assistance and love to travel.

The purpose of this article is to draw attention to the basics of constructing and using a financial budget.

A budget is a tool that is intended to provide management with a control mechanism for monitoring the organization’s performance. The organization’s performance is evaluated on the basis of financial inflows (income) and financial outflows (expenditures).

Budgets are financial plans. These plans are based on key future assumptions concerning the “drivers” that will determine whether the particular organization will be successful. For example, one could argue that a key assumption within their budget, or financial plan, would be a certain level of sales activity (i.e. units sold) because units sold is a driver that affects sales revenue. And everyone would agree that an organization would need to realize a certain level of sales revenue to be successful.

Budgets are comprised of a set of “targets.” These targets can be both financial as well as non-financial in nature. Typically, financial targets would be, for example, any of the elements appearing in the organization’s financial statements. The payoff from tracking financial targets in a financial statement format and order is simple: it facilitates matching target performance with actual performance. This, in turn, generates variances that need to be identified and reconciled. Management should then evaluate the impact of various operational courses of action (including non-financial courses of actions) when constructing and modifying their budget.

The budgeting process is not intended to operate in a vacuum. The budget is intended, however, to be something that communicates to management key information that forms the basis for decision making. Budgets are in no way intended to be fixed in stone, so to speak. The budgeting function should include an ongoing, frequent budget review process. The review process is intended to ensure your company has an effective, adaptable budget that reflects moving variables within the company and its industry.

If a proposed course of action has been anticipated in the budget, then managers will feel confident in making a decision to go ahead. But if a proposed course of action has not been costed in the budget, then managers will understand that going ahead with the action will entail financial risk.

Note the following principles of budgeting, as noted by LeoIsaac.com, which have been suggested as rudimentary to the budgeting process. Failure to engage in such fundamental, sound budgeting processes would rank as one of the main reasons why companies and organizations fail:

• Be conservative in your estimates, not overly optimistic.

  Try to build in a safety factor by tending to underestimate your income and overestimate your expenses. There will always be unexpected events; therefore, a common strategy in developing a budget is to insert an additional expense called "contingencies." This creates padding to protect you from the unexpected.

• Engage In Teamwork

  Skillful delegation is crucial for healthy financial management. The task of budgeting should be split and allocated among those individuals who have the best chance of knowing what expenditure is likely to be needed and what income is reasonable to expect.

• Time and Patience

  Don’t rush it. A good budget may be worked on for several weeks, if not months, adding and changing figures as new information comes to light. In other words, do not be afraid to take lengthy periods of time to refine your budget to perfection. Plan ahead for this budget-shaping period to ensure your company gives the process enough time to work properly.

• Documentation

  It is very important that the author(s) of the budget document every step of the budget-shaping process. This means putting their reasoning behind decisions in writing and striving to produce documents that can be read and understood by anyone. This documentation will also serve as valuable references for future budget planning projects.

• Training

  Ensure people who have a significant role in the budgeting process have a reasonable understanding of the principles of budgeting and how it relates to the strategic and operational plans.

• Sign-Off

  Ensure that all persons formally involved in the budgeting process agree to the final iteration of the budget.

Often there is some confusion between what a “business plan” is and what a “budget” is. Many have the misconception that the business plan and the budget are one and the same thing. Nothing could be further from the truth.

On one hand, the business plan is geared toward identifying the goals, objectives, and other elements that go into the organization’s strategic plan. The view of the business plan is strategic, in the sense that an organization’s “strategy” is something that will take multiple years to achieve. The strategic plan typically covers a span of time of greater than one year.

The budget, on the other hand, is typically a tool that has a lifespan of one year. Being “on budget” in the annual sense will hopefully have an additive effect and result in the organization’s overall strategy being achieved. It is the norm, however, that the business plan be reviewed and updated on an annual basis in order to regain control of any operational situation gone bad. Strategic plans, however, are typically not updated as frequently as the budget.

As mentioned earlier in this discussion, budgets are meant to be frequently reviewed and updated. During the budget update process there is a high degree of manipulation of budget assumptions that needs to take place. The use of spreadsheets to create and maintain the company’s budget, for example, is critical.

Excel is widely recognized as the spreadsheet program of choice to use for creating and maintaining budgets. Excel is especially known for its flexibility in the budget creation process and the relative ease with which the program can be used to create reports, detailed worksheets, and summary worksheets.

Perhaps the most widely used budget report is the “actual vs budget variance report” (“variance report”). This four-column report typically presents a column of actual results against a column of planned results (budget) alongside a column with the $ amount variance between actual and budget and lastly a column with the % variance between actual and budget. This report displays variances in a fashion that makes the budget review process easier and more efficient.

In recent history there has been a growing amount of concern over the financial illiteracy of our nation’s high school students. One aspect of the problem is that parents and students both assume they know what financial literacy entails, when in truth they only have part of the picture. College Parent Central makes this pertinent observation about what financial literacy actually means: “Financial literacy involves the ability to read, manage, and communicate about personal finances and to have the skills and knowledge to make competent financial choices about banking, credit, insurance, taxes and investments.”

The concern revolves around how poorly prepared and ill-equipped students are after graduation from high school to manage their finances as adults without getting into trouble. High school students do not operate or live in a vacuum. The impact of the literacy problem is also felt by the student’s family. All too frequently parents are called upon to “bail out” a family member because of financial problems created by a financially illiterate family member. The bail out sometimes, sadly to say, comes at the expense of putting the rest of the family into financial difficulty.

The bottom line is that high school is where constructive habits are supposed to be learned. Many habits learned in high school are positive while others are negative habits. A lack of knowledge as to sound financial management principles, which seems to be endemic, would have to be considered, or classified, as a negative habit.

There has been a fair amount of effort expended to understand specifically where in education the process of learning sound financial management principles has failed and where it could be most effective. Interestingly, it appears that attempts to educate the student about sound financial management principles are more effective when the education process is between the high school student and a family member (i.e. immediate family member or relative acting as “the teacher”), and not when the teacher is a relative stranger (professor at the high school or other professional instructor).

The following are financial topics that high school students should know:

• Bank Accounts: Obtain a basic understanding of checking accounts and savings accounts. Provide instruction on how to use checks and debit cards, as well as how to reconcile bank statements each month.

• Credit Cards: Stress the importance of understanding that credit card spending actually creates a loan. Know the importance of not carrying a balance by paying off credit card debt each month.

• Payroll Taxes: Walk through your student’s paystub to explain Social Security, Medicare, federal tax withholdings, and state tax withholdings.

• Retirement Accounts: Know the availability of long-term savings tools like a Roth IRA. The wise saver can create a self-made millionaire by starting their retirement savings at a young age.

• Spending within your means: Save first then spend. Teaching this habit early gives your child a better chance of creating strong financial habits.

• The art of saving: Part of spending within your means implies that your student has healthy savings habits. Perhaps it is setting up a separate savings account. Perhaps it is putting a set amount away each month.

• Mutual fund and stock understanding: Consider teaching your student some of the basic investment alternatives available to them. Stocks and mutual funds are most common, but also consider explaining bonds, CD’s, annuities and other investment tools.

• Budgeting: Help your student create a basic budget and then help them track their savings and spending against this budget.

• Cash flow: An easy example of this is to show the flow of funds that relate to a car. There are everyday expenses like fuel, there are monthly expenses like a car payment, and there are periodic expenses for car insurance.

Although it takes time and work to educate students about all of these topics, a family member can work out a long-term plan with the student and aim to tackle a few topics per month. If you spread the financial literacy education over a year, you could easily instill a comprehensive mastery of these topics in the child.

And that year might be one of those valuable years in the student’s life, especially as the wisdom begins to bear fruit in their adult years.

Congratulations if you happen to be one of the fortunate taxpayers to receive a tax refund this year! The typical refund averages around $3,000, an amount that isn’t exactly chump change, and you’re probably wondering what you should do with all that money.

We suggest that you take the time to evaluate the recommendations below, and then develop a plan for what you’re going to do with your refund.

Before getting started, it’s worth pointing out that the reason you received a refund in the first place is because you overpaid your taxes to the government during the year. In effect, you made an interest free loan to the government for the amount of the refund. In order to avoid making another loan of this sort in the future you can adjust, or lower, the amount of withholdings taken out of your paycheck every pay day and end up at the end of the year at a more break-even level with what you owe.

This being said, some taxpayers want to have something to look forward to in the form of a refund or forced savings that creates the sense of a bonus to look forward to at the end of the year. The following choices assume that the taxpayer likes the forced savings/quasi-bonus approach and doesn’t care to break-even on their taxes.

• Set up an emergency fund to help get through those rough times when an unexpected emergency situation arises. Establish an emergency fund by depositing all, or a part, of the refund into an interest bearing savings or money market account that permits easy access to your money when the emergency arises.

• Pay off debt. Some experts recommend that after establishing an emergency fund, the next best thing you can do with your tax refund is to reduce or eliminate any high-interest debt that you’re carrying. Put your refund to work by paying down debt that carries interest at a rate that is greater than what you can earn in interest elsewhere. The trade-off between eliminating high interest debt with low interest earning investments is literally a moneymaking proposition.

• Don’t just deposit the refund into a non-interest bearing checking account and let it sit there for “safe keeping.” In this scenario the refund is sitting idle not earning at least some interest. Deposit the refund into an interest bearing savings account or money market account that permits easy access to the funds as needed.

• Loan the funds to friends or family with the expectation that the loan will be repaid. Of course, with all due respect to friends and family, making loans to them is a high-risk proposition. These sorts of loans seem to have a higher risk of not being repaid. If the risk of not being repaid is something you can live with then proceed with making the loan. However, if you are counting on the loan being eventually repaid and you need to have the funds then do not make the loan.

• As noted here, start an individual stock investment account. This is a good way to get very familiar with the stock market and individual stock investing, Start small. Perhaps invest some amount that is less than your total refund. This kind of investing carries substantial risk, but has the potential for substantial reward.

• Start that business you’ve always dreamed about. As Kiplinger notes, with the average rate of $3,000 per refund, it might be possible to cover those start-up costs that will put you over the threshold that needs to be incurred to get that business started. Very successful businesses have been started in garages and home offices for far less of an investment.

• Treat yourself to a vacation. There’s nothing wrong with using your refund to do something really special that you’ve only dreamed about doing. $3,000 can go a long way toward paying for a vacation to some exotic destination, someplace special, without having to go in debt to pay for it. It’s called being good to yourself. Think of it as a vacation paid for by Uncle Sam! But make it really special and do it before you spend your money on unnecessary day-to-day operating expenses, which will always be there.

• Make an extra payment on a student loan. It seems like amounts owed on student loans will never go away. These loans typically carry interest rates that are at the high end of the interest rate spectrum so that making an extra payment is not only a profitable strategy but will help get rid of these loans sooner.  

• Contribute to an IRA. It doesn’t hurt to fund next year’s IRA contribution sooner rather than later so why not do it now and then forget about it next year when tax time is upon us. It’s almost like experiencing the sense of a “free contribution” because the contribution is being funded with a tax refund, even though the refund was from your own money in the first place.

Over the last several years there has been increased popularity and attention given to “leasing” as a financing alternative over the outright purchase alternative when acquiring an automobile.

There’s no question that leasing offers some significant benefits over an outright purchase, otherwise it wouldn’t be so popular. This blog, however, is intended to be a wake-up call for those who don’t fully comprehend some of the negative aspects and consequences of leasing a car instead of purchasing a car outright.

Probably the most obvious benefit of a lease is that the cash out for down payment (or what’s referred to as “what’s due at initial lease signing” in lease jargon) and the monthly payments is significantly less than what the monthly payments and down payment would be when using the purchase-financing alternative.

There’s an explanation for why total cash out under the lease scenario is less than total cash out under the purchase scenario. Under the lease scenario the purchaser (lessee) makes payments to merely “rent” the car -- at no point in time during the lease term does the purchaser take title to the car. The lessee acquires the right to use, not own, the vehicle in return for the monthly payments that he or she makes to the seller. Under the lease scenario the lessee’s payments are just sufficient to “reimburse” the lessor for the car’s depreciation, which is less than what it would take to payoff the amount of “principal.”

On the other hand, under the purchase scenario the buyer pays a higher monthly payment because the payments have to be sufficient to payoff more than just depreciation so that the buyer can take title to the car by the time the last payment is made to the seller.

Does a lease make sense for you? The size of the monthly payments is only one of several factors that need to be weighed when considering taking out a lease. The answer to the question of whether or not an auto lease is right for you is very much dependent on a mix of personal factors.

The following table, which compares the purchase and lease financing choices, is made available by Consumer Reports:

If you think you might want to pursue a car purchase by using lease financing then check out the Wall Street Journal article at How to Lease a Car and Get the Best Deal.

A potential benefit from leasing is what happens when the residual value of the car at the end of the lease is dramatically less than what the market value of the car is worth. In such cases the lessee/buyer can get an outrageously good deal by paying off the residual value and keeping the car.   

Happy trails with your new car!