Permanent Value

Week In Review – 9/19/2016

Bruce Doole
September 19th, 2016

4 Credit Card Rules to Live By

Image result for credit cards

1. Treat your credit card like a debit card
Credit cards, as you probably know, work much differently. Because credit cards aren’t linked to your bank account, you can charge up a storm regardless of how much money you actually have. But that’s why so many people get into trouble with credit cards. A much safer way to use your credit card is to treat it like a debit card and make sure to never charge more than what you can immediately pay for.

2. Don’t be late with payments
Late payments are an easy way to not only rack up additional fees but also damage your credit score in the process. Any payment that’s 90 days or more past due could affect your credit score for up to seven years. And it doesn’t matter whether you’re late on a small payment or a large one — your credit score can suffer either way.

Fortunately, there’s one easy way to avoid late payments. If you set up your bills to get paid automatically, which you can typically do through your credit card company or bank, you’ll avoid falling victim to forgetfulness at the very least. You can also review your recurring bills, like utilities and cable, to see which are eligible for automatic payments.

3. Pay every bill in full
Here’s a little secret: Credit card companies don’t want you to pay your bill in full every month. In fact, they’d rather that you stick to your minimum payments and carry a balance so that they can collect interest charges. When you fail to pay off your credit card in full, you’re basically throwing money away in the form of interest fees, and the longer you carry a balance, the more money you’ll end up wasting for no good reason.

Imagine you make a $1,000 purchase you can’t really afford and that it takes you two years to pay it off. At 14% interest, that $1,000 item will end up costing you $1,152. Remember, your credit card company is allowed to charge you interest not just on the principal amount you owe, but also on the interest you accrue. Worse yet, many credit card companies compound interest on a daily basis, which means that for every day you carry a balance, you’re paying just a bit more for the privilege of having charged whatever it was you bought.

4. Keep your debt-to-credit ratio low
Your debt-to-credit ratio is a measure of how much of your available credit you’re actually using. If you have two credit cards, each with a $2,000 credit limit, and your current balance between both is $800, your debt-to-credit ration is 20%. While you can technically get away with charging enough to max out your total credit limit, doing so can negatively affect your credit score and make you a less appealing borrower in the eyes of lenders. That’s why it’s important to keep your debt-to-credit ratio as low as possible — ideally, below the 30%-mark. Not only will this help preserve your credit score, but it’s also a good practice for keeping your spending in check.

Source: Maurie Backman

THIS WEEK’S ECONOMIC DATA:

  • U.S. consumer prices rose 0.2% in August after being unchanged in July.
  • U.S. producer prices were flat in August, mainly based on lower energy prices.
  • U.S. retail sales fell 0.3% in August, more than expected, although they were up 1.9% from a year ago.
  • U.S. industrial production fell 0.4% in August after rising a revised 0.6% in July.

Source: Ivy Weekly

Week in Review – 09/12/2016

Bruce Doole
September 12th, 2016

5 habits of successful college savers (3/5)

3. They follow the rules

In order to take advantage of the tax-free earnings and tax-free withdrawals offered by a 529 plan, you have to spend the money on qualified higher education expenses. This includes tuition, fees, books supplies and other equipment required for course attendance and enrollment. Currently, computers and other technology purchased for college are not considered qualified unless the school requires them, but a bill (H.R. 529) passed the House earlier this year will change this rule if it becomes a law.

If you end up making a non-qualified purchase, you’ll incur income tax as well as a 10% penalty on the earnings portion of the withdrawal. Your contributions will never be taxed or penalized since they were made with after-tax money. So families who are tempted to take money out of their 529 plan to pay bills or other expenses may want to think twice. In addition to paying taxes and the penalty, they’ll also miss out on compound earnings they would have otherwise received and might not be able to catch up in time to pay for college.

4. They monitor their investments

A 529 plan is an investment account, which means that it’s value will go up or down based on the performance of the investments that make up your portfolio. You can review performance on your plan’s website or in your quarterly statements, or check Savingforcollege.com’s quarterly performance rankings. Another option is to compare the performance of your plan with your retirement fund or other investment. The IRS allows one tax-free plan rollover per in a calendar year, so if you’re plan is underperforming it might be time for a change. However, if you’ve been collecting a state tax benefit and you switch to another state’s plan you might be subject to a costly recapture tax.

If you notice a particular investment option isn’t performing well across the board, or your child is getting closer to college and you want to shift your focus toward more conservative options, you may want to make some changes within your plan. 529 plan owners can change investment options twice during any calendar year.

5. They ask for help

It’s no surprise that many families have a difficult time saving enough to pay for higher education. College is quickly becoming one of the biggest purchases a family will have to make. You can easily pay for a car with one year of private school tuition, and in some cities, four years of tuition would cover the cost of a home. Fortunately, 529 plans make it easy for relatives and loved ones to help contribute. For example, a grandparent can open a 529 plan for a grandchild and collect a state tax deduction on contributions (if their state offers this benefit). The grandparent can also use a 529 plan as an estate-planning vehicle. If they choose to spread a contribution over a five-year period, deposits up to $70,000 per individual will qualify for the annual gift tax exclusion. The assets will be removed be from their estate, but they will retain control of the funds over the life of the account.

It’s also easy for loved ones to contribute to a 529 plan owned by the child or one of their parents. Many offer online and social gifting platforms where you can send a secure electronic payment for a special occasion. The account owner can keep track of the gifts and even send personalized thank you cards. Even a modest gift will compound over time and can have a big impact on a child’s future.

 

Source: Kathryn Flynn

THIS WEEK’S ECONOMIC DATA

  • European Union GDP was up 0.3% versus the first quarter when it expanded at twice that rate, and 1.6% on the year, down just a tick from the January-March quarter.
  • U.S. JOLTS totaled 5.8 million in July from an already solid and upwardly revised 5.6 million in June with the job openings rate up one tenth to 3.9%.
  • Great Britain Industrial Production unexpectedly rose in July, albeit by just 0.1%, and now shows annual growth of 2.1%, up from 1.4% in June 

Source: Ivy Weekly

 

 

Week in Review – 09/06/2016

Bruce Doole
September 6th, 2016

5 habits of successful college savers (2/5)

Americans collectively owe more than $1.2 trillion in student loan debt. What’s more, according to data recently released by the Department of Education’s College Scorecard, many students with college degrees are earning less money per year than those with only a high school diploma, making it almost impossible to pay off their loans. So how can families prevent their children from making the wrong choices that can lead to excessive debt? Save for college in a 529 plan, of course! With tax-free earnings and tax-free withdrawals on qualified higher education expenses, for most families using a 529 plan is a no-brainer. But if you want to really maximize your savings potential there’s more to it than blindly socking money away.

1.They save regularly

Most 529 plans offer automatic investment plans that link to your bank account, allowing you to “set and forget” regular monthly contributions. This method of paying yourself first has been proven to lead to disciplined savings and, in most cases, investment success. They key is to begin by contributing as much as you can afford each month, even if it’s only a mere $25, and slowly increase the amount over time as your situation changes.

529 plans are professionally managed accounts, which means an experienced asset manager has designed the investment portfolio with specific goals in mind – so you don’t have to. You simply select an investment option based on your goal and risk tolerance (e.g. conservative, aggressive), or choose an age-based option that will automatically adjust your investments as your child gets closer to college.

2. They save with a goal in mind

While saving something is always better than saving nothing, families also need to make sure they’re saving enough. To estimate future college costs, you can start by using Savingforcollege.com’s College Savings Planner, or a similar calculator. This will give you can idea of what the sticker price of a school will be, based on current costs and taking inflation into consideration. You can also figure out how much you’ll need to invest each month in a 529 plan to meet that goal.

Saving the total sticker price of your dream school might seem unattainable, but don’t be discouraged. Students rarely pay full price for college after grants and scholarships are awarded. Find out how much the school typically gives out, and do some of your own research to find additional scholarships to close your savings gap. As the student gets closer to college, he or she may also want to consider a work-study program to help pay tuition.

Check us out next week for habits 3, 4, and 5.

Source: Kathryn Flynn

THIS WEEK’S ECONOMIC DATA

  • U.S. Personal Income picked up slightly in July and consumption slowed in what was another constructive month for the consumer.
  • Japan Retail Sales dropped 0.2%, making July the sixth month in seven that sales have fallen.
  • U.S. Consumer Confidence jumped 4.5 points to a 101.1 level for August, which easily exceeds Econoday’s high estimate.
  • Japan Industrial Production was unchanged on the month and down 0.5% from the same month a year ago.

Source: Ivy Weekly