Business, Insurance, Lifestyle

Most Common Types of Insurance – Part 1

by Benjamin Roussey|Posted on | 3 minute read | Advertiser notice
different types of insurance

When you are planning to secure your future financially, one of the things you must prioritize is insurance. Insurance offers protection against unexpected difficulties you might face in the event of an accident, illness, injury, or other serious situations where you would need plenty of financial resources to get back on your feet.

Insurance also protects your loved ones and family against financial storms should some calamity fall on you. This is why you need to subscribe to the right type of insurance plans, to insure your financial future. Discussed below are some of the types of insurance all individuals should subscribe to.

Life insurance 

Life insurance protects your family and dependents should something happen to you. This is important because you want to secure the future of your family, and if they are relying on you for financial support, you want to ensure that they are not left bereft financially in the event of an unfortunate situation.

The life insurance that you hold should ideally offer a substantial amount of payout in the event that a claim is made on it. This payment would help your dependents get life back on track, and pay for expenses including daily expenses while they begin to recover from the shock and start becoming financial independent.

When looking for the best plans for life insurance, you would need to consider the payout. The payout should be based on expected expenses that your dependents would incur if you were not around to pay the bills and other expenses. These would include funeral expenses, bills, credit card payments, debt such as home loans and even education costs for minor children. No, how much money you spend at Taco Bell is not considered here!

Life insurance can be divided into term insurance and whole life insurance policy.

Whole life insurance

This type of life insurance is offered to the policy holder for their lifetime. This means there is no age limit at which you stop being covered by the insurance.

Upon the death of the policy holder, whatever their age, the payout of the insurance is made to the beneficiaries. The second advantage offered by this type of insurance is that the insurance holder’s account can concurrently be used for investment which helps acquire more financial resources.

A variation of the whole life insurance is adjustable life insurance. As the name suggests, this type of insurance offers more flexibility in terms of premium, coverage, and age limit. This type of insurance brings with the same investment related benefits as with regular whole life insurance.

For those who want to turn their life insurance account into a tool for investment, a variable life insurance policy might be a poignant option. That said, the risk involved must also be taken into account. Unlike a whole life insurance policy, a variable life insurance policy does not guarantee a set amount of payout on the death of the policy holder.

Since the amount paid into the account can be used for elaborate investments such as stocks and bonds, the payout to beneficiaries would depend on how well the investment portfolio performed. That said, should the portfolio perform well, then the beneficiaries stand to gain a decent financial support.

Term life insurance

Among the more common types of insurance would be term life insurance where the period of coverage is limited. The policy can be renewed once the coverage ends. This type of insurance offers a fixed payout if the policy holder dies before the coverage expires.

This type of insurance does not provide for investment options, which is why the amount of payout to beneficiaries is fixed. You would also have to be careful about not letting the policy lapse, as this could mean that there would be no payout to your dependents, in the event of an unfortunate circumstance.

Term life insurance offers limited payouts, in contrast to other types of life insurance, and is best used for offering emergency funds to beneficiaries. Also, the payout may not be sufficient enough to cover a lot of expenses, so this type of policy is ideal for people who need a payout to support beneficiaries through a relatively small duration of time.

Understanding your insurance needs is key to helping you plan for financial emergencies and crises where you or your dependents would need plenty of financial resources to tide over difficult times.

Finance, Tax

5 Tax Deductions that some Americans Surprisingly Ignore

by Benjamin Roussey|Posted on | 3 minute read | Advertiser notice

The American tax system is vastly complicated and covers literally thousands of scenarios for just those paying personal income tax. There are several avenues by which you can save money on when you are paying your taxes. Some of these tax deductions are well familiar to most, such as the one for mortgage interest. There are several others which are not so well known. Here are 5 of them:

State sales and income taxes

On the question of itemizing deductions, a taxpayer can generally either deduct the amounts they paid towards their state and local sales taxes or their state and local income taxes. Look at the financial information related to both and choose the one that offers the highest deduction.

This is unless you are one of those people who really enjoys paying taxes and not even John Kerry likes doing that even though he votes for higher taxes he keeps his yacht in another state so he can avoid some sort of ridiculous boat tax that he probably voted for himself! What tax increase did he ever vote no for? Well, this is another topic!

In most cases, the state and local income taxes would offer more scope for deduction. However, in states like Florida and Texas which do not have income taxes at state and local level (which is why their economies are doing very well compared to states like California and New York), the sales tax deduction would be a better bet. This is particularly true of people who made large purchases during the tax year.

Child care credit

Citizens with children can avail automatic deductions for their dependent children. Having said that, there are several more deductions which can be claimed when a person utilizes childcare services for their kids. If a child is below the age of 13 or in effect, is disabled, a taxpayer can qualify to deduct up to 35 percent of all of his qualifying childcare related expenses up to a figure of $3,000 for one child and up to $6,000 for two or more children.

In order to qualify,

  • The parent should have been working during the tax year
  • The parent should be the custodial parent and the childcare provider cannot be the other parent
  • Child care should have been used so that the parent could work

Note: While summer camps are also counted, overnight camps are not.

Losses on gambling

Gambling works both ways, as far as the view of the IRS goes. It is true that gains in gambling are hit severely by the IRS in terms of the person in question having to pay up almost immediately whenever they win large, be it from a card game, slot machine, or a sports book. See Ocean’s 13! They helped a man win huge at the airport in a slot machine! At the same time, it is also true that all losses on gambling are considered tax deductible.

Las Vegas or Atlantic City regulars would be well advised to keep close track of their gambling related expenditures. This can help to reduce the tax pay-outs to be made on their gambling related winnings. The gambling related losses are generally claimed under miscellaneous deductions.

Medical and dental costs

Medical and dental costs can also be itemized for deductions once they reach a specific level. If the taxpayer is over 65, the level would be set to 7.5 percent or 10 percent of adjusted gross income, whichever is of higher value. So, the actual deduction would apply only for any expenses that are incurred above this level. What this means, for instance, is that a taxpayer who earned $65,000 in a particular tax year would be allowed to deduct any medical expenses that exceed 10 percent of her income, which means any expenses exceeding $6,500 incurred during that tax year.

This deduction greatly aids those who suffered from a debilitating illness during a tax year and also includes travel expenses for reaching the doctor or a hospital.

Education costs

Education costs also can be claimed as a deduction on your taxes. Any amount spent on educational expenses such as fees up to an amount of $2,500 per student is considered tax deductible. Under this, not only the cost of classes, but also the cost of textbooks and other costs associated with course material is considered.

Once a person graduates from college and continues to repay their educational loans, student loan interest deduction can be written off up to $2,500 per student. This can be taken advantage of by those who are single and who have graduated so long as their income is less than $80,000 per year. In the case of married grads, the combined income needs to be less than $160,000 per year.

Save that money! Uncle Sam takes more than enough!

Business, Tax

The Critical Nature of Tax Planning

by Benjamin Roussey|Posted on | 3 minute read | Advertiser notice
The Critical Nature of Tax Planning

Although people use the term “tax planning” frequently, many do not necessarily understand what it really means. Tax planning is the art of organizing your affairs using methods that avoid or delay taxes. When you use effective tax planning strategies, you can have more money to spend or more money to save and invest, or both – it is all up to you.

In other words, tax planning means to defer or flat out avoid taxes by taking advantage of beneficial provisions of tax laws, accelerating and increasing tax credits and tax deductions and in general, making maximum use of all applicable breaks that are available under the Internal Revenue Code. And under Trump, taxes will be lowered for everyone which is a fantastic aspect to all of this but it is another topic.

Although the federal income tax rules nowadays are more complicated than ever, astute tax planning gives you benefits that are more valuable than ever before. Of course, this does not mean that you should make changes in your financial behavior just to avoid taxes, your name is not John Kerry or Al Sharpton is it?! Tax planning strategies that are truly effective are those that allow you to do what you want while helping you lower your tax bills along the way.

The Connection between Tax Planning and Financial Planning

Financial planning is the art of using strategies that aid you in reaching your financial goals, both short- and long-term. This sounds pretty straightforward, right? However, if executing these strategies were actually simple, there would be many more rich people.

Tax planning and financial planning have a close connection. This is due to the fact that taxes are an extremely large expense item that is present throughout your life. Taxes will likely be your single largest long-term expense if you become very successful. Therefore, planning to lower taxes is a critical part of the overall process of financial planning.

Tax experts say that a large number of people do not get the message about tax planning, at least not until they make a huge mistake that costs them a large sum of money in taxes that are otherwise avoidable. This is sort of like watching Jurassic World since that movie was terrible; many people wish they avoided spending money on that! Moreover, then only they finally understand the tax planning message. The trick is to make sure that you do not have to learn this lesson the hard way. Here is an example to illustrate the point:

Example: Tanya is a 45-year-old professional who is not married. She thinks she is quite savvy when it comes to finances. However, she does not know much about taxes. One day, she meets John and they eventually get married.

Due to the excitement of a whole new life, she decides to sell her house on an impulse shortly before the marriage. Her property is in a prime location and has appreciated by $500,000 since she purchased it 15 years ago. Her intention is to move into John’s home, which is not the best property. But Tanya is a remodeling genius and plans to work her magic on John’s property.

Result without Tax Planning: Tanya has a $250,000 gain on her home’s sale for federal income tax purposes. This is $500,000 profit with a deduction of the $250,000 home sale gain exclusion that is allowed to unmarried property sellers.

Result with Tax Planning: If Tanya had kept her home and lived there with John for 2 years before selling it, the larger $500,000 home sale gain exclusion allowed to married joint-fillers would have been available to her and she could have permanently avoided the $250,000 of taxable gain. They could have sold John’s home instead if necessary. Alternatively, John’s property could have been retained and they could have remodeled it while living in her house for the requisite 2 years.

By selling her home without thinking about the tax-smart alternative, Tanya cost herself $62,500 in taxes – which is the completely avoidable gain of $250,000 that is taxed at an assumed combined 25% state and federal rate. This is not just a timing difference, but a permanent one. The point is that you cannot ignore taxes. If you do, there can be unappealing consequences, even with a seemingly simple and intelligent transaction.

The Bottom Line

It is always important that you plan any transaction with taxes in mind and do not make any impulsive moves. You should seek professional tax advice before you make any significant transactions – you will find that this is money and time well spent.

Finance

Be Organized So You Can Better Maintain Your Financial Records

by Benjamin Roussey|Posted on | 3 minute read | Advertiser notice
Organize your financial records

A key part of managing your personal finances is making sure that your financial records are well organized. Whether it is a Social Security card for purposes of wage reporting or utility bills to show proof residency, there may be times when you need to quickly locate a financial document or record.

You do not want to keep your records like Peter Le Fleur did in Dodgeball! That is not impressive!

By taking the time to tidy up and organize your financial records, you will be able to find exactly what you need exactly when you need it.

What Documents should You Keep?

Are you the type who keeps stuff because you never know when you might need it? Your home office or desk is probably overflowing with documents that you do not need or your closet like Peter Le Fleur’s closet! One of the first things you need to ask is “Why do I need to keep this?” – this will help you determine what records to keep.

You should keep documents that are difficult to obtain, like:

  • Proof of identity
  • Insurance claims
  • Legal contracts
  • Tax returns

On the other hand, if you have documents that you can duplicate easily, such as credit card and online banking statements, you probably do not need to keep hard copies since that will add up year after year.

How Long should You Keep Your Records?

Generally, you should keep your financial documents and records only for as long as necessary. For example, credit-card and ATM receipts should be kept only temporarily, until they have been reconciled with your credit-card and/or bank statement. On the other hand, if a document is difficult to replace and/or legal in nature, you may want to keep it for a longer period or even for an indefinite period. And not wide out in the open either; file it away in your office desk, closet, or even safe.

There may be more specific timetables for some financial records. For example, it is generally recommended by the IRS that taxpayers maintain federal tax returns and the documents that support them for at least 3 years up to 7 years from the date of filing. There may be certain circumstances that warrant keeping your tax records for an indefinite period of time as somewhat insinuated above.

Here is a list of some recommendations for the time period you should keep specific documents:

Records to Keep for 1 Year or Less

  • Bank or credit union statements
  • Homeowners and auto insurance policies
  • Utility bills
  • Credit card statements

Records to Keep for Over a Year

  • Mortgage contracts
  • Tax returns and supporting documents
  • Property appraisals
  • Receipts for home improvements and major purchases
  • Annual investment and retirement statements

Records to Keep for an Indefinite Period

  • Social security card
  • Birth, death, and marriage certificates
  • Citizenship and military discharge documents (DD-214 for those exiting the military)
  • Adoption records

Keep in mind that these are general guidelines. Based on your personal circumstances, you may need to keep these documents for longer or shorter periods of time.

Where should You Keep Your Records?

You could use a set of labeled folders for your financial records and keep them in a file drawer. However, for more critical documents, it may be better to keep the folders in a fire-resistant safe (as somewhat mentioned already as well), file cabinet, or safe-deposit box.

If your space is tight and you need to make sure that there is minimal clutter, electronic storage for some financial records may be a stellar idea (certainly for some financial tax documents). Online documents can be saved and you can scan documents to convert them into a digital version of themselves. Backup copies should be kept on a portable hard drive or a storage device (USB for instance). You should also make sure that your computer files are properly secured.

Another option is a cloud storage service. Your loaded information gets encrypted and stored remotely. Make sure that you use a reliable company if you are learning towards cloud storage – pick a solid company that offers technical support and automatic backup.

Once you have found a place to store your financial records, organizing and storing them according to specific categories – e.g., proof of identity, banking, etc. – may be helpful since it will make it easier for you to access your records when you need to.

Remember that your financial records are important documents that need to be properly maintained. You never know when you might need them. Keep the tips mentioned above in mind and make sure that your financial records are safe, secure, and easily accessible whenever you need them.

 

 

 

Finance

What is Personal Finance?

by Benjamin Roussey|Posted on | 4 minute read | Advertiser notice

Personal finance is a very broad term and pertains to financial activities and decisions that an individual or a household undertakes to manage earnings and expenditures in a balanced way. The ultimate goal of personal finance is to secure the financial freedom of a person or a family using various financial tools.

These includes record keeping, savings, insurance, credit planning, retirement planning, and finally estate management. To understand personal finance, each of the above-mentioned personal finance tools needs to be understood.

How America Fares in Personal Finance?

According to Gallup, just 32 percent of households in the country budget their earnings. Out of a 300+ million population, only 30 percent of 90 million+ people have savings and financial goals. Those are not stellar numbers. It gets worse from here. As per a CNN report, 76 percent Americans live paycheck-to-paycheck and less than a month’s income is kept aside as an emergency fund. What does this say about the economy for the past several years? Not impressive! What does this say about our educational system that does not teach students about budgeting? Not impressive either!

This can change if you manage your finances in a smart way, continue reading to know how.

Record Keeping and Budgeting

Record keeping is the most fundamental aspect of personal finance. While some people like to keep track of every cent they earn and spend on a day-to-day basis, most just do it every week or month. The underlying principle of record keeping is to keep track of your earnings and expenditures. This, in turn, helps in allocating budget for necessities and avoid unnecessary expenses.

Tracking your earnings and expenses regularly also enables you to estimate your future income and upcoming expenses. Years ago, record keeping was a tedious task as all records had to be kept in a record keeping book. With computers and smartphones, most of the tasks now can be automated with minimal work to be done on your part. Record keeping and budgeting should always go hand-in-hand for salient results.

You do not want to keep your records like Peter La Fleur (Vince Vaughn) did in the movie Dodgeball! Not impressive!

Tax Planning

You cannot escape taxes. However, you can minimize the tax burden by making smart financial decisions. A Certified Public Accountant (CPA) can maintain accounts and do tax planning for you, but relying solely on your CPA is not recommended.

Investments

The key to financial success lies in maximizing your income. Savings in the form of cash or Certificate of Deposit (CDs) is just a safety net in times of financial crisis; the real financial freedom comes only when you invest your money wisely and earn more from it. Thus, in personal finance, the need for understanding various investment avenues for individuals and families arises.

Government departments and private organizations offer a plethora of financial products that can be used for making investments and growing your money. However, all these decisions have to be made depending on your current net worth, future earnings and expenditures, and risk appetite.

If you want to learn a little about risk, go watch Along Came Polly which is an OK comedy with Ben Stiller. His character Reuben Feffer knew all about risk!

Credit Planning

Any form of legal debt including mortgage, home-equity loan, credit card debt, student loans, and personal loans come under credit planning. The golden rule is to stay away from debt. However, that is hardly possible in today’s consumerist world. The cautious approach thus is to borrow within your means. Investing or splurging with borrowed money is the worst financial sin one can commit.

In personal finance, you learn how to manage your debts so that your interest payments on debts is minimal. For instance, knowing that putting in 20 percent down payment while buying a home will result in lower mortgage interest rates. This results in thousands of dollars or savings over the years.

Insurance Coverage

Insurance is for protecting your financial interests against uncertainties. A serious health condition can wipe out your entire life’s savings or engaging in extreme activities like Leland Van Lew enjoyed doing in Along Came Polly!

A fire can destroy your dream home. In the worst case, if something happens to you, your dependents will be left to fend for themselves. However, as insurance products are complex financial planning instruments, learning a bit about them and making smart purchases will help you in staying stress-free even in times of uncertainties.

Retirement Planning

One day you will stop working and so the income you have been earning will dry up. If you have practiced smart retirement planning, you can enjoy the golden years of life without having to worry about day-to-day expenses or any medical expenses. Retirement planning ideally should start somewhere around the age of 25, but if you have not, some tools and products will help you achieve these retirement’s financial goals. It is easy to get overwhelmed with IRAs and other retirement products. A little bit of financial knowledge, however, can ease this process.

Estate Planning

Just like taxes, death too is certain. All inheritances are taxed (though Trump may change that!). Moreover, if the will for your successors is absent or not drafted properly, it might lead to infighting among them. Estate planning thus is the last, but not the least important aspect of personal financial planning.

As stated earlier, personal finance is too vast to be covered in a single article. The key is to understand a little bit of everything. You can hire someone to do this for you, but if you are aware of the basics of personal financial planning, it will save you lot of time and money.