This is a guest post by Gary Dek from Gajizmo.com.

Everyone dreams of being rich, but the chances of winning the lottery or inheriting wealth from a distant relative are pretty slim.

Building wealth isn’t a result of idly daydreaming about success or money; high income earners have worked and sacrificed to achieve their dreams.

While some luck may be involved, most successful businessmen and women agree that luck is a small part of the secret to successful investing.

After all, capital is necessary if you plan to make money with investments and the only way to raise or build your own capital base is to make smart financial decisions and save money to devote to investments.

Here are six secrets you need to know to see success when investing to build wealth:

Living Below Your Means

Most people who have built real wealth started out by living below their income and saving or investing the extra money.

Today, Warren Buffet, one of the richest men in America, still lives in the house he purchased in 1958 for $31,500. In fact, most everyday millionaires aren’t Wall Street hedge fund managers or CEOs of Fortune 500 companies, but individuals with well-paid jobs who have learned to manage their budget, max out their contributions to retirement accounts, continuously invest in index funds, and just keep saving.

Saving money on non-essentials means having more money to invest. The ideal is to have your money working for you instead of you working for your money, and that simple philosophy eludes most families today. That helps explain why the average retirement savings by age is so low.

The perfect example for me is that I’ve postponed buying a new car for a couple years now. I love cars, and as a 20-something, it would be awesome for me to have a 300+ horsepower luxury sports car. The payments would affordable and I could buy one if I wanted to, so what’s stopping me?

A simple back-of-the-envelope calculation tells me that spending $50,000 plus interest payments over the course of 5 years could prevent me from earning tens of thousands in investment income.

So early in my life, I’d rather create a nest egg to buffer any future cash needs – something I learned from my parents, who used their savings to buy a business. I’d rather be investing in my 20s than spending.

Unfortunately, the average American spends virtually every penny they earn each year, leaving nothing for savings and investment. Instead of buying the most expensive house or car you can afford, save money on your mortgage and car loan payments by purchasing a less expensive home.

Historically, the long-run returns on your primary residence are less than 5%. Instead, the money you do save on your mortgage can be invested in higher-yielding opportunities, such as the stock market, a small business or investment property. Many of the wealthiest people in the world started out with very little and built their fortunes by making good decisions. There is no reason you can’t join their ranks.

Education and Knowledge

The English philosopher, Francis Bacon said “Knowledge is power”. Formal education is not central to knowledge, but studying and researching potential investments and investors builds experience. Examining the good and bad choices made by other investors can help you avoid at least some common mistakes, and by having a thorough understanding of all the options available in the market, you can pull information from different sources to determine which opportunity will inevitably be the highest performer.

When you have capital, there are many types of investments with varying degrees of risk. As a rule, the riskier the investment, the greater the rate of return. Learning how to mix different types of investments to maximize and diversify gains and minimize losses is one of the best ways to make money over time. This means combining safe investment options, like Treasuries and high yield money markets, with riskier ones, such as growth stocks, real estate, or a small business acquisition.

Determination and Risk Tolerance

Successful investors are prepared for setbacks and do not become discouraged when they take a loss or buy an investment with lower returns than they anticipated. Remember, no investment opportunity with the potential for a huge return is ever guaranteed. If it was, everyone would take advantage of it. Anyone who wants to become financially independent has to have the ability to tolerate risk. The key is to never make the same mistake twice and to incorporate the things you learned from that failure into your next venture.

About a month ago, I had the opportunity to buy a very authoritative website in the self-help/productivity niche. The site had received about 500,000 visits per month consistently for the last 3 years, and there was tremendous potential to increase revenues due to under-monetization. The price was reasonable and the seller trustworthy, so why did I pass on the deal?

Plain and simple: fear.

I’ve been burned before in transactions. After buying a website with thousands of visits per month and a solid revenue stream, Google’s algorithm penalized the site into oblivion and the total investment was lost. Despite that risk being highly unlikely in this case, I passed up on a great opportunity because I was scared. I won’t be making that mistake again.

The difference between those who become successful and those who do not often comes down to determination, persistence, and overcoming your fear of risk. The investor who continues to take chances and make informed decisions to buy investments he/she truly believes in ends up with far greater wealth than the individual who stashes all his cash in a savings account, too afraid to make the rational decision and diversify his money. When a disciplined investor is determined to prioritize his long-term retirement needs over consumption, he re-invests his returns instead of spending them.

You Have To Be In It To Win It

Many people postpone financial planning, believing they don’t have the means to start now. This is usually followed by the self-promise that they will start next week, next paycheck, or next year. Then life intervenes and they decide to postpone saving and investing again.

Families who earn their financial independence start by investing their money early and building their portfolio over time. Like you’ll read in every personal finance blog – don’t underestimate the power and importance of compounding interest. Failing to take action is the biggest barrier between the average person and wealth.

Investing Time

While every investor, like every gambler, occasionally has a streak of luck, few successful investors depend on luck over the long run. Most take the time to research different industries, business models and companies.

Consider investing your second job. The more information you absorb and the better you understand a field, the more likely you are to find the gems others overlook.

One of the best examples of this is real estate. I have my Real Estate Broker’s License, and as a habit, I check out MLS listings every Sunday night. The more properties I review, the more insight I have into what is available in each neighborhood or city, the cost per square foot, how the interior and exterior condition of the property affects the final price, etc. Over time, you start to get a feel for the market, and when you see an undervalued property, you have the confidence to jump in and grab it.

Believing in Success

Some wealthy investors, like Sam Walton (Walmart) and Bill Gates (Microsoft), choose to invest in their own businesses while others, like Warren Buffet, invested by buying stocks and bonds to fund other people’s businesses.

One thing that all successful businessmen have in common is an absolute belief in that they will meet or exceed the goals they have set for themselves. It is this complete faith in their own ability that makes these individuals keep striving, even after setbacks and disappointments. Consider making money from home – start a home-based business by turning a passion or hobby into a commercial venture.

There are no real secrets to building wealth and the opportunity is available to anyone who is willing to make the necessary sacrifices and put in the required effort. Just as there are no secrets, there are no shortcuts to financial success. Knowledge, time and hard work can make anyone the next American success story. Ordinary people can do extraordinary things, just ask the rich and the famous who were once ordinary too.

Gary Dek is a writer for Gajizmo.com who is always looking for ways to make and invest money. Check out his site to find more of Gary’s writing.

A college degree is almost a requirement to get any job these days. Employers want to see an Associate’s degree at minimum, but a Bachelors degree is preferred. At the same time college costs continue to skyrocket making getting a great education an expensive proposition for many.

One of the ways that you can improve your education is to go online. Many schools now offer online courses that can help you work toward your degree. My husband teaches online courses for Utah State University, allowing students a degree of flexibility in their educational pursuits. Additionally, schools like Harvard and the University of North Carolina also offer online courses.

While you want to make sure that you are taking a trustworthy online course, an even more important issue might be that you need to focus on whether or not you are well-suited to online learning.

Getting an Online Degree: Is It Worth It?

Here are some things to consider before you jump straight into an online degree program.

Just as Much Work — Or More Work — Than a Traditional Course

Eric Chen is an Associate Professor of Business Administration at the University of Saint Joseph in West Hartford, Connecticut. “Perhaps the biggest misconception about online programs is that an online course is less work than a traditional course,” he says. “Online course offerings are often more work.”

Even though many online courses allow a student to work at his or her own pace, the reality is that there is a lot of work that needs to be done. And a student has to be motivated to complete the assignments and engage in self-directed study. “It is still up to the student to participate online and document the student’s learning activities,” Chen points out. “In fact, online course offerings actually require that the student be more disciplined in order to successfully complete such a course.”

While there are degree mills out there, offering unaccredited courses and degrees that don’t take as much work, a legit course will likely come with its own challenges and require that you put in as much — or more — time as you would if you were taking the class on a traditional college campus.

Who is Suited for an Online Course?

If you want to take an online course, whether you are trying to finish up a degree, or whether you are trying to achieve a specific certification in order to qualify for a raise or promotion at work, it’s a good idea to make sure that you are well-suited for an online education.

“The best online learner is one who takes responsibility for his or her learning,” Chen says. He says that the students who often do well with online courses have the following traits:

1. Motivation
2. Organization
3. Technological familiarity

“The best online learners I’ve seen at the college level happen to be adult learners,” Chen says. “Those who have embraced technology, those in management positions who have incentive to finish degrees quickly in order to get promoted up the chain, and those whose travel schedules do not allow for regular meetings at a predetermined time every week.”

He says that many younger students struggle with online courses. They may have more technology savvy, but they don’t often have the maturity to understand what it takes to be successful. “Younger students often get tripped up by the illusions that the flexibility [online] learning offers,” Chen says.

After watching my very tech-savvy younger brother attempt online courses for the sake of flexibility, I can see his point. The idea that there is “plenty of time” to catch up, and the idea that the online class can be finished later often means many students never end up finishing, since many online courses still require that you complete the work (and take the exam) within a predetermined period of time.

“Students should carve out dedicated time to devote to their learning, whether it be in an online or traditional classroom,” Chen suggests. With a traditional classroom, though, carving out this learning time is often easier, since it’s part of the daily routine. To succeed at online coursework, you need to carve out regular time to work on your assignments, and add the online learning into your routine.

In the end, only you can decide whether online learning is right for you. Before you take the plunge, carefully consider your situation, and whether or not you really are cut out to take online classes. If you aren’t, online courses are little more than a waste of money.

photo credit: BdwayDiva1 via photopin cc

In these tough economic times, many recognize the importance of financial planning.

You want to ensure that your resources are directed to best effect, and that means creating a spending plan that works well for your situation, and helps you prepare for the future.

Good budgeting software can help you take charge of your finances.

Happily, a large number of free online budget tools exists. You can get help for nearly any budgetary need you have.

Here are some of the best free online budget tools that can help you chart a course to financial freedom:

Mint.com

This is the online budget tool that started a revolution. You can link your financial accounts — savings, checking, credit cards — to Mint.

Your information is automatically updated as it appears in your accounts. In many cases, categories are automatically assigned to your spending.

You can also track your progress toward retirement goals, as well as use Mint to create a debt pay down plan. Visual tools, including graphs and reports, clearly illustrate your situation, and help you chart a course.

Personal Capital

For those who want to add tracking your investments to various aspects of your budget, Personal Capital is an option.

We really love this online tool:

• Personal Capital Video Review and Walkthrough - If you want to see what using the tool looks like, check out our video.
• Personal Capital Review – A written review of how the service works and who should use it.

Your financial dashboard allows you to see everything that is going on in your financial life. You can see the big picture, and track your progress as you work toward your goals.

On top of that, you can track your investment portfolio, and even receive objective investment advice. If you want help actually managing your investments, you can get personalized ideas, as long as you are willing to pay a 1% fee.

However, the regular service is free, and you can manage your finances — and investments — with the help of this budgeting tool. Sign up with Personal Capital.

Personal Capital vs. Mint: Which is Better?

Mint came first and essentially created the free online budgeting tool category. Personal Capital is much more focused on tracking your investments across multiple accounts.

Which is better for you? It just depends on your needs: if you need straight budgeting, then Mint might be better. If you do want to track your portfolio while also monitoring cash flow then Personal Capital is a great option.

BudgetPulse

If you are wary of allowing an online app access to your accounts, you might consider BudgetPulse.

You don’t give away your account usernames and passwords, and you can track your spending and set goals. The ability to visualize your money is available with charts and graphs. On top of that, you can create financial goals to share with your friends and family. The social aspect can keep you accountable, as well as provide an opportunity for your loved ones to contribute to your objectives via PayPal or Amazon Payments.

Gnu Cash

Not only does Gnu Cash work on your Mac or PC operating system, it is also compatible with Linux. This free accounting software is based on true accounting practices, and is designed to allow you to receive accurate financial reports.

Gnu allows you to track investments, savings, checking and other accounts. It’s a great way to get a comprehensive financial picture, as well help you keep track of your current progress. You can enter scheduled transactions, as well as make a number of financial transactions.

Buxfer

Monitor your spending, and keep track of your upcoming bills with the help of Buxfer. This online budgeting tool is aimed at 20-somethings interested in getting their finances under control and starting out right. You can project your earnings and savings interest into the future, and use the information to plan your finances. You can break down your goals, setting short-term and long-term goals, and working toward them.

Additionally, Buxfer helps you manage group expenses. You can split different bills up, figure out who owes what, and even make payments online, taking care of IOUs with ease.

moneyStrands

The threads of your financial life meet together with the help of moneyStrands. This software is one that can important your financial information from your banking institutions and credit issuers. Create a 12-month spending plan, and then use this software to keep you on track.

Schedule upcoming bills, and view projections of what your money should look like going forward. You can also use moneyStrands in different languages, and it comes with the ability for you to manage your finances in multiple currencies — something that is handy for the frequent traveler, or if some of your income comes from foreign sources.

Moneytrackin’

Once you know where your money is going, it’s easier to spot money leaks and change behaviors. Moneytrackin’ helps you see where it all goes. It also provides help with tracking and dividing shared expenses, and creating shared budgets. Moneytrackin’ also includes helpful tools for small business accounting. If you have a home business, this software can help you keep track of relevant income and expenses. It’s a great tool that can help you manage various aspects of your finances.

My Spending Plan

You can put together a budget to help you better live within your means. Quickly create a plan that helps you with long-term goals, as well as with short-term goals, including special events and more. This software makes use of the envelope system to help you plan your budget. My Spending Plan also sends you emails and alerts, and reminds you of bills that need to be paid. On top of that you can personalize your settings to see your own big picture. My Spending Plan also includes coupons and promotions that can help you save money and live within your means.

BudgetSimple

If you are looking for something straightforward and simple, BudgetSimple might be helpful. The main point of this budgeting tool is to help you get out of debt. You track your expenses, manage your bills, and learn how to live within your means. There are no frills with BudgetSimple, but it is one of the easiest ways to create a budget. Plus, you can view your progress with the help of charts and other visuals.

SavvyMoney

For those looking for a proactive approach to debt pay down and accelerate savings, SavvyMoney can help. The idea is that you start out by understanding your current situation. After putting together a picture of your current situation, you create a debt repayment plan based around what works best for you. SavvyMoney can help you stay on track, as well as keep up with your progress. You can even receive on tips on accelerating your pay down.

It’s time for another edition of Dollar and Cents. This is where I answer one of your questions.

If you have a question, either use the contact form on the blog or use my Facebook Fanpage.

This week question brings up something I’m semi-obsessed with – the Roth IRA!

If you rollover a 401k into an IRA is this amount subtracted from what you are able to contribute that year? So if I rollover my 401k next year if I leave my current employer, will I still be able to contribute to my IRA as usual up to the limit or will the rollover affect this?

Resources:

With each Dollars and Cents video we want to provide some follow up links where you can get some additional information on the topic. If you are interested in learning about doing a 401k rollover into a Roth IRA, check out these reads:

• 7 Things You MUST Know About the Roth IRA for 2013 – There is a ton of great info in here for you. Before you open your Roth IRA you need to know if you even qualify. (Most people do, but still check!) Not sure how to rollover your 401k? Don’t worry, that’s in here, too. A must read on Roth IRAs.
• Best Places to Open a Roth IRA - With so many brokerage firms to choose from, how do you find the one that is right for you? This handy post breaks down costs for the major brokerages out there.
• Best Online Stock Broker Sign Up Bonuses – If you’re going to open up a Roth IRA with one of the brokerage firms you might as well get the biggest bonus that you can for opening the account!
• Can You Rollover Your 401k to a Roth IRA? – A complete breakdown of how to rollover your 401k into a Roth IRA.
• Start Saving For Retirement Today: Best IRA Online Brokers – Did you know you can open an IRA to do peer-to-peer lending?

Waking up in a place of your own with the birds chirping right outside your window is a great feeling.

You go outside and enjoy your coffee on the back porch, simply enjoying the quiet that comes with not living in an apartment.

Your neighbors are friendly, the sun is shining, and you know it is going to be another great day of owning a home.

Everything is going great… until the peaceful morning is ruined by the sound of your air conditioner going out.

As romanticized as owning a home has become in America, there are some significant costs associated with buying, owning, and maintaining a place of your own.

The True Cost of Home Ownership

Let’s break down some of the areas on how to value home ownership. There are some obvious costs like your monthly mortgage payment, but hidden costs sneak in there and can break the bank.

Obvious Home Cost: Principal and Interest

For most, the cost and financial benefits of renting versus homeownership are the deciding elements. The traditional logic is that renters are throwing away their money by paying someone else’s mortgage. Though true, this is a simplistic view.

On a $150,000 home purchase with 20% down (so a mortgage loan of $120,000) at 3.5 percent APR, the monthly principle and interest payment is $538.35 per month.

This sounds like a smart deal since most houses increase in value over time, while the monthly payment lowers the principle balance and increases the equity. If you are paying $600 per month in rent, owning your own home for about the same amount sounds like a great deal.

While principal and interest is a big chunk of your monthly costs of owning a home, there are a lot of other costs to consider.

Hidden Home Cost: Property Tax and Insurance

When you speak to a real estate agent about looking at homes, they generally speak of how much a home is going to cost you in a monthly payment. Many agents will focus on quoting you prices based just on the principal and interest because it means they can get you into a more expensive home — pulling you toward that dream home — thus earning a larger commission check on the sale.

Unfortunately, your monthly payment will have other costs associated with it, namely property tax and homeowners insurance. Depending on the area, these costs can increase the payment significantly. Unlike principal and interest, taxes and insurance payments is money that you are not getting back.

You might pay an extra $150 to $450 per month in tax and insurance cost depending on the area you live in, what the tax structure is, and how much insurers charge to protect your home’s area.

Tax and insurance costs are not fixed unlike your principal and interest payments (assuming you get a fixed rate mortgage). Your local municipality can raise taxes over the years, and homeowners insurance companies are constantly changing annual premiums.

Some states have homestead exemptions that lower a homeowner’s tax burden, so check to see if your state allows this.

Obvious Home Cost: Down Payment

When you rent an apartment your only costs are an application fee, security deposit, and your first month’s rent. With just a few thousand dollars you can be completely moved in and setup in an apartment or rental home.

When you purchase a home of your own you need to save up money for a down payment. Back in the heyday of the housing boom you could buy a property with little or no money down.

Those days are gone. (This is a good thing!)

Home ownership is a serious commitment and requires serious cash to get started. Many lenders want to see you have a 20% down payment in order to be approved for a loan. On a $150,000 home that means you need $30,000 in straight cash sitting in an account waiting to be used once you find a home.

Still not sure if you should keep renting or buy your first home?  Use this nifty calculator to help you decide:

Hidden Home Cost: Home Maintenance and Upkeep

Owning your own home means you get to decide how your home looks inside and out, including the property’s landscaping. Unless the home is in a designated historic neighborhood, or one with zoning restrictions or homeowners association rules, homeowners are generally free to apply for permits and make changes to a home’s look, structure and more.

It also means you get the “honor” of mowing, trimming, dealing with weeds, and footing the cost of repairs.

Rental properties usually outsource a maintenance crew for maintenance and lawn care so you don’t have to spend time on those items. While a homeowner may have to spring for a new Husqvarna, he or she can landscape as desired. Just remember, it takes time and money to keep up the home and yard.

Most rental management companies will have an itemized checklist of all appliances, flooring quality and states of repair. Often these will be accompanied by photos. Any changes to the rental property outside of normal wear and tear need to be put back to the original state. Renters usually can’t make material changes to the property.

This is not the case for a purchased home property. You can change what you like, but all of the cost comes from your pocket.

How much money should you have on hand for home maintenance? A general rule of thumb is to have at least 1% or 2% set aside for home repairs. If you own a $150,000 home that means having $1,500 or $3,000 set aside for when the roof leaks or the HVAC unit goes out in the middle of summer.

Even that amount of money won’t cover major repairs, but it is better to have a starting point in paying the repair bill than to be starting from scratch.

You might create a separate category in your budget to hold maintenance money and a separate category to hold money for landscaping or yard maintenance.

Hidden Home Cost: Higher Utility Bills

Living in a 800 square foot apartment can keep your utility bills down simply because you don’t have much space to heat or cool. There can be some financial shock when you get your first set of utility bills after moving into a much larger home.

If you are used to spending $600 on rent and $100 on monthly utilities, buying a home with a $600 mortgage payment leaves you with the same amount of money to heat and cool a much larger space. Depending on how old the home is your HVAC unit might be older than the one in your apartment building and thus be less efficient. A less efficient unit combined with a larger square foot area can result in some shocking utility bills.

How much should you anticipate to spend on utilities? Ask the sellers.

Pro Tip: When looking at homes ask the sellers to provide utility bills for the last 12 months and a description of where they kept the temperature set. This can give you a rough idea of what you’ll be spending each month. Even if your exact use of the area isn’t the same — they set it at 73 degrees and you prefer 71 — you’ll at least have a ballpark figure.

Hidden Home Cost: Termite Protection

It’d be nice if we could buy a home and never have to worry about termites ruining the structure. Unfortunately this is one of those hidden costs that many people don’t think of.

You can get a termite bond to protect your home. When you purchase a termite bond (usually a couple hundred of dollars) the termite extermination company comes out to inspect your entire house inside and out for signs of termites. Assuming none is found, they spray a preventative down and right a bond that essentially guarantees against termites.

Each year the company comes back to renew the bond for a smaller fee, does another inspection, and sprays again if necessary.

After the initial cost of the bond it is usually $50 to $100 to renew the termite bond. That doesn’t sound like much, but it is just another hidden cost that you need to prepare for.

Hidden Home Cost: Realtor Fees

Where a home can be the cornerstone for growth for some, it can be an anchor that prevents movement for others. Housing markets fluctuate. The housing values and mortgage rates that make it ideal to purchase a home now may not be there five years from now. When purchasing a house, be prepared to stay with it for at least five year or else plan on losing money.

Selling a home is a giant unknown that you need to consider when first purchasing the home.

• Can you live here long term?
• What happens if the housing market tanks around you?
• Can you afford to pay 6% realtor commissions if you use a real estate agency to sell the home?

The commissions paid to realtors are a hidden cost that reach into the thousands of dollars. A 6% realtor commission (3% for the buying realtor and 3% for the listing agent) is $9,000 on a $150,000 home. That means your home has to go up by at least that much in value if you want to sell it, and that’s assuming home prices are going up in your area.

Anticipating Home Ownership Costs: Use a Budget

Putting together a budget is one of the best things you can do before you even begin to consider purchasing a home of your own. You need to have a solid understanding of where you are currently spending money each month. Having a baseline for your current costs will make it a lot easier to compare to potential home ownership costs than if you are just shooting in the dark.

Is Owning a Home Worth It?

Don’t underestimate the security and stability of a family home. According to a study from the Pew Research Center, housing stability shows the world you are stable, dependable and devoted to the community.

Other studies have shown that children of homeowners tend to be better at math and reading, have fewer behavioral problems, and stay in school longer. This is linked to the safety that a child feels when they have a stable home. Since a house is a long term investment that can have a mortgage of 40 year or beyond, a house becomes very closely linked to a family’s architecture, community standing, stability and more.

A Look at the Future

What will life look like in five years? Ten years? Fifty years? Whether playing the role of savvy investor or new couple thinking about a family, these are the questions that need to be addressed. Of course, without a time machine or a crystal ball, there are no certainties as to what will happen with the housing market in your area.

But those weighing the pros and cons of home ownership must have an idea of how they want to spend their future. The online real estate database, Zillow, recommends having a plan before jumping into the home buying jungle.

If you plan to live in one area for a long time then buying a home is a great decision that provides stability to your family. If you don’t know if you will be in the same area five years from now it usually makes sense to keep renting.

Either way, having an understanding of the true cost of owning a home can help you crunch the numbers to make a housing decision.

Many of us identify as middle class. It provides us with an identity that is respectable, and implies that we are “normal.”

After all, if you are middle class, you aren’t stuck with some of the stigmas that can come with being poor, and you are painted with the elitist brush for being rich. Middle class is a comfortable place to be for many of us.

It also helps, too, that middle class identity is probably deeply ingrained in your psyche. Many of the children of Baby Boomers (I’m one) grew up in the middle class, espousing “middle class values.” My experience was one of being poor until I was about 12, since my parents got married relatively young and started having kids.

Then, once my dad finished school and began making more money, we moved into a middle class neighborhood, able to afford the necessities of life, and some of the luxuries. The middle class mentality, for many in my generation, is based on similar experiences: Remembering the poor life as our parents initially struggled, but enjoying greater comfort as they began earning more.

But middle class is more than just your own mindset. It also includes numbers. Many of those who have a middle class mentality might not actually be considered middle class when it gets right down to income.

How is a Middle Class Income Defined?

It’s actually harder to define a middle class income that you might expect. Here are four different ways (and there are probably more points of view) to look at your income in terms of whether or not it’s middle class:

1. Economic Percentile: Rather than just looking at arbitrary cutoffs, some economists consider middle class according to percentile. If you are in the top 20% of income earners, you are considered to have an upper class income, or be rich. Those whose incomes fall in the bottom 20% are considered poor. Everyone else (the middle 60%) is middle class.
   
2. Income Range: There are some economists who say that anyone who makes between $25,000 and $100,000 a year is middle class. That might be surprising to some, though.
3. Median Income: Others take a look at the median annual income, and then go $20,000 to either side. In 2010, the Census Bureau reports that the median income in the United States was $49,445, so if you go a little lower or higher, you get a middle class range of between about $30,000 and $70,000 a year.
4. Tax Policies: Of course, if you look at tax policies, the middle class grows substantially. For many tax policies, the cutoff often discussed is $250,000 (even though the fiscal cliff deal used $400,000 as the point for higher taxes), suggesting that some think that you can be considered to have a middle class income as long as you make less than $250,000 a year. For other taxes like the Alternative Minimum Tax the original income cutoff was never indexed to inflation and is now hitting families in the middle class.

Another Take

Others sub-divide what’s considered middle class to provide a more nuanced picture. Many of those who make less than $75,000 a year consider someone who makes more than $100,000 a year “rich” — and definitely outside the middle class. However, if you make $150,000 a year, you might not feel “rich.” Instead, you might still feel part of the average American middle class. As a result, the term “upper middle class” is often used to describe those who make between $100,000 and $250,000 a year.

Pinpointing what constitutes a middle class income is further complicated by the fact that location plays a role in your spending power.

With my income, I’m considered fairly well-off in my relatively small semi-rural community. There’s a low cost of living, and my money goes further. However, if I were to move to a larger city, like Seattle, my money wouldn’t go as far. And if I moved to a place like New York City, I’d almost be poor.

In many ways, “rich,” “poor,” and “middle class” are relative. Additionally, there is a strong psychological element. Pinpointing whether or not you actually have a middle class income involves the complex interaction between what you actually make, and how you feel about what you make.

photo credit: pixieclipx via photopin cc

If you’re married or in a serious relationship, then you’ve probably already heard all the advice about how to manage your finances together: communicate, create goals together, don’t hide information from each other. This advice all sounds easy to do – and it’s certainly easy to give! But people aren’t perfect and neither are relationships. So what do you do if you simply can’t see eye to eye with your partner on your finances?

Defeat Defeatism

It can be a scary moment when you and your partner first realize that you don’t see eye to eye on your finances. You might see him or her in a whole different light. How could your seemingly logical fiance really believe that she should go shopping every month? How can your normally frugal husband think it’s okay to purchase lunch out every day? See what I mean?

First, try to suspend judgement. We all have something in life that we like to do that isn’t logical. I, for example, refuse to buy lunch out every day. But if a long day calls for an afternoon mocha from the local coffee shop…I’m probably not going to say no. So rather than think that this disagreement is a foreboding sign for your relationship, remember that we all have little splurges that don’t always make sense. It doesn’t make us bad people – it just makes us people.

Once you let go of judgement, then the defeatist attitude should drift away as well. You and your partner probably don’t always agree on which food to buy, what music to listen to, and what kind of house to live in. Most likely some sort of compromise has to come into play on all of your decisions. So too, compromise needs to happen in the financial talks.

Forget the “What” and Ask Each Other “Why”

Now that judgement and defeatism are out of the way, you and your partner can sit down and have a few honest talks. Yes, I did mean to write “talks” in plural. As nice as it would be to come to an agreement at once, it probably won’t happen. It might take several months to really understand where the other is coming from. The fact that you’re listening is what’s important.

The most important aspect of listening to each other is not just asking what your partner thinks, but also asking why. If your husband wants to put all of your bills on a credit card each month it could be that he thinks it’s worth paying off the balance each month and gaining rewards. That doesn’t mean you have to agree with this idea, it just means that you should not assume he thinks it’s okay to rack up debt. Again, you likely won’t reach a compromise during the first talk. So just open the conversation and seek answers from each other to get closer to an understanding.

Step Outside of Your Own Shoes

When you’ve been in a long relationship it can be very easy to forget that you and your partner come from different backgrounds. You two have been building a life together for so long that your background may feel like a distant memory. But boy does that stuff come up during disagreements!

For example, you might nearly faint when you hear about your girlfriend’s student loan debt for the first time. However, if her family couldn’t afford to pay for college then it might make more sense why this debt was necessary. Your partner could also wonder why you have the financial philosophy you do. When you and your partner have your money talks and ask the ever-important why, just remember to put yourself in your partner’s shoes so you can meet his or her most important needs in the compromise.

Forgive Past Mistakes and Prevent Future Ones

True difficulty can come when financial mistakes have already been made. Maybe your partner slipped up on the budget you both set. Perhaps you kept some financial secrets from your partner and they started to snowball. Whatever the case may be, a relationship has to be a place of openness, honesty, and trust. That means in finance too. If a mistake has happened and your partner is committed to ensuring it doesn’t happen again, then move forward together.

Just Like Your Relationship, Let Your Financial Philosophy Evolve

A relationship must evolve as each individual grows. So it should come as no surprise that your couples financial plan should evolve as well. You two should check in on your plan, progress, and goals regularly to make sure you’re still on the same page. This not only helps you reach your goals, but it’s a great way to check in on each other’s financial philosophy.

For example, years of working together on finances could bring a couple together who used to be total opposites on the financial spectrum. That’s the beauty of having multiple talks and accepting that you won’t necessarily understand each other the first time! You almost have to experience ups and downs together to see your partner’s point of view more clearly.

Planning finances on your own is hard enough. When you add another person into the mix, well, let’s just say it isn’t always smooth sailing. Realize it’s okay that planning your finances together might get frustrating, confusing, and maybe even a little upsetting. But with open communication and compromise, there is a good chance that you’ll be able grow together and see eye to eye.

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If you’re like me, you like to get every tax credit that you can. Why not, right? It’s like buying something that you know you are going to have to buy and having a coupon for it. It would be silly not to use it.

The only problem with tax credits is that it’s hard to keep track of them all. One such credit is the Child Tax Credit. Here are the rules behind the tax credit of 2013 to see if you qualify.

Who Can Claim the Child Tax Credit?

Families who earn under $130,000 a year and have one or more dependent children under the age of 17 may take advantage of the Child Care Tax Credit on their tax return.

Do You Qualify for this Credit?

There are, of course, several further conditions that must be examined in order to be certain that you qualify for all or some of the Child Tax Credit. They are as follows:

• Only those families that make less than $110,000 annually are eligible for the full credit. Families making between $110,00 and $130,000 receive a reduced credit (specifically $50 per $1,000 made over $110,000).
• Individuals who are unmarried must have earned under $75,000 to qualify for this credit. Taxpayers who are married but filing separate returns must have made no more than $55,000.
• Qualifying children must be citizens or residents of the United States who can be claimed as dependents by the taxpayer. They also must not have reached the age of 17 by the end of the tax year. Children may be your blood children, grandchildren, step children, and / or adopted children. Foster children also fall under this category as long as they have lived in your home for the entire year in question.

How Much Can You Claim?

Taxpayers who make under the $110,000 per year are currently still allowed to claim $1,000 per child as their Child Tax Credit. This is one of the many tax cuts instituted by President George W. Bush early in his first term. When the Child Tax Credit came into existence in 1998 the per child amount was $400. Over the years, it has been increased to the current $1,000 per child.

Can You Receive The Child Tax Credit as Part of Your Refund?

The Child Tax Credit is helpful for those qualifying families. Generally speaking, it functions as a credit against what the taxpayer owes in taxes. Sometimes, however, it can translate into an actual tax refund or tax rebate.

For a small percentage of families in the United States, the Child Tax Credit will be larger than their tax liability. In this case, the unused part of the Child Tax Credit can be refundable as an additional Child Tax Credit.

The portion that is available for a refund depends on the number of children you have, your total earned income, and, sometimes, the amount of taxes you have paid over the year to Social Security and Medicare. Refer to IRS form 8812 for specific instructions.

In Summary

As always, it is important to check current tax laws. The Child Tax Credit may change in the future; make sure you reference IRS Publication 972 for the latest information.

There is plenty of information available that will help you get the maximum amount of deductions and credits. In today’s economy, every dollar counts.

It’s time for another edition of Dollar and Cents. This is where I answer one of your questions.

If you have a question, either use the contact form on the blog or use my Facebook Fanpage.

Today’s question comes from Allison:

My fiance and I are getting married in August, we just bought a house (no furniture yet). But I am graduating from college in May and he has been working for a year. What can we do to afford all of the expenses that we have and save up money for our future. Just looking at numbers doesn’t really mean anything, but its hard to figure out how much we should save and towards what.

Resources:

• Building a Solid Relationship with Money and Each Other – Some tips on having the money talk with your spouse and managing your finances together.
• Top 5 Online Savings Accounts – Store your emergency fund in a place where you won’t spend it like a high yield online savings account with Capital One 360.
• Emergency Fund to the Rescue – Don’t go through life without an emergency fund. Having money set aside for a rainy day can rescue you when something unexpected happens.
• Best Places to Open a Roth IRA – Opening a Roth IRA can be confusing. We’ve broken down all of the offers to give you a simple way to compare different brokers. This is a great place to get started with investing.

Life Insurance Agent:  Do you participate in any high risk activities?

Person seeking life insurance:  I’m getting ready to base jump of a 10,000 foot mountain this weekend.  Does that count?

Life Insurance Agent:  <Silence>

When you’re trying to get cheap life insurance, participating in “high risk” activities is not going to do any favors to your checking account.

High risk, as viewed by a life insurance company, doesn’t just look at base jumpers, sky divers, or deep water scuba divers.   Being high risk can also mean you have high blood pressure, diabetes, sleep apnea, and a host of other medical conditions.

Being a high risk candidate basically guarantees your premiums will be much higher, but when you have beneficiaries or a spouse that needs to be taken care of no matter what happens to you, buying a life insurance policy is critical.

If you are not an ideal candidate for life insurance, it may be difficult to get approved for a policy. In some cases, you can still get approved for high risk life insurance, depending on your situation.

Working in a risky profession or if your health isn’t that great, you fall into a category known as impaired risk. If you find yourself in a situation, there are steps that you can take to increase your chances of getting approved for a life insurance policy.

Here are a few factors to consider about high risk life insurance.

High Risk Insurance Basics

In the area of life insurance, insurance companies look at the amount of risk that comes with every policy. They determine how much that you’ll have to pay in premiums based on the level of risk that you bring to the table. Many insurance companies will simply deny a life insurance application if you are considered to be too risky. Others will throw you over into another high risk category.

At that point, you can pay more for a high risk policy or you may be denied for a policy. If you qualify for a high risk life insurance policy easily, then you simply have to start paying your premiums and the policy will be yours. If it’s not that simple for you, you may have to jump through a few hoops (just don’t jump off any cliffs!) before you can be approved for a high risk life insurance policy.

Shopping Around

When you find yourself lumped into a high risk category, you might have to shop around a little bit before you can find a company that is comfortable with your type of risk. The best way to do this is working with an independent life insurance agent that is able work with several different carriers.  Trust me when I say “the more the better”.

An independent agent can also help you switch insurance companies for other products like home and auto coverage to guarantee you are getting the most affordable rates for your coverage levels. They’ll be able to quote multiple insurance companies to make sure you are getting enough life insurance.

I’ve learned many captive agents — those are the agents that are tied to one company — have much stricter underwriting guidelines and without the ability to shop around either leave you stuck with a much higher rate than you should be paying or getting declined and having no life insurance coverage.

Some companies may not touch people in a certain category, while others will welcome them with open arms. This means that if you have a problem getting approved for a life insurance policy, you’ll simply have to do a little bit of research and find out which companies are comfortable with your brand of risk. Then again, this what the experienced independent life agent should be doing for you.

I have countless examples where life insurance companies will rate individuals differently based on their conditions.  Many consumer don’t realize that.  One recent example was a young female who was in good health applying for coverage with me.  On the surface there was no reason that she should not have been approved at preferred plus (the highest rating class possible).  Turns out her mom had passed away early due to breast cancer which made her more of a high risk with most insurance carriers.  The keyword is “most”.

While most carriers would not give her the preferred plus rating class, there are a few companies that will.  If you’re not working with an independent agent this might be something you would never know.

Show That You Can Control It

If the reason that you were considered to be high risk initially can be controlled, then you have a better chance of getting approved for a high risk policy. If the risk controls you and is completely unpredictable, then it will be much more difficult to get you approved.

For example, if the life insurance company rejected your application because of your high level of cholesterol, then you need to be able to demonstrate that you can get it under control again. This may simply mean changing your diet and engaging in a healthier lifestyle. At that point, you can be retested by the life insurance company to see if your cholesterol has improved. (Before you re-take the test make sure to check out 10 tips on preparing for your life insurance medical exam.)

If it has, then they will reconsider your application for a life insurance policy. If it has not improved, then your application will be rejected again. At that point, you may have to wait a certain amount of time before you can reapply for another policy.

Utilize a Trial Offer

In life insurance, there are trial offers that you can sometimes take advantage of which will allow you to qualify for a policy without having perfect health. To participate in this type of scenario, you will work with a life insurance broker or agent who can gather your health information. They’ll ask you a series of questions and determine exactly how healthy you are. At that point, they can send your information to many different life insurance companies at the same time and see if anyone is willing to bite on the risk.

If a company is comfortable with the risk that you present, they will send back a trial offer and a rate for you to consider. If you like the terms, then you can go ahead and fill out a formal application and attach the tentative trial offer to it. At that point, as long as nothing changes on your end by the time the application is processed, you can be approved for the policy.

How Much Do You Really Need?

One of the realities of purchasing high risk life insurance is that the cost will be much more. How much more depends on your exact condition. Before you start shopping around for your policy, you first need to get an idea how much life insurance you need.

Use the calculator below to see the proper amount you should purchase.

Getting High Risk Life Insurance

Getting high risk life insurance isn’t always easy, but it can be done if you are persistent and willing to work a little bit. Once you have a policy, you can rest a little easier knowing that your family is taken care of.

photo credit: GoneBush via photopin cc