Weekly Finance Dose

Filing Your Tax Return For Free

2013-02-11T10:00:00.000-05:00

The IRS has made it very easy to prepare and electronically file your own income tax return through Free File at no cost. I recommend this route for anyone who is comfortable filing his or her own income tax return and has an uncomplicated tax return with an adjusted gross income (AGI) of $57,000 or less. Usually this is a taxpayer with one or two W2s and taking the standard deduction.

To use the program, simply visit the IRS website and click on “Free File” located on the right side under the orange bar entitled “Filing and Payment.” This takes you to another location where vendors offer free filing as a service to the general public. Some vendors have age and resident state requirements, but there are plenty of vendors and it’s important to review the list to find the best fit.

The programs are easy to follow and require you to input your personal data as well as specified data from your W2 form. When complete, click the button to electronically file your tax return. You can even choose to have your refund direct deposited.

If you live in a state that levies an income tax, you may have to visit your state’s taxing agency website to prepare and file your state income tax return, which means inputting your data all over again. So look for one of the Free File vendors who offer assistance with state tax preparation. Some vendors allow you to file state income tax returns for free while others charge a fee, so make sure you review all the details.

For those who earned more than $57,000, you may still file for free. There are free online forms available, and both options allow people to file returns electronically and use direct deposit, which is the fastest way to get refunds.

If you are a senior citizen, you may access the IRS Volunteer Income Tax Assistance and Tax Counseling for the Elderly partners who will e-file your return for free. Some states offer tax preparation services for low-income filers.

More than 80% of all American taxpayers now file their tax returns electronically. There has never been a reported security breach at the IRS, and the agency claims to have “processed more than 1 billion individual tax returns safely and securely since the nationwide debut of electronic filing in 1990.”

The IRS generates refunds at a faster pace when a tax return is filed electronically. It makes sense: If you paper file your tax return, you must wait for the post office to deliver your return to the IRS. The return then must be keypunched into the system, which makes room for an error. By the time your tax return is processed and the refund check released it’s probably a good 5-10 days longer than if you had transmitted the data electronically.

The fastest way to get your refund is through direct deposit to your bank account. It takes time to prepare a paper check and then there’s the long journey from the IRS service center to your mailbox.

If you owe tax, you can e-file whenever you want then set an automatic payment date anytime on or before the April 15 deadline. You can pay by check or money order, by debit or credit card, or by transferring funds electronically from your bank account. If you do not transmit the funds electronically and prefer to mail a paper check, you must print a voucher – IRS Form 1040-V to send with your check. Make sure to put your Social Security Number and tax year on the memo line of the check.

If you cannot file your tax return by April 15, you may file for an extension using IRS Form 4868 – also available via Free File. Just remember that an extension is only for extra time to file, not for extra time to pay.

If you would like a volunteer to help you prepare the return via Free File, go to IRS.gov and search for “VITA” to find a volunteer-equipped self-preparation site location near you.

How to Become a Financially Independent Person

2013-02-11T09:00:00.000-05:00

Financial freedom is a familiar word with the young and aspiring entrepreneur or career professional. The principle of achieving financial freedom is surprisingly very simple; just make your income supercede your expenditure; this requires a lot of discipline though.

Live Debt-Free

The reality is that a lot of middle and low income earners are in debt, living from hand to mouth. If this describes your situation, to achieve financial freedom you need to find a way to reduce your expenses and pay your debt. The secret to living debt-free is not getting enough cash to pay off your creditor(s) but to change your spending habbit, otherwise, you would be back in debt. This is the hard part and it requires a lot of discipline. Thoroughly go through your daily expenses, especially those that have to do with transportation, feeding, shopping and entertainment (they consume a huge chunk of earnings), and see if you can find cheaper alternatives; you could try eating out a lot less and cooking more or stocking your kitchen all at once, that way the foodstuff come cheaper; taking public transport instead of taxis, etc. These are very tough decisions but you need to face the facts that your earnings cannot sustain your lifestyle. When these inconvinienting adjustments have been made then you are sure you would no longer sink deeper into debt.

The next thing is to plan the total pay off of your debt and climb out of debt.

Save

You probably already know and have heard a billion times that saving is crucial to achieving financial independence. The question is, do you save? And how much of your income do you save? Many have proposed saving 10 percent of income but is this really sufficient? Two major purpose of saving is to have a cushion to fall back on in the advent of an emergency like a job loss and to have sufficient funds to carry out personal projects. Say you earn 200,000 naira ($1280) per month and you save 20,000 ($128) per month, in twelve months you would have 240,000 naira ($536) in your savings. If you were to lose your job after a year (nobody wishes for this but it does happen), the amount in your savings would sustain you for a little over a month and if by then you do not have a job, you would be flat broke. Compare that to saving 40 percent of 200,000 naira – 80,000 naira ($512) per month. If you lose your job in twelve months, you would have 960,000 naira to sustain you for almost a year! Enough time to secure another job and enough funds to start or invest in a business. If you saved 80,000 naira every month for five years you would have 4.8 million naira ($31,000).

A 40 percent income saving seems impossible but it is doable; few individuals even exceed this target; it is possible to make that 40 percent income savings. If after trying unsuccessfully to secure a job for months, you eventually got a job that paid you 60 percent of what you currently earn, you probably would accept the job and still survive!

Invest

Saving and controlling your spending habbit would reduce your expenditure while investing would increase your income. To achieve financial freedom in five years, you need to fix the targeted amount you wish to have in five years and that would largely determine the kind of investment and the amount of investment. For example, government bonds in Nigeria at the moment have a 15 percent interest, if you invest 2 million naira, in five years you would make almost a 100 percent profit. This would be a very good investment for a lot busy professionals while some other individuals might consider it tad slow. However, at this challenging economic periods it is crucial to be very cautious before and after making investments, as financial fraud is on the rise.

Insurance Plans That You Must Have

2013-02-06T10:00:00.000-05:00

Many people adopt a “penny wise, pound foolish” mentality when it comes to buying insurance. When trying to lower expenses, some will drop or reduce needed coverage, gambling that they won’t become seriously ill, suffer a car accident or fall victim to a fire or other catastrophe. But all it takes is one serious uncovered (or under-covered) incident to potentially wipe you out financially.

Here are insurance policies no household should be without:

Health Insurance. This is the most critical – and unfortunately, the most expensive – coverage you need. When comparing plans, consider:

Are your doctors in their provider networks? If not, can you afford out-of-network charges – or are you willing to find new doctors?

Are your medications covered under the plan’s drug formularies?

Do they restrict specialized services you might need like maternity, mental health or weight reduction treatments?

If you choose catastrophic coverage to lower premiums, can you afford the high deductible in case of an accident or major illness?

Homeowner/renter Insurance. Faulty plumbing, theft and home-accident lawsuits are only a few catastrophes that could leave you without possessions or homeless. A few tips:

“Actual cash value” coverage repairs or replaces belongings, minus the deductible and depreciation, whereas “replacement cost” coverage replaces items in today’s dollars. Depreciation can significantly lower values, so replacement coverage is probably worth the extra expense.

Jewelry, art, computers and luxury items usually require additional coverage.

Review coverage periodically to adjust for inflation, home improvements, new possessions, change in marital/family status, etc.

The market is competitive, so compare your rate with other insurance carriers. Get “apples to apples” quotes since policies may have varying provisions.

Car Insurance. You probably can’t even get a driver’s license without demonstrating proof of insurance. Consider these coverage options:

“Liability” pays if you cause an accident that injures others or damages their car or property.

“Uninsured motorist” pays for damage caused to you or your car by an uninsured motorist.

“Collision” pays for damage to your car resulting from a collision and “comprehensive” pays for damage caused by things like theft, vandalism and fire. However, they only pay up to the actual cash value (ACV) minus deductibles. Because the ACV for older cars is low, repairs often cost more than the car is worth.

Common ways to lower premiums include: Raising deductibles; discounts for good drivers, exceeding age 55 or installing security systems; comparison shopping; and buying homeowner and car insurance from the same carrier.

Life insurance. If you’re single with no dependents, you may get by with minimal or no life insurance. But if your family depends on your income, experts recommend buying coverage worth at least five to 10 times annual pay. Other considerations:

Many employers offer life insurance, but if you’re young and healthy you may be able to get a better deal on your own.

After your kids are grown you may be able to lower your coverage; although carefully consider your spouse’s retirement needs.

You probably don’t need life insurance on your children, but you might want spousal coverage if you depend on each other’s income.

If your divorce settlement includes alimony and/or child support, buy life insurance on the person paying it, naming the receiving ex-spouse as beneficiary.

Don’t gamble your future financial stability by passing on vital insurance coverage – the odds aren’t in your favor.

Keeping your Finances as Happy as Your Relationship

2013-02-06T09:00:00.000-05:00

Money is often the root cause of tension, stress and arguments between couples. Try to avoid these regular spates by working together to tackle your finances. Here are some tips on how to ensure you keep your finances as happy as your relationship.

Audit your financial outgoings.

Direct Debits - When you first move in together, make sure you’re not doubling up and paying for the same thing. For instance, have you both got direct debits for internet services and TV licences and subscriptions to magazines and online movies? If so, agree on the ones you both need/want to keep and cancel the others.

Insurance and debt - Investigate your options for insurance payments. Many providers offer ways in which you can consolidate these costs, meaning that you can end up paying less if you are paying as a couple.

Discuss your finance goals & develop a system that works for you both.

A joint back account - Contribute equally, or contribute an amount proportionate to your individual incomes, into a joint account, to pay for bills, direct debits and household items. Deposit any surplus into your personal account.

Agreeing a financial structure - Try to set aside time for regular “financial meetings”. Use these meetings to discuss any issues, how to solve them and to agree financial structures eg. who will pay which bills, who will be responsible for household payments, weather if one of you plans to stay at home that person will receive a ‘salary’ from the working partner?

Think about how your borrowing affects your other half.

Dealing with Debt - When you share financial services, your credit reports will become linked, so it’s important to ascertain whether a previous or existing debt, incurred by your other half, affects your credit rating, and vice versa.

Mortgages - Make sure you agree a suitable budget and stick to it. It’s important that this budget is one which allows you to live somewhere you will both be happy but does not overwhelm you financially.

When choosing a mortgage you should first look at how to reduce your outgoings, such as loans, and remove existing debts, this way you will be more able to obtain a mortgage and maintain payments.

Choosing the right kind of mortgage is also important. If you have a joint mortgage you will both be held responsible for repayments no matter what happens in the relationship. Speak to a financial advisor to discuss the best mortgage options for you.