R-A-L is a B-A-D Deal

Everyone wants their tax refund quickly, but watch out for this bad deal. Some Tax Prep Companies offer a Refund Anticipation Loan, a RAL. These loans are for the short period between when a tax return is filed and the IRS deposits the money into the lender’s account (usually less than two weeks). A RAL allows access to the anticipated refund in one day or less.

The problem with these loans is they are extremely expensive!

The loan amount is the ‘anticipated’ refund minus loan fees and tax preparation fees. If there was an error or miscalculation on the tax return, the refund could be less than anticipated. The entire loan balance must be repaid even if the tax refund is denied, is less than expected, or is frozen.

People who do not have bank accounts are often tempted by a RAL because refunds issued as a paper check can take up to 6 weeks to receive in the mail. Having access to the funds early comes at a large cost because of the fees associated with these loans. Typical fees include a $75 "processing fee", an additional "service fee" (equal to 10% of expected refund amount) and a $50 bank fee.

Tax returns that are e-filed  with direct deposit refunds will result in the quickest refund. Electronically filed tax refunds should be deposited into a checking or savings account within 10-14 days. 1040 Central gives all the details.

RAL is a bad deal for the customer.  Be patient and do not choose to get a Refund Anticipation Loan.

Keep your refund and spend it wisely!

You know you should . . . but do you?

You know you should save money, but do you put money into savings every month? Do you have a savings goal? It is easier to stay motivated when working toward a goal. The best goals are well defined.  Check out this Savvy Saver article about creating a saving goal.

Here are some steps you can take today to become a successful saver.

1. Open a Savings account. Virginia Savers can open free or low fee savings accounts at local banks and credit unions. Check out our partners. These banks and credit unions offer no fee, low beginning balance ($25 or less) accounts.

2. Make saving automatic. Set up automatic monthly transfers from checking account to savings account.

3. Start contributing to workplace retirement plans. Many employers match a portion of the fund saved in retirement funds. Try to at least save enough to receive the employer match; it is free money! There may even receive some tax savings.

4. Save the tax refund. Use the IRS’s Form 8888 to directly deposit part or all of your refund into a savings account. Visit www.Form8888.org for more information.

5. Save raise or bonus this year. Jump start savings with money that will not be missed.

6. Enroll as a Virginia Saver. Savers receive a monthly newsletter full of tips and ideas to increase savings.

The key is to start today! Start small. Think big.

Is there a Tax Credit for you?

Check out http://www.taxcreditsforworkingfamilies.org/ for information about tax credits for working families. Click Virginia on the State Resource Map.

Tax credits directly reduce taxes owed, dollar for dollar. Tax deductions reduce taxable income and will indirectly reduce taxes owed, but not dollar for dollar. In short, a $100 tax credit is worth more than a $100 tax deduction.

Some tax credits are refundable while others are non-refundable tax credits. Refundable tax credits are refunded to the tax payer even if credit exceeds the tax liability. A good example is the Earned Income Tax Credit (EITC).  Click here for details about income qualifications.

The 2011 EITC Awareness Day is February 28! Stop by the Norfolk Workforce Redevelopment Center at 201 E. Little Creek Rd in Norfolk on Friday, February 28^th 9AM- 2PM.

This is the kickoff event for free tax prep.  There will be a team of tax preparers ready to prepare taxes.  Many other vendors will be available to give information including VEC, an IRS tax advocate, and some of the Virginia Saves financial partners. Also, Virginia Saves will have a table at the event. A change wrapper machine will be at the table and can be used to turn change into bank deposits!  

Why build and emergency fund?

Saving for Emergencies is a sound choice. Having an emergency savings fund may be the most important difference between those who manage to stay afloat and those who are sinking financially. That’s because maintaining emergency savings of $500 to $1,000 allows you to easily meet unexpected financial challenges such as:

• repairing the brakes on your car
• buying your child a new pair of needed shoes
• replacing a broken window in your house
• paying for a visit to the doctor when your child has the flu
• covering the dental expense of filling a painful cavity
• paying for a parking ticket
• flying to visit a sick parent.

The emergency fund not only allows you to cover these expenses, it also gives you the “peace of mind” that you can afford these types of financial emergencies. Not having an emergency savings fund is an important reason that many individuals borrow too much money at high interest rates. For example, with emergency savings, Americans probably would not have to take out $2 billion a year in payday loans at interest rates that average 300 to 500 percent.

To read more check out Build Your Emergency Fund.

Don’t pay to get your taxes prepared!

There are many options to get your taxes prepared this year. Here is a link to free tax preparation in South Hampton Roads and Earned Income Tax Credit information.

Free Tax Preparation 2011

Some things are not UNEXPECTED expenses

Christmas comes every December. Kids go back to school in September. The car needs new tires. These items are not unexpected. However, the family budget is often surprised by these predictable expenses.

These irregular items can really wreck efforts of money management. Planning for predictable expenses need to be incorporated in a good spending and savings plan.

Saving a portion of the tax refund can be one way to prepare for irregular expenses. The money saved will reduce financial stress. Imagine how it would feel to have money saved for Christmas, and no holiday bills arriving in January!

A Club Account at a local credit union or bank is a great way to save for upcoming events.  Christmas clubs and vacation clubs allow money to be saved for a specific period of time, called the term of the club.  The term can range from a few weeks to a year or more.  This is a great place to save money before an upcoming expense instead of using debt. Funds can be deposited manually or transferred from a checking account automatically.

Another great idea is the revolving savings account. This is money set aside every month in a savings account specifically for these expenses that do not come every month. The money in this account may be for several items.  Below is an example of a revolving savings account.

Expenses                             Total amount needed                    Monthly amount to save

Christmas                            $300                                                       $300/12 months = $25

Car repairs                          $240                                                       $240/12 months= $20

Car insurance                     $600                                                       $600/6 months = $100

Total savings deposited in account          $145 per month

This $145 deposited in the savings account every month will allow for withdraws for the whole amount of the expense (Christmas, Car repair, ect.) when the money is needed.

It is not a good idea to charge these expenses on a credit card without a plan to pay them off. Caution must be used when using debt to provide basic living expenses. A credit card is convenient, almost too convenient.  If a credit card it used to pay for items that reoccur without quick repayment, debt will build quickly. 

A better option may be the debit card which drafts money from the checking account for each purchase. Debit cards only allow money actually in the account to be spent.  This forces spending choices. ‘Will we purchase groceries for 4 days or eat out tonight?’

A debit card can have a major credit card logo and may offer the same buyer protection. It is important to ‘opt out’ of options that allow overspending the money in the account. Overdraft protection is often expensive because of the fees charged. Use the convenience of the debit card but do not purchase items that are not budgeted in the spending plan.

Planning for predictable expenses is a smart plan. Think about the expenses that are budget busters for your finances and use one of the savings option discussed to plan for the expenses.

Savings helps you expect and plan for predictable expenses!

January 2011 Newsletter: Fresh Financial Start!

The Virginia Saves January Newsletter is available! Check it out!

http://myemail.constantcontact.com/Fresh-Financial-Start-.html?soid=1103122022232&aid=2WLy0Oq400o

You can receive the monthly newletter filled with tips and information by enrolling as a Virginia Saver.
www.virginiasaves.org/enroll/

Dreaming about the Tax Refund. . .

According to the Bankrate.com, this year 30 percent of Americans intend to pay down debt with their tax refund, 28 percent say they will save or invest it, and 26 percent plan to use the refund for necessities such as food or utility bills.

How should the tax refund be spent this year? The BEST idea is have a plan, then stick to it.

Virginia Saves recommends splitting the tax refund into three parts:  

ü  30% Emergency savings- Prepares for the next emergency.

ü  30% Pay down debt- Improves financial outlook.

ü  40% Discretionary spending- Allows spending on needs or wants.

An Emergency fund is the first step to financial security. Even a modest savings of $300 will prevent relying on using debt for an unexpected expense. Emergency savings breaks the cycle of crisis living and living payday to payday. Saving 30% of the tax refund in a savings account prepares for the next unexpected emergency.

Reducing Debt will reduce the minimum monthly payment due on credit cards and other debts. The reduced monthly payment leaves more money in the budget for other needs. Paying down debt with 30% of the tax refund improves the financial outlook for the year.

The remaining portion of the refund is allotted for discretionary spending. Purchase needs before wants and look for sales to stretch the dollars. Spending 40% of the tax refund on desired items is the reward for money smart choices.

Taxes can be prepared for free for families with incomes below $49,000. South Hampton Roads EITC Coalition is offering free income tax preparation. This includes roving site service and a site may be close to you. The South Hampton Roads Earned Income Tax Credit coalition has the free tax preparation sites listed at http://www.shreitc.com/en/free-income-tax-preparation-sites. AARP are also offering free tax preparation for low income families and seniors at many local libraries.  http://tidewatertaxaide.org

Many families qualify for the Earned Income Credit (EIC) and only have to file to receive a refund. Even if no taxes were paid, you may still be eligible to receive a tax refund with the EIC. Click here for more information.

Spend your tax refund wisely. You will be glad you did!

Fresh Financial Start for the New Year!

It is a New Year and time for a Fresh Financial Start! 2011 can be the year the finances get into shape, but it will not happen automatically. If the desire is to be in a better financial standing in at the end of the year, then some of the spending habits will need to be different during the year. Small changes over a period of time equal some impressive results.

Small ¢hanges x 12 months = Impressive Re$ults

It is all about the choices being made on a daily basis. For example, the extreme vow not to visit Starbucks in 2011 probably will not be successful. Simply cutting the fancy coffee mornings in half, ordering the regular coffee, or making coffee at home will save some dollars that really add up!

Where can extra money for savings be found? Look at how money is spent now and where small changes can be made.

·         Save change in jar

·         Bring a bag lunch several days a week

·         Buy a reusable water bottle and refill at home

·         Plan meals to prevent fast food runs at 6 PM when the kiddos are hungry

Little by little, collect money not spent during the week. Plan how to use the money saved or it will be accidently spent. A savings account is a good place to save money for unexpected emergencies. The emergency savings help Virginia Savers improve their current and future financial situations.

The ¢hange saved today will change the future for the better!