Where to Start when Financing a New Vehicle

Financing a new automobile, but not sure where to start? There are several important factors to consider when financing a new vehicle, but knowing your credit score is critical to understanding how much it could cost you to finance that new car.

Credit Score
Credit scoring is a method by which creditors determine whether or not to grant loans to individuals. Information about your payment history on credit cards, auto loans, house payments, school loans, etc is collected and compared to other individuals with similar credit histories. This information helps creditors determine your likeliness to repay a loan, and enables them to designate a credit score that banks and other financial institutions use when deciding whether or not to issue a loan.

The lower your credit score, the higher your interest rate is likely to be on a new loan. If your score is too low, financial institutions will not loan you money because they may perceive you as too high a credit risk.

There are three major credit reporting agencies that can help you understand your credit rating and how likely it would be that a financial institution would provide you an affordable loan:

Equifax: 800-685-1111
Experian: 888-397-3742
Trans Union: 800-916-8800

While there might be a minimum charge for your report, the cost is worth it for you to know how likely it is for you to be awarded an auto loan. Through creditreport.com, you can purchase all three reports containing your credit score in one location for $25 to ensure the information reported on you is accurate. If not, then you can also clean up your credit reports through phone calls to those financial institutions that have misreported information on you.

If you don’t want to pay for your credit report, there are several free resources through which you can check your credit report (your credit score will still be charged separately ranging in price from $25-30 depending on the resource).

Once you have taken the time to ensure your credit score and rating are strong, you will be in a better position to negotiate a low-interest rate auto loan with either your bank or with a dealer-recommended financial institution.

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Be Prepared for Negotiating Car Prices

Auto dealers have a pat repertoire of questions designed to pigeon-hole potential car buyers into long-term finance agreements. Regardless of your previous car buying experience, or whether you are looking to buy new, used, or lease, understanding key questions frequently used by auto dealers, as well as pertinent answers, will strengthen your negotiating power:

Questions to be Prepared for:

  • “So, are you looking for a new truck today?” I’m not sure yet; I’m browsing; Not sure if I want a truck.
  • “Are you trading in your vehicle today?” I have not decided. I like my current vehicle, and not sure that I want to trade it.
  • “How much money do you want to put down on a new car?” I’m not ready to discuss that at this point.
  • How much can you afford in monthly payments?” I will not discuss payments, as they are irrelevant to my purchasing a car.
  • “Do you like the color red? Or is there another color you prefer?” I like red, but prefer black. Do you have this same vehicle in black?
  • “Would you like to test-drive this car? Think you’ll be buying it today?” Yes, I can drive this car today, but not sure I’ll buy this particular vehicle.

Car Buying Preparation Strategies
So far, this is a good start to negotiating. It opens the door to dealing effectively with the salesperson. The key is to ensure that YOU control the sale the entire time. Using the following strategies will ensure you affordably drive away in the vehicle you want, not the one they want to sell you:

  • Use the Internet to determine the value of your existing car. Look up the Blue Book value through kbb.com. This is a great website to determine the value of your car, as well as how much you plan to spend on a new vehicle.
  • Take time to research vehicles to know what is on the market, as well as exactly what you want in a vehicle. Again, you can use the Internet, or you can use the “testing” process as described above. Know the engine size, features, color, and details you want, and most importantly, the price you are willing to spend on a new vehicle before you go to the dealership to negotiate.
  • Wait to buy the car until you are financially prepared to purchase. When you do, seek out the rep and be specific about the exact car you want, as well as your intent to purchase that day. Pre-negotiating your loan with your own bank instead of the bank chosen by the auto dealer will also strengthen your bargaining power.
  • Never tell them if you are planning to trade in your car. Tell them what you will pay for the vehicle without your trade. Only after you have negotiated the price throw in your trade to further lower the total amount of purchase of your vehicle.
  • Do not discuss financing OR monthly payments. This hinders your negotiating power.
  • Finally, walk away if the dealer will not back down. The car will either still be there in a few weeks with an eager dealer, or you will find it at a different dealership down the road.
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The Teacher Tax Deduction

Teachers and other educators should save their receipts when buying classroom supplies that are unreimbursed, since they may deduct up to $250 of it on their taxes.

This tax break originally expired at the end of 2004, but was recently renewed. Eligible educators include K-12 teachers, instructors, counselors, principals, and aides. In addition, they need to work at least 900 hours during the school year.

Deduction Eligible Expenses
Eligible expenses include unreimbursed costs for books, computer equipment including software and services, supplies, and other materials used in the classroom. All items must be “ordinary and necessary”, meaning it must be something that is helpful and generally used by educators for teaching.

Married couples that both teach are both eligible for their own separate deduction, each with the $250 limitation. Also, any expenses above $250 can still be deducted (just as before this tax rule) if you use Schedule A to itemize. However, it would be a miscellaneous deduction, which has a 2% AGI limitation.

So hold on to those receipts!
It is suggested that you keep a separate envelope or folder to keep the receipts for these unreimbursed school related expenses.

 

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Beating the High Cost of University Text Books

Most students embarking on a university or college education have saved diligently for several years by working on summer or evening jobs and by putting aside any money that comes their way. Most rely on some assistance from their parents as well, but the financial realities of attending post-secondary courses come as a shock nevertheless, and students usually find that their first task is to find ways of stretching their hard-earned money to cover their many expenses.

Many of these college expenses are no surprise. Course fees, accommodation, food, and clothing are all quite predictable expenses. Students are also aware that they must purchase text books for their courses, but most of them are totally unprepared for the enormous cost of these books. University text books today can easily cost $100 each, or even more in academic areas such as mathematics and science. When students must purchase ten or twelve texts in their first year it can cause considerable upset to their financial plans.

University and college students have always been quite creative in finding ways to cut down on costs. Purchasing text books has traditionally been a special challenge and, a number of cost-cutting innovations seem to be quickly learned by all freshmen. They know, of course, that they can go directly to the college book store and purchase brand new texts, and, no doubt the wealthier students do just that. Others, however, seek out second-year students to see if they are willing to sell books that they no longer need. Used books can represent a useful bargain, but for those who are really serious about saving money there is an even better idea – the internet.

Searching for scholarly texts on line is an exciting, cost-cutting venture that previous generations of students could not have imagined. Books of all kinds are available through a number of different web sites, but of particular interest to university and college students is the fact that many on-line book sellers have created special sections for university texts. Companies operating these sites are well aware of the requirements for the various courses being offered, and because they obtain these texts in huge volumes, unlike the college store, they are able to offer them for sale at greatly reduced prices.

Students who are considering an on-line purchase of text books should be aware of the additional costs involved. Books purchased at the college book store can simply be picked up and taken away, but when they are purchased through a web site they must be shipped either by courier or by mail, and this can add a significant amount to the original cost. Furthermore, if the texts are purchased through an on-line auction, it can be quite difficult to negotiate a reasonable shipping cost, not to mention the time needed for delivery. These are things to consider, but even with these additional concerns, an on-line purchase is almost always by far the better choice.

Things look even more promising for the future. Some web sites are now dedicated to providing e-books at no charge. If all legal obstacles can be overcome, students will be able to simply download the books that they need. The implications of this for book sellers are enormous, but for students, it will mean an end to the budget-breaking need to purchase expensive books.

The cost of post-secondary education today is a reality that students cannot avoid, and any cost-saving measures that can reduce expenses should be promoted whenever possible. The high cost of university and college texts can be reduced or avoided. Students should be encouraged to take advantage.

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529 College Savings Plans

Qualified Tuition Programs (QTPs), officially referred to as a “529 plan,” is an excellent way to save for your children’s college. This state-sponsored plan, available in every state, lets you, grandparents, relatives, or anybody else contribute at any time. The interest is all tax-free, and when the student draws out money for college, it is tax-free as well.

Types of Plans
Usually there are at least a few different 529 plans your financial services provider will offer, with slightly different investment strategies. Most tend to be conservative in their investment strategies, putting money into things like mutual funds or government bonds. Nonetheless, strategies vary a great deal between plan administrators, and you should treat it like any other investment and due your due diligence. Research the company offering the plan, and look at their investment strategies, and what its track record has been in the past.

Although the idea behind the 529 plan is to allow money to grow tax-free over time, a poor investment strategy can actually diminish your plan’s value. Another major consideration will be the fees involved. Plans sold by brokers are especially likely to carry high fees, which may take a big bite out of your earnings. Plans offered directly by states will charge lower fees. Not all plans charge the same fees, so look for one that offers a reasonable fee structure and a solid, proven rate of return.

Taxes
Regardless of your state of residence, the funds are exempt from federal taxes. States have different policies regarding the tax exemption, but in general, you should purchase a 529 plan within your own state. If your state grants a tax-exemption for the plan, but you buy a plan from a provider outside of your state, you may lose the tax-exempt status on the interest and withdrawals. The tax-free clause on withdrawals will expire in 2011, however, there is a movement in Congress to extend this tax break or make it permanent.

For the purpose of calculating financial aid when the time comes for your child to attend college, having money in the plan does not have to jeopardize the chance at getting a scholarship. The funds are treated as parental assets.

Forms of Plans
The 529 plan can take the form of either a college savings plan, which can be used at any college or university in any state; or a prepaid tuition plan, which locks in tuition at a specific college in your state. You can start saving early in your child’s life with this plan, even if you’re not sure the child will attend college. If the child chooses to not attend, the funds can be put to another use (although there may be a penalty involved), or it can be transferred to another family member’s educational needs.

Other options for saving for your child’s education include a Coverdell Education Savings Account (ESA), also known as an Education IRA. This lets you put aside $2,000 a year. However, there are income restrictions for participation, and the funds are treated as the student’s asset, which may diminish the possibility of receiving other financial aid.

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Tips for Dealing with the Costs of Higher Education

If the cost of higher education is keeping you out of school, then you may be thinking that it’s impossible to earn that desired degree. But before you give up hope, here are some strategies which might open some funds, and some new doors to the college or university of your choice:

Skip over classes
Many colleges offer the opportunity to challenge particular courses by taking an exam which demonstrates your knowledge in a specific area. There is a small fee to take the exam but you’ll save big dollars on tuition and books.

Go to a 2 year college first
Community colleges are typically less expensive than the four year colleges. Enroll in a community college at a less expensive price and then transfer your credits to a four year degree program.

Dig up a university scholarship
Scholarships aren’t just for athletes or geniuses. You can find scholarships from religious groups, professional associations, civic organizations and fraternal groups. You may not even need to be a member to qualify. Talk with the staff in the financial assistance office to learn more.

Get credit for life experiences
Some colleges will allow you to create a portfolio of your on-the-job and life experiences in lieu of completing coursework. While you won’t be able to obtain a degree by making your life an “open book”, chances are that you might find your professional and personal experiences can be translated into course credits.

Sell stuff
Instead of taking a loan, consider selling an asset and using that money toward your college education. For example, if you have a really sporty car then maybe you could sell that for a nice price and use the proceeds to buy a less expensive model and then use the balance to help underwrite your educational expenses.

In general, be creative, take a risk, ask questions and start networking. With just a little bit of effort, you may find those doors to a college education will open more easily than you would have ever expected!

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Investing for Retirement

People are living to be older than they did even just a few generations ago. As a result, they either need to work longer or save more so they can enjoy a carefree and active retirement. Unless you can count on a large inheritance, you will need to find some way to supplement your Social Security income or company pension.

Social security
There is a great deal of talk about there not being enough Social Security after the year 2047 or so. The reality is that by that time the surplus Social Security trust is expected be used up, and retirees will have to rely on the current workforce to pay their Social Security.

The problem is that with a growing number of retired people that workforce will only be able to come up with about 75% of what will be needed to support them. This, on top of the fact that most companies are rapidly doing away with pension plans, means that you need to take retirement savings seriously and do more than your parents and grandparents did.

Ways to save for retirement
Three major ways to save for retirement are through a company sponsored 401k plan, a traditional Individual Retirement Arrangement (IRA) or a Roth IRA. There are advantages to all of them with very few minor disadvantages to some.

The first advantage is realized each and every payday. When you automatically have money withdrawn from your pay to fund your 401k account, that money comes from your pre-tax income. So contributing 6% of your salary does not reduce your take home pay by as much. The contribution is tax deductible, and taxes on the savings are deferred, meaning they don’t need to be paid until you withdraw the money. At your retirement income, that tax rate will also usually be significantly lower than your current tax rate. Be cautioned though that any money withdrawn before the age of 59 ½ will not only be taxed at your current tax rate, but also penalized another 10%.

401K Plan
One of the smartest investments for retirement is a company 401k plan. It is wise to contribute as much as possible, especially when considering some employers will match your contribution up to a certain percent. That is free money, working to give you a bigger base of principle and earning you more interest. Also, with most 401k plans you can choose how your money gets invested. The plan administrator has many fund options such as stocks for younger investors who have the advantage of time and can afford to take more risks. Employees closer to retirement age can choose 100% guaranteed accounts if they want to avoid any risk at all.

Traditional IRA
The same tax regulations apply to a traditional IRA since they are funded with pre-tax, or tax deductible dollars. There are also maximum amounts that can be contributed each year, $4,000 per year starting in 2005. If you are over 50, you are allowed to make larger, “catch up” payments to your IRA each year. There are also restrictions on how much you can contribute to an IRA if you are also part of a 401k plan. If you and your spouse file taxes separately, then the IRA can be in your spouse’s name to avoid some of the restrictions.

Roth IRA
The Roth IRA on the other hand is funded with post tax dollars. You will not get a tax deduction in the year you make the contribution, but the account may never be taxed again, including the earnings on the investment. To get to use your Roth IRA tax-free, then you must have had the account for at least 5 years and be over 59 ½ years of age. There are a few qualifying expenses that allow you to use the money without penalty before retirement age. These include major medical expenses, some education expenses and even the down payment on your first home.

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Investing Begins with Savings

How do you start investing money? The key to investing is savings. An effective savings strategy coupled with a smart investing strategy will help you to meet your financial goals.

Every dollar saved now helps you to control your current consumption by which the size of the income that you think will be required for retirement is lowered. Also, through the power of annual compounding, it increases the size of the nest egg you’ll have for retirement.

Discipline
To achieve any goal in life, one needs to be disciplined. Similarly, saving and investing too requires discipline. A disciplined approach helps you to remain focused on your financial goals. Formulate a plan and review it periodically to ensure that you are on the right track.

The 10% rule
Your goal should be to save at least 10% of your total before tax earnings. This should be the minimum. Most millionaires live far below their means as they are disciplined and highly focused on their financial goals from the beginning. They are millionaires because they have decided to be so.

Review your current consumption patterns
Conduct a careful study of your consumption patterns. Identify items of expenditures that you can do without or explore opportunities to reduce your costs without unduly sacrificing the item. Review such items as your cable bill, telephone bill, entertainment expenditure, insurance, brokerage services, utilities, cars. Divert these cash savings automatically to an investment account.

Budgeting Plan
Budgeting is vital to any savings strategy. It helps you to identify where your money is going. Wasteful consumption patterns can be controlled through successful budgeting. Often a simple spreadsheet in Excel would suffice. In fact, you can use the budget template that is already available when you buy the Home edition of Windows XP.

Plan to make saving automatic
Find out from your employer whether you can direct your paycheck to different accounts. If you don’t have such a service, you can set up an account that will take the money automatically out of your checking account each month. Let the amount be directed to an investment account. This is re-enforced savings which implies you save first and spend the rest from your paycheck.

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Emergency Money

Keeping a budget is not enough. Life always hands us surprises and we often end up with expenses we did not plan for. Because of this there should be another aspect of your financial picture. That other aspect is called emergency money.

Emergency Money
Emergency money is money that you put away not as an investment and not as savings, but for emergencies. And these do happen. It is best to put away about two months worth of income for this purpose. Some experts say it should be three months. The actual amount is debatable. Whatever you decide on make sure it is enough to adequately handle whatever comes up. The original basis for the three-month rule was the fact that most short-term debilitating illnesses require three months for healing and recovery.

How much should you save for emergencies?
Calculating the amount needed should be fairly easy. What you want is enough money to pay all of your bills and cover the normal expenses you have budgeted for a typical month. For example, if your net budget and spending income for a month is $3000 then you should put away $9000 for emergency money. This is not money for investments or for retirement. Those two categories should be allocated separately.

Emergency money is used for expenses such as accidents, healthcare expenses not covered by insurance, and death and disability or other instances where you did not have a budget made for a particular expense. Insurance is a separate issue and should be a separate part of your financial plan. If you do have disability insurance then this will serve in some ways to protect you in the event of short-term disability. Thus, you should determine what the benefit would be and then reduce the amount needed for emergency expenses by that number. The bottom line is to make sure that any applicable insurance actually covers all the contingencies without any problems. You can ensure that is the case by checking the policy or talking with your agent or financial advisor.

Where should this type of money be invested?
Ideally it should be in a very liquid investment that is very easy to get to and can be accessed quickly. Money market funds are the most popular option. These are short term, liquid investments that most mutual funds and some banks provide for easy access and cash type liquidity. They usually pay a nominal rate of return somewhere just above the average savings account rate of the typical bank. The risk involved in these types of investments is nominal but should not be discounted. The best recommendation is to read the prospectus and verify for yourself that the manager is investing in dependable and safe short-term investments.

Other possible options for emergency money is the savings account, cash or some other asset that can be easily liquidated without taking a loss. Many CD’s would qualify under this category and should be looked at as an option. Of course when investing your emergency money you should be seeking to get the maximum return possible without compromising on safety.

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Saving Cash for an Emergency

The unexpected may happen at any time, and that is why it is important to save some money in case of an emergency. You never know what may happen to your job, family, or health, so it is financially smart to always be prepared.

An emergency fund, or rainy day fund, is a savings fund that you keep separate from your other savings accounts, and only touch when absolutely necessary.

How much to save?
The general recommendation is to save enough money to cover your living expenses for at least three months. If your job is less secure, if the economy is weakening and job layoffs are increasing, or if you are self-employed, then you probably should save closer to six months or more.

If you have other savings that you could tap into after your emergency fund, then you could adjust how much you need to save accordingly. For example, if you have retirement savings that you could borrow from, or friends and family that could lend you the money, then perhaps you only need three months of emergency savings.

Where to keep the money?
Money in the emergency fund should be kept in savings accounts that are easy accessible, such as a money market account. You should fund your emergency account before any of your other savings accounts.

If you don’t have the money right now to fund an entire emergency fund, that is ok. Start small and save a little bit from each paycheck, until you have built up the required savings. In the meantime, you may try to cut back on some other unnecessary spending to help.

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International Adoption — How to Cost-effectively Adopt a Child from Overseas

As more couples finish their “biological” families, or are unable to conceive biologically, often they turn to international adoption as an alternate method to grow their families. Walk through any mall or McDonald’s, and you will likely see a Chinese girl or Guatemalan boy in the arms of a blond-haired, blue eyed mom or dad.

Unfortunately, international adoption is a very costly and often daunting process. The average cost of an international adoption runs around $25,000, including all adoption agency fees, actual “in-country” court fees, attorney’s fees, document preparation, miscellaneous fees, and travel expenses.

Before you go running in the opposite direction, here are some tips to affording an international adoption:

Pay off all credit cards. One item that adoption agencies all review is your financial status. Paying off your credit cards in advance of the adoption process will place you in a better situation financially to afford adoption more readily.

Pay off all car loans or other loans you may have. Again, having less cash going out the door each month to different creditors will ensure you have more cash on hand to pay for all the “little” costs that add up.

Obtain a “line of credit” from your local bank. A line of credit is a very cost-effective loan that requires you to pay interest-only for a certain period of time. This will ensure you have the funds available when you need them, and will give you time to pay back the loan will paying only on the interest of the loan. The other great thing about this is that a line of credit tends to have a very low percentage rate.

Take advantage of the $10,000 tax credit provided by the federal government. Everyone who adopts internationally is eligible for a one time tax credit of $10,000. Once you have brought your child home, you will be able to apply for the tax credit, which will come back to you the following year when taxes are due.

Check your employer for adoption assistance. Many employers now offer as much as $10,000 in adoption assistance as a benefit to their employees. Check with your HR department to see if your benefits package includes adoption assistance.

Adoption Subsidy Program. If you are willing to adopt a “special needs child”, then you may be eligible for Adoption Subsidies. Adoption subsidies, also known as Adoption Assistance Payments (AAP), are monthly payments made to parents who adopt children with special needs from the U.S. foster care system. The amount is based on the severity of the child’s disabilities and is in no way related to the income of the adoptive parents. Subsidy (along with Medicaid coverage for the adoptee until adulthood) is meant to defray some of the costs associated with raising children. It is not meant to reimburse all expenses. It is not income so it is not taxable. It is not meant to take the place of child support after a divorce. It was designed to make adoption more affordable and therefore more feasible for the typical adult or couple. The average base amount nationwide is about $350.00 per month.

Raise the money yourself. From garage sales to second jobs to starting businesses out of your home, you can designate all the money you raise from these efforts to go toward your adoption. Other ideas include selling cookbooks, holding raffles, or even doing contract or freelance work such as writing, marketing, or recruiting.

Ask for help. Not the most popular option, but could work well if you are tightly connected with your family, your faith-based organization, or are from a smaller community. There are many organizations that will let your friends and relatives make tax-deductible donations to your account at an adoption bank or foundation. Consult a financial advisor about whether or not expenses paid with foundation money are also valid expenses for tax credits for the adoption.

If you are active in a church or synagogue, they might want to help out financially by holding fund raisers such as bake sales, car washes, or even bowl-a-thons. Talk to your religious leader about your need and he or she may be able to encourage the youth group or other organizations to volunteer their help.

Adoption grants. Some faith-based organizations will provide grants to couples who qualify based on pre-set criteria. One such site is Shaohannah Shope, a non profit organization founded by Steven Curtis and Mary Beth Chapman, Christian music artists. This organization, based on their own story of adoption, provides information and assistance to people who want to adopt but lack the financial resources.

International adoption is a wonderful gift that many adults can experience. With the right resources and a little creative planning, international adoption doesn’t have to be as financially overwhelming as it may seem on paper.

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Saving Money For Kids

Lets face it — its expensive having kids. From the beginning, buying clothes and diapers, to later in life paying for school and college, can make it difficult to save money.  To help you save money if you have kids, here are some spending and saving tips and advice.

Also, along with saving money, it’s critical to learn good budgeting skills. See our budgeting section for some helpful teaching and learning worksheets and lessons.

Cutting Costs on Clothing
Clothing is something you will be spending a lot of money on, and especially for younger kids, they will outgrow it quickly. So to save money on clothing, try to find discount clothing stores, or secondhand clothing shops for your child’s clothing. Also, try swapping clothes with friends and family who have older children.

Saving on Baby Items
A new baby will need a crib, car seat, stroller, and more baby goods. Again, check second hand stores and hand downs for these items. However, don’t cut corners where safety is involved. For example, in the case of a car seat, you want to make sure the seat is very new and passes all current safety regulations, and has not had any recalls.

Kids and Tax Savings
Having children changes your tax situation. You will receive a tax exemption for each child in your family. Also, you may want to research putting investments into your child’s name, since money they earn can often be placed into their tax bracket instead of your own.

Swapping Toys
Instead of buying lots of expensive toys, consider buying fewer toys, and then swapping them with friends and family. Kids quickly lose interest with their toys, but often have a greater interest in new toys. By swapping, you can increase the frequency of new toys without spending additional money.

 

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