Tuesday, January 31, 2017

Countdown to Financial Fitness: Saving Money on Car Rentals

Countdown to Financial Fitness: Saving Money on Car Rentals: I just returned from a trip where we had to rent a car, which can be a transaction as complicated as doing taxes. We're not particularl...

Saving Money on Car Rentals

I just returned from a trip where we had to rent a car, which can be a transaction as complicated as doing taxes. We're not particularly brand-loyal. We shop around online, inquire about any discounts we might be eligible for, and we usually end up with a pretty good price.

Then comes the upsell. First, they want to change you to a bigger car. From economy to mid-size. Mid-size to full-size. Full-size to luxury. (Sometimes they're out of your category, and they'll give you a free upgrade if you don't take their offer to pay for one.) On this occasion, the counter agent said, "You're in luck. I can put you in a Mercedes convertible." My husband said, "Great. For the same price?" Well no, it was going to be about twice what we'd been quoted for our full-size sedan. No thanks, we'll stick with the Toyota Camry we reserved.

Do you need a GPS? Just a couple more dollars a day. No, we'll use the GPS on our phones, thank you. Car seat? No kids. Extra driver? Most companies don't charge extra to add a spouse, but if you're renting with an unrelated person, make sure you both plan to drive before adding this expense. I rented a car with two friends once, and they wanted us to pay an extra $10 a day for each additional driver. We did end up adding one extra driver, but we didn't need two.

Another time we rented a car in New Mexico, and when the agent handed over the contract for me to sign, I noticed the charges were higher than the quote I'd printed out. I asked her why. "Your quote didn't include the emergency roadside assistance. It's only two dollars a day, and everyone wants it." I had her remove it, as I already have that coverage through AAA (American Automobile Association).

Not filling up the car before you return it can be costly, and you'll be warned of this penalty at check-out. However, you may be offered the option of purchasing a tank of gas in advance at a per-gallon price lower than what you'll see at the pumps, and then returning the car empty. Only problem, you'll pay for the full tank of gas even if you only use half or less. Don't fall for this add-on unless you plan to drive far enough to burn through a whole tank and can actually return the car on fumes.

Luckily, the online quotes now list all the non-negotiable taxes and fees you'll be charged. For our most recent rental, we paid sales tax, vehicle license recovery, airport concession, and a California tourism fee. In the old days, when we got a quote over the phone of a daily rate "plus tax," I was always surprised at how much the bottom line increased by the time all those charges were added.

And then there's the insurance. A lot of agents ask questions like, "Do you want full coverage, or just the basic?" My answer is usually, "Neither."

The most common "basic" coverage car rental companies offer is CDW (Collision Damage Waiver) or LDW (Loss Damage Waiver). Adding this coverage can increase the cost of your rental contract by 25-30%, but counter agents will try to scare you into taking it, as otherwise, you are fully liable for theft or any damage to the vehicle, regardless of who is at fault.

And sometimes things happen. We've been fortunate in our travels so far, but we've come close to disaster a few times. Once, in Hawaii, we were parked on a street lined with palm trees. When we returned to our car, we noticed the car in front of ours had a huge dent in its roof—damaged by a falling coconut! It could just as easily have been us.

But if you have collision and comprehensive coverage on your own automobiles, check your insurance policy before you go, because there's a good chance you'll enjoy the same coverage in a rental car. (Especially in the United States; check the rules if you're renting a car in another country.) Also, many credit card companies provide CDW/LDW at no charge if you use that card for the rental and decline the car company's coverage. Check the fine print or call your credit card issuer, and pay with the card that provides the best coverage.

Other optional insurance you can buy includes personal accident insurance (covers your medical costs resulting from an accident) and personal effects coverage (damage or loss of personal property you place in the car). Again, check the coverage you already have. If you're renting a car in the United States, chances are your personal health insurance will cover your medical bills in case of an accident. And the liability portion of your automobile insurance policy will cover those of others who are injured. If you have homeowners or rental insurance, that policy may cover your personal effects.

If you're traveling abroad and are buying travel insurance for your vacation, it might be cheaper to add coverage for car rentals to that policy than to purchase the insurance separately from the rental car company. Do a little research before you leave.

By all means, don't put yourself at unnecessary risk. But you might be able to save money by avoiding the purchase of duplicate coverage and options you don't need.

What tips do you have for saving on car rentals? I'd love to hear your comments.

Monday, January 23, 2017

Countdown to Financial Fitness: Do You Need an IRA? Traditional or Roth?

Countdown to Financial Fitness: Do You Need an IRA? Traditional or Roth?: While it's too late to max out your 401k account for 2016, it's not too late to open or fund an IRA (Individual Retirement Arrangem...

Do You Need an IRA? Traditional or Roth?

While it's too late to max out your 401k account for 2016, it's not too late to open or fund an IRA (Individual Retirement Arrangement). You have until April 17, 2017, to designate a contribution for 2016. You can contribute up to $5500—or $6500 if you're over age 50.

But if you already have access to a workplace retirement plan, do you need an IRA? And if so, should you fund a traditional IRA or a Roth?

That depends.

Anyone under age 70 1/2 with taxable compensation can contribute to a traditional IRA. If you're not covered by a workplace retirement plan, you can deduct your IRA contributions on your income tax return regardless of your income. Even if you have a workplace plan, you can deduct your contributions provided your income is under certain levels (depending on your filing status). If you don't qualify for deductible contributions, you can still make nondeductible contributions. This means you don't get a tax deduction in the year you fund the account, but when it comes time to withdraw the money, you'll only owe taxes on any gains. You're required to start withdrawing the money and paying the applicable taxes once you reach age 70 1/2 or you'll face stiff penalties... basically, the government will take it if you don't.

A Roth IRA is funded with after-tax money, but eligible withdrawals of contributions, as well as gains, are not taxed. You can continue to contribute to your Roth account at any age, as long as you meet the income requirements, and there's no minimum distribution rule for the original owner (i.e., as long as it's not a Roth account you inherited). To be eligible to contribute to a Roth, your modified adjusted gross income must be below certain amounts (depending on filing status). But since 2010, there's a loophole in the law that allows anyone, regardless of income, to convert a traditional IRA to a Roth after paying the applicable taxes.

If you don't qualify for a tax deduction for a contribution to a traditional IRA, but you do meet the income eligibility requirements for a Roth, it's a no-brainer. Go for the Roth. Otherwise, you have a decision to make: is it better to pay the taxes now or later? Do you think you'll be in a higher or lower tax bracket after you retire and begin making withdrawals? Many people believe taxes can only go up and thus, the Roth contribution or Roth conversion is the better move. But your situation could be different.

A financial planner once told me I was being irresponsible by maxing out my tax-deductible 401k account, that I should have made Roth contributions instead. One argument he gave is that a large traditional retirement plan can leave an unwanted tax burden on your heirs, whereas with a Roth, the tax has already been paid for them. But because I don't have children, my beneficiary will most likely be a charity, and the charity won't have to pay income taxes regardless of what type of account they inherit. However, if one of your financial goals is to leave a legacy for your heirs, consider a Roth. In fact, many 401k plans are now offering a Roth option, so workers can contribute after-tax money instead of the traditional pre-tax contributions.

I prefer to hedge my bets, so I have pre-tax 401k money (which since my retirement, has been rolled into a traditional IRA), as well as Roth accounts. I really don't know what my tax situation will be later, or how the tax laws will change.

If you can spare the money to contribute to both a workplace plan and an outside IRA, by all means, do both. If you can't max out both, I suggest contributing to your workplace plan at least up to any employer match (to do less is leaving free money on the table) and then putting additional money into a Roth IRA at a discount brokerage such as Fidelity, Vanguard, Schwab, etc., if you qualify. A large discount brokerage will most likely offer access to more diverse investment products than your workplace plan.

Whatever you decide, even if it turns out not to be the ideal choice, contributing something is better than contributing nothing. If you put away as much as you can whenever you're able, you'll increase your chances for a comfortable retirement.

What tips do you have for retirement contributions? I'd love to hear your comments.

Tuesday, January 17, 2017

Writers Who Kill: Out-of-the Box Marketing, by Sharon Marchisello

Writers Who Kill: Out-of-the Box Marketing, by Sharon Marchisello: So many books are published every year, and when you're an unknown author, it's hard to get noticed. If you ...

Countdown to Financial Fitness: Shrink Your Financial Footprint

Countdown to Financial Fitness: Shrink Your Financial Footprint: In my personal finance e-book, Live Cheaply, Be Happy, Grow Wealthy , I often refer to "shrinking your financial footprint" as a ...

Shrink Your Financial Footprint

In my personal finance e-book, Live Cheaply, Be Happy, Grow Wealthy, I often refer to "shrinking your financial footprint" as a way to build wealth more easily. Although I didn't make it up, the term "financial footprint" is not widely used, so I'll offer my interpretation.

We all leave footprints during our brief stay on earth. You've probably heard a lot about "your carbon footprint" which is related to how much energy you consume. The larger your carbon footprint, the more natural resources are required to sustain your existence. We're all encouraged to shrink our carbon footprints in an effort to preserve our environment.

Your financial footprint is how much money you need to fuel your lifestyle. The smaller your financial footprint, the fewer financial resources you'll require to lead a satisfying life. The less money you need to sustain your daily existence and pay for the things and experiences you value, the more you'll preserve to build wealth, which you can use to further enrich your life, and to support causes you care about.

The two footprints can be somewhat related. For example, someone who drives a gas-guzzling sports car will probably have a larger carbon footprint than a person with a well-maintained compact. And probably a larger financial footprint as well. The extra money spent on premium gas and higher insurance bills won't be going into the retirement fund or toward the kids' college education.

But maybe you want more than just basic transportation from point A to point B? Your vehicle is an expression of your personality, and driving that gas-guzzling sports car fulfills a dream. Fine. There may be other areas in your life where you don't mind scrimping in order to shrink your overall financial footprint. Like turning down your thermostat in winter. Boxing up your leftovers and stretching them into another meal. Resisting the urge to upgrade every time a new iPhone comes out. Packing washable clothes that mix and match so you can travel with only one roll-aboard.

There is a certain satisfaction in living within a smaller financial footprint. But you have to adjust your attitude to be happy with less baggage, to find joy in things and experiences that don't cost a lot of money. You have to stop worrying about impressing others with your consumption. Separate value from cost.

Once you get in the habit of shrinking your financial footprint, you'll feel less like the fat person, overstuffed from the all-you-can-eat buffet, and more like the trim person, invigorated after a bit of exercise and a nourishing meal of healthy-size portions.

What tips do you have for shrinking your financial footprint? I'd love to hear your comments.

Sunday, January 1, 2017

Countdown to Financial Fitness: New Year's Resolutions You Can Keep

Countdown to Financial Fitness: New Year's Resolutions You Can Keep: Most New Year's Resolutions are abandoned within the first month. Some people don't even bother to make them anymore. One reaso...

New Year's Resolutions You Can Keep

Most New Year's Resolutions are abandoned within the first month. Some people don't even bother to make them anymore.

One reason resolutions are hard to keep is that they are often unrealistic. Overnight, we vow to forsake our old ways and become perfect. It's hard to suddenly break habits we've formed over a lifetime.

Crash diets don't work because you're asking yourself to adopt a behavior that is unsustainable, and even unhealthy. As soon as you meet your goal, provided you make it, you'll go back to the same eating patterns that made you fat in the first place, and the pounds will pile back on. For a weight-loss plan to be successful, you have to permanently change your eating and exercise habits. The best way to do this is gradually, taking small, manageable steps.

The same goes for achieving financial goals. If you instantly try to impose an austerity program on a spendthrift, you're setting yourself up for failure.

Set reasonable expectations. For example, if you've identified eating lunch out daily as an area where you can cut expenses, instead of promising to start taking your lunch to work every day from now on, set a goal of brown-bagging it several times a week. Make lunching out a special treat, rather than a necessary errand to grab something to fill the void.

If you're not maxing out your retirement accounts and building a healthy retirement fund is important to you, try increasing your contributions by a few percentage points at first. (Or put that money you're saving from not going out to lunch as often into an IRA.)

If you're teetering on the edge of bankruptcy and you've resolved to get completely out of debt in 2017, that goal might be a bit ambitious. Why not plan to pay more than the minimum payment each month, stop accruing additional debt, or pay off one credit card within a specified amount of time? (And apply that money you're saving on lunches out to reducing your debt.)

Before you make your resolutions, establish some long-term, big-picture goals. What do you want your financial future to look like, and why? What will it take to get there? How do you want to feel when you've reached those goals?

Next, write down reasonable resolutions that take you toward these goals, tell a trusted friend or family member willing to hold you accountable, and get started. If you falter, don't give up. Just like it wouldn't make sense to throw in the towel on a diet because you overate at a party, don't abandon your financial goals because you overspent on a shopping spree or missed a payment. Forgive yourself and get back on track. When you do make some progress, celebrate your success, and then keep going.

What resolutions have you made for 2017? What tips do you have for keeping them?