Making Use of Found Money

Lost and FoundOver the course of adulthood, particularly the older you get, you are likely to open multiple financial related accounts (e.g. checking, savings, CDs, insurance policies, etc.). The more accounts you open over a lifetime increases the odds that you may lose ‘contact’ at one time or another for one or more accounts.

This is particularly true if you have moved frequently. Over the course of my 21-year Army career I moved – changed duty stations – 12 times. While I have had the same checking account for the last 14  years, I probably had six or seven different savings/checking accounts prior to that.

If you believe you have some money out there from an account you lost contact with, simply forgot about or weren’t aware of to start with, there is a means by which you can find, and recover, your money. Missing Money is a site that works with state and provincial governments to safeguard and return your lost funds. Endorsed by the National Association of Unclaimed Property Administrators (NAUPA) and the participating states and provinces, the website assists individuals with thoroughly searching all participating states to find your family’s missing, lost or unclaimed property, money and assets.

Common types of unclaimed property include: bank accounts and safe deposit box contents, stocks, mutual funds, bonds, dividends, uncashed checks and wages, insurance policies, CD’s, trust funds, utility deposits and escrow accounts.

Returning from a recent business trip to Germany, sitting in the Houston Airport – and a long layover – I checked out the site to see if the Mrs. and I had any money floating around out there. No luck. However, I did find that three family members had a total of nine instances between them where they had unclaimed money. The site only shows if a given account is less than or more than $100. If you believe you are the person associated with a given account, links are provided to start the process of claiming your money. If you are able to catch up with some of your lost money, the question becomes, “What should I do with money I didn’t know I had or forgot about?” 

Instead of buying something you don’t really need or treating the family out to a gourmet meal somewhere, I have three suggestions: apply it toward any debt you may have, establish or apply it to an existing emergency fund or contribute to an IRA.

Service your Debt: There isn’t a lot that can be said about debt. This scourge – discussed here, here and here – can weigh on you mentally, physically and financially. The sooner you free yourself from the burden of servicing debt, the more you can focus on managing your retirement plan.

Emergency FundContribute to your Emergency Fund: As SavvyReaders know, an emergency fund is a cash account that is used only in the event of an emergency, to fill critical financial gaps, or meet unexpected expenses. It is immediate access to cash that allows you to take care of unforeseen circumstances without impacting the money you have committed to saving and investing. With regards to the question of how much should be maintained in an emergency fund, there are various schools of thought. While some suggest one year’s living expenses, others suggest three, six, or nine months of income, while others might suggest something else entirely.

In most cases, your marital status (theoretically single people should have more as they are reliant on a single income); the number of children in the household, and the level of job security are probably the primary factors. Other factors might be the age of your appliances, the age of your primary vehicle, as well as the age of other items in your household that might need repair or replacement. Ultimately, the amount will vary for everyone as the factors that impact their lives will be entirely different. However, I recommend three months living expenses as a minimum for your emergency fund.

Contribute to your IRA: A great savings vehicle, particularly for those that do not have access to a 401(k) type defined contribution plan. If you haven’t maxed out contributions for this year, $5,500 if you are 49 years of age or younger, $6,500 if you are 50 or older, this is a great way to put your new-found money to use. Note that the contribution limits for 2015, as recently announced by the IRA, have not changed.

If you recover some money from your past, put it to use today to serve your future.

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Retirement Plans – Contribution Limits Announced

Retirement Limits - 2015As most people are aware, the maximum amount of contributions an individual can make to her or his 401(k) plan is set each year by the internal Revenue Service (IRS). That number has not been adjusted for a couple of years.

For the 2013 and 2014 tax years, individuals were able to contribute up to $17,500 as an elective salary deferral to a 401(k) plan.

Additionally, an individual could contribute an additional catch-up contribution of $5,500 starting in the year they turn 50 years of age.

Note that an individual does not have to wait until 50 before making the catch-up contributions, they can do so in the year they turn 50.

IRS Announces 2015 Pension Plan Limitations [Internal Revenue Service]

Great news! The maximum for contributions to private sector 401(k) plans, the federal government’s Thrift Savings Plan (TSP) and other comparable programs have been raised to $18,000 for 2015. For people over 50 years old, the catch-up contribution threshold has been increased from $5,500 to $6,000.

Unfortunately, the limit on annual contributions to an Individual Retirement Arrangement (IRA) remains unchanged at $5,500. Also, the additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

Of course you have to maximize contributions to your plan to reap greater benefits; namely a more comfortable retirement. To say that I am not a fan of the old maxim that you should contribute 10% of your salary to a 401(k) plan would be an understatement. I encourage people to think in absolute (i.e. exact dollar amounts) vice relative (i.e. as a percentage of something) with regards to investment goals.

For those who plan to contribute the maximum allowed, the wisest way is to divide the annual limit into equal installments per pay period. Get paid 26 times per year? Your contributions each period on an $18,000 limit would be $692.31 if you are 49 years of age or younger. Turning 50 in 2015 or older? You can contribute $923.08 each pay period on a $24,000 limit.

Studies suggest that those who max out their contributions remain a minority but that group is growing. Currently, it is estimated that 15 to 20 percent of active contributors maximize their contributions. Although you may not be in a position to maximize your contributions, do not get discouraged. However, you must develop a plan for getting yourself into a position where you can slowly increase your contributions until the maximum is achieved. As discussed in my book and on this blog on a number of occasions there is no great secret to how that is done; decrease expenses – eliminating debt being a significant factor – and increase income.

Start making plans to take advantage of the new contribution limits!

 

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Manage Your Fiscal and Physical Fitness

Physical and Fiscal ChoicesJust as being physically fit involves two critical components, controlling diet and exercising; being fiscally fit also involves two critical components, controlling debt and investing. Not only are both concepts built around two components, the two are linked in two key ways. First, the impacts from one often have similar consequences for the other. Second, people often have similar mindsets or beliefs about both concepts, which are often apparent in their actions.

It is no coincidence that the same people who believe that the lottery is their road to riches are generally the same folks who believe the answer to being physically fit lies in a new diet cookbook or the latest workout program. You know the one, the infomercial advertising the plan at 2:30 a.m. The one that offers a  video for three low payments of $19.99 plus shipping and handling. The reality for both long term fiscal and physical well-being? The development and management of detailed plans and the recognition that there aren’t any short cuts. It takes hard work and firm commitment.

The High Cost of Smoking [Debt Free Guys]

A few examples of the phenomenon include smoking, a poor diet (being overweight), and carrying significant debt:

•  Not only are there numerous health consequences associated with smoking, it is an expensive habit. Money used to buy cigarettes cannot be used to fund an emergency fund or an IRA. Smoking, a sure-fire way to negatively impact your physical and fiscal well-being with one habit.

•  A poor diet makes achieving/maintaining physical fitness much more difficult and often leads to health problems, which can be expensive to treat. The money that is used to pay for medical treatments – which could have been avoided or mitigated with a better diet – cannot be used to add to 401(k) contributions or saved for a child’s college education.

•  Carrying significant debt impacts more than your fiscal well-being. Any of us that has ever found themselves in a debt hole understands the tension and anxiety that often comes with it. Adding to the woes, a recent study by the Feinberg School of Medicine at Northwestern University concluded that there are physical impacts as well, including the finding that individuals with greater debt were found to have a 1.3 percent increase (relative to the mean) in diastolic blood pressure. It isn’t enough that debt often prevents individuals from achieving financial freedom, it also negatively impacts their mental and physical well-being.

For many people, the first two steps toward achieving fiscal fitness are to stop smoking and to lose weight:

Can Weight Loss Save You Money

Image created by Bankrate.com

Sources: Centers for Disease Control | American Journal of Clinical Nutrition | Barbara O’Neil | Jay Zagorsky

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Losing Our Way

Money ChoicesBook: Losing Our Way: An Intimate Portrait of a Troubled America (2014). This new book by Bob Herbert, a former columnist at the New York Times and now a Distinguished Senior Fellow at Demos, a national think tank, serves as a much-needed wake-up call.

As the title suggests, Mr. Herbert believes that the united States has lost its way, evidenced by our rampant unemployment and underemployment, neglected infrastructure, income inequality and the scourge of poverty. Following his departure from the New York Times three years ago, Mr. Herbert set off on a journey across the country to report on Americans who were limping from paycheck to paycheck and falling further behind in an economy that has yet to fully recover from the Great Recession.

Restoring an America That Has Lost its Way [Moyers & Company | YouTube]

Among the Americans Mr.Herbert meets during the course of his journey are a twenty-something woman who suffers devastating injuries in a tragic bridge collapse in Minneapolis; a twenty-four-year-old soldier from Peachtree City, Georgia, who loses his legs and an arm in a seemingly endless war; an exhausted high school senior in Brooklyn who works the overnight shift in a factory, packaging bread, at minimum wage to help pay her family’s rent; and a group of parents in Pittsburgh who fight back against the politicians who decimated funding for their children’s schools.

Losing Our WayThroughout the book, Mr. Herbert reminds readers of a time in America when unemployment was low, wages and profits were high, and the nation’s wealth, by current standards, was distributed much more equitably. Mr. Herbert traces where we went wrong and highlights the drastic and dangerous shift of political power from ordinary Americans to the corporate and financial elite.

In vivid anecdotes Mr. Herbert humanizes the many problems he uncovers and opines that salvation for America lies in a concerted push to redress that political imbalance. While there is a great concern for the state of the country, all is not without hope. Mr. Herbert firmly believes that Americans can, and will, come together to set the nation on a new, sustainable course.

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The Scourge of Student Debt

Avoid the ScourgeScourge: noun [skurj] A cause of affliction or calamity. There is no doubt about it, student loan debt is a scourge, particularly for Millennials.

A recent TransUnion study found that a decade ago, student loans accounted for only 12.9% of the total debt load carried by people ages 20 to 29. It now stands at 36.8%. Moreover, the average student loan balance for those with loans jumped to $29,575 from only $17,442 in 2005.

Student loan and credit card debt is killing Millennials. If a young person is constantly focused on debt, they are not in a position to save and invest for financial goals such as buying a home or saving for retirement.

The scourge of debt has led many to question the value of attaining a college education. While I believe there are some valid criticisms of the costs associated with attending college, I believe it is worth understanding there is a high correlation between education and income, and income is a significant factor in attaining wealth.

I don’t believe the right questions are “should I attend college and will it be a worthwhile return on my investment?” The questions should be, “What should I be studying at college and what is the best way to finance it and avoid taking on significant debt?” To the latter question, I offer three considerations.

  • Military Service. Individuals can learn a skill/trade while earning decent salary/benefits, use programs like Tuition Assistance (government pays 75% of costs) while on active duty, and the GI Bill once separated from service, all with the added bonus of serving your country. Individuals can earn a college degree (multiple degrees in fact) to pair with their training and real world experience at no expense…other than the service.
  • College Savings Plans. Forward looking parents should start a college savings plan (e.g. 529) as soon as possible. Unfortunately, too many parents are financially illiterate which negatively impacts their children with regards to matters such as determining how to finance an education.
  • Community College. There is no requirement, or need, to attend a university all four years. A better option is to spend the first two years at a local community college; staying at home and working at least part-time. Overall it is a great way to spend less money and be more prepared. The first two years are primarily spent just taking core courses (e.g. English) and lower level specialty courses anyway.

The infographic below nicely illustrates the exponential growth of student loan debt, suggestions for what the future might hold and options for paying for college.

Image created by Credit Sesame

Sources: newyorkfed.org | ed.gov | census.gov | federalreserve.gov | libertystreeteconomics.newyorkfed.gov | money.cnn.com | statistics.gr

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