CFP Board eNewsletter
February 2008
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CFP Board eNewsletter |
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| Welcome to America Saves Week! |
‘Saving some money for a rainy day’ is one of those things we often say but seldom do. In fact, judging by consumer behavior, you would think there wasn’t a cloud in the sky. The national savings rate is around –1%, meaning that on average Americans spend around 1% more than they earn. People pay for that spending through borrowing, using credit cards or tapping into savings. Consumer spending is crucial to economic growth, of course. But spending at the expense of saving could mean trouble should the financial weather turn unpleasant. A survey published by the Consumer Federation of America in December of last year found that 52% of Americans said they currently could not afford to save or were not saving enough. “When it comes to saving, many people say they can’t do it because they are living from paycheck to paycheck,” says George Barany, director of financial education for Consumer Federation of America. “America Saves Week is intended to be a focal point for financial action, to show people at all income levels that they can save and that there is real value in doing so.” America Saves Week is an initiative of America Saves, a nationwide campaign to support individuals in saving money, reducing debt, and building wealth. This year, America Saves Week runs from February 24 through March 2 and involves hundreds of local, state, and national groups. The America Saves Week Web site has information on how organizations (Get Involved as an Organization) as well as individuals (Get Involved as an Individual) can take part. “We hope to encourage people to save for something specific: a house, a car, a vacation,” says Barany, who also coordinates America Saves Week. “The most important thing is to establish a goal and then to start saving towards it, even if you can only save small amounts.” This year’s theme is “make it automatic.” Whatever your goal, Barany says, making savings automatic puts money “out of sight, out of mind, out of pocket and into somewhere where it can accrue.” According to Barany, only 40% of Americans have an emergency savings account, a fund they could use for unexpected expenses like health care bills or car repairs. Having as little as $10 a month automatically deducted from your pay check and deposited in a savings account could help you build a crucial financial cushion in case of emergency. (For more on emergency funds, see “In Case of Emergency ... Use This Fund!” in the September 2007 issue of It’s Your Turn.) Throughout America Saves Week, participating financial institutions will offer a range of savings and investment opportunities for small savers. America Saves Week also encourages consumers to set specific financial goals, such as:
For tips on how to keep your savings specific and sustainable, see “Making Financial Goals Stick” in the January 2008 issue of It’s Your Turn. The CFP Board Web site also features Savings Fitness, a detailed guide to reducing debt and building wealth. “America Saves Week is an opportunity for all Americans to assess their financial situation and to do something about it,” Barany says. “We want to motivate people to see the value in saving, in terms of the goals it can help them realize and the peace of mind it can bring. People who start saving even small amounts tend to get excited about saving more — and saving better.” To enroll as an American Saver, go to the Enroll Now section of the America Saves Web site. The America Saves site also has Saver Resources and Savings Strategies to help get you started. For additional information, go to the Savings & Wealth page of the Consumer Federation of America’s Web site, where you can download brochures covering everything from managing debt to teaching kids how to save.
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| Stimulate Your Finances: Using Your Tax Rebate Wisely |
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It’s not often that tax time arrives with good news, so the 2008 tax season is one to be thankful for. Last week, President Bush signed an economic stimulus package that includes plans to distribute tax rebate checks of $300 to $1,200 to approximately 130 million tax filers. Many families will also get $300 per qualifying child under the age of 17. Although individuals with adjusted gross incomes of $75,000 or more and couples making $150,000 or more will see smaller rebates or none at all, most households across the country will begin to receive tax rebate checks in May. The $168 billion economic stimulus package was designed to put some life into the United States’ economy at a time when consumer prices are rising and words like “recession” slide into casual conversation. The President and Congress hope people will run out and spend the tax rebates, putting money into the hands of businesses across the country and giving the economy a needed boost. But will buying a new television or digital music player really make much of a difference to the overall economy or even make a significant impact on your life? You may want to consider ways you can use the money to improve your own personal economy. Pay Down Debt Take Care of Needed Repairs Save or Invest for Long-Term Goals Professional Financial Planning Services For more information on the 2008 tax rebates, visit the IRS Web site at: http://www.irs.gov/irs/article/0,,id=177937,00.html
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| Survey: How Will You Spend Your 2008 Tax Rebate? |
Most Americans will soon receive tax rebates ranging from several hundred to more than a thousand dollars. That’s a sizeable amount of money for any household. Let us know what you plan to do with your 2008 tax rebate. In the December edition of It’s Your Turn, we asked readers to share what they anticipate their biggest financial decision will be during 2008. The largest number (over 31%) indicated that buying a house will be the the big decision of the year. Travel or vacation was next in line, with more than 25% of survey responses. Nearly tied for third place (over 15% each) were school loan repayments and having a baby. Buying a new car rounded out the survey with 12.5% of responses.
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| Free Tax Help through VITA |
Preparing a tax return is for many people a complicated and stressful experience. If you want to reduce your stress during tax season — and make sure you’re taking advantage of all the credits and deductions you’re entitled to — you might want to check out the IRS Volunteer Income Tax Assistance (VITA) program. Through VITA, trained volunteers provide free tax return preparation assistance to low- and moderate-income individuals and families. VITA sites are located in community centers, libraries, schools, and shopping malls across the country. To qualify for VITA as an individual, your income must be under $15,000; to qualify as a family, your household income must be less than $40,000. VITA volunteers help prepare your tax return free of charge while ensuring that you use all the credits — such as the earned income tax credit, child tax credit, and credit for the elderly — for which you are eligible. In 2007, VITA programs served nearly a million families, returning more than $1 billion in tax refunds, according to the Chicago-based Center for Economic Progress, which has been providing free tax prep services since 1994. In order for a VITA volunteer to prepare your return, you will need to have the following information and documents:
To locate a VITA site near you, call 800-829-1040. The National Community Tax Coalition, a project of the Center for Economic Progress, works with community-based free tax preparation groups across the country. The Program Locator page on its Web site has detailed information on free tax prep programs in your state. To pick just one example of what a VITA program can accomplish: In 2007, the Denver Asset Building Coalition prepared just over 2,500 Federal tax returns — and claimed refunds of over $3.5 million! If you need tax preparation assistance but don’t fit the eligibility requirements for VITA programs, there may be other free services you can use. Like VITA, the Tax Counseling for the Elderly (TCE) program provides free basic income tax return preparation, but with a special focus on people aged 60 and over. AARP, a non-profit membership organization for persons 50 years of age and older, offers free tax counseling services at thousands of sites around the country. To locate the nearest AARP Tax-Aide site, call 888-227-7669 or visit the Tax-Aide locator page on the AARP Web site. Military servicemembers and their families can obtain free assistance to prepare and file their annual tax returns through the military’s tax assistance program, which processes more than 200,000 returns each year. Free tax-filing assistance services are open to active-duty and reserve component servicemembers, as well as family members and military retirees. Participants can visit their installation tax center for free assistance in filling out tax returns or access the Military OneSource Web site.
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| A Tool to Manage Your Tax Refund: IRS Form 8888 |
According to the IRS, more than 61.5 million federal tax refunds were issued in 2007, with the average refund coming to $2,324. If those numbers conjure up images of people waiting eagerly by their mailboxes, you haven’t been keeping up. The IRS now provides an online Where’s My Refund? function that allows people to find out when their tax refund was issued, and the IRS now deposits tax refunds directly into taxpayer accounts more often than it mails out tax refund checks. A more recent development – Form 8888 – provides even more options, allowing a “split refund” that deposits portions of a tax refund into two or three different accounts. IRS Form 8888, titled simply “Direct Deposit of Refund to More Than One Account,” allows taxpayers to divide their refund among two or three different accounts at U.S. financial institutions. (You can still request deposit of a refund in just one account by using the direct deposit line on your tax form.) The form is a simple one, as tax forms go, with areas for identifying the amount you want deposited in each account, and areas for providing the routing information for those accounts. As with any direct deposit from the IRS, the deposit should give you access to your refund at least one week faster than a paper check. Why would you want to split your refund? If you have more than one financial goal – whether contributing to a child’s college education, making a downpayment on a new house, or saving for retirement – you likely have different accounts set up for each goal. You probably also have different rates at which you fund those accounts. The split refund method allows you to put portions of your tax refund exactly where you’d like them, rather than depositing your refund into a checking or savings account and later moving part of your refund to another account. Your refund can be deposited in nearly any type of checking or savings account with a U.S. financial institution. According to the IRS, that includes passbook savings, individual development accounts (IDAs), individual retirement arrangements (IRAs), health savings accounts (HSAs), Archer MSAs, and Coverdell education savings accounts. The primary consideration is whether your financial institution will accept direct deposits into the type of account you hold. Check with your institution to verify they’ll accept a direct deposit into your specific account. When you’re on the phone with your institution, take a moment to verify the routing numbers for your account. And don’t forget to double-check the accuracy of the account numbers and routing numbers you enter on your tax return. Accuracy is everything when it comes to tax documents and electronic fund transfers. While it’s a smart goal is to aim for a small refund or a small payment of taxes due (See “Tax Refunds Aren't Found Money: Evaluating Your Income Tax Withholding Rate” in the March 2006 edition of It’s Your Turn), if you’re expecting to receive a tax refund this year, you can have your tax refund deposited in a way suited to different aspects of your financial plan by using Form 8888. For more about Form 8888, visit the IRS Web site at: http://www.irs.gov/individuals/article/0,,id=163764,00.html
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| Financial Alerts |
Fighting Back Against Identity Theft The Federal Trade Commission (FTC) recently released a list of top consumer fraud complaints received by the agency in 2007. For the seventh year in a row, identity theft was the top consumer complaint category, with 32 percent of 813,899 total complaints received in 2007. FTC’s website includes a comprehensive section with detailed information to help you deter, detect, and defend against identity theft: Making the Claims Process Easier: According to the National Association of Insurance Commissioners (NAIC), in 2007, the No. 1 complaint of insurance consumers was delays in the claims process. While some delays are related to the processing of claims by insurance providers, other delays are inadvertently caused by the actions or inactions of those filing the claims. To help consumers avoid problems with claim processing, the NAIC offers tips for filing claims related to different types of insurance: Read more financial alerts.
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| About This eNewsletter |
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CFP Board's "It's Your Turn" eNewsletter is sent monthly to those who have subscribed through CFP Board's Web site, www.CFP.net/learn. CFP Board exists to make people aware of the benefits of financial planning and to encourage people to seek out individuals who can help them apply the financial planning process to improve their financial lives. This eNewsletter is designed to provide information about financial planning, financial planning tools and resources, consumer alerts and more. Suggestions and feedback are welcome at mail@CFPBoard.org.
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