Why You Shouldn’t Freak Out If You Miss a Payment Due Date

Uneasy woman doing her accountsThe due date for your mortgage loan payment slipped past without you sending a check to your lender. Or maybe you didn’t have enough money in your checking account to send an on-time payment to your credit card provider.

Don’t panic. Your financial misstep might not hurt your credit score just yet.

Missed payments are a sure way to send your three-digit credit score plummeting by as many as 100 points. This financial mistake will remain on your credit report for seven years.

But late payments aren’t immediately reported to the three national credit bureaus of Experian, Equifax and TransUnion. Often, lenders and credit providers won’t report missed payments until they are at least 30 days late. This means that even if you miss your initial due date, you can still avoid a hit to your credit score by paying before 30 days pass. But first consider these variables.

Late Isn’t Always ‘Officially’ Late

Whitney Fite, president of Angel Oak Home Loans in Atlanta, said that most mortgage loans today come with a 15-day grace period. Your mortgage might be due on the first of the month, but lenders won’t assess a late fee unless you fail to pay by the 15th of the month. This late fee will vary by the size of your loan, but could be about $100.

Credit card companies will also charge late fees if you miss your payment. Those fees vary, but what might hurt more is when your card provider increases your interest rate to the penalty rate. Under rules spelled out in the Credit CARD Act of 2009, your card provider can impose a penalty interest rate if you become more than 60 days late on your payment. These penalty rates are a true punishment, often running as high as 29 percent.

But as long as you pay your mortgage, auto loan, or credit card payment within 30 days of its due date, most lenders won’t report a missed payment to the credit bureaus. This means that your credit score itself will not be harmed.

Fite warns that you need to be careful when paying after the official due date on auto loans, mortgages, or credit card payments. If you wait too long to send in your check, you might be tempting fate and you might find yourself facing a late fee or credit hit after all.

“It can be a dangerous game to squeeze out a few extra days with the grace period,” Fite said. “Any delay by the mail carrier could result in the lender receiving the payment after the 15th and late fees being assessed.”

Actually Late Can Hurt, However

If you can, be sure to send in that payment before the 30-day grace period ends. A single reported missed payment can lower your score by 100 points or more, especially if you had a relatively unblemished credit history before your missed payment.

You don’t want a low credit score. Lenders today rely on these three-digit scores to determine how much interest you’ll pay on loans and credit cards. If your score is too low, you won’t even qualify for loans or credit.

Lenders consider a FICO credit score of 740 or higher to be a strong one. If your FICO score is under 640, you might struggle to qualify for loans or credit cards, and when you do qualify, you can expect to pay high interest rates on the money you borrow.

Some missed payments are more damaging to your score than others.

“Recent late payments on mortgages are more damaging than late payments on other consumer loans,” Fite said.

Unwanted Calls

You might not have to be 30 days late to begin receiving unwanted collection calls, too. Fite said that some lenders will begin making collection calls shortly after the first of the month. He said that almost all mortgage lenders will begin calling about missed payments on the 10th or 12th of the month.

So if you don’t want to hear from collection agencies? Make those payments on or before your due date. And it goes without saying that paying your bills on time — every time — is always the best policy.

7 Ways to Cut Down on Holiday Gift-Giving

Family opening Christmas presents togetherAs the holiday gift-giving season approaches, we often are filled with a sense of dread: How will we ever find the perfect gift for everyone on our list, the time to finish our shopping and the money to pay for all the stuff we need to buy?

Some Americans are saving money and sanity by changing their gift-giving traditions and, in some cases, eliminating gift-giving entirely.

“I just gave up altogether,” says Sandy Smith, a human resources professional in New York City who blogs at Yes, I Am Cheap. Several years ago, after realizing she had blown a substantial bonus on gifts people had long forgotten, she told her parents, brother and sister that she was no longer going to buy Christmas gifts for them, and she didn’t want them to buy her anything, either.

Instead, she would take the family out to dinner at her expense. Her brother has since joined her in financing the outing, which the family looks forward to every year.

“We’ve enjoyed going out and hanging out and enjoying different cultures and cuisines,” she says. The first year she took the family to an authentic Chinese restaurant in New York City’s Chinatown. “It was such an exotic experience for my parents, and they loved it,” she says. “We’ve been introducing them to different foods all over the city. They’ve had a good time traveling the world through food.”

Holiday traditions are important to many people, but you may find that your relatives are happy to quit exchanging gifts, especially as the family grows.

“It’s all about time, money and energy,” says Stefanie O’Connell, founder of the personal finance blog The Broke and Beautiful Life. “I think that the gift-giving process is a toll on all three of those things.”

She suggested to her four siblings several years ago that they quit giving each other holiday gifts and concentrate on their parents and older relatives. Not only did she save money, she discovered that she had more time available to spend with her family since she wasn’t out shopping. Her friends draw names for a Secret Santa exchange and they have the added bonus of enjoying the get-together where they exchange the gifts.

Some families find it easy to limit gift-giving among adults but still want to make their children’s holidays magical. But buying fewer things may be better for your children, says Andrea Deckard, a mother of three boys in Cincinnati and author at Savings Lifestyle.

She and her husband decided several years ago that they would buy each of their three boys only four gifts every year: Something they want, something they need, something to wear and something to read. They coordinate with grandparents and other relatives, so that if someone else in the family is buying one of the boys a jacket, the parents will get him socks or underwear, for example.

“We want to make sure they’re not getting too much junk,” Deckard says. How do the kids react to receiving fewer gifts? “It’s not as much of an issue as some people might think it is,” she says, adding that her sons, who are now 8, 11 and 16, have learned from the experience. “Our kids now realize that it’s stuff and we don’t really need all this stuff this time of year.”

Getting off the gift-giving merry-go-round starts with a frank discussion with friends and family.

Smith, whose blog chronicles her journey of paying off $120,000 in debt from student loans and a failed business venture, has been vocal in recent years about her less stuff, more time philosophy. She believes it frees her friends from worrying about whether they need to buy her something because she’s buying them something.

“It turns into this crazy thing where they’re not really giving you a gift because they want to but because it’s a pre-emptive strike,” Smith says. “When you put it out there, it makes things easier for everyone. … I think a lot of people want to go back to simpler things. I don’t think people will protest much.”

Here are seven ways to cut down on holiday gift-giving, while saving you time, money and stress:

Set a realistic budget, and then figure out how to stay within it. Many people buy gifts without calculating their total expenditures and are surprised when the bills arrive. “Getting honest about what those numbers look like is a way to get grounded,” O’Connell says. “You don’t want to be paying your Christmas bills when spring comes.”

Talk to your significant other about alternatives. O’Connell and her boyfriend put the money they would have spent on gifts toward trips they take together. Other couples may prefer a night at the movies or a romantic weekend at home.

Suggest to relatives and friends that you end or limit gift exchanges.Some families may draw names for gift exchange, do a Secret Santa drawing, set dollar limits or end gift-giving entirely. Others, like Smith’s family, may do something together instead of exchanging gifts. “It’s been better for my relationship with my family,” Smith says. “The experiences have been so much better than the gifts that I was giving.”

Coordinate gift-giving for kids with other friends and relatives.Deckard’s family members keep in touch to make an effort to limit the gifts they buy to things the children actually want or need. If your child wants something expensive, all the relatives might go in and buy that one gift, rather than buying individual gifts.

Opt out of office gift exchanges. Bake cookies for co-workers or write each a note about what you appreciate. O’Connell, who works in theater in addition to writing, gave up participating when she noticed how much some co-workers worried over the gift exchange. “The Secret Santa became this financial stressor that people weren’t finding joy in,” she says.

Ask your relatives if they would prefer alternatives to gifts. Many older people don’t want more things. Grandma may have all the sweaters she needs, but she may really want you to come over with dinner one evening or clean her gutters. Or, perhaps all the relatives can go in together and buy a year of housecleaning for the grandparents. Young families may appreciate an evening of babysitting, and teens may really enjoy an outing alone with a relative.

Bring edible gifts to parties. O’Connell comes from a big Ukrainian family where guests are expected to bring gifts. “You don’t come anywhere empty-handed,” O’Connell says. But a $5 bottle of wine is considered gift enough, she says. Wine, chocolate, cookies or other food items don’t cost much and won’t end up on a shelf collecting dust.

4 Money Mistakes People Often Make After a Spouse Dies

mourning woman on funeral with...
In the wake of a spouse’s death, it may seem too soon to think about how to manage your money from here on out. And you would be right.

But at some point, it’s one of those topics you need to examine carefully. If this was the love of your life, and you’re in deep grief, then you’re in a state of mind that’s prone to making financial mistakes. According to a number of financial experts, there are at least four major money missteps widowers and widows tend to make once a spouse passes on.

Shaking up your life too soon. Whatever your situation, you probably have some major decisions to make with your partner’s passing, but what seems like a logical decision today may not seem so smart tomorrow.

Give yourself some time to really think about what you’re doing, financial experts say

“Some people want to immediately pay off a mortgage and make other large changes too quickly. That can create a situation where there [are] little liquid funds available, which may be more important for the survivor,” says Rochelle Odesser, vice president of Madison Planning Group, a financial planning firm headquartered in White Plains, New York.

Myra Salzer, who owns The Wealth Conservancy, a Boulder, Colorado, wealth management and financial planning firm, agrees. “Before one has experienced a new equilibrium, decisions that are made tend to be poor ones,” she says, reeling off some of the things surviving partners may get wrong: “Widows might sell the family house for less than it’s worth, just to get rid of it, or invest IRA assets in annuities to guarantee an income, even though the IRA is already tax-advantaged and the annuity might not pay out enough for the minimum-required distributions.”

And for good measure, Roger Bell, president of Roger R. Bell & Co., a planning and investment consultancy in Pulaski, Virginia, concurs.

In that first year, he says, “too often, the surviving spouse expends large sums of money to purchase vehicles, improve their house or take extended and numerous trips.”

It’s understandable. You’re recovering from a huge loss. A positive change, likemaking home improvements or taking a trip abroad, is going to clear your head. But if you aren’t careful, it will also clear out your bank account.

This is a time, Bell says, when your “capacity to reason and think clearly is impaired.” But he adds: “In time, the surviving spouse will regain their capacity to address matters in a rational and timely manner.”

Spending too much. If your husband or wife was the one who paid the bills and made the financial decisions, you may find it empowering to be in control of the purse strings. But be careful. You may not have as much money as you think.

William Matthews, a financial counselor in Houston, says he often sees widows and widowers doling out loans and monetary gifts to family and friends.

“Stop,” he says. “You’re emotional and shouldn’t rush in to help others without thinking about it. You’re down to one income, and you need it.”

It doesn’t mean you can’t help your kids with small purchases, Matthews says, but he was struck by what he saw with the daughter of a friend. After losing her husband, the widow gave the couple’s daughter $2,000 toward a car down payment and gifted her $5,000 to go toward moving into an apartment. But she shouldn’t have parted with so much money, according to Matthews.

“She struggled to pay her bills … and almost lost her home,” he says.

Being too trusting. “The biggest mistake I have seen is being too quick to trust someone, especially in places you may typically have your guard down,” says Jeff Weeks, a certified financial planner with ATX Portfolio Advisors in Austin, Texas. “Be wary of the salesperson you know only through places like church and social clubs.”

Twice, Weeks says, he has tried to help widows who lost large portions of their nest eggs, over $100,000, “in what turned out to be Ponzi schemes. In both cases, their spouse had been the primary decision maker in financial matters and died prematurely from sudden illness.”

In each case, the widow found her financial adviser through referrals at church.

But those are extreme situations, Weeks says. “What’s much more common are predatory insurance salespeople or stockbrokers that sell expensive commission-based investments that may qualify as suitable, but that benefit the salesperson more than the client. The salespeople count on unsophisticated clients that are unlikely to read or understand the language in an insurance contract or prospectus.”

Weeks makes the observation that “con people rely on a certain level of trust.”

It’s tough, though. Wouldn’t everyone like to think that if they’re getting a referral through church, it’s as solid a referral as they come? But no — at least, you can’t make that assumption.

Switching financial advisers. Maybe this falls under the category of not being trusting enough. Quite a few financial advisers have mentioned that after a spouse dies, the surviving partner will often change financial advisers.

“A recent study by Fidelity Investments found that 70 percent of widows dismiss their adviser within a year after their spouse dies,” says Robert Johnson, president and CEO of the American College of Financial Services in Bryn Mawr, Pennsylvania. “There can be significant costs to changing advisers both in terms of time and money. Surviving spouses should give the adviser the benefit of some time to establish a trusting relationship with them.”

Switching a financial adviser can fall into the category of making a big decision too quickly. If you haven’t been running the financial show for a while, and your financial adviser has been assisting with your finances for some time, there is a pretty good argument that switching advisers for someone who doesn’t know you and your finances well is the last thing you’d want to do in haste.

If anything, that is the money lesson to grab hold of when you’re grieving: Take your time making any decision. The status quo may not be sustainable, but it probably is for a little while longer, at least until you can think clearly. You probably feel like there’s a gaping hole in your life. Creating a gaping financial hole to go along with that is the last thing you need.

6 Car Expenses That Are Really Worth the Money

Mechanic changing tire in auto repair shopAs any driver knows, it’s easy to get overwhelmed by the abundance of car-related goods and services, from pricey detailing to third-party warranties to premium fluids. Car owners on a budget must decide when to invest and when to cut corners. Pinching pennies in the wrong places can cost more down the road and raise concerns about safety. consulted auto manufacturers, technicians and maintenance guides to determine what’s worth the money when it comes to your car.

Regular Tire Rotation. If you’ve ever looked at the bottom of your shoe and noticed that one area is more worn than another, you already have an idea about the need to rotate tires regularly. Tire treads wear unevenly through normal driving, a process worsened by incorrect tire pressure and uneven alignment. When tires are rotated properly, they wear more uniformly, resulting in a smoother ride, more balanced handling, increased traction and more effective braking. Plus, rotating tires makes them last much longer and improves gas mileage. Use the opportunity to make sure they are inflated to the appropriate pressure.

Check the owner’s manual to see how frequently tires should be rotated. Manufacturers generally recommend doing so every 6,000 to 8,000 miles. If tires make noise even on smooth roads — typically a loud humming sound — that can be a sign that they need to be rotated. The job takes less than an hour and the average cost ranges between $27 and $35, according to RepairPal. Car owners who purchased tires from Costco, Sam’s Club, Walmart and Sears really have no reason to shirk — this service comes at no charge.

Certification Program. When buying a used car it’s worth spending the extra few hundred or thousand dollars on one that’s “certified pre-owned.” These vehicles often come with an extended manufacturer’s warranty. Plus, if any problems crop up after the warranty expires, the manufacturer may be willing to help out — good luck getting anyone to do that for a vehicle that was purchased without the certification.

Buying a certified pre-owned car also provides assurance that the car is in working order and won’t break down as soon as you drive it off the lot. American Honda, for example, requires a 150-point inspection for a vehicle to earn the certified pre-owned title. Among other things, the inspection looks for aftermarket parts on the car, which Honda (and some experts) contend can affect the vehicle’s safety, reliability and performance. Moreover, using aftermarket parts generally voids the manufacturer’s warranty.

Oil Changes on Schedule. An oil change is one of the least expensive maintenance services and also one of the most critical, so there’s no excuse for neglecting it. Oil keeps a vehicle’s engine clear of sludge and build-up and ensures that all components run together smoothly. Dodging regular oil changes can lead to a host of problems, from worn pistons to all-out engine failure, that require extremely expensive repairs.

Even car owners on a tight budget should stick to the schedule. Having a trusted technician looking at the vehicle on a regular basis is a smart habit because it draws attention to small issues, such as fluid leaks or worn-out parts, before they become unsafe or costly disasters.

Oil changes generally are recommended every 2,500 to 3,000 miles, but check the owner’s manual for the manufacturer’s specific recommendation. It will also indicate the recommended grade of motor oil, which is important because the wrong grade can reduce a car’s gas mileage by 1 or 2 percent, according to theU.S. Department of Energy.

Frequent Washes. It might seem frugal to forgo car washes in order to save money, but this is an outlay that pays off. Bird droppings, for example, can cause permanent damage: When the paint on a vehicle gets hot, it softens and molds itself around the hardened droppings. The result is uneven paintwork that appears scratched, pitted and dull. Getting a fresh clear coat is costly and blemished, unsightly paint reduces a car’s resale value. The longer the droppings remain, the worse the damage, so remove them promptly and in general wash the car frequently.

Periodic Waxing. If a future sale is in the cards, occasional waxing is critical to maintaining the value of the car. Wax does more than just add extra shine — it prevents paint from fading and dulling and preserves the clear coat. Wax protects the car’s exterior from the elements, such as UV rays, salt, exhaust, acid rain, ice, bug splatter, scratches, dirt and so on. When it comes time to sell the vehicle, the better the exterior looks, the higher the asking price can be. Prospective buyers always notice the exterior even if they have no idea what to look for under the hood.

Most experts recommend hand waxing every three months or so or at least every six months. To gauge the need, splash a little water on the car: If it doesn’t bead up, it’s time for fresh wax. A little practice makes this a cheap DIY job. Alternatively, go the professional route; CostHelper users report paying $40 to $90 for a simple wash-and-wax. Splurge for a hand wax. The wax add-on at automated car washes doesn’t offer much real protection.

Brake Pad Replacement. When it comes to brake pads, a little prevention and maintenance go a long way. If worn brake pads are not replaced, the brake rotors will warp and need to be resurfaced or replaced, both of which are costly. It’s easy to get brake pads checked during a standard oil change or tire rotation.

Brake wear depends on several factors, so there’s no hard-and-fast schedule for replacing brake pads — consult a trusted professional technician. However, if you hear a squeaking, screeching or grinding sound or feel pulsing or vibrating when braking, it may be time for new pads. Decreasing brake effectiveness — it takes longer to stop or you must press the pedal harder than usual — is another common sign of brake wear. Replacing brake pads is both a money saver and a crucial safety measure. New brake pads cost cost between $100 and $250 — an expense that’s worth every dime.

Money Problems and Couples: How to Be a Better Partner

Couple looking at credit card billThere are plenty of things that put strain on a relationship. If you are a grown up person in some sort of partnership with another grown up person, you already understand this. You also know that money problems are at the root of a great deal of disharmony, which seems to be a universal trait.

Having your money under control means greater personal security, a better chance at happiness, more options for the feature, more leisure time and a whole host of other life benefits. But when couples feel the pinch, sparks can fly. In fact, one recent study found that arguments about money are the single greatest predictor about whether married couples will one day divorce.

That’s an interesting finding, seeing as the researchers found that it didn’t matter if the couples were rich or poor, had debt or were debt-free. Fundamental disagreements about money transcend socioeconomic status, and when you and a partner don’t see eye to eye, your relationship may pay the price. If you and your partner are on the rocks due to financial stress or if you want to avoid these problems in the future, here are some things to work on.

Don’t Be So Materialistic

A BYU study found that people with the highest measure of “materialism,” or the perceived importance of having lots of money and things, had the lowest measure of happiness. When one or both members of a romantic relationship scored high on the materialism index, the relationships seemed uniformly miserable. How do you be good with money without being materialistic? There’s no easy answer. In the same way some people are intelligent without being arrogant, while other intelligent people are full of themselves, some people just seem to pull off the feat.

Practically speaking, investing money in meaningful shared experiences, maintaining a reasonable lifestyle regardless of income and becoming more charitable are all ways of staving off the creeping effects of materialism. It may require some attention and personal change, but anybody can learn to better prioritize money and things, in favor or human relationships and happiness.

Have the Same Money Goals

Partners who don’t share money goals and spending strategies tend to have problems … to put it mildly. Some research indicates that when one partner perceives the other partner’s spending habits to be foolish, the couple is 45 percent more likely to break up. Going from financial harmony to cooperation is easier said than done. It may take a financial catastrophe, money education, or counseling. Both partners need to recognize the problem and work to correct it. It can be hard work, but establishing a workable budget and planning together for the future is integral to the stuff that makes lasting relationships.

In addition to shared goals, every couple should help manage money. One partner can cover daily inflow, while the other invests and makes sure the bills are paid. Whatever jobs you choose for yourselves, it’s essential that both partners be involved daily. It’s not enough to make a plan, then pass it on to one partner while the other partner ignores it completely.

Set the Problem Aside (for a Minute)

Money troubles have a way of sucking the air out of the room. If you and a partner are in debt, you likely don’t enjoy fun times outside of the house, away from your problems, very often. If money trouble has taken its toll on your relationship, find a way to get a breath of fresh air. Go for a hike, spend time with close friends, have your parents watch the kids while you take a breather. Doing the work or rehabilitating your joint financial life is tough. This work can be as stressful as the money problems themselves. If you’re doing the work of making your shared finances work better, take some time for yourselves. If your relationship can survive this time in life, it can get through anything. Give it all the help you can.

If money problems and miscommunication are weighing down your relationship,start investing in a better future. Money difficulty can be the most toxic element in an otherwise successful relationship. Fix these problems, and you and your partner with have a much greater chance at health and happiness.

Why You Should Buy Longevity Insurance

Senior man using digital tablet at breakfast tableIt’s a dirty trick of modern life: escaping disease and accident to live long — only to run out of money before the end.

With the withering of old-fashioned pensions combined with longer lifetimes and baby boomers flooding into retirement, the insurance industry is churning out a raft of new, deferred-income annuity products to provide guaranteed income later in life for a big payment upfront or over time. And new government rules allow investors to buy these products with money built up in tax-favored accounts, such as IRAs and a 401(k).

DIAs seek to overcome drawbacks in “longevity insurance,” which has been around for decades without catching on.

Along with their cousins, immediate-income annuities, which start smaller payouts immediately after purchase, DIAs can provide dependable retirement income for life.

“Go back a generation or two. Did anybody not like having a pension?” says Douglas Dubitsky, vice president of retirement solutions at The Guardian Life Insurance Company of America. “We are saying, ‘Well, you can create that yourself.'”

DIAs “are a good thing,” says Anthony Webb, senior research economist at the Center for Retirement Research at Boston College. “They enable households to insure [against] the risk of living exceptionally long.”

DIA sales are up. LIMRA International, the insurance trade group, says DIA sales reached $2.7 billion in 2014, up from about $1 billion in 2012. That’s still a minuscule share of the multi-trillion-dollar financial services market, but many experts expect sales to continue growing as consumers catch on to the new offerings.

The old-fashioned longevity policy, which is still available as a plain-vanilla DIA, is simple. For example, you could spend $100,000 to buy a policy at 65, and 20 years later start receiving an income as high as $50,000 to $60,000 a year. The high payout is possible because the insurer has that 20-year “deferral period” to grow the initial $100,000 before payouts begin, and because many policyholders will die before they receive much income, if any. Once spent, the premium is gone for good.

Old-style longevity insurance never really caught on, largely because consumers didn’t like giving up that big upfront payment for an income stream they might never receive.

In the past few years, insurers have addressed these concerns by offering optional features to allow the income to start earlier — at 65 in many cases. With add-on features, the income stream, once it begins, will rise with inflation. Other features allow joint coverage for a couple, and some return the premium to survivors if the policyholder dies before payouts start, or before income received equals the initial premium. Providers say many people are purchasing DIAs in their 40s or 50s, with payouts to begin in their 60s or 70s rather than 80 or 85.

“We have a lot of clients who think of it as a health care coverage possibility” for old age, says Liz Forget, executive vice president of MetLife Retail Retirement & Wealth Solutions.

Add-ons, of course, come at a price: a smaller payout. One firm, for example, offers a 64-year-old man $55,584 a year at age 85 for a $100,000 premium. Add a feature to return the premium to heirs if the policyholder dies early, and the payout falls to $36,228.

Among the add-ons, premium return has proved the most appealing to purchasers, says Chris Blunt, president of the investments group at New York Life Insurance Co. Inflation protection, which can reduce the payout substantially, has less appeal, being adopted by only about 10 percent of policyholders.

That shows many consumers have things backward, Webb says. “Inflation protection is expensive but probably worth it. Return of premium is definitely not worth it.”

Annuities generally have fees associated with them that make them more expensive than comparable mutual funds or [exchange-traded funds], and this negates any advantage in many cases.

That’s because the whole idea is to insure against the risk of living a long time. If you die soon after buying a policy, you won’t face that risk, but live a long time and inflation can chew up the buying power of your DIA payout.

DIAs have their critics, too. DIA critics typically worry that policies are hard to understand and that not enough policyholders will live long enough to make them pay off. David Weinbaum, associate professor of finance at Syracuse University, warns of costs embedded in DIA-payout calculations.

“Annuities generally have fees associated with them that make them more expensive than comparable mutual funds or [exchange-traded funds], and this negates any advantage in many cases,” he says. “In other words, they are just too expensive for what they are, and most investors would be better served in traditional low-cost index funds. I would recommend that most people not invest in annuities at all.”

Experts who do recommend DIAs generally say a purchase shouldn’t exceed 10 to 30 percent of one’s retirement assets.

In July 2014, the U.S. Treasury department issued new rules permitting DIA purchases with IRA and 401(k) assets, in a “qualified longevity annuity contract,” or QLAC. This allows investors to tap what for many is the largest or only source of retirement funds. And the rules also allow the policyholder to wait until age 85 to begin taking required minimum distributions that IRAs and a 401(k) normally require after age 70½. The maximum QLAC purchase is $125,000, or 25 percent of IRA and 401(k) assets, whichever is smaller. (Note that if your 401(k) does not offer a DIA, you would have to first transfer the funds to a rollover IRA, which cannot be done until you have left the employer.)

These new rules are gradually being reflected in product offerings. “Advisers are very interested,” Forget says.

While a DIA can be a useful tool, experts say that these days, some potential customers are holding off in hopes that higher interest rates over the next few years will make DIA payouts more generous.

Blunt says it’s true that premium pools largely hold interest-paying securities likecorporate bonds. The more the insurer earns on the pool, the more likely the firm will offer a larger payout for a given premium. “If you had a sense that rates were going to skyrocket in the short term, then you are better off waiting,” Blunt says.

But he and other experts argue that what would be gained from a modest increase in interest rates could be more than offset by the payout cut from shortening the deferral period by waiting to buy.

“Most of the time, the people who have been waiting [to purchase a DIA] got crushed in the last six or seven years,” Blunt says. Some DIAs offer a recalculation option or dividend payment to counter the effect of rising rates. And Dubitsky suggests buyers make several DIA purchases over time to improve odds of benefiting from higher rates later.

For those who live long enough, a DIA can be a good investment, as the payout relative to the premium far exceeds what can reasonably be expected from bonds, or even stocks. It would take a double-digit investment return for a $100,000 nest egg to grow enough to spin off $50,000 a year after 20 years.

A DIA purchase should be considered carefully, as payouts and other terms can vary considerably between providers. Many major life insurers offer DIAs. Online services like WebAnnuities Insurance Agency provide quotes, and financial services firms like Vanguard and Fidelity offer plans from multiple insurers. But before buying, it may be worthwhile to talk to a trusted insurance broker who can evaluate products from a variety of providers.

Critical List: Key Financial Steps to Take Before Year End

Young adults examining documents and calculating
OK, it’s early November, and there’s plenty of time left on the calendar until year-end, right?

Maybe, and maybe not — at least when it comes to tidying up your household money matters. You’ll need more time than you think to get your financial house in order by Dec. 31, and the clock is ticking. Time constraints with Thanksgiving and Christmas beckoning will surely swallow up some valuable time, as will end of the year (and quarter) workplace deadlines, leaving less time than you think to make financial decisions that could mean big bucks (and less in taxes) to the financial side of your life.

Financial consumers should take end-of-the-year financial deadlines seriously, as tax, retirement savings and other household financial decisions can spell the difference between sizable individual assets, and missed opportunities that curb the size of those assets.

No worries, though, as help is on the way. In the latest edition of Fidelity Investments Viewpoints report, the Boston-based mutual fund behemoth lists its top 10 end-of-the-year “smart financial moves,” including a thorough review of your investment portfolio for asset allocation purposes (that’s number one on the Fidelity list.)

Turning investment losses into tax gains, choosing a charity to maximize tax gains, using any money left in a flexible spending account and taking required distributions at age 70½ also make the list.

While the Fidelity year-end “to do” list is well worth a look, other financial experts off their best bets for a year-end household financial checklist:

Start with your budget. Your budget is the best place to start your financial goal evaluation, says Katie Ross, education and development manager at American Consumer Credit Counseling. “Paint a clear picture of your financial situation right now,” she said. “This budgeting and daily expense worksheetmight be a good resource for you to use. Once you know where your money is going, you can identify areas to cut back. That will also help you find more money to apply towards your debts, or add to your savings and get a good head start for the new year.”

Pencil in some ‘quality time’ with your financial adviser. This tip comes from Taylor Schulte, founder of Define Financial in San Diego. “While you are most likely in touch with your financial planner throughout the year, December and January are good times to get a face-to-face meeting on the books, if possible,” Schulte says. “Use the time together to ensure he or she is up to speed on all of your 2015 life updates and start discussing your 2016 goals. Do you need to start thinking about your child’s college education? Have your insurance needs changed? Have your career ambitions changed? Do you anticipate a significant change in income or expenses?”

Have a thorough list. That’s the advice from Stuart Ritter, a financial planner and vice president of T. Rowe Price Investment Services, who provided the following to-do list to MainStreet.

  1. Check your asset allocation; rebalance if necessary.
  2. Review beneficiary designations.
  3. Make sure you are saving 15 percent of income.
  4. If you are saving enough, contribute to a Roth IRA, you can contribute until April 15, but the sooner the better.
  5. Use a donor-advised fund for charitable contributions to avoid capital gains tax.
  6. Consider a 529 plan for your child’s college education.
  7. Gift up to $14,000 without gift tax consequences.
  8. Be aware of capital gains distributions.

Maximize your 401(k) contributions. Margaret J. Smith, director of tax and financial planning at Canal Capital Management in Richmond, Virginia, advises topping out on your retirement plan by year-end. “Employees can defer up to $18,000 each year, $24,000 if over 50, resulting in significant tax savings this year,” Smith says. “Also, if you expect 2015 to be a large income year, and 2016 may not be the same, consider accelerating deductions such as charitable contributions, your January mortgage payment/interest expense and medical expenses into 2015 to receive a larger tax benefit this year.”

Time is on your side right now, with eight weeks or so left until Dec. 31 — use the time wisely and get your financial life in order for 2016.

5 Things Your Taxes Bought for the Pentagon in October

Arlington, Virginia. An aerial view of the Pentagon.After the storm comes the calm.

As the clock ticked down toward the end of the Pentagon’s fiscal year on Sept. 30, Defense Department acquisitions specialists rushed to shovel money out the door, awarding contracts left and right in the final days of September. By the time all the dust settled, $34.76 billion in contracts had been awarded.

The month of October, by contrast, was relatively calm. “Only” $17.1 billion in contracts were handed out by the Pentagon last month. And thanks to the Defense Department’s open books policy, and its commitment to publishing all contracts of substantial size on the day they’re awarded, for public review, we know how much each of these contracts was worth, who won them, and what they bought for taxpayers.

Today, we’re going to review a few of the most interesting things that your tax dollars bought for the Pentagon last month, beginning with…

Zen and the Art of Drone Maintenance

In America and around the world, militaries are spending billions of dollarsannually to acquire unmanned aerial vehicles — “drones,” in the popular parlance. But buying a drone is just the first step. Once it’s bought, you need to keep the device tuned up and well maintained so it will work as expected. As it turns out, that’s pretty lucrative work in its own right.

In October, the U.S. Air Force awarded drone-maker Northrop Grumman (NOC) $204 million to perform maintenance and support, and to run logistics supply chains for its fleet of Global Hawk drones.

Holy Rollers

Unarmed drones such as the Global Hawk can be useful for spotting artillery strikes, advising Army artillerists on how to adjust their fire to hit their targets. Of course, you still need to buy the artillery in the first place. Last month, the U.S. Army awarded British defense giant BAE Systems a $245 million contract to supply it with 30 M109A7 “Paladin” self-propelled howitzers, and also 30 M992A3 tracked ammunition carriers to keep the Paladins well supplied.

Lebanese Fighters

Like it or not, arms sales are an international business. One contract that illustrates just how international the arms trade has become is a $172 million contract awarded to private U.S. defense contractor Sierra Nevada Corporation. In a contract spanning at least three countries, SNC will build six A-29 Super Tucano fighter planes in cooperation with Brazilian aerospace giant Embraer (ERJ). The U.S. Pentagon will then broker a sale of these fighters to the Lebanese military in what the government refers to as a “foreign military sales” contract.

Missiles From Heaven

Yet another aerospace giant, this time America’s own Lockheed Martin (LMT) landed a $305 million contract in October. The funds will be used to purchase an unspecified number of Lockheed’s new Joint Air-to-Surface Standoff Missiles for the U.S. Air Force. Armed with 2,000-pound conventional warheads, these missiles are designed to be launched from U.S. B-1, B-2, and B-52 strategic bombers, and from tactical fighter jets such as the F-15, F-16, and the new F-35 stealth fighter jet.

And Bombers From Boeing

Lockheed Martin’s archrival in the U.S. is aerospace giant Boeing (BA). Best known for its Boeing 737, 747 and 787 commercial jetliners, Boeing is also a big name in the defense world. Last month, Boeing landed a monster $898 million award to supply the U.S. Navy with 15 EA-18G Growler electronic warfare aircraft “and associated airborne electronic attack kits.” Designed to knock out enemy radar and anti-aircraft defenses before an attack, the Growler is a derivation of Boeing’s vaunted F/A-18 Hornet. Together, these two aircraft make up the bulk of naval aviation aircraft flying for the Navy today.

Of course, these awards represent only a small sampling of the hundreds of contracts your tax dollars funded last month. To see the rest, check out the U.S.Department of Defense contracts website.

8 Steps to Budget Mastery in 20 Minutes a Month

Anxious father paying bills online
The word “budget” strikes fear and panic in many. No one likes to think about them, let alone talk about them. The truth of the matter is that most budgets fail, and they fail badly, because most budgets lie. Yes, that’s right — they lie. A budget can represent whatever numbers you put in it. If you forget to add a bunch of expenses in each month, then it makes sense that you would be over budget month after month after month.

To break this silly cycle of money mayhem, here’s an easy eight-step system you can use to master your budget in only 20 minutes a month. Open up a spreadsheet and let’s get started!

1. Create a Second Column

Not to be redundant, but we’ve got to first start with the budget. Why most budgets fail is because they only have one column, the budgeted column. We’ve already gone over why this doesn’t work. Instead, upgrade your budget to a two-column layout for success. Your first column is the “What I Think I Will Spend” column, and the second column is the “What I Actually Spent” column. Basically, you create two mirror columns to accurately display what is going on in your budget for a given month.

2. Fill in ‘What I Think’

The “What I Think” column should be the easiest column to complete and shouldn’t take you more than a couple of minutes at most. This column represents all of your budgeted items. It’s an approximation of what you think you will spend during the month. Most of the numbers should be easy to access from your normal monthly expenses. Don’t labor over this column too much, but make sure that you attempt to accurately itemize each income and expense item.

3. End of Month

The end of the month is where things start to get a bit more analytical (but don’t let that scare you). At the end of each month, print off your most recent bank or credit card statements in which you’ve incurred your expenses for the month. This is the easiest step in the eight-step process, but it’s critical to analyzing what went on during the month.

4. Add It Up

Once you’re armed and ready with your statements (and receipts, for cash spending), get out a handy calculator and some highlighters. Color-code your statements for budget expense items like groceries, eating out, gas, clothing, utilities, phone, and so on. Then go through the list and highlight each item in each category. This makes it easy to add it all up when you are finished. There’s nothing yet to analyze in this step, you are simply categorizing for step six. This will take you the longest out of all the steps, so allow 10 minutes to conquer your statements. Once you do this process for a month or two, it should be very easy to go through your statements in five minutes or less. Practice makes perfect.

5. ‘What I Spent’

Now it’s time to fill in the second column, “What I Spent.” Simply take the numbers from your statements and input them into the budget template. If you notice that you’ve left off a category on your budget, add it and put it in bold so it can jog your memory next month. Each month has its own twists and turns, so it’s common that you might leave out a category by accident.

6. Compare the Columns

You’ve done the heavy lifting now, and are almost through your 20 minutes this month. Take a look at your budget and compare the two columns. Are there any areas that surprise you? Did you come in under or over budget, and why? What about those missing categories, are they essential to include going forward? You see the power is in comparing these two columns. It gives you a chance to evaluate your budget from estimation in the beginning of the month, to an absolute at the end of the month.

7. The Envelope Trick

If you have a category that is always your Achilles’ heel, and month after month you are overspending, then it might be time to kick it old school. For instance, let’s say eating out is always an area you overspend in. If you’ve budgeted $200 for the month in your first column, then at the beginning of the month you can withdrawal that $200 in cash, and stick it in an envelope. For the entire month, every time you eat out, you must dip into this envelope. Once the money is gone, your eating-out budget is gone. While this might seem harsh, it’s an old school way to force you to stay within budget. At the end of the day though, none of these steps will work unless you put effort in and are committed to mastering your budget.

8. Reward Yourself

We all love a good reward, and you should pat yourself on the back if you’ve completed these steps for the month. No matter the outcome, you’ve taken small moves that will lead to big changes in your cash flow. Pick a dollar amount that you are comfortable with at the beginning of the month, and set a goal for yourself. Maybe you want to treat yourself to an extra cupcake at the end of the month, or go to that concert that you are dying to see. Whatever it is, give yourself a pat on the back, but not for too long — next month is coming quickly and it will be time to restart the 20-minute system.

How to Save Money on Thanksgiving Dinner

Dining table filled with thanksgiving food
Whether your Thanksgiving plans include hitting the stores early or intentionally boycotting “Black Thursday” sales, most Americans have at least one thing in common on Turkey Day: the preparation of an epic meal. This year, some unwelcome news is wafting into households: According to the Department of Agriculture, the price of turkey will increase as much as 19 percent, or to a $1.36 a pound, thanks to the avian flu that’s impacted poultry prices all year.

Despite the turkey shortage, early sale prices are similar to what they were last year, with King Soopers currently offering USDA Grade A frozen turkeys for 69 cents a pound.

Still, finding the best deals on holiday dinner fare can be complex, depending on your menu and how many people you’re feeding. To help control the cost of your Thanksgiving dinner, I consulted the thriftiest grocery shopper I know: my mother-in-law Connie Perez.

Raised by small business owners in the small town of Silver City, New Mexico, Perez’s frugality and skills in the kitchen were cultivated at a young age. “Growing up in a family of seven, we had to be frugal,” Perez says. “My parents were on a limited income when I was a small child, but we never went hungry and we always ate nutritious meals.” Perez credits her parents for her thriftiness and non-wasteful habits, highlighting her father’s creativity in the kitchen. “My dad would make the most delicious soups and stews that he could never remake because he would use whatever leftovers we had at the time.”

These days, family gatherings can reach up to 40 people all clamoring for Perez’s famous brisket or roasted turkey. Hosting such a crowd isn’t cheap, so she employs the following strategies to keep costs low.

Make a plan. When it comes to saving money on Thanksgiving, Perez says you have to be organized. “It takes a lot of planning,” she says. “You can’t just make a list and go to the store.” She suggests starting with a menu and evaluating whether traditional recipes are actually popular. “Be careful in your meal selection, making sure it’s food you’re going to eat,” she advises.

With that in mind, think about those dishes that went mostly untouched last year and don’t prepare them again. This will save you time and money, plus you’ll avoid storing leftovers of something no one liked well enough to eat the first time around.

Review store ads to compare deals, especially on turkeys. While the Internet makes comparing grocery store deals a bit easier for some, Perez prefers the more traditional approach. “I’m old-school; I like to use flyers because they’re right in front of me,” she says. Determining who has the best price on the ingredients you need will make your shopping experience easier and cheaper.
This time of year, many grocers offer free or reduced price-per-pound turkeys when you spend a certain amount. For example, Safeway and Albertson’s stores are currently offering a free frozen Honeysuckle turkey (up to 16 pounds) when you spend $100. “You can easily spend that much if you’re preparing a Thanksgiving dinner for a lot of people,” Perez says. Still, she suggests shoppers do their homework on other store deals to ensure they’re getting the best price.

Know your local stores’ prices. This is probably Perez’s top piece of advice for shoppers. “You have to know your prices where you shop to compare,” she says. “Otherwise, you have no idea if what’s on sale is actually a good deal.”

Buy-one-get-one deals are popular with consumers, but Perez warns these sales don’t always represent the best price. For example, a buy-one-get-two-free deal on a package of chicken breasts may seem like an outstanding deal, until you do the math. “If you have to pay $9.99 per pound and you get three packages, you’re really paying about $3.33 per pound,” she says. “But if another local store has chicken breasts on sale for $2 per pound, you’re not saving money.”

Dollar deals also seem like a good buy, but again, knowing your local prices is key. “Sometimes a grocery store will have 10 for $10 cans of green beans,” Perez says. “If you go to Walmart, they have their green beans for 78 cents per can.” So, you’ll save over $2 if you just buy the regular-priced canned green beans from Walmart compared to the “sale” price from your grocer.

Swap brand-name for generic brands on select ingredients. When shopping for basic ingredients like salt, sugar and spices, try the generic brand for big savings. “With flour or any of those dry things, I don’t need to have Morton’s or Gold Meadow,” Perez says. “I usually go with the store brands.”

Not all store brands are created equal, though. “Some items are not the same,” Perez admits. “I’ll pay extra for products if the generic brand is not a good match.” But some products are just as good and nearly half the price. “For flavor, the store brand of frozen vegetables are just as good as Birds Eye or some of those more expensive brands,” she says.

Accept help. Perez enjoys being the host, but she always accepts help when it’s offered. “In our community, people always volunteer to bring stuff and I always take them up on it.” In addition to saving money, this strategy allows guests to feel like they’re contributing and reduces the stress of having to prepare everything. “As the host, you’re not so exhausted,” Perez says. “You can truly enjoy your guests and your family.”

Enjoying family and friends and being thankful for your bounty is whatThanksgiving is all about, after all.