Tag:

financial literacy

How to Find a Financial Advisor if You’re Not Rich

by sshrx_ns3li1 February 21, 2020

written by sshrx_ns3li1

If you think about it, the people who need a financial advisor are the ones who can't afford one. If you're impoverished or firmly in the middle class and can't seem to make it to the next level, you're the one who could really use financial advice. If you're wealthy, you know what you're doing.Yet many financial advisors simply aren't interested in working with the middle class. Many firms in recent years have stopped paying commissions to brokers for accounts that are considered small, including accounts ranging from $100,000 to $500,000 in assets. Firms that do take less than those minimums sometimes charge as much as 2 percent in annual fees, though 1 percent is more typical.So what should a middle-class investor do to find a good financial advisor? Experts recommend following these tactics.Know Where to LookAt the beginning of the process, you should think about what type of financial advisor you want to meet with: fee-based or commission-based. Think about what you're looking for. Are you seeking help with investments and retirement planning, or simply someone to go to when you have questions? Some advisors include financial planning in their fees for managing your investments, while others charge a separate fee or hourly rate for advice.As for where to find a financial advisor, there are several places, from the obvious to the unexpected: Ask friends, family or colleagues for recommendations. Obviously, you'll be more likely to find somebody who will work with you if your friends, family members or colleagues are in a similar tax bracket as you are. The Garrett Planning Network. GarrettPlanningNetwork.com offers a map of the United States where users can click on a state and find a listing of financial advisors who cater to the middle class. The National Association of Personal Financial Advisors. The association's website, NAPFA.org, allows you to find a financial advisor near you. It isn't for financial advisors who generally cater to the middle class, however. Still, you may want to take a look and see who shows up near your home. Robo advisors. You may want to consider an automated portfolio management service as a cost-effective option. For example, Schwab Intelligent Portfolios does not require advisory fees, account service fees or commissions, though you will need $5,000 to get started with them. Meanwhile, Wealthfront, another popular robo advisor, has a $500 minimum account requirement, and only charges an annual advisory fee of 0.25 percent on all assets under management deducted monthly. The Accredited Financial Counselor website. "I would strongly encourage true middle-income people to look (at Afcpe.org) for an accredited financial counselor," says Justin Chidester, who is both an accredited financial counselor and a certified financial planner – as well as the owner of Wealth Mode Financial Planning in Logan, Utah. Search engines. This one may seem like a no-brainer, but the power of search engines can't be overlooked. Chances are a search engine is how you found your way here. So if none of the above prove fruitful, consider a quick Google search for "financial advisor near me" or "financial advisor for the middle class." You've probably heard of certified financial planners, but accredited financial counselors have been around for a while too, according to Chidester."They often have a focus on helping low- and middle-income people, at affordable prices, with topics relevant to everyone – saving, budgeting, paying debt, improving credit, preparing to buy a home and working through poor habits with money," Chidester says.He adds that they can't legally provide investment or insurance advice, but they can provide great education about any financial topic and point you in the right direction for those things.Know What Questions to AskAre you looking for help with investments and retirement planning, or simply for someone to go to when you have questions? Knowing what you're looking for in a financial advisor is the first step to finding the right advisor for you. Knowing how to match an advisor to your needs is the second step. Ask any potential financial advisors these questions: What services do you provide? What type of clients do you typically work with? How will we communicate with each other? How often will I hear from you? Are you a fiduciary? How are you compensated? And how much will I be charged for your services? Some advisors include financial planning in their fees for managing your investments, while others charge a separate fee for advice. As for how much you'll pay, it will vary depending on where you live and the scope of the work you're asking for. Some advisors may charge a couple thousand dollars for a comprehensive plan; others may charge around $200 to $400 an hour to dispense financial advice.Stephanie Genkin, a certified financial planner in Brooklyn, New York, charges hourly – as opposed to what's known as "assets under management." Most fee-only advisors charge according to assets and therefore have minimum thresholds an individual needs to have in their bank account before they'll even consider the person as a client. How much is the minimum? It varies, of course, but often you'll need at least $50,000 before many advisors will consider working with you."That means most middle-class people are automatically excluded from service as they don't have enough in investments to manage," Genkin says. Genkin, who charges $200 an hour for her services, is also a fiduciary. That's important to know because there are two standards that financial advisors adhere to. If you're working with a fiduciary financial advisor, they are legally bound to put your needs before their own. A financial professional who has a suitability requirement is legally bound to provide products that are suitable for your needs, but which may not be the very best for you. That doesn't mean somebody who upholds the suitability standard isn't going to look out for you – but it does mean that the rules for those advisors are less stringent.Registered investment advisors, investment advisor representatives and certified financial planners all carry fiduciary-level responsibility. You can easily spot these titles on business cards, websites and email signatures, if you look after the person's name. Chartered retirement planning counselor and accredited investment fiduciary are other designations that indicate a fiduciary responsibility. Keep in mind, your financial advisor will likely carry a Series 65 license or a Series 7.As for what you might discuss with a financial advisor, it can run the gamut. In Genkin's case, she says, "I work with students to help them create realistic debt repayment plans, self-employed individuals who need help figuring out what they can do to save for retirement and new families who have limited resources and would like to save for a down payment on a home and start a college savings plan for their baby at the same time."She also points out that you may not need many hours, at first, with a financial advisor. If you're just starting this journey, you probably have fewer assets, and you just need that initial guidance. By the time you need more help to manage your assets, well, you'll presumably have more money, and paying for more financial advice won't be as challenging.Stick Up for YourselfTo avoid getting scammed, make sure to get references and check out everything you can find on the financial advisor online first. And keep in mind, everyone pays something when they hire a financial advisor – and not everyone is out to get you.But after you find a financial advisor, you do want to make sure you're in sync. You'll want to get a sense of whether your advisor has a financial philosophy that lines up with yours.And the most important question of all? "Ask how can they help you reach your goals," says Brett Anderson, a certified financial planner and president of St. Croix Advisors, an investment advisory firm in Hudson, Wisconsin.And if you're anxious that you don't make enough money for a financial advisor to work with you, just tell the advisor upfront what you earn, Anderson says."Established advisors will want to have a dialogue even before they schedule an initial meeting with you," he says. "Be honest. Just lay it all out. You'll save everyone time."And the more time you save in looking for a financial advisor, the faster you can get started making your money work for you.

February 21, 2020 0 comment

Financial Advisors

AI is Improving Investing

by sshrx_ns3li1 February 21, 2020

written by sshrx_ns3li1

AI is changing the financial industry for the better.
Artificial intelligence isn’t coming; it’s here. AI is behind almost every activity people undertake today, from Google’s traffic data to the filters in your email, from Facebook’s face recognition software to Amazon’s product recommendations. AI is even revolutionizing your finances. What began as enabling mobile check deposit has evolved into new ways to monitor, make and communicate investment decisions. Financial firms and investment managers alike are employing AI to invest smarter, faster, cheaper and easier. Here are 11 ways artificial intelligence is improving investing.

Better predictions lead to better investing decisions.
AI and machine learning are enabling asset managers to “assimilate new information more quickly and accurately into their portfolio construction processes,” says Bryan Kelly, professor of finance at the Yale School of Management and head of machine learning at AQR Capital Management. As computing power has increased, so has the financial industry’s ability to capture and analyze data with increasingly rich statistical models. This “translates into better prediction of future economic outcomes, which helps investors better allocate wealth to the most productive opportunities and better manage the risks of their portfolios,” he says. In short, smarter computers make for smarter investors.

Defense against emotional biases.
Behavioral finance has shown that try as they might, human investors are not rational. Investors of all types, from retail to institutional investors, are susceptible to behavioral bias, says Michael Cicero, director of portfolio research and management at High Probability Advisors. You need look no further than the University of Chicago’s sale of equity in 2008 for an example of loss aversion bias, or the emotional bias caused by investors feeling more pain from a loss than pleasure for a gain, by a sophisticated investment committee responsible for the endowment, he says. Irrational decisions such as those prompted by loss aversion “can be as detrimental to long-term expected return as poorly designed investment strategies,” Cicero says. AI can help investors eliminate these biases, thus increasing “the odds of investment success.”

Voice activated investing and research.
Investors don’t even need keyboards to invest anymore thanks to artificial intelligence. Firms like TD Ameritrade are rolling out voice activated investing that lets you place trades, research the markets and check on your portfolio using Amazon.com's (ticker: AMZN) cloud-based voice service, Alexa. With an Alexa-enabled device, you can now stay on top of your investments and financial education from virtually anywhere – even while driving in the car. In-vehicle features let investors query Alexa about the stock market or check account balances and investment performance while on the go. It’s an example of multi-tasking portfolio management, compliments of AI.

Stronger advisor-client relationships.
AI is making it possible for financial advisors to automate certain aspects of client relationships, from initial communications to risk profiling and all the legal documentation that goes with the client-advisor relationship, says Gopal Appuswami, lead of payments, fintech, analytics, products and innovation at LatentView Analytics. “Additionally, by using intelligent information management solutions, staff has the means to simplify how they access, secure, process and collaborate on documentation,” he says. This increases productivity as advisors and their staff are able to find and access information much faster.

Higher quality financial advice at a lower cost.
Behind these stronger financial advisor-client relationships is higher quality advice at a significantly lower cost to firms, Appuswami says. By “offload(ing) routine tasks such as preliminary data collection, research and compliance adherence to robo advisors,” advisors and asset managers can focus their time on “preparing premium strategies and packages for each client,” he says. In essence, it’s computers doing what computers do best so humans can do what they do best. “AI services also allow firms to offer a broader range of financial services for audiences in different income brackets,” Appuswami adds. Advisors can provide better advice to more people at a lower cost thanks to artificial intelligence.

Faster investor communication.
The last time you contacted a financial services firm, chances are your first line of communication was with a form of artificial intelligence. “AI chat bots now serve as the first line of support for retail clients,” says Phil Andriyevsky, a data and analytics leader at EY. While chat bots may not always be able to answer your question, every question a bot answers is one less question that needs to pass across a human’s desk. As a result, AI communication is bringing down the cost of investing for firms and investors. It’s also making communication faster and, for those who prefer digital communication, more pleasant. Unlike human advisors, chat bots can be available 24/7 and don’t necessarily require you to pick up a phone to reach them – unless it’s to chat via a mobile app.

Financial firms give investors what they want.
As digital communication becomes more effective and powerful, financial services firms can use it to create a two-way channel between advisors and investors. “Advisory firms can incorporate preemptive communication, transparent fee structures and even channels for customer feedback on product development,” Appuswami says. This can help firms guide their future product decisions. “By addressing client concerns and incorporating their ideas, firms can efficiently appropriate spending toward products and services that meet client needs,” he says. So just as your feedback helped Oreo pick its next flavor, AI is enabling investors to shape the future of the financial services industry.

Optimized portfolios and faster investor reaction times.
Before AI, “portfolio optimization relied only on human effort, which is time consuming and can’t guarantee a complete compilation and impact of all sources,” Appuswami says. With firms going increasingly digital, more information about indicators that necessitate a portfolio shift is available. Algorithmic programs allow money management systems to track these indicators and automatically adjust portfolios. Faster response times to economic, global and market trends leads to optimized returns for investors, Appuswami says. Likewise, automated portfolio optimization means less strain on financial firms’ human staff to monitor and react to these changing events.

Proactive portfolio management.
Artificial intelligence isn’t just improving investors’ and money managers’ reaction times; it’s also helping them be proactive. It’s not possible for human beings to evaluate all of the market factors that impact a portfolio’s performance, Appuswami says. But artificial intelligence can: “AI services, together with predictive analytics, can track multiple macro- and micro-economic indicators, regulatory trends and social sentiments,” he says. This enables them “to produce insights and timely advice, which financial advisors can leverage to make proactive portfolio rebalancing recommendations or help customers build the right financial management solutions based on the current phase of their life and lifestyles.”

Better risk/reward ratios.
Asset managers are using artificial intelligence and machine learning to broaden their understanding of investment risk. At Alpha Innovations, they’ve “found that in the analysis of financial risk, historical and live time series data provide subtle clues and autonomous patterns that can be used to predict future patterns with strikingly high accuracy,” says Mark Antonio Awada, chief risk officer and data analytics officer at Alpha Innovations. “This affords our asset managers with opportunities for significant improvement in performance and risk/reward ratio.” As a result, a major disruption to conventional investment portfolio construction is under way. “For investors who are seeking rejuvenated streams of returns on their investments, this is amazing news," he says.

Greater access to cost-effective investment solutions.
Thanks to the recent launch of ETFs managed by AI, artificial intelligence is easier than ever to leverage in your portfolio. That said, it will come at a slightly higher cost. The fee investors pay for an enhanced index strategy “will be slightly higher than its passive brethren,” Cicero says. But he predicts this will change: “While partially automated now, we believe artificial intelligence will add significantly to scale and efficiency, driving down price while improving the long term probability of success.” Increased competition as industries outside of financial services make advances in artificial intelligence will force the cost bar down, he says. Who knows, maybe Google (GOOGL/GOOG)will operate the next largest asset manager of the future.

How AI is improving investing.
Better predictions lead to better investing decisions.Defense against emotional biases.Voice-activated investing and research.Stronger advisor-client relationships.Higher quality financial advice at a lower cost.Faster investor communication.Financial firms give investors what they want.Optimized portfolios and faster investor reaction times.Proactive portfolio management.Better risk/reward ratios.Greater access to cost-effective investment solutions.

February 21, 2020 0 comment

Banking & Credit

What You Need to Know About Taking Out Any Cash Advance

by sshrx_ns3li1 February 21, 2020

written by sshrx_ns3li1

Sometimes we hear advice so often – don't do this, don't do that – that we simply know something is a bad idea and forget why it's a bad idea.Taking out a cash advance is a bad idea. If you're ever in the position in which you feel as if you have to take a cash advance, you'd do well to learn what they are, and what taking one entails.[See: 13 Money Tips for Married Couples.]Understand what a cash advance is. Generally, when anyone refers to a cash advance, they're talking about using their credit card to get cash. Instead of, say, paying for groceries or a book with your credit card and later paying back your credit card, you're borrowing cash from your credit card and later paying it back.But, really, cash advances are also payday loans – you're getting a cash advance that you'll need to pay back. They're also the same thing as getting a refund anticipation loan, when a tax preparer gives you money that you expect to get back from the Internal Revenue Service. You could argue that if you go into overdraft with your bank account, you're getting a cash advance. Your bank paid something for you, and you'll have to pay them back.In any case, all cash advances involve money being advanced to you that you will have to pay back, probably fairly quickly – usually with a fee or interest and sometimes both.[See: 8 Financial Steps to Take After Paying Off a Debt.]Know they're expensive. That's the main drawback with cash advances. You're borrowing money and paying a hefty amount of money to do so.There are three main reasons cash advances are considered very expensive loans:Hefty fees. Often when you take out a cash advance with your credit card, you'll pay either 5 percent of the money you're borrowing or $10. And you'll pay whatever's greater. So usually if you borrow anything up to $100, you will always pay $10.High interest rates. You'll get this with credit cards and certainly with payday loans. Currently, the average credit card cash advance annual percentage rate is 22.11 percent, according to LowCards.com. And with few exceptions, it's more expensive to borrow actual cash from a credit card than to use your credit card to pay for merchandise and services. So if your APR is 22 percent when you use your credit card at the grocery store, a cash advance will likely have a considerably higher APR.The average APR for a payday loan is almost 400 percent, according to the Consumer Financial Protection Bureau. That, of course, makes it sound as if a credit card cash advance is a bargain, but they're both pretty bad deals.If you borrow $100 from a typical credit card, you'll pay back $22.11, plus $10, and so you're paying almost one-third of $100 to borrow $100. If you borrow $100 from a payday loan store, you'll typically be charged $15. That doesn't mean a payday loan store is better due to the …Short grace periods. Being charged $15 for a $100 payday loan doesn't sound bad, but you'll have less time (two weeks) to pay the money back than you would with a credit card (a month), and the real problems come if you decide you need to borrow more than $100 from a payday lender. For instance, if you borrow $400, you're probably paying back your lender $460 – in two weeks. And if your next paycheck is, say, $1,000, half of that paycheck will go back to the lender, and you'll have to try and make do until the next paycheck.And even though you should have 30 days to pay back your credit card cash advance before it's considered late, the interest begins accruing immediately.These are simply very expensive loans, according to Alexander Stern, a consumer attorney who has his own practice, Stern Legal Services, in Berkeley, California."A $1,000 loan can balloon into three times that amount given enough time and interest," he says.Look at the fine print. There's very likely something written in the legal jargon that you won't like. You just have to find it."It's extremely important to go over the terms and conditions of any short-term loan with a fine-tooth comb," Stern says. "Advertisements highlight the best parts of a product and rarely discuss the worst aspects. Salespeople are similarly focused on the sale rather than what is necessarily best for a given consumer. That's why it is important that you be proactive in reading any contracts carefully before signing."And because you'll never be able to carefully read a contract with a salesperson waiting at his or her desk or looking over your shoulder, you might want to consider taking the paperwork home and coming back the next day – or at least in an hour or two, giving yourself some time to read through everything and think about what you're doing.[See: 8 Ways to Maximize Your Credit Card Rewards.]Be aware of financial traps. The reality is, if your finances are shaky enough, you may feel you have no choice but to take out a cash advance. Just try to not be lulled into the idea that the financial institution lending you cash wants to help you. It wants to make money.Chrystine Julian, an artist and poet in Redlands, California, doesn't mince words. Due to a heart attack, surgery and other health issues, she recently needed a payday loan."My financial life is in the toilet," she says.She only borrowed $150 from an online payday lender and was able to pay it back for less than $20 over her original loan amount. By doing so, she avoided overdrafting her bank account and being charged a $35 fee. The cash advance, she says, worked out well for her.But Julian says that she had to borrow another $150 shortly thereafter and logged onto the website and discovered that she was set up for a $2,500 loan. If she had taken the $2,500, she would have had several years to pay it back, at a cost of over $12,000. She instead called up the website and got them to change the setting, so she could only borrow $150.But she marvels at the mess she might be in now, if she hadn't been strong. "I could have done that with one click," Julian says, of borrowing $2,500."Never forget these are predatory lenders."25 Ways to Fix Your Finances Fast.

February 21, 2020 0 comment

Banking & Credit

Could Fake News Affect Your Finances?

by sshrx_ns3li1 February 21, 2020

written by sshrx_ns3li1

Fake news has been in the news a lot lately. But fake news is old news. Supermarket tabloids have been around for almost as long as supermarkets. Celebrities often find themselves the unwitting victim in a death hoax. During the 1800s and early 1900s, it was somewhat common for fake news agencies to sell stories to editors, many of whom were practicing yellow journalism and publishing sensational stories (yesterday's version of today's click-bait headlines). As an Indiana newspaper (The Martinsville Morgan County Gazette) lamented on August 26, 1893: "There is so much 'fake' news, now-a-days, from country correspondents to city papers, that it is hard to separate the counterfeit from the genuine."[See: 25 Fast Financial Fixes.]But it may be helpful to your wallet to remember that fake news doesn't only apply to invented stories about your favorite or least favorite politicians. If you aren't careful, you can be duped by fake economic news and make decisions that could quickly empty your wallet. If you're at all concerned, keep a few things in mind.Fake news comes in many forms. Fake news is a term that often applies to completely fake news stories written to fool people, but it's been used to describe gossip and rumors and actual news stories that have errors in them. President Donald Trump often refers to various media organizations as fake news.Misinformation might be a better term to use, although for now, fake news is in vogue.And fake news doesn't have to come from the media. Crowdsourcing websites, where consumers can learn more about stocks, sometimes serve up fake news, points out Ajay Patel, a finance professor at the Wake Forest University School of Business in Winston-Salem, North Carolina.On these sites, Patel says, "it then becomes easy for a person to use different pseudonyms and push out fake news articles that appear to be legit because multiple sources are indicating the same story. The reader, being unaware that the same person has used different pseudonyms to basically write the same story, might treat that as legitimate and trade on the news."This type of thing has been happening for awhile now. For instance, in 2000, Emulex, a network connectivity company, lost 60 percent of its stock's value after financial news wires picked up and ran a fake press release that had been placed online.[See: 10 Money Questions to Ask Your Parents.]Your biases may be working against you. If you have a certain worldview and never question it – well, that could blow up in your face.Michael Chadwick sees that a lot. Chadwick, a certified financial planner in Unionville, Connecticut, says that he has seen clients who "think the world is coming to an end, the dollar will be worthless, inflation will go crazy … We've seen very smart people get sucked into thinking many crazy things are going to happen, when in reality they're simply a product of what they've been taking in, typically in outrageous quantities for some time."Chadwick says that a lot of "gold bug" companies have produced videos and websites "that scare the bejesus out of the public."Gold bug, if you're not familiar with the term, refers to someone who supports the gold standard and believes that the best, most stable investment is in gold.Of course, if that's your mindset, you may not consider a video promising that gold will keep you solvent as the economy crumbles around you as fake news. But Chadwick, who does see that as fake news, says that he has had a few clients start to sink as much as $100,000 in sketchy gold and end-of-the-economy type of investments before he was able to convince them to put a stop to what they were doing before any checks were cashed."People need to be very careful what [news sources] they consume," Chadwick says.[See: 14 Important Personal Finance Dates to Mark on Your Calendar.]Your best defense is to be an avid consumer of news. The most effective way to protect yourself from falling for fake news is to have a varied media diet and not rely on one or two outlets for all of your news."Check the story with multiple reputed sources," advises Vic Patel, the founder of Forex Training Group, a company that provides advice to currency market traders. "It's much better to make an investment decision based on reliable research than through an emotional reaction to a particular news story. Most importantly, do not rely on any viral sources, as they may simply be spreading stories without corroboration."David Primo, an associate professor of political science and business administration at the University of Rochester in Rochester, New York, agrees."I think the message to investors should be, 'Don't base your investment decisions on social media, period,'" Primo says.Primo also points out that "financial markets are information sponges.""If the news on Twitter is real, then professional investors tracking social media with powerful technology have already traded based on that information, so the price you pay when you trade will already reflect that information," he says. "If the news is fake, well, you've saved a lot of money by not investing.""Using the news as a sole source of investment analysis is a common investor mistake," says Bob Stammers, director of investor engagement for the CFA Institute, an association for chartered financial analysts.He echoes Primo's point that information that is public is already factored into market pricing, and Stammers says, "Successful and seasoned investors gather information from several independent sources and conduct their own proprietary research and analysis."In other words, before you make any financial decision based on what you're hearing in the media, the safest course of action is to also solicit an opinion from a trusted professional, like your financial advisor, financial analyst, attorney, tax accountant, banker or whomever seems appropriate. After all, even if the news is accurate, and it's a good time to buy a house or purchase stocks, that doesn't mean it's a good time for you.8 Big Budgeting Blunders – and How to Fix Them.

February 21, 2020 0 comment

Financial Advisors

8 Facts to Know About Mutual Fund Fees

by sshrx_ns3li1 February 21, 2020

written by sshrx_ns3li1

Understanding mutual fund fees.
Mutual fund fees can be confusing to retail investors because of the different terms to explain how the investment is packaged and managed. Retail investors researching mutual funds can compare mutual fund fees, expenses and other information on financial news sites, experts say. "It's where most professionals start their research," says Craig Bolanos, CEO of Wealth Management Group. Knowing what a mutual fund charges compared to it its peers can help investors if a higher-priced fund is worth buying. Here are eight facts to know about mutual fund fees and expenses.

Know the basics.
Mutual fund fees come in a few different flavors and have different terms that mean the same thing, says Crystal Wipperfurth, a certified financial planner at Bronfman Rothschild. The term load is the fund's sales charge, which is the commission investors pay to the mutual fund company, usually expressed as a percentage of the amount bought or sold. Upfront load fees are paid in the beginning, back-load fees are paid when an investor sells. No-load funds mean no commissions are paid. Another fee is the expense ratio, it can comprise the management fee, which is how the managers get paid. The expense ratio may also contain a "12b-1 fee" – the cost to market the fund. But not all funds have those fees.

Focus on the two main share classes.
Looking at the different mutual fund classes can feel like looking at alphabet soup. For instance, there are A-class shares or B-class shares, to name a couple. There are also institutional and investor shares, all with different trading symbols. Wipperfurth says retail investors should focus on A-class shares and C-class shares. A shares have a one-time, upfront load, which includes the financial advisor commission. It can be as high as 5.75%, which translates to $575 for every $10,000 invested. C-class shares do not have an upfront sales charge but can have a back-end sales charge if it is sold within the first 12 months. Both A- and C-class shares may have a yearly expense ratio but the A shares tend to have lower expense ratios.

Determining which share class is better.
Investors may choose C-class shares automatically to avoid the A shares' upfront loads but they should think twice about the purpose of buying a particular fund. Investors should consider how long they intend to hold the fund when deciding which share class ultimately will be less costly. "The longer the holding period, the more appropriate the class A share might be simply because it has lower on-going expenses even though it's got the drag of the upfront commission," Bolanos says. Investors who plan to only hold the fund for a short time may want to opt for C-class shares. The Financial Industry Regulatory Authority, known as FINRA, has a calculator that can help determine how long it would take to hold a fund to make an A-share fund more cost-effective, he says. Generally, A shares can be more cost-efficient for investors who plan to hold it more than three years, Bolanos says.

Fees affect performance.
Although mutual fund fees have different structures depending on the share class, the bottom line is that's the cost to compensate the financial professional, says Aaron Benson, portfolio manager at Baird Private Wealth Management. That cost affects performance and affects what an investor received. In upfront commissions, the fee is subtracted before the money is invested. Yearly expense ratios are taken out of the fund's assets. "That's all reflected in the fund's performance," he says. Investors buying A shares should be aware of breakpoints as larger investments can mean a lower upfront sales load, he says.

Mutual fund fees are falling.
Ben Johnson, director of global exchange-traded fund research at Morningstar, says mutual fund fees as a whole are down from years past as cheaper index funds are taking a bigger chunk of investors' portfolios. Johnson's April 2019 research paper shows that the asset-weighted average expense ratio for active and passively managed mutual funds and ETFs combined was 0.48% in 2018 – that's significantly cheaper compared to 0.93% in 2000. This ratio has fallen every year since 2000, he says. The growth in target-date series funds and the default choices of index mutual funds in most 401(k) plans is one example of how index mutual funds are becoming more popular, he says.

Active mutual funds charge more.
The asset-weighted average fee for actively managed mutual funds in 2018 was 0.67% compared to 0.71% in 2017, while the average fee for the passively managed mutual funds was 0.15% in 2018 – down from 0.16% in 2017. Johnson says active mutual funds charge higher fees because it's related to the cost of creating the portfolio and delivering the strategy to the client. "Index portfolios have a meaningful advantage over actively managed portfolios in that respect because the index methodology can be boiled down to an Excel spreadsheet or a Word document," he says.

Higher fees occur in more complex strategies and sectors.
Johnson's research shows the average fund cost for an actively managed U.S. equity fund in 2018 was 0.7%. Those costs rose to 0.82% on average for an international-equity fund and as high as 1.35% for an alternative strategy active mutual fund. He says there are a few reasons for the differences in costs. Part of it is the cost of creating the strategy as the cost to build and maintain a portfolio of foreign stocks, for example, can cost more, especially as an active manager tries to hew closely to the benchmark. But other times, "the case for higher fees might not hold water," he says.

More to investing than just fees.
Bolanos says controlling costs and fees are important, "but it doesn't mean we should be just investing in things that cost zero." He says investors should look that what the investment represents and what it offers. Actively traded mutual funds that invest in niche areas like biotechnology or artificial intelligence may take more research time and will have a higher cost. "Where else can someone can exposure to those sectors," he says. "You can't unless someone creates it. If that's the only way to get access, it is what it is. But we owe it to ourselves to make sure there's a process and the selections are fair."

Facts to know about mutual fund fees:
Know the basics.Focus on the two main share classes.Determine which share class is better.Fees affect performance.Mutual fund fees are falling.Active mutual funds charge more.Higher fees occur in more complex strategies and sectors.There's more to investing than just fees.

February 21, 2020 0 comment

Banking & Credit

How to Break a Contract Without Paying Dearly

by sshrx_ns3li1 February 21, 2020

written by sshrx_ns3li1

We're taught to keep our promises, but sometimes staying true to our word can be financially devastating. Clearly, you should never flake out on a promise to take grandma out to dinner. But if you've signed a lengthy financial contract with a gym, a cellphone company, a bank or a landlord, continuing to pay for a service or a product may no longer be feasible. For instance, perhaps you've just lost your job.It's times like those when everyone finds themselves asking that age-old question: Can I break my contract?Maybe, maybe not. But if you think you're going to have to try and extract yourself from a contract, remember the following:[See: 11 Expenses Destroying Your Budget.]Honesty is the best policy. If you simply want to stop paying for a service or product, that sort of frank answer might not get you far. But if there's a reason you can't pay – you're no longer employed or perhaps your time is being consumed by taking care of an ill parent or child – share that information. You may find that you'll get a break, says Marc Fitapelli, an attorney at the law firm Fitapelli Kurta, based out of New York City. Fitapelli says he once represented a client who signed a contract to purchase some property and put down a large deposit."After the contract was signed, he started experiencing serious financial problems related to a bitter divorce," Fitapelli says.His client realized he couldn't close on the property and found himself wishing he had that deposit back. Fitapelli's client explained his situation to the seller, who turned out to be sympathetic. Fitapelli says his client didn't get all of the money back and wasn't entitled to, but he did have much of it returned.[See: 11 Ways to Save Time and Money.]Don't be a jerk. That's always good advice, but in this case, along with explaining to the other party why you're asking to break a contract, be pleasant. You may be planning to break your contract regardless, but don't say that. Ask if you can break the contract; don't announce that you will. Give the individual or company a chance to be magnanimous. You may be pleasantly surprised."Empathy goes a long way in contract disputes. Someone is less likely to hold you to the terms you're bound to if they aren't angry at you," says J.R. Skrabanek, an Austin, Texas-based attorney who specializes in civil litigation.Try to negotiate. Maybe there's a compromise both parties can agree to. For instance, many people, when they're struggling to pay off a house or car, will refinance the terms of the loan, so that the payments are smaller. They'll generally pay more in the long run in interest, of course.Perhaps you can negotiate your way out of a contract, so that you're paying something but not everything.If you go the negotiation route and get a satisfactory result, "ask for something in writing if you can, or save any subsequent invoice that shows a zero balance owed," says Shaolaine Loving, an attorney in Las Vegas who specializes in family law and estate planning. In other words, you don't want the same party to come back later and claim you still owe money.Prove the other party broke the contract. This could be a sleazy move on your part if the other party has been perfectly reasonable, and you're just looking for an out. But if this is an individual or company that's been difficult to work with, and particularly if the other party's behavior is part of the reason you want to back out, then start scrutinizing the language in your contract."Obviously, the most arguable way to avoid penalties would be to find a way to say the other party breached the contract," Loving says. "For instance, if the home seller wouldn't allow showings or didn't correct any identified problems in time."[See: 10 Things Teens Should Know About Money.]Minimize the damage. You've explained to the other party that you're going to have to break your contract. You've been nice. You've tried to negotiate a way out. And you've been told that it doesn't matter – you still have to honor the contract.If you're going to go ahead and break it anyway, minimizing the damages you'll cause the other party may mean you're liable for less money if you go to court, says Tom Simeone, a trial attorney at Simeone & Miller, LLP, in the District of Columbia."For example, if you are going to breach a lease, if you give notice ahead of time and leave the premises clean and ready to rent, then a court will find that a landlord can and should relet it out within a few months and not award damages for additional months, even if your lease is for several more months," Simeone says.That isn't just optimistic thinking, according to Simeone."Courts routinely require plaintiffs to mitigate their damages, so anything you can do to minimize the other party's damages will reduce your potential liability," he says.Skrabanek seconds that. "If you break your lease, the apartment complex needs to show it's making a diligent effort to find replacement tenants. They can't just let your apartment sit vacant for months on end with no effort and claim you owe them for the money," he says.And there's always the chance you can break the contract without negative repercussions. That's a gamble, but possibly one worth taking if the money left to pay isn't all that much."If you breach it by failing to pay or otherwise perform, the other side simply may not pursue a claim against you because the cost of doing so – in terms of legal fees and other expenses – may not make it worth their while," Simeone says. "Few people file suit to collect a hundred dollars."10 Ways to Feel Better About Your Money.

February 21, 2020 0 comment

Banking & Credit

Everything You Need to Know About ABLE Accounts

by sshrx_ns3li1 February 20, 2020

written by sshrx_ns3li1

After nearly a decade of lobbying from disability advocacy groups, Congress passed the Achieving a Better Life Experience Act in 2014. The law, now known simply as ABLE, allows for the creation of tax-advantaged accounts for people with disabilities, similar to 529 plans for college. The accounts allow eligible individuals to save money without jeopardizing their eligibility for government programs."The advantage of using an ABLE account is that the income will not be used for means testing for (Supplemental Security Income) or Medicaid," says Marc Scudillo, managing officer of financial firm EisnerAmper Wealth Management and Corporate Benefits LLC.Despite their benefits, ABLE accounts still aren't widely used or understood. Fewer than 57,000 accounts have been opened nationwide, according to the National Association of State Treasurers (as of publication).If you or someone you love has a disability, keep reading for answers to all the questions you may have about ABLE accounts. Why should someone open an ABLE account? Who is eligible to open an ABLE account? Which states offer ABLE accounts? Are there tax incentives for using an ABLE account? How much can I contribute to an ABLE account? What expenses are eligible to be paid from an ABLE account? How much does it cost to open an ABLE account? Should I consider a special needs trust instead?Why Should Someone Open an ABLE Account?"Living with a disability can be costly, hence the reasoning behind ABLE accounts," says Matt Schechner, president and founder of financial planning firm Essential Advisory Services in Westbury, New York.People with disabilities may have out-of-pocket medical expenses or additional costs related to transportation, education and housing. At the same time, they may receive income and benefits from government programs such as SSI and Medicaid. These programs typically limit a person's assets to $2,000. Prior to 2014, this put disabled individuals in a position where they could not save for future needs without jeopardizing current benefits."The ABLE account is the way a person can have assets that they control," says Scott Butler, a retirement income planner with Klauenberg Retirement Solutions in Laurel, Maryland. Up to certain limits, money held in an ABLE account isn't counted toward government program asset limits.Who Is Eligible to Open an ABLE Account?An individual must be deemed to be blind or disabled prior to age 26 to be the beneficiary of an ABLE account. Those who are receiving SSI or Social Security Disability benefits are automatically eligible to open an account. Others need to meet Social Security's definition of a disability and receive a physician's letter to that effect in order to qualify, according to The ABLE National Resource Center. Which States Offer ABLE Accounts?Currently, 42 states and the District of Columbia offer ABLE accounts. However, even those who live in a state that doesn't offer ABLE accounts can open one through another state's program. At this time, 26 states allow anyone to open an account while the remainder limit their programs to state residents. Are There Tax Incentives for Using an ABLE Account?Like 529 accounts for college savings, ABLE accounts are administered on the state level, and several offer state tax incentives to residents.For instance, Michigan and Arkansas allow single filers to deduct $5,000 in contributions to an ABLE account on their state tax forms. For joint filers in both states, the maximum deduction is $10,000. Meanwhile, Illinois offers state income tax deductions of $10,000 and $20,000 to single and joint filers, respectively, while Kansas limits its deductions to $3,000 for individuals and $6,000 for couples. Other states, including New York and California, offer no tax incentive for contributions. These deductions are typically only available to residents who are making contributions to their own state's ABLE program. While contributions to another state's account won't garner a deduction, Butler says people should consider whether other plans have lower fees and better investment options. "Sometimes it's better to pick a different plan than to get that tax (deduction)," he says.Regardless of which state you choose, withdrawals from an ABLE account are tax-free so long as the money is used for a qualified expense related to the beneficiary's disability.How Much Can I Contribute to an ABLE Account?An individual can contribute $15,000 to an ABLE account each year. While anyone can make a contribution, be aware that only the first $100,000 of an account's balance is shielded from asset means testing for government programs. "If it's over $100,000, it could affect your SSI benefits," Butler says. What Expenses Are Eligible to Be Paid From an ABLE Account?Money in an ABLE account can be used for a wide range of products and services such as medical treatment, transportation, housing, education and assistive technology. The only requirement is that the expense be related to a person's disability.Withdrawals used for non-qualified expenses may be subject to both regular income tax and a 10% tax penalty. How Much Does It Cost to Open an ABLE Account?Fees vary by state, so it pays to compare costs. For instance, Ohio charges a $30 annual fee for its residents and a $42 annual fee to non-residents. In New York, which doesn't allow enrollments by non-residents, the annual fee is $45 unless paper statements are selected. In that case, the annual fee is $55. There may also be investment fees associated with an ABLE account, and these may depend on which funds you choose for your money. "ABLE accounts have account service fees, which keep ABLE accounts up and running, and an asset management fee, which compensates managers for choosing stocks and managing the portfolio," Schechner says. Investment fees may be taken from an account balance rather than being paid directly by the account owner.Each state's plan offers different investment choices, so make sure to carefully review low-fee investment options to pick a plan that you're comfortable with.Should I Consider a Special Needs Trust Instead?While ABLE accounts have the potential to help millions of Americans with disabilities, some people may still choose to set up a special needs trust, sometimes called a supplemental needs trust. These trusts cost more to set up but offer more flexibility in their use, Scudillo says. Plus, they are typically the only option for those who did not become disabled until after age 26..

February 20, 2020 0 comment

Banking & Credit

How a New Law Will Let You Freeze Your Credit Files for Free

by sshrx_ns3li1 February 20, 2020

written by sshrx_ns3li1

Credit freezes help prevent thieves from opening new lines of credit in another person's name, but most states allow credit bureaus to charge a fee for the service. That will change this autumn.The Economic Growth, Regulatory Relief and Consumer Protection Act, signed on May 24, will let Americans freeze their credit files for free. "It's a small step in the right direction," says Jeff Taylor, co-founder and managing director of Digital Risk, a technology services company that works with the mortgage industry. Eliminating fees will make this security tool more accessible, but consumers also need to be aware that a credit freeze is not a cure-all for identity theft.Here's what you need to know about credit freezes, the new law and whether a freeze is right for you.[See: 10 Ways to Protect Yourself From Online Fraud.]How a credit freeze works. The three major credit bureaus – Equifax, Experian and TransUnion – are required by state laws to provide a method to freeze credit. Also known as a security freeze, a credit freeze restricts access to a credit file.That means a new creditor can't retrieve or review your credit report if you've frozen it. In theory, this should prevent any new lines of credit from being opened in your name. Those who have been victims of identity theft or who know their personal information was accessed in a security breach are often encouraged to use a credit freeze to ensure their data isn't used to open new accounts. Anyone who freezes their credit file will have to request the credit bureaus unfreeze it if they wish to apply for a loan or other credit line themselves.In many states, the credit bureaus are allowed to charge a fee to freeze and unfreeze a credit report. While the fee is often waived for victims of identity theft, others may be required to pay anywhere from $3 to $10, depending on what their state's law allows. Consumers must initiate a freeze with each credit bureau individually, which means the total cost in some states could be as high as $30 each time they add or lift a credit freeze."It's a nominal fee," says Victor Powell, a certified financial planner with financial firm Tanglewood Total Wealth Management in Houston, "but it can definitely add up, especially if you have a number of people in the house."What you need to know about the credit freeze changes. The need to pay for credit freezes will end this year. Plus, the new legislation will make changes to banking laws regarding mortgages and credit, among other things. It also requires credit bureaus to provide free credit freezes to consumers. The provision will go into effect 120 days after the bill's signing, which will be likely be in mid-September."This new law … will help consumers by improving the economy and assisting in the fight against identity theft," says Francis Creighton, president and CEO of the Consumer Data Industry Association, a trade group that includes 100 corporate members including credit bureaus and mortgage reporting companies.[Read: How Consumers Can Protect Their Online Privacy Right Now.]In addition to providing free credit freezes for adults, the law allows parents to freeze the credit of their minor children as well. Doing so prevents someone from opening an account using a child's name and Social Security number without the parent's permission or knowledge. Currently, credit freezes can be requested either over the phone or online, and there is no indication that will change after the provisions of the new law go into effect.How the new law will impact consumers. Credit freezes can be a useful tool, but consumers need to be aware of their limitations. For instance, a freeze should eliminate the possibility of a scammer opening a new line of credit, but it won't prevent someone who has access to an existing account from using it. A credit freeze also won't prevent tax identity theft in which someone files a fraudulent tax return in another person's name.Creighton says consumers can take additional steps beyond a credit freeze to protect themselves. "People should make sure they are checking their bills for erroneous activity," he says. "They should check their credit reports every year to make sure there are no errors."Another thing to consider before placing a credit freeze on an account is whether you'll be making a major purchase in the near future. This may be particularly important for those in the market for a new home."We have the tightest [housing] inventory we've had in a couple decades," Taylor says. Homebuyers who need to quickly get preapproval for a property in a competitive market could find the process of unfreezing credit to be cumbersome. "It could slow down the speed at which you can proceed." Each credit bureau provides a phone number as well as a web form that can be used to make a freeze request. Consumers who want all three bureaus to freeze their file must contact all three companies separately. Once their identifying information is verified and the freeze is enacted, a PIN number will be issued. Since each credit bureau issues its own PIN, consumers may have three numbers to store. To unfreeze a credit file, the correct PIN must be provided to the issuing bureau. If that number has been lost, the process of unfreezing a report can be further delayed. "It's not that big of a deal," Powell says, "but it's one more thing to keep track of."Remember: A lock is not a freeze. Credit bureaus like Equifax offer services that lock an account, and these locks may be more quickly removed than a freeze. "A lock and a freeze have the same impact on your Equifax credit report, but they aren't the same thing," says Jerry Grasso, a spokesperson for Equifax Global Consumer Solutions. Locks don't require a PIN and typically may be managed via a mobile app, but they also aren't regulated by the government in the same way as freezes are monitored.Locks are offered directly from credit bureaus to consumers and may be bundled with credit monitoring and fraud alert services. Currently, the TrueIdentity service from TransUnion and Lock & Alert service from Equifax are offered free of charge. However, there is no law requiring they remain free, as is the case with credit freezes. The third major credit bureau, Experian, has a CreditWorks program that includes a lock and $1 million of identity theft insurance for $4.99 for the first month and $24.99 for each following month.[See: 9 Financial Tools You Should Be Using.]Despite the convenience of lock programs, Powell still says people can't go wrong with a credit freeze. They're available at no cost starting this fall and with government regulations behind them, "it's the best bang for your buck," he says..

February 20, 2020 0 comment

Financial Advisors

5 Times Going Into Debt Makes Sense

by sshrx_ns3li1 February 20, 2020

written by sshrx_ns3li1

Books, blogs and financial programs all have a message for you: Ditch your debt.However, some finance experts say that advice is short-sighted. "Debt is a tool," says James C. Kelly, vice president and wealth strategist with financial firm PNC Wealth Management. He likens debt to a hammer. Depending on how debt is used, you can make something great or cause significant damage.And while high-interest credit card debt isn't advisable, other forms of debt can be leveraged to make money. A mortgage can buy property that will appreciate in value, while student loans can lead to a degree that opens doors to higher-income professions.Shannon Lynch, a senior financial advisor with online advisory firm Personal Capital, says people need to be smart not only about when they use debt, but how much debt they incur. She recommends that your total debt, including a mortgage, not exceed 36 percent of your household's gross income.[See: What to Do If You've Fallen (Way) Behind on Your Credit Card Payments.]While every family's situation is different, here are five times when it may be worthwhile to go into debt.Higher education. You'll increase your chances of getting a good job if you pursue a college degree. Since 1991, good jobs for those with only a high school education have declined, while those that require some postsecondary training increased by 3.5 million. And jobs requiring a bachelor's degree doubled from 18 million to 36 million, according to a 2018 analysis by the Georgetown University Center on Education and the Workforce, which defines a good job as one that pays at least $35,000 and has a median income of at least $56,000 for those without a four-year degree. "A college education is not an inexpensive proposition," says Scott Witherspoon, chief credit officer at Affinity Federal Credit Union. Scholarships, grants and work-study programs can defray costs, but many students still need to take out loans. And though student loans can be a smart use of debt, it's important that the program the student is enrolled in will lead to a job with an income that's high enough to justify the cost.Housing. Mortgages are another common form of debt. "There are very few people who are in a position to pay cash for a home," Witherspoon says.The housing market crash preceding the last recession is a grim reminder that mortgages come with risks. Subprime loans with variable interest could quickly become unaffordable if rates begin to rise. Lynch warns against letting housing costs, which include principal, interest and insurance costs, exceed 28 percent of your gross income.However, buying an affordable property with a fixed-rate mortgage can be a smart use of debt for property that has historically increased in value over time. What's more, interest and property taxes can be written off on federal tax forms by those who itemize their deductions.[See: How to Manage Your Money in Your 20s.]Investments. Some people borrow money in order to invest in the stock market. The math for this investment strategy may work out if the current bull market and low interest climate continues. However, it can also be a risky proposition since market downturns can occur with little to no warning. A better way to invest using debt may be to buy rental property. Those new to this type of investment should consider getting professional guidance and avoid taking on too much debt initially. Kelly says a good guideline is to borrow no more than 50 percent of an asset's value. Even that may be too much for some people, depending on their financial situation. People should only go into debt for an investment if they are confident they can earn more than the debt will cost them in interest charges or other fees. Business. Buying or starting a business is another form of investment that may require debt. Capital may be needed for a storefront, inventory or salaries, and in many cases, businesses wouldn't be able to grow without access to credit. A 2017 survey of 503 small business executives conducted by the U.S. Chamber of Commerce found that 77 percent say cash from financial institutions is important for small businesses to succeed.As with other types of borrowing, Lynch says people need to understand how a debt will affect their bottom line. According to Lynch, the type of question that must be answered is: "What sort of income can this help me yield?" Having a business plan and repayment strategy are also important and necessary steps before taking out a business loan. Transportation. Since cars are depreciating assets, not everyone thinks it makes sense to go into debt to afford an automobile. However, Witherspoon says you may not have a choice. "Earlier in life, debt is something of a necessity," he says.Having reliable transportation is critical to maintaining employment, but not everyone has cash for a vehicle. In that case, taking out a loan for an affordable used car can be a smart strategy. A common rule of thumb has been to put 20 percent down on a vehicle and pay off the balance in no more than four years. Ideally, the car payment and insurance premiums shouldn't exceed 10 percent of a household's gross income.[See: 8 Financial Steps to Take After Paying Off a Debt.]Witherspoon says people should be more wary of going into debt as they get older. "When you reach your golden years and enter retirement, it's important to not have this burden of debt hanging over you," he says. Still, before you start planning for retirement, debt can be a tool to help further a family's finances..

February 20, 2020 0 comment

Financial Advisors

Wage Garnishment: What Is It and How Can It Impact Your Income?

by sshrx_ns3li1 February 20, 2020

written by sshrx_ns3li1

If you're behind on any debts, the last thing you want to worry about is having a court mandate that part of your earnings be withheld and sent directly to the creditor or person to whom you owe money until your debt is resolved. But there's a silver lining: If your wages are about to be garnished because you're behind on a credit card, student loan or other debt, it likely won't be a surprise. Even better, there are smart money moves you can make to help you rebound, pay off debt quickly and mitigate the impact of wage garnishment. With that in mind, read on to learn more about how wage garnishment works and tips to avoid emptying your bank account. [See: What to Do If You've Fallen (Way) Behind on Your Credit Card Payments.]How wage garnishment happens. "A garnishment is a judicial mechanism that tells an employer or bank to withhold or direct the finances of a third party to go into the court's trust. In order to get to that point, first there has to be a judgment against that person," explains Brad Biren, an injury law attorney in Des Moines, Iowa. "That judgment merely states that a plaintiff has the rights to the money."Without that garnishment order, your wages can't be garnished, Biren says. However, that's assuming a non-government agency wants your money. For instance, if you have unpaid student loans, the Department of Education could garnish up to 15 percent of your paycheck – without taking you to court first. The Internal Revenue Service won't take you to court, however, you will receive warnings in advance, including sending a notice via certified mail of your right to a Collection Due Process hearing, which means a garnishment is likely imminent (generally within 30 days of the notice date). Though the exact timing of when a lender or federal agency may garnish wages may be unexpected, if it happens, it's unlikely to be an event you didn't see coming.Also keep in mind, there are different types of garnishment: wage garnishment and non-wage garnishment. With wage garnishment, your employer must divert part of your paycheck to your creditors; with non-wage garnishment, your employer won't be notified, but your money will be seized from your bank account. What types of debts are eligible for wage garnishment? In short: just about anything. A debt is a debt. Even Social Security benefits, though not Supplemental Security Income, can be garnished. How much can be taken varies, but the federal government can take up to 15 percent of your benefits for unpaid taxes, and up to 65 percent if you owe child support. In fact, back payments to child support and alimony are the most common reasons for wage garnishment, according to a 2014 report from Automatic Data Processing Inc., a human resources software and management company. The report found that 7.2 percent of American workers have had their wages garnished. What's more, according to the report's findings, 41.5 percent of garnishments were for child support payments, and 18.3 percent were for tax debts. After child support and tax debts were other common debt categories, such as consumer and student loan debt."Most of the wage garnishments I see are for debt collection cases," says Jonathan Stein, a consumer law attorney in Elk Grove, California. "In other words, people stopped paying a credit card or a loan, were sued and now have a judgment against them." On the plus side, it is possible to be in a situation in which your wages can't be garnished. If you make less than $217.50 a week, your wages can't be garnished for credit card or some other types of consumer debt. [Read: Trying to Dig Out of Debt? Don't Make These Mistakes.]How much of your wages can be garnished? "How much is garnished varies (from state to state). California limits garnishments to 25 percent of a paycheck," Stein says.But there are exceptions, even when a state limits how much can be garnished, and it depends what type of debt you owe. "Depending on the circumstances, up to 65 percent can be garnished if the amount due and owing is based on a child support order," says Arthur Ettinger, co-chair of the family law department at Greenspoon Marder's New York City office.As for taxes, if you have a tax refund coming but you owe the government money, the federal or state government can garnish it after it's deposited in your bank account. "Federal government wage garnishments tend to be more harsh in the amount that they take from a person's paycheck than a garnishment for a judgment," says Ashley Morgan, a bankruptcy attorney in Herndon, Virginia. Her firm, Ashley F. Morgan Law, PC, also has a staff attorney who helps clients deal with tax debt.The IRS uses a specific form to determine how much gets sent to them versus what the taxpayer gets to keep in their pay. "This formula depends on how often you are paid, number of exemptions and filing status," Morgan says.How harsh can the IRS get? It depends on a number of factors, such as your filing status, pay period and how many dependents you have. But you could see approximately half of your paycheck gone. It can be worse if you're a freelancer, according to Morgan. "Independent contractors face a much greater risk as 100 percent of their pay can be garnished by the IRS," she says. Taxpayers "must get into an official payment agreement with the IRS to have the garnishment released. Every situation is fact-specific, but they can potentially be released in one day, if you are eligible and qualify for certain payment arrangements."And if you're a contractor, in many cases (with the exception of the government), creditors won't come after you. In that case, Ettinger says, "an income execution (wage garnishment) is likely not the proper legal remedy in order to enforce a judgment as it would be futile." But that doesn't mean independent freelancers can shirk paying off debts. "There are several other enforcement remedies available, including contempt orders, suspension of licenses, liens on property, just to name a few," Ettinger says.What to do if your wages are garnished. Step one: Seek help. That could mean hiring an attorney to work things out with your creditor or help you determine whether it's worth filing a written objection to your wage garnishment and going through a hearing. Or you may want to try negotiating a payment plan with your creditor. You also may want to consider working with a credit counselor, says Howard Dvorkin, a certified public accountant and chairman of Debt.com, a consumer education site about debt. Even if a credit counselor can't help you negotiate a better deal, he or she can help you manage your other debts.[See: 8 Financial Steps to Take After Paying Off a Debt.]When you get to the point where your wages are being garnished, you need to make some changes in your life, Dvorkin says. "If your wages are being garnished, that's a sign. Actually, it's an omen. Your financial life is a mess," he says. "In fact, wage garnishment means you can't be trusted to pay what you owe, so someone else is seizing your paycheck to make sure you fulfill your obligations. It's depressing, and you're reminded of it every time you get a paycheck. If you're facing this awful situation, you need help.".

February 20, 2020 0 comment