Make Your Paperwork Work for You

(This is a guest article by Melanie Taylor*)

Who says paperwork isn’t fun? What could be more fun than producing conclusive evidence that proves that YOU are 100% right? It’s all the more satisfying when being right means you’re saving money.

Blazing a paper trail...

Our lives are full of paperwork. Master it and you’ll find your finances run more smoothly. Let’s look at three of the most important paperwork categories…

Category One – Receipts

How many times have you had a ‘guaranteed’ product break within months of buying it?

One thing’s always guaranteed: the shop will be festooned with ‘No receipt, no returns’ signs, carefully placed within convenient finger-tapping range of the employee(s) you’re haggling with.

Argue, plead, point out that no other shop within 1,000 miles even sells that product – it all makes no difference in the face of that simple four-word logic. More frustrating yet, even manufacturers’ warranties can require proof of purchase!

If only you’d kept the receipt, you could be turning that broken product into cash, not trash.

Action: Never throw away receipts. Keep them in a dedicated drawer / folder, under whatever kind of filing system helps you locate them at need.

Category Two – Bank (and Credit Card) Statements

In this golden age of technology, it’s tempting to assume that all orders will be obeyed, all payments paid, all transactions transacted – on time and to n decimal places.

Yet banks, like all companies, are run by humans, inevitably the source of all human errors. Whatever instructions you’ve issued – whether by phone, online, or in person – there’ll always be a human involved somewhere down the line. It could be the person who takes your phone call, the ‘techie’ overseeing the online database, or the cashier who ferries your requests to the bank’s system.

This isn’t a criticism of banks. It’s an acknowledgement that human error is as ubiquitous as humans. However impressive the security checks, no organization anywhere on the planet can guarantee 100% safety.

Then there are the technical errors, computer errors, software errors... Whatever label they come with, they can all result in problems with your payments: problems which can affect your credit rating, saddle you with fines for late payment, and potentially land you in debt that you are responsible for clearing.

Which is why you should take the time to check your bank (and credit card) statements. Not just to look for hints that you’re the victim of fraud, but to make sure your planned transactions have been carried out on time and in full.

Action: Check your statements, then file them in date order, so you can refer back to specific instances whenever necessary.

Category Three – Letters

Disagreements can be terrible things, however trivial the subject matter. When it comes to finance, verbal agreements are often described as being ‘worth the paper they’re written on’.

So when you agree something with a creditor / debtor / customer / supplier, get them to put it in writing. When it arrives, keep it. Scan it, file it – do whatever makes it easy for you to find it quickly.

Nothing settles an argument quicker than: “In your letter, dated May 5th, you state – and I quote…”

Similarly, keep copies of everything you send them. If you think it’s necessary, send it registered, and keep the receipt stapled to the copy.

Action: Keep – and file – copies of everything.

A Final Thought

Like it or not, we live in bureaucratic times. Paperwork is everywhere, so learning to deal with it effectively is an important part of modern life.

The better you do that, the more you’ll save on three of the most valuable commodities in your life – time, money, and patience.

*About the author: This article was contributed by Melanie Taylor of Think Money, who provide debt help & advice.

*Image Credit: Photograph by lejoe [via Flickr Creative Commons]

Vanishing Act of the Thin Line between "Want" and "Need"...

Our little baby girl is here! She is such an angel! We are getting settled in and things are beginning to fall in place. Knock on wood. I have a lot of help and support from my family and the "better half" has shown that he truly deserves that name :) But still, somehow, there seems to be no time for anything else, other than learning to be parents! Posting on this blog is going to continue to be pretty sparse, unless I have some guest posts to publish.

A quick note on the personal finance front - it seems to me like the thin line between "want" and "need" has started pulling a vanishing act on us. For instance, we have a very good crib (for upstairs) and a pack 'n play which acts as a bassinet (for downstairs). But within the first two days of bringing our baby home, we ran out to get a co-sleeper so we can put her on the bed with us. She would neither sleep in the crib nor the bassinet and I don't know what made us think the co-sleeper would work... To cut a long story short, now in addition to the crib and bassinet, we have a co-sleeper that she won't sleep in.

There are so many other things we have done this with! Her grand parents have got her a tonne of newborn clothes and we had gone and bought a few too. Within a few days of bringing her home though, we realized that the most convenient clothes were ones that did not have to be slipped over her head and did not have zippers or lace etc. So we ran out and got more sets of the one type of outfit that we like, while the rest of the clothes are just sitting in the closet, waiting for her to outgrow them.

We have gone from a household of two part-time residents (we did spend a lot of time at the office!!!) to a household of five full-time residents (at least until the better half returned to work), and the cost of everything from utilities to groceries has more than tripled! I was expecting the costs to increase (though not as much!) and have a buffer for it. What is completely unexpected though is this sudden inability to distinguish between what we really need and the sleep-deprivation induced urge to buy stuff with the hopes that they will magically make things smoother! Oh well, it ain't everyday that you have a precious little baby, so roll with it the way it goes for the next few months (years?) I guess...

Eight Questions about 529 Accounts for Jonah Keegan, the Founder of Freshman Fund

These days, whenever I get some time, I have been thinking and reading about 529 plans and trying to determine if we should have one for our baby. Coincidentally, I was recently contacted by Jonah Keegan about an interview to introduce his site Freshman Fund to the readers of this blog. Since its a good chance for me to get some of my questions answered, I quickly took up the offer! I hope some of these questions and answers will be helpful to you readers as well. If you have more questions, I have added the contact information for Jonah at the bottom of the interview - please feel free to contact him directly.

Jonah Keegan is the founder of Freshman Fund. Freshman Fund helps parents save for college by giving them a free online gift registry for their college fund. When you register your 529 college savings plan at Freshman Fund, gifts from friends and family go directly into the plan.

OK. Here we go...

ISPF: With so many different 529 accounts available, how can one determine which plan is the best for them?

Jonah: Like Smokey and the Miracles say, "You Gotta Shop Around." The best 529 is going to be different for each family depending on their child's age, their investment pattern and other factors. Similar to big-ticket purchases like a computer or television, you will find that there are a large number of plans that fit your basic needs, and from there it's a matter of doing some research or working with your financial advisor to determine the best choice for your family.

The good news is that if you do want to enroll in a 529 directly, there are some great online tools for comparison-shopping.

The number-one industry expert is Joe Hurley, and his site SavingForCollege.com has great features that let you look at the plans available in your state, run comparisons on different plans or plan features, and see what he thinks are the current top-rated plans.

ISPF: How can parents pass word to relatives and friends that they would prefer to receive the gifts in the form of contribution to the 529 accounts?

Freshman Fund makes this easy in two ways.

First, we have a contacts manager that lets you import your webmail or social network address book. This makes it easy to build and manage messages on our site, as well as discover if anyone in your address book is already using Freshman Fund.

Second, we've included a notification message that you can send right from your Freshman Fund account. Login, and you will see a "Notifed" link next to your student. Clicking the link takes you to our notifications page (Tip: Import your contacts first and adding message recipients is as easy as clicking on their names, right from your message page). We provide a default message, but you can customize it however you like before you send.

ISPF: What are the limits on how much can be saved in a 529 account each year? How do contributions from friends and family effect this?

The limit on 529 savings for each student is set by the IRS gift tax exclusion limit, currently $12,000. This is a limit per student and not per donor, so parents who save or receive gifts at or near this amount need to keep an eye on their annual savings. Also, this is not a per plan limit, so if a student has multiple 529s in their name, they will also need to keep track of their account balances.

In part, this is one of the problems we started Freshman Fund to solve. Parents were telling us that between grandparents, godparents and themselves, they had multiple 529s open for their children and no idea how much money was actually being saved each year. Freshman Fund lets parents consolidate 529 savings to a single account to better plan for the future (and avoid a visit from the tax man!).

Oh, and most plans have a maximum contribution limit as well, it varies from plan to plan, but on average it's more than $250,000 per account.


ISPF: How does a 529 account affect a child's federal financial aid?

The impact of a 529 on a student's financial aid depends on who owns the plan (the beneficiary of a 529 is always the student, but the owner could be the parents, grandparents or the student themself).

If the 529 is owned by the parent or another non-beneficiary, it is treated as a parental asset, and assessed at a 5.64% rate when calculating financial aid awards.

If the 529 owner and beneficiary are the same, the rate could be as high as 20% for the 2008-09 school year because the funds are treated as a student asset, but starting with the 2009-10 school year, they will be treated as a parental asset whether or not the parent owns the 529, and will be assessed at the 5.64% rate.

Also, 529 distributions are not counted as income for that year, which helps when next year's financial aid eligibility is calculated.

ISPF: What happens if my child does not want to go to college?

Parents with a child who does not attend college can transfer the account to a sibling, grandchild, step-sibling, cousin, niece, nephew or in-law without incurring any taxes or penalties.

Other transfers would be viewed as "non-qualified withdrawals" by the IRS, and the account would be subject to federal (and possibly state) income tax on any account earnings, as well as a 10% federal penalty tax on earnings.

ISPF: What qualifying expenses can be paid with 529 savings without incurring a penalty?

The easy ones are the following: tuition, room & board, any mandatory college fees, books, and a computer (if required).

From there, it varies from plan to plan and state to state, if you have a question about something that is not on the list above, consult with your plan manager or financial advisor.

ISPF: Does investing in a 529 make sense for families who may possibly return to their home country before the children start college?

Much like the question "What's the best 529 for my family?" there is no one answer to this question, families who foresee this scenario in their future should research all of the available college savings options, including 529s, or talk to their financial advisor before making a choice.

I can tell you that 529 savings may be used to pay for many non-U.S. colleges, you can search a list of eligible institutions at http://www.savingforcollege.com/eligible_institutions/, in the STATE: drop-down list, choose Canada for a Canadian college, or Foreign Country for any other international school.

ISPF: What are some alternatives to 529 accounts?

Here are some of the more popular college savings options. Space, time and the limits of my expertise prevent me from including every feature of these savings options, but here are a few highlights.

MUM (Money Under the Mattress... or in a no-interest savings account)
Very rarely a wise choice for any type of savings, and college savings are no exception. Loses ~3% per year at the current rate of inflation, and if it's earmarked for college then you're in even worse luck, as college costs inflate at about twice that rate, or ~6% per year.

U.S. Education Savings Bonds
Savings bonds can have tax benefits at both the federal and state level, but the exact nature of the benefit varies depending on the exact type of bond purchased. Unlike 529 gifts, savings bonds are not covered by the gift exclusion. Also, to qualify for the tax benefit, savings bonds may only be used for tuition and fees, whereas 529 distributions can be used for the broader array of expenses mentioned above. The annual limit on bond purchases is $5,000 per owner per type of bond, or $90,000 over the 18 years of a typical future freshman's life. In contrast, 529 plans have an average lifetime maximum contribution of more than $250,000.

UGMA/UTMA
The Uniform Gift to Minors Act and Uniform Transfer for Minors Act are custodian accounts set up for minors by a donor, usually a parent or guardian. The donor is the custodian of the fund, but the donations are an irrevocable gift and must be used for the benefit of the minor. Further, custodianship terminates when the minor reaches the legal age (18 or 21 depending on the state of residence) and may be spent on whatever the beneficiary desires. As you might expect, UGMA/UTMAs are treated as student assets when making financial aid determinations.

Coverdell Education Savings Accounts (ESA)
An education savings account that is more flexible than an UGMA/UTMA, and unlike 529s, can be used for pre-college education expenses. HOWEVER, the ability to use Coverdell ESAs for pre-college expenses will expire at the end of 2010 unless Congress intervenes to preserve this feature. Two other things to note with Coverdell ESAs is that only $2,000 per year may be saved in a beneficiary's name, regardless of who owns the account or how many accounts exist for the beneficiary, and the government steps that limit down, ultimately to zero, starting with incomes of at least $190,000 per year for couples or $95,000 for single filers.

I would like to thank Jonah for taking the time to answer my questions. If you have any additional questions about Freshman Fund, please feel free to contact Jonah at jonah dot keegan at freshmanfund dot com, or 347-416-6498. Please note that he is not a financial advisor, so while he can provide information, he cannot make recommendations. For specific advice, please consult with a financial advisor or tax professional.