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6 signs a couple should not say 'I do' to joint checking

July 21, 2015

| MoneyRates.com Senior Financial Analyst, CFA

Marriage should be a union of hearts, minds and souls… but checking accounts? Perhaps that's one area where the relationship would be healthier if each spouse kept a little personal space.

You've moved in together, you've worked out how to share expenses, so why not a joint checking account? After all, now that banks with free checking have become increasingly scarce, combining accounts might be the best way to get your balance up to a level that qualifies for a fee waiver.

Still, there are reasons that a joint checking account can be a bad idea, bad for your finances and possibly bad for your relationship.

Here are six signs that you and your beloved should not say "I do" to joint checking:

1. She's digital, he's paper

Morgan does her banking via iPhone and her debit card. Alan writes paper checks and visits branches and ATMs. This is a bad combination because their finances are traveling at different speeds.

Morgan's digital banking habits mean that transactions get posted to the account more quickly, and money is drawn from the account at a rate that more accurately reflects when expenses occur. Having transactions posted on two different schedules can lead to overdrafts and budgeting problems.

Note also that Morgan may be saving money by banking online, since free online bank accounts are still relatively common while free checking at branch-based banks has become increasingly rare.

2. He travels, she stays put

Roger's business takes him out of town several times a year, while Christine likes to stick close to home. She's been happy with her local bank for years, but Roger needs a bank with ATM locations where he travels.

If not, he'll repeatedly get dinged by out-of-network ATM fees, which total more than $4 per occurrence, according to the most recent MoneyRates.com bank fee survey. In this case, Christine can stick with her hometown bank, but Roger needs one with more of a national footprint.

3. She gets paid every two weeks, he gets paid monthly

This is one of those little things that lead to confusion in real time. Not having a clear idea of when direct pay deposits will be posted to the account can lead to overdrafts. Additionally, two different pay schedules add to the potential for confusion.

4. He's a fastidious record keeper, she tracks purchases when she has time

Jose likes to record transactions as soon as they occur. Abby feels that slows her down too much, so she waits and catches up on her financial record keeping every few weeks.

This discrepancy can not only cause overdrafts, but it is also likely to result in tension as Jose gets frustrated with Abby's slackness and Abby feels nagged by Juan's up-to-the-minute record keeping.

5. She's fine without overdraft protection, but he wants in

Megan wants to avoid those nasty overdraft fees, which average over $30 per occurrence. Jamaal would rather pay the occasional fee rather than endure the embarrassment and inconvenience of having a transaction denied.

Opting out of overdraft protection is the default position for new accounts, but banks still make a great deal of money off of customers like Jamaal who opt in.

6. He's strict about budgeting, she's more spontaneous

Derek won't buy a soda if it's not in the budget. Carly is responsible about not spending too much over the course of the month, but she likes the flexibility to decide when to splurge and when to save. There needs to be a meeting of the minds when it comes to long-term financial planning, but a little freedom for each partner's personal style of short-term spending can avoid a lot of petty disputes.

So chalk it up to establishing personal boundaries, or perhaps to leaving a little mystery in the marriage. For many couples, keeping the checking accounts separate can make sharing the rest of your lives together go much more smoothly.

Do you have joint checking with your other half? How do you handle financial disagreements between the two of you? Tell us in the comments!

More from MoneyRates.com:

Should a husband and wife combine all their finances?

Separate or joint checking accounts?

How to choose a checking account: 5 questions to ask

Dos and don’ts for young workers planning an early retirement

July 17, 2015

By Dan Rafter | Money Rates Columnist

Retiring before you're 65 seems unlikely, but not impossible. Lawrence Pon's client got lucky and retired early and comfortably after the value of her employer's stock suddenly soared. Pon's client - a single 40-year-old - owned enough so that it provided her, even after taxes, with enough income for the rest of her life.

Pon, a certified public accountant and owner of Pon & Associates in Redwood City, California, says that his client paid off her mortgage and debts. She also invested her money, converted a traditional IRA to a Roth IRA to save taxes and moved to Australia, renting out her previous home for extra cash.

That's an unusual way to retire early. But you shouldn't expect this kind of luck. If you plan to retire early - say before your 60th birthday - you'll need to make the smartest of financial decisions and avoid the biggest potential money pitfalls.

"We have seen many clients retire early," Pon says. "Sometimes this is voluntary and sometimes not. We have to take into consideration health care, Social Security and where their assets are located."

In other words: If you want to retire early, you need to plan.

Here are the most important steps to take, and mistakes to avoid, if you want to leave the working world and enjoy your golden years sooner than many of your peers. 

Don't: Start too late

You might think you're too young to worry about saving for retirement. That's not true, and it's especially untrue if you want to retire early. Sarah Elliott, personal finance and credit expert with Salt Lake City's Lexington Law, says that there's a reason why retiring at age 80 is becoming more common: People aren't saving early enough to fund their retirements.

Elliott says that typical retirees need about 80 percent of their final year's pre-retirement income to live comfortably each year once they leave the workforce. If you retire at 65 and are earning $100,000 a year, you'll need at least $1.6 million to live comfortably until age 85.

That's an intimidating figure. But the sooner you begin saving, the easier it will be to attain.

"If you are thinking, 'But I'm only 27,' think again," Elliott says. "It's never too soon to start thinking about long-term financial security, especially when time is on your side."

Do: Take advantage of the magic of compound interest

Do you know how powerful compound interest can be? Joseph Jennings Jr., wealth director and senior vice president at Pittsburgh-based PNC Wealth Management, certainly does. As he says, $10,000 saved at age 25 has 40 years of growth potential if you plan to retire at 65 while the same amount saved at age 60 only has five.

That makes a big difference: $10,000 compounded at a conservative rate of return of 8 percent will grow to more than $217,000 when you reach 65 even if you never save another penny. But $10,000 saved at age 60 will only grow to just more than $14,600 by the time you reach 65.

"Due to the power of compounding, the first dollar saved is the most important," Jennings says. "It has the most growth potential over time."

Don't: Spend recklessly

Eric Sommer, wealth director for the central Florida region for PNC Bank, says that the best way to retire early is to "save 'till it hurts."

In other words, if you spend everything you make, you won't be able to stow away enough for a happy retirement, let alone an early one.

Sommer recommends that those who want to retire early maximize their allowable contributions to Individual Retirement Accounts and employer-offered 401(k) accounts. Those who spend too freely won't be able to take this important step.

Do: Look for opportunities for free money

Many employers match the contributions - or at least a percentage of them - that their workers make to 401(k) plans. Elliott says that this is basically free money, and you should always make sure to contribute the amount you need to earn your company's match. This is especially true if you want to retire early.

Don't: Forget to make frequent investments

Jennings recommends that you don't just start saving early. He says that you should invest your money in retirement accounts often, too.

"Rome wasn't built in a day," he says. "Your retirement porftolio won't be, either."

Don't put off setting up a monthly investment program into a mutual fund, Jennings says. By investing at regular intervals set according to your cash flow and other financial factors, you'll develop the habit of regularly saving money, whether you are depositing that money into a retirement account or a mutual fund.

Do: Take into account the life you want to lead

It's easier to retire early if your goal is to spend time with your grandchildren and catch up on your reading. But if you want to travel the globe or take up sailing? Then you'll need to be more aggressive in your savings.

If you don't plan for the life you want to lead, you might find that you haven't saved nearly enough to retire early.

"It's critically important to know how much you will need to maintain your desired lifestyle in retirement," Sommer says.

Don't: Rent too long

You might enjoy renting an apartment. But if you want to retire early, doing so might scuttle your plans. Rob Seltzer, vice president and wealth consultant with Womack Wealth Management in Beverly Hills, California, says that when you rent, you get nothing in return for your money. Rents are rising quickly today, especially in the center of urban areas. Renting an apartment is becoming an expensive move.

Do: Buy a home and build equity

But when you buy a home? You build equity. And the hope is that you'll make a profit when it's time to sell.

"The combination of building equity and having a fixed housing payment are critical," Seltzer says.

What are you doing in your plan for an early retirement? Let us know in the comments.

More from MoneyRates.com:

Emergency fund broken? Here's how to fix it

July 16, 2015

By Dan Rafter | Money Rates Columnist

Don't have an emergency fund? Then you're asking for trouble.

What happens if your home's water heater bursts? What if your car needs a new transmission? Without an emergency fund, you might have to turn to credit cards to cover these surprises. And that's never a sound financial move.

It's why financial planners recommend that consumers build an emergency fund that allows them to cover between three and six months - ideally more - worth of regular living expenses.

"Most of our grandparents never owned a credit card," says Marie Vanerian, managing director of wealth management with the Troy, Michigan, office of Merrill Lynch. "They paid cash and tracked all of the money they spent. Our grandparents always took a percentage of their income and saved it for a rainy day. They always had an emergency fund."

Is your emergency fund today gathering more dust than dollars? Here's some good news: You can repair your ailing emergency fund. And it doesn't even take that much effort.

Start small

Staring at an empty emergency fund? Start small to rebuild it by cutting out excessive expenses.

Kimberly Foss, president and founder of Empyrion Wealth Management in Sacramento, recently worked with her daughter on this. The two calculated that Foss' 23-year-old daughter spent a whopping $1,814 per year on Starbucks coffee. Foss' daughter agreed to make her own coffee at home. And the money that she was spending on Starbucks? She's now depositing it into an emergency fund.

"Anybody can do that," Foss says. "Apply it to whatever you are buying too much of. Cut that down. Kick the eating-out habit, or at least eat out less often. You need to be aware of what you are spending too much on, and then you need to put that money into an account where you won't touch it."

Pay yourself first

Too often, people wait until the end of the month to contribute to their emergency funds, said Carolyn Dunlavy, owner of Jade Tree Retirement Planning in West Hollywood, California. But when they reach the last day of the month, they find that they don't have anything left to deposit.

"The key is a strategy called 'pay yourself first,'" Dunlavy says. "If you wait until the end of the month when the bills are paid and all the shopping is done, you find that you don't have much, if anything, to contribute to yourself because it's very easy to spend your paycheck down quickly."

Dunlavy recommends that you set up an automatic withdrawal from your paycheck that is deposited immediately into your emergency fund. Then you won't spend that money on anything else.

The numbers back this up. NACHA, an electronic payments association based in Herndon, Virginia, says that consumers who use direct deposit and automatic withdrawals tend to save $90 more every month than those who try to save their dollars manually.

Additionally, you could grow your savings by finding the best savings account rates for your deposits. 

"When it comes out the same day as your paycheck is deposited, you don't have a chance to see it, never mind to spend it," Dunlavy says.

Don't strive for a big tax refund

You might think that receiving a big tax refund from the IRS each year is a good thing. It's not: It means that you're sending too much money to the IRS each year. It's better to keep that money yourself. You might even invest that extra money into an emergency fund.

Michelle Dosher, managing editor of the Home & Family Finance Resource Center at the Credit Union National Association, says that if you are receiving a tax refund each year, it's time to submit a new withholding form to your payroll department. This will send fewer of your dollars each paycheck to the federal government. It will also leave you with a larger paycheck and a chance to put those dollars to better use.

"Put the extra cash into paying off bills and building your emergency fund," Dosher says.

A refinance can help

If you're paying off a mortgage or car loan, you might be able to save money each month by refinancing these loans to ones with lower interest rates, Dosher said.

Say you refinance your mortgage loan so that your payment drops from $1,500 per month to $1,200 per month. You can deposit the $300 extra that you've been sending to your lender into an emergency fund - a move that will allow you to refill an empty fund quickly.

"Unless you have credit card debt," Dosher says. "If you have credit card debt, put some of that extra money toward credit card bills."

Don't spend (all) of that bonus

Getting a bonus or a raise at work is certainly something to celebrate. It might also be an opportunity to repair your broken emergency fund.

Foss says that whenever you get a bonus, you should deposit at least half of it in an emergency fund. And if it's a raise? You should deposit at least half of the extra money you are now receiving with each paycheck into your fund.

"You've been living without that raise or bonus already," Foss says. "So you should be just fine with depositing some of it in an emergency fund. Take half and do whatever you want with it. Buy yourself whatever you want. Take the other half and put it into your emergency fund."

Keep at it

The biggest key to building an emergency fund? You need to be persistent. Even if you can't deposit much, deposit something. Financial planners say that depositing $50 at the end of the month is better than depositing nothing.

Don't let a big number - say your goal is to save enough to cover nine months of expenses - intimidate you.

"Don't get hung up on how big this number is," Dosher says. "Just steadily keep adding to your fund. By being persistent about adding to your fund, your savings will grow faster than you think."

Visit the savings section for more information the best savings accounts for your emergency fund.

Are you achieving your own emergency savings goals or have a long way to go? Share your progress in the comments.

More from MoneyRates.com:

Building an emergency fund

5 simple ways to build a rainy day fund

6 essential types of savings: When to begin each

Drowning in debt? How to get your mortgage and finances above water

July 14, 2015

| MoneyRates.com Senior Financial Analyst, CFA

A recent report on mortgage loans reflected a good news/bad news situation with respect to Americans rebuilding equity in their homes after the housing crisis. Regaining positive equity is an important financial milestone, and it is just one example of how such events represent getting your finances out from under water.

An under water mortgage loan is one in which the remaining loan balance represents more than the value of the home. This condition became common when the housing crisis caused home values to plunge. Now, with recovering home prices and a few more years worth of mortgage payments on the books, more and more people are getting their mortgages out from under water.

CoreLogic, a real estate research firm, recently reported that 254,000 US mortgages came out from under water during the first quarter of 2015. That's the good news. The bad news is that 5.1 million residential properties still have lower market values than loan balances. This represents about 1 out of every 10 residential mortgages in the U.S.

Those home owners still have a ways to go to get their loans out from under water. Even once that is accomplished, there are still some other important goals to reach before a household truly has mastery over its finances.

The significance of getting a mortgage out from under water

The ultimate goal in buying a home is to pay off your mortgage entirely. However, for people who have suffered the setback of declining home values, getting their mortgages out from under water represents a significant tipping point.

For one thing, having positive equity in your home greatly enhances your ability to refinance your mortgage. This in turn opens up opportunities to lower your mortgage rate or restructure your loan to make the payments more manageable. In this way, getting a mortgage out from under water can lead to additional improvements in your financial position.

Getting a mortgage out from under water also represents a tipping point from a wealth-building perspective. It is the point when your house moves from being a net liability to a net asset, meaning that your mortgage payments now contribute to your positive net worth.

Other ways to get your finances above water

Here are other examples of getting your finances out from under water:

  1. Clearing your credit balances. Americans currently carry more than $890 billion in credit card debt at an average interest rate of 13.53 percent, according to the Federal Reserve. This projects to a total of $120 billion in annual credit card interest. While just making the minimum required payment will keep you out of trouble with your credit card company, paying credit card interest is a completely unproductive expense. Carrying a balance is an ongoing drain on your finances, so the goal should not be merely to meet your minimum payment requirements, but to pay off the balances as soon as possible.
  2. Paying off student loans. Student loan debt is even higher than credit card debt. Americans now owe in excess of $1.3 trillion on their student loans, and this total has risen sharply in recent years. Getting this debt out of the way is an important step in your financial progress because eliminating student loan payments frees up some of your income for other goals. For example, accumulating enough money for a down payment on a house or saving for retirement.
  3. Meeting minimum balance requirements for checking and savings accounts. This may seem a modest goal, but for many people, not having a large enough balance causes them to incur checking account fees or do without having a saving account. Meeting minimum balance requirements helps put you on the path towards saving money.
  4. Fixing credit problems. Credit problems feed on themselves - they make borrowing money more expensive, which makes meeting your financial obligations even tougher. Repairing your credit not only solves an immediate problem, but it pays off subsequently in the form of cheaper credit.
  5. Getting retirement saving on track. There are a variety of ways to calculate how much you will need for retirement, but whatever the method, people generally find themselves playing catch up because their early-career earnings are not enough to finance sufficient retirement saving. Getting your retirement savings on track means you are no longer on the road towards an impoverished retirement.

As with getting your mortgage out from underwater, the above are financial tipping points. Rather than just representing incremental progress, they represent a situation turning from a negative to a positive. That makes these goals worthy focal points for your financial planning.

To help get your finances above water, consider opening up a high-yield savings account.

More from MoneyRates.com:

4 financial mistakes our parents make - and how to avoid them

July 13, 2015

By Dan Rafter | Money Rates Columnist

It might - or might not - surprise you, but your parents aren't perfect. And when it comes to finances? Your parents might have struggled with their finances while you were growing up. But just because your parents continually made - and might still make - money mistakes doesn't mean that you have to follow their example.

Now that you're an adult, possibly with children of your own, you don’t have to repeat history. While your parents might not have provided you with lasting  financial lessons, you can still be a good money role model for your own children.

And just because

Michelle Smith, CEO of New York City's Source Financial Advisors, says that it's important for today's young parents to learn from the mistakes of their own moms and dads. Too many parents, Smith says, don't pass on what is acceptable financial behavior to their children.

"Over the last 15 years, I see a big difference with how parents have dealt with kids and money," Smith says. "What I see is that parents have stopped teaching their kids any financial habits at all. They don't talk about money.”

Smith stressed the importance of avoiding a sense of entitlement when raising kids.

“We are raising a lot of entitled kids today who have no idea about the value of money,” she adds.” If they want something, they get it, without learning anything about the work that goes into acquiring that money."

Here's a list of the top ones. Avoiding the biggest mistakes our parents have long made and continue to make will provide a boost to your own finances. You might even pass along some money savvy to your own children.

Here are four money mistakes your parents make and how to avoid them:

Mistake No. 1: Always paying with plastic

There's nothing wrong with using credit cards if you pay off your balance at the end of each month. But Bill Engel, senior vice president at Fort Pitt Capital Group in Pittsburgh, says that too many of our parents never did pay off those balances when they came due, and that's a bad habit that they too often passed on to us.

How to avoid: Pay with cash instead.

"I always tell my clients to use cash as much as possible," Engel says. "There is an emotional pain when you watch the cash in your wallet shrink. It makes you think twice about some purchases. That doesn't happen when you use plastic."

Mistake No. 2: Not saving for retirement early enough

Sally Brandon, senior vice president at Palo Alto, California-based  Rebalance IRA, says that too many of our parents made the mistake of not saving early enough for retirement.

It's easy to see how this mistake happens: Retirement seems so far in the future when you're in your 20s. It might even seem far away when you're in 30s.

But those who start saving for retirement -- even small amounts -- when they're in their 20s? That's a smart financial move, Brandon says.

How to avoid: Save for retirement as early as you can.

"Young people have time on their side," Brandon says. "It is important for parents to show their own children the benefits of starting to save for retirement early. You can have more than $1 million saved by the age of 65 if you put away just $5,000 a year starting when you're 25. That's powerful to see how, thanks to compound interest, that money can grow."

Mistake No. 3: Too much impulse-buying

How many times have your parents bought something simply because they wanted it, even if the flat-screen TV, laptop or car were far outside their budgets?

Jim McCarthy, certified financial planner with Directional Wealth Management in Morris County, New Jersey, says that impulse buying is a bad habit that too many children inherit from their parents.

How to avoid: Make a budget and stick to it. 

"They don't follow a budget," McCarthy says. "They see something, like it and buy it. That impulse buying is a bad habit."

Mistake No. 4: Keeping up with the Joneses

It's easy to get jealous when the neighbor pulls a luxury car into the driveway next door. But acting on that jealousy can get you into financial trouble. Unfortunately, too many of our parents have done just that over the years, said Engel. They often buy the latest and greatest just because someone else they know has done the same thing.

When people buy items without saving for them, this is something that can cut into their savings, Engel said. It's easy to pass this attitude onto younger generations, something that today's parents have to be especially mindful of.

How to avoid: Think long and hard about whether you'll need something before you buy it.

"My boys play little league baseball,” Engel says. “If you look at all the bats lined up for these kids, you'd be amazed. There are $250, $300 bats for kids who might never play beyond this year. That's a bad financial decision. It sends a message to kids that if they want something, they should just have it, no matter if they have the money for it."

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