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$177,000! That’s the average amount an American is expected to inherit according to HSBC Holdings, a banking company.

The cliche “easy come, easy go,” should never apply to an inheritance, but often does. Studies show heirs lose, spend or donate half of their inheritance. Although you didn’t work for it, bear in mind that Aunt Tilly or Grandpa Tom probably worked really hard to amass the wealth they have passed on to you.

The reality is such that an inheritance often starts with grief which is one of the most profound emotions we ever experience according to Chris Bennett, co-founding partner of a consultant firm The Abbott Bennett Group. And so making financial decisions based on emotion is never wise.

“Particularly with the death of a parent, people can feel a whole range of emotions – guilt, overwhelming loss, anger, relief,” Bennett says. “It’s a very bad time to make decisions that can affect you and your family for the rest of your lives.”

It is important therefore that heirs think of their inherited wealth as the income it could provide over the rest of their lives, and not as a lump sum. So what do you do if you aren’t financially savvy to begin with? After checking out Consolidated Credit’s section on how to manage your finances, follow these tips so you don’t waste your inheritance.

“People need to plan for inheriting wealth to avoid the pitfalls that result in so many heirs making emotional or ill-informed decisions they later regret” says Michael Abbott, a veteran financial consultant and CFO of The Abbott Bennett Group.

Abbot and Bennett say the following three tips will help you plan and make the best of your inheritance.

•  Before turning non-cash assets into cash, ask questions—seek expert advice
People inherit everything from real estate to stocks and bonds, IRAS, gold and jewelry. Regardless of what you inherit there are tax burdens attached. So as you make financial decisions it’s important to keep taxes in mind. The last thing you want is to pay a large portion of your inheritance on taxes. In order to preserve as much of your inheritance as possible, learn the best way to minimize the tax burden for each asset. Tax laws are complicated so you might want to hire a CPA to help you.

Abbot says, “Once you’ve liquefied the asset – once you’ve turned it into cash – it’s too late. Life insurance is an exception. You won’t be taxed on that. A ROTH IRA that’s more than 5 years old will also be an exception if the amount is exempt under the current federal estate tax rules.” ($5.3 million for 2014.)

• Roll tax-deferred retirement plan, into an inherited IRA
“An IRA or 401(k), for instance, is a tax-deferred asset – the person who left it to you did not pay taxes on it, Bennett says. “So if you take it in a lump sum, which some plans require, everything you withdraw will be considered taxable income for you.”

So, pay particular attention to your IRA inheritance. Bear in mind that withdrawals are considered income and are thus taxable. What you can do instead is opt to roll that money into an inherited IRA. An inherited IRA retains the deceased’s name and clearly indicates it’s inherited. Do not add it onto your own IRA. Be sure to spread your withdrawals so your money will continue to grow over time.

• Have a conversation with your loved ones before they pass 

The subject of a loved one’s mortality and what you stand to inherit after their demise is a tough conversation to have. But Abbot says one of the biggest mistakes people make is to shun the discussion on inheritance while everyone is still alive and well. Doing so allows heirs to know their loved ones’ wishes so they can make plans – without emotion – for what they may do with the assets.

Not only will it help you decide what to do with your inheritance, but allowing a loved one the opportunity to express their wishes of what to do with your inheritance will also give them a peace of mind. Although these aren’t easy conversation starters, if your loved ones want to initiate the conversation, as emotional or unsettling as it may be, let them. Abbot says, “Some adult children won’t initiate the conversation because they’re afraid of appearing greedy or eager for their parents to die.”

He continued, “Sometimes, the parents want to discuss matters but their children aren’t comfortable addressing mom and dad’s mortality. Even spouses avoid talking about it. It’s the most easily avoidable mistake families make.”

While it may be hard to bring up the subject, Bennett says timing is everything. If a family you know or a family in the news is dealing with estate issues use the timing to bring up the conversation.

Inheritance can be a life-changing experience. One that also represents your loved one’s financial legacy Bennett and Abbott agree.

“Managing it well and preserving it is an important thing you can do in memory of that person you lost.”

 

 

By: Monica Victor

Janet is in her late thirties and shares an apartment with her two siblings and two nieces. She has two degrees, little job experience and over $45,000 in student loan debt.

Post-graduation, it took Janet a year to gain employment. She settled for a job, albeit fun, pays little – she can barely make ends meet. Janet works paycheck-to-paycheck and does not have an emergency savings fund.

Luckily for Janet, she still has a decent credit score so she qualifies for credit cards easily – although, she exaggerates her annual income during the application process.

Janet applied for cards that offered 0 percent APR, maxed them out and paid the minimum. She does not have a financial plan and is about $50,000 in debt – student loans and credit cards combined.  She lives in constant fear that an emergency will arise and she will be in no position to take control financially.

Janet is not alone.

Fifty percent of Americans have less than one month’s income saved for emergencies according to a study by the Corporation for Enterprise Development (CFED), a national nonprofit organization that empowers low- and moderate-income households to build and preserve assets.

A survey by Gallup revealed just 32 percent of Americans keep a household budget and only 30 percent of Americans prepare a long-term financial plan such as savings and investments. Last year, CNN reported that more than three quarters of Americans live paycheck-to-paycheck.

These statistics do not surprise Gregg Murset, a financial planner and CEO of MyJobChart, an online chore chart for kids.

“A lot of people living at a variety of different income levels live life paying bills, and living paycheck by paycheck,” Murset says. “The problem is that people are not planning to fail but are failing to plan.”

Murset asserts in order to become more successful with your money you need to take a thorough look at your financial situation.

“First, determine that you are going to control your money and not the other way around,” he says. “Get really good at sizing up something as a need or a want and don’t be ashamed or embarrassed to stick to your decision.”

Setting up an automatic savings plan and hiding it will also increase your chances of success with money. “If you set it up and the money disappears automatically each month it is really likely that you won’t even miss it,” he says. “It’s not the amount that really is the most important thing.  It’s the fact that you are doing something consistently each month.  It will literally become something that is “out of sight, out of mind”.

In addition – “Set up a separate savings account, with a separate financial institution and make a point not to check the balance very often,” Murset says. “Set a password on the online access TOTALLY different than the one you use for everything else.  As you put some of these roadblocks in the way of yourself, you will largely forget about that money and not be tempted to get back into the hole you just dug yourself out of.”

For people like Janet who take on 0 percent interest cards and max them out, Murset says, “These introductory rates and zero percent offers always have a catch. The low rates go away after a while and by that time you are caught in the trap of having a balance too big to pay off completely and then you have to start paying some serious interest rates.

If you get sucked into the zero percent or low introductory marketing ploys odds are you will pay the piper,” he says. “When you simply pay the minimum balances on bills and don’t understand your true debt you are only digging a deeper hole.”

About the Author:

Monica Victor is a copywriter for consolidatedcredit.org. Her writings seek to help consumers successfully manage their hard earned dollars and cents, encourage folks to live debt-free and to improve or otherwise maintain a healthy financial outlook. Connect with Monica at mvictor@consolidatedcredit.org.

 

 

RPG-Life Transition Specialists Explain

The 401(k) has long been regarded as the standard when it comes to planning for retirement. However as Nicole Mayer AIF® CDFA™ of RPG- Life Transition Specialists points out, there are costly mistakes to avoid when stashing away your savings.  “From failing to take advantage of matched contributions to hidden fees that add up, there is more to a 401(k) than saving money,” notes Mayer.

Tips for making the most of your retirement savings:

  1. Failing to Consider an IRA: Leaving money in a former employer’s 401(k) could add up to thousands of dollars in administrative fees over the long-term. Shifting the savings to an IRA will not only provide a diversified range of investment funds, it is less expensive than those that are actively managed.
  2. Forgetting to Pay Yourself First: On the other hand, if the current employer offers to match 401(k) contributions of up to a certain sum, it would be a mistake to not leverage that benefit. Most employers will match a percentage of your contributions into their employee’s accounts.
  3. Becoming Too Conservative Too Soon: As retirement approaches, 401(k) investors may be tempted to reduce their risk by limiting their plan’s stock exposure. “Many investors fail to account for the fact that they will live another 25 years or more,” says Mayer. “They will either need to alter their lifestyle or grow their portfolio.”
  4. Passively Monitoring Activity: Rebalancing a 401(k) on an annual and/or semi-annual basis is a must. Actively managing how savings are divided will prevent funds from becoming one-sided, which could spell trouble for when it is time to withdraw money.

 

 

By Jeffrey Strain

One of the issues many people have trouble overcoming when trying to get their finances in order is that it requires a commitment to a lifestyle change. If your finances aren’t in order, it’s because you have been doing things that have lead to them not being in order. If you continue doing the same things that you have been doing, you are going to continue to get the same results. That means that if you aren’t willing to make the change, you’re going to have a difficult time succeeding in getting your finances where you want them.

A good analogy would be dieting. Going on a diet doesn’t work if you’re trying to get healthier. It’s a short term solution that will never have lasting effects. It’s not until you make a lifestyle change in your eating habits that you actually have the chance to get healthier. While many may complain that they can’t eat everything that they want, making the change is an investment in their future health.

In the same way, temporarily cutting costs isn’t the solution to getting your finances in order. It’s the same mentality as those who are trying to get healthy through the latest diet. It will likely have some short-term benefits, but it won’t deal with the underlying issues that need to be addressed.

Even worse, you will likely hate and complain about having to do it the entire time. You don’t really want to cut the costs, you have to against your will. You have to make this huge sacrifice because you don’t have enough money. Taking this approach to try and better your financial situation is bound to lead to failure.

One of the most important mental changes that you can make is changing your belief system that when you forego something now, it’s not a sacrifice, but instead it’s an investment in the future. Take a moment to let that sink in. You have two ways that you can look at it. Forgoing something you might want at this moment can either be viewed as a sacrifice that you don’t want to make but have to, or it can be viewed as an investment in the future that you do want.

By taking the initiative to see that the choices you make regarding money, and the choice to delay or forego certain things today in order to achieve the greater goals you have for the future, you are working for something positive. You are no longer sacrificing each day. Instead you’re investing in your future day in and day out.

Part of what makes this mental view change possible is the commitment that you really do want to change. If you are seeing everything as a burdensome sacrifice, there’s a good chance that you’re not really committed to making the changes. You’re more likely being forced to make them against your will. Once you have taken the time to find and set your financial goals, and then make the commitment to achieving them because that is what you want, you will find that everything you’re doing isn’t the sacrifice you once thought it was. You’ll see that what you’re truly doing is laying the foundation for your future and investing in it.

 

By Andrea Woroch

And another one bites the dust. Netflix announced its intention to increase the online streaming service by as much as $2 per month for new subscribers. Current subscribers are safe from the increase according to the company, at least for now.

The creator of “House of Cards” isn’t the only service to increase prices this year. In fact, food staples and other streaming services are part of this troubling trend. Here are several price hikes you should be aware of, along with a few strategies to cut back your spending to avoid feeling cash-strapped.

PRICE HIKES

Airfare
While price hikes on airfare during the summer months isn’t abnormal, it appears small city dwellers are feeling the squeeze even more these days. As airlines look to cut costs, they set their sites on smaller markets, resulting in higher prices for fewer seats and routes. Travelers who don’t mind paying for convenience — like nonstop flights or last-minute ticket purchases — will also pay a premium going forward.

Amazon Prime

The $20-per-year price hike for Amazon Prime users went into effect recently, though current subscribers won’t feel the sting until renewal time. The online behemoth cited increased transportation costs as one of the main reasons for the price increase. If you’re considering a Prime membership — or reconsidering one — check out this analysis from CNET to help you decide if the service is cost-effective for you.

Chipotle

That Burrito Bowl with cost up to 5 percent more than usual once summer rolls around. That’s because the wholesale cost of beef, cheese and avocados has increased to such heights that even consumer-focused Chipotle can no longer handle the pressure to its profit margins. The company doesn’t feel the price increase will deter loyal customers who patronize the Mexican food chain for the experience and fresh ingredients.

Pandora

$3.99 per month for unlimited, ad-free streaming is a pretty smokin’ deal for loyal Pandora users. However, that rate is about to expire as the company implements a new pricing strategy that drops its annual subscription option in favor of per-month-pricing of $4.99. The dollar increase takes effect in May for new users. The price hike is due to higher royalty rates from performers, which have increased over 50 percent during the last five years alone.

Beef and Pork

Drought conditions have driven up the cost of feed, reducing herd sizes and raising the price of beef. Meanwhile, a devastating disease wiped out millions of piglets, contributing to increased pork prices. Carnivores can expect fork over an additional 4 percent for a pork chop or boneless chuck.

Fuel

Not one to be left out, gasoline prices are already on the rise despite the summer-travel season being a few weeks off. The oil production boom in the U.S. should keep retail prices competitive, but increased exports have reduced the supply available for domestic users and increased costs by over 4 percent compared to this time last year.

SAVINGS STRATEGIES

Though rising prices on some of these essential goods and services seem to be out of your hands, you can take control of your spending in other ways to offset the growing costs. This is a great time to review your saving strategies and consider employing these smart money moves:

Stop paying for services you can get for free. For instance, taking out cash from a non-affiliated ATM is going to cost you double the fees, up to $10 at times. Get in the habit of taking out enough cash to suffice for the week or opt for free cash-back services offered at many national stores like CVS and Trader Joes. What’s more, you can switch your landline to an Internet home phone provider like Ooma for free, saving you approximately $40 per month.

Don’t overlook coupons to reduce necessary purchase costs. Whether you’re shopping for a birthday gift or upgrading a home appliance, get in the habit of checking mobile coupon apps like Coupon Sherpa to find any available deals. Target also offers the in-store coupon app, Cartwheel, which makes it easy to find coupons at checkout for instant savings.

Track prices and buy at the right time. Considering that retailers fluctuate the prices on goods and services depending on demand and how often a certain shopper browses a product, knowing when to buy isn’t always easy. However, you can keep up with sales using Hukksterwhich alerts you when an item you’ve been eyeing drops in price or a coupon becomes available.

Look for gently-used options first. Buying secondhand is not a new concept but it can get overlooked when it’s time to shop. From clothes to electronics to sporting goods, you can save a ton of money buying used. In fact, you can even buy previously-owned gift cards for less through sites like GiftCardGranny.com, where you can save 5 to 30 percent on cards to retailers, restaurants, entertainment venues and even airlines.

Andrea Woroch is a nationally-recognized consumer and money-saving expert for Kinoli Inc. She helps consumers live on less without radically changing their lifestyles. From smart spending tips to personal finance advice, Andrea transforms everyday consumers into savvy shoppers. She has been featured among top news outlets such as Good Morning America, NBC’s Today, MSNBC, New York Times, Kiplinger’s Personal Finance, CNNMoney and many more. You can follow her on Twitter for daily savings advice and tips.