They say time is money.
Most of us have neither commodity to spare nor waste.
To make the most of both, read this column fast. Speed will save you the time to improve your financial standing.
Financial chores often are tackled on a when-I-get-a-chance basis, which means procrastinating until some glitch, confidence-shaking event or outright catastrophe serves as a motivation. By then, money or opportunity already may be lost, and it may take a significant time investment to set things right.
Here are five things worth doing now to build your peace of mind and save you both time and money later:
– Find a tax preparer, or contact the one you have.
The new federal tax-relief plan may save you a few bucks, but it won’t make it easier to do your tax return. In fact, it could make your paperwork situation a nightmare.
That being the case, shop for tax preparers now, when it’s not tax season. Preparers currently have the time to meet prospective clients, letting you decide if their expertise and style match your needs.
If you have a tax preparer already, get his or her ideas on how the new laws could affect you and what paperwork you might need to gather to maximize your potential windfall.
The tax law changes will slow return preparation–nuances of the law will be refined right through April 15–and increase demand for preparation services. To find a competent preparer, call now.
The National Association of Enrolled Agents, preparers who have either worked for the Internal Revenue Service or passed the agency’s stringent examination requirements, will send a list of members in your area. Call 800-424-4339.
The American Institute of Certified Public Accountants does not have a referral hotline, but most state CPA groups do. Call the CPA group representing your state for details, such as the Illinois Society of CPAs at 312-993-0407.
– Calculate your debt-payment burden.
Your debt-payment burden (the ratio of debt to disposable income) is something lenders use to decide who is a good credit risk. It’s a snapshot of how well you manage your debts.
Start by determining your monthly disposable income. That’s take-home pay, investment income, bonuses, alimony, rent and whatever else you have available to pay the bills.
Next, total your monthly payments on consumer loans. Leave out the mortgage or rent and regular living costs like the electric bill. Include credit cards, car loans, personal loans, home equity loans, money owed to friends or relatives and checking account overdrafts.
Divide the debt by disposable income and multiply the result by 100. The result is the percentage of disposable income earmarked for repaying consumer debt each month.
If your debt load exceeds 20 percent of your income, lenders may start to get nervous. If you crawl past 30 percent, you have reached the area where lenders consider you a default risk, and your credit lines may start to dry up.
– Speaking of credit, check your credit report.
Most people only discover problems in their credit report when they are rejected for a credit card, loan or employment. That’s too late.
Credit reports always are free if you have been rejected for credit or employment in the last 60 days and your credit history was a reason for the turndown.
By law, residents of Massachusetts, Vermont, Maryland, Colorado and Georgia are entitled to one free copy of their credit report per year from each of the three major reporting agencies. (Experian, formerly TRW, has ended its policy of giving all customers one free credit report per year.)
You should also be able to get a free report if you are unemployed and plan to seek a job within the next 60 days or if you are a welfare recipient. Barring any of those conditions, you will pay anywhere from $2 to $8 for a credit report. It’s well worth the investment, especially if you find problems.
Look especially hard at negative information such as late payments, overdrafts and other problems that severely damage your credit score, as well as for inactive accounts you can close. (When closing credit-card accounts, instruct issuers to report that the account was “closed at the customer’s request,” and be sure subsequent credit reports reflect this status.)
Your credit report will include a form for challenging misinformation. Use it, no matter how small the discrepancy.
Equifax, one of the three big credit-reporting firms, now takes requests for reports over the phone. Call 800-685-1111. The other agencies merely give out instructions on how to send in for a copy of your report. To get those details, call Experian at 800-682-7654 or TransUnion at 800-916-8800.
The credit bureaus are supposed to share information, including corrections, so fixing one credit report should solve your problems. Still, check your file at least once each year.
– Make sure you’ve gotten proper credit from Social Security.
The Personal Earnings and Benefit Estimate Statement (PEBES) is a kind of credit report for your Social Security benefits. It is worth checking out once every few years.
The PEBES provides a year-by-year breakdown of your wages and the Social Security taxes paid into the program. If this data is incorrect–say it was underreported by your employer–your benefits could suffer.
That being the case, you don’t want to wait until you start collecting to try to fix the problem. Years from now, proper records could be hard to resurrect.
The PEBES also estimates the Social Security benefits you will receive upon retirement or disability or to be paid to your family upon your death. Those numbers are a valuable financial planning tool.
You can get the form needed to request a personal benefits statement from Social Security’s Web site, http://www.ssa.gov. (If you have a “secure browser,” you can even fill out and return the form electronically.) Otherwise, the number to call for a PEBES request form is 800-772-1213. The forms also are available at any Social Security office.
– Review your insurance coverage.
This should be a once-a-year task, but it often goes undone. Instead of reviewing coverages to make the most of them, many consumers renew without giving a second look.
Over time, however, insurance needs change. As a car ages and declines in value, for instance, collision coverage, which covers replacement of the car if it is damaged in an accident, may no longer be necessary.
Likewise, coverage needs can change based on your driving habits (if you stop commuting to work), your family (the kids go off to college), the material goods you have acquired (family heirlooms or valuables) and more.
Ask your agent to run your policies with different levels of deductible. Many people pay a lot for insurance to avoid small nuisances. They have a high-premium policy but a low deductible, so that they are covered if their home is broken into and a television set is stolen.
