My wife and I have pretty good credit. We’ve never missed a payment on any of our debts, have had a variety of credit types (installment loans, mortgages and credit cards) and the cards that we do still have, we’ve had for years.

We’re not too concerned about having a good credit score these days because we don’t really use debt that much, we pay cash for most things.  There is one thing that we DO need a good credit score for, however, that may be happening within the next year or two. Buying a house.

When buying a new home it is important to stay on top of your credit situation as your credit score can have a huge impact on what rate, and what type of loan you can get.  In the end it can save or cost you thousands of dollars. So today I thought I would do a quick review of why it’s important to stay on top of your credit when looking for a home loan, and how to do it in a way that doesn’t cost you very much.

Why Having A Good Credit Score Matters When Buying A House

When you’re buying a house having a good credit score is integral to getting a decent rate on a home mortgage.  The better your rate, the less you’ll pay both in the short term on your monthly payment – and in the long term in interest.  It can also mean the difference between getting a longer and shorter term loan – which can end up saving you even more!

Let’s look at an example scenario in my home state of Minnesota using the calculators found at myFICO.com.

Let’s say you are you seeking a 30 year fixed loan for $250,000 to pay for a new house.  Depending on your credit score range the rate that you get can vary pretty widely.

Even if you have a good credit score, and not an excellent score, you’re losing out on thousands of dollars in interest.  Boosting your credit score to the excellent category would save you an additional $11,107 in interest!  Going from an average or poor credit score to a higher credit score range could save you even more!  So be aware of where your credit score is, and do your best to improve your score!

What Is A Good Credit Score?

What a good credit score is can vary a bit depending on who you ask, but in general it’s safe to say a good FICO credit score is going to be anything above a score of 700-720. In the 680-700 range, you’ve got average credit. If your score is 620 or below you’ll most likely be tagged as a poor credit risk.  Here’s a general look at the credit score ranges.

So what is taken into account with your credit score?  According to the FICO site:

• Payment History (35%): How good are you at making your payments, and making them on time?
• Amounts Owed (30%): How much credit are you using – how much do you owe?
• Length of Credit History (15%): How long have your accounts been open, and how long since you’ve last used them?
• New Credit (10%): Are you opening a lot of credit cards lately, or other lines of credit? Lots of inquiries for credit?
• Types of Credit Used (10%): Number of and different types of accounts.

Where Can You Check Your Credit Report?

There are a couple of things to stay on top of when carefully monitoring your credit, your credit score and your credit report.  Your credit report will be a detailed listing of your credit situation showing all of your accounts, loans,  negative events on your record, missed payments, etc.  In other words it will give you an overall look at your credit situation.

You should never really have to pay for your credit report as you can get a free report from each of the three agencies every year through the government site at AnnualCreditReport.com.  Personally I like to stagger pulling my reports for each agency, and get one every 4 months to better monitor my situation.  If you haven’t pulled one in a while, however, and you’re hoping to get a loan soon, you may want to pull all three.

• AnnualCreditReport.com

Where Can You Check Your Credit Score For Free?

There are several places that you can check your credit scores from the three agencies, TransUnion, Experian and Equifax, for free.    Keep in mind these credit scores are not the FICO score used by the banks when deciding on your rate, but they are similar and can help to inform you and give you a good idea of where  your FICO credit score will probably be.

You can currently get your credit scores from the big 3 agencies for free if you know where to go.  Here is how I get mine.

• Credit Karma: Get your TransUnion credit score for free.  Credit Karma Review.
• Credit Sesame:  You can get your Experian credit score for free. Credit Sesame Review.
• Quizzle: You can get your Experian credit score for free here as well. Quizzle Review.
• Equifax: Get your Equifax score for free by signing up for a free 30 day trial. Just don’t forget to cancel.

Your credit score for the three agencies can help to inform you of approximately where your credit score will be when the mortgage companies check it.  But where can you go to get your actual FICO score?

Where Can You Get Your MyFICO Score?

Your FICO score, the one used by the mortgage companies in order to give you your home loan rate, is a bit harder to come by without paying for it.   Places I’d recommend going to get it:

• FICO score from Equifax:  a $15.95 one-time fee.
• FICO score from MyFICO.com: Several different ways to get your score. The cheapest is a free 10 day trial in their Score Watch product, or a one time $19.95 fee.

Conclusion

Changing your credit score isn’t an easy process and won’t happen overnight. So if you’re hoping to make a big purchase anytime soon, like a home, make sure to get your credit scores early, and do what you can to improve them by the time you finally apply to get a loan.  Have a decent amount of accounts, utilize the credit responsibly, don’t cancel old accounts and make sure that all of your payments are on time.

Have you recently purchased a home and seen what kind of an impact a credit score can have? Hoping to buy sometime in the near future?  Tell us your thoughts on credit scores and buying a home in the comments.

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When it comes to saving for your retirement, a Roth IRA offers you a simple and understandable vehicle for planning ahead.

But while investing in your Roth IRA isn’t rocket science, investors from all walks of life tend to encounter the same potential pitfalls over and over. So make sure you know the rules of the game as well as the hidden dangers which threaten to throw a wrench in even the best laid retirement plan.

Here are seven Roth IRA mistakes you need to avoid:

1) Not Making The Maximum Contribution (or Any At All)

One of the worst mistakes you can make is to not make any contribution at all to your Roth IRA. If doing so is part of a well thought out financial plan, that’s fine. But if it’s due to a failure to plan, you’re making a big mistake. Investing just $5,000 per year at 10% for 35 years is $1,495,634.03.

Likewise, a failure to contribute the maximum amount to your Roth IRA each year is also a big mistake. Let’s say you contribute $1,000 per year less than the annual minimum. At 10% a year over 35 years, that $1,000 per year adds up to $299,126.81!

2) Not Understanding The Ordering Rules For Withdrawals

Few people know that the IRS has a specific set of rules regarding the order in which you withdraw funds from your Roth IRA. Under these rules, you must withdraw funds in the following order:

1. Your original contribution amounts
2. Conversion and rollover amounts
3. Earnings on your original contributions

When it comes to Roth IRA withdrawals, you can always withdraw your original Roth IRA contributions tax-free and penalty-free. However, in most cases, you need to wait until age 59 ½ (as well as meet the provisions of the five year waiting period) before you can withdraw earnings or conversion amounts. Furthermore, each Roth IRA conversion you perform is independently subject to the Roth IRA five year rule, and this tends to be a major stumbling block for some people.

For instance, let’s say you’re 62 years old, and you’ve had a Roth IRA for ten years. Three years ago, you performed a Roth IRA conversion, and you’ve currently withdrawn every penny of your original contributions tax-free and penalty-free. Since your Roth IRA meets the provisions of the five year waiting period, and you’re older than age 59 ½, you can withdraw your remaining funds tax-free and penalty-free, right?

Wrong. Under the IRS ordering rules, you need to withdraw your conversion amounts after you’ve exhausted your original contributions. But since you performed a conversion three years ago, the conversion does not yet meet the provisions of the five year waiting period, so you need to wait another two years to avoid the 10% early withdrawal penalty.

3) Making An Excess Contribution

Believe it or not, it’s relatively easy to make an excess contribution. For instance, let’s say you max out your Roth IRA contribution for the year, but then experience a significant rise in income. That’s great news! But if your income increases beyond the IRS limits, you’ll end up with an excess contribution.

Fortunately, it’s easy to correct. As long as you remove the excess contribution prior to filing your taxes, you don’t have to worry about any penalties. Otherwise, you’ll incur a 6% annual penalty on the amount of your excess contribution until it’s removed.

4) Paying Too Many Fees

One of the most common Roth IRA mistakes involves paying too many of your hard-earned dollars in unnecessary fees.

Some financial institutions charge an annual fee for hosting a Roth IRA account. Make sure yours isn’t one of them. Any number of discount brokers will offer you a no-fee Roth IRA. So save your money.

Also, the majority of account holders use their Roth IRA to invest in the stock market, usually through mutual funds, index funds, and/or exchange traded funds (ETFs). Each of these funds comes with an expense ratio – an annual fee which covers the cost of operating, managing, and marketing the fund.

Some expense ratios can run well in excess of 1.5% annually, but a good S&P 500 index fund (or other widely held benchmark fund) will have an expense ratio of 0.10% or less. Unless you’re absolutely in love with your mutual fund manager (and the market-beating returns make the added expense worth it), you should shop around for the lowest expense ratio possible.

Why? Because just 1% annually can add up to a lot of money. For example, let’s assume you invest $5,000 per year at 11% for 35 years, but I invest the same $5,000 per year at 10% over the same time period – a mere 1% difference. How much more money do you end up with? $1,900,822.03 vs. $1,495,634.03 – a difference of $405,188 or 27% more money!

5) Overdiversification

You hear a lot about the need for diversification in the financial media, and the wisdom of diversification is well documented. Nevertheless, it’s possible to be too diversified. How?

Let’s say in an effort to be truly diversified, you own multiple mutual funds and ETFs. You may be diversified in terms of owning multiple funds, but does that make you anymore diversified in terms of what stocks you own? You may be surprised to learn those multiple diversified funds own pretty much the same stocks. If so, your effort toward diversification efforts is sticking you with several unnecessary costs. It might be best to go with a broad market index fund such as the Vanguard Total Market Index (VTI) which sports a 0.07% expense ratio and provides you with all the diversification you need.

6) Not Contributing Because You Earn Too much

Another common Roth IRA mistake is thinking you earn too much to make a contribution. IRS regulations prohibit you from making a Roth IRA contribution if you’re married filing jointly and earn over $183,000 or if you’re single or head of household and earn over $125,000.

But that doesn’t mean you should give up on making a contribution! If you earn too much to make a direct contribution to your Roth IRA, you can always make non-deductible contributions to a Traditional IRA, then convert your Traditional IRA to a Roth IRA. Since your Traditional IRA is funded with non-deductible contributions (meaning you already paid income taxes on those contribution dollars), performing a Roth IRA conversion won’t trigger an income tax liability.

So even though you technically earned too much to make a Roth IRA contribution, for all intents and purposes, you just made one!

7) Thinking December 31st Is The Contribution Deadline

Many people make the mistake of thinking the end of the calendar year is also the Roth IRA contribution deadline. But the actual deadline is the same as the tax filing deadline – April 15th in most years.

So if January comes around, and you only managed to contribute $4,000 of your $5,000 maximum annual Roth IRA contribution, it’s not too late. You still have until April 15th to contribute the remaining $1,000.

Conclusion

Avoid these seven common mistakes, and you’ll thank yourself in your retirement years. Why? Because you’ll have more money. Just a few pennies here and a few dollars there can add up to a substantial sum of money over long periods of time, so make sure you don’t commit any of these mistakes when it comes to your Roth IRA.

This is a guest post from Britt at http://www.your-roth-ira.com, the Web’s #1 resource for Roth IRA information. You can follow him on Twitter.

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About six years ago, my husband and I had a fairly comfortable lifestyle.  I worked full-time and my husband worked part-time as a graduate assistant.  We had one child, and we had no credit card debt.  We did have my student loan debt from graduate school, though it was less than $10,000.  We budgeted and set aside money for yearly expenses such as home insurance and twice yearly expenses such as car insurance, as well as car repairs.  My employer automatically withdrew 8% of my salary and deposited it in a retirement account.

Sounds good, right?  We thought so.  We thought we could afford vacations and a weekly outing to our favorite sushi restaurant at the tune of $50 a visit.  After all, we were able to pay in cash.

In retrospect, we were misguided.  We couldn’t afford our lifestyle.  Here is why:

We didn’t have a big enough emergency fund.  We did have an emergency fund of about 3 months of living expenses.  In an era where “fewer than four of 10 American adults have an emergency fund to fall back on in the event of some financial disaster, according to a nationwide Bankrate.com poll” (Bankrate), we were doing  good, but we stopped saving when we hit 3 months of saving.  We should have kept saving until we reached 6 to 12 months, but we didn’t.

If we had, it is very likely that when we had two more kids back-to-back and I quit my job because daycare was going to eat up so much of my salary, we would have avoided racking up much of the credit card debt we are now trying to pay off.  We would have had a large cushion, which, in retrospect, I would have taken over weekly sushi dinners any day.

We didn’t fund Roth IRAs.  Yes, my employer automatically took 8% of my salary for retirement, for which I am very glad, but we didn’t save independently for our own retirement.  We should have set aside an amount every month to contribute to our Roth IRAs.  Just making a few simple changes to our lifestyle or our bills could have helped us find more ways to contribute to our retirement.  We became complacent because my employer was deducting money for retirement.

We didn’t fund an educational savings account.  We now have three kids and no money saved for college.  Our oldest is almost eight, so college is only 10 years away.  Our youngest two are much further away from college, but when they go, we will have to pay for both of them at once because they will be only one grade apart in school.  We have a lot of catching up to do, as does most of the country.  The New York Times reports, “The findings of a survey of 1,200 parents of children under age 18 . . .by the Gallup Organization and Sallie Mae reveal families, on average, save $2,676 annually for their children’s education, for a total of just uner $14,000.”

We didn’t save for a house.  We live in an area where homes in less desirable neighborhoods go for $300,000 (and that is after the housing market bubble) and property taxes average $8,000 to $12,000 a year.  Thankfully, we didn’t fall into the trap of buying a home we could not afford.  However, in the next few years, we plan to move to an area of the country with a lower cost of living.  In anticipation of this move, we should have been diligently saving for a house, but we didn’t.

We thought that we were living a comfortable lifestyle that we could afford, but we left out several important aspects of a strong financial position.  Now, we have to pay off debt before we begin to tackle the missing components of our financial lifestyle.  Had we realized earlier that we couldn’t afford our lifestyle, we might not have so much debt to pay off.

Can you afford your lifestyle, or do you just think you can?

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A week or so ago I published a post called 50 Easy Ways To Save Money Every Month where I gave tips for how people can save money every month and improve their bottom line.  We gave tips on how to save on regular recurring bills, how to repair money leaks, and how to get creative to find other savings around the house. The idea is to have more left over to pay off debt, or if you don’t have any debt -  more left over for giving, saving and investing.

While I think it’s important to find ways to save every month, I also think it’s important to make sure you maximize what’s coming in as well.  You can only cut so many things out of your budget, but you can always find ways to increase your income.

How To Get Money When You’ve Already Got A Job

One objection I often get right off the bat when talking about creating new income streams is this:

“I’ve already got a full time job. How am I supposed to find the time to make money on the side”?

I’ve been working a full time job, raising my son with my wife and making a great side income all at the same time for the last 4 years. It’s isn’t easy, but it’s possible and it can be done.  You just have to decide how important extra income is to you, and find ways to make creating income fun.  You can make it more fun by making money off of your hobbies like I did, or do things more casually to create income.

So without further ado, let’s jump into a list of 50 easy ways to make money (admittedly some of these are not easy).

Improving Your Existing Income

This may or may not be obvious, but one of the first things you can do to raise your income is to work at increasing the money you’re making from your day job. Or if  an income boost isn’t in the cards, get better benefits!  There are a couple of ways to maximize your current income.

• Ask for a raise:  A lot of people would never even think about asking for a raise, but in most cases there’s nothing wrong with asking. If you don’t ask, how do you know what will happen?  If your current job doesn’t show any increase, are there opportunities for advancement?
• Ask for more perks or benefits: While a raise isn’t always necessarily in the cards find a way to get a raise without increased income by getting better benefits, a company car, company cell phone, tuition reimbursements or other perks.
• Find a better paying job: If your salary isn’t increasing at the pace you’d like, you can always look for a better job! Just make sure not to print out that resume on the company printer.

I know these things aren’t always going to be options in this economy, so let’s continue looking at other ways to make money.

Making Money On A Hobby

Most people have hobbies or things that they enjoy doing in their downtime.  For me I enjoy writing, so I started a blog. After writing for a short time I figured out how to make money from my blog. I have a friend who enjoys photography and she turned it into a side gig taking pictures of events for friends.  Here are some more ideas:

• Start a blog:  I started my website as a hobby in my free time and only later realized how much money could be made from a blog.   Check out my e-book talking about how to make money with a blog.
• Make jewelry:  Another friend got really into making her own jewelry and then realized that there was a huge market for that kind of thing on Etsy.com.
• Knit or crochet things to sell:  Another friend knits things in her free time and resells some of it for a pretty penny on Etsy as well.
• Doing caricatures or other art:  I have a co-worker who would make some spare money doing caricatures at local fairs, parks and attractions.   Another friend would make sculpture to sell at local art fairs.
• Roast and sell your own coffee: My brother has turned his love of coffee into a side venture.  He buys green coffee, roasts it and then resells it for a profit (while still being a better value than Starbucks!) His coffee wisdom is free of charge!  (Head over to his site to get some coffee!)
• Be a DJ: Have a love for music?  Be a DJ and make a little extra change.
• Be a freelance writer: Have a love for writing, but no desire to start an entire blog?  Be a freelance writer for other people’s blogs, websites and more – and make some money while you’re at it!
• Watch TV, get paid:  There are now companies that will pay you to watch TV.  For example, one company has an iPhone app that you open when watching TV, and it automatically logs what shows you’re watching. You get paid based on a point system.
• Cooking/Catering:  Love to cook as a hobby?  Turn your love of cooking into a side business. Offer small scale catering, dessert service or meal preparation for friends, family and others!
• Woodworking:  Love woodworking in your spare time?  Turn it into a money making hobby by making things that people will want to buy at flea markets, Etsy or elsewhere.
• Scrapbooking:  I was reading about how one lady turned her love of scrapbooking into a side income.  Clients tell her a page they’d like her themes to create for their scrapbook, and she’ll put one together for a cost.
• Be a personal shopper:  Some people love to shop, and others would rather die than shop.  Be a personal shopper for those who hate it!
• Write songs for people:  Post an ad on Craigslist or Fiverr.com offering to write songs for people. Write on request, record and send over an .MP3

The point is, find something you like doing, and get creative about finding a way to make that  hobby pay!

Find A Need And Fill It

Sometimes in the course of your day you’ll figure out that you’re constantly getting asked by family and friends to do something for them. Instead of doing it for free, turn it into a service and charge!  For example, I kept getting requests from friends to do logo designs for them, so eventually I created a website and started charging for my hard work.

• Graphic design:  I do some graphic design through my day job, and friends were asking me for help.  I turned my skills into a side gig with my graphic design site.
• Computer support: Another friend of mine is good with computers and will help people out on the weekend for a small fee.
• Walk dogs or be a pet sitter: Good with dogs? Be a neighborhood dog walker, or offer your services as a pet sitter!
• Create websites:  A gentleman I know through work consults with local businesses and helps them create a basic website using WordPress and his design skills.
• Consult in your area of expertise:  Run a successful web business? Consult with other entrepreneurs for a reasonable fee.
• Write an ebook: Know a lot about a certain topic, or are interested in learning? Research and  put together an ebook about a certain topic and sell it!
• Open a niche store:  Think of a product that would sell well online?  Open a niche store as others have done with some success.
• Be a virtual assistant: More and more online entrepreneurs are looking for reliable help in performing everyday tasks online.  You can make a few hundred a month at this if you want.
• Create and sell t-shirts and other products:  Keep tabs on popular culture and then create and sell t-shirts based on popular events and people. Check out my blogger store on  CafePress.com or also use a site like Zazzle.com.
• Offer to do odd jobs:  Sites like Zaarly.com make it easy to post a job you’re willing to do online, and then have someone hire you to do it.
• Rent your parking spot: Have a parking spot near a popular attraction or sporting event?  Rent it out by the day and make some money.  I know some people near our Minnesota State Fair make hundreds of dollars every year allowing people to park on their lawns and driveways.

Making Money On The Side

There are a lot of other miscellaneous ways to make money on the side.  These things aren’t going to make you rich, but can be fun or a nice way to get some extra spending cash. Here are just a few:

• Be on a virtual jury:  Some people will make money by being on virtual jury – to help a defense attorney try out a case on live people. You can try sites like http://www.ejury.com/ or http://www.virtualjury.com/ for e-duty.
• Be a referee:  Everybody knows that refs are blind, but you can still make some decent dough reffing on the side!
• Get a paper route: My brothers and I did a paper route with our dad for several years growing up.  It was a few hours on weekends, and made a few extra bucks.
• Deliver pizzas:  The hours can usually be pretty flexible, and you can make some decent money delivering pizzas on the side!
• House sitting: House sit for people and get new jobs via word of mouth.
• Rent out a room:  Make some extra coin by renting out an extra room to a college student or friend from church. Make sure you know the laws surrounding this in  your area.
• Rent out your tools:  You bought all those expensive tools, but hardly use them. Consider putting them to use and renting them out on a site like NeighborGoods.
• Be a tutor: You can tutor kids in an area of your expertise in your spare time.
• Babysitting:  Both teenagers and young adults can do this!  I know some parents who will take in an extra kid on a regular basis for less than the cost of day care.
• Give music lessons:  Play an instrument and love to teach? Give music lessons.
• Be a landlord:  While this one requires a substantial outlay of capital up front, it can lead to some positive cash flow every month if done right.
• Be a movie extra: Sign up with an agency to be a movie extra when films come to your area.  It may not pay much but you’ll at least get a free lunch and a small check!
• Take surveys: There are sites like Survey Savvy where you can take surveys and get paid in cash or gift cards for your participation.
• Use “get-paid-to” sites:  Sites like Cash Crate, SwagBucks or Ebates are sites that will pay you for you shopping via their portals or for filling out surveys or signing up for trial offers. Cash Crate has worked well for me, I’ve made almost $6000 from that site in the past few years.
• Use smartphone apps to make money: There are a variety of smartphone apps out there that you can use to make money for doing simple tasks like taking a picture of a product in store, to checking in at local businesses and more.  A few include: WeReward, CheckPoints and Gigwalk are a few to check out.

Sell Things To Make Money

If you’re short on cash you can also sell things that you’ve got around the house, buy and re-sell things from garage sales – or if you want to live on the wild side – you can even sell your body!

• Sell yourself:  You can make money in some interesting ways, not least among them selling your body!  No, not like that – but selling your plasma, your eggs or your sperm.  If you’re extremely adventurous you can take part in a drug trial!
• Have a garage sale: You can have a garage sale to get rid of some clutter, and make some cash.  Our most recent garage sale made us several hundred dollars!  Here are some tips for a successful garage sale.
• Sell things online:  If you’ve got unused things around the house that are worth something, sell them online.  I’ve had good luck selling smaller items like video games, music and movies on eBay or Amazon.com, while for bigger items Craigslist seems to work pretty well.
• Sell your follicles:  Some people will sell their hair for a good chunk of change.  The hair can be used to make wigs,  hair extensions or used in artwork via sites like TheHairTrader.com.   Some people routinely make between $300-900.

Making Money Doing Things No One Else Wants To Do

Sometimes there’s a buck to be made doing things that other people don’t want to do.  Trust me, there’s a lot of jobs to be done doing things other people don’t want to do.

• Be a poop scooper:  One enterprising young man I read about turned his neighborhood poop scooping  help into a full fledged business where people would pay monthly fees to have their yards scooped for them.
• Cut the grass:  Mow grass in the summer for an extra buck.
• Hunting for lost golf balls:  Get permission to find stray golf balls in course water hazards and near local courses.  Re-sell the balls for a profit.
• Shovel walks or plow driveways in the winter: Shovel walks or plow driveways if you have the strong back and the equipment.
  
• Telemarketing: Seems there are always jobs open in this line of work. I wonder why?
• Hunting for aluminum cans:  Hunt for aluminum cans where no one else will look, and turn them in for (a small amount of) cash.
• Crime scene cleanup: You can find flexible jobs cleaning up houses to make extra money, or even make six figures cleaning up crime scenes if you’re not squeamish!
• Garbage day scrap metal detective: Some people will make extra money by cruising through alleys on garbage day searching for all kinds of scrap metal that they can turn in for cash.

Conclusion

So there are 50+ ideas of how to make money to help your budget stretch a bit further. The list is far from exhaustive and is truly only a starting point to get you thinking about different ways to make money and create a new diversified source of income for your family.

Have your own ways to make money on the side, or experience with one of the ones listed above?  Tell us what they are in the comments!

NOTE: Don’t forget to check out our post on 50 Ways To Save Money Every Month

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Are you engaged? Married? Wondering if you should combine your finances during marriage? What are the pros and cons of a combined financial plan? Let’s explore this topic and figure out why you should or should not combine your finances when you’re married.

Two Arguments on Combining Finances After Marriage

Everyone I’ve met with when talking about this topic has always been passionately on one side of the argument or the other. People a lot of different feelings when it comes to this debate, and I’m going to try and be as objective as possible and then propose the best course of action.

Argument 1: Combining Money During Marriage is Important

For Christians and non-Christians alike, combining finances after marriage can do a number of important things for the relationship.

One of the most important changes it makes is that it creates an environment that fosters trust. Trust is a vital element in any marriage. Without trust, marriages cannot last.

When you share the same bank accounts, agree on a budget, and review each other’s transactions, you’ll know where you’re both headed financially which will give you a greater sense of security. Transparency in a married couple’s finances allows both parties to see the trajectory of their financial situation, allowing a greater degree of planning to take place that leads to a more secure future.

It is also argued that combining finances allows greater degrees of simplicity. By not having to deal with multiple bank accounts, couples can more easily track their financial situation. Money doesn’t have to be transferred between separate accounts, and both individuals have equal access to all the funds.

Christians believe that when a man and a woman marry, they are becoming one unit. This sense of unity extends to every aspect of life, including finances. As it says in the Book of Genesis:

That is why a man leaves his father and mother and is united to his wife, and they become one flesh. – Genesis 2:24 NIV (emphasis added)

Argument 2: Combining Money During Marriage is Unnecessary or Unwise in Certain Circumstances

There are those married couples who keep their finances separate. Here are some of their reasons for doing so.

Some couples feel that the money they earn individually should be their own separate money because they earned it individually. They point to personal responsibility and believe that individuals should be self-sufficient and not dependent on their spouse for anything.

Other couples keep their money separate simply because it is what they are accustomed to doing. They started off single, and never took action to combine their finances. For them, it was merely natural to keep individual bank accounts and continue how they were living when they were not married: separate financial lives.

One reason why some couple keep their finances separate is because they have a general distrust of their spouse. Perhaps their marriage is struggling and separation or divorce is immanent. To protect their financial well-being, one spouse might wisely take half of their savings into a separate account to ensure the overspending and abusive spouse doesn’t keep all the money for themselves.

There are married couples who have been previously married and combining finances will be more difficult for them due to previous bad experiences. When this occurs, both the husband and wife have to be careful in how they handle combining their finances.

How to Talk to Your Spouse about Combining Finances

Talking with your spouse about money is certainly one of the most difficult conversations. If you’ve never really discussed money with your spouse-to-be (or spouse), here are some tactics you can use to make it easier.

First, decide which argument above you agree with more. Every married couple is different, but in my estimation most couples should combine their finances except in certain extreme situations. Let’s say you’d like to combine your finances with your spouse but aren’t sure how to go about the discussion. What do you do?

1. Start the conversation with your vision of a better life.

The conversation might start with something like this:

Honey, down the road I want to be able to [fill in the blank with your financial ambitions such as buying a house or retiring early so that you can spend more time with each other]. In order to do these things, I think it would be helpful if we combined our finances. The reason why is that [fill in the blank with your own reasons]. I’d love to continue this conversation with you to figure out a way to strengthen our marriage in this area. I love you lots and want the best for our relationship and future!

Now, whatever you do, don’t memorize a script! Simply think a little bit about what you are going to say and your main points.

2. Continue the conversation periodically to show you value this change.

If your spouse is reluctant to combine finances, you may need to give them some time. Bring it up periodically and remember to stick with your vision of a better future.

Marriage counseling might be required if you feel you’ve hit a dead end in the conversation and it’s becoming a point of contention. Communicate with your spouse gracefully and understand that change is always difficult – especially if it’s not their idea in the first place!

3. When you gain agreement, talk about the specifics.

Once you are both on the same page, talk about how you are specifically going to combine finances. What bank accounts are you going to combine? How will you both make sure you don’t overdraft the joint checking account? What will your budget look like? How much fun money (money spent freely by each spouse without discussion) will you each have? These are all important questions and you should figure out the specifics so you can act on your new plan!

Do you believe you should combine finances after marriage? How do you handle the finances in your household? Leave a comment below and let’s get the conversation started!

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If you are trying to pay down debt or save money, you may try to be as frugal as possible.  Maybe that means shopping at discount shoe retailers instead of buying full price shoes or shopping at the dollar store instead of a mainstream store.

On the surface, by saving money shopping at these retailers, it looks like you are making financially smart moves, but are you?

Because we have been living on a restricted budget for most of our marriage, we used to try to skimp on most things.  However, now we realize that skimping isn’t always the best way to save money.  Here are some examples:

Shoes

Take the example of shoes.  I live in the Midwest where we typically get a generous amount of snow every winter.  I used to buy my boots at discount shoe stores for about $40.  Every year, those boots would wear out, and every winter I would have to buy new ones.  Finally, my husband convinced me to buy more expensive but sturdier boots.  I spent nearly $150 on those boots, but I have now had them for 8 years.  If I would have instead bought a new pair of boots every winter for the past 8 years, I would have spent $320.  Buying a better made pair has saved me $170 so far.

That is not to say that discount shoe stores don’t have their place.  My kids seem to have growth spurts every other month, so I buy their shoes at discount chains.  By the time the cheaper made shoes are worn out, my kids have usually outgrown them.

Kitchen Appliances

If you don’t go out to eat much and prepare every meal from scratch, having durable kitchen appliances is essential.  I have gone through three food processors in our 10 years of marriage; each cost about $40.  Now, we are looking into buying a more expensive model that will hopefully last longer.  If I don’t have to replace it every few years, it will pay for itself just as the more durable boots did.

If you don’t want to splurge on expensive kitchen appliances, consider visiting garage sales.  When I was getting ready to go to graduate school 15 years ago, I found a blender for $3.  It was made of glass and was old already.  I figured anything that old that still works had to have been made well, and it was.  I have gotten 15 years worth of use out of it, and now I finally need to replace it.

Education

While you don’t want to go into debt for education, sometimes a more expensive school has better offerings.  We are committed to giving our kids a Catholic private school education, in part because that is what I had when I was young.  We first sent our son to a school that was offering ½ off tuition for the first two years of a new student’s education.  However, the school had personnel issues and the computers were very outdated and often broken.  We were so dissatisfied with the school that we transferred our son to a different Catholic school less than 7 weeks into first grade.  The second school was double the cost, but they had more rigorous academics and a state of the art computer lab that rivaled some colleges’.  In addition, they have wealthy alumni who offer generous donations which help keep the school up-to-date with technology and trends.

Because he is now receiving a better education, we hope it will pay off in the future when he applies to college and then when he begins his career.  (Of course, we don’t know yet how much this investment will pay off, but we do believe it is important to establish a firm educational foundation from the time our children are young.)

Conclusion

While being frugal on the small things can often save you a great deal of money, for some bigger items and purchases, you may want to splurge to get better quality.  Doing so will very likely save you money in the long run.

What items do you no longer skimp on?

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With the economy in the doldrums, and unemployment reaching highs not seen in decades, people are hurting all over the country.  With reduced incomes comes the necessity to cut back and get by with less, to reduce, re-use and recycle the things we have.

While getting by with less is great, you don’t have to completely do away with everything.  There are a lot of easy (and crazy!) ways to reduce your spending, and save money every month.

Today I thought I’d put together a nice long list of easy ways to save money every month on recurring expenses, on money leaks and on just about everything else.  So let’s get started.

NOTE: Don’t forget to check out our post on 50 Ways To Make Money

Save On Recurring Expenses

One of the first places people should be looking to save money are on the big recurring expenses that we all have every month. Let’s look at a few places you can save.

• Cell phone bill: JD Powers reports that the average annual wireless phone bill is $1,152, or about $96 a month.  Why pay that much when you can get a great smartphone via a pre-paid wireless provider for hundreds less every year. My wife pays $35/month or $420 a year for unlimited data and 300 minutes every month.  That’s a savings of $732 over the average! Find out how to do it on our post showing how to save on your cell phone bill.
• Home phone:  Some people will cancel their home phone service altogether in favor of either cell phone service only, resulting in savings of hundreds per year.  Of course if you still need a phone you can go with internet telephone service instead, which often costs much less. If you need to have a land-line, consider canceling extra options on your phone like voicemail, call waiting and caller id to save on things you don’t need or use.
• Internet service:  Try switching your internet service to another provider in order to take advantage of new subscriber deals or promotions.  Switch from one internet type to another – DSL to cable or fiber-optic internet.  Switching can often get you great initial deals, and then you can hop providers to get another great deal when the promotion ends.  Also consider bundling your services like phone, internet and TV to save.
• TV and entertainment: there are a variety of ways to save on your TV and entertainment costs.  First, you can switch cable providers from one to the other to get in on a promotional offer. If that doesn’t work you can always cut the cord altogether, and save a ton by setting up a home entertainment system using streaming services like Netflix, Hulu and other free content providers.
• Utilities: Often there aren’t a ton of ways to save on your local utilities whether it is electric, garbage, gas or other services. Quite often you only have one utility option to work with.  What you can do is cut back on how much you use the services to limit costs.  Turn the temp up in the summer, and down in the winter to save on electric costs. Use a programmable thermostat.  When you’re not using something, turn it off or unplug it.  Turn the water heater down to 112 degrees and don’t run the dishwasher or laundry every time you’ve got a small load.  Look for energy leaks in your home by getting a home energy audit, and find ways to maintain your home to cut costs – like cleaning your AC condensor coils or changing furnace filters regularly.
• Insurance: Shop around to find the best rates on your insurance whether it’s auto, home, life or other types of insurance.  The last time I switched auto insurance I was horrified to learn I was overpaying to the tune of around $1000/year, for the same coverage.  That’s a lot of wasted money!  Switching homeowners insurance also saved us a ton.
• Gas: There are quite a few ways that you can save on gas. Do things like carpool, buy at the cheapest local gas station (use an app like GasBuddy to find it), fill up at a local warehouse club, take advantage of gas coupons via local grocery stores and use cash back credit or debtit cards that can help you save anywhere from 1-5% of gas.  Of course, you can also just drive smart and limit your quick starts and stops, and keep to smooth acceleration.
• Prescriptions:  One of the quickest ways to save on your prescriptions is just to make sure that you buy the generic version of your regular prescriptions. Other things to do include shopping around at different pharmacies for lower costs, getting samples from your doctor or buying your prescriptions in larger quantities to save.
• Property taxes:  Sometimes you can appeal your property taxes if you believe the appraisal they’ve given your home is incorrect. We saved several hundred dollars by appealing our property taxes one year.
• Refinance your mortgage: While lending restrictions have tightened, if you’re able you can get some amazing rates right now and save hundreds on your mortgage every month.
• Remove mortgage insurance:  A lot of folks are paying hundreds of dollars a year on mortgage insurance if they didn’t put down at least 20% when they bought their home. If you are one of those folks, and  you’ve recently reached the magical 80/20 loan to value ratio, ask your mortgage provider if they will remove the insurance from your monthly payment.
• Online bill pay:  Try paying you bills online instead of mailing in a check. It can save you $50-60/year depending on how many monthly bills you have.
• Gym memberships:  You can save on a gym membership by taking advantage of health plan discounts, or by setting up your own home gym.

Save On Money Leaks

There are times when money just tends to leak away because we’ve always spent money somewhere without thinking about it, or because there are hidden costs that we didn’t even realize were there. Here are a few to be aware of, or to look for in your own house.

• Buying coffee on your way to work: I’m extremely guilty of this one. I tend to just spend money on coffee on my way to work several times a week. I’ve recently started cutting back on this and instead buying great micro-roasted coffee to make at home instead, and it saves a ton of money.
• Hobby spending: Do you collect comic books, leather-bound volumes of great literary works or play a ton of video games?  Whatever your hobby, you can often spend a ton of money every month on buying the latest and best associated with your hobby.  You don’t need to cut it out completely, but cutting back on how much you can spend can save, and you’ll have more money for other things.
• Bank fees:  Avoiding overdraft fees, other network ATM fees and other assorted bank fees shouldn’t be too hard, but it’s a problem for a lot of people. To save make sure you’re reconciling your accounts regularly, and make sure that you always know how much money you have by using a personal finance tool like Mint.com.
• Buying things for others:  If you’re naturally a giver like my wife, you may have a tendency to overspend on gifts for other people. It feels good to give gifts to people, but we can easily over-do it.  Instead try your hand at giving more creative and frugal gifts, or giving the gift of time or an experience with your friend or family member.
• Paying full price:  There’s no excuse for paying full price for things when there are sites like RetailMeNot.com, Ebates and FatWallet.com to give you coupons, discounts, rebates and more.  Just last night my family and I got one of our pizzas for free when we used a coupon we found online.  Make sure to do your research and do a quick search and find discounts on the things you buy.
• Unused credit card rewards:  A lot of people have credit card rewards saved up that never get used. Things like points for trips, cash back savings and points to get gift cards and more.  Make sure that if you’re going to use one of these cards, that you actually use the rewards.
• Unused gift cards: People will get gift cards for birthdays and holidays, but then they sit in a drawer, in a purse or in a wallet without being used. Don’t forget to use those gift cards, or at least sell it online and get some money out of it!  Otherwise you’re spending money you don’t need to!
• Missed tax deductions: When it comes to tax time a lot of people miss out on savings because they didn’t take deductions that they were entitled to. For example, they don’t take deductions for charity donations. Instead, make sure to keep track of your deductions using a tool like It’s Deductible, and save on your taxes!
• Eating out too much:  At our house our dining out budget is one of our biggest problem areas.  Just by cutting the number times we eat out in half can save us hundreds!  When you do eat out, don’t forget to use coupons and discounts!
• Getting drinks:  When  you eat out or go out with friends your bar tab can quickly get out of hand. Instead of drinking all night, stay in control, and only get one or two drinks.  Or just get water!
• Not taking advantage of available discounts: Sometimes people forget to take advantage of discounts that are available for products and services through their employer or other avenues. For example, many employer health plans have discounts available on gym memberships if you go to the gym a certain number of times every month.   Take advantage!
• Paying a bill despite being overcharged:  Make sure to keep track of your monthly bills and know what you’re paying for. Often unknown charges can sneak into your statement if you’re not paying attention. I recently discovered an erroneous increase of $5/month on my satellite TV bill.  After complaining to their support repeatedly, they reversed the charges.
• Having too much coverage and high premiums: Some people have too much coverage when it comes to insurance of one type or another when they could easily get by with a lesser plan with higher deductibles.  Cut your premiums by getting less coverage, and accepting higher deductibles.
• Buying brand names:  Quite often people will buy brand names just because they have always done that. In reality the generic brand is often just as good or even better than the brand name item.
• Buy less of things that spoil:  When buying groceries think about what types of things tend to go bad at your house, or that end up spoiling before you eat them.  Buy less of that item, or cut it out all together.
• Candy from the vending machine:  There are times during the workday that you get hungry and just HAVE to go and buy something from the vending machine. If you’re doing this every day, however, it can add up – and take a toll on your health.  Instead buy some of your own tasty and healthy snacks to stock up on at work.
• Impulse buys: If you’re one of those people who likes to buy things on impulse, rein yourself in and make a rule that you can only buy something after a waiting period of at least 24 hours, if not longer like 30 days.
• Allowing too much money to sit idle in your checking: At times I’ve been guilty of allowing too much cash to build up in my checking, instead of investing it or putting it in a higher yielding savings account.  Put your money to work!
• Buying DVDs, video games or books:  One thing I used to do quite a bit was to buy DVDs of movies that I never ended up watching, or buying a ton of books that I never read more than once. Instead of buying, rent or stream the movies you want to watch, rent video games and get books or ebooks from your local library!
• Not figuring out why a bill has gone up:  Sometimes a bill may increase, but you just accept it.  Instead, figure out why your utility bill has gone up. Is there a problem with a your water heater?  Filter needs replacing? Or did you leave a window open in the unused room upstairs?  Ask why.
• Cancel un-needed memberships or subscriptions:  If you’re subscribed to a magazine but don’t read it very often, cancel it. If you’ve got a membership to a wholesale club but haven’t been in two years, cut up the card.  Haven’t watched a netflix movie in weeks?  Put your membership on hold.

Creative Ways To Save

Another thing you can do to save money is to get creative and do things that others may not have thought of doing to save money. Here are a few things I came up with.

• ake your own laundry or dish detergent: My friend Matt over at DIYNatural put together a tutorial on how to make your own laundry detergent or dish soap.
• Re-use old clothes: Find ways to re-use old clothes instead of tossing them. Use old t-shirts to wash your car, use old jeans to make a new purse or bag.
• Make your own gifts: Instead of buying mom that expensive gift, make something from the heart.  Think things like a photo collage of shared good times, inexpensive gift basket.
• Grow your own vegetables: Build a square foot garden and grow your own vegetables, cutting down your grocery bill.
• Buy used or re-purpose:  Instead of buying things like furniture new, buy it cheap or get it free online through a site like Craigslist.  Or re-purpose furniture you already have.
• Ask for a discount: Even if you don’t have a coupon or listed savings, ask for a discount – even at places you wouldn’t expect.  A while ago we saved 10% on our hospital bill just by asking and paying in cash.
• Buy groceries direct from the farmer:  Are you near some local farms, or have a farmer’s market near you? Try buying fresh veggies – direct from the source.
• Negotiate your rent:  Try negotiating your rent to save money by signing a longer lease, pre-paying rent or offering to cut the grass in return for lower rent.
• Buy quality:  Buy things for quality, instead of buying the cheapest. In the long run you can save money because you don’t have to buy a new item as often.
• Borrow or share things you need:  Instead of buying something you need, borrow it from a neighbor, or everyone pitch in and share the item.
• Hang your clothes out to dry: Instead of using a dryer, save by hanging your clothes on a clothesline.

 General Ways To Save

Here are some more ways to save that you may not have thought of.

• Start a budget, stick to it:  This may seem like an obvious tip on how to save, but it’s something that not a ton of people do. Just keeping track of where your money is going has a tendency to help you realize a lot of areas that you can save.
• Wash your own car:  Instead of going to the car wash and spending between $15-30 every time you go, wash your own car!
• Do your own maintenance: If you’re handy with all things automotive, change your own oil to save on a trip to the service station.  Maintain your own home appliances with help from the internet!
• Stop a bad habit:  Are you a smoker?  Quit! It’s better for your  health and will save a ton of money.  Drink lots of soda?  Stop! Drink more water instead.
• Don’t pay for extras:  Renting a car? Don’t pay for the extra insurance if your own insurance covers it.  Going on a flight? Don’t pay for first class, but try to get an exit row with extra leg room instead.
• Save by reducing your taxable income:  Take advantage of deductions, make deductible contributions to retirement accounts or increase amount sent to flexible spending or health savings accounts.

This list is just the beginning. Saving money can really become a way of life if you want it to be. You just have to be creative, have a reason and a goal for why you’re trying to save, and think consciously about the decisions that you’re making.

Have your own ways to save?  Tell us what they are in the comments!

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It always seems that large expenses come in bunches.   For us, that time is at the end of the month when our mortgage and a variety of utility and satellite TV bills come due. When those large expenses are coming up every month, that always seems to be the time that unexpected expenses seem to pop up.  When our cash flow is lowest.

While I know that unexpected expenses are going to happen, for some reason when they show up it’s still such a surprise.

Unexpected Expenses Come In Bunches

This past week I had a couple of unexpected expenses pop up, right at the most inconvenient time, but luckily, it hasn’t been a huge issue because we planned ahead.

The Huge Doctor Bill

This past month my wife had a doctor’s visit.  It was a follow up to check up on her health following a massive blood clot that she had in her leg a couple of years ago.  They wanted to make sure that everything was still going fine with her medications, her leg was doing fine and to make sure that there were no reasons to be concerned about any new clotting.  The did some blood tests, as well as doing an ultrasound to make sure that there were no indications of any new clotting.

The test results have now come back, and thankfully my wife’s health is fine.  Her medications have regulated her blood pretty well, the ultrasound came back free and clear and there’s no real danger of any new clotting happening anytime soon.  That’s the good news.

The bad news arrived in the mail this past week.  We now owe just under a thousand dollars for a day of doctors visits.  Insurance took care of part of the bill, but after co-insurance and a reduction in the allowed amount, we still owe just over $850.

I tried to think back to just what may have caused the bill to be so huge, and there it was on the statement.  About half of the bill was from the specialists we saw at the hospital, and the other half was from the ultrasound.  Ouch!

Going To The Dentist

While the $850 bill hurt, it wasn’t the only unexpected expenses this month.  I also had a visit to the dentist a couple of weeks ago.  While a normal visit to the dentist for a cleaning and flouride treatment wouldn’t cost that much after insurance, this visit was a bit different. It turns out that they discovered a cavity or two on my teeth, and a couple of old fillings that needed to be fixed.

Yesterday I returned to the dentist to get those things remedied.  After an hour in the dentist chair my teeth are fixed.  While my teeth are fixed, I’ll also be getting a nice big bill in the mail to show for it.  I’m thinking it’s going to be around $2-300 based on previous visits like this one.

How We’ve Planned For Unplanned Expenses

Thankfully despite the fact that we’ve paid thousands of dollars in taxes this past month, as well as paying a couple of thousand dollars in normal bills, we’ve still  been able to pay our unexpected expenses without any problems. Why? Because we planned ahead and saved up for just such circumstances as these.

First, we elected to deduct $1500 from my paycheck to put in our flexible spending account this year, in order to help pay for medical expenses.  We tend to be higher users of health care, and even $1500 is going to be low this year.  After submitting this $850 expense to be reimbursed, we’ll be about maxed out for the year already.

We also have saved up a 12 month emergency fund in our Ally Savings account, which means that if we ever have big expenditures like this, paying for them shouldn’t be a big deal.  We did have to pull some money out of that account this past month to help pay for our big tax bill, but it should be replenished within a month or two.

How To Protect Yourself From Unplanned Expenses

What are some steps that you can take to protect yourself from large unplanned expenses, like the ones we had this past month?

• Buy insurance to cover catastrophic circumstances:  Make sure to buy insurance to cover you for the most catastrophic circumstances that in all likelihood would bankrupt you.  In other words buy good health insurance, auto insurance, life insurance and other types if they fit your situation.  Having health insurance in the past 5 years has saved us from having to pay over $250,000 in medical bills!
• Save up an emergency fund to cover all other contingencies: If you’re still in debt, save up a small emergency fund of $1-2000 in order to cover you for most unplanned expenses.  After the debt is gone, bump that emergency fund amount up to 6-12 months of expenses, enough to cover almost any circumstance.
• Use other methods to cover unplanned expenses, while saving:  Take advantage of other methods to cover unplanned expenses, like a flexible spending account.  With a FSA you can get reimbursed for expenses up to your elected amount, even if it’s early in the year and you haven’t contributed enough yet.  (We did this for this latest $850 expense) Not only that but you’ll save on taxes!  Or use a Health Savings Account (HSA) to save up funds for when they’re needed, while saving and watching the  money grow.
• Use the money when you need to, then replenish it:  When you come to a situation where you need to use emergency cash, don’t feel bad about using it, that’s what it’s there for.  But after you pay for your unplanned expense, don’t forget to save up and replenish the account.

The key to rolling with the punches and not having unplanned expenses be anything more than an inconvenience is to plan ahead. Buy insurance, save up an emergency fund and when the expenses come they’ll be covered!

Have you had to deal with any unplanned expenses lately?  What were they and how did you cover them? Would you have done anything different? Tell us your thoughts in the comments.

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Religious rites of passage are important to families.  The children receiving a sacrament are able to affirm their growing religious beliefs and devotion and join with others in the church in receiving the sacrament, and the parents are able to watch their children delve deeper into their faith.  This should be a time of reverent celebration and joy.

Instead, it seems to be turning into an opportunity to drop a great deal of cash.

First Communion

My son is just a few weeks away from making his First Communion.  Certainly, in any young Catholic’s life, this is a momentous occasion.  After years of watching what seemed like everyone in the church receiving communion except him, my son is excited to finally be able to take part in this religious rite.  He has spent a year learning about it in his religion classes at school; he has had practices, and now the day is almost here.

My husband and I are planning to celebrate quietly with his godparents and my mom.  We’ll come back to our house after the ceremony, have a meal and maybe some cake, and he will get a few small (religious) gifts to celebrate the occasion.  We still have to find his suit, but I know he will only wear it a few times, so I don’t plan on spending a lot of money.

Lavish Celebrations

However, talking to other parents, I can see our celebration plans may not be typical.  Some parents are renting limousines to bring their children to the church.  Others have bought their daughters dresses that cost well over $150 dollars and that is not including the veil they bought.  Another parent talked about renting out an entire restaurant for his child’s celebration dinner afterward.  He wasn’t shy about revealing how much it cost to rent out the restaurant.

At first I didn’t know if this trend was a reflection of the area of the country we live in or just of the current time, but some research revealed over the top First Communion celebrations are occurring around the country.  The Archdioceses of Milwaukee recently reflected on how much the First Communion celebrations have changed from simpler times:

A generation ago, girls wore simple white dresses and boys wore blue suits.  In some households, what used to be a small family gathering with a decorated sheet cake is now a big to-do that rivals many weddings.  More and more, children parade through church in designer frocks, rhinestone tiaras, and, increasingly, tuxedos.  Months before their child’s special day, the fancy white dresses and veils hang in the closet while parents scramble to book caterers, DJs, cakes, invitations, hairdressers and photographers. (CHN Online)

And, on a Disney World discussion board, of all places, parents shared their First Communion experiences.  While many said they had simple parties as we are planning to, many others shared that they spent anywhere from $800 to $2,000 on their child’s First Communion party including hiring a D.J., having an open bar, and hiring a magician.

Sounds like a wedding celebration, doesn’t it?

Has The Meaning Gotten Lost?

One mom succinctly said, “I think people forget that it’s a sacrament and just try and outdo each other.”

Whether or not you can afford these lavish parties, the real question may be, should you?  Is the way to celebrate your child receiving a Holy Sacrament with an over the top party complete with an open bar and a magician?  While the way people celebrate is a personal decision, I worry that much of the meaning of the celebration disappears in the materialistic aspects, much like what has happened to Christmas.

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There are times where you may want to setup an account for one of your minor children or a family member to help them start saving for the future, to teach them about how to manage money or to jump-start a college savings fund.  Depending on what your goals are, there are different ways to go about doing this, but setting up a custodial account under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA) can  be done at most banks, brokerages and mutual fund companies.

Setting up one of these accounts shouldn’t be too difficult, but there are quite a few things to know about these account types before jumping in.  So first, let’s start with the basics.

What Is A Custodial Account?

So what exactly is a custodial account? It’s an account setup at a brokerage, mutual fund company or brokerage that is managed by an adult for a minor. The definition of a minor will vary from state to state, but usually it’s going to be someone who is under the age of 18 or 21.  Once minor gets to the  “age of majority” for their state, then the account legally becomes theirs, and they can do whatever they want with it.

Usually under the terms and conditions of a custodial account the approval of the account custodian is required if the minor wants to make some sort of transaction.

The custodian of an account is usually the parent or guardian of the minor, however, it can usually be any legal adult.

Setting Up A Custodial Account

Most financial institutions will have an option to open a custodial account for whatever account type you’re starting.  Whether it’s an account at a mutual fund company like Vanguard, a Brokerage like TD Ameritrade or a savings account at a company like Ally Bank – all  you have to do is choose the account type of a “custodial account” or “UGMA/UTMA” account when signing up.  Just make sure to have your information handy as the account custodian, as well as the minor’s information as well, including Social Security number.

Benefits Of Custodial Accounts

There are several good reasons why you may want to consider contributing to one of these accounts for your child:

• Unlimited contributions:  Unlike some other account types, like a 529 college savings plan, you can contribute as much as you want to a custodial account.
• No income restrictions: There are no income restrictions on giving money to a minor through one of these accounts.
• A way to avoid the estate tax:  Giving money away to a minor while you’re still living can be a way to get around the estate tax.  Just give up to the exclusion every year ($13,000) and you’ll be able to avoid the estate tax, as well as gift tax.
• Good way to give a modest financial gift:  If you want to make a gift to a child and perhaps give them a taste of ownership in stocks, bonds or mutual funds – and see the benefits of compound interest and investing from an early age, it may be a good account type choice. If you’re purely looking for a tax benefit, the kiddie tax may negate that.

Cons of Custodial Accounts

There are quite a few cons to setting up a custodial account. Some things to be aware of:

• The money is no longer yours, it’s the minor child’s: Once you setup an custodial account, the money in that account becomes the child’s, and can legally only be used for purposes that benefit them.  You can’t get the money back.
• The child gains complete control at age of majority:  Even if the child isn’t mature enough or versed enough in financial topics when they become an adult, they still get complete control over the money. If that gives you pause, you may want to reconsider.
• The child may need to file taxes: Any income generated from the account belongs to the child and counts as taxable income.  If that income exceeds $950, a separate federal income tax return usually has to be filed for the child.
• The kiddie tax:  Under the kiddie tax rules a child who has investment income below $950 has no tax.  Above $950 it’s taxed at the child’s tax rate for income or long term gains. Above $1,900 and the money can be taxed at the parent’s higher rate.  That means instead of paying a lower tax rate on income (of 0-15%), they could end up paying at the parent’s higher rate of up to 35%.  Seek the advice of a professional on these complicated tax matters.
• Gift tax consequences: If you give the child more than $13,000, or $26,000 for a couple in any given year, you may be liable for gift taxes of the money.  Read the IRS notice on gift taxes.
• Financial aid consequences:  A child having a custodial account can cause them to receive reductions in available financial aid.

So as you can see there are quite a few things you should consider before you setup one of these accounts for your child.   From tax consequences to control of the money, there are plenty of things you’ll need to make sure you think about long and hard.

Alternatives To Custodial Accounts Under UGMA/UTMA

While  a custodial account can be a good fit for some situations, for other situations it may not be as good of a fit.  For example, if you’re mainly saving for the child’s college expenses, an ESA or 529 savings account may be a better fit because of the tax free growth of the money.  The downside?  The money has to be used for education expenses only.  Other options include using a Roth IRA for college savings.

We currently haven’t opened a custodial account for our son as we think we’ll be more likely to save money in a 529 and a Roth IRA at some point because of the tax benefits.  I think the best use of one of these accounts for many people may be as a teaching tool to give a child or young niece or nephew a lesson in investing, the power of compound interest and the importance of saving for the future.  Others may want to use it as a way to gift money to avoid the estate tax, although there are ups and downs to that as well.

What are your thoughts about custodial accounts?  Would you use one?  Would you prefer to save for a minor in another account type like a 529, Coverdell ESA or Roth IRA?

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