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Kids and money: Teaching kids financial responsibilityMay 29, 2015: 12:24 PM ETTeaching your kids about financial responsibility means setting a budget -- and deciding what to do when children run afoul of their own guidelines.One answer is to require them to save their allowances in locked boxes. But since this doesn't teach restraint and you won't always be around to oversee savings deposits, there are more instructive ways to make the point.One method is to make it a game with play money. You can also use various piggy banks to stash away money for different purposes like saving for a certain item, everyday spending, buying gifts, donations, and eventually investing.Powered by SAVINGS RATES BY?If they've been receiving your sage financial teachings from an early age, older children shouldn't have trouble understanding the concepts of long-term and short-term saving. If not, illustrate the concepts by using goals, as with a new video game a month from now versus a bicycle this summer.Remind them of these goals to keep them from straying.The more worthy and ambitious the long-term goal, the more you may want to consider matching grants to reward your child's savings discipline. These grants can be anywhere from 1.25 to 1 to 3 or 4 to 1.Younger children understandably have trouble grasping off-site savings, so the best mechanism for them is often a piggy bank for coins and a wallet for bills. Count the money with them periodically and tell them how close they've come to their goals. Above all, praise their progress.Once children reach the age of 9 or 10, they're more amenable to banks. Quantitatively adept children of this age can understand the concept of interest rates. Until they're old enough to handle a checking account, children may take withdrawals as cashier's checks or money orders.The best way to encourage sound spending habits is to exhibit them. When planning a trip to the grocery or discount store, get your children involved in making a judicious list and sticking to it. This will teach them to avoid the bane of all savers: impulse buying.For big-ticket items, show them how to do the research: reading articles and reviews, comparing prices, negotiating with salesmen.Doubtless, an occasional purchase will be defective. No problem. Use this to demonstrate the importance of saving sales receipts and reviewing warranties. When you return the goods, take your children along and show them how to overcome salesmen's NMoney (New York)First published May 29, 2015: 12:24 PM ETWhat are your top three financial objectives?Many of us haven't thought much about which financial goals really matter most. Instead, we muddle through our financial lives, spending to meet the day-to-day expenses that dominate our attention.That's why to get what you want most you must 1) decide which goals will take priority and 2) work toward the lesser goals only after the really important ones are well provided for.Here are some common goals you may want to consider:Building an emergency savings accountBuying a houseGetting out of debtCaring for elderly parentsPaying for a child's college educationSaving enough to retire comfortablyOnce you have your list together, you need to rank the items in order of importance.Banking: Opening a bank accountMay 28, 2015: 4:11 PM ETA bank is one of the safest places to stash your cash. In the wake of the financial crisis of 2008, the federal government increased the level of insurance on bank accounts -- it's now $250,000 per depositor.When shopping for a bank, consider:How much money you plan to park at the bankThe higher your average balance, the more likely you are to get "free" checking with interest. Most free accounts carry minimum balance requirements, that vary widely from bank to bank. But if you settle for a non-interest bearing checking account, the minimum balance to avoid a monthly charge is usually much lower.Powered by SAVINGS RATES BY?You also want to avoid overdrafting. If ever you write a check use your debit card and exceed your account balance, overdraft protection automatically covers the extra money needed. Most banks offer overdraft protection which is usually free to set up.How many checks you write a monthSome no-fee accounts limit the number of checks you can write and charge high fees if you exceed that limit. If you write a large number of checks, it may pay to shop around. Some banks charge $24 or more for a box of 200 checks. You can get that same box for less than $10 by ordering direct from the printer. There are a numerous services, including?Checks in the Mail?or?Checks Unlimited?for more information.How many related banking services you'd likeIf you use ATMs frequently, make sure the bank has plenty conveniently located near you. If you use another bank's ATM, you might pay $3.00 or more for the privilege, once you combine the surcharge imposed by the other bank and the fee your bank charges for going to a competitor's machine.Another way to dodge ATM surcharges is to ask for extra cash when you make a purchase with your bank's debit card. If a store offers cash back, you'll pay no fees in most cases.How many different types of accounts you want to set up at the bankThe more accounts you have with your bank, the greater your chances of getting price breaks and perks on its services and products. So if you have a checking and savings account and are taking out a mortgage or signing up for the bank's credit card, be sure to ask if you're entitled to any discounts. You can also ask your bank to link your accounts to avoid minimum balance fees, if your bank treats the money in all your accounts as one combined balance.Whether interest is worth itDeciding to put your money in an interest-bearing account may seem like a no-brainer. But sometimes a no-interest checking account may be more cost-effective. Make sure the expense of maintaining the account doesn't exceed the interest paid. There can be an opportunity cost to tying up all that cash in a low-yielding account. Even at a low rate of inflation, the annual creep in the cost of goods and services usually outpaces what banks pay in interest-bearing accounts.How to get better interest ratesThere are, however, other ways to get better returns at a bank. Instead of parking the majority of your cash in a savings account, you could open a certificate of deposit (CD) or a money market deposit account.?Read more about other interest-bearing accounts.Whether a traditional bank is the way to goA number of financial institutions offer accounts that resemble bank services. The most common: Credit union accounts, mutual fund company money market funds, and brokerage cash-management accounts.?Read more about alternatives to traditional banks.Spending: Making a budgetMay 28, 2015: 4:17 PM ETBudgets are the only practical way to get a grip on spending, and to make sure your money is being used the way you want it to be.Personal-finance programs or websites like Quicken and offer built-in budgeting tools that can create your budget for you.Every time you make a deposit, write a check, pay a credit card bill or dispatch an electronic payment, you can assign it to a particular category, like "salary," "clothing," "groceries," "child care" or "health insurance."Powered by BUDGET CALCULATOR BY?Some programs will allow you to download your payments and deposits directly from the bank, rather than having to enter them by hand. The downloaded transactions will often show up without any categorization -- meaning you'll have to add the categories yourself. Sometimes, they come with categories attached, but they aren't always right, so check them.Such programs often have an automatic budget creation feature that scans your spending in the past in order to estimate how much you'll spend going forward.If your finances aren't wired, you can still get a good handle on your spending the old fashioned way. Start by getting all your records together from the past 12 months. Then go through them and compile totals for your income and expenses in a set of categories that makes sense for you, and enter them into the rows in a spreadsheet.You may still have a sizable lump of spending that's undocumented -- typically, the money you withdraw in cash and then spend on day-to-day needs. If this portion of your budget seems to be getting out of hand, keep a journal for the next four weeks in which you record every nickel you spend. You can use those results to extrapolate how your cash is being spent throughout the year.Once you have a budget, it's time to go through your spending and figure out where you need to cut back.This is especially urgent if you spend more than you make. If your spending exceeds your income, then your top priority should be to?cut back.If your household runs in the black, you may still want to reallocate some of your spending.Here are some tips to keep in mind:Watch out for cash leakage.?If withdrawals from the ATM machine evaporate from your pocket without apparent explanation, it's time to keep better records. In general, if you find yourself returning to the ATM more than once a week or so, you need to examine where that cash is going.Spending beyond your limits is dangerous.?But if you do, you've got plenty of company. Government figures show that many households with total income of $50,000 or less are spending more than they bring in. This doesn't make you an automatic candidate for bankruptcy -- but it's definitely a sign you need to make some serious cuts.Beware of luxuries dressed up as necessities.?If your income doesn't cover your costs, then some of your spending is probably for luxuries -- even if you've been considering them to be filling a real need.Tithe yourself.?Aim to spend no more than 90% of your income. That way, you'll have the other 10% left to save for your big-picture items.Don't count on windfalls.?When projecting the amount of money you can live on, don't include dollars that you can't be sure you'll receive, such as year-end bonuses, tax refunds or investment gains.Beware of spending creep.?As your annual income climbs from raises, promotions and smart investing, don't start spending for luxuries until you're sure that you're staying ahead of inflation. It's better to use those income increases as an excuse to save more.Once you've set your budget goals, you need to develop the habit of tracking your expenses on an ongoing basis and make sure the spending stays within the limits you've set.Debt: Paying off debtMay 28, 2015: 4:05 PM ETThe basics of debt reduction are simple: Cut down on your variable spending and put the extra money toward your debt payments. But outside of fixed monthly bills such as housing or car payments, you probably don't have a precise idea of how you spend most of your money.1. Figure out where your money goes.?If you want to get your debt under control, start by figuring out your spending patterns and identifying unnecessary expenses. For one month, write down every cent you spend, including that $2 cup of coffee or a $4 magazine. That will clarify how much of your spending is fixed and how much is variable (and hence easier to curb).2. Cut out the extras.?Tally the expenses on the list and compare the sum to your monthly income. If it's less than what you earn, use the extra money as your debt payment. If it exceeds your income, you need to cut back on the variables.Powered by INVESTMENT CALCULATOR BY?3.?Lower your fixed expenses.?Reining in discretionary spending for a few months goes a long way toward tackling debt. But if that's not enough, try to reduce your fixed expenses. Take steps to lower your household bills; refinance your mortgage to get a lower interest rate; or, if you have a good payment history, ask your credit card company to lower the interest rate you're charged.4. Try to boost your income.?Consider whether there's any way to boost your take-home pay. If you get a big tax refund every year, that means you're having too much withheld from your paycheck. If that's the case, you can reduce your withholding by changing your W-4 at work.5. Make a list of your debt.?Next, make a list of all your debt obligations and the interest you're charged for each. Put them in order of interest rate, from highest to lowest.6. Transfer high-interest balances.?You might consider moving some of your high-interest credit-card balances to a card with a lower interest rate. But read the fine print on any invitation to transfer balances. Sometimes such low-interest-rate offers are only in effect for short periods of time, after which the rate skyrockets. What's more, consolidating your debt on one card may lower your credit score if your debt-to-available-credit ratio worsens.7. Pay off the highest rate first.?Once you determine the maximum amount you can pay off each month, pay down the debt with the highest interest rate first -- that usually means your credit-card balance -- while paying at least the minimum monthly amount due on all other revolving bills.8. Move down the list.?Once the debt with the highest rate is wiped out, put your money toward paying the debt with the next-highest rate. One exception: If you have a credit card with a low teaser rate that will go up after a fixed amount of time, strive to eliminate that balance before the low rate expires.For budget tips, read?Money Essentials: Making a budget.Taxes: Taxes you oweMay 29, 2015: 2:25 PM ETHowever you make your money -- by working or by investing -- you can pretty much count on owing taxes to the federal government. In most places you will also owe taxes to your state government, too.For now, though, let's just consider your federal tax bite on common forms of income.Income taxes:?Your "earned" income -- that which you make by working -- will be taxed on a graduated scale.Powered by TAX CALCULATOR BY?There are 7 income tax rates: 10%, 15%, 25%, 28%, 33%, 36% and 39.6%.The first dollar you make will be taxed at the 10% rate while the last dollar you make likely will be taxed at a higher rate. The more you make, the higher your top rate will be.For example, in 2015, if your taxable income is $65,000 and you're single, you'll be in the 25% bracket. You'll owe 10% on the first $9,225 of your income, 15% on the next $28,225 and 25% on the rest.Remember, your taxable income is not your gross income. It generally reflects your gross income minus any deductions, credits and exemptions you may claim.So if you gross $100,000, your taxable income might be closer to $80,000.Social Security and Medicare taxes:?Payroll taxes -- or FICA taxes as they're also called -- are intended to fund the two biggest U.S. safety net programs.You will owe 12.4% in Social Security tax on the first $118,500 of your earned income. (That income threshold is for 2015; it's adjusted for inflation every year.)If you're an employee, you'll pay 6.2% of that and your employer will pay the other 6.2%.If you're self-employed, you'll pay the full 12.4% but may deduct half of it on your tax return as a business expense.You'll owe another 2.9% in Medicare taxes on all of your earned income. Again, if you're employed, you'll pay half (1.45%) while your employer will pay the other half.If you're a very high income earner, you'll owe an additional 0.9% on the amount over $200,000 ($250,000 if married). So you'd end up paying 1.45% on the first $200,000 and 2.35% on the rest.The?0.9% Medicare surtax?is a recent change and is intended to help pay for health reform.Investment income taxes:?Capital gains, dividends and interest represent "unearned income."Generally speaking, interest -- say from a savings account -- is taxed at regular income tax rates.But you'll pay a lower rate for capital gains and dividends on investments you've held at least a year. How much lower depends on your overall income.For most people, the long-term capital gains and dividend tax rate is 15%.But it goes up to 20% for households making more than $200,000.Those same high-income households may also have to pay a?3.8% Medicare surtax?on?some?of their capital gains and dividends, another measure intended to help pay for health reform.Income from investment properties (e.g., a vacation rental you own) is also subject to ordinary income NMoney (New York)First published May 29, 2015: 2:25 PM ET ................
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