February 2010 - Money Matters

Save Money on Cell Phones: Go Pre-Paid

Last week, I wrote about eight ways you can save money on your cell phone bill. One thing that was not mentioned was the fact that it is also possible to get a prepaid cell phone plan. These plans can be a great way save money on cell phone use. In fact, the Citizens Utility Board figures that it is possible to save up to $300 or more on cell phone bills - just by switching to a pre-paid plan.

One company that provides a very good pre-paid plan is PlatinumTel. I was quite impressed with what is available: pre-paid $50 a month gets you unlimited talk nationwide, and 100 megabytes of data. You can add unlimited data for $10 per month. I actually use Tracfone as my pre-paid provider, enjoying double minutes for life and no web surfing ability. My husband and I don't need much else. We've got VoIP at home for cheap, so the idea of bulking up a cell phone plan isn't that attractive to us. But if my cell phone needs change, I might consider switching to PlatinumTel, which also offers pay as you go options and other pre-paid plans.

There are other carriers offering a wide array of pre-paid plans as well. Depending on your needs, you might find something that works well for you at Boost Mobile, Metro PCS, Verizon, U.S. Cellular, AT&T, Virgin Mobile, Cricket and T Mobile. The best is that you don't have to commit to a contract and many pre-paid plans don't require a credit check, helping you keep your credit score intact. Check into your options, and see what there is. Consider how much calling you do, whether you will want your children on your pre-paid cell phone plan, and whether you need to use the Internet. Then choose a pre-paid plan that can save you over expensive contracts.

-- Miranda

Image source: TonyTheTiger via Wikimedia Commons

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Eight Ways to Cut Costs on Your Cell Phone Bill

You know that the cell phone bill often gets a little out of control. And no matter what kind of coupons or deals you have when you first get a cell phone, it's clear that the costs soon get out of hand. There are, however, some things you can do to reduce the amount of money you spend on your cell phone bill, helping you keep your personal recession in check. ShopSmart, a Consumer Reports publication, has eight things you can do to reduce cell phone costs in the March 2010 issue:

1. Go easy on the minutes: Do a little cost-benefit analysis on your bills and figure out how many voice minutes you’ve used in the past six months and how many minutes were left over. You might save with a plan that has fewer included minutes, provided it offers the same free talk-time benefits.
2. Maximize family-plan calling: Got a multi-line family plan? Call your spouse and kids on the family-plan cell phone instead of their landline home or work phones.
3. Use freebies to the max: If your carrier offers unlimited free minutes to designated calling-list phone numbers, register your most-called numbers but be sure to make the most of this money-saving feature by limiting your list to landlines and cell numbers outside your network.
4. Bundle up those texts: The cost of text messaging adds up quickly if you’re paying à la carte at 15 to 20 cents a pop. If you’re a busy texter, think about a package of 200 to 1,500 messages per month for $5 to $15.
5. Don’t be afraid to complain: If you’re on the hook for an unusually gigantic bill, call customer service before you fork over hundreds of dollars in extra fees. Your carrier might cut you a break.
6. Get a data plan: E-mailing, Web surfing, and other types of data can really chew up your budget if you pay per megabyte. An “all inclusive” plan with unlimited Web and messaging on a smart phone should cost $10 to $60 per month.
7. Shop around or hire someone to do it for you: You can “hire” a service like those at www.billshrink.com (free) or www.myvalidas.com (at least $5) to sift through the major plans for you, factoring in your usage and other data, then recommend available phones with various plans and costs.
8. Avoid big termination fees: Make sure that you’re going to be happy with your cell plan because early termination fees can run as high as $350 per phone line. If you do choose to switch to a new carrier, be sure to give the phone and service a good test drive during the 15- to 30-day trial period, when you can quit and move your number to another carrier without penalty.

In the end, you don't have to just accept what you are paying right now. One of the keys to savings is to be vigilant, looking for alternative ways of doing things and sometimes even ask for the discounts.

--Miranda

Photo courtesy of stock.xchng

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Taxing Questions: Tax Deduction or Tax Credit?

With tax season in full swing, it is little surprise that many are wondering about the ins and outs of the whole tax return thing. You may have your tax prep checklist, but one of the main issues that trips many people up is whether something is a deduction or a credit. And what's the difference, anyway? Understanding the difference between a tax deduction and a tax credit can help you plan for better tax efficiency in the coming year, and help your personal finances in the long run.

Tax Deduction

A tax deduction is something that lowers your taxable income. In some cases, healthcare costs, moving expenses, education expenses, charity donations and mortgage interest (and more) are all things that you deduct from your income. Most people generally take these in two places. The first is on the front of the Form 1040. You fill in deductions for certain items, and it lowers your gross income. For instance, if you put in all of your income - and you have made $50,000 in a year - that is your gross income. Then, you take your first round of deductions as seen on the front of your Form 1040. Let's say your deductions add up to $4,000. That means that your new income being considered as taxable is $46,000. This is your adjusted gross income (AGI).

Now that you have your AGI, it's time to take more deductions to figure out your taxable income. You flip your Form 1040 over and on the back you see that there are some serious deductions to be had. You can either take the standard deduction ($11,400 if you are married filing jointly) or fill out a Schedule A to itemize. If your itemized deductions add up to more than $11,400, then you should do those and skip the standard deduction. Let's say that your itemized deductions add up to $15,000. So, you take your $46,000 and subtract $15,000, and your taxable income is $31,000.

You can see how this might help. In both cases, you are in the 15% tax bracket. However, 15% of $50,000 is $7,500, while 15% of $31,000 is only $4,650. Those deductions saved you $2,850 in taxes. But we're not done. It's time for the credits.

Tax Credit

A tax credit is like a gift card that you apply to the amount you owe in taxes. It's a dollar for dollar reduction in the amount of money you owe. In our example, you owe $4,650 in taxes. Then you start applying credits. Let's say you qualify for an earned income credit and an additional child tax credit. Perhaps you have some other credits that you are eligible to claim. With everything, your credits add up to $4,000. That money is applied to the total - just as if you had a gift card. Now your tax liability is only $650. If you have had taxes withheld at work, that amount (which you've already paid in taxes) is applied. If you have $200 a month taken out for taxes, that's $2,400 for the year. You've already paid that, so that money is applied to the $650 that you owe. As a result, you find out that you have a tax refund of $1,750 coming your way.

As you can see, a tax credit is considered more valuable than a deduction. While a deduction lowers the amount of income available for taxation, a credit is a direct reduction in how much you owe. However, combined efficiently, you will find that you can save thousands in taxes.

-- Miranda

Image source: U.S. Navy

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Five Tips for Beating a Personal Recession

The economy may have moved out of a technical recession, but many people still see their finances affected by adversity. Another consideration is the fact that, even if things start looking up, it is quite possible that another recession strikes. In fact, this is quite likely since the economy moves in cycles. There will always be down times and if you want to shore up your personal finances against a recession, it is likely that you weather it much better. You can't control what goes on in the national economy, but you can control -- for the most part -- your personal economy. Here are five tips for beating a personal recession:

1. Reduce your bills: Go through all of your bills and decide what can be cut. Is a rival cable or satellite company offering a hot new deal? Are you paying for features on your phone that you don't use? What about your insurance policies? Can you raise your deductibles to reduce your monthly premiums? It may be that some bills can be cut altogether. Evaluate each of your monthly obligations and see what you can do to reduce costs or eliminate unnecessary bills.
2. Pay down debt: Having pressing obligations during a recession is a good way to up your stress level. Instead, work on paying down your debt. You'll free up more money in your monthly budget and you'll have more financial maneuverability when the next recession hits. Plus, right now, interest rates are lower, so more of your payment goes to principal, helping you reduce your debt faster. Take advantage of this situation.
3. Cut your spending: This goes hand in hand with reducing your bills. Track your spending and try to reduce it to make more room in your budget. You want to be able to live on 80% of your income, rather than spending it all. This 80% also includes charitable donations and saving/investing. So this means if you save 10% and give 10% to your church or a charity, you should actually only be using 60% of your income for expenses. Look at your spending habits and determine your priorities. In many cases, you will be amazed at how much of your income goes to waste (experts estimate that every household wastes 10% to 15% of their incomes each month). That leaves you a 20% cushion, and gets you used to living with less, so that lifestyle inflation doesn't cause a problem in tough times.
4. Invest: This includes savings accounts (look for high yield accounts with free money bonus offers), which are cash investments. But you should also consider stocks, bonds and funds, depending on your risk tolerance. There are a number of online brokers that offer low-cost trades and even automatic investment plans that make this easier. Prepare for your future and help reduce your chances of succumbing to a recession. And, incidentally, a recession is a good time to invest more since you can get bargain prices. Just be careful. I like index funds because they track market performance, and protect you against the risks of stock picking. Just be careful to look for low-fee funds, and avoid major investment mistakes.
5. Cultivate alternative income streams: Diversity is important in an investment portfolio, and it is also important when it comes to income. Think of different ways to cultivate income, whether it is investing in dividend paying stocks, creating a web site that offers residual income, doing small freelance jobs on the side or becoming involved with affiliate marketing.

In the end, you are responsible for improving your finances and doing your best to beat a personal recession. But if you plan ahead, and prepare, you can make it through a recession without devastating your finances -- and you should be able to live something of an abundant life.

-- Miranda

Image source: sxc.hu

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