Financial Wellness Toolkit

Set a goal. Make a plan. Save automatically. That’s the challenge. We all want to save money for future goals and security, but it can be a challenge to get started. Campus Wellbeing Services in partnership with University of Illinois Extension started this online toolkit a couple years ago to promote the UI Saves competition. This year we will be expanding the toolkit to include other financial wellness areas such as how to:

  • Save on energy costs
  • Finance a new home
  • Gain control of your spending
  • Plan for retirement
  • Choose a financial professional
  • And more.

Check out the articles in the menu, and watch for new offerings over the next few months.

For more information  about the financial wellness program at Campus Wellbeing Services, go to fw.extension.uiuc.edu. You can also check out these online resources provided by the University of Illinois Extension:

Questions

Contact Kathy Sweedler, University of Illinois Extension Educator, at sweedler@illinois.edu.

SaveUp: A New Approach to Reach Saving Goals

Staying motivated to save money is a challenge. Sometimes we need a little extra something to keep us motivated! "I'm excited to introduce a new tool to help you," announced Kathy Sweedler, Consumer Economics Educator, University of Illinois Extension.

America Saves, a national initiative that encourages individuals and families to save money and build personal wealth, has partnered with SaveUp, the nation's first free rewards program for saving money and reducing debt. SaveUp is available for free to Americans who bank at more than 18,000 US financial institutions.

Unlike traditional rewards programs that focus on driving consumer spending, SaveUp rewards users with credits for performing positive financial actions, such as contributing to their savings or retirement accounts; paying down their credit cards, mortgages, or other loans; and engaging with SaveUp's financial education content on the site. SaveUp users can use their credits to play for exciting rewards such as retail gift cards, electronics, vacations, home makeovers, cars, and even a $2 million jackpot.

"I've tried the new SaveUp program and find it very intriguing," says Sweedler. If you like playing games online, check this out. If you're a person who enjoys the excitement of playing the lottery, this may give you the same "buzz" and you'll be saving money rather than spending it!

Source: Kathy Sweedler, Consumer Economics Educator, University of Illinois Extension, sweedler@illinois.edu; (217) 333-7672.

Dream Big/Plan Small Steps

It’s relatively easy to setting new resolutions. Actually achieving resolutions can be hard! Here are a few tricks that will help you set resolutions—especially financial ones—and make them happen. First, take time to dream a bit. Where would you like to be and what would you like to be doing in the future? Consider the short-term (one year) as well as more long-term. Once you have a mental picture of where you want to go, it’s much easier to plan how to get there.

Next, ask yourself, “How can managing your finances help you achieve these goals?” Now you’re ready to start making resolutions. Research has shown that people who actually write their goals are more likely to achieve them. So, find a pencil and get ready to write your resolutions. Writing SMART resolutions will help you achieve them.

A SMART resolution is:

  • Specific
  • Measurable
  • Agreed upon
  • Reasonable
  • Timed

Let’s consider a resolution to save money and practice writing a SMART resolution. Perhaps you’d like to save money to take a vacation. The first part of a SMART resolution is to be specific about what you want to do, such as, “I want to take a vacation to visit my sister.”

Next, the resolution needs to be measurable; estimate how much money it requires to accomplish your goal. For example, “I want to take a vacation to visit my sister that will cost $1,200.”

Another important component of a SMART resolution is having agreement among all people involved. Thus, take time to talk to other household members who need to agree upon this resolution.

When do you want to accomplish this? The summertime is a convenient time for vacations; perhaps July 1st would work well. If you start saving in January, you have six months to save for this goal. Your resolution now reads, “I want to save money for a vacation to visit my sister, which will cost about $1,200, by July 1, 2017."

Now that you have a specific, measurable, agreed upon, and timed resolution, you’re ready to decide if it’s a reasonable resolution. If you need $1,200 in six months, then you need to save $200 a month, or about $50 a week. Is that a reasonable amount for you? Are there some ways you can change your current spending to find money to save?

Or is that too much money to save each week? When you have a financial resolution that is both specific and timed, you can decide if it’s a reasonable. If saving $50 a week doesn’t seem reasonable, then you need to adjust your resolution. Do you need more time to accomplish your resolution? Or could you take a vacation for less money?

Once you’ve set a reasonable amount, track your progress towards your resolution. Each week or so, check if you are saving enough money to meet your resolution. A handy, downloadable worksheet to help you write resolutions is available at the University of Illinois Extension website under Consumer Economics.

This is one simple example of a SMART resolution. You can use this same technique to write resolutions about saving for retirement, paying down debt, or accomplishing finance-related activities such as writing a will. What will be your resolutions for this year?

By Kathy Sweedler, Consumer Educator, University of Illinois Extension

A Penny Saved = Hundreds of Dollars Earned?

A long time ago, Benjamin Franklin inked the now famous phrase “A penny saved is a penny earned.” In today’s society, saving pennies may sound naïve. But in reality, a dollar or less saved here and there can add up to a lot of money.

The Financial Wellness Peer Educators have put together a revealing table of how small reductions of purchases can add up to hundreds, possibly thousands, of dollars saved over the course of a year. For instance, giving up that daily specialty coffee can result in a savings of $1,277 per year. Here are more easy ways to increase your savings.

Item How Often Price Savings/Year
Soft drink 1/day $1.00 $365
Candy bar/Chips 1/day $ .60 $219
Cigarettes (plus tax) 1 pack/day $4.75 $1,733.75
Tank of gas 1/week $32.00 $1,664
Music CD 1/month $17.00 $204
Lottery Ticket 2/week $2.00 $208
Fast Food Lunch 5 days/ week $8.00 $2,080
Specialty Coffee 1/day $3.50 $1,277.50
Video Rental 2/week $5.00 $520

For more information on how small savings can add up, check out these websites:

Plan on the Unexpected

Financial planners always say to save money for the unexpected. I think we should just admit that the unexpected expenses will always happen—that's just life! We may not be able to predict just what the unexpected expenses will be...but something will need to be repaired or replaced. Whether it's a flat tire, an appliance that breaks, or something else, unexpected expenses happen to everyone.

How can you plan for "unexpected" expenses? You need to build up a savings fund in either a savings account or money market account from which you can withdraw money easily. If you need help finding money to save, visit University of Illinois Extension’s Plan Well, Retire Well website for saving tips and strategies to help you get started.

Lately I have been having “unexpected” home repairs that need to be done. How much should you save for home repairs? A good rule of thumb is to save 1 to 2 percent of the purchase price of the home for annual maintenance and repairs. If your home or the appliances are older, you may need to save an even bigger amount.

Plan ahead for major purchases and estimate when you might have to purchase something new. According to industry officials, the average life span for the following appliances is estimated at:

  • Roof: 20 – 25 years
  • Heating system: 25 years
  • Refrigerator: 20 years
  • Freezer: 20 years
  • Clothes dryer: 18 years
  • Range/oven: 18 years
  • Room air conditioner: 15 years
  • Clothes washer: 13 years
  • Water heater: 13 years
  • Central air conditioner: 12 years
  • Dishwasher: 12 years

Do you have a savings fund for those unexpected expenses that we can all expect? If not, now is the time to start building it up!

Source: Kathy Sweedler, Consumer and Family Economics Educator, University of Illinois Extension.

How to Save a Dollar When You Don't Have a Dime

Most people would agree that the concept of saving money is good idea. Who wouldn't want an emergency savings account to help out with unexpected expenses? And, given our uncertain economic times, it's a good idea to have money saved in case your income is reduced from a job cut-back or loss. And, having money when you retire—that sounds like a good idea too.

But, how do you save a dollar when you feel like you don't have a dime to spare?

  • You need a goal that is important to you to work toward.
  • You need to believe that small changes in behavior can make a big difference in savings.
  • And you need to take action to change your spending.

What do you want to be doing in 5 years? Where do you want to live in 10 years? Do you want a financially secure future in 25 years? Now is the time to start working towards these goals by saving money.

Does saving for a goal seem too difficult? Small amounts over time do add up! $20 a week can make a significant difference in your savings. Think about it—$20 a week is $1,040 a year. You could start a retirement savings account with this money.

If you saved $80 a month in an investment that had a rate of return of 5%, in 15 years you'd have over $21,000. What a wonderful gift to a college-bound child when they graduate from high school.

When you realize that a $21,000 goal requires $80 a month, then you can change your spending to find the $80. Here are some ideas for ways to change your spending so that you can reach your goals:

  • Take a look at your habits. Do you regularly spend money on something small that you could do without? For example, skipping a $3 expense five days a week saves $60 a month.
  • Adjust the thermostat setting by five degrees and compensate for comfort with clothing. Heating and cooling are the most expensive utility costs.
  • Select energy efficient light bulbs when replacements are made. Use compact florescent light bulbs (CFL) or other fluorescent bulbs wherever possible.
  • Take shorter showers.
  • Plan your meals for the week, make a shopping list, and go grocery shopping as few times as possible.
  • Evaluate automobile insurance policies to make sure you are adequately covered. You may be able to reduce your premiums by increasing your deductibles on collision and comprehensive.
  • Form a babysitting co-op with other parents.
  • Consider the cost of habits such as smoking and drinking alcoholic beverages. These habits are expensive, and you may want to reduce or eliminate them.

For more ideas to save money, read Strategies for Spending Less.

Are you ready to take charge of your financial future? America Saves is here to help. America Saves is a nationwide effort to encourage non-saving Americans to save. Enrolled savers receive the American Saver newsletter, which offers information on a wide variety of savings topics and introduces you to other savers who are achieving their financial goals. Join America Saves today!

Source: Kathy Sweedler, Consumer Economics Educator, University of Illinois Extension, sweedler@illinois.edu; (217) 333-7672.

Are You Satisfied with Your Savings?

Saving money is a challenge. The fifth annual national survey assessing household saving revealed that, despite hopeful macroeconomic signs, an increasing number of Americans are having difficulty saving money—from saving for emergencies to affording retirement. Over the past three years, the number of people has declined who

  • spend less than their income and save the difference,
  • are building home equity,
  • have adequate emergency savings, and
  • think they are saving enough for retirement.

However, the survey also revealed that having a savings plan is beneficial, even for lower-income families. People with a savings plan are much more likely to spend less than their income and save the difference and to say they have adequate emergency savings. Creating a financial plan—and having a clear goal—can help people save regularly. After all, if you don't know why you're saving money, then it's much easier to spend money freely on immediate needs or wants!

This year's survey results show that 66% of those surveyed said they "have sufficient emergency savings to pay for unexpected expenses like car repairs or a doctor's visit." And only 52% of those non-retired think they are "saving enough for a retirement in which they will have a desirable standard of living." Unfortunately, these percentages have been falling for the past three years.

How would you answer the questions if you were surveyed? Do you feel that you have sufficient emergency savings? Are you satisfied with your savings for other goals? If not, now is the time to make a change: to either start saving regularly or to increase the amount you are saving.

I encourage you to join America Saves. When you join America Saves, you will set a savings goal and then receive free newsletters and access to online tools such as the "My Savings Tracker."

Joining America Saves can help you because you'll receive regular reminders of your saving goal. Small, friendly, encouraging nudges are often helpful to develop new habits such as a savings habit.

Source: Kathy Sweedler, Consumer Economics Educator, University of Illinois Extension, sweedler@illinois.edu; (217) 333-7672.

Save for Your Dreams

Do you have a dream? Does it require money to accomplish? Many of our dreams do. The challenge is to change our financial behaviors so that we can save money to reach our dreams. The economy for the last several years has stifled our dreaming, but this is your wakeup call—time is passing, and now is the time to put your dream into action.

I’m not saying that it’s easy to save money. However, you can start. And once you start, little by little your savings will grow. Don’t let the start be what stops you!

Do you have a savings account? If not, that’s a good place to start; open a savings account with low monthly fees. Almost a third of Americans don’t have a savings account, according to a recent report by the Corporation for Enterprise Development. Research in behavioral economics shows that people find it helpful to categorize money. For example, money in a checking account is for spending and money in a savings account needs to stay there.

Save enough money in a savings account (or another type of account) to cover any unexpected expenses, including job loss. Without money set aside, people tend to use credit cards to cover unexpected expenses and, with interest charges, that is an expensive way to manage money. The report by the Corporation for Enterprise Development found that nearly 44 percent of Americans don't have enough savings or other liquid assets to stay out of poverty for more than three months if they lose their income.

Three months of money saved for essential expenses is a lot of money and may seem unachievable. If so, start saving a small amount. Once we begin practicing a behavior, it can become a habit and then it’s easier to do more over time.

And time is the issue. You want your money to work for you. When you have money in a savings account, you will earn interest. Although it is a low percent currently, it’s more than you’d receive if the money were under your bed, and safer too. Over time, interest can add up, and this is your money working for you—even on weekends and holidays!

When you have enough money in a savings account to cover emergencies, then you can think about taking the next step and investing your money. Investing money does involve risk. Money invested can be lost, but money invested can also have gains much higher than savings account rates of return.

The Dow Jones Average is now at a five-year high. Since the low point in the Great Recession (March 2009), the Dow Jones Average is up 92%. This is good news for investors who stayed in the market. Unfortunately, many individual investors may not have benefited fully from this increase in value as they chose to leave the stock market or reduce the percent of their portfolio invested in stocks.

Do you have money working for you? If not, consider investing your money in a diversified mix of investment types. Many employers offer tax-deferred retirement savings plans to employees. Employees can choose to have money deducted regularly from their paychecks and then invested through these retirement plans. Not only is this convenient, but because the investment happens automatically every month, people are often pleasantly surprised by how much it adds up to over time. If this sounds like a good fit for you, check with your workplace to find out what automatic saving and investing options you have.

If you are already investing through a workplace plan, take a close look at your investment statement. Many of us stopped looking closely at our statements when the stock market was going down. Look at your portfolio allocation—how much you have in stocks, bonds, or other investment options. Are you comfortable with the allocation or is it time to make some changes?

Saving for our dreams is possible one step at a time. Now is the time to take the first step.

Source: Kathy Sweedler, Consumer Economics Educator, University of Illinois Extension, sweedler@illinois.edu; (217) 333-7672.

Tax News for College Expenses and Student Loans
Tax Break Maximum Amount Type of Tax Break Maximum Tax Savings*
Student Loan Interest Deduction $2,500 Tax deduction $750
Employer Provided Education Assistance $5,250 Non-taxable income $1,575
American Opportunity Tax Credit $2,500 Tax credit $2,500
Tuition and Fees Deduction $4,000 Tax deduction $1,200
Coverdell Education Savings Account $2,000 annual contribution No tax on growth $600, assuming 12 years of growth at 6% per year

For 25% federal and 5% state income tax brackets.

The Fiscal Cliff was in the headlines for months. Everyone was aware that individual tax rates, various tax breaks, and estate taxes would be affected by what Congress did. Now it’s time to see how the finer points may affect you. If you have a child in college, are paying back student loans, or are saving for college, the American Taxpayer Relief Act of 2012 (ATRA) contains some good news for you. And while I may use the word “college,” these benefits are also generally available to anyone pursuing a recognized, post-secondary credential.

I’ve been writing about tax breaks for higher education for years, and one of my frustrations has been the uncertainty from year to year as to what rules would expire and which ones Congress would extend at the last minute. ATRA made some things permanent and temporarily extended others yet again. Let’s take a look.

If your kids are young and you’re only interested in saving for college right now, skip to the last heading—Coverdell Education Savings Accounts.

Student Loan Interest Deduction

Student loan debt lives on for years after your graduation. You can deduct up to $2,500 of interest on student loans each year. The original law said you could only deduct the interest on your first 60 loan payments. Later, the 60-payment limit was removed—temporarily. ATRA has now removed the 60-payment limit permanently. You can deduct up to $2,500 of interest each year, no matter how long you have been paying on your loan. The amount of your deduction will be gradually reduced to $0 if your income is $60,000 to $75,000 for single filers and $125,000 to $155,000 for married persons filing jointly.

This tax break is very valuable to college grads who are just getting started in life because it’s an above-the-line deduction. You don’t have to itemize deductions to claim this one. No mortgage, property taxes, or large charitable donations to itemize? No problem. You subtract this deduction from your income right on the front of your 1040 or even on your 1040A, just not on the 1040EZ. A deduction of $2,500 could save you $750 in taxes if you’re in the 25% federal tax bracket and 5% state.

Employer Provided Education Assistance

If you’re lucky enough to have an employer who reimburses you for college expenses, that’s a great benefit. What’s even better is getting that help tax free. The rule is now permanent: your employer can pay up to $5,250 toward your education expenses and it does not count as income. If you’re in the 25% federal tax bracket and 5% state, that’ll save you up to $1,575.

American Opportunity Tax Credit

First, we had the Hope credit that was good for the first two years of college. After that, you had to switch to the good-but-less-valuable Lifetime Learning Credit. Then President Obama introduced the American Opportunity Tax Credit which expanded the Hope credit into a four-year deal, worth up to $2,500 each year. ATRA extends the American Opportunity Tax Credit through 2017. If you have kids who are freshmen now or starting in the fall, you’ll have this valuable credit each year through their senior year.

You get a credit equal to your first $2,000 of expenses. For the next $2,000 of expenses, your credit is 25%, for a grand total of $2,500. Since it’s a credit rather than a deduction, it reduces your taxes dollar for dollar. There are income limits. You deduction will be gradually reduced to $0 if your income is between $80,000 and $90,000 (single) or between $160,000 and $180,000 (joint).

Tuition and Fees Deduction

The Tuition and Fees Deduction has once again been extended, but just a little, to the end of 2013. This has been the story of the deduction’s life. Since this deduction first appeared in 2002, it has been scheduled to expire every couple of years. Now, ATRA has reinstated it retroactively for 2012 and through 2013. You may not even need it, because you can’t claim both it and the American Opportunity Credit for the same student. And you can’t claim both it and the Lifetime Learning Credit for the same student. You’ll want to try doing your taxes both ways to see which tax break saves you the most.

This is also an above-the-line deduction, so you can claim it even if you don’t itemize. You can deduct up to $4,000 in tuition and fees, but your limit is $2,000 if your income is in the phase-out ranges: $65,000 to $80,000 (single) and $130,000 to $160,000 (joint). A $4,000 deduction could save you $1,200 in taxes.

Coverdell Education Savings Account

Parents saving for college have three main choices: 529 prepaid tuition plans, 529 savings plans, and Coverdell Education Savings Accounts, formerly known as Education IRAs. The tax breaks associated with these three programs are the same: you don’t owe any income tax on the increase in value in the account as long as you use the money for qualified education expenses. But the Coverdell is unique in that it can also be used for K – 12 expenses. You even have until April 15 to make a contribution to a Coverdell for 2012, just like an IRA. The amount you can contribute is phased out for incomes between $95,000 and $110,000 for singles, $190,000 and $220,000 for married couples filing jointly.

At the beginning Coverdell Education Savings Accounts were largely ignored because of the tiny contribution limit: you and all your other relatives combined could contribute just $500 per year for your little Susie’s education. It was hardly worth the effort. Then the limit was increased to $2,000—but only through 2012. Finally, the $2,000 annual limit has been made permanent. My hope is that this will encourage low-cost mutual funds to begin (or resume) offering Coverdells. With small accounts like this, it’s especially important to choose providers with minimal fees. Right now, brokerages seem to be the main option.

For more details about these and other tax breaks for higher education, check IRS Publication 970, Tax Benefits for Education.

Source: Karen Chan, Special Projects, University of Illinois Extension, January 2013