myths

Stop Believing These 5 Myths About IRAs

Alicia Rose Hudnett — Thu, 07 Jun 2018 09:00:21 +0000

Here's an important life lesson you may not have been told in childhood: You will spend your entire adult working years saving for one main goal — retirement. And one type of retirement account that almost everyone has access to is an individual retirement arrangement, or IRA.

IRAs come in two main formats, the Roth and the Traditional. And while both are valuable, they each bring plenty of confusion regarding some of the rules and regulations about saving in these types of accounts. Here are five IRA myths that may be preventing you from using this valuable retirement-savings vehicle.

1. I can't save in a workplace retirement plan and in an IRA

Even if you currently contribute to an employer-sponsored retirement account at work (such as a 401(k)), you can still direct additional funds into a Traditional or Roth IRA. (See also: 401(k) or IRA? You Need Both)

For Traditional IRAs

Anyone under age 70½ with earned income can make contributions to a Traditional IRA. But if you are covered by a workplace retirement plan, the IRS may restrict the deductibility of your contributions. For 2018, if you are covered by a workplace plan, are single, and make less than $73,000, or if you're married, file taxes jointly, and earn less than $121,000, you can contribute to a Traditional IRA and deduct either all or a portion of your contribution.

If you are single and earn $73,000 or more, or if you are married, file taxes jointly, and earn $121,000 or more, you can still make a nondeductible contribution. When you make a nondeductible contribution to a Traditional IRA, you don't receive an upfront tax break, but your money will still grow tax-deferred in the account.

Note: As an alternative to putting nondeductible dollars into a Traditional IRA, some advisers recommend putting this money into a brokerage account instead. That's because even though money in a Traditional IRA grows tax-deferred, distributions are taxed at ordinary tax rates. Meanwhile, although you receive no tax break for investing in a brokerage account, you may be able to get the more favorable tax treatment on your capital gains when you withdraw those funds in retirement. Having said that, this still doesn't discount the need for an IRA. (See also: Where to Invest Your Money After You've Maxed Out Your Retirement Account)

For Roth IRAs

Whether or not you have a retirement plan at work has no bearing on your ability to contribute to a Roth, but the IRS does impose income limits on who can contribute directly to this type of IRA.

For 2018, if you are single and make $135,000 or more, or if you are married, file taxes jointly, and make $199,000 or more, you are prohibited from contributing directly to a Roth IRA. There is a workaround to this rule called a "Backdoor Roth," which involves making a nondeductible contribution to a Traditional IRA, then converting that to a Roth IRA. This is a common and standard practice, but see a financial planner or tax adviser to determine the tax implications for your own specific financial situation.

2. I don't make enough to contribute to an IRA

Every year that you earn income is an opportunity to save for retirement. The government allows you to contribute a certain amount of money each year into tax-sheltered accounts. If you miss a year, you miss saving for that year forever.

Anyone with earned income under the age of 70½ can contribute to a Traditional IRA, and anyone, regardless of age, with earned income (but within the income limits listed above) can contribute directly to a Roth IRA. Even if you are unable to contribute the maximum allowable amount, make a contribution count every single year. And remember that you have until Tax Day of the following year to make your contribution for the current year. (See also: 5 Dumb IRA Mistakes Even Smart People Make)

3. I can't contribute to an IRA if I don't have my own earned income

Unlike other savings accounts, IRAs must have a single owner and can never be titled as a joint account. And up until now, we've pointed out how the first criteria for contributing to an IRA is having your own taxable compensation. But the IRS does make an important exception to this rule for nonworking or low-income earning spouses by allowing them to piggyback off a working spouse's record of yearly income, whereby all the same rules apply. This is called a spousal IRA. This is a smart way for a couple to continue a diligent savings routine even in a one-income household.

4. I don't need an IRA

Let's get this straight: Everyone needs an IRA. Whether by choice or life circumstances, everyone will retire someday. And retirement is expensive. Even if you are already covered by a workplace retirement plan, an IRA can help you capture and save much-needed excess funds that will help you get by later in life.

If you have extra cash sitting in a savings or checking account (not counting your emergency fund), you can begin transferring that money to fund an IRA. As long as you have earned income for the year, it doesn't matter where the contribution money comes from. (See also: 6 Reasons Every Millennial Needs a Roth IRA)

5. I can't touch my money until retirement

The whole purpose of saving for retirement involves taking a long-term view and allowing your money to grow untouched. And it's true that when you use a tax-sheltered account to save for retirement, there will be penalties if you don't follow all the rules. While you always have access to your own money, there are a few guidelines to keep in mind.

In general, if you are younger than 59½, any money you withdraw from a retirement account will be considered an early withdrawal subject to income tax and a 10 percent penalty. But there are important exceptions to the rule, including for medical reasons or even to pay for some higher education costs.

All direct contributions to a Roth IRA are made with after-tax money, so you always have tax-free and penalty-free access to your original contributions. Note that there are different rules for Roth conversions; but if you follow the rules, you can still gain penalty-free access to your funds after a waiting period and possibly before retirement.

Retirement is your most expensive long-term financial obligation, and you'll need to save as much as you can for as long as you can. Don't let myths and misconceptions steer you away from the value of an IRA.

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This article is from Alicia Rose Hudnett of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

6 Common Homebuying Myths, Debunked

Dan Rafter — Mon, 28 May 2018 09:00:17 +0000

You're ready to own a home. And you think you know the basics involved in finding one, working with a real estate agent, and applying for a mortgage. But buying a home for the first time can be a confusing process. This is especially true if you believe certain myths about searching for and making an offer on a house.

If you want to alleviate some of the uncertainty that comes with buying your first home, it's time you learned the truth about the homebuying myths too many consumers still believe.

1. Working with a real estate agent is expensive

Actually, if you're working with a real estate agent to buy a home, it's free. Buyers usually don't pay for the work their agents do in helping them find and make offers on homes. When you buy a home, the sellers typically pay the commissions of both your agent and theirs. The funds for this come from the proceeds of the home sale.

You will have to pay plenty when you buy a home, including the many fees and costs that go with taking out a mortgage and hiring inspectors. But you won't pay anything to your real estate agent. So there's no good reason to skip working with a real estate agent if you are a buyer. (See also: 5 Things Your Real Estate Agent Wishes You Knew)

2. You need a down payment of 20 percent

Applying for a mortgage is another nerve-wracking part of buying a home. You'll pay thousands of dollars to your lender and other third-party providers to close the loan that allows you to buy your new home.

But you probably don't need to come up with as big of a down payment as you think. Many buyers mistakenly think that they need to come up with a down payment equal to at least 20 percent of a home's final purchase price. That can be intimidating: A 20 percent down payment on a home costing $200,000 comes out to $40,000 — a lot of money.

Fortunately, you can buy a home with smaller down payments. FHA loans, for instance, often require down payments as low as 3.5 percent of a home's final purchase price. You can also qualify for conventional loans with down payments as low as 3 percent.

Remember, though, that you must pay for private mortgage insurance — better known as PMI — if you don't come up with that 20 percent down payment. This can add extra costs to your monthly payments until you build up at least 20 percent equity in your home. (See also: Do You Really Need a 20 Percent Down Payment for a House?)

3. Spring is the best time to look for a home

Traditionally, buyers have flooded the housing market in the spring, when the majority of single-family homes and condominiums go up for sale. However, there really is no one time of the year that is "best" for buying a home. You might even find better bargains on homes if you start your search before or after the spring.

Say you start looking in the summer. There may be fewer homes available, but you'll also find buyers who are willing to negotiate on their asking price as they become more desperate to sell. The same goes for winter, when sellers may be looking to relocate quickly. (See also: 5 Reasons Fall Is a Great Time to House Hunt)

4. The best mortgage is a 30-year, fixed-rate loan

The traditional 30-year, fixed-rate loan comes with two big positives: The monthly payment will only fluctuate slightly over the life of the loan, and the monthly payment is relatively low because the loan term is so long.

However, this doesn't mean that this loan is right for every buyer. If you take out a 15-year, fixed-rate loan, you'll have a higher monthly payment, but you'll also pay tens of thousands of dollars less in interest. If you plan on spending five years or less in the home you are buying, an adjustable-rate mortgage (ARM) might even be a better choice because it comes with lower initial interest rates.

Your best move is to work with a mortgage lender who can help you determine which loan product is best for you. (See also: Is a 15-Year Mortgage a Good Idea?)

5. Once a seller accepts your offer, your worries should be over

There is a big potential pitfall that could scuttle your purchase even after you and a seller sign a sales contract: The home you are buying might not appraise at a value that is high enough.

After you and your seller sign a contract, your lender will require that you pay for an appraiser — about $400 to $500 — to determine the current market value of the home you are buying. If that market value isn't at least equal to the money your lender is giving you, your deal could flop.

For instance, if your appraiser judges that the home you want to buy is worth $150,000 and you've agreed to purchase the residence for $225,000, your lender might agree to only loan you $150,000. That means you'll have to come up with the remainder out of your own pocket or convince the seller to lower the asking price. If these solutions aren't available, your deal could fall through. (See also: 5 Reasons a Home Sale Could Fall Through)

6. The value of the home you buy will always appreciate

We all hope that the home we buy will be worth more when it's time to sell. And often, it is. But there are no guarantees that the home you buy will appreciate in value, no matter how long you hold onto it.

Don't believe anyone who tells you that housing prices only go up. Those buyers who purchased in 2005 or 2006, at the height of the residential real estate boom, know that housing prices can go the other way, too. Many of those buyers are still living in homes that are worth less today than they were when they first bought them. (See also: 4 Worst Reasons to Buy a House)

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Myths About Money in Retirement

Emily Guy Birken — Fri, 11 May 2018 08:00:21 +0000

Retiring is an amorphous and complicated goal — which means retirement planning attracts more than its fair share of plausible-sounding myths. Unfortunately, these myths, misconceptions, mistakes, and misbegotten rules of thumb can seriously lead you astray on your path to a well-funded and fulfilling retirement.

Don't fall for any of the following common myths about money in retirement.

1. You need $1 million to retire comfortably

This particular myth holds a unique distinction in that it is wrong in both directions: $1 million is both not nearly enough money for the retirement you're dreaming of, and way too high a number for most people to achieve.

How is that possible?

On one hand, $1 million doesn't go nearly as far as it once did. If you plan for a grand retirement that involves traveling, fine dining, entertainment, and general living-it-up, you will probably find that a $1 million nest egg will not cover all you want to do. In fact, depending on your cost of living and other circumstances, it's entirely possible you could exhaust $1 million with relatively modest retirement spending.

On the other hand, $1 million is a number that is out of reach for the majority of workers. According to a 2016 GoBankingRates survey, 33 percent of Americans have nothing saved for retirement at all. For most Americans, the idea of saving $1 million for retirement may sound too overwhelming to even think about, and they may give up on the idea of saving altogether.

The problem with this myth is that it is slapping a blanket generalization over a very idiosyncratic process — preparing for retirement. Instead of focusing on a nice, round number, calculate your best estimate of how much your own dream retirement will cost. Make adjustments to your dream or the number as necessary. (See also: How to Retire With Less Than $1 Million in Savings)

2. The 4 percent rule

This myth actually has a specific start date. Financial adviser William Bengen proposed this rule in 1994 as a potentially safe withdrawal rate for retirees to make sure their money would comfortably last for the rest of their lives. He based his proposal on historical market data and predictions over where the markets would go in the next 20 years.

Here's how the rule works: Historically, the rate of return on stocks generally hovers around 10 percent. That means a retiree can take 4 percent of their assets each year to live on, without ever touching the principal and still seeing growth each year. For a retiree with a $1 million nest egg, that means $40,000 would be available each year for living expenses, without ever dipping into the $1 million itself.

There is no problem with the 4 percent rule when the market is doing well. The problem with this rule is that it doesn't work during market downturns. In 2008, the market saw a 30 percent decrease overall. Any withdrawals a retiree made during that time took a permanent bite out of their nest egg. Such a retiree either had to accept that permanent bite, or learn to live on less (or nothing) until the market bounced back.

This is why it's a good idea to diversify so that you have some more stable and liquid investments you can count on in bad years, as well as long-term investments that can continue to grow (and recover) over time.

3. Social Security will cover your basic expenses

After paying into Social Security all your life, it's natural to expect the benefits to take care of you in retirement. But Social Security benefits are not now and were never meant to be a primary source of income in retirement. The program was begun in order to provide a safety net to keep seniors from abject poverty.

The average monthly Social Security benefit in 2018 is $1,404 — which is barely enough to cover basic expenses in most areas of the country. It is far better to consider Social Security a supplement to your retirement income than count on it for living expenses. (See also: 6 Smart Ways to Boost Your Social Security Payout Before Retirement)

4. Medicare will take care of your health needs

Something that comes as a nasty surprise to retirees is the fact that Medicare covers less than you might think — and health care in retirement costs more than you might realize.

Specifically, Medicare does not cover the following needs:

Long-term care (the nonmedical help that an otherwise healthy senior might need for daily living).
Self-administered prescription drugs.
Routine dental or eye care.
Dentures.
Hearing aids and exams for fitting them.
Routine foot care.

Of these coverage gaps, long-term care can be the most devastating because the costs for such care can add up so quickly. It is in part because of the cost of long-term care that Fidelity calculated the average cost of lifetime medical expenses for a 65-year-old couple retiring in 2017 to be $275,000. (See also: How to Make Sense of the Different Parts of Medicare)

5. Your taxes will be lower in retirement

One of the few benefits of no longer drawing a paycheck is the fact that you don't have to see Uncle Sam take a cut from it. You may think that once you're retired, all your money is yours free and clear, and the taxman will finally leave you alone.

It doesn't quite work that way.

First, you are going to owe taxes on any money you take out from tax-deferred retirement accounts. Since retirees often have fewer federal deductions and dependents to claim, that means you could be paying a greater percentage of your income to taxes. And don't forget that once you reach age 70½, you will have to take required minimum distributions, which means the size of your distribution (and therefore the size of the tax bite) isn't entirely up to you.

In addition, depending on your retirement income, you may also owe taxes on your Social Security benefits. Altogether, it's good to remember that the taxman always cometh for you.

The truth will set you free

The myths about money in retirement are generally more pleasant than the reality. But as tough as it may be to swallow the truth about how much you need, how much you can withdraw, and how much the government plans to giveth and taketh away, it is far better to be clear-eyed and prepared.

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This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

7 Tough Questions About Debt, Answered

Denise Hill — Wed, 11 Apr 2018 08:30:09 +0000

We've all heard the tales of financial woe that befall people who fail to pay their debt, die without a will, or go through a nasty divorce. But what is the truth? Is there a such thing as credit jail? Can filing bankruptcy give you a clean financial slate? Are you responsible for an ex spouse's debts?

We're answering some of your most pressing debt questions. As always, it's important that you do your own research — each situation is different and laws and regulations change on a case-by-case basis. This is your jumping off point. Now, let's get started.

1. Is failing to pay debts ever a jailable offense?

The quick answer to this question is no. And to take it one step further, according to the Federal Trade Commission (FTC), it is against the law for debt collectors to threaten you with incarceration.

You can be sued for the debt, your wages can be garnished, your bank accounts frozen, your assets seized, and a whole slew of other nasty things can befall you for failing to pay, but going to jail isn't among the list of possible consequences.

The caveat and exception to this rule is if you owe child support or taxes. The IRS usually doesn't impose jail time for nonpayment. Incarceration is reserved for those who lie, cheat, and try to defraud the system. In both cases — tax evasion and failure to pay child support (technically contempt of court) — you have options. You can, in most cases, maintain your freedom while you catch up — but you have to be proactive and compliant. (See also: Here's What Happens If You Don't Pay Your Taxes)

2. Should I borrow from retirement to pay off debt?

This is a tricky question and the answer can vary based on your situation. In most cases, the answer is no.

Most financial advisers will tell you there are a plethora of options you should explore before tapping your retirement accounts. You should seek to exhaust these options before borrowing against your 401(k) or raiding your IRA. You may be hit with early withdrawal fees and you could seriously derail your future earnings.

Borrowing from your retirement is usually a quick solution to a deeper issue. You will treat the symptom, but fail to fix the problem. And, if you do it once, chances are you'll do it again. Don't use tomorrow's resources to pay for today's mistakes. Find another way. If you feel that this is the only option, please consult a financial adviser before you do. (See also: 6 Foolish Ways to Pay Down Debt)

3. If I divorce my spouse, am I responsible for their bills?

The answer to this question is a firm, "It depends." Here's where you have to do some research and may need to seek legal advice.

Your level of responsibility as it pertains to an ex-spouse's debt depends on a few key factors. Your state's laws and whether or not you signed the credit contract are the top two issues. In most cases, if your John Hancock is on the contract, you are liable.

During the divorce process, couples should agree on who owes what and who will pay, and have it outlined in their divorce decree. The important thing to note here is that the decree establishes who should pay — however, from a legal standpoint, if you signed a credit contract, you are liable if your ex-partner fails to make payments. (See also: How to Protect Yourself Financially During a Divorce or Separation)

4. Is there a statute of limitation on debt?

Every state establishes its own statute of limitations for debt. Each type of debt has its own time-frame. It can be as few as three years, or as many as six. You need to research the laws for your state and for your particular debt to determine the expiration period.

That said, the fact that time has expired doesn't erase the debt. The statute of limitation limits the creditor's ability to sue you and to gain a court order for repayment. The creditor can still pursue repayment of the debt past its expiration as long as it adheres to the Fair Debt Collection Practices Act. The only way to eliminate or erase a debt is to pay it, have it canceled by the lender, or have it discharged in bankruptcy. (See also: What to Do When a Creditor Sues)

5. I have defaulted on a payday loan. What happens now?

You already know this, but I must state it for the record: Payday loans are bad news. They are expensive, and defaulting is going to cause you massive amounts of financial heartache.

Payday lenders aggressively go after borrowers who don't pay. And if you are sued, it's not just the debt you are on the hook for — you can also be held responsible for the legal fees and additional interest that accrues during the process. It's a web that could take you a lifetime to untangle.

If you do have a payday loan, you've got to attack it. You should prioritize it over all your other debt. Time is your enemy, so you must rush to get rid of it as quickly as possible. Work with the lender to keep the debt in good standing. Get a second job, cut all unnecessary spending, and save every single dollar to pay it off. (See also: How to Protect Yourself From Predatory Lending)

6. Does filing for bankruptcy absolve all debt?

No. There are two common types of bankruptcies most people file:

A chapter 7 bankruptcy liquidates all of your nonexempt assets to pay off creditors. It's the advisable option if you have massive amounts of unsecured debt, such as credit cards and medical bills, and very little or no income.
A chapter 13 bankruptcy adjusts your debt using a repayment plan. This option is advisable if you have stable income and secured debt such as a home or car loan, but are so far behind on payments that you are facing legal action (foreclosure or repossession of valuable items).

Making your debt magically disappear may seem like a great idea, but bankruptcy has a dark side. It doesn't (except in rare cases) get rid of mortgages, student loans, taxes, alimony, or child support. And the court could order that some of your property be sold to help pay off the debt. Declaring bankruptcy also wreaks havoc on you credit score for years to come. Once you file, chapter 7 remains on your credit report for 10 years and chapter 13 stays for seven.

Before plunging into bankruptcy, you should consult a CPA or other certified financial fiduciary, and an attorney. Ensure you fully understand and consider the long-term impact bankruptcy will have on your financial life. (See also: 11 Steps to Take When Bankruptcy Is Your Only Option)

7. If a family member dies, am I responsible for their debt?

The short answer is no. According to the FTC, family members of the deceased are not obligated to pay the debts of a deceased relative. The deceased's estate owes the debt, not you. This means before the estate is liquidated and divvied up according to your relative's will, all debts must be paid.

If the estate isn't sufficient to cover the debts, the debts go unpaid. Family members are not obligated to pay. However, for every rule, there is an exception. You could have to pay the debt if you co-signed the debt, live in a community property state such as California, or were married to the deceased. It should also be noted that if you are the executor of the estate, you must make sure all of your loved one's debts are satisfied before you liquidate it. If not, you could be held responsible for the debt. (See also: Who Pays When Loved Ones Leave Debt Behind?)

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This article is from Denise Hill of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

4 Worst Reasons to Buy a House

Dan Rafter — Wed, 31 Jan 2018 09:30:09 +0000

Each month you send a rent check to your landlord. Meanwhile, every homeowner you know insists that you're wasting that money. They say that you should buy a home and that owning is a smarter financial move.

But are they right? Not necessarily.

There are good reasons to buy a home: You get a place to call your own and raise your family. You get more space. You'll gain more — but not complete — control over your monthly housing payments.

This doesn't mean, though, that owning is always the better financial choice. In fact, there are many myths about homeownership that could persuade you to buy for the wrong reasons. Here are four of them.

1. Owning a home is a great investment

It might seem that purchasing a home, holding onto it for years, and then selling it for a profit is a great reason to buy. But the truth is, homes aren't good investments for most owners.

Robert Shiller, a Yale economist, has long studied the housing industry, and ranks as a true expert when it comes to real estate and economics. Speaking to The Motley Fool in 2014, Shiller unveiled the numbers proving that housing historically has not been a good investment.

Shiller found that from 1890 through 2012, home prices when adjusted for inflation did not grow one cent. Homeowners would have made significantly more money by investing in the stock market during this same time. Shiller reported that the value of the S&P 500 increased more than 2,000 times from 1890 through 2012. Shiller also found that from 1890 through 1980, the real value of home prices actually fell by about 10 percent.

Don't buy a home thinking that it's a smart financial investment. It's not. A home is a place to raise your family and retreat to at the end of a long day. It's not supposed to be a moneymaker. (See also: Stop Thinking of Your House as an Investment)

2. You're tired of throwing away your money on rent

Advocates of homeownership often tell you that you're throwing away your money every time you pay a rent check. What they don't say is that this doesn't change much after you buy a house — at least not initially.

Most of us take out a mortgage loan to finance the purchase of a house. The bank behind your mortgage will technically own most of your house after you close on it. And in the earlier years of owning a home, the vast majority of the money you send toward the bank goes toward paying off interest. Only a small amount of each monthly payment goes toward paying down the principal of your balance.

So, you're still throwing your money at someone with nothing concrete to show for it. You're just throwing it at your bank instead of your landlord. And if you don't hold onto your house long enough — say, more than seven years — you'll have paid far more in interest than in reducing your principal balance by the time you sell. (See also: Why I Choose to Rent Instead of Buy)

3. You can build equity

Earning equity is one of the most popular reasons for people to buy a home. Say you owe $150,000 on your mortgage and your home is worth $220,000. You now have $70,000 worth of equity. You can borrow against that in the form of a home-equity loan or home equity line of credit to pay for everything from a child's college education, to major home improvements, to reducing credit card debt. (See also: 4 Smartest Ways to Use a Home Equity Loan)

You earn equity in two ways: First, every time you make a payment, you are reducing your mortgage amount. Second, if your home increases in value, your equity will grow automatically.

The problem is that home values can fall, and building equity when that happens is a true challenge. Say after three years of owning your home, you've reduced your mortgage amount to $200,000. If home values have fallen since you purchased your residence and your home is now worth just $190,000, you don't have any equity. Instead, you are underwater — meaning that you owe more on your mortgage than what your home is worth. (See also: 6 Times It's Actually OK to Be Underwater on Your Home)

You can't control whether the value of your home falls or rises. Millions of homeowners discovered this in 2007 and 2008, when home values across the country plummeted. Many of the owners who bought in 2005 and 2006 still owe more on their mortgages than what their homes are worth. Building equity isn't a guarantee.

4. Owning a house comes with big rewards at tax time

Advocates of buying a home point to the deductions that owners can take come tax time: Owners can deduct the interest they pay on their mortgages, as well as their property taxes.

But these deductions are becoming less valuable to some people. First, the new tax reform law says that owners will only be able to deduct the interest on their mortgage loans up to $750,000, rather than the $1 million that it was previously. Federal tax reform will also limit the amount that taxpayers can deduct in state and local property and income taxes on their federal returns to a maximum of $10,000.

The biggest change, though, might be the new standard deduction. Taxpayers filing their federal returns can either itemize their deductions or take the standard deduction. Tax reform will boost the standard deduction from $6,350 to $12,000 for individuals. It will increase the standard deduction for couples filing jointly from $12,700 to $24,000.

There is no financial reason for taxpayers to itemize their deductions if they aren't greater than the standard deduction. As the standard deduction increases, a greater number of taxpayers will take it instead of itemizing. This means we'll see fewer homeowners taking advantage of the property tax and mortgage interest deductions.

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Common Medicare Myths, Debunked

Dan Rafter — Thu, 05 Oct 2017 08:00:06 +0000

There is no larger health insurance program in the United States than Medicare. According to the Centers for Medicare & Medicaid Services, more than 57 million people were receiving health benefits through the program as of March 2017.

But just because millions are on Medicare doesn't mean that most people, especially those who have yet to hit 65, understand how this government program works. Most people instead believe several easily debunked myths about what Medicare does, how financially healthy it is, and what it doesn't do.

1. Medicare won’t be around for me

You might worry that Medicare won't be around to cover your health care needs by the time you retire. Here's some good news: Medicare is not broke ... yet.

The Medicare program had about $200 billion in reserves at the end of 2015. So the program does have money.

There is some concern, though. Medicare is projected to run a surplus every year through 2020, when a growing number of Baby Boomers will start retiring. This means that Medicare will then run at an annual deficit beginning in 2021. If nothing is done to prevent this, the program will exhaust its reserves by the year 2028.

That will be a big problem if it is allowed to happen. There are possible solutions, though, even though they will require some financial pain. The most obvious one would be to raise Medicare taxes. That won't make anyone happy, but it is the simplest way to ensure that Medicare does have enough dollars to cover all of its beneficiaries.

2. There's only one type of Medicare

Medicare is a complicated system. In fact, there are actually four types of Medicare coverage.

Medicare Part A and Part B are part of what is known as original Medicare. Medicare Part A, known as hospital insurance, covers inpatient care received at hospitals and nursing facilities. Part B covers services and supplies that you need to treat health conditions. This part of Medicare covers outpatient care, preventive services, ambulance rides, and medical equipment.

Medicare Part C is a bit more complicated: It's the part of the program that makes it possible for private health insurance companies to provide Medicare private health plans — in the form of HMOs and PPOs — known as Medicare Advantage Plans. You can elect to receive your medical benefits through a combination of Medicare Part A and Medicare Part B or from one of these private Advantage Plans. (See also: 8 Tips for Getting the Most Out of Your Medicare Plan)

Medicare Part D subsidizes the cost of your prescription drugs. This part of the program is often referred to as the Medicare prescription drug benefit.

3. You'll never have to pay for health insurance once you're on Medicare

Medicare will cover much of your health insurance needs. But there are some costs that you'll still need to cover on your own.

For instance, Medicare does come with deductibles that you must pay before the insurance kicks in. These deductibles can change each year. For 2017, Medicare Part A comes with a $1,316 deductible per benefit period for your hospital stays. This means that if you do end up in the hospital, you'll have to pay this amount out of your own savings before Medicare will cover the rest of your expenses.

Medicare Part B has a deductible of $183 for 2017. Again, you'll have to pay this amount before your Medicare coverage kicks in. And even after Part B coverage begins, you'll still have a copay. Medicare Part B generally covers 80 percent of your medical services. You'll have to cover the remaining 20 percent of these costs on your own.

There are also coinsurance payments. If you must stay in a hospital for more than 60 days, you'll have to make a coinsurance payment for your Medicare Part A benefits.

4. Medicare covers all my medical needs

There are some medical services that Medicare does not provide any coverage for. Unfortunately, these services aren't exactly frivolous ones.

Medicare does not provide dental coverage. It also doesn't pay for vision examinations for glasses. You can't rely on Medicare to cover the costs of dentures or hearing aids. And if you need long-term care, Medicare again won't provide coverage.

You can purchase specialized insurance programs to cover these medical expenses. But you'll have to pay for the plans on your own. (See also: Is Long Term Care Insurance Worth It?)

5. I won't have to pay any premiums for Medicare

Most people won't pay any monthly premiums for their Medicare Part A coverage. That's the good news. The bad news? You will pay a monthly premium for Medicare Part B.

As of 2017, the Part B premium stood at $134 a month. Medicare, though, says that most people who get Social Security benefits pay less than that, for an average monthly premium of $109. This premium is usually deducted directly from your Social Security benefits. You won't be writing a check each month, but you'll still be paying for that Part B coverage.

You'll also have to pay a premium each month if you elect to sign up for a Medicare Part C plan. These premiums will vary depending on your plan. Medicare Part D comes with a monthly premium, too, though this will vary according to your specific plan.

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Debunking 8 Common Credit Score Myths

Paul Michael — Fri, 08 Sep 2017 09:00:06 +0000

Credit: Like it or loathe it, most of us need it to survive. And the kind of credit we have access to is dependent on our credit scores. A mortgage, a car payment, credit cards, and even health care financing all impact and depend on our credit score.

The problem is, there's a lot of misinformation out there, and if you believe it, you could be doing yourself a disservice. Here are the top myths about credit scores that we have debunked for you.

1. Closing a lot of credit accounts will improve your score

It seems logical, but it's completely incorrect. Credit scores are calculated in part by something called a debt-to-credit, or credit utilization, ratio. The agencies calculating your score are looking at how much debt you have, and how much available credit you can tap into.

So, if you have 10 credit cards with a combined credit availability of $100,000, and you've only used $15,000 of that available credit, your credit utilization ratio is 15 percent. This is considered good: You have 85 percent of your credit unused.

Now, let's say you close seven accounts, because you just aren't using them. You still have $15,000 in debt, but now your overall available credit drops to $30,000. Your credit utilization ratio just skyrocketed to 50 percent, and that means your credit score takes a dive.

Do not close credit card accounts like this. Simply put the cards you aren't using somewhere safe. And if you get the chance to increase your credit limit, do it. As long as you don't plan to max it out, it will help your credit score. (See also: Stop! Don't Cut Up Your Credit Cards)

2. The amount of money you make has an impact on your score

Your credit score lists credit accounts, not income from employers. So, whether you're a CEO making $3 million a year, or an entry-level worker earning $30,000 a year, income is not a factor in determining your credit score. In fact, a rich CEO might actually have a terrible credit score, despite the money, because of a bankruptcy or series of late payments in the past.

The only way income can have an impact on your credit score is if you live a Champagne lifestyle on a beer budget. If you are maxing out your cards, making minimum payments, and missing payments altogether, you will see your score take a big hit.

3. Credit scores change just a few times a year

Credit scores are changing all the time. The information used to calculate your score comes from the financial institutions you do business with. If you miss a payment, that will be reflected pretty quickly. If you close several accounts, that information will impact your score a lot sooner than in three to six months.

In fact, if you look at your credit score right now, you will see when the last updates were made. Sometimes, it will be a matter of hours, rather than days or weeks. For this reason alone, you should be checking your credit score on a regular basis. When something negative happens, you can jump on that issue quickly and get it resolved.

4. A bad credit score makes it impossible to get credit or loans

This is a myth that comes from years of advertising messaging about needing a good credit score to get financing. Actually, most people can get financing, whether their score is up in the 800s or down in the 400s.

A credit score represents a level of risk to financial institutions, and this will dictate the terms of any loan or credit your receive. For example, someone with a credit score of 800 is considered very low risk to the financial institution. They know this person pays on time, has a lot of available credit, and has longevity with his or her accounts. This will result in a low interest rate, and more available credit.

Someone with a 450 credit score, on the other hand, is considered a very high risk client. Loans and credit offers will be available, but they will have oppressive interest rates for very little credit.

5. Checking your credit report damages your score

This is rooted in truth. A "hard inquiry" on your credit will have an impact on your score, albeit a small and temporary one. This happens when you apply for a loan, credit card, or other form of financial assistance. The hard inquiry dings your credit a little because if you do it a lot, say applying for 10–12 new accounts every month, you could be setting yourself up for some financial ruin down the line.

However, if you, yourself, are examining your credit report, that is considered a "soft inquiry." It will not have any impact on your score, and you can do it daily, or even hourly, without any consequences. (See also: How Credit Inquiries Affect Your Credit Score)

6. If you don't have credit, you'll have a great credit report

Not in the U.S. In some countries, a lack of credit is considered a good thing. If you've never had a credit card or a car loan, you must be financially responsible. But in the U.S., you don't get a good credit score unless you have a good history with credit.

The fact is, credit scores are built. Financial institutions want to know that you will borrow money and pay it back on time, with interest. If they can see you have done that well, and often, you are not a risk. If you have never had any kind of loan or credit card, you represent an unknown quantity. And unknown quantities do not sit well with people putting a stamp of approval on a credit line. (See also: How to Use Credit Cards to Improve Your Credit Score)

7. Carrying a balance on your credit card helps your score

No, it doesn't. To be fair, it doesn't hurt it either. But if you are under the impression that keeping money on your card is helping your score, you are not doing yourself any favors. Ideally, you want to pay off the balances on your cards in full every month, to avoid paying interest on purchases. If you are only paying the minimum, you are basically throwing money into the trash. Most of that minimum payment is going to the credit card company; very little pays down the balance.

Whenever possible, don't carry a balance. And if your balance is more than 30 percent of the card, consider transferring half to another card. When you are using more than a third of the credit on one card, you can actually hurt your score. Ideally, your balance will be below 30 percent of the available credit — the lower, the better. This is a good time to request a credit line increase. If you get your line increased a few thousand dollars, so that your balance drops below 30 percent, that can increase your score. (See also: 4 Questions to Ask Before Getting a Credit Increase)

8. A bad credit score will stay with you for life

If you are currently looking at a poor score, it's not the end of the world. You won't be paying exorbitant interest rates forever. However, it does take time to rebuild it.

The score will change, for the better, if you open new lines of credit and pay your credit card bills on time. Never miss a payment. Keep your balances low. Maintain a very low credit utilization ratio. Try not to apply for too many cards or accounts in one year. If you continue to be a model credit citizen, even after financial difficulty, your score will rise.

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6 Job Myths Boomers Should Stop Believing

Paul Michael — Mon, 17 Jul 2017 09:00:10 +0000

If you were born between the early 1940s and the early 1960s, you are considered a baby boomer. And that means that in the year 2017, you are considered to be at the late stage of your career.

However, as we all know, times have changed. Very few people can expect to start at a company in their 20s and retire with a gold watch in their 60s. Layoffs and downsizing are commonplace. But with these employment fears come myths that many baby boomers still firmly believe in. It's time to bust them once and for all.

1. Once you hit a certain age, you're unemployable

Let's make it clear: Getting a job in your 20s and 30s is always going to be easier than getting hired in your 50s and 60s. There are certain expectations about pay, and as we get older, we have more health concerns and less energy than we did at the start of our careers. But there's a difference between hard and impossible. If you have the skills, the drive, and the right attitude, you will be valued and you will get job offers.

The key is to stop shooting yourself in the foot by believing that your age is an anchor. There are pros and cons for every stage of our career. Early on, we're too young and have no experience, but we're cheaper and are willing to work longer hours. At the height of our careers, we sacrifice time with our families for ladder-climbing, but the pay and rewards are there. Later, we can be considered too expensive for the open positions, but we have the experience and wisdom that employers crave. It's all give and take. Market yourself with the strengths that come from a long and successful career, and how those strengths can benefit your potential new boss.

2. You're too old to retrain

They say you can't teach an old dog new tricks, but that's a complete fallacy. In fact, to continue the analogy, skilled animal trainers can take an old dog with behavioral problems, and make it a loving, family-friendly pet. While it's true that it's a little harder to pick up certain skills later in life, it's not even close to being unmanageable.

As The Telegraph reported in 2014, more middle-aged workers are retraining for new careers as a response to their original careers dying out, or being too physically taxing. And in 2013, almost 12,000 people over age 50 in the U.K. found apprenticeships in health care and public services. In 2015, Time magazine reported that the job market was hot for workers over the age of 50.

3. Older workers are not as valued as their younger counterparts

You've probably heard some of these degrading statements thrown around the office (or even used them yourself at the start of your career): "That guy's a dinosaur, don't listen to him," or "She's been here for decades, she's not up on the latest news." It's complete nonsense.

With age comes experience and wisdom, and the ability to solve problems much faster than those who are just starting to climb the ladder. Consider the story of Picasso. One day he was sketching in the park, when he was approached by a young woman who asked him to sketch her portrait. In a single pencil stroke that took just a few seconds, he captured her likeness completely. When asked how much she owed him, he said $5,000. Taken aback, she asked how he dare ask so much for something that took only a few seconds, to which he replied, "Madame, it took me my entire life."

This is so true of the experience you bring to the table. You have spent decades learning how to do things, how not to do things, and how to cut to the chase. Time is valued by employers, and if you can prove that your skills can save them time and money, age is just a number.

4. If you take time off or retire, you'll never get rehired

Retirement is not forever. You may decide to retire, then realize that you still want to be part of the workforce. Don't think that a gap of a few years at the end of your resume is going to tarnish it. The break between one career and a new venture is actually going to be looked upon favorably by employers. They will see that you have taken time off to reboot, clear your head, relax, and figure out how you want to spend the next decade of your life.

So, feel free to take a break and recharge. Use the time to work out what you really want to do. Maybe retirement is just what you want. Maybe you want to try your hand at something completely different. When you start looking again, you will have options open to you.

5. Only part-time work is available for older workers

Once again, this is untrue in the present climate. In 1995, you could make a case for that argument. Back then, around 56 percent of the over-65 workforce was part time, with 44 percent being full-time. But by 2007, those figures had completely reversed, with 56 percent of the over-65 workforce now in full-time work, and just 44 percent doing part-time jobs.

So, what kind of jobs are available? Well, according to the Bureau of Labor Statistics, the majority of people over 55 are working in management positions, sales, and office jobs. Next comes the service industry, followed by production, transportation, construction, and maintenance. If the last two seem surprising, consider that we are living longer, and have made great advances in medical care. It's now possible for a 55+ man or woman to enter the construction and maintenance industries and enjoy great success, despite what they may believe about being too old for manual labor.

6. There are only certain jobs available to me

Greeter at a grocery store. Fast food server. Security guard at the mall. Delivering newspapers. Driving a cab or a school bus. The list goes on. These are the jobs many baby boomers think are in their future.

However, while those jobs are available for those who genuinely want them, your options are much broader, and exciting. One of the most popular options right now is retraining to become an interior designer. If you have the eye for it, you can make great money on a schedule that suits you. Other options include working on a cruise ship, planning weddings, public speaking, casino work, consulting, and seasonal opportunities at ski lodges and resorts. The world is your oyster, especially if you're open to doing some traveling and taking a few leaps.

Remember: As a baby boomer, you may have fewer years of your career in front of you than behind you, but that does not mean you have just a few paths to follow. With drive, enthusiasm, and the willingness to retrain, you can do almost anything you set your mind to.

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This article is from Paul Michael of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

4 Myths About Divorce and Money, Debunked

Dan Rafter — Tue, 11 Jul 2017 09:00:10 +0000

Divorce happens. And when it does, it's expensive. Divorce proceedings cost an average $10,000 to $15,000, according to GOBankingRates. (See also: How to Protect Yourself Financially During a Divorce or Separation)

Unfortunately, many who are divorcing hold certain financial misconceptions about the process. Some might believe that spouses who commit adultery will pay more in a divorce. Others might believe that they won't be responsible for the debt on their spouse's credit card accounts.

There are plenty of financial myths surrounding divorce. Here are four of the most important ones.

1. My spouse's adultery will help my case

You might think that you're entitled to more money in the divorce because your spouse was unfaithful. The truth is, adultery does not play a role in who gets more money or assets following a divorce.

That's because states today offer what is known as a no-fault divorce. As the name suggests, in this type of divorce proceeding, separating spouses do not have to prove that the other party did anything wrong to cause the breakup of the marriage.

Divorce isn't about punishing people for bad behavior; it's about finding a way to divide up money and assets between two people. Your spouse's infidelity does not mean you will automatically get the house or you will receive a greater amount of alimony.

There is an exception, though: If your spouse blew a significant amount of money to pursue the affair — renting a secret apartment, spending on lavish trips — your divorce judge might require them to pay more.

2. I didn't work during my marriage, so I'll get alimony payments for life

If you didn't work during your marriage, you will probably receive alimony payments. But these payments might not be as permanent as you might think.

Today, nonworking spouses usually receive their alimony payments, also known as spousal support, for a limited time. The goal is to provide the spouse with some financial support until that person can find a job or pay for an education. Don't expect an unending stream of financial support from your ex-spouse.

3. Money in my own bank account will be mine after the divorce

Don't think that just because you stashed money in a bank account in your name only that you won't lose some of these funds in your divorce.

Your former spouse might be entitled to some of the money in this account. Whether that's the case depends on a host of factors, including how that money was earned, whether you inherited it, or whether you live in a community property state.

That community property state part is important. There are nine of these states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Alaska is an opt-in community property state. In these states, all assets acquired during a marriage are considered community property and owned by both spouses equally. In a divorce, all assets are split 50/50.

In the rest of the states, assets in a divorce are to be divided equitably, but not always equally. So even if you've stowed money in a private bank account, your divorce judge might decide that you either owe your spouse half of that money or a portion of it, depending on the circumstances of your case.

4. I won't have to worry about the debt my spouse ran up on a credit card

This is a tricky one. Depending on where you live, you usually won't be responsible for the debts that your spouse ran up on a credit card that is in that spouse's name only.

But if you live one of the community property states, you will be responsible for half of that debt, even if the credit card account was never in your name. There is an exception, though: You are only responsible for 50 percent of the debt your spouse ran up during your marriage. Any debt your spouse ran up on the credit card before your marriage is not your responsibility.

If you don't live in a community property state, you are usually not responsible for the debt your spouse runs up on a credit card. However, there are some exceptions. If the debt your spouse ran up was to pay for your child's dental work, to repair your home's busted water heater, or to replace your residence's furnace — basically, to cover any essential family expense — you will then be responsible for half of that debt. (See also: Spouses and Debt: Who's Really on the Hook for Those Bills?)

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Stop Believing These 5 Home Refinance Myths

Dan Rafter — Fri, 07 Jul 2017 08:01:04 +0000

You might think, because of rising interest rates, that it no longer makes sense to refinance your home mortgage. Or maybe you are certain you don't have enough equity in your home. Perhaps you don't think you have enough available cash to afford a refinance, so what is the point of trying?

Here's the truth: Those are all refinancing myths.

Don't let these common falsehoods stop you from trying to refinance your existing mortgage into one with a lower interest rate or a shorter term. Refinancing can boost your financial health, either by lowering your monthly payment or reducing the amount of interest you'll pay during the life of your loan.

1. I don't have enough equity in my home

Traditionally, mortgage lenders have required that homeowners have at least 20 percent equity in their residences before refinancing. It might not be easy to hit that mark if your home has lost value since you purchased it.

But the 20 percent rule isn't quite as absolute as it once was. The federal government's Home Affordable Refinance Program, better known as HARP, allows homeowners to refinance even if they have no equity or negative equity in their homes. You will have to meet certain requirements, but if you are low on equity, HARP can help.

To participate in HARP, ask the lender that is handling your refinance. This lender will help you determine if you qualify for the program.

2. I can't afford it

No one disputes that refinancing is expensive. Lenders vary, but you can expect to pay about 1.5 percent of your loan's outstanding value in closing costs. If you are refinancing a loan with a balance of $200,000, you'll pay about $3,000 in fees.

Don't panic, though: Most lenders will allow you to roll these fees into the balance of your new loan. This means you won't have to pay them upfront when you close on your refinance. Instead, they'll be paid out over time, every time you make a monthly payment on your new mortgage.

Of course, if you can afford the costs of refinancing, you can also pay the closing fees upfront in one lump sum.

3. I was turned down before, so there's no reason to try again

Maybe you tried refinancing a year ago, but your lender rejected your application. This doesn't mean that you can't ever qualify. The reason for your rejection is key.

Did your lender reject your application because your credit score was too low? If you start a new history of paying all your bills on time and cutting down on credit card debt, your score might be high enough today to secure a "yes" from a lender. Maybe your lender rejected you because your monthly debt obligations were too high for your gross monthly income. If your income has risen or you've reduced your monthly debts, you might qualify if you try again. (See also: 5 Ways to Improve Your Credit Score Fast)

4. It's easier to refinance with your existing lender

You are free to refinance with any mortgage lender that is licensed to do business in your community. This means that you don't have to close your refinance with the lender to which you are already sending your monthly payments. You might think it's easier to work with your existing lender, but this isn't really true. You'll still have to send paperwork to your current lender verifying your job status, salary, and yearly income. This information, after all, might have changed since you first took out your mortgage. Your current lender will want to verify that your income is still high enough to afford your new monthly mortgage payments.

Also, it makes sense to get quotes from several lenders when refinancing. You might nab a lower interest rate or fees from a new lender.

5. Interest rates are too high to make refinancing worthwhile

Mortgage interest rates are still at historic lows, but they have risen in the last year. You might think that it no longer makes sense to refinance. That's not necessarily true.

It all depends on where your current interest rate stands. If the interest rate on your 30-year, fixed-rate loan is 5 percent and you can refinance to a new loan with a rate of 4 percent, you will save money each month. Sure, you would have saved even more had you refinanced earlier, when you might have nabbed an interest rate of 3.5 percent. But if you can still drop your rate by a full percentage point, you will still save a significant amount of money in a refinance.

There are also other reasons to refinance besides chopping your monthly payment. You might consider refinancing to a mortgage with a shorter term. By refinancing from, say, a 30-year, fixed-rate loan to a 15-year, fixed-rate loan, you can reduce the amount of interest you pay over the life of your loan by $100,000 or more, if you hold onto your loan for its entire term. Your monthly mortgage payment will go up because you are paying your loan back at a faster rate, but your interest rate, and the interest you pay in total, will fall.

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9 Bizarre Money Superstitions People Actually Believe

Emily Guy Birken — Tue, 16 May 2017 19:22:16 +0000

When I was about eight years old, my grandmother gave me a purse. Inside the purse was a dollar bill, which I tried to give back to her. I thought she had left it in there by mistake.

"No, no. That must stay in there," she told me. "You can't give a purse with no money in it, or else it will never have money in it. Money attracts money!"

That was my first introduction to the odd world of money superstitions. Grandma's belief that purses and wallets should always have at least a little money in them, especially if they are given as gifts, had been passed down to her from her Russian grandmother — although it is a superstition that can be found in many countries around the world. I have since met many people who follow this custom, including a small retail business owner who would place a penny in every wallet and purse she sold.

Money superstitions can run the gamut from the slightly lucrative to the silly to the downright bizarre, but they are always fun to hear. Here are nine common money superstitions that people take pretty seriously. (See also: Why Superstition Makes You Buy Insurance)

1. Itchy palms mean you are about to gain or lose money

According to the Palmistry and Hand Analysis website, an itchy right palm is a good thing, because it means you are about to receive money. Don't scratch that itch, or it will stop the money from coming into your life.

An itchy left palm, on the other hand (ha!), means you are about to lose money. To relieve the itch and protect your assets, you can rub your left palm on a piece of wood. This superstition is said to have originated from the Saxons — German tribes who settled in Great Britain during the Middle Ages. They believed you could cure diseased skin by rubbing silver on it.

2. Do not place your purse on the floor

This superstition is considered to be bad feng shui, because your purse is seen as a symbol for your wealth. Putting it on the floor is therefore a sign of great disrespect and disregard for your money.

Whether you believe that or not, there's a practical side to this credo. Placing your purse on the floor makes it easier for someone to snatch it or steal something from it.

3. If you have hairy arms, you're going to be rich

I first read this superstition in Adventures of Huckleberry Finn, when Jim tells Huck that hairy arms and a hairy chest are indicators of future wealth. But real estate mogul Barbara Corcoran also writes about this superstition in her book If You Don't Have Big Breasts, Put Ribbons On Your Pigtails. Her grandmother comforted her with this superstition when Corcoran was a teenage girl. Years later, she was delighted when the supposed link between her hirsute arms and her future as a wealthy woman came true.

4. Bird droppings bring great wealth

My father was completely bald for most of my life, and for some reason his shiny head seemed to be a magnet for bird droppings. As unpleasant as it was for him to have to clean digested bird seed off his head, someone would always be sure to tell him that getting pooped on by a bird was good luck.

In fact, getting graced by bird droppings is supposedly a sign that wealth is coming your way. In Dad's case, it certainly worked. He was a wealthy man when he passed away, which almost makes up for having birds play target practice with his head.

5. Place coins on a deceased loved one before laying them to rest

The more modern version of this superstition is to lay coins on the eyes of a deceased person before burial. There are two reasons for doing this. One has to do with the belief in many cultures that open eyes suggest that the deceased is fearful of the future because of misdeeds in life. The eyes are therefore forced shut quickly after death, and coins are placed on them before rigor mortis sets in.

Another reason comes from Greek mythology. In that case, the coins were intended to provide the dead soul with the money necessary to pay Charon, the boatman on the river Styx, for passage into the underworld.

Before placing coins on eyelids, however, many older societies would place a coin for Charon in a dead person's mouth.

6. A spider in your pocket will keep it full of cash

Spiders may be the leading cause of screaming and running away, but apparently some types of spiders can provide you with great wealth if you can force yourself to catch and pocket one. According to superstitions from Great Britain, Australia, Portugal, Trinidad and Tobago, when a money spider (one from the family of spiders called Linyphiidae) runs over clothes you're wearing, or if you catch such a spider and put it in your pocket, that pocket will never again be empty of money. Depending on how you feel about spiders, that may or may not seem like a good trade-off.

7. Say the word "money" when you see a shooting star

There are several different versions of this superstition, but they all say that you should utter the word "money" upon seeing a shooting star. Just as making a wish on a shooting star is said to grant that particular wish, saying the word "money" is said to bring you wealth. According to some versions, just saying the word once will be enough to bring more wealth into your life. Other versions claim you need to say "money" three times, or say "money" as many times as you can before the star fades away — because the more times you say it, the more money will flow into your life.

8. Only pick up pennies that are heads up

My friends and I grew up saying, "See a penny, pick it up, and all day long you'll have good luck." We learned this adage from the movie Grease, but it is apparently an old saying from England.

However, there are apparently more rules about picking up pennies than the one I grew up with. Pennies that are lying heads up are good luck, but pennies that are tails up will lead to bad luck and should be left undisturbed.

9. Don't whistle in your home

According to a Russian superstition, whistling while under a roof will cause you to whistle your money away. This is probably related to the Russian view that you should be pessimistic about future financial success, or else you will face bad luck for your hubris. Money is not a "carefree" issue to people who hold these superstitions, and whistling is one of the most happy-go-lucky activities you could engage in.

This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

5 Myths About Credit Cards That Won't Go Away

Damian Davila — Tue, 21 Mar 2017 10:31:11 +0000

The idea of evaluating a person's creditworthiness goes back as early as 1899, when Equifax (originally called Retail Credit Company) would keep a list of consumers and a series of factors to determine their likelihood to pay back debts. However, credit cards didn't make an appearance until the 1950s, and the FICO score as we know it today wasn't introduced until 1989.

Due to these timing differences, many U.S. consumers hold on to damaging myths about credit cards. Let's dispel five of these widely held but false beliefs and find out what to do to continue improving your credit score.

Myth #1: Closing unused cards is good for credit

Remember when United Colors of Benetton used to be all the rage and you shopped there all the time? Fast forward a decade; you don't shop there anymore, and you're thinking about shutting down that store credit card. Not so fast! Closing that old credit card may do more harm than good to your credit score.

Your length of credit history contributes 15 percent of your FICO score. If that credit card is your oldest card, then closing it would bring down the average age of your accounts and hurt your score. This is particularly true when there is a gap of several years between your oldest and second-to-oldest card. Another point to consider is that when you close a credit card, you're reducing your amount of available credit. This drops your credit utilization ratio, which makes up 30 percent of your FICO score.

What to do: Keep those old credit cards open, especially when they are the oldest ones that you have. Just make sure that you're keeping on top of any applicable annual fees and they're not tempting you to spend beyond your means.

Myth #2: Holding a credit card balance is good for credit

The amount you owe lenders accounts for 30 percent of your FICO score. The smaller your credit utilization ratio (the amount of debt you hold compared to your total available credit), the better your score. This means if you can avoid carrying a balance, you should do so. However, responsible use of a credit card allows you to buy big ticket items, such as a kitchen appliance or laptop, that you can't pay off all at once. So, sometimes you will have to carry a credit card balance. When you do, credit lenders recommend that you keep your credit utilization ratio below 30 percent -- the lower, the better. Keeping a low credit utilization ratio demonstrates that you're more likely to be able repay your debts, positively affecting your credit score.

What to do: Pay back your credit card balance in full every month as much as possible. When you're not able to do so, then seek to maintain a debt-to-credit ratio below 30 percent across all your credit card debts. (See also: How to Use Credit Cards to Improve Your Credit Score)

Myth #3: Paying the cellphone bill builds your score

Since some cellphone carriers may run a credit check to decide whether or not to approve you for financing, you may think that those cellphone carriers report your on-time payment history back to the credit bureaus. Payments to service companies, such as cellphone carriers, electricity providers, and natural gas providers, aren't reported back to the credit bureaus. (However, Experian does provide eligible renters the option to make their rent payments count toward their credit history.)

What to do: Don't sign up for a cellphone plan thinking you'll get a boost in your credit score. Do continue paying your cellphone bill (and all other bills!) regularly on-time. If your cellphone account were to be sent to collections, then the cellphone company would surely report that info to all credit bureaus.

Myth #4: Choosing a popular card will benefit you

A 2016 study of 20,206 credit card users by J.D. Power found that at least one in five credit card holders have a card which has fees or rewards not aligned with their actual purchase habits.

In the hunt for bigger and better rewards, 20 percent of credit card holders end up with a card that doesn't match their needs and would be better served by a different rewards card, or even one without any without rewards at all and a lower interest rate. Here's an example from the study: One of the reasons that 44 percent of airline co-branded card holders appear to have the wrong card is that those individuals aren't spending at least the necessary $500 per month to gain enough rewards to cover the average annual fee of $75. (See also: Cash Back vs Travel Rewards: Pick the Right Credit Card for You)

What to do: You don't just want to follow the crowd when choosing a credit card. Stack up your current credit card against others and figure whether or not it's time to find a new card more suitable to your lifestyle. Check out our guides on how cash back cards really work and choosing the best travel rewards credit card to find the card that fits your lifestyle.

Myth #5: Believing there's only one credit score

That free credit score on your credit card statement may not be the same one used by a lending officer reviewing your application for a mortgage or car loan. Did you know that there more than 50 different types of FICO scores? Lenders have several options to choose from depending on their industry and preferred credit reporting agency.

What to do: If you get a free credit score through your card, check with the card issuer whether or not that score is a FICO score and what type of FICO score it is. This will help you know whether or not you can do an apples-to-apples comparison with the one used by your lender. Also, inquire with your lender if they can give you a target range for your loan to be approved. (See also: FICO or FAKO: Are Free Credit Scores From Credit Cards the Real Thing?)

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This article is from Damian Davila of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

8 Common Myths About Starting a Small Business

Dr Penny Pincher — Thu, 02 Feb 2017 11:00:09 +0000

In the "dot com" era of the 1990s, I started a couple of technology companies and ended up running my own profitable small business for five years. Starting your own business and working for yourself sounds great — and it can be! But it seems like many people who dream of starting their own business don't understand some of the hard realities that go along with this undertaking. Don't buy into these myths about working for yourself.

1. You Have No Boss

A big reason some people want to start their own business is so they can be their own boss. But even if you own a business, you still have a "boss." Your customers, investors, and employees are now your boss. The bottom line is your boss, too. Instead of answering to one boss, you now need to answer to many.

2. You Can Work Fewer Hours

While you can set your own schedule as a business owner, you will likely end up working a lot of hours overall to get everything done. In my startup days, I knew entrepreneurs who worked 100 hours per week, including lots of late nights and weekends. Starting a business is generally not a way to gain more free time.

3. Your Minions Will Take Care of the Details

The reality is that most small business owners wear a lot of hats and handle matters big and small to keep the business going, including things no one else wants to do. As the owner, you will get to work on lofty tasks such as business planning and strategy, but you will likely also clean the bathroom at first.

4. If You Build a Better Mousetrap, the World Will Beat a Path to Your Door

A common entrepreneurial myth is that you can invent something great and then sit back and watch people buy it. The reality is that you need to produce the right product at the right time for the right price in the right market channel to be able to watch people buy it. Even if you have an awesome product idea, it takes enormous work and resources to produce your product and bring it to market.

5. You Have More Control Over Your Income

As a business owner, I seemed to have little or no control over my income. I worked hard all the time trying to bring in income and win new business. Sometimes there was a lot of income, but sometimes there was none, despite my best efforts. My income ultimately depended on fickle customer decisions and economic forces beyond my control. Income for small business owners can be quite volatile.

6. Investors Will Throw Money at a Great Idea

I was disappointed after my first few pitches to potential investors. I imagined that I could simply summarize the potential market size, present my brilliant product concept, and walk out of the meeting with a briefcase full of money. The reality is that it is hard to find investors willing to risk their money in a startup business venture — even if you have a great business concept.

7. Determination Can Overcome Any Obstacle

Determination is perhaps the most important attribute you need to start a business, but you also need the right opportunity. Some people throw everything they have into starting a business venture that has almost zero chance of success due to limited market size, faulty assumptions, or other flaws. Persistence can get you started, but a viable opportunity is necessary to build a prosperous business.

8. By Taking Big Risks, You Set Yourself Up for Big Rewards

Another popular myth is that entrepreneurs reach success by trading risk for reward. The reality is that most entrepreneurs trade hard work and a good plan for a modest reward. Successful entrepreneurs reduce and manage risk well in order to avoid quick business failure. Taking big risks should be a last resort, not the primary plan.

This article is from Dr Penny Pincher of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Stop Falling for These 6 Social Security Myths

Emily Guy Birken — Mon, 07 Nov 2016 10:30:29 +0000

Over 166 million taxpayers pay into Social Security, which pays benefits to over 65 million Americans. As with any program as large and sprawling as Social Security, myths about how it works can run rampant — and since the facts tend to require more than a sound bite to explain, those myths become entrenched in our collective consciousness as fact.

But not only are these Social Security myths untrue, believing them can cause you to make poor decisions about your Social Security benefits. Here are six of the most common and harmful myths about Social Security, debunked:

1. The Government Is Raiding the Social Security Trust Fund

You will often hear people complain about how untrustworthy our government is, and offer the fact that Congress "raids" the Social Security Trust Fund as proof. While it is true that the Trust Fund is where excess Social Security taxes are placed for future beneficiaries, and it is also true that the government uses money in this account to pay for government programs, it is simply not true that the fund is being "raided."

Here's what's going on. Money placed in the Social Security Trust Fund may sound like it is being put in a vault somewhere for the safekeeping of future beneficiaries. But that's not how money works. Not only would that be a security risk, but the money in such a vault would lose value to inflation. In order to maintain and increase the value of the trust fund, the money must be invested in government programs.

Think of it this way: Any time you invest money commercially — whether by putting it in an interest-bearing bank account or by buying stocks or bonds — you are probably aware that the institution is immediately spending the money you have invested. The private institution spends your investment with the understanding that it will earn profits and be able to pay you back, with interest.

The government is no different. It spends money invested in the Social Security Trust Fund on infrastructure, military spending, government salaries, welfare, and the like, knowing that those investments will earn interest. But unlike a private institution, this kind of government spending is backed by the full faith and credit of the U.S. government.

The government's spending of money from the Social Security Trust Fund is just as valid a use of invested money as is the lending and spending that a bank or corporation does with investors' money.

2. Social Security Is Going Bankrupt

This myth is based on a kernel of truth — specifically, Social Security benefit payments exceed payroll tax revenues and have done so since 2010. In order to maintain promised benefits, Social Security has had to dip into the Social Security Trust Fund. As of 2013, the Trust Fund began losing value, and it will become entirely depleted by 2037.

This is the point at which most analysis stops, and that is why you will often hear the myth that Social Security is circling the drain. But it is impossible for Social Security to go bankrupt, because it was always designed as an immediate transfer of funds from current workers to current beneficiaries. (When there were more workers than beneficiaries, excess taxes were placed in the Trust Fund. This was the case until 2009). The program does not count on a specific pool of money, but on the tax revenue of current workers.

That being said, once the Trust Fund is depleted, tax revenue is only expected to pay for approximately 79% of promised benefits. This is the shortfall you will hear experts referring to when discussing the future of Social Security. But it does not spell the end of the program. It is just a shortfall that we need to find a way to make up.

Social Security was created specifically so it could be changed and tweaked to meet the changing needs of Americans — changing needs like this anticipated shortfall. We might have little faith in Washington right now, but it is specifically the job of our government to make changes to Social Security to deal with this coming shortfall. Eventually, they'll get around to it.

3. It's the Baby Boomers' Fault We're in This Mess

There are plenty of articles out there that place the blame for Social Security's financial woes squarely at the feet of the baby boomer generation — the largest-ever generation of Americans, born between 1946 and 1964. There are 76 million baby boomers, and having that many people retire over a couple of decades places an enormous burden on Social Security. Since our system is based upon an immediate transfer from current workers to current retirees, having the boomers retire all at once puts too many retirees into the equation.

But the boomers' retirement is hardly a surprise. They've been around for six or seven decades now, and we have seen this mass boomer retirement phase coming for many years. According to Virginia P. Reno and Joni Lavery in the Social Security brief Can We Afford Social Security When Baby Boomers Retire?, "Policymakers began to plan as early as 1983, when Congress lowered the cost of Social Security benefits for boomers and later generations by raising the age at which unreduced retirement benefits will be paid."

Believe it or not, our government has been trying for quite some time to prepare for this moment. Part of the reason we had such a surplus in the Social Security Trust Fund was because of our preparation for the mass retirement of the boomer generation. We are far better prepared for the boomers than many doomsayers might have you believe.

4. Waiting for Benefits Means You Risk Not Getting Your Fair Share

It is possible to take Social Security benefits as early as age 62, although your benefits will be permanently reduced by up to 25% to 30 percent by taking them early. Wait until your full retirement age (66 for individuals born between 1943 and 1954, rising to age 67 for anyone born in 1960 or later), and you will receive your full benefits. If you can wait until age 70, you will receive delayed retirement credit equal to approximately 8% per year between your full retirement age and 70.

If you calculate the break-even analysis on your Social Security benefits, it often looks like you're better off by taking early benefits. Early, reduced benefits offer you more lifetime benefits for nearly 15 years into the break-even analysis.

The problem with this thinking is that the only way for you to "win" these calculations is to die young. It would actually be far worse for you to take early benefits and then live a long life on a reduced income. It is much smarter to delay your benefits as long as possible to provide yourself with the largest benefit you can get.

5. Immigrants Are Taking Social Security Benefits They Didn't Pay For

This myth is an election year favorite, and it conflates Social Security benefits with Supplemental Security Income (SSI) benefits. Social Security benefits are only available to beneficiaries who either paid into the system themselves, or who are the dependents of those who paid into the system. If you have not paid any Social Security payroll taxes (or you haven't been the dependent of someone who has), you are not getting Social Security benefits. Period.

SSI, on the other hand, is a welfare program designed to provide aid to the elderly and disabled, and SSI benefits are paid through general governmental revenues. Immigrants are eligible to collect SSI benefits, but only if they show the same level of extreme need as any other SSI beneficiary.

6. Privatizing Social Security Would Make the System Fairer

The possibility of privatizing Social Security is a common suggestion for fixing many of the problems inherent in such a large government program. These suggestions often promise that privatization will be cheaper for the government, more lucrative for beneficiaries, and fairer for everyone since you will get out what you put in.

Unfortunately, none of those three promises would be true. Social Security is a very efficiently run program, with administrative expenses totaling less than 1% of the program's budget. But creating and maintaining individual investment accounts would be incredibly expensive, since it would incur broker commission fees and/or mutual fund management fees, which would either come from the program budget or individual investors.

In addition, it is unlikely that the majority of beneficiaries would be able to improve upon their Social Security "return on investment" through investment accounts, since humans are notoriously irrational investors. Social Security benefits are guaranteed, while investment returns are not.

Finally, attempting to create pay-for-what-you-get fairness in a social insurance program like Social Security is a non-starter. The intention of Social Security is to provide guaranteed income to the elderly, the disabled, and their families, by spreading the cost of that income over all of society. Strict fairness in such a system would leave our most vulnerable citizens in abject poverty or worse. It's also important to note that the transition costs of privatizing Social Security have been estimated at nearly $5 trillion over the first two decades. Those costs would need to be paid by current workers, who would potentially be paying into their privatized accounts and still be paying taxes that go toward current beneficiaries — which would feel incredibly unfair.

This article is from Emily Guy Birken of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Flashback Friday: 38 Money Misconceptions We Need to Stop Believing

Chrissa Hardy — Fri, 28 Oct 2016 10:00:12 +0000

Making assumptions and spreading rumors leads to a universe packed with myths and lies. And while some might seem obviously untrue, a lot of people might still believe them! Let's do away with all that malarkey, shall we? It's time to seek the truth when it comes to cash. Here are 38 money misconceptions we need to stop believing.

4 Common Money Misconceptions About Women — It's 2016, and sadly, women are still commonly stereotyped as sheltered homemakers and impulse shoppers. And personally, I know plenty of men who love to shop and women who are the breadwinners of their families, so I'm sure that you do, too.

The 10 Biggest Myths About Investing — When you're an investing newbie, the whole process can seem scary. But just because you take a financial risk doesn't mean you'll lose all your money and end up with nothing. Just a little time and basic investment knowledge will ease all those concerns.

6 Money Misconceptions About Millennials — Millennials might seem like a generation too preoccupied with taking selfies to learn how to manage their money, but that assumption is completely wrong. Millennials are hustlers, social media mavens, and are ruling the gig economy. Do not underestimate them.

6 Harmful Money Beliefs That Are Keeping You Poor — Yep, your outdated money views could be holding you back from the financial freedom you seek. Credit card debt is not just "part of life," and you can find a way to save money earning any income. Stop settling for mediocre when your finances can be stellar.

6 Emergency Fund Myths You Should Stop Believing — Building an emergency fund seems impossible and unnecessary, especially for people living paycheck-to-paycheck… until it could save your life. That's why it's called an "emergency" fund. You hopefully won't need it for a while, but when you do, you'll be so grateful you worked so hard to build it.

6 Money Myths About Stay-At-Home Moms — Oh you think stay-at-home moms have it made in the shade? You assume they sleep in, just casually run errands, and hang on the couch all afternoon? You are way off. SAH moms of today are finding brilliant ways to multitask and make money while also raising the kids. They are handling more responsibility and taking on more work than most. Let's stop believing the myths and give them the proper respect they deserve.

This article is from Chrissa Hardy of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: