Upon retirement, the funds are released to the employee, where they can supplement social security or other types of retirement funds. Many people wisely choose to invest in a 401k from an early age, even their first jobs, so that they can ensure a comfortable future. Whenever you move from one employer to another, you have the opportunity to transfer the 401k or cash it out as long as you have met the employment length requirements to vest it.

Sometimes unforeseen circumstances occur that can cause financial hardship, such as a major medical condition. In these emergency situations, it may be worthwhile to attempt a loan against the 401k. Although many employers offer this option, it’s not always simple to do so and you should research your options thoroughly before taking the loan.

Can I Get a Loan from My 401k?

Employers are not required to provide loans from 401k accounts, and some companies may be unable to afford it. For the employers that do offer this, however, there are some clear guidelines in place about how the loan can be handled. State laws do not place any limitations on the purpose of a loan, but an employer can offer such restrictions. Most employers restrict loans to just a few purposes:

– Paying education expenses for yourself or your child
– Prevent eviction from your home, such as in the event of a foreclosure
– Pay for un-reimbursed medical expenses
– Buy a first time residence

Outside of these uses, many employers will not allow a loan to be taken from the 401k. Additionally, the loan must be paid back within five years, except in certain home-buying circumstances. Employees must have had no other loans taken out against the 401k for one year prior to application. Any loan that you take out from your 401k is paid back with interest to the account itself, so you lose less money in interest fees than you would with a bank loan; additionally, the loan is usually not reported back to the major credit bureaus.

Pros of Taking Out a Loan from a 401k:

– No credit checks or long applications
– Fairly low interest rates when compared to other loans
– You pay the interest back to yourself, rather than losing it to the bank
– The interest is tax sheltered
– You choose which of your investments you wish to borrow from

Cons of Taking Out a Loan from a 401k:

– Lost money on the interest you would have earned if you did not take out the loan
– You must either pay more out of each check or reduce your contribution to cover the loan
– Defaulting on the loan can be financially disastrous
– If you are terminated, quit or change employers, you must pay back the loan within 60 days or face an automatic loan default
– The loan payment terms are not flexible
– Loan interest is not tax deductible, even if you use it to purchase a home

How Much Can I Take Out for a 401k Loan?

Depending on your balance, you can take out either 50% of your vested plan or $50,000, whichever is less. Many employers also require a minimum loan of $1,000 and restrict the number of loans that can be taken out at any given time before they’re paid off.

The loan payments are usually taken out of your paycheck alongside your other 401k payments. The interest rate assessed to these payments is usually prime plus one percent, where “prime” is the interest rate listed in the Wall Street Journal. You may need your spouse to consent to the loan.

Loan payments are not taxed and they are not subject to the 10% early withdrawal penalty as long as they are paid back appropriately. If the loan goes into default, you will be charged taxes and the 10% withdrawal penalty. Also remember that your loan payments will be taken from your payroll check at the same time as your regular 401k payments, health insurance premiums and any other expenses that are removed from your check. Be sure that you have budgeted appropriately for the loan before taking it out.

Although a loan from your 401k may be a smart idea in some situations, it should be entered carefully. Because you must pay back the loan immediately if you end your employment, it’s a bad idea to take out a loan against your 401k if you do not have job security. If the company might restructure and lay you off, if you might be fired due to performance issues or if you plan to leave the company within the next five years, you should probably not take out the loan.

Additionally, bear in mind that the purpose of a 401k is planning for your future. Although retirement can seem very far away when you are young, you don’t want to use your retirement fund as a personal line of credit to finance frivolous purchases. Otherwise you may find yourself in a position of retiring without enough money to cover your basic needs.

If you are considering taking out a loan to cover a major purchase or emergency expenses, be sure to carefully weigh your options. By choosing the best financial service for your needs, you can save money and avoid dangerous and expensive issues like high interest rates or loan defaults.

In recent years, however, electronic funds transfers have all but supplanted checks. The electronic debit card acts as a multi-use check, and many people pay all of their bills with their card. Additionally, some companies allow individuals to set up automatic bank drafts that will remove funds from a bank account and deposit them directly into another account. This technology is fast, accurate and requires less paper than writing checks. It’s no surprise that checks are largely a thing of the past.

The Disappearing Check

When you visit a store, you may be confronted with a sign declaring “No checks allowed.” These are becoming a common sight at numerous establishments, from gas stations to restaurants. Additionally, many things that were once handled through check are now paid through electronic banking. Child support and unemployment checks come loaded onto prepaid debit cards or deposit directly into a person’s bank account. Utility bills draft payments directly from the customer’s account. Employers now pay by direct deposit rather than paper checks.

There are several reasons why checks have begun to disappear. The biggest reason has to do with cost. Printing and distributing checks is expensive, and people must buy checks in order to use them. While this doesn’t pose a big concern to the consumer, this can add up to a major expense for businesses.

Electronic checks are also more eco-friendly than paper ones. An electronic bank draft doesn’t generate as much waste as checks, since there is no paper check for the bank to dispose of. Additionally, electronic payments are more convenient for many people; they do not need to carry around a checkbook or worry about running out of checks.

Another reason that checks have lost favor is that more people are shopping online than ever before. Whether shopping from a major site like Amazon or eBay or buying from a private company online, people will either use Paypal or an electronic check directly from their bank account. It’s inconvenient and sometimes even impossible to buy online merchandise with a paper check.

Benefits of the Paper Check

Nevertheless, some people do still use paper checks, and writing checks does have a few benefits in certain situations. If you have the opportunity to get a few checks for free or at a reduced rate from the bank, it may be worthwhile to get some for special occasions. Here are a few situations where checks are still superior:

Rent Payments

Although most other bills can be paid through bank draft, many apartment complexes and landlords are unable to accept either cash or card. In order to make a rent payment, the renter must either pay with check or obtain a money order. Money orders usually cost less than $1 but they can be very inconvenient as they require the renter to withdraw the money in cash first before purchasing the money order. Depending on your housing situation, it may be worthwhile to keep checks on hand to pay rent.

Gifts

Checks are the ideal way to give money to someone as a gift, especially if you’re sending it long-distance. A check can be canceled if it gets lost or stolen, so it’s safer to deliver than cash. Checks are easier for the recipient to cash than money orders or wire transfers because they do not need to go anywhere special to obtain them; they can simply deposit them at the local bank or a nearby ATM.

Whether sending the check for a Christmas, birthday or graduation present, checks are still the ideal mode of delivery. If you don’t feel like buying checks just for gifts, you can purchase and pre-load a debit card instead. The gift recipient can use it immediately anywhere that a credit card is accepted.

Bills

Most people choose to pay their bills online, either one transaction at a time or through automatic bank withdrawals. other individuals, however, still prefer writing paper checks for bills. There are a few reasons why paper checks are superior for some bills. For example, it’s easy to put a stop-payment on a check if the payment is for the incorrect amount or there are other concerns; canceling an automatic bank draft is much more difficult.

Additionally, electronic bill pay may cause security problems for the insured. Although most companies have secure online bill pay, it’s not impossible for third-party hackers to obtain your account information online, and identity theft is a major concern for people who bank primarily through the Internet. Some people feel safer paying with paper checks for this reason. Some individuals may also be uncomfortable with companies saving their account information from one transaction to the next.

The Future of Paper Checking

Chances are that paper checks are on the way out. As technology continues to improve and more businesses move into entirely paperless banking, paper checks will become less and less common. Indeed, in a few years banks may move to purely digital forms of payment, and the plastic debit card may become outmoded as well.

In the meanwhile, always be prepared to have at least one kind of backup payment method whenever you go shopping. You never know when you may visit a store that doesn’t allow credit cards, paper checks or cash; having an alternate for of payment on hand ensures that you are able to shop at your convenience without worrying about running to the bank.

Debit vs Credit

A credit card provides an individual with a line of credit. The insured pays for purchases with the card, then pays off those purchases with interest later. As long as money is available to spend on the credit card, the cardholder has buying power even if they have not paid off their existing balance.

A debit card, on the other hand, is tied to an individual’s bank account. In order to make a purchase with a debit card, the buyer must have enough money in their account to cover the cost of the purchase. Debit cards are usually linked to credit card companies such as Visa or MasterCard despite not actually being credit cards.

For a consumer, debit cards and credit cards seem roughly equivalent. They are both plastic cards that contain a cash value and are swiped at the register. For a merchant, however, the cards are handled differently. Both types of card have transaction fees associated with them, but debit fees are usually charged as a flat rate while credit cards are charged as a percentage of the overall purchase.

Some retailers refuse to take any kind of card and can only accept cash or check payments. More commonly, a retailer will accept debit but not credit cards, or they may only accept certain types of credit cards. These retailers will usually have a sign in the door or near the register so that consumers are aware of the restrictions prior to making a purchase.

How Merchant Fees Work

Whenever a person swipes a card at a merchant’s shop, the card is processed and fees are assessed. For each transaction, the retailer only receives a portion of the item’s price. The credit card company, bank and the processing provider itself all receive a portion of the proceeds.

Credit card fees usually cost 1-3% of the total transaction. This means that for every $100 spent, as much as $3 goes to paying the bank and credit card company. This puts profits in the lender’s pockets even if the credit card is never paid off, and these profits are used toward maintaining rewards programs and other costs associated with offering the credit card.

Debit cards usually come with a flat fee, such as $0.50 per transaction. This is one reason why many retailers require a minimum purchase for a debit card; for example, most retailers will not swipe a card for anything under $1.

Why Some Companies Are Excluded

Rather than excluding all credit or debit cards, some retailers only exclude certain companies. For example, a company may only accept Visa but not American Express, Discover or MasterCard. They may choose to accept all types of debit cards but only one type of credit card, or they may choose to limit all cards offered by a specific company.

The reason why some retailers prefer certain companies over others is that they will have a “sweetheart deal” with that company. For example, Sam’s Club accepts Discover and MasterCard but not Visa. This is because MasterCard offers a discount on merchant fees and Discover is the provider for the Sam’s Club credit card. Because both companies have interests in Sam’s Club, the retailer accepts those cards but not others.

In many cases, the discount offered to the company may coincide with the points program. For example, a company may offer double points to shoppers who purchase items at certain types of shops. The company will then reduce the processing fees as an incentive for the consumer to shop there. This helps drive up purchases at those shops and is mutually beneficial to the merchant and the credit card company because it generates an overall increase in spending.

Most of the time, credit card companies will be more likely to offer these discounts to large or powerful merchants like national chains. Small businesses usually will not qualify for these discounts. In this case, a small business may choose which credit cards to reject based on the cost of fees. For example, American Express usually has higher transaction fees than Visa, making it a less popular choice among certain businesses.

A Careful Balancing Act

Merchants must carefully weigh the pros and cons of their payment options. On the one hand, offering a wide variety of payment options helps to lure in more customers and makes the business more customer-friendly. On the other hand, businesses that receive numerous small transactions each day may see a large number of their profits eaten up by credit card processing fees.

Some companies that may reject credit cards include snack stands, bakeries, comic book shops, used bookstores or candy stores. Any shop that routinely makes sales under $20 will greatly prefer to receive cash payments due to the expense of credit card processing fees. The cost of debit card fees becomes even more dramatic on low-cost merchandise; a $0.50 debit card fee on a $2 item can be crippling to the company’s profits.

Although shopping with a credit card is very convenient, it’s often a good idea to carry cash for your purchases instead, especially if you shop at small businesses. By shopping with cash you can ensure that the business you are supporting receives the full amount of your payment; you can also keep an eye on how much you’re spending and avoid unnecessary interest on purchases. Save the credit card for large purchases or those that will earn you rewards points, and spend cash on the rest.

Because of the importance of credit scores, it’s vital to know what your credit is and take steps to improve it. In order to maintain your credit, all people can request a free annual credit report from each of three major credit bureaus. This can help you review your accounts, see if there are any errors and determine what steps need to be taken to improve your score.

Credit scores differ from one credit bureau to the next. This occurs because each bureau calculates scores differently and the reports focus on slightly different things. Only by looking at all three reports can you get a complete and accurate idea of your credit score. Although the numbers will be different, the general trends should be the same from one credit bureau to the next; if your credit scores differ wildly, one or more of the bureaus may have incorrect information that needs to be corrected.

FICO Scores

A credit bureau score is often referred to as a FICO score, an acronym for Fair Isaac and Company, which is the software that lenders use to obtain and collate credit data. FICO scores go by other names depending on the company reporting the score; they may also be known as a BEACON score, Experian/Fair Isaac Risk Model or EMPIRIAC score.

Regardless of what it’s called, a credit score is always assessed in essentially the same way. A person’s current and past credit accounts are viewed for recent activity and a score is assigned depending on the ratio of outstanding credit balances to paid-in-full accounts. People without outstanding debts or over-limit accounts will have higher credit scores; people with numerous lines of credit carrying a high balance will have lower credit. The higher a person’s FICO score, the better their credit.

FICO scores are obtained and assimilated from each of three major credit bureaus with different scores:

Experian ranges from 280 to 850

A unique element of the Experian credit report is that it highlights when debts are due to fall off of the report. This means that there is more focus on current, active debts rather than on older credit that will soon become irrelevant to your credit. The report also highlights basic trends in credit balance and loan history over time.

TransUnion ranges from 300 to 850

This credit report focuses more thoroughly on employment history than the other reports, which means it may be more popular when employers review job applications. The credit report from TransUnion is divided into “satisfactory” and “unsatisfactory” accounts, with each account color-coded to show how up-to-date it may be.

Equifax ranges from 330 to 830

Of the three credit bureaus, Equifax offers the only reports that make it clear whether an account is open or closed. Other bureaus offer results alphabetically, but Equifax groups accounts by age. It also offers an 81-month credit history showing all active credit accounts.

The monetary score varies from company to the next. This means that the overall point value of any given account will vary. Therefore, if your credit score varies by a few points from one company to the next, it’s no cause for concern; this simply happens because the point values are different between credit bureaus.

What Other Factors Influence Credit Scores?

Not all credit companies will report to all three credit bureaus. Some companies only report debts to one or two of the major credit bureaus, not all three. Additionally, some companies may be slower in updating their information than others. Also bear in mind that your credit score is constantly changing and updating; your score and report may be much different today than it was when you received the credit report several months ago.

Additionally, your FICO score may not be the only credit score used to calculate your value to a lender, landlord or other individual. A lending agency may review your credit history and generate a score calculated on their own criteria rather than any individual score from a credit bureau.

Will My Differences in Score Affect My Ability to Get Credit?

Ultimately, your credit history itself is more important than the monetary score. If you review your credit reports annually for errors, you can be sure that the information reported to lenders and other interested parties is accurate and up-to-date. Based on this information, the lenders will be able to make an educated determination of how reliable you will be as a client without being too bogged down in the specifics of a credit score.

It’s a good idea to check your credit each year. You can obtain a free credit report by visiting AnnualCreditReport.com and requesting it. While there are other sites that offer free credit reports, they generally require you to purchase a service from them such as a credit monitoring program.

Aside from checking your credit report from errors, try not to obsess too much about the score itself. Instead, focus on paying off your accounts, consolidating your debts and working on improving your overall credit history. This will help pave the way to future financial health and ensures that you will never be denied the next time you apply for a loan, credit card or other line of credit.

1) Save money on an exclusive gym membership

Exclusive gym memberships in New York, LA and other high-rent cities can cost more than $1200/year. Even if you’re paying half that amount, you can do better! Here’s how to save on a gym membership:

• Play gyms against each other. Shop around for fitness club deals. When you find the best offer, contact the manager of your preferred club. Mention the competitor’s deal and ask if they’ll match it.
• Find fitness deals online. Groupon, LivingSocial and other websites offer deep discounts and other perks for members. Similar sites publish coupon codes for anyone’s use. These deals are often exceptional: You can get bargains like 50% off a gym membership or two weeks of free club access. Be alert though. These promotions often have very short lifespans.
• Network with friends and family. Most gyms offer incentives for people who refer new members. You might finagle a free membership extension by convincing your cousin or co-worker to join your gym. Or, working the other way around, you could get a new member discount by namedropping at your friend’s club. That’s the case at Bally Total Fitness.
• Pay up front. If you can afford it, offer to pay for a full year up front if the club will give a meaningful discount. For example, you might be able to waive the sign-up fee. What is a sign-up fee anyway? You can be sure that the receptionist who records your personal data isn’t doing $150 worth of work! Give the gym one less thing to worry about (i.e., a payment default) and you should be rewarded. One place this definitely works is 24 Hour Fitness: Costco shoppers can essentially buy 24 Hour Fitness workouts in bulk and save about 66%.

2) Build a home gym

If you’re serious about keeping toned and fit, it might be time to create your own personal gym. A durable fitness machine will pay for itself by eliminating the cost of many annual gym memberships. To get a gym-quality workout though, don’t choose a cheap machine. Your body will know the difference! Here are some ways to save on a high-quality home gym:

• Buy a multipurpose fitness machine. A home gym doesn’t need to be crowded. Just one cardio trainer plus free weights can be ideal. For example, the adjustable Bowflex Treadclimber is a two-in-one value: It offers the lower-body training of both a treadmill and an elliptical machine to stimulate more muscle fibers. Besides that, its incline supports up to 4X the calorie burn of traditional treadmills. Combine the Treadclimber with freeweights and you’ll get incredibly efficient full-body workouts. Or, forego freeweights entirely and get an elliptical trainer with upper-body resistance. Elliptical trainers might soon eclipse treadmills as the most popular home fitness machines.
• Consider a reconditioned fitness machine. What happens to used commercial treadmills and elliptical trainers? They’re reconditioned and sold as like-new models. You can save thousands on truly gym-quality equipment.
• Shop online. Once you’ve determined what fitness equipment you want, shop online. You should never pay the advertised MSRP for a treadmill or elliptical machine, and online retailers have less overhead. Shop at Amazon or wait for a sale directly from SmoothFitness.com or another brand’s website. These sales are frequent.

3) Opt for a not-so-exclusive gym

Exclusive gyms’ high fees usually reflect costs for certain workout facilities and classes that you’ll never use. Choose a fitness center with fewer frills and you could save hundreds of dollars annually. Here are some possibilities:

• Join your local community center. YMCAs, Jewish community centers and similar non-profit community organizations offer inexpensive fitness club memberships and typically have well-maintained facilities. Besides getting a lower price, you might get the bonus of a less pretentiousness environment.
• Get an alumni pass if you attended college locally. You could get cheap or free access to your alma mater’s workout room, pool, track and more.
• Use local hotel fitness rooms. Hotels tend to have high-quality fitness equipment that’s only lightly used. Many hotels let neighbors use the fitness facilities for a nominal daily or weekly fee.

A Recap of How to Save on Fitness

In sum, you have alternatives to paying high membership fees at a frou-frou gym. If you crave all the fancy amenities, then snag a discount. If you can mingle with the masses, join a community center. And finally, to save money in the long term, eschew membership fees altogether and establish your own personal gym. A home gym is always open and you’re always the VIP.

The purpose of food stamps is to provide people with the means to provide nutritious meals to their families even in times of economic need. Food stamp usage peaked in 2011, with a record 45,753,078 people receiving SNAP benefits. This figure, the highest in history, is indicative of the suffering economy and the large number of families facing unemployment or hardship. It’s also indicative of an overall increase in population over other lean times in the nation’s history.

Who Qualifies for Food Stamps?

In order to receive SNAP benefits, an individual must apply and meet certain criteria. Benefits are somewhat skewed in favor of the elderly, disabled and families; it’s more difficult for a single adult or two childless adults to receive benefits. Individuals do not need to be U.S. citizens in order to receive assistance, but they will need immigration documents in order to fill out the application for themselves.

A single person must make less than $1,180 per month in order to qualify for food stamps; a family of four must make below $2,422. Certain adjustments and allowances are made to the income in order to account for other costs of living. For example, property taxes, utility bills and housing costs can all be used to adjust the income requirements.

Eligible applicants will receive benefits depending on their income. The program has maximum allotments, such as $200 for a single person; a person will receive the difference between 30% of their income and the maximum allotment. The eligibility guidelines are detailed on the SNAP website, where potential recipients can calculate their ability to receive assistance.

Roughly 15% of Americans are currently on food stamps. One reason for a major rise in food stamp usage over the past few years is that SNAP benefits are distributed to victims of natural disasters as well as those who are unemployed or working below the poverty line. That decision, made in 2005, helped to provide food to families displaced after Hurricane Katrina. SNAP benefits continue to be given out this way under the Obama administration to help families in disaster-torn areas.

What Can be Purchased with Food Stamps?

The funds can be spent on food items only, although an EBT card may also carry a balance from another program, such as cash assistance benefits, that would pay for non-food items like toilet paper or shampoo. If this is the case, the card will carry separate balances and apply purchases differently. In addition to groceries, SNAP funds can be used by recipients to buy plants or seeds to grow their own food.

SNAP funds can only be used at stores that accept them. Most grocery stores and convenience stores do accept food stamps, but places like restaurants will not except under very specific circumstances. For example, a restaurant may be able to accept food stamps from a homeless person in exchange for a reduced-cost meal, but this is not the norm.

People cannot buy prepared food from the deli, for example, with food stamps. This includes fried chicken, burritos or any other hot food that is meant to be consumed in the store or shortly after leaving the store. This may also include certain prepared items from the bakery or produce aisle. A few other things are also not allowed to be purchased with food stamps:

– Pet food
– Vitamins and supplements
– Medicine
– Alcohol
– Cigarettes
– Live animals

There has been some discussion in Congress about disallowing certain types of foods, such as candy, soda, cake, chips or other junk food from being purchased with SNAP benefits. Ultimately, this motion has always been disregarded as the process of determining what foods are luxury items is too time-consuming and costly to be worthwhile.

The Food Stamp Controversy

In 2011, the U.S. spent $78 billion on SNAP. While this number is staggering, it’s difficult to cut money from welfare programs during periods of economic downturn. Many people rely on SNAP benefits to continue to feed their families; without these programs, many families would go hungry or place strain on other programs, such as soup kitchens.

Recently, Newt Gingrich levied an attack against Obama about the dramatic rise of food stamps in the country and citing it as an indicator of Obama’s failed financial policies. To be sure, it is alarming to see that so many low-income families struggle to obtain proper nutrition, but the numbers are somewhat skewed due to the way food stamps are administered.

For example, a massive rise in food stamps between April and May in 2011 was due almost exclusively to a single state, Alabama. In one month, Alabama food stamp usage jumped from 868,000 people to 1.76 million. This could easily be explained by the massive tornadoes that tore through the state in that month, leading to devastation for millions of people. In previous years, when food stamps were not administered to all disaster victims, this storm would not have had the same effect.

An additional benefit to food stamps that is not often discussed is its ability to promote spending among recipients. By receiving money coded specifically for food, SNAP recipients are more likely to spend to the maximum amount of SNAP benefits at the grocery store, leading to a higher level of consumption than they may have otherwise had. They may also have somewhat more of their own money available to pay off debts rather than spending all of their income on the necessities of life.

Waiters and waitresses, for example, earn an hourly wage that’s often substantially lower than minimum wage; they are expected to make up the difference or earn more money through tips alone. This leads a server to having an extremely variable income; on a good night, a waitress may bring in several hundred dollars in tips. On a bad night, she may hardly break even with minimum wage. Servers also share their tip money with others in the business. For example, in a restaurant a waitress may need to share her tip with the bus boy, bartender, seating hostess or other individuals.

America is fairly unique in its tipping habits. In Europe, for example, the gratuity is added on to the cost of menu items; for every item sold, the server automatically receives a percentage of the bill. In these areas, tipping is a rare occurrence that happens only for exceptional service, and tips are usually very small.

Complicating matters further, restaurant wait staff are not the only people who require tips. Manicurists, hairdressers, barbers, tattoo artists, taxi cab drivers and other professionals all rely on tips as well. On the other hand, certain people are not allowed to receive tips for their services. Some grocery stores or retailers forbid employees from receiving tips for carrying bags to the car, for example, and many customer service jobs do not allow employees to take tips either.

Why Do We Tip?

There are several reasons why people tip beyond the obvious rewards for good service. In fact, service plays a rather small role in determining the amount of a tip. People are much more likely to base the amount of a tip on other factors, such as their mood at the time of service, how much money they have to spend and how guilty they might feel about being served. In some cases, people who perceive themselves as being better off financially than their servers will tip highly to compensate. Other people leave large tips as a way to impress their friends, date or coworkers on an evening out.

Sometimes people even inadvertently shortchange their servers. The accepted gratuity has increased in recent years, due in part to the reliance that servers have on tips. A generation ago, it was more common for servers to be paid a living wage; tips were lower at the time for this reason. Now, older people may be prone to under-tipping due to not realizing that the rules have changed.

People also give inappropriate tips due to mathematical limitations. Tip calculators on cellphones work to alleviate some of this, but many people simply become nervous when trying to add percentages to a bill. Some will merely round the bill up to the nearest value of five, which can result in an overpayment on a small bill or a gross underpayment on a large one.

How Much of a Tip is Appropriate?

For most situations, a 15 percent tip for adequate service is a good baseline. The 15 percent tip can apply to wait staff, taxi drivers, hairdressers, tattoo artists, delivery people and nearly any other professional who offers you service.

The calculation for a 15 percent tip is actually very easy. Simply take the bill and move one decimal point to the left. This will give you 10 percent. Half of that figure will give you the other 5 percent. Add these together and add them to the bill. For example, a $20 bill would require a tip of $3. You can round the cents up or down in order to work with whole numbers, which will make the math easier.

For excellent service, you can tip up to 25 or 30 percent. For very poor service, tip no lower than 10 percent unless the server was actually actively rude or hostile to you. In many cases, poor service is not entirely the fault of your waiter. Your waiter does not control the quality of your food or how long it takes to come out. Your waiter also does not control the behavior of the children sitting next to you, the prices on the menu or the fact that the restaurant no longer offers your favorite entree.

Instead of taking out your frustration on the server, take up the issues with someone who can do something about it. Wait staff would greatly prefer for a person to send food back to the kitchen than stay quiet and leave money off the tip for something that could otherwise be fixed. In many cases, you will have the sub-quality food removed from the bill and the cook, not the waiter, will be reprimanded for the mistake.

A few other situations require special consideration:

– If you go to a spa, barber shop or hair salon, it’s usually only appropriate to tip if the service professional is not the owner of the establishment. If she is the owner, you can assume that she’s paying herself a reasonable wage. It’s still fine to tip if her service is excellent, however.

– The tip jars at coffee shops and fast food places are optional and are often used to make up small change when a person is a few cents short on an order. You only need to place a tip here if you want to, but extra change is always appreciated.

– During inclement weather, tip delivery people somewhat more than you normally would; a delivery person’s job becomes especially dangerous when it’s storming outside.

– If you get a tattoo and it takes less than the estimated completion time, go ahead and pay the difference in addition to the 15 percent tip. If the artist did an excellent job, feel free to tip even more; the art will be on your body forever, after all.

Tipping can be a little daunting, but by sticking to the 15 percent rule, you can usually avoid any major social faux pas in any situation and ensure that the service worker is properly compensated for his or her job.

Low-Income Families and Debt

For people who don’t have very much money, all spending can quickly become an emergency. These people live from one paycheck to the next without much in the way of savings. They also usually put off expenses until they become emergencies; for example, a person may not be able to afford routine car maintenance, so they will end up needing to pay for car repairs instead. This type of hand-to-mouth lifestyle is neither sustainable nor secure, but many people maintain it for several years while working low-income jobs.

These low-income people may find an allure in credit cards or other forms of credit because they provide instant and apparently free money. Because the debt is paid off in small increments each month rather than a single large payment, it seems more affordable. The fact that the purchase actually ends up costing substantially more than it would have it purchased in cash is irrelevant because the person buying it would never have that much cash on hand.

For example, a person may need to buy a new bed. Mattresses can cost anywhere from a few hundred to several thousand dollars. The buyer calculates that after all of the necessary expenses such as food, rent and utilities are paid, there will be $50 left in the bank. After some shopping, the buyer realizes that the cheapest bed they can find is $300, but there is a financing plan available for $50 a month for eight months. Of course, this ends up costing the consumer more than if they had paid in cash, but because they need the bed right now, not in six months when they could save up the money to make it, they opt to spend the extra money and finance the purchase.

Middle-Class Debt

People in middle class households often suffer from debt as well. This occurs because they still live a lifestyle similar to the low-income individuals despite the much higher income. This may happen if a person is accustomed to having very little money and doesn’t know how to handle higher sums; it may also happen if an individual was never taught money management skills in their life.

Most of the time, when people’s income improves they opt to increase their standard of living whether or not they can really afford it. It’s easy to slip into a mentality of, “I can afford nice things, so I must have nice things” that far exceeds a person’s actual income. This sometimes happens when a person tries to impress friends or neighbors or “keep up with the Joneses,” but it happens just as often due to a lack of forethought.

For example, a person may get a raise at work that enables them to have an extra $500 every month. This person decides that it’s time to buy a new car, since their current car has many miles on it and is beginning to wear down. Rather than saving up for a few months and purchasing a used vehicle in cash, the person decides to trade in the old car for a brand new model from the dealership. The monthly car payment is $450, which the individual rationalizes should be easy to pay due to the raise. Despite the fact that the person makes more money, their actual disposable income remains almost exactly the same due to the weight of debt.

Money Management is a Learned Skill

People who suffer from debt feel that they can never catch up with their finances. Because they are always paying off previous expenses, they can never save or invest their money. In order to avoid this problem, they must either find a way to make more money or spend less each month. This can result in an extremely tight budget for some people, but it’s a necessity. Otherwise, they will never be able to overcome debt.

Making more money is not always the answer. Increasing your earning power is only worthwhile if you are able to manage the money that you make to increase your actual wealth, not just provide a way to accrue more debt. Money management is a skill that must be learned and practiced, and it’s not always fun at first.

In order to save money, a person must cut his or her budget. The only way to free up money for savings or investments is to take it away from spending. This usually means reducing the cost spent on luxury items, vacations, restaurant meals and entertainment. Sometimes it also means slashing grocery bills, selling debt-generating cars and riding a bike to work to save on gas. Every extra cent should be spent on paying down debt. Once the debt has been paid, you can begin to put money into savings and earn an independent financial future.

There are both private loans and federally sponsored loans. There are a number of differences between the two, including interest rates and how lenient they are if you are unable to pay. Loans sponsored by the government tend to offer more options if you are having financial difficulty.

What does it mean to default?

When you default on a student loan, it means that you have not paid your monthly payments as you agreed upon. Your loan is considered to be in default after there has been 270 days or more of nonpayment.

Don’t worry if you are unsure whether your loan is close to being in default. Your lender takes steps to inform you when you are delinquent with your account. Often this is in the form of a series of letters. Do not ignore any notice you receive from your lender, as defaulting on your loan has serious consequences.

What are the consequences if I default on my student loan?

There are a number of consequences that will happen if you default on your student loan. One is that you are no longer eligible for future federal student loans. If you plan to continue with school, you will not get any help from the government and you will have to pay for it yourself.

When you are experiencing times of financial difficulty, most federal aid programs and some private programs have options to take a temporary break from payments or to restructure your repayment plan. If you default on your loan, you are not eligible for payment relief or any possible loan forgiveness.

Another consequence to defaulting on a student loan is that it will affect your credit. All of the major credit bureaus receive your default report and you will notice a severe decrease in your credit score. This will affect many things, including being able to buy a house or a car, your insurance rates, and even being approved for a credit card.

Additionally, the government can come after you for its money. Once your account is in default, your loan balance is due in full. There may be other penalty amounts added to your loan as well, sometimes reaching as high as $50,000.

To get its money, the government may do a number of things. If you work, your wages can be garnished. The amount of money taken out can be as much as 15% of your total disposable pay. This can be done either with or without a court order. If you are due for a tax refund or receive disability or social security checks, these are also fair game for the government to take.

Finally, the government can sue you for the amount of the loan. Unlike certain situations, there is no time limit as to when you can be sued, so you can be taken to court even decades later.

Are there other alternatives to defaulting?

If you are experiencing hard financial times and are having difficulty paying your student loan payments, you usually have options. If you have already started receiving letters from your lender in regards to nonpayment, you need to take action immediately.

Call your lender and explain that you are going through a tough time. Make sure you explain everything in detail. Inform them that you are committed to paying your loan and ask them if there are any alternate repayment options available for you.

Federal loans offer a variety of options if you contact them as soon as you know you are going to have trouble paying. Depending on the types of loans you have, you may be eligible for a deferment. There is usually a three-year limit that you can take a deferment but with the right loan, the government will not charge you interest during that time.

Another option you may have is forbearance. With forbearance, your payments are temporarily suspended but your balance will still build interest that you will ultimately be responsible for.

You may also be eligible for an Income Based Repayment Program, also known as IBR. Although IBR is not available for private loans, it is available for certain federal loans. An IBR must be reapplied for every year and it is usually offered for those who have a repayment plan of ten years.

With the program, your monthly payments are based off your income and you will never pay more than 15% of it towards your loan. Speak with your lender to find out more and to see if you are eligible for IBR.

Because of the serious consequences, you should do whatever you can to avoid defaulting on your student loan. Be proactive and get in contact with your lender before you get into serious financial trouble so that you can work out a new repayment plan.

If you can contribute the same amount to each type of IRA, what drives the decision to choose one or the other?

Both types of IRAs are beneficial for certain people and you must examine the differences in order to choose which IRA is right for you.

One major difference between a traditional and a Roth IRA is the treatment by the IRS of contributions when you file your tax return. Contributions to a Roth IRA are never tax-deductible, but contributions to a traditional IRA may be if you meet certain requirements. The test for tax-deductibility is somewhat complicated: first, you must determine if you are member of an employer’s sponsored plan that contributes to your IRA. If either you or your spouse is a participating member of such a plan, your filing status and income determine how much you can deduct for your contributions. If neither you nor your spouse is a participating member of an employer-sponsored plan, you may deduct your full contributions up to the limit for the year.

Age Limit Contributions

Another difference between the two types of IRAs is age limits for contributions. Under a traditional IRA, contributions to your plan must stop after age 70½. A Roth IRA does not have this age limitation making a Roth IRA a better choice for many who begin to contribute to an IRA at a later age and plan to work past age 70.

Income Level Requirements

Your income is also a determining factor as to which IRA is appropriate for you. If you make more than the statutorily-allowed amount in income each year, you are precluded from contributing to a Roth IRA. Currently, the income limit for an individual is $122,000. Certain income levels may also have contribution limitations with a Roth IRA. For those with incomes between $107,000 and $122,000, there is a formula used to “phase out” the contribution limit requirements. There is no income limitation for contributing to a traditional IRA.

The Required Minimum Distribution Rule

A limitation of traditional IRAs is the Required Minimum Distribution rule, or RMD. RMDs for traditional IRAs must begin by age 70½, or the individual account holder faces stiff penalties. The IRS assesses a whopping fifty percent penalty of the RMD amount for any RMDs that are not made in a timely manner. It is very important, if you have a traditional IRA, to understand and abide by the rules of RMDs. Roth IRAs, on the other hand, do not have RMD requirements.

What is the biggest difference between a Roth IRA and a Traditional IRA?

The biggest difference between traditional and Roth IRAs has to do with the tax treatment of distributions from the fund. With traditional IRAs, most withdrawals are treated as regular income and taxed accordingly. With Roth IRAs, the taxation of distributions is not quite so simple. Some Roth IRA withdrawals may not be subject to any income tax, giving the contributor the benefit of tax-free deposits and tax-free withdrawals. However, in order to avoid tax on the withdrawals, the distributions must be made at least five years after the Roth IRA is started, and you must be 59½, disabled, or the distribution is to your beneficiary as a result of your death. You may, however, make a one-time tax-free withdrawal of up to $10,000 for the use of purchasing a first home.

Can I split my contributions between accounts?

Individuals who are eligible for contributions to a Roth IRA can choose to split their contributions between two different IRA accounts, one a Roth and one a traditional. While total contributions cannot exceed the limit for the year, you may be able to balance the benefits of both types of IRA accounts by splitting your contributions. However, you should also consider that additional maintenance fees may be required for having two accounts, and depending on how high these fees are, it is possible that they could counterbalance the tax benefits you gain from splitting your IRAs.

You should seek professional financial advice before setting up any type of IRA. If your employer offers IRA options, be sure to talk to your human resources director or an independent financial counselor before you sign up for this program.