I know Halloween was last week, but let’s keep the fun alive with some financial horror stories. Didn’t you love horror stories as a kid? I liked them…until I tried to sleep. Then, more often then not, I spent the night staring at the ceiling, sure that at any minute some disconfigured arm would grab me from under the bed.
The bad news is that we all have friends who have real life financial horror stories. Their money problems make it difficult to sleep. Maybe you have those issues. There’s good news: many of these horrible stories we can fix simply by turning on the lights: if we know they’re out there, we can avoid them or find ways for them to vanish:
Horrible Story #1) There once was a man who paid an annual fee on his credit card! There’s no reason to pay annual fees for cards unless you’re a high-powered user. Too many cards are available with no fees that still give you a low interest rate and reward points. Only pay fees if you find a card which you are certain will be justified by the rewards that are unavailable from a non-fee card.
Tip: Use online comparison sites to determine which card best meets your needs without paying a fee.
Gruesome Story #2) I knew an old woman who was paying too much for car insurance! Sounds familiar, doesn’t it? Yet, the commercial which features this phrase is effective advertising because it’s true. Don’t check only one or two places. By shopping your car insurance every few years, there’s a good chance you’ll find a better rate. Why? Different insurance companies prefer drivers of different ages. While the company doesn’t change it’s policy, your age changes, and you go from the wheelhouse of one company to that of another.
Tip: Ask about multiple policy discounts. By having your homeowners and car insurance through the same company, you may qualify for a significant price reduction!
Creepy Story #3) There was an old, spooky looking house at the end of my street where some strange people lived. One day I found out that they’d gone and refinanced that house and paid all kinds of unnecessary fees at closing! If you own a home and haven’t refinanced yet, now might be the right time. Ask the mortgage representative for a line-by-line fee description and have them explain what each fee covers. Request your documents a day before the closing to review all the fees you’ll pay. Often, if you question whether you should pay a fee, the company will waive it.
Tip: If you don’t want to extend the life of your loan, ask if the bank has an option to “recast” your current mortgage. This allows you to take advantage of lower rates without committing to a new 30-year loan.
Horrifying Story #4) This guy went to file his tax return last year, and he found out that he couldn’t afford to pay his taxes! For those of us who are self employed, planning for tax time is a chore. But it’s an important one to get right: tax penalties are stiff if not paid on time. Set money aside for taxes from every check and file quarterly payments. By turning your tax bill into bite sized portions, you’ll avoid paying more than you have to and also avoid a huge tax bill in April.
Tip: For a quick calculation of how much you should set aside, look at the amount of total tax you owed last year. If your income is similar, you’ll want to place a similar amount aside this year. Ultimately, you should use either IRS guidelines or have a tax preparer figure out the exact amount to include in your quarterly payments.
Shocking Story #5) One time, in a city far away, there was a young girl who fell down while working and she broke her leg. She couldn’t act, couldn’t work her side job or bring home any income because she didn’t have any disability insurance! This might be the most horrible tale of all. Disability insurance is often overlooked because “it’s expensive” and “it’s not going to happen to me”. The reason disability insurance is expensive is because there’s a good chance it WILL happen to you. Your most important asset is your ability to earn an income. This should be one of the first things you protect.
Tip: Opt for as much coverage as possible through an employer if you can. Often, they’ll get better rates than an individual because they’re insuring multiple people.
The good news about these horror stories? They’re all fairly easy to fix. But beware! If you don’t address them, there could be some frightening tales in your personal future…