It’s been nearly two years since the U.S. Department of the Treasury and the Internal Revenue Service (IRS) ruled that same-sex couples legally married in states that recognize their marriages, should be treated as married for federal tax purposes. Subsequently, the ruling applies regardless of whether the couple lives in a state that recognizes same-sex marriage or a state that does not.
While the ruling was a positive move toward tax equality for all married couples, regardless of sexual orientation, until all states recognize same-sex marriage, same-sex couples need to be aware of the gaps and complexities that still exist in our tax and benefits code. Below are five potential tax issues you may experience as a same-sex married couple. Read more at mint.com…
Rebecca Wiggins is the Executive Director of AFCPE and holds a Masters of Family Financial Planning from Kansas State University. Search for an AFCPE Certified Professional in your area by using the association’s search tool.
Recently in a personal finance class, some of the students asked me how much they should be spending in the different budget categories, such as housing, groceries, and so on. I’ve always seen these categories as somewhat flexible, with the amount you spend on one thing versus another being entirely personal and dependent on your priorities, income, family make-up and so on. However, in the second session of the class the question came up again, and I realized that I needed to address it more specifically.
So I went to find some information and came up with two very interesting articles on how much we should spend, and how much we do spend in the United States, across various budget categories. Here are the results of those two articles.
In his column called “The New Frugal You,” Gary Foreman suggests the following breakdown for expenses []. He gives percentage amounts based on after-tax income and then converts the percentages into dollars, for the example of someone earning $25,800 per year after tax.
Foreman does not specify what is included in each category (for example, is car insurance included in “auto” or “insurance”?), beyond mentioning that utilities are included in housing.
The next study was compiled by Trent Hamm [] and relays a 2009 chart from VisualEconomics.com. There is more recent data available, but none of them is presented quite this beautifully.
Based on Department of Labor data, the chart shows “U.S. Consumer Unit Expenditures” in dollars and in percentages. The average “U.S. consumer unit” turns out to be a household of 2.5 people with an average age of 48.8. The “unit” includes 1.3 earners, earning a total of $63,091 before taxes, with average annual expenditures of $49,638.
The graphic is beautiful, but a little hard to see so here is the breakdown in a table.
In this survey, the Bureau of Labor Statistics (BLS) records the full cost of each purchase made during the record-keeping period, even if full payment was not made at the date of purchase []. “Cash contributions” refers to money given to people or organizations outside the household, including donations, child support and alimony, and care of students away from home.
Insights into Spending & Saving
Clearly Foreman’s categories shown in Budget 1 (or any definition of how much we “should” spend) are only a rough guideline. Especially in the savings category, I would allocate much more than the 5% that he suggests. In addition to retirement savings, younger people will need to be setting aside money for a possible house or car purchase in the future. Older people will need savings for maintenance of the house they have acquired. There are also savings for special events such as travel or weddings, or college savings for the youngsters. It is notable that Foreman allocated more to entertainment than to savings!
However, our actual savings are even lower. In the BLS data, savings are only referenced as “pensions, social security”, at a relatively high 10.1%. But since 7.5% or more of that would be for Social Security, that only leaves approximately 2.6% going into pensions and personal savings.
In the major categories – housing, food, and transportation – the percentages are roughly similar for the suggested and actual budgets. Foreman suggests 32% for housing, and 15% each for food and transportation. Actual average spending is 34% for housing, 12.4% for food, and 17.6% for transportation.
I agree with Foreman that a spending plan – any spending plan – is always a good idea. It allows us to see realistically how far our finances can go, to set goals, and then to keep track of whether we are on target. There is no better way to avoid debt or to create a joint plan for couples that will get both partners pulling in the same direction.
In my class, the people who wanted these numbers were all new to tracking their finances, and all felt better with some kind of guidance to help them get started. What I have found is that people are often uncomfortable with things that are loosely defined, such as forward-looking projections or, in this case, unspecified categories. In this case, providing the numbers as a place-holder to get the discussion started was helpful. Once they had that, they could get unstuck, and move on to the discussion of what each number should be for their personal situation.
 Gary Foreman, “A Generic Budget: Guidelines for Spending Categories”, http://www.creditcards.com/credit-card-news/gary-foreman-guidelines-budget-spending-categories-generic-plan-1580.php , 6 September 2012.
 Trent Hamm, “How the Average American Family Spends Their Income – and How to Trim It”, http://www.thesimpledollar.com/how-the-average-american-family-spends-their-income-and-how-to-trim-it/, 27 August 2014.
What have you found to be helpful when supporting students or clients in creating their first budget?
If you are starting to create your own budget, what would help you get started?
Guest Contributor: Linda Matthew, MoneyMindful Personal Finance Coaching, www.moneymindful.org
As financial counselors, coaches and educators, it is important to recognize and understand various systems of saving and investing that culturally diverse populations and the underbanked might use. The use of money pools might not be the first choice that a financial professional might recommend to a client, but if a client is already using this system as a means of saving and investing, the financial professional can try to understand why the client prefers this method over traditional banking.
What is a Money Pool?
In some Latin American circles, it is called “tanda” or “cundina,” which means “taking a turn” or “doing a circle.” A mainstream term is the Money Pool, but the Latin American communities are not the only groups that use this system of investing and saving money. This type of payment system is also used by individuals in various ethnic communities including Chinese, Korean, West African, and Jamaicans (Gaynor, 2009). The practice can be seen in ethnic communities from Madagascar, Taiwan, Peru, Mexico, and Pakistan (Haden, 2013).
Regardless of the various names it can go by, immigrant and ethnically diverse groups of individuals often see it as a reliable means of saving and investing their money to meet needs. A Cronkite News article interviewed a man who described money pools as “a loan for the people who have the first few turns, and…a savings account for those who have the final turns. “It’s a very nice idea, as long as the group is made of trustworthy people.
How A Money Pool Works
According to Investopedia, the term money pool means “the funds from many individual investor that are aggregated for the purposes of investment, as in the case of a mutual or pension fund.” The concept of this smaller money pool is that there is a regular collection of a designated amount of money by a group of people that goes into a common fund. The members of the group take turns receiving the lump sum. The most common example of a typical money pool would involve about 10 individuals that all contribute $100 into the pool per month and take turns collecting the $1000 investment each, over a 10 month period of time (Haden, 2013; PopTech, 2014; Gaynor, 2009).
Typically the organizer of the money pool is the first to receive the first pool payment and the least-known individuals get the last payments because the system is built on social relationships and trust/confidence in those participating (Haden, 2014). There are certain groups of people that purposely select to get the money in later phases because they use the system as a means of saving, as the model has a built-in discipline to saving. This investing system utilizes social/peer pressure for conformity to the rule of the system and provides an incentive to be faithful with payments because failure to do so can result in injury to all investors and public exile from the community as a whole (Haden, 2013).
Who Uses Money Pools?
Individuals use this system of investing and saving for several reasons:
- They have poor access or lack the resources to utilize the services offered by traditional banking and financial institutions, so they fall back on a community system that is based on social relationships, reciprocity and trust (Haden, 2013).
- They do not have significant credit issues or a lack of credit and financial histories. Under these circumstances, their ability to use traditional banking services is impacted (Haden, 2013).
- They do not trust traditional banking institutions and prefer to borrow money from within the community or from friends and family (Haden, 2013).
When a client is using this system, it is important to find out if the money pool is linked to credit and payment history so this can assist the client in building traditional credit history and that they understand how this history can help them if they choose to transition to “mainstream” institutions.
Following the banking collapse and ongoing recession in 2009, money was tight and banking institutions were hesitant about lending money to anyone. Therefore, money pools increased within communities and were even beginning to be recognized as a means to build credit histories (Gaynor, 2009).
Money Pool Organizations
The Mission Asset Fund, a non-profit in the San Francisco area, worked with individuals with lower income with the mission of developing programs and skills to increase personal financial success. They realized that the money pools served as a form of disciplined and patient commitment to saving and could be positively linked with payment and credit building behavior. The program they developed helped increase the average credit score of participants by 52 points over a four-month period (Gaynor, 2009).
eMoneyPool.com is a digital, on-line tool that helps people to create their own private money pools among friends (nation-wide) with a 1-5% surcharge of the total pool amount for administration fees and to guarantee payment if another member defaults. Interested consumers can also participate in open pools developed by other eMoneyPool members. eMoneyPool.com aims to create a service that aids the underbanked by using a tool that is comfortable and familiar to them by linking their business to formal financial institutions that can monitor and establish credit history (PopTech;2014). Clients that use eMoneyPool can grant permission to share the payment history and credit rating collected through eMoneyPool and then share it with credit-rating agencies and direct lending institutions (PopTech, 2014). This allows the underbanked to develop a payment history and credit rating that can assist them in more traditional financial services like personal loans, car loans, mortgages, etc.
Professionals can still assist clients using money pools in planning and maintaining their financial goals and link the positive financial behaviors (patience, consistent payments, etc.) with more traditional services if the client is interested in bridging to more “mainstream” institutions and services.
- Haden, P. (2013, September 13). In Latino community, money pools a different approach to lending. Cronkite News.(http://cronkitenewsonline.com/2013/09/popular-in-latino-community-money-pools-a-community-approach-to-lending-saving/)
- Gaynor, Time. (2009, July, 2). U.S. migrant money pools thrive in recession. Reuters. (http://www.reuters.com/article/2009/07/02/us-usa-savingsclubs-idUSTRE5613J420090702)
- eMoneyPool is an online website and financial program that provides financial services that promote sharing community where members borrow and save together (http://www.eMoneyPool.com).
- Money pool: a centuries-old savings tool reinvents. (2014, January, 22). PopTech. (http://poptech.org/e5_francisco_cervera)
- Money pools: a centuries-old savings tool reinvented. (2014, February, 21). Christian Science Monitor. (http://www.csmonitor.com/World/Making-a-difference/Change-Agent/2014/0221/Money-pools-a-centuries-old-savings-tool-reinvented)
Guest Contributor: Suzanne R. Frie, AFC®
Be prepared. When most people hear these two words, they think of the Boy Scouts of America. I want to share with you why all military spouses need to be prepared as well.
I was a military spouse for three months shy of 20 years when my 1SG (First Sergeant) husband asked for a divorce. It was totally unexpected. I was devastated. Thankfully, I am an AFC® (Accredited Financial Counselor), have a Master’s degree, and had been employed by the federal government for about four years at that time. It took me a couple of months, but I was able to pick myself up by my bootstraps and soldier on. I whipped my resume into shape (we were overseas, and I was going to be forced to return to the United States) and began applying for jobs in the US.
During my marriage, we were responsible with our money. We diligently put money into savings and our TSP. We also put money into IRAs for each of us. I look back and am thankful for our conservative lifestyle and ability to save. I was prepared for my future but didn’t know what my future held.
Life throws us curve balls: Injuries and accidents, death, and even divorce. These life events take a toll on our emotions and our finances. We need to be prepared for anything that might come our way.
Do you have a life insurance policy on yourself? On your spouse? What if the military member dies? The money does not come rolling in immediately. Today’s SGLI (Servicemembers Group Life Insurance) of $400,000 may be enough to pay off the mortgage, but then what? How do you support yourself and your children?
What about disability insurance? The military will cover your active duty member if injured and on convalescent leave, but what if the spouse gets injured? How does a family account for the missing income and possible additional expenses? What if your military member has to go to a medical board and removed from the military due to an injury or disability?
Does the spouse have his or her own financial/bank accounts? We have all heard stories how one spouse blocked the other from accounts or spent what was in the accounts. Does the spouse have separate retirement accounts? Spousal IRAs for non-working spouses provide some long-term assurances for a non-working spouse who has given up a career for staying home with children.
What if your military member commits a crime and is imprisoned? You may be left without income, and without benefits.
During my years of financial counseling, I have encountered many spouses who have nothing in their name. When asked about putting money into a spousal IRA, I’ve been told it was not necessary; “We have his retirement.” I cannot count the number of military spouses who divorced after 20 years. Yes, a military spouse may be eligible to retain their military benefits after a 20 year marriage, provided the military member was in for at least 20 years, and the time overlapped for at least 20 years. There are few military spouses that fall into this category.
One of my clients was surprised with a divorce, where, unfortunately, he took control of the household money—because she did not “contribute.” Because of this move, she could not hire an attorney for her divorce. Her family did not have the money to lend her. She only had Legal Aid, while he could afford the retainer for the divorce attorney.
Every spouse needs to be prepared for whatever his or her future brings. We do not have a crystal ball to tell us what will happen in 5, 10, or 20 years.
By the time our divorce was final, we were married 20 years and 11 months. My story has a happy ending. I found a good job and have since been promoted to an even better position. I am debt free, able to contribute to my TSP again and am moving forward with planning for my own retirement. However, I wouldn’t be this far, this fast if I had not been prepared from the very beginning.
Guest Contributor: Kimberly Henne, MA, D-SAACP, AFC®
Part 3: MONEY, DEBT, AND THE LAW 101
Anyone can be sued by a debt collector.
Debt collectors don’t only sue deadbeats. They are paid to follow the money. Sometimes they get it right, and sometimes they get it very, very wrong and sue fine, upstanding citizens like you and me
Nowadays, a consumer debt is often bought and sold several times before it winds up in the hands of a debt collector who decides to take the matter to court. Chances are, by the time “ABC Debt Buyer” takes ownership of your debt as its asset, it has only paid pennies on the dollar for the debt. However, it has purchased the right to recover the entire amount that you, as a consumer borrower, originally owed plus all sorts of contractual fees, fines, and legal costs.
When a “receivable” like this winds up in court in a collection case, the name of the company bringing the suit usually bears no relationship to the original creditor, whether that was Macy’s, Mastercard or GM Credit. To confuse matters even further, the amount being sued for may include interest, fees, and fines. It may also appear incredibly inflated in comparison to what a consumer understands their debt obligation to be in dollar amounts. In the best-case scenario, ABC Debt Buyer (now a plaintiff in a debt-collection lawsuit) will follow the legal procedures required for notifying a consumer (now a defendant in a debt-collection lawsuit). They will inform the consumer that they are being sued for a certain sum of money.
However, put yourself in the shoes of our defendant. What would you do if you received legal notice about a lawsuit from an entity you did not know and never did business with, for an amount that bears no relationship to any line of credit you ever used? Chances are that you would ignore the notice, right? Maybe you wouldn’t even open the envelope if it came in the mail. Or, if it was actually handed to you by a process server in your home or place of work, you might even shred it if you concluded that it had nothing to do with you.
The next steps that a defendant takes can completely change the outcome of a debt-collection lawsuit in the defendant’s favor. Recent news articles suggest that lawsuits have become the debt collectors preferred collection tool. Why is that? Because in some jurisdictions, 90% or more of people who are sued by debt collectors do not show up in court. In basketball parlance, that means that 90% of the cases they bring are a slam dunk win for the debt collector. Not bad odds for the debt collector.
However, suppose that our consumer/defendant is one of your clients. You’ve been helping them with budgeting, planning, saving, setting goals and maybe even investing. Then they come to you rather sheepishly one day and confess that they’ve received a notice, from a debt collection company, about a lawsuit. This is where your knowledge of how the debt collection industry works can make all the difference in the outcome of your client’s case.
In last week’s blog, you learned that your client is entitled to notice and an opportunity to be heard in any lawsuit brought against them. “Notice” requires some very specific actions by the debt collector. Actions that dictate the time and place the notice may be given, to whom it may given and under what circumstances it may be given. Without getting into the legal nitty-gritty, you can help your client, whether they decide to be their own advocate or to seek out professional legal advice, by suggesting that they immediately start a journal and write down all the details. Be sure they note how they found out about the lawsuit, including the day, date, time, location, a description of who delivered the notice, and to whom it was given.
Next you can explain to your client what you’ve learned here: that no paper purporting to notify you of a lawsuit can be ignored, no matter how far-fetched the details and claims seem to be. Urge them to take the notice seriously. Explain that they have a right to their day in court and their “opportunity to be heard.” Suggest that they find out when they have to go to court and explain that it is crucial that they get there on the appointed date.
Then share the following resources with them:
Encourage them to get as much information as they can about how to defend a debt collection lawsuit. You want your client to be one of the 10% who do show up in court and defend themselves in any debt collection lawsuit in which they’ve been named as a defendant. The odds of a debt collector getting a “slam dunk” win against someone who actually shows up to defend themselves decreases dramatically compared to the outcomes for the 90% who never even show up.
With that, you’ve done your part in leveling the playing field in debt collection cases.
Guest Contributor: Marcy Einhorn, Esq.
Marcy will host AFCPE’s FPA Connect Webinar on Thursday, June 18, 2015. Her 3 part series on Money, Debt & the Law will be posted each Thursday leading up to this event.