The Blog Of TL Wall Accounting

Archive for October, 2013

Savings Vs Debt

When we or anyone else talks about budgeting, it’s with the main idea of making sure you can pay all your bills and, hopefully, have something extra so that you’re not always living check to check. This is all well and good, but it’s possible that maybe you’re not paying enough towards your bills or putting enough away for your future. And with those as your only two choices (spending every dollar you make is NOT a choice for now), which is better to deal with first?

Last year the federal government passed a law stating that your credit card vendors must supply you with not only bills 21 days before their due to be paid but estimates of how much you would need to pay monthly, without using your cards again, to get rid of that particular debt. For some people that number might seem impossible to deal with on a tight budget and they might decide to try to put some money away instead. Let’s look at some real numbers.

The first is interest rates. The overwhelming majority of credit card interest rates come in between 14% and 23%. At your best the rate you’ll earn on any type of investing or savings might be 10%, and that won’t be every year (if it is you might want to hire a consultant to see if you’re getting the Madoff runaround). If you have time, it’s probably better to put more money towards your debt, even if you can’t pay it off in 3 years, because it’s growing faster than you can grow your money.

However, what if you can’t stop spending or using your credit cards? Some people just can’t stop themselves and it’s understandable. There are wants and needs that come up, and sometimes the credit card just seems so handy. Even though it wouldn’t be recommended overall as a first choice, in this case it might be better if you can put some of your money away towards savings or investment because it might help to spur you to stop using your cards at some point and actually pay down your bills with the extra cash you might see.

The “might” is important to see because it depends on the type of savings or earnings you’re hoping to try. Traditional savings accounts don’t earn anything these days except maybe some peace of mind. CDs might pay 2-3%, while most mutual funds could, as the economy improves, grow by 5% in a year, which can be compounded if you add to the investment amount on some sort of monthly basis. Of course you have to know that there’s risk if you’re shooting for a 5% growth, so you could just as easily lose that much on your investment each month, even with adding money all the time. If you’re risk averse, paying down debt once again becomes the better option.

It’s always better not to get into overwhelming debt, but remember that every day is another opportunity to get a handle on it, and there’s always someone who can help you overcome it.

What To Know About Taxes & Health Insurance For 2014

The Affordable Care Act mandate that everyone needs to have health insurance or pay a penalty starts in 2014. The requirement is that individuals must be covered for at least 9 months of the year to avoid having to pay a penalty. In actual costs, if you’re single or married with spouse and no kids you’ll have to pay either $95 or 1% of your total income, whichever is higher, and if you’re a family of 3 or more the cost is around $380 or 1% once again. Those are the actual dollars; it’s not much but it’s still money out of your pocket, and it goes up in 2015.

Here are a few more things you should know about what’s going on, including what’s happening in New York:

1. New York state is broken into multiple coverage areas, and each area offers something different, although some insurance companies cover multiple areas. Without a discount, plan costs seem to be running between $400 and $1,800, with the major differences being deductible and pharmaceutical costs. The lowest level plans, known as bronze level, don’t offer anything for pharmaceuticals, while the costliest plans don’t have a deductible that you must reach. Start thinking of health insurance like car insurance if you have to purchase one of these plans.

2. The range for qualifying for a discount on health insurance is pretty vast. For single or self + spouse the dollar amount is around $49,000, for larger families it goes all the way up to around $94,000. It’s nice to qualify for a discount but it comes with a warning that most people don’t know about. If you get a discount but the next year your income takes you above that level by a certain percentage (which hasn’t been released yet), you not only lose the discount but you might be required to pay back whatever discount you received beforehand. That doesn’t seem quite fair but it’s in one of those pieces of paper that experts have read so be warned about it.

3. Experts have gone back and forth as to whether consumers or small businesses will be able to deduct the cost of premiums in 2014. Supposedly if you’re getting a discount you won’t be eligible but if you’re not… still a bone of contention. The recommendation is to keep all receipts for those services that are presently allowed to be deducted if their cost is high enough which includes physician visits, dental visits, medical equipment and vision care; sorry but no sunglasses unless they’re prescription.

Unfortunately even now there are lots of questions yet to be answered, but as with most other things it’s important to keep all your receipts and share them with your accountant. At some point we will have all the answers we need.