First Time Home Buyers

Uncoupling, Kids and Paying for College

Now’s the time of year when high school seniors are getting those much-anticipated letters from colleges. It can be a thrilling time for kids who get a “yes” from their dream schools. It can also be a scary time as students and parents contemplate how to pay for that dream.

  • SEE MORE How to Balance Saving for Retirement and Your Kids’ Education

If you started planning for your child’s education as soon as he or she was born – or even before – you’re not alone. Aside from their own retirement, it’s likely the biggest expense for which parents will ever save.

Divorce may alter how (and how much) you save for college, but it need not wreck your kid’s college dreams. Like so much involved in divorce, funding college in a fair and equitable way involves advance planning.

Parents who are splitting up have several options to consider, whether their children are in diapers or closer to getting a diploma. Of course, the closer a child is to the pomp and circumstance, the more urgent it is that couples splitting up agree on how to handle paying for college. Here are some scenarios for divorced or divorcing parents to consider.

Both parents agree to a certain rate of monthly savings for tuition

The amount could be a percentage of current income, or it could be a set amount ($250 per month per child, for instance) that both parents agree to set aside for college in an account type of their choosing. You can stipulate that the monthly amount may increase over the years or keep it at the agreed-upon amount for the duration. It’s all about forethought and writing it into your agreement at the time you split.

A third, a third, a third

In this scenario, both parents each agree to pay for a third of a child’s college tuition, room and board with the last third being paid by the child – likely with student loans or scholarships. The child may be too young to understand the arrangement at the time of the parents’ divorce – and doesn’t need to know it until the time comes to talk about the expense of college and the ways families go about paying for it.

‘The UNC provision’

That’s how family lawyers in North Carolina, where I practice, informally refer to this option, which entails parents agreeing to split the cost – at the tuition and room and board rates at the time – of four years at the in-state university system’s flagship campus. But it works the same no matter what state you’re in. The child doesn’t have to attend UNC Chapel Hill (or the University of Tennessee or University of Nevada-Reno, etc.) but the idea is that parents plan and save for tuition at a public, in-state university. If, when the time comes, the child decides to forgo college or attend a less expensive community college or trade school – they have a financial leg up because their parents planned ahead.

  • SEE MORE When Divorcing, What Financial Specialists Do You Really Need?

If the child wants to go to a more expensive, private college, the family will have to decide how to handle that based on what has been saved. It could be that the difference is made up in student loans, or perhaps one or both parents are willing and able to pitch in more. The point is to have a reasonable goal in mind and to have both parents committed to and working toward that goal. 

Tax-advantaged 529 accounts

The money in a 529 college savings account can be used for a host of educational expenses. In addition to college tuition, it might cover K-12 tuition, apprenticeship costs and student loan repayments. If you have a 529 plan set up for your child already, you need to know that it can’t be jointly owned by both spouses. It must be set up in one spouse’s name only.

But if parents divorce, each parent can open their own 529. If uncoupling parents choose this route, both Parent A and Parent B open 529s and agree to the amount each will contribute. There should be some type of accountability mechanism written into the divorce agreement to keep everyone honest and on track. In some cases, each parent sends the other a statement each quarter showing contributions made and the current balance.  

Plan ahead for all contingencies

Let’s say you’ve done everything right and saved – one way or another – for your child’s college and are able to fund all or a portion of it, but Junior decides not to go. Or – and all parents can dream of this – Junior gets a full scholarship. It should be written into your agreement how that money gets dispersed and to whom. In the case of a 529 plan, there are rules to follow. But if you’ve saved outside of a 529, you may want to make some rules of your own. Could any leftover money roll from an older child to a younger child? Do you want to many any stipulations on how that money can be used? (For instance, it’s only for schooling; it can’t be used to fund a gap year.) Again, it pays to think through even unlikely scenarios and address them when you’re divorcing, rather than having to negotiate years down the road.

In addition, you want to make sure that your divorce agreement has recourse built in if one parent fails to live up to their end of the agreement. You may have to go to court to enforce it, just as you would if child support payments were to suddenly stop coming. College tuition and expenses are financial obligations and should be agreed to at the time of the divorce.

No matter which route you go, it’s important to talk to your kids, at the appropriate age, about the expense of college and expectations you have of the child if you’re funding or helping to fund their schooling. One of the expectations my parents set for me, well before I started applying to college, was that they agreed to be on the hook financially for four years maximum. If it took me longer to graduate, I knew I’d be funding those extra semesters. It was terrific incentive to ensure I finished in four years.

Having money banked for college gives your child options, and it’s always nice to have those. Your child may choose a community college, and that can be a smart place to start. Or your child may choose trade school – and that can be a great route as there will never be a shortage of need for skilled trades. But it’s definitely more liberating to be able have a financial plan to help fund your child’s choice, whatever it may be. Advance planning allows a better shot that you get to call the shots when the time comes.

  • SEE MORE What Women Should Know about Post-Divorce Tax Planning

Was the Pandemic Really a Good Thing for Some (Financially Speaking)?

It’s hard to think that there is a bright spot when you look at the death and destruction that the pandemic brought to so many.  But if we step back, let’s see if there has been a silver lining for some.

We can’t forget the backdrop of the pandemic.  We were petrified as we went into 2020, as people got sick and businesses started to shutter. We had no defenses from the disease or from losing our loved ones and livelihoods. Unemployment surged to levels not since the Depression. But help was on the way. The government poured trillions of dollars into the economy; people received real money via two rounds of stimulus payments; the government also paused mortgage and student debt payments for millions of people; the Fed kept liquidity flowing into our economy; inflation and interest rates were negligible. 

What Were the Results?

According to the Census Bureau, stimulus payments lifted 11.7 million people out of poverty. In other words, almost 12 million more people would have been considered impoverished if Congress had not acted to alleviate the situation.

The stimulus checks were delivered to people both above and below the poverty line.  We know that not everyone benefited equally, and many people are still in a tenuous position. But if you were working and Zooming from home in your PJs, you didn’t need to buy work clothes or spend money commuting to the office.  You weren’t traveling or going out to eat.  So, for those who were lucky enough to keep their jobs and were not trying to just survive, the stimulus checks were a bonus.  Working from home allowed many to reduce their expenses. Their mortgages and student loans were on pause, and they diligently increased their savings.  These people amassed $2.7 trillion in extra savings.

Savings Were Up

The personal savings rate, which is a measure of how much money people have left over after their expenses and taxes, soared to almost 33% in April 2020, according to the Bureau of Economic Analysis. For the two years before the pandemic, it had averaged just under 8%.

According to a report from NerdWallet and Goldman Sachs, families in the top 20% of income put more than a third of their extra savings into investment accounts or down payments on homes, and lower-income families mostly kept their extra savings in banks or used it to pay down debt. What’s interesting, as noted in the report, is that, “The majority of Americans (78%) report that the pandemic has spurred them to take some sort of financial action.”

Debt Was Down

Americans also paid down some of their credit card debt during the pandemic.  Over $100 billion in credit card debt has been paid off by consumers due to the influx of stimulus money.  People also had fewer places to spend money, but still they could have been clicking away online, and didn’t.  Before you jump for joy, the average cardholder still has more than $5,000 of credit card debt.

That’s Changing: People Are Spending Again

I wish I could see the trends of spending less, saving more and paying down credit cards continue … but no.  We noted a great holiday shopping boom, even the midst of rising prices due to supply chain issues and inflation. Holiday spending increased by 11% for online sales and over 8% for in-store sales.

Millennials and Gen Zers Are So-Over-Covid

Optimism about improved finances in 2022 is highest among Generation Z, those born from 1997 to 2012, and diminishes with each successive older generation, based on Bankrate’s survey findings.

Gen Zers and millennials who said they felt optimistic about 2022’s finances most often attributed it to making more money at work, while baby boomers who felt positive cited having less debt.

Some of this optimism is based upon the fact that the younger generations are expected to enjoy higher wage increases in 2022.  Pundits say that the expected 4% wage increase is due to the current soaring  7.48% inflation rate, as food, housing and gas prices are spiking. I think it also has to do with the fear of losing good employees.  Last year the job market lost over 38 million workers during the Great Resignation, to seek fame and fortune elsewhere. The raise many will receive may not be a reflection of a job well done, but more of a plea not to leave.

What Can You Do to Remain Financially Healthy in 2022?

  1. Create a real budget that you will stick to. List all of your expenses based upon your real spending habits, not the pie-in-the-sky ones you want. Then re-create the budget you want. Make sure that paying off debt is one of your line-items for your new budget.
  2. Set up an emergency fund. You should make sure that you have three to six months of money put aside.  It is not only to buy those tires you may need, but it is also for money to carry you over in case of a lost job.
  3. Cut down spending.  You know that this makes sense, but it is hard to do.  As a rule of thumb, if you can’t pay the full balance on your credit card each month, don’t charge anymore.  If you are carrying balances, pay more than the minimum each month. The average rate on credit cards today is 16%, and those rates will rise as general rates rise this year.
  4. Review your credit card statements each month. Cancel all of the memberships and things you no longer want or use.
  5. Spend less on food and entertainment. It’s expensive to go out.  Your friends will want to save money, as well.  Decide to get together for potluck dinners. Enjoy each other, and enjoy not getting the credit card bill at the end of the month.

The pandemic can be seen as a really tough wake-up call. It stills looms over our nation’s health. Financial health is part of your overall health. It’s not about how much you earn, it’s about how much you save and spend to create a stress-free life for you and your loved ones.

Warren Buffett Guzzles Up Occidental’s Stock

Warren Buffett has been absolutely hoovering up stock in Occidental Petroleum (OXY, $56.15). In a flurry of recent purchases, Berkshire Hathaway (BRK.B, $325.34) bought 91 million OXY shares, or 9.8% of the integrated oil and gas company’s shares outstanding.

The addition to the Berkshire Hathaway equity portfolio coincides with the ongoing melt-up in energy prices, which was sparked by the Russian invasion of Ukraine. Global benchmark Brent crude oil futures briefly topped $130 a barrel in the wee hours of Monday trading, and have gained about 30% over the past month.

  • SEE MORE The 22 Best Stocks to Buy for 2022

The common shares Berkshire just purchased add to its already substantial exposure to the energy firm, which includes $10 billion worth of 8% preferred shares, as well as 84 million warrants to purchase OXY stock. Occidental shares must trade above the warrants’ exercise price of $59.62 for the warrants to be in the money. 

Buffett received the warrants as an equity “kicker” when he bought the preferred shares in 2019. The funding provided by Buffett helped Occidental win its $55 billion bidding war against Chevron (CVX) to acquire Anadarko Petroleum. 

If nothing else, Buffett’s buying spree has clearly contributed to OXY stock’s dramatic outperformance of late. Berkshire Hathaway purchased more than 60 million OXY shares between March 2 and March 4 – and OXY stock jumped more than 28% over those sessions. 

Indeed, on March 4 alone, Berkshire picked up a total of 34 million shares. Occidental closed the session up 17.6%, on abnormally heavy volume. For the year-to-date, OXY stock has gained 94% vs. a 35% increase for the S&P 500 energy sector.

Occidental Petroleum isn’t the only recent Buffett move intended to expand BRK.B’s exposure to the energy sector. Berkshire Hathaway upped its stake in Chevron by 33% in the fourth quarter of 2021, as well. The holding company held 38.2 million shares in the Dow component as of Dec. 31, a stake which is currently worth $6.1 billion. 

Both CVX and OXY get consensus Buy recommendations from Wall Street analysts, but they have significantly greater optimism regarding the former’s prospects than the latter’s.

Of the 29 analysts issuing opinions on CVX stock tracked by S&P Global Market Intelligence, 13 call it a Strong Buy, seven say Buy and nine rate it at Hold. 

As for OXY, the Street’s view is decidedly more mixed. Ten analysts call it a Strong Buy, three say Buy, 11 have it at Hold, one calls it a Sell and two say Strong Sell.

  • SEE MORE 15 Stock Picks That Billionaires Love

Dick’s Sporting Goods (DKS) Headlines Busy Week of Retail Earnings

Dick’s Sporting Goods (DKS, $107.93) headlines a busy week of retail earnings. The company is slated on the earnings calendar to report its fourth-quarter results before Tuesday’s open.

Supply-chain issues and inflation will likely be in focus when the sporting goods retailer reports, considering both have been key topics for companies this earnings season.

  • SEE MORE 5 Super Stocks to Stave Off Sizzling Inflation

“The term ‘supply chain’ was mentioned at least once during the earnings conference calls of 341 S&P 500 companies from Dec. 15 through Feb. 28,” says John Butters, senior earnings analyst at FactSet Research. He also notes that the term “inflation” was mentioned by 72% of S&P 500 companies in their earnings calls through Feb. 17.

In the company’s third-quarter earnings call, CEO Lauren Hobart said Dick’s “ordered aggressively to get ahead of this [supply chain] disruption,” and ended the period with inventory levels 7.3% higher than the year prior. She added that the fourth quarter was off to a “strong start,” and the firm was “well positioned” ahead of the key holiday shopping season.

As for inflation, Hobart noted that Dick’s passed along “some select cost increases” in hardline categories in Q3.

Wedbush analyst Seth Basham is “constructive” on the consumer discretionary stock ahead of its earnings report, with the analyst expecting a “good quarter.” This is due in part to the retailer’s “strong supply chain, better in-stocks and strong relationships with key vendors,” all of which “positioned the company favorably through the holiday season relative to competitors,” he writes.

  • SEE MORE 15 Stock Picks That Billionaires Love

Basham admits potential headwinds (omicron, slow traffic due to weather, lack of economic stimulus) do exist, but “a fundamental shift in consumer behavior with an increased emphasis on health and fitness, participation in outdoor activities and a far greater propensity for athletic and lifestyle products should continue to drive growth in 2022.” He has an Outperform rating on DKS stock, which is the equivalent of Buy.

Analysts, on average, are forecasting fourth-quarter earnings of $3.43 per share for Dick’s Sporting Goods, which is 41.2% more than what the company reported in the year-ago period. Revenue, meanwhile, is expected to arrive at $3.3 billion, +5.4% year-over-year (YoY).

Oracle Stock Slumps Before Earnings

Oracle (ORCL, $76.92) stock hit a record high of $103.65 in mid-December after the enterprise software provider reported top- and bottom-line beats in its fiscal second quarter. However, shares have shed more than a quarter of their value since then, due in part to ORCL’s late-December announcement that it is buying healthcare IT company Cerner (CERN) for $28.3 billion in cash, its largest acquisition to date. 

Can another solid earnings report help jumpstart ORCL, which has been one of the best stocks to own over the past 30 years?

Deutsche Bank analyst Brad Zelnick (Buy) is “bullish on software industry fundamentals” in early 2022, though he maintains a “healthy respect for the market and macro backdrop.” In other words, while the software industry appears well positioned following its recent decline into bear-market territory, he recommends “a balanced approach with greater valuation sensitivity than in recent years.”

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Zelnick has a Buy rating on ORCL and a $110.00 price target – representing implied upside of 55%. Most analysts are on the sidelines right now, though. Of the 27 following the stock that are tracked by S&P Global Market Intelligence, 18 have it at Hold. This compares to four who say it’s a Strong Buy, two that rate it at Buy, two that have it at Sell and one that believes it’s a Strong Sell.

As for Oracle’s fiscal third-quarter earnings report, due out after the March 10 close? Consensus estimates are for earnings of $1.18 per share (+1.7% YoY) and revenue of $10.5 billion (+4.0% YoY).

Rivian’s “Bait-and-Switch” Price Hikes in Focus Ahead of Earnings

Rivian Automotive (RIVN, $48.14) had a red-hot start after its November initial public offering (IPO), but the electric-vehicle maker quickly stalled out. Since hitting a record high near $180 on Nov. 16 – more than double its Nov. 10 IPO price of $78 – shares are down roughly 73%.

CFRA Research analyst Garrett Nelson recently slashed his price target on RIVN to $55 from $135 and lowered his rating to Hold from Buy following the stock’s slide. 

“Customer backlash to the company’s bait-and-switch move has already been severe, with existing reservation holders posting their order cancellations on social media sites,” the analyst says. 

Nelson is referring to Rivian’s announcement earlier this month that it is hiking prices on its R1T truck and R1S SUV by up to 20% – including for customers who had already placed pre-orders for the vehicles. The company quickly reversed course after consumers reacted negatively to the news, saying the price increases would only be applicable to orders placed after March 1.

Going forward, “The company faces a predicament where it will likely struggle to meet certain benchmarks on its path to profitability (positive gross margin, then positive EBITDA [earnings before interest, taxes, depreciation and amortization], and finally positive net income) absent higher prices realizations or significantly higher sales volumes,” Nelson writes.

When Rivian steps into the earnings confessional after Thursday’s close to unveil its fourth-quarter results, analysts, on average, are expecting the company to report a per-share loss of $1.72. On the top line, Wall Street pros are projecting $60.03 million. For reference, RIVN posted a per-share loss of $12.21 on $1 million in sales in its third quarter.

  • SEE MORE 15 Stocks Billionaires Are Selling

Stock Market Today: Stocks, Oil Slump in Seesaw Session

The major indexes lurched between positive and negative territory as investors flailed about on a relatively slow-news Thursday.

Russia’s attacks on numerous Ukrainian regions continued even as negotiators sat for a second round of peace talks; the two sides agreed that it was necessary to establish “humanitarian corridors” for Ukraine’s civilians. No cease-fire was reached, but both parties agreed to meet for a third round of discussions.

  • SEE MORE 2022’s Best Mutual Funds in 401(k) Retirement Plans

Also Thursday, the Labor Department reported that initial jobless claims for the week ended Feb. 26 declined to 215,000, 10,000 below expectations. And the Institute for Supply Management showed that service activity continued to expand again in February, though the pace has slowed for the fourth consecutive month.

“February’s 56.5 headline reading came in well below expectations, which generally anticipated that service sector activity would reaccelerate with fading omicron infection risks. The opposite appears to have occurred,” say Barclays economists. “Although February’s reading still points to moderate growth, it is the lowest in 12 months.”

The Nasdaq Composite (-1.6% to 13,537) led the major indexes lower on a back-and-forth day, while the S&P 500 (-0.5% to 4,363) and Dow Jones Industrial Average (-0.3% to 33,794) closed with more modest declines.

Commodities, most notably oil, also saw their share of swings. U.S. crude oil futures jumped above $116 per barrel intraday for the first time since early 2011 before pulling back to $107.67 per barrel (a 2.7% drop).

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“The volatility in commodities markets continues to be astounding,” says Michael Reinking, senior market strategist for the New York Stock Exchange. “Given Russia’s importance in the commodities complex, we’ve seen metals, agriculture and energy-related commodities all moving higher. This week alone wheat and oil futures are up greater than 20%.”

  • SEE MORE The 22 Best ETFs to Buy for a Prosperous 2022

Barclays points out that business activity, new orders and employment all fell “to levels not seen since 2020.”

YCharts

Other news in the stock market today:

  • The small-cap Russell 2000 also headed lower, off 1.3% to 2,032.
  • Gold futures closed 0.7% higher to $1,935.90 per ounce.
  • Bitcoin sharply tailed off, shedding 4.6% to $41,811.00. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.)
  • Best Buy (BBY, +9.2%) reported in-line fiscal fourth-quarter adjusted earnings of $2.73 per share, while revenue of $16.4 billion fell short of the $16.6 billion analysts were expecting. The big-box retailer also said same-store sales declined by a wider-than-anticipated 2.3% for the three-month period, and gave lower-than-expected top- and bottom-line guidance for the full fiscal year. However, the company did boost its quarterly dividend by 26% and said it will spend $1.5 billion on share buybacks over the next year. After the results, CFRA Research analyst Kenneth Leon downgraded BBY stock to Sell from Hold. In the upcoming fiscal year, the analyst expects revenue growth to decline, whiel higher wages and inventory costs will pressure margins.
  • Snowflake (SNOW) spiraled 15.4% after earnings. In its fourth quarter, the data-analytics cloud company said revenue doubled from the year prior to $383.8 million, while its adjusted per-share loss narrowed to 43 cents. It also reported lower-than-anticipated gross margin of 70% and slowing current-quarter revenue growth. Still, Oppenheimer analyst Ittai Kidron maintained an Outperform (Buy) rating on SNOW. “While management’s initiatives to optimize price/performance in hardware/software are a near-term headwind to consumption and revenue, they can drive incremental workloads to Snowflake’s platform,” Kidron says. “We see a long trajectory of rapid revenue increases fueled by an IT shift to a cloud-centric model, digital transformation, and higher spend on machine learning/data science.”
  • While SNOW sold off after earnings, Kroger (KR) – another member of the Berkshire Hathaway equity portfolio – surged 11.6% in the wake of its results. The grocery chain reported adjusted earnings of 91 cents per share in its fourth quarter on revenue of $33.1 billion. This was higher than the 74 cents per share and $32.9 billion analysts were expecting. Nevertheless, CFRA Research analyst Arun Sundaram maintained a Sell rating on KR stock. “We think wage pressures will persist longer than the net positive impact of higher food prices, noting KR typically has several labor agreements up for renewal each year,” the analyst writes in a note. “There is also risk that we could see strikes like King Soopers. Competition and less stimulus, government aid and vaccine benefits will also be headwinds in 2022. Overall, we view the risk/reward as unfavorable with the shares now trading at 14x our fiscal 2023 earnings-per share-estimate vs. 12x historical average.”

Billionaires Have Been Unloading These 15 Stocks

Our exploration of institutional investors’ recent trades continues today … with a bearish tilt.

  • SEE MORE 5 Stocks to Sell for 2022

Individual investors can find something both educational and entertaining in exploring what the “smart money” is up to, made available on the regular thanks to required quarterly Form 13F filings.

Of late, we’ve looked into what Warren Buffett has been buying and selling in his Berkshire Hathaway equity portfolio, as well as the most popular blue chips among Wall Street’s hedge fund managers. And tomorrow, we’ll take one last look at buying activity, this time among bona fide billionaires.

But first, we’re going to see what those billionaires have been selling.

Checking out what high-net-worth investors have been cutting loose can be every bit as informative as their buys – sure, sometimes a sell might just be taking prudent profits on a successful trade, but other times it can signal that an equity’s story has changed or that headwinds are on the horizon. So read on as we zoom in on 15 stocks getting the cold shoulder by at least one billionaire investor:

  • SEE MORE 12 Best Monthly Dividend Stocks and Funds to Buy for 2022

Taxes on Unemployment Benefits: A State-by-State Guide

Tax season is here. And if you’re one of the millions of Americans who received unemployment benefits last year, you’re probably wondering if you have to pay taxes on those payments. When it comes to federal income taxes, the general answer is yes. Uncle Sam taxes unemployment benefits as if they were wages.

But when it comes to state income taxes, it depends on where you live. Most states fully tax unemployment benefits. However, some states don’t tax them at all (sometimes because the state doesn’t have an income tax), and a handful of states will only tax part of your benefits. Plus, a few states made temporary special exceptions to their general rules to help people who lost their job during the COVID-19 pandemic.

Where does your state stand when it comes to taxing unemployment benefits? Read on to find out. Then, as a bonus, we outline each state’s income, sales, and property tax levels — and provide a link to the state’s page in our State-by-State Guide to Taxes on Middle-Class Families — so you can get a sense of the overall tax burden where you live.

  • SEE MORE 2022 Tax Calendar: Important Tax Due Dates and Deadlines

You Are Finally Making Good Money. Now What?

If you are in your 30s or 40s, does this describe your financial situation?

After years of working your way up the corporate ladder, endless long nights as an associate in your firm, or completing your residency or fellowship, your career is finally well established. New financial rewards are coming your way from a new job or promotion, hefty bonuses and other compensation that often didn’t seem possible.

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For the first time, there is a flood of financial opportunities and you have the resources to consider them. You can buy your first house – or move into a larger one; take a European vacation or get a new car.

You may also be deciding between whether to aggressively pay down debt or save more money for retirement, but which strategy is the right choice?

Most people are naturally debt averse. No one likes a large credit card balance or the seemingly endless payments to cover student loans. But allowing our natural aversion to debt to control our decisions isn’t always optimal as part of a long-term financial plan.

Deciphering the best option is largely based on a few important factors. How to decide?  Here is a process I recommend:

Make Certain Your Financial Foundation is Sound

First, understand what I like to call the financial order of operations. Think of this concept as a financial version of Maslow’s Hierarchy of Needs, which depicts people’s basic needs as a five-level pyramid with physical needs on the bottom and self-actualization on the top.

Before deciding whether to pay down debt or invest – items that are near the top of your financial pyramid – make sure your foundation is in order. Start by answering the following questions:

  • Do you have an emergency fund in place? Having enough money to cover three to six months of expenses is recommended so you won’t need to borrow if the car breaks down or another emergency occurs.
  • Are you paying the required balance on your debt obligations each month to not only avoid penalties but to reduce principal? If not, you need to begin doing so.
  • Are you taking advantage of your employer match in your company retirement plan? Maximizing your company’s contribution may earn you a substantial amount of additional retirement savings over time.

If you haven’t checked all the items above, using excess funds to accelerate debt paydown or further invest in your retirement should take a backseat for now. Remember, you can’t construct a strong building on a weak foundation.

Pay Down Debt with High Interest Rates First

While the term “high” is purely subjective, a good rule to follow is to prioritize paying down debts with interest rates over 6%-8%. For example, a credit card with a 16% annual interest rate should be prioritized over maximizing your 401(k) contributions. However, debts with interest rates below the threshold above require a little comparative analysis to determine the optimal financial strategy. 

Next, Should You Pay Down More Debt or Invest?

Compare the benefits of paying down debt versus investing excess cash.

For example, if you have $5,000 of additional income available, does it make sense to pay down student loan debt with a 9% annual interest rate or invest in a portfolio with an expected return of 6%? By investing all of the money, and not paying down debt, you would effectively have lost 3%, or $150, at year end. In this case, pay down the debt.

  • SEE MORE Target Date Funds: How to Evaluate If Yours Is a Good Fit

However, if there is a car loan with a 3% interest rate, the script is flipped – you would gain $150 from investing your excess income.

On the surface, this break-even equation seems like it provides the final solution to our question. However, using this logic in our decision-making may not create the most optimal strategy. One shortfall of the equation above is that it’s nearly impossible to predict investment performance. So, would it be prudent to base our financial decisions solely on mathematical equations that derive their solutions based on unpredictable assumptions? In simpler terms, shouldn’t we avoid making decisions based solely on unforeseeable outcomes? 

Take Other Non-Financial Factors into Account

Most people don’t like taking unnecessary risks. You may be wondering: “Shouldn’t I always make the best financial decision regardless of my attitude toward risk since it will result in the best outcome?”

The answer: It depends. The best financial plan is one that you can stick with. If having student debt or a car loan keeps you from sleeping at night, it may be a better decision be to pay down those obligations rather than invest the excess money in your budget.

Or if you want to retire early at 50 and need to save as much as possible, it may make more sense to allocate more toward saving and less toward debt paydown to align more with your goals. We all have own preferences, attitudes, risk tolerance and goals. In effect, what matters most to you is often the right answer.

When determining whether to invest excess income or use it to accelerate debt paydown, consider talking to your financial adviser to come up with a gameplan that incorporates both the financial and non-financial factors this decision entails. This will allow you to achieve your goals while further enabling you to focus on what matters most.

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How to Get Your Tax Refund Faster

If you’re expecting a federal tax refund this year, you could get your money back in as little as three weeks. Historically, the IRS has issued over 90% of refunds due in less than 21 days. But this year could be different. Because of COVID-related disruptions, the IRS entered this tax filing season with millions of unprocessed tax returns from previous years. That’s going to slow them down and potentially delay your refund. Fortunately, there are a few things you can do to speed up the process and increase the odds of getting your tax refund quickly.

  • SEE MORE 2021 Tax Returns: What’s New on the 1040 Form This Year

The first trick is to file your return as early as you can. The sooner you file your tax return, the sooner you’ll get any tax refund due. That’s because your return will be closer to the front of the line, rather than towards the back.

If you want to speed up the refund process even further, e-file your tax return. Paper returns slow things down considerably. There are a number of ways to file electronically. Of course, you can find a professional tax preparer to file an electronic return for you (most expensive route). Seniors, people earning $58,000 or less, disabled people, and taxpayers with limited English-language skills may also qualify for free tax assistance and e-filing through the IRS’s Tax Counseling for the Elderly and Volunteer Income Tax Assistance programs. There are also several e-filing options for the “do it yourself” crowd, such as using a commercial tax software product (e.g., TurboTax) or forms/software on the IRS website. If your 2021 adjusted gross income is $73,000 or less, you can even file your federal return for free!

Finally, make sure you select the direct deposit payment method for your refund. Just like paper returns, paper checks take much longer to process. It’s also the fastest and most convenient payment option (no trip to the bank needed). Plus, there’s always the chance that a paper check could get stolen or lost in the mail.

Tax Refund Delays Can Still Happen

Even if you file early, file electronically, and request direct deposit, it still takes more time for the IRS to process some tax returns. If that happens, your refund could be delayed. Process delays should be expected if your return:

  • Includes errors;
  • Is incomplete;
  • Is affected by identity theft or fraud;
  • Includes Form 8379, Injured Spouse Allocation (which could take up to 14 weeks to process); or
  • Needs further review in general.

The IRS will contact you by mail if they need more information to process your return.

  • SEE MORE “Above-the-Line” Deductions for Your 2021 Tax Return

Also, by law, refunds for returns claiming the earned income tax credit or the additional child tax credit must be delayed. They can’t be issued before mid-February. This applies to the entire refund, not just the portion associated with the credits. However, for 2022, the IRS said these refunds should start being paid by March 1 if direct deposit is chosen and there are no other issues with the tax return (some people may have received refunds a few days earlier).

If you’re a non-resident alien filing Form 1040-NR who is requesting a refund of tax withheld from U.S. source income, you should allow up to 6 months from the original due date of the 1040-NR return or the date you filed the form, whichever is later, to receive any refund due.

Tracking Your Tax Refund

The IRS has a handy online tool that lets you track the status of your tax refund. It’s called the “Where’s My Refund” portal, and it will tell you if the IRS is processing your return, getting ready to send your refund, or has already sent you your money. The tool is updated daily.

The portal is located on the IRS website. You’ll need your Social Security number (or individual taxpayer identification number), the filing status used on your 2021 tax return, and the exact amount of your expected refund to access it.

  • SEE MORE Deposit Your Tax Refund Directly Into an IRA or Other Account – It’s Easy!

Amazon to Close Many Stores, Focus on Groceries

Amazon.com is doing an about-face on its move into brick and mortar to supplement its massive online presence by closing 68 brick and mortar stores.

  • SEE MORE 11 Good Reasons to Cancel Amazon Prime

The Seattle-based retailer said it will close all its bookstores (Remember, Amazon got its start as an online bookstore) – plus Amazon 4-star stores that sell home goods and toys, as well as pop-up stores that have appeared in malls and other locations.

The move comes on the heels of Amazon raising its yearly subscription rate for Amazon Prime to $139, from $119.

Amazon said it will instead concentrate on its core grocery stores (including Amazon Fresh locations and the Whole Foods Chain), plus Amazon Style, a new, high-tech, high-fashion brick-and-mortar store from Amazon. The first Amazon Style store, which will feature clothing, shoes and accessories for men and women, will open in Los Angeles later this year. You can check out the concept on this video from Amazon.

Disappearing along with Amazon bookstores are Amazon 4-Star stores, a concept that sold home goods, electronics, toys and other goods that got top customer reviews – hence, 4-star.

  • SEE MORE When Is Amazon Prime Day 2022?

Reuters was first to report news of Amazon shuttering its stores. The company said the store closing will occur on various dates. Physical stores account for only 3% of Amazon’s recent quarterly sales of $137 billion, and the majority of that 3% was from Amazon’s Whole Foods supermarkets, according to Reuters.