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Tax Return Tips

MoneyWise / Rob West and Steve Moore
The Truth Network Radio
May 12, 2021 8:03 am

Tax Return Tips

MoneyWise / Rob West and Steve Moore

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May 12, 2021 8:03 am

The IRS says about three out of four Americans will get a tax refund back from Uncle Sam this year. If you’re one of them, the question is—what will you do with that money? On the next MoneyWise Live, host Rob West will share some of his thoughts about the refund checks many of us are anxiously awaiting. Then he’ll take your questions on the financial topics you’d like to discuss. That’s MoneyWise Live, where biblical wisdom meets today’s finances—weekdays at 4pm Eastern/3pm Central on Moody Radio.

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Let's call it the couch cushion dash. This is the moment when you need a tip for the pizza man, a few bucks for your kid's lunch, or you can't say no to the sweet eight-year-old and her Thin Mints. But you've got no cash and no other options but to tear apart the house searching for hidden money. It's Ryan from United Faith Mortgage, and it's funny how we can usually find a way to scrounge together a few bucks hidden around our house. Shame on you if it's from your kid's piggy banks.

For many listeners though, there's enough money sitting inside your home to buy a swimming pool full of Thin Mints. Home values have gone up across the country the last few years, leaving many of us with a good chunk of equity tucked inside our homes that we could cash out to use for life. If you'd like us to help, we are United Faith Mortgage. The IRS says about three out of four Americans will get a tax refund back from Uncle Sam this year. If you're one of them, the question is, what will you do with it?

Hi, I'm Rob West. That anxiously-awaited refund is the largest single check many Americans will receive this year, averaging a whopping $3,000. I'll have some thoughts on that, then take your calls at 800-525-7000.

That's 800-525-7000. This is MoneyWise Live, where biblical wisdom meets today's financial decisions. So, if you're getting a refund this year, you want to use it wisely, and obviously spending it like it's mad money is not wise. If you have debt, the smartest thing you can do with your refund is using it to pay back what you owe to avoid interest. That includes credit cards, auto and student loans, and even your mortgage.

Make an extra payment against the principal. If you don't have debt, consider opening a Roth IRA. You'll be able to withdraw your earnings tax-free when you retire. Having said that, you should know that getting a big fat refund each year is not a wise use of your money. It amounts to giving the government an interest-free loan all year with the money that you could put to better use.

That's a hidden cost to you, but let's see if we can shine some light on it. Let's say you receive the average refund of $3,000, but you also have credit card debt. That means you've probably cheated yourself out of $350 because of the interest that accrued on your credit cards throughout the year.

But there's an easy way to avoid this. Simply divide the amount of your refund by 12, then fill out a new W-4 form with your employer that reduces your withholdings by that amount each month, then apply that amount to your credit card debt. And if you have no debt, apply the amount to savings. The goal is to come as close to zero as possible for future refunds. And by the way, there's a huge hidden benefit to not getting a tax refund. It protects you from one of the biggest scams going around these days, thieves stealing your identity to get fraudulent refunds. If that happens to you and you're due a refund, the money could be held up for months or longer while the IRS sorts it out.

Obviously, that's not a problem if you're not doing anything. Now, we talked about not treating your refund as mad money, but unfortunately, many Americans are so anxious to get their hands on that money that they're willing to pay a fee to their tax preparer to get it early. That certainly is not a wise use of your money, paying extra just to get your hands on it.

Whereas some of the big tax preparers, both the online and brick and mortar types, have come up with a way to get your refund early that costs you even more. They're offering to put your refund on gift cards or prepaid debit cards. For example, H&R Block will now, for a fee, put your refund on an Amazon gift card.

That comes with a three and a half percent bonus, which sounds like a great deal. But consumer expert Clark Howard is warning that these prepaid debit and gift cards are actually loaded with all kinds of fees that are hidden in the fine print. These include per transaction fees and even monthly charges just for holding the card. There are other downsides to getting your refund with a gift card. First, if you lose it or have to replace it for any reason, you could run into snags and delays.

If someone steals it out of your mailbox, you'll have to contact the issuer to find out the procedure for getting another one and possibly pay an extra fee for that. So much for getting your refund early. Second, getting your refund with a gift or a debit card just sets you up to spend the money. That's especially true with gift cards that only allow you to use the card with a certain vendor like Amazon.

It makes it much harder to pay down debt or boost your savings with refund money. The IRS says the best way to receive your refund is by direct deposit into your bank account. You'll get the refund earlier than you would with a paper check and there are certainly no fees involved.

You can sign up for direct deposit with your tax software or through your preparer or even if you still file a paper return. So, bottom line, practice patience and don't get stuck with extra fees for a quick refund. Let me just quickly remind you Proverbs 21 5 tells us steady plotting brings prosperity, hasty speculation brings poverty.

We want to be steady plotters, slow and steady with God's money, not trying to rush things and certainly not paying extra fees. So there are some tax refund tips that will put more money in your pocket. We hope you'll take advantage of them this tax season. Your calls are next. Here's the number 800-525-7000.

That's 800-525-7000. I'm Rob West and this is MoneyWise Live where biblical wisdom meets today's financial decisions. Your calls are next. Stay with us. We'll be right back. Welcome back to MoneyWise Live.

I'm Rob West. So glad to have you along with us today. Phone lines are open.

We've got a number of them today. Looking forward to taking your calls and questions as we apply the truth of God's word to your financial situation. What's on your mind today? Is it giving? Investing?

Perhaps it's lifestyle. How much is enough? Maybe it's applying your tax refund as we started talking about today. What's the priority use of that money?

Should we build our emergency fund or pay down that debt? Well, we'd love to explore that with you. Here's the number 800-525-7000.

That's 800-525-7000. Our Facebook question of the day was, in fact, how will you use your tax refund? Boy, a number of responses. Scott says, I don't lend money to the IRS for free, so Scott's not getting a refund. Good for you.

Tom's going to pay some bills. Anna said she's already used it to pay down some credit card bills, working to pay them off completely. Well, keep it up, Anna.

You can do it. Glad you shared that with us. Janet, again, said we never get a refund, and so obviously that's the goal. Charlotte's adding it to a down payment for a house they're planning to buy, and Brenda's going to put it towards some renovations on the house. She is out of debt with an emergency fund, and I know Brenda comments frequently on our Facebook posts, and she is a regular listener to MoneyWise Live, so we appreciate that very much. We do have a question of the day, and share some helpful thoughts on our social media platforms.

You can find MoneyWise Media or MoneyWise Live on Facebook. You can find us on Instagram and Twitter as well. We'd love to have you check us out. Again, lines open today. We're going to head to the phones here in just a moment. Here's the number, 800-525-7000. Let's start in Indiana. Jamie, you're first on the broadcast today. How can we help? Hi.

Thanks for taking my call. My niece is turning 18 in a couple of weeks. She's getting ready to graduate from high school, and for her graduation present, instead of just handing her $500, I want to invest it for her, not only just as a gift, but as to show her how to start saving early. And in saying that, I've reached out to a couple of different investment firms, and they told me that I had to have a $5,000 minimum to open her any kind of a retirement account, and so I was just looking for some direction.

Excellent. Well, first of all, I love this idea that you're wanting to bless her with a gift, but do it in a way that's really going to show her the value of investing in herself in terms of long-term investments that can compound over time. I know that'll be an encouragement to her and hopefully get her started on the right foot.

I do have some suggestions. You mentioned, though, a retirement account. Does she have earned income? She does have earned income.

Okay, great. So she can only contribute, and obviously it's going to have to be in her name and her Social Security number, but she can only contribute up to the amount of earned income she has for the year, and then obviously there's going to be a cap of $6,000, so if you open a Roth IRA, or she does in her name and you make a contribution to it, then just make sure she has at least that amount of earned income equivalent to the contribution you want to make. I think as she's just getting started out, rather than trying to pick a winner, you know, a company or a couple of companies, and then you're just not properly diversified and you have too much at risk based on the performance of that particular company, I'd rather see you reinforce this idea of her taking a long-term view with a real broad investment cross-section. So that would typically come through mutual funds or exchange-traded funds that are indexes, where she can have a broad cross-section of the market, some international, some domestic, large cap, small cap, probably almost all stocks as opposed to bonds, because again, time is on her side. She's got a long time for this money to grow, but she does want it really properly diversified, and you want to keep costs as low as possible so that doesn't put a drag on the investment.

So I think from that standpoint, your best option, Jamie, is going to be one of the robo-advisors. Now, there's a number of them out there that basically through a question-and-answer process will build a portfolio for you, very low cost, using these index ETFs that I described, and they're rebalanced over time and reinvested as you make subsequent, or she does, subsequent deposits. Many of them do have a minimum, so Schwab Intelligent Portfolios, I like a lot, but has a $5,000 minimum. Vanguard has a new robo-advisor offering. Their minimum is $3,000, but there are two at least that I like a lot that don't have a minimum or a very low minimum. Betterment is one of them. Betterment, M-E-N-T, has zero minimum, so you could open a Roth IRA for her or she could make the deposit, and they'll get you started with basically nothing. Wealthfront is another one, and their minimum is $500.

So I think either of those would be great solutions. You can read about them. NerdWallet is a great solution.

If you just put in Betterment Review NerdWallet, check out NerdWallet's review, you'll find they get five out of five stars, and then you'll compare that to Wealthfront, which also gets a very high rating, and I think either of those options would give you exactly what you're looking for. Do you have any questions on that, though? I don't, and I just am so grateful. Thank you so much for this direction. I appreciate it.

You're very welcome. Let me do this. I want you to stay on the line, and we'll get you a copy of Howard Dayton's book, Your Money Counts, to pass on to her so she can start learning biblical principles of handling money God's way and understand God's heart as it relates to starting out and being a steward of his resources. So stay on the line. We'll get that book right out to you. Thank you for your call today.

Let's head to Homer, Alaska. Shelly, you're next up. How can we help you?

Hi, Rob. Thank you so much for taking my call. I'm kind of in a quandary right now. This year, my husband and I hired a new tax accountant, and we have a business account that we're having him work through. And we sent him our documents back in March and have been waiting to hear back, and we've done some emailing back and forth. But with the tax deadline looming, I reached out to him just a few days ago and found out he's having some major family medical problems, and we don't know if he's going to be able to continue and complete our return by the deadline. So understanding he's under a great deal of pressure, we aren't quite sure what to do other than just say, take care of your family. But we need to know on our side if we can file for an extension. We don't know if we're going to owe or if we're going to get a refund.

We're not quite sure where to go from here. Yeah. Well, a couple of options. Obviously, you want to go ahead and file an extension, which you absolutely can do yourself. It's Form 4868, and you can download it at IRS.gov, 4868, and you could get that in and get your extension filed. But keep in mind, that's only an extension for filing. It's not an extension for paying taxes you owe. And so if you believe, you have reason to believe you're going to owe some money, it'd probably be a good idea if you have the ability to do so to go ahead and make a payment at this time so you avoid a penalty. And obviously, if you find out in the end you don't owe it, you'll get that back as a refund. But that would be the most conservative, most prudent way to go.

So I would do both of those things. In the meantime, perhaps you could look for another tax preparer. I mean, I realize you may be far enough down the road that it's worth waiting.

But given what you've got going on or what he does, you've got things you need to take care of, and it may be that you need to go ahead and pivot at this point. Regardless, I would get that extension filed, do your best kind of back of the envelope math, or maybe he could for you, just give you a few minutes of his time to do a very cursory analysis and recommend a payment that you could send just to buy yourself some time so that you could circle back, file the full tax return. And at that point, the tax liability would be obvious.

And hopefully at that point, you would get a small refund. Does that all make sense, though? It does. I appreciate it. And keep them in your prayers.

His name is Barry. Awesome. Well, we will certainly do that. I know life has its way of bringing these unexpected events, and I appreciate your graciousness and giving him time to work through them. So thanks for calling and listening, Shelley. We appreciate it very, very much. You know what, we're going to head to a quick break here, but let me just remind you, we do have some lines open today.

We'd love to hear from you. Here's the number 800-600-96, excuse me, 800-525-7000. I was giving out the share number all of a sudden.

800-525-7000. When we come back, we're going to head to Ohio and talk about whether or not it's time to get into a more defensive mode with investing. And then we'll talk about credit scores and a lending institution pulling your credit.

What impact does that have? That and your questions. Again, here's the number 800-525-7000. We'll be right back.

Stay with us. Welcome back to MoneyWise Live. I'm Rob West. I'm glad to have you along with us today as we mind the scriptures and apply God's truth to your financial life. Hey, are you looking for a financial professional who can provide counsel that aligns with your values and priorities as a Christian? Well, we recommend the Certified Kingdom Advisor designation. These are men and women who have met high standards with regard to experience, character and competency, but they've also been especially trained to bring a biblical worldview of money to their professional financial advice. There's more than 1500 CKAs across the country, and we would love for you to connect with one in your area. In fact, if you're interviewing a new advisor, I'd recommend you interview two or three. Find the one that's the best fit.

You can find a Certified Kingdom Advisor in your area by going to our website, MoneyWiseLive.org. Just click Find a CKA. Let's go back to the phones. Ro is in Chicago, Illinois. And Ro, how can we assist you today? Yes. Hi. Good afternoon, sir. How are you doing? Very well, thank you. Yes, I have a question.

I'm trying to help a friend. Actually, today she went already to two banks and applied for a new car loan. And then I think she's heading to a car dealership for the third one.

And she's trying to compare which one has the best deal. My question is, if she went for three lenders, as far as I know, the more they pull her credit, the more her credit will go down. Is there any specific how many times that a lender can pull a credit, you know, that it won't affect her credit score?

Yeah, I think you're breaking up there a little bit, but I think I got most of your question here. You're exactly right. You know, when you authorize a lender to pull your score for the purposes of determining whether or not they're going to extend credit to you, that's considered a hard inquiry as opposed to a soft inquiry where you pull it yourself or you get it from your credit card company just for your personal use, which does not affect your credit score. But that hard inquiry does because as a part of the algorithm, it is seeing you as out there looking for additional credit, which kind of by default by default or design, they then take that to believe that, you know, they should bring your credit score down slightly. Here's the thing, though, any inquiries that you authorize for lenders within a 14 day period for the same type of credit are seen as one. So if you're shopping for a car and you authorize three different dealerships within a 14 day window to pull that credit, again, that's only going to be seen as one inquiry. Now, you know, some lenders will pull your credit twice, once at the beginning of the application process. And then again, just before the end of that process to make sure nothing has changed significantly. And that in and of itself could end up if it was outside of that 14 day window, which it typically is not, could end up being seen as more than one. But at the end of the day, multiple inquiries typically don't affect most credit scores, according to what we read at Equifax, and certainly not within that 14 day window.

So I think she's safe. Now, what I would encourage her to do and all of our listeners to do is go and pull a copy of your score before you go out and shop for a loan. You can get it from your credit card company, you can get it from Credit Karma, you can get it from a number of places now at no cost. And as you're considering various options, let them know, here's my score as I've pulled it. I realize that if I authorize you to pull it because I want to do business with you, you're going to need to pull your own and that's okay. But for the purposes of our initial conversation and negotiation, you could begin to talk in terms of the score you've pulled yourself and try to limit the number of people pulling that score.

But that 14 day window does help. And so I would just remind her of that. Hopefully that gives you the information. I appreciate you checking in with us on her behalf. Let's head to Cleveland, Ohio. Mike, you're next on the program. How can we help you, sir?

Yes, thank you. We've had a very optimistic run in the stock market and I'm wondering what you see going forward. I personally am beginning to be more pessimistic. So two part question. Would you comment on that? And then also to move into more defensive investment strategy, what does that mean?

How can we do that? Yeah, well, it's a good question. And, you know, Mike, I think as we look out, we have to first make sure that we're invested properly. So when we look at biblical principles, we should have a long time horizon. We should be steady plotters, not investing in speculative investments, but really taking a properly diversified approach with a large number of investments, not highly concentrated, and not trying to jump in and jump out and time the market. Now, I'm not hearing that from you. You're just recognizing that we may be due for a cyclical kind of rollover, given that we've been in a bull market here for 12 plus years.

And that very well could be the case. But keep in mind, even though there are some warning signs ahead, right now the economy is essentially reopening from a self-induced recession because of the pandemic. We're expecting growth in GDP higher than it's been in 20 years.

That's all good. We still have low interest rates. Unemployment is staying in check. Inflation is probably the biggest concern out there as a result of all the stimulus that we've had. And that's really what's driving the market today, now down 700 points here at the close, because there was some hot inflation readings that spooked investors. And that's something to keep an eye on, even though the Federal Reserve says it's probably going to be a temporary spike. Are they right? Well, we'll see over time. But I think the key is if you're invested properly, meaning a long time horizon and according to biblical principles, then you stay the course.

You do check yourself to make sure you have the right allocation, though. We're going to take a break. We'll be right back.

Thanks for joining us today on MoneyWise Live, where God's Word intersects with your financial life. Just before the break, we were talking with Mike, who asked whether it's time to get more defensive with his investments. And just to finish my thought there, we had to hit a break. You know, as I was sharing just before the break, you know, we're in a period right now where we've been in the midst of an incredibly strong market, even with the self-induced recession brought on by the pandemic. I mean, nobody would have expected we would have recovered, at least in the market, as quickly as we did.

I mean, basically, it was a 45 day event. Obviously, the economy has taken longer to recover, and we expected that. The market is a leading indicator and was pointing to the fact that once we worked through the pandemic and addressed that from a health standpoint, and the economy, both here in the United States and around the world, they were able to reopen, that the consumer was in a pretty good position. And that, in addition to the stimulus, incredible monetary stimulus and fiscal policy that supported that, was going to really lead to a strong rebound, and it has. But most economists will tell you that the market probably is a bit ahead of itself. Now, good news is employment remains in, unemployment remains in check.

Corporate earnings have been very strong. The question, the big question right now is inflation, and that's what's really spooked investors today. But that's all fairly short term, even if we think about the impact of that over the next one to two years. If we're invested for the right reasons, meaning, you know, we've got 20 years for these investments, because keep in mind, even if you're 10 years out of retirement, you need that money to last if the Lord tarries and you have good health for perhaps a couple of decades or more, even beyond retirement. So when we're invested with that type of time horizon, then it's all about do I have the right allocation? Because you don't want to find yourself in a position where you're trying to time the market in terms of when should I get out?

And then when should I get back in? And now you're trying to do something that the data just says is impossible to do effectively, which is why we stay invested. And as long as we have the right money, meaning it can wait for any market that is turning down to recover, that with time on our side, that's still the very best place to be invested for the long haul. And you look over the last 100 years, the very best place to build wealth has been the stock market, a stock and bond portfolio that's properly allocated. So that's where I would say, even though we have some kind of warning signs ahead, namely inflation and the amount of debt we have in this country and some other things, I would still stay invested, recognizing that even if we got into a recession, it would recover and move to higher ground, at least historically speaking.

So I think the last thing I would offer, Mike, is just perhaps this is a time to think about having a professional advisor come alongside you to give you counsel, because we can be emotional when it comes to how we make our decisions about our investments and having a third party, especially one that can bring a godly perspective of money walking alongside us, can really make all the difference. So I hope that helps, my friend. Let's head to Delray Beach, Florida. Heather, you're next on the program. How can I assist you? Afternoon.

Thank you for taking my call. Yes, ma'am. My question today is from my mother. She is retired.

She's 73 years old, and she was asking about investments that she could make for her grandchildren, but she's no longer working full time, so she wanted an example or examples of investments where she could only make a one time deposit. Yes. And Heather, do you think she would prefer to have this in an account that's specifically earmarked for college or something more general than that? I believe she was looking for something more general. Okay.

All right. Well, a couple of options there. I mean, if it's for college, I would encourage you to seek out a 529 and savingforcollege.com could help you determine the best state's plan for your kids for her to set up. If she wants it outside of specifically use for college, just opening a regular brokerage account in her or your name where the money is earmarked for the kids, but not necessarily in a custodial account where it becomes their assets at the age of majority is probably the best. And as I was sharing with a caller earlier in the broadcast, a robo advisor like Betterment, B-E-T-T-E-R-M-E-N-T, is very low cost, very simple to set up. They have a great website and an app, and they have no minimums. So you can get started with a very small, even one time deposit, and that would be invested in index funds that are broadly diversified, again, with very low cost, which would allow that money just to capture the broad moves of the market over a long period of time, which if it's for young children would be for a long period of time. But the money would be available to access for whatever purpose, let's say 10 years from now, when she's ready to make a gift to them to get started on their own, get their first apartment, buy a car, perhaps even use for college. So I would check that out. Perhaps it's exactly what she's looking for. Again, it's called Betterment, and you could learn more about it in the NerdWallet review.

If you search NerdWallet for Betterment, you can read more about the details from a third party. We appreciate your call today. Let's head to Ottawa, Canada. Melissa, you're next on the program.

How can we assist? Yes. Hi.

Thank you so much for taking my call. I have a question about wills and prenuptial agreements. I met my husband in Florida. That's where I used to live, and he's a Canadian. So I immigrated and got married up here to Ottawa. And part of the I don't want to say requirement, but part of the deal was that if we're going to get married, I need to sign a prenuptial agreement. So then I was more than willing to do that. I, you know, fell in love and God blessed us with three beautiful children.

So a lot has happened since then. We're still married. But my husband's father passed away, so my husband's taking over the family business along with his other with his brother. And my husband works 70 hours a week.

We barely see him. But he's he's saying he's doing it for the firm that my kids future. And so he's you know, it's basically a sacrifice.

So we accept that. But he did make a will. He didn't go with a lawyer or anything like he did with the prenup. He he made his own will because they have his family has a history of heart disease.

And he has a couple of other health issues. So, you know, God, it's a hard thing to talk about wills and things like that, especially in a marriage. But my concern is that will the will and the prenup somehow contradict each other if God forbid if something ever happens? Because I am completely financially dependent on him because that's the way he always wanted it for me to stay home with the children. So that's my question.

Yeah. Melissa, I appreciate your call and I know these are challenging things to navigate. I think the first and most important thing is just your and his walk with the Lord and your marriage.

And so I would encourage you to pray that the Lord would open a door to perhaps suggest some godly counseling, some Christian counseling, either through your local church or another Christian counselor in your area that could perhaps help you all address some of the issues that you're describing here with regard to your marriage and your relationship with one another and as a family. You know, with regard to the question about the will, prenup agreements and wills certainly can conflict with each other. And when that happens, a probate court is likely to find that the terms of the prenuptial agreement take precedence over the terms of the last will and testament. I mean, obviously, if it was considered invalid or it had a sunset clause, any of those things would cause that to change. But generally speaking, the probate court would look at both documents, of course, and depending upon the wording, they may rule that the terms of the prenup take priority. Again, that's all subject to change.

So I'd get some godly legal counsel there in your area and I hope that helps. Stay with us. This is MoneyWise Live. We'll be right back. Welcome back to MoneyWise Live.

So glad you're along with us today. Would you like to connect with one of our MoneyWise coaches? We've got trained volunteer coaches that are ready to serve you. They'll walk alongside you over a number of weeks to teach you biblical principles of managing money, help you set up a debt repayment plan, a giving plan and a spending plan. Also help you get acquainted with the MoneyWise app, which is available as a free download in your app store. Just search for MoneyWise Biblical Finance. To connect with a coach, head over to our website, MoneyWiseLive.org. Click the button that says, in fact, connect with a coach and we'll get you connected where you can begin to engage virtually with somebody who can really be an encouragement but also practical help to you along your financial journey.

Again, MoneyWiseLive.org. Let's go back to the phones. William, you're next on the program. Go right ahead, sir.

Hello. So I had a question about capital gains. I'm selling my house and I will be making a profit on it. And I was told that there's an exemption to get out of capital gains if you're getting married. Is that true?

And then the issue with that is I'm not getting married in the same fiscal year that I'll be selling the house. Okay. So this was your primary residence. Is that right? Yeah.

Okay. So as your primary residence, you know, there's basically a home sale exclusion from capital gains. As long as you live in the home for two out of the last five years, then you would be excluded from capital gains on that sale of the home as a single taxpayer for $250,000 worth of gain and for a married taxpayer $500,000. So are you going to have more than $250,000 in gain?

I will not gain more than $250,000, but I haven't lived there for over a year. Oh, you haven't? Okay.

So yeah, you had to be a two out of the last five years. I'll ask my team to look at that. I'm not aware of any other exclusion that would allow you to miss that gain if you've only been there a year and you're planning to move.

But certainly we can take a look at that and see if there's something else there. I would always encourage you when you have a change in your financial life and getting married is certainly one of those major changes for you to seek out a tax professional who can walk alongside you as you all begin to now file jointly and put your financial lives together. Just making sure everything is being done properly.

You're taking every deduction available to you, but you're also filing on a timely basis. So if you need a certified Kingdom Advisor in the tax and accounting area there in Ohio, William, just head over to our website, MoneyWiseLive.org to connect with a CKA and I think that would be a great next step for you. We appreciate your call.

WGNB is next up calling from Michigan. Ed, go right ahead. Yeah, my question is when people pay online, like using PayPal, I've heard of a thing called Stripe. I'm not sure if that's the right word for it. Yes. Have you heard of that? I have, absolutely. Okay. Is that any good?

What do you have to say on that? Can you use your debit credit card using Stripe? Yes. It's just a processor of payments. So both PayPal, which is a very well-known name and very easy to use, and Stripe are very, very popular. Both of them charge a percentage plus a certain fixed amount for an online transaction, and Stripe has become massive.

I mean, they power some of the biggest brands out there in the marketplace like Lyft and Under Armour and Pinterest, and so it's becoming very, very popular. You don't need a Stripe account, only a debit or credit card, and it's a really simple process. So you would find that they have all of the latest security features, and they are certified by the payment card industry as a PCI service provider, level one, which is the highest level of security in the payments industry. PCI has become kind of the gold standard as of late and is the requirement for those that accept online payments related to security, and they're the highest level.

So I wouldn't have any issue with you using Stripe to conduct business online, and again, it's one of the biggest players out there. So hopefully that's helpful to you, Ed. We appreciate your call today. Let's go to Isa in Indiana.

You're next on MoneyWise Live. Go ahead. Hi.

Thank you, Rob, for accepting my phone call. Yes, ma'am. My question is, well, I guess I had a situation.

I've been working really hard on my credit, gotten it almost up to 700, and then one of the creditors, I paid it off, which I thought was the right thing to do, and one of my creditors closed my account due to inactivity, and then my credit score plummeted 109 points, and I'm so bummed, and I was wondering if there was anything that I could do about that. Yeah. Well, are you carrying a balance, Isa, on the other accounts that are still active? Yes.

Okay. Now, so what happened there likely was that when that account was closed based on inactivity, and that would have been in the fine print when you opened it that says basically with a certain number of months of inactivity the account can be closed because they want to go ahead and extend that credit to somebody who's going to use it because that's how they make money. Doesn't mean you should have been using it.

It's just that's how the industry works. As soon as that account was closed, then that credit limit was removed from the total credit that's available to you, which meant that the balances you were carrying were a higher percentage of your overall limit. And as that percentage moved up, what's called your credit utilization ratio, your credit utilization went probably above the 30 percent threshold, which causes your score to come down.

So the only way to reverse this would be, number one, over time. Number two would be to get that credit utilization down. And I would encourage you, rather than opening up new accounts, I would encourage you to just really focus on paying down your debt and getting on a plan that's going to allow you to pay that off as quickly as you can, whether that's through a credit counseling program or just limiting your lifestyle and trying to pay as much as you can toward the balance each month.

But that's what's going on here. You know, the key here, though, Isa, is I'm much more interested in your financial health and you being on a solid financial footing than I am your credit score. You know, that's only going to come into play when you're out there seeking new credit because you want to be able to qualify for the best rates and terms. But if you're not out there looking for credit and, you know, I hope you're not out there seeking a lot of new credit, then it really doesn't matter that you saw that decline. And you can reverse that by continuing to be an on-time payer and continuing to focus on paying those balances down over time. If you want to connect with our friends at Christian Credit Counselors for a credit counseling program, that could be a great way to accelerate your debt reduction. You'll find them at christiancreditcounselors.org. We appreciate your call today. Let's head to Florida next. Paul, you're on MoneyWise Live. Go ahead. Yes, I've been listening to Moody's since 1986 and it's been a big part of my life.

Glad to hear that. My question is in regard to I'm 70 years old. I have about $50,000 a year income between Social Security and a pension and I have no debt. And I have about $200,000 invested in mutual funds. I think it's five different mutual funds earning between five and seven percent over the last 10 years. And I'm content there, but I'm just wondering if half of them are at a higher level of risk and half are at a lower level of risk. Do you see any reason why I should have all on a lower level or just say where I'm at? Sure.

It's a great question, Paul. Let's run back through those numbers again quickly. What did you say the total of the investment portfolio is today? About $250,000.

$250,000. All right. And you said you've been earning between five and seven percent annualized each year? Yeah.

That's been average over the last 10 years. Sure. And what's the breakdown between stocks and bonds in that portfolio? I have no bonds.

I had some in the beginning. Okay. So it's 100 percent in stocks. And are you pulling an income off of that?

No, I'm just being reinvested. Okay. And so you're covering your expenses right now with Social Security and other sources? Yeah. I only spend half, well, about 40 percent of my income is what it takes for me to live. The other 60 percent, I give it to my church and other places. Great. Yeah. So you're obviously living well within your means, living modestly.

I love that. And this money is able just to continue to grow. It could be there down the road if you needed assisted living or some sort of long term care, which could get quite expensive. So I like the idea that you would have this money growing. Having, though, 100 percent of your investable assets in this season of life at the risk of the stock market does seem too aggressive to me. I would tend to ask you to have something more like 30 percent in stocks and maybe 70 percent in bonds.

You've probably done quite well over the last decade or so. But as we head into the prospect of a market that could hit a bump in the road with a recession a year or two down the road, once we work through all this stimulus and fiscal policy and the economy reopens fully, you know, this this economy has been on quite a tear on the upside. So I could see us having a downturn here in the next couple of years. And I wouldn't want 100 percent of your assets, at least your investable portion, at the risk of the stock market. So I encourage you to seek out an investment professional, Paul, that can help you build a portfolio that takes the risk level way down so that it's there if you need to begin to draw on it.

But if you saw a decline in the market of, let's say, 35 percent, you wouldn't see your portfolio go with it. You can find a C.K. at our Web site, MoneyWiseLive.org. Folks, thanks for being along with us today. That's going to do it for us. I want to say thank you to my amazing team, Deb Solomon, Amy Rios, Jim Henry and the rest.

MoneyWiseLive is a partnership between Moody Radio and MoneyWise Media. We'll be back tomorrow to do it all over again. Hope you can join us. We'll see you then.
Whisper: medium.en / 2023-11-19 04:00:49 / 2023-11-19 04:17:51 / 17

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