Credit Lock v.s. Freeze. Don't Get Fooled.

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Dear Alicia, 

I have been following your newsletter telling me that credit freezes will now be free. The other day I was watching television and saw an advertisement for Experian's Credit Lock Services. Should I sign up for that instead of the freeze? It sounds exactly the same to me.

Thanks,
Credit Craig

Dear Craig,

Great question! A credit freeze and a credit lock are two separate services. They are very similar but do have distinct differences.

Credit Lock:

Instant lock. The main benefit of a lock versus a freeze is that a credit lock is supposedly easier and quicker. Experian says you can unlock “with a touch of a button,” while TransUnion says you can lock or unlock “with a single swipe or click.” Consumers simply have to sign into their online account to lock or unlock. The three big credit agencies also provide a mobile application.

Additional benefits. When you pay for a lock, it usually comes with added benefits like the ones below. * Credit report monitoring * Social Security Number scanning * 3-Bureau credit scores * Adding additional family members * ID Theft Insurance

Monthly Fee. Experian's lock will cost you $19.99 a month (free for the first 30 days). Transunion's credit lock plus is $19.95 a month and offers the ability to lock your Transunion and Equifax accounts. Equifax is the only one of the big three that still advertises their lock services "are free for life". The only problem is you need to lock all three to be secure. Locking all of the big three would cost you $39.94 a month and would have double coverage of the extra paid services that come with the Experian and Transunion locks.

Not governed, so they sell your data. This is the main pitfall. Because credit locking is not governed, all three locks can have different rules. Make sure to read the terms to know what each company is doing differently. One article brought up that using a lock service gave the companies access to still sell and use your data for marketing, whereas if you have a freeze, it is not allowed.

The marketing tries to convince you it's a better choice. As to why you saw a commercial for the locks, remember anything a for-profit company advertises and spends marketing dollars on, is most likely because it benefits themselves.

Credit Freeze:

Governed by state laws. The best quality of the freeze is that it is a regulated program. Because of this, the freezes will be held to a higher standard and cannot change their terms. This also takes away the companies abilities to use your data for other purposes, such as selling your data to marketers.

100% free in all states. Previously it cost money, depending on the state you lived in, to freeze your credit. After the Equifax breach this year, the government passed a law for freezes to be free in all states as a way to encourage consumers to protect their credit. As of September 21, 2018, you can freeze your credit report for free no matter where you live. The links to the freeze webpages for the three major credit bureaus are below. The big three are not the only bureaus that collect your data. In a distant fourth ranking is Innovis and father fifth is NCTUE (Telecom and Utilities data report). We suggest freezing all five.

Follow these links to set up a freeze for free:
Equifax: https://www.equifax.com/personal/credit-report-services/
Experian: https://www.experian.com/freeze/center.html#content-01
Transunion: https://service.transunion.com/dss/orderStep1_form.page
Innovis: https://www.innovis.com/securityFreeze/index
NCTUE: https://www.exchangeservicecenter.com/Freeze/jsp/SFF_PersonalIDInfo.jsp

Extra protection. When you initially freeze your credit report, you will get a random personal identification number (PIN). To thaw and re-freeze your credit, you must provide the PIN that was assigned to you. Besides the PIN, they will also ask you to provide identifying information to complete the process. These are two extra layers of needed information that the lock doesn't require. With a lock, if your cell phone, ID, and password got into the wrong hands, they could instantly unlock your credit and create havoc. This makes the freeze much more secure. Just don't forget or lose your PIN. Store your PINs in a safe and secure place.

It can take three days. The general rule for a freeze is that you should allow up to three days to thaw or refreeze, but from our experience, unfreezing can be fast and easy. A TransUnion spokesman says it only takes within 15 minutes to implement a thaw by phone or online. This makes the benefit of the instant lock minimal to nonexistent. Once you find out which credit agency the bank or organization is going to pull from, call or use the online system at that agency to request a "thaw" of your credit report.

Speculation of future issues. The devils advocate perspective is, now that the credit agencies are no longer making money on the freezing services, will the services become harder to obtain or will the waiting period become longer? Could they use this as a tactic to get consumers to use their lock services, where they will have control of the service offering and price? As of now, it is unsure as only a few days have passed since the official "free" date. The only drawback noticed by users so far is that the free freeze isn't promoted on the front pages of their websites and in some instances trying to sign-up for a freeze has caused the sites to crash, making you come back at a later time to try again.

Overall: Both freezes and locks meet the goal of preventing a fraudster from opening new credit in your name. For the most regulated product that is now free for everyone, we still recommend sticking with a freeze.

Lastly, remember that placing a freeze or lock does not prevent you from using existing lines of credit you already have open. This also means they don't help to prevent criminals from gaining unauthorized access to your existing accounts. Even if you freeze or lock, still check annualcreditreport.com to review your credit report regularly and take normal precautions, such as alerts and strong passwords.

Resources: https://krebsonsecurity.com/2018/09/credit-freezes-are-free-let-the-ice-age-beginhttps://www.nasdaq.com/article/credit-lock-vs-credit-freeze-how-these-security-options-stack-up-cm856592

Can't get yourself FIREd? You can still have a LIFE.

FIRE stands for financially independent, retire early. The movement continues to grow, with retirees in their 20's through 40's. It has caught on because it is unexpected - we don't picture retirees being so young.

Read More

Ask Linda: I moved to consulting status - now what?

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Dear Linda, I recently transitioned from being a salaried employee to a self-employed consultant. I like the flexibility but realize that I have more responsibility with regards to my finances. For example, I was previously enrolled in my employer's 401k plan and now I am not sure how to save for retirement. I am also confused about taxes - my employer withheld money from each paycheck but no taxes are being withheld when clients pay me. And people keep saying I can "write things off", but I am not sure what that means.

Consultant Christopher

Dear Christopher,

This transition can be confusing, but as long as you stay organized you will be fine. Here are some recommendations to help get you started.

Track all income & expenses related to your consulting work.

Open a separate bank account for business activity. Save all invoices and receipts relating to the business transactions. While not necessary, we also recommend using a bookkeeping software, such as Quickbooks Online, to generate invoices, attach receipts to transactions, and run reports that will help you at tax time.

Pay your taxes throughout the year.

You may need to calculate and pay estimated tax payments. Alternatively, you can increase your spouse's withholding if you are married and filing jointly. If you do not withhold or pay enough in estimated taxes you may incur a penalty. Work with a tax preparer if you have any concerns about the calculation or process.

Take advantage of "write-offs" and document your work mileage.

Deductions, or "write off's", are eligible expenses that reduce your taxable income. Examples include advertising costs, professional fees, and insurance premiums. You can also write-off expenses related to your work area at home as long as it is used solely for work. If you drive for work, you can deduct car expenses but a mileage log is required to justify the deduction. It is hard to re-create this at tax time so start keeping track now if it is something you plan to deduct. Leave a notebook in the car that lists the date, mileage and business purpose of each trip including the start and end location. You also need the odometer reading the first and last days of the year that the car is used for business (the tax return will ask for personal vs. work miles). There are phone apps that track mileage including one that links up to Quickbooks, so find what works best for you.

Continue saving for retirement.

Check with your financial planner to determine the best type of retirement account to use. Examples include the SEP IRA, Traditional IRA, Single 401k and Roth IRA. They all have unique characteristics and contribution limits so it will depend on your tax bracket, expected income, and other details relating to your personal situation.

Re-evaluate your personal insurance coverage.

Don't forget to seek out any coverage you may have lost when you transitioned to self-employment. Examples include medical, life and disability insurance.

Good luck!

This information is not a substitute for tax advice. We recommend speaking with your tax advisor if you have any questions relating to your particular situation. PWR offers Tax Preparation and Advisory Services. Learn more.

"Ask Linda" is a monthly personal finance column where the founder of Planning Within Reach, LLC, Linda Rogers, picks one question from her readers and publishes a detailed answer with the hope that it benefits others. If you would like to ask Linda a question, email her or contact her on Twitter.

How to Recognize a Ponzi Scheme

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A Ponzi scheme is a fraudulent investment. The organizers of the scheme do not invest your money in something with intrinsic value. Instead, they pay you a "return" with the contributions of new investors. Ponzi schemes received their name in the 1920's after Charles Ponzi was convicted of running this type of business. Despite all the knowledge we have of previous Ponzi schemes, they continue to defraud people from all walks of life. We are even seeing a new wave of Ponzi schemes involving virtual currencies, such as Bitcoin. Here is a summary of what to look for to protect yourself against Ponzi schemes:

High returns with little or no risk.

All investments, especially those expecting higher returns, involve risk. Be suspicious if someone is selling you an investment that allegedly defies the odds.

Unusually consistent returns.

Investment values go up and down on a daily basis. If your investment generates regular, positive returns, regardless of the overall market, that is a red flag.

Unlicensed sellers.

Most, but not all, Ponzi schemes involve unlicensed individuals or unregistered firms. Research your Broker or Investment Advisor to confirm they are registered with the SEC or required state regulators.

Unregistered investments.

Ponzi schemes typically involve investments that have not been registered with regulating authorities. By not registering, they can avoid disclosing details about the company's management, products, services, and finances.

"Black box" strategies.

Don't invest in something you don't understand. It is not a good sign if your Advisor grows irritated with your questions or treats you as if you don't understand something that is obvious.

Lack of detailed or complete paperwork.

You should be able to read about an investment in writing. Confirm the paperwork is detailed and complete without spelling and grammatical errors.

Difficulty receiving your money.

As the pool of investors grows, it becomes increasingly difficult to recruit enough new investors and contributions to keep the scheme running. Therefore, the organizers may encourage you to re-invest your return versus withdrawing it. They may also become more aggressive with their sales tactics and encourage you to tell your friends and family about the investment. If you were told the investment was liquid, but you are unable to retrieve your money in a timely matter, or without significant penalties, that is cause for concern.

Unfortunately, if you are caught up in a Ponzi scheme, there is no guarantee that you will get your money back or that the perpetrators will be prosecuted. There are many reasons for this, one being that the statute of limitations on financial crimes is five years. PWR is fighting to get this extended, but the reality is that many people don't realize they have been defrauded until year two or three, leaving insufficient time to complete the necessary legal proceedings. Therefore, the best way to protect yourself is to avoid a Ponzi scheme altogether.

Source: https://www.sec.gov/fast-answers/answersponzihtm.html

Credit & Debit Cards to Use Abroad

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Are you traveling abroad this summer and unsure which of your "plastic" you should bring with you? Travel is already a luxury but it can get even more expensive when each purchase is racking up additional fees. Recently I went to Asia and did some research of my own. Hopefully, this will help you decide which of your cards you should bring, what fees you should know about, and when to use a debit card versus a credit card.

Credit Cards

Fees

Foreign Transaction Fees. This fee is a surcharge for making a purchase in a foreign currency. Most often the fee is about 3% of the total transaction. Foreign Transaction fees are very common on most regular credit cards, but many travel cards do not have this fee. The Chase Southwest credit card, for example, does not charge a foreign transaction fee.

Good To Know

Check your card benefits. Credit cards often offer nice benefits, such as included travel insurance or lost baggage reimbursement, when you book your travel with your card. Check your card benefits before you buy extra trip insurance when booking flights and hotels, as it might be double coverage you don't need. Easily dispute a wrong transaction. Keep all of your receipts until transactions are posted to the card, as this will give you proof against fraudulent transactions. Always choose the foreign currency. You might be asked if you want to charge in dollars or the foreign currency. Always choose foreign currency because your card issuer will give you a better exchange rate on foreign transactions than the vendor will. If you brought a card that does have a foreign transaction fee, it could be better to charge in USD to avoid the fee depending on the difference in rate.

Issues

Check if your provider is accepted where you are going. When going abroad, it is best to stick to Visa or Mastercard, as American Express and Discover are less widely accepted worldwide. Cash is king. In many countries, you will find that most places are cash dependent. Remember credit is not always accepted and you will need to have some cash on hand.

Debit Cards

Fees

ATM fees. This fee is often set as a dollar amount per withdrawal charge for using a non-affiliated ATM. The Wells Fargo preferred debit card, for example, has an ATM fee of $5 per withdrawal. Foreign Transaction Fees. On top of ATM fees, debit cards also have foreign transaction fees like credit cards. The Wells Fargo preferred debit card, for example, will also hit you with a 3% foreign transaction fee. Withdrawing $500 would cost you $20 - $5 ATM fee and $15 in foreign transaction fees.

Good To Know

Check if your bank is prevalent or has ATM partners abroad. Citibank, for example, partners with the ATMs in 7/11 stores. Anywhere there are 7/11's you can use an ATM with no fees. Many large banks have foreign counterparts. Get cash from ATMs only. Exchange rates are often best at large bank ATMs. The worst rates are at the exchange kiosks, especially the ones in the airports. ATM fee reimbursement. Some banks, mostly ones who are entirely online, with no brick and mortar ATMs, will offer a per-monthly-cycle reimbursement of ATM fees. For example, the Ally debit card gives a $10 per month reimbursement on ATM fees. This is nice, but when abroad and using an ATM multiple times in a short period, the $10 would not be sufficient.

Issues

Little to no protection. There is practically no protection against fraudulent money transactions on a debit card. Once money has been withdrawn, you do not have the same ability as you do with a credit card to refute the transaction. If your debit card and pin were stolen, the amount in your checking or savings might not be recovered. Do not use your debit card when you are out. It is best to leave it in the hotel room's safety deposit box or in a safe place. I keep my checking and savings account balance at a minimum when I travel as I find it is easier for me to transfer money when needed than take the risk. Daily ATM withdrawal limit. Debit cards can limit the dollar amount you can withdraw in a 24 hour period. I have seen this range per bank between $300-$2,500. Not every card does, but it’s something you want to know before you leave home so you can plan accordingly.

Security Abroad

Set Travel notifications for all cards you are bringing. Notify your cardholders of when and where you are going abroad. This can be done online usually under the travel section of the website, in the bank app or over the phone.

Use your cellular data. Cellular data on your mobile phone (LTE, 3G, etc.) is a private channel and can not be accessed by others (unless allowed by opening your personal hotspot). If you must access bank and credit card information over public wifi, do so on your personal laptop and use a VPN service like encryptme to make sure your internet connection is private. Never use a public computer, especially with public wifi, to access any private information or anything requiring you to enter a username and password.

Download phone apps before you go and use fingerprints to log in. Fingerprint login's, like on the iPhone, are safer. Your fingerprint cannot be copied or stolen over the web, unlike a typed password. By downloading apps before you go and setting up a fingerprint login, you can do most all your web searching abroad without ever having to type in a password.

Make sure your phone and all apps are locked with a code. This ensures that if someone steals your phone, they can't access your personal data.

In Summary

It is better to use credit cards for purchases and debit cards to get cash. If you have multiple debit and credit cards, make a list of their fees and decide which is best to use and only bring a few cards. Don't forget to keep your research handy and somewhere easy to locate to remind yourself for your next trip!

Sources: https://www.bankrate.com/finance/credit-cards/6-tips-for-traveling-with-credit-cards-1.aspx https://www.creditcards.com/credit-card-news/credit-card-foreign-travel-vacation-tips-5623.php

PWR's Cash Flow System

To take control of your financial life, you have to be organized, and the most effective tool for this is a budget.

We created the PWR Cash Flow System to help our clients and readers get started with an easy-to-use solution to track their spending.

Start by downloading the excel found here on our downloads page. You can also watch a video on how to use this sheet on our YouTube page.

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The excel file has three tabs shown at the bottom. We will walk through how to use the three tabs and what goals, terms, and data are needed for each sheet.

Step 1 - Create a Spending Plan

The goal of step one is to analyze your current income and expenses to create a budget you can stick with. This starts with knowing your actual current spending. If there are areas you can cut or categories you would like to spend more in, adjust them here to create your new monthly budget.

Frequency: In column D you will enter how often an expense occurs. If you only pay for your auto insurance every six months, you would enter 2 in frequency (2 times a year). If you buy groceries every month, you will enter 12. We have entered the most common frequency per category type to get you started - adjust these as necessary. *Note: If you get paid "bi-weekly" or "every two weeks," your frequency for salary income will be 26. If you are paid twice a month, it will be 24.

Income: Enter your monthly income. Include any take-home wages (minus taxes and other required deductions such as insurance), family contributions or other income sources that occur regularly on a monthly basis. Then, enter your periodic income. Periodic income happens occasionally during the year. If you have a side job or if you typically receive a bonus, list those amounts as well.

Expenses: We classify types of expenses as fixed and discretionary. A fixed expense is an expense that is static and recurring. Insurance premiums and rent or mortgage payments are examples. A discretionary expense is something that varies month-to-month or can be reduced if necessary.

To obtain your expenses, review your bank and credit card statements. It is best to have the average of the last three months. The easiest option is to review annual statements from credit cards and banks who will have already categorized your expenditures for the previous year. If you have access to only what you spent last month that is still a good start. Use the numbers you have access to for now and step 3 will give you more accurate information in the future.

Savings: Your savings consist of all income that is not used to pay for your expenses. Examples of savings include retirement savings at work, a brokerage account, an HSA account or a Roth IRA. If you have goals you want to save for, such as a house down payment or a vacation, add a line item for them and enter your annual savings goal into the budget column.

Spending Category Goals: The Goal % is an excellent way to know if you are spending too much on any one cash flow category. Review the goal % column, compared to where your current category %'s are. In your budget, reduce spending in areas that are over the goal % and reallocate to areas that are under the goal %. Most importantly make sure your cash flow has either a surplus or is neutral ($0 at the end of the month). If your cash flow is negative, set guidelines on where you will cut expenses in the budget column.

Budget: Once the annual total is calculated, you can manually create your budget by typing your revised total in the total budget column. If you do not update this column, it will be equal to the annual total column. If you want to spend more or less in a specific category, enter that dollar amount in the column associated. Example: You spend $1,000 a year on gifts, and you want to reduce that to $500 a year, type $500 into the budget column for that expense. You can update this at any time if your budget changes. Note that the budget column is an annual total.

Step 2 - Create a FLEX Plan

The third tab, creating a flex plan, is optional but helpful for people trying to reduce overall lifestyle spending while not feeling deprived. The flex plan lets you strategize ways to create a cash plan for sticking to FLEX expenses.

You will see a monthly and weekly total at the bottom of Step 2. Once the FLEX money is gone, you are done spending in those categories until the following month.

This can be set up in many ways. Traditionally this is a Cash Only method, like the envelope system, and you can take out weekly or monthly cash to pay your expenses. You can also set up a separate checking account that you fund with the weekly or monthly total and use a debit card only. Try it out and determine what works best for you.

Step 3 - Track Your Expenses Monthly

Now that you know what your current spending is and you have a budget set, stay on track by filling out step 3 monthly. Review your expenses to see your successes and pitfalls each month, then adjust your plan as needed.

If you are a PWR client, we can review this spending sheet with you and use it to build your financial plan and annual updates.

If you want help with building your budget and using this spreadsheet, reach out to us at hello@planningwithinreach.com

Ask Linda: Is it safe to have all of my money at one Brokerage firm?

Dear Linda, I remember being told that I shouldn't keep more than $250,000 at one bank since that is the FDIC insurance limit. What about my money at a brokerage institution, such as Schwab, Vanguard, or Fidelity? Should I spread my money out across brokerage firms as well?

Curious Carl

Dear Curious Carl,

Protecting your money in the bank versus your money in a brokerage firm requires two separate approaches. Let me explain the process for both.

How to protect your money in the bank: This includes your checking, savings, money market deposit accounts (MMDAs) and certificates of deposits (CDs).

1) Confirm these accounts are being held at an FDIC-insured bank.

The Federal Deposit Insurance Corporation (FDIC) is an independent US Government agency that protects your deposit accounts if the insured bank fails. Your coverage is automatic as long as your bank is insured by the FDIC.

2) Confirm you are within the coverage limits.

Each "category" of account is covered for the principal plus interest up to $250,000, per bank. For example, if you have an Individual account and a Trust account, they will each be covered for up to $250,000. View the list of categories here or use the FDIC's tool, EDIE. EDIE allows you to enter your bank's name, account categories, and balances to identify any gaps you have in coverage.

There were 8 banks that failed in 2017. If it happens to your bank, the FDIC typically pays out the insurance within a few days of the bank closing. You will either be reimbursed with a check or your funds will be moved to a new account at another FDIC-insured bank. As the bank gets liquidated, there may be additional available assets that can be distributed pro-rata to those with accounts in excess of the FDIC insurance limits. These payments, though, are not guaranteed and can take several years to be fully distributed.

How to protect your money in a brokerage firm: This includes cash and securities, such as stocks, bonds, Treasury securities, certificates of deposit, mutual funds, and money market mutual funds.

1) Confirm this money is being held at a registered brokerage firm that is regulated by the SEC and under the supervision of FINRA.

Registered brokerage firms are required to keep customer assets segregated from the firms' assets. Therefore, even if the brokerage firm fails, customers' assets are safe. Periodic examinations are conducted to ensure the registered firms are financially sound and that their annual filings are accurate. They are also required to maintain a minimum level of reserves and be a member of the Securities Investor Protection Corporation, which offers SIPC insurance.

2) Confirm you are within the coverage limits.

SIPC insurance is invoked if a brokerage firm shuts down and assets are missing due to theft, fraud or unauthorized trading. Notably, this is not protection against market loss, being sold worthless securities, or bad advice from a broker. Also, SIPC insurance, just like FDIC insurance, does not come into play unless the brokerage firm is already shutting down and in liquidation mode.

SIPC protection is further limited to $500,000, which includes $250,000 in cash, per account "capacity", per firm. Examples of separate account capacities include an individual account, joint account, IRA, and Roth IRA. A comprehensive list of all capacities can be found here.

Because brokerage firms are required to keep customer assets separate, you do not need to spread out your money across multiple brokerage firms as you do with banks. If your brokerage firm fails, your accounts would remain intact and be transferred to another SIPC-insured firm.

Other steps to protect your money:

There is a much greater likelihood that you will encounter other types of fraud with your money. For example, we had a client with an old savings account at a bank. She decided to close the account and consolidate it with her other assets in an effort to simplify her financial life. Upon arriving at the bank, she learned that someone else closed the account fraudulently and took the money. Our client was referred to the bank's fraud department, which originally denied her claim. They stated that she did not check her account frequently enough and should have noticed the missing money. While they eventually approved her claim and restored her account, it was a very stressful event for the client.

To protect yourself against this and other types of fraud, review your bank and brokerage firm's fraud policy or pledge. For example, here is Vanguard's policy, which includes things such as reviewing your accounts on a regular basis and protecting your computer. For additional tips, check out PWR's 3 Steps to Keeping your Accounts Safe.

Sources: https://www.fdic.gov/deposit/deposits/faq.html https://www.sipc.org/for-investors/what-sipc-protects https://www.sipc.org/for-investors/investor-faqs/ http://www.finra.org/investors/alerts/if-brokerage-firm-closes-its-doors

"Ask Linda" is a monthly personal finance column where the founder of Planning Within Reach, LLC, Linda Rogers, picks one question from her readers and publishes a detailed answer with the hope that it may benefit others. If you would like to ask Linda a question, email linda@planningwithinreach. Due to the volume of questions received, she may not be able to answer every question in a timely manner. For advice on your personal situation, schedule an initial call to learn about our services.