Tips for Saving for your Dream Holiday

Have you been delaying your dream family holiday due to a lack of funds? Are you in need of a vacation but don't want to risk racking up any debt? Taking family holidays are important because it gives the family time to relax and enjoy time together. What could be better than creating precious shared moments with loved ones safe in the knowledge that you're not breaking the bank to do so. With some personal budgeting and a plan to save up, your wait for a dream family holiday may be over sooner than you think.



Plan Out Your Vacation
Having a clear idea of the costs of a vacation is imperative. You will have to consider the costs of lodging, airfares, petrol, rental cars, food and drinks and any extra excursions. List out all the major items and think about a number of alternatives as well. Maybe to free up some money for fun family activities you can use your credit card award points or instead of staying at a hotel you could stay at a friend or relatives house or rent an apartment. Be thorough and list all the activities you want to do, assigning a cost to each. If you buy ticket passes online for places such as Dream World, look out for special discounts and reduced prices. Also, use aggregator websites to compare prices for flights and hotels.

Set Up a Regular Saving Schedule
Once you know the cost of your vacation and the time of year that you want to go, you can figure out how much per month you need to save towards your dream holiday. It is also a good idea to set up a separate savings account to collect the travel funds. This will allow you to save rain or shine if you have an automated transfer into this account. Should the monthly saving amount seem too much, you can delay your vacation or find more ingenuous ways to cut back on your expenses.

How to Save on Daily Expenses
To reach your monthly saving target, you will have to scrutinize your spending habits and probably make some sacrifices. Tell the family that everyone will need to chip in to pay to help save for the family holiday. Here are a few simple tips to save up:

• Cook your meals and avoid grabbing a coffee on the go. This is probably the most effective way to save money. Pack simple but healthy lunches for your kids rather than have them eat at the school cafeteria – you probably don’t like the ingredients the school uses anyway! Avoid the temptation of a coffee from your local barista and make your own.
• Plan your meals ahead. Try to plan out your meals a week ahead and if you can, match your meal plan with the items on the supermarket weekly specials. Buy seasonal fruits and vegetables and buy dry goods in bulk. Cut out and use your newspaper coupons even if they look crumpled.
• Cut down on some monthly luxuries. Look through your monthly bills and see if there is a recurring cost you can eliminate: For example, cut out your cable TV subscription and stream videos online instead. Limit yourself to eating out once a month instead of once a week.
• Have a yard sale. You must have a few lovely items in your closets you don’t need any more. Clothes, books, DVDs, and old toys can easily be sold at a local yard sale
• Stop buying for 6 months. What about necessities? Of course, buy those but nothing extra. Do not be tempted by sales and consider swapping items you need with friends and neighbours.

With a budget, a saving plan, some self-control and support from each family member, you can easily achieve your dream holiday. You can fully enjoy your holiday and be proud of the fact that you have not incurred any extra debt. The family not only shares some great holiday memories but also learns to save more regularly, helping you save towards your next vacation!

Image Credit
Image courtesy of phalinn / flickr.com

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DC

The Fiscal Cliff

The PR folks over at TurboTax (Intuit) recently sent me a message with information about the upcoming "Fiscal Cliff". I know that a lot of readers are concerned about how potential tax law changes will affect their taxes in the future. I have heard reports of people selling their stocks now (in 2012), so that they can "lock in" any gains they have at the current tax rates. The news is filled with stories about the "Fiscal Cliff" or of "Taxmaggedon".

But, the tax experts advise us not to panic. They have broken it down for you to understand how these tax law changes will affect your taxes. Here is an excerpt of what the experts at TurboTax have to say about the topic:

Let’s start with the facts.

Every year, a small portion of the IRS tax code expires, requiring Congress to pass laws to extend them.   This year is no exception. There are a handful of tax laws that will expire if they are not extended by December 31.

So what’s on the table?

Alternative Minimum Tax (AMT) Patch

The AMT was originally created as a special tax for the wealthiest taxpayers.  Today the AMT usually hits taxpayers who have a household income over $75K and are married with more than two kids.

This is where a lot of the hubbub is coming from because unless the AMT is patched by Congress by the end of the year, an estimated 26 million households will, for the first time, face the AMT, which threatens to add an average of $3,700 onto taxpayers’ bills for the current tax year.

But the reality is that, historically, Congress has patched the AMT every year, since 1969, without fail.

Tax Extenders

The “Tax Extenders” refer to a broad set of temporary tax laws.  Here is a short list of the higher-impact tax deductions and credits that are included in the “Tax Extenders” package currently on the table:

Tuition and Fees Deduction:  This tax deduction allowed some college students or parents to deduct education expenses related to schooling, including tuition, books and other supplies.   TurboTax data shows that about only 2% of our taxpayers claim this tax deduction.

Residential Energy Property Credit:  This tax credit increased the energy tax credit for homeowners who made certain energy efficient improvements to their existing homes.  TurboTax data reveals that only an estimated 4% of our taxpayers claim this tax credit.

Educator Expense Deduction:  This is a $250 tax deduction available to teachers K-12, who purchase classroom supplies.  TurboTax data shows that only about 3% of our taxpayers claim the Educator Expense Deduction.

While only a small percentage of TurboTax customers claim these tax deductions and credits, be assured that no matter what is decided, TurboTax will be fully up to date with the latest tax laws shortly after decisions are made.

Bush-era Tax Cuts

As the name implies, the “Bush Tax Cuts” were tax cuts first passed in 2001 under George W. Bush and then extended in December 2010 by President Obama

The tax deductions and credits included in the Bush Tax Cuts do not impact your 2012 taxes.  They won’t come into play for another year, when you file your 2013 taxes. What you could see next year is changes to your paycheck, starting in Jan. 2013, due to changes in 2013 tax brackets.

So when will we know for sure? No one knows. But it’s not uncommon for tax laws like these to not be extended until midnight on Dec. 31.

You can read the entire article on the TurboTax blog here:

Don’t Fear the “Fiscal Cliff”: TurboTax Gives You the Tax Law Facts

Note to Commenters: If you represent a company such as Intuit, H&R Block, Microsoft, etc., please leave your contact information or send me an Email (my Email address is listed in the sidebar) to let me know that you left a comment. If I cannot determine that your comment is authentic, it will be deleted.

The information in this article was provided by TurboTax (Intuit). PFStock does not provide tax or investment advice. I encourage readers to consult with a tax adviser if they have specific questions about their taxes.

PFS

The Golden Rules of Investing

Earlier this year some folks from the U.K. came to our house to make videos in which I pontificated about passive investing. Some of the material will be included in longer pieces on their site but short snippets are also available there.

Here is one on my views of the two most important rules of investing:

The Golden Rules of Investing (Video)

The Capital Asset Pricing Model in Brief

Here is a very short video made at our home by the folks at sensibleinvesting.tv. In it, I explain the essence of the Capital Asset Pricing Model. As one can imagine, I have said more (much more) elsewhere.

Here is the link:

What is the Capital Asset Pricing Model?

Magical Thinking about Pension Plans

This year I was fortunate enough to be awarded the Lillywhite Award for extraordinary lifetime contributions to Americans' economic security. Dallas Salisbury, President of the Employee Benefit Research Institute which sponsors the award, presented it to me at the Pensions and Investments Defined Contribution Conference in San Francisco, California. The following is a slightly edited version of my invited remarks thereafter.

I started studying pension funds when most people had defined benefit plans. No decisions. You worked, you got paychecks. You retired, you got smaller paychecks, You died, your partner got even smaller paychecks. He or she died, the paychecks stopped.

Now defined benefit plans survive mainly in the government sector. Social Security of course. And pension plans for government employees. But they can teach us something about defined contribution plans.

Take CalPERS. It covers non-teaching state and many local government employees in California. And, officially, it is substantially underfunded. This is based on the assumption made for funding by the CalPERS actuaries that their portfolio of bonds, stocks and exotica will return exactly 7.5% every single year. Moreover, they value assets at an average of past values.

Magical thinking. Bad economics.

Almost every economist who has looked at similar pension funds concludes that assets should be valued at market and that liabilities should be valued by determining the cost of a low-risk government bond portfolio that could provide the funds to pay the benefits already earned. For CalPERS this portfolio would be primarily in TIPS since their benefits are mostly indexed for inflation.

When the liabilities are valued with good economics, the extent to which CalPERS is underfunded is not just substantial – it is woeful.

But this is a Defined Contribution conference. Employers in the DC world have no liabilities and mark assets to market – in some cases every day. No magical thinking. Good economics.

Yes, but...

Sometimes in projecting the amount that should be contributed to a defined contribution plan there is magical thinking. We or our employees may assume the portfolio will earn 7.5% or so per year for sure. The market may go down, but if so it will feel sorry for us and go back up in short order.

But the good news is that we are getting better in helping employees get a sense of both expected return and risk in the accumulation phase.

But not always in the decumulation phase.

As the baby boomers enter retirement, every part of the financial industry is lusting after their money. Financial advisors have strategies for managing investments and spending. Insurance companies have traditional annuities and guaranteed withdrawal plans. Mutual funds have retirement income products. Employers have extensions of 401(k) plans. Everyone wants a piece of the action.

For good or bad reasons, left to their own devices, retirees invest relatively little in traditional annuities, foregoing the significant advantages of pooling mortality risk.

Moreover, thanks to Chairman Bernanke and his counterparts around the world, low-risk investments currently offer paltry nominal returns and negative real returns for all but the very longest horizons.

What's an investor to do? A frequent answer is this. Invest in risky securities, which should provide higher returns. Spend on the assumption that returns will be 7.5% (or so) per year. Not to worry, returns may vary, but they will average out in the long run. Once again, magical thinking and bad economics.

So what should financial professionals, do? One answer is to use Monte Carlo analysis with a sensible market model to generate possible scenarios for future investment returns, then use the results to help investors understand the true implications of alternative decumulation investment and spending strategies.

Admittedly, neither the creation or the communication of such ranges of outcomes is easy. But investors need to understand that if they take market risk, someone will be exposed to that risk. If something bad happens, it is going to happen to someone. It might be them or it might be their beneficiaries. Their financial advisor, investment company or employer may get smaller fees, but won't bear the majority of the impact. And if insurance companies take market risk, they do so at their peril or, worse yet that of the taxpayers who might have to bail them out.

Pooling can't help – when the market crashes it takes almost all the players with it.

If your investments are subject to market risk, so are the prospects for your spending and/or that of your beneficiaries. Even the cleverest financial strategy can't magically make market risk disappear.

So, I implore all those who help people save and invest for retirement and then use their savings sensibly in retirement. Please avoid magical thinking and bad economics. Employees and retirees deserve better.

Money Market Rates 10/12

Here are the latest money market interest rates of the banks that I've been tracking on my blog. Note that these rates are sorted by APY, and represent institutions that I have accounts at, or have otherwise mentioned in my blog:

0.95% Ally Bank Online Savings
0.90% American Express High Yield Savings
0.80% Discover Bank Online Savings
0.75% ING Direct Orange Savings
0.65% Urban Partnership Bank Online Savings
0.65% FNBO Direct Online Savings
0.40% HSBC Advance Online Savings
0.25% Western FCU Money Market
0.15% Chase Plus Savings
0.10% Citibank Savings Plus

In some cases, MMA interest rates are tiered. If this is the case, I usually report the interest rate at the $10,000 tier in these updates.

Rates are believed to be accurate as of 10/11/12. I did not include banks that had special, or introductory rates in the list because they are not ongoing interest rates. I am also not including non-liquid accounts such as CD's in the list. I have included a few credit unions in the list so that readers have a comparison point with banks.

It seems the Ally Bank Online Savings is still at the top position on this list while increasing their interest rate to 0.95%. This month, I am dropping Travis CU, Patelco CU, and E*TRADE from my list. These three institutions have been at the bottom of the list for several months, and I don't feel it is worthwhile to track them anymore.

The frequent changes show how changeable the money market is. Because this is a constantly moving target, it has been very hard to keep track of the rates that I've been getting in my various money market accounts, and this is the main reason I've decided to compile a list of these annual percentage yields.

So, that is the latest list of money market rates. Please let me know if you know of any higher interest rates.

DC