Week 8 – Reading the fine print

Hi there! Welcome back to 8-week challenge! I hope the past 7 weeks have provided you with information and tips to challenge you to explore and improve your financial wellness. This week we will explore: Reading the fine print 

Week 8: December 28 – January 3

Financial Wellness Challenges – Activity for the week:

Reading the fine print

Reading the fine print can be applied to many of our finances from credit cards to retirement. It’s important to read and understand the details of the services and products we buy and the expectations of paying for them. Reading the fine print can keep you from spending extra money or getting an unexpected rise in a monthly bill or it may help you cash in on extra savings. 

Credit cards

Many credit card companies will offer little to no interest for a year to get you to sign up for their card. By all means, take advantage of these interest rates, just make sure you read the fine print to see how much you will be paying for interest after that year.  Some cards also offer cashback bonuses throughout the year and no annual fees. 

First, review each credit card on its own creditor website, i.e. Discover.com for a Discover credit card to get the details of what that company is offering.

Next, compare what you find out about each card you are looking at by using a non-bias review site such as nerdwallet.com for their side-by-side tool.  Again, read the fine print and compare before making your decision. 

Loans

There are many types of loans: student loans, car loans, mortgages, miscellaneous/personal loans.

Whatever the loan type, make sure you understand clearly what your loan amount is, how much interest you are paying, the kind of interest (fixed, variable) the APR (annual percentage rate), when you start paying the loan. Also, be aware of prepayment penalties. 

Lenders make a profit off of the interest they earn from the loan you have, therefore, they want you to pay off the principle slowly so they can make more money (causing you to pay more interest). The lender may charge a penalty fee if you pay off the loan early.  Read the loan thoroughly and talk with your loan officer to get any questions answered that are unclear.

Payday Loans

I have this separate because this is a different type of loan. I never recommend this type of loan but unfortunately, many people have been faced with not knowing what to do when they are in dire need and turn to payday loans. 

Payday loans are designed to loan money only until the customer receives his/her next paycheck but can be rolled over if state regulations allow it. PayDay loan companies charge customers $10 to $30 for every $100 borrowed for a two-week loan, which can turn into a 400% annual interest rate.

The average APR (annual percentage rate), also dependent upon state regulations, ranges anywhere from 254% in Virginia to 652% in Nevada, according to a 2019 article in Forbes. Each state has its own regulations for payday loans, Virginia has more consumer protections which is why the rate is lower.

If you must seek a payday loan, read the fine print, and know how much it will be costing you as opposed to going to the bank for a miscellaneous loan or going to friends and family.

Subscriber services and product order

Television, internet, cable, and phone services are the main services that come to mind.

Television services are one of the most popular ones and probably have the most stipulations such as “after a year you will pay $65.99 per month for service and an additional $5.99 per month for the receiver”. However, there are other services that people sign up for through ordering sites that they may not be aware they are signing up for.

Sites may give you a discount on the product but enroll you in a membership to be charged monthly. You may see a product that is advertised as free but find out that you have to pay full price if you do not return it within a trial period and you are automatically signed up to pay full price of $94.99 and receive a shipment each month.

Read the fine print before you finish the order so you know what you are actually ordering and what to expect each month.

Checking accounts:

Check the fine print for fees on your account. 

• Are there fees to open the account or monthly fees to keep the account? 
• Fees to pay with checks-or if you write more than a specific number of checks? 
• Do you get charged if you drop below a certain balance? 
• Is there an overdraft fee or protection fee from overdrafts? 
• Is the first overdraft forgiven? 

Reading the fine print

I look for a checking account that has a very low amount required to open it, usually $50, and one that does not charge a monthly fee to have it or to write checks on it.

Usually, overdraft protection is offered and it is a free service until it is used. Overdraft protection means the bank will cover the amount of the check or ATM or debit card transaction if you have overdrawn but charge you a fee for doing so, usually around $35 to cover it. It’s like a mini loan. This can be both good and bad. 

The good part is the bill is paid even if you don’t have enough money in the bank, the bad part is you pay an additional $35 or whatever the bank charges for paying the bill for you. It depends on how you look at it: if it is a bill that can’t be late and is a must-have payment, then an extra $35 in fees may not be a bad thing for you. On the other hand, if you are out shopping and just overspend by mistake, that can be a costly mistake.

Again, reading the fine print to see what is offered and what will work for you. 

Savings accounts:

Look at the requirements for opening a savings account, keeping it open, and the return on your money.

• What is the interest rate you earn? 
• What is the APY (annual percentage yield)?
• Do you have to keep a certain balance? 
• Can you transfer your money to your checking account or pay bills without any penalties?

The interest rate you receive is the rate you receive without it being compounded. The APY is the total amount of interest you receive from leaving your money in the account for a year.

Look for accounts that will compound interest monthly to get a higher return on your money. The interest rates and APY depend on the bank you go to and currently, it is very low. 

A high-rate savings account may pay more interest than a regular savings account. You can search for options on the internet.

Retirement funds

What is the return on your money? Is the money you put in the fund tax-exempt or the money you earn tax-free? How safe is it? What is right for you?  Check out retirement options and schedule an appointment with a retirement planner to help you answer these questions and more.

Retirement options:

• 401k: employer matches the amount the employee contributes up to a certain percentage-usually 6% is the max the employer will match. There are traditional and Roth 401K plans. Both have tax advantages.

• Traditional 401K: contributions are tax-free reducing the amount of gross earnings for the current tax year and reducing income taxes for the current year. Money is taxed when it is withdrawn.

• Roth 401K: contributions are taxed but withdrawals are tax-free

• IRA: Individual Retirement Accounts are not sponsored through an employer. This is an investment account that is separate from a 401K plan. It is set up through a bank, investment firm or insurance company. They are made up of stocks, mutual funds, bonds, and other types of investments.

• Traditional IRA: Contributions can be taken as tax deductions in the year they are made reducing the gross income for that year. This type is helpful for those who believe their tax rate will decrease. Between the time of the contribution and when they withdraw the money for retirement. 

• Nondeductible IRA: Nondeductible IRA’s are for those who do not meet the eligibility requirements for a traditional IRA and their adjusted gross income is too high for a Roth IRA. Contributions are not tax-free and do not reduce gross income. Advantages include tax-deferred growth and taxes are based only on the earnings because the taxes have already been paid. 
• Roth IRA: The contributions for a Roth IRA are taxed as part of gross income the year they are made but withdrawals are tax-free after the age of 59. Also, early withdrawals are accepted as long as they are for an allowed purpose and are not withdrawn until 5 years after the account was opened.

As you can see, there are many things to think about when managing finances.

Being in a state of financial wellness helps us connect to our whole network of wellness dimensions. 

There are eight dimensions of wellness and if one is out of balance the rest are most likely out of balance as well. For example, having financial unrest can create emotional problems which in turn affects your physical health.

That pours into the occupational realm because now you aren’t performing as well in your job. Though it may not seem important now, your financial health can and will play a key factor in your overall health.

That is why it is important to continue working on it throughout your life and start early!

You will thank yourself later in life.