Holiday Planning Series with the Squash Brothers, part III, debt management

Watch our Holiday Planning Series, Part II, as Steven and the Squash Brothers discuss debt management so you do not overspend and end up with credit card debt you can’t pay off.

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Holiday Planning Series with the Squash Brothers, part II, cash management

Watch our Holiday Planning Series, Part II, as Steven and the Squash Brothers discuss cash flow planning so you have more to spend (or to save!).

Next time, debt management.

Holiday Planning Series with the Squash Brothers, part I, tax planning

Watch our Holiday Planning Series, Part I, as Steven and the Squash Brothers discuss taxes, “starting backwards with tax planning now so you pay less next April.”

Next time, they discuss cash management.

How to stay safe after the Equifax data breach

Equifax disclosed last week that the personal financial information of up to 143 million users had been exposed in a massive hack last July. This represents roughly two-thirds of all credit card holders, so you may be affected.

The delay in disclosing is troubling, and the hack raises questions about oversight of the credit bureaus and even about the impact on their management. We can see the impact on investors: the Equifax share price has dropped over 20%

While we can discuss these issues and more, the priority is shoring up your personal credit.

Impact

Was your data taken? There are links from Equifax, Norton and others where you can attempt to determine the impact on you personally. However, these sites seem to default to “you may be affected,” even if you put in bogus information.

The good news is that Equifax has responded to consumer pressure to make certain services free.

Act now

You will want to act as soon as possible to keep your financial information safe.

“There are so many entities who need to check your credit: when you’re renting an apartment, getting insurance, a new cell phone, utilities,” Liz Weston, a financial planner and columnist at NerdWallet, told BuzzFeed News. “But at this point the breach is so great” that taking measures to safeguard your identity is worth it. She recommends instituting credit freezes.

Equifax free service – sign up on line for the complimentary service being provided by Equifax, which provides the following:

  • three-bureau credit file monitoring with alerts,
  • credit report lock,
  • scanning of suspicious sites for use of your social security number,
  • Equifax credit reporting, and
  • $1 million identity theft insurance covering certain out-of-pocket expenses.

Monitor your cards – review your monthly credit card, bank and loan statements for suspicious activity. You have a right to free credit reports so obtain them and review for unauthorized activity.

Also, watch for unexpected calls or mail, such as debt collectors or people posing as IRS agents, because these may be signs that your information may be in the hands of thieves.

Credit freeze – request a freeze on your credit from all three agencies: Equifax, TransUnion, and Experian. Equifax will not charge you but the others will.

Requesting a credit freeze prevents thieves from using your identity to get loans or credit cards in your name, even if your personal information was compromised by the hack. You essentially pay to bar each of three credit reporting agencies — Equifax, TransUnion, and Experian — from providing a credit report without both your explicit permission and a personal identification number (PIN) that temporarily lifts the freeze. (Freezes do not affect financial institutions or companies you have an existing relationship with, only new ones.)

Make sure to place the freeze with all three bureaus and to keep your PINs for unlocking the freezes in a safe place.

“A credit freeze with only one bureau is incomplete protection,” Mike Litt, the consumer program advocate at the US Public Interest Research Group, a consumer group, said. Consumer experts recommended getting a freeze with all three agencies.

There are companies such as LifeLock that provide bundled services. If cost is not an object, that may be the best course of action. Here is the Lifelock response on Equifax.

Fraud alert – if you are certain that your information has been taken, place alert all three credit bureau websites. You can access the TransUnion site here. Some protection is free, but their premium package costs $9.95

If you are the subject of identity theft, there are many resources now that help you report and recover. The Federal Trade Commission website can help devise a recovery plan to implement.

PINs and passwords – the passwords and PINs you use could be the next issue. You may want to change what you use now and update annually, if not more often.

Updates – Equifax continues to provide updates on the status of the hack and their response.

And news sites continue to report on the hack – see this NY Times article.

Summary

There are many steps to take, and the information taken may not be used for some time. So, you will want to take some if not all the steps outlined above. If you have trouble doing so, or if you have questions, let us know.

And for more reading, the Better Business Bureau is one resource for tips on avoiding scams. And, the FTC is a good resource for identity theft.

Good luck and stay safe!

Ignore Most Financial Planning Rules

General rules of thumb for financial planning rarely work. Here are some with my critiques:

“Stocks minus your age should equal 100” – Bad rule – your investment allocation depends on your risk tolerance, the rate of return required to achieve your goals, when you add to investments from annual savings or stock option exercises and when you remove investments to fund lifestyle needs.

“Life insurance must equal six times compensation” – Bad rule – your spouse or partner would use all of your resources, including insurance, to fund lifestyle needs after you die. If you review this and determine a short-fall, that is the amount to be funded by insurance. It could be more or less than the six-fold multiple but ensures that your survivors have adequate resources to be protected.

“Save 10% of income annually” – Decent rule – however, some may need to save even more and others may have no savings need. As with life insurance, the question is whether the return from assets plus annual savings over your life expectancy will fund your lifestyle.  

“You only need 70% of income in retirement” – Bad rule – in fact, many people spend more in the first years of retirement as they travel more while spending far less in their 70’s and 80’s as their needs become fewer. This can be further complicated by estate planning goals of gifting to children or charities.

“Hold six months after-tax income for a rainy day” – Decent rule – however, this depends on liquidity, borrowing ability (e.g., home equity line) and cash flow. If annual income permits substantial savings, such that you could pay for a new roof without affecting lifestyle, your “rainy day” reserve can be much less.

“Monthly payments on debt should not exceed 20% of income” – Decent rule – in fact, the rule is somewhat irrelevant in that most lenders apply rules to limit mortgage payments plus home insurance and property taxes to a percentage of income. As with the savings rule, your level of debt may be more or less depending on assets available, risk tolerance and lifestyle costs.

“Do not refinance until rates drop 2%”– Bad rule – the test is simple: how soon will the cost of refinancing be recouped by lower payments? With no points/no closing cost loans, this can a year or less. Buying down a rate by paying points will make sense if the pay-off is in 12 to 24 months and if you plan to stay in the residence for seven years or more.

“Delete collision coverage on a car more than 7 years old” – Decent rule – as with the “rainy day” reserve, this depends on cash flow and other resources. It also depends on whether the car is your “antique.”

“Do not spend more than 7% of income on long-term care insurance”– Uncertain rule – some people may have sufficient assets to self-insure. Some people will not risk nursing care due to bad family health history; they will want to pay for full insurance.  

Are you going to break the rules?

While breaking rules may or may not work for you, creating and sticking to a financial plan will!