Expenses That People Often Avoid in their Savings Plans

Cars

According to a news report that appeared on the US News & World Report site in June 2015, people often leave out certain expenses out in their budgets. While they should include the following costs, they often bypass them when they are establishing a financial plan.

1. Taxes – Because employees normally have taxes withheld from their pay, they usually do not set aside money for additional taxes. For example, financial planners often see people take out their IRA distributions before they are 59 ½ years old and not budget for the additional taxes. This fact of life can also be an issue for anyone who sells annuities or stocks or needs to pay the capital gains on the sale of a property. You simply don’t want to get into a situation where you owe taxes. When in doubt, financial experts suggest that you consult a tax preparer or CPA so you can set aside enough money to pay a possible tax bill.

2. Support for Family Members – People also do not think about putting money in savings as a means of support for a member of their family. For instance, if a child or grandchild needs to be saved from foreclosure, you might not be able to help them. Or, if an ex fails to pay their share of child support, you might see yourself in a financial bind. That does not mean you have to necessarily lend monetary support to a grown child or grandchild. However, it is always a good practice to set aside a financial cushion in case a family member is ever in need.

3. Future Savings – Some people do not have to think about future savings as their company makes it possible for them to contribute to a 401(k) or a company-sponsored retirement savings plan. Saving for retirement should be made a priority but often is overlooked by some consumers in lieu of everyday expenses. The same holds true for saving for college. Start saving for the future now so you don’t have to save as much per month at a future date.

4. Repairs for the Home or Car – If you own either a home or car, you know that you will have to pay costs for maintenance. Instead, of taking out the money from an emergency fund, why not make home or car repairs part of your regular budget? Based on how many miles you drive, you should be able to calculate how much you will need to spend each month in repairs. For instance, if you drive about 5,000 miles per month, you probably will need new tires and brakes. Also, financial experts suggest setting aside about 1% to 4% of the value of your home for any planned maintenance. Take into account the age and condition of a home when planning a repair budget.

Will U.S., British Banks Follow UAE in Offering Bad Credit Loans?

For years, it has been argued that one of the reasons why impoverished consumers turn to payday loans to cover their rent, repairs or bills is because they don’t have access to products and credit offered by conventional financial institutions. Many consumers don’t have bank accounts, and other consumers can’t receive enough credit to cover basic expenses.

HSBC

Officials and consumer groups have often encouraged banks to start providing an array of short-term credit options to customers. Financial institutions and credit unions refrain from offering payday loans to customers. Due to costs and high risks, a payday loan isn’t something that banks, at least in North America and Europe, don’t want to get involved in.

But banks in the United States, Canada or Great Britain may soon enter that market, whether through government mandates or market forces. Besides, United Arab Emirates (UAE) banks are already doing it, which may prompt other jurisdictions to embrace the same business model.

When you need a salary advance and you have a financial emergency, UAE financial institutions are giving their customers payday loans when they’re in pecuniary destitute, according to a new report from Emirates 24/7.

Dubai Islamic Bank, RAKBank and ADCB Islamic Banking are just some of the banks marketing this product to customers who have their salaries deposited regularly into the bank. With small personal loans more commonplace in the UAE today, banks decided to embark upon this trend and see if they could add to their bottom line.

“Even though the advance salary facility is available every month, salaried customers who avail the facility have to return the full amount at the end of the month,” says the bank’s official page.

How does it work? Customers have their salaries transferred to the bank partaking in this program and can take out an advance or a loan and withdraw up to 90 percent of their monthly salary. It’s very expensive, though. It costs Dh295 ($80) for every transaction for salaries up to Dh13,500 ($3,675) and Dh500 ($136) for salaries up to Dh30,000 ($8,167).

The funds are fully recovered by the bank when their paychecks are deposited back into the account by the end of the month. And, ostensibly, banks are aggressively marketing this product.

“I have been regularly receiving SMS messages inquiring whether I am interested in taking my salary in advance from my bank account with a note that said terms and conditions apply. Since I did not know the terms and conditions, I did not opt for it, but some of my friends have availed this facility,” an Islamic bank customer told the website.

UAE banks may have come up with a solution to the common concern that North American and European banks regularly have: an ability to retrieve the funds in a short period of time.

Since customers are taking out these next generation of payday loans from the banks directly, the financial institutions can recover these funds when the paychecks are deposited directly into those customers’ accounts within the next 30 days.

Millennials Warned to be Wise when Building a Credit Rating

Most people these days have increased awareness when it comes to the importance of having a good credit score and history. Most older people have already built up a credit history and have had time to rectify any mistakes that they may have made financially in their younger years. However, for the younger generation things are more difficult as many have not had the opportunity to build a credit history and score yet they are the most likely to require good credit because they are at the age where they will need credit to buy a car or home in the future.

Credit Suisse Sign

With this in mind, some millennials have been taking out credit such as credit cards in a bid to try and build up a credit history and score to help them when it comes to future purchases. However, officials have warned the younger generation to be careful as it can be all too easy to actually end up damaging your credit rather than aiding it unless you exercise caution.

Younger people need to resist temptation and develop good habits

Experts have said that younger people need to make sure that they learn more about how credit scoring works and that they need to try and resist temptation when taking out credit such as a credit card. For those who are getting a card for the first time the temptation to simply spend on it without the means to repay the balance in full each month can be high and this could lead to them actually damaging their future credit rather than setting themselves up for a bright financial future.

This was proven by research that was carried out amongst older consumers about their spending habits when they were in their twenties. Many admitted to having missed one or more payments on their debts during their younger years with many others admitting to finding it difficult to control their spending when they had a credit card to use. Many younger people see a credit card as ‘free money’ because they fail to think about the consequences of unnecessary spending and the fact that they will have to repay the money that they spend.

Those who do decide to take out a credit card in order to try and build a credit history are being urged to ensure that they use the card sensibly and for purchases that they need to make and that they then repay the balance in full each month to avoid interest charges and fees.