Tax season is right after the holidays. Rather than flood you with articles about divorce and the holidays, which are important, this article seeks to prepare you for the gift that keeps on taking right after the holidays. With money always tight, and especially tight after divorce, it’s important to squeeze all the juice out of every possible deduction you need, especially with the upcoming changes to alimony and taxes!
It’s that time again! The tax filing deadline is fast approaching. Before you file, take a look at this list of some commonly lost and forgotten tax deductions to make sure you’re not paying more than your fair share to Uncle Sam.If you haven’t filed yet, it’s time to get serious about gathering up your documents to prepare your return or request an extension of time to file.
Dig through your documents from last year, and let’s see what we can find. If you have any of these, you might be able to use it for a tax deduction.
1. The Sales Agreement for Your New Car (or Boat or Airplane)
You are allowed to deduct either the amounts you paid for state and local income tax or state and local sales tax. While the deduction for sales tax usually makes sense primarily for those who live in states that do not impose an income tax, in some cases your sales tax deduction may be higher.
The IRS has an online calculator to help residents of states that impose a sales tax calculate how much you can deduct based on the sales tax rates in your area and your income level. However, if you made a large purchase, such as a vehicle, boat or airplane, you can add the sales tax paid for those items to the amount calculated by the IRS.
The same goes for purchases of home building materials, so if you constructed a home or performed a major remodel, dig out those receipts.
2. Receipts for Charitable Contributions
Are you generous? Don’t miss out on these tax deductions. You probably won’t forget about large charitable gifts you made during the year by check or payroll deduction, but there’s been a big increase in online giving in the past few years and many people forget to save online receipts for tax time. Before you file, search your email inbox for keywords such as “gift” or “donation.” Even small donations here and there can add up to big tax savings at year end.
You are also allowed a deduction for miles driven for charity. Whether you’re delivering meals or driving to drop off donations, keep track of the miles you drive for charity.
3. Child and Dependent Care Expenses
Parents are often eligible for a variety of tax deductions. If your child or dependent is under the age of 13 and you paid for daycare expenses while you worked, or actively looked for work, you may be able to claim a tax credit for those expenses. The amount of the credit is a percentage of the daycare expenses you paid. The percentage depends on your Adjusted Gross Income.
Even if your child is in school during the day and you’re not paying for full-time daycare, you may be paying for before or after-school care or day camps during the summer months. Those expenses are eligible as well.
If you don’t know how much you paid for daycare during 2016, before you start combing through bank statements, ask your daycare provider. They can often print out a summary of the expenses you paid during the year.
You’ll also need your daycare provider’s name, address, and Social Security or tax ID number to complete Form 2441 for the credit.
4. Closing Documents for Purchases or Refinancing Your Home Mortgage
Whether you bought a home or just refinanced your existing mortgage, you’ll want to take a look at the closing statement before you file your return to take advantage of these tax deductions.
When you buy a house, you can deduct the points paid to obtain the mortgage in the year of purchase. When you refinance, you can deduct the points over the life of the loan. For example, you can deduct 1/30th of the points each year for a 30-year mortgage. The points are often referred to on the closing statement as loan origination fees.
When you pay off the loan, whether you sell the property or refinance again, you can deduct the remainder of the points not yet deducted.
While you’re reviewing the closing statement, look for any real estate taxes paid out of closing funds. You may be able to add these to the deductible real estate taxes reported on the Form 1098 Mortgage Interest Statement by your mortgage lender.
5. Job-Related Costs
If you are looking for work in the same area of work that you had in the past, you can deduct job-hunting expenses as miscellaneous itemized deductions.
Eligible costs include cab fares or parking fees, employment agency fees, fees for printing resumes, and the cost of postage. You can also deduct any food, transportation, and lodging expenses if you have to go out of town for a job interview.
If you pay for work-related expenses that aren’t reimbursed by your employer, you can deduct those expenses as miscellaneous itemized deductions as well. Eligible expenses may include license fees, continuing education, union dues, or uniforms.
6. Health Insurance Premiums
If you pay for your own health insurance, you may be eligible for a tax break. Normally, medical expenses have to exceed 10% of your Adjusted Gross Income for you to receive a benefit as an itemized deduction. If you are self-employed, you can deduct 100% of your premiums as an “above the line” deduction, meaning you don’t have to itemize to receive a benefit.
Self-employed people can also take an above-the-line deduction for any Long Term Care Insurance premiums paid.
7. Investment Expenses
If you itemize, you may be able to deduct fees for financial planning, investment advice, subscriptions to investment publications, and other costs related to your investments. You’ll need to exceed a percentage of your Adjusted Gross Income to get a tax benefit from miscellaneous itemized deductions, but you can add investment expenses to other miscellaneous expenses such as job-related costs, safe deposit box rental fees, and tax preparation fees. The more you find, the more likely it will be that you’ll be able to get a benefit for the deduction.
Are You Missing Important Documents to Support Tax Deductions?
Missing documents are not uncommon. Fortunately, most tax-related documents are easily replaceable.
If you lost a W-2, 1099, or K-1, call the issuer and request a replacement. Most banks, investment brokers, and student loan servicers now have 1099s available to download online.
If you are concerned you’ve forgotten something, the IRS is able to provide transcripts for prior year returns, account transcripts showing estimated payments made on your account, and Wage & Income transcripts showing all of the income reported to your Social Security number. You can request these transcripts by calling the IRS, or sign Form 2848 authorizing your CPA or tax preparer to request that information on your behalf.
When You Need More Time
If all else fails, you can request a six-month extension of time to file a complete and accurate return. Remember that the extension is only an extension of time to file, not an extension to pay. If you anticipate owing money, you may want to work with your tax advisor to estimate the amount due and pay it with your extension to avoid interest and underpayment penalties.
If you do request an extension, do yourself a favor and try to gather the information to file soon. October will be here before you know it and you don’t want to be scrambling to gather your information all over again in a few months.
Are you able to itemize tax deductions this year? Tell us in the comments below.
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Taxes may be the last thing on your mind when you are in the middle of a divorce, but if your divorce wasn’t finalized by year end, you’ll have to consider your tax filing status before filing your next income tax return. Should you file jointly with your soon-to-be-ex-spouse? Can…
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Alimony may have had its place in divorce, but far too often it is like a punishment for men. In a world where women continue to gain more of a percentage of the workforce, the need for alimony continues to come under fire. Some think alimony has traditionally been used as a way to get men to stay in a marriage they possibly did not want anymore. Whether true or not, thankfully, many states are changing those medieval modes of thinking about spousal support!
The Greatest Alimony States for Men
Georgia has some of the best laws in the country in regards to knocking out alimony from the divorce equation. Sometimes you have to wonder if they named it the Peach State after their alimony laws.
While some alimony can be ordered, usually it is not. They keep trying to improve their laws related to alimony, but as with legislation, it is difficult to cover all contingencies, like this one related to trust protection exclusion related to alimony.
Additionally, if the spousal payee committed adultery, they are barred from alimony payments altogether.
Texas is one of the hardest states to get alimony payments in the country. It often is just not awarded at all.
The only downside is that the Lone Star State is a community-property state. Wealthy breadwinners beware! Property gets split down the middle.
The land of quickie marriages and divorces!
While this might not be the place where you make your last stand with your ex in a long, drawn-out battle, it can go very well in short, somewhat amicable divorces.
Note: Nevada is also a community property state.
Alaska has a non-monetary contribution to the marriage where marital fault may also be considered. But, this could be a double-edge sword.
If your wife contributed to the marriage by raising the kids, then, maybe it’s not so good. Conversely, if she cheated, the alimony gets booted.
Like Nevada, New Hampshire has a quick divorce turnaround time. While this does not always help with the alimony, it does give a failed marriage finality, faster. Then, you can move on with your life.
New Hampshire doesn’t just look at the usual things (earnings, children, education, etc.) but also each spouse’s earning potential outside the marriage.
Fault weighs heavily there, too, as does each spouse’s contributions to their joint properties.
The thorough examination is based on need and not a predetermined formula that might unfairly hurt the paying spouse.
In Alabama, the paying partner’s economic conditions are considered and weighed against the other spouse’s financial needs.
Alimony is ordered on a time frame, and ends:
- Upon the death of either the payer or recipient,
- When the recipient remarries, or
- If the recipient moves in with a new mate
Cohabitation is important because (as you will see below) it means the receiving spouse cannot get away with receiving alimony payments for years while living with a new partner.
Delaware has some factors judges use to determine whether alimony is paid, and for how long.
Alimony is awarded for half the length of a marriage in cases where the divorce comes less than 20 years after the wedding date.
After the 20-year mark, however, it can go on for life.
By far one of the simplest systems in the country!
Kansas says alimony can last for a maximum of 121 months after the divorce. But, the awardee can apply for, and be granted, an additional 121 months in payments. This only happens in rare cases, though.
Tennessee is committed to rehabilitative spousal support.They encourage job training and education.
That doesn’t mean judges will not order alimony to provide long-term support. It just means that spouses cannot receive money without genuine need.
Alimony awards ordered not to exceed the length of the marriage. Also, they stop spousal support upon cohabitation and remarriage. What guy wants to pay an ex to live with some new guy?
The Worst Alimony States for Men
While California was the first state to offer no-fault divorces, they are also one of the most expensive states in the country when it comes to court-ordered support after divorce.
Randall M. Kessler, chairman of the American Bar Association’s Section on Family Law, told Alan Farnham of ABC News,
“Child support in California is typically 10 times what it is…in Georgia or Nevada.”
For that reason alone, California, you made it onto the list of nastiest states for alimony in the country.
This state’s laws allow scorned spouses to bring suit against their former partner’s new lover.
Talk about holding a grudge!
Meet the second state to coddle grudge holders! Hell hath no wrath like legislators in New Mexico andMississippi!
Here, too, a scorned partner can legally sue their former spouse’s new lover for damages. Potentially, a non-guilty party can be held responsible for someone else’s failed marriage. Love to meet the jilted lover who created that law!
New York is one of the slowest states to reform their alimony laws. They held out on legalizing no-fault divorces until 2010. The delay cost litigants thousands of dollars in wasted fees.
That is the heart of the matter. New York has not made it easy for men seeking divorce to move on with their lives.
Colorado does not care if one or the other party to divorce can adequately support themselves.
Instead, they use a formula they call “temporary.” It takes 40% of the higher income deducted by 50% of the lower income. It is not based on financial reality. This “temporary” formula often becomes the long-term, more permanent formula.
Furthermore, Colorado is a community-property state. That means all property is divided equally. So, you could lose half of your property and assets. And then, still pay out 40% of your income.
Imagine getting divorced three times!? Does that mean you owe 120% of your income to your ex?
The best way to sum up Florida’s messed up alimony policies is through the story of Debbie Israel.
The 47-year-old college math teacher from Miami refuses to marry her fiancé because of the state’s alimony for life laws. Once they get married, she will have to give a percentage of her wages to her would-be husband’s ex-wife as part of his household, permanently.
Yep, this makes Florida one of the nastiest states for alimony in the country.
They almost didn’t make the nasty list. Their laws regarding marital misconduct ensure no adulterer, convicted felon, or spouse deserter gets awarded alimony.
But they do allow for the ordering of permanent spousal support. Were it not for that, they’d be on the nice list.
The Garden State probably represents a lot of disheartening news for many spouses. They’re one of the last remaining states where permanent alimony is a possibility. While the system is equitable, permanent is not a sound way to set up alimony for couples who were only together for a few years.
Vermont & Connecticut:
I know I’m going all broken record here, but the thought of paying alimony in perpetuity stinks! It is with that thought in mind that I welcome Vermont and Connecticut to the list of nastiest states for alimony.
They round out the list of the worst 10 for that particular reason.
Residing in the right state is not a Get out of Jail Free, alimony card. However, it can significantly reduce your expenses over time.
While many of us can’t just pack up and move to a different state whenever we want, even if for more favorable alimony environment, we can have influence over the working situation in our home. The key reason for alimony across the country is to provide support while a non-working spouse re-enters the workforce. If both spouses work throughout the marriage, or definitely the years before the divorce, the alimony claims reduce significantly.
Alimony laws in this country ultimately vary from state to state. Pay attention (Now!) to the laws in your state before you get married. Make sure you will not get the screw when (and if) you divorce.
Make sure you’re with someone with whom you want to spend your life. Being sure is a much better alternative to being sorry.
How did your state shape up? Let us know your thoughts in the comment section below.
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Without a doubt, going through a divorce can turn your world upside down. Divorce can wreck havoc on your emotions, your health … and your finances. Going from two incomes to one will certainly affect your monthly household income and perhaps your quality of life. You will be paying all of the bills by yourself with your income alone. While none of that sounds appealing, there is some good news. Thriving financially after divorce is not only possible but its achievable. While it takes some adjustment and some effort, you can regain control of your life and finances and thrive financially. Here are a few tips to thriving financially as a divorced man.
Expect a Lifestyle Change and Adjust your Expectations of Thriving Financially
More often than not, your standard of living will drop for a year or more following a divorce. While it may seem obvious, many people who are going through a divorce do not prepare themselves financially or emotionally for the changes. If you expect and come to terms with how your life may look temporarily after divorce, you can be proactive and remain in control of your post-divorce finances. Try to remember that it isn’t permanent. You’ll be back on your feet and able to regain you previous financial lifestyle again in the future.
Create a Budget and Stick to It
Perhaps you already had a budget when you were married. If so, then you’ll simply need to adjust the numbers. But if you didn’t have to budget as a couple, you’ll need to create a budget now and stick to it. Budgets are a great tool for thriving financially no matter what your marital status, but they are even more important as a single man.
Creating a budget may sound like a daunting task, especially if you have never done one before or if your ex-wife was the keeper of the money in your marriage. But budgets don’t have to be complex. Effective budgets are actually quite simple. They simply balance the money you have coming in each month with how much you spend each month.
The first step is to make a list of all of your income following your divorce. Next, make a list of all of your known expenses (mortage or rent, utility payments, debt, insurance, car note etc). Remember to include items such as alimony and child support in either income or expenses as applicable to your unique situation. After you know how much money is coming in and how much money is leaving each month, you should know exactly how much is left over. The leftover money should be allocated to paying off debt, saving, retirement, your children’s education and entertainment expenses.
After you have your monthly budget created, all you have to do is simply stick to it. Unfortunately, this is often the toughest part. Remember to keep up with your budget each month and adjust as necessary until you find the right fit. Check your budget before making purchases to ensure you aren’t going over in any category.
Be Realistic about the House
When there are two incomes flowing in, you and your ex were able to afford the two story brick home on a cul-de-sac lot. But without her weekly paycheck, is it feasible to stay in the house by yourself? No matter how much you love your home or want to stay there for the kids, it may not be realistic to remain in the home if you want to thrive financially. Take a good hard look at the numbers and make a wise decision on who (if either of you) remain in the family home. It may make more sense to sell or rent the home and live somewhere a little less expensive. No matter how much equity you may have in the house, that equity will not pay the mortgage payment each month.
Pay Down your Debt
Paying off any debt that carried over from your divorce is an important piece of thriving financially as a newly single man. Debt (especially the lines with high interest) can drastically impact your ability to save and spend money. Debt can impact your financial freedom for many years.
If you have debt in your name, make a list of everything you owe along with the interest rate you pay on that line of debt. Look back at your budget to determine if you can cut back in certain areas in order to pay additional money towards your debt each month. Start by paying extra towards the debt with the highest interest rate and working your way down the list until all of your debt is paid off. It may not be as much fun as buying a new boat, but paying off your debt will drastically improve your lifestyle in the future.
Save for Retirement
When you were married, you probably had a good idea of how much you were saving for retired life together. Now that you’ve been through a divorce, it is time to reevaluate how you will fund your retirement without a spouse. Run the numbers yourself or ask a financial planner how much money you should be saving in order to retire at a comfortable level. While money may be tight following a divorce, it is important to put some amount away for retirement. You may have to start small, but even small amounts contributed to a retirement account will build interest over time. Resist the urge to get rid of retirement savings to make living more comfortable right now.
Don’t Make Impulsive Financial Decisions
Divorce can cause a lot of emotions to surface, and we all deal with those emotions a little differently. It is completely acceptable to be emotional, and it is okay to be hurt. It is okay to grieve. When it comes to dealing with these emotions, hold off on making any major financial decisions until you have dealt with the adjustment of being divorced. While it may feel good to switch jobs and move to a new city or purchase an expensive vehicle, big financial decisions such as these can leave your bank account in bad shape.
Instead of making hurried decisions after a divorce (especially those decisions affecting your financial well being), wait it out six to twelve months and make sure those changes are something that you still want.
Rewrite your Will
Although your will may be the last thing on your mind, your will is a financial document and needs to be updated post-divorce. While your goal is thriving financially after a divorce, you don’t want it all to be for nothing if you pass away. Make sure you have the correct beneficiary designated in your will on on your life insurance. You may be the sole support for your children, therefore these updates are critical. Don’t put them off for another day.
A divorced man faces enormous emotional, psychological and financial changes even if he wanted to leave his partner. Divorce brings a lot of change, and thriving financially after a divorce may look a lot different than thriving financially as a married couple. If you are going through a divorce (or considering one), be sure to know your numbers and be proactive financially. If you follow these tips, you should be better prepared for life and money after divorce.
Divorce is like an emotional hurricane. It’s hard to think straight in the middle of the emotional storm, and it’s normal for your financial frame of mind to blur when going through a divorce. But no matter your stress level or your fuzzy frame of mind, it’s extremely important to prepare yourself for the financial side of divorce.
Your divorce is going to result in decisions that will have a huge impact on your finances both now and in the future. Don’t wait until you’re mid or post-divorce to figure out the costs. This can lead to unwanted surprises. But being prepared ensures you won’t be financially devastated as you move forward.
8 Tips To Help Handle the Financial Side of Divorce
- Get Educated about the Financial Side of Divorce
Your finances is an important element that you naturally think about in the break-up of your marriage. Divorce is stressful and traumatic, and with emotions running rampant, you’re likely not going to be thinking clearly during your divorce. But you need to be educated about the costs that come along with your divorce, and get yourself ready to deal with them.
From lawyers and experts, to real estate agents, financial planning, and therapy, costs can range between $10,000 to $20,000. If managed properly, the cost can be considerably lower. Whatever the case may be, make sure you’re prepared for the cost of your divorce by educating yourself.
- Know Your Financial Obligations
If you have children, you’re likely the one who’s going to pay child support. If child support is part of your divorce agreement, you are legally obligated to pay it. Some guys who are supposed to pay child support don’t pay it or don’t pay it in full, which is a legal no-no. The well-being of your children should come first, and the amount of child support that’s decided by the court or mandated by the state is what you’re obligated to pay.
Always pay your child support in full. If there’s a significant change in your financial situation or in your custody agreement it can be adjusted. But, until then, you should pay what is required. Child support pays for everything from the basic necessities of life like food, clothing and housing, and may include child care, education fees, medical expenses and extra curricular activities. If you’re concerned about the money not going to your children, try to find alternate solutions where you can pay service providers directly.
- Be Open to Alimony
Whether you chose to be a stay-at-home dad, or your ex chose to be a stay at home mom, be open to the possibility of alimony. Lots of guys are closed-off to the idea of alimony, not wanting to give the Ex a free ride. But, paying alimony for some short duration of time should also reduce your child support obligation.
Keep in mind, when you’re the one writing the alimony check, the alimony payments are tax deductible, whereas child support is not. Try offsetting child support, dollar for dollar, with alimony so a to take advantage of the tax savings.
- Do Not Hide Your Assets
Divorce can be scary, but the last thing you want to do is panic and move money out of your bank account and into hiding. If the money is found (which it likely will be), you’ll lose your credibility in court and won’t be trusted in any asset discussions. Worse, you may be penalized by the court for your deceit.
Revealing your assets is a legal requirement of all divorcing couples, so disclose everything that belongs to you and don’t hide anything. On top of not being trusted in court, you could be ordered to pay your ex’s attorney fees or the court may even award her all of your undisclosed assets.
- Track the Money
You should locate all of your marital financial resources to help ensure your future. This includes everything from your bank accounts and assets to incomes, properties, retirement plan, vehicles, furniture, brokerage accounts, and insurance policies – everything that’s owned jointly and/or separately by the two of you. Then organize everything into 401(k) and IRA statements, employment retirement accounts, employment bonuses and stock options/awards, real estate holdings, insurance policies (those that have cash values), mortgages, house and vacation home appraisals, brokerage accounts, money market accounts and tax returns. Tracking your monetary assets now can help stabilize your financial situation in the future.
- Protect Yourself
There are many ways to protect yourself, your finances and your assets during the divorce process. Separate your non-marital assets – property belonging to you, such as gifts you were given, that are not subject to equitable distribution. Also, make sure to cancel any joint bank accounts and open individual accounts, but, be careful not to disproportionately take more than what is rightfully yours in the process. Check your credit reports from all three credit agencies (Equifax, Transunion, Experian) and double check that all credit cards in your report are accounted for an/or cancelled. Get new credit cards in your name and close all unused credit accounts. You don’t want your Ex racking additional debt during the divorce process for which you may be held responsible
And don’t be afraid to talk to your spouse to get the information you need. It’s important you’re both aware of your complete financial situation and understand the debts you share as a couple and individually. To avoid unforeseen surprises, with the help of your attorney, ask for a full disclosure of all financial records and accounts and be prepared to share yours. Don’t forget to change your will (and beneficiaries), medical proxy, living will, and your brokerage account beneficiaries too.
- Create a Post-Divorce Budget
Your post-divorce life is going to look much different than your life did when you were married, and it’s important you prepare a budget to account for everything that may come your way. Every day expenses are going to change when you’re single, and if you have kids, you’re going to want to make sure you have everything they need to feel at home and comfortable in your new place.
It’s easy to just focus on divorce-related expenses like child support and alimony, but it’s key to recognize your new reality. Talk to a financial planner if you need to, and create a realistic and meaningful budget for your new single lifestyle.
- Resist the Urge to Impulse Buy
It’d likely you did not initiate the divorce, but divorce always results in a sense of loss. You’re losing a big part of your life and it’s likely very devastating. People deal with loss in different ways, and sometimes we think, albeit illogically, that making a big purchase, like an expensive new car or a big new house will make us feel better.
Divorce is expensive. Your post-divorce life is going to come with new costs you won’t be accustomed to or prepared for. Resist the urge to purchase expensive items on impulse, especially within the first twelve to twenty four months of your divorce.
If you’re about to go through a split, don’t neglect the financial side of divorce. It may be the last thing you want to think about, but it’s crucial for your financial well-being.
What are your biggest questions or concerns when it comes to divorce financials? Write us and let us know in your comments below.
If you are newly divorced or about to be, and faced with moving you of the marital home, you’re probably weighing deciding to buy or rent after divorce. It’s a major consideration with the potential for significant emotional and financial implications either way. Check out the list of questions to ask, factors to consider, and a nifty tool to weigh the costs before making your decision to buy or rent.
In 2011, I found myself in the buy or rent dilemma. Because I could not afford our 3,000 square foot marital home on my income, I was the one to move. At the time my ego won out over everything else, and I ultimately purchased a home in another town.
While I didn’t immediately regret my decision, I soon realized the shortsightedness of it. In these past seven years, I’ve moved two additional times and learned much more about real estate, personal finance, and myself. I hope to help you learn from my experience.
Deciding To Buy or Rent After Divorce – Each Hold Pros and Cons
Buying a home has typically been a plus factor in evaluations of financial success while leasing has often been perceived as “throwing your money away.” However, with the housing crisis not yet a forgotten memory, and younger generations on the move, opinions are changing. Now, thoughts of a dream home are not so dreamy, and the benefits of renting are proving popular.
The typical pros for buying sound like this:
- A home is yours, and you can paint, remodel, and decorate any way you want
- Once your mortgage is paid off, you own it completely, with only maintenance, property taxes, and insurance costs remaining
- Homes generally appreciate in value
- Improvements to the home may allow you to ‘earn’ money when you sell
- Tax credits may help to reduce some of the ownership costs
On the flip side, here are common renting pros (or buying cons):
- Renting is not throwing your money away, it’s simply securing a temporary place to live
- With renting you aren’t on the hook for emergency repairs or maintenance costs for the property
- Costs for insurance, and often utilities too, are lower
- There’s no personal financial concern if the property increases or decreases in value
- Purchasing a home ties up a large sum of money while also tying you down more permanently
- Owning property comes with the additional monthly costs of taxes and mortgage interest
All these factors do not weight equally, however. To effectively compare renting to buying after divorce you need to know the whole story.
Start With These 6 Questions When Deciding To Buy or Rent After Divorce
- What do you need? First list out what you need in a home before you start on your list of wants. Consider who will be spending overnights in the house and what space is required. Sure you may want room for a home office, gym, play area, and your car restoration project, but is it a bona fide need? It is entirely possible to meet all your needs with a rental property, and maybe even a few of your wants. Attempting to purchase them all, however, may cause you to overextend yourself financially.
- How long are you planning to stay in your next home? Buying and selling a home involves costs, far beyond the purchase price. Realtor and attorney fees, inspection fees, appraisal fees, mortgage origination fees, and title insurance costs are among those to consider.These additional costs may make owning a home far less practical unless you remain in the property more than a couple of years. Selling within the first few years, might not give the home time to appreciate enough to balance out the additional costs.
- What’s the likelihood of house prices rising? In recent years the housing market showed us it falls and stagnates as well as it grows. How would your overall financial life look if your house’s value increases slower than the market, does not increase at all, or decreased suddenly? Your home may not be an investment at all, only an expense.
- Will you be eligible to save on taxes by buying? While it’s true some buyers can balance additional costs of homeownership with tax savings via the mortgage interest deduction, not all do.You must be able to itemize tax deductions to receive the benefit. With your new marital status, your tax-filing situation will be different, and your deductions may change. Speak with a tax expert to understand your potential tax savings if any.
- Are you financially stable right now? Divorce usually impacts your financial life dramatically. If you currently hold any debt, face alimony or child support payments, and are behind on your retirement savings, now may not be the best time to make a significant purchase.
- Are you emotionally stable right now? This may indeed be the hardest question to answer while also being the most important. Divorce is stressful. In fact, it is number two on this list of the 10 most stressful events of life. While you may know that logically, you may not fully understand yet how it’s affecting you.
Rushing into a decision to purchase a home may only lead to more stress down the road. Speak with a close friend, family member, or a professional if you need help sorting through your emotions.
To Buy or Rent, the Financial Comparison
Accurately comparing the financial difference of renting or buying requires you to factor in the entire cost of home ownership —not merely the monthly mortgage payment versus rent payment Additionally, you want to look at the overall money picture.
For example, consider if finances not tied up in a home could earn you more through investing in a diversified index portfolio, thereby improving your overall net worth and financial security.
“Rather than simply focusing on monthly or annual costs of the buy versus rent decision, consider which option would have a greater positive impact on your overall wealth at the end of your stay. For example, let’s say your total costs of ownership were $2,000 a month and you could rent a similar property for $1,800 a month. You might consider how that additional $200 a month could grow if you were to invest it in a diversified portfolio and compare it with all the home equity you will build up during the same time through your mortgage payments.” – Fidelity Investments
You can run a simple rent vs. buy comparison by looking at the price-to-rent ratio. Taking the home value and dividing it by the annual rent amount calculates this. In general, when the price-to-rent ratio is higher than 20, renting looks to be the better option. If the ration is less than 20, buying may be the better way to go. Any comparison, however, is only beneficial when you are comparing similar properties.
A sophisticated, yet easy to use online tool that requires a few additional inputs does the calculations for you – found here.
It’s Not Just About the Money
When weighing the differences between the homes you’re considering, take into account the non-monetary benefits of each as well. Does one offer the outdoor space or ideal location you desire? Will one keep you closer to your children or ease your daily commute?
I failed to do any of the above when deciding to buy or rent after divorce and jumped into buying a home quickly. Fortunately, it ended up being a positive financial move even though I sold it two years later, but it was the wrong move on an emotional level. Just a few months in I realized I should have listened to my brother and best friend and leased a property first.
When you are coming out of a divorce, you’ve no idea what your life will be like even one year later. Give yourself some time to get accustomed to your new life. And your kids will do just fine in an apartment or rented home.
The Bottom Line
Renting or buying can each work in your favor. Yes, owning a home may be beneficial over an extended period but renting may be the best option today.Ask and answer the hard questions and crunch the numbers. Then make the best financial and emotional decision you can for you and your family, with all the information in hand.
If you’re a Dad who wants his kid to do well in life, then one of the best things you can do is to start teaching your kids about money. The sooner, the better. Children who learn smart earning, saving, and spending habits early on positively impact their financial futures.
Skills to earn income, save, invest, and spend money can be taught at a very young age. Understanding the difference between needs and wants, grasping the concept of how savings grow, and grasping how debt can negatively impact one’s life are all entirely possible for children to learn.
These concepts are not often taught in most schools, and while I think they should be, I think it is more important that dads take the lead in teaching your kids about handling finances. Because frankly, who cares more about your child’s money than you and them anyway?
Ways to Teach Financial Basics
I did not give my children an allowance, but in hindsight, I wish I did. Having them ‘earn’ an income is a great way to teach the ins and outs of earning, saving, spending, and even donating. As children are faced with situations such as wanting a toy or piece of clothing that isn’t in the family budget, they can be taught the difference between needs and wants. You can be teaching your child patience as well by showing them how to save for a desired purchase that is not in the family budget.
Grocery or back-to-school shopping trips can be great teaching opportunities. Start by preparing a list of needs before hitting the store. Show your child how to compare prices, take advantage of things that are on sale, or buy in bulk to save additional money.
Explain how the brands they may see advertised on television are not always the best value option. If they ask for items that are not on the list explain that those things are not necessary and be willing to say no. Alternatively, you can use those times for teaching your child they can pay for their wants out of their savings.
Open a savings account with your child and if they are of working age assist them in opening a checking account. Owning and maintaining savings accounts can children learn about interest, how to deposit and withdraw money, and depending on their age, properly use debit cards.
Does your kid show an entrepreneurial spirit? Help them start a small business. A lemonade stand, lawn mowing, snow shoveling, or babysitting services are all reasonably easy options for teaching your kids about money. This is an excellent way for them to learn financial skills. Also, they can learn how to set and achieve goals, what profit and loss are, how pricing effects profits, and more importantly how hard and honest work can be rewarded. A small business can also instill confidence and necessary people skills.
Hacks for Teaching Your Kids About Money
- Use clear jars to accumulate money for saving, spending, and donating so that your child can visual see the money. As they earn money or are gifted money, teach them to split the money between the different jars, based on agreed upon designations. Such as 25% for long-term savings they can’t touch, 25% for short-term savings, 10% for donations, and 40% for spending on their wants.
- Have them count their money and record in a notebook or on the computer, each time they add money to their jars or take money out. Putting down notes as to where the money came from or how it was spent or donated is a good habit for them to create. You’ll be teaching your kids about money, and about record keeping.
- Assist your child in setting goals for their money. If they want a toy that will take four weeks of allowance to pay for or their first car, which may take them four years, help them create a savings chart to track it. This can be done with a simple piece of paper and crayons for young children or an Excel spreadsheet for an older child.
- Physically show them how money works. Instead of using your credit card online or at the store teach them how to use cash. Go through the motions with their own money when they want a toy by having them grab a few dollars out of spending jar and taking it to the store to physically purchase an item.
- Explain the concept of opportunity cost. If you buy this book with your money, you won’t be able to buy that toy too.
- Find opportunities for teaching your child the importance of giving and lead by example. Even with just a little bit of money, they can learn about giving. Have your child pick a charity, a cause, your church, or even someone they know who could use a little help. Eventually, they’ll understand giving doesn’t just positively affect the charitable causes they give to, but also the giver as well.
- Describe how compounding interest works – Interest is earned on the original amount of money saved, as well as on any interest already earned. Here’s a fun calculator for them to try.
- Educate them about credit and the danger of credit cards. Stress the importance of using credit responsibly and paying off credit cards in full each month. Credit card debt is costly and can quickly ruin one’s life. Don’t let them learn this the hard way.
Financial Technology and Money Apps for Teaching Your Kids
As your child ages, you’ll likely want to introduce them to more technology-based financial education. This may aid you in teaching them necessary to understand concepts mentioned above. Here are a few highly rated fin-tech products you may want to check out when you and your child are ready.
FamZoo, encompasses many areas of teaching kids about money, including spending, saving and giving. Their technology allows you to utilize prepaid cards or a simple IOU system instead, to provide allowances to your kids. It’s entirely customizable, goal-based, simple to use and in addition to allowance tracking, FamZoo also allows you to:
- Assign payments for chores
- Set up savings buckets to pay your kids a specified interest rate (compounding interest!)
- Establish separate logins for your child to give them responsibility for tracking their money.
FamZoo offers lots of features for a variety of ages making it an awesome program that grows with your kids.
Started in 2011, Bankaroo is the idea of an 11-year old daughter and her father who helped her bring it to life. It is a virtual bank designed for kids, ages 5 to 14. It teaches the value of money in a fun and straightforward way. Create checking, savings, and charity accounts for your kids to track their allowance, gift, or chore money. Kids can also create savings goals and earn cool badges.
Bankaroo has mobile apps in both English and Spanish and offers financial curriculum programs for schools too.
Aimed at kids, ages 6 to 8, PiggyBot offers an easy way to track allowance spending and saving. Instead of cash, your kids have a virtual balance, like an IOU with you. Each child has a separate Spend-It, Share-It, and Save-It account and you decide how to allocate the allowance.
Kids can set goals, take pictures of things they want and share money. There’s also an option to show off the items they purchased. The system is designed to reinforce principles of saving for wants, needs, and nice-to-haves.
One of the most important things you can do as a parent is to communicate with your child early and often on how to earn, save, and spend. There are many ways, tools, and technology available for teaching your kids about money. Offer several examples to them of how money is earned and provide your child the opportunity to help decide how it is budgeted for saving, spending, and sharing. Also, please educate your children about the dangers of spending above their means, overusing credit cards, being in debt, and paying high-interest loan rates.
Money Confident Kids