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Quash fuel-economy myths

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SAN FRANCISCO (4/15/14)--Choosing a fuel-efficient vehicle, maintaining it, and combining trips will help you get good gas mileage. Other efforts could be just a waste of your time (MarketWatch.com March 29).
 
There are lots of fuel-economy myths and overstatements, but here's the truth, according to fuelconomy.gov:
 
Myth: All vehicles are tested for fuel economy. Current fuel-economy testing regulations only require "light-duty" vehicles weighing 8,500 pounds or less to be tested. Several models exceed this limit and aren't tested and have no official weight limit. Passenger vehicles--vans and SUVs--that are model year 2011 and newer weighing up to 10,000 pounds also are required to have fuel-economy labels. The Environmental Protection Agency doesn't test motorcycles, or four-wheel vehicles that aren't legal for highway driving.
 
Myth: Small cars always get the best fuel economy. About half of the top 10 most fuel-efficient vehicles for model year 2014 are midsize or large cars and wagons. Technologies such as diesel engines, direct fuel injections, hybrid drivetrains, low-rolling tires and aerodynamic design make several standard-size autos very efficient.
 
Myth: As cars get older, fuel economy decreases. If you properly maintain your vehicle it will retain its fuel efficiency for years. Fuel economy typically improves over the first several years of ownership. Even vehicles that are 10 to 15 years old experience little decrease in fuel efficiency if properly maintained.
 
Myth: Using premium fuel improves efficiency. Unless your vehicle is specifically designed for premium fuel, you most likely won't receive a benefit from using premium fuel. Check your owner's manual to see if premium is recommended for your vehicle and under what conditions.
 
Myth: Replacing the air filter increases efficiency. This might be true for older vehicles, but modern engines have computers that automatically adjust the fuel-air ratio to the proper level. Changing a dirty air filter might, however, improve your engine's performance.
 
For related information, read "Find the Best Low-Cost, High-Value Car" in the Home & Family Finance Resource Center.

Picking a major? Look at it as an investment

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SAN FRANCISCO (4/8/14)--If you're looking for a college major, it pays to get a degree in science, technology, engineering or math.
 
A recent study by Payscale, a website that tracks earning data, ranked colleges according to how much their students made after graduation as well as by the highest-paying majors (CNNMoney March 26.)
 
A graduate majoring in petroleum engineering can expect to earn $103,000 upon graduation, whereas an elementary education major typically earns $32,200 starting out, according to Payscale.
 
Overall, the more technical, left-brain majors tend to offer the best return on investment with actuarial mathematics, nuclear engineering, chemical engineering and aerospace engineering rounding out the top five degrees with the highest earning potential.
 
Of course, you don't have to major in a science or tech field to make a living, especially if you have neither the passion nor aptitude for those fields. 
 
When picking a major and school, keep in mind:
  • The income potential. With the cost of tuition continuing to rise, investigate how much you can expect to make graduating from your chosen school with the degree you're seeking, as well as the job placement rate.
  • The whole cost. Include the cost of transportation, room and board, food, supplies, and other fees in your calculations. You might find that a school with higher tuition but fewer associated costs is the better option. Colleges are required to have net price calculators on their websites.
  • That it's OK to follow your interests. Even if you're a liberal arts student, you still can increase your earning potential by attending schools that specialize in your field. The Payscale report ranked the earning potential of schools' graduates by major, too. For instance, if you want to attend a school that's graduated a lot of English majors with high-paying jobs, George Mason and Fordham universities should be on your short list.
For related information, read "Make the Most of Campus Visits: A Guide for Parents and College-Bound Students" in the Home & Family Finance Resource Center.

Honey, I'm retired ...

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MCLEAN, Va. (4/1/14)--Couples say they discuss retirement planning about 14 times a year, according to a telephone survey of 1,008 adults sponsored by Capital One ShareBuilder, an online investing site (USA Today March 16).
 
That's the good news. Not so good: While respondents believe they should be saving 12.1% of income toward retirement, they actually put away about half as much (6.4%).
 
And despite the reported frequent discussions, Dan Greenshields, president of Capital One ShareBuilder, suggests these may be passing comments instead of in-depth planning conversations.
 
If you're saving less than 10% for retirement, especially in your 40s and 50s, Greenshields says that's not enough. Ideally, at that age, he recommends you should be saving in the mid-teens to 20% of your income. But he acknowledges that most Americans can't hit that mark because they have so many financial demands.
 
Greenshields says it's important that couples discuss the lifestyle they want to have and where they want to live. You can live in some rural communities on half the assets it takes to live in many big cities, he points out.
 
St. Louis psychologist Diane Sanford often counsels couples struggling with money issues. She says, "If you compile a budget for six months of all your expenses ... you'll see what you need to save to create the lifestyle you hope to have in retirement." The budget provides a neutral way of starting the retirement savings conversation.
 
Sanford says she sees couples where one partner is involved in retirement saving and the other isn't. "It's important that both of you are informed and know what your assets are." One of the worst mistakes partners can make is to blame each other for spending too much. It's better to work together than "pick each other apart," she says.
 
Couples who fear they won't have enough to retire may feel particularly deprived. In those cases, it's easy to blame the other person when no one is really at fault, says Joe Burgo, a psychologist in Chapel Hill, N.C. "Coming together as a team, agreeing upon and sharing the sacrifices, will help them weather the disappointment of living on less than they had expected."
 
For related information, read "Who Goes First? For Couples, Retirement is All About Timing" in the Home & Family Finance Resource Center.

How much do you really need to retire?

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NEW YORK (3/25/2014)--As many as 85% of respondents to a nationwide GfK Custom Research survey believe it's important to prepare for the future by sacrificing and saving today. Yet 44% worry that they aren't putting aside as much as they think they should. How do you know if you need to save more, are right on target, or perhaps are going overboard (The Street March 11)?
 
The rule-of-thumb formula is to plan to live on 70% to 80% of your preretirement income during your retirement years, while increasing your replacement income annually at the inflation rate for 30 years. This is a reasonable starting point.
 
But these assumptions can over- or underestimate the true cost of your retirement. David Blanchett, head of retirement research at Morningstar Investment Management, points out that one size does not fit all. Your actual replacement income requirements will more realistically range from 54% to close to 90% of pre-retirement income (MarketWatch 12/21/2013).
 
One important factor in determining a replacement rate is your proportion of pretax expenses (contributions to a 401(k), for example) to post-tax expenses (contributions to a Roth, mortgage payments, and so forth). The more you put aside in pretax retirement accounts before you retire, the lower your replacement requirements.
 
To help you evaluate other factors that affect your replacement rate, consider:
  • Some of today's expenses will decline or disappear when you retire, for example, Social Security and Medicare taxes, saving for retirement and work-related expenses.
     
  • As you progress through retirement, even if you take into account the inflation rate for retirees (3.15% compared with a general inflation rate of 3%), your expenses will decrease in real terms at first and then increase toward the end. That's because your consumption most likely will change over time.
     
  • Your life expectancy might be a lot less, or more, than 30 years. You can use SocialSecurityOnline's calculator (found on ssa.gov) to estimate your life expectancy.
     
  • If you have a low preretirement income, for example, $20,000 a year, your replacement rate likely will be higher than that of someone who makes $100,000 a year.
     
  • The relative amount you will spend on health care could increase significantly as you age.
     
  • After age 65, you stand a good chance (70%) of requiring long-term care and help with basic daily activities, even if only temporarily.
Blanchett's research suggests that many households would benefit from claiming Social Security as late as possible. Keep in mind that, by delaying, you'll get a higher inflation-adjusted benefit for life.
 
Meet with a certified financial planner to make sure the decisions you make are appropriate to your situation. For related information, read "Do You Need a Financial Plan?" and "Making Dollars and Sense of Financial Planner Designations" in the Home & Family Finance Resource Center.

Getting a tax refund? Savvy ways to spend it

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SAN FRANCISCO (3/18/14)--If you're getting a tax refund, you're one of more than 40 million Americans receiving one. Financial experts say the best thing to do with a refund is to pay down debt, build up emergency savings, or put it toward retirement savings (MarketWatch.com March 5).
 
But, if you plan to spend your refund, or part of it, here are some savvy ideas:
 
Prepay bills. Get ahead of monthly bills by paying some ahead of time, or double up on payments. Consider paying extra on your auto insurance premium or, if you know you have an expense coming up--say kids' sports--pay for it now instead of waiting. You'll get the best bang for your buck if paying ahead leads to a lower overall price tag, such as paying down a car loan to save on interest. On the other hand, buying new tires could save money down the road since you might be extending the car's life.
 
Pursue education for yourself or others. Take classes that might help you advance your career or that will help you pursue that new job you've dreamed of. If you're not interested in taking classes, deposit the refund in a 529 plan or other college savings plan for your kids.
 
Buy health insurance. Pay for extra health insurance costs. This year's tax season is the only one that will overlap the open enrollment period for the Affordable Care Act, which ends March 31. Future enrollment periods will end earlier. If you're signing up for private insurance, using your refund can help immensely. Say you're a 27-year-old paying about $310 a month, the average cost for a low-cost plan. The average $3,000 tax refund could cover about 10 months of premiums. Also, consider using your refund for deductibles or prescription costs before full insurance coverage kicks in.
 
Give your home a mini facelift. Consider replacing old appliances with energy-efficient ones, which may qualify you for a tax break. Or, put the money toward other home improvements such as remodeling a kitchen or bathroom.
 
Enjoying your refund is easy. Talk to the professionals at your credit union about getting your refund directly deposited into one or several accounts.
 
For related information, read "Eight Ways to Make the Most of Your Tax Return" in the Home & Family Finance Resource Center.

Spending too much? Plan and be mindful

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NEW YORK. (3/11/14)--Consumer spending in January climbed higher than predicted, swelled in part by the biggest increase in services outlays since 2001.
 
The spending on services was likely driven by the unusually cold weather and higher-than-normal heating costs, but household purchases, which account for about 70% of the economy, were also up by 0.04%, according to Commerce Department figures (Bloomberg March 3).
 
The financial forecast anticipates consumers will continue spending more on goods and services as hiring gains, climbing housing values, and a robust stock market drive an improving economy.
 
But, just a few years out from the Great Recession, are Americans already spending too much? Last month The Wall Street Journal reported that most financial planners would say, "Yes."
 
The reasons are varied--lack of a budget or a desire to maintain appearances--but, to better manage your spending, many financial advisers recommend tracking your cash flow and monitoring your emotional state.
 
Here's how:
 
Plan. It's not only big expenses that put you in debt. More likely it's "death by a thousand tiny cuts" eating up your income. Track your spending with a notebook or online app, shop with a list, consider using only cash for a couple of months, and set up monthly automatic deductions from your share draft/checking account into an emergency savings fund.
 
Be mindful. Try to understand why you're overspending. Maybe you're trying to keep pace with high-rolling friends or spending makes you feel better--temporarily. Regardless, when you feel compelled to buy something you maybe don't need, wait 24 hours and consider why you're buying it. Ask yourself, "How will I feel when the credit card bill comes?"
 
Set limits. Know what pleasures you can't live without and decide in advance how much you'll spend on them each month. Try to focus on the joys in your life that cost nothing--friends, family, a favorite public park--and for big-ticket items, set aside a little each paycheck until you can afford to buy it.
 
For more information, read "Everybody's Money Matters: Deciding How Much to Save" in the Home & Family Finance Resource Center.

Get house on the market--pronto

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ALEXANDRIA, Va. (3/4/14)--Time's a wasting if you plan to put your house on the market this spring. House hunters have been scoping out properties online for months and are poised to buy (Motley Fool Feb. 15).
 
January visits to online real estate websites were up 25% more than in December, to more than 360 million, according to Experian Marketing Services (Feb. 14). So, if you plan to sell but your house is not yet listed and online, you're missing lots of opportunities to show your house to potential buyers.
 
While spring is the traditional season for housing sales to pick up, other factors contribute to the lift in interested buyers.
 
Mortgage rates are lower in the past month and hovering near 4% for qualified loans. This is good news for buyers sensitive to affordability: A traditional 30-year, $150,000 mortgage at 4.5% would have a monthly payment of $760. If rates decline to 4.25%, the payment would change to $738.
 
That $22 savings each month could make the difference between getting a loan approval or not. And, over the life of the loan, that 0.25% difference saves the borrower nearly $8,000.
 
Get your house show-ready by making sure it is spotless and clutter-free. Low-cost cosmetic fixes such as fresh paint and carpet in neutral shades, new cabinet hardware and shower curtains, and basic landscape maintenance pay off. An investment in updated kitchen appliances makes more sense than a kitchen remodel at this stage.
 
For more information, read "Want Top Dollar for Your House? Apply Elbow Grease" in the Home & Family Finance Resource Center.