Laurie Cipriano

KUSA – Cash is king in many ways. You can spend it almost anywhere.

Credit is also widely accepted. However, carrying a balance on your card can get some people into financial trouble.

But you might be surprised to find out that paying cash can also cost you in the end.

“The obvious problem with credit cards is overspending,” said Paul Golden with the National Endowment for Financial Education. “We’ve seen studies that actually show that people will spend 20 percent more if they’re using credit cards over cash.

“They [credit card companies] aggressively market their products,” said Bhaskar Chakravorti, an economist and senior associate dean of International Business and Finance at the Fletcher School at Tufts University. “It’s relatively easy for a consumer to sign up for a credit card. Because you get all these offers in the mail.”

With cash, there are no missed payments to worry about, no fees and no finance charges.

But if you use credit, and have a card that offers cash back, you can essentially lower the price of whatever you are buying from 1 to 5 percent.

“It could make sense to pay for all of your day-to-day spending through your credit card account,” Golden said.

It could make sense – only if the you spend what you know you can pay.

But most people don’t do that. Then the finance charges you get hit with eventually wipe out that cash back.

Then that $50 Christmas gift ends up costing a lot more than $50.

But if you control your spending and pay on-time, in full, every month – the card company is actually paying you to use their card.

“As long as you can do that you should come out on top every time,” Golden said.

Yes, we do realize that retailers must pay credit card companies a percentage of each transaction. But this story is about how you can make your credit cards put more money in your pocket.

Gas, groceries and other spending can add up quickly. In a few years, one credit card paid 9NEWS producer Laurie Cipriano more than $1,000.

That kind of cash back can make some believe credit is the new king.

But sometimes it’s just easy to go up to an ATM, slide in your card and get the cash you need. Then it’s impossible to go over budget.

Cipriano has never used an ATM because she refuses to pay any amount of money – to get access to her own money.

“You’ve got to be careful with ATM usage, particularly when you go to do a withdrawal,” Golden said. “You’ve got to be very mindful of fees.”

“If you go through an out of network ATM, you’re going to be paying a fee to take out your money. Your bank is going to be assessing a charge for that. And then the owner of the ATM that you do the transaction at is going to be assessing a charge to take out that money,” Golden said. “So a lot of people get very frustrated by having to pay fees to get access to their money.”

Of course, there is no ATM fee if you use your bank’s ATM.

But if you’re not near your bank’s ATM, how much will you spend on gas driving around to find an ATM that won’t charge you a fee? You might want to try to calculate that sometime.

Cash from a bank teller is free. Although relying on getting cash from a teller, does require a some planning.

The benefit is that these days, many banks don’t have long lines as more of us bank online. But some may want to use a debit card to access petty cash.

Then there are those who use check-cashing services to convert their paychecks into cash.

“That actually can be very costly. Some places will charge 10 percent of the check amount to actually cash that check and so that can be very expensive,” Golden said.”These are people who can least afford to actually pay those fees. But they are paying them because they don’t have access to traditional banking services, for whatever reason. So there’s a lot of frees that get involved to actually have access to cash.”

Giving up 10 percent of your hard-earned money is like getting a pay cut.

“American households on average pay about 40 billion dollars annually to access cash and use cash,” Chakravorti said. “The biggest source of that cost is the time spent to access cash. And on average an American consumer spends 28 minutes a month in getting cash from an ATM or waiting in line to get a check cashed. The other sources of the cost of cash to the American consumer are ATM fees and account fees.”

It may come as a surprise to some that it costs Americans billions to use cash. But, on the other hand, it comes as no surprise that not retiring your credit card balance every month can add up when those high interest payments accumulate month after month.

So, whether you choose to use cash or credit this holiday season, make sure you start with a good, solid budget.

Then there is the whole security risk associated with using cash.

“By just carrying cash around [is] where it becomes very dangerous,” Golden said. “Credit cards offer security.”

If you lose a wallet full of cash, or if it’s stolen – odds are that you will never see that cash again. It’s gone.

But if you lost a wallet full of credit cards, of if it’s stolen – all you have to do is call your credit card company and tell them your cards have been stolen. The credit card company can handle these types of situations, including canceling your credit cards. Some thieves have can even be caught if they try to use a credit card that has been canceled.

In addition, if you are not satisfied with a product or service, you cannot get your cash back. But if you used a credit card, you can dispute the charge with the card company. The credit card company will open an investigation to determine whether or not you deserve to get your money back. You don’t have that option with cash.

You’ll want to check up on your 401(k) to make sure that it’s performing according to your expectations. That means keeping an eye on your investments’ performances and potentially reassessing your asset allocation.

As market performance alters the values of your asset classes, you may find that your asset allocation no longer provides the balance of growth and return that you want. In that case, you may want to consider adjusting your holdings and rebalancing your portfolio.

Assets grow at different rates—which means that your portfolio might end up out of line with the allocation you have chosen. For example, some assets might recently have grown at a much faster rate. To compensate, you might reallocate some of the value of fast-growing assets into assets with slower recent growth, which may now be poised to pick up steam while recent high-performers slow down. Otherwise, you might end up with a portfolio that carries more risk and provides a smaller long-term return than you intended.

Although there’s no official timeline that determines when you should rebalance your portfolio, you may want to consider whether you need to rebalance once a year as part of an annual review of your 401(k) plan.

The Cost of Shifting

If you can access your account online, you may be able to shift your assets as often as you like. Keep in mind that constant shifting means potential sales charges, exchange fees, exit fees and back-end loads. The more often you trade, the more often you’ll owe. And, aside from the costs this might incur, switching out of equities when the market is doing poorly means locking in your loss—and unlike a taxable account, you can’t take a tax deduction on capital losses in a 401(k).

How to Rebalance

You can rebalance your portfolio in different ways to bring the way it is allocated back in line with the balance you intend it to have.

One rebalancing strategy is to redirect money to the lagging asset class until it returns to the percentage of your total portfolio that is held in your original allocation. Or, you could add new investments, and concentrate your contributions on that class.

Another strategy is to sell off a portion of your holdings within the asset class that is outperforming others. You may then reinvest the profits in the lagging asset class.

All three approaches work well, but some people are more comfortable with the first two alternatives than the third. They find it hard to sell off investments that are doing well in order to put money into those that aren’t. Remember, though, that if you invest in the lagging classes, you’ll be positioned to benefit if they turn around and begin to prosper again.

Let Woodlands Portfolio Management rebalance your 401k on a regular basis to keep you on track for retirement.

Annuities can be used to help you increase your savings, protect what you’ve saved, or generate a stream of income.

Annuities generally fall into two categories: deferred and income. Each works differently and offers unique advantages.

Tax-deferred annuities: for retirement savings

Deferred annuities can be a good way to boost your retirement savings once you’ve made the maximum allowable contributions to your 401(k) or IRA. Like any tax-deferred investment, earnings compound over time, providing growth opportunities that taxable accounts lack.

Deferred annuities have no IRS contribution limits, so you can invest as much as you want for retirement. You can also use your savings to create a guaranteed stream of income for retirement. Depending on how annuities are funded, they may not have minimum required distributions (MRDs).

Bear in mind that withdrawals of taxable amounts from an annuity are subject to ordinary income tax, and, if taken before age 59½, may be subject to a 10% IRS penalty. Annuities also come with annual charges not found in mutual funds, which will affect your returns.

Deferred variable annuities have funds that may have the potential for investment growth. However, this involves some market risk and could result in losses if the value of the underlying investments falls. Variable annuities are usually appropriate for those with longer time horizons or those who are better able to handle market fluctuations.

Deferred fixed annuities offer a guaranteed rate of return for a number of years. Fixed deferred annuities may be more suitable for conservative investors or for those interested in protecting assets from market volatility. In this way, they’re similar to certificates of deposit (CDs).

However, deferred fixed annuities differ from CDs in that:

• Annuities are not FDIC-insured.
• Withdrawals from annuities prior to age 59½ may be subject to a 10% IRS penalty.
• Deferred fixed annuities may offer more access to assets than a CD.
• Annuity earnings compound on a tax-deferred basis.

Income annuities: for income in retirement

Income annuities may be appropriate for investors in or near retirement because they offer guaranteed income for life or a set period of time. They may allow you to be more aggressive with other investments in your portfolio, since they provide a lifetime income stream.

Keep in mind that you may have limited or no access to the assets used to purchase income annuities.

Immediate variable income annuities offer an immediate income stream with growth potential, which may help keep pace with inflation. This income is guaranteed3 for life, but the amount of each income payment is not guaranteed—the payment amount will vary based on the performance of the annuity’s underlying investments.

Fixed income annuities offer a guaranteed, predictable payment for life, or for a certain period of time. Your guaranteed income payment cannot be affected by market volatility, helping shield your retirement income from market risk.

A cost-of-living increase is available at an additional cost to help your buying power keep pace with inflation.

Deferred fixed income annuities are fixed income annuities that have a deferral period before income payments start. Because of the deferral period, you get a higher income payment amount than you would from a comparable immediate fixed income annuity with the same initial investment. The cost-of-living increase is also available at an additional cost for deferred fixed income annuities.

Living benefit annuities: for income generation and growth potential 

Many people nearing or in retirement are looking to establish an income stream for the long term but still want to participate in the market. Deferred variable annuities with guaranteed living benefits provide both guaranteed lifetime income and growth potential, and may offer access to assets as well.

These “hybrid” annuities can provide a lifetime guaranteed income stream for you (or you and your spouse). The income payments will not be reduced by poor market performance, even if the contract value declines as a result.

In fact, if the account’s investments perform well, the income payments may increase. Those increases are also protected from any later market declines.

Small-Business Retirement Plans

Get the advantages of retirement savings accounts with simplified plan management for small-business owners and self-employed individuals.

Self-Employed 401(k)

Designed for self-employed

individuals or business owners

without employees.

Traditional IRA

With a Traditional IRA, you make contributions with money you may be able to deduct on your tax return. Any earnings potentially grow tax-deferred until you withdraw them in retirement.

Tax advantages

Account features

What Is a 529 Plan?