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The surprisingly small amount of cash savings that could save you from financial shocks —‘Even a small dollar cushion can improve a household’s financial situation’

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When it comes to money in a savings account, a new survey finds even a little can go a long way — towards keeping the lights on, avoiding high-interest loans and staying in your house.

As the personal savings rates slips nationally and lawmakers debate a COVID-19 relief package injecting more cash into struggling households, Thursday’s survey suggests noticeable benefits can come with keeping as little as $100 in a savings account.

It’s a bit of good news for people who find the advice about maintaining an emergency fund for three months’ expenses a tip that’s simply out of reach.

The study, from the FINRA Investor Education Foundation and SaverLife, looked at savings account activity for nearly 700 people between January and March, and then caught up with them for a survey in February and May.

The researchers found:

• On average, 19% of people who kept at least $100 in their account over three months experienced a utility shutdown of some sort in the past five years, like a cutoff on gas, electricity or a cell phone. 37% of people with accounts at $100 or below went through the same thing.

• On average, 23% of people with at least $100 used high-interest loans, like payday loans and auto title loans and went to places like pawn shops in the past five years. It was 42% for people who had $100 or less.

• On average, 17% of people maintaining at least $250 in their account for three months said they had to move in the last five years because they could not afford their place. By contrast, 29% of people with $250 or less said they had to move in the past five years due to finances.

“Even a small dollar cushion can improve a household’s financial situation,” said Gary Mottola, research director at the FINRA Investor Education Foundation, the educational arm of the nonprofit organization regulating the brokerage industry. SaverLife, which teamed up with the FINRA Foundation on the survey, is a financial-technology company incentivizing savings.

It’s easy to figure how more money can make everyday life easier, but how exactly do these savings factor in here? It’s unclear whether there’s something special about dollar thresholds like $100 and $250, Mottola said, but he thinks it’s a matter of correlation, not causation.

Someone with enough money in their account could afford at least partial utility payments to keep the lights on and they have some liquidity to sidestep high-cost loans that offer quick money upfront, Mottola said. But people typically can’t make partial rent or mortgage payments, he said.

“One hypothesis is small dollar amounts prevent negative chains of events,” Mottola said. With even a little bit of extra money to partially pay other costs, Mottola said a person may still have enough for rent and be able to avoid high-cost loans that could make rent and mortgage payments more difficult down the road.

While the goal of three months of expenses in a rainy day account may seem difficult and “demotivating,” Mottola said “smaller achievable saving goals can motivate families to save and give them a sense of hope that they can handle unexpected financial challenges.”

In October, Americans, on average, saved 13.6% of their disposable monthly income, according to the Commerce Department’s Bureau of Economic Analysis. That continues a months-long slide from April, when the rate hit a record high of 33% as consumer monthly spending fell and income rose, boosted by stimulus money.

Don’t miss:Here’s the case for Elon Musk, Warren Buffett and the rest of America’s billionaires sending $3,000 stimulus checks to everybody

As talks over another relief package continue, direct $600 checks and supplemental federal $300 unemployment insurance payments are some of the debated provisions.

‘The journey towards a savings goal doesn’t exist in a vacuum’

The latest survey may serve as another reminder on the importance of having a savings account — but that’s easier said than done if the pandemic is making household cash is sparse and snuffing job prospects. Nearly one in four people recently said they’d be in financial “survival mode” in 2021, where they’d be focusing on getting by day to day, not saving for the future.

Bruce McClary, the National Foundation for Credit Counseling’s senior vice president of communications, gets that. “Reality can be pretty harsh,” he said. “The journey toward a savings goal doesn’t exist in a vacuum.”

Nevertheless, there are things people can do to get on the right path, he said.

Websites like AmericaSaves.org, a campaign run by the Consumer Federation of America, and the Consumer Financial Protection Bureau offer free resources for people who want to learn more about how to build up their savings.

McClary’s organization is a network of non-profit financial counseling organization across the country and the NFCC website offers ways for people to get in touch with non-profit counselors who can help them with budgeting plans, savings goals and debt management.

Savings is a matter of dollars and cents, but it’s also a psychological matter that involves motivations and habits, McClary said. For example, there are two different approaches to paying down debt and building savings. There’s the so-called “snowball” method of paying off debts from the smallest to the largest and there’s the “avalanche” method of paying off debts, starting with the ones with the highest interest rates.

It comes down to which approaches keep someone personally engaged in getting ahead, McClary said.

Someone building their savings right now shouldn’t beat themselves up for using it or contributing less than occasionally planned, McClary said. “There are acceptable purposes for dipping into savings. It’s not like you’re creating something you never intended to use. … You set the rules. You’re the one who defines what’s an acceptable purpose.”



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My fiancée’s mother asked us to raise her 2 kids, as we live in a good school district and she has a gambling addiction — then she claimed their stimulus checks

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Dear Quentin,

Last year, in February, my fiancée’s stepfather passed away. After his passing, my fiancée’s mother asked both her and me to raise her younger sons, as we had recently purchased a new home, have degrees and will be able to provide a great area for their education, such as help with homework and the ability to communicate with their schools or doctors. My fiancée’s mother cannot read, write or speak English, and she has an addiction to gambling at casinos.

COVID-19 hit soon afterward. We both were let go from our jobs, and are making it by with unemployment and savings.

With that said, in March of this year, we filed taxes and my fiancée claimed both of her brothers since they had lived with us for almost nine months of last year. We received both of their stimulus payments a few days later. About three weeks later, we found out that my fiancée’s mother had also received the stimulus payments, even though she is adamant that she did not claim her children this year.

Upon seeing the money, I advised her to leave the money as the Internal Revenue Service may eventually ask for it back. Her new boyfriend then quickly told her to withdraw it anyway. They’ll deal with it later if the IRS asks for it, he said.

My question is: Will this situation hurt my fiancée and me in any way? I fear that the IRS may find out sooner or later about the error and seek the money from us, as her mother may have already gambled away that stimulus money, and make us pay for it even though we are using it as it was intended: for bills and necessities.

Fiancé

You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com.

Dear Fiancé,

You are correct. The IRS will eventually ask for that money back, and it will likely do so by deducting the money from a future tax refund. You are also correct that your de facto mother-in-law should not spend the money. I take my hat off to you for raising these two children, and giving them a stable home and the head start in life that they deserve.

Many people in such a situation would write complaining about how they did X, Y and Z, and their in-laws were ungrateful. But you have taken the high road, knowing that these shenanigans are between you two and your fiancée’s mother, and do not involve your girlfriend’s two younger siblings. I am glad that you have not involved them in this somewhat messy situation.

You, of course, have done the right thing. The Moneyist column has dealt with dependents who claimed the stimulus, and parents who are not guardians of their children collecting it. The $1,400 economic stimulus payment, as you are aware, is not a loan. This third stimulus check is an advance tax credit on your 2021 taxes, and calculated based on your 2020 taxes.

If the IRS does not know who is telling the truth here, it will audit both parties. The truth will come to light eventually, and your fiancée’s mother and her boyfriend should be made aware that you are not in a position to help bail them out of this situation. They have knowingly walked into it, and there should be a clear boundary between helping her children and being a facilitator to this malfeasance.

The IRS has extensive guidance on what to do when someone fraudulently claims your dependent. “If you determine the other person was not eligible to claim your dependent, you’ll need to take steps to protect your right to claim the dependent and ensure an accurate filing,” it says. You have everything you need to know in order to take proactive steps here.

I leave that for you to decide.

The Moneyist: ‘I cut his hair because he won’t pay for a haircut’: My multimillionaire husband is 90. I’ve looked after him for 41 years, but he won’t help my son

Hello there, MarketWatchers. Check out the Moneyist private Facebook
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 group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.

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I’m on track to retire at 58. My fiancée is in debt and drives my old car, and I support her family. How do I ensure my son inherits my wealth after I die?

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Dear Quentin,

I have dated my fiancée for just over three years. Within those three years, I have been severed from a job and spent two years unemployed looking for a new job. I have a new job, making roughly 75% of what I previously made, but it is a more than livable salary. My fiancée makes a modest salary in comparison to my own.

Financially, I had spent a lot of years going without in order to pay for my son’s college education and to stockpile savings in order to retire early. According to my financial planner, I am well ahead of my goal to retire at 58 (I’m 51 currently) with an IRA of around $2 million, plus savings and other liquid assets.

Currently, my fiancée is trying to get herself out of debt. She drives my old car and shares no utility bills or mortgage payments, but she does buy groceries, as the household is made up of her, her children and me. By supporting her family, I have very little I can do for my own son.

It has always been tradition in my family to leave an inheritance. I had planned on leaving my only son a rather large inheritance so that he may better himself and his family. My fiancée has children, and my concern is that if I am married (I live in Texas), the savings I have would go to her and subsequently her children, bypassing my son.

Since I am 10 years older than my fiancée, I suspect she may outlive me. How do I protect my assets so that they can be split as part of my wishes?

Nervous Fiancé and Father

You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com.

Want to read more? Follow Quentin Fottrell on Twitterand read more of his columns here.

Dear F & F,

Texas is a community-property state, so what you bring into the marriage, you also take out of the marriage. Assets accrued during the marriage, with the exception of inheritance, are deemed marital or community property.

You have several options, including setting up a living trust to allow you to transfer your wealth to your son during your lifetime, and thereby avoiding going through probate, which can be an unpredictable, cumbersome and public process.

You have two choices of trust: revocable or irrevocable. The first can be changed. You could retitle financial accounts in your son’s name. The latter cannot be changed, and also serves to save on estate taxes. It’s typically used to leave assets to children and grandchildren.

Other routes: a prenuptial agreement, a will (obviously) and naming your son as your beneficiary on your life-insurance policy. With the help of an estate planner, you can devise ways to ensure your son is taken care of after you’re gone, and your future wife is not left out.

In the meantime, ensure you keep separate property separate. If you deposit an inheritance in a joint bank account, for instance, it becomes marital property. If your fiancée contributes to the renovation of a home in your name, it again becomes community property.

Speak to your fiancée about your concerns and goals. It’s important to be transparent and ensure that you and she are on the same page, and share the same financial expectations. You may also want to wait until your wife pays her debts before marrying.

Hello there, MarketWatchers. Check out the Moneyist private Facebook
US:FB
 group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.

By submitting your story to Dow Jones & Company, the publisher of MarketWatch, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.





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