Credit Unions vs. Banks

It has been quite a while since my last post. A lot of things have been going on both at the Alliance Library System and at home.

Now that both areas are settling down again, I am going to try posting new content again!

Here is a link to an article discussing the pros and cons of using a credit union vs. using a bank.

Campaign to Save Illinois Libraries

Join the Campaign to Save Illinois Libraries

In response to the recent cuts to system funding and library grants, the Illinois library community is launching a campaign to secure the future of Illinois libraries. You can keep up with the campaign and find out what you can do to help by visiting us on Facebook or Twitter, or by going toSaveIllinoisLibraries.com. The campaign is just beginning: be sure to check back regularly for updates!

Incentives to Save for Retirement

IRS announces increased tax incentives for retirement savings
The Internal Revenue Service has issued guidance as part of an initiative to increase taxpayers' retirement savings. The changes include making it easier for 401(k) plans to allow automatic enrollment, giving taxpayers a box to check on Form 1040 to buy savings bonds with their tax refunds, and permitting workers to contribute cash payments for unused vacation time to their 401(k) plans.

See the full article here: JournalofAccountancy.com(9/8)

Budget Cutting - Follow Up

On July 24, I posted about a survey that my boss, Kitty Pope - the Executive Director here at the Alliance Library System, was running, looking at the various ways that libraries were looking to cut budgets to meet funding shortfalls.

The results are in - here's a link to the article that Kitty wrote summarizing the survey answers.

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You may have noticed that I haven't posted for a couple of weeks, with my last post being August 11. Well, August 12 was the day that the Illinois State Library notified us of our funding level for the current year. Needless to say, I've been busy working with the other department directors here at ALS in going through our previously approved budget with a fine tooth comb.

Since our board has not yet met to discuss the recommended cuts, I'm not going to share those here. What I can share, however, are some general thoughts as you go through a budget process - whether you're crafting an annual budget or you're digging around trying to revise a budget due to funding cutbacks:

• Understand your funding sources. The more diverse they are, the less chance there is that any one cut or reduction will have a major impact.
• Understand the requirements, if any, that your funding sources place on you. If you're restricted by a donor or grantor to using their money to purchase books, then make sure that's how you budget and spend those dollars.
• Understand your mission and your "customer" - often times, budgets or programs carry on year after year with no realization that the budget item or program no longer meets the organization's mission or meets your customers' needs.

In other words, make sure your budget covers all of the "have to do" items before you start considering the "want to do" items!

For example, when going through our budget the past couple of weeks, we had three criteria from the Illinois State Library (for specific programs) and placed an additional criteria on ourselves (to try and make sure any cuts we made had little or no direct impact on our members).

Budgeting is not a science, it is not an art. It is a combination of the two. With good planning, documentation and good understanding by your boards, you should be able to come up with a budget that meets the needs of your customers while remaining within the guidelines of your funding sources and your organization's mission.

Property Tax Cycle for Public Libraries in Illinois

The Consulting & Continuing Education Group here at the Alliance Library System has developed different tables and charts to help explain the various tax funds and the budget and property tax cycles that public libraries in Illinois face.

All of the downloadble tools created by the C&CE group can be found here.

For a list of ten different funds, the expenses you're allowed to spend from each, and the legal citation allowing these funds, click here.

For a list of seven property taxes which can be used to support the regular and ongoing financial needs of a public library, click here.

For a chart showing the steps in a public library's budget cycle, click here.

From personal experience, the budget cycle, funds and property taxes have been the most challenging and complex ideas to grasp as a trustee of a public library. At our last meeting, our library director handed out copies of the budget cycle chart and walked us through the process.

If you have questions on these processes, please contact a Library Development Consultant here at ALS. Contact information can be found here.

Being Prepared

Apologies in advance for the long post!

A few days ago, I was doing the dishes after dinner. Outside, there was a heavy downpour, but according to the weather radar, nothing bad was around - a little bit of lightning and thunder off in the distance. Then, bright lightning and the thunder at the same time - it hit near the house. I stood there and waited for the inevitable power failure, but the power stayed on. I thought, "Wow, that's a relief." Then I realized...

The phones were dead and the ADSL that we get through the phone lines was down. We lost the telephone, the ADSL modem and the wireless network router, all through a surge that came in through the phone line. Amazingly everything else electrical in the house survived. I thought I was prepared - everything was plugged into surge protectors. I guess I wasn't prepared for the surge to come through the phone lines. Well, now I am - prepared with a surge protector that also has an input and output for the phone and ADSL lines.

Today, our well pump started dying. Apparently the well pump motor got a surge as well - it just took a few days to show up. It won't be until Monday when I find out the damage (physical and financial). If the cost is large enough, I'll turn it into insurance for reimbursement.

The lesson... you need to be prepared for emergencies. Aside from having homeowners (or renter's) insurance, you should set aside money for these types of issues. This can be called different things....reserves, a rainy day fund, an emergency fund. Financial planners all agree that you should set money aside ahead of time, but opinions differ as to how much. I've heard anywhere from three to twelve months of living expenses should be in this emergency fund.

Having an emergency fund can help you cope with unexpected situations without using credit cards or going into debt. Having an emergency fund can help you cope for a while if you lose your job. Having an emergency fund can help you pay the deductible on the insurance for major repairs or replacements. Having the insurance in place will limit your losses to whatever deductible you have.

We all know that we should have insurance and have funds set aside for emergencies - now is a good time to check to see that you have the right amounts! Be prepared.

Budget Cutting

My boss here at the Alliance Library System, Kitty Pope, is doing some research on whether libraries are adjusting their budgets or cutting spending in these difficult economic times. If your library has cut, is considering cutting, or will be cutting or adjusting its budget, please help out in this research.

She has set up a short, ten question survey to help her gather data. The survey can be found here.

I'll post more when we have the results tabulated.

Thanks!

The Risk Spectrum

Back to risk. For previous posts on risk, click here.

As I mentioned in previous posts, you can take on lower risk, but also at mainly lower rewards or returns. An newsletter from the Lord Abbett mutual funds broke risk down into various categories. Low risk/reward investments are considered "crawling", investments with a little more risk are considered "walking", and investments with even more risk are considered "running".

Here are some examples:

Crawling

• Tax exempt bond funds that invest in short-to-mid-range maturity municipal debt.
• Short-term corporate bonds.

Walking

• Intermediate-range corporate bonds.
• High-yield corporate debt.
• Convertible securities.

Running

• Equities (stocks).

Within this last category, the risk spectrum can be defined further from lower to higher by looking at large and well-established stocks, then mid cap value stocks, then small cap stocks.

As always, each person's definition of risk will differ, as well as how much risk each person is willing to endure will differ. Seek the help of a financial advisor or professional to learn more.

Setting Your IMRF Employer Rate for FY2010

In General Memo 587, IMRF announced the optional phase-in rate program for the 2010 employer rates. Each employer also received a preliminary rate notice via the Employer Access Document archive.

It is very important that every employer review this preliminary rate notice and share this information with the appropriate staff.

Employers have until August 31, 2009, to select their 2010 contribution rate. If IMRF does not hear from an employer by August 31, 2009, we will assume the employer has chosen the optional phase-in rate.

For all previous posts discussing the different rates that are available to you, click here.

Coping With Budget Shortfalls

This information comes from a LibraryJournal.com article by Susan Carol Curzon from last April, titled "Survivor: The Library Edition - Director-to-director guidance on how to cope with more budget shortfalls"

Tips to remember in these tough times:

1. Never stop outreaching
2. Talk to the users
3. Scan the environment
4. Counter the myths
5. Watch out for space hunters
6. Recognize the different emotions
7. Answer the question
8. Run a tight ship
9. Focus on planning
10. Keep looking at the dollars
11. Level the playing field
12. Ask the tough questions
13. Keep your spirits up

There's no way I could give adequate explanation for each of these in this post, so here's a link to the full article.

Mutual Funds

My last two posts covered the concept of risk and the concept of diversification to mitigate risk while investing. If you are not (or don't want to be) an active investor that needs to watch many different investments in a diversified portfolio, one way you can still achieve some diversification is through investing in mutual funds.

The U.S. Securities and Exchange Commission (SEC) defines a mutual fund as "a company that brings together money from many people and invests it in stocks, bonds or other assets. The combined holdings of stocks, bonds or other assets the fund owns are known as its portfolio. Each investor in the fund owns shares, which represent a part of these holding."

Mutual funds will each have an investment philosophy, such as large cap stocks, corporate bonds, etc. Beyond that, however, it will diversify within that investment class. So, buying into a mutual fund should get you diversification within that mutual fund's investment class(es). Buying into mutual funds that have different investment philosophies will get you even greater diversification.

However, there are many mutual funds and a lot of different terms and ideas to understand before you invest. Here are two resources to help do the research:

• The SEC's introduction to mutual funds can be found here.
• Motley Fool has a glossary which they tout as "mutual fundese translated for the masses" which can be found here.

Managing Risk

My last post introduced some of the different types of risk you face while investing. A question to ask is, "Why take the risk?" The answer is Reward. In general, the more risk you're willing to take on, the higher your potential returns (but also the bigger your potential losses). For example, a savings account at an FDIC insured bank has low risk, but also low rewards (in the form of low interest rates).

In investing, the goal is to maximize your returns without taking on more risk than you can bear. The best way to reduce risk is to follow the old adage, "Don't put all your eggs in one basket!" The key to reducing risk in investing is diversification.

You can diversify mainly in two ways:

• Diversify Investment Types: Spread your investments out among different asset classes, such as stocks, bonds, real estate, commodities, etc.
• Diversify Within Asset Classes: Diversify stocks by holding different sectors, such as technologies, consumer goods, transportation, etc. Diversify bonds by holding corporate bonds, US government bonds, municipal bonds, high yield bonds, junk bonds. Diversify in real estate by holding residential, commercial or industrial investments, etc.

The best way to come up with a plan to have a diverse portfolio that meets your risk tolerance is to work with an investing professional.

What is Risk?

The Random House dictionary defines risk as "exposure to the chance of injury or loss."

When considering investments, risk is the chance that your investment will provide lower returns than expected. Here are some of the different types of risk to consider when choosing investments:

• Market Risk: when an investment loses because of overall declines in the market - for example, your house may be well kept and even improved, but its market value may have declined during the recent recession
• Inflation Risk: when prices in the economy rise as a whole, decreasing the worth of investment income
• Default Risk: when an entity issuing a debt investment (i.e. a bond) is unable to pay as promised
• Liquidity Risk: what value could you lose during the time you try to sell an investment? Common stock of a Fortune 500 company has low liquidity risk, since a sale order could typically be executed instantaneously. A 17th century vase may take longer to sell, and if you need the proceeds immediately, you might need to settle for a lower offer.
• Political Risk: when changes in governments or politics adversely affect markets or investments you hold
• Exchange Risk: when you hold foreign investments, changes in foreign currency valuations can adversely affect your investments.

One of the keys to successful investing is to understand the various risks you face, and to take steps or choose investments that help mitigate those risks.

Tax Credits for Making Your Home Energy Efficient

Courtesy of 360 Degrees of Financial Literacy from the American Institute of Certified Public Accountants.

The American Recovery and Reinvestment Act of 2009, better known as the Stimulus Bill, has provisions that provide tax credits for making your homes more energy efficient.

For 2009 and 2010, you can receive a tax credit of 30% of the cost of the following items in your principal residence:

• New windows
• New doors
• Insulation
• Roofing
• HVAC
• Non-solar water heaters
• Biomass stoves

There are also provisions for tax credits on installation of larger items, such as geothermal heat pumps, solar panels, etc. For a more detailed explanation and to see the full article from 360 Degrees of Financial Literacy, click here.

Credit Card Reform

Compliments of smartmoney.com.

Last month, the Credit Card Accountability, Responsibility and Disclosure (CARD) ACT was signed into law. According to administration officials, CARD will "give consumers greater protections and a fairer deal when they choose to use credit cards."

The CARD Act:

• Restricts retroactive rate increases
• Provides more advance notice of rate hikes
• Increases time to pay bills
• Applies payments to highest rate balances first
• Eliminates universal default
• Requires an opt-in for over-limit fees
• Restricts college credit

For more details on each of these provisions and to see the full article on smartmoney.com, click here.

Five Everyday Items You Don't Need

Courtesy of Yahoo! Personal Finance and TheStreet.com, here are five things you can cut back on or possibly eliminate from your daily life to save money.

• Bottled beverages
• Food
• Diet products
• Vitamins
• Cosmetics and toiletries

Here's a link to the article for their reasons and explanations.

Payroll Income Tax Withholdings

This topic courtesy of a question asked by an ALS member library...

As employers, there are many different federal, state, and sometimes local laws, rules, and procedures that we must follow when we hire and pay employees.

One of the requirements, withholding of federal income taxes, was recently changed under the American Recovery and Reinvestment Act of 2009, commonly known as the Economic Stimulus Bill. The change, known as the "Making Work Pay" provision, adjusted withholding tables so that the effect was that workers would have an average of $10 per week less of federal income tax withholding which, in theory, would lead to higher take home pay and hopefully more spending - thus stimulating the economy.

For my earlier post on the Economic Stimulus Bill, click here.

If you use a third-party service to process your payroll, they should already have made the changes for the "Making Work Pay" provision effective with payrolls in May 2009.

If you use software to process your payroll, you want to make sure your software vendor has provided you with the most up-to-date tables to ensure the "Making Work Pay" provision goes into effect.

If you calculate payroll manually, you can find the updated instructions and withholding tables in Publication 15-T at the IRS website.

Remember, if you have a specific topic you want addressed - just send me a note!

Important Upcoming Dates for Public Library Districts

Apologies in advance - I'm breaking the 250 word limit for this important topic.

Over the next few months, from a financial standpoint, there are quite a few important dates and deadlines for public library districts to consider:

June 30: Last day to adopt the Prevailing Wage Ordinance, a certified copy of which must be filed with the Office of the Secretary of State and Department of Labor and published in the local newspaper. (820 ILCS 130/9)

July 1: Schedule of regular Library Board of Trustees' meeting dates including the time and location, must be prepared and made available to the public. This information, however, may be presented at the beginning of the calendar year instead of the beginning of the fiscal year. (At least 5 meetings must be held.) (5 ILCS 120/2.03 and 75 ILCS 16/30-50)

August 23: Last day (30 days before adoption of ordinance and hearing thereon) to make the tentative budget and appropriation ordinance available for public inspection and publish notice for hearing thereon. (50 ILCS 330/3 and 75 ILCS 16/30-85)

August 30: Last day (within 60 days from July 1) for treasurers to file a sworn, detailed and itemized statement of all receipts and expenditures of any character for the preceding six months and showing the names, addresses, positions and salaries of every employee. [The statement shall be furnished for reference on request to all daily newspapers, the library, the Circuit Court Clerk and City, Village or Town Clerk.] (50 ILCS 305/1) AND Last day for library to authorize payment of obligation incurred in prior fiscal year with funds from that year in amounts up to 20 percent of those appropriations. (75 ILCS 16/30-90).

September 1: Last day to prepare and file written report including Secretary's audit, boundary changes, outstanding liabilities and bonds, etc. to State Librarian. (75 ILCS 16/30-65)

September 22: Last day (no later than the fourth Tuesday of September) for board to enact a budget and appropriation ordinance which shall be published once thereafter. (75 ILCS 16/30-85)

September 28: Last day (90 days after end of fiscal year) for audit of the records kept by Board's secretary to be filed. (75 ILCS 16/30-65)

September 30: Last day to pay obligation incurred in prior fiscal year with funds from that year in amounts up to 20 percent of those appropriations. (75 ILCS 16/30-90) AND Last day to transfer unexpended funds from prior fiscal year to Special Reserve Fund. (75 ILCS 16/30-90 and 16/40-50)

There are similar categories, but many different dates for Municipal and Township Libraries. These can be found in the Library Days and Dates to Remember Calendar at the Alliance Library System website.

Make sure that you have your ordinances reviewed by your library's attorney prior to finalization and publication.

Eating Better For Less

This comes courtesy of Feedthepig.org - a personal finance/savings website created by the American institute of Certified Public Accountants.

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With food prices still on the rise, it's not only important to be frugal when you shop, but also to consider the types of foods you buy. With the right ingredients, affordable and healthy meals are just around the corner. Here are some tips:

• Eggs and beans are inexpensive and versatile ingredients. Look for recipes in your cookbooks or on the internet.
• When food runs out, it’s tempting to order out or reach for ready-made meals. Planning your grocery list ahead of time makes it easier to buy in bulk and repurpose ingredients. The more you can cook from scratch, the further your dollar can stretch.
• Consumers often pay an additional “convenience expense” when purchasing certain foods. Grate your own cheese, make pizza dough from scratch or buy a fresh head of lettuce instead of bagged lettuce. Be creative with these ideas and you’ll reap the rewards in savings.
• Make use of the leftovers in your fridge. Web sites like Allrecipes.com let you search for dishes based on ingredients you have at home. Also, certain dishes, such as lasagna, chili and soups, are easily made in large quantities that can be frozen or eaten throughout the week.

Visit www.FeedthePig.org for more money-saving tips.

Link: The Simple Dollar

I ran across another blog that contains a lot of great ideas in personal finance. The blog is known as "The Simple Dollar" and according to its author, "is a blog for those of us who need both cents and sense: people fighting debt and bad spending habits while building a financially secure future and still affording a latte or two." The blog can be found here.

One of the things that attracted me to this site was a post titled, "Everything You Ever Really Needed to Know About Personal Finance on the back of Five Business Cards." This post contains a lot of simple, straightforward, common sense ideas, quite a few of which I've blogged about already or covered in my Retirement Seminars series that we presented last year.

There's even a free e-book that explains the "Five Business Cards" theme in greater detail.

Personal Finance Information

I ran across a website called carnivalofpersonalfinance.com.

This site is a "is a weblog post that brings attention to some of the week’s most interesting and informative blogger-written articles within the broad spectrum of personal finance. It is a showcase of weblog posts, submitted by their authors or by casual readers for consideration.

Some of the topics considered for inclusion are budgeting, saving money, earning money, managing debt, living below your means, and any other topic somewhat related to personal finance."

Since they're on to weekly issue #202 - this site/blog seems to have staying power. A quick look reveals links to a variety of blog posts on many personal finance issues.

Tax Hit For Cracking Nest Egg Early

In these difficult economic times, people are taking different actions to make ends meet. One avenue that some may be tempted to follow is taking money from their pre-tax retirement accounts such as IRA or 401k accounts.

Here is a link to a Wall Street Journal article which shows the pros and (mostly) cons for taking this action.

Here is the link to list all previous posts in this blog with the label "IRA"

Funding for Libraries in Illinois from the Illinois State Library

In March, Governor Quinn presented a budget to the Illinois legislature. This budget made some small cuts, but the Governor is relying on an income tax increase to make up most of the budget shortfall.

The Illinois State Library, which is a department of the Illinois Secretary of State's Office, is a funding source for Library Systems, Public Libraries, and School Libraries through per capita grants as well as to all types of libraries through various other special grants.

An analysis of the budget for the Secretary of State's Office shows that the majority of submitted budget line items for the grants to libraries are either flat requests (the same amount as last year) or show slight increases. While this is, in a sense, good news that there appear to be no cuts to library funding through the Illinois State Library, the budget that the Governor submitted was only a first step.

Rumblings are that the submitted budget does not do enough cutting while asking for too much of an increase to the income tax. The Illinois House of Representatives and the Illinois Senate both have to pass and reconcile a budget that then must be sent to the Governor to be signed. Current estimates are that the legislature will complete their process by the end of May. So, stay tuned!

Creating A Budget

Over the past few months, I've worked with employees and vendors of the Alliance Library System to create a budget for our next fiscal year. Last week, I presented it to the board of directors at ALS and it was approved.

As libraries, we tend to know in advance roughly how much money will be coming in...whether it comes from grants, property tax revenues, our parent organization, etc. The challenge, then, comes in fulfilling the mission and goals of our libraries within these incoming dollars.

There are two main types of budgeting:
(1) Zero-based budgeting, where you start from scratch every year and justify every expense that ends up in your budget.
(2) Incremental budgeting, where you start with either last year's results or last year's budget and add a certain amount or percent to each line item.

Here at ALS, we completed our budget using a combination of the two methods. We used incremental budgeting to determine our personnel expenses and we used zero-based budgeting to determine the non-personnel expenses.

If you're a member library of ALS and would like tips, pointers or help during your budgeting process, contact me or one of our Library Development Consultants. You can find our contact information here.

Should I Charge It?

I havent' had much time lately to research or write articles for the blog, but now that the ALS budget is complete and the presentation to the board of directors was made last night, I can get back into the swing of things here.

One question that often comes up in life - should I charge it? Or more specifically, should I charge it and pay it off over time?

I ran across an interesting article on Kiplinger.com on this topic, so I'll post the link here.

There was a saying in a book I read, that "Credit cards are like nitroglycerin, handle with care!" The use of credit cards is not necessarily bad, but it is an expensive way to finance your purchases. In other words, if you use a credit card, pay off the balance each month - that way it becomes a convenience to use a card. However, if you charge things but keep a balance, be prepared to pay a steep interest rate. The above referenced article gives an example of the detrimental effect of carrying credit card balances.

Income Tax Withholdings

The filing deadline for federal tax returns was two days ago, April 15. If you received a large refund or owed a lot, you might want to consider adjusting your withholding levels by filing a new IRS Form W-4 with your employer.

If you got a big refund, don’t think of it as a gift from the government – because it isn’t. What has really happened is that you had your employer withhold too much from each paycheck, essentially giving the federal government a free loan for the year. Decreasing your withholdings, in this case, would put more money in each paycheck, rather than getting it all back in one large lump sum at tax time.

If you owed money, don’t think the government is out to get you – because it isn’t. What has really happened is that you had your employer withhold too little from each paycheck, creating a tax liability for you at the end of the year. If you do this too often or end the year with a larger than normal liability, the IRS might start taking a closer look at your tax return and may even charge penalties.

To make an adjustment to your withholding levels, simply complete a new IRS Form W-4 and submit it to your employer’s payroll department. A useful tool provided by the IRS to help determine how much to withhold can be found here.

Should You Refinance Your Mortgage?

For most people, their home will be the biggest investment they make, and the associated mortgage will be the biggest debt they will have. Here's some tips on refinancing (or not) from the American Institute of Certified Public Accountants:

Refinancing Your Mortgage

With interest rates dropping as a result of the Federal Reserve's new program to purchase Treasury bonds and mortgage-backed securities, now may be a great time to refinance your home. Refinancing often benefits the homeowner by providing access to equity and a lower interest rate — which might mean lower monthly payments on your mortgage and more savings in your pocket. Before refinancing, consider the following:

• Reducing the life of your loan may cause your monthly payments to rise, but you will save on interest payments in the long-run.

• Extending the life of your loan can potentially lower your monthly payments, but make sure that your interest rate is simultaneously reduced.

• Refinancing may not be for you if a majority of your loan has already been paid off or your property has decreased in value.

Consult with a CPA or a financial advisor before making financial decisions such as these.