Ask Eric

Q: I’d like to get a better grip on my finances, but I don’t even know how to talk about them. I hear these money terms all the time and don’t know what they mean. I don’t want to sound like an idiot. How do I learn this stuff? — Stacy (via Twitter)

A: Stacy, that is a very interesting question! Every industry, every job title and profession, even every hobby, has its own unique language. And practitioners can get so involved in their world that they ignore those of us who don’t speak it. This may not matter as much if we’re just talking about doing philately in the basement. But money is ubiquitous, so we all should have some grasp of the language involved.

When it comes to learning the language of money, most people you talk to or articles you read will assume that you have lots of money. Otherwise, why would you be talking to them or reading articles in Fortune magazine? This is both a good and a bad thing. On the bad side, it serves to segregate the haves from the have-nots. But the good part of that is that you have a built-in educational opportunity. By way of illustration, I pulled up a random article in the Money section of USA Today just now and saw the following terms: Arbitrage, yield curve, horizontal integration, time value of money, and the multiplier effect. You may not know which phrases you don’t know, but if you’re willing to take some time to read an article containing terms with which you are unfamiliar, you can write down a half-dozen of them and then turn to your favorite search engine for definitions.

That said, reading what a Charitable Remainder Unitrust is is one thing. Remembering it to use later in casual conversation is quite another. And for that, you need to look for opportunities to use that knowledge. It’s the same as if you were trying to learn a foreign language. You’re going to remember what “Combien ca coute?” means much better if you’re forced to use it every day while walking the streets of Paris. So look for opportunities to utilize this new-found vocabulary as well. Good luck!

Q: I’m going to owe more taxes this year than I expected and won’t have the money to send a check by the filing date. Should I just wait to file, or should I file without sending along the check? — Hershel (via Facebook)

A: Hershel, my hunch is that this question touches a nerve with a lot of us! The short answer is that you should absolutely file your income taxes by the deadline whether or not you can pay them in full by then. It won’t solve all your problems, but it is certainly the lesser of two evils. Here’s why.

Let’s say that when you file (on or by April 15), you owe $1,000 but can only pay $800. The penalty will be .5% of the unpaid $200 for each month or partial month you’re late. If it takes you another two months to save and pay that last $200, you’ll owe a total of $2 in fees. However, failing to file your taxes by the deadline means a 5% penalty on the amount you owe. And because this applies to partial months as well, even being just one day late in filing, you’re going to pay $50 ($1000 x 5%), or 25 times more than the charge you incurred for paying late by two entire months but filing on time.

It’s also worth noting that simply filing for an extension isn’t the solution. You may be aware that as long as you file for an extension by April 15, you will automatically get it. This gives you until Oct. 15 to file your income taxes. However, you still have to pay at least 90% of what you owe by the original filing date of April 15. If you don’t do that, you’re still going to end up incurring the 5% failure-to-pay penalty. Great question, and thanks for sending it in!

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— Eric Litwiller has spent the last nine years of his professional career helping people achieve their financial goals through the use of budgets, retirement vehicles, and estate planning options. He is a firm believer in the importance of using earthly riches to fulfill a mission of Christian stewardship. Eric is not a licensed financial planner.