7 myths about student loan

Source: ANNE MARIE CHAKER of wsj.com on July 9, 2007

My comments

Student loans have replaced grants and scholarships as the primary source of financial aid.

Changes to the Bankruptcy Code in 1998 made student loans non-dischargeable, regardless of the age of the loan; unless the borrower can establish substantial hardship. Law changes in 2005 made even private student loans non-dischargeable.

Although Anne Chaker titled her article as “7 myths about college finances”, these myths are really about the student loans.

This past school year (2006 – 2007), average total tuition and fees at private colleges rose to $22,218 - almost 6% more than the previous year. Add room and board, and the cost climbs to $30,367.

Myth No. 1: Financial aid comes only in the form of grants and scholarships

While scholarships and grants certainly are the best form of financial aid, aid can also come in the form of federal loans that carry favorable interest rates and that can be available regardless of need.

The most common student loan is the Stafford loan (subsidized and unsubsidized). The unsubsidized type doesn't require the student to demonstrate need. But they are available only to those who have filled out the Free Application for Federal Student Aid (FAFSA), which is something many middle- and upper-income families don't bother to do.

The interest rate on Stafford loans is currently set at a maximum of 6.8% (after 1 July 2006). By comparison, the rate on loans from private lenders isn't capped and currently averages around 10% at some of the biggest lenders. For a $20,000 loan, that's a difference of about $4,100 over the typical 10-year life of a loan.

Federal student loans also carry more-flexible repayment terms than loans from private lenders. For instance, a borrower who is unemployed or facing economic hardship can request a deferment, which allows the borrower to postpone repaying the loan.

For subsidized loan programs, the government pays the interest during the deferment.

There are even loan-forgiveness programs available for borrowers who take some teaching jobs or who enter public service. The federal teacher loan-forgiveness program allows certain math, science and special-education teachers in low-income schools to qualify for up to $17,500 toward the repayment of their student loans.

In addition, many states offer loan-forgiveness programs for their resident teachers. The American Federation of Teachers maintains a list of state-by-state offerings at aft.org/teachers/jft/loanforgiveness.htm. Certain public-service organizations offer their own loan-forgiveness programs, such as AmeriCorps, which will grant volunteers with at least one year of service as much as $4,725 toward loan repayments or future tuition.

One drawback of federal student loans is that there are limits on how much can be borrowed this way. But Congress recently moved to raise the cap for some students. Effective this month (July 2007), the annual limits on Stafford loans for dependent freshmen and sophomores are $3,500 and $4,500, respectively, up from $2,625 and $3,500. Juniors and seniors can borrow up to $5,500 a year.

If student loans aren't enough to cover expenses, parents of undergraduates are also entitled to federal loans: The PLUS loan has the benefit of not carrying any set borrowing limits -- though the total can't exceed the cost of attendance minus other forms of aid -- and the interest rate is set at a maximum of 8.5%. Just remember it's the parent, not the student, on the hook for repayment.

Myth No. 2: My retirement funds and my home will prevent me from getting need-based aid.

Under the federal calculus for distributing aid, retirement plans are completely excluded. (However, you’ll have to report current year contirbutions.) So is the home you live in. On top of that, the federal government shelters a certain amount of general parent savings, for retirement purposes. This "asset protection allowance" varies based on age, but for a typical parent of a college-age child, the figure is around $45,000 to $50,000.

Many private colleges use a separate form to determine how much of their own aid to distribute. It also excludes retirement assets, but it does ask for the net home equity of the family's primary residence, capping it at two to three times annual income.

Myth No. 3: I should choose a lender from the list of "preferred" lending companies recommended by my college financial-aid office.

The New York Attorney General's probe and investigations by members of Congress suggest that lenders haven't always been recommended by financial-aid officers based entirely on students' interests. So you may want to do at least some shopping for loans on your own.

Lenders compete with one another largely by offering "borrower benefits" that lower the costs of their loans. But borrowers should be skeptical of some of these discounts, which can be easy to lose if a student misses a payment.

Examples

Citibank offers a discount of one percentage point on the interest rate of a Stafford loan - but a student who misses a scheduled payment loses the discount and has to make 24 consecutive payments on time in order to regain it. Nelnet Inc. offers a 3.33% reduction on the original principal balance -- if the first 30 payments are made on time. Once the discount is lost, it cannot be regained.

Some deals are more forgiving. Northstar Education Finance Inc., of St. Paul, Minn., offers a month-by-month credit on its student loans that can amount to an annual rate reduction of up to 1.3 percentage points. Students lose the credit only if they fall 60 days past due on a payment. Once the borrower is caught up again on payments, the benefit resumes.

Because the discounting formulas vary markedly from one company to the next, it can be extremely difficult to calculate the best deal. Mark Kantrowitz, publisher of FinAid.org, a free guide to financial aid, has come up with a calculator on his Web site that allows consumers to punch in various criteria to compare discounts from the different companies.

Myth No. 4: I'm doomed: I'll have two kids in college at the same time.

The federal assessment of aid eligibility is based on an "expected family contribution" -- the amount of money that parents are expected to shell out, based on their financial picture. That expected outlay stays the same no matter how many kids you have in college at the same time. So if you have two or more kids attending college, your expected contribution is split among them.

The upshot: You are likely to qualify for more aid when you have multiple children in college at once.

Myth No. 5: The federal aid process is bound by a strict formula, and it's virtually impossible to have any special consideration out of college administrators.

While it's true that everyone applying for federal aid must answer the same questions on the FAFSA, there may be special circumstances worth alerting the college financial-aid office to.

The Higher Education Act, which authorizes federal aid programs, gives college aid officers the authority to make adjustments when they feel it's warranted. If you have a solid case, backed up by documentation, it's definitely worth requesting a "Professional Judgment Review" in a letter addressed to the financial-aid officer and supported by documentation.

For example, if your income looks artificially high in the year that's being evaluated, explain why (perhaps it was due to an atypical bonus) and provide previous tax returns to show what it's normally like. Other instances not covered by the FAFSA and worth alerting the financial-aid office to: high medical costs, a death, private-school tuition for kids not yet in college, divorce, job loss, a big decrease in family income.

Myth No. 6: Our brilliant/talented/athletic child will get plenty of privately funded scholarships, maybe even a free ride.

92% of financial-aid officers said that parents overestimated the amount of scholarship and grant money their students received.

That is not to say you shouldn't search. In fact, there are several scholarship search services available free online. Sites like FastWeb (fastweb.com11) or the College Board's scholarship search service (collegeboard.com12) match student profiles to scholarship opportunities.

Myth No. 7: The 529 college-savings plan offered by my state is bound to be the best for me.

Parents should shop around.

Some states offer their own tax breaks on these plans for state residents, so it is smart to take a good look at your own state plan.

But you should also take a hard look at the fees. Most experts say you should pay no more than 1.5% of assets in fees and other expenses. High-fee plans can easily cancel out any tax breaks that come with investing in your own state plan.

Morningstar Inc., the Chicago-based financial-information firm, rates the following state plans among the best because of their low fees and the performance of their investments:

• the Utah Educational Savings Plan,
• the Maryland College Investment Plan and
• the College Savings Plan of Nebraska.

You have 4 credit scores

This article reported that there are 4 credit scores on your creditworthiness.

You'll be best served by getting the credit score that your lenders are most likely to see.

1) FICO

Created by The Fair Isaac Corporation, your FICO score can range between 300 and 850 - the higher, the better.

You can buy your FICO scores directly from myFICO.com, the consumer division of FairIsaac. You can also get your FICO score based on your Equifax report either from Equifax's Web site or when you request your Equifax report through annualcreditreport.com.

Experian and TransUnion, however, do not sell FICO scores to consumers, only to lenders who request them.

2) VantageScore

Introduced last year by the three credit bureaus as a direct competitor to FICO. It is the default score sold to consumers by Experian and TransUnion, either through their Web sites or via annualcreditreport.com.

Your VantageScore can range between 501 and 990 - the higher the better. In addition, your score is assigned a letter grade (e.g., an "A" is for scores between 901 and 990; an "F" is for scores between 501 and 600).

3) TransUnion's TruCredit score

This is a proprietary score from TransUnion that you can't buy alone but it's included when you purchase the bureau's 3-in-1 credit monitoring service.

4) Experian's PLUS score

This is a FICO-like proprietary score from Experian that you can't purchase alone, but it comes with your purchase of other Experian credit products such as its Experian Credit Report and Score.

Climbing the economic ladder

Source: Middle class crunch: Who's to blame? By Liz Pulliam Weston of msn.com

My comment:

This article is actually advising people how not to fallen off the middle class.

Defining middle class in America?

According to the U.S. Census Bureau in 2005.

Population group	From	To	Class
Bottom 20%	$0	$19,177	Poor/working poor
Middle 60%	$19,178	$91,704	Middle class
Top 20%	$91,705	Bill Gates	Upper class/Wealthy

But this table does not account for the large differences of cost of living in America.

Therefore, a more flexible definition for middle class would be

having the resources to cover all your needs and some of your wants, plus the ability to save for the future.

The system is against you

There are fewer good jobs for those who don't have college educations.

A decline in manufacturing, waning union power and increased globalization mean it's tougher than ever to get into the middle class without a college education. But globalization and outsourcing are sniping away at white-collar jobs as well, and a fast-evolving economy mean few can be content to end their educations after four years.

The price tag for education is rising.

Education was, and still is, the ticket to a more affluent life. But the cost of a college education has skyrocketed and financial aid hasn't kept up, even as the comparative worth of a degree has shrunk.

Loans have replaced grants as the primary source of financial aid, and too many students graduate with crippling debt.

A simple plan to a more affluent life

To have a middle-class life, anyone with an income and the strength need to follow these 5 steps:

1) Spend less than you make.

The key to making any financial progress is to live within your means.

2) Limit your debt.

It's costing you unnecessary interest and leaves you vulnerable to the slightest economic setback. The more you owe, the fewer choices you have.

3) Save for a rainy day.

Even $500 in the bank could allow you to weather day-to-day crises like a car repair that could otherwise push you over the edge.

4) Plan for retirement.

Start early, keep your hands off the money and don't stop for any reason. Even a small amount, scraped together and invested over a lifetime, offers a much more comfortable retirement than the Social Security alone.

5) Stay sharp.

You are the captain of your financial ship. You have to look for new opportunities and spot potential dangers.

How to borrow for higher education

Source: Liz Pulliam Weston

Don't borrow more in total than you expect to make your first year on the job.

This advice should keeps the cost of your debt to something you can actually afford to repay.

If you're not sure what your future career might pay, you can visit the U.S. Bureau of Labor Statistics for estimates.

Don't borrow unless you're sure you'll graduate with a degree.

A degree won't pay off if you never actually get it. If you don't have a clear sense of what you want to study, consider a few semesters at a community college to narrow your major while keeping costs down.

Exhaust federal student loans first.

You won't find cheaper or more flexible educational debt than federal loans.

You also should submit a Free Application for Federal Student Aid (FAFSA) each year to see if you qualify for any grants, scholarships or other help.

Next, consider federal PLUS loans.

This federal loan program is designed for parents who want to help their kids pay for school, hence the name: Parent Loan for Undergraduate Students.

This debt is typically somewhat more expensive than federal student loans, but still cheaper than most private loans.

Lastly, apply for private loans with caution.

You'll get the best rates if you or a co-signer has good credit scores. Pay attention to any fees, since they can significantly increase the cost of a loan.

Check out the information and rate chart at FinAid.org for details on popular loan programs.

How to fund the emergency reserve

Source: GETTING GOING By JONATHAN CLEMENTS - Six Months of Emergency Cash? Get Real - November 13, 2005

My comments:

In this article, Jonathan Clements is advising us to keep the emergency funds in stocks or stock funds in order to bolster the overall performance of our savings.

His advice is too sophisticated for me. Still, this article is worthwhile to read.

Conflicting financial goals

In case you get hit with a financial emergency, you should keep six months of living expenses in conservative investments (i.e. cash or money market funds) held in your taxable account.

However, having $30,000 sitting in your bank account earning 1% or 2% for many years is absurd, particularly if you're struggling to save for retirement.

Maybe it's time to ditch the advice of a separate emergency fund.

Instead, start with these four steps.

First, think of your emergency money and retirement nest egg as one big pot of money.

Second, build up the savings in your taxable account, using this money to buy tax-efficient stock funds.

Third, allocate at least part of your 401(k) plan or individual retirement account to bonds.

Fourth, set up a home-equity line of credit.

Example

Suppose you suddenly need $15,000 to pay a hefty hospital bill. If stocks are flying high, that's no problem. You can sell part of your taxable account's stock-fund holdings and pay the hospital that way.

What if we were in the middle of a brutal bear market? You would still sell $15,000 of your taxable account's stock-fund shares. But this, of course, seems foolish. After all, selling shares at fire-sale prices isn't exactly smart investing.

With that in mind, you would immediately want to repurchase the stocks in your retirement account, by shifting $15,000 from bonds to stocks. Result: You have maintained your stock exposure, you have lightened up on bonds and you have the $15,000 to cover the hospital bill.

Meanwhile, view your home-equity line of credit as an additional source of emergency cash.

The above strategy should bolster your portfolio's overall performance, because you no longer have a huge wad of money languishing in low-returning investments.

As an added bonus, you will also enjoy a fistful of tax advantages.

For instance, the tax-efficient stock funds in your taxable account shouldn't kick off large taxable distributions and those distributions you do receive will probably get nicked at the long-term capital gains or dividend-tax rate.

These days, that means paying a maximum of just 15% on tax. You will likely also pay that rate if you have an emergency and have to liquidate part of your taxable account's stock-fund holdings.

By contrast, you wouldn't want to pay for a financial emergency by dipping into your retirement accounts. That would be likely to trigger both income taxes and tax penalties, which together might snag 40% of any withdrawal.

That said, retirement accounts can be a great investment vehicle, in part because they offer tax-deferred growth. Thanks to that tax deferral, these accounts are the best place to hold your bonds, including the bonds needed for your emergency-money strategy.

As you probably know, the interest from taxable bonds gets taxed at ordinary-income-tax rates. However, if you stash your bonds in a retirement account, you should amass greater wealth. The reason: You get to defer the tax bill and you can use the money earmarked for taxes to earn additional investment gains.

Even the home-equity line of credit has tax advantages. If you tap the credit line, you should be able to deduct the mortgage interest on your tax return.

Most Americans do have sound financial foundation

Source: Liz Pulliam Weston of msn.com

Most households in America:

Are saving at least something for retirement

Eight in 10 workers participate in their company retirement plan, and 38% have an individual retirement account.

Only 16% of working-age people have no retirement savings.

Avoid credit card debt

One-quarter of the nation's households have no credit cards, while another 30% pay their balances in full every month.

Of the rest, half owe less than $2,000.

Have their total debt under control

Only about 11% of households, owe more than 40% of their incomes to debt payments.

16 GREAT money rules

Source: Liz Pulliam Weston of msn.com

This is a great article from Liz Weston. I like it.

1) Retirement: Save 10% for retirement, 15% for more comfort, 20% to early retirement.

This rule of thumb works pretty well if you start to save for retirement by your early 30s. Saving at least 10% of your income ensures you will have a retirement. 15% should get you a more comfortable retirement, while 20% gives you a shot at an early retirement.

However, if you wait till you're in 40s to start, though, and you'll need 15% for retirement and 20% for comfort; an early retirement may not be possible.

2) Retirement: Retirement money is for retirement; until then, don't touch them.

3) Student loans: Your total borrowing shouldn't exceed what you expect to make your first year out of school.

The borrowings include student loans and credit card debts.

4) College savings: Saving for retirement is more important, but try to put at least $25 a month per kid in a college savings plan.

But contributing even a small amount each month will help reduce the amount of debt your child eventually incurs.

5) Cars: Buy used and drive it for at least 10 years.

6) Cars: If you must borrow to buy a car, follow the 20/4/10 rule.

Which means: Make a 20% down payment, don't borrow for more than four years and don't agree to a monthly payment that's more than 10% of your income -- or 8% if you plan to buy a home in the next few years.

7) Cars: To compute and compare the real monthly cost to buy, insure and operate a car, divide by 30.

You can get more precise figures about how much a car will cost over five years by using Edmunds.com's "True Cost to Own" calculator. But this rule of thumb will help you determine if that car you think is affordable actually will be once all costs are factored in.

8) Credit cards: If you carry a balance, look for the lowest rate. If you don't, get rewards at least equal to 1.5% of what you spend.

9) Debt repayment: Pay off maxed-out cards first.

You should first tackle any card that's close to its limit, since maxing out cards hurts your credit scores and can trigger penalty rates and fees.

10) Financial flexibility: You need to be able to get your hands on cash or credit equal to three months' worth of expenses.

Ideally, everybody would have at least three months' worth of expenses saved up in cash to serve as a cushion against job loss or other disasters. But saving that much money can take a while and many families have more important priorities to address first.

Still, save a small amount for emergency. If you have a house, an unused home equity line of credit also can be used as stand-ins for a real emergency fund until you can get around to save the cash.

11) Insurance: Cover yourself for catastrophic expenses, not the stuff you can cover out of pocket.

Insurance isn't meant to cover the normal expenses of daily living. It is designed to bail you out when you face expenses so big they might otherwise wipe you out financially. That's why you want high limits on your policies -- but high deductibles, too.

12) Life insurance: Those who need it typically need five to 10 times their income.

Most people need to answer only two questions about insurance: "Do I need it?" and, if the answer is yes, "How much do I need?"

Term or "pure" insurance is usually the way to go, since insurance that includes an investment component can busting most families' budgets.

13) Mortgages: If you can't afford to buy the house using a 30-year fixed-rate mortgage, you can't afford the house.

14) Mortgages: Fix the rate for at least as long as you plan to be in the home.

15) Mortgages: You almost certainly have better things to do with your money than prepay a low-rate, deductible mortgage.

Don't consider prepaying your mortgage until you're taking full advantage of your retirement savings options and have paid off all your other debt.

16) Priorities: Retirement, then credit cards, then emergency fund.

Your highest priority should be saving for retirement, since every dollar you fail to save today could cost you $10 or more in lost retirement income. Also, opportunities to get a 401(k) match or to fund an IRA or Roth IRA are "use it or lose it" propositions.

Paying off credit card debt should be your next highest priority, since it's probably accumulating at double-digit interest rates and reducing your financial flexibility.

Finally, an emergency fund equal to three to six months' worth of living expenses can protect us from financial ruin caused by job loss, disability, illness, accidents, or natural disasters.

Having a pile of cash in a high-rate savings account can also do wonders for reducing your money anxieties.

Bad money advice for new college graduates

Source: from Jonathan Clements of wsj.com

Johathan Clements claims that many people give bad financial advice; however, his suggestions are also bad too - at least they will be too sophisticated for new college graduates.

1. AMASS CASH

According to some financial experts (such as Dave Ramsey), your top financial priority should be amassing an emergency reserve equal to six months of living expenses, with this cash saved in no-risks investments like money-market funds and certificates of deposit.

This is dull, unrealistic and not all that sensible. Even if you regularly sock away 10% of your after-tax income, it might take 4 years or so to amass six months of living expenses. At that juncture, you are supposed to leave this money in low-risk investments, where it will earn modest returns for the rest of your life.

Sound bad? It gets worse. While you were building up your emergency reserve, you were likely neglecting important goals like funding your 401(k) plan, which might earn you a matching employer contribution, and saving for a house down payment.

My (Jonathan Clements) advice: Forget the emergency reserve. Instead, contribute at least enough in your 401(k) to get the full company match. Next, fund a Roth individual retirement account. If you still have extra money to save each year, by all means stash it in conservative investments in a regular taxable account.

If you get hit with a financial emergency, tap the money in your regular taxable account first. But you could also borrow from your 401(k). In addition, at any time, you can pull out your Roth contributions -- but not the investment earnings -- without paying taxes or penalties.

My comments - Still, people have large credit card debts often because they don't have any emergency reserve. At least you should build a "beginner" emergency fund if the full emergency fund is a challenge for you. Borrowing from your 401(k) is too sophisticated for new college graduates.

2. BUY BIG

Buy the biggest house possible.

Borrowing a huge sum to purchase an unnecessarily large house is financial foolishness. You will saddle yourself with hefty monthly mortgage payments and a lifetime of large utility bills, maintenance costs, property-tax payments and home-insurance premiums.

Rather, when buying that first home, you should strive to purchase a place that's the right size for you and your family -- and that you can see living in for a good long time.

My comments - A better question is whether you should rent instead of owning a house. New college graduates often will change jobs a few times before settle down.

3. GET A LIFE

Insurance agents often push people in their 20s to buy cash-value life insurance, arguing that it's far cheaper to purchase these policies when you are young.

Don't do it. Remember, the principal reason to buy life insurance is to protect your family - and you may not even have a spouse, let alone kids. And if you are married with young kids, you no doubt need a heap of coverage. The cheapest way to get that coverage is with term life insurance, which offers a death benefit and nothing more.

4. GO FOR GROWTH

People in their 20s are encouraged to invest heavily in stocks, because they have decades until retirement and thus plenty of time to ride out market declines. This is good advice only in theory.

In practice, I would be a little cautious. You don't want to invest heavily in stocks and then panic and sell during the next market plunge. Yet that's a real danger if you are new to the market and you have never lived through a market decline.

My suggestion: Start with 60% stocks and 40% bonds. If you find yourself unperturbed by market swings, move your stock allocation up to 85% or 90% after a year or two.

Younger investors are often also told to favor high flying growth stocks. Growth stocks can be wild short-term performers - but the hope is that they will deliver superior long-run returns.
Unfortunately, there's a good chance this hope won't be fulfilled. Academic studies suggest the highest returns are earned not by growth companies, but by prosaic bargain-priced value stocks.

I am not, however, suggesting you load up on value. Instead, start by building a well-diversified portfolio that includes both growth and value stocks, as well as offering exposure to the broad U.S. market and to foreign markets. If you later want to add a tilt toward value stocks, be my guest. But your top priority should be broad diversification.

My comments - Your portfolio should be broadly diversified - by investing regularly in stock index and bond index mutual funds.

Start with 60% stocks and 40% bonds. Move your stock allocation up to 80% only after you've experienced at least one market correction and you're not perturbed by it.

Dave Ramsey's baby steps

My comment

You need good incomes to go through these 7 steps

Dave Ramsey has these 7 steps for anyone who have debts to become financially fit - Live like no one else because you're free.

0. Live below your means - no more "toys"; cut down on your lifestyle; get health & life insurances, especially if you have children.

1. Build beginner emergency fund — let's say $1,000 (as fast as you can).

2. Debt snowball — eliminate all debts from small to large, except the house.

Other financial planners may suggest different order of debts to eliminate; such as from high to low interest rates.

3. Build full emergency fund — 3 to 6 months of living expenses.

If you use debt to cover emergencies, you have backtracked!

4. Invest 15% of your income — 401(k), follow by Roth IRA.

5. Fund your child's college education — 529 savings plan.

6. Pay off the mortgage early.

Without a house payment you will have most control of your greatest wealth-building tool —your income.

7. Build wealth — with mutual funds & real estate.

Credit report freeze

A security freeze lets you stop anyone from getting credit in your names.

It locks, or freezes, access to your credit report and credit score. Without this information, a business will not issue new credit to anyone under your names.

When you want to get new credit, you may use a PIN to unlock access to the credit file.

However, not all states give us this important weapon to prevent identity theft!

Cashing-in on credit card 0% transfers

Wsj.com also had an article on how to cash-in on the 0% offers from credit cards.

The strategy involves applying for one or more credit cards that charge 0% interest on balance transfers, then put these borrowed funds in high-yield online savings accounts, which often pay 5% or more.

However, card companies are taking steps to make it tougher.

Some card issuers have reduced their offers of interest-free balance transfers to six months from 12 months or have tacked on bigger fees to transfer balances.

Previously, such fees were often waived or limited to 3% of balances, with a cap of $50 to $75. But recently, Bank of America and Chase eliminated their transfer-fee caps on more of their offers, while Citibank raised its maximum fee on some offers to $250.


Liz Pulliam Weston had an article on people make money on low-rate credit cards balance transfers.

However, she warned that chasing these 'free' cash may dent your good credit score.

Credit card transfer arbitrage

1) A good place to invest the money
2) Offer of 0% or very low interest rate on the borrowed money
3) Borrowed money not treated as "cash advance"
4) No or very low fees on balance transfers
5) After transfer, don't use the cards for any other purpose

My experience

Since last year, I have done a few of these 0% balance transfers. I put the money from transfers into T-bill to earn 4% to 5% of interests.

So far, I made over $1,000 on the interests.

Universal default clause - However, if I miss one payment to any credit card and all these 0% rate offers would end.

The hard parts for me are:

- To remember and make all those minimum payments before they are due.
- To remember when all the 0% rates offers would expire - call to confirm with credit card companies.
- To manage the process from T-bill to bank, and then to credit cards.

Higher yield strategies for your money

From Money magazine

TIMELINE: 1 year or less
OBJECTIVE: Best yield while taking NO risk
STRATEGY:

• Bank CD
• Bank money market account
• Money market fund
• Treasury bill

TIMELINE: 5 to 10 years
OBJECTIVE: Beat short-term yields while taking NO BIG risk
STRATEGY:

• 50% - Bank CD ... Bank money market account ... Money market fund ... Treasury bill
• 25% - Bond market index fund;
• 25% - High-yield or junk bond fund

TIMELINE: 10 to 20 years
OBJECTIVE: Diversification 101
STRATEGY:

• 20% - Bond funds;
• 30% - Growth funds;
• 50% - Equity-income fund

TIMELINE: Rest of your life
OBJECTIVE: Current income while beat the inflation
STRATEGY:

• 35% - Bond market index fund;
• 20% - High-yield or junk bond fund;
• 45% - High-yielding stock funds

Financial red flags

By Liz Pulliam Weston
Watch out these red flags ... if you're ignoring them, you may be heading for financial disaster.

1) You have no savings.
You must have some kind of financial cushion to cover unpredictable expenses

2) You have no discretionary income.
You're unable to save since your fixed expenses eat up most or all of your income.

3) You're surprised by your bank balance or credit card statements.

4) You're carrying large credit card debt.
According the Federal Reserve - only one household in 14 carry more than $10,000 in credit card debt.

5) You don't know what kind of mortgage you have or when the payment resets.

6) You're underinsured - health or life

7) Your business (or rental property) is losing money.

8) You're borrowing from one lender to pay another.
This includes using cash from one credit card to pay another.

9) You've missed payments on any loan.

10) You've taken out a payday loan.

Get your passport soon

The Bush administration announced 20 June 2007 that it will delay new passport requirements for Americans who enter the country by land or sea from Canada, Mexico and the Caribbean.

The rules were supposed to take effect next January, but the administration says passports will not be required until later in 2008. Instead, beginning Jan. 31, 2008, Americans will have to show a government-issued photo ID and a birth certificate, or other proof of citizenship, when they cross the border.

Still, how long will you wait for a passport?

Normally, the wait time is six weeks. Now, count on ten weeks.

If you're in a time crunch, pay for expedited service from the State Department -- an extra $60 on top of the standard $97 application or $67 renewal fee. Then add overnight delivery charges -- both ways -- to one of the government's processing centers.

If you're leaving within two weeks, call 877-487-2778 for an appointment at one of 15 regional passport offices. Be prepared to show your tickets or itinerary. Your congressional office may be able to help. Or you can hire a professional expediter -- find one at http://www.napvs.org/. For fees ranging from about $80 to $200 (on top of the other charges), they'll rush your passport through.

How to dowgrade the computer

At present, many new entry-level desktops and notebooks are pre-loaded with Windows Vista and 512 MB of memeory.

However, to run Vista satisfactory requires at least 1 GB of memory.

You should downgrade the computer to run Windows XP which minimum requirement for memory is only 256 MB.

Household net worth by age

Source: Federal Reserve Board's 2004 Survey of Consumer Finances

Age	Median	Top 25%	Top 10%
20-29	$7,900	$36,000	$119,300
30-39	$44,200	$128,100	$317,800
40-49	$117,800	$338,100	$719,800
50-59	$182,300	$563,800	$1,187,600
60-69	$209,200	$647,200	$1,429,500

Federal Reserve will do another survey this year (2007). Stay tune ...

How much student loan debt is reasonable

By Liz Pulliam Weston

If you're a student, you should generally limit your debt so that your loan payments after you graduate don't eat up more than 10% of your expected monthly income.

If you're a parent, try to keep all your loan payments -- for mortgages, cars, credit cards and education -- to 35% or less of your gross monthly income.

By Janet Bodnar

To get an idea of how much debt is reasonable, start with the Student Loan Advisor calculator at http://www.finaid.com/.

You plug in their field of study, expected graduation date and loan interest rate.

The calculator gives them the maximum loan amount they can safely handle, assuming they want to limit their monthly payments to between 10% and 15% of their income.

Examples

Say your future brother-in-law plans to major in education. As a teacher, he can anticipate a starting salary of $35,100, according to the calculator. To limit his payment to 10% of his income, he could borrow about $25,500 at a 6.8% interest rate (the rate on new government-sponsored Stafford loans) with a ten-year repayment schedule.

If he's planning to be a chemical engineer, with a projected starting salary of $60,300, he can borrow $43,700, given the same assumptions

Avoid these 7 money mistakes

The Simple Dollar has wriiten a blog entry on this article. The Simple Dollar explained much better than this Smartmoney article.

Source: By Nicole Bullock and Janet Paskin of Smartmoney magazine

#1 Saving with the right hand and spending with the left

SYMPTOMS:
- Keeping a savings account that pays 5% interest while carrying credit card balances at 15%;
- thinking a tax refund equals mad money;
- obsessing over the price of a new car, but failing to monitor the weekly grocery bill.

#2 Playing it too safe

SYMPTOMS:
- Quick to sell winning stocks but slow to sell losing ones;
- putting too much cash in money-market funds and not enough in stocks;
- reluctance to trade away what you already have, even for something more valuable.

#3 Looking into a cloudy crystal ball

SYMPTOMS:
- Putting too much of your savings in your company's stock;
- having very low insurance deductibles;
- thinking small-cap stocks will rise forever.

#4 Living in the moment

SYMPTOMS:
- Failing to enroll in a 401(k) plan;
- not coming up with a monthly budget;
- waiting until the last minute to make your IRA contribution.

#5 Throwing good money after bad

SYMPTOMS:
- Hanging on to a lagging mutual fund because you paid an upfront sales charge;
- making repairs that cost more than your car is worth;
- making decisions about how to spend time or money based on how much time and money you've already spent.

#6 Letting your ego get in the way

SYMPTOMS:
- Frequent trading;
- concentrating picks among a handful of "surefire winners";
- thinking you're an above-average driver.

#7 Following the crowd

SYMPTOMS:
- Buying ethanol stocks because everyone says they're the next big thing;
- dumping your stock fund after a steep market decline;
- taking stock tips from family and friends.

Low-priced laptops

By Jeff Bertloucci of Kiplinger

If you could spend $450 to $600, you will have a reliable portable computer with a decent-size screen that you can access the Web wirelessly, burn CDs or DVDs, and play movies.

These low-priced laptops from major companies, such as Dell, Gateway, Hewlett-Packard and Toshiba, are built as well as systems that are more expensive. One reason that they're less expensive: the cheaper models use less powerful processor than their $1,200 counterparts.

Still, the processor has plenty of power for everyday tasks, such as word processing and Web surfing. But forget about editing videos or running the latest 3D games -- not enough horsepower!

Most come with just 512 megabytes of memory, which means you will be running Windows Vista Home Basic, the simplest version of Microsoft's new operating system.

You'll be able to listen to streaming audio from your favorite Internet radio station, but the hard drive will likely be too small for storing movies or TV shows.

Best buys

HP's Compaq Presario V6000T ($609; www.shopping.hp.com).

Its specs are pretty good. The Intel Pentium Dual-Core T2080(1.73GHz/1MB) processor is fast and powerful. The 80GB hard drive is spacious enough to store music and photographs. The 15.4-inch widescreen display is big and bright, and the built-in wireless networking is fine for most homes.

Weighing in at less than 6 pounds, the V6000T is light enough to move from room to room (and to lug around the airport for a short while). Its six-cell lithium-ion battery lasts up to two hours, and the CD writer is good for burning audio discs (it can plays CDs & DVDs and burns only CDs).

HP also offers the Compaq Presario C500T (lower price - $449; www.shopping.hp.com), which uses a different processor - Intel Celeron M440 (1.86GHz/1MB). Overall, these two laptops should perform comparably.

The Dell Inspiron 1501 ($549; www.dell.com) is similar to HP's low-end Presarios. Its processor is AMD Mobile Sempron 3500+ (1.8GHz/512KB). Weighing a little more than 6 pounds, its sleek look, crisp widescreen display and Wi-Fi capability make it a good buy. The 60GB hard disk is small, but you can upgrade to 80GB for an extra $35.


One last thing

Don't expect a multiyear warranty or on-site service with these laptops. The Presario and Inspiron models come with one-year, mail-in service plans, which means you'll have to pack up your notebook and ship it back to the manufacturer if something goes really wrong.

How to borrow for college

Sources: Liz Pulliam Weston and Sandra Block

Unlike most other unsecured debt, you can't erase your student loans (federal or private) in bankruptcy court!

Private collection agencies pursue student borrowers hard with special debt-collection weapons (that are not available to collection agencies of other kind of debts) .

There is no statute of limitations on unpaid student-loan debt, and collectors have become increasingly skilled at tracking down defaulters even decades later.

Borrowing tips

1. Don't take on too much debt.

2. When borrowing for college, opt for government-guaranteed student loans before you turn to private loans.

Because private loans aren't guaranteed by the government, interest rates and fees are usually higher than for federal Stafford loans. The maximum that dependent undergraduates can borrow under the federal program is $23,000. So some students with high college costs have to use private loans. But others are taking out private loans before they've taken full advantage of the federal program.

3. If you've already graduated, consolidate your loans before 1 July 2007.

If you're already starting to pay off your loans, you can lock in a 5.375% rate for the life of the loan. Graduates who consolidate during their grace period — the six months before you have to start making monthly payments — can lock in a rate as low as 4.75%.

The 6.8% fixed rate that takes effect July 1 applies to new loans. Loans taken out before then will still have a variable rate that's adjusted every July 1. That variable rate is expected to top 6% on 1 July 2007. Consolidating your loans will let you avoid that increase.

If you're still in school and have loans outstanding, talk to your lender about "in-school" consolidation. That would let you lock in a rate on money you've already borrowed. However, you must consolidate before 1 July 2007. The new law will bar in-school consolidation after that date.

4. Don't compound your problems by running up credit card debt.

The average undergraduate has a credit card balance of $2,169. Only 21% of students paid off their balances each month. Many students use credit cards to pay for books, supplies and class fees. But keep in mind: The average interest rate for a standard, variable-rate card is 13.7%. And overdue payments can cause those rates to soar.

When to take social Security benefits?

By Jeanne Sahadi, CNNMoney.com senior writer


Break-even age

Age 62 is the first year when you can opt to take Social Security benefits - but at a reduced level.
If you retire early, you permanently reduce your benefit. On the other hand, you also collect benefits for a longer period of time than if you waited until full retirement age.

Taking a smaller benefit early can pay off if you don't live past what's called your "break-even" age - the point at which the cumulative value of your early retirement benefits is trumped by the money you would have been paid had you waited until full retirement age.

Example

Say you want to retire at 62 and would draw a Social Security benefit of $1,125 a month. That's 25 percent less than the $1,500 you would collect if you waited until age 66.

By age 77 and 11 months (let's call it 78) you'd have collected roughly $216,000 in total benefits, whether you opted for early benefits ($1,125 x 192 months from ages 62 until 78) or full retirement age benefits ($1,500 x 144 months from ages 66 until 78). (Here's the Social Security Administration's break-even calculator, which can do the math for you up to this point.)

But your break-even age is actually later when you factor in the investment value of your early benefits. Even if you don't invest those early benefits directly, taking them might mean you can leave other savings to keep growing. That could add three to five years to your break-even point.

So in the example above, if you think you'll live past 81, it may pay to wait until full retirement age to start collecting.


More factors to consider

Your finances and your health: Waiting until full retirement age or later isn't an option if you're unable to work.

Nor is it a smart move to wait if you don't have substantial savings to live on in the meanwhile.

Your tax situation: If your annual income in retirement from all sources exceeds $25,000 ($32,000 for joint filers) you will owe income taxes on 50% of your social security benefits. You'll owe taxes on 85% of your benefits if your income exceeds $44,000 ($54,000 for joint filers).

More and more people will be subject to the tax since the income thresholds are not adjusted for inflation, unlike your Social Security benefits, which are.

Your benefits may be reduced even further because Medicare premiums, which are paid out of your Social Security check, have been rising faster than inflation.

Your plans to work in retirement: If you take a job that pays more than $12,960 in retirement while collecting benefits, your benefits will be reduced by $1 for every $2 earned above that threshold unless you are past your full retirement age.

On the bright side, after you reach full retirement age, you will get an increase in your Social Security check to reflect the amount of benefits withheld while you were working.

Plus, no matter how much you earn after full retirement age, you will not have any benefits withheld.

How long you've been in the workforce: Social Security benefits are calculated based on your 35 highest earning years.

2007 Social Security benefits

For earners who average	Benefits at age 65	% of pre-retirement income
$16,700	$9,400	54%
$37,200	$15,570	40%
$58,900	$20,610	34%
$87,800	$24,000	28%

Source:The National Academy of Social Insurance based on data from Social Security Board of Trustees

What to do if you have $2,500

Source: Act One BY EMILY MEEHAN

Advice from several financial planners

Set up an IRA (Roth or traditional)

-- T. Rowe Price Retirement 2045 Fund or
-- Schwab Total Stock Market Index Fund

Put something aside for rainy days

An emergency reserve
-- Keep $1,000 in a CD that matures in 6 months,
-- $1,000 in another CD that matures in 12 months, and
-- put $500 in a savings account

ETFs, ETFs, ETFs

The goal: 10%-type returns with lower volatility than the stock market.

For stocks:
-- 30% Vanguard Total Market and
-- 30% State Street Developed and Emerging Market.

For bonds:
-- 20% iShares 3-7 year Treasury.

For commodities and real estate:
-- 10% PowerShares DB G10 Currency Harvest Fund and
-- 10% State Street International REIT

Be somewhat aggressive

-- Vanguard Star Fund ??

Take the bond route

-- $2,000 on T. Rowe Price Spectrum Income Fund
-- put the other $500 in a money market fund

Reviewing your tax return may pay off later

Source: Reviewing Return Now Could Pay Off Next Year By ANDREA COOMBES

Start with the line 7 of Form 1040: Wages, salaries, tips.

Do you have access to a workplace 401(k) or flexible-spending account? This is one of the more obvious places to maximize tax savings.

Flexible-spending accounts let employees pay for dependent care and health-care costs with pretax dollars.

Some taxpayers forgo their workplace flex-spending account, and instead take the credit for dependent and child-care expenses on Form 1040's line 48. Please note that taxpayers with an adjusted gross income above $43,000 can take the credit on only 20% of such expenses, up to $3,000 for one qualified dependent, and $6,000 for two or more.

Lines 8 and 9:

High dollar amounts here should prompt you to look at your investments.

If you're reporting a lot of interest income, you might consider investing in municipal bonds to reduce your taxable interest income. But if you're subject to the alternative minimum tax, remember that some tax-exempt interest -- mainly interest from private-activity municipal bonds -- is subject to the AMT.

Line 13:

If you carried any capital losses over, you could use those losses to offset the gain from a winning stock, though you shouldn't sell an investment mainly for tax purposes.

Line 32:

If you had an IRA deduction, you should consider whether you'd be better off contributing to a Roth IRA if you're eligible. That would mean you're giving up your IRA deduction in the year you make your contribution, but your distributions from that Roth IRA would be completely tax-free.

Line 40:

Many people who take the standard deduction would save money by itemizing. There's a quick calculation to get a sense of what's right for you: Add up what you paid in state income taxes, real-estate taxes and mortgage interest. If the total is more than the standard deduction, you know what you should do next year.

Schedule A:

Check this form to ensure you maximize your possible deductions in the year ahead. For instance, there are new rules for the charitable-contribution deduction. You can only get a deduction for clothing and household items if they're in good used condition or better; and, starting this year 2007, you can only get a deduction for cash contributions if you have a canceled check or a receipt.

Line 44:

This line is for your total tax due. If you included tax on your child's unearned income, generally paid at the parent's tax rate, you made a huge mistake. You should report your child's unearned income on his or her own return - first $850 of unearned income is tax free, second $850 is taxed at lowest rate.

Line 45:

The degree to which you can get out of the AMT if you owed it in 2006 will depend on what got you into that parallel tax system. If it's high state taxes, and you live in a high-tax state like California, New York, then maybe there's not a lot you can do about it.

But if you were pushed into AMT by, say, exercising stock options, and you've got more to exercise, you might want to spread out the exercise so you don't have a big AMT hit in one year.

If your entry into the AMT was aided by interest income from private-activity municipal bonds (the interest from which isn't tax-exempt under the AMT), consider shifting the types of investments you invest in.

Line 47:

If your mutual-fund holdings include international stocks, you can likely claim the foreign-tax credit. There's also an itemized deduction for foreign taxes paid, but it often makes more sense to take the credit. If your foreign taxes are less than $300 ($600 for a married couple filing jointly), you don't need to do anything other than enter the amount on this line.

Line 48:

See above Line 7.

Line 50:

Even if you paid tuition or other education expenses in 2006, income phaseouts on education credits might have forced you to leave this line blank.

Note that you could select the deduction for tuition and fees instead.

If your income is close to the phase-out limit (for single filers in 2007, the phaseout starts at AGI of $47,000, and the credits are eliminated after $57,000; $94,000 to $114,000 for joint filers) and you have some control over when you receive income, consider delaying income to the following year to take advantage of these credits, which can cut your tax bill by as much as $2,000. Also, high-income parents may be able to let their dependent student claim an education credit to reduce his or her own tax bill, if the parents waive the dependency exemption.

Line 51:

If your income is under the limit, you may claim this credit even if you contributed to only Roth IRA.

Line 52:

If you left Line 52 blank, now's the time to consider making some energy-efficient home improvements so you can claim a credit on your next tax return.

Line 77 is for your estimated tax penalty.

If you entered a big amount on the previous line ("amount you owe"), then you might have owed a penalty here. To avoid that penalty next time, pay 100% of the tax you owed last year; 110% for certain high earners. If you file a W-4, try the withholding calculator at www.irs.gov.

529 loophole

Source: Understanding the new financial aid treatment of 529 plans by Joe Hurley, founder, Savingforcollege.com

529 plans let the parents to put money aside for educational expenses of their and their dependents. In general, they can withdraw the money (contirbution and gains) tax-free to pay for educational expenses.

529 loophole

A new law passed back in February 2006 had removed student-owned 529 plans and Coverdell education savings accounts from the expected family contribution (EFC) in the federal financial aid formula.

We now have the interpretation from US Department of Education.

A 529 account or Coverdell ESA is considered an asset of the account owner; however, 529 accounts or Coverdell ESAs owned by a dependent student are excluded from the FAFSA. Most undergraduates are dependents for FAFSA purpose.

This is exceptional treatment, as student assets are generally assessed at a 20% rate (2007-08 school year) in determining the EFC.

Example:

John and Jill have been saving for their son Billy's future college expenses by purchasing mutual funds in Billy's name under the Uniform Transfers to Minors Act (UTMA). They've saved some income taxes by having the investment earnings reported on Billy's tax returns through the years.

But Billy will be enrolling in college this fall 2007 and those investments are now going to be assessed at a 20% rate in determining Billy's eligibility for federal aids.

Under the new law, John and Jill can dramatically improve Billy's aid eligibility by liquidating his current investments and moving the money into a 529 plan with Billy as both owner and beneficiary.

Provided the assets are moved to the 529 prior to filing the FAFSA, they will be removed completely from consideration.

Here is where things currently stand:

--The financial-aid changes were effective starting the 2006-07 school year.

--The law as written permits dependent students owning 529 plans and ESAs to exclude those assets from the FAFSA.

--Starting the 2007-08 school year, the asset inclusion factor for student-owned assets is lower to 20% (from 35%).

--Moving money from a student-owned or UGMA/UTMA investment into a 529 plan requires that the investment first be liquidated. Capital gains may be triggered causing income tax and a possible decrease in financial aid due to the income inclusion factor. Careful planning is necessary.

--Don't be too quick to shift your parent-owned investment assets, including your own 529 accounts, to a 529 account under your child's ownership. (If the student is a minor, most 529 plans will require an adult custodian on the account - UTMA 529 account.) The potential financial aid benefit is small, as parent assets are assessed on a sliding scale that tops out at only 5.64% and the transfer is irrevocable. If Congress decides to re-work the laws, it will be too late to take your money back from your child.

--There's been no change with respect to grandparent-owned 529s naming the student as beneficiary; they are not reportable on the FAFSA. However, the U.S. Department of Education has yet to clarify whether a distribution from a grandparent-owned 529 plan to pay for the student's college expenses is reportable as student income.

--Schools may distribute their own scholarships and grants under non-federal formulas. The changes described above will not necessarily affect school-based grants. In fact, an increase in a student's federal aid may cause some schools to offer less school-based aid.

Money advice for new college graduates

Source: More Advice Graduates Don’t Want to Hear By DAMON DARLIN of nytimes.com

Saving while young is critical - the power of compounding. If you start saving now, it will build to a larger nest egg by the time you are 65 than if you wait to start at 45.

Put $250 a month for 40 years in a IRA or a 401(k) and you will receive about $500,000, assuming a 6% return. Start at age 45 and you would have to put in $1,078 a month to generate the same amount by age 65.

But there is another compelling reason to get into the habit of saving. People who save a lot get used to a frugal life while working, so less money is needed in retirement.

If you are only making $40,000, a not-untypical starting salary for a college-educated professional in a big city, the weekly gross of $769 works down to $561 in take-home pay after income taxes and payroll taxes for Social Security and Medicaid.

Were you to divert 10 percent of your salary to a 401(k) plan, the bottom line becomes $509.

In other words, a regular habit of savings costs you only $52 a week.

You could easily frittered that away last week on things that you cannot even recall this week. Could you save another $50 a week? If you do, you are nearly set for life.

More advice

Never pay a real estate agent a 6% commission.

Buy used things, except maybe used tires.

Get on the do-not-call list and other do-not-solicit lists so you can’t be tempted.

Watch infomercials for their entertainment value only.

Know what your credit reports say, get them free on to http://www.annualcreditreport.com/.

Consolidate your cable, phone and Internet service to get the best deal.

Resist the lunacy of buying premium products like $2,000-a-pound chocolates.

Lose weight. Carrying extra pounds costs tens of thousands of dollars over a lifetime.

Do not use your home as a piggy bank if home prices are flat or going down or if interest rates are rising.

Enroll in a 401(k) at work immediately.

Postpone buying high-tech products like PCs, digital cameras and high-definition TVs for as long as possible. And then buy them during the selling season - such as the Black Friday - they often are on sale.

And, make your own coffee.

Easy ways to save money

Source: Tweaks That Help Fatten Your Wallet BY JONATHAN CLEMENTS

Easy money savings ... More earnings on your short-term money with little risks or efforts.

I think that some advice are good advice and some are not.

1. Losing Balance.

Suppose you have $10,000 in your checking account earning zero interest. You might shift $8,000 to EmigrantDirect, HSBC Direct or one of the other high-yield online savings accounts, where you can find yields around 5%. This simple maneuver could garner you $400 over the next 12 months.

Great advice!

2. Taking Credit.

Let's say you have $5,000 of credit-card debt incurring 14% interest. By using $5,000 from your checking account to pay off that debt, you would save $700 a year.

Great advice!

3. Heading Home.

Shrinking your checking account may leave you uneasy, because you view it as your emergency reserve. But you can always open a home-equity line of credit, which you can then tap if you find yourself in a financial pinch.

Great advice!

4. Losing Interest.

You also could save a bundle by refinancing your mortgage. If you have a 30-year loan costing 7%, you could slash monthly payments by refinancing at 6% or less.

Or, think about making extra principal payments instead. Suppose you have $10,000 in a savings account earning 3%. If you use that cash to pay down your 7% mortgage, you will be better off by $400 over the next year.

Something to think about. It requires some efforts.

5. Taking Shelter.

Many folks hold bonds and other conservative investments in their taxable account because they like having low-risk investments they can easily unload if they need cash. Meanwhile, they stash stocks in their retirement account. This seems logical, because stocks are designed for long-term growth and retirement is often years away.

But what seems logical isn't always right. Let's say your taxable account holds $100,000 of municipal bonds yielding 4%, while your retirement account contains $100,000 of stocks.

If you swapped the stocks into your taxable account and moved your bonds to your retirement account, you should improve your portfolio's return. A big reason: Instead of owning 4% munis, you could use your retirement account to buy taxable bonds that might yield 5.5%. The extra 1.5 percentage points of yield would add $1,500 to your portfolio over the next year.

What if you suddenly need $10,000? If you don't want to tap your home-equity line of credit, you could sell $10,000 of the stocks in your taxable account. To maintain your stock exposure, you would then move $10,000 from bonds to stocks within your retirement account.

This advice is too sophisticated - risky to put money which for emergency reserve into stocks or stock funds! And the retirement money should be asset-allocated.

6. Trimming Taxes.

When you held munis in your taxable account, you weren't paying any federal income taxes on the interest and possibly no state income taxes, either. By contrast, the stocks you now hold in your taxable account could be generating hefty tax bills.

To avoid those hefty bills, favor low-cost stock index funds. That way, any taxable distributions you receive should be mostly qualified dividends and long-term capital gains, which are taxed at a maximum 15%.

Again sophisticated advice - to put money that may be needed in short-term into stocks or stock funds!

7. Boosting Yield.

As you shift your bond money to your retirement accounts, think carefully about which fixed-income investments you buy.

To improve your yield, favor no-load bond funds with rock-bottom annual expenses. Mr. Roth also suggests hunting the Internet for high-yielding certificates of deposit. These CDs offer handsome rates and your account should be protected by the Federal Deposit Insurance Corp.

Great advice as retirement money should be asset-allocated.

8. Insuring for Less.

To cut insurance costs, consider raising the deductibles on your homeowner's insurance. "Companies have been dropping customers if they have lots of claims, so people aren't filing claims," says Ross Levin, a financial planner with Accredited Investors in Edina, Minn. "You might as well raise your deductibles."

While you're at it, see if you can trim your life-insurance costs. "It's a good time to be shopping for term insurance," Mr. Levin says. "If you shop online, you can get great rates, especially if you're in good health and you've never smoked."

Great advice to save on the housing expenses.

9. Snatching the Match.

Don't overlook possibly the most attractive money saving: the employer's matching on your 401(k) contributions. In a common arrangement, an employer will kick in 50 cents for every $1 you invest, up to 6% of your pay. That's like an instant 50% return on your money.

On top of that, you will get investment gains, tax-deferred growth and an immediate tax deduction.

Great advice to save for the long-term!

Kiddie tax for 2008

Source: wsj.com

Under current law, investment income above a certain level (generally $1,700 for 2007) for a child 17 years old or younger typically is subject to the parents' tax rates, assuming the parents' rates are higher than the child's.

That is still the law for this year 2007. Before the law was changed last year, the kiddie tax applied only to children younger than 14.

Under the new law, the age limit will increase (starting next year 2008) to children who are 18 or younger, or under 24 if the child is a full-time student.

However, note that it only applies to children whose earned income does not exceed one-half of the amount of their support.

How to manage your portfolio

Source: Seeking Solid Middle Ground by Tomoeh Murakami Tse, Washington Post staff writer

First, you should figure out what your target asset allocation should be. What should be the % of stocks and fixed incomes.

Rebalancing

Is there anything new that would cause me to change my asset allocation?

Do my financial circumstances really fit what's happening in my personal life?

Why

Rebalancing helps you control your risk; it's not a way to make more money; it's a way to protect what you have.

Rebalancing is a simple enough concept -- selling the stars and buying the lesser performers.

It allows investors to implement a famous but difficult investment strategy: buy low, sell high.

How

You should check on a portfolio once a year; and fight the urge to look at your accounts more often than that..

Rebalance your portfolio if a particular asset class is off by more than 10% movement is a good trigger, with more room if necessary to let winners run their course.

If you rebalanced every time the market moved 5% on its way up, you would have rebalanced 18 times during stocks' recent four-year recovery.

Forever stamp as an investment?

Once you buy the forever stamps, they can be used to mail one-ounce letter regardless the future postage rate.

Should you stock up forever stamps for future uses?

No. It's because the future increase of postage rate will always be at the rate of inflation. It's better to put the money in an ivestment that beats the inflation.

You should just buy enough forever stamps to avoid the hassle of finding make-up stamps for next rate increase.

Putting it down on paper

From WSJ

Just in case something happen to you ...

With more and more of your financial records are available only online, the following should still be written down on papers:

1) Where is the will?

2) Where is the safe deposit boxes?

3) List of banking, brokerage, and insurance accounts. Also, list of credit card and loan accounts.

4) List of lawyers, accountants, and insurance agents.

Personal debts - how much is too much?

Source: "Keep the Debt Monkey Off Your Back" By JACLYNE BADAL

My comment:

Too bad that this artice didn't discuss about student loan debts

Credit-card debt

-- Tally the balances on all your consumer debt, like credit cards and car loans (but not home loans). Divide the total by your annual gross income. You want that figure below 30%.

Housing debt

-- No more than 28% of gross monthly income should go toward house-related debt (including taxes and insurance).

-- Some financial planners even suggest to limit total debt payments to 20% of pretax income, so you have a buffer for surprise expenses.

Margin debt

-- Margin debt is regulated by strict rules from the Federal Reserve, the NASD and the NYSE. Investors can't borrow more than 50% of the price of the stock. And their equity in the account can't fall below 25%.

-- However, investors can get pummeled using margin debt and, unlike with other types of debt, the situation can implode in a matter of days or even hours.

A $1 Million retirement fund

Source: A $1 Million Retirement Fund - How to Get There From Here By JONATHAN CLEMENTS

Goal

Let's say, in addition to Social Security, you've determined that you will need $45,000 annually from your retirement fund when you retired.

To generate that $45,000 annually, you will need a $1 million portfolio in your retirement fund (let's use a 4.5% annual portfolio-withdrawal rate).

You may wonder how you will ever accumulate enough money to retire?

First few steps

1) Always save 10$ to 15% of your pretax income every year.

2) Ensure your diversified portfolio earn the annual return of 6% - 8% (2 x rate of inflation) or more.

3) Aim to accumulate savings that equal to two times your annual income as soon as possible.

The milestone of 2 x income is when the biggest driver of your portfolio's growth is investment earnings, not the actual dollars that you're saving.

Once you hit that milestone, the financial wind will be on your back; and reaching your $1 million savings goal should be a breeze!

It may take people 12 to 15 years. But if you're close to the milestone of 2 x pay by your early 40s, you're in pretty good shape.

Boost your credit score

Source: Money.com

Your total balance should not exceed 30 percent of your total credit limit across all your credit cards.

The bigger your balance as a percent of your credit limit , the lower your score will be.

Consider increasing your credit limit by open a few more credit cards but use them sparingly.

However, newer credit accounts may lower your score in the short term.

Don't close any unused older credit accounts.

Closing accounts would lower your total credit limit; and older accounts count more than newer ones in your credit score.

Don’t send in your loan or credit card payments late.

On average past delinquencies that were resolved might still cost you 15 to 20 points of credit score.

Order a free credit report once a year from each of the three major credit bureaus, and make sure they're accurate.

Order a report from one of the three credit bureaus every four months. Free report by going to annualcreditreport.com or calling 877-322-8228.

Planning your retirement - DIY or hire a pro?

From Money.com

Whether to hire a financial adviser to oversee your investments really comes down to a realistic assessment of whether you could manage your money on your own or not.

If you don't feel comfortable doing it on your own - whether because you don't have the time, the confidence or you're just uneasy about going solo - then hiring an adviser makes sense.

It's certainly a better way to go than just picking investments on a whim or relying on the latest recommendations of some magazines or TV pundits.

Finding a financial adviser

1) The first thing you'd want to discuss with the adviser is when you expect to retire and what sort of risks you're comfortable taking.

2) After the discussion, the adviser should be able to recommend a portfolio of stocks and bonds that makes sense for your situation - and ideally should show you how the mix has performed historically in different types of markets.

3) I'd also want to be sure is the amount you'll paying in fees. Generally, a fee of 1 percent to 2 percent is a reasonable range to pay the adviser for his or her time and expertise.

4) What services other than investing your money can you expect for that fee?

5) Will you receive monthly or quarterly reports on your portfolio's progress? What will those reports tell you? (Ask for a sample.)

6) Will you have access to the adviser for periodic updates on your accounts? If so, how often will those updates occur, and will they be face-to-face or by phone? And will you talk to the adviser or another staffer?

Explore other options

1) The first thing you'd do is to see if your 401(k) offers some sort of investing and planning advice. The kind of advice can range from meetings with advisers to manage account programs that invest your 401(k) funds to online programs that can help you build a portfolio. In some cases, the advice can also consider money held in outside accounts like IRAs.

2) Another alternative you might consider is to see if your 401(k) offers target-retirement funds. A target-retirement fund will give you a coherent investment strategy for your retirement savings. Essentially, you choose a target fund with a date that roughly corresponds to the date you intend to retire - say, 2025 - and you get a completely diversified portfolio of stocks and bonds. The fund becomes more conservative as you approach retirement age by gradually shifting its asset mix more toward bonds.

How much student loan debt is too much?

Source: ON THE MONEY by Gail MarksJarvis on April 29, 2007

According to the College Board, borrowing to pay for college generally makes sense because education builds earning potential.

The typical college graduate earns about 73% more than the typical high school graduate, and the higher pay covers the cost of four years of tuition and fees by the time the graduate is 33 years old.

The higher cost of private colleges adds an extra burden. But by age 40 students typically have covered those costs too.

However, debt levels might be too high if students are not likely to complete college or if they plan a career in a low-paying profession.

If you make this much per year	Then you can handle this much debt*	Annual payment	Portion of income
$10,000	$0	-	-
$20,000	$7,680	$1,060	5%
$30,000	$22,160	$3,060	10%
$40,000	$36,640	$5,060	13%
$50,000	$51,120	$7,060	14%
$75,000	$87,330	$12,060	16%
$100,000	$123,540	$17,060	17%
$150,000	$195,950	$27,060	18%
	*Interest rate at 6.8%

Top four computer upgrades

1) Install broadbrand connection for Internet

2) Add more RAM

3) Replace or add a bigger hard drive

4) Replace or add a graphic card


Upgrades that are not worth the time and money

1) Replace CPU with a faster processor

2) Upgrade to a new operating system

EBRI on retirement

From CNNMoney.com "Have less than $25K in savings? Get in line"


Employee Benefit Research Institute (EBRI) estimated that all, but the lowest earning men, should have saving at least 12X their income when they retire. That's $1,200,000 for a man earning $100,000. A woman, because of higher life expectancies, should have 14X.

Your nest egg, combine with your Social Security benefits (and pension benefits if you have them) should be large enough to generate at least 70% to 80% of your pre-retirement income.

What is Pentium Dual-Core processor?

The Intel Pentium Dual-Core T2060 is an unannounced Intel processor that mysteriously shown up in budget laptops at retailing stores in early 2007.

The T2060 is an off-roadmap processor (i.e. not on Intel's roadmap). It was developed at the request of some of Intel's customers.

It is a variant of the value Core Duo processor (T2050).

But the T2060's L2 cache is smaller than the L2 cache of Core Duo; and it may lacks some of Intel's latest power management features.

5 keys to investing success

I read it somewhere ...

1 - Make investing a habit

2 - Set reach goals that are not impossible for you; but should be achievable if you put in some efforts.

3 - Avoid unnecessary risks - asset allocation

4 - Be patient

5 - Diversify

Favors of Windows Vista

* Windows Vista Business

* Windows Vista Enterprise

* Windows Vista Home Basic
-- Requires at least 512 Mb of memory

* Windows Vista Home Premium
-- Requires at least 1.0 Gb of memory

* Windows Vista Ultimate

There is also the Windows Vista Starter which is only available in developing technology markets.


Last Windows OS has

* Windows XP Home

* Windows XP Professional

* Windows XP Media Center Edition 2005

Tax filing strategies

Use tax professional

+ A must for complex returns
- Expensive (see below)
+ Through
+ Usually provide supports for audit

Do it yourself

+ Inexpensive
- Time & efforts (it takes an estimated 28 hours and 30 minutes to prepare a return)
- Require good knowledge in tax laws
- Possible errors or may missed tax saving opportunities

Use VITA /TCE programs

+ Preparation & e-filing for free
- Limited to simple returns
+ Preparers are trained & certified, but with uneven experiences
- No support for audit

Use tax preparation software

Software buys convenience!
+ Avoids arithmetical errors
+ Step by step interview process – reduces need for tax knowledge
+ Interview process minimizes errors from tax situation changes such as retirement
+ Convenient import of previous years info
+ Can do what if scenarios – see impact of different filing strategies
+ E-file available & convenient storage in PDF format

However
- Expenses – costs of software & e-filing
- Accuracy in data entry is very important!
- Lengthy interview process
- It may not handle special or complicate tax situations


The IRS estimates that $200 is the average cost for taxpayers to file basic federal income tax returns.
Professional tax preparers also calculated that the average fees their clients paid last season ranged from about $155 at H&R Block to just under $178 at Jackson Hewitt.

Cash & clothing donations

The Pension Protection Act made changes related to how taxpayers document their cash and clothing donations.

Cash donations

Before the new law, taxpayers did not need to document monetary donations less than $250.

Starting in 2007, taxpayers will need to keep receipts documenting all monetary donations they claim as a charitable deduction on their tax return.

"Now, for any monetary gift, you need a bank receipt or written acknowledgement from the charity, including charity's name, the date of the gift, the amount of the gift."

A cancelled check or a credit card statement will also suffice. Taxpayers' best bet is to avoid cash donations and instead focus on check or credit card payments.

Taxpayers don't send these receipts to the IRS, but simply keep with their records in case of an audit.

Clothing donations

The new rule for clothing and other household donations which goes into effect for 2006 is that they must be in good or better condition to qualify for the deduction.

The law does not specify what "good" or "better" means, but taxpayers might consider taking photos of the items or getting a written acknowledgment from the charity that the items are in such conditions.

Make a detailed list of the items, such as "three pairs of pants, two shirts." Then the charity can acknowledge the exact items were received in "good" or "better" condition.

Sale of stocks & mutual funds

Key points

Stock sales cannot use average cost to calculate the cost basis.

Mutual funds can use average cost if the shares were held at the agent or the custodian.


How do I figure the cost basis when the stocks I'm selling were purchased at various times and at different prices?

If you can identify which shares of stock you sold, your basis is what you paid for the shares sold (plus sales commissions).

If you sell a block of the same kind of stock, you can report all the shares sold at the same time as one sale, writing VARIOUS in the "date acquired" column of Form 1040, Schedule D (PDF).

However, what you enter into the "cost or other basis" column is the total of all the acquisition costs of the shares sold.

If you cannot adequately identify the shares you sold and you bought the shares at various times for different prices, the basis of the stock sold is the basis of the shares you acquired first (first-in first-out).

Except for certain mutual fund shares, you cannot use the average price per share to figure gain or loss on the sale of stock.

Deadline for amending tax returns

Generally, to claim credits or refund, your tax returns or amended tax returns must be filed within three years of the original filing deadline.

You are too late to amend your 2002 return now. The deadline was April 15, 2006.

If you want to amend your 2003 return (which was due April 15, 2004), you have until April 15, 2007 to do so.


Note: the tax code says that the IRS has three years to give you a refund, three years to audit your tax return, and ten years to collect any tax due. Together, these laws are called the "statutes of limitations."

2006 federal tax rates

Taxable Income = Adjusted Gross Income - Deduction - Exemption(s)

Single

tax rate	taxable income	plus
10%	between $0 & $7,550	-
15%	between $7,550 & $30,650	$755
25%	between $30,650 & $74,200	$4,220
28%	between $74,200 & $154,800	$15,107.50
33%	between $154,800 & $336,550	$37,675.50
35%	over $336,550	$97,653

MFJ

tax rate	taxable income	plus
10%	between $0 & $15,100	-
15%	between $15,100 & $61,300	$1,510
25%	between $61,300 & $123,700	$8,440
28%	between $123,700 & $188,450	$24,040
33%	between $188,450 & $336,550	$42,170
35%	over $336,550	$91,043

LTCG & Qualified Dividends
5% for taxpayers in the 10% & 15% tax brackets
15% for taxpayers in the 25%, 28%, 33%, & 35% tax brackets

Tips for individuals to donate old computers

Original source: http://www.techsoup.org/products/recycle/articlepage.cfm?ArticleId=524

These are the reasons that we should find the appropriate way to discard old computers:

* According to the U.S. EPA, nearly 250 million computers will become obsolete in the next five years. In 2001, only 11 percent of personal computers retired in the U.S. were recycled.

* Each computer dumped in a landfill is a missed opportunity to provide Information Age tools for people to cross the digital divide.

* To reuse a old computer is more environmental friendly than to manufacture a new computer.

Tips for donating computers

Donate old computer to a refurbisher or recycler, rather than to the schools and nonprofits directly.

Out-of-date computer systems can be more a burden than a blessing to the schools and nonprofits; as it is very costly for them to bring a old computer up to today's standards.

Determine if your old computer can be reused.

It is okay to donate a “slow” computer or a computer with minor glitch. If it is less than seven years old, chances are that it can be upgraded and put to good use by someone else. If your computer is more than seven years old, consider to send it to a commercial recycler.

Recycle any broken computers.

Any computers that could not turn on should be recycled. Most recyclers are businesses or organizations that can remove useful parts and then break down the rest of the materials, as we do with bottles and cans. They also remove hazardous materials safely.

Note: Some of these organizations may charge a fee to accept computers for recycling -- especially computer monitors.

Contact the refurbisher or recycler before donating.

Call the organization or check for details on its Web site to ensure that it accepts the computer that you plan to give away.

Many recycling and refurbishing organizations also have specific locations where a PC can be donated, while others have delivery instructions they expect donors to follow.

Donate the accessories too.

If you can, include the keyboard, mouse, printer, modem, speakers, or any other accessories.

Keep the proof of the operating system intact if possible.

Microsoft XP operating system can only be reinstalled on the computers that had XP.

Clean your computer of personal information by yourself.

Best to use a disk wiping utility that overwrites whole hard drive so that no data is recoverable.

Keep a record of what you donated.

You are eligible for a tax donation if you donate to a nonprofit refurbisher. Most school or nonprofit refurbishers can provide a tax receipt upon request. The tax laws pertaining to this are Section 170 of the Federal Income Tax Code, the New Millennium Classrooms Act, and the 21st Century Classrooms Act.

Note: Individuals can deduct the current market value of donated computer on their tax returns.

To determine the fair market value of a computer

Go to the Computers for Schools Canada for free computer "valuator".

Plan for future donations.

Do not put away any unused computer in storage or basement. Most people will not use their old computer again. Donate it as soon as you brought a new computer.

Why volunteering for CASH

CASH is an IRS Volunteer Income Tax Assistance (VITA) program in Rochester, New York.

In this nationally recognized program, the volunteers assisting low income taxpayers to prepare and e-file their tax returns free. The volunteers are trained & certified by IRS.

Five good reasons ...

5. You will give something back to the community.

4. You will help to increase the tax law compliance in the community - taxpayers paying their fair share of taxes (not a dollar more or less than they are obligate to pay).

3. Saves taxpayers some money (~ $100 to $200, see below for an example) on getting their tax returns done.

2. Helps low income taxpayers to avoid the Refund Anticipation Loan which many people considered as a form of predatory lending. CASH program does not offer any RAL.

1. You could also get your own (federal and state) returns done for free!


Here is an example for a single mother (with a child and a W-2) getting her tax returns done at H.

Form 1040A	$59
Form W-2	$2.25
Dependent	$10.75
Head of Household Filing Status	$10.75
Head of Household Worksheet	$5
Child Tax Credit Worksheet	$30.75
Form 8812 Child Tax Credit	$11
EIC	$17.50
EIC Worksheet	$3
8867 EIC Checklist	$2.75
Phone Excise Tax	$3
State Return	$28.50
Total Fees	$184.25