Saving to Inve$t

Approved! Extra Unemployment Benefits and Home Buyer Tax Credit Extension into 2010

andy@savingtoinvest.com (Andy) — Thu, 05 Nov 2009 02:55:00 +0000

Congress and now the President have approved a $45 billion plan to expand a tax credit for first-time home buyers, extend jobless benefits and provide tax refunds to money-losing companies. The bill (H.R.3548) will be funded from the $787 billion stimulus originally approved in Feb 2009.

Unemployment Benefits Extension

The government is proposing to spend $2.4 billion to extend unemployment benefits for between 14 to 20 weeks, enough to cover the upcoming holiday season. States with the highest unemployment would get the highest unemployment benefits. The extension will benefit nearly 1 million out-of-work people who will run out of benefits by the end of the year. If HR3548 passes with the proposed amendments unemployed workers would generally get the following additional benefits:

- 14 weeks extra for everyone in any US state (up from the 13 initially proposed by the house in the unemployment compensation Extension act, S. 1699)
- An additional 6 weeks, for a total of 20 weeks, for those in states with unemployment at or over 8.5% (3 month average)

With enactment, the jobless in the hardest-hit states could receive up to 99 weeks of benefits, which average about $300 a week

Extended Home Buyer Credit

The $8,000 home buyers’ tax credit enacted earlier this year and slated to expire on November 30th 2009, will now continue until April 30 and contain the following new provisions.

- First-time home buyers who close before April 1 would get the full $8,000, and the credit’s value would be reduced by $2,000 in each successive quarter until expiring at the end of the year.

- The plan would extend the credit, due to expire Nov. 30, to home purchases under contract by April 30, 2010, with borrowers allowed another 60 days to close the sale, according to a person familiar with the details of the agreement.

- Current Homeowners looking for a new home could also qualify for a $6,500 credit if they have lived in their existing primary residence for at least five years

- The home buyers’ credit would be available to individuals earning up to $125,000, or $250,000 for couples, up from $75,000 for individuals and $150,000 for couples under the current law.

- Tax Credit Exclusions: Homes that cost more than $800,000 aren’t eligible for the credit and you must be over 18 years old to claim the credit. Those who sell their new home or stop using it as their main residence within three years would have to repay the credit.

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The Treasury Department estimates that more than 1.4 million Americans have taken advantage of the home buyer credit at a cost so far of about $10 billion. Democrat leaders say expanding the credit to those who already own homes would help create jobs because “the move-up buyer is more inclined and capable of buying that furniture, maybe building a porch, putting a garage on, a new roof” and making the “kinds of investments I think is going to be a job-creator across the country.” Republicans, called the tax credit a waste of money, saying studies show that most of those claiming the break would have bought homes anyway.

Goldman Sachs Group Inc. said in a research note yesterday that the credit probably spurred 200,000 home sales that otherwise wouldn’t have occurred. Extending the credit to people who own homes wouldn’t reduce the excess housing blamed for the slump because “every buyer taking advantage of the move-up credit would necessarily be a seller,” Goldman Sachs said. It said the plan may increase housing prices by 1 percent because “sellers are likely to incorporate a fraction of the credit amount in their sale prices.”

The senate approved legislation also would expand provisions in the stimulus package allowing companies to apply their losses to previous years’ income, thereby reducing their tax bills and allowing them to claim refunds. Banks and other institutions receiving assistance from the Treasury Department’s TARP program wouldn’t be eligible.

Lawmakers are still considering whether to extend several other elements of the stimulus package, including subsidies to help the jobless buy health insurance and increased funds for food stamps. Obama has also called for sending seniors $250 checks because they won’t get a cost-of-living increase next year in their Social Security checks. I will provide updates on these and progress of the above bill through Congress, and encourage you to subscribe (free) via Email or RSS to get the latest news.

References : Bloomberg

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A Statistical Economic Recovery - Is America's Recession Really Over?

andy@savingtoinvest.com (Andy) — Tue, 03 Nov 2009 03:16:00 +0000

As Mark Twain once said, "There are three kinds of lies: lies, damned lies, and statistics." To me, this nicely sums up recent economic figures that suggest America has escaped the clutches of another great depression and is on the way to a sustained recovery. Government reports say that GDP rose at an annualized rate of 3.5% in the third quarter compared with the second. This was the first increase since the second quarter of 2008. However, as GDP grew consumers grew more skeptical as indicated by a fall in the consumer confidence index. A poll in The Economist found that 35% of respondents think the economy is getting worse; just 28% think it is getting better. Unemployment is still rising, and even a White House adviser, Christina Romer, predicts it will remain “severely elevated” throughout next year.

A lot of the third-quarter GDP growth was the result of temporary government stimulus like the cash for clunkers and new home buyer tax credits (which were recently extended into 2010). Consumer spending grew by 3.4%, the best since early 2007, largely because people were buying new cars in July and August under the CARS and new car tax deduction programs. Sales have since fallen back. Residential construction leapt by 23.4%, the first advance since the end of 2005, helped by an $8,000 tax credit for buyers of new homes. But new-home sales dipped by 3.6% in September, as the deadline to qualify for the credit loomed. Of course the statistics the government and Obama administration officials discuss are the positive ones.

Similarly, the Obama administration released the most detailed information yet on the jobs created by the stimulus. Of the 640,239 jobs recipients claimed to have created or saved so far, officials said, more than half — 325,000 — were in education. Most were teachers’ jobs that states said were saved when stimulus money averted a need for layoffs. Yet many have cited the high unemployment figure, at 9.8 percent, as proof of the failure of the stimulus, which they voted overwhelmingly opposed. This is countered by supporters of expanding the stimulus programs, who say that these payments helped avert a second Great Depression.

Many polls and anecdotal evidence show that most Americans are more worried about the economy more than anything else. After all it hits closer to home than any other macro issue. To appease this, it is likely the Obama will keep the stimulus spigots flowing - case in point, another $250 social security stimulus in 2010. Other programs would extend health insurance and unemployment-insurance benefits by 14-20 weeks for some jobless workers, while providing more food stamps to many struggling families. These measures are ones taken in a struggling economy and not in a robust one.

It’s still too early to tell if growth in the third quarter reflects the dynamics of a genuine recovery. Until housing and unemployment show a sustained recovery (3 or more quarters), it’s premature to say that the country and the world are out the dark economic woods. While more stimulus are probably needed to keep economic growth moving along this year, they will add to an already dangerously high deficit. The upcoming Federal reserve meeting will provide an interesting gauge of where officials think the economy is headed (look for a big stock market reaction on that day), but I hope that lessons learnt over the last couple of years are heeded. Statistics tend to provide a partial picture and as we have seen in the past can vary sharply from one quarter to another. From a personal perspective, I think it is worth taking a few more risks as a long term investor, but still keep up a conservative approach to managing your day-to-day finances and career.

Five Things To Look For in Gettting Low-Cost Auto Insurance Rates

andy@savingtoinvest.com (Andy) — Fri, 30 Oct 2009 04:23:00 +0000

Low cost auto insurance rates are available everywhere, as companies cater to people trying to cut costs wherever they can. Unfortunately, not all insurance companies are the same, and low insurance rates can turn into a future mess if you do not know what to look for or what to avoid. It is a good practice to perform extensive research on the particular policy you desire and research the consumer protection laws of the state in which you live. Also, consider these 5 steps when researching low insurance rates:

1. Privacy is number one – Identity theft is becoming one of the fastest growing crimes in the US, and most of the cases can be prevented with some extra caution. Your social security number is not needed until you are ready to buy a policy. By that time, you should be familiar with the company and its representatives. Never give your credit card number or bank account details over the phone. The company should send the appropriate paperwork in the mail.

2. Research the company and make sure they are licensed – If the company is reputable, they should have a web presence. Examine their website for anything misleading and research the web as well to see if there are any complaints or evidence of scams from consumers. Each state has its own insurance department which lists all of the companies licensed to do business in that state. Give them a call or visit their website, and if the company is not on that list, do not give them your business.

3. Get all costs upfront and be slow to sign – The last thing you need is to find out there are hidden fees you were not aware of. Find out all of the fees and out of pocket costs of your policies beforehand so you can compare them with others. Never sign a blank form, or a form with a lot of blank space in between the copy and your signature.

4. Know the insurance laws in your state – Insurance companies may try to give you a policy with many options to drive up the cost, yet they may in fact be optional. Make sure you do your proper research on the required elements in your state..

5. Review in detail all sections of the policies when comparing – Two policies may look the same, yet small differences may be present. Check the deductible; this is often the biggest mistake made by new car insurance customers. The deductible is the amount you will pay up front before the insurance company pays money towards your claim. The lower the deductible, the higher your rates. Make sure you compare policies with the same deductibles and coverage options.

Comparing low cost insurance rates does not have to be difficult; it just requires some time and research. Just use common sense. For example, if the rate is too cheap, it should raise a red flag. This may be an indication of hidden fees which you will pay for later. Seek out the help of experts and, if possible, speak to them in person. This will help to ease the mystery concerning who you are actually speaking to.

If you follow these tips, and do your research, there will be much fewer unanswered questions. You will also be secure in knowing that you found a reputable company providing cost-effective insurance that you can rely on for many years.

This is an edited guest post from Shayna Adler of netQuote, an online insurance portal.

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No Increase, but Congress to Extend $8000 First-time Home Buyer Tax Credit into 2010 and Make Available to More Home Buyers and Owners

andy@savingtoinvest.com (Andy) — Thu, 29 Oct 2009 00:49:00 +0000

A number of would-be home buyers and the real estate industry are anxiously wondering if Congress will extend the $8000 new home buyer credit expiring on Nov. 30. I have been covering this credit in a few other posts, and today news reports say that Senate leaders have tentatively agreed to a plan (bill) to extend, but gradually reduce the $8,000 first home buyer tax credit through 2010. Senate Majority Leader Harry Reid of Nevada and Senate Finance Committee Chairman Max Baucus of Montana, both Democrats, may seek to add the home buyers extension to legislation extending unemployment benefits and small business tax breaks that may be debated as early as this week, according to Regan Lachapelle, an aide to Reid.

The proposed (democrat sponsored) bill to extend the credit contains the following new provisions: (see this post for details on the existing home buyer tax credit)

- First-time home buyers who close before April 1 would get the full $8,000, and the credit’s value would be reduced by $2,000 in each successive quarter until expiring at the end of the year.

- The plan would extend the credit, due to expire Nov. 30, to home purchases under contract by April 30, 2010, with borrowers allowed another 60 days to close the sale, according to a person familiar with the details of the agreement.

- Homeowners buying a new property could qualify for a $6,500 credit if they have lived in their previous residence for five years

- The home buyers’ credit would be available to individuals earning up to $125,000, or $250,000 for couples, up from $75,000 for individuals and $150,000 for couples under the current law.

Shop and Compare multiple Home Insurance quotes for free.

More than 1.2 million borrowers have claimed almost $8.5 billion of the $13.6 billion set aside for “first-time” home buyer tax credits this year. The program is aimed at easing the worst housing slump since the Great Depression and has been credited with boosting the economy and stock markets over summer.

Lawmakers are under pressure from real estate agents, mortgage brokers and home builders to extend the $8,000 credit before it expires Nov. 30. However, they are also facing pressure from governance groups and recent IRS reports claiming widespread fraud around claims for this lucrative credit. The IRS has identified 73,799 claims totaling almost $504 million that may not be from first-time home buyers. They also found that 582 taxpayers under 18 years old and ineligible to buy a home claimed almost $4 million in credits.

The terms for extending the home buyer tax credit are still being negotiated in Congress and I will continue to update this article If you haven't already, I encourage you to subscribe for free via Email (A confirmation email is sent to avoid spammers) or RSS to get the latest news.

Related housing and Stimulus posts:
~ $800/$400 Making Working Pay Tax Credit
~ Key Dates for Stimulus Payments
~ New 401k and IRA Contribution Limits for 2010
~ Getting the 2009 and 2010 $250 Social Security Payment
~ 10 Deadly Mistakes Buyers Make When Purchasing a Home and How to Avoid Them

Best Choice Residential Plans for just $14.95!

Retirement 401k and IRA Accounts - Have You Rebalanced and Reallocated based on Changing Market Conditions and Contribution Limits?

andy@savingtoinvest.com (Andy) — Tue, 27 Oct 2009 04:04:00 +0000

I recently checked my Vanguard 401K account and was very pleased to see that it was up 20% in the last quarter! Still well down from high, before the great credit crisis of Autumn 2008, but at least it's moving in the right direction now. However, my return could have been even greater had I re-balanced a bit earlier on because In response to the financial downturn, I had shifted my portfolio to a Stocks/Bond mix of 60%/40%, a conservative mix based on my age and not very diversified. Unfortunately as the market rebounded in summer I didn't update my asset allocation in time due to the fact that I was tired of seeing the red on my 401K statements and was wary of another market swoon. If I had gone with a 80/20% mix, my return would have been nearer 30% or higher!

Ah well, live and learn I guess. So last week, I did change my portfolio mix to be more diverse and in line with my age, but also upped my contribution to the maximum allowed limit (see the 2010 401K and IRA maximums). If this is the beginning of a stock market boom, I definitely want to dollar cost average and boost my returns over the next 5 to 10 years.

Like me, most people have enjoyed a nice jump in their 401k, IRA and other retirement accounts as the stock market recovered over the last 6 months,. In fact according to the WSJ, despite the biggest and broadest decline in financial markets in a generation, the median 401(k) retirement account at Vanguard Group on Sept. 30, 2009, was up 7% from where it was two years earlier, when the market was near its all-time high. In the last 6 months, the average account is up 18%. This recovery in retirement accounts was aided by the fact that many kept up their regular contributions and so actually got a big boost from the benefit of dollar cost averaging into quality stocks at generational lows. Thus, when the market came roaring back, those cheap purchases scored bigger gains, reducing overall losses. So an investor who put $10,000 into a balanced portfolio in September 2007 and then didn't add another penny was down 27% at the end of February and had $8,943 at the end of September, a loss of 10.6%. The investor who put in an additional $200 a month was down about 26% at the end of February, but only 6% at the end of September.

Lessons Learned and Next Steps. Continued regular savings matter a lot. Most people agree that, given enough time, 401(k) accounts can recover from market losses. What's impossible, however, is building more savings if you don't save enough to begin with. If you have continued contributing to your retirement account throughout the stock-market debacle—and even better, if your employer continues to match your contributions—your account probably has more in total dollars than you expected. Younger people, who have smaller balances to begin with, will see a bigger impact from their regular savings. Contributing with every paycheck, as you do in a 401(k) account, isn't necessarily the most-profitable or sexiest way to invest, but it's a good discipline that helps smooth out the impact of buying in when the market is at high and low points. This has been underscored over the last two years for anyone who kept contributing to their 401K or IRA accounts.

In uncertain times, diversification is also a good strategy. Stocks still have a ways to go, and the economy is still wobbly, particularly with unemployment high and real estate markets shaky. Prices could tumble again with a streak of bad news. Therefore it is important to diversify your holdings and regularly (every quarter at least) review your retirement accounts and ensure they are in line with your retirement goals.

Also, don't forget catch up contribution limits for those 50+ has also increased. If you are age 50 or older and your employer allows it, you are also be eligible to make "catch-up 401k and IRA contributions" in addition to your regular retirement plan limits. These catch up contribution limits have also increased to a total of $5,500 which brings the 2009/2010 maximum 401K contribution limit to $22,000 for those over 50. For all those people who feel that they do not have enough of a retirement nest egg, this higher contribution gives them a great tax free opportunity to catch up.

Continuing to save regularly in a diverse mix of investments will keep you moving toward your retirement target (more on figuring this number in an upcoming post)and set you up for bigger gains when economic growth kicks in - and it will - and the stock market really takes off. If you haven't got a retirement (IRA) account, open one up now via E*Trade and get 100 free trades!

Related 401K and IRA Posts:
~ 2010 Tax Brackets and Standard Deduction Changes
~ New Roth IRA Conversion Rules and Contribution Limits
~ Where to Invest $50,000 - Stocks, Gold or Real Estate
~ Gold Price Outlook - A Golden Investment in 2009 and beyond
~ Making the Move: Vanguard Money Market to ING Direct
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My Next Laptop : Should I Go With a New Windows 7.0 PC or For an Apple MacBook Pro?

andy@savingtoinvest.com (Andy) — Sat, 24 Oct 2009 04:19:00 +0000

With the recent release of Microsoft's new operating system, Windows 7.0, I now have two enticing choices when it comes to getting a new laptop. I currently have a desktop PC running Vista (which isn’t as bad as some make it out to be) and an older model laptop. Thanks to a wireless network and common OS, I am able to share files across both PC’s; which gives me the benefit of a large screen with my desktop PC when at home, and the ability to work on the road with my laptop when inspiration strikes. However, my laptop of late has been acting up and been very slow. This is more due to the fact that it is over three years old and having my 4 yr old play games on it has left it worse for wear. So, after saving up, I have decided to take the plunge and buy a laptop during the upcoming holiday season given that’s when all the PC sales are on, and in anticipation of Windows 7.0.

In terms of hardware for my new laptop, my requirements are pretty standard. I want a light weight laptop, with a decent size screen (between 13” and 15.5”), at least 4MB of RAM, dual processor and a built in camera/microphone. I am not too worried about the hard drive, 250GB is more than enough, but what I really want is a laptop that gives me plenty of battery life. These requirements should give me a laptop that has some serious power and last 2-3 years; without paying a lot of extra money for a top-of-the-line gaming kind of laptop.

I had done my research and was all ready to go with a new Sony Vaio laptop, running the new Window OS. However at a friends house recently, I "played" with his new Apple MacBook Pro Laptop and after getting used to it's interface, realizaed that it was indeed a pretty cool machine. I already have an iPhone that I am quite happy with and have no problem with getting another Apple product. So to determine which laptop option I would go with (PC vs Mac), I did a basic pro's-con's list after my online and in-store research. This is summarized below:

Pro’s for Getting a Window's 7.0 based Laptop

~ Cheaper. Getting a new HP or Dell laptop with Window’s 7.0 loaded will cost me less than $1000 (which includes a 1 yr warranty and some decent accessories). A similar Apple notebook will cost around $1400.

~ I have worked with windows based PC’s for all my tech-life and despite all the bad press around Vista, I have had few issues with it. From the demo’s I have seen, Windows 7.0 has lots of cool media and user features that put it pretty close to the Apple (in my opinion anyway).

~ I use windows at work and having it at home means no compatibility issues when it comes to working at home and sharing files between my work and home PC.

~ There is a much larger range of Windows 7.0 PC's available (since Apple makes it own computers) and this diversity gives more options to get the features I want at the lowest possible price.

Cons for Dumping the Windows PC and Going with an Apple Notebook

~ Very sleek looking device that is easy to use. Despite my limited time with it, I can see why so many consumers are switching to Mac notebooks.

~ Will probably work better with my i-Phone and other media stuff I have around the house. Apple's new Mac OS X v10.6 Snow Leopard Operating System is also supposed to have resolved a lot of Windows/Office compatibility issues in addition to being more stable and faster than comparable operating systems.

~ The Apple model I liked (Apple MacBook Pro MB991LL/A 13.3-Inch) was very light and has an excellent battery life. However this is offset by less hard drive space compared to PC’s.

~ Great reviews. Almost everyone I have talked to that has a MAC or Notebook has no complaints with it and say’s they won’t go back to a Windows PC. This is reflected in the many mainstream media reviews, and is the perception Microsoft is hoping to quash with it's new operating system.

Based on the above list I could go either way, price is still a big factor for me but I do like the Apple laptop feel and features. I will probably do a little more in-store research at my local Best Buy (Check out their Computer deals), but what choice do you think is best?

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10 Deadly Mistakes Buyers Make When Purchasing a Home and How to Avoid Them

andy@savingtoinvest.com (Andy) — Thu, 22 Oct 2009 04:04:00 +0000

MISTAKE #1 - Choosing a real estate agent who is not committed to forming a strong business relationship with you

HERE’S HOW TO AVOID IT: Making a connection with the right real estate agent is crucial. Choose a professional who is dedicated to serving your needs—before, during and after the sale.

MISTAKE #2 - Making an offer on a home without being pre-qualified

HERE’S HOW TO AVOID IT: Pre-qualification will make your life easier—take the time to talk with bank or mortgage representatives. Their specific questions with regard to income, debt and other factors will help you determine the price range that you can afford. It is one of the most important steps on the path to home ownership.

MISTAKE #3 - Not knowing the total costs involved

HERE’S HOW TO AVOID IT: Early in the buying process, ask your real estate agent or mortgage representative for an estimate of closing costs. Title insurance and lawyer fees should be considered. Pre-pay responsibilities such as fees and insurance must also be taken into account. Remember to examine your settlement statement prior to closing. [I would also factor in the ongoing costs, like property taxes, utilities and yard maintenance]

MISTAKE #4 - Limiting your search to open houses, ads or the Internet

HERE’S HOW TO AVOID IT: Many homes listed in magazines or on the Internet have already been sold. Your best course of action is to contact a real estate agent. They have up-to-date information that is unavailable to the general public, and they are the best resource to help you find the home you want.

MISTAKE #5 - Thinking that there is only one perfect home out there

HERE’S HOW TO AVOID IT: Buying a home is a process of elimination, not selection. New properties arrive on the market daily, so be open to all possibilities. Ask your real estate agent for a comparative market analysis. This compares similar homes that have recently sold or are still for sale.

MISTAKE #6 - Not considering long-term needs

HERE’S HOW TO AVOID IT: It is important to think ahead. Will your home suit your needs 3–5 years from now? How about in 5–10 years?

MISTAKE #7 - Not following through on due diligence

HERE’S HOW TO AVOID IT: Make a list of any concerns you have relating to issues such as crime rates, schools, power lines, neighbors, environmental conditions, etc. Ask the important questions before you make an offer on a home. Be diligent so that you can have confidence in your purchase.

MISTAKE #8 - Not having a home inspection

HERE’S HOW TO AVOID IT: Trying to save money today can end up costing you tomorrow. A qualified home inspector will detect issues that many buyers can overlook.

MISTAKE #9 - Not examining insurance issues

HERE’S HOW TO AVOID IT: Purchase adequate insurance. Advice from an insurance agent can provide you with answers to any concerns you may have.

Need Homeowner Insurance? Compare Free Insurance Quotes Now!

MISTAKE #10 - Not purchasing a home protection plan

HERE’S HOW TO AVOID IT: This is essentially a mini insurance policy that usually lasts one year from the date of sale. It usually covers basic repairs you may encounter and can be purchased for a nominal fee. Talk to your agent to help you find the protection plan you need.

If you keep the above tips, in mind you should have a much more smoother and trouble-free home buying experience. You will also more than likely visit a number of homes during your search, and the following bonus tips for will make the overall selection process easier:

* Bring a camera to document each home that you visit.
* Start each tour with a shot of the address plaque so you can easily identify each home later.
* Take notes during each home visit. Record any notable features,
architecture and design elements. List what changes you would make and what details really stand out.
* You will especially want to write down your first impressions of each home.
* Pay attention to the home’s surroundings. Generally, avoid the most upgraded home on the block. Is it in a friendly neighborhood? Will parking be an issue? Is it a good area to walk your dog or have an outdoor get together? Is it in a good school district?
* Visit homes that you were interested in again a few days later at a different time of the day. You may notice some nuances you missed earlier.

Good luck on making the best and biggest investment decision of your life!

This was a guest post by Sherri Krohl of McEnearney Associates, Inc. You can contact her for a free consultation @ 703-850-6461. Look for an upcoming article based on Sherri's newsletter titled – “The 5th largest number of housing transactions in the history of the US economy will occur this year. I know you probably have not read that in the headlines since all we hear is doom and gloom! But look at the numbers. They substantiate this statement! “

For this and other great posts I encourage you to subscribe (free) via Email or RSS.

Housing Related Posts
~ 2010 First-Time Homebuyer Credit Extension and Increase to $15,000
~ Protecting Your Mortgage and Other Assets with Term Life Insurance
~ Questionable Home Appraisals Worsening Real Estate Market Sales
~ Got a Headache Yet? If Not, Then Get a Mortgage and Buy a Home!
~ FHA vs Conventional Home Loan - Comparing the Difference and Which is Better

Open Enrollment and Employer Health Insurance - Making the Most Despite Fewer Benefits and More Expensive Premiums, Deductibles and Co-pays

andy@savingtoinvest.com (Andy) — Tue, 20 Oct 2009 04:02:00 +0000

It's that time of year again when workers have to review and are able to modify their employer sponsored health care insurance and other "fringe" benefits. Unfortunately as I reviewed my health care benefits it seems that my employer is providing less (like excluding Chiropractic benefits) but raising premiums, co-pays and deductibles - which was justified due to the rising costs of health insurance and staying "in-line" with the market average. The premium I pay for my families health coverage has gone up by 16%, the deductible up by 15% and the co-pays up by a whopping 25%! I can definitely say that I was very angry when I read about the increases on my company's annual enrollment website, which made my interest in Obama's health care reform much stronger.

However, it looks like I am not the only one suffering with Hewitt Associates, a human resources consulting firm, estimating workers will pay more than $4,000 next year in out-of-pocket health care costs and premium shares this year. That's a 10 percent increase over last year and more than triple the average amount workers paid in 2001. Yet the average worker salary increased less than 2 percent in 2009, Hewitt estimated.

This makes reviewing your health care choices and the use of a Flexible spending account even more important this year. While the choices and financial impacts can be dizzying, there are some simple and key items to consider that could reduce your cost of health insurance and/or ensure you are adequately covered.

Take advantage of the wellness or get fit programs offered: Most employer sponsored insurance plans now offer some kind of monetary discount if plan participants partake in some kind of fitness program or demonstrate they are taking actions to stay in shape (normally determined through a questionnaire). The reason this is simple, healthy people are less likely to get seriously sick and so the insurance company has to pay out less. Employers, benefit from healthy employees due to higher productivity (less sick days for example) and it also decreases the amount of money they spend on health coverage. So if you can take advantage of these programs, do so. It is good for your well-being, employer and your wallet.

Shop and Compare multiple Health Insurance quotes for free.
Understand your health insurance needs. To figure your health insurance needs, you need to spend some time estimating what your costs over the last few years were and if you expect any major life changes in the year ahead (e.g. potential new job, pregnancy or elective surgeries like a knee replacement). Once you do this, then look at the plans offered by your employer and see which ones best meets your needs (a pro’s and con’s analysis essentially). If you are in a 2 worker/income household then do the same exercise with your spouse’s open-enrollment packet to see which plan offers the best value. This is my situation and based on a comparison last year, I saved over $50 p/month by getting my medical coverage via my company, but dental, vision and FSA through my wife’s plan. To get a sense of what benefits are best for your situation you can use the popular employee benefits simplifier tool at Metlife.com/benefits, which is available to anyone, regardless of their insurer. I found it a pretty good starter tool, though you need to remember it is a general tool and that your circumstance and employer options may limit it’s applicability.
Kiplinger’s says to Boost your medical flexible spending account contribution for 2010. If your employer is increasing deductibles and co–payments for your health insurance, as many are, then it's a good idea to put more money into your flexible spending account. Because your FSA contributions avoid income and Social Security taxes, you can save 35% or more compared with spending after–tax money on these medical expenses. Many employers limit medical FSA contributions to between $3,000 to $5,000 per year. Plus, you must use the money by December 31 (or March 15 of the following year, in some plans) or lose it. Make the most of a dependent–care flexible spending account for child–care expenses (or home health care for a parent or other dependent family member), since studies show families will come out ahead by using this account rather than the dependent–care tax credit.
Consider a Health Savings Account (HSA) to deal with higher deductibles. More employers are nudging workers toward high-deductible health plans because they cost less — about 20 percent less than a P.P.O. or an H.M.O. — and they force employees to take more responsibility for their health care. To offset this employers are providing a HSA to offset the higher deductible (e.g. if the deductible is $5000, employers many contribute $1000 to a HSA). If you spend all the money in the health savings account, you then have to dip into your own pocket to pay your medical bills until you exhaust the deductible. But if you don’t spend the money, it stays in the account for next year’s expenses. So compare the cost (using an average for yourself and family over the last 3 years) to determine is a regular plan or a HSA based plan is a better option for you. If you are relatively healthy then a employer subsidized HSA based plan could be the better option. [Look for a more detailed article of high deductible, HSA plans in the near future]
My final tip, and most important in the long term, is to educate yourself about health insurance options and all the key terminology/concepts. Not only will it save you money in choosing the best option, it will help during the year when dealing with doctors, hospitals and billing staff when trying to figure how much you will or should pay for medical services. A good place to start is the educational information offered by your company and their insurer (online or via open enrollment meetings). Understand and learn what the basic terms mean. Co-payments vs.co-insurance? How does my deductible work? What is an "out of pocket maximum" and when does it apply? Be sure you understand "'in-network" versus "out of network". Seeking services "out of network" is often the source of denials or increased share of costs (co-insurance) paid by you. Again, don't be shy or embarrassed – a lot of people don’t really understand their health insurance and end up paying too much and/or not taking advantage of the benefits their plans can offer. Always ask questions if you are not sure of certain concepts and particularly before seeing a medical professional to ensure you are adequately covered.

Despite the ongoing increase in employer sponsored health insurance, it is still a much better deal for most than private or independent insurance thanks to the employer subsidy. However, you should get an idea of how much your company is really subsidizing by check how much you would pay privately via leading health insurance portals eHealthInsurance or InsureMe, which search across multiple providers for you.

If, like many people, you typically default to your current option and do nothing, you could potentially be short changing yourself and your family hundreds of dollars. So take the time, read the latest benefits booklet or go to the relevant website, and more likely than not it will be worth the time and effort.

For even more health care saving ideas see Health Care Plans: 10 Tips on Choosing the Right Option

Weekend Review: Dude - Where's My Stimulus Jobs Gone?

andy@savingtoinvest.com (Andy) — Sat, 17 Oct 2009 22:06:00 +0000

When President Obama signed off on the $787 Billon Economic Stimulus Bill – known as the American Recovery and Reinvestment Act – he promised to provide full transparency on it’s expenditure and to ensure that every dollar is tracked. Like so many of his earlier promises, this one also is starting to look a bit flaky.

CNN - provides data from government research organization OMB Watch, who say that said its assessment of the [stimulus spending] reports revealed many inconsistencies in the job creation data. This undermines transparency, because you are putting out wrong information to the tax-paying public who are funding the stimulus program. Uncovering how many jobs created is critical to the debate about the Recovery Act's value, because creating jobs (to stimulate the economy) was the key reason behind Congress' approval of the spending.

OMB Watch said its review yielded "really weird job numbers," including many discrepancies within the reports themselves. For instance, OMB Watch found that many companies said in a narrative portion of their reports that it was able to retain several employees because of stimulus funds, but the "jobs created" column read "zero."

But the enormity of the stimulus bill leaves some experts saying it will be impossible to accurately portray the data. The sheer size of the reporting is dumbfounding: Tens of thousands of recipients will file reports after receiving stimulus funds from one of 28 government umbrella agencies, or from one of countless agencies from the 50 states.

Recipients of stimulus funds were required to report how many jobs they saved or created and how much money they have received from government agencies by Oct. 10. The first sliver of that information was posted on recovery.gov this week, with more to be available later this month. The contract awards posted so far represented less than 7% of the total stimulus funds doled out so far. By far the largest part of stimulus is in grants to states, which account for 83% of stimulus funding. Federal agencies and recipients are spending nearly three weeks reviewing these state reports to improve their accuracy before publishing them.

Have you seen any stimulus jobs created in your area? And, do you think the stimulus program is delivering on its intended purpose of creating new jobs?

Other articles/blogs of note that I liked this week include:

~ 6 must-have millionaire habits by Savvy Sugar. Looks like I have a few more to develop.

~ One non-financial blog I have always enjoyed because of her interesting and in-your-face articles is Penelope Trunks, Brazen Careerist, and a recent article 6 Tips for doing a long-distance job hunt is a useful read for those searching for jobs across state and national lines. Alternatively, if you are bored of your job - see this article I wrote a while back: 21 Signs that you are losing interest in your job.

~ September 2009: Net Worth Update and Stock Market Investing at Money Blue Book. Damn, this blogger can write well and make boring personal finance topics interesting. Also he has been sharing some of his blogging success tips of late, which make interesting reads.

~ Also, if you are interested in other personal finance blogs and how they rank check out WiseBread's Top 100+ Personal Finance blogs. This is a great resource that is getting more comprehensive in regards to the data they put out there. Is one of my daily go-to sites.

~ My article on whether the Employer Tax Credit Stimulus to Create New jobs and Lower Unemployment is a Good Idea or Bad Policy was also featured on the Carnival of Personal Finance this week hosted at All Financial Matters. Congrats to JLP for his 5 year anniversary as well.

Why Even High-Income Earners Are Not That Far From The Edge of Poverty

andy@savingtoinvest.com (Andy) — Sat, 17 Oct 2009 04:02:00 +0000

Despite earning more than $100,000 in household income many people still feel that they are living month-to-month and that a loss of employment or medical emergency could easily move them from upper middle class to low income earners. This feeling of being on the “edge” of poverty, given the level of income, seems a bit ridiculous but it really comes down to bad financial habits, a lack of discipline and peer group pressures.

Many of these high income earners tend to be corporate or self-employed professionals and usually have a considerable advantage when it comes to making money. Thanks to managerial jobs, graduate level education backgrounds and stock portfolio’s, many command six figure incomes. In theory, these high incomes should make it easier to stay out of debt, save more, potentially take on some calculated risks in a fairly manageable way (if desired), and generally accumulate wealth more quickly. But is that what happens? No.

I know from past personal experience that I would have fallen into this group of poor-rich people, but thanks to improving my personal finance habits (this blog being evidence of that change) and having a long term savings/investment plan in place I was able to leverage my higher than average household income to actually create a much more stable future. But there are many reasons why those with ample earning power may feel on the edge of poverty.

- Keeping up with the Joneses. As a group high income workers are generally competing with each other. Both for career advancement and other materialistic items like the biggest house, best car or latest gadget. There is a perception in our society, correctly or incorrectly, that the more you earn the more you should spend. Look at those Wall Street workers as an example or the level of excess before the recent recession. Keeping up with the Joneses is an expensive proposition and unfortunately the cost of materialism eventually catches up.

- Easy Credit. Even in today's tough economy, for those with six figure incomes credit is easy to come by. Credit companies may have cut back offerings to those in lower income brackets thanks to the recently enacted credit card reforms, but there seems to be little or no impact to high income earners who are heavily courted by premium credit card companies like American Express and Discover. The availability to this "easy" credit gives a false sense of security that makes these people spend way more than their incomes can afford. That is why they rack up credit card debt faster than average and thinking it would be easy and quick to pay off. But due to high interest rates and compound interest this theory is quickly debunked as the amount of debt grows much faster than income.

- No real budget. Many higher income earners feel like they are making lots of money now, and they believe that they will continue to make lots of money going forward. This may reduce their feeling that they need to watch their money carefully now. Hand-in-hand with that, many in this group probably believe that they are making more money than they really are— or said another way, the money they make will go farther than it really does. Many young professionals who are earn good incomes don’t come from particularly privileged backgrounds; and their reference point may be that they are making twice as much (or more) than their parents were - so they spend like that as well. They don’t factor in the effect of inflation over many years which means that the cost of living is much higher than in our parent's generation. Further the more you earn the more you pay in taxes. Rather than focusing on after tax incomes, many high income earners only look at the top line figures. A $100,000 income after tax is only about $75,000 in real terms.

- Time Poor. Many professionals work long 60+ hour work weeks in stressful environments. The last thing they want to do is come home and deal with boring personal finance things such as budgeting, 401K plans, cutting coupons etc. I remember a few years ago my life was work-sleep-partying on the weekend and then back to work. This was exacerbated when kids came into the picture. Looking back this was a poor excuse to let my finances slip, but it happened as I am sure was the case for many other professionals.

- Speculating rather than investing : My portfolio had over 20 stocks that I bought without real purpose and truth to be told I think I lost much more money than I made investing (knowing what I know now, I called what I use to do speculating). I was just chasing the next stock rather then following some kind of investment strategy. Retirement was a far away thing and the thought of putting a away 10% of my pay check for 30 years seemed ridiculous. Sadly, after the tech boom I lost most of my investment portfolio and most of my savings with it.

How to get out of this rut to finally become financially stable?

In most cases it takes a certain adverse event or stark realization to turn one's financial life around. For me the catalyst was getting laid off from work and realizing that I only had about one month of savings - despite having earned a six figure income for more than 2 years. One of the lowest points in my life ended up being the best thing that happen to me.

After this it takes focus, the desire to learn/improve and discipline to have the paradigm shift that allows one to become "financially savvy". The road to financial freedom is not easy but the general steps to get out of debt and build a solid future are actually quite basic - save more than you spend and invest for the future. They key is having the right attitude and be willing to have the right habits (like being frugal is not being a cheapskate). I feel that I have come to terms with my personal finances and am much more in control of my financial destiny than I ever was. Sure the recession has knocked my investments off their intended target, but thanks to being well diversified, in time I’ll make back those losses and then some.

No matter how much earn, we can all fall for the same personal finance traps. The key for high income professionals is to ensure that they realize this, learn good personal finance habits and not waste the opportunity they have. After all if our parents and their generations could make it earning much less than $50,000 a year – why can’t we given all the resources we have.

If you liked this post and read more on the journey to financial freedom then consider subscribing (free) via Email or RSS to get latest articles delivered directly to you.

Related posts you may enjoy:

~ America's Income and Wealth Inequality
~ The A to Z of good personal finance (Part 2: L to Z)
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~ How to deal with higher taxes

Wall Street Fat Cats Back in Town with Firms to Pay Record Salaries

andy@savingtoinvest.com (Andy) — Thu, 15 Oct 2009 04:33:00 +0000

Looks like the recession is over at Wall Street as the money comes pouring in. Many blame the current recession on Wall Street and it's over leveraging ways, so it is not surprising that those of us on "Main Street" and government officials in Washington are outraged that after seemingly such a short time and the billions in taxpayer bailouts that the Wall Street firms are paying such large salaries and bonuses.

Workers at 23 top investment banks, hedge funds, asset managers and stock and commodities exchanges can expect to earn even more than they did the peak year of 2007, according to an analysis of securities filings for the first half of 2009 and revenue estimates through year-end by the Wall Street Journal.Total compensation and benefits at the publicly traded firms analyzed by the Journal are on track to increase 20% from last year's $117 billion - and to top 2007's $130 billion payout. This year, employees at the companies will earn an estimated $143,400 on average, up almost $2,000 from the 2007 pre-recession and bailout levels.

The growth in compensation reflects Wall Street firms' rapid return to pre-crisis revenue levels. Even as the economy is sluggish and unemploymentt approaches 10%, these firms have been boosted by a stronger stock market, thawing credit market, a resurgence in deal making and the continuing effects of various government aid programs. The rebound also reflects growing confidence by some Wall Street firms that they can again pay top dollar for top talent, especially once they have repaid the taxpayer-funded capital infusions they received at the height of the crisis. So far, regulators and lawmakers have focused on making sure pay practices discourage excessive risk-taking, leaving to companies the question of how much is too much.

Many financial firms, however, say they need competitive pay packages, pointing to threats from non-U.S. companies, private-equity firms and hedge funds. Mr. van Praag, a Goldman spokesman, said the firm understands public sentiment over bankers' pay, but added: "The easiest way to destroy the firm would be if we didn't pay our people....Destroying a profitable enterprise would not be in anybody's interest." Goldman Sachs, one of the highest paying firms, also says employees have long had a stake in its long-term results because many are compensated in part with shares they can't touch for several years. Average compensation per employee at the firm is on pace to reach about $743,000 this year, double last year's $364,000 and up 12% from about $622,000 in 2007, according to the Journal analysis. The average American earns less than $50,000, so talk about the growing level of income and wealth inequality!

Related articles you may enjoy

~ The Rich Not Getting Richer After All - I Don't Think So
~ Why Even High-Income Earners Are Not That Far From The Edge of Poverty
~ How to Invest in the Stock Market via Stocks, ETFs and Mutual Funds
~ FDIC Going Broke and Why Bank Fees will Keep Rising
~ Will Obama's Budget Plans Help the Poor by Taxing the Rich?
~ My Rant on Obama & Wall Street Greed

An Extra $250 Social Security Stimulus Payment in 2010 for Retirees, Veterans and the Disabled

andy@savingtoinvest.com (Andy) — Wed, 14 Oct 2009 22:49:00 +0000

President Obama has proposed extending the 2009 economic recovery payment of $250 into 2010 by providing another payment of $250 to retirees,veterans and disabled people already receiving Social Security benefits. This additional payment will potentially be funded via the $787 Billion economic stimulus package and is expected to cost $13 billion in total.

"These payments will provide aid to more than 50 million people in the coming year, relief that will not only make a difference for them, but for our economy as a whole, complementing the tax cuts we've provided working families and small businesses through the Recovery Act," Obama said in a statement.

President Barack Obama is calling on Congress to quickly approve the $250 payments to more than 50 million seniors to make up for no cost of living increase in Social Security next year (according to the SSA which has cited negative inflation this year as the reason).

The new benefit would be $250 – or equivalent to a 2 percent increase in benefits for the average Social Security retiree beneficiary. Under the rules no person could "double dip" and receive a $250 Economic Recovery Payment through more than one program. Nor could they receive both an Economic Recovery Payment and the Making Work Pay tax credit.

The $250 payments would go to those receiving veterans benefits, disability benefits, railroad retirees and public employee retirees who don't receive Social Security. Like the 2009 $250 payment, the additional $250 social security payment will most likely be paid out by the SSA and not count as income for SSI. To date Economic Recovery Payments have been made to 55 million people including seniors, veterans and people with disabilities and totaled $13.7 billion. Most of the checks were mailed out in May 2009.

To receive the 2010 $250 payment, the beneficiary’s address of record must be in a valid US state or territory. Only individuals eligible for Social Security, SSI, Veterans, or Railroad Retirement benefits at any time during the months of November 2009, December 2009, or January 2010 may be eligible for the extra payment. The $250 payment will be delivered in the same way your current Social Security or SSI benefit is sent.

In addition to this legislative proposal, the IRS and the Department of Treasury will take steps this week to prevent reductions in the amounts that workers can contribute to IRAs, 401(k)s, and other aspects of tax-favored retirement systems in 2010 that some feared could result from negative inflation over the past twelve months.

I will continue to update this news item as it moves through Congress and more information is made available, and I encourage you to subscribe (free) via Email or RSS to get the latest news.

Related
~ Key Dates for Stimulus Payments
~ Stimulus Tax Breaks and Traps
~ 5 Personal Finance Tips For Smart Retirement Planning
~ Claiming Social Security Benefits Later Rather Than Earlier

The World's Best Companies Provides A Good List of US Stocks to Buy - AAPL, GOOG, AMZN, APA, COP, XOM, FLR, SLB

andy@savingtoinvest.com (Andy) — Mon, 12 Oct 2009 03:23:00 +0000

Business week recently released it’s annual world’s best companies list and as usual there are a number of US companies present, albeit a much smaller number than last year thanks to the recession and falling US dollar. The list is particularly relevant this year because it highlights the companies that made it through one of worst global financial climates, showing that they and their management are amongst the best out there. The table below (click to expand) shows the best US companies on the list:

What are some traits of the World's Best Companies? According to the article they are the ones that have a commitment to innovation, diversified portfolios, aggressive expansion, strong leadership, and a clear vision for the future. "In an environment of continuous disruptive change, companies that have rigorous strategic planning initiatives that allow them to see over the horizon…are far more likely to win than those that make it up as they go along," says Paul Laudicina, chairman of A.T. Kearney. He sees two important factors that are most likely to drive global economic performance in coming years: leveraging technology and innovation to enhance productivity, and demographic shifts such as graying populations.

One way I use the above list is to create a short list of quality companies that I would like to invest in; or buy an ETF or mutual fund that contains these stocks. From the list, here are the companies I like best and feel offer some great longer term potential.

Technology leaders and perennial investor favorites like Google (GOOG) (No. 2), Apple (AAPL) (No. 3), and Amazon.com (AMZN) (No. 17) still look like good buys as they continue to invest heavily in innovation, commanding large market share with new products even as consumer spending and confidence have declined sharply. I also like Microsoft (MSFT) and General Electric (GE) which I discussed in detail in the artcile: 5 stocks warren Buffet would buy

To play the energy boom driven by India and China, you can either buy stocks of companies that are primary producers - like Apache (APA), ConocoPhillps (COP) or Exxon (XOM). Or for a more diversified play buy the stocks of integated services companies - Fluor (FLR) and Schlumberger (SLB) that support the entire energy and commodity industry. Most stocks in this category are nearing or have passed 52 week highs, and if you think the globlal energy boom is set to continue (like I do) then buying these stocks for your portfolio is a must. After all they are amongst the best in the world.

I recommed you review the entire list because not only does it provide a catalog of great companies to invest in, it shows which industries and sectors are going to be the leaders in the 21st century

How to Save and Make Money with Credit Cards

andy@savingtoinvest.com (Andy) — Fri, 09 Oct 2009 04:10:00 +0000

This is a guest post by Mr Credit Card who is the owner of www.askmrcreditcard.com. Mr Credit Card started his site 5 years ago when he could not find a site that actually reviews credit cards and has compiled a comprehensive list of the best credit cards.

Firstly, I would like to thank Andy for giving me the opportunity to guest post here. Today, I'm going to show a few ways to save money using credit cards. However, to take advantage of this, you have to pay your bills in full every month. If not, then credit card issuers are taking advantage of you. Also, I just want to mention that credit cards aren't for everyone. Some people let their spending go out of control if they carry one in their wallet. For these folks, it is best to carry and pay with cash.

With that out of the way, let's figure out some ways to actually save money using credit cards. The reason why we can do so is because many credit cards give back cash rebates for using the card on regular purchases (it could also be in the form of reward points). The reason they could do that is because credit card issuers earn fees from merchants for every transaction in which a credit card is used and swiped through the system.

But first, it is important to understand how credit cards provide cash rebates. The standard way is to give their card holders a 1% rebate for every dollar that they spend on the card. But the better ones do better than that. The good ones pay more than 1% rebates (as high as 5% in some cases) on certain categories of expenses like gasoline, groceries, dining etc.

How Rebates Work

Increasingly, reward programs also give rebates when you shop online through the credit cards' shopping portal. Most credit card issuers have some type of shopping portal program. Here is how it works. Rather than say going to GAP.com to shop, you can go log on into your credit card account and and then go through to the site. By doing so this way, they are able to track your spending when you use your card. Discover Card, Chase, Citi all have some version of this. They compete based on the number of merchant partners that they can sign up for. At this moment, it appears that Discover Card probably has the most merchant partners.

There is another phenomenon going on the the cash back card segment and it is called rotating categories. In the good old days (pre 2008 credit crisis), many cards were giving away rebates at a 5% level. That proved to be unsustainable and so rebates have now fallen to 2-3% levels. Some cards still offer 5% rebates on particular items but only do so during certain times in the year. This is something consumers have to be aware of and they can take advantage of if they are savvy enough.

Once you understand how the cash rebate game works, now is the time to choose the best card that will earn the most rebates for yourself. The first thing you would have to do is to list down a list of all your expenses. You should probably break them down into categories like gas, supermarket, drugstore etc and mix and match the best cash rewards credit cards perhaps with gas rebate credit cards to really save some money.

You should also use other money saving techniques like coupon cutting. By using a manufacturer's coupon with a store coupon and a cash back card, you can save a lot on your grocery shopping.

Saving On Vacations
Instead of using credit cards to save on everyday expenses, you can also use them to save for your vacation. There are several ways to do this. One way is to get credit cards that lets you earn frequent flier miles. This strategy would work for folks who travel a lot with one particular airline. For example, if you always fly with Continental Airlines, you can always get a continental airlines credit card. Earning frequent flier miles with credit cards boosts your frequent flier points and you can save more by making use of airline alliances, transferring points to the airline which requires the least points for travel.

Another way is to get regular reward credit cards. This method will suit those who are not serious road warriors but would like to save money for their annual vacation. Reward cards allow you to earn points which can be exchanged for things like airline tickets, cruises, hotel rooms, gift cards and merchandise. For most travel rewards (based on calculations), you will end up getting a 1% rebate equivalent.

Savings Money on Business Expenses
Recently, Andy wrote a post about what he got for his home office set up. I would like to add that perhaps Andy should consider a separate business credit card to separate his business expenses. Many business credit cards offer perks like discounts and cash rebate on things like "office supplies". By doing so, Andy can save even more money and yet keep his business expense separate on his Quickbooks.

Conclusion - There are folks who have gotten into credit card debt and simply hate credit cards. But for most folks who are responsible, using credit cards wisely offers a way to save money and get some cash rebates and even free airline tickets.

Related:
~ Seven Sure Fire Ways For Students to Rack Up Debt and Ruin Their Financial Future (How to Avoid This Outcome)
~ Seven Ways to Avoid Banks Taking Your Money in Fees and Charges
~ Buy Now versus Interest Free or Pay Later (Deferred) Plans
~ Credit Card Reform: Penalizing the Good for America's Bad Personal Finance and Spending Habits
~ Breaking Down and Improving your FICO Credit Score

US Dollar Outlook for 2009, 2010 as Central banks and Investors Dumping Greenback in Favor of Euros and Yen

andy@savingtoinvest.com (Andy) — Thu, 08 Oct 2009 00:50:00 +0000

[Updated Oct 2009] “The world is changing, and the dollar is losing its status. If you have a 5- year or 10-year view about the dollar, it should be for a weaker currency.”

Worrying comments indeed if most of your investments are in the US and linked to the strength of the greenback. Following a loose monetary policy strategy (i.e. a low interest rate environment) foreign central bankers are acting on threats to dump the dollar in favor of the Euro and Yen. This is adding further further pressure on the greenback after its biggest two-quarter rout in almost two decades and signals that the currency won’t rebound anytime soon after losing 10.3 percent on a trade-weighted basis the past six months, the biggest drop since 1991.

Foreign Policy makers boosted foreign currency holdings by $413 billion last quarter, the most since at least 2003, to $7.3 trillion, according to data compiled by Bloomberg. Nations reporting currency breakdowns put 63 percent of the new cash into euros and yen in April, May and June, the latest Barclays Capital data show. That’s the highest percentage in any quarter with more than an $80 billion increase.

The dollar’s 37 percent share of new reserves fell from about a 63 percent average since 1999. America’s currency has been under siege as the Treasury sells a record amount of debt to finance a budget deficit that totaled $1.4 trillion in fiscal 2009 ended Sept. 30. Intercontinental Exchange Inc.’s Dollar Index, which tracks the currency’s performance against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, fell to 75.77 last week, the lowest level since August 2008 and down from the high this year of 89.624 on March 4. The index, at 76.104 today, is within six points of its record low reached in March 2008.

“The diversification out of the dollar will accelerate,” said Fabrizio Fiorini, a money manager who helps oversee $12 billion at Aletti Gestielle SGR SpA in Milan. “People are buying the euro not because they want that currency, but because they want to get rid of the dollar. In the long run, the U.S. will not be the same powerful country that it once was.”

However supporters of the US dollar say that Central banks’ moves away from the dollar are a temporary trend that will reverse once the Fed starts raising interest rates from near zero, according to Christoph Kind, who helps manage $20 billion as head of asset allocation at Frankfurt Trust in Germany. “The world is currently flush with the U.S. dollar, which is available at no cost,” Kind said. “If there’s a turnaround in U.S. monetary policy, there will be a change of perception about the dollar as a reserve currency. The diversification has more to do with reduction of concentration risks rather than a dim view of the U.S. or its currency.”

Sentiment toward the dollar reminds John Taylor, chairman of New York-based FX Concepts Inc., the world’s largest currency hedge fund, of the mid-1990s. That’s when the greenback tumbled to a post-World War II low of 79.75 against the yen on April 19, 1995, on concern that the Fed wasn’t raising rates fast enough to contain inflation. Like now, speculation about central bank diversification and the demise of the dollar’s primacy rose. The currency then gained 26 percent versus the yen and 25 percent against the deutsche mark in the following two years as technology innovation increased U.S. productivity and attracted foreign capital.

“People didn’t like the dollar in 1995,” said Taylor, whose firm has $9 billion under management. “That was very stupid and turned out to be wrong. Now, we are getting to the point that people’s attitude toward the dollar becomes ridiculously negative.”

Dollar Forecasts : The median estimate of more than 40 economists and strategists is for the dollar to end the year little changed at $1.47 per euro, and appreciate to 92 yen, from 89.97 today.

The growth of global reserves is accelerating, with Taiwan’s and South Korea’s, the fifth- and sixth-largest in the world, rising 2.1 percent to $332.2 billion and 3.6 percent to $254.3 billion in September, the fastest since May. The four biggest pools of reserves are held by China, Japan, Russia and India.

China, which controlled $2.1 trillion in foreign reserves as of June 30 and owns $800 billion of U.S. debt, is among the countries that don’t report allocations. “Unless you think China does things significantly differently from others,” the anti-dollar trend is unmistakable, Englander said.

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[Updated Sep 2009] US Dollar on the Ropes? It looks like the bears are out in force again when it comes to the US dollar with many saying that a global economic recovery, huge deficits and loss of status as the world's reserve currency spell doom and gloom for the once mighty greenback. This is reflected in the Dollar Index (DXY) which was below 80c. It has fallen 12 percent from this year’s high in March as U.S. authorities pledged $12.8 trillion to combat the recession. A recent bloomberg piece looked at what some of the leading money managers are saying about the prospects of the US dollar in the years ahead and unfortunately it was hard to find much good news to support dollar strength in the medium to longer term.

PIMCO, the world’s biggest manager of bond funds, said the dollar will weaken as the U.S. pumps “massive” amounts of money into the economy [in response to the financial and housing crisis]. The dollar will drop the most against emerging-market counterparts, Curtis A. Mewbourne, a Pimco portfolio manager, wrote in a report on the company’s Web site. The greenback is losing its status as the world’s reserve currency, he said. “Investors should consider whether it makes sense to take advantage of any periods of U.S. dollar strength to diversify their currency exposure.” Bill Gross, who runs the $169 billion Pimco Total Return Fund, is also warning the U.S. currency will fall.

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Per the previous update below, China, the world’s largest holder of foreign-currency reserves, and Russia have both called for a new global currency to replace the dollar as the dominant place to store reserves. Russian President Dmitry Medvedev last month ratified his call for a supranational currency by producing a sample coin after a summit of the Group of Eight nations. While there is still a way to go before this ever happens, the rumblings for a non-US based reserve currency are getting stronger by the week with the dollar as a percentage of global central banks’ foreign reserves falling to 65% from 73% in a few years, according to the International Monetary Fund. Asian currencies stand to benefit as the region’s economy grows and the dollar’s allure fades, said Rajeev de Mello, Singapore-based head of Asian investments at Western Asset Management Co., which oversees $473.4 billion. “We are positive on the Asian currencies against the dollar and think they will continue to rally,” de Mello said in an interview. “I do think the diversification of reserves is something that’s important and I think we’ll see some from China into other currencies and this will benefit as well Asian currencies and other emerging currencies.”

The U.S. government boosted spending and the Federal Reserve bought bonds to revive credit markets that seized up after financial companies posted $1.6 trillion in writedowns and losses, raising concern there is an oversupply of greenbacks. The U.S. budget deficit reached a record $1.27 trillion for the first 10 months of the fiscal year and broke a monthly high for July. Famed investor Jim Rogers, who said last year that he was shifting all his assets out of dollars and buying Chinese yuan because the Fed eroded the value of the U.S. currency. This feeling is backed by a number of money mangers who are advising clients to diversify out of the US dollars before central banks and sovereign wealth funds do the same because of concern government budget deficits will deepen, Gross said in June.

Billionaire Warren Buffett wrote in a New York Times commentary today that the dollar is under threat from the “monetary medicine” that has been pumped into the financial system. Enormous dosages of monetary medicine continue to be administered and, before long, we will need to deal with their side effects,” Buffett, 78, wrote. The “greenback emissions” will swell the deficit to 13 percent of gross domestic product this fiscal year, while net debt will increase to 56 percent of GDP, he said.

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[Update August 2009] It looks the rest of the world is getting tired of using the once mighty Greenback as it's reserve currency. Recent reports show that China and other emerging super powers have started seriously calling for the creation of a new global currency to eventually replace the US dollar. China, the largest foreign holder of US debt ($2 Trillion), is behind the current push for moving away from the global fiat currency because of frustration at their financial dependence on the U.S., with Premier Wen Jiabao this month publicly expressing "worries" over China's significant holdings of U.S. government bonds. President Obama was forced to publicly assure the Chinese that all is well. Because other nations continued to park their money in U.S. dollars, the argument goes, the Federal Reserve was able to pursue an irresponsible policy in recent years, keeping interest rates too low for too long and thereby helping to inflate a bubble in the housing market.

The appreciation of the dollar over the last few months was primarily due to a perceived flight to safety in US treasuries, which foreign investors and governments bought as other asset classes became more risky. However with all the trillions in stimulus spending, bank bailouts and other fiscal policy measures many are now questioning the impacts on the future value of the US dollar. In an ironic twist, should the local and global economy start to show signs of real improvement, the US dollar will most likely plummet as the "safety" trade unwinds. Case in point, as the stock market jumped 20% over the last 2 weeks on possible signs of a recovery, the dollar index (DXY), a measure of the greenback strength against a trade-weighted basket of six major currencies, dropped by over 10%.

There is not much do in the short term - the US dollar/debt is the only game in town for now, with few alternatives other than gold. But longer term and if you are mainly an equity investor you need to factor in that the fall of the US dollar is more likely than not. Unfortunately, the lower US dollar will also drive inflation domestically and reduce our consumer and corporate purchasing power. No one knows currency movements for sure, but your best bet is to ensure you have significant international diversification in your retirement and trading portfolio's.

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[Previous update] For most people the direction of the US dollar should matter. Whether the impact is direct (value of foreign holdings) or indirect (oil prices) it is important to understand where the US dollar is headed because of its effect on you. For me in particular it is important as I work/live in the US, travel overseas and have a significant part of my investment portfolio abroad.

Unfortunately over the last few years the dollar has been on a downward trend with little upward respite. The Dollar Index traded on ICE futures in New York, which tracks the dollar against currencies of our six largest trading partners has fallen over 15% in the past year. So is this down trend going to continue or will the dollar finally stand up and regain some of its lost value?

Before looking at the outlook for the US dollar, it is important to understand the key forces that drive currency movements.

Forces behind the dollar

Budget Deficit and Large import/export imbalance – The US runs a large budget deficit meaning that the value of our imports far exceeds that of our exports. To fund this deficit we need to continually sell US dollars to buy foreign currencies or repay debt. The increase in supply of US dollars to achieve this leads to a devaluation the currency. So as the deficit grows the dollar continues to weaken. A country like China on the other hand, exports significantly more than it imports. As a result, China will build up massive amounts of US dollars and US debt in its reserves (budget surplus) and will eventually sell dollars and buy other things (Euros, oil, gold) in order to diversify and get higher returns. As they sell their dollar holdings the US currency declines. Another factor driving the deficit is the tremendous cost to fund the wars in Iraq, Afghanistan and other places. As the country spends billions of dollars to maintain an overseas presence, we keep adding to our national debt and budget deficit.

Interest Rates and Economy– The fed has been aggressively lowering interest rates (and increasing the money supply) to keep the economy afloat after the sub prime and credit crisis. However the consequence of low interest rates and a faltering economy is that the US becomes much less attractive to foreign investors who can get larger risk free returns by putting money in higher interest rate counties like Australia and New Zealand (official interest rates there are around 7.5% compared to 3% here in the US). Lack of foreign investment in the US reduces demand for the dollar and results in the currency depreciating. This factor is probably the most influential in currency movements.

Speculation – This is when speculators bet that the economy, interest rate or other factors are going to continue to drive the US economy and currency down. This added pressure sets negative expectations and acts as an added (albeit unreal) force to keep the dollar down.

There are both benefits and drawbacks to a low US dollar. Our exporters become more competitive on a global level, companies overseas earnings are higher in US dollar terms and it helps the tourism industry. However we are currently being impacted much more by the negative effects of the lower dollar which has resulted in higher oil and commodity prices; and the continued erosion of the relative wealth of US residents in global terms. Worst of all it drives inflation as the cost of imported goods becomes more expensive.

See an updated article on the US dollar outlook here : US dollar update, outlook and opinions

What the experts are saying

Most experts are predicting the US dollar to stabilize over the medium term, but due to the above factors don't see any meaningful improvement in the near future. Here are some opinions from various sources:

Inflation is rising throughout the world due to dollar weakness, and the prices of such commodities as oil and corn have soared. The dollar has fallen 25% since 2002, and nearly 8% against the euro so far this year. As former Federal Reserve Chairman Paul Volcker noted last week, we are already in a "dollar crisis." Even the International Monetary Fund – typically the temple of devaluationists – is alarmed by the dollar's fall.

``The dollar has been coming under pressure versus the euro lately, which could be the start of a new trend,'' said Neil Mellor, a currency strategist at Bank of New York Mellon Corp. in London. ``The euro is being buoyed by the continued hawkishness of the European Central Bank.'' (Bloomberg.com)

"Look for the U.S. dollar to head toward its low against the euro this week if rising crude-oil prices fuel more concerns of a general rise in U.S. inflation. Inflation, always a gauge of a currency's value, has become an even bigger factor in foreign-exchange markets as investors fret over soaring oil prices and the implications beyond the cost
of gasoline." (Wsj.com)

"As the dollar's fortunes have become increasingly tied to inflation concerns...a firm break to the downside in oil prices will be needed to help the dollar find the momentum to strengthen," said Manuel Oliveri, a currency strategist at UBS.
There is a scenario in which a spike in U.S. inflation could help the dollar. Prices could rise so dramatically that the U.S. Federal Reserve would feel the need to shift its focus away from cutting interest rates to boost the economy and would instead put its attention on fighting inflation. Any signs of such a shift would lead to expectations that the Fed might start raising interest rates. Such expectations could boost returns on dollar-based investments, which would bring many investors back to the dollar. (Wsj.com)

"The dollar will keep sliding amid the slowing U.S. economy,'' said Michiyoshi Kato, a senior vice president of currency sales in Tokyo at Mizuho Corporate Bank Ltd. "Weaker data will force the Federal Reserve to lower interest rates further.'' We expect the dollar to remain under selling pressure as market participants' optimism over a notable upturn in economic activity gradually fades,'' wrote Derek Halpenny, head of currency research at Bank of Tokyo-Mitsubishi in London

"The Fed is telling us to not think in terms of easing [lowering interest rates],'' said Alan Ruskin, head of international currency strategy at RBS Greenwich Capital Markets. "That is the most important feature behind the dollar comeback....''

In conclusion and my opinion

From my research and reading the outlook for the dollar looks quite bleak over the next year due to various economic pressures. However as the economy starts recovering and the federal reserve starts tightening monetary policy (raising interest rates) the US dollar will start appreciating. This should start happening towards the end of this year and my view is that by the end of 2009 the dollar should be up 15-25% from current levels. As the US dollar, or greenback as it is called, recovers along with the economy we should see lower inflation and higher house prices. Best of all, oil and gas prices should start to fall as well.

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Employer Tax Credit Stimulus to Create New jobs and Lower Unemployment - Good Idea or Bad Policy

andy@savingtoinvest.com (Andy) — Wed, 07 Oct 2009 21:31:00 +0000

The Labor Department reported recently that unemployment reached 9.8 percent in September, the highest level since 1983, and that 10% unemployment is likely by early next year. With record unemployment and a need to ensure the economy doesn't fall back into a recession, the Obama administration is considering the addition of an employer tax credit to encourage companies to hire more people and create new jobs. The NY times reports that a proposed employer credit is gaining support among legislators and government officials grappling with the highest unemployment (and hence unhappy voters) in a generation. Small business, who are the largest employers in the country, are also firmly behind the idea of this kind of credit. But critics argue that this credit will encourage the creation of false "jobs" and in the longer term do more harm than good.

One version of the tax credit policy under review is to give employers a two-year tax break if they increased the size of their work force (i.e. added jobs) or added significant hours of work (for example, making a part-time worker full time). Employers would receive a credit worth twice the first-year payroll tax for each new hire, amounting to several thousand dollars, depending on the new worker's salary. The credit in the first year would equal 15.3 percent of the cost of adding an employee. In the second year, it would fall to about 10.2 percent. The policy is intended to encourage companies to start hiring again by making it cheaper to add new workers. Timothy J. Bartik, a senior economist at the Upjohn Institute for Employment Research who is working on the draft with John H. Bishop of Cornell, estimates that it would cost about $20,000 for each job created.

For example, hiring a worker might cost a small business $50,000 annually. But with the tax credit, the cost would fall to $42,350 in the first year, and then be $44,900 the next year. After that, the cost would return to $50,000. The credit would apply only to the portion of an employee's salary under $106,800. Lowering the cap further, however, could provide an even greater benefit to low-wage, unskilled workers. It is estimated that the credit could encourage the creation of more than two million jobs in the first year.

States have dabbled with similar tax credits in recent years, with mixed results. The federal government last tried this measure in 1977-78. During that period, employment - which had been soft from the 1973-75 recession - climbed at a record pace. One out of three jobs created during that period was attributed directly to the employer tax credit policy. But the permanence of those jobs was less clear, and some dispute how many of those positions would have been created eventually anyway. Supporters say that improvements upon the 1970s policy would increase its potency. These include better publicizing the credit; making it available even to concerns that are not making money, in the form of a direct payout to nonprofits and companies in the red; and distributing the credit quarterly so that companies see it sooner.

Critics of an employer tax credit dismiss the idea as corporate welfare and argue that businesses hire based on actual demand for their products, and a minor subsidy for adding an employee will not make up for the collapse in demand across the broader economy. "Why would a business hire a new worker?" Bill Rys, tax counsel to the National Federation of Independent Business, a small-business industry group, said. "They're hiring because they need to do work. Unless you have work to do, it's still an expense.

Barack Obama — like Senator John Kerry before him — proposed a job creation tax credit during his presidential campaign, and then in discussions for the stimulus package. The proposal was eventually killed because of concerns that employers would exploit the tax credit. For example, companies might close and reopen, claiming credit for all their "new" employees.

Even advocates acknowledge that, as with any tax incentive, employers and their accountants will take advantage of loopholes. But they argue that with strong rules — possibly by reducing the credit for "new" companies, or by requiring a company's overall wage bill to rise along with its work force — the proposal could minimize such abuse. Deficit hawks still worry about the cost of the proposal, and whether it would be politically feasible for Congress to phase it out once businesses have grown used to it.

The biggest fear among some, though, is that the proposal might unintentionally reduce job opportunities if it sits in Washington too long without passing. "Particularly for big employers, if they think a job creation tax credit is in the offing, it could certainly be an incentive to delay hiring," said Lee E. Ohanian, an economics professor at the University of California, Los Angeles. "That means it could have the perverse effect of actually prolonging the recession.

What do you think? Will this proposed credit help or hurt employees and/or employers? Click here to leave a comment.

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Smart Move: Claiming Social Security Benefits Later Rather Than Earlier

andy@savingtoinvest.com (Andy) — Tue, 06 Oct 2009 00:28:00 +0000

As a result of the recession, social security retirement and disability benefit claims have risen 50% more than expected. Bloomberg reports that the 150,000 extra retirees claiming benefits may add to the financial pressure on the entitlement program and that expenses would exceed revenue beginning in 2016, with the social security fund running out of money in 2037, four years earlier than their previous forecast.

People have always used early Social Security benefits as a safety net during recessions. This could be because they have been unemployed for an extended period of time or don’t want to go to back to school to train for a new career. They may also be facing heaving debt burdens that make them dip into their benefits earlier than planned.

But many thinking of claiming social security should carefully consider this choice, because the longer term costs could easily outweigh the short term benefits. According to the NY times, studies have shown that delaying your claim to social security benefits can results in higher payments down the road, but the majority of people don’t follow that advice, choosing instead to start benefits early. Why wait to collect what is rightfully yours?

That logic may sound reasonable now. But in reality, the bigger risk is that you will live to a ripe old age. If you can wait, think of the money you aren’t receiving during that period as a payment of sorts for an annuity that will pay a higher, guaranteed stream of income later, if you live a long time (or at least longer than your savings last), financial experts say. You can claim Social Security any time from age 62 to 70, but the longer you wait, the larger your monthly check. And many people come out way ahead if they wait at least until their full retirement age, which is different from the day you stop working for good. For people born 1943 to 1954, full retirement age is 66, and it creeps up for younger people.

What do you stand to lose by taking benefits early? Take those who are set to receive $1,000 a month at their full retirement age. If they sign up for benefits at age 62, they will collect only $750. But if they wait until 70, they will earn extra credit and receive up to $1,320 a month — nearly a third more! For people who choose to defer benefits until age 66, it generally takes about 12 more years to collect as much as if you started getting checks at 62. So you break even, so to speak, about age 78, according to Avram Sacks, a Social Security law analyst for CCH, a tax and accounting information service. “If you are in good health, and you expect to live to 78 or longer, then the advantage goes to the person who waits,” he says. “But that’s assuming we’re all prophets and we know what’s going to happen tomorrow, and we don’t all know.”

Based on the evidence above, it seems that everyone should wait until they are 70. But that is not the case. The answer depends on many factors, including when you stop working, how much you have in savings, whether you are healthy, whether you are married or single and whether your spouse earns more — or less.

For Singles, the optimum time to collect is when they reach full retirement age (70). This obviously does not apply to people who are already in poor health and probably won’t live past 78, give or take a couple of years. People who are still working should also defer.

Consider a single person with $200,000 in retirement savings returning 5 percent a year, as illustrated in the graphic. Instead of taking Social Security at age 62, he withdraws $19,000 annually until he turns 66. His savings will last until age 94, but he will still have $21,000 a year in Social Security benefits. If he claimed at 62, his savings would run out at age 87 and he would be left with only $16,000 a year in Social Security. So for people with significant savings who expect to live well into their 80s, it may make sense to wait longer.

When to take social security benefits for married couples is more complex because there are age differences, varying retirement dates and earnings and other factors to consider. In many cases, the higher-earning spouse should delay his or her benefits until age 70, while the lower earner begins to collect at age 62. This ensures that the surviving spouse will end up with the maximum amount of benefits for the rest of his or her life. Even if the higher earner died before age 70, the survivor’s benefits would be bumped up to what the deceased spouse would have gotten. But if the couple can afford it, should the lower earner wait until full retirement age? “It doesn’t matter because the goal is to get the most money for the person who lives the longest,” Ms. Brey, a financial planner, said.

To get a more precise idea about how to maximize your benefits, go to the Social Security’s retirement estimator, which uses your actual earnings record in its calculation. Also, if you are unsure of which direction to take, you should definitely see a financial planner who can help guide you through this complicated process. Either way, determining when to take social security benefits is a key aspect for those nearing retirement or planning for the future.

Speed Camera Tickets - Hard to Beat Local and State Government Revenue Raiser

andy@savingtoinvest.com (Andy) — Sat, 03 Oct 2009 21:28:00 +0000

Doh! I just received a speeding ticket in the mail after getting booked by an automated speeding camera while driving through Maryland a couple of weeks ago. After doing some research on automated speeding cameras I found that more and more states (90%) are using fixed speeding camera's because they are much cheaper (than a real officer) and a huge revenue raiser because they operate 24x7. Unfortunately there is little chance for me to get out of paying the ticket (it would cost more to go to court in Maryland) and almost impossible to dispute the radar's/camera's reliability and accuracy.

Speed Camra's are electronic devices operated by police to enforce speed limits. Speed cameras, also known as photo radar, monitor the speeds of passing vehicles and are programmed to photograph vehicles traveling a set amount above the speed limit. Unlike other methods of traffic law enforcement, speed cameras do not require offending motorists to be pulled over. There are two methods for deploying speed cameras. Mobile speed cameras are accompanied by police and moved around among various locations; fixed cameras are unaccompanied and photograph vehicles speeding at specific roadway locations. The speeding camera vehicles use radar to track driver speeds and are capable of scanning multiple lanes of the highway at once.

Another thing to note is that if you are the owner of the car, you get the ticket no matter who is driving. The tickets go to the owner of the vehicle instead of the driver, unlike regular speeding tickets manually issued by an officer. Many citizens have complained about this "flaw" in ticket camera systems across the country, but local authorities have decided that it's acceptable to do this to avoid the hassle of tracking down the actual violators. So think twice before lending your car to friends and family who have a penchant for fast driving.

There are however numerous websites that do provide tips on how to beat speeding camera tickets. Some that could possibly work include :

- Blurry or unclear photo of the driver is the one which gets the most cases dismissed. However some states allow a photo of the license plate to establish that your car was speeding – which makes it harder to use the bad picture excuse.

- States that use automated (fixed) speeding camera's must post warning signs at each camera-equipped intersection and "visible to traffic approaching from all directions," or at all the main entrances to town "including, at a minimum, freeways, bridges, and state highway routes." As noted on HighwayRobbery.net, most cities elect to post the intersections rather than the town entrances, and occasionally some forget to post all four directions at the intersection, especially when they have just made a new camera installation. There must be four signs even if there is only one camera monitoring one direction of traffic. This technicality may get you off paying the speeding ticket, but surveying the area for signs could take quite a bit of effort.

- Heavy Traffic. Though speeding cameras can scan multiple cars across multiple lanes, the older model ones do sometimes have limitations which could be used to argue one's way out of a ticket. However the only cases I read about that could use this old model excuse was if their or nearby car's were changing lanes (so had to accelerate), which may cause the older model camera's to mix up cars.

- The funniest (but could possibly work) were people wearing masks or buying special reflecting paint for their license plates that result in unclear pictures. This may be going to the extreme in my opinion, but people do strange things to avoid getting caught.

At the end of the day the best way to avoid a speeding ticket is not to speed. But it also pays to be aware of where speeding camera's are placed and by law states that use these devices have to let motorist know where they are located.

Have you got a speeding ticket via an automated speeding camera? Did you find a way to get out of paying the ticket?

Picture credit : amandabhslater

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6 Factors that Can Increase Your Life Insurance Premium Rates

andy@savingtoinvest.com (Andy) — Fri, 02 Oct 2009 04:02:00 +0000

There are a number of factors that come into play when calculating your life insurance premium. It would therefore be worthwhile to know exactly what goes into the calculation process and whether you can do anything to reduce your life insurance rate from your end. Insurance companies all have certain criteria that underwriter’s look out for when determining a person’s policy premium. When a company receives your application for evaluation, they are basically looking out for clues and reasons to indicate that your mortality rate is high. This in turn means a higher risk for them and increases the odds of the company having to pay out the death benefits.

The greater the risks, the higher the premium – it’s as simple as that. This includes age and sex of the policyholder among other things. Since these are factors that one can scarcely do anything about, let’s turn our attention to those that one can control. The factors that can increase your life insurance rates are:

Weight and obesity – Medical statistics suggest that the heavier you are, the higher the chances of chronic medical conditions and ill health. Being overweight leads to high cholesterol, blood pressure, and a propensity for heart attacks, diabetes and stroke. If you really want to lower your premiums, start exercising and losing those pounds. Obese people can end up paying more than 50 percent in terms of life insurance rates, so a diet regime will help create a healthier body as well as lighten the load on your wallet.
Smoking – Smoking is another big no-no where life insurance is concerned. Non-smokers pay lower premiums than smokers do and even if you only smoke two cigarettes a day, smoke a pipe occasionally or even chew tobacco, you will be lumped into the category of smokers according to most insurance companies. Stop smoking immediately and in as little as a year of being tobacco free, you could be eligible for lower non-smoker premium rates.
Alcohol abuse – If you are a heavy drinker or have been for years (even if you were an alcoholic once), insurance companies take all these details into consideration and hike up the rate of your policy. Alcohol abuse (like drug abuse) is considered highly detrimental to your health and most companies view this as a negative habit.
Medical conditions and family health – Any chronic health conditions or a medical history of any ailments and your insurance rates could shoot up. If you suffer from diabetes or cancer for instance, the odds of survival are lower and the costs of treatment and medication will also increase. On your application, you will be asked to list out your family’s medical history. And even if you don’t suffer from stroke, blood pressure, heart disease, obesity and the like, the risk factor is still considered the same if any member of your family suffers from it. While there is nothing much you can do about such a situation, you need to be truthful on your application irrespective. Also there are many insurance companies nowadays that specialize in such high-risk cases, so there is no need to give up on the idea of life insurance policy entirely.
Lifestyle choices – Take a closer look at your occupation and hobbies. Are they dangerous or life threatening in any way? From careers that involve high-risk situations such as war journalism, racing, sports, and hobbies like skydiving, bungee jumping, paragliding, rock climbing and others, all contribute towards increasing your risk level in the eyes of an insurance company. Different companies tend to view various occupations and hobbies differently and it’s important to shop around before deciding on your policy in such cases.
Coverage amount – Another factor that determines the premium amount on your policy is the amount of coverage you require and if there are any add-ons or options included in your policy. This is where online insurance service providers come in extremely handy as they can list out hundreds of insurance companies with multiple quotes so that you can compare prices and products and come to an informed decision.

Click here to get a free life insurance quote.

At this point, it is important to reiterate the fact that on no account should you lie on your insurance application in the hope of getting a lower rate. Factors such as smoking, drinking or drug usage will definitely increase the costs but this is still far better than finding out later that your policy is deemed invalid due to lying about these conditions.

This was a guest post from Denise Mancini of Accuquote. Her previous guest post on Protecting Your Mortgage and Other Assets with Term Life Insurance is also a worthwhile read if you want more on this topic.

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Nearly 50% of American Households Pay No Federal Taxes

andy@savingtoinvest.com (Andy) — Thu, 01 Oct 2009 04:09:00 +0000

Just when I thought I have seen most statistics, CNN brings us estimates by the nonpartisan Tax Policy Center, that In 2009, roughly 47% of households, or 71 million, will not owe any federal income taxes. What's more is that, some of these non-tax payers will get additional money from the government because they qualify for refundable tax breaks and credits under President Obama's economic stimulus program.

There are some clarifications in the article since people pay more than just federal income taxes. If you factor in payroll taxes, which support Social Security and Medicare, the percent of households with a net liability of zero or less is estimated to be 24% this year. Still that is a big number and likely to rise as unemployment and the number of retired workers increase.

The key reason why there is a zero-liability group at all is because the U.S. tax system is progressive. Those who bring in more money pay more than those lower down the income scale to support government functions such as national defense and social safety nets like Medicaid for those in need. That progressively can be dialed up or down.
President Obama falls into the latter camp. He has proposed increasing the income tax burden on families making more than $250,000 and individuals making more than $200,000, while offering new measures to reduce the tax bite for most Americans making less. One of Obama's budget proposals is to extend the 2001 and 2003 Bush tax cuts for everyone except high-income tax filers, which was the group that derived the most benefit from those cuts. As a result, under Obama's budget, he would keep the ranks of the non-payers higher than they would otherwise be.

I can understand that taxing the poor is not the best idea for a sustainable economy, but the fact that we have a growing proportion of people who won't pay taxes is concerning from when I think of the longer term impacts (like the availability of Medicare and Social Security). Further, it will make be think twice before supporting all the government sponsored stimulus programs which future generations and I will have to pay for with higher taxes.

What are your thoughts on this? Is the American tax system fair in taxing the rich or does it provide too much leeway?

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2010 First-Time Homebuyer Tax Credit Extension Approved and Expanded to Existing Home Owners

andy@savingtoinvest.com (Andy) — Tue, 29 Sep 2009 17:20:00 +0000

[Update Nov 2009] Following Congress approval, President Obama has signed off on the bill approving an extension of the $8,000 new home buyer tax credit until April 30th 2010. Here is a summary of the new and updated provisions and their impact on you if you have or are planning to buy a house:

- First-time home buyers who bought after January 1, 2009 (original date of credit term) and close before April 1 2010, would get the full $8,000, and the credit’s value would be reduced by $2,000 in each successive quarter until expiring at the end of 2010. This is an update from the original November 30th 2009 deadline. [Further extensions are possible if the housing market and unemployment get worse]

- Income qualification limits: The home buyers’ credit would be available to individuals earning up to $125,000, or $250,000 for couples, up from $75,000 for individuals and $150,000 for couples under the original rules.

- The approved extension would extend the credit, due to expire Nov. 30, to home purchases under contract by April 30, 2010, with borrowers allowed another 60 days to close the sale.

- *NEW* Current Homeowners looking for a new home could also qualify for a $6,500 credit if they have lived in their existing primary residence for at least five years

- Claiming the new home buyer credit: Unless you have already claimed it, the credit can now only be claimed when filing year's tax return in 2010) by filing an amendment using Form 5405. Qualifying taxpayers who buy a home this year before Dec. 1 can get up to $8,000, or $4,000 for married filing separately. If you and your spouse claim the credit on a joint return (both of you must meet the income and past ownership criteria to qualify), each spouse is treated as having been allowed half of the credit for purposes of repaying the credit. So the total amount claimable is still only $8000.

- The new $8000 credit can be used towards the down payment of a house bought in the credit qualifying period. You need to work with your lender to take advantage of this provision.

- Tax Credit Exclusions: Homes that cost more than $800,000 aren’t eligible for the credit and you must be over 18 years old to claim the credit. Those who sell their new home or stop using it as their main residence within three years would have to repay the credit. You cannot claim the credit if acquired your home by gift or inheritance OR if you acquired your home from a related person

- If two or more unmarried individuals buy a main home, they can allocate the credit among the individual owners using any reasonable method. The total amount allocated cannot exceed the smaller of $8,000 or 10% of the purchase price. Note: A reasonable method is any method that does not allocate all or a part of the credit to a co-owner who is not eligible to claim that part of the credit (I would go with 50/50 as a reasonable method if one person is not eligible for the credit)

- The purchase date is how you decide which credit you are eligible for. Only homes purchase from Jan 1 2009 to April 1st 2010 are eligible for the fully refundable $8000 credit. If you constructed your main home, you are treated as having purchased it on the date you first occupied it.

The terms for extending the home buyer tax credit are still being finalized by the IRS and I will continue to update this article and encourage you to subscribe (free) via Email or RSS to get the latest news.

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[Update Oct 2009] Senate votes 98-0 to Extend and Gradually Reduce Home Buyer Credit in 2010

Senate leaders have overwhelmingly agreed to extend and gradually reduce the $8,000 first home buyer tax credit through 2010. Deliberations will now move to the House of Representatives. Senate Majority Leader Harry Reid of Nevada and Senate Finance Committee Chairman Max Baucus of Montana, both Democrats, may seek to add the home buyers extension to legislation extending unemployment benefits that may be debated as early as this week, according to Regan Lachapelle, an aide to Reid. More than 1.2 million borrowers through Oct. 9 have claimed almost $8.5 billion of the $13.6 billion set aside for “first-time” home buyer tax credits this year. The program is aimed at easing the worst housing slump since the Great Depression and has been credited with boosting the economy and stock markets over summer. See the previous update below for the various bills under consideration to extend this tax credit.

Lawmakers are under pressure from real estate agents, mortgage brokers and homebuilders to extend the $8,000 credit before it expires Nov. 30. However, they are also facing pressure from governance groups and recent IRS reports claiming widespread fraud around claims for this lucrative credit. The Internal Revenue Service has identified 73,799 claims totaling almost $504 million that may not be from first-time homebuyers. They also found that 582 taxpayers under 18 years old and ineligible to buy a home claimed almost $4 million in credits. Children as young as 4 years old received the credit, Treasury Inspector General for Tax Administration J. Russell George told a House panel.

The bill to extend the credit contains the following provisions:

- First-time home buyers who close before April 1 would get the full $8,000, and the credit’s value would be reduced by $2,000 in each successive quarter until expiring at the end of the year.

- The plan would extend the credit, due to expire Nov. 30, to home purchases under contract by April 30, 2010, with borrowers allowed another 60 days to close the sale, according to a person familiar with the details of the agreement.

- Existing Homeowners could qualify for a $6,500 credit if they have lived in their primary residence for five years

- The homebuyers’ credit would be available to individuals earning up to $125,000, or $250,000 for couples, up from $75,000 for individuals and $150,000 for couples under the current law.

“Relative to current law, this is better. But it’s worse than people are expecting,” said Tom Gallagher, head of policy research in the Washington offices of International Strategy and Investment Group, an independent research firm. “This is a four-month extension and a nine-month phase-out.”

The proposal was intended to counter one by Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, and Senator Johnny Isakson, a Georgia Republican and former real estate agent, to extend the full $8,000 credit through next June and to expand it to all couples earning $300,000 or less. The Baucus-Reid proposal would continue limiting the benefit to first-time homebuyers, Lachapelle said.

The terms for extending the homebuyer tax credit are still being negotiated. House Speaker Nancy Pelosi, a California Democrat, is waiting to see the final Senate agreement before deciding whether to support it. “Generally, we do support extending it,” Pelosi spokesman Nedeam Elshami said. “But it’s premature to say anything until we see what action the Senate takes.”

I will continue to update this article and I encourage you to subscribe (free) via Email or RSS to get the latest news.

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[Updated Oct 1st] Given it's success in stabilizing the US housing market, Congress is considering extending the first-time homebuyer tax credit for up to a year to further boost the real estate market. The $8,000 first-time homebuyer tax credit - covered in detail here - runs through Nov. 30. Some lawmakers also want to extend the amount of the credit to $15,000 and want the extension broadened to include all homebuyers.

The $8,000 tax credit (funded under Obama's 2009 economic stimulus program) to qualified first-time buyers has directly resulted in 357,000 home sales between Feb. 17 and Sept. 15, data released yesterday show. Thus far, 1.4 million taxpayers have claimed the credits, the IRS reported. Nearly 1 in 5, or 18 percent, of prospective first-time homebuyers who participated in a Zillow survey said extending the tax credit would be the primary influence on their decision to buy a home before the end of 2010.

Realtors, bankers and homebuilders have joined in the push, starting a campaign that encourages Congress to extend the program for one year with the tag line: "Don't Let America's Real Estate Recovery Expire." Executives including Fannie Mae's Michael Williams and Hyperion Partners LP's Lewis Ranieri have attributed improvements in home sales and prices to the credit, and Isakson said he is worried the market may suffer without it. White House spokesman Robert Gibbs told reporters today that President Barack Obama's economic team is looking at the tax credit and "evaluating the impact" on new home sales.

The extension of the $8,000 U.S. homebuyer tax credit is gaining support in the Senate as bill sponsor John Isakson said he is rallying lawmakers to continue a program that helped boost home sales by more than 1 million. Isakson's legislation would extend the program through the end of 2010, almost double the credit to $15,000 and remove restrictions that prohibit individuals who already own homes or earn $75,000 - $150,000 for couples - from getting the tax break. The bill, first introduced in June, failed in a 47-50 Senate vote in August.

There are over 15 bills in congress related to the housing credit with the latest introduced on Sept. 17, that's likely to zip through the House and quickly move to the Senate. House Ways and Means Committee Chairman Charles B. Rangel (D-N.Y.) sponsored the bipartisan Service Members Homeownership Tax Act (H.R. 3590), which would extend the credit 12 months for thousands of military, Foreign Service and intelligence agency personnel who have been posted abroad in 2009. Here's a summary of the other bills:

Senate Bill S1230 – the Home Buyer Tax Credit Act of 2009 – introduced by Senator Johnny Isakson (R-GA), proposes a non-refundable tax credit up to $15,000, that can be split equally over two years, for all primary residence purchases – not just purchases by first time home buyers.

House Bill HR 2619 introduced by Representative Kenny Marchant (R-TX) proposes to extend the existing $8,000 tax credit to July 1, 2010 and add a tax credit of up to $3,000 for homeowners who refinance.

HR 2606 – the Home Buying Credit Expansion Act introduced by Representative Eddie Bernice Johnson (D-TX) proposes to remove the first-time home buyer requirement and would allow allowing all principle residence purchases to qualify for a tax credit. The bill would also extend the original bill through Jan 1, 2010.

HR 2801 – the Home Ownership Move the Economy (HOME) Act introduced by Representative Howard Coble (R-NC) is similar to S1230 discussed above but would extends the credit to Jan 1, 2011.

Critics who oppose extending the first home buyer credit say that all the credit is doing is shifting future demand closer to the present. This is just hiding the fundamental issues with the housing market which is still facing record foreclosures and under severe price pressure in a number of area's around the nation. The cost of extending the credit is also substantial with Zillow projecting 1.86m homebuyers stand to take advantage of the program. And, if all buyers took the full tax credit, extending the program could cost an additional $14.86bn - which would lead to higher taxes down the road in order to recoup the credit costs. This makes the credit a hard sell politically given the federal budget deficit is already wallowing in a record amount of red ink

As discussed before, the challenge in extending the home buyer credit before December 1st is Congress's heavy load of higher-profile, pressing issues (like health-care reform) that will get attention before anything else. However the extension of the credit has gained a lot of media attention and more likely than not we will know if the credit is extended or not by the end of next month.

Related Posts:
~ Successfully Buying my Home - A Real Life Journey
~ Getting Help with Home Foreclosures as Filings Continue to Rise
~ Protecting Your Mortgage and Other Assets with Term Life Insurance
~ Got a Headache Yet? If Not, Then Get a Mortgage and Buy a Home!

How and Why to Buy Treasury Inflation-Protected Securities (TIPS)

andy@savingtoinvest.com (Andy) — Mon, 28 Sep 2009 00:12:00 +0000

With double digit inflation looming on the horizon thanks to the extraordinary increase in the money supply from all the government spending on stimulus and bailouts, many investors are rushing into purchasing "inflation protection" via Treasury inflation-protected securities (TIPS). These securities are essentially government-issued bonds whose principal grows with rising inflation and pay a fixed interest rate every six months, known as a "coupon," similar to ordinary Treasury's. But unlike Treasury's, TIPS are indexed against the Labor Department's consumer price index (CPI). So when CPI - the measure of inflation - rises, the coupon payments of TIPS and the underlying principal automatically increase. Conversely, With a fall in the index, or deflation, the principal decreases. But rather than actual inflation, it is the expectation on inflation that drives the demand and price for TIPS. Such expectations could drive TIPS prices higher, thereby shrinking yields, since price and yield move inversely for bond securities.

TIPS are issued via government run auctions in maturities of five, 10 and 20 years. When the TIPS bond reaches maturity, the inflation-adjusted principal is returned to investors. If deflation were to occur, the adjustments to the principal would be negative, though a TIPS bond held to maturity will never return less than its original principal.

A plain-vanilla 10-year Treasury currently yields about 3.5%, while a 10-year inflation-protected security yields about 1.6%, before inflation. The yield gap between 10-year TIPS and Treasury's, now about 1.8 percentage points, is called the break even rate and implies an expected annualized inflation rate of about 1.8% over 10 years. If inflation averages more than 1.8% over the period, then TIPS will outperform standard Treasury's. The lower the break-even rate is, the easier it is for TIPS to outperform the regular variety Treasury.

So far this year the WSJ reports, that more than $17 billion has poured into funds that invest in TIPS, according to estimates from equity research firm Morningstar. That compares with estimated net cash inflows of almost $10 billion for 2008. Their popularity reflects worries that massive U.S. government spending will eventually lead to high inflation, which could erode the value of stocks and ordinary bonds. Indeed, many TIPS have been bid up to prices exceeding their face value.

You can invest in TIPS in three primary ways – Directly or through Mutual or Exchange Traded funds.

Buying Individual TIPS Directly: Investors can buy TIPS directly from the U.S. Treasury at TreasuryDirect.gov without incurring brokerage fees; The bonds can also be bought from a bank or broker, which may charge a transaction fee (use Zecco to trade for free). One downside of buying directly: Gains to the principal aren't distributed until maturity, although taxes are due annually.

TIPS mutual funds: Actively managed TIPS funds give investors diversification, since the portfolios often hold bonds with various maturities. As with all mutual funds, they charge management fees, although many are low. Gains are distributed to investors' accounts regularly, instead of at maturity.

TIPS exchange-traded funds: ETFs are index funds that can be easily and quickly traded on an exchange link stocks, a key advantage over traditional mutual funds, which take longer to get in and out of. ETFs typically offer the same advantages as mutual funds, and their fees may be lower. However if you want to make regular contributions without paying fees then a mutual fund is a better way to invest.

There are a variety of funds that invest in TIPS and a handful of exchange-traded funds. For a full listing and comparison of TIPS Funds, check out Morningstar's fund reviews. Popular TIPS mutual funds are provided by Pimco and Vanguard (of which I own some). TIPS are historically cheap, yielding a real, after-inflation return nearing 2%. Not a bad return in the current environment for an ultra-safe investment that can protect you against future inflation.

Tax Considerations

TIPS are exempt from state and local taxes – but are subject to federal taxes. You're not buying these for tax efficiency, you're buying because you're scared of inflation. Many planners recommend that individual investors hold TIPS in retirement accounts, particularly if the client is in a higher tax bracket.

Another tax consideration to keep in mind: You can defer interest on Treasury bonds for the life of the bond, which means you can earn interest for up to 30 years without paying income taxes on that interest. But the interest on TIPS is taxed every year, so you're best off holding TIPS in a tax-deferred account like a 401(k) or IRA.

Like any investment TIPS may shield investors from inflationary fears but they can lose value if inflation stays at current low levels longer than some investors expect. Alternative inflation protection investments to TIPS include commodities like gold) and internationally focused equities.

Job, Home and Stimulus Tax Breaks and Traps in Difficult Financial Times

andy@savingtoinvest.com (Andy) — Fri, 25 Sep 2009 03:11:00 +0000

In these tough economic times with many families struggling to make ends meet and the threat of unemployment looming the last thing people want to think about is taxes. However, it is precisely at the this time, with all the government subsidies on offer covering unemployment to housing that people need to realize what tax breaks and deductions they are entitled to and what tax traps they need to avoid. These include:

Job Loss. Severance pay and unemployment compensation are taxable. Payments for any accumulated vacation or sick time also are taxable. You should ensure that enough taxes are withheld from these payments or make estimated tax payments to avoid a big bill when your taxes are due in the subsequent year. On the flip side, you may be able to deduct certain expenses you incur while looking for a new job, even if you do not get a new job. Expenses may include travel, resume and outplacement agency fees. Moving costs for a new job at least 50 miles away from your home may also be deductible. Access more career tools, advice, and information via a FREE Monster account.

Employer 401K plans: If you lose your job or your employer goes under you still have to abide by the tax rules related to IRA and 401K plans. Generally speaking, if you withdraw the funds before you reach eligible age, and do not roll it over into another qualified retirement plan or Individual Retirement Account (IRA) within 60 days, that amount will be taxable income in the year in which it is withdrawn. You may also have to pay an additional 10% tax on those early distributions. To avoid any additional taxes or penalties make sure you “rollover” your entire 401K into another qualified retirement plan or traditional IRA within 60 days.

Foreclosure and Home Loss: Normally, mortgage debt owed to a financial institution that is cancelled or forgiven (e.g. in a short sale) is taxable. However, under the Mortgage Forgiveness Debt Relief Act of 2007, taxpayers generally can exclude income from the discharge of debt on their principal residence or mortgage restructuring. As an example suppose you borrow $300,000 to purchase a home and default on the loan after paying back $50,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $250,000, which generally is taxable income to you. However, under the new forgiveness debt relief act, you will not have to pay tax on this amount. This exception does not apply to second homes, vacation homes or credit cards. Further, personal losses from the sale or foreclosure of personal property are not deductible. Don't Lose your Family Home. 95% success rate in matching you with loan modification firms - Act Now!

Tax Hardship: If you cannot pay your taxes by the April 15 deadline, don’t panic. You should still file your return by the deadline and pay as much as you can to avoid penalties and interest. You also should contact the IRS to discuss your payment options at 1-800-829-1040. The agency may be able to provide some relief such as a short-term extension to pay, an installment agreement or an offer in compromise. In some cases, the agency may be able to waive penalties. If you can’t resolve your tax problem with the IRS then contact the Taxpayer Advocate Service (TAS), an independent organization within the IRS, whose employees assist taxpayers experiencing economic harm or who are seeking help in resolving tax problems that have not been resolved through normal channels. Get a Quick Refund with CompleteTax!

Stimulus Tax Rebate: If you had a change in income, a birth or adoption or failed to receive the stimulus payment in 2008, you may be eligible to receive the recovery rebate credit. The maximum credit is $1,200 for a married couple who earn less than $150,000. There also is a $300 credit for each qualifying child age 16 and younger. This is in addition to the 2009 and 2010 working tax credits The recovery rebate credit will add to the amount of your tax refund or lowers the amount of taxes owed.

The full tax impact of a job loss, debt forgiveness and other items discussed here depend on your individual facts and circumstances. Always do you own research and refer to the IRS website for more information.

Related:

~ Updates & Taxes on the 2009-2010 Economic Stimulus Credits and Payments
~ Unemployment Health Benefit Extensions
~ Food Stamp Stimulus Payment Boost
~ No Second or New Economic Stimulus Package in 2009. But More than Likely in 2010 or 2011.

2010 Tax Brackets and Standard Deduction Changes

andy@savingtoinvest.com (Andy) — Tue, 22 Sep 2009 21:04:00 +0000

As the 2009 tax year draws to a close, estimated figures for 2010 tax brackets are coming to light. With low inflation and a slow economy, there aren't that many changes from the 2009 tax brackets. August Consumer Price Index (CPI) data released recently by the Bureau of Labor Statistics (BLS), used by the IRS in calculating 2010 tax parameters, has been reviewed by many tax experts and organizations with consensus estimates showing that the personal exemption amount, standard deduction, federal income-tax brackets and many other figures will barely change next year, Here are some notable changes reported which are important to factor into your 2010/2011 tax planning and setting of 2010 employer withholdings:

- The personal exemption ($3,650) will remain unchanged for this year, along with the $5,700/$11,400 standard deduction for most taxpayers (except for a $50 increase for heads of household filers). This marks the first time that no increase in these parameters has taken place.

- Due to low levels of inflation over the last year (0.2%), most workers won't receive as large an increase in take-home pay in January 2010 as they did last January given the automatic inflation adjustments (assuming pre-tax wages stay the same).

- The annual gift-tax exclusion of $13,000 also won't change. This means a person can give away as much as $13,000 each to anyone he or she wishes without any tax considerations. Many wealthy people take advantage of this provision each year as part of their estate-planning strategy. One can give away even more than the exclusion amount by paying someone else's tuition or medical bills, but must make those payments directly to the medical or educational provider.

Indexing brackets lowers tax bills when there is inflation by including more of one's income in a lower bracket, such as the 15% rather than the 25% bracket. The lack of change for 2010 creates a level playing field for taxpayers from all brackets, but those with high incomes actually stand to benefit in 2010 because "stealth taxes," those that don't involve changing tax rates, are being phased out. Among them are limits on itemized deductions and personal exemption amounts.

The August CPI figure is a key statistic used by the IRS in calculating important tax parameters for tax year 2010, which are officially released in late fall. I will provide an update when the figures are available - so ensure you subscribe (free) via Email or RSS to get the latest updates. (Click on Graphic to Expand)

Taxpayer savings from inflation adjustments can vary tremendously, depending on an individual's circumstances. A married couple filing jointly with total taxable income of $100,000 should pay $12.50 less in income taxes in 2010 than on the same income for 2009, compared with a $312.50 savings between 2008 and 2009. A single filer with taxable income of $50,000 should owe $6.25 less next year due to the adjustments, compared to a $156.25 savings with significantly higher inflation between 2008 and 2009.

Sources: WSJ ,The Tax Foundation

Related Posts:
~ Simplifying 401K and IRA Rules Around Automatic Enrollment, Unused Vacation Contributions and Rollover Payments
~ Can't afford to pay my taxes! What happens if I file late and can I get an extension
~ Updates & Taxes on the 2009-2010 Economic Stimulus Credits and Payments
~ Capital Gains and Losses : Tax Facts and Figures
~ Where to Invest $50,000 - Stocks, Gold or Real Estate

Successfully Buying my Home - A Real Life Journey

andy@savingtoinvest.com (Andy) — Mon, 21 Sep 2009 04:01:00 +0000

Like me, a good friend of mine recently bought a house after a long and arduous search. In talking with him I thought his journey to buying a house would provide some timely advice for those in the market to buy a house (hurry before the new home buyer credit expires), or for those who can relate when they bought their own home. He was kind enough to share his story with real numbers. There are some great learning points here when or if you are already looking to buy a place in today's tough housing market.

Recently my wife and I got married, and for us this was an easy decision. A harder decision was working out where we were going to live and how we wanted to go about becoming financially secure. I have jotted down some of the experiences that we went through recently that may enlighten and assist you in the process of buying a home of your own

Firstly we had to decide where we wanted to live. For me I didn’t care too much but my wife certainly did. She had an area picked out near her parents and family and friends. While it was not a deal breaker for me where I lived, I still wanted to be able to access my family and friends without having to make it a day trip. We ended up compromising on a new development nearer her family, but still very accessible to the places I wanted to visit. [Editors note - He knows what it takes to keep a happy marriage!]. While not important to us currently, we do want to have kids in the future and so had factored in proximity to train stations, parks and good schools.

Our next step was to decide what type of place we wanted to live in. After living in an apartment during the early days of married life we wanted to live in a stand alone/single family house. Some people are happy to live in an apartment and there are advantages to that like little or no yard maintenance. However, for us we wanted some space to bring up a family so a house with a reasonable backyard was our preference.

The next item for us was research. I cannot stress how important this has been and how much the Internet helps. We contacted a few local real estate agents and were on their mailing lists (we didn't pick a single one initially, though they all tried to lock us in!). We subscribed to all the well known realty web sites and every second night we would be on the web looking at new places. We didn’t set a tight limit initially as we wanted to get a feel for what places around the area were worth. So our range was $400,000 (something that was derelict and in a poor location) to $700,000 (something that we knew we would never be able to really afford). What it did give us was an idea about what price gave you what features.

Generally we found that in the area we were looking $500,000-$550,000 was mostly a knock down job (i.e. needed a lot of work). These were places rented out to tenants who didn’t seem to care about the place and the owners were happy to let it run down. The house would also be in a poor location, i.e. on a main road and subject to a lot of traffic issues.

$550,000-$600,000 would fetch you a place that may have been in a solid area but the place would require moderate to extensive repairs. Alternatively you could get a well kept house with moderate to low repairs but in a poorer area. $600,000-$650,000 would give you either a good location and well kept house or a great location (water glimpses is the term used by local real estate agents) and a place that would require moderate repairs. $700,000+ would give you a great location (water views) and a decent house; location generally spiked the price from there.

We did this research over 6-12 months and had a feel for what things were worth after about 6 months. The reason I had added the extra 6 months was due to the market being extremely volatile and the economic outlook bleak. We were also watching interest rates closely, since every quarter percent drop would save us thousands over the life of the loan and make homes out of our range affordable. During this time, clearance rates (number of homes sold) for the areas we were looking in dropped about 20% to 40%. However, in the areas we were looking at, clearance rates were still above 65%.

With changing interest rates we needed to set a limit that we could afford. Our thoughts were that we would aim for a good block with a house that needed moderate to significant repairs. (I classify $20,000 as a moderate repair budget and $50,000 as significant). We developed a sliding scale to factor in the rising interest rate impacts, which would be partially offset by our increased savings over that time. If we found a place we loved early in our search our top price would be $560,000 and later on our top price would be $580,000. However with more time to save, our top range would reach $600,000 in a year.

The approach help us greatly when looking at places. There were a couple that were outside our top price, but we kept an eye on them knowing that if they didn’t sell, as the months would go on, it might come down a little due to lack of interest and fluctuating interest rates, and we would have more money as we kept saving for a deposit.

Our eventual home first came on the market with a listing price of $540,000. From the pictures on the Internet it looked like it could be worth more $540,000 place so we went to take a look. (Tip : A big help here was to go to open homes, even again if it is not what you want, it gives you an idea of what you get for your money based on market supply/demand).

Looking at this place in person confirmed our view that it was worth much more than $540,000 and so we were very interested. If the place sold for less than $550,000 it would be a bargain. So going back to our research we looked at what nearby places were initially listed for and what they sold for, and also looked at the selling agents’ history. We found out that this agent almost always undervalues a property. This is to attract interest and on the first open home there was plenty of interest.

Our initial thoughts were that this place should have been listed for around $580,000. A place two doors up in better repair went for $630,000 only a few months ago. We guesstimated that we would need about $50,000 for repairs and worked back from the $630,000 to get a price we thought we would need to pay.

The place was up for auction and we asked the selling agent what price would take it off the market. The agent said if they got a high $580’s offer the owners would accept an offer and sell the place. But at the time we could not afford that, again using our sliding scales we kept to our budget. The place of your dreams can turn into a nightmare if you are up to your eye balls in debt. It ruins the feel of your new home and puts unnecessary stress on your relationship. We decided that we would hold off but told the agent we were keen on the place and if any offers came in then to let us know.

Over the weeks we kept in constant contact with the agent to see if there were any offers on the property and if the sellers had lowered their asking price (after all the housing market was in free fall!). The agent though was playing games about how many contracts went out to interested people. But we felt that maybe there was really only one or two people out there ready to buy that wanted this place.

So we took our chances, got a private home inspection/appraisal done to see what the state of the house was and if we could use any home repairs as a negotiating point with the seller. Sure enough the reports came back saying that there was about $50,000 worth of repairs needed. The reports always sound worse then they are, (this is my opinion anyway) for the inspection companies to cover themselves. So armed with this knowledge we informed the agent of the required repairs.

The vendor still wanted high 580’s a price we could not go to and that the seller would now sell the house via an auction. So we decided that we would go to the auction and see really what the market is saying. There are good and bad things about an auction. The good thing is that it is all in the open. No matter how many sales you go through, you will never know if/when the agent is telling the truth and when there is a little bending of that truth. With an auction it is no longer in the agents’ hands. The people interested have to sign up and you can see really what bids are out there. The bad thing about an auction is that it is stressful and you need to be able to provide a 10% deposit on the day. The agent will generally accept a personal cheque.

We went to the auction and eventually had our top bid of $570,000 accepted. A great feeling which you have to go through in person to understand! Our research gave us the knowledge to know what the place was really worth and our discipline and sliding scale approach ensured we could realistically afford the place.