Saving to Inve$t

A Saturday Interview with No Debt Plan - From Personal Finance to Blogging to the Future

2009-07-11T00:03:00.002-04:00

No Debt Plan is about getting and staying out of debt with a plan. Kevin, the author, is passionate about budgeting, saving for the future, and using goals to reach financial freedom. You can subscribe to his blog by RSS or Email.

This interview is part of a feature he’s developed called Subscriber Swap Saturday. The basic idea is to get the subscribers of one blog to subscribe to the other blog for at least a week, just to try it out. After a week if you don’t find that blogger’s content enticing, drop it by unsubscribing with no cost or obligations. The hope is that over time you will find several writers that you weren’t familiar with who provide meaningful content to you. You can read more about Subscriber Swap Saturday at his get out of debt blog, as well as his interview with me.

1. If you go rewind the clock back 3 years, what personal finance decisions would you do differently?

Three years ago I was just about to change jobs - and I would have told myself to stay the course. I would have also been on the 6 month countdown to our wedding. We didn't have an extravagant event, so no changes there.

The real change would probably come two years ago when we bought our home. Just like everyone else out there I am wishing we had waited - but not necessarily just for financial reasons. I wasn't ignorant enough to think that home prices only went up. Not at all. We even thought we might want to stay here for a while, but the call to move closer to our aging parents is really pulling on our hearts these days. Being not even two years into the mortgage doesn't make that easy even as we pay it down with additional payments.

2. What are your favorite personal finance resources out there?

I like Money Magazine for the variety it offers. It isn't too academic - which some might see as a flaw - but it does hit on the main points month after month. For $12 or whatever it is a year I don't think you could find anything better in the "real" publishing business. In terms of blogs I love too many to mention. Ramit Sethi's IWillTeachYouToBeRich.com and JD Roth's Get Rich Slowly are a few of my many, many favorites.

3. Which is likely to make you financially free the fastest - luck, hard work or smart planning? Why?

A combination of the last two. Hard work does pay off, but smart planning makes hard work go much further. It's the difference between A.) planning to build a brick building by hand and carrying the bricks individually from the quarry to the build site one by one and B.) using a wheelbarrow to move a large pile of bricks to the job sit in batches.

I'm not sure that is the best analogy, but I hope the point is made. Smart planning leverages hard work for superior results. You can plan really well, but if you don't have the effort to back it up you will not see results. The opposite is true. If you're working hard in the wrong direction it isn't going to do you much good.

4. From a blogging perspective, what have you found the best in terms of creating revenue and increasing readership of your blog?

In terms of revenue I am completely shooting in the dark. I avoided ads for a long time which turns out to be a silly decision. You might as well have ads the entire time - readers get used to them. Now that I've added them my income, naturally, has increased.

I've been trying to increase my readership in two ways. First, doing things like these interviews gets more exposure for both bloggers. Here's to hoping your readers like my blog and come visit! Second, I am trying to increase the number of guest posts I submit to "big" blogs. The more exposure, the better.

5. Where do you think the American economy will be 5 to 10 years from now in a global context?

Let me start by saying that I have no idea -- I'm not an economist. I would say America will not the powerhouse it currently is in the world economy. I see so many problems in our country -- looming deficits that have to be paid back, the devaluing of the dollar, sky-rocketing health care costs, social security and other government programs running out of money. We've got a lot on our plate.

That having been said America won't go quietly into the night. Our nation is built on innovation. And much of our "decline" will be attributed to the rise of other countries like China and India. China and India are both four times our size in population. As they continue to modernize and those consumers start spending money... look out. Talk about a potential for a hot economic region.

But as those countries go up, even if we hold our current position, we will drop back a little bit. I hope our leaders can see the errors in their ways and will clip spending to eliminate the deficit quickly.

...I'm not holding my breath.

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Food Stamp Stimulus Payment Boost Actually Working by Helping Millions of Poorer Americans

2009-07-08T23:33:00.002-04:00

The 2009 economic stimulus package, primarily aimed at the top of the economy - supporting banks, car companies and corporate workers, also gave a smaller bonus to people on the bottom end of the economic ladder - the more than 32 economically poor million Americans who rely on food stamps. That's one out of 10 Americans, an all-time record high. Officially known as the Supplemental Nutrition Assistance Program (SNAP), the government boosted food stamp payments by an average of 13.6% (in effect from April 2009). For a family of four receiving the maximum benefit of $588, the amount would increase by $80, to approximately $668.

Nationwide, enrollment in the food stamp program surged in March to about 33.2 million people, up by nearly one million since January and by more than five million from March 2008. In a recent research report, Pali Capital Inc. estimated that food-stamp spending will increase between $10 billion and $12 billion this year from $34.6 billion in 2008.

As CBS News reported, most people and businesses are getting immediate help from the increased stimulus spending on food stamps, unlike the other stimulus payouts.

For Bobbi Foster of Martinsburg, W.V., the once simple task of grocery shopping has suddenly become a burden. In December, her husband Danny lost his trucking job. "Everyone I know has been laid off work. When I see people going to work I'm surprised - they have a job!" Foster said.

A month later, Danny was diagnosed with a benign brain tumor. The Fosters signed up for food stamps. As a West Virginia family of four, they would receive $329 a month - not nearly enough to cover their monthly food expenses. But that changed under the economic stimulus package where every American on food stamps would get 13 percent more money on their state-issued debit cards.

And while it will certainly help the Fosters, its really aimed at their grocer, who stands to make an extra $25,000 a week, enabling him to hire up to five more part-time workers.

"Everyone goes to the grocery store," said Martin's Supermarket manager Mike Sword. "I can't think of a better way, frankly, to stimulate the economy."

"[For us,] it means surviving. Really, surviving for the month," Foster said. "When you are living week to week day by day you know it [the stimulus increase] would make things a lot easier."

The U.S. Department of Agriculture (UDSA) calculates that for every $5 of food-stamp spending, there is $9.20 of total economic activity, as grocers and farmers pay their employees and suppliers, who in turn shop and pay their bills. This was confirmed in findings by other economists and stimulus studies, which found that the fastest way to infuse money into the economy was through expanding the food-stamp program. The cost/benefit equation often quoted in relation to the impact of food stamp type programs is that for every dollar spent $1.73 is generated throughout the economy.

If someone who is literally living paycheck to paycheck gets an extra dollar, it's very likely that they will spend that dollar immediately on whatever they need - groceries, to pay the telephone bill, to pay the electric bill. While other stimulus money has been slow to circulate, the food-stamp boost is almost immediate, with 80% of the benefits being redeemed within two weeks of receipt and 97% within a month, the USDA says. The stimulus or benefit ratio from food stamps was higher than the benefit from infrastructure spending per dollar, and way higher than tax cuts. Permanent tax cuts had a lower than one benefit to cost ratio, showing that these would have been wasted stimulus spending.

It is hard to argue with the logic behind the stimulus impact of higher food stamps, but the counter argument could be that while the food stamp stimulus spending has a more immediate impact, it is only short term. Stimulus spending on infrastructure and educational spending, economists argue has a much longer term impact and ongoing benefits like higher employment and increased government revenue through taxes.

Still, the Obama economic stimulus package was meant to have had much more of an impact than currently felt, so the case for focusing future stimulus packages on more direct programs like food stamp increases may be getting stronger. Who would have thought that stimulating welfare type programs for the poor could be the best boost for the economy. Make the poorer richer, and the nation will thrive. Sounds simple right?

Saving Money on Calling Costs Via VOIP Phones

2009-07-06T23:51:00.003-04:00

As a relatively new small business owner working from home, one of the money saving technologies I have been looking into is (Voice Over Internet Protocol) VoIP telephony. A broadband or VoIP phone is like a regular phone except it uses high speed Internet to make calls at a fraction of the cost. A number of companies – small and large – are now using this technology to significantly lower communication costs.

Now the retail/consumer market has the same technology available and providers are promising 50%+ in cost savings when compared to the established providers. One company that was recommended to me by a fellow small business owner was Phone Power. What differentiates them to Skype, Vonage and other providers is that you can keep your existing number and they provide a good combination of fully supported business and residential calling plans - at a significant discount over the traditional providers.

To start using the VOIP phone service with them all I need to do is get a VoIP adapter (free) and setup it up from my high speed internet connection to any regular phone handset. This setup is neatly captured in the graphic here and should take no more than a few minutes to get started. You get all the usual call service like Call waiting, Call Forwarding and Voicemail in one of their cheap monthly plans. VOIP telephony is best suited for you or your business if you can relate to any of the following needs:

- You already have a high speed internet connection and would like to lower your phone bills, without sacrificing call quality and portability
- Want to reduce costs on expensive long distance phone or international calls costs
- I like the convenience of taking my number with me as I travel anywhere in the world and want to continue using useful calling features such as conference calling, voice mail and caller ID
- Live outside the U.S. but need a local US number for my business or leisure travels.

With the advent of high speed internet in most metro areas and the near perfect sound quality available through VOIP technology it is only a matter of time before all households and business move to this platform for their telephony needs (even Walmart is selling VOIP options like the Magic Jack). So rather than wait for the savings, get on the new phone revolution band wagon and try the Phone Power Digital Phone Service.

5 Steps to Take Now in Preparation for Double Digit Inflation

2009-07-05T13:03:00.000-04:00

This guest post is from DR, the managing editor of Dough Roller, a personal finance blog about how to make more, spend less and invest the rest. He is also the author of 99 Painless Ways to Save Serious Money.

There is an important debate brewing among economists today about inflation.

On the one hand, many believe we are headed to double-digit inflation in the near term. Increased government borrowing coupled with a huge money supply thanks to the Fed’s liberal approach to printing money, has led many to conclude that raising inflation is inevitable.

On the other hand, some economists believe that our massive debt will not lead to higher inflation (and may in fact cause deflation). Folks like money manager Van Hoisington argue that rising personal debt and unemployment will keep people from buying, which in turn will keep prices in check. Alan S. Blinder, a professor of economics and public affairs at Princeton and former vice chairman of the Federal Reserve, also sides with those not concerned with inflation.

Ultimately, whether we see inflation as a significant risk is a decision we each must make for ourselves. But it should not be ignored, because our longer term net worth and retirement plans could be adversely impacted. If inflation is on the horizon, there are several steps we can and should take to prepare our finances for the rising tide of prices.

1. Refinance adjustable rate mortgages

Perhaps the most important step to take in preparing for a possible rise in prices (inflation) is to convert an adjustable rate mortgage to a fixed rate mortgage. With rising inflation comes rising interest rates. Why? The Federal reserve uses monetary policy (i.e. control of interest rates) to combat inflation. To lower inflation, they try and make “money” more expensive by raising the prime rate. This causes all other rates, like those on home and auto loan rates to rise as well.

For most of us, our mortgage is far and away the largest monthly bill, and we cannot afford to risk seeing our payments go up by hundreds of dollars a month as adjustable interest rates rise.

The first step in refinancing an adjustable rate mortgage is to contact your mortgage company. Depending on where you live, refinancing through your existing mortgage company can save you on fees and taxes. If you have a home equity line of credit with the same mortgage company, it also will be easier to get the line "resubordinated." Resubordination is just the industry's term for making sure the line of credit stands behind the primary mortgage in a foreclosure. In addition, you may get a slightly better deal with your existing mortgage company, but of course always get several interest rate quotes before making a decision.

2. Convert home equity lines to loans

Most home equity lines of credit are variable rate and require interest only payments for the first ten years. Thereafter, the line converts to a loan that amortizes over the remaining 20 years of the note. Right now, many home equity lines of credit have very low interest rates because the prime rate is so low. Our home equity line of credit is currently 3.99%, and that's before taking into account the tax deduction we get on our interest payments.

But these great rates may not last. If the Fed is forced to raise rates to combat inflation, the prime rate will go up and the rates on home equity lines will follow suit. In a serious bout of inflation, rates on equity lines could easily hit double-digits (like in the early 90’s). One way to address this risk is to convert some or all of a home equity line balance to a fixed rate home equity loan. The interest rate will most likely be higher than the current variable rates on most lines, but it will be fixed for the remainder of the loan and you won’t have to worry about rising payments.

3. Pay off introductory rate credit cards

Readers of the Dough Roller know that I'm a big fan of 0% balance transfer offers and other no interest deals. We've taken advantage of them to reduce interest payments and speed up our debt repayment plan. The risk of these deals, however, is that you don't pay off the balance before the introductory rate expires. Once the introductory rate expires, the regular APR for the card applies, which is typically 10% or higher.

As early as last year, one could jump from card to card taking advantage of balance transfers, often with no transfer fee. Today, however, these offers have become more scarce and increasingly available only to those with very good credit scores. The point is that we shouldn't be relying on balance transfer cards to keep our debt at a low rate. And if interest rates in general go up, they will certainly go up on credit cards. As a result, while we continue to take advantage of no interest deals when they make sense, we have redoubled our efforts at paying down our debt, even the debt on 0% deals.

4. Shy away from long term CDs

Certificates of deposit (CDs) offer a secure way to put away cash for an emergency fund or other short term savings goals. When picking a CD you have a choice in the term, generally ranging from three months to five years. As a general rule, the longer the term, the higher the interest rate, although this isn't always true. Ally Bank, for example, which offers some of the best CD rates currently available, pays 1.40% APY on its 3-month CD and 3.45% APY on its 5-year CD.

For those worried about inflation, however, locking your money away for five years at 3.45% could turn out to be a big mistake. A 1-year CD from Ally currently pays 2.30% APY, and presents far less interest rate risk than a 5-year CD. You can always withdraw money from a CD, of course, but you'll often pay a penalty fee. At Ally, the penalty fee for early withdrawal on a 5-year CD is interest equal to six months. For this reason, for those fearing inflation, 1-year CDs or shorter term is probably best.

Another great alternative to a CD is an online high yield savings account. While interest rates have come down significantly over the past 12 months, rates are still competitive with most CDs and the money can be withdrawn on demand and easily managed online.

5. Consider TIPs, Real Estate and Commodities

I don't believe in making dramatic changes to an asset allocation plan based on current market fluctuations. We haven't sold any of our investments during the brutal market we've experienced over the past year, and the same will be true if inflation starts to bubble up.

Yet there are some modest changes one can make to better guard their portfolio against the ravages of inflation. Specifically, one can look at investing in TIPs, REITs, and commodity funds. Here they are in a nutshell, and how they can help guard against inflation:

TIPs: TIPs, or Treasury Inflation Protected Securities, are U.S. Treasuries whose interest rates rise and fall with the Consumer Price Index. While some debate the accuracy of the CPI, it is a recognized measure of inflation in the United States. As the CPI rises, so do returns on TIPs. And as a result, TIPs provide some measure of protection against inflation.

REITs: Over the long run, real estate values tend to follow inflation. In the short term, higher inflation can actually depress real estate values because higher interest rates keep many buyers at home. Many REITs (Real Estate Investment Trusts), of course, invest in commercial real estate, however, which is an entirely different market. With inflation comes higher rents, and thus higher returns and valuations on REITs that invest in commercial property.

Commodity Funds: These funds invest in precious metals, food commodities like grain, and oil. Commodity prices can fluctuate widely (just think of oil last year) for a variety of reasons, but do have a strong correlation with inflation, making them worth considering as a viable hedging option.

In the final analysis, nobody knows what inflation will look like a year from now. But guarding against the risk of inflation, at least in some of the above areas, may just help you sleep better at night.

Related posts you may enjoy:

~ Credit Card Reform: Penalizing the Good for America's Bad Spending Habits
~ Frugality,Thrift and Saving - The New Norm
~ No Second or New Economic Stimulus Package in 2009. But More than Likely in 2010 or 2011.
~ FHA vs Conventional Home Loan - Comparing the Difference and Which is Better
~ High Yield, Money Market Account Savings and Mortgage Rates Rising
~ Gold Price Outlook - A Golden Investment in 2009 and beyond

3 Money Reasons to Buy a New Car - Tax Deductions, Used CAR Trade-In Vouchers and Electric-Hybrid Credits

2009-06-29T23:10:00.002-04:00

If you are in the market to buy a new car or just looking for a reason to upgrade your existing car, then you could not have picked a better time than now. Apart from local and foreign automakers desperately cutting prices to stay in business or to revive flagging sales, the US government is doling out tons of free stimulus money and tax credits/deductions to entice new car purchases. I have written about the three main programs in detail, but here is a summary and ways you could take advantage of all three of these programs at the same time.

1. New Car State or Local Tax Deduction

This stimulus funded legislation provides tax breaks for new vehicle buyers by giving them a federal-income-tax deduction on local sales and excise taxes. It enables taxpayers to buy now and get cash back later on their 2009 tax returns (filed in 2010). The deduction is limited to the state and local sales and excise taxes paid on up to $49,500 of the purchase price of qualified new foreign or domestic cars, SUV's, light trucks, motor homes or motorcycles that weigh no more than 8,500 pounds. You can still buy a qualifying vehicle for more than $49,500 (e.g. an $80,000 BMW), but you will only get a tax deduction up to the specified limit. The deduction is only available to families making less than $260,000 (or $135,000 for single filers). It is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers. Further, the new vehicle must be purchased on or after Feb. 17, 2009, and before Jan. 1, 2010, to qualify for the deduction.

Value of Credit: The average new car purchase price the first 11 months of last year was $28,280, and the average used car trade-in value was $15,203, according to data from the National Automobile Dealers Association. States typically tax the difference — $13,077 in this case. So a 5% sales tax rate would be $654, meaning the deduction would reduce taxable income that much. Each state has a different car sales tax, so the deduction will vary by state. For states that do not have state or local taxes on cars, the IRS recently ruled that buyers are entitled to deduct other fees or taxes imposed by the state or local government. The fees or taxes that qualify must be assessed on the purchase of the vehicle and must be based on the vehicle’s sales price or as a per unit fee.

** Search and get multiple quotes for your next new car @ Yahoo! Autos **

2. Cash for Clunkers - Car Allowance Rebate System (CARS)

The Car Allowance Rebate System is a recently approved initiative that will help you pay for a new, more fuel efficient car or truck from a participating dealer when you trade in a less fuel efficient car or truck. Under this program, auto buyers will be entitled to discounts/vouchers of $3,500 or $4,500, based on the following criteria.

- Tade-in cars must get no more than 18 miles per gallon, have been built in 1984 or after, and have been owned and insured by the purchaser for at least a year. A consumer could then get a $3,500 voucher toward a car that got at least 22 mpg. The value of the voucher will increase to $4,500 if the new car is 10 mpg higher than the trade-in. Consumers will also be able to use the vouchers toward the five-year lease of a vehicle.

- A $3,500 voucher can go to a small light-duty truck that gets at least 18 mpg and is two mpg higher than the trade-in. A 4,500 voucher will be issued for a truck with a five mpg improvement.

- A $3,500 voucher will be issued for large light-duty trucks that get at least 15 mpg and are one mpg higher than the trade-in. A $4,500 voucher will be issued for a truck with a two mpg improvement.

- No trade in value: Because the old vehicle will be destroyed, the credit is given instead of the regular trade-in value — not in addition to it — though some dealers might compensate customers for the vehicles scrap value.

The vouchers under this program will be issued electronically to dealers almost immediately upon the point of sale, so the credit should be available at purchase. This program has limited funding of $1 billon (enough for about 250,000 consumers) and will likely expire by Nov 1, if not sooner. For more details, see the official government site cars.gov; and to determine if your car meets the fuel efficient requirements go to FuelEconomy.gov

Get your best new car quote from Yahoo! Autos

3. Green Energy Car Credits

President Obama’s stimulus bill provides a modified credit for qualified plug-in electric drive vehicles purchased after Dec. 31, 2009. To qualify, vehicles must be newly purchased, have four or more wheels, have a gross vehicle weight rating of less than 14,000 pounds, and draw propulsion using a battery with at least four kilowatt hours that can be recharged from an external source of electricity. The minimum amount of the credit for qualified plug-in electric drive vehicles is $2,500 and the credit tops out at $7,500, depending on the battery capacity. The full amount of the credit will be reduced with respect to a manufacturer's vehicles after the manufacturer has sold at least 200,000 vehicles.

This credit is in addition to the Hybrid Auto Credit for vehicles purchased or placed into service after December 31, 2005 which may be eligible for a federal income tax credit of up to $3,400 (see IRS site for list of qualifying vehicles), Credit amounts begin to phase out for a given manufacturer once it has sold over 60,000 eligible vehicles.

Can I use the above credits together?

Yes. You can use the above credits together. For example, you can trade in your qualifying old car under the cash-for-clunkers program to get the discount voucher and also claim a deduction for the sales and excise taxes you pay on the new car. Here is a hypothetical example from a recent Vanguard article on this topic:

Johnny is currently driving a 1995 Dodge Caravan that has an estimated fuel economy rating of 17 miles per gallon. Because it has 90,000 miles and is in only fair condition, it has a trade-in value of $350, according to Kelley Blue Book. However, if he trades it for a 2009 Nissan Versa, which has an estimated 29 miles per gallon fuel economy rating, he would qualify for a $4,500 voucher because the new car's rating is at least 10 miles per gallon more than the Caravan's. That would reduce the cost of the new car from its manufacturer's suggested retail price of $10,710 to $6,210.
In addition, because he earns less than $125,000 a year, Johnny can deduct the sales tax he pays on the vehicle from his federal income taxes next year. Finally, Johnny would save money on gasoline each week because of the greater fuel efficiency of his new car.

To get all the benefits you must still meet each of the individual program requirements and not claim the same tax break or deduction twice. Further, only one credit of each type may be issued for joint registered owners of a single eligible trade-in vehicle.

What's the difference between a tax deduction and a credit?

Many of the tax breaks on new cars are either deductions or credits, and it is important to understand the difference. A tax deduction reduces the amount of income for which you are taxed. For example, if your taxable income were $50,000, a $2,000 deduction would reduce it to $48,000. So, you would pay taxes on an income of $48,000 instead of $50,000. This means your actual savings would be a fraction of the $2,000 deduction. A tax credit reduces the total amount of income tax you owe. So, if you owed $10,000 in federal income tax, a $2,000 credit would reduce the amount you owed to $8,000. With a credit, your actual savings would be $2,000

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With all these “money” options, the car market is definitely a buyer’s paradise for now. Along with some research and strong bargaining at the dealership, new car buyers can easily save thousands on their next shiny new car. If you have any questions, leave a comment and I will try and get you a prompt answer. I will update this article as more information comes to hand and encourage you to subscribe (free) via Email or RSS to get the latest posts.

No Second or New Economic Stimulus Package in 2009. But More than Likely in 2010 or 2011.

2009-06-25T22:46:00.002-04:00

President Barack Obama said recently that a second [multi-billion] economic stimulus package isn’t needed yet, though he expects the

U.S.

economy and unemployment to worsen this year. He also acknowledged that due to worse than expected economic factors, initial forecasts from his administration missed the mark. The original $787 billion stimulus bill was rushed through Congress and signed in February 2009, with his chief economic advisers forecasting that it would help hold unemployment below 8 percent. It included tax cuts and spending on infrastructure projects that the president pledged would save or create 3.5 million jobs. Obama defended his initial stimulus projections, saying the economy worsened once the legislation was enacted only weeks into his presidency. “Nobody understood what the depths of this recession were going to look like,” Obama said. “It was only significantly later that we suddenly get a report that the economy had tanked.” However, the President did acknowledge that he was not satisfied with the progress made around distributing the stimulus funds and that the administration had to do more work with a program to modify existing mortgages, which hasn’t “been keeping pace with all the foreclosures that are taking place.”

While the current administration does not think a second economic stimulus package is needed in the near term, I do think they will be back next year or the year after if the economy does not improve as indicated by a few of the following triggers or key economic vital signs:

- Unemployment rate nears 15%. This may seem far away, given the current unemployment rate of 9.5%, but in California it is already approaching 12%, and America's most populous state is a good leading indicator of national trends. Further, many economists think that the real unemployment numbers are much higher given part time, seasonal and non-participating workers are not reported in the unemployment figures. Should the official unemployment rate hit the 15% mark, it is almost certain that the Obama administration will be back for more funds to stimulate the economy.

- Home prices continue falling, declining 50% since the July 2006 peak. Median home prices are already down more than 26% to date and while there are signs of stabilization, worsening unemployment and rising interest rates could prompt further declines. In states like Florida and California, real estate values in some of boom areas are already down much more than 50%. With short sales and foreclosures still rising in many areas (reaching a record 1.8 million in May), despite government stabilization programs, their looks to be much more pain ahead. Even the new home buyer tax credit that have prompted many new home buyers into the market, look to have only provided a temporary buffer in now that interest rates are rising again.

- Democratic controlled congress increases majority in mid-term elections. President Obama still has an overall approval rating of 65 percent and the support of a democrat controlled Congress. In the mid-term 2010-2011 congress elections there is a good chance congress could come further under democratic control - reaching a filibuster majority, thereby making the Republican party virtually helpless in stopping any additional stimulus legislation. A worsening economy and support from the improvised masses waiting for more government handouts, will allow a more Democrat friendly consumer-focused stimulus package to be passed.

- Stock Markets Free Fall (Dow falls to 6000) and a large financial institution collapses. The stock market has been on a nice run of late and many investors are returning to the market as a sense of optimism pervades. However, as we have seen countless times, the market can fall just as fast as it rises leaving many investors licking their financial wounds. Given the stock market is a leading indicator of the economy, a sharp fall in the stock market generally signals further economic gloom and doom ahead. This would be compounded by a collapse of one or more large financial institutions, a primary trigger for the stock market collapse late last year. If all this comes to pass, the government will be forced to enact fiscal policy, like another consumer or corporate stimulus, to stem the tide.

- Global Markets Turmoil: The key to a sustained economic recovery will be a revival in real growth amongst the BRIC economies. These are the Brazilian, Russian, Indian and Chinese economies, that accounted for most of the economic growth over the last decade. They have the largest populations, are relatively debt free and are the biggest buyers of all things American. These new economies and their consumption will be the key for American growth in the 21st century. If these economies collapse, either thorough political problems of spiking inflation then the US economy will feel the pain.

To me the key statistic is unemployment. If consumers do not have jobs or feel in danger of losing their current one, then they will cut back on discretionary spending, delay buying or upgrading homes which all results in falling corporate profits and a worsening economy. If unemployment is “well into the teens” and still rising, it would indicate broader problems in the economy and serve as a strong catalyst for more fiscal stimulus actions. So despite record deficits and government debt, the administration will be back for more and I think they will be asking upwards of $1 trillion dollars for the next economic stimulus package!

What are your thoughts? Do you think a second economic stimulus package is likely and if so, how much?

Managing Across the Risk Spectrum - Choosing the Right Investment Portfolio Allocation Based on Age and Market Conditions

2009-06-22T21:30:00.003-04:00

While reviewing and updating my 401K allocations at Fidelity, I noticed this relatively common graphic showing portfolio mixes (allocations) based on an investor's risk profile. Generally speaking most financial advisers and traditional market wisdom tell you that your portfolio allocation should be based on your age, which determines the duration of your investment. The younger you are, the more aggressive, while the closer you get to retirement, the more conservative one should be. So a 25 to 30 yr old would predominantly have a stock based portfolio, while folks in their 50's would be more invested in bonds and cash.

However, after the year we had in the stock market, should this be the primary criteria we use? No. In fact I think market conditions, as much as age and other factors, should determine the optimal asset mix. Using the graphic below one should adjust their portfolio regularly based on market conditions, need for liquidity and how much risk they are willing to take. I refer to this as managing across the risk spectrum.

For example, rather than blindly invest in a target retirement fund or just leave all your money sitting in a single asset class, anyone that contributes to a 401K, IRA or regular investment account should adjust their portfolio up and down the risk spectrum on a periodic basis. You don’t have to do this every other week, but I would say once every quarter or at least twice a year. For example, early this year with the market in free fall, I changed my 401K contributions to be geared more towards bonds and money market funds. This would seem illogical for someone in their 30’s if you followed what the pundits tell you, but that move saved me thousands of dollars as the market plummeted.

Some would argue that I should have kept on investing according to my risk profile and taken advantage of dollar cost averaging, but as I discussed recently, when markets are in free fall, dollar cost averaging is a poor strategy.

Rather than keep investing in a losing asset, I just changed my 401K contribution and portfolio mix in line with my new risk spectrum at that point in time (conservative). This minimized my losses and allowed me to build my cash based reserves. Then, as the economy showed signs of improvement and international markets started picking up recently, I moved up the risk profile (growth) and started investing more in stocks. Since March this has yielded me a 14% return (and about 25% on my new contributions).

I will revisit my 401K account in a few months and based on where I think the economy and market are going I may well readjust again. The point is that in current and future markets, one cannot just sit back and hold onto a losing portfolio, justifying their decision by saying, “I am young, my portfolio will recover…”. That’s the old paradigm, and in the new market smart investors are the ones who pay attention and adjust their short and long term investing strategies. Remember, it takes a 100% return to recoup 50% in losses. So if you haven’t checked your portfolio in a while, now may be the time. If you are uncomfortable with this aspect of investing then see a professional.

I’ll provide some more specific investments for the various risk spectrum's in future posts (subscribe via the options below), but if you are trying to find funds that fit the above risk profiles check out the research section of your IRA or 401K provider. For more independent and broader research check out the free subscriber section at Morningstar.com.

Negotiating Down Your Credit Card Debt by Half or More

2009-06-18T07:39:00.000-04:00

A strange phenomenon is taking place – credit card companies are willing to really negotiate on how much you repay of your overdue debt. With revolving credit, a close approximation of credit card debt, totaling $939.6 billion in March of which 6.5 percent was at least 30 days past due in the first quarter, banks have little choice but to come to the table and work out a deal. After all, they would rather get back some of the monies owed to them as opposed to letting the entire debt be wiped out due to bankruptcy or extended delinquency. The NY times brought us the story of a Mr. McClelland who worked out a deal with his bank to only pay half of his $5,486 balance. He was paying fitfully on his card, which was canceled for delinquency. In April, HSBC offered him full settlement at 20 percent off. He declined. A few weeks later, it agreed to let him pay half.

Why are banks doing this? As they confront unprecedented numbers of troubled customers and the recently approved credit card reform bill, credit card companies and banks are increasingly doing something they have historically scorned: settling delinquent accounts for substantially less than the amount owed. In the current economic climate with unemployment approaching 10%, some banks have been known to forgive up to 70 percent of a consumer's debt. Why? Not for your sake, for theirs. Banks fear that the economic downturn is only going to get worse in the coming months, so they're taking what they can while they can. After a balance has been delinquent for six months, regulations require the card company to reduce the value of the debt on its books to zero. If a borrower has not paid by this point, chances are he never will. Only a few creditors are willing to confirm the practice. Bank of America and American Express say they decide on a case-by-case basis whether to accept less than the full balance. Other card companies refuse to discuss the subject, but their trade group, the American Bankers Association, acknowledges that settlements are becoming more common.

So what do you do? If you are in true financial peril, the brink of bankruptcy, you might want to approach your bank or credit card company (or the debt collector assigned to the account) and ask to pay off less than the full amount. You will need to show evidence of your hardship and then justify why you cannot pay your debt. There is then a good chance that they company will settle for much less than what is owed, but they will want payment straight away. If you want professional help you can hire a debt settlement firm, which for a fee will bargain with the creditor on your behalf. This is useful in situations where the debt is significant enough to justify the professional fees.

While this may seem like a sweet deal for many, remember that even if you get debt relief through negotiating your credit card repayment, you will still take a big hit to your FICO credit score. Also don’t expect credit card companies and issuers to heavily publicize this as they do not want to promote the idea that settlements have become merely a matter of asking nicely. Still for those facing serious credit card debt issues, escape may just be a phone call away.

Got a Headache Yet? If Not, Then Get a Mortgage and Buy a Home!

2009-06-16T21:58:00.004-04:00

I just completed my first home purchase – a long and challenging journey that eventually had a happy ending. I have few regrets in becoming a home owner, but little did I realize that when I started my home buying journey a few months ago that things would be as difficult and meandering as they were. Here are a few things that I experienced/learned along the way that many current home owners can relate too and hopefully benefit some new or soon-to-be home buyers.

- Your real estate agent is not your best friend. I must admit that I had a pretty good real estate agent, who I found through a referral, but I think my wife and I got too reliant on her advice/recommendations and always assumed she was putting us first. For example, the people she hired for our home inspection were her contacts and ended up being expensive and doing a poor job overall. They missed a number of things which I had to end up fixing after moving in that I could have got the seller to fix before closing. In retrospect I should have found an independent home inspector who was more interested in my interests rather than making sure they didn’t jeopardize the sale for my realtor. At the end of the day, your realtor is a business associate; not your friend of confidant.

- A crash course in mortgages, interest, insurance and taxes. As a personal finance blogger I thought I knew more about taxes and real estate related finance than the average person. Well, I discovered there was a lot more to learn and despite writing several posts on the topic of home buying, I came across many new terms and documents that I had never seen before. You’ll ending up having to learn a lot of things when buying a home and my advice is to make sure you get any key documents beforehand, do some research online and don’t sign anything you don’t feel you understand. There is too much on the line and there is no such thing as a dumb question. You are paying a lot of money to your realtor, broker and banker so you deserve a prompt and honest answer to any questions you have.

- A not so good faith estimate. The good faith estimate (GFE) you get from various lenders is going to be one of your key documents when "shopping around” for the best loan and to know the true cost of buying your home. Every lender will prepare a GFE differently so make sure you do a line by line comparison of costs (and ask questions if you are unsure). Then use the GFE’s to make sure your preferred lender is giving you the most competitive costs – trust me the costs vary enormously by lender as they try and squeeze every dollar. Reading all the GFEs is the most likely cause of your physical headaches related to this process – especially for those who dislike all things financial – but it is also the source through which you can save the most money at closing and through the life of the mortgage.

- Money out and then more money out. One thing you will soon realize during the home buying process and soon after you move in (especially if you are moving into an older house) is that your cash flow will be largely going one way. Out. Home inspection costs, appraisal fees, agent fees, administrative fees etc, will all have to be paid. At some point you will just throw your hands up and question when all this well end. Soon I hope! But this is the reason for my next point.

- Add 25% to your estimates and for cushioning unplanned expenses. No matter how good your discipline and contingency plans, add 25% to all your estimates. This includes your maximum purchase price, closing costs and time to find your right home. Buying a home is a long, emotional and varying process so make sure you have sufficient resources to see you successfully through.

- Patience and relationship stress. If you want to test your patience and your relationship(s) then buying a home is the toughest exam. I know of a number of people who have spent months, if not years, trying to find the right home. Even with the recent drop in home prices and spike in foreclosures/short sales - many would be buyers have found it hard to get the home they want. Either it fell through due to bank issues or other buyers swooped in. I know one friend who has lost two houses in the last month on which he had contracts, only to see if slip through a week before closing. The other component of buying a house with your partner or relative is the stress of going through the searching, financing and closing process. I know my wife and I had many a testing time. Luckily it worked out and actually made us stronger (I think!)

- Moving into your home and repairs. Just when you finish dealing with the headaches of the home purchasing process, comes the frentic phase of moving. This requires you to change all your addresses, organize movers, end your lease (if renting) or sell your house (which you should have done before buying). All this happens within a few short weeks and before you know it, you are in your new place. Exciting – yes. End of all the hassles – no. There is dealing with the all the minor and major household repairs, especially annoying are the ones your overpriced inspector did not pick up. If you are not a handy man (like me), you soon learn to become one after seeing how much general contractors and tradesmen charge. I am sure all electricians and plumbers are millionaires given the rates they charge! In any even all the repairs mean more money out and any new home buyer stimulus I may have gotten has long been spent.

- A New Budget : One thing you soon discover, especially if moving into a bigger or first home, is that your budget will jump significantly. This is mostly due to the higher mortgage payment, but the costs associated with maintaining a house are also much higher than an apartment, townhouse or condo. So before you start out and to avoid more headaches along the way, draw up a budget (using my 25% inflation factor) to see what you can really afford to buy on an ongoing basis. Try and live that budget for a few months before buying the house. This will give you a much more realistic idea of the costs around running a household. Much higher than you may think.

I am still very much a new home owner, which means more challenges and learning experiences along the way, but until you actually go through the home buying process you can never appreciate how involved it is. Thankfully in most cases, the prize at the end and the satisfaction of owning your own place make it a worthwhile journey.

Picture credit: njrealestatewire.com

High Yield, Money Market Account Savings and Mortgage Rates Rising

2009-06-11T15:09:00.005-04:00

Rates on all things financial are heading up. This is good news for some and bad news for others. Savings rates on high interest savings and money market accounts are up after falling to multi-year lows. However on the flip side, new home buyers or those looking to refinance are seeing mortgage interest rates rise from historic lows. On Wednesday the WSJ reported that rates on 30-year fixed-rate mortgages climbed to 5.79%, up from 5% two weeks ago, according to HSH Associates. That jump will cut roughly in half the number of borrowers with an incentive to refinance, according to FTN Financial. Refinance activity at J.P. Morgan Chase & Co. is already "really down" since rates began rising, a spokesman says. A rate of 4.75% "seemed to be the switch" that turned on refinance activity, he says. Now, rates are a full percentage point higher.

Savings rates

The top high-yield bank savings accounts are paying interest rates of around 2%, compared to a 0.5% national average. Leading the pack is a new offering from Ally Bank (formerly GMAC Bank) which is starting to encroach on the space occupied by market leaders ING Direct and HSBC Direct. I recently signed up for a free account - via a promotion where no minimum deposit/balance was required. There offering is quite standard relative to the leading providers but the feature I liked best was that they calculate and compound interest daily, rather than monthly or quarterly like some other big banks. The more often interest is compounded, the faster it grows. They also have the leading Certificate of Deposit (CD) offering which is good for longer term savers that like to use laddering.

If you want to park some of your cash, then high yield saving accounts are a better deal right now than money market funds (which are offering a miserly 0.16% on average) and may even be more secure since bank deposits are insured by the Federal Deposit Insurance Corp. up to $250,000 per depositor, a limit recently extended to 2013. While money-market funds are generally very safe, the insurance program set up after the financial crisis covers only investments that were there as of Sept. 19, 2008 and is set to expire this September.

Finding the best saving interest rates. I wrote about some other good high yield savings accounts in a previous post, but if you are looking around do some research via bankrate.com (for savings accounts) or Morningstar.com to compare various money market fund offerings. Just take care to read the fine print to avoid teaser rates or monthly fees. Also, be sure the account is FDIC-insured and that you're comfortable with any minimum balance required. Several on-line banks, such as DollarSavingsDirect and iGObanking, tend to offer better-than-average rates. But you must be willing to do your banking online or by mail and keep in mind that transfers between banks can take two to three business days.

Mortgage Rates - Where are they headed?

Unfortunately the answer is up. The underlying cause isn't hard to find. Rising government debts, and burgeoning hopes of an economic recovery, are pushing up long-term interest rates on government debt. The yield on the 10-Year Treasury, which was barely 2% near the end of last year, surged to 3.67% late last week before settling back slightly. And that, in turn, pushes up rates on other long-term loans. Be aware this rate hike - to 5.25%, from 4.75% recently - can add quite a bit to your expenses. It will cost an extra $50 a month for someone buying a typical $200,000 residence with an 80% loan.

So if you are on the fence to refinance or purchase a home, it is best to lock in a lower rate now. I'll talk about how I was able to get 4.5% on my 30 yr conventional loan in a future post (subscribe for free updates), but the best (and most obvious) tip is to always shop around before you commit to any financial product or service. You will be surprised at how much banks and brokers are willing to negotiate. Particularly if you have a good FICO credit score!

Apple Stock Soaring - A new iPhone and Media Tablet in the Works makes the Stock worth Buying

2009-06-06T14:13:00.002-04:00

The recent run up in Apple stock (AAPL) over the last three months has made me one happy stock holder indeed. My ill fated and much disparaged purchase last year (see comments) of the stock at $180+ had many saying that I was crazy to buy. I always had a long term view of Apple, and even though I did not anticipate its sharp fall along with the rest of the stock market, I kept on holding on to the stock. Now, I am down less than $40 per stock and have a strong feeling that AAPL is set to resume its run towards $200.

So what are the reasons for Apple's stock run and is it worth buying now?

New iPhone model and Operating System: Apple plans to introduce a new operating system that will add a number of new features like Cut and Paste, along with capabilities that application developers can use to make better software for the iPhone. The company is also expected to introduce a new iPhone model at it’s annual Worldwide Developers Conference, that will have the new software and capabilities preloaded. The new iPhone model is expected to have upgraded memory, faster processor and improved camera/video graphics. A lower price point and expanded distribution network locally and globally (see below) may also entice a number of new subscribers, which will drive sales from its fast growing App Store.

Apple is bigger than Steve Jobs: There was a lot of consternation when CEO Steve Jobs was forced to take an extended medical leave of absence due to a recurrence of his pancreatic cancer. However, the company seemed to manage without a hitch and the share price has rebounded more than 30% since the formal announcement. Steve Jobs has still been involved with various product development initiatives, but day to day running of the company has now permanently been transferred to new leadership. Once Jobs returns later in the summer, the company will have an ultra strong leadership team to drive the company’s future growth.

The Apple Media Tablet: Seeking Alpha reports that the coming Media Tablet may very well have the same positive impact on Apple stock in 2009 as the iPhone did in 2007. Apple is on the brink of adding another leg to its innovation empire as they prepare to introduce us to an entirely new product category. Manufacturing reports suggest that the Media Tablet will have a 10 inch touch screen that could be even thinner than the iPhone. It will be the ultimate newspaper/magazine replacement catering to those Internet users looking for the perfect portable reading device. Wireless connectivity will further expand the dominance of Apple’s App Store as games, books, education and news software will finally function on an ideal piece of hardware. The Media Tablet will be the first computer with the capability to utilize the App Store platform that has already generated over 1 billion downloads since it was launched in July 2008. According to the WSJ, Steve Jobs has been working on this Media Tablet from home during his leave of absence and is expected to unveil it at the Worldwide Developers Conference.

Verizon Deal: Many have been wondering what Apple and Verizon have been discussing in their confirmed meetings over the last six months; consensus speculation anticipates that Verizon might be on the verge of offering the iPhone as soon as AT&T’s (T) exclusivity deal expires. Bernstein Research analysts Craig Moffett and Toni Sacconaghi jointly took a look at this deal and they contend that adding Verizon could allow Apple to boost sales by at least 100% in units (though less revenue per unit may result as subsidies fall). Adding Verizon, they explain, could significantly increase the addressable market. It has more subs than AT&T does, for one thing. And Verizon’s customers are largely untapped, while more than 10% of AT&T’s post-paid subs already are using an iPhone at this point. Eventually, the Bernstein analysts believe, Apple will abandon the exclusive relationship with AT&T to maximize the addressable market.

Tech Sector Recovery: As the economy shows signs of growth, so too will the technology sector and Apple. The company has handled the economic downturn better than most companies and its $30 billion or so in cash reserves has allowed it to invest in product development and marketing as competitors have cut back. If history is any guide, a significant part of any increase in consumer tech spending will be directed towards Apple products and services. So as the economy recovers, so too will Apple sales and stock price.

There are off course risks with investing in a growth company like Apple and competitors will continually challenge it on the service and product front. But Apple’s large cash reserves, strong product pipeline and great leadership make it a stand out stock to own. Two ways to play the stock are to buy some December/January $180+ call options or to just buy the stock if you plan to hold for the next 3 to 5 years.

Related

~ Forget buying a Laptop or Notebook - I am getting a Netbook
~ Optioning Apple (AAPL) Calls
~ Apple 3G iPhone update and Analyst opinions
~ My shiny new iPhone and why I bought Apple

Outside of Detroit does anyone care that US Automakers GM and Chrysler are now Bankrupt

2009-06-02T19:53:00.001-04:00

Bloomberg, along with the WSJ, bring us an interesting viewpoint on the US automakers path down bankruptcy and the debate on who really cares. Living outside Detroit, I do feel sorry for the personal and financial tragedy that many are facing due to the bankruptcy of the automakers, but from a national/investment standpoint I am really unaffected by the failure of these two American icons. In fact I almost think, after years of life (government) support and bad business decisions, bankruptcy proceedings are the best thing that will happen to these companies. The stock market, politicians and the rest of America (ex-Detroit) seem to agree as well.

"The American people want GM to go bankrupt," Dobski, a retired GM executive said. "They don't care." The disconnect between how the auto industry is perceived in Detroit and in the rest of the country was underscored in an April survey by CNN; it showed 76 percent of Americans favored allowing GM to fall into bankruptcy rather than extending further government aid.

"Bankruptcy is an incredible stigma," said Dobski, 65. "I hate to see GM connected with that. GM is such an icon. GM is this area. It's Detroit." Detroit residents are struggling to come to grips with what would have been unthinkable as recently as 2004, when GM was completing a 10-year run in which it earned $41 billion, milking profits out of jumbo sport-utility vehicles like the Chevrolet Suburban and Silverado pickup trucks.

Dobski says he recently went to Washington with a group of "Main Street bondholders," lobbying Congress for more say about the deal the government was cutting with GM. Both Republicans and Democrats seemed to dislike the company, if for different reasons, Dobski said. Their staffs didn't seem to understand the industry's reach, he said.

Competitive Pressures

For half a century, between the 1920s and the 1970s, GM seemed to have an instinctive feel for what Americans wanted before consumers themselves even knew it. Chrome, tail fins, muscle cars and even the first catalytic converters that let cars run on lead-free gasoline were developed at GM. But the company signed generous labor deals during the 1970s, including the right to retire after 30 years with full pension and benefits, partly because it believed the contracts would cripple its smaller competitors, Ford and Chrysler. Then along came Honda, Nissan and Toyota, which didn't have to deal with labor contracts at all. That was the beginning of the agonizing decline

The inability to get people outside the region to understand Detroit auto makers was on display when executives of what were once called the Big Three appeared before Congress late last year, said James Blanchard, a former Michigan governor. As a U.S. representative, Blanchard coached former Chrysler chief Lee Iacocca through similar hearings in 1979. "I'm shocked they weren't prepared," Blanchard said.

Washington's treatment of the auto industry, from the firing of GM Chief Executive Officer Rick Wagoner to the concessions wrested from employees and retirees, doesn't sit well with Detroit residents who saw the larger bailouts being given to Wall Street firms where management remained in place, said writer Kevin Boyle, a Detroit native. He won a National Book Award in 2004 for an account of Detroit race relations in the 1920s.

"There's a very strong mix of Midwestern resentment and class resentment that runs toward Washington policies," Boyle said. "It ties into a deep feeling in the Midwest that there's something more virtuous about making something than about investing money."

I have written about the US automaker bailouts and bankruptcies before and if the Chrsyler bankruptcy (last month) is any guide, then the impact of the GM bankruptcy to the overall economy won't be nearly as bad as feared. Unfortunately for Detroit, even the best case scenario offers little hope for residents in the near term. However, if the companies can emerge leaner, debt free and more efficient, then the long term picture is much rosier and pain now could reap huge benefits down the road as US automakers finally become 21st century companies.

"I'm confident that the steps I'm announcing today will mark the end of an old G.M. and the beginning of a new GM — a new GM that can produce the high quality, safe and fuel-efficient cars of tomorrow, that can lead American toward an energy-independent future, and that is once more a symbol of America's success," President Obama said. But that retooling, he said, "will come at a cost. It will take a painful toll on many Americans who have relied on General Motors throughout the generations."

Is GEICO Really Cheaper for Auto Insurance Compared to All State and Others

2009-05-28T21:31:00.006-04:00

I've had my auto insurance with State Farm for the past 2 years, and every year their car insurance premiums have been going up. It was only a few dollars difference and I just ended up paying the higher rate. But when I recently received a new renewal notice, their premium had gone up by $150 or over 20%! This bought my 6 month (semi-annual) car insurance bill to $836 per month, and this is after having a multi-policy discount. Upon receiving the mail I immediately picked up the phone and called the State Farm agent, who gave me the glib line that all companies are finding it difficult in the current economy and financial companies – especially insurance companies – had to raise fees to stay in business. A load of baloney if you ask me. Working in the financial services industry and as a regular personal finance blogger, I know a thing or to about market trends and insurances are in fact falling as companies try and retain/attract customers.

So I exercised my consumer rights and shopped around online. I checked out two or three company websites and a couple of multi-provider insurance portals (Insure me and Esurance). Based on wanting cost-effective comprehensive insurance coverage that provides multi-policy discounts along with a good customer service, my choices came down to GEICO and All State. Both these companies have been advertising heavily, claiming that they could save lots of money on car insurance. So I went to their web sites and submitted my personal and auto information to get insurance quotes, Here’s what I found for my two cars:

GEICO

By far, GEICO have the easiest to use website, with guidance on key terms and coverage options along the way. After giving some personal information about where I live (all insurance is determined on this basis), I really liked their online feature that automatically obtained my vehicle and driver information from motor vehicle departments and other groups. This allowed me to get a faster and more accurate quote, without having to type in all my car information. It took me around 5 minutes to get a premium estimate (broken down by each insurance item) that I could easily customize it to see what impacts changing one or more factors would have on the premium.

I tried about four variations and even after choosing a number of the higher-end options (like a low deductible and rental car insurance), that were better than my current policy, I ended up getting a quote for under $600. I then used this quote to call up my State Farm agent, and he said the best he could do was $710 (he "suddenly" found that he could drop $126 from the renewal notice amount!). I told him thanks, but no thanks, and that I will be taking my business elsewhere. It was also the inspiration for this article, so at least I owe him for that.

Before I get to my All State insurance and other insurance portals experience, it is worth noting a few of the key auto insurance coverage terms (based on definitions from the GEICO quotes I got). Most of these are pretty standard across providers and worth understanding when shopping around.

Bodily Injury Liability pays damages for people injured or killed in an accident for which you are legally responsible. It also covers your legal defense if you are sued as a result of an accident. Each selection shows two coverage limits (e.g. $100,000/$300,000 as I chose) - the first dollar amount represents the coverage limit for any one person; the second dollar amount represents the total coverage limit for one incident or accident. Individual states have different minimum requirements for liability insurance and for lease cars.
Property Damage Liability pays for damage to other people's property resulting from an accident caused by your auto for which you are legally responsible. It also covers your legal defense if you are sued as a result of an accident. If the property damages are high, your assets — including your home, savings and future wages — may be at risk if you are under or not insured. If you lease a car, your lease contract will typically require you to maintain minimum Property Damage Liability Coverage of $50,000.
Medical Payments coverage pays the reasonable and necessary medical, dental, hospital and funeral expenses for the insured, covered passengers and family members, who are injured in a covered auto accident, regardless of who was at fault. Coverage is also provided to the insured and resident relatives, while they are riding in someone else's car at the time of the accident or if they are struck as a pedestrian. If you have personal health insurance (which most professional workers have) that covers most of your medical expenses, you may want to choose a lower level of coverage.
Uninsured Motorist Bodily Injury typically pays for you and your passengers' bodily injury damages caused by an uninsured driver. The amount of coverage that you may purchase will vary depending upon the state where the policy is issued. There are a number of common exclusions to this coverage that will be detailed in your policy. Given the number of uninsured drivers, this is an important coverage, even in states with no-fault insurance.
Comprehensive coverage pays for losses to your auto not caused by collision, such as theft (like a stolen car stereo), flood, vandalism, earthquakes, explosion, fire, or other covered causes. If you have an older car, where the cash value is low, you may decide not to purchase this coverage. With comprehensive coverage, you choose a deductible - the amount that you will pay out of your own pocket - before your insurance pays your claim. For example: your car's stereo is stolen and replacement costs are $500. If you have a $100 deductible, your insurance will cover $400 — the replacement cost minus your $100 deductible. To keep your premiums low, select as high a deductible as you feel comfortable paying out of pocket.
** 15 minutes could save you 15% or more on your car insurance. Get a FREE quote from GEICO today.
The other side to comprehensive coverage is Collision Damage coverage, which pays for damage to an insured vehicle when it hits or is hit by another car or object, or if the car overturns. You can also choose a deductible for this coverage.
Emergency Road Service (ERS) is offered by the bigger insurance companies and is a cost effective alternative to other road services such as AAA. It covers problems not typically covered by car insurance, such as towing, lockout service, and mechanical labor if you have a dead battery or get a flat tire. ERS helps to take the hassle out of unpredictable events such as a flat tire or a dead battery, and the piece of mind is worth the $10 dollars a month I would pay for this coverage

Other Insurance Companies/Websites I got quotes from:

- ”People who switched to Allstate saved an average of $396 per year,” is the claim the company makes. So I went and tried it for myself. Unfortunately, I got well below the average savings and my quote was around $700 for comparable coverage options. I also found their website a bit cumbersome (no automatic vehicle import feature), but I do think if you have multiple policies and are in certain associations/groups you could do quite well with them. Definitely worth getting a quote from, given that they are one of the largest insurance companies out there.

- Insure Me and Net Quote Auto Insurance! are both insurance portals which provide a way to get free auto, home or life insurance quotes from various small and large providers. The best feature about portal sites is that they give you quotes from a number of providers, though this also means your private information is now available to those companies. I found insurance quotes ranging from $500 to $1000, but overall I thought that GEICO provided a better deal. If it's been a while since you shopped around for car insurance it may be worth starting with one of these auto insurance portals, and then taking quotes received to get a better deal from your current or preferred provider.

- Esurance is an up and coming auto insurance company that provides discounted car insurance. They act like a broker between you and the other insurance companies and given their discount guarantee they are definitely worth visiting in this ultra competitive market. Their insurance premium quote was comparable with GEICO, and if I could have got a multi-policy discount with them, I may have gone with them.

Overall I spent four to five hours getting insurance quotes and it will end up saving me over $200 ($400 annually), so I think it was time well spent. Hopefully it saves you some time and money as well. Some last minute advice from all my research that I think can really save you money or get better coverage at a lower price, no matter which insurer you go with :

1. Shop Around: I cannot stress this more. Use the links in this post as a starting point and get quotes from the various websites. Then call the agent to ask about multi-policy discounts and if you belong to certain groups (e.g armed services) you may be eligible for even more discounts. Further, every other month companies update their premiums so a company you could have tried a while back that was too expensive, may now be able to provide a much better offering. No harm in getting a free quote to find out.
2. Check and Change options: Every insurance quote is unique and companies use different models to price coverage premiums based on various location and personal factors. So while you should always err on over-insurance, try changing coverage options (up and down) to see what impact it is has on the overall premium. You may well get a higher level of coverage for a few extra bucks.
3. Negotiate and use price matching: There is no such thing as a fixed premium. The benefit of shopping around online is that you can quickly get a number of quotes, using similar criteria, thereby getting a very good idea of what range your insurance premium should fall in. With the quotes in hand you can negotiate for a better price your preferred providers. Most will match and/or provide extra options to keep you on as a customer.

I will add that if you are happy with your current insurer, perhaps because of their great customer service when you had a claim, then it may be worth paying a bit extra for that. Otherwise, the key is to make sure you get the most coverage for the least amount of money.

Credit Card Reform: Penalizing the Good for America's Bad Personal Finance and Spending Habits

2009-05-25T00:39:00.001-04:00

Following on his somewhat controversial article on the negative relationship between Religion and Money, guest author Tony Parker takes a cynical look at the recently enacted credit card reforms and why they make him angry.
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What a surprise, the government has imposed even more regulations on what’s left of our financial industry. Really, why don’t they just take over all the banks, insurance and hedge funds and just get this semi-control sham over with. Now the credit card industry is feeling the wrath of Congress who have suddenly discovered, after years of happily taking corporate contributions, that perhaps the consumers – i.e. disgruntled voters – may actually be worth listening to. Alas, congress and the current administration have yet again gone too far and many prudent, hard working and financially careful Americans (like me) will end up paying the price for the misspending of others. Here are my key issues with the recently passed credit card reform bill:

Bye-Bye No Annual Fee Cards: With credit companies forced to cut many fees on low volume transactions (like paying by mail), they will raise fees in areas that were previously funded from other sources. For example, the days of no annual fee credit cards may be numbered. Start expecting a minimum $100 charge every year for the right to use a credit card. That’s if you can qualify for one, given that card companies, like home loans from banks will only approve credit cards for those with FICO scores greater than 750. After all if they cannot charge outrageous fees to delinquent payers then why give them a credit card at all!

Bye-Bye Lavish Reward Programs : In addition to paying annual fees, I’ll probably also end up losing some of the credit reward program perks that make credit cards attractive to many people. I charge about 80% of my personal and all work expenses to my credit card. This gives me about 50,000 points a year on average, which has allowed me to get free trips, merchandise and even cash back rewards. I imagine these types off reward programs will be severely curtailed as card companies cut costs. In fact, my free debit card from the bank is starting to look more attractive at the moment.

I’ll now be Guaranteeing my Kids Debt in College: Okay, at first I thought that banning credit cards for kids under 21 was a great idea. Then I read the fine print – they can still get a credit card if a parent co-signs! So not only will kids be unable to build a credit history, but they may destroy mine if I co-sign for a credit card they will be (mis)using. I would rather the government focus on educating college kids - and their parents - on the dangers of credit card usage, rather than making parents co-sign for approval. Kids have a great way of emotionally black-mailing their parents to get stuff and they’ll soon figure out a way for getting them to co-sign (like, I need it for emergencies). In the meantime, many millions of parents will join their kids in the world of credit card debt at graduation.

Higher Interest Rates for all: The new legislation will prevent companies from increasing interest rates on missed payments for at least 60 days (or first year of a new contract), but after the mandated time frame expires, they can charge whatever "reasonable" rate they want. So if you thought the current 15% APY were high on overdue balances, you will be doubly shocked when credit card companies start charging a reasonable (according to them) 30% plus rate for over due balances. At this crazy rate your debt could double every 3 to 5 years, even if you make the minimum payments.

I’ll admit some of the provisions in the bill are good (like longer statement cycles and no double cycle billing), but credit companies are much smarter than the government and I can assure they will find loop holes in the new laws to continue making even more money. They’ll just add a “government regulation service charge”, to deal with the additional bureaucracy imposed on them. Despite being an on-time, in-full bill payer and responsible credit card user, I am going to get slugged along with those who were irresponsible with their money, access to credit and had bad spending habits. So much for doing the right thing.

My simple two step solution to deal with credit card debt – Don’t get a credit card and cut out habits that make you spend more!

Photo Credit : Andres Rueda

Will there be More Stimulus Checks, Social Security Payments and Tax Credits in 2010, 2011 and Beyond

2009-05-23T13:36:00.010-04:00

All the tax credits/deductions and payments provided in the massive 2009 economic stimulus package will no doubt be hard to top in the years ahead. However the good news is that there will be more credits and deductions available to most Americans in 2010, 2011 and beyond. These will continue to be funded from the $700 billion stimulus package, with additional funds coming from President Obama’s ten year annual budget. From previous posts on the stimulus tax credits and the over 400 comments, folks are clearly divided on the payment of these credits with many complaining that these payments and tax breaks are just more wasteful government spending with little real impact. However, for many Americans, young and old, these payments are a big and much needed boon in tough economic times.

Whatever your stance as it relates to the stimulus payments, many of these tax credits and deductions have been passed by Congress and signed into law by the president. So if you qualify, saying no to what amounts to free money is just bad personal finance. Therefore plan ahead and make sure you take advantage of these credits.

Extended till 2013 : The Making work pay tax credit provides $400 for individuals and $800 for couples, phasing out completely at $190,000 for couples filing jointly and $95,000 for single filers. Because the credit is refundable (people can get it even if they owe no tax), most low-income workers will also qualify for the full credit. If you're eligible, your payroll administrator will make the withholding adjustment automatically and thereby increase your take-home pay. The average worker will see this tax credit in the form of a $10 and $20 pay rise per year based on your tax rate. You may prefer not to adjust your withholding amount and can get your stimulus in a lump sum payment as a tax refund when you file your 2009 and 2010 taxes. Under the 10 year Obama budget, this credit is set to be extended to 2013.

Home Owner Credit payout in 2010 for homes purchased in 2009: While you could have claimed the $8,000 stimulus funded new home buyer credit this year, many Americans will be claiming it in their 2009 tax returns filed in 2010. With the housing market showings signs of a bottom, this credit along with lower home prices is enticing buyers back into the housing market. The key is ensuring you are eligible to claim the credit in 2010, which includes:

- Only homes purchased from Jan 1 2009 to Dec 1 2009 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 credit may not be claimed before the closing date. So ensure that you complete your purchase/closing by December 1 to claim this rather large credit. It is unlikely this credit will be extended, given the bottoming of the housing market
- Your modified adjusted gross income (MAGI) must be less than $95,000 or $170,000 (if married filing jointly). Work with your accountant and/or financial planner this year to ensure your income falls in these thresholds
- You should buy the house on your own because you cannot claim the credit if you acquired it by gift or inheritance OR if you acquired your home from a related person
- If you and your spouse claim the credit on a joint return, 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. Also, if you are married joint filers, both partners must meet the first-time home buyer criteria. So if you are planning to get married this year to someone who has owned a home - you may want to buy a home first and get married in 2010.

Mass Transit Fringe Benefit in 2010: Employees may exclude from income $230 per month in commuter transit benefits in 2009 and 2010 (adjusted for inflation). These qualified transportation fringe benefits are excluded from an employee's gross income for income tax purposes and from an employee's wages for payroll tax purposes.

New Vehicle Tax Deduction in 2010: In addition to the working tax rebates and home owner tax credit, the stimulus bill provides tax breaks for new vehicle buyers by giving them a federal-income-tax deduction on local and state sales and excise taxes. It enables taxpayers to buy now and get cash back later on in their 2009 tax returns (filed in 2010). It is applicable to the sales and excise tax on any new vehicle up to $49,500 of the purchase price. The car, SUV's, light trucks or motorcycles must be purchased after Feb 16, 2009 and before Jan. 1, 2010 to qualify of this tax deduction. This is also another provision that is unlikely to be extended into next year.

Energy Credits in 2010 and 2011: Given the President’s strong focus on the environment and clean energy, it was not surprising to see additional tax credits for home energy efficiency improvements. The Stimulus package provided for a uniform credit of 30 percent on the cost of qualifying improvements up to $1,500, such as adding insulation, energy-efficient exterior windows, and energy-efficient heating and air conditioning systems. The credit can be claimed via your tax returns in 2010 and 2011 for improvements placed in service during 2009 and 2010.

Education Credits claimable in 2010 and 2011 - The new American Opportunity Credit modifies the existing Hope Credit for tax years 2009 and 2010, making it available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. It also adds required course materials to the list of qualifying expenses. Many of those eligible will qualify for the maximum annual credit of $2,500 per student. It also adds required course materials to the list of qualifying expenses and allows the credit to be claimed for four post-secondary education years instead of two. The full credit is available to individuals, whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return. Many of those eligible will qualify for the maximum annual credit of $2,500 per student, so make sure you look into it, to help with rising college costs. There are also provisions in the 2010 budget to increase the maximum Pell Grant for college students, from low income households, in the next school year to $5,550.

2009 Social Security Payment: Unfortunately there are no plans currently in place to extend the $250 one time stimulus payment to social security recipients. The Social Security Administration (SSA) reports that everyone who is entitled to the $250 payment should have received it by late May 2009. If you have not received it, make sure you visit the SSA website and follow up via the provided phone numbers.

The bulk of tax provisions in the stimulus package affect tax year 2009 - individual tax returns due April 15, 2010 - and tax year 2010 - individual tax returns due April 15, 2011. So it is important to plan your 2009 spend to ensure you qualify for the credits and deductions. I will continue to update this article and I encourage you to subscribe (free) via Email or RSS to get the latest news.

Tips on Purchasing a Disability Insurance Policy - Forgo it at your own Peril

2009-05-19T19:04:00.003-04:00

If you are like most people, disability insurance is not very high on your list when it comes to coverage you should have. Most workers take the standard (free or subsidized) disability insurance offered by their employer and if none is available, they simply forgo it. This is strange because the risk of disability is far higher than the risk of death. In fact, the Society of Actuaries found that one worker in ten becomes permanently and totally disabled before retirement and that one worker in three becomes disabled for at least 90 days.

Disability insurance subsidizes your loss of income in the case of serious injury or illness. Or said another way, it will replace a portion of your lost income when injury, chronic illness, or other disability forces you to leave the workforce. Disability policies provide either short-term or long-term coverage. Short-term policies may provide up to two years of coverage, although these policies typically cover a much shorter period, perhaps 13 to 26 weeks. Short term disability (STD) is the one normally offered for by many employers. However for more complete coverage you should get some level of long-term insurance, which may extend throughout the policyholder's working life, often until he or she reaches age 65. At that age (or before, in some cases), the policyholder can usually qualify for medicare and social security.

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Here are some useful tips when it comes to purchasing disability insurance. Hopefully they’ll help you ensure you're adequately covered and perhaps even save some money along the way.

Best place to purchase: Your employer, thanks to group policies, is probably the best place to purchase disability insurance. Even if you think you get free or subsidized disability insurance, read the fine print because you are probably only getting the cheapest short-time type of insurance as part of your benefits package. Also, if your spouse works, compare who gets the cheaper insurance and go with the more cost effective policy. If you buy a policy through your employer, the downside is that if you leave your job, you could be without disability insurance until you acquire coverage from another employer. To ensure continuous coverage, you may wish to purchase a policy outside of work. Sites like insure me provide a simple way to get a comparison of quotes from multiple providers in one place.

Buy a policy with after-tax dollars where possible: The reason is simple - benefits paid by a policy purchased with after-tax dollars are not taxable. My employer allowed to me to buy life and disability insurance on a pre-tax basis, which I had thought was a great deal until I read that if you pay for a policy premium with pre-tax dollars, you would owe federal income taxes on those benefits. This makes them worth far less - especially if you are in a higher tax bracket. Because your insurance policy premium is likely to be much less than your potential tax liability of the pay out, getting your life insurance on an after tax basis makes more sense. So if your employers allow you to purchase disability insurance with after-tax dollars – take it. This means you could use 100% of your benefit payment for your living expenses

What to look for in a disability policy : From a recent Vanguard article, here are the main factors to consider when shopping for a policy. The right policy cost and coverage will vary by individual and circumstance, so the perfect policy for one person may be far from suitable for another.
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1. Waiting or elimination period: If you become disabled, you won't begin to receive benefits until the end of the waiting period, which can range from 30 days to two years. More common is a waiting period of 90 to 180 days. The shorter the waiting period, the better, though you'll probably pay more for a shorter elimination period. Because just about all disability policies carry some elimination period, it's important to set aside emergency savings to cover your living expenses during the elimination period.

2. Waiver of premium: This means that if you become disabled, the insurance company will waive the policy's premium payments during your disability. Most policies allow for a waiver of premium. If not, ask for it.

3. Inflation rider: Sometimes an inflation rider is a policy option. The payments under most disability policies rarely keep pace with the rising cost of living. An inflation rider can provide this benefit. It will most likely cost extra, but if you suffer a long-term disability, this provision could prove very valuable.

4. Non-cancelable clause: As long as you pay the premiums, the insurance company may not cancel the policy under any circumstances. Once established, the terms of the contract may not be altered, and the premiums may not be raised. Non-cancelable policies are generally the most expensive option.

5. Renewable: If you buy a policy today, can you renew it? That depends on the policy's renewal rules. Generally you want guaranteed renewable policies because the insurance company must continually renew coverage over an extended period, which is specified in the
contract. No contract modifications can be made, and rates may be raised only for an entire class of policyholders. On the other side of the spectrum are cancelable policies, where the insurance company may terminate coverage for any reason by giving due notice to the policyholder.

Qualifying for Disability Benefits

To receive benefits under a disability insurance policy, you must meet the policy's definition of disabled. Disability is commonly determined according to two standard definitions: "own occupation" and "any occupation" Under Own occupation, you are considered disabled if you are unable to perform the primary duties of your occupation. Any occupation means that you must be unable to pursue any form of gainful employment. Obviously, an own-occupation policy is more attractive to a policy holder and so is more expensive than any-occupation policies. For higher-income or specialized workers, the extra expense may be worthwhile. Some insurance companies also market a hybrid policy: two years of own-occupation coverage, followed by any-occupation for the remainder of the policy.

One thing to remember is that most insurance companies will insure no more than 60% to 70% of a person's income. For high-income workers, the limit may be closer to 50%. So while it is better to have some income than nothing at all, disability insurance is never going to provide 100% income insurance. That’s why emergency funds and living below your means must be part of your longer term planning.

Picture Credit : YoungDoo

Forget buying a Laptop or Notebook - I am getting a Netbook

2009-05-17T14:28:00.007-04:00

Part of setting up my new small business home office, meant getting a new PC that I could use to write for this blog no matter where I was at home or on the road. Initially I started my search looking at standard laptops/notebooks from the usual makers Dell, HP and Apple but I soon discovered a new type of computing device that is gaining immense popularity and is much more suitable for mobile-wireless computing. It is called a Netbook, or mini-laptop, and you'll be seeing more and more students, travellers and professionals using these really cool computers.

A Netbook is basically a small portable laptop/notebook computer designed for wireless communication and access to the Internet. They typically use a slimmed down Windows XP or Linux operating systems and are ultra light weight, typically weighing between 2 and 4 pounds (~ 1 Kg). Their LCD display’s range in size from 7 inches to over 12 inches. But what makes them stand out and the reason for their growing popularity, is that they are significantly cheaper (up to 50%) than regular laptops and notebooks, with prices ranging from $200 to $500.

They are definetly designed for users that work on/with the internet and pack a lot of power into their little shells. Nearly all models offer several USB ports (no CD/DVD drive), a webcam, LED backlit screens, integrated speakers, Wi-Fi and more, so have everything most users need. Battery life is good, though this is dependent on usage. Overall, though the trend towards netbook is growing rapidly and after coming to the market a year ago they are projected to grow to more than 20 million units by the end of 2009.

So which one is best?

As the netbook market grows, more and more players are coming into the market. This means that there are a number of choices out there and really most of them come with similar features. The key selection criteria for me were price (less than $400), battery life (6 hrs+), screen size (~ 10 inches), weight (less than 3 pounds) and memory (at least 1GB RAM and 150 GB disk) . Here are my preferred models so far: (all prices from Amazon as of post date; for more details on the each of the models below click the title link)

ASUS Eee PC 1000HE 10-Inch Netbook (~ $385)
Key features : 1.66 GHz Intel Atom Processor, 1 GB RAM, 160 GB Hard Drive, 9.5 Hour Battery Life and weighs less than 3 pounds

Asus was one of the first players in the netbook market and its new modesl are gaining rave reviews, with a recent NY Times/Cnet review saying that the netbook was “a small, light, and sexy device aimed at the fashion-conscious netbook fan who puts portability slightly above performance…The glossy black finish, the gently tapering lid, and the wedge-shaped profile all contribute to an overall design that’s more aesthetically pleasing than that of rivals.” For the price and features, this laptop looks like a deal.

Acer Aspire One AOD150-1165 10.1-Inch Sapphire Blue Netbook (~ $330)
Key features : 1.6 GHz Intel Atom Processor, 1 GB RAM, 160 GB Hard Drive, 6.5 Hour Battery Life and weighs around 3 pounds

Acer is fast becoming the new Dell of computing and this new netbook offering combines a solid model with a great price (cheapest one for the features I was looking for). From the pictures and what I say at my local Best Buy, this laptop looks very sleek in addition to having great graphics (webcam looked great). Unlike the Asus model though, this one does not have any built-in bluetooth capability and keyboard seems of lower quality.

Samsung NC10-14GB 10.2-Inch Netbook (~ $400)
Key features: 1.6 GHz Intel Atom Processor, 1 GB RAM, 160 GB Hard Drive, 6.5 Hour battery life and weighs 2.8 pounds

This model has the biggest and best screen of the lot. The unit is ultra-compact and like most Netbooks its projected area is smaller then an 8.5"x11" sheet of paper and the closed clamshell is 1" thick (about the size of an A4 book). The only draw back relative to the other models was the price, which is higher for the 0.2 inches of extra screen space.

I also liked the HP Pavilion and MSI Wind netbooks, but they didn't meet my price and weight criteria. Most netbooks offer a one year warranty, so there is no need to buy an extended warranty, because of the lower price trends and rapid evolution of these devices it will be more cost effective to buy a new one in a year. If you do want more computing power (for programming or gaming) and still need portable computing, it is almost cheaper to buy a powerful Dell or Acer desktop for your home and a netbook for travel, rather than buying a powerful and more expensive laptop or notebook.

I’ll be making my purchase early next month and am strongly leaning towards the popular Asus model, though also like the Samsung model based on my current work laptop. To me netbooks provide the all usefulness and functionality of a regular notebook/laptop, but at a much lower price.

Related:

~ China Taking over the Internet as Usage Surpasses America
~ Setting a Good Online Password
~ Apple 3G iPhone update and Analyst opinions
~ Why I hate shopping at Walmart

FHA vs Conventional Home Loan - Comparing the Difference and Which is Better

2009-05-14T21:48:00.000-04:00

One of the biggest hurdles in buying a home is getting the right financing at the price. This is especially the case in the current market where banks are placing strict criteria, and requiring large down payments to get a conventional home loan. Due to the deep recession, stock market plunge and other constraints many homeowners cannot take advantage of historically low rates and the $8000 new home owner tax credit, because of the inability to get funds required for a 15% to 20% down payment. This is where FHA (Federal Housing Administration) loans can help borrowers with low cash reserves, spotty credit history or other extenuating circumstances. A FHA Loan is one that is insured by the federal government against default, which makes it more appealing to lenders. The lower risk profile of the loan means that FHA loans generally have lower interest rates than conventional loans.

Conventional or traditional home loans on the other hand have no guarantees other than the borrowers credit and financial record to repay the loan. The higher risk, means banks want more assurances and greater down payment for these types of loans.

Conventional and FHA loans may be "conforming" and "non-conforming". Conforming loans (normally less than $417,000 in most states) follow the terms and conditions set by Government sponsored entities Fannie Mae and Freddie Mac that securitize these loans. Nonconforming loans are those that don't meet Fannie Mae or Freddie Mac qualifications, and are also called jumbo loans. Both FHA and Conventional loans can be fixed rate mortgage or adjustable rate. To know which type of loan is right for you, it is worth looking at some of main differences between FHA and Conventional home loans.

- The main advantages of a FHA versus conventional loan is that the qualifying criteria for a borrower are not as strict as those on a conventional loan and the down payment or upfront equity requirements are significantly less. In today’s market, to get the best rate on conventional loans you need 15% to 20% equity (assuming good credit and employment history). FHA loans typically require around 5%, but can be as low as 3.5% of the purchase price, and most of your closing costs and fees can be included in the loan. You will to need to buy mortgage insurance though.

- FHA loans will allow the borrower who has had a few "credit problems" or those without a credit history to buy a home. An FHA underwriter will require a reasonable explanation of these derogatories, but will approach a person's credit history with a more lenient approach. Most notably, borrowers with extenuating circumstances surrounding a bankruptcy that was discharged 2 years ago can be approved for maximum financing. Conventional financing, on the other hand, would require multiple years to have passed to be eligible for consideration and relies heavily upon credit scoring. If your score is below the minimum standard, you will not qualify or you will be place in a higher rate Subprime, Alt A or A minus loan product. See this post on ways to improve your FICO Credit score

- FHA loans are generally best suited to first-time homebuyer’s who don't have a lot of money to put down on a house, average credit and worried about qualifying for a conventional loan. If a borrower does have past credit issues an FHA loan may be significantly cheaper than an alternative loan such as subprime, ALT A, or A minus. These other programs generally have higher interest rates or require a larger down payment or equity position. Many of these alternative loan products have pre payment penalties where as FHA loan do not have such penalties. However, it is important to compare the ongoing costs of a FHA loan and conventional loan to get an idea of the total cost to you.

- Another advantage of a FHA vs conventional loan is that FHA is one of the few home mortgage programs that allow a borrower to have their down payment gifted from a family member, a governmental agency, or non-profit organization. This allows home buyers without the necessary money to buy a home today.

FHA Loan Disadvantages

- Conventional financing generally does not require an upfront mortgage insurance premium when a borrower closes on the loan. With FHA financing, that fee for a 30 year loan is 1.75% of the loan amount that the borrower can wrap into the mortgage. On a $100,000 for 30 years at 8%, that's an additional $11.51 that the borrower must pay each month. That's almost an additional $132 the borrower must pay each year (fortunately the interest a borrower pays on his or her mortgage on a primary residence is tax deductible).

- Another drawback to FHA loans is that the loan limits set for FHA loans are typically less than the loan limits for conventional financing in most parts of the country. If a borrower is looking for a mortgage that exceeds the FHA loan limits for the area, the borrower would have to put additional money down on the property or finance under a conventional mortgage, Subprime, Alt A or A Minus product. Under the stimulus package FHA loan limits have been raised in many areas and FHA offer FHA Jumbo Loans (check for this option with your lender)

- You will have to buy mortgage insurance on an FHA-insured loan. The upfront premium is an amount equal to the following percentages of the mortgage that ranges from 1.75% to 3%. Most conventional loans also require mortgage insurance when your down payment is less than 15 to 20% of the sales price. On conventional and subprime loans, mortgage - insurance is provided by private companies. Whether private mortgage insurance is less than, equal to, or more than an FHA-insured loan’s insurance will depend upon the loan program and your qualifications. Compare the cost of FHA to subprime and conventional types of loans over the life of your loan. Then compare how much each one costs monthly. The FHA deal will probably be better. However, if you can afford a 15 to 20% down payment on a conventional loan, you won’t have to pay any mortgage insurance. A potentially big saving for larger loans.

- The time to process and to approve FHA loans is much longer than that for conventional loans due to the extra checks required for FHA approved loans. A conventional loan can take 2-3 weeks to process from application to approval. An FHA loan can take anywhere from 4 to 8 weeks, based on the credit and background checks required by various parties involved.

In Conclusion

Conventional loans usually require a larger down payment than FHA and if you have less than perfect credit you may not qualify for an affordable mortgage with a low interest rate . The best thing to do is compare the cost of the conventional loan to an FHA-insured loan line-by-line. What are the fees for each? What is the interest rate? How much is the mortgage insurance? How much down payment is required? For some borrowers, a conventional loan may be less expensive. For many others, getting an FHA-insured loan is the way to go.

If you can afford to put down more than 15% or 20% - without jeopardizing your current and financial position, then go with conventional loan because you pay no PMI and will get a very competitive interest rate. Otherwise, consider going with a FHA loan.

Record Home Price Drops May Signal Housing Market Bottom

2009-05-12T22:24:00.009-04:00

Despite median home prices across the nation falling by 14 percent to $169,000, there are emerging signs that the housing market may be stabilizing and reaching a bottom. For new or would-be homeowners, mortgage rates below 5% and all the stimulus tax incentives have made buying a house much more affordable and attractive. And many of them have acted, with inventory of previously owned homes on the market dropping to 3.7 million in March from 3.8 million a month earlier, according to National Association of Retailers (NAR) data. The number of new homes for sale fell to 311,000, the lowest since January 2002, according to the Commerce Department.

As more people enter the housing market and inventories fall, home prices will eventually start rising providing much needed relief for current homeowners who bought in the last few years, with many owing more on their property than it is worth. In fact sales in the most distressed markets are now shooting up as prices fall, Nevada was up 117 percent; followed by California which rose 81 percent; Arizona up 50 percent; and Florida with a 25 percent increase. There are also signs that home price declines are slowing, with the latest home price falls lower than the first few months of the year.

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"I do think we have some early signs that the market overall is stabilizing," Housing and Urban Development Secretary Shaun Donovan said today in a speech at an NAR conference in Washington. "Since January we’ve seen both home sales moving up and down around a relatively stable number and we are seeing the first signs that the rapid decline in home prices is starting to abate." Donovan said the government will allow first-time homebuyers to use the $8,000 tax credit approved by Congress in February (see all the details) as a down payment on mortgages guaranteed by the Federal Housing Administration.

With the overall economy and stock markets showing signs of revival, people are getting more confident about future prospects that in turn should drive housing markets to the upside. News reports highlighting sharp home price drops are skewed because they focus on foreclosure and short sales, whereas the fall in prices for traditional homes has been far less widespread. In fact if you bought your home more than 10 years ago, chances are you still have a lot of equity in your home.

No doubt it will take a few years for all the excess inventory to clear and it's unlikely 20% plus annual home price rises experienced earlier this decade will return, but eventually a house will once again become an asset rather than a liability.

** Don't Refi, Modify your Loan. Facing Foreclosure? Talk to a loan modification expert, save your home. **

Leveraged Inverse ETFs - The Quickest Way to Double or Triple your Exposure from Financials (UYG) to Resources (DIG)

2009-05-08T10:14:00.000-04:00

What are the hottest investments currently on Wall Street? You'd be surprised, but the answer is leveraged exchange traded funds (ETF's). In March alone, over 3.5 billion of new funds poured into these type of investments according to the WSJ. Leveraged ETFs offer double or even triple the daily return of a market index. Some of them, called "inverse" ETFs, move opposite to the market - for example, going up twice as much as an index goes down. Each day, they all adjust their exposure by rebalancing, or "releveraging," their positions.

How they work: Leveraged ETFs usually generate a multiple of the market's daily return by using something called a "total-return swap." Imagine a fund with $100 million in net assets and 200% leverage, meaning that it seeks to deliver twice the market's daily return. That requires the fund to maintain $100 million in swap exposure. In a long swap, a counter party like a bank or brokerage firm agrees to pay the fund $2 for every $1 rise in the closing value of a market index that day. On the other hand, if the market falls, the fund must pay the counter party 2-for-1.

From an investor perspective though, you can treat leveraged ETF's like any other ETF/stock that you buy through your online broker. The key is understand how you can make money via the ETF from movements in the underlying index. Here's an example from my own personal trading experience using Proshares Ultra Financials (UYG) and UltraShort Financials (SKF). These two leveraged ETF's seek to provide twice the daily performance of the Dow Jones U.S. Financials index. If you think the index is going to rise (i.e. financial stocks doing well) then you would buy UYG, alternatively if you think things are going to get worse you would buy SKF (where you make money if the index falls). The thing I like about these ETF's are that they are heavily traded so have a lot of volume and selling/buying is never an issue. Also, unlike options they do not expire and given the massive volatility in the financial markets, I have found you will eventually make money with them. My rule has been to sell whenever they go up by around 40 to 50%. For the last 3 months this has worked very well for me and I have made about $9,000 buying and selling these stocks. Thanks to $0 trades from Zecco, I paid no transactions costs either.

Other leveraged ETF's that I am going to start looking into are related to technology and resources sector, which I think are going to boom in the next 6 months. For these two sectors, I am focusing primarily on the upside ETF's - ProShares Ultra Technology ETF (ROM) and Ultra Oil & Gas (DIG). For a full list see the table here from Proshares, the biggest provider of these types of ETFs.

In Conclusion

Like any investment leverage ETF's have an element of risk and do not trade them unless you have the time and know what you are doing. To understand them better, do some research via the Morningstar fund research website and then follow them for a few days to understand how they work. My final piece of advise is not to get greedy when a market rallies in a way that favors your leveraged ETF position. Your gains are multiplied, but so are your losses if the index/market turns the other way. So sell when you make profits, because you will surely get another chance to buy in again.

How to Succeed in Business

2009-05-06T00:07:00.002-04:00

The value added column in the Washington Post brings us the small business success story of Steve Fleishman, founder and president of Bethesda Bagel. He built the business from scratch to a franchise and manufacturing enterprise that delivers 15,000 bagels daily to 200 wholesale clients, that enables him and his partners to draw six figure salaries today. Clearly he has achieved success and is well on his way to financial freedom. What I found particularly insightful about the article were the key traits and characteristics that made Steve successful in his business venture. Whether, you are a business owner, thinking of starting one or just interested in stories of entrepreneurship these are great habits to keep in mind:

Ambition and Drive: By this own admission Steve Fleishman is driven and ambitious - "I grew up hungry," – and this enables him to work hard and be passionate about this business over many years. I believe this is vital for any business, job or venture. If you do not have some level of passion or belief then your chances of success are that much lower.

Varying Paths: Like most people, you will probably do many different things before you find something you are good at, and from which you can make a decent living. In fact you will most likely do a number of jobs "just to pay the bills”, before you fund the one career or business that you are passionate about. Steve, studied electrical engineering and liberal arts, then became a roving property manager for a family venture before realizing that this was not what he wanted in life. There is no single and defined path for being successful in life, and you must seek out or take opportunities wherever they may arise.

Contacts, Networks and Family: These are important in all aspects of life and even more so when starting a new venture. Steve started his business in Washington DC and got the idea for it through his wife’s contact who lived there. He also leaned on this family to get initial financing for his business, a very useful source with most banks unwilling to lend to new business owners (particularly in today’s economy). It seems that Steve’s success was driven in large part by the support and advice of friends and family. A trend that is evident in most small businesses.

Find a niche and replicate a successful business or idea: Many people are reluctant to start a business or pursue an idea in a small or new market because they cannot see the profit potential. However it is precisely in these types of markets that existing successful ideas or products can be replicated succesfully. Steve, replicated the bagel business in New York to a relatively under served(large) market in Washington DC. By providing a better product and leveraging his learning’s from an established market, he came to dominate the local market which had little or no competition. It is much easier (and profitable) to legally replicate a proven product or service, than to try and invent one from scratch.

Become an expert and know the details: To succeed in a job or business you need to know all aspects of the business. Right from how the product is made or service delivered, to the accounting and capital aspects of running the enterprise. Just because you may be highly educated and/or experienced, does not mean you don’t have to roll your sleeves up and get into the details. Steve, an electrical engineer by training, went back to learn the bagel business from scratch, while still keeping his day job – “He got a job making handmade bagels at Boulevard Bagels in Queens, where he reported every morning before his real estate job and then came back at night. "I apprenticed," said Fleishman. "I learned how to make a good bagel, nothing else."

Research : Before jumping into any venture, do you homework first. This is particularly important if you have an existing job. Obviously this means working before/after work and on the weekends. But doing the right research, talking to people you trust, can make the difference between success and failure. Over 75% of small business’ fold in their first 3 years – which is probably due in large part to poor preparation and not knowing the market.

Cash is King : Whether it is your own home or a business, we all know the value of cash and credit. Bills need to be paid and new things need to bought, for which you need funding. If you don’t have the money you have to borrow, on which the cost (interest) could be very high. Steve said that the hardest part was of starting out was coming up with enough money to grow the business because they were undercapitalized. This is a common problem that most business owners face and the sooner you learn to manage your cash flow the more stable your business will be. A good rule of thumb I have read is that when you are planning your business, double your estimates of the cash flow you think you will need.

For more great information on starting a small business I recommend these two inexpensive books, which provide a ton of useful information on the small business process: The Big Book of Small Business and How to Succeed as a Small Business Owner ... and Still Have a Life.

Green Energy Home and Auto Tax Credits in the 2009 Economic Stimulus Package

2009-05-04T12:37:00.006-04:00

As a soon to be home owner, I was surprised at the amount of "green" tax credits available in President Obama's $787 billion economic stimulus package (aka 2009 American Recovery and Reinvestment Act). The $1500 energy efficiency credit has been well publicized, but there are a lot more goodies in there that you could save you a lot of money when it comes to tax returns next year, and reduce your carbon footprint to boot. From the IRS, here are some of the main new and expanded energy efficiency tax credits that all homeowners and car buyers could take advantage off:

Tax Credits for Home Energy Efficiency Improvements Increase: Bigger tax credits for making energy efficiency improvements or installing alternative energy equipment.The Stimulus package provides for a uniform credit of 30 percent of the cost of qualifying improvements up to $1,500, such as adding insulation, energy-efficient exterior windows, and energy-efficient heating and air conditioning systems. The new law replaces the old law combination available in 2007 of a 10-percent credit for certain property and a credit equal to cost up to a specified amount for other property. The new law also raised the limit on the amount that can be claimed for improvements placed in service during 2009 and 2010 to $1,500, instead of the $500 lifetime limit under the old law.

Residential Energy Efficient Property Credit: This nonrefundable energy tax credit will help individual taxpayers pay for qualified residential alternative energy equipment, such as solar hot water heaters, geothermal heat pumps and wind turbines. The new law removes some of the previously imposed maximum amounts and allows for a credit equal to 30 percent of the cost of qualified property.

Plug-in Electric Drive Vehicle Credit: The stimulus bill provides a modified credit for qualified plug-in electric drive vehicles purchased after Dec. 31, 2009. To qualify, vehicles must be newly purchased, have four or more wheels, have a gross vehicle weight rating of less than 14,000 pounds, and draw propulsion using a battery with at least four kilowatt hours that can be recharged from an external source of electricity. The minimum amount of the credit for qualified plug-in electric drive vehicles is $2,500 and the credit tops out at $7,500, depending on the battery capacity. The full amount of the credit will be reduced with respect to a manufacturer's vehicles after the manufacturer has sold at least 200,000 vehicles.

Plug-In Electric Vehicle Credit: The new law also creates a special tax credit for certain low-speed electric vehicles (including those with two and three wheels). The amount of the credit is 10 percent of the cost of the vehicle, up to a maximum credit of $2,500 for purchases made after Feb. 17, 2009, and before Jan. 1, 2012. To qualify, a vehicle must be either a low speed vehicle propelled by an electric motor that draws electricity from a battery with a capacity of 4 kilowatt hours or more or be a two- or three-wheeled vehicle propelled by an electric motor that draws electricity from a battery with the capacity of 2.5 kilowatt hours. A taxpayer may not claim this credit if the plug-in electric drive vehicle credit is allowable.

Tax credit for plug-in electric drive conversion kits: The credit is equal to 10 percent of the cost of converting a vehicle to a qualified plug-in electric drive motor vehicle and placed in service after Feb. 17, 2009. The maximum amount of the credit is $4,000. The credit does not apply to conversions made after Dec. 31, 2011. A taxpayer may claim this credit even if the taxpayer claimed a hybrid vehicle credit for the same vehicle in an earlier year.

Unless noted above, the criteria for claiming the tax credits are

* Must be "placed in service" from January 1, 2009 through December 31, 2010
* Must be for taxpayer's principal residence, EXCEPT for geothermal heat pumps, solar water heaters, solar panels, and small wind energy systems (where second homes and rentals qualify)
* $1,500 is the maximum total amount that can be claimed for all products placed in service in 2009 & 2010 for most home improvements, EXCEPT for geothermal heat pumps, solar water heaters, solar panels, fuel cells, and small wind energy systems which are not subject to this cap, and are in effect through 2016
* Improvements made in 2009 will be claimed on your 2009 taxes (filed by April 15, 2010) - use IRS Tax Form 5695 (2009 version) - it will be available late 2009 or early 2010
* If you are building a new home, you can qualify for the tax credit for geothermal heat pumps, photovoltaic's, solar water heaters, small wind energy systems and fuel cells, but not the tax credits for windows, doors, insulation, roofs, HVAC, or non-solar water heaters.

For more information on the above check out the IRS.gov and Energy Star websites which provide more detailed information.

Picture credit : lcrf

Other posts on the various stimulus tax credits and deductions available to you:
- $800/$400 Working Tax Credit
- $8,000 New Home Buyer Tax Credit
- Key Dates to Receive the Economic Stimulus Payments
- Tax Deduction for New Cars up to $49,500

Setting up My Small Business Home Office

2009-04-30T08:53:00.003-04:00

I recently incorporated my first company. It has one employee - me - and its only asset is this blog. But it was a great feeling to officially become a small business owner, thereby joining 15 million other Americans. The reason for incorporation was primarily driven by the taxation benefits as I detailed below, but I also think it will make me more focused on my goals and growing this blog from a hobby to a serious source of passive income. Part of moving to a small business mindset has also involved setting up a (formal) small office space in my home and undertaking all the associated organization activities that go with that. Like the majority of small business owners and especially those whose work involve sales and/or on-line related activities, my office is my home. Initially I just worked where I wanted, but have now becoming more cognizant of having a real "office space" where I can focus, avoid disturbances (i.e. the kids) and have everything I need for getting the job done.

After working from my home office for a few weeks, I have found that the two main things you should get, without blowing the bank, are a good laptop (more on this in a future post) and purchasing a 4-1 (copier, fax, printer, scanner) home office printer. I shopped around for a number of printers and the best one I found for my budget (~ $200) was the Brother MFC-790CW Color Inkjet All-in-One Wireless-Touchscreen model. For the price this printer has all the features I need, especially the fax and copier, which are so important to deal with all the paperwork, and for a non-tech person like me it was very easy to use and setup. The other cool thing was the wireless features which reduced the cables junk and allowed other's in my house to print to the printer. However, the biggest long term cost with printers is ink and toner, and compared to similar HP and Cannon models, this printer provides the best value. From a furniture perspective, I bought my desk and chair from IKEA (less than $200), though recent back problems have made me consider a more expense ergonomic chair. The key thing with setting up your home office is that you make it comfortable and functional to what suits your style. Set a budget but buy good quality stuff, and best of all whatever you spend on a home office is tax deductible.

The other big challenge most new small business owners face is when it comes to Taxation and, Finances. One of the primary reasons people incorporate is for taxation purposes, because you can write off more expenses (the list is pretty big) and the IRS and State taxation agencies encourage the setup of small business (they are more likely to audit business expenses in a 1040 Schedule C personal tax return, than if these expenses are claimed via a corporation). However, setting up a company and managing the ongoing accounting does create extra administration. While you can get pretty good software like Intuit's Quick Books to manage your payroll, taxes, income and expenses, I recommend finding a good accountant to help you through the first year. I was lucky too find one who charges me on average between $150 and $250 a month based on income, but takes care of all my paperwork, payroll and end of year taxes. One good benchmark she gave me was that if you earn more than 25% of your total income from a side-venture (or more than $2000 a month) then it will most likely make sense to incorporate.

Finally, you will spend a lot of time online when trying to find tips and ideas on navigating through all the small business setup and administrative activities. Because time is money, particularly if this business is a side venture, save your self some time and buy these two inexpensive books, which provide a ton of useful information on the small business process: The Big Book of Small Business and How to Succeed as a Small Business Owner ... and Still Have a Life.

Getting a good business checking account and credit card are also important, and I will cover my experience and tips with getting these in a future post. From feeling overwhelmed, I am finally getting my head around what needs to be done as a small business owner and things are really not that hard (plus the potential is enormous). Once I get my operational activities under control and build a solid base, I'll start putting together a business plan for my future growth. It definitely feels good to be the boss!

Feel free to share any other good tips for the initial setup of a small business, and I encourage you to subscribe (options below) it you want to follow my small business journey, whether as a voyeur to see how things go or to get some useful tips for your own enterprise.

Swine Flu Virus and the Cost of Staying Home

2009-04-28T13:15:00.001-04:00

The latest global flu pandemic has spread quite rapidly and despite the media over-hype, there is a good chance that it will be coming to an area near you. What this means is that you may have to take time of work - either for yourself or a family member. Unfortunately, in the current economy and tough job market, it can be a costly decision to do so. In fact over 35 million working Americans don't get sick leave and so any time off is unpaid. Whatever your situation here are some tips to ensure that your job and livelihood are protected if impacted by the flu virus: - Working from home. If your job allows discuss this option with your manager as soon as possible. This means that you should have a quiet place to work at home, internet and telephone access. Also make sure you test that you can work from home (eg VPN access). The easiest way to convince your boss that working from home is necessary is that you could contaminate others. Just remember that working from home, is not a holiday and that you may have to work even harder. If you cannot work from home, then negotiate to swap or do extra shift to make up for lost time. Employers appreciate pro-active employees much more. - Know your rights and read your HR policy : If you are able to take sick leave, then you should have minimal impact from taking a valid sick day. However many company's HR policy says that in certain national emergencies, you can get excused leave. Which means paid leave. Look for this and you many not have to use your sick or vacation days. Further, if the swine flu become pandemic (i.e. national emergency) then you cannot be fired for taking leave (paid or not) on legal grounds if you or a family member you need to take care off are actually sick. Ask any lawyer. - Get a doctors or medical certificate. If you or a family member need to see a doctor, make sure you get a medical certificate. Not just for the day you saw the medical professional, but for the potential days you may have off. Most companies require employees to get a medical certificate if they take more than 2 days off sick. If you have a valid medical certificate, then no employer can refute your time off. So get one, just in case. - Plan ahead. This obvious step is normally overlook by people. For example, there is a good chance that my kids day-care will soon be closed once the flu virus reaches my area. So I have already started finding backup options and ensuring that I get all my critical work done or deferred. Per the first point, I am also able to work at home if I need to. You should also develop a family emergency plan as a precaution. This should include storing a supply of food, medicines, facemasks, alcohol-based hand rubs and other essential supplies. Just don't wait till the last minute to get prepared. At the end of day, if you really are ill, see a doctor sooner than later because like all flu virus' early treatments can reduce the chances of serious illness. However, most flu virus' affect less than 2% of population, so don't let this strain endanger your job.

Blogging Becoming a Serious Money Business

2009-04-24T00:34:00.000-04:00

Apparently it takes 100,000 visitors a month to make $75,000 a year from blogging! Not so sure how realistic this is based on a piece I wrote about how much bloggers make, but I would put the number more at $40,000 for that number of visitors. Still not bad by any means and if you have the characteristics required for successful blogging, it can provide a nice source of side, part time or full time income. I even listed it as one of 10 ways to make cash quickly and a recent WSJ article by Mark Penn just confirmed that blogging as a profession and source of income is one of the fastest growing segments: (See my own revenue stats and chart at the end of the article)

We are a nation of over 20 million bloggers, with 1.7 million profiting from the work, and 452,000 of those using blogging as their primary source of income. There are almost as many people making their living as bloggers as there are lawyers. Already more Americans are making their primary income from posting their opinions than Americans working as computer programmers or firefighters. Paid bloggers fit just about every definition of a microtrend: Their ranks have grown dramatically over the years, blogging is an important social and cultural movement that people care passionately about, and the number of people doing it for at least some income is approaching 1% of American adults. That's almost 2 million Americans getting paid by the word, the post, or the click - whether on their site or someone else's.

Demographically, bloggers are extremely well educated: three out of every four are college graduates. Most are white males reporting above-average incomes. One out of three young people reports blogging, but bloggers who do it for a living successfully are only 2% of bloggers overall. It takes [over] 100,000 unique visitors a month to generate an income of $75,000 a year. [ I think this number is far too high, or I am not monetizing my blog well enough!]. Professional Bloggers who work for companies are typically paid $45,000 to $90,000 a year for their blogging. One percent make over $200,000. And they report long hours - 50 to 60 hours a week. Almost no blogging is by subscription; rather, it owes it economic model to on-line advertising. Bloggers make money if their consumers click the ads on their sites.

It is hard to think of another job category that has grown so quickly and become such a force in society without having any tests, degrees, or regulation of virtually any kind. Courses on blogging are now cropping up, and we can't be far away from the Columbia School of Bloggerism. There is a lot of interest now in Twittering and Facebooking - but those venues don't offer the career opportunities of blogging. Not since eBay opened its doors have so many been able to sit at their computer screens and make some money, or even make a whole living.

While it is great to see blogging go mainstream, it does mean a lot more competition and only the very best blogs will make serious money and attract new subscribers as the market reaches saturation. Personally, it has been a great ride and the revenue has far exceeded my targets. As I stated in my about page, I surpassed my original end of year targets within the first 3 months of this year, and have since readjusted those targets. But I think I may be getting back to a more normal pattern as I have seen my traffic and revenue growth slow, after a sharp rise earlier this year. However, I see this as healthy and overall if I can generate my target income range I will be more than happy. One thing I have come to realize is that while blogging may have started as fun or a hobby, you must start to treat it as a real business if you want to consistently make money from it and like any business it takes time to grow and effort to sustain.