ArtBistro

Managing Employees on a Minimal Budget

Monster — Fri, 01 May 2009 22:12:00 -0700

Today's managers are charged with getting the most out of workers no matter what. But the reality is that many managers must coax top performances from their employees while working with a minimal budget that may require salary freezes; cuts in benefits, bonuses or perks; reductions in hours; or even layoffs.

If you're faced with a less-than-optimal budget situation, follow these tips to minimize the damage and keep your team motivated.

Don't Let Budget Dictate Management Strategy

"A manager's job is to make his or her employees look good [and] make their life easy by providing everything possible to help them do their jobs," says Brian Dema, who manages both people and budgets as part of his job as a senior consultant and director of sales and marketing at Walker Sands Communications. "This doesn't always take a lot of money to do -- just a bit of extra attention and thought to ironing out the kinks in how your business runs."

Steve Kass, Robert Half International district director, says budgets shouldn't dictate how much a manager should work on motivating the team -- motivation must be a constant priority. He says it's important for managers to show that success depends on a collective effort. If employees know their supervisors are working hard for them, they'll work hard for their supervisors, regardless of a bare-bones budget or other factors.

If a company starts to show signs of budget trouble, such as by taking extra time to fix office equipment or changing that once-large holiday bonus to a Starbucks gift card, morale can drop, and employees may begin to lose faith in the company. This is the biggest issue managers face when budgets are slashed, says Kathy Gillen, president of executive coaching company The Gillen Group.

However, a manager can play a key role in employees' attitudes, Gillen says. "If the manager's internal dialogue is negative, the entire team is affected," she explains. "You'll hear things like, ‘I can't believe this! Why can't they pay a living wage? I have to work twice as hard now.'" But when the manager comes across with a positive attitude -- for example, by saying, "OK, how are we going to make this work without long hours?" or "How can we make this fun?" -- the results can be amazing, she adds.

How to Handle Budget Cuts

Robert Mortimer, a media communications manager with BizHelp24.com, a UK-based business and finance resource for individuals and small businesses, recommends that managers consider these tips when dealing with budget cuts and the resulting morale issues:

Talk to senior management about budget cuts. You may be able to escape your share if you put forward a convincing argument.

Try to avoid wholesale changes. Ask senior management for structured reductions over time.

Take some time to reassure remaining staff that their jobs are safe; explain the market issues that forced the cuts. Mutual understanding and a desire to get back to normal will rub off on your employees.

Assign your top staff members to the most important tasks; redeploy staff to new tasks if doing so would benefit the team.

If the changes are not truly destructive, remember that good staff will adapt.

Be consistently positive as you manage and lead.

Even if you can't provide monetary rewards, you can still reward, honor and motivate employees by doing little things. Thanking your workers in front of the group, sending a thank-you email, giving workers the afternoon off or buying your staff lunch can go a long way toward keeping workers happy.

Kass says Robert Half research has found that saying thank you is one of the most popular forms of recognition for employees. "Showing you appreciate their efforts can go a long way toward inspiring them," Kass says.

Dema agrees. "With less money to throw around, you have to be an even better manager and find any way you can to reward your employees, to show them how their efforts are helping the company as a whole," he says. "Go beyond pep talks and speeches, and show them evidence of how what you are doing is making a difference."

More Companies Cut or End 401(k) Plan Matches

USA Today — Fri, 01 May 2009 06:19:00 -0700

The battle for a secure retirement is about to get even tougher. Several new surveys of company executives show that they plan to reduce or suspend their company's retirement-plan contributions this year.

Dozens of employers in the past year have already slashed such costs.

The trend means one important thing for workers: smaller nest eggs, unless they save enough to make up for the missing company contributions and matches.

Arrangements vary, but employers have often matched 25 or 50 cents of every dollar an employee puts in a retirement account, up to 6% of pay.

Companies of all sizes, under financial pressure, are "retrenching on the 401(k) front," says Alicia Munnell, director of the Center for Retirement Research at Boston College.

General Motors, (GM) Eastman Kodak, (EK) FedEx (FDX) and Sears Holdings (SHLD) are among the companies that have suspended their 401(k) contributions, according to the center.

A survey released Wednesday by research and consulting company Spectrem Group says 29% of employers intend to reduce or eliminate contributions to "defined-contribution retirement plans" in the next 12 months.

While the survey has a large +/- 8 percentage point margin of error, other surveys back up the dire forecast.

A mid-February study by employment consulting company Watson Wyatt Worldwide found that 12% of 245 large companies have already cut their 401(k)/403(b) matches — and another 12% plan to do so in the next 12 months.

Most workers are unprepared to fund retirement.

Using data from the Federal Reserve's 2007 Survey of Consumer Finances, which was published before the financial crisis, Munnell pegged the median 401(k) balance for those approaching retirement at $60,000.

Given the stock market turmoil, those retirement funds are likely only worth about $40,000 now, she says.

Most employees seem braced for the news. Nearly half of workers said in November 2008 that they were concerned that the sour economy would cause their employers "to cut back on matches to 401(k)/ 403(b)/457 plans," according to MetLife's seventh annual Employee Benefits Trends Study, which was released on Monday.

Yet, even with all of the retirement worries, there was a silver lining for employers, according to MetLife.

The struggling economy has led workers to become much more thankful for the benefits that they do have, with 56% saying they appreciate their workplace benefits more than ever before.

5 Ways to Vet Your Next Employer

Tania Khadder — Fri, 01 May 2009 06:16:00 -0700

We all know that before bringing you on board, a potential employer will do some vetting.

They'll scour the internet searching for digital dirt, or any discrepancies from your resume. They'll try to get a glimpse into your personality. They want to know as much as they can about you. After all, they’re about to let you – an unknown quantity – into their family.

Fair enough. You should do the same.

Now more than ever, it’s important to know what you’re getting yourself into. This is especially true if you’re leaving one job for another. You don’t want to leave a stable (albeit boring) work environment, only to be laid off by your new employer three months later. Besides, job hunting is a two way street – both parties should feel comfortable and confident in the potential union.

Before you sign that offer letter, make sure to do your due diligence.

Read the first tip>>>

[page]

Research their financial health

This will be easier if you’re dealing with a publicly traded company – they have to report their financials to the Securities and Exchange Commission, and all of that information is accessible to you online here.

And whether or not your potential employer is public, you can get insight into their financial health by reviewing their profile on sites like Yahoo! Finance or Hoovers.

Finally, a simple Google search can yield valuable financial information in the form of news reports, feature articles, interviews, and more.

Next Tip>>>

[page]

Understand the company's past, present and future

Revenue is not the only indicator of a company’s health. By learning more about their history, you'll have a better grasp on current performance, and where it's likely to go from here.

Do some detective work: How long has this company been around? How much have they grown since then? How do they compare to their competitors? What's the mission?

Again, you can get this information from Yahoo! Finance or Hoovers.

You can also learn a lot from your company’s own website – particularly in the About Us section. That is, if they have a company website. If they don’t, run.

Next Tip>>>

[page]

Get to know the top-level executives

Just as your employer will want to understand your professional background, you should understand theirs (or rather, the professional backgrounds of the key players).

Find out who their C-level executives and decision makers are. Learn what you can from LinkedIn, Facebook and Twitter. Google them to see what, if any, articles have been written about them.

If you find that the company is led by executives who have been single handedly responsible for the demise of countless other companies, you may want to steer clear. On the other hand, if they've been nothing but a star, you'll know your in good hands.

Next Tip>>>

[page]

Get employer “references”

As you inch closer to that offer letter, you’ll likely be asked to submit a few references – people who can vouch for your character, your professionalism, and your integrity. Why not ask the same of your employer?

Try and speak to a few of the people who work there – particularly the ones who will be your peers – to help you get a taste for what the work environment is like.

Ask them what they like about the job, what they don’t like, how long they’ve been working there and what they feel the potential for growth is. If you can, find out what the turnover is like.

Of course, they may not be completely honest with you. And even if they are, some people are just negative Nancies – so you don’t want to take everything they say to heart. But talking to a few people can give you a better idea of what you're signing up for.

Next Tip>>>

[page]

Look around you

When you go in for the interview, make sure to get a good look at your surroundings.

Are they still using clunky PCs from the 90s? Is the IT guy’s office also the “kitchen”? Are people sweating because it’s 90 degrees outside and the air conditioner is broken (and has been for months)?

These are not minute details – you’re going to spending the majority of your day here. You’ll want to be comfortable. And antiquated computer systems will surely slow you down.

If this company isn’t investing in its staff’s comfort, or giving them the tools necessary to succeed, it’s for one of two reasons: they can’t afford to or they’re choosing not to. Either way, this probably isn’t somewhere you want to work.

Hitting the Personal Financial Reset Button

By David Kiley | Business Week — Fri, 01 May 2009 06:16:00 -0700

A BW senior correspondent details his quest to repair his retirement portfolio and get his family's finances in order

It could have been worse. At the end of February—a year and change since my wife and I had shifted our money to professional wealth management advisers—our equity holdings were down 48% for the 16 months they had managed it. But our overall portfolio took a hit of just 26% during that period because early last year we pulled the "professionals" back from their plan to pile 70% of our money into equities. Instead we decided to invest just 30% in stocks and keep the rest in fixed income and cash.

But looking at the February statement, it was clear what we had to do: Fire da bums.

It's not only that we're peeved that their best advice was to go so heavily into equities months before the market crashed—and that my own instincts to hang back were correct. It's also that these guys charge 1.25 points on our portfolio annually to be in their funds. A check with some financially savvy friends revealed that such a fee for a portfolio that's merely 30% in equities is "confiscatory," as one put it.
We fired the pros, posted big gains

O.K., you may ask, now that you're going the DIY route, where are you putting your money in this market? Since Mar. 1, we have been dividing it into quarters evenly split among cash and CDs; Vanguard's stock index fund; Vanguard's bond index fund; and a Vanguard municipal bond fund. That is as plain and conservative a diversification as we can stand in this climate. The average expense ratio of these funds is just 0.15%. I spent in excess of $7,500 last year in fees to do nothing more but track the market with my stocks. This year, I figure we will make back nearly $7,000 in fees we aren't spending for what I predict will be a better return. Over the next three years, these differences alone will add up to from $20,000 to $30,000.

We took our money out of the "pros'" hands just as the market began climbing back. My wife, though, had put some of the cash into a few individual stocks before the run-up, which helped boost our short-term returns. She picked Wells Fargo (WFC) because their servicing of our mortgage has been excellent and the bank appeared to have been more conservative than others. She saw a buying opportunity when the company's stock was hammered along with Citigroup (C) and Bank of America (BAC). She was correct, bringing us gains in double-digit percentages.

We could still be hit with bailer's remorse: What if the funds we sold out of at our former adviser outperform my index funds? Will we feel as stupid as we did three months ago? According to Mark Kritzman, president and chief executive of Windham Capital Management in Boston, who recently published a study in the Feb. 1 issue of Economics & Portfolio Strategy, that is very unlikely.

[page]

Counting Expenses, managed funds lag

Kritzman measured the long-term impact of all the expenses involved in investing in a managed mutual fund or hedge fund: transaction costs, taxes, and management and performance fees. He calculated the average return over a hypothetical 20-year period, net of all expenses, of three hypothetical investments: a stock index fund with an annualized return of 10%, a managed mutual fund with an annualized return of 13.5%, and a hedge fund with an annualized return of 19%. The volatility of the funds' returns—plus turnover rates, transaction fees, and management and performance fees—was based on industry averages.

His finding: Net of all expenses, including taxes, the winner was the index fund. Expenses were the culprit. Indeed, Kritzman found that just 3% of managed funds in his modeling would do better than simple index funds.

With our dreams of retiring in a decade or so shot to pieces for the moment, we are on a rampage to make up for the losses—and add to our principal so as to maximize returns when the markets head north. Like charity, financial security begins at home.

And that brings us to the second part of the Kiley Family Recovery and Reinvestment Act of 2009. As a couple in our mid-40s with a son, we decided we wouldn't waste this financial crisis: We attacked the unnecessary spending that was hurting our efforts to build wealth. The idea is simple: Replace the money that isn't growing from stock market gains with money conserved from household budget leakage. That way, the principal will be greater when the market improves.

[page]

Here's a blow-by-blow account of the great budget beat-down:

Mortgage

We pay monthly, like most Americans. To knock down the principal, we are going to make smaller payments twice a month, a strategy that will add the equivalent of two extra monthly payments a year. This will reduce the 27 years we have left on our mortgage to a little over 22 years, saving us $77,000 in interest payments. We also are refinancing, from a 6% rate to a 5.12% rate with no fees.

School payments

Our seven-year old son attends a private school, but we've been thinking this is unnecessary because there's a very good public school in our town. For at least the next four years—until he starts middle school—we plan to bank the $11,000 a year, replenish his 529 college fund, and invest the rest.

Household expenses

It is difficult to look at daily, weekly, and monthly budget leakage. Some of the things we are identifying may make us sound like nickel-and-dimers. But we are using this recession as a teaching moment for us and for our son to change habits. Some of the things we are chopping out of our budget will likely return when the market does, but who knows? New habits may die as hard as old ones.

Greeting cards

With an extended family of more than 20, I figure I spend $75 a year on cards. They are now getting photo cards I print off my computer and pictures that my son draws.

Haircuts

I know. I'm squeezing dimes, right? But budget cutting becomes contagious. My son and I were going to the barber every six weeks to get our hair buzzed. That's $30 for the two of us. Over a year, the roughly seven visits added up to $210. I've bought a buzzer/trimmer for $22 and we now do our own hair.

Health care

I was seeing a chiropractor twice a week for $35 per visit. Cancelled. I think I can accomplish the same relief for my back by working out more on my underused Total Gym. Also my wife was seeing an out-of-network specialist, which could have cost $2,000 this year. She is now seeing an in-network specialist, which requires a 90-minute round trip.

Clothing

My wife and I are dialing back on clothing purchases by 50% this year. To maintain domestic harmony, I promised I wouldn't publish how much we're saving, but the number is substantial. The limits do not apply to our son, who is growing rapidly.

Food

We've cut back our spending at the fancy deli in town by $100 per month. We'll make do with Havarti cheese instead of the stinky expensive stuff for a while. Minimum savings: $1,200 a year.

Vacations

We've piggybacked family trips onto two of my business trips this year to New York and Florida, with days off, to save some airfare and hotel expenses. We'll save about $3,000 this year, based on what we would have spent taking those trips on our own.

Dining out

We have dialed back on going to our favorite restaurant, from twice per month to once. That saves about $80 a month, or $960 annualized.

It may all sound like a penny-pincher's life, but there's an old adage: "Watch the nickels and dimes and the dollars take care of themselves." What's better, we feel much more in control of our financial destiny.

Savings like these can be illusory if you don't track them and set the money aside for real. Each month we put the savings on greeting cards, dinners out, and haircuts into our vacation fund. That way it's sitting there when we need it and we aren't draining our working checking account. Fancy food savings are going to the 529 fund.

As market conditions dictate, we will divert money-market and CD reserves into the stock index fund as part of a dollar-cost averaging program.

We calculate that our minimum annual savings will be, to us, a staggering $24,000-plus. If we merely continue those savings over five years, add them to our remaining principal, and keep it all invested for a very conservative compound-interest return of 3.5% after taxes, it will add at least $213,000 to our nest-egg. That will put us above where we were before the markets tanked.

So the party—and the financial laziness we developed—is over. And even if the markets and home values bounce back sooner than many of us think, our new, frugal habits will hopefully die harder than our old ones did. We do, however, look forward to going back to the barber. I'm not sure how long my son will put up with Dad cutting his hair.

Beware of Higher Tax Bill Before Dropping 401(k)

Associated Press — Fri, 01 May 2009 06:16:00 -0700

DES MOINES (AP) — With economic pressures mounting, you may think reducing your 401(k) contribution is an easy way to add money to your paycheck. But before you do, consider how it will increase your tax bill.

Many people have become so focused on the recent losses of 30% or more in their account balances that they've forgotten a primary benefit of contributing to a 401(k) or an IRA is a lower tax bill.

It's a mistake to let short-term market lapses deter you from planning for your future and saving on your tax bill now.

"There is a backlash against the market, and against investing, but there shouldn't be a backlash against saving," said Dennis Suckstorf, a financial planner with Financial Advantage Inc. in Columbia, Md.

Let's say, for example, you're single and make $60,000 a year. Let's also assume you're contributing 6% of your income in a state where the income tax rate is 7%. In the end, you're saving yourself about $96 a month or $1,152 a year in taxes.

If your employer matches a portion of your contribution, you gain even more benefit because you're not taxed on the contribution which can grow in your account.

But the recession has taken a toll. An increasing number of people are halting contributions. About 6% of participants stopped putting money in their accounts in 2008, said human resources consultant Hewitt Associates. That's about twice the normal rate in recent years, said Pam Hess, director of retirement research for Hewitt, which analyzes 1.5 million retirement accounts.

Those who hoped to see that money in their paycheck may be disappointed to see just a portion because they didn't figure in the tax advantage.

"It's not dollar for dollar. They're not going to turn their contribution off and magically get all this money back in their paychecks," she said. "Being tax free is a huge benefit."

Others have simply scaled back their contributions. Hess said the average savings rate dropped from 7.8% of pay to 7.4% in 2008.

"People want to panic but they don't know how," said Richard Thaler, professor of behavioral science and economics at the University of Chicago's business school. He said the relatively low number dropping out or reducing contributions shows that people are befuddled by the market and unsure what to do.

[page]

"Taking all your money and putting in the bank even sounds scary now," Thaler said. "So freezing in place is the gut reaction people are having."

The long-term implications aren't clear. Trade groups and organizations tracking 401(k) trends are keeping a close eye on another trend they find equally disturbing. Specifically, they're concerned about how many of the nation's 5 million unemployed workers are handling their retirement savings.

"If you lose your job nobody would blame you for stopping contributions until you find another job," Thaler said, "but I think people would be ill advised to pull the money out if there's any way to avoid it."

When a worker loses a job the 401(k) balance can be rolled over to an individual retirement account, which offers many of the same benefits of an employer sponsored plan.

Cashing out a 401(k), however, before age 59½ is costly. You'll have to pay a 10% penalty and the taxes due on the money. You basically give up more than a third of your money to the government in most cases.

Hess of Hewitt Associates shares that concern. Statistics show nearly 80% of workers with less than $10,000 in their 401(k) cash out the account when they leave a job rather than roll the money into another retirement account. Those workers could end up with little or no retirement savings if they keep doing that, she said.

"It has long-term implications and should only be done as a last resort," Hess said.

Suckstorf, the Maryland financial planner, said many workers today have little choice but to continue putting money aside for the future. Most workers don't have pensions and the Social Security system will likely not provide the level of support for future retirees as it does today since current projections show the fund will begin to fall short in 2017.

"It may sound cliché, but somewhere down the road you're going to end up being a ward of the family or the government if you don't do something," Suckstorf said.

Follow the advice of financial planners and contribute at least at the level of your company's match if you can. Don't lose sight of the primary reasons for putting money into your 401(k) account — a comfortable retirement income and the tax benefits you're getting now.

5 Things You Can Do Now to Prepare for Rising Inflation

By John Waggoner, USA TODAY — Fri, 01 May 2009 06:16:00 -0700

We all have our little fears: The frayed wire on the coffee maker. That knocking noise from the left-rear tire. The zombies staggering around in the backyard.

For investors, one of the biggest fears today is inflation — a period of rising prices. Inflation erodes the buying power of your money at home and abroad. In a worst-case scenario, it can result in hyperinflation, when a wheelbarrow of bills won't buy a loaf of bread.

Right now, inflation is deader than an army of zombies. But massive government borrowing raises the fear that inflation will rise from the grave and eat your savings. But you can fight back — with five inflation-fighting investments.

The consumer price index, the government's main gauge of inflation, has actually fallen 0.4% the past 12 months that ended in March. A big drop in energy prices was behind much of the drop. And in March, prices of food, housing, clothing and transportation fell. It's no wonder that the government is more worried about deflation — a period of falling prices — rather than inflation. In a deflationary period, falling prices drive companies out of business, debts become progressively more onerous, and consumers put off buying because they figure prices will always be lower later.

To get a true inflationary spiral, you need low unemployment and soaring salaries, neither of which is happening today. The unemployment rate stands at a recessionary 8.5%, and average weekly earnings fell in March.

Worries about inflation are "very premature," says David Wyss, economist for Standard & Poor's. "People are trying to fight the last war." The Bank of Japan prolonged that country's recession for a decade by using inflation-fighting tactics instead of deflation-foiling strategies, he says.

Even if inflation isn't a problem now, however, the massive government debt is one very good reason to fear inflation in the long term. Currently, the U.S. government has $11.2 trillion in outstanding debt, up from $5.7 trillion at the end of 2000. Furthermore, the government's efforts to prop up the banking system will add billions more to the total.

The root cause of inflation is too much money chasing too few goods and services. The big worry: Rather than pay off the debt, the government will simply print more money, and that's inflationary.

In the short term, then, inflation isn't a big problem. As time goes on and the deficit rises, however, inflation could become an enormous problem.

Normally, the Federal Reserve fights inflation by raising short-term interest rates, which is devastating to both stocks and bonds. Rising rates hurt corporate earnings by increasing borrowing costs. And bond prices fall when interest rates rise.

But some types of assets do rise in value in inflationary times. So if you're worried about inflation, you can make a few moves now to lessen inflation's bite with inflation-beating investments: Treasury Inflation-Protected Securities, gold, commodities, real estate and money market mutual funds.

[page]

TIPS: Value rises with the inflation rate

Treasury Inflation-Protected Securities, or TIPS, are long-term IOUs issued by the government. Like other Treasury securities, TIPS pay a fixed rate of interest until they mature.

Unlike other Treasury securities, however, TIPS have an inflation kicker: The government adjusts the principal of TIPS up or down every month according to inflation. If inflation were 3% over the previous year, for example, the government would add 3% to your bond's value.

The yield on 10-year TIPS reflects Wall Street's belief that inflation is no danger: It implies an inflation rate of about 1.3% for the next 10 years. If traders are wrong, TIPS could be a bargain now. In addition, the government uses the consumer price index as its inflation measure — a figure that includes energy. If the price of oil were to surge, TIPS would benefit.

Tips:

• You can buy TIPS directly from the U.S. government at no cost. Go to www.treasurydirect.gov to find out how.

• Top-performing TIPS fund: American Century Inflation-adjusted Bond (ACITX), up 24% the past five years.

[page]

Gold: No matter what, it's worth something

Paper money may lose its value, but gold is always worth something. The problem: The price of gold isn't tied terribly tightly to inflation.

For example, the price of gold has barely budged since its 1981 high of $850 an ounce. On the other hand, gold has doubled the past five years, a period of tame inflation. "Gold has been a terrible proxy for inflation since 1981," says Ray Ferrara, a financial planner in Clearwater, Fla.

One reason: Gold prices move opposite the value of the U.S. dollar, rather than tracking inflation. But if inflation does roar, the value of the dollar will fall, too. After all, if a dollar buys less at home, it will be worth less abroad.

Tips:

•Buy gold bullion coins, such as the American Eagle or Canadian Maple Leaf. Take possession of the coins. Scammers love to pretend to store them for you.

•Consider a gold bullion exchange traded fund, such as the SPDR Gold Shares ETF (GLD). Each share equals one-tenth of an ounce of gold, minus the fund's expenses.

[page]

Commodities funds: Prices of materials rise with other prices

Inflation is, by definition, a period of rising prices — not just for gold, but for virtually all basic materials, such as steel, coal, oil and lead.

Clearly, buying a boxcar full of coal has its drawbacks. And small investors who invest in commodities via the futures markets lose early and often.

But you can invest in commodities via exchange traded funds. These funds typically track a commodity futures index, such as the Goldman Sachs Excess Return index, which tracks 24 commodities.

Be aware that many commodity funds have big weightings in energy — which is fine, if that's what you want. TheiShares S&P GSCI Commodity fund (GSG), for example, is 67% invested in energy.

Tips:

•The PowerShares DB Commodity index fund (DBC) is a highly diversified commodity fund.

•Consider an actively managed natural resources fund. Two funds that have consistently beaten their peers are Vanguard Energy (VGENX) and ICON Energy (ICENX).

[page]

Real estate: Not so great now, but a good hedge

If you own a home, you probably have plenty of real estate. Despite the dismal state of the real estate market, however, your home can be a significant inflation hedge in the future.

Home prices — absent a bubble — mirror the consumer price index fairly faithfully. And if you have a low-rate, 30-year, fixed mortgage, your note will become a thing of beauty as prices rise. Your home value will rise, your salary will rise, but your mortgage payment won't. In addition, you'll repay the loan with cheaper dollars.

The catch: Interest rates tend to rise at the end of an inflationary period, squeezing new home buyers out of the market — and forcing prices down.

Real estate funds invest in real estate investment trusts, orREITs, which have had the paint peeled from them in the past few months. REITs invest in commercial real estate, and that market is starting to crumble.

Tips:

•Top real estate fund: CGM Realty fund (CGMRX), up 26% the past five years.

•Realty Income REIT (O) strives to pay regular dividends; current yield is 8%.

[page]

Money market funds: Yields pace inflation

Strictly speaking, a money fund doesn't fight inflation. But over time, money fund yields tend to keep up with inflation, and that's important.

In an inflationary period, the last thing you want is an investment whose yield is fixed — such as a fixed-rate annuity or a bank CD. Your interest payments will buy less each passing month.

Money funds, which invest in short-term, high-quality IOUs, can't guarantee a set yield. They can only give you what the short-term money market has to offer.

But as the Fed begins to fight inflation by raising interest rates, your fund's yield will rise, too. You won't get rich, but at least you'll keep up.

Tips:

•Don't bother with Treasury-only money funds; you don't need them. You can buy three-month Treasury bills directly from the government at www.treasurydirect.gov.

•Look for funds with the lowest expenses. At today's rates, you need to keep all the yield you can.

How Would You Spend a Raise or Bonus?

By Kim Lankford, Monster Contributing Writer — Fri, 01 May 2009 06:16:00 -0700

When we asked Monster readers what they’d be most likely to splurge on if they got a big salary bump - a new car, wardrobe or home entertainment technology - the car topped the list with 51 percent of the votes, followed by the wardrobe with 30 percent and the home entertainment center at 18 percent. But quite a few readers told us none of those choices were good options.

“How about putting the money into a retirement account, 401k or other investment?” asked one reader. “With the answers to that survey, it’s no wonder people are in debt with seemingly no way out.”

She’s right: Several key moves can make a huge difference in your financial situation - and stretch a few hundred dollars into thousands by saving you money in interest, growing tax-free, earning you free cash from your employer or protecting your savings. You don’t have to be serious with all the money, but everyone can learn from these seven steps recommended by real readers. They’re listed in the order of priority, starting with what would have the biggest impact on your finances.

1. “If I got a huge surge in salary, I would purchase health insurance for me and my husband.”

Without health insurance, big medical bills could quickly eat up your savings and jeopardize the rest of your financial plans. In fact, one of the most common causes of bankruptcy is medical expenses.

One good way to keep health insurance costs down, especially if your employer doesn’t provide coverage, is to buy a high-deductible health insurance policy. Raising the deductible will cut your premiums and enable you to open a health savings account (HSA), which can give you triple tax benefits and allows you to roll over the money year to year.

To be HSA-eligible, your health insurance policy’s deductible must be at least $1,150 for individual coverage or $2,300 for families in 2009. You can then contribute up to $3,000 for individual coverage or $5,950 for families in 2009. Those 55 and older can contribute an extra $1,000. Your contributions are tax-deductible and grow tax-deferred and then can be used tax-free for medical expenses in any year. If you still have cash in the account at age 65, you can use it for anything without penalty.

[page]

2. “I wouldn’t do any of the listed choices. I would continue to pay bills off as much as possible. I’m very much in debt and am anxious to get out of this financial pitfall.”

With high interest rates and a big balance, it’s easy to pay thousands of dollars in credit-card interest that gets you nothing in return. If you have $4,000 in credit-card debt with an 18 percent interest rate, you can save more than $5,600 by paying the full balance now rather than continuing to pay the minimum.

3. “I would bank the difference into my retirement savings and continue to live on my earnings prior to the surge in my salary.”

With a raise or bonus, you’re not used to having the extra money, so you can put it to good use before you even realize it’s there. First, invest at least enough in your 401k to get your full employer match, which is free money. It’s tough to beat a 100 percent return. Since 401k contributions are deducted from your income before taxes, your contributions don’t lower your paycheck nearly as much as you’d expect. If you’re in the 25 percent tax bracket and contribute $500 to your 401k every month, for example, your paycheck will only shrink by $375. Most people can contribute up to $16,500 to a 401k in 2009 or $22,000 if 50 or older. The money grows tax-deferred until you withdraw it in retirement (you’ll pay a penalty for withdrawals before age 59 ½).

Or invest the money in a Roth IRA, which doesn’t lower your tax bill now but provides tax-free money in retirement. For 2008 returns, the maximum Roth IRA contribution is $5,000 (or up to $6,000 if 50 or older). Contributing $416.66 per month adds up to the $5,000 maximum by the end of the year. You have until April 15, 2009, to make your 2008 contribution to a Roth IRA.

4. “After a four-month unemployed stint, replenishment of spent monies is the first thing on my mind. I might spend a small amount on a wardrobe or improvements, but all in all, it’s ending up in my savings.”

It’s a good idea to keep enough money to cover three to six months of living expenses in a fairly liquid, high interest-bearing account -- like an online savings account or money-market account -- so it can earn some interest and be withdrawn without penalty but isn’t too easy to access.

[page]

5. “I would put it towards my daughter’s education.”

A raise or bonus can provide extra cash to put toward college savings without having to cut back on your own retirement fund. The easiest way to save for college is by opening a 529 plan, which provides tax-free money for college. You can use the money for any US college, no matter which state’s plan you use, and can deduct your contributions from state income taxes in about half the states. For information about all the plans, see Savingforcollege.com.

6. “I would spend the money on a down payment on a new home.”

Making a 20 percent down payment when you buy a house can help you avoid private mortgage insurance, which can cost 0.5 percent to 1 percent of the loan value every year, meaning up to $3,000 per year on a $300,000 loan. The bigger down payment also helps lower your monthly payments, giving you more flexibility if you end up losing your job or want to cut back on your work hours. And you’ll be less likely to have to cough up extra money if you sell in a down market.

Several readers also recommended using the extra money for home improvements, which can be a good way to add value to your home without taking on extra debt.

7. “I would spend the money on vacation!”

Of course, you can have some fun with the money too. But making some smart moves first can free up more cash for everything else -- and give you even more money for a splurge.

Tax Day Freebies & Discounts

ArtBistro — Wed, 15 Apr 2009 07:22:00 -0700

To help lighten the blow of Tax Day across the nation, various dining establishments and retailers are offering consumers freebies, deals and discounts — just for today!

Here are a few we dug up, but be on the look out for local deals in your area!

• Chick-fil-A is offering a “Tax Relief Day Special” that, according to a SmartMoney.com article, allows you to return before April 30 to receive the same order for free.

• Cinnabon will be giving away free bite-size cinnamon rolls from 5 to 8 p.m. (They're also holding an essay contest from which you could win a $100 gift card.)

• Kimpton Hotels are offering "Sweet Tax Relief Packages" that include tax-free accommodations through the end of April.

• MaggieMoo's Ice Cream and Treatery will reward customers with one free single-scoop of ice cream.

• Seafood chain McCormick & Schmick's: "Wednesday diners will get a $10.40 certificate for future use. There'll be $15 to $20 entrees discounted to $10.40. And bar patrons can choose themed drinks, such as a pint of Samuel Adams Deduction Draft," says USA Today.

• Papa John's Pizza has a $10.40 special for online-only customers: a large pizza on original crust with up to 3 free toppings.

• P.F. Chang's is offering a 15% discount off all food and beverage purchases.

• Subway is "offering everyone who walks [in] on tax day a free cookie," according to NBC New York.

• Taco Del Mar is holding a "Taxes Suck. Tacos Don't!" promotion. Register here for your free taco coupon.

• T.G.I. Friday's is giving away $5 Bonus Bites cards for purchases (excluding alcohol and tax) beginning at $15 through $25; $10 Bonus Bites cards for purchases over $25 while supplies last at participating restaurants. Members of the chain's guest recognition program also will earn double points during the entire month of April.

• Walgreens is offering 15% off all online orders through April 20th.

• Zazzle.com — a website for creating custom t-shirts, posters, etc. — is offering 10.40% off all orders. Use the code TAXDAYZAZZLE.

And you can check out WalletPop.com for a slide show of freebies!

Make Your Taxes Less Taxing: Tips and Tricks

Wed, 01 Apr 2009 14:09:00 -0700

Taxes are overwhelming and complicated. There is form after form and it gets tough to keep them all straight. The most painful part, however, is seeing the toll it takes on you wallet. TurboTax, Military.com and ArtBistro have brought you expert financial advice to make your taxes and painless as possible and hopefully save a lot of money in the process.

Page 2: Tax Preparation Checklist

Page 3: 5 Ways to Make Your Taxes Less Taxing

Page 3: The 11 Most Overlooked Tax Deductions

Page 4: Top Ten Odd Ball Tax Deductions

Get all the tips and tricks....

[page]

Page 1: Table of Contents

Page 2: Tax Preparation Checklist

Page 3: 5 Ways to Make Your Taxes Less Taxing

Page 4: The 11 Most Overlooked Tax Deductions

Page 5: Top Ten Odd Ball Tax Deductions

Tax Preparation Checklist

Go through the following checklist before you prepare your income tax return. Not every category will apply to you, so just pick those that do, and make sure you have that information available. When you're ready to prepare your income tax return using TurboTax software, you'll be surprised at how much time you'll save by organizing your information beforehand.

Before you start tax preparation

Print this checklist out. Check things off as you collect them, and enter information such as Social Security numbers and cash amounts.

[photo:411467]

If you maintain your financial data in a personal finance software program such as Quicken®, print a report of your financial transactions for 2008. This is an invaluable tax preparation resource as you prepare your income tax return, and helps you clearly see where your money goes each year. Having this information in a report is much easier than going through your checks for the entire year.

As you review the report, highlight information you will need for your tax return or make notes to remind yourself of something later. If you need more information on a certain item, the report makes it easier to find the item on the computer when you need the detail. For example, if you know you paid check number 1077 to the IRS but don't know if it was for last year's balance due, an estimated payment for this year, or an extension payment, you can do a search for check number 1077 and get more detail.
Now you're ready to start gathering information. This income tax preparation checklist is divided into relevant categories to help you organize your tax information. As you receive or locate an item, check it off of the list.

Tax Preparation Checklist.doc

Updated for tax year 2008. Content provided by Kiplinger, courtesy of TurboTax, a registered trademark of Intuit Inc.

Next Page: 5 Ways to Make Your Taxes Less Taxing

[page]

5 Ways to Make Your Taxes Less Taxing

Let’s face it: Doing your taxes is about as exciting as mowing your lawn. But, we all have to do it. And Uncle Sam doesn’t make it easy. The U.S. tax code literally fills thousands of pages. Thankfully, you don’t need to read them all to stay on top of your taxes. Here are five things that can make doing your taxes “less taxing” as Tax Day – April 15 – approaches.

1) First, understand what kind of “Taxes” you’re paying to begin with.

2) Now let’s talk about what you can do to reduce those taxes.

They’re not automatic.

Deductions do not reduce your tax bill dollar by dollar.

3) An even better way to cut back on your tax bill is through tax credits.

4) You don’t need to go it alone.

www.aicpa.org

5) What papers do you need to save?

Next Page: The 11 Most Overlooked Tax Deductions

[page]
Page 1: Table of Contents

Page 2: Tax Preparation Checklist

Page 3: 5 Ways to Make Your Taxes Less Taxing

Page 4: The 11 Most Overlooked Tax Deductions

Page 5: Top Ten Odd Ball Tax Deductions

The 11 Most Overlooked Tax Deductions

TurboTax helps you find tax deductions you may have overlooked. Don’t overpay taxes by overlooking tax deductions. See the most common errors taxpayers make on their tax returns. …it’s all too easy to miss a trick and pay too much…

Every year, the IRS dutifully reports the most common blunders taxpayers make on their returns. And every year, at or near the top of the list, is forgetting to enter a Social Security number or making a mistake when entering the nine digits that identify us to IRS computers.

Before you bemoan such stupidity, ask yourself a simple question: Is that the most common error? Or just the most easily noticed goof?

Who knows how many people forgot—or never knew about—a deduction that could save them money? That’s not the kind of thing over which government bean counters lose a lot of sleep.

No doubt about it: The opportunity for mistakes is almost unlimited. The most recent numbers show that about 46 million of us itemized deductions on our 1040s—claiming nearly 1 trillion dollars’ worth of deductions. That’s right: $1,000,000,000,000! Another 85 million taxpayers claimed more than half a trillion dollars’ worth of standard deductions. Some of those who took the easy way out probably shortchanged themselves. (If you turned 65 in 2007, remember that you deserve a bigger standard deduction than younger folks.)

Yes, friends, tax time is a dangerous time. It’s all too easy to miss a trick and pay too much. Years ago, the head of the IRS told Kiplinger’s Personal Finance magazine that he figured millions of taxpayers overpaid their taxes every year by overlooking just one of the money-savers listed below. Without further ado, here are our 11 most overlooked tax deductions. Claim them if you deserve them, and cut your tax bill to the bone.

1. State sales taxes.

This write-off makes sense primarily for those who live in states that do not impose an income tax. You must choose between deducting state income taxes or state sales taxes and, for most citizens of income-tax states, the income tax deduction usually is a better deal. IRS has tables for residents of states with sales taxes showing how much they can deduct. But the tables aren’t the last word. If you purchased a vehicle, boat or airplane, you get to add the state sales tax you paid to the amount shown in IRS tables for your state, to the extent the sales tax rate you paid doesn’t exceed the state’s general sales tax rate. The same goes for home building materials you purchased. These items are easy to overlook. The IRS even has a calculator on its Web site to help you figure out the deduction, which varies by your state and income level.

2. Reinvested dividends.

This isn’t really a deduction, but it is a subtraction that can save you money; this is the break former IRS Commissioner Fred Goldberg told Kiplinger’s that lots of taxpayers miss. If, like most investors, you have mutual fund dividends automatically invested in extra shares, remember that each reinvestment increases your “tax basis” in the fund. That, in turn, reduces the taxable capital gain (or increases the tax-saving loss) when you redeem shares. Forgetting to include the reinvested dividends in your basis—which you subtract from the proceeds of sale to pinpoint your gain—means overpaying your tax. TurboTax Premier and Home & Business tax preparation solutions include a very cool tool—Cost Basis Lookup—that will figure your basis for you and make sure you get credit for every dime of reinvested dividends.

3. Out-of-pocket charitable contributions.

It’s hard to overlook the big charitable gifts you made during the year, by check or payroll deduction. But the little things add up, too, and you can write off out-of-pocket costs you incur while doing good works. Ingredients for casseroles you regularly prepare for a nonprofit organization’s soup kitchen, for example, or the cost of stamps you buy for your school’s fundraiser count as a charitable contribution. If you drove your car for charity in 2007, remember to deduct 14 cents per mile.

4. Student loan interest paid by Mom and Dad.

Until recently, if parents paid back a student loan incurred by their children, no one got a tax break. To get a deduction, the law held that you had to be both liable for the debt and actually pay it yourself. But now there’s an exception. If Mom and Dad pay back the loan, the IRS treats it as though they gave the money to their child, who then paid the debt. So, a child who’s not claimed as a dependent can qualify to deduct up to $2,500 of student loan interest paid by Mom and Dad.

5. Moving expense to take first job.

Here’s an interesting dichotomy: Job-hunting expenses incurred while looking for your first job are not deductible, but moving expenses to get to that first job are. And you get this write-off even if you don’t itemize. If you moved more than 50 miles, you can deduct the cost of getting yourself and your household goods to the new area, including 20 cents per mile (plus parking fees and tolls) for driving your own car.

6. Military reservists’ travel expenses.

If you are a member of the National Guard or military reserve, you may deserve a deduction for travel expenses to drills or meetings. To qualify, you must travel more than 100 miles and be away from home overnight. If you qualify, you can deduct the cost of lodging and half the cost of your meals, plus 48.5 cents per mile (and any parking or toll fees) for driving your own car. You get this deduction whether or not you itemize.

7. Child care credit.

A credit is so much better than a deduction—it reduces your tax bill dollar for dollar. So missing one is even more painful than missing a deduction that simply reduces the amount of income that’s subject to tax. But it’s easy to overlook the child care credit if you pay your child care bills thorough a reimbursement account at work. Until a few years ago, the child care credit applied to no more than $4,800 of qualifying expenses. The law allows you to run up to $5,000 of such expenses through a tax-favored reimbursement account at work. Now, however, up to $6,000 can qualify for the credit, but the old $5,000 limit still applies to reimbursement accounts. So, if you run the maximum $5,000 through a plan at work but spend more for work-related child care, you can claim the credit on up to an extra $1,000. That would cut your tax bill by at least $200.

8. Estate tax on income in respect of a decedent.

This sounds complicated, but it can save you a lot of money if you inherited an IRA from someone whose estate was big enough to be subject to the federal estate tax. Basically, you get an income tax deduction for the amount of estate tax paid on the IRA balance. Let’s say you inherited a $100,000 IRA and the fact that the $100,000 was included in your benefactor’s estate added $45,000 to the estate tax bill. As you withdraw the money from the IRA and pay tax on it, you also get to deduct a proportional amount of the estate tax paid. If you withdraw $50,000 in one year, for example, you get to claim a $22,500 itemized deduction on Schedule A.

9. State tax you paid last spring.

Did you owe tax when you filed your 2006 state tax return in the spring of 2007? Then remember to include that amount with your state tax deduction on your 2007 return, along with state income taxes withheld from your paychecks or paid via quarterly estimated payments.

10. Refinancing points.

When you buy a house, you get to deduct points paid to obtain your mortgage in one fell swoop. When you refinance a mortgage, though, you have to deduct the points over the life of the loan. That means 1/30th a year if it’s a 30-year mortgage—that’s $33 a year for each $1,000 of points you paid. Not much, maybe, but don’t throw it away. And, in the year you pay off the loan—because you sell the house or refinance again—you may get to deduct all the as-yet-undeducted points. You do unless you refinance with the same lender. In that case, you add points on the latest deal to the leftovers from the previous refinancing and deduct the expense ratably over the life of the new loan.

11. Jury pay paid to employer.

Some employers continue to pay employees’ full salary while they are doing their civic duty, but ask that they turn over their jury fees to the corporate treasury. The only problem is that the IRS demands that you report those fees as taxable income. You’ve always had a right to deduct the amount, so you weren’t taxed on money that simply passed through your hands.

Next Page: Top Ten Odd Ball Tax Deductions

[page]

Top Ten Odd Ball Tax Deductions

Admit it. As you've worked on your return, trying to come up with extra deductions to pump up your refund, you've taken a few flights of fancy. "Can I claim a deduction for all those blood donations at the Red Cross?" Nope.

"How about a charitable contribution for all the time I donate to the church?" Nope, again. "The wedding gift for the boss's daughter as an employee business expense?" Come on! On the other hand, over the years your fellow taxpayers have beaten the IRS in court on payments for many crazy things that most of us wouldn't even dream of claiming.

We've uncovered what we think are the weirdest deductions allowed, ranging from pet food to free beer.

1. Pet food

A couple who owned a junkyard was allowed to write off the cost of cat food they set out to attract wild cats. The feral felines did more than just eat; they also took care of snakes and rats on the property, making the place safer for customers. When the case reached the Tax Court, IRS lawyers conceded that the cost was deductible.

2. Moving the family pet

If you are changing jobs and meet a couple of tests, you can deduct your moving expenses — including the cost of moving your dog, cat or other pet from your old residence to your new home. Your pet — be it a Pekingese or a python — is treated the same as your other personal effects.

[photo:411470]

3. A trip to Bermuda

This island is more than just a scenic place to visit: It's a great place to schedule a tax write-off. Business conventions held in Bermuda are deductible without having to show that there was a special reason for the meeting to be held there. That's a sweet perk.

Other countries in the Caribbean region qualify, too, including Barbados, Costa Rica, Dominica, the Dominican Republic, Grenada, Guyana, Honduras, Jamaica, Saint Lucia, and Trinidad and Tobago. Meetings held in Canada, Mexico and all U.S. possessions also receive this favorable tax treatment. Attend a convention in Paris, Rome or Beijing, though, and there's no deduction unless you can show it made as much sense to travel abroad as to head to Pittsburgh.

4. Body oil

A pro bodybuilder used body oil to make his muscles glisten in the lights during his competitions. The Tax Court ruled that he could deduct the cost of the oil as a business expense. Lest it be seen as a softie, though, the Court nixed deductions for buffalo meat and special vitamin supplements to enhance strength and muscle development.

5. A private airplane

Rather than drive five to seven hours to check on their rental condo or be tied to the only daily commercial flight available, a couple bought their own plane. The Tax Court allowed them to deduct their condo-related trips on the aircraft, including the cost of fuel and depreciation for the portion of time used for business-related purposes, even though these costs increased their overall rental loss.

6. Babysitting fees

Fees paid to a sitter to enable a mother to get out of the house and do volunteer work for a charity are deductible as charitable contributions, even though the money didn't go directly to the charity, according to the Tax Court. The Court expressly rejected a contrary IRS revenue ruling.

7. Breast augmentation

In an effort to get more tips, a stripper with the stage name "Chesty Love" decided to get breast implants to make her a size 56FF. A female Tax Court judge allowed Chesty to write off the cost of her operation, equating her new assets to a stage prop. Alas, the operation proved to be a problem for Chesty. She later tripped and ruptured one of her implants.

8. Landscaping

Sole proprietors who regularly meet clients in a home office can deduct part of the costs of landscaping the property. The deductible portion is based on the percentage of the home that is used for business, according to the Tax Court. The Court also allowed a deduction for part of the costs of lawn care and driveway repairs.

9. Free beer

In a novel promotion, a gas station owner gave his customers free beer in lieu of trading stamps. Proving that sometimes beer and gasoline do mix, the Tax Court allowed the write-off as a business expense.

10. Swimming pool

A taxpayer with emphysema put in a pool after his doctor told him to develop an exercise regimen. He swam in it twice a day and improved his breathing capacity. Turns out he swam in the pool more than his family did.

The Tax Court allowed him to deduct the cost of the pool (to the extent the cost exceeded its added value to the property) as a medical expense because its primary purpose was for medical care. Also, the cost of heating the pool, pool chemicals and a proportionate part of insuring the pool area were treated as medical expenses.

Bonus Oddball Deduction: Girlfriend.

The owner of several rental properties hired his live-in girlfriend to manage them. Her duties included finding furniture, overseeing repairs and running his home. The Tax Court let him deduct $2,500 of the $9,000 he paid her. The disallowed portion was for nondeductible personal services.

Updated for tax year 2008. Content provided by Kiplinger, courtesy of TurboTax, a registered trademark of Intuit Inc.

Your Job Search Expenses May Be Tax-Deductible

John Rossheim | Monster Senior Contributing Writer — Wed, 01 Apr 2009 13:18:00 -0700

Did you spend substantial amounts of money looking for a new position last year? You may be able to succeed where Nelson Rockefeller failed and take a tax deduction for many of your job search-related costs.

When New York Governor Rockefeller was appointed vice president in the '70s, he deducted expenses incurred in connection with his congressional confirmation hearings. Years later, the courts upheld the IRS's denial of the write-off, saying it violated a key rule on job search deductions: You must be looking for a job in the same trade or business as your previous position.

But fear not: The legitimacy of these deductions rarely gets decided in court. Armed with a bit of knowledge and some individualized professional tax advice, you may be able to reap savings by writing off a variety of job search costs.

Three Major Deduction Categories

Deductible job search expenses generally fall into three categories, according to IRS Publication 529:

* Outplacement and Employee Agency Fees: If you pay for job counseling or to have an agency match you with an employment opportunity, this expense is generally deductible. Of course, if you are reimbursed by an employer or anyone else, you cannot deduct these fees.

* Resume Preparation, Mailing and Related Expenses: Paper, envelopes, portfolios, postage, phone calls and the like add up. To deduct them properly, you'll need to keep meticulous records, including receipts and notes on the purpose of purchases.

* Travel and Transportation Expenses: Whether you take the bus to an interview or fly across the country to pound the pavement, your job search-related travel and transportation expenses may be deductible. But remember: The amount of time you spend searching for a job versus engaging in personal activities during your journeys can be a factor. In other words, a three-week trip in February with one face-to-face informational interview thrown in isn't going to cut it. These deduction rules are complex; get professional advice.

Before You Take That Deduction, Consider These 4 Factors

Even though you now have an idea of what to deduct, you still need to jump through some hoops -- four, actually - before plugging in those deductions:

* You Must Be Looking for a Job in the Same Occupation: Career changers don't get a break from the IRS. "If a general manager of a food market goes out and looks for a job as a VP of an Internet company, that's not going to fly," says Bradford Hall, managing director of Hall & Co. CPAs.

Distinctions between career fields can be arguable, so it pays to get professional advice. "I would go ahead and take the deduction if, say, you switch from journalism to marketing, because it's all communications," says Jim Dowling, senior tax manager for Weaver and Tidwell LLP.

* You Can't Take a ‘Substantial Break' Between Your Previous Job and Your Search: "There's no specific time frame provided by the IRS," Hall says. "But if a teacher becomes a stay-at-home mom, then years later decides she wants to go back, that's too long" to qualify for job search deductions. "The IRS wants to encourage people to get back on the horse and get back in the labor force."

* You Can't Be Looking for Your First Job: High school and college students seeking their first real-world job cannot deduct search expenses - you must be transitioning between career positions.

* Job Search and Other Miscellaneous Deductions Must Exceed 2 Percent of Adjusted Gross Income: Major caveat: You can only deduct job search costs to the extent that they - lumped together with all other miscellaneous deductions (such as unreimbursed employee expenses) - exceed 2 percent of your adjusted gross income.

What if December 31 rolls around and you're still looking? Relax - you can write off well-documented job search expenses for the year just ended, even if they haven't yet paid off with a new job.

How to Negotiate Your Severance Package

Jacky Hayward | Monster Evolutions — Wed, 18 Mar 2009 16:54:00 -0700

When you are laid off from your job, one of your hopes is that you receive a good severance package, equipped with both severance pay and continued benefits. Most often, severance is based on how long an employee has been employed by the employer, but benefits often vary depending on the employer.

In addition, employers are not required to provide severance by the Fair Labor Standards Act (FLSA) when laying off employees; severance is a matter of agreement between the employer and employee. There have been several examples recently of companies giving employees laid off at different times varying severance packages, and, in the case of Nortel Networks Corp, which just declared bankruptcy, some employees severance has been frozen while other employees laid off later will not get any severance at all. This article is to educate you about your severance package rights and to help you negotiate your severance.

Severance Package Possibilities

Most often, severance will be based on how long you have been working at a company, with companies giving one week of severance per year worked at the company. In addition, companies may also extend health benefits through either your provider or through COBRA. Employers may also have a severance clause in your employment contract, which they can lawfully revoke at any time, but this clause might give you a guide as to what your benefits may be.

In addition, there are ways to negotiate your severance package. When negotiating your severance, things you can suggest is payment for your remaining paid time off being added to your severance payment. If you are also an employee in good standing with the company, you can ask for continuation of benefits with your current provider for a longer period of time before enrolling for COBRA or another health insurance provider. In addition, if you think there is a possibility you might be getting laid off soon, it might be advisable to negotiate a severance package and have it specified in writing.

[page]

How Severance is Taxed

Severance pay is considered supplemental wages and is taxed at a higher rater than regular wages. The way severance is taxed depends on how severance is paid to the employee: it can be given to the employee separately from normal wages or lumped together with the employee’s regular wage check. In each case the amount is taxed differently.

If the amount is lumped with the employee’s normal pay in an unspecified amount, the lump sum is taxed at the rate that the income amount would be taxed if it were the employee’s normal salary.

On the other hand, if severance pay is paid as a specified amount with the employee’s salary or if it paid as a separate check, it can be taxed one of several ways: a flat 25% can be withheld or the amount can be taxed as if it were added to the employee’s normal income and taxed at that higher rate.

Obviously, the amount that severance is taxed at is frustrating: these extra wages are to help you in your transition to looking for a job. You will, however, be able to get some of the taxes withheld back with the next tax season.

Why Companies Give Severance

Employers are not required to give severance pay, but they often do as a gesture of good will to laid off employees. They also pay severance in order to require employees to sign an exit agreement such as a noncompete or nondisclosure agreement—it is legal for companies to withhold severance pay as a “bribe” to sign these agreements. However, having an employer wanting you to sign an agreement will give you bargaining power in regards to the contents of your severance.

5 Ways to Understand Your Credit Card's Fine Print

Jennifer Openshaw | WeSeed — Wed, 18 Mar 2009 16:54:00 -0700

If you're like a lot of folks, you may have just received a "Dear Valued Customer" letter in the mail from your credit card company. No, you aren't being fired, but it might feel like it.

If you have an affiliate card issued through one of the big banks, it starts like this: "This challenging business climate has led Citibank, the issuer of [XYZ] Gold MasterCard...to notify us...they are making changes to the terms of many Citibank (C) credit card offerings....including the [XYZ] MasterCard product."

Uh-oh — here it comes.

The enclosed material, one of those multipage fine-print deals, starts off with "The Changes." It tells you that the APR, minimum-finance charges, transaction fees for foreign purchases, and "other fees" have changed, and that "supplemental pricing information" appears in "...your new card agreement [which] follows this notice."

Changed from what to what? Unless you have the last version of this document handy, you probably won't know what or how much. Like too many things in personal finance, you don't know what you don't know.

You'll find a lot of these changes these days. First, because of the banking crisis, cash-strapped banks are scrounging for cash wherever they can. Second, new federal legislation that takes effect in 2010 bans universal default, double-cycle billing, and a host of other evils. That's the good news. The bad: This is driving banks to get ahead of the potential $12 billion in lost revenue.

So here's what to do.

*Call an agent*

Pick up the phone immediately and find a live agent willing to explain the changes.

4 More Tips on the Next Page >>

[page]

*Get a comparison*

Have the agent clarify what changed, not just what your card's terms are today or after the change. If your effective APR went from "prime +14.08%" to "prime + 17.99%," have them explain that and also what the resulting rate actually is. For any fees changed, ask them what the new and old fees are. Have them do an example if necessary to illustrate total cost.

*Be persistent*

When they're done, ask if there's anything else you should know. I found out that the "penalty period" for the higher default APR if you miss a payment had increased from 6 months to 12 months. Hard to find in the fine print, and it didn't come with the first explanation.

*Pay your balances in full and on time*

The adverse changes only applied to balances carried and/or a late payment; if you pay in full and on time you won't be affected. You might consider setting up auto-pay to avoid late payments.

*Ask for the good news*

These changes all sound like a takeaway; less benefit, more cost. However, the issuer also offered attractive balance transfers, 5 months for 1.99 percent with a 3 percent transfer fee; 3.99 percent for 10 months. Some issuers may offer other benefits anticipating negative customer reactions from changes in terms.

Protecting what you have and knowing about change are important in managing your credit and your finances in general. And incidentally, the banks and card issuers that do these changes well — raising cash without angering customers — stand to come out ahead.

Jennifer Openshaw, author of The Millionaire Zone, is co-founder and president of WeSeed, whose mission is to enable people to discover the stock market in their everyday lives through their passions, their jobs and the brands they know and love. Her empowering advice, which helps everyday Americans do more with what they have, hasbeen seen on Oprah, Dr. Phil, The Today Show, CNN, CNBC, and Nightline. You can find her on Twitter @jopenshaw or on Facebook.

How to Apply for Unemployment Benefits

Jacky Hayward | Monster Evolutions — Wed, 18 Mar 2009 16:53:00 -0700

Once you have been laid off, one of the first things you are likely to think about is how you are going to replace your income. Unemployment Insurance (UI) was established by the government to provide unemployment benefits to workers when become unemployed due to factors outside their control to financially assist them while they are looking for employment. UI is a joint federal-state program with money coming from the federal and state governments but the administration coming from the state, so the rules determining eligibility vary as well as the benefits received depending on the state in which you live. This article is thus intended to serve as a general guide to unemployment insurance.

What to Expect when Applying for Unemployment Insurance

To apply for unemployment insurance, you must first contact your state’s unemployment agency. Career One Step has a map of all the state unemployment agencies, which will be a good place to find out more about your state’s agency. With the increase in layoffs, there has also been an increased number of individuals requesting unemployment insurance. Many unemployment offices are holding longer hours but there is still a backlog. In this manner, if your state unemployment agency allows you to, applying online will likely expedite the application process.

Once you have applied for unemployment insurance, most states will verify your unemployment in some way; this may mean a short phone interview, an in person interview with an unemployment officer, or further verification via USPS mail. After your unemployment department has received your claim and all necessary verification, they will calculate your unemployment benefits on your past salary, usually using your last year and a half of salaried time. Your UI benefits will be proportional to your past salary, but will often cap out at a certain point, depending, again, on your state. In addition, it is likely it will take a few weeks for you to receive your first unemployment check after your local agency has received all the necessary materials.

What to Keep in Mind Once you Have Applied

Once you start receiving checks, each week or every other week you will have to complete questionnaire to prove that you are in fact searching for a job; after all, unemployment insurance is intended to assist you in your job search

In addition, unemployment benefits are taxable. You can elect to have a specified amount withheld each check, but you will be responsible to pay taxes on the income earned come the next tax year, so plan appropriately!

How Obama’s Stimulus Plan will help Unemployment Insurance

Obama’s stimulus plan is still being debated in the Senate, but, in its present state, the stimulus package aims to provide $62 -$76 billion to state fiscal relief in order to compensate for decreasing state budgets. State governments pay in part for unemployment benefits and state run health care programs. With the downturn in the economy, state and local governments will need to increase taxes in order to continue these public services without aid of the federal government; the goal of the stimulus is to keep taxes low while allowing state governments to continue to provide unemployment benefits and other state run programs.

In addition, the current stimulus plan provides $36 billion to states to budget through December 2009. This allotted money will increase unemployment benefits by $25 per week. Further, the stimulus proposal includes suspending taxes on the first $2,400 of these benefits.

Bailout Bill Extends Tax Breaks for Individuals

Military.com | Kyle Stone — Tue, 03 Feb 2009 13:51:00 -0800

In 2008, legislation was passed to help rescue US markets and the economy. But did you know that these bailout bills also included a bundle of income tax breaks?

The biggest ones are known as "extenders" - popular tax breaks that might seem permanent to most taxpayers, but actually must be renewed every year or two.

Stuffed inside the *Emergency Economic Stabilization Act* are more than 100 tax provisions worth $150 billion in tax benefits. They include:

• Another “patch” to protect middle-class taxpayers from having to pay $61.8 billion in alternative minimum taxes, or AMT, a tax intended for the wealthy.

• Extensions of some popular tax breaks for 2008 and beyond that were scheduled to expire this year, including deductions for classroom teachers and for higher-education tuition.

• Major tax breaks for victims of the 2008 Midwestern storms, floods and tornadoes.

AMT Patch Completed in Time for 2008 Filing Season

Once again Congress has applied a one-year patch on the AMT. That means that millions of middle-class taxpayers will be spared from paying higher tax bills.

The AMT was conceived in 1969 as an alternative tax to ensure that the wealthiest taxpayers, even with their big deductions and loopholes, didn’t avoid paying income taxes. But because the tax was not adjusted for inflation, it has increasingly reached down into the middle class.

Recently Congress has passed a series of one-year fixes, rather than overhaul the AMT itself. Last year, the long delay in passing the patch required the IRS to briefly postpone accepting some 2007 tax returns.

With the AMT patch and other tax changes included in the bailout bill, taxpayers should be able to file as usual starting January 2009.

Popular Tax Breaks Extended For 2008 Tax Returns

• The $250 deduction for teachers who buy out-of-pocket classroom supplies. This deduction is "above-the-line," meaning that teachers and educators can qualify for it even if they don't itemize their deductions. Allowable expenses include classroom supplies, books and software.

• A deduction of $2,000 to $4,000 for eligible taxpayers with higher-education tuition and related fees. This above-the-line deduction allows married couples with incomes of $130,000 or less ($65,000 for individuals) to deduct up to $4,000 in higher education expenses and those couples earning $130,000 to $160,000 ($65,000 to $80,000 for individuals) to deduct up to $2,000.

• The option to deduct state and local sales taxes from federal taxes, instead of state income tax. This can mean big savings for taxpayers who itemize and live in states with no state income taxes: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.

• Tax-free distributions to charities. IRA owners who have reached age 70½ — and who must therefore begin to withdraw money from their retirement accounts — can contribute up to $100,000 of otherwise taxable payouts directly to charity.

Bill Includes Disaster Relief for 2008 Midwest Storm Victims

The new law provides major tax breaks for victims of the tornadoes, storms and flooding that hit the Midwest this year between May and August, similar to those given to Hurricane Katrina victims. These include tax benefits for demolition and clean up, as well as education and housing.

The bill also offers more limited tax assistance to victims of Hurricane Ike.

Check Back With TurboTax

The new law contains many changes to taxes for individuals and businesses. More details will be added at TurboTax.com as they become available.

_Updated for tax year 2009. Content provided by Kiplinger, courtesy of TurboTax, a registered trademark of Intuit Inc._

Six Steps You Can Take to Financial Prosperity

USA Today — Tue, 03 Feb 2009 13:48:00 -0800

No one can guarantee you a healthy and prosperous retirement. Life is just too unpredictable. But you can increase your odds of enjoying your twilight years in comfort by pursuing a regimen of common-sense steps. Here are six top ones:

h4. Decide carefully on health care

You can do at least three things to help secure your health in retirement: Take care of yourself now to reduce the chance of illness later; save as much as you can; and review your insurance options.

Caring for yourself boils down to some basic wisdom: Exercise, eat right and don't smoke. Those steps can help ward off such costly problems as heart disease, diabetes and cancer. Your savings will come from limiting your hospitalizations and prescription drugs as you age.

But even those with the best fitness plans can fall ill. And health care costs for retirees can be staggering. Fidelity Investments estimates that even with Medicare, an average 65-year-old couple must save more than $200,000 to cover 20 years of costs. That doesn't include over-the-counter drugs or long-term care.

Once you're eligible for Medicare — currently at age 65 — you must decide whether to join traditional Medicare or an alternative Medicare Advantage plan. The alternative plans may charge lower premiums than traditional Medicare, but they may also restrict your choices.

If you stay with traditional Medicare, keep in mind: On top of the premiums, you'll have to shell out for co-pays and deductibles for doctor visits, hospital care and other services. Consider supplemental insurance for such costs. And retirees must also decide whether to take on the new Medicare drug benefit; it has a separate premium.

Medicare generally doesn't cover most nursing home expenses, which can exceed $50,000 a year.

If you retire before you're eligible for Medicare, see if you can stay on a company plan or if you qualify for an individual plan. If not, experts suggest delaying retirement.

"No one should go without health insurance," says Gail Shearer of Consumers Union.

By Julie Appleby

h4. Next: Develop a plan for tapping assets

[page]

h4. Develop a plan for tapping assets

A general rule is to withdraw your taxable money before your tax-deferred accounts. The tax-advantaged money can then continue to grow, free of taxes, thereby boosting your retirement assets.

There are, however, exceptions. If you own appreciated stock in a brokerage account, you might plan to withdraw it last, rather than first. That way, if you never sell the stock, it will pass to your heirs once you die. And they'd have to pay tax only on the stock's gains after they'd received it.

Also, if you think income tax rates will rise in the future, you might consider tapping tax-deferred retirement accounts before brokerage assets, says Dallas Salisbury, chief executive of the Employee Benefit Research Institute.

True, you'd sacrifice tax-deferred growth. But you'd pay lower income tax on the retirement money than if you took it out after income tax rates had risen.

Or say you're working in retirement and are temporarily in a high tax bracket. In that case, consider withdrawing assets from a Roth IRA before you pull assets from a 401(k) account. Wait till you're in a lower bracket to tap the 401(k); you'll pay less tax on that money.

In a Roth, no matter when you pull your money, your withdrawals will be tax-free. You already paid tax on the contributions. The earnings are also tax-free.

Social Security should also be factored into your withdrawal strategy. You can choose to take Social Security as early as age 62. But if you can wait, your monthly payouts will increase for every year that you waited, up to age 70.

By Kathy Chu

h4. Next: Beware of scams that target seniors

[page]

h4. Beware of scams that target seniors

It takes decades to build up your retirement assets. But it takes only one scam to rob you of them.

As the first of 79 million baby boomers prepare to retire, regulators report a rise in fraudsters pitching questionable — and sometimes non-existent — services.

"The people selling investment products know that there are a lot of people quitting their jobs and retiring," says David Massey, deputy securities administrator in North Carolina.

One way for fraudsters to find potential victims is through free-lunch and free-dinner seminars. They offer you a meal, then try to sell you an investment product.

A year-long investigation of hundreds of these seminars in states with large populations of seniors by the Securities and Exchange Commission, the Financial Industry Regulatory Authority (FINRA) and state securities regulators found that 100% of them led to sales presentations — even though some had been advertised as "educational" sessions at which no products would be pitched.

Regulators also found that "exaggerated" or "misleading" advertising claims were made at half the seminars. Example: "Immediately add $100,000 to your net worth."

Walk away from any get-rich-quick or guaranteed-return sales pitches. And always check the credentials of a financial salesperson — with the SEC, FINRA and state securities and insurance regulators — before making any investment.

Find more information about industry credentials, and what advisers must do to earn them, at FINRA's website: www.finra.org.

By Kathy Chu

h4. Next: Avoid taking on too much debt

[page]

h4. Avoid taking on too much debt

Americans are retiring with more debt than ever before. Among households 65 and older, the average load of credit card debt more than doubled from 1992 to 2004, to $4,907, according to Demos, a New York think tank.

The proportion of retirees with mortgage debt is also rising. Nearly one-third of families headed by people 65 to 74 had mortgages on their primary residences in 2004, up from 26% in 1998, according to the Federal Reserve.

If you accrue debt while you're working, you can always put in extra hours or take a second job. But once you retire, your options shrink. For most retirees, car loans, credit card bills and other debt payments mean less money for health care and other essentials.

Suppose you're retiring with $100,000 in savings and $10,000 in credit card debt with a 15% interest rate. You plan to withdraw 5% a year from your savings, which will provide $5,000 to supplement Social Security and other sources of income. But unless you pay off your credit card debt, your interest will come to $1,500 a year. That means you'll end up using 30% of your annual withdrawal to pay interest on "something you consumed long ago," says Dan Houston of Principal Financial.

Mortgage payments can also drain your savings, Houston says.

But Amy Noel, a financial planner in Boulder, Colo., notes that retirees who have lived in their homes for years may have small mortgage payments. For them, it probably wouldn't be wise to withdraw savings — and trigger a tax bill — to pay off a mortgage.

By Sandra Block

h4. Next: Working longer can pay dividends

[page]

h4. Working longer can pay dividends

If you retire at 55, you could live 30 or 40 more years. And unless you're very wealthy, your savings might not last as long.

Even retiring at 62 — when most people become eligible for Social Security — is risky, says Jack VanDerhei of the Employee Benefit Research Institute. Employer-provided health coverage for retirees is increasingly rare. And without it, you'll have to pay for your own insurance until you're 65, when you become eligible for Medicare.

In most cases, you can buy "Cobra" group coverage from your former employer for up to 18 months — if you pay the premiums, plus administrative costs. But if you're not yet 65 at the end of that period, you'll have to buy an individual insurance policy or go without. Many retirees are shocked at how much such policies cost. If you have health problems, you might not be able to buy health insurance at any price.

Though Americans are working longer, most of them aren't working long enough to provide for a secure retirement, VanDerhei says. By the time they realize they haven't saved enough, he says, it's often too late: "It's really difficult to get into the workforce at age 70."

His advice: Project an estimate of how much money you'll need to live on. Retirement calculators on the Internet can help, though most workers fail to take advantage of them. Instead, "They shoot from the hip," VanDerhei says.

"They can't stand their boss, had a bad day or a bad commute, so they think they're going to retire," VanDerhei says. "They just don't do the calculations."

By Sandra Block

h4. More than ever, invest prudently

[page]

h4. More than ever, invest prudently

Once you're retired, you probably won't have fresh income to make up for investment losses, so you have to be especially prudent. Which means don't chase red-hot stocks and don't try to earn a living as a day trader.

But don't be too cautious, either. In addition to income-producing investments, such as bonds, you need stocks, too. In the long term, stocks tend to outperform bonds or bank CDs. And retirement could last longer than you imagine.

"If you make it to 65, you have a great chance of making it to 85," says Sam Stovall, chief investment strategist for Standard & Poor's.

Within your stock holdings, be sure you're diversified. "Don't ignore international stocks," Stovall says. If you do, you could miss some rich opportunities. The U.S. stock market represents just 35% of the world's stock value, he says.

Stovall's advice:

•Limit any investment costs. Every dollar you give to a broker, a bank or a mutual fund is a dollar you won't have in retirement. If you have an adviser, make sure he or she earns the money you pay.

•Don't let emotions carry you away. If you panic when Wall Street does, you'll likely regret it later. Choose an asset allocation for your portfolio — say, 40% stocks, 40% bonds, 20% money market securities — and stick with it.

•Don't stretch for yield. Retirees often rely on income-producing bonds, dividend-paying stocks and annuities. But the higher the yield, the higher the risk, warns Steve Janachowski, a financial planner in Tiburon, Calif. If you own a bond that pays far more than a comparable Treasury security, you might be absorbing more risk than you realize. Juicier bond yields tend to come from issuers that may not be around in a few years. That's a risk you can't afford.

By John Waggoner

Retirement Tips from Real People

USA Today — Tue, 03 Feb 2009 13:48:00 -0800

Our readers offer their own tips for what you can do now for a happy retirement: Spend less. Save more. Most of all, make sure you have someone to share your retirement with.

Start by living below your means, says Gabe Renzo, 63, of Dearborn Heights, Mich. Young people today, he believes, don't save enough money, and the main reason they don't is that they're overburdened by debt.

"This is the only generation that will drive to the poorhouse in a BMW," Renzo says.

Refraining from too many purchases not only helps you save but also makes you appreciate the things you do buy, says Renzo, who worked in ground operations at Northwest Airlines before retiring in April 2006: "Learn to do without, and thank God for the things you have."

Some readers say their steady savings habits were the most vital ingredient in a happy retirement.

Jean Mothena, 60, of Aldie, Va., is passionate about the value of retirement accounts.

"If I had to choose the single most important thing that's helping us have a happy and secure retirement, it would be my 401(k) and my husband's Thrift Savings Plan," she says. "That money makes a big difference in the amount we can spend — and we do love to spend!"

Mothena, a former Verizon employee, suggested to her friends that they boost their 401(k) contributions by 1% of their income each time they received a raise.

"I used to tell them that if they would increase their contributions at the same time they got raises, they would still get more money in their paychecks and they wouldn't miss the small amount going into their 401(k)s," she says.

Those friends later eventually looked at the size of their 401(k) plan balances and thanked her for her advice, she says.

Listening to a radio talk show one day was a transforming event for Homer Baker, 73.

"The host talked about being your own financial manager and educating yourself about investing," Baker says. "We got rid of all debt and have saved and invested since 1992." Baker and his wife now live in a golf course community. "If I retired tomorrow, I'd do the same thing," he says.

But the most important retirement move doesn't cost a thing, says Kevin Porreco of Gainesville, Va. "I retired over seven years ago on a disability retirement due to having multiple sclerosis," Porreco says. "Several years later, my wife was diagnosed with breast cancer," Porreco said in an e-mail. They are both well and enjoying retirement. "What we've discovered is that a fantastic retirement has nothing to do with money," he writes. "It's about realizing what's really important in life.

"Every morning, my wife and I have coffee in the living room. For about an hour we just talk. That's right, talk. This is what makes retirement!"

By John Waggoner, USA TODAY

Personal Finance: 20 Dos & Don'ts for 2009

Business Week — Tue, 03 Feb 2009 13:48:00 -0800

During the worst economic crisis in a lifetime, the right financial decisions are crucial.

BusinessWeek asked financial planners for some advice on what to do—or not to do—with your money in the New Year. As we bid farewell to a dreadful 2008, these "resolutions" may help keep your finances on the right track in 2009:

h4. 1. Don't try to predict the future.

"We are currently in the midst of unprecedented and complex challenges," says Femi Shote of Asset Harvest Group in McLean, Va. Anyone who thinks he or she can predict what's going to happen is "delusional," Shote says.

Financial advisers often hear from clients who would like to sell stocks now and then buy again when the market hits bottom. "My response is, 'How do you know when that will be?'" says Trent Porter of Priority Financial Planning in Fort Collins, Colo.

h4. 2. Do keep enough cash available.

Even if you're not worried about losing your job, a rainy-day fund can provide peace of mind.

There are different guidelines for how much cash to keep on hand. Some say $12,000 or more per adult; others say it should be six to nine months of living expenses. With extra cash available, you can avoid selling investments to pay for expenses in an emergency.

h4. 3. Do invest internationally.

Though the financial crisis started in the U.S., the past year has been worse for investments in the rest of the world. The MSCI EAFE, an index of international stocks, is down 43% this year, and stocks in emerging economies fared far worse. American investors who diversified abroad have also been pummeled by the rise in the U.S. dollar.

Even after a year like that, advisers say it's not wise to abandon international investments entirely. For one thing, though some key overseas economies, like China's, have been hit hard lately, their long-term economic fundamentals look better than those of the U.S.

h4. 4. Don't try to pick one winning investment. Diversify.

Putting all your money in one stock is dangerous at a time when a company's bankruptcy can completely wipe out the value of its shares.

Robert Siegmann of Financial Management Group in Cincinnati advises clients to balance their portfolios between fixed income and stocks, with shares in various types of companies — small and large, U.S. and international. "Don't try to pick the winning stock, or the winning idea. Just diversify across all investments and markets," he says.

h4. 5. Do think about energy efficiency.

Russell Francis of Portland Financial Advisors in Beaverton, Ore., recommends that investors take advantage of a $500 federal residential energy tax credit that was rescinded in 2008 but returns in 2009. The credit can help cover the costs of adding insulation or replacing doors, windows, or furnaces—home repairs that should also save you on heating and cooling costs.

h4. 6. Don't stop contributing to 401(k) and other retirement accounts.

Says Sidney Blum of GreenLight Fee Only Advisors in Evanston, Ill.: "Everyone loves to invest in their 401(k) when the markets are flying high, but they should keep putting money in while the markets are down." He adds: "More money is made at the bottom of a market than at the top."

Even more pessimistic planners say you should be taking advantage of any match your employer offers for retirement fund contributions.

h4. 7. Do live below your means. Save.

Investing for the future is only possible if you have some money left over at the end of each month to sock away. View this BusinessWeek slide show for 25 ways to save more each month.

h4. 8. Don't make sudden moves.

"Refrain from making extreme changes to the portfolio just because the financial markets are volatile," says William Howell, a financial adviser in Noblesville, Ind. "Stick to the overall investment game plan."

In such an extreme environment, investment decisions based on emotion or fear are likely to lose you money. It's probably better to ignore the day-to-day news and follow a long-term investing plan.

h4. 9. Do pay off expensive debts.

Rather than investing your money, you first might consider paying off debts, especially those with high rates or those for which interest is not tax-deductible. The avoidance of interest will likely save you more than your investments would have earned.

Stanley F. Ehrlich, an adviser in Westfield, N.J., notes: "Paying off a car loan with 7% interest provides an immediate 7% return, a return that is not [currently] available through most asset classes." Credit-card debt is so expensive that most planners say it is always the first thing people should pay off.

h4. 10. Don't give up on stocks.

"Historically some of the best periods for stock market returns have been during dismal economic times," says Paul Winter of Five Seasons Financial Planning in Salt Lake City. Though investors approaching retirement shouldn't risk too much money in volatile equity markets, investors hoping to build a nest egg for the long term have few better options than the stock market.

[page]

h4. 11. Do track your spending.

"It's very easy to lose sight of where your funds are spent," says Alexandra Ollinger of Truepoint Capital in Cincinnati.

G.M. Livingston III, a planner in Santa Rosa Beach, Fla., advises clients to buy software like Quicken to track their spending. "It's a universal mistake," Livingston says. "Most people don't know where their money goes."

h4. 12. Don't pay high management fees.

It doesn't only matter how much your investments earn; it is also important how much you get to keep after trading costs and fees paid to financial advisers and fund managers. When market returns are small or nonexistent, even a 1% or 2% management fee can hurt. Decide if it's worth it. Also, check out offerings from traditionally low-cost fund companies like Vanguard, where the average mutual fund expense ratio is 0.2%.

h4. 13. Do review your credit reports.

With the Federal Reserve cutting the federal funds rate close to zero and policymakers eager to revive the housing market, mortgage rates are expected to drop substantially in 2009. That could be a great opportunity to refinance your mortgage, but only if you have a solid credit score. Check your credit report for any errors now, says Scott Beaudin of Pathway Financial Advisors in Burlington, Vt. "Fixing problems takes time and you don't want to be trying to fix your report while in the middle of a mortgage application," he says. The three U.S. consumer reporting agencies set up a Web site, to allow consumers to access a free copy of their credit report each year.

h4. 14. Don't follow the herd.

"Be fearful when others are greedy, and be greedy when others are fearful," says legendary investor Warren Buffett. Warren Ward, an adviser in Columbus, Ind., agrees, advising his clients to ease back into stock or bond markets rather than seeking the safety of cash or Treasuries as many other investors are doing now. "Do your own thinking and don't allow yourself to be panicked into taking an action you'll regret," Ward says.

h4. 15. Do write down an investing plan and budget, and stick to them.

A budget can help control spending and boost the amount of money you save each month. An investing plan takes the emotion out of your investing decision. "Investing systematically [is] especially [important] during market downturns," Ward says.

h4. 16. Don't forgo necessary insurance.

You can save some money by increasing your car insurance deductible or forgoing life, disability or home insurance, but you could also be left penniless after a serious emergency. Full coverage isn't always necessary, but make sure you're protected in a worst-case scenario.

h4. 17. Do check out your financial adviser.

The arrest of Bernard Madoff, who saw his $50 billion hedge fund collapse in an alleged Ponzi scheme, shows the danger of relying on one person—whether a fund manager or a financial planner and adviser—to handle your nest egg.

Don't just pick a broker or planner out of the yellow pages. "Do your homework," says Eileen Freiburger of ESF Financial Planning Group in Manhattan Beach, Calif. Ask advisers about their qualifications, certifications, and educations, as well as their fees, ethics and disclosure policies. Look them up in online databases that track complaints against planners. The Financial Industry Regulatory Authority's BrokerCheck is a good place to start.

h4. 18. Don't invest in anything you don't understand.

This financial crisis has demonstrated the dangers of too much complexity in the investing world. Investors lost big on asset-backed securities and other investments that in many cases they never really understood in the first place. If your adviser or broker can't adequately explain an investment in a few sentences, maybe it's not for you.

h4. 19. Do make sure safe investments are actually safe.

J. Mark Joseph of Sentinel Wealth Management in Reston, Va., sticks with supersafe government debt for his clients' fixed-income investments. "Bonds are for safety, so make sure your bonds are safe," he says. "Just because something is a fixed-income investment does not mean it is safe."

In case your bank or broker fails, make sure your bank accounts are covered by insurance from the Federal Deposit Insurance Corporation and your brokerage accounts by the Securities Investor Protection Corporation or supplemental insurance.

h4. 20. Don't take more risk than you can handle.

Some investors will react to 2008's losses by trying to be more prudent and conservative in the future. Others, however, will try to win back their losses through bold, risky bets on the next big thing.

That's happened in past downturns, says Elaine Scoggins of Merriman Berkman Next in Seattle. After the tech bubble burst, investors flocked to real estate. A classic mistake is "following one investing mistake by an even bigger one."

The past year has given investors an idea of how bad market conditions can get. In the future, investors may want to evaluate how much risk they're really willing to take and how long they're willing to wait to get outsize returns.

Steverman is a reporter for BusinessWeek's Investing channel.

10 Things You May Not Know About Your Finances

Tue, 03 Feb 2009 13:47:00 -0800

1: Medicare doesn't cover nursing home care.

Nearly 60% of Americans think Medicare pays for nursing care, and 52% assume that it covers assisted living, according to a 2006 survey by AARP.

Not so. Medicare's coverage of long-term care is extremely limited. It'll cover part of the cost of a skilled nursing facility while you recover from an injury or illness. But this coverage lasts just 100 days.

Medicare doesn't cover custodial care, such as help with bathing and dressing. Need to enter a nursing home because you're no longer able to take care of yourself? Medicare won't cover any of your costs. Medicaid, by contrast, will cover nursing home costs — but only for people with little or no assets.

2: The way banks process checks and debit-card transactions can cost you big.

Banks tend to process transactions from the largest to the smallest dollar amount, rather than in the order they're received. This policy is another way for banks to boost profits, says Ellen Cannon, managing editor of Bankrate.com. That's because processing first high, then low, dollar amounts makes it easier for banks to hit consumers with multiple overdraft fees.

Say you have $100 in your account, and you have four transactions processed one day, for, in order, $20, $45, $30 and $90. The bank will process the $90 transaction first, so it can charge you a fee — of up to $39 — for each of the three transactions that will then bounce. If the transactions had been processed in the order in which they'd been received, you'd face only one fee. Most banks charge more than $30 each time you overdraw. Some also charge a fee of $5 or more for each day that your account remains overdrawn.

3: Once you turn 50, you can put away more pretax money for retirement than younger workers can.

Many older workers fail to exploit the 401(k) "catch-up" rule, which lets people 50 and older contribute an additional $5,000 a year to their 401(k) accounts.

At some companies, higher-paid workers aren't allowed to contribute this year's full $15,500 maximum to a 401(k) if not enough lower-paid workers at their company invest in the plan. But the catch-up rule lets all older workers — even the higher-paid ones — boost their annual contribution by $5,000. This is especially beneficial if only one member of a couple has access to a 401(k) plan, and the couple would like to boost their family retirement savings. It's also helpful to women who return to work after an extended absence.

4: If you didn't get a tax rebate this year, you might be able to claim it when you file your 2008 tax return.

Millions of taxpayers have received rebates, or will by mid-July. But many others will get only a reduced amount, or none at all, because their 2007 income was too high. Congress phased out the rebates for single taxpayers with adjusted gross incomes of more than $75,000, and married taxpayers with AGIs of more than $150,000.

Here's what many taxpayers don't realize: Some of them will get a second chance to claim the rebate. The rebate is actually an advance credit on 2008 taxes. But since the Bush administration wanted to get money into consumers' wallets as fast as possible, the rebates were calculated using 2007 tax returns.

So if your income has dropped this year, you can claim the rebate when you file your 2008 return. This second-chance provision will also benefit those whose rebates were shrunk or eliminated because their 2007 income was too low.

5: Real estate isn't a very lucrative investment over the long run.

The real estate party over the past decade or so — even when you factor in the recent price drops — has left many people assuming that real estate is the surest long-term investment out there. Not so. Over the long haul, on average nationwide, returns from real estate fall far short compared with other investment categories.

Housing has returned a 4.7% average annually over the past 25 years, according to an analysis for USA TODAY by Mark Zandi, chief economist of Moody's Economy.com. Over the same period, the S&P 500-stock index produced an average return of 13.3%. Other investment options also outperformed real estate. The three-month Treasury bill produced a 5.4% annual return and the 10-year T-bond 7.1%.

6: You can't just give away your money and then immediately ask Medicaid to pay for nursing home care.

If you want Medicaid to pay for your nursing care, without touching your assets, you'll have to give that money away at least five years before you apply for care. An elder-law attorney can suggest asset-protection strategies.

But if you use Medicaid to cover your long-term care, you'll face a more limited choice of nursing homes. And Medicaid doesn't normally cover at-home care. You might be better off using your money to buy long-term care insurance. Or save enough to cover at least a year in a facility. By law, a nursing home that accepts private-pay and Medicaid patients can't force you to move to another nursing home once you run out of money.

7: Your best investment? Time

Thanks to the extraordinary magic of compounded returns, saving early is the easy way to a rich retirement.

Let's assume your goal is to amass $1 million by the time you retire at 65. If you start saving at 22, and your investments return, on average, 6% a year, you'll need to invest $413 a month to reach your goal. But if you wait till age 35 to start saving? You'll need to invest far more each month to reach the same goal: $996 a month. And if you start at 50, you'd better have a high-paying job: You'll need to save $3,439 a month to reach $1 million by age 65.

8: Grace periods on credit cards apply only to people who don't carry a balance.

If you pay the full amount you owe on your card each month, you're basically enjoying an interest-free loan from the bank. But card users often don't realize that if you're carrying any balance at the end of the month, the card issuer will charge you interest starting from the day you borrowed the money, says Megan Bramlette, managing associate at Auriemma Consulting Group, which consults with banks.

9: You can find fascinating things in your mutual fund's prospectus.

Buried in a fund's official literature are such nuggets as how much money the fund's manager has personally invested in the fund. It's nice to know if his or her money is at stake along with yours.

Or you can find out how much you're paying a fund company to invest your money. If you invest $10,000 in Fidelity Contrafund, for instance, and it returns an average of 5% a year, you'll fork over $1,096 to Fidelity over 10 years. Dodge & Cox Stock will charge you less — $653. The Vanguard 500 Index fund will charge just $192.

10: Mortgage lenders will question a cash gift used for a down payment.

A cash gift from a parent can help a young adult buy a home. But it may come as a surprise that many lenders will raise questions when such gifts are to be used as part of down payments. Some see a big recent infusion of cash into a buyer's account as a red flag that a cash-poor buyer may lack steady income. Many banks will want to see the origin of a cash gift.

In any case, parents should try to make any cash transfer at least a month — and preferably up to six months, some suggest — before a buyer begins applying for mortgages.

10 Things You Should Know About Credit Cards

Monster.com — Tue, 03 Feb 2009 13:47:00 -0800

h4. 1. Interest Backdating

Most card issuers charge interest from the day a charge is posted to your account if you don't pay in full monthly. But, some charge interest from the date of purchase, days before they have even paid the store on your behalf!

Remedy: Find another card issuer, or always pay your bill in full by the due date.

h4. 2.Two-Cycle Billing

Issuers using this method of calculating interest charge two months’ worth of interest for the first month you failed to pay off your total balance in full. This issue arises only when you switch from paying in full to carrying a balance from month to month.

Remedy: Switch issuers or always pay your balance in full.

h4. 3. The Right to Setoff

If you have money on deposit at a bank and also have your credit card there, you may have signed an agreement when you opened the deposit account that permits the bank to take those funds if you become delinquent on your credit card.

Remedy: Bank at separate institutions, or avoid delinquencies.

h4. 4. Fees Are Negotiable

You may be paying up to $50 a year or more as an annual fee on your credit card. You may also be subject to finance charges of more than 18 percent.

Remedy: If you are a good customer, ask the bank to drop the annual fee and reduce the interest rate. Otherwise, you can switch issuers to a lower-priced card.

h4. 5. Interest Rate Hikes Are Retroactive

If you sign up for a credit card with a low "teaser" rate, such as 7.9 percent, when the low rate period expires, your existing balance will likely be subject to the regular and substantially higher interest rate.

Remedy: Pay in full before the rate increase or close the account.

h4. 6. Shortened Due Dates

Most card issuers offer a 25-day grace period in which to pay for new purchases without incurring finance charges. Some banks have shortened the grace period to 20 days -- but only for customers who pay in full monthly.

Remedy: Ask to go back to 25 days.

h4. 7. Eliminating Grace Periods

That fabulous offer you received in the mail for a gold card with a $10,000 credit limit and lots of features may not be so great. The most common "string" attached is the card has no grace period. You are charged interest on everything from the day you buy it, even if you pay on time.

Remedy: Throw the offer out!

h4. 8. Disappearing Benefits

Many banks entice you to sign up with extra benefits such as lifetime warranty, a 5 percent discount on all travel or protection if an item purchased is lost. Now, some banks have cut back on these extras without the fanfare that launched them.

Remedy: Read annual disclosure of changes, and switch cards if need be.

h4. 9. Double Fees on Cash Advances

Most credit cards impose both finance charges and a transaction fee on cash advances. Interest starts from the day of the advance, and the transaction fee can be up to 2.5 percent of the amount taken. Beware of cards advertising "no finance charges." Transaction fees may still apply.

Remedy: Limit cash advances.

h4. 10. Misleading Monthly Minimums

You may think it is beneficial to have a card where you only need to pay 2 percent to 3 percent of your balance monthly. It is just the opposite. The bank stands to make far more money from finance charges the longer you carry out payments -- and you foot the bill.

Remedy: Pay all you can monthly.

10 Things You Should Know About Credit Cards

Monster.com — Tue, 03 Feb 2009 13:47:00 -0800

h4. 1. Interest Backdating

Remedy: Find another card issuer, or always pay your bill in full by the due date.

h4. 2.Two-Cycle Billing

Remedy: Switch issuers or always pay your balance in full.

h4. 3. The Right to Setoff

Remedy: Bank at separate institutions, or avoid delinquencies.

h4. 4. Fees Are Negotiable

You may be paying up to $50 a year or more as an annual fee on your credit card. You may also be subject to finance charges of more than 18 percent.

Remedy: If you are a good customer, ask the bank to drop the annual fee and reduce the interest rate. Otherwise, you can switch issuers to a lower-priced card.

h4. 5. Interest Rate Hikes Are Retroactive

Remedy: Pay in full before the rate increase or close the account.

h4. 6. Shortened Due Dates

Remedy: Ask to go back to 25 days.

h4. 7. Eliminating Grace Periods

Remedy: Throw the offer out!

h4. 8. Disappearing Benefits

Remedy: Read annual disclosure of changes, and switch cards if need be.

h4. 9. Double Fees on Cash Advances

Remedy: Limit cash advances.

h4. 10. Misleading Monthly Minimums

Remedy: Pay all you can monthly.