Free Money Finance

The One Thing You Can Do to Make Your Resume Stand Out

The Wall Street Journal tells us how the hiring process really works. But the part I really noticed were their comments on the one thing you can do to get your resume out of the slush pile. The summary:

What's more, recruiters will only review applications that show a person meets a job's basic qualifications, based on screening questions, she says.

One common exception many firms make: A job hunter who is referred by an employee or other trusted source. A referred candidate may be given immediate attention, potentially speeding them to the interview stage. Michelle Vasquez, 43, says she landed a phone interview for a senior marketing job last month thanks to a referral from a friend of the hiring manager. Ms. Vasquez, who has been out of work for the past year and a half, was later invited to interview with several of the company's senior managers, though she later found out she didn't get the job. "I didn't have out to fill an online application," she says. "I went straight into the interview pool."

Yes, yes, yes! Networking again leads to job success!

Let's face it, when most companies have an open position, they receive a TON of resumes. Even if you're the perfect candidate, it's often hard to get noticed simply because of the sheer quantity of applicants. But if you've networked properly, your resume circumvents the slush pile and goes straight to the hiring manager. How does this happen? Because you give it to someone you know in the company (or someone you know that knows someone in the company) who hand delivers it to the right person.

I know you can't do this for every resume you send (after all, it's hard to know someone in every company you may want to work for), but the bigger your network is, the better chance you have of finding someone who knows someone who knows someone (and on and on) that can help you out. That's why you need to develop and work a networking plan and regularly evaluate your progress. It's something you do now that can pay off in the future in case you find yourself wanting to make a job change or are fired/laid off for some reason. I can speak from experience -- networking works!!!!

Office Depot's Strange Way of Applying Coupons

A week or so before Christmas I had a bit of personal and stocking-stuffer shopping left to do. So I headed to Office Depot armed with my "$10 off a purchase of $50 or more" coupon.

My purchases looked something like this (I'm approximating prices and leaving out tax to make this example simple -- but how the discount was applied is 100% true):

Plastic chair mat: $25
Desk accessories: $15
Stocking stuffer #1: $5
Stocking stuffer #2: $3
Laptop table: $20

Total: $68

Most stores would ring this up as $68 less the $10 coupon equals $58. Not Office Depot (at least not mine.) They took the $10 savings and applied it to each individual item based on that item's percentage of the total cost. So my discount looked like this:

Plastic chair mat: $25 - $3.68 = $21.32
Desk accessories: $15 - $2.21 = $12.79
Stocking stuffer #1: $5 - $0.74 = $4.26
Stocking stuffer #2: $3 - $0.44 = $2.56
Laptop table: $20 - $2.94 = $17.06

Total: $58

So the total's the same, but the way they got to it is unusual. But it doesn't really make a difference, does it? That is, until you want to make a return.

My wife didn't like the desk accessories (they were the ones she wanted me to get for her, but they just weren't right for some reason.) So she went back to Office Depot with the receipt to return the item. Now if we hadn't purchased the desk accessories in the first place, we would have still been over $50 and still received the full $10 discount. But they credited her with $12.79 (the cost of the desk accessories less the amount of the coupon applied to them.) My wife tried to explain to them the issue and they tried to fix it (she left the store thinking they did), but in the end, they gave us back less than we were due. Not a big deal because we're talking $1 here, but still, it's interesting the way they do things.

Then we decided we didn't like the chair mat (it was too flimsy.) So we went to return it as well. Now if we had never purchased the desk accessories AND the chair mat, we would not have been able to use the coupon since our total amount would have been $28. We talked about this on the way there -- that they'd probably take all the rest of our discount away -- and we were ok with that. But we also discussed the strange way they applied the discount and decided that whatever they gave us back, we'd accept -- it just wasn't that much in the total scheme of things and it was more of a headache to fight/explain it than it was worth.

So when we returned with the chair mat, they credited us for $21.32. This left the discounts on the other three items we ended up keeping -- giving us $4.12 off the purchase of $28 in supplies.

Obviously we're not dealing with tons of money here and the fact that I even noticed this and then posted on it could be considered obsessive, but I did think it was interesting on several fronts:

• How they applied coupons when almost everyone else does it a different way
• The fact that if you return something but still have over the coupon amount, you lose money
• The fact that if you return something and now have under the coupon amount, you save money

So does this mean you can always have a coupon at Office Depot, no matter how big the purchase amount is? Simply buy what you want plus a bunch of other stuff to get to the coupon level, get the savings, then return the stuff you don't want. You'll lose the coupon amount on those purchases, but not on the stuff you keep.

To me, this is dishonest and really not worth the trouble anyway, so I wouldn't do it. But having such a system does leave them open to this type of abuse.

Is it only my Office Depot that applies coupons in this manner or do they do it elsewhere? Anyone else had a similar experience?

BOM Carnival #37

The latest Best of Money Carnival is up now with the winning post being Should Married Couples Have Joint or Separate Bank Accounts?

Enjoy!

Free Money Finance March Money Madness, Round 1, Posts 37-40

Here we go with the first round of Free Money Finance March Money Madness (if you wonder what's going on in these posts, see my article announcing March Money Madness and/or click on my March Money Madness category link and scroll down to read all the posts involved in this subject.)

I've listed each "game" (one post versus another) in segments along with the wording provided by the author when the post was submitted. I've also listed a keyword after each post title to make it easy to vote (as a made-up example, you can just comment: Game 1 - Saving; Game 2 - Investing, etc.) Be sure to comment which one you like the best out of each set of two -- you will help determine the winner! Criteria for the best article is somewhat subjective, but you can use these factors as a guide: 1) practicality of the post 2) how interesting/provocative/unique it is, 3) the "personal-ness" of it and 4) its impact on net worth.

Here are today's games:

GAME 19

• How To Invest When You Don't Have Much Money (Much) - Investing is no longer only the realm of the wealthy. Here's how to invest profitably even if you only have a few hundred dollars to start.

VERSUS

• Don't Be Greedy with Freebies (Freebies) - There's a way to be savvy about stretching a buck, but being a stingy freebie monger isn't one of them.  Read how a cheapskate views freebies.

GAME 20

• The 10 Commandments for Frugal Living (Frugal) - While frugality doesn’t quite rise to the level of recognized religion, there are some laws to live by if you hope to lead a frugal life. These ten “commandments” will lead you away from the temptation to spend more money, and deliver you from the evils of debt.

VERSUS

• The Infomercial Copycat Method of Debt Reduction (Infomercial) - While there are many ways to pay off debt, this post introduces a wacky, yet effective way to do it. This debt reduction is a reverse engineered version of the media marketing techniques that keep you spending on “stuff”. Give it a try and see how much more confidence you have in freeing yourself from debt.

The Other 8 Hours

The following is an excerpt from The Other 8 Hours: Maximize Your Free Time to Create New Wealth & Purpose by Robert Pagliarini. Copyright © 2010 Other 8 Hours, LLC All Rights Reserved. The book tells people to live life to the fullest by radically changing the way they spend “The Other 8 Hours” – the 8 hours not spent sleeping or working.

Your day doesn’t start when you crawl out of bed. Your day—and even your life—doesn’t really start until 5:00PM.  What you’ve done with your time after 5:00PM last week, last month, and last year has determined where you are today. How you use the other 8 hours today, tomorrow, and next year will determine your future—they are your only hope to radically improve your life. The 8 hours you sleep are lost. The 8 hours you sell for a paycheck are gone. What you have—really, all you have—are the other 8 hours. Life not only happens in those the other 8 hours, but life is the other 8 hours.

Where you work, the size of your paycheck, the amount of debt you have, what you weigh, the number of people you can count on to help you in an emergency, your connection to God, the relationship you have with your spouse and children, and just about everything else that is meaningful to you is the result of how you’ve used the other 8 hours. 

Look at each of the areas below to see the profound effect the other 8 hours has had:

Family

Even if you met your partner/spouse at work (I did), you needed to put time and energy into it after work if you wanted it to grow and mature. The dates you went on, long walks, and falling in love all occurred during the other 8 hours. Even the disagreements and arguments that make you the couple you are today occurred after 5:00PM.

If you have children, surely their conception and maybe their birth occurred during the other 8 hours. All of the diapers you changed, Elmo you watched, and homework you’ve helped complete—all of the things you did to build connections with your children today—wouldn’t have happened if it were not for the other 8 hours.

The reason my daughter runs up and hugs me when I come home from work is because of the other 8 hours I’ve “invested” in her (then again, it’s probably the M&M’s I bribed her with).

The love (and yes, the lack of love) your spouse and children feel toward you are entirely because of how you have spent the other 8 hours. The connection you feel toward your siblings and parents are based largely on what you’ve done during the other 8 hours. If you invested them wisely, you probably have some good relationships. If you didn’t, you probably don’t.

Relationships

The 9 to 5 working hours are a great time to meet people and develop friendships.  I met most of my non-childhood friends while working. It’s no surprise. We come into contact with more people and for longer periods during working hours than we do at any other time of the day. But to convert your work relationships into real friendships, you have to spend some of your other 8 hours hanging out and getting to know those people on a different level. It’s one thing to chat about the latest American Idol contestant to be voted off around the water cooler or to relive Sunday’s big game in the lunchroom, but it’s an entirely different thing to share a drink or dinner with someone and really get to know them. Your close friends—regardless of where you met them—became your friends during the other 8 hours.

Physical Health

The notch you use in your belt, how out of breath you feel after climbing a flight of stairs, and how comfortable you are in a bathing suit are almost entirely dependent on how you have used the other 8 hours. What you choose to eat for breakfast, dinner, desert, and snacks are usually during the other 8 hours. If you’ve chosen wisely, it shows. Do you exercise? If so, when? While you sleep? No. While you work? No. During the other 8 hours? Yup.

Personal Growth

This category includes your hobbies, educational pursuits, travel, reading, art, and other activities that you find enriching and are passionate about. One of my hobbies is Brazilian Jiu Jitsu and mixed martial arts. I’m not very good, but I enjoy it and I’m better than when I started. I also enjoy learning Spanish (even though those verbs confuse me). Another of my favorite pastimes? Reading. My clients wouldn’t appreciate it, and I wouldn’t be very successful if I spent my hours between 9 and 5 practicing Jiu Jitsu, learning Spanish, and reading books. No, I can only do these things that I love and am passionate about—these things that help define me as a person—during the other 8 hours.

Spirituality

Your spirituality and faith should follow you wherever you go—during work and during the other 8 hours. But, unless your 9 to 5 job is in ministry, chances are your spiritual growth and deepest connection to God occur during church/temple, small group meetings, Bible study, chanting, volunteering, meditation, or whatever.

Financial Health

Surely your financial health is the direct result of the hours between 9 and 5. It is during this time that you work and earn a paycheck. Your paycheck determines your financial health, right? Not so fast. Obviously your working hours play a significant role in your finances, but you might be surprised at the role the other 8 hours play in the size of your bank account.

Your financial health is determined by just two things . . . your income and your expenses. That’s it. No more, no less. Your income is based on what you do for a living and how well you do it. The best sno-cone maker in the world may make a fine sno-cone, but her choice of occupation limits her financial success. Likewise, a brain surgeon who botches every surgery isn’t going to be very financially successful either.

What you do for a living is based on hundreds of factors . . . where you grew up, your intelligence, your parents’ encouragement, your personality, your interests, chance, etc. What you do for a living also depends on if you graduated high school, if you spent the extra years getting an advanced degree, if you took online courses or night classes to earn an important industry designation, how hard you studied, and your personal network of friends and acquaintances. It is these factors—those that you can control—that have a huge impact on what you do between the hours of 9 and 5.  And guess what? All of these other factors are the direct result of how you have spent the other 8 hours.

So the other 8 hours have a huge impact on our income, but what about the other half of the financial health equation . . . our expenses? You guessed it. Your expenses are the result of the decisions you make during the other 8 hours. How much you choose to spend on rent, the type of car you drive, the clothes you buy, the entertainment you experience, and the toys you purchase aren’t decisions you usually make while we are working, and they definitely aren’t decisions you make while sleeping. Every single one of these spending decisions—and thousand of others, both big and small—occur during the other 8 hours.

Still aren’t convinced?  I need you to buy into just how important the other 8 hours are. If you read this book with the same skepticism you have when you read those tabloid headlines in line at the grocery, it’s not going to work. Go ahead. Drink the Kool Aid.  Because once you do—once you realize the power the other 8 hours has had on your life—you will respect and appreciate the power that the other 8 hours can have on your life.

The Relationship between Riches and Wisdom

For those of you new to Free Money Finance, I post on The Bible and Money every Sunday. Here's why. The following is an excerpt from Dollars and Doctrine.

“The crown of the wise is their riches.” (Prov. 14:24)

The Bible clearly speaks of a correlation between riches and wisdom.  This connection has a lot more to do with the practical application of wise principles than mere intelligence or IQ.  The Bible simply makes the case that wise decisions tend to lead to financial gain.  We must progress through this chapter not thinking of wisdom as some vague, mystical, and undeterminable attribute, but as practical application of sound principles.

First, it must be established that the Bible does connect wisdom and riches.  Solomon often spoke of this relationship:

“[Wisdom] In her left hand are riches and honor.” (Prov. 3:16)

“[Wisdom] Riches and honor are with me, enduring wealth and righteousness.” (Prov. 8:18)

“[Wisdom in righteousness and justice] endow those who love me with wealth, that I may fill their treasuries” (Prov. 8:21)

“There is precious treasure and oil in the dwelling of the wise, but a foolish man swallows it up.” (Prov. 21:20)

“By wisdom a house is built, and by understanding it is established; and by knowledge the rooms are filled with all precious and pleasant riches.” (Prov. 24:3-4)

The scripture describes a direct correlation between riches and wisdom.  The basic concept related in this relationship is actually quite logical.  It makes sense that wisdom (discernment, morality, perspective, intelligence, and clear-thinking) will likely lead to success and financial gain.  By definition, wise people make good decisions.  Good decisions will most likely have positive results: “Wisdom has the advantage of giving success.” (Eccl. 10:10)  Generally speaking, it should sound quite reasonable that people who consistently make wise decisions will find themselves surrounded by success and prosperity.  Conversely, people who are continually making unwise decisions will likely find themselves facing failure and poverty.  To go much further beyond this begins to twist the teachings of scripture.

Let us not forget that Solomon also said, “The fear of the Lord is the beginning of wisdom, and the knowledge of the Holy One is understanding,” (Prov. 9:10) and “The Lord gives wisdom; from His mouth come knowledge and understanding.” (Prov. 2:6)  A Christian is to find wisdom in the Lord and in His word.

We must not take this notion too far.  Then we begin to say things like: “So if I follow the Lord’s instruction He will make me rich,” or “Everyone who is poor has gotten into that position because they have acted foolishly.”  These types of statements make the Bible say what we want it to say rather than what it actually says.  We must understand the basic correlation between riches and wisdom found in these verses without elevating this concept to some sort of life-governing principle or universal axiom.  In order to see an accurate Biblical balance of riches and wisdom, we will look to the life of Solomon.

A Case Study: Balancing Riches and Wisdom

Solomon was the richest and wisest man that ever lived (1 King 10:23).  As every one of us remembers from our felt board Sunday school lessons, he was given a gift of his choosing from the Lord.  He requested wisdom:

“Now, O LORD my God, You have made Your servant king in place of my father David, yet I am but a little child…So give Your servant an understanding heart to judge Your people to discern between good and evil. For who is able to judge this great people of Yours?” (1 Kings 3:7,9)

In this request, we see that humility preceded any blessing (which is a lesson in itself), but the answer he receives back from the Lord is even more enlightening.  God’s response reveals His infinite wisdom.  In this account, the words of the Lord clearly communicate that Solomon’s wisdom and wealth were given to him by God:

“It was pleasing in the sight of the Lord that Solomon had asked this thing.  God said to him, ‘Because you have asked this thing and have not asked for…riches for yourself…but have asked for yourself discernment to understand justice…I have also given you what you have not asked, both riches and honor, so that there will not be any among the kings like you all your days.” (1 King 3:10-13, See Also 2 Chron. 1:7-12) 

Solomon did not become wealthy as his wisdom came to fruition.  Instead, he received his riches from God: “I have also given you what you have not asked, both riches and honor.”  It is not an accident that the scripture denotes Solomon’s wealth to be a gift from the Lord rather than a result of his wisdom.  The wisest and wealthiest man to have ever lived was not exempt from the simple statement of John the Baptist: “A man can receive nothing unless it has been given him from heaven.” (John 3:27)
Since we have taken such a close look at the life and teachings of Solomon, it is worth taking a moment to glance at his management of such gifts.  Amidst unparalleled levels of wisdom and prosperity, how did he handle his money?  Observe the following passages:

“And King Solomon and all the congregation of Israel, who were assembled to him, were with him before the ark, sacrificing so many sheep and oxen they could not be counted or numbered.  On the same day the king consecrated the middle of the court that was before the house of the LORD, because there he offered the burnt offering and the grain offering and the fat of the peace offerings; for the bronze altar that was before the LORD was too small to hold the burnt offering and the grain offering and the fat of the peace offerings.” (1 King 8:5,64, See Also 2 Chron. 5:6)

“For he [Solomon] will deliver the needy when he cries for help, the afflicted also, and him who has no helper.  He will have compassion on the poor and needy, and the lives of the needy he will save.” (Ps. 72:12-13)

In Solomon we see a matchless combination of riches and wisdom.  What results does such a situation create?  The scriptures above indicate that he was overwhelmingly generous to God, the needy, the afflicted, and the poor.  This should be a lesson to us all.
So what should a believer take away from this chapter?  Seek wisdom while it may still be found:

“Make your ear attentive to wisdom, incline your heart to understanding; for if you cry for discernment, lift your voice for understanding; if you seek her as silver and search for her as for hidden treasures; then you will discern the fear of the LORD and discover the knowledge of God.” (Prov. 2:2-5)

“How blessed is the man who finds wisdom and the man who gains understanding.  For her profit is better than the profit of silver and her gain better than fine gold.  She is more precious than jewels; and nothing you desire compares with her.  Long life is in her right hand; in her left hand are riches and honor.  Her ways are pleasant ways and all her paths are peace.  She is a tree of life to those who take hold of her, and happy are all who hold her fast…keep sound wisdom and discretion, so they will be life to your soul and adornment to your neck.  Then you will walk in your way securely and your foot will not stumble.  When you lie down, you will not be afraid; when you lie down, your sleep will be sweet. (Prov. 3:13-18,21-24)

“Acquire wisdom!  Acquire understanding!  Do not forget nor turn away from the words of my mouth.  Do not forsake her, and she will guard you; love her, and she will watch over you.  The beginning of wisdom is: acquire wisdom; and with all your acquiring, get understanding.  Prize her, and she will exalt you; she will honor you if you embrace her.  She will place on your head a garland of grace; she will present you with a crown of beauty.” (Prov. 4:5-9)

The Lord gives wisdom to those who seek it in the fear and knowledge of Him.  Do not seek wisdom to get rich, for wisdom’s “profit is better than the profit of silver and her gain better than fine gold.”  There is much more to wisdom than money.  She is a source of life, peace, happiness, security, and grace.  “How blessed is the man who finds wisdom and the man who gains understanding.” 

We are to seek wisdom for wisdom’s sake, not for the possibility of financial gain.  It might help to consider the following metaphor:  One who exercises and eats right in order to be healthy frequently accomplishes his goal and most likely loses a few pounds in the process.  However, those who drag themselves to the gym to lose fifteen pounds rarely achieve their goal.  The same is true of wisdom.  Those who seek “wisdom” to get rich seldom achieve this end.  The entire notion is counter-productive. 

Saving a Bundle on Your Taxes with an Unrelated Dependent

The following is a guest post from Harvey J. Poorbaugh, Editor of Fidelity Select Fundranker.

Are you working long hours, possibly more than one job, and supporting your significant other while she’s out of work?  Is your unemployed college buddy mooching off you during a long and unsuccessful job hunt?  Have you taken in your daughter’s soccer team buddy because her home life wasn’t working?  It’s not obvious, and it may surprise you, but you may be able to claim an unrelated person as a dependent on your 2009 federal tax return.

There are several tests to determine whether an unrelated person is your dependent.  If you and your potential dependent pass all of these tests, get ready to save a bundle on your taxes:

• Is your potential dependent a qualifying relative? It’s easy to jump to the conclusion that she isn’t a qualifying relative, because, well, she’s not related to you in any form or fashion. Take a close look at the IRA definition of a qualifying relative, however, and you’ll see that it includes, in addition to various real relatives, any other person who lived with you all year as a member of your household if your relationship did not violate local law. Note that the 2009 Form 1040 instructions list some exceptions that still count as living with you, such as going to school or on vacation. So if your potential dependent lived with you for all of 2009, and your relationship did not violate local law, you pass this test.
• Is your potential dependent a qualifying child of any taxpayer for 2009? Because she is not related to you, she’s not your qualifying child, and if she lived with you the entire year, then she can’t be a qualifying child of anybody else, either. You easily pass this test.
• Did your potential dependent have gross income of less than $3,650 in 2009? If so, you pass this test.
• Did you provide over half of your potential dependent’s support in 2009? Well, does she have some other means of support? Is the support you provide more than her other means of support? If so, you pass this test.
• Was your potential dependent a U.S. citizen, a U.S. national, a U.S. resident alien, or a resident of Canada or Mexico? If so, you pass this test.
• Was your potential dependent married? If not, you pass this test.
• Can you yourself be claimed as a dependent on someone else’s 2009 tax return? If you are providing half of your potential dependent’s support, it’s unlikely someone else is providing half of your support. You should pass this test easily.

So if you pass the above tests, just how much can you save on your taxes?  An additional dependent allows you an extra exemption, which, for 2009, shaves $3,650 off your taxable income.  If you are in the 25% tax bracket, that amounts to tax savings of over $900.  If you also are paying education expenses for your unrelated dependent, you can save big with an education tax credit. To top it off, you probably will save money on your state income tax, as well.

Why I Report My Daughter's Babysitting Income to the IRS

The following is a guest post from Carol Topp, CPA. She is the mother of two teenage daughters and runs Teens and Taxes.

Typically, income from babysitting does not mean a teenager must file a tax return.  Income from babysitting is typically too low to pay income tax (the threshold in 2009 was $5,700). Additionally, teenage babysitters are considered household employees, not business owners, so they avoid paying self-employment tax. Neither does an employer have to pay employer taxes (Social Security and Medicare) on a teenage babysitter, if these three conditions exist:

• the employee is under age 18 at any time during the year and
• the work is in or around a private residence as an employee and
• the employee's main occupation is not providing house hold services. (For a teenager, their primary occupation is to be a student, not a babysitter.)

All three things must be true to be exempt from employer and self-employment taxes. See IRS Publication 926 Household Employer’s Tax Guide.

For example, when my daughter, Emily, was 16, she went to a neighbor’s house and babysat their three children several times a month and in the summer. In one year she made $1,200. She was a teenage household employee. Emily did not owe self-employment tax on her babysitting income. Since she earned less than $5,700 (in 2009), she did not owe federal income tax either.

But I filed a tax return for her even though Emily did not owe any income tax nor self-employment tax. Why?  I wanted to open a Roth IRA for her and contribute up to the amount of her earned income. Babysitting income is considered earned income even though it is essentially tax free for the amounts Emily made. The tax return is a way to officially report her earned income. 

Perhaps I am overly cautious. After all, the brokerage where I opened her Roth IRA did not ask for income verification. The IRS is not cross checking Roth IRA contributions with earned income (as far as we know). I wanted to create a paper trail. Since I am a CPA with a tax preparation practice, my daughter's 1040 was easy to prepare. I was careful to mark her earned income from babysitting as household income. The IRS instructs household employees (babysitters, lawn mowers, maids, etc) to write “HSH” on the line where wages are reported. My tax software took care of this when I checked a box for household employees.

Consider filing a tax return for your teenager to report her babysitting income and then open a Roth IRA for her. My hope is that someday Emily will cash in her Roth for a down payment on a house (you can use a Roth IRA for your first home purchase and avoid the 10% early withdrawal) and she will fondly remember her babysitting days. Maybe she will consider her mom fondly, too!

Free Money Finance March Money Madness, Round 1, Posts 33-36

Here we go with the first round of Free Money Finance March Money Madness (if you wonder what's going on in these posts, see my article announcing March Money Madness and/or click on my March Money Madness category link and scroll down to read all the posts involved in this subject.)

I've listed each "game" (one post versus another) in segments along with the wording provided by the author when the post was submitted. I've also listed a keyword after each post title to make it easy to vote (as a made-up example, you can just comment: Game 1 - Saving; Game 2 - Investing, etc.) Be sure to comment which one you like the best out of each set of two -- you will help determine the winner! Criteria for the best article is somewhat subjective, but you can use these factors as a guide: 1) practicality of the post 2) how interesting/provocative/unique it is, 3) the "personal-ness" of it and 4) its impact on net worth.

Here are today's games:

GAME 17

• How To Manage Money While Deployed (Deployed) - While deployed overseas I saw plenty of soldiers blow through everything they earned.   Here's how I was able to wisely manage my money and come back home safe and sound and in great shape financially.  For any soldier being deployed, this is a must read.

VERSUS

• Long Term Care… Have You Thought About It? Maybe You Should! (Care) - Many people are sticking their heads in the sand and ignoring the results of studies done by AARP and others. Such actions can have a devastating effect on families, from an emotional and financial standpoint. Most people spend more time planning a vacation then they do their financial future. Planning is the key, and the earlier you start planning the higher your chances of successfully reaching and exceeding your goals.

GAME 18

• Should Parents Have a Financial Double Standard For Sons and Daughters? (Parents) - This article explores the intricate relationship between finance and family value. Craig Ford, the author of the article, explore his own family situation to highlight some of the basic divides that create financial double standard for sons and daughters. The article may not have the answer for you, but it's thought provoking and encourages you to think about this particular situation.

VERSUS

• What We Learn From Tragedy (Tragedy) - This post is perhaps the most personal I have written.  Anytime I feel complacent in my career or personal life, I read this post and reflect fondly of my friend, his relentless energy, and tireless passion for everything he did.  While an honest reflection of a horrible event, David's tragedy can be used to educate readers on practical personal finance principles, such as the need for estate planning (wills, trusts), or life insurance.

Two Views of the Economy

Here's a funny and entertaining piece a friend sent me about two of the major (and conflicting) thoughts on economics. Even an econ neophyte like me found this entertaining, educational, and something that I could grasp. :-)

Enjoy!!!

If the player doesn't work for some reason, you can view the video here.

Think You’re Too Young, Too Old or Too Late to Achieve Your Dreams?

The following is a guest post by Rich Avery from Life Compass Blog. It's not specifically related to personal finance, though his suggestions can apply to money in several different ways. In addition, these thoughts help you think about some life issues that could be more important than money.

Have you ever felt like you’re too young, too old or too late to make a serious change in your life – like finally getting out of debt, finding work you were meant to do, starting the business you’ve always wanted, or living your dream lifestyle?
 
I think most of us have been there at one time or another.  We think our dreams or goals are out of reach because of the situation or circumstances we find ourselves in.  Or we believe the lies that we’re not qualified, gifted, talented, rich, or knowledgeable enough to do it.
 
This week I'm re-reading The Rhythm of Life: Living Every Day with Passion and Purpose, by Matthew Kelly.
 
In the book, Kelly offers an inspiring list of now-famous people who didn't let their age or stage of life stop them from achieving their dreams and living a life of significance:

• Mozart was eight when he wrote his first symphony.
• Anne Frank was thirteen when she began her diary.
• Ralph Waldo Emerson was fourteen when he enrolled at Harvard.
• Bill Gates was nineteen when he cofounded Microsoft.
• Henry David Thoreau was twenty-seven when he moved to Walden Pond, built a house, planted a garden, and began a two-year experiment in simplicity and self-reliance.
• Bill Gates was thirty-one when he became a billionaire.
• Thomas Jefferson was thirty-three when he wrote the Declaration of Independence.
• Coco Chanel was thirty-eight when she introduced her perfume Chanel No. 5.
• Mother Teresa was forty when she founded the Missionaries of Charity.
• Henry Ford was fifty when he started his first manufacturing assembly line.
• Ray Kroc was fifty-two when he started McDonalds.
• Dom Perignon was sixty when he produced his first champagne.
• Oscar Hammerstein II was sixty-four when he wrote the lyrics for The Sound of Music.
• Winston Churchill was sixty-five when he became Britain's prime minister.
• Nelson Mandela was seventy-one when he was released from a South African prison, and seventy-five when he was elected president.
• Michelangelo was seventy-two when he designed the dome of St. Peter's Basilica in Rome.
• Frank Lloyd Wright was ninety-one when he completed his work at the Guggenheim Museum.
• Dimitrion Yordanidis was ninety-eight years old when he ran a marathon in seven hours and thirty-three minutes, in Athens, Greece.
• Ichijirou Araya was one hundred when he climbed Mount Fuji.

Whatever your age, the rest of your life is ahead of you.  You can’t go back and change anything about your past, but you can change your future.  Now is your time to take action! 

Ask yourself:

• What dreams have I been putting off that I know I need to pursue?
• What attitudes, people, or things are holding me back?
• What are three things I can do right now to move me toward the achievement of my dreams?
• Who (people) and what (tools) can help me?

Remember these words from English novelist George Eliot:  “It is never too late to be who you might have been.”

Star Money Articles and Carnivals for the Week of Feb 1

For weekday updates of what I find to be some of the most interesting personal finance articles on the web, follow me on Twitter.

Here are some pieces I found especially worthwhile and some of the carnivals Free Money Finance was in this week and my posts that were included:

• The Sun’s Financial Diary suggests you become master of your financial domain. 
• Lazy Man and Money discusses public storage. 
• FrugalDad offers a realistic look at financial security. 
• BripBlap covers past and future debt. 
• My Dollar Plan gives ways to throw an anniversary party on a budget. 
• Money Smart Life gives tips for couples before marriage. 
• The Digerati Life says to watch those car recalls. 
• Wise Bread lists 10 steps to a great retirement. 
• Smart Spending tells how to get a free breakfast at Denny's. 
• College Stats tells what a college degree is worth.
• Carnival of Personal Finance - Kiplinger Doesn't Get It

Enjoy!

P.S. Carnival Hosts -- If my post is in your carnival in a given week, please send me the URL to the carnival and I will include it in my weekly roundup.

Life Insurance as an Investment

The following is a guest post from Clarifinancial.

Is investing in life insurance right for me?

The popular media has a problem using life insurance as an investment because they say “buy term invest the difference.” But to a well-trained financial advisor or life insurance agent, that argument might not go far enough. What are the risks and dangers of using life insurance as an investment?

Tax advantages of life insurance

A quick read about this strategy shows you it hinges on life insurance tax advantages. Those tax advantages really start to play a role in 10 years, 30 years, or longer. But what are those advantages and could they ever be jeopardized?

Cash value in permanent life insurance policies grows tax-deferred. That means you don’t owe taxes on it now, but you probably will later. This is not the same as tax-free. You may hear the phrase “tax-free income,” but you should hear something closer to “potentially income tax free.”

You get money out of the policy by pulling it out. The general purpose of any investment is to eventually pull more money out than you put in. But when you take money out beyond your cost basis, you put yourself in a risky situation – from a tax standpoint.

If the policy ever lapses, the money you have taken beyond what you put in is considered ordinary income in the year the policy disappears. It doesn’t matter how long you have been getting checks. If the policy goes away, all those checks become taxable in the same year. And guess what – you’re probably in a higher tax bracket because of it too.

That would completely wipe out the tax advantages of investing in life insurance. But how could that happen?

Universal life insurance

There are a few variables in a universal life insurance. The interest credited and the internal costs. If you are considering life insurance as an investment tool, you probably understand the method of interest crediting and are comfortable with it.

You should also consider that life insurance companies have control over mortality and administration costs. These internal costs can sometimes have a bigger swing over the cash value in a policy than the interest rate.

You have no control over these internal costs. Only the life insurance company can change this. You are at their mercy.

Whole life insurance

Whole life strategies rely on dividends from a life insurance company. The important thing to keep in mind is that dividends may change each year – go up, go down, or even disappear entirely. It’s all over the fine print in the sales literature and it should be in the insurance agent’s language too.

What doesn’t matter is if the life insurance company has paid a dividend in the past. What matters is if they will pay a dividend in the future. Any smart investor knows past performance is not an indicator of future performance. Yesterday’s hits won’t always be the great hits of tomorrow – much less 10 years, 30 years, or even longer down the road.

This is a long-term investment strategy whose success or failure can change in any given year, depending on the whim of the life insurance company.

Risks and dangers of investing in life insurance

But why would an insurance company ever reduce dividends or increase internal costs in a life insurance policy? Financially strong companies may want to increase profitability on old policies to keep their books solid. Or imagine we go through a period of tough times and changing capital markets. An easy place to get money is from customers who already agreed to pay more.

You may have some control over your life insurance contract, but not complete control. You share the success or failure of your investment with a single life insurance company. This is not the same as business risk. Many life insurance companies are still very solid, even while some life insurance investments may not do well. But it is a unique risk investors who do not rely on life insurance don’t have to worry about.

I’m pretty certain everything is suitable for someone, but like any long-term investment, it makes sense to consider the unique risks and benefits for you. As for me, I’ll stick to boring life insurance for ordinary reasons.

Tax Filing Stats

TurboTax offers up this "infographic" about filing your taxes online that has some rather interesting numbers in it. For instance:

• 67% of people file electronically versus 33% who filed paper
• 95 million out of 141 million tax returns were filed electronically
• 78% of filers received a tax refund
• The average tax refund was $2,753
• Top e-filing states are what you'd expect -- the most populous states (My state, Michigan, is #8)

A few thoughts here:

• What once was unusual, e-filing is now the norm. I wonder how long it will be until virtually everyone e-files.
• 78% of people get a tax refund and the average refund is $2,753? Ouch! I wonder how much money is lost (not earning interest or not being able to pay off a debt charging you interest) by Americans that are lending the US government $2,753 each. If there are 141 million filers, that means 110 million get a refund. And at $2,753 each, that's $302 billion in refunds. That's a boatload of money that could have gone to pay credit card debt and the like to save people a TON of money last year.
• I've been e-filing for as long as I can remember. My CPA does it for me.

How about you? Any e-filers out there? Anyone refuse to use e-filing? Anyone expecting a huge refund this year? Why?

Top Six Mindless Money Wasters

Yahoo lists the top six mindless money wasters as follows:

1. Convenience Stores
2. Cell Phone Plans
3. Soft Drinks
4. Unnecessary Bank Fees
5. Magazines
6. Annual Credit Card Fees

I guess I must be doing pretty well -- I don't spend money on any of these. At least not much money. here's where I stack up on the list:

1. Don't know when the last time I bought a non-business item in a convenience store. I have stopped while on a business trip and gotten a quick bite when there was no other option (got a snack and gas at the same time), but I have been reimbursed. Unless they count that as a "gas station" and not a "convenience store." When was the last time I was in a non-gas station convenience store? Probably 1982.

2. My cell phone is paid for by my employer and my wife has a TracFone.

3. We get free soft drinks in the office, but I gave them up for New Year's. As far as buying one at a restaurant -- never for me or my wife and only occasionally with a meal/discount option for the kids. But we do this rarely because soda isn't really that good for you.

4. Haven't had a banks fee since 1982. Must have had it the same day I went into that convenience store...

5. I subscribe to only two magazines at the moment -- Consumer Reports and Family Handyman. Everything else I can read online. At the height of my subscriptions, I had 10 to 12 magazines. They were too costly and too time consuming to keep going. I never buy one-off magazines at the store unless it's as a gift (once a year or so I'll get my son a $7 soccer magazine he likes. Yikes!)

6. Nope, haven't had any since...want to guess? ;-)

How about you? Where do you stack up on this list?

Two Tax Credits that Could Save You a Bundle

The following is a guest post from Harvey J. Poorbaugh, Editor of Fidelity Select Fundranker. It's actually a combination of two pieses he sent me, and I thought they worked best under the unified title above.

Making Work Pay Tax Credit for 2009 and 2010

The Making Work Pay tax credit for tax years 2009 and 2010 came about as part of the American Recovery and Reinvestment Act of 2009, which was signed into law by President Obama in February, 2009, to help stimulate the economy in the depths of the Great Recession.

Under the Making Work Pay tax credit, working people are supposed to receive up to $400 per year ($800 for married taxpayers filing jointly) of a refundable credit against their federal taxes.  Refundable means that if any remains after it is applied against your tax, it will result in a tax refund.  The Making Work Pay credit begins being phased out for single taxpayers at an AGI of $75,000 and for married taxpayers filing jointly at an AGI $150,000.

The whole idea of this tax credit was to get money in the hands of working people as soon as possible so they could spend it and stimulate the economy, so withholding tax tables were changed as of April 1, 2009, and workers started receiving a little bit more take home pay for the remainder of the year.  Those little bits, over the last nine months of 2009, as well as over the entire 12 months of 2010, should add up to about $400 ($800 for married taxpayers filing jointly).

When you fill out your 2009 federal tax return, and you get down to the Payments section of your Form 1040, you’ll put down your withholding, which should be about $400 ($800 for married taxpayers filing jointly) less than it would have been had the tax credit not existed, and then you’ll also put down $400 ($800 for married taxpayers filing jointly) for the tax credit.  So your tax payments should add up to about the same amount as they would have had the tax credit not existed, but Uncle Sam contributed $400 ($800 for married taxpayers filing jointly) of it for you.  He just gave the credit to you a little at a time during the year instead of giving it to you all at once when you file your tax return.

A few taxpayers may find that their employers cut their withholding too much during 2009.  If you have more than one job, or you and your spouse both work, remember that your different employers are unaware of your income from the others.  They simply look up your payroll withholding according to the number of allowances on your W-4 form. It was up to you to make sure that you claimed the appropriate number of allowances on your 2009 Form W-4 so that your employers didn’t cut your withholding too much during the year.  If you are unpleasantly surprised at how this works out on your 2009 tax return, make sure you update your 2010 Form W-4 right away.

Education Tax Credits for 2009

If you, your spouse, or one or more dependents had qualifying postsecondary education expenses in 2009, don’t miss claiming your education tax credit on federal Form 8863.  The American Opportunity credit is new for 2009, and the Hope and Lifetime Learning credits are still available, as well, although the Hope credit is useful now only if you need to claim qualifying educational expenses for a student who attended a school in a Midwestern disaster area.  Instead of the above education credits, you also still can claim the tuition and fees deduction on federal Form 8917 for 2009.  It is limited to $2,000 or $4,000 depending on your gross income less other deductions, is deducted from your gross income, and lowers your AGI.  As such, it hardly ever lowers your federal tax as much as the above credits, and we won’t discuss it any further.  As an aside, you may be able to reduce your state income tax for 2009 by claiming qualifying education expenses, as well.

The American Opportunity education credit, new for 2009, allows you to claim a tax credit of 100% of the first $2,000 and 25% of the next $2,000 of qualified education expenses for each student, for up to a maximum $2,500 tax credit per student, for the first four years of postsecondary education.  Even better, if you are at least 24 years old (see Form 8863 instructions if you were younger than 24 at the end of 2009), 40% of each student’s tax credit is refundable, meaning it will increase your tax refund, even if you don’t owe that much tax.  If you claim the American Opportunity credit for any student, you cannot claim the Hope credit for other students, but you can claim the Lifetime Learning credit for other students.  The American Opportunity credit is phased out beginning at $80,000 AGI for single taxpayers and $160,000 AGI for married taxpayers who file jointly.

If you have a student who attended school in a Midwestern disaster area, the Hope education credit allows you to claim a tax credit of 100% of the first $2,400 and 50% of the next $2,400 of qualified education expenses for each student, for up to a maximum $3,600 tax credit per student, for the first two years of postsecondary education.  If you have other students who did not attend school in a Midwestern disaster area, the Hope education credit allows you to claim a tax credit of 100% of the first $1,200 and 50% of the next $1,200 of qualified education expenses for each student, for up to a maximum $1,800 tax credit per student, for the first two years of postsecondary education.  If you claim the Hope credit for any student, you cannot claim the American Opportunity credit for other students, but you can claim the Lifetime Learning credit for other students.  None of the Hope credit is refundable, and it is phased out beginning at $60,000 AGI for single taxpayers and $120,000 AGI for married taxpayers who file jointly.

The Lifetime Learning education credit allows you to claim a tax credit of 20% (or 40%, if your student attended school in a Midwestern disaster area) of the first $10,000 of qualified education expenses for all students together, for up to a maximum $2,000 (or $4,000) tax credit.  This credit can be used for any number of years of postsecondary education.  None of it is refundable, and it is phased out beginning at $60,000 AGI for single taxpayers and $120,000 AGI for married taxpayers who file jointly.

Check various combinations of the three credits to see which is best for you.  For example, if you have only one student, she attended school in a Midwestern disaster area, and she had $10,000 of qualifying expenses, you could claim a $2,500 American Opportunity credit, a $3,600 Hope credit, or a $4,000 Lifetime Learning credit.  If you have two students, neither attended school in a Midwestern disaster area, and they each had $5,000 of qualifying expenses, you could claim a $5,000 American Opportunity credit, a $2,500 American Opportunity credit along with a $1,000 Lifetime Learning credit, or a $2,000 Lifetime Learning credit.  If you have two students, one attended school in a Midwestern disaster area and had $10,000 of qualifying expenses, and the other had $4,000 of qualifying expenses, you could claim a $5,000 American Opportunity credit for both students, a $5,400 Hope credit for both students, a $4,000 Lifetime Learning Credit for both students, or a $4,000 Lifetime Learning credit for the student who attended school in a Midwestern disaster area along with a $2,500 American Opportunity credit for the student who didn’t.

When you are figuring out which option is best for your situation, remember that, if the nonrefundable portion of your education credit is limited by the amount of your income tax, it’s possible a smaller American Opportunity credit, which is partly refundable, may be better than a larger Hope or Lifetime Learning credit.

What War Strategy Games Teach About Building Our Own Financial Empires

The following is a guest post from Realm of Prosperity. For posts related to this one, also see How The Game of Life Teaches Personal Finance and Money Lessons from Monopoly. For more on earning extra income check out Three Easiest Ways to Earn More Money, 11 Great Ways to Earn More Money, and Five Steps to Six Figures in Seven Years.

Personally, I like FIFA 2010 for learning about money. I use the manager mode to run a full team -- buying and selling players, deciding on sponsorship options, negotiating salaries, and adding to my stadium to make more money. Very fun IMO.

Age of Empires. Starcraft. Warcraft. Are you recalling a time in your life when one of these titles was a reason for you being glued to your PC?

These multiplayer war games feature a style of gameplay that is pretty intuitive: gather resources, build an army, and kill your enemies. For those who never cared for such war games (probably most ladies and older folks), you can grasp the concepts by simply looking at the historic events of how global empires were built. Even until today, global conflicts occur over precious commodities such as oil and diamonds.

The art of war isn’t an exact science but building a formidable empire, whether in the real world or the virtual world, entails acquiring new resources. Likewise, building substantial wealth asks that you find additional or higher streams of income and saving it. Despite serving the sole purpose of entertainment, these addictive war strategy games can teach a thing or two about building our own financial empires.

Conquering New Resources

Of course, I was one of those guys who had my eyes locked on the PC monitor and my hand glued to the mouse for hours on end – with very little success in beating my friends. In my mind, I kept wondering “why do I keep losing?”. Evidently, I realized that they were able to build “empires” three times as large as mine!

After some self-evaluation, it became apparent to me that I refused to expand my “empire” by taking over more land and resources. To improve my win-ratio, I needed to create a big, bad(ass) empire by venturing out into unknown lands and find new resources. With more resources coming in, I can afford to grow bigger and stronger.

Similarly, if you want to increase the numbers in your bank account statements, you should seek out other forms of extra income. A surplus of $50 per month can go a long way towards your financial goals. I learned that conquering new resources is essential to building more wealth. Stepping out of your comfort zone into the abyss may be risky but the rewards are worth it.

What can you do to acquire new resources? Well, check out some of these ideas:

• Ask for a raise
• Discover a profitable hobby
• Starting a side business
• Turn your blood into money

If you want to turtle in the same size “empire” like I did, you may be able to sustain yourself but you will be lacking in growth. There are many other competitors out there who are willing to do what you don’t want to do. If I didn’t try to pick up a freelance writing job, the person next to me will. So why not seize the opportunities for extra income?

Keep Your Edge Over the Competition

It is quite disappointing to see that as the game progresses, my enemies who gathered more resources earlier in the game were able to continue to gain more resources faster. Soon, they grow to such an enormous size that no one can possibly take them out. Then, they’ll being inching into my territory.

In our world, the uneven distribution of wealth supports the common notion that the rich get richer and the poor get poorer – the top 2% of the world wealthiest own about 40% of the global wealth. They can afford to invest in the most profitable industries and businesses while the poor are stuck with fewer options.

To keep my edge over the competition, I’ll have to use my resources to obtain more resources. In personal finance, this resembles the great mathematical phenomenon of compounding. Wealth creation entails using money to make more money. It can be as simple as putting your money in a high-yield savings account or usig a more ambitious route with investments in the stock market. But most importantly, I must make my money work for me.

It reminds me of the story of a miser who hires two teenagers to tend to his livestock while he was away for 30 days. One teen gets paid $100 and the other starts at one penny at a rate that doubles every day afterwards. Of course, the latter came out with significantly more.

Go out into the unfamiliar lands and conquer the new sources of income that are available to you. Use the extra money you earn to build your wealth into a financial empire. You’ll find that your initiative will reap many rewards.

So, don’t shun strategic war video games as a pointless waste of time because they are based on actual concepts. Come on guys, I know many of you have played them. Has a video game ever taught you a money lesson?

Free Money Finance March Money Madness, Round 1, Posts 29-32

Here we go with the first round of Free Money Finance March Money Madness (if you wonder what's going on in these posts, see my article announcing March Money Madness and/or click on my March Money Madness category link and scroll down to read all the posts involved in this subject.)

I've listed each "game" (one post versus another) in segments along with the wording provided by the author when the post was submitted. I've also listed a keyword after each post title to make it easy to vote (as a made-up example, you can just comment: Game 1 - Saving; Game 2 - Investing, etc.) Be sure to comment which one you like the best out of each set of two -- you will help determine the winner! Criteria for the best article is somewhat subjective, but you can use these factors as a guide: 1) practicality of the post 2) how interesting/provocative/unique it is, 3) the "personal-ness" of it and 4) its impact on net worth.

Here are today's games:

GAME 15

• Mortgage Payoff: Lump Sum or Monthly (Payoff) - My wife and I considered putting every last cent toward our second mortgage to pay it off. We were going to forgo saving for other things like retirement and car repairs to do so. I ran the math on what the difference in interest costs would be if we threw everything we had at the mortgage.

VERSUS

• The $100 Scratch Off Lottery Project (Lottery) - I LOVE lottery tickets, but I know financially it may not be the smartest thing to buy. So one day I decided to play a game that was ridiculously stupid, but also fun, exciting, and rewarding all mixed into one!  I would buy 100 scratch off lottery tickets and report back my findings - the good, the bad, and the ugly - with the winnings going straight to charity.  And as it turned out, I learned a lot more than just a few mathematical odds.

GAME 16

• Where To Find Other Sources Of Income (Sources) - Once you've cut many of your expenses, the only other way to have additional money for savings is to increase your income. These 5 tips are some of the quickest ways to add new sources of income!

VERSUS

• How To Negotiate With Wireless Carriers (Carriers) - Do you hate paying too much for your cell phone plan? Do you know that the wireless companies are ripping us off (20 cents for a text message! The actual cost to them is $0.00.) but don't know what to do about it? I've negotiated with every major wireless company with amazing success, and here is a taste of what I do and just how much you can save ($30+ a month) with a simple phone call.

Start Saving for College the Day They Are Born

The following is a guest post from Marotta Wealth Management.

My youngest is a first-year student at the University of Virginia. My coauthor Matthew's youngest child was born only a month ago. Matthew is just beginning to think about college funding, and I'm withdrawing from my final 529 plan.

Over their lifetime, college graduates gross $1 million more in earnings than their less educated counterparts. Education helps people both gain and keep wealth. But paying for it can be daunting, especially if you have to pay all at once. For some families the price tag exceeds the cost of their home. Thus starting a savings plan early is critical. Fortunately, compounded savings eases the financial burden.

The College Board's annual study (www.collegeboard.com) reports that the average costs for a year at a public in-state college will set you back $14,364. For every dollar you spend at an in-state college, only 36 cents goes toward tuition. Room and board account for 42 cents and the extra 22 cents covers books, supplies, transportation and other costs.

Expect an average price tag of $26,741 if your child enrolls as an out-of-state student or $35,636 if he or she attends a private college. Aid from grants and tax subsidies help reduce the price about 40% on average. However, those families making over $100,000 in income should not expect much help.

Saving for college requires time and money. The more you have of each, the better. Time puts the miracle of compound interest on your side. And the more money that is earning money, the less you need to continue contributing.

There is no such thing as saving too early, even for Matthew's youngest child. Saving early can cut the cost of his college education in half. Imagine he decides to go to the University of Virginia like his parents. Currently four years of tuition costs about $47,000. But by the time Matthew's son is ready to enroll, the price tag will have risen to $98,960. The earlier Matthew and his wife begin saving, the more manageable the monthly amount that should be saved.

Saving early allows you to buy your education at a discount. After saving $225 a month for 18 years, the newborn's college savings account will have grown to $98,960. An astonishing $49,235 of that amount accrued through the magic of compound interest. The great benefit of a 529 plan is that all the growth in the account can be withdrawn tax free.

Those with the money upfront could deposit $26,500 and let compound interest generate the remaining $72,460. Buying a college education for a 73% discount is a deal those with money should not pass up!

My daughter's 529 plan was first funded at the end of 2002 and has experienced a time-weighted return of 88.3%, or 9.4% annualized, since then. Yes, it was once up 121.6%, or 17.7% annualized, but it has still earned over $30,000 and saved us a tremendous amount of money.

If you cannot invest a large sum now, save a little every day. Started young enough, even a few dollars a day will pay the tuition at many public schools. By investing in a college savings plan, your money can grow faster than the inflation rate of higher education. These costs have been rising at a rate of 5%, and over the past 10 years, tuition at public schools has gone up more than 50%. If you are not saving for college, you are falling behind.

Saving for college is a critical part of financial planning. But saving for retirement is even more essential. You can borrow money for college but not for retirement. So prioritize your savings plan based on your specific situation.

For many of our clients it is the grandparents who are secure enough financially to be able to fund their grandchildren's education. The added benefit of having a grandparent own a 529 plan is that these funds are not counted in the formula for financial aid.

Higher education is critical in uncertain economic times. Although official unemployment is more than 10%, unemployment for those with a college education is only about 5%. And for people who did not finish high school, the unemployment rate is 15.3%. These are the official rates that do not count any workers who have been unemployed awhile and presumably have given up. Jobs that do not require a college education continue to move overseas into the emerging market countries.

Many states offer tax benefits when using your state sponsored 529 plan. You can check this at www.savingforcollege.com and find a plan that is right for you.

The Eight Biggest Mistakes Investors Make

The following is a guest post from Stock Investing 101.

The eight biggest mistakes investors make:

1. Investing in style instead of substance.  Too many times investors look for the next Microsoft, Apple, or Google.  While it is important to devote a significant portion of your portfolio to more speculative growth oriented companies the bulk of your portfolio should be in stable, profitable, dividend paying companies.  Over the last 50-100 years most of the gains investors have seen from the stock market have come from dividends and not the price of a stock actually appreciating. Value companies have noticeably outperformed growth companies over every time frame you could think of.  A portfolio featuring Johnson & Johnson, General Electric, and Exxon Mobil might not be as “sexy” as one featuring Baidu and Apple but you will likely get better returns in the long run with the former.

2. Trading too regularly. Investing is not easy, making a profit by trading is almost impossible.  The pro’s of Wall Street have trouble with trading and being profitable over time, what makes you think you will make a fortune doing it?  Even if you think that you have a proven day trading “strategy” your plan will likely be foiled. Humans are driven by emotions.  Losing money is actually one of the strongest emotions that can be evoked.  You will be struck with the urge to sell the second that your “trade” turns south which will ruin your chances of succeeding.

3. Not diversifying.  The average investor makes two different mistakes when it comes to diversification. The first is holding way to much of their companies stock.  No single stock should ever make up more than 10% of your portfolio, no matter what.  You are already counting on your company for your paycheck and livelihood, it is definitely not a good idea to rely on your company for any more than you need to financially.  The second mistake is having too much of your portfolio in one sector.  If your portfolio was full of tech stocks in the early 2000’s or financial stocks a few years ago you would be wiped out in an instant. Do not let one sector make up more than 20% of your portfolio.

4. Investing in mutual funds instead of index funds.  Mutual funds lose to indexes 80% of the time once you factor in all of the fees that they can and do charge.  Why would you ever make a decision where there is an 80% chance that you would be wrong?  The 2% fee that mutual funds normally charge a year may not seem like much but it is huge over time.  Once you factor in the fact that many funds charge front or back end loads, the choice is clear.  Index funds charge .1-.2% in fees and do not have any loads.  You will be getting the same return the market gets which is all you should need to succeed over time.

5. Ignoring the rest of the world.  It is not wise these days to devote 100% of your portfolio to American companies.  China and other countries are growing very quickly.  China is expected to grow its GDP at 8% a year when America is growing at between 0-3%.  American companies should still make up the bulk of your portfolio but save 15-30% for companies in China and elsewhere.

6. Chasing a stock.  You do not have to buy shares of a company that have been up 10% in a month or 40% in a year.  The company is likely due for a pullback in price.  If the price of the stock does not pullback then move on. You should never have any emotional attachment towards any investment.  There are over 10,000 stocks in America alone that you can invest in, there really are more fish in the sea.

7. Selling low and buying high.  Individual investors actually get much lower returns over time than the market does because of their tendency to sell low and buy high.  Many of my friends and family members dumped the majority of their stock market investments in the beginning of 2009 when things where looking pretty rough in the stock market.  This was the best opportunity to buy into the stock market in years or even decades.  If you must, set up your portfolio to where you automatically buy shares of various companies at the same time each week or month.

8. Not investing early enough.  When you start investing is more important than how much you invest believe it or not. If you invest at least 15-20% of what you earn from the time you start working you will be very well off and retirement will come much sooner than you think.  The difference between beginning to invest at 22 and starting investing when your 35 is huge.  Getting a 8-10% return on your money, what you will get over time in the stock market, will not do amazing things to your investment in 1, 3, or 5 years.  However because of the power of compound interest your portfolio should skyrocket after 20+ years.