Free Money Finance

Headed Back to School? The Lifetime Learning Credit Might Help with the Tab

Here's some helpful tax advice on the Lifetime Learning Credit from the National Tax Advice Day Web site:

Remember when college was a four-year undertaking and graduate students were the only ones over 25? Remember when most graduates got their first job and stayed with the same company until retirement?

Today's careers and technologies often require even experienced professionals to polish their skills and update their knowledge. And not everyone in their early 20s will find that their first career sustains them for the next 40 or 50 years.

Today, people change careers more than ever to stay on top of the ever-more-digital job market of our new millennium. If you're among the growing number of non-traditional students picking up a class at your local college, here's some reassuring news - the lifetime learning credit may help offset your expenses.

How Can a Lifetime Learning Credit Help Me?

Unlike the Hope credit, which can be claimed only during a student's first two academic years, you may claim the lifetime learning credit for qualifying courses at the undergraduate, graduate, or professional level. Whether you attend an eligible institution on a full- or part-time basis, the credit is 20 percent of the first $10,000 (up to $2,000) you pay for eligible students in your family. You may use the credit on a yearly basis, and it can be applied even to prepaid expenses for the school year ahead.

Who Qualifies?

While the lifetime learning credit is flexible, it also has some restrictions. If you're single, the credit is phased out as your Adjusted Gross Income (AGI) reaches $43,000 and completely disappears at $53,000. If you're married and file jointly, the AGI phaseout range lies between $87,000 and $107,000. Taxpayers who file using the married filing separately status cannot take advantage of this credit.

Special Circumstances

For households with multiple students, the lifetime learning credit and Hope credit can be used simultaneously. And although you can't claim both credits for the same expenses - or even the same student - you can claim a Hope credit for each qualifying student and a lifetime learning credit for a different student's qualifying expenses. Just think of it! You could attend classes with your freshman triplets and earn up to $6,500 in tax credits. Now that's pretty smart.

FMF recommends: H&R Block.  Do it yourself or have us do it.  It's never been easier.

Protect Against Net Threats

Here's an article from Kiplinger's that promises how to secure your PC from worms, viruses and hackers in less than an hour. Their tips:

• Use security software.
• Patch your OS.
• Secure your browser.
• Be alert while you surf.
• Handle e-mail with care.
• Read all messages in text-only format, not in HTML or rich-text format, and turn off the preview pane in your in-box.
• Raise a firewall.

Good tips! Identity theft is an issue we're all going to have to deal with for a long time to come. It's best if we take as many precautions as possible -- especially since the current identity theft laws aren't that strong and certainly aren't deterring criminal activity.

For more information on this topic, see these posts:

• Beware 'Debt Elimination' Scams
• Assessing Bank Safety
• Identity Theft is Worse than You Think It Is
• Don't Get Hooked by a Crook

Work Some Magic - Turn Your Coins and Cash into an Online Gift Certificate

Here's a piece on how to turn your coins into an online gift certificate courtesy of ARA Content:

Once considered a novelty, online ordering has become a popular way to shop. A 2005 study by Shop.org and Forrester Research predicts that online sales, excluding travel, are expected to reach $109.6 billion by year end. Consumers love online shopping for its convenience - they can shop anytime, anywhere that they have access to a computer. As more and more retailers put their wares on the Web, shoppers can find just about anything they're looking for.

Until now, you needed a credit card to shop on the Internet. A new offer from Coinstar, the leader in self-service coin counting, and Amazon.com changes all that. It lets customers instantly convert their jar of change into a gift certificate redeemable at Amazon.com and pay no coin counting fee.

And idle change at home can buy more than you think. "The average household has $99 worth of change lying around," says Gretchen Marks, vice president of marketing for Coinstar, Inc. "Now, thanks to this new program, people can turn this change into clothing, music, books, movies and more from Amazon.com. Best of all, there is no coin counting fee."

Coinstar estimates that approximately $10.5 billion in spare change is sitting unused in American households. Prior to the joint venture with Amazon.com, there was no easy way for consumers to spend that money online. "One quarter of the U.S. population doesn't do anything with their change, primarily because they don't want to pay a fee and it is inconvenient to cash in. Visiting a Coinstar kiosk when you grocery shop solves both problems," says Marks.

To take advantage of this new program, all customers have to do is visit a Coinstar Center at their local supermarket, which they can locate by visiting www.coinstar.com. Users simply insert their coins and bills into the machine, select the Amazon.com option and then a receipt is printed with a redemption code that can be immediately used to make purchases at Amazon.com.

The gift certificate redeemable at Amazon.com provides millions of adults and kids who prefer to use cash or don't have credit cards the ability to shop online. "This is a really convenient way to use your 'found money' to shop online," says Marks.

Coinstar also allows consumers to convert loose change into a variety of gift cards redeemable at leading national retailers such as Starbucks, Linens 'n Things, Pier 1 and Hollywood Video. And there's no service charge or coin counting fee when you redeem your coins for gift cards or gift certificates at thousands of supermarket locations nationwide.

To find out which supermarkets offer the program on their Coinstar machines, visit www.coinstar.com.

Wow! Did you read those stats? Again:

• The average household has $99 worth of change lying around
• Coinstar estimates that approximately $10.5 billion in spare change is sitting unused in American households

That's not bad at all. You may want to hunt around a bit. That new iPod Shuffle you want might be sitting around your house in the form of spare change. ;-)

Bush to GM, Ford: Make More Appealing Cars

I saw this article on CNN and just had to post on it. It's about how President Bush told GM and Ford that they need to compete in the marketplace, not look for a government handout. The highlights:

President Bush said General Motors Corp. and Ford Motor Co. should develop more appealing products rather than look to Washington for help with their heavy pension burdens, The Wall Street Journal reported Thursday.

Asked if the government should take any pre-emptive action, Bush was quoted as saying, "I think it's very important for the market to function." Bush suggested that he felt optimistic about the companies' prospects, according to the newspaper.

According to the newspaper, Bush suggested that one way automakers could make more appealing products was to promote cars using alternative fuels, a topic he plans to mention in his State of the Union address next week.

My thoughts:

1. Come on GM and Ford -- compete for goodness sakes! You're getting your clocks cleaned in the marketplace.

2. Good thing Bush isn't in marketing. I don't think alternative fuel vehicles is the savior for these two. But how about just making a reliable car? How's that for a major insight?

3. Health care and pension costs are a big problem for Ford and GM. They're going to need to find some way to deal with them -- without making the U.S. taxpayer handle the burden.

4. I've written about this topic before. See these links for background:

• I'm Miffed at General Motors
• More Light on the Problems at GM
• Comments: Problems at General Motors
• Comments: Problems at General Motors; Globalization

Hunting for Tax Deductions? Job Searches Can Be Rewarding

Here's some advice on how to deduct job hunting expenses from your taxes from the National Tax Advice Day Web site:

In today's corporate America, changing jobs is commonplace. Cutbacks, layoffs and corporate ladder climbing can all lead to a search for other employment. But the once dreaded job search now has an upside - tax deductions! Job search expenses can be deducted as miscellaneous itemized deductions if you look for a job in the same field at essentially the same level as the one you left. The expenses are deductible even if you don't get the job.

You can claim job-seeking expenses as long as the amount of all miscellaneous itemized deductions is more than two percent of your adjusted gross income. Job seeking deductions are also subject to the overall limitation on itemized deductions based on AGI threshold amounts. To figure your deduction, on Schedule A, subtract two percent of your adjusted gross income from the total amount of these expenses. Your adjusted gross income is the amount on Form 1040, line 37.

Just what deductions can be taken?

1. Employment agency fees:

• If your new employer repays your agency fees, you must include the amount in your gross income up to the amount of the deduction you claimed earlier.
• If your employer pays fees directly to the agency and you have no responsibility for them, you do not have to include them in your gross income.

2. Resume preparation:

• Typing and printing
• Postage
• Toll telephone calls
• Advertising
• Photographs (if required for your resume in your trade or business)

3. Travel for job search:

• Airfare or mileage (in some circumstances actual automobile expenses have been approved)
• Lodging
• Meals (based on either actual expenses or standard federal per diem rates)

4. Legal fees protecting employment status

Useful job search tips

To qualify for a deduction, your job search must be for a job in your current, or most recent, trade or business and should be at a similar level of responsibility with duties similar to those of your most recent job.

• If you have not held a job in that trade or business for an extended length of time your job search will be considered for a new trade or business and your deductions may not be allowed.
• If you held a college internship or valid job while in college and your search is for a job in the same trade or business, you will be able to take the job search deductions.
• If you are just out of school and had no similar paying jobs in school, you are looking for a job in a new trade or business and your deductions will not be allowed.

Thinking of a Vacation?

If you take a personal trip and happen to do some job hunting while on that trip, only the expenses specific to the job hunt in the destination location will be deductible. Travel to and from the location and lodging and meals while there will not be deductible. Avoid unnecessary job-hunting trips to vacation spots.

FMF recommends: H&R Block.  Do it yourself or have us do it.  It's never been easier.

Six Steps to Personal Financial Independence in 2006

Though it's a bit past time to make New Year's resolutions, I still wanted to share this piece that's courtesy of ARA Content:

Every New Year's Day millions of Americans make resolutions to be more responsible about eating, exercising, smoking, etc. With the average per person credit card debt in America at $8,562 and total consumer debt topping $1.7 trillion, this New Year consider committing to financial resolutions by creating a "Declaration of Personal Financial Independence."

"Many people struggle with living paycheck to paycheck and getting further into debt each month," says James E. Stowers, author of "Yes, You Can … Achieve Financial Independence" and founder of American Century Investments. "The new year is a time to take a long look at how you're spending your time and money, and determine your financial priorities. Creating and signing your own 'Declaration of Personal Financial Independence' is a great way to put those New Year's resolutions into practice."

Stowers recommends the following six resolutions to help you become financially independent:

1. Determine To Make a Commitment

Ask yourself this question, "Who will take care of me financially, if I don't take care of myself?" Your answer to that question will determine your financial future. Are you expecting to have enough in your savings to be independent until the end of your life? Or are you expecting to be taken care of by the government, a relative or a charity? Can you count on one of them to be there for you when you retire? The best option is independence.

2. Identify Your Wants vs. Needs

Most of us have more wants than we have income. By assessing your wants and needs, you can budget for everyday occurrences and save for the most important "wants" on your list. Conduct a thorough analysis of your needs so you know your monthly budget, and then prioritize your wants by what value they bring to you. You may be surprised by the items that fall to the bottom of your list.

3. Pay Yourself First, Then Forget About It

Before you pay a single monthly bill, including your mortgage, rent or insurance, pay yourself first. A simple rule of thumb is to have at least 10 percent of your gross income saved and invested for the long term. Then, fight the temptation to spend any of your savings. Time is your greatest asset, so the sooner you start saving and the longer you keep your savings in place, the more financially secure you'll be in retirement.

4. Practice Responsible Credit Card Use

Change your view on your credit cards and you'll become a responsible user. Credit cards provide the convenience of not carrying cash in your wallet at all times. They shouldn't be used to buy now and pay much more and much later. Start imagining cash coming directly out of your pocket and concentrate on paying down the debt that keeps you a prisoner of your credit card balances.

5. Prepare for a Financial Emergency

Personal, property or business risks will be a reality for all of us at some time. If you don't provide for your emergencies, who will? Life is full of risks and financial pitfalls. By preparing for those risks now, you ensure the emergency does not have a profound impact on your lifestyle and financial goals. First, assess your current personal level of insurance coverage, evaluating its ability to cover your assets while allowing you to pay higher deductibles. Then, build an emergency reserve fund based on three to six months of living expenses. The reserve fund should remain readily available, safe and income-producing.

6. Get Your Money's Worth

For at least one month, keep a record of every purchase, listing exactly the item and the cost. At the end of the month review the list and ask yourself these two questions:

• Am I getting my money's worth?
• Am I satisfied with the way I'm spending my money?

If you answer no to either of these two questions, it's time to reassess your spending and saving habits. Your goal is to continuously refine the way you spend money until you are completely comfortable with your habits.

Stowers encourages each of us to create and sign a "Declaration of Personal Financial Independence" this New Year's Day.

"You cannot accomplish your goal of achieving financial independence by wishing. It takes doing. It takes being committed, and signing a 'Declaration of Personal Financial Independence' shows that you are absolutely determined to act," says Stowers.

"Yes, You Can . . . Achieve Financial Independence" is available by calling (800) 234-3445 or online at www.stowers-innovations.com.

Stay tuned to Free Money Finance for my resolution update. Towards the beginning of February, I'll let you know how I'm doing with the money resolutions I committed to this year.

15 Steps to Doing Your Taxes Correctly, Part 2

Here's part 2 of a 15-point tax checklist from Money Central:

Get started. Remember that commitment to get to work? Keep it! This step requires action. Get your pencil and take the blank forms out of the envelope where you've been hiding them, praying that the tax fairies would make them go away. My father reminds me of the old Brooklyn proverb, "A trip of a thousand miles begins with a traffic jam." Get in that "jam," and your tax return will begin to jell.

Better yet, get your computer ready, summarize everything, and send it to you accountant. ;-) That's another reason I use a CPA to do my taxes.

FMF recommends: H&R Block.  Do it yourself or have us do it.  It's never been easier.

Simplifying Your (Investing) Life

Here's a piece on how to simplify your investments from Christine Benz, Author of "Morningstar Guide to Mutual Funds: 5-Star Strategies for Success", and courtesy of ARA Content:

Bill Miller and most other top portfolio managers will tell you that there's a lot of day-to-day "noise" in the market, most of which has little to no bearing on the actual value of their holdings. Individual investors would do well to adopt a similar mind-set when building their own portfolios.

True, it's hard to open the business section without seeing an article about spiking oil prices or China's growth. But should you run out and buy an investment that's specifically designed to focus on one of those trends, such as a sector or regional fund? Probably not. Any such offerings tend to be expensive and exceptionally volatile, and individual investors have a record of buying them high and selling them low.

A better strategy, particularly if you're aiming to build a high-quality, low maintenance portfolio, is to focus on finding great core mutual funds -- broadly diversified offerings with reasonable costs, seasoned management teams, and solid long-term risk/reward profiles. If you've done that, you can pretty much tune out the day-to-day noise and let your fund manager decide whether the next big thing is worth investing in.

Taking the Best and Leaving the Rest

Simplifying your investment life isn't terribly complicated if you're managing a single retirement portfolio for yourself. But life is messy, with most investors juggling multiple portfolios and multiple goals at once. In addition to your own 401(k) retirement plan, for example, you might also be overseeing an IRA for yourself and your spouse, a child's college-savings plan, and your household's taxable assets.

If you're like many investors, you're running each of these various accounts as well-diversified portfolios unto themselves. That's not unreasonable. But to help counteract portfolio sprawl, consider managing all of your accounts that share the same time horizon as a single portfolio, a unified whole. In so doing, you'll be able cut down on the number of stock or bond holdings you have to monitor, and you'll also be able to ensure that each of your picks is truly best of breed.

For example, say your spouse's retirement plan lacks worthwhile bond holdings but has a few terrific core stock-fund choices; yours has several solid bond picks. If that's the case, you may want to stash all of your spouse's assets in the stock funds while allocating a large percentage of your own 401(k) plan to bond funds.

The key to making this strategy work is to use tools such as Morningstar.com's Portfolio Manager and Instant X-Ray, which let you look at all of your accounts together, as a single portfolio. That way, you can see if your overall portfolio's asset allocation is in line with your target, and you can also determine whether you're adequately diversified across investment styles and sectors.

Consolidating Your Investments with a Single Firm or Supermarket

By investing with only one fund supermarket or fund family, you eliminate excess complexity, cutting back on paperwork and filing. And the consolidated statements you'll receive can make tax time much easier, too. Instead of pulling together taxable distributions and gains from different statements, you'll have them all in one place.

If you want to stick with just one fund family, consider one of the big ones, such as Fidelity, Vanguard, or T. Rowe Price. These no-load families are all relatively low cost, with Vanguard being the cheapskate champion, and each offers a diverse lineup of mutual funds. If you would rather pick and choose among fund families, then a mutual fund supermarket might be your best option. Fund supermarkets bring together funds from a variety of fund groups.

Putting Your Investments on Autopilot

You may pay your electric and water bills automatically -- why not invest the same way? You won't have to send a check out every month, every quarter, or every year. There's an added benefit to investing relatively small amounts on a regular basis (also called dollar-cost averaging). You may actually invest more than you would if you plunked down a lump sum, and at more opportune times. When you're dollar-cost averaging, you're putting dollars to work no matter what's going on in the market. You have effectively put on blinders against short-term market swings: Whether the market is going up or going down, $100 (or whatever amount you choose to invest) is going into your fund every month no matter what. That's discipline. Would you be able to write a check for $100 if your fund had lost 15 percent the previous month? Maybe not. But that would mean $100 less working for you when your investments rebounded.

Be careful about using a dollar-cost averaging program if you use a broker or advisor to buy and sell shares, however. If you're paying a front-end sales load, you'll pay that amount on each and every investment. Perhaps more important, by making smaller fund purchases you might not be eligible for sales charge discounts that are frequently available to those who are investing larger sums.

Investor's Checklist: How to Simplify Your Investment Life

• Avoid faddish funds designed to capitalize on short-term market trends.
• Instead, stick with core stock and bond funds that you don't need to babysit.
• Consider all-in-one funds, particularly target-maturity funds, which grow more conservative as you get close to your goal.
• Index funds make great choices for investors who don't want to spend a lot of time managing their portfolios.
• If you have several portfolios geared toward the same time horizon, manage them as a unified whole, emphasizing the best options available to you in each account.
• Whenever you make an investment, write down why you bought it. If it no longer fits your reasons for buying, it's probably a good candidate for selling.
• Consolidate your investments with a single fund family or fund supermarket.
• Simplify your life by setting up an automatic investment plan. Dollar-cost averaging takes the emotion out of investing and should produce better returns over time than buying and selling erratically.

The time you have available to invest should certainly be part of your investment decision. See Do You Have Enough Time to Invest Like You Want To? and Part-Time Investing for additional thoughts on this topic. In addition, if you want more information on investing, here are some posts I recommend:

• Getting Rich is Simpler than You Think
• Fund Indexers, Take (Another) Bow
• Expenses, Taxes and Size Matter in Choosing Bond Funds (And Stocks too!)
• Where the Pros Stash Their Own Dough
• The Case for Indexing
• Investment Advice from Someone Who Manages Billions

Free Money Finance recommends Emigrant Direct.

Are 0% Loans Good, Bad, or Does it Depend? My Response

For all of you not up to speed on the topic I'm about to address, here's the short version:

1. I wrote a post that noted that 43% of first-time home buyers purchased their homes with no-money-down loans. In it I said:

These people are locking themselves into debt that will take a long, long, long time to pay off. While I agree that it's usually smarter to buy than rent, most people take this to an extreme and bite off too much house from a costs standpoint. Too many people stretch as far as financially possible to buy as big of a house as they can, and then when an unexpected financial emergency arises (which they always do), the dream home turns into a nightmare. Don't let this happen to you.

2. David, who is a mortgage broker, took exception to my post. His key comments:

The good news, behind this article, is that American Home Ownership is at the highest it has ever been! The low/zero down payment loans are a big part of this.

Certainly in some parts of the country where prices have been skyrocketing, a zero down loan would be a bad idea.

But in other parts of our country, like the Midwest and Michigan, this loan is a very valuable tool for the first time homebuyer.

I say all this to suggest that we don't throw the baby out with the bath water.

Just like everything else, a professional to help sort this all out is a good thing to have in your life.

3. I responded:

Under what circumstances would it be advisable for someone to take out a 0% down loan? I can't think of any.

4. To which he gave a lengthy response (see this link to read it all).

5. I posted it, asked people what they thought, and said I'd comment after that. This post is my set of comments on the issue.

In financial planning, given the right set of (sometimes very unlikely) circumstances, almost any financial move can be shown to be the "right" move. In my opinion, that's the case with 0% loans. If the stars align, the planets come together, and the earth stops revolving for a minute or two, then yes, it's POSSIBLE that they are a good idea.

Ok, maybe it's not that bad, but let's inspect the circumstances under which David says that 0% loans are a good deal:

• 28 year-olds who are married, have their college degrees, and have been working in their new professions for a year or so.
• Between the two of them the household income is $80,000 and the debt they have is one car loan, some student loans, and a small credit card balance.
• They must be willing to commit to the house for 3 years to break even and 5 years to have a return.
• Don't make large improvements to a home unless you intend to stay longer than 10 years. Cosmetic improvements are a plus.
• Uncle Sam is going to pay around 25% of their interest expense.
• The $140,000 house they buy is worth $175,000 in 5 years.
• The couple needs to be disciplined, have good credit, and can commit to the items above

David also made several other comments (which you can read in the link above) that aren't really central to our point of disagreement (so I'm leaving them out). In the end, his position was that there are certain cases where these loans make sense.

If that's what he wants me to admit, then I have to say that I agree with him. It is POSSIBLE for these loans to work for SOME people in SOME (very limited) cases. However, my contention is that way, way, way, way, way, way more people are getting these loans than should be getting them and they're setting themselves up for a big fall. So, for the vast, overwhelming majority of people out there, this type of loan is not a good idea.

Even David's example shows that it has to be just the right set of circumstances to be right. In particular:

• The couple is earning $80,000 a year. Is this common? No. Most couples earn well below this. In addition, the article that started this whole issue stated that the median household income of people currently getting these loans is $57,200. That's a far cry from $80,000. Already, David's example is in the small minority -- and I'm just getting started.
• The only debt the couple has is "one car loan, some student loans, and a small credit card balance." How common is this? The average American household has $5-7k in credit card debt alone. Is this "small"? How big is the one car loan? How much are "some" student loans? To me, these people sound like they are far better off than most when it comes to debt. So they are better off in both debt and income now -- making them an even smaller portion of the American public.
• They must be willing to commit to being in the house for three years. What percentage of people move in less than three years? I wouldn't say it's half, but it's a good percentage. And what about the appreciation estimates? He's using Michigan as an example (the state I live in by the way), and 4.5% appreciation might be a historical average, but I haven't seen that the past few years. And what about the fact that they need to be disciplined? Well, they've been out of school making $80k for a few years, can't afford any downpayment, and still have credit card debt. They don't sound disciplined to me.

So to me, the example used above just reinforces my point: these loans aren't for the vast majority of people. They aren't even good for a small minority. They potentially can be a good move for a fraction of the borrowing public. But it's a fraction. A small fraction. If that's what David is saying, then we're in agreement. But I'd ask him to be clear and say that this is what he believes. If he doesn't believe this, then we disagree.

Even if David believes these loans are right for 10% of the population (extreme in my opinion), what does he have to say about the fact that 43% of first-time home buyers purchased their homes with no-money-down loans? Does he condone this? It sounds like it.

Let me end with these thoughts:

1. Personally, David is a nice guy and I like him. However he does not have an unbiased point of view -- he sells loans for a living. That doesn't mean that he's a bad guy, but I would say his point of view is tainted.

2. My point of view is tainted too. I've done it a different way and that way has worked well for me. As I said in my first piece, here's what I recommend:

• Live in (or move to) a cheaper area of the country. (And after retirement, you may want to save more by retiring in a foreign country.)
• Buy a house you can easily afford, putting at least 20% down.
• Put extra payments into your budget.
• Put bonuses, gifts, second job income and all other "extra" sources of money into paying off the loan.
• Become debt free in 7-10 years.

This is what I've done and I now have no debt. Zero. Zip. And I haven't had any for almost eight years. And I'm barely over 40. How are David's clients who took out 0% loans doing by comparison? Would you rather be like them (and take David's advice) or be debt free at a relatively young age? I'll leave that decision to you as you ponder what situation you want your finances to be in in 15 years.

Maximize Your Tax Return

Who doesn't want to maximize their tax return? I sure want to. That's why I wanted to share this piece courtesy of ARA Content:

There are two approaches to doing taxes. One is to wait until the last minute and rush through them, crossing your fingers that you don't owe the government an unexpectedly large chunk of money. Judging from the lines at post offices across the country at midnight on April 15, there are many, many people who take this approach.

Considering that a little advance planning can save you money and headaches, the second approach - being organized and taking control of your taxes - is a better way to go.

"It's also important to know that when taxes go unpaid, the IRS can place a lien on your assets. Unpaid tax liens can remain on your credit report for up to 15 years, while paid tax liens can remain on your credit report for seven years from the date paid. Both have a negative impact on your credit score," said Maxine Sweet, vice president of public education for Experian, the national consumer credit reporting company.

Having time to pull together the information you need, analyze it and calculate your taxes means you won't be frantically scrambling to find your W-2 form the day before taxes are due. Starting early also gives you time to double check your tax return for any mathematical errors, and to make sure you've claimed all the deductions for which you qualify.

Tax laws and people's tax situations change from year to year, so you may be entitled to different deductions this year than last year. Major life changes often trigger a modification of deductions, or there may be deductions that you have missed in past years. Here are a few examples of common, but often overlooked, deductions. Check with your financial advisor if you have questions, or you can get more information from the IRS Web site or helpline.

• State and local sales tax - If you itemize your taxes, you may choose to deduct state and local sales taxes instead of state and local income taxes. While this deduction mainly benefits taxpayers with a state or local sales tax but no income tax, it may give a larger deduction to any taxpayer who paid more in sales tax than income taxes.
• Charitable donations - You can deduct financial contributions as well as "in kind" donations of things like clothing and household items.
• Education expenses - A variety of education-related costs may be deductible, including student loan interest and education costs incurred to maintain or improve job skills.
• Disaster or theft - Unfortunately, lots of people may be using this deduction on their 2005 taxes. If your home was damaged by floods, ice storms, earthquakes, other natural disasters or theft, you may be able to deduct what your insurance doesn't cover.
• Job search expenses - If you were job hunting this year, you can deduct most expenses related to the search, including cost of resumes, phone expenses, postage, career counseling and travel to and from your interviews.
• Medical expenses - The threshold for deducting medical expenses is high, but if you've accrued a lot of medical bills you may qualify.
• Tax preparation - You can claim the cost of tax preparation software or the cost of having a professional do your taxes.
• Real estate - Your mortgage interest is deductible, and if you refinanced this year, you may be eligible to deduct some of the costs associated with the loan. If you sold your main residence, you may be able to exclude up to $250,000 of gains ($500,000 for married taxpayers filing jointly) from your income tax return.

These are just a few of the legal tax deductions; there may be others you can claim. "Be sure you have proper documentation to back up any deductions you claim," says Sweet. And remember, while it may seem like a windfall to get a large tax refund, your goal should really be to break even. If you're getting a refund, you've basically been loaning the government money - without interest.

While you're focused on financial issues, take a few more minutes to check your credit report and make sure you're on track with your financial plans. Web sites like www.experian.com give you quick and easy access to your credit report and credit score. Make sure all the information on your credit report is accurate. If you notice anything questionable, such as accounts you don't recognize, or payment disputes, resolve those issues by contacting your creditors and the credit reporting companies.

For more information on checking your credit report, visit www.experian.com.

FMF recommends: H&R Block.  Do it yourself or have us do it.  It's never been easier.

15 Steps to Doing Your Taxes Correctly, Part 1

Here's a 15-point tax checklist from Money Central that we'll cover/comment on one step at a time:

Get serious. Unless you're focused, you're going to see that receipt six times rather than the once you need. This is all mental now. Schedule a time to get to work and commit to that time.

I keep a file of all tax information every year so when I start to work, it's all there. This system has worked for me over the past several years and is much better than the "now where is that receipt" system I used a decade or so ago. ;-)

FMF recommends: H&R Block.  Do it yourself or have us do it.  It's never been easier.

10 Ways to Stop Identity Theft Cold

Here's a piece from Money Central that gives us 10 ways to stop identity theft cold. It starts out by telling us how bad identity theft is:

The numbers associated with identity theft are beginning to add up fast. A recent General Accounting Office report estimates that as many as 750,000 Americans are victims of identity theft every year. And that number may be low, as many people choose not to report the crime or, for that matter, even know they’ve been victimized.

But the heart of the article is the set of tips they give. The tips for stopping identity theft are:

1. Destroy private records and statements.

2. Secure your mail.

3. Safeguard your Social Security number.

4. Don't leave a paper trail. Never leave ATM, credit card or gas station receipts behind.

5. Never let your credit card out of your sight.

6. Know who you're dealing with.

7. Take your name off marketers' hit lists.

8. Be more defensive with personal information.

9. Monitor your credit report.

10. Review your credit card statements carefully.

My thoughts:

1. I have a shredder and use it religiously.

2. We mail our bills from home but never put up our mailbox flag. However, I am converting more bills to electronic pay options.

3. We don't do this.

4. We don't do this either. I keep track of EVERY receipt.

5. This is hard to do, especially at restaurants (the card part). Not sure what the solution is.

6. I don't give out this information unless I see a need that they have it.

7. Did it awhile back. We still get some calls.

8. Isn't this the same as #6? My answer is the same.

9. This is one of my New Year's resolutions.

10. I reconcile every credit card statement and review all bills carefully. Not only does it help identify potential identity theft issues, but can also save you a bunch of money.

7 Home-Buying Traps

Here's a piece from Money Central that gives us seven home-buying traps to avoid. Here are the tips I like the best:

Your agent may recommend a home inspector because he does a good job -- or because he keeps his mouth shut about problems that could torpedo the sale. Yes, it's terrible to have to be so suspicious, but this is a big investment you're making. A good home inspection can keep you from buying a money pit. You can ask your agent for a recommendation, but get referrals from other recent buyers and try to interview at least three potential candidates before making your choice.

Your agent, your broker and your lender don't know what you can afford. At best, they know the underwriting guidelines for various loans, which are designed to minimize the lenders' losses, not ensure that you'll maintain your financial health. Lenders know that you'll do whatever it takes to pay your mortgage, even if that means shortchanging your retirement, forgoing vacations and piling on credit card debt. You need to be the one to set limits on how much you want to borrow and how you borrow it.

This is basic home-buying 101, really. But it's an important topic since your house is likely your biggest tangible asset and a mistake here could severely (negatively) impact your net worth.

For more information on homes and related issues, see these posts:

• The Hidden Costs of Homeownership
• Don't Bite off too Much House
• Why It’s Smarter to Buy than Rent
• Penny-Wise Home Improvement

Deal Sharks: The Web’s Best Shoppers

Here's a piece from Money Central on people who layer deal upon rebate upon coupon upon closeout to save big, big buck when shopping on the web. Here's an example of how this is done:

Sites like Ben’s Bargains, Deals of America, My Bargain Buddy and SlickDeals do some of the research for you. The operators of these sites scan the Web for cheap sale or clearance items and pair them with coupon codes, rebates or other discounts so shoppers can get the best bottom-line deal. You’ll find instructions like these:

(Retailer X) has the Kodak C330 4MP 3x Zoom Digital Camera + Epson CX4200 AIO Printer + 256MB SD Card + Photo protection kit + 5-Piece Business Set for $135.

1. Add camera for $135.
2. Add printer for $100.
3. Add SD card for $30.
4. Add photo kit for $48.
5. Add business set for $60.
6. Apply coupons 65386, 57164, 63771 and 17807 for $30 off, $30 off, $48 off and $60 off.
7. Submit the $50 and $20 easyrebates online at StaplesEasyRebates.

Final price is $373 - $160 coupons - $70 rebate = $135.

Interesting stuff -- if you have the time. Probably the best deal comes from checking out the sites noted above, not doing it all yourself. Unless you feel you know something they don't -- and you have the time to search it out.

Income that Lasts as Long as You Need It

I must admit that annuities are one area of personal finance where I'm clueless. My perception is that they're an expensive co-mingling of insurance and investments, but this may be way off. I'm open to learning more.

This piece is a first step in learning more. It's from Yahoo and talks about how annuities can provide lifetime income. First, he sets the scene:

Most of the time, I talk to you, dear readers, about how to prepare for retirement starting some years before that time. But what about the person who is already in retirement or imminently retiring? The time for "primitive accumulation," as a famous crank once called it, is long past. Now the goal is to get the most money possible that will pay your bills and allow you to keep paying these bills until you enter immortality.

Then he offers a solution:

There are many aspects to solving this problem, but one comes to mind right away: Purchase a lifetime immediate annuity. This is a contract you make with a financial entity, usually an insurance company, which, in return for your initial payment, guarantees to make monthly payments to you -- for the balance of your life.

The best investment my father and mother, both distinguished economists, ever made was in VAs. Six years after my parents' death, the VAs are still paying out handsomely, and the payments are an immense multiple of what my parents paid in.

Sounds like a glowing recommendation. But he does add that there are some things to be careful of:

There are several little problems here, though. One is that the fees for annuities, especially, VAs, can be complex, hard to understand, and high.

Also, the kinds of VA features available are amazingly wide. Make sure you understand what every fee is for.

While annuities grow tax free until withdrawal, their fees may be such that they outweigh the tax advantages.

He ends by coming clean:

Full disclosure: I'm Honorary Spokesperson for the National Retirement Planning Coalition, and some of its sponsors are insurers, and I do get paid for this work.

I'm sure that some of you out there have thoughts on annuities. Want to share them with the rest of us?

Suffering from College Sticker Shock? Trim First and Second-Year Expenses with the Hope Tax Credit

Here's some advice on how to use the Hope tax credit from the National Tax Advice Day Web site:

With the many expenses families face today, saving for college sometimes slips on the priority list. The Hope credit, worth up to $1,500 in tax savings for each qualifying student in the first two years of college or vocational school, can help cushion the financial blow of higher education.

Am I Eligible?

If your dependent child plans to attend college, you may use the Hope credit if he or she is:

•Enrolled in one of the first two years of post-secondary education - generally the freshman and sophomore years of college;
•Enrolled in a program that leads to a degree, certificate or other recognized educational credential;
•Taking at least one-half the normal full-time workload for his or her study course during at least one 2005 academic period; and
•Free of felony convictions for the possession or sale of illegal substances.

Income is also a factor in Hope credit eligibility. If you're single, the Hope credit is phased out as your Adjusted Gross Income (AGI) reaches $43,000 and completely disappears at $53,000. If you're married and file jointly, the AGI phase-out range lies between $87,000 and $107,000. Taxpayers who file using the married filing separately status cannot take advantage of the credit.

How Much Can the Hope Credit Help Me?

As an eligible individual, you may claim the Hope credit for 100 percent of the first $1,000 and 50 percent of the next $1,000 of qualified expenses, which include tuition, fees and required books. Because this is a per-student limit, not a per-return limit, the maximum Hope credit you may claim for 2005 is $1,500 times the number of eligible students claimed on your tax return.

Using the Credit Wisely

The Hope credit is nonrefundable, so if your credit exceeds your tax, the difference isn't refunded to you. On the other hand, the credit can also be used for prepaid expenses, such as tuition paid in December for January classes. This feature may be especially useful for students whose books and tuition fees fluctuate from semester to semester.

Multiple Student Households

If you and other qualifying individuals are all planning to take classes, the Hope credit and the lifetime learning credit can be used together. And although you can't claim both credits for the same expenses - or even the same student - you can claim a Hope credit for each qualifying student and a lifetime learning credit for a different student's qualifying expenses. The cost of education has never been higher, but with careful planning the Hope credit can keep college within reach.

FMF recommends: H&R Block.  Do it yourself or have us do it.  It's never been easier.

Free Mind Over Money Book Giveaways at Free Money Finance, Day 6

As I posted last Monday, I gave away five copies of Mind Over Money by Eric Tyson. I reviewed the book and liked it a lot (8 stars).

Friday's winner was Todd.

This ends the giveaway. For those of you who entered and didn't win, I'd suggest you go out and get a copy of Mind Over Money. You'll be glad you did.

Also, this giveaway series was so popular that I'm doing something I think you're going to LOVE regarding giveaways. Stop by on Wednesday for the big announcement.

Comments: Sell Your House to Save Your Pet's Life

If you haven't noticed, there's been a lively exchange between a couple FMF readers over the past few days. The issue started with my post titled Sell Your House to Save Your Pet's Life which detailed some of the expensive medical care decisions pet owners faced. I ended by commenting:

1. Pets are an expense, and you need to consider this before you get one. Sure, it's a reasonable financial decision to have a pet (it's your choice what to spend your money on), but realize what you're getting your budget in for. In the end, you may have to choose between getting a pet and sending a kid to college.

2. If you don't believe pets can be expensive, look at the words that appear above:

• "a staggering cost of $700!!!!!"
• "$5,000 CAT scan which may have been inconclusive!!"
• "holiday spending on pets surpassed spending on human children"
• "We also have spent a small fortune going to a vet ophthalmologist for special eye surgery"
• "there is no cost that we wouldn't spend to give a pet the quality of life it deserves, even if only for a few more months or years"

3. All this "pets are the same as children" talk is driving me crazy. I've had pets and I have children and all I have to say is that there's a HUGE difference between what I'd do to save one of my children (I'd do anything) and what I'd do to save a beloved pet (weigh the cost/benefit as one reader above commented). Pets may be similar to children in some ways, but come on, people, would you really do as much for a pet as you would for your child? If so, that means you'd do anything it would take to keep that pet alive one more day. You'd sell your house to heal your pet. You'd quit your job to stay home with the pet. You'd borrow as much money as you could to keep it on life support. These are things you'd do for a child -- but would you (or does anyone) really do this for a pet?

In response, Bruce left the following comment:

One observation I've made about the "pets are equivalent to children" people is that 90% of the time they are childless, and clueless. They make those statements, and we parents catch each others' eyes and we *know* what the others are thinking. We know that this person has no clue, and that the only reason we aren't tearing into the paper wall of their cluelessness is that we are being nice. The sad thing is that often, the person often seems to think he or she is being cute or endearing, when it has just the opposite effect to many.

Still, even if I am projecting most of that (which I may very well be), it makes me grit my teeth each and every time. Decide beforehand how much you will pay. Perhaps leverage your maximum amount by purchasing 80/20 pet health insurance. But decide and don't feel bad that you've put a number on a life.

For me, that number is $1500 for either of my dogs. That's it, and that would be only if I thought the dog had a chance of living a pain-free, long life afterwards. For my cats, $200, but don't tell my kids that number. For my chickens, $0, since they are old and I could use new vigorous egg-layers. :)

Mike took exception with Bruce's thoughts and commented the following:

I can partially see the first commentors point (Bruce) about the majority of the "pets are the same as children" are childless. Not clueless however. I have made that pets [are the] same as children statement a number of times, and as was mentioned in the post, most (if not all) people, probably including me would go to as extreme an extent, like selling your house, to save a pets life as for a childs life. Obviously I wouldn't have first hand experience with making decisions like that with a child, but I am willing to bet most of the readers of this blog, including the first commentor have had to either, so you really can't say what you would do. My point, which I have mentioned before here and elsewhere, is that if you are a responsible person, maybe even just a "humane" person, you shouldn't have a set "death limit" for your pet. When my dog started having all the problem he did, some of which were similar to the one in this article, like the monthly fee for life part.

Your saying...as many of the commentors have, that you will just stop at $1500, and that is only if you decide it is "worth it". So what happens when you hit $1500? Do you tell your kid "sorry Timmy, we had to kill Sparky because if we spent any more, I would be dipping into the cable bill, and daddy would rather watch the superbowl."

That to me is irresponsible and is just plain wrong. You shouldn't be going into owning a pet with his death sentance already planned out. Sure, everything has its and I, just like probably anyone else that said they view their pets as children, would do whatever was necessary to save my kid. You're not even giving your dog a chance. If your not willing to even attempt to make a sacrifice to save your pet, maybe even if it is only for another year, then you just plain shouldn't have one. Get a fish tank, they are cheaper and don't live as long.

You would really feel fine going to sleep the night after you put your dog to sleep when you hit that $1500 mark? especially knowing that their are plenty of reasonable sacrifices you could have made. It wouldn't....and didn't sit well with me to think that I chose cable TV, a better car, high speed internet access, a cell phone, or whatever other amenities you can think of over a pet...a companion...and a member of a member of the family, like your child, but I don't think anyone said that they would treat both the same.

Setting a limit of $200 on a cat? many of them live a good 20 years. That is just cruel, which again ties into the whole child thing. When you read in the paper about some parent who had been abusing their kid or depriving the child in some way, that is cruel, and shouldn't happen. Obviously not the same as with a pet, but a reasonable person can understand the differance. People spend $200 going to dunkin donuts. That is worth more than spending a little on your cat?

If you go into getting a pet with its death tally already planned out. Just do everyone who actually likes their pets a favor and just not get it.

I spent a ton of money to save my dog. He lived at least 2 years extra just because of that. The sacrifices I made were petty and insignificant. But I, am my dog enjoyed those 2 extra years. When the dog had to be put down when nothing else could be done, my younger brother had a real tough time dealing with it. The decision was all mine since it was my dog, but he lived with that dog his entire life, and now he had to watch him get put down. Fortunately he is old enough to understand why, but how do you parents that know so much more than me tell that to your 5 year old? Is the heartache and torment that they deal with worth anything? or is there a price on that too?

As I said in a previous comment on this topic, the $15,000 plus I spent just in the last 3 years of my dogs life were worth every penny. I would spend it again if it meant that I didn't have to see how heart broken members of my family were. I would have continued the $80+/month for the shot that was stabilizing his system, and I would have gone further if it hadn't reached the point where he couldn't breathe on his own, and would have died...more painfully, on his own days later.

Maybe instead of setting a predetermined limit on a pets life, you should figure out what "adjustments" you could make in your life to keep him alive.

Or maybe instead just watch your kids cry when you needlessly kill your pet.

To which Bruce responded:

Mike, both my kids and I cried when I put down the feral dog I'd foolishly tried to rescue. That's part of life, learning to live with loss and understanding that sometimes hard decisions have to be made. I sleep fine, however. I understood that the priority of safety for both my and other peoples' children outweighed the obligation to keep a feral and dangerous dog alive. In fact, I think it is a good thing for children to learn that Mom and Dad do not have the power to solve all problems.

Similarly, I understand and I am perfectly at ease with my choice to value a dog's life lower than the future education for my children and a comfortable retirement for me and my wife. I would sleep just fine, trust me.

The cat comment? Eh, it was a stray, and it hung around long enough that I started feeding it. Luckily, it wasn't as feral as the dog I mentioned. I consider any continued life it has to be out of pure generosity from my family. We don't owe it a thing.

I strongly disagree that setting limits ahead of time is in any way equivalent to "abuse", "cruelty", or "neglect". They get vet visits, they just don't have an infinite budget because they simply are not infinitely important to me or to my family.

Every dollar entering my family's life has a planned destination. The "latte factor" is not a factor in our lives. There are no instant savings of $200 to be made by stopping going to "dunkin' donuts".

I am amazed that you consider $15,000 to be "petty and insignificant". I wish I had that kind of deep pockets. My family makes well above the mean for the country, but we don't have that kind of discretionary income. A $15,000 windfall from cutting "insignificant" expenses in my family would be spent as follows:

Fully fund 2005 Roth IRAs for my wife and me: $4000
Fully fund 2007 Roth IRAs for my wife and me: $8000
Partially fund Oregon 529 for my three children: $1000 each

As you probably can imagine, Mike wasn't having any of that, and responded with the following:

It isn't that the $15,000 is petty or insignificant. That money would have put me at least $15,000 closer to buying my first house. It would have made my life significantly easier than it is right now. My point was just that in my case I don't really regret that I spent all that money on my dog. I just have big issues with having a set budget beforehand for living things. I also took the clueless comment more personally that you may (or may not) have ment. I would be a fool to think that a dog and a human have the same value.

I may have over simplified the "latte factor", my point was that for "most people" as you originally mentioned, some smaller sacrifices could be made to possibly save the pet. I am sure you budget your money magnitudes better than I do, maybe you don't make a lot of frivilous purchases, but like you originally said. Most people don't go to that extent. I have been trying to get my finances in order for a while now. That was next to impossible having things like a pet that I considered an obligation to take care of. Since he had to be put to sleep I havn't gotten a new dog because I don't have the extra money for anything aside for the regular vet visits. That is pretty much what point was. If you can't afford a pet, you (people in general) shouldn't get one

I just can't see past the set budget part. Pets aren't toys. They can very easily end up being a massive expense. My case being a good example. I don't think people should go into owning a pet with the mindset that they aren't going to do much for the animal if a big problem arises. What happens if a problem arises and everyone in your family became really attached to the pet? I am not trying to say you are heartless, but that budget could easily change if something actually happened. I can see the $1500 or whatever budget you chose as being more of an emergency fund. I don't know how far I would have gone financially with my dog if I was married at the time, or had kids, but [comment ends here].

Here are my thoughts:

1. Good discussion, guys. And entertaining.

2. As you can guess, I am more in agreement with Bruce, but that's a personal preference. When I asked people previously how much they would spend to save their pet, the average was in the $1,000 to $2,000 range, so Bruce is in the middle of the pack. I don't have pets (my kids have allergies), but I am in agreement with the principle of setting a limit on what you'd spend to save a pet. It's what I would do if I were an owner.

3. Mike has every right to spend whatever he wants on his pet (did he say $15,000???!!!!). After all, it's his money. I wouldn't, but it's his choice. What I do disagree with is the thought process that equates (either consciously or subconsciously) a pet's life with a human's (Mike says a child is worth more than a pet, but his following comments indicate he really believes otherwise). It's just not even close no matter what anyone says. Not only morally as people do we know that humans are worth far more, but our laws reflect this. (When was the last execution of a criminal for the murder of a dog?) I'm not trying to be crass, but come on, there's a HUGE difference here.

Unfortunately, some people don't live this way. Instead, they value pets as much as or even more than humans. Here's a comment from a third person to my post:

Aside from chickens, I grew up in a pet free home. Maybe that makes me heartless.

Sometimes it seems that my bf's parents love their dogs more than they love him. When he was a young child and he had nightmares, his mother wouldn't let him sleep in her bed at night because he would crowd the dog out of her place on the bed. His mother wants to commission an artist to paint an oil portrait of her current dog, but I've only found one baby picture of him in the entire house. His father, buys steaks for his dog, but couldn't spend a penny on his only son's college education, or on child support for that matter.

So yes -- some people are a lot kinder to their dogs than they are to their children . . . and maybe they even love them more than their children. And yes, those people should go with their heart because they deserve the consequences of their twisted love.

4. I regularly write about the topics of pets and money because these are the issues all would-be and current pet owners need to consider -- the former needs to grapple with the potential costs before getting a pet and the latter needs to consider what to do if/when the "expense versus pet's life" issue arises.

Protect Your Home in 2006, February

Here's a piece from Money Magazine that lists how you can protect your home (your biggest asset other than your earning ability) in 2006. Today we'll list their suggestions for February:

• Check around washer, fridge and dishwasher for leaks, and replace hoses if they show signs of wear and (worse) tear.
• Pull fridge and freezer away from walls and vacuum condenser coils so that the appliances cool more efficiently. Have cats or dogs? Then do this twice a year.
• Inspect grout and caulk around tubs, sinks and showers. Chip out and replace if seals are cracked or missing to keep water from seeping into walls or under floors.

My thoughts:

1. I never do this -- unless there's a puddle of water on the floor. ;-)

2. My wife does this more than once a year already. (BTW, here's another reason that you may want to consider forgoing pets besides their high cost.)

3. Good tip. I don't do this in February as suggested, but it's more of an on-going lookout for potential issues.

Stewardship Budgeting

In order to manage your money correctly on a day in and day out basis, you must have a short term plan.  This means you need to know what income is coming in, what's going out, and how you plan to spend your assets in order to fulfill God's purpose for your life.  This attitude is summed up in Proverbs 27:23 where it states "be sure to know the condition of your flocks, give careful attention to your herds."  In short, you need a budget which is quite simply a stewardship plan for the next year.

A budget is an essential part of good stewardship.  It is a plan that says how you are going to direct the money the Lord has for you to spend.  As you develop your plan, consult the Lord in prayer.  As you do this and start to work on your plan, the Lord will give you His wisdom and direct your paths (Proverbs 16:9).  As you then develop the budget, you will have a freedom from worry as you know the Lord has helped you develop a solid plan.

In planning your budget, you will have to know the following:

• What income do you have? This is fairly easy for most people to predict, though some business owners or salespeople will have fluctuating incomes from month to month.
• What do you spend each month? The best way to determine this is to get a journal and record all your spending for one month.  In addition, you will want to list all of the bills you pay sporadically over the year (car insurance, house insurance, Christmas presents, etc.).
• What you want to accomplish in the next year?  As with all things, you will need a plan.  What do you want to do?  How soon? You will need to consult the Lord on this and seek His guidance.
• Where you can go to get help?  There are teachers, books, classes, tapes, counselors, etc. that can help you develop your budget.  As with any major undertaking, it is also wise to seek the counsel of fellow Christians (Proverbs 15:22) and prayerfully consider it.  One of the best sources for budget planning on the market is "The Financial Planning Workbook" by Larry Burkett.

While this entire process may seem overwhelming, it is necessary in order to be the best stewards of God's property as we possibly can.  Proverbs 12:27 says "the lazy man does not roast his game, but the diligent man prizes his possessions."  This doesn't mean that we should trust in or worship our finances, but as God's stewards we need to prize the possessions he has put into our control and manage them according to His principles to the best of our ability.  As we are diligently doing this, the Lord will bless us as it says a few verses later in Proverbs 13:4 "the sluggard craves and gets nothing, but the desires of the diligent are fully satisfied".

For more information on budgeting, see these links from Free Money Finance:

• Budgeting Recommendation: You Need a Budget
• Three Ways to Track Your Spending
• Why do Millionaires have Budgets?
• Have a Budget

Tax Credits for Education

Here's some advice from the National Tax Advice Day Web site on education credits you can apply on to your income tax:

The Hope credit and lifetime learning credit are two tax credits available to help pay for college for you, your spouse, or your dependent. A tax credit provides a dollar-for-dollar reduction in the amount of federal income taxes that you owe.

For example, if you owe $2,000 in income taxes and have a $1,000 tax credit, you cut your tax bill in half. In general, you cannot receive a refund for the portion of a tax credit that exceeds the amount of federal income taxes that you paid.

The Hope credit can be used for expenses incurred in the first two years of college, up to $1,500 per qualified student, per year.

The lifetime learning credit applies to tuition costs for undergraduates, graduates, and those improving job skills through a training program. This credit can be used for 20% of up to $10,000 in qualified expenses per year (no matter how many qualifying students you claim).

You can receive tax-free distributions from education savings accounts (ESAs) or QTPs without affecting your use of the Hope or lifetime learning credit. The only stipulation is that you don't claim the credit for expenses that you pay with these tax-advantaged accounts. (Distributions from an ESA or QTP are excluded from income when calculating the credit.) You must complete IRS Form 8863: "Education Credits" if you use either credit.

To help you calculate your credit, the IRS requires the school that you attend to mail a Form 1098T: "Tuition Payments Statement" by Feb. 1.

Use of the Hope credit and lifetime learning credit phases out at higher incomes. For taxpayers filing a single return, the tax credits begin to phase out when modified adjusted gross income (MAGI) reaches $43,000. For couples filing a joint return, the credits begin to phase out when income reaches $87,000. These credits phase out completely when income reaches $53,000 for single persons, and $107,000 for married persons filing a joint return.

The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax adviser.

FMF recommends: H&R Block.  Do it yourself or have us do it.  It's never been easier.

Posts of the Week -- January 23

Here is a list of my favorite posts this week:

• Introducing the MoneyBlogNetwork
• New MBAs Finding Education Pays Off Big Time
• Americans Spend $4.3 Billion to Get Their Own Money
• 43% of First-Time Home Buyers Put No Money Down
• How to Retire Faster
• Sell Your House to Save Your Pet's Life
• How to Save Money for Super Bowl Tickets (Without Sitting in the Cheap Seats)

Have a great weekend!

Free Money Finance recommends Emigrant Direct.

Pretend It's Not a Budget: How to Create a 'Spending Plan' You Can Stick To

In 15 years of coaching people on their budgets, I've found that maybe other than "death", "IRS", and "cancer", "budget" is the most-hated word in the English language. People hate the word, what it represents, and the thoughts of deprivation and constraint it puts into their minds.

But maybe this post will help a bit. It's from Market Watch and details how you can create a budget (or spending plan) that you'll be able to stick to.  Their key thoughts:

Automatic withdrawals from your bank account into a retirement or savings account, or from your paycheck into an employer-sponsored plan [help you budget].

Others agree tallying expenses is often more an obstacle to budgeting than a means to getting it done. She recommends a strategy that relies on smart estimations rather than detailed lists of each and every purchase.

The biggest source of money hemorrhage is usually the daily outlays that vary each week, including morning coffee, dry cleaner, and gas for the car. The most important thing to do is decide on a specific amount you want to spend each week on variable expenses, Hayden said.

"Almost every client we coach has some resistance or dislike to budgeting," Gottfurcht says. To ease the pain, avoid the word "budget," and use "spending plan" instead.

Another idea Gottfurcht employs with clients: Break the budget process into small bites.

I must admit that I often call a "budget" a "spending plan" to help people cope with the task a bit better. It works at first, but then they figure out that the two are the same thing and it goes downhill from there. ;-)

Here at FMF, I recommend a simple budget plan and suggest you give You Need A Budget a try. They have a money-back guarantee and offer a simple, easy way to track your spending.

Free Tax-Filing Availability Shrinks; Savings Still Possible

Here's a piece from USA Today that says free tax-filing availability shrinks. The details:

The IRS Free File program, which is intended to encourage taxpayers to file their taxes electronically, is no longer free for everyone. The partnership between the IRS and about 20 private tax preparers allows eligible taxpayers to prepare and e-file their federal tax returns for free. But this year, the program is limited to taxpayers with an adjusted gross income of $50,000 or less. That's a big change from 2005, when several tax preparers, including software giants TurboTax and H&R Block, made their Free File programs available to all taxpayers.

More than 5 million taxpayers filed returns through Free File last year. All told, more than 68 million tax returns — about 52% of all returns — were filed electronically in 2005.

The piece then goes on to offer some ways you can save when filing your taxes:

• Prepare and file online.
• Buy only what you need.
• Keep it simple.
• Look for discounts.

Well, all good things must come to an end, I guess. So much for free filing.

But there are some good tips in this piece, so use those that apply to you. And if you want/need more information on tax-related issues, see these links:

• Eight Ways to Avoid an Audit
• Tax Law Changes You'll Need to Consider for 2005 Income Tax Returns
• 3 Keys to Choosing the Best Tax Pro
• Five Common Tax Filing Mistakes

For tax planning and filing, FMF Recommends: H&R Block.  Do it yourself or have us do it.  It's never been easier.

How to Cut Down on Household Expenses

Here's a piece on how to cut down on household expenses courtesy of ARA Content: 

Now is a great time to re-evaluate your household budget. A good place to start is by taking a long, hard look at your regular expenses.

The amount you spend on necessities like food, transportation and housing is unlikely to change; but thanks to competition and technology, it's now possible to save a lot of money by shopping around for the best deal on the services you use every day; things like bank accounts, insurance plans and long distance telephone service. Perhaps the biggest savings can be realized by canceling your contract with the phone company and switching to a carrier that lets you make calls over the Internet using a new technology called Voice-over-Internet Protocol (VoIP).

It used to be available primarily to people with high-speed Internet connections, roughly 53 percent of all home Internet users according to the Pew Internet and American Life Project; but now the 45 million of us with dial-up connections can use it too. In late October, United Online, Incorporated, the parent company of NetZero, launched NetZero Voice, a new Internet phone calling service that delivers clear, high quality calling over virtually any Internet connection, dial-up or broadband, worldwide.

Deb Daniels of Denver, Colo., was among the first to try it out. "It's the best move I've made in a long time," she says. "My long distance bill dropped from $59.99 to $3.95 per month; and my friends and family can get ahold of me whenever they want, even when I'm online."

With VoIP, a phone call is converted from an analog telephone signal into bits of digital data that are transmitted (like email) over the Internet instead of over public telephone lines. Because there's no phone company involved, Internet calls don't incur a surcharge beyond what the user is paying for Internet access.

Some Internet phone calling providers advertise free local and long distance calling while others give you a set number of minutes in exchange for a monthly fee. Depending on the package you buy, you can make free or steeply discounted calls to computers, landlines or mobile phones anywhere in the world. There's usually no difference between the fees charged for local or long distance calls, and international calls can be made for a fraction of what they'd cost otherwise.

Lowell Hagar of Council Bluffs, Iowa, decided to try out the service after receiving an email from NetZero, his dial-up internet provider. "What really impressed me was how clear the signal was. I called my daughter in North Carolina, and the quality was so good, she didn't believe me when I told her I was calling from the computer."

To get started, Hagar downloaded NetZero Voice free from the company's Website: www.netzerovoice.com. "It only took a few minutes to download and install," he says. "I initially signed up for the company's 100 minute a month plan, but have been so impressed, I'm probably going to drop my long distance phone service and upgrade my VoIP plan."

NetZero has four plans that top out at $14.95 per month for unlimited inbound and outbound calling to any computer or phone in the continental United States, Canada or Puerto Rico. That's less than half what you'll pay for unlimited long distance calling from a traditional long distance carrier.

In addition to saving you money, each plan offers a variety of features including free voicemail; an email account; instant messaging capabilities; and an online message center where you can check your voicemail and administer your account. You also get traditional services like call forwarding, caller ID, call waiting, call block, speed dial and "Do Not Disturb."

Long distance isn't the only bill you can reduce thanks to new technology and increased competition. If you're paying a premium for cable television, you may want to consider switching over to one of the satellite television providers. They offer more channels for less money. If the speed offered by a cable modem or DSL Internet service isn't critical, switch over to a dial-up service. It could save you at least $50 a month.

But whatever you do, don't let the savings slip away. Following a budget will provide you with financial limits that force you to be more creative with your spending.

For more information about NetZeroVoice, log on to www.netzerovoice.com.

My thoughts:

1.  $59.99 to $3.95 per month is quite a drop. Wow!

2. I'm still not sure about alternative options for our home phone (including going "cell only") and hence, we haven't changed our phone yet.

3. If you want some REALLY good tips on saving on all sorts of expenses, see my list of money saving tips.

4. As far as budgeting goes, I recommend You Need A Budget because it's a simple, effective, powerful budgeting system.

How to Get Your Blog to 100,000 Visitors and Beyond, Step 16; Experiment with Blog Traffic Exchanges

Step 16 to getting to 100,000 visitors and beyond: Experiment with blog traffic exchanges.

In the early days of this blog, I experimented with three blog traffic exchange sites: Blog Explosion, Blog Advance and Blog Clicker. They each have their positives and negatives and to be honest, I haven't visited them for awhile, so they may have totally changed in the last several months, but they all work on the same principle: you review other blogs and for every two you view, they send one person to look at your blog. It's an easy way to get traffic if you have some time to kill and want to see what other blogs are out there (in a random sort of way).

If you decide to use/experiment with these sites, there are a few things you should know:

• Don't expect high quality traffic. Most of the sites that sign up for these are of low to mid level quality (yeah, I know, I was one of them), hence the people coming to your blog (the owners of the other blogs in the group) probably aren't that great either. That said, if you're good and on the ball, your blog will stand out as a star.
• Don't expect a wide number of blogs. When I used these sites, I could view them for 15 minutes or so and then started seeing the same blogs over and over again. This may have changed as more people have joined these sites since I last visited.
• There's a large percentage of "this is my life blogs" in these groups. Lots of people talking about their lives. Their boring lives. Be sure to have a can of Diet Coke handy.
• Be ready to be surprised. You'll just be sitting there, almost asleep, reading another worthless blog and BAM -- a great blog will pop out at you. Don't be surprised if you find a handful of good blogs that you add to your blogroll. In a way, finding these makes all the time spent viewing the other sites worth it.

Plan to use these sites for a time and then split. Sign up, get the traffic bonuses, view some blogs over a few days (or weeks), send all the traffic to your sites, then never go back again. By then, you'll be up and running on your own and won't have time for such a labor intensive activity.

Click here to read part 17 of this post.

Free Money Finance recommends: Emigrant Direct and You Need A Budget.

I'm Cruisin' -- Come Join Me

Hey, are you a blogger who wants to hear from some of the top people in the blogosphere today? And do you like sun? And fun? If so, I've got something you're going to love!

Blogonomics is offering a Blog Cruise on this ship this October (5th thru 9th). Here's the itinerary. They even have a blog about it (of course!). Somehow, I convinced them (ok, begged really) to let me come along and be one of the speakers. I'm most certainly the low man on the totem pole with the group they have, but I'm so excited. Blogging -- cruising -- sun -- fun -- etc. How could it get better than this???!!!

I hope you'll join me and the rest of the group. It will be a worthwhile investment in your blogging career (and did I mention the sun -- it's something that's in short supply here in Michigan this time of year, so I am salivating at the thought of this cruise). You can get all the details you need at the main Blogonomics site.

Hey, MoneyBlogNetwork guys -- want to join me? It would be great for all of us to go together!!! ;-)

Star Money Articles for the Week of January 23

My favorite posts this week from the MoneyBlogNetwork members and beyond:

• AllThingsFinancial has lots of stuff on net worth -- one of my favorite topics!!!
• Five Cent Nickel discusses a guy who was scammed out of $15k. Ouch!
• Blueprint for Financial Prosperity talks about how the income tax system will collapse in 10 years.
• Consumerism Commentary bemoaned the fact that he is going to owe income taxes this year.
• Boston Gal's Open Wallet talks about The Diamond Ring. I've got her pegged as a heart-breaker after reading this post. ;-)
• Personal Finance Advice said Americans have no extra money. No shocker there!

And as a reminder, if you want to promote your personal finance blog, check out the details on the MoneyBlogNetwork's Blog of the Week program. It's free, it's fun, and it could drive a bit of traffic your way!! ;-)

Insurance and Investing: Buy Term and Invest the Difference

Here's a question a reader had for Money magazine regarding using insurance as an investment versus buying term life insurance and investing the difference:

Question: My adviser wants us to invest our money in a variable life insurance plan, where we can avoid taxes. Would it be better to buy term life insurance and invest in mutual funds?

Answer: In a word, yes. Here's why: Variable universal life--the most commonly sold variable policy today--gives you life insurance in combination with tax-sheltered investments for retirement. But it does neither job well. That's because most variable policies are extremely expensive and bewilderingly complicated.

If you need life insurance, buy a low-cost term policy. And for your retirement savings, stick with your 401(k) or tax-managed mutual funds.

This is pretty much my take on VUL. I've always been a "buy term and invest the difference" sort of guy. This works only as long as you "invest the difference." Many people I've known "buy term and spend the difference." In their cases, some sort of forced investing through insurance products might not be a bad deal. Even if it is expensive, it still has a better return than blowing your money on a new big-screen TV.

Free Mind Over Money Book Giveaways at Free Money Finance, Day 5

As I posted Monday, I'm giving away five copies of Mind Over Money by Eric Tyson. I reviewed the book and liked it a lot (8 stars). I think you will too -- especially since it's FREE!!!

Yesterday's winner was Will Kirby.

We have one more day to go!!!!!!! I'm going to let this one go through the weekend, then I'll draw the winner Monday morning.

To participate in Monday's giveaway, simply leave a comment, any comment, on this post. That's all you have to do.

I'll draw a name at random Monday morning. As for rules, they simply are:

• You can enter every day if you like, but you'll need to leave five comments (one per day). If you don't win one day, your entry doesn't carry over to the next day.
• Only one comment per day.
• The drawing will be final and I will be the complete and final judge (don't worry, I'll be fair).
• U.S. mailing addresses only.

Good luck!

Helping Someone Pay for College? Income Tax Advice for Grandparents & Other Sponsors

Here's some tax advice from the National Tax Advice Day web site on how to handle college expenses for income tax purposes if you are paying part of someone's college costs:

Saving for a child's college education is not limited to just his or parents. Let's explore the role of grandparents and other sponsors who wish to help pay the college bills of a grandchild or other beneficiary.

Whether you're a wealthy aunt or uncle, or simply a charitable person wishing to help pay a deserving student's way through college, many of today's tax-advantaged savings vehicles for college are available to you.

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) expanded the use of Section 529 plans to help save for a child's or grandchild's college. These plans allow you to set aside well over $100,000, in aggregate, for a single grandchild's college education.

As long as your grandchild uses the money in these accounts for qualified higher education expenses, the withdrawals are tax-free.

Unlike UGMA/UTMA accounts, the money you save in a Section 529 plan for grandchildren is controlled by you. You also can change beneficiaries of a Section 529 plan easily.

Section 529 plans can be front-loaded with an investment of up to $55,000 in a single year per child. However, since gift taxes are levied on gifts of more than $11,000 per child in a year, you will have to coordinate your funding of a Section 529 plan with your overall estate planning. If you give the maximum of $55,000, you will have to wait for another four years before you are able to give additional amounts free of gift taxes. (The $11,000 a year exclusion limit, multiplied by five years, in this example.)

While nothing comes quite as close to the tax benefits of Section 529 plans, grandparents or other sponsors can also open an education savings account to pay for a grandchild's or beneficiary's college education.

EGTRRA also boosted the advantages of education savings accounts. (Education savings accounts were formerly called education IRAs.) You can contribute $2,000 a year, after taxes, to each beneficiary's education savings account. In addition to being used tax free to pay for qualified higher education expenses, the funds in an education savings account can also be used tax free to pay for qualified educational expenses paid to attend secondary schools.

Finally, don't forget about making contributions to charitable organizations. You can always make a gift or endowment to a foundation or scholarship fund to give hope to some youngster's college aspirations.

The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax adviser.

For tax-related questions, FMF recommends: H&R Block.  Do it yourself or have us do it.  It's never been easier.

Marrying for Money Actually Works

As I wrote on Tuesday, a recent study has shown that married couples have much higher net worths than singles. Here's a more in-depth article on the study that I found at MSNBC with the intriguing line that "marrying for money actually works, study finds." The important facts are as follows:

A study by an Ohio State University researcher shows that a person who marries — and stays married — accumulates nearly twice as much personal wealth as a person who is single or divorced.

And for those who divorce, it’s a bit more expensive than giving up half of everything they own. They lose, on average, three-fourths of their personal net worth.

A big reason married people accumulate more wealth than others is simple economies of scale — one household is cheaper to maintain than two, Zagorsky said. Divorce reverses those benefits, he said.

“Divorce looks like one of the fastest ways to destroy your wealth,” Zagorsky said.

Hmmmmmmmmmm. Maybe I've finally found a tip (get married) that's better than spend less than you earn. ;-)

Money Saving Tip: Don't Let a 7-year-old Operate Your Digital Camera

This year, we finally exited the dark ages of photography -- we got a digital camera. We had waited so long because:

1) Any major (over $100) joint purchase for me and my wife is a nightmare. If she does it on her own, it's ok, she can take 12 months to reasercah it if she likes. If I do it on my own, it's ok, I can make a decision pretty quickly. If we do it together, it's painful (mostly for me).

2) In the past, my wife has been in charge of "all things photographic" (including the camera and video recorder). She has the technological ability of a 75-year-old Third World citizen (think: "Honey, why does my computer have this blue screen again?" every other week or so), so I try to keep the technology she uses to a bare minimum.

Anyway, we made it through the purchase (GREAT DEAL -- my wife is very good at that. Great camera on closeout, 50% off plus a free printer AND rebates. They almost gave it to us.) and got the camera. I fell in love with it immediately. I started taking it everywhere and getting great pics of everything. I emailed the picture to friends and family. I put pictures on our Christmas newsletter and on some of my blogs. And, of course, I used the pics to make our great calendars we got from Costco.

Then, in the middle of December, we went on a mini-vacation to the Great Wolf Lodge. My 9-year-old son, who takes a pretty good picture, took one with our new camera. Of course, if he took one, then my 7-year-old daughter HAD to take one too. I remember saying, "I don't think that that's a good idea," but my wife said it was ok and she let my daughter take a picture. I remember holding my breath the entire time she was fumbling with the camera. Good thing she cut off my head when she took the picture (she said she "didn't notice" my head wasn't in the frame) or else it would probably have shown a 41-year-old guy turning red from lack of oxygen.

A week later, I came home from work and the camera was on our kitchen table. I saw it immediately and my son, being the ever-generous, love-your-sister kind of brother we all know and love, blurted out, "My sister (he used her name) broke the camera!" My heart skipped a beat. I rushed to the table and saw that the metal cover that covers the lens was stuck open. Not a good sign. I turned on the camera and checked it out -- everything else seemed to be ok. But I was still in a panic -- what was wrong with my baby??????

To make a long story short, my wife let the 7-year-old take a picture on a museum trip. A trip to a museum that had hard, rock solid, stronger than steel...floors. My daughter didn't want to give the camera back to my wife, there was a bit of a scuffle and, yes, you guessed it, the camera feel to the floor. Being the great husband that I am, I went through the Great Wolf Lodge reminder, a chorus of "I-told-you-so's", and the like. But I gave up after a bit. My wife was upset about it too, so I backed off. Man, she had to go and spoil all my fun by being sorry about it!!!!

So we used the camera through Christmas, then wrapped it up and sent it off to the manufacturer to see what the damage it. We now await the verdict -- along with the potential cost of repair.

All that to say this: you (and I) can save money simply by not letting a 7-year-old operate a didgital camera. There, I've warned you. I won't be afraid to say "I-told-you-so" if you ignore this advice and your camera experiences a similar fate. ;-)

Are 0% Loans Good, Bad, or Does it Depend?

Here's a chance for all Free Money Finance readers to chime in on what they think about a very interesting topic. But first, let's start with some background.

On Monday, I wrote a post titled 43% of First-Time Home Buyers Put No Money Down. As a no-debt sort of guy, you can imagine what I thought of this trend. My reaction was:

Yikes, yikes, and triple yikes!!!!!!

Then I went on to give my formula for how I recommend buying a house.

Shortly after posting, I received a comment from David at Pacesetter Mortgage who said:

Dear FMF,

Sometimes the headlines can be deceiving. The information you quoted is very true. It comes from a recent NAR report just out.

The good news, behind this article, is that American Home Ownership is at the highest it has ever been! The low/zero down payment loans are a big part of this.

Certainly in some parts of the country where prices have been skyrocketing, a zero down loan would be a bad idea.

But in other parts of our country, like the Midwest and Michigan, this loan is a very valuable tool for the first time homebuyer.

I say all this to suggest that we don't throw the baby out with the bath water.

Just like everything else, a professional to help sort this all out is a good thing to have in your life.

I also wish you the greatest of success with your new Blog Network. I have been watching your success for some time and have enjoyed your work.

To which I responded:

David -- Thanks for the kind thoughts, I appreciate them.

Under what circumstances would it be advisable for someone to take out a 0% down loan? I can't think of any.

To which he responded:

Dear FMF,

Let's say that you and your wife are both 28 years old, have your college degrees in hand and have been working in your new professions for a year or so.

Let's further assume that between the two of you the household income is $80,000 and the debt you have is one car loan, some student loans, and a small credit card balance.

Here is the quandary: Continue to pay $900/month for rent and save a downpayment or get a zero down loan and begin to build equity through appreciation and have Uncle Sam help you make the payments with your new tax deduction.

First of all, please understand that I am not thinking "nationally" in my answer. My answer would be different to someone in California then it would be to someone in Michigan.

Everything we do has risk! Making a rent payment has risk in that you are spending money with no hope of return.

Here are some critical criteria that must be met:

1.) You must be willing to commit to the house for 3 years to break even and 5 years to have a return.

2.) I always advise pre-payment on these loans if affordable to shorten the 5 year investment return.

3.) Have a good Realtor! You must understand Location, Location, Location.

4.) In years 3-5, assuming market rates co-operate, a refinance MIGHT be in order to remove the second mortgage and/or PMI insurance that went with the loan. Typically after 2-3 years there has been at least 10% appreciate to accommodate this.

5.) Don't make large improvements to a home unless you intend to stay longer than 10 years. Cosmetic improvements are a plus.

The "Zero Down" mortgage is not a new product. I have been helping young families with this strategy for many years.

This all works because of primarily two things:

1.) Leverage. The young couple in my example would probably buy a $140,000 home in our market that would conservatively appreciate to $175,000 in 5 years.

2.) Tax Deduction. Uncle same is going to pay around 25% of their interest expense. The State of Michigan may also chime in with some tax relief for property taxes.

Michigan Bonus Reason - we are in the midst of a strong buyers market. Having seen this in the past, I would suspect that a $175,000 value in 5 years will make my assumptions on the low side.

I have certainly also met with young couples where I suggested that they continue to rent. Everyone's situation is different and applying a "zero down loan is bad" logic to everyone is not healthy either.

I have been doing this for 20 years and have leant nearly a billion dollars to my clients. I can't think of one young couple that this advice has hurt. As a matter of fact, they all thank me later on down the road.

Again, my point was not to throw the baby out with the bath water. The Zero Down Loan is good for some, and horrible for some.

When I have a disciplined young couple in my office with good credit, can commit to the items above, and who really desire to own their own home, then I am happy to show them how to make it work.

I hope this is taken with the spirit in which it is intended!

I then asked if he'd mind if I posted this and asked FMF readers for their thoughts. He was game, so here it is.

So, it's your turn to weigh in on the subject. What do you think? I'll give it a couple days, then respond with my own thoughts.

Small Steps to Take Control of Your Debt

Here's a piece courtesy of ARA Content on how to take control of your debt:

Results from a recent survey indicate that 32 percent of Americans give themselves a perfect 10 in debt management. Thirty-four percent say having a budget and sticking to it is the tool they most likely would use to reduce debt.

While these findings confirm that many Americans have a good handle on their financial situation, the survey also revealed that 30 percent of Americans believe more debt management information would help them reduce their debt more quickly and effectively.

To help fill this information gap, MasterCard introduced Debt Know How, a program to provide Americans with the tools and information they need to get out of debt.

"At MasterCard, we have a long-term commitment to supporting the financial health of our customers and believe it is our responsibility to provide this service free to consumers," says Patrick Dwyer, vice president for consumer affairs for MasterCard International. "Managing debt requires commitment and consistency, but taking small steps toward your goal pays off…literally."

Dwyer and other financial experts suggest consumers take the following steps to take control of their finances:

• Assess your debt: Determine your total amount of debt. Compare it to your income and projected necessary spending.
• Set a goal: Set a goal and prioritize your debt - for example, pay off debt in three years - and then break it into a series of smaller goals to help reach the ultimate finish line.
• Track spending: Keep diligent track of spending and consistently look for ways to reduce it.
• Prioritize your debt: Determine which is the most expensive, and pay that first.
• Pay more than the minimum: For credit card debt, understand how paying more than the minimum can be a critical first step in reaching your goals.
• Understand interest and late fees: Know what the late fees are on all of your debt. Try to avoid unnecessary fees, which only add to existing debt.

For additional information about how to manage debt and to access free, easy-to-understand debt management tools, visit www.debtknowhow.com.

Here are some posts on debt that provide additional information:

• Get Out of Debt
• Nine Ways to Pay Off Debt
• 8 Ways to Consolidate Debt
• The Two Dumbest Ways to Pay Down Your Credit Card Debt
• Alarming Credit-Card Tricks

FMF recommends: Simple, Effective, Powerful Budgeting System

New Roth 401(k) Struggles for Acceptance

I wrote some time ago that the Roth 401k seems to be a dud so far because companies are taking a wait-and-see approach to it. However, for some, the Roth 401k is a great retirement investment.

Yet, it continues to have problems. This piece from the Seattle Times notes that the new Roth 401(k) is struggling for acceptance. Their key thoughts:

The Roth 401(k) is a new tax-savvy retirement plan being virtually ignored by employers these days.

Like any benefit, employers don't have to provide the Roth 401(k). Only about 18 percent of U.S. companies surveyed said they would offer it when it became legal Jan. 1, according to the Chicago-based Profit Sharing and 401(k) Council of America, an employers' group.

"I see this as a great opportunity for my clients," said financial planner Michael Dubis of Touchstone Financial in Madison, Wis. "But employers see this as another expense, not a benefit."

Yikes! This could be the death of the Roth 401k. If companies really see it as an expense rather than a benefit, it's in deep trouble. That's too bad, because as the article goes on to say, it can be a great deal for some retirees:

Since every non-Roth retirement program taxes you at the full rate when you pull out money, the Roth can boost retirement income by more than 35 percent relative to other programs if you are in the top tax bracket.

I think that it's still way too early and the jury's out. We won't know how well the Roth 401k is (or isn't) accepted for a couple years at least.

Deducting College Expenses from Your Income Taxes

Here's some tax advice from the National Tax Advice Day web site on deducting college expenses from your income taxes:

The Economic Growth and Tax Relief Reconciliation Act of 2001 created a temporary tax deduction for college expenses. For 2005, the last year you can take advantage of this deduction, the maximum allowable deduction is $4,000. For persons earning more than $65,000 and not more than $80,000, the allowable deduction is cut in half to $2,000. (For married persons filing jointly, the respective limits are $130,000 and $160,000.)

Married persons filing a separate return are not eligible for the deduction. In addition, you cannot deduct those expenses that are claimed for the Hope credit or lifetime learning credit, or that have been paid for with distributions from a Section 529 Plan, education savings account, or savings bonds whose interest you deduct for paying college expenses.

The money that you invest in yours, your spouse's, or a dependent's higher education translates into direct tax savings. The tax deduction is an above-the-line deduction. This means you don't have to itemize or limit the deduction to amounts that exceed 2% of your AGI.

The following table calculates the tax savings and future value for two investors. One investor is in the 25% tax bracket for 2005. The other investor is in the 28% tax bracket. Both investors can earn a 5% rate of return. Future value is calculated for a five-year period for a taxable and tax-exempt account.
Value of $4,000 tax deduction for 25% and 28% tax brackets (2005):

Tax bracket: 25%

• Qualified expenses: $4,000
• Tax savings: $1,000
• Savings interest rate: 5%
• Future value (5 years): Tax-exempt account: $1,283
• Future value (5 years): Taxable account: $1,206

Tax bracket: 28%

• Qualified expenses: $4,000
• Tax savings: $1,120
• Savings interest rate: 5%
• Future value (5 years): Tax-exempt account: $1,437
• Future value (5 years): Taxable account: $1,341

If you are in the higher bracket, $4,000 in deductions saves you $1,120 in taxes this year. Invested in a tax-exempt account at 5% compounded yearly, this amount grows to $1,437. Invested in a taxable account at 5%, it grows to $1,341.

The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax adviser.

For tax-related questions, FMF recommends: H&R Block.  Do it yourself or have us do it.  It's never been easier.

Free Jane Bryant Quinn Book at Free Money Finance Winner

We have another winner! Scooter won the first copy of Jane Bryant Quinn's Smart and Simple Financial Strategies for Busy People and now Bill has won the second that I announced the other day.

Congratulations to both of you! I hope you like the book. I sure did.

Free Mind Over Money Book Giveaways at Free Money Finance, Day 4

As I posted Monday, I'm giving away five copies of Mind Over Money by Eric Tyson. I reviewed the book and liked it a lot (8 stars). I think you will too -- especially since it's FREE!!!

Yesterday's winner was Kim.

To participate in tomorrow's giveaway, simply leave a comment, any comment, on this post. That's all you have to do.

I'll draw a name at random every morning of the giveaway. As for rules, they simply are:

• You can enter every day if you like, but you'll need to leave five comments (one per day). If you don't win one day, your entry doesn't carry over to the next day.
• Only one comment per day.
• The drawing will be final and I will be the complete and final judge (don't worry, I'll be fair).
• U.S. mailing addresses only.

Good luck!

Promote Your Personal Finance/Money Blog for Free!

For those personal finance bloggers out there looking for some free promotion for your site, the MoneyBlogNetwork has an opportunity for you.

We're naming a Site of the Week every week -- a spotlight on one specific personal finance blog. If you want to be considered, stop by AllThingsFinancial and email JLP. He's collecting the applications.

Speaking of AllThingsFinancial, I have to say a public thank you to JLP. He's answered a few tax-related questions that FMF readers have had and he's always done a great job -- very thorough. Thanks, JLP!

Finally, AllThingsFinancial has a post on how Ameriprise Looses Data on 230,000 Clients and Advisors that you may want to check out. Here is an overview:

Ameriprise Financial, the investment advisory unit spun off from American Express last year, said today that lists with the personal information of about 230,000 customers and financial advisers were potentially exposed to fraud.

The breach occurred in late December after a company laptop was stolen from an employee's car. It contained lists of reassigned customer accounts that were being stored unencrypted on a computer in violation of Ameriprise's rules.

The information on the laptop included the names and Social Security numbers of more than 70,000 current and former financial advisers and the names and internal account numbers of about 158,000 customers. The data was being stored in separate lists, but it is possible that there could be some overlap between the two.

Are these companies crazy!!!!???? This info is on a laptop -- in a car -- unguarded? When will they learn????

Add Ameriprise Financial to the identity theft blacklist.

How to Get Your Blog to 100,000 Visitors and Beyond, Step 15; Write Unusual Posts to Get Attention

Step 15 to getting to 100,000 visitors and beyond: Write unusual posts to get attention.

Nothing gets you attention (translation: traffic) like a unique spin on an old topic, an unusual piece of information, or a detailed viewpoint on something everyone is interested in. The blogosphere LOVES these sort of posts, so the more of them you can come up with, the more traffic you can generate.

Here are some examples from Free Money Finance:

• Several months ago, I wrote Best Practices for Driving Traffic with Blog Carnivals. In the piece, I gave a detailed viewpoint of how carnivals drove traffic (and how much traffic). It dealt with a topic that many people are interested in including many high-traffic sites, so when I posted on it, so did they. The resulting traffic was very, very nice.
• I continue to post on the costs of pets (and how expensive they are). As you might imagine, this isn't the most popular topic I write about as people love their pets to death. But it creates conversation and interest, and thus traffic. So I continue to talk about how Fido might cost you a fortune.
• My latest venture, the Bible and Money, has started to generate some traffic with a whole new audience. I post on the topic every Sunday (how fitting, huh?) and it's started to attract attention, and traffic, from a new audience.

So think about topics you could talk about that are a bit unusual. If you do, someone may notice, tell their friends, and on and on -- and you may have a stampede on your hands. ;-)

Click here to read part 16 of this series.

Free Money Finance recommends: Emigrant Direct and You Need A Budget.

Managing Your IRA for Maximum Gain

Who out there wants to maximize their IRA investment? Me too. That's why I wanted to share this article from Yahoo on how to get the best return on your IRA. Here are the key parts of the piece:

The key to getting the biggest bang for your buck is asset allocation. The right mix of stocks, funds, bonds, cash and other investments should balance risk and return in a portfolio.

Part of the secret of saving for your own retirement is getting into the habit of regularly looking after your own financial interests.

You should review the progress of your mutual funds every quarter. "Make sure the manager is managing the fund as you expected. If it diverges from your original goal, find out why the manager has invested in different stocks. One clue to the fact it's changed is comparing the performance of a mutual fund to an index that covers the category you think best represents what that fund should be doing, such as a small-cap index."

Like anything else, it helps if you have a plan.

My thoughts:

1. Yes, asset allocation is very important. I wrote about that recently -- see 4 Rules for Asset Allocation for details.

2. I've said a lot about managing your investments, index funds, and the like in the past. To see some great posts on these subjects, see my listing of top investing posts for 2005.

3. I'm in the process of rebalancing my portfolio. I haven't done it in a couple years (shame on me) and it's a mess!

FMF recommends: You Need A Budget and Try the Value Line Daily Options Survey and get 2 free reports.  Click here.

More Important then Money: Kids (And a Recommendation on How to Keep Them Safe)

As I've said previously, there are many things more important than money. One of them, which almost goes without saying, is our kids (yours, mine, all of ours). There's no amount of money we wouldn't give to keep our kids safe, make them well when they are sick, and use to make sure that they are well-suited for life as adults. It's no contest -- kids are worth waaaaaaay more than money.

Given this, I want to make a product recommendation to you. A couple months ago a good friend of mine went to be president of the Safe Side company (which includes partners Julie Clark (creator of Baby Einstein) and John Walsh (host of America's Most Wanted)), producers of The Safe Side - Stranger Safety DVD.  When he did, he sent me a copy to watch with my kids. All I can say about it is that if you have kids YOU HAVE TO GET ONE OF THESE AND MAKE SURE YOUR KIDS WATCH IT.

Basically, the DVD teaches kids how to act around adults they know, they kind of know (dubbed "kinda knows" in the DVD), and they don't know. It shows them how to react to certain situations to make sure they are safe (and not abducted/mistreated) in various, everyday situations that all of our kids run into. Best of all, they do it in a fun and non-threatening way. The kids LOVE to watch the DVD (they think Safe Side Superchick is cool and funny) and you know how kids are -- if they like something they watch it over and over and over. But with this DVD, they aren't only being entertained, but they are watching and learning something that literally may save their lives one day.

But it's not just me who loves it, it seems everyone who sees it loves it too. First, here's Amazon's review:

Kid safety is an important, yet often difficult topic of discussion between parents and children. The Safe Side's "Safe Side Super-Chick" is a decidedly zany host who successfully combines slapstick humor with serious, practical safety tips for kids. "Safe Side Super-Chick" breaks the population down into three quickly discernable categories: "Safe Side Adults" that kids know well and can always trust to keep them safe, "Don't Knows" like the mail carrier or the lady at the park and "Sorta Knows" like a coach or a schoolmate's parent. As "Safe Side Super-Chick" interacts with "Don't Knows" and "Sorta Knows", she offers seven specific safety tips to keep kids safe and, with the help of real kids, details simple, concrete actions and phrases that empower kids in a variety of potentially dangerous situations. Best of all, the presentation is never scary, but always extremely funny--that means that kids ages 2 to 10 will actually enjoy learning about safety. Kudos to Julie Clark (creator of Baby Einstein) and John Walsh (host of America's Most Wanted) for creating a safety video that's highly entertaining, informative, and practical.

But you could say they're biased. Here's what John Walsh has to say:

I'm the host of a television show that I wish wasn't needed. But it is. Thankfully, 38 missing children have been recovered by our work at "America's Most Wanted." In 1981, the lives of my wife Reve and I were changed forever. Our beautiful son Adam was abducted from a mall in a nice area of South Florida. Sadly, two weeks into the biggest search for a child ever in Florida, our son was found murdered. In my quest to find justice and fight back for victims, I lobbied Congress to change the laws and to change how police search for missing children. I'm proud to say that the movement I started is still going strong. There's a national organization dedicated to helping children (National Center for Missing and Exploited Children) and now this country and its media are beginning to understand that our children need to be informed about how to stay safe. In 1981 not much was known about child abduction and exploitation. Parents knew very little and, tragically, children knew even less. Today we're proud of the awareness that children have about the dangers that face them. Children see images everywhere of kidnappings and exploitation. We only need to think about what we've seen in the past year--pedophiles in the clergy, Internet predators, and others who are in positions to take advantage of children's trust in them--to know that kids are still being victimized at an alarming rate. I hope that's about to change. As a crime fighter and host of a popular TV program that has saved lives, I'm proud to be teaming up with a woman who knows how to teach children. Kids want to know what to do, and parents need to be prepared. Like me, Julie Clark is a parent who cares. She has a proven track record of teaching kids. Her passion and experience make this series of safety videos for children something that parents and kids will want to watch. Now parents and kids will do what I've been doing for more than 23 years--they'll fight back.

But you may think he's biased too.

So consider these facts:

• As of this writing, the product has been reviewed by 34 people on Amazon and rates 4 1/2 stars out of 5 possible!
• As of this writing, the DVD ranked as #58 on Amazon. Obviously, it's very popular.

I highly recommend The Safe Side - Stranger Safety and, as such, give it the following rating on my scale of 0 to 10 stars: 9 Stars.

If you can't afford the DVD, go in with a friend and buy one or rent it from your library. You'll be glad you did.

Beware 'Debt Elimination' Scams

It seems like everyone wants an easy way out of everything. People spend like maniacs for years, then want to pay someone a simple fee to get rid of all their debt. It doesn't work like that, folks!

Here's a piece from Bankrate on debt elimination scams and how to handle them:

Eliminating debt is kind of like losing weight by not eating for two weeks. Firstly, it doesn't work and secondly, you get unintended consequences from trying, like injuring your health. Same thing with debt -- you have to earn more and spend less if you really want to eliminate debt from your life. There really are no quick fixes for either problem.

Of course, the scams abound, and you've run across one. One is that credit card lending is really illegal, so if you stop paying them and they take you to court, you'll win with the secret, and expensive, legal strategy you will be sold. Yours is a variation on that theme -- it's a scam, pure and simple. They probably want a big upfront fee. Don't pay it.

The piece ends with some very good advice:

My advice is to be very careful when strangers approach you with offers. They could well be identity thieves. Ignore these claims and work on getting yourself out of debt the old-fashioned way. Take a good, hard look at your income and expenses and look for ways to either increase the income or decrease the expenses until you can lighten your debt load.

If you want to get out of debt, check out some of these posts -- they may be of help to you:

• Get Out of Debt
• Nine Ways to Pay Off Debt
• 8 Ways to Consolidate Debt
• The Two Dumbest Ways to Pay Down Your Credit Card Debt
• Alarming Credit-Card Tricks

Free Money Finance in Eight Carnivals This Week

Free Money Finance is part of eight carnivals this week:

• The Carnival of Investing includes my post on 4 Rules for Asset Allocation
• Carnival of the Vanities includes my post on Keys to Growing Net Worth
• Carnival of Personal Finance includes my post on The Fastest Tax Refund Possible
• Carnival of Debt Reduction includes my post on Beware Credit Cards Bearing Gifts
• Carnival of the Capitalists includes my post on How to Get Your Blog to 100,000 Visitors and Beyond, Step 1; Pick the Right Topic
• Bonfire of the Vanities has my post on You Choose -- Pets or College for the Kids
• Festival of Frugality includes my post on 9 Ways to Look Rich but Live Cheap
• Christian Carnival includes my post on Biblical Investing

Stop by these carnivals to read some great posts!

The Best Personal Finance Magazine: February, 2006

In December, I declared Money Magazine as the best of the big three personal finance magazines (Money, Kiplinger's Personal Finance, and Smart Money). I promised to start the competition at ground zero in 2006 since Money was so far ahead that the others could never catch up.

Here's an update on my competition for the best personal finance magazine. My methodology: the magazines get one vote for each article that I found useful -- either for me, someone I knew or for this blog.

As a reminder, here's how each one scored for January:

• Money - 14
• Kiplinger's - 6
• Smart Money - 6

Here are the results for February:

• Money - 7
• Kiplinger's - 6
• Smart Money - 3

So, our total for the year stands at:

• Money - 21
• Kiplinger's - 12
• Smart Money - 9

My thoughts:

1. My winner for 2005, Money magazine, stumbled a bit this month. Though it was still the winner, the margin of victory was the closest ever. I'm chalking it up to a bad month for them. I think they'll bounce back.

2. Kiplinger's held in there with another solid performance. With a bit more improvement, they could give Money a run for their money. ;-)

3. Smart Money is back to its losing ways. Too many "hot stock of the month" articles to be useful.

FMF recommends: You Need A Budget

Budgeting Recommendation: You Need a Budget

I know many of you, like me, are putting together budgets for 2006. If you're looking for an alternative to Quicken or Money, I recommend You Need A Budget. I won't reiterate all the reasons why I like it, but you can read them in A Great Alternative to Quicken and Microsoft Money.

FMF recommends YNAB because it's a: Simple, Effective, Powerful Budgeting System

FMF Over 200,000 Visitors; Thanks to All Readers

Wanted to make a quick announcement that Free Money Finance just went over 200,000 visitors since our launch last April. I didn't want to let this milestone go by without thanking all of you who read this blog. I appreciate the time you spend here and never take your readership for granted. Thanks for making Free Money Finance part of your life and congratulations on working to grow your net worth.

I usually celebrate an occasion like this by giving something away, but since we're in the middle of a giveaway already and it's a big one (all week), we'll just go with that one.

Thanks again!

Money Saving Tip Reminder: Review Your Statements

A while back, I suggested that a great way to save money was to check your bank's math and that you should also balance your checkbook. Basically, you need to reconcile all your financial statements when they arrive. This is because banks, credit card companies, stores, utility companies, etc. do make mistakes and if you simply take their word for it, you're bound to lose money at some point.

I was reminded of this point recently when I reviewed our credit card bill. I found a double charge for $32 from a bookstore. Same amount on the same night. I knew it was a mistake. The next day, my wife called the store and they said "yeah, that happens every once in awhile, just call your card company and when they check it out we'll ok removing one of the charges." Needless to say, if I had simply paid the credit card bill and not reviewed it, I would have been $32 poorer. Hence I wanted to remind you of this tip once again. It's a basic one, but a goodie.

Tax Implications of Medical Expenses

Here's some tax advice from the National Tax Advice Day web site on the tax implications of medical expenses:

There are three key areas where your health and medical-related expenses come into play with your tax return: deductions, disability and credits.

Deductions

Taxpayers can elect to deduct certain expenditures from adjusted gross income rather than claim the standard deduction. These expenditures, listed as itemized deductions, include medical expenses.

But in order to deduct your medical expenses, they must be more than 7.5 percent of your adjusted gross income, and of course you must be able to itemize. So, your medical expenses need to be fairly large in order to deduct them.

Medical expenses that can be itemized can include the cost of medical insurance, prescriptions, out of pocket medical expenses, and mileage to and from medical facilities. As far as your health care insurance premiums, they cannot be deducted if they are taken out of your paycheck as pre-tax dollars.

Actually, having your health insurance premiums taken out pre-tax may well be a greater benefit because of the AGI limitation on medical expense on the return. And, while "after tax" health insurance premiums are deductible, they are still subject to a 7.5 percent of adjusted gross income limitation (unless you're self-employed, in which case you may be able to deduct your health insurance premiums even if you don’t itemize).

Since medical bills are deductible only to the extent that they total more than 7.5 percent of your adjusted gross income, timing your payments may be the only way to garner a tax benefit from these costs. By now, you should have a good idea whether you'll pass the 7.5 percent floor. If it's doubtful, try to hold off paying any medical bills or scheduling medical exams and procedures until the following year, when they might have some tax-saving power.

On the other hand, if you are close to or already over the threshold, see what you can do to pump up the deduction. One sure way, of course, is to pay any outstanding medical bills, including health insurance premiums, by Dec. 31. Also, consider scheduling, being billed for, and paying for elective medical and dental work before the end of the year. The same goes if you need new glasses, contact lenses, dentures, a hearing aid, or modifications to a car to enable a handicapped person to drive.

You should ask a tax professional for specifics, but there are medical expenses you can claim that you may not be aware of, and some items that may seem like logical deductions but are not deductions. For example, you cannot deduct the expenses you pay using your employer's cafeteria plan or flexible spending arrangement.

You may be able to deduct some medical care expenses if they are necessary to a particular disease. For example, the cost of adult diapers would be deductible if your elderly parent needed them as a result of a disease, such as Alzheimer's.

Disability

If you are receiving disability payments, you could be required to pay taxes on all or a percentage of your disability payments, depending on the type of disability payment you're receiving and who pays the premiums.

Generally, ordinary disability income is not taxable to the extent that the taxpayer recipient paid the premiums. Amounts received that are related to premiums your employer paid are most likely taxable. Social security disability is taxed under the usual rules for social security. Workers’ compensation is not taxable.

If your adjusted gross income is below $25,000, you may be able to claim the credit for the elderly and disabled.

If you are caring for a disabled person, you could be eligible to claim the dependent care credit. Disabled individuals must be unable to care for themselves to qualify you for the credit. A disability is that which prevents an individual from engaging in any substantial gainful activity because of a medically determined physical or mental impairment that is expected to result in death, or that has lasted or is expected to last for a continuous period of not less than 12 months.

Credits

A key health-related credit is the Health Coverage Tax Credit (HCTC), a program that can help pay for nearly two-thirds of eligible individuals' health plan premiums.

The HCTC assists three very specific groups: TRA Recipients, ATAA Benefit Recipients, and Pension Benefit Recipients of the PBGC. If you fit into one of these groups, you may be eligible to receive the credit.

TRA recipients are people who receive a Trade Readjustment Allowance (TRA), including those individuals who are eligible for a TRA but have not used up their unemployment insurance (UI) benefits. ATAA benefit recipients are workers who are at least 50 years of age who receive a certain percentage of the wage differential between the wages of their previous, adversely-affected employment and their new full-time employment. And, PBGC recipients are those individuals who are at least 55 years old and receive pension benefits from the Pension Benefit Guaranty Corp., or who received a lump sum payment from the PBGC after Aug. 5, 2002. You may also qualify if you are at least 55 years old and you currently receive PBGC benefits as a survivor, a beneficiary, or as an alternate payee.

But you are not eligible for the HCTC if you are enrolled in a health plan maintained by your or your spouse's current or former employer that pays at least 50 percent of the cost of coverage. Any share of your premium that is paid by you or your spouse on a pre-tax basis is considered to have been paid by your employer and must be included as such when determining the percentage of employer coverage.

Also, you are not eligible Health Coverage Tax Credit if you are entitled to Medicare Part A or enrolled in Medicare Part B, are enrolled in the Federal Employees Health Benefits Program (FEHBP), Medicaid, or State Children's Health Insurance Program (SCHIP), or are entitled to health coverage through the U.S. military health system (this does not include health coverage received as a Veterans Affairs (VA) benefit.)

For tax-related questions, FMF recommends: H&R Block.  Do it yourself or have us do it.  It's never been easier.