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September 27, 2006

Grandparents Raising Grandchildren Have Special Planning Needs

Millions of the current generation of pre and post retirees are now starting on an unexpected new career as parents of young children once again.

Why this trend is increasing is a subject of great social debate that cannot be addressed here. The reality of the financial and physical demands of child rearing is now squarely in the lap of custodial grandparents. It is not uncommon to now have two or more youngsters in the house full time around the clock under the age of 5.

What do you do and where do you start? Well, as ugly as it may sound, in many cases you need an attorney immediately. You need to put all that wishing and hoping things will be OK without one aside for the benefit of the children now in limbo until you act on their behalf. You will likely need to spend some resources on securing permanent custody or adoption in many situations. Do not be timid about asking the other grandparents directly to help out if they are reachable. Whether they can help physically or financially, they care about those little ones too and you should not hesitate to ask for their assistance! If they refuse to help, it will be their loss not yours. In situations where Social Security benefits, court ordered child support and other financial aid is a possibility to assist in the children’s living expenses, court documents will be essential to enabling grandparents to legally collect any support due.

What about health issues? Without custody, you may not be able to authorize any medical decisions or treatment, and the medical professionals treating the child may not be able to discuss their condition with you until an absent parent is reached. Do not put you or the child in the position of being in the hands of strangers or state custody during a medical crisis. If the children don’t have any health insurance coverage, get it yourself. Depending on income, you may qualify for a state free or reduced price program, you may be able to add them as a dependent on your current coverage, or the most cost effective way may be to purchase private coverage with a policy covering the child(ren) only in lieu of a group family policy.

Get copies of birth certificates, Social Security cards, passports, immunization records, allergies, pediatric contact info, parents’ Social Security numbers, etc. Anything that helps you maintain a sense of calm and order will be a benefit to you at some point if you can get it now. You will need these types of items for school enrollment, tax preparation and identification at some point, so have them readily available. Pick out a trusted family member or friend to keep an extra copy of each item off premises who could step in during an emergency and provide these important documents if needed.

Have a current set of fingerprints, notes or pictures of any special scars or birthmarks and pictures ready in the event the child is abducted or taken without your knowledge or permission. Hopefully, you will never need these items, but sadly, there are families with awful situations involving young children that these types of items will be needed to give to authorities for an Amber alert or rapid positive identification purposes several states or countries away.

Buy and install car seats. In many states children will require booster seats up to age 7 or a certain height or weight limit.

If they are school age, contact the school directly and see how you need to go about changing emergency contact procedures on their records. Are they eligible to continue attending their current school district through the end of the school year, or do you need to enroll them in your district now? While this may sound like a small thing, before the first day in a new school, take a good look around. What are the kids wearing here? Do you need to buy a few minor clothing items to help them “fit in” a little easier during an already difficult situation? It will be money well spent. What about their lunch money account?

Update your wills, living wills, and trusts. If you are the adult they count on now, make provisions in these important documents to provide for them if needed. You need to name alternate guardians as well.

On existing trust issues, you need to have a visit with your attorney. Do you need to change directions and have estate monies paid into a testamentary trust for their benefit? Can you alter any current trust arrangement beneficiaries? What are the gaps between your old estate planning and the new estate planning needs with the addition of minor age children?

Life insurance needs reviewed. You may have been just fine when you only needed to provide for a spouse as the only dependent and they were your primary beneficiary on all your death benefits. Now, with the potential financial needs for perhaps only another few teenage years to perhaps infancy to a young adult’s college expenses, this area may need updated too. Coordinate any beneficiary and ownership issues with your estate plan and any trusts you may be planning. Talk to your trusted agent about how you could add some coverage on the children in the event of their premature death for last expenses.

Disability insurance may need to be secured. If you are under age 65, and still working to support your new young family, investigate your group plans first to protect your needed earnings. If there is no coverage available, secure it privately.

Social Security benefits may be a possibility. If you are already retired and collecting benefits, there are provisions for minor age children of retirees to collect up to ½ of a parents benefit to age 18. The rules will be different for grandchildren, but take out time to personally visit with the local Social Security office to determine if there could be any support monies here for your custodial arrangements and what you would need to apply for benefits.

State programs are becoming available. Many states are recognizing the important role grandparents are playing in the security of children that without their help would be in foster care. Call your local state aid office and see if there are any support programs or additional tax related programs to help you.

IRA’s, Roth IRA’s, company life insurance and 401(k)’s. You need to update beneficiary arrangements on these too. Coordinate with your overall estate plans. Note, do not leave the money directly to minor children. Each state has a different way of protecting this type of money gifts to minors until they reach adulthood that may not be what you had intended.

Income taxes will change. The rules are very specific on who can be claimed as a dependent. If you qualify, each child could generate up to a $1,000 tax credit or more if child care is needed, plus additional dependent exemptions at filing time. This may bring you some relief with lower tax liabilities especially after the children have been with you the first full calendar tax year.

Do a safety and security check around the house. Do you need to install cabinet locks, wall outlet covers, move medications out of reach, put away fragile heirlooms that had been on display, change the settings on any security pass codes, buy smoke alarms you can record your voice and exit instructions on, repair any items that could cause curious little ones harm if they were out of sight for only a few minutes, etc?

If needed, get emotional counseling early instead of late. If your house is not a haven, something or someone needs to change, regardless of age and maturity. An experienced Pastor or Counselor may be your best solution.

Secure the services of a qualified professional Advisor to help you with financial decisions. Your old assumptions used to build a portfolio are no longer valid and you may need to change risk tolerance strategies, or the amounts you are able to save may now be reduced.

Find some playmates. Kids need other kids and you need a break too. Pre-school, church, local parks, libraries, YMCA swim classes, etc. plus many other local facilities have activities that can help establish new friendships and resources for all of you.

Forgive. This will be the hardest part for many. You will need to forgive your child for putting you all in this position and let it go. You will need to forgive yourself because you did not fail in your parenting efforts, you tried your best. You will need to forgive your grandchildren’s other parent for not being willing to step up to the responsibility of parenthood and let it go. You will need to forgive others who say cruel things to you when you needed support instead, they may truly understand or be able to comprehend firsthand what you are going through..

Rejoice. You will smile, sigh and rejoice in the happy moments because you can choose to do so even if this is not the next career or retirement path you had initially planned.

Author: Amy Rose Herrick, a Member of the Paladin Registry

September 16, 2006

Quickbooks Teams Up With Google

Intuit, the maker of the popular Quickbooks accounting software, and Google, the Search giant, announced this week their intent to imbed Google's search and advertising products into the new 2007 Quickbooks software.

At ManagingMoney.com we believe this is a win for everyone, and we are actually surprised it took this long. It is a small win for Google shareholders, not that financially significant, but it will help to further entrench Google products on the Desktop. It is a bigger win for Intuit shareholders, as it will add a totally new revenue stream to a somewhat matured product line. But finally, it is a major win for Small Business Owners, as it will conveniently put internet marketing capabilities in software they are already actively using.

We have followed Intuit's product innovations since going public in 1993, and they were an early adopter of integrating the internet into their Quicken products. Back in 1999, when the internet was in its heyday, they introduced the Quickbooks Internet Gateway, a business-to-business ecommerce portal. For whatever reason it never caught on and when the internet bubble burst Intuit retrenched somewhat and focused on their core accounting strengths.

By partnering with Google the company has now gone "full circle" in their effort to integrate the internet's networking potential into their software. From what we have heard so far, the Quickbooks product will integrate Google Adwords, Google Base, Google Maps, and Google's new printable coupon service into their application. Particularly unique will be the Google Base integration, as it will allow merchants to upload product inventories and put their products up for sale. We are presuming that all of this will at some point flow straight through to the accounting statements, although we have not gotten a confirmation of that yet.

The new Quickbooks 2007 is expected to be available later this year or in early 2007. To purchase your copy, including the new Quickbooks Flavors, which introduce specialty accounting solutions for Retailers, Contractors, Wholesalers, Accountants, and more, be sure and visit the ManagingMoney.com Software Center.

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September 15, 2006

How Employment is Measured

Employment statistics are some of the most timely statistics generated by the government. Employment figures are typically released within three weeks of month-end. This timeliness, coupled with the fact that employment figures signal broad-based changes in the economy, make it a closely watched statistic.

The Bureau of Labor Statistics publishes two major monthly employment data series:

• The establishment or payroll survey is based on a survey of approximately 400,000 business establishments accounting for approximately one-third of all jobs in the United States. This series excludes agricultural jobs. In addition to overall payroll figures, the series also shows employment by industry classification.

• The household survey is based on a survey of 60,000 households, including agricultural jobs. The widely quoted unemployment rate is derived from this survey.

There are several differences between the two measures of employment. First, the payroll survey counts jobs, while the household survey counts people employed. So, an individual with two jobs would be counted twice in the payroll survey and once in the household survey. Second, the payroll survey only counts nonfarm wage and salary workers, while the household survey also includes agricultural workers, the self-employed, workers in private households, unpaid family workers, and workers on unpaid leaves. Third, the payroll survey includes employed individuals under age 16, while the household survey excludes them.

The payroll data series tends to show smoother shifts in employment figures and is typically considered the more accurate of the two series. In fact, the payroll data series is one of the key economic statistics that the National Bureau of Economic Research considers when determining whether the economy is expanding or contracting.

September 14, 2006

ManagingMoney.com Launches Payday Loan Database

ManagingMoney.com is pleased to announce the launch of our new Payday Loans Database. Up until now, if a borrower wanted to find a payday loan company they would go to one of the major search engines like Google or Yahoo, type in payday loan, and then be presented with thousands of entries and ads to choose from. The user would then need to "drill down" to each entry and possibly need to read numerous pages to find relevant information like fees and conditions. We have tried to simplify the process by presenting to the searcher a matrix of the top national payday loan providers with data on fees, terms, and both short and long descriptions. Potential borrowers can then apply online directly with the company that appears the most attractive for their particular needs.

Watch Out for These Estate Planning Mistakes

To ensure your estate is distributed to your intended heirs at minimum estate tax cost, avoid these eight common estate planning mistakes:

Thinking estate planning is not needed due to the provisions of the Tax Act of 2001. It is true that the estate tax is scheduled to be repealed — but only for the year 2010. Until then, the amount you can distribute to heirs other than your spouse without paying estate taxes will increase from $2,000,000 in 2006 to $3,500,000 in 2009. Estate taxes will be repealed in 2010, but reinstated again in 2011 based on 2001 tax laws. Rather than eliminating the need for estate planning, the Tax Act has made it more complex. Your estate planning strategies should encompass the possibility that you may die during three periods — the phase-out period, the year of estate tax repeal, and after reinstatement in 2011.

Believing you don’t need estate planning because your estate won’t be subject to estate taxes. Even if your estate is less than the current exclusion of $2,000,000, there are other reasons to plan your estate. You probably still need a will to provide for your estate’s distribution and to name a guardian for minor children. You may also want to consider a durable power of attorney and a health care proxy.

Relying solely on the unlimited marital deduction. With the unlimited marital deduction, you can leave all your assets to your spouse without paying any estate taxes. However, if you have assets in excess of the exclusion amount (detailed above), your heirs can’t utilize that exclusion amount if you leave all your assets to your spouse. Thus, when your spouse dies, they may pay more estate taxes than if you had left some assets to them.

Not implementing an annual gifting program. You can make annual gifts, up to $12,000 in 2006 ($24,000 if the gift is split with your spouse), to any number of individuals without paying federal gift taxes. Since estate tax repeal is only scheduled for one year, this strategy removes assets, as well as any future appreciation or income generated on those gifts, from your taxable estate. Over a number of years, an annual gifting program can remove substantial assets from your estate.

Failing to skip a generation on a tax-free basis. Leaving assets to children who already have sizable estates on their own means the assets will be taxed again when they bequeath them to your grandchildren. A better strategy may be to transfer those assets directly to your grandchildren, although you can only transfer $2,000,000 in 2006 before triggering an additional tax called the generation-skipping transfer tax.

Forgetting that some assets bypass your will. Jointly owned property will transfer directly to the co-owner, while assets with named beneficiaries will transfer directly to those beneficiaries. If you don’t keep this in mind, some of your heirs could receive a larger percentage of your estate than you intended.

Not updating beneficiaries. Beneficiaries for assets such as life insurance policies, 401(k) plans, and individual retirement accounts should be reviewed after major personal changes, like a marriage, divorce, death, or birth.

Owning an insurance policy on your own life. While life insurance proceeds are always free from federal income taxes, owning the policy yourself will cause the proceeds to be included in your taxable estate, possibly subjecting them to estate taxes. Instead, you may want another individual or trust to own the policy, so it is excluded from your taxable estate.

September 12, 2006

Reviewing a Company's Annual Report

Whether you’re researching a stock to purchase or monitoring a stock you own, the company’s annual report should be central to your analysis. Annual reports contain a wealth of financial information, which can provide significant insight into a company’s operations and future prospects.

Annual reports generally contain three key sections: management’s message to shareholders, a discussion of the company’s operations, and the financial statements. Keep these points in mind when reviewing the annual report:

Read the independent auditor’s report. In most cases, you’ll find an unqualified opinion stating the financial statements were audited in accordance with standards of the Public Accounting Oversight Board and present fairly, in all material respects, the financial position of the company for the last three years. You’ll want further details if the report indicates problems, concerns about the company’s ability to stay in business, or incidences where the financial statements do not follow generally accepted accounting principles. Many companies have changed auditors in recent years to reduce costs or for other factors. Make sure, however, that any auditor changes are not a result of disputes with the auditors.

Review management’s discussion carefully. You want to feel comfortable that management is candid and straightforward about the company’s results and is not glossing over problems or concerns. You should get a feel for the company’s future prospects, its competitive position, and any significant risks to business operations.

Look for important facts in the footnotes. Information about outstanding litigation, class action suits, derivative exposure, environmental problems, and unfunded pension liabilities can be found here, alerting you to potential problems. Changes in accounting policies will also be discussed, which may indicate that management is making changes to improve financial results. You can also find important information about the company’s business, including whether any customer accounts for more than 5% to 10% of sales, how much is spent on advertising and research and development, what shareholders’ rights plans are in effect, how many stock options are outstanding, information on acquisitions and divestitures, and details on business segments.

Analyze financial trends over at least a three-year period. Review whether sales and profits are increasing or decreasing. Also, calculate the profit margin (net income divided by revenues) and the return on equity (profits divided by average shareholder equity), comparing these to prior years and to ratios for other companies in the same industry.

Review the company’s financial solvency. Calculate the current ratio (total current assets divided by total current liabilities) to track the company’s ability to pay creditors over the short term. Longer-term solvency can be measured by dividing total liabilities (the total of current liabilities, long-term debt, other liabilities, and deferred income taxes) by total assets. Compare these numbers to the company’s figures from prior years and to other companies in the same industry to see if there is cause for concern.

September 10, 2006

The 2007 Entertainment Book is Now Available

ManagingMoney.com is pleased to announce that the 2007 Entertainment Book is now available. Any purchases made before September 30, 2006 will qualify for Free Shipping. One of our mandates at ManagingMoney.com is to help our users Save Money, and the Entertainment Book has long been one of our favorite ways to do just that.

We can say that with conviction, as we have been regular users ourselves for many years. Currently priced at just $27, the coupons available cover the purchase price many times over. In case you are new to the Entertainment Book, it offers coupons and discounts on dining out, movie tickets, travel deals, shopping, and a whole lot more. Most of the coupons come in the form of 50% off or two-for-one deals, and "local editions" are available for most major cities. Participants range from major national brands to unique local merchants looking to increase business. In addition to the book coupons, Members receive a Membership Card which when presented at select participants can give immediate savings up to 20% off and special online deals and printable coupons are also available. As long as you remember to use your coupons and card, you will definitely save money!
To purchase the 2007 Entertainment Book, or to find other ways to save money from gasoline purchases to educational savings, be sure and visit the ManagingMoney.com Expenses Center.

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September 7, 2006

Should You Favor Growth or Value Investing

The two basic investing styles are growth and value. While one style tends to perform better at any given time, the dominant style varies over time. The basic elements of each style include:

Growth Investing

Growth investors look for stocks with above-average growth in sales and earnings, typically at a 15% or higher annual rate. These are typically stocks of younger companies in a rapid growth stage of development, although larger companies can also qualify as growth companies. Growth companies tend to have higher price/earnings ratios with little or no dividends, since earnings are typically used to finance future growth. As growth stocks gain favor, investors tend to bid their prices up to lofty levels. Thus, the price/earnings (P/E) ratios of growth companies can be two or three times higher than the overall market. Earnings projections largely drive the value of these companies, so earnings disappointments can dramatically impact their value.

When searching for appropriate growth stocks, you should be looking for a fast-growing company that you feel will be able to sustain that growth for an extended period of time. Characteristics of fast-growing companies include a strong franchise and management, dominant market share and industry position, high return on equity, consistently superior earnings growth, high stock price and price/earnings ratios, and some stock price volatility.

How likely is it for a company to sustain above-average growth for an extended period of time? One study looked at companies in the Standard & Poor’s 500 (S&P 500) for the period from 1991 to 2003, and identified how many were able to sustain a 10% growth rate for multiple successive years.* During that time, 145 companies had a 10% growth rate for one year, but that declined to 22 for five years, three for 10 years, and only one for the entire 13 years. For the same time period, 87 companies experienced a 25% growth rate for one year, but that declined to 12 for five years and by the ninth year, no companies had a 25% growth rate (Source: Evading Mean Reversion, 2005).

Value Investing

Value investors emphasize stocks with market values that are low based on earnings, dividends, or assets. Companies in this category typically include those in out-of-favor industries, turnaround or troubled companies, or mature and stable companies with modest growth expectations. Dividend yield may be higher than average since the stock price is low. Signals that a company may be turning around include insider buying, improving profit margins, increasing earnings estimates, or higher trading volumes. Value investors must typically exhibit patience since it can take a while for the market to realize a particular stock’s value.

When searching for value stocks, you should look for a company with depressed earnings and a stock price that you feel will recover soon. Characteristics of good value companies include low stock price valuations, low price/earnings and price/book ratios, higher dividend yields, and short-term problems.

Which Style Performs Better?

Growth stocks typically do well when the economy is growing and the stock market is rising, while value stocks typically do well when the stock market is peaking or falling. Many investors are naturally drawn to a growth investing style since growth stocks usually have exciting news, capturing much press attention. Value companies often receive unfavorable press, requiring more resolve on the investor’s part to continue holding them.

So which style will excel in the future? Just as you can’t predict where the market is headed, it is difficult to determine when each style will dominate. Thus, it may make more sense to include both styles in your portfolio. That way, no matter what style dominates, it will be represented in your portfolio. One study reviewed the performance of a value portfolio, a growth portfolio, and a portfolio with 50% value stocks and 50% growth stocks during the period from 1981 to 2003. Over three-year rolling periods during that time, the combined portfolio outperformed the S&P 500 57% of the time, compared to 53% of the time with growth stocks and 52% of the time with value stocks. The combined portfolio outperformed the S&P 500 62% of the time over five-year rolling periods and 75% of the time over 10-year periods (Source: Strategy and Tactics in Style Investing, Autumn 2004).

* The S&P 500 is an unmanaged index generally considered representative of the U.S. stock market. Investors cannot invest directly in an index. Past performance is not a guarantee of future results. Returns are presented for illustrative purposes only and are not intended to project the performance of a specific investment.

September 2, 2006

Washington Mutual Offers WaMu Free Checking TM Account

Washington Mutual, also known as WaMu, has joined in the competition for your online savings account dollars with the introduction of their WaMu Free Checking. Starting off with a 5% Introductory APY for investors that open both a Savings Account and a Checking Account, the account also offers a number of bells and whistles potential investors should find attractive.

In addition to the competitive yield, WaMu is also offering Free Checks for life, Free ATM cash withdrawals, and 3¢ back on every debit purchase. The account comes with a free Gold Debit Mastercard® that lets users earn rewards on each anniversary, up to $250 a year. And to make things even better, the minimum to open a new account is only $1.

Washington Mutual is now competing against the other major national online savings account providers such as Emigrant, ING, Citibank, and Everbank to name a few. Most of these accounts complement your existing banking relationship, in that they "attach" to your other accounts and you can automatically "sweep" excess funds online in order to earn a higher return on your savings. For investors, the more competition the better, as this insures competitive interest rates as well as more value added services.

To get more information about the new Washington Mutual WaMu Free Checking Account or to view rates and details on the other national providers, be sure and visit the ManagingMoney.com Banking Center.


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