In the "old days" if your parents were budgeting their income chances are good that they used the "envelope system". A number of envelopes were titled or earmarked for certain expenses, such as the mortgage, utilities, or dining out. Whenever a paycheck was cashed the appropriate pro-rata portion was placed in each envelope and the family knew exactly how much money was available for each expense until the next paycheck arrived. It was a good system and in fact many people still use it today. However, as technology has advanced new computer-based budgeting systems arose that are more accurate and also include forecasting features.

Intuit's Quicken Software was the pioneer and is now the most popular Personal Finance software on the market. Microsoft is a strong second contender with their Microsoft Money Software.

A new entry that combines the old envelope system and the internet is called Mvelopes. Mvelopes Personal was developed by In2M Corporation, a Draper, Utah based company whose mission is to "empower people with easy, automated access to meaningful, real-time financial information and services".

Mvelopes is unique in that it is entirely web based with no software to purchase and install, and the monthly subscription fee also includes unlimited LIVE customer support and coaching. Now there isn't any excuse for not budgeting.

Mvelopes bills themselves as an Online Spending Management System. Similar to the previously mentioned envelope system, a new user first sets up their "spending envelopes" and from there on everything is mostly automated. Mvelopes currently links to over 11,000 banks and financial institutions. Whenever a user spends money by check, debit or credit card, or online billpay the appropriate amount is debited from the appropriate digital envelope. The user can see in real time their monthly income and expenses as well as their family net worth. It is Mvelopes opinion that the secret to building wealth is simply spending less than you earn.

In our automated society however, it is easy to spend without really knowing where the money is going. Their system tries to address that problem with the real time data. Users can even access their account with their cell phones. Mvelopes claims that the avarage user "recovers" as much as 10% of their income by being made more aware of their "hidden" expenses. Like we said earlier, now there definitely is no excuse for not budgeting.

To purchase the Mvelopes Personal system as well as other Personal Finance titles, visit the ManagingMoney.com Banking Center or the ManagingMoney.com Software Center.

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Posted by Mike - Editor at 7:00 PM | Permalink

Responding to a request for a loan from a family member or friend can be difficult. Often, the reason they’re asking is because a bank or other lending source has turned them down, making them less than an ideal credit risk. Carefully consider such a request before agreeing to loan money. Consider these points:

• Make sure the loan won’t damage your relationship with that person. Loaning money can put significant stress on a relationship. You may feel uncomfortable asking about missed payments. They may expect you to be more lenient about enforcing repayment terms if problems arise. And, if they get in a situation where they can’t repay the loan, misunderstandings and resentment can occur on both sides.

• Put the arrangement in writing. If you decide to loan the money, put all the terms in writing, including the principal balance, interest rate, repayment terms, due dates, and provisions for late payments. You may even want to have a lawyer draw up a formal agreement for significant amounts. With a formal repayment schedule, you may feel more comfortable asking about repayments if the person falls behind.

• Exercise caution before cosigning a loan. When you cosign a loan, you sign a legal document accepting responsibility for the entire debt. If the primary borrower falls behind in payments, the creditor can come to you immediately looking for payment. The debt will be listed on your credit report, which may impact your ability to obtain another loan. If the primary borrower pays late, that payment history is likely to appear on your credit report.

• Ask for collateral. Don’t be afraid to ask for a lien on a house or car if you are loaning significant sums. That way, if the person files bankruptcy, your claim will have precedence over general creditors without liens.

• Don’t keep the loan a secret. If you make a loan to a family member, inform other close family members of the loan and the repayment terms, so they don’t feel you are giving preferential treatment to the person who received the loan.

Finally, if you decide to formalize your loan to your relatives and/or friends,consider using an interpersonal loan company such as CircleLending. An interpersonal loan company will be able to help set-up and then manage your loan by: formally and legally documenting the loan; securing the loan with real estate or other property, if needed; processing payments; and
reporting on the loan with monthly and annual statements.

Posted by Emma - Editor at 7:05 AM | Permalink

Unfortunately, there is no one asset allocation plan that is suitable for all investors. You need to evaluate your risk tolerance, time horizon for investing, and return needs to determine how you should allocate your portfolio among the various investment categories. To help you with those decisions, consider the following ten points:

• The theory behind asset allocation is that different investment categories are affected differently by economic events and market factors. Some asset classes move in opposite directions while others move in the same direction at different speeds. By owning different types of assets, it is hoped that when one asset suffers a major decline, other assets will be increasing in value.

• Investments with higher return potential generally have higher risk and more volatility in year-to-year returns. While most investors want higher returns, they may be uncomfortable assuming higher risk levels. Asset allocation allows you to combine more volatile investments with less volatile ones. This combination can help reduce the overall risk in your investment portfolio.

• Not only should you diversify across broad investment categories, such as stocks, bonds, and cash, you should also diversify within those categories. For instance, within the stock category, consider large-capitalization stocks, small-capitalization stocks, value stocks, growth stocks, and international stocks. Bonds could include long-term bonds, intermediate-term bonds, high-quality bonds, lower-quality bonds, Treasury securities, municipal bonds, and international bonds.

• Assessing your risk tolerance is one of the most important, yet most subjective, parts of determining your asset allocation. You are trying to assess your emotional ability to stick with an investment when returns are less than expected.

• Your portfolio can become more aggressive as your time horizon lengthens, since you have more time to overcome downturns in investments. Those with a time horizon of less than five years should not be invested in stocks. Look at cash and bonds for those short-term needs. Individuals with time horizons over five years should consider stocks because of their growth potential. As your time horizon lengthens, you can add higher percentages of stocks to your portfolio.

• Make sure you have reasonable return expectations for various investment categories. Basing your investment program on return estimates that are too high could cause you to increase your portfolio’s risk in an attempt to obtain higher returns.

• In general, consider a more conservative allocation if you are older, have short-term needs for your money, have low earnings, have a low risk tolerance, or are uncomfortable with investing. A more aggressive allocation may be warranted if you have higher earnings, are younger, do not need your money for many years, or are an experienced investor.

• Time diversification is also important. By staying in the market through different market cycles, you reduce the risk of receiving a lower return than expected, especially with investments that fluctuate significantly over the short term.

• Rebalance your portfolio at least annually. Over time, your actual asset allocation will stray from your desired allocation due to varying rates of return on your different investments. Changes may be needed to bring your allocation back in line.

• Be patient. The results of an investment program are best evaluated over a period of years, not days, weeks, or months.

Posted by Nickie - Editor at 7:03 AM | Permalink

What are you doing to pursue your financial goals? Developing and implementing a written financial plan will give you a road map to help you in the process. Below is a six-step plan to get you going.

1. Assess your current financial situation. This involves preparing a net worth statement and an analysis of how your income is spent. A net worth statement lists your assets and liabilities, with the difference representing your net worth. Periodically preparing a net worth statement will help you assess whether you are making progress toward your goals. Even if you do not feel a need for a budget, you should still analyze how your income is spent. The analysis can help you find ways to reduce spending and increase saving.

2. Establish written, specific financial goals. Numerous studies have shown that individuals with specific, written goals tend to achieve greater success than individuals with no goals or very vague goals. Set exciting goals to keep you motivated to reduce your current spending and save for the future. List your goals in order of importance. Since you have limited resources, some goals may need to be postponed until others are met. Set interim goals as well as an ultimate goal so you can measure your progress.

3. Develop a detailed plan, with specific strategies and timetables. You will need to consider current resources, future funds available for your goal, expected rate of return on investments, and many additional factors.

4. Implement your plan. This is the step that seems to cause the most difficulty. Preparing a financial plan is a process that can be accomplished in a short time period, but implementing the plan requires a lifetime of discipline and dedication. To help, keep these tips in mind:

• Make saving and investing part of your monthly routine so it becomes second nature to you.

• Don’t get overwhelmed by the amounts you need to save. It may take years to see substantial progress toward your goals.

• Develop an investment strategy compatible with your risk tolerance.

• Don’t try to accomplish too much at once or you may get disillusioned with your entire plan.

5. Monitor your progress. You should monitor your progress at least annually, altering your plan if progress is not satisfactory or if your goals have changed. Make sure to address these items:

• Update your net worth statement and analysis of spending.

• Evaluate your investment portfolio’s performance.

• Rebalance your investments if changes are needed to maintain your desired asset mix.

• Decide if any changes should be made to your financial goals.

6. Seek help with your plan. While you may be tempted to go through this process by yourself, there are advantages to engaging a professional’s help:

• To obtain the advice of an objective person who is knowledgeable in all areas of financial planning and can ensure that significant concerns are not overlooked.

• To keep up-to-date on new developments in the financial arena.

• To help provide the discipline needed to implement your plan. You may be more inclined to follow the plan if you know someone else is also monitoring your progress.

• To make sure all financial decisions make sense in the context of your overall financial plan.

Posted by Emma - Editor at 6:16 AM | Permalink

The sheer number of financial decisions required to manage our finances can seem overwhelming. But often we spend an inordinate amount of time on small stuff like getting the bills paid on time, reconciling bank accounts, and calling to have a late charge waived. While those things need to get done, how do we judge whether we are headed on the right course? There are six basic financial decisions that can determine the course of your financial life:

1. How you earn a living. Sure, we all want to enjoy our work. But within that parameter, why not choose a job that will pay more than another? Your income is going to drive all your other financial decisions, so investigate your options:

• Are you sure you are being paid a competitive wage with competitive benefits? Even if you are not interested in changing jobs now, pay attention to what is going on in your field.

• Do you have an outside interest or hobby that can be turned into a paying job? This could be a good way to supplement your current salary, or it could turn into a part-time job or business after retirement.

• Can you get some additional training to help secure a promotion or qualify for another job? Read up on what jobs are expected to experience the highest growth rates and/or highest salaries over the next five years. If you do not enjoy your current job, you will have even more incentive to implement these suggestions.

2. How you spend your income. The amount of money left over for saving is a direct result of your lifestyle choices, so learn to live within your means. To get a grip on spending, consider these tips:

• Analyze your spending for a month. In which categories do you spend more than you expected? Are you wasting money on impulse purchases? Give serious thought to your purchasing patterns, trying to find ways to reduce spending.

• One of your most significant spending decisions will be your home. Many people purchase the largest home they can afford, often straining their budget. Purchasing a smaller home will reduce your mortgage payment as well as other costs associated with owning a home.

• Prepare a budget to guide your spending. Few people enjoy setting or sticking to a budget, but inefficient and wasted expenditures can be major impediments to accomplishing your financial goals. A budget gives you a road map for spending your income. Start by setting a budget for a couple of months, tracking your expenses closely over that time. You can then fine-tune your budget for an annual period. To assist you in your budgeting process consider using a budgeting process that uses an advanced Internet technology such as Mvelopes Personal.

3. How much you save. You should be saving a minimum of 10% of your gross income. But don’t just rely on that rule of thumb. Calculate how much you need to meet your financial goals and how much you should be saving on an annual basis. If you can not seem to save that much, go back to your spending analysis and cut your spending. First, look for ways to reduce your spending by lowering the cost of your purchases. Perhaps you can refinance your mortgage, find insurance for a lower premium, or use strategies to reduce taxes. At some point, however, you may need to cut your discretionary spending, such as entertainment, dining out, clothing, and travel.

4. How you invest. The ultimate size of your portfolio is a function of two factors — how much you save and how much you earn on those savings. Even small differences in return can significantly impact your investment portfolio. Typically, investments with potentially higher rates of return have more volatility than investments with lower rates of return. While you do not want to take on excessive risk, you also do not want to leave all your savings in investments with little growth potential. Your portfolio should contain a diversified mix of investment categories, based on your return expectations, risk tolerance, and time horizon for investing.

5. How you manage debt. Before you take on debt, consider the effect it will have on your long-term goals. If you are already having trouble finding money to save, additional debt will make it even more difficult to save. To keep your debt in check, consider these tips:

• Mortgage debt is acceptable, as long as you can easily afford the home.

• Be careful about taking equity out of your home in the form of a home-equity loan. You might want to set up a home-equity line of credit for emergency use, but make sure it is only used for emergencies. It may also make sense to use a home-equity loan to pay off higher interest rate consumer loans, but do not run those balances up again.

• Never purchase items on credit that decrease in value, such as clothing, vacations, food, and entertainment. If you can not pay cash, do not buy them.

• If you must incur debt, borrow wisely. Make as large a down payment as you can. Consider a shorter loan period, even though your payment will be higher. Since interest rates can vary widely, compare loan terms with several lenders. Review all your debt periodically, to see if less expensive options are available.

6. How you prepare for financial emergencies. Making arrangements to handle financial emergencies will help prevent them from adversely affecting your financial goals. Make sure to have:

• An emergency fund covering several months of living expenses. Besides cash, that fund can include readily accessible investments or a line of credit.

• Insurance to cover catastrophes. At a minimum, review your coverage for life, medical, homeowners, auto, disability, and personal liability.

• A power of attorney so someone can step in and take over your finances if you become incapacitated.

Posted by Emma - Editor at 6:54 AM | Permalink

One of the more common reasons to own life insurance is to help fund estate taxes after your death. If the policy is properly structured, the proceeds will not be included in your taxable estate and your beneficiaries will not have to pay federal income or estate taxes. However, with the eventual repeal of the estate tax in 2010, you may wonder whether you still need life insurance for estate purposes.

Keep in mind that the estate tax repeal may not be permanent. Due to the sunset provisions of the current tax law, the estate tax will be reinstated in 2011, based on 2001 tax laws, unless further legislation is enacted.

Even if the estate tax repeal becomes permanent, there are situations where the use of life insurance may be an appropriate estate planning strategy:

• To provide liquidity after your death: If your estate consists primarily of illiquid assets, such as real estate or a business, you may want to use insurance to provide funds to your family so they will not have to sell or mortgage assets.

• To equalize inheritances: Perhaps your primary asset is a family business, which is run by one of your children. You may want to leave the business to that child, but need additional funds to equalize the inheritances of your other children.

• To transfer wealth to heirs: Even if the estate tax is permanently repealed, life insurance proceeds still retain their income tax advantage — proceeds are paid to beneficiaries free of federal income taxes.

• To leave a large contribution to a charity: You may want to leave a large charitable contribution to a charity without depleting assets left to heirs.

• To help heirs fund future tax liabilities: After the estate tax is repealed, inherited assets will no longer receive a step-up in basis to market value at the date of the decedent’s death. Instead, inherited property will generally have a basis equal to the lesser of the decedent’s adjusted basis or the property’s fair market value at the date of the decedent’s death, with certain adjustments. If you leave substantial assets with low bases to heirs, they may face significant future tax liabilities. You may want to help them with those tax liabilities through the use of life insurance.

Posted by Nickie - Editor at 8:56 AM | Permalink

New Commodities-based ETFs are opening up commodities markets and commodities-based strategies to the average investor that previously would have been difficult and require sophisticated expertise to implement in their portfolios.

Exchange Traded Funds, ETFs, are baskets of stocks that track a particular index and their shares freely trade on an Exchange. Most ETFs currently available track various stock indices, such as the S&P 500, or more narrow indices, such as the Dow Jones Technology Sector or the Dow Jones Healthcare Sector. The number of ways the world's stock markets can be sliced and diced are virtually limitless, which explains the recent proliferation of ETFs tracking some specialty subset of a market. As we mentioned in our last segment, you can even buy foreign real estate ETFs now.

The most recent entry starting to gain momentum are Commodities-based ETFs. Commodities, such as oil, gold, or wheat for example, have previously only been available to sophisticated investors, Speculators or Hedgers, that understood the Futures Markets, Rolling contracts, Margin Requirements, and other very technical concepts that could make one a lot of money or bankrupt them just as quickly if they did not know what they were doing. The Hollywood movie Trading Places with Eddie Murphy and Dan Aykroyd probably best comically exemplified the "old boys" club of commodities traders.

Now, ETFs allow Average Joe to take a position in a particular commodity or basket of commodities and not have to worry about margin calls or contract expirations. For example, PowerShares launched on January 5th seven sector-based commodity ETFs tradeable on the American Stock Exchange, tracking such commodities as gold, silver, corn, and wheat. Somewhat similar to ETFs are ETNs, or Exchange Traded Notes, pioneered by Barclays. They too track a specific index and trade on an Exchange, but they have bond-like characteristics and the quality of the Issuers' credit becomes important. Regardless, ETF or ETN, both now give access to select Commodities Markets.

So why should investors care? Well, if you have a strong opinion as to the future direction of a particular commodity, you can easily take action on it. Also, historically, commodity indices are typically not perfectly correlated with the Stock Market, meaning that they both do not go up or down the same amount at the same time. So, the addition of commodities may add some stability to one's overall portfolio.

Now, having an opinion or smoothing out one's portfolio does not absolve anyone of personal responsibility. Although it is now not necessary for the average investor to be an expert on the intracies of the Futures Markets, you still should have a good understanding of Commodities ETFs in regards to risk and expenses. Some websites we suggest you take a look at without endorsing anyone in particular are: www.ishares.com, www.ipathetn.com, and www.xtf.com .

Click Here to View the YouTube Video News Release

Posted by Mike - Editor at 3:59 PM | Permalink

Are you confused about plan limits? This quick reference for 2007 should make your savings planning a little simpler.

If you do not know which plans may be best for your business structure, or what plans you are eligible to use, consult with a qualified advisor for assistance. They will also be able to do a comparison of your individual options.

Remember the maximum allowable compensation that can be used to determine plan contributions in 2007 is $225,000. For highly compensated employees, the ceiling is a much lower $100,000.

401(k) The maximum contribution including employer contributions and employee salary deferrals cannot exceed $45,000. The salary portion of total contributions cannot exceed $15,500 ($1,291.67 per month starting 1/1/2007) unless you are or will turn age 50 in 2007 and you elect to increase your salary deferral to as much as $20,500 ($1,708.33 per month starting 1/1/2007).

403(b) The salary portion of total contributions cannot exceed $15,500 500 ($1,291.67 per month starting 1/1/2007) unless you are or will turn age 50 in 2007 and you elect to increase your salary deferral to as much as $20,500 ($1,708.33 per month starting 1/1/2007).
412(i) These limits are the same as the Sol DB- Maximum benefit cannot exceed the lessor of $180,000 or 100% of the employee’s average compensation in their three highest years

457 The salary portion of total contributions cannot exceed $15,500 unless you are or will turn age 50 in 2007 and you elect to increase your salary deferral to as much as $20,500.

IRA’s For 2007 you can set aside up to $4,000 ($333.33 a month starting 1/1/2007). If you are over age 50, you can set aside up to $5,000 ($416.67 a month starting 1/1/2007). Something new to consider, the Pension Protection Act will allow you for the first time to elect to have some or all of your federal income tax refund deposited directly into an IRA.

Money Purchase The maximum contribution including employer contributions and employee salary deferrals cannot exceed $45,000.

Profit Sharing The maximum contribution including employer contributions and employee salary deferrals cannot exceed $45,000.

Roth IRA’s For 2007 you can set aside up to $4,000 ($333.33 a month starting 1/1/2007). If you are over age 50, you can set aside up to $5,000 ($416.67 a month starting 1/1/2007). Something new to consider, the Pension Protection Act will allow you for the first time to elect to have some or all of your federal income tax refund deposited directly into a Roth IRA.

SEP The maximum contribution including employer contributions and employee salary deferrals cannot exceed the lessor of 20% of net self employment earnings or a maximum of $45,000.

Simple IRA The maximum contribution is $10,500 ($875 a month starting 1/1/2007) unless you are or will turn age 50 in 2007 and you elect to increase contributions to as much as $13,000 (1,088.33 a month starting 1/1/2007).

Solo 401(k) The maximum contribution including employer contributions and employee salary deferrals cannot exceed $45,000. The salary portion of total contributions cannot exceed $15,500 ($1,291.67 per month starting 1/1/2007) unless you are or will turn age 50 in 2007 and you elect to increase your salary deferral to as much as $20,500 ($1,708.33 per month starting 1/1/2007).

Solo DB Maximum benefit cannot exceed the lessor of $180,000 or 100% of the employee’s average compensation in their three highest years.

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

Posted by Mike - Editor at 9:31 AM | Permalink

There are two broad classes of mutual fund costs: selling costs related to marketing of the mutual fund and operating costs related to the actual operation of the mutual fund. It is extremely important to understand these costs, as mutual fund expenses are the largest determinant of a fund's relative long-term performance.[1]

Selling Expenses

Front-End Load - A commission or sales charge paid when purchasing fund shares or re-investing in the fund. Front-end loads typically range between 4% and 8.5% and reduce the amount you invest by the load percentage. For example, investing $100,000 in a 5% load fund would reduce your initial investment to $95,000.
“Low-Load” funds charge between 1% and 3% of your initial investment and “No-Load” funds do not have any front-end sales charge.
A stock load fund may make up the sales charge in a relatively short period of time, often in less than a year. However, unless held for the very long term, the handicap of the load makes it almost impossible for even very well managed load fund to outperform no-load alternatives.

Back-End Load - A charge incurred at the time you redeem fund shares. The load may be a percentage of the redemption amount or a flat rate. The charge is usually 5% to 6% and declines by 1% a year over a period of five to six years. Back-end loads should be avoided because they dramatically reduce your investing flexibility.

12b-1 Plan - A method of charging selling expenses directly to the fund, usually as a percentage of fund assets. The general category of operating expenses often includes 12b-1 fees. This type of fee structure has become very popular as investors have become more aware of the pitfalls of paying sales loads. However, 12b-1 fees have the same negative effect on a fund's performance as a load.

Exchange fee - A charge levied when you switch from one mutual fund to another within a fund family. Generally, exchange fees range from $5 to $25.

None of the above expenses relate in any way to the investment management services of a fund. The idea that high fees or expenses are equated with “better” investment management is absolutely false.

Operating Expenses

These are the inherent costs of operating a mutual fund, including advisory fees paid to the investment manager and expenses incurred for fund administrative services. These costs range from under 0.2% to over 2% of a fund's assets and are usually expressed as a percentage called the “expense ratio”.

Note: A fund may temporarily suspend its management fee or absorb all of the funds operating expenses to enhance the fund’s returns. This is common with new funds. Be aware that when the fund does start charging its full operating expenses, this cost will reduce the fund’s returns by the expense amount.

--------------------------------------------------------------------------------

[1] Jeremy Siegel, Stocks for the Long Run (New York:Irwin Professional Publishing., 1994

Author: Robert Horowitz, CFA, a Member of the Paladin Registry

Posted by Mike - Editor at 7:21 AM | Permalink

On December 19th, right before the Holidays, State Street Global Advisors launched the first Exchange Traded Fund (ETF) designed to track overseas real-estate stocks. The streetTracks Dow Jones Wilshire International Real Estate ETF is traded under the symbol RWX on the American Stock Exchange.

Real Estate in general, and International Real Estate in particular, has traditionally been a difficult asset for most U.S. investors to purchase. Although most people own a home, exposure to commercial real estate has only been available to the wealthy or by investing in Real Estate Investment Trusts (REITs). Although REITs still represent an excellent way to get real estate exposure, ETFs are opening up even more options.

This particular ETF offers exposure to 18 different International Real Estate Markets, with the majority, 60%, being divided between the United Kingdom, Australia, and Japan. The remaining 40% however provides real estate exposure to some more esoteric markets, such as Singapore, New Zealand, and South Africa. To be eligible to be included in the index, a company must have a market capitalization of at least $200 million and derive 75% of its' revenue from the operation of real estate assets.

We believe the launch of this ETF is significant and something investors should take note of. Not because of the economics of this particular deal, of which we have no opinion, but rather because of an important developing trend that it represents. That trend is the further "Securitization of Real Estate Markets."

Traditionally, Real Estate has been a non-liquid market without good information. Local investors may have good knowledge about local market conditions and opportunities, but getting information about other real estate markets, domestic or international, has been exceedingly difficult. And even if one had good information, actually buying into those markets and negotiating the maze of legal requirements represented another hurdle. However, the growth of REITs and now real estate ETFs are removing those barriers. The average investor now has the ability to cost effectively "hire" top real estate management expertise in select real estate markets and can easily buy and sell their investment on major Stock Exchanges at current market value.

We expect the Securitization trend to continue in a big way and expect the Real Estate Markets, domestic and international, to be "diced and sliced" into more specialty pieces. For example, one of these days we expect you will be able to buy into specific markets, in specific cities, in specific countries. Although initially it will be limited to commercial real estate properties, we also expect the trend to filter down to the residential markets, where you will be able to invest in "packages" of rental properties, even within certain sections of a city. A "brave new world" of real estate investing is rapidly approaching.

Click Here to View the YouTube Video News Release

Posted by Mike - Editor at 9:54 AM | Permalink