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February 29, 2008

Creative Ways for Financing a Home Business

Whether you're a new mom that wishes to stay home with your infant, or suffer from a chronic condition that limits of what you can do, if you have the desire to open a home business, that goal can be achieved. More and more individuals are choosing to open their own home businesses for numerous reasons. Some are dissatisfied with the hustle and bustle of commuting back and forth to work, only to have to deal with office politics. Others have found a hobby that they enjoy immensely and realize that they could make a living from it. If you have decided to start a home business, yet don't have enough money to get started, don't give up on your dream, as there are many financing options.

Oftentimes a person just starting a home business will purchase their supplies with credit cards, savings account funds, or other cash on hand. If you don't have any of these avenues available, you could always try to obtain a loan. Small business loans are easily available provided you have fairly decent credit. If your credit isn't great, or your income is too low to qualify for a loan, maybe a family member could cosign for you. If your are unable to find someone who will agree to cosign for a loan, then perhaps the friend or family member would agree to give you a personal loan. You could agree to pay them back in monthly installments just like you would repay a financial institute.

If you have exhausted all of your options and still need to fund your business, there is still another way to acquire the money that you need. There are more nonprofit agencies available than people know about, that are eager to give you free money to start a business of your choice. Of course there are certain stipulations and guidelines that you need to follow, but if you are able to fund your dream business, wouldn't it be worth it?

The difficult part is actually locating the agencies that give the type of grant that you need, as well as writing a winning grant proposal, if necessary. Many agencies only require that you complete an application and business plan, which for most people isn't too difficult. You should be able to obtain information on grant writing, as well as on how to locate specific agencies that provide grants by visiting your local business library.

If you've been waiting a while to find funding for your business, and you have yet to receive any financial support, there are many ways that you can earn the money that you need to get started. If you have many items in your house that you are no longer using, you could always have a garage or yard sale. You would be surprised at how much money you could make this way. If having a yard sale isn't an option, there's always the option of selling the items on Ebay.com. Just about everyone has had experience with Ebay, either as a buyer or a seller, and it is one of the quickest and easiest ways of making money. An added bonus is that the money from the sales can be deposited directly into your bank account via Paypal.

If after searching every possible means to obtain the necessary funds to start a home business, you come up short, there is still no reason to give up on your dream. You may just have to work at your regular job longer than expected in order to save up the money. You could also choose a home business that doesn't require much money upfront. If you have the talent for it, you could make money writing, proofreading, babysitting, etc. The sky is the limit when it comes to making money from home. All you have to do is be persistent and don't let anything get in the way of your becoming a successful business owner.

February 27, 2008

Preventing Identity Theft

Unfortunately, a large number of Americans have been victims of identity theft this past year, alone. According to the Federal Trade Commission, over 42 percent of annual consumer complaints are due to this damaging crime. It can damage your bank account, credit, and many other aspects of your financial life. Identity theft can take years to recover from, and surprisingly is often committed by someone that the victim knows. A thief in the family is able to obtain your personal information easier than a stranger. So if you're aware that someone you now is a thief, by all means, keep your private information out of their reach. As scary as it may be, identity theft can be kept to a minimum, and even prevented in most cases, as long as you practice the following easy steps.

Public Computers

If you are unable to access the internet from home, you may be forced to handle important financial business either from work or via a library computer. If this describes you, then there are a few things that you need to remember in order to protect yourself from thieves just waiting for the right opportunity to attack. First of all, if you're accessing sensitive information like banking websites, investing, or other websites that require you to log in, you need to be especially careful. Make sure that when you're logging into these private sites that you don't allow anyone to watch as you type in your usernames and passwords. They could quickly jot down this private information and log into your account at a later time, totally wiping you out. Another thing to remember when using a public computer is to sign out of each site after you're done. It's easier than you may think to forget to log out of an online banking session. Simply leaving the page will not log you out, so you need to take the necessary steps to do so properly.


Phishing - Tricky Emails

Thieves have come up with creative ways of obtaining consumers' personal information in order to steal their identity. Even though the internet is extremely convenient to use, it can also make acquiring your personal information easier for eager thieves. Many have resorted to a tactic where they create fake duplicates of sites that you use regularly, such as your online banking site, and send you an email containing a link, requesting that you click the link and supply your personal information. Genuine websites will never email you asking you to provide personal information, and under no circumstances should you follow a link provided in your email message to visit the bogus site.


Avoiding Medical Fraud

Unfortunately, identity theft doesn't have to be limited to credit cards, bank accounts, etc. Thieves have also been known to commit medical fraud. Medical fraud is when a person either knows your name, contact information, and health insurance information, and uses it to obtain medical care. Many reports have been made about individuals receiving bills for medical service that they haven't had. Medical fraud is easier than any other type of identity theft, because the predator doesn't even have to obtain your credit cards, checking account info, etc. All the person has to do is visit the emergency room or doctor of their choice, pretending to be you. In order to prevent this type of crime, you need to ensure that your mail, which contains private account numbers, etc., is shredded before placing them in the trash. Many thieves are just waiting you to toss your credit card and bank statements into the trash so they can prowl through at night and steal your identity.


Be Leery of Paypal

Affiliated with Ebay.com, Paypal.com is an easy and convenient way to send and receive money by email. All you have to do is sign up for an account and have an email address, and you're ready to start sending and receiving payments. Even though Paypal.com is a popular way to send and receive money, it's also a popular choice for thieves. Many have unique ways of figuring out your Paypal.com password, which gives them full access to your account. The thieves can order numerous items from Ebay.com, transfer your cash into their bank account, as well as many other criminal acts. If you still wish to utilize Paypal.com's numerous convenient services, it is a good idea to create an extremely difficult password, as well as change it often.


It's a frightening time when millions of criminals are sitting around waiting for their next target. The key is to make sure that their next victim is not you. There is no surefire way to prevent identity theft, as criminals are becoming smarter and smarter, but there are ways to make things extremely difficult for the would-be thief. If it isn't easy, most criminals will simply move on to the next unsuspecting victim, which may not be good for them, but at least it saves you the hassle of having your identity stolen. If after using every possible tactic to prevent becoming a victim of identity theft, you become a victim, it's always a good idea to hire a good attorney to assist you in getting your credit back on track.

February 25, 2008

Comparison of Roth IRAs and Traditional Tax Deferred Plans

When planning for retirement, it's important to understand the difference between Roth IRA accounts and traditional IRA and 401K plans.

Tax Deferred Retirement Investments

Traditional IRA and 401K accounts for retirements represent tax deferred investments. Money that is invested in these types of savings programs represents pre-tax dollars. Taxation is deferred until such time that the investor withdraws the money. The idea is that one's tax bracket is likely to be lower when money is withdrawn, thus resulting in a savings on the total tax bill.

When you reach retirement age, and you begin withdrawing money from your tax deferred retirement account, you will pay income taxes on the initial amount invested and you will also have to pay tax on the interest earned on the money while it is in the account.

Roth Retirement Investments

With a Roth IRA, you are actually investing post-tax dollars. Instead of deferring tax payments on the income invested until you withdraw the money, you pay the taxes now. However, there is an important investor benefit of Roth IRAs that many people overlook. The gains made on money invested in a Roth account is completely tax exempt.

When you withdraw money from your Roth IRA after reaching retirement age, you don't have to worry about getting hit with taxes on either the initial amount invested or any of the interest accrued over the years. For many people the long term benefits of tax free Roth IRA gains is much more appealing than the ability to defer taxes on ordinary income at the present time.

Tax and Investment Considerations

When investigating options for retirement planning, it's important to consider both the short and long-term tax consequences of your decisions. By understanding the tax implications of Roth IRAs and traditional retirement accounts, you can make informed decisions regarding which investment opportunity makes the most sense in your particular situation.

Keep in mind that you don't have to choose one or the other. Many eligible investors choose to utilize both options, to maximize their opportunities for accruing retirement income and enjoying tax savings now and in the future.

February 22, 2008

How Do I Find a Foreclosure, Pre-foreclosure, or REO Property to Buy?

It is easy to find pre-foreclosures, foreclosures, and REO properties that are up for sale. Each state has guidelines that must be followed regarding the sale of this type of property, including an advertisement or notice of the sale. Several different aspects of potential ways to locate pre-foreclosures, foreclosures, and REO properties are included below.

If you are Internet savvy, you should browse the Web. Numerous websites advertise and include listings on pre-foreclosures, foreclosures, and REO (real estate owned) properties. Each of the listings is usually part of a large database. They are generally listed according to specific counties, towns, and cities.

Next, try the newspapers that are published in the areas that you are interested in making your real estate purchase. Most newspapers include the listings of this type of sale under "Notices of Public Sale" or "Trustee Sales." Typically, the notice of sale on a foreclosed home is published in the local newspaper for a predetermined number of weeks according to the guidelines of the particular state.

Additionally, real estate agencies typically include available listings on local foreclosures, pre-foreclosures, and REO properties. In general, some states allow real estate agents to be commissioned to handle the sale.

Finally, attorneys are able to provide detailed information on this type of home sales. These attorneys are ones who specialize in handling the sales of foreclosures, pre-foreclosures, and REO properties.

February 20, 2008

Home Reversion Plans

For the 60+ crowd, a home reversion plan is the perfect way to secure the money they need to do the things that they want. Just exactly what is a home reversion plan?

A home reversion plan, a type of equity release plan, provides an excellent opportunity for established homeowners who are age 60 or older to obtain some cash in exchange for some equity in their home. In essence, it involves selling a portion of the home's equity to a reversion company or provider in exchange for a sum of money.

You decide how much money you want to get. The homeowner can elect to sell all of their property or just a portion of it to the reversion provider. In exchange, he receives a sum of money. He can take the money all at once or opt to receive it in monthly installments. Plus, the homeowner can remain in the home for the remainder of his life without paying rent.

No interest is charged on the money since it is not a loan. This means that you do not have to make any monthly payments at all in order to repay the money. The reversion provider now owns part of your property and he will eventually get his financial investment back.

In fact, the homeowner does not need to repay the money until he moves into a long-term care facility. In the event that the homeowner dies, the money is repaid to the reversion provider. If a second or joint homeowner is involved, the circumstances apply to that individual as well. This means that both individuals would need to be in a long-term care facility or deceased before the money is due.

February 15, 2008

Make your Website Pay-off for You

With all of the get-rich quick schemes out there, many people who are looking to make extra money from home are often very reluctant to try anything new. This is very understandable but unnecessary, as long as you choose the right method of making money. There is no need to send large amounts of money to individuals to join their pyramid schemes or similar "home businesses." You can make a respectable and easy second or primary income by building your own website. After your website is built, there are several ways to turn it into a money making machine that will make money for you even while you're relaxing, on vacation, or making money in other ways.

Choosing & Building a Site

The type of website that you choose to build isn't important, just as long as you select a subject that you're knowledgeable about. If you aren't familiar with the subject that you choose, then it will be difficult to keep the site fresh with updated information, which is important in order to maintain a maximum amount of visitors. Building a website doesn't have to be difficult or expensive in order to be effective. If you don't have the cash to pay a professional to build a high-dollar website for you, there is no need to go broke. Many sites can be created by amateurs with little or no money whatsoever.

Blogging as an Alternative

If you enjoy writing and can't decide on the type of website you'd like to produce, creating you own blog is also an option. It can be a blog about your life, about finances, or just about whatever subject you wish it to be. Internet surfers are always looking for information, as well as entertainment, which is why any type of blog can prove to be quite lucrative. Ensuring that your blog is updated regularly, and contains verifiable and factual information is of the utmost importance if you wish for people to become normal visitors to your site.

Getting Traffic to your Site

After you've decided what type of website (or blog) to create and had it built, your next step is to get people to go to your site. With the numerous ways of marketing websites, you are sure to get hundreds, if not thousands of visitors each day to your site. One easy way to market your site is to place free ads on Craigslist and Myspace. You can also put up flyers in your city or town, write press releases, etc. It all depends on what goals you're looking to achieve, as well as how much money you have to spend on advertising. Posting in forums that allow signatures is also a great and no cost way to promote your website. The many forums that allow signatures will not allow you to advertise in your actual postings, but do allow you to add links to your site or sites to your signature. Therefore, every time you create or respond to a posting, you leave links to your sites, allowing others to click on them. You must be careful, though, because many forums consider this spam and will ban you from participating in their communities.

Some additional ways of marketing your site is by word of mouth, link exchange, and search engine submission. Link exchange works by having people join together who are all trying to get their website(s) noticed. The participants will swap links to post on their respective websites, and is usually a win-win situation. With search engine submission, you simply contact the particular search engines that you wish to add your site to, and make the request. That way, every time someone searches the topic of your website, your site will come up with every thing else. This increased the likelihood of people visiting your site, therefore increasing your chances of making a great deal of money.


The Real Money Maker - Partnering up with Google

Once you've attracted large numbers of people to your site, the way for you to make is by having Google ads on your website. It's quite easy to open an account with Google that will enable you to place ads on your site or blog. There is no cost to sign up whatsoever, and each time visitors click on the ads on your site you make a certain amount of money. You must ensure that you never, ever click or your own ads or ask anyone else to. Google has their way of finding out, and if they do, then you'll be barred from dealing with them again.

One good thing about the Google ads is that they're often pertaining to the subject of your site. For instance, if your site is about diabetes, then the Google ads will be about diabetic products, supplements, etc. This makes it more likely that a visitor will click on a link provided on your site, because they're obviously interested in the subject of your site or they wouldn't be on there in the first place.

Affiliate Programs

Affiliate programs are another great way to make money using your website. Just about every online retailer has an affiliate program. These work by allowing you to post links to sites like Amazon, Nike, etc., and every time a customer visits the site and places an order using the link from your site, you receive a certain percentage of the sale. So, obviously, the more people who buy after clicking the link provided on your website, the more money you make. It's absolutely free and extremely trouble free to become an affiliate to just about any online business, so just check out your options and choose the ones that would work best for you.

Whether you have a website about race cars or natural supplements, you can make more money than you ever thought possible. It may take some hard work and effort in the beginning, but after the money starts rolling in, you will realize that all your efforts were well worth it. Even if you must make a small investment in the beginning, rather it be for low cost web hosting, or for advertising, you will soon double your initial investment, and wish that you had started cashing in on your website sooner. There is no limit to the amount of money you can earn by making your website work for you. If you want ten sites, as long as you and maintain them all, you will reach your financial goals in no time.

February 13, 2008

Financial Decisions Affecting Your Children

Caught up in the day-to-day routine of raising your children, it's easy to forget to take care of other financial decisions involving them, including: naming a guardian for your children; insurance coverage; saving for college; and more.

Naming a guardian for your minor children. If you and your spouse both die without naming a guardian in your will, the courts will appoint one and will supervise your children's property. You may want to consider naming two guardians -- one to take physical care of your children and one to manage their assets. As your children grow, review your guardian choice every couple of years.

Purchasing sufficient insurance. You should obtain enough life insurance to provide for your children until they are adults. Determine how much is needed for living expenses, hobbies, medical expenses, and college. Consider other items as well. For instance, will your guardian's home comfortably accommodate your children, or should you leave funds for an addition to the house? Include a financial cushion so there is plenty of money for unanticipated expenses. Also ensure you have adequate disability income insurance, so your family's lifestyle won't be disrupted if you have an injury or illness.

Saving for college. Determine how much you need to save for your children's college education. You may have difficulty saving the amount needed to fully fund a college education. However, there are other sources to help fund those costs, such as borrowing and financial aid. Thus, your goal may be to accumulate 30%, 50%, or some other percentage of the total cost of college. Take a look at education savings accounts and Section 529 plans, both of which offer significant tax advantages.

Teaching money basics to your children. In a society that has difficulty managing money, teaching your children good money skills is a lesson that will benefit them for a lifetime. As you teach these lessons to your children, keep in mind that how you treat money is probably the most significant influence on your children's views about financial matters. If you make large purchases only after careful research and price comparisons, your children will learn to be careful before making a purchase. If you use credit cards cautiously and explain how to select a card, what items to charge, and how to pay off the balance every month, your children will learn not to abuse credit cards.

Saving for your retirement. Don't feel guilty thinking about your own retirement when your children still need your help. One of the best gifts you can give your children is the knowledge that you will be financially independent during retirement.

Gifting assets to your children. If you plan to leave assets to your children after your death, you may want to start making annual gifts, up to $12,000 in 2008 ($24,000 if the gift is split with your spouse), to any number of individuals without paying federal gift taxes. You can then teach your children how to handle those gifts and share in their joy from the gifts.

February 11, 2008

How Surviving Spouses Should Handle IRAs

When a surviving spouse is the sole beneficiary of a traditional IRA, he/she has the option of treating the inherited IRA as his/her own (or roll it over into his/her own IRA) or remaining the beneficiary on the account. Which option to choose largely depends on the surviving spouse's age:

Surviving Spouses Under Age 59 ½:

Typically, a surviving spouse under age 59 ½ will want to remain the beneficiary on the IRA so that withdrawals can be made without paying the 10% withdrawal penalty. Once the account is rolled over, withdrawals before the age of 59 ½ would result in a 10% federal income tax penalty.

Distributions are required by the later of the year the original IRA owner would have reached age 70 ½, or by December 31 of the year following the IRA owner's death. Required minimum distributions (RMDs) are calculated based on the single life expectancy table for beneficiaries, with the spouse recalculating his/her life expectancy every year by looking up the life expectancy factor on the table. Since this is based on a single life expectancy, RMDs will be larger than if the inherited IRA was treated as the surviving spouse's own IRA.

A surviving spouse can remain the beneficiary on the account until age 59 ½ to maintain the ability to take penalty-free distributions, and then roll the IRA into his/her own IRA after that age. By rolling the balance over, the surviving spouse will be able to withdraw smaller RMDs and name his/her own beneficiaries for the IRA.

Surviving Spouses Over Age 59 ½:

If the surviving spouse is at least age 59 ½, it typically makes sense to treat the inherited IRA as his/her own or roll it over into his/her own IRA. By doing so, the surviving spouse can name his/her own beneficiaries for the account. The surviving spouse must start taking RMDs at age 70 ½. RMDs are calculated using the uniform distribution table, which assumes a joint life expectancy with the beneficiary considered 10 years younger. When the surviving spouse dies, any remaining balance can be paid to the surviving spouse's beneficiaries over their life expectancies.

However, spouses who are significantly older than the deceased IRA owner can delay RMDs by remaining the beneficiary on the IRA. He/she would not have to take RMDs until the deceased spouse would have reached age 70 ½, even if the surviving spouse is already past age 70 ½.

Roth IRAs:

When a Roth IRA is involved, the surviving spouse would normally want to roll the Roth IRA over or treat it as his/her own. Then, no distributions would be required during his/her lifetime. If the surviving spouse remains the beneficiary, RMDs would be required by the later of the year the original IRA owner would have reached age 70 ½, or by December 31 of the year following the original IRA owner's death.

February 8, 2008

Don't Withdraw Funds From Your Retirement Account

Finding a way to live decades in retirement without worrying about running out of money can seem like an overwhelming task. That goal depends on many variables and assumptions, including your life expectancy, your retirement age, your lifetime earnings, your retirement expenses, retirement income sources, your investment rate of return, and future inflation. If you're wrong on even one of those variables, funding your retirement could be in danger.

With all the potential for missteps, what is the one mistake you want to avoid at all costs? Dipping into your retirement savings. Unfortunately, since the funds in your 401(k) plan or individual retirement account (IRA) belong to you, they often seem like a tempting place to get funds needed for other purposes.

Tax laws don't help, since they often provide tax-advantaged ways for you to access those funds. Loans from 401(k) plans are not taxable events. When leaving an employer, you can withdraw money from your 401(k) plan (you will have to pay income taxes and possibly a 10% early withdrawal penalty). Contributions to Roth IRAs can be withdrawn at any time with no tax consequences. Withdrawals from traditional IRAs before the age of 59 ½ can be made under certain circumstances, such as to purchase a home or to pay for a child's college education, without paying the 10% tax penalty.

Saving for retirement is a difficult task for most people, without making it more difficult by using retirement funds for other purposes. Even if the amount seems small, don't withdraw funds from your retirement account. While it probably won't add significantly to your lifestyle now, it can grow to significant sums over the long term. For instance, assume you have $10,000 in your 401(k) plan. If you withdraw the funds and are in the 25% tax bracket, you'll have $6,500 left after paying income taxes and the 10% federal tax penalty. Keep the funds invested earning 8% annually on a tax-deferred basis, and your funds could grow to $100,627 after 30 years, before paying any income taxes. (This example is provided for illustrative purposes only and is not intended to project the performance of a specific investment.)

No matter how much you think you need the money now, don't touch your retirement funds for anything other than retirement.

February 6, 2008

Celebrate Valentine's Day without Going Broke

Valentine's Day will soon be here, and many lovers will be searching for the perfect gift in order to show their significant other how much they love them. Unfortunately, many people end up spending way too much money for this holiday, and with it being so soon after Christmas it could really put a strain on your bank account. Instead of buying expensive jewelry or similar gifts, why not come up with other ways of showing your love for your sweetheart? The sky is the limit when it comes to fun and creative Valentine's Day ideas, so it shouldn't be too difficult to come up with several less costly ways to celebrate the romantic day.

There is absolutely no reason for you to go into debt in order to prove to your sweetheart how much you love him or her. If you love your sweetie yet don't have a lot of cash for costly jewelry, old fashioned dinner and a movie can still be as romantic as it's always been. Better yet, preparing the meal yourself and renting movies to watch at home is often more appreciated than going out to eat and see a movie at the theatre. Taking the time and making the effort to prepare a nice meal for your sweetie can really show that you care, especially if you don't normally cook. Valentine's Day is a popular day for couples to go out to dinner, which means that going to eat at a restaurant may not be as enjoyable as it would be any other day. You may have to wait hours for a table, which is often a big hassle.

Not many people can resist the taste of rich, succulent taste of chocolate. For years, giving chocolates has been a popular tradition, and it still is. A box of chocolates, even in the larger sizes, doesn't cost half as much as a gold bracelet or pair of diamond earrings. Despite the low cost of chocolate candy, many people look forward to being given a large box of assorted filled chocolates for Valentine's Day. Simply choosing a meaningful card to couple with a tempting box of chocolates is often the perfect gift to give to your sweetheart.

Since the beginning of time, flowers have been one of nature's many lovely creations that people will never grow tired of. With their beautiful and diverse colors and types, flowers will never stop putting smiles on people's faces and brightening their days. A dozen of colorful roses or other type of flower is sure to make your sweetheart feel pampered and loved, so why not buy some? Despite the fact that the flowers will eventually wither and die, your sweetie is likely to enjoy them to the fullest while they're alive. And the sweet smell that they leave in a room makes flowers of all types the absolute most ideal and inexpensive Valentine's Day gift.

There are many ways to celebrate Valentine's Day with your sweetheart without spending more money than you can afford on a gift. Even if you have no money at all, with a little bit of creativity and time, you can create a wonderful gift for your significant other that will be remembered for many years to come. Not everyone expects expensive gifts like jewelry for this lovers' holiday, and many people are in fact allergic to certain jewelry, no matter how expensive it is. So, when you start to think about what to get your sweetheart for Valentine's Day, remember that it doesn't have to be expensive in order to be momentous.

February 4, 2008

How to Secure Your Financial Future

In a recent survey, 74.5% of individuals with at least $1 million in net worth felt that the world is a dangerous place (Source: Financial Planning, June 2007). While there might not be much we can do on an individual level to reduce crime, war, or even stock market corrections, there are things we can do to mitigate the risks that are under our control. If you are looking for ways to increase your personal financial security, consider the following tips:

Get your estate in order. While dealing with your own mortality is often difficult, it is one of the most important things you can do to ensure your family can survive financially in the event of your death. Make sure your will reflects your current desires for the disposition of your assets and names a guardian for your minor children. You should also consider a durable power of attorney, which designates someone to control your financial affairs if you become incapacitated, and a health care proxy, which delegates health care decisions when you are unable to make those decisions.

Review your portfolio. Recent stock market fluctuations may have made you a little nervous about holding stocks. But if you're saving for goals that are decades away, stocks probably should continue to hold a major position in your portfolio. The lesson we should learn from recent stock market fluctuations is that our portfolios should be diversified. A properly diversified portfolio will help protect its value during market declines, while still offering higher return potential.

Take another look at your life insurance. You need to purchase an appropriate amount of insurance to protect your family in the event of your death. The amount needed will depend on your current net worth, the lifestyle you want to provide for your family, and your personal circumstances and desires. Since your insurance needs will change over time, assess your insurance coverage periodically, especially after major events in your life.

Obtain sufficient disability income insurance. You should consider disability income insurance if your current assets won't support you until age 65. Many companies provide short-term disability insurance that covers 100% of your salary for three to six months. Long-term disability insurance is typically less common and less generous. Thus, even if you have long-term disability insurance at work, you may want to obtain additional coverage. Your available resources and disability benefits should equal at least 60% of your pretax salary.

Make sure you have an emergency cash reserve. Consider setting aside at least three to six months of living expenses, although the exact amount will depend on your age, health, job outlook, and borrowing capacity. This can help tide you over in case of a job layoff, short-term disability, or large, unexpected expenditure.

Consider long-term-care insurance. This coverage may be especially important for women, who tend to outlive their husbands. You should probably purchase the insurance while you are in your 50s or 60s. After that, the premiums get much more expensive. Also, if you develop a serious health condition, you may not be able to purchase the insurance.

Protect your financial identity. While you typically won't have to pay for anything charged by an identity thief, you will have to work to restore your credit and to ensure all fraudulent accounts are closed. That can be time-consuming as well as expensive. To help protect your financial identity, only give out your Social Security number when it is required, shred financial documents, cut up old credit cards, and review your credit reports periodically.

Keep your homeowners insurance up to date. Review your homeowners policy carefully so you understand what would happen if your home was totally destroyed. It is your responsibility to make sure you have adequate policy limits, so inform your insurance company when you make major improvements, get an inflation rider for your policy, and make sure your policy covers the total cost of rebuilding your home.

Protect your home. Obtain a good security system for your home. Make sure all doors are metal or solid wood with deadbolt locks, use bars or locks to secure sliding glass doors, and keep all entrances well lit.

Properly store important documents. Documents that you might need when the bank is closed, such as passports, birth certificates, wills, or insurance policies, can be kept in a fireproof home safe. Other documents, such as deeds, stock certificates, and titles, should be kept in a safe deposit box in a bank.

February 1, 2008

Bond Ladders

While bonds are subject to several types of risk, two of the main types are interest rate risk, or the risk that interest rate changes will change your bond's value, and reinvestment risk, or the risk that interest and principal cannot be reinvested at the current bond's interest rate. It is difficult to simultaneously reduce both risks since a rise in interest rates reduces reinvestment risk and increases interest rate risk. Thus, you need to find a balance between the two risks.

Using a bond ladder strategy can help investors strike this balance. A bond ladder is a portfolio of bonds of similar amounts that mature in several different years. For instance, a $100,000 portfolio might consist of 10 different bonds of $10,000 each, maturing in 10 consecutive years. When a bond matures, the principal is reinvested in another bond at the bond ladder's longest maturity date (10 years in this example).

By spreading out maturity dates, the effects of interest rate changes are lessened. Since the bonds are held until maturity, changing interest rates don't result in a gain or loss from a sale. Bonds are maturing every year or two, so your principal is reinvested over a period of time instead of in one lump sum. If interest rates rise, you have principal coming due every year or so to reinvest at the higher rates. In a declining interest rate environment, you have some funds in longer-term bonds with higher interest rates. A bond ladder keeps your bond portfolio invested in a range of maturity dates, evening out your interest income over time.

One of the main advantages of this strategy is that you don't just hold short-term bonds, waiting to determine the future direction of interest rates. Your funds are always invested in a variety of maturities.

When designing a bond ladder, decide on an average maturity date, which could be five, 10, or even 20 years, depending on your financial needs. There should be enough "rungs" on the ladder for principal to mature every year or two. If the rungs mature in longer than two-year increments, you might miss interest rate changes. Consistently follow your plan by automatically reinvesting principal at the longest maturity date.

You can also set maturity dates in your ladder to coincide with a specific financial need. For instance, a bond ladder might mature in each of four consecutive years while your child is in college, allowing you to pay college costs with maturing principal.

 

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