Last year as the wings came off the banking sector causing the economy to spiral out of control, credit card companies responded to mounting customer defaults by raising fees, raising interest rates, instituting hidden transaction fees and reducing credit limits with little or no notice. The reaction from consumers was loud and angry and congressional representatives responded by passing pro-consumer legislation under The Credit Card Act of 2009. While tighter restrictions on credit card companies is a good thing, don’t be fooled into thinking that all the credit card mess has been solved. Many of the changes do not take effect until February 2010 and until then some credit card companies continue to exploit their customers, even the ones with good credit. You’ll need to remain vigilant and closely monitor your credit card activity.
Avoid late fees. Many card companies have significantly increased fees for late payment. If you mail in your payment, be sure to mail it early enough to get there on time. On two recent occasions, I mailed payments that I thought allowed ample time to arrive by the deadline only to find out they ‘posted’ my payment one day late. The result…a $39 late payment fee. One solution is to go on line on the due date to be certain your payment was received. If not, you can pay immediately, on-line to avoid the penalty.
Keep your cards active. Because of the financial crunch, many card companies are terminating cards of customers who are not using their credit card. The reason? The company has extended you credit that you are not using and because of the financial crisis, they are under pressure to reduce the amount of credit they have extended. Since they are not making any money on you, terminating your credit becomes their best solution. Your best move is to use your credit cards but pay off your balance every month, on time. Think of it as an extension of your checking account rather than a source for borrowing money you don’t have.
Shred those ‘convenience’ checks. These are the blank checks that your credit card sends you and encourages you to use to pay off bills or treat yourself to a trip to the mall. First, the checks are nothing more than an advance against your credit card and carry very high transaction fees and often much higher interest rates. There is no ‘grace period’, meaning interest is calculated from the moment you use the check and you lose protections that go with credit card purchases granted under the Fair Credit Billing Act such as refunds for defective merchandise. You also don’t receive bonus or reward points such as free airline tickets. Shred them so they don’t fall into dishonest hands, or even better, contact your credit card company and tell them not to send them in the future.
Credit cards continue to be a useful tool in your money toolbox. They help establish and build your credit; are a convenient method of paying for goods and services without having to carry large amounts of cash; and can provide reward points that you can use for free purchases such as airline tickets.
Showing posts with label Financial Planning. Show all posts
Showing posts with label Financial Planning. Show all posts
Saturday, November 21, 2009
"Reversal of Fortune" - October 4, 2009
If you are a perpetual optimist, you can always find something good that, like the Phoenix, rises from the ashes of something bad. Take the generational bear market of 2008. From the peak of the market to its lowest point, the U.S. stock market was down more than 50%. Even the most recent market run-up has left the vast majority of investors with steep losses from the peek of their portfolio. So where’s the silver lining? Prior to the stock market crash, the savings rate in America hovered between zero percent and negative. Fast forward twelve months and today that savings rate is an amazing six to seven percent. Research suggests that this is likely a long term trend. As a financial advisor, it’s great to see people taking financial responsibility and doing what they should be doing…saving. It appears that the bulk of this savings is going into money market accounts for the purpose of storing up cash in the face of job uncertainty. As workers begin to regain a sense of job security, they’ll need to develop a plan for their current and future savings. Here are five suggestions:
Contingency Reserves. Finally, everybody understands the true meaning of contingency reserves. Having money set aside for unexpected expenses and opportunities is a good idea.
Debt Reduction. Part of accepting financial responsibility is avoiding paying eighteen to twenty-one percent to borrow money for consumer purchases. It’s nothing more than borrowing from your future to pay for your past.
Systematic investment program. Get in the habit of paying yourself first from a portion of every paycheck. After a few months, you’ll find you don’t miss the money and after a few years, you’ll be amazed at your progress.
Save for College. The 529 College Savings Plan remains the best strategy for saving for your children’s education. As a bonus, the rules allow you to remain in control of the money until you actually spend it on qualified college expenses. This means that if you have a financial emergency, you could tap those funds. There is a 10% federal penalty, but that penalty may be partially or fully offset by tax deferred growth.
Invest in a Roth IRA. If you qualify, a Roth is a good choice because you can access your money without penalty after five years. If you don’t need it before retirement, your money will have grown tax deferred and withdrawals during retirement are tax free forever.
Plan to take your monthly savings and divide it equally among the above objectives. Automate your plan as much as possible and use any pay increases to increase your savings.
Contingency Reserves. Finally, everybody understands the true meaning of contingency reserves. Having money set aside for unexpected expenses and opportunities is a good idea.
Debt Reduction. Part of accepting financial responsibility is avoiding paying eighteen to twenty-one percent to borrow money for consumer purchases. It’s nothing more than borrowing from your future to pay for your past.
Systematic investment program. Get in the habit of paying yourself first from a portion of every paycheck. After a few months, you’ll find you don’t miss the money and after a few years, you’ll be amazed at your progress.
Save for College. The 529 College Savings Plan remains the best strategy for saving for your children’s education. As a bonus, the rules allow you to remain in control of the money until you actually spend it on qualified college expenses. This means that if you have a financial emergency, you could tap those funds. There is a 10% federal penalty, but that penalty may be partially or fully offset by tax deferred growth.
Invest in a Roth IRA. If you qualify, a Roth is a good choice because you can access your money without penalty after five years. If you don’t need it before retirement, your money will have grown tax deferred and withdrawals during retirement are tax free forever.
Plan to take your monthly savings and divide it equally among the above objectives. Automate your plan as much as possible and use any pay increases to increase your savings.
“Obscure Social Security Law Yields Big Benefits” - September 27, 2009
If you follow my weekly column, you know that I have written cautionary tales about the survivability of our Social Security system in its current form. It is a Ponzi scheme of grand proportions and, in the near future, Congress will be forced to provide solutions as the money coming into the system falls short of the payments going out of the system. However, the greatest risk, I believe, is to the age sixty-and-under workers. No congressperson is likely to grab the political hot potato of reducing benefits to current Social Security recipients. This opens the door to an obscure financial strategy that may mean tens of thousands of dollars in additional Social Security benefits if you fall under the right circumstances.
Often, workers choose to begin taking their Social Security benefit as soon as they are eligible, which is age sixty-two. By doing so, they accept a reduced benefit for life. For example, if your normal full Social Security retirement age is sixty-six and you begin benefits at age sixty-two, your benefit is cut by 25%. A $1,000 per month benefit becomes $750. Had you postponed benefits until age 70, they would have risen to $1,320. Here’s where the financial opportunity comes into play. A little known law allows you to ‘re-set’ your Social Security payments by paying back the money you have received. By doing so, you have created two financial benefits for yourself. First is a tax-free loan from the government because there is no interest or penalties imposed related to the payback. Second, you’ve created an ‘annuity’ that will rival any commercial annuity in the marketplace.
Let’s see how this might work out. As in our example above, assume you took early Social Security retirement for $750 per month at age 62. You are now age seventy and have decided to pay back all the money you have received and ‘re-set’ your payments based on Social Security retirement at age seventy. The math looks something like this: You must repay Uncle Sam the $72,000 in benefits you received. You’ll now begin receiving $1,320 per month for the rest of your life and the life of your spouse. This ‘extra’ $6,840 per year benefit is the equivalent of a 9.5% payout on your $72,000 ‘investment’. If you were to take that same $72,000 and buy a commercial joint life annuity, the payout would be approximately 7% (Charles Schwab & Co. www.schwab.com). Initially you’re about 25% better off plus Social Security benefits increase based on cost-of-living adjustments (COLA) whereas commercial annuities do not. This COLA advantage can be huge assuming at least one spouse lives a long time. In addition, another obscure law allows you to get back taxes you paid on your Social Security benefits.
Who are the ideal candidates for this strategy? First, it’s someone who has the financial where-with-all to repay benefits received. Second, one or both spouses should be in excellent health with a family history of longevity. In our example, you’ll get back your $72,000 ‘investment’ in about 4.5 years while your ‘break-even point’ for this strategy is about 10.5 years. If you’d like to receive a detailed report on this topic, email me at stewart@welchgroup.com and put “Social Security Re-Set Strategy” in the subject line.
Often, workers choose to begin taking their Social Security benefit as soon as they are eligible, which is age sixty-two. By doing so, they accept a reduced benefit for life. For example, if your normal full Social Security retirement age is sixty-six and you begin benefits at age sixty-two, your benefit is cut by 25%. A $1,000 per month benefit becomes $750. Had you postponed benefits until age 70, they would have risen to $1,320. Here’s where the financial opportunity comes into play. A little known law allows you to ‘re-set’ your Social Security payments by paying back the money you have received. By doing so, you have created two financial benefits for yourself. First is a tax-free loan from the government because there is no interest or penalties imposed related to the payback. Second, you’ve created an ‘annuity’ that will rival any commercial annuity in the marketplace.
Let’s see how this might work out. As in our example above, assume you took early Social Security retirement for $750 per month at age 62. You are now age seventy and have decided to pay back all the money you have received and ‘re-set’ your payments based on Social Security retirement at age seventy. The math looks something like this: You must repay Uncle Sam the $72,000 in benefits you received. You’ll now begin receiving $1,320 per month for the rest of your life and the life of your spouse. This ‘extra’ $6,840 per year benefit is the equivalent of a 9.5% payout on your $72,000 ‘investment’. If you were to take that same $72,000 and buy a commercial joint life annuity, the payout would be approximately 7% (Charles Schwab & Co. www.schwab.com). Initially you’re about 25% better off plus Social Security benefits increase based on cost-of-living adjustments (COLA) whereas commercial annuities do not. This COLA advantage can be huge assuming at least one spouse lives a long time. In addition, another obscure law allows you to get back taxes you paid on your Social Security benefits.
Who are the ideal candidates for this strategy? First, it’s someone who has the financial where-with-all to repay benefits received. Second, one or both spouses should be in excellent health with a family history of longevity. In our example, you’ll get back your $72,000 ‘investment’ in about 4.5 years while your ‘break-even point’ for this strategy is about 10.5 years. If you’d like to receive a detailed report on this topic, email me at stewart@welchgroup.com and put “Social Security Re-Set Strategy” in the subject line.
“Cash for Clunkers- The Sequel” - September 20, 2009
Even though the government botched the administration of the recent Cash for Clunkers program, it did stimulate auto sales nationwide. While auto dealers continue to wait for federal reimbursement of customer rebates, appliance dealers are bracing for the rollout of the sequel to Cash for Clunkers appropriately dubbed Cash for Appliances.
The target kickoff date is pre-Christmas and will offer consumers a rebate of up to $200 for purchasing energy efficient appliances. If you’re in the market for new appliances, get your track shoes ready. In total, the government has allocated a paltry $300 million for this program so we might expect the money will run out soon after the program launches. If this program plays out in a similar fashion to the Cash for Clunkers, lawmakers will be voting on additional funding to meet consumer demand.
What’s different with this latest government handout program is that it will be structured and administered by each individual state. Another new twist is that this rebate program does not require that you turn in your old energy inefficient appliance. So what will likely happen to the clunker refrigerator? My best guess is that it gets moved to the basement as an ‘extra’ fridge; passed down to adult children; or sold. So much for cutting energy consumption! There are no restrictions on who is eligible for the rebates so this program seems tailor-made for more wealthy consumers who can afford the added costs of more expensive energy efficient appliances.
While each state will determine which appliance purchases receive rebates, the list will generally include: refrigerators, central heating and air systems, heat pumps, room air conditioners, clothes washers, freezers, water heaters, boilers and furnaces.
In addition to this stimulus project, additional incentives are available as a result of the Emergency Economic Stabilization Act of 2008 passed under former President Bush. Tax credits of 30% are available when you purchase qualifying energy-efficient appliances during calendar years 2009 and 2010 with a maximum credit of $1,500. Additional credits are available for energy-efficient home improvements including insulation, roofing, and window treatments. Also included are credits for alternative energy sources such as solar and wind. These credits are available for both existing homes and new construction.
Finally, be sure to check with your local utility company or appliance dealer. They often provide significant incentives to ‘switch’ to their products.
How much money can you save? You purchase a new energy-efficient tankless water heater for $3,000 versus the standard water heater for $1,000 which does not qualify for the credits. You’d receive a $200 rebate under the Obama plan, plus $900 under the Bush plan, plus a $200 rebate from the local utility (Alabama Power); reducing your cost to $1,700. An estimated 33% savings off your annual utility bill means your breakeven point is less than seven years. Over the estimated thirty-year life of your new water heater, it adds up to quite a bundle on money you save.
The target kickoff date is pre-Christmas and will offer consumers a rebate of up to $200 for purchasing energy efficient appliances. If you’re in the market for new appliances, get your track shoes ready. In total, the government has allocated a paltry $300 million for this program so we might expect the money will run out soon after the program launches. If this program plays out in a similar fashion to the Cash for Clunkers, lawmakers will be voting on additional funding to meet consumer demand.
What’s different with this latest government handout program is that it will be structured and administered by each individual state. Another new twist is that this rebate program does not require that you turn in your old energy inefficient appliance. So what will likely happen to the clunker refrigerator? My best guess is that it gets moved to the basement as an ‘extra’ fridge; passed down to adult children; or sold. So much for cutting energy consumption! There are no restrictions on who is eligible for the rebates so this program seems tailor-made for more wealthy consumers who can afford the added costs of more expensive energy efficient appliances.
While each state will determine which appliance purchases receive rebates, the list will generally include: refrigerators, central heating and air systems, heat pumps, room air conditioners, clothes washers, freezers, water heaters, boilers and furnaces.
In addition to this stimulus project, additional incentives are available as a result of the Emergency Economic Stabilization Act of 2008 passed under former President Bush. Tax credits of 30% are available when you purchase qualifying energy-efficient appliances during calendar years 2009 and 2010 with a maximum credit of $1,500. Additional credits are available for energy-efficient home improvements including insulation, roofing, and window treatments. Also included are credits for alternative energy sources such as solar and wind. These credits are available for both existing homes and new construction.
Finally, be sure to check with your local utility company or appliance dealer. They often provide significant incentives to ‘switch’ to their products.
How much money can you save? You purchase a new energy-efficient tankless water heater for $3,000 versus the standard water heater for $1,000 which does not qualify for the credits. You’d receive a $200 rebate under the Obama plan, plus $900 under the Bush plan, plus a $200 rebate from the local utility (Alabama Power); reducing your cost to $1,700. An estimated 33% savings off your annual utility bill means your breakeven point is less than seven years. Over the estimated thirty-year life of your new water heater, it adds up to quite a bundle on money you save.
“Should You Invest Overseas?” - September 13, 2009
With acts of terrorism overseas becoming more common and swine flu morphing into a pandemic, Americans have become more reluctant to travel overseas. But should you be investing your money in foreign companies? As Americans, we tend to think of America as the center of the Universe and fail to realize America only represents 23% of the global economy. A full 77% of the financial ‘action’ is happening outside the United States. In a global recession of the nature we now find ourselves, emerging market stocks will tend to lead us out of the recession, followed by developed country foreign stocks, then U.S. stocks. We saw this in the recent run-up in the stock market that began March 9th. Since that time, emerging market stocks gained 76%; developed country international stocks gained 64%; and U.S. stocks gained 49%.
Taking a look back at the bear market of 2000-2002, a similar scenario occurred in 2003, the year that marked the end of the bear market. U.S. stocks rose 29%; developed company international stocks rose 38%; and emerging market stocks rose 42%. How likely is it that this trend will continue as we move from a global recession to a global recovery? I believe it is highly likely. Even with the unprecedented financial stimulus that has been, and will continue to be provided by our government, the U.S. economy will likely take years to fully recover. In other words, we will experience slow growth compared to foreign countries. Part of this will be due to increased regulation imposed by our government and part will be due to the hangover resulting from the massive amount of debt the government has created.
Investing in foreign stocks creates a separate set of risks compared to domestic stocks. Reduced political stability and market transparency are especially evident in emerging markets such as China, India, and Brazil. You also encounter currency risks. For example, if you invested in a European stock mutual fund that rises 10% and the U.S. Dollar rises 10% against the Euro, your gains in stock values will be negated by your loses in currency values. This creates a risk and an opportunity. The opportunity here and now is that the U.S. Dollar has risen against most foreign currencies during this economic downturn because global investors have rushed to buy our treasuries as a ‘safe haven’. As global economies recover, it is likely that the U.S. Dollar will fall compared to foreign currencies creating the potential for a double-opportunity for Americans who invest in foreign stocks. Foreign stock shares will rise faster than domestic stocks and you’ll get an additional boost from foreign currency exchange.
There are many ways to invest in foreign stocks including individual shares, mutual funds and exchange traded funds. Two excellent choices are exchange traded funds:
EEM for emerging markets
EFA for developed country international stocks
Stocks, having risen sharply since the March 9th lows, may ‘fall back’ and build a new base. Your best strategy is to dollar-cost-average over the next six to twelve months and plan on a minimum holding period of two years. Consult your financial advisor before implementing this advice.
Taking a look back at the bear market of 2000-2002, a similar scenario occurred in 2003, the year that marked the end of the bear market. U.S. stocks rose 29%; developed company international stocks rose 38%; and emerging market stocks rose 42%. How likely is it that this trend will continue as we move from a global recession to a global recovery? I believe it is highly likely. Even with the unprecedented financial stimulus that has been, and will continue to be provided by our government, the U.S. economy will likely take years to fully recover. In other words, we will experience slow growth compared to foreign countries. Part of this will be due to increased regulation imposed by our government and part will be due to the hangover resulting from the massive amount of debt the government has created.
Investing in foreign stocks creates a separate set of risks compared to domestic stocks. Reduced political stability and market transparency are especially evident in emerging markets such as China, India, and Brazil. You also encounter currency risks. For example, if you invested in a European stock mutual fund that rises 10% and the U.S. Dollar rises 10% against the Euro, your gains in stock values will be negated by your loses in currency values. This creates a risk and an opportunity. The opportunity here and now is that the U.S. Dollar has risen against most foreign currencies during this economic downturn because global investors have rushed to buy our treasuries as a ‘safe haven’. As global economies recover, it is likely that the U.S. Dollar will fall compared to foreign currencies creating the potential for a double-opportunity for Americans who invest in foreign stocks. Foreign stock shares will rise faster than domestic stocks and you’ll get an additional boost from foreign currency exchange.
There are many ways to invest in foreign stocks including individual shares, mutual funds and exchange traded funds. Two excellent choices are exchange traded funds:
EEM for emerging markets
EFA for developed country international stocks
Stocks, having risen sharply since the March 9th lows, may ‘fall back’ and build a new base. Your best strategy is to dollar-cost-average over the next six to twelve months and plan on a minimum holding period of two years. Consult your financial advisor before implementing this advice.
Selling Your Home in a Down Market" - September 6, 2009
Recent home sales data suggests that home sales are finally turning up indicating that the housing market may have finally bottomed out. Still, if you are thinking of selling your home, the current market remains a very challenging one. To get the best price for your home, consider these tips:
Do a cosmetic makeover. There’s a lot of competition in this buyer’s market. The market is flooded with foreclosure properties where banks are discounting prices in order to quickly move these toxic assets off their books. You’ll want to do everything possible to make your home stand out. Remember, buying a home is a particularly emotional purchase where if the buyers ‘fall in love’ with your home they may be willing to pay thousands more than another home of comparable location, square footage, etc. Your best source for deciding what cosmetic surgery will provide the best bang for the buck is an experienced realtor. These professionals have viewed thousands of homes with buyers and can tell you which improvements will be most attractive to potential buyers.
Don’t over-price your home. In this market, it’s important to get your selling price right. What you paid for the home or what you think your home should sell for is immaterial. Your greatest opportunity to sell your home is in the initial few weeks that it goes on the market. Price it too high and you run the risk of it being ignored by the realtor community and individual buyers. If it then stays on the market a few months, people begin to wonder what’s ‘wrong’ with the property? A realtor has the ability to run comparable sales and determine what would be a competitive price for your home. If it doesn’t sell in the first four to six weeks, be prepared to lower your price.
Maximize your visibility. In today’s high-tech world potential home buyers are using multiple sources for their search so be sure you are covering all of your bases. In addition to the basic ‘For Sale’ sign in your yard; brochure flyers in a box in your front yard; an ‘Open House’, and newspaper and community circular advertising, consider Internet advertising including a ‘virtual’ tour of your home where you showcase its most prominent features. Your realtor can help you develop a multifaceted ad campaign.
Don’t get caught with two homes. You find your dream home and decide to put it under contract assuming you can sell your home before you have to close on the new one. Big mistake in this home market and this economy. While the housing market is improving, it is still taking longer to sell homes than in the past. One way to protect yourself is to make your offer contingent upon the sale of your home. This strategy sometimes weakens your negotiating position as sellers strongly prefer non-contingent offers. Another strategy is to get a contract on the sale of your home before placing a contract on a new home. A final strategy is to make certain that you have the financial where-with-all to support two house payments until your home sells.
Do a cosmetic makeover. There’s a lot of competition in this buyer’s market. The market is flooded with foreclosure properties where banks are discounting prices in order to quickly move these toxic assets off their books. You’ll want to do everything possible to make your home stand out. Remember, buying a home is a particularly emotional purchase where if the buyers ‘fall in love’ with your home they may be willing to pay thousands more than another home of comparable location, square footage, etc. Your best source for deciding what cosmetic surgery will provide the best bang for the buck is an experienced realtor. These professionals have viewed thousands of homes with buyers and can tell you which improvements will be most attractive to potential buyers.
Don’t over-price your home. In this market, it’s important to get your selling price right. What you paid for the home or what you think your home should sell for is immaterial. Your greatest opportunity to sell your home is in the initial few weeks that it goes on the market. Price it too high and you run the risk of it being ignored by the realtor community and individual buyers. If it then stays on the market a few months, people begin to wonder what’s ‘wrong’ with the property? A realtor has the ability to run comparable sales and determine what would be a competitive price for your home. If it doesn’t sell in the first four to six weeks, be prepared to lower your price.
Maximize your visibility. In today’s high-tech world potential home buyers are using multiple sources for their search so be sure you are covering all of your bases. In addition to the basic ‘For Sale’ sign in your yard; brochure flyers in a box in your front yard; an ‘Open House’, and newspaper and community circular advertising, consider Internet advertising including a ‘virtual’ tour of your home where you showcase its most prominent features. Your realtor can help you develop a multifaceted ad campaign.
Don’t get caught with two homes. You find your dream home and decide to put it under contract assuming you can sell your home before you have to close on the new one. Big mistake in this home market and this economy. While the housing market is improving, it is still taking longer to sell homes than in the past. One way to protect yourself is to make your offer contingent upon the sale of your home. This strategy sometimes weakens your negotiating position as sellers strongly prefer non-contingent offers. Another strategy is to get a contract on the sale of your home before placing a contract on a new home. A final strategy is to make certain that you have the financial where-with-all to support two house payments until your home sells.
“A Glimpse into the Future of Healthcare” - August 30, 2009 Stewart H. Welch III, CFP, AEP Founder, The Welch Group, LLC Sunday, Aug 30, 2009 As th
As the healthcare reform debate rages in town halls across the country, Washington politicians and Americans are taking sides in one of the most important decisions of our generation. There appears to be consensus that some level of reform is needed but there is a passionate difference of opinion whether the new healthcare system should include a public insurance option. Those in favor, argue that a government run health insurance program will guarantee coverage for all and create greater competition among insurers. Those against believe that the government, with unlimited access to taxpayers money, will have an unfair advantage and eventually become the sole source of healthcare in America (socialized medicine).
Should the government be in the health insurance business? The best way to look into the crystal ball of the future is to look at the past. Most recently, the government got into the car business with their ‘Cash for Clunkers’ stimulus program. This program, from an administrative viewpoint, should have been a piece of cake to run efficiently. It was all Internet based with car dealers submitting proof of clunker transactions over the Internet and the government then wiring reimbursements to the dealers bank account. Sounds pretty straight-forward, right? Here is a typical dealer experience:
The government announced to the public that the program would begin July 1. However, it was not until July 24 that the 19,000 dealerships were eligible to participate. Local dealer, Hoover Toyota, completed 115 clunker transactions and so far has been reimbursed for four deals. The dealers were prohibited from making any money on the clunker but must use their own capital or borrow money to pay the customer for the clunker while they wait on government reimbursement. Some dealers, expecting the promised 10-day government reimbursement, ran out of capital, were unable to meet payroll and had to drop out of the program. Virtually all dealerships experienced ‘blackouts’ where it was impossible to submit required paperwork due to the government’s computer system crashing on numerous occasions. The whole experience can best be summed up by Gordon Stewart, president of Hoover Toyota. “While I was thrilled with the increased store traffic and resulting sales, as a businessman, I was appalled at how this program was administered.” The government has given Mr. Stewart no indication of when he will receive the balance of reimbursements he is owed.
This is not a particular political party problem; rather it is a politician problem. Most politicians have never experienced the challenge of running a for-profit business; meeting a payroll; or making the kind of decisions that business owners must make each day to survive, much less be profitable. It’s difficult and it takes a certain set of skills…skills that politicians don’t have.
There’s a perfect litmus test that will guarantee we get the best healthcare possible for the least costs. Require that 100% of our congressional representatives and senators be on whatever healthcare plan they pass! You can be part of the solution by contacting your representatives and demand they are covered by the same healthcare plan as the rest of us. It’s easy…go to the Resource Center at www.welchgroup.com; click on ‘Links’; then ‘Congressional Representatives’. If you choose to do nothing, don’t complain about the final result. You got what you deserved!
Should the government be in the health insurance business? The best way to look into the crystal ball of the future is to look at the past. Most recently, the government got into the car business with their ‘Cash for Clunkers’ stimulus program. This program, from an administrative viewpoint, should have been a piece of cake to run efficiently. It was all Internet based with car dealers submitting proof of clunker transactions over the Internet and the government then wiring reimbursements to the dealers bank account. Sounds pretty straight-forward, right? Here is a typical dealer experience:
The government announced to the public that the program would begin July 1. However, it was not until July 24 that the 19,000 dealerships were eligible to participate. Local dealer, Hoover Toyota, completed 115 clunker transactions and so far has been reimbursed for four deals. The dealers were prohibited from making any money on the clunker but must use their own capital or borrow money to pay the customer for the clunker while they wait on government reimbursement. Some dealers, expecting the promised 10-day government reimbursement, ran out of capital, were unable to meet payroll and had to drop out of the program. Virtually all dealerships experienced ‘blackouts’ where it was impossible to submit required paperwork due to the government’s computer system crashing on numerous occasions. The whole experience can best be summed up by Gordon Stewart, president of Hoover Toyota. “While I was thrilled with the increased store traffic and resulting sales, as a businessman, I was appalled at how this program was administered.” The government has given Mr. Stewart no indication of when he will receive the balance of reimbursements he is owed.
This is not a particular political party problem; rather it is a politician problem. Most politicians have never experienced the challenge of running a for-profit business; meeting a payroll; or making the kind of decisions that business owners must make each day to survive, much less be profitable. It’s difficult and it takes a certain set of skills…skills that politicians don’t have.
There’s a perfect litmus test that will guarantee we get the best healthcare possible for the least costs. Require that 100% of our congressional representatives and senators be on whatever healthcare plan they pass! You can be part of the solution by contacting your representatives and demand they are covered by the same healthcare plan as the rest of us. It’s easy…go to the Resource Center at www.welchgroup.com; click on ‘Links’; then ‘Congressional Representatives’. If you choose to do nothing, don’t complain about the final result. You got what you deserved!
“Senior Citizens, Don’t Surrender That Life Policy!” - August 9, 2009
The primary purpose of life insurance is to replace income should a bread-winner die prematurely. Most families accept this responsibility as a necessary expense, as they do other forms of insurance such as auto or homeowners insurance. What you might not realize is that most life insurance policies are surrendered long before the policyholder dies. Think about it for a moment. The insurance company collects premiums for years, even decades and then the policyholder drops the policy before he dies. In fact the insurance companies count on high lapse rates and use this information to lower premiums.
In recent years, investors have recognized an opportunity and have begun stepping in offering to purchase policies from policyholders who no longer want them. The transaction can mean big money for investors and policyholders alike. Let’s look at a recent case example. A policyholder decided he no longer wished to pay premiums on his $1 million policy. The life insurance had originally been purchased for the purpose of providing liquidity (cash) to pay estate taxes at death. However, through a combination of excellent estate planning and an increase, in 2009, of the federal exemption for estate taxes for estates up to $3.5 million, the insurance was no longer needed. Also, to keep this policy in force would require future annual premiums of approximately $50,000. In steps investors who offer to purchase the policy for nearly $300,000. The investors now own the insurance and will be responsible for paying all future premiums until the insured’s death at which time they’ll collect $1 million. The insured wins big because typically he would have surrendered the policy with little or no value. The investors, who purchase large baskets of these policies, expect to return a handsome profit on their investment.
What I have just described is called a Life Settlement and there are a number of guidelines that are involved in cases of this nature:
The insured’s must typically be age 65 or older.
The face amount of the life insurance policy must typically be at least $200,000. This is because the time and resources required are not case-size dependant and it’s not economical for smaller cases.
The investors will require access to the insured’s medical records and have them reviewed by a medical actuary who determines the insured’s life expectancy based on his or her current state of health.
Both term life insurance policies (that are convertible to permanent insurance) and cash value policies are eligible.
Payouts vary based on the life expectancy of the insured.
Here’s the lesson. If you are age 65 or older, or know someone who is, be sure that he or she is aware that their life insurance policies could be worth thousands of dollars. As people become more elderly, sometimes they make less well thought out decisions and will allow an insurance policy to lapse because they no longer want or feel they need the insurance; can’t afford the premium; or simply forget to pay the premium.
If you do decide to sell your life insurance policy, be sure to get several quotes since offers from investors can vary widely. This is still a highly unregulated industry and you’ll need to get help from a trusted life insurance representative.
In recent years, investors have recognized an opportunity and have begun stepping in offering to purchase policies from policyholders who no longer want them. The transaction can mean big money for investors and policyholders alike. Let’s look at a recent case example. A policyholder decided he no longer wished to pay premiums on his $1 million policy. The life insurance had originally been purchased for the purpose of providing liquidity (cash) to pay estate taxes at death. However, through a combination of excellent estate planning and an increase, in 2009, of the federal exemption for estate taxes for estates up to $3.5 million, the insurance was no longer needed. Also, to keep this policy in force would require future annual premiums of approximately $50,000. In steps investors who offer to purchase the policy for nearly $300,000. The investors now own the insurance and will be responsible for paying all future premiums until the insured’s death at which time they’ll collect $1 million. The insured wins big because typically he would have surrendered the policy with little or no value. The investors, who purchase large baskets of these policies, expect to return a handsome profit on their investment.
What I have just described is called a Life Settlement and there are a number of guidelines that are involved in cases of this nature:
The insured’s must typically be age 65 or older.
The face amount of the life insurance policy must typically be at least $200,000. This is because the time and resources required are not case-size dependant and it’s not economical for smaller cases.
The investors will require access to the insured’s medical records and have them reviewed by a medical actuary who determines the insured’s life expectancy based on his or her current state of health.
Both term life insurance policies (that are convertible to permanent insurance) and cash value policies are eligible.
Payouts vary based on the life expectancy of the insured.
Here’s the lesson. If you are age 65 or older, or know someone who is, be sure that he or she is aware that their life insurance policies could be worth thousands of dollars. As people become more elderly, sometimes they make less well thought out decisions and will allow an insurance policy to lapse because they no longer want or feel they need the insurance; can’t afford the premium; or simply forget to pay the premium.
If you do decide to sell your life insurance policy, be sure to get several quotes since offers from investors can vary widely. This is still a highly unregulated industry and you’ll need to get help from a trusted life insurance representative.
"First-Year College Students Financial Checklist- Part II" - August 2, 2009
Last week, I began a discussion about the top 10 tips for college students. If you’d like to review that column, go to the Resource Center at www.welchgroup.com then click on ‘Stewart’s Column’. Here are the remaining 5 tips:
Credit card companies are notorious for coming on campus and enticing students with free T-shirts for applying for credit cards. They know that the students will use, and often abuse the cards only to eventually be bailed out by parents. Own no more than two cards and save them for emergencies unless you are certain that you can pay off the full balance each month. As with the use of the ATM machine, be sure to keep a running balance of credit card charges. The easiest way to do this is to enter ATM withdrawals and credit card charges directly into your check register as if you had written a check and then subtract the balance. This will allow you to keep an up-to-the-minute record of your cash balance. Responsible use of credit cards is a great way to begin to build a good credit history.
If you get funds from student loans, be sure to deposit the money in a money market account so that it is earning at least some interest. Current interest rates are low but it still pays to shop around. If you will not need a portion of your funds for several months, you may get a better yield by buying a certificate of deposit (CD) from a bank. To find the highest rates, go to www.bankrate.com.
Identity theft is a multi-billion dollar business and you’ll want to make sure that you don’t become a victim. The typical college students have roommates, suite mates other students roaming through their housing. Be sure to keep all of your passwords, bank account statements, and credit cards well guarded. Also, be careful what information you list on the various social websites. It’s best not to list your exact birth date and definitely guard your Social Security number with your life! Never leave ATM statements behind and be aware of your surroundings when accessing cash from the ATM. There have been cases where the next person in line used their video cell phone to steal a PIN number.
Get a part-time job. Even if you don’t need the money, this is still a good idea. Start by speaking with your professors and department-heads. I got a job as a grader during college and it proved to be a great experience allowing me to get to know my professor on a whole new level. Having some extra spending money that I earned was also a nice benefit.
Network with abandon. Building relationships is just as important as getting a college education. My advice is to ‘be a joiner’ and active participant in as many organizations as time and interests allow. Opportunities abound including student government association, academic clubs and social clubs. The more people you connect with, the more enjoyable your college experience will be and that success will likely translate into financial success after college.
Have a great college experience and make sure that you also learn about personal finance! These lessons will serve you well your whole life.
Credit card companies are notorious for coming on campus and enticing students with free T-shirts for applying for credit cards. They know that the students will use, and often abuse the cards only to eventually be bailed out by parents. Own no more than two cards and save them for emergencies unless you are certain that you can pay off the full balance each month. As with the use of the ATM machine, be sure to keep a running balance of credit card charges. The easiest way to do this is to enter ATM withdrawals and credit card charges directly into your check register as if you had written a check and then subtract the balance. This will allow you to keep an up-to-the-minute record of your cash balance. Responsible use of credit cards is a great way to begin to build a good credit history.
If you get funds from student loans, be sure to deposit the money in a money market account so that it is earning at least some interest. Current interest rates are low but it still pays to shop around. If you will not need a portion of your funds for several months, you may get a better yield by buying a certificate of deposit (CD) from a bank. To find the highest rates, go to www.bankrate.com.
Identity theft is a multi-billion dollar business and you’ll want to make sure that you don’t become a victim. The typical college students have roommates, suite mates other students roaming through their housing. Be sure to keep all of your passwords, bank account statements, and credit cards well guarded. Also, be careful what information you list on the various social websites. It’s best not to list your exact birth date and definitely guard your Social Security number with your life! Never leave ATM statements behind and be aware of your surroundings when accessing cash from the ATM. There have been cases where the next person in line used their video cell phone to steal a PIN number.
Get a part-time job. Even if you don’t need the money, this is still a good idea. Start by speaking with your professors and department-heads. I got a job as a grader during college and it proved to be a great experience allowing me to get to know my professor on a whole new level. Having some extra spending money that I earned was also a nice benefit.
Network with abandon. Building relationships is just as important as getting a college education. My advice is to ‘be a joiner’ and active participant in as many organizations as time and interests allow. Opportunities abound including student government association, academic clubs and social clubs. The more people you connect with, the more enjoyable your college experience will be and that success will likely translate into financial success after college.
Have a great college experience and make sure that you also learn about personal finance! These lessons will serve you well your whole life.
First-Year College Students Financial Checklist - Part 1 - July 26, 2009
With summer fast coming to a close, many once high school grads are about to declare ‘independence day’ as first-year college students. Along with increased freedom comes increased responsibility. You can offer a helping hand by sharing these 10 top financial tips with your favorite college student:
Whether you are paying your way with a part-time job, student loans or receiving an allowance from your parents, it is time you take control of your money by setting up a budget. The best way to do this is by using a software application such as Mint.com. This software downloads, categorizes and graphs all of your spending automatically everyday. You’ll know where you’re spending without spending any effort!
As soon as you get to your school, open a checking account. Many college-town banks offer free checking for students and some may even offer $25 to $50 to open an account. If available, be sure to get overdraft protection. This feature allows you to avoid expensive fees for bounced checks. You don’t plan to bounce checks? I hope not but get the coverage just in case! Also, choose a bank that has convenient ATM locations so you won’t be paying fees when you use another bank’s ATMs. Be sure to keep a running balance of all expenditures, including ATM withdrawals. This will help make certain you don’t have bounced checks!
Class text books can cost you hundreds of dollars…or not. Once you know what text books you’ll need, do an online search for discount new books or used books. Amazon.com is a good place to start but there are many other sources as well. At the end of the semester, you can then sell your books online and recoup part of your costs. One of my associates sold a $170 retail book for $70.
Get in the habit of saving some money each month. This is perhaps the most important habit to establish if you want to become wealthy once you venture into the real world. Even if you are saving only $25 to $50 per month, this is a great start. Have your bank set up a money market account for this purpose and have the funds automatically transferred from your checking account each month. This automated system is the key to creating consistency in your savings program. If you have earned income, a ROTH IRA is an excellent choice.
If you are renting a house or apartment, you should realize that your 'stuff' is not insured. This includes your TV, iPod and furniture. If you want to protect these items from fire or theft, you will need renter's insurance. This coverage is not expensive and should cost you no more than $100 per year. Choose replacement cost coverage versus actual cash value. If your iPod is stolen, replacement cost coverage will allow you to buy a new one whereas cash value coverage will only reimburse you for the value of your 'used' one. For more information about renters insurance and free quotes, go to www.rentlaw.com or have your parents put you in contact with their property and casualty insurance agent.
Whether you are paying your way with a part-time job, student loans or receiving an allowance from your parents, it is time you take control of your money by setting up a budget. The best way to do this is by using a software application such as Mint.com. This software downloads, categorizes and graphs all of your spending automatically everyday. You’ll know where you’re spending without spending any effort!
As soon as you get to your school, open a checking account. Many college-town banks offer free checking for students and some may even offer $25 to $50 to open an account. If available, be sure to get overdraft protection. This feature allows you to avoid expensive fees for bounced checks. You don’t plan to bounce checks? I hope not but get the coverage just in case! Also, choose a bank that has convenient ATM locations so you won’t be paying fees when you use another bank’s ATMs. Be sure to keep a running balance of all expenditures, including ATM withdrawals. This will help make certain you don’t have bounced checks!
Class text books can cost you hundreds of dollars…or not. Once you know what text books you’ll need, do an online search for discount new books or used books. Amazon.com is a good place to start but there are many other sources as well. At the end of the semester, you can then sell your books online and recoup part of your costs. One of my associates sold a $170 retail book for $70.
Get in the habit of saving some money each month. This is perhaps the most important habit to establish if you want to become wealthy once you venture into the real world. Even if you are saving only $25 to $50 per month, this is a great start. Have your bank set up a money market account for this purpose and have the funds automatically transferred from your checking account each month. This automated system is the key to creating consistency in your savings program. If you have earned income, a ROTH IRA is an excellent choice.
If you are renting a house or apartment, you should realize that your 'stuff' is not insured. This includes your TV, iPod and furniture. If you want to protect these items from fire or theft, you will need renter's insurance. This coverage is not expensive and should cost you no more than $100 per year. Choose replacement cost coverage versus actual cash value. If your iPod is stolen, replacement cost coverage will allow you to buy a new one whereas cash value coverage will only reimburse you for the value of your 'used' one. For more information about renters insurance and free quotes, go to www.rentlaw.com or have your parents put you in contact with their property and casualty insurance agent.
"College Costs Rice 50% - July 12, 2009
College costs up 50%! “What?”...you say. Ok, I used this headline as a cheap trick to grab your attention. But in many cases, it’s ‘almost’ true. First, college tuition has risen approximately 6%; then subtract 40% or more for the stock market decline and your costs of paying for college have risen almost 50% if you had a substantial portion of college funds invested in stocks. Maybe your situation is not quite this bad but the combination of continually rising college tuition and fees along with the depressed stock market and a faltering economy are reason enough to stop and re-evaluate the college strategy for your children.
College graduates earn in excess of $1 million more during their careers than those without a college degree so skipping college is a poor choice. But let’s consider some ways to get that degree for less money.
Attend a public university instead of a private college. This is particularly pertinent if your child is likely to pursue a career in a field that typically has limited earnings potential. The math can be compelling. Currently the average costs including tuition, fees, room and board for a public in-state four-year university is $18,000 annually while the same for the average private college is twice that amount or $36,000.
Start at a two-year college then transfer to a four-year public university or private college. This strategy can save a tremendous amount of money. First, tuition for the average two-year community college is about half that of a four-year public university. Also students often live at home saving the cost of room and board. Finally, the lower financial output gives your stock portfolio two more years to recover…enough time for a stock market rebound.
Become a financial aid expert. There are tens of millions of dollars available for student aid in the form of grants, scholarships and loans. Your best strategy is to start early researching financial aid possibilities based on your financial situation, your child’s situation and your college preferences. Remember that there are scholarship and grant programs that are not based on financial need. These include programs for gifted athletes, students with high grades or high entrance exam scores, gifted students in art, music, computer science. Get started now by visiting The Resource Center at www.welchgroup.com; click on “Links”; then “College Scholarship Search Engine”. You’ll be able to search over 3 million scholarships worth over $16 billion!
Have your child work during college. Whether it’s a part-time job during college or a summer job, the extra money can make a big difference as well as increase the child’s appreciation for the college education they ‘earned’. Well, maybe they’ll appreciate it later in life!
Accelerate college studies. There’s a mindset today that college is now a five-year program. Such a mindset will only increase college cost 20% or more. It’s still possible to finish college in three or four years and this should be part of your strategy. Your high school student may be able to take community college courses that will transfer to college. Also, inquire if any high school advanced placement courses qualify for college credit. Finally, consider summer courses at the local community college. This will cut expenses significantly while speeding up your child’s graduation date.
College graduates earn in excess of $1 million more during their careers than those without a college degree so skipping college is a poor choice. But let’s consider some ways to get that degree for less money.
Attend a public university instead of a private college. This is particularly pertinent if your child is likely to pursue a career in a field that typically has limited earnings potential. The math can be compelling. Currently the average costs including tuition, fees, room and board for a public in-state four-year university is $18,000 annually while the same for the average private college is twice that amount or $36,000.
Start at a two-year college then transfer to a four-year public university or private college. This strategy can save a tremendous amount of money. First, tuition for the average two-year community college is about half that of a four-year public university. Also students often live at home saving the cost of room and board. Finally, the lower financial output gives your stock portfolio two more years to recover…enough time for a stock market rebound.
Become a financial aid expert. There are tens of millions of dollars available for student aid in the form of grants, scholarships and loans. Your best strategy is to start early researching financial aid possibilities based on your financial situation, your child’s situation and your college preferences. Remember that there are scholarship and grant programs that are not based on financial need. These include programs for gifted athletes, students with high grades or high entrance exam scores, gifted students in art, music, computer science. Get started now by visiting The Resource Center at www.welchgroup.com; click on “Links”; then “College Scholarship Search Engine”. You’ll be able to search over 3 million scholarships worth over $16 billion!
Have your child work during college. Whether it’s a part-time job during college or a summer job, the extra money can make a big difference as well as increase the child’s appreciation for the college education they ‘earned’. Well, maybe they’ll appreciate it later in life!
Accelerate college studies. There’s a mindset today that college is now a five-year program. Such a mindset will only increase college cost 20% or more. It’s still possible to finish college in three or four years and this should be part of your strategy. Your high school student may be able to take community college courses that will transfer to college. Also, inquire if any high school advanced placement courses qualify for college credit. Finally, consider summer courses at the local community college. This will cut expenses significantly while speeding up your child’s graduation date.
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