Strategies for Life: September 2006

Saturday, September 30, 2006

5 Reasons to start a 529 College Savings Plan

What is a 529 college savings plan? A 529 college savings plan is a state-sponsored, tax-advantaged investment vehicle that allows relatives and friends to invest in a child’s college education. How did it get this easy to remember name? The 529 college savings plan is based on a law created by the government called Section 529. The education savings plans are administered by certain investment companies and subject to contribution requirements and investment guidelines. The funds of the 529 plan can be invested in a portfolio of stocks, bonds, or mutual funds. Almost all states have their own 529 plans, I am not sure why they don't just have one plan but I guess the goverment likes to make it confusing. The funds can be used only for education withdrawals and if they are used non-educational purposes it triggers taxes and a 10% penalty, its still your money you just have to pay a penalty.

Five reasons to start a 529 college savings plan

Tax advantages: The top reason for investing in a 529 plan is to allow the earnings to grow federal tax-deferred. When it comes time to paying for college the funds may be withdrawn federal tax-free. This is a pretty big deal, for example lets say you earned $2000 on year in growth on your investments in the 529 plan. If you nominal tax rate was around 25% you would have to pay $500 in taxes on the growth. With the 529 you end up having another $500 to keep growing for the future.
Annual gift tax exclusion: Another advantage is the contribution limits are much higher and are not subject to the same limits as the the uniform gift to minors laws. Under the 529 plans, individuals can contribute up to $60,000 ($120,000 per couple) for tax year 2006 per beneficiary if contributor elects to recognize that gift in equal payments over five years for tax purposes and the contributor makes no other gifts to the beneficiary during that period.
Keep control: You know I am sure you love your kid and when they are 5 you might think that they would never do anything wrong however, they are totally different people when they are 18. You need to keep control of the money to make sure little Jimmy or Sally doesn't decide he/she needs a new BMW for their 19th birthday. With the 529 plan the donor keeps control of the money – it is not irrevocably given to the child
Things can change: Suppose you are saving for Little Sally again and she doesn't need the BMW or the savings that you built up for her for college because she pegs the SAT, has all A's and gets a full ride to Stanford. Guess what you are in luck. The 529 plan donor can change beneficiaries and you can allocate that money to Little Jimmy in stead.
You get a state tax deduction: For example if you live in Michigan. You may also be eligible for a Michigan income tax deduction. The amount contributed by a Michigan taxpayer to MESP accounts during a tax year, less the amount of any qualified withdrawals from those accounts during that tax year, is deductible from Michigan adjusted gross income in an amount not to exceed $5,000 for a single return or $10,000 for a joint return for that tax year.

Related reading: Check out the following books if you are interested in learning more about 529 savings programs. The Best Way to Save for College 2007: A Complete Guide to 529 Plans or The 529 College Savings Plan Made Simple

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Friday, September 22, 2006

Making Money With Amazon's Affiliate Program

Making Money with Amazon's Affiliate Program

Amazon has a tremendous affiliate program which allows you to sell almost anything through your websites or emails by placing adds to products available on Amazon.com. To get started with the Amazon affiliate program just signup for their free affiliate program at http://associates.amazon.com. The thing that I really like about the Amazon program is the ability to link to a specific product that you want to sell. For example if you want to recommend a particular book or specific product you can create an exact link to that product.

Amazon has also rolled out a feature called aStore's which basically creates the product webpages, including navigation, page titles etc. It is a really cool feature. It allows you to have multiple product pages and select featured products.

Related reading: Check out the following books if you are interested in learning more about affiliate program success. The Super Affiliate Handbook: How I Made $436,797 in One Year Selling Other People's Stuff Online, Affiliate Selling: Building Revenue on the Web

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Tags: investing, retirement, get rich, mortgages, making money online

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Wednesday, September 20, 2006

Publishing your own book at Lulu.com

Do you have a book idea? Have you written a book but don't know how to get it published? Are you a frustrated author just looking for an audience? The traditional publishing industry can be confusing and complicated maze to work through in order for you to get you book actually published. Enter Lulu.com which offers authors a one-stop do-it-yourself publishing shop Basically, it allows anyone to publish a single copy of their book which can be published on demand and purchased directly from Lulu or even Amazon.com.

How does it work: First of all Lulu is different from other on demand publishing outfits becuase there are absolutely no up front fees for the budding author. With Lulu you simply up load your manuscript, select the type of cover that you want, obtain an estimated cost of the publishing, and set your price. The great part about it is with Lulu.com the percent of the book price that you actually receive higher than the amount that you would receive from a traditional publishing company. Nothing wrong with that. Additionally, Lulu allows you the flexibility to select the type of book that you want to publish, hardcover or softcover.

Related reading: Check out the following books and articles on publishing your own book if you are interested in learning more. Getting Your Book Published for Dummies

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Tags: investing, retirement, get rich, mortgages, making money online

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Sunday, September 17, 2006

Option ARM Home Mortgages Danger In the Fine Print

Option ARM Home Mortgages Danger In The Fine Print

BusinessWeek Magazine had a very scary article in the last issue about Option Arm Mortgages also know as Negative Amortization. I am always amazed when I hear radio spots advertising Smart Loans Mortgages, or Interest only loans. It is hard for me to believe that the mortgage industry keeps pitching they types of loans to the public only to create and upside-down situation in the future. How would you like to be living in Michigan right now where the unemployment rate is getting higher, housing sales are very slow, you loose your job and you find out that the balance on your mortgage is actually higher than the value of your house. That's my definition of being upside-down on your loan. It happens all the time in the car loan business. But on your house that can be a real nightmare.

Businessweek said "the option adjustable rate mortgage (ARM) might be the riskiest and most complicated home loan product ever created. With its temptingly low minimum payments, the option ARM brought a whole new group of buyers into the housing market, extending the boom longer than it could have otherwise lasted, especially in the hottest markets. Suddenly, almost anyone could afford a home -- or so they thought. The option ARM's low payments are only temporary. And the less a borrower chooses to pay now, the more is tacked onto the balance.

Home buyers need to beware the Option ARM's low installments are not fixed for the first five years like a tradition ARM or Adjustable Rate Mortgage. Since the housing boom has come to a halt and because home prices have leveled off, borrowers can't count on rising equity to bail them out. Additionally the Option ARM has significant prepayment penalties which make it costly for you to refinance and get out of the loan. Basically, it is a trap.

One example given by BusinessWeek was "Gordon Burger a 42-year-old police officer from a suburb of Sacramento, Calif., is stuck in a new mortgage that's making him poorer by the month. Burger, a solid earner with clean credit, has bought and sold several houses in the past. In February he got a flyer from a broker advertising an interest rate of 2.2%. It was an unbeatable opportunity, he thought. If he refinanced the mortgage on his $500,000 home into an option ARM, he could save $14,000 in interest payments over three years. Burger quickly pulled the trigger, switching out of his 5.1% fixed-rate loan. "The payment schedule looked like what we talked about, so I just started signing away," says Burger. He didn't read the fine print. After two months Burger noticed that the minimum payment of $1,697 was actually adding $1,000 to his balance every month. "I'm not making any ground on this house; it's a loss every month," he says. He says he was told by his lender, Minneapolis-based Homecoming Financial, a unit of Residential Capital, the nation's fifth-largest mortgage shop, that he'd have to pay more than $10,000 in prepayment penalties to refinance out of the loan. If he's unhappy, he should take it up with his broker, the bank said. "They know they're selling crap, and they're doing it in a way that's very deceiving," he says. "Unfortunately, I got sucked into it." In a written statement, Residential said it couldn't comment on Burger's loan but that "each mortgage is designed to meet the specific financial needs of a consumer."

According to the ariticle 80% of all option ARM borrowers make only the minimum payment each month. As a result of this the rest of the money gets added to the balance of the mortgage, which is called negative amortization. Unfortunately the situation gets even worse because as the balance grows after a certain point the mortgage automatically resets at a new higher payments.

In conclusion, if something seems to good to be true it probably is. Make sure before you sign up for a non-traditional mortgage of any type understand what you are getting into. For free advice take the non-traditional mortgage paper work, before you sign, to a bank and take to the loan officer. Tell them that you are considering this type of loan and you would like there opinion on the loan vs. a traditional loan that there bank could offer you. In my opinion your best bet is to stick with a traditional 30 year or 15 year fixed mortgage and pay the thing off as fast as you can.

Related reading: Check out the following books if you are interested in learning more about mortgages, The 106 Mortgage Secrets All Homebuyers Must Learn--But Lenders Don't Tell , and Mortgages for Dummies.

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Tags: investing, retirement, get rich, mortgages

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Thursday, September 14, 2006

Selecting the best mutual funds

Are you looking for the best mutual funds? Do you purchase mutual funds directly from the fund company's. Thanks to the online world there are many ways for you to research the best funds. Of course historical/past performance does not predict future performance. Below are a list of handy and useful online resources for helping you select the best mutual funds.

Schwab Select List: One great way to find mutual funds is through the research tools at your broker. Even if you don't belong to the broker a lot of times you can get free research. For example the Schwab Select list is online and available to anyone.
Morningstar online rating service: I always like to check the Morningstar rating of any mutual funds that I might be considering. Morningstar provides a very concise easy to understand guide to the objectives, management, holdings, and performance of the fund.
Yahoo mutual fund screener: Yahoo has some of the best and easiest to use mutual fund screeners. I highly recommend that you check out their Fund Screener which allows you to search all the funds in the market, and the Top Performers which highlights the best-performing funds by sector, style, and strategy. You can also down load the prospectus of any fund at the Prospectus Finder.

There are several factors to consider in picking a good mutual fund below is a short list of things that I consider when picking a mutual fund:

Management tenure: It is important to understand how long the current manager has been managing the fund. Remember the difference between investing in a mutual fund vs. investing in an ETF is the people managing the money. The manager that has a solid track record in the past could have good results in the future so it is factor that I look at when selecting a fund.
Size of mutual fund: The size of the fund is important. Smaller funds tend to be able to out perform the market. For example it is a lot easier for a mutual fund that has $50 million in trading assets to beat the market than it is for a mutual fund that has $15 billion in assets.
Risk level: The Morningstar rating service will explain to you the risk level of each fund. If you are looking for a stable fund with steady returns that doesn't fluctuate a lot then you probably do not want to select a fund with the highest risk level.
Past performance: Of course the past performance is key. I want to try to find a fund that out performs in its sector. Or is beating the overall market.
Last note in regards to mutual funds. Make sure as you add new mutual funds to your portfolio you determine how the mutual fund is different than mutual funds you already own. I made the mistake back in the late 90's and early 2000's of having a lot of different funds but almost all the funds had the same types of stocks in them. An as a result when the market tanked my portfolio was hit hard.

Recommended reading: If you are looking for additional information on how to invest in mutual funds check out The Morningstar Guide to Mutual Funds: 5-Star Strategies for Success. Also for information on picking the right mutual fund check out Someone Will Make Money on Your Funds - Why Not You: A Better Way to Pick Mutual and Exchange-Traded Funds.

Tags: investing, business, debt

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Wednesday, September 13, 2006

Work at home jobs or telecommuting

Are your looking for a work at home business? A lot of people are trying to balance family life with the balance of trying to pay bills, make ends meet, and get out of debt. However, some people might not be able to goto the office everyday and they might not be cut out for the life of a entrepreneur. Sometimes the next best thing is to find a company that offers the ability for you to work at home or telecommute.

Wikipedia.org defines Telecommuting or, e-commuting, telework, or working from home (WFH) as work arrangement in which employees enjoy limited flexibility in working location and hours. In other words, the daily commute to a central place of work is replaced by telecommunication links. A frequently repeated motto is that "work is something you do, not something you travel to". [1] A successful telecommuting program requires a management style which is based on results and not on close scrutiny of individual employees. This is referred to as 'managing by objective' as opposed to 'managing by observation'. The term 'telecommuting' was coined by Jack Nilles and was first used in the United States.

I am always looking for interesting and innovative ways to work from home since it is one of the most popular questions that I get asked. Below are some of the recent work at home ideas that I have come across.

Airline customer service: I read about an airline, I believe it was Southwest Airlines that has setup it's entire customer service team as a home based or work from home department. This allowed the workers tremendous flexibility. When they are logged onto the system and answering calls they are getting paid. When they need to go pickup the kids from school they aren't. What a great idea.

Title insurance research: A neighbor of ours works out of her home dong title work research for future home buyers. Of course she still needs to run out to the office and drop off information for closing and so on however, she still can work from home and take care of her to small kids.

Other telecommuniting ideas include: selling life insurance for a company like Select Quote or processing rebate checks. The opportunities are there you just need to search for them.

So if you are looking for work at home opportunities and don't think you want to start your own business do some networking and look around for creative companies that offer the ability and flexibility of telecommuniting. One note of caution, be careful of any work at home opportunities that require you to pay first before you can earn. I believe there are real companies out there that will hire you, train you, probably even set you up with a computer and a hi-speed connenction at home without you having to pay. Why should you have to pay to get a job or provide a service. In most cases if you have to pay first the opportunity is not real and they are just making money off of you and not actually offering you and opportunity.

Recommended reading: For other great ideas on how to work at home I would recommend the The Work-at-Home Sourcebook. Or if you are interested in start a home based business I would recommend that you check out The 200 Best Home Businesses.

Tags: investing, business, debt

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Tuesday, September 12, 2006

How to pick a financial planner

So you and your spouse have decided its time to consider getting a financial planner. You are not alone. With the stock market challenges over the last five years it has become difficult for do it yourselfers to make any money in the stock market. With mutual funds, ETFs, stocks, bonds, and CDs all of the choices can be overwhelming and confusing. Therefore, a lot of investors have decided to seek help from a financial planner.

So now that you have decided to seek professional help, how do you go about finding the right financial planner? First of all you might be confused by what you actually need because financial planners come in different names from financial advisors, consultants, planners, or brokers.

How does your financial planner get paid: First of all you need to determine how your representative actually makes money. Does he/she charge a fee for advice, a fee based on the balance of your account like 1%, or make money via commission on your stock or mutual fund trade.

Where can you find a financial planner: One of the best sources to find a good financial planner is to consider a referral from relative or friend. However, I caution you not to hire a relative as your financial planner because if things don't go well it maybe very awkward to fire your brother in law. Another source is to consult the Paladin Registry which specializes in helping individuals pick a financial planner. If you pick a financial planner based on a referral or looking up the planner in the phone book or the Paladin Registry there are several questions you might want to ask the financial planner.

How does the planner get paid, fee or commission?
What is the commission or fee? 1% or 1.5%
Do you have to pay for mutual fund or stock trades? Most of the time when your account reaches a certain size you will no longer have to pay for your trades.
How long have you been a financial planner?
How long has the financial planner been in business?
What certifications does the planner have such as Certified Financial Planner?
Is the planner a member of a NASD?
How many clients does your financial planner have?
What size does my account have to be for me to be one of your larger clients? If you have $50,000 and all of the other clients have $5 million it is potential that you may not receive as much attention as you might like since the financial planner might be spending time with larger clients.
How has the planner done over the last several years in comparison to the S&P500 index. If you are going to have to pay someone 1% to manage your money and they are only averaging 6% return over the last several years you might as well keep your money invested in a Certificate of Deposit or CD.
What type of investments can you buy through your planner.

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