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So, maybe my tips to avoid getting stopped by the law were ineffective, or you ignored them altogether. What next? Now you really have to get to work. I hope you’re a smooth talker. If you want your best chance to avoid joining the almost 35 million people who got a traffic ticket last year, here’s what you do.

Steps to Avoid a Traffic Ticket (Hopefully)

1 – Be respectful to the officer. Remember, they’re doing their job. In 99% of the cases, it’s not their fault you got pulled over, it’s yours. They know it, and they deal with crooks and a-holes all day long, so make their day a little easier. Don’t insult them or insinuate they only stopped you because they’re racist.

2 – For God’s sake, don’t admit anything. If they if you know how fast you were going (and if they stopped you for speeding, they probably will), say you’re really not sure. Say this even if your eyes were glued to your speedometer, and that’s why you didn’t see the light you blew through turn red. This little whit lying does not extend to big, blatant lies, like “Hi there! I’m a deputy over in $$#%^&&% County”. You’ll get caught, and not only will you get a ticket, you’ll probably get much worse.

3 – Don’t do anything that might give the office reason to be suspicious. This includes, getting out of the vehicle, reaching under the seat, or looking rapidly around the car when he/she approaches.

4 – Although it’s risen to the level of an urban legend, you’re not going to get out of the ticket by asking to see your speed readout on the officer’s radar unit. Don’t ask.

5 – Don’t try to bribe or name drop the officer. That’s only going to get you in more trouble.

6 – You might try to come up with a believable story, especially if it’s true and the circumstances are extenuating. If you really do have to go to the bathroom so bad you’re having cramps, it might work. Tell the cop you’re already having a really rotten day, and throw yourself on his mercy. You might get some sympathy.

7 – Have all your paperwork ready for the officer. If you don’t have insurance, you’re going to get nailed for it, so just give up on getting out of a ticket. Even if you have insurance, but don’t have proof of insurance with you, you’ll most likely have to prove to the judge you were insured at the time of the traffic stop. Since not having the proof itself is an infraction in many states, you may get a ticket anyway.

Remember to be vigilant. If you’re driving a bit too fast, always keep your eyes open. Remember, going 10 miles an hour over the speed limit will save you only minimal time, unless you’re traveling long distances on the freeway. In most cases, going 75 in a 60mph zone’s just not worth the ticket. As for other infractions, such as failure to signal or driving too slow in the left lane; those of you who drive that way are a safety hazard and a pain in the ass for the rest of us on the road and probably deserve a ticket.

If none of these steps work, and you get a ticket anyway, there are great strategies to get your ticket dismissed in Beat Your Traffic Ticket. Take a look.

Have a nice day!

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There are a few types of retirement plans for the self employed. The contribution limits vary, but by implementing a combination of different retirement plans, you can contribute a basically (for all but the most successful business owners) unlimited amount. Here is a quick outline on the different retirement plans for those of you who are self employed.

Keogh Plan –
Your friend at Boeing, GM or CitiCorp has a corporate pension plan, you’ve got a Keogh. This is the small business owner’s answer to a corporate pension plan. Set up the plan by the end of the calendar year to be eligible, but you can actually defer the funding until the filing of the tax return, as long as the plan was in place by Dec. 31^st of the tax year. Contributions are either based on a profit sharing plan, or as with many large, corporate pension plans, designed as a defined benefit plan. The latter must be set up using an actuary and the contribution will be such that you reach the target benefit, up to $180K, in the remaining number of years until the payout begins. The profit sharing version of the Keogh Plan allows an annual contribution of up to $45,000 (for 2007) and are based upon a percentage of your business’s profit or your compensation.

Solo 401(k) –
This is the version of the venerable plan for those of you that have taken the entrepreneurial plunge. The solo 401(k) let’s you contribute up to $15,500 this year, unless you’re a half centurian, then you can boost that to $20,500. You can add to that up to 20% of your income (sole proprietor) or 25% (corporate compensation) as well. The obvious benefit to the solo 401(k) is that you can contribute the same percentage as you can with a traditional retirement plan, such as a Keogh, then spice it up a bit with an additional $15 or $20K.

For those of you with yourself as the only employee, you’re as good as gold. There’ll be only a little paperwork involved to get everything rolling. As with the Keogh, you must be ready to go, with everything filed by December 31^st, if you want it to count for 2007. If you do have other employees, you’ll probably be required to offer a contribution to them as well. Talk to your plan administrator about this if you already have one, or find a good financial consultant who’s versed in self employed retirement issues and how they affect your specific business and employees.

Simplified Retirement Plans (SEP) –
Ah, the SEP. SEPs are super easy and you can contribute up to the same $45,000 limit as with the Keogh Plan, using the same percentage guidelines as with the Solo 401(k). Call your bank, they can get you going with a SEP pretty darn fast. If you wait too long, it’s not a big deal, as long as you get everything handled by the time you file your 2007 taxes. The really cool thing is that you can even wait that long if you’ve filed an extension. Pretty cool, huh?

Don’t miss out on proper retirement planning if you’ve got your own business. You can still have your Roth IRA with these other plans, but you shouldn’t have only your Roth. The beauty is that you can enjoy substantial tax breaks and fund your plan with substantial dollars. Retirement could be sooner than you thought.

So, here’s the plan; Get debt free, fully fund your retirement plan(s), retire debt free with a nice income.

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In one of the most shocking survey results I've ever seen, a Bankrate.com survey released yesterday found that over 30% of U.S. mortgage holders were unaware of what type of mortgage they had. You've got to be kidding! How could anyone enter into a contract of that magnitude, with their residence and possibly financial future on the line, and be unaware of the terms of their mortgage? I can hear consumers now: "What do you mean our mortgage payment's going up $300? Why? Oh, the interest rate changes! How does that work?"

That really shows the need for consumers to have at least a smattering of financial education these days. It's not like the information's not out there on the Internet, just waiting for people to find. There are probably 1,000 PF blogs and countless other financial websites where one could go to find out a little nbit of information about something as important as a mortgage. These are probably the same people that check the receipt at the grocery store to make sure they didn't cheated out of $1.00.

I can't imagine how such people are ever going to get debt free, when their largest debt is such a mystery to them.  Other findings in the survey included this gem; 34% of those who knew they had an ARM admitted they didn't know what they'd do when it adjusted! Excuse me, I've got to sit down now.

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The problems have arisen when the loan applicant's names have similarities to names on the list. Due to the extreme penalties levied by the federal government against companies for conducting business with those on the list (another great idea), some businesses have taken a “better safe than sorry” approach if a name pops up, even if it's not an exact match. In some cases, such as the one cited in the Post story, lenders get cold feet even when it can be easily proved that the person on the list isn't the same as the loan applicant. That's a case of the “better safe than sorry”strategy being taken too far, and business should apply some common sense to their selection process.

If that happens to you, you'll be denied the loan for no apparent reason, as the businesses in question are loathe to reveal the reason for your denial. If this occurs, check your credit report (you pulled one before you applied, didn't you?). Chances are there'll be a red flag, in the form of an OFAC alert, on there. You can try to contact the lending institution to clear things up, or just take your business elsewhere.

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You probably have friends that always seem to be driving a bit too fast, or following too closely, yet they never seem to get a ticket. How do they avoid getting a ticket? How indeed? There are two parts to help you avoid getting a ticket. If you happen to be in Illinois, Nevada, New Hampshire, or North Carolina, avoiding a ticket is really important, as these are the states with the top penalties for speeding. (Note: In NH, you can get a ticket for not being 10mph under the posted limit in school zones, watch out!)The first is to avoid attracting the attention of the authorities in the first place. If you don’t get pulled over, even when you probably should have, viola! No ticket! The second part to avoid getting a ticket comes into play if you’re unfortunate enough to get pulled over.

There are strategies you can employ to avoid getting pulled over in the first place.

1 – Don’t look like you deserve a ticket. If you’re stupid enough to have the big, pot leaf bumper sticker, don’t complain if you get a ticket, you dummy. That can also be the case if you’re sporting Grateful Dead stickers, or those from other bands that are known to attract drug using fans. Same holds true if you’ve got “I can’t drive 55” bumper stickers, with all apologies to Mr. Hagar.

One other thing, if your car is a roving junk yard with garbage stacked high on the seats, and bodywork replete with dents and scratches, that won’t help your cause. If you look like the picture of irresponsibility, chances are you’re not going to be the first one the office looks at if you’re in a group of cars going down the freeway at 10 or 15 over. If your car looks like it’s not well taken care of, it makes you look irresponsible. If you’re irresponsible, you probably extend that behavior to your actions behind the wheel, as the cops see it. Are they wrong?

2 – Don’t do anything to attract unnecessary attention. If you grab the bling bling rims, paint flames on your car, install neon underneath, or have the 5” coffee can exhaust tip, you’ll attract attention. Some of it will be from those who you’d rather not get it from, like Officer Friendly. It’s only logical. If you attract more attention, sometimes you’ll get the wrong kind.

3 – Don’t actually do anything to get pulled over for. That’s kind a stupid suggestion, but ultimately an effective one. There are driving situations that’ll get you stopped faster than others. One that’s sure to get you nabbed in short order is weaving in and out of traffic. Check this month’s Car & Driver magazine for state troopers that will verify this. You can often get away with going a bit over the speed limit, if you’re driving otherwise fairly sensibly. The weaving and other aggressive driving is being focused on by law enforcement agencies. They’ll pull you over for such driving almost every time.

Part 2 of the plan to avoid getting a ticket involves what to do if you actually do get pulled over. Sometimes your planning to keep from getting pulled over doesn’t go quite how you planned and you find yourself with an officer asking for your driver’s license. What can you do then to avoid getting a ticket? Soon, I’ll share some ways to keep from getting a ticket when you’re nabbed by the law. Post: How to avoid a traffic ticket if you're pulled over.

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In addition to the price on the tag, you got to take into account how much you actually must earn in order to make the purchase. After all, it’s going to go up at least 7-10% if you’re shopping somewhere with sales tax. On top of that, you need to account for the deductions you’ll be paying for taxes, union dues, and anything else that comes off the top of your paycheck before you ever get the opportunity to spend it. If you’re losing 40% to the federal, state and possible local government to pay your tax bill, you need to account for this when you are determining the real cost for a purchase.

For example, that Harley lists for $19,995. You can’t just earn 20Gs in order to take it home. First, there’ll be sales tax in many states or municipalities. So you’ll really pay closer to $22,000. Then, if you’re financing, you can’t forget the interest. If you get the 11.99% interest through Harley Davidson Credit, you’ll have the privilege of handing over $8,959 in interest over the life of a 72 month loan. Ouch! That averages out to $124.43 per month over the term of the loan, just for interest.

Remember, you’ve got to earn substantially more than the $30,959 total of payments. You’ll need to gross something on the order of $52,000 to make all the payments, if you are in location with state and possibly local income tax. If you make $35/hr, you’ll need to work 1,485 hours to pay for that bike. You probably won’t even ride it that many hours. If, for example, you put 7,500 miles a year on it and averaged 30mph (include stopping and sitting in traffic), that would be only 250 hours a year in the saddle.

Doing an in depth analysis of larger purchases can help you decide weather you really want to spend the money or not. If nothing else, the sheer boredom associated with the calculation may put you to sleep, and cause you to miss the big sale that had you thinking of spending the money in the first place.

Don’t forget the little things, either. That Starbucks you frequent every morning before work may be a mainstay of your social calendar, but consider this. If you put $4,000 a year into your retirement savings annually, ($40,000 x 10%) passing on that morning caramel macchiato could potentially add a 25% to your retirement savings ($4.00 x 5 days x 50 weeks) every year. Needless to say, that amounts to foregoing over $93,000 in the course of 30 years. This is assuming you were to get a 7% annual return on your Starbucks spending.

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Here are some examples of which mortgage products would fit some common financial and lifestyle scenarios.

1 – Traditional 15 or 30 year fixed mortgage – You plan on living in the home a long time, and have a stable income. You'll get a better interest rate by going with a 15 year mortgage, which will cost you more each month, but save you money in total interest over the life of the mortgage. You'll save money not only because of the lower interest rate, but because you'll only be paying interest for half the time. You can also select the longer term, which will give you the ability to have a lower monthly payment, but pay extra on the mortgage when your finances allow.

Be careful that you have a mortgage with no prepayment penalty. A prepayment penalty will severely penalize you for paying the loan off early. Some mortgages with a prepayment will offer a lower interest rate, but you should be extremely wary of a mortgage with such a clause. Your flexibility will be compromised, and it could ultimately end up costing you much more than you'll ever save in interest payments. You have other options when you select the 30 year mortgage. Some experts recommend using the extra cash for investments, because typically a mortgage is some of the cheapest money you'll ever be able to obtain.

2 – Adjustable rate mortgage – As the name suggests, an adjustable rate mortgage will have a variable rate, normally with a lower rate early in the loan. These have gotten more than a few people into financial trouble as the rate, and subsequently the payment, adjusts upward. An ARM can actually be a good fit for some, however.

Here are some situations where an ARM may be the best choice: You're only staying in the home for a short period of time. Say you take a 4 year job assignment. In that case, a 5/1 ARM would be a good fit. You'll benefit from a lower interest rate, and you'll be selling the home before the mortgage adjusts upward.

Another scenario where an ARM may be the way to go would be a situation where your income will be increasing in a relatively short time. Again, you can take advantage of the lower interest rate offered by the ARM when your income is low. Before the mortgage adjusts, you can either refinance to a conventional fixed mortgage product, refinance to another ARM if the rates are favorable, or just accept the higher, adjusted rate. You higher income will allow you the luxury of doing so without feeling too much of a pinch.

Where people tend to get into trouble with ARMs is when they can only get into a home by using the lower interest payment offered by the ARM. They think “Oh well, I've got to buy a house, and I can't afford it any other way. I'll figure out how to deal with the higher payment when the time comes, or I'll refinance.” The problem is that many people's income does not increase as they'd planned, they have additional expenses, such as children, or they underestimate how much the additional payment amount will impact their finances. That's how so many get into a bit of financial difficulty with ARMs. If the real estate market has done well in your area, you can sell the home and realize a substantial profit. In fact many people do just that. They can use the profit as a down payment on their next home. If, however, the market has stayed relatively flat or declined, you may be sitting in a property you can't sell for what you owe. You are, as they say, upside down.

3 – Interest only mortgage – Much of the same applies to interest only mortgages as does to ARMs. The biggest downside to interest only mortgages is negative amortization. In the beginning, you're not paying any of the principal, so you pay your mortgage for years and owe just as much as when you started. At the end of the interest only period, the mortgage will switch to a conventional, fixed mortgage and amortize the loan balance over the remaining term. Obviously, the mortgage payment will increase when this happens.

The rationale for choosing this type of mortgage is that with a conventional, fixed mortgage you really don't pay very much of the principal for the first 5 or 10 years anyway. Why not save some money, use it for other things, such as investment or financing a business, and refinance when the property values have shown a substantial increase. You can then use the equity in the property to secure a different mortgage. As with an ARM, an interest only mortgage is also a great fit for someone who'll be keeping the home for a relatively short period.

In many markets, the property values are so high that many buyers can only afford a home by using interest only mortgage products. In effect, they're renting their home from the bank, but are actually accruing equity at the same time (You'd better hope). Some buyers, in markets such as south Florida, Nevada and California, where home prices have reached the stupid level can find themselves in trouble. If property values experience a correction, you may be unable to refinance. You could find yourself owing hundreds of thousands more than your home is now worth. Those are, however the markets where these types of mortgages are the most popular, due to the extremely high home prices.

What home buyers should not do, in most cases, is use variable rate and interest only mortgages to buy a nicer, larger home than they can otherwise afford. Many use this technique so they can live in that nice, gated community, get slab granite counter tops, crown molding, 3-car garage, and a slick home theater system. Evaluate the pros and cons of your decision very carefully before you potentially put yourself in a position of house poverty. It can be hard to have to put your beloved home on the market because you can't afford to keep it, especially when you can't afford to sell it either.

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Here are 5 of the most common mistakes buyers make when purchasing a home and how you can avoid them.

1 – Buyers often aren’t aware who’s responsible for what. The mortgage companies, their agents, seller’s agents and appraisers work for themselves or the seller. They aren’t there to represent the buyer. You need to know this, and be aware of it when negotiating. Have a clear idea of who works for whom in the transaction process. Be advised, statements you make to any of the above individuals may contain juicy information that may be actually used against you in the negotiation process. Know who works for you, and don’t volunteer information to anyone else.

2 - Buyers often fail to personally inspect the property. Sure, you walk through it with your real estate agent, but too many people then rely on the home inspector to catch anything that may be wrong with the property. Fine, they’re professionals, and that’s what they’re paid for. However, you should go back through the property and really look at everything after you have done the Sunday open house tour that got you so worked up in the first place. In some cases you may benefit from taking along a friend or objective third party to help you see everything a bit more clearly.

3 – Buyers don’t have their own agent. Remember the seller’s, or listing, agent works for the seller to help them negotiate the most advantageous deal for them, not you. You should be represented as well. This is especially important for the first few real estate transactions. These are not like buying a loaf of bread at 7-11. Real estate transactions are very complicated and one small mistake could either cost you thousands or fail to generate the maximum benefit for you. Real Estate for Dummies may be interesting, informative reading, but do you want to trust a little, yellow book with your hard earned dollars? Remember, there are a myriad of state and local laws and statutes that any guide book may inadequately cover.

4 – Using the bank or mortgage company’s estimate of what they can afford. All too often they substantially overstate the amount of home you can actually afford. There are legions of homeowners out there who are house poor due to following this advice. Remember, you’ve got to have money put away for any of the little things that may crop up for maintenance and improvements, and you’re going to have to make the mortgage payments every month for quite some time. You should look in homes that will require you to finance only about 3 times your annual income. In some areas, you may be hard pressed to find a livable property for such a figure, but otherwise you may have to resort to dome pretty creative financing to swing the deal. If you’re trading up, you can obviously use the equity in your existing home to contribute to your new home. This will allow you to afford more house.

5 – Failing to take other factors besides the home itself into account. Remember, there are plenty of other things that contribute to your homes long term value and the quality of life you’ll enjoy when you’re living there. Look at the rest of the neighborhood too. Proximity to freeways are important for resale and your convenience if you’ll be commuting to work everyday. Many times you’ll be shown the home on a weekend, when there’s no traffic. Sure it’s only 15 minutes to work, ON SATURDAY! You should come back on Tuesday morning about 7:30am for a more representative picture of the commute. You may be surprised to find out that 15 minutes grows to an hour during morning rush hour.

Drive through the neighborhood and talk to potential new neighbors. Check up on the schools. They are a huge impact not only on your children, but also on resale values. Go online and check your city or county’s planned projects that may impact the area. In many cases, you’ll be able to find about projects many years in advance by looking at appropriations for environmental and traffic studies. Remember that a new road, an expansion of an existing road, or a rezoning amy substantially affect your lifestyle and future property values.

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Many people don't get as many raises as they should, either because they never actually ask for one, or because they don't do what they should to make sure their boss says “Yes!” when they do ask. Here are 4 things you can do to make sure you'll get that “Yes” when you go after your pay raise.

Be careful about using another job offer as leverage. If you plan on taking the other job anyway, fine, take the job. If however, you'd really rather stay put, you should be very tactful when you present the fact that you've got a better offer, and you'd like your firm to match it.

1 – Have all your ducks in a row. If you want to get a raise, you need to be ready. Have all the reasons why you deserve a raise ready to present to your boss, in a clearly organized fashion. Not only will the reasons support your pay raise, but the fact you are so organized and actually have your supporting documentation will be a reason in itself for your boss to give you that raise.

2 – Think about it from your boss's point of view. If you were your employer, what would it take to make you say “yes” to your pay raise? This is vitally important. Business owners, understandably, tend to think about things from a business perspective. They value high quality employees and don't want to lose them. Looking at the question from your bosses point of view will help you think about why they should say “yes”, and what you can do to help them say it.

3 – Increase your value. Do what ever you can to increase your value to your company. This will actually take a bit of planning and groundwork. Think about your job functions and how you can do them more efficiently. You may have suggestions on how to improve your job's process or your company's overall efficiency. Additional training will almost always be viewed as a plus, especially if you undertake it on your own time and it directly benefits your job. If you're in a sales position, remember that you are directly impacting your company's bottom line. The more you bring in, the better the firm's revenue, and ultimately yours. If you are compensated with a commission, obviously increasing your sales will increase your income. Increasing your value doesn't mean working your fingers to the bone with endless hours of unpaid overtime, however.

4 – Propose a Different Pay Structure – Maybe you would be better compensated if you had performance bonuses or some other compensation structure that rewarded you commensurate with the value added you gave to the company. It happens in pro sports all the time. Players will be incentivized for hitting certain performance targets. An extra $50,000 for every touchdown over 15 per season, or $125,000 for each sack past 5 on the season. It's normal in business for the same thing to be negotiated as part of a compensation package, and perhaps it would work for you too. A bonus structure is a win-win for all concerned. It gives the employee a chance to achieve greater compensation, and it gives the employer a chance to compensate the employee only for quantifiable value increases.

You could also look at getting unconventional compensation in lieu of just money. These are great in many cases, because they allow your employer to make use of underutilized resources, and you to benefit from them. Maybe you could get a company car or use your firms recreational property a few times a year. The possibilities here are endless, but vary tremendously depending upon your company.

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That was two weeks ago. Now it‘s getting to be closing time and lenders are balking at the 5% figures quoted earlier. The reasons given for their trepidation are the mortgage market problems leading the business news of late. They may require him to pony up another $30,000 for the down payment. It all points to the importance of keeping on top of your credit score and history. Imagine the problems if he’d fallen into the subprime category!

Millions are in the subprime category, unfortunately. The result will be up to a million potential buyers, by some estimates, that will be unable to secure home financing. Even more optimistic analysis points to the evaporation of 250,000 – 350,000 buyers from the market. You know what that means, even if you flunked Econ 101. Lower quantity demanded will equal lower prices and longer time on market for sellers. If the mortgage defaults feared by the lenders actually come to pass, that will put foreclosed properties on the market in record quantities. Foreclosed properties, and those in pre-foreclosure, tend to fetch less than top dollar in the market.

If the market does become rife with foreclosed properties at low prices that will only increase the downward pressure on home prices. Some experts predict a 6-8% drop in certain areas, such as California and Florida. Others are seeing something on the order of 1-3%, if any at all. It depends upon weather the foreclosures actually materialize, and if so, how many. It could add up to investment opportunities for those of a mind to try foreclosure investing. It could also spell trouble for those who’ve got to sell their homes for some reason. This could take much longer than we’ve become accustomed to, and likely won’t bring the money that would’ve been seen in the last few years.

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China's a growing economic power, no question about it. It's economic growth is unprecedented in modern history. You'd have to have been doing your Rip Van Winkle impersonation for the last decade not to know about it. This dramatic expansion of the Chinese economy has affected us on several fronts, and will continue to do so for the foreseeable future. How will it affect you, your retirement planning, and your future economic well being? Here are some thoughts on the subject.

First, the average urban income in China has increased six fold in China since 1990, according to the official the Chinese government statistical yearbook. To magnify the importance of this growth, not only in is the income of the average Chinese city dweller increasing by leaps and bounds, but the majority of China's population growth is now occurring in the cities. Over 3 million new residents found their way into Chinese cities last year alone. This upsurge of relatively affluent city dwellers want to become consumers as is the case in much of the rest of the world. Repressed consumerism is hard to contain, and like any other natural force, it will eventually escape.

These new Chines consumers want to buy things alright, and one of the most sought after items in China is a new vehicle. Naturally, this burgeoning market has attracted automakers from all over the world like ravers to a free bowl of X. Obviously these new automobiles and shiny SUVs will consume fuel. What many onlookers fail to account for is not only the additional fuel consumed by the Chinese motoring public, but the added petro products consumed in one of the fastest growing Chinese industries, building all those new cars.

Not only that, but once they're built, they need somewhere to drive. China has embarked in a massive road building program. A Congressional Budget Office report on China compiled in April of 2006 indicates that the number of highway miles in China has increased by almost 100% in the last 20 years. Many of those roads are very petroleum intensive to build, requiring asphalt for the pavement and diesel for the road building equipment. The CBO report also indicates that there are sure to be plenty of new drivers for all those vehicles, as the number of new Chinese drivers has increased by a factor of 6 in the last 15 years, and the rate of growth in new drivers is actually increasing.

As you're doubtlessly aware, a preponderance of the new stuff lining the store shelves at the local CostWalget hails from new manufacturing plants in China, much to many people's chagrin. The production of these trinkets and plasma TVs eats oil at a prodigious rate. This is due not only to the energy required to actually produce the products but the majority of them contain a high percentage of plastic. For those of you that think that the rising price of oil just makes it more expensive to get to the store, think again. Most plastics are composed primarily of petrochemicals, so increased production of plastic products will naturally increase oil consumption. Factoring in all of the above, Chinese oil consumption is now over 7.5 million barrels per day. This is up from about 2 million in the early 1990's. If the present rate of growth continues, and there's nothing to suggest it won't, that will be up to about 16 million barrels by 2020, and pass the U.S. soon afterward.

So, what could all this mean to the rest of us and our economies? Well, if you are invested in companies that build products for sale in China, or services that are provided to Chinese, you could stand to do very well indeed. According to the 2006 U.S. CBO report on the subject, if the cost incurred by the increased Chinese demand were to be passed on to consumers, that alone could cause gasoline and diesel prices to rise by an average of $.24/gal. Light oil products, such as gasoline, petrochemical feedstocks, and diesel, are more expensive to refine than lower grades of oil products. The Chinese demand for these grades is growing even faster than the demand increase for oil as a whole. That could cause even further price increases if worldwide refineries have trouble keeping pace. In the U.S, policy concerns and damage to refineries caused by fires and hurricanes are pressuring refineries to produce even more form existing facilities. Hobbled by an inability to increase capacity through new refineries (if you've ever tried to get a building permit for a house in most of the major cities, you can just imagine how tough it would be to get one for an oil refinery) we'll likely have to look to foreign refining capacity to meet increased domestic demand.

The increase in petro prices in the U.S. will cause an entire range of consumer goods to increase in price, even as more of these goods are being made in China. Chinese consumer goods production actually serves to depress consumer goods prices due to their ridiculously low labor prices and modern production facilities. So we'll have more expensive consumer goods, and increased costs of bringing those goods to market, due to increases in fuel prices.

It's ironic that the very thing that is giving us these cheap consumer goods is one of the primary factors in the increasing fuel prices. If you purchase few Chinese made consumer goods, you effectively get stung much worse. This is because you're not benefiting from the lower consumer goods prices, but are paying high prices at the pump and on any products that are transported or made using petrochemicals. If you save money by purchasing inexpensive, Chinese consumer goods, you offset some of the price increases you're facing at the pump and elsewhere.

The whole subject of capital flight to China and the increased trade deficit with the Chinese is the subject for another day. If we'd open the gulf and the arctic to increased oil production, we could offset some of the trade deficit by supplying the Chinese with the oil they desperately need. In order to accomplish this however, we'd need to drastically reduce our domestic consumption, something the conservationists would relish. In fact, while it would be a great thing to reduce our oil consumption, our growing population is likely to make that difficult, even if we drive more efficiently and in more efficient vehicles.

Domestic initiatives to switch to alternatives such as ethanol have some merit, but while these could decrease our oil consumption, they'll do nothing to decrease our fuel consumption because these fuels have less specific energy content than gasoline. Most vehicles actually get substantially (20%-25%) worse fuel economy running E85 than running gasoline.

So the upshot is no, it won't doom the rest of us, you will pay more for almost everything though, even the Chinese stuff, because of the increased Chines demand for crude. You could, however view this as an opportunity. There'll be investment opportunities in firms that supply that Chinese economy. You just need to nose around a bit to find out where. Stay tuned...

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Posted by debtblog at 02:46 PM | Permalink | Comments (0) | TrackBacks (0)

Given everybody’s investment requirements are different, here a 4 keys to a successful, long term investment strategy.

1 - Diversity – Yes, I’m sick of hearing about diversity in this overly PC world, but we’re talking about your portfolio here; diversity in stocks. Over the long term, equities are the best performing asset class, with an average annual return twice that of bonds, which are the next best asset class (but one you should have in your portfolio as well). The operative phrase here is “long term”. Few of us will be investing for 50 years. For most of us the time horizon will be more like 20 to 30 years. There’s a chance that you could experience limited returns with a 20 year time horizon.

My pick for equities are value oriented stocks from healthy companies with a solid earnings history. That’s important on two counts. One, earnings are the prime indicator of stock appreciation. Two, these companies tend to pay great dividends, which can be reinvested. This leads to point number two, which I’ll get to in a second. Make sure you choose stocks from different, diverse industries. You don’t want an industry specific problem to whack a chunk off your portfolio’s value. Choose companies you’d want to own a piece of even if the stock appreciation wasn’t an issue.

Bonds will balance out some of the volatility in your stock holdings. They tend to rise when the stock market falls. In addition, bonds are not as volatile as stocks. The shorter your investment time horizon, the more your portfolio should have in bonds. That’s because if your portfolio is too volatile, a few bad years could knock you backwards so far you’re unable to recover your portfolio’s lost value. You’ll probably not get the return with bonds you’d get with stocks, but your chances of losing a substantial portion are diminished as well. If that loss does happen to you, but you have a long time horizon, you can recover from the setback, and the greater returns typically generated from equity investments will actually let you come out ahead. In the long term, bonds will not beat inflation, so you’ll actually tend to lose purchasing power, not the desired result for long term investing.

Under diversification often happens to those who are invested in company retirement plans that require the purchase of company stock. Remember, you’re already tied to your company through your job. That’s a huge investment in itself. Do you really want all your eggs in one basket? Try to put a few in another.

2 – Dividend Reinvestment – Dividend reinvestment is a wonderful thing. You can actually make little money from the appreciation of your stocks and still experience healthy portfolio growth by reinvesting your dividends. Later, after your portfolio’s all grown up, you can receive a nice income from your dividends as well. You can do this with a Dividend Reinvestment Plan (DRIP) and purchase the stock directly from the company, through a transfer agent, or from a traditional brokerage firm. Some of the company offered plans allow you to purchase the additional stock at a small discount. You could also just use the dividend check to purchase more stock, if there’s no formal plan available, but you’ll lose the benefits provided by formal plans.

Fees from the companies can vary widely, so check them out. Other DRIPS may or may not include additional brokerage (for stock purchased on the open market) or service costs. You’ll then earn dividends on your original shares plus the new shares purchased with dividend earnings, allowing you to purchase even more.

To illustrate the power of dividend reinvestment, consider this: Since 1950 the S&P 500 stocks have returned 7.65% annually. When the dividends from the S&P companies were reinvested, the return jumps to 11.5%! There is obviously an opportunity cost associated with this. After all, if you reinvest the dividends, that’s capital you don’t have available for other purposes, but it will supercharge your portfolio’s performance and can be made automatic. Automatic wealth generation is the best kind, isn’t it?

3 – Long Term Thinking – Unless you plan on retiring in the next few years, you’re in this for the long haul. Don’t check your Ameritrade account everyday. You’re going to have some fluctuations, so just don’t get too worked about it. This isn’t day trading. Unless you’re rebalancing your portfolio, or a major opportunity suddenly appears out of the mist, you’re going to hold on to your stocks for a long time. Don’t go for the quick hit. You may make a nice profit, but more often than not, you’ll take a hit. There’s investing, and then there’s speculating. You should be doing the former.

4 – Planning – As in business, you should have an investing plan. What are your goals? What are your options for meeting them? If you have a formalized plan, it’ll be much easier to stay on track and avoid pitfalls, such as dropping a few thousand on the latest electric scooter company. Just like your business plan, your investment plan will get you to think about all the details and how you’ll address them. If you actually have a path, it’s much easier to stay on it. Like business, the military, motor racing and athletics, investing is a goal oriented, performance based activity. Determine the goal, focus on it, and plan to achieve it.

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What is important? Well, in the grand scheme of it all, many things, but beyond things such as world peace and food for the hungry, when looking for a new career, you'll want to consider things that impact your personal economics, security and satisfaction. The three most important factors used to compile this list are:

1 – Demand - Obviously you want to choose a career that has a high demand, so you have as many options open to you as possible. You'll be less limited on where you can work and the companies you'll work for. Typically the demand for a product or service has a dramatic effect on the next item on our list, money.

2 – Salaries – After investing 4 to 6 years of your life and tens or hundreds of thousands of dollars in a college education, you'll be looking for a solid return on your investment. The same holds true if you've been in the workforce for years and are looking to make a change. In that case, you want to be sure the money will be there, although there are more reasons than money for choosing a career path. You want a job that has a high job satisfaction rating. After all, precious few careers will compensate you sufficiently for spending you life doing a job you despise.

3 – Job Satisfaction – The world is replete with tales of those leaving highly paid, high pressure careers for those with lower pay, but more job satisfaction. Remember that satisfaction means different things to different people. Some employees relish high pressure, fast paced environments, while others would just as soon spend their time in positions a little more relaxing. Typically money is a component of job satisfaction, but not everything. Factors most strongly correlated to job satisfaction in University studies include the following: autonomy, perceived control, workload, complexity, quality of coworker relationships, coworker satisfaction, and of course money.

Here then, are some of the top jobs throughout the end of the decade -

1 – Personal Finance Advisor – Hey, look at this! This should be right up the alley of those with, or frequenting PF blogs. Basically you get paid, and quite a bit too, for helping people determine what to do with their finances. You'll be matching personal risk tolerance with investment goals to help them achieve those goals without losing too much sleep. Growth in personal financial advisors is predicted to be strong throughout the decade, at over 35%. To top it off, you'll be extremely well compensated for your efforts with salaries topping out at far, far beyond $100,000/ yr.

2 – Software Engineer – The demand for those who create the stuff that makes us, alternately productive and happy, and then fist pounding lunatics, is predicted to be extremely strong throughout the decade. Software engineers make bank, too with salary ranges for the middle 50% from $63,000 to $98,000 according to Bureau of Labor Statistics. If you're an ace, you can earn well beyond $100,000 in the software engineering field, however. In 2004, the top 10% pulled in an average of $118,000, and you'd have to think that's grown a bit by now, unless those jobs have all moved to India. You can also be a consultant or temp with software engineering credentials, if flexibility is more important to you than security.

3 – Environmental Engineer – As the furor rises over the global warming & climate change thing those of you in the northeast / midwest called BS on this winter, it will do one thing; keep demand for environmental engineering professionals strong. These folks design systems to get clean water to us and get waste away from us. They also help with recycling and pollution control. You'll typically need alot of schooling for this sort of position, so maybe it's not something for those contemplating a career change. However, if you want to feel good about helping the environment and walk into a good job after college, it's a hard field to beat. You'll be looking at a wide range of compensation. Many of these positions are with government agencies, and you know what that means; lower pay, but you can't ever be fired. There are however, top paying positions available with oil and gas companies, and environmental consulting firms. Snag one of those, and you'll be in line for an $85,000 to $100,000 year job.

4 – Pharmacist – You like white coats? Great, be a pharmacist, it's the standard attire. As the population ages and our elderly have an increasing appetite for products form the pharmaceutical industry, the demand for pharmacists is predicted to be very strong throughout 2014. Not only do you get to work in a clean, whit coat, you can make some serious money as well. The average (middle 50% salary range) grocery store or hospital pharmacist grosses about $85,000 a year. You can do much better. There are stories of recent school graduates being offered positions in that range complete with hefty signing bonuses (Hey, it's like being drafted by the Yankees). Top earners make around $110,000 a year. You can also use the position as a gateway to a pharmaceutical sales career, where you'll make a nice livin' too.

You can stay debt free so much easier if the income leg of your financial traingle is strong and stable. 

PS - Don't forget to fill out your NCAA bracket!  

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Besides the usual identity theft tips, there are other things you can do to make sure your identity, and your good credit, stays yours. I posted on this subject back in December in a post about freezing your credit. That can be very effective in preventing a thief from opening new accounts using your personal information, because it prevents anyone from pulling your credit report. Typically no one will give you a new credit account without first checking your credit history. If you find someone that will, be sure and let us all know. Beyond freezing your credit there are other steps you can take to protect your credit and make sure all your debts are really your debts. This is especially important if you think you may have already been a victim.

Step 1 – Get a copy of your credit report from at least one of the major credit reporting agencies, so you'll have a baseline. As an added bonus you'll be able to clear up any erroneous credit report entries you may find. You can do this by contacting either Equifax, TransUnion, or Experian. They also have a website dedicated to supplying you with your credit report. It's here.

Step 2 – Put a fraud alert on your credit report. Fraud alerts come in two varieties; extended and initial. You need to contact only one of the credit reporting agencies to accomplish this. By law they're required to contact the other two agencies for you. The difference between extended and initial alerts is as follows: Initial lasts for 90 days and is the appropriate step to take if you think you have been, or may soon be, an identity theft victim. When the alert is placed upon your report, you'll then be entitled to 1 copy of your credit report in the next year form each of the 3 reporting agencies.

On the other hand, an extended alert, as the name suggests, lasts much longer, 7 years. With an extended alert, you're able to receive 2 copies of your credit report annually from each agency. An extended report requires you've actually been the victim of identity theft and have filed an identity theft report with a law enforcement agency. Now a prospective creditor is required to actually physically verify your identity before it can issue you new credit. Sounds like something that should be done every time, anyway. Then the incidence of this sort of theft and bogus credit use would drop drastically. You know what I'm going to say - “Call your legislator, now.” In most cases you'll have to file a local report in the jurisdiction where the theft occurred. For example, in one of my businesses, we had someone in Illinois use a credit card fraudulently obtained from someone in Washington State. We had to file a report with the authorities in Illinois in order to recover our damages from the credit card provider. Thankfully we'd used address verification (we did that with all our orders) and were informed the address was a valid shipping address before we sent the merchandise. That's why you should set up your credit cards to only allow online orders to be delivered to the billing address. For more information on this sort of credit protection, see the Federal Trade Commission's website.

Step 3 – To avoid identity thieves from circumventing address verification by using stolen information to change your credit card's billing address, you should contact your bank or credit card issuer to obtain a personal security code. Now in order for someone to alter any information on your account or use your account, they'll have to know this secret code in addition to your PIN, SSN or other personal information they may have fraudulently obtained.

Other preventative measures you can take to safeguard yourself against this problem are:

1 - Encrypting personal information files on your computer. Microsoft Vista and XP Pro allow individual folders to be assigned passwords so they can't be opened by unauthorized personnel. Keep a list of all your credit accounts in such a folder for easy access so you can notify all your creditors in the event of a problem.

2 – Write the following words on the signature line of your credit cards with a Sharpee permanent pen “Please Check ID” and make sure clerks at any retailers follow the request.

3 – Never have your SSN or driver's license number printed on your checks. Talk about a goldmine for ID thieves! Now they have your bank account number, address, name, SSN, and DL number in one convenient location.

For even more great information on preventing identity theft, see some great identity theft posts by Free Money Finance.

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For most of you your mortgage will be your largest personal debt. It can be a bit scary the first time, even if large financial transactions really get you going. These days it seems like there are about ten thousand mortgage products out there all vying for your attention. Obviously they all can't be the best, no matter what the guy on the radio says. How do you wade through the crap you're bombarded with and actually choose the mortgage product that's the best for for you and your situation?

In the good old days, there were two basic types of mortgages, fixed and adjustable. Fixed, as the name implies, has a fixed interest rate for the entire term of the loan. Usually fixed mortgages are for either a 15 or 30 year term. These days some 40, and even 50 year mortgages are starting to leak out of that land of the wacky, California, due to the proliferation of 40 year old, 3 bedroom ranch houses with $750,000 price tags. The problem with these super long term mortgages is that you'll pay a huge amount of total interest on your property due to the extremely long term. After all, you'll be paying interest for 40 or 50 years.

Adjustable mortgages, also known as ARMs, have an interest rate that changes during the term of the loan and is typically lower at the beginning, then adjusts up after a set number of years. The advantage of an adjustable mortgage is that it will let you have a lower house payment early in the mortgage. Later, the payment will adjust upward. In theory, two or three things will have occurred by then. Either your income will have gone up, or the value of your home will have increased, possibly both. There is also the possibility you'll have sold the home and moved on. Adjustable rate mortgages account for around 22% of mortgages these days.

The mortgages will be described using a numerical figure such as 5/1 or 3/1. That's not a fraction, but describes the number of years before the mortgage adjusts initially, and how often it will adjust thereafter. A 5/1 ARM would adjust after 5 years, then every year after that. The rate is tied to an index, such as the London Interbank Offered Rate (LIBOR), or the Fed Prime rate. You'll usually pay the index plus a set percentage, such as 2%. Usually the consumer is protected from radical rate increases with caps that limit the amount the rate can increase in any given period. There is also a lifetime cap that limits how much the bank can ultimately adjust your mortgage. Typically, if you're still living in the home, the mortgage is refinanced before it actually adjusts upward, and the higher payments are avoided. This is possible because the property has appreciated, so the mortgage holder has equity in the home.

A type of ARM that's become popular lately is the option ARM, also called a “payment option loan”. The option ARM, as the name suggests, gives the homeowner an option on the payments every month. These are a favorite of the radio advertising set because they sound so attractive. “Hey, pay what ever you want, we don't care. We're so easy.” They're so easy because these types of products make them so much money. Normally, option ARMs will allow the homeowner to pay either the payment for a 15 or 30 year fixed, the ARM the customer originally signed up for, or an interest only payment. The problem with these mortgages is negative amortization. That's right, you're going backwards.

Keep this up and eventually you'll reach what's called the “Recast Cap”. At this point, you're out of options, too bad. The recast cap is typically set at 110% to 125% of the original loan balance. When your mortgage reaches the point where you owe that much of the original loan, the payment adjust automatically to the point where it needs to be to pay the fully amortized loan balance. Talk about sticker shock! Too many people get themselves into trouble when they aren't able to make these new, larger payments. You could be headed for foreclosure if you can't make the payment or your home's value hasn't reached the point where you can sell it and pay off the loan.

Interest only mortgages have increased in popularity to keep payments to reasonable levels. If you can't afford a payment where you're reducing the principal, it stands to reason the payment will be lower. As with the payment option loan, you'll have a problem at some point, because the lender will want their money back. Really. Depending upon the structure of the mortgage, you'll have from 5 to 10 years to pay interest only, thereafter you'll have to actually pay the principal. These work if your planning to live in the home for a few years and then sell it. Wait, that works if the real estate values in your area are rising. If they're rising you can pay only the interest portion of your mortgage to keep your payment low, and still have equity in the home when it comes time to sell.

Where this all can go astray is if the real estate values actually stay stagnant, or heaven forbid, fall. Then you'll be sitting on a home that you can't sell unless you pony up some dough, possibly a hefty chunk of it. Anyone can find themselves in this predicament if their homes value falls far enough, because you only chip away at a little of the loan's principal for the first 10 years of a 30 year mortgage anyway.

In many cases, either to afford a home at all in many metro areas (Boston, NY, Seattle, San Francisco, LA, etc.) or to afford a home they think they should have, people are getting themselves into trouble by getting into mortgage products that don't address the principal. If you're in a stable employment situation and your home's value appreciates, you can come out okay. If you have a little bump in the road, however, it can all come tumbling down. That can happen with any mortgage, but the risks are greater with the creative options. Weigh your options carefully, and don't let your love of a home make you do something that could cause you to lose it, when maybe you should have gotten something a step down the ladder.

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Posted by debtblog at 02:10 PM | Permalink | Comments (0) | TrackBacks (0)

I too have been guilty of failing to effectively leverage relationships with some of the extremely powerful and effective individuals I've had the fortune to meet. Throughout the course of my career, both academic and professional, I've had the occasion to build relationships with Fortune 100 CEOs and other top level executives, wildly successful small business owners, publishers, physicians, highly respected attorneys, professional sports franchise front office personnel, and top professional athletes. Leveraging these relationships does not mean plying them for investment advice and stock tips, although many of the aforementioned individuals could doubtlessly provide some real gems in that area.

For many, it begins during your academic career. College is a tremendous place to forge long lasting friendships and relationships, and people find many of their best friends while at college or university. In fact, it could be (and has been) said that one of the primary benefits of your time spent there is the social network you build. That should be a treasured resource that will serve you well throughout the rest of your life. You'll have few other opportunities in life to build such a vast and diverse social network. The people in your network will go on to enjoy fantastic and varied careers in all walks of life, from public servants to corporate executives.

Many of the successful individuals I've been fortunate enough to meet got that way in part through effective leverage of their relationships. It takes much hard work to be sure, but it comes back to working smart, not just hard. For example, if you're trying to get a product into a major retail chain, it can be extremely difficult to get your foot in the door of the purchasing agent's office. That agent sees countless products every day. For purchasing agents of Costco, Walmart and the like, it's almost like being a highly respected agent in Hollywood. Every up and comer is trying to get through your door, and have just five minutes to impress. However, if you had a relationship with the Chairman of one of these retail giants, that could be leveraged to get you that opportunity.

Weather you're successful from that point forward or not, can be a combination of factors, but without leveraging the relationship with the senior executive, you'd have been lucky to have even gotten your product in front of the right person. In addition, the recommendation of the executive gives you instant credibility, something other sales reps or business owners would have to spend months or years building. It's that credibility that can be the most important, yet difficult thing to establish, yet leveraging of relationships can allow you to bypass that step completely, and forge an effective, new relationship.

Therein lies one of the most important components to effective relationship leveraging. You must use it to widen your existing relationship network. Your relationships are one of the most important and satisfying resources at your disposal. Through effective leveraging of your network, you'll find fantastic business opportunities, great friends, real estate deals, employees and employers, possibly even your spouse.

Becoming debt free involves strengthening the three legs of the financial triangle; increasing income, reducing expenses, and leveraging your existing income to do more with what you already have. A key component of all three can be effective relationship leveraging. You can increase your income through a better job or business success. You can reduce your expenses through opportunities you find through your network. How many times do you hear about great deals or money saving ideas through friends? You can also do more with your existing assets through the opportunities presented via your network as well. Leveraging your relationships, and building new ones can make all the difference.

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Posted by debtblog at 02:37 PM | Permalink | Comments (0) | TrackBacks (0)

1 - Although it's possible for you to end your journey through self employment / home-based business debt free and happy, there are countless pitfalls along the way that make the journey somewhat harrowing. A little personal risk aversion assessment is in order for you and any members of your family directly connected to your little (hopefully one day not so little?) venture. With that in mind, here are some free resources you can turn to for advice to make your journey to debt freedom a little easier if you've chosen to follow the home or small business route.

There is a group of old soldiers, well, retired executives actually, that got tired of puttering around the house or playing golf everyday. They want to have others benefit from their considerable expertise and benefit the economy by helping out small business owners at the same time. They are the Service Corps Of Retired Executives (SCORE). They have offices in many U.S. cities and are a great resource you can call on for business guidance. It's like having a high priced consulting firm at your disposal, except they aren't high priced. They actually don't charge for their services.
They can be reached here: http://www.score.org/

2 – A wealth of information can be found pertaining to many facets of business at the Free Management Library. It's a large repository of business related information with sections on many subjects including financing, interviewing, business planning, resource allocation, publicity and media relations, advertising and promotions, and much more for both for-profit and non-profit businesses. It can be found here: http://www.managementhelp.org/

3 – The Achilles heel of many small and single person businesses is business planning. Although many experts continue to insist on the importance of proper business planning, and everyone with a business school background had it pounded into their heads in college, the fact is that many business owners get started with insufficient planning. In many cases the if business plan exists at all, it's only in the owner's (overwhelmed) mind. BusinessPlans.org is a resource where you can get sample plans you can adapt to your specific business needs, in addition to countless other business planning resources. Find them here:
http://www.businessplans.org/index.asp

4 – One other resource that can provide you with valuable information to help start, grow, or maintain your small business is your state or local Small Business Development Center. They and many, many other business resources can be reached through http://www.buzgate.org/ . Buzgate has business resources relating to planning, marketing, consulting and much more. They do sell things on the site, but the amount of free information is really substantial. You can search for resources by state.

Hopefully these resources can give you an insight on avoiding the pitfalls, of which there are many, encountered by many small business owners.

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When the fact that 200 rich folks weren't paying any taxes way back in the mid 1960's was brought to light, the public got all riled up, and congress passed the AMT overwhelmingly. The problem is that when they did so, few people had ever heard of things such as incentive stock options, and few regular folks made $70,000 - $100,000 a year. Well, this is 2007 and that sort of thing happens all the time to regular folks. You don't have to own a hugely successful business, or be a Fortune 500 corporate executive to rake in $90,000 a year, like you did in 1969.

Basically, the AMT allows the IRS to tax you at a flat 28% if you make over $175,000 in gross income, or if you make over $87,500 and are married and file separately. For the rest of Americans, a 26% tax rate applies. How it works is this. Every taxpayer is supposed to figure your taxes twice. The only deductions the IRS deems acceptable under the AMT are mortgage interest and charitable contributions. You the apply the flat rate to figure your tax. You then pay, you guessed it, the higher of the two tax bills.

What really sucks for the average American taxpayer is that the things that don't count in your favor, and typically ensnare taxpayers are, are you sitting down, the standard deduction, property taxes, exemptions for family or children, and any state and/or local taxes you might have paid. The IRS really doesn't care a bit that you paid a huge state or local tax bill, you can't deduct your state or local taxes when you figure what you owe under the AMT. Another thing that bites more and more American taxpayers every year is the fact that you can't deduct the interest on a home equity loan, a financial instrument used by more Americans all the time.

So, how do you avoid paying the AMT, and just pay your nice, familiar income taxes? Here are some things you need to watch out for that can trigger the AMT. The key is to accelerate income and defer deductions to the years where they'll the most advantageous.

Common AMT Triggers

1 - Incentive stock options – ISOs have probably caused more people to feel the pain and suffering of the AMT than anything else, especially in the early part of this decade when so many were exercised as part of the Internet boom. With ISOs an employee is granted the option to purchase stock at a set price, typically the lowest price in the year the options are granted, or in some cases, a contractual figure in the employment agreement. The difference between the fair market value on the day the options are exercised and the option price can be treated as income and liable to the AMT. If the exercise price is too much lower than the fair market value that can be a huge number. You'll can get really screwed if the stock drops in value after you exercise the options. Why? Because in the sick and twisted logic of the AMT, the exercise price is a realized gain, and you should pay taxes on it. So, if you are granted 40,000 options at $.50 and exercise them at $6.50, the IRS thinks you made $6.00 a share, or $240,000. If you then sell the stock, but by then the stock has fallen to $2.00, you'll only net $80,000, but be taxed on $240,000. If you're paying the AMT's 26% rate, that's a $62,400 tax bill, just for your stock options.

You'll really get yourself into trouble if you hold the stock past December 31^st of the year you exercise the options. If you sell before December 31^st, you are only liable for the income produced by the difference between the fair market value and the sale price of the stock. So, in the above example, you'd only owe tax on the actual profit of $1.50 share x 40,000 shares = $60,000. In addition, options sold before December 31^st don't trigger the AMT. Also, if you hold the stock longer than 1 year, you'll pay capital gains tax, currently a flat 20%, not income tax. You need to exercise your options gradually, rather than all in one fell swoop, to avoid the AMT.

With this one you'd better see a very qualified tax professional, or two, who has expertise in this specific area. One small mistake can cost you thousands or hundreds of thousands of dollars.

2 - State Taxes – If you're one of those people, such as a sales rep, that has cyclical income, it's common for you to have a high income year, followed by a low income year (See, I know what cyclical means!) depending upon your commission structure. If that's the case, you can time your state tax payments to coincide with your higher income years. That way there's a better chance your income will be below the AMT trigger point, where you can lose the effectiveness of the deductions. To make this strategy effective, you must pay your state and local tax bill by December 31^st on your high income year. Then you can deduct them in that higher income year, because that's when you paid them. That strategy is known as accelerating your payment.

Call your legislators and get them to stop the madness before it's too late. You can find out who your congressional representative is here:

http://www.house.gov/

Just enter your zip code in the search box at the top left to check who represents you in the house.

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Posted by debtblog at 02:43 PM | Permalink | Comments (0) | TrackBacks (0)

Currently, initial credit card interest rates are some of the lowest in history. That changes when you look at the average interest rate people are actually paying. According to the most recent U.S. Federal Reserve credit report (February, 2007), the average credit card interest rate is a rather hefty 15.09%! That's the average! That means that many people are paying interest rates far in excess of this. As you've no doubt ascertained, this is an extremely profitable state of affairs for creditors, less so for consumers. If the average American consumer wasn't addicted to credit like a tweaker is hooked on meth, it would be easier to get this situation to change.

It's absolutely vital to get all your credit card accounts switched to auto pay. It's about your only defense against higher interest rates and fees. Indeed, some consumers have reported that there is almost no time from when they receive their bill and when it's due. Read your credit card terms very carefully so you'll know exactly when your funds must be received by the lender. Often there's a time associated with it. Since you've no idea when the mail actually arrives at their P.O. Box, you should make sure your payment gets to their office at least a day early, preferably two or three. Why? Well, because the bill will be considered late unless it's actually posted by the date and time on the agreement. You have no idea how long it'll take them to post your check, so better to be safe than sorry. In addition, you can see they have no incentive to post your funds in a timely fashion.

Another smart move, if your bills aren't on auto pay, especially for important accounts such as mortgages, is to send the funds using receipt confirmation form the U.S. Postal Service. This way you can be sure when the check arrived in their office. It's saved me from a late fee on more than one occasion. Make sure you waive signature confirmation, because mail delivered to a P.O. Box has no one present to sign for it. That's important, unless you want your check to sit in limbo for a while and eliminate the very reason you used the service in the first place.

Remember, the creditors have a financial disincentive to make it easy for you to pay your credit card debts on time. In fact, their best customers are those who always pay their bills, but are a few days late once in while. Those customers are the real meat for them. Talk about a profit center. There is very little risk they'll default, but a very large opportunity for the bank to generate additional interest and fee income. If you're one of those customers, look out. Hey, it can be hard enough to get debt free. There's no need to help the finance companies, banks and other credit card companies Hoover even more of your hard earned money out of your wallet. You can at least make it as difficult for them to increase their revenue as they make it for you to keep yours.

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Posted by debtblog at 02:33 PM | Permalink | Comments (0) | TrackBacks (0)

Here are some budget figures compiled from various lending institutions, government agencies and financial experts. 

Housing – Prevailing financial wisdom is that your home should be 2.5 – 3 times your annual gross income. The problem here is that in many areas of the country that won’t buy you a nice, 2-car garage, never mind a house to go with it. In more expensive metro areas such as Boston, New York, Seattle, San Francisco, Los Angeles, San Diego, and Washington DC / Northern Virginia, an average 3 bedroom, 2 bath home will cost you $350,000 and more. In cases such as these, you may have to reallocate your budget a little bit, otherwise you’ll need to earn well in excess of $100,000 annually to be able to purchase even a basic home.

Transportation – About 15% of your annual budget allocation should be targeted at getting you where you want to go, according to experts. You can use this taking the train, if you live in New York, or work in NY, but live in Connecticut, for example. With this allocation, you can purchase a nice, sensible Accord Hybrid from American Honda if you only make $34,500 after taxes. This assumes you left off the optional nav system, got 7% new car financing, traded in a vehicle with a $7,000 trade in value, and put $2,500 down in cash. You could do better or worse. Seems like a lot of car for someone who makes only about $45,000 a year. Maybe 10% would be better. Reallocate the extra 5% for housing so you can afford to buy a home, or put it your savings / investment accounts.

Consumer Debt Such as Credit Cards and Revolving Accounts – 10% of your monthly budget should be spent here. Another advantage of getting debt free is that this is another 10% that could contribute to your housing or retirement savings. You could also pay for such things as vacations in cash, rather than with credit. Here’s an idea; forgo traveling away for a vacation for just one measly year, then save the money to pay cash for your vacation next year. This will allow you to always save cash for your vacation, rather than plopping it on the Visa again.

Living expenses such as food, clothing and entertainment – These should eat up no more than 20% of your budget. Here’s another reason to shop at the warehouse food store. You’ll eat so much better if that 20% can encompass such niceties as fish and organic chicken, instead of just mac & cheese and oatmeal. That could even pay health dividends down the road, in addition to the pleasure it’ll bring into your daily life. Buy your clothes at Value Village instead of Macy’s or Nordstrom. Hell, half the clothes at VV are from those stores anyway. Value oriented (used) stores are great, especially when you’re shopping for your kids. They outgrow stuff so fast anyway, it just doesn’t make sense to shop at a full priced store for all new clothes. Who cares what your snotty friends think? They probably have huge credit card bills every month anyway.

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Posted by debtblog at 08:20 PM | Permalink | Comments (0) | TrackBacks (0)

Many affluent investors, those with investable assets over $500,000, are not as astute in the ways of finance as one would expect. According to research published in 2005 by the Spectrem Group, a research firm specializing in the affluent consumer niche, many investors in the upper reaches are oblivious to certain finer points of investing and personal finance you'd think they'd be well versed in. For example, an astonishing 70% of those investors studied admitted to having little or no knowledge of tax shelters! One explanation may be that they can afford to hire experts to handle such things for them, but you'd expect them to have at least rudimentary knowledge of tax related matters.

Over 60% of investors in the study were not versed in 529 plans or annuities either. Less than half felt they had much knowledge of cash value insurance or, unbelievably, IRAs. You'd expect at least IRAs would be fairly familiar to investors with this kind of asset base. It seems that many of these investors could be even more affluent if they had a better understanding on how to retain more of their earnings and give less to the IRS and state DORs.

Who do the investors turn to for primary financial advice? Most of those surveyed (31% in 2006, up from 24% in 2004) used a full service broker, with only slightly less (28%) using their accountant. Surprising that they aren't more aware of tax shelters, given the propensity of this investor class to use accountants for primary financial advice. Among these investors, there is a trend toward full service brokerages and away from wire service providers. Only 17% in 2004 used financial planners as their primary financial advisor, and that figure dropped even lower last year, down to 13%.

What's strange that when ultra high net worth investors (over $5 million net assets) were surveyed over the last few years, they report swinging in the other direction than the affluent investors. The trend among this group is away from full service brokers and toward private financial advisors. In 2001, 41% of ultra high net worth investors used full service brokerage houses, but that number has now dropped to 30%. At the same time, the trend toward independent financial advisors among these investors is growing. Of those who used financial advisors, 65% avoided those affiliated with a major financial institution, citing greater objectivity.

When investing, where do they put their money? Another study released in 2006 by the same organization found that affluent investors tend to avoid risky investments like a date with bad breath, preferring to concentrate on investments with a more or less guaranteed return. They have 37% of their assets in real estate, with an average 23% of that being in their primary residence. 22% of their assets are investable, such as equities and bonds. Millionaire investors, those investors with over a million dollars in investable assets tend to have a much lower percentage of their total assets in real estate (13%) than the affluent investor. That makes sense when you look at the percentage that the affluent investor has tied up in their primary residence. Presumably, the investor with much larger holdings would have a smaller percentage in their primary residence.

The ultra high net worth investor actually has a lower risk tolerance than those with substantial, but fewer assets, with 76% thinking themselves moderate or conservative when it comes to investment behavior. They tend to avoid venture capital and hedge fund investments, interesting, when you consider an investor must have substantial assets to be eligible for such instruments. Many are now keeping more of their net worth in cash or value oriented equities. One note is that these investors tend to be older, and they may have been substantially more aggressive earlier in their investing careers. Recently average(?) investors of the ultra high net worth class have 45% of their assets in domestic equities, 15% in bonds and 13% in cash. Only 1% were in commodities or hedge funds and 5% in private equities. Only 7% hold investment real estate, apart from the assets they have in their residence(s).

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