Do Students Need High-Tech Gear for College?

When it comes to packing up for college, less is more. Since space and time are both in short supply, students should be very selective about which "essentials" they take. This means they're better off taking less so they'll be able to find what they do carry with them.


"Like time management, you have to have a certain degree of space management as well," says Ronald Johnson, director of financial aid at the University of California, Los Angeles.



It's a tough line to walk. Most students are going to be spending 75 percent of their time over the next four years at school, but their focus is supposed to be on studying. So which items enhance the environment, and which detract from schoolwork?



"There's not necessarily a cut-and-dried list of things that are good or bad to have," says David Stuebing, a graduate student in education and staff resident supervisor at Purdue University.



Some guys show up with the latest in gaming equipment, "and that can be a great stress reliever," he says.



"Typically, it's more of a distraction," he says. "There are so many other opportunities on campus that you'll miss out on because you're staring at a screen all day."



A good rule of thumb: "Set up the room so that, when they return to the residence hall, it feels like they're going home," says Susan Boyd, an assistant dean for student services at Rutgers College. "That might be different for every student."



The computer conundrum
One big question: Do they take a computer and, if so, a desktop or laptop?



Many campuses provide computers, complete with the latest software and color printers, in labs and residence halls. Some schools are also going wireless, which means students with laptops can use them easily in class and around campus. While laptop portability helps students, it also invites theft.



It pays to know what the college already provides. Then look at study habits. Students who prefer to study alone might be OK with a desktop; those who take notes on a computer and use it for group-study sessions might favor a laptop.



"I think a lot of it depends on what somebody's able to afford," says Mark Oleson, assistant professor of personal financial planning and director of the Office for Financial Success at the University of Missouri-Columbia. What they don't want: an option that requires them to rack up debt.



And they don't necessarily even have to make the choice during the first few weeks of school. It can be a smart strategy to start school, scope out the campus and computer facilities, take some classes and then decide what kind of machine best fills the bill, says Barb Frazee, executive director of university residences at Purdue University.



"You don't have to feel that pressure that you have to buy now," she says.



Students should make use of the resources available to them, says Michelle Geban, a senior psychology major and resident assistant at Rutgers University. "Take advantage of the stuff that's already paid for," she says.



During her school years, she realized that school fees got her access to labs with color printers and the latest software -- saving her tons of money for supplies and printer cartridges. Now the only time she uses her own printer is when she's crunched for time.



Cruising around campus
Do students need a car at college? Not really, according to several administrators. It really does depend. Some schools prohibit or limit cars for freshmen. While for many it can be a space issue, school officials have also learned that cars can be a distraction and expense, something most students don't need.



"A lot of students feel they have to have a car on campus," says Johnson, the financial aid director. "But because everything is in close proximity, they don't need it.



"The only thing it does is encourage them to spend money making unnecessary trips."



Often, students end up in his office because of the expenses associated with driving, he adds.



It's also liable to sink a student academically, as is the off-campus job a student often needs to pay for it, says Boyd.



The more a student stays connected to campus and finds ways to be involved on campus, Boyd says, "the better chance they have of making it through."



What doesn't (usually) help
It might actually pay to leave the big-screen TV and all the stereo equipment at home.



Geban remembers helping one student set up a dorm room that looked like it had been ripped from the pages of a magazine. While it was nice, it wasn't practical, she says. "Don't just jump in and spend, spend, spend," she says.



"You're there for a specific purpose," says Johnson. "You're there to study; you're there to learn. Bring all of those things that will help you flourish as a student and enhance the living environment."



Realistically, students don't need a TV. Most dorm lounges and many public areas already have them. "Most college students I know don't spend a lot of time watching TV," says Boyd.



But a lot of students bring televisions, says Frazee. Her tip: Avoid bringing DVD players. "If you sit down and watch a half-hour comedy, that can be a good diversion," she says. Watching a two-hour movie instead of studying can lead to trouble.



It's also good to know if any items are banned. Purdue, for instance, doesn't allow halogen lamps, which can be a fire hazard, says Frazee. And while students can bring small refrigerators and microwaves, there are size limits. Each dorm room is allowed only one of each at Purdue -- so roommates need to sort out who's bringing what.



The comforts of home
Students might also need a few low-tech things they hadn't considered, such as fans. Not all college dorms are air-conditioned.



Those not used to communal bathrooms might not know to pick up a pair of shower shoes, towels and a bag to carry sundries to the bathroom.



An alarm clock is really important.



Ask about the phone situation. Some schools might not have them in every room; others provide them.



Roommates should communicate before moving in together, if possible. They don't want to end up with two TVs when the room has one cable outlet, says Geban.



It also pays to think about those things that will make life easier in a communal environment. Students who like to listen to music while studying should pack the iPod or some earphones.



Rollerblade aficionados or tennis players should bring along whatever they need to enjoy their sports, says Boyd. "You'll find avenues for that here."



What can really make a difference when it comes to academic success? A system for organizing notes, research and papers. According to both students and teachers, it doesn't seem to matter if it involves the latest in high-tech gear or a pen and paper, as long as it works.



Students should choose what worked in high school, says Stuebing. It's a proven method, plus those thrusted into a new environment "don't want everything to be new," he says.

Do Newborn Babies Need Life Insurance ?!

There are two things new parents can count on: a lack of sleep and a mailbox full of solicitations. While some adverts could come in handy — After all, who would sneer at a coupon for Huggies? — others should be approached with caution.
Consider life insurance for a newborn. Here's the pitch: Buy a policy for your child today and you can provide him or her with a "financial head start." Not only are rates cheap, but you can also guarantee your baby's future insurability, no matter what illness should later strike. And if the unthinkable happens, the proceeds would cover the child's burial costs. The icing on the cake: if he or she grows up to be healthy and strong, you haven't thrown any money away. Provided you bought a whole life policy (rather than a term policy), your adult child can tap into the cash value in the future.

Sounds convincing, right? This helps explain why several million American households own such policies.

But consumers should think long and hard before signing on the dotted line. Most experts agree that while buying life insurance for a child might offer parents some peace of mind, it isn't a savvy financial move. In fact, James Hunt, an actuary with the consumer advocacy group Consumer Federation of America, says "it's never a good idea."

Let's start off with why people need life insurance in the first place. An insurance policy is primarily meant to protect the income of the family's breadwinners, says Paul Graham, chief actuary with the American Council of Life Insurers (ACLI). The idea is that, should one or both of them die, their dependents could continue to live comfortably.

Protecting a child's life doesn't fall under this category. While we certainly value our children, they're technically liabilities, not assets that need protection, says Elaine Bedel, an Indianapolis-based certified financial planner. Unless you're a stage parent, you probably aren't counting on Junior's income to help put food on the table.

What about future insurability? Only in very rare cases would a person in his or her 20s or 30s have a difficult time buying life insurance. Even those with ailments ranging from juvenile diabetes to heart problems can find coverage. "There are niche companies that specialize in high-risk insurance," says Graham. "If you look hard enough, most conditions are insurable." Granted, it will cost him a little more than a healthy person. But buying a policy while your child is an infant doesn't solve this problem. That's because the face value of juvenile policies tends to be quite low, often just $5,000 to $10,000. "A child out earning a living and having dependents will need a lot more than that, so it guarantees a meaningless amount for future insurance," says Hunt. Even Gerber Life's max of $150,000 would have to be supplemented considerably in 30 years.

A whole life policy doesn't make a good piggy bank, either. In fact, Globe Life and Accident Insurance Company, one of the largest providers of juvenile life insurance, says infant policies should be sold primarily as an insurance product — not as a savings vehicle. Whole life insurance policies are laden with hidden fees and costs. That's why SmartMoney.com recommends term life insurance for most consumers, which allows them to put the extra money they would have spent on a whole life policy into a 401(k), IRA or another long-term investing vehicle. (For more on life insurance, click here.) The main exception would be people who are looking for a tax savings vehicle for a large estate. (For more on estate planning, click here.)

Children's insurance, in particular, is disproportionately expensive compared with the benefits gained, says Consumer Federation's Hunt. If you're looking to set aside a little money for, say, college, a 529 plan would be a better choice, says certified financial planner Bedel. The savings are tax-free at the federal level if used for education — and depending on the state, you might even get an upfront tax break. (For more on college savings, click here.)

Most important: Parents should make sure they have enough life insurance for themselves. The biggest mistake people make is buying a policy for a child when they are underinsured, says Hunt.

Life insurance is one of the rare cases when parents' needs should, indeed, come first

Social Security Tips and TrapsSocial Security Tips and TrapsSocial Security Tips and Traps

No matter what age you are now, you probably think about Social Security benefits as they relate to your retirement planning. If you are younger, you may choose to run retirement projections with reduced or no benefits. For those of you who are middle-age to retirement-age, Social Security will probably be a piece of your retirement picture.

Lots of questions arise about Social Security as individuals go through many of life’s changes including divorce, phasing into retirement, or dealing with the death of a spouse. Use these tips and traps to educate yourself about your options.
Tips

–When you get your annual estimate of Social Security benefits, check to make sure your earnings history is accurate. Everyone age 25 and older should be receiving an annual statement. If you suspect something is wrong, contact your local Social Security office to correct any inaccuracies.

–If both spouses work, each is entitled to a benefit based on his or her own earnings history. However, the spouse with lower benefits is entitled to the greater of 50% of his or her spouse’s benefit or his or her own benefit.

–If you did an analysis showing that taking lower benefits at age 62 broke even with waiting to take higher benefits at age 65, that break-even age would be approximately 78. So, if you think you’ll live past age 78, you may want to wait until full retirement age to start taking benefits. Of course, no one knows just how long they’ll live, so look at your family health history and your own health situation to make a realistic guess.

–You can choose direct deposits at your bank for your Social Security benefits and never have to worry about a check getting lost in the mail.

–If your spouse has a pension from his or her former employer that will pay over his or her life only, delay taking Social Security so you’ll get the maximum benefit for your own lifetime.

–If you are divorced and your ex-spouse has remarried, both you and the new spouse can collect benefits based on the ex-spouse’s earnings history provided you were married at least 10 years and you apply for benefits after age 62.

–If you are still working late in life, delay taking benefits until age 70. Social Security will pay a premium above the full benefit if you wait until age 70 to take benefits. Click here to see “The Impact of When You Start Taking Benefits.”

–If you are a widow or widower, you can start taking Social Security benefits as early as age 60. But you may want to consider starting them later so that you’ll get a larger benefit.
Traps

–Even though Medicare starts at age 65 (assuming you’re eligible), full Social Security benefits start later for those people born after 1938. Click here to see “Age Requirements for Full Benefits.”

–If you choose to wait to take benefits until after age 65, don’t forget to apply for Medicare about three months before you turn age 65.

–Not everyone is eligible for Social Security benefits. You need to have 40 credits. You can earn four credits a year, so basically you have to have your own earnings history for 10 years, although it doesn’t have to be consecutive years.

–If your income is more than $25,000 single (or $32,000 married filing jointly) and you’re receiving Social Security benefits, you’ll pay income tax on 50% of your Social Security benefits. However, if your income is more than $34,000 (single) or $44,000 (married filing jointly), you may have to pay income tax on 85% of your benefit. See IRS Publication 915 for more on how to calculate the tax on your benefits.

–If you take Social Security early at age 62, you’ll not only limit your own benefit, but those of your spouse, too (assuming both of you are eligible using one spouse’s earnings history).

–If you are working, are younger than full retirement age, are earning more than $12,480 (2006), and are taking Social Security benefits, you’ll actually lose $1 for every $2 you earn above $12,480. In the year when you reach your full retirement age, you’ll lose $1 for every $3 you earn above $33,240 (2006). At full retirement age, you can work and not lose any of your benefits (although if you keep working to age 70, you’ll get even higher benefits).

–If you are divorced and receiving benefits based on your ex-spouse’s earnings history, your benefits stop if you remarry.

–If you go to prison, your benefits stop (although your dependents can collect their benefits).

–You can continue to collect Social Security benefits even if you retire abroad unless you live in Cuba or North Korea. You may also not be able to receive benefits if you are in Cambodia, Vietnam, or countries from the former Soviet Union (although some exceptions may apply).

Social Security was never intended to cover all of your retirement needs. But it can play an important role in your retirement income, and it’s to your benefit to understand the rules.

Reduce Your Home Reapair Costs

Stop leaks before they start, and eight other ways to outwit the handyman

You’re rushing through your morning coffee when you hear an unfamiliar dripping noise. You poke around a bit, checking the faucets, looking under the sink, and *&@#! You’ve got Lake Erie under there. After muttering a few more choice words, you flip open the phone book and call a plumber to come this afternoon.

This is the way most repair decisions are made - in a panic, 10 minutes after the item in question breaks. But this last-minute thinking comes at a cost.

Affluent homeowners typically spend more than $4,000 a year on home repair and maintenance, according to research by the Harvard Joint Center for Housing Studies. With a bit of forethought, however, you can ratchet down that number in a big way. Just follow this plan.

BEFORE ANYTHING BREAKS

Create a call list. “In the repair business, there are a lot of lazy people who want to make money doing nothing,” says John Burgia, president of American Elite Contractors in Jacksonville.

You’re more likely to get stuck with one of them if you pick a random name out of the phone book mid-crisis. Instead, get referrals from friends and neighbors now, while your home is healthy.

Start your roster with a general handyman - someone who has basic knowledge on a broad range of repairs. Besides local operators, there are a few national firms that can hook you up, Mr. Handyman and Handyman Matters among them (mrhandyman.com; handymanmatters.com).

You’ll also need an electrician, a plumber, a carpenter, a painter and possibly people who specialize in repairing heating and cooling systems, appliances, sewer or septic systems, masonry and driveways. (Note that sometimes repair people also go by the more generic title “contractor.”)

Write down names and numbers, and save your list for a leaky day.

Do a quarterly home inspection. You can save big on repair costs by detecting a problem before it becomes an emergency. “It comes down to being proactive,” says Chris Seman, director of operations for Mr. Handyman. “Your house is like your car. When you first hear the noise, the repair will be less expensive than when it becomes a massive shriek.”

Walk your house top to bottom, looking for loose nails, holes, cracks, sags, soft spots and bulges in the walls. Run your finger around the caulk and grout in your bathroom and kitchen to see if it’s chalky; if it is, it needs to be redone.

Also, be attuned to early signs of water damage, including bubbling paint, mold or drips at visible plumbing connections. Outside, look for dampness on the roof, gutters, siding, windows and doors. While you’re at it, check furnace and air-conditioner filters.

Don’t want to do it yourself? Hire a handyman to do a walk-through; this relatively new service runs from $100 to $500. But your seasonal savings could exceed that.
Consider entering into a maintenance contract. This is another recent industry development. You pay a set amount for a walk-through, a handful of service visits and priority scheduling status. Prices vary, but because fix-it companies tend to be small local enterprises, they are often open to negotiation.

It’s a good deal if the cost is less than what you’d pay for a walk-through plus two or three visits.

ONCE SOMETHING NEEDS FIXING

Check the warranty. No need to pay for something you can get for free. Most appliance warranties are oh too short - six months to a year - but home-security systems are often covered longer. Read the documentation that came with the now-broken appliance.

Also, go to the company’s Web site and run an Internet search to see if your break is common. If so, call customer service and explain that though the warranty has run out, your problem is a known defect. Ask if they can fix the item for free, replace it or, at the very least, give you a discount on a new one.

Determine whether the item is worth repairing. Handyman Matters’ most common requests are to fix ceiling fans, garbage disposals, doorbells and blinds - all relatively inexpensive items.

Consider replacing rather than repairing. It may be more cost-effective (so long as you can install the item yourself!), especially given that the base charge for a repair visit is often $50 to $100.

Figure out if you can fix it yourself. Someone once said that you only need two things in a tool kit: duct tape and WD-40. If it’s moving and it shouldn’t be, use duct tape; if it’s not moving and it should be, use WD-40.

The theory isn’t far off. With the exception of problems involving electricity, gas, smoke or flowing water, most repairs are a matter of attaching, detaching, propping or lubricating. “We get a lot of calls on things people can fix themselves,” says Mark Douglass, vice president of Handyman Matters. Stop by a hardware store with a photo or the broken parts; the staff should be able to tell you if your project is suitable for self-service.

If it is, they can show you how to do the job and what you’ll need. The following Web sites are also fairly reliable: BobVila.com, DoItYourself.com and RepairClinic.com.

Consult your call list. If you discover that the job demands a pro, reach for that contact list you made. But before dialing, sign up for a free trial at CostEstimator.com, a Web site used by many contractors to estimate project fees, to get a ball-park figure for how much you’ll be charged. (See the sidebar at right for other essential info to bring up in your initial call.)

Bundle your repairs. Let’s say that a plumber comes to fix that pipe. Chances are, you forgot to mention that there’s a hole in your gutter and a clog in your disposal. Well, you missed out on an opportunity to save $100 to $200 on base visit charges.

“Typically, your base charge is a service call for the contractor to go out,” says Douglass. “If you consolidate it to a single trip, then there’s a direct connection to savings.” Keep a running list of problems, and read it before calling for an appointment.

Buy your own supplies. Repair pros mark up their supplies by at least 20%, and often charge hourly for shopping time besides. “The best thing people can do to save money is purchase their own materials,” says Douglass, who adds that his staffers are usually amenable to this. If your handyman is too, ask what he’ll need - brands and sizes. You’ll feel really in the know when you request “two-inch metal foil tape” at Home Depot.

EIGHT THINGS TO SAY TO ANY REPAIR PERSON

Sound too naive and you might as well hand over your checkbook. Here’s everything you need to spell out in that first phone call.

“I was referred by Joe Smith.” Name drop; a company is less likely to rip off the friend of a good customer.

“My hot-water heater is leaking, and I think it needs patching.” Explain what’s broken, using technical terms as much as possible (do an online search to find proper names). Say what needs to be done, if you know. By doing so, you narrow the scope of the repair–in this case, patching the water heater instead of replacing it–and therefore reduce the cost.

“This is the second time this has happened. The first time… “ If there’s a history of problems with the item, say so.

“Is there a way I can fix this myself?” Sometimes he’ll tell you, particularly if he’s busy.

“What are your rates? Will there be a trip fee or minimum?” Be clear on the payment system. Most companies have a base charge of $50 to $100, plus an hourly rate. But remember: Verbal estimates are nonbinding.

“Can I e-mail a photo?” This may save you a wasted visit fee if the repairman is the wrong person for the job.

“Can I buy the supplies myself?” If so, you could save yourself the 20% markup and the hourly rate for shopping time.

“Are you insured?” He should answer yes. He may also need to be licensed, depending on your state’s requirements. Check them first yourself at contractors-license.org. The site also lists the local licensing agencies, which you can call to verify that a contractor is legit.

Important Tips for Balancing Your Bank Account

Many of us open our first checking account by age 20. But just because we’ve had one for years, that doesn’t mean that we manage it properly.
Sure, more than half (almost 57 percent) of us regularly balance our checkbooks, but that still leaves 43 percent of us who charged for insufficient funds or a too-low account balance when we lose track of how much money we have.

But it’s not hard to get a handle on your account. These seven simple steps can help you keep your checking account under control:

1. Keep good records.
The more informed you are about your checking account, the better equipped you’ll be to read and analyze your bank statement.

“You have to have something to compare it to in order to know whether it’s right or wrong,” says Michael Stahl, author of Early to Rise: A Young Person’s Guide to Investing.

That means keeping track of account activity. And you do have choices. You can keep a handwritten record of transactions using the register that comes with your checks. Or use a software program, such as Intuit’s Quicken or an online version of your favorite financial program. The point is to have a record of every check, deposit and electronic fund transfer that’s involved with the account.

2. Open your mail.
When the bank statement arrives, open it and put your record keeping to good use.

“Do it right when you get the statement,” Stahl says. “Don’t wait.”

It’s better to examine your bank statement sooner than later for two reasons.

First, if there are any mistakes, reporting them to your bank quickly will ensure they get corrected. Banks usually will disavow errors if they are reported more than 60 days after you received the statement.


Second, the fewer days that pass between when the bank issues a statement and when you read it, the more in synch your records will be with the bank’s numbers. “It’s less confusing and easier to balance your bank statement if you do it as soon as you get it, not three months later,” Stahl says.

3. Scan first.
If you’re pressed for time, you can get away with examining just the account summary, says Susan Zimmerman of the Zimmerman Financial Group in St. Paul, Minn. It’s usually listed at the top of the page and it recaps the state of your account: previous balance, deposits and credits, checks and debits, service charges, interest paid and current balance.

“At a bare-bones minimum, look over the summary information and see if the figures are in the ball park,” Zimmerman says. For example, you can see if the balance is roughly what you think it should be or whether the amount of withdrawals is way too high. Look for any unusual or unexpected fees.

Keep in mind that bank statements cover a set time period, say from Jan. 18 to Feb. 17, so any checks you’ve written around or after the closing date won’t be on the statement. Ditto any deposits you’ve made in the meantime.

4. Spend quality time with your account.
Scanning’s a good first step, but don’t stop there.

“Go over the deposits and the checks,” says Paula Wegner, vice president of the First Eagle National Bank in Chicago. “Check all checks from your bank statement against your check register. Check off all checks.”

Wegner’s emphasis on scrutinizing your posted checks is intentional. You need to see whether your payment records match what the bank has.

Most bank statements will give you several ways of been posted by including a copy of the check. The advantage: it shows you who the check was written to. Even when canceled checks are part of your statement, your monthly accounting probably will also include a list by check number of your transactions. Here you’ll see the check number, amount and when it posted, but not the payee.

Similar information will be listed on incoming cash to your account. For checks paid and deposits credited, make sure your records jibe with the bank’s books.

5. Call your bank immediately if you find a problem.
You’ll be glad you closely followed your account’s paper trail if you find yourself in a situation similar to one encountered by financial planner Zimmerman.

She got a notice from her bank saying that her youngest son’s checking account was overdrawn by 56 cents. It wasn’t much, but it didn’t sound right. When Zimmerman called the bank, an officer there told her that the account wasn’t in arrears and the bank wasn’t sure how she had received the overdrawn notice.

Zimmerman’s story had a happy ending (the bank acknowledged its mistake), in large part because she was paying attention and immediately acted on a discrepancy. If you report problems quickly, they’re likely to be fixed quickly and not escalate. It’s also easier to track things when they just happened versus six months ago.

And by being prompt in your account reconciliation, you show the bank that you are trying to stay on top of your finances. That diligence could later pay off. For example, Zimmerman recommends that if you bounce a check, and it’s the first time, ask for forgiveness including waiver of any fees.

“Lots of people don’t realize that the rules can been waived and often a bank will do that for good will,” Zimmerman says. Of course, don’t expect to get off easy if you are a repeat offender.

6. Check daily balance summaries.
First Eagle’s Wegner says that most people don’t need to analyze their daily balance summaries. However, there are exceptions: consumers with interest bearing accounts or those who must maintain a minimum average balance.

Folks that fall into these categories may want to keep closer tabs on daily balances to make sure their accounts are in compliance or to make sure they are paid the appropriate amount of interest.

7. Keep tabs on your account between statements.
OK, maybe only truly obsessive people review their accounts daily via phone or the Internet.

But periodic checking on your account between printed statements does sometimes make sense. That’s the case when you are expecting an out-of-the-ordinary transaction: Has that payment to the Internal Revenue Service been posted yet? Did that big freelance check clear?


Most of these tips don’t take much time. And once they become a part of your financial routine, you’ll find it’s easy maintaining a healthy checking account.

How To Outwit a Car Dealer

“Sticks and stones may break my bones, but words will never hurt me.”

That’s all well and good on the playground, but it’s a different story in a car showroom.

That’s because auto dealers have their own colorful slang that says something about how the car business operates; some pitfalls to watch out for; and, in some cases, how some of the more cynical dealerships see the customer.

Many car dealer terms can be applied to customers. Quite a few, like “Minnie the Moocher” are not compliments. (In the Cab Calloway song, Minnie the Moocher dreams she has $1 million in nickels and dimes, which she counts a million times.) A “mooch” is a customer who wants everything, without paying for anything. Not something the dealer likes to see.


Another such term: Be-back. This is a customer who makes multiple visits, as in, “I’ll be back.” Salespeople get paid on commission, so naturally their first priority is to close the deal.

Don’t allow yourself to be rushed. If the salesperson is helpful and knowledgeable on your first visit (on your first visit, you’re called an “up”), get their business card and ask for them next time. Consumers should negotiate hard, but they shouldn’t get so caught up in the nickels and dimes that they lose sight of the big picture.

Nor should they take to the “ether” and let the details flow in one ear and out the other.

It’s important to take your time. Read the fine print. Don’t fall in love with a particular car–at least, not so much in love that you get in a rush and won’t settle for anything else.

“Good advice,” says Rosemary Shahan, president of the Consumers for Auto Reliability and Safety advocacy group, in Sacramento, Calif.

Money Grubbing

She says another term to watch out for is “dealer reserve.” Often poorly understood, it refers to the markup the dealer applies to the interest rate on your car loan.

Dealers make money for arranging loans. Based on how risky the customer is, the lender approves a loan at the so-called “buy” rate. The dealer hikes the buy rate to the rate you pay, up to a ceiling specified by the lender, usually a couple of additional percentage points. The difference, called “dealer reserve,” is a big source of dealer profit.

There’s nothing illegal about it. Dealers and auto lenders have argued successfully in several lawsuits that arranging loans at the point of sale is a valuable, convenient service. And the National Automobile Dealers Association is quick to point out that in independent consumer surveys, most people say they are satisfied with their dealerships.

People should know that the dealership, not the bank or the finance company, sets the final interest rate you pay. “Most people have no idea that the dealer is getting what in essence is a kickback on the loan,” Shahan says. “It is an undisclosed conflict of interest.” Potentially, the interest rate is even negotiable.

However, Ron Burdge, a Dayton, Ohio, attorney who specializes in “Lemon Law” complaints, said that even if you know this, few dealerships will budge.

“What’s negotiable about it,” he says, “is it just means you can go somewhere else if you don’t like it.”

Bottom Line

For the consumer, it pays to know the behind-the-scene details; it also pays to shop around and study up so you know even a few words of the local language.

Parent College Loans

A college education is an investment in your child’s future that pays big dividends. The Census Bureau reports that U.S. workers with a bachelor’s degree earned an average of $54,689 in 2005, compared with $29,448 for workers with a high school diploma.




So it can make sense for students to borrow judiciously to finance their own education. Like a home mortgage, student loans at subsidized interest rates can be used to purchase an asset that appreciates over time.

Realistically, paying for college is a family affair, and most parents would probably be willing to help foot the bill, possibly by borrowing.

To make sure that no one’s debt gets out of hand, your family will have to decide how much is reasonable and find the lowest-cost loans. For students, that means federal Stafford loans. For parents, that means another federal program, Parent Loans for Undergraduate Students (PLUS).

With PLUS loans, parents can borrow as much as they need to pay for any costs not covered by the student’s financial-aid package, up to the full cost of attendance. So there’s usually no need to take out private loans.

And terms are attractive. PLUS loans have a fixed interest rate of 8.5 percent. You don’t have to file the Free Application for Federal Student Aid (FAFSA) to apply. A credit check is required but isn’t onerous.

Some lenders do offer lower rates or discounts. For example, they might cut your rate by 0.25 percent or more if your monthly payment is debited directly from your bank account.

Immediate discounts are better than future benefits that are tied to a certain number of on-time payments, a standard that’s tough to meet (for more on loan discounts, including calculators, go to www.finaid.com).

Despite their attractive terms, parents don’t take full advantage of PLUS loans. One study shows that only 7 percent of parents use them, although that number is increasing.

It may be that parents aren’t aware of the program, or, if they borrow, prefer to tap their home equity.

Most home-equity lines of credit carry variable rates that are tied to the prime rate — currently 8.25 percent — so right now they’re competitive with PLUS loans. But interest on home-equity loans is deductible. In the 25 percent tax bracket, for example, the effective interest rate on an 8.25 percent home-equity line is 6.19 percent.

Some financial advisers still recommend that parents consider using PLUS loans to avoid depleting their home equity or having to pay off the entire loan at once if they want to sell the house and downsize.

Top Ten Auto Loan Mistakes

Auto financing can come from one of several sources, including banks, credit unions, and auto dealerships. If you’re serious about buying a car, you need to investigate the various possibilities. Here are the top mistakes some people make when seeking and securing an automobile loan.

1. Not investigating all your options. Many people use credit unions for automobile loans, while others find good deals from their local banks. The key is to investigate all potential lending options, including the dealership. Several sites, such as RoadLoans.com, LendingTree.com, or E-Loan.com will help you make financing comparisons, and in some cases, secure loans.

2. Going by rate alone. The rate is only part of the equation. You need to know how much you’ll be putting down and the terms of the loan before making a decision.

3. Following your emotions. Make sure that you have done your research up front, and you know which car you want and what you are prepared to pay. Do not cave in if the dealer pushes another color or model, for instance, or will not waver on price.

4. Not reviewing your credit ratings first. You should access your credit report and know what your FICO score is. This way you’ll know exactly what the dealer is looking at, so that he or she cannot tell you your number is lower than it actually is. Additionally, if there are any errors, you can inquire about them beforehand.
5. Being quick to accept the dealership financing offer. Dealerships typically offer higher rates because they buy financing from banks and other sources, and raise the rate to make a profit. Shop around.

6. Focusing on payments over price. If you are focused more on low monthly payments than on the price of the car, you may be paying more in the end. Know the overall price of the car and consider the APR, terms, and length of the loan.

7. Looking for the car first. If you are serious about buying a car, you will want to look at financing rates first and determine how much you can afford.

8. Not being able to walk away. Once you begin negotiating, especially at a dealership, you are not obliged to stay. If you do not like the offer or the manner in which the negotiations are headed, walk away.

9. Not taking the shortest term loan. Keep in mind that cars depreciate quickly, so you’ll want to pay off the loan in a short time period. While the monthly payment will be higher in the short term, the interest payment will be lower.

10. Not determining what you can comfortably afford. Unlike a home mortgage, in which people look long and hard at what they will be able to pay over the next 10 to 30 years, car buyers do not always take such payments into careful consideration. “It is only for three years” is a familiar excuse for not evaluating the impact of such payments on your budget. Before buying a car, you need to consider how much money you can put down, and how much you can afford to pay on a monthly basis.

A Model Remodel

In hindsight, the red flags were waving, says Karen, a suburban Atlanta homeowner. But in the hubbub of her home-remodeling project she didn’t spot them in time. If only she had. “The financial dealing over this addition has been a nightmare,” says Karen, who prefers to remain anonymous given the bad blood that still exists between her and the contractor who worked on her house.

Karen and her husband paid 40% of the cost up front (red flag number one) because the contractor said he needed money for materials. When she asked for receipts, bills and work orders for the subcontracted work, they never showed up (red flag number two). Then came calls from the concrete company demanding payment for a foundation that had been poured months earlier (big, fat red flag number three). Finally came a letter stating that the concrete firm was putting a lien on the house — as is the right of subcontractors and suppliers who’ve not been paid, even if the customer has paid the general contractor for the work. “That sent me through the roof,” says Karen.

Through the roof and into a not-very-select club of homeowners with gripes against contractors, a club that is swelling along with the $210-billion-a-year remodeling industry. The National Association of Home Builders projects that home remodeling will grow at a 13% rate this year, even as construction of new homes is expected to slow by 10%. Today, the average home is 32 years old, compared with 28 years old in 1993, and Americans are updating their 1970s-era houses to match current tastes.

Too often, though, renovation leads to frustration. Home-improvement contracting was the top category of consumer complaints in 2004, and it has ranked in the top three in each of the past five years, according to an annual survey by state and local consumer-protection agencies. The stakes can be enormous. “We’re not talking about $15,000 additions — we’re talking $150,000, $200,000, $500,000 additions,” says Minneapolis construction lawyer David Hammargren. “As the size of the projects has increased, the size of the problems has increased.”

An unexpected mechanic’s lien, such as the one Karen faced, is a common complaint. Other gripes include defective work, contractors who fail to complete work when promised or farm out too much of the work to unsupervised subcontractors, and crews that don’t clean up the work site or that damage a homeowner’s property.

Before storming off to the complaint department, ask yourself if you’re at least part of the problem. Did you invite trouble by jumping for the lowest bid? “The low-price contractor has no way to fulfill his contract other than by cutting corners,” says Bob Pomeroy, an estimator for Answer Heating & Cooling, in Freeland, Mich. Are you communicating clearly? “We’ve been told to do things, and then, when the husband — usually it’s the husband — comes home, he says, “No way, I’m not paying for that,’ ” says Alan Hanbury, of House of Hanbury Builders, in Newington, Conn. “A lot of things come up in an eight-hour day. Designate one spouse as the official spokesperson.”

Take precautions

A good contract is the best defense against disputes. But few are airtight, and some projects blow up anyway. When necessary, regulators, consumer-protection agencies and, as a last resort, lawyers can help you pick up the pieces.

Karen solved her problem creatively. After she threatened to picket the contractor’s exhibit at a home show, he agreed to pay the disputed tab. She met the concrete subcontractor on the steps of the courthouse with a $3,600 check to head off a lien, which could have forced her to pay twice for the same work, clouded the title to her house and even caused her to lose her house to foreclosure.

In hindsight, the better solution would have been to demand receipts after paying for each subcontracted job. To protect yourself, have the builder acknowledge in writing that subcontractors and suppliers have been paid through the date on the check, and specifically note the work you’ve paid for. Another option is to make out checks jointly to the contractor and the subs (all of whom must endorse the check before it’s cashed). Or you can pay a fee to have a third party make sure everyone is paid — possibly the bank administering your construction loan. Before you get started, it never hurts to call suppliers and subs to ask about their dealings with the contractor. Be wary if the contractor hasn’t worked well with the suppliers and subs in the past — or hasn’t worked with them at all.

How you pay a contractor is almost as important as how much. You never want the money paid to get ahead of the work done because then you have no leverage in a dispute. Spell out the payment schedule in the contract, beginning with the amount to be paid up front. Some states limit down payments to 10% of the contract price; others allow one-third down. When kitchen cabinets or other materials need to be ordered, you can tailor early payments to meet those out-of-pocket costs.

Periodic payments after the work starts should correspond to completed segments of the project — foundation, framing, plumbing, electrical, drywall, flooring, all the way through finished carpentry and painting. You might tie payments to the cost of doing the work plus a percentage of the profit, or pay 10% to 15% after each milestone (assuming, of course, that the building inspector has signed off on all work that requires inspection). But the best way to ensure that work gets done when and how you want it is to leave a significant sum — at least 10% — to be paid only when the job is completed to your satisfaction.

Living with construction can be a nightmare. But instead of resenting the mess, craft a “broom clause” in the contract that assigns responsibility for cleanup or repair. That might have saved Diane Hicks’s sanity. When Hicks hired Home Depot to remodel the kitchen in her condo on Pawley’s Island, S.C., she was unprepared for what followed. “They left the cabinets in the living room for a month — in dirty, filthy boxes on my brand-new carpet. There were nicks in the paint. And the granite guys dragged a slab across the carpet, burning a hole in it. They cut the granite inside the condo, and there was dust all over.”

Home Depot repaired the carpet, but Hicks was unhappy with the finished project and received a partial refund. Says Home Depot spokesman Don Harrison: “We’re responsible for more than 11,000 product installations daily. Unfortunately, it sounds like we let one of our customers down in this instance, and we regret it.”
Get it in writing

Countless contractor disputes arise from dashed expectations, which you can prevent by describing both the job and the materials in excruciating detail. For example, instead of writing “Install country-style oak cabinets” — or, even worse, “Install cabinets” — experts suggest using precise language, such as “Install kitchen cabinets, per plan, manufactured by company XYZ, model ABC, with finish EFG and matching, 3-inch crown molding.”

A start date and at least an approximate completion date are essential in any contract. But just as important is setting a time limit for fixing defects so that if disputes arise, they’re not endless. After delivering a written notice, give the contractor, say, 48 hours, seven days, a month — whatever you negotiate — to correct the defects as agreed. Stipulate that if the repairs aren’t made in time, you’re free to hire someone else, using the money you would have paid the original contractor upon final completion of the job.

Despite all of your best defenses, you may still wind up at loggerheads with your contractor. If a kitchen-table conference doesn’t settle things, you will have to decide whether to complain formally, and to whom. A state licensing body could be an ally, but it might not be as bloodthirsty as you are. “We always try to solve disputes at the lowest possible level,” says Pamela Mares, of the California Contractors State License Board. The board investigates more than 20,000 complaints against contractors annually, and it helped consumers get more than $36 million in restitution in the fiscal year that ended June 30, 2005.

In most states, the process starts with a letter to the contractor. Mediation is often next, in which a neutral third party helps you and the contractor work out a solution. Complaints that remain unresolved may go to arbitration, in which you and the contractor are bound to abide by an arbitrator’s final decision. They may also go to an administrative law judge, who will decide your case after a hearing. In California, the arbitration process takes about four months, and the state pays for the hearing, the arbitrator and one expert witness per complaint. Contractors who violate the law may be prosecuted and ordered to make restitution; ultimately, they may also lose their licenses.

Last resorts

Some states and municipalities, including California, Maryland, Massachusetts, Nevada and New York City, have established funds to reimburse homeowners for shoddy workmanship and violations of building codes, licensing requirements and home-improvement laws. Usually, you can tap the funds only if you’ve exhausted other means of resolution. And claims are typically limited — to $35,000 in Nevada, for example, and $15,000 in both Maryland and New York City. None of these protections is available if you hire an unlicensed contractor in a state that requires licensure, so don’t even think about it. (To see which states license contractors, visit www.contractors-license.org.)

In states where contractors aren’t licensed, you can air a grievance with a professional organization, if your contractor is a member. “We take complaints very seriously,” says Mimi Makar, executive director of the Greater Chicagoland chapter of the National Association of the Remodeling Industry (find a local chapter at www.nari.org). NARI typically arranges for another contractor to go to the job site to evaluate the problem, and it might get suppliers and even product manufacturers involved, too. Contractors who refuse to address substantive issues could have their membership revoked. The National Association of Home Builders’ Remodelors Council may also be able to help resolve an issue.

Absent a regulator or professional organization as an advocate, homeowners looking for restitution can turn to the Better Business Bureau or their local consumer-protection agency. Or a lawyer, of course. But most lawyers would rather you consult with them to review a contract before you sign than fight a contractor afterward. “In many cases, the costs are prohibitive,” says Minneapolis lawyer Hammargren. “Attorneys’ fees are just a fraction of the cost. Most people have no idea how difficult it can be emotionally.” Or how tough it can be to collect an award. Dealing with an insurer can take years, and wrestling with an uninsured contractor can take an eternity.

There is good news, however, if your new gourmet kitchen or home theater is still on the drawing board. The remodeling market may be tilting in your favor as spending on home renovation slows from the recent breakneck pace. Reports are surfacing of contractors giving discounts, providing better plans and more detailed estimates, or following up with customers months after the job is finished — in other words, providing the kind of service that makes building your dream house bearable.

Which Home Improvements Pay Off ?

Generally speaking, there are two ways to go about making home improvements. Either you splurge for something purely for the sybaritic pleasure of having it — the Italian marble bathroom you’ve dreamed about; that skylight that your spouse has been hinting at for the last six years — or you take a pragmatic approach, buying an energy-efficient furnace or repairing a leaky roof because you want to increase your home’s market value.

Don’t expect to score on both counts. “Just because you pour $20,000 into your home doesn’t mean that your house is worth $20,000 more,” says Frank Dell‘Accio, a real-estate broker in Lindenhurst, N.Y. “I had a guy who invested $100,000 in a $130,000 home after he lived there for four years. He put it on the market at $225,000. He was offered $170,000.” His mistake: spending money on amenities that were only peripheral to the value of the house. “He wanted phones in the bathroom,” says Dell‘Accio, “but [who else is] going to pay for them?”

Exactly how much you’ll recoup in costs depends on several factors, including the direction of the broader housing market, the value of the homes in your neighborhood, when you plan to sell the home and the nature of the project itself, explains Stacey Freed, senior editor of Remodeling magazine. In some housing markets, you could indeed earn more than your investment back on a remodeling project. Adding a midrange deck to a home in San Francisco, for example, recoups 116% of its costs, according to Remodeling magazine’s latest survey (which assesses the cost recouped should the house be sold within one year of project completion). But you shouldn’t count on those types of returns. In Columbus, Ohio, the same project is likely to only recoup 58% of its costs.

And keep in mind that the longer you hold on to your home after a remodeling project is completed, the less likely you are to recoup its value. That’s in part because design tastes can shift significantly over time. Remember when avocado green was all the rage? Also, there’s little reward for having the fanciest house on the block, warns certified financial planner Dee Lee of Harvard, Mass. A house that’s priced higher than its neighboring homes could be perceived as overpriced — even if it does have more value.

This section examines a few improvements that pay off more often than not — and some that rarely make a difference when it comes time to sell your home.

Kitchens
Even a few basic improvements to your kitchen can pay handsome dividends, says real-estate agent Michael Murphy in his book “How to Sell Your Home in Good or Bad Times.” Murphy writes: “For most buyers, [the kitchen] is the heart of the house. Paint, wallpaper, and even refloor the room if necessary. Consider sanding, staining or painting dingy-looking cabinets. Replace old cabinet hardware — a low-cost improvement that makes a big difference in appearance.” Just be sure to go with a classic design and, if possible, use high quality materials, says Remodeling magazine’s Cory. After all, good taste endures.

The average amount spent on a major kitchen-remodeling job in the U.S. is $54,241 for a midrange update; an upscale designer makeover averaged $107,973, according to Remodeling magazine. The midrange kitchen overhaul nationally recouped 80% of its cost and 76% of the costs were recovered in an upscale makeover.

Creating New Space
As a rule, improvements that increase the functional space of a home hold their value longer than ones that just make a house look better. It’s also significantly cheaper than adding an addition to your home. Converting an attic into a bedroom, for example, usually costs about $35,960 and returns about 80% of its cost, according to Remodeling magazine. Turning your basement into a room for socializing will set you back, on average, $56,724, and allow you to recoup 79% of your costs.

An Extra Bathroom
Adding an extra bathroom with all the trimmings — marble vanity top, molded sink, bathtub with shower and ceramic tile — almost pays for itself. A midrange full-bath remodeling job in the U.S. has an average price tag of $12,918 and recoups 85% of the costs. A midrange full-bath addition has a national average cost of $28,918 and generally recoups 75% of its cost.

Decks
Installing a deck may be the most cost-efficient way to add square footage to your house, and of all the outdoor home improvements except painting, it may be the most reliable value. Deck additions average $14,728 and generally recoup 77% of their value. That may not sound terribly impressive, but other touted outdoor improvements fare much worse.

New Windows
The savings on your utility bill might make up for the spotty resale value. Replacing 10 three-by-five-foot windows with insulated wood replacement windows typically costs $9,416 and recovers more than 85% of its costs at resale, according to Remodeling magazine. “A good window arrangement, as long as they’re standard, will make money back,” says William Eccleston, a broker in Coventry, R.I. But, he warns, “as soon as you get into customizing, with fancy shapes, bays and bows you can’t see from the street, you’re throwing money down the drain.”

Swimming Pools
It’s commonly agreed that a swimming pool has no resale value at all. “I’ve had clients spend $300,000 and fill in the pool,” says one agent. The main reason pools repel more prospective buyers than they attract is that they require expensive upkeep. Running a close second is the fear of liability: Pool accidents are a quick way to end up the subject of a negligence suit. “A lot of people don’t want the responsibility,” says Remodeling magazine’s Cory.

Manicured Gardens
Fancy gardens — which will require time and money to tend — usually won’t add to the offering price. “Landscaping is for your own enjoyment,” says New Jersey agent Frank Dell‘Accio. “It may be a $40,000 investment, but there’s no way it’ll add $40,000 to the value of your house.” The same goes for expensive fences and stone walls. They look nice, but buyers don’t pay up for them.

Basic Improvements
It may not be all that enjoyable, but it’s the basic improvements that may have the greatest return on your home’s value. “You could have a beautiful new kitchen, but if your roof is leaking, you have a real problem,” says Cory. So if you’re thinking of putting your house on the market in the next year or so, be sure to tackle any problems with the home’s structure or mechanical systems before you, say, install that hot tub you’ve always dreamed of.

Free Money for Grad School

At age 23, Elizabeth Kerr is a full-time PhD student in religious studies at the University of California at Santa Barbara — and she makes a decent living to boot. Thanks to two fellowships, she’ll earn the equivalent of $42,000 this year, including the full cost of tuition and health insurance plus a stipend for living expenses.

A year of graduate school costs, on average, anywhere from $17,000 for a master’s at a public university to more than $56,000 at a private dental school. Four out of five full-time grad students receive financial aid, and the average package is $20,000 per year; student loans usually make up 75% of the total.

But Kerr will graduate virtually debt-free. So will Matthew Freyer, who’s in his second year of a two-year master’s program in industrial engineering at Penn State University. Freyer, 25, covered his first-year tuition with a fellowship, and this year he has a 20-hour-per-week teaching assistantship that covers tuition. He receives $5,000 a year from another fellowship.

Compared with undergraduate education, far less money is available for grad school on the basis of financial need alone. “Grad schools give awards based more on merit than need,” says Kalman Chany, author of Paying for College Without Going Broke (Princeton Review, $20). In 2003-04, one in five graduate and professional students received a fellowship or grant — averaging $7,500 — with no strings attached. Students in the physical sciences, economics, engineering, religion and theology have the best shot at getting a fellowship; fewer grants are available for advanced degrees in business and education. (For more information on fellowships, visit FastWeb.com or www.cuinfo.cornell.edu/Student/GRFN.)

Assistantships, which require you to work in return for a stipend (the average was just over $10,000 in 2003-04), are most common in the physical sciences. Nearly half of all full-time candidates for master’s degrees in science are paid for work as assistants.

As a research assistant, Kate Kierpiec, 25, who is a fourth-year PhD candidate in immunology and microbiology at Georgetown University, earns $1,750 a month studying DNA in-vitro. The money covers her rent and supplements the fellowship that pays her tuition. “It’s enough to survive but not enough to live on,” says Kierpiec, who waits tables for extra cash.

Awards are competitive and not widely promoted. But you can boost your chances of getting a share.
Start early. Decisions concerning fellowships, scholarships and assistantships are made at the department level, says Mary Pat Doyle, associate director of financial aid for the graduate school at Northwestern University. Awards for the academic year beginning each fall are determined within a month of the application deadline, generally the previous December or January, so it pays to start lobbying a year in advance.

A request for financial aid won’t be held against your admission, says Peter Diffley, co-author of Paying for Graduate School Without Going Broke (Princeton Review, $20) and an associate dean of the graduate school at Notre Dame. Tell the school if you’ll be giving up a salary. The more the faculty wants you, the more aid you’ll get. For example, to lure Seth Parks, 31, from higher-ranked business schools, George Washington University awarded him a 50% tuition waiver for an MBA.

Network. Seek out departments where you’d be a good fit. In Freyer’s case, an undergraduate professor hooked him up with engineering faculty at Penn State.

A year before applying for grad school, Kerr e-mailed scholars in religious studies whose research she respected to ask for academic guidance. They pointed her to UCSB’s professors, who were impressed with her undergraduate record in anthropology at the University of North Carolina at Chapel Hill.

Spiff up your resume. Graduate-school admission is based on your undergraduate grade-point average, the reputation of your undergraduate school, recommendations and your specific research interests. If your GPA isn’t as high as you’d like, use your application to tout other strengths — field work, jobs, extra classes — that might not appear on your transcript.

Consider a PhD. Doctoral candidates have a better shot at receiving free money, so go for a PhD rather than a master’s if that makes sense in your field. Most PhD programs support their students for at least four years. “If they really want you, a PhD is going to be free,” says Diffley.

Also look into outside funding from a company or organization that would benefit from your research. Rachel Johnson, who will receive a master’s degree in industrial engineering from Arizona State University this spring, received a full-tuition scholarship funded by Intel through Semiconductor Research Corp. And that was just the beginning: Johnson, 24, also landed an Intel internship that led to a job, and she plans to eventually earn a PhD on the company’s dime.

Planning for Retirement

20 to 29

You’re young; you’re starting your career; you’re broke.

Your Portfolio
Standard & Poor’s 500 stock index fund
50%

Small-cap core stock fund
25%

International stock fund
25%

1. Start your 401(k) at work. Contribute at least up to the company match, if any.

2. Start a Roth IRA if you don’t have a 401(k) — or if you have a 401(k) and can afford a Roth, too. You can tap your Roth for a first-time home purchase, if needed. And you can withdraw principal penalty-free.

3. Start an emergency fund, says Kurt Brouwer, financial planner in Tiburon, Calif. If you don’t have a bit saved for a rainy day, you’ll have to go into debt for emergencies — or tap your retirement fund.

4. Make a living will, so your family will know your wishes in case of a health emergency. You’ll need one when you retire, but you never know what will happen in the meantime.

30 to 39

You’re still young; you’re starting a family; you’re in debt up to your eyeballs.

Your Portfolio
Standard & Poor’s 500 stock index fund
50%
International stock fund
20%

Small-cap core stock fund
15%

Mid-cap growth stock fund
15%

1. Don’t reduce your retirement savings for college savings. You can finance college; you can’t finance retirement.

2. Use your 401(k) to help you save. A 401(k) lets you save money before taxes. Suppose you’re in the 25% tax bracket, earn $50,000 a year, and want to save $3,000 a year. Because of the tax savings, that $3,000 would reduce your take-home pay just $2,225.

3. Don’t confuse whole life insurance with a retirement plan, says Peggy Ruhlin, a Columbus, Ohio, financial planner. “Life insurance is good, and you need it to protect your family. But it’s not for retirement savings.”

4. Write your will. You never know.

40 to 49

You’re middle-aged; you’re doing OK; you’re starting to get worried.

Your Portfolio
Standard & Poor’s 500 stock index fund
40%

International stock fund 15%
Small-cap value stock fund 15%
Mid-cap growth stock fund 15%
Bond funds
15%

1. If you’re not contributing the maximum to your 401(k), this is the time to do it.

2. Your rainy-day fund should equal two to three months’ expenses.

3. If you plan to remain in your home, refinance to make sure your mortgage will end when you stop working.

4. If you can fund a Roth IRA, do so. Otherwise, look at alternatives for retirement savings plans, such as tax-efficient mutual funds.

5. Update your living will and make sure someone has power of attorney. You never know.

50 to 59

You’re nearing retirement; you’re at the peak of your career; you’re terrified.

Standard & Poor’s 500 stock index fund
30%

Bond funds
30%

Small-cap value stock fund
10%
Mid-cap growth stock fund
15%
Mid-cap blend stock fund
10%
International stock fund 10%
10%

1. If the kids are out of college, consider reducing your life insurance and increasing your savings.

2. Take advantage of the catch-up provisions for 401(k)s and IRAs, which let you contribute more each year.

3. At 55, start reviewing your Social Security benefits estimate every year and get estimates for any pensions you might receive. See how much your savings will have to be tapped to meet your expenses.

4. Update your will. You never know.

Get Life Insurance Before Getting Pregnant

If you’re a woman thinking of starting a family, think about buying life insurance before you even get a positive pregnancy test.

Life insurers like to see a clean bill of health as part of an application. But between 6.5% and 12.9% of women experience minor or major depression at a particular point in time during the first year after having a baby, according to a 2005 survey published by the federal Agency for Healthcare Research and Quality, which looked at the other existing research.

While postpartum depression is generally temporary and readily treatable (if recognized), insurers tend to look at women who have it as higher risks. Life insurance, in its simplest form, pays out upon death, and insurers think moms with the blues are elevated suicide risks. So if you apply for life insurance right after a diagnosis of depression, you could pay twice the lowest possible rate, or more.
This infuriates new moms, who wonder why they’re being penalized for proactively improving their mental health while depressed women who go undiagnosed get preferred rates. Playing logician with the insurance company won’t get you very far though.

Simply avoid the issue altogether by shopping for life insurance before you attempt to conceive, and get a policy where the premium is guaranteed to stay the same.

If you’re already caught up in this issue, enlist your therapist’s help in sending a written request for a better deal, especially if your treatment is complete. Many insurers will consider appeals.

Note that lying on an insurance application is a bad idea. In the event of your untimely death, the insurer could launch an inquiry and revoke your policy.

How to Pay Off a Big Tax Bill

Some people ignore their tax responsibilities because they don’t have enough money to pay their IRS bill. Not a good idea.

If you don’t file a return, you’ll ultimately make matters worse. The IRS assesses a failure-to-file penalty as well as one for not paying your bill. The fees are reminiscent of loan-shark rates, assessed each month at a rate of 5 percent of your tax bill (4.5 percent late-filing fee plus 0.5 percent late-payment penalty). As the months roll by, these fees can ultimately reach up to 47.5 percent of your tax bill. Ouch!

So your best move is to file the forms and pay as much of your bill as you can. You’ll still face the failure-to-pay penalty each month your bill is outstanding, but it’s only 0.5 percent of the amount you owe. With that out of the way, then it’s time to look at other payment options.

Pay with plastic

Like most other creditors, Uncle Sam accepts credit cards. Two private firms, Official Payments and Link2Gov, have contracted with the IRS to process charged tax payments. Both accept American Express, Discover, MasterCard or Visa. You can use your credit card regardless of whether you file by mail or electronically.

While handy, the credit option does have other costs. Both companies collect a fee of around 2.5 percent of your payment amount.

You also need to handle your credit card account wisely. The payment to the IRS will add to your account’s balance; if you don’t pay it off in full, additional interest charges by the card issuer will accrue.

Arrange an installment plan

If this is the first time you’ve had trouble meeting your tax obligation, set up an installment payment plan with the IRS by filing Form 9465.

The tax agency even allows you some leeway in establishing payment terms (e.g., monthly payment amount, due date) that fit your financial situation. In some cases, the IRS also allows installment plans for partial payment of due taxes.

The installment plan, however, is not painless.

You must pay off your IRS loan in at least three years.

Most taxpayers will be charged a one-time fee of $105; it’s reduced if you set up direct debit payment or make less than a certain income level.

And, as with any such loan, your outstanding balance is subject to interest charges.
Get more time

In some situations, you might qualify for more time to pay, as long as you can convince the IRS that the delay will help you ultimately fulfill your tax obligation.

If you qualify, you’ll get between 30 days to 120 days to pay your due tax. You’ll also generally pay less in penalties and interest than you would if you paid your taxes via an installment agreement.

Request a short-term extension of time to pay by filing an Online Payment Agreement application or by calling 1-800-829-1040.

Make a tax deal

In some cases, the IRS might be willing to accept an offer in compromise, or an OIC. This is a lump-sum payment you offer to make that is less than the total amount of tax you owe.

The IRS sometimes agrees to smaller payments so that it will get at least some tax payments more quickly and without years of costly collection efforts.

An OIC is not simply a haggling technique to reduce your bill. The key to a successful offer is to propose an amount that reasonably reflects your ability to pay. To discourage taxpayers from making an offer just to stall payment, you must include a $150 application fee with the OIC request. If your offer is accepted, the fee will go toward your new payment amount.

The IRS reviews an applicant’s financial situation and future income potential to determine whether an offer is appropriate. In most cases, the decision is no. The IRS says that since the OIC program was designed for taxpayers in extreme financial duress, few individuals qualify under terms they would like.

If, however, you believe your situation would meet the requirements, you can get detailed information in IRS booklet Offer in Compromise, Form 656.

Whichever tax payment method you choose, don’t delay. Putting off your filing and payment of taxes will only compound your financial and tax problems.

Credit Card Financing

Theory’s great and reality’s scary.

The answer is “yes.” But there are several big “ifs” attached.

The question? Oh, sorry and it’s one I get asked so often I thought you might know what I was referring to. So let me back up.

People from all walks of life are inundated through e-mail or snail mail with long-term, low-interest credit card offers.

You know the type: 1.99 percent interest until the balance is paid off, or something similar.

Can you actually finance a car that way — saving a small fortune in interest charges without taking a dealer’s lowest rate and thereby letting you take advantage of any and all rebates?

Like I said, the answer is “yes.” Yes, you can do it, and in theory it’s a great idea. In practice, however, using credit cards to buy cars is fraught with pitfalls. Here are only a few:

Sometimes the fine print points out the offer is for an “introductory rate” that can rise after a few months and can hit 24 percent or more.

The “life of the balance” offer often applies only to balances you roll over from competing credit cards and not to new purchases or cash advances. Of course, you could make the purchase on one card and then quickly transfer the balance, but things could go wrong there, too.

The “life of balance” promise can change without warning — if you’re late with one payment, for example, the balance then can be jacked up to the highest rate allowed. Or, thanks to a common clause called “universal default,” the credit card company can raise your rate sky-high if you are late with a single payment to some other credit card, or perhaps even to your cable TV service.

So, unless you are especially astute in managing your money and fastidious in paying your bills, a conventional auto loan, secured by the vehicle financed, is still the best and cheapest way to go. Short of paying cash, that is.

Should You Buy That Home?

The dream of owning your own home is as American as apple pie–and (supposedly) better for you. Over and over, we are told that homeownership will make you happier, healthier and wealthier. Heck, it’s even supposed to make you a better citizen.

Of course, there are times when, depending on your age, your savings and your income, buying a home can be a smart decision and an excellent way to build wealth. But is buying a home really such a universally good idea?

It’s hard to separate fact from propaganda.

Certainly, the virtues of ownership have been preached loudly and from on high. As early as the 1920s, Herbert Hoover extolled home ownership as a pillar of family life. Nearly 80 years later, President Bush reiterated the message, stating “there’s no greater American value than owning something, owning your own home and having the opportunity to do so.”


Homeownership has been touted as civic responsibility, “moral muscle” and a bulwark against communism. A 1922 pamphlet from the National Association of Real Estate Boards even promised that it would put the “MAN back in MANHOOD.” Over the years, it has been claimed that homeowners vote more, join more voluntary associations, take better care of their residences and have better-educated kids.

But to realize that America’s mania for home-buying is out of all proportion to sober reality, one needs to look no further than the current subprime lending mess. In the last decade, riskier lending practices combined with historically low interest rates and federal subsidies have encouraged a wave of low- and moderate-income households to buy homes.

As interest rates–and mortgage payments–have started to climb, many of these new owners are having difficulty making ends meet. At the moment, a record 250,000 mortgages are in foreclosure–that works out to more than 0.5% of the entire U.S. mortgage market.

Those borrowers are much worse off than before they bought. “There’s the loss of the initial investment, ruined credit ratings and the psychological trauma associated with foreclosure and being evicted,” says William Rohe, co-editor of Chasing the American Dream and a professor of urban studies at the University of North Carolina at Chapel Hill.

Worse, foreclosures are often concentrated geographically, meaning that neighborhoods that were already badly off now have even more abandoned properties. Conversely, ownership can trap a family in a declining neighborhood, while renters move on more easily.

Steven Bourassa, a professor at the School of Urban and Public Affairs at the University of Louisville, recalls attending a speech in which the mayor of a Kentucky town was bragging about expanding homeownership. As an example, the mayor cited a disabled woman with an income of $8,500 a year who was able to acquire her own home with the help of a federal voucher program.

“I think that’s nuts,” Bourassa says. “She can afford the mortgage payment, but what if something goes wrong with the house? Some of these people would be more stable if they had just stayed in the rental sector.”
Even for the better-off, buying isn’t always a good idea. For some, moving from the city to the suburbs has high psychological costs. People in the suburbs can feel more isolated and less involved in their communities. Longer commutes take a toll. Taking care of a home takes time, money and energy. New homeowners need to be ready to trade in existing hobbies for lawn-mowing and trips to Home Depot.

And, practically speaking, it’s fairly obvious that homeownership isn’t right for everyone at every stage of their lives. Downsizing retirees might be better off selling their homes, investing the cash to generate income and moving into low-maintenance rentals. And young people who need mobility for their careers can end up feeling hamstrung by the inability to sell quickly.

What about all the social benefits attributed to homeownership? It turns out that many of the supposed benefits of ownership are likely due simply to family stability, for which homeownership is an excellent proxy.

For instance, while it is true that the children of homeowners have scored better on standardized tests than the children of renters, there’s little to suggest that ownership per se is the cause of better performance.

“Some research has suggested that it isn’t whether parents own or rent, but the mobility of the household,” says Rachel Drew, a research analyst at Harvard University’s Joint Center for Housing Studies. In other words, it’s likely that families who stay in one place for a long time (renting or buying) are doing better by their kids than families that move often.

“All of these things we say are benefits of homeownership in the U.S. I think would also be benefits of long-term rental tenancy,” says Bourassa.

Certainly there are plenty of stable, wealthy, well-educated places in Europe, at least, where homeownership is far rarer than it is in the U.S. Nearly 70% of all Americans own their own homes; only 34% of the Swiss do. Thriving cities like Hamburg, Amsterdam and Berlin have rates of ownership of just 20%, 16% and 11% respectively, according to the United Nations.

So if something in your gut–or on your bank statement–tells you that now is not the right time to buy, resist the pressure. There may be no place like home, but there’s no reason you can’t rent it.

Five Tips For Retirement Savings

Worried that your nest egg is undernourished? Here are some smart and sensible ways to get that golden-years savings plan back on track

Haven’t saved enough for retirement? You’re not alone (see BusinessWeek.com, 7/24/06, “Retirement Guide”). More than two-thirds of U.S. workers say they and their spouses have saved less than $50,000 toward retirement, according to an annual survey by the Employee Benefit Research Institute.

Sure, you’ll always find reasons why now might not be the best time to worry about your golden years. Bills, family responsibilities, and busy schedules can make it easy to rationalize falling behind in building your retirement nest egg. But the sooner you start saving more, the better off you’re likely to be, thanks to the power of compounding.

No matter how far you are from retirement, it’s probably a good time to take a quick reality-check. A financial adviser or one of the many investment Web sites can help you determine where you stand on your road to retirement. “Find out, once and for all, what you have now, what you’ll need then, and what steps must be taken now to make it happen then,” says Philip Watson, a financial planner in Franklin, Tenn.

This Five for the Money looks at smart strategies for catching up on your retirement savings. One hint you will not find here: striking it rich thanks to your unparalleled stock-picking genius. It may not sound sexy, but careful planning and a broadly diversified investment portfolio can help you make up for lost time.

1. Boost your savings to the max

For once, the taxman is willing to give you a big break. You’d be foolish not to take advantage of that, right? Retirement savings accounts such as 401(k)s and IRAs allow workers to sock their hard-earned money away on a tax-deferred basis. In a 401(k), employers will typically match your contribution, too.

Make sure to contribute as much as you can to these accounts—at least up to the company match in your 401(k). “Take all the free money you can get,” says Marjorie Bennett, principal at Emeryville (Calif.)-based Aegis Capital Management. For 2007, the maximum most investors can contribute to a 401(k) is $15,500. The limit for contribution to an IRA this year is $4,000. Depending on annual income, IRA contributions may be tax deductible. You can still contribute through Apr. 15 to take deductions for the 2006 tax year.

Better still, investors 50 and over are allowed to make “catch-up” contributions to their tax-advantaged retirement accounts. These investors can add another $5,000 to their 401(k) in 2007, and an extra $1,000 to their IRA. Many investors may also want to consider a Roth 401(k) or IRA instead. Contributions to Roth accounts aren’t tax-free, but withdrawals are.

2. Get your assets into alignment

A well-diversified portfolio can increase the chances your assets will participate in market booms and help insulate your savings against the inevitable busts. Check your asset allocation and make sure it’s right for you. A smart portfolio might have exposure to a variety of asset classes, including domestic stocks, international stocks, bonds, and more (see BusinessWeek.com, 4/6/06, “Winning the Game of Risk”).

For instance, many baby boomers‘ portfolios are too heavily allocated to fixed-income investments, some financial planners say. “Sure, equities will result in a rougher ride during some periods, but the long-term benefit is better returns that will make the retirement savings stretch longer,” says Sherman Doll, president of wealth-management firm Capital Performance Advisors in Walnut Creek, Calif.

At the same time, resist the temptation to bet big on individual names. If you’re trying to get caught up, risking huge losses probably won’t help. “The inclination for many would be to take on more risk hoping to make up ground with a big score on their investments,” says Daniel Sexton, chief executive officer of Newport Beach (Calif.) financial planning firm RS Crum. “Nothing can be further from the truth.”

3. Cut costs on investments, too

Just as proper diet and exercise are good for your health, reducing expenses is one obvious way to save more for retirement. People looking for bargains can find them in all sorts of places—even within their own investment portfolios.

Chip Simon, president of Poughkeepsie (N.Y.) financial planning firm Taconic Advisors, suggests investors should think of their portfolio as a business. “Keep it low-cost like any other business,” Simon says. “Stay away from high-commission products and inappropriate products that don’t necessarily fit into a plan for you.”

Consider swapping out high-cost mutual funds for low-cost, no-load funds, such as index funds. Also watch out for commissions if you trade individual stocks. Making frequent stock trades could end up costing more than it’s worth.

4. Embrace automation
Now that you’ve got your retirement plan back on the right track, make it last. Your employer probably already makes 401(k) deductions automatically. You can also sign up with your financial institution to have money transferred electronically each month from your checking account into an IRA or taxable account.

When savings pile up without any action from you, it’s very hard to “forget” to save, financial planners say. “If it happens automatically you are more likely to keep up with the savings habit, rather than waiting to see if you have the money at the end of the month,” says Lauren Gadkowski, a financial planner with Personal Financial Advisors in Covington, La.

5. Rethink your mortgage

Your house could help you save a little extra for retirement, too. If you have substantial home equity, you might want to look into refinancing your house and investing the difference in stocks and bonds, recommends Ed Fulbright, a Durham (N.C.) financial planner. Over a 15-year time frame, investors would have a good chance of boosting their investment returns, Fulbright says.

In fact, paying off your mortgage before retirement might be an outmoded ideal, as long as you get a fixed interest rate. Keeping a mortgage into retirement can help protect against inflation, says John Scherer, principal of Trinity Financial Planning in Madison, Wis. “If you’re 50 years old and get locked in, and inflation goes up over time, you’re paying off that mortgage with cheaper and cheaper dollars,” Scherer explains.

There’s no magic solution for workers who have fallen behind in their retirement savings, experts say. But the sooner you can start the “catch-up” game, the better off you’ll be.

How To Find Your Perfect Nest

It isn’t the one that has everything. It’s the one with more of what you want and less of what you don’t. This system can guide you to it.

A home’s four C’s

When I became a real estate agent, I discovered something about home buyers: A lot of them cry. Right in front of you. After a few times I began to understand. This is a high-pressure, extremely emotional decision. No house will ever fully live up to your dreams, and whatever compromises you make (and you’ll have to make some) you’ll be stuck with for years.

I’ve never met anyone who was totally rational about evaluating a home, but the way to get closest, I’ve found, is to break the process into discrete parts. Just as diamond buyers focus on four competing criteria (carats, clarity, color and cut), home buyers need to consider a home’s four Cs: cost, condition, capacity and convenience.

The worksheets on the following pages have helped my clients weigh those factors and make the inevitable tradeoffs with fewer tears; they should work for you too.


A home’s true cost

I see a lot of buyers make a basic mistake: When deciding if a particular house fits their budget, they look only at listed price and their probable mortgage payments.

But to make an honest comparison of the houses on your list, you must consider all the costs you’ll be facing. In addition to mortgage payments, there are maintenance costs, property taxes and homeowners association fees, utilities and insurance.

Your total outlay should be no more than a third of your gross income (ideally, less).

Define ‘acceptable’ condition

Unless you’re buying brand new, expect your home to need some upgrades. Just be sure the issues aren’t structural (such as those under “red light” below, which your home inspector can help you identify). Fixing these could run as much as $30,000, says New Jersey builder Jay Cipriani.

Better to go with a home needing cosmetic work (”green light”) or at least a less extensive overhaul (”yellow light”). The investment you make in resolving these will improve your quality of life while living there and increase the resale value.

RED LIGHT
These problems can be incredible costly. Run away.

YELLOW LIGHT
These issues may be fixable. Consult a pro to determine.

GREEN LIGHT
Fixing these problems will return at least some of your investment.

Major cracks in the foundation
To fix major foundation cracks, the house often needs to be propped up. Leaking or sagging roof
Ask the roofer if you can plop on a new one (cheaper) or if you must strip the old (more costly). Too few bathrooms
A half bath could run $15,000 but it can increase the home’s value by 12%.
Sagging stairs
One loose tread is okay, but if the entire staircase bows, you may have foundation problems. It’s a big job - see above. A 20-year old boiler…
A more modern system (which you will likely have to install within a few years), will cost thousands. Outdated kitchen
Revamping a kitchen can return 75% to 100% of your investment on resale.
Leaks or water damage
A long-term leak can rot your carpet and your walls, cause mold and require extensive repairs. Mature trees within 15 feet
Roots can grow into pipes causing leaks or sewage backups. Too-small rooms
Adding an archway or moving a non-load bearing wall can open the layout at a cost of around $7,000.
Termites
Mud tubes and hollow wood are signs of a serious infestation, particularly worrisome if the house has a wood frame. High radon levels
To mitigate this lung cancer risk, you must install a ventilation system. Cracked, drafty or warped windows
New, energy-efficient windows cost as little as $200 each and can make a big difference in appearance and heating bills.


Consider capacity

To squeeze into a budget, you might have to get a smaller - wait, I’m a real estate agent: cozier - house than you’d like. So forget about square footage, often a misleading number. More important is how that space is allocated. These questions will help you evaluate whether the space in a house fits you.

Does it have enough closet space? Rather than look at the number of closets, measure the length of them (for instance, six feet in the hall, two in the kids’ rooms and so on). Compare the total with that of your current home. Also, take along a hanger to make sure the closets really are deep enough for clothes.

Are there enough bedrooms? One of the most awkward moments for a real estate agent is when the husband counts the bedrooms and says “We’ll all fit,” then the wife gets a gleam in her eye. Ideally, you’ll know your family’s expansion plans before shopping. Since that’s not always possible, consider whether there’s room for surprise long-term guests, be they kids or in-laws. If you can’t afford extra bedrooms, is there an area that could be converted, like an attic or a basement?

Does the kitchen suit my needs? Think about whether there’s space for you, your family and your guests - as well as your cooking gear. (I’ve seen kitchens with cabinets too shallow for a microwave.) Don’t forget about the fridge, which can be costly to replace: A family of four needs at least 22 cubic feet.

Is there a spot to work from home? Is there room for a desk, a computer and files? Even if you don’t need an office, your next buyer might: A work space can add an average of $12,000 to resale value, according to a study done by Remodeling magazine.

Weigh the price of convenience

Cities offer great job and cultural opportunities, but they generally come with high real estate costs. To get more house for your money, you might look along the edge of a hot neighborhood or in a smaller town nearby.

But will you miss the pace? Will you end up with a longer, pricier commute than you’d prefer? Will family and friends ever visit?

To determine whether moving farther out is worth the sacrifice, look at a house in the area you like and a similar one 15 to 30 minutes away. Then consider the factors in the worksheet below.

YOUR DOLLARS WILL GO FARTHER IF YOU DO TOO
Use a list like the one below to determine whether moving farther out is worth the sacrifice.
Closer House Farther House
Listing price
Length of commute
Gas price
Cost of commute
Cost of child care
Nearest hospital
Nearest supermarket
Nearest pharmacy
Nearest airport
Good schools?