Have you considered getting into the foreign exchange market? Also known as Forex, this is a fast market that operates 24 hours a day, five days a week. If you have previous experience with trading on the stock market, Forex is quite different. However, it can be a great way to make some money and Forex is gaining popularity with investors all over the world.
If you would like some tips and tutorials for getting started with the Forex market, consult the following online resources for help.
School of Pipsology – This site will literally school you, as it is organized into lessons according to grades. Start out in kindergarten and, as you learn more about the market, eventually graduate from the School of Pipsology.
Cyber Trading University – This site, also constructed in the guise of an online Forex school, offers free tutorials for beginners. These include video tutorials, which can be viewed at no extra charge.
Forex Training – Not only does this site offer comprehensive lessons in Forex trading, it also provides a free practice account. Using a practice account with virtual money allows you to trade with real-time quotes and get used to the process before investing real money.
Forex Facts – If you are in need of an all-inclusive FAQ list for Forex trading, you will find it here. From charting to market analysis, this teaches you everything you need to know about Forex philosophy and strategy.
Investopedia – Always a reliable source for investment advice, Investopedia has a section devoted entirely to the Forex market. The whole site can be of great use to Forex traders, however.
People from all walks of life are trading on the Forex market. Thanks to the advent of the Internet, online trading has never been easier and it affords "regular Joes" the chance to try out the system. Whether you are interested in trading as a hobby or as a serious investor, learn the ins and outs of Forex with the five resources above.
This article is contributed by Heather Johnson, a freelance writer as well as a regular commentator on the topic of credit card review. Heather invites your questions, comments and freelancing job inquiries at heatherjohnson2323 at gmail dot com.
I was reading a post on CNN money by Walter Updegrave where he was answering a question by a reader about the simple ways of saving money. Although Walter's answer was good , I found more practical tips for saving money in the comments left by various readers.
Here are a few of my favorites:
I had a friend however whose husband would spend whatever balance was in the checking account. So one week she would pay the bill to “BellSouth” for the actual phone bill and a couple weeks later she would put a payment to “southern Bell” for the same phone bill. It basically deducted the bill twice from the account. She could go back and add up all the Southern Bells and see what her savings was and it provided emergency funds for her when needed. No not an ideal system but it worked for her. Posted By K Hofmann, Gastonia, NC
My wife and I set up several savings accounts at ING (no fees, good rates) and a set amount goes into each account every pay period. We use these accounts as savings and “escrow” accounts, we save all year long for car repairs & registrations, car insurance, home heating oil, our property tax bills, vacations, etc. My other suggestion is to split pay raises into 3 parts, increase regular savings, retirement savings and to fatten the budget (more breathing room each month). Posted By dugdg1, Manch-Vegas, NH
I think that the best “savings strategy” for most people in the United States is a healthy dose of perspective once in a while. Do some reading about how the majority of people in the world live. When you get the urge to whine about how life is not worth living without all the latest electronic gadgets, think about the women in Malawi whose children are dead of AIDS, and who are raising their grandchildren on rotten bug-infested grain, because they have no other food to give them. When you feel personally offended by rising gas prices, think about the sweatshop workers in Bangladesh who walk for two hours to get to work, and feel it’s the best opportunity they’ve ever had. Realize that you have all of what you need and most of what you want, make do with a little less, and go make a donation to Oxfam already. Posted By Johanna, College Park, MD
My paycheck gets deposited to an online savings account (ING) on a bimonthly basis. When I started, the assumption was to save atleast 10% of my annual salary, 10% for retirement, and the rest for normal expenses, debt, etc. This strategy has worked very well for me so far and since I started, I am saving about 20% of my pre-tax income and an additional 10% (pre-tax) for retirement. The benefit here is that I don’t even see the money in my checking account so I am not tempted to spend it and it earns a fairly good interest rate. Additionally, when I get a raise, my expenses don’t go up automatically and the extra money is automatically saved. Posted By Asad, Houston, TX
I am lucky that my work offers direct deposit up to 7 accounts. On top of that I am on a bi-weekly pay schedule so all my budgeting is done on a monthly basis allowing me 2 extra pay checks a year to either pay off debt or stock away in savings. The way I have it set up is that I have a small amount of money each paycheck going into a “spending account” which we use for “wants” and another into a high yield money market account through Vanguard. Both of these are done automatically so I do not have to worry about it. Posted By KMoran, Dublin, CA
I have a savings account in another bank that is separate from my checking and savings. I have automatic deposits sent to it each month. There is no debit card on the account so I have to drive there to withdrawl any money. It makes you think twice before withdrawls. last year when my car starter died, the $500.00 bill was paid for with cash. I am now saving to pay cash for my next car. Posted By DJ South Bend, Ind.
For expensive items like a car or the cottage we’ve been thinking about, I setup an phony account in my financial software and automatically transfer the amount from our checking account each month. The money never really leaves checking but I don’t see it in my software. We build up the downpayment in this way and also see if we can truly afford what we want. It’s far better to test your ability to make those payments (while building up that downpayment) than to jump in and realize you couldn’t afford it!! Posted By Brian, Kalamazoo, MI
One method I use is pocket change. I never spend my “change”. The coins that come back from everything. It goes home and in the evening it goes in a jug. Every few months I take it in and deposit in my savings account. I am told that your change equates to 5 to 7% of your expenditures. Not a lot, but more than most and its isn’t terribly painful. I know it is a surprize how much that deposit is. For me it supplements the direct deposit to savings that automatically comes out of my pay check, but it is a start for those who don’t have anything else. Posted By V Woolley, Bakersfield, CA
Though it’s not the most difficult thing in the world, safely writing a check is something that everyone needs to know before it is all said and done. Use Ink, Never Lead
Always use a pen to write a check to prevent any kind of tampering with the check. Never use a pencil when you are check writing because someone could fill in the blanks with the amount they would like to receive and easily erase your pencil marks. To avoid dishing out blank checks to people, be sure to use some kind of ink. Although a pen is acceptable according to most people, it is wise to use a permanent marker if possible. This is significant due to those occurrences in which people have committed “check washing”, which is a process in which criminals use chemicals to remove checks’ ink. A permanent marker prevents this possibility.
Dating and Identifying Tips
When you first look at the check, it might seem complicated. All of those blanks are easy to fill out once you have all of the information, though. The first step is to fill out the current date on the check. Make sure to correctly identify the date, as post-dating a check is actually illegal. Once you’ve done that, you should write the name of the person who will be receiving the check on the “pay to the order of” line. Be sure to include their complete name.
Filling in the Amount
The most important article of information on the check, of course, is the dollar value that you are assigning to it. It is required to write the amount in two places. Put this information in the dollar amount line first. The line is titled Dollars and is located below the Pay to the order of line. When you write out the amount, write it out in full, including any cents. To prevent someone from changing your numbers, you must fill out this area of the check. Afterward, you will need to print the numbers in the box to the right.
Signing the Check
Signing the check may be the last but not the least part of check writing. Be absolutely certain to sign the check with your own unique, standard signature, very stylistically similar to the one printed on your driver’s license. You could face the hassle of questions and accusations about fraud if you don’t sign the check with your standard signature. Deviations can cause the bank to red flag your check. Given how much check fraud and forgery is going on these days, banks are vigilant against suspicious-looking signatures that do not match up against your normal signature. The info section is somehow optional. Many people elect to make a quick note of what the check was for, just to keep their own bookkeeping records straight. Speaking broadly, you will be better off providing as much information as possible.
Overall, writing a check is not a particularly difficult task, although there are a few things to keep in mind. It isn’t something to be flippant about, however. Make sure that you’ve filled out each part correctly so that the likelihood of your check being altered is at a minimum. This will prevent future problems and save you from a huge mess of troubles.
What is Life Insurance ? Life insurance or life assurance is a contract between the policy owner and the insurer, where the insurer agrees to pay a sum of money upon the occurrence of the insured individual's or individuals' death. In return, the policy owner (or policy payer) agrees to pay a stipulated amount called a premium at regular intervals or in lump sums.
As with most insurance policies, life insurance is a contract between the insurer and the policy owner (policyholder) whereby a benefit is paid to the designated Beneficiary (or Beneficiaries) if an insured event occurs which is covered by the policy. To be a life policy the insured event must be based upon life (or lives) of the people named in the policy. Insured events that may be covered include:
death
accidental death
Sickness
Life policies are legal contracts and the terms of the contract describe the limitations of the insured events.
Below are the types most common types of Life insurance sold these days. The last one is my favorite and thats the one I have in place.
Whole Life Insurance Whole life insurance provides permanent protection for your dependents while building a cash value account. With this type of insurance, the insurance company manages the policies various accounts. What it does It pays a death benefit to the beneficiary you name and offers you a low risk cash value account and tax-deferred cash accumulation. It provides a fixed premium which can't increase during your lifetime as long as you continue to pay the planned amount. It allows the insurance company to exclusively manage the cash value account in your policy. It provides you the option to receive dividends from your policy or apply them to reduce payments. It offers you the right to withdraw from the policy during your lifetime. What it doesn't do It doesn't offer the account flexibility to invest in separate accounts such as money market, stock, and bond funds. It doesn't allow you the account flexibility to split your money among different accounts or to move your money between accounts. It doesn't offer premium flexibility. It doesn't offer face amount flexibility.
Variable Life Insurance Variable life insurance provides permanent protection for you and is the type of life insurance with account flexibility for the more risk-oriented policy holder. What it does It pays a death benefit to the beneficiary you name and offers you low-risk, tax-free cash accumulation. It allows the death benefit to vary in relation to the fund returns of the cash value account. It allows you to borrow from the policy during your lifetime. What it doesn't do It offers no guarantee to the amount of cash value during your lifetime. It doesn't offer you premium flexibility. It doesn't offer you face amount flexibility.
Universal Life Insurance Universal life insurance provides permanent protection for your dependents and is more flexible than whole or variable life. What it does It pays a death benefit to the beneficiary you name and offers you a low risk cash value account and tax deferred accumulation. It allows you to earn market rates of interest on your cash value account. It offers the right to borrow or withdraw from the policy during your lifetime. It allows you premium flexibility. It offers face amount flexibility. What it doesn't do It doesn't offer you the account flexibility to invest in separate accounts such as money market, stock, and bond funds. It doesn't allow you the account flexibility to split your money among different accounts or to move your money between accounts.
*Term Life Insurance
Term life insurance is the simplest and least expensive type of policy. It's pure insurance with no cash value account. A term life policy has only one function: to pay a specific lump sum to whoever you've designated, upon a specific event - - your death. The death benefit and the policy limit are the same - - a $200,000 policy pays a $200,000 death benefit. The policy protects your family by providing money they can invest to replace your salary, as well as to cover final expenses incurred by your death.
There is no doubt in my mind that in this economic era, Term Life Insurance is the best option for me and my family. Just as they say that "You should not mix business with Pleasure", I say, "You should not mix Insurance and Investments". Thats what other financial gurus like Dave Ramsey and Suze Orman also say.
It's challenging in today's world to save money, especially during the holiday season. Spending money on gifts and traveling to visit family can really put a dent in your wallet. Knowing when to set aside money for yourself can seem like a tall order during these festive times. In reality, it is not as hard as it seems. Just follow these easy steps:
1. Set a Goal – Whatever your reason for saving, you should always set a goal. For an "in-case-of-emergency" fund, you should work toward three to six months of reserves. A goal also serves as your savings inspiration. It is easier to save when you have an objective.
2. Pay Yourself First – Each pay period, set aside $20 to $50 to your savings account. An easy way to do this is with Direct Deposit. Ask your employer to deposit a percentage of your pay to a savings account and the rest in your Checking so you gain the extra benefits it entails. You won't miss what you've saved because it is taken directly out of your paycheck before you can spend it.
3. Systematic Savings – Besides using Direct Deposit, you can also set up weekly, biweekly, monthly, twice-monthly, quarterly, semi-annually, and annual automatic transfers to your savings account. Letting the bank make these transfers decreases the temptation to spend and puts your savings on "auto-pilot."
4.Open an interest-bearing savings account. It’s a lot easier to keep track of your savings if you have them separate from your spending money. You can also usually get better interest on savings accounts than on checking accounts (if you get interest on your checking account at all). Consider higher-interest options such as CDs or money-market accounts for longer savings goals. You can also open an online savings account with one of the companies that offer them. Look around for the best savings interest rate and try to find one that adjusts its rate as the federal interest rate changes. You can then set up an automatic transfer from your checking account to your high interest savings account. Many employers allow you to deduct savings from your paycheck. The money is directly deposited in your savings account so you never even see it on your paycheck. You can also have investments for retirement taken directly out of your pay, and the taxes may be deferred with this option. If you typically keep a large balance in your checking account, consider moving most of that money into a linked savings account. Keep the money in savings until it is time to pay bills, then transfer enough from savings into checking to cover your bills. Make sure you check with your bank to see what the minimum balance requirements are for your checking account so you don't get hit with additional fees.
One of the most important things to have is an emergency fund. If, for any reason, your income stops, your emergency fund should be able to carry you for at least 6-8 months.
Courtesy of Bankrate.com, below is a list of very good tips to build and maintain an emergency fund.
1. Start saving something today. It doesn't have to be a large sum. Even on a tight budget, a small amount adds up over time. Depending on the size of your family, skipping a meal out each week could result in a savings deposit of $160 per month.
2. Treat saving as a bill. Consider having the amount transferred automatically from your checking account or paycheck. Pay your account every month or every two weeks.
3. Open a Christmas savings club. You may be able to set up an automatic deposit to come directly from your paycheck. You don't think about spending the money you never see. When holidays arrive, you'll have the funds to enjoy.
4. Get an envelope, cookie jar, coffee can or whatever you like and set aside the same amount every week. The trick: Don't count it, don't spend it!
5. Empty your pockets -- or your purse -- at the end of the night. Put all the change into a jar. Not only will you feel lighter, but your spare change adds up a lot faster than you think.
6. When you leave the house in the morning, don't carry anything smaller than a $5 bill. When you get change, don't spend the singles. At the end of the day, put any dollar bills in your jar.
7. You go to lunch and tip the waitress 15 percent to 20 percent (ten if you're a cheapskate). Put an equal amount aside for yourself, and your "tips" will add up quickly.
8. Get "cash back" from your debit card at the checkout counter by rounding up to an even amount. Slip the small amount -- $1, $2, $5 -- into your savings jar. You'll forget about a buck here and there.
9. Just paid off a big debt such as a car loan or child's tuition? Keep making the payments -- this time to yourself.
10. If you recently switched phone companies or discovered a flat-rate plan that's saving you money every month, put that cash aside in your savings jar.
11. Electric or water bill lighter than you expected this month? Save the difference.
12. Use those shopping membership cards that print your "savings" at the bottom of your receipt to help you save. Give the savings back to yourself by slipping that money in your savings jar.
13. Getting a tax refund next year? Either put the check directly in your savings account or cash it and stash it.
14. If you have the discipline to use a credit card and pay off the bill every month, use one that promises a cash reward and bank the money.
15. Give up cigarettes -- or even cut your habit by half -- and put that money in the savings drawer. If you drop a pack-a-day habit by half, you could easily bank well over $100 in a couple of months.
16. Put a jar on top of the washer and put in a quarter -- or two -- every time you throw a load in the washer or dryer. Get your finances in order while you clean.
17. When you return your movies on time, pay yourself the late fee. If you rent a movie or two every week, you'll be surprised how quickly that $1.50 to $4 can add up.
18. Trying to lose weight this season? Each time you go without dessert -- or that mid-afternoon candy bar break -- put the cost of your forgone goody into your savings jar.
19. Pop a quarter in a jar by the phone every time you dial a long-distance number. Bonus money: Shop your calling plan and find a better deal. Put the savings into the phone jar each month, too.
20. Try investing your savings in a certificate of deposit or an interest-bearing money market and watch it grow!
21. Buy U.S. savings bonds. Bonds yield more interest than the money earns in the jar.
22. Involve the whole family in saving. Plan a treat for everyone when you reach the savings goal. Make it something everyone will look forward to, but inexpensive, such as a day at the zoo, museum or beach.
My daughter will be turning 2 in January. So for my wife and I, its time for us to start planning for her college. Should we go for a College 529 plan, an Education IRA or a Regular Investment account ? What should we do?
So I started researching the various college savings options available. I decided to go to the Vanguard website because Vanguard is the most conservative mutual fund company I know of, because as far as saving for college is concerned I dont want to invest too aggressively. So here is what I found.
529 College savings Plan
529 plans enable you to invest for higher education free of federal and, sometimes, state income taxes. States or schools can sponsor a 529 plan. Most are open to residents of all states. Some plans allow you to invest between $200,000 and $300,000 on behalf of one child, so a 529 plan may be your best bet for fully funding a college education.
Advantage Enjoy investing flexibility, high contribution limits, and tax advantages to save for college and graduate school.
Disadvantage The money can ONLY be used for college. And If your kid doesn't go to college, you may name another eligible family member as beneficiary on the account and use the 529 assets to pay for that person’s education. If no eligible family members can be named beneficiary, then you might have to close the account, paying federal and possibly state income taxes and a 10% federal penalty tax on earnings not used for qualified higher-education expenses.
Education Savings Account
Advantage you can invest for any level of a child’s education—primary school, high school, college, or beyond. And you can start investing for that child from birth. The money is taxed at the child's tax rate, which is typically lower than the parents' rate. Although contributions aren't tax-deductible, your earnings grow tax-free and withdrawals are free from federal income taxes when used for qualified education expenses.
Disadvantage You can only contribute $2000 a year.
UGMA/UTMA accounts
Advantage A tax-advantaged way to save for a child's future, for higher education or any other purpose that benefits the child. The accounts dont have any contribution limits, though contributions above a certain amount will trigger the federal gift tax.
Disadvantage When the child turn 18, he/she gains control of the money and they can do anything with the money.
Regular Investment Account
Advantage You retain complete control of the account. Select from from a broad lineup of stock, bond, balanced, and short-term investments.
Disadvantage You do not receive the tax advantages of accounts specifically created for college investing.
So what did we decide ? As of now, our finances are in order with no credit card debt an we regularly keep a close watch on our savings and spending. Therefore, we went for a regular investment account. We chose the Vanguard STAR fund that is a conservative balanced mutual fund that has consistently given a return of at least 10%.
Every time you pay a bill online, you transfer money into your online savings account or your employer direct deposits your paycheck, do you know what kind of a transaction is really taking place in the back end ? Its called an ACH transaction.
Let me explain.
ACH stands for Automated Clearing House.
The ACH Network is a highly reliable and efficient nationwide batch-oriented electronic funds transfer system governed by the NACHA OPERATING RULES which provide for the interbank clearing of electronic payments for participating depository financial institutions. The Federal Reserve and Electronic Payments Network act as ACH Operators, central clearing facilities through which financial institutions transmit or receive ACH entries.
ACH payments include:
* Direct Deposit of payroll, Social Security and other government benefits, and tax refunds; * Direct Payment of consumer bills such as mortgages, loans, utility bills and insurance premiums; * Business-to-business payments; * E-checks; * E-commerce payments; * Federal, state and local tax payments.
More recently, the ACH network is being used to convert check payments into ACH debit transfers. By providing the appropriate disclosures, businesses can use account information on checks to initiate ACH debit transfers and reduce payment processing costs.
The Standard Entry Class (SEC) code is a three letter code that identifies the nature of the ACH entry. Here are some common SEC codes:
ARC Accounts Receivable Entries. Checks received by a merchant through mail or drop box and presented as an ACH entry.
BOC Back Office Conversion. Checks that are converted from paper to an electronic debit at a centralized location.
CCD Corporate Cash Disbursement. Primarily used for business to business transactions.
DNE Death Notification Entry. Issued by the Federal Government.
POP Point-of-Purchase. A check presented in-person to a merchant for purchase is presented as an ACH entry instead of a physical check.
PPD Prearranged Payment and Deposits. Used to credit or debit a consumer account. Popularly used for payroll direct deposits and preauthorized bill payments.
RCK Represented Check Entries. A physical check that was presented but returned because of insufficient funds may be represented as an ACH entry.
TEL Telephone Initiated-Entry. Verbal authorization by telephone to issue an ACH entry such as checks by phone.
WEB Web Initiated-Entry. Electronic authorization through the Internet to create an ACH entry such as PayPal.
XCK Destroyed Check Entry. A physical check that was destroyed because of a disaster can be presented as an ACH entry.
ACH payments have been around for some time now, but people are just getting used to them, especially with the ARC, POP, and RCK, where the original instrument was a physical check.
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Here are a few simple ways to start saving money. I follow, or have followed, or will soon follow all these ways.
Start small Most financial experts feel that we need to save at least 5 percent, and preferably 10 percent, of our income and place it into an interest-bearing, liquid savings account. However, don’t give up if you’re not able to put aside 5 or 10 percent. Establishing a saving habit and saving consistently will eventually add up; even as little as $5 per pay period will accumulate. Once saving becomes a habit, set as your savings goal a maintained savings account of at least three to six months’ income. This will prevent borrowing when unexpected expenses arise or in case of a period of illness or unemployment.
Put money into a retirement account If it is available, sign up with your workplace’s 401(k), 403(b), or similar retirement plan in which your company will contribute matching funds to the plan in your name. The most common match is 50 cents on the dollar. If this is the case for you, you will get an immediate 50 percent return on your contributions.
Monitor ATM withdrawals Decide how much money you will take out each week or each month and make it last; discipline yourself to stick to your decision. Try to decrease the amount withdrawn every month. If you discover that you have money left over, deposit it into your savings account.
Pay off charges and loans With the desire, discipline, and time, anyone can pay off his or her charges and loans and stay out of debt. There are four basic steps to eliminate charge and loan debt: (1) Transfer ownership of every possession to God; (2) Allow no more debt (no bank or family loans and cut up the credit cards); (3) Develop a realistic balanced budget that will allow every creditor to receive as much as possible; and (4) Start retiring the debt. Begin by first paying extra on the debts with the highest interest rates. If interest rates are comparable on all of the debts, first pay extra on the one with the smallest balance. After this first one has been paid, apply the regular payment as well as the extra money that was going to it toward the next highest balance. After the second is paid off, apply what was being paid on the first and second to the third highest, and so forth.
Pay extra on home mortgage You will add equity to your home, reduce the amount of interest paid over the term of the loan, and reduce the length of the loan if you pay extra monthly on your home mortgage. If you consistently pay $100 extra each month on a $150,000 loan at 6 percent, you will save almost $73,000 in interest and shave more than 7 years off the original loan. If you can’t commit to an additional $100 each month, just round your payment up to the nearest hundred.
Pay off car loan Interest on your car loan is not tax deductible and the rate is generally higher than on your home mortgage. Pay it off as soon as possible by rounding up your monthly payment to the nearest hundred and then add $50 (or as much as you can afford) to that amount.
Open an IRA If your funds are limited, open an IRA only after you have maxed out with your company’s retirement plan. If you do not have a company retirement plan, open an IRA immediately.
Evaluate life insurance If you’ve had the same term life insurance policy for five years or more, you can possibly cut your premiums by changing policies. If you apply for a new policy and get a new medical exam, chances are the insurer may feel that you are a better risk than fixed insurance health assumptions indicate, which means that you will qualify for a lower premium rate.
Be accountable for your money Know where your money is going by establishing a budget and sticking to it. If the expense is not budgeted, the money should not be spent. Keep a small notebook with you to record miscellaneous budgeted expenses.
I read an article today by David Bach @ Yahoo Finance where he explains that the best way to save on a mortgage is to make biweekly payments. But for me and my wife, who are always finding ways to save more money, wherever we can, the last part of the article sounded much better. We don't want to be limited to just paying of 10% every year.
Going Biweekly
When you set up a biweekly mortgage payment plan, instead of making your monthly mortgage payment the way you normally do you split it down the middle and pay half every two weeks. The result is that you end up making one extra full payment every year. (Twenty-six half payments is the equivalent of 13 full payments.) The best part is that the extra payment is made gradually over the course of the year, so you don't feel the pinch. And since most people are paid every two weeks, a biweekly payment plan turns out to be a phenomenal budgeting tool. Anyone can do this. You don't need a special mortgage, and you can set it up anytime.
Pay More, Save More
Say your mortgage payment is $2,000 a month. With a biweekly plan, instead of sending a $2,000 check to your mortgage lender each month, you would send them $1,000 every two weeks.
By doing this, the miracle of compound interest reduces your debt. You actually end up paying off your mortgage early -- somewhere between 5 and 10 years early, depending on the duration of your loan and your interest rate.
On average, a U.S. homeowner with a $300,000 mortgage can save upwards of $100,000 over the life of his or her mortgage just by following this simple program. And if that's not enough incentive, think about being debt-free and potentially ready to retire years sooner than you'd planned.
Let's compare the difference between a monthly and a biweekly payment plan for a $300,000, 30-year mortgage with an interest rate of 7 percent. The monthly payoff schedule winds up incurring a total of $418,026.69 with interest charges over the life of the loan.
The biweekly schedule, on the other hand, runs up just $311,876.19 with interest. So switching to the biweekly plan will save you more than $106,000. Your mortgage may be smaller or larger, so run the numbers for your mortgage to see how much you can save.
Automate It
The great thing about switching to a biweekly payment plan is that it allows you to save money over the long run without refinancing or otherwise changing your mortgage. All it takes is one call.
Most mortgage lenders offer programs designed to totally automate your biweekly mortgage plan. At Wells Fargo, for example, it's called the Accelerated Ownership Plan. Citibank calls it the BiWeekly Advantage Plan. To enroll, all you need to do is phone your lender or go online. Many banks even offer this service for free to customers who do their banking with them.
Banks that don't offer this service will usually refer you to an outside company that runs the program for them. These companies generally charge a setup fee between $200 and $400. In addition, there's a transfer charge of $2.50 to $6.95 each time your money is moved from your checking account to your mortgage account.
To be sure you're dealing with a reputable firm, I recommend using one that's referred to you by your mortgage company. One of the biggest such firms is a company called Paymap Inc. It currently provides this service through its Equity Accelerator program, which is powered by Western Union. To find out more, visit their web site or call (800) 209-9700.
(By the way, I'm not affiliated with Paymap or Western Union in any way, and I don't make money by recommending them. Whenever I mention a specific service or product in my column, it's simply to offer a resource for readers -- not to get a commission.)
What to Ask Before Signing Up
When dealing with a service company, be sure to ask the following critical questions:
• When exactly do they fund the extra payments toward your mortgage?
The answer should be "immediately." You're making extra payments to pay down your mortgage faster. That won't happen if the service company is holding onto your payments for any reason.
• What happens if you refinance?
Determine whether the service is transferable to a new mortgage company, or if you'll have to go through the setup process again -- including paying another fee.
• How much will it cost to use the program?
Get a clear understanding of how the costs involved compare to the savings you'll realize, so you can make an informed decision (see the next section).
Cost vs. Savings
Let's do the math. If you're paying $2.50 per transfer every two weeks, that comes to roughly $65 a year. Over 22 years, it totals just over $1,430, not including the setup fee. Figure that the transfer fee will probably go up a little over time, and there's no question that a biweekly mortgage system will cost you a few thousand dollars.
So why do it? The answer is that the few thousand dollars you're spending will save you tens of thousands of dollars, if not more.
In the example above, you would've saved more than $106,000 over the life of the mortgage. Assuming that you signed up with the most expensive program out there to handle your biweekly payments, and spent $5,000 over 22 years, you're still ahead over $100,000.
Going It Alone
Are there other, no-cost mortgage prepayment options? Sure. You could pay an additional 10 percent of your mortgage each month and have it applied directly toward the principal. Or you could make one extra payment at the end of the year and again have it go toward your principal.
But note that word "could" -- some things are much easier said than done. Just as most people won't save if they don't make it automatic, most of us won't make extra mortgage payments unless it's automated.
If you decide to do it yourself, my suggestion is that you pay an extra 10 percent a month and send it as a separate payment -- automatically, of course. Make a point of telling your lender to apply any extra payments toward your principal, and then check your monthly statements to make sure they've applied it correctly.
Recently, there was a lot of talk going on in my office regarding IRAs and 401K. So I am going to try to unravel the mysteries behind these investment vehicles in a few posts. Today, I'm starting with Traditional IRA.
A traditional IRA is an individual retirement account (IRA). The IRA is held at a custodian such as a bank or brokerage, and may be invested in anything that the custodian allows (for instance, a bank may allow certificates of deposit, and a brokerage may allow stocks and mutual funds).
Income limits
If a taxpayer's household is covered by one or more employer-sponsored retirement plans, then the deductibility of traditional IRA contributions are phased out as specified income levels are reached.
* Married Filing Jointly or Qualified Widow and Modified Adjusted Gross Income is between $75,000 and $85,000 (this is scheduled to rise to $80,000 to $100,000 in 2007)
* Married Filing Separately (and you lived with your spouse at any time during the year) and modified AGI is between $0 and $10,000
* Single, Head of Household or Married Filing Separately (and you did not live with your spouse) and modified AGI is between $50,000 and $60,000
The lower number represents the point at which the taxpayer is still allowed to deduct the entire maximum yearly contribution. The upper number is the point as of which the taxpayer is no longer allowed to deduct at all. The deduction is reduced proportionally for taxpayers in the range. Note that people who are married and lived together, but who file separately, are only allowed to deduct a relatively small amount.
Traditional IRA contributions are limited as follows:
Tax Implications
Contributed money is at first post tax money. However, contributions are tax deductible which reduce your tax basis for that tax year. Then, distributions are taxed at the normal income for distributions.
Advantages
* The main advantage of a Traditional IRA is that contributions are often tax-deductible. If a taxpayer contributes $4,000 to a traditional IRA and is in the twenty-five percent marginal tax bracket, then a $1,000 benefit ($1,000 reduced tax liability) will be realized for the year. Because qualified distributions are taxed as ordinary income (the taxpayer's highest rate), the long-term benefits of the traditional IRA are only comparable to those of a Roth IRA (whose qualified distributions are tax free) if the current year tax benefit ($1,000 above) is reinvested.
* Also, if a taxpayer expects to be in a lower tax bracket in retirement than during the working years, then a traditional IRA offers an increased incentive over the Roth IRA.
* Another advantage of a Traditional IRA is that the taxpayer gets the tax benefit immediately.
Other important Facts
Any Individual can set up a Traditonal IRA
No matching contributions available
Distributions can begin at age 59 1/2 or owner becomes disabled
10% penalty plus taxes for distributions before age 59 1/2 with exceptions
Can withdraw up to $10k for a first time home purchase down payment with stipulations
Can withdraw for qualified education expenses of owner, children, and grandchildren
Can withdraw for qualified unreimbursed medical expenses that are more than 7.5% of AGI; medical insurance during period of unemployment; during disability
Capital gains, dividends, and interest within account incur no tax liability
An article on Yahoo has this interesting piece of information about how much should you spend monthly on your mortgage.
Mortgage lenders have tightened standards recently. But consumers still have the potential to get approved for a bigger home loan than they can afford.
A general rule of thumb is that no more than 28% of gross monthly income should go toward house-related debt (including taxes and insurance). Besides first mortgages, this includes home-equity loans, which allow people to take out a lump-sum loan against the house, and home-equity lines of credit, which allow people to borrow against the house over time, taking out money when needed.
A person who makes $5,000 a month before taxes, for example, wouldn't want the monthly bill for house debt to exceed $1,400.
Note that the 28% guideline has a caveat: Monthly debt payments for everything -- house, credit cards, car loans, student loans, etc. -- shouldn't be above 36% of gross monthly income. So if you spend 28% of your monthly pay on house debt, you have only 8% left for the remainder of your debt payments. In the example of someone who earns $5,000 a month, 8% would come to $400. Many car payments are more than that.
And those percentages -- frequently called debt-to-income ratios -- are maximums, not recommendations for healthy living. People who spend 36% of their pay on debt are "teetering on the edge of being financially unstable," says June Walbert, a financial planner with San Antonio-based USAA, a financial-services company that largely focuses on military families.
She counsels clients to limit total debt payments to 20% of pretax income, so they have a buffer for surprise expenses.
One way to keep from getting in too deep is to run a worst-case scenario before taking out any money. Home-equity lines of credit, for instance, often come with variable interest rates, but banks are required to disclose a rate cap in the loan documents. Calculate what the payment would be if you borrowed up to the limit at the highest interest rate.
Walter Updegrave from CNNMoney explains bonds in a simple to understand fashion.
Question: I'm 71 years old and retired. I know I should have some of my portfolio in bonds, but I'm not very savvy about bonds. Is now a good time to buy into bonds and, if so, what type should I buy? - Norman, Atlanta, Georgia
Answer: Okay, Norman, I'm going to give you the world's fastest primer on bonds. Ready, here it is: You know how a seesaw works, right? One side goes up, the other down. Well, the seesaw concept is the single most important thing you need to know about bonds.
On one side of the bond seesaw are interest rates. On the other are bond prices. When interest rates go up, bond prices go down. When interest rates go down, bond prices go up.
And the farther toward the end of the seesaw you are - that is, the longer the maturity date before the bond's principal is repaid - the more the price of the bond moves up or down when interest rates change. That's it. End of primer. That is the most important thing you need to understand.
Oh sure, there are other features of bonds that are good to know about, such as credit quality. The more you stick to bonds with higher ratings from firms like Standard & Poor's and Moody's Investors Service, the less "credit risk" you'll bear - which means the lower the odds the bond issuer will default on repayment of principal and interest. (You can learn more about credit quality and other aspects of bonds, by going to our Money 101 Lesson on bonds.)
But as long as you invest in a diversified portfolio of bonds - which in the case of most individuals like yourself means buying bond mutual funds - the main danger you face in owning bonds is interest-rate risk, or the possibility that the value of your bonds will fall when interest rates rise.
So how do you manage that risk? Well, you could try to time your moves in and out of bonds, jumping in when it appears interest rates are likely to fall and bailing out when rates seem likely to rise.
But unless you're clairvoyant, I don't think you're likely to pull off such a feat. Indeed, reading the future direction of interest rates is tough even for accomplished pros, witness the fact that the Pimco Total Return fund, which is run by Bill Gross, one of the savviest bond gurus around, is now languishing at the bottom of the performance charts for the past year.
Instead of engaging in a vain attempt to guess where rates are headed, I recommend that investors adopt a simpler approach - namely, just go with bond funds with short- to intermediate-term average maturities.
Basically, that means funds with portfolios of bonds that mature on average within roughly two to eight years. There are no guarantees, of course, but history shows that intermediate-term bonds typically give you 80 percent or so of the gains of longer-term bonds with about half the ups and downs in price.
While you're at it, opt for bond funds with low annual operating costs (or expense ratios, in fund parlance). Returns on bonds tend to be lower than those of stocks over the long-term, so high annual costs can really eat into your gains.
If you're investing money outside of tax-advantaged accounts like a 401(k) or IRA, you may also want to consider buying municipal bonds. Their yields aren't as high as the payouts on taxable bonds, but, depending on your tax bracket, those lower yields may actually turn out to be higher on an after-tax basis. (To compare taxable and tax-free yields, click here.)
You can easily screen for short- and intermediate-term funds with low costs by going to our Mutual Fund screener. Or, if you want suggestions for specific bond funds, you can check out our Money 70 list of recommended funds. I'm a particular fan of the bond index funds on the list since they offer a nice combination of broad diversification and ultra-low expenses.
I'll leave you with one last tidbit about bonds that might come in handy. If you want to know how much the value of a bond or bond fund will go up or down if interest rates rise or fall, you can find the answer in a statistic called duration.
It's too complicated to get into what it actually represents and how it's calculated, but basically it's a measure of a bond or bond fund's sensitivity to changes in interest rates. What's neat about this stat is that once you know it, you have a pretty good idea of how a bond or bond fund will fare when rates change.
So, for example, if a bond fund has an average duration of, say, five years and interest rates rise by one percentage point, the value of the bond fund will fall roughly 5 percent.
If rates rise by two percentage points, the fund will drop about 10 percent in value. The opposite occurs if rates drop. You can find the duration for a bond fund by plugging its ticker symbol into the Quotes box at the top of Morningstar's home page and after the Snapshot page comes up, click on the Portfolio tab on the left. (If you don't know the ticker symbol, go to Ticker Lookup page. If you want, you can even screen for bond funds by duration by going to Morningstar's Fund Screener.
So that's pretty much the skinny on bonds. If you stick to a well-diversified fund that sticks to the short- to intermediate-term range, has low expenses and you don't try to get fancy by timing your moves in and out of bonds based on guesses about the future direction of interest rates, you should do just fine.
Here is the scoop on savings bonds in a nice question-answer format.
What type of savings bonds are available?
* Series EE. Paper Series EE bonds can be purchased at half face value. For example, you pay $25 for a $50 bond. Bonds bought online must be purchased at face value. You can buy up to $30,000 ($60,000 face value) in EE bonds. They come in denominations of $50, $75, $100, $200, $500, $1,000, $5,000 and $10,000. If you redeem bonds less than five years after purchase, you forfeit the three most recent months' of interest. There is no penalty after five years. * Series I. These inflation-indexed bonds can be bought only at face value in denominations of $50, $75, $100, $200, $500, $1,000, $5,000 and $10,000. The maximum purchase is $30,000. Like EE bonds you forfeit the three most recent months' of interest if you redeem I bonds less than five years after purchase. * Series HH. The Treasury stopped issuing HH bonds on September 1, 2004. Prior to that date, the only way to invest in HH bonds was by trading in your EE bonds.
How are the interest rates determined?
As of May 1, 2005, newly issued Series EE bonds will have a fixed interest rate, based on 10-year Treasury note yields. The rate currently is 3.5%. These fixed rates will be announced every May and November and the rate that is in effect on the day you buy your bonds will stick with them for at least the first 20 years. The Treasury will still guarantee that the value of an EE bond held for 20 years will at least double its purchase price. If a fixed-rate EE bond's stated rate won't get the job done, the government will make a one-time adjustment so that the average annual return over two decades will be the 3.5% needed to double your money. You can check the latest rates on the Treasury's savings bond Web site. If you happened to buy that bond in April 2005 before the fixed rate took effect, the rate on your bonds would change in October (and be based on the rate announced in May). I bonds earn interest based on a combination of a guaranteed fixed rate and the rate of inflation. The current fixed rate for I bonds purchased between May 2005 and October 2005 is 1.2% and will stay with the bonds for their entire 30-year lifespan. The inflation-adjusted portion of the yield, now 3.58%, and the fixed rate are set every six months. HH bonds, currently paying 1.5%, do not increase in value. Instead, investors are paid interest every six months and get face value for the bonds when they redeem them. The interest rate is set when you buy HH bonds and then again ten years after the issue date. They stop earning interest after 20 years.
Who can buy savings bonds?
Residents of the United States and its territories (as well as U.S. citizens living abroad) can buy savings bonds. Canadian and Mexican residents who work in the United States, have social security numbers and who can participate in the Payroll Savings Plan through work also can buy savings bonds.
How do bonds compare with other investments?
They're very safe (and conservative), and compared with a number of other safe investments, the yield isn't too bad. As of May 1, Series EE bonds earn 3.5%. That's about the same as a one-year certificate of deposit, beats money-market deposit accounts and certainly is more than the typical savings or interest checking account. The current combined rate for I bonds is a respectable 4.8%. This beats many other conservative investments. Savings bonds are also free of state and local income taxes, so that adds to your yield, too. Check out the effect on the tax advantages calculator. But keep in mind that you can't redeem savings bonds for the first year. And if you redeem them in less than five years, you lose the most recent three months' interest.
Do savings bonds earn interest forever?
No. But "people are under the misconception that savings bonds earn interest as long as they hold them," says Dan Pederson of the Savings Bond Informer, a bond consulting service. Americans sitting on bonds that have stopped earning interest are making an interest-free loan to the U.S. government to the tune of $9 billion. If you've got savings bonds and aren't sure whether they still are earning interest, the Bureau of Public Debt's Treasury Hunt database can help you find out. EE bonds earn interest for 30 years. Bonds issued after May 2003 are guaranteed to double in value within 20 years, which is referred to as the original maturity date. The new fixed rate for bonds issued after May 1, 2005, applies to those first 20 years then is extended for the next ten years unless the Treasury Department announces a different rate. I bonds earn interest for 30 years. The interest accumulates monthly and is compounded every six months. HH bonds stop earning interest at 20 years. The interest rate is set when you buy them then again at ten years after the issue date.
Bonds no longer earning interest as of April 2005
E May 1941 through April 1965 and December 1965 through April 1975
H June 1952 through April 1975
HH January 1980 through April 1985
Savings Notes May 1967 through October 1970
A, B, C, D, F, G, J, and K All issues
How can I find out what my bonds are worth?
You can use the savings bond calculator on the Bureau of Public Debt's Web site. You can also keep track of and value each bond with the free, easy-to-use, Windows-based Savings Bond Wizard program. If you don't want to manage your savings bonds yourself, you can get help. For example, U.S. Savings Bond Consultant (www.savingsbonds.com) offers online bond-management tool called Savings Bond Guru.
Does it matter when I cash in a bond?
Yes. Interest is added to savings bonds at specific intervals. If you redeem your bond before the interest is posted, you lose it. For example, if interest is posted in, say, April and October, redeeming bonds in September instead of October would cost you six months' worth of interest. To see when interest is added to your bonds, use these tables.
Should I cash in my oldest bonds first?
Not necessarily. When figuring out what bonds to cash when, you can't go just by date. Older bonds are not by definition worse than newer bonds. Some of them still earn a 4% guaranteed minimum rate. In addition, series E bonds issued before December 1965 have a 40-year maturity period, but starting in December 1965 E bonds began to be issued with 30-year maturities. (All series EE bonds and I bonds mature in 30 years.) A lot of bonds holders lose sight of that (and the government doesn't send statements) so they accidentally cash in bonds that are still earning interest and hold on to ones that aren't. When you want to redeem bonds, start with any that have stopped earning interest.
Will I have any tax liability if I use my social security number when I buy a bond as a gift?
No, you shouldn't. The social security number on the bond is used for tracking lost bonds, for instance, and other record keeping. The person who cashes the bond -- normally the owner or a co-owner -- should get the 1099 form reporting the interest for tax purposes. However, banks have been known to make mistakes, says Pederson. Just to be sure, try to use the social security number of the recipient.
What do I do if I've lost some savings bonds?
Complete Form PD F 1048.. Pederson suggests that everyone file this as a matter of routine to make sure there are no bonds belonging to you that you don't know about, such as gifts that were never delivered. The key to getting the best search is putting as much information as you can on the form, including as many forms of your name as you can, your old addresses, whether the bonds were bought through payroll deduction and at what company and so on. A search generally takes three to six weeks. The Bureau of Public Debt's Treasury Hunt feature on its Web site may also help you find bonds that were never delivered (but not lost bonds).
Can I buy savings bonds online?
You can buy them at any Federal Reserve bank or branch, your bank and, often, through a payroll deduction plan. You can even buy them online through Treasury Direct with an automatic withdrawal from your checking or savings account.
Have you considered getting into the foreign exchange market? Also known as Forex, this is a fast market that operates 24 hours a day, five days a week. If you have previous experience with trading on the stock market, Forex is quite different. However, it can be a great way to make some money and Forex is gaining popularity with investors all over the world. 
