US colleges and universities are doing a bad job of teaching students of the dangers of consumer debt. Some are even helping credit card companies get access to students while they are most vulnerable. Credit card companies routinely setup shop with the consent of schools in return for payments and other benefits for the institution. Many universities also provide credit card companies with mailing lists of students, who then get bombarded with campus and home junkmail.

Colleges receive a small kickback, but is it really worth the average $20,000 in student loan debt? 56 percent of students reported gettin gtheir first credit card at age 18 in their freshman year. When they reach their senior year, the number of credit cards increases to four on average for this same 56 percent. The fact is that most college students are not able to manage their debt effectively. They lack the financial discipline to postpone purchases they cannot afford and credit cards make this activity even easier. Perhaps its time that universities give up the kickbacks and credit card sponsorships.

Roth IRAs were created for middle-income tax payers who are active participants in employee-sponsored retirement plans along iwth younger taxpayers in lower brackets that prefer tax-free withdrawals over current tax savings. Basically, contributions to Roth IRAs are not tax-deductible but earnings grow tax deferred and can be withdrawn tax-free in retirement or put towards certain other assets at an earlier age. One major limit of the Roth IRA is that it adds a maximum income level while joint filers may contibute the lesser of $2,000 or 100% of their compensation (earned income) as long as their combined annual income is below $150,000. Allowable contributions above that are phased-out completely at $160,000. And for individuals, the $2,000 maximum allowable contribution begins to be phased-out at $95,000 and reaches zero at $110,000.

Debt collectors are professionals that are very skilled at the art of negotiation. Follow these tips and you may be able to come out ahead:

1. Learn your rights. Debt collectors are required to abide by the Fair Debt Collection Act put forth by the Federal Trade Commission. People that know their rights make debt collectors less likely to resort to aggressive tactics. You can get a free brochure online or by calling 617-542-9595.
   
   
2. Offer less than you can afford. Do not commit to anything that you cannot afford or do anything dangerous. Also, avoid sending postdated checks to a debt collector or agreeing to electronic payments that come directly out of your checking account. Assuming that debt collectors are good people is a mistake.
   
   
3. Keep your information private. Do not tell a debt collector personal information like where you work, where you bank, or your account numbers. Keep the conversation at a minimum and tell them only the information that they absolutely need to hear.
   
   
4. Tape any calls. Taping a phone call is the best way to keep debt collectors in line because they know they cannot use any aggressive tactics. To be on the safe side, tell the debt collectors that the call is being recorded.
   
   
5. Get it in writing. Everything you agree to should be available in writing - especially payment agreements. Send a letter to the debt collector outlining the payment agreement via certified mail and you'll receive a receipt when the letter is delivered. Also, write "Cashing this check constitutes payment in full" on each check that you send.

Promotions for cheap loans and easy credit are continuing strong despite a weak mortgage market and a horrible subprime meltdown. The difference is that lenders have moved on from the "Bad credit? No problem!" pitch and onto targeting those who have good credit and plenty of home equity. Since fewer homes are being sold, mortgage firms are now targeting those looking for a refinance. However, these pitches can be riddled with problems...

The typical pitch is that making refinancing a flexible tool that can reduce your bills by lowing interest rates and stretching out payments. The problem is that these low interest rates are often temporary and result in a vastly larger home mortgage to be paid off in the future. In fact, the move prompted The FTC to send warning letters to 200 lenders last month warning them that their ads were considered misleading. The other pitch is for those wishing to turn their home equity into cash. Using your home as an ATM can quickly become a problem when housing values declinem which makes it very difficult in the future to sell or refinance down the road.

And just how bad is it for lenders? Well, Countrywide reported that it made 44% fewer loans last month than it did in September 2006. The largest mortgage provider also had to lay off 12,000 people - or about 20% of its staff. In the end, these companies will likely do what they have to to make profit expectations so customers should continue to be wary.

Students are facing mounting problems with students loans and credit card debt, according to a state Public Interest Research Group. The research study found that 37 percent of public college graduates and 55 percent of private graduates face an "unmanageable debt burden" if they were to enter the field of social work. Meanwhile, 29 percent would have "unmanageable debt burden" that would keep them out of eaching with 47 percent of private graduates kept out. Rising tuitions are keeping students out of socially valuable careers.

Contrary to many public beliefs, education may end up costing more than its worth. The perception is that loan debt is good as long as it is going towards education because that trumps everything. The ends does not justify the means, however, when your earnings potential when you graduate is a mere $20,000 when you graduate with $100,000 in student loans. Worse, there is nothing that can be done once you have already graduated and have made this realization. The problem gets much worse as students begin rolling their credit card spending into student loans and starting over. In the end, it is important for everyone to consider what is really important before acting.

One of the best ways to save more money each month is to distinguish between wants and needs. Needs are simple to identify - they are items that you need to live such as shelter, food, clothing, and transportation. Wants are those things that enhance or improve life, but are not necessary to survive. Distinguishing between these two can be difficult sometimes. A car may be a need, but a $50,000 SUV is definitely a want. And is a designer label really worth an extra $30 for a shirt? Believing that a want is a need is the most basic recipe for financial diseaster.

The fact is that the more money we make, the more money we want to spend. This addictive cycle of materialism has led many people to this confusion between needs and wants. Another contributing factor is the fact that marketers are taught that success comes from selling to wants instead of needs. One tip that helps a lot of people is to not buy anything the first time they want it - instead see if the urge dies down the next day - meaning you really don't need it. If you still have the desire to buy it, then it might be a need.

Here are ten tips to save money:

1. Avoid Late Fees - Paying bills on time can save you a ton of money. Collecting late fees funds a variety of businesses, including credit card companies and movie rental companies. Give yourself a weekly allowance in cash in order to pay off your bills and stick with it - when you have no more money simply do not spend.
2. Go Out for Breakfast or Lunch - Dinner is the most expensive meal of the day and you can save a lot of money by going out for breakfast or lunch with friends instead.
3. Check for Old Models - When making major purchases, always ask the store clerk if they have last years model avialable or on sale. Often times, stores are trying to quickly move inventory and you can take advantage of the savings.
4. Quit Smoking - Smoking is a $1500 annual habit that is very hard to stop - but it definitely can be done. Think of not only how much it is costing you in terms of dollars but also in years of your life.
5. Cancel Your Mortgage Insurance - If you hvae 20% or more equity in your home and you are still paying private mortgage insurance (PMI), then call your mortgage company and cancel it. That alone will save you $40 a month!
6. Refinance Auto Payments - If you have an auto loan outstanding for more than a year, look into refinancing it and you could get it for much less.
7. Stop Drinking Soda - Soda is not only bad for you, but it is also a very costly habit to get into.
8. Buy Online - Buying products online on eBay or Amazon is often much cheaper than buying it in the stores - even if it takes a few extra days to get there.
9. Ask for Discounts - Even if you do not have a coupon for a certain service or product, ask for a discount and see if they will give it to you. It only takes one time to make this strategy pay off and it will happen more often than you think!
10. Use Less Detergent - Using only 2/3 of the usual scoop of detergent is often all that is needed for clothes and dishes. This can save you a lot of money in the long run.

The Federal Reserve is widely expected to cut interest rates again during its next meeting, but what does this mean for the average American? The move may end up helping people who owe money by easing interest rates on variable-rate credit cards and adjustable-rate mortgages. Those facing an ARM reset should still expected higher payments, but not as high as they may have been otherwise. Consumer loans and financing will also be somewhat cheaper - that is, those looking to finance credit card debt or take out home equity loans will be able to do so at lower costs.

Rate cuts are good for the economy because it makes debt much cheaper for companies. And companies able to borrow more are able to leverage themselves to better take advantage of growth opportunities. This sometimes equates to more investment and more hiring and therefore lower unemployment numbers.

So, why doesn't the government keep reducing rates if it's so good for everyone? Well, there is one downside to rate cuts: inflation. Essentially, higher inflation results in reduced purchasing power for those on fixed income; wages being insufficient for purchasing power; and problems with import/export businesses due to more expensive prices relative to the rest of the world.

People can get into seriously debt for a variety of reasons that are often not of any fault of their own. Here are the top ten ways in which people find themselves in debt:

1. Divorce - More than half of all Americans are divorced at one point or another and it can be very expensive. Between the lawyers, child support, alimony and other expenses anyone can quickly go broke.
2. Poor Money Management - People who do not adhere to a monthly spending plan may quickly find themselves in trouble quickly if things get out of hand - especially with the ease of getting credit.
3. Lost Job or Reduced Income - Perhaps the most common reason for debt troubles is a lost job or reduced income due to downsizing, layoffs, or other events at work. Obviously, if expenses remain the same and income drops there will be problems.
4. Gambling - Every time you step foot in a casino you are statistically likely to lose money, yet gambling continues to be a drug to many people hoping to win big. It can be addictive and hard to stop when credit is so easy to obtain.
5. Underemployment - Sometimes those who find new jobs after being laid off are simply making too little to support the lifestyle that they are accustomed to in the past. Again, when expenses are greater than income there will be problems.
6. Medical Expenses - Gaps in medical coverage, costly procedures and lapsed policies can be extremely costly. And when just about every doctor accepts credit cards, it is not hard to see why there would be problems.
7. Miscommunication - Keep an ongoing discussion in your family about money matters. Nothing is worse than one spouse not communicating problems before they compound and get even worse.
8. No Saving - Americans now have a negative savings rate for the first time since the stock market crash. Clearly this causes problems as there is no longer a failsafe.
9. Future Spending - Those counting on a cash windfall in the future should be careful to spend prudently until the cash is actually in hand. While credit cards make it easy to spend money you don't have, it's important to only spend what you can earn.
10. Financial Illiteracy - Some people just don't understand how money works and grows and simply prefer to live in the moment. Financial mistakes only get more expensive as time goes on, so it is important for these people to get educated and get in control.
    

Today's mortgage market is a difficult one and many people are facing foreclosures after failing to make payments on time. Many people don't realize that a bank foreclosure isn't necessarily the end of your housing troubles - the IRS may soon contact you regarding taxes you owe in connection with the property you no longer own!

Tax problems associated with foreclosures surface when the lender forgives some of your loan. The amount that is forgiven is usually considered cancellation of debt or discharge of debt. Unfortunately, this is considered COD income and is taxed at ordinary tax rates which can be as high as 35%. On top of that, foreclosures are treated as a normal sale. This means that if the sale of your house by the bank produces a gain in a nonrecourse mortgage, then it is a capital gain and you are responsible for the taxes.

So, while you may be able to get out of a large mortgage payment, you will still be paying taxes to the IRS. Granted these problems may not be giant for those who owe only $10k or $20k; however, if you have a $500,000 mortgage and the bank can only get $300,000 in a foreclosure sale, then you're talking about some real tax liability. The IRS rarely misses these types of transactions and will levy penalties and interest if they are not paid.

There is no doubt that a credit card crisis is hitting our nation with credit card companies pulling in over $90 billion in interest and $55 billion in late fees in 2006 alone. But what is driving this crisis? It is easy to place blame on the credit card companies and their unethical practices. However, it is uncontrolled consumer spending that gives these companies power over consumers. Our society has grown into a culture that spends more than it earns and the only way to do this is with debt.

Today's society is no longer trying to keep up with the neighbors but is instead trying to emulate the rich and famous. Advertising focuses on status symbols - a huge house, big screen TVs, fancy cars, and countless other things that many can simply not afford. Problems are compounding now that the housing market has turned and home equity loans are more difficult to land at favorable terms. Credit cards have become one of the only remaining solutions for consumers - and this fact is being clearly reflected in bank statistics released earlier.

Instead of lobbying for changes at credit card companies, perhaps people should take a closer look at their own spending. Those experiencing problems right now should seek help through a credit counseling or debt negotiation service that can help reduce debt and get you setup on a smart spending plan. In the end, it takes two to cause problems and it is best to take action yourself before waiting on credit card companies to reform their practices.

The Financial Times recently reported that poor quarterly results posted during the past two weeks by US banks suggest that credit problems are expanding to include home equity loans, car loans and credit card balances. US banks have raised reserves of loan losses by at least $6 billion in the second quarter, indicating a substantial rise in the number and types of debt affected.

"What started out merely as a subprime problem has expanded more broadly in the mortgage space and problems are getting worse at a faster pace than many had expected," Deutsche Bank analyst Michael Mayo told the Financial Times. "On top of this, there is an uptick in auto loan problems, which may or may not be seasonal, and there is more body language from the banks that the state of the consumer was somewhat less strong (than thought)."

Clearly, these new areas of consumer debt are of great concern as banks have increased their reserves in anticipation of defaults. Moreover, a difficult market for auto loans may end up hurting auto sales during the next couple of quarters just as GM was set to beat out Toyota in sales. Just how bad is it? Well, the percent of borrowers of prime auto loans that are more than 30 days delinquent on the debt has risen to more than 2.5 percent, according to JPMorgan.

"We expect the severity of auto financing losses to grow due to extended financing terms, increased loss per vehicle and a quicker move to repossessions," JP Morgan analysts Eric Selle and Atiba Edwards said in a report. "We believe the core assets of Ford Motor Credit and GMAC are sound and they have sufficient liquidity. However, we expect higher U.S. prime auto borrower defaults over the next 18 months to cause GMAC's and Ford Motor Credit's profits to decline and their leverage to rise."

In the end, consumer debt problems continue to compound amid large mortgage resets, fewer people borrowing against their home equity, and higher fuel and food costs. These factors have cummulatively reduced the liquidity of consumers and promises to be a continuing problem.

There has been a push recently from consumer advocacy groups, college administrators, and student organizations to limit or ban the marketing of credit cards to college students. However, many others say that the best approach is not banning marketing but rather increasing education. Many colleges are now making personal financial management a mandatory undergraduate course to familiarize students with the dangers of taking on too much credit.

The Motley Fool recently reported that combined consumer debt has reached $1.7 trillion in 2001 with Americans paying $50 billion in finance charges alone. Meanwhile, 46% of householders are carrying credit card debt that averages $5,100. And more people than ever before are falling behind and being forced to declare bankruptcy. Clearly, there is a problem and one of the best ways to combat it may be through mandatory education as opposed to regulation.

In the end, the decision to get a credit card lies with the individual. Credit card companies are relying on uneducated customers to take on debt that they cannot afford and they will spare no expense marketing. Banning them from college campuses will only divert the dollars to other forms of media that reach the same college audience. But through education we can prevent credit card companies from ever happening in any medium.

Here are some tips to help you stay out of debt with credit cards:

1. Pay Monthly Balance - The first sign of credit card problems is failure to pay your monthly balance which can result in fees and interest charges piling up quickly. If you avoid spending more than you can afford and pay off your balance regularly, you will never find yourself in trouble in the first place.
   
2. Pay More than Minimum - Those that can't afford to pay off their entire balance should at least pay more than their monthly minimum in order to reduce the principle amount that you owe and avoid further compounding interest charges.
   
3. Find a Solution Quickly - Credit card debts that are out of control may require further intervention from credit card issuers or even debt assistance companies. If you cannot afford to pay off your credit card, simply call up your credit card issuer and request that they lower your interest rate or you will transfer your balance to another issuer that offers a better deal.
   
4. Transfer to Lower Credit Card - Some credit card issuers offer low introductory rates that can allow you to pay off your debts more easily. You can transfer your existing balances to these new credit cards.
   
5. Consolidate Your Debts - Unsecured debts can be difficult to overcome and may require debt consolidation in order to escape. There are two main forms of debt consolidation: credit counseling and debt settlement. Credit counseling will let you pay off your entire debt in a new plan negotiated between you and representatives of your credit card company. Debt settlement involves a third party working to reduce the total amount you owe and setting you up on a payment plan.
   
6. Use Home Equity - Home equity loans offer interest rates far below that of credit cards and other loans. Therefore, many people use their home equity loans to pay off their credit card balances in whole and then pay off the home equity loan at a lower interest rate.

There is a disturbing credit card trend emerging in the UK that may boil over into the US. Increasingly, people are resorting to their credit card to pay off mortgages or rent payments. A recent report showed over a million householders in the UK fell into this trend with more than six percent of them admitting that they needed to use credit in order to be able to meet their other financial obligations. Just as in the US, many people there are being hit by the credit crunch, interest rate hikes and housing costs all at once and it is making it difficult to stay afloat. In the end, credit card use can only enter someone into a death-spiral of debt that ends when no more credit is available and the customer can not afford to pay the balance.

The trend is also already impacting Americans; however, legislators are working to pass laws to tighten lending practices. These new laws may be aimed at curbing the use of credit cards; however, people will always have the ability to take out a cash advance and spend it on mortgage or rent payments. In the end, it is important for people to seek help as soon as they experience problems paying off their mortgages rather than compound the problem by using credit that they cannot afford to pay back. After all, by transferring your mortgage balance to your credit card, you are effectively paying interest twice! And this can add up-- one couple reported that their $900/mo ARM jumped to $1,700/mo only months after starting to transfer their balances. Be sure to act now before things get too bad.

There are many pros to having a credit card, but lets take a look at some of the cons. Banks will never let you know about them so we've made a list here:

1. No Annual Fee - Most credit cards except for American Express will negotiate or waive annual fees if you press them about it. The next time you receive a call from your bank about an annual fee just tell them that you prefer not to pay it. The bank will likely waive the fee if you upgrade or allow you to pay using reward points. Some credit card issuers will even abandon the fee alltogether!
2. Rollovers - Rolling over is the term for carrying your credit card balance forward rather than paying it on time. The cost is typically 24% per year, which is the highest that banks can charge for loans. This is never a good deal for you and should be avoided at all costs.
3. Balance Transfers - Typical bank promotions will tell you to transfer your debt and only pay a four percent processing fee and no interest for one year. This sounds good in theory but banks require you to pay off your old balance before spending any more. This means that if you make a new purchase you will be charged interest on that purchase (carrying over) until you pay off the transfer balance. You can beat the game by opening a second credit card or transferring your balance again, but this may only result in more confusion.
4. Unauthorized Charges - Criminals that steal your credit card and use it to make fraudulent purchases while signing your name aren't covered under the typical liability policies of credit card companies. In these situations, banks will only pay for charges made after you reported the card stolen. And even then, federal law permits them to charge you $50 of this amount before being required to cover the rest.
5. Free Cards - Many credit cards are free but only if you pay off your balance every time. If you do, you should get as many as possible as it gives you access to great deals. If not, re-evaluate your need for credit cards as they can quickly become a burden with excessive interest rates.
   

In the end, credit cards can be a good or a bad thing. If religiously paid off, credit cards give you access to free money and great rewards. However, if you fail to make payments, credit card debt can become crushing with high interest rates and other fees. Therefore, it is very important to evaluate your financial situation before using a credit card to make sure you have enough to cover.

Payday loans may seem like the easy way out of temporary financial problems, but many people fail to realize the crippling expenses behind the loans. These loans carry an average fee of around 25% with a repayment period of only a few weeks which combine into an APR that can reach into the thousands. Unfortunately, many consumers do not hesitate to renew their loans every month - which turns payday loans into an addictive cycle in many cases. It's easy to get into the habit of taking out new loans each month just to get by, which creates an enormous problem given the excessive interest rates here. If you are looking for cash, you may be better off looking at credit card debt, credit union loans, overdrafts, or non-profit loans - all of which are likely to be cheaper debt that payday loans.

When a loved one dies, often the only thing the family’s mind is sorrow, but people cannot mourn those who pass forever. Death is a natural part of life that happens to us all and eventually people have to move on. One of the major steps facilitating moving on is having a funeral to honor the life of the deceased. A funeral, however, is anything but easy to arrange or easy to pay for.

According to the National Funeral Directors Association the average funeral costs more than $6,000. Though getting the best bargain may be the farthest thing from your mind after a family member’s death, there is nothing wrong with honoring the deceased in a respectful yet reasonably priced manner.

Here are some suggestions on managing funeral costs:

• Shop around. It sounds crass, but prices can range greatly from funeral home to funeral home. Many people choose a funeral home because the family used it in the past or a friend held a funeral there, but with so much money at stake you are doing yourself a disservice by not at least exploring your options.
• Though it is not always possible, try planning some elements of the funeral in advance. This way you can not only compare prices during a less stressful time, but you can even get input from the person who matters most: the one who will actually be honored at the funeral. If your grandfather would prefer a simple casket, for instance, not only are you saving money but you are carrying out his wishes. 
• Consider cremation instead of burial. A “direct” cremation can cost less than $1,000. In a direct cremation the deceased is cremated without an actual funeral service or viewing, which saves significantly on the associated costs. Even if you want a viewing for your loved one, a cremation is still less costly than burial as a plot and memorial are unnecessary. 
• A casket is often the most significant cost of a funeral so shop around and consider getting a less expensive one. Also, many people do not realize that you do not have to buy your casket from the funeral home. Funeral homes often have extraordinary markups on their caskets so be sure to compare – you can even use the internet to purchase a casket and it can be delivered to a funeral home within days. 
• Like in a wedding, flowers can add a large amount of expense to a funeral for very little use. A reasonable amount of flowers done well can add greatly to the funeral without adding great cost.
• Do not buy a package from the funeral home as they often contain numerous unnecessary or overpriced items. 
• Do not buy new clothes for burial, especially outfits the funeral home offers. An excellent, and free, alternative is burying the deceased in a favorite or recognizable outfit. If you prefer a suit, consider a reasonable suit from department store instead of a tailored suit. 
• Do not purchase a rubber gasket, sometimes called a protective sealer. Though many funeral homes recommend it, it is said by some inside the industry to be overpriced by hundreds of dollars and completely ineffective.
• Monuments, like coffins, are a very large expense that can be curbed by both comparing prices and opting for a simpler, more subdued design.
  

Finally, there is sometimes assistance available for paying for the funeral:

• Social Security Administration: offers $255 that is payable to a spouse or minor children of the deceased for use towards funeral expenses. It is available if you meet “certain requirements” according to the government’s official website.
• Veterans Administration: Veterans of the U.S. Armed Forces as well as certain civilians who worked for the military are entitled to be buried at a national cemetery for free.

A death brings with it many responsibilities for the family of the deceased. The family needs to make funeral arrangements, call family members and deal with the funeral and burial among other things. One thing that a family shouldn’t have to deal with is the distribution of the possessions of the diseased. Everyone should have a will in their name, regardless of their assets or age.

Many adults postpone writing a will when they are younger; however, the simple fact is that death doesn’t wait for anyone. Others postpone creating a will because they are unsure how to start the process while still others avoid creating a will because it may a few hundred dollars – but this is a worthwhile investment.

Wills are important because they allow you to not only dictate who receives your material objects, but they also decide more important issues after your death. One of the most important issues typically addressed in wills is the future of any of your children who are still minor. You can specify in your will, for example, to have your best friend take care of your children in the event of a tragic accident that leaves your children without parents. Otherwise, if a will is not on file, the courts may be left to decide who takes guardianship.

Even in the event you die leaving your spouse behind, the distribution of your assets may not be according to your wishes if you lack a will. Think that your spouse will simply get all your property? Wrong: depending on the state you live in, your spouse may have to share the estate with any adult children, parents or even siblings in the absence of a will.

By using a will you can avoid the state defining where your assets are distributed. The government has very specific guidelines as to how assets are divided and any deviations must be made in a will. For example, in some states if you have a wife and two kids, the government will allocate half of what your assets to your wife and half for your children to split. If you want to leave more money to your wife or money to someone or something else, this must be specified within your will. With a will, you are free to distribute your assets to anyone and any organization you want.

Equally important is being able to assert who gets what particular assets. Assets may be split by the government but it is often difficult for them to decide who receives what assets. For example, will your wife receive your automobile or will the children? This could result in your family engaging in a legal battle with each other over particular assets – a beloved watch for instance - a problem that can be avoided through the creation of a will.

Ultimately, it is always smart to have a will on file to protect your wishes as well as your family from unnecessary turmoil. While it certainly will take a little bit of extra time, effort, and money right now, the peace of mind of having a will far outweighs the cost.

Don’t let the government and people you don’t know decide who gets your assets and even children and don’t leave your family in limbo regarding your assets after they have finished mourning your death. Stop making excuses and create a will because unfortunately you never know when you might need it.

Information on investing can often be somewhat dry and technical, but when your money is on the line, you should always be informed about your options. This article will explain to you, in plain language, two of the most popular forms of investing: index funds and mutual funds - as well as tell you which one you really should probably use.

Index funds and mutual funds can both be thought of as baskets filled with various stocks or bonds – but here we will focus on funds containing stocks. Now, a stock is simply a piece of a company. A stockholder is no different than a partial owner of a company, except that in most cases a stockholder owns a tiny piece of the company and for that reason doesn’t get to be involved in everyday decisions about the company’s operations, like a normal owner would; however, because stockholders are partial owners, like owners, their piece of the company increases with value when the company is doing well and decreases in value when the company is not.

So, index funds and mutual funds really just own pieces of other companies, they themselves don’t actually do or make anything, other than decide which stocks to buy, and it is here that the difference between index and mutual funds shows itself.

Index funds are so named because they attempt to mimic the performance of a specific financial index. A financial index is just a number that is derived from combining the values of whatever composes the index. To illustrate the point, when a news anchor says, “The market was down 15 points today,” he is often referring to the S&P 500.

The S&P 500 is an index containing the stock of 500 large corporations. When, on average, the value of these corporations decreases, so does the value of the S&P 500 index. If you bought an index fund that was based on the S&P 500, its movement would replicate almost exactly the movement of the S&P 500. The original idea behind an index fund was literally to be the S&P 500 – except that investors could purchase a piece of it. Of course, you can purchase index funds tied to numerous different indices besides just the S&P 500, such as the Wilshire 5000 and FTSE 100 among others.

Mutual funds are much different. It is easier to understand what they do, but harder to understand how they do it. Now, bear with me. A mutual fund is managed or controlled by a group of people. These peoples’ entire job consists of deciding what stocks to buy. Unlike an index fund, a mutual fund does not need to mimic a particular index, and therefore a mutual fund is free to buy stocks based on different investment strategies. So in other words, the group of people that manage a particular mutual fund buy stocks they like for the mutual fund, it is that easy. However, why they like certain stocks and not others is hard to explain and often doesn’t seem to have a real explanation.

Some groups of people who run mutual funds do “value investing;” they only buy stocks that seem to be a great deal. Others do “growth investing;” they only buy stocks that are in a business that is really booming. Others combine both methods… and the list goes on.

For the purpose of this article, the particular investing style a mutual fund uses doesn’t matter much because in the end they are mostly wrong. That’s right, most mutual funds underperform the market, and since you can basically receive market returns through an index fund, an index fund makes more sense.

There are two main reasons index funds make you, the investor, more money. First, in all honesty picking winning stocks, stocks that are going to go up in value faster than the average stock, is really quite hard on as large a scale as mutual funds need having millions of dollars to invest. Very few people are able to analyze and interpret data about a company’s orders, costs, debt, outlook, management, macroeconomic issues as well as countless other variables.

Now, if picking winning stocks is that hard both index funds and mutual funds should do about the same because it is all luck anyway and they both have some stocks - and who knows how any particular stocks are going to do, right? Well, because it is so difficult to determine what stocks are going to do, that argument would be right except remember that group of people I talked about who decide what stocks a mutual fund buys? Well, those people want to get paid, in fact they want to get paid a lot.

According to data, the average mutual fund manager makes almost a half million dollars a year and these high salaries are reflected in higher fees for mutual funds. Also, the buying and selling of stock carries associated costs which are more likely to occur with a mutual fund. These differences show up in the comparison between index funds and mutual funds time and time again.

In fact, according to most reliable data, index funds outperform some 80% of mutual funds on both a before and after tax basis. That means 8 out of 10 times you are better-off being in an index fund than a mutual fund. So the next time you see an add for a mutual fund, consider whether you would like to bankroll some fund manager’s million-dollar lifestyle or your own? If you choose your own, choose an index fund.

Retirement is the phase of your life where you should be doing the things you always wanted to but never got a chance to do. When working 9-5, there is seemingly nothing people look forward to more than getting to retirement – but surprisingly, many people retire and don’t know what to do with themselves.

Here are some ideas for how to fill your newfound free time after retiring:

1. Spend time with family. With hectic work schedules, it is often difficult to make time for the people closest to us. Now that you’re retired, make a real effort to enjoy time with your loved ones. Whether it is traveling and staying with your grown children for a few weeks or just spending more time with your spouse at home, reconnect with your family.
2. Learn something new. It seems obvious, but really sit-down and think about it. Is there an instrument you always wished you could play? Or maybe you have always had an interest in cars. Whatever it is, delve in by taking lessons or reading about it. You may just find a new passion.
3. Join a group based around your favorite hobby. Whether you enjoy chess, reading, bridge, knitting, or gardening – whatever it is you can probably find an interest group. Not only is it a great way to grow your knowledge in the area, you can meet great people and expand your social circle.
4. Take charge of your health. Make a real effort to become knowledgeable about your health and keep your fitness-level high. Join a walking group or a health club. Looking and feeling great will only make retirement that much more enjoyable.
5. Explore your town. You don’t need to travel the world to find new and exciting things. Sometimes, just spending time a few miles from where you live will allow you to discover new and interesting things you never had time for when working.
6. Plan a vacation. If you can afford it in your budget, see a place you’ve always dreamed about. 
7. Revive your skills. If you were a good cook but rarely had the time as you moved-up the corporate ladder, try some new recipes.
8. Connect with old friends. Though it may have been years since you’ve spoken, make an effort – you might just find a new best friend.
9. Get a pet. A pet can add volumes of energy to your household and keep you young.
10. Indulge yourself. This is the time to do things for yourself with the money you have been saving all this while. Get a makeover, get a massage, or try an expensive restaurant.
11. Get active in your community. Whether you want to participate in local politics or join a volunteer association, it is a great way to make a difference.
12. Relax, relax, relax. After years of working, it can be hard to sit-back and enjoy peace and quit. Give it a try.
    

Retirement is not a phase when you need to have less activity in your life – it is just a phase where the one activity that used to monopolize your time is gone: work. Make the most of your new freedom and enjoy, you’ve earned it.

Thinking of taking a new loan? Wondering where you can find the best possible terms? The truth is that so-called ‘family loans’ may be the best option to get away with minimal or no interest charges; however, these types of loans are notorious for causing complications with those closest to you. It is important to carefully weigh the risks and benefits before committing to any loans, especially those with family members. This article will introduce the advantages and disadvantages of family loans and discuss ways to minimize complications.

First, it is very important to properly document the transaction as actual loan. This involves taking down the terms of payment along with any assets pledged as securities to back the loan. This will help prevent complications later when it comes to justifying the position to the IRS. Moreover, this will make income taxes much easier for your lender. There are two ways to approach the documentation process: (1) approach a lawyer to draw up the documentation or (2) simply do it yourself. Some of the most convenient options available can be found online in family legal software which provide templates for a number of situations. A properly documented loan can not only help resolve any disputes as to the numbers between family members but also keeps things legal with the IRS.

The IRS imposes several restrictions on family loans. It is important to specify that the loan is not a gift and that the lender is expecting you to return the money within a particular time period. Any interest payments received by the lender are considered income and are taxable by the IRS. If interest is not charged the IRS can still levy a tax on the interest that should be being charged. This complicated “imputed tax” basically means that if this is truly a loan, and not just a gift, there should be interest payments – and the IRS is going to tax the lender for these interest payments whether or not he is actually receiving them.

One of the other major tax implications to consider involves loans going towards mortgages. After all, one of the most common types of family loans is a loan to finance the down payment on a house. It is best to secure this note with your new house as it will help you take advantage of a whole range of tax deductions later, as interest payments are deductible. Additionally, trying to hide the source of income for your down payment could get you into major trouble with the authorities. Consequently, it is extremely important to bring this issue up when applying for a home mortgage.

Entanglement with the IRS’ crazy imputed interest can generally be avoided if the total loan amount of the loans between the two parties is less than $100,000. To explain, the $100,000 rule comes into play when the cumulative balance of all the loans between the concerned parties, including interest, is less than $100,000. This rule allows the imputed interest to be zero for the purposes of income tax if the borrower’s net income from investments within the given year is not more than $1,000. In almost all cases of family loans, the person borrowing the money is probably lacking significant investment income – so the lender should be safe from imputed interest tax.

In the end, it is often advisable to contact a tax lawyer before you enter into a large family loan because the tax implications can be complicated. You can avoid all the above hassles by simply legitimately charging interest on the loan that you give because and declaring the interest as taxable income.

Though in all this talk about tax troubles, we haven’t really taken the family relationship into account yet, but bad family debts can significantly impair if not ruin family relations. Carefully consider what each person is getting into before rushing into a family loan, and if you decide to go through with it draw up proper papers and keep your business and personal relationship distinct. There have been countless instances of families being torn apart over a good-natured loan – don’t become one of them.

In our world of fast, easy credit you may have the power to buy the car of your dreams, but if you’re not careful you could end up in a debt nightmare. This article concentrates on the mistakes that you are likely to make while taking a loan for your car – often the single purchase people are most likely to fixate on and daydream about.

Though it is seemingly obvious, it is worth repeating: carefully think about your options and your needs. How often have you heard people say that they’ve always wanted a particular car? Very few purchases are so obsessed over or seen as a status symbol by so many and this is a combination that can lead to impulsive, uncalculated purchases.

The most common error made while buying a car is seeing it as a short term investment and hence being casual about it. The significant price of a new car will certainly have an impact on your budget, so make sure your budget has an impact on your choice – carefully consider your options but above all pick a car that is right for you and that you can truly afford.

To aid in this, it is imperative to decide what car you want to purchase and how much you are willing to pay before beginning in depth discussions with salespeople at a car dealership. Do not get carried away by the persuasion of the dealer into making decisions that you are going to regret later – whether by buying the wrong model or agreeing to too high a price or too many fees.

Almost any new car is going to look great on the lot and seem great when the salesperson talks about it, so try to get an unbiased perspective on the performance and reliability of various models from trustworthy publications first.

After choosing an affordable model that fits your needs, you still have to get an auto loan to actually pay for it. Regardless of whether you finance through a bank or car dealership, following these steps will help you get the best possible deal:

• Carefully go through your credit report and FICO score (it’s the score that most lenders use to assess your credit risk), so that you can rectify any possible errors in order to qualify for the best loan terms. Also, being confident about your credit history prevents unscrupulous lenders from lying about your credit in an attempt to charge you higher interest rates.
• Never focus solely on one term of the loan. Do not allow a low monthly payment or a seemingly great interest rate cloud your big-picture view of the loan’s terms. Always keep the actual price of the car and length of the loan in mind because a seemingly incredible rate or monthly payment can often be a hook for a loan that is a very poor deal for you overall.
• Cars are commodities that depreciate in value very quickly so it is always a good idea to opt for the shorter length, higher payment car loan. Very few cars are good investments, and a higher payment loan truly makes you examine what models are in your price range. Unlike a mortgage, where at the end of the loan you are have a property that is generally worth more than your purchase price, cars lose most of their value with age and use - even driving a new vehicle off the lot significantly decreases its worth. Focus on this sobering fact to avoid getting carried away with financing your auto purchase. Also, choosing a shorter term loan gets you a lower interest rate which means you actually pay less for your car.
• Finally, always keep in mind that even if you have spent long hours pursuing a particular deal, you are not obliged to seal it. Retain an objective outlook and the ability to walk away. Sometimes, car dealerships count on the fact that people are either too invested or feel too guilty to stop the process. If you don’t like the way the deal is shaping up, leave before it is too late.
  

Retirement as a concept is not very old. It can largely be traced back to the creation of Social Security in 1935. At this time Social Security was used to guarantee a fixed basic income for older workers so that they would leave their jobs and create vacancies for younger workers.

Now that retirement is taken for granted, most people wonder if they are saving enough to take care of their needs when they stop working. Though there is a lot of dispute regarding the issue, many financial experts believe that you need approximately 70% of your pre-retirement income to allow you to continue living your same lifestyle after retirement.

The ability to live the same general lifestyle on 30% less money hinges on decreased expenses that come with retirement and an increase in age. According to a study by the U.S. Census Bureau from 2002, people between the ages of 45 and 54 spend approximately $15,000 on housing while people 75 and older spend only about $8,000. Also people between 45 and 54 spend more than $9,000 every year on transportation while those above 75 and older spend only about $3,000. This reflects a drop not only in the cost of buying a vehicle but also maintaining one - the money spent on gas and repairs – which often comes with not having to commute to work among other things.

Though retirement does not bring only savings, people between 45 and 54 spend $2,550 on healthcare a year while those above 75 spend $3,584 on average.

Significantly, this same study points out that income before taxes for a household kept by a 45 to 54 year old person is $64,974 while for people 75 and above it is only $23,890. The ability for many retirees to survive on a significantly reduced income points to other fundamental, or sometimes forced, changes in expenses.

As a person gets older there is a decrease in the number of dependents in the household which leads to a reduction in food costs and other household expenses. Also, with the kids moved out, maintaining a large house is not only an extra expense but also impractical. Many retirees downsize their homes and can use some of the excess proceeds to add to their savings.

The money that you spend on entertainment in retirement is difficult to predict or find reliable statistics on (though the Census Bureau does report on it – its methodology is too vague). Some people end up spending more because they have more time and the freedom to do what they please with it. The only difference might be that your definition of entertainment might undergo a transition. You might now be going to yoga classes instead of a concert – or you might go to more concerts and less yoga (now that the stress of work is gone)! But these are largely personal choices and difficult to speak generally on, but if you plan on traveling the world when you retire, save accordingly.

The only real answer to the question of how much you need to retire is “how ever much you plan on spending.” The answer depends on how you intend to spend your time as a retiree. Examining these important categories, you can see that generally retirement comes with some inherent savings related to not having to go to work any more as well as usually no longer have children in the house; however, there are those that retire and actually spend more money than before. How you plan on living during retirement is a uniquely personal choice – perhaps you are planning on taking advantage of the time to take the trips you’ve always wanted or maybe you are content to read the great novels you never had time for before. Both choices sound great but each comes with very different financial costs.

Whatever your vision of the perfect retirement is, start planning for it sooner rather than later - because you do not want to reach your golden years only to find that you do not have enough gold to live the years comfortably.

An emergency fund is a certain amount of money you tuck away only to be used in case of a crisis. The idea is to refrain from digging into your emergency fund for whims and luxuries, say to buy a new car or a video game console for your kids. It is to be used only in the case of a real financial emergency.

At this point, setting hard earned money aside for a rainy day might not sound fun, but it is very necessary.  From medical expenses to losing a job, any number of unforeseeable scenarios can wreak havoc on your budget. Without emergency savings it can be hard to cope with unexpected events, at least without accumulating debt in the process. This is why everyone, even college students and retirees, should have emergency savings.

There is no ideal, universal amount that should be in your emergency fund. Expert opinions vary from three month’s worth of your total family expenses to all your expenses for a year. The right amount is probably something in between but only you can decide the exact figure you need.

You have to take a thorough assessment of your possible needs and then balance this with your earnings to decide how much you should - and can afford to - set aside. Unfortunately, estimating your possible needs is difficult because an emergency fund is for unexpected circumstances, but by keeping in mind obvious things, such as a single person will need less than a married couple with three kids, you can try to formulate a rough figure. Decide how much will ensure your peace of mind while not so much that you must cannibalize other savings, such as retirement plans, to accumulate it.

It is advisable to keep emergency savings in a place that is not too easy to get to, like a high interest savings account. This is especially true for those of us who are easily tempted to dip into the account for non-emergency expenses, like that plasma screen TV. If the account is difficult to access you will think twice before making a withdrawal. Remember that an emergency here means something that practically threatens your financial survival. The reason why many people end up unnecessarily spending their emergency funds is that they think unfulfilled desires are emergencies!

An emergency savings has to be somewhat difficult to access but still liquid and secure; meaning stocks aren’t a good choice because there is a risk of losing your emergency savings with a poor investment. At the same time, setting aside money for emergencies without earning interest on it would actually cost you money because of inflation, so burying it in the backyard is not recommended.

Here are some of the better ways to keep your emergency savings:

1. Bonds:  buying a bond means that you are lending a particular amount of money to the entity that has issued the bond. In return for this money you get a rate of interest at regular intervals or at the time when the bond matures as well as the return of your initial investment. With emergency savings the security of your investment is a priority, so only invest in government bonds or highly rated corporate bonds. Also, invest only in short-term bonds because you never know when you might need to access your emergency fund.
2. Certificate of Deposit (CD): a type of deposit account which offers a higher rate of interest than a traditional savings account. The idea is that you invest a fixed amount of money for a fixed duration of time to earn a fixed rate of interest. An added advantage of investing in a CD is that it is covered by the Federal Deposit Insurance Corporation (FDIC) for up to $100,000. On the downside, a CD can offer a higher interest rate than a traditional savings account because there is a penalty if you withdraw your money before the CD expires – which may be very necessary in an emergency. For this reason, it you choose a CD, try to look for a “no penalty” CD. A no penalty CD can be cashed, without penalty, prior to the maturity date as long as it has been kept for a fixed period of time. This minimum time varies from one institution to another but sometimes can be as little as a week.
3. Money market account: a savings account that offers high interest because it requires a minimum balance, often limits the number of withdrawals and check writing, and imposes a monthly service fee for low balances. It carries FDIC insurance like a traditional savings account and a CD.
4. Money market fund: a kind of mutual fund that invests only in high quality debt. These funds combine interest rates that are comparable to CDs with the ability to withdraw your money at any time without penalty. The catch is that the FDIC does not insure money market funds; however, this kind of investment is normally incredibly safe.

At times April 15th seems to so far away, but it always seems to creep up very quickly. That is why it is never too early to begin thinking about organizing your taxes – you don’t want to be in the position of scrambling for receipts and other paperwork come April!

Some advanced planning will help make the process of filing less stressful and help avoid the unpleasant surprises people are often plagued with when going through the process. Getting an early start will give you time to research some of the latest regulations and tax rule changes that may affect your return.

One of the first steps in getting your taxes prepared is to collect all of the necessary information. One of the most important, but overlooked until you are actually doing your taxes, pieces of information are Social Security Numbers. You will obviously need your own, but if you file jointly or have dependents you will need theirs as well.

As to the actual documents you need to report your income, you will need your W-2 from your employer, 1099-INT forms showing interest income from different sources, and 1099-DIV forms for any dividend earnings from mutual funds, stocks or money market funds. Finally, taxable earnings from the sale of stock or other broker transactions will be listed on 1099-B forms that will be sent to you.

As if that weren’t enough, you will also need tax documents related to your mortgage interest or any other deductions you are planning on taking.

Once you have gathered the information, you should determine what IRS forms you will need to complete the tax filing. If you are self-employed, you will need additional forms. You may also need supplemental forms if you have made complex investment income.

If you have made major investments or experienced any major fluctuation in your income, such as a large inheritance, it may be wise to hire a professional. Be sure to know when the job may be too complex to do yourself while still receiving the maximum number of deductions and reporting your income accurately. However, if you simply just need a little coaching to get you through the process, a good computer tax preparation program goes a long way.

The sooner you make the necessary calculations for your taxes, the sooner you will know whether Uncle Sam owes you or you owe him. If you are lucky enough to get tax refund, you can expect a check from the government much more quickly if you file your return before April 15th. If you are in the unfortunate position of owing money, the more quickly you finish your taxes the more time you have to sit down and think of how you will make the payment.

You have the option of paying in installments or by credit card, but before using a credit card, you should your budget can handle it. If it looks like you will not be able to come up with the money that Uncle Sam is demanding, you may be able to file for an extension. To use an installment plan or get an extension, you must submit the proper forms before April 15th – which early preparation allows you to do.

Once you have completed your taxes for the year, you should take some time to review what you could do differently for the following year. For instance, you may have spent way too much time tracking down your tax documents this time. Perhaps you could create a filing system for important documents that will make it easier the next go around. If you start using a system and stick to it, everything will be at your fingertips next year.

Finally, if you owed a significant amount of money this year you could consider adjusting your withholding amounts on your paychecks. The same should be considered if you are receiving a huge return. In a perfect world, you would not owe any money or get any back.

Some consider it a great windfall to get a big check back from Uncle Sam, but in essence you have been loaning the government money at zero interest. If you are in the business of loaning money for free, give me a call. Otherwise, adjust your withholdings and start preparing for next year – after all, April 15th is never more than a year away.

Adjustable-rate mortgages, as the name suggests, are mortgages that do not have a fixed interest rate. Instead, the interest rate changes, or adjusts, at fixed intervals based on the market interest rate.

If you are in the market for a mortgage and are considering an adjustable-rate, make sure you understand the terms and what they mean to how much you’ll pay.

Though it can be intimidating at first, here is an explanation of the lingo surrounding adjustable-rate mortgages:

• Initial rate: basically an introductory interest rate that is fixed for a given period of time at the beginning of the mortgage. During this introductory period, the adjustable-rate mortgage does not adjust. The initial rate can remain in effect for a wide range of time, from as little as a month to five years or more, and during this time payments also remain fixed.
• Adjustment period: how often the mortgage’s interest rate is updated after the initial rate period. For instance, a 1 year adjustable-rate mortgage (ARM) can have a change in the interest rate and payment once every year.
• Index: the measure that the mortgage lender is using to adjust the interest rate on the ARM. Indexes can vary and because the index choice affects the interest rate the ARM charges, investigating what index an ARM uses is very important.
• Margin: though the index is used to adjust the interest rate on the ARM, a mortgage lender does not lend money at cost. The margin is the amount, in addition to the index, the ARM will charge as interest. The margin amount is fixed for the loan, so any fluctuation in interest rate still comes from the index.
• As an example, if the margin on a loan is 3.5% and the index is at 5%, the ARM’s current interest rate would be 8.5%. If the index rises to 6%, when the ARM’s adjustment period comes, the interest rate would increase to 9.5%.
• Rate caps: a rate cap, or interest rate cap, places a limit on the amount the interest rate of the ARM can change. There are two kinds of interest rate caps:
• Periodic adjustment caps: limits the amount the interest rate can change from one adjustment period to the next. The periodic adjustment cap does not apply to the first adjustment, however, made after the initial rate period ends.
• Lifetime caps: create a maximum amount the interest rate of the ARM can ever increase.
• Carryover: an effect of periodic adjustment caps, where the ARM interest rate increases more than the index. This is best illustrated by an example.
  

Assume a margin of 3% and a periodic adjustment cap on the ARM of 2.5%. The index rate was at 4%, so the ARM was charging 7% interest (the index rate plus margin).

Now, the index rate has risen 7% and the adjustment period on the ARM arrives. Without a periodic adjustment cap, the new interest rate on the ARM would be 10% (the new 7% index rate plus the constant 3% margin); however, because of the periodic adjustment cap the interest rate cannot increase to 10% from 7% because it exceeds the limit of 2.5%. Instead, the interest rate could only increase by 2.5% to 9.5% - the cap reduced the interest rate by 0.5% in this case.

However, this is not the end of the story. If at the next adjustment period, the index rate is still at 7%, the ARM’s interest rate still changes. That’s right, even though there is no change in index – the only measure that normally affects the interest rate charged – the rate increases by 0.5% to 10%. This additional 0.5% has been carried-over from the last adjustment period when it could not be applied to the rate because of the adjustment cap.

• Payment caps: like interest rate caps, payment caps limit the amount the payment amount of an ARM can increase from any adjustment period to the next, excluding the first adjustment period. The limitation is a percentage amount, for instance, 8%.
• Negative amortization: payment caps are not without a cost. If the ARM payment should have increased more than the payment cap allowed, the difference between the amounts can actually be added to the principal of the mortgage. This is referred to as negative amortization. In certain instances, negative amortization can actually lead to the balance of an ARM being greater than the original amount of the loan despite timely payments.

Have you ever been audited? If so, you know it was one of the most annoying and unpleasant experiences you’ve had to go through, requiring a great deal of effort and causing a great deal of stress.

Even if you’ve never been audited, chances are you don’t want to join the club. In an effort to prevent a first-time or repeat audit, here is a collection of 10 “secrets” people claim will help you dodge the audit bullet.

Though some are only popular rumors, when it comes to avoiding an audit they can’t hurt.

1. Prepare your tax return using a computer tax suite. The IRS is more inclined to believe that computer-generated returns are free of errors than those calculated by hand. After all, if an audit does not produce any results, meaning mistakes by you, it has been a waste of IRS time.
2. Refrain from using the online filing program that the IRS offers. Many believe that putting your name into the system directly and so quickly only increases your chances of having your name pulled for an audit.
3. Request an extension even if you have your taxes prepared by April 15th. Some professionals in the industry claim that the IRS tries to fill an audit quota each year. They are more likely to meet their quota by pulling from the earliest filings.
4. Avoid using pre-printed address labels for the same reason you should not use the electronic filing system that the IRS offers. You being first in line supposedly makes you more likely to get audited.
5. Any unusual deductions should have evidence attached to the back of your return to avoid suspicion. For example, if you had your computer stolen, your home office burglarized or are claiming any other type of theft as a loss on your return you should attach a police report that references the incident.
6. Never file your tax return late. You should at least file an extension as mentioned above. According to statistics, those that have late filings are more likely to be audited.
7. If it can be afforded, have your tax return prepared by a professional for the same reason that using a computer suite is beneficial. The IRS knows that most CPAs and are much less likely to make mistakes on returns.
8. Never write any ridiculous comments on your return such as “The IRS sucks” or “I hate taxes.” These are not amusing in the least to the IRS, and you never know - they may see this as an invitation to get a “special review.”
9. Do not forget to include the new IRS form for reporting home office deductions on your tax return if it is applicable. They may see this as an amateur mistake and it may lead them to believe you have made crucial mistakes elsewhere.
10. Keep good records and do not worry so much about an audit. Did you know that less than one percent of American tax payers will be audited this year?
    

Besides an audit, it is also good to worry about whether you are overpaying your taxes. Many inexperienced self-filers miss out on some of the deductions they are allowed. So as a follow-up to secrets to avoiding an audit, here are the top four most frequently overlooked tax deductions:

Educational expenses

It is almost imperative to have an education nowadays, and the government encourages this pursuit by allowing you to take deductions on tuition, textbooks, supplies, and other educational related fees so long as the classes maintain or improve your skills in your present occupation. This can apply both to self-employed and those that have an employer.

Volunteer expenses

Everyone knows that you can deduct charitable contributions, but many overlook the expenses that many charitable contribution takes. For example, you can deduct supplies, travel expenses, and even refreshments that you have donated to a valid charitable organization. Or if you have used your car in your volunteer work, you can deduct twelve cents per mile.

A warning: despite what some believe, you cannot deduct an hourly wage for time volunteered. That’s why it is called volunteering and not working.

Bad debt

If someone owes you money and you are having a difficult time or simply cannot collect the money from the individual you can file a deduction on it. The loss has to be based on the inability to collect the debt after having taken reasonable steps to resolve the issue. But make sure you reported any interest income to the IRS from the loan previously because if you attempt to write-off a loan that they have no record of you having ever given, they may want to have a chat with you (see the first 10 tips of the article to try to avoid this).

Casualty losses

If your property has been destroyed or even damaged you may be able to deduct part of the loss. Some examples include fire, weather-related catastrophes, vandalism, theft or even an accident.

Less than one percent of individuals receive a notice from the IRS that they are being audited; however, nothing seems to fill people with as much dread as the prospect of being targeted. If it happens to you, do not panic.

One of the most common misconceptions about the auditing process is that they are “out to get you,” In reality, it could mean something as simple as a computer randomly selecting you for an audit.

The Best Defense Is a Good Offense

The best way to cope with an audit is to always be ready for one. By keeping meticulous records you can justify any number the IRS may question on your return. This level of organization will help your audit process go quickly and hopefully painlessly as you will have records to support your claims.

If you are past this point, though and the auditor is knocking at the door right now, here are some tips:

1. Be polite. It is a stereotype to not like the taxman, and you are probably not happy you are being audited – but being rude will not get the IRS to leave you alone, and it could make the situation worse. Make it clear that you want to be cooperative and resolve the audit quickly for both your sake and the IRS agent’s. Failure to cooperate with an audit can lead to an expansion of its scope because the IRS agent assumes you have something to hide – or the IRS agent can even conduct the audit without you and effectively pick numbers based on whatever limited documentation he has. As an aside, do not enter a heated argument with an IRS agent over any items. It will not serve to help your cause.
2. Answer questions honestly, but never volunteer any information that is not necessary. Avoiding idle conversation will help. Why be so sparring with your words? Often times an auditor is only interest in a particular item on your return, but you could accidentally offer an auditor hints to other areas that should be examined – effectively expanding the scope of your audit. This is why you should not be hostile to your auditor while keeping in mind that he is not your friend.
3. Never give an IRS agent the only copy of a document or the original. If the document is verifying a claim on your return, make copies and keep the original in a secure place. Though an IRS agent should not have malice, they are only human and can misplace paperwork just like anyone else. The difference here is if they misplace your only copy of a document, you will be the one to pay – literally.
4. Know your rights. If an auditor is being unreasonably hostile or you disagree with his decision, you have the right to go to a supervisor. Furthermore, if you are not satisfied with the supervisor, you can go the office of appeals. Finally, as a very last resort there is the U.S. Tax Court.

Two-thirds of undergraduate students have some college loan debt at graduation, but despite being so commonplace there is still a lot of confusion regarding the various loan options and their terms.

Let’s quickly look at government sponsored loans. There are four basic types:

Stafford Loans

Stafford loans are borrowed by the students themselves. A fixed interest rate of 6.8% is levied on all loans given after July 1, 2006. The maximum loan amount is fixed at $2,625 for the first year, $3,500 for the second year and $5,500 for the third, fourth and fifth year of undergraduate education while $8,500 is available for each year in graduate school.

Undergraduate students can borrow up to $23,000 total while the total limit for graduate and undergraduate borrowing for any student is $65,500.

Some students also have the option of getting their loans subsidized, meaning while in school the government pays the interest amount due. The students start paying off the loan, without having accumulated interest during school, six months after graduation.

Perkins Loans

Perkins loans are solely a government subsidized student loan. They have a stable interest rate currently at 5% which is suspended from when students are in school until nine months after they graduate. Undergraduate students can borrow up to $4,000 yearly while graduate students can borrow $6,000 yearly. A student can borrow no more than $20,000 as an undergraduate and $40,000 total including graduate school.

PLUS Loans

PLUS loans are loans the government gives to parents for use in their child’s education. The rate of interest applicable on PLUS loans is 8.5% after July 1, 2006. The advantage of this kind of loan is that there is no existing upper limit for the amount parents can borrow; however, parents have to start paying the money back immediately - though some lenders also allow the students to pay back the loan.

Besides not having an upper limit, meaning a parent can borrow the full cost of education including books and room and board, the IRS allows tax deductions on the interest paid on these loans.

Despite these benefits to the PLUS loan and even if you want to pay for your child’s education, have them take Stafford or Perkins loans before you take a Plus loan. Financially it makes much better sense because your child can defer the payments until after graduation and will also be charged lower interest rates.

Graduate PLUS Loans

These loans are available only to graduate and professional students, and allow the student to borrow up to the full cost of their education excluding financial aid. The general terms of the PLUS loans for undergraduates apply, except here the student borrows the money instead of the parents.

If instead you’ve decided on going through a private lender to finance college, look at the terms carefully to get the best deal. Here are some of the most important questions to ask:

• How frequently is the interest on the loan calculated? The more often the interest is calculated the bigger the loan will be when it comes time to start paying because all the interest is just tacked on to principal while the student is still in school.
• Are there any payment rewards? Often lenders offer incentives for payments that are made on time with education loans – from reduced interest rates to lowering the original principal itself.
• Is there a consolidation plan?  Though loan consolidation is rightly viewed with suspicion in general, it is a very good way to save money after graduating with college loans.

Identity theft is when someone acquires your personal financial information like Social Security Number, date of birth, and credit card numbers in order to take on your identity for financial gain. It is one of the fastest growing crimes today, particularly with technological advances that make stealing your personal information much easier.

Identity theft can happen in a number of ways:

A criminal can open credit card accounts in your name and then quickly max out the cards. The charges will turn up on your credit report, often ruining your credit. To avoid detection, criminals often change the billing address on the credit card so you don’t find out about the charges and they can open more accounts in the meantime.

More advanced identity thieves will even get ATM or debit cards for you existing accounts in order to withdraw your money directly.

Finally, and most frightening, there are instances of identity thieves using Social Security Numbers to obtain duplicate birth certificates. Once in possession of this key item, they can get a new driver’s license with their picture but in your name. Now the criminals can take personal loans under your name and even get benefits from the government.

Identity theft is a very acute problem because unlike your car being stolen, it can often take months to find that you have been victimized. Also, once you have discovered the crime it is a long agonizing process to try to rectify your credit. There is no worse feeling than reporting identity theft yet still being hounded by creditors who believe the debts are legitimate.

Unfortunately there is no magic bullet to prevent identity theft, though there are simply ways to make yourself a harder target. Always stay alert in matters concerning your personal information. People who are unsystematic and muddled about their private financial transactions are more likely to become prey to identity thieves.

Here are a few simple steps to make you less vulnerable to identity theft:

Protect Your Personal Information

Be paranoid about divulging personal information to people. Ask yourself, why is it necessary? Never give out personal information over the phone unless you are the one who originated the call. Also, your Social Securi