2008 Financial Resolutions 2008 is upon us, and with the dawn of a New Year comes the flood of the stereotypical New Year’s resolutions. Of course, setting goals for the next 12 months does not have to be limited to weight loss or personal fitness goals -- there are many money matters you can resolve to tend to in the New Year as well. Here are some practical 2008 financial resolutions to fuel your money-matters' well-being in the New Year and beyond. I will fully fund my IRASince the message is so prevalent, it is nearly common knowledge that if you start fully funding your IRA in your 20s, and earn a modest annual rate of return, you will be a millionaire by the time you retire. However, the general mindset among young professionals is that you can catch up later. While some may be fortunate enough to be able to make that happen, it is more prudent to prepare for the worst. If you do not fund your IRA, it doesn't mean that you are going to be destitute come retirement, but having a retirement stash certainly can make things easier. You should max out your contributions -- $4,000 in 2007 (you have until April 15 to fund your IRA for 2007) and $5,000 in 2008.Additionally, rather than waiting until the last minute, opt to have a portion of your pay check automatically routed to your IRA account each time around. This approach will save you the stress of having to come up with a big chunk of change at the end of the year and reduce the temptation to short your contributions. Furthermore, keep in mind that this money is not spent and gone until you are 65. If you are eligible for a Roth IRA (and most of us are), you can withdraw your contributions (not your gains) without penalty for any purpose. For traditional IRAs, special exemptions are available if you are withdrawing funds for a first home purchase or educational expenses. I will pay off my credit cardsEveryone talks about paying off their debt, and 2008 is the year to do it. Oh wait, you said that last year, and yet again, you only managed to make the minimum payment each month and watched that 20% interest rate eat you alive. Eliminating your debt can seem like an overwhelming task, especially if you've been shackled with it for sometime. However, like all tasks, it starts with an action plan and small steps. First, you should actually outline a very specific strategy for accomplishing this goal. It needs to consist of more than “I am going to spend less.” Explore your options, such as setting up a realistic budget outlining your required living expenses and social expenses. After all, punishing yourself by becoming a hermit is no fun.Consider inviting credit counseling services, such as Incharge. These services are free and work with your creditors to lower your interest rates to reasonable levels, help you make payments on time and, for the most part, do not damage your credit score. Avoid consolidation loans that can have negative impacts on your credit score and actually encourage you to reload your cleared-up plastic. Paying off your debt may end up taking more than a year or two. But by having a clear action plan and asking yourself each day what you can do to reduce your dependence on credit cards will go a long way in clearing up your personal balance sheet. I will sign up for my 401(k) and flexible spending account at workMost employers offer 401(k) retirement plans and flexible spending accounts. We often hesitate to sign up for these because they reduce our take-home pay, which we immediately equate with having less money. The reality is, when you allot some of your paycheck to these areas, you are not losing money -- you are simply transferring it within your financial arena. Flexible spending accounts are a great way to save on taxes and maximize your tax refund at the end of the year. Most importantly, if you use them right for medical and dependent care expenses, you end up getting all of the money back anyway. You can choose to be immediately reimbursed or if you can stomach it, let your balance store up and then get one big reimbursement at one time, which always seems to help more than lots of little installments.As for the 401(k), you are able to put tax-free money away for retirement and if things really get tough, you can usually borrow against it. Most importantly, many employers will match a portion of your contribution, which is essentially free money -- you have to take that. If your employer is a public company, they will often allow you to buy shares of company stock in your 401(k) and usually at a discount compared to the market price. The latter may need some research, but if it is a good investment, you will have the opportunity to buy something for less than it is worth with someone else’s money that you don't have to pay back. I will start saving & investing for meEvery financial adviser beats the drum about saving for retirement. While you absolutely should, what is the fun of socking away money that you can't touch for 30 or 40 years? You ask yourself: “Shouldn’t I have something for me now?” The answer is, yes. After all, you only go around once and some enjoyable things cost money. Obviously, each of us should live within our means and buy only what we can realistically afford -- and that is different for each person based on their income and other factors. It's OK to have financial goals that you would like to reach before retirement, such as saving up for a down payment and buying a house or going on a European cruise.Before saving for retirement, make it a point to pay yourself first. You can choose to spend it on whatever you want, even going out that very night. For those of you with longer-term horizons, start taking that money and saving toward the down payment. You will feel good knowing that you are building for your financial freedom now and not just in your golden years. Additionally, should an emergency event happen that requires some immediate cash, having access to it without having to dip into the credit cards or retirement fund can bring peace of mind and the feeling of having control of your finances. bright financial futuresMost New Year’s resolutions fail because they are either not realistic or not clearly sketched out. Take control of your finances in 2008 and put the above suggestions into practice and develope a very specific financial plan of attack. If you are aiming to pay off your credit cards, take the necessary budgeting and credit counseling steps. If you want to start saving for a house, run the numbers to determine what mortgage payment you can afford and how much you will need to have ready for a down payment. Your resolutions can become reality if you take control of your finances -- rather than letting them control you. Here's to wishing you a financially successful 2008!Annual Financial Checkup Not only is the start of the New Year the perfect time to make your annual resolutions to hit the gym, have more sex and get that promotion, but it's also a great time to do an annual financial checkup and make sure your money is on track. Financially, it makes sense, because a new tax year means a fresh start for your income, expenses and investment transactions. Many New Year’s resolutions involve personal finance goals for this reason. Most people will get a physical at the doctor’s office to check on their health as well as an oil change and tune-up for their car; however, the same people will not properly plan their own finances. With a little forethought and preplanning, you can make sure that your finances are in line as you head into the New Year. For your benefit, we’ve compiled a few simple tips to help you conduct an annual financial checkup. Review the past yearBefore you can move foreword with your annual financial checkup, you have to take a look at your past mistakes. This means pulling all of your financial records from the closet. Take some time to compile all of your bank statements, brokerage statements, credit card statements, tax forms, and receipts from the past year.The first step to improving your financial health is balancing your own budget. This means making sure your income is greater than your expenses. Analyze your spending habits and see exactly where your money was spent. Maybe you know exactly where your money has been going, but if you’re like many people, you might have no idea where it was being spent. Be honest with yourself and scrutinize your statements when conducting your annual financial checkup. Are you carrying a balance on a credit card with a high interest rate? Did you get charged for a low balance or out-of-network ATM fee? These are the types of things to monitor and improve upon in the coming year. Plan for next yearAfter you have reviewed last year’s spending, you can start planning for the year ahead. And when looking forward during your annual financial checkup, it’s important to plan to correct the mistakes you made last year with a properly prepared budget. Despite the popular belief that creating a budget means cutting costs, setting up a budget doesn’t have to be a bad thing. All a budget does is help you see where your money is being spent.If you enjoy drinking expensive lattes every morning before finding your way to your cubicle, be sure to plan for that expense in the budget section of your annual financial checkup. Also, if you’re planning to make a big-ticket purchase in the coming year, such as a car or a house, you would be well-advised to start making those payments to yourself before you buy your item; doing so will help acclimate you to your new financial situation. Another good thing to do during your annual financial checkup is to allocate a chunk of money toward an emergency fund. Set goals and stick to themSetting goals, whether they’re for your financial future or not, can motivate you to take action and will make you feel great when you achieve success. As such, while you are conducting your annual financial checkup, divide your goals into short-term and long-term ones. The short-term goals can be anywhere from a few months to one year and the long-term goals can be from one year to retirement and beyond. It is important to set reasonable and attainable goals so you don’t end up disappointed.The financial goals you set can include anything from saving for a down payment for a home or paying off your credit card debt. Because setting goals can sometimes be daunting, it’s important to remember that no goal is too small -- you have to start somewhere. Make a list and check it twiceOverall, doing an annual financial checkup can be good no matter where you are in life. Be sure to inventory the five pillars of personal finance so you don’t miss anything. Sit down with a financial professional to go through your investments, retirement plans, taxes, insurance, and estate planning.checking your financial pulseAfter you have gone through these steps, you should be better financially prepared for the New Year. Having a sound financial plan might be the best gift you could give yourself this holiday season, and that peace of mind is something even money can’t buy.Make Money In Unexpected Places There is nothing better than finding $20 in your pants’ pocket before doing a load of laundry. Less rewarding, but still great, is finding spare change in the couch. While finding money in unexpected places such as these is nice, it doesn’t happen too often. Instead of relying on the luck of the Irish, there are sound and practical ways to find, save and make money in unexpected places. Saving money can be tough any time of year, but now it’s especially difficult with the shape of the economy. Despite this, there is hope to find some extra cash here and there. By cutting spending and turning over some rocks, your money will add up to a tidy sum faster than you might have thought possible. Upgrade your savings accountHaving a sufficient amount of money saved for an emergency is crucial to your financial success, and a good place to keep that fund is in a savings account. If you are like most people, then you don’t know the rate of interest that you’re earning on the money in your savings account. So, the first way to make money in unexpected places such as a savings account is to upgrade the account. The difference between 1% and 2% more per year could mean a few hundred dollars in your pocket.Most of the large banks with walk-in branches offer low interest rates on your savings. As a result, many people are opting for internet savings accounts where rates are higher because transactions are conducted online instead of at a banking location. Even if you keep a checking account at your current bank, you should still set up an online checking account to boost your annual return. Raise insurance deductiblesThe next thing you can do to make money in unexpected places is raise your insurance deductibles. And the best place to start is with your car. The deductible for auto insurance is usually set at around $500, but raising this amount to $1,000 will lower your monthly premium payment. At the same time, you won’t be put in a major financial hardship if a collision happens. Be sure to have enough money in your savings and plan for the worst.Although you can lower your deductible, don’t skimp when it comes to insurance coverage. Insurance is important for your financial health as well as for legal reasons. Always consult the expertise of a financial professional before buying insurance. Take advantage of rewards programsMany credit cards and debit cards have rewards programs, which is another way to make money in unexpected places, for customers who use plastic instead of cash. One large bank has a program that allows you to earn up to three cents for each debit transaction. Another bank has a debit card that earns rewards points as well.Using your credit card is a smart choice if you can pay the balance back each month. In doing so, you are effectively getting a free loan for up to 30 days without paying interest. On top of that, you can get reward points for airline tickets, gift cards and cash back. However, if you are not disciplined enough to pay the bill each month, then don’t bother using a credit card. In that case, a debit card is a better option because you can’t spend money you don’t have. Get cash for coinsA wise person once advised to watch the pennies and the dollars will take care of themselves. Even if you don’t use a debit card or credit card, there is a way to save and thereby make money. Start collecting all the change from your purchases and empty out your pockets each night in a large jar. When it gets full, you can roll the coins and take them to the bank for cash.Start a small businessStarting a business involves a huge amount of work and can bring on added stress in your life. On top of that, it is often very difficult for people to work a day job while getting a new venture off the ground. However, there are ways to start slow and keep from getting overwhelmed.Start by making a list of everything you are passionate about or like in general to generate ideas. You could also visit a bookstore, as it could be a great tool to help you get started. Go to the sections you enjoy most, such as the animal or travel sections. If these are your interests, you could start a dog-walking business (especially if you already walk your own dog, which means that it’s not adding to your plate) or a travel consulting company. Be sure to fully research your idea and get professional advice before starting up your side gig. a pot of goldNobody likes being preached to, but it is important to be honest with yourself regarding your spending habits. But the truth is that by cutting out a few extra lattes per week or letting go of that movie rental service, you could save hundreds of dollars per year.When it comes down to it, you may not miss these luxuries very much and you will have more money in the bank at the end of the year. While reviewing your budget, make a spreadsheet to help track your spending behavior. After the totals are added up, you might be surprised at the result. Then again, if you make money in unexpected places, maybe you can afford your daily luxuries. Hot Stocks In 2008 Hardly a day passes that we don’t hear the news about a recession or how the problems in the real estate/foreclosure market are going to get worse before they get better. All of this talk -- which some say is more than just talk -- has undoubtedly slowed the powerful U.S. stock market. In fact, the Dow Jones Industrial Average is down nearly 8% this year to date, according to The Wall Street Journal on January 27, 2008. But, despite the negativity and floods of bad economic news, there are always opportunities in the stock market. Here are a handful of hot stocks that may be poised to outperform the stock market in 2008, regardless of recession possibilities. As always, please consult with your financial adviser before making any investment decisions; this is not an offer or solicitation to buy or sell these stocks. Now that the disclaimer is out of the way, on with our list of hot stocks in 2008: Merck & Co. (NYSE: MRK) - $53.32Merck is a pharmaceutical giant, and it’s among the hot stocks in 2008 because even during a recession, people still need medicine. Merck has had a strong run over the past couple of years and has reported fast-growing profits in addition to boasts of a very promising drug development pipeline. Merck’s stock has more than doubled since the Vioxx lawsuit was announced about three years ago; the lawsuit was cleared up in November 2007. Although there was a big settlement involved, Merck put aside a reserve for it and the effects of the lawsuit should now be old news. More importantly, Merck has yet to regain its pre-lawsuit highs, so it still has some room to run. The biggest gains may have already taken place, but with a promising future, strong cash flow and a 2.8% dividend yield, Merck is primed to be among the hot stocks in 2008 -- and beyond.Author’s disclosure: I own this stock. Pfizer, Inc. (NYSE: PFE) - $22.60Pfizer, Inc., like Merck, is another large pharmaceutical company, but Pfizer’s stock price has failed to produce gains the past couple of years. A mediocre pipeline, fears of lost revenue when the Lipitor patent runs out, and discontinuation of the development of the drug torcetrapib are some of the factors contributing to Pfizer’s less-than-stellar financial performance. However, from a defensive standpoint, Pfizer is an interesting option.Internally, Pfizer continues to produce lots of cash flow from operations and has been buying back a big chunk of stock. Many analysts believe that Pfizer will need to create a brand new drug or acquire some promising companies to return to growth. Some are saying that 2008 is the year this will start happening, which will make it among the hot stocks in 2008. Even if the turnaround does not happen in 2008, odds are that the 150-plus-year-old Pfizer will find a way to make it happen. In the meantime, Pfizer is paying out a 5.6% dividend and has raised its dividend each year for the past four decades. This exceptional yield is more than most CDs or money markets, it puts a floor on the stock price during the short-term, and it offers a nice stream of income while you build a position and wait for Pfizer to hopefully get its act together. Author’s disclosure: I own this stock. AT&T (NYSE: T) - $36.11It seems that things have come full circle; after the forced antitrust breakup of AT&T, we seem to be back at square one. AT&T has long been a phone company, but new advances in technology and new challenges in the marketplace have AT&T diversifying its revenue lines. Yes, AT&T did warn of slowing growth, which is being experienced by peers across the board. However, amid the fears of recession and growth, AT&T has a lot of positive things going on, making this a hot stock option for 2008: In a bold move, AT&T significantly raised its dividend by 12.7% (4.3% yield) and announced a significant $15.2 billion stock buyback program. AT&T still has the exclusive on the iPhone for the next couple of years, and their expanded service offering of entertainment, music and content services should bode well for the former Ma Bell. Additionally, the acquisition of BellSouth should start to positively impact AT&T’s financial results in late 2008 to early 2009.Author’s disclosure: I do not own this stock. General Electric (NYSE: GE) - $34.31GE is one of America’s largest and most diverse companies and it’s often referred to as a bellwether for the overall health of the U.S. financial markets. Since GE is so large and is so widely followed by analysts and researchers, the company rarely strays from its earnings estimates. But, the recent activity of the U.S. stock market and economic data had some people fearing that GE might actually miss its earnings estimates, serving as a warning of other problems. However, GE once again pulled through and met its earnings numbers and reported strong growth and results from its international business efforts. GE is near its 52-week low and, despite a quick blip in the latter part of 2006, it has not seen its stock price move much in the past three years. Plus, GE is committed to rewarding shareholders, as indicated by paying out dividends (currently a 3.7% yield), and completing its $27-billion stock-buyback program one full year ahead of schedule. GE’s positive results and reaffirmed outlook spells a sign of relief for both the U.S. and Global markets.Certainly, there are some challenges, but overall, things look good. GE will keep buying stock, keep paying dividends, benefit from increased demand in the energy sectors, and offer diversity of revenue with sales coming from all over the globe. In short, GE is truly a global company that has seen its stock price treated as if the U.S. is its only game. Per CEO Jeffrey Immelt, GE has positioned itself to outperform in this market -- and its financial numbers prove it, making this a hot stock for 2008. Author’s disclosure: I do not own this stock. Burlington Northern Santa Fe Corp. (NYSE: BNI) - $76.93If someone has made more money than you, it’s typically a good idea to listen to what they’re saying. More importantly, if that person is the No. 2 moneymaker of all time, extra attention should be given. Warren Buffet has been buying tons of shares of Fort Worth, Texas-based Burlington Northern Santa Fe Corporation. Burlington provides rail transportation services and transports just about everything imaginable via its more than 32,000 miles of rail systems. After his early January buying spree, Buffet now owns 18% of the company. I certainly do not advocate following Buffet blindly to the death -- even he is human -- however, with high oil prices encouraging more rail transportation and a general long-term optimism for the U.S. economy, railways look to be promising investments. Consider that the more goods that need to be shipped, the better it is for Burlington’s cash flow. It seems that the engines can pull an unlimited number of railcars -- and each car added to the engine, simplistically, is just gravy in terms of margins and cash flow. Short-term, the economy has slowed a little bit and that has hurt Burlington’s stock price, but during these dips, Buffet has been loading up and is making no secret of doing so. Buffet’s buying helps to protect the downside and should inspire confidence for the long haul. Author’s disclosure: I do not own this stock. National Bank of Greece (NYSE: NBG) - $12.47While most U.S.-based banks are falling off a cliff, many foreign banks are performing very well -- and the National Bank of Greece has been no exception. One of Greece’s most widely held stocks can be purchased here in the U.S., and the National Bank of Greece has seen growth thanks to a consumer-lending boom in Greece. Initially, you may say that this is what got the U.S. banks into trouble in the first place, but the National Bank of Greece is planning to buck the trend. The markets in Greece may have slowed, but the bank has actively expanded its service offerings into fast-growing markets, including Turkey and Eastern Europe. Even with the risk of a lending slowdown or credit crunch in Greece, the bank expects profits to grow by at least 15% in each of the next three years. This growth also positions the bank as a solid takeover candidate and that is always a good upside event to have in the hat, although it may never happen.Author’s disclosure: I do own this stock. stocking upIf the first couple of weeks of 2008 are any indicator, the U.S. stock market is in for a rough ride. Not only have we seen multiple days of big declines, but the economic data being released and the sentiment on the street also suggest that a recession is likely coming or already here. However, even during rough patches, the opportunity exists to position yourself for profits. Rather than riding the wave of hype or momentum, focus on the business prospects of a company. The hot stocks of 2008 listed here have a lot going for them from a business standpoint, and over the long term, they should ultimately reward patient investors.Resources: http://money.cnn.com/2007/08/30/markets/spotlight_mrk/index.htm http://en.wikipedia.org/wiki/Main_Page http://seekingalpha.com/article/56953-at-t-rises-on-dividend-hike-15-2b-buyback http://query.nytimes.com/gst/fullpage.html?res=9806E7D61430F932A3575AC0A9619C8B63 www.gurufocus.com http://messages.finance.yahoo.com http://online.wsj.com Money Moves To Make Now Most financial advisers provide long-term plans and ideas for financial success. While having a long-term view is crucial to your financial success, it can also be frustrating. After all, if you’ve taken the time to be proactive with your money moves now, then you deserve to see results right away. Before you run out to make the hurry-up-and-wait move with your financial adviser, here are seven simple money moves to make now. Cancel ongoing membershipsOngoing memberships are extremely convenient because they usually automatically bill your credit card each month, relieving you of the responsibility. Often these ongoing memberships are for services you need, such as roadside assistance or cellular phone service. While these are luxuries, they are also a matter of safety.On the other hand, there are ongoing services that you might be able to do without. These include such things as gym memberships, movie rental services and magazine subscriptions. There are other viable options, such as working out at home or outside and visiting the library for movies, books and magazines. While these options may be less appealing, they are money moves to make now if you’re looking to cut costs and see an immediate change in your savings account. Cut up department store credit cardsBuilding your credit score is a long-term financial objective, but there are money moves to make now that will immediately help your credit rating. While canceling old credit cards is usually a bad idea, there are some exceptions. Old credit cards provide credit history, which is good for your credit report, so keep all of your major credit cards. What you should do, however, is cancel and cut up your credit cards that are issued from a particular store, such as those from a home improvement or department store. These cards have high interest rates and fees and they can only be used at one location.Lower your credit card interest ratePaying off a large credit card debt takes months, if not years. While setting up a payment schedule is a good idea, you won’t see results for a long time. There are, however, money moves to make now that will yield results in a matter of minutes if you carry a balance on your credit card.First, check your credit report and score to see how you are doing. If you have been making payments on time, your credit score has probably improved and you should call your credit card company to see if they will lower your interest rate. Believe it or not, they might be able to work something out because they want your business. Automate your monthly savingsNobody likes taking a portion of their paycheck each week and putting it into savings. In fact, many people don’t save because there isn’t enough left at the end of the month. And once other bills come up, it can be very hard to keep a balance in your savings while you pay the bills at the same time.There is, however, something you can do today that will smooth over the process. It’s called paying yourself first. Most banks will let you set up an automatic transfer from your checking account into your savings account. This way you won’t even have to think about saving because it will be just another one of your monthly “bills.” The money won’t be missed and you will be pleasantly surprised at how quickly your savings will bulk up. All money moves should be so easy. Automate your bill paymentsWith the stress and obligations of daily life, it can be challenging to tackle your monthly bills -- even if paying your bills on time is vital for your financial health. Paying on time ensures your credit score will remain in stellar standing. Not paying on time could make your credit score drop and put you at risk for higher interest rates on loans.Since the internet found its way into most of our homes, money making moves to make now have never been so easy, and automating the bill-paying process with online banking will save you time and money. The bills will be paid directly from your checking account, which will save you a stamp and ensure that at least the minimum payment is made to avoid fees. Consolidate debtsConsolidating debt is the first step to building a stable financial future. In order to invest, you need to pay off short-term debt. This includes credit card debt and other short-term loans, as apposed to car loans or the mortgage on your home.Consolidating debt means organizing it or combining it into one sum. Various companies will consolidate your debt into one monthly payment for a fee, and you can often negotiate for a competitive interest rate based on your credit score. The most important thing is to pay off your debt in the shortest amount of time possible. In order to do this you might have to double up on payments and cut out several luxuries in your budget. It might be tough, but once your debt is gone, your financial footing will be that much more stable. Set up a financial planLastly, if you don’t have one already, now is the time to set up a financial plan. Consult the experience of a financial advisor who understands your specific needs and goals to set up your financial plan, which will include short-term and long-term objectives. Even if setting up a financial plan requires a consult with a financial advisor, it still qualifies as one of the money moves to make now.nurture the money treeAs it turns out, there are many money moves you can make now that will change your situation. And if you have been waiting for long-term success, it is time to change your frame of mind and start today. Several years down the road, it might be surprising how far you have come and you will be glad you made changes when you did.Coordinating Insurance Coverage While buying insurance can be a complicated and daunting task, coordinating your policies and understanding overlaps in coverage can be even more tiresome. As a result, some people buy little to no insurance because they believe that insurance is a swindle. Still, there are people who become fearful and over-insure themselves from a catastrophe that’ll likely never arrive. Finding the proper balance is a sensible approach to this section of your financial plan, but how do you go about coordinating insurance coverage? coordinating insurance coverageAuto insurance & homeowners insuranceAuto insurance is one of the most basic and practical types of insurance for anyone who relies heavily on their cars, especially people living in cities without convenient or reliable public transportation. As simple a thing as auto insurance is, the laws that mandate specific/minimum coverage limits for auto insurance will vary from state to state.Almost every family with children dreams of buying a home, because having a white picket fence, a large green lawn and a garage to park in is nice. However, this investment must be insured to the fullest amount because of the various problems that might happen: theft, fire, wind, or flood. It is, therefore, crucial to carry homeowners insurance to protect your investment -- unless you prefer owning a liability. Coordinating insurance coverage with regards to these two properties becomes a possibility when you consider their theft policies. Auto insurance policies will cover the items in your car up to a certain dollar amount, while certain homeowners policies will cover items stolen from your car in different circumstances as well. If you do not have a home or condominium to insure, then you can insure for the maximum loss through your auto policy. However, if there is an overlap with your policies, then you can change the coverage limits to save money. Automobile association & auto insurancePeople all across America use AAA, the Automobile Association of America, or some other equivalent. Membership is a long-standing tradition for car owners because everyone has been, or knows someone who has been, in a tough situation involving car troubles -- and it isn’t fun. The services provided by automobile associations, such as sending someone to tow your car or repair a flat tire, are almost priceless when you are in a time of need.Coordinating insurance coverage in this situation might mean ditching your auto club membership, as many auto insurance polices now include this type of coverage. Additionally, more cellular phone companies now offer this service as well. Make sure to read the details of your auto insurance policy to make sure you aren’t paying double for this service. Auto rental insurance & credit card travel insuranceRenting a car is a lot of fun, because not only do you get to ride a late model car, but you often also get to try out a hot dream car with tons of power and luxury. The downside of the car rental experience is that all of the large auto rental companies tend to tack on various fees and charges at the beginning and end of the trip. One of them is insurance coverage depending on the value of the car and miles driven.The way you can coordinate insurance coverage is by looking into the coverage that your credit card provides when you rent a car, if it’s a part of your card’s terms. You’d be surprised to learn that many platinum or other high-end credit cards cover your auto rental while you’re on a business trip or vacation. Call your credit card company for more details in order to save money while traveling. Employer’s health insurance & personal health insuranceHealth insurance is critical in today’s world, both for your financial and physical well-being. Small things like the common cold or a sprained ankle might be inexpensive should you need to visit the doctor, but because you never know when you might face larger, unexpected and significantly more costly illnesses, you need insurance. Depending on the state in which you live, the health insurance laws will vary. Being that health care is so important, it is vital to consult an expert in this area.The overlap in insurance comes in when you have a personal health policy and you are hired to a new job or when your current employer changes its health plan. It is in precisely these situations when you should consider coordinating insurance coverage. Depending on the laws in your area and your overall health, it may be wise for you to keep your personal plan and your company's plan, but only if it makes sense. Be sure not to cancel your personal policy right away because it could be hard or costly to get it back later. doubling up isn’t always bestOverall, there are overlaps in the various insurance plans that you might carry. It is important that you read each policy carefully in order to find out the details in your specific plan. Not doing so could result in hundreds of dollars wasted per year.It’s always a good idea to sit down with a financial planner who specializes in insurance, but understand that some insurance professionals work on a commission basis. With that being the case, you might want to work with a financial planner who charges an hourly fee for financial advice to avoid a conflict of interest. With some scrutinizing and skillful detective work, you can insure yourself and save money at the same time. Surviving A Recession The thought of the U.S. economy heading into recession is not something to be taken lightly -- it will impact each and every one of us in some way. How? Well, many people will be subject to layoffs or job cuts, but this, however, is a small minority. Most of us will be fortunate enough to maintain employment in times of recession, but we will undoubtedly feel the effects in other ways. Service providers and banks may often instate new service or account fees; employers may pass on bonuses, raises or disband other perks; retailers might raise prices to compensate; and even if you cannot pinpoint the exact reason why, it seems that during these times, your bank account gets hit. Here are some suggestions on how to survive a recession and even come out on top once it has run its course. Reduce debt (especially credit cards)It should always be in your financial plan to reduce your debt rather than to increase it, but this is especially important during slower economic times. If you can see the writing on the wall, do what you can to reduce your debt, particularly credit card debt, as much as possible. If you can eliminate your unsecured credit card debt, you will have freed up that much more monthly cash flow to save during a recession. If you are only making minimum payments, that couple of hundred dollars each month can really go a long way. If it is not realistic to pay it all off, it might still be realistic to pay off the card with the highest interest rate to avoid future charges and to free up some monthly cash flow. It may also make sense to transfer all of your debt to a credit card with a lower interest rate. This can be an even more attractive option as interest rates come down, which is the historical norm during recessions.From a long-term perspective, if you can clear your credit during a recession, then you will be in a greater position to borrow in the future, enabling you to take advantage of the many buying opportunities (such as stocks, real estate and businesses) that tend to show up as a result of a recession. Reducing your debts is key when it comes to surviving a recession. Don’t run from stocksDuring a recession, the stock market tends to perform poorly. Naturally, in the interest of surviving a recession, the temptation to get out of all of your stocks and flock to FDIC-guaranteed CDs and savings accounts is very strong. Of course, there is nothing wrong with feeling secure, but these slower stock market times may actually be your best buying opportunities. If you have a long-term time frame and some extra cash on hand, you may be able to buy stock in very established companies at relatively low prices. So, if you have the patience and intestinal fortitude, you can position yourself nicely for the next market run once the economy gets back in gear.The thought of the U.S. economy heading into recession is not something to be taken lightly -- it will impact each and every one of us in some way. How? Well, many people will be subject to layoffs or job cuts, but this, however, is a small minority. Most of us will be fortunate enough to maintain employment in times of recession, but we will undoubtedly feel the effects in other ways. Service providers and banks may often instate new service or account fees; employers may pass on bonuses, raises or disband other perks; retailers might raise prices to compensate; and even if you cannot pinpoint the exact reason why, it seems that during these times, your bank account gets hit. Here are some suggestions on how to survive a recession and even come out on top once it has run its course. Reduce debt (especially credit cards)It should always be in your financial plan to reduce your debt rather than to increase it, but this is especially important during slower economic times. If you can see the writing on the wall, do what you can to reduce your debt, particularly credit card debt, as much as possible. If you can eliminate your unsecured credit card debt, you will have freed up that much more monthly cash flow to save during a recession. If you are only making minimum payments, that couple of hundred dollars each month can really go a long way. If it is not realistic to pay it all off, it might still be realistic to pay off the card with the highest interest rate to avoid future charges and to free up some monthly cash flow. It may also make sense to transfer all of your debt to a credit card with a lower interest rate. This can be an even more attractive option as interest rates come down, which is the historical norm during recessions.From a long-term perspective, if you can clear your credit during a recession, then you will be in a greater position to borrow in the future, enabling you to take advantage of the many buying opportunities (such as stocks, real estate and businesses) that tend to show up as a result of a recession. Reducing your debts is key when it comes to surviving a recession. Don’t run from stocksDuring a recession, the stock market tends to perform poorly. Naturally, in the interest of surviving a recession, the temptation to get out of all of your stocks and flock to FDIC-guaranteed CDs and savings accounts is very strong. Of course, there is nothing wrong with feeling secure, but these slower stock market times may actually be your best buying opportunities. If you have a long-term time frame and some extra cash on hand, you may be able to buy stock in very established companies at relatively low prices. So, if you have the patience and intestinal fortitude, you can position yourself nicely for the next market run once the economy gets back in gear. The media’s discussion of a recession and news circling everywhere can be a positive catalyst to dig into your monthly bills and spending. Use this time and motivation to review all of your recurring expenses, such as car insurance, phone and internet bills, and utilities. Compare services, find new quotes and even get creative about how you handle these expenses. For instance, if you have excellent health, it may be cheaper to get health insurance on your own and forego the more expensive company policy. Also, some insurance companies might offer you a big discount if you pay for your car insurance upfront. Doing such things has the potential to help you save some bucks and reduce your monthly expenses. You should also be aware that big companies are not immune to these slower times, either, and you may be able to take advantage of bill credits or other customer retention programs for added savings. Don’t escapeIt is easy to fall into escapism when things are not going so well and you’re attempting to survive a recession. The Great Depression is referred to as the Golden Age of Hollywood, due to the huge success the theaters enjoyed during this time. Casinos and liquor purveyors also experience up ticks during recessions as people try to gamble and drink away their problems. However, you should pay more attention to such expenses now, when you are focused on surviving the recession, than when things are going well. Make a conscious effort to reduce frivolous spending and note that every retailer is doing what they can to capitalize on these down times -- they know that things are bad for people, and their marketing tactics can make an escape into shopping or entertainment awfully enticing. Simply put, do not pretend that you are not affected by a recession -- you are.Even if you are among the select few with enough means to not even notice the problem, rather than continuing to spend freely, consider diverting some additional cash to investments or finding a good deal on real estate or a new car (if you need one). If you absolutely must escape, consider volunteering for a cause you support. This is an excellent way to have a good time, escape and do it for free. If you have been donating cash, consider replacing the cash donation with an in-kind contribution of your time, which may also be tax deductible. reaping a recessionsRecessions are a very natural part of our economy. And while we need to be mindful of the impact recessions have on our lives, there is no reason to run and hide. Simply paying attention to your actions will help you conserve cash and make things easier until the economy comes back around. Furthermore, if you are among the bold, you may be able to lock in exceptional gains and profits by investing while the market is low.Recession Proof Investments The wire has been flooded with talk of a recession. Even worse, among some experts, the question is not whether or not a recession is coming, but how bad it’s going to get. Amid this negative press, we must recognize that recessions are simply a part of our natural economy. During these times, the stock market is often hit hard as people make safer recession-proof investments, such as putting money into CDs or bonds. Just because a recession is here, however, it doesn’t mean that there aren’t good stocks that are primed to do well during these tough times. Consider these recession-proof investments to make the most of a slow economic time. PharmaceuticalsSome argue that more people get sick when the economy is bad. While there are no statistics to prove that theory true, it’s common sense that people will never stop getting sick. During a recession, you can look to established pharmaceutical companies to make recession-proof investments.Most people are familiar with the blockbuster drug names, but they often forget the thousands of other drugs that these companies have in their arsenal. The end result is a large catalog of medicine and drugs that people need to treat an array of conditions that don’t check with the economy before showing up. Pfizer, Inc. (NYSE: PFE) provides a solid recession-proof investment during slower times. Pfizer has had some knocks recently, but it's still producing a lot of cash flow, and has just raised its dividend for the 41st consecutive year. Pfizer is boasting a yield of 5.6%, which beats just about any CD, bond or high-yield savings account. The stock price may not be moving up anytime soon, but in the short-term, take advantage of the high dividend payout to provide some cash and put a floor on the stock price. BankingAs much as we dislike banks and their crazy fees, could you imagine not owning a bank account? Despite how poorly bank stocks have performed during this housing market collapse and current talks of a recession, a good bank is not a bad industry in which to make a recession-proof investment. Yes, during slower economic times, things like home loans and construction may slow down, but banks make up for it in other areas. For those who are laid off, starting a business is often an option and that can mean small-business loans. As investors get nervous with stock market returns during slow times, banks will often see flocks of skittish investors dumping money into FDIC-insured vehicles like CDs and savings accounts.Historically, banks are often good dividend payers and this steady dividend income can come in handy during a recession and provide some comfort. During uncertain times, it is often best to stick with larger bank names that have more staying power and are not fully exposed to one particular region or type of banking. Bank of America (NYSE: BAC), for instance, is well diversified with a portfolio of services, including personal checking and savings, insurance, commercial banking, investments, and strategic advisory services -- not to mention the services have global exposure. Additionally, larger banks with broader cash reserves and access to capital are better able to sustain or retain much of their dividend payouts to shareholders when things are tight. Finally, during a recession, our country’s best weapon is to reduce interest rates. Lower rates typically mean incremental business for banks as people get more comfortable refinancing or taking out loans at lower interest rates. Entertainment & vicesIt’s expected that when money is running dry, people clamp up their wallets. Fortunately for the entertainment and vice industries, the opposite is true. The 1930s, the decade of the Great Depression is also commonly referred to as the Golden Age of Hollywood. Names from movies of this era remain familiar today, like Bob Hope and Shirley Temple.While the real world is causing problems, people are seeking an escape from reality. During a recession, people are more likely to take a big vacation, indulge in some tobacco or liquor, or hit the movie theaters. From an investment standpoint, you can take advantage of this by making recession-proof investments in companies that cater to this audience. Consider Diageo (NYSE: DEO), which distributes a wide variety of alcohol products like Smirnoff vodka and Johnny Walker whisky. CNBC expects U.S. consumers to continue to buy more alcohol during 2008, particularly higher-end labels. Additionally, with Diageo’s exposure to China and some pundits thinking that China is in for a big market fall, there may be many disheartened investors in Asia looking to drink some of their problems away. In terms of rewarding investors, Diageo is no slouch, paying out a 4.1% dividend yield. stocking upOne of the most basic lessons we all learn in economics is that our capitalist machine moves in cycles. Recessions are a natural part of growth and provide some rest and breathing room for the economy to regain its strength for the next run. If you are smart and have a long-term plan, recessions can be one of your best buying opportunities as an investor.Warren Buffet suggests to “look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.” Resources: http://biz.yahoo.com Online Banking Even if you bank at a small regional bank, you likely have free access to your account information online. Banks offer services online both to provide a better customer experience, and, most importantly, because these services allow the bank to do its job more efficiently. You probably already take advantage of online banking to pay your bills electronically and to periodically transfer money into your savings account (good budget suggestion), but there are many other things you can do with online banking, and we've compiled a list to help you make the most of it. Schedule paymentsIf you spend a little more time looking at bill payment options, you'll find you can automatically schedule payments and even specify the number of payments you have remaining, all through online banking. In terms of making sure your monthly payments get there on time, most online payment services are set up to let you specify the date of delivery. This delivery date often comes with a guarantee that the payment will be delivered by that date to make sure that your account doesn't go into the red. Also, some national payees will be tied directly into the online banking interface, which can mean the payment can be applied instantly or take just one to two business days to be delivered, rather than five to seven.Account transfersTransferring money between your checking and savings accounts is one of the first things you can do with online banking. For advanced online banking users, you may want to do some research to see which other electronic payments are offered by your bank, particularly when it comes to outside accounts. For example, some banking solutions allow you to e-mail money to friends or family, or even send money via a cell phone. It may also be possible to initiate wire transfers to yourself or third parties simply by filling out a form online and then confirming via an e-mail. More practical activities may include linking to your brokerage account or IRA account and quickly moving money into these venues without the hassle of writing a check, mailing it in and waiting for it to clear.Order suppliesIf you browse through your online banking interface, you will find that you may not even have to step inside a branch to order the supplies you need. Most banks will let you order things like deposit slips, checks, additional debit cards, and even old statement copies online. In many cases, they'll send you the supplies at no charge. It might take a couple of extra days to get these items in the mail, but it sure beats trying to make it to the bank before closing hours and waiting in line.Download transactionsIf you're up to speed with your online banking, you should be using a software program like Quicken or Mint.com to monitor your finances and help you budget. Most financial institutions are directly tied to these software programs and it's very easy to have Quicken automatically update your account balances and transactions every day. If you're just getting one of these software programs, you should be able to export the data from your online bank account, and it should come out in a format that can easily be imported into your new program. Automatic transaction downloading makes reconciling a breeze -- as every charge is already posted and included, as are the proper date ranges. Additionally, if you're looking for a transaction or want to get a summary of activity for a given period of time, or review spending in specific categories, you can often specify this search criteria. Even if you can't filter by certain items, you can export the data into an Excel spreadsheet that is relatively easy to manipulate.banking in the digital ageThe next time you login to your online banking account, take a few extra moments to browse through all of the links and sections within the interface. You should quickly find your bank offers you access to more services online than you originally knew about -- services that could make your life a whole lot easier if you use them properly.Manage Monthly Cash Flow Successful businesses are typically very meticulous when it comes to managing their cash flow. Even when businesses are facing tough times, payroll continues to be met, bills are paid and the company can still manage to selectively move forward. Managing your own cash flow is akin to monitoring the finances for a business. Yet, we rarely consider applying the cash-flow techniques that make businesses successful to our personal lives. Here are some common business cash-flow management techniques that can practically be applied to your personal finances to help you manage your monthly cash flow. Pay lateBusinesses will often ask for net 30-day terms when purchasing services from a vendor or supplier. When a company is supposed to send you payment, it likely does not come the day after you send the invoice. Part of this is due to accounting controls, but the other part involves effectively managing cash flow. You can easily take advantage of this same approach to manage monthly cash flow. Whenever you get a bill, whether it's for utilities, internet, cell phone, or credit card, note the payment due date. The payment is likely not due until two to four weeks after you receive the bill by e-mail or in the mail. Although it may feel rewarding to pay the bill right away and have it off of your plate, you should exercise discipline and pay the bill as close to the due date as possible without being late.During this time, you can put the money in a savings account to earn some interest or, at the very least, build up some cash, as sometimes one or two paychecks can show up during this time frame. If you really want to take advantage of this, pay as many bills as you can with a credit card. If you can, control the statement date of your credit card to align with the due date of the bill. If you play your cards right and use the grace period offered by both your utility company and your credit card company, you might be able to delay writing the check for 45-60 days after the service has been billed and provided. Use that time frame to earn interest on your money and collect some additional paychecks in order to build your cash flow base. Specifically, consider a money market or daily sweep account with no fees or check-writing abilities. You won’t get rich by earning the interest, but it is found money and you are more likely to have some excess cash on hand if needed. Forecast your financesAll businesses use financial reporting and forecasting. If you ever take a look at your managers, they likely have some form of report on hand regarding their company's financial performance. This will include the numbers from past performance as well as future expectations available for review. As an individual, you can do the same to manage your monthly cash flow. You should build a cash-flow spreadsheet that forecasts your cash position in the coming months. Include your anticipated paychecks and monthly expenses.It's a great tool that will help you paint a picture of where you may be in three, six, 12, or even 24 months from now. If you can be confident that you will have a certain amount of money in your bank account six months from now, you can plan expenditures accordingly. Additionally, take some time each week, or at least each month, to review your financial position. Review your cash balances, spending habits and income streams to compare your actual results with your anticipated results. You may find that you need to cut spending in certain areas, or perhaps you're in far better shape than you originally thought you would be. Either way, it takes the guesswork out of your finances and keeps you in control of your money. Use debt appropriatelyThere is absolutely nothing wrong with debt, as long as it's used responsibly. General Electric, for instance, has $515 billion in debt and only $16 billion in cash in the bank. This is appropriate because GE uses the debt appropriately to build their business. While by no means is it suggested that you should get in over your head, you shouldn't shy away from debt for the right things. For example, if you're able to secure a car loan at 0% interest, you would be foolish to pay the balance off all at once. Even if you have the cash on hand and can’t stand writing a monthly check, take the entire amount, place it in a totally separate account and let the car loan payment automatically come out each month without you knowing. On a $15,000 car, with a 5% interest rate, at the end of four years you will easily have an additional $3,000 in that account and your car will be paid for. Be confident to use debt where it is advantageous to your future growth, but hesitate to use it for going in too deep and over your head. If you can retain your money now to make more for yourself and pay what you owe later, it's a big win.Establish reservesWhen you know you're faced with a big expense, such as a down payment on a house or a big car repair, start saving for it as early as you can. Merck & Co. Inc., when faced with the Vioxx lawsuits, immediately began building a reserve to put the money aside. Three years later, a general settlement was agreed upon, and with all of the money put aside, Merck was able to easily pay the settlement. We've all heard the budgeting need for an emergency fund, and yes, you should have some cash available for short-term emergencies. However, to take it one step further, start putting money aside in your personal reserve as soon as possible. The sooner you can set up such a reserve, the less effort it will take each month to reach your reserve goal. In the end, even if you never make that big purchase, you'll have a windfall of money at your disposable for other financial goals.take some business cuesBusinesses go under for one reason and one reason only: they run out of money. As an individual, the same fate would apply to you if your cash flow was not in order. Successful businesses pay close attention to their inflows and outflows and take advantage of techniques to maximize cash flow and earning ability of the cash on hand. Practically applying these concepts to your own personal finances can do wondrous things for your financial position and, again, put you in control of your finances, not the other way around.Tax Myths Tax time is just around the corner, and hopefully you have your W-2 and are getting ready to put your 2007 tax return behind you. As you review materials and get excited about refunds, rebates and deductions, don't fall for these common tax myths that will only lead to time-consuming research and perhaps a higher tax bill instead of a hefty return. tax myth no. 1I don’t have to pay taxesAccording to the February 2008 CCH Complete Tax Survey, 23% surveyed said they did not have to file taxes or were unsure whether they had to or not. Every person in this country needs to file taxes, including students, children, people who make no money, and people who get paid only in cash. Returns for students and children are often lumped into the tax returns of their parents, but they must still file, regardless. You should never fall into the tax myth of not filing. Even if there are no immediate consequences, if one day you decide to file your own taxes or take a job where taxes are withheld, the IRS will quickly notice a gaping hole in your tax return history. Even if you owe no back-taxes, there are always fines, and the process of catching up will consume a great deal of your time. Don't fall victim to this tax myth and make sure that you file your tax return every year, regardless of your financial situation or social status.tax myth no. 2My accountant is liable (for mistakes)Many taxpayers assume that if they go to a professional firm, the accountant will be liable for any errors or omissions that may result in you having to pay more taxes, penalties or even endure an audit. The accountant may have made a mistake, but the responsibility to pay for it comes on your shoulders. First, never assume your accountant has everything under control. Computer accounting software today makes basic math errors less common, but you should always review your return and understand what is being submitted to the IRS before it goes out the door. Most importantly, be accountable for your own situation. Sometimes, a mistake by an account may not result in fines or an audit, but it can manifest itself in the form of a missed deduction or tax credit.tax myth no. 3I don’t have any business expensesJust because you're not a business owner, it doesn't mean you don't have valid business- or employment-related expenses you can deduct on your taxes. At your 9-to-5 job, ask yourself what things you're paying for in order to maintain employment. If you're a teacher, for example, you will often find yourself making extra school supply purchases for your students -- these are deductible. If you have a certain uniform for work, you may be able to deduct dry cleaning expenses. If you are becoming part of the growing segment of freelancers, consider incorporating yourself as a business. That step will cost you a few extra dollars in terms of state and legal fees, but you may become eligible for far more favorable tax treatment when it comes to health insurance premiums, travel and entertainment deductions, and even a retirement plan via a SEP IRA.tax myth no. 4All of my home costs are tax deductibleOne place where people tend to get into a lot of trouble on their taxes is on deducting home-related expenses. There are many benefits to owning a home, such as being able to deduct interest paid on the loan and some favorable tax treatment when you sell a home for a gain, but there are also many pitfalls. One of the most common downfalls of home ownership is the interest you pay on your home mortgage. Some tax payers believe that both the standard deduction and the interest paid count as deductions. To claim interest on a home purchase you must itemize your deductions, so you should review to see exactly how much interest was paid during the year. In some cases, it might be better to take the standard deduction, especially if you bought a home later in the year. Another item that has been a hot topic, especially in this lowered real estate market, is that you can take a tax loss if you sell the home for less than you paid for it. Homes are considered personal property and are not eligible for the special capital loss treatment. The IRS views selling your house for a loss no different than selling your $1,000 TV for to a buddy for $100 -- you don’t get to take a $900 deduction. You should also be careful about deducting basic home improvements or maintenance expenses. Those absolutely are not deductible. Finally, in some cases, if you make too much money you may not be eligible for certain deductions, like the PMI deduction if your adjusted gross income is above $110,000.tax myth no. 3Only the rich get auditedYou may feel that since you hardly make any money, the IRS really doesn't care to review your tax records. Although 2% of people making over $100,000 get audited versus less than 1% who make less than $25,000, audits are not random. The IRS uses sophisticated computer scoring methods to determine who gets audited and who does not -- and income is not one of the things they look for. If your tax return throws up enough red flags, you may very well get audited. In most cases, the IRS will simply ask you to correct or to provide a revised tax return rather than a full-blown audit. That is certainly a better punishment, but it can delay the processing of your tax refund, which is not much fun. When it comes to preparing your tax return, never assume you're out of the woods for an audit, even if you have received your tax return. In most cases, inquiries are solved by sending a brief letter or receipt -- if you have anything that might trigger a red flag, simply make sure you can back up your claim.tax time triviaDeath and taxes are the only certain things you will have to experience during life, or so they say. It's no fun to pay taxes, but it's less fun to pay them and then have to pay more or end up enduring an audit. While it seems like the tax laws are out to get you, in many ways they exist for your protection. When preparing your taxes it always makes sense to discuss with a trusted adviser or read up on the IRS tax laws yourself before proceeding with anything. The IRS is a big advocate of informing consumers of tax myths and schemes and posts answers to frequently asked questions about deductions. Be responsible, be accountable and always double check any tax-related rumors you hear. If it sounds too good to be true, it absolutely is.Resources: http://www.completetax.com/ http://www.govtech.com/ www.mckenzielaw.com Can I Afford: A House? Buying a house is an essential part of the American Dream. A home is not only a great investment, but it also provides vital safety and shelter for us and our families. However, while buying a home or condominium is exhilarating, it might not be in your best interest financially. Buying a home is a huge financial transaction and involves decisions that need careful consideration and thorough planning. There are three important tests that will help you determine whether you can really afford a house: the housing ratio, debt obligation ratio and down payment percentage. Take Alan, a marketing manager for a large company, as a perfect example. Alan plans to eventually have a family and wants to move out of his apartment and get settled into a home. He consulted a financial planner to assist in answering his question, "Can I afford a house?" To help Alan realize his goal of homeownership, the financial planner crunched some numbers using the three calculations listed above. Here are the results. Housing Ratio30% of gross monthly incomeThe housing ratio is the percentage of your gross monthly income that will be devoted to housing expenses when you are living in your new house. There are many hidden costs when it comes to homeownership, including utilities, repairs, maintenance, and insurance. It's important to prepare a budget for these expenses before you move into your new home.Financial experts recommend this prepared budget number to be 30%, plus or minus a few percentage points. To calculate this number you can take your gross income and multiply by .30. This number should be the total annual amount to be allocated for housing expenses. When Alan asked, "can I afford a house?" the financial planner used his gross income of $85,000 and multiplied it by .30, then divided the sum by 12 for the number of months to come up with $2,125. Therefore, Alan can afford a mortgage payment of just over $2,000 including insurance costs and other fees. Total debt obligation ratioNo more than 36% of gross monthly incomeThe total debt obligation ratio is the percentage of your income that covers housing expenses and other obligations such as credit cards or car loan payments. Financial experts recommend that this number not exceed 36%.Luckily for Alan, he has already paid down all of his debt, including his car payments. Alan currently drives a used car and plans to keep it for several more years. He also has an emergency fund stored in his checking account at the local bank to protect him in case of unforeseen expenses. Down payment percentage20% of full mortgageThe down payment on a house is one of the biggest hurdles for new homeowners to get past. Buying a home requires having a large lump sum of money saved to put down on the mortgage. Several years ago, a mortgage could be taken out with as little as 5-10% of the total price used as a down payment. Currently, 20% down is almost all but required to secure a mortgage. If you put down less than 20%, you will have to pay PMI, also known as private mortgage insurance.Alan’s budget for his new house is around $300,000. Using money he stashed in a savings account, he can put 20% down, which amounts to $60,000. Alan will then be financing $240,000 at an interest rate of 6% for a period of 30 years. Using these hypothetical numbers, his monthly payment will be roughly $1,438.92, which is well within his budget. Plan for the futureThere are many things to consider before taking the plunge into homeownership. When you find yourself asking the question, "Can I afford a house?" these are the key points to keep in mind. First, do your goals and future plans align with the decision? Next, can you afford the mortgage payment on your new humble abode? And lastly, should you rent instead of buying a house?Each person’s goals and future plans are very different. Certain jobs, like those of business consultants, require moving to different locations throughout the year. Other jobs, like those of lawyers, mean you can stay in one city for years without worrying about having to relocate. It's important to focus on your time horizon when making any investment. If you reasonably plan to be in the same location for at least five years, then buying is an option. However, if there is a chance you might be leaving in the near future, then renting would be a safer bet. Luckily for the Alan, he plans to stay in one location for a minimum of 10 years. This satisfies the time horizon requirement on the list of questions for a potential home buyer. Furthermore, although the home will probably prove to be a good investment in the long run, it is not intended to be used solely for investment purposes. As a result, his decision is not purely a financial one. Alan plans to eventually start a family in his new home, and the memories from that may outweigh any downside risk of depreciation in the short term. home is where...Overall, homeownership isn’t for everyone. There is no shame in renting until you can save up enough money to put 20% of the price of the home toward a down payment, pay off all your debt and earn a high enough gross income to continue to pay the mortgage.
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