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    Ira distribution mistakes how to blow your retirement money

     

    With the population aging and over 4000 people a day being forced to take IRA distributions (such distributions are mandatory by April 1 after reaching age 70 1/2), mistakes in taking IRA distributions can total in the billions. Yet, because people have had no prior experience, mistakes are rampant. Here are 4 common IRA distribution mistakes to avoid. IRA Distribution Mistake #1 Every IRA owner can name a beneficiary and "stretch" the IRA for maximum tax deferral over the next generation. Informed IRA owners believe that the following will occur with retirement assets they do not use during their lifetime. Say they leave $500,000 of retirement assets to heirs. They believe junior will make small withdrawals each year (required by IRS) and at 6%, the account with a 42-year-old beneficiary, will generate $2.5 million during junior's lifetime (IRA distributions plus ending balance at life expectancy). This sounds great but it may never happen. There are at least 2 ways that the stretch IRA can fail. The first way is because of a custodian with rules that do not permit lifetime IRA distribution payments. This is particularly common in qualified plans where the rule may be that "all IRA distributions to beneficiaries are to be completed within 5 years." Since no one ever reads that fine print for their qualified plan, they have no idea that a fast IRA distribution will be forced to non-spouse beneficiaries. The other problem is the beneficiary. Just because mom and dad have the good sense to understand tax deferral does not mean that junior will comply with this wisdom. The minute junior finds out that he can close the IRA, distribute all the money and buy a Ferrari and Lamborghini at the same time, he does so, pays a fortune in taxes and blows the money to have fun. The way to control this is to have leave retirement assets in an IRA trust. In a trust, mom and dad can control how the heir gets paid. IRA Distribution Mistake #2 I am leaving my IRA to my wife. I only have one son and he can do with the IRA what he wants when we are both gone. My situation is simple. When most people select beneficiaries for their IRAs, they select their spouse or their children. As simple as this seems, it can create problems. Consider these two scenarios. When a plan owner leaves an IRA account to the spouse, it inflates the spousal assets. And when the spouse later dies with an estate exceeding $2 million (the estate exemptions limit in 2006), they pay estate tax. By leaving the IRA to the spouse, the deceased spouse has created unnecessary estate taxes by making the survivor's estate larger. So instead, they leave the IRA to the son. But as indicated before, this leaves the son total control over the asset. He may withdraw the funds immediately and decide to buy a mansion jointly with his spouse (who was despised by mom and dad). To complete the misery, let's say that the following week, the daughter-in-law files for divorce and gets to keep the mansion in the settlement. Mom and dad just gave the despicable daughter-in-law a mansion with their IRA money. Even in death they have money problems. To avoid the above two scenarios, they decide to leave the IRA to their "estate." Many attorneys advise that you never leave a retirement plan to your estate. Because at death, the IRS requires the account to be rapidly distributed rather than enjoy the potential stretch over the lifetimes of beneficiaries. Additionally, the IRA will now be a probate asset and subject to claims of creditors. So what do rich people do to avoid the three gloomy scenarios above? They leave their IRA in a trust and appoint a trustee like an accountant, financial advisor, attorney, etc., a person that has good common sense and tax knowledge. Within the boundaries of mom's and dad's wishes and IRS-required minimum distributions, the trustee will determine who among the beneficiaries will get the IRA and how much they get. The trustee will determine how quickly this IRA money gets distributed over and above the annual minimum amount of required IRS IRA distributions. Mom and dad can even give very detailed instructions. For example, they could dictate no IRA distributions for purchases of homes with the despicable spouse. Or if the money is to be used for education they may stipulate that up to $15,000 a year can be distributed, or to start a business up to $25,000 can be distributed, and they can go on and on with such instructions. IRA Distribution Mistake #3 The IRA owner has checked with the custodian and yes, they do allow lifetime distributions to non-spouse beneficiaries. Additionally, their two unmarried sons understand tax deferral and there is no need for a trust. Everything is okay. Many plan owners don't consider what happens if their beneficiary pre-deceases them. Let's say you have two sons, Jack and Tom. Your name them as primary beneficiaries for the IRA distributions by completing an "IRA Beneficiary Designation Form" at the bank or securities firm. Jack and Tom each have a son. Jack's son is Bob. Tom's son is Dan. So you write the grandson's names on the line of the beneficiary designation form that says "secondary beneficiaries." If Jack dies before his parents who own the plan assets, they probably think Jack's share goes to his son, Bob. Wrong. It goes to Tom, because on the beneficiary designation form, there is no place to specify how the primary beneficiaries and secondary beneficiaries are related. There is no place for you to explain your intentions or write "per stirpes" to clarify intentions with respect to those beneficiaries. Those beneficiary designation forms with the bank or the securities firm are not sufficiently detailed to carry out your wishes. At minimum, you should replace those forms with your own forms, called an "IRA Asset Will." This can be inexpensively prepared by any attorney. And if the custodian won't accept it, move your account to another custodian. IRA Distribution Mistake #4 Failing to use IRA funds for charitable intent If you want to leave even $1 to charity, do it from your IRA money. You can specify one or more charities to receive portions of the IRA and the heirs will thank you. When taxpayers leave heirs a dollar of IRA funds, the heirs will pay, for example, 35 cents to tax and have 65 cents left to spend. If the estate is over $2 million, heirs will also pay estate tax on this money and may have only 30 cents left from each dollar. However, when mom and dad leave heirs a dollar that is non-retirement money, heirs can spend it with no income tax. Therefore, heirs would much rather have "regular" money and not IRA money.

         
    Irs crushes credit counseling groups claiming non profit status

     

    Many credit counseling groups claim they are in it just to help you and not make a profit as indicated by their charitable organization status. The IRS is not happy. IRS Crushes Credit Counseling Groups Claiming Non-Profit Status For the last five years, the IRS has been taking a much closer look at businesses claiming to be non-profit organizations. Given the reduction of tax loopholes over the years, the agency has taken note of the fact that many high-end tax strategies now involve some kind of charitable organization. In performing the analysis, the IRS has found no worse a collection of abusive businesses than the credit counseling industry. Beginning in 2004, the IRS audited 63 credit counseling groups claiming non-profit status. These “charitable organizations” receive over fifty percent of all the revenues in the credit counseling industry, to wit, we are talking a major audit initiative. Well, guess what the IRS found? To date, the IRS has completed 41 of the audits. Of these 41 audits, every single credit counseling business has had their non-profit status revoked, proposed for revocation or outright termination. Yes, every single entity has bitten the dust! Can anyone think of a bigger scam? In crushing these bad apples, the IRS found a couple of amazing things. The primary reason for revocation was the groups provided insufficient public benefit. They offered little or no counseling or education to individuals. Instead, they were primarily motivated by profit according to the IRS. To top things off, the IRS found most of the businesses had “unique” dealings with for profit companies that just happened to be owned by the same interested parties. Imagine that! Shocking, I tell you. It must be admitted that these rotten apples only represent roughly forty to fifty percent of the credit counseling industry. The rest of the industry that has not been audited might be entirely legitimate. The IRS does not seem to think so. In fact, it has sent out audit notices to every single company that has not yet been audited. I suspect the blood bath is just going to get worse. In truth, not all credit counseling agencies are dubiously claiming non-profit status. The IRS, in fact, has noted it approved a whopping three applications for non-profit status out of 100 since 2003! Unfortunately, the IRS hasn’t indicated the identity of the three.

         
    Is filing for bankruptcy the solution

     

    Bankruptcy may seem to be an easy solution for major financial problems. But it is always better to avoid filing bankruptcy at all cost and to turn to it only as a last resort. Once you file for bankruptcy, this point will remain on your credit record for ten years. This will make it difficult for you to receive loans and credit. Some lenders may allow for limited credit with bankrupt; but only after extensive explanations, and at a higher interest rate and with added credit fees. Another reason for avoiding bankruptcy is that some types of bankruptcy call for repossession of assets. Once the bank finds that there is something with you that is not necessary for living, the item may be seized to pay for debts and bankruptcy expenses. With bankruptcy, financial difficulty will not be solved and your life becomes an open book as the court pries into all aspects of life wherein you will have to provide all financial information like savings, investments and assets. Though bankruptcy may seem to suggest some freedom from financial debts, there may be other debts that will have to be paid like alimony, court judgment costs or child support. So keeping these points in mind, it is always better to avoid bankruptcy. Debt consolidation is one of the best means of avoiding bankruptcy. These companies help you by examining your current loans and come up with a program that incorporates all these debts. The company handles the payment to all the creditors; you just have to make a single payment to them every month. They will also get you a lower rate of interest and a longer time period to repay the loans, thus making you save some money. Easy access to credit cards and credit accounts at department stores has now made it rather easy to fall into debt. It is better to pay bills with cash, and not use credit when money runs low. So cancel the credit card account! If you fall in debt, instead of hiding from the debt companies, it is better to talk to them as they may be able to negotiate and help you solve your debt. It is always better to plan a budget calculating debt ratio to income when in debt. Just write all the bills and expenditure that you have. Then you can determine how much has to be paid for bills, and how much is left for other spending. If required, you can also sell your home and downsize to avoid bankruptcy. The only benefits of filing for bankruptcy are that the stress of dealing with numerous creditors is relieved. Once bankruptcy is discharged, as most of the debts get written off, creditors cannot pursue them. However, the disadvantages to bankruptcy are many. Businesses can be sold and employees dismissed with bankruptcy. Equity in a home is most likely to be sold as with bankruptcy, reliable assets of value are lost. Bankruptcy is a costly process where all the fees for courts and trustee are drawn from the debtor’s assets. On filing for bankruptcy, it is not possible to hold certain public offices like MP, magistrate or even practice as an accountant or a solicitor. Moreover, with the new bankruptcy reform law, it is difficult to use Chapter 7 bankruptcy to get a new start in one’s financial lives. Under the old law, one could file for bankruptcy through Chapter 7 or 13. In Chapter 7, you can keep your exempt property like the equity in your home. Here most of the debts are discharged. However, in Chapter 13 bankruptcy, you have to agree to pay off all your debts over a period of three to five years. So according to the new bankruptcy law, most of the bankruptcies are forced to file for Chapter 13 bankruptcy. Moreover, according to the new law, you have to meet with a credit counselor for six months before applying for bankruptcy. However, as there are insufficient credit counselors, it is rather hard to accomplish this. It is also required that you attend money management courses at your expense before discharging your debts. However, it is always better to approach a good bankruptcy lawyer before taking any steps!

         
    Is it really necessary to create a family budget

     

    The thought of budgeting may seem simple to do, right? However, if we really get into it and try to balance our income and expenses, we realize that it’s not that easy to do. Still, having a budget or spending plan can help us manage our finances better. Money issues, especially within the family, can be a source of relationship conflicts. Dealing with money problems always gives stress. Thus, it is important that we create a budget for the family. And it should not only be you who are going to do it but all of the members of the family should get involved. Each, even young children, should have a say on the family’s finances. Step-by-Step Guide Here’s a guide to help you start making your family’s budget. 1. Assess your current financial situation. Before starting to write down a budget plan, try to check first your spending patterns for the past year. You may want to take a look at all your utility and other bills for the past year. You would also need a copy of your salary records and income tax return for the past year. In case you do not have copies of your bills anymore, utility companies and other service companies like credit card can give you a record of your transactions or provide an estimate. 2. Design budget outline. There are sample budget outlines found in the Internet that you can download and make use of. You can also find some in magazines and books. Utilize these things to create an organized and well-written family budget. 3. Write them down. Once you have all past references to your income and wages, as well as a budget design, you can now start writing down your income – from wages, pensions to tax credits – for the current month. Then write down your expenses for the month – utility bills, credit card bills, and other purchases. Receipts and your checkbook may be good references to find the information. 4. Lifestyle check. You need to check your family’s lifestyle and spending patterns. This is where every member of the family should get involved. Think about the important things that each member spends on. Think also of the things that you can probably do without. 5. Plan for next year. Estimate the income and expenses that your family may have for the next year. Your income may remain the same or you can also adjust it if you expect it to change within the year. You also need to take into consideration special occasions where you usually spend on like Christmas, birthdays, Thanksgiving and other holidays. 6. Know your credit standing. You also need to find out your current credit standing. You may request for you Credit Report from a credit bureau near your area. You can find them listed in the yellow pages. Writing down a family budget will definitely help you realize how wisely you and your family spend money. If you feel that you are spending too much more than what you are getting, then it’s high time to start fixing your finances and sticking with your family budget. Saving is also one way to improve your finances. For a family, there should be a substantial amount of savings that you can use in case of emergency. As head of the family, you should impress on your spouse and children the importance of savings. If you can commit your whole family into saving, then most likely, you will not have a problem in sticking with your family budget.

         
    Is life after bankruptcy that bad

     

    It seems that some people do not recognize that dispite some unpleasant aftereffects, bankruptcy is truly a “fresh start.” Instead of being satisfied with the benefits they receive some people remain unhappy. Here is a letter I received: “Why does it take attorney's six or more weeks to discharge a chapter 13? Why do apartment leasers hold a bankruptcy against you when I don't see how you could add apartment rent onto your bankruptcy? If life is so miserable after a bankruptcy, why are lawyers constantly telling people it's okay to file. (They want to get paid.) “ My response: “Six weeks for a discharge isn't that long and may well be governed by the schedule of the bankruptcy court. Some landlords may not want to rent to someone with bad credit. They may feel that they will have to chase the renter for their money. Dispossessions are time consuming and expensive. In many cases the landlord will get possession of his apartment, but may never recover the unpaid rent. While the court proceedings drag on, the landlord has lost a part of his source of income. So he haa a right to be careful. However life is not that bad after bankruptcy. Debtors used to be sent to jail. Not too long ago, bankruptcy would mean that the bankrupts would have to carry a stigma for life. Many committed suicide rather than face the disgrace. Many people who went bankrupt during the Great Depression spent years paying off their discharged debts as a matter of honor. Now nobody much cares. You will be able to get credit. Your debts have been wiped away. What more can you ask for? You were the one who ran up the debts, whether through bad luck, bad planning or the simple inability to control your spending. You did contract to repay the money and you didn't. For the most part you are now free of the pain and pressure caused by your financial problems. You will face some obstacles over the next few years, but you should have realized that before filing. You approached a lawyer, not the other way around. I'm sure the lawyer didn't twist your arm to force you to file. If you've gotten your discharge, be happy, restart your life and live with the consequences. Things could be worse.” In my opinion this person needs an attitude adjustment.

         
    Is my money safe

     

    Banks are institutions where miracles happen regularly. We rarely entrust our money to anyone but ourselves – and our banks. Despite a very chequered history of mismanagement, corruption, false promises and representations, delusions and behavioural inconsistency – banks still succeed to motivate us to give them our money. Partly it is the feeling that there is safety in numbers. The fashionable term today is "moral hazard". The implicit guarantees of the state and of other financial institutions move us to take risks which we would, otherwise, have avoided. Partly it is the sophistication of the banks in marketing and promoting themselves and their products. Glossy brochures, professional computer and video presentations and vast, shrine-like, real estate complexes all serve to enhance the image of the banks as the temples of the new religion of money. But what is behind all this? How can we judge the soundness of our banks? In other words, how can we tell if our money is safely tucked away in a safe haven? The reflex is to go to the bank's balance sheets. Banks and balance sheets have been both invented in their modern form in the 15th century. A balance sheet, coupled with other financial statements is supposed to provide us with a true and full picture of the health of the bank, its past and its long-term prospects. The surprising thing is that – despite common opinion – it does. But it is rather useless unless you know how to read it. Financial statements (Income – or Profit and Loss - Statement, Cash Flow Statement and Balance Sheet) come in many forms. Sometimes they conform to Western accounting standards (the Generally Accepted Accounting Principles, GAAP, or the less rigorous and more fuzzily worded International Accounting Standards, IAS). Otherwise, they conform to local accounting standards, which often leave a lot to be desired. Still, you should look for banks, which make their updated financial reports available to you. The best choice would be a bank that is audited by one of the Big Four Western accounting firms and makes its audit reports publicly available. Such audited financial statements should consolidate the financial results of the bank with the financial results of its subsidiaries or associated companies. A lot often hides in those corners of corporate holdings. Banks are rated by independent agencies. The most famous and most reliable of the lot is Fitch Ratings. Another one is Moody’s. These agencies assign letter and number combinations to the banks that reflect their stability. Most agencies differentiate the short term from the long term prospects of the banking institution rated. Some of them even study (and rate) issues, such as the legality of the operations of the bank (legal rating). Ostensibly, all a concerned person has to do, therefore, is to step up to the bank manager, muster courage and ask for the bank's rating. Unfortunately, life is more complicated than rating agencies would have us believe. They base themselves mostly on the financial results of the bank rated as a reliable gauge of its financial strength or financial profile. Nothing is further from the truth. Admittedly, the financial results do contain a few important facts. But one has to look beyond the naked figures to get the real – often much less encouraging – picture. Consider the thorny issue of exchange rates. Financial statements are calculated (sometimes stated in USD in addition to the local currency) using the exchange rate prevailing on the 31st of December of the fiscal year (to which the statements refer). In a country with a volatile domestic currency this would tend to completely distort the true picture. This is especially true if a big chunk of the activity preceded this arbitrary date. The same applies to financial statements, which were not inflation-adjusted in high inflation countries. The statements will look inflated and even reflect profits where heavy losses were incurred. "Average amounts" accounting (which makes use of average exchange rates throughout the year) is even more misleading. The only way to truly reflect reality is if the bank were to keep two sets of accounts: one in the local currency and one in USD (or in some other currency of reference). Otherwise, fictitious growth in the asset base (due to inflation or currency fluctuations) could result. Another example: in many countries, changes in regulations can greatly effect the financial statements of a bank. In 1996, in Russia, for example, the Bank of Russia changed the algorithm for calculating an important banking ratio (the capital to risk weighted assets ratio). Unless a Russian bank restated its previous financial statements accordingly, a sharp change in profitability appeared from nowhere. The net assets themselves are always misstated: the figure refers to the situation on 31/12. A 48-hour loan given to a collaborating client can inflate the asset base on the crucial date. This misrepresentation is only mildly ameliorated by the introduction of an "average assets" calculus. Moreover, some of the assets can be interest earning and performing – others, non-performing. The maturity distribution of the assets is also of prime importance. If most of the bank's assets can be withdrawn by its clients on a very short notice (on demand) – it can swiftly find itself in trouble with a run on its assets leading to insolvency. Another oft-used figure is the net income of the bank. It is important to distinguish interest income from non-interest income. In an open, sophisticated credit market, the income from interest differentials should be minimal and reflect the risk plus a reasonable component of income to the bank. But in many countries (Japan, Russia) the government subsidizes banks by lending to them money cheaply (through the Central Bank or through bonds). The banks then proceed to lend the cheap funds at exorbitant rates to their customers, thus reaping enormous interest income. In many countries the income from government securities is tax free, which represents another form of subsidy. A high income from interest is a sign of weakness, not of health, here today, gone tomorrow. The preferred indicator should be income from operations (fees, commissions and other charges). There are a few key ratios to observe. A relevant question is whether the bank is accredited with international banking agencies. These issue regulatory capital requirements and other mandatory ratiospliance with these demands is a minimum in the absence of which, the bank should be regarded as positively dangerous. The return on the bank's equity (ROE) is the net income divided by its average equity. The return on the bank's assets (ROA) is its net income divided by its average assets. The (tier 1 or total) capital divided by the bank's risk weighted assets – a measure of the bank's capital adequacy. Most banks follow the provisions of the Basel Accord as set by the Basel Committee of Bank Supervision (also known as the G10). This could be misleading because the Accord is ill equipped to deal with risks associated with emerging markets, where default rates of 33% and more are the norm. Finally, there is the common stock to total assets ratio. But ratios are not cure-alls. Inasmuch as the quantities that comprise them can be toyed with – they can be subject to manipulation and distortion. It is true that it is better to have high ratios than low ones. High ratios are indicative of a bank's underlying strength, reserves, and provisions and, therefore, of its ability to expand its business. A strong bank can also participate in various programs, offerings and auctions of the Central Bank or of the Ministry of Finance. The larger the share of the bank's earnings that is retained in the bank and not distributed as profits to its shareholders – the better these ratios and the bank's resilience to credit risks. Still, these ratios should be taken with more than a grain of salt. Not even the bank's profit margin (the ratio of net income to total income) or its asset utilization coefficient (the ratio of income to average assets) should be relied upon. They could be the result of hidden subsidies by the government and management misjudgement or understatement of credit risks. To elaborate on the last two points: A bank can borrow cheap money from the Central Bank (or pay low interest to its depositors and savers) and invest it in secure government bonds, earning a much higher interest income from the bonds' coupon payments. The end result: a rise in the bank's income and profitability due to a non-productive, non-lasting arbitrage operation. Otherwise, the bank's management can understate the amounts of bad loans carried on the bank's books, thus decreasing the necessary set-asides and increasing profitability. The financial statements of banks largely reflect the management's appraisal of the business. This has proven to be a poor guide. In the main financial results page of a bank's books, special attention should be paid to provisions for the devaluation of securities and to the unrealized difference in the currency position. This is especially true if the bank is holding a major part of the assets (in the form of financial investments or of loans) and the equity is invested in securities or in foreign exchange denominated instruments. Separately, a bank can be trading for its own position (the Nostro), either as a market maker or as a trader. The profit (or loss) on securities trading has to be discounted because it is conjectural and incidental to the bank's main activities: deposit taking and loan making. Most banks deposit some of their assets with other banks. This is normally considered to be a way of spreading the risk. But in highly volatile economies with sickly, underdeveloped financial sectors, all the institutions in the sector are likely to move in tandem (a highly correlated market). Cross deposits among banks only serve to increase the risk of the depositing bank (as the recent affair with Toko Bank in Russia and the banking crisis in South Korea have demonstrated). Further closer to the bottom line are the bank's operating expenses: salaries, depreciation, fixed or capital assets (real estate and equipment) and administrative expenses. The rule of thumb is: the higher these expenses, the weaker the bank. The great historian Toynbee once said that great civilizations collapse immediately after they bequeath to us the most impressive buildings. This is doubly true with banks. If you see a bank fervently engaged in the construction of palatial branches – stay away from it. Banks are risk arbitrageurs. They live off the mismatch between assets and liabilities. To the best of their ability, they try to second guess the markets and reduce such a mismatch by assuming part of the risks and by engaging in portfolio management. For this they charge fees and commissions, interest and profits – which constitute their sources of income. If any expertise is imputed to the banking system, it is risk management. Banks are supposed to adequately assess, control and minimize credit risks. They are required to implement credit rating mechanisms (credit analysis and value at risk – VAR - models), efficient and exclusive information-gathering systems, and to put in place the right lending policies and procedures. Just in case they misread the market risks and these turned into credit risks (which happens only too often), banks are supposed to put aside amounts of money which could realistically offset loans gone sour or future non-performing assets. These are the loan loss reserves and provisions. Loans are supposed to be constantly monitored, reclassified and charges made against them as applicable. If you see a bank with zero reclassifications, charge offs and recoveries – either the bank is lying through its teeth, or it is not taking the business of banking too seriously, or its management is no less than divine in its prescience. What is important to look at is the rate of provision for loan losses as a percentage of the loans outstanding. Then it should be compared to the percentage of non-performing loans out of the loans outstanding. If the two figures are out of kilter, either someone is pulling your leg – or the management is incompetent or lying to you. The first thing new owners of a bank do is, usually, improve the placed asset quality (a polite way of saying that they get rid of bad, non-performing loans, whether declared as such or not). They do this by classifying the loans. Most central banks in the world have in place regulations for loan classification and if acted upon, these yield rather more reliable results than any management's "appraisal", no matter how well intentioned. In some countries the Central Bank (or the Supervision of the Banks) forces banks to set aside provisions against loans at the highest risk categories, even if they are performing. This, by far, should be the preferable method. Of the two sides of the balance sheet, the assets side is the more critical. Within it, the interest earning assets deserve the greatest attention. What percentage of the loans is commercial and what percentage given to individuals? How many borrowers are there (risk diversification is inversely proportional to exposure to single or large borrowers)? How many of the transactions are with "related parties"? How much is in local currency and how much in foreign currencies (and in which)? A large exposure to foreign currency lending is not necessarily healthy. A sharp, unexpected devaluation could move a lot of the borrowers into non-performance and default and, thus, adversely affect the quality of the asset base. In which financial vehicles and instruments is the bank invested? How risky are they? And so on. No less important is the maturity structure of the assets. It is an integral part of the liquidity (risk) management of the bank. The crucial question is: what are the cash flows projected from the maturity dates of the different assets and liabilities – and how likely are they to materialize. A rough matching has to exist between the various maturities of the assets and the liabilities. The cash flows generated by the assets of the bank must be used to finance the cash flows resulting from the banks' liabilities. A distinction has to be made between stable and hot funds (the latter in constant pursuit of higher yields). Liquidity indicators and alerts have to be set in place and calculated a few times daily. Gaps (especially in the short term category) between the bank's assets and its liabilities are a very worrisome sign. But the bank's macroeconomic environment is as important to the determination of its financial health and of its creditworthiness as any ratio or micro-analysis. The state of the financial markets sometimes has a larger bearing on the bank's soundness than other factors. A fine example is the effect that interest rates or a devaluation have on a bank's profitability and capitalization. The implied (not to mention the explicit) support of the authorities, of other banks and of investors (domestic as well as international) sets the psychological background to any future developments. This is only too logical. In an unstable financial environment, knock-on effects are more likely. Banks deposit money with other banks on a security basis. Still, the value of securities and collaterals is as good as their liquidity and as the market itself. The very ability to do business (for instance, in the syndicated loan market) is influenced by the larger picture. Falling equity markets herald trading losses and loss of income from trading operations and so on. Perhaps the single most important factor is the general level of interest rates in the economy. It determines the present value of foreign exchange and local currency denominated government debt. It influences the balance between realized and unrealized losses on longer-term (commercial or other) paper. One of the most important liquidity generation instruments is the repurchase agreement (repo). Banks sell their portfolios of government debt with an obligation to buy it back at a later date. If interest rates shoot up – the losses on these repos can trigger margin calls (demands to immediately pay the losses or else materialize them by buying the securities back). Margin calls are a drain on liquidity. Thus, in an environment of rising interest rates, repos could absorb liquidity from the banks, deflate rather than inflate. The same principle applies to leverage investment vehicles used by the bank to improve the returns of its securities trading operations. High interest rates here can have an even more painful outcome. As liquidity is crunched, the banks are forced to materialize their trading losses. This is bound to put added pressure on the prices of financial assets, trigger more margin calls and squeeze liquidity further. It is a vicious circle of a monstrous momentum once commenced. But high interest rates, as we mentioned, also strain the asset side of the balance sheet by applying pressure to borrowers. The same goes for a devaluation. Liabilities connected to foreign exchange grow with a devaluation with no (immediate) corresponding increase in local prices to compensate the borrower. Market risk is thus rapidly transformed to credit risk. Borrowers default on their obligations. Loan loss provisions need to be increased, eating into the bank's liquidity (and profitability) even further. Banks are then tempted to play with their reserve coverage levels in order to increase their reported profits and this, in turn, raises a real concern regarding the adequacy of the levels of loan loss reserves. Only an increase in the equity base can then assuage the (justified) fears of the market but such an increase can come only through foreign investment, in most cases. And foreign investment is usually a last resort, pariah, solution (see Southeast Asia and the Czech Republic for fresh examples in an endless supply of them. Japan and China are, probably, next). In the past, the thinking was that some of the risk could be ameliorated by hedging in forward markets (=by selling it to willing risk buyers). But a hedge is only as good as the counterparty that provides it and in a market besieged by knock-on insolvencies, the comfort is dubious. In most emerging markets, for instance, there are no natural sellers of foreign exchange (companies prefer to hoard the stuff). So forwards are considered to be a variety of gambling with a default in case of substantial losses a very plausible way out. Banks depend on lending for their survival. The lending base, in turn, depends on the quality of lending opportunities. In high-risk markets, this depends on the possibility of connected lending and on the quality of the collaterals offered by the borrowers. Whether the borrowers have qualitative collaterals to offer is a direct outcome of the liquidity of the market and on how they use the proceeds of the lending. These two elements are intimately linked with the banking system. Hence the penultimate vicious circle: where no functioning and professional banking system exists – no good borrowers will emerge.

         
    Is refinancing worth it

     

    Refinancing can be worthwhile but is not suitable for everyone, as a general rule of the thumb refinancing can be worthwhile if the current interest rate on your mortgage is at least 2% higher then that of the current market rate. The 2% figure is generally accepted as the safe margin when balancing the costs of refinancing a mortgage against the savings. There are many further considerations to take into account, such as how long you plan to stay resident in the property. Most sources and lenders say that it takes at least three to four years to realize fully the savings from a lower interest rate, given the possible costs of refinancing your property. Refinancing can be suitable for those who want to take advantage of lower interest rates rather then facing mounting interest costs from a higher rate, the fees from refinancing will phase out over a longer time span which is why this is suitable for persons looking to spend more then 5 years at their current property. Building equity is also another benefit from converting to a loan with a shorter term. If refinancing does not seem the option to choose then why not speak to a lender who may agree to change the terms on the loan or to apply new terms.

         
    Juggling retirement and college savings

     

    Most parents want to pay for their children’s college education, or at the very least help pay for college. While it would be great for your children to be able to start like after college without student loans to pay off, the cost to parents may be too high. The average annual cost of a 4-year public college is $12,127 (source: The College Board’s Annual Survey of Colleges, 2005-2006), with 4-year private schools averaging $29,026 a year. College costs have been outpacing inflation by rising over 5% per year. On the other hand, saving for retirement has become even more important as companies have started freezing or eliminating pension plans, and the future of Social Security continues to be uncertain. Paying for both college and retirement will be challenging for most parents. Here are some suggestions to help you to achieve both goals: • Have a plan. You should determine how much you will need for retirement and how much you anticipate your children will need for college. • Start saving as soon as possible. Time is your greatest ally, whatever your savings goal. Figure out how much you are able to save each month, and setup an automatic plan as soon as possible. • Prioritize – if you can’t afford to save for both goals, retirement should take priority over saving for college. Your children can always borrow for college or earn scholarships; you can not borrow money for retirement. • Save for both. Ideally, you’d like to be able to save for both goals at the same time. If you’re able to, allocate money to both goals. You may wish to visit with a financial planner to determine how much should be allocated to each goal. • Research – there are several different types of college savings accounts available. Find out which type of account will benefit you the most before you invest. • Use retirement accounts to save for retirement and college. Retirement accounts can be tapped into to help pay college bills (IRA withdrawals can be taken penalty free for college expenses; Roth IRA contributions can be taken penalty and tax-free). However, you should only do this if it will not sacrifice your retirement savings. The bottom line to getting the most out of your savings - prioritize your savings goals, have a plan in place, and start early.

         
    Just fill survey and get paid cash it is that simple

     

    Fill survey and get paid cash: many of us are wondering if it really can be that simple. Actually, it is just that simple! You can get paid money for simply filling out a survey. Getting money for filling out a questionnaire is not a new concept. In fact it has been around for many years. Recently with the introduction of the Internet survey companies have started incorporating online surveys as part of their market research. To earn money for complete a survey you are basically agreeing to be one of the statistics that a company is going to use for their own purposes. There are a variety of reasons for companies to use paid surveys to gather their market research, but the biggest reason is the variety of survey responses they will get. To earn a survey pay day, you need to be registered with an online company that can match you up with paying surveys. There are a variety of ways to earn money through this type of system. But the easiest way is to find someone else who is earning money for filling out surveys and ask them to recommend a company you could work through. If you work hard, it is possible to earn a high level of pay as a full-time survey taker. After you have found a good company to work with, then it is your responsibility to register with all the individual companies that need survey takers. This process should never cost you money, but it can take up a lot of your time. You need to register with all the individual companies that you would like to receive surveys from in order to get a cash paid survey. Once you have registered with the individual companies, they will begin sending you surveys to start filling out for money. Simply respond to all the questions on the survey and follow all the directions and you will get paid. It is really as simple as that! After you have filled out a few surveys, you may start to get a feel for it and actually want to work more. It is easy to increase your survey workload and start earning some really good money. Just add one or two more surveys a day to your regular routine until you have reached the amount of money you are happy with. Many people also find they can earn good money referring other people to the survey website that they are using. Most survey companies pay very well for their referrals. Referrals are also the best way for you to learn about other good paying survey companies. Paid surveys are real and they are available to anybody that is willing to take the time to fill them out. If you are dedicated to making money doing online surveys, then you will be able to make money. The more dedicated you are the more money you can make! It really is just as simple as that.

         
    Keeping up with the family finances

     

    Staying on top of the family finances does not have to be difficult. With a little planning, your finances can be kept up to date with ease. Believe me, having a handle on your family finances goes a long way in creating family harmony. The first step is to set up a bookkeeping system. We’ve used Quicken software for years. It has helped to keep track of our expenses, and we have been very happy with the program. It takes a little bit of time to set up initially. The second part of your bookkeeping system involves setting up a place to save your receipts. We use a small cardboard divider file with a special slot devoted to “receipts that need to be posted”. The key idea here is to have a place where you store all receipts from expenses (including ATM withdrawals) so that they are readily available when you go to enter them into your bookkeeping software. Once you have the system set up, then you simply enter your receipts, whether income or expenses. As you enter each item, you select a category for it to go into. Reconciling your account is done online. One of the greatest advantages in using an automated system like this is the ability to see your expenses by category. With the click of a button, you can find out what you spent on groceries, entertainment or any other category for any time period, like last week, last month, or the last quarter. Many other reports are available such as a cash flow report and an itemized categories report. Using this system has streamlined our ability to keep our account updated. Bills are easily paid on time. Once you’ve established your bookkeeping system, then you must set aside time on a regular basis to update it. For our family, we’ve found that a weekly update works well. My husband and I alternate weekly turns on posting receipts and then reconciling our account. It never takes us more than 30 minutes at a time and our account is always balanced. If you are behind in your finances, start by doing just 15 minutes at a time. You’ll catch up eventually. Then, be sure to make time on a regular basis to keep up with your account. Having your finances in order is a real stress reliever and can be attained by anyone!

         
    Kill bills

     

    : Get Rid of Some "Extras" The key to financial freedom is building wealth. The key to building wealth is eliminating all your extra bills so you have money to save. The average consumer's credit report carries quite a burden from these bills as well. Let's start with what hurts the most. Eliminate any habits you currently have. Most habits cost money and if it's a habit it can't be healthy for you in the long run anyway.

    Smoking, drinking, candy, coffee, collecting junk, etc. You will be surprised how much cash you pocket if you just quit 1 or 2 of the above (if any apply of course). By giving up a habit you are not only saving money and maybe even your health, but you are also gaining self-discipline helping you mature financially. Food: Dine In or Carry Out Let's look at the two separately AND together. If you eat out once a week, even at $25 you are spending $100 a month. Pretty simple math. Let's say you get carry-out (drive-thru) 3 times a week at $5 per visit. This equals $60 a month. These figures are below average, but even so, this is $160 in 1 month that could be used to eliminate some smelly debt. Pack a lunch for work. Try cooking at home. It's a fraction of the cost, it tastes better than "fast food" and it is usually healthier. If you can't eliminate eating out then try cutting it in half for starters. Grocery List (or lack thereof) Many consumers head to the grocery store with no plan or list. BIG mistake. This is what grocery stores are designed for. Go ahead, walk down each aisle and tempt yourself with row after row, shelf after shelf of junk food, extra stuff that you don't need. A list could save you 50% alone - that much more to wipe out those irritating loan payments. A grocery list serves two purposes. It saves you quite a bit of money which you notice immediately. Secondly, it allows you to be more prepared for the upcoming week, month or however often you shop. You can make out a daily meal plan ahead of time so you know exactly what you need to purchase and approximately how much cash you will need. Sell Some Stuff Everyone has stuff lying around collecting dust. Remember the saying "One man's trash is another man's treasure."? You could probably knock out a couple of stagnate bills with some of those collectibles sitting in a box in the closet. You would be surprised to know that an object you have absolutely no interest in could sell on an auction site and pay off that hospital bill that's been chasing you around like a mad hornet. Cash, Cash, Cash Only buy with cash. Plastic looks the same when you spend it. Dollar bills disappear and you will feel the impact when you start to get a shortage of it. Start a cash envelope system - at least one for gas, food and clothing. Like any new system, it will take a few times before you get the right amount in the envelopes. You will start to notice a large impact on your budget though and will find it worth while. If you buy something with cash you don't owe on it. You might think a little longer about it too when you hold on to that $100 bill. If you apply the various techniques and ideas in this article you will start to knock chunks off your overall debt. This will get you closer to achieving financial freedom and your credit report will begin the long awaited healing process. Start today! To read more about how you can get your online credit report free with no obligations, see what is on your file and clean up your credit report go to cleancreditonline

         
    Learning the value of money

     

    This article describes how my father taught me the value of money and at the same time also showed me how to reach and attain the goals I had in my life. I have a friend called Peter and for his seventeenth birthday his parents bought him a very impressive car which would have cost them around Ј2000. He was very happy and showed off this car to all of his friends including myself. At this stage he was unable to even drive, however it was still a great present to receive. Peter lived a couple of doors away from me and I showed my father the car and stated that I would love a car for my seventeenth birthday which was only three weeks away. He responded with words like, I bet you would. Despite this remark I felt sure that he would purchase a car for me as he certainly could have afforded to, in my opinion anyway. My birthday arrived but no car was presented to me, the main present I received was a pair of trainers. I must admit even though I now feel embarrassed to say it, that I was quite disappointed. Around eight months later, I managed to pass my driving test and my father was very pleased and congratulated me on my success. I told him that I was very happy, however, what was the point of passing my test if I had no car to drive. He seemed to agree but two months later he still had not bought me a car. It was now nearing my eighteenth birthday and my father asked me what I would like for my birthday. He explained that your eighteenth is a special birthday and that he would be spending slightly more on me this year. I told him that I would like a car and he started laughing. Despit this I felt sure that he would oblige. My birthday arrived and yet again no car, the main present I received was a watch, a very nice watch I must add but again I was disappointed. I waited a further two months and then decided to use the head on approach. I went to talk to my father and told him that I needed a car. He agreed so I asked him, so what are we going to do then? If you want a car, go and buy a car, he responded. I pointed out to him that I was spending per week more than I was earning, socialising, buying clothes etc. He stated that I really wanted a car that I would make sacrifices to get it but also stated that whatever I saved he would match. This very much annoyed me at the time, but something I am now grateful for as it has taught me that if you want something, you have to work hard and make sacrifices to obtain it.

         
    Little steps can add up to big savings at the pump

     

    Everyone is looking for ways to reduce "gas pains" from high fuel costs. There are some easy things you can do to put yourself on the road to gas economy. • Light on the Pedal-Ease on the accelerator when you start from a red light. Your car will run leaner and won't use as much gas. On the highway, run about five miles under the posted speed limit to save. • Crank the A/C-It used to be true that not using the air-conditioning (A/C) in warmer months would save on fuel economy. That's not true anymore. With the aerodynamics of today's vehicles, by turning off the A/C the resistance created by the wind causes more drag on the vehicle when the windows are rolled down. • Use the Right Fuel-Never use a higher octane gasoline than your engine needs. It's like trying to put 16 ounces of fluid into a 12 ounce glass. Use the right octane and you can save about a dime or more per gallon at each fill-up. • Keep Up the Pressure-Make sure you have the correct pressure in each of your tires. With too little air in the tires, the friction that it takes to roll the car is much greater, thus reducing fuel economy. • Keep It Clean-Keep your engine clean of debris by changing its oil and fuel filter. • Get It In Gear-Most modern transmissions are electronically operated by controllers. Transmission fluid that's broken down may keep your car from going into its highest gear. Have the transmission fluid changed in the 36,000 to 50,000 mile range. • Stir It Up-There are lots of different gadgets on the market that claim to increase fuel economy. In all of our testing, we have virtually found no improvement in anything, with one exception. It is a device called Tornado that's put into the air intake, closest to the throttle plate, and stimulates the air to get it really turbulent. That causes a good fuel atomization within the engine itself that caused an increase in fuel economy in the applications we tested by an average of one to two miles per gallon. With gas prices over $2 and approaching the $3 mark, if you can save one or two miles per gallon every time you fill up, that can translate to about $300 or $400 of savings per year under normal driving conditions. I think everybody's interested in that.

         
    Living cheap

     

    : Does living cheap mean being miserable, or giving up what you want? Not at all. In my own case, it meant getting the things I really wanted. Spend less on each thing or activity, and you can have more of them, right? The key is to spend less and still get what you need and want. I'll tell you how I managed it. Living Cheap - Housing The first house I owned was a mobile home on a small lot. I paid less than $20,000, and had payments of $257 per month. With taxes, insurance and repairs, it still cost less than rent. With three bedrooms, an expanded living room, and a nice fenced-in yard, it was very comfortable. Eventually I sold it for $45,000. Two things that I did made it even cheaper. First, I paid down the mortgage as much as I could when I was working. Within five years I owed nothing, and from that point on it cost an average of $300 per month to pay for the utilities, phone, garbage collection, taxes, insurance, and repairs. This is living cheap. It became even cheaper when I found that I could easily rent the other two bedrooms. I got $65 per week for one, and $75 or more per week for the other, and I included all utilities. I found decent young guys to rent to, and the rents added up to $600 per month, making this more than cheap living, and even better than free housing. I was making $300 per month AND living for free. Living Cheap - Think And Plan With lower expenses I could work less, so I could get by without a car. This saved even more money. An occasional bus fare, and the used bicycle I bought didn't add up to a fourth of what it cost to have a car. I needed to plan my trips around town a little better, but it was worth it. Until I was almost 40, I never paid more than $40 for a piece of furniture. You have to know what is important to you. I DID pay $220 for a high-tech sleeping bag, because ultralight backpacking was important to me. On the other hand, since I couldn't tell the difference between a nice, clean used couch for $30 and one that cost $900, I bought the former. I found that when I worked less, I had time to more carefully consider my options. Time can save a lot of money. I paid half of what others paid for groceries, and when I did get a car, I found a repossessed one worth much more than what I paid. When I went to Ecuador for a month, it cost $1,040, including airfare, hotels, meals, a guided climb up a 21,000-foot mountain - everything. It was possible because I had time to search for the deals. I never cared much for jobs, and I worked only part-time for years. I played chess, wrote poetry, and read good books. I traveled several times a year. I met the love of my life in South America (happily married for almost 5 years now). This was all possible not because I made a lot of money, but because I spent less than I made, and used the difference for the things that mattered to me. This article isn't meant as a how-to guide. I explain how I traveled and bought things so cheaply in many other articles. This is simply to get you thinking about the possibilities, and to point out some principles. What are the principles? Find ways to pay less without getting less. Don't buy things you don't need. Spend a less time working and more time thinking. Stay out of debt. Finally, know what is truly important to you, because this is what you can have more of by living cheap.

         
    Living debt free

     

    Do you dream of living without the burden of excessive debt hanging over your head? It’s possible, but not easy. Living debt free requires financial discipline, all the time. To become debt free and maintain a debt free life, try the following three steps: 1. Get rid of existing debt. This is obviously your first step to living a debt free lifestyle. Cut up any credit cards that you currently have in your wallet, purse, or desk drawer and do not apply for or accept any other cards. Pay your bills on time, sending as much as possible to one account while paying the minimum due on all of your other accounts until the account is paid off. Do this until all of your debt has been paid off. 2. Create a budget. Every single person who lives without debt has a financial budget and follows it. Without budgeting for expenses and incidentals, people overspend on unnecessary items and then when things just “happen” unexpectedly, (otherwise known as unplanned for expenses) these individuals rely on credit cards to make ends meet. Make a list of every monthly expense you can think of. Then, make another list of every incidental expense that you pay throughout the year but not necessarily on a monthly basis. If you usually get 3 oil changes a year at $20 a piece, you need to plan for $60 a year for oil changes, which is the equivalent of $5 per month. Once you have a comprehensive list, subtract your total monthly expenses from your total monthly income and see what is left over. Be sure you include savings accounts in your “expenses”. Pay yourself first is a good rule to live by. If there is still money left over, congratulations! Use it to pay more on each individual account until everything is fully paid off, or invest in IRA, 401K’s, or even a money market account with high interest rates to help your money earn more money. 3. Avoid credit like the plague. Make all of your purchases with cash and you will never fall into the debt trap again. Manage Your Money As you are starting the process to a debt free life, you should be extremely mindful as to where your money is going. It’s important that you track your spending habits for a period of time in order to see where money is being wasted, or where you can cut costs without completely changing your lifestyle. Keep a notebook where you list every single item you purchase, including the amount you paid, where you purchased it, and the reason. Include all bills that were paid, how much you paid, and how much you still owe. After a few months of tracking your spending habits, you will be able to determine exactly where all of your money is going, and you may be surprised at how much your little purchases are adding up and eating away at money you could be using to pay off debt to enjoy a debt free lifestyle! That cup of coffee you grab every morning on the way to work could be costing you $10 or more each week - about $40 per month, and brewing your own coffee at home could save you considerably since you can purchase a can of coffee for about $4 and it will last you about a month! How to Remain Debt Free after Recovery One of the biggest mistakes people make after making a financial recovery is to allow themselves to fall back into old habits. Before they know it, they’ve racked up another few thousand in credit bills, and they’re heading down the same path to having a desperate situation where they just can’t make their payments on time each month. You do not need to have credit cards in your wallet. Yes, it is a very odd feeling to go from having several cards available to you to none, but it is the safest way to avoid overspending. You may want to keep one credit card in a safe place in your home, for purchases that do require a credit card. Think long and hard before using the card, and if it is possible to buy it with cash, than do that instead. A credit card should not be used for every purchase, nor should it be used when you want to buy something unnecessary that you don’t have enough cash to purchase. If you want a luxury item, save your money until you can buy it - if after several months of saving you decide you don’t need it, then you’ve saved the money on an item you previously may have purchased on a credit card, discovered you didn’t really need or want it, and then had to pay back three to four times what the item is worth after all the interest and finance charges were added!

         
     
         
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