[Update - August 7th 2009] - An extension to the the much debated and hugely popular cash for clunkers - CARS - program gained Senate approval today, which clears the way for a vote later this week. President Obama has indicated that he will sign-off on the $2 billion extension, giving eager car buyers until Labor Day to cash in on rebates up to $4,500 for trading in their gas-guzzlers for new, higher-mileage models. Senate Majority Leader Harry Reid declared he had the votes to pass a $2 billion “cash for clunkers” measure already approved by the House. It would replenish the all-but-exhausted $1 billion program and provide rebates for up to a half-million more Americans in the next month. Despite reservations, Reid’s GOP counterpart, Mitch McConnell of Kentucky, predicted his party would not block a vote and “the matter will be completed.

The required approvals mean that there would be no interruption in the CARS program that has sent buyers streaming into formerly deserted auto showrooms and providing a much need boost to local and foreign automakers. There have been some rumors of dealers recalling cars sold under the program, but these are just rumors with 85% of dealers particpating in the CARS program.

-------

The U.S. government’s $1 billion “cash for clunkers” - CARS program looks to have run out of money after just one month as demand for the program has far exceeded expectations. However, in an emergency session the House of Representatives approved a funding measure to allocate another $2 billion (from the from the $787 billion stimulus plan) to fund the program. It will now go to the Senate for approval next week.

The CARS program provides as much as $4,500 toward the purchase of a new car when an older, less fuel-efficient, vehicle is turned in. Officials said that all existing vouchers issued until today (7/31) will be honored, but conceded that the additional funding is needed to keep the program going.

** Take advantage of the CARs program quickly before it really does get suspended by Getting your best new car quote from Yahoo! Autos first **

Lawmakers had expected the program to generate about 250,000 vehicle sales and to have enough money to last until about Nov. 1.

“Any doubt that the CARS program would jump-start auto sales is completely erased,” said Greg Martin, a General Motors Co. spokesman to Bloomberg. “More than 200,000 cleaner, more fuel-efficient cars are on the road and a vital industry gets a needed boost. We hope there’s a will and way to keep the CARS program going a little bit longer.”

“We had a lot of good feedback from dealers as far as how much traffic they had as a result of this program,” said Greg Thome, a spokesman for Toyota Motor Corp. “Everybody is surprised that the popularity was that immediate.”

Charles Cyrill, a spokesman for the National Automobile Dealers Association, said, “If the program is indeed suspended, NADA will continue to work with the Department of Transportation to emphasize the importance that every dealer is reimbursed for a valid deal.”

The Transportation Department had said earlier this week that the money wasn’t running out. “When we get close, we will start alerting dealers so they don’t get caught with a deal in the pipeline,” said Rae Tyson, a department spokesman, in an interview July 28. “We’re not going to leave them hanging. We’re not going to run out of money in a couple days.” [Clearly not true given the recent house actions for emergency funding!]

The administration’s reports on clunkers applications from dealers didn’t indicate that the funds were near exhaustion. The National Highway Traffic Safety Administration, which is running the program, said yesterday that 22,782 vehicles worth $95.9 million had been sold. However, this number looks to be hugely understated according to various officials. “This was a very successful program, maybe even too successful,” Senator Charles Schumer, a New York Democrat, said yesterday in a statement. “The program should continue, but perhaps with a tune-up so that we get the most stimulus, conservation and efficiency for the buck.”

See this Article for all the details and qualifications on the Cash for Clunkers Program, plus other government funded auto incentives. I will update this article once the additional funding is approved and encourage you to subscribe (free) via Email or RSS to get the latest news.

Related:

~ New Car Stimulus Deduction
~ Key Dates for Stimulus Payments
~ Car Repairs & 5 Tips to Avoid Getting Ripped Off
~ Tips on saving money when buying a new car
~ US Automakers Bailout - A Bridge to Bankruptcy or a Road to Salvation

Read More...

[Update Oct 15 2009] The IRS has just announced that cost-of-living adjustments for pension plans and other retirement plans for tax year 2010 will remain unchanged. This is good news for many who had feared that the limits would be reduced. Each year in October these limits are adjusted according to a formula based on the inflation rate in the third quarter vs. the previous year's quarter.

What this means for your 401K and other Retirement Plans: The maximum amount an employee can contribute to a 401(k) in 2010 will remain at $16,500 and for individuals over the age of 50, their catch-up contribution will remain unchanged at $5,500 (see table). The Federal government’s Thrift Savings Plan and other retirement-savings plans - like Individual IRA's and 403(b) plans - are subject to the same limits.

According to a recent survey of more than 550,000 401(k) accounts, very few Americans are actually saving the maximum allowable per year. Only 7% of workers with a 401(k) plan came within $500 of contributing the maximum allowed by the IRS or their plan limit and that on average, retirement plan participants contribute 6.8% percent of their salaries on a pre-tax basis.

Subscribe (free) via RSS or Email to get further updates and many other useful personal finance and investing articles.

------------
Many workers have failed to take advantage of higher limits in 401K plans over the last few years. Not surprising given the stock market crash of the year past, which meant that the last thing people probably wanted to look at and deal with was their 401K retirement accounts. However, investing via your employer sponsored 401K or Individual retirement plan (IRA) is still your best form of automatic long term investing thanks to the tax deductions, employer matches and the benefits of compounding. Even fractionally increasing your 401K contributions can lead to significantly higher retirement savings down the road.

More on the 401K limits and contribution rules

The 401k contribution limit jumped up to $16,500 as of January 1st, 2009 (which is unchanged in 2010). That’s a $1000 (6.5%) jump from the $15,500 limit in 2008. Your 401k maximum contribution limit — the combined total maximum contribution that you can make each year to ALL 401k plans in which you participate, including standard 401k plans and Roth 401k plans — is the lower of: (1) the maximum percentage contribution limit allowed under each of your employers' plans, or (2) the dollar limits shown in the table above. For example, if your employer's 401k plan allows you to contribute up to a maximum of 10% of your salary, and you earn $50,000, your maximum contribution limit is $5,000, not the $16,500 contribution limit in 2009 that applies only to higher-paid employees

The matching contributions made by your employer are NOT counted toward your 401k contribution limits. Even if you contribute the maximum amount each year, your employer's matching contributions are in addition to these 401k limits.

Catch up Contribution Limits for those 50+ has also increased

If you are age 50 or older and your employer allows it, you are also be eligible to make "catch-up 401k contributions" in addition to your regular 401k limits. These catch up contribution limits have also increased to a total of $5,500 which brings the 2009/2010 maximum 401K contribution limit to $22,000 for those over 50. For all those people who feel that they do not have enough of a retirement nest egg, this higher contribution gives them a great tax free opportunity to catch up.

Next Steps

With the stock market in recovery, investing now could be the best decision for many if 2009 was indeed the bottom of the market - see Morningstar.com for a list of the best performing funds. To increase your contribution you normally need to contact your payroll/benefits department or your 401K administrator (like Vanguard, Fidelity etc), and make sure you have the right asset allocation for your age. If you cannot afford to contribute up to the maximum, then try to at least contribute up to your available employer match.

Related Posts
~ New Roth IRA Conversion Rules and Contribution Limits
~ Thinking of Reducing my 401K Contributions
~ Debit Cards linked to your 401(k)! Danger ahead
~ Taxes and my Paycheck
~ A new and more useful Social Security benefits calculator

Read More...

I recently went to a ball game in my hometown and had a great time watching the local team win. However one thing I have noticed for the longest time is the rising price of things sold at the ball games and I am sure at many other sporting events. From food to ticket prices to souvenirs, prices are rising much faster than the price of inflation. All this combines to make a family trip to the ball game an expensive proposition indeed.

I understand that you will always pay a premium for things at ball park or sporting stadium, because owners have a limited window (ie during game time/season) to make a profit. They are also able to charge these high prices thanks to a captive audience with few outside choices and a general feeling of "goodness" when at a game. Most people accept that this is just part of the cost of going to a ball game and helping the local team with (paying those exorbitant) player salaries.

This pricing nirvana for club owners has been going on for a long time and I can assure you that despite tough economic times, they take advantage of any price increases they can pass through. However, there are ways that you can save money at ball games or any sporting event with some of the following actions:

1. Take your own food. This may be considered by some as the cheapskate option, but paying $50 for food, drinks and candy for a small family versus about $15 if I take it from home is a no-brainer saving in my mind. You are limited to what you can take to a number of ball parks/stadiums but most don't have problems if you take packaged products for individual use. If they question you when going it, just say you have allergies to [insert name of processed food] they sell at the game. This gets you in most of time because they don't want to deal with a potential medical condition.

2. Eat before you arrive. Especially with kids, who are the most impulsive. This is a pretty obvious money saver, but one that most people forget. By eating at home or a restaurant near the ball park you can save a lot of money by not having your entire meal or impulse buys at the ballpark. Best of all if you combine this with the previous point, you don't have to stand in the long concession stand lines and can spend more time watching the game.

3. Buy tickets at the gate. This only works for non-marquee games that don't sell out beforehand (check your teams website to get ticket status'). I have found that when you buy the ticket at the game you avoid paying ticketing transaction fees and on a number of occasions they are cheaper than the regular pre-game price. You can also buy tickets from scalpers, but do this at your own risk and something I would avoid unless you desperately want tickets.

4. Do not buy souvenirs at the game - Wait till the end or off season or buy them on-line. Patience and control is the key behind this money saving tip. That sporting jersey you see and love at the game will most likely be half price nearing the end of or after the season - particularly if the team is not doing well. If you must have the item, then don't buy it at the ball game. Go online and I can almost guarantee that you will find if for a much cheaper price.

5. Look for game day coupons in your local newspaper or publication. Also, coupon books like the Entertainment book often have discounted tickets for various sporting events. If you plan ahead you can take advantage of these coupons often getting up to 50% off ticket prices, thanks to 2 -for-1 type deals.

6. Negotiate. If things are slow or it is getting close to the end of game time when everyone is leaving, you can get some good deals on food, souvenirs or even tickets for future games. Just make sure you ask and if you can pay in cash, vendors are always willing to bargain.

7. Have a supporter pot luck game day. Okay, this kind off defeats the purpose of going to the game. But at the end of the day most people go to the game or sporting event for the atmosphere. So if you can get a group of people together who love the sport/team you can recreate a bit of the ball park atmosphere without the expensive prices. Works especially well for marquee events like the Super Bowl where just getting tickets is nigh near impossible.

8. Buy cheap seats and move to better ones when at the game. Only works for games that don't sell out and is definitely a cheap skate move. However for less marquee games or early in the season, this option means you could end up effectively getting premium seats at discounted (cheap seat) prices.

9. Join a sporting club or professional association, because they often get discounted tickets by being bulk buyers. For example many junior league baseball teams get cheaper tickets to pro-games and have a number of promotional days where 2-for-1 ticket deals are available.

10. Parking near the ball park or stadium on game day is expensive with costs ranging from $10 to $30 for just a few hours in the garage (and you have to deal with all the traffic when leaving). If driving try to find free curbside parking, even if you have to walk a few extra blocks. I've found that with a few minutes of research on Google maps, you can easily scope out an area near the sporting venue and find free street or much cheaper garage parking options. Public transport is always a good option as well, though not always as practical if you are taking your whole family.

Feel free to share any other ideas you have. After all, saving money and enjoying a good ball game can make for a great Sunday afternoon.

Other posts you might enjoy:
~ 5 Steps to Take Now in Preparation for Double Digit Inflation
~ Shopping Effectively
~ How to deal with higher taxes
~ Before Buying Stocks: Your Pre-Investing Checklist
~ 10 ways to Quickly Improve Cash Flow by Saving Money and Creating Passive Investment Income
~ Where to Invest $50,000 - Stocks, Gold or Real Estate

Carnival Time: I also had a couple of my posts featured in the recent Carnival or Personal Finance and Festival of Frugality. Thanks to the hosts for running such great blog events and make sure you check them out.

Read More...

CBS news reports that according to a recent journal article published in the Proceedings of the National Academy of Sciences, it is possible to use publicly available data on state and date of birth to predict someone's Social Security number, particularly if they were born after 1988 and in smaller states. The ability to use statistic inference to predict the sensitive data exposes the Social Security numbers to identity fraud risks on "mass scales," the article said.

Social Security numbers "were designed as identifiers at a time when personal computers and identity theft were unthinkable; today, abused as authentication devices, they enable an 'architecture of vulnerability,' in which losses are incurred even in absence of fraud, because of costs caused by attempts to defend, and exploit, the system," the article concluded.

The researchers from Carnegie Mellon University analyzed Social Security numbers of people who have died to detect statistical patterns in the assignment of numbers. They were then able to use those patterns to predict a range of values likely to include a living person's Social Security number. Birth data, meanwhile, can be inferred from data brokers, voter registration lists, online white pages, and social-networking profiles, the report said.

The researchers identified in a single attempt the first five Social Security digits for 44 percent of the records of the people listed as dead from 1989 to 2003 and the complete Social Security numbers in fewer than 1,000 attempts for 8.5 percent of those records. On average, the researchers matched on the first attempt the first five digits for 7 percent of all records for people born nationwide between 1973 and 1988!

"Extrapolating to the U.S. living population, this would imply the potential identification of millions of SSNs for individuals whose birth data were available," the article says.

How to Monitor and Protect your Identity

Fortunately, there are many services available to help protect your identity when you are offline and online. I like to keep an inexpensive home office paper shredder in my study and any paper trash that has my name, address and/or social security number is shredded. As an added measure to avoid reassemblers, I keep two recycling boxes in my office which I use to divide the shredded document and put out the boxes on alternate weeks.

From on online perspective, I like to use the free government service - annnalcreditreport.com - to check my credit reports and myFICO (the original company behind the FICO score system) to monitor my FICO score. Other leading online identity monitoring and protection services include:

- LifeLock: a leading proactive identify protection service with regular monitoring and alerts for suspicious activity. You've probably see the ads with their CEO publicly displaying his social security number and I know a number of people who have signed up with them have had positive feedback to date. Their biggest selling point is their $1 Million Guarantee, but like any service always weigh up the monthly cost versus what level of protection (insurance) you want

- Equifax's Credit Gold 3-in-1 Watch allows you to monitor all 3 of your nationwide credit reports by alerting you within 24 hours of key changes. It is one of the most comprehensive packages currently available for less than 50c a day.

At the end of the day, you need to be careful with your sensitive documents and a few extra added measures - online and offline - can ensure you identify is as safe as possible.

Related
~ Will there be More Stimulus Checks, Social Security Payments and Tax Credits in 2010, 2011
~ Are you using these 10 online financial security measures?
~ 10 things to know about your Credit Score

Read More...

I remember as a kid, my brother and I used to exchange IOUs (I owe you) for favors owed. In most cases this was for some form of candy or an exchange to do assigned chores around the home. Because we had no money, the IOU's provided the exchange platform for barter. Of course after we got older and had real money this concept became outdated, with this "kids" exchange system left behind.

Well, looks like the once mighty state of California has now adopted this kid's play concept as the state faces huge budget deficits, forcing it to issue IOUs – which are officially called individual registered warrants - to many state vendors as it grows low on cash. The largest (and once richest) state in America as measured by GDP is up against a $24 billion deficit, after state leaders failed to agree on budget solutions. State Controller John Chiang said that without IOUs, California would be unable to pay its vendors and employees, since there is no cash left in the state coffers.

While California may be first state to start issuing IOUs instead of paying in cash, it will not be the last as many states combat looming budget deficits and tightening cash flows.

Can my state start issuing IOU’s?

Yes. There is a very reasonable chance that some of America’s largest states will begin to default on critical obligations including essential services and bond payments, as they run out of cash. California could be joined by Michigan, Florida, and New York as those states face similar problems balancing state budgets. However if the economy and unemployment get’s worse and state tax revenues continue to fall, then a majority of states could join the list of IOU issuers. There's already an active market for the Californian IOU’s (thanks to their 3.75% return) which can easily become a national market. We all know the bailed out, once again mega profitable investment banks will be on hand to facilitate this new market - for a nice fat cash fee off course.

The IOU issue has far-reaching consequences. The first of these is that many critical vendors may refuse to take IOUs, if they can afford to forgo the business. This will mean the state will have to pay an IOU premium to get vendor services, or end up with the worst and most desperate vendors for state services. There is also no guarantee that the IOUs will be paid, particularly if any of the struggling states are forced into some form of receivership.

The story for recipients of IOU's is just as troubling. Some of the firms being asked to take IOUs cannot continue to operate without cash flow. They cannot pay their employees or their operational expenses with promises from the state. Some of these firms may be forced to close. That will deprive states of their services and it will add to the rolls of the state’s unemployed which will pile another burden onto the growing heap of unemployment and social services. The IOU program becomes a vicious circle.

The federal government (via the US treasury) is already helping some states, but the government is already straining under the obligations of the US budget deficit and any help will only be temporary and not enough if the economy continues to deteriorate.

Can I start getting paid in IOUs!

Yes, but only if you are in some way performing vendor or non-employee services for the state government. In most states, laws bar paying state workers and retirees with anything other than real money. Public or Private companies still need to pay in cash. Retirees and those on disability benefits are also covered.

The federal Social Security Administration has notified California that it will continue to pay in full both the federal Supplemental Security Income (SSI) and the State Supplementary Payment (SSP). State officials will continue to work with the Social Security Administration to ensure California’s 1.2 million SSI/SSP recipients are not affected by IOUs.

Even if you do get paid in IOUs, many financial institutions will immediately exchange if for cash – for a fee and the interest payment due at maturity. This was the case when IOUs were required in 1992, and despite a worse financial situation, the short term return may make it a tempting option for those with lots of cash. At the end of the day, IOU’s should only be a short term fix and will force a state government to act to resolve the surrounding crisis. Unfortunately this will mean cutting a number of public services.

In the current economy, if you rely on the government for any form of payout, be wary of potentially getting IOU’s and the best way to prepare for the potential receipt of IOU' is to start building your cash reserves now. If you are a business owner, then try and diversify your client base to avoid relying on state or federal government work as your main source of revenue.

Related:

- Key Dates for Obama's Economic Stimulus Payments
- Obama's 2009 Robin Hood Health Care Reform Plan
- How Long will the Current Recession Last?
- Feds Beige Book Update and Commentary: Turbulence Ahead
- Things should get better by 2010
- Teaching Kids about Stocks and Investing
- What would happen to My Money if Citigroup or Bank of America were Nationalized

Read More...

We have all read about and surely experienced the ever increasing fees and charges that banks and other financial institutions charge us. In the US alone, $36 billion in bank fees were charged last year to consumers.

Late fees, loan-origination fees, over-the-limit and overdraft charges helped generate 53% of banking-industry income in 2008, up from 35% of income in 1995. The average bounced-check fee is $28.95, up about $1 from last year, says Bankrate.com. And it's a charge that rises every year. At $19 billion, credit-card penalties for late payments and over-limit charges were up 80% between 2003 and 2008.

While bank fees are not going to go away or lessen anytime soon, savvy consumers can avoid a number of these fees by being informed and shopping around for the best deals. Here are some of the more common bank fees/charges and tips to avoid them.

1. Monthly Account Keeping or Service Fee : The most common fee you pay for an organization to manage your bank account. Generally runs anywhere from $3 to $7 per month ($36 - $84 annually). However, you can search around and find ways to avoid this fee by finding a zero fee account or meeting some no-fee requirements like having a certain account balance or home loan with the bank. For example, I have a high yield savings account with HSBC that does not charge a monthly fee and offers a high rate of interest. I can also withdraw money for free from any ATM up to 5 times a month.

2. Internet Banking fee : A fee you may be charged for transacting over the internet (0.50c to $1 per transaction). If you are paying this, then choose another account or bank. Most banks do not charge a internet fee for transaction accounts, especially if you are already paying a monthly service fee. In fact banks are encouraging consumers to use the internet as it is the cheapest and highest returning channel for them. You may also enjoy additional rebates if you choose to receive your statements and manage all your transactions money online (I know Vanguard and other brokers do this).

3. ATM transaction fee : When using your ATM card, you may be charged a fee if you exceed the number of transactions nominated for a particular time frame (e.g. per month) or use an ATM from a different bank.The fee for this can range from $2 to $5. Again, this is an easy fee to avoid with some forward planning to use your own banks or partner ATM's. You can also select an account that allows some non-bank ATM usage or rebates you for any ATM fees incurred. There are plenty of options out there.

4. Currency Exchange Fee: One place banks rake in the money is in fees and charges related to currency related exchanges and transactions. Whether it charges for incoming or outgoing wires, travellers checks or ATM transactions, you will get charged a fee. Wire transfers range from $30 to 1% of the entire transaction, while so called "free" travellers checks fees are made up in the poor exchange rates you get. If you use an overseas ATM (or local ATM for non-US bank accounts), you may be charged $3.00 to $7.00 for withdrawals.

Avoiding foreign currency related fees is near impossible and from my experience in travelling overseas and using foreign savings accounts, the cheapest way to get money is to use an ATM withdrawal. You get the best exchange rate and even with the ATM fee, this is cheaper than any other currency exchange method out there.

5. Branch withdrawal fee : Dealing with a person face-to-face can sometimes cost you money ($5 - $10). This one is for those folks who like personalized service and are willing to pay for it. For most of us, we can avoid this by doing most of our banking on-line or via the telephone. If you do want the face-to-face interaction choose a bank account that provides a certain number of these interactions for free. I found credit unions and community banks to be the best in this department because of their lower overheads and more customer focused business model.

6. Overdraft or Insufficient funds fee: The fee you pay when the balance in your everyday transaction account goes below $0. Example: Your phone provider debits $150 for your monthly bill but you only have $100 in your bank account at the time. You may be charged anywhere from $30 to $50 in overdraft fees by your bank. I have been hit by this one - so make sure you keep a buffer (e.g. $500) in your transaction account so that you have sufficient funds to cover these situations. If you are expecting a big debit, make sure you transfer money into your account well ahead of when its due (you can schedule these online).

Another way to avoid overdrafts and late fees is to sign up for free low balance alerts. Thanks to online and telephone banking you can sign up for alerts when your bank balance falls below a certain threshold. A great feature that has saved me money on a number of occasions.

Finally, if you call the bank, they may sometimes waive overdraft fees if you have a good record with them or this was your first infraction. This method however is only likely to work once.

7. Exceeding your credit limit fee : A fee may be debited from your credit card account every time you exceed your credit limit during a statement cycle e.g. $35 per statement cycle. Another bad fee which you can avoid by watching what you spend. At worst case increase your credit limit or get multiple credit cards so that your credit limit is higher - but higher credit has its own inherent dangers.

Credit card reform legislation going into effect next year (Feb 2010) will put caps on some credit-card late and over-limit fees and on how they're charged against old and new balances, but until then beware the fees that financial institutions place credit cards they issue.

I am sure there are many other fees out there, but these are the most common ones consumers face. It would be interesting to hear of any adverse fee experiences you have had and/or lessons learnt by leaving a comment on this post. My worst one was paying a $30 overdraft fee when I forgot to move enough money from my savings account to my transaction/checking account before a big bill came through. That was $30 wasted, which with a bit of forward planning I could have avoided.

Financial institutions must provide information to their customers on these fees and charges. Under the Truth in Savings Act, banks are required to notify customers of any change in terms within 30 days. If you are getting charged for something you did not know about, make sure you raise this with your bank and ask for a rebate on any unexpected fees. So if you are getting charged for something you did not know about, make sure you raise this with your bank.

Related:
~ The Best FDIC insured High Interest Saving Accounts with Good Yields
~ Should I Refinance my Mortgage and Do I Qualify
~ A look at the Pros and Cons of Reverse Mortgages
~ HSBC versus ING Direct high interest online savings accounts
~ Getting out of your car lease
~ 10 ways to Improve Cash Flow by Saving Money and Creating Passive Investment Income

Read More...

[Updated August 2009] Confused about the Obama health care plan and where it is at? Well, you can join millions of other's in this boat. Despite all the media coverage many Americans are still not sure what Obama's health care reform is about and this makes them wary of supporting it. Today the main version (there are many in Congress) was passed by a Senate committee and will be sent to Congress for further review and approval.

Senate Democratic leaders will now have to merge the bill with a more liberal measure approved in July by the Senate health committee. Three House committees also approved health care bills in July and House leaders are now working to distill from the three bills one package that will go to the floor. To easily understand and see how the measures compare on some key issues see this NY times health section.

I will continue to update this news item as it moves through Congress and more information is made available, and I encourage you to subscribe (free) via Email or RSS to get the latest news.

----------------

[Updated August 2009] After looking like stalling, President Obama's health care reform agenda has taken a major step forward with the House Democrats agreeing to a potential version of a health reform bill. Reports say that under the deal, Democratic leaders promised to defer a vote by the full House until September, so lawmakers could test public sentiment on the measure, which could fundamentally restructure one-sixth of the nation’s economy.

Under the House agreement, the federal government would still establish a public insurance plan to compete with private insurers, but the public plan would not use Medicare fee schedules to pay doctors and hospitals, as envisioned in the original House bill. Instead, the public plan would negotiate rates with health care providers, as private insurers often do.

Most employers and small business' would still be required to provide health insurance to workers or pay a new federal tax, but more small businesses could qualify for the exemption, which would be available to businesses with annual payrolls of $500,000 or less, compared with a threshold of $250,000 in the original House bill. The maximum tax rate, 8 percent of wages, would apply to employers with payrolls exceeding $750,000, rather than the original threshold of $400,000.

People with low or moderate incomes could still get federal subsidies to help them buy insurance, but they might have to spend slightly more of their own income — a maximum of 12 percent, rather than 11 percent.

The Congressional Budget Office said the bill would ultimately provide coverage to most people who are uninsured. Mr. Ross said the fiscally conservative democrats (Blue Dogs) had won concessions that should bring the 10-year cost below $1 trillion, a goal shared by the Senate Finance Committee.

A number of committees are working on their versions of the health care bill and the House and Senate have yet to reach consensus on a unified bill. If both chambers pass their own versions, another battle looms when the House and Senate try to reconcile their plans for another round of votes. Which means there is still a long way to go before any health care bill is passed and years before consumers feel any changes.

[Updated July 2009] One of President Obama’s biggest campaign promises was to reform health care, and it looks like the first steps towards delivering on that promise are underway with the introduction of a far reaching and very expensive health care reform bill. Many an administration has fallen into the deep abyss of health care reform, but none have had the political capital and forces that support the Obama administration. Whether or not you think the early plans (proposed by House democrat members) are fair or not, it looks like the US health care system is in for a major overhaul and more likely than not, you will be directly impacted.

President Obama has set an August deadline for both chambers to pass the final versions of the reform bill, and to get it to his desk by the end of the year. With that time frame in mind there will be many twists, change and debates on this key national issue.

The current proposal and how it will be funded

The proposed house legislation would fund a landmark and far reaching health-care expansion primarily by raising taxes on medical providers, corporations and the wealthiest Americans, including a 5.4 percent surtax on couples earning more than $1 million - becoming known as the “millionaire” health care tax. Couples making $350,000 and individuals earning $280,000, would pay a 1% tax, which would ramp up to 1.5% for those above $500,000 of income until they hit the millionaire tax bracket. Democrats estimate the income tax increase would apply only to the top 1.2% of households, those who earn about one-quarter of all income and will raise $540 billion over 10 years - about half the cost of the health care overhaul - and calls for the taxes to increase if the measure doesn’t hit a target for cost savings. Capital gains (currently taxed at a 15%) as well as earned income would be subject to the surtax.

The legislation would also raise taxes on corporations. Among other things, it would make it easier for the IRS to prosecute tax shelters, and deny certain cross-border deductions that some companies are able to claim through tax treaties. The plan would also slow Medicare and Medicaid payments to medical providers.

** Save up to 20% Health Insurance, Get Free Quotes! **

The bill would prohibit insurance companies from establishing any lifetime or annual ceiling on benefits and limit companies from charging higher rates due to health status, gender or other reasons. Premiums would only be allowed to vary based on age, geography and family size. Medicare would be overhauled to reward the efficiency of health-care services, not the volume, as is the case now. The government would provide subsidies to make coverage more affordable for households with incomes up to four times the federal poverty level, or $88,000 for a family of four and $43,000 for an individual. Medicaid — the federal-state health program for the poor — would be expanded to individuals and families up to 133% of the poverty line.

Health care providers would also be held to account for quality care, not just ordering up tests and procedures. Insurance companies would be prohibited from denying coverage to the sick and the industry would face stiff competition from a new government plan designed along the lines of Medicare.

“This proposal controls the skyrocketing cost of health care by rooting out waste and fraud and promoting quality and accountability,” the president said in a statement about the House plan today. “Its savings of more than $500 billion over 10 years will strengthen Medicare and contribute to our goal of reforming health care in a fiscally responsible way.”

The House bill would change the way individuals and many employees get health insurance. It would set up a new national purchasing pool, called an exchange. The exchange would offer a menu of plans, with different levels of coverage. A government plan would be among the options, and the exchange would eventually be open to most employers. Insurers say that combination would drive many of them out of business since the public plan would be able to offer lower premiums to virtually all Americans. But backers of a public plan - including Obama - say it would instead provide healthy competition for the insurance industry.

** Shop and Compare multiple Health Insurance quotes for free **

The federal government would ultimately be responsible for ensuring that every person, regardless of income or the state of their health, has access to an affordable insurance plan (target is to have 97% of Americans covered by 2019.). Individuals and employers would have new obligations to get coverage, or face hefty penalties. Employers who don't provide coverage would be hit with a penalty equal to 8% of workers' wages with an exemption for small businesses. People (employees) would also be penalized as much as 2.5 percent of their income for failure to buy health insurance.

The plan would cost between $1 to $1.5 trillion over the next 10 years and reduce the number of uninsured by roughly 37 million Americans (currently 46 million uninsured), according to a preliminary analysis by the Congressional Budget Office and other reputable sources.

As with any legislation of this magnitude and impact, they are many stumbling blocks and there will a number of public and private discussions that take place before the bill is finalized. Business groups and the insurance industry immediately assailed the legislation. In a letter to lawmakers, major business organizations branded the 1,000-page bill a job-killer. Its coverage mandate would automatically raise the cost of hiring a new worker, they said. Efforts to reach a bipartisan compromise in the Senate have failed so far as well, with most republicans opposed to the plan (without really having a viable alternative themselves). And in the House, the Democrats’ plan is considered too costly by dozens of their own members - which means that the final version of the health care reform bill is far from finalized.

Don't Miss the Following Related Posts
~ Health Care Plans: 10 Tips on Choosing the Right Option
~ Credit Card Reform via the 2009 Cardholders' Bill of Rights
~ COBRA Health Care Premium Reductions (Subsidy) in Obama Economic Stimulus Package
~ Obama's 2010 - $3.6 Trillion - Budget and My Money from Taxes to Health Care

Read More...

After moving into my new place, one the big ticket items that I planned to purchase - nay, splurge on - was a big screen plasma TV for the family room. I did my research and found a Panasonic 58” model that I was able to negotiate down to around $2000 (with a Blu Ray DVD player and 4 year warranty) – a $500 saving! However, when it came to paying for the TV, I had two options. I could pay the $2000 up-front on my credit card or defer payment with a 12 month, interest free loan that only required 3% monthly repayments. Having to put down less cash up front seemed like a great idea, especially given all the other expenses around purchasing a home. Before committing to either payment option, it is important to do some research and understand the impacts on your current and future personal finances.

Paying up-front is the easiest option. But it means that I need to have $2000 now or in a month when my credit card bill is due, since carrying credit card debt with 15%+ interest for an item I can live without is not the smartest idea in the world. While I do have $2000 in my savings account, buying the TV up-front would definitely affect my cash flow for the next few months which is what made the deferred payment option worth considering seriously.

** Get $50 Cash Back Bonus with the Discover® More Card! **


Under the deferred payment option I have to sign up for a store credit card to take part in the 12 month, no-interest promotion. There was also a requirement to make small principal repayments of 3% ($60 per month) for the next 12 months. However the real catch, and what makes this deals so dangerous, is that after 12 months if I only pay the 3% minimum I would still owe $1280 ($2000 - $720) on the TV, which would then be charged interest on at 27%! At this rate my bad debt (which is what it really is now) would double every 2.5 years if I only continued making the required minimum repayment. Further, if I am late on repayments in any month, I would be charged penalties and interest on the whole balance.

With the above conditions, the interest free option is only a good one if you pay on time or early. But if you are late on any payment or worse cannot pay the full balance when the promotion period expires, you could be in real financial trouble. A number of stores and vendors are running interest free and/or deferred payment promotions, which may be good deals for some, but here are some key factors to consider before signing up:

- In most cases to take advantage of interest free of deferred payment promotions, you must sign up for a store credit card. There are various versions with different conditions depending on which store you purchase from and which product you sign up for, but at the end of the day these carry the same benefits and risks as regular credit cards.

- "Buy now, pay later" or “No Payments for 12 month” type promotions are sold on the premise that the consumer is not required to repay the full cost of the purchase until the end of the promotional period. What is not always made obvious in the promotional advertising is that the purchaser is still required to make minimum monthly repayments in addition to an ongoing monthly "account keeping" fee prior to the end of the specified period. However just paying the minimum amount required could get you in trouble as well, especially if paying the minimum amount does not clear the loan before the interest free period ends. The outstanding amount will be charged interest at very high rates (25 to 30% is quite common). Therefore it is wise to make regular monthly repayments to pay off the full balance, rather than leaving it until almost the end of the term and hoping that you have a lump sum of funds to pay off the balance in time.

- If you feel that you may not be disciplined enough to make the repayments in time it may be a good idea to look at taking out a personal loan instead. The interest rates for unsecured personal loans are generally much lower than those charged on the "buy now, pay later" plans after the promotional period expires.

- One of the other traps to be aware of is related to multiple purchases. Once you are issued with a store card it is at your disposal to purchase multiple items from various in-store promotions. This complicates the repayment process somewhat as it is not possible to direct your funds to a particular loan. This is a risky choice, particularly if you are not 100 percent confident in your ability to correctly calculate owed monies and associated costs, and could result in a lot of unnecessary extra fees and charges.

- There's usually a minimum that you have to spend to qualify for these interest free purchases which can make you end up spending more than you usually would. Watch out for this and don’t buy just for the sake of qualifying for the promotion. On the flip-side, if you are buying a big ticket item, most stores would be willing to work out a repayment plan with you or give you some kind of discount if they cannot offer a plan.

- Read the fine print and make sure you understand all the fees, key dates, terms and conditions. Don’t be afraid to ask questions - it is your money after all. If you cannot repay the loan amount before the interest free period ends then sometimes a low rate credit card can be a better option. So consider all your options and do your sums before you make the decision.

Take your time and do not sign up for these types of offers without looking into the details and crunching the numbers under various scenarios. Also, think really hard about short term (3 months or less) no-interest or deferred payment deals. If you cannot afford the purchase now, do you really think you will be in position to do so in a few months? Even for the longer term deals, you should apply the same logic. Sure your cash flow will be better for the duration of the promotion period, but will you be able to absorb the big payment when due.

Here’s my basic rule: If you can afford to pay for the item, buy it now (which I did). If you expect to have a number of larger, higher priority expenses in the near term and will be tight on the short term cash flow, then consider a deferred payment plan that is at least 6 to 12 months in duration. If neither option is feasible or available, then don’t buy the item.

Related Posts You May Enjoy:

~ A new iPhone and Media Tablet in the Works makes AAPL worth Buying
~ China Taking over the Internet as Usage Surpasses America
~ 10 ways to Quickly Improve Cash Flow by Saving Money and Creating Passive Investment Income
~ Am I a Cheapskate or Just Frugal?
~ Shopping Effectively
~ Why Online High Yield Savings Accounts are Poor Investments
~ Teaching personal finance to the masses

Read More...

No Debt Plan is about getting and staying out of debt with a plan. Kevin, the author, is passionate about budgeting, saving for the future, and using goals to reach financial freedom. You can subscribe to his blog by RSS or Email.

This interview is part of a feature he’s developed called Subscriber Swap Saturday. The basic idea is to get the subscribers of one blog to subscribe to the other blog for at least a week, just to try it out. After a week if you don’t find that blogger’s content enticing, drop it by unsubscribing with no cost or obligations. The hope is that over time you will find several writers that you weren’t familiar with who provide meaningful content to you. You can read more about Subscriber Swap Saturday at his get out of debt blog, as well as his interview with me.

1. If you go rewind the clock back 3 years, what personal finance decisions would you do differently?

Three years ago I was just about to change jobs - and I would have told myself to stay the course. I would have also been on the 6 month countdown to our wedding. We didn't have an extravagant event, so no changes there.

The real change would probably come two years ago when we bought our home. Just like everyone else out there I am wishing we had waited - but not necessarily just for financial reasons. I wasn't ignorant enough to think that home prices only went up. Not at all. We even thought we might want to stay here for a while, but the call to move closer to our aging parents is really pulling on our hearts these days. Being not even two years into the mortgage doesn't make that easy even as we pay it down with additional payments.

2. What are your favorite personal finance resources out there?

I like Money Magazine for the variety it offers. It isn't too academic - which some might see as a flaw - but it does hit on the main points month after month. For $12 or whatever it is a year I don't think you could find anything better in the "real" publishing business. In terms of blogs I love too many to mention. Ramit Sethi's IWillTeachYouToBeRich.com and JD Roth's Get Rich Slowly are a few of my many, many favorites.

3. Which is likely to make you financially free the fastest - luck, hard work or smart planning? Why?

A combination of the last two. Hard work does pay off, but smart planning makes hard work go much further. It's the difference between A.) planning to build a brick building by hand and carrying the bricks individually from the quarry to the build site one by one and B.) using a wheelbarrow to move a large pile of bricks to the job sit in batches.

I'm not sure that is the best analogy, but I hope the point is made. Smart planning leverages hard work for superior results. You can plan really well, but if you don't have the effort to back it up you will not see results. The opposite is true. If you're working hard in the wrong direction it isn't going to do you much good.

4. From a blogging perspective, what have you found the best in terms of creating revenue and increasing readership of your blog?

In terms of revenue I am completely shooting in the dark. I avoided ads for a long time which turns out to be a silly decision. You might as well have ads the entire time - readers get used to them. Now that I've added them my income, naturally, has increased.

I've been trying to increase my readership in two ways. First, doing things like these interviews gets more exposure for both bloggers. Here's to hoping your readers like my blog and come visit! Second, I am trying to increase the number of guest posts I submit to "big" blogs. The more exposure, the better.

5. Where do you think the American economy will be 5 to 10 years from now in a global context?

Let me start by saying that I have no idea -- I'm not an economist. I would say America will not the powerhouse it currently is in the world economy. I see so many problems in our country -- looming deficits that have to be paid back, the devaluing of the dollar, sky-rocketing health care costs, social security and other government programs running out of money. We've got a lot on our plate.

That having been said America won't go quietly into the night. Our nation is built on innovation. And much of our "decline" will be attributed to the rise of other countries like China and India. China and India are both four times our size in population. As they continue to modernize and those consumers start spending money... look out. Talk about a potential for a hot economic region.

But as those countries go up, even if we hold our current position, we will drop back a little bit. I hope our leaders can see the errors in their ways and will clip spending to eliminate the deficit quickly.

...I'm not holding my breath.

Related Posts
~ Blogging Becoming a Serious Money Business
~ Why Twitter will NOT Help your Blog Revenue
~ How Much Money do Bloggers make Blogging?
~ Google Page Rank - What's it worth to you?

Read More...

The 2009 economic stimulus package, primarily aimed at the top of the economy - supporting banks, car companies and corporate workers, also gave a smaller bonus to people on the bottom end of the economic ladder - the more than 32 economically poor million Americans who rely on food stamps. That's one out of 10 Americans, an all-time record high. Officially known as the Supplemental Nutrition Assistance Program (SNAP), the government boosted food stamp payments by an average of 13.6% (in effect from April 2009). For a family of four receiving the maximum benefit of $588, the amount would increase by $80, to approximately $668.

Nationwide, enrollment in the food stamp program surged in March to about 33.2 million people, up by nearly one million since January and by more than five million from March 2008. In a recent research report, Pali Capital Inc. estimated that food-stamp spending will increase between $10 billion and $12 billion this year from $34.6 billion in 2008.

As CBS News reported, most people and businesses are getting immediate help from the increased stimulus spending on food stamps, unlike the other stimulus payouts.

For Bobbi Foster of Martinsburg, W.V., the once simple task of grocery shopping has suddenly become a burden. In December, her husband Danny lost his trucking job. "Everyone I know has been laid off work. When I see people going to work I'm surprised - they have a job!" Foster said.

A month later, Danny was diagnosed with a benign brain tumor. The Fosters signed up for food stamps. As a West Virginia family of four, they would receive $329 a month - not nearly enough to cover their monthly food expenses. But that changed under the economic stimulus package where every American on food stamps would get 13 percent more money on their state-issued debit cards.

And while it will certainly help the Fosters, its really aimed at their grocer, who stands to make an extra $25,000 a week, enabling him to hire up to five more part-time workers.

"Everyone goes to the grocery store," said Martin's Supermarket manager Mike Sword. "I can't think of a better way, frankly, to stimulate the economy."

"[For us,] it means surviving. Really, surviving for the month," Foster said. "When you are living week to week day by day you know it [the stimulus increase] would make things a lot easier."

The U.S. Department of Agriculture (UDSA) calculates that for every $5 of food-stamp spending, there is $9.20 of total economic activity, as grocers and farmers pay their employees and suppliers, who in turn shop and pay their bills. This was confirmed in findings by other economists and stimulus studies, which found that the fastest way to infuse money into the economy was through expanding the food-stamp program. The cost/benefit equation often quoted in relation to the impact of food stamp type programs is that for every dollar spent $1.73 is generated throughout the economy.

If someone who is literally living paycheck to paycheck gets an extra dollar, it's very likely that they will spend that dollar immediately on whatever they need - groceries, to pay the telephone bill, to pay the electric bill. While other stimulus money has been slow to circulate, the food-stamp boost is almost immediate, with 80% of the benefits being redeemed within two weeks of receipt and 97% within a month, the USDA says. The stimulus or benefit ratio from food stamps was higher than the benefit from infrastructure spending per dollar, and way higher than tax cuts. Permanent tax cuts had a lower than one benefit to cost ratio, showing that these would have been wasted stimulus spending.

It is hard to argue with the logic behind the stimulus impact of higher food stamps, but the counter argument could be that while the food stamp stimulus spending has a more immediate impact, it is only short term. Stimulus spending on infrastructure and educational spending, economists argue has a much longer term impact and ongoing benefits like higher employment and increased government revenue through taxes.

Still, the Obama economic stimulus package was meant to have had much more of an impact than currently felt, so the case for focusing future stimulus packages on more direct programs like food stamp increases may be getting stronger. Who would have thought that stimulating welfare type programs for the poor could be the best boost for the economy. Make the poorer richer, and the nation will thrive. Sounds simple right?

Related Articles

~ COBRA Health Care Premium Reductions (Subsidy) in Obama Economic Stimulus Package
~ Help for Unemployed and Under Insured Workers (COBRA) in the Economic Stimulus Package
~ Should I Refinance my Mortgage and Do I Qualify
~ Taxes and my Paycheck

Read More...

As a relatively new small business owner working from home, one of the money saving technologies I have been looking into is (Voice Over Internet Protocol) VoIP telephony. A broadband or VoIP phone is like a regular phone except it uses high speed Internet to make calls at a fraction of the cost. A number of companies – small and large – are now using this technology to significantly lower communication costs.

Now the retail/consumer market has the same technology available and providers are promising 50%+ in cost savings when compared to the established providers. One company that was recommended to me by a fellow small business owner was Phone Power. What differentiates them to Skype, Vonage and other providers is that you can keep your existing number and they provide a good combination of fully supported business and residential calling plans - at a significant discount over the traditional providers.

To start using the VOIP phone service with them all I need to do is get a VoIP adapter (free) and setup it up from my high speed internet connection to any regular phone handset. This setup is neatly captured in the graphic here and should take no more than a few minutes to get started. You get all the usual call service like Call waiting, Call Forwarding and Voicemail in one of their cheap monthly plans. VOIP telephony is best suited for you or your business if you can relate to any of the following needs:

- You already have a high speed internet connection and would like to lower your phone bills, without sacrificing call quality and portability
- Want to reduce costs on expensive long distance phone or international calls costs
- I like the convenience of taking my number with me as I travel anywhere in the world and want to continue using useful calling features such as conference calling, voice mail and caller ID
- Live outside the U.S. but need a local US number for my business or leisure travels.

With the advent of high speed internet in most metro areas and the near perfect sound quality available through VOIP technology it is only a matter of time before all households and business move to this platform for their telephony needs (even Walmart is selling VOIP options like the Magic Jack). So rather than wait for the savings, get on the new phone revolution band wagon and try the Phone Power Digital Phone Service.

Related
~ Forget buying a Laptop or Notebook - I am getting a Netbook
~ Frugality,Thrift and Saving - The New Norm
~ Tax Breaks in Obama's $15 billion Small Business Plan
~ How to Succeed in Business
~ Top ten myths about buying a franchise - Part 1

Read More...

This guest post is from DR, the managing editor of Dough Roller, a personal finance blog about how to make more, spend less and invest the rest. He is also the author of 99 Painless Ways to Save Serious Money.

There is an important debate brewing among economists today about inflation.

On the one hand, many believe we are headed to double-digit inflation in the near term. Increased government borrowing coupled with a huge money supply thanks to the Fed’s liberal approach to printing money, has led many to conclude that raising inflation is inevitable.

On the other hand, some economists believe that our massive debt will not lead to higher inflation (and may in fact cause deflation). Folks like money manager Van Hoisington argue that rising personal debt and unemployment will keep people from buying, which in turn will keep prices in check. Alan S. Blinder, a professor of economics and public affairs at Princeton and former vice chairman of the Federal Reserve, also sides with those not concerned with inflation.

Ultimately, whether we see inflation as a significant risk is a decision we each must make for ourselves. But it should not be ignored, because our longer term net worth and retirement plans could be adversely impacted. If inflation is on the horizon, there are several steps we can and should take to prepare our finances for the rising tide of prices.

1. Refinance adjustable rate mortgages

Perhaps the most important step to take in preparing for a possible rise in prices (inflation) is to convert an adjustable rate mortgage to a fixed rate mortgage. With rising inflation comes rising interest rates. Why? The Federal reserve uses monetary policy (i.e. control of interest rates) to combat inflation. To lower inflation, they try and make “money” more expensive by raising the prime rate. This causes all other rates, like those on home and auto loan rates to rise as well.

For most of us, our mortgage is far and away the largest monthly bill, and we cannot afford to risk seeing our payments go up by hundreds of dollars a month as adjustable interest rates rise. The first step in refinancing an adjustable rate mortgage is to contact your mortgage company. Depending on where you live, refinancing through your existing mortgage company can save you on fees and taxes. If you have a home equity line of credit with the same mortgage company, it also will be easier to get the line "resubordinated." Resubordination is just the industry's term for making sure the line of credit stands behind the primary mortgage in a foreclosure. In addition, you may get a slightly better deal with your existing mortgage company, but of course always get several interest rate quotes before making a decision.

2. Convert home equity lines to loans

Most home equity lines of credit are variable rate and require interest only payments for the first ten years. Thereafter, the line converts to a loan that amortizes over the remaining 20 years of the note. Right now, many home equity lines of credit have very low interest rates because the prime rate is so low. Our home equity line of credit is currently 3.99%, and that's before taking into account the tax deduction we get on our interest payments.

But these great rates may not last. If the Fed is forced to raise rates to combat inflation, the prime rate will go up and the rates on home equity lines will follow suit. In a serious bout of inflation, rates on equity lines could easily hit double-digits (like in the early 90’s). One way to address this risk is to convert some or all of a home equity line balance to a fixed rate home equity loan. The interest rate will most likely be higher than the current variable rates on most lines, but it will be fixed for the remainder of the loan and you won’t have to worry about rising payments.

3. Pay off introductory rate credit cards

Readers of the Dough Roller know that I'm a big fan of 0% balance transfer offers and other no interest deals. We've taken advantage of them to reduce interest payments and speed up our debt repayment plan. The risk of these deals, however, is that you don't pay off the balance before the introductory rate expires. Once the introductory rate expires, the regular APR for the card applies, which is typically 10% or higher.

As early as last year, one could jump from card to card taking advantage of balance transfers, often with no transfer fee. Today, however, these offers have become more scarce and increasingly available only to those with very good credit scores. The point is that we shouldn't be relying on balance transfer cards to keep our debt at a low rate. And if interest rates in general go up, they will certainly go up on credit cards. As a result, while we continue to take advantage of no interest deals when they make sense, we have redoubled our efforts at paying down our debt, even the debt on 0% deals.

** Monitor Your FICO® Score & Equifax Credit Report


4. Shy away from long term CDs

Certificates of deposit (CDs) offer a secure way to put away cash for an emergency fund or other short term savings goals. When picking a CD you have a choice in the term, generally ranging from three months to five years. As a general rule, the longer the term, the higher the interest rate, although this isn't always true. Ally Bank, for example, which offers some of the best CD rates currently available, pays 1.40% APY on its 3-month CD and 3.45% APY on its 5-year CD.

For those worried about inflation, however, locking your money away for five years at 3.45% could turn out to be a big mistake. A 1-year CD from Ally currently pays 2.30% APY, and presents far less interest rate risk than a 5-year CD. You can always withdraw money from a CD, of course, but you'll often pay a penalty fee. At Ally, the penalty fee for early withdrawal on a 5-year CD is interest equal to six months. For this reason, for those fearing inflation, 1-year CDs or shorter term is probably best.

Another great alternative to a CD is an online high yield savings account. While interest rates have come down significantly over the past 12 months, rates are still competitive with most CDs and the money can be withdrawn on demand and easily managed online.

5. Consider TIPs, Real Estate and Commodities

I don't believe in making dramatic changes to an asset allocation plan based on current market fluctuations. We haven't sold any of our investments during the brutal market we've experienced over the past year, and the same will be true if inflation starts to bubble up.

Yet there are some modest changes one can make to better guard their portfolio against the ravages of inflation. Specifically, one can look at investing in TIPs, REITs, and commodity funds. Here they are in a nutshell, and how they can help guard against inflation:

TIPs: TIPs, or Treasury Inflation Protected Securities, are U.S. Treasuries whose interest rates rise and fall with the Consumer Price Index. While some debate the accuracy of the CPI, it is a recognized measure of inflation in the United States. As the CPI rises, so do returns on TIPs. And as a result, TIPs provide some measure of protection against inflation.

REITs: Over the long run, real estate values tend to follow inflation. In the short term, higher inflation can actually depress real estate values because higher interest rates keep many buyers at home. Many REITs (Real Estate Investment Trusts), of course, invest in commercial real estate, however, which is an entirely different market. With inflation comes higher rents, and thus higher returns and valuations on REITs that invest in commercial property.

Commodity Funds: These funds invest in precious metals, food commodities like grain, and oil. Commodity prices can fluctuate widely (just think of oil last year) for a variety of reasons, but do have a strong correlation with inflation, making them worth considering as a viable hedging option.

In the final analysis, nobody knows what inflation will look like a year from now. But guarding against the risk of inflation, at least in some of the above areas, may just help you sleep better at night.



Related posts you may enjoy:

~ Credit Card Reform: Penalizing the Good for America's Bad Spending Habits
~ Frugality,Thrift and Saving - The New Norm
~ No Second or New Economic Stimulus Package in 2009. But More than Likely in 2010 or 2011.
~ FHA vs Conventional Home Loan - Comparing the Difference and Which is Better
~ High Yield, Money Market Account Savings and Mortgage Rates Rising
~ Gold Price Outlook - A Golden Investment in 2009 and beyond

Read More...