3 Smart Investments

One of the major contributing factors to the economic crisis of 2008 was the lack of personal savings. Easy credit was a way of life through the early 2000's up until the crash, and consumers used that credit to fuel consumption. When the market tanked, wages dropped and jobs were cut, leading to a nasty decline in consumer purchases. Many of the newly-unemployed had no savings upon which to draw in order to maintain their level of spending. For those with adequate savings, however, the situation was much less dire. While you cannot prevent a widespread economic disaster, you can organize a plan to be prepared no matter the situation.

Traditional IRA or Roth IRA

An Individual Retirement Account (IRA) is a legal construct of the Internal Revenue Code that allows investors to shield their savings from taxes. There are two forms of the IRA. The first form is a Traditional IRA, which allows savers to fund their retirement account with pre-tax dollars. Essentially, if you put money into a Traditional IRA, you can deduct that amount from your taxes. You can continue making annual contributions to your account and you won’t pay taxes on it until you start withdrawing from the account in retirement. The second type of IRA is the Roth IRA, which takes contributions of after-tax dollars. This means that when you withdraw from your Roth IRA in retirement, you will not pay any taxes on it. Also, the Roth IRA has more flexible rules for pre-retirement withdrawals from the principal. One of the great things about both types of IRA's is that you can put whatever investments you want in the accounts: stocks, bonds, real estate, baseball cards, etc.

Index Funds

Many investors think that stocks are the best way to make money over time. While that can be true, this strategy only works if you pick the correct stocks; if you pick the wrong stocks, you can lose your entire portfolio overnight. Unfortunately, many experts believe that it is impossible to reliably pick the correct stocks over time. Even if you do pick the right stocks, you have to buy them and sell them at the right time. One commonly-used strategy is to invest in mutual funds, which are managed by professionals who charge a fee and take a cut of the earnings. The problem is that most mutual funds do not consistently beat the market. Even those funds that do outperform the market will eat away at your gains with their fees. A good alternative is to invest in an index fund. An index fund is a fund that consists of stocks from a stock index, such as the Dow Jones Industrial Average and Standard & Poor's 500. These funds are meant to track the economy as a whole, which consistently outperforms most mutual funds. Even better, index funds have much lower fees than a typical mutual fund, preventing the erosion of your investment.

401(k) Matching

One very common financial mistake happens when employees who are eligible for 401(k) matching by their employers do not contribute up to the full match. For example, imagine a 401(k) match of 50% of employee contribution on up to 6% of the employee’s salary. This means that your employer will put fifty cents in your 401(k) for every dollar you put in on up to 6% of your salary. If you make $100,000 per year, 6% of your salary is $6,000 and your employer will contribute up to half of that, which comes out to $3,000. If you do not contribute at least $6,000, you are literally turning down free money from your employer!

Investments can be confusing and dangerous. A few wrong moves and you can delay or even eliminate your retirement. There are no guarantees in life, and even fewer in investing. However, if you invest in IRA's, index funds and 401(k) matching, you are definitely giving yourself a major advantage.

Ken Myers is a father, husband, and entrepreneur. He has combined his passion for helping families find in-home care with his experience to build a business. Learn more about him by visiting @KenneyMyers on Twitter.

How The Affordable Care Act May Impact Medical Debt

There are many Americans that are struggling to pay down some of their medical bills. They may be wondering how they can find support to eliminate some of these burdens and get on with their life. The new Affordable Care Act penned in to law by President Obama is slated to go in to effect soon. Some people are wondering whether this will provide help with medical bills, which would be beneficial for many. There are several new changes that will be ushered in by this law, so it may be worthwhile to review some of the pros and cons that it will bring.

First, the new Affordable Care Act will simply make it more accessible for people to get healthcare coverage. While this won't directly affect existing medical bills, it may provide people with much needed support as they move forward. If they are continuing to receive medical treatment for an illness, this provision may just make it more affordable. This can reduce the overall burden that they have to pay out of pocket. If they can't afford to pay for a private health insurance package, some people might qualify for Medicaid. The limit for qualifying for this package has been raised to 133% of the federal poverty level.

The Affordable Care Act will also provide additional support to families that are hovering above this poverty level. If a family of four makes less than $94,000, then they will be able to qualify to receive support. Some people may be able to get tax credits, which can offset much of what they pay for their health insurance package. This could prove to be helpful, since many people currently pay high out of pocket costs. These types of benefits may seem small, but the cumulative effect may allow many people to get out of medical debt.

There are a few other benefits that may be available to different kinds of consumers out there. Some people may work with a large employer that does not currently offer health benefits. With the introduction of the Affordable Care Act, these large businesses will start to receive tax credits for providing health insurance. Additionally, families can claim their kids up to age 26 on their healthcare plans. This will provide them with much more flexibility in the way that they offer coverage. If they are struggling with medical debt, they could expect to get a lot of support going forward.

Some people may want to consider a few of the cons that the program may introduce in the future. There are some sources that are predicting that some insurers will be passing on the costs of the legislation to their customers. This may cause premiums to go up over time, which will be challenging for them. There are also many people who might need to get additional testing to confirm a diagnosis. It can be important for people to consider whether they want to pay for these additional diagnostic tests. They may not be able to afford some of the extra costs that this will bring to them.

In all, a vast majority of consumers can expect to get assistance with the implementation of the Affordable Care Act. They likely won't be able to get direct help with a medical bill that they already have. Some people may need to think about checking out some of the insurance deals available through the exchange system being implemented. This could prove to help people find out whether they can get a little help to get back on track. This may be enough for people to eliminate some of their more extensive medical bills.

5 Ways to Manage Your Finances During Deployment

An impending deployment can lead to tremendous stress and anxiety, and financial hardship is one of the biggest obstacles facing deployed service members and their families. Many active-duty members have spouses and children to support. Others fear losing sight of their educational and career goals while serving a lengthy tour overseas. Although deployment can be fiscally challenging, it does not have to mean a financially unstable future. Mange your finances and use the resources available while on deployment by following these five tips. 

Continue Your Education Online

A major factor in achieving a financially stable future is getting a degree that will land you a high-paying job after military service. Continuing your education online is a great way to pursue your educational goals while you are deployed. Plan carefully when selecting your school and look for institutions that offer military scholarships and grant military credit through the American Counsel of Education (ACE) program. Every college performs ACE reviews to determine how much credit will be granted for the military experience you’ve already gained. Shop around to find the school that offers the most.

The military also offers active-duty soldiers tuition assistance for their online courses. This covers all tuition costs that do not exceed $250 per semester hour or $4,500 per fiscal year. You can apply for this benefit online through GoArmyEd.com and will receive notification when your request has been approved. Each academic year, you and your commander must sign a Tuition Assistance Statement of Understanding to continue receiving this benefit. 

Take Advantage of Deployment Entitlements

Knowing which deployment entitlements you are eligible for is helpful in the financial-planning process. All soldiers who are deployed for more than 30 days are eligible for per diem in the amount of $105 per month, which is provided in addition to your base salary. Family Separation Allowance is also available to soldiers with authorized dependents, which provides an additional $250 per month. Those serving in a hostile fire or imminent danger area receive an additional $7.50 per day, and soldiers who are deployed to areas with extremely low quality of life conditions may be eligible for hardship duty pay. Depending on the specific qualifying location, hardship duty pay offers payments ranging from $50 to $150 per month. Contact your unit’s administrative section to find out the additional pay you will be receiving, and calculate your entitlements ahead of time to assist you with your budgeting goals. 

Use Opportunities to Save Overseas

There are many ways you can save while you are serving on a deployment, and the process of using these opportunities begins before you leave. Simple steps such as cancelling your Netflix account, gym membership and cellphone service can save you a lot of money while you are away. Be sure to unplug appliances, such as your refrigerator, to dramatically reduce your electric bill — or consider renting out your home to earn extra money.

Once you deploy, it is also a great idea to invest in the Savings Deposit Program (SDP), which allows you to deposit up to $10,000 once you have been deployed for 30 days. This program, sponsored by the Department of Defense, offers a 10-percent return and continues to collect interest for up to 120 days after your deployment ends. Additionally, you can keep your SDP going for as long as 36 months, provided you are deployed for at least a day per month. 

Know Your Legal Deployment Rights

Before you deploy, familiarize yourself with your rights under the Service Members Civil Relief Act (SCRA). This law protects service members called to active duty from adverse civil action in areas regarding financial management. Under this law, you are protected from eviction if your rent is under $1,200 per month. You can also suspend auto leases as well as car and health-insurance payments. Additionally, you may receive reduced rates on credit card and mortgage payments, and are protected from foreclosure. Even if your debt was accrued prior to your active duty, the SCRA places a six-percent per year interest rate cap on any of your existing debt during your active duty service. To invoke your rights under this law, you may obtain proof of your Title 10 active-duty status through the SCRA website. 

Maintain Open Communication With Family Members

Discussing your bills and creating a sensible budget with your spouse before leaving will give you a better understanding of your family’s financial situation. Before you deploy, it is also a good idea to obtain military legal assistance in the event your spouse will need to make purchases on your behalf while you are away. Keeping an honest and open line of communication about your spending with your spouse will give you both a realistic idea of where you are financially and allow you to plan accordingly.

Deploying overseas can be a stressful time; however, by following these tips, you can eliminate financial hardship from your list of concerns. Those who face an upcoming deployment can have financial peace of mind as they bravely serve their country.

About the Author: Dawn Johnson is a contributing writer and has served two deployments in Afghanistan. 

Image by DVIDSHUB from Flickr’s Creative Commons

Alert! The 5 Worst Mutual Funds Money Can Buy

When it comes to money & markets, making investments is an important part of that economic system. It is vital when entering into the world of investments to learn how to choose them wisely, not only by learning what good investments are, but also learning what are very poor and dangerous investments. 

While it’s easy to rely on investment advisors to provide advice and help manage your portfolios, it’s critical to perform your own due diligence. Bad financial advice is generally chalked up to two specific reasons – self-interest and the advisor’s lack of performing due diligence. Both kinds of poor financial advice comes with its own consequences in the short term, but down the road, they will both result in poor performance or loss of money.

While mutual funds should be part of every investor’s portfolio, not all are created equally. Below is a list of 5 of the worst mutual funds you can invest in this year.

1. The Fairholme Fund

Fund manager Bruce Berkowitz endangered this fund by taking a bet on the recovery of Bank of America, St. Jones, CitiGroup and AIG. Unfortunately the bet was the wrong one to make, as now this fund has lost more than 35% year to date vs a loss 7% for the S&P 500. Close to $10 billion have poured out of this fund over the past year, proving that past performance does not predict future performance.

2. Franklin Gold and Precious Metals Fund

With gold being in the free fall that it is in, and the slim prospects for inflation on the horizon, it's no wonder that this fund is one of the worst investments that can be made. The Franklin Gold and Precious Metals Fund has lost over half of what it is worth since the beginning of the year, with a YTD return of -53%.

3. Diamond Hill Long-Short (DHCFX)

This fund has an equity with 1.00% of the load and a 2.56% ratio, so no matter what the market does, each investor will lose 3.56% of their principal. It has also trailed the S&P 500 and underperformed it by over 16% over the last 5 years, which is a big deal when over 3% of your investment is going just to pay for the fund.

4. Federated Prudent Bear Fund

One easy way to determine how a bear fund is doing is to look at the market: if the market is doing poorly, you can rest assured that the bear fund is doing poorly. And this one is no exception. With a YTD return of -13%, and the average return for the past 3 years being -16%, this is not a wise fund to invest your money into.

5. Fidelity Magellan

Despite how poorly this fund has consistently performed, many investors continue to stick with it. Trailing the S&P 500 over the past 1 year through 15 year rolling periods, and with $17 billion in assets under management, this fund has done so many things wrong that there is a wonder what a loyal following it continually has.

Golden Tips for Refinancing your Mortgage

Interest Rates (Photo credit: 401(K) 2013)

Mortgage rates are going through a good phase now. The interest rates for thirty ear mortgages are at a low end. This means that it is good news for all those who are looking to refinance their mortgages in the hopes of getting a better rate of interest. Many financial experts have opined that if you are looking for a good time to refinance your mortgage then that time is now. Low interest rates mean that you will be able to save more money. So if you have around 20 per cent equity on your house and a credit score of at least 740, then a creditor could give you a good refinancing package. 

If you are a homeowner looking for a refinance then here are some things that you should do and consider before taking the plunge. These are some of the things that experts recommend home owners should do.

Look around

The funny thing about mortgage interest rates is that they can shift really drastically from place to place. So don’t despair and lose hope if you a creditor is offering you a high rate of interest. Do a lot of research into different places before you make a choice. There are quite a few financial websites where you will find reviews of lenders. Also remember not to blindly go in for the interest rates alone. Look at things like customer support, fees, etc. Experts say that interest rates can differ by 1 percent or even more from lender to lender. That can translate into a huge difference in your monthly payments.

Don’t jump for a low rate

It is vital to remember that when you are refinancing a mortgage, there are many costs like closing costs which you will have to pay. These can be quite high. So if you already have a mortgage with a low rate of interest like 5 percent and the rates have dropped to 4 percent, it might not be an excellent idea to refinance. Think of how many months you will take to cover the closing costs and so on. Don’t go in for a refinance if you are not able to cut the rate of your mortgage by at least 0.5 percent or more.

There’s always a closing cost

Many refinancing offers will come with the tempting “no closing costs” line. Don’t fall for it. There will always be some costs for the loan. Even if it isn’t called “closing cost”, companies will charge you something or the other in some form. If they don’t call it closing costs, they could call it “up front charges” where you will be asked to pay an amount to cover certain expenses. It could be added to your new loan principal, instead of being charged separately as closing costs. In case you do happen to find a no or low cost refinancing, you will notice that the rate of interest is slightly higher than the others. They will find some way or the other to recover the money from you.

The best thing to do is to as your creditor to show you all the options available. Ask for a clear breakdown of all the costs you will incur if you do go in for a refinancing. Then, you can choose the one best for you. The main thing to take away from all this is that there will always be costs involved in a refinancing, and if you are aware and are able to handle it, then you can go ahead.

About the author

Jon has been working as a senior loan officer for a bank since the last eight years at RateZip. He advises homeowners on the kinds of mortgage options available to them. In his free time, Jon loves to read graphic novels.

Protecting Your Income

The reality is that, even in this modern first world life, people are still living on the brink on financial ruin. Precautions need to be taken to protect yourself and your family. If the worst should happen and you end up out of work (or worse,) you need to guarantee that your family finances are secure. 

Why it matters

There is a common misconception that the only insurance other than automotive worth having is life insurance. However, life insurance only pays out on death or permanent disability. Given modern medicine, you are a good deal more likely to become temporarily incapacitated than killed. Income protection insurance offers coverage in the event that you are unable to work for an extended period of time for health-related or other reasons. Life insurance isn’t concerned about your kids starving because an earthquake destroyed your place of work. Dying isn’t the only way that you can be prevented from taking care of yourself or your family. People are vulnerable, both physically and mentally, jobs can disappear, and you can be displaced. If you’re in Australia, you can protect your income with AAMI insurance. 

What it does

This coverage is not unemployment insurance, and it certainly doesn’t function an excuse for taking an extended vacation from work. Income protection is specifically for extended lengths of time where you are unable to work. There are specific jobs where this coverage is highly recommendable. For example, if you work in food preparation and contract a severe stomach bug, you can be forced out of work for weeks at a time. In fact, your employer is legally liable if they allow you to work while ill and preparing food. 

How it works

When are unable to work, you get a certain amount of pay in the form of disability benefits; but this usually comes at a fraction of your usual income. That is where income protection insurance comes in. The payout from income protection takes into account all of your payable benefits on top of your regular income, and will match up to three quarters of that income This is not a lifetime fix. 

Most income protection plans only cover one to two years. You can get a policy that will cover you for longer, but serious problems which mean that returning to work is implausible qualifies you as permanently disabled (which is often a part of life insurance.) Since both the benefits and the monthly fees are calculated based on your income over the twelve previous months, income protection insurance is pretty likely to fit into your budget. 

This type of coverage can fit into a wide range of budgets, which is convenient since less affluent people are more likely to lose their income, and less likely to absorb the loss of that income without catastrophic effects. You are very likely to need income insurance at some point. Most people don’t make it through life unscathed. Keeping a safety net under your feet with precautions such as income protection insurance can help tremendously in maintaining your way of life without suffering financially