December 2006

2006

In this Special Holiday Issue:

Holiday Tips 10 Mistakes You Can't Afford Top 10 Year End Tax Tips

(Please feel free to post comments about this newsletter at the bottom of the newsletter.)

Holiday Tips

With all the stress, expense, and expectation surrounding the Holiday Tips holiday season, it can be a challenge to get through “the most wonderful time of the year” with our values and our wallets intact. Here are a few ideas for you to make sure your holiday doesn't lose its meaning.

Laying the Groundwork Starting slow and making gradual changes to entertaining and gift-giving rituals is the best rule of thumb. It may be too late to significantly re-think your family’s routine this year, but you can still set realistic goals (like hand making just two or three gifts!) and make other seasonal tasks more fun.

Host a cookie swap. Everyone loves cookies, but who really enjoys the giant, goopy mess of mixing a gazillion different kinds? Instead, bake in bulk and share. Six friends who each make six dozen of the same kind of cookies can meet for coffee and go home with a dozen of each kind.

Have a card party. Skip the poker and invite friends over to fill out your holiday cards instead. It won’t save you time, but it will turn an often tedious activity into a social gathering at a time when you might otherwise be too busy to see your friends!

Noncommercial Gift Ideas Here are more clever ways to add meaning to your gift list while keeping costs low:

Frame a picture of the family home. Send it to distant friends and relatives who can’t make it home for the holidays as a special reminder that they are missed.

Make an emergency kit for the car or the walk home. Do you know someone with an unreliable car? Create a gift basket with a blanket, flashlight, gas can, jumper cables, and flares. Does your friend walk home from work or class after dark? Give peace of mind with pepper spray, a whistle, and a prepaid calling card.

Give the gift of reconnection. Call an estranged friend or write a letter to someone you haven’t seen in a few years.

Creative Reuse Here are a few ways to make the time-honored tradition of secondhand giving easier and more fun:

Have a re-gift swap. We all have gift-quality things in our closets that we don’t actually use. Gather a few like-minded friends, wipe the dust of those valuable but neglected items, and trade around.

Share a love of reading. Give away the last great book you bought and enjoyed to someone who shares your taste. You’ll get to talk about the story the next time you see each other, and you can always reread a copy at the library.

Get crafty Stop throwing out corks and use them to make decorations. Skewer corks on strands of wire, alternating them with different kinds of beads, and twisting them into ornaments and garlands which can be hung around your home and given away as clever novelty gifts for fellow wine-lovers. With creative flair, other items that reflect your interests can also give a unique twist to holiday fare.

Wrapping Don’t add to the glut of pricey papers and bows in landfills this year. A few beautiful alternatives you probably already have around the house include: kids’ artwork, maps and travel brochures from favorite vacations, magazines, old comics, silk scarves, and fabric remnants. Gifts for the kitchen can be folded in cloth napkins or collected in a picnic basket and wrapped in a tablecloth.

Scaling back at the holidays takes a little effort at first, but can be deeply rewarding, leaving more time for family, faith, or just some extra sleep. Regardless of what you celebrate, best wishes keeping it simple, sane, and truly fun.

10 Mistakes You Can't Afford Mistakes You Can't Afford to Make

Most advice columns tell you how you should do things. But there are all kinds of things you shouldn't do, either. Here are 10 frequent financial mistakes that consumers routinely make — and you should avoid.

Don't:

1. Choose the Wrong Mortgage: With the advent of instant refinancing, home loans are no longer the lifetime obligations they used to be. Still, you don't want to be saddled for even a short period of time with the wrong one. Investigate all your options, then lay your choices side-by-side and do the math, making sure to compare worst-case scenarios. Be sure to look at initial interest rates, future interest rates and payments (if different), and the possibility of prepayment penalties. (Some states still allow pre-payment penalties. Be sure to ask!)

2. Confuse "Pre-Approved" and "Pre-Qualified" with a Loan Commitment: These are debatable terms in real estate because not all lenders apply the same definition to each expression. In fact, one leading real estate dictionary contains neither expression because their definitions are uncertain. According to one school of thought, however, when you are "pre-qualified," the lender is making an educated guess about how much you can borrow based on information you've provided. When you are "pre-approved," the lender has verified everything you have told him or her and is offering to lend you up to a given amount at current interest rates — under certain conditions. Whether pre-qualified or pre-approved, final clearance and a check at closing — a loan commitment — are subject to an appraisal satisfactory to the lender, good title, a last-minute credit check, and other verifications. When meeting with lenders, always ask how they define each term and what additional steps will be required to obtain a loan.

3. Have Too Much Credit: Excessive credit is almost as bad as no credit or even bad credit. Even if you pay your bills on time, lenders tend to focus just as much on how much credit you have available to you as they do on timeliness. So being up to your ears in car loans and credit cards is a sure way to be turned down for a mortgage. Postpone any big ticket purchases until after you buy your house.

4. Lie on Your Loan Application: Exaggerating your income on a mortgage application or putting down other untruths can be a federal offense. Lenders rarely prosecute liars. But if they find out later, they can call your loan due and payable. Don't ever sign your name to a loan application that is not completely filled out, either. Loan officers have been known to stretch the truth to get a client approved, but it's the borrower who ends up paying the price, often in the form of monthly loan payments he can't afford.

5. Hide If You Can't Make Your Payments: The worst thing you can do is ignore phone calls and letters from your lender when you are behind on your payments. Lenders have many options at their disposal to help keep borrowers from losing their homes to foreclosure. But they can't do anything for you unless they can talk to you about your difficulties. Lenders are the enemy only if you give them no other choice.

6. Skip a Home Inspection: Failing to make your purchase contingent on a satisfactory home inspection could be a costly mistake. Independent home inspectors examine houses from stem to stern. They'll be able to tell you whether the roof and/or basement leaks, whether the mechanical systems are in good shape and how long the appliances should last. They can't report on things they can't see, but at least their trained eyes are better than yours. So don't pass just to save $300-$400; that's money well spent.

7. Hire Just Any Agent to Help You: All real estate agents are not the same. You want to look for those who specialize in what you're looking to do. If you're looking to sell a home, ask your candidates how they plan to market your house, what you can do to make the place more attractive to prospects and how much you should ask. If you don't like any of the answers, looks elsewhere. And above all, stay away from relatives. Unless Aunt Bessie or Nephew Nick fit the description above, keep looking. Likewise, if you're looking to buy a home, find a buyer's broker, preferably one that does not take listings, or one that works for a company which lists homes for sale. These agents typically have to represent the best interest of the seller. If you're buying, and you choose one of these so-called "listing agents", they are obligated to tell their sellers everything they can find out about you as a prospective buyer. Not always a smart move if you're trying to negotiate for the best price!

8. Fail to Check Out a Remodeler: Never, ever hire a contractor who knocks on your door or says his prices are good for only a few days. Reputable remodelers don't usually solicit door-to-door, and they don't cut prices just because they happen to be in your neighborhood. Check out a potential contractor thoroughly by calling several of his past clients, your local better business bureau, his bankers and suppliers, and your local consumer affairs agency.

9. Pay Too Much Upfront: If a contractor asks for more than a third of the contract price as a down-payment, chances are something's wrong. At worst, he's a scam artist who has no intention of returning after he cashes your check. At best, he's undercapitalized and can't afford to purchase materials on his own. Or, in between, he could be using your money to pay workers on another job. Never give a contractor cash, either.

10. Burn Your Mortgage: It's a wonderful feeling when you make your last house payment. After all, the place is now yours, all yours. Many people celebrate by holding a mortgage burning party. But they torch the original document. Don't. Make a copy and burn that instead. Keep all your loan docs in a safe place.

Top 10 Year-End Tax Tips

Despite the year's end looming, your tax fate is not yet sealed - there are still some chances to optimize your tax filing and save some money.

1. Live energy efficient

The government is keen towards those who build green. If you're going to make your home more energy efficient within the next two years, you can get up to $500 in tax credits. If you're going to build a home that uses 50 percent less in heating and cooling costs than other homes, you can get up to $2,000 in tax credits if it is completed after August 8, 2005.

2. Do a tax projection

The Alternative Minimum Tax (AMT), that vestige of the tax system passed in 1970, was meant to target only high income individuals who were subject to many exemptions. But as incomes rise, the Congressional Budget Office estimates that soon one in five taxpayers will be forced to pay it. To figure out if you'll be hit, do a full tax projection and you'll be able to see whether you should pick up the pace of deductions - or defer them.

3. Figure out your income and deductions

The most basic year-end move is to adjust the timing of income and deductions. If your income is expected to come in high, you can delay some of it until the next calendar year to save taxes. You can also accelerate payment of deductible expenses like job hunting costs or dues of professional organizations.

4. Postpone that bonus

If you know you've got a bonus coming, look into having your boss postpone the big check until January. You can't defer the bonus being taxed by simply not depositing the check until later. If you expect you're going to be forced to pay the AMT this year, consider accelerating the current year's income to mitigate the negative aspects of the tax.

5. Sock away some for retirement

A great way to put money away for the future is a deductible Individual Retirement Account (IRA). A conventional IRA will defer taxes as your investments grow, while a Roth IRA is actually tax-free. You have until April 15 to open an IRA and make a deductible contribution for the prior year. And if you have a 401K plan at work, put in as much as you're allowed to.

6. Pay off those deductible expenses before year's end

If you pay off your state taxes or property taxes early, that accelerates your federal deductions. You can make an extra mortgage payment (the interest is deductible), or go for that dental work or surgery before year's end.

7. Give it to charity

If you give cash to a charity, you can deduct it for the current year. If you give property, you are usually allowed to deduct the full market value. For more expensive donations, look into getting an appraisal to determine the fair value of your property.

8. Give gifts to children

If you give that gift to children or other relatives before the year is out, make sure to have that check clear by December 31st. Gifts up to $12,000 per person need not be reported.

9. Offset your capital gains

Take a long look at your investment portfolio to determine whether you should sell some losers before year's end to offset your capital gains this year. Capital losses are put together with capital gains, but are also deductible against up to $3,000 in income a year.

10. Marriage helps

Even if you get hitched at 11:59 p.m. on December 31st, the government considers you married for the whole year.