January 18, 2012

Buyers Guide

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January 18, 2012

A SPECIAL SUPPLEMENT TO

Buyers Guide

ROOKIE MISTAKES
Missteps young investors should avoid

PARTNER

ING

UP
How to find a financial planner you can trust
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SURVIVING
A RECESSION
Plan ahead for the next recession

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4 5 6 6 7 8 9 10 10 12 14 15 16 17 18 19 19

How to manage personal debt Simple means to saving money Missteps young investors should avoid How to avoid common investment traps Traditional IRA vs. a Roth IRA Finding a financial planner you can trust Finding the right bank for personal banking Buying a home? Learn the basics of home warranties Safety measures to take when banking online Plan ahead to survive the next recession Delaying retirement has financial, social benefits The basics of estate planning 10 ways to clothe kids for less How to control online spending Things to know about using credit abroad How to beat luggage fees

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How to manage PERSONAL DEBT
with card holders about repayment plans that make it easier to pay down debt. But once an agreement is made, card holders must make meeting the terms of that agreement their top priority.

Individuals with substantial credit card debt might be able to reduce the stress of paying down that debt by calling their credit card company and working out a new repayment plan.
• Stop accruing bad debt. Using a card wisely is the key to avoiding unnecessary debt. When using credit cards, do not use them for everyday purchases like groceries or movie tickets. This type of credit card usage is habit forming, and it’s very easy for card holders to quickly amass a large balance on their accounts for items they could just as easily could have paid for with cash. Keep in mind interest will be charged on all balances not paid in full each month, so don’t make that cup of coffee or that pair of movie tickets cost even more by adding interest to the overall cost. • Pay down high-interest debts first. Always work to pay down high-interest debt first while paying a little more than the minimum on low-interest debt. If a car loan came with an especially high interest rate (hint: borrowers whose down payment on a car loan was small or nonexistent are likely saddled with a high-interest loan), work to pay down that balance as much as possible. Something as simple as paying an extra $25 per month on a $200 per month car payment can reduce the length of time it takes to pay off that loan considerably. Once a high-interest debt is paid off, move on to the debt with the next highest interest rate. • Stop paying the bare minimum. Paying just the minimum will barely cover the interest. That means the principal will hardly disappear, and the debt will be a seemingly impossible obstacle to overcome. Pay more than the bare minimum each month, even if it means making sacrifices elsewhere. • Avoid borrowing from Peter to pay Paul. Transferring balances from a highinterest card to a low-interest card is one thing, but borrowing against property or a retirement savings account is playing with fire. With regards to borrowing against a 401(k), the penalty to do so, not to mention the extra income tax such a withdrawal will accrue, before retirement is substantial. In addition, the value of those retirement savings will suffer considerably as the interest earned will be on that much less money until the full amount is paid back to the account.

As if anyone needs their memory jogged, debt is a substantial problem for men and women living in fully developed countries. Estimates vary, but numerous surveys have indicated the average American

household has more than $10,000 in credit card debt,
a figure that doesn’t include debt such as mortgages, car loans or student loans. In Canada, an early 2011 report from the Vanier Institute of the Family suggested

the debt-to-income ratio for the average Canadian family was 150 percent, which means that for every
$1,000 a Canadian family earns, it owes $1,500. What these figures illustrate is that even the most financially savvy debtor may be in a precarious position, one that, should an unforeseen layoff or medical emergency occur, could turn disastrous in a relatively short period of time. As a result, an individual’s ability to manage personal debt is of paramount importance, and the following tips can help men and women walking a financial tightrope address their debt in a way that might help them get back on their financial feet. • Eliminate bad debt. Not all debt is bad, but credit card debt is rarely good. Card holders with substantial credit card debt should contact their companies as soon as possible to see if the company is willing to work with them on a repayment plan. This is more prudent than declaring for bankruptcy, which will negatively impact an individual’s credit score for years to come. Companies are often willing to work

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Simple means to saving money
Re-examine existing insurance policies.
An insurance company is not liable to call you and offer lower rates. However, a consumer often finds his or her company is willing to lower rates for those who initiate the conversation. For example, motorists who have gone a significant amount of time since their last speeding ticket or traffic accident can often renegotiate their auto insurance policies and earn a lower rate. Some companies will automatically lower these rates, while others need some prodding. Oftentimes, the threat of cancellation is enough to motivate a company to reduce insurance costs. But policy holders won’t know unless they try. If the company claims there’s no wiggle room, start shopping around for a new company, and don’t hesitate to jump on a more affordable policy, even if it can be a hassle to change companies and policies. Another thing to consider when examining insurance policies if the level coverage is still necessary. For instance, men and women who opened an auto policy when their car was brand new might not want full coverage now that the car has gotten older. Reducing coverage can save significant amounts of money.

Shop sales.
Shopping sales is a simple way to save, yet many people still don’t take advantage of sales. Whether grocery shopping, shopping for home furnishings or adding on to your wardrobe, shopping sales is a great way to save substantial amounts of money. When visiting the grocery store, sign up for the store’s club membership, which in many cases automatically earns you sale prices as long as you remember to swipe the club card before paying. When shopping for clothes, peruse the clearance racks, especially at the end of the season, when stores simply want to get rid of items and, as a result, mark them down heavily. The items will still be wearable next season, and you will have saved a lot of money without doing much work.

I

f the ongoing recession has taught people anything, it’s the need for saving money. Many people were caught off guard by the recession, and studies have shown just how little men and women had saved before the bottom fell out on the economy. In a 2011 poll from the National Foundation for Credit Counseling, 64 percent of respondents admitted they would not be able to rely on their savings account if a $1,000 unplanned expense suddenly popped up. And the problem of not saving enough is not exclusive to Americans. A 2011 survey from the Canadian Payroll Association indicated that 57 percent of the nearly 2,100 respondents admitted they would be in financial trouble if their pay was delayed by just one week, while 40 percent expect to delay their retirement due to lack of savings. Such figures should be enough to motivate men and women to start saving, not only for retirement but for an unforeseen event like a layoff that could put finances in serious jeopardy. There are ways men and women can save money that don’t require too much sacrifice.

Contact your credit card provider.
Credit card holders in good standing almost always have the means to saving money at their disposal. That’s because the credit card company will likely be willing to lower your interest rate if you are a customer in good standing. Lowering the interest rate can save card holders significant amounts of money, but it’s still ideal for card holders to pay off their balances each month and avoid interest accruing in the first place. When speaking with a representative of your credit card company, discuss any additional benefits the company might provide. For example, some cards have an incentive program that provides cash back on qualifying purchases, which might include groceries or airline tickets. If your card offers such incentives, take full advantage of them, just be sure to pay off the balance in full each month.

Pay extra each month on loans.
If paying extra money each month sounds like an odd way to save money, keep in mind that paying ahead on loans can substantially reduce the amount of interest that accrues over the course of the loan. Some loan agreements include prepayment penalties that actually penalize customers for paying ahead. But if the loan agreement has no such penalties, sending a little extra each month reduces the loan’s principle faster, meaning borrowers will pay less in interest and pay off their loans faster. Saving money is something many people insist they will start doing tomorrow. But it’s the little changes you make today that can add up to significant savings down the road.

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MISSTEPS YOUNG INVESTORS SHOULD AVOID
overcompensate down the road. For instance, an investor who had the chance to invest in a particular asset but passed, only to see that asset grow significantly, might overcompensate the next time an opportunity presents itself. This is especially dangerous when it comes to investing, as fruitful investment ideas certainly don’t grow on trees. An investor who begins young and starts learning how to invest will feel more comfortable with his or her portfolio, and won’t feel the need to make up for lost years down the road.

How to avoid common investment traps

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Being an ill-informed investor
Young investors know about the need to invest, but many simply don’t ask enough questions about their investments. A young investor is in a great position for a number of reasons. Young investors are typically decades away from retirement and, as a result, can take on the most risk. The older an investor gets, the more risk averse he or she should become. Young investors commonly understand this principle, but that does not mean they should simply sit back and accept it when a risky investment does not pan out. While it’s good for young investors to take risks, if the risk doesn’t pay off, learn the reasons behind its failures. Doing so will lay a solid foundation for future investments. Another thing young investors must learn is to avoid taking a risk for the purpose of taking a risk. While it’s true young investors can afford risks more than their parents or grandparents, that doesn’t mean they should simply invest in any and all risky opportunities with the hopes of one of those opportunities eventually paying off in a big way. Learn what makes some risks better than others, and don’t necessarily get married to a certain investment strategy. The markets are constantly evolving, and investors need to evolve along with them to be successful over the long haul.

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he global economy remains in flux, and investors across the globe continue to witness a roller coaster ride with respect to their investments. Substantial gains one day are followed by a precipitous decline the next, and many investors are simply along for the ride and struggling to make sense of it all. Though veteran investors are more familiar with such fluctuations, young investors might be more confused. Some might even delay getting started on their portfolios, which is one of the many mistakes young investors commonly make. As unpredictable as the market may be, investors are often much more predictable, often repeating the behaviors of those who came before them. The following are some of the more common mistakes young investors tend to make, each of which should be avoided no matter how difficult the market becomes.

Delaying the inevitable
Young people, particularly those who are just beginning their professional careers, often procrastinate when it comes to investing. This could be thanks to a host of factors, including inexperience, fear or simply wanting extra money in their pockets while they’re young. Each of these factors makes sense, but none of them should keep young people from investing. Most young people have seen the projections that show the staggering differences in money earned when a person begins investing at 25 as opposed to 35 (or even 30). Even something as simple as investing through a company’s 401(k) is a good place to start, and young investors should take advantage of the opportunity to do so as soon as they’re eligible. When young investors put off investing, the results later on are not often pretty. That’s because of the tendency to

Only investing “extra” money
Another common mistake young people make is the way they perceive investing. Many young people approach investing as something they will do when they get some “extra” money. Unfortunately, the day young people get this extra money rarely, if ever, arrives. Additional expenses, including vacations with friends or nights out on the town tend to take precedence, and young people find themselves approaching or even in their 30s without an investment portfolio to speak of. Treat investments as a monthly expense like rent or a car payment. Then, if there is any extra money at the end of the month, add that to the amount already invested. Tomorrow never comes in the world of investing, and young investors in particular need to realize that and get started as soon as possible.

hen it comes to investing, many people approach their initial foray with a degree of trepidation. Much of that is due to the nature of investing, which involves a leap of faith even for the most conservative investments. The economic downturn that began near the end of the first decade of the 21st century has only added to the fears associated with investing. While investing is a risk, it’s also a necessary step for men and women hoping to secure their financial futures. Whether an investment portfolio consists of just a 401(k) or an IRA, men and women who hope to retire need to find a way to balance their fear of investing with their desire to retire comfortably. Many of those fears can be countered by watching out for some of these common investment traps. • Environmental investments. The “go green” movement has opened the door for scores of investment traps that prey on an investor’s desire to invest in ways that will improve their bottom line and the environment at the same time. Such traps are especially prevalent in the aftermath of environmental disasters like oil spills. Investors should be wary of e-mail or telemarketing campaigns that promise investors they have the products needed to fix disasters, whether it’s an oil spill or a hurricane. Whenever investing in green technologies, investors should do extensive research before agreeing to invest. • “Hot tips.” Nearly every investor has been offered a “hot tip” at one point or another. Novice and even veteran investors should be especially wary of such tips, which are often unfounded and could cost investors substantial amounts of money in the long run. • Special deals. Some private deals are legitimate, though investors, particularly beginners, must be especially wary of “special” investment deals that often prey on unsuspecting investors. Typically framed as a chance to get in on the ground floor and invest in a business that’s trying to raise capital, these “special” deals are often fraudulent and investors could lose a lot of money. • Beware of online sales pitches. Social media has made it easier than ever before for con artists to victimize unsuspecting investors. This investment trap often boasts high-yield returns and might even suggest these returns are tax-free. Any investment that guarantees either of these things is too good to be true, and beginning investors should avoid them. • Gold scams. Though some investors embraced gold as an investment opportunity during the economic downturn, beginners should be wary of investment pitches that offer to buy gold for investors and then sell it once the value of gold has risen. The North American Securities Administrators Association warns that in many of these instances the gold does not exist. Investors who want to invest in gold should instead consider a gold fund. To learn more about investing, visit the NASAA at www.nasaa.org.

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R

egardless of how much the economy struggles, men and women will always have an eye toward their retirements. Saving for retirement might be more difficult in a bad economy, but that doesn’t mean such saving should not remain high on an individual’s priority list. One of the more popular ways men and women save for retirement is via an IRA, or an Individual Retirement Account. Contrary to popular belief, an IRA is not an investment but essentially a savings account with considerable tax breaks. Unlike a 401(k), IRAs are commonly opened by individuals acting on their own and not through their company, though selfemployed individuals and small business owners can open an IRA. When it comes to choosing an IRA, many people choose between a traditional IRA and a Roth IRA. For those unfamiliar with IRAs, there are differences between the two.

Traditional IRA
What is a traditional IRA?
A traditional IRA is a tax-deferred account, and account holders only pay taxes on their money when they make withdrawals in retirement. When taxes are deferred, all of the account’s dividends, interest payments and capital gains are allowed to compound each year without being taxed. This allows the account to grow considerably faster than a taxable account. Most people can open a traditional IRA, but there is a qualification. An account holder or an account holder’s spouse must earn taxable income and be under the age of 701⁄2 to contribute to a traditional IRA. That’s the easy part. Determining if the contributions to a traditional IRA are tax deductible gets a little tricky. Much of this depends on an individual’s income and whether or not he or she is offered a 401(k) or other retirement plan at work. The guidelines that govern if contributions are tax deductible change from year to year, so people should familiarize themselves with these guidelines before opening an account.

vs. a

Roth IRA
individuals should familiarize themselves with all the rules and restrictions that apply, including which withdrawals are penalty-free and which incur a penalty. Men and women who choose a Roth IRA can also continue making contributions after they have turned 701⁄2, whereas traditional IRA account holders cannot continue making contributions after the age of 701⁄2. What’s more, men and women who have a Roth IRA are not required to begin making withdrawals once they reach age 701⁄2 as they would be with a traditional IRA. Choosing between a traditional IRA and a Roth IRA depends on the individual and their income potential, specifically which tax bracket they expect to be in upon retirement. Money can be converted from a traditional IRA into a Roth IRA, but that money cannot be withdrawn for at least five years without incurring a penalty. Before making a decision, men and women should consider discussing their options with a financial advisor to ensure they make the best decision for them.

What is a Roth IRA?
A Roth IRA allows money to grow tax-free. This is because a Roth IRA is funded with after-tax dollars that men and women have already paid taxes on. The benefit here is that the money in a Roth IRA grows tax-free and, upon being withdrawn, no additional taxes are paid. Many men and women prefer a Roth IRA over a traditional IRA because the former is more flexible with regards to withdrawals. A Roth IRA allows account holders to withdraw their contributions penalty-free at any time for whatever reason they choose. However, account holders cannot withdraw investment earnings before age 591⁄2 unless the reason for the withdrawal is exempt. If not, account holders might have to pay a 10 percent tax penalty. Penalty-free withdrawals can be made for a number of reasons, including paying medical expenses greater than 7.5 percent of adjusted gross income, paying for a first-time home purchase and paying for costs of a sudden disability. Before opening a Roth IRA,

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Buyers Guide

January 18, 2012
(www.sec.gov). In Canada, the country’s federal Department of Finance (www.fin.gc.ca) supervises the regulation of financial institutions and investment dealers. Once a financial planner claims certfication, men and women should contact the above agencies in their respective countries to verify that certification. This might not be easy and will likely take some time, but it’s well worth it before just handing money over to a stranger. Once you have done your homework and investigated prospective financial planners, verifying their backgrounds and that their certifications are current and they are in good standing with professional organizations and regulatory bodies, there are additional things to consider before making a final decision. • References. Ask friends or family members if they can recommend any financial planners. Granted, this isn’t foolproof (many of Madoff’s victims knew each other), but it might help quell some of the fear associated with hiring a financial planner. Another way to get references is to simply ask the planner for two or more of his clients and contact them with any questions. • Fees. Ask the planner how he or she gets paid. Fee-only planners don’t work on commission, but earn their money for the advice they provide. Fee-based planners might get some commissions for certain products, but the bulk of their earnings will come from the fee their clients pay. A planner whose earnings are commission-based is paid by the companies whose products he or she sells. Fees can vary from very cheap to expensive, but this also depends on the services the client needs. Don’t base the decision on a preconceived dislike of commissions or what planner charges the lowest fees. The goal is to get the best service possible, and if that costs a little extra, it may be worth it. But don’t automatically associate high fees with better performance or competent advice, either. • Control. A financial planner is there to provide advice and assistance, but the client ultimately has the final say. Find a planner who recognizes the client is the one in control and respects a client’s opinions and concerns. Anything short of that is likely going to become a difficult and possibly disastrous relationship.

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Finding a financial planner you can trust
The up-and-down nature of the economy over the last several years has forced many people to re-examine their finances. Uncertainty reigns with regards to the market, and investors have begun to rely more heavily on financial planners to help them make sense of an unpredictable financial landscape.

or those who have never worked with a financial planner before, finding the right fit can be difficult if not intimidating. Few have forgotten the likes of Bernie Madoff or the handful of so-called “mini Madoffs.” These people appeared to be trustworthy financial advisors or investment gurus only to be revealed as Ponzi schemers and white collar criminals when the world’s financial markets started to collapse. With such schemers still fresh on the minds of prospective investors, it’s understandable to approach hiring a financial advisor with uncertainty. But for every Bernie Madoff or R. Allen Stanford, there are many more trustworthy financial planners who truly want to help their clients grow their wealth and meet their financial goals. When beginning the process of finding a financial planner, investors must take their time and exercise due diligence when vetting prospective planners. There are also a few things men and women must know about the business before the process begins. • Anyone can refer to himself as a financial planner. Financial planner is a rather broad term applied to a group of people who provide a varying degree of service. Some planners can assess every aspect of your finances — be it savings, investments, taxes, retirement, etc. — and help devise an effective plan to meet your financial goals. Other financial planners can only recommend their clients invest in a narrow range of products. When interviewing prospective planners, always ask what they can and cannot do. Investors often prefer a financial planner who can help with all aspects of their finances and not those whose scope is rather limited. • Certifications vary. Some people who call themselves financial planners are not necessarily more qualified than the people for whom they’re working. Certifications vary, so always ask a planner to produce proof of his or her certifications. Certain credentials, including a CFP®, or Certified Financial Planner, or a CFA (Certified Financial Analyst) are more common than others, but, in the United States, financial planners who provide their clients with investment advice must register with the Securities and Exchange Commission

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January 18, 2012

Buyers Guide

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Finding the right bank for personal banking
When searching for a bank to do their personal banking, many people find banks aren’t all that different from one another. Banks offer similar services, and many have similar rules and regulations with regards to opening a personal account. Though banks might be similar, the individuals who open accounts are anything but. And when it comes to finding the right fit to for personal banking, men and women should consider what’s most important to them before opening a new account.

Restriction and Penalties
Men and women who struggle to maintain a minimum balance in their account should look for a bank with no minimum balance requirements. Such banks do exist, and these accounts are often most attractive to young professionals who are just getting on their feet. When discussing restrictions with the bank, also inquire about the penalties. If you have a problem maintaining a minimum balance, you might also find yourself bouncing a check or overdrawing on your account. If that’s a realistic possibility, find a bank that offers adequate overdraft protection, but beware that such protection typically comes at a hefty cost, oftentimes via a high fee.

The reliability of online banking services, be it on a computer or through a cell phone app, is something that bears considerable weight with consumers looking for a bank to handle their personal banking.

Technology
Nowadays, many people go months if not years without ever stepping inside an actual bank. Online banking has made it easier than ever before to track spending, move around various accounts and pay bills. If online banking is especially important to you, find a bank that makes it easy to do your banking via the Web. Some banks charge for their online bill-pay services, while others don’t. Another thing to consider is whether or not a bank has an app for your phone. If you are an on-the-go professional who uses a mobile device to do your banking, then you will want a bank with a reliable, secure and proven app for your phone. Some banks have been slower to embrace this particular form of banking than others, so do your research into banking apps.

ATM Accessibility
No one enjoys paying ATM fees, and some people are more adept at avoiding them than others. If those fees have been catching up with you, look for a bank with branches or ATMs located near your home and your office, the two places you likely spend the most time. Nowadays, ATM fees can be as much as $2 when using another bank’s machine, and your own bank might also be charging you an additional $2 on top of that. If you rarely use another bank’s ATM, then ATM accessibility shouldn’t influence your decision too much. But if you are routinely spending $4 to access your own money, emphasize finding a bank with more accessible ATMs.

Additional Needs
Men and women who have a mortgage, car loan or other type of loan from a specific bank might want to consider making that bank their choice for personal banking as well. That’s because banks will often entice borrowers to do their banking as well as their borrowing with them by offering perks like free checks, low-interest credit cards and low-interest loans. In addition, some banks waive the minimum balance requirements for customers with multiple accounts.

John W. Slough, CPA
Certified Public Accountant and Consultant
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Buyers Guide

January 18, 2012

Buying a home? Avoid these mistakes
The dream of home ownership is one that lives on in spite of the global economic struggles. The process of buying a home can be an emotional roller coaster ride, with feelings of excitement mixed in with exhaustion, fear and uncertainty. Over the last several years, the real estate market has been turned upside down, and many prospective buyers have begun to question some of the conventional wisdom associated with buying a home. While such skepticism might be a healthy attitude in the current market, prospective buyers — particularly those who have never purchased a home before — should avoid the following mistakes that buyers make regardless of whether the market is up or down.

Failure to get qualified beforehand.
Mortgage qualification is essential when buying a home, as it gives buyers preapproval for a loan before they make any offers. Making an offer on a home before you know what the bank is willing to lend you is a waste of time for everyone involved, including you, the seller and the real estate agents involved. Some agents will not show a home if you don’t have a preapproval. Once preapproved for a loan, don’t take any steps that might put that approval in jeopardy. This includes anything that might drastically alter your credit score.

Being blindsided by additional costs.
First-time homebuyers, once they have moved into their home, often experience some sticker shock when the additional expenses associated with home ownership arise. These additional expenses include property tax and insurance costs and can be substantial. Even those buying a condominium or coop should expect monthly maintenance fees even if their new place is brand new and needs no maintenance.

Skimping on the cost of an inspector.
An inspector is your last chance to find out if a home is your dream home or a money pit. Even if a house appears to be everything you want, don’t close on the sale until the house has been thoroughly inspected. The old adage that advises against judging a book by its cover certainly applies to buying a home, and prospective buyers should enlist the services of a qualified inspector before closing on the sale of a home.

Shooting for the moon.
The ongoing recession is in part the result of predatory lending that saw banks grant excessive loans to applicants who, in hindsight, could not actually afford all that they were approved to borrow. The result was many people buying homes they could not afford, and then suffering some steep consequences, including foreclosure, when the first mortgage payment came due or the interest rate rose. Firsttime and even veteran buyers must avoid shooting for the moon when it comes to buying a home, and instead only buy one they know they can afford. What the banks says you can afford isn’t always the same as what you know you can afford. Only buy a home you know you can afford, regardless of whether the bank has approved you for a larger loan.

Pigeonholing yourself into an inadequate living situation.
Just like buyers shouldn’t go overboard, they also must avoid compromising on the things that are most important to them. For example, many of today’s buyers, fully aware of the rash of foreclosures and all the housing horror stories of the last several years, are reticent to commit to a home, and might compromise with a condo or co-op. But if a home is what you really want, and another living situation that mirrors apartment life is going to make you miserable, don’t settle for that situation for the sake of security. Doing so could cost you financially, especially when you realize the situation isn’t what you’d hoped for and look to sell earlier than is ideal.

Learn the basics of home warranties
Although home buyers are urged to hire an inspector and check a property and structure from top to bottom before signing on the dotted line, a home inspector cannot foresee everything that may crop up after a person moves into a home. “When my home inspector reviewed the property he found only minor things that needed attention,” says Jeannine in New Jersey. “After I moved in, we shortly learned that the crawl space had flooding issues that would require a lot of money to fix properly.” Home warranties can be a smart investment that take some of the financial pressure off of new homeowners. They can also be negotiated into the sale terms of the home so that the seller is responsible for providing the warranty to the new buyer. Home warranties do not negate the need for homeowner’s insurance, but they can add protection against large monetary pay-outs to repair many items around the house. Policies may differ as to specific coverage, but most home warranties will cover major systems of the home, such as heating/cooling, plumbing, electrical, as well as certain appliances. To decide if a warranty is the right investment, home buyers should consider the following: • Home warranties are only as good as the company backing them. Careful investigation into the trustworthiness of the warranty company and its track record should be completed. • Read the fine print of the warranty. Learn what exclusions exist, which may not make the warranty practical. • Keep in mind that the warranty company reserves the right to determine if a repair or replacement is adequate in a claim situation. • In general, warranty companies work with their own set of contractors. This means a homeowner may not be able to hire his or her own preferred contractors to do work. • There may be a deductible or a fee charged prior to having a technician assess a repair situation. • The warranty company may require inspection of the house to be sure items are in good working order before offering a plan. • If a warranty is offered through a home seller, there may be no negotiation on the coverage or company used. Home buyers should keep in mind that there are many unforseen expenses that can arise when purchasing a new home. Having some additional protection, such as a home warranty, could mean saving money on out-of-pocket repairs.

Buying a home is arguably one of the largest purchases a person will make. It can also be one of the most stressful. Individuals take quite a financial leap when buying a home. Even after careful consideration of funds and budgeting, it’s easy to become overextended. A home warranty can take some of the bite out of unexpected expenses.

January 18, 2012

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Buyers Guide

January 18, 2012

Safety measures to take when banking online
In mid-2011, roughly 200,000 Citigroup credit card customers received some startling news. Hackers had accessed the gigantic bank’s system, a security breach that exposed account holder’s names, e-mail addresses and account numbers to hackers.
News of the breach created a sense of panic among Citi’s customers. Despite the fact that customers’ social security numbers, dates of birth, card expiration dates, and card security codes were not compromised, the breach did leave those customers whose information was accessed susceptible to further fraud. Having names and matching sensitive information, such as e-mail addresses and account numbers, enables hackers to potentially perpetuate mass fraud, leaving Citi customers at great risk. The Citi breach wasn’t the only breach to cause panic. Shortly before Citi revealed its security had been compromised, a banking breach at the People’s Federal Credit Union in Texas was victimized by hackers who used a software program to generate debit card numbers which they then used in other states that do not require PIN numbers to make a transaction. That breach left many of the credit union’s customers with nothing in their accounts, though the credit union insisted the money would be replaced. In Australia, a security breach caused a handful of banks to cancel credit cards in an effort to protect customers. These incidents occurred within weeks of one another, leaving many account holders wary of online banking. While it’s safe to assume there will be future security breaches, that doesn’t mean banking customers should abandon online banking. But it may mean customers should take security more seriously. The following security measures are some of the ways men and women can protect themselves from criminals looking to access their information. • Be wary of junk e-mails. Junk e-mail is less prevalent than it once was, but that doesn’t mean it’s now harmless. In fact, hyperlinks within junk e-mails are one of the more common ways hackers gain access to private a information. Such links will likely take consumers to sites that look very similar to their bank’s Web site, and it’s there where consumers find themselves in deep trouble, entering personal information that they’re essentially handing over

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Banking with a mobile device is one of the many trends hackers have begun to take advantage of, victimizing unsuspecting customers who use online banking apps that aren’t necessarily secure.
to criminals. Banks do not use e-mail to contact their customers about account balances or other sensitive information. Even if the e-mail appears legitimate (and it likely will), do not click on the link within it. Instead, go directly to the institution’s Web site and login from there. • Protect mobile devices. Mobile devices are the same as computers and they need the same protection. More and more people bank through their mobile devices, but those people might be surprised to know mobile banking apps are not always very secure. When downloading apps for your phone, always research their security before downloading and always update the mobile device security software as frequently as possible. • Change passwords. It’s getting increasingly difficult to remember passwords. The more people go online, the more likely they are to be asked to create a username and password. Each is required for e-mail accounts, online banking, accessing bills online, and just about anything else that involves sensitive information. While it can be difficult to keep track of all those usernames and passwords, it helps to change them frequently and to never use the same password for multiple accounts. It’s especially important to have a unique password for online banking. In addition, make answers to additional security questions something only you would know. For example, if asked for your high school’s mascot, say “meatloaf” or “hot dog” instead of the school’s actual mascot. Such answers are more likely to be known by you and you alone. • Monitor accounts online daily. In response to the Citi breach, many customers may have considered closing online accounts. However, such a measure makes it more difficult to monitor financial activity. Instead of eliminating accounts, people can monitor their online accounts on a daily basis. This makes it easier to customers to detect fraud and report it to their financial institution immediately.

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14

Buyers Guide

January 18, 2012

Plan ahead to survive the next recession
The economy is still reeling from the recession, and the question of when the global economy’s struggles will end remains a mystery. One thing we do know is that when the economy does finally rebound, it won’t remain stable forever, and it’s imperative that men and women prepare for the next recession, even if that preparation begins before the current recession ends. The up-and-down nature of the economy has made it difficult to plan for tomorrow, let alone years down the road. However, there are steps people can take to protect themselves from the next recession.

Reduce debt. Debt is an albatross
regardless of what state the economy is in, but carrying significant debt during a recession is like playing with fire. During the current recession, many workers lost their jobs, and even those who didn’t might not be so lucky when the next recession arrives. Paying down debts now improves financial flexibility down the road, and that flexibility could make the difference if the next recession arrives and you find yourself out of work. If you carry substantial debt on a credit card, contact the company and discuss reducing your rates or even transferring the debt to a different card with lower rates.

more. Conventional wisdom used to suggest men and women have enough saved to get by for anywhere from three to six months. However, the job market remains so difficult that people can toss that conventional wisdom aside and save more. This might sound simple, but saving has apparently fallen by the wayside. A 2011 poll from the National Foundation for Credit Counseling found that 64 percent of Americans would need to utilize a source other than their savings account to pay for a $1,000 unplanned expense. This illustrates that many simply aren’t saving enough. Start now, even if contributions are small, and don’t stop saving.

Cut back on monthly expenses. Everyone has monthly
expenses they insist they cannot live without. Premium cable channels or monthly trips to the salon might seem like must-haves, but they’re really not. If your savings are especially low or your debt is especially high, cut back on unnecessary expenses until your savings has grown significantly or your debt has been eliminated.

Expect a recession every few years. One of the best
things men and women can do when preparing for a recession is to understand that recession is normal and will likely occur every few years. When the current recession ends, recognize that another one might be right around the corner. Understanding the nature of a recession helps men and women control their finances and be better suited to handle it when it makes its inevitable return.

save, save, save.
Individuals should have an emergency fund set aside for surviving a recession should they find themselves suddenly out of work. One of the more astonishing things about the current recession was how quickly many people’s cash supplies dried up. An emergency fund should be enough to pay your bills for at least six months and as much as a year, if not

Diversify. Diversification is a good
investment strategy, but it’s also effective as a professional strategy. With regard to your portfolio, balance your assets and make sure all of your eggs are not in the same basket. With regard to income, examine new ways to make money. Diversify your income by doing some freelance work on weekends or weeknights. Even if the amount you earn is relatively small, it can be added to your savings and, should you find yourself out of work, this extra income softens the blow.

DID YOU KNOW?

A credit score is a number generated by a mathematical formula, or algorithm, based on information in each individual’s credit report. Lenders use different scoring models to determine if an applicant is worthy of credit, and these different models are why men and women have three different credit scores. But each of these models relies heavily on an individual’s credit report. Two of the most

influential factors in determining an individual’s credit score are payment history and the amount of money owed. Payment history includes history of payment on credit cards, retail accounts, installment loans, and mortgages, among other things. Adverse public records, including bankruptcies, liens and wage attachments also factor in. A credit score also takes into consideration the amount owed, including amount owed on

certain types of accounts and the number of accounts with balances. In addition to payment history and amounts owed, the algorithm used to determine a credit score also considers an individual’s length of credit history, any new credit accounts they have opened and the types of credit they have used. The higher a person’s credit score, the better interest rate that person is likely to receive from a lender.

January 18, 2012

Buyers Guide
The need to save for retirement is something professionals start hearing about from the moment they begin their careers. Whether it’s parents extolling the virtues of retirement plans or employers who encourage their employees to take advantage of their retirement programs, saving for retirement is never far from the minds of professionals. As important as such savings can be, many workers are deciding to delay their retirements. As much as men and women envision retiring to a faraway seaside villa for their golden years, such retirements are not terribly common, and many older workers have begun to recognize the economic and social benefits of delaying retirement. Those undecided about when they want to say goodbye to the office should consider the following benefits to delaying retirement. • Fewer years to worry about financing your lifestyle. Thanks to advancements in medicine and more and more people living healthier lifestyles, men and women are now living longer than in years past. While living longer, healthier lives is a plus, it does have an effect on retirement. Because people can now expect to live longer, they must ensure their money lasts long enough. By delaying retirement, men and women will have fewer retirement years to finance. • More chances to save money. It might be your dream to retire early, but you could be doing yourself a great disservice by ending your career prematurely. Men and women at or near the end of their careers are often making more money than they ever have, which enables them to save more than they have in the past, especially if children are full grown and supporting themselves. Take advantage of these high-salary years, even if it means working an extra few years. If you do, when you retire you could have substantially more in savings than you would have had you retired early. • Stay socially active. In addition to economic benefits, delaying retirement has social benefits as well. Many people get the bulk of their social interaction with colleagues and coworkers. When men and women retire, these opportunities for social interaction can dwindle rather quickly, and it’s not uncommon for retirees to

15
battle feelings of isolation. Delaying retirement allows you to easily maintain contact with friends and colleagues, and can lead to a better quality of life. • The chance to give back. Many older professionals view retirement as being put out to pasture, where their years or experience aren’t utilized. However, individuals who delay retirement can use their extra years around the office as an opportunity to leave a legacy for the next generation. This is something professionals find especially valuable as their retirement draws nearer and they want to leave a lasting mark, be it on their company, within their industry or in the community in which their company operates. Delaying retirement provides more time to build this legacy, and can create a greater sense of fulfillment when men and women do decide to retire. Delaying retirement is growing increasingly popular. Men and women often see it as a chance to build a bigger nest egg and leave a more lasting legacy within their company and community.

More and more men and women are choosing to delay their retirement, a decision that has both economic and social benefits.

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Buyers Guide

January 18, 2012

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The basics of estate planning
When choosing an agent to assume power of attorney, individuals need to make this decision wisely, choosing someone they trust who can competently manage their affairs. Assessing your assets Assets include a host of things, from investment accounts to real estate to retirement savings. Individuals must take careful inventory of all of their assets and determine to whom these assets should go if they die or who should gain control of them if individuals become incapacitated. This means leaving no stone unturned. If there are any questions about specific assets, then legal wrangling or even government taxation upon these assets is likely to take place. Understanding trusts Many people hear the word trust associated with financial dealings and immediately assume it only applies to the wealthy. Nothing could be further from the truth. A trust enables men and women to put conditions on the distribution of their assets upon their death, including when and how these assets will be distributed. In addition, a trust might just protect these assets from creditors or lawsuits and help any heirs avoid probate court, which can be a costly and tedious process. Though trusts aren’t necessarily for everyone, they also aren’t exclusive to the very wealthy. Allocation of assets Many people make the mistake of leaving all of their assets to their spouses upon their deaths. While this is well-intentioned, it doesn’t always work out best for men and women with children. Individuals can leave an unlimited amount of money to their spouse upon their death, and that money cannot be taxed. However, when the surviving spouse dies, if he or she leaves that money to their surviving children, then they are likely going to pay significantly more in estate tax. In addition, when deciding to simply leave all assets to a surviving spouse, this is, in a sense, leaving the difficult decision of asset allocation to the surviving spouse. What’s more, should both husband and wife pass away in an accident at the same time and all assets were left to a spouse, this can make it very difficult, contentious and costly for surviving family members to divide up any assets left behind. Estate planning is something few people will embrace with open arms. But as morbid as estate planning might seem, it’s a necessary step for adults who want to secure their own futures should they become incapacitated or the futures of their loved ones when individuals pass away.

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With regards to finances, the future is a big part of many people’s financial planning efforts. Be it the kids’ college tuition or the day when retirement finally arrives, financial planning is all about the future. Though college and retirement funds garner the most attention, men and women must also make time for estate planning. Estate planning is the process of arranging for the disposal of an estate and is done to help minimize uncertainty upon an individual’s death. This planning also reduce taxes and additional expenses that might arise if a person passes away without having left a will or another means of disposing of his or her estate. Regardless of the size of an individual’s estate, there’s no reason not to have an estate plan in place. The following are some of the basics of estate planning, which should be a priority for men and women, young and old. More than just a will An estate plan is more than just a will. Though an up-to-date and specific will is an important element of a good estate plan, there are other elements as well. In addition to a will, an estate plan should assign power of attorney, which gives a person of an individual’s choosing the right to manage that individual’s financial affairs if they are unable to do so themselves. Power of attorney should be assigned in the case of a person’s death, but also if an unforeseen medical issue arises and a person is no longer capable of managing their affairs. There are two types of power of attorney that are essential to know when estate planning. Springing power of attorney goes into effect when circumstances that the individual specified, such as incapacitation, occur. In order for this to go into effect, the agent designated must typically produce proof of an individual’s incapacitation. Durable power of attorney goes into effect immediately and the agent does not need to prove incapacitation.

January 18, 2012

Buyers Guide

17

10 WAYS
TO CLOTHE KIDS FOR LESS
A child goes through approximately eight clothing size changes in the first two years of life. As he or she continues to grow, it’s not unlikely to see clothing sizes increase every 6 to 12 months, and then annually once the child enters school. It can be an expensive venture to clothe a child, and many parents express frustration about having to frequently shop for children’s clothing. So what can a parent who is looking to keep expenses down on kids clothes do? Here are 10 ways to scale back and keep kids fully clothed. 1. Swap clothing. Children grow so quickly, oftentimes they are in the next size before they have even worn everything in their closets. Get together with family or close friends and devise a hand-me-down policy. You may end up with bags full of gently-used clothing without having to spend a cent. Return the favor when your child grows out of the items and pass them on to another person who can use them. 2. Shop thriftily. Thrift stores have become the “in” place to grab deals and items that in many cases look brand new. Many even sell designer items. Check out thrift stores for supplemental pieces to your child’s wardrobe, including coats and other pieces that tend to be pricey. Basics, like socks and underwear, can still be purchased from major retailers. 3. Buy a size larger. Look for well-made pieces that can be purchased in a size larger to ensure at least two year’s worth of use. Pants can be cuffed or temporarily hemmed. Many pants also come with adjustable waistbands so they can be cinched if too large. Sleeves can be rolled up. Children may actually prefer a more baggy style anyway.

4. Learn to sew. You don’t need to be a professional tailor to make many items for your kids. With easy patterns for skirts, vests and shirts, you can add to a child’s wardrobe with handmade items. The basics of sewing can assist you in tailoring certain items into others, like turning a long shirt into a cute dress for a girl or revamping worn-out jeans into shorts. You may be able to use the fabric from unworn items in your own closet to make clothing for the kids. 5. Patch and mend before tossing. Many people are quick to throw out clothing with tears or holes. Repairing these items adds years to their life and saves you money. Ironon seam menders and easy-use adhesives can assist with repairs when sewing skills are limited. Also, patching jeans or pants doesn’t have to look obvious. Girls may love adding star- or heart-shaped patches cut from frilly fabrics to holes in their pants as a fashion statement. 6. Shop sales. When visiting retailers, shop at the end of the season and load up on items in a size larger for next year. Cash in on warehouse sales or when stores are unloading overstock to make room for the new season. Some will take your e-mail address and let you know when insider sales are taking place. 7. Sign up for a loyalty card or the store credit card. Many stores give discounts to cardholders that go beyond the deals offered to the general public. Stick to stores that don’t charge a fee to open or hold the credit card. Having the store’s card does not mean you have to use it, but it could entitle you to advertisements and discounts not available all the time. 8. Search for coupons and use them. Before heading to the store, scour the newspaper or check your junk mail drawer for coupons. Shop at the stores offering discounts, even if they’re not your normal places to get kids’ clothes. Also, it doesn’t hurt to go online and do a query for “discount codes” or “store coupons” for the retailer you plan to visit. Chances are there is a deal floating around in cyberspace that you can use. 9. Don’t be stuck on gender-specific items. Many items of clothing cross gender lines. Hold on to items like solid-colored shirts and Ts, jeans, undershirts, and pajamas. Unless it specifically screams boy or girl print on it, you may be able to use it for a younger child who is a different sex from his or her sibling. 10. Don’t over-buy. Kids do not need a dozen pairs of shoes, four coats or three different hat-and-glove combinations. Exercise good judgement with regards to how much clothing is necessary. Cutting down on kids’ clothing saves money and saves work laundering all of those items, too.

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Buyers Guide

January 18, 2012

HOW TO CONTROL ONLINE SPENDING

Buying online is a convenient way to make any number of purchases. Nowadays, shoppers can purchase everything from books to boats online, making it easier than ever before for consumers to connect with their favorite retailers. But the convenience of online shopping also makes it easy to overspend. When shopping online, consider the following tips that should help curtail spending. • Understand online marketing. Perhaps it’s so easy to shop online because it’s so easy for marketers to target customers via the Internet. Before “liking” anything on social media sites like Facebook, recognize that doing so is inviting marketers to inundate you with advertisements. This might be perfectly alright for some people, but those who want to control their online spending might think twice the next time they profess their love for certain products. • Beware of “limited time only” deals. Online retailers attempt to entice men and women to buy products by offering “limited time only” deals through their Web sites. These deals can be for discounted items like clothing or electronics or more exotic offers like vacation deals to island resorts. While they might offer good deals, consumers who aren’t looking to buy a vacation package or

a new wardrobe should ignore these offers no matter how enticing they might be. • Include online spending when establishing a monthly budget. Online spending is often so convenient that many people fail to account for it when establishing their monthly budgets. Come the end of the month, if you have considerably less money than your budget suggests you should, peruse bank statements to see just how much of that money went toward online spending. It might be a lot or might be a little, but take it into consideration when laying out next month’s budget. • Recognize it’s real money being spent. Buying online requires real money, but the convenience of online shopping, particularly when using sites that already have your financial information on record, makes it easy to overlook that real money is being spent. Instead of swiping a card at the store, you simply click the mouse a couple of times and you’ve made a purchase. This disconnect facilitates overspending, and consumers who fear they might be spending too much should stop saving their financial information on their favorite Web sites. This makes it harder to make a purchase but reduces the risk of making an impulse buy.

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January 18, 2012

Buyers Guide

19
first quarter of 2011, RITA, the Research and Innovative Technology Administration for the Bureau of Transportation Statistics, reported that Delta collected $197,971 in baggage fee revenue to rank No. 1 out of the major airlines. In contrast, USA 300 only collected $668 in baggage fees. It’s now also commonplace for major carriers to charge for everything from booking a flight over the phone to in-flight beverage service to meals or even a blanket. Naturally, some passengers are fed up with fees and are looking for ways to skirt extra costs wherever possible. To avoid baggage fee charges, there are some things a passenger can do. • Know limits. Airlines do not charge for a carry-on bag, provided it meets the dimensions and weight specified by the carrier. Charges for regular luggage may vary depending on size and weight as well. Be sure to find out the rules for your airline prior to packing so that you can cut down on costs as much as possible. • Pack light. There’s no need to bring along your entire closet on a trip. Lay out separates that can be put together in a number of ways to limit the amount of clothing. Don’t pack toiletries. Chances are the hotel will provide them free of charge. In many cases, it could be cheaper to buy items at your destination than having to pay for baggage fees. • Ship items ahead of time. If you can’t live without certain items on your trip, consider having them shipped to the destination. A little research could yield that you’re able to send 100 pounds of luggage via a ground shipping service for less than the cost of airline baggage fees. Plus, you can pack many of the items that the TSA confiscates that are not allowed on an airplane, including liquids and even a nail file. • Shop around. Base ticket purchases not only by the cost of the fight but by the cost of the extra fees and baggage charges. Compare what’s offered and use carriers that charge the lowest fees. With airlines charging more and offering less, consumers are seeking ways to keep costs down. By packing light or shipping essential items ahead, you may be able to remove the cost and hassle of bringing luggage on board.

Before traveling abroad, cardmembers should consult their credit card companies to learn of any fees or travel benefits associated with their cards.

Things to know about using credit abroad
The opportunity to travel overseas is something few people would pass up. But before travelers board a jetliner for an adventure abroad, there are a few things they should know about credit cards and what to expect when those cards are swiped in a foreign country.

Protection
Consumers are more protected when making purchases with credit cards than debit cards. When using a debit card, the money automatically comes out of your account when the card is swiped. However, with a credit card, no money is taken out of any accounts, and this gives consumers more leeway if they feel the need to dispute a charge. Take your debit card along, but it’s best to use it only when you need to withdraw cash (something that will almost certainly garner a fee as well).

the card isn’t suspended if it suddenly starts accruing charges overseas.

How to beat luggage fees

Perks
Some cardmembers might have travel benefits on their cards, and these benefits can result in substantial savings. For example, many cards provide rental car insurance to cardmembers who are renting vehicles while on vacation. Some cards even provide discounts at certain hotels. Before traveling abroad, travelers with multiple cards should examine the perks each of their cards provides and then use each card accordingly.

Fees
Not every credit card charges a foreign transaction fee, but many do. This fee applies to any purchases made overseas and can be significant if buyers aren’t careful. Some credit card companies have eliminated foreign transaction fees for certain cardmembers, particularly those with upscale or travel-related cards. However, those who don’t have such a card can expect the foreign transaction fee to equal as much as three percent on the cost of each purchase. Before traveling overseas, do some research into which of your cards has the lowest transaction fee, and then use that card when making purchases overseas.

Card Issuer
The card issuer should have a specific number to contact for overseas assistance. Many issuers now suspend a card because of what they refer to as suspicious activity. Spending lots of money overseas can very well fall under this umbrella, and cardmembers might be stuck without their credit cards during their vacation. Know the number to call should you need help while overseas, and call your card issuer before leaving to let them know you will be using the card abroad. They should be able to flag the account so

Exchange Rates
Whenever possible, don’t allow merchants to bill you in U.S. dollars. This enables merchants to charge their own exchange rates, which ultimately costs the customer more money. Don’t sign any checks or receipts unless they are in the local currency. Conversion rates are not always easy to remember, but study them before leaving for your trip and keep a table of conversion rates with you at all times.

M

ost airlines today charge some sort of baggage fee. Whereas suitcases and other cargo were once included in the price of the ticket, and only cost extra to bring aboard if they were oversized, airlines looking to offset the rising cost of fuel have established new charges for passengers. Some of these charges include various fees and surcharges, including baggage fees. The revenue generated from the cost to travel with — of all things — the items necessary for the trip can lead to thousands of extra dollars for airlines. In the

20

Buyers Guide

January 18, 2012

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