Comparing Deductible, Co-Pay, and Co-insurance When Looking at Your Health Insurance Benefit Options

Free Tax Answers Until January 31st

We’ve closed the books on 2008, so that means it’s time to start thinking about taxes. Are you someone who likes to get going on filing right away, or do you wait until April? Either way, if you have questions regarding your tax situation, you probably realize that it can be difficult or time consuming to find accurate answers online, or it may cost money to hire an accountant for professional advice. 

Luckily, the good folks at Turbo Tax have put together a promotion where you can get your federal tax questions answered personally via phone. The process is simple. All you have to do is go to www.freetaxquestion.com and enter your question and provide a time when you’d like to be contacted. A tax expert will then call you to answer your question. It’s that simple.

While this won’t replace having your own accountant, for many people it can provide a great way to get a quick answer to a question that’s stumping you on your return. How do I claim this deduction? Can I deduct my child’s tuition expenses? Do I qualify for…? and so on. This service usually costs $29.95, but it’s available for free to everyone through January 31, 2009.

I’ve always been more of a TaxCut guy and have been using that the last few years, but I was considering hiring someone this year to do my taxes. But, since I’m fairly comfortable with doing my taxes, I may give this promotion a try to see if I can get a couple basic questions I have answered. It might save me the trouble of getting an accountant. 

Their tax advice line is open between 7 am and 7 pm PST. So if it’s too early or too late, just check back to the site during those hours and you’ll be able to submit your question.

Good Things Can Come From Difficult Economic Times

How dare I make light of economic conditions that are forcing people out of work and out of their homes, but everything isn’t all doom and gloom with the recession. If you’ve lost your job recently, there is probably little optimism in thinking that the recession is somehow a good thing. And it’s true, these economic periods are painful for individuals, corporations, and the country as a whole.  But this isn’t the first recession we’ve ever had, it won’t be the last, and it’s something that has to happen on a regular basis.

The Business Cycle

Without going into a complicated economics lesson, it’s important to at least understand the basics behind the business, or economic cycle. The economy isn’t static, and we regularly experience periods of growth and decline. The economic cycle is broken down into four basic components:

• Expansion - A period of increasing growth and economic activity.
• Peak - The apex of an expansion period.
• Contraction - A period of decreasing growth or slowing economic activity.
• Trough - The lowest point during a contraction period.

While the length and severity of each of these economic periods vary, the general cycle holds true. The economy will grow and expand for some time and eventually reach a point where it can’t continue that level of growth and it peaks. From there, it will experience a period of contraction. This may last a few months or a few years. After a period of a slowing economy, things bottom out and will again resume growth. And the cycle repeats.

This isn’t a new phenomenon. Looking back at just the past 50 years, we’ve dealt with 10 periods of recession. Some were short-lived, others lasted longer, and of course, some hurt more than others. While this recession is caused by factors different from past recessions, it was bound to happen, and was even expected. We didn’t need a crystal ball to predict that. But what we can’t predict is exactly how long it will last, and who will be hurt by it the most.

Extended periods of growth can create excess in the economy, and eventually this has to be purged from the system. Unfortunately, this usually results in job loss, businesses closing, and a declining stock market. But the bottom line is that an economy can’t just continue to grow and grow non-stop. Would it be great if we had zero unemployment and our stock portfolios marched along earning 10% every single year? Of course, but that isn’t how the world works.

Americans Are Saving More

Americans have one of the worst savings rates in the developed world. We are one of the richest and most prosperous nations, yet we can hardly save any money. Part of this has to do with having a consumer-driven economy. If people are spending money, businesses are doing well, expanding, and creating jobs. That’s a good thing, but it also creates a situation we’ve experienced lately where people have very little money saved since they are basically encouraged to spend.

Even with dismal savings rates barely above 0%, this recession has done one thing, and that’s boost our savings rate as a nation. While it still lags far behind many other countries, an increase in savings is good. People are starting to realize the importance of having money set aside. Whether it’s for retirement or just an emergency. Of course, that’s also bad because it means people are spending less, which in turn doesn’t help stimulate an economic recovery. 

And the even better news is that if people begin to save more, they will have that cushion in place when the economy shrinks again at some point in the future, because it will. Of course, this is assuming people don’t go back to their old spending habits as soon as the economy begins to recover.

Back to Common Sense Spending

Frugality is making a come back in 2009. In recent years, spending got out of control, in large part due to easy access to credit. Virtually anyone could afford a brand new luxury car, buy a home out of their price range, and charge anything on credit cards. When times are good, you’re making money, and can keep up with the bills, that seems like a lifestyle you can afford. But as soon as the annual raises stop, you lose a job, or something else happens, suddenly you can’t make the car payment and can’t keep up with the monthly credit card bills. 

This isn’t to say that everyone was spending wildly or using more credit than they could afford, but since the banks were basically handing out money, a lot of people took advantage of it. Now, it’s coming back to haunt a lot of people. Those who were relatively frugal over the past few years are not being affected by this economic downturn as much as those who have lived beyond their means. So, more and more people are beginning to revert back to common sense spending — buying only what they can afford, and not relying on credit. 

It always amazes me to see stories in the news about how people are making so-called drastic changes to their spending habits in these difficult times. Most of these changes aren’t drastic or anything new, but common sense things people should be doing anyway. For example, take this story I saw in my local news this weekend about Innovative New Ways to Manage Money. Here are a few of the “innovative” and “new” ways this woman is saving money:

We used credit cards a lot and just changed some things,” Budzinski said. “We have dogs, and instead of buying high end dog food, we switched to the lower end dog food.

A good start, and how about:

[We're] buying generic stuff, and not going out to eat as much. And when we do, we more or less split a meal or we go out to eat lunch instead of dinner.

Amazing! You can save money just by not using credit cards as much, buying cheaper dog food, and not going out to eat as much. These truly are new and innovative money saving ideas! I’m sorry about the sarcasm and I don’t want to belittle anyone’s attempts at saving money, because it’s fantastic that people are making changes. But what bothers me is how the media treats this as news. I see articles exactly like this every week going on and on about how people are just using common sense and actively trying to save money. That’s not news, it’s just something people should have been doing all along, and it really just illustrates how excessive people’s spending habits were if they feel that eating out less or not using credit cards is some financial revelation. If it takes a recession to make people think harder about what they are spending money on, and to make a conscious effort to save money, that will help a lot of people in the long run.

Back to Basics in Housing

One of the root causes of this recession was a real estate market that got out of control, fueled by speculation and the ability for almost anyone to get a loan. Yes, there were plenty of shady lenders, but it got to a point where anyone could get more house than they could truly afford. A plethora of no-doc or low-doc loans allowed people to fudge numbers in order to afford their dream house, you could easily get 0% down loans, not to mention all of the ARMs and interest only loans. This put people in a position who had no business trying to buy a home suddenly find the bank willing to lend them the money to make their dreams come true. 

Owning a home is a privilege, not a right. Prior to the real estate boom, lenders had tighter standards in determining who could afford a home, and how much they were willing to lend. In most cases, a down payment was required, and this meant prospective buyers had to have the discipline to save some money on their own first. In turn, this down payment then provided immediate equity that could help minimize fluctuations in property values. In addition, lenders were typically more conservative in terms of how much they would lend based on credit history and income. With these tighter standards, it helped put people in a home that they could comfortably afford while the bank minimized risk.

Today, we’re moving back to the basics, although we’ve overshot the baseline a bit with the credit crunch. But banks are starting to move back to more traditional fixed-rate loans, requiring a good credit score, and down payments. They are also taking into consideration how much people make, and making sure they aren’t lending too much.  Unfortunately, this move has priced a lot of people out of a home purchase right now, and it’s made it harder to get a loan, but it’s a step in the right direction. It will hurt for a while to be sure, but it should create a more stable situation in the future provided history doesn’t repeat itself.

What Doesn’t Kill Us Makes Us Stronger

Without diminishing the pain and suffering people go through during difficult economic times, a job loss, or home foreclosure, it likely isn’t the end of the world. It may feel like it, and it may lead to years of trying to claw yourself back up, but it can make you stronger. People faced with difficult times learn things about themselves they may have never realized, may explore a new direction in life, or find out there is more to life than money and material things. 

But I’m not talking about individuals, as each story and situation may be a heartbreaking tale, but rather I’m talking about the country as a whole. We’re faced with some economic conditions of epic proportions, and we’ll get through it. It may change the face of our country forever, and create a new way for many businesses to operate, but we’ll learn from it and come out the other side even stronger. Of course, once we do, history is bound to repeat itself. Our economy will grow, money will be made, and jobs created, but at some point we’ll find ourselves a victim to the inevitable economic cycle. The best thing you can do is to learn from the mistakes, and take actions to ensure the next time it happens, you limit the impact.

Just a Few Days Really Defined the 4th Quarter

2008 is going to be remembered as one of the worst years in the stock market, and for good reason. Most major indicies posted losses of 30% to 40% for the year. If you’re invested heavily in stocks, you’re well aware of how badly this reflects on your portfolio.  While the first three quarters of the year were pretty ugly, the declines were relatively slow and steady over the course of time. But in October, we saw the most damage done with a substantial drop and subsequent volatility that really put an exclamation point on 2008. So, just how much of an effect did the 4th quarter have on 2008?

2008 DJIA Weekly Chart

As you can see, 2008 paints a pretty grim picture. We started the year with the Dow up around the 13,000 range, and closed a little under 9,000. But if you look at the chart above, you’ll notice a few things. First is that the early half of the year wasn’t so bad. We did see a decline in up until March, but then quickly recovered most of those losses in just a few months. Then during the the early summer months we experienced a fairly significant drop until things leveled off until late September. And then the calendar flipped to October, which is also the start of the 4th quarter, and things got ugly real fast. You’ll notice that significant drop of nearly 2,500 points in just a little over a week. So, let’s zoom in on the 4th quarter specifically to get a better view.

4th Quarter 2008 DJIA Daily Chart

Most statements you receive in the mail are based on a calendar quarter, which means your 4th quarter statement should cover October 1st through December 31st. So, I’ve zoomed in on the DJIA to cover this period, since this is what will ultimately affect your 4th quarter numbers. 

Looking at the chart above, you’ll notice that the first few days in October did the most damage. In fact, the first 8 trading days in October the DJIA lost 22%.  Of course, the very next day after that string of losses the market rebounded nearly 10%, but that was only the beginning of what was to become an extremely volatile few months. If you ignore the initial 8 days, you’ll notice that the quarter ended nearly flat, or even up slightly. Of course, ignoring data doesn’t make it go away. But how would your statement look if it started on October 10th?

4th Quarter 2008 With First 8 Days Omitted

When you subtract the first week and a half, the chart looks completely different. In fact, October 10th through December 31st posted a 3.8% gain. When you get your statement and see a significant loss, you can blame the first few days in October. 

Again, the losses are real, and you can’t just wipe out that first week. But I did want to show this breakdown for a reason. That’s because that first week of October shook a lot of people out of the market. By Friday, October 10th, I saw a record number of people coming to me wanting to move everything into cash. That’s fine, you can do whatever you want with your money. But what I like to point out is that if you already waited to see a 20% drop in a little over a week before selling, you missed the boat. 

Consider someone who got out on October 10th and put their money into a cash account. How much would they have gained by the end of the year? Probably just a fraction of a percent. Had they left their money where it was for the remainder of the year, they would have made 3-4%, which is much better than the likely 0.5% their money market would have returned. And this doesn’t even take into account the two and a half months you would have been continuing to buy into the market at these relatively low prices. Of course, hindsight is always 20-20, so it’s easy to make that call now.

Look At Your Quarterly Statement With Perspective

Ultimately, a loss is a loss. It doesn’t matter whether a 20% quarterly loss took place slowly over the course of three months, or if it all occurred within a few days, the end result is the same. But, it’s also important to look beyond the number and see why it occurred. If you let a few bad days force a market timing decision, you could miss out on recovering some of those losses by doing nothing. You could also miss out on a lot of buying opportunities if you’re investing on a regular basis through a systematic investing plan such as a 401(k). 

This just goes to show you how fast the markets can move, and for most people, by the time you get around to making an investment change, the action is over and you’re late. Without a crystal ball, the best you can do is hope that you’re right. That being said, could we see another year of sharp losses? It’s certainly possible. At the same time, 2009 started out up 3% in just one day. So before you open up that statement and get sick to your stomach, you should look at the big picture. Invest smart. Create a diversified portfolio that you’re comfortable with and invest regularly in all market conditions. If you get worked up about what a few bad days in the market can do to your returns and base your investment decisions on that, you’ll drive yourself crazy, and probably find yourself realizing worse results over the long haul.

5 Tips to Help You Increase the Chances of Keeping Your Job

Unemployment continues to rise, and jobs are getting harder to come by. The national average is approaching 7% while many areas are being hit with unemployment rates of about 10% already. Think about that for a minute. One out of every ten people you know are likely to be without a job. If not now, but possibly in the near future. Of course, if you work in an industry that’s already being hit hard, this may already be the case or even worse. 

So how do you make sure that you’re not that one out of ten without a job? Unfortunately, in some positions or with certain companies, nobody is safe. But there are many situations where layoffs are more selective, and by taking the initiative to make a few good decisions, you can improve your chances of keeping your job when it comes time to let some people go. 

Make Yourself Available

If your company has already let some people go, that means there’s just as much work to be done, only by fewer people. Those who still have a job will need to pick up some of the slack. This means that you should be making yourself available to take on additional tasks or help with projects that you might not have otherwise had to do. While nobody wants to take on more work for no additional pay, in times like these it pays to be someone who offers to help.

When you take the lead and offer your assistance when asked, you increase your value to your boss and employer. You become someone that they can count on, and this will likely play a role in determining who they can afford to let go if layoffs are on the way. Of course, this is a double-edged sword.  It is possible that in offering up this additional help, your boss may begin to take advantage of you and pile on even more work. You don’t want to be put in that situation either. But in times like these, you need to weigh the options. Get burdened with more work and be thankful you have a job, or refuse to do more work and risk losing your job.

Let Your Boss Know What You’re Doing

Just doing good work alone isn’t enough. Your boss is probably just as stressed out, if not more about uncertainty at work and the possibility of cutting workers. They probably aren’t completely in-tune with everything you’re doing, and unless you bring issues up with your boss directly, they may go unnoticed. This doesn’t mean you should burden your boss with your every little accomplishment, but you need to let him know you’re out there and getting things done.

It doesn’t take much either. Just shooting a quick email updating your supervisor about the completion of an assignment, or informing them of something that would make them happy since it reduces their workload or stress will go a long way. The bottom line is you want to have regular communication, whether big or small. Again, when it comes down to deciding who needs to stay and go, the more visible you’ve been to your superiors, the more likely the perceived value in keeping you on.

Network With Others

Networking can not only help you keep your job, but it can prove very valuable when it’s time to seek out a new job. Your personal connections matter, and if you’re a loner in the office, your chances of retaining your position when others are perceived to be bigger team players begins to drop. You don’t have to go out for drinks with the entire office every day after work, but you should make an effort to connect with your co-workers. This can improve your relationship with others, and even translate to improved performance in the office.

You should also consider joining any professional organizations that relate to your job or industry and take part in local networking events. Again, this alone might not save your job, but the connections you build will help you find new work through the connections you’ve made. If time is a constraint or you don’t have many local networking opportunities, you might want to check out an online service like LinkedIn where you can search, find, and network with friends, co-workers, and other industry players from the comfort of your home. 

Be Conservative

I’m not talking about political affiliation here, but your work style. When companies are struggling and doing their best to make ends meet, there isn’t as much room for error. If you’re someone who regularly pushes the envelope and tries new or radical ideas, it might be a good idea to tone things down a bit. It isn’t that thinking outside the box or trying to be innovative is bad, it’s just there is little room for mistakes in this type of environment. 

When companies are rapidly growing and healthy, it’s almost encouraged to think this way, but when your job might be on the line, it’s time to ratchet down and stick to the core values of the company. You might argue that being innovative and coming up with a great idea could also save your job. And it’s true, if you come up with something or take the company in a direction that saves or makes money, you could be seen as a hero. But if you fail, you’re seen as the employee who went out on a limb and messed up. It’s all about risk and reward. Taking a risk might yield a big reward, but could also accelerate your departure. Being more conservative in times like these could prove to be the better course of action.

Don’t Complain

Above all, don’t complain. Are you ticked off that Sally was assigned a task that you were expected to do, or mad that someone threw out your leftover cake in the break room? Now is the time to bite your tongue. Don’t make a big deal out of petty stuff. If you are seen as someone who whines or complains, you’ll become part of the office gossip. It doesn’t pay to make a big deal out of things that don’t directly affect your job security.

Obviously, if something is being done that’s wrong, against policy, or directly affects your performance, that’s one thing. But if a co-worker does something annoying, or your boss assigns you a menial task, it’s probably in your best interest to suck it up and go on with your business. Everyone is stressed out, but don’t be known as the guy or girl at the office who complains about everything. You’ll surely be noticed, but not in a good way.