What Investments are Tax Free?

tax freeWhat investments are tax free? Probably at least a few more than you think. Especially when you consider that where you have your money easily has the biggest impact on what is free of taxes and what is not.

Let’s look at tax-free investments in the usual – and not so usual – places.

1. Municipal bonds and municipal bond fund interest.

Talk about tax-free anything, and municipal bonds are the default conversation. They are tax free for federal income tax purposes, and also from state income taxes if you live in the state that issues them. Note: They are not tax free for state income tax purposes if you do not live in the state where the bonds are issued.

Municipal bonds are debt securities issued by states, counties, municipalities, and the various agencies of each. They can be issued for all kinds of purposes, including building roads and schools, developing or improving utility projects, or even the issuance of very low interest mortgage loans by the states to their residents.

It’s important to understand that while the interest earned from municipal bonds is tax free, any capital gains from the sale of the securities will be subject to taxation. However, they’ll be subject to more favorable capital gains tax rates if they are held for more than one year prior to sale.

Municipal bonds are also held in mutual funds and exchange traded funds (ETF’s). Any interest paid to you through the fund will be tax free, however the capital gains will be reported to you as taxable gains in the year of sale.

2. Treasury securities are tax-exempt for state income tax purposes.

Interest earned on United States government treasury securities is fully taxable for federal income tax purposes, however they are exempt from income tax at the state and local level.

This might not mean much if you live in a state with very low marginal income tax rates, but in those states with rates in the 10% (or higher) level, the tax savings can be substantial.

3. Anything in a retirement plan – well, tax-deferred anyway.

Virtually any investment held in a tax-sheltered retirement plan – an IRA, SEP, 401(k), 403(b) or 457 plan – will accumulate income on a tax-deferred basis. This isn’t quite the same as tax free, but it will allow you to grow your investments until you reach retirement and you begin withdrawing funds.

The advantage here is that, at least in theory, by the time you retire you’ll be in a lower income tax bracket, and the tax bite on your withdrawals will be substantially lower than the amount of tax you saved on the contributions and income accumulations.

Again, strictly speaking it’s not quite tax free, but it’s the next best thing!

4. Investments held in a Roth IRA.

Income earned from investments held in a Roth IRA will be tax-free, if you’re at least 59 ½ at the time you begin taking withdrawals, and you have been in the plan for a minimum of five years.

You won’t get a tax reduction as a result of contributing to a Roth IRA, but any income you earn on the investments held in the account can later be withdrawn completely tax free if you meet the above criteria. This makes a strong case for putting at least some of your retirement money into a Roth IRA. You can think of it as a form of income tax diversification for retirement planning.

5. The sale of your principal residence – mostly.

Most people don’t typically think of their principal residence as a tax-free investment, but if the value has risen substantially since you purchased it, the profit on the sale of the home could be largely shielded from income taxes when you sell.

The IRS allows the first $250,000 in gains from the sale of a principal residence to be exempt from taxation for singles, and $500,000 for married couples. Since states generally figure your tax based on taxable income for federal income tax purposes, the gain will also be exempt at the state level.

You won’t get an income from your principal residence in the way that you will from traditional investments, however you will get a big fat tax break when you finally sell the home. A big gain on the sale of your principal residence will result in a very large tax-free windfall.

Are there other tax-free investments that you know of that are available to the average person? Leave a comment!

What to Do if You’re Having Trouble Paying Your Student Loans

student loansWe’ve all heard it said that student loans cannot be discharged in bankruptcy, so what do you do if your financial situation is a wreck – or if you’re unemployed – and simply don’t have the money to repay? There actually are a couple of ways to manage the situation even if the bankruptcy option doesn’t exist.

One comes in the form of a government program, and the other is a matter of financial guerrilla warfare.

Income-Based Repayment Plans (IBRs)

If you’re having trouble paying your student loans the government can be your best friend. There is a program available that will reduce the monthly payments on your loan if you have low income or are unemployed. The program is called the Income-Based Repayment plan, or IBR. The program was established specifically to help address the problems of people who are unable to manage their student loan debt payments.

The plan comes with certain limitations. It is based on your income and your family size, and that information will be reviewed each year you participate in the plan to account for changes in either your income or your family size. The loans can carry a term of up to 25 years, and will have a payment that can be substantially lower than what you’re currently paying. Also, since there are different student loan types, it’s important understand that not all student loans will qualify for an IBR.

The monthly payments are based on your discretionary income. The payments can be limited to 15% of that income, and this is the primary benefit of the program. There’s also a provision in the plan that will allow for the forgiveness of your debt in exchange for 10 years employment in certain public service organizations.

Don’t Qualify? Attack Your Debt!

If you can’t qualify for an IBR, there is one other option and though it’s difficult, it may be the only way out. That is to dig in and do whatever it is you need to do in order to pay off your student loan debt completely.

One of the fundamental problems with student loan debts is that they can go on for years. And since they are completely unsecured, you have no underlying collateral asset to sell in order to liquidate the debt. The only way to pay it off then is to dedicate yourself to spending a period of several years making the pay off your student loans your personal financial priority. If your loans are in the range of $50,000-$100,000 or more, you’ll need to attack the debt on several fronts:

Keep living expenses to a minimum.

As much as you may want to spread your wings and get on with your life, you’ll need to adopt a life on a shoestring. That may mean living at home with your parents, taking a residence with one or more roommates, or even living in a rented room. It will also mean driving the least expensive car possible, and cutting out any expenses that are not absolutely necessary.

Put all extra money into the debt.

The basic idea of living at a minimal expense level is so that you can throw any extra money at the student loan debt. You want to treat the payoff of the student loans as equivalent of a Chapter 13 bankruptcy. If the balance that you owe is very large, there will be no other way to pay off the loans without a significant degree of struggle.

Increase your income.

As an alternative to an extremely frugal lifestyle – or perhaps in addition to it – you can create a second income. This can be either a part-time job or a side business. You can either use the extra money to increase your payments, or as an alternative, you can dedicate the entire second income toward paying off the loan early.

Ignore other debt.

Unless you have a mortgage, it’s likely that your student loan is the largest single debt that you have. The sooner it’s gone, the sooner you’ll get some control over your finances. The best way to make that happen is to ignore your other debts and concentrate on your student loans instead. This will mean making the minimum payments on any other debts you have until your student loans are fully paid. It’s a matter of concentrating your efforts on the single most threatening financial problem you have, and letting the rest go until later date.

Don’t quit until the student loans are gone.

Paying off a large amount of student loan debt is a huge hurdle. If you’re going to make it happen you’re going have to fully commit to doing what you need to do. You’ll have to approach the payoff with an intensity bordering on obsession. How great that obsession is should depend upon how large your student loans are.

Are you aware of any other ways that you can get out of your student loan debts if you’re having financial troubles? Leave a comment!

Smart Places to Keep Cash

cashThere’s nothing more liquid than cash. Having access to cash when you need it is an important part of financial planning.

It’s not just about keeping cash in an emergency fund, either. You need to make sure you have access to cash even during times when you might not have immediate access to your bank account.

Immediate Cash: Keep a Small Stash

I like to keep at least $50 in my purse so that I am prepared for situations in which cash might be needed. Sometimes, at the farmer’s market, or at other local shops, cash is necessary for purchases. Additionally, if I’m stuck somewhere, or if I’m splitting a restaurant bill, a little cash can go a long way. However, you don’t want to keep too much cash on your person. Think about how much you could afford to lose if you are robbed. I don’t like to keep more than $200 (and that’s stretching it) in my wallet.

If you have a major purchase to make (like a TV), it’s safer to just use a credit card and pay off the balance immediately.

Don’t forget to keep cash in your home, too. I have a larger stash of cash in my home, in a fireproof/waterproof safe with my vital documents. Keeping this cash at home can be helpful for when you have to leave quickly, in an emergency situation. When a California earthquake knocked out all of the power throughout the West the summer following my junior year in high school (and just as we left on vacation), it was three days before we could access our money via ATM or use our debit cards – and we didn’t even live in California! The fact that my parents had a stash of cash meant that we could still do what needed to be done, even without bank card access.

Online Money

Don’t forget to keep some money in a digital account. If you need to make a P2P payment, or send money digitally, you want that accessible. My PayPal account is connected to a credit card so it’s easy to send money – even if my PayPal balance is low. It’s also possible to use a digital payment provider like Dwolla or Google Wallet to send money electronically in a hurry. Consider these options for quick cash when digital payment is a possibility.

Easy Access to Bank Funds

Don’t forget an emergency fund that provides you easy access to bank funds. You can keep the money at a bank insured by the FDIC (or a credit union insured by the NCUA) so that it is protected, and you have access to it quickly. I like to have a base emergency amount – about $1,000 – at a local brick-and-mortar so I can get at it easily via debit card or ATM, or go in and get what I need in person.

However, it’s also possible to get quick ATM access from high-yield savings accounts online. You can keep a larger amount in these types of accounts, getting a bit higher yield while the money sits there. Make sure you do have access to the money, since if you don’t have a debit or ATM card to access the cash, it can take three to four business days for an ACH transfer to put the money into your primary account.

I have money in these types of accounts as well. However, the bulk of my emergency fund is actually in a taxable investment account. I have access to quick cash from multiple sources if I need it, and it will hold me until I can liquidate part of my investment account.

Where do you keep your cash? And do you have a plan to access it in an emergency? Leave a comment!

401(k) Loan – Is Borrowing from Your Retirement Smart?

IOU my retirementIn these tough economic times, it can be tempting to see your retirement account as an emergency fund. You can tap those assets when you are in a pinch. And, if you feel bad about it, you can get a 401(k) loan, so that you are essentially borrowing from yourself.

Advantages to a 401(k) Loan

The main advantage to the 401(k) loan is that you are borrowing money from yourself. You receive your loan, and when you pay the interest, you are paying it back into your retirement account.

Many people like this option because it helps them avoid the costs that can come with an early withdrawal. If you just withdraw the money from your retirement account, before you are 59 1/2, the money is taxed as regular income, and you have to pay a 10% penalty to the IRS. Your 401(k) loan provides access to the money without the penalties.

Drawbacks to the 401(k) Loan

There are drawbacks to the 401(k) loan, though. First of all, you will probably have to pay loan origination fees. These are fees that you don’t recover for your retirement account later, since they are paid to the plan administrator or some other entity.

Another downside is that your 401(k) loan can be called in rather quickly in some cases. If you leave your job, or are laid off, the entire loan amount has to be paid back ahead of schedule. If it’s not, the money is considered an early withdrawal and you owe the IRS money.

You also have to realize that, even though you repay your 401(k) loan with interest, there is no replacing the opportunity loss. With your money out of the retirement account, it is no longer earning compound interest. You can’t replace the time that your money would have been growing in the account.

What about Other Retirement Account Loans?

If you have an IRA, you can also get a loan from the account. But it works differently. With an IRA, you can withdraw money tax-free and penalty-free for 60 days. Basically, your IRA can act as a short-term loan. If you don’t re-deposit the money within 60 days, then it is treated as a withdrawal, with the accompanying taxes and penalties (if you are under 59 1/2).

It’s also important to note that there is a one-year rule involved with these 60-day loans from your IRA. You cannot take advantage of this loan more than once in any one year period. So, if you take loan form your IRA on April 1, 2013, you can’t get a loan again from the IRA until April 2, 2014.

Any second loan taken out within the year period is simply treated as a regular withdrawal. You’ll pay taxes on the money, and the 10% IRS penalty if it’s an early withdrawal.

There are circumstances in which you can withdraw money penalty-free from an IRA, though. If you meet them, you can avoid the need to replace the money within 60 days to avoid the costs.

And, of course, if you have a Roth IRA, you can withdraw your contributions to the account any time, and for any reason, without tax or penalty, and without paying the money back. However, once you start withdrawing your earnings, the story changes.

Even with the IRA, though, you still run into disadvantages. While the opportunity cost with a 60-day loan from your IRA isn’t as great as what you see with a 401(k) loan, it’s still there. And if you withdraw the money outright, without replacing it, even if you aren’t penalized on the withdrawal, you are still missing out on potential future growth.

Have you ever considered taking out a 401(k) loan? Are you now? Leave a comment and tell us your thoughts!

How to Choose a Financial Advisor

couple with finacial plannerFor the same reasons people bring their cars to mechanics and their taxes to CPAs, many who invest for their future do it with the help of a financial advisor. It could be a lack of time to do your own due diligence, or the inclination. Maybe it’s the idea that “most” financial advisors spend their entire career learning and training at their craft in order to help you. Whatever the reason, picking the right one can be a very tricky process.

What’s in a Name?

These investment individuals go by many different names: advisor, planner, investment rep, retirement specialist, the list goes on and on. Ultimately, they are all in this business to do the same thing; help you with your investments. Every one has a different idea, a different story, and a different approach to investing. The key is to find the right one that works for you.

The truth is, just about anyone can become a financial advisor. The way the big companies like Merrill Lynch work, is they bring in young and/or inexperienced individuals to pound the pavement, dial the phones, and shake the trees. If they are good, lucky, or know enough people with money they make it. Inexperience can be a difficult thing to overcome, but shouldn’t be the only reason to rule a prospective advisor out.

Some will go the extra mile to get those important three letters after their name, CFP (Certified Financial Planner).  A CFP must go through a Master’s Degree-like course and pass a rigorous test administered by the Certified Financial Planner Board of Standards about the specifics of personal finance. They must also commit to continuing education on financial matters and ethics classes to maintain their designation. This all sounds great in theory, but this writer has worked with CFPs who didn’t know the first thing about investing or creating a long-term plan for their clients.

So how do you avoid falling into a relationship with a bad advisor? Just like the investments themselves, there is no guarantee, but maybe we can arm you with a few ideas to limit that possibility.

Side-Stepping Land Mines

A little experience can take you a long way. In this case, it is that knowledge from a friend, family member or colleague that can help you. Asking someone you trust what they do and who they use can help you start the process. Rather than meeting someone you know nothing about, you can get some insight into the advisor and how they handle their business from the person you trust.

When you meet with an advisor for the first time, just like a first date, location can be key. You may not feel comfortable having this stranger come to your house, but going to their office may not be the best environment either. You can learn about the office, the team and anything else at a later date. Don’t let the pomp and circumstance fool you. Meeting at a neutral location for coffee makes the advisor prove him or herself without the smoke and whistles some use to create an air of importance where there is none.

Also, like a first date, conversation is key. If they want to hear all about you that is a good thing, but it may mean they have nothing to offer. If they just want to talk about themselves, that should also set off warning flags. The good ones strike a balance between learning about you and offering ways they can help you as they learn more.

Digging into the Details

Remember, for all intents and purposes, this is a job interview. Don’t be afraid to ask questions. Find out about how he/she gets paid. Is it by commission or a flat fee paid quarterly? What type of analysis do they use to choose the investments to create a portfolio and how often do they monitor the holdings? Do they re-balance the portfolio, and if so, how often? How often would you be hearing from them and how many meetings will take place each year to review your account?

Be careful when asking about performance. Not everybody is Warren Buffett, and if an advisor claims to beat the market every year, then all sorts of flags horns and sirens should be going off in your head. In truth, you do not need to beat the market every year to accomplish your goals, and there are very few who do. Ultimately you will want to work with this person to figure out what your goals are and devise a plan to accomplish them.

Ask about their experience and who they have worked for. Be sure to take notes. When you go home, you can go to the FINRA website and do a background check to confirm what you were told. It will also tell you if the advisor has been in trouble, or if a complaint has been made about them. These aren’t always deal breakers, as many times there are items on an advisor’s “record” that may not have been entirely the fault of the advisor or as bad as it seems. You will definitely want to follow up with this person for an explanation though.

Hopefully some – if not all – of these ideas can help you in your hunt for a financial advisor. Remember, this is a relationship, and in the end, if you do not feel comfortable with this advisor, move on. Good luck!

Do you have a financial advisor? If so, how did you find them and get to know them? Leave a comment!

How to Get Free Books Online

online booksI love reading. I’m always looking for something new – or even not so new – to read. If you are serious about reading and about saving money, you can look for free books online. If you have an e-reader, it’s that much easier to download free books from some sources.

Here are some ways to access free books with the help of the Internet:

1. Get books from publishers.

If you are recognized as a book reviewer, you can get free books from publishers for review. An established blog in a particular niche can help you catch the eye of publishers. I’m always offered financial books for review, due to the nature of most of my writing. You can receive hardcopies for review, or ask about electronic copies. I’ve started asking for electronic copies whenever possible.

It’s also possible to sign up for the newsletters offered by different publishers. Many of these newsletters include offers for advance copies, and you can pounce on those. It’s also possible to email public relations representatives to find out about advance copies for authors.

2. Try reviewer programs and blog book tours.

When my co-author and I released a book a couple of years ago, we went on a blog book tour, speaking with podcast hosts and writing guest posts for blogs reviewing our book. You can sign up for blog book tours, such as Blog Stop Book Tours. This is a great way to find out about new books, and get copies for review.

It’s also possible to sign up for programs like Goodreads First Reads and Barnes and Noble First Look Book Club to access free titles for review.

3. Find free books online.

You don’t have to be a book reviewer to access free books with the Internet. There are websites that provide free books, particularly those that are in the public domain.

One of my favorite things to do is to download classics for my Kindle. There are numerous literary classics available for free on e-readers. Also, if you have Amazon Prime (which costs money), you can borrow books from Amazon’s lending library.

Other opportunities to find free books online come from websites devoted to digitizing books with available copyright and that are in the public domain:

  • Project Gutenberg: If you want to access free ebooks for major e-readers, as well as on your computer, this is a great opportunity. The site is easy to navigate, and prides itself in offering some of the best free books available.
  • Open Library: Use this book resource to borrow from the lending library. Unlike Amazon’s lending library, which has greater restrictions, you can “take out” up to five books at once. Not only do you have access to the titles in the lending library, but you can also look at ebooks from a network of brick and mortar libraries around the country.
  • iTunes: It’s possible to find free books if you visit the App Store. Look for the Free Books section, though, since not every book on iTunes is free.
  • Google Books: There are more than one million books available for free on this project. You can access them through Google Play Bookstore, and see a quick description of the top free titles. You do need to pay attention, though, because most of the books on the site are for sale – not for free.

It’s also possible to get free books for trying out different services. Audible generally offers a free book when you try out its audio book service, which is compatible with most devices that play MP3s.

With a little searching, it’s possible to build quite a library – particularly an electronic library – with free books.

What’s your favorite way to get free books? Leave a comment!

5 Home Maintenance Projects to Save You Money

home roof repairIt’s often said that when money is tight, maintenance is the first thing to go. When you own a home, skimping on maintenance in any way can lead to bigger – and much more expensive – problems later. Home maintenance truly comes within the old saying, an ounce of prevention is worth a pound of cure.

What maintenance tasks can you take on that will save you big money later?

1. Caulk windows, doors and siding regularly.

Cracks in the seals around windows and doors, or in the joints of wood siding, can open your home to water damage and pest infestations. If the cracks are left untreated too long you can incur many thousands of dollars in repair costs. If it gets bad enough – for example, severe rot overtaking wall studs and support beams – you could be looking at tens of thousands of dollars worth of repairs. Since the damage will have been caused by neglect, rather than by a natural event, your homeowners insurance will not cover repair or replacement.

The positive side of this is that caulking is one of the least expensive maintenance jobs you can perform on your home. For a few dollars you can purchase a caulking gun and caulk refills and do the job yourself.

Caulk any obvious cracks anywhere on the exterior of the home, and also remove and replace any deteriorating joints. You should inspect your home for cracks at least every year, and plan on caulking at least every two years, or sooner if needed.

2. Paint the exterior every few years.

Though we normally think of painting as being primarily a cosmetic function, it is another way to save money by preventing bigger damage later. If painted surfaces are not repainted frequently enough, the underlying wood could become cracked or porous, or even begin to rot. This could be another source of water damage or pest infestation.

Depending on where you live, you may need to repaint your home exterior every 5 to 10 years. Hot or wet climates (including areas with high levels of humidity) generally require more frequent repainting. Doing so regularly can prevent the need to replace siding and wood trim, often at a cost of many thousands of dollars.

3. Redirect water away from the house.

Water is a constant threat to a home, and not just to the upper structure of the house either. Water damage to the foundation or basement can cause even more expensive problems later.

In addition to performing regular maintenance on your roof and on the basic structure of the home, you should also do what’s necessary to direct water flows away from the foundation of the building. Water pooling anywhere outside the foundation can eventually begin to degrade even concrete walls, causing serious water damage on the inside of the home.

Be sure to fill in any low spots in the soil adjacent to the foundation where water may be pooling. Consider extending your downspouts so that they drain at least 6 feet away from the house. This will prevent water from flowing back toward the foundation. Also, clean your gutters and downspouts at least twice each year; clogged gutters and down spouts can cause all the water damage problems that you are trying to prevent.

4. Take care of little roof leaks before they become bigger ones.

Where a roof is concerned, big leaks usually start with very small ones. In order to extend the life of your roof, you should work immediately to fix any leaks in the roof, regardless of how small they may be.

An uncorrected leak in a roof can cause substantial damage to both drywall and even to the basic wood structures. If the problem becomes this advanced, not only will you be replacing the roof, but you could also be spending thousands of dollars to repair the interior the home.

Another important point to consider with leaks is that more significant structural damage may not be apparent for several years. For example, the drywall in the ceiling under the roof leak could become waterlogged and one day collapse. If it does – and it will most likely happen during heavy rains – you will not only have structural damage to correct, but you may also have significant damage to furniture and flooring.

Fix those little leaks quickly, and avoid them becoming something more significant.

5. Maintain your termite bond.

A pest inspector once told me that there are two kinds of bugs – the ones that are simply annoying, and the ones that do structural damage. Most people, however, are more likely to react to annoying bugs than to the ones that do real damage. This would include termites and carpenter ants, and one of the biggest problems here is that you are usually unaware that they are in your home until it is too late.

Insects that bore into wood can do damage similar to what flooding can do. They can spend years eating away at the wood structure of your home until some external event reveals the damage. But by then you could be looking at many thousands of dollars in repair work.

Make sure that you have a termite bond, and that you keep it active. This will usually require regular inspections by a termite company, and that will be well worth the money spent for it. Spend a few hundred dollars each year to prevent tens of thousands of dollars worth of damage in the future.

Are there other preventative maintenance projects for the home that cost little but can save a fortune later? Leave a comment!

Comparison of Delta’s American Express Cards

Traditionally, banks have offered items as cheap as toasters in order to entice customers to open a new account. But with the advent of reward credit cards, banks found out that offering a free flight was much more attractive to most of their customers. But eventually, earning frequent flier miles became just one of the many benefits offered by these cards. Today, Delta Airlines and American Express offer four versions of their SkyMiles card for consumers and three for businesses. So how do you know which one to get? Let’s compare them and figure it out.

The Delta SkyMiles Credit Card

Delta American Express SkyMilesDelta’s SkyMiles Credit Card is about as basic as it gets. It offers one mile per dollar spent on most purchases, and double miles for purchases from Delta. In addition, new cardholders can earn 5,000 miles as a sign up bonus after their first purchase. Finally, cardholders can save 20% on in-flight food, beverage, and entertainment purchases from Delta. The annual fee for this card is $55.

Gold Delta SkyMiles Credit Card

Delta American Express SkyMiles GoldThe next level up from the basic card offers a 30,000 mile sign-up bonus to new cardholders after spending $500 within three months. The Gold Delta SkyMiles Credit Card cardholders can also receive priority boarding and their first bag checked free for themselves and up to eight others traveling on the same itinerary.

In addition, cardholders can gain access to Delta’s Sky Club business lounges for $25 per visit for themselves and up to two additional guests. The regular price is $50. There is a $95 annual fee for this card that is waived the first year, and this card is also offered in a business version.

Platinum Delta SkyMiles Credit Card

Delta American Express SkyMilesNot to be confused with the (non-Delta) American Express Platinum card, the Platinum Delta SkyMiles Credit Card offers features that go way beyond the Gold SkyMiles card. For example, new cardholders earn 15,000 bonus miles and 5,000 Medallion Qualification Miles (MQMs) with your first purchase. And additional 10,000 MQMs are earned for spending $25,000 within a calendar year and another 10,000 MQMs are granted after reaching $50,000. These MQMs are extremely valuable as they can elevate you to the next level of elite status in Delta’s program, allowing you to be upgraded to first class.

But perhaps its most valuable reward is the companion certificate that is earned each year upon renewal. It can be redeemed to add another person to your reservation on a round-trip domestic economy ticket. The annual fee for this card is $150 and it is also available as a business card.

Delta Reserve Credit Card

Delta ReserveThe Delta Reserve Credit Card offers just about as much as any airline credit card ever has. In addition to all the features of the SkyMiles Platinum card, cardholders receive a membership to Delta’s Sky Club lounges for themselves an two others traveling. Better yet, travelers with this card receive upgrade priority over other elite members who are not Reserve cardholders. This can make the difference between sitting in first class and coach.

New cardmembers earn 10,000 Medallion Qualification Miles (MQMs) after your first purchase, and up to 30,000 MQMs each calendar year. 15,000 MQMs are earned after spending $30,000 and another 15,000 MQMs once you reach $60,000. In fact, cardholders can reach elite status without even purchasing a ticket! Reserve card holders receive a companion pass that is good for both economy and first class flights. There is a $450 annual fee for both the business and consumer versions of this card.

Which card is best for you?

If you are a frequent Delta traveler, you have already seen these cards pitched on their website, at the airport, and in their in-flight magazine. But which one makes the most sense? The basic SkyMiles card seems to be for people who don’t fly much but want the lowest annual fee. On the other hand, I have a different theory. If I worked for a company that paid for me to fly internationally in business class, this is the card I would carry as business class passengers already receive free bags and and priority service. For those who travel with economy tickets, the Gold card can make sense for its checked baggage fee waivers and priority service. It also has the best sign up bonus and it is the only card that waives the annual fee. I recommend this card for occasional leisure travelers.

The real standout in this lineup is the SkyMiles Platinum card. It offers the valuable companion certificate for only a $150 annual fee. This certificate can easily be worth several times that amount. And like the pricey Reserve card, it also offers some MQMs for those who need elite status. Therefore, this is the best card for frequent leisure travelers or occasional business travelers.

The Reserve card is a must for frequent business travelers whose company won’t pay for first class. By utilizing the lounge benefits and the companion certificates, it is easy to see how cardholders can justify the $450 annual fee. And if holding this card makes the difference in getting an upgrade several times a year, all the better.

Delta and American Express have an extremely close relationship that has resulted in so many offspring cards. By understanding the features and benefits of their credit card line, travelers can choose the card that is best for their individual needs.

Which card do you feel is right for you? Leave a comment!

Good Investments in a Recession

RecessionAre there truly any good investments in a recession? On the surface, that may even seem like a ridiculous question. After all, recessions are characterized by falling asset values – stocks, real estate and even bonds can fall in price. So why would you want to be in risk type investments at all during a recession?

The answer is timing. At what point in a recession you buy into any given asset class will largely determine whether it will succeed as an investment or not. But one thing is certain: Recessions are typically the best time to buy into nearly any investment.

Cash and Cash Equivalents

If you want to declare one asset class to be a recession must-have it would have to be cash and cash equivalents. This is because, unlike equity type investments, cash and cash equivalents retain their value even during periods of distress. For this reason, cash is the perfect investment vehicle to have, especially during the early stages of a recession.

Any capital that is held in cash and cash equivalents will hold its value, and be available as a recession ends. You can then move in to equity investments when they’re at the bottom of the price cycle. A large cash pile will enable you to buy up bargains in other investment types just as prices are beginning to recover and advance.

If it appears that a recession is on the horizon, getting out of equity type investments and loading up on cash will be one of the most profitable recession strategies possible.

Small Cap Growth Stocks

Since recessions and declining stock markets are closed traveling companions, success in this investment class during a recession will all come down to timing.

If you’re holding too many stocks as a recession sets in you could end up taking a bath early in the cycle. But if you are primarily invested in cash until the late stages of a recession, you can move into the market and buy up small cap growth stocks. Buy at the right time, and you can see some killer gains as both the market and the economy recover.

Small-cap growth stocks tend to do especially well as the economy improves because they are usually a foundational part of the recovery. Small companies bring new ideas and products to the market, and typically set the pace for the recovery. As they do, investment capital flows into their stock, and the gains can be spectacular.

Recessions are usually the very best time to buy in this market class. Just make sure that you don’t do it too soon or you can just as easily ride prices down.

High Dividend Stocks

High dividend stocks offer tangible advantages during recessions. First, since these stocks pay relatively high dividends, they are providing investors with an income flow. As recessions unfold investors often trade growth potential for income. This is not only because income investments provide a more certain return, but also because the growth goes out of growth stocks in recessions. High dividend stocks tend to be more certain.

Second, since they pay dividends, the price levels are better supported than non-dividend paying stocks. This is because investors hold the stocks for their income flow, and not just for the growth potential.

Though dividends and stock values can fall in a recession along with the rest of the market, they typically don’t fall as far precisely because of the dividend yield. For this reason, dividend paying stocks can be a solid investment during most phases of a recession.

Real Estate

Much like growth stocks, timing is everything when it comes to real estate as an investment in a recessionary environment.

If you’re holding real estate during the early stages of a recession, you may see a price decline. This won’t be too much for problem if you are planning on holding your real estate throughout the recession and into the next recovery. Real estate is, after all, a long-term investment of the highest order. You will more likely be looking for significant investment gains over a period of 10 to 20 years, rather than two or three.

If you’re looking to buy – and to maximize the return on your investment – buying at the bottom of a recession can present an incredible opportunity. You will be buying at a time when sellers are having difficulty selling their properties, and many will be more than willing to cut the price in order to make it happen. If you are in a position to buy at the bottom of a recession, this can be a once-in-a-lifetime chance to get the best investment gains possible.

What other asset classes do you think will be good investments in a recession? Leave a comment!

4 Things You Can Learn from Your Mortgage Statement

mortgage statementMost of us, when we buy homes, use mortgages to make the purchase. However, it’s easy to lose track of how your mortgage payment breaks down, and what you’re really paying unless you look at your mortgage statement.

Here are some things you can learn from your mortgage statement:

1. How Much of Your Payment Goes Toward Interest

You might be surprised at how much of your payment is going toward interest, especially at the beginning of your loan. A look at your mortgage statement can help you see how much the principal has been reduced by, and how much of your payment is being spent just to finance your mortgage. Somehow it seems more real when you see how little equity you are building in the initial years of your home loan.

2. When You Can Stop Paying PMI

In a more indirect way, you can learn when you can stop paying PMI. When your loan-to-value ratio drops to 80%, you can stop paying PMI. Pay attention to your loan balance. While your lender should take the PMI off automatically, sometimes you need to be on top of things to make sure that you are saving the money you should be.

3. How Much is Being Held in Escrow

Part of many mortgages is an escrow account. Money that you pay each month is held in a special account that is used to pay property taxes and insurance. If part of your payment goes to escrow each month, you know that your lender is taking care of making property tax payments and insurance premiums when they come due.

At the end of the year, the account is often “settled up.” If you owe more, due to insurance premium increases or property tax hikes, you are sent a bill for the difference, and your monthly payment might go up. If your costs have decreased, you are sent a check for the difference.

4. Your Interest Rate

Don’t forget that you can learn your mortgage interest rate by looking at your mortgage statement. You can compare your rate to the national average, and decide whether or not you need to refinance. The general advice is to refinance if you can do so at a rate that is at least 1% lower than your current rate. Keep an eye on the situation so that you know how to proceed.

What’s Not on Your Mortgage Statement: Mortgage Pay Off Amount

You might think that the loan balance you see on your mortgage statement is the amount you pay off, but it’s not. In fact, most mortgage statements explicitly state that the amount shown is not the pay off amount. If you want to know your pay off amount, you need to ask for it.

Mortgage interest is paid in arrears, meaning that this month’s mortgage payment covers last month’s interest. When giving you a pay off amount, interest is often expressed on a per-day basis. So, you can see how much interest you owe each day if your pay off isn’t made by a certain date.

When requesting a mortgage pay off amount, make sure you look at the date in question. Most lenders will tell you the date through which the pay off is good for. Once you get beyond that date, interest is added to your total.

What have you learned from looking at your mortgage statement? Leave a comment!

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