Email List

Read The Latest News

Latest News

Cash for Trading in Your Car

The federal government might give you cash to trade in your existing car or truck for a newer, more fuel-efficient vehicle. The Consumer Assistance to Recycle and Save Act (part of H.R. 2346 which has been passed by Congress and is headed to the Whitehouse for the President's signature). This is not a tax credit or a tax deduction, but it is money from the government.

Under this program, the National Highway Traffic Safety Administration will issue vouchers to be used to offset the purchase of a new car. The vouchers are worth up to $3,500 if the new car has a fuel-efficiency rating at least 4 miles per gallon higher than the old car traded in. The voucher jumps to $4,500 if the new car is at least 10 miles per gallon more efficient than the old car. There's different fuel-efficiency guidelines for trucks. (See below.) Purchases need to be made between July 1, 2009, and November 1, 2009, to qualify for the vouchers.

The tax impact? Here's the part I like best. The payment vouchers will not be considered taxable income for the car buyer.

In addition, car buyers are eligible to deduct the full cost of sales taxes paid on the purchase of a new car. This vehicle sales tax deduction is available for purchases made after February 16, 2009, and before January 1, 2010. Also, there's still some tax credits available for hybrid and other fuel-efficient cars.

Making the Most of Your Savings

Where is the best place to stash your cash? Under your mattress? In a cookie jar? Your checking account? Savings account? Certificate of Deposit? With so many choices, it's easy to throw up your hands and take the path of least resistance, but that can end up costing you money in lost interest.

It also doesn't help that lower interest rates are making it more difficult to find good rates of return on your money. Nevertheless, this isn't a time to abandon your emergency fund just because the rates are low. Your goal should be to maximize returns while maintaining the liquidity you need.

There are five common places that you can use to manage your short-term savings:

  • Checking Accounts
  • Savings Accounts
  • Money Markets
  • Certificates of Deposit
  • Savings Bonds

Learn more about where you should keep your savings, and check out the primer on U.S. savings bonds to help you make the most of your savings.

By Jeremy Vohwinkle, Guide to Financial Planning

How Long to Pay Off Balance With Minimum Payments

If you only make the minimum payment on your credit card, it could take years to pay off the balance. Not even that, you could end up spending hundreds, possibly even thousands, in interest by the time the balance is repaid.

How Minimum Payments are Calculated

Typically, minimum payments are calculated as a percentage (something like 1-3%) of your credit card balance. Late fees and over-the-limit fees can increase your minimum payment beyond the base percentage of your balance. Your credit card agreement will describe how your minimum payment is calculated.

Even though it seems like minimum payments are easier to make, they actually cost more in the long run.

Minimum Payment, Maximum Cost

Consider having a balance of $5,000, at 14% APR, and minimum payment as 2% of your credit card balance. Making minimum payments only, it would take you 22 years and $5,887 in interest payments to pay off this debt.

Increasing your payments to $125 a month would allow you to pay off the same debt in less than 6 years and spend only $1,775 in interest.

Not only does increasing your payments allow you to pay off the balance sooner, you also save money in interest.

Calculate Your Minimum Payment Timeline

To see the pay off time and cost of making minimum only credit card payments on your balances, you can use this minimum payment calculator from You might also use the pay off calculator to calculate your pay off time and cost when you make higher monthly payments.

Dollar Cost Averaging - Still a Good Idea?

When you dollar cost average (DCA), you invest a certain sum of money in a specific investment (or investments) on a pre-set schedule. For example, you might arrange to put $100 into mutual fund X on the first day of every month. The primary advantage of dollar cost averaging is that you will buy more shares when the price of the investment is low and fewer shares when it is comparably higher. You automatically use DCA when you sign up for your 401(k) plan.

So, when wouldn't DCA be a good idea?

Turns out, about two-thirds of the time. Since the stock market generally goes up (notwithstanding the nearly two years of current market pain), by waiting to invest a lump sum of money, you miss out on more of the long-term price appreciation. Still, if and when you have a lump sum to invest, you don't know if we're about to enter a period of time when you would be better off investing all at once (two-thirds of such situations) or doing so over several months or longer (one-third of similar occasions). Like everything else, using dollar cost averaging is a trade-off between risk and reward. What would you do? What do you actually do? What do you think about dollar cost averaging?

By Michael Rubin, Guide to Retirement Planning

Insurance Report Card

Now that the school year has ended are you ready for those report cards? Not just students are graded, so are insurance companies.

They are called ratings. These ratings are administered by independent companies. They are sort of like a report card on various aspects of a company's financial strength.

Best's Insurance Reports is an example of a popular independent insurance rating company. Similar to a report card, the ratings range from A+ to a C.

Now that you know..have you checked your insurance company's grade yet? Need to know how? It's easy-just call your insurance agent or company and ask.

Finding More Money to Help You Pay Off Debt

When you're just trying to keep up with your minimum credit card payments each month it can be hard to think that you have extra money sitting around. Although you may not realize it, you're probably sitting on at least an additional $100 per month worth of money that could be used to get that debt paid off faster.

It may be hiding in the more traditional places such as investments or an old cash value life insurance policy, but even more likely is the money that is slowly being drained from your bank account every month. The silent money pit usually comes in the form of small monthly payments. A few dollars a month for a magazine subscription, a gym membership that is rarely used, or even that premium cable channel can really begin to add up. Find five ways to save $10 each month, and you have another $50 a month, or $600 a year to accelerate those credit card payments. This can result in a significant savings on interest, and even cut months or years off the repayment period. Learn more about how you can find extra money to help pay off your credit card debt.

12 Simple Ways to Save Money Today. Learn how.

Feeling squeezed? Bank failures. Wall Street greed. Skyrocketing unemployment. Massive government bailouts. But who's bailing you out? NO-ONE! We've started a money revolution, and we invite you to join us. Slash your credit card costs, cut insurance premiums, lower your taxes and much more! YOURS FREE.

It's a tough economy out there. It affects all of us... and chances are it isn't turning around any time soon.

Thankfully there is a way back. But you have to know your options, a plan of attack...a smart way of getting out from under, repairing, protecting your credit ...and getting debt free, one educated step at a time.

Help for YOU - and we mean FREE help - is just a mouse-click away.


We're Ken and Daria Dolan. For more than three decades we've been called "America's First Family of Personal Finance" and we've been giving people just like you the straight talk you need to repair their credit and start living debt-free.

And right now we're just plain mad at what's happened to American's credit and debt load...

We've declared a revolution! THE DOLANS' MONEY REVOLUTIONTM... and we want YOU to join us!


We have some strong, down-to-earth solutions for you. Practical advice that will empower you, give you the tools you need to FIX WHAT'S WRONG... and get your family's debt back on track.
Money Savers: A Dozen Great Ways to Start Saving Today

Use this "Dolans' Dozen" to Put More Money in Your Pocket RIGHT NOW!


If you're ready to stand up and say, "I'm mad as hell and I'm not going to take it any more," then we're ready to help put you back in charge of your financial destiny!
Get started right now. Click on the link below & join THE DOLANS' MONEY REVOLUTION!

We look forward to helping you WIN the fight!

Financial Emergency! Tap the Roth?

With the unemployment rate rising practically weekly, many folks are facing real financial emergencies. An event such as a job loss is the perfect time to tap an emergency fund - money put aside for just such an unexpected occurrence. Unfortunately, many people still don't actually have emergency funds. As a result, such folks may consider tapping their Roth IRA money to get by while they look for new employment.

There are plenty of downsides to tapping your Roth IRA in an emergency, not the least of which is the permanent reduction in the future value of your retirement account. That said, a Roth IRA distribution may be the only option for some people. If the total you take out is less than the amount you had previously contributed, you won't owe any income tax or early distribution penalty. If you exceed your contribution total, the financial implications get ugly fast, so try your best to avoid going over that magic number.

Kobrin Ememo - Shrinking your life insurance premium


New opportunities for consumers
More generally, this news item illustrates a growing trend. Carriers that are seeking a competitive edge will choose one or several health areas in which recent medical advances now allow a more precise prognosis. This means their underwriters can more accurately assess an applicant's mortality risk.

For example, some carriers now utilize cognitive testing when underwriting applicants over age 70, to determine whether or not certain impairments inherent in that age group are manifest. Other carriers use specific blood tests to better appreciate the probability of a heart attack.

All of this translates into new opportunities for consumers. People with an impaired health risk may be able to reduce their costs, if they were previously saddled with high premiums. Likewise, people who could not even obtain coverage before, may be able now. A broker who specializes in impaired risks can direct you to the carrier that is right for you.

Interested in Some Free Life Insurance?

If you are employed at least part time and make less than $40,000 per year then you may qualify for free life insurance by MassMutual. The free life insurance program is called LifeBridge. Here are some details according to their website:

"MassMutual's LifeBridge Program provides free life insurance. It is designed to help you protect your dream of providing an education for your children if you die before they complete their schooling.

Under the LifeBridge Free Life Insurance Program, Massachusetts Mutual Life Insurance Company (MassMutual) will issue a $50,000 life insurance policy to a trust for a period of 10 years and at no cost to you. If you die within that time period, the $50,000 is used to cover the educational expenses of your children. And your children have 10 years after your death or until age 35 (whichever is later) to use this $50,000 educational benefit."

A New Federal Tax Reform Panel

Obama has appointed Paul Volcker to head a panel that will make recommendations for reforming our nation's tax laws. Volcker is also the head of the President's Economic Recovery Advisory Board.

The advisory panel will consider ways to simplify the tax code and reduce tax evasion, and will make recommendations to the President by December 4th, 2009, according to a White House briefing.

The last time we had any serious consideration for tax reform was in 2005 when President Bush appointed a panel of advisors to come up with simplified tax systems. Those recommendations were never implemented. There is a strong suspicion that recommendations coming out of this new tax reform panel might not fare any better. Rosanne Altshuler, who worked as the chief economist on the 2005 panel, fears that Paul Volcker and his team might be too constrained,

"President Obama has said that no one making less than $250,000 could pay higher taxes under any new reform. That means ninety-five percent of taxpayers can’t pay additional tax, even if it would result in a more efficient system, decrease inequities, or make their lives much simpler. At a time of monster deficits, that pretty much rules out any sensible reforms." Tax Reform 2.0 (TaxVox blog)
There's no sign of any Web site where we can see what's going on with this advisory panel. The Web site for the 2005 panel, located at, has been removed. Perhaps it will be resurrected for the new panel? I also hope the panel solicits recommendations from the public and holds meetings. This would gives all of us a chance to voice our ideas for tax reform.

By William Perez, Guide to Tax Planning since 2004

Black Swan Theory in Insurance

Black swan theory was bound to show up in the insurance industry, but so far there has been limited discussion. Do you know what a black swan is? Black swans are important in assessing future insurance losses, but are they adequately represented in the models?

The term originates from a book called The Black Swan: The Impact of the Highly Improbable by Nassim Nicholas Taleb (also see here, or see Recent Books on the left of this blog). Wikipediahere): provides a good definition (see

a large-impact, hard-to-predict, and rare event beyond the realm of normal expectations

The book was written from the perspective of investing (Taleb was a hedge fund manager), but the concepts are particularly important for the insurance industry. A central thesis of his book is that models are defective and lead to incorrect conclusions because black swan events are not contained in the data and are therefore assigned a probability of zero outcome – obviously incorrect.

While there has been quite a bit of discussion of insurance modeling, there has been little discussion of black swan events and the ability of predictive models to adequately assess severe catastrophes for insurance purposes (see here and here for two such articles).

However, two articles came to our attention recently. The first (see here) is a response to some comments made by Taleb in an interview (see here). Taleb notes:

My idea in The Black Swan is to make people think of the unknown and of the potency of the unknown, particularly a certain class of events that you can’t imagine but can cost you a lot: rare but high-impact events.

The author makes an excellent pitch for combining predictive modeling techniques with outcomes not envisioned in historical data, and makes 4 suggestions for planners (see here).

In the second (Risk & Insurance commentary, see here) the author is concerned that the black swan theory may result in less risk management and assumes that because black swan events occur we should or will not consider past history.

I fear they may increase paralysis in risk management and further promote inaction.

But black swan theory is telling us that modeling, which relies on historical data, is only part of the story. In fact, the future will be a combination of prior history, reflected in historical data, and new events, which can and at some point will lead to more volatility – sometimes better, sometimes worse.

The important point is that black swan events are not contained in historical data, and therefore traditional predictive models cannot provide complete picture of the future. The second piece is equally important: these events can be so large that they will dwarf other outcomes if they occur, although the probability of occurrence is extremely small.

Unfortunately, we have seen a number of these black swan events in the insurance business in the last few years, 9/11 and Katrina being two such examples. Maybe a more flexible approach to modeling and a focus on risk management could be beneficial to the insurance industry.

Brought to you by MercatorPro.

The Rule of 72 for Doubling Your Money

Compound interest is an amazing thing, and the Rule of 72 is a simple way to quickly estimate how long it will take your investment to double. The only piece of information you need for this calculation is the annual rate of return. While most investments don’t have a fixed rate of return over a long period of time, you can use an average estimate to get a pretty good idea.

How to Use the Rule of 72

To estimate how long it takes for your money to double, simply divide 72 by the interest rate. The result is how many years it will take for your money to double at that rate. For example, let’s assume you can earn a 6% rate of return. How long will it take $1,000 to grow into $2,000?

72 / 6 percent = 12 years

In this example, if you invested $1,000 into an account that earned a flat 6% annual rate of return, after 12 years, your investment would be worth around $2,000. To save a little time, here are some interest rates and the corresponding amount of time to double:

1% - 72 years
2% - 36 years
3% - 24 years
4% - 18 years
5% - 14 years
6% - 12 years
7% - 10.3 years
8% - 9.0 years
9% - 8.0 years
10% - 7.2 years
11% - 6.5 years
12% - 6.0 years

Remember, It’s Just an Estimate

Keep in mind that this is just a quick estimate. Depending on changes in the rate of return over time, what you’re invested in, how you invest it, how interest is applied, and possible tax implications, the actual amount of time needed to double your money will vary. Even so, the rule of 72 can be helpful when you quickly want to compare the rate of growth of two investments.

The rule of 72 also works in reverse and can be helpful in understanding the power of inflation. If you consider the average long-term rate of inflation is between 3 and 4 percent, you’ll notice that something worth $100 today will cost $200 in about 20 years. This can help illustrate the power of inflation and the importance of realizing a rate of return over time that can not only overcome inflation, but also taxes.

By Jeremy Vohwinkle,

New Information in Your IRMI Library

For decades, farm insurers had essentially two choices when it came to selecting insurance forms and rating procedures for insuring farms and agribusinesses: to use "farmowners" forms and rating developed for family-owned and operated farms or to select components from commercial property and liability programs and modify them to fit agricultural risks. That changed in 2001 when the American Association of Insurance Services (AAIS) developed and filed its Agricultural Output Program (AgOP), a standardized program providing a wide range of commercial property and inland marine coverages designed for large agricultural operations. In 2008, AAIS followed up on the liability side by filing its new Agricultural General Liability Program (AgGL), the first standardized general liability program specifically designed for farms, ranches, and other agricultural operations.

The May 2009 issue of The Risk Report provides a detailed review of this new portfolio of specially designed policy forms and how they work to provide tailored liability protection for agribusinesses. If you subscribe on IRMI Online, you can learn all about the AGL program here.

All the best,

Jack Gibson, CPCU, CRIS, ARM
International Risk Management Institute, Inc.

Retirement Deductions for Self-Employed

Type of Deduction:

Above-the-line tax deduction (you don't need to itemize). The deduction reduces the income tax, but does not reduce the self-employment tax.

Basics of Self-Employed Retirement Plans:

If you have self-employment income, then you can take a tax deduction for contributions you make to a SEP, SIMPLE, or solo 401(k) retirement plan. You can set up the retirement plan with a financial institution of your choice. Each plan has different deadlines and funding limits. If you are a sole proprietor, you'll need an Employer Identification Number to set up the plan.


SEP-IRAs can be established and funded as late as October 15th for the previous year, provided that the taxpayer filed an extension. The maximum contribution is 20% of the person's net self-employed income, with a maximum dollar limit of $46,000 for 2008. "Net self-employment income" means self-employed income minus one-half of the self-employment tax. More about SEP-IRAs.


Simple IRAs can also be funded as late as October 15th (with an extension), but the plan needs to be established by the taxpayer no later than October 1st of the tax year for which the contributions will apply. SIMPLE plans consist of a salary deferral portion with a maximum of $10,500 for 2008, plus a matching contribution of up to 3% (but not to exceed $4,600 for 2008). Taxpayers age 50 or older can defer up to $20,000 for 2008. More about SIMPLE IRAs.

Solo 401(k) Plans:

Solo 401(k) plans combine a deferral portion with a matching portion. The maximum elective deferral is $15,500 for 2008 (or $20,500 if age 50 or older). The maximum matching portion is 20% of net self-employment income. The total of both the deferral and the matching cannot exceed $46,000 (for 2008). Solo 401(k) plans need to be set up by December 31st, but contributions can be made as late as October 15th of the following year with an extension. More about solo 401(k) plans.

Qualifications to Take the Deduction:

You must have self-employment income. Self-employment income for the purpose of this deduction means net profits from a Schedule C or Schedule F, self-employed income from a partnership, or wages as a shareholder-employee in an S-corporation. Additionally, you must set up and fund a qualified retirement plan by the required deadline.

Where to Claim Deduction:

You must use the worksheets found in IRS Publication 560 for figuring your allowable tax deduction for SEP, SIMPLE, and 401(k) contributions. The allowable deduction is then reported on your Form 1040 Line 29. S-Corporations report SEP contributions on the corporation's Form 1120S.

Explanation from the IRS:

"SEP, SIMPLE, and qualified plans offer you and your employees a tax-favored way to save for retirement. You can deduct contributions you make to the plan for your employees. If you are a sole proprietor, you can deduct contributions you make to the plan for yourself. You can also deduct trustees' fees if contributions to the plan do not cover them. Earnings on the contributions are generally tax free until you or your employees receive distributions from the plan." (from IRS Publication 560)

Relevant Tax Laws:

The deduction for SEP, SIMPLE, and other retirement plans is found in Internal Revenue Code Section 62(a)(6) and Section 404.

By William Perez,

Coastal Risk Management

Coastal Risk Management

Insurance exposures within coastal communities are rising from climate change and development. Increasing populations and property values, higher sea levels and more violent weather are all working to threaten insured property and challenge property insurers. The insurance industry response has been focused on financing the aggregation of coastal exposure in a manner that does not risk insurer solvency. Most of the political response has been focused on affordable insurance options, and one such result, which nobody in the insurance industry believes is effective or reasonable, is Citizens in Florida (see here & here).

Very little attention has been paid to risk management and the impact a risk management approach can have on adverse outcomes. Both pre-loss and post-loss risk management tactics are critical components of successfully financing risk, yet there is little will within the industry or political segments to promote risk management.

A recent paper by The Heinz Center and Ceres has brought a group of diverse organizations (sponsors) together to generally agree on an approach to address the coastal threat that includes a heavy emphasis on risk management (see here, and here for the entire report). Some key points:

Over half the U.S. population lives in coastal counties and almost half of the nation’s gross domestic product – $4.5 trillion – is generated in those counties and in adjacent ocean waters. Further, insured property values along the Gulf and Atlantic coasts have been roughly doubling every decade.

Wharton has demonstrated that homeowners in Florida could reduce losses from a severe hurricane by 61 percent, resulting in $51 billion in savings, simply by building to strong construction codes. Putting this in perspective, the same cost reductions applied to Katrina damages would have reduced the $41.1 billion worth of insured property losses to about $16.1 billion. Similarly, the National Institute of Building Sciences showed that every dollar spent on mitigation saves society about four dollars on recovery costs. Despite this evidence, nearly all U.S. coastal cities and towns lack adequate land use requirements and building code standards to realize these savings.

Five hundred commercial clients of the insurer, FM Global, experienced approximately 85 percent less damage from Hurricane Katrina as similarly situated properties. This significant reduction in the amount of damage was directly attributable to hurricane loss prevention and preparedness measures taken by these policyholders. The return on investment is striking – a $2.5 million investment in loss prevention resulted in $500 million in avoided losses.

While risk management will not eliminate the exposure, it can go a long way towards making the cost of insurance reasonable.

Brought to you by MercatorPro.