About This Book 1 Foolish Assumptions 2 Icons Used in This Book 3 Beyond the Book 3 Where to Go from Here 3 Book 1: Taking Charge of Your Finances 5 Chapter 1: Assessing Where You Are Financially 7 Asking Some Preliminary Questions 8 Evaluating Your Relationship with Money 9 Recognizing emotional spending 9 Living for the moment 9 Checking Out Your Credit Reports 10 Getting copies of your credit reports 10 Knowing why your reports matter 11 Finding Out Your FICO Score 11 Comparing Spending and Income 12 Gathering the necessary materials 12 Categorizing your expenses 13 Figuring out the fritter factor 17 Totaling spending and earnings 17 Calculating your financial bottom line 18 Assessing Your Spending Habits 18 Cataloging What You Own 20 Adding Up What You Owe 22 Chapter 2: Improving Your Relationship with Money 25 Working with Your Partner to Achieve Financial Goals 26 Recognizing your financial strengths and weaknesses 26 Identifying long-term goals 28 Establishing savings goals 29 Finding peaceful solutions to differences 29 Pulling together with your spouse or partner 30 Talking money with your children 31 Believing in Yourself 33 Handling Setbacks 35 Asking for Help 37 Digging Out of Debt 38 Step 1: Acknowledge the problem 38 Step 2: Cut the cards 38 Step 3: Set a good budget and live within it 39 Step 4: Contact your creditors 39 Budgeting for the Future 39 Step 1: Categorize your expenses 40 Step 2: Estimate what you spend 41 Step 3: Calculate and adjust 41 Chapter 3: Building and Sticking to a Budget 43 Comparing Monthly Spending and Income 44 Tackling a Budget Deficit 49 Cutting expenses 49 Reducing debt before saving 49 Using other strategies 50 Paying the Important Stuff If You Can’t Pay Everything 52 Distinguishing between secured and unsecured debt 52 Knowing when to prioritize an unsecured debt 53 Examining a Budget Surplus 54 Finalizing and Sticking to Your Budget 54 Steeling your resolve 55 Checking your progress each month 55 Chapter 4: Cutting Spending and Boosting Income 59 Finding Ways to Spend Less 60 Looking for good deals 60 Spending less on your housing 60 Lowering your utility bills 61 Eating for less 62 Paying less for transportation 64 Having fun for less 65 Looking good for less 66 Dressing for less 66 Reducing your phone costs 67 Saving on prescription drugs 67 Inching down your insurance costs 68 Bringing in More Bucks 70 Earning more at your current job 71 Looking for a new job 71 Getting (and surviving) a second job 74 Considering freelancing 75 Chapter 5: Cleaning Up Your Credit Reports 77 Understanding the True Value of Good Credit 78 Reviewing Your Reports for Problems 81 Using the Law to Get Your Credit Record Clean and Keep It That Way 84 Identifying and Disputing Inaccurate Information 87 Understanding the dispute process 87 Correcting all your credit reports 88 Contacting the creditor 93 Adding Positive Information to Your Credit Report 94 Asking your landlord to report your rent payments 94 Adding your utility and cell-phone payments to your report 94 Opening new credit accounts 95 Adding a 100-word statement 95 Book 2: Managing Home and Personal Finances 97 Chapter 1: Running a Money-Smart Household 99 Reaching Out to Touch Someone 99 Saving on phone bills 100 Using email and texting to stay in touch 100 Rediscovering the joys of letter writing 100 Saving on Climate Control 101 Dressing for the weather 101 Keeping your cool when the weather’s not 101 Warming the house 104 Cutting Back on Electricity and Gas Use 106 Improving your appliance efficiency 107 Shedding some light on the subject 107 Trash Talk: Controlling Garbage Costs 108 Reducing what you throw away 108 Reusing household items in creative ways 109 Cutting Down on Water Use 110 Keeping a Ceiling on Housing Budgets 111 Saving money on rent 111 Saving money on home ownership 112 Cutting Transportation Costs 115 Finding a deal on a set of wheels 115 Using public transportation 117 Biking and walking 117 Finding bargains on airfare and rental cars 118 Opting to travel by train or bus 119 Purchasing Appliances 119 Keeping energy efficiency in mind 119 Shopping for scratch-and-dent and secondhand 120 Thinking twice about renting-to-own 120 Chapter 2: Selecting the Best Home Purchase Loan 121 Three Questions to Help You Pick the Right Mortgage 122 How long do you plan to keep your mortgage? 122 How much financial risk can you accept? 123 How much money do you need? 124 Fixed-Rate Mortgages: No Surprises 125 Adjustable-Rate Mortgages (ARMs) 127 How an ARM’s interest rate is determined 129 How often does the interest rate adjust? 132 What are the limits on rate adjustments? 132 Does the loan have negative amortization? 133 Fine-Tuning Your Thought Process 135 Finding funds 136 Making the 30-year versus 15-year mortgage decision 136 Getting a Loan When Rates Are High 137 Chapter 3: Handling a Mortgage Meltdown 139 Assessing the Damage from a Mortgage Meltdown 140 Understanding How Mortgages Differ from Other Loans 141 Spotting a foreclosure on the horizon 142 Counting to 90 142 Knowing Where to Turn for Help 143 Finding good help for free 143 Working with your mortgage servicer 144 Avoiding help that hurts 145 Considering Alternatives to Going Down with the Ship 146 What to do first 146 What to do for more serious problems 147 What to do to end matters 147 Managing a foreclosure 148 Strategic default: Stopping payments 149 Dealing with Deficiencies 151 Preparing for “Credit Winter” 152 Chapter 4: Keeping a Lid on Medical Costs 155 Saving on Medical Expenses 155 Keeping a close eye on bills 155 Looking into payment plans 156 Coordinating insurance benefits 156 Finding less-expensive prescriptions 156 Discovering What Makes a Great Health Insurance Plan 157 Deciding Between Individual and Group 158 Pricing 158 Underwriting 158 Benefit levels 159 Renewability 159 Coverage flexibility 159Table of Contents
Introduction 1
Saving Money on Individual Coverage 160
Saving directly 160
Saving indirectly with self-care 163
Coping with Health Insurance Problems 164
Insuring the uninsurable 164
Staying insured through hard times 165
Insuring your kids when your policy no longer covers them 165
Evaluating insurance available through college 166
Understanding temporary health insurance 167
Continuing coverage following a divorce 168
Deciding on a conversion policy 169
Considering HIPAA instead 170
Taking Decisive Action 174
Reviewing bills with a fine-tooth comb 175
Making your plan pay what it should 175
Taking advantage of hospital discounts 176
Reducing your medical debt 177
Chapter 5: Using the Internet to Help Manage Your Finances 179
Giving Yourself an Online Financial Makeover 180
Using the Internet to Budget 181
Finding Online Resources to Track Your Income and Expenses 184
Using the Internet to Get Free Financial Advice 185
Finding Out What You’re Worth 186
Book 3: Dealing with Debt 189
Chapter 1: Tackling What You Owe 191
Taking Stock of Your Finances 192
Using a Budget to Get Out of Debt 193
Taking the Right Steps When You Have Too Much Debt 194
Handling Debt Collectors 195
Realizing your rights 196
Understanding why debt collectors behave as they do 197
Getting a Financial Education 198
The difference between good debt and bad debt 198
Distinguishing between types of credit 199
Seeing yourself through a creditor’s eyes 200
Building a better credit history 201
Chapter 2: Starting or Restarting Your Credit in Real Life 203
Debunking Misinformation about Banking and Credit 204
Why you need credit 205
Why credit is safe 206
Obtaining Credit: Starting Out on the Right Foot 207
Establishing a credit file without a Social Security number 208
Setting goals before you set out 209
Establishing a relationship with a financial institution 210
Using prepaid and reloadable cards 212
Fattening up your credit file 212
Avoiding high interest, fees, and scams 214
Overcoming Credit Fears and Mistakes 215
Qualifying for First-Time Cards and Lending 217
Getting a credit card 217
Using savings for credit 219
Considering Credit for Students and Military Members 220
Giving credit to students 220
Following military credit rules 222
Chapter 3: Consolidating Your Debts 225
Knowing When Debt Consolidation Makes Sense 225
Considering Your Options 226
Transferring balances 227
Getting a bank loan 229
Borrowing against your life insurance policy 233
Borrowing from your 401(k) retirement plan 234
Avoiding Dangerous Debt-Consolidation Possibilities 236
Chapter 4: Negotiating with Creditors and Getting Help 237
Getting Ready to Negotiate 238
Listing all your debts 239
Zeroing in on certain debts first 239
Reviewing your budget 240
Pulling together your financial information 241
Getting Down to Business: Contacting Creditors 243
Making the Agreement Official: Putting It in Writing 244
Knowing the Deal with Credit Counseling 246
Finding a Reputable Credit Counseling Agency 246
Differentiating the good from the bad 247
Locating agencies in your area 248
Knowing what to ask and what to expect 249
Working with a Credit Counselor 250
Sharing your financial situation 251
Whittling down your debt with a debt management plan 251
Avoiding Debt Settlement Firms 254
Being wary of false promises 254
Preventing worse financial problems 255
Getting Relief If You Get Ripped Off 255
Chapter 5: Considering Bankruptcy 257
Viewing Bankruptcy in a Historical Context 258
Debunking Bankruptcy Myths 260
“People who go bankrupt are sleazy deadbeats” 260
“Bankruptcy is the easy way out for folks who can pay their bills” 262
“Bankruptcy threatens the ethical foundations of our society” 262
“Honest folks pay a ‘tax’ to support people who are bankrupt” 263
Understanding What You Can Gain Through Bankruptcy 263
Stopping creditors in their tracks 265
Wiping out most of your debts 266
Catching up on back mortgage and car payments 267
Filing bankruptcy to pay some debts over time 267
Using bankruptcy to pay all your debts 267
Knowing What You Can Lose in Bankruptcy 268
Considering Alternatives to Bankruptcy 269
Introducing the Different Types of Personal Bankruptcy 270
Liquidations (Chapter 7) 271
Consumer reorganizations (Chapter 13) 271
Weighing the Consequences of Not Filing Bankruptcy 272
Claims secured by your car 272
Claims secured by your home 273
Student loans 273
Support obligations 273
Fines and restitution 273
Taxes 274
Lawsuits 274
Using the Statute of Limitations 274
Book 4: Saving and Investing 275
Chapter 1: Becoming a Saver 277
Eliminating Most of the Fat 278
Making lists of where you are now 278
Carving away the truly wasteful 279
Lowering Your Debt 280
Trimming Other Costs 282
Changing Your Perspective and Watching Your Savings Grow 283
Paying yourself first 283
Educating yourself about investing 284
Taking advantage of giveaways 287
Saving While in Debt 289
Chapter 2: Investing in Stocks, Bonds, and Mutual Funds 291
Stock: Owning a Piece of the Rock 292
Understanding stock 292
Conducting business in stock exchanges 293
Brushing up: A quick stock glossary 294
Picking a stock investment strategy 296
Buying Bonds for Fixed Income 297
Understanding bonds 297
Sorting out different kinds of bonds 298
Interpreting bond ratings 299
Mutual Funds: The Power of Many 301
Understanding mutual funds 301
Defining different kinds of mutual funds 302
Doing It Your Way versus Using a Broker 302
Full-service brokers 303
Discount brokers 304
Online brokers 304
Avoiding Five Common Investing Mistakes 304
Investing before you’re ready 305
Investing without goals 305
Believing those “hot” tips 306
Not diversifying your portfolio 307
Selling too soon (or too late) 307
Chapter 3: Saving for Retirement 309
Targeting Your Retirement Date 310
Getting Your Hands on Your Money 311
Drawing on your Social Security 311
Tapping into other sources 316
Living the retirement life 317
Testing the waters in your gene pool 318
Developing Your Retirement Savings Plan 318
Cutting down on your expenses 318
Picturing your progress 320
Counting on compounding 324
Chapter 4: Saving for College 327
Doing the Numbers 328
Exploring Section 529 Plans 329
Checking Out Coverdell Accounts 329
But Wait! There’s More! 330
Maximizing Your Savings, Minimizing Your Tax 332
Checking Out the Cost of College 332
Tackling tuition 333
Accounting for housing 333
Factoring in books and supplies 335
Looking into the Costs of Various Types of Schools 336
Exploring career and vocational training schools 336
Taking community college and continuing education classes 336
Going for a four-year public education 337
Getting your education in private 337
Chapter 5: Working with an Online Broker 339
Finding the Best Broker for You 340
The nine main factors to consider 340
Gotchas to watch out for 342
Separating the Types of Brokerages 342
Paying the minimum with a deep discounter 343
Get more with a discounter 344
Full-service traditional 348
Avoiding Hidden Fees 350
Finding Out What Reviewers Think 351
Is Your Money Safe? Checking Out Your Broker 352
Cutting the Cord: Mobile Trading 354
Opening and Setting Up Your Account 355
The checklist of what you need to know 356
The checklist of what you need to have 356
Book 5: Protecting Your Money and Assets 357
Chapter 1: Combating Identity Theft 359
Keeping Thieves at Bay 360
Getting on the technology train 361
Looking out for phishing scams 361
Safeguarding your computer data 363
Keeping passwords secret 364
Protecting your mail 365
Storing financial data in your home 366
Putting your credit information on ice 366
Shielding your credit card number 367
Catching Identity Thieves in the Act 369
Watching for early-warning notices 370
Getting early warnings from the IRS 371
Handling a collections call 372
Detecting unauthorized charges 372
Being denied credit or account access 373
Noticing missing account statements 373
Taking Fast Action When Identity Theft Occurs 374
Communicating with the right people 374
Protecting your identity through the FACT Act 377
Sending out a fraud alert 379
Blocking fraudulent credit lines 380
Getting and Using Credit After Identity Theft 380
Closing and reopening your accounts 380
Altering your PINs and passwords 381
Changing your Social Security number and driver’s license number 382
Chapter 2: Online Banking 383
Online and Traditional Banks 383
Advantages of online banking 384
Online bank access 384
Accounting for Your Accounts 385
Savings account 385
Basic checking account 386
Interest-bearing checking account 386
MMDA or MMA 386
cd 386
Choosing an Online Bank That’s Right for You 387
Identifying your user profile 387
Noting the fees when you shop 388
Opening Your Online Bank Account 390
Chapter 3: Homeowner’s Insurance: Protecting Your Stuff 393
Introducing the Six Parts of a Homeowner’s Policy 394
Insuring your residence (Coverage A) 394
Insuring detached structures (Coverage B) 396
Insuring your belongings (Coverage C) 397
Insuring additional living expenses (Coverage D) 398
Insuring your personal liability (Coverage E) 399
Insuring guests’ medical bills (Coverage F) 401
Choosing the Right Homeowner’s Property Coverages 401
Understanding the causes-of-loss options 402
Introducing the six most common homeowner’s policies 403
Establishing Property Coverage Limits 404
Determining the replacement cost of your home 405
Guaranteeing you’ll have enough insurance to rebuild 407
Estimating the cost to replace belongings 408
Choosing your deductible 409
Documenting Your Claim 411
Chapter 4: Auto Insurance Basics 413
Managing Your Lawsuit Risks 413
Reviewing noninsurance strategies 414
Buying liability insurance 414
Insuring Your Personal Injuries 419
Understanding how uninsured and underinsured motorist coverage works 420
Saving money on medical coverage 423
Dealing with Damage to Your Vehicle 424
Choosing cost-effective deductibles 425
Knowing when to drop collision and comprehensive coverage 428
Evaluating Road Service and Car Rental Coverages 429
Chapter 5: Insuring Yourself: Life Insurance 431
Assessing the Need 431
Who doesn’t need life insurance 432
Who does need life insurance 432
Determining How Much Coverage You Need 433
Looking at a hypothetical family 433
Using the multiple of income method 434
Using the web to estimate needs 434
Speaking the Language 436
Understanding the Types of Life Insurance 437
Ideal use 437
Pricing 438
Agent commissions 438
Understanding the Variations of Permanent Life Insurance 439
Whole life 440
Universal life 441
Variable life 442
Cash value options when dropping permanent insurance 443
Understanding the Variations of Term Life Insurance 445
Annual renewable term (ART) 445
Fixed-rate level term 445
Decreasing term 447
Insurance from your mortgage company 447
Making Your Choice 448
Evaluating Life Insurance Sources 449
Considering an agent 450
Buying without an agent 452
Debunking Myths and Mistakes 454
Mistake: Trading cash value for death protection needs 454
Myth: Supplemental group life is cheaper 455
Mistake: Buying life insurance in pieces 455
Mistake: Accidental death/travel coverage 456
Mistake: Covering only one income 456
Mistake: Ignoring a stay-at-home parent’s value 456
Mistake: Covering children, not parents 457
Mistake: Decreasing term insurance 457
Mistake: Being unrealistic about how much life insurance you can afford 457
Mistake: Buying before you need it 458
Myth: It’s cheaper when you’re young 458
Book 6: Dealing with the Tax Man 459
Chapter 1: Tax Return Preparation Options and Tools 461
Preparing Your Own Return 462
Taking Advantage of IRS Publications 463
Perusing Tax-Preparation and Advice Guides 464
Using Software 464
Accessing Internet Tax Resources 465
Internal Revenue Service 466
Research 467
Tax preparation sites 468
Hiring Help 468
Deciding whether you really need a preparer 469
Unenrolled preparers 469
Enrolled agents (EAs) 470
Certified public accountants (CPAs) 470
Tax attorneys 471
Finding Tax Preparers and Advisors 473
Chapter 2: Getting and Staying Organized 475
Maintaining the Burden of Proof 476
Keeping Good Records 477
Ensuring a complete and accurate tax return 477
Setting up a record-keeping system 479
Tracking tax information on your computer 480
Deciding when to stash and when to trash 481
Reconstructing Missing Tax Records 481
Property received by inheritance or gift 482
Securities received by inheritance or gift 485
Improvements to a residence 485
Casualty losses 486
Business records 487
Using duplicate account statements 487
Understanding the Cohan Rule 488
Chapter 3: No Form Fits All (Or, What Kind of Taxpayer Are You?) 491
What Rendition of 1040 Shall You Play? 492
Form 1040 492
Form 1040-SR 493
Form 1040-NR 494
Choosing a Filing Status 494
Single 495
Married filing jointly 495
Married filing separately 496
Head of household 500
Qualifying widow(er) with dependent child 502
Counting your dependents 502
Deciding who is your dependent 503
Securing Social Security numbers for dependents 506
Filing for Children and Other Dependents 508
Defining Who Is a Qualifying Child 509
Age test 509
Relationship test 510
Residency test 510
Support test 510
Must You File? 511
When to file 513
If you don’t file 513
Where to file 514
How to file 514
Book 7: Retiring Comfortably 517
Chapter 1: Checking the Benefits of a 401(k) 519
Realizing What a 401(k) Does for You 520
Lowers how much tax you pay 520
Gets you matching funds from your employer 525
Makes room for a little something extra: Employer non-matching contribution 526
Allows you to save without tears 527
Vesting: When Your Employer’s Contribution Is Yours to Keep 527
Vesting of employer contributions 528
Making exceptions 529
Letting the Pros Work for You 530
Protecting Your Money 530
Meeting minimum standards 531
Avoiding losses in bankruptcy 532
Watching Out for Potential Pitfalls 532
Earning more may mean contributing less 532
Being at the mercy of your plan 533
Chapter 2: Retiring Your Way: IRAs 535
Looking at the Basics of Your IRA 535
Staying traditional 536
Touching on Roth IRAs 537
Benefiting from a spousal IRA 538
Starting an IRA for a child 538
Setting Up Your IRA 539
Deciding where to invest your money 540
Opening your account 541
Maintaining Your IRA 542
Moving Your IRA 542
Chapter 3: Paychecks from Your House: Reverse Mortgages 545
Grasping the Reverse Mortgage Basics 546
Considering common objections 547
Who can get a reverse mortgage? 548
How much money can you get and when? 549
When do you pay the money back? 551
What do you owe? 551
How is the loan repaid? 552
What’s the out-of-pocket cost of getting a reverse mortgage? 552
What are the other reverse mortgage costs? 553
What’s the total annual rate? 554
How do reverse mortgages affect your government-sponsored benefits? 555
Shopping for a Reverse Mortgage 555
Making major choices 556
Counseling 557
Deciding Whether You Want a Reverse Mortgage 557
Chapter 4: Determining How Much You Need for Retirement 559
Improving Your Chances of an Ideal Retirement 559
Deciding How Much of Your Salary to Put Aside 560
Making use of your salary deferral agreement 560
Measuring your plan’s maximums 561
Being highly paid means different rules 562
Estimating what your budget can afford 564
Building Your Nest (Egg) 566
If you’re retiring in the near future 566
If your retirement is farther off 569
Using a retirement calculator 570
Chapter 5: Managing Money in Retirement 573
Looking Forward to Retirement 574
Decisions, Decisions: What to Do with Your 401(k) Money 574
Being older can save you money 576
Foiling the dreaded early withdrawal penalty 577
Leaving money with your former employer 578
Making Withdrawals from Your IRA 579
Paying Uncle Sam His Due: Required Withdrawals 580
Developing a Strategy to Deal with the Tax Man 583
Which comes first: Plucking the chicken or emptying the nest egg? 583
Dealing with that darned company stock 584
Managing Your Investments in Retirement 585
Live long and prosper 585
Stay practical 586
Managing Risk 587
Balancing investments 587
Buying an annuity 588
Consolidating Your Accounts 590
Tending to Your Nest Egg 591
Row, Row, Row Your Boat, Gently Down the Income Stream 592
Treating Your Home Like the Asset It Is 594
Adding up the expenses 594
Making use of your equity 595
Book 8: Planning Your Estate and Will 597
Chapter 1: The Fundamentals of Estate Planning 599
What Is an Estate? 600
The basics: Definitions and terminology 600
Property types 603
Types of property interest 604
Why You Need to Plan Your Estate 607
Why Your Estate-Planning Goals Differ from Your Neighbors’ 608
The Critical Path Method to Planning Your Estate 610
Getting Help with Your Estate Planning 613
Making sure that your team of advisors is “FAIL” safe 614
Working with Certified Financial Planners (CFPs) and other professionals 615
Knowing what to expect from your accountant for your estate planning 616
Working with your insurance agent 617
Working with your attorney 617
Chapter 2: Where There’s a Will 619
Planning for Your Will 620
Knowing the Different Types of Wills 621
Simple wills 621
Other types of wills 622
Choosing Your Will’s Contents 623
Opening clauses 624
Giving clauses 625
Ending clauses 627
Safeguarding Your Will 628
Changing, Amending, and Revoking Your Will 629
Why you may need to change your will 630
Ways to change your will 631
Protecting Your Loved Ones from Your Unloved Ones 632
Figuring Out Your Will Status 633
Testacy: You’ve nailed everything down 633
Intestacy: You die with zero “will power” 633
Partial intestacy: The vultures start circling 634
Chapter 3: The Limitations of Wills: What You Can and Can’t Do 635
Making Your Peace with Statutes That Affect Your Will 636
Identifying Statutes That Your Will Can Change 636
Abatement: There’s not enough in the cupboard for everyone 637
Ademption: Some property is missing 639
Antilapse: Someone dies before you do 640
Divorce: High noon in Splitsville 640
Simultaneous death: Sorry, but we have to talk about it 641
Living (And Dying) with the Laws That Your Will Can’t Change 642
Community property 642
Spousal elective shares 644
Homestead allowance: Keeping a house for kiddies and spouse 645
Homestead exemption: How the law protects your house from your creditors 645
Exempt property: How the law protects your personal property from creditors 646
Family allowance: Drawing from your estate to protect your family 646
Oops! Taking care of VIPs who aren’t in the will 647
Chapter 4: Estate Planning with Online Resources 649
Understanding Wills and Trusts 650
Where there’s an online will, there’s a way 650
Avoiding probate 651
Getting the Basics of Trusts 652
Trusting in Living Trust to Avoid Probate 654
Joint Tenancy and Beneficiary Arrangements 655
Not all heirs are created equal 656
Don’t keep your estate plans hush-hush 657
Customizing Estate Planning for All Ages 657
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