Financial Planning to Combat the Current Financial Crisis

The final quarter of the last year witnessed a universal global meltdown, from which world economies are yet to recover fully. The crisis is indeed grave, as highlighted by the performance of the economy of the United States. In fact, during the third quarter of 2008, the financial markets of the US experienced a negative growth, a feature indicative of the acute financial economic crisis affecting the finance fields. Experts are of the opinion that the current financial situation is one of the worst to hit the world economy since the Great Depression of the 1930s. In the rather bleak current scenario, proper financial planning is extremely important to tide over the economic crises effectively.

This kind of situation is invariably marked by an increase in the debt burden of individuals. Consequently, the number of creditors of a person also goes up. A short-term, quick-fix solution might be the sale of most existing assets held by a person. The sale proceeds can then be used to pay off the dues of his/her creditors. However, this is not the ideal way to combat a scenario like this. Instead of panicking, a person needs to alter his financial aims and targets according to the situation. In case (s)he has already hired the services of an expert planner, the latter too can help him/her take such decisions that would suit the need of the hour.

During a period of crisis (like the current one), individuals need to adopt a more conservative and cautious approach than usual. The target rates of return from financial investments as well as one's overall financial goals have to be scaled down according to the situation. Risky investment ventures should not be taken up, and too much money should not be spent on buying up additional assets at these times. Individuals also need to be aware of the legal aspects of his/her financial actions. Equifax, one of the three major credit bureaus of America, recommends that investors should seek help and advice from the Consumer Credit Counseling Service (CCCS). If a person is able to take prudent and informed investment decisions that are not too aggressive in nature, (s)he can continue to earn a steady flow of income, even during a period of financial crisis.

Finance and strategy-making assumes crucial importance at a time of financial economic crisis. Such plans keep in consideration the exact requirements of investors, and are dynamic enough to help people change their finance-related actions according to the overall financial scenario. With the help of proper planning, and the adoption of toned-down financial actions (with revised investment targets), individuals can indeed effectively combat the current financial crisis situation.

How to Garner Tax Benefits From Your Education Spending

Everybody has to file their income tax returns. Some turn to a professional accountant to do their taxes. Others take the do-it-yourself approach and use software specifically designed for tax preparation. Finally, there are those who fill out the correct form that the government provides. Though there are several different methods of filling out tax forms, one thing remains important: knowledge about tax deductions. You must be aware of what deductions are legally available to you in order to save your hard earned income.

The majority of those filing tax returns will claim exemptions, which the IRS states amounted to more than $842 billion in 2005, the highest amount on record. Yet, a number of legal tax credits are often missed or neglected by filers who could have benefitted from them.

Get Smart
It may be possible, if your income falls within certain stated guidelines, to use education-related expenses as a credit against your tax liability. Available options include the Lifetime Learning credit, which permits you to receive a tax credit for the amount of your tuition, and the Hope credit. You can make your education more affordable if you'll devote some study time to possible tax alternatives.

Considering the amount of people who were qualified for the Hope or Lifetime Learning subsidy as much as 25% did not take the benefit of it; based on a Government report that came out in 2005 which consisted of information from approximately 1.4 million tax returns. On a separate basis this was just about $160 for each person, but several of those exact people paid an estimate of $500 in extra taxes.

Depending on your level of income, the Hope credit may be able to secure funds to pay for all or part of your college tuition. You are able to get up to $1,650 for tuition or tuition related expenses, excluding books, other supplies or housing. If your college is on the list of approved colleges, Lifetime Learning may assist you with up to $2,000 towards the cost of going to school. Again, this is dependent on your income. If you make more than a certain amount, you will not qualify, but the limits are generous and based on your adjusted, modified gross income. If you are single and earning more than $47,000 or married (filing jointly) and your combined income is $94,000 or more, you may still be able to secure some funds, but not the full amount. You will not receive any funding if you are single and earning $57,000 or married and earning $114,000 or more.

You do not have to itemize to take advantage of the deduction for tuition and education related fees which can be worth as much as $4000 to you. Your MAGI, if you are single, $65,000 or less (married-filing-jointly is double that or $130,000). You can still take advantage of as much as a $2000 in tax deductions if you income, as a single person, is between $65,000 and not more than $80,000 (again it will be twice those amounts if you are married-filing-jointly). If your income is any higher than these figures you are not going to be eligible for college tax deductions.

There isn't anything that is easy about credits and deductions and this is not different from the average rule. You can't have both benefits of the credit and deduct the cost of tuition at the same time. It will be worth the effort to investigate to find out which one will give you more money, but credits will usually give you more back than deductions will. Make sure you search since there are choices such as phase-outs that can apply to you.

What is Income Tax Relief?

Income tax relief is a program created by the Internal Revenue Service (IRS) to assist willing tax payers in lowering the amount they owe in taxes, often times waiving or eliminating altogether their total owed to the government. This relief act is not a widely advertised program. The main reason, of course, is the fact that the IRS does not want people abusing this privilege, claiming hardship and inability to pay only because there is an option available that allows them to. Each person is reviewed on a case by case basis and is either confirmed or denied based on a number of factors including their net salary, their assets as well as other personal questions.

Meeting with a tax attorney or a tax accountant is a good place to start with your tax needs. These highly trained counselors are available to offer assistance and guidance concerning your income tax relief. Most online tax services offer many options, not just relief from taxes. The norm for what these online tax relief companies provide is IRS wage garnishing advice, penalty abatement, innocent spouse and audit defense. Penalty abatement is a tax debt resolution process in which a tax debtor challenges interest and penalties for a designated length of time. The taxpayers may request penalty abatement on the basis of with an administrative waiver, such as bad advice from a tax practitioner, reasonable cause like a death in the family or an error on the part of the Internal Revenue Service. Wage garnishing is a process what is granted by an order of the court or by the government by which the Internal Revenue Service obtains part of the salary of the tax payer directly from an employer who is behind in payments to the government.

Income tax relief is a way for you get a small break during the stressful tax time. It is a way to encourage tax payers to not be negligent on the taxes that they owe by giving them a little break on the entire amount. The IRS appreciates people taking the initiative to contact them and inquire about the offered relief. You are approved or denied on a case by case basis. You may have a large portion of what you owe waived, or just a small amount depending on your current financial situation. Any way you look at it, when it concerns your taxes, any relief is a good relief!

Investing During the Financial Crisis

One of the things that said most often about investment during troubling economic times is that investors need to take things slowly. This is easier said than done, as a growing number of investors have taken a major hit even with investments that were once considered low-risk and conservative. But the answer to making back those losses is not to make any rash moves with high risk investments. You’re just as likely to take a deeper hit.

So the name of the game right now is to take it slowly and not to panic. You can rest assured knowing that the economy is more than likely going to head in the opposite direction. I’m not going to say anything as hackneyed as, “These things are cyclical.” But there’s no reason to think that the financial crisis is going to last at full capacity for the next ten years. Yes, things are dire, but things will improve.

What this means is that you can wait for certain investments to grow again. Even though you may be looking to make significant gains in the short term, to offset recent losses, your real aim should be long term – three years or more. This should give current investments enough time to rebound. It also gives you time to diversify and possibly invest in certain stocks that have hit a low but will head in the opposite direction. There are as many opportunities as pitfalls right now, so long as you can be patient and wait for those stocks to turn around, as well as the economy on the whole.

Your investment strategy should not change dramatically: diversify and don’t make rash choices if a stock takes a fall. In this climate, that is more inevitable and it doesn’t mean it won’t rebound.

Investing During a Depression

It’s too soon to call this a depression, but that almost doesn’t matter. Just the idea that it could be a depression, or even a recession, is enough to send the economy tanking further. It’s like a self-fulfilling prophecy. Some knowledge can be gained by looking at how investing functioned during the Great Depression. In the 30’s, some stocks still remained strong, such as electronics stocks. Radio was the wave of the future and those stocks still had viability.

This should tell you that even now there is a good potential for investment. Tech stocks are normally the most volatile, but they’re also the future of investing. The same goes for green technology: something talked about by tree huggers not so long ago but now is mainstream. There is going to be a high demand in recent years. Of course, a green start-up can be a high-risk venture – especially if the company is not diversified into other industries – but there is a huge upside as well. Again, this boils down to patience. Because people are tightening their belts, no new green company (a green green company, as it were) will be making enormous profits short-term. But as a long-term strategy, green investments are a positive opportunity, similar to radio in the 30’s.

Stayed tuned for more investment advice in future posts, including Forex investing, Alpha mutual funds, the Alternative Investment Market, and other strategies.

Using Credit Cards During the Financial Crisis

The thought about the credit card industry was that it would survive the subprime mortgage collapse. Keeping aside for the moment that financial institutions have their hands in both the mortgage and credit industry, the thought was that credit card issuers could weather defaults on credit cards. For these reasons:

1. The foreclosure on a house could amount to $100,000 in lost payments for a lender. It’s a rare credit cardholder who’s got $100,000 in debt. For credit card debt, $30,000 is high, but that’s relatively small for a mortgage.

2. Interest rates are obscene for credit cards, as compared to other types of loans. The median APR for credit cards is 20%, which is a ridiculous figure for other types of loans. So credit card companies were once making a killing in interest rates.

The amount of interest on credit cards + the relatively low amount of debt was thought to protect the credit industry. Only that’s not the case anymore: because the credit card industry did something very stupid – in a long line of stupid things leading up to the financial collapse. Even after the subprime meltdown of 2007, the credit card industry packaged together credit card debt and sold it off to investors. This was the same system of packaging bad credit mortgages that led to the mortgage crisis. Not learning from this mistake, and eager for quick money with no long-term viability, the credit card industry did the same. And now they’re finding that no one wants these investments with defaults on the rise.

American Express, for one, has lost 61 percent of its value this year due to defaults. The default rate is on the rise monthly. There was some thought that due to unemployment and less cash on hand that more people would be using credit. This was the theory behind people getting flooded with credit card offers. Credit card companies wanted people to get into debt – and even to default. A default would lead to an even higher interest rate – as much as 32%. But with so many people defaulting, interest payments aren’t making up the difference.

What This Means for People with Credit Cards

What this all means is that you are apt to pay more for your credit card now, even if you have a spotless record paying off your credit card. Most every credit card’s terms and conditions state that the issuer can change the interest rate and fees “at their own discretion.” Translation: they can do it whenever, for whatever reason. And because they’re losing money, they’re more likely to do it to your credit card.

Amex, for example, has recently raised fees for cash advances, late payments, and defaults. You could also see your credit limit suddenly go down – without notification. This could lead to over-the-limit fees if you’re not careful. And if your limit went down, it’s quite possible your over-the-limit fee went up as well.

Also, this could also mean that your rewards program could change right out from under you. The Chase Freedom Card is one such example. It was one of the more generous rewards cards around: 3% cash back where you shopped most often. The rewards program has recently been downgraded to a point-per-dollar system, which is on the bare-bones, low-end of rewards programs.

What this all means is that you should check your credit card’s terms and conditions to make sure that they haven’t changed. If the APR’s gone up, this means using that card less or transferring the card to a card with a long-term low introductory balance transfer rate. All told, this means that during this crisis, interest rates are going to go up for all types of loans. Credit cards are kind of the canary in the coalmine showing just how unhealthy things have gotten.

Is it time to nationalize Citibank?

The recently released Global Finance Magzine rankings of the world’s safest banks is out, and the #1 choice says it all: kfW in Germany took the honours, and they’ve been owned by the German government since inception in 1948. Now I’m not advocating a complete change in the private sector nature of finance and capital, but Citibank (C:NYSE) is a unique case, and it’s balance sheet is just too big to fix.

The U.S. government might do it via the backdoor, with an increasing equity stake with each follow-on equity round. But as with AIG, they’ve proven they’ll do what it takes. Unless the U.S. government knows something about the health of Citi’s balance sheet that isn’t implied in the $1 share price, now is the time to step into the breech and nationalize Citibank.

When Goldman boss Blankfein spoke out against the concept (see prior post “Recession to be longest since WWII” March 9-09), is he also saying that “no one is too big to fail”? He didn’t go that far, as he has spoken in favour of government bailouts when there was no alternative. Does GS benefit if Citi continues to be Dead Bank Walking? Perhaps. But I don’t think that is driving his perspective; it’s likely just the classic “a free market is the only market worth living in” mentality.

But these aren’t times to live by a bumper sticker.

Why does saving Citibank a year from now make more sense than doing it today? The drip-drip-drip of the negative headlines and writedowns and so forth will continue to have a huge negative impact on the more healthy names, such as Wells Fargo (WFC:NYSE) and JPMorgan (JPM:NYSE).

It’s as though the powers that be will try leeches before resorting to the ultimate cure-all. Just get it over with. The slow motion train wreck won’t have a chance of ending until you do.

When the world returns to normal (at least a “new normal”), Citibank should be fixed and there might even be a willing IPO market. The U.S. Fed could be the new King of Private Equity at that point and just take Citi public again.

General Patton wouldn’t use incrementalism to win a battle, and this challenge certainly stacks up against the Battle of the Bulge. This time, however, it is the Germans who have the staying power, whether they be state-owned or publicly-held.

Find Government Grants

Free Government Grants can help you get your bills paid and get back on the road to a better life.

Like so many people now a days there is a increase in the amount of debt that we are getting ourselves into and we need a solution that will allow us to pay off our bills and have an easier life. Most people are unaware that there is grant money that you can apply for that will give you the money you need to pay off you credit cards and have no bills. Think about how nice it would be if you did not have the stress of trying to pay all of your credit card bills each and every month.

It is crucial that you try to have less stress in your life and one way to do this is to get out of debt. You can take the free grant money you get and pay off all of your bills so you do not have to worry about being in debt. There is a lot of grant money that goes unused each year because so many people do not apply or are unaware they can qualify for it. Make sure you take advantage of this money and get approved for free grant money now.

Remember that getting out of debt is going to take some effort on your part but with the right tools you can get a government grant to pay off your debt and then you will not have to worry each month how you are going to pay your bills. Make sure that you get the money you need to get out of debt today. So many people have stress related issues because of debt and getting your paid off can make all the difference to keeping your health issues under control as well.

You Should never be ashamed about getting into debt because we have all been there before. You have the opportunity to take advantage of getting your paid of with Free Grant Money, so make sure that you make the best of it.

Are we stupid?

Calculated Risk looks at the latest plan floated by the Treasury — to make low-interest, non-recourse loans to private investors who buy bad assets — and immediately gets it: this is a plan to drive up the prices of toxic assets by creating a lot of moral hazard.

By offering low interest non-recourse loans, these public-private entities can pay a higher than market price for the toxic assets (since there is no downside risk). This amounts to a direct subsidy from the taxpayers to the banks. It is amazing how many different ways they’ve tried to recycle the same bad idea.

Indeed. Every plan we’ve heard from Treasury amounts to the same thing — an attempt to socialize the losses while privatizing the gains. We’re going to buy up all the bad assets at premium prices; no, we’re going to offer the banks guarantees against losses; no, we’re going to let private investors buy the stuff, but offer them de facto guarantees against losses in the form of non-recourse loans.

Underlying all this, apparently, is the theory Tim Duy sums up so aptly:

Policymakers are assuming that restoring proper functioning in credit markets - and confidence in general - is equivalent to a housing price rebound. They seem incapable of envisioning a world in which this is not the case. This tunnel vision prevents policymakers of trying to devise policy which assumes that the many of the assets in the banking system are simply “bad.” For Bernanke and Geithner, there are no bad assets. Only misunderstood assets.

And the insistence on offering the same plan over and over again, with only cosmetic changes, is itself deeply disturbing. Does Treasury not realize that all these proposals amount to the same thing? Or does it realize that, but hope that the rest of us won’t notice? That is, are they stupid, or do they think we’re stupid?

I don’t know which possibility is worse.