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1 Comment [ View ]Recovering from '08
By The Wall Street JournalWhew!
Last year at this time, we were wondering if it could get any worse.
It did. Trouble in the subprime market exploded into an across-the-board rout. The credit crunch evolved into a global financial crisis. Markets tanked. Mighty institutions fell. Recession took hold. Layoffs began to mount just as the holiday season got under way. Few people have been left untouched. And still, we don't know if we're through the worst of it.
If you're living in a house worth less than you owe on it, you aren't alone. Ditto if your retirement savings are down by double digits. Or if you're earning nearly zero interest on your savings, and yet unable to borrow at historically low rates. Or if you're looking for a job or worried about keeping the one you have.
All of which has given rise to the newest new normal. Exuberance and excess have made way for prudence and pragmatism. Frugality is, once again, a virtue. To help you settle into this strange new world, our reporters have dug deep into their beats. Modeled on Personal Journal's regular Quick Fix feature, the advice here covers a lot of ground, but shares a common theme: helping you make your dollars work harder.
Problem: You have a load of beaten-down stocks in your portfolio.
Solution: Consider giving some of that stock to your kids. There's a silver lining to stock prices' descent: You can give away more shares tax free. In 2008, an individual can give as much as $12,000 to each gift recipient before getting hit with gift taxes. That amount will rise to $13,000 in 2009. The gift helps reduce the size of your estate -- probably a good idea since the estate tax isn't likely to go away soon, financial advisers say. It also may allow the recipients to enjoy a nice rebound from today's depressed stock prices over the long haul.
Another approach: Consider a grantor retained annuity trust, or GRAT. You can put your beaten-down stock in the GRAT, name your children as beneficiaries, and receive an annuity from the trust based on a percentage of what you contributed. As long as you survive the trust term, often just a couple of years, any stock appreciation beyond a "hurdle rate" set by the government passes to the beneficiaries tax-free. That hurdle rate, currently 3.4 percent, is at historically low levels, and it's set to move even lower.
"If you ever thought of making lemonade out of lemons, this is the time to actually do it," says Bill Forsyth, senior fiduciary counsel at wealth-management firm Bessemer Trust.
-- Eleanor Laise
Problem: Your older-model computer sucks up electricity.
Solution: Energy-management software lets you put your computer on a schedule to reduce the amount of electricity it uses.
Verdiem, a Seattle-based company that makes energy-management computer software for businesses, recently released a consumer-grade version of its software called Edison. The free software lets you set your computer on working and nonworking schedules. It also provides estimated savings reports that show how much carbon dioxide has been saved. It works on computers running Windows XP and Vista. (www.verdiem.com)
The Environmental Protection Agency (www.energystar.gov) also has a free energy-management program called EZ Wizard for computers running Windows 2000 or Windows XP. Google Desktop users can download a free plug-in called Energy Saver that works on Windows XP and Vista, but to use it you must first download Google Desktop at www.desktop.google.com/plugins.
-- Joseph De Avila
Problem: You want to apply for new credit, but aren't sure if your credit is good enough.
Solution: Get a free credit score. Several Web sites -- Credit.com, CreditKarma.com and Quizzle.com -- allow consumers to check their credit scores free. Although CreditKarma and Quizzle offer scores developed by the credit-reporting companies, including TransUnion and Experian, and not the widely used FICO score developed by Fair Isaac Corp., they can still provide users with a quick snapshot of where they stand.
At CreditKarma.com, consumers can estimate how certain actions -- such as applying for a new card, being late on a payment or paying on time -- will change their score.
It's also a good idea to check your detailed credit reports at least once a year, which you can do free of charge at annualcreditreport.com.
-- Jane J. Kim
Problem: You're drowning in credit-card debt.
Solution: Consider working with a nonprofit credit-counseling agency. Consumers seeking help with debt need to tread carefully. As Americans' credit-card bills have spiraled out of control, the airwaves have filled with advertisements for "debt-settlement" services that say they'll help consumers settle debts for a fraction of what they owe. But they often charge high up-front fees, and their strategies can drag down clients' credit scores and even make their debt burden balloon.
Nonprofit credit-counseling agencies offer a different approach. After reviewing your financial situation, the agency may offer you a debt-management plan, which will help you steadily pay down the full amount owed over a period of roughly three to five years. Creditors will often reduce interest charges or waive fees for consumers participating in these plans.
A good place to start looking for a nonprofit credit counseling agency is www.debtadvice.org, a Web site maintained by the National Foundation for Credit Counseling.
-- Eleanor Laise
Problem: Your job hunt is hitting a dead end.
Solution: Start by researching your online reputation. Enter your name into search engines to see what employers might find. If you have a profile on a social-networking site, such as Facebook or MySpace, be sure to remove any inappropriate photos or comments. Invest time in networking: Studies show that most jobs are filled through referrals. Inform friends, family, former colleagues, alumni, fellow parishioners and others that you're looking for work and that you'd welcome their help. Attend business events, such as industry conferences and seminars that cater to your career field. Create profiles on career-related networking sites, such as LinkedIn, ExecuNet and Plaxo, and participate in discussion boards to develop online relationships.
Meanwhile, consider hiring a career coach who can critique your resume and interviewing skills.
-- Sarah E. Needleman
Problem: Your health plan refuses to cover a medical treatment.
Solution: Appeal the rejection. Start out by calling the insurer to see if the problem is a simple billing or procedural mistake that can be easily corrected. If not, appeal the decision. Most disputes center on one of two issues: whether your care is medically necessary, or whether it is something that's covered under your plan.
Either way, you'll want to secure copies of key insurance documents, including the denial letter and a full explanation of your plan's benefits, often called the "Evidence of Coverage." That will help you understand what's supposed to be paid for by your insurer. If your appeal centers on medical necessity, enlist the help of your doctor, who can write a letter explaining why you needed the treatment. You should also try to find medical studies backing your case.
If the health plan upholds its denial, you may have other places to turn. Most states have an outside review process for health-insurance appeals, though not all appeals are eligible. For more detailed advice about filing a health-insurance appeal, try the Web sites of the Kaiser Family Foundation and the Patient Advocate Foundation.
-- Anna Wilde Mathews
Problem: You need affordable health insurance, fast.
Solution: Comparison-shop online. Healthinsurance.com and eHealthinsurance.com give you detailed estimates of multiple health-insurance plans in your state and what's covered under them. You can apply online -- without having to fork over any medical records -- and in some cases hear back from providers in minutes. Healthinsurance.com also gives estimates for travel insurance and dental coverage. And eHealthinsurance has information on health savings accounts (HSAs) and options for small-business owners.
-- Mary Pilon
Problem: You're getting hit with overdraft and late fees at your bank.
Solution: Sign up for alerts from your bank. Many banks, including Bank of America, Wells Fargo and Citibank, will offer to send you email or cellphone text alerts when your balances fall below a specific threshold. PNC Bank's new checking account, called "Virtual Wallet," combines checking, savings and high-yield-savings accounts and lets users program "Danger Days" that warn them when too much money has been drawn out. Another option is to sign up for a transfer service that will automatically tap a savings account or a line of credit or a credit card in case there is an overdraft in the checking account. You may pay a fee, plus interest on outstanding loans, for each transfer, although the costs should still be lower than an overdraft or bounced-check fee.
Consumers can also take advantage of free personal-finance Web sites, such as Mint.com, Wesabe.com, and QuickenOnline.com, that will break out the fees you pay in your checking account and offer tips on how to avoid those fees.
-- Jane J. Kim
Problem: Your Individual Retirement Account has plummeted in value.
Solution: Convert what's left to a Roth IRA. When you roll over traditional IRA assets to a Roth, you have to pay the income taxes up front on the account's value -- but those values, and income-tax rates, are both relatively low at the moment, says Ed Slott, an IRA consultant in Rockville Centre, N.Y.
With a Roth account, there are generally no taxes on withdrawals or any future earnings, unlike with traditional IRAs. There's also no mandatory distribution schedule -- again in contrast with traditional IRAs, from which account holders must begin taking minimum distributions by April 1 of the year following the year they turn 701/2 years old.
Converting to a Roth could work well either as a year-end fix or as a way to plan ahead: Legislation approved by Congress in December waives any required withdrawals from traditional IRAs for 2009. That means you could roll over assets from a traditional IRA to a Roth without having to first take a mandatory distribution. So more of your assets could wind up protected from future taxes and withdrawal requirements, Slott says.
One other advantage: You can leave a Roth account intact for your heirs. Heirs other than your spouse would have to take required withdrawals each year, but they generally wouldn't owe tax on those withdrawals.
To be eligible to convert traditional IRA assets to a Roth, your modified adjusted gross income must be no more than $100,000 a year, either for an individual or a married couple filing jointly. Neither a required IRA distribution nor the converted amount would count against that limit, but they still count as taxable income. See IRS Publication 590, at irs.gov, for more information about traditional and Roth IRAs.
-- Kelly Greene
Problem: You're too nervous to invest in the stock market, but your bank is offering paltry yields on CDs.
Solution: Auction your cash to the highest bidder. At MoneyAisle.com, more than 100 small and midsize banks compete for consumer deposits through live auctions. When a customer comes to the site and asks for the terms of a CD or high-yield savings account, the banks bid against one another -- through automated auction software that runs on the Web site -- to win the deposit. The cost is free to consumers, and you don't have to commit to investing anything before you see the results of an auction. Participating banks, which are all FDIC-insured, are screened by an independent bank-rating agency to filter out the riskiest banks.
Savers can also find high-yield CDs with brokered CDs, which are offered by banks and brokerage firms around the country, and typically sold through brokerage firms and financial intermediaries. As the big brokerage firms expand their deposit business, many -- including Morgan Stanley and Merrill Lynch -- are offering attractive yields to lure buyers.
-- Jane J. Kim
Problem: You need to find a new job but haven't updated your resume in more than five years.
Solution: Use a professional resume writer -- but take the time to shop carefully. Ask for sample resumes, making sure they look customized and not like cookie-cutter templates. Contact previous customers to verify claims of professional prowess. If you would rather save money and do it yourself, consider starting with an objective statement that specifies what kind of work you're seeking. Then outline your work history by showing accomplishments for each assignment that demonstrate how you've benefited your past employers. When applying for specific positions, tailor the document by highlighting relevant qualifications. Finally, have someone you trust proofread the document to ensure that it is clear and correct.
-- Sarah E. Needleman
Problem: You want to curb medical costs without jeopardizing your health.
Solution: Research what care and preventive measures are truly necessary. While you can skip unnecessary scans and forgo elective plastic surgery, it is important to get the recommended screening tests for cancer and other diseases, as well as immunizations that can prevent illnesses like the flu.
Go to www.ahrq.gov/consumer/index.html to download the government's recommendations, including how often to get your blood pressure checked and when to have a colonoscopy. The U.S. Preventive Services Task Force's recommended tests are generally covered by insurers.
-- Laura Landro
Problem: Your produce spoils before you can finish it.
Solution: Optimize how you choose and store your food. How long produce lasts depends on the shape it's in when you buy it, experts say. Be careful not to pick fruits and vegetables that are bruised or damaged. And make sure the supermarket is the last stop on your trip home, so that groceries don't get warm sitting in the car.
Storing produce correctly makes a difference in shelf life. Fruits and vegetables, for example, should be stored separately in a refrigerator so that ethylene gas released by certain fruits doesn't accelerate the ripening of the vegetables. Items such as tomatoes and bananas are best kept at room temperature. Food-science experts say it is also a good idea to rotate the food in your fridge so that the items that are more perishable are at the front and get consumed first.
-- Anjali Athavaley
Problem: You need to find more ways to tighten your budget.
Solution: Check out new Web sites that help reduce your monthly bills. BillShrink.com helps consumers save money by finding tailored deals on cellphone plans and credit cards based on their individual needs. The site, which will analyze a consumer's spending patterns, credit score and any existing credit-card balances, will suggest the best credit card to maximize rewards or lower fees and interest rates. If you're looking for a lower-cost cellphone plan, the site searches through plans from all the major carriers and returns the best matches, based on how many minutes you use each month and where you live and work. Another recently launched site, ratesurfer.com, will alert you when rates change on your credit-card accounts and, if you let it, will move your balances between accounts to make sure you're paying the least amount of interest. At SmartHippo.com, homebuyers can review and rank lenders and compare mortgage rates with rates that other people with similar risk profiles have obtained.
-- Jane J. Kim
Problem: Your employer just suspended its 401(k) matching contribution.
Solution: Save more, and consider an individual retirement account. Companies slammed by the economic downturn, like General Motors Corp., have been suspending their 401(k) matching contributions. While the match may have been a major force motivating you to contribute to the plan, your employer's cost cutting doesn't give you an excuse to cut back on your own saving.
First, make sure you've established an emergency fund outside the 401(k). It's always a good idea to have about six months' worth of living expenses stashed away in cash. And since the match suspension may be a sign that your employer is in financial trouble, that emergency fund can help ease anxiety over sudden layoffs.
Ideally, you should also boost your own contributions to the 401(k) to make up for the amount your employer is no longer contributing.
Explore other tax-deferred savings options as well. The lack of a match puts the 401(k) and IRA on a more equal footing.
You might want to save first in the account that gives you the best investment options and lowest fees. But keep in mind that any tax deduction you get for an IRA contribution may be reduced or eliminated if you're covered by an employer retirement plan, depending on your income and tax filing status.
-- Eleanor Laise
Problem: You want to minimize those annoying fees that jack up the cost of travel.
Solution: Consider signing up for hotel and airline loyalty programs or credit cards that let you travel without paying some fees. Wyndham Hotel Group, owned by Wyndham Worldwide Corp., and Omni Hotels both let members of their free loyalty programs access wireless Internet at many of their hotels free.
Also, some airlines offer a discount on checked-bag fees that are paid in advance on their Web site.
-- Sarah Nassauer
Problem: You're overwhelmed by unpaid hospital bills.
Solution: Your hospital may be willing to give you a discount on the bill in exchange for your agreeing to set up a payment plan or pay some costs up front.
If you're uninsured, appeal to your hospital's sense of fairness, noting that the uninsured are frequently charged far more than the insured for the same services.
Also, request a copy of your hospital's financial-assistance policies and look into charity care. If you qualify for Medicaid, the program often pays for care retroactively. Seek help from consumer groups.
Some organizations include the Medical Billing Advocates of America, Access Project and Patient Advocate Foundation.
Try to avoid putting medical bills on credit cards or using home loans to pay them off. The consequences of not paying credit-card companies or home lenders -- such as high interest rates or even foreclosure -- can be greater than than those from not paying hospitals.
-- Sarah Rubenstein
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