Illustration: Mark Matcho for Newsweek

Working part time can be good for your life and your checking account. But you need to know how to do it.

Louise Richardson of Parker, Colo., likes to work. But with four teenagers in her house and a firefighter for a husband, she prefers to do it part time. Through a placement service called 10 til 2, she landed a 15-hour-a-week job as an event planner. “It’s given us more financial freedom. My kids don’t see me as the person who cooks and cleans all day. But they also see that my family is my priority,” she says. “It allows you to have that balance between work and family.”

More than 25 million Americans—twice as many women as men—work part time. They’re moms, dads, retirees and people who are sick of the rat race. Employers are making it easier to work fewer hours: 36 percent now give employees the chance to work part time, according to a survey of 90 employers released last week by Hewitt Associates, a human-resources consulting company. The survey also found that 31 percent of employers now offer flextime, 46 percent permit job sharing and 39 percent allow telecommuting. TIP SHEET gives some tips on how to work part time successfully:

Click, Save: More than 1,100 bloggers are devoting their Web space to family frugality
Illustration: Alex Nabaum for Newsweek

Cheap is the new cool, and just in the nick of time. Economic worries, $4-a-gallon gas, a weak job market and stuck salaries are scaring everyone into taking another look at their expenses. Happily, much of the belt-tightening can be painless if done right. Here’s how to run your own squeeze play.

Go for the big bucks first. Insurance is in a category that Greg Karp, author of “Living Rich by Spending Smart” (FT Press. $17.99), calls “low-hanging fruit.” It’s easy to pluck big savings from your policies by raising your deductibles, comparison-shopping all your policies at least once a year, turning to one company for your auto and homeowner’s insurance, and using all the safe-driver, good-student, home-security-system discounts you have coming to you. Raise the deductibles on your car insurance from $200 to $1,000 and you can save as much as 40 percent on your premiums. Do the same with your homeowner’s insurance, and set the savings aside to cover the higher deductibles.

Control your electronics. If you “need” a full menu of cable channels, a home phone and high-speed Internet, you can probably save hundreds of dollars a year by bundling all your services and getting competitive quotes from your local cable and phone companies, says Consumer Reports. You can often find a $99-a-month deal for all three. But if you break up that bundle and really focus on the services you need, you might save more. You can cut your cell-phone bill with a prepaid phone deal, or ramp up your cell-phone use and cut your landline altogether. You can use an Internet-based phone service like skype.com ($3 per month) or magicjack.com (a one-time $40 device fee) instead of placing long-distance calls from your home phone. Every six months, call your phone and cable companies to ask if they have cheaper plans.

Focus on food. There are two different approaches to saving on groceries. The Sara Brady way involves downloading coupons from sites like hotcouponworld.com, shopping the local sales and pairing coupons to low prices in a way that’s so artful she’ll get $21 worth of goods, plus $17 in coupons back, for spending $11. This requires spreadsheets, a couple of hours of comparing items, three to five shopping trips a week, and the discipline not to stock up on stuff you don’t want just because you have a coupon. Mary Webber of frugalfamilykitchen.com goes the other way, advocating a less-shopping-is-better approach. She goes to the grocery once every other week and steers clear of packaged and processed foods.

Cut your restaurant budget. It’s one of the biggest money pits. The average household spends almost half its $6,000 annual food budget eating out. Put prepared meals in the freezer and skip the stop for rotisserie chicken. When you do eat out, use coupons from sites like entertainment.com and restaurant.com. And, you’ve heard it before, but here’s one more try: brew your own coffee. You can buy a nice travel cup for the cost of two overpriced lattes. By the end of your first week, you’ll have $15 extra that you can take to the bank.

• Leave your retirement account alone. Chances are, you’re already in diversified mutual funds that will moderate your losses, so don’t sell in fear, says Jane King, of Fairfield Financial Advisors in Wellesley, Mass. Rather, keep buying into today’s cheaper market by continuing your regular contributions.

• Lock in tax losses now. If you’re losing money on stocks outside of tax-protected retirement accounts, sell shares on bad days. You’ll be able to use those losses to cut your 2008 taxes. Don’t buy the same security back for at least 31 days, to protect that tax break.

By Linda Stern 

If you missed your chance five years ago, this might be a good time to refinance your home mortgage. The credit crunch has paradoxically produced the lowest interest rates in years. Rates on 30-year loans are below 6 percent, and 15-year loans are skirting the 5 percent level.

A refi now should appeal to three groups in particular: those who have dangerous interest-only or negative-amortization mortgages, those whose credit scores have improved significantly since they got the loans they have now and those whose variable loans reset last summer to 7 percent or higher.

Folks who have big loans— so-called jumbo mortgages of more than $417,000—should wait and see. The federal stimulus package is supposed to help rates on those loans, but that effect may not kick in until spring.

“Activity around college campuses will really hold up, better than the market as a whole,” says Walter Molony, a spokesman for the National Association of Realtors. “It’s driven by supply and demand.” College enrollment has been growing twice as fast as the general population, and more students are taking five years to graduate. Juxtapose that wave with the supply of aging and “barracks-like” dorms, and you have a great niche for investment, says Michael Dowd of Millennium Credit Markets, a Boston firm that arranges financing for privately owned dorm buildings.

Illustration: Michael Klein for Newsweek

Let Ben Bernanke worry about the world—you worry about your wallet. Some economists are predicting the first U.S. recession since 2001’s slide, when the stock market dropped as much as 30 percent, personal income fell sharply and more than 2 million jobs disappeared. It’s nice that Washington wants to throw some stimulus your way, but don’t bet everything on that $600-per-taypayer check. Here’s how to protect yourself from bad times.

Protect your job. Stay visibly busy, says New York headhunter Stephen Viscusi. The first employees to go during a recession are the high-maintenance slackers. Come in early, leave late, eat lunch at your desk and try to figure out how you can make your boss’s life easier and more profitable. Update your résumé with all your current skills and accomplishments, even if you’re not planning on job hunting. You can post that résumé, absent your current employer’s name, at online job sites like Monster.com, just to see what else is out there. If you’re ready for a change, Vault.com reports that health-care and sales careers are the most promising and protected during downturns.

Protect your portfolio. It’s a little too late to sell off your stocks: now you stand a good chance of selling low and then trying to buy in high later. So stick with your plan, and use Wall Street’s dismal days to cherry-pick bargain stocks for the next expansion. It always comes, says Sam Stovall of Standard & Poor’s, who points out that most bear markets recover in less than a year. Which stocks do best when the economy is at its worst? Alcohol, tobacco, health care, gaming, utilities and consumer necessities. S&P is recommending Budweiser, Colgate-Palmolive, LabCorp of America and Altria as some promising picks.

Don’t rush into bonds, and be especially wary of bond mutual funds, counsels financial planner Sheryl Garrett of Shawnee Mission, Kans. With interest rates low, yields aren’t worth the effort. And once the economy strengthens enough to see higher rates (which are necessary to keep pulling in foreign investors, too), the value of those bonds, and the funds that hold them, will fall.

Protect your pocketbook. Make paying down your debts a priority, counsels Garrett. Kill the credit-card balance as quickly as possible, even if you have to give up new clothes and nights out to do it. You can even draw down your emergency savings account to pay off the credit card, as long as you keep the card balance at zero after that. Then you could use the card in an emergency until you rebuild the fund. Apply for a home-equity line of credit, so it’s available for emergencies, but don’t use it. Consider refinancing your home mortgage while the Federal Reserve is holding rates down, especially if you have an expensive or risky loan now. Don’t be shy about holding cash in safe, stable, boring spots like FDIC-insured bank certificates of deposit.

Protect your psyche. Remind yourself that recessions are a normal part of a healthy economic cycle, and resist panic. To stay calm, write a list of all the extra ways you could make or save money in a pinch: share a car or rent out a room of your house. When you have options, it seems less scary.

And don’t feel guilty about disappointing our nation’s leaders if you use the stimulus package to put your financial house in order. When that government check comes, probably sometime in March, don’t spend it. Use it to pay down your credit-card bill, or put it to work in your retirement- or college-savings account. Think of it this way: if you’ve got debt, you’ve already done your patriotic duty by buying all that stuff in the first place.

 

 
Illustration by Tim Bower for Newsweek

 

Bill Barnes and Sara Cole are downwardly mobile. In the mid-1990s, the Seattle couple was living large on two Microsoft salaries and no big responsibilities. Sara, now 38, gave up her job when daughters Theo, 7, and Rosie, 4, came along. Then Bill, 41, an artist, developed “Unshelved”—a comic strip that he loves far more than the commute and the cubicle. So he quit, too, leaving Microsoft last month to go solo as a cartoonist and pushing his family farther down the security and income spectrum.

Last year Bill raked in roughly $180,000. This year, if he’s able to build the comic strip as he hopes and do some consulting around the edges, he might earn $80,000. The couple has carved up the family budget; they’ve moved to a smaller home, limited their restaurant meals and begun to shop at thrift stores. But they’re happier. “I think I’ve held my last job,” says Barnes.

He and Cole are part of a minitrend, says Chicago outplacement consultant John Challenger. The percentage of married couples with two sal-aries peaked at 53.4 percent in 1997; now it is 51.8 percent. Husbands and wives are leaving jobs midcareer, some to stay home with kids, others to help ailing parents and others to tend their own fledgling businesses. And some, of course, get laid off. Here’s how to make the transition to a smaller, perhaps sweeter life.

Run the numbers. They won’t be as grim as you think. The first thing you give up with the second salary is taxes. When a husband and wife each earn $50,000 and one quits, the tax savings off the top are $14,825, calculates Bob Scharin, a senior tax analyst with Thomson Tax & Accounting. You’ll also save money on downtown lunches, fancy work clothes and all the other things you buy—from convenience meals to child care—to make your working life easier. To find out exactly how much of a gap you’ll be left with, crunch the numbers with these online calculators: kiplinger.com/tools/managing/afford.html and parents.com/ app/stayathomecalculator.

Ease into it. If you have the luxury of planning your exit, start living on less as soon as possible. Bank extra cash in a rainy-day fund. Apply for a home-equity line of credit before you quit, just to make sure you have a source of cash for emergencies.

Squeeze the budget. Some couples find extra cash by cutting their retirement contributions and college savings during the first lean year or two. That’s OK, but it’s better if you can keep saving and close the gap by living below your means. When Lewes, Dela., financial planner Burt Hutchinson’s wife, Pam, left her job, the couple made a list of possible savings. Among them: stretching their mortgage with a 30-year fixed loan, which they haven’t yet done.

Then spend more. Buy term life and disability insurance for the family breadwinner and consider term life insurance for the stay-at-home spouse. If necessary, use the quitting spouse’s COBRA benefits to keep the family health insurance. If you’re still able to save for retirement, set up a spousal Individual Retirement Account for the nonworking spouse, to make sure his retirement savings keep pace.

Keep the career fires burning. It’s one thing to drop out of the work force for a while; it’s another to give up contacts and skills that will ease your transition back. Yvonne Lefort, a career consultant from Moraga, Calif., who specializes in stay-at-home moms, tells them to meet former colleagues for coffee, take classes to keep their tech skills alive and attend the occasional profes-sional conference.

Renegotiate the partnership. Sometimes the biggest adjustment when a couple transitions from two jobs to one isn’t the budget, it’s the marriage. “We had to do a lot of work in our relationship when we switched to a traditional bread-earner/stay-at-home-wife deal,” says Barnes. He puts all his earnings in a joint account and then he and Cole draw equal but small amounts for personal spending and gift giving. The quitting spouse might be sacrificing a career for the sake of a family, or the working spouse may be sticking with a less-than-wonderful job to support the quitting spouse’s dream. “If there are quid pro quos involved, it’s important to make them explicit,” says San Francisco financial adviser Milo Benningfield. “Make sure each partner agrees on the reasons for the transition and acknowledges each other’s efforts, sacrifices and good will in helping to make it happen.” So talk about it, every step of the way. Without that pesky job, you should have plenty of time.

The sticking point is the alternative minimum tax (AMT), which raises taxes on people with high deductions relative to their incomes. Last year it mainly affected taxpayers with cash incomes of $200,000 to $1 million. But the AMT isn’t indexed to inflation. Unchanged, the 2007 AMT could hit more than two thirds of taxpayers with cash incomes between $100,000 and $200,000 this year, and more than one third of those with incomes of $75,000 to $100,000, according to the Urban-Brookings Tax Policy Center.

The House passed a fix, called a patch, last month, but the Senate deadlocked over how to pay for it. A rising AMT is built into the government’s long-term budget projections. Capping it just for 2007 will cost $50 billion over the next 10 years. Democrats want to fill that gap by raising taxes on certain superhigh-income people whose compensation is taxed at low rates. Republicans want to add the $50 billion to the deficit, and they have the votes to block the bill.

Tax professionals expect that the patch will pass. Accountant David Kahn of RSM McGladrey is advising his clients to include the change in their estimated tax payments for the year. Here are some more tips from the pros:

Do you have year-end cash? Add it to your retirement account if you haven’t been funding it to the max. You can contribute up to $4,000 to an IRA (plus an extra $1,000, if you’re 50 or up) and $15,500 to a 401(k) (plus $5,000 at 50 or up). Next year your contribution ceiling rises to $5,000 for the IRA, plus the 50-or-up bonus. Don’t hold back on your retirement investments if stocks look bad. You never know when the market will leap.

Did you sell your house at a loss? It’s not tax-deductible. If you sold in order to take a new job and the company reimburses you for the money you lost, that’s taxable income, says tax attorney Julian Block. You do get a deduction if you rent out your home while waiting for a buyer and, later, sell at an even lower price. You may be able to write off the loss that occurred from the time you got the renter.

Do you have a flexible spending plan at work? You have until the year-end to sign up for 2008 contributions to accounts that help pay your uninsured medical bills and the cost of caring for a child or other dependent. The money comes out of your paycheck and lets you cover these expenses pretax.

Are you saving for college in your child’s name? The income from those investments is taxed in your bracket if the child is under 18. Next year this “kiddie tax” gets worse. You’ll be taxed if the child is under 19 or a full-time, dependent student under 24. If your child is currently 18 or a little older, the account contains capital gains and you’ll need that money soon, sell before the year-end while the tax is still only 5 percent, says Mark Luscombe, analyst for the tax-information firm CCH. For college savings, 529s are a better choice.

Have you planned for the fabulous break next year on investment profits? From 2008 through 2010, there’s no tax on capital gains for people in tax brackets up to 15 percent. For 2008, that’s a taxable income of $65,100 for couples and $32,550 for singles (including the gains from asset sales).

The average working stiff won’t have any stock gains to cash in, but for people of wealth it’s another matter. Parents might consider giving appreciated stock to their young-adult children (those out of kiddie-tax range) to repay their college loans or make a down payment on a house. The kids could sell the stock tax-free, says Donna LeValley, contributor to the tax-guide publisher J.K. Lasser Institute. The same tactic applies to young people 19 and up who are moving from school directly to jobs, says Kaye Thomas, author of “Capital Gains.” Parents could give them stock to sell before they start earning a paycheck. Retirees might sell appreciated assets to cover their household expenses rather than taking money out of their taxable IRAs. Prospective retirees could delay the start of their Social Security checks, temporarily living on tax-free stock sales instead. You’ll hear more ideas in the year ahead. The prospect of zero taxes brings out the planning genius in everyone.

Reporter Associate: Temma Ehrenfeld

What is the point of holding a family money meeting?
We call it a family retreat. The primary purpose is to foster good communication between generations on topics pertaining to money and money values. We do a lot of them around the holidays. The whole goal is to maintain harmony even after Mom and Dad are gone.

Ilustration by Mark Matcho for Newsweek

Tanya Hahnel, 24, earns more than $25,000 a year helping Boston-area families find affordable housing. She has health insurance, good benefits, no credit-card debt and a frugal lifestyle. Still, Hahnel bartends at night so she can afford to fly home to the Washington, D.C., area for Christmas. Her friends, many of whom are working hourly jobs without health benefits, are faring worse. “If you’re making $7 an hour plus tips, and you don’t have insurance and something bad happens, your credit is just ruined,” she says. “Everybody I know is really struggling.”

You don’t have to be irresponsible or bad with plastic to get slammed when you’re young, out on your own for the first time. Here’s why it’s tough: starter jobs come with low salaries and, increasingly, without health insurance. Rents are high, and there’s a litany of hidden expenses in the life of a twentysomething: deadbeat roommates who “share” utilities but never actually write their checks; friends’ weddings that require costly dresses and travel; security deposits and agent fees every time you move; medical care that’s not covered by insurance; needing everything (furniture, work clothes, wheels, kitchen gear) at the same time, and, yes, college loans.

But there’s hope. Every generation faces hard times when it starts out; there are some new financial tools that can help you climb into the black without an allowance from Mom and Dad. Here’s how to get started when you’re getting started.

Sept. 24, 2007 issue - When you turn 50, it's more than an embarrassing birthday. It's the outer door to retirement, whether you know it or not. Some people save for years so they can retire early (55 is a favorite age). Others have retirement thrust upon them: they're fired, their health breaks down or they have to take care of an ailing spouse. Of those 60 to 65, a mere 33 percent still work at their primary jobs full time, according to the Employee Benefit Research Institute. Joanna Rotenberg of the consulting firm McKinsey & Co. says that 40 percent of retirees are forced to leave work earlier than they'd planned—ready or not. The average retirement age is currently 57.

Planning Ahead: Kamal Kardosh, 60, saved money ferociously and now can maintain his comfortable standard of living. Photo: Erin Patrice O'Brien for Newsweek 

To retire early—by choice and with enough money to last for life—takes planning that stretches back into your 40s and 30s. As a template, take Kamal Kardosh, 60, of Monmouth Junction, N.J., who accepted an early-retirement package from Unilever last July. Kardosh, a ferocious saver, asked planner Ken Weingarten of Lawrenceville, N.J., to manage his money and help prepare an escape route for himself and his wife, Pam, a nurse. They did it by the book: first, working out their likely retirement income from two pensions, Pam's current part-time job and their investments; then creating an estimated annual budget, covering basic expenses, future new-car purchases, college tuition for their son, travel and other costs. It appears that the Kardoshes won't have to cut their spending. They're keeping on track by following a written plan.

Then there's Avery Leavitt, 64, of Grants Pass, Ore. Once a top salesperson for K. Hovnanian Homes, he lost his job in 2005 when sales slowed. His wife, Felicia, 49, sells exotic mortgages to loan brokers, a business that's in trouble, too. Avery has emphysema and other ailments but says it never slowed his work. "I don't feel that I'm 60," he says. "When I look in the mirror I see someone 30"—and at 30, who thinks about retirement? They have two IRAs but didn't save enough in the years when they earned six-figure salaries. He filed an age- and disability-discrimination lawsuit, which is currently in arbitration, says his attorney Robert Ottinger of New York City. "It's been hard," Leavitt says. K. Hovnanian declined to comment.

If you jumped or were pushed, which of these two stories would mirror your own? To figure it out, run, do not walk, to a financial planner. Ideally, skip the planners who sell financial products. They lean toward putting you into high-commission investments whose costs will reduce your future gains. Instead, look for "fee only" planners who charge just for their services and advice. They'll help you set goals, forecast your income and expenses, decide whether to sell your house, plan for long-term care and choose suitable, low-cost investments. Two places to look for fee-only planners: garrettplanningnetwork.com and the National Association of Personal Financial Advisors at napfa.org. If you want to work up a budget yourself before seeing a planner, a good choice would be the retirement tools at troweprice.com.