TipSheet : Money Guide

There Goes The 401(K)

Newsweek — Sat, 13 Dec 2008 14:15:40 GMT

By Jane Bryant Quinn
December 22, 2008 issue

Illustration: Phil Marden for Newsweek

In October, when the stock market went into free-fall, I did the sensible thing. I panicked. I e-mailed the adviser who manages my retirement money: “OMG, have I been too heavily in stocks? Should we get some of it out, before things get worse? Help!”

I realize that people like me aren’t supposed to send e-mails like that, but I couldn’t stop myself. My brain told me, “Follow your system; history says it works.” My gut cried, “Are you crazy? Save what you can!”

Fear makes you stupid. To be on the other end of unhinged e-mails like this is what advisers are for. Mine reminded me about crises past and how stocks had recovered. Still, under his calm, his gut was screaming, too. “It’s a dangerous time,” he couldn’t stop himself from saying.

Besides my retirement account, I have a taxable account that I manage myself. Both are invested in low-cost, no-load mutual funds, allocated across various types of securities. Both are rebalanced periodically to maintain their original allocations. I should be weathering this shock as I did all previous ones: make regular contributions, rebalance and wait.

But this is the kind of collapse that sends you back to first principles. Were my allocations right in the first place? Stressed financial planners are asking themselves the same thing.

Take the question of safety. Planners traditionally have said, “Keep money safe if you’ll need it within two or three years,” for expenses such as tuition, taxes, buying a house or future daily bills. Money you won’t touch for longer periods can go into riskier investments, for higher returns.

That worked fine in the three market cycles during 1980 to 2000. After stocks dropped, it took less than two years for them to recover their previous peaks.

Then came the 2000–2002 bear market, which took more than six years to recover, followed by the current plunge. In a classic case of barn-door thinking, planners are reworking their definition of “safe.” Many now say that money needed in the next five years should go into bank CDs, bank money-market accounts and short-term bond funds. These investments pay more than you’d get from money funds that buy Treasuries, many of which now cost more in fees than the near-zero interest you earn. Treasury bonds are the only investment bubble left.

My OMG question was whether I had put too much of my retirement account into stocks. The rule of thumb is to subtract your age from 110 and consider that the percentage of your portfolio to put at risk. If you’re 50, you’d go 60 percent into stocks with 40 percent in bonds.

I’ve been a bit more aggressive than the rule of 110 would approve, and so have many planners. You need growth to fund a retirement that could last for 30 years, and CDs won’t cut it. I’ve thought about reducing my stock allocation. But future expected returns are higher when stocks are low, so it seems dumb to do that now. I sold some losers for tax losses, and—having fed my gut Tums—rebalanced (bought stocks) for my own account.

I’m finding that advisers aren’t as pure about rebalancing as they used to be, with mine as exhibit A. He rebalanced the fixed-income portion of his accounts, buying high-yield bond funds and Treasury Inflation-Protected Securities, whose prices are down. But he’s waiting to rebalance his stock accounts. He believes in the formula but says you get whipsawed on price when the credit markets are stressed.

And take fee-only planner William Bengen, author of “Conserving Client Portfolios During Retirement.” When Lehman failed, he became a temporary market timer—switching his clients into cash. That will prove to be the right move only if he rebuys stocks in time, he says.

Analyst Steve Leuthold, of the Leuthold Group in Minneapolis, has no doubts about what to do now. “Just buy,” he says, buy anything. He even recommends index funds, something I never thought I’d hear from a pure stock shop.

Rebalancing worked during crises past for investors who could wait it out and had savings enough to pay their bills. My OMG factor is under control (for now).

Reporter Associate: Temma Ehrenfeld

Surviving the Storm: What’s Safe, What’s Not

Jane Bryant Quinn — Sat, 20 Sep 2008 16:26:16 GMT

Gimme Shelter: For now, money-market funds may be as safe as bank accounts
Illustration: Mark Matcho for Newsweek

If you’re scared, you have reason. We’re BATTLING a financial collapse in the teeth of a spreading recession, not only in the United States but in the other industrialized countries, too. The risks fall especially hard on workers in their 50s and 60s who are hoping to retire (or fearing it, if their companies are pushing them out). But anyone trying to defend a paycheck or personal investments will be facing tougher times. Amid the rubble, only a few things are safe.

Your insured bank account is safe. Some of the customers of struggling Washington Mutual are moving their money to other banks. That’s a waste of time. Deposits up to $100,000 are totally safe—insured by the Federal Deposit Insurance Corp. Odds are that WaMu won’t fail; it will be sold with government help. In cases of failure, the FDIC arrives on Friday night and moves the accounts to a new bank, which opens for business as usual Monday morning. Over the weekend, you can even use debit cards and ATMs. If there’s no buyer, the FDIC liquidates the bank, mailing out checks for insured deposits immediately. They will always be paid off. By contrast, uninsured deposits are at risk. If you have more than, say, $95,000 in your account, move the excess money to another bank so it, too, can be insured. No sense tempting fate. More than $100,000 can be insured in a single bank if you have different types of accounts—details at www.fdic.gov.
Your money-market mutual fund is safer than it was last week. Money funds serve as checking or savings accounts that pay higher interest rates than you’d get at a bank. Your money is supposed to be safe. For every dollar you put in, you expect to get a dollar back, plus interest, any time you want. These funds aren’t FDIC-insured, but, in their 37 years of life, they’ve never lost a penny for individuals.
That is, until last week. On Wednesday, the Reserve Fund group’s giant Primary Fund—owned by Bruce Bent, the man who invented the business—got stuck with $785 million in worthless commercial paper from the failed investment bank Lehman Brothers. The fund “broke the buck,” meaning that each dollar dropped in value to 97 cents. Redemptions were frozen for seven days, but not before $27.3 billion—more than 40 percent of Primary’s assets—flew out the door, according to Peter Crane, publisher of Money Fund Intelligence. The Primary Fund didn’t return calls.

The shock precipitated a run on other money-market funds, not by individuals but by professional investors. Putnam Investments’ Prime Money Market Fund closed, with fears of more to come. That presented a serious risk to the system: corporations rely on these funds to help finance their short-term debt. The government, with a gun to its head, announced, overnight, a one-year, $50 billion program to insure money-market funds against breaking the buck.

You have a second source of protection: the size and profitability of your money fund’s sponsor. Over the past 13 months, 20 other funds have suffered potential write-downs linked to bad investments, but they all were owned by large, diversified banks or brokerage firms that rushed enough money into the breach to make investors whole. The privately held Reserve group couldn’t come up with enough cash.

If you use a money fund, check its Web site. It should have a statement disclosing whether it’s exposed to any troubled companies. Vanguard and Schwab say they’re clean. Two T. Rowe Price funds sold Lehman securities at a discount but didn’t break the buck. Fidelity has some exposure to two subsidiaries of AIG, the insurance holding company now in federal hands, and Merrill Lynch, which is being purchased by Bank of America. It says it expects those investments to pay.

For a supersafe money-market fund, choose one that invests in Treasuries and other government debt. Their 12-month yield came to 2.2 percent, not much less than the 2.98 percent paid by funds that buy corporate securities. Tax-free money funds, at 2.2 percent, have been good buys for people in higher brackets, although there will be some muni casualties, too. Jefferson County, Ala., for example, is currently near bankruptcy, due primarily to a bad choice of investments.

The new money-fund insurance program may tempt some managers to make riskier investments. If they win, their bonuses rise; if they lose, the government pays. Stay away from them. That’s the kind of thinking that brought the financial system to its knees. Your eyes, laserlike, should focus on safety first.
Your AIG insurance policies and annuities are safe. The American International Group is the world’s largest insurance company. A shiver passed through customers, globally, when AIG had to be saved by the Federal Reserve with an $85 billion loan. But only the holding company failed, not its 71 insurance-company subsidiaries, which are solvent and regulated by the states. The firms that rate companies for financial strength downgraded the subsidiaries by one to three notches, but they’re still in solid investment territory, says Joseph Belth, an insurance expert and editor of the newsletter The Insurance Forum. If you’re holding an AIG policy or annuity, don’t replace it. You’ll pay fees to leave and more fees to buy coverage somewhere else. These insurers will be sold to help repay the government for its loan. Policyholders won’t get hurt.

If you’re shopping for new insurance, however, don’t entangle yourself with AIG. Look for top-rated companies with no recent downgrade on their records. After all, you’re counting on some kid not yet born to cut checks for you or your survivor 40 or 50 years from now.
Your brokerage accounts are safe. Lehman Brothers failed, but Barclay’s is buying its brokerage arm and your account along with it. Merrill Lynch found a home in Bank of America, again with its customer accounts intact. The Securities Investor Protection Corp. insures your brokerage account for up to $500,000 ($100,000 in cash) if your broker has to be liquidated and securities are missing, but neither of these firms has failed. However tattered, your account is still in place.
Your mutual fund is safe. SIPC doesn’t cover mutual funds, but the Investment Company Act of 1940 does. When you invest, your money goes directly to a bank custodian. The fund manager directs the investments but never holds the securities. So they’re perfectly safe, even if the fund management company fails. For this reason, you don’t have to bother splitting your mutual-fund money among several firms. Diversify among types of funds, but it’s safe to stay within a single fund group.
You can make yourself safer by delaying your retirement when stocks are going down. Prudent retirees plan to draw 4 percent a year, plus an inflation adjustment, out of their retirement funds to help pay their bills. Under such a plan, their money should last for life. But the early years are critical, says Christine Fahlund, senior financial planner for T. Rowe Price. You’re likely to run out of money in older age if stocks rise by an average of less than 5 percent a year over the first five years after you retire. Moral: in poor markets, hang on to your job (and your health insurance!) if you can. If you’re given the golden boot, look for part-time work. Just $20,000 in earnings is the equivalent of having an extra $500,000 in your investment fund, Fahlund says.
There’s no time like the present for deciding how much risk you want to take. It’s a little late to bail out of stocks. “Investors who reacted to Black Monday in 1987 locked in substantial losses that would have been reversed had they remained invested,” says Jay Hutchins of Comprehensive Planning Associates in Lebanon, N.H.

On the other hand, you need an intelligent balance between stocks and bonds (bonds have outperformed U.S. stocks since 2000, when the market bubble burst). Here’s a rule of thumb: subtract your age from 110 and use that number as the percentage of assets you should keep in stock-owning mutual funds. After that, just keep making contributions—murmuring to yourself, “I’m buying stocks cheap.” Retirees who are living on their savings should cut back on spending and take the minimum from their accounts. Don’t increase your withdrawals until your investments are even again. Andrew Orr of OrrGroup in Orlando, Fla., puts his budgeting clients into finicity.com—a great tool for spending control, he says.
Don’t retire until you pay off your consumer debt. “If you have debt, you’re living beyond your means,” says Jeff Kostis of JK Financial Planning in Vernon Hills, Ill. “It’s hard enough to make sure your money will last for the next 30 years. Why make it harder by continuing to pay for things you bought five years ago?” Bankruptcies are soaring among people 55 and up, says Harvard Law School professor Elizabeth Warren. They’re entering retirement with more debt and less medical insurance—a toxic combination.
Resign yourself to an economic storm. With tax cuts fading, consumers are running out of borrowing power, says Martin Barnes, managing editor of the Bank Credit Analyst in Montreal. He expects the economy to deteriorate significantly in next six months or so.

Typically, the Federal Reserve fights recessions by cutting interest rates, which helps consumers buy homes and cars. “But so far, that hasn’t worked,” says Lakshman Achuthan, managing director of the Economic Cycle Research Institute. Mortgage rates dropped but the banks won’t lend, the automakers cut back on leases, and credit-card lines are being chopped. Will a vast new bailout start the system up again? It’s devoutly—devoutly—to be wished.
One last thing that’s safe: your Social Security. With only small changes in benefits and taxes, this vital income-support program will see the boomers through old age. A few years ago, the dream was to put it in stocks and let folks take their chance. For your sake—or your mom’s sake—aren’t you glad we didn’t?

Reporter Associate: Temma Ehrenfeld

Credit Cards That Give Cash Back

Linda Stern — Sat, 20 Sep 2008 16:23:32 GMT

All the marketing mail you get about retail partners from your credit-card company may be annoying, but take another look. You may be leaving money on the table. Most major credit cards now have their own online shopping portals, stocked with big-name retailers like Target, JCPenney and Zappos. Click from the card company’s site to the merchant of your choice, and you can bump up the amount of money that shows up as cash back on your card. For example, use a Chase cash-back card to shop at Lands’ End through the Chase Rewards Plus program, and you can get as much as $15 in rebates for every $100 you spend. “These programs are a win-win-win,” says Justin McHenry of indexcreditcards.com, who reviewed several portals for NEWSWEEK. Here are four major programs available with no-fee cards:

Shop Discover (discover card.com/shopcenter). This is the most generous of the programs, according to McHenry. It offers cash rebates as high as 20 percent.
Chase Rewards Plus (chasecreditcards.com). An online mall with many of the same merchants offered by Discover, though the rebates aren’t always as good. Rebates earned via this portal don’t count against annual cash-back caps that the cards hold.
Citi Bonus Cash (bonus cashcenter.citicards.com). A similar program, but merchants on this site also give rebates if you use the registered Citi card in person at the store.
American Express Selects (americanexpressofferzone .com). It offers instant discounts on items bought through the Web site instead of rebates, which can sometimes be delayed by weeks or months. Some of the deals are for bigger items: travel deals, spa discounts and the like.

To make the most of these deals, you have to take the time to compare offers and resist the temptation to splurge on stuff you don’t need. Rebates are nice, but zero balances on your credit cards are even nicer.

The Stock Market and The Election

Linda Stern — Sat, 20 Sep 2008 16:21:20 GMT

The sinking stock market could be forecasting the results of the November presidential election— or vice versa. Stocks will behave differently after Nov. 4, depending on who wins. TIP SHEET’S Linda Stern asked Jeffrey Hirsch, editor of the Stock Trader’s Almanac, to read the tea leaves.

STERN: What does the year-to-date performance of the stock market predict about the election’s outcome?
HIRSCH: This is a stock market that was in trouble, even before last week’s sell-offs, and the malaise we’ve been experiencing makes the ouster of the incumbent party more likely. Strong Septembers and Octobers usually lead to an incumbent-party win. You would think despite the closeness of the polls that we still are going to see Democrats retake the White House.

Given all that you know about election-year patterns, how would you expect stocks to perform through the election and for the rest of the year?
Election years are traditionally up years. Incumbent administrations shamelessly attempt to massage the economy so voters will keep them in power. But sometimes overpowering events occur and the market crumbles, as it did last week. The bailing-out was too little, too late, and I think we’re going to continue to have market weakness through October. Once we have the settlement on the election, the market would be more inclined to be happy.

How do you expect stocks to respond to an Obama victory and a McCain victory?
The initial response from an emotional standpoint would be positive for an Obama victory and negative for a McCain victory. But that might not last.

What about next year?
This is going to be a very difficult 2009 for whoever is in the White House because of everything that has to be dealt with: war, the economy, the infrastructure, stock markets. Whoever it is, it will be rough. In terms of the stock market, Republican administrations do worse in the first year and Democrats do worse in the second year. They both do better in the final two years of the presidential cycle.

In general, do Democratic or Republican administrations produce better stock markets?
Contrary to conventional wisdom, the market has not done as well under the Republican presidents as Democratic presidents. However, under Republican Congresses they have done better. The best combination for the stock market is a Democratic president and a Republican Congress. Whatever happens in the White House, it’s likely that Congress will be Democrat, and that’s another reason to expect weakness next year.

Will different sectors do better under one or the other?
With Obama, I would expect alternative energy might get a little boost, and maybe some biotech, too, with the releasing of the conservative anti-stem-cell-research mentality. I think there might be a little bit more oil and defense with McCain in office.

Is Election Day itself a stock-market winner or loser?
It’s pretty neutral, but the day after is often bullish.

How Your Emotions Affect Your Investments

Linda Stern — Sat, 20 Sep 2008 16:19:52 GMT

Stock traders can talk about numbers all they want. But it’s emotions that move the market. Anyone who spent last week checking their 401(k), biting their nails, calling their broker and selling everything already knows that.

Now researchers are getting more focused on exactly how investors let their moods move their money. “There is an important relationship between emotional intelligence and investment behavior,” says John Ameriks, of Vanguard Investments. He’s seen investors engage in a host of self-defeating, psychologically driven behaviors.

Sometimes they simply freeze in the face of market turmoil. Or they trade too much. They fall in love with loser stocks they have chosen, and refuse to sell them until they’ve recovered—which may never happen. They follow the pack in and out of tech firms, real estate, oil-company stocks and the Dow, rationalizing that it’s safer to stay with the crowd. They bounce between fear and greed, buying high and selling low. People who are emotional tend to trade more often than people who are emotionally controlled, says Ameriks, and all that trading tends to be unprofitable.

You can study your own investing emotions by taking the personality tests at market psych.com; a basic investor test costs $20. If last week’s wild ride on Wall Street stressed you out, you can protect your portfolio from your own impulsiveness: use a financial adviser who will talk you out of your desire to cash out of the market right after it’s dumped 500 points. Invest via autopilot programs, such as retirement plans that will regularly put your money in balanced mutual funds without your having to make any decisions at all. Finally, accept your emotional makeup and adapt. If you’re a big worrier, give up on the idea of making a future killing and lock your money into safer spots, like bank certificates and Treasury bonds. You may not cash in on the next rally, but there’s value in a good night’s sleep, too.

When to Buy a Hybrid Car

Linda Stern — Sat, 20 Sep 2008 16:18:32 GMT

Car sales are flat, dealers are hungry and the price of gasoline is still threatening to revisit the $4-a-gallon levels it saw in July. Does that make it an ideal time to sell the clunker and spring for a fuel-efficient hybrid?

Maybe not. It’s true that as gas prices rise, hybrids will pay for themselves more quickly than they used to. But the combination of getting a low price when you trade or sell your existing car and the extra amount you’ll pay for a hybrid means it’s probably more cost-effective to keep the heap for a while longer. Even if you need a new car, you’d probably be better off buying a regular-engine compact car instead of a hybrid, suggests Jesse Toprak of Edmunds.com. Those regular compacts are almost as fuel-efficient as most hybrids and cost far less. The best candidates for saving money on hybrids are people who drive at least 15,000 miles a year, mostly in city traffic, and “keep a car until the wheels fall off,” says Toprak.

Don’t just take his word for it; do the math yourself. At politicalcalculations.blogspot.com, click on “Should You Trade in Your Gas Guzzler?” to find a calculator that allows you to consider all of the variables: how much you drive, and where; how much you pay for gas; and how much it costs you to keep up the current car. At Edmunds.com, you can check the true cost to own any car. You’ll learn, for example, that over five years, you’ll spend $3,405 more to own a hybrid Honda Civic than a conventional one. Even at $4 a gallon, it will take 8.5 years for that hybrid to start paying for itself. The most cost-effective 2008 hybrids, according to Edmunds, are the Toyota Camry, which will start paying for itself after four years and three months, and the Prius. The 2009 Camry Hybrid will start putting you ahead in less than four years.

Of course, there are other considerations. Some insurers will give a discount for covering hybrid cars. Some models are still eligible for federal tax credits (find them at fueleconomy.gov/feg/tax_hybrid.shtml). And driving a hybrid will shrink your carbon footprint. That’s worth something, isn’t it?

Web Sites About the Financial Crisis

Linda Stern — Sat, 20 Sep 2008 16:14:54 GMT

Don’t worry, get busy. These sites will help you figure out how to respond to the Wall Street tumult and how safe your money is now.

fdic.gov/edie: Use the calculator at this site to see how much of your bank deposits are insured.
sipc.org: Yes, your brokerage accounts are covered, to a point. The Securities Investor Protection Corp. lays it out.
naic.org: Find your state’s insurance rules and guarantees via the National Association of Insurance Commissioners Web site.
finra.org: The brokerage industry’s own cop explains what to do if your broker gets sold or goes belly up.
treasurydirect.gov: Feel like fleeing to safety? Here’s where you can buy Treasury bills and bonds.

How to Get a Free Credit Report

Linda Stern — Sat, 20 Sep 2008 16:13:09 GMT

A number of companies are starting to offer consumers free peeks at their credit scores, and not just their credit reports. That’s handy because it’s the score that lenders use to decide how much to charge in interest and whether to approve you for loans or credit cards.

You can get free credit scores at eloan.com, creditkarma.com and credit.com. The hitch is that they offer scores devised by the credit-reporting companies, mostly Trans-Union and Experian, and not the most widely used score developed by Fair Isaac Corp. (FICO). It will still cost you $16 to get a copy of your FICO score at myfico.com.

Why bother? If you’re getting ready to borrow money, your score can make a big difference—particularly in the current tight economy. A high score (760, say) can save you about $250 a month in interest over a middling (650) score on a 30-year fixed rate $300,000 mortgage.

It’s a good idea to check your detailed credit reports once a year. You can do that for free, without any strings attached, at annualcreditreport.com. Monitoring your credit report more often (at companies like the heavily advertised freecreditreport.com, which charges $14.95 a month) won’t prevent identity theft. Signing up for regular credit monitoring is just asking for a marketing blitz, says Steve Elias, an attorney with legal publisher Nolo. “Once you have identified yourself as someone who’s operating in fear, you’re a sitting duck for all those extras” like Internet security monitoring and lost wallet insurance. That’s one more reason to stick with the free services.

New Tax Rules on Second Homes

Linda Stern — Sat, 20 Sep 2008 16:09:23 GMT

Vacation-home owners are about to lose a sizable tax break. Until now, they could move to their retreat, live in it for two years, then sell and take full advantage of the capital-gains exclusion of up to $500,000 per couple ($250,000 for singles) that applies to primary homes. But Washington closed that loophole in the housing-relief legislation that passed this summer.

Under the new rules, that exclusion will be prorated by the amount of time the owner actually used the home as a primary residence. So if you owned the home for 10 years, but lived in it only the last two, you’d be able to exclude 20 percent of the gain.

The good news is that lawmakers made Jan. 1, 2009, the starting date for this calculation. So longtime homeowners won’t have to worry about all the years they enjoyed before that date. Someone who bought a beach house in 2000, for example, moves into it on Jan. 1, 2011, and then sells it in 2013 will still get to exclude about half his gain. That’s because the home will have been his primary residence for half the years when the measure was effective. Those who were planning to move to their second home can avoid the prorating process altogether by relocating before Jan. 1, 2009. Assuming they lived in their primary residence for two years before doing that, they will have three years to sell that home and use the full exemption.

The new rules will have the most impact on folks who buy vacation homes after the New Year, or who keep them as second homes for many years in the future. But look on the bright side: having to pay a capital-gains tax means you made money on the place. And, presumably, enjoyed it for all those years, too.

Cutting Back Your Hours

Karen Springen — Sat, 03 May 2008 17:20:53 GMT

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:

Know how to land the job. Make yourself “invaluable,” ideally first as a full-time employee, so your employer will want to keep you, says labor economist Myra Strober, who teaches a work and family course at Stanford University’s business school. Or call a placement service, like 10 til 2 (tentiltwo.com) or Mom Corps (momcorps.com).

Set ground rules up front. Define what “part time” means. If full-time workers typically put in 50-hour weeks, does that mean a half-time schedule requires 25 hours, not just 20? Many part-time jobs require some at-home work. Ask whether your employer will pay for your laptop or DSL connection. If you know you want to work less, or not at all, during your kids’ school vacations, request that schedule before you start the job. Beckye Young, an Atlanta mother of four, told her employer that she can work only from 9 until 2 p.m. so that she can get her kids to school and be waiting when they return.

Be flexible. “The flexibility needs to go both ways,” says Carol Sladek, principal of Hewitt’s work-life practice. Remember that if your employer lets you leave early to care for a sick child, then you should be willing to work a few extra hours.

Get paid fairly. “Work on an hourly basis. Then if the hours creep up, you need to say, ‘You need to pay me more’,” says Allison O’Kelly, founder and CEO of Mom Corps. “They can either decide to pay you more or decide to give you less work. You have more leverage.” Get it out of your head that “ ‘hourly’ means working at fast food,” says O’Kelly. “I have people who make $100 an hour.”

Be realistic. “Often, employers see women who work part time as less committed and less available for promotion,” says Strober. Ask your employer if you could ever get promoted—but don’t be surprised if the answer is no. “Typically you’re trading off pay, some of your benefits and quite often career progression,” says Sladek.

Communicate with family. “I explain to my kids that when they are done with school and they have moved out, I want to be able to continue with my career, and this is how you do it,” says Richardson. “Your whole family has to buy into this.” That’s particularly true for former stay-at-home moms, who may not be able to do as much cooking, cleaning and carpooling. With your family, plan ahead. “What’s going to happen during summer break? What’s going to happen if someone’s sick?” says O’Kelly.

Choose a part-time-friendly career. It’s tricky for tenure-track professors and attorneys to go part time. But it’s easier for nurses, doctors and accountants. “If you’ve got an hours-driven type of job, you can make it work more easily,” says Sladek. Target small, entrepreneurial businesses, which often prefer part-time workers. Remember to include volunteer work on your résumé, advises Jill Ater, cofounder of 10 til 2.

Consider flextime alternatives. Some part-time workers find that they end up working full time for part-time pay. To avoid this trap, Sladek suggests asking whether a full-time job can be made more flexible so you don’t even need to go part time. Will your employer compress your workweek into four 10-hour days, or let you telecommute more often? Dr. Marjorie Greenfield, author of “The Working Woman’s Pregnancy Book,” advises working whole days—but fewer of them. With half days, “the work drags into the afternoon, and you never get out.” she says

For a growing number of Americans, the trade-offs are worth it. Nikki Simon, 51, likes extra time to travel, walk her three dogs and hang out with her husband and her 20- and 22-year-old kids. A 9-to-5 job was out of the question—but so was staying home. “I just couldn’t clean the house every single day, and shopping wasn’t in the cards all the time,” she says. Now she works part time as a bookkeepers’ assistant and as a beginning real-estate agent. With her extra income, she doesn’t feel guilty now if shopping is in the cards some of the time.

Money: Don't Get Pumped Dry

Linda Stern — Sat, 05 Apr 2008 15:30:59 GMT

Here’s some grim gastank math: it can cost $56 to fill up a basic sedan at the current average gasoline price of $3.30 a gallon. If prices hit $4 this summer, it would cost $68—or $2,992 a year—for an average 15,000 mile-a-year driver. You can get some of that back if you regularly pay with a credit card that gives you a cash rebate for that purchase, suggests Justin McHenry of index creditcards.com. BP, Shell, Hess and Marathon all offer cards with a 5 percent rebate when you fill up at their stations. The Citi Professional Cash card offers 3 percent back on all stations. And the Chase PerfectCard MasterCard offers a 6 percent rebate for 90 days, then 3 percent. At today’s gas prices, even a small rebate can save you a bundle.

It’s Time to Trim the Fat

Linda Stern — Sat, 22 Mar 2008 15:52:14 GMT

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

Sara and Michael Brady, new parents in Springfield, Pa., are wearing this season’s new fashion: tight belts. She’s a systems analyst, he’s a CPA, and together they’ve squeezed $200 a month out of the family budget. They’ve halved their grocery bill, cut their landline and cell-phone bills, and negotiated a lower interest rate on their credit card—just for fun, because they never actually have a balance. Now Sara is posting her tips at bethriftylikeus.blogspot.com. She’s one of a crowd of more than 1,100 bloggers devoting their space to family frugality.

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.

Cooler Heads Prevail

Linda Stern — Sat, 22 Mar 2008 15:50:57 GMT

The credit crunch has caused many to panic. But a solid retirement account can be yours if you stay calm and make these safety moves.

• 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.

• Use your cash to pay down expensive credit-card debt and build up an emergency fund. Stash that fund in an FDIC-insured bank money-market account.

• Look for opportunities. With all of Washington standing by to protect the economic system, you can bet on eventual recovery, even if there’s a recession to get through first. So use tough times to shop for a house, a cheaper mortgage, a good stock. When the cycle turns back up, you’ll be sitting on top of the world.

New Rules of Refinancing

Newsweek — Sat, 23 Feb 2008 16:33:17 GMT

March 3, 2008 issue

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.

To refi circa 2008, you have to play the game a bit differently. The easy money has dried up, so borrowers have to have a decent credit score (say, 680 or better) and at least 5 to 10 percent equity in their home so that they’re not trying to borrow its total value. As to whether it’s worth refinancing, there’s a new rule of thumb for that, too: look at loans if you can save 1 percentage point on your interest rate and expect to stay put for five years or more. By then, you’ll have saved enough to make the new mortgage worthwhile.

Move Back To College

Linda Stern — Sat, 09 Feb 2008 17:05:49 GMT

Here’s a bright spot in all the housingmarket gloom and doom: college communities. Town-and-gown spots like Austin, Texas; Charlottesville, Va., and Madison, Wis., have long been heralded as great places to live and retire because of their proximity to good health care, cultural events, steady employment and smart people. For all those reasons—and a healthy mix of demographics—their real-estate values are more stable than those of comparable towns without schools.

“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.

Parents of students who can afford to invest while paying those hefty tuition bills can buy a home or condo in town when their child enters school. They can even pay their son or daughter to manage the place for them by bringing in roommates and collecting rent. That strategy can provide tax savings as well as the possibility of profits when the home is sold shortly after graduation.

If you’d rather not be that hands-on, consider one of these two real-estate investment trusts: Education Realty Trust (EDR) and American Campus C (ACC). Both invest strictly in private student housing, and both trade like stocks, so you can buy and sell them through any broker. And let somebody else worry about the beer parties.