money really matters

Whenever I think of any insurance, a common phrase pops in my mind,

“Any insurance is only worth dollars, if and only if the insurance company is strong enough to pay you when needed”

We feel safe by having insurance so it doesn’t really worth a dollar if the insurance company won’t be able to pay for your claims. It will be a mere waste of money and can cause a financial turmoil in our life. That brings an important point, you better select the right insurance carrier for your insurance needs. It is totally our responsibility to do so.

Even with as many cars in the road, insurance companies still fight to get your business in whatever way they can. They always market their products like any other business person by buffing it up to attract you, the consumers. But it is us, the consumers who need to research about the insurance companies and make a sound decision to avoid getting trapped. It is not an easy task to judge a company but there are few simple tests that can help you determine which insurance company is better or best. 

If you are currently looking to buy auto insurance, first list down all the companies you short listed in a paper. Then try out these test criteria’s one by one and see how they score out of 10 points.

Test 1: Cost/Premium check

Cost (premium) is the key factor in many of our buying experience and one among many important parameters in our decision making process. As the saying goes, “You get what you pay for”, which holds true in insurance too. Lot of small insurance company’s charges little bit more compared to nationwide companies. But they work very closely with the insured taking care of their needs especially process the claims timely.  At the same time, big insurance companies which charges hefty premium and promises to offer premium service, fail to deliver them in the long run.

So don’t just make the decision solely based on the premium or cost of the insurance because premium is not just only based on the insurance company’s expenses. It is also computed taking lot of other factors into consideration like your credit rating, driver’s history, your age risk pool and many others. Keeping that in mind, try to use the cost as a benchmark to compare against different companies for the same level of coverage and give a score for your list of companies.

One more important thing, almost all sates have insurance commissioners who monitor the insurance rates to keep them under certain limit. It is regulated to certain extent so you won’t see a big difference.

Test 2: Complaints Index

Every business always has good and bad customers. Some really like the service and happy with it whereas others who had bad experience complain all about it. Insurance companies aren’t an exception. The best kept secret is the compliant records of the insurance companies. Your state, and every state, has a department of insurance. Here is the link for State of Texas. Due to lack of marketing, not many of us know about it. Most of them even have web sites, and many publish "consumer complaint ratios" for all of the insurance companies that sell policies in their state. This ratio tells you how many complaints an insurance company received per 1,000 claims.

If you can't get complaint ratios for your state, you can get an idea by looking how a company treats it’s customers by checking the complaint ratios published by other states.  High number of complaints surely makes you pause for a moment, even if the company is financially appealing.

Check out the complaint ratio by visiting this site which has links for every state's department of insuranceand see how your insurance companies scored according to their complaint ratio.

Additionally, the department of insurance websites often provides basic rate comparison surveys like the one by  Texas. It sheds you another clue about insurers who might suit your budget avoids taking trouble getting quotes directly.

Look out for other Tests in next blog post...

Many of you know, I am working on my CFP certification and doing courses thru Boston University. I was fortune to read online materials prepared by experienced professionals and one among them is Carolynn Tomin. She is a Certified Financial Planner™ professional who specializes in financial education. Carolynn is a consultant to Boston University's Program for Financial Planning, where she edits, writes and oversees curriculum for their online Financial Planning Program.

As we are discussing more about 401K, retirement and financial planning in the past few posts. I decided to get in touch with her personally and was able to get some answers for questions everybody has these days.

Vijai: Can you explain to an ordinary person who doesn't have any money management experience about financial planning? Is it a essential to any person for their financial wellness?

Carolynn: The purpose of financial planning is to make sure you have a plan in place to reach your financial goals. Money is only a means to an end- what do you need to spend it on (your fixed expenses) and what do you want to spend it on (your short-term and long-term goals) Once you have identified your goals you will know how much money you will need at a future date. Then you devise a plan to make sure that money will be available when you need it. If you don't have enough income, assets, investments etc. to reach your goal, you may have to delay achieving your goal or create strategies to obtain more income, invest more wisely, save more money each month, cut back on your discretionary expenses etc. But if you don't have a financial plan in place, you may be planning to fail.

Vijai: What do you see as the major distinction between financial planning and estate planning? 

Carolynn: Estate planning is an important part of financial planning. Estate planning protects you, your family and your entire estate, which is the wealth and assets you have accumulated during your life, and plans for how those assets will be protected and distributed during your life and at death. Estate planning also ensures that you have proper legal documents in place such as wills, trusts and powers of attorney, and estate planning may even lower your gift and estate taxes.
 
Vijai: What is the importance of Will and Trust?

Carolynn: There are many different types of trusts and they are used for specific purposes. For example, if you wanted to protect your property if you became incapacitated, you could set up a revocable trust now that would manage your money and property if you became incapacitated in the future. All trusts have a trustee who manages the money and property in the trust for the trust beneficiaries. 

Vijai: I mentor people to be their own financial planners. I recommend them to start planning their finances for their better future. I tell to make money rightly, save more, spend less and give graciously.  At the same time, no one can be an expert of everything. It is a tough task so I suggest them to seek CFP and CFA's help when thing go beyond your control. What do you think about that?

Carolynn: I like your approach to helping people who are in need of financial planning advice. Many people are overwelmed by the complexity and sheer volume of financial planning information that's available when they are trying to sort out what information may pertain to them. Once they get beyond learning the basics of financial planning there are topics such as insurance, investments, retirement planning, taxes and estate planning to learn about.
 
People who need financial planning advice should consult a Certified Financial Planner because that person has completed their education, has passed a rigorous 10 hour exam, has at least 3 years of work experience, and they are bound by a Code of Ethics for Certified Financial Planners. These 4 E's- education, examination, experience and ethics are what separates Certified Financial PLanners from those who just call themselves financial planners or financial advisors. People in need of planning will receive competent advice by Certified Financial Planners who will put their clients interest before their own. That's because CFP practitioners have a fiduciary duty to put their client's interests first.
 
I hope to get some more questions answered and will publish them as Final part.

Being an ING DIRECT customer for almost 5 years, I am currently taking advantage of quite a few of their offerings like Orange Savings, Electric Orange Checking, Orange Business and Sharebuilder accounts. I am amazed by their different way of approaching customers which can't be compared to any other banks. You can read more about their Orange Code of Ethics and more from a recent interview by ING Direct CEO to Costco Connections.

ING Direct,  an online banking legend is going to celebrate it's 10th year anniversary with 10 million customers weathered the past economic storm by taking a unique approach, persuading customers to save instead of spending more. Through social media like twitter, facebook and their own blogspace, wethesavers.com, they encourage customers to share their thoughts and ideas about saving, spending less and being frugal.

With their new subsidary ShareBuilder, an online brokerage designed for automatic, long-term investing. They also started offering investment and retirement solution. As we been talking about 401k and IRA in the last few posts, I wanted to bring something from ING Direct. So I got in touch with my PR contact at ING Direct and able to get a short email interview with M. Dan Greenshields, President of ShareBuilder.

Vijai: Thank you for taking time to answer few questions about IRA Rollovers.

Dan:  It's my pleasure.

Vijai: Dan, as we all know there are millions of people out their looking for job and not finding them. So many are planning to dip into their retirement savings. How is ING DIRECT helping their members who lost their job and have 401K? Do you help educate them with options?

Dan: Because of the potential for taxes and penalties, we feel that qualified retirement savings should be some of the last assets that people tap into. As an organization, we encourage customers through our website, service team, and advocacy efforts to build an emergency fund and educate them on the value of regularly investing in their retirement, even if that means just a few dollars a month. An emergency fund could be used for exactly this purpose, which we hope they’d tap first.  

Vijai: How different is ING DIRECT’s IRA Rollover options from other brokerage and mutual fund companies?

Dan: We feel we have a distinct advantage on two fronts: our low-cost investment options and our people. Between ING DIRECT and our brokerage subsidiary ShareBuilder, we are able to offer both investment (stocks, ETF’s and mutual funds) and FDIC-insured options (high-interest savings and CD’s), providing more choices than a standalone bank or brokerage can offer.

At ShareBuilder, there is no minimum investment required to open an account and no inactivity fees. Customers are able to invest in stock, as well as a range of exchange traded funds and mutual funds, and are able to buy fractional shares of stocks.  We also created http://www.RetireMyWay.com, a consumer-friendly retirement savings and investment channel.  The Retire MyWay planning tool allows users to create a personalized retirement action plan specific to how they want to live during their golden years. Customers can create and commit to retirement goals using interactive calculators and tools, and they can learn about places to invest and review model portfolios designed to match their investing style and needs.

On the service front, we have a dedicated team of Retirement Specialists who understand both bank and brokerage products, and can talk customers through these alternatives while helping them navigate the rollover process. 

Vijai: Does Dollar cost averaging methodology really works and how, show me with proof?

Dan: The longer your time horizon, the better the results.  That’s what history shows.  Dollar based investing allows you to purchase partial shares of your favorite companies for a fraction of a share’s total cost.  In a sense, it democratizes investing, lowering the entry barrier and giving everyone a chance to own a piece of the market.
 
Take the simple, hypothetical but fairly typical example of a market that starts at 10,000, drops to 8,000, increases to 10,000, and then increases further to 12,000. In this case, an investor would be better off with dollar cost averaging.  Here’s why: If you are the person that knows to buy at 8,000, then congratulations – you’re probably a professional investor. For the rest of us, however, you might have been better off investing $1,000 at each of those four points in time (resulting in holdings of $4,900), than investing $4,000 up front (resulting in holdings of $4,800). In addition to the fact that it’s mathematically advantageous, it also just makes sense as a discipline. Because most of us make monthly payments in other facets of our lives (utilities, car, mortgage, etc.), it’s relatively easy to adopt and stick with an investing plan that is monthly as well. 
 
Vijai: I saw advertisements for free Transaction Fee on IRA Rollovers with some fine prints. I always thought ING DIRECT don't like gimmicks to attract customer. Any comments?

Dan: Last year, 40 percent of Americans believed the economy would cause them to retire later than expected, but as we begin the New Year, we want to make saving for retirement easier. Currently, we’re allowing customers who open an Individual Retirement Account (IRA) by April, 15, 2010 to make an unlimited number of free automatic investments in 2010. These credits apply to any stock or exchange traded fund, plus any mutual funds so long as the mutual fund’s minimum has already been met. Go here for more information: www.sharebuilder.com/retire. We feel this offer will lend a helping hand to those people who are having a hard time getting started investing in their retirement or need help getting their retirement goals back on track.
 
Vijai: Is IRA Rollover easier to do without much paper work through ING DIRECT? Explain the process.

Dan: There are a few different ways to initiate and complete a rollover, depending upon the type of plan the participant’s assets are in and in what form the participant wants to roll them over, but the process almost always involves a little paper at some point.  We try to reduce the paperwork and fine print, and make that process as seamless as possible. Our goal is to understand each participant’s particular situation, and use that information to help them complete the process as quickly and as easily as we can. 
 
Vijai: If a person has ING DIRECT mutual funds thru employer and lost his/her job, can they keep their plan and maintain low fees after becoming non-participant?

Dan: Generally, if a participant has less than $5,000 in a plan, the employer may have the right to cash out the participant, or automatically roll their assets into an IRA. However, as long as a plan participant has over $5,000 in a 401(k) plan, they always have the option of keeping their assets in that plan. If the plan has no annual administration fees, and a broad mix of funds that perform well and have low expense ratios, this can be a good option. If the plan has limited options, poorly-performing funds, or expensive funds, than it usually makes sense to complete a rollover into an IRA. 

Vijai: Final comments or any other thing you want to add about ING DIRECT’s goal towards 401K and IRA Rollover?

Dan: Awareness of your financial situation is a critical component to getting on the retirement saving track. Try to fully fund your 401K (or encourage your employer to set up one if it doesn’t exist), diversify your assets within the account and regularly rebalance them.  Also, an IRA Rollover can help you consolidate and better manage your retirement funds. 

Vijai: Thank you for your time Dan. 

Dan: Glad to answer and explain our position to our customers. Thank you for this opportunity.

Websites discussed above are,

www.retiremyway.com and www.sharebuilder.com/retire.

Lost your job and wondering what happens to your 401k or employee sponsored savings?

Getting bombarded by calls/ads/emails from financial firms to rollover your 401K fund?

Many Americans are facing the same situation and asking similar questions as more than 4 million lost their job last year. After losing a job, you don't think about 401k for a while because you are busy hunting for the new job. With job market still in limbo land, many people are having tough time finding any job and struggling to feed their families. In this situation, they are looking for options to earn and even willing to break their nest egg to get through the current situation and worry about retirement later.

In my last post, I stressed the importance of timely action on your 401K  before it's too late whether you decide to save or take out distributions. How you handle your 401-K account can result in anywhere from zero to hefty taxes and penalties. This blog post, I plan to share few important questions and answers with my research, study and experience in rolling over 401K during the job change 2 years ago. 

First question, What are my options?

There are several options when it comes to saving your 401-K and your former employer or 401k administrator from investment company should have already provided you with information. If not, here are some important options:

1. Stay In

You can stay put with the former employer plan unless there is no restrictions and limitations.

Pros: No Paper work, Low fees, Better investment options, money grows tax deferred.

Cons: Higher fees, no contribution from employer, no flexibility, less attracive plans and importantly minimuim balance requirement. ($5000 most cases)

2. IRA Rollover

Next comes the IRA Rollover which is highly recommended and advertised in the past year by lot of brokerage and mutual fund companies. It is easy and has lot of advantages.

Pros: No penalty or Income tax when rolled over directly, tax deffered growth, more investment options, Direct control over money, great flexibility to change funds any time.

Cons: 401K security value might be down because of stock market and lose money by rollover since they need to cash the security before rolling over. Also usual IRA withdrawal rules apply.

In general all the contribution by you and vested employee portion in the 401K plan is eligible for rollover. A rollover can be paid directly to you or it can be implemented as a direct rollover.

Direct Rollover: The funds in your 401-K account are paid directly into the IRA. With a direct rollover, the 401-K administrator is not required to withhold any income tax and you do not owe a penalty. It has become easy with Internet and many companies allow internet application submisions.

Check Payment: Many 401K administrators send check directly to you if they havn't heard with 60 days. When you receive your 401-K distribution, your former employer has withheld 20% as taxes. This withholding is a requirement. It does not mean you will owe the tax. In order to avoid taxes and tax penalty you must: 1. Deposit full amount including the 20% withheld by employer with your funds into your IRA account within 60 days of receiving the funds. When you file your taxes for the year you will not owe taxes on your rollover, but will be able to include the 20% withheld as income tax paid.

If you do not pay full amount, you will owe Income taxes at your current tax rate on the amount of 401-K funds you did not rollover plus additional 10% tax penalty is due because you received retirement funds before you reached 59-1/2. 

Because of above complications direct rollover is less risky, faster, less time consuming and not as complicated as a payment made to you.

3. Rollover to New Employer 401K Plan

You can also choose to wait and roll over to your new employer 401 plan depending upon your situation. That helps to keep all your 401k money in one place. But you have to find the job on time and also you have to satisfy balance requirement to keep funds in the former 401k plan. You might endup paying higher fees during the interim period. Be aware of it and make decision.

4. Rollover Annunity

You can rollover to Insurance companies annunity option. A Rollover Annuity is a contract between you and a life insurance company that allows you to specify how you want to receive future income, and even elect a death benefit for your beneficiaries. Your money transfers to the annuity and earnings, if any, will continue to grow tax deferred until withdrawn.

Pros: No penalty or Income tax when rolled over directly, tax deffered growth, more investment options, Direct control over money, great flexibility to change funds any time and decide how your income will be paid.

Cons: If elected to get immediate withdrawal and below 59 1/2, penaly applies

5. Lumpsum Cash Out/Distribution

It is not recommended option but if you are above 59 1/2 age limit you can take out the money without any penalty and taxes implications. But when you don't find job and need to take care of the family, this has become only option for many people. SO if you cashing out 100,000 and you are in 25% tax rate, you would end up paying 25,000 + 10% penalty would be $35,000 loss. 

Pros:  Instant money from nest egg 
Cons: Need to pay Income Tax if you are younger than 59 1/2 upto your tax rate + 10% penalities.

6. Safe Harbor Hardship Withdrawals

If you don't wish to take out full amount, you can always withdraw certain portion using the hardship withdrawal requirements. In this bad economy, uncle sam allows certain withdrawals (listed below)but still might need pay income tax and 10% penalty. Also funds are limited to the elective portion of the deferral, and not any income or interest on the deferred amounts. It might help to overcome the situation and not a bad option in worse situations.

This year just started off and half of January is almost over now. Days are moving fast so you better focus on things you want to get accomplished.

Do a quick check on your goals or Resolutions for this year. Did you ever get started with any of them? If you did, how far along are you? Do you think you are moving along as planned or just dragging yourself, waiting to quit? If you never got started, you still got till 31st to do something about it so you can atleast brag that you started something new this year. If you are chucking along, good job and keep it going!!

Moving on to Money smartness, it is not only about making and saving money right. It is also about doing things which could help to manage and preserve the wealth you earned. It is about getting ready for emergency situations and planning for proper wealth distribution when you are gone. In this post, I like to share and remind few Don't and Do's which most of us take it for granted in our everyday busy life. We don't consider them serious enough until it hits us hard.

Don'ts

Don't lose your 401 (K) contributions

I called my friend who lives in East coast to wish him Happy newyear. During our conversation he was mentioning about his 401k from his previous employer. It has been almost 2 years, he still not moved his funds over to new account. He don't know where to start because his previous company had gone through few mergers after he quit and don't know how much the account worth now and where exactly the funds are held.

I strongly urged him to get on it, start working first thing otherwise he might lose his hard earned money. Many of us fail to roll over my 401 (K) when change jobs. We forget about it, while we struggle to find a new job. With some many job losses last year, I am sure money of you aren't thinking about 401K accounts yet. If you get a chance, do take time and start working on rolling over to Roth IRA account or mutual fund.

Don't be a Identify Theft/Scam/fraud Victim

Identity theft, Ponzi schemes and scams are the talks all over the internet last year. Many millions of people get affected by identify theft every year especially via phishing over Internet. Whether you use online banking to check your account or make your credit cart payment, be careful in protecting your identity by protecting your computer from getting hijacked by the hackers. There is more to avoiding a identify theft than just virus protecting your computer and will talk more about it in my later posts.

Avoid Impulse buying

Beware of persuasive or forceful sales pitches. If it seems too good to be true, it might very well be, so avoid taking action at the spur of the moment. Try to be wise by not paying more for what it's worth and always do comparison shopping. There is a reason why Milk cans are stored way back in any grocery store! Try to always compare different offers whether you are on the street shopping for car or expensive items.

DO's

Pay yourself First

That's the mantra of many Money Guru these days. First take out some money from your pay check for yourself and put it away in a saving account before it disappears. Start small and stretch it out slowly. With automatic saving with online banking, you can do it easily in minutes. By saving periodically, you are also taking advantage of time to work for you. Magic of compounding is the be8th wonder invented by Einstein..  I like to say, Saving is an habit not an hobby, so start a habit this year. Once you get started with saving, you can expand to invest the savings for future purpose like kids education or retirement.

Plan to be Debt free

Are you debt free? I would be surprised if you were. Everybody has debt in  some sort or other whether it is home mortgage or just credit card debt. But you can plan to be debt free and try to get out deep debts avoid paying high interest rates charges.  Don't let your revolving debt to shift as long time debt. That will reckon your financial wealth. If you are in deep credit card debt, try to contact national credit counseling agency and work out a plan to get out of debt and shift to revolving debt situation.

Prepare a WILL

Last but not the least item in the list, Estate planning. Do not think estate planning is only for wealthy individuals. Estate planning is all about preparing for unexpected. It is just about preparing Will/Testament or Trust for the benefit of your dependents.These paper works are very important especially if you are married and have kids. You can make a will in just few minutes using Willmaker by Quicken and execute according to your state law. It is a cost efficient solution compared to Trust but not cost saving solution if you have big estate. Consult your CFP for more details.

I hope these Do's and Don'ts help you to start thinking about few things which are important always not just in a new year. I am planning to touch upon these topic in more elaborate manner in my future posts. Please check back periodically.

20Century Fox

Avatar, the movie which has made headlines all over the globe, movie which has given another avatar to the Hollywood movie industry during this recession, and a movie which is the topic of many house hold dinning table talks. It has broken many records and making history in the world movie industry.

Before I talk about the main interest, here are some titbit's you might be interested if you are not aware of them.

1. Producers spent around $300 in production cost and more for marketing.

2. It already raked up 1 Billion from all over world in just 2.4 weeks. According to Box Office Mojo it’s current box office total stands at $$1,018,811,000  million.

3. Opening Weekend:  $77,025,481
(#1 rank, 3,452 theaters, $22,313 average)
% of Total Gross:  21.9%  
Widest Release:  3,461 theaters 
In Release:  17 days / 2.4 weeks 
 

A movie which cannot stop making money and surely a movie to watch. After hearing  rave reviews and commentaries,especially setting itself apart from ther sequels like Lord of the Rings with Sanskrit title, I was intrigued to see it. I finally watched the movie yesterday and it surely didn't fail to surprise with spectacular animation,  special effects and astonishing camera. I was totally blown away by the Himalayan effort put forth to bring this movie as a sensational entertainer with a great message for this time.

James Cameron proved himself again as the Best Director of all time by giving back to back hits. But, as an person born and bought from India, I felt that the story is old and many of my Indian friends agreed with me. I have seen similar kinda of movies when I was a kid in the Indian cinema with little special effects available at that time frame. Those movies had stories where person transfers from body to body too. I am talking about 20-30 years back. Except the special effects, graphics and animation, I  see the old story line in many aspects but with new scientific proofs which makes it believable. It has lot of connection and adaptation from Veda's(Sanskrit literature) and many other Indian literatures. Even the character visualization and makeup's can be related to many ancient Indian traditions and especially the body color can be related to Lord Krishna avatar deplicted below in the picture.

Being said all that, James Cameron not only just gave new look to the old story but a brand new planet creating a new paradigm for the many more avatars to come. As money examiner, I would say it surely money maker but do have couple of questions.

What was James Cameroon thinking?  While the nation is just recovering from recession, 300 million dollar spent in making a movie, doesn't really makes sense? At the same time, it is giving people totally new experience in a new world and also bringing them to theaters to spend money during the holiday season helping the economy.

Share your thoughts about Avatar and money spent in making the money. Is it worth spending this much money or waste?