What's Your Net Worth? Click Your Way to Wealth

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More advance praise for What’s Your Net Worth?: “Jennifer Openshaw is about the best financial advocate and information source for women bar none and her new book is our secret password to wealth.” Amy Millman, Executive Director, NationalWomen’s Business Council “What’s Your Net Worth? reads like great advice from a trusted friend. It’s smart and inspiring with wonderful stories from other women just like you. I’ll recommend this book toall of my clients.” Carol Pell, President, Financial Planning Associationof Illinois “With all the hype on online commerce-spend, spend, spend on the Webit’s refreshing to find a book that shows how the Internet actually can be good for your bottom line. With What’s Your Net Worth?to guide you, few a well placed clicks will send you on your way to a bright financial future. WFN founder Jennifer Openshaw has trawled cyberspace and hauled in a wealth of resources, presenting them in an easy-to-read and persuasive guide on how to improver your bottom line.” Linda Sherry, Consumer Action

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what’s Your Net worth?


what’s Your Net worth?

JENNIFER OPENSHAW

PERSEUS PUBLISHING Cambridge, Massachusetts

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is published with the understanding that the publisher and author are not engaged in rendering legal accounting or other professional service. If legal advice or other professional advice, including financial,is required, the services of a certified professional should be sought.As each individual situation is unique, questions relevant to personal finances and specific to the individual should be addressed to an appropriate professional to ensure that the situation has been evaluated carefully and correctly Many of the designations used by manufacturers and sellers to distinguish their products are claimed as trademarks. Where those designations appear in this book and Perseus Publishing was aware of a trademark claim, the designations have been printed in initial capital letters.

A CIP record for this bookis available from the Libraryof Congress. Copyright 0 2001 by Jennifer Openshaw All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form orby any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United Statesof America. Perseus Publishing is a member of the Perseus Books Group Find us on the World Wide Web athttp://w.perseusbooks.com Perseus Publishing hooks are available at special discounts for bulk purchases in the United Statesby corporations, institutions, and other organizations. For more information, please contact the Special Markets Department at the Perseus Books Group, 11 Cambridge Center, Cambridge, MA 02142, or call 1-617-252-5298. Text design by Jim Buchanan of Bookcomp, Inc. Set in 10.5 point Berkeleyby Bookcomp, Inc. 1234567891030201 First printing, May 2001

Dedicated to My Loving Mothel; Rosemury, myfriend and inspiration.


Contents

Acknowledgments

ix

Foreword, by Sela Ward

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Introduction Women Moving Up the Wealth Ladder Chapter 1 Focus onYour Financial Picture

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Chapter 2 Streamline Household Budgeting and Spending

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Chapter3 Delete Your Debt

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Chapter4 Win the Real Estate Game

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Chapter 5 Click Here for Investing

101

Chapter6 Double Click on Stocks

137

Chapter7 Insure Your Future

168

Chapter8 Use On-line Banking

199

Chapter9 Save on Taxes: Keeping More of Your Money

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Chapter 10 Boost Your Earning Power

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Chapter 11 Link to the Other Side: Estate Planning

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Chapter 12 Give Something Back-Charitable Giving

294

Afterword Keep Climbing Higher

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Index

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Acknowledgments

I want to thank all of the womenacross the country who shared their stories, from homemakers to CEOs-you truly served as the inspiration for this book. With any large project it takes a team to make something happen, not just one person. That hascertainly been the case with the formation of the Women’s Financial Network (WFN) and the completion of this book, my first. Like most women, I have dreamed-and dreamed big. Thank you, Hussein Enan, for helpingto turn my dream of WFN into a reality. Although I do not have the spaceto articulate my appreciation to all of those who believed inme early on, there are many peoplewho have shared my excitement about WFN: Kathleen Brown, former Treasurer State of California; David Brown, Chairman of Telescan; ProfessorBill Cockrum of UCLA; Dr. Victoria Collins, Partner of The Keller Group; Larry Kramer, CEO of MarketWatch.com; Stacy Phillips of Phillips, LernerQ Lauzon; Jeff Shell of Fox Entertainment Group;Rick Tuttle, Los Angeles CityController; Alex White, Dean of UCLA; and Cliff Gilbert-Lurie. A special thanks goes to members of the WFN Advisory Board: Professor Linda Applegate, Harvard Business School; CarolBartz, Chairman and CEO of Autodesk;Esther Berger, author of Moneysmart Divorce; Don Blandin,President of the American Savings Q EducationCouncil; Pat Borowski of Professional InsuranceAgents; Susan Byrne, CEO of Westwood Management; Beth Climo,ManagingDirector of the AmericanBankers Association’s Securities Association; Mary Corroon, former COO of Security; Jocelyn Davis, CFO of the American Association of Retired Persons; Sharon Davis, First Lady of California; Ann Delligatta, former COO of Autobytel; Debbi Fields, Founder of Mrs. Fields’ Cookies; Robin Martin, Managing Partner of MarchFirst; Amy Millman, Executive Director, National Women’s Business Council; Micki Napp, IBM; Bob O’Hara, Vice President, NAIC; Linda Sherry of Consumer Action; Barbara Stanny author of Prince Charming Isn’t Coming;Tom Thomas, former CEO of Vantive; and Rob Wrubel, CEO of Ask Jeeves. You will never know how much your advice and support has meant to me.

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To the dedicated employees who made WFN what it is today: Maggie Wells, Maureen Shafer, Randy Bales, Karlyn Carnahan, Maria Ching, Alyssa Farber, Elaine Floyd, Steve Haas, Tracy Hughes, Jain Lemos, Vicki Loke, Tom McCullough, Trina Milos, Kathleen Morris, Laura Pauli, Perika Sampson, Stacy Welsh, and Sheryl Zubrin, as well as Tom Quigley and Nancy Coleman-WFN would notbe here without yourtalent and shared passion, and for that I thank you sincerely. I am also especially appreciative of the professional advice of WFN board members Debra Chrapaty, Sherie Dodsworth andRoz Hewsenian. I owe a debtof gratitude toall of those who reviewed the book andgave me their insight and advice, including JanetBernstel; Kit Cole of Kit Cole Investment Advisory Services; Carol Pel1 of Successful Financial Solutions; Marco Rodriguez; Dick Weberof Financial Profiles; as well as Mandee Heller and Tamara King (now Go-COOS of WFN at Siebert). To Catherine Yaoof Jupiter Media Metrix and RonShevlin and MarkMacklin of Forrester Research, my deepest appreciation for your time and research assistance. Jennifer Basye Sander, younot only bringlife into words but you serve as a role model yourself. NancyEllis and Linda Mead, thank you for seizing the moment and crystallizing my ideas. Jacqueline Murphy, Elizabeth Carduff, and the entirePerseus Publishing team, you know how to move mountains! Fortheiroverallinspirationandleadership, I wouldliketothank Muriel (“Mickie”) Siebert andSuze Orman. Mickie, the First Lady of Wall Street-you truly paved the way for all of us who followed. Suze-you gave me courage, even at the oddest timesof the day. Todd Gorman of Sherman Q Sterling, I am indebted to you for your friendship, patience, and counsel, wise beyond your years. Rosa Maulini, without your personal and professional support at WFN, none of this would have happened. Tom Houston, you gave me the foundation to fulfill my dreams. With every day, you bring love and meaning to my life.

Foreword

If I had been approached a few years ago to write the foreword to a book about women and money, I would have politely demurred. Me, talk about money? After all, I am a Southern girl, and it is not polite to talk about money-or even think about money!How unladylike. Thankfully, times have changed. I feel strongly that women today need to take chargeof their own money and stop depending on their husband (or boyfriend) to make the financial decisions for them. I am so pleased that Jennifer Openshaw has written What5 Your Net Worth?. Women do need to turn their considerable talent and attention inwards,towardsnurturingtheirownnetworth.Jenniferhasoffered women muchassistance over the years through the Women’s Financial Network (WFN) and through her columns for CBS Marketwatch and other leading financial and newswebsites. This book is one more very important tool to help women get down to business, get educated about money, and start gaining their financial independence. Jennifer has created a caring online community at WFN.com, where women can focus on financial matters, and this book brings that same nurturing approach directly to you. Why should women be concerned with building their net worths? The reasons are different for each of us. I live and work in Hollywood, a city famous for scandals of every stripe, including financial scandals. Actresses frequently hitit big and thenquickly lose everything. Many actors trust their managers and financial advisors to handle every detail for them, and then suddenly discover the money has been invested poorly, or worse, is completely gone. For long a time, as my acting career advanced, handling money was my own Achilles heel. “I’ll get to it later,” I kept thinking. Until it was later, and I realized my financial situation was not nearly as good asit could have been-should have been-after all of this time. Of course, it did not happen overnight, butI have had to get educated about how 1 handle my own financial future in order to stay in control. I enjoy the confidence and power that making my own financial decisions brings-something I now realize my own mother never had. It can be an incredible feeling. You know that sense of confidence you get when you receive a job promotion, or when you spot an incredible bargain in the stores? You can get that same kind of rush, that feeling of confidence and

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xiv I What’sYour Net Worth? pride, whenever you look at your growing investment portfolio or bank account! Women have never limited themselves to the easy tasks inlife. We take care of our kids, our homes,we build our careers,we keep the fires burning in our relationships,we take care of our aging parents.We take care of everyone but ourselves. Promise yourself that youwill take the time to nurture your own money, your own net worth, in the same way that you care for the other parts of your life. Start today, take action now, and reap the rewards that await you! Sela Ward April 2001

Introduction

All too often, women extend their nurturing qualities to everyone around them, except for themselves. As a result, you mightfind that at the endof the day you have nothing left for yourself. No more energy, no more time, and very often, no moremoney. Now is finally the time to put yourself first, to nurture yourself. One very critical thing that you must nurture is your own net worth; you must begin to grow your own financial future. Why do I believe so strongly in this? Let me tell you a little bit about my childhood. My parents divorced when I was five, and my mother found first took one fullherself, at age 28, single, with three young children. She time job as a waitress, and then a second one at night, in order to keep us a memory of watching her set her long red hair every going. I still have vivid morning to get ready to go to her day job in the restaurant.And then, later in the afternoon, watching her change out of her maroon-colored smock into a black and white cocktail waitress uniform for her night job. To a child, it seemed that her purse was always filled with money. As I grew older, however, I came to realize that it was only dimes, quarters and $1.00 bills-the tip money her customers left behind on the table. Those dimes, quarters, and dollars all needed to add up to pay our bills. I have another vivid memory of the frantic afternoon when she suddenly realized that someof the money was missing from her purse. “Where did my money go? It’s missing! And I need it to pay the phone bill!” My younger brother had taken the money from her wallet and spentit-it was all gone, just like that. Our finances were precarious, to say the least. 1 learned so much from my mother’s money struggles. One afternoon, riding my bike home from school,I imagined how my life could be different from hers. I don’t ever want to have to live like that. . . to five infear that the money would run out, I vowed. Instead, I decided right then and there that 1 would pursue a professional career. I would not have a purse filled only with small change and small bills. For thepast fifteen years, I have devotedmyself to learning about money and how to make it grow. While working in the Treasurer’s Office for the State of California, I had the opportunityto study howvast sums of money accumulate andgrow. I have also had the opportunity to work with smaller

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sums ofmoney-my own! I have learned to nurture it andmanage it, and enjoy the processof developing my own personal net worth. What exactly do I mean by net worth? Are we talking about money here, or are we talking about the Internet? Yes, that is a deliberate double wordplay: I want youto nurture your net WORTH-the amount of money youare personally worth, and atthe same time nurture your NET worth-the personal on-line savvy that will help you accomplishthe former and the latter. Money has long been thoughtof as a man’s territory. Let’s just discard that idea right now, because every woman today has the opportunity to achieve financial success-even wealth-if she desires. What is behind this transformation? The Worldof the Web. If you learn howto master what is available on-line, youwill have all of the financial tools you need:to develop a household budget thatreally works, tocreate a balanced investment portfolio, to set up a college savings plan, or to find the best home loan rates available, all at the click of a mouse. I remember the first time I logged on to the Internet. 1 was in an economics class in business school when I noticed that a guy sittingfew a rows ahead of me did not seemto be listening to the lecture as closely as the rest of us. He was busy checking the latest stock prices on his laptop. “How’d he talk with himafter class. Within a matdo that?”I wondered, and stopped to ter of months, everyone in the classroom was monitoring their portfolios and trading stocks in the middle of class. Seemingly within weeks of when we all first logged on, we began to hear about Internet start-ups appearing right and left. By the end of my three years in business school, I had the “bug”-the bug to go out and create something using this great equalizer called the Internet. We are in the midstof a financial revolution, and the powerto be a part of that revolution is literally at our fingertips. For centuries, the financial world has been a closely guarded society, one in which information was restricted to members of a very select club; most of these members, mind you, were men. With the Net, however, women everywhere are poised to take something from the OldBoys’ Network and turnit to our advantage for the New Girls’ Net Worth! As a member of the financial industry, I remember realizing just how powerful this tool could be-that it could potentially level the field for all financial players. It has done justthat-reports and recommendations that used to beavailable only to financial professionals are now available to you. Statistics, charting, and companyresearch reports that used to beavailable only to those who paid very fees highare available free on-line. Were women able to take advantage of this research in the past? Rarely-most women investors were not handling large enough sumsof money to be given a peek

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at this specialized, insider information. Even active women investors were often too shy or intimidated to ask for information. Not anymore! While workingto build theWomen’s Financial Network (WFN), I have had the chanceto talk to many women around the country about how they handle their finances.I asked them two basic questions: How do youfeel now about makingfinancial decisions? How would you like tofeel about makingfinancial decisions?

Here are some of the answers I heard to the first question: “I’m alone in the woods.” “Like I’m going in circles.” “I’m in a fog, not quite gettingall the answers and informationI need.” And how do womenwant to feel about making financial decisions? “I’d like to feel like I’m on top of the world and totally in charge!” “I’d like to feel peaceful and content.” “Where I see things more clearly, and have a clear vision of where I’m going! ”

Where do you begin? How can you go from feelings of being lost in a fog to seeing things more clearly? How can you go from feeling like you are going in circles to feeling content about your finances? Begin by giving yourself the go-ahead, the permission, to go out and learn to take control of your financial future. The great thing about the on-line worldis that no one needs to know how much (or howlittle) you already know. You can move from website to website, reading and absorbing the informationyou need, and no onewill be the wiser. There are sites where you can construct dream portfolios to practice with, just to see what trading stocks is like. No one needs to see you make your first unsteady attempts-unless you do really well and decide to brag to your friends, that is! Do I really believe that mastering the on-line world can make differa ence in your net worth? Absolutely! You will be able to overcome your own hesitations and fears, and fill in your knowledge gaps. Best of all, you can do it without someone ina blue pinstriped suit hovering over your shoulder, waitingfor you to make a mistakeso he cansay, “Now honey, why don’t you just take my advice and . . .” You can do it at your own pace, discover and explore the sites that work for you, anddisregard the ones that do not.

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My mother’s financial struggles, andmy own vision of a different way of life for myself and other women,led me to found theWomen’s Financial Network at WFN.com.So does this mean that all on-line roads explored in this book will lead back to WFN.com? Not atall. Together we willvisit site after site filled with manyways for you to nurture your net worth.Along the way you will meet many fascinating women with storiesto tell. I will weave in advice and informationfrom some of the extraordinary womenI have metin the past few years. Manyof these women are successful CEOs and businesswomen themselves, but all of them have a central message to share about their experiences withmoney. What kinds of women will you encounter in this book? Women who are just like you and me-women like Suzanne Pozzo. Today, Suzanne is making it on her own financially after the endingof a long marriage. But the Suzanne of twenty years ago, was a timid young woman whose husband refused to includeher infamily financial decisions. Women like Shirley Wilson-Shirley’s life turned upside down when she discovered she had breast cancer and needed an operation. Putting the Internet fullinto operation, she found a less invasive surgical procedureand went on to secure better health care coverage. And women like Ellen Levy. Ellen is a well-known member of the venture capital community, but wasn’t she always a seasoned investor. What kindsof things will you learn? Everything from using the Net for household budgeting and debt reductionto on-line banking andinvesting. Many of the women in these pages will offer advice basedon their own climb to the top as the Chief Financial Officer of their own home . . . or even in the business world. And because I’m a strong advocate of women helping other women, I’m including an entire chapter about using the Netto contribute your time or moneyto the charities or causes youcare about. Isn’t investing in the stock market on your own a risky business? Sure it is, but not nearly as risky as taking a hands-off approach to your own financial future. Women take risksall the time in other parts of our lives. If we risked our money half as often aswe risk our hearts, imagine where we could be! We must take greater risks in order to to reap greater rewards. Join me now aswe take our finances-regardless of where theyare-and learn to use on-line tools to build them into substantial sums. The idea of nurturing is to take something thatis small, and to grow and to encourage it as it develops into something mature and solid. as Just you nurture yourchildren when they are small, you must learn to nurture the money in your life. We all look forward to enjoylng the company of our children in their adult years, now we can also look forwardto enjoylng the money we nurtured. Does climbing a ladderto wealth sound intimidating?It isn’t, really. Like any other process, it starts on the first step.

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The following chapters are the steps themselves, the individual rungs so that you can of the wealth ladder. Each step builds upon the next, progress from one rung to the next. Take a look at the individual parts of the ladder-are there steps that you have already achieved? Perhaps you already own home, a or do not feel that youhave to pay down debt and build up your credit. You can feel free to skip ahead and start reading whereyou need the biggest boost up to the next rung. You might want to go straight to the investing chapters, or even farther aheadto learn new strategies for organizing your finances. I encourage you, though, to come back at a later date and read through the sectionsyou skipped. There is no such thing as too much knowledge,particularly when it comes to your finances. Let’s get started now! Jennifer Openshaw


Chapter 1

Focus on Your Financial Picture

Women and money? For a long time these two topics were seldom linked in any seriousway. Not only were women perceived as not having much in the way of money, but their abilityto deal with numberswas ridiculed. Here on page 1 of Chapter 1, we need to get right to work and debunk a longheld belief the idea that women have a problem with math. Do the math onthese facts: 500,000 American women have anet worth of more than $1 million More than 40% of all wealthy Americans are women Women-owned businesses generate $3.6 trillion annuallyand employ more than the Fortune 500 companies combined

Some math problem! All these factsadd up to pretty big numbers, as women steadily increase their share of America’s wealth. You can take pride in the fact that all women are in some way a part of these impressive and growing statistics. But no one gets there overnight. In fact, here’s some math that shows another sideof the story: Women earn less than men-currently only 72 cents for every dollar Women are out of the workforce an average of 11.5 years for caregiving Women are less likely to have an employer-sponsored pension plan Why is it so important for you to focus onyourfinancialfuture

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concentrate on building net worth? There are two major reasons. First, most women start out aat significantdeficit compared to their male counterparts, particularly with regard to their retirement accounts. Although women live longer, they earn less, save less, receive lower retirement benefit payments, and are morelikely to have to care for a parentor husband. The second reason women must focuson their finances is because inthe end,it is all up to you. Let me make itclear: I’m not here to tryto frighten you.But regardless of your personal circumstances rightnow, nine out of10 women at onetime or another intheir life will be solely in charge of their finances.According to the U.S. Census Bureau, 42% of all women overage 18 are not currentlymarried. Whether through widowhood, divorce, or because you’ve never chosen to marry, you will be completely in charge of your finances-including your checkbook, your retirement plan, your investment accounts, your taxes, your insurance, yourreal estate, and yourcharitable donations. I’ll take you through all of these areasin the chapters that follow-so you can learnit now at your leisure, rather than waiting until you are facing a crisis. I’ll also tell you howthe Internet is making it much easier for women to save time, build knowledge, and make smarterfinancial decisions. As we explore your finances in more detail, I want you to think of the wealth-building process as a ladder.As you begin to latch on to the bottom rungs to start your climb to the top, the first steps involve assessing your position, learningto ask the right financial questions, andbecoming more comfortable with the frameworkof finance. As you climb higher,you’ll begin to set actualgoals for yourself and start to tackle the biggest obstacles to wealth-debt and the inability to save and invest for the future. Climbing ever higher, you will take confident control of your money management, begin to build up your retirement savings,get the right insurance, purchase a home, and move intomoresophisticatedinvesting vehicles. Near the top of the wealth ladder is where life really gets fun-when you achieve the financial freedom to have your money workfor you, insteadof you working for your money Many women who have reached this level have enjoyed the ability to devote more of their time and money to philanthropic work. Where are you on the wealth ladder today? Do you feel like you are waiting atthe bottom, wonderingwhich rung to grasp first? Or are you a few steps up in the process, carefully considering what it will take to boost yourself up even higher? I’ve written this book to help you make that climb, with advice, information, inspiration, and on-line tools to make thetrip easier. Think of the information in these pages as a climbing rig, the safety harness you need to make the journeyI’ve met women at all stages of the climb up the wealth ladder, and you’ll meet many of the samewomen in the chaptersto come. One of thebest things about women is that we loveto share information, and these women are happy to show you where the handholdsare on the journeyto the top.


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12) Share your success 11) Preserve what you have

10) Increase your earning power 9) Minimize your taxes 8) Organize yourfinances 7) Protect yourassets 6) Invest to build yournet worth 5) Educate yourselfabout investment 4) Acquire ahome 3) Free yourselffrom debt and build credit 2) Live within yourmeans 1) Determine where you stand

Tools You Can Use Ready to join me as we progressup the ladder? The most powerful of tool all is sitting right on your desk-your computer. Managing your financial future on-lineis an incredibleway to be in control of your finances. Instead of standing in the marble-lined lobby of a major financial institution to float by aboveyou, you can click from watch as the flashing ticker symbols website to website, picking and choosing the financial information and money options that appeal to you. You can learn more about thefinancial world without anyoneelse knowing yourlevel of skill, while quietly gaining confidence and knowledge. If you don’t have computer a sitting on your desk, don’t giveup and put this book down. We live in a world filled with computercafes, libraries with on-line access, and neighbors and friends with equipment to share. Computers are affordable today-and the investment will come back to you many more times with what you’re about to learn in this book. Before wedig deeply into the specifics of saving and investing, let’s take a quick look at the various stages lifein women go through and the impact on their finances.

Single and Sanguine Are you part of the 21% of American women who have never married? It or your nextmight not be you, but your young daughter, your sister, older door neighbor. Single women are aware of their financial responsibility to

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varying degrees. Some are armed and ready to take careof it all on their own; others are actually still lookingout the window in the hopes that someone (a man perhaps? a partner? a sibling or parents?) will come along to help lift the financial burden. It’s no wonder since women-headed households have an average annual income of only $21,564 compared to the $49,858 of a married couple. For those of you in charge and fully managing and building your financial future, congratulations.But for those of you avoiding financial responsibility and hoping that help will come, get with it! I’m not the first and I won’t be the last to tell you this: you’re on your own. I’m a single woman myself and have been on my own financially forever, it seems. My first “real” job was as a maid in a southern California motel at age 14, and I progressed from there on to my high schoolyears as a restaurant hostess. I wasn’t spending my earnings at the mall after work I was savingup for my own college tuition. like other young girls with jobs. So I know inside and out thefinancial concerns of the single woman. Once single,always single? Hardly. But the definite trend is forwomen to marry much later in life than decades ago-five years later, on average, than our mothers did. The time thatwe spend assingle women is prime time to establish our own financial base. Beginning in our early 20s and on through the yearsof our first few jobs isa critical timeto begin establishing good spending andsavings habits. That is alsothe time to begin contributing to a retirement fund. But what if your first years out of college are alsoyour first years of paying off a majordebt-college loans? Your best approach is to buckle down and get it over with. Even while paying off those first loans, it is important to try to contribute to a retirement fund. (Please note: you must pay them off! Don’t let yourself get sucked intoa bad credit rating rightoff the bat by blowing off your student loans.)Early money grows the longest!

Marriage and Money What do most married couples fight about? Money: who madeit, and most of all, who spent it. Disagreement over money is a leading of cause divorce. In contrast, couples who are working together to achieve acommon investment goal are both involved in deciding how the money gets spent and where it gets invested. In fact, you find might that your husband enjoys your involvement. Carole Gillie, a realtor and contract negotiator Los in Angeles, gets a kick out of her husbands answer to anyone who tries to sell him an


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investment on his own: “You’d better tell my wife-if she doesn’t like it, it won’t be pretty.” Working together to achieve a large financial goal can get you there much faster. Linda Biagioni, a vice president at Black Q Decker, described the “ah ha” moment that she and her husband had: “We started looking at where we were and said we could behere if we paid attention. So we started paymg attention.” Theefforts of two spouses working toward one goal will quickly be rewarded. If you think you’ll need help getting the money discussion started with your husband, you’ll find guidelines at The Institute for Equality in Marriage website, www.eaualitvinmarriage.com. They have a helpful checklist of actions to take during a marriage to makesure that both partnershave a handle on their actualfinancial situation.

It’s Ten O’Clock Do You Know Where Your MoneyIs? Here is what every married woman should know about her joint finances: 1. Know whose name is on what. Make sure that your name appears

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on thedeed to your home and otherreal estate thatis jointly held. You can hold title as joint tenants or as tenants in common. Either option establishes the presumption that you own one-half of the property. There are differences from state to state, however, on how property passes in the event of death. The same holds true for investment and savings accounts. It is often wise to hold your funds as a couple in bank or investment accounts bearing the names of both spouses if you want to avoid any delays in accessing funds in the event of death. 2. Understand your familykassets and income stream.Know what your husband gets paidand what his pension and retirement benefits are. Ask about it now,or you mightend uplosing out on a part of the famis each of ily’swealth that you helpedcreate. Also know how much in your joint savings,checking, and investment accounts. 3. Know where thedocuments are stored. Written documents like bank statements, deeds, wills, and tax returns are critical. 4. Know what youare being asked to sign. Never signa documentwithout askingwhat it is and why you needto sign it. Never sign itunless you fullyunderstand theimplications. 5. Record assetsyou have around the house.Don’t forgetthat jewelry and artwork are valuable. Keep a current inventory of the valuable items in yourhouse andyour safe deposit box. And it goes without saying that you should havea key to the safe deposit box.

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What’s Your NetWorth?

As we will discuss, marriage alsoraises a hostof other issues, from what benefits of your husbandsyou may or maynot be entitled to,to how to protect and pass on your assets.

Divorced and Determined Every divorced woman has a different story to share, but so many have a commontheme: rebuilding-confidence, relationships, and,inmany instances, financial security and independence. Once you emerge from a divorce, you must plan for your future-a future in which you have the confidence to make your own decisionsand nurture yourfinancial portfolioso that it, in turn,will care for you! Charlotte Rose married young, andwas married for17 years. “We were so poor in the beginning. For the first few years my husband worked for a non-profit organization and only made$6,000 a year. Then he went tolaw school.” Charlotte’s husband became a successful and well-paid litigator, enabling them to live a comfortable lifestyle. She worked throughout the marriage, first in the magazine business and then in her own publicity business. “I was still in the early struggling phaseof starting my business when the marriage ended. What was I going to do-all of the security in my life camefrom him-the healthinsurance,the401(k),it wasall through his job, not through my business. And I’d always left the money decisions to him, so 1 had no experience.After four years onmy own, I still don’t feel 100% secure making my own financial decisions. It’s so hard to know who to trust. But I am determined to master this situation and build up my own portfolio. Even if I marry again, I’ll never go back to letting someone else control the money.” Charlotte now uses heroffice computer to access her accounts and keep up to speed on her growing investment portfolio. Charlotte, and so many women like her, is learning all she can about making financial decisionsand investments. If you, too,have been through a divorce, don’t let yourself be held back by your old money beliefs. And more important, don’t let yourself be held back by lingering doubts about your financial ability (some of which might have been reinforced by your former husband). It is up to you to shape your ownfinancial future. If you are just now facing a divorce, you should check out the “when divorcing” section at the Institute for Equality in Marriage at www.equali tvinmarriaee.com/wd.htmlor the divorce section at the Women’s Institute for a Secure Retirement at www.wiser.heinz.org.


I 7

Widowed and Wary No woman, no matter how strong,is ever truly prepared for widowhood. At a moment in yourlife when you are emotionally bereft, you are suddenly expected to pick up and take charge of your money. None of us wantto anticipate widowhood. But the facts warnus to prepare ourselves: the average ageof widowed isjust 56.And, sadly, 75%of married women are widowed. Not only do we live longer, but the chances that we will live our lives in poverty are disturbingly high, too. Remember these scary statistics: 12% of all elderly Americans live in poverty. And of the elderly poor, 74% are women.74%! Why? Fora number of reasons, but the biggest are that women earnless and save less than men. Elderly women todayrely much moreon Social Security than their male counterparts: 75% of unmarried elderly women depend onSocial Security for one-half of their income needs, and 25% depend on their Social Security payments as theironly source of income. This is not where you or I want to end up. Let’s get going-learn, earn, save, and invest now, regardless of your age, to ensure that you are in a better financial position. Checkout the“Widow’sChecklist” at www.wiser.heinz.or2 now, to see how to begin preparing asbest you can.

MoneyTalk Thankfully, women are becoming bolder about money talk. You’ve probably noticed ittoo-more and moreof women’s conversation is taken up with investing or money matters. Sometimes it seems that women are talking as much about their investments and finances as they are about their families, their children, or thelove in their lives. PaineWebber, a major financial services firm, commissioned a survey about the trend. “It’s really a cultural change,” says Mary Farrell, PaineWebber’s chief investment strategist. “A few decades ago most women were broughtup to think they wouldn’t need to work or worry about finances; men would take care of their financial security. There’s been a whole change with the ‘women’smovement’ and the clear realization that women will indeed be responsible for financial decisions at sometime in their life.” What didPaineWebber find out aboutwomen and investing? They looked carefully at a group of affluent women with investable assets greater than $100,000 and discovered that the number one reason women invest is for financial independence. More than half of these same women also said that one of their other primaryreasons for investing was tobe able to leave a legacy

8


The Womenof Wall Street Wall Street is no longer exclusively the domainof men in dark suits.Women

in dark suits have joined them in great numbers. High-ranking investment strategists and analysts like Mary Meeker of Morgan Stanley Dean Witter, Abby Joseph Cohen of theinvestment banking firm GoldmanSachs, and financial services CEOs like Bridget Macaskill of OppenheimerFunds have literally changed the face of the market. High-powered women also run Barclays Global and several big mutual fund companies, and hold highranking posts with the SEC. Times havecertainly changed since the mid1960s whenpioneering financial mavenMuriel Siebert struggled for a seat on approval and financial backing to become the first woman to buy the NewYork Stock Exchange. Although only 8% of all money managers are women, womeninvestors will help changethat. Does that $100,000 asset figure leave you feeling left out? You should take solicein thefact that very fewof the women PaineWebber talked t.o had inherited any significant sums of money to help them get started.The vast majority of affluent women started small and built up theirassets through hard work and steadily increasing paychecks. This is exciting news, because starting small and building up over time is exactly the same kind of strategy that we outline in the pages that follow. Affluence can be achieved.Net worth can be increased. It is all a matter of commitment and priorities.

Hang Onto Your Purse-Here Come the Marketers! After decades of ignoring women’s dollars, major companies from Bank of America and Ford to Autobytel and even HarleyDavidson are targeting this market. Instead of hard-edged ads that are designed to woo money from a man’s wallet, television and magazine ads are now packed with carefully constructed emotional pitches meant to pull money from the pockets of a woman’s jeans. It’s no joke-we, ladies, truly do control the purse strings, and the big boys are starting to wake up and recognize it. What kindsof money moves do women routinely make?Women make half of all car buying decisions nowadays, according to J. D. Powers and Associates. More women than men buy musicCDs. And even Home Depot out on the weekends) (never really thought of as a place where women hang has noticed a shift in its customer base. More and more women attend Home Depot’s free classes and clinics on everything from tools totiling. The result: about 50% of Home Depot’s shoppers are women.


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We’ll talk more about spending-and how it affects your net worthin Chapter 2. But for now, let’s just revel in the idea that the amount of money that women control is enormous. For close to a century, the proud motto emblazoned on the topof the Ladies HorneJout-nul has summed it up nicely: “Never underestimatethe power of a woman.”It is truer today than ever before!

Women in Focus What does it mean that so many financial services companies are targeting women in their advertising?Now that big corporations like Merrill Lynch, PaineWebber, and Morgan Stanley Dean Witter are paying attention, they of are trying to tailor more of their services towomen’s needs. Just a couple years ago, the major brokerage houses spent a combined total of upwards of $5 million ayear on ads and marketing to women. Today, they each spend that much and more. The investing information is the same, of course, but the pictures on the brochure show investors who look very much like we do. Even with the increasing strength of women investors, not every broker has dropped the paternal attitude. Listen to what new investor Diane Murphy of Conover, North Carolina, told me about her experience: “A divorce left me with nothingat age 54, but I believe that investingis the way for me to regroup and get financially healthy. I’ve visited several brokers here in my area and have been treated like a schoolgirl. Pats on the hand and beingtold jokinglyto look for a rich husband.”You won’t be surprised to hear that she didn‘tgive any of those condescending brokers hermoney. Instead, Diane went on-line and opened her own account at an on-line broker. Impressed by howDianeavoided thecondescendingbrokerswho wanted her money, but not her mind?You’ll soon find that once you begin taking controlof your financial future with the resources on the Net, that is exactly the kind of humiliating money experience you don’t have to have anymore. Soonyou’ll have all of the resources you need to do research and make your own investment decisions. For severalpages we’vebeen on an extended tour of women and money in America, examining thelife phases women go through and the changing attitudes toward women and money. But now let’s turn our focus toward you. How are you doing with your own finances. Where doyou fall in terms of building up your net worth?

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I What’s Your NetWorth?

Does This Really PayOff? You might be thinking that managing moneyand making investmentdecisions sounds like a full-timejob, and thatdoing so on-line must beexpensive. Are you going to need to go out andbuy an office full of pricey, hightech equipment to makethis thing work? No. Here’s what youdon’t need to develop yournet worth on-line: The latest and greatest computer equipment A hand-held or wireless deviceof any sort A hyper-speed DSL line Expensive subscriptions to real-time trading screens Don’t think you have go to out and spenda lot of money buying really fancy equipment. The wholepoint of this book is to encourage you to grow and increase your money-not decreaseand deplete it! Justthe basics will do it:a reasonably up-to-date computer witha modem and reliable Internet access. For a decent computer, about $2,000 What kindof money arewe talking here? (less if you buya used one).An Internet connection runs around $25 a month. So for $2,000 and theprice of a monthly manicure,here is what you can do: you can gainthe confidence and acquire the knowledge to invest yourown funds. If you start today withjust $5,000a year, over20 years (withan average 10% return) you’ll have nearly $300,000 stashed away. Get clicking!

Where Are You Now? A critical step in taking charge of your money matters is figuring exactly out where you currently stand with your finances.Yes, if you are going to take steps to nurture your net worth, first you’ll have to figure out what your net worth is rightnow. The night before Julia Berenson married in her mid-30s, shelay awake adding and subtracting figures in her head. Not what you’d think most brides would be doing, but she had a mission in mind. She wanted to know exactly what her own net worth was as she walked down that aisle. Her assets? A small IRA, a six-year-old Chevy Blazer that was paid for, various and sundry worksof art, somejewelry. She wrote itall down and assigned dollar valuesto it. Liabilities were a credit card bill of $800 and thelast remnants of a smallstudent loan. Subtracting her liabilities from her assets, Julia arrived at afigure-$l2,OOO. Seeing thefigure in black and whitewas a jolt. It was so small, she thought. One of the first things she did after her wedding was to sit down and make a financial plan with her husband, David. That simple step of figuring out her net worth hadgiven her the push she needed to rev up her savings and investments.


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Take the time to take thatstep now in your life. It is thefirst step in your climb up the wealthladder.

Do the Math on You Grab a piece of paper and a pencil-with an eraser. Start withthe fun stuff first, what you own-things like retirement funds, individual stocks, real estate, jewelry, artwork, privately-ownedbusinesses,a car. Write down everything and anything to get started. The asset side of the calculation should include the full current value of what you own, even if you don’t own it outright. For instance, include the current marketvalue of your home or yourcar, even if you don’t own it free and clear. Market value isthe dollar value you would get if you were to sell it right now, out in the market. You might want to use one of the quick andeasy calculators found on the major money sites. SmartMoney magazine has a website at www.smart money.com that offers a vast array of calculators. You can also access net worth calculators through theWomen’s Financial Network atwww.wfn.com is (see Figure 1). T p e in your particulars, hit the button, and presto, there your net worth displayed on the screen. Okay, now let’s tackle your liabilities. Be honest. Write down absolutely everything you owe. Major credit cards, department store cards, student loans, personal loans, second mortgages, car loans, family loans, prettymuch anything with the word “loan” in Don’t it! forget to include any outstanding tax bills. Net worth, after all, means what you own, minus what you owe. It’s subtraction time. Write down the total sum of your assets. Underneath that, write down the total sum of your liabilities. Subtract the totalliabilities from the total assets. And there, in bold numbers,is your net worth. Is it possible that the number will be a negative one? That yourliabilities add up to far more than your assets? It happens. And if you are currently in a negative net worth situation, thatis no reason to toss this book aside and give up. In fact, that is a pretty good argumentfor continuing to read! Remember those affluent women that PaineWebber surveyed? They, of them may have had large too, once had much smaller net worths. Some debts, or even a bankruptcy. Money is not static, it moves. And what is sometimes down, can comeback up again! Who doesn’t wonder how their wealth stacks up against that of their peers? Remember, it’s not just your net worth but also yourcurrent age that should be factored in when determining how well you’re doing. After all,

12 I What5 Your Net Worth?

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Figure 1

chances are that an older person, who's worked longer, will have a higher net worth thana young person.After calculating yournet worth,you might use the wealth calculator at Investorama to find out how you stack up against others for your age and income level. Visit www.investorama.com/ caldwealthv.htm1 (see Figure 2). Don't be ashamed or embarrassed about having a modest net worth, regardless of your age and income. Take a hard look at the numberyou've written down on your paper, process the information, and move on to the next phase-working to increase it. Now that you have a real number for your net worth, let's move on to the fun part: brainstorming about just big howyou want that numberto get.


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Figure 2

Where Do YouWant to Go? Before beginning any important journey, you need to pick a destination. Where do you want to go? As you begin to use the financial tools on-line to take control, you need to decide which directionyou are going to head. What do you want to achieve with your money? Are yougoing to shoot for an early retirement? A nest egg that will allow you to work part-time and do volunteer work in your off-hours? A life of luxury and ease? A debt-free life with college-educated kids and a mortgage-free house? The comfort of knowing that if something happens to your husband you can cover the health costs? Perhaps you just wantthe luxuryof a restful night’s sleep, knowing that your immediate needs are taken care of and the future looks secure. We all have different ideas of just what the good life will be. The clearer the vision you have of where you want to go financially,what you want to achieve and when, the greater the chance thatyou will get there. Think about your goals, and take the time to commit them to paper. Studies show that writing them down increases our chances of success. Consider partnering up with a friend to help you stay on track with your goals. You may also find that your friend can offer up some great ideasand independent insightsto spur you to action. Oneof the most satisfying exercises I can think of is to sit quietly with a clean sheet of paper or a blank computer screen, and begin to write down your wildest dreams and goals for the future. Don’t hold yourself back or edit yourdesires-just let it all flow! Write down whatyou hope to achieve for yourself, for your family, for your community. Your goals don’t all have to do withmoney, of course. But you will soon notice that muchof what you want to accomplish-whether it is going backto school for your MBA or having more time to spend with the kids-will have a price tag of sorts attached. My favorite place to let my imagination soar is at the beach. Strolling along the tide lineof an empty beach first thing in the morning allowsmy mind to wander from one thing to the next, sorting and clarifying just what kinds of goals 1 want to work toward in my life. Find your own quiet spot, and let your mindgo wandering, too.

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Your Choice “Women like the taste of investing and economic choice,”says Jan Black, Co-Founder of Everywoman’s Money TM at www.evervwomansmoney.com, creator of the popular conferencethat draws an average of 1,500women per event. But research showsthat 53% of women are somewhat or very insecure about their financial future and 83% do not have a written financial plan. “They still havea distance to go in pursuit of financial well-being,” adds Black.

Having written goalsto refer to as you read through this bookwill help you stay on target as you move through the steps toward building up your net worth. I recommend keeping a copyof your goals withyou at all times. Small business owner Irene Johnson carries hers everywherein a small red leather portfolio. “Whenever I find myself just sitting around with some time to spare, waiting for a doctor’s appointment or stuck ina traffic jam, I pull outmy goals. It helps keep me focused on what I’d like to achieve financially, and when. I find that if I don’t keep that foremost in my mind, it is easy to fall back into a pattern of making the wrong spending decisions.” Take your goals along with you, and you’ll always have something to read in life’s slow moments. Once your goals come into clearer focus, is the task overand done with? Sorry, you’ve got more work to do. Once you have a clear sense of where you’d like to go,what you’d like to do, you can begin crafting a planto get you there.Different goals will call for different typesof investing styles,and different levels of risk and aggressiveness. Don’t be flustered by this idea. Risk is manageable. Risk can be good. Your financial goals, coupled with your time frame, will help you assess just how much riskyou will have to take on in orderto get you there.We’ll cover this topic in the investing chapters.

How Much Is Enough? How can you decide how much time you need to achieve your goals? And to get you how much money you need to set aside each month in order there? Someof your goals-to save up for afamily trip to Europe, for example-may take just a few years. Some goals-to be able to retire by age 58, for example-may take years of steady work and investing. There are some great sites on-line that will help you arrive at those fig-


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ures quickly. At WFN (www.wfn.com in the calculators section), you will find a worksheet in the Plan Ahead section called “Setting Your Goals.” You can enter the cost of the goal you are t y n g to achieve (gradschool, anew roof, whatever you have in mind) and how many more years before you want it. The calculator will let you know what itwill take to get you there in your chosentime period. Who knows, maybe you’ll find out you canget there even faster than you thought! Think retirement by an early age sounds appealing? Many of us have an eye on retirement-we plan to spend themajor portion of our lateryears doing something other than going to theoffice. Gardening, traveling, charity work,whatever strikes ourfancy. You might have target a sum inmind$1 million? $2 million? But if you did have that money, how long would it last? You can find out for certain by typing in the particulars to the WFN calculator called “How Long WillMy Money Last?” In the investing chapters wewill go into the topic of saving for retirement thoroughly. Indeed, it is the number onefinancial issue facing women today.

Start “ClickingIt Rich!” What an incredible thought-that you can sit at home in your robe and slippers and type in the info to discover what youwill need to retire on, or exactly how long itwill take you to reach a particulargoal. We are fortunate to be living in a time when so much valuable information is literally at ourfingertips-we have the powerto control ourown financial destinies sitting there on our desktops! No more intimidating appointments at the bank, no more shaky phone calls to inquire about an investment prospectus. None of those brokers like the one Diane Murphy met to pat youon the hand andsuggest that you look for a rich husband. Women’s money is growing in strength and power, and we owe itto ourselves, our mothers, our daughters, and our friends to begin to grow and nurture our own net worths with all of the tools available.

Money LinksYou Will Love www.equalityinmarriage.com www.Dainewebber.com www.smartmonev.com www.wiser.heinz.org www.wfn.com

Chapter 2

Streamline Household Budgeting and Spending

Lindsay Heron received a small and unexpected inheritance 15 years ago. “It came out of the blue, I had no idea that I’d be remembered in anyone’s will.” But a friend had left her $5,000, and Lindsay began to spend it. “I’d been living a fairly modest lifestyle. I’d never been a big shopper.But with some money inmy checking account for once, I began to spend a bit more every time I went to the grocery store, buying slightly more extravagant items every time. Nice cheese, nice wine.Putting it in my checking account was probably my first mistake, come to think of it.” The things Lindsay began to buy were unlike her usual tastes-a pedigreed dog, a leather couch. What seemedlike such a nicechunk of money was slowly drained away and gone within less than a year. Now age 63, Lindsay has long since returned to her modest lifestyle. Even the visual evidence of her brief fling with the posh life is gone-the high-strung dog quickly wrecked the leather couch, and was banished to a farm in a matter of months. “I could just kickmyself,” Lindsay says now of the way she spent the money. “I just recently found a website where you can calculate how much you would have grown your money had you invested years ago. I typed in the amount I squandered. and about fell over when I saw what it would have grown to. It keeps me awake at night sometimes, the thoughtof what a difference it would maketo my future if I hadn’t spent that money.” Lindsay has plentyof company, as shelies awake at night remembering misspent money. Our spending habits caneasily derail us on the climbup the wealth ladder. Spending? Now there’s a dull-sounding topic. Why on earth I am talkso early in a book that aims to energize you about building about spending ing up your net worth and achieving financial independence? Shouldn’t we 16

Streamline Household BudgetingandSpending

1 17

be getting down to business about howto choose a great stock with longterm growth potential, or what kind of bonds are best, or howto handle the taxes on income property-actual wealth-building strategies? Why get sidetracked into discussing spending insteadof steamrolling right into wealth-building?Because how you choose to spend your money is a critical part-perhaps one of the most critical parts-of building up wealth. Spending habits can make all the difference in determining who gets grocery storein their70s. Spendto retireat age 48, and who must worka at ing habits can make the difference between being ableto invest a few hundred dollars outof your paycheck every month, and havingto borrow afew hundred dollarsa month to meet credit card payments. How are our spending habitsrelated to the Internet?Traditional demographic lines have blurred as e-commerce has taken center stage. This past year, and for the first time in history, women surpassed men and became the majority of Web users, totaling nearly 70 million. Some predict that, by 2005, women will comprise 60% of all Internet users. The daysof considering the Internetto be a male-orientedinstrument are long gone. But when viewed through the prismof saving and spending, is thisa good thing? With the Internet come not just opportunities to spend, but also powerful new budgeting and money trackingtools to help us see exactly what we are spending, tools to help create budgets and spending plans thatwill help us reach our financial goals as quickly as possible. If you want toinvest and have that great retirement, you’ll need to start with savings. Once you learn to use the on-line budgeting calculators,you will be more motivated than ever by seeing actual numbers in black and white. And with the Internet comes new ways to save on the items we doneed to spend money on. The Net is quickly eliminating the middleman and creating more opportunities to save money on major purchases.

Women Controlthe Purse Strings-and Madison Avenue Is Yanking on the Loose Ends! We can examine the money women control in one of two ways. We can take pride in fact the that it is women who overwhelmingly control spending and purchasing decisions inAmerican households, and that Madison Avenue advertisers and marketers are clued in and working hard to get our attention. We can pat ourselves on the back for being in charge of the checkbook, andfor being a powerful economicforce in America. OR We can tighten the grip on our purses in recognition of just how strong

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12) Share yoursuccess 11)Preserve what you have 10) Increase your earning power

9) Minimize your taxes 8) Organize your finances 7) Protect yourassets

6) Invest to build your net worth 5) Educate yourself about investment 4) Acquire ahome 3) Free yourself from debt and build credit 2) Live within your means

1)Determine where you stand

the marketing messages being directed at us are. We are being constantly encouraged to spend money inways that are not in our best interests and don’t have our financial well-being in mind. Those marketers on Madison Avenue know we’ve got the money, and their job is to convince us to spend as much of it as often as possible. Just how much buying power do women have? Let me share some statistics. According toJupiter Media Metrix, women buy or influence the purchase of 80% of consumer goods, including75% of over-the-counter drugs. The DohringGroup’s market research shows that women buy 54% of all new cars.Women also influence80% of all car sales. The Consumer ElectronicsAssociation found that U.S.women purchase $22 billion in electronics. Peoplesupport, an Internet customer service provider, in a study of 2,198 Internet users, found that 63% of those who shop on-line more than once week a are women. Of 1,200 U.S.Internet users surveyed by Ernst &Young, more women than men boughtchildren’s clothing on-line(31% of women vs. 18% of men), health and beauty aids (42% vs. 19%), and toys (41% vs. 19%). With numbers like this,is it any wonder all of Madison Avenue wants to

StreamlineHousehold Budgetingand Spending

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dance with us? Suddenlywe are all the most popular girls at the prom. The shortsighted companies that don’t recognize the growth opportunities in the women’s market and don’t address the needs and interestsof women consumers will be the ones left standing alone when the music stops.It is the simple recognition that you are the Chief Financial Officer (CFO) of the corporation you call home. And this official recognition is long overdue. Now, thanks to later marriages, higher salaries, and more education, women are clearly making most of the household spending decisions. According to the Direct Marketing Association, the advertising industry as a whole spent $285.2 billion in 1998. With that large sum in mind, let’s focus more on the idea that we are in the crosshairsof marketers, and develop strategies to resist their temptations.

Develop Your ESG Making a big salary or owning a profitable business certainly makes a difference in how much moneyis in your life, but itby no means determines where you end upfinancially from a net worth standpoint. Remember that in order to build up your net worth, you must do three things with money: Earn it, Save it, and Grow it! You can remember this money-growing formula as ESG. Put your energy, skills, and creativity into the “earn it” part, but be just as dedicated to the “save it” and “grow it” parts of the wealth puzzle as well. How can you use the power of the Net to put ESG into action? In the upcoming investing chapters, I’ll cover the manyways to use theNet to help “grow it,” and in thecareer sectionI’ll help you spot newways to “earn it.” But let’s focus now on how to “save it,” not onlyby using on-line budgeting tools to get a handle on your spending butalso by devising an on-line strategy to spend less on the things thatyou still need to buy. In the same way that developing the fabled sixth sense of ESP might allow you to predict what will happen in your futurelife, developing your ESG will allow you to predict a better financial future-one that is more comfortable, less stressful, and more abundant. The simple fact is that your spending habitswill in large part determine whereyou end up inlife. If you spend all of the money that comes in, you end up with nothing. If you choose not to spend all of the money that comes in,you end up with some money. And if you choose to live in a way that consciously keeps frivolous spending to a minimum and keeps living expenses in a reasonable range, you may end up witha great dealof money indeed.

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Women onTheir Way The Wyndham Hotel chain has been on the forefront of marketing to Not long ago they ran women, particularlywomen who travel business. for a big ad in the Wall Street Journalto advertise a contest for women business travelers. The “Women on Their Way” Awards program looked for nominees whospent more than 10 nights total in hotels on business travel and flew morethan 10,000 miles on oneairline in the past year. Nominees had achieved a strong career track record, overcame significantobstacles, and contributed to their communities. Listen to the grand prize: the winner could choose either a year-long paid “sabbatical,” funding toward business school, or her own personal assistant for a year. What amazing choices! And most amazingthatisthese prizes are all clearly geared toward what executive women’s livesare really like. The folksat Wyndham took great pains to create a prize would be more meaningfulthan afree weekend in yet another hotel. And, they use the Internet to reach out to women us. Now there’s a combecause theyunderstand thevast network it is for pany that’sreally paying attention to the strength of women’s purchasing power.Andit’spaying off for Wyndham: 35% of their occupants are women, a far cry from the approximately 20% at competing hotels.You can find them at www.wyndham.com.

Woman Does Not Live on Bread Alone Remember Lindsay Heron and the$5,000 she inherited?If, instead of buying dogsand fancy couches, she’d invested that money inSQP an 500 index fund 10 years ago, todayshe would have $26,586. Can we live without ever spending money at all? Of course not.We need to spend money to put food on the table, keep the lightsturned on, and the family car chugging down the road. We need to spend money for tuition, mortgages, and, sometimes, car payments. And, when we can afford it, we need to spend money so that we enjoy our leisure time. But do we really need to spend money at the mall every weekend? Do we really need to stop in at the cafe every morning for a $2.50 cup of foamy latte? I think you’ll agree that the answer hereis “no”-maybe choose a cup of coffee instead. Keep in mind that each and every time you hear that cash register sound “ca-ching,”you lose that money forever. You’re diminishing your net worth when you could be building it further. For a powerful example of how muchit costs usto fritter away the money in our lives, check out the www.whatifi.com site (see Figure 3 ) . Whatifi.com lets you choose from several different scenarios on a calculator: what if I invested the money I

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category? It wouldn’t hurt, that’s for sure! But let’s look at that statement once again: It5 not what you make, it5 what you spend. How much do you spend? Can you come up with a ballpark figure for what you spend in an average month? Why not put this book down for a few minutes and write downa quick list,off the top of your head,of where you think your money goes. List not only major expenditures like rent or mortgage, car payments,and insurance, but also those little things the whatifi.com site focused on: a weekly magazine, the occasional CD, or dinners and desserts out with friends. As an experiment to see howwell you know your habits,try keeping a list for a few days and writing down the amountevery time you do spend. Write everythingdown-50 cents for a newspaper,$32.75 for the dry cleaning, and $18.63for the extra things you had to run to the store for in order to get last night’s dinner on thetable. What about the $7you gave your son for the candy that the soccer team is selling? Write every expenditure down for several daysin a row, and you will be astonished by what you see. Small purchase by small purchase, the moneyjust evaporates until, by the end of the month, there isn’t anything left to put into an investment account. Mind you, I’m not always a poster childfor wise spending. Justbecause I am in the financial field doesn’t mean thatI don’t wanderoff the track once in a while, too. Restaurants aremy weakness. Rather than eat at home,I’d rather meet up withfriends and let thechef do the cooking.But how much is this little habitreally costing me?If I spent a few more nights at home eating spaghetti and meatballs or a turkey burgerfewer and nights eating pasta a1 dente in a restaurant, what would I end up with? 1 decided to run the numbers on a calculator that USATodav.com has in their money site (created by FinanCenter.com, a leading calculator company) called “What’s it worth to reduce my spending?” If a 40-year old cut dinners outby just $50 a month and invested it in a tax deferred retirement account, by the time she retired she wouldhave $45,742. Imagine, close to $50,000 just by making one small change in my habits! You can see how valuable making small changes can be. Go on-line and start typing in a few calculations with your own spending habits in mind. If we were to make all of the spending changes here in theUSA Today calculator and invest it, in 10 years we would have $62,543 (see Figure 4). If the fundswere invested in tax-advantaged savings programs like 401(k) a or IRA, at retirement those savings would be worth more than $300,000! That ought to help me make up my mind the next time I try to decide between staying in for a Lean Cuisine or going out for a quick bite to eat.

-

By reduein9 your spending; ,you will save $4"4,40each yeat. lf'yoil imkit this amount, you'll accumulate $53,361 in 10 years.after paying income taxes. If you invest in a tax-deferred retirement account, you'll accumulate $315,620 by the time you retire. Average Annual Savings Savings After 10 Years Before Taxes ARer Tares , value-at Rettremeril Tax Deferred Taxable

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I’d choose the $300,000, wouldn’t you? employing the ESG formula!

A pretty powerful argument for

Need More Money? Would a larger salary solve your spending andsavings problems? Then you could keep your lifestyle exactly the way it is and save the rest. It sounds fine in theory, but it seldom works out that way. A survey conductedby Ernst Q Young found that there is indeed a correlation between making more and spending more. The survey sample, consisting of 1,200 Internet users in the United States, showed that as income increased, so too did the number of on-line purchases. Infact, 61% of people making over $100,000 made 10 or more purchases on-line in the past year, while only 32% of people with household incomes under $30,000 made 10 more or purchases. Additional findings show 80% of people making $100,000 or more are considered $500 on-line in thepast year, compared with “heavy buyers,” spending over only 29% of people making under$30,000. Here’s mypoint: If you make $120,000 ayear, and you spend $120,000 a year, where is that going to get you? Nowhere. If you make $30,000 and year and you spend $30,000 a year, once again you are going nowhere. In fact, you are going nowherefinancially at the exact same rate as the woman who is making four timesas much money. But if you make $30,000 a year and save 10%of it, you are going in the right direction.You are building upyour net worth;you are nurturing your financial well-being. If you make $120,000 a year and you only spend $80,000 of it and save and invest the rest, you are going great places.

Lost Opportunity Money that you have earned, but then spent,deprives you of the ability to grow that money. You got the “E” part all right (you earned it), but stopped short of the S and G partof the ESG formula. One hundred dollars spent on a useless purchase not only uses up that $100, butalso eliminates the possibility that you couldhave put that money to a better, moreprofitable use. The next time you feel the urge to blow $100, go straight to either the what ifi.com or usatodav.com and use those calculators. Once you see the cost of the lost opportunity, youmay well resist the urge to spend. Do budgeting and saving sound like things that the onlycash poor have to do? Believe me, even millionaires budget. I’d like to tell you about one

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very prosperous woman who believes strongly in resisting the urge to squander money onsilly things-Debbi Fields. Debbi Fields is the woman behind the tantalizing smellof fresh-baked cookies wafting through the mall. She started Mrs.Fields’ Cookies in 1977 with one small store in Palo Alto, and has seen it grow to 700 locations around the world. Despite her own business and financial success, she instills strong values in her daughters. “Money really is about value, appreciation, and a sense of gratitude. It is my intent, desire, and hope to pass this on to my children. I am always telling my daughters, ‘It doesn’t matter whether you have one thousand or one hundred thousand dollars. What matters most is how you learn to manage your money so that you will always have money, regardless of how many zerosfollow the decimal.’ The reverse is true too: if you don’t learn how to manage money regardless of the amount,you will never have money to manage.” The simple fact is that your spending habits and budgetingskills will in large part determine where you end up in life. If you spend all of the money that comes in, you will end up with nothing. If you chose not to spend all of the money that comes in, you will end up with somethingto build on.

100% in Control Deciding how much to spend is the one aspect of your finances that you have 100% control over. You won’t have 100% control over how well your investments will do, you probably won’t have 100%control over what your future incomewill be, andyou don’thave 100% control over whatwill happen to the economy in the coming years. But you, and only you, have complete control over how you chose to spend yourmoney. Imagine the feeling of accomplishment this can give you. It is never too late to establish good habits. Good spending habitslast forever, bad spending habitsdamage your financesforever.

The Family Plan Our own spending habits makea big impression on our children, regardless of whether we intend it that way. Think back to your own childhood. Do you remember much about the way your parents spent money? You probably have many memoriesof watching your parents spend money. Can youseesimilaritiesbetween your spending habits now, and how your

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What’s YourNet Worth?

The Frugal Life Some years ago Amy Dacyczyn and her frugal lifestyle burst on to the national scene. Her book The Tightwad Gazette gained followers everywhere as readers embraced herideas about how to drastically reduce daily spending by re-using vacuum cleaner bags and buying grains from feed stores instead of the grocery store.The frugality movement has only grown since then, andthere is an active on-line community that swaps moneysaving tips with each other. Checkout these sites for greatideas for big savings in your everyday life: www.fruaalliviny about.com, wwwstretcher, m,www.cheapsk8.com.

parents spent money? Some of us mimic our parents exactly, and others swing over in the opposite direction. The children of big spenders might turn out to be tightwads who also remember how their parents’ spending habits affected their ability to pay thebasic bills. Conversely, the childrenof tightwads might turn out to be spendthrifts-determined never to pinch pennies in that same dreary way again. Have you thought about what kindof money message you are passing on to your children?An Iowa State University study found that people comfortable with moneyhad positive feelings about it atan early age. These people had self-esteem, stemming from stable families and parents who gave compliments and servedas role models, even when it came to saving. Why not spend few a minutes jotting down just what it is that you want your kids to learn from you. Make sure that your spending habits not only match your financial goals, but also broadcast the right messageof moderation to your children. You’ll find great parenting articles on how to talk to your young kids about spending,and also howtodeal withtheirgrowingconsumerismat www.clubmom.com, www.familvmoney.com, and www.newdream.org. As women, we’d all be betteroff if we could keep more of our money in investments and savings. This means we have to detach ourselves from the notion that buying “stuffis going to change your lives. A new pair of silk pants justisn’t going to magically change your life. No matter how much I yearned for those powder blue Dittos in the eight grade, once I saved up enough money to buy themmy life was just the same as it was the day before. 1 was still a fourteen-year-old (claiming to be fifteen on my work permit), cleaning motel rooms to earn my own spendingmoney. Think how much simpler your life could be if it was possible to permanently shutoff the switch in your brain that says, “I’ve got to have that!” What stress-free, financially rewarding lives we could all lead. Imagine the


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Those MillionairesNext Door The book The Millionaire Next Door stayed on the bestseller list for an astonishingly long time. Written by two college professors, was it filled with stock tips and suggestionson where to sink an oil well? Did describe it in dazzlingdetail the high-flying lifestylethat we all see in made-for-television moviesand read about in Judith Krantz novels? Not exactly. TheMillionaire Next Door pulled back the curtains on how most of America’s wealthy truly live. They don’t fly first class, they don’t eat caviar by the pound, andthey don’t even buy expensive watches or cars. What authors Thomas J. Stanley and William D. Danko discovered isthat America’s millionaireslead pretty ordinary lives-and, in many ways,that is exactly how they became wealthy. Most of these folks: Never spent more than $399 on asuit of clothing for himselflherself or for anyone else. Only one in ten had spentmore than $100 on apair of shoes. Half had never spent more than $235 on a wristwatch. lbo-thirds kept a close eye on household expenses, and knew how much they spent every year forfood, clothing, and shelter. What can we learn from these examples? That many of America’s millionaires have built their wealth simplyby spending less than they make,and investing the rest-an example that any one of us can easilyfollow.

dramatic effect just that one change in thinking could have on your financial future. Again, I would encourage you to go straight to the calculators on whatifi.com or usatoday.comwheneveryouarecontemplating an impulse purchase.

Dull, Dry Budgets So is the answerto write down everything thatyou buy, forever? Chronicle every penny that you spend? Not really. In fact, trying to live under those kinds of strict budgeting plans caneasily backfire and drive you screaming into the stores,ready to spend every dime and more. No, the better plan is to simply use the on-line tools available to develop an understanding of your own habits and methods of spending money, and see where you can make painless changes. What is a budget, anyway? Just a method of understandingwhere the money goes.

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I What5 Your NetWorth? Here are the twobasic building blocks of any budget: Know your income Know your expenses

Know your income? Heck, which one of us couldn’t blurt out the exact number? Well, knowing thetotal figure is important, of course, but so is knowing the pattern of your income. Do you get a weekly paycheck? Bi-monthly? Monthly? Or is your income more sporadic? So many women are now small business owners or self-employed, and their income patternsare much less regular than theweekly check in a whiteenvelope. Being able to paybills on a regular basis with an irregular income takes great discipline and planning. Other than what you make on the job, doyou have any other sources of income that should be added to your overall income figure? Alimony? Royalties from a book you wrote years ago? Payments from a former business partner? Interest or dividend payments? Whatever you’ve got coming in, write it down. Once you’ve written down all of your income sources, start writing down expenses. Look for daily, monthly, quarterly, and annual expenses. Monthly expenses are things like your rent or mortgage, utilities, auto loan payments, or childcare. Pretty much everything you have to write out a check for on a monthly basis. One big exception though-do not include your monthly credit cardbill here. Strangelyenough, thatis not an expense (but a compilation of other expenses).We’ll get to credit card bills later. Quarterly expenses include estimatedtax payments (for those whopay quarterly taxes), most insurance premiums, tuition payments, and anything else that you have to write a check for every three months. Include realestate taxes here, although they are paid twice a year. Annual expenses would include the money that you spend on Christmas or holiday gifts, charitable donations (yes, that falls into the expense category), and your annual vacation. What areyou missing? Flip through your checkbookto see what kinds of expenses might have slipped through the cracks, and note those too. Remember that the point toisget the clearest idea possible of just how much money you spend annually.

Click for Results Where can you go for on-line help with thistask? Several financial sites offer basic budgeting calculators. One I particularly like is the USAToday.com calculator “HowMuch Am I Spending?” from their “Money”section (see Figure

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5). Are you wondering yourself? Thengo on-line and enter the amounts that you are currently spendingin thedifferent categories, and then play around with the amounts thatyou’d like to be spending in thoseareas. If you now spend $250 a month on entertainment and $300 on clothing, you could take a look at what your financial picture would be if you reduced thosetwo categories. A handy graphwill also showyou the dramaticeffect of compound interest over time.You insert the amountsyou will be savingand investing, grow as the years and it will quickly showyou how much that amount can very eyes. pass. You can watch your net worth increase before your

Current Spending

4ome.Payment iome:Maintenanca Jtilities 4uto Payiiients 4uto Expenses Insurance Payments Child Care,,

Aliiriohy Education

Food Clothing Gifts and-Gharity Entetia’inment

TramI Credit C’drd Interest Miscellaneous Your’Monthly Income After Taxes Rate You E&rnOn Savings Voui’Federii~Tax. Rate Your State Tax Rate

Figure 5

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Desired Spending

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View Single-Page Format

Your Income Your Spending

#+O

$3,000 $2,990

$3,000

Amount Available,for Investm’ent $10 $42,702 $1,472 Future Value* if Invested for 10 Years * After payingtaxes .on your ,investment’s earnings

$290

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$2,710

Vph.6 Version 5.4 The eocuracy of this oalaulator and i t s apptioabilitg to your circumstances I s not auaranteed. You,should obtain

Figure 6 Notice that with just few a small changes,you can reduce your spending and have $290left over to invest, rather than just the$10 under your if invested annually over the next 10years, previous spending patterns. And, that $290 each month will amount to $42,702-just for making a few important adjustments (see Figure6). If you’re ready to make a true comparison between what you spend now and how much you could be saving, head to USA Today’s “Money” section or Financenter.com’scalculators in the“Planning” section.Look to see where you can cut and whatyou can put away monthly in investments. There are many good budgeting calculators, but these are some of the ones I like best. You might also check out the monthlybudget worksheet at Fannie Mae’s site at www.fanniemae.com/calculator/budget.html,or information and tools at the American Savings and Education Council at www.asec.org.

Where Did the Money Go? There are several schools of thought when it comes to determining just where you are spending too much money. Some of us already know where our problem areas are but others toneed see the whole ugly situation spread out inblack and white before itis possible to see where they might be running into trouble. Is it the amountof money they are spending by going out

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every weekend? Or is it the money they are spending on communicationscellphones, pagers, and on-line connections-a budget category that didn’t even exist a decade ago! All we had then were basic phone costs and longdistance calls. It’s kind of wild to think howdifferent the budgetwill be that we draw up in 2010! Not just because of our increased incomes (always think positive!), but also expenses for items not even imagined today. Find thecategories that seem out of line. Whyare youspending $1,000 a month at the grocery store for a family of three? Is that an area you can cut back on, and start to put the savings somewhere more active? Can you skip one expensive weekend vacation this year, and invest the $1,000 in a mutual fund instead? Again, I’d recommend using those powerful on-line calculators to remind yourself of how your savings can grow, and then “bookmark” themso you can quickly turn to them for future use.

Get Everyone on Board Regardless of which spending area you decide to try to reduce, you will need help. If you are single and on your own, you will need your own commitment to stick to your new, smaller spending philosophy.Just as a company sets quarterly goals to meet annualobjectives, as yourown CFO, you should also map out incremental steps thatyou can take to get you to your longer-term goals. Do you need to spend this week opening an investment account and/or setting new spending priorities?What, then, must occur for the month and year? Don’t be afraid to write out your new goal, stick it up onyour mirror so that every morning you will be reminded that, “Thismonth I will not spend any money on clothes,” or that“I would rather save than spend!” Why not make a big sign thatsays, “I will wake up my money and watch it grow!”

Telephone Calling Plans

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Everyone likes a bargain, and where better to save money than on your phone bill? Remarkably, you can practically cut your long-distance phone bill in half, if you take the time to do research on theNet at least once a year. Keep in mind that carriers adjust their rates often, so it’s to your benefit to learn about all of the opportunities that are available. The followingsites were found by Consumer Reports to review continually a wide variety of longdistance callingplans. One site that offers extensive information on current calling plans, from a long listof companies as well as on calling cards and dial-around services, is www.abelltolls.com.A site that compares prices of 10 carriers’plans is www.saveonphone.com. LowerMvBills.com also offers comparisons on phone calling plans as well as on otherutility services.

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If you have other people in the housewho handle the checkbook or the credit cards, sit everyone down for a family meeting to discuss the goals. Get everyone on board with the goals and, at the same time, help your teens understand that saving, investing, and growing the family money is a better idea than continuing to spend and struggle. By serving as a positive role model, you will instill valuable lifelong habitsin your kids. How can you get your husband involved in a new spending plan? It might be easier than you think, particularly if you point out to him that, if expenses are reduced and savings and investing are increased, it will ultimately mean a more relaxed and stress-free lifestyle. There is more than one couple inAmerica who made the choiceto drive modest used cars, live prudently, and retire young. George and Sarah Bingham decided early in their marriage that, instead of going out shoppingseparately and buying lotsof presents for each other, they would pick out one majorgift to give themselves as a couple.It might be a special trip, or fancy newsheets anda comforter for their bedroom. This way, they spend far less and neither ends up with a gift they will have to return. Familymoney.com at www.familvmonev.com is a website devoted to how families can change their spending habits and build up savings. Check their website for constantly changing articleson thetopic of family money

Log on to Save After you have formed a good, clear picture of what your monthly income and outflow are,what are someways that you can startto reduce your overall spending? Thebest answer is, of course, to cut back on spendingentirely. The second best answeris to log-on and start surfing for the best price for the things that you absolutely need. The Internet has truly revolutinized comparison shopping, making it easier, quicker, and more comprehensive. In fact, 88% of women on-line use the Net to research big-ticket items, according to NetSmart. And, 63% say the Web is their first research source for such items. By using the Netfor some of your major purchases, you will be able to bypass the impulse shopping that can sometimes sidetrack the monthly budget. Whohasn’t had thathappen to them more than once?You head out the door intending to buy one thing,go to a store to buy only one, and arrive back home with a wholebag of goodies you felt you “absolutely” needed.A new t-shirt, an extra pair of nylons, etc. Skip the store visit entirely when possible. Decide what youneed to buy, research the best price, find the best site, and buy.


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There are some terrific websites that can really save you significant money onmajor purchases, and new websites emerge weekly. Not only can you save on major purchases like automobiles, electronics, and appliances, but even on smaller purchases like books, music, and videos. A handbook to on-line shopping couldeasily run over 1,000 pages, so I’ve chosen to concentrate on the major purchases that women make over the Net: travel, electronics, and cars.

scout It out A survey called “It’s a Woman’s World Wide Web,” conducted by Jupiter Media Metrix in the summer of 2000 found a few surprises. The first surprise we’ve already discussed-women officially outnumber men on using the Net. Okay, it was just by a fraction (we are 50.4% of the on-line population), but justgive us anotheryear! Theother finding(whichsurprised theInternetindustry) is that women, rather than spending endless hours surfingNet theand wandering from one site to another, actually get on the Net,find what they need, and get off. For womenNet shoppers, efficiency is the watchword.So do we use this efficiency to our advantage when trying tosave money on-line?You bet we do! Women are utilizing theNet efficiently to research major purchases, to compare features and quality, and then to find the absolute best price.Even if they do notactually buy on the Net,they use that informationwhen they go to a brick-and-mortar storeto buy. Let’s say you see an ad in your local newspaper for a great price on a new washer and dryer. (And, let’s assume that your old machines are terminal.) The new machines are being offered at a nearby, well-established, trusted store-but is it really offering the best price? Go on-line and compare-that’s what more and more women are doing.

Bytes and Bots I’ve discovered some of the sites for finding the best prices on big-ticket items like household appliances and electronics.Ever heard of a shopping for you. “bot”? Thinkof it as a robot that goes out and seeks the best price Using a bot is one of the best ways to save lots of money and time when shopping on-line. Here’s how it works: Log on to www.mySimon.com and

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Designer Discount My friend JuliaBerenson (the same money-minded woman who lay awake the night before her wedding, calculating her personal net worth) wears nothing but thefinest designer clothes. Chanel, Escada, DKNY, and other couture lines. Does she buy them in boutiques for thousands of dollars? No, she shopson-line at e-Bay where people sell all sorts of items. “I just bought a pair of black velvet Chanel evening pants for $200. They were brand new;I had to cut the Neiman Marcustags off myself. I guess somego through the hassle of returning them.”Juliahas been one didn’t want to buying couture clothing on-line for more than a year. “Sometimes it is brand new, other times it has been worn.I bought aVeraWang ballgown that was worn once, and a brand new Chanel wool suit that hadn’t ever been worn.” When not checking out the deals on e-Bay, Julia prowls designer consignment and re-sale stores across the country. Juliaalso likes vintagecouture.com as an online source.

type in the item you arc researching. The site will automatically search the Web for the best price, comparing different aspects of the deal likeshipping costs. You’ll end up witha list that displays your options, starting with the best deal first.You can find the same thing over www.DealTime.com, at too. And, then there is www.BizRate.com, which is a hybrid comparison shopping ande-commerce research firm. How? By combining best price searches with feedback about the e-tailer from people who have actually shopped there. Perhaps the best places to get thorough reviews of electronic items, prices, and places to buy are ZDNet.com and CNET.com.

Ever So Slightly Used Does that must-have item need to be sparkling new, or would a used item be fine? Check out what you can find on €Bay-just type in the manufacturer in the search section and cross your fingers. Bikes, cameras, coatswho says they have to be brand new? Will you getwhat youpaid for?Mostly. You can see the customer ratings on mosteBay sellers listed right there on the auction site. Look for the folks withhundreds of successful transactions. Thcse folks sell on eBay for a living, and aren’t likely to try to cheat you. The budget-minded mother of two boys, Anne Lewis wanted to buy a nice raincoat for her six-year-old son, Julian, but wasn’t sure he wouldeven agree to wear one. “You never know with kids, one day they’ll wear it and the next day they won’t. I thought he needed a nice coat for family get-


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togethers with my parents. They’re pretty formal. But I didn’t want to take the chance and spend a lot of money only to have him refuse. So I went online to an on-line auction site and found a childs Burberry raincoat. I got it for $60. Some other mom probably paid $200, only to have her son throw a fit and refuse to wear it.” There are also auction sites that cater to specific interests. Interested in aset of used golf clubs for a Father’s Day gift? Try www.golfclubex chanee.com. To search all of the auction sites at oncefor your interests, go to www.auction-puide.com or www.bidxs.com.Type in what you want, and either of these siteswill pull up all the on-going auctionsfrom eBay, Yahoo, and Amazon. AnneLewis could have typedin “Burberry” tofind out which sites had auctionsfor the kind of coat she wanted to buy Biddersedge also has a “street price” buttonyou can click to check and compare the auction price against the going retail rate. With this feature, you really will know what kind of a deal you have found.

Computers on the Cheap A good way to save on computers is to check the “clearance” section at www.ephead.com. This major electronics retailer made the switch from 100% bricks to 100% clicks a few years ago, closing all of their storefronts and concentrating solely on e-commerce. In their clearance center you can find top quality new merchandise that has been marked down, justway the you might find a bargain on a back table in a retail store. A second way to find less expensive computer equipmentis to consider “off-lease’’equipment. These are computers that were originally leased to a business, and then taken backand refurbished by the vendor when the lease was up. Consumersare accustomedto finding greatcar deals thisway, such as buying a car that was once a leased vehicle. You can find off-lease computers for sale on www.ubid.com. The biggest electronics dealeron theWeb is Buy.com. This international e-commerce site also operates in the UK and Canada, and frequently wins “Best of the Web” accolades.Check out theirprices and selectionat www.us.buy.com.

Suggested Strategies Decide what you need (only what you really need), and then search for it on-line using shop bots for new merchandise and auctionaggregators for used.

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What5 Your Net Worth? Educate yourself about pricing-don’t buy thefirst good deal you see. Be sure to look for additional costs, such as those for shipping, including costsof returning the productif you have a problem. Investigate the returnspolicy, guarantees, and customer service before you buy-don’t wait until there is a problem.

Coupons, Rebates, and Promotional Incentives: The “Third Currency” Whether you’re using coupons on-line or clipping them ofout the Sunday paper, they are like the spare change you leave on your dresser after emptying out your pockets eachday-it all adds up. You can save literally thousands of dollars, money that could be putto good use in your investments. And it’snot just coupons.Everyone knowsabout using frequentflier miles for your vacation. Why do companies offer coupons, frequent-flier miles and the like? They have found that these types of coupons, rebates, and frequent-fliermileshelpbuildcustomer loyalty. Whether youcare about their motives or not,be sure to take advantage of these offers. Leading coupon sites visited by women include www.save.com, m directcoupons.com, -.e-save.com, www.coolsavinps.com, and w . e deal finder.com. Initially you might be dazzled byall the couponsavailable at these sites, until you look at them closely Checking the offers at edeal finder.com, for instance, I saw a number coupons for$10 off a $40 purchase at BN.com, the Barnes and Noble online bookstore.But looking moreclosely I discovered that these 25% off coupons applied only if you were a first-time customer. A “save$50 on a $100 purchase at Amazon.com” turnedout to be limited to wireless products. Can you reallyfind a deal?I think so, but as withall shopping, make sure it is for something you were going to buyanyway-don’t get swept up by the idea that somethingis a deal simply because of a coupon. Remember rebates?Rebates occur when the manufacturer offers to send the buyer cash after a purchase has been made. You buy the product, send some proof of purchase, and then six (or eight, or twelve) weeks later a check arrives. It sounds tantalizing, but who really remembers to follow through? And, of course, that’s why rebates can be offered-few people actually remember to take advantage of them. Let’s face it, most rebates are nothing shortof a hassle.More often than notit’s because each rebate issuer to submit. sets its own quirky rules-what to submit, how to submit, when According to Robert Bernnett,Vice President at the Promotion Fullfillment Center, a firm that processes rebate claims, consumers manage to redeem rebate offers worth a total of $1 billion each year (this excludes billions


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more in car rebates). With this in mind, itis in your best interestto do your homework when considering purchasing a product that offers an attractive rebate. If you’re adamant about saving money, then the hassle of a rebate may be worth it to you. Ebates.com is one of many so-called “shopping portals” that also give you rebates. Sign up on their website and then go from there to their partner stores. If you’d like to shop at Nordstrom’s, for instance (one of thcir partner stores), insteadof going straight to Nordstrom.com, you wouldgo to ebates.com and click on the Nordstrom’s link. That way, a percentage earned from your purchases will be credited to your ebates account, and an actual check is then sentto you on a quarterly basis. You should also keep asharp eye out whenyou are on major store sites like 0fficeMax.com. There just might be a small, hard-to-spot area marked “mail-in rebates.” 0fficeMax.com does have such an area, and lists the rebates available. Check it outbefore you makeup your mind about which product you will buy. For rebates at Staples,go to www.staplesrebates.com. There are a few things to watch out for when using these kinds of rebates and coupons.Before you use one, consider whether or notyou will really go to the troubleto send it in.Are you making a choice of brands and price based on a rebate that you aren’t going to apply for? If so, you might not be choosing the right deal for you. More than once I’ve had a friend share their frustration that they bought a product because of the tantalizing rebate offer, and then lost the rebate coupon ornever botheredto cash it in.

Suggested Strategies Use a coupon ortake advantageof a rebate onlyto buy somethingyou need to buy anyway. Check the expiration dateson both coupon andrebate deals. Make sure there is no catch involved, such as getting a $25 coupon IF you apply for a Visa card, or some such requirement. Be sure to send in therebate immediately.

Time to Travel One of the first discount categories to find success on-line was travel. Airline tickets, hotel rooms, and nowcruise vacations are all over the Web, each one touting that theyhave the absolute best price. Whohasn’t had a friend crow about the great price they got on a ticket to Miami on Priceline.com?

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I WlzatS Your NetWorth?

Or heard someone bragging about a last-minutefare they picked up on-line directly from the airline? On-line travel is such a success, infact, that according to research conducted by PhoCusWright, 21 million Americans used on-line travel services just last year. They found thatover half of consumers on the Web cited cost saving as their main reason for doing so. For women, who account for a whopping 60% of the travel industry revenues, these sites are fastaand powerful way for you to save money. Priceline.com is by far the best known of these travel sites. At Price1ine.com you bid what you are willing to pay, and the site letsyou know if the travel provider will accept your price. A recent additional feature is a screen that lets you know what chance you have of getting the ticket at the to New York, price youbid. I put ina bidof $250 for a ticket from California and Priceline.com warned me that I had only an 18%chance of getting the ticket for that price. It recommended raising my bid by $75 to increase my odds of acceptance. Otherbiddingsites for airfares andhotels are www.BidTripper.com, and www.SkyAuction.com. When usingbidding sites, be sureyou’re clear about the maximum price you’d be willing to pay for the item, how that price may be affected if you’re a couple versus just one person, and whoto call if you have a problem or need to change your plans. Other leading sites for airfare are CheaDTickets.com, ExDedia.com, LowestFare.com, and Trave1ocity.com. Feeling left out, someof the major airlinesand hotel chains got together and formed their own on-line discount travel site called Hotwire.com. The airline partners are United, American, Northwest, TWA, Continental, US Airways, America West, and Hawaiian. Twenty different hotel chains participate,includingClarion,Hilton, RedLion Inn, and Wyndham. Good deals can be foundon Hotwire, but it is also an unusualsystem. Here’s how it works: 1. Type in your departure date and destination, and answer a few ques-

tions about your willingness to accept multiple stopovers, a latenight red-eye, or a non-jet plane. 2. The Hotwire system will come back with a price quote. At this time you will not know which airline, or what yourflight times will be. 3. You now have 30 minutes to accept the deal and buy the ticket. 4. Only after you have purchased the ticketwill the airline and the flight times be revealed. As I said, you can get good deals-like a $205 round-trip from California to New York-but this system will suit only the most flexible of flyers.


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A similar system on Hotwire allows you to get deals on hotel rooms, but once again you won’t know where you are staying until you have accepted the price. Another good optionfor discount hotel roomsis the Hotel Reservation Network (www.hote1reservationnetwork.com).I recently saved$20 a night on a fancy New York hotel room; the price I received by booking on-line was even better than the “promotional” rate offered by calling the hotel direct. A discount travel site that doesn’t come free is www.BestFares.com. At the time of this writing, the price to join is $59.90.Actually, that is the price to subscribe to BestFares magazine, and access to the website comes along with it.Many dedicated travelers do swear by the prices they’ve received on this site, particularly the “snooze you lose” last-minutefare section. Some of the airlines themselves also list discount fares on their websites, so it is worth going directly to the airline itself sometimes to check prices. Booking on-line directly with the airline can also sometimes result in extra frequent-flier miles,so do check every time. When buying a discounted ticket on-line, do make sure thatyou read all of the fine print. Some travelershave been surprisedto discover that their cheap tickets come without frequent-flier miles, or that they have secondclass standing when it comesto trying to reschedule a canceled flight. If you’re like me, the main reason youlog ontotravel sites in the first place is that you want to get the cheapest ticket possible. I’ve used CheapTickets.com and Priceline.com several times to get last-minute tickets at a fraction of the cost. More than once I’ve saved literally thousands of dollars on cross-country fares. What sites are popular among women from age 25 up looking for air fares, hotels, or even spas?According toJupitor Media Metrix, SpaWish.com is the travel website with the highest percentage of women users, according to its February 2001 survey. Women comprise at least onehalf of all users ateach of the leading travel sites listed below: Top Travel Sites for Women ~~

spawish.com suncountrv.com davsinn.com cooltravelassistant.com 1Ithhourvacations.com milespree.com continental.com americanairlines.com smarterlivinp.com freetravelvouchers.com

74.7% 68.6% 63.6% 63.4% 62.6% 62.4% 60.0% 59.4% 59.2% 58.4%

navtrav.net ohwy.com flvcheap.com trave1now.com funjet.com usahotelauide.com sunfinder.com swavacations.com fodors.com rci.com

58.3% 57.8% 57.7% 57.4% 55.9% 55.6% 55.4% 55.2% 54.4% 54.3%

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I What’s Your Net Worth?

Another strategy is to use the airline site itself to see all of the possible flights available on your route. Wendy Scott saved $50 on a flight to New York this way. She had reserved a ticket over the phone with United Airlines, but wantedto check to see if she couldget a lower,Internet fare on their site (www.ual.com). Like that of many airlines, United’s website shows many more options to choose from, such asdifferent departures times and plane changes. She saw that, by leaving on a different flight that same morning, the price was somewhat cheaper. Not yet braveenough to take the step and book on-line, instead she called the airline reservations back and asked about the cheaper itinerary. United booked her on the other flight for $50 less. If you fly an airline regularly, as I often do, you can often receive additional miles for booking on-line. Southwest Airlines at www.southwest.com, for instance, gives you double the credit for booking over the Internet. That could mean you only need to make four round-trip purchases rather than eight to get a free ticket. As with any other kindof shopping, you need to be careful about making the right choices. Inexpensive airline tickets can come with strict rules attached. Buying discount airline tickets on-line is a good idea only if your travel plans meet oneof the following criteria: 1. You are clear about your travel plans and don’t expect you’ll need to change them. If you might change plans, expect to pay a minimum $75 change fee per one-way ticket. 2. You are making last-minuteplans and cannotfind a cheaper alternative, although keepin mind thatyou’ll still usually need a three-day notice. 3 . You cannot find available seats directly throughthe airline or via your regular travel agent.

Keep your eyes open for the following: fees to make changes, processing fees, a stipulation that you have to pick up the ticket somewhere, no allowances for changes at all. If you buy a cheap ticket and then find out you can’t use it due to a change in plans, itwas no bargain.

Click Here for Cars Buymg cars is a common dislike of most women. We always think we are being talked down to, that we are being ripped off, that the salesmanreally wishes we would go home and bring the household “decision maker” with us next time. These are thevery things that cannot happento us on-line as we click and research our way to the best deal! How does this work?


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Celeste Oda had purchased cars before, but never really felt that she had done an effective job of it. “1 don’t like to haggle, I’m not very good at it,” she explained. So when Celeste needed to buy another car, and decided on something very specific, she was open to trying something other than walking ontoa car lot. “FirstI went down to our credit union, where they have a service thatwill buy a car at a fixed price for you. But they weren’t willing to look around and find the exact car I wanted-a Honda Accord with leather interior and a standard transmission. So I went online to Autobv tel.com. I filled out the info and sent it in, and withinfive minutes a saleswoman called me from a local Honda dealer. Five minutes!” Now, that saleswoman didn’t have the car Celeste wanted, but then spent weeks looking for it.“She’d call me with updatesall the time, andfinally called to sayshe’d found one for me.” During the initial phone call the car saleswoman had stated a flat price for Celeste’s car. “I’d done some research and had a rough idea of the price, and this price actually was lower than the fixed price that the credit union hadoffered.” Would she do it again? “Thiswas by far the best car buying experienceI’ve ever had!” Celeste said something that is key for anyone planning to purchase a big-ticket item such as a car-she said she did her “research.”But taking the necessary time to do your homework can be a time consuming task in itself.

Who’s On Top? J.D. Powers Q Associates recently conducted a survey of car dealers. The survey found that today twice as many car dealers are acknowledging the value of on-line servicesto attract potential buyers than in 1999. They came to the conclusion that the top three on-line sites were as follows: Autoby tel.com took first place, followed by Microsoft’s CarPoint.com in second, and then Autoweb.com in third. Through the Internet you, in a sense,get to set the terms andlet the dealers compete for your business.

Info Gathering Are you considering selling your old car or trading it in? In order to set an accurate price, you can nowaccess the information at the Kelley Blue Book on-line. Published continuously since1926 (andfor much of that time available only to the people in thecar business), this venerable automotive institution can be reached at www.kbb.com. Arm yourself with the information

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on the car you own so that, when thetime comes, you canget a fair trade in value or sell it yourself for a fair price. Edmunds.com is an excellent source of car information, too. Katrina Cooperhaspurchased three cars using Edmunds.com’s tools, including the “Used Vehicle Appraiser,” which takes factors like color into consideration that a pure blue-book value won’t. Edmunds.com hascar ratings, updates on new models, and competitorinformation. In one case, Katrina saved herself $3,500 because she armedherself with information and goodnegotiating tactics learned at Edmunds.com. Of course, if you are buying a used car, check the blue book price before making an offer. Remember to always take the time to have a reputable mechanic check out thecar. The $100 you invest in thisbefore going ahead with a purchaseis worth avoiding a clunker that couldultimately cost you a lot.As we will learn in a later chapter, buying a car used is generally a better investment towards building your net worth than buying a new car. A new car will lose about 10% of its value just from you buying it as its first owner. Its higher price will also cost more in interest paymentson a loan. Another important piece of information nowadays is the safety ratings of vehicles. It took just a few seconds for me to get the safety ratings on my car by logging onto www.hiehwavsafetv.org.The site also carries information about the latest vehicle tests and findings. You can find similar information available from the ConsumerReports organization,but it requires a monthly subscriptionfee of $3.95 to access. As you draw closer to buying a car, be sure to check withIntellichoice at www.lntellichoice.comto see if there are anyrebates or incentivesoffered for your target choice. More time-saving (and salesman avoiding) techniques come into play when you use Autobytel, CarsDirect, or Carpoint to conduct side-by-side comparisons of either new or used cars that interest you. Intellichoice can also give you a glimpse of the dealer invoice price, in order to strengthen your bargaining power. When you know how much the dealer is making, you have a better chance of making a lowball offer that will be accepted. Intellichoice allows you to view the information on-line free, but will also sell you a more complete reporton any individualcar model for $4.95.

Suggested Strategies Determine what type of car you want tobuy-one that is in line with your budget. Remember that buylng used is always better than buying new if you want to build your net worth. Use on-line information sourcesto determine your negotiatingrange.

Streandine Household Budgeting and Spellding

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Save Money, Save Time I really believe that one of the greatest advantages the Internet offers to women is that we can save both time and money. Log on, get what we necd for less, logoff, and get on with ourlives. Of course, make surcyou’rc dealing with a reputable company. Returning to some of the earlier points in this chapter,though, do y o u really need whatever it is that you want to buy? The very best way t o save both money andtime is to decide that you don’t “need” to make a purchase in the first place. I urge you to make full use of those calculators at ifi.com and usatoday.com. Type in the amount you are considering spendtake a look at thc big picing onwhatever it is that has drawn your eye, and ture. Consider what this purchase today will cost you tomorrow. I t could just be costing you your financial freedom. Remember the ESG fornlulaearn it, save it, grow it. Imagine a life where you didn’t feel h r d e n e d by money worries, by debts, by impending bills, and by the feeling that you needcd to keep up appearances to meet someone else’s high consumption standards. Imagine a life where you felt free and confident that your money was growing and expanding in such a vibrant way that you could see a time in the not-toodistant future where work was an optionfor you, not anecessity. Sound too good to be true? It isn’t. All you need to do is change your spending habits, adopt a simple budgeting plan, make good investments, andleverage your other assets, and this kind of a future awaits you.

Links You Will Love Auctions www.auction-guide.com www.bidxs.com www.ebay.com www.Eolfclubexchange.com www.Vintagecouture.com

Calculators www.financenter.com www.salliemae.com

www.usatoday.com www.whatiG.com

Car Salesand Information www.autobvLel.com www.caruoirlt.com www.carsdircct.com www.edmunds.com www.highwavsafetv.org www.intellichoice.com www.kbb.com

Coupons and Rebates www.coolsavings.com www.directcoupons.com www.c-save.com www.cdealfinder.com www.officemax.com www.save.com www.staplcsrebates.com

Electronics www.bizrate.com www.buy.com www.cnet.com www.dealtime.com www.ofGcemax.com www.mysimon.com www.zdnet.com

Frugal Living www.cheapsk8.com www.frutralliving.about.com www.newdream.or3 www.strctcher.com


Phone Service www.abelltolls.com www.lowermybills.com www.saveonphone.com

navel Bargains www.bestfares.com www.bidtriDver.com www.cheaDtickets.com www.expedia.com www.hotelreservationnetwork.com www.hotwire.com www.loriceline.com www.southwest.com www.travelocity.com www.ual.com

Miscellaneous Savingsand Bargain Infomation www.asec.org www.clubmom.com www.familvmoney.com

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Chapter 3

Delete Your Debt

While making plans for a modest wedding and Hawaiian honeymoon, Linda was confident of her financial future with herhusband, Brian. Linda’sjob paid pretty well ($32,000) and Brian had his own practice as a psychologist. But even before they walked down the aisle they started to veer into debt. “Our wedding was inexpensive,” Linda explained. “But when it came to the honeymoon, two weeks in Hawaii, we spared no expense.” And the free spending didn’t stop when they returned to the mainland. “We poured alot of money into a condo.A lot of the fixtures and other household itemswe just put on our charge cards. We spoiled each other.” Why didLinda and her new husband embark on such a whirlwind of spending? “We thought our incomes were pretty good.” shesays. But, their spending habits landed them $40,000 in debt in just few a years, just as Brian’s practice began to slow considerably. Linda, like more and more womentoday, became the primary breadwinner. Linda finally realized that carrying so much debt was putting abig psychological burden on them both. They wereoften late in paymg their credit card bills, overdue fees were crippling them, and their credit rating was slipping rapidly. “I started feeling sick about the debt,” Linda admits. By putting an end to their spending and devotingall of their available resources to paying down the debt, they are now virtually debt-free. “How does it feel to be out of debt?” Linda smiles at the thought. “Like, I’m free!” Does Linda’s tale sound familiar?To you, yoursister, or your next-door neighbor? Or to almost any ordinary American couple? Sure it does! Here 2000 holiday season,for the first time is an image to think about. During the Americans charged more than $154 billion to their credit cards. Yes, debt seems as American as apple pie-but is it healthy? Back in chapter 1 you calculated your net worth. Assets minus liabilities, what you own minus whatyou owe. I bet a big part of your calculation revolved around debt.But some debtis good and, infact, essential to building our net worths. The key is, are we managing it properly and avoiding the problem debt that canjust send you into a downward spiral? 46

DeleteYourDebt

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In this chapter,I want to focus on strategies to help you reduce or elim. inate your debt, and show how the Internet assist can you. I also want you to learn how importantgood credit is to your financial future and how to improve your credit rating. But more important,I’ll focus on howto take a proactive approachto managing debt from the beginning. Prevent yourself from ever experiencing that out-of-control feeling, and you’ll enjoy the confidence and rewards that go with takingcharge.

Women and Debt Debt isclearly one of the topfinancial issueson women’s minds. According to a Women’s Financial Network (WFN)survey, nearly 55% of women are concerned about the amountof debt they are carrying. We are not talking chiefly about debtfrom credit cards or shopping spree-although they can become a major problem if not handled properly No, what often gets women into serious debt is a divorce, the death of a husband, or a major illness, and for younger women just starting out, school loans. Of these, divorce is oftenthe most crippling. In fact, the challenge of getting by after a divorce, with a much lower income, leads single women file bankruptcy to at higherrates than men or couples, according to a Harvard study.

Warding Off the Devil So often we’re focused on ridding ourselvesof debt. But how about taking a whole differentapproach to it? How about looking atit as a tool to build your wealth-in the right circumstance-and taking control of it rather than letting it take controlof you? I like to thinkof managing money as a

12) Share yoursuccess 11)Preserve what you have 10) Increase yourearning power 9) Minimize your taxes 8) Organize your finances 7) Protect yourassets 6) Invest to build yournet worth

5) Educate yourselfabout investment 4) Acquire ahome

3)Free yourself from debt and build credit 2) Live within yourmeans 1)Determine where youstand

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challenge and as a way to reward oneself. I don’t believe in foregoing all of the nicer things in life; I do believe in lowering our expectations and using money smartly so that we can build our net worth. When you work hard-whether it’s at work or at home with kidsthe don’t you feel like rewarding yourself? You take a vacation or maybe buy yourself a stereo or a new outfit. Well, how about rewarding yourself for managing your money well? There’s nothing wrong with that. In fact, it’s much like how a company operates. If the company manages itself well throughout the year, more profits go to investors and higher bonuses to the employees. It’s logical, isn’t it? That companywill ultimately grow if it continues to be managedwell. As the CFO of the home andof your own future, you can do the same. At the end of the year, my friends Laurel sits down with her husband,Mike, to examine howthey’ve done during thepast year. “Ifwe’ve done well and have managed ourmoney as we hadinitially planned, we reward each other with larger gifts and maybe a trip.” Setting your goals for the year and then rewarding yourself for a job well done is perfectly acceptable. Also, think about using debt correctly and, more importantly, as a strategic tool. Let’s say you planned on buying a vacuum cleaner next month, when you have the money or have it planned in your budget. But today you go shopping andfind a goodone at25% off. Does it make senseto put it on your credit card now? Absolutely-but only if you can pay it off within a 25% off but you’re getmonth. In fact, you are not only buying the item at ting the bank to make you a loan for 30 days interest-free. Charging items on a credit card linked to such rewards as mileage can also be an excellent way to acquire credits toward free a trip-so long as youhave the money in the first place to even be buying the item and thatyou pay it off in a timely manner. The last big key to managing your finances is to simply keep track of them, which has never been easier than with the Internet. Using a credit card, for instance, provides you a historyof all of your purchases, making tax time easier and more of a savings opportunity.Being able to click on to see if you have the funds in your account or even if you’ve gone over your budget for gifts will keep you from digging a debt hole. Despite a generally booming economy from the 1980s to the end of 2000, people have taken onconsiderably moredebt while reducing savings. Building your wealth means exercising restraint. It means being responsible about howyou manage your debt. It means forgoing what you want for what you need-and then rewarding yourself for reaching your goals. It always bothers me when people say, ‘‘Ittakes moneyto make money.” Isn’t that frustrating when you didn’t come from money ormaybe you’ve had

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some financial set-backs, like mostof us have? You’re probably ready to ask me, “Jennifer, how do 1 do it?” Ifthere’s one thing I can tell you, it’s that I know how hard it is. But it’s also why I’m writing this book and trying to share what I believe it takes to build your net worth. If you follow these guidelines, I guarantee you that youwill feel better about yourself, not just financially but emotionally. The power you get from taking ownership of your debt andfinances-whether or not you are married-will have a positive effect on other areas of your life. Now, that I’ve talked about avoiding debt altogether, let’s dive into dealing with any debtyou might have.

The Good vs. the Bad Have you ever wondered what kind of impact debt can have on your net worth? Thissimplified chart will give you a very clear idea. Forevery $5,000 in credit card debt at 18.9%,you pay an extra $4,300 in interest if making only the minimum payments required.Take on this kind of debt each year for 30 years and you will have paid about$280,000 in interest (see Figure 7). Plus, you will still have a debt balanceof just over $74,000. What if, instead, you invested that moneyfor the long-term? It would be worth close to $1million. As this chart illustrates,the impact on your net worthby foregoing the opportunity to invest for the credit card debt amounts to $1.2 million (see Figure 8). A hefty price to pay for lost opportunitycosts.

Investment Interest Charges Debt Balance Impact on Net Worth

In 5 Years

In 10 Years

In 20 YearsIn

30 Years

$ 33,578.05 $ (12,962.03) $ (21,502.31) $ (68,042.39)

$ 87,655.84 $ (44,080.86) $ (38,155.75) $ (169,892.44)

$ 315,012.50 $ (146,475.22) $ (61,043.23) $ (522,530.94)

$904,717.12 $ (283,388.02) $ (74,772.12) 16 (1,262,877.26)

Figure 7 Take on more debt, and you become literally consumedby it. Buy more goods than the income you produce, and you can just watch your net worth bleed into the red. At all stages of your life, it’s important to recognize that there are two types of debt: good debt and bad debt. Good debt results from expenditures you make that are investments in your futurefinancial worth. Expensesfor things like agood college education, technical training, tools for your job, or the purchase of a house that will appreciate in value. Bad debt results from expenditures for unnecessary personal property, vacations and entertainment thatyou cannot afford on your income and whose value decreases or disappears before the debt does. Think about for a itsecond: are you buy-

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What’sYourNet Worth? Financial Styles Compared Debtoriented vs Investmentoriented

$1 ,000,000.00

$s00,000.00 !§600,o00.00

~ , 0 0 0 . 0 0. erence in

$200,000.00

($400,000.00)

’

10 yea rs

I

20 years

30 yea rs

40 yea m

Figure 8 ing a stereo or a nice trip to Europe and still paying it off years later? It’s senseless. With bad debt, you are simply consuming more than you produce. Ask yourself how you want to live your life: consume morenow, and have your purchases consume youfor weeks and months on end?Or, produce more wealth simply by using debtstrategically to your advantage? Sometimes a specific debt canbe good or bad.Let’s take buying a car. If you need a large or expensive car for your business (say you’re a real estate agent who needs to impress her upscaleclients or an attorneywheeling big clients around) theextra debt you incur to get the right type of car could be considered good debt. An appropriate car in this case can helpyou grow your wealth if you don’t use yourcar for by attracting the right clients. On the other hand, business andyou take on extra debt just so you can have a bigger, nicer or newer car, that’s an example of a baddebt. This is also an excellent example of want vs. need. You want the bigger, nicer or newercar, but you don’t need it (of course, is always trying hard to convince you that yes, the littledevil on your shoulder you really do needit!). You can decideinstead to buy a goodused one to three year-old out-of-lease car for$8,000 andhave no interest and nopayment. Or, you can buy new a $28,000 car byusing your $8,000 in cash plus taking out a $20,000 loan. In the end, you’ll pay$415 per month and about $5,000 in interest over five yearsat 9%.You’ve put your moneyinto adepreciating asset rather than anappreciating one as the car drops invalue over time.

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Are You in Debt? And If So,Why? Is there aminus figure on your net worth calculation? Or a hefty credit card bill thatyou just can’t pay off? Are you limping along, being able to pay only the “minimum payments” required on your credit cards? Are you consistently spending more than you or you and your husband make? Here are some warning signs that youmay have debt problems:

You don’t know how much debtyou have. You pay only the monthly minimums required. You are usually late paying someof your bills. Your debt worries keep youup at night. You receive creditor calls and overdue notices. You reach the credit limits on all your charge cards. You need to pay routine expenses on credit becauseyou do not have the cash. You have increased the numberof credit cards you havein the past year. You do nothave an emergency fund that can sustain your lifestyle for three to six months. Most people neverstop to look at the ramifications of their debt. Where do you stand and what isreally it costing you?Go to credit-card-direct.com where you can plug in the balances and rates on each card to see what kind of dollars are going out the window. It’s particularly easy to become oblivious to the mounting size of your debt if you’re in the habitof simply making minimal payments each time you receive a bill. But what can happen, asLinda found in the opening example, is thatyou will eventually not be able to make even the minimumpayments, and at that point you are in real debt trouble. It’s best to always have a handle on how muchyou owe, and your plans and timetable for paylng it off.

Misfortune, notExcess A recent study by a Harvard Law School professor, Elizabeth Warren,and

her co-authors Teresa Sullivan and Jay Lawrence Westbrook, foundthat middle-classAmericans end upin bankruptcycourt more often as a result of misfortune rather than free-spending ways. “Many people in bankruptcy were solid bill payers until something knockedtheir legs out from under them,” she observes. What kinds of misfortune sparks a bankruptcy? Job loss, a serious medical problem, death of the family’s prime provider, or divorce. In fact, following a divorce, the likelihood of bankruptcy for womentriples.

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I What5 Your Net Worth?

If you are in serious debt (i.e., you don’t see a clear or timely way of paying it off) you better stop and figure out how you got into this situation. Because if you don’t determine how and whyyou got yourself into this mess, you might get out of debt, butyou certainly won’t stay out. Several months or years down the road, you will simplyrepeat the pattern.Of course, if your debt comes froma dramaticdecrease in your income due to a divorce, widowhood, or uninsured medical bills, you will obviously have to do more than change your spending habits, but if your debts result from steady overspending or binge spending, you need to get a gripand fast! Once again,you cannot consume more than you produce over a sustained period. When you look at the reasons you went into debt, the important thing is to notice whether your spending habitsfollow a pattern. If you can see a pattern, you need to address that pattern as much as the underlying debt. 1. Do you have a tendency to spend too much when your mood is low? Recognize that, and make sure that the next time you are feeling low you try to treat yourself with a brisk walk instead. Depression often leads to excess spending as you try to make yourself feel better, but the more debtyou build up, the more depressed youwill be. 2. Do you spend money everypayday, or to celebrate new accomplishments? If you spot that pattern, try to create a new celebration ritual. 3. Do you spend too much money ongifts for other people? You might need to examine your reasons. Are you trying to buy friends? How about just beinga good friend! 4. Do you use money to show off or keep up with the Joneses? Are you trying to look good? Once again, you might needto examine thepsychological reasons behind your behavior. Find other ways to assure yourself of your value and importance.

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A Difficult Discussion As much as we’d like to keep our financial situation private, there is one person you should not keep out of the loop. Your husband or domestic partner! Difficult as it will be to sit down and admit the degree to which

you are in debt, letting it go on unsuspected is even worse. Imagine how you would feel-and it has happened to many women-if he has large debts that he is concealing from you? I urge youto sit down and bring it all out into the open.That way youcan work together to fix the problem, and you won’tbe burdened by your secret any longer.

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How Much Debt Is Too Much? Numbers aren’t always much fun to use, until you learn how powerful they can be. I want to show you a couple of very easy ways to determine how much debt you should have-to understand if you’re on the right track or $2,000 is too much debt,while for if you need to cut back. For some people others $20,000 might not be too much. The debt-to-income ratiowill give you an unemotional look at what your personal situation is. Thisis simply the ratio of how much total debt you carry in relation to your gross (before taxes) income fromall sources. Onereason you wantto pay attention to this is that it’s a ratio used by lenders to determine if you should qualify for a loan. It will also help you keep your own debt in line. There are two types of ratios for you to look at. Oneinvolves how much you pay to keep aroof overyou head. Ever wondered how much rent or housing costs you should have? Typically, no more than25% of your monthlygross costs. For instance,if you earn$4,000 income shouldgo toward your housing per month, before taxes, $1,000 is the maximum you should be paylng for rent or mortgage payments. Of course, housing costs vary greatly from one location to the next,so that may lead you to modify this rule-of-thumb. The other ratioinvolves how your overall debt relates to you ability to pay it off. To get to your overall debt-to-income ratio (housing plus other types of debt), divide the amount you owe eachmonth by the amount you makeeach month and convert to a percent. For example, Meg makes $60,000 a year, or $5,000 per month. Her monthly debt payments are $2,500. She has a debt ratio of 50% (2,500/5,000). As a general guideline, a debt ratio above 45% may indicate you are over-extended. Remember, this is a general maximum, used to determine whether you’re eligible for more debt. It is not an optional level nor a recommendation.

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Use the Net to help you determine if you’re in good debt shape. Go to www.freedebtanalvzer.com and take a look at their debt analyzer. It allows youto verify fairlyquickly your debt situation, and come up with some alternatives. The analyzer will compute your debt-to-income ratio and give you a detailed analysis of your currentdebts. Financial institutions always verify your past credit and debt situation to ensure that loans are made to individuals that are considered goodcredit risks. The debt analyzer allows you to do this to yourself first. Be aware that some sites with these calculators merely want you to use their debt consolidation services, where they generate substantial fees from vulnerable debtors. Use on-line calculators to help you understandthe financial impact of

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taking ongood orbad debt-and then askyourself, “Is this buildingmy net worth?” Some useful calculators on the Financenter.comsiteorSmart Money.com can help you make the decision. For information on car buying, for example, take a look at the section entitled “Which is Better, New or Used?” and also “How Much Should Depreciation Cost Me?” and run the “real” numbers on yourcar.

Handling Credit Card Debt Remember Linda and her husband from the openingof this chapter? Most of their crushing debt hadbeen compiled usingcredit cards. One way they tried to cut into their debt was “credit card hopping”-looking for credit cards with interest payments well below their current cards, with a goal of getting all interest payments below 10%. Did these savings really add up? To refresh your memory, theyhad piled up some$40,000 in credit card debt, most of this on 18% interest creditcards. And, if they hadcontinued to make only minimum payments on their 18% interest cards, over the next thirty years they wouldhave paid over$100,000 in interest payments (see Figure 9). On the other hand,as the calculator at credit-card-direct.comwill tell you, by shifting all their debtto credit cards charging only 10% interest, and continuingtomakingonlythemonthlypayments they wouldreducethe 30 years to just over $28,000. amount of interest they would be paying over So part of any strategy to reduce credit card debt is consolidating the debt on lower interest credit cards. Obviously, much more had to be done by Linda and her husband both to pay down all their outstanding debt and curtail their credit card spending habits.Let’s take a look atall the ways to avoid credit card traps.

The Worst Trapof All-Making Only Minimum Payments Does this sound familiar? Your bill arrives, you open it and glance quickly at the minimum amount due. Whew!You think to yourself, I can pay that. This is absolutely the biggest mistakeyou can make with credit cards.Minimum payments can stretch your payments on and on, ad nauseum, and pretty much guarantee that you will pay for that cashmere sweater you bought many times over. Let me showyou how the minimum payment trapwill ensure youdon’t build your net worth. Say that you have a credit card that you owe $7,000 on at an interest rateof 17%. How long do you thinkwill it take you to pay off that balance, paying a minimum payment of 2% each month on thebalance, which is typical of a credit card? Threeyears? Five Years?

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If you followed this minimum payment course of action, it would take (get readyfor this)-almost 45 years to pay off the $7,000 debt. And, it gets worse. YOU would end up paying about $15,000 in interest on your original $7,000 balance. If you want to check this out on someof your own credit cards, visit the tools at www.credit-card-direct.com or the debt terminator calculator atwww.myvesta.org. Trpe in your own numbers and see ugly the truth in black and white.

Max Out YourMinimum If you possibly can, always pay your credit card bills in full and avoid any interest payments. If you just can’t, then stretch topay as much as you can. In the example above,if she simply continuesto make the $140 payment per month, despite thefact that her payments wouldslowly decrease if she stuck with just the minimum, she would be able to pay off the debt in just over seven years with nearly $5,300 ininterest. $5,300or $15,000 in interest? The choice is yours. If you are wondering whether to use your bonus, inheritence, or other available cash to pay off debt or invest in the stock market,try the calculator I pay off debt or invest in savings?” at USA Today or FinanCenter.com, “Should

Your Kids Credit cards are pervasive a part of modern life, but does that mean that you want your teenagersto have them? Credit cardsand teenagers can spell disaster-especially if it affects yourgoodcredit. How do you help your teenagers make the transition into adulthood and encourage them to be responsible with creditin the process?One goodway is to share your credit card bills, even on-line.Sit down with your kids and point out the finance charge, the grace period,and the minimum payment requirements. Use calculators to highlight interest charges. Encourage them to review your statements on-line, and point out any errors or fishy-smelling charges.

Surf’sUp! Over the past few years a new money-management hobby has emergedcredit card surfing.No doubt this has occurredto you asyou glance through your mail and see offer after offer for new credit cards with attractive lowinterest “teaser” rates.How does it work? Grab your surfboard and let’s go!

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Unheard ofjusta few short years ago,one of the easiest, and best, methods of lowering both your monthly credit cards payments, as well as your overall credit card indebtedness, is to transfer the balance on your cards with a high interest rate to a card or cards with a much lowerRememrate. ber how much Linda and her husband could save by consolidating their debt on credit cards charging only lo%? If you can, try to consolidate all your credit-card debt onto onelow-interest card. In addition to the significant savings in interest payments, you will have to make only one simple paymenteach month. If you can’t consolidate all of your credit card debts, eitherpay off the highest interest ones consolor idate those debts into thenew card first. You can order a debteliminator report from Mwesta.org. It will show you, month-by-month, thefastest way to get out of debt using the fundsyou have. Before you do any transferring of debt to a newcard, however, readall of the rulesand regulations regarding balance transfers for your new card(see detailed discussion below), andremember that it mighttake up to three months to completethe transfer; during thistime you are still obligated to make paymentson your old higher-rate cards.

Success Strategies You will want to take the following steps to reduce or eliminate your credit card debt:

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First, stop spending unnecessarily-and I mean really stop. Remind yourself of the ESG principles discussed in the previous chapter, and your goal of increasing your networth. Find acredit card with lower interest rates. You can goto BankRate.com and look for credit card offers in your specific city, to Cardweb.com, or to CardClues.com which offers a list of cards based on your lifestyle, interests, and credit standing. Armed with this information, you are now ready to negotiate. Call the bank that issued your current credit cards, and negotiate for a lower interest rate and reduced fees. Stress that you have been a long-time customer-one who would like to continue working with them. Explain that you are tryingto work off your debt and that there are other credit cards offering lower rates. See if they can offer you a lower interest rate, one that will stay in effect for a significant period before reverting to the old interest rate. Apply for an alternative credit card.If your bankwon’t work with you, then look for a credit card that has a low interest rate. Be sure to find out, however, howlongthelowinterestrate will last before it can be

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increased. If you have debt you know youwill have to carryover from one monthto the nextfor several months, I recommend you secure the lowest-rate card,even if it has a monthly fee. If you really intend to pay off your newcard in full each month, thenyou should use a no-annual fee card. Also make sure that the advertised low interest rate applies to debt transferred from your old credit cards; some cards charge a much higher interest rate on transferred debt. Finally, make sure your new card has a sufficiently long grace period-the time between when you charge something and when you must pay your credit card company to avoid interest payments. Believe it or not, somecards’ grace periods are so short thatyou will owe interest within very a fewdays of receiving your creditcard bill. You can checkall this out atBankrate.com by going into their site, then into the “credit c a r d section, and then to “best cards if you carry a balance.” You can apply on-line and get instantapproval.CreditCardNetworkatwww.creditnet.com and GetSmart.com allowyou to apply for a card on-line aswell. Read the “important disclosures” of any new credit card for which you apply, whether on-line oroff-line. That’s the place where you’ll find all the stuff you’ll want to know. As more people flock to low-introductory rate credit cards, banks have gotten smarter about hidden fees. Look at pre-payment penalties, annual fees, late payment fees, and even balance transfer fees (when you want to move balances to this new card). Close unneeded credit cards. Call or send a writtenletter to the credit cards companies and request that your cards be closed. If you call, get the termination number and theagent’sname. Destroymg your old cards will keep temptation away and improve your overall credit rating. Complain on-line.If you feel a credit card companyis inappropriately

Don’t Be Suckeredby “Low, Low” Introductory Rates My friend Jill told me about thetime she consolidated allof her credit cards debts into one card offering an incredible “introductoryrate” of only 6%. She wasso very pleased withherself, for about 60 days-when the introductory rate of 6%vanished and her rate jumped to a hefty 16%! “Howcan

they do that?” she asked me?Well she didn’t readthe small print that said the 6% rate was only good for only two months. In fact, unless promised otherwise, credit card issuers have the right to change your rate at any time, and even the best companies have been known to do this. All they must do is first notify youof the change in writing. In Jill’scase, they had notified her whenshe signed up-but Jill just didn’t take the time to read all about theintroductory offer.

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billing or scamming you, make a complaint on-line at Consumer -action.org or to the Federal Trade Commission at www.ftc.gOv.

Home Equity Loans to Pay Off Debt? If, after trymg all the above techniques, you still find yourself drowning in credit card debt,an optionmay be to take out a home equity loan or line of credit. Home equityloans have exploded in recent years, due to rising home values, low interest rates on home mortgages, and the fact that the interest charged on home equity loansis tax-deductible. If you’re like most folks who own a home, you have built up equity in it. Equity is the market value of your home minus the mortgage on the house. You can takeout a loan or line of credit (much likea credit card with a maximum borrowing ammount) secured by the equity in your house. The great benefit in doing this is that you can get interest rates that are much lower than thoseon credit cards-9% compared to 19% on credit cards, for instance. Also, your interest payments on a home equity loan, unlike those on credit cards, are usually tax-deductible. Compare a $10,000 home equity loan at10% with a $10,000 debton a credit card charging 18% interest. For a year, the credit card debtwill cost $1,752if making minimum payments. If you are in the28% tax bracket, the home equity debt will cost only $720 ($1,000 in interest minus atax deduction worth $280). My very real fear is that people will use home-equity loans to clean-up their debt only temporarily, and then fall back into their own over spending patterns. If they do this, they mayundermine their ability to pay off the homeequity loan,and ultimately put their homein jeopardy. If you’re going to take out a home equity loan, then make sure you first commit to not racking up more debt and to making your monthly payments. One other caution: stay away from so called 125% mortgages! These mortgageslet you tap into 125% of your home’s current market value, but is that really a good idea? You can’t really count on the continued appreciation in your property, and the higher mortgage payments mightget you into even more financial trouble over time. To learn more about home equity loans, you can visit the National Home Equity Mortgage Association at www.nhema.or2, which has links to several excellent sites, including the Federal Consumer Information Center at www.pueblo.gsa.gov/money, where you can access a number of useful pamphlets on credit and debt at nominal fees. Although this website is sponsored by the banking industry, it does have some useful information. Bankrate.com’s home equity section is also worth consulting. When you are ready to apply for ahome equity loan, use the Internet to find the rates. Again, you can do this at Bankrate.com or RateNet at

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www.rate.net to find what lenders in your city are offering home equity loans, and the rates and loan origination fees. Keep in mind that, atplaces like LendineTree.com and many other lesser-known sites, you’ll find companies competing for your business and your good credit, aswell as companies willingto provide loansto those with poor credit. Just remember that some firms feed off those in desperate situations and charge very high rates and fees. Also remember that, even though home equity loans can be a smart choice in the right circumstances, you are nevertheless placing your home on the line. If you cannot pay, for whatever reason,you can lose your home.

Consolidate, Consolidate! If you don’t have home equity to borrow against, you may consider taking an unsecured personal loan, or debt consolidation loan, to help you pay off your debts. Since these loans aren’t backed by collateral, they tend to have higher rates than home-equity loans, but are usually beneath 18% the or so rate you may be paying on your credit cards. Let me illustrate the powerof lowering your interest rate on just $5,000 in debt, using the “accelerated debt payoff calculator at credit-cards-direct.com. Consolidated Accelerating DebtCurrent Monthly Payment Interest Rate Interest You Pay Paid Off

$100 18.9% $14,564 Over 30 yrs

Loan $69

Payment $100

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11%

$3,265 10 years

$1,722 5 years, 8 mos

In the above example, my friend Suzanne couldsave more than $11,000 in interests costs by taking out a 10-year consolidated loan, compared with staymg with her current credit card. Notice that her monthly payments would go down about 30%, too. And, if Suzanne were to keep making those $100 payments at that lower interest rate, she’d only be paying $1,722 in interest, and would be done with it in over five years. With either course, she would be much better off financially, but would her problems be solved? Only if she successfully lays off new credit card expenditures. Suzanne really needs to think about tackling theissues that first led up to the need to consolidate. According to the FDIC, “Some consumers will increase current credit card and other consumer debt after a debt consolidation package is completed,therebyweakeningtheirabilityto repay outstandingdebtsand increasing the likelihood of bankruptcy.” That’s the government tactfully trying to say that most folks justgo out and do itall over again. Firms offering debt consolidation loans are not the same as debt consolidators or debt management organizations. A debt management company contacts your creditors and negotiates lower interest rates, rather than giv-

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ing you a low-interest loan. These new agreements with your creditors may actually appear on your credit report, but beinglate because you have too much debt will appear on your credit report, too. Whether a lender or a credit agency, make sure you are working with a reputable company. If in doubt, check them out with the Better Business Bureau at www.bbb.org or, better yet, yourlocal or state consumer protection agency. To find your consumer protection agency, go to justiceonline.org and into the “consumer resourcesnationwide”or to Nolo.com’s “encyclopedia,”thenthe“consumer and travel list,” where you’ll see “purchasing goods and services.” Keep in mind that if it’s a financial institution, you’ll need to check with your state’s department of financial institutions, responsible for monitoring banks, mortgage companies, and credit unions.

Seek Counseling What doyou do whenyou just aren’t making headway against your debt?Is bankruptcy even becoming a possibility? Like so many other areas in mode m life where specialists are available to help, there are credit counselors available to assist you.The first agency toprovidehelp onthe Web, MvVesta.or5 offersone-on-one counseling, coaching, creditor research, financial crisis intervention, free self-help publications on-line, and debt management programs to people throughout the country. Staff-certified financial planners, attorneys,psychologists, money disorder counselors,financial success coaches, and debt experts help people who need good answers and advice for complicated situations. They also specialize in helping people whohave been told by credit counseling agencies that bankruptcy is the only option they have. You can also get great advice by listening to their weekly call-in radio show online at www.monevhelD.com. The National Foundation for Credit Counseling is another nonprofit thatoffers debt repayment programs; visit them at www.nfcc.orrr,to find an affiliate in your area. Counselors work with clientsto evaluate their specific situation, create a budget, and develop a plan to repay their debts. Counseling sessions and educational workshops are free, although there is usually a small monthly administrative fee for participating in the debt repayment program. Counselors will contact their clients’ creditorsgettoyou the voluntary terms your creditors offer, which might include interest and payment reduction, and then create a monthly debt repayment plan.

Is Bankruptcy the Solution? According to Myvesta.org, about 80% of people who go to them for help actually do not need to file bankruptcy. Why is that? It’s usually because

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these people simplydid not know about other available options. Not knowing what to do often leads people down problematic paths. As I write this, Ann hasjust e-mailed me after seeingmy CBS MarketWatch column on preparingfor bad times. Shewas educated in top schools, employed by reputable companies, but was now suddenly without a job. Her company filed for bankruptcy, and now sheis wondering if she will have to my cell phone, lnteralso. “Howlong canI go?” she asked me. “What about net service provider,and insurance?”My reply? “Ann,” I said, “You need to 1don’t even take preventative steps to avoid ever heading down the B-path. want you thinking about it as an option. 1 want you to avoid it altogether by minimizing your expenses and not incurring debt. That includes eliminating thecell phone and having only one phone for potential employers to call, potentially utilizing afree Internet service provider,and determiningif you have any family members who can put you onto their insurance policy or if there’s a group plan you can join.” Ann might even consider rooming with someone or moving in temporarily with family members. The worse thing Ann can do is to take on debtto live day-to-day if she has other options available--any options-and most of us do. Here are some scary statistics: households headed by women account for about 40% of all bankruptcies. Women whofile for bankruptcy are disproportionatelydivorced,separated,orwidowed.Indeed,adivorced woman is three times more likely to file for bankruptcy than her married neighbor. If you find yourself teetering on bankruptcy, you’re not alone. Maybe you have tried valiantly to do everything in your power tofix your money problems. You are determined to handle money differently in the future, but nothing you do now can seem to get you out of the huge hole you’re in. There comesa point for some people when they just want to raise the white flag over their money ship, give up, and start over. They do not want to explain their situationto one more unsympathetic creditor.In fact, they don’t even want to answer their phone at all. Their financial ship is sinking, and it’s time to get into a lifeboat just to keep afloat. Jeanette and her husband felt that way. After he had a stroke, they depleted their $80,000 savings and ran up $40,000 in debt from high insurance andmedical costs. “We couldn’t get out of debt,” said Jeanette. “It would just keep going and going.” Her husband, a traditional man who felt great pride in providingfor his wife, felttremendously guilty over the idea of bankruptcy. But ultimately, Jeanette convinced him thatthey had no otherchoice. The bankruptcy code does not ask why a person in is debt.Losing a job is equal to getting divorced is equal to binge shopping is equal toillness is equal to poor money management. You could owe your creditors $10,000 or $100,000,it does not matter; all that is required is that your debts so outweigh your assets and income that you cannot pay them off. The decision

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to actually file bankruptcy is strictlya personal decision based upon individual circumstances and philosophy. Of course, you would rather pay your debtsif you could. If you are holding your breath while yourreading this, maybe you just cannot. For you, bankruptcy may be the only viable plan of action, but before you finally make up your mind, note someof the downsides of filing for bankruptcy: A bankruptcy destroys your credit for at least seven years, possibly longer, depending on the type of bankruptcy filed. You may not be able to buy a house orcar for at least three years,and if you can get a loan, the interest rate will be much higherfor you. Filing bankruptcy may affect your ability to get a new job or a promotion, as companies often now do credit checks on prospective employees, or employees being considered for promotion into management positions. There will be many “embarrassing” moments when you get turned down trying to rent a new apartment, or refused credit at the local department store. If you want to understand more fully the impact of bankruptcy, read a personal story atmyvesta.org. You’ll see that the impactcan last far longer than sevenyears, both from acredit andemotionalstandpoint.The

Build Credit-Single or Divorced Ifyou needto build credit in yourown name dueto a divorce orsome other circumstance, your best bet is to take out a secured credit card. You give the financial institution some money upfront that is held as collateral should youdefault, usually starting out with a few hundred dollars.You’ll usually payan annual fee and ahigher interest rate than with other cards, but using a secured credit card is a great way to rebuild your credit after a bankruptcy, or establish it from scratch. Use the card, but donot pay the balance off immediately.Pay it off over several months, and do this repeatedly. Creditorswant tosee that you usecredit and will carry a balance, but do not make late payments. Once you’ve proven your ability to handle credit, you can thengraduate to more traditional, lower interest rate credit cards. For a wide selection of secured cards, go to Bankrate.com and into their credit card section, where you can click on “Best Rates for Secured Cards.”You’ll pullup along listthat ranks the cards according tothe interest rates offered, from14% on up.You’l1also see a wide varietyof minimum deposits, several in the $300 and $500 range. You might also check out GetSmart.com, where you can inputinformation about yourself and your credit history and see the cards for which you might qualify.

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I What3 Your Net Worth? JustDon’t Debt It! How can you deal with those monthly credit card bills when your income doesn’t appear as regularly asthe bills do? Arizona real estate saleswoman Gayle Roberts struggled with that problem for years, until she came up with a solution that worked-she stopped using her credit cards! “I gave up my credit cards entirely,”she told me, “and now onlya use debit card that takes the funds instantly out of my account. When youare in sales, or anybusiness with an unsteady revenuestream, it’sjust too easy to get behind. Here’s what would happen-I am always optimistic, so I would think to myself I know that I’m goingto sell a house this month. And I know that money will to use my credit card to tide me over. But come in soon, so it’s okay for me the debt just grows and grows and thenyou are in realtrouble.” Gayle and her husband both racked upcredit-card debt. Once they realized the trouble they were in, they tossed out all the cards and stopped charging entirely, not just until the bills were paid off, but forever. “My friends always say I need a credit card for emergencies, but there is no emergency that a credit card is truly going to lix. It is much better to practice the rule Do Not Debtand thensave your money aninemergency fund.”

anonymity of the Web is especially helpful, since you can skip the humiliation of walking up to the bookstore clerk with a bankruptcy book under your arm, or worrying about yourvoice wavering on the phone. Plenty of places exist online that can teach you more. One very good site is run by Cornel1 University atwww.law.cornell.edu/tor>ics/bankruptcy.html. You can alsolearnmore at www.abiworld.orc, www.bankruptcy-info.com, and www.lawoffice.com (go to the pull-down menu in the Law Knowledgebase).

Divorcing Your Accounts If you think you can justforget about your ex-husbands debts when you get divorced, think again. Paula Miller, 44,of New Orleans learned about debts and community-propertylaw the hardway. Married to a contractor who piled up business and tax-related debt to the tuneof seven figures, she found herself in court defending her income against his creditors, after evenhe’d filed bankruptcy. Imagine yourself as Paula: for seven years, she supported the family single-handedly, even tripling her income, while her husbands entire income went to paying off his debt. When they eventually divorced, he accepted responsibility for his business-related debts as part of the decree. But, under community-propertylaw, she remained on the hook.So when he after her. “I knew nothing wasn’t able to pay off his debts, his creditors came of my husbands business dealings,” Paula says. “I had no idea how deeply he was in debt until his creditors were my at door.” Unfortunately, not only

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Single & Sawy If you’re single, let me caution you about makingloans to close friends or to boyfriends. As a young single woman, you’ll have plenty of your own debt to worry about. But if you “must,”then treat it as a loan. And put it in writing. Draft a document and date it. State who owes what amount to whom, when it must be repaid,and what, if any, interestis being charged.Even an agreement sent via e-mail is valid, but sure be to geta reply fromthe other person that they agree toit. Then, print out the entire e-mail and file it away.

did Paula have to face the humiliation of a foreclosure notice being posted “I didn’t know hewasn’t even on her door, but she ultimately lost her home. making the mortgage payments until itwas too late.” As Peggy Twohig, Assistant Director for Financial Practices at the Federal Trade Commission explains,“A woman might suddenly getbill collectors calling her and wonder why since the divorce decree put her ex in charge of making the debt payments,” she explains. “But, just because a divorce decree appointed your ex-husband as responsible for making the debt payments,doesn’t mean you’re off the hook.If both of your names are on the loan, then you are both responsible. So, if your ex-husband defaults on a loan-fails to make payments-the creditors can and will come after you.” As Peggy explains, the onlyway toavoid thisis to approach the lender together andask to be takenoff the loan.Be prepared for some tough questions, however, like whyshould the lender let you off the loan when itwas based on both of your financial statuses?

From Dwindling Debt to Cooling Credit Today, Paula Miller is making steady progress toward paying off her debt and struggling to restore her good credit. So how do you rebuild your credit-or build good creditfrom scratch? We’ve talked about how debt can prevent you from building wealth, but we haven’t talked specifically about how debt can also harm your credit. Good credit is your ticket to lower interest rates, perhaps finding a job, and even getting funding for a business idea. Using the you Internet, cannot only improve your credit, you can build it. Back in the 1970s, women had avery hard time establishing their own credit. Imagine this:you wanted to take out a loan or get a credit card,and the lender would decide, just by your age and your marital status, whether or notyou “deserved” credit. Even if you werereceiving substantial alimony and child support, you would still have a tough time qualifyingfor a loan

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I What’s Your Net Worth? Clicking to Satety As I write this chapter, Paulette Gerkovich, Directorof Research and Advi-

Services for Catalyst,a nonprofit research firm for women, sent me this e-mail: ‘‘I was playingon your websiteand decided to order a copy of my credit report online, as you suggest womendo. Much to mysurprise, I found that someone had impersonated me and applied for two credit cards in myname, ran up charges, and didn’t paythe bills.Who knows how long this would have beenon my report if I hadn’t clickedon to your site!”

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or a credit card. These were simply ignored as sources of income. Worse, even if you were part of a husband-and-wife team that together had compiled excellent credit, you would lose all of that positive history once you divorced or your husband died. Back when SuzannePozzo got divorced,she got a rude awakening. During her 20 years of marriage, Suzanne diligently wrote the checks every month to pay off her and her husbands Bank of America credit card, but when she tried to get her own health insurance and credit cards after her divorce, she found it next to impossible. “HereI was, making surewe had a good credit history, and now I couldn’t even get a credit card in my own name.” Even though Suzanne had no historyof bad credit, she simply had no history at all on her own, asfar as the health insurance andcredit card companies were concerned.“It was toughevengettingautoinsurance because I was newly divorced,” she adds. Even Suzanne’s regular alimony payments were not counted as income. Thank goodness thelaws havechanged! Today, your child supportand/or alimony paymentsare fully counted as income. Your hard work in making sure the loansyou have with your husbandget paid on time also helps yourcredit. You get to share in thegood credit you compile with your husband. Just how do lenderstoday decide if you should get a low interest rate, or be penalized with a higher interest rate?How does a potential employer decide if they think you’re mature and responsible? They look at your allimportant credit report and your overall credit rating.

Your Credit Report Counts-Big Time! Think of your credit report as your financial resume. Just as your career resume portrays your skills and work experience, your financial resume portrays your skills and experience in dealing with your finances and meeting your financial obligations. What is found on your financial resume can move you up the wealth ladder-towards a new house, a college education for your children, or a businessof your own.It can also move you backwards-

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several steps down the ladder if you find yourself ineligible for an impora new job. tant loan, an attractive interest rate, or Where does the information on your financial resume come from? A credit bureau creates your credit report using information suppliedto it by banks, merchants, and other creditors. A complete credit report contains information on yourage, address, employers, your history in taking out and paying off loans, your historyof paying credit card and otherbills on-time, public information suchas tax liens that have beenfiled against your properties or bankruptcies you have filed, and even the names of companies inquiring into yourcredit report. Your career resume is only circulated when you choose to share itapplylng for a new job or promotion.But your financial resume, yourcredit report, is out there and available to any number of interested parties. And the information on it can affect much more than your ability to borrow money. For example: Potential employers canget a copyof your credit report with yourwritten permission-even if you are not hired! They use it to assess your trustworthiness and dependability. Pay attention to what you sign. Health, auto, disability and homeowner’s insurance companies have access to your credit report. Real estate agents, loan brokers, banks, and landlords use your credit report to determine whether to sell you a home, issue you a home loan, or rentyou an apartment.

What Is Your Credit Score? The single most importantfactor in assessing your credit report and the rates you will get on loans is the credit score lenders assign to you. This one little score has tremendous influence. Here’s how the industry assigns you a score. They examine your credit experiences, such as your bill-paylng history-have you been late in making your payments, or are their any collection actions? They look atthe number and types of accounts you have-what is your outstanding debt, whatis the age of your accounts, do you have toomuch exposure to debt because of open credit cards? This information is collected from your credit or loanapplication, and from your credit reports prepared by various credit bureaus. Then, using a statistical program, creditors compare this information to the credit performance of consumers withsimilar profiles. You are then assigned a score ranging from 300 to 900-an indicator of how likely you are to repay debt in a timely fashion. The higherthe score, the better. Does this seem remote to you? How does some secret credit score or report number affect your dayto day life? Trust me, it affects your financial life immensely, dayin andday out. Think aboutthis: you go into a bankfor

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a loan and you get approved. The interest rate you’re offered seems fine, but when you compare it with the much lower rate your neighbor got, you’re shocked. What you don’t know is that your credit score was just slightly lower than your neighbor’s. By going toFair, Isaac and Company (www.fairisaac.com), the company that first began compiling information for credit scores, you canget information about the components thatgo into your credit score(also known as your FICO score after the same company).Of course, just about all aspects are more relevant of your credit history go into your credit score, but some than others. 35% is determined by the payment historyon your credit accountsthat’s why making your paymentson time is critical! 30% is based on the amountsyou owe creditors. 15% is attributable to the length of time you’ve been a credituser. 10% is based on whether you appear to be loading on new credit. 10% is governed by the types and mixes of your credit uses. After years of keeping consumers’ scoresclose to the vest, the industry is just now making them available. QSpace.com offers both credit reports and scores fromEquifax, one of three leading credit bureaus. Trans Union, another credit bureau, will be offering its own credit score.

Strategiesto ImproveYour Credit If your credit isn’t any good, is that it? Are you stuck with it?No, there are several concrete steps you can take to improve your credit rating while at the same time paying down your debt. 1’11 get to debt paying strategies shortly, but right nowlet’s concentrate on patching up your credit. 1. Get a copy ofyour credit reports. Hmmm . . . credit reports? Plural? Credit reports are filed with three different companies: Experian, Trans Union, and Equifax. Do they all keep the same info on you? Alas, no. Each one gets information reported to it by different companies. Maybe you shop at Nordstrom’s, which reports its information to one bureau. Perhaps you took out a loan from a local bank, which reports to anothercredit bureau. Eachof them maintains their owninformationaboutyou. It’s up toyou to makesure they’re all accurate. Visit their websites at www.exDerian.com, -.trans union.com, and www.eauifax.com to learn more about your credit report. You can also get copies of all three bureau reports through

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wfn.com, OsDace.com, or mwesta.org. You will receive it instantly via e-mail, be able to scan for it any inaccuracies, and start the process of fixing errors. The good news is that credit bureaus now share consumerdisputeinformationwithoneanother. Theoretically, this means that if you have the same discrepancy with all three bureaus, you need onlyclear it up with one of them and that credit bureau will forward the correct information to the other two. You generally have to pay a fee to get a copy of your credit report. However, if you are deniedcredit based on somethingin your credit report, you are entitledto a free copy of your credit report. It might be thatyou didn’t qualify for an apartment rental or a home you loan; can either call up the credit bureau to request a copyof your report, or order it on-line with the bureaus. Don’t stop there-look at all three reports to find out what is in each. Thisis particularly important before you initiate a job search, buy a house, or consider other actions where yourcredit report will be considered. 2. Review itfor accuracy. Is the information in your credit report accurate? Are those old, unused credit cards still open? Does it show you were late on apayment that you were sure you paid on time? Does it include tax liens that were paid off? If so, go to work compiling and submitting the documents (receipts, tax bills, releases, court judgments, etc.). that will help youcorrect the record. County records will contain bankruptcy filings and tax or otherliens. To search for any legal judgments against you that you are not aware of, go to www.knowx.com, a powerful site that links to public records. Sign up, type in your name, and see if you show up in their records of judgments, lawsuits, or liens. Obtaining afull report will cost you a fee. 3. Make corrections.The Fair Credit Reporting Act requires credit bureaus to respond to requests for corrections in credit reports within a reasonable period of time. Although the word “reasonable” is open to some interpretation,it generally means approximately30 days. If they don’t respond, they have to remove the item in question from your report. It is your jobto supply them withthe information they needto make the correction (letter from a creditor, receipt for a paidbill, etc.). 4. Monitor your credit. If you think you might be engaging in job or house hunting, you might wantto monitor your credit reports on a routine basis. Consumerinfo.com provides a credit monitoring service for around $70 per year plus a free credit report from Equifax, but note that it only covers one of the credit bureaus. While$70 may sound like a lot, you can be automatically alerted via e-mail to all So if you’re changes to your report andall requests to see your report. wondering if the Human Resources Department of XYZ Company

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pulled a report on you, you can easily find out. If you have something negative on that report or an being error, ableto head itoff by addressing theissue up front might helpyou win ajob orget that home loan.

A Thief Ruins Your Credit I know I’m running through a whole paradeof horrible events in this chapter, from overwhelming debt to bankruptcy to an addictionto spending, but there is one more scary thing that needs to be addressed in a chapter on debt and credit, and that is that the burgeoning problem of identity theft. The incidence of identity theft-when someone steals your personal information andcredit history in order to purchase expensive items innameyour is rising dramatically. Does transacting on-line increase your chances that someone can ruin your credit? I actually think that the chancesof that occurring in the traditional in-shop merchant world are much greater. In fact, Pam Kukla, director of corporate communications for Natural MicroSystems, says she feels more secure in the on-line world than anywhere else. “I think women haveto understand that the infrastructure and security in the real world is at least as fragile, if not more open to invasion and unwanted visibility, than in the virtual on-line world,” shesays. “The virtual world was constructed from the groundup to provide sufficient security and transaction capabilities, and is still evolving to improve this. Knowing this gives me plenty of confidence to keep clicking away.” Unfortunately,manywomenareconcerned about security over the Internet, and thismay be inhibiting themfrom taking full advantage of the Net. Remember that it is much easier for someone to simply go into your trash and find out your social security number, orfor a clerk to palm a carbon copy of your credit card imprint. Here’s one example. Maureen Marshall and her husband had stellar credit, until someone stole it. “It became a total nightmare situation. I had to take time off from my work as a realtor in order to deal with it,” Maureen told me.Despite the fact that they had never purchased anything on-line (the most common way we all fear we’ll become targets), at least six different people began using their information to buy cars and obtain credit cards. Once Maureen knew that something wrong had happened, she contacted threethedifferent credit 30 inquires intotheir credit report bureaus and learned that there had been in just two months. Over and over, despite clearly suspicious information provided by the criminals in applying for credit in Maureen’s name-everything from false area codes to mismatched signatures-they were able to buy numerous expensive cars using her and her husbandsnames. Not only did the identity thieves have credit and personal information;

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they hadall of the job information from Maureen’s husband. It is still amystery how their information was stolen.“We had zero risk factors for identity theft.” With what they now know, though, Maureen and her husband realize it could happen to anyone. How can you make yourself less vulnerable to identity theft? Here are a number of precautions you can take. 1. Request that you be alerted every time your credit report is requested. I talked earlier about having your report monitored. 2. Use on-line banking. By viewing your cash coming into and going out of your bank at any time on any dayof the week, rather than waiting for statements, you’ll be able to see and detect misuse of your funds quickly. 3. Be extra cautiousto whom you give your Social Security number,onand off-line. Remember that, ultimately, your Social Security number is the primary identifierof who you are. 4. Do not respond to unsolicited e-mails asking for information about your bank orcredit card. 5. Shop with acredit card that protects you if someone steals it anduses it. Check your credit card policy and find out what protections you have. Most cards cover you after the first $50. Ifit’s fraud and you’ve reported it,you usually don’t have to pay until thecase has been settled. 6. Keep records of everything you order. Save receipts or e-mail confirmations from purchases you make. 7. Report suspicious experiences to The National Fraud Information Center atwww.fraud.org to ensure that they are investigated. 8. Consider investing in a shredder for your trash. True identity thieves frequently sift throughgarbagelooking for discardedcreditcard bills.

If you want more informationto help prevent identity theft, or believe you may be a victim, contact thePrivacy Rights Clearinghouse at www.mivacv ricrhts.org. You can also gets lots of helpful information at the Federal Trade Commission atwww.ftc.eov The topics of credit and debt can be both eye-opening and at the same time overwhelming.I urge you to examine your own credit and debt situation carefully, make whatever necessary changesto gain the upper hand on your spending habits and to bring your debts under control. Maintain and improve your good credit. Then, watch your debt and credit concerns settle into the backgroundof your life. In the next chapter, you’ll learn how good debt, through the purchase of a home, canleverage your money and build net worth.

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Links You Will Love Bankruptcy Information www.abiworld.or5 www.lawcornell.edu/toDics/bankruptcy.html www.lawoffice.com www.mwesta.org

Credit Cards www.bankrate.com www.cardclues.com www.cardweb.com www.creditnet.com www.getsmart.com www.rate.net

Credit Report Information www.equifax.com www.exDerian.com www.fairisaacs.com www.asDace.com www.transunion.com www.wfn.com

Complaints www.bbb.org www.consumer-action.org www.ftc.eov www.justiceonline.org

Debt CalculutordAnalyzers www.credit-card-direct.com www. financenter.com www.freedebtanalyzer.com www.mvvesta.org

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www.smartmonev.com www.wfn.com

Debt Counselors www.monevhelp.com www.mvvesta.org

Home Equity Loans www.nhema.org www.meblo.gsa.gov/money

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Chapter 4

Win the Real Estate Game

Margaret Cable was29, and suddenly on her own. The break-up of her marriage had left her uneasy about her future, and shevowed to move slowly in this next phaseof her life. “But I knew I needed to buy a house.I’d been living in a large house-it was pretty much all my husbands taste-and I really wanted to have a small and peaceful space whereI could create my own little world.” Despite thefact that she only had afew thousand dollars to use as a down payment,Margaret found a smallhouse to buy for$70,000. Using an FHA loan and convincing the sellerto pick up the closing costs, Margaret’s dream came true. For the next few years she worked to improve the house, spending some$20,000 on the house and theyard. At the same time, she went back to school and then embarked on a new career as an herbalist. Five years laterand, thanksto the Net, Margaret’s little house sold for $175,000, an impressive gain. How’d that happen? “I was thinking about selling, and had decidedto price it at $140,000. That figure seemed about right to me. But I went online and pulled up therecent comps (comparable sales) in my neighborhood and was surprised tofind that my neighbor’s house across the street had quietly sold for $159,000. His house is smaller and hasn’t been remodeled, so I upped my price!” Her house soldquickly, and Margaret was on herway to her next dream, buying a small farm where she plans to grow herbs. Margaret isn’t alone in using the Net to help her with her real estate research. In fact, women like 30-year-old Liz Briggs log-on to determine how much rent is “killing them” and how much home they can afford. And money managerJanet Hanson usedit to save time lookingfor a new home, enjoying a “virtual” tour of homes righther in own home, on hertime. YOU can save on mortgage costs, and even find good schools for the kids. 74

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12)Share yoursuccess 11) Preserve what you have 10) Increase your earning power 9) Minimize your taxes 8 ) Organize yourfinances

7) Protect yourassets 6) Invest to build yournet worth 5) Educate yourselfabout investment 4) Acquire a home

3) Free yourself from debt and build credit 2) Live within yourmeans 1) Determine where

youstand

The soaringnumbers of women buying homesis leading women to the Net to take advantage of all these new opportunities. In late2000, Internet researh firm Gomez Advisors found thatnearly half of all home shoppersgo on-line as the first step to getinformation. According to Jupiter Media Metrix, nearly 48% of those visiting the topreal estate sites are women, who are looking to find a home, an fix-up existing one, get or help with a relocation. Women 25 and older comprisejust over 57% of towerauction.net3 users. Here’s how of their overall users. the topreal estate sites stacked up for women as a percent Top Real Estate Sites for Women ~~~~~

~

1oweraucuon.net (HomesDirect)57.2% centurv2l.com 56.1% doman1a.com 53.7% homestore.com 52.3% ahamembership.con\ 52.1% remax.com 51.2% coldwellbanker.coq 49.1% realtor.com 49.0% monstermovmgsb 48.6%

homebuilder.com homepricecheck.com move.com sprinfstreet.com homefalr.com realestate.com bamboo.com homeeain.com homeadvisor.com rent.netsiteq

48.4% 46.2% 45.2% 43.9% 43.6% 41.7% 40.8% 37.5% 36.6% 31.3%

~

And, more and more women are using on-line lending sources, as such those listedbelow, to help them shopfor a loan. Top Mortgage LendingSites forwomen ~l0l.corq homeadvisor.com conseco.com rountrywide.com

4% 47 36.6% 34.7% 31.0%

interestxorq ploan.com lendinPtree.com

26.4% 19.6% 19.4%

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WhatS Your Net Worth?

All of those women are flocking to these real-estate websites for a reason-because more and moreof us are buying housesof our own. TheFederal Government set agoal of adding 8 million American homeowners and reaching a new all-time high homeownership rateby the end of 2000, and we are making significant progress-in large part due to gains by women. Toward the endof 2000, the national homeownership rate hit a record high of 67.7%, bringing the totalof US homeowners to 71.6 million. Yes, women are again the driving force. The homeownership rate for women rose to 53.3%, up from 48.7% in 1994. Higher earning power and later marriages arejust two reasons women are increasingly the chiefs in the home. But here’s more: As more women pursue higher education, the number of women achieving financial independence increases. Higher education leads to higher incomes, and high net-wage earners are buying houses for tax advantages. 80%of mortgage loans are made to two-income couples-a clear sign that women’s incomes are key to qualifying for home financing. Whilewomenarebuyingmorehomes,barriersstillexistthatcan impede a woman’s ability to qualify for a mortgage on her own: Married women who are separated, divorced, or widowed oftenface credit and financial problems brought on by their former spouses. Many women do nothave strong credit records (or histories)of their own. A husbands debts or joint obligations are oftenreflected on thewife’s credit record.

Making Home Ownership a Reality In Chapter 3, we talked about building credit on your own. In this chapter, let’s focus on taking advantage of new programs designed to make home ownership moreaccessible than ever before. Many women askme how they can find help if they’re first-time homebuyers, or where they get canthe lowest mortgage rate. They also want to know howa home purchase works into their investment portfolio. Let’s face it, we all want to own our own home. It’s about security and pride, butit’s also about diversifying your investment portfolio. After all, owning a home isreally an investment in your future,isn’t it? In fact, as this chart illustrates, homes are America’s most treasured assetand the place we put most of our hard-earned dollars (see Figure10).

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How the Nation’s Wealth is Divided Homeownership Leads Other Assets $4 tdlllon Nmrporate Bus~ness

l-l-

$10.7 trillion

CanJOther Durable%

Interest Earnmg Assets Penslon Reserve

Bonddother market

~ u t u aFunds l

sacunties $2.2 tnlllon

53.3 trillion

Figure 10 Source: Federal Reserve

Aside from security, owning real estate provides stability when the rough and tumble of the stock market hits your portfolio. While stocks will fluctuate much morewildly from month to month andyear to year, home prices are generally less volatile. Lower volatility or risk typically means lower returns-except that you have a few advantages working in your favor with a home. You and I both know that, due to the economy, some homes have appreciated substantially in the past few years. There are many tales of homes in sought-after areas, like the Silicon Valley and Atlanta, where some lucky homeowners have done as well as, if not better than, the stock market recently In 1977, the average priceof a new home stood $54,200.Two at decades later, in 1997, theaverage new home sold for $176,200, for a 6.1% annual for increase in the priceof a new home. If you bought your home in 1977 $54,200 and held on to it, that same house would have increased anaverage 5% per year and today would beworth about $166,000. But, let’s not forget a few other important financial factors that make owning a home different a ball game: 1. The ability to “leverage” yourmoney-using just a small down payment toget control of a house whose total value will appreciate substantially over time. 2. The ability to deductmortgage interest and property taxes from your income taxes. 3. The chance tosell your home for a profit and not have topay taxes on it,as you do with the sales of your stocks.

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What's Your Net Worth? Average New Homes Prices (1969-2000) (In thousands of dollars)

Leveraging your money is a powerfulconcept-something I want you to understand, now that you have the forces of the Internet working with you. You see, my goal is to help you make your money grow, not just 10% as it might in the stock market, but even Here's more!an example: sayyou're looking at a $200,000 house and have put standard 20% down payment, $40,000. If this house were to appreciate by 10% annually, which is not unheard of in a strong market (and an especially booming town), your home wouldbeworth$322,102 in only five years. You have leveraged your $40,000 into $122,102 ($322,102 minus the original $200,000 price)-or a 25% average annual return.Now that's a return! And,today, it's tax free so long the home was your primary residence for two of the last five years. This is exactly what happened to Margaret Cable's money when she bought her little house for $70,000 and sold itfive years later for $175,000.Margaret's $3,000 down payment turned into $105,000-for an average annual return of just over 103% (note that in this case we have assumed that Margaret's housing costs equal the alternativeof renting). In the investment chapters,I've outlined a number of ways to build up your net worth through investing, but those methods all had something in common. Without exception, these were not really investments that you could see. Investments that you could go and visit, walkaround on, and dig your toes into. Justa handful of embossed stock certificates or numbers on a statement. When you buy real estate, on the other hand,you are buying something that exists in the physical world. You can actually visit your


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Buying withYour Boyfriend How do you buy a home with your boyfriend or significant other?Very carefully.If you are buyingit together make sure you are both formally listedas Owners of the home and that yourpercentageownership is spelled out in the deed. Also, be awarethat if you both own the home, any late payments made by one will affect the credit of the other. Consider taking title as tenants in common, whichlegally allowsyou to haveseparateinterests in the property. As tenants in common, one partner‘s interest in the property can be sold while the other partnerretains hislher interest.

money, and see whatit is that youown. Indeed, in a sense, you can live surrounded by yourmoney, or what your money bought! Many investors find that very reassuring, particularly conservative investors. For many women like Margaret seeking ‘‘small a and peaceful space,”home buyinggives us a sense of security that is so important, anda senseof accomplishment.

The Big Switch Rent or Buy? Stacy King, a rising professional in the financial services industry,is on a fast track when it comes to her career, but notto her housing costs. She was still renting an apartment rather than owning a home.So she logged onto the Net and quickly saw that if she put that $700 a month into a home, in seven years, and made rather thangiving it to her landlord, chose to itsell some assumptions, she’d come out over $53,000 ahead (see Figure12). All due largely to the fact that home mortgage payments are tax-deductible, while rent payments are not, and that sheis building equity in an investment that she can sella at higher pricelater. Renl or buy?

Pre-tax value of alternative investments, if renting: We’re assuming thatyou invest the money that would have goneto your down

Monthly cost ilbuyfng

0 lnlthl montw rental payment

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Dnference: Expected return estments

v

selling

Figure 12

$61

zl

Re-tax value of alternative investments, If renting

0 Equity recoverable fromb

$700

-672

any monthly

e by

savings.

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When RentingMakes Sense I remember the days puttingmyself through college. I lived with my uncle because of a deal that was just too good to pass up. For $100 per month, I had my own room and bathroom and home-cooked meals from my aunt. This allowed me to use my income from working as a waitressto cover my car and college costs. Renting makes sense when you expect to live somewhere for only a short period of time or you are uncertain about your next move-or you really can’t muster up any down payment, which we’ll get into later. Your career, for instance, might suddenly take you to a new location, and the constraints of owning a homemay not be something you want to handle. When I started Women’s Financial Network (WFN) for instance, I had to move immediately to the Silicon Valley-certainly not a cheap place! I really did not know how long I would have to be there before returning to available apartSanta Monica, so I jumped onto the Internet, and found an ment that met my criteria for price and location. In some cases, I could see photos of the apartment andan easy map that showedme how to get there. You can find apartmentsthatmeetyourcriteriaeither by going to www.move.com or www.apartment_euide.com.You can alsotry accessing the local newspaper’s on-line sitefor classified ads, orby searching for yourcity and the word “apartment.” In addition to your location criteria, shoppingfor an apartment on theNet can prevent you from going over your budget. You simply choose your rental costs range,and those apartmentswill appear. Although it makes perfect sense in the above scenariosto rent instead of buy, 1 have to tell you that it makes me cringe whenI see women put $700

Temporary Relocation Expenses If you are renting while on an official temporary assignment from your employer of not more than one year in duration, you can deduct from your taxes not only the rent for your home away from home, but many of your living expenses while away from home as well. This can have a significant impact on your bottom line: My friend Rosa transferred temporarily to the Bay Area for a job and deducted everything from rent to food to gas. The $13,000 in costs over her10-monthassignment tooka few thousand dollars off her tax bill.Just be sure to have proper documentation that you were indeed “on temporaryassignment.”Ask your supervisor to provide you with an official letter on company letterhead that spells out the fact that your temporary transfer to another geographic was at their request, and was a necessary part of your job.

Win the Real Estate Game I 81 into monthly rent payments. That money is gone for good. Mortgage payments, on the other hand, build equity and increase your net worth. The Net has some great calculators to help you determine not only whether you should rent or buy, but also how much of a home you can afford. Many of the sites listed at the beginningof this chapter have these calculators. When determining whether you should rent or buy, be aware that some calculators do not take into account such things as property taxes and condoassociation dues. Also watch for the commission costs you must pay an agent when you goto sell the house (often it’s 6%but you may see an 8% suggestion in the calculator). Finally, many calculators assume that you are putting 20% down on your home.However if you are putting less than 20% down, you’ll probably end uppaying higher interest rates, something called private mortgage insurance (discussed later), and higherclosing costs in the formof additional points (I will explain this later, too).

Mom’s First House My own mother is a very good example of how an ordinary woman who knows what she is doing can use real estate to get ahead financially. When I was a little girl, my dad bought the first house for the family. When my parents divorced about five years later,mom got the house,myself, and my two brothers. Despite thefact that times were tough, my mother was committed to getting ahead, working two waitress jobstojust keep us afloat and pay the mortgage. Soon thereafter,she sold the house and bought a duplex for $89,000her thinking that that we could live in one half, and the other half would be rented. Shewas able to have her cake and eat it too-we had a roof over our head and she had an investment. And then an opportunity to buy another duplex with a friend who was a realtor soon presented itself-for $7,500 down, my mom went in 50-50 on a second duplex. Having arealtor for a partner sweetened the deal by eliminating the need to pay any sales commission on the purchase or subsequent sale. A short time later, they sold the second duplex and netted a $30,000 profit. Mom doubled her investment ina year! Her only regret?Selling too soon. My mother’s mainpiece of real estate advice has always been, “Buy the least expensive house in the best neighborhood.” She’s right. Mom clearly learned a lot in the process, and her lessons are illustrative of the value of real estate as an investment for two reasons. First, investing in real estate gave her a sense of security; we had a safe place to live. Second, real estate proved to be a solid investment.

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That’s R-E-I-T In recent years, something called Real Estate Investment ”usts, or REITs, have emerged as an investment vehicle for investors wanting to put someof their money into real estate. Investinga REIT in is like investing in a mutual fund, except that the fund manager in this caseis a company that professionally manages commercial buildings, shopping centers, or other real estate. If you want to learn more, head over to the Nationalof Association Real Estate Investment ’Rusts at www.nareit.com or to rvww.realitystocks.com. 1

How Do You Know Wherethe Real Estate MarketIs Headed? Just as it is possible to gain some insight into stock markettrends by keeping a close eyeon market indicators and business trends, you canalso gain insight into the future direction of the real estate market. The NationalAssociation of Home Builders (NAHB) at www.nahb.com is a great site for news on the housing market andforecasts about whereit’s headed (go into “economic and housing” data). The NAHB provides informationon the mostaffordable areas of the country for home buying, and sales prices for homes in specific regions. The NAHB has its own housing market index, the HMI (housing market index), that will give you a historical sense of the housing market. Remember, though, thelaw of buymg low and selling high (sameas with stocks!), so look for an affordable area that is growing rapidly-new construction is one sign that your moneywill grow. Another site to check out for commentary on real estate trends is HSH Associates, which publishes information for the mortgage industry. Realty Times at www.realtytimes.com, along with Inman News at www.inman.com, are two other leading sources of real estate news.

How Mortgage LendersSee You Like people, houses come in all sizes and shapes. Unlike most people, though, they have price tags attached. When you walk into a lender, you might think you have great credit and that you have your down payment ready to go. But lenders already have set guidelines that determine how much they’ll lend you. This generally translates into monthly mortgage pay28% of your monthly income.(Don’t be confused by ments no greater than the prudent spending guidelines in the discussion on debt. This28% is the formula often usedby lenders while25% for your housing costsis an effective budgeting guideline.) This 28% for housing expenses includes your

Win the Real Estate Game I 83 mortgage payment, monthly allocation for property taxes, homeowners insurance, any homeowners association dues, and mortgage insurance, if applicable. Let’s say you make$60,000 or $5,000 per month before taxes in take-home pay That means a lender would allow your monthly housing costs to be only as high as $1,400 ($5,000 X 0.28). Other considerations will also come into play with a potential lender, like how much debt you are already carrying. Ideally, you’ll want to avoid having your monthly debts exceed 36% of your monthly income. This includesyourmortgage, car loan, credit carddebt(for that,useyour monthly minimum paymentfor qualification purposes), andeven that outstanding student loan-another argument for foregoing that new car you really can’t afford! On-line calculators can quickly and easily help you determine how much home you can afford, usually giving you a low and a high estimate. Most on-line lending providers or marketplacesalso have associates available for live on-line questions during business hours-a great help if you are weighing factors that don’t fit neatly into the calculator formulas. You can also find “How Much Home CanYou Afford” calculators at almost any of the major real estate sites. So check out E-loan.com, Lendinetree.com, Smartmonev.com, or WFN.com.

How MuchIs Too Much? Remember that good oldcredit history we talked about in Chapter3? Your credit score will be thefirst thing any lender will look at when deciding what you can afford. With good “compensating factors,” such as your credit history and available savings, the lendermay allow you to borrow with debta income ratio of 40-50%. Since LizBriggs had excellent credit, she was approved for a mortgage with payments at $2,000 per month. The biggest compensating factor is your credit score, followedclosely by your employment stability and level of cash reserves. Ideally, you wantto be in the higher credit score bracket so you can qualify for an “A” loan. We’ll get deeper into loans later in this chapter. First, let’s find you a house.

The On-line Hunt Some people enjoyhunting for the perfect house, butwomen like Man Baker, Senior Vice President and GeneralManager of BabyCenter.com, simplydon’t

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have time to drive (or fly) around looking for houses. After living in the Bay Area, the tech center of the nation, for nearly 20 years, Mari and her husband decided to investigate moving to a quieter, rural setting like Boulder, Colorado, Bozeman, Montana, or San Luis Obispo, California. So the tech-savvy Mari spent her evenings doing research on-line after her 2- and 5-year-olds were in bed. “My husband bought books andI used the Web,”says Mari. “In about five hours, over a couple of weeks on the Net, I was able to get huge amounts of information, and could easily identify neighborhoods with the top public schools for the kids.” Weekend after weekend devotedto driving through neighborhoods one by one, stopping at every “for sale” sign stuck in a likely looking lawn might be an adventure for some. But for most, it’s a time-consuming, frustrating chore. Yet another neighborhood to look at, yet anotherfloor plan to consider, yet another school district to investigate-about as appealing as a trip to the dentist. I much prefer to hop onto the Net, and take quick virtual tours of homes for sale and new real estate developments. Judy Corcoran, a Southern California mortgage broker, is delighted by virtual real estate tours for another reason: “when it’s 100 degrees outside, with a virtual tour you don’t have go to out.” When youtake a virtual tour, you sit comfortablyin your chair and use your computerto walk through a house, following the eyes of a video camera. Almost all real estate companies now have virtual tours of the properties they list. If they don’t have them now, they will shortly, I promise you. Before heading off to the websites of the national real estate brokers like Century21, Coldwell Banker, Prudential,or Remax, also consider tryingto locate the smaller firms in the area you are considering. Another approach is to head to the big consolidated real estate sites like Homeadvisor.com, HomeSeekers.com, and Realtor.com. These siteswill have listings from many brokers and real estate companies in the city you are searching, although they often do not carry listings by the major brokers. Some sites will require you to become a memberbefore accessing information; others won’t. The sites discussedabove don’t require membership. Let’s sayyou are considering a move to the Boulder, Colorado, area.On theHomeAdvisor.comsite you could type in the zip code for Boulder, 80026, and see listings available from many local agents. See a listing you like and wantto learn more about it?You can shootoff an e-mail to the listing agent without even leavingthe page, or you canclick on the listing and sometimes see a pictureof the house. What if you don’t know the zip code, or whatif you’re looking for any neighborhood that meets your minimum standards for schools, crime and home prices? Mari Baker says she wished she’d known about Realtor.comk

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“neighborhood finder” before she flew all the way to Colorado to drive through the Boulder neighborhoods (see Figure 13). She could have narrowed her search considerably, and gone in armed with information on neighborhood schools crimes rates, etc. She could have also limited her search to homes under a certain price range, and therefore not run the risk of falling in love with a house she couldn’tafford. Finally, check the local newspaper by typing in thecity followed by the word “newspaper.” Many of the large real estate sites have links to community sites where you can research these detailed facts.

Virtual Home Tours Most of the homes for sale on the real-estate sites are homes being soldby their current owners. However, what if you want that brand new house you’ve always dreamed o f - o n e where no one ever painted the cupboards yellow or installed orange shag carpeting? Recently, my aunt expressed an interest in moving outof her current home in the desert and closerto where her husband worked. They were to see, but wanted my opinion. At 600 interested ina new house they went miles away, that was about impossible,so I hopped onto the Internet, and there was their housing development onwww. kbhomes.com, the website for mega real estate developer Kaufman andBroad. I was able to take 360degree “virtual home tours” of approximately 750 different models. If you’re wondering who someof the othernew homebuilders are that

School Quality: ’

Crime Risk:

’

Avg. Home

Prlce: I

Avg. Sq. Ft:

I

! j Urbanization:

!

Type of Home: I

To narrow or broaden your search area, use the zoom bar.

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!

Figure 13

Click the map 1 0 re-center .

”___.

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I What? Your Net Worth?

you might check out, remember my trick: go to Hoovers.com, look up a company you know, such as Kaufman and Broad, click into the “capsule,” scroll down, and you will see “Top Competitors.” Then search for those competitors websites. At places like Shea Homes, www.sheahomes.com, just put in your desired location, price, and number of bedrooms, and out comes the neighborhoods with homes that meet your criteria. Or, if you see homes going up someplace and you like them, look for the homebuilder’s nameand do a search that will take you to their site.

Save Time and Money Mari Baker saved timeand increased her chances of making a smart home investment by using the Net. Janet Hanson did too,soand have I. Have you ever wondered what suchsavings consist of? The Bakers reduced the number of cities they needed to visit, and condensed the time they hadto spend in each city. Although they still spentclose to $900 in travel costs, it could have been far more. They were able to spend moreof their weekends with their children, insteadof house-hunting. Janetgot to see properties that she I was able to help my aunt might well have missedjust driving around, and and uncle make a smartdecision from miles away.

The One-Stop Shop You know what it is to guard something with yourlife. The Multiple Listing Service-orMLS as it is commonly known-used to be ferociously guarded by real-estate professionals, because MLS is where all homes for sale are listed-ALL of them. The MLS is a centralized clearinghouse whereall homes are listed, along with information about theirsize, lot square footage, number of bedrooms and baths,fireplaces, swimming pools, theage of the house, almost anythingyou’d want to know. You know, all the stuff YOU as a buyer wantto know-and that’s precisely why it wasso guarded. The fresh air of the Internet has blown open manytypes of heretofore privileged communication, including, most recently, the MLS (or at least some of it). Why is this important to you? Because the more information you get from the MLS to arm yourself with, the betterthe chances are that you can make an informed offer on the house you want, instead of being swept up in the moment and offering too much. Remember that in real estate, as in so many other partsof life, information is power. What’s a womanto do when she wantsto capitalize on the Net and get into the MLS for the neighborhoods she likes? Simplygo to Yahoo.com or any major search engineand type in the name of the region along with the


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words “multiple listing service,” such as “Cincinnati multiple listing service,” or “Scranton multiple listing service.” Remember thatMLS the is primarily for useby real estate agents already familiar with an area, and therefore does not contain information on such things as the quality of local schools or nearby parks, you but have already learned how tofind that information on the Net.If you do find homes you’re interested in on the large real estate sites, take down MLS the number orsave the dataso that you can share it with yourreal estate agent, who can then check out the homefor you and access other information.

ShouldYou Use a Real Estate Agent? Real estate is an investment, a fairly complicated investment that comes with many legal and financial ramifications attached to it. Do you really have the time, or the inclination, to chase down things like finding out if the title on the property is secure? It is possible to do it on your own by working with lawyers and title companies, but wouldn’t you rather be using your time in otherways?

Finding Out About Schools and Childcare One of the biggest concernsof moms is the condition of schools in a potential new neighborhood. The Net is a quick and powerful wayto get objective information on school districts, individual schools, and available private schools. “I’ve beena realtor since the 1970s,” Nikki Rueppel told me, “and I’d say that most prospectivebuyers usedto come armedwith secondhand information about schools or communities, a bit of info they’d heard from a sister-in-law or old college roommate. But more and more I now meet home buyers who have thoroughlyresearched the schools on-line, and seem to know even minor details about which schoolin which district is rated the best.” She advises parents of school age children to log onto www.schoolmatch.com. There you will be able to findout about school’s a population, the location, and website address and, for $9.95 or $19.95 access a more detailed report on the school. Also check out TheSchool Report.com, where youcan find the school’s population, student:teacher ratios,computersper classroom, and even SAT scores. TheSchool Report.com is also available through Jlomestore.com and Realtor.com. And for women with children too young for school, www.carefinder.com will allow you tofind licensed child caresituations in almost any community. CareGuide.com provides local accessto both child and elder care facilthe additional costs. ities, as well as tools to help you budget for

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Using a real-estate agent has several major advantages: They know the market. Good real estate agents keep up with all that is happening ina neighborhood, particularly what homes are selling for and why. They make their bread and butter by paying attention to the market-at least the onesyou wantto work with do. They can also help you plan your “bidding” strategy, prepare your initial offer and counters, and make sureall the legal procedures are followed. They can also provide you a comparative market analysis, C Mor A. A is a good deal. C M A will help you determine if any particular property Basically, a C M A is a compilation of the past, the present and the future-what’s sold, what‘s in escrow, and what’s available-with all of the charts and graphs that can make it easier and quicker for you to grasp what’s going on. If they are affiliated with a large, reputable real estate company, the company usually carries substantial liability insurance, so if your agent makes a mistake or something goes wrong, you may be able to recover against the company. The services of an agent are free. The seller pays the commissions of both the seller’s agent and the buyer’s agent-generally a total of 6% of the selling price.

Finding an Agent How do you find an agent you want to work with? Like choosing a financial advisor, go first to your own circle of friends to ask for recommendations if you are looking for a house locally. Here are somethings to keep in mind when consideringan agent (even if they come highly recommended): 1. Are they full-time? You don’t wantsomeone whosells real estate as a side hobby. As I pointed out, buying a house is a financial transac-

tion, and you want and need expert advice and guidance. Full-time commitment meansa better understanding of the ups and downs and ins and outsof the market. 2. Do they know the area you have in mind? If someone has been selling real estate in the same community for five years, their knowledge of the area will be extensive. Researching on-line, you can find factual information out, but the“feeling” for thearea is something you can’t get over the Net. 3. Check to make surethey are fully licensed and have been taking ongoing education.Real estate agents and brokers must licensed be with your

Win the Real Estate Game I 89 state’s real estate department. You can also go to www.nationalassocia tionofrealtors.com and link to the local realtor board from their site. 4. Are they affiliated with a reputable firm? The ultimate responsibility in this transactionlies with the broker. If something shouldgo wrong and you feel that the houseyou bought has been misrepresented, agent an working in a one-man or one-woman shop may not have much money behind them, but if you worked with an agent affiliated with a large national firm, you have a better chanceof recovering something.

Realtors, Agents,and Brokers Realtors, agents, brokers.Who is whoand what is what? If you want to sort it all out and know the differences between a realtor, a broker and a real estate agent, you can go to www.nationalassociationofrealtors.com.

ThroughRealtor.com,HomeSeekers.com,orevenFannie Mae at www.fanniemae.com, you can locate real estate agents located in anycity. HomeGain.com has a unique feature that allows you to search for a real estate agent anonymously and obtain background and commission information. Or, if you want to deal witha large real estate company, you can go to their site and find one of their agents in your target city. My aunt loved her agent from Coldwell Banker, and now she can find another one to help her with her next move by simply going to their website. Also check out centuryZl.com, prudental.com, and remax.com.

Success Strategies in Finding Your Home Use the rent vs. buy on-line calculators to see if buying makes sense for you. Use the How Much Can You Afford calculators available at www.wfn.com, www.financenter.com, and most lending sitesto estimate what you can afford to buy, paying extra attention to assumptions used in the calculator. Usemajor sites like HomeAdvisor.com or Realtor.comto help you determine the right neighborhood, based on your home-buylng budget, school criteria, and other priorities. Don’t forget to take into accountdistance to work, as that will add time, costs, andstress to your life. Once you’ve chosen your neighborhood, find an agent, relying on referrals, a trusted brokerage firm, or on-line networks. Make sure they meet your criteria, including having the experienceto negotiate well. Use on-line virtual tours and personal planners to save time and

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WhatS Your Net Worth? money. Even if you work with an agent, you easily can save the homes you like best and share them, which will give the agent across the country an idea of your tastes.

Shopping for Your Home Loan Shopping for houses is fun, compared to the next step, shopping for a home loan. Unless you have a very large stack of cash sitting out in garage, the you are going to have to borrow money. When should you begin looking for a loan? Before you look for houses? After you find the one you want? When is the right timeto get started? I believe that the minute you decide that your are going to buy a home, any home, is the moment you should start looking for a loan. Why?Because: By going first to a lender, you will find how much you can borrow, given your income and credit history. This will tell you how much home you can buy. By going first to a lender, you will quickly learn whether there are blemishes on your credit history that are going to affect how much you can borrow,and at what rate. This, too, may impact how muchof a house you can afford. If you have your loan approvalin hand, your offer on a house will be taken very seriously by the seller, and you might even succeed it getting a “lowball” offer accepted becausethey know the sale will close rapidly. Some real-estate agents require loan approval before they begin working with you. Even if you apply on-line, you can get a pre-approval letter to show your agent. Maybe you love your bank or credit union, andthat’s certainly one option to explore for your home loan, but I would never call them up for a loan without first jumping on theNet to find out what interestrates and closing costs are being charged by various banks, credit unions and mortgage brokers. At the very least, you should have this “competitive” information before talking seriously with any lending institution. Thisis the only way you can legitimately “cut agood deal.” Aside from your bank, you can go directly to a mortgage broker, either the traditional way or the Internetway. Think of a broker as a travel agent helping you find a well-priced airline ticket. On-line mortgage originators like E-Loan.com,LoansDirect.com andQuickenLoans.commakeloans themselves, while marketplaces like LendinPTree.com make actual lenders, including E-Loan and LoansDirect, compete for your business.

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The on-line mortgage brokers have a tremendous advantage over walking through the front doorof your bank and asking to see the loan officer on duty Theyhave, to some extent, eliminated the middleman, and they've pitted lenders against one another, making them compete for your business. You can apply on-line, and then review your loan application days later or make updates. You can easily compare rates and use that information to negotiate. That's been the beautyof the Internetfor women lookingto buy a home. The Internet hasforced companies to compete for your business by lowering the costsof getting a loan, and lower costs mean you have an easier time qualifymg for a loan for the home you want. fees. What kind of costs? Thefirst two costs are your interest rate and As a woman, you'll love the ability to see immediately what kindof offers you'll get off the Internet and what financial the impact is to you.I told Lenda home with20% down. After spending ingTree I was looking for $300,000 10 minutesto complete a form, within a matter of hours I was gettingoffers from lenders. The next day, LendingTree sent an e-mail saying I could see how the loan offers compared. Click.. . and thereit was, all of the offers laid out for me see. to And all of the lendersdisclosed their loan origination and processing fees and the "points" (1 point = 1%of the loan amount) they would charge me. The fees ranged from $975 to $1049.50 while the rates (see Figure 14). offered ranged from7.375%to 7.75%, on a no-point loan Many of the major lending websites have an instant loan pre-approval process. By going directly to their sites, you might be able to arm yourself with instantpre-approval, and gain a bargaining edge with theseller. The online pre-approval process isfairly a quick and simple one, though sometimes . . -

.

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..

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, . .

Click column headings (or

Figure 14

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it will cost you a fee, which will then be applied to your loan costs. On the Countrywide.comsite, for instance, all that is necessary isyourname, address,birthdate, social security number, gross annualincome,and monthly debt payments. You click to give them the okay access to your credit file, and if your credit is clean you can literally get approval in minutes. Unfortunately, some of the banking sites I checked did not have their online pre-approval process working. Infact, at some sitesfor “instant preapproval,” you needed to supply your phone number and wait for a bank representative to call you back.

Uncle Sam Can Help You Buy Your First Home I said earlier that womenare the driving force of new home ownership.Well, it just might be that the governmentis holding the key to your purchase of a home. Uncle Sam knows thatreal estate is one of the best, and safest, investments you can make. Real estate ownershipfosters stability, community relations, and prosperity. It also produces tax revenue and helps create jobs. If you’re worried that you can’t qualify, you should first try a Federal Housing Administration or FHA loan. FHA-backed loans are more flexible when it comes to lending standards, something helpful to women with poor credit or no credithistory. Log on to www.hud.gov to learn more. The FHA doesn’t actually make loans but provides insurance to lenders so that they will make home loans to those who might not normallyqualify. FHA loans typically require only 3-5% down. On a $100,000 home, a 3% down payment equals$3,000 compared to the normal 20% or $20,000. Keep in mind, however, that there are limitsto the amount of FHA-backed home loans that varyby region based on average home prices. But if you’re a first-time homebuyer, those limitswill probably work for you. If you want go to to find alender who’s experiencedwith FHA loans,simply www.hud.com and into “first-time homebuyer.” Then, scroll down and look for “lenders who can help you with HUD FHA mortgage program.”

Loan Types Big or S m a l l When it comes to the size of your loan, remember that smaller is better. Loans under $275,000, known as “conformingloans,”have the lowest interest rates. Loans between $275,001 and $650,000, known as “Jumbo”


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loans, have an interest rate generally‘L to ’A of a percent higher than a conforming loan. Loans for above $650,000, known as “Super Jumbo” loans, bear the highest interestrate-generally ‘A to ’A of a percent above a Jumbo stuff? Because loan. Why do1 want you to know about this mumbo jumbo when it comesto building wealth,you’ll want to think aboutstrategies that take this information into account. For example, if you can put more down on a house so you only have to take out a conforming loan, youwill save thousands of dollars in interest payments over the years. Keep in mind that these ranges for conforming and jumbo loans change each January.

Choosing Fixed or Variable When choosing a loan, you will be confronted with what can seem like a confusing choice: doyou want a mortgage with afixed interest rate, or one whose interest rate varies, goingup or down depending upon howa lending indexfares. With afixed interest rate, you know for the life of your loan what your interest rate will be. With an adjustable rate mortgage (ARM), your fate rides with the strength or weakness of the economy. On an adjustable rate loan, you start out paying a significantly lower a interest rate loan. interest rate, even as much1.5% as lower than with fixed This can be very attractive, particularlywhen interestrates are high and paying the much lower monthly interest payment may be theonly way you can afford a home. Adjustable rate loans also have the advantage of being assumable by the next buyer, which can make your home easier to sell. The major disadvantages of adjustable loans is that their interest rates cango way up, and they often have higher closing costs.

Point the Finger? Often, a loan without points will tantalize a borrower, but they shouldn’t always. Points are a way of reducing the interest rate by generating fees upfront to the lender. One point equals 1% on theloan amount. So, if you are going to borrow$100,000, one point would be 1%or $1,000 ($100,000 x by 0.01). The higher the points, the lower the interest rate on the loan. Your goal when determining whichway to go is to look at how long you plan to stay in that house. Points makesense if you planon staying in the home over a longer period because the lower interest rate will bring you out aheadin the long-run. If you’re not going to stay in the housevery long, say onlya few years, consider a loan with no points. Use an on-line calculator, available at most lendingsites, to help youdetermine which wayto go. Remember, points are often negotiable with the lender.

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Fixed interest rate loans dominate when interest rates arelow, and are particularly attractive to people who want to know for sure what they will have to pay each monthto keep their house.We’ve been in a fixed-rate market for some time now. The choice has been clear: with interest rates so low, why wouldn’t youwant to lock ainpermanent interest rateof 7% in a fixed interest loan? In 1978, however, fixed rate loans were at about 85% and 6%% were very popular. adjustable interest rates that started at about Perhaps the most important factor to consider when trying to decide between an adjustable and a fixed interest loanis how longyou are planning to live in the house. If you plan to stay put in that housefor more than five years, lock in afixed rate. If you are uncertain of your long-term plans and think that moving in the next few years is a high possibility, then consider an adjustable-rate loan thatwill save you money during thoseearly years.

Lock In Your Rates When Liz Briggs was trying to buy her condo, she found a rate on onewebsite that looked good initially-good, that was, until she realized that it would only be “locked in”for ten days andafter that could go up. “No one closes in ten days,” she says, “So I found a guy through my realtor who locked it infor 45 days.” Keep in mind that rates fluctuate daily, minute-by-minute, depending on what the chairman of the Federal Reserve says, thestate of the economy, consumer confidence, and a numberof other factors. As such, you need to be wary of making a deal for a loan, only tohave the lender increase your interest rate priorto closing. What you need to do is get an agreement from your lender that guarantees the rate you have agreedto, regardless of whether interest ratesgo up in the interim. With most lenders, you can also get them to agree to offer you a lower interest rate if interest rates decline between when you apply for the loan and whenyou close. If you can, avoid signing anything thatsays the rate cannot be lowered, get andsomething signedsaying the interest cannot be increased. If you are tryingto time the purchaseof a home and want to know which way interest rates are moving, take a look at Bankrate’s “Rate Trend Index” on www.bankrate.com. It provides comments from industry analysts and their opinions about thelikely direction of mortgage rates. As of this writing, only 7% of experts surveyed said rates would increase in 2001. About 50% thought they would drop, and the remainder thought rates would stay unchanged. The HSH site mentioned before at www.hsh.com is also filled with information that will help yougauge which way rates are likely to head. Their predictions in December 2000 stated that “softer economic growth here and abroad should help lower interest rates” in 2001.


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That’sPMI What doyou do whena lendertells you you’re going to get stuck withPMI? First, don’t confuse it with PMS, although they areboth unpleasant.You see, since people often default on loans, and since folks who put less money down on a home than the traditional 20% are more likely to default than those who don’t, lenders want assurance. This assurance comes in form the of private mortgage insurance, or PMI. So if you put down less than 20%, you get the privilege of buying your lender an insurance policy that will cover them if you default on the loan. This insurance can be expensive, ranging as high as $150 a month. Let me share a trickif you do get stuck withPMI, or if you’re paying it right now. In booming economieslike we’ve had during mostof the 1990s, when the value of homes are rising, the equity in your home can increase dramatically. Let’s say you bought a home for $200,000 but you could only put lo%, or$20,000 down. You’re stuck paying $70 per month inPMI. But if you were to look at your hometoday, it might be worth$250,000, thanks to a hot market. You’re now eligible to drop that PMI and save that money. How? Let’s do the numbers. Before Home Price Mortgage amount Subtract % Equity

$200,000 $180,000

$20,000 in equity $20,000/$200,000 = 10%

Now $250,000 $180,000 $70,000

$70,000/$250,000

=

28%

Since younowhave 28% equityinyourhome,thelendershould remove the PMI coverage (but don’t wait for them to come to you). Sometimes an appraisal of your home will be required. Domania at www.doma nia.com has a great home equity calculator, thoughyou’ll have to become a member first. It’s important to point out that taking out a second mortgage can often make more financial sensethan paying PMI.

The Down Payment How much you put down on your house really depends on how much cash you can muster up. If you put less than the standard 20% down, you will be hit with higher interest payments, higher loan origination fees and, of course PMI. In order to get your down payment up to 20% and lower your overall costs, particularly over the long run, consider taking out a second mortgage for the missing percentage. The second will be at a considerably higher rate but often works outto lower your costs over the long-run.

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Can You Q u a l i bfor a Loan? What does it take to qualify for a mortgage? Lenders will examine several different factors. Income is a primary consideration-not just how much, but how steady. This can be a challenge for the self-employed and business owners; I’ll give some strategies for this situationlater on. Other than your paycheck, whatelse can you show as income to help qualify? Any amounts thatyou regularly receive, such asinterest on savings accounts or rent from a duplex you own, for instance, can be counted. If you are a divorced woman with children, for instance, you may include child support and alimony payments in your total income in orderto qualify. You must, however, show the lender that your ex-husband has been prompt and responsible in sendingyou child support and alimony payments for several years and, of course, that your children are still young enough that the court-ordered payments will continue for several more years. The lender needs to be convinced that this money can be counted on. Do you receive bonuses on the job? If you can show that you have steadily received them for several years and will continue into the future, the lender will include that in her assessment. Consistent overtime payments also fall into this category. Lenders will also lookat anypast history youhave with mortgages.Let’s hope you were never late withthe payment.A lender won’t be sympathetic, even if you can show that you have always paid your other bills on time. Please remember that the notice for your monthly mortgage payment that you receive in the mail is merely a courtesy. It’s up to you to make your monthly payment, whether or not you receive theirnotice. Steady and timely mortgage payment are what lenders wantto see. Lenders will also be happy to see that you have liquid assets-cash, mutual funds, stocks, bonds, and whole-life insurance with cash value, but, your on-going income and credit history are more important.

Zero Credit History What doyou do if you don’t have credit? Not that you have bad credit, mind you; you just don’t have any credit at all. If you are of the rare breed that doesn’t believe in using credit, and pays cashfor all of your big purchases as you go, I applaud your money-mindedness. Alas, it leaves you in a lurch when you try to make the biggest purchase of all, a house. Lenders wantto see your credit history, not your money philosophy. But even those of us who pay in cash for big-ticket items generally have cable bills,phone bills, utilities bills,and rent thatwe’ve paid for years. Using these kinds of records

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to proveyourcredit-worthiness to alender is called “non-traditional credit.” You’ll need to get together proof of three or four different kinds of regular payments thatyou’ve made like this,and then search hardfor a sympathetic lender. As I mentioned in the credit and debt chapter, your credit history determines what kindof home loan you will be able to get, and at what price. As I write this, mortgage rates hovering around 7% can be hadif you have great credit. But for a sub-prime loan, a loan given to a woman with a bankruptcy in her background or a long history of late payments, the current rate could be as high as 12.65%-almost twice as much.

Loans On-line One of the things I love about the Internet is thatif you don’t want to deal face-to-face with someone,or you want to remain anonymous, oryou don’t have the time during theday to talk to your broker,then you cango directly on-line with such firms as E-Loans, LendingTree and LoansDirect to conduct yourbusiness. As a mortgage banker,E-Loans makes 95% of its home loans itself, eliminating much of the middleman. LendingTree forces companies to compete for your businessby sending yourloan specsto four different institutions and allowing you to compare offers. LendingTree also offers a “scorecard” telling you how customers rate the lenders they’ve worked with.Access it by going to the third drop-down menu at the top and look for “lenders scorecard.” LoansDirect created first the on-line visual and audio introduction to your loan team, and offers a total satisfaction guarantee. Then there are the traditional bricks-and-mortar lenders themselves, such as a Countrywide, who as yet are not doing the entire loan transaction on-line, but soonwill be. You can also check out howe-commerce research

Inspect Before Buying! Never, never buy a home without a home inspection. There may be termites, the foundation may be shaky, ortheir may be hidden cracks from an earthquake. Costing $200-$300, it can save youthousands. Oftentimes, you can use any information you learn to negotiate the price down further. To find an inspector (and always hire your owninspector rather than using the seller’s),ask your agent or check the yellow pages-the real thing or online atwww.vellowDages.com.Or,visit the National Association of Home Inspectors at www.nahi.org where you can findinspectors across the country, but you’ll have to do some scrollingdown once you enter the list of inspectors for a given state.

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firm Gomez rates lendersby clicking into “mortgages” listed under thePersonal Finance heading.

Watchthe Fees With any loan, the incidentalfees can add up, and up and up, accordingto Liz Briggs. After she closed on her condo and took close a look at thefinal statement herescrow agentsent her,“I was blownaway. Tennotary fees, and faxes at $5 per page.” Watch for such “garbage” fees. While most lenders will usually charge an underwriting fee, document preparation, flood certification, wire, tax service, credit report and appraisal fees, watch for processing, administrative, application, funding,notary, and fax fees. Your fees should bedisclosed within three days of applying for your loan, andby all means try to negotiate as many of them away as you can. Also avoid mortgages that have pre-payment penalties-that is, aspecial fee should you wish to pay off your mortgage early, either with a refinancing or making higher payments on your mortgage.

The Internet Is MakingIt All Possible Ten, or even five years ago, you would have never imagined that the Net could take you from Seattle, Washington to Charlotte, North Carolina to find your next home, or to determine whether your target city was really a good place to invest. Getting lendersto compete for your business, or finding out about special opportunities for first-time homebuyers, or those struggling with that down payment are now at your fingertips. It all makes for more money in your pocket and more time to spend on other parts of your life. All thanks to the Internet. Purchasing real estate is a significant step up on the wealth ladder. In the next chapter, we’ll talk about building up your investment portfolio. Please don’t think you need to buy a home before you can start investing. Countless women, whether in college and renting or living with a family member, are climbing even higher through investments.

Links You Will Love Apartments www.apartmentguide.com www.move.com

Win the RealEstate Game

Calculators www.domania.com www.eloan.com www.homeadvisor.com www.lendingtree.com www.auickenloans.com www.smartmonev.com www.wfn.com

Homes www.century21.com www.coldwellbanker.com www.fanniemae.com www.homeadvisor.com www.homeeain.com www.homeseekers.com www.kbhomes.com www.nationalassociationofrealtors.com www.Drudentia1.com www.realtor.com www.remax.com www.sheahomes.com

Lenders www.countrywide.com www.eloan.com www.hud.eov www.lendinetree.com www.loansdirect.com www.auickenloan.com

Research www.bankrate.com www.carefinder.com www.careeuide.com www.dataauick.com www.domania.com

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Vacationhome swap www.homelink.com www.trading-homes.com

Chapter 5

Click Here for Investing

In the last few decades, SharriMyers’ life has undergone dramatic changes. She has gone from being the stay-at-home mother of three and wife of a physician, to suddenly finding herself a single mother in charge of providing for herselfand her children. “The responsibility is overwhelming when all of a sudden the rugis pulled out from under you.” How did the rug get pulled? When her husband of 20 years walked out. Sharri recovered from her husbands departure andemerged a strong, capable, and successful real estate woman. And she vowed neverto be caught unprepared again. With this proactive attitude in mind, Sharri has embraced the world of investing and has built up an impressive portfolio on her own. Sharri started outby setting aside moneyfrom her commission checks; every time she sold a house she would add money to her mutual funds. After a few years of this, she took note of the high fees she was paying for these mutual funds andbegan to shop around and compare.Gaining confidence from her mutual fund investments,Sharri began to trade individual stocks on her own. As her memories fade of those long ago days when she wondered how she would ever manage alone, Sharri has embraced the new phase of her life-as an active and aggressive investor seeking to build her net worth. Whether already retired or just graduatingcollege, women everywhere are taking on investing as their latest lifelong hobby-a hobby that will bring them financial security and new-found confidence. We know why investing is so important for retirement, but I’ve heard from thousands of women about the impact it can also have on othersignificant decisions, like what kindof home they are able to buy, which college their children are able to attend, and whether or not they can help their aging parents. This is important for all women, not onlythose who are single. 101

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Why invest? For women, the number onereason to get involved in the stock market is to ensure that your retirement needs will be met.We women are nurturers, and as our financial strength grows we embrace the chanceto help those we love-our children, our parents and our community. It’s time, however, tothink aboutourselves; by becoming financially independent we are really giving the ones we love the ultimate gift: freedom from the burden of caring for us in our old age. When I first started Women’s Financial Network (WFN) I was thrilled by the traffic and excitement that was building. As I started to get e-mail messages and questionsfrom some of our visitors, a trend quickly emerged. Fully 50% of the women who were loggingonto WFN wanted help with retirement or investing. Most of the messages reflected a hesitancy in getting started: some were confused about how investing worked; some didn’t know whatto do first; some said they didn’t have enough free time to keep up with their investments; some worried that they didn’t have enough moneyto invest. My answer was always the same:just get started, regardless of how little time or money or knowledge you think you have. For every day you wait, it costs you. The bottom lineis that because theylive longer, womenmust pay extra attentiontohow theymanagetheir money, particularlyinvestments. Women have a longer retirementto finance-yet less to do it with. But, here’s some good news: The majority of women”64%-c1aim that they are more interested in investing than they were five years ago, accordingto Oppenheimer Funds. In our ownstudy, a whopping 76% of WFN visitors said they wanted to become more involved in their finances. 88% of women are confident that,if given the chance, they can invest wisely. 32% of men surveyed said they trust their wives “very m u c h when it comes to financial matters (on the other hand, only 22% of women said the same thing about their husbands). Women now make up 48% of all stock market investors and, just recently, the growthof female investors on-line actually surpassed that of men, according to Forrester. What is it that makes women different from men when it comes to investing? 1get asked this all the time. When WFN did its ownsurvey, 57% told us they have special financial needs that are dramatically different from the ordinary financial needs of men. Let’s face it, divorce and widowhood tend to put women at a huge disadvantage. In fact, our standard of living after a divorce decreases by lo%, while his increases by 23%. For women

Click Herefor Investing 103 who are mamed or merge their finances with a partner, there’s often the issue of control: how doyou stay on topof your finances if your husband or partner insists on managing everything? Here’s how else women are different. Are you comfortable walking into a brokerage firm, asking for assistance?67%told WFN no. Are you tired level of respect of the sales pitches? Most of you are.Do you want the same as aman when talking to a financial advisor? Absolutely! One survey found that 80%of women believe that financial institutions should be doing more to cater to women customers, and the investment industry is picking up on this. Many of them now have special women’s initiatives including lunch-time seminars, life events planning, and placement of women in leadership positions.If you don’t like what you are getting at your current bank or brokerage firm, switch to one that wants your business and your mind. In my own work andresearch, I have found that what women want mirrors what men want-respect, performance, great customer service, and personalized attention.But women also haveunique needs concerning how they want to be treated and how investing relates to the various life stages, whether they are just getting started, are mamed, separated, widdivorced, owed, or retired. Oneof the biggest surprises I’ve found, which was confirmed in a study by the National Associationof Women BusinessOwners, is that womenoverwhelmingly seem tobe drawn to companies createdby women-trusting women who understand the issues they face, who can help them integratefinances into their overalllives, and whowill help pull them up the wealth ladder.

12) Share yoursuccess 11)Preserve what you have

10) Increase yourearning power 9) Minimize your taxes 8) Organize yourfinances 7) Protect yourassets 6)Invest to build yournet worth 5 ) Educate yourself about investment 4) Acquire ahome 3) Free yourselffrom debt and build credit 2) Live within yourmeans 1)Determine where youstand

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How to Begin If you’re like the women who e-mailed me at WFN, you’ve probably asked I start investing? Where do I get yourself the same questions: “When should started? How do 1 get started?” My answer is always the same: just get started. It doesn’t matter whether you have $50, $500, or $5,000-your money needsto be workingfor you. It’s frustrating to see howmuch emphasis women place on the amount they earn in their careers, and how little emphasis theyplace on the amount their money can earn when it is invested properly. The longeryou wait beforeinvesting a portion of your hard-earned income, the more youwill hurt your ownfinancial future.

Determine What You Need at Retirement Determining your retirement needsis step number one intaking charge of your investing. Close your eyes and imagine what you want your life to be like when you hit retirementage. Do you picture yourself in a cozy cottage at the beach? Or spending your days growing heritage roses an oversized in garden? Perhaps it is a life of endless travel and exploration,visiting all of the places you never had a chanceto see whenraising your family. Or more realistically, just being able to live out your days comfortably in the family home with enoughleft over for an occasional vacation or unexpected medical expenses. Whatever the image in your head, it’s going to cost money. Will it be the$200,000 you will need to keep the house, the $1million you’ll need to fund the rose garden lifestyle, or the $10 million (always think positively) you will need for your first-class around-the-worldtravels?It depends. The more workyou do now to determine your needs, the clearer your plan will be. So consider these things: 1) The standard of living you want at the time of retirement-maintaining yourcurrent lifestyle may require more savings; life a of travel will require quite a bit more. 2) The resources you will need to get there-whatyouhave saved already, and how much you canput away from nowon, plus any additional income such asSocial Security or part-timework. 3 ) How long you plan to be in retirement.

The sooneryou start, theless you will need to put away in future years to get you to that cozy place you dream about day after day. Here’san exam-

Click Herefor Investing 105 ple: Mary and June are both 30 years old.Both women wantto retire at age 60 with $1 million. Mary starts saving rightaway the $670 per month it will bills take to reach her goal (assumingan 8%annual return). June, who has to pay and children to educate (who doesn't?) waits until she is to40start saving. Because she is getting alate start, guess how much she needs to save By to reach her $1million goal at age60? A whopping $1,700 per month! the time both women reach age 60, Mary will have saveda totalof $241,200 ($670 X 12 months X 30 years), while June will have saved $408,000. In other words, June had to save nearly twice as muchMary as simply because she startedlater. How much do you need to save to have the retirement life you envision? Nobody can tell you exactly, because it depends on how muchyou think you'll need, when you plan to retire, and how longyou think you'll live, among other factors. On-line calculators can be helpful because they allow you to fill in the blanks with numbers and see the answer flash back on the screen with a colorful graphto make itmore understandable. This detailed calculator, available at WFN, as well as at SmartMoney, tells whata 42-year-old woman needsto save this yearto retire at age 65in your personal information and it will show $15,870 (see Figure 15). Put not only what your retirement picture will look like if you stop saving now-but what you needto do to reach your goals.

Figure 15

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When using calculatorsto guide you in deciding how much you willneed to save for retirement, remember that not all calculators take inflation into account (this is important since your dollar will not be able to buy you as much inthe future), and some may ignore yourtax bracket. Some calculators let you enter your own assumptions, while others in putthe assumptions for you. The more complex the calculatoris-that is, the more questions it asks and the moreflexibility it gives you in entering assumptions-the more accurate it is likely to be. However, always keep in mind that actual results (rate of return, tax bracket, inflation rate) could turn out to be different from the assumptions you entered. For thatreason youshould run your retirement calculator annually and make adjustments as you go. Please don’t get discouraged if your retirement calculations show that you will fall short of your goals. It’s possible that you may not need your retirement savingsto provide allof your retirement income.More and more retirees are working during “retirement1’-whether it’s to seize the chance to do somethingelse they love, keep theirminds active, orpursue a lifelong dream. Some small business owners can’t imagine their lives without having anactive hand in their businesses, and so they hand over some, but not all, of the responsibilities. Interior designer Mildred Green didn’t close her decorating shop in Sacramento until she was almost ninety, and continues “1tried to retire full-timein my late to consult with some long-time clients. sixties, but I was too bored. So I just went back into business and haven’t looked back.” Once she hit 70, Sandra Downey cut back on the time she spends in her needlework shop, but hasdeveloped a new hobby to fill the idle hours-she enjoys managing her investments. Some retired folks seize upon their new leisure time as theperfect opportunity to embark on a new career. My own mother is investigating aflower stand. She is looking forward to the chance to try to build new skills(I like to think she isfollowing in the footsteps of her entrepreneurial daughter). So, when creating a planfor how much you will need to support your lifestyle in your retirement years,you’ll want to take any additional income from a part-time job or business into account.But just in case you decide not to work, or if poor health in later retirement years precludes you from working, it’s always safer to also construct a scenario in which you can live without any part-time income.

Social (Safety Net) Security? Let’s hope ourold friendSocial Security will be there when we need it.Since it’s impossible to know how Social Security will change in the years ahead,

Click Here for Investing 107 all we can do is make our assumptions based on what the program offers and then do thenecessary adjustments later on.To get an estimate of your Social Securitybenefits,simplylog onto www.ssa.gov or call 1-800772-1213 and ask for a Personal Earnings and Benefits Statement.

Suggested Strategies When Using Retirement Calculators In orderto get an accurate handle on how much you will need, gather all your information together on your various retirement, savings, and investment accounts. Get your Social Security information in hand. Retirement calculators can vary greatly in their answers. Use two or more different retirement calculators to see how much they vary. (This should convinceyou that none of this is cast in stone!) Many banks and brokerage firms, such as WFN and Vanguard, have on-line retirement calculators, or try those in the calculator sections of Bloomberg.com and USAToday.com/money. Remember to check the assumptions that calculators make (or allow you to make). Typical assumptions in use today are 3-4% for inflation and long-term investment returns of %lo%. Also, you should ensure that thecalculator is takinginto account your appropriate tax bracket.

Retirement Savings I’m going to adopt a more evangelical tone in this section. This is because retirement savings are absolutely critical to women, butwomen’s actual savings habits are downright abysmal. Fully 30% of women have yet to save any money for retirement, according to the Employee Benefit Research Institute (EBRI). About 20% of women said that they were very confident in their overall retirement income prospects, compared to32% of men. Not only do we fear growing old, butwe also fear the uncertain financial future that awaits us in our goldenyears. 71% of women do not believe Social Security will provide the Same benefits in the future as it does today. More than 40% of women over the age of 75 must make ends meet with less than $13,000 ayear.

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I WhatS Your Net Worth? Will Social Security Reforms HelpHurt or Women?

“Women are not a side show tothe national Social Security reform effort,” says Professor Timothy Smeeding, director of the Center for Policy Research at Syracuse University. “Theyare the main event.”Here’s why. About 75% of unmarried elderly women depend on Social Security for at leastof half their income, and 25% depend on it as their only source of income. And, a 25% less than aman’s. woman’s benefit check is about Among the reforms being considered by Congress isthe establishmentof individual savings accounts, financed by employee payroll contributions, but the government’s General Accounting Office says women could lose than men,less money would go under this approach. Since women earn less into their investment accounts,and the gap between men and women might widen further. The Gerontological Society of America alsopointed out that disproportionthe administrative costsof such savings accounts would fall ately on lower earners with smaller accounts. Guess who most of the lowwage earners are? Women! On the other hand, women might bebetter managers of money in their own Social Security savings accounts. Whatever changes are ultimately made in the Social Security system, however, two things are clear: you should payattention to what changes are being proposed, and you should save and invest now so you won’t have to depend on Social Securityas your primarysource of retirement income. By now, you recognize the importance of building up your retirement savings. The real question is how doyou go about it? Retirement accounts play a critical role in ensuringa healthy retirement, becausethey offer two critically important advantages.First,monies depositedintoretirementaccounts(withcertainexceptions)are taxdeductable.Second,retirementaccounts offer theadvantages of taxdeferred compounding-meaning that you will not pay taxes on your gains until you withdraw the money from the account. For this reason it’s usually a good idea to take advantage of retirement accounts to the fullest extent possible before investing in regular taxable accounts. This is particularly true whenever your employer is “matching”all or a part of your contribution to your retirement account. (Note: this is not a hard and fast rule because retirement accountshave certain disadvantages compared to regular taxable accounts, including penalties for withdrawals prior to age 59% and taxation at ordinary incometax rates when the money comes out.You may wish to consult your tax advisor for guidance.) Also, your retirement plan optionswill be different depending on yourcircumstances. Among the plans offered by employers are pensions and 401(k)s and, if you work for a non-profit or governmententity, 403(b) and 457 plans.


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If You Work for a Company That Offers a Pension Plan Pension. . . now doesn’t that sound like an old-fashioned word? It is, and it is fast disappearing in our lifetime. Starting in the earlier part of the twentieth century, men who worked for decades at the same job were commonly assured of retiring with a pension oncethey hit the age of 65. Your grandfather might have had a pension, your dad, maybe, but for you, my dear? Guessagain. it elimSome years ago I worked for a company when it announced was inating the company’s long-standing pension planand substituting it with a new “cash balance plan.” To put it simply and very bluntly, this is a way for companies to reduce the benefits they have to pay retirees. People who have their pension benefits cut obviously have to rethink their whole retirement saving strategy. To learn more about cash balanceplans, go to the Department of Labor at www.dol.Pov and doa search for “cash balance plans.” And keep in mind that whenyou work for a company that offers a traditional pension plan (as opposed to a 401(k) plan as discussed below), your pensionbenefit will be whatever the company decidesit will be-you have no control over the process, other than to understand how your benefits are calculated and to make sure all the information used in calculating benefits, such as your Social Security number, birthdate, and date of hire, are correct.

If You Work for an Employer That Offersa 401(k) or403(b) Plan 401(k) and 403(b) plans allow you to direct part of your salary to a special retirement account. The amount you contribute is not taxed as current income,

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Missing Pension Payments and Other Assets If you ever thought you or your husband a pension had but couldn’t seem to

ever get your hands on the money, checkout the Pension Benefit Guaranty Corporation (PBGC),a federal agency. Pension money from companies that have closed their doors or couldn’t finance their benefit programsare overtaken by the PBGC, which has launched an on-line pension search directory that allows you to locate any money owed to you. In fact, the agency has located 6,600 people eligiblefor $21 million in pension benefits, and millions more remain unclaimed. Go into the “pension search” at www.pbec.gov. While you’re searching for missing pension payments, why not check see to if you have other unclaimed assets lying around. Check out your state’s unclaimed property division at www.unclaimed.org for lostassets, which can include anythingfrom unclaimed jewelryto stock certificates. I

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so if your salary is, say, $60,000 and you contribute $6,000 to your 401 (k) plan, you’ll report $54,000 intaxable income. If you’re in the 28% tax bracket, this saves you an immediate $1,680 ($6,000 X 0.28). So essentially you’re out of pocket just $4,320 ($6,000- $1,680) yet you havethe full $6,000 workingfor you. Uncle Samhas just subsidized part of your retirementsavings. If your employer offers to match part of your contribution, so much the better. Now you have both Uncle Sam and your employer kicking in retirement funds on your behalf. You’d be crazy not to take advantage of it. If you do workfor an employer thatoffers a 401(k) or 403(b) plan, you’ve probably already received informationabouthowtheplanworks and whatyour investment options are. If you haven’t signed up yet, do so at your earliest opportunity, because this really is your best chance to sock money away for retirement. If your company does not offer a retirement plan, either lobby management to start one or, if you think you can get a better overall compensation package elsewhere, consider changing jobs.Retirement plans represent a significant employee benefit and, in today’s tight labor market, you deserve to work for a company thatis doing all it can to help employees save. Not long ago I listened in amazement asa well-educated executive told me that, although she knew how very important tax deferred investing was, well . . . she justcouldn’t get to her 401(k) because she didn’t have the time to deal with it. “Couldn’t deal with it,” I thought as I shook my head. The cost of her “not gettingto it” is estimatedto be as high asa quarter of a million dollars overjust 10 years! If you need help managing your 401(k) plan, there are Web several sites

TakingYour 401(k)with You Switchingjobs is hard enough, how but should you deal with your 40 1k when it is? Take itout and spend it? Roll it you leavethe company? Leave it where see their 401(k) distributionsas over into an IRA? Unfortunately, most people a nice little windfall, perfect for replacing the refrigerator or buyinga new couch. But that hasty decision could cost you nearly half yourretirement money in taxes and penalties. Don’t even think about spending your 401 (k) distribution.Instead,go for oneof the following choices:1) leave it with your old employer (if allowed);2) move it to your new employer’s401(k) plan; 3) have it transferred directly to an IRA rollover account, where you will be it until you retire. All of these options are soundand responsible for investing offer the advantage of continued tax deferral, although leaving it with your old employer can be dangerous because you’re likely to lose touch the with company; which one you choose wil most likelybe a matter of administrative convenience and available investment options.

Click Herefor Investing 111 that offer forecasting tools. For example, Financial Engines atwww.finan rialeneines.com, developed by Nobel Prize Laureate William Sharpe, allows you to see how likely it is that your 401(k) account and other tax-deferred investments will be worth what you expect them to be on your retirement 16). Go into "forecast and analysis,'' plug in your assets and date (see Figure you'll see the sun come up if you're on track or clouds and rain if you're off the mark. Other online "financial advisors" are DirectAdvice.com, Morningstar's Clear Future (try thefree 30-day trial at www.morningstar.com) or services offered through your employer's 401k program. mpower.comprovides some useful information on 401(k)s, 403(b), and 457 plans well. as Finally in addition to retirement plans, companies are offering stock options to employees to help ensure that everyone is working toward the same goal. W i t h the Internet,you can easily learn about the ins and outof options, as well as how to valuewhat they are worth easily Check out optionwealth.com.

If You're Self-employed If you're self employed, whetherit's your main occupationor a side business you run in additionto your day job, you can contribute part of your income benefits to your corporatesisto your own retirement plan and enjoy similar i t h either aKeogh plan or SEP-IRA, a you cancontribute apercentage ters. W of your self-employment (Schedule C) income to aspecial account, deduct

mur Forecasl:

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the contribution from your taxable income, and have the earnings grow taxdeferred until you take the moneyout. Annual contribution limits are 25% of compensation up to $35,000 for Keogh plans and 15% of compensation up to $25,500 for SEP-IRAs. If you have employees, you must make contributions for them aswell. In fact, if you have employeesthe whole retirement plan business gets much more complicated, and you’ll probably need professional advice.

If You’re a Stay-at-Home Mom If you are a stay-at-home mom, I hope youhaven’t felt left out in thisretirement planning discussion. Until Congress recognizes the needfor stay-athome parents to build their own retirement accounts, you’re stuck with a measly $2,000 IRA as your best tax-deferred retirement planning vehicle. But it’s a start, andit’s more than it usedto be. As a non-working spouse you can deposit up to $2,000 in an individual IRA account and deduct the contribution on yourtax return within certain income brackets. You should also know that your husband can chooseto have his pension assets received as a joint life and survivor annuity, so that you would continue to get payments in the eventof his death. He can also choose the single annuity option, which usually meanshe’ll receive more in each check during his life, but no paymentswill be made after his death.

Roth vs. Traditional IRA While debatesgo on inCongress about increasing the annual limit for IRAs, under current tax law, you can contribute $2,000 each year to an IRA. Now, should you put your money in a traditionalIRA or a Roth(named after Senator William Roth) IRA? You may want to get professional help with this

Divorce and Retirement Plans For information about dividing retirement accounts and otherretirement assets in a divorce, go straight to www.eaualityinmarriage.com,the website run by Lorna Wendt. Shethe is woman who fought for her share fair of her ex-husband’s$100 million nest egg. Another good source of information on dividing up retirement benefits during divorcesettlements is a site run by The Women’s Institute for a Secure Retirement at www.wiser.heinz.org. Look under the“Divorce” headingon their homepage.


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decision because both types of IRAs have benefits and drawbacks.Here are some guidelines. The main difference between a traditional IRA and a Roth IRA lies in how the money is taxed when it comes out. With both IRAs, your investment earnings buildup free from current tax as long as the money remains in the account. When you take money out of a traditional IRA, it is taxed as ordinary income. When you take money out of a Roth IRA, both your earnings and your contributionsmay all be tax-free. This would appear to make the Roth IRA the hands-down betterchoiceunless you are eligible to deduct all or partof your contributionto a traditional IRA. This you can do if you are not covered bya retirement plan at work, or if your adjusted gross income (AGI) is less than $42,000 if single or $62,000 if married filingjointly. If you are eligible to deduct thefull contribution to a regular IRA and are in the28% tax bracket, for example, you’llsave $560 ($2,000 X 0.28) in current taxes. Now the decision becomes a little more difficult. Here are some more differencesto take into consideration: If your AGI is more than $110,000 if single or $160,000if mamed filing jointly, you are not eligible to contribute to a Roth IRA. In this case your only IRA option is a traditional IRA; and atthese income levels, if you are covered by another retirement plan, you may not deduct your contribution. Still, the money has theadvantage of growing tax-deferred. With a traditionalIRA you must start taking money out, according to IRS life expectancy tables, atage 70%.With theRoth IRA there are no such minimum mandatory withdrawal requirements. Some retirees find this to be the best feature of the Roth since it allows them to keep the money growing tax-free for as long as they wish. This can be important if you plan to live a long time! If you take any money out of a traditional IRA before age 59%,you must pay a 10% early withdrawal penalty in addition to ordinary income tax (there are some exceptions to this; see1RS Publication 590 for details-it’s available online at http://www.irs.gov/forms-pubs/ pubs/p590toc.htm). Witha RothIRA you can take out your own contributions at any time without penalty (earnings on your contributions are subject to the 10% premature withdrawal penalty if taken out prior to age 59% and not held for at leastfive years). Thus, here’s the short answer to the Roth vs. traditional IRA question: If you think you’re going to be in the sameor a higher tax bracket at retirement thanyou are today, you should select the Roth IRA. If you think you’re going to be in a lower tax bracket when you retire, go with a traditional IRA.

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For more help, visit Vanguard.com, smartmoneycodretirementlroth, or WFN’s retirement center.If you want to be very thoroughabout it and consider estate planning and the many other nuances of these plans, you would be wise to consult a professional advisor for advice pertaining to your own situation.

College Saving While retirement should be among a woman’s top priorities, oftentimes financing their child’s college education ranks up there as well. The best thing you can dofor your children is to start saving for their college education from birth. If your kids havealready been born andcash is tight, look at your budget and seeif you can tuck some money away without cramping yourlifestyle. There are a numberof vehicles that can help yousave for college and perhaps get some tax benefits too. Here are your choices. else can save $500 With an EducationIRA, you, your parents or anyone per yearand have it grow tax-deferred, much like a regular IRA. Perhaps the biggest benefit is that whenyou withdraw themoney, it is taxed at thechild’s tax rate, which is usually lower than yours. The money can be applied to such expenses as college tuition and fees, supplies, and room and board. Withdrawals not used for this purpose will be hit with a10%penalty. The money must be withdrawn by the time the child hits age 30, or be applied to another family member’s college costs. Note that income restrictions do apply to Education IRAs: in orderto participate, your adjustedgross income must be less than $160,000 if married filing jointly or$110,000 if single. As for using your ownIRA money for your child’s education, you can do it and avoid the 10% penalty for early withdrawals, but you’ll still pay income taxes. Worse, you’ll be taking from your retirement-not a wise decision, especially if you’re single. If you’re going to save more than $500 per year, look into your state’s “529 program,” named for a section inthe IRS code and also known as The Qualified State Tuition Program. Money depositedin such an account grows tax-deferred and is professionally managed. When the assets are eventually withdrawn to pay college expenses, they will be taxed at the beneficiary’s tax rate (your child’s), which shouldbe lower than the accountowner’s rate (Le., yours). Unlike an Education IRA, there are no income limits restricting participation. Check out www.collegesavings.org toaccess the various programs offered by each state, where you canalso learn about educational IRAs. Use tools at www.theeducationplan.com to help you determine how much to put away each month into these accounts. Under the Uniform Gift to Minors Act (UGMA), you (or anyone) can

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place funds in yourchild’s account, where you (or anyone) canmanage it for thebenefit of the child. If the child is under 14, investment earnings over $1,400 are taxed at the parents’ tax rate. If the child is over 14, all investment earningsare taxable at the child’s rate-again, lower than yours. When the child reaches the age of majority (18 in some states, 21 in others), the assets in the account become the property of the child. This is the major drawback to UGMA accounts; some parents don’t feel comfortable amassshe justing a small fortune and havingallit go to the child when he or is well, still a child.However, UGMA accounts arevery popular, andyou can easily set oneup at your online brokerage firm, with yourself as the responsible custodian. The classic advice for investing college funds is this: if your child is young and time is on your side (that is, you won’t need to start writing tuition checks for at least 10 years),you can takeon therisk of stocks. History tells us that they perform better than bonds or government securities, despite market fluctuations. Mutual funds can make sense because you can start with aslittle as $50 and set up an automatic investment plan where a fixed amount is transferred from your checking account to your mutual fund every month. As you get closer to needing the funds, you’ll want to move to a more conservative strategy, incorporating bonds and other safer securities. A number of states have started issuing “college savings” or “baccalaureate” bonds, which are usually what are known as “zero coupon bonds.” Zero coupon bonds return both the money you initially investedplus interest all at onceand all at the designated “maturity”date-usually five to 20 years down the road. You invest anywhere from $500 to $5,000. And, the interest earnedis free from both federal and statetaxes, no matter what your salary is. You can invest in “zeros” through a financial institution. Savings bonds or Series EE bonds, issued by the federal government, can also serve as partof the conservative, safer portion of your child’s college portfolio. The rate on these bonds adjusts twice a year, and the bonds themselves can be redeemed after sixmonths. Buying them doesn’t require as much asyou might think since they come in denominations ranging from $50 to $10,000.Since the purchase price half is the denomination, these can make nice gifts. To learn more, go to www.Dublicdebt.treas.pov. Take note of the savings bond wizard and calculatorsto value bonds andmanage them on-line. Keep in mind that colleges will count any assets and income in the child’s name as available sources of money, which may reduce the amount of financial aid for which your childwill qualify. If savings areshort andyou’re close tocollege time, then your next route

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will be loans. Thefederal government offers several loan programs, including Stafford Loans, PLUS loans, and Perkins loans. The College Board at www.collepeboard.com and many financial institutions offers private loans, as does Fannie Mae, which operates through itssubsidiary, Nellie Mae. For more information, go to www.fanniemae.com or www.nelliemae.com. The federal government offers a lot, including Pel1 grants, on-campus workstudy programs, andStafford, Perkins andPLUS loans, depending on your income and need.To learn more andaccess other useful information, go to the Department of Education at www.ed.gov. Finally, if your son or daughter wants to be a scientist oris even from a particular heritage, or has high gradesisor a great athlete, he or she may be able to win scholarships. Scholarships can be awarded by various organizations or the college your child is attending. Do a search for scholarships at www.colle_eeboard.com tosee what organizations are offering scholarships for which your child might beeligible.

More Ways to Invest Finding an Investment Club Now that you are charged up about investingfor the future, are you eager to spend more time talking about money, learning about money, and hearing how other womendeal with their money?If you are, you might be ready for an investment club. According to the folks that help people set up investment clubs-the National Association of Investors Corporation (NA1C)”nearly70% of the members of investment clubs are now women. That’s a whopping 40% increase from women’s participation just10 years ago. What hasfueled this boom? The opportunity to learn in an encouraging environment, to ask questions and not feel intimidated or embarrassed, to share investment ideas, to be challenged and educated by others, or maybe even to share a glass of wine with other women and enjoy an evening of money talk. Until the Internet, there was noway for women to find a clubeasily in their area. You won’t find a listingfor Investment Clubs in your copy of the Yellow Pages. They do have a slight air of mystery about them, like other kinds of exclusive clubs thatwe’d like to be ableto join. Where arethey, and how can you find one to join? 1- ( You can look up clubs in your area on the NAIC’s site and find meeting times listed and club contacts. Women’s interest in invest-


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ment clubsled us atWFN tocreate a directoryof women’s investment clubs. Keep in mind that existing clubs may not be accepting new members, or have certain requirements such as investment amounts or meeting times that maycrampyour style. Also, youmay notsharetheirinvestment philosophy. If you can’t find a club to your liking, you can always create your own. I would add one caution.Please do not consider an investment club as a replacementof your own retirement planning. As wonderful as these clubs are, seldom does a club endup with a sum of money that will support its members in their retirementyears. Another considerationis the lack of liqto cash out a bit uidity. Thrilled at howwell your stocks are doing and want to take a much-needed vacation with your family? Not a simple thingto do when your money is pooled with twenty other women who don’t want to sell and incur thetaxes. Join an investment clubfor education, investment knowledge, and fun, butalso always keep investingon your ownfor retirement and personal needs.

Finding an Advisor Despite the emphasis that is placed on do-it-yourself investing nowadays, many women prefer to use a financial advisor to help them manage their money. If you feel this way, don’t apologize. Just choose this person as you would your dentistor plastic surgeon: find the best one you can. I would recommend anadvisor if you: 1. Don’t have the time to research and choose your own stocks properly; or 2. Don’t feel comfortable handling the amount of money you have to invest.

Choosing the right financial advisor for you is incredibly important. Let’s face it, notall advisors workwell with women investors-roughly 65% of women said “no” when askedif financial advisors treat women and men the same. Whatis it womenare looking for? In my experience, it’s respectrespect for the fact that they are the ones making most of the financial decisions. Infact, 78% of women feel they are talked down to by financial institutions. Sharri Meyer says she keeps learning the hard way. Before starting to invest on her own, she worked with three different advisors. The first one, who spoke at seminar, a lost mostof her money. Then shetried a full-service

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broker, who was giving her what she wanted-lots of time, attention and profits. Sharri never even bothered to askabout fees. “We had a full-service broker who was doing such a good job Ithat didn’t care what I was paying,” she says. “But now thatthe market has turned, I get no reports, no information, no calls.” It was longafter working with heradvisor that Sharri finally examined her fees-commissionsof $400-$500 per trade.As Sharri learned the hard way, it’s up to you to pay attention to what your broker oradvisor is doing, and howthey’re doing it. Financial advisors come in different flavorswith different credentials. Brokers are licensed to sell securities (stocks, bonds, mutualfunds) to the public. Brokers generally make their money by charging commissions on securities trades or sales charges (also known as “loads”) on mutualfunds. Any advice they give is part of the deal-kind of like the travel agent who counsels you on where to stay or whatairlines to fly. You don’t pay extra for the advice, but you pay more for the hotel or airfares than if you wereto buy them from a discount travel provider. Although you will usually payhigher commissionsas the size of your order increases, the commission will be a lower percentage of the amount you’re investing. We will discuss brokerage firms more in a moment. The term“financial advisor” can apply to anyone who wantsto call himself that.Financialadvisorsrangefromrogueinsuranceagentswhose “advice” always culminates in the sale of an insurance policy to highlyeducated and sophisticated professionals with an in-depth knowledge of taxes, estate planning, and investments. How do you know which one you’re getting? Here are someguidelines. 1. Credentials. Stockbrokers must beregistered with the National Associ-

ation of Securities Dealers(NASD).Registered Investment Advisors (RIAs), who give advice on securities and sometimes directly manage your money, must beregistered with either the SEC (ifthey manage over $25 million in assets) or the state securities agency where their headquarters are located. RIAs must also be able to show you their form ‘‘ADY’’which contains a wealth of information about the advisor’s investment philosophy and approach to doing business. Some advisors have additional credentials, such as CFP (Certified Financial Planner), for certified financial planner, which mean that the advisor has had advanced training and passed the issuing organization’s qualifyng exams. Since the securities industry is so heavily regulated, you can check out abroker’s entire history simply by asking for his or her “CRD” number and then plugging it in at www.nasdr.com. You’ll get a free report that will detail where the advisor has worked, complaints lodged, and involvement he or she has had with the law.


2. Experience. How long has the advisor beenin business?I recommend finding an advisor who has been working withclients at least three years, but preferably longer. Also, see if they have any areas of expertise, perhaps in wealth preservation or taxes, that might be helpful. 3 . Performance. How has the company or advisor performed for its clients? How does their performance compare with the market? If the advisor isn’t willing to share this information, that should serveas a red flag. 4.Philosophy. What is theirphilosophywhenitcomes to making investmentorfinancialplanningdecisions? Do they believe in investing for the long-term, or do they engage in frequent trading? Do they tend to focus more on large-cap stocks, or do they include the use of mutual funds? If so, what types? Check to see how these answers fit with your own personal investing style. 5 . Process. What is the process they use for making investment decisions? What kindof research do they do? Whatare their criteria for or selecting stocks? Do they seek companies with growing revenues, are they more concerned with finding bargain stocks whose prices are low relative to the value of the company? 6 . Service Level. How often will they meet with you or call you? How available are they? You should expect your advisor to provide you with quarterly statements of your account, as well as determiningtargeted rates of returns and rebalancing your portfolio to keep you within your asset allocation plan. 7. Cornpatability. Do you feel comfortable withthe advisor?Be sure you can ask questions, no matter how elementary you think they might sound. It’s also important that the advisor will educate you, so that you can build yourown knowledge base. Remember that you will go through many events inlife, some of which will be very sensitive or private, that you will probably need to share with your advisor. 8. References. Be sure to talk to people the broker or advisor currently represents or professionals he or she works with, such CPAs. as 9. Fees. Ask about the fee structure. Many times advisors will charge a l-2%fee of your assets for managing your money and/or a commission for conducting a trade. Others charge a one-timefee to help you set up a financial plan but then you’re on yourown after that. Sometimesadvisors will be on a fixed salary.You will probably find it difficult to locate an advisor to work withyou if the amountyou have to invest is under $50,000. Advisors who charge commissions or one-time fees are more inclined to work with those in this range. A one-time financial plan will range from $200 to a few thousand, depending uponcomplexity.

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A fee-based plan is often preferred, since your interests are aligned with the advisors; as you make more money, he or she makes moremoney. Commissions, on the other hand, can lead advisors to push products that may or may not be in yourbest interests.

Finding an advisor is not always so easy, especially for busy women. Today, you can log onto the Net and look one up in theyellow pages. Better yet, you can now go to the sites of the major financial planning organizations andsearch for an advisor in your area. Places to look are: The Certified FinancialPlanner Board of Standardsat www.cfp board.org The National Association of Personal Financial Advisors at www. napfa.org The Financial Planning Association at www.fpanet.org The Society of Financial Service Professionals (many of whom specialize in insurance) www.financialpro.com Dalbar-located at MSN’s MoneyCentral.com, Dalbar allows you to search based on your investable assetsand location. Worth at www.worth.com also provides a listof the top financial advisors in the country, updated annually. Also, check with trusted friends or colleagues for potential advisors. Always be sure to apply the above steps to make a final decision-just because someone’s your best friends advisor doesn’t mean they’re the best you can get.

Investing On-line: Taking the Plunge Women are taking the plunge and investing on-line for a number of reasons. Some do it because they enjoy the feeling of competence and knowledge. go on-line andplace a trade almost anytime Others are thrilled that they can

Amateur Advisorson the Net Unfortunately, the Net has spawned some unsavory types, whohold themselves out as experts but have nocredentials.They can create a website, list themselvesas an investment expert, and happily dispense advice. As the old joke goes, on theNet no one knows you’rea dog, but also, no one knows that the “expert”on the other endof the modem is a high-school senior cutting classes for the day. When it comes to making decisions related to your money, make sure you are working with an experienced and trusted professional.


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of the day, and nothave to wait until their broker isavailable to answer the phone. And still others like the anonymity of the Web. For 31-year-old AdrianeGrau, who started investing on-line three years ago, it wasthe powerof making her owndecisions-and avoiding the sales pitch of a broker-that got her trading on-line. “I’m a hands-on kind of a person,” says Grau. “1 didn’t want to waste time, having to find the broker look better than to make a trade, deal with phone calls, or hear that stocks decision myself, they really are. Now, I just go look and make an informed without anyone else pushing the decision.” Ellen Levy, a venture capitalist in Silicon Valley, couldn’t get herself to start investing until the Internet arrived. The convenience of the Netsomething more and more women are demanding they as care for children and work full-time jobs-meant she could do it at her own time, her own pace, and her ownprice. Aside fromyourpersonalneeds, theInternetandnewregulatory changes are putting more power into the hands of individual investors, more and moreof whom are women. For instance, theSEC just instituted rules requiring fairness in public reporting. This means any information that corporations might previously have passed privately to analysts and institutional investors must now be made available to everyone atthe same time. With the Internet,all you have to do is monitor a company through a search engine that includes company news and/or press releases. The primarydistributionentities for press releases areBusinessWire and PR Newswire at www.bizwire.com and www.mnewswire.com. Look for the “BW” or “PRN” next to the headline.

Investing Basics To my surprise, according to a Salomon SmithBarney study, nearly 50% of women didn’t know which types of investments offer the best rates of return, compared with 27% for men. Also, 73% of women, compared with 53% of men, said they only consider “safe” investments. The good news, according to compensation and benefits company Wyatt Watson, is that of younger, more women who invest in their 40l(k)s-with the exception cash-strapped women-are willing to take risk in stocks. Unfortunately, women also have lower balances in these accounts compared with men, in part because of lower salaries and less time in the workforce. Since my goal is to cover a broad range of personal finance topics as they relate to women and the Internet,it’s beyond the scopeof this book to cover all the basics of investing, even though I understand that many readers

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who have never investedbefore are in needof this information. Once again, that’s the beauty of the Internet. You can log on to hundreds of sites and find extensive information on investing basics. Some of my favorites are listed below, while you’ll find even more in the next chapter: www.aaii.org www.investorama.com www.morninPstar.com www.smartmonev.com www.vaneuard.com www.wfn.com www.zacks.com

ConceptsYou Should Understand As you start your quest for investment knowledge, you’ll find lots of conflicting opinions as well as a certain amountof corroboration among financial professionals about how to invest. The most important thing to remember is that there is no one rightway, so if you are looking for consensus on the single best way to invest, youwill never find it. All you can do is understand your own situation, understand the basics concepts of investing, and then do the best you can. Here are some of the concepts I have identified as being fundamental to investing. By understanding these and reading more about them, you will have a solidstart.

Compounding Compound interest has been called the eighth wonder of the world. It truly is amazing howfast money grows when builds it earnings on top of earnings. Here’s an example of how it works. If you were to invest $10,000 at 8%sim$800 per year. If you took the$800 and spentit ple interest, you would earn each year, at the end of 20 years all you’d have isyour original $10,000. But if the 8%interest were compounded-that is, if you left the annual earnings in the account to grow-you’d have $46,610 at the end of 20 years. That’s because you’d be earning $800 the first year, $864 the second year, $933 the third year, and so on. With compounding effect, in you’reearning 8%not only on your original $10,000, but on the interest buildup as well. Compounding is the easiest way to make money because youliterally don’t have to do anything to makeit happen.Vanguard at www.vanEuard.com has anexcellent calculator that illustrates the power of compounding.

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RisWReward Relationship Risk can bedefined in several different ways. Mostof us thinkof it as the possibility of losing money, but what if you won’t need the money for awhile? If you’re investing for retirement, why shouldyou care if your portfolio goes up and down in value if you don’t planto take the money out for 20 years or more? In this case you can afford to take on more risk in the hopeof achieving higher returns. On the other hand,if you’ll be using the money withinfew a yearsfor a down payment on a home or college tuition, for example-you won’t want to expose the moneyto much risk, because you could be forced to liquidate at a time when yourportfolio is down invalue. Your time horizon is an important consideration whendeciding how muchrisk you can take. Another consideration is how much you need to earn to achieve your goals. If your retirement planning calculator says 6%areturn will cause you to fall short of your goals, then you may need to go up the risk scale in an attempt to earna higher rateof return. Generally, the higher the return you hope to earn, the morerisk you must be willing to take. Not surprisingly, women have more conservative portfoliosthan men, at least when looking beyond just their 401(k) portfolios. Based on the accounts of one major brokerage firm, 26% of women owned CDs, versus 18% for men, probably due to women’s lack of understanding about risk and diversification. According to another survey by the National Center for Women’s Retirement Research, 87% of women with household incomesof at least $30,000 from 1996-1998 owned CDs in their retirement accounts, compared with 52% of men. Let’s see. If you had $25,000 in CDs earning 6% interest, you’d have about $80,000 at the end of 20 years (not taking inflation and higher tax rates on CDs into account). If you had invested the $25,000 instead in a mutual fund or stocks earning average an of 10% per year, you would accumulate $168,188 over that same time period. Sure, you would have taken on more risk;that’s what it takes to really build net worth.

Diversification Diversification means not putting all your eggs in one basket. Excuse me for the overused analogy, but it’s the easiest, quickest way to get the point across. By spreading your money across several investment categories, you reduce the risk that you’ll be wrong about any one investment. Here you can actually see that, by having some of your funds in stocks, rather than in all bonds and cash,you actually increaseyour returns without taking on any more risk (see Figure 17).

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Click Here for Investing 125 Generally, stocksproducehigherreturnswith greater fluctuation; bonds offer moderate returns withless fluctuation; and cash generates low returns with zero fluctuation. Your asset allocation-or how you divide your funds among stocks, bonds, and cash in order to meet goals-is your so important that it actually explains 91% of a portfolio’s variation in returns. Attemptsto “time” the market or chooseideal an stock play amuch smaller role in how your portfolio performs. Although investment returns can never be predicted in advance, it’s helpful to make some assumptions, so you’ll know how much you need to save andinvest to reach your goal. Some common assumptions in use today 10% are returns for stocks (8-10% if you want to be more conservative), 6% for bonds, and 4% for cash and money market accounts. Let’s say you’re investing for yourtwo-year-old daughter’s college expenses. At this point you can invest her entire college fund in stocks. There’s enough time to ride out any ups and downs before you’ll need the money. Your strategy will need to change, however, around the time she graduates from junior high school. One approach would be to start moving some of the money out of stocks and into bonds whose maturity dates coincide with the four years of college. Change your strategy once again a year or so before you haveto start writing tuition checks. Liquidate enough bonds and put the cash into a money market fundto cover upcomingexpenses.

Mutual Funds I like mutual funds as a starting point for women, because they provide instant diversification anddo all the work for you when itcomes to researching and selecting investments to buy andsell. When you buy shares of a mutual fund,you are buying a portionof a huge portfolio of stocks or bonds, which is actively managed by a professional portfolio manager. As the fund makes money by selling stocks for a profit, you make money in two ways: 1) your shares increase in value ( e g , they go from $10 to $12); and 2) you usually receive cash distributions, which you may take in the form of a monthly,quarterly, or annual check, or reinvest into more shares. Mutual fundsare grouped by a type of security (stock or bond) and, for stocks, by size (large-cap or small-cap) and investment style (growth or value). They allow you to invest small sums of money and not have to worry about reinvesting the even smaller distribution checks that represent your profits. They can automaticallyroll back into the mutual fund, buying you additional shares. The Internet makes it easier than ever before to choose mutual funds. Here are some important thingsto look for:

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I What5 Your Net Worth? Mutual Fund Fees

I’d gladly pay a 2% fee to a fund manager who consistently outperforms the market after fees (assumingit’s long-term money I can afford to risk) versus a 1% fee to a manager who earns mediocre returns. There are two types of fees: ongoingoperating expenses and fees for buying, selling or exchanging your shares. These fees are generally expressed as a percentage of what you own-for example, 1%of the value of your mutual fund holdings. Ongoing expenses include the professional management of the fund or possibly “12b-1” fees to cover the costs to market the fund to investors. Thenthere are “loads” (or a “sales charge”),a one-time charge of up to 8.5%of your investment.A load can be chargedup front, in order to get into the fund or on the back-end when youcash-out. These backend loads aresometimes waived if you’ve heldthe investment for a minimum amount of time. Basically, it’s whatthe broker or advisor (or whatever you call the person who sold it to you)earns for taking the time to educate you, understand your financial goals,and recommend the right fund for your needs. A fund with a load is not necessarily anybetter or worse than one without.Somepeoplehappilypay the salescharge, because it gets them into a relationship with a brokerladvisor whose advice they value. Others don’t feel the need for such advice and are not willing to pay for it; these people prefer a “no-load”mutual fund. When choosing between two equally attractive funds, a no-load fund is usually the best way to go. In general, expectto pay about 1% fora good mutual fund of large companies, 1.5% for small-capand foreign stock funds,and 2%for specialtyfunds focusing on niche markets.You’ll pay much less for “index”funds that simply trackthe performance of a particular basketof stocks, such as the S&P 500. Use the SEC’s mutual fund calculator at www.sec.eov/mfcc/mfcc-int.htmto compare the costs of the funds you’re considering. Remember, fees can take a giant biteout of your returns.

Fees. All things being equal, the mutual fund with lowest the fees will produce the highest returns. But all things aren’t equal. Some specialty funds carry very high fees compared to, say, a bond fund that’s easier to manage. But these specialty funds offer the opportunity to earn much higher returns. So when comparing fund fees, be sure to compare funds of similar type. Performance. How has the fund performed compared with other, similar funds and to the appropriate market “index”? How variable has the performance been? A fund that turns in consistentperformance year after year is preferable to one that is up a lot oneyear and down a lot the next.How does the fund perform in down funds in the same category? Anyone can make money in up markets, but it takes real

Click Here for Investing 127 skill to preserve capital when the market isfalling. Look at fund performance over several time periods and don’t fall into the trap of chasing last year’s hot fund. Hot funds can turn colda dime-and on usually do. Turnover. Mutual funds buy and sell stocks (also known as turnover) just asyou would if you had the time and inclination to invest directly in stocks or bonds. This means that when they take a profit (sell a stock for a gain), they (you) must pay taxes. Turnover in a fund can increase overall returns to you, but it may also indicate short-term attempts to time the market, thus generating more expenses and taxes. All things being equal, lookfor a lower turnover rate. Management. Lookto see how long themanager (the person responsible for your mutual fund) has been inplace. If the person came in within the last year to replacesomeone else who was really responsible for the funds outstanding performance, I’d think hard about investing in that fund-unless, of course, that person has an outstanding trackrecord from his or herlast job.

On-line Mutual Fund Investment Strategies Determine what specific type of mutual funds you want by utilizing Morningstar rankings at www.morninestar.com. Also utilize interviews with fund managers, which you can see at Barron’s at www. barrons.com or Brill’s Mutual Funds Interactive at www.brill.com. Narrow your choices downto three or so mutual funds of each type (e.g., large-cap, small-cap, international). Use your on-line brokerage firm or Morningstar to screen and compare mutual funds meeting your criteria, using the guidelines above. You might also consider going to the Mutual Fund Education Alliance at www.mfea.com, which provides a list of mutual fund websites. Check out the prospectus on-line through your on-line broker. A prospectus tells you the ins and outsof a mutual fund, including the fees, investment philosophy, and history. You can also getan excellent snapshot of a mutual funds performance and holdings at themajor search enginesby entering the fundsticker symbol.

Choosing a Brokerage Firm Once you havedecided to invest in stocks or mutual funds, you’ll need aplace to make those transactions. Have you seen those amusing ads on television

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I What5 Your Net Worth? DRIP Your Way to Wealth

No one wanted to date adrip in school, but getting involved with DRIPS

now isn’t such a bad idea. A DRIP is a stock purchasing method calleda “Dividend Re-Investment Plan.” Here is howit works: Some large American companies like Coca-Cola allow toyou purchase shares from them directly, rather than using a broker. Once you’vemade your initial purchase, you enroll in the company’s dividend re-investment plan, which allows all future dividends to be re-invested in moreshares of the stock. Most plans also allow you to invest more cash and buy moreshares of the same stocks on a monthly basis.Be sure to avoid having all of your eggs inone basket. If you don’t want deal to directly witha major corporation on your own, there are intermediary companies that handle DRIP plans. Check out www.dripinvestor.com and www.netstock.com.

for on-line brokers? Each one is funnier, or more tantalizing, than the next. Do you go with the red-haired Internet whiz kid and the companyreprehe sents, or should you choose the truck driver and his private island? Don’t worry; there are more solidways to determine who you should be doing business with. Safety. Women’s biggest concern is the safety of their money, so the first thing to consider when choosingan on-line broker is whether thefirm is a member of the Securities Investor Protection Gorp. This insurance covers up to $500,000 in securities accounts ($100,000 in cash) should the company go out of business. (Please note that SIPC insurance does not cover trading losses, only thefailure of the investment firm.) Execution. By execution, we mean how timely and accurately your trades are made.You may think you’re buying Walmart at$52 per share but because of poor execution end up buying it at $53. Brokerage firms will soon be telling you about the time it takes to execute trades. Customer Service. In investing, customer service mattersa great deal. What is true about phone companies and shoesalesmen is also true about brokerage houses-some peoplearenicer than others. When youhave questions about yourIRA, when you want to place an order over the phone, or when you see that information is wrong on your account balance, you want to make sure you gettimely answers. Price. Billboards now line the freeways trumpeting the latest low, low price for on-line trades, but keep in mind that poor customer service orpoor trade executions can sometimes come with low prices. Minimum Investment. Some on-line trading firms require a minimum amount to get started; be sureto note what that minimum is.

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Additional Product Offerings. On-line brokerage firms offer a variety of other services, in addition to executing your stock trades. Product offerings canvary widely. You will certainly want a money market fund but you may also want check writing privileges and even an ATM card. The ability to view your transaction history on-linemay also be important.Finally, the ability to transfer money between your brokerage account and your bank may be important to you. Redundancy. Redundant systems are key to making sure that,if the site goes down, you won’t miss a trade. Even the biggest trading sites have had bad days when the site has gone down. Is there a backup system you can use, like keyingin over the phone, or an 800-numberto trade with a broker? You may even want to trade via wireless devices, which more and more brokerage firms are starting to offer. Features. Which features are the most important to you? Perhaps you want easy access to real-time quotes and news, educational tools, or information about the various retirement products.You may also want to make surethe firm hasawidevariety of investmentvehicles.Someservice providers may have a limited product offering, perhaps only stocks and bonds. Perhaps later you will want to advance into trading options (discussed in the next chapter). Ease of Use. Navigation is important when getting around the website. Is the site cluttered with information that is confusing or that you’re not able to get to? Does the site load quicklyso you don’t have to waste time? In addition to these concerns, I recommend checking the brokerage firm’s history to see if any major violations or customer complaints have beenmade.Checkthemoutatwww.nasdr.com (you’ll needthe firm’s “CRD” number). Keep in mind, however, that nearly every brokerage firm gets a few complaints from disgruntled clients,so you will want to look for trends or patterns where the brokerage firm was unfair to customers. Also, don’t expect thatall the lawsuits a company may be faced with are reported here-they’re not.

On-line Brokerage Rating Guides With the emergence of the Internet, new rating agencies that examine and ratetheseon-linebrokeragefirms have appeared.Inaddition to wellregardedon-linepublicationslike Kiplinger’s (www.kidincers.com) and Smart Money (www.smartmoney.com), where you can view brokerage ratingsonline,Internet research firmslikeForrester and Gomezprovide detailed and specialty rankings. The “secret shoppers” used in Forrester’s

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Power Rankings tests sites thoroughly by acting asif they arereal customers conducting trades and research. Gomez’Scorecard at www.gomez.com offers the ability to compare two brokers and their services and features, including site response times to your customer concerns. Remember that, with any of these rankings, you should still thoroughlyreview the site and the criteria listed above. Oftentimes, the larger or more expensive brokers will rate near the top becauseof their ability to invest more capitalinto the company and make improvements.

Strategies for Choosing an On-line Brokerage Firm Determine what your needs are now and in the future Follow the guidelines listed above to review your brokerage candidate Get additional insights from Kiplinger’s, SmartMoney, Forrester or Gomez

Setting Up Your On-line Trading Account Opening a brokerageaccount is much easier than it usedto be. Applications are always available on thebroker’s website and now, with thepassage of the Electronic Signatures in Global and National Commerce Act (E-Sign Act), some brokerage firmswill allow you to open an accountinstantly. As a woman, there are several things you need to be aware of when opening your account. Even if you already have an investment account, review the following legal items to make sure you’re not making any big mistakes.

Titling of the Account If you’ll be keeping the account in your name alone, account titlingeasy, is but if you’ll be sharing an account with someone else-a husband, sibling, child, or significant other-you’ll need to pay attention to how your joint account is titled. The reason is that if you or they were to die, the type of account will determine how the assets in the account will be distributed. Here are the types of accounts: Joint Tenants withRight of Survivorship (JTWROS).If your account is titled in two names as JTWROS, it means thatif one of you dies, the assets in the account will go to the surviving person. (This could have serious estate planning implications. It would bewise to talk to an estate planning attorney before taking sucha step.)


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Tenants in Common. With thistype of account, if you die your share of the assets will go to your estate and be governedby your will or, if you die without a will, the laws of succession in your state. This can get a little more complicated because your assets may have to go through probate before they can be distributed. Community Property. This option applies only if you are married and live in one of the 10 community property states:Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In these states, most assets acquired during the marriage (including wages earned by either spouse) or property that has been commingled by both spouses are considered to be ownedequally by the two spouses. So if you have separate property-either property youbrought intothe marriage or an inheritance thatyou received during the marriage-and if you wish to keep it separate, do not put your husbands name on the account or it could immediately become community property and, in essence, becomes a gift to him.

Beneficiary Designation All IRAs and retirement accounts require abeneficiary designation, which supercedes any other instructions youmay have left, including awill. So if you name yourfirst husband as your IRA beneficiary and thenget divorced and remarry, your ex-husband could get your IRA assets even if you were careful to update yourwill after you remarried.Make sure you update your beneficiary designations whenever a major life event occurs, suchas a birth, death, marriage, ordivorce. Beneficiary designations also have an impact on your minimum mandatory IRA withdrawals-and the taxes thereon-at age 70%.1 won’t bore you with the details here,but if you are approaching that age (or your parentsare and you are helping them with their finances), talk to someone whospecializes in both estate planning and taxes about the best person to name as beneficiary.

Power ofAttomey (POA) If you give someone else power of attorney on your investment account, you are authorizing that person to execute investment decisions on your behalf. A typical example of this would beif you were to hire aprofessional money manager to manage your investments: you would sign a power of attorney authorizing the money manager tobuy andsell stocks withoutgetting your permission for each trade. Obviously,you’ll want to be extremely careful about signing any powers of attorney, and only appoint those in

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whom you have completetrust tomake your investment decisions. A power of attorney can come in two forms: a limited power, in which the individa ual is given the right to trade your account but not withdraw funds, and full power, in which the individual has full access to your money and can even draw a check against your account.No matter how much you trust the other person,you usually want to give only limited powerof attorney.

How to Buy Stocks:The Mechanicsof Placing Orders Once you have opened an investment account and are on-line and ready to trade, you’ll notice several options, which include mutual funds and stocks. I want to We’ll talk about choosing stocks in the next chapter, but here explain some important concepts about howto buy and sell stocks. Buying at the Market. Let’s say you want to buy a stock at whatever price it’s trading at when your order hits the stock exchange (which could be several minutes after you click on “buy”). If your order is a “market order,” itwill be executed at that price, which may not be the price you think it is. In fast-moving markets, stocks can trade up or down several points in the time it takes for your order to be executed. The advantage to buylng a stock witha market orderis that your orderwill definitely be filled. The disadvantage is that you may pay a higher price than you expected. Specifymg Your Price. Let’s say you don’t want to risk paylng a higher will pay for the stock. In this case price, so you decide to limit the price you you would enter a “limit order,” specifying the highest price you will pay. Let’s say you’d like to buy 100 shares of Home Depot, which is currently you can enter a trading at $40 per share. If you think the price might drop, limit order to buy at $38. If it hits your price, it’s yours. If it doesn’t, your order will not be executed, and you’ll might be kicking yourself as you watch it rise to $45 or $50. That’s the downside to limit orders. In the attempt to save abuck or two,you might miss out altogether, but if your analysis tells you that $38 is the appropriate price for the stock, then you shouldn’t be kicking yourself. Limit orders also work well when selling stock. If you’d like to sell Home Depot when it reaches $55 but you don’t want to stay tied to your computer watching it, you can enter a limit order to sell at $55. If the stock reaches your price,you’re out at $55“evenif it continuesto go higher. And that can be the drawback to limit orders. “Limit your orders, limit your gains” is an oldWall Street saying, though that’s not necessarily true-especially if you believe the stock hasreached its full value at $55 or no longer meets the criteria you’ve setin your investmentstrategy.


Protecting Your Profits and Limiting Losses. A “stop order”or “stop-limit order” is usedto protect your profits and reduce your losses. This is important if you want to make sure you don’t get stuck witha major loss.Let’s say you own 100 shares of AOL, which you bought at $60 per share. It’s now trading at$80. You say to yourself, humm, whatif the stockgoes backdown to $60? I could lose this $20 per share profit.By setting a stop order $70, at your stock would be sold if it hits that price. Please note the subtle but important distinction between a stop order and a stop-limit order. A stop order becomes a market order as soon as the stock trades at the specified price; so the instantAOL trades at$70, your orderis activated and you’ll be out on the next trade-at whatever pricethat happens to be. It will most likely be $70, but itdoesn’t have to be. If a stock is falling through the floor, there could be large gaps in price from one trade to the next. On the other hand, if you enter a stop-limit order at$70, you’ll ensure thatyou’ll be selling for

How to Click to Invest Once you’ve opened an account and have made a stock or mutual fund selection,you’re readyto conduct a trade.You’l1need your account number and password to get into your broker’s website. Then, follow the instructions At WFN.com, for example, follow these steps: for buying stocks. First, choose whattype of transaction-buy or sell. Second, put in the numberof shares you are buying. If you are investing $1,000 into astock or mutual fundtrading at $20, then you wouldbe buying 50 shares ($1,000 divided by $20 equals 50 shares). *Third, put in the “ticker symbol”--that’s the short-hand name for the stock or mutual fund. If you can’t remember the ticker, lookon thescreen for “symbolsearch (often called “ticker look-up”) and put in the company ormutual fund’s name. Fourth, choose the type of order.Are youbuying at the market orat acertain limit? Fifth, decide when you want the order to take place. Theoptions offered are “day,” meaningif the order can’t be madetoday, it will becancelled. Good-til-cancelled(or GTC) means that the order will remain open until they fill itat your specifications or you decide tocancel it. Sixth, hit “verify order.”You will receive a confirmation on the screen, which will give youa chanceto review, change or cancel your order. Do take the time since you may havehit the sell button instead of the buy or put in the wrong number of shares! Finally, hit “submit.” Then, monitor youraccounts directly on-line.

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no less than $70, but like any limit order, there’s the risk that your order won’t be executed atall. The stock couldtrade once at $70, triggering your stop order, and fall immediately to $68, in whichcase your limit order would not be executed. I don’t mean to get too technical with these order types, but if you’re going to trade stocks actively it’s veryimportant that you know about them. If you have a helpful broker or financial advisor, he or she can help you determine the best type of order to place at any given time, based on how the stock is trading. If you’re doing it on-line, you’ll have to make your own decisions. The most common orders by far are market orders; you maywant to stick with them until you become a more experienced investor. Are you feeling more comfortable with the idea of handling your own investment decisions?I hope so. If you have already been investing,I hope you found atleast a tidbit or twothat you didn’t know. As I said earlier, the world of on-line investingis changing so swiftly that we can all learn something new every time we log on. If you are readyto learn even more powerful wealth-building investing techniques, the next chapter contains more advanced and specific strategies.

LinksYou Will Love Brokerage Ratings www.gomez.com www.kidincers.com www.smartmonev.com

CalculutorslForecastingTools www.bloomberg.com www.financialengines.com www.morninmtar.com wwwsmartmonev.com www.usatoday.com www.vanguard.com www.wfn.com

Company Research www.barrons.com www.bizwire.com

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www.brill.com www.mfea.com www.txnewswire.com www.wfn.com

College Financing www.collegeboard.com www.ed.eov www.fanniemae.com www.nelliemae.com www.publicdebt.treas.gov

Investing Information and Resources www.aaii.org www.driDinvestor.com www.investools.com www.investorama.com www.morninestar.com www.optionwealth.com www.smartmonev.com www.vaneuard.com www.wfn.com www.zacks.com

Investment Clubs www.naic.or2 www.wfn.com

Financial Advisors www.cfp-board.org www.directadvice.com www.financialpro.com www.moneycentral.com www.napfa.org www.nasdr.com www.worth.com

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Marriage and Divorce www.eaualitvinmarriape.com www.wfn.com www.wiser.heinz.org

Retirement Research and Information www.aarv.com www.asec.org rnww.census.gov www.dOl.?OV www.irs.Eov/forms pubs/vubs/p59Qtoc.htm www.mvower.com www.pbec.eov ww.ssa.(rov www.unclaimed.org www.wfn.com

Chapter 6

Double Click on Stocks

Susan Woodward’s life looks typical enough-hiking with her family, playing the piano to unwind after a day at the office, and spending many hours in her kitchen cooking gourmet meals.But when it comesto her investing style, her business side begins to show. Susan spent years in Washington D.C. as the chief economist for the Securities and Exchange Commission (SEC), and now serves as the chief economist for Offroad Capital in San Francisco. She relies on detailed analyses to help her make investing decisions. “1 look for small firms witha high degree of insider ownership that are not yet paying dividends,” she says. “I call it ‘capturing the small firm effect.’ Susan also believes that “women investors need to get a firm handle on what the market all is about before beginning to invest. I had a fully formed theory on interestrates in my head beforeI had anythingto invest.” Carla Jensen, an attorney for a large publicly-traded hotelcompany, also “I invest in what I relies on her own business side to steer her investments. know and whatI am interested in.” What she knows are companies in the same market sector in which she built her career-the hotel and travel risindustry. Herdeep knowledgeof one industry has helped her pick some ing stars and invest their in stocks early on. By reading trade journals, looking at websites, attending industry conferences, and keeping abreast of changes, Carla has been able not only to invest in hotel stocks, but also related industries like transportation, hotel supplies, and cruise lines. Sandy Caldwell brings an extra level of knowledge to her investing strategy aswell. She didn’t pick itup onthe job, but rather inbest herfriends living room. “Along with a bunch of my friends, I formed an all-woman investing club aboutfive years ago,”she told me, “The moreI learned about the detailed analyses the club uses to pick stocks, the moreI began to use ”

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that same method in my own growing portfolio. I know how to do a quick analysis of sales, earnings, andprice. And youshould see the chartsI’ve produced withfive years worthof highs andlows-my high school math teachers would beso proud! * Susan, Carla, and Sandy are all investing for the future, and each oneis doing it differently. They are by no means alone; in the pastfew years, I’ve met many women who’ve taken advantageof the on-linefinancial information revolution to use more sophisticated investing techniques. Women everywhere arenow using the Internet to obtain information was thatonce available only to the pros onWall Street. Time and again, I’m asked if there is any one particularway to go about investing. The shortanswer is no. In thischapter, I want to focus on how you can use the Net to determine easily and quickly if you’re in a stock thatis on the rise, or one thatis poised for a fall. I’ll tell you about information sites that will give youthe same kind of information your broker would use. Evenif you are not picking stocksyourself, you can use this information to educate yourself and reaffirm the decisions your broker or advisor is making on yourbehalf. Have you ever felt uninformed and in the dark when your broker makes a recommendation?You won’t be anymore, once you grasp the fundamentals. Imagine asking your advisor why you’re in astill particular stock, when quarters? Imagine also the increased earnings have been lagging thetwo last confidence you’ll feel when you strike up an informed conversation about the stock market the next time you find yourself seated next to your company’s chairman at lunch. Imagine the feelingof security and comfort you’ll develop about yourown financial future, knowing that youare in control.

12) Share your success 11)Preserve what you have

10) Increase your earning power 9) Minimize your taxes 8) Organize your finances 7) Protect your assets 6) Invest to build your net worth 5) Educate yourself about investment 4) Acquire a home 3) Free yourself from debt andbuild credit 2) Live within your means 1)Determine where you stand

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Doing It Differently While buildingWFN, I’ve immersed myself in researching women’s investment behavior. One of the most interesting findings relates to women’s lack of confidence when it comes to investing in the market. Believe it or not, this can be a good thing. A University of California at Davis study found that men’s greater confidence in their investing skills actually costs them. The study found that men trade 45% more than women, leading to more transaction fees and more attempts to “time” the market.After looking at the effects of transaction costs, women actually come out 1% ahead of men annually in their portfolio returns. That 1%may not sound like much, but if you were to look at the impact aon$20,000 portfolio (assuming an average 10% earned by women and 9% for men), women wouldhave $22,462 more than men in20 years. On the other hand, women’s lack of confidence often leads to procrastination,which isa bad thing. Keeping your money in CDs and money market funds untilyou learn everything there is to know about investing will also result in low investment returns. If you don’t feel comfortable choosing individual stocks yet, put your money into mutual funds and watch what the pros doyou as embark on your lifelong financial learning process.

Invest Regularlyand Routinely The rest of this chapter talks about investing strategies that can help you build your net worth-as long as you have the time and inclination to do the research and manage your portfolio. All you have to do is make a commitment to invest a setamount on a regular basis and put it intoa few different mutual funds. Spend afew hours researching mutual funds, pick the ones you like, sign up for their automatic investment program that authorizes $50 or $100 or whatever amount you decide to be transferred from yourcheckingaccount every month,andwatchyour portfolio grow. The more you invest on a regular basis, the greater the chance that your money will grow into a substantial sum. Money invested on a monthly basis gives you two greatbenefits: the benefit of time and thebenefit of dollar cost averaging. Time. From 1926 through2000, the marketachieved an average annual return of 11.05%, according to Ibbotson Associates (www.ibbotson.com), but ithasn’t produced positive returns every year. In fact,in 1974, the worst year for the market since the Depression; stocks were down 26.4%. Since

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1926, there have been 21 years in which the market turned in negative returns. But the overall average annual return was a positive 11.05°&”etter than bonds and far better than the interest rate on savings accounts. Year in andyear out, if you just keep investingregardless of what is happening around you, your money and your investments should increase. Remember the so-called “crash” in October1987? Surprisingly, the market was up 5% that year. Those who hung on recouped their losses in about nine months and saw their money quadrupleover the next ten years! Time is also critical because of the compounding effect discussed in the last chapter. Dollar-cost Averaging. This now-popular phrase has done moreto get people to invest on aregularbasis than any other marketing gimmick devised by the mutual industry, and with good reason: It really works! To achieve dollar-cost averaging, you simply invest the same dollar amount every month, (or at other regular intervals), regardless of what price the mutual fund shares are selling at. When the price is down-that is, when the headlines are screaming “bear market” and everybody’s worried that stocks will fall further-you are actually celebrating, because your same dollar amount will buy more shares. What ends up happening is that your averaverage price per share. age cost per share is lower than the funds Automatic investingis perfect for women whoaren’t sure when to enter the market. Think the market will go higher? Great-get started now and your investmentwill go up invalue. If the market falls-great, you’ll buy at more favorable prices. Be sure to check the “reinvest” box on the application form. This means all dividends and fund distributions will be reinvested into more sharesto help your portfolio growall the more. Mutual funds make automatic investing easy and arevery cost-effective compared with buying small amounts of stock. You can also setup anautomatic deposit program with your investment account and arrange to have a fixed amount transferred from your checking account into your brokerage account.

Choose, Monitor, and Sell with Discipline After they’ve invested in mutual funds for a while, many women decide they’d like to buy and sell individual stocks. The prospect can seem overwhelming at first. The list that appears in the financial section of the paper every morning contains thousands of tiny and mysterious little initials, everything from names you recognize like IBM to ones you can’t begin to decipher like ZOOX. Let’s focus on three key things you must get a handle on before getting started. These are the fundamentals of good investing:


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Investing Windfalls What if you receive a big inheritance or financial windfall that has more zeros in it than you’ve ever seen in your life? Well, the first thing you’ll want to do isput it immediately into a money market fundso it can start earning interest. For every day you carry a $200,000 check around in your purse or leave it ina non-interest bearing checkingaccount, you’re losing about $28 in interest. Next, interviewfinancial advisors so you can get some concrete advice on what to do with it. Pay careful attention to the kinds of questions they askyou, and how wellthey get to know you before making a recommendation. Regardless of what advice you receive, keepin mind that you don’t have to invest the whole thing all at once. In fact, some financial advisors will recommend that you invest the sum in gradual installments over a year ortwo to avoidthe risk of dumping it all into the market at the wrong time. Keep in mind that even though there may be some psychological benefit to investing over time, studies show that if you’re investing for the long-term,you shouldn’twait. Timein the market beats timing the market.

choosing your stocks; developing a monitoring system; and determining a sell discipline. I like to call this your CMS. If you put enough time into developing your own CMS and then stickto it asyou invest over the years, you will watch with pride as your portfolio grows in value. Choose Your Stocks. As you learned from the examples of Susan, Carla, and Sandy, everyone has their own strategy for selecting stocks. Next time you find yourself talking to someone about the stock market, ask about their strategy. Most investors will happily offer up their own personal methodof stock picking, and youwill be astonishedby the variety. Personally, I prefer methods that are “timetested”-that is, they have performed well historically in both strong and weak markets.You can either implement your own strategy, or follow someone else’s. There are lots of books out there on the investment strategies usedby various professionals, including WarrenBuffett, Peter Lynch, and James O’Shaughnessy. Once you find a strategy you like, try to stick with it, because mixing methodologies can leave you confused and without direction. Investing without a strategy is like trying to make a trip without a map-you may get there, but lord knows what detours you might be forced to make. Monitor Your Stocks. You’ll need to create a systemfor monitoring your portfolio, for keeping a close eye on what you own, and how it changes in value overtime. This used to mean calling your broker or looking up the closing prices in the next morning’s paper, but with the Internet those days of outdated information are long gone. You can now monitor your holdings any

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Positlons Monitor Compare your holdtngs with the market. S&P, Mommgstar. and mora. to see how you are dotng.

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-1”~ Figure 18 time the mood strikes you by checking your on-line brokerage account. Here, 18) of several stocksand and how you can see the performances (see Figure they compare with the S&P 500 listed at thebottom. Some on-linebrokerage firms and other sites offer toolsthatshow changes in yourasset allocation based on your account holdings. You can set up “news alerts” on your stocks to monitor major corporate developments. You may also want toset up a“watch list” portfolio your at favorite financial site to monitor how your current stocks are doing, wellas as thoseyou’re considering investing in. You can do thiseasily at AOL (www,aol.com), CBS Marketwatch (www.markenvatch.com), MSN (www. monevcentral.msn.com), Yahoo! Finance (http://finance.vahoo.com),and Reuters Money Network (www.moneynet.com). Sell Your Stocks. Since I personally make stock selections with an eye I don’t engage in many short-term toward holding them for the long-term, buying and selling sprees. I’ve learned that most women want a strategy that is simple anddoesn’t complicate theirlives. Here are some commonly used guidelines for selling stocks:

1. A stock no longer meetsyour criteria. This is why it’s extremely important toknow-and remember-why you bought the stock in first the place. If anticipated earnings have failed to materialize, or the company’s operations have changed significantly so that it’s no longer the stock you thoughtit was, it may be time to sell. 2. The price of the stock has dropped 10%and remained there. Sometimes even good stocks can languish in the marketplace, but a 10% price drop may be a definite flag to review the company While this is a


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good rule of thumb, bear in mind that for volatile stocks, like tech 10% ina single stocksthatcanquicklyswingevenmorethan day, you might raise your threshold to 20%. If you’re very optimistic about the company’s long-term potential and have lots of patience, you may choose to hold on, but in the meantimeyou may be missing out on better opportunities. Remember the Wall Street adage: never fall in love with a stock. 3 . You want to offset your gains with losses in a taxable (non tax-deferred) investment account. You can do this by selling stocks that don’t meet your criteria anymore. Most people think of tax-loss selling as a yearend activity because by then you have a chance to evaluate your entire portfolio of gains and losses, but you really should keep tax-loss selling in mindall throughout the year and take advantage of dips as they occur to establish losses that will offset other taxable income. 4. You need cash from the sale of stocks to meet afinancial emergency or other goal. Good financial planning would dictate that emergency funds equal three- to six-months’ living expenses and funds earmarked for a goal less than three years away be keptsafe in amoney market fund or other safe, short-term vehicle. This is to keep from having tosell stocks at a bad time. But if you really need money from your stock portfolio, then sell you must. 5. Your asset allocation plan has gotten all out of whack and you need to sell some stocks to restore your original allocation. Let’s say you’ve decided to allocate 60% of your portfolio to stocks and40% to bonds. Then the market goes on a tear and increases the valueof your stocks so they now represent 70% of your overall portfolio. Although it’s always hard selling winners, your 60/40 allocation plan was estabof a declining stock market lished for a reason: to cushion the blows and help you achieve yourtarget rate of return. So you bite the bullet and sell some of your beloved stocks so you can put more into bonds. When the market turns you’ll be glad you did. Then, you rebalance the other way-sell some bonds and buy more stocks when their prices are low. Believe me, it works. It makes sound financial sense to rebalance youroverall portfolio periodically, just like you go for your annual check-up with the doctor. Rebalance your portfolio once a year, at the end of the year. If you want to know what kind of return you’d be getting if you were to sell a stockor, conversely, what price your stock needs to grow to in order to generate your target return, check out the calculators at CNBC’s site at www.cnbc.com/datatools/financialcalc.html(see figure 19).

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Figure 19

Time the Market? Forget it! The herd mentalityis alive and well on Wall Street;it's what causes stocksto overreact to news events like disappointing earnings on the downside or favorable analysts' reports on the upside. When investors buy or sell just because other investorsare buying or selling(not because of their own independent research), it generates momentum that makes for exciting news on Wall Street but wreaks havoc with a disciplined investingprogram. Following the herd is not rational investing, butyou're when watching CNBC all day


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or closely tracking the marketvia the Internet, the herd mentality can easily overtake you. You become so close to the action that you can’t tell what is rational and what is real. Market timingwill not only driveyou crazy and lead youto spend inordinate amounts of time wondering and worrying about when to buy and sell, it will affect your returns. In fact, one study by Wilshire Associates (www.wilshire.com) found that timing the market with mutual funds alone caused average annual returns tobe lowerby 1%per year. Sound like a drop in the bucket? It isn’t. On a $50,000 stock portfolio, that’s about $500 in a year. Statistics aside,one of the worst things that can happen is you thatwill miss out on those unexpected rallies that can generate some of your biggest portfolio gains. If you’re investing for a long-term goal, being in the market is how you build wealth; being out of the marketis how you earn mediocre returns. Discipline yourself to ride out the ups and downs, and keep adding to your investment account on a regular basis. Whether or not you decide to work with a financial advisor, youmay want to get your feet wet before taking the plunge. Increasingly, on-line investment companies are providing the opportunity to create a “mock” portfolio to see how you do. Marketocracy.com and Virtualexchange.com are two places where you can use as much as $1 million in play money to learn about the markets.

How to Research Stocks Once again, I must say that there is no single rightway to do the research. Investing in stocks is an inexact science, and no one canpredict the market. A stocks price, after all, simply represents what a given buyer is willing to pay and a given seller is willing to take at any given moment. Who knows what price buyers and sellerswill agree upon next week, nextyear, or ten years from now? This is not to imply that stocks are nothing more than gambling vehicles (although it may seem that way sometimes). There is a fundamental reason why anyone invests in anything, andit’s to receive more money back than they originally invested. Some people call this cash flow. A simple example of an investment providing cashflow is a bond. When you invest $10,000 in a bond that pays 8% interest and matures in 20 years, you can count onreceiving interest paymentsof $800 per year for 20 years and your $10,000 back at maturity. With stocks, the “cash flow” is more indirect. When you invest in a stock, you are buying shares in a company whose mission is to generate earnings for the benefit of shareholders. Now, as a stockholder you don’t

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actually receive these earnings. Most of the time they are reinvested back into the companyto generate more earningsin the future.Some companies do pay out a portion of their earnings in the form of dividends, but usually not very much-except for utility companies, the average dividend is a little over 1%of your investment, and most growth companies don’t pay any investor, get your hands on someof dividends at all.So how do you, as an so hard to generate? Well,if the comthese earnings the company is trying pany really does increase its earnings every year, the stock should become more valuable to investors-in other words, its stock price should go up. That is how people make money in stockstoday. Buy a stock withgood earnings prospects, andsell it for more than you paid once those expected earnings have materialized. The pointof this very basic discussionof earnings is that, when investing in stocks, you must pay attention to two things: acompany’s current and projected earnings, and the amount investors are willing to pay for those earnings as reflected by the pricdearnings (or PE)ratio, and a few other ratios discussed below. When you are investing long-term, a company with growing earnings will almost always be a good investment, as long as you aren’t paylng too much for those anticipated earnings in the first place. The (P/E ratio) the stock higher the earnings growth rate, the higher the multiple can carry. Stocks with high expected growth rates and high P/E ratios are more riskythan those with lower numbers, because if the expected earnings fail to come through, investors will become disenchanted with the stock and the price will fall. On the other hand, a company with steadily increasing earnings and a P/E ratio that’s not too high compared with other stocks within the same industry can steadily increase in value over time. That is how you make money in stocks.

Fundamental Research Okay, so as you set forth to do your stockresearch, step oneis to find companies with good earnings potential. Step two to make is sureyou’re not paying too much for those earnings. Our first step will comprise the majority of your research. If you keep in mind that your main objectiveis to evaluate a company’s ability to generate higher earnings in the future, you can you now have, choose many differentways to go about it. With the Internet literally at your fingertips, a wealthof information that can helpyou determine the earnings prospects of virtually all publicly traded companies. There are two waysto analyze stocks, qualitative and quantitative. Qualitative analysis considers the quality of the company’s products, the com-


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pany’s marketing advantage, how effective management is in leading the company into the future, and other considerations requiring a judgment call rather than numbers crunching. Quantitative analysis considers the company’s financial performance as reported in10-Ks and 10-Qs, the standard reporting documents that every public company must file with the Securities and Exchange Commissionon an annual and quarterly basis. Most analysts use a combination of both types of research, believing that the numbers tell what a company did, whilequalitative considerations tell where a company is going. Let’s take a look at some of the key fundamentals youwill look at when researching stocks.

The Economy Fiscal and monetarypolicy will create morefavorable environments for certain investment classes (e.g., stocks or bonds) and certain industries at any given time. For example,when the Federal Reserve Board chooses to lower interest rates to spur the economy, the stocks of financial services companies are likelyto rise. That is because lower rates mean lower costs to borrow money to meet their business needs; this, in turn, could mean more earnings. Many businesses are directly affectedby the Fed and its view of the economy Productivity, unemployment, interest rates and consumer sentiment will all influence the stock and bond markets. Economiccalendars, followed closely by analysts, are available at The Dismal Scientist at www.dismal.com/economy/releases/calendar.asp or Yahoo at http:/hiz. yahoo.com/c/e.html. You can also see the calendar and past reports for what’s known as the “Beige Book”put outby the Federal Reserve. The Beige

Hey There, Edgar No, Edgar is not your long lost uncle, but rather the SEC’s database of all reports that all public companies are required to file. Theseinclude quarterly (lo-Q) and annualreports (10“ to stockholders, registration statements for public financings (i.e.,s-1for IPOs), proxystatements (14A), and the like. To access a particular type of report, go to www.sec.gov and into

“Edgar Database,” then go into the “quick forms lookup.” Use the pulldown menu to select the form you want, and then enter the company name, the daterange forthe report, andhit “submit.”You can also access the Edgar database through www.freedyar.com, wherereports are easier to print.

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Book compiles economic data from each of the 12 Federal Reserve Districts (e.g., Chicago, Atlanta, New York). Access the local or national report at

www.federalreserve.eov/FOMWBei~eBookL!OOl.

The Industry You'll want to pay attention to the industry your target company is in. In fact, you maywant to use the industry as a starting point for making investis on the upswing?As I write this, comment picks.Is this an industry that panies in the infrastructure, optical networking,wireless and areas are quite strong and positioned to drive futuretechnology. There are a number of sites that will tell you which are the leading industries and how they are performing, such as BigCharts.com, Investors Business Daily (www.investors, cam), Marketeuide.com, Standard& Poor's Personal Wealth (www.person alwealth.com) and Wall Street City (www.wallstreetcitycom).Wall Street City, for instance, tells you the best- and worst-performing stocks in a host of different industries, and allows you to chart astock's performance against its industry's (see Figure20). Through research, you will learn that, although a sector is strong, not all of the industriesin that sectorare equally healthy. Also, an industry that is currently out of favor or at the beginningof an upswing may be a good industry in which to invest, because its potential may not have been discovered by the marketplace. Keep in mind that industries come in and out of favor, and don't put all of your investmenteggs into one industry basket. Remember to diversify your portfolio. Other ways to get an early indication of industries with good future prospects is to read industry newsletters. Venture Wire, for example, is a free

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daily e-mail newsletter that talks about which young companies arereceiving venture capitalto drive new ideasand new industries. Subscribeby visiting their site at www.venturewire.com. I also like Piper Jaffray’s weekly report on the e-commerce industry. You can subscribe to several different Internet industry newsletters by visiting their site at www.gotoanalvsts.com, but I would suggestyou go to your favorite industry’s leading trade publications andapply to get their regulare-mail newsletters, usually free. Imagine getting industry information daily or weekly, instead of waiting until you get your copy of an annual report in the mail. Your on-line broker will most likely offer research on industries and stocks.

The Company Once you have determined which industries you want to invest in, you can look at the companies within each industry to determine which have the brightest prospects. In the investment business, this is called“top a down” approach-first picking the industry, and then the company. You don’t have to do it this way, and in fact many successful professional portfolio managers use a“bottom up” approach, seeking great out companies irrespective of theirindustry.Thisentailsmore work,however;withatop-down approach you can narrow your universe more quickly and focus only on those companies in industries you think have the most potential in the years ahead. A great place tobegin your research of companiesisat Hoover’s (www.hoovers.com). Itwill give you the ticker symbol, the company’s website address, a summaryof the business anda list of competitors. Much of the information on Hoovers is restricted to subscribers, but you can get a company “capsule” free. 1 will tell you about some other sites where you can access a wealth of information about a company, butfirst let’s give you some tools to get started in your research.

Qualitative Considerations When your neighbor tells you she is invested in Apple Computer because she just bought a newiBook and loves it, she is basing her investmentdecision on qualitative considerations; in her opinion, the company makes a high-quality product that shebelieves other people will buy aswell. This is one valid reason for choosing a stock, but it may not be enough.Is Apple gaining or losing market share?How is Steve Jobs doing as CEO? It is fine to trust your instincts, but always check them against other criteria to avoid

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loading up ona stock that may have great products but be managed so terribly that the company can’t possibly make a go of it. Most “hot tips” are based on qualitative considerationsonly-usually one exciting idea such as a breakthrough product that promises to revolutionize life as we know it.If you’re the lucky recipientof a hot tip, first consider the source, then consider the following other qualitative considerations. Products. What does the company make? Is there alarge market for the company’s products? Are the products any good? Competitors. What other companies make similar products? What is the company’s market share comparedto its competitors’? Is the company’s market share expanding or contracting? Management. Some investors think management makes all the difference in whether or nota company will be successful. Read biographies of the executive management team (you can find them in the10-K) and read thebusinesspress, especially BusinessWeek (www.businessweek.com), Forbes (www.forbes.com), and Fortune (www.fortune.com), which frequently run profiles of corporate managers. Sandy Caldwellrecently told me how she went ontoMarketGuide.com to do someadditional background research on Fastenal, a producer of fasteners (aka bolts and screws). She learned that the CEO was only taking a salary of $117,000,lower than theexecutive vice president, and with no bonus. She then did a news search and found that he had beencalled one of the fiscally tightest CEOs in the country-someone who believed that staff shouldn’t be reimbursed for meals while traveling because they have to eat anyway! Now there is someone withan eye firmly focused on the bottomline. Susan Woodward has a preference for companies that are “closely held.” These are companiesin which more than50%is ownedby insiders, such as management. The thinking here is that when the managers of a company have such a large vested stake, their interestsare closely aligned with those of outside investors. You may also want to see whether the top managers of the company are buying orselling stock in theircompany. Since they are considered most “in the know,” their buying or selling decisions can be a tip-off for you as to where they think the companyis headed. Selling is quite common,because executives often have a high portionof their net worth tiedup in thecompany, so selling may reflect their own personal financial planning considerations. However, heavy selling byinsiders-especially if many of them do it at the same time-can mean they have information suggesting a negative outlook for the stock. When insiders buy company stock,is it usually considered a vote of confidence-an indication that the stock is undervalued and a good investmentrelative to its future prospects.Since the sale or pur-


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chase of stock by management must be reported to the SEC, you can find reports of whatmanagementhasbeendoingatmarketguide.com, biPcharts.com or most othermajor financial sites. Institutional Ownership. Wouldn’t it make you feel better if some of the big boys, like giant mutual funds or pension funds, owned some of comthe pany you are thinking about putting your money into? After all, you know they’ve done their homework. Ownershipby such institutions is often afavorable sign that the stock is a good investment. On the major financial sites, you’ll see thepercentage owned by institutions, as well as exactly who they are.

Quantitative Considerations While qualitative considerations can give you a good or bad sense about where a company is going,it’s largely a matter of interpretation or conjecture.Quantitative data-thenumbers-let yousee in black and white exactly what is happening. They can either support or refute your gut instincts, and they hardly ever lie. Earnings. Earnings are what a company makes in profit after allof its expenses have been deducted. One of the most important numbers on a financial statement is earnings per share, which company’s is the net income divided by the number of shares outstanding. The numberby itself doesn’t mean a whole lot. What is most important is the earnings trend: has the company increased its earnings over the past five years? Hasthe increase in earnings been erratic or consistent? If there’sbeen a dip in earnings,there is a good explanationfor it, andis it likely to happen again? Keep in mind that the whole point of your research isto identify companies with promising future earnings. While previous earnings are just that-previous-they can give you an idea of how the company actually performs, as opposed to how you think it might perform. In other words, you can go back and see what impact a new product had on previous earnings, and extrapolatefrom that how a new product might affect earnings in the future. If you are told that a company is likely to double its earnings every year over the next threeyears, you can seeif it has actually been able to do so. Keeping your research grounded in earnings can save you from getting carriedaway by pie-in-the-sky stories that seldom play out theway you expect themto. When setting up your own approach to choosing stocks (the C in my CMS formula) you might decide that you only want to invest in companies with earnings thathave increased at least 15%each year. HOWcan you arrive at that all-important question of what a company’s earnings will be in the future?Got a crystal ball? No, seriously, the profession of securities analysis is all about forecasting a company’s future earnings. If

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you’ve ever waded through a20-page analyst’sreport, you know that when you cut to the chase,the piece of data you’re looking for is theanalyst’s best guess of the company’s earnings next year and perhaps three or five years out. The analyst usually will include anestimate of a reasonable multiple (PEratio) as well. These twopieces of information tell youin a flash what theanalyst thinks the futureprice of the stockwill be. For example,an analyst’s report might conclude with the words: “We think XYZ will earn $1.75 next year and that it deserves a multiple equal to the industry average of 30; we therefore think a fair price for XYZ is $52.50 per share.” If the stockis now selling at 40, the analyst is probably issuing a “buy” recommendation. Keep in mind that although analysts are very thorough in their research-gathering information you would never have time to pull together and usually having specialized knowledge of a particular industry-their opinions aren’t always right. You can go to Zacks (www.zacks.com) or most leading financial sites suchasMarketwatch.com,Marketguide.comand Ouote.com and see what the consensus opinion (summaryof the opinions least of several equity research analysts) is.It is not always right either, but at you are not putting all your faith in one person. Since numbers can be and sometimes are manipulated, analysts also look at revenues, also known as sales.That’s because the revenue line in a company’s financials is the top line and is simply the money generated from

How Right Are the Analysts? If you take only one piece of advice from me, letit be this: never make a decision based solelyon oneanalyst’s recommendation.Why do I caution against this so strongly?Because manyanalysts face a conflict of interest.

At the sametime theyare being paid to provide an objective evaluation of a public company, their employer is busilycourting the samecompany for its investment bankingbusiness. It’s become well publicized that analysts who hype the stock of the firm’s investment banking clients achieve the most success (read: highest pay) inthe profession. Read their reports, but scrutinize their rationale in arriving at their recommendations, especially if the company isone of the firm’s investment bankingclients (look at the cover of the company’s last prospectusto see which brokeragefirms participated in the latest offering of stock). Another important thing to remember about an analyst’s comments-whether communicated online or on TV-is that theinformation you hear has probably already been received and reacted to by large, institutional investors. In other words, their comments are already reflected inthe price of the stock. An analyst’s move to downgradea stock could bea warning sign for you to review the stock and your reasons forselecting it inthe first place.

Double Click on Stocks 1 153 the sale of the company’s products or services before any expenses are deducted. Sales drive earnings. The other way earnings can grow is by decreasing expenses. Look for revenues growing consistently, ideally from one quarter to the next. Corporate Performance. Although earnings, or profits, matter most to investors, there are other measures of corporate performance that can help you determine a company’s future prospects. These support your qualitative analysis, and tell you if management is doing a good job. Three of the leading figures to watch are return on equity (ROE), return on investment (ROI), return on assets (ROA). These figures tell how well management is using the fundsgiven to it by investors, the debt it has taken on to expand the business, and the assets it has in its possession. Generally, the higher the numbers the better the performance. In addition to a singleyear’s numbers, also look fortrends-improving numbers are always a good sign. Compare these measures of financial success for a company against the industry’s.

How to Avoid Paying Too Much for a Stock As noted earlier, step one in your research is determining company’s a future earnings prospects, however you choose go to about it.Clearly, it is impossible to predict with absolute certainty how much a company will earn in the future, butby using the tools and information available to you, you can make some educated assumptions. The next step is to make sure you are not paying too much for those earnings. After all, it doesn’tmuch matter if a company turns in extraordinary earnings in the future if the stock is already priced so high that it couldn’t possibly meet investors’ earnings expectations during your lifetime. At one time, when Amazon.com was trading at its peak,analysts realized the company would have to have revenues equal to the entire gross domestic product of the United States in order to justify its stock price. Clearly, people were buying Amazon just because other people were buying it without regard to financial reality, and the stock subsequently got hammered. So, in order to stay grounded, you must look at earnings and stock price in relation to each other, and avoid overpaylng for a stock no matter how much you love it. As an investor, your primary concern isto make sure that the company in which you investwill be generating cash in the future, which will translate into greater earnings and a higher stock price. Financial information required to assess a company’s likely earnings is now instantly at yourfingertips. You can get a copy of the company’s 10-K (annual report), 10-Q (quarterlyreport),andproxystatements (also knownasthe 14A) at

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www.sec.szov. These contain detailed income statements, balance sheets and statements of operations. This is the very information that most analysts use to set up their earnings models to predict what the actual earnings should be. If you are thinking about investing in a particular stock, this can be a real eye-opener. You will learn more than you ever imagined about the company-the good, the bad, and theugly. Here are the key items to look for when evaluating the financials: Price-to-Earnings (PE) Ratio. The price-to-earnings ratio is simply a company’s stock price divided by its earnings per share. It is the quickest and easiest way to tell if a stock is reasonably priced based on its current earnings. For example, if XYZ is trading at $20 and has earnings of $ 1 per share, itsP/E ratio is20. If QRS is trading at$60 and has earningsof $2 per share, its P/E ratio is30. By comparing the twoP/E ratios, you see thatQRS is the more expensive stock in relation to its earnings.Does this meanyou’ll definitely make more money buyingXYZ? Not necessarily. QRS may have a higher P/E because the market expects its earnings to grow faster than XYZ. If the market is right, QRS will likely turn out to be the better buy, but it does entail more risk.If the expected earningsfail to come through,a highP/E stock will fall further than alow-P/E one. As you begin to develop your own method for choosing stocks, you might decide to only buy stocks whose P/E is within a particular range. Price-to-Earnings-Growth (PEG) Ratio. In the above example, it may be that the reason the market has placed such a high valueon QRS shares is that thecompany’s earnings are growingvery rapidly. In thiscase, its high P/E ratio would be justified, because the company could be expected to “grow into” its stock price. Another way to evaluate two companies is to divide the P/E ratio by the earnings growth rate. This gives you the PEG

Buying on Sale What woman doesn’t like to buy clothes on sale? It’s odd that, when the stock markettakes a real drop, it is the only market in which most people don’t buy on sale. Think of a “value”stock as that-a stock that is underinvestorwarren Bufpriced relative to where it should or could be. Famed fett has used this strategy to build up his billions, and onceyou learn it, you might, too. Value stocks typically havea lower price-to-earnings (PIE) ratio and pay more dividends than other stocks. You can examine these ratios compared tothe industry and to a company’s competitorsonline.


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ratio. If XYZs PE ratio is 20 and its earningsare growing at a15% rate, its PEG ratio would be 1.33 (20t 15). If QRSs P E ratio is 30 and its earnings are growing by 25%, its PEG ratio would be1.2 (30t 25). By this measure, QRS is the less expensive stock when compared to its growth rate. If you are following a valuestrategy, lower numbers are usually better, especially when choosing among two attractive stocks within the same industry. Price-to-Sales (P/S) Ratio. In today’s dot-com world, some publiclytraded companies don’t even have earnings. That’s because they are spending every dollar of revenue to build the company. In this case, analystslook No adjustment is made to deduct at sales(alsocalledtotalrevenues). expenses the companymay have to create and market their product or service. The price-to-sales ratio isthe stock price dividedby sales or totalrevenues per share. TheP/S illustrates how expensive the stock is in relation to its sales. In What Works On Wall Street, Jim O’Shaughnessy found that a company’s price-to-sales ratio isone of the best indicatorsof future performance. He said, “Low price-to-sales ratios beat the market more than any other value ratio and doso more consistently.” Price-to-Book ( P B ) Ratio. The PA3 ratio gives yet another view-it compares the price per share to the book value. Think of a company’s book value as what you would see if you looked at its financialbooks-what it would be worth after using its assets to pay off its liabilities. What assets would be left? The PA3 ratio is always a positive number and remembers lower numbers are better. With all of these ratios, you’ll want to compare yourtarget company to competitors and to the industry as a whole. MarketGuide.com can help you see that Pfizer, the major pharmaceuticalcompany, has a higher P E than its industry, its sector and the marketa as whole.Remember that lower ratios compared to competitors and the industry may suggest it’s trading at an attractive price, while higher ratios may suggest it’s on a faster growth track. Volatility. By considering a company’s stock price in relation to its financial performance, you can avoid paying too much for stocks that may be overvalued in the marketplace as a resultof speculation or momentum buying. Another important factor to consider is the volatility of the stock. By how wide a margin doesthe price move up and down in comparison to the market as a whole (e.g., the S&P 500)? Remember when the Internet bubble burst inMarch of 2000, and sometechnology stocks fell as much as 50% in a single day? Wouldn’t it be nice to know if your stocks have the potential to have the bottom fall out of them? If so, you should check your stocks “beta.” The term “beta” soundslike Greek to beginning investors (wait-it IS Greek), but is simply an indicatorof how an individual stock shouldreact

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to the market. It illustrates the correlation between the movement of a stock price and the market as a whole. The stock market aaswhole has a betaof 1. A stock with a beta greater than 1 is more volatile than the market as a whole, while a stock with a beta less than 1 is less volatile than the general market. The higher the beta, the more volatile your stock. For example, Yahoo has a betaof 3.52 whileBoeing has a betaof 0.56. This meansYahoo experiences far wider price swings than Boeing. If high volatility causes you to lose sleep at night, you might limit your portfolio to stocks withlow betas. You can easily find the beta of any stock or mutual fund online (e.g.,Mar ketguide.com or atYahoo!Finance).

Stock Pricesand Charting the Future As you become comfortable with analyzingcompany’s a financial statements in relation to itscurrent stock price,you may alsowant to take alook at the company’s stock chartto review its trading history. Stock charts can be interpreted in many different ways. Some people-called “technicians” in the industry-find all kinds of patterns in them. You’ll hear about everything from a “cup handle” patternto a “head and shoulders” pattern. Technicians then use these patternstrytoto predict where a stock will trade in the future. The theory behind technical analysis is that market participants can be expected to behave a certainway, based on recent marketactivity. For example, if a stock jumps several points on high volume (when many shares exchange hands in one day), it is assumed that, for a time, new investors will notice the activity, and continued demand will drive the price even higher. Then, at some point, the price will get so high that demand slackens, and the price dropsback to a more normal trading range. Most technicians are short-term traders. But long-term investors can make useof stock chartsby looking at the 50-day moving average line. The 50-day moving average line, seen here for Wal-Mart, essentially smoothes out the daily ups and downs and shows aatglance whether the stock is in an uptrend ora downtrend (see Figure 21). A favorable time to buy is when a stock is inan uptrend-but not if it has recently been through a buying mania as described above.In that case, wait until the stock settlesback down. If you see that a stock on your buy list is in a clear downtrend, it may mean the stock has further to fall. Proceed with caution, and wait for the moving average line to turn up before buying. You can check the 50-day movingaverage on sites featuring stock charts, such as BigCharts.com (also at MarketWatch.com) or Wallstreet citv.com for the more technical investor.


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@k%etWatch 6.23am ET 1/17/01

Figure 21

Using the Web to Screen Stocks, Read the News, and Find Out What Analysts are Saying The Web is the most amazing source of financial information-and most of it is free. No longer mustyou call your broker,go to thelibrary, or wait for a company’s annual report to arrive in the mail to obtain detailed information on stocks.Now all you have to do is log onto your favorite financial sites and pick up the information you need. Of course, having this vast quantity of information available at yourfingertips cansend you into information overload, too. It is important to take a methodical approach to the Web, and not letyourself become overwhelmed. You can start with the financial mega-sites. In addition to America Online’s financial center,which incorporatesQuicken’s content andis available to AOL members, the main mega-sites are CBS Marketwatch, MSN Moneycentral and Yahoo!Finance. These mega-sites offer news, quotes, corporate data, feature articles, and a variety of tools that can help you plan, choose, and monitor your portfolio. You can even watch interviews with industry experts right on your computer by logging onto JAGNotes at wwu.jagnotes.com or 0N24.com. Other sites that feature a broad offering of financial articlesand information are Kiplingers.com, Monev.com, Mom ingstar.com, and SrnartMoney.com. The on-line brokeragefirms also offer

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helpful tools and information. There are many more Isites can list thanhere. If you want to do your own thorough search of financial sites, check out Web directories such as 1nvestorama.com (over12,000links!). You can also subscribe to a monthly magazine called Online Investor for updated web news and site ratings;go to www.onlineinvestor.com. are the One tool that can helpyou develop your stock selection strategy many fine screening tools on the Web. Both AO& Investing Center and Microsoft's Moneycentral provide youwith the ability to screen a stock based on pre-set criteria, or criteria of your own choosing. The research wizard at Moneycentral, for instance, walks you through a series of steps andinformation, muchof which was discussed here,to help you make adecision. Where is Wal-Mart likely to be in year a ortwo? Here you haveit (see Figure 22)! If you're just starting out and would rather rely on a professional's stock picking strategy, these sites even allow you to select a strategy created by professionals. At Moneycentral, for instance, you can choose a contrarian strategy (in which out-of-favor stocks are chosen in anticipation of their coming back into favor) or the methodical investment strategy of Jim OShaughnessy, a professional money manager and author of What Works on Wall Street, who relies on historical data and quantitative criteria to choose stocks. America Online, throughits partner, Quicken, alsooffers strategies to follow, and Yahoo! Finance also has an extensive collection of investing mega-sites, look for featools. I recommend spending some time on these tures important to you, and make one your primary financial site.The Web becomes easier to navigate once you've developed a level comfort with a par-

Figure 22


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ticular site’s look and feel. After you have invested a few hours looking around and have found a site you like, you canspend more time doing the actual research rather than exploring. For financial news, the main sites are Bloomberg, CBS Marketwatch, CNBC, and CNNfn. The New York Times on-line also has good business coverage, as doesUSA Today (go to theMoney section).The Wall StreetJournal on-line at www.wsi.com is really the Bible, though you’ll have to pay about $59 for an annual subscription. Investors Business Daily is more for the active investor. I do want to cautionlong-term investors not to get too caught up in thedaily market activity, because it can cause youto abandon a solid, long-term investment strategy in favor of a flighty, short-term one. For example, a stock will sometime get hammered when a well-known analyst issues a rating from “buy” to “accumulate.” If you still likethe company and are investing long-term, you have no reason to be concerned by an announcement of this type. Watching the news can help you understand why your stocks are acting the way they are, but do be careful not to get caught up in theherd mentality. Research and market commentary, which includes analysis and opinions by securitiesanalystsandfinancialwriters,canbefoundat TheStreet.com, MarketGuide.com, Morningstar.com,ValueLine.com, StreetCitv.com, and Zacks.com. Also check your own brokeragefirm’s site. With experience, you will find analysts and columnistsyou like, so you’re not faced with a blizzardof unfamiliar commentary each timeyou log onto the Web.

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Keeping Upwith the News Liz Briggs says she hasfinally found the secret to keeping up with information on investing, without feeling overwhelmedand spendinginordinate amountsof time. “For years and years, I would readas many articles to end, not missinga word. But,something hapas I could from beginning pened when I became an executive and found myself waytoo busy to read like that. I started falling out of touch becauseI wasn’t reading at ALL. I had to learn how to getthe most information every day in the least amount of time. It took mea long time, but I finally have masteredit-so it now takes me only 10 minutes every morning.” Liz’s recipe: She simply scans the online front pages ofCBS Marketwatch, The Wall Street Journal, CNN (www.cnn.com), and Venture Wire. She says, “I truly believe that I have found the best sites for timely,accurate, essential business informationand I can get it quick, which isthe most important thing for me becauseI am so incredibly busy (just like mostother working women)!”

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MonitoringYour Investments The M in my CMS formula stands for monitoring. This is an art, and, though it may sound easy, many people do it incorrectly Monitoring your investments means more than checking your stock prices everyday or glancing at your brokerage account statementperiodically To monitor correctly,you have toknow what you’re monitoring for-in other words, what are you looking for, and what will you do withthe information? If you are managing your stockportfolio yourself, you will monitor your portfolio differently than if you own all mutual funds orhave a professional money manager making the buyhell decisions. In the first case, you are watching the stocks themselves todetermine whetheryou should make any changes to the compositionof your portfolio. In the second case, you are watching the portfolio manager to see if he or she is continuing to do a goodjob. In either case, you will want to be very objective in measuring yourrate of return. Portfolio returnsare usuallystated on an annual percentagebasis known as the “total return,” which includes the price appreciation of your shares, plus any interest or dividends. So if you start theyear with a $20,000 portfolio and end the year with a portfolio worth $22,000, you know your annual return for the year was 10%.Yes, this sounds very basic, but you’d be surprised how easily you can be fooled. If you’re an optimist by nature, you’re likely to remember your winning stocks andforget about the losers. So, when your favorite stock doubles in value, you think you’re doing very well, when it turns out yourthree losing stockshave reduced your overall returns. When monitoring your portfolio, translate dollar amounts to percentage terms; then you will be in a position to make some comparisons. One of the most important measures of investment success is how your actual performance compares to the rate of return you need to earn to achieve your goals. For example, if your retirement calculations are based on an assumed return of 8% and your portfolio earns lo%, you know you are ahead of the game. If your actual return is 6%, then you know you will need to make up the difference somewhere, by either saving more or earning a higher return nextyear. Perhaps 2000 brought home thereality that stocks don’t always turn in 15-20% per year-and that different sectors can indeed behave quite differently The tech-heavyNASDAQ suffered a 39.3% loss, the worst in its 30fall in 1971. year history; theS&P 500 lost 10.1%,the worst since the 11.5% Use the indicesavailable on-line at anyof the major financial sites to get an idea of how your portfolio did compared to the overall market-and to make sure your expectations are not out of whack (see sidebar). For example, if your large-company stocks (or funds)were up 12% and your small-


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company stockswere up 15%and theSQP 500 and Russell 2000 indexes were up 10% and 12% respectively, you can feel pretty good about your performance. But if the indexeswere up 15% and 20% respectively, youcan see that your portfolio underperformed the market. It must be noted that index comparisons do nottake risk factors into account.If you havea low risk tolerance, and therefore choose low-beta stocks, you should expect your portfolio to underperform the indexes.Of course, if your portfolio is composed of bonds as well as stocks, comparing itto an all-stock index is not a fair comparison. If you own mutual funds, thefairest way to check your fundmanager’s if you performance is to compare it with other, similar funds. For example, own a technology fund, compareit with other technology funds, not,say, a large-cap growth fund. Morningstar and yourbrokerage firm can help you identify other funds similar to your own right on-line. The samegoes for professional money managers,if you havean investment advisor managing your portfolio. Compare your manager’s performance with other managers 5000 Total Market Index. or to the appropriate index, such as the Wilshire You might choose to take advantage of e-mail alerts available at the mega financial sites thatwill tip youoff to ananalyst’s change in projections, the release of new company information, or other news related to your stock. Don’t let it drive youcrazy, though; rememberto stay the course with your CMS strategy.

Sophisticated Investment Strategies Now I’m going to touch on some sophisticated investment topics, includIPOs, orbecoming an angel ing margintrading,options,investingin investor. Unless you’re an aggressive or sophisticated investor or are being advised by a professional, you may want to skip this discussion and jump to the Links You’ll Love.

Buying on Margin “Buyingon margin.” It’s a phrase that has been much in the news in the past few years, and largely as the focus of cautionary tales. A fine thing when it is used to buy a stock that increases in value, and a stomach-churning experience when used to buy a stock that begins to sink invalue. Let me explain. Margin buying is a way of using the stocks that you already owncolas lateral for a loan from your broker to buy additional stock. Your broker wants to loan you money? Sounds cool, andit is cool, some of the time. If you own stocks ina brokerage account, you may be ableto borrow against those securities by placing them in a margin account. The interest rate on

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a margin loan depends on how much you borrow-the more you borrow, the lower it dips. During the severe market downturnof 1987 and the burst of the Internet bubble in2000, part of the reason the market dropped further was because of margin calls. Margin calls require you to deposit cash into your account because theamount of your margin loanis now too highrelative to the valueof your stocks. It can be a dangerous thing. Despite the horror stories youmay have heard about buying stocks on margin, it is not the monster youmay think it is-as long as you’re careful. Some people use margin to borrow against their stocks for important financial goals such as buying a house or payingcollege tuition. In arising market, the use of margin frees up needed cash without requiring you to sell your stocks-not unlike refinancing your house.But when stocksare falling you must bevery careful not to over-leverage yourself through margin. You can usually see right before your eyes through your on-line brokerage account what your available margin borrowingcapacity is, butagain, do not engage in margin activity unless you fully understand the consequences.

Check Out Your Options You may have read something about “options” in the news lately-most likely concerning how high-tech companies have beenoffering employees stock options in order toreward or entice them. Here we are going to talk about adifferent kind of option. OnWall Street, optionsare derivative securities that simulate an investment in stocks by offering more leverage and more flexibility. They are complex instruments, and understanding what they are is very different from understanding howthey trade. The following should serveas a brief introduction only; get more information and,if possible, watch the options marketfor a whilebefore trying this at home. An option is a contract thatgives the owner the right (but not the obligation) to buy orsell shares of an underlying stock at specific a price on or before aspecific date. You pay a price to secure the option called a premium. There are twobasic types of options: calls and puts. Call options give the buyer the rightto buy shares of an underlying stock at aspecific price within specified a time period.Let’s say in Januaryof 2000, Cisco Systems is trading at $63 per share but moving up rapidly. You purof $70 per chase an option to buy up300 to shares of Cisco stock at a price share on or before March 30, 2000. This option costs you $500, which of course is dramatically lower than the cost of 300 shares of the stock. On March 30, Cisco is trading at $75 pershare. You would exercise your option-in effect securing a profit of $1,000 ($1,500 gain minus the $500 cost of the option). If on March 30, Cisco stock is trading at $68, youlose


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the $500 invested. Keep in mind that in order to make a profit, you have must not only exceed the strike price, but also the premium payment you paid. A put option is the opposite of a call option. It gives the owner the right to sell shares of stock ata set price during a set period of time. When you’re buying a call option, you’re betting that the price of a stock will go up. Conversely, when you buy a put option you’re betting the pricewill go down. You can also useoptions to enhance your returns (or lower the risk) on stocks you already own.If you believe the value of the stockis likely to fall or staythe same, you could generate cash on your investment by selling call options on stocks you already own. On the other hand, if you own stock and you believe the value of your stocks is going to fall significantly, you might protect or “hedge” your portfolio by buying put options. Keep in mind that options are speculativeand are very difficult to price. of factors, including the volatility of the underlyThat is because a number ing stock, the exercise price, the time-until-expiration, and the type of option, determine its price. Experts use sophisticated models to help them price options appropriately. If you have any interest in these, I encourage you to educate yourself thoroughly and work witha professional at first. The options industry is centered in Chicago, at the Chicago Board of Options Exchange, theCBOE. Their website is www.cboe.com, and is well worth a visit. The first thing their website encourages youto do is to click on a sternly worded section called “Characteristics and Risks of Standardized Options.” Scary as it sounds, is it something you should read if you do decide to investigate the idea of trading options. If you want to learn more about options, either talk to your advisoror visit Optionetics at www.option etics.com, or Marketcompass at www.marketcomDass.com.

More Options Sharri Myers heard about LEAPS (Long-term Equity Anticipation Securities)-a form of options that don’t expire for at least nine months. In November of 1998, she paid $13,734.50for LEAPSin Yahoo!. Inmid-1999, she sold them for $58,199.50 for a profit of $44,465, oran over 300 percent gain in less than a year! Then, in May of 1999, she decided to buy more LEAPS inYahoo!, this time investing $20,184.50 and selling them for $67,988.16, fora profit of $47,806.66. Sharri is clear-eyed enough to know that part of her good fortune was a very strong market. “The market was so good and thestock was doing extremely well. I know that this can only be done in the right market environment.” Had Sharri done this a year later, she would’ve lost all of the money she used to buy the options.

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Getting in on IPOs As women’s-and men’s-wealth has increased, there’s been greater interest in getting in on IPOs, or Initial Public Offerings. IPOs take place when a company first goes public and issues shares in order to raise capital. But the stakes are higher: younger companies have a greater risk of failure than older, more stable companies, whichis also why the returns can be greater if they make it. Why dosuccessful privately-owned companies decide go to public? For many reasons: the money might be used to acquire additional assets, to expand the business, to launch a new product,or to enable early investors to get some of their money out. In practice, theIPO process is fairly standard. The company hires an investment bank like Merrill Lynch or Goldman Sachs to manage the IPO process and “underwrite” the stockoffering. The underwriter’sjob is to lead the process of selling the shares to both institutional and individual investors. The company files an S-l registration statement with the SEC (also available in the Edgar system), and this document islater presented to investors as waya for them toevaluate an investment in the company. Investors express their interest in purchasing shares of the company, and the underwriter uses these indications of interest to set the offering price at which the shares will be sold to the public. Usually, underwriters set the price ata level that provides the company the necessary capital but also gives investors upside potential on their investments. Thanks to the increasing power of individual investors, opportunities are finally beginning to open up to allow you to get into IPOs. Some discount brokerage firms are now getting small portions of IPO shares to distribute to theircustomers,usuallythemorevaluedoneswhomust maintain a certain minimum balance in their account. WR Hambrecht’s Open IPO, accessible at www.wrhambrecht.com, takes a more innovative approach, allowing more individuals to participate.You can also get in on the action through Witsoundview. If you want to learn more about how smallinvestorscangetintothe IPO market, visit theirwebsites at www.wrhambrecht.com or www.witsoundview.com. For updates on companies going public, visit IPOMonitor. corn. Finally, check outHoover’s IPO Central for SEC filings and IPO statistics, or e-analvtics.com/ipo/planti.htm for a thoroughreview of the IPO process.

Becoming anAngel If you are awoman moving up the wealth ladder, youmay be interested in getting in on early investments as an angel investor, where returns can be significantly higher than with traditional investments in the stock market.


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IPO Thrills and Spills “We got‘friendsand family’ stock in a high-tech IPO last summer, and it was a major thrill,”Julia Berenson told me. Friends-and-familythe is term for IPO shares reserved to be offered first to the friends and family members of the founders of the company, before going out onto the open market. “I felt so glamorous and in-the-know the day it went public, especially since we werestaying at aRitz Carlton on vacation that day!We bought it at the friends-and-familyprice of $10. Unfortunately,it didn’t soar like so many high-tech stocks were doing fora while. As a matter of fact, the next day it wasat $9. . . . But a few months later it was upin the low thirties. I’m sorry to sayit is now backaround $13. I’m still glad wedid it, I do believe long termit willdo fine. AndI still do get a little thrill whenever I toss that ‘friendsand family’ terminto a conversation.”

Angels are called that because they provide funding to new entrepreneurs that more established firms are not yet willing to bet on.Typically this funding comes in afterthe entrepreneurs haveinvestedsome of their own money, or have gotten friends andfamily to come in for a “seed round.” It is an area that traditionally has not had much participation by women, simply because we haven’t had the wealth to become angel investors. To become an angelinvestor,you must qualifyas an“accredited investor” under federal law by having a net worth of at least $1 million, which may include yourspouse’s, or an annual income of at least $200,000 ($300,000with your spouse) over the last two years. However, minimum investmentrequirementscanbemuchlower,even in the $10,000 to $25,000 range. These guidelines were created because this typeof investmentismuch,much riskier thantraditionalinvestments. As an angel investor, however,you can enjoy not only the potentially high returns from your investments, but the rewards of helping entrepreneurs build their dreams. Two that specifically bring female angelstogether for possible investments in women-run businesses are WomenAngels.net, believed to be the first of its kind, andAngelZAngel at www.angel2aneel.com. A number of on-line sources have also created a marketplace bringing together individual investorsand entrepreneurs in searchof funding. Angel Capital Electronic Network or ACE-Net at www.ace-net.com, sponsored by the SmallBusiness Administration,Garage.com, NVST.com and vFi nance.com allows youto review business plans on-line for start-up companies. Relying on top corporate professionals, Offroad Capitalwww.offroad at capital.com does the due diligence work for you, but still allows you to screen investment opportunities and then monitor them on-line.

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What was once onlyavailable to professionalsor the very wealthy is now easily accessible by you. The investment information now at your fingertips, thanks to the Internet, will help you make more informed investing decisions-whether you are making those decisions alone or with an advisor. And, as women increase their wealth by investing and/or moving up the career ladder, theywill be in a better positionto take full advantage of all of the investment opportunitiesavailable. In this and previous chapters we have been talking about how to build your wealth. In the next chapter, we will focus on how women must protect it through insurance.

Links You Will Love

General FinancialInfomation www.kidinEers.com www.monev.com www.smartmonev.com www.wfn.com

Research and Market Information www.aol.com www.bloomberg.com www.briefine.com www.businessweek.com www.cnbc.com www.cnn.com www.dismal.com www.federalreserve.gov http://finance.yahoo.com www.forbes.com www.fortune.com www.freedear.com www.eotoanalvsts.com www.hoovers.com www.ibbotson.com www.investors.com www.iaefn.com www.marketeuide.com

* Double Click on Stocks www.monevnet.com www.morninestar.com www.on24.com www.Dersonalwealth.com www.riskvbusiness.com www.sec.eov www.thestreet.com www.valueline.com www.wfn.com www.wilshire.com www.zacks.com

Angel Investing www.ace-net.com www.ange12angel.com www.earaee.com www.nvst.com www.offroadcapital.com www.vfinance.com www.womenaneels.net

Investment Practice www.marketocracy.com www.virtualexchange.com

IPOS -.e-analystics.com/ipo/bplanti.htm www.ipocentral.com www.ir>omonitor.com www.wfn.com www.wrhambrecht.com

options www.cboe.com www.optionetics.com www.wfn.com

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Chapter 7

Insure Your Future

Shirley Wilson had no idea that the Internet would helpsave her life. After getting the resultsof her mammogram and learning she had breast cancer, the 52-year old was referred toan oncologist by her regular physician. But within days,Shirley received another blow: the medicalgroup shebelonged to was being closed. As is common with HMOs, Shirley had to start the process over again with her new HMO of first seeing her assigned doctor and then gettinga newreferral to a specialist. Her newHMO, however, had a limited selection of doctors, and only one surgeon to perform breast surgery in their group.As her husband Dick says, “The next thingI knew, she was logging onto theNet, which had her coming back asking about the mostsophisticatedforms of surgery.” Shirley, an engineer,discovered through her research new, a less invasive, singlenode surgical technique that she wanted to have done. “Do you do this procedure?,” sheasked the surgeon. “Yes, I do something like that,” he told her. Something like that, she thought? “Do you do this exact procedure?” And when he answered no, Shirley was off to find another surgeon. Unfortunately, finding a surgeon who performed that surgery was only part of the battle. She also had to take on her insurance company, which balked at approving hergoing toa surgeon outside her new HMO, saying that its was not “in their best interest” to approve the switch. Armed with her Internet information, and with her life at stake, Shirley ultimately and courageously prevailed. “The Internet is what empowered herand got her what she wanted. It wouldn’t have happened without the Net,”says her husband,Dick. When youare well on your way up the wealth ladder, building up your assets and improving your financial future, don’t dare overlook the tremendous importanceof insurance. Sure,we all know what insuranceis for-to pay for bad stuff when it happens, but look more closely at what the definition of what “insure”is. It means to protect againstloss-a loss of your hard168

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12)Share yoursuccess 11)Preserve what you have 10)Increase yourearning power 9)Minimize your taxes 8) Organize yourfinances 7) Protectyour assets 6) Invest to build yournet worth 5) Educate yourselfabout investment 4) Acquire a home

3) Free yourself fromdebt andbuild credit

2) Live within yourmeans 1)Determine where youstand earned money!Without sufficient insurance, and without the right kinds of insurance, manyof us are just one majorillness or lawsuitaway from bankruptcy and financial ruin. Am I exaggerating? Absolutely not! Think of insurance as a much-needed firewall protecting you and your family How do you decide what kindof insurance you need? How much coverage do you need? How much should you pay for it? The Internet is a great resource that can helpyou not only figure out what insurance you need and to shop for and compare rates, but, like Shirley Wilson, to also allow you to tap into the enormousresearch capabilities of the Web to check out illnesses and the latest inmedical research and treatment. You can even go on-line to check up on the health of the company that underwrites your policy! Afterall, you want to make sure they will payany appropriateclaims you mightmake. More and more women are making the insurance decisions in the household. Wondering where women go to get it done on-line?According to Jupiter Media Metrix, term life insurance,with the ease of buying it on the Net, is on the minds of women. Here’s how the top insurance sites stacked upfor women as a percent of their overall users of asOctober 2000: eterm.com metlife.com insweb.com statefarm.com insure.com allstate.com geico.com proeressive.com

61.3% 54.5% 51.4% 45.1% 42.9% 39.6% 34.3% 34.2%

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Notice that, in addition to on-line quote and information services like eTerm, Insweb and insure.com, a numberof large insurance companies are using the Net to serve you. If you think you already understand the basics of insurance, you can skip ahead several sections and go directly to the of end the chapter to learn how to use the Net to get quotes and purchase insurance.However, if you are like most people,I recommend that youfirst read through the brief discussions below on each type of insurance you will need to protect your financial future. When considering insurance policies and coverages, stay focused on what isreally important. Too often, people gethung up on the little thingswhether or not a policy deals with rental cars, or stolen luggage, or other small things. Focusfirst on making sure that you have sufficient insurance to handle these big issues: 1. Protect yourincome-Both health insurance and disability insurance are critical here 2. Protect your dependents-Life insurance is the key to making sure your children and other dependents have a secure future 3 . Protect your assets-Accidents in your home, with your car, and from other unexpected occurrences could place your assetsin legal jeopardy

Health Insurance Is Key I didn’t put health insurance at the top of the list by accident. Health insurance is critical-not only should you carry it, but you also needto understand it,because your illnessor hospitalization or that of your husband can have a devastating impacton you or yourfamily’s finances. Without health insurance-the proper health insurance-you can be wiped outfinancially. Surprisingly, 17% of women, or 14 million, are without coverage, yet women make most of the visits to the doctor, 60% versus 40% for men. Health insurance affects women in many ways, but one of the most direct ways is right in our pocketbooks. You undoubtedly suspect, and indeed you are right-women pay more for health care than do men. Why? Well, ladies, it is because we have the abilityto bear children; that biological difference alone costs us dearly, and it doesn’t matter to the insurance company if you don’t plan to have children, or even if you aren’t in your child-bearing years. The need for health insurance is so clear that it saddens me tremen-

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dously that 14 million American womendon’t have any health insuranceat all. You must do everythingyou can to make sure you are not one of them. As a woman, you simply must give adequate health-care coverage your highest priority. If you are in-between jobs, or running your own business and you aren’t covered by a spouse’s plan, you betterfind a way to get health insurance, even if it means digging deep into your own pocket.

What You Need to Know About Health Insurance We could be here all year if I tried to give you allof the ins and outs of health insurance plans, but I want you to be as knowledgeable as possibleon the BIG POINTS, so bear with me as I try to fill in some of the details. There are two basic kinds of health insurance plans: indemnity, also known as fee-for-service, and managed care. We’ve been hearing so much about managed care lately, but you should understand the other options available as well. Briefly, an indemnity plan allowsyou to choose any doctor or hospital, and thenyou or the doctor’s office submits the bill to your insurer. Typically, you’ll have to pay a deductible annually.After that, your insurance company generally covers 80%, while you cover the rest. It is usually more expensive than a managed-care plan, but it gives you more choices in your medical provider. Managed care is thechoice mostof us are faced with as health-care costs skyrocket and as insurers and employers look at the bottom line. The two common types are asfollows: 1. PPO, or preferred provider. These plans costless than an indemnity plan but more than HMO plans. They generally provide more choices in individual doctors than an HMO, though you are still generally limited to a specific listing of doctors. In a PPO, the doctors have agreed to accept lower rates in the hopes of getting more patients, thus thelower coststo you. You can go outside the “network”of doctors, but thatwill cost you more. 2. HMO, or health maintenance organization. These plans cost less, since they are based on a set monthlyfee, but come witha set group of doctors. Typically, youchooseyourmaindoctoror“primary physician” who gives the green light (or not) when you need to see a specialist. If the jargon of the managed care world is making you dizzy, consider using the glossary of terms at theAmerican Medical Specialty Organization’s site atwww.amso.com, in the “managedcare 101”section.

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After the experience Shirley andDick Wilson had battling theirHMO to get approval for Shirley’s breast cancersurgery, they decided to switch to a PPO, so that they would have more flexibility in choice of doctors. For them, the extra expenseis worth it. How do you decide which plan to select? If you are on a tight budget, I would suggest a PPO,but one withhigh a deductibleso that theprice isreasonable. We have all heard too many upsetting stories about patient frustrations withHMOs. If you are older OR have any problems or complications you might encounter, a PPO is especially important. On the other hand,if you and yourfamily are healthy, are active,and do not thinkyou can afford a PPO, thenjoin the best-ratedHMO for which you can qualify. You might also check outJnsweb.com’s Health Plan Analyzer for HMOs and PPOs, with six short questionsto help you make your decision (see Figure 23). Another especially helpful informationalsite isHealthfinder.gov, sponsored by theU.S.Department of Health and HumanServices. You will find detailed information on the ins and ofouts various health coverage options, as well as links to numerous sources medical on conditions.Also check out 1nsure.com’s health section and the Agency for Healthcare Research and Quality’s “consumer & patients” section atwww.ahcpr.gov.

shap rm-.

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If p u b M n g thkdecision, ow Health Plan Analyzer can help. Sirnplyanmer ‘Yes’ or ‘No‘to six short questions, and this tool will admse you vhether an HMO or PPO beet meets yow -health Insurance needs

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Figure 23

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COBRA Worried about health-carecoverage if you decideto spend more time with your kids, get divorced,or get fired from your job? Under COBRA-the federal law enacted under the Consolidated Omnibus Budget Reconciliation Act-companies with 20 or more employees must provide you at least 18 months of continued access to health care if you stop working becauseof a “qualifymgevent,”such as divorce or loss ofyour job.You will have to pay full premiums everymonth (andyou can becancelled if your payment is late), but you will have continuous coverage with no imposition of new “pre-existing”condition restrictions. For more information, visit some of the companies that administer COBRA on behalf of companies, such as BasicFlex.com, orgo to the “by topics” section of Benefitslink.com.

What Benefits You Most Not all plans are createdequal-far from it. You will need to study closely what each plan offers, and weigh that against the differences in premiums. What might appear at first blush to be the most cost effective might turn out to be lacking in important benefits. Keep the following thingsuppermost in your mind when weighing and comparing plans:

1. Out-of-pocket costs.a) Deductible.If you’ve chosen aPPO, you will need to compare deductibles aswell. Look at how muchyou will be required to pay before the carrier will pay anything, both for each individual and for thefamily as a whole.If you rarely go to the doctor, or you use doctorsoutside the plan that wouldn’t be covered anyway, a higher deductiblemay make sense. b) Co-insurance (“copayment”). Also look at how much of the medical costs you’ll need to pay even after you’ve satisfied the deductible. Some plans still require you to cover 20% or moreof the costs, evenif you have already paid your deductible expenses. 2 . Out-of-network benefits. Even if you’re in a PPO, you’ll want to see what happens if you want to go to a doctor outside the network.Do you pay in full, or does your plan still pick up some percentage of the fee?

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3 . Prescriptiondrugs.What will you have topay for prescription drugs? Does your plan include birth-control pills? Do not assume this; notall plans do. 4. Periodic oblgyn. Can yougo to your oblgyn directly, or do you have to first go to your primary care physician and seek a referral? For women, thisis a very important detail; being ableto go directly toan ob/gyn on your ownwill save you time. 5. MaternitylprenataVpostnatalcare. Maternity can lead to a rejection in insurance coverage. Carriers are sensitiveto insuring women who are currently pregnant, so they will ask a lot of disqualifylng questions. Having a baby often costs $1,000 for the delivery, plus the deductible for the hospital visit. Under most plans, you’ll still pay $2,200 to $2,500 out of your own pocket to have a baby. Some plans have very robust services forinfertility, and can even cover the costs of in vitro or other expensive treatment options. Look closely at this area if you’re considering having children. 6. Well baby care. This an is importantpreventative health service, which includes immunizationsup to a specific age, as specified by the carrier. 7. Lab and x-ray charges.How much will it cost youto have blood tests, lab work, orx-rays done? These services arecostly. 8. Emergency care. How does the plan handleemergencies? Are ambulance costs covered? What if you are out of the normal plan area? Most plans charge a higher fee for emergency room treatment, but some reduce that costif you are hospitalized becauseof the emergency.

On-line Strategies You guessed it: women are flocking to the Net toresearch health insurance issues. Some 60% of those shopping for health insurance on the Net are women-no real surprise, considering that 91% of women (versus 81% of men) responded in a Kaiser survey that “they make most of the family decisions related to health care.” How can you use the Net to improve your health insurance picture? 1. Check out your current or prospective HMO. Visit the website of the National Commissionfor Quality Assurance (www.ncaa.org).This is the national nonprofit organization focused on monitoring managed care HMOs. Only about half of the nation’s 650 HMOs have the NCQAk stamp of approval. (NCQA plans to start monitoring PPOs in July 2001.) Oneof the great things thatNCQA does is to produce

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a Health Care Report Card, focusing on the quality of HMO service. The Commission awards one to four stars, based on the quality of care and customerservice, procedures for ensuring qualified doctors, preventative medicine efforts,and customer satisfaction. 2. Check to see if your doctor is included in a plan that you are considering. you can usually do thisby going directly to the carrier’s website. Do this especially before starting with a new doctor, since plans pick up and drop physicians with disturbing regularity. You can even check to make sure the doctor assigned to you has hisor herlicenses, and whetherthere has been any disciplinary action taken against him or her by searching government websites managedby state medical boards or commissions. The American Medical Association’s site at www.ama-assn.org allows you to search for a doctor and determine what colleges he or she attended, area of specialty, and contactinformation. Go into the “patients” section. 3 . Searchfor a doctol: Maybe you are looking for a doctor who specializes in geriatrics or preventative medicine. At the AM& site, you can also search by specialty and location. If you have a special condition-or you’re looking for top docsin the country in your localeconsider Doctorfinder.com, whichwill charge you afee for accessing its highly-screened database. 4. Shop over the Netfor a health insurancepolicy. While there are many sites for life insurance quotes, there are fewer focusing on health. Quotesmith.com provides on-linequotes, while eHealthInsurance.com (“eHI”) allows you to shop for policies, buy, and then work withtheir own customer service team. If you prefer to work directly with an agent or broker, using the Net can still give you a good feel for what rates should bebased on thebenefits. 5. Use the Internet to see if the plan you already have will give you added cost-saving features. Carol Jensen,an attorney,told me howshe checked on thewebsite of her insurance carrier and found that they would allow her toreceive three months supplyof birth control bills rather than oneif she uses the Internetto order them. “It really gets you to use the Internet, which is what they want because it saves them costs.” It also saves you money: Carol’s co-payment for the 90 day supply was less than for three 30-day prescriptions. 6. Research your health problems via the Net, and use that information to ask informed questions ofyour doctor Remember how powerful a tool the Net wasfor Shirley Wilson in hersearch for information on breast cancer? “Don’t take the first, second, third, or fifth answer. If you know whatyou want because youdid your research on the Net, don’t

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1 What’sYour Net Worth? stop,” says Shirley. 0nHealth.com presents serious medical issues along with lighter topics. Thriveonline, at www.thriveonline (also accessible at Oxy_gen.com) also has a useful glossary and “healthfolio” to store medical information.Don’t forget research conducted at leadingmedicaluniversities andgovernment agencies, much of which is accessible on-line.

What If You Can’t Get Insurance? It is powerful information to know that, in many states, if you cannot secure health insurance coverage on you own, there are alternative programs. In California, for instance,the MajorRiskMedical Insurance Program (MRMIP) has helped many otherwise uninsured peopleget insurance. The costs of such state health insurance plans will not necessarily be cheaper, but they usually don’t cost more than other plans. In California, log on to www.mrmib.ca.gov. If you are wondering who are the greatest ofusers these state subsidized plans, the majority of subscribers are women between the ages of 40-59, who are enrolled in the program because they have been rejected for coverage by insurance carriers and health plans becauseof a pre-existing condition orpregnancy. For helpful informationabout what insurance companies can and cannot do when it comes to things likepregnancy, go to Insure.com and do a search for “women and insurance” and informative articles will appear.

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eHI Success Story Maria Tonello was fed up withher insurer. “The premiums went upand the coverage went down, and I was deeplydissatisfiedwith their customer service.” Rather than tolerate crummy service, Mariawent on-line to eHealthInsurance.com after seeing an ad on a site for independentlyemployed people like her.What Maria was lookinga new for in insurer was a good women‘s wellness program, one thatcovered yearly Pap smears and mammograms. “With myprevious health insurance, the only way they’d cover those things was if I was havinga problem. It bothers me deeplythat if I went to my gynecologist fora check up, it wouldn’tbe covered.” Maria suggeststhat “women take a close look at what eachinsurer offers forthese programs.” By using eHI, she was able to find a substitute program that met herneeds.

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Long-Term Health Care Now that I’ve got you thinking seriously about the absoluteneed for health insurance, let’s tackle another grim subject: the absolute need for long-term health care if you are over50. Now, you may have thought thiswas all covered by your health insurance. No, it is the next level of coverage you will need when faced with a long-term crippling illness or injury. You see, most people think their medical plan covers ongoing care in a really dire situation, but typically, under your regular health plan, care ends at about 90 days. In order to get help through Medicaid, you need to be near poverty, and forced to sell yourhouse and otherassets to pay the bills before becoming eligible for the benefits. Even if you did qualify for Medicaid, you should know that it does not provide you with thechoice of in-home care that longterm care insurance can. Sandi Miley thought she and her healthy, tennis-playing 52-year-old husband had financial security, until he had a debilitating stroke while recovering from simple cataract surgery. Suddenly, Sandi, who was just recovering from cancer herself, was forced to work harder thanever to support him both physically and financially. What she didn’t realize was that they would have to deplete their entire retirement savings just to care for her husband.“We had ouremployer’s health insurance for both of us, plenty of life insurance, and retirement plans,” she says, “but it never occurred to us thatwe hadn’tadequately insured our future against a medical calamity.” It is true, thelack of long-term care insurance can kill a woman financially. Think about this: Longevity. A woman who reaches age50 today without serious health problems statistically may well live to be 92. Illness. The incidence rate of chronic health conditions is far greater for females than males. For example, although Alzheimer’s strikes both men and women equally, more women have the disease, becausewe live longer. As a result, 75% of all elderly peoplein nursing homes are women. Women as the primary caregivers. Of the 40% of baby boomers that care for an aging parent,80%are women.Also think aboutthis: 22% ofthese care women will ultimately haveto give up their careers to become full-time providers, so make sure your parents alsohave long-term care insurance. Children. Many of us wouldprefer that our children nothave to shoulder the heavy financial burden of elder care. Long-term care insurancewill provide options if your children are unable or unwillingto care for you in the event that you become ill. Life savings. Make sure your husband has sufficient long-term health

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coverage. The fastest growing group of impoverished people in the country today is composed of wives of menwho die in nursing homes. Why? Because they often cash in their savings accounts andlife insurance policies to pay for their husbands care,leaving themselves with next to nothing.

Special Concerns Why do long-termpolicies make so much sense?Look at it thisway: every year, 500,000 families in this country arewiped out financially by the cost of one persongoing into a nursing home.The average stayin a nursing home is three years, at about $45,000 per year. That means costs can total anywhere from $135,000 on up, depending on where you live and the type of care. New projections forecast these costs to skyrocket to $190,000 per year by the year 2030.A typical policy for someone in their mid-50s would cost about $1,500 peryear, for a lifetime benefit of $100 per day. Now that these policies are becoming more common, more bells and whistles are being added to them. Here are some of the things to keep in mind when shopping for long-term care insurance: The company. The insurance company you choose is one of the most important decisions you’ll make. Big providers include Aetna (www.aetna. corn),Cigna (www.cipa.com), State Farm (www.statefarm.com), Transamertravelers.com), and UNUM ica (www.transamerica.com), Travelers (w. (www.unum.com). Whetherbig or small, follow the guidelines below tocheck the company’s ratings with an independent rating agency Ask how long the company has been selling long-term care insurance, and what experience, if any, they have with long-term care insurance claims. Check it out by visiting Insure.com or your state insurance department’s website. How coverage is triggered. Who decidesif and when you or your husband are eligible to receive long-term care under your insurance policy? Some policies state that, if you cannot perform twoof the three daily living activities (feeding, bathing, dressing, ortoileting for example), then coverage is triggered. Also ask who determines that: you, your husband, your doctor, or your insurance company. Home care. Home care pays for a nurse or other professional to come to your house for a set numberof hours a day. Home coverage is key from a woman’s perspective, since shemay be unable to care for her husband or her parents becauseof her own illness or work obligations, and, let’s face it, most of us would ratherbe at home thanin a depressingfacility. Waiting period. Different policies come with different “waiting peri-

Insure Your Future I 179 ods.” That is the time you must wait after you become sick until you can start receiving benefits. For example, if you’re eligible for benefits on day one butyou have asix-month waiting period, you must requirecare for six months before you start receiving benefits. Of course, the shorter thewaiting period, the more expensive the insurance premium. Inflation protection. An inflation “rider” or option on your insurance is designed to increase your insurance coverage totake into account rising health-care costs. While it might make sense for middle-aged people, given escalating health care costs, it is certainly less important if you are in your 80s. The same can besaid of an older spouse or parent. As we discussed earlier, companies are now slowly starting to add longterm insurance to the range of employee benefits, and states are starting to offer tax credits or tax deductions for premiums. If you’ve already celebrated your (or yourspouse’s) 50th birthday-or have parents without coverage-it is time to takeit seriously. The good news is that premiums are reasonablewhen you’re in your 50s; they escalatedramatically if you wait until you’re 60 or older. While shoppingfor long-term care insurance isn’t readily available over the Net, information is. Given that key features of this insurance are now being offered in combination withlife or disability insurance, oreven annuities, you will want to make extra certain that you are well-informed. The National Associationof Insurance Commissionersoffers a “Shoppers Guide to Long-term Care Insurance.” Just go to www.naic.organd into “papers,” then “purchase adopted related insurance papers” and into the “top ten bestsellers.” You might also check out the American Council of Life Insurers site at www.acli.org. You’ll also want to take the other steps discussed later to choose a reputable company. Now let’s leave the health arena and move examine the ins and outs of life insurance.

Life Insurance Twelve years ago, Laura Lewis bought a life insurancepolicy. In the event of her death, $125,000 would be paidto her husband Pete. She’d just married, and as one half of a two-paycheck family, she thought it was the responsible thing to do. The idea that it would ever actually be paid out, that she would die, seemedso remote. She was in herearly twenties, after all, with a long and healthy life ahead of her. But Laura’s life turned out not to be long at all. Diagnosed with breast cancer in her early thirties, she passed away at age 37, leaving behind her

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husband andtwo young children. Pete, a small-business owner, plans to use some of the money to pay down the mortgage on their house, in order to relieve some of the economic pressure and allow him to spend less time working, and more time with his children. Laura’s responsible decision so many yearsbefore turned out to be a much-needed blessing. There are a number of reasons that you, too, should concern yourself with life insurance. Yes, it is a scary topic, and no one wantsdwell to on the please idea of death. Some even consider it bad luck toeven consider it, but consider the catastrophic bad luck you could have without it! First, if you are a stay-at-home mom and you rely on your husbands salary to keep the family going, you need to consider how you will get by financially if something happens to him. As with so many other financial decisions, IT IS YOUR BUSINESS whether your husband has purchased adequate insurance. What would happen if you died, and suddenly there was nobody at home with the children? If you are married and bringing in a second income, how would your husband manage withoutyou and your income? In both of those scenarios, he would need help with childcare and other household tasks. Can he pay for those on his income? Whenever economists try to put a dollar valueto the work we women do around the house, it runs quickly into six figures. Between housekeeping, cooking, and chauffeur tasks, the money to replace you adds up. If you’re single, howwill your children survivefinancially if something were to happen to you? If you paidinto Social Security, your minor children will be entitled to your death benefit. If they are 18 or older, regardless of whether you were still supporting them, they are not entitled to any Social Security benefits. Where is the money goingto come from for college? Finally, if you supportyour aging parents-or perhapsjustyour mother-imagine the difficulties that wouldface them shouldyou die uninsured. I touched on some of these grim statisticsearlier in the book: unmarried women (including widows) age 65 and olderrely on Social Security for 51% of their total income, and75% of unmarried elderly women depend on Social Security for at least one-half of their income. If you are contributing to your parents’ support, you may well be making the difference between dire poverty and comfort.Is that somethingyou want to leave to chance, or cover with life insurance? Life insurance ensures that those you love will be ableto maintain their standard of living, or at least have something to live on, while they adjust financially to your absence.Today, there are so many types of life insurance plans, andassociated bells and whistles, that isiteasy to get confused. When it comes to life insurance, just as with health insurance plans, the Net can

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help you shop, determine what you need, and investigate the companies behind them. Here is what you need to know: there are two basic types of life insurance: term and whole life. Both term and wholelife insurance provide for a set amount to paid be to beneficiariesupon the death of the insured person. With term life insurance, you pay a premium each year (adjusted upward as you get older) for afixed amount of payout if your death happens during the “term” of the policy. You can buy term-life policies with different terms-five, ten, fifteen years. Select the term based on your own situation. For example, if you have a childwho is under ten,you may want to buy a fifteen-year term policy. That way, if you die during that fifteen years, the policy’s benefits will cover the cost of his or her college expenses. Or look at how long the remaining term of your mortgage is,and choosea life insurance term thatwill cover your mortgageshould you die during that period and want the house paid off. A term-life policy differs from wholelife in that it has no cash-invalue. With whole life insurance, you pay a much higher annual premium (about three times asmuch), but the premiumstays level, the policy builds cash value,and it insures that there is a pay-out regardlessof how long you live. For these reasons,whole-life insurance policies should really be viewed as much as an investment vehicle as alife insurance policy. Part of your premium covers the actual death benefit, such as what you get with term life, and the other part of your premium builds the cash value. In the old days, almost everyone purchased whole life policies, but with the adventof mutual funds and other higher-returning investment vehicles, many people today choose to purchase only term life insurance and make their investment through instruments other than whole life insurance policies. Indeed, many whole life insurance policies have performed very poorly when compared with other investment vehicles. For this reason, I generally recommend that you and/or your husband purchase term life insurance only and put your investment dollars in other more lucrative investments. The amount you save on term life insurance payments (over those you would have to make for a whole life insurance policy) can be put to better use in other investments (see chapters5 and 6 on investments). This strategy is onlyeffective if you do it! If you are wondering if any cash-value life insurance policy-whole life or the more recent innovations of universal or variable life-makes sense, you might go to the Consumer Federation of America’s website at www.consumerfed.organd have your policy analyzed against a term-life insurance policy for a nominal fee. Also check out Consumer Action’s on-lineinformation on life andhealthinsuranceat www.consumer-action.org.

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No matter what kindof life insurance you decideto buy, however, your first step will be to get a complete physical exam with the insurance company’s appointed doctor. Insuranceis a businessafter all, andthe insurance company wants to know in advance what kind of risk they are taking on. The healthier you are, the better your habits, the cheaper your willrates be. If you smoke cigars or go sky diving (yes, they will ask!) be preparedto pay more than your non-smoking, non-sky-divingsister.

How Much Life Insurance IsEnough? A general rule of thumb is to purchase life insurance worth sixto eight times your annual income.So if you are making$80,000 you theoretically would want up to $640,000 worth of life insurance.That’s a lotof money, and you may wonder why you need so much. It really isn’t about the life insurance amount-it is about your monthly need to continue to live and support yourself and your dependents. So let’s work backwards: if your monthly expenses (not including taxes) are $4,000 a month net of other sources of income, and thatneed isn’t ever goingto go away, you’d need approximately $570,000 of capital invested at a constant6% after-tax return to cover those monthly costs for the next 50 years. You may well want the principal to return enough in earnings to cover your full salary, plus college for your kids-and, you have to plan on paying income taxes, not on the death benefit but on theincome it provides. Finally, you will want to take inflation into account because the diminishing power of your dollar over time will put an additional burden on your income requirements.You can see how the amount of insurance you need can increase! Here is a quicklist of important factors to consider in determining how much life insurance you need:

Obligations. How much debt doyou have? Whenare they due? What is the monthly amountof the payments? How much income will continue after the death, and which expenses will go away? What new expenses will arise because of the death, like the costs of a funeral, home repair and maintenance, and childcare. What’s the amount that you need to cover? Income sources (and amounts) other than earnings from job a Your marital status If you are married, your spouse’s earning capacity The number of people who are financially dependent on you Whether or not your children might need child care or college financing

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Don’t be Suckered into Credit Life Insurance Something called “credit life insurance” is frequently recommended in conjunction with taking out an installment loan when buyingan expensive appliance or a new car,or for a debt-consolidation loan. The company selling youthe product or loan wants youto pay fora policy that will pay off your debt (tothem!) in the event of your death. Nifty marketing idea, but you don’t need this if you already have a life insurance policy. You shouldn’tbe surprised to learn that they are frequently much more expensive than traditional term life insurance, so don’tbe suckered.

The amountof death benefits payable from Social Security (estimates of which you can get at www.ssa.gov) The amount of death benefit from an employer-sponsored life insurance plan or from any special life insurance policiesin existence (e.g., mortgage repayment insurance) The following are a few of the many websites with calculatorsspecifically designed to help you calculate how much life insurance you need: Insweb.com, Accuauote.com, FinanCenter.com, and the non-profit Lifeline.org. Different calculators offer varying levels of detail and assumptions. The more detail, the more accurate the estimate is likely to be. Be sure to look behind the numbers to understand the assumptions used, whichare usually explained right there. At FinanCenter.com, you can also see rankings of term life insurance providers based on a specific gender. Say you’re 35 and a non-smoker. Financenter spits out the companies and their premiums, based on a score that takes into account premium amounts, complaints, and theirfinancial rating. Use these calculators and rankings, even if you are working with an agent,to understand better what makes your policy more oreven less expensivethan others. You will hear me talk over and over again about the implicationsof taxes on yourwallet. It is also important to know with whom you are doing business. Just because a sitemay have a nice-sounding URL doesn’t mean that it is entirely separate from an insurance company. To give you an idea of what I mean, eTerm.com is actually owned and operatedby insurance giant ZurichKemper-something you might not have realized just by looking at the name you type in. Once you do consider a policy, check out 1nsure.com’s tool that can easily tell you if you will face any tax consequences on yourinsurance policy or annuity, based on specific actions you might take. Many people wonder what

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the consequencesare when you take an annuitydistribution or borrow against your life insurance policy. Remember,look before you leap. Do it by going into “tools” at Insure.comand finding the “life and annuity: taxes” feature.

Using the Net For gathering information and comparing rates,just youcan’t beat the speed and convenience of the Net. The insurance industry hoppedon the on-line bandwagon early on, particularly the life insurance industry. Most quote engines have rates for life insurance, including Insweb.com, eTerm.com, Ouotesmith.com, andReliaauote.com, asdo the sitesof the insurance companies themselves. Lots of very small one-man-band operations have also put upwebsites. One of the most important points to remember goes back to my comment about detail. Sites like lnsweb doa great job of asking lots of questions up front,so that the quote givento you is close to what you’ll actually pay for the policy if you ultimatelyqualify. Other sitesmay give you more quotes, but the prices may not be as accurate to reflect your particular conditions. Also, keep in mind that insurance carriers must be licensed within each state they operate in. If you only see two quotes because the insurance companies in the quote system cover only 60% of the states, you’re not shopping well. Good quote sites will show you five or more quotes. I recommend you also look for a site with customer service and a clearly stated privacy policy (see Chapter 8).

Disability Insurance Janet Moore, 41 and working from home as a writer, was concerned about the hazards of her husbands job. After all, he was a construction worker, and an accident on the job could keep him off the payroll for who knows how long. She brought the subject up during oneof her monthly “financial

Read the Small Print Too often, we ignore the fine print in insurance policies; don’t do that!

Buried among those tiny words might be a warning that premiums rise automatically every year-not what you planned for when signing up! Read your policy carefully, then e-mail your questions. This way, any e-mailed responses can be printed or saved in the “insurance”file you create on your computer.

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How Much Are You Worth? When Jean Eckard realized how important herlate friend Laura Lewis’s life insurance policy wouldbe to the future of the small familyshe left behind, Jean startedthinking. “I make a pretty healthy income. My husband does, too, but my income certainly contributes to maintaining our current lifestyle. If I died, you bet there would bean economic impact.We have two small children and onebig house.”Jean startedto mull overjust how much life insurance she needed. Laura had a $125,000 policy, but was that enough forJean, too? “I chose a half million dollar policy. When myhusband suggested that might be a bit high, I told him to butt out. In many ways it was a self-esteem issue, I guess. I wanted to be the oneto decide how much I was worth, not someone else.” Becauseof her health history, premium Jean,age 41, qualified fora low rate of just $48 a month, and that is guaranteed to stay the samefor 20 years. Not a bad price for a half million dollars worth of piece of mind.

dates” with her husband, who isfive years older and in his prime-earning years. “While they have continuous safety meetings, it’s a profession with the possibility for a serious injury,” she explains. “And two withyoung kids, I’d have to search for full-time work.” After looking closely at both their short-term and long-term goals, theyrealized that both of them needed disability insurance. So off Janet went into Cyberspace, learning more about disability insuranceand what expected costs were than she’d ever imagined. Believe it or not, the chances of becoming disabled are far higher than the chances of an early death. It’s true. If you’re 32, you are six times more likely to face a disability of three months orlonger than you are of facing death. If your husband is the primary breadwinner, you will want to make sure he hasdisability insurance. Imagineyour husband havinga stroke or heart attack, or being in a severe car accidentand not beingable to work for several months. If you areone of the two earners in a dual-income family, don’t ignore yourself. In fact, women working outside of the homeare three times more likely than men to miss work because of a disability-related illness. Also, if you are single, whether you have children or are just supporting yourself, disability insurance is just as important. Imagine if you are your sole support, andsuddenly, you can’t work for months ata time. Disability insurance provides payments to replace your salary when you become disabled because of a serious illness or injury. It does not pay for your hospital or medical care. And, it generally provides for only a portion of you salary, usually 60-70%. While disability is often provided through your employer, in cases likeJanet’s it is not. There’s some fine detail youwill

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want to know aboutbefore writing a check, much of which you canfind at Insure.com.

What You Needto Know about Disability Insurance What exactly is meant by a recoverable disability? Sometimes disability is defined as the inability to do your job. With some policies, however, it’s an inability to do any job; the definition determines when you can recover money. You will, of course, pay more for a disability policy that allows you to recover money if you simply cannot continue with your normal job. Sometimes, you canget special policies through anassociation to which you may belong. How much are the benefit payments? Most policies place a limit on what percentage of your salary you can recover, typically 50-70%. Sometimes, there is a cap on the maximum weekly dollar payment that can be recovered. Of course, the higher the percentage or the weekly dollar amount, the higher the insurance premium. When can you recover (waiting periods)? Most disability policies make you want for a period of time after becoming disabled to begin receiving payouts. The shorter the period you have to wait( 3 vs. 6 months) the more expensive your policy. Occupational risks. The pricesfor disability policies are also dependent upon the risksinvolved in your occupation. Marinesalvage divers pay a lot more than clerical workers; nurses fall somewhere in between. Benefit period. This is the length of time you canreceive benefits. The benefit period can last 2 years, 5 years, or up to age 65. Again, the longer the benefit period, the more expensive the insurance. At age 65 you will most likely be eligible for Medicare and Social Security disability benefits. Incidentally, if you wantdisability payments to pay youall the way until you are 65, you will (depending on your current age) pay up to three times the premium than you wouldpay for a three-year policy.

Cover Your Assets Now, let’sleave the grim worldof illnesses, deaths, anddisabilities and tackle more cheerful kinds of insurance, the kinds you need when your car gets rear-ended, your house is broken into, or you are sued. Oh, well, perhaps there are notany really cheerful kinds of insurance, are there? The major types of insurance we’ll look at now are auto, homeowner’s,

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and renter’s. Remember our original idea about insurance, that it protects against aloss. Yes, these kinds of insurance are meant to protect you against the loss of your property, but once again, they also serve to protect you against the potentialloss of your financial future.

Auto Insurance With 50% of car buyers now being female, women are now “driving” auto insurance decisions. Here’s what youwill need to know about auto insurance: Collision coverage. This covers damage to your car from collisions. You probably need this for a new or relatively new car. For an oldercar, it often does not makefinancial sense tocarry collision insurance. You may end up paylng more in premiums and the deductible than the cost of the repair, or even the value of the car. Comprehensive coverage. This covers damages to your car due to theft or weatherdamage. Again,it may not makefinancial sense to have this coverage for older cars. Deductible. This is the amount of money you must pay for damage to your car or to another car or propertybefore your insurance coverage comes into play. The higher the deductible, the lower the insurance premium. You can choose a different deductible for your comprehensive coverage and your collision coverage. Because comprehensive losses tend to be smaller claims like broken or cracked windshields, many people choose lower deductibles for comprehensive claims thancollision claims. Liability for bodily injury and property damages. This covers payments for all the injuries you may cause to other vehicles or their occupants or to other property (buildings, fences, walls, etc) or pedestrians. Amount of liability coverage. Thisis the total amount of money your insurance will pay for all the damages and injuries incurred in an accident. You will want to have enough to protect yourassets. If you are young with few assets, carrying the minimum required by law may be fine. If you are older, make sure you haveenough coverage to pay for all potential damages without having to dip into your ownassets. Think about the area that you live in as well. If you live in a wealthy area where BMWs and Mercedes abound, you probably won’t be covered sufficiently with $50,000 in property damage even if you drive aVW Beetle. That $50,000 won’t even cover the cost of a damaged luxury vehicle, much less if you’ve damaged other property in the accidentas well.

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Medical payments coverage. This pays for the medical expenses of those injured in your own car. If you already have health insurance, you may think you don’t need medical payments, but remember thatyou may have other passengers in your vehicle thatyou may needto provide coverage for. Discounts. Discounts areavailable for multiple cars, for a student with good grades, for drivers with safe driving records, for children who have been through a driver’s training course, for low annual mileage, anti-theft devices, anti-lock brakes, etc. There are even discounts for the lengthof time you have been with the same insurance company,for carrying an automobile emergency road service plan, and for carrying your homeowner’s insurance with the samecompany. Make sure you ask about, and take advantage of, all of the discountsfor which you are eligible. The safer your caris judged to be, the greater the insurance premiums reduction. For safety ratings of variouscars,consulttheInsuranceInstitute for HighwaySafety(www.high waysafetyorg) andInsuranceInformationInstitute (www.III.org). The National Highway Traffic Safety Administration at www.nhtsa.dot.gov also provides safety ratings on vehicles.

Home Insurance Many books on personal finances forget all about homeowner’s or renter’s insurance, but for women who now comprise the fastest-growing demois a necessity! graphic group buying new homes, it I remember moving intoan apartment duringcollege. My mother suggested I get renter’s insurance to protect against the loss from theft of my computer or the heirloom watch my grandmother gave me. To be honest, I felt a sense of comfort that I was protecting these assets. Renter’s insurance covers damages to your household goods in your rental unit, and protects you against liabilityfor injuries occurring to oth-

Don’t Take the Ticket-Go to Driver‘s School Have you ever wonderedabout thefinancial impact of just one ticket? It varies, of course, according to the type of ticket, your policy, and your insurance company, but according to State Farm’s Judy Semler,a typical speeding ticket can raise your annual premium by 10-20%. Over three years, on a $600 annual premium, that’s a $180 to $360 additional cost, assuming no increase in your policy. The cost can be more than double that if you facetwo tickets!

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ers in your rental.It also covers your living expenses if your rental is damaged to the point whereyou can’t live in it. Then,you won’t haveto depend on the graciousness of friends or theRed Cross putting you up in a temporary shelter. While youmay think you don’t need to cover your household property because youare still living in Early Salvation Army chic, remember the costof items like yourCD collection or your mountainbike. If you think your friendswill never sue you,ask yourself if your landlord is your friend. For instance, if you cause a fire in the apartment-you are responsible for the costof those repairs. Lastly, renter’sinsurance can cover certain legal expenses if something happens while you are traveling abroad. Imagine yourself biking in the southof France and accidently damaging one of those famous grapevines. You might need support for legal defense. Homeowner’s insurance covers the same things as renter’s policies, but also covers yourhome and other outer buildings, such as a detachedgarage. Homeowner’s policies occasionally provide for otherprotections,such as the loss of your luggage, personal property stolen from your vehicle, protection against personal liability for injuries you cause to others, for or lawsuits against youfor slander. You will want to think abouthomeowner’s insurance to avoid lawsuits that could cost youdearly. For instance,let’s say you had a party and someone slipped and brokeleg; a you could be open for a lawsuit, even from your “friends.” More importantly, your homeowner’s policy will cover the legal fees involved in defendingyourself from lawsuits. As we all know, legal fees alone can comeclose to bankrupting us. Here are some key points to remember whendealing with homeowner’s or renter’s insurance: Property coverage. This generally covers the building andrelated structures and often, but not always, provides for replacement costs. It also covers personal belongings, either at their replacement value or their cash value (what they wouldsell for at agarage sale).Make sure you know whattypes of events are covered. How about water damage from leaks in the roof, or from sprinkler systems? While these are covered by most policies, most policies exclude damages caused by floods. Unless you specifically insure expensive itemsof jewelry or art or yourexpensive new computer in asocalled “floater policy” (and pay an extra premium), they are generally excluded from coverage or covered for a very smallamount-$1,OOO or so. Because of the inexorable increase in the cost of rebuilding a home and replacing personal possessions,give serious consideration to “replacement value” coverage. Surprisingly, it doesn’t cost that much more than coverage that pays only for depreciated value.

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Determining Prices after the House Burns Down Kelly Warren losther two big loves-ten boxes of collectible books and a classic Mercedes-when her garage burned down in the fall of 1999. Ten boxes of books, how wasshe ever goingto prove the values for allof those old titles?Phone callafter phone call to book dealers?No, just one evening on-line. “I was able to get all of the replacement value information I needed fromone site, alibris.com.Our insurance agent wasflabbergasted by the stack of documentation I presented. And it wasn’tjust the books. My husband andI were able to quickly get informationon his shop tools, my Danish china, andall manner of quirky things we’d lost, just by using the Web. It was a huge time saver,and our insurance company paid us every dime we asked for,no questions asked.” I

Personal liability limits. You are generally covered up to some limit,such as $100,000 per person injured and $300,000 per event, for injuries to people visiting your home. It also covers your legal fees in defending a lawsuit. Do you really think that friendsdon’t sue? Thinkagain in this litigious society. When you are selecting a limit, think about two things. First, if you were sued for everything you own, how much would that be? Don’t underinsure yourself, and thenhave to dip into yourown assets to cover the remainderof the suit. Second, think about the probable ofcost a loss. If most of the people you live near orassociate with are wealthy, a loss may impact them more,so they may sue for more. If you live in an urbanarea where the courts tendto make higher awards,you may want to increase your limits accordingly Deductibles. With property coverage, you’llhave a deductible. The lower the deductible, the higher the premium. Ways to reduce costs. You can reduce costs by taking steps to increase security and reduce potential damage from a disaster. Install things like security systems, smoke alarms, and dead-bolt locks. There can also be substantial discountsfor insuring both your home and automobiles through the same company. Ways to ensure recovery. Take photos or videos of your rooms, with their furniture, and of all individual items such as jewelry that you choose to specifically insure. Save receipts from the purchase of major appliances and expensive items of clothing. Compile a detailed inventory of your possessions, as Kelly Warren did with hercollection of rare books. The Insurance Information Institute at www.iii.org is an independent source for information on both home and auto insurance, withadvice on how to save costs and file claims.

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Strategies in Purchasing Homeowner’sor Renter’s Insurance Check with your condo association or apartment building landlord to seewhat is covered under their “blanket” policy.Your unit may already have adequate fire protection for the building, so you may only need personal property coverage and liability coverage for incidents that occur in your home. Check to see if your car insurance company gives you a discount if you also buy home insurance from them. Compare rates on the Internet, and get multiple competitive quotes on-line atthe leading insurance sites. Most of those offering life insurance also offer home insurance. Check the website of yourinsurancecompany of choicetosee whether they give you an additional discount for purchasing their policy over the Internet. Remember to claim all the discounts you are entitled to (alarms systems, dead bolt locks,etc.). Take the highest deductiblepossible to save on your premium.

Comparison Shopping Through the Internet for InsurancePolicies You are a smart shopper, always checking to make sure you are getting the best price on your merchandise, so why should buying insurance be any different? Using the Net to comparison-shop for insurance policies is one of the best uses of new technology. Whether you plan to purchase apolicy on the Net, orare doing on-line research in advance of working with an agent, sit down andlog on. Longtime consumer advocateKit Dillon Givas sat down in front of her computer with a cup of coffee one night to find a health insurance policy for her 23year-old son, Casey. “Have a sense of humor, and patience,” says Kit. “You will have to go to several sites in order to get a good feel for what kinds of policies and prices are available, but it is worth it. I used the Net to find an insurance policy for my son not longafter he graduatedfrom college. At 23, and nolonger afull-time student, our insurance company droppedhim from our long-time family policy. But by going from site to site and asking quesI was able to find a pretty tions of their on-line question and answer forums, affordable policy through AAA. Yes, health insurance throughthe car folks!” How can you do what Kit did? A number of sites exist to provide you quotes and serve as a referral source to the insurance companies. Think of them as your on-line insurance agent. Using these websites eliminates the

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need for three or four telephone calls and avoids the sales pressure you often get from agents or brokers. Remember whenthe insurance agent would come over to your house? Perhaps you like the coziness of an in-home visit, but remember that agents who make home calls need to make up that time with commissions-and that means they have an incentive to sell you the more expensive deluxe policy. With the Net, one on-line application will lead to numerous quotesfrom insurance companiesall competing for your business. You get a wide choice, not just onesingle option presented by an expectant insurance agent sitting at your kitchen table, hoping youwill sign up now. When using the Net as a tool to help you navigate the world of insurance of any kind-fromlife to auto to homeowners and everything in between-here are the things to keep uppermost in your mind: 1. Determine the extent to which you can bear therisk yourself; insure only what youcan’t reasonably absorb 2 . Determine how much you need 3 . Determine what kind you need 4. Compare rates and other costs 5. Get information to help you make a more educated decision 6. Make insurers compete for your business 7. Consider ways to get extra discounts 8. Make sure you check the firm’s rating and historyof paying claims

You will want to be able to compare among a number of providers, dizzy. On second thought,maybe you although notso many as to make you should sit down in front of your computer with glass a of wine instead of a cup of coffee. In fact, studies from one company running an insurance quote website concluded that if you are presented with too many quotes on your screen, you are likely to log off and never come back. Over ten seems tobe the trigger point. More than ten quotes to consider and you click over to eBay to see if there are any good deals on ski equipment. However, if you see quotes from only four to seven companies you have heard of, you are likely to make a decision right then. Other key features to look for at insurancesites include the ability to save your informationso you don’t have to type it all in again. What 1 particularly like about Insweb is that its application is very detailed, meaning you are far more likely to get an accurate quote than on sites where youfill out only a cursory application. How can youget an accurate auto insurance quote, for instance, if they don’t know about your two speeding tickets, or ask enough questions to give you all the discounts you’re eligible for.Be wary of sites that have short applications that only showyou very inexpensive quotes, andurge

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you to buy now. When you actually try to close on the deal and provide the insurance company with all of your particulars, you are often shocked by how high premiumsare. Better sites allow youto see clearly the premiumscharged by the various companies,their ratings from independent ratingagencies, the period for which the premiumis guaranteed, and the total assets under management by the company-a sign of financial strength. Don’t forget that many of the quotes you receive on many siteswill be riddled with disclaimers of “this may not apply” to you. Some sites will dazzle you with quotes, show you many tiers of options, a full range of prices-and then tell you that they don’t actually apply to your specific situation once you attemptto purchase the policy. I poured myself a cup of coffee late one night and sought out a termlife 1liked thefact that Quoteinsurance policy at both Insweb and Quotesmith. smith showed me the ratings of its companies, providing quotes from all four rating agencies. The process worked differently at each.After a lengthy questionnaire, Insweb generated the J. Hancocks Marketplace Direct product, a $1 million policy with no premium adjustments throughout its 20year life for $71.67 per month. The company is rated AA by S&P Quotesmith produced the samepolicy, but only the “Super Preferred” version for those who are in the very best of health. They offered this policy for $500 per year or $41.67per month. But when I tried to pursue the quote and had to respond to all the various questions, the premium ended up being the same as that givento me immediately on Insweb.

Check Up on Your Insurer‘s Financial Health Your biggestconcern-especially asawomanworkinghardforher money-is to make sure that whatever insurance company you choose will be standing strong when it comes time to call in your policy. This also applies to whatever type of insurance policy you have-health, long-term care, life, auto, homeowner’s or rental. When choosing an insurance company, whether using the Internet or not, you will want to look at its “rating”from the leading independent rating agencies. The ratingtells you the financial strength of the company, and how likely the company will stayfinancially solvent to be able to perform for you in the future. The rating agencies each have their own grading system. The top 3 ratings for each agency are as follows: A. M. Best Duff & Phelps Standard & Poor’s

A++, A+ or A AAA, AA, A AAA, AA+, or AA

www.ambest.com www.dcrco.com wwwstandardpoor

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How Private Is Your Information? If you areconcerned about whether the information you provideto insurance quotewebsites will be shared with others, remember that sites like

Insweb.com, Ouotesmlth.com,andmost other suchcompanies are licensed insurance brokers and heavily regulated. Such sites do not sell your information, and share it only with the insurance companies you specify. Your personal privacy isn’t really going to be exposed anymore than if you were working with a traditional “off-line”insurance agent/ broker. Also, leading sites use encryption technology to prevent hackers from accessing yourdata, butyou will wantto make sure you havea 128bit browser.You can tell when you are ina secure area of a site if you see a lock ora key at the bottom of your browserscreen.

Weiss Ratings Moody’s

A+, A, or AAaa, Aal, orAa2

www.weissratings.com www.moodys.com

In the past, finding this information on your own meant heading off to your neighborhood library. Even when you got there and found “anA rating in the book, the company’s situation mighthave changed in the interim so that its actual rating (in “real time”) was only a “C,” which means the company is “marginal” and not one you want to choose.Use the Net to get up to date ratings;I also recommend that you check with more than one rating service, as they sometimes disagree.

Who Are the Largest Insurance Companies? In addition to company ratings from the various services, rating several websites suchas Insure.com give you information about each company’s market is also a great resource for all share. Insurexom’s Insurance Company Guide sorts of other detailed information about insurance companies.

WillYour Insurance Company Perform You? for When it comes to your insurance company, you also want to know how many complaints it has had from customers, how fast it processes claims, and whatpercentage of claims are paid.The last thing you want is a threemonth delay in filing your claim, or an unreasonable denial of your claim. a track record with If you want to seeif your insurance company has good

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The Sad Caseof Executive Life Insurance The case of Executive Life Insurance-the failed life insurer in the early 1990s-is a case in point. Executive Life was an insurance company that invested heavilyin junk bonds, only to have their value drop precipitously. However, as Executive Life was heading into trouble, both S&P and A. M. Best awarded the company their highest ratings, failing to foresee the rapid collapse of the junk-bond market. Unfortunately,many women who had relied on Executive Life’s annuities and life insurance policies were soon uninsured and were, yearslater, only able to get pennies back on the dollar fromtheir investments.

customers, goto insure.com (see Figure24). To find out about the number of complaints they have had, you will need to check out 1nsure.com’s or your state’s insurance department website, which you can easily find by clicking on a map at the National Association of Insurance Commissioners’ website (go towww.naic.ory and then into “insurance regulators”). Choosing an insurer that will pay your claim on time and without hassle can greatly simplifyyour life.

Wondermg Enter part of a company name: whether your IMetropolitan Life @ insurance company has a good track record Choose a typeof insurance: 0 -. with its customers? 1 ‘,V

Here you can view insurance complaint rankings that are compiled by state insurance departments. (Not all states collect complaint statistrcs, so you may not see your own state here. 1

Figure 24

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Finding an Insurance Agent on the Net If you don’t feel you have the time toresearch and understand the nuances of different policies-and they can vary greatly-you may want to work with an insurance agent or broker. Better still, get the best of both worlds. of the terms and Perform at least a littleresearch, so you learn not only some issues, but can then ask and understand the answers to the questions you would pose to an agent. When it comes to choosing, first, know that insurance agents and brokers must be licensed in the state in which theypractice. Rita Gibson, an insurance agent,offered this piece of advice for those who can’t decide whether to use an agent or not: “There is a lot to know about insurance, estate planning, and financial planning. I do it every day. My clients don’t have time to acquire the same educationon insurance that I already have, so they turn to me for help.” If you decide to seek out an agent to work with, there arefew a places you can go on-line to search for an agent. 1. On-line Yellow Pages. If you do asearch on Yahoo for insurance, you’ll find an on-lineyellow pages thatwill allow youto locate an insurance representative in your area offering health, long-termcare, life, home, and auto insurance. In my search I found afairly good selection, even in outlying areas. You will even find a link that shows you a mapto the agent’s office.Remember though, that with anyyellow pages, you have no information about the agent or their actual work withclients. 2 . On-line networks. A number of on-line networks exist that provide you with theability to locate insurance agents in your area, much like the yellow pages. 1nsure.com offers an “agentfinder.” You can also go to your state insurance department5 website, where youmay be able to find helpful tips on choosing an agent in your state. When looking at thesefor-profit on-line networks, see whois behind them.Is it a legitimate organization? Can youfind information about the company and its location? Does the site look professional? Can you easily see information, including an address and phone number, for the agent? You might be interested in knowing that, typically, the agent will pay a fee to be listed in these networks. 3 . A major insurer If you do not want to use a network website like Insure.com, then simply go to the website of an insurance company you trust (or thatyou’ve checked out using ourearlier tips), and use their search feature to find a local insurance agent. Most insurance companies have websites that allow you find to a local agent justby putting in your zip code.

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4. www.financialDro.org. If you think you would rather work with an agent who’s “independent” (meaningdoesn’t work for just one insurance company) check out www.financialpro.org for a listingof Chartered Life Underwriters(CLU), Registered HealthUnderwriters (RHU), andCharteredFinancialCounselors(ChFC). Go tothe “consumer referral” section to locate a professional or into “choosing a financial professional” to learn about the above designations. find out if they have Regardless of how you findan agent, you can now the proper licenses to be serving you. With either their name or insurance license number, which you canget simply by asking for or seeing marketdepartment’s ing material, you should be able to go into your state insurance website to look them up. At one time, we relied on our insurance agent or broker for information about whatwas best.Now, just by logging onto the Net,you can learn the ins and outs of insurance, thelaws, and even the companiesbehind the policies. Whether you choose to buy on the Web, or through someone you trust, you will feel more confident about the decisions you do make. Use insurance to protect your income, your dependents, and yourassets, and YOU will be able to not only build wealth, but maintain it.

LinksYou Will Love Health www.ama-assn.org www.ahcpr.gov www.amso.com www.basicflex.com www.ehealthinsurance.com www.insurekidsnow.gov www.mrmib.ca.gov www.ncaa.org www.onhealth.com www.thriveonline.com

Long-term Care www.aetna.com www.cigna.com www.statefarm.com

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www.transamerica.com www.travelers.com www.unum.com

Lve, Auto, and Home Insurance www.eterm.com www.insuremarket.com www.insweb.com www.auotesmith.com www.reliaauote.com

Auto www.automotiveinsurance.com www.carsafety.org www.hichwaysafety.org www.iii.org www.nhtsa.dot.gov

Consumer/informational www.aarD.com www.acli.or2 www.cdc.gov www.consumer-action.org www.consumerfed.or3 www.fda.gov www. financialpro.org www.insure.com www.naic.org www.ssa.gov www.wfn.com

Ratings www.ambest.com www.dcrco.com www.moodvs.com www.standardandDoor.com www.weissratines.com

Chapter 8

Use On-line Banking

Like a lot of women, whether married or single, Heather Smiley was trying to figure out how to do it all-how to manage all of the finances, that is. Because her husband flat-out hated dealing with money, Heather was in charge of that part of their lives. “My husbands only financial responsibility is to pay the milkman. He literally could nottell you what we have. On taxes, he just signs the return,” she told me wearily. Was this a responsibility that Heather enjoyed?Far from it. “The miseryof just trying to keepup with all the bills. It’s the mental stress of ‘did I pay this?’ ‘Is it on time?’‘If it’s not, will it impact our credit rating?”’ Heather also worried that the time she was spending trylng to keep the finances in order interfered with her time with her children. Heather is one of the millions of women who are thenew CFOs of the house. Even if you are not one of them, you are undoubtedly heavily influencing the financial decisions being made in your household. How did Heather manage to bring balance back intolife? herShe found her answers on-line;by using the Net, she could save time and accomplish most of her financial chores. Heather started by doing the family banking on-line, and more recently started paylng herbills via the Net. Now she is ready to lookat “aggregating” heraccounts-a fancy term for being ableto see all of your savings and checking accounts at a single location, whether you’ve gotone at Wells Fargo,anotheratAmericanExpress,andstill another atWomen’s Financial Network (WFN). As the family financier, Heather is representative of the 80% of women who are making, or dramatically influencing, financial decisions at home. Yet, for women like Heather andfor single women alike, managing multiple financial accounts is difficult and time-consuming. Creating a financial 66% of women in WFN a survey claim they plan is a whole other challenge; still feel “overwhelmed” just thinking about creatingfinancial a plan. 199

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That isreally no surpriseto me, but with multiple accounts,isitimportant to be able to see the whole picture-how what is in one account may affect another. How can you manageall of your accounts, and compare them to see your entire financial picture? It is like juggling ten different balls without letting one drop on the floor. How much does it matter to the juggling actif one of the balls falls to the floor? A great deal. In fact,in 1999, Americans paid $5.6 billion in fees for bounced checks, aheavy price for a lack of financial control. One of the so that you can keys to building your net worth is knowing where you are, know where you are headed. The more you know about daily yourfinances and bill paying, the better you can make effective decisions that will move you up the financial ladder and build your net worth. 1 don’t know about you, but trying to hold down a job, manage kids, and have an outside life is a dauntingtask. Here is how Heather looks atit: “Being a working mother is a tough row to hoe. 1 realized the otherday that I’ve been doing itfor half of my career. But I’m proud of the fact that I manage it all, I go to their school events, and I’m on my third promotion in threeand-a-half years. It’s tough. You just have to be ‘on’ from the moment you get up to the moment you go to bed. The Internet is the one thing that’s allowed me to do all of these things.”

The Solution Appears Like Heather, we all work hard to stay on top of things in our lives. Does this sound like your life? Constantly trying to get it all done: to make the 12) Share your success 11) Preserve what you have 10) Increase yourearning power

9) Minimize your taxes 8 ) Organizeyour finances

7) Protect your assets

6) Invest to build your net worth 5) Educate yourselfabout investment 4) Acquire a home 3) Free yourself from debt andbuild credit 2) Live within yourmeans 1) Determine where youstand

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beds first thing in the morning, take the car in for servicing, pick up the cleaning, write the mortgage check, and pay the Macy’s bill. However, when it comes to money, even the most organized person has a drawer jammed with paper. Bills, account statements, old check stubs, and tax returns from past years spill out every time you manage toopen the drawer. Then there are the accounts themselves: savings, checking, and mortgages. Our money ebbs andflows from one account to anotherlike a swift green tide that can easily pull us under. Who hastime to keep up with all those balances? Help has arrived. Financial institutions have developed programs to enable their customersto manage theiraccounts better and streamline their bill paying. Technology companies have also rolled out powerful software to help you. The sooner you get a handle on streamlining you howmanage your money, the sooner you can transfer that energy towards increasing your net worth. My own life has been pretty hecticfor the last two years. In the process of trying to create WFN, I have moved three times, from southern California to the Silicon Valley, and back again. Did 1 open a new bank account in a new area each time? No, I simply kept my account in oneplace and took up on-line money management.My life was hectic enough without having to worry about moving my money around with me.Here are a few strategies that have worked for me: Choose a bank carefully, one you want to stay with for a long time. Lookforlow fees, competitiveinterestrates, andother features important to you. Set up on-line transfer systems so that you can easily and quickly transfer excessfunds-no matter whereyou are-back and forth, into checking when you need to pay bills, and into your money market account so it earns higher interest.

Paper, Paper Everywhere Bills are a major headache: monthly credit card and utility bills, quarterly insurance bills, yearly dues. Not only do we get bills for everything from the newspaper to the electric company to the local stereo store,but they arrive at all different times of the month. Between working, shuttling kids to school and soccer practice, and a few business trips too, isitno wonder that we sometimes wake up in the middle of the night, wondering if the VISA bill has been paid. Thereis a doublewhammy that results from this craziness. First, we pay

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for our lapses with late fees and extra charges, and second,we never seemto have the money wherewe need it to pay bills or earn highinterest. 3 about We talked in chapter 2 about creating a budget, and in chapter managing debt and credit wisely. I said that you couldn’t really do botheffectively without clearly seeing where you stand-where you are and where you are going. Where you are-your assets and your liabilities-and where you are going-straight up the net worthladder, once you get your money habits in sync. A major part of getting your money habits in order is learning to manage effectivelywhat you havealready accumulated. The Internet has helped create new financial services that allow you to manage your money more effectively and at lower costs. Going on-line for a minute to check your accounts each day will allow you to transfer funds into your investment account, where they will earn a higher interest rate, and shift money into your checking account to cover an outstanding check. Let’s explore how you can use the Net to your advantage.

Bucking Old Banks You know the drill: you go to the bank on your lunch break to deposit a couple of checks, that shouldtake around five minutes, right?Wrong. Four of the five windows have a “Next Window Please” sign and the line behind the one open window stretches back to the door. So much for being able to get to the other items on your “to do” list! Then you rush to the ATM to transfer money from your savings to checking to coveryourmortgage check, only tofind the machine “temporarily outof service.” Now, doesn’t this sound more appealing: you mail in your checks to your bank, go on-line to transfer moneyfrom your checking to your savings account, and have your bank directly pay the mortgage? Under this scenario, you would even have time to actually eat your lunch.As Heather Smiley told me, “Before on-line banking, I would call my banks so-called automatic teller, and then punch in numbers ad nauseum. Now, I can sit down at my computer and in minutes open up five browser windows and have all accounts going at once.” In fact, that is why 24% of women bank on-line, and another 48% are strongly considering it, according to NetSmart. On-line banking cantruly be a savior. Use it because: The interest rates on accounts at on-line banks are generally higher than at a traditional bank, andfees are usually lower.

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You can move money back and forth between accounts quickly and easily, in order to capture the best rate or cover checks. You can get on-line banking with no monthly fees and witha low balance in the account. It saves time and effort-get your business done whenit’s convenient for you to bank, not when the bank happensto be open or has staff available. Tracking your money much is easier. You can instantly see your transaction history andfind out if checks have cleared. You can also catch mistakes and problems the minute they occur. You can take advantage of up-to-the-minute financial information. You can stayon top of your finances from the road, wherever you are. All you need is access to the Internet.

Error, Error! While checking on-line to see which checks have cleared and the balance in your account,you will also be able to spot mistakes instantly. This is an important advantage of on-line banking. While viewing her accounts online, Heather Smiley spotted a large error. “According to what was on the screen in front of me, I owed money on a line of credit. It was a shock, because I knew I’d paid it off. 1 also worried how this was going to impact my credit report.” Heather immediately picked up the phone and started working to resolve the problem. Even though she’d spotted it rightaway, it still took her months to get the problem corrected. Imagine the mess she

Don’t Sweat the Interest Checking Use your bank account for what it is for:a place to hold cashtemporarily until it can bedisbursed to pay for billsor other obligations. Sure, it is nice to receive interest on your checking account, but the paltry 1%you are likely to receive (at all but on-linebanks) amounts to verylittle.Very little, that is, if you are correctly using your checking account only to pay bills, while keeping almost of allyour moneyin a money market account which pays youabout 5% interest. It is true that alot of banks try to “hook you” with interest checking, but what you should really be lookingfor are the interest rates they are paying your savingsor money market accounts. If you keep considerable cash in your checking account, then think hard about a pure Internet bank, where rates on money market accounts can run as high as 6%.

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nw.25%0ft~".(..t.( \

Account Summary

would have had if it had taken her monthsto discover the problem in the first place by waiting for her paper statements! On-line bankingallows you to easily and quicklysee your balances in your checking, credit card, and loan accounts, as well as your transaction history (see Figure 25).

Banking a Profit We know why banks want you tobank on-line-it lowers their costs. Much like brokeragefirms, whose electronic investing has existed for some time, financial institutions arerealizing that theeasier theycan make your banking life via the Web, the more time and money they save for themselves. The more people that bank on-line, thefewer branches they will have to build and maintain. Fortunately,you too can benefit from on-line banking. One of the biggest benefits is your ability to monitor your transactions and balances daily-in just a minute or so-and catch any fraudulent activity or bank errors immediately This feature alone can save you time,money, and negative marks on your credit report. According toJupiter Media Metrix, NetBankranks as a leading place for women banking on-line. Women25 and older comprise justover 54% of

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NetBanks users. As of October 2000, here’s how the top on-line banks stacked up for women, as a percent of their overall users: netbank.com orchardbank.com compubank.com fleet.com firstar.com bankone.com wellsfargo.com suntmst.com usbank.com nawfcu.org chase.com bankoneonline.com bankofamerica.com citibank.com wamu.com householdaccount.com winesganbank.com

54.4% 5 1.O% 44.6% 43.9% 43.8% 42.4% 42.1% 41.4% 41.1% 39.9% 39.2% 38.7% 35.1% 34.4% 33.4% 32.8% 22.6%

With such a long list-and more on-line banks opening every yearhow can you pick the right one? Gomez Advisors (www.gomez.com) has an on-line scorecardthat rates the top 20 out of 57 Internet banks for their ease of use, customer confidence, services, costs, on-site resources, and overall. They also break out the top ranked banks for “savers,” “borrowers,” and “Internet transactors.”Forrester’s Power Rankings (www.forrester.com) use “secret” customers to helpassess how the bank treats its customers andtheir money, and rates customer service, features, and usability. Online Banking trade Report (www.onlinebankingreport.com) is an expensiveon-line newsletter for the industry, but their site also has a database of the top 100 banks that consumers can use. At Bankrate.com, you can find out aboutspecial CD rates and other kinds of promotions that on-line banks are running, butif you see something you like, you might have to act fast. One of my earliest employees at WFN was thrilled by the sound of the 6.8%8-month CD that caught her attentionin an ad, butby the time she got the cash to open the account, the offer hadexpired. A critical element in your decision-making process should be whether the bank is in good standing with its FDIC insurance. An FDIC-insured bank means that your money is insured by the governmentup to $100,000. To make sure your bankis in good standing,go to www.fdic.eov.

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Clicks andMortar Banks Who pays you the best interest rates: a big established bank, or an Internet only bank like Wingspan? You would think that large banks have greater ability to shave rates, and that they would. The truth is on-line banks, which are not affiliated with a traditional bank, offer youthe best interest rates, because they are hungrier than established bricks-andmortar banks and have lower overheadcosts. If you are expecting higher interest rates from the online arm of a traditional bank, forgetit. Most will offer youon-line exactly what they will offer you at their branch office in your area.

Power Up There are several ways to begin banking on-line, and they may be easierthan you think. First, your current bank or credit union may have an on-line system in placealready, particularly if it is oneof the major banks.You can find out by visitingyour banks website. Most banksnow haveawebsite, although notall offer on-line banking. Some banks offer a software program for you to install on your computer, while othersallow you to work with programs like Microsoft Money or Intuit’s Quicken. How do you make the transition from traditional banking to on-line banking? If your bank allows you to manage money on-line, making the switch isvery simple. They alreadyhave your information-you will probably only need to set up a username and passwordto gain instant access to all your statements, records, and balances with that bank. Some banks stop there, or perhaps offer you the ability to transfer money between accounts; others (usuallylarger institutions) have more “bells and whistles” and offer full banking services right there on your monitor. If your bank does not have an on-line system in place yet, or it is too simple or archaic for your use, you might want to consider opening an online account witha bank whose system is more advanced. If you are unsure about the new bank, try transferring someof your money into oneof their accounts and monitoring it on-line for ashort periodto see if you are happy with the service before severing your old banking relationship. You do not need to havea standard,existingaccountinorder to have anon-line account. Also be aware that on-line brokerages are venturing into Internet banking-in fact, the trend is increasinglyfor your favorite financial institution to be able to serve all of your needs. If you already have an investment

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Time Well Spent Surprisingly,just over one-half of all women with checking accounts balance their checkbooks on aregular basis. Takejust a few minutes every day or as appropriate to hop on-line and see where you stand. Compare it against your checkbookto make sure no mistakes have been made. Make sure checks that have been deposited, as well as withdrawals and other debits, are recorded accurately. And, be sure your line of credit, if used, is paid off.

account witha brokerage firmsuch as Merrill Lynch or E-Trade, check out their website to see if they offer on-line banking. Be aware that if you are not engaging in on-line trading, you may need amonthly minimumbalance in your banking account, you or may have to pay a monthly fee. If you really want to take the plunge into on-line banking, you can open accounts witha “virtual bank” like NetBank.com or WinesDan.com. These “banks” do not exist at all in the typical brick-and-mortar form, but they offer almost everything that a regular bank does, and more. Checking and savings accounts that earn interest at rates often far better than those of standard banks (again, what they save in brickand-mortar coststhey can passon to you). CDs, money markets, retirement accounts, brokerage services, billpaying, and loans FDIC insurance (make certainof this beforeopening an account with ANY bank) Credit cards with low rates and cash-back plans Postage paid envelopes to send in your deposits Real-time information on your accountsvia e-mail or phone,24 hours a day The latest financial headlines and rate information Here are some factors you will want to keep in mind when trying to choose an on-line bank: theirfee schedules (e.g.,for bounced checks, ATM use, wiring money, printing checks, inactive accounts, etc.); the interest they pay on various accounts; any minimums to open an account; their hours for telephone customer service; and ease of using the site. Customer service is particularly important if there is no physical branch-you want to be assured that you can speak to a live person if there is a problem with your account.

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“When I can’t get to my computer, I sometimes call my bank from my cell phone to move money around. It is a great use of the time when I’m stuck ina traffic jam. But cell phone fees can addup quickly, so I expect fast customer service so it doesn’t useup all of my minutes!” Anne Carsontold me. You could also take apage from Forrester’s playbook and be your own “secret” customer. Call the customer service number listed on the site and see how long it takes you to get to a real live person. Joyce Kaneda, the CFO of EosBank had a similar suggestion:“Before choosing an on-line bank, you might do an e-mail testin advanceto see what kind of response you get from their customer service department.How long does it take them to get back to you?”

Show Me the Money On-line banks usuallyhave no orfew offices, allowing them to pass on savings to you. So how do interestrates comparefor a typical on-line bank versus the national average (see Figure 26)?

Checking Savings Money Market One-Year CD

Online Bank

NationalAverage*

3% 4-5%

0.81% 1.7%

6% 6.8%

2% 5.65%

Figure 26 *Source: Bankrate.com, December 2000.

You can compare fees for checking and ATWdebit card services for a large number of banks at the bankrate.com site (www.bankrate.com). They might not list all of the online banks, though.

Strategies for Selecting a Bank Not sure how this is going to work? Before taking the full plunge, follow these strategies: To help with your decision process, I recommend that youfirst make a list of your exact banking needs. Then determine your top banking choices by reviewing sites like Forrester and Gomez thatrank financial institutions.Make sure the institution is strong andcredible and hasFDIC insurance. In the same way you would investigatean insurance company’s soundness before buy-

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ing a policy, checkoutyour new banks financial strengthat Bankrate.com’s “safe Q sound” section. Take a road test of the bank by using their on-line demo, reading the privacy statements, and checking out their customer service. You will want the security of knowing that a real live person will answer the phone should you have any problems or questions. Try testing out the bankby depositing a small amountof cash before closing your previous bank accounts.

Yet Another Form? You may think that opening an account with on-line an bank is difficult, but it is not. In fact, it can take less time than filling out paper forms at your regular bank. Simply enterthe requiredinformationonthree to four screens, pick out a username and password and fund the account by wiring or mailing in the money. Then you are in business-no more “This Window Closed” signs. On-line bankingin still in its infancy period.Some downsides exist, but as time passes these are expected tofade. Keep in mind that: On-line banking requires that you learn new deposit habits. You depositfunds by eitherwiringmoney electronically, mailing in checks, or using a networkof ATMs through a partnership the bank has. You will need to allow at least two to three days for the mail, and a 2-5 day holding period for checks (even longer for larger checks). You also can’t deposit cash into an on-line bankdirectly.

WatchYour Float! You may have heard the term, “float.”Think of it as a boat-of your money-that has to float to get to its destination. It is the time between it is actuallyrecorded in your when your check has been deposited to when account, which is usuallya few days, depending on thesize of the check a customer. The float period is important for andlor how long you’ve been banks because they are accruing interest on this money duringthis period, although you generallyare not. On-line banking will help you viewwhen lead you your checksare actually recorded, so that thefloat period doesn’t to bounce checks you have written in anticipation of that money being in your account.

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What? Your NetWorth?

You will alsowant to set up atransfer system between accounts with the on-line bank, which is often done for you. Once established that transfer system will make life easier.The best way to avoid overdraft charges is to have money automatically transferred from one accountto another to cover any debit that occurs or applyfor “overdraft protection.” A laptop can’t shoot money to you outof your CD-Rom drive. To get actual cash, youwill still haveto visit an actual bank or an ATM associated with your on-line account. E-Trade now has its own ATMs around the country, and others like Wingspanoffer a $5 credit each month for ATM fees. You “balance” your accountsperiodically by going on-line.You don’t get a monthly print-out that prompts you to balance your checkbook every month.

On-line Bill Paying Keeping up with bills while working a demanding job and caring for the kids became a “misery” for Heather Smiley. For Cheryll Forsatz, it was her I would credit rating that was in trouble. “My credit rating was poor because pay my bills late-not because I didn’t have the money, but because I would forget, procrastinate, or betoo busy,” says Cheryll. But Cheryll now swears that on-line bill payment services have been her saving grace. “Since I’ve been using on-line bill paying for three years, I don’t have a single black mark on my credit report.” According to a 1998 study by the Tower Research Group, U.S. households pay approximately 18.7 billion bills annually, and 95% of those bills are paidwith a paper check. Who is it sitting down at the kitchen table, writing out those checks and licking those envelopes? Women. “Expect the number of females payingbills to rise faster than males because,as a population, they are growing faster,” says James Van Dyke, senior analyst of financial services at Jupiter Media Metrix. So far, some 4.4million women use the Internetfor bill payment, accordingto Cyber Dialogue,as a way to avoid those monthly kitchen table sessions. In the past, the missing piece to on-line bill payment has been the seamless integration of “presentment” along with payment options. Thatyou is, still receivedyour bills by mail and then wouldhave tolog on todirect their payment. Now, many on-line bill payment companies have your bills sent to them directly and they “present” the bills to you for payment electronically. This allows you to view and pay your bills on-line instantly. You can also arrange for the bills to be paid automatically on a set schedule-for

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example, the mortgage payment on the 30th of each month and the utility payment on the 15th. Like Cheryll, why complicate yourlife trying to remember what is due and when, arrangeto pay them quickly andeasily using your computer.

How Do You Do This? There are three basic waysto pay bills on-line: directly to the creditor, through your bank, or throughan on-line bill-payment service. If you want to pay only a coupleof bills electronically eachmonth, YOU may be able to pay your utilities, cable or phonebills directly through the companies’ websites. You can also authorize them to debit your checking I account, but beware of the optionto pay your bills with your credit card. don’t think thisis a wise practice, becauseif you do notpay off your bill by the end of the month the interest charges may well cancel out any possible advantage of paying electronically. With your information and checking account already set up on-line, billpayment through your on-line bank be can arranged in just few a clicks. In the same way that your monthly car or mortgage payment can be automatically deducted from your checking account,billers that you authorize canreceive payments eachmonth, either electronically or via a check that your bank prints and sends. The service issometimes a free extension of your checking account. Or you can choose the “third-party consolidator” route and sign up with an on-line bill-payment service notaffiliated with a bank, likeCyberBills or PayTrust (see Figure 27). Even the U.S. Postal Service is getting in on the action withits recently introduced“eBillPay”service (WWW.USDS.EOV). Thirdparty bill paymg services all charge a monthlyfee-usually under $10 for the basic service-to handle yourbills, and mostwill giveyou several months of free service when you sign up. These consolidators are an exciting option because of the controlyou have over your bill payment and the use of technology to reduce the reams of paper that canpile up during theyear. Here is how these third-party consolidator services work: You authorize your bills to be sent directly to the service either through mail or electronically. The service notifies you with an e-mail that they are due. You view the bills on-line and authorize payment. You can download your on-line bill payment service into money management programs like Microsoft Money or Intuit’s Quicken, or set up the service through these programs to create an integrated solution.

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03102R000 03101mm

02R7R000

02/28/2000

02/19)2000

02102/2000 02R1R000 02/10/2000

02/15R000

02/17R000

Figure 27 Does it make financial sense? Look at the numbers (see Figure 28):

On-line bills

$107 $8.95

The old way $40.80 Stamps $3.40 (10) Late fees (5) Total$140.80

$8.33 $11.73

$100.00

Figure 28 In thiscase, on an annual basis, on-line bill paymentwill run you $107 compared to $140.80, assuming you get hit with five late payment fees of $20 each (averaging$8.33 per month).Even if you don’t face this many late fees, remember that you can improve your credit,Cheryl1 as did, and enjoy more attractive interest rates on loans.As you take on a more demanding job, on-line bill payment saves you the time and hassle of buying stamps and ordering checks. You also have everything stored electronically-no of your more stuffing stubs into filing your cabinet. (You can print out copies to download yourbillbills if necessary, however.) Some services allow you payment history to your computer to coordinate with money-management CD aarchive of all your transactions at the end software programs, or to get of the year-what a great tool for tax time!

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PayingYourself Let’s get back to our ESG formula-Earn it, Save it, Grow it. If you earn it, and have it sent electronically to your account, it will start earning that much quicker. Your retirement accounts and investment accounts should be the first on your list to receive regular payments each month. You will never miss the money if it is sent inelectronically, nor will you be tempted to skip a month.

The BigPicture By now you might have an account with an on-line bank, and an account with a bill-paymg service,and an account with a brokeragehouse, and that does not include your frequent-flier miles accounts, your e-mail account, and all of your credit card accounts. Accounts, accounts everywhere, with more cropping upevery week! “It’s a pain togo to all of the different sites,’’ Heather Smiley told me. Despite her hectic schedule, she tries to keep up with all of her accounts daily. “Almost every night I’ll look at my Fidelity account, my Fleet Boston account.” Help is here, in the form of a new on-line service called “account aggregation.” Account aggregators allow you to gather up all of your various accounts in oneplace, in one on-linedrawer, so to speak. Now women like Heather no longer have to spend their time going from site to site, checking on different accounts to get a snap shot of their financial status. The biggest playerhere is Yodlee (www.vodlee.com),whichisproviding “account aggregation” through your financial institution or at places like Yahoo! Bigbanks arealso looking tooffer you aggregation servicesas a way to keep youas their customer and prevent youfrom going elsewhere. With your specifications, sites like Citigroup.com and Chase Manhattan (www.chase.com) pullin your banking, investment and other information from all your accounts-even those unrelated to that bank. They are then displayed in one convenient statement right on your computer screen. You can monitor your mutual fund, check your frequent-flier miles, and view your credit card bill allin one place. It is a secure servicethat allows you to view lots of information without having to enter a dozen passwords; all up to date, andit’s free. How does this work? Account aggregation uses a technology commonly called web scraping. Sounds kindof creepy, but what happensis that once you authorize theiractivity, the aggregator can literallygo out and “scrape” the updated information from your account at say, Fidelity orDelta Airlines, and allow you to view it from the aggregator’s site.

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This takes a bitof time to set up, but once done you are readyto check into all of your accounts atany time of day from anywhere, as long as you have acomputer and an Internet connection. To get your one-stop snapshot set up,you will need to put in your account numberpassword and one time for each account you want to access on the aggregator’s site, such as your checking account, brokerage account, and frequent-flier miles card, for instance. Once this information has been input for each account desired, you can then view all of your accounts by putting in your user name and password for the aggregator’s site. While some have expressed security concerns over account aggregation, remember that even thelargest financial institutions are using this service. The information that is accessible is the same information that is already available on-line from the individual institutions.We will talk about security on the Internet in more depth later. Suffice it to say here that it is my belief that the Internet offers more security than the traditional ways of using your credit cards and account numbers.

Paying the Piper If you haven’t heard about P2P, or person-to-person payment systems, you will. Think of it as mobile money-money you can quickly get off to people like your kids at school. Women like Tiffany Massa have used P2P to help manage financing a vacation with her girlfriends scattered around in different locations. Tiffany set-up an account with PayPal at www.Davpa1. m,just oneP2P provider, enabling her friends to repay Tiffany their portion of the $1,200 she had charged on her credit card for the hotel. “My friends could repay instantly without writing a check or giving me cash,” says Tiffany. P2P allows forthe transfer of cash to others whohave an e-mail address, even if the person sending the money banks with a different financial institution than the person receiving the money. When a person sends money viaP2P, the receiver gets an e-mail indicating so and can get immediate accessby openinganaccountwiththe P2P provider.Combined with account aggregation, P2P is likely to help women conveniently move money themselvesbetweendifferentfinancial institutions-from their Wells checking account to their Morgan Stanley investment account, for instance. No more writing checks or wiring money atfee. a The reason the “instant” nature of P2P is so important, aside from getting moneyto your college kids who say they desperately needit, is that reduces it the float period in which banks earn a great deal of interest, allowing you to generate more on your

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own money. As for the P2P providers, they have beenhoping tobenefit from the interest on your money while it’s sitting in their accounts. The major banks have recently launched a series of P2P offerings, including Citibanks C2it and CIBC National Bank in partnership with Yahoo! These offer the same features as PayPal but with the added security of FDIC insurance, direct access to the bank payments system and a host of proven customer account security features.

Powerful Money Software I’ve presented several different ways to manageyour money on-line. What if you are still feeling out of control or your crunching to save time? Do you want something else to tie all of the key money management pieces together-checking, bill paying, investments, budgeting,taxes, insurance, loans, and even life planning-right from your computer, wherever you are? For the woman who would just like to use her time effectivelymore or make sure she’s staying on topof her finances for short-term cash flow purposes as well as long-term planning-a money management software program might be what you need to bring some order to the process. It is like having a personalfinance tutor by your side every time you pull your information up on the screen,telling you where you are, and what to do next.

Get a Life! What if you wantto have a childin five years or buya home nextyear? How would these actions affect your financial picture? TheLifetime Planner feature in the deluxe version of Microsoft Money provides guidance on how the decisions you make will impact your financial future (see Figure 29). For example, you can see in visual a graph the impact on your cash flow if you were to have that child in twoyears instead of five. You can also pick a date in the future, say the year 2010, andsee what your new worth might look like under various scenarios. You can even ask it to promptonyou how you are doing with your goals every three months-or whatever interval you’d like. Think of it as your financial mother looking out for your best interests. Who couldn’t use another one of those? You can learn more at www.microsoft.con-dmoney.com. There are a number of personal finance programs out there, but two the (www.microsoft.com/money), and leadingonesareMicrosoftMoney

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Intuit’s Quicken (www.shoDintuit.com). I remember opening up the package to Microsoft’s Money. I was very pleased that it tied together money in a banking account with bill payingand linked investments with taxes-just as anideal programshould-since all of these aspectsof your moneyrelate to one another. It alerts you to upcoming bills, creates customized charts and graphs to show howyou are doing on cash, alertsyou if you are over the budget you set for yourself, and offers tools to tell you what your capital gains taxes are on investments and whether you can take advantage of any tax deductions. Thinkof it as your one-stop shop for just about everything related to your money, including most of the topics discussed in this book. Microsoft Money also integrates real-time informationfrom Moneywww.moneycentral.msn.com. Central,itson-linefinancialchannelat Intuit’s Quicken software integrates real time information with its on-line financial channel at Ouicken.com. The people I know who usethese programs are peopleof all ages who appreciate that managing their money is essential to building wealth. Let me tell you personally-it makes managing your money fun. These programs will make you want to keep exploring the many new toolsto make your life easier-remember that account aggregationwe talked about? Similarly, these programs pull in information from your bank and brokerage firm, and even help you plan your retirement. They will also help you figure out any deductions on yourtaxes through an extensive questionnaire. If this sounds too complicated, it is not. There is a lot to do there, but you can start outsmall by just entering thekey financial information and then taking baby stepswith the software as you exploreand grow. After these programs are loaded onto your computer, they linkto the Internet so that, for example, your stock portfolio can be updated in real time and you can see the current status of your accounts from various financial institutions. Once you load the program with your own financial data, you will be ableto see exactly where you stand from paycheck topaycheck. You will become more informed and motivated by seeing what is possible right before your eyes. Both programs are great, thoughI particularly likethe life-planning features of Microsoft’sMoney and itsoverall ease of use. Use a money management software program if You are serious about managing your money You have not created a one-stop shop elsewhere, or you want a solution that integratesall of your finances better. You want a tutor and visual graphs to help you through the process.

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A Word on Privacy and Security Whenever I meet with groupsof women, thetopic of on-line security comes up. “How can I keep my information safe? How can I make sure that my credit card number won’t be used?” My advice is always the same: When doing business with a website, new always read the privacy policy and lookfor use of encryption technology, like SSL (secure socket layer). Encryption technology scrambles your data so that no one can read it in the transmission process. Almost every financial site uses 128 bit encyrption, which provides an adequate level of security. To utilize this technology, you’ll need a browser like Netscape Navigator 4.06 orhigherand Microsoft’s InternetExplorer 4.01 orhigher. You can tell if you are in a securearea of a site when yousee the gold lock or key at the bottomof your browser, in the locked or unbroken position. Be extra careful about safeguarding your passwords. When it comes to choosing your password, never choose something obvious like birthdates, phone numbers, or your mother’s maiden name. Avoid picking a dictionary word; add numbers to your password so that you have a combinationof letters and numbers. Acronyms tend to easy be to rememberbut the chances of someone identifying them are extremely slim. For instance, choose yourfavorite quote and the first letter of each word becomes the acronymor password. If the privacy policy says that your information will be sold, think long and hard before using that site. Information used in the aggregate is fine when companies want to detect needs and trends of their customers, but if your information is sold to another company that simply wants to market more merchandiseto you, it is clearly an annoyance. Legitimate financial institutions never sell your information. Do not reveal more personal financial information than you need to register for a site or complete a sales transaction. Watch for input fields that have an asterisk by them to determine what informationis required. Be aware that,on sites that sell do names, manywill give you the opportunity to “opt-out” of their lists. However, oftentimes, the “opt-in” box will automatically be checked so that it is up to you to opt-out by taking off the check. Check for sites that have insurance or guarantees that back the consumer up in thecase of fraudulent use, security breach, or computer errors.

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Always be extra carefulabout giving your social security number, online or off-line. Use a fictitious name or alternate e-mail address when sending messages to unknown parties, such as newsgroup postings, chat rooms, and other publicplaces on the Net. Also, remember that you may be monitored at work. Be sure to send personal e-mails from, and keep sensitive files on, your home computer.

Get StartedToday Managing your money on-line does not need to be a frightening experience. Raising kids? Very scary. Running a business? No small feat. Picking up your life after a divorceor the death of a spouse? Terrifying. Opening a bank account on-line?Piece of cake. Infact, once youget the hangof it, youwill

Beware of SweetThings What sounds tasty could be dangerous-I am talkingabout on-linecookies. “Cookies”are offered to you by Websites so they can track your Internet habits and customize their services for you when you nextreturn to their site. For example, let’s say you receive a cookie from Amazon.com.If sites like Amazon choseto, they couldsearch and record where you went to on their site, as well as all the otherWeb sites you visit during your current log-on. Say, before visiting Amazon.com, you had spent time on a website pertaining to cosmetics, and then after leaving Amazon.com, spent time ata financial site.When you next log-on to Amazon.com, they could give you a list of books dealing with cosmetics and finances. Thus, Amazon.com iscreating for youa more personalized service and making your book shopping easier. But there is the downside that by placing a cookie in your system, they are able to track your Internet habits, something you mightnot want them or anyone else to how. If you’re at all concerned, read the privacy policy. All of the major Internet web browsers (such as Internet Explorer, Netscape, and Opera) have security features that allow you to refuse to accept cookies if you do not want yourInternet moves followed.You can usually find the meansto turn this feature on or off in the “options”section of your browser. Some browsers have a feature in the optionssection that even ask you when you visit a new site that uses cookies whether you want to accept it or not. Finally, you might consider software to help you manage cookies.

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be surprised at how easy it is and how much more in command of your finances you will be. Finding great rates, earning higher interest, andgetting information when you want it with just the click of your mouse are among the rewards. Remember the value of your time. Women everywhere are using the Web to streamline theirlives. With on-line money management, you might find those extra free hours you have been wishingfor!

LinksYou Will Love AccountAggregators www.vodlee.com www.wfn.com

Banks and Credit Unions www.chase.com www.checkfree.com www.citigroup.com www.cuna.org www.netbank.com www.winPsDan.com

Bill Paying and P2P www.citibank.com www.cvberbills.com www.Daypal.com www.Davtrust.com www.usDs.com

Money Management www.microsoft.com/money www.shoDintuit.com

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Research www.bankrate.com www. fdic.com www.forrester.com www.eomez.com www.onlinebankinEreDort.com

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Chapter 9

Save on Taxes: Keeping More ofYour Money

Marti Harlow Aiello is a loss prevention specialist for a Southern California bank. She isn’t a professional tax preparer, but that did not stopher from taking the plunge andlearning to handle herown family’s taxes on-line. “You just learn by doing,” she says. “It’s not something you can really break; you can undo almost anythingon a computer,so you can’t be afraidto try new things.” For several years, Marti had been handling the family taxes using TurboTax, a software program. When the opportunity came to take the information straight from TurboTax and file her family’s tax return on-line, she leaped at the chance, and loved it. “On-line filing is very easy, and takes you step by step and walks you through everything.” Not content to rely on information only from TurboTax.com though, Martialso checked with the IRS’s own website for any updated tax information. She even handled her mother’s tax returns, filing it on-lineas well. Marti‘seasy on-line tax filing experience is echoed in the numbers of women embracingthis new method.According to an October2000 survey of women. web visits byJupiter Media Metrix, 40%of visitors to tax websites were Let me make something very clear: TAXES MATTER. They probably matter much more thanyou everthought. In fact, most womenare leaving money (and a lot of money) on the table because they are not paylng attention to taxes, simply becausethey’re too busy orthey feel the subject is just too complicated. What do mostof us do whentax time comes around? We just sign the tax form after a cursory review. We often leave it to someone else, like an accountant, a husband, or an H Q R Block ( w . h r b l o c k ) , to put it all together for us, or, worse, we fill out only the simple “short form” 1040EZ and fail to take all the deductions andcredits to which we are entitled. Your goal-if you wantto build yourwealth-must be to reduce the tax222

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12) Share yoursuccess 11)Preserve what you have 10) Increase your earning power 9) Minimize your taxes 8) Organize yourfinances

7)Protect your assets 6 ) Invest to build yournet worth

5) Educate yourselfabout investment 4) Acquire a home

3) Free yourself from debt and build credit 2) Live within yourmeans 1) Determine where youstand able income shown on your income tax return eachyear. Reduce it, and the amount you will be taxed will be less. Reduce it significantly, and the amount of taxes you pay will be reduced significantly-another great way to move higherup the wealthladder. Let me give you an example. Ann, a single mother, works as a marketer, earning $60,000 per year. She worksfor a large well-known financial company, doing what are sometimes complicated tasks, but always shetakes the files the 1040EZ tax form. Ann simple route whenit comes to her taxes and is missing all kinds of deductions and tax strategies that will put more money back into her pocket at the end of the year; we will get to some of those in a minute. They can mean the difference between paying the government an extra $2,000, or keeping it for herself. If that sounds small, remember what that means over time: if Ann were to save $2,000 each year on her taxes andinvest it over 30 years, shewouldgeneratealmost $330,000-just for being smarter about her taxes. Now, let me ask howcan you afford to ignore taxes?Taxes are the one money matter that gets tucked away in the drawers, forgotten and ignored, yet it has one of the greatest impacts on how much you get to keepfrom your paycheck, what you reap from your investments, and what you ultimately get to retire on. As we earn more, we should start care to more about howbig of a tax bite we face. With 30%of women out-earning their husbands in households where both spouses work, you haveone more good reasonstart to thinking about year-end tax planning now. “There’s a definite correlation between women earning more income and becoming the lead on tax filing,” Linda

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Durrand observed. A partner withMcQuade Brennan, a Washington, D.C.based accounting andtax firm,she has noticed that, “If the wife has a highpaying job or owns her own business, she is going to want to be more involved in tax issues.” Nearly everyfinancial decision you make will affect how much you take home at the endof the year, and how muchyou get to keep. While women haven’t quite supplanted their husbands when it comesto filing returns, it is clear by the statistics that it isjust a matter of time.

What Women Want During the Revolutionary years,Abigail Adams wrote toher husband John Adams: I long to hear that you have declaredan independency “and by the way in the new Code of Laws which 1 suppose it will be necessaryfor you to make 1 desire you would Remember the Ladies, and be moregenerous andfavourable to them [in the laws] than your ancestors. Do not put such unlimited power into the hands of the Husbands. A lot has changedfor women in two hundred years. Menno longerhave the “unlimited power” over women that concerned the FirstLady so long ago, and women are earning wealth like never beforein history-according to the IRS, we now make up 43% of wealthy Americans. I pretend otherwise?Taxes are also a critTaxes are boring; why should ical element in handling your personal finances. If you have money, you have taxes, too. There are also a number of other reasons I feel strongly about women and taxes.Let me share fourbig reasons that all women need to educate themselves about tax matters. Growing incomes High divorce and widowhood rates Retirement planning Aging parents Why didI choose these four?Women’s growing incomes meanthat our taxes are growing increasingly complex.You can’t just fill out the EZ form, if you have to include incomefrom several sourcesand accountfor the gains on an investmentortwo.Highdivorcerates,combinedwith women’s longevity and the likelihood of being widowed, mean that even if you do not handle your taxes now, at some point you will. Retirement planning? of taxes and retirement planning could Understanding the full implications make a huge difference in the amount you end up with in your later years.

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Aging parents? Long before your later years, you might well find yourself acting ascaregiver to your parents, eitherfinancially or medically. As Marti Harlow Aiello discovered withher daughter’s medical expenses, the tax path can be a rocky one. In this chapter,let’s focus on ways women in particular can build their net worth through smart tax education and tax planning. A whole new world of tools have becomeavailable to women on the Internet, andwill we touch on those, too, but first, let’s look at some of the issues that seem to hit women and couples the hardest.

Uncertain Taxation You have heard the phrase, “Nothing is certain life in but death and taxes.” Here is another universal truth: nothing about taxes is ever certain, especially for a woman. They can be interpreted differently, depending on individual cases in court; laws are influenced by the attitude of the times. Here’s a quick history lesson: it was not until 1983 that France moved from requiring just the husband’s signature on a joint tax return to requiring both spousesto sign. As recently as themid-l970s, the InlandRevenue in the United Kingdom would only correspond with husbands. They not only refused to reply directly to married women; they even sent any money that the government had over withheld from a married woman’s paycheck to her husband! The IRS in the UnitedStates was not that much better; in fact, even today we have something in our tax system commonly referred to as the “Marriage Penalty.” You say there is a tax on being married? You actually pay a tax penalty for being married?It is sad, but true, and despite a lotof talk by politicians, it remains on the books. The marriage penaltyoccurs for two reasons. First, the standard deduction for a working married couple filing a joint return is only 1.67 times (and nottwice) the standard deduction of a single worker. Second, while a single individual will fall into the28% bracket with taxable income of $26,250, a married couplewill be in the28% bracket when their $43,850, instead of when it reaches combined taxable income reaches only $52,500, which would be twice $26,250. If you are getting married and want to see how the “marriage penalty” will affect you, go to \N\ArW.smartmonev.comand take a look at the “marriage penalty estimator.” Microsoft’s Moneycentral site (www.monevcentral.com) also allows you to fill out an estimated tax worksheet, and automatically assess whether the tax bite is smaller if you file jointly or have both spouses file separately. Generally, if you are married, you get hit with an even bigger

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tax penalty if you both file separately rather than filing a joint return.Filing separately when you are married cancreate other types of complications and limitations on tax benefits, as well.

Become Tax Conscious Christina Marino went for some time using cella phone before she realized that she could deduct many of her calls. “I never thought to deductmy cell phone until my accountant asked,”says. she“Do you useit for personal reasons?” he asked Christine. “Rarely,”she said. When she finally took a closer look, Christina noticed that she and her husbands combined cell phone costs were about$1,500per year. What didthey saveon taxes by deducting $500. these costs as business related expenses? About Do you drive for business meetings-aside going from to and from work? Do you drive to do volunteer work for a charitable organization,or even for your kids school?Do you subscribe to magazines and newspapers for your work? Maybe you have opened one of the growing number of SOHOs (small officehome office), or are just trying to get a businessup and running at nightsafter your regular job. If so, expenses associated with this fledgling enterprise are deductible from your taxable income. The point is thatyouareroutinely piling up expenses,many of whichmightbe deductible from your income taxesif you were really paying attention and conscious of the impact that taxes haveon your net worth!

Another Hand inYourWallet While you’re building your consciousness about taxes, remember that taxes are not just about thefederal government and payingUncle Sam; chances are your state hasits hand out, too. State income taxesin certain states can take a big chunk out of your annualsalary. And, when you addin sales and

What is Your Status? For a woman, tax status can change quickly. Marriage, divorce, and the birth of a child can change the way the IRS looks at her income. Did you know, for instance, that if your husband passes away, you can still file as a qualifymg jointly forthat tax year? If you have kids, you can file jointly widow fortwo years. Did you knowthat, as a recent divorcee withprincipal custody of a child, you should be filing as a Head of Household? You can get clarityon your filingstatus by viewing the IRS Topic 353, What is Your Filing Status?at www.irs.eovltax edulteletax

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property taxes, states like California,Delaware, Hawaii, New Mexico and Ohio will eat up as much as 10% of your personal income in totaltaxes. Alaska, Florida, Nevada, South Dakota,Texas, Washington and Wyoming are among the states that do not have income taxes. About the only thing good about state income taxes (besides, of course, paying for necessary government services) is that they are deductible from your income when it comes time topay your much higher federal income tax. Most states (counties orcities) also hit you with steep propertytaxes, and almostall states have salestaxes. In fact,states that do not have a state income tax often make up for it with higher property and sales taxes. States may also impose a myriadof special taxes on luxury items or alcohol and so-called “usefees” (park admission charges and the like) which are really just taxes in disguise. Thinking about trying to move to greener tax pastures? Go to Bank rate.com’s tax section and into “check out your state’s profile” to see which states rank best when it comes to taxes (see Figure 30). For a more detailed own state’s tax laws, goto TaxSites.comwww..taxsites.com and into look at your “state andlocal tax.” This is also a great one-stop site for other tax links, such as guides, tips, topics and software. To check out federal tax rates, go to www.irs.gov and into “tax info for you” andinto “tax tables.”

Women andTaxes Over the years, asmy own income has increased, I’ve come to arealization. One of the most arduous and difficult tasksis figuring out your income tax,

.

State,. tax roundup

w ..”.. -. .“ - P , . m . . Click on a state to get a summary of the Income. personal andsales taxes levledthere. Or get a broader look In MIStable companng all the states. Fortext ltnks to the states, cltck here. Check out the most recent tax actions by states across the nation andthe archlve of state tax chanaes.

p

*

Figure 30

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and how decisions you make affect how much you mustpay in taxes. When you add up state andfederal income tax rates together, we are talking in the neighborhood of a whopping one-third (possibly more) of your total income that goes to pay your taxes. In fact, the average American works the first five months of every yearjust to pay their taxes; it is only in the sixth month or so that they start making moneyfor themselves. In a sense,we are all wage slaves to the tax collector. There is certainly no reasonto pay more intaxes than we have to or to give the government more than theyare entitled. As I have talked to thousands of women, I have come to believe two things about women andtaxes. First, womenleave too much money on the table when it comes to taxes. Second, by getting more intimately involved with their taxes, women will have a greaterunderstanding of how taxes can reduce their net worth.Let’s face it: when you see, close-up, the thousands of dollars going to the government, you will be more interested in knowing how you can reduce yourtaxes. You may recall the story of Erin Brockovich, the legal assistant who received $2 million for her work in a environmental lawsuit against PGCYE and saw her story turned into a movie. If there is one thingErin now remembers, it’s the tax bite. An astonishing $1.1 million of the $2 million-more than half of what she received-went to the government in taxes. If you, like Erin,really appreciated howmuch your hard-earned money is taken by taxes, you would immediately become much more interested in your taxes. Please read on to learn about how to reduce yourtaxes by taking advantage of the deductions and credits due you under our tax system. First, a quick word about exemptions, tax deductions, tax credits and tax brackets: An “exemption” is what the government allows you to take off from your taxable income each year in recognition that each individual or couple has expense needs. As a single person, you qualify for one exemption and get to deduct $2,800 off your taxable income. For each additional dependent, you get to deduct another $2,800. A “tax deduction”is an expense youget to deduct from your income in determining taxable income, the amount you actually pay taxes on. So, while you may have earned asalary of $40,000, you only have topay taxes Examples of tax on that$40,000 minus anytax deductions and exemptions. deductions includemortgage interest paymentson your home, donations to charities, and business expenses. The thing to remember about a tax deduction is that it comesoff your income before your taxes are computed. A “tax credit”is an expense thatis subtracted from the amount of taxes you would otherwise owe. So, for example, if the taxes computed on your

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income after your deductions was $10,000 but you qualify for a tax credit of $1,000, you would owe taxes of only $9,000. You don’t need to itemize your deductions to claim tax credits. Tax credits are more valuableto you than tax deductions. For example, if you are in the 28% tax bracket (see discussion below) and you have a $1000 tax deduction your taxes would be reducedby only $280 ($1,000X 0.28 = $280). However, if you had a $1,000 tax credit your taxes would be reduced by the full $1,000. “Tax bracket” is another term bandied about during money talk. While all Americans filing with a single status in 2000 pay the same tax rate of 15% on the first $26,250 intaxable income they earn,they pay an increasing higher percentage on income they makeover this level. For example for income over $26,250 but under $63,550 they pay a tax rate of 28%. For income of over $63,550 but under $132,600 theypay31%. Different “brackets” of income are taxed differently all the way up to the highest bracket under the federal tax laws of 39.6% for income over $288,350. So when someone says they are in the 28% “tax bracket” it means thatfor each additional dollar they earn, they will pay 28% of it to the federal government in taxes. The higher the tax bracket you are in, the more in taxes you are paying on the last dollar you earned. Thus, the higheryour tax bracket, the more you save in taxes through proper use of tax deductions.

Tax Planning and Reduction Tax planning is all about tax avoidance-paying the least you have to the government. There is no moral issue at stake here; tax avoidance is not the same as tax evasion. Tax avoidance is simply taking advantage of all those things that thetax code says you can legitimatelyand legally subtract from your taxable income, orfrom the taxes you would otherwise pay. Taxavoidance takes careful planning, year-long attention, and sometimes lots of paperwork. When you think about tax avoidance or tax planning, you should notget hung up on how complicated it is or how much mightwork it savings you will be generattake at the beginning; just concentrate on the ing through the tax deductions and credits that you will be fully and legitimately utilizing. Now, I have no intention of taking you through the whole host of deductions andtax credits that areavailable. If you are a womanwith a sixfigure income and a complicated lifestyle, you will most likely need, and profit from, professional tax advice. All I want to do here is to point out a

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few simple things that will help reduce your taxes, and stress a few tax deductions and/or credits that are of the most benefit to women. The first thing I want to talk to you about is the so called “standard deduction” and the mistake many womenwill make by taking this standard deduction instead of itemizing all their possible deductions. Whiletaking only the standard deduction may make sense for women earning modestsalaries and renting apartments, with little or no business expenses, medical bills, and charitable donations, it does not make sense for women who own homes, make higher-than-average salaries, or whohave considerable other expenses. The IRS allows all taxpayers deduct to astandard amount from their income before figuring their taxes, regardless of what their real expensesmay havebeen. Here is a table of the standard deductions the IRS allows (see Figure31). Standard Deductions for Most People I f Your Filing Status is . . .

YourDeduction is. . .

Single Married filing joint 7,350 return or Qualifying widow(er) with dependent child Married filing separate return Head of household

$4,400

3,675 6,450

Figure 31 Source: 1% 2000 Standard Deduction Tables

You can keep up with the amounts for your standard deduction by downloading Publication 501 from the IRS site (www.irs.gov). Also, if you are 65 or older, you get an additional standard deduction of $1,100 if single, or$850 each if filing jointly. While taking this standard deduction on your tax formsmay be convenient, if you take it you cannot take all the other legitimate deductions you may have. A critical threshold question is, therefore, whether you have sufficient other deductionsavailable that together exceed the standard deduction. If you own a decent-size home, for example, the interest payments on your mortgage (which are deductible) alone will probably exceed the standard deduction.Similarly, if you are making over$50,000 and are in a state with income taxes, you probably have paid enough in state income taxes (which are deductible from youfederal taxes) to have already exceeded the standard deduction. If you are like most working women today, ditch the A. standard deduction and itemize your deductions Schedule on Now let’s turn to some of the tax deductions (and afew tax credits) that are of particular interest to women.Of course, all the “big ticket” items laid


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out on ScheduleA are critical towomen. Things like interest paymentson a home loan, state incometaxes and real estate taxes, charitable contributions, andmedical expenses over7.5% of your income. There are also some more obscure deductions (and credits) that especially impact women.Here are but a few you can useif you meet the income and other requirements thatapply:

Tax advantagedretirementplans.

As women’s incomes steadily increase, more and more women are buildingup individual retirement plans. (We examined retirement plansin chapter 5). You should takefull advantage of the retirement plans your employer offers, such as a 401(k) or 406 (b) plan. The tax benefits of 401(k)s, IRAs, and Roth IRAs provide the doublebenefit of building up your retirementsavings and lowering yourtaxes substantially. Save on kids. The ChildTax Credit is really a no-brainer-just one of those wonderful tax credits you now get, thanks to the Taxpayer Relief Act of 1997, just for having children. You can take $500 per child (under age 17) right off your taxes. This is on top of the $2,800 exemption you get to take for each dependent child. This $500 per child tax credit phases out, however, once the parents’ joint income reaches $110,000 or a single parent’s income reaches $75,000. If you work andpay someone to care for your children underage 13,you are alsoeligible for additional childcare tax credits. SeeIRS Publication 503, Child and Dependent Care Expenses. If you adopted a child under age 13, you may be eligible for tax credits up to $5,000. See IRS Publication 968. Education expenses. Valuable education credits were also introduced in 1997, such as the Hope Scholarship Credit and Lifetime Learning Credit. The Hope Scholarship allows youto take off from you taxes up to $1,000 for the first year’s college tuition, and up to $500 for the second year. You can only use this credit for either your own or your children’s first two years

Taxes for Nanny If you have been paying regular wages to a nannyor housekeeper, you may be subject to the famous (or infamous) “nanny tax.”SocialSecurity,

Medicare taxes,and thefederal unemployment tax must be paid by you, as the employer. State unemployment tax and statedisability tax may be required as well. Contactthe appropriateagency (listed in IRS Publication 926) and find out what’s required. For an on-line interactive “Nanny Tax Calculator” go to Smartmoney.com and search under tools. The URL is www.smartmoney.com/tax/hornefamily.

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of college, but this benefit can make the costs of some colleges almost free. The Lifetime Learning Credit, which can be used anyyear you are in school, allows you to take off from your taxes 20% of your college tuition (up to $1,000 through 2002, and upto $2,000 from 2003 on).If you are thinking about going back to school, starting for the first time, or even just taking classes to hone your skills, don’t forget about these tax credits. To learn more, go to www.ed.gov/inits/hope. Student loan expenses. Many women take out loans for college. The interest you are paying on these loansdeductible-up is to $2,000 in 2000, and up to $2,500 for 2001 and later years. Check latest details in IRS Publication 970, Tax Benejtsfor Higher Education, which you can order at the IRS website. Other sources include the Publication 4, The Students Guide to Federal Income T i (http:Nftp.fedworld.~ov/pub/irs-pdf/p4.Ddf) and Publication520, Scholarships and Fellowships (http:Nftp.fedworld.eov/pub/irs pdUp520.pdf). Special charitable deductions. Women are always volunteering their time to charivable causes. While there is no deduction for the value of your time, there is a deductionfor the mileage you rack up in helping others. If you keep records, you get to deduct14 cents a mile for your volunteer activities, helping out at the school or church, delivering mealsby wheels, etc. Women are alsoalways giving away old clothes or appliances. Provided you get a receipt from a bonafide charity for thesedonations and puta reasonable (garage sale) price on them,you can deduct the value of these donations. An old but repairable washing machine may be worth a $150 deducyou drop in theMarch of Dimes or tion. Don’t forget the dimes and quarters Ronald McDonald’s House container at the check-out counter. You are permitted to make a reasonable estimation of how much “change” you give a

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In the mood to reada little legislation?You can readthe full text, if you dare, of the Taxpayer Relief Act of 1997 on the Speaker of the House website at http:/ / s p e a k e r . h o u s e . ~ o v / t ~ 2 . h tOr m .you cango to IRSPublication970, Tax Benefits for Higher Education at www.irs.treas.eov/forms pubslpubsl p970toc.htm foran outline of deductions forinterest paid on student loans, tax credits fortuition payments, specialstate tax deductions foreducational expenses, look for Puhlication 553,Highlights of 1999 Tax Law Changes at http://ftp.fedworld.~ov/pub/irs-edf/p553.pdf.hyone ofthose could easily take the place of a sleeping pill.


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year, and deduct that amount. For many of us, this addsup to hundreds of dollars eachyear. Tax preparation expenses. Many women are turning to professionals for advice in doing theirtaxes, or spending moneyto buy software to prepare and file their tax forms (see discussion below). Whether it’s $500 on an accountant orlawyer to prepare your tax return, or $200 to hire a firm to file your tax return on-line, or $100 for software to prepare your return, all of these expenses are deductible if, when combined with othermiscellaneous expenses, they exceed2% of your income. Unusual expenses to care for your parents. So many women today have to care for elderly parents. Thankfully, the IRS has somespecial deductions if you need to modify your home to accommodate a dependent parent if the costs of modifying your home, combined with other medical expenses, exceed 72% of your adjusted gross income. Here’s a sample of what is deductible: Building an entrance or exit rampfor a wheelchair Modifying door hardware Widening or modifying doorways and halls Adding handrails or grab bars Modifying bathrooms Installing wheelchair lifts Business expenses. Business expenses are a special typeof tax deductions that are not taken on Schedule A but rather require the preparation and submission of a separate Schedule C. However, they can be as important, if not more important, than themajor deductions (interest payments on home loans, state income and local real-estate taxes, charitable donations, medical expenses, etc.) and the other deductions discussed above taken on Schedule A. Let me first clarify, however, the difference between

Together Forever? What do you do when you are not sure whether you can trustwhat your husband is reporting on your joint forms? Ginita Wall, co-founder of Women’sInstitute for Financial Freedom at www.wife.org, saysthat under such circumstances, file separately.“This way, you won’t be liable for the actions ofyour spouse, like omitting income or overstatingexpenses.”This is one of the times in which you might use the “married filingseparately” tax status. However, before doing this, I would suggest you consult a tax professional.

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work-related expenses as an employee, and expenses incurred in running your own business. Work-related expenses of employees (including job hunting expenses) cannot be deducted unless they, in combination with other “miscellaneous deductions,” exceed 2% of your adjustedgross income. The expenses of running your own business, however, can be deducted without having to satisfy a threshold amount. As women either start their own business or run a business from home, business expenses can become one of their biggest opportunities for tax deductions, and thustax savings. You do not need to have a major business going in order to use this opportunity. Even if you are selling cookies out of your home, you are incurring business-related costs that are indeed deductible. Let me give you an idea of what 1 mean: Do you travel to meet with a potential partner or vendor? Did you have lunch to discuss some business idea? Did you entertain some potential buyer over dinner? How about the trade magazine you buy to keep up with industry trends? Any legal costs to get your business or even just an idea off the ground? How about youre-mail address, whichis used primarily for business? Are you using yourcar on business (if so, deduct 34.5 cents a mile)? Do you work outof an office in your home? Are you taking special courses to enhance youprofessional skills?

Stationery, business cards-the list goes on. All of these items become eligible for tax deductions-at least to the extent of offsetting any income you are making from your business. If you are doing any kind of business activity for which you are incurring costs,you’d be wiseto look atform Cand thetype of expenses for which it allows deductions. Check it out by going to www.irs.gov/forms Dubs/ forms.htm1 and accessing Form 1040 (Schedule C), Profit or Loss from Business. Generally, most people completing Schedule C do so with the advice of a tax professional. If you form a corporation and invest your own money to get it started, such contributionsmay become whatis known as your “basis,” and reduce any gain from the sale of your stock in the company, such as through the sale of the business. Keep accurate records of anything you invest in a corporation you form, and be sure to have your contributiondinvestments reflected in the company’sfinancials.

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The numbers of women who are opening their ownbusinesses is huge, and is showing no sign of slowing. In addition to the women starting up full-time ventures, there are countless women who created have a small side business. Thetax benefits that come along with business-a a real business, not a hobby business-can really add up. “Because I really do what 1 love, I write off a pretty large portion of my everyday life,” book packager Katrina Bass told me. “Developing book projects involves a lot of market to try to come research. I read books, magazines, and newspapers constantly up with new ideas. And those are all business expenses. But what would I be doing if I didn’t run this business? Reading. As it is, I can read to my heart’s content and call it working!” Women entrepreneurs, and women working in a small office in their homes, have different tax needs. Thankfully, rules governing the expenses you can deduct for working out of a home office have been considerably liberalized during the past few years. Today, the so-called SOHO (Small Office/Home Office) deductions are both available and important to many working women.If you canqualify for SOHO tax treatment, there are many benefits to be gained, but thisis an area in which you would be well-served by the advice of a tax professional. Basically, if you are self-employed and use a portionof your home regularly and exclusively for conducting a business (and have no other primary office), youqualify to use the SOHO deductions. Onceyou qualify, you can deduct a percentage of a whole host of ordinary homeowner or rental expenses. The percentage you can take of these expenses is the square footage of your office space divided by the entire square footage of your home. So if your office space takes 10%of the house, you can deduct 10% of your rent, utility charges, condominium fees, cleaning costs, etc. It’s no joke-these costs really do add up! Again, if you are planning to deduct taxaadvisor, because SOHO expenses, I would encourage you to work with of complicated IRS regulations in this area. Another great deduction for smallbusinessownersortheselfemployed is health insurance costs. As a result of the lobbying efforts of small businessmen and women, they can now deduct up to 60% of their health insurance premiums through2001,70% in 2002, and 100%ofinsurance premiums by 2003. TO learn more on deductions for businesses of all sizes, go to the IRS section, Tax Information forBusiness at www.irs.eov/bus info/index.html. Small-business owners can also find a plethora of targeted information on the websites that cater to the small business sector like AilBusiness.com, SmartAge.com, and 0nVia.com.

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A Word on Capital Gains The tax code treats the money you make from your investments differently than othertypes of income you receive, such as your salary, income from a business, or intereston bank accounts.These additional dollars earned from investments are subject, instead, to what are called “capital gains taxes.” Profits you realize from investments in stocksyou haveheld for over one year, for instance, are taxed at a lower rate than regular income. You receive this lower rate because the governmentis trying to encourage you to invest in businesses. Let’s sayyou arein the31% tax bracket.Is it better toleave your money in a savings or money market account at your bank earning 5% where the interest you earn will be taxed as regular income? Or, should you put it in an investment that is,let’s say, also earning5% but wherecapital gains taxes apply? In this chart, you can see that in both accounts, you would earn $1,000 in interestover a year if you had $20,000 in each account (seeFigure 32). The money insavings the account gets taxedat yourregular income tax rate-a full 31%-while the money invested in the stock market gets taxed at the lower capital gains tax rate of 20% (This appliesif you have held the investment for at least one year. Even lower rates apply for assets purchased from January l, 2001 on and held over five years. If you sell your holdings before a year, you will pay regular income taxes on yourgains.) SavingslMoney Market StocWMutual Fund Amount Interest Earned Tax Rate Taxes Due

$20,000 $1,000 31% $310

$20,000 $1,000 20% $200

Figure 32 You can see that where you put your money can have a big impact on the taxes you pay, not to mention the returns you are likely to get on your money, since we know that the stock marketgenerally yields much higher returns than a savings or money-market account.To learn more aboutcapital gains taxes, see the discussion on Capital Gains and Losses in Publication 409 at www.irs.pov/tax edu/teletax/tc409.html. To understand how to account for gains with mutual funds, see Publication 564.

Get Going On-line Now that you are becoming tax conscious and are on the outlook for all the tax deductions andtax credits you can claim, let’s investigate how you can

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Year-End Frenzy When November and December roll around, the frenzy really starts for Linda Wenker Boutin, a financial planner. “I had one client who was scrambling forlosses,” she told me recently.Why would anyone be looking for losses?When you realizeprofits on your taxable investments, you are subject to “capitalgains taxes.”To reduce these taxes, peopleoften sell the unprofitable stocks in their portfolio that are trading at a loss. For example, let’s say you have made $10,000 from some investments you made. You could be subject to $2,000 in taxes (20% of $10,000).To reduce this tax liability, you might sellthe eToys in your portfolio or some other investments, to realize the loss and reduce your taxes. This decision to sell may or may not mean you believe eToys no is longer a good holding. If you $100, you can sell it bought $3,000 worth of eToys but it is now worth only and take aloss of $2,900.Then, rather than paying taxeson the$10,000 you made from other investments, you pay taxeson $7,100 ($10,000 minus the $2,900 loss on eToys). So, your taxes drop from $2,000in the original case to $1,420. If your losses exceed your gains, you can only write off $3,000. Any excess losses can be carried over into future years.

use the Internet to research all your tax questions, and then actually file your tax returns via the Net. The on-line world abounds with financial sites, and almost all have sections on taxes. Remarkably, one of the most reader-friendly sites is maintained by everyone’s favorite villain,the IRS. Yes, the Internal Revenue Service, the very group of people you least want to hear from, runs a great website called The Digital Daily at www.irs._gov.It is all part of their new charge to become the nicer, friendlier, IRS. The site has a cartoon-like oldstyle newspaper feel to it, and is brimming with useful information for women taxpayers. Do need to know if you can get protection from your exhusbands tax debts? TheIRS site has a question-and-answer quiz thatwill help you determineif you qualify asan “innocent spouse.” What is an innocent spouse, you ask? A woman who naively signed ajoint tax return with her (now-ex) husband, unaware that he was doing something fraudulent. Do you need to know if the deductions for dependent children have gone up in the past year? Log on and find out, but do not wait until 11 PM on April 15th to check it out. I would recommend stopping by this website throughout the year to learn what isnew. Of course, the IRS is not alone in providing an informative website to help you comply with our tax laws. “All the stuff I’ve learned through the years about taxes is through Web research, but you have to know where to

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look,” Marti Harlow Aiello told me, when sharing her on-line tax filing experiences. One great stop on the Internet for tax information,is Taxplanet atwww. Taxplanet.com. The graphics are more stimulating than the three-colored IRS site, and the Year-Round Tax Planning Guide is helpful in all areas, including investing, business, retirement, and real estate. Are you concerned about being caught unaware of tax changes? Good tax articles and up-todate information can also be found on the major financial websites like MoneyCentral.com(www.moneycentral.com) and CBSMarketwatch.com (www.marketwatch.com).To read about whatis happening inCongress and all the current legislation, go to the Library of Congress-Thomas, Legislation Information on the Internet at http://thomas.loc.gov. Staying abreast of the tax law changes is important, but the most critical step in handling your taxes withease is actuallyfilling out theforms and filing your tax return. How can you get some Internethelp with this?

Tax Filing On-line “Click, zip,fast turnaround trip.” That is just one of the ads promotingIRS e-file, the on-line system through which you mayfile your taxes electronically. The “turnaround trip,”of course, refers to your tax refund, if you are due one. In 1999, about 30 million Americans filed their tax returns using the Net. According to theIRS, that’s about one-fourth of all tax returns. In addition, an IRS survey found that e-filers posted a 74% satisfaction rate, compared to51%for thosewho filed by mail. Imagine,the IRS taking a customer satisfaction poll! Just because it is possibleto file your taxes on-line, does that meanit is right for you? Filing on-line makes senseif You have a relatively simple tax situation andstraightforward deductions You are willing to learn a new skill and take the time to do it thoroughly You would like to see a speedier refund check

A Convenient Solution With so many women juggling marriage, family, household management, and full-time jobs, time is our most precious commodity, which may well explain why on-line filing is so popular. There are two options for on-line


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filing: you can prepareyour forms using tax preparation softwareand then connect to the Web to file your forms directly with the IRS Website, or you can go directly onto the Internet to an ERO site (see discussion below) to fill out forms, which are then automatically filed for you. Withservices like e1040.com or H & R Blocks easy on-line program, you enter your information right into the computer, and the return filled is out andfiled for you. If you are going to buy software to figure your taxes on your own andprepare your own electronic form to file on the IRS website, you have several software choicesavailable to you including: Kiplinger TaxCut and Quicken TurboTax. These can be downloadedoff the Internet. For women, the optionof using the Internet entirely in preparing and filing tax returns appears to be more appealing than using software programs for preparing forms andfiling their taxes.One on-line taxfiling company reported that last year46% of their on-line tax return filers were women, and they expect thisfigure to continue to increase. Why are more and more women filing online? According to a Quicken study, because they can: Receive refunds faster; Avoid the expense of purchasing software; and File free, through such programs as the QuickenTax Freedom Project for filers with adjusted gross incomesof under $25,000 in 2000.

The e-File Advantage There are significant advantagesto e-filing. For one thing, youwill be able to skip that late-night trip to the post office in mid-April-much nicer to stay inside and send out your return via computer. Plus, theIRS sends you verification that ithas received your on-line return. That is a lot more reassuring than wonderingif your return got lost in the mail. Then there is accuracy-even the IRS admits thate-file returns are more error-proof. In fact, electronicreturns possess an error rateof less than 1%,

Tax Form Panic It’s late in the day on April 15th, and you cannot find yourtax forms anywhere! Whatare you goingto do? Don’tpanic. Forms are available instantly from the IRS website, www.irs.gov. Call 703-368-9694 if your printer is jammed, and have the forms faxedto you. 1

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compared with20% or morefor paper returns. This is probably because the program involved automatically catches and corrects mistakes orinconsislency. You may not begoodat basic arithmetic(adding up you deductions), program the but is. Here is a particularly nice perk with on-line filing: electronic returns do not require anyattachments. TheIRS no longerrequires you to attach forms like your W-2 (wage and tax statement) or your 1099 (outside wages) or your 1099-R (distribution from pensions, annuities, retirement, or profitsharing plans) when you file on-line. Of course, you should keep copies of of an audit. these attachments for your own records, and in the event You do not even have to send a check if you owe tax. You may instead authorize an automatic withdrawal from your bank account, or pay by credit card. Be aware that there are sometimes surcharges when usinga credit card to pay your taxes, as the card company considers them cash advances. Better yet, if you are due a refund, you’ll get it much faster. If you give the IRS a direct deposit number for your bank account, you could get your refund in as little as twoto three weeks. Another advantage of filing on-line is the IRS file-now-pay-later possibility. You can file early and get your returnoff your to-do list,but defer payment until themid-April date. Here is how itworks: you opt for one of the two accepted payment methods, direct debit or credit card. With direct debit, you provide abank account number and a bank routing transit number on your return. The payment date can be deferred until the actual due date of the return. If you decide to pay your taxes by credit card, the federal government accepts American Express, Mastercard orDiscover Card. You simply put the credit card information on your return, and call in the charge the day the tax is due. However, the pricefor using your creditcard to pay you taxes is pretty high. The company authorized by the 1RS to accept phone and Internetpayments, theOfficial Payments Corporation(OPC), charges a fee, ranging from $6 on a $100 tax bill to $35 on a $1,000 tax bill and up. For an exact fee schedule, go to www.888-2paytax.com.

SophisticatedLady What if you do nothave a relatively straightforward tax returnto file? What if you have income from more than one source, need to file a ScheduleC for your business, and need professional help? The answer is an ERO or “Electronic Return Originator,” the name the IRS gives authorized on-line tax providers. Most EROs charge for their service,and most are recognizableLax


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experts. Not only can they send your returns electronically to the IRS, but many offer in-house professional tax advice and tax preparation services. Most EROs will charge you at least $200 if they do the actual preparation of your tax return, but they may also help you find and utilize deductions and credits thatyou do not know about. Whileyou may save the $200 by doing everything yourself, they may save you a lot more by an ERO taking advantage of all the deductions thatmight be due to you-the classic case of being penny-wiseand pound-foolish.Let’s look at twoof the best known Eros. H & R Block and e1040.com.

H & R Block-www.hrblock.com Marti usedH & R Block for professional tax preparation when her financial and family situation became more complicated. She knew that an experienced tax preparer would have a better sense of how to deal with all of the ramifications of her daughter’s special needs medical situation-hospital bills, medical equipment, and medicines. Marti herself just did not have time to acquire all the knowledge to doit right. She happened upon H & R Block andits tax adviceserviceswhilevisitingMoneyCentral.com (m.monevcentral.com). H & R Block uses the Deluxe Kiplinger TaxCut software that leads you through the return, and the Click and Fix Audit Checker. The H & R block wcbsite also has a tax and financial planning library, many of the IRS Publications that you will use, and many tax articles written by experts at Kiplinger & H & R Block.

el 040.com Once on this ERO’s website, you fill out the on-line “organizer” which is then sent onto a live tax preparer. The preparer contacts you within 20 minutes, with suggestions on deductions, credits, and other savings. The basic package starts at $49.95, with e-filing adding another $19.95 and additional forms add up $10 each, such asChild the CareTax Credit. While these costs off line. add up, itis still cheaper than hiring most tax professionals Beware of so-called Refund Anticipation Loans (RALs)-“loans” these companies will give you in anticipation of your tax refund. They carryfees that are just too high, so don’t be tempted.

Holding Out on Uncle Sam Unfortunately, many women either have too much or too little taxes withheld from their paychecks. This is because, in filling out their W-4 forms,

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they either claim too many or too few withholding allowances. If you have too little withheldyou mightget stuck with abigger tax deficiency to make up than you expected, and youmay get hit with penalties. If you have too much withheld,you are wastingyour money. Sure, you will get a big refund, but since Uncle Sam does not pay you interest on your tax overpayments, you are losing money by overpaying. Find out how much withholdingyou should be paying with the Withholding Allowance Calculator and the IRS personal allowances worksheet at http://www.irs.gov/prod/ind~info/webw4/index.html. You will findit clearly marked on the Tax Information Q You page. Most people will find out for the first time that they can claim allowancesfor significant interest mortgage payments, significant planned charitable deductions, and other items. If you learn you are not claiming enough withholding allowance, you can change the amount your employer withholds from your paycheck by filling out anew W-4 form, Employee’s Holding AllowanceCertificate, availand give thenew able at http://ftp.fedworld.gov/pub/irs-pdflfw4~0O.pdf W-4 to your employer.

Keep Those Records and File Them Away You might not be (or want to be) a record keeper, but whenit comes to taxes you have to keep good records.All those little scrapsof paper can save you aggravation come tax-filing time, and perhaps even your sanity if the IRS ever audits you. The IRS does not dictate the way you keep records. For example, a checkbookwill do to record your income and expenses, but you will need other documents too, suchas sales slips and account statements to back up your deduction andcredit claims. You should keeprecords of all your income and tax-deductible expenses by subject, and thenby date. Whentrylng to decide what to keep and what to throw away, remember that more is always better. Some examples of records you should keep include:

Income Forms W-2 Forms 1099 Bank and brokerage statements

Save on Taxes: Keeping More of Your Money

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Expenses Sales slips & other receipts Invoices Cancelled checks or other proof of payments Credit card statements Real Estate Tax filing forms Office expenses Phone bills Utility bills Rent payments Mortgage payments

Investments Brokerage statements Mutual fund statements Form 1099 Form 2439 How long doyou haveto hang onto all of these records? There are time limitations for amending returns, or for when theIRS can assess additional tax. Until you get around to reading IRS Publication 552, try this record retention ruleof thumb-keep everything for sevenyears; keep records pertaining to the purchase of an investment even longer.

Do You Need ProfessionalTax Help? Havingarepresentativelike Dawn no doubt helped the Arabianhorse owner to save money on hertaxes. It certainly helpedduring the audit. It’s interesting to note that while90% of Americans manage their own finances according to an October 2000 survey by Harris Interactive, more than half of are uncertain thatthey know howto minimize their taxes.How do you first determine that you truly do need professional tax help? Start by going through thetax forms and comingup with questions.As I said earlier, when you become personally involvedwith your taxes and start to see of your pocket andto Uncle Sam,you start the flow of your money right out really paying attention and asking the right questions.

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Whether you need aprofessional tax practitioner really depends on the complexity of your tax return. Have you sold property, received significant If so, you probably need some sort investment income, or started a business? of expert advice, but before beginning your search for one, do as much research as you can so that you go in prepared toask the right questions. When starting yoursearch for a tax professional, by all means ask your friends and businessassociates for recommendations. You will be surprised how many are already using a professional to advise them on their taxes. Then interview potential candidates to make sure you are comfortable with them and can talk freely. You should also make sure they are up to date on recent tax law changes, perhaps by asking about hisher continuing education effort. Membership inprofessional organizations, for example, shows a commitment to their profession. Here are somebasic questions to ask: How long have you been in the tax business? What types of tax returns do you prepare? Are you available year-round, or just duringtax season? For an on-line listing of tax professionals, go the National Association of Tax Practitioners (NATP) website atwww.taxprofessionals.com. Click on Find A Tax Professional Near You and then enter yourZip code. To locate a certified financial planner, goto the Financial Planning Association website, www.fuanet.org.

WHEW! Well, you have made it all the way through a long chapter about taxes. I hope it was not TOO taxing! Hopefully, you learned at least some lessons that you can applyin your ownlife to help saveon yourtaxes, and continue building your net worth. Frankly, I never used to give the topic of taxes much attention-that is, until I recognized how much of an impacttaxes really have on youroverall financial picture. Now I pay very close attention, and urge you to do the same. I don’t think you have to become tax a expert, but,I do encourage you to keep on reading about taxes and tax issues, so that you understand the basics and how they effect your financial future. The majorfinancial sites like CBSMarketwatch, CNBC,Moneycentral and WFN.com all have very readableand topical articles about taxes posted all of the time. If you make avow to read just onetax-related personal finance article a month,you will be amazed about howin tune you become to tax issues.


Links You Will Love Federal Government www.census.eov www.ed.gov www.irs.eov www.sveaker.house.gov www.thomas.loc.gov

Planning www.cnbc.com www.fpanet.org www.marketwatch.com www.monevcentral.com www.auickfacts.census.gov www.smartmonev.com www.taxvlanet.com www.taxvrofessionals.com www.wfn.com www.wife.org

State Information www.taxadmin.org www.taxsites.com

Filing and Sofhuare www.8882uaytax.com www.hrblock.com www.auicken.com www.turbotax.com

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Chapter 10

Boost Your Earning Power

When Tiffany Massa, a financial analyst living Los in Angeles, didn’t feel she was making what she was worth, she took matters into her own hands. She went on-line to download job listings. Tiffany did notrely only on thegeneral job URLs; she also went to the sites of leading industry publications. Before long, she had what appeared to be an exciting job offer in New York. The new employer offered Tiffany a cost of living adjustment that would elevate her salary from $45,000 to $55,000. Although the salary hike seemed substantive, Tiffany’s mother urged her to consider just how far her adjusted salary would take herNew in York City. Tiffany put the Internet intofull operation, usingcost-of-living calculators that told her how much she could afford in rent,based on hersalary, and helped her compare living inL.A. to The Big Apple. After assembling a spreadsheet detailing her salary and expenses, including rent, utilities, and transportation in eachcity, Tiffany decided to stay put. Her financial calculation helped her to realize that she needed to factor more than just salary into her overall financial picture.“You definitely have different concerns as a woman moving to a new city where you don’t know anyone,” she says. You won’t necessarily feel safe living in the sameplaces that a man would, so you’ll pay more for rent. And youcan’t take the subway late at night,so you have to pay for more expensive taxis.” Careers are important, certainly-but does a chapter on careers really belong in a book about women and their finances? Yes, it does!After all, as women today we have more opportunities and more earning power than ever before. What better way to become emotionally and financial independent than to plancarefully a fulfilling and financially rewarding career? While I will not linger on issues such as creating a resume or acing the interview, I will offer specific tools and ideas to help you advance at work, and determine if you are being compensatedfairly. 246


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Unfortunately, when it comesto the workplace, womenare not yet equal with men. In fact, the most recent statistics available from the U.S. Department of Labor showthat, forevery dollar earned by awhitemale in 1998, white women earncents; 78 African-American women earn67 cents; and Hispanic women earn 56cents. In 1998, the average salary for a woman with a bachelor’s degree was $32,559, compared with $51,405for a man. Is it any better at the top of the career ladder? Notreally; according to Catalyst, a research organization on women’s issues, there are only two women CEOs of the Fortune 500 companies-Hewlett Packards Carly Fiorina and Avon’s Andrea Jung-and only 6 womenCEOs of Fortune’s 1000 largest companies. Women at the top of corporate America have differing views of how hard it was to get there. When she was named CEO of computer giant Hewlett Packard, Carleton “Carly” Fiorina said, “I hope that we are at a point that everyone has figured out that there is not a glass ceiling.” But Heidi Miller, who once servedas CFO of Citibank, had a very different view. When sheresigned as CFO of Priceline.com in thefall of 2000, before joining Marsh & McLennon, she remarked that young men at dotcoms were not “any less biased than old men are.” Here is a close-up look at how many women hold high-ranking corporate positions. 154womenholdthehighest-rankingcorporate officership positions-6.2%of the 2,488 individuals with titles of chairman, vice chairman, CEO, president, COO, SEVP, and EVF! That’s up from 5.2% in 1999, according to Catalyst. Women fill only 7.3%of the total line positions heldby corporate officers, compared with men, who fill 92.7%. Line positions are those with revenue-generating orprofit-and-loss responsibility. 93 women are among the five most highly compensated officers in each company-4.1% of 2,255 top earners. The number has more than tripled since 1995-from 29 women or 1.2% in 1991“butit is still pitiful. 90 of the Fortune 500 companies still have no female corporate officers. Are you discouraged by these dismal statistics? Don’t despair; not all the newsis bad. Today, twice the number of women hold top corporate titles like CEO, CFO and EVP, as companies like Nordstrom and Pacificcare Health Systems recognize theirskills as effective managers. Overall, 30%of working American women now earn morethan their husbands do. Where do we go from here? How can you as a woman make your next

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move up the corporate ladder? Fire up your computer and let’s take a look. Your computer could hold the key to both an effective job search and an increased salary. As I write this book in the winter of 2000, our American labormarket is unlike anyever seen before, and it offers exciting opportunitiesfor women. We have beenin anexceedingly “tight” labor market in which employers are having a difficult time finding talented workers tofill new jobs. Just how tight is it? Unemployment is at a 30-year low. In fact, the unemployment figure barely registers in some parts of the country, and nationwide the figure is only 3.9%! Looking toward the future, government projections show that by the year 2008, there will be 6.2 million more jobs than people to fill them. In a tight labor market like this, women are indriver’s the seat like never before. Another factor working to women’s advantage is that companies are increasingly under pressure to demonstrate that they are fair, equal-opportunity employers. Federaland state equal opportunity commissions are very active. For example, a numberof major financial and consumer companies have been scrutinizedby the federalEEOC for not promoting women, and several such companieshave been the targetsof class-action suits. Companies are beginning to recognize that women increasingly make the financial, health, and other consumer decisionsfor their households. As companies cater more and more to the women decision-makers, they realize that they better have more women on theirstaffs, particularly in marketing andcustomer service. W h o better to understand the unique needs and desiresof the target woman customer than female a manager? In 1999, Helen Fisher published her groundbreaking work The First Sex: The Natural Talents of Women and How They Are Changing the World, 12) Share your success

11)Preserve what you have 10) Increase your earning power

9) Minimize your taxes 8) Organize your finances 7) Protect your assets 6) Invest to build your net worth

5) Educate yourself about investment 4) Acquire ahome

3) Free yourselffrom debt andbuild credit 2) Live within your means

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documenting thedifferences in how men and women think. From her studies, Fisher found that women are particularly adept at “web-thinking”-the ability to see the big picture. She explains that women aretypically better at long-range planning, and able to infer morefrom non-verbal cues.AS the marketplace continues to expand globally, these skills will become even more important toemployers. Add up all of these factors, and as a woman you are in the driver’s seat when it comes to building your net worth and moving up the ladder. You will want to use the Net to help you earn even more. Many sites can help you determine if you are getting paid what you are worth, if you are in a growing or declining industry, and if you should stay with your current employer orgo elsewhere. Make no mistake-the decisions you make along your career path will have a huge bottom-lineeffect on yourfinancial future. The more thought and planning you put into your career and salary choices now, the better yourlife will be in your retirement years. If you’re 20-30, the decisions you make about yourcareer could have a lasting effect. It will set the course and serve as the foundation for what you can do next. First job choices are as important as what college you attend and what you select as your major. Ages 30-45 are the real career-building years. This is the time when youwill want to maximize your potential. Go for jobs you’ll enjoy, but that also offer the greatest salaryor chanceto reach your potentialsoon. Higher salaries often mean higher benefits, greater stock options, increased pensions, and more financial security in the future, and the opportunity to move into an even greater salary range. Now, 30 may sound young to be within those powerful earning years, but rememberthat today’s economy is built largely around technology. Companies focused on technology are relying on younger workers who are not onlywell-educated, but also more technologicallysavvy. Those younger workers are, believe it or not, often earning more than those who have 20 years of work experience! Let’s get down to business andsee what we can find on-line.

On-line JobSearch Many of us wonder what the nextwave will be-where the growth industries and best jobs will be. If you are wondering,visit the Bureau of Labor Statistics’ Occupational Outlook Handbook, which you can now get on-line at http://stats.bls.gov/ocohome.htm. Whether it is industries ranging from advertising to manufacturing, or occupations from carpenter to salesperson, you will get a forward-looking perspective on the market.

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Once youhave settledon the industries and positions, you are ready to hit thejob sites. You have probably seenthe television ads andread the news coverage about job sites like Monster.com and others, but let’s get real: is anyone actually finding ajob this way? According to Jupiter Media Metrix, 13 million people visited career sites in July2000, and over the lastyear, job listings at several top sites have doubled. According to Greenfield Online, 75% of those using the Net have used it for a job search. Sixty-one percent of Net surfers who have submitted their resumes to companies with on-line job postingshave receivedat least one request foran interview. Sixty-seven percent of Net surfers expect to conduct mostof their next job search online. That is the good news; theless impressive news is that only4% of the people surveyed stated that they actually found jobson-line. Still, it is reasonable to assume that on-line job searches will become the modern method I of finding a job.Even if they have not landed a job on-line, many women have spoken withhave found valuable information thatmoved them up the career ladder.

The Right Jobfor You How do you know if the job is right for you, let alone the company? For women, their job selections can make a big difference. In the go-go 1980s, like the restof the world, many career women focused on striking it rich. In the 1990s, many became more focused on having balance in their life. I remember my old boss, former California State Treasurer Kathleen Brown, who said, “You can have it all-you just can’t have it all at once.” I would agree; these may become the watch wordsof the 2000s. In preparing for your job search, I would suggest that you first consider

Work and Money at Home Do career women have an easier time getting involved in the family

finances than stay-at-homemoms? Avon Products, as part of their continuing effortto understand what interests women, commissioned a Global Women’s Surveyin 2000. Among the findingsis that 86%of the women surveyed believe that the husbandsor partners of working womenare more likely to ask her opinion in making a financial decision. And money isn’t the least of it: 81% of those samewomen also believed that the husbands of working womenare more likelyto help with householdchores. I


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your strengths and list them. Even if you have beenOut of the workforce for Some time, think about the skills you have. Are you good with people? With numbers? Canyou juggle multiple projects?Type quickly? DO YOU know a lot about computers, or about clothing? Are you a leader,or particularly apt in team situations? Then, think about yourvalues. Perhaps you want to be able to be home with thekids at 6 PM. Maybe youwant to run yourown company Kathy Levinson, who until recently was the president and chief operating officer of E*Trade, shared her story with me. “I was adamant thatI did not want to work further thanfive miles fromhome.” She is the motherof two young girls and lives in the Bay Area. “They could throw millions of dollars at me but I just would not doit. And it was easyfor me to say ‘no’ because I had already determined what my priorities were.” The result: she landed at E-Trade, built the company into aleader in its industry, and enjoyed having time with her girls. Avon’s CEO, Andrea Jung, is another good exampleof someone who sets priorities. She says that at one time shefelt compelled to say that she had a meeting “offsite” if she wanted to catch one of her children’s ballgames. Now, she just says she is going to a game. Sure, it is a little easier when you run the place, but her candoron the subject sets a great tone for her organization. Remember the old saying: if you do whatyou love, the money will follow. Loving what you do means thatyou feel passionate about it, and if you are passionate, you will put in the energy and time it takes to succeed. As YOU consider where to work, determine what your real interests are-where is your passion? Then, consider your values, and finally, focus on your skills. Why skills lastand notfirst? Because, in my opinion and that of many and arewhat really drives success, CEOs I have talked with, interest passion more than anything else. In a sense, assessing your skills is assessing the past-not looking to the future.

Work-at-HomeMoms Kirsten Ross of Warren,Michigan, hadbeen working as ahumanresources professional for many years when she became pregnant with her first son. “I asked forpart-time work, and my boss agreedto it.” That started Kirsten thinking: were there more companies that would jump at the chance to offer alternative work arrangements? How could she help other women find them? Kirsten started www.womans-work.com, which matches working momswith companies that offer positions with job sharing, telecommuting, or other flexible workschedules.

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Changing Life Stages Your values will change as you go through various life stages. The things that are important to you as a young college grad, a newlywed, as a new mother, or as the daughterof aging parents, will all be different. Each time you embark on a new job search, you will want to re-evaluate them. Which ones are the “make-it-or-break-it” ones for your stage in life? Consider these: Earning potential.How important is money right now? Are you just starting out and hoping tosave for a down payment for a house? Or are you drawing near to retirement and need to pump up yourretirement account with aninflux of cash? Time with family.Do you have small children athome or aging parA flexible situation might be more ents that need your attention? important than money right now. Autonomy. Is proving yourself as a leader and decision-maker more important at this stage? Perhapsnewer, a or even astart-up, company will give you this chance. Stress level. Is life too overwhelming, trying to balance both work and home? This mightbe the time for youto drop back into less a challenging position so that you can concentrate on reducing yourstress level. Career advancement. Is the top of the organization chart your ultimate goal? Then going for a biggertitle or a line position thatwill help you move up is an important goal. Leaving your mark.Are you most inspiredby a career that will let you make a difference in the world? You might have to trade money for your chance to make adifference. Benefits. With small children or family a member with chronic health problems, getting a job with a good benefits package might reign supreme. Benefits can include everything from long-termcare insurance to profit-sharing plans. Intellectual challenge.Will thejob provideyou intellectual stimulus? Does it offer opportunities for you to grown professionally and personally? What is most important to you on the list? Other considerations might include how long of a commute you are willing to have, and whether you can telecommute several days a week. Looking atthe list, most of us wouldguess that money concerns would almost always top the list. Guessagain! The Radcliffe Public Policy Center


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recently released a study that shows money rankingsteady a sixth on their list of what is important to most workers. Coming inwell ahead of money were concerns about working for a family-friendly company or having a job with challenging work.

Finding JobsThrough Career Sites What you need to know, whether you are starting out ortrying to move up to a top job for the first time, is that differentcareer sites serve different markets. While JobTrak.com is focused on college students, sites like Man ster.com, Jobs.com, Hotlobs.com serve younger workers and those starting out. Guru.com is geared towards self-employed freelancers looking for short contract gigs. CareerBuilder serves more of the middle market. Then there are a number of sites for the senior manager, executive, orfast-track professionals. ExecuNet, with some35,000jobs for top level managers, and the sites of headhunting firms such as Korn Ferry’s FutureStep.com, serve senior managers. Many of these work on astrictly confidential basis, such as 6FigureJobs at www.6figurejobs.com, ExecuNet at www.execunet.com, and Headhunter.net. CEO Express at www.ceoexmess.com is packed with links to career resources by industry and recruiter directories. If you’re looking for a high-level job in the finance area, Financial Job Network at www.financialjobnet.com and Robert Half at www.roberthalf.com are great places to look, offering jobs attop-name companies and salary information. Women inTechnology International at www.witi.or2is a good tech source for women. Make sure that yougo to the job site that is right for your career needs.

Women-friendly Companies The Internet can be immensely powerful in helping you determine where you should work. Working Woman magazine comes out annually with the top companiesfor women. Whileit was previously onlyaccessible through a subscription to the magazine, now you can visit their site at -.work ingwoman.com and access the annualsurvey. If you are an executive looking to find a company that offers management training, equal pay, and incentive programs, Working Woman’s survey of the “Top 25 Companies for Executive Women,” which comes out at the end of theyear, is a great resource. It focuses on businesses-from Avon to SBC Communicationswho strive to keep women at the top.

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Linda Jimmersonof Dallas, Texas worked for the samelarge company for twenty years, much of that time as the secretary to a topexecutive. Then the company merged, her job moved, and ultimately Linda was out of a job. “I was a little nervous about looking for a job after so long.” Even though Lindahad been out of the job-hunting market fortwo decades, she immediately embraced thenewest techniquesin job searches. She signed up withMonster.com and posted her resume. “I got atremendous response,” she confided. “Especially from recruiters.” She even began to enjoy the process of job hunting, going on-line several timesa day to check to see if anyone had looked at her resume. “TheInternet is a very powerful tool to find a job. Just by depending on newspaper ads or an employment agency, I would not have had thereach I had with this. I feel likeI was making contact with a lot of people.” A lot of the people with whom she was makingcontact were offering her jobs: in just two months, she went on six interviews and met with eight recruiters.When she finally decidedon ajob, Linda receiveda $3,000signing bonus whenshe agreed totake it-her first signing bonus ever.

Then there’s the infamous survey of the “100Best Companies for Working Mothers” put out by Working Mother magazine, that comes out in the Fall, highlighting those companies thatoffer flexible hours, child care, and even concierge benefits that help you maintain balance between work and home life. Don’t forget to check out the “ones to watch” from the survey-those companies that did not make the cut but might in the near future-as well as the “Small Business Honor Roll.” The “Working Woman 500” survey, which ranks the largest women-owned businesses across the country in the Spring, may also serve as a good starting point for your jobsearch. If you are considering taking job a at alarge national company, whynot up for women. You check these surveysfirst to see how the company stacks can usually do a search at www.workinewoman.com to pull up the most recent survey.

High Tech, High Pay Women are earning more across the board, but among the companies presenting the best opportunities for women are those in technology. I have interviewed hundreds of women in the last few years, and I see more women


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making more money and taking on bigger jobs with technology companies than anywhere else. Helen Whelan, co-founder and presidentof San Francisco-based MvPrimeTime.com, chucked a booming career in journalismas the former Washington,DC bureau chief for The Nightly Business Reportto launch an Internet portal that speaksdirectly to the needs and aspirations of baby boomers. While Whelan says gender was never an issue in her career, the switch from old to new media required an all-new skill set. “I saw it as a vertical learning curve-straight up.” Will beingCEO or holding oneof the other top slots have a big impact on their career and their net worth?Absolutely, but you do not have to be a high-tech CEOto be a well-paid high-tech woman. Anne Ladky, the Executive Director of Women Employed, a Chicago-based nonprofit that advocates for improvements in women’s economic status, observes that in the high-tech field, “There are technical occupations like computer-assisted design,industrialmaintenanceandmechanics,electronicswork,and skilled manufacturing positions where women can earn considerably more than the average female salary.” A study by the Information Technology Association of America (ITAA at www.itaa.org), shows that IT workers are 800,000 high tech jobs are expected to be in such demand that more than left vacant this yearas a result of the shortage of skilled workers. AccordWhere might yougo to get a jump on or bump in your career? ing to JupiterMedia Metrix, ODerationit.com, a sourcefor tech professionals, is one of the leading sitesfor women, comprise over 72% of its visitors. Here are the other leading sitesfor women 25 and older, and the percent of users they comprise:

oDerationit.com homeemployed.com 55.3% a:lb.org 48.9% jobsonline.com icplanet.com careermosaic.com aib.dni.us flipdog.com vault.com 45.6% headhunter.net 7% newiobs.com 42.3% cruelworld.com salary.com techies.com jobs.com

72.5% 51.7% 48.8% 48.0%

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monster.com 35.7% careerbuilder.com 35.5% careerPath.com jobdirect.com 34.7% net-temDs.com

35.4%

Do What You Do Best: Network Not only can women generally nurture and communicate well, but they are natural networkers. In the past, networking consisted mainly of making the most of face-to-face opportunities to meet other folks-at luncheons, charitable events, or trade shows.A smile, a nervous introduction, and a confident handshake, and you are readyto swap business cards in the hopes your “target” will remember meeting you. With the Internet, you can quickly and easily expand your network beyond those nerve-wrackingface-to-face contacts. When it comes to networking (and looking for a job), remember that almost all colleges now have an alumnidatabase accessiblevia the Net. You now can locatejust about anyone, in virtually anyindustry and in any location. Let’s sayyou attended theUniversity of Montana and nowyou want to work in London. Chances are your alumni database back in Montana can put you in touch with someone overseas. With a little luck, that person may know of a position and,if not, will ask two other people, and theywill ask two people, and so on down the line until something turns It has up. worked before. Ann Kasper, executive vice president of garmentmanufacturer Ralsey Group, Ltd. in New York, has been contacted through e-mail by several students who simply went onto their alma mater database on the Web and found Ann.“I helped one juniorget an internship thatgave her a great overview of the whole clothing industry. She worked with designers, production, and the sales department and now has very solid skills.” Professional organizations,especially local chapters, can also be a great source for jobs. Believe it or not, going in cold to an organization in hopes of finding a job may alter your entire career course, itasdid for Karen. Two years ago, Karen graduated from business schoolat UCLA and was interested in getting into thereal-estate industry.She had noties though, so her career counselor suggested she contact thelocal chapter of Women in Real Estate and check out their extensive website for their next reception.As she puts it“I basically crashed the meeting.1didn’t knowanyone.” By making some new connections at this event, Karen got a summer internship. While working her summer internship, she attended a networking breakfast where she met


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four other women, which each turned into three or four more additional contacts. Although she ultimately decided during the summer she wanted to do something different, her contacts from the real-estate organization help land her a full-time job in investment banking. No matter what age you are-25 or 65-building relationships is key to building your career. Usually it is called networking.I prefer to think of it as keeping yourself open to the possibilities with the people you meet. You might share a strong interest in a particular area, or you might see a natural working relationship. Showing a genuine interest in someonewill usually go much further than a quick meet-and-greet and on to the next person. That is not to say you should ignore networking organizations, especially those focused on women.In fact, those focusedon women make an even greater effort to put women in touch with other women who share similar interests, because they know how critical relationships are to success. Businessand Professional Women atwww.bDwusa.org is one national organization that allows you to find a local chapter, and to look for other national industry organizations.Talk to friends and colleagues you respect and admire in the targeted industry to see which organizations and websites are worth checking out.

Checking Out the Company Are you closer to deciding whatyou want to do andfor whom you want to doit? You canuse the Net to dosome research onyour prospective employer. Is this the right company for you? Is this a company on the upswing or downswing? Is it likely to face problems that might result in job cutbacks six months or a year from now? The more you learn about your prospective employer, the better decisionyou can make. Once youhave narrowed the companies, research those firms. The first place to look is the company website. Be sure to check out not only press releases and annual reports, butalso the company’s vision or mission statement. If you don’t know the company’s URL, go to Websense at www.web sense.com and in the drop-down menu, pull up “company locator”; will it help you out. You can find other timely and historical informationby doing anewssearch onone of the majorInternetsearchenginesandat Hoovers.com. If it is a public company, I’d also suggest logging onto the WallStreetlournal.com, though a subscription will cost you, as well as the Securities and Exchange Commission atwww.sec.Pov, where youaccess can a company’s annual report for free. Remember, choosing a company to work for is much like making an

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investment-only it is in yourself, so research it much like you would an investment. The followingare key items you should consider: The Management. Who runsthe company? Will they be able to guide it through goodtimes and bad?You can find senior-level management biographies at the company’s website or in its annual report, also called a 10k,filed with the SEC. History. Look on the company siteto learn why the company was created and by whom. It will tell you a lot about its philosophy, its culture, and its position the in marketplace. Who knows, you might also learn something thatwill help you in yourinterview. Competitors. Learn how the company stacks up against its competitors. Not only will this tell you how they rank, butwillit also give you an idea of the nature of your job. Are you doomed to always play catch-up to a competitor’s products? To locate competitors, go to Hoovers.com and search for the company.If you then go into thecapsule area and scroll down, you will usually see a list of competitors. Then, pull up those companies and seetheir whocompetitors are. You can also check the websites of trade associations for the industry involved and see what information they have on your company and its performance vis-a-vis other association members. Focus on the company’s marketshare, trend in stock price, sales, and earnings and how they compare with competitors.You can also follow some of the tips in Chapter 6. Financial Overview. If it is a public company, this information is easily accessible at the many sites referenced on page 166. If you are looking for a professional’s perspective, you can purchase analyst reports on companies through www.ecom.zacks.com from $10 to $75 each, dependingonthelengthandtheanalystcompanyprovidingthe report. Zacks has well-regarded analysts, and you can also get free information fromZacks’s on how the company ranks with other companies in its industry. Remember, a company ranked 47 of 215 does not necessarily mean it’s a bad place to be. In fact, it may be a rapidly growing company that is moving in on its competitors. Future Success. Whatare the company’s plans? New products or service? Going public? Staying private? Merging? Any of these could affect your own future prospects. You may be able to get this information from the CEO’s presentations to investors or, again, through analyst reports. An annual report will often tell you about the company’s business plans, although not with the level of detail nor the timeliness of what is shared with investors.


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Presence of Women. You might take a look at how many women are in decision-making roles or on the board of directors, if that is important to you. That will tell you a lot about your own opportunities there, and the philosophy of the company. You can do thisby looking “10K” atthe SEC’s siteat atthe company’s annualreportor www.sec.gov and going into the “Edgar database.”Also check out the “about us” or “management” section of the targeted company, which is usuallyavailable. Consider talking to anyone connected to the company for additional insight.

So, Should You Take the Job? Sometimes receiving a job offer is actually the easy part; deciding if you should accept might be a different story. How do you know if the salary you are offered with a new job makes sense given your currentsalary, expenses, and location? That was the dilemma Tiffany Massa faced in the introduction to this chapter. To figure out the answer, go to BusinessWeek.com and into the career section and use the living costs calculator. When we did, it gave us some staggering numbers. Let’s say you are moving from St. Louis to New York City, and your salary is $50,000. The calculator tells us you would need a salary of $236,363 to afford what you can in St. Louis.Alternatively, a $50,000 salary in New York is equivalent to a salary of $10,576 in St. Louis.Use the cost-of-living analysis calculator, also available at Mon stermovin_g.com (the owners of these great tools), to determine what kind

Hunting Headhunters Getting approached by a headhunteris flattering; it means thatyou have been singledout in yourindustry as a sought-after employee. Is there anyto be singledout? Can youhelp make your own phone ring thing you can do with a headhunter on line? the “OneCEO made a brilliant moveon her own behalf,” Jenn Pfieffer, an executive search consultant with Internetional Expertise, told me. “Her company had just been acquired and sheherself was available.”How could she let folks knowin a subtle way?After reading about a recruiter in an on-line industry publication, “She picked up the phone to let him know that her own number two person was now available and that she strongly believed he should take a look at her for any available positions. The headhunter listened to her pitch her own SQ and then asked ‘so what are you doing?”’ By advocating her own employee, she’d slyly letit be known that she, too, was onthe market. Not a bad trick,eh?

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of salaryyouwillneedto"breakeven,"andkeycoststhatcan affect your budget. Be sure whenyou are using calculators like this that you also look to see what is not covered in their expense calculations. InNew York, for example, where a woman will befar more likely to have to use expensive taxis at night, you might need to add this into the expense calculations. In in a different city, you obviously negotiating a salary with a new employer want to start with afigure that is higher than the "equivalent" salary figure your in present job and location. You can also use the Salary Wizard calculator Salary.com at to slueth out what theaverage salary is for your position. Look at the difference here between how much accountants make in New York City versus St. Louis (see Figure 33). Is that enoughfor youto be able toafford the extra cab rides? You might want to also consider other information when comparing cities. Things like the crime rate, public transit systems, and more mundane

4 typical Accountant 111 working in New York, NY 10016 is expected :o earn a median base salary of $63,822, Half of the people in this ob are expected to earn between $56,342 and $72,431 (Le,, letween the 25th and 75th percentiles). These numbers are based ~n national averages adjusted by geographic salary dlfferentials. 7 k h d a h is ws of J w w w y , 2001)

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stuff, like how much does it rain? I’m sure that therainfall total has crossed the mind of more than one woman trying to evaluate a job offer from Microsoft in Seattle! The Monstermovine.com “compare two cities” calculator can help with these typesof personal “screens” aswell.

Are You Getting Paid What You are Worth? Whether deciding if you should take a job orask for a raise, you will want to know what you are really worth. You have been waiting for me to get to this subject, I know. Fortunately, the Net is one of the most powerful tools available here for women. You see, in the past, salary and compensation surveys were only available to those willing to pay big bucks for them. Your company might commission a study orpurchase one from a consulting firm, which it would thenuse to determine whatit should pay its employees for base salaries, bonuses, and even commissions. Most of the time, these were treated as proprietary and not shared with employees. Now, thanks to the Web, you can instantly find out what others in your job classification and industry are earning. You will want to carefully examine “salary comps,” as we call them, before either taking a job ornegotiating a raise. First, raise your expectations! A 2001 study of undergraduate, graduate, and MBA students by WetFeet.com found that undergraduate males anticipate earnings of $4,000 more than their female counterparts. Men in MBA programs expected to earn $3,000 more. Men also expect larger bonuses and greater stock grants than women. Anne Howard felt she deserved a raise. She had long suspected (and soon confirmed) that shewas making less than her male counterparts.Her annual increases were lower than norm, even though she had brought in more business than herfellow managers, but when she asked her supervisor for a raise,he said hishands were tied.So Anne went over hishead, asking to meet directly with the head of human resources. She went in fully prepared to state her case, arming herself not only with proof of her own contributions to the company, but also with knowledgeof what otherswere making at her company in similar positions. She was even prepared mentally, because she believes that “in the corporate world, they test you in all sorts of ways.” As she stepped into theHR office, she was offered an empty glass and a can of juice. “This way, he could see if I was nervous when I poured it. I knew these games because I used to play them myself when interviewing potential employees.Believe me, I poured it really well.” She did well in her discussions, too, and armed with information that could not be dismissed, received a 30% hike in pay.

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When considering an offer or evaluating your current salary, make sure you consider all of the different components of your compensation. There are “hard” components such as your base salary and your basic benefits, such as health insurance or retirement plans. These you cancount on. Then there are “soft”components thatare more speculativeand based on your or the company’s actualperformanceandsuccess,suchascommissions, bonuses, and overtime pay. Add stock options to these soft components. Thanks to the “go-go” economic times resultingfrom high technology and Internet companies, “stock options” have become a more important and interesting partof compensation. We have all heard the storiesof how stock options in the1990s made many people wealthy overnight as their companies “went public.” The truth, however, is that although stock options in the right circumstances can still do this for a few, the overall markethas cooled substantially and for most jobs you would be ill-advised to rely on stock options to bring you riches.You certainly should not count on them to help pay for your child’s college education. In reality, stock options (in most cases) should only be viewed as a potential bonus that may or maynot materialize. As I am writing this book,most employees are again focusedon the other hard andsoft components of their Compensation.

How Do You Rate? How do you know if your base payand other compensationis in the ballpark? I would suggest you look at atleast two comp surveys. Jobsonline.com has a simple salary surveythat features data on more than 1,000 job titles. Salarv.com has information thatallows you to see what thebase pay for your position should be, aswell as the total compensation package. Wapeweb.com is helpful for middle managers who are also interested in seeing the average bonus paid tomiddle-level managers, but it does notprovide surveys of top leveljobs. For executive level jobs, consultExecuNet. It provides the salaries of all recent job postings for a particular type of job, such as marketing, all on a single screen, but unfortunately, it won’t outline average bonus and optionpackages. Also, if you are a member of a professional group, such at a state bar association, they often have salary surveys on their websites. The government’s new NationalCompensation Survey, located at www.stats.bls.eov/ocomhome.htm,is oneof the most comprehensive salary surveys, consisting of 480 occupations. It allowsyou to search by city and by specific job type, and then to make adjustments based on such job requirements as knowledgelevel, complexity of tasks, interaction with others, supervisory requirements, and physical demands to determine if your


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salary is in line with the dutiesof the job.It is not oneof the easier sites to use, but there is some valuable information. The Bureau of Labor Statistics Occupational Employment Statistics section (www.stats/bls.eov/oeshome.htm) canalso arm you withother information, such as the standard number of vacation days and sick days off, depending onyears of service, and the percentof companies providing matches to their employees’ deferred-compensation programs.If your company offers only five days of vacation when the government surveytells you that most companiesoffer 10 days, youhave ammunition to seek a change. Whether at JobsOnline.com or other sites, be sure you understand how the salary survey is compiled. In the caseof salary.com’s surveys, information is gleaned from their own surveys, surveys of other well-regarded firms, and government statistics, and is not based simply on job title but on the actual functions performed by the position. Also, make sure you are looking at current information. Although governmenthave sitesthorough information, some datamay be a coupleof years old. If they are dated, youwill want to adjust for inflation.

NegotiatingYour StartingSalary or a Needed Raise It is a sad but true fact that women are less likely to “negotiate”a higher starting salary, or ask for and “negotiate”a needed raise than men. Even women MBAs who are trained in the intricacies of business are less likely than men MBAs to negotiate higher salaries and raises. Unfortunately, women tendto see themselves by the values others put on them, so when offered a $50,000 salary or a $5,000 raise, we tend to accept that as a fair statement of our worth. Men, on the other hand, tend to consider a salary or offerof a raise as a starting point for negotiations. You do notwant to price yourself ridiculously,but you do not want to findout later that you joined a company at a disadvantage because you were not informed or failed to“go for it” in the interview. Women are slowly beginning to change allthis. More and more, theyare recognizing the syndrome and checking themselves beforeautomatically accepting an offer or a raise. Smart women are arming themselves with compensation surveys and other information before they getinto salary or raise discussions, so they havethe facts to stiffen their resolve and bolster their case. They are also learning to be less timid in presenting lists of their accomplishments, and claiming credit for their accomplishments and contributions where credit is due. Some womenwithin companies are alsomentoring othersand forming “old-girl networks” to assist one another on compensation matters, but clearly more most be done by women tohelp other women close the pay gap.

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Thinking Beyond Today I believe it is very important not only to fulfill the specific assignment of your current position, but to think beyond your immediate job duties. To add “value,” you can increase your chancesof a promotion or of getting a new job by thinking beyond the scope confines or of your current position. Remember, companies set missions and goals. Think about how you can contribute tothose goals,both by doing your job by andcontributing something extraor outside the narrow confines of your position.Look for opportunities to make a difference. I hope you will allow me a personal example. When 1was with Wilshire Associates (an institutional investment firm), theywere known in financial circles for creating the Wilshire 5000 Index. Most experts on Wall Street agreed that the Wilshire Index providedthe best measure of the entire U.S. stock market. While many indices such as theDow Jones Industrial Average wereavailable to individual investors in rcal-time, the Wilshire 5000 was not. For a variety of reasons, Wilshire was interested in raising its overall visibility and expanding its name recognition. I saw an opportunityto make a differenceforthecompany in threedifferent ways: I suggestedthat Wilshire convert its index to real time, and change its name to the Wilshire Total Market Stock Index. Then I sought out and strucka deal with CNBC to begin carrying the Wilshire Indexlive on itsbroadcasts. Mission accomplished for both me and the company, with increasedvisibility all around! Nancy Fredricks, a career coach in Los Angeles, shared some insights that she has developed over the yearsof helping women move up the ladder. “Women think that thebiggest reason for a promotion is doing the job well, getting it doneon time and under budget,crossing all theT’s and dotting all the 1’s. In reality that is a small issue. Doingthe jobwell is a given, an automatic assumption when one is looking to promote someone. It’s really about howyou create relationships inside the office, and outside, with networking.” Women should embrace these things, Nancybelieves, rather than judge them as wrong. “I’ve heard women say ‘I couldn’t talk to the chairman because it would look likeI was brown-nosing. Whereas men do it automatically.”What womenbelieve success is being measuredby is rarely what their organization is really measuring. “Ask you boss or the leaders what an exceptional job is. Ask the question, “If I were doing this job100% to your satisfaction, what would it look like?” How do you connect with the folks on the top level? Here are some success strategies that can help:

Research what the chairman’s vision for the company is-what

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she issaying in public outsideof the company. Make sure your internal communications, whetherverbally or electronically, reflect it. Once you know what your company is saying to the outside world, make sure your work product connects with those visions. Proactively come up withprojects or strategies that promote the company’s vision and add to its bottom line. The Internetis a powerful tool for choosing a career, findingperfect the job, and managing your career success.As you build your wealth through your career, you’ll want to turn your attention to preserving it and effectively passing it on to the people and causes that are important to you.

Links You Will Love Career Sites www.6fipreiobs.com www.careerbuilder.com www.careeriournal.com www.chiefmonster.com www.dice.com www.execunet.com www.financialjobnet.com www.euru.com www.headhunter.net www.iobsonline.com www.iobtrak.com www.monster.com www.oDerationIT.com www.roberthalf.com www.witi.org www.womans-work.com

Education eLearnine.com

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Research www.adage.com www.americanlawyer.com www.assessment.com www.bDwusa.org www.cfo.com www.ecom.zacks.com www.hoovers.com www.industrvstandard.com www.itaa.org www.lawcataloe.com www.sec.eov www.stats.bls.eov/ocohome.htm www.techweb.com www.thedeal.com www.vault.com www.wallstreetjournal.com www.websense.com www.wetfeet.com www.workingwoman.com

Resumes and References www.careerjournal.com www.headhunter.net www.iobsreference.com www.resume.com

Salaries www.salary.com www.stats.bls.gov

Link to the Other Side: Estate Planning

At age48, Sarah Edwardswas concerned. Her own parents were now in their C OS, and she knew they had notyet taken any steps towards estate planning. What would becomeof the suburban ranch house that she’d grown up in? Her grandfather’s farm? Her mother’s bakery business? had Sarahtwo brothers; would they endup fighting with each other over their parents’ estate? “I didn’t want to losemy parents, and then ultimately my brothers, too. If my parents die without making their wishes absolutely clear it could harm my friendship with Sammy and Tom.” She struggled over how to tactfully approach her parents on the topic. “And then it came to me! I could do my own estate planning, I could start talking to them about the process that I was going through and the decisions I was making regardingmy own children. What betterway to get them to see how things could end upif they don’t take steps now?”Sarah and her husband met with an estate planning attorney andbegan to create a plan to takecare of both their money and their young children. The more Sarah shared her own estate planning decisions with her parents-candidly discussing how her bequests to each child might be interpreted, and fretting over the possibility of losing someof the money she and her husband had workedso hard to build to estate taxes-the more Sarahs parents began to ask questions. After two months, they finally asked the most important question of all-they asked Sarah for her estate planning attorney’s phone number. 1 meet women just like Sarah all over the country.At finance meetings and informal women’s groups, the conversation seldom lasts long before a question pops upregarding a will, trust, probate, or other estate planning matters. Estate planning has beenon the radar screen a lotrecently, as the 267

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federal government considered eliminating the “estatetax”-the tax some of us pay on our estates upon our death. For women, there are far more poignant issues that bringthe matter home: Women have more money to protect today-earning $1 trillion annually and starting new businesses attwice the rate of men. Death and divorcecan also playa role in their sudden wealth and/or leave women making the next roundof estate planning decisions. Some $10 trillion dollars-that’s with a “T”-will change hands from the World WarI1 generation to the Baby Boomers, movingassets from one generationto the next.It will more often than notbe the woman, thanks to longerlives, who will be in controlof how those assetsare managed. Blended family issues asaresult of divorces and remarriageswhether you are the parent or the child-complicate the passage of these funds and otherassets. Are these issues that are beginning to appear in your ownlife? I’d hazard to guess that the answer is yes. As Sarah learned when talking to her own parents, estate planningis a touchy subject. Whetheryou are considering your own plans, or helping a parent to deal with theirs, the bottom line is that you are constructing aplan of action thatis triggered by a death. As women’s wealth increases, so too does our need to plan carefully for that money to be transferred: to your children,to your partner, to your chosen charity, to whomever or whatever you desire. The more time andcare you take in the planning stages, theeasier it will be for your desires to be met after your death.I am not alawyer, so please do nottake what I say here as legal advice. I am simply going to lay out someof the issues that you need to be aware of when tackling estate planning,so that your desires are carried out. The more comfortable you are with the major conceptsof inheritance law, and the clearer some of these legal terms become, the smoother your own dealingswill be. Some of this discussion might notinterest you. After all, you think to yourself, you are years away from worqnng aboutthese issues. Ah, but we never know what might happen in life. And, as women-often the primary caretakers of our parents-we will be named to settle the estate upon their deaths. In Chapter 7, I mentioned Laura Lewis, who purchased a small life insurance policy in her mid-twenties. How could she possibly have imagined that she would die ageat37? Because she’dtaken aclear-eyed approach to the possibility of her own death, her family was taken care of when she died.

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I urge you to take an equally clear-eyed approach to the topic of estate planning. Using the Net in your estate planning research and decisions can help you stay focused on the topic and hold someof that emotion at bay Not only can you research the issue unemotionally on-line, you can also use giftand tax inforthe powerof the Net to stay up-to-date with federal estate mation, find an experienced estate attorney, and inform yourself about using trusts in creating your estate plan or helping your parents think about their plans. first Let’s begin to tackle the piecesof estate planning one by one. The step is deciding to plan estate. your Is that really something you need to do? You might think that you do not actually need will, a or that the size of your estate does not warrant any kind of plan. Many married women think they do not need to consider estate planning because everything will pass straight to their husband. Allow me to run through afew scenarios of what can happenif you die without having done any planning all-noat will, no trust, no executor appointed: The court will appoint an administrator-maybe a family member, but often a stranger (usually a lawyer),from paid your estate, to wrap up youraffairs and distribute your property. The administratorwill be obligedto follow a rigidset of legal rules in handling and distributing your property, with no regard for your intentions. Your estate may end up payingfar more in death taxes than was necessary, depleting the amount your heirs inherit.

12) Share yoursuccess 11) Preservewhat you have

10) Increase your earning power 9) Minimize your taxes 8) Organize yourfinances

7) Protect yourassets 6) Invest to build yournet worth 5) Educate yourself about investment 4) Acquire a home

3) Free yourselffrom debt and build credit 2) Live within yourmeans

1)Determine where you stand

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What's Your Net Worth?

Worse yet, if you don't actually die, but just become disabled without having done any estate planning, someonewill have to apply to the court for aconservatorship or guardianship of affairs your and your personal care. If you want to learn the detailsof intestate (meaning no will) succession-the state's "default" estate distribution scheme, if you fail to prepare a will or trust to name your own beneficiaries-check out Cornell Law School'sLegal Information Institute. Once you click on your state, the resulting list of statute titles probably includes one on "intestate succession." Go to www.law.cornell.edu/topics/state~statutes3.html-probate.

The Government Takes a Slice Let's take a quick look at effect the of estate taxes. I will discuss it more fully later on, but right nowI want tomake sure I have your full attention.If you are not concerned about the effect of taxes on your own estate, oron that of ).I took afairly comyour parents, take a look at the example (see34Figure mon sized estate intoday's real estate market: a$350,000 house, $250,000 of investments and retirement accounts, $150,000of life insurance, $30,000 of miscellaneous, with $60,000 of debts. I used an estate tax calculator at www.estateplanning.com to come up with the following:

, .

Estate Planning Education You 6 n Trust

Calculation Results! Totatdue.ofevetgthing you owtl (Gross Estate): Less total' amount you owe (Total Debts): Leaves you ~ t ahiada6ie'nct'ehte o€

your

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Plus your estimated probate costs: % of your gross estate.taken &om your *f: Figure 34

.$730,000

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'S 720,000 .f 16.650

$23,400

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Even with an estate that isonly slightly over the threshold for federal estate tax liability ($675,000) at $720,000, your family could lose an estimated $16,650 to the government. Are you with me?

What a Will Does A will is a legal document that will cover the following:

Name an executor to wrap up your affairs, and permit him or herto serve without having to post a bond (i.e., no insuranceagainst financial misconduct-after all, this is somebody you trust). Authorize the paymentof your debts andtaxes. (Unfortunately, these bills must be paid fromyour estate, whetheryou say so or not.If your estate is insufficient, the executor is notpersonally liable.) Name a guardian for your children. Someone whom you know and trust to take chargeof their well-beingand education untilthey reach adulthood. Make bequests of specific items (a “bequest” is simply a gift made through a will) like, “I give my wedding ring to daughter Mary, and my engagement ring to daughter Jane.” Set forth how you want the “residue” of your property (everything left, after the above steps) divided. For instance, “everything to my husband,” or, “to my children, in equal shares.” If you already feel lost by this legalese and would likea deeper understanding of just what each clause in an ordinary will means, you can find well-writtenand easy to understandinformationatThe LegalBeagle (www.thelegalbeacle.com). On the home page,choose“Civil Law” and fromtherechoose“probate.” Also visit Findlaw.com’s estateplanning section by entering into “wills” under the “money” heading on the home page.

What Did She Really Mean? Why is it that families have sometimes been ripped apart in court battles over a parent’s will? Because things were not properly spelled out. Parents sometimes fail to document their wishes because they are confident that

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“everybody knows”who is supposedto get what. All too often, that isa big mistake. Oftentimes, parents are oblivious to (or choose to ignore) sibling rivalries or the special attachments a family member may have to a particular item.Make sure to describe your propertyand desires in a way that takes into account all of the “what-ifs.” The language of wills can seemoverly legalistic, until you remember that the whole pointis to make yourwishes crystal clear. Would you like to know how the rich and famous handled their bequests? You can play the voyeur at Court TVs website at www.courttv.com/legaldocs/newsmakerdwills.On the site you can read through thewills of Diana, Princess of Wales, Marilyn Monroe, or Jackie Onassis. Here’s a pointer from Jacqueline Kennedy Onassis’s will: For each specific item she bequeathed, she added the words, “if owned by me at my death.” That phrase makesit clear that there is no cash substitution if the item has been lost,sold, or given away before death. The point here is give to as little ammunition aspossible to anyone reading your will who might want to push for a result different from what you want. Many women tell me, “I’m not worried,my daughter knows the right thing to do.” She might, but itis much better not to place your children in the position of having to guess just what “the right thing” is. Put yourself in their shoes-you don‘t wantto have to guessabout yourparents’ wishes either. Having a will in this day and age is really a necessity. The question you may have is, doI need an attorney to do it, or canI do it myself? At the end of the chapter, I discuss several websites that can provide you simple will forms and instructions on howto do it yourself. Before you jump to those sites, a big, big word of caution: Whileyou can doa lot of it yourself (a few

What Else CanYou Call Them? While writing this chapter, I have struggled with the off-putting tone of some of the legal terms that come along with estate planning: executor, grantor, settlor, fiduciary. The one most likely to stick in our throats, though, is “decedent.”As in, deceased. No longer living. When you read through this section, you might sometimes be picturing yourself as the decedent, or sometimes picturing your husband, or your mother inthat role. None of these are pleasant images, but I urge you to try to look past that and concentrate on the financial aspects of this discussion, rather than the emotional. You can never truly be prepared emotionally forthe death of a loved one, butyou can beprepared financially-and that is truly a gift we can all leavebehind.


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people, all of it), there are also a lotof ways to slip up without realizing it. If you have questions, or if your situation is in any way complicated, I strongly recommend that you hire an attorney to prepare your will, or at least look overwhat you have come up with on your own using the Net.

Writing YourOwn Will If you’re young, in good health, have an estate under $675,000 and don’t have any complicated affairs, you can create your own simple will.In fact, the clauses inwills drafted by attorneys are nearly identical to those in most do-it-yourself books or on-lineforms. Here are the general requirementsof a simple will: You must be 18 years of age and be of a “sound mind”to make a will. This simply means you are capable of understanding what you are doing and howyou are distributing yourproperty. You must be aware of who your family members are, evenif they do not get anything. It must state that it is your will and contain a statement of how you want your property distributed. You must name an executor to distribute your property. You must sign and date the will. You will need to sign it in the presence of at least two witnesses who are not named in your will to receive property. I recommend you get it notarized, since the rules on this vary by state. There can be a “self-proving” clause for the witnesses to sign, so they need not appear in Probate Court. Make sure you keep it in safe a place, and tell your executorwhere it is. Nolo.com and www.willsandprobate.com’s FAQ section provide Some excellent tools and information on wills. Note that willsandprobate.com applies mainly to Texas residents, but is of interest to all.

What Does an Executor Do? A critical partof writing awill is naming an executor, exactly but what does an executor do? This is an important issuefor women-not only do we have to choose an executor for our wills, but we may well also have to Serve as one someday ourselves. Much family strife canalso center on the conduct of the executor. The law is clear and simple: in all cases, the executor (sometimes also called a personal representative) has the highest oflegal obligations-a fiduciary duty-to the beneficiaries of the decedent’s estate. This

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imposes an obligation to invest and manage the assets in her custody prudently, and distribute or use them only for the purposes established in the will or trust, or as provided by law,if there is no will or trust. Spend the money wisely, in other words. This high duty means that the choice of executor deserves morethought than it often gets. Your selection should be a trustworthy person (or institution, such as a bank), with common sense and good judgment, who will treat everybody fairly. She must be ready, willing, and able to play referee, if necessary. She should be a person who “gets things done”-not procrastia nator. Someone whois close (geographically speaking) to the probate court and to the locationof the decedent’s real estate, if any, can be a big practical advantage. The executor is then able to attend court more easily, pick up forms, and handle much of the “grunt w o r k that must be taken care of when a person dies.Do you really want to choose someone who has to fly in for frequent probate tasks? Most wills give the executorvery wide discretion in handling the property and otheraffairs of the estate. The law encourages this, for efficiency’s sake, but the discretion allowed pertains only to administrative and business-type matters. The fiduciary duty is ever-present, so if the executor is also a beneficiary of the will, as is often the case (e.g., the oldest daughter of the person who has passed away), she cannotlawfully give herself preferential treatment.Nevertheless, it happensanyway-a lot! Onceagain, this is where squabbles between siblings can arise. It is essential to family harmony that the executor is not only fair, but that all beneficiaries acknowledge her fairness. Try to think ahead and not put him or her in a no-win situation, in which somebody is sure to gripe and whine (or worse), no matter what. When this scenario unfolds, matters become more complicated at best, and costly court battles and bitter personal disputes result. Some parents worry that naming one child as executor would causehurt feelings among the children not chosen. Estate planning attorneys caution against naming multiple children as co-executors, however, although many parents do this routinely. This scenario invites bickering between siblings, even if it begins as an honestdisagreement-over how to handle the sale of a piece of property, forexample. What if one sondearly lovesthe family farm, and the other son and co-executor can’t waitto unload what he hasalways thought of as a white elephant? Instead of setting up this kind of problem between your children, consider using an institution, or atrusted family friend or attorney If you really want your children as co-executors, at least call a family meeting now and let them all know how you feel and why you made the decision.


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Work for Free? Wrapping up anestate takes a lotof time; just ask Irene Johnson(see sidebar). Does an executor get paid for his or her time?Yes, the personal representative is entitled to “reasonable” compensation, considering the circumstances. Once again, this is a situation that might cause resentment among your children if you name one as executor. Your daughter might think you left more money to your son if he is executor and is paidby the estate for his time. You didn’t really leave him more, itjust seems that way to her. Family members who serve often wind up working for little ornothing justto avoid this very confrontation. If you have been named an executor, or wouldlike to learn more about the role in order to better pick one for your estate, head to the website run by self-help legal pioneers, Nolo.com (www.no1o.com). Founded in 1971, Nolo has a wide variety of information available on-line, including an“Ask doesn’t actually give legal Auntie Nolo”Q and A you can use. “Auntie Nolo” advice inher answers, but rather provides the information so that users can an execusolve their ownlegal problems. You can also download forms that tor will need, including “Request for a Death Certificate,” and “Notice to Stop Social Security Payments.”

Talk to Your Friends Do your executor a favor: discuss your estate with them before you die. “Pleaseleave your papers in order,”pleads Irene Johnson.She and her husband are in the midst of untangling the estate of a close friend. “We have no idea of the full extent of her assets, she was verysecretive.Every day we comb throughthe mail, looking forstatements from yetanother account. If she had only lefta written list of everything, or taken usinto herconfidence and been open aboutwhat she had and where it was. I’mlearning more and more about her life every day.” Irene, along with herhusband and youngest son, has also spent hundredsof hours sorting through her departed friend’s possessions. “And we have hundreds of hours left to go until it is done. It is just heartbreaking to comeacross old itemsthat have been in her family for generations and not know what to do with them. She had no children, I wish the decision to dispose of these sentimental items hadn’t been left upto me.” The more time youspend making your wishes clear,the less time yourexecutor will have tospend carrying those wishes out.

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What Happensin Probate Probate is acourt proceeding, in which the decedent’s final debts are settled (if hdshe hasleft an estatesufficient to do so), and legal title to property is formally passed fromthe decedent tohisher heirs. If all goes smoothly and no legal battles arise, the probate procedure only involves few a basic steps: All assets that aresubject to probatemustbeinventoriedand appraised. Taxes must be paid (federal and state final income taxes; state inheritance tax, if any; federal estate tax, on estates larger than $675,000 in 2001). Lawful creditors should be paid. Alternatively, the executor can haggle with those whose claims seem too high-or simply refuse to pay, if there is a good reason.Just as if the decedentwere alive, if these matters cannot be settledinformally, the creditor can sue the estate. Transfer of estate property accordingto the will (or by the state laws of intestate succession, if there is no will). This is usually accomplished by a checkfrom the executorto the beneficiary, or a deedto real estate, signed by the executor, on behalf of the estate. File a final report or accounting with the probate court, which, if accepted, closes the estate, and lets the executor “off the hook.” And that is it.

Do You Need a Lawyer? Although the probate process need not be a nightmare, it can costly. be The fees add up quickly if you hire a lawyer to do everything, every step of the way. The fact is that much of the process is simply paperwork-filling out forms, filing an inventoryof the decedent’s assets, arranging for accounts to be transferred, etc. For muchof this, you do notneed a law degree. Plenty of women have handled the job themselves with their parents’ estates and saved big on fees. Of course, if you want some guidance,just find an attorney to consult for an hour, and bringa list of questions. Don’t be foolish, however; if any kind of controversy, dispute, or problematic legal issue arises, definitely see alawyer. You can find estate planning attorneys across the country by visiting the website run by the American Academy of Estate Planning Attorneys at www.estateolanfon/-ou.com, or atFindLaw.com. The site run by MartindaleHubbell isan excellent placeto not onlysearch for an estate planning attorney in your area, but also to check the professional rating on any attorney


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you are considering (www.martindale.com). Established for more than a hundred years, this legal directory service has long been a premier source of information about attorneys and law firms. If you havea complaint about a lawyer or want to see if a lawyer is licensed through his or her state bar association (the licensing entity for attorneys), go into “The Bar” at Find law.com and you will be led to all of the state association websites. In some cases, you can even review the complaint history of an attorney and find access to local legal services. When choosing any kind of advisor-from estate planning attorney to stock brokers oraccountants-I recommend first asking your owncircle of

Executor JobFrom Hell I have an acquaintance named Peggy Sue. Peggy Sue was the oldest of three, and the only child to leave the nest in northern Minnesota. As a teenager, she moved permanently away from her family to California, seeing them only on anoccasional Christmas.Peggy Sue‘smother died when she was about 10,and her father later remarriedand had four more children. The two sets of children never got along. To make matters worse, Peggy Sue’sfather had allsorts of complicated holdings in businesses, real estate, and lumbering rights on certain properties, plus a safe he told everyone was stuffed with hundreds of thousands of dollars and negotiable securities. Ever a cantankerous old cuss, he secretly promised different childrenthe same house, business, and other assets upon his death. At age 89, as a means of pulling Peggy Sue backinto the family (orperhaps punishing her for leaving in the first place), he insisted on appointing her the executor of his will shortly beforehe passed away. You guessed it: before she could get on a plane from California to assume her roleas executor, the safe had been pried open andits contents looted; various familymembers had taken over housesthey thought had been promised to them or moved into offices of various businesses (not without a few fist fights),and two different familymembers had already sold the same timbering rightsoff to two different buyers. Well, youcan imaginetheir surprise when the will was read instructing Peggy Sue to sell everythingoff and divide the proceeds. Imagine Peggy Sue’s surprise when the will asked her notto get an attorney involved to help her in her roleas executor. Tho and a half years later,countless trips to Minnesota, thousands of hours of work, the cash from the safe never recovered, and each member of the family furiousat Peggy Sue for not getting them the house or business theythought they had been promised, or for failing to get enough money forsome possession, the probate was over. After a few protests over the $8 an hour Peggy Sue paid herself fromthe estate as executor, she still occasionally goes back northern to Minnesota for Christmas,but, as you can imagine, it’s a lot more chilly back there now.

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family and friends for recommendations of good people they have worked with. Chances are you will be spending a lotof time together, and you want someone whomyou both trust and respect.

So How Much Does This Cost? For some of us, it is worthwhile to acquire a little probate knowledge, just because the more we can do ourselves, the less we need to pay for. That should be substantial motivation to learn. If it is not right now, it will be, once you get some idea of what probate attorney’s fees can cost. California has published an official schedule of probate attorney’s fees, which are presumed to be reasonable, and are authorized by law. You can take a look at how thefee schedules for California are set by going to www.ca-probate.com and clicking on “probate fees.” If California’s fees seem high at$3,150for an estate worth $100,000 or $21,150at $1 million,takealookat Florida’s, which areevenworse. Florida’s, accessible at http://www.flprobate.condnew-page-3.htm, run $30,000on a $1million estate, among the highest in the nation. Do keep in mind that evenif high, percentage-based fees are authorizedby law,they are never required. You are always free to negotiate fees, and/or retain an attorney on an hourlybasis for the helpyou need, and no more. We all know attorneys aren’t cheap, but what about an executor? How do you know how much an executor should reasonably be paid for their time? Some states have official schedules of authorized executor fees, comparable to attorney’s fees. After all, there are matters to be handled besides legal work (e.g.,payingbills,closingaccounts,vacatingthe decedent’s house). Other states’ laws simply say that the executor’s fee must be “reasonable.” Some of them use a percentage of the estate (e.g., 5%) which is presumed to be reasonable. Here again, you can useCornell’s statute-finder to find the law in your state.Sometimes afamily member does workfor free (reluctantly), but if an institution or unrelated third-party serves as executor, they certainly will not. Alternatively, some executorsfeel entitled to fair compensation for their effort and/or time missed from work. Two possible problems pop up in this regard. First, the legally-allowed fees in states that have published schedules can be ridiculously high, given the amount of work done. For example, transferring a few of the decedent’s financial accounts takes a certain so amount of time, whether the account balance is $1,000or $1,000,000, why should the fee be based on the size of the estate? Well, that is just the way it is. It is easy to imagine how the siblings of the executor could feel


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cheated, in many easy estate situations, if she took the full fee authorized by state law. Evelyn Hutchins, a retiree recently named executor of her mother’s will, faced this exact scenario. “There was an old lien on Mom’s house still on the books.We couldn’t sellthe place until itwas released.That shouldhave been done yearsago-now the bank no longerexists. So I’m spending this spring on the phone, writing letters and dealing lawyers with toclear it up. When I mentioned that eventually1wanted topay myself $10 per hour,my sister-in-law madeit plain shedidn’t think thatwas right.” Once again, this is an issue better addressed clearly in your ownwill to squash any sibling squabbling.

Put YourTrust in Trusts I’ve covered wills and probate, but what about trusts? “Trusts” getso much attention nowadays: what exactly are they, and how do you decide if you need one? Although more often formed by men in the past, now more women moving up the career ladder are turning to trusts asa way to manage their estates efficiently and to transfer assets to loved ones. Kathleen Brown, former Treasurer of the State of California and now managing director at Goldman Sachs, often meets womenon their way to building substantial assets. “I assumed they’d want to talk to me about increasing their assets. But in a just a few minutes, they’d be asking me about protecting what theyhave-and making sure they pass as much as they can onto the next generation.Many had even seen what had happened to their friends-much of their money was diminished by taxes. And while some women may think they don’t have enough for serious estate planning, in today’s market, with rising homevalues and increased gains from astrong stock market, manyhave long since surpassed the$675,000 threshold that triggers estate taxes.” First, let’s define a few terms. A trust is an entity-an intangible creature of the law-that can own real things. That is the important point. One legal ownership of property that has been transparty-the trustee-has ferred to himher. (Alternatively an institution, such as a bank, is often named trustee, rather than an individual.) Like an executor, a trustee has the highest of legal obligations-a fiduciary duty-to manage the property, and see that is it used only in a manner, and for the purposes, established in the trust document. Think of a trust as an empty container.Assets must be formally transferred (“poured”) into it, or it remains empty. The person creating the trust

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is called the “settlor” (or grantor). There can be more than one settlor-for

example, spouses. The settlor names the trustee, and usually transfers at least some money or property into the trust when setting itup. The property held by the trust is known as the trust “principal” or “corpus.” Trust assets are invested andlor managed for the benefit of one or more beneficiaries. Very often, in a family situation, the settlor also wears the hats of trustee and beneficiary. A trust can be “living” or “testamentary.” A living trust is a trust established during the settlor’s lifetime. A testamentary trust is oneestablished in the settlor’s will. A living trust canbe revocable-subject to termination or amendment at any time by the settlorfor any reasonor irrevocable (not changeable). Testamentary trusts are always irrevocable-they are not even created until the settlor is gone. Before death, however, the settlor is certainly free to change hisher will, including any testamentary trust thatis to be established later. If the trust is irrevocable, the settlor isunable-forever-to end the trust, modify its terms, or take back her property, should plans change, or in an emergency. This is obviously a downside to the irrevocable trust, lossthis of conwhich is used only when there are advantages that outweigh trol. An irrevocable trust is an independent entity under the law, with its own federal tax ID, and annual tax return. We will be looking attax-saving trusts later. For now, take note that only irrevocable trusts, with their independent tax status, canbe used in tax-saving strategies. Generally, when people talkabout “trusts”these days, they are referring to revocable living trusts, created for the lifetime benefit of the settlor(s), and ultimately, for the surviving family, or a charity. In this arrangement, while the settlor(s) is alive, the trust is completely in her control. As the “settlor” of this kind of trust, she canrevoke the trust andtake her property If she is serving as her own trustee, which is comback, for any reason at all. mon, the settlor can put on her “trustee” hat, and write checks or dispose of property as she seesfit, without restriction. If the settlor is using a thirdpartytrustee for convenience of administrationormanagement(for instance her accountant son, or a bank), she can issue directions to the trustee, or just fire him (or “it”). Please understand that the assets of any trust you control (or have the power to revoke) are completely subject to taxes, as if no trust existed. In fact, thiskind of trust is simply ignored by the IRS-all tax information (income, etc.) is reported on your individual tax return. There are plenty of benefits to having arevocable living trust, buttax savings (income or estate tax) isnot among them. With any trust,all of the rules and the scheme of ultimate property distribution are decided in advance, and written into the trust document.


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Whedif the settlor is alive and serving as her own trustee, she does what she wants, and the trust document justcollects dust. But when the settlor dies (or becomes incapacitated) and the successor trustee stepsin-or if a third-party isalready serving astrustee-then the trust document provides binding directions for carrying out the settlor’s wishes. Very often, especially if the successor trusteeis a family member, the “binding direction”is simply that the trustee use hisher best discretion in handling matters, as the settlor might have,if still alive and mentally/physically able.

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Gwen Mabry’s experience shows how a trust can work to meet a real planning need. “I tried for years to embrace her, but my son’s wife, Ellen, has always been coldand resentful to my husband and me,”Gwen said. “We are likely to die with a substantial estate, and at this point, I just don’t trust Ellen. Quite frankly, I am concerned she might not be mentally stable. What if my son, Bobby, dies before Ellen does? Because of her, neither of us feels comfortable leaving alarge sum outrightto Bobby or toBobby and her.” On the other hand, the Mabry’s had no reservations about their daughter, Jill, who had two kids, and a devoted husband of 26 years. The Mabry’s discussed their concerns with an experienced estate planning attorney. She told them theirs was a common scenario, and recommended a living trust to hold most of their property. While Gwen and her husband were alive and able,they would be the co-trustees, and control all aspects of their estate. The lawyer then asked the Mabry’s what they wanted to happen after they were gone, and offered a suggestion,just to begin the discussion: The trustcouldprovidefora “fifty-fifty” split of theirestate, uponthedeathof the second to die of Gwen and her husband. Jillwas a responsible homemaker and would be successor trustee of the trust, which would continue. There could be two sub-accounts, one for Jill‘s family and one forBobby’s. The trust document authorized the successor trusteeto use her discretion to make distributions for the health, education, and welfare all of family members. “The attorney asked we if felt sure Jill would honor our values in using her discretion, andwe did. That’s an awfully important questionto consider.” The Mabry’s wanted to be a little more specific about issues they felt were important. For example, the trust was drafted to permit Jill, as SucceSSOr trustee, among other things, to advance funds to her two kids-or Bobby’sto start a business, “appropriate to the age, experience and abilities of the

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beneficiary.” So if Bobby’s son wanted to expand his lawn mowing business, trust money could be usedto buy another mower. “Butif he wanted to buy into a topless bar, we have confidence his Aunt Jill wouldturn him down,” Gwen chuckled. The trustalso provided for lump sum distributions to the grandchildren upon turning 27 years old. The main trustobjective, however, was unwritten: Bobby’s wife,Ellen, would never haveaccess to trust funds without the consent of Jill, as successor trustee. Had theMabry’s used a simplewill instead of a trust, andif they wanted to treat Bobby and Jillequally, there would haveto be an outright distribution of half their estate to each of them. Although, legally, that inherited wealth would be the separate property of the Mabry children alone, as a practical matter, it would be far too easy for their spouses-especially Ellen-to reach it. Here is an important thingto remember-in order to be of any value at all, a trust must own something.Assets must beformally transferred to the trustee, and this must be shown in the name of the account, or documents of ownership. Even when spousesserve as trusteesof their ownliving trust, as is typically the case, real estate deeds and financial accounts must be retitled, in order to be owned by the trust (or, more precisely, owned by the trustee, on behalf of the trust). For example, a deed might be transferred from Mom and Pop Doe, to: “Mom and Pop Doe, Go-Trustees of the Doe Family Trust, underdeclaration of trustdated .” Financialinstitutions will also require authorization, in the form of the trust document, before they will accept instructions from a Trustee. This is an area where major snafus occur with do-it-yourself trusts. More than one person has happily set up a trust, and then neglected to transfer ownership of assets to the trust properly. If a transfer of an asset into a trust is not made, the trust has no control of that asset. Financial institutions will help you transfer accounts into the nameof your trust. Forreal estate, youwill need to get a lawyer to draft a deed; do not do that yourself.

Is a Trust Really For You? Trusts are not right for everyone, and finding help to set up the proper trust can be expensive. Here are a few factors to consider in determining whether a trust should be part of your estate plan: If you have young children, your premature death, with no trust set up, will result in their receiving their inheritance (or insurance pro-

Link to the Other Side: Estate Planning I 283 ceeds) as alump sum atage eighteen-not a good idea.Better to have a trust that names a trusted friend or colleague to disburse the money to the children as they need it. If your kids are grown, but do not act like it, iforthey have spouses you do not care for, a trust may be the only way to keep “strings attached” to their inheritance. If you are concerned about managing your affairs in case of disability, a trust provides for a successor trustee stepto inquickly, with no court involvement, whennecessary. If you are concerned about privacy, be aware that a will is an open, public record, while a trust document can be strictly confidential. If your estate (alone, or combined with your spouse’s) is over thefederal estate taxation threshold of $675,000 (rising to $1 million in 2006), the proper trust arrangement cansave you a bundle. If you own out-of-state real estate, placingit ina trust avoids the need to go to Probate Court ineach state where property is owned. You might also find this site helpful. The Living Trust Resource Center, from CarolinaCapital Management, is a page with insightful commentaries on selected trust issues. They are all good, but “Howto Properly Usethe Services of an Attorney” and “A Quick Check of Your Current Trust” (even if you do not yet have one) are particularly worth reading. Visit www.ccmtrust.com/ familytrusts/resources/index.htm.

The Durable Powerof Attorney Another important step in establishing a plan for your estate isto establish a procedure should you become incompetent.If you are incapacitated due to illness or accident, who is going to be in charge of making medical and financial decisions on your behalf? You need to designate someone as your agent, andgive them a durable powerof attorney. A Power of Attorney (POA) is a document in which one persongives authority to another to act on hisherbehalf. The person giving the power is the principal; the person whogets the power is the principal’s “attorney in fact” (who does nothave to be a lawyer).The extentof the power can be very narrow: for example, handling a single transaction on just one day, or extremely broad. The principal cannot, however, grant the power to somebody else to make her will. POAs can allow the principal to delegate broad authority over her personal financial affairs, even in the case of disability or incompetence. For

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this purpose, a “Durable”POA is necessary. It is a very broad and detailed document that contains a long list of specific things the attorney-in-factis authorized to do (e.g., “write checks on my account” or “buy or sell real estate on my behalf”). The document also contains a statement such as: “This POA shall not beaffected by my subsequent disability or incapacity, or by the passageof time.” This sentence is crucial. Without it, lawstate usually invalidates the POA automatically and immediately upon the principal becoming disabled or incompetent.Yet this is precisely when folks need it the most. For a POA to be valid, however, the principal must beof sound mind when signing it, even if it is to remain valid during subsequent disability. Note, too, thatall Powers of Attorney-even the “durable”variety-end at the death of the principal. A good “standard” durablePOA, written for Connecticut residents, but valid elsewhere, can be foundwww.ctelderlaw.or-flowerofAttornevINonat Statform.htm. This siteis maintained by Connecticut Legal Services, a private, non-profit law firm. SeniorLaw.com posts a copy of the New York durable power of attorney form authorized by statute there. Thisexcellent form was created with clarity to the lay person in mind, and it serves as a good checklist of things to consider. It’s accessible directly at wwwsenior 1aw.coddDoa.htm. You can also purchase POA forms from most of the resources that sell self-help will and trust materials. (See below.)

Your Taxable Estate What is included in yourfederal taxable estate? Thisis an easy one: Everything! You have heard the term “probate estate.”But remember, this refers only to that portion of the property you own at death thatis subject to the probate court. Remember the point we covered earlier: that assets with beneficiaries already designated for them, as well as jointly owned accounts and property, are not partof the probate estate. The size of the probate estate has nothing to do with the size of the federal taxable estate. The taxable estate includes the following, which may or may not be included in theprobate estate: All property interests owned by you, orby a trust you control outright, or bya trust to which you have anysignificant “strings attached.” This includes your shareof joint accounts! Qualified retirement plan proceeds andIRAs. Life insurance proceeds, if you own the policy, even if it is payable to


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a named person, rather than to your estate. There is no income tax due on a life insurance payoff, but that payoff is considered the property go. of the insured person, because she decided to whom it would Keep in mind that in 2001, when value theof a person’s, or married couple’s combined estate approaches $675,000, the needfor federal estate tax planning is triggered. Remember that estate tax calculator I ran the numbers through at the beginning of this chapter?Run afew of your own numbers (or what you guess might be your parents’ numbers) through there, and you will quickly seehow thisall adds up to a bigchunk of change. You’ll find that calculator at www.estateulanninP.com. Click on “Consumers,” and go from there.

The FederalGift and Estate Tax at a Glance The general rule isthat all transfers of money or property (directly to somebody, or by will or trust)-whether gifts during life, or bequests atdeathare subjectto a single, FederalUnified Gift and Estate Tax system. But there are significant transfers excluded from this tax. Marital gifts. Gifts of any size to your spouse-during your life or at death-are completely tax free. $lO,OOO annual gift exclusion. You can give up to $10,000 a year to anyone without any tax to either the donor or recipient. (So that’s $20,000 per year, if both spousesgive, to any numberof people.) Gifts for medical or educational expenses. There is an unlimited estate and gift tax exclusion for gifts in theform of payment for medical or tuitioncosts. Payments,however, must be madedirectly to the institution, not just earmarked for this useand given tothe beneficiary. Gil’ts tocharitableorganizations.The IRS maintainsalist of approved charities that includesall the familiar names. In addition to the exclusions listed above, everyone has a personal gift and estatetax shelter.(The tax law doesn’t phrase it thatway, but that’s what it boils down to.) The shelter allows everyone to give away, during life or at death, a portion of their estate, free of transfer tax. Under current law, the shelter amount will increase in uneven steps until 2006, whenit stops at $1 million per person.That’s a running, lifetime total-you don’t get a new shelterevery year. For those dying in 2001, the tax sheltered amountwill be $675,000; in 2002, will it be $700,000.

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When you make a lifetime gift, if it does not qualify as one of the tax exclusions above-it begins to “use up” your shelter amount. Whatever portion of the $675,000 (for those dying in 2001) that is not used for lifetime gifts is still available to protect your estate atdeath. So, if you havenot used any of the shelter by making lifetime gifts, therewill be nofederal tax due on the first $675,000 of your estate. But then, ratesbegin at 37%, and go to 55%. So any tax planning you can do is well worthwhile.Here is how itall breaks down: S i z e of estate

Marginal tax rate

$675,000

37%

$750,000

39% 41% 43% 4 5% 49% 53% 55%

$1 million

$1.25 million $1.5 million $2 million $2.5 million more than $3 million

Estate Tax Calculators There are a variety of other estate tax calculators on-line, enabling you to input current or assumeddata and estimate what the federal estate tax liability would beif you died this year, or what thetax would be on any estate you inherited this year. Some are more sophisticated than others, so not every calculator will produce identical answers. Use these tools with caution;therearecertainlynowarranties on their accuracy. Indoing my research, I noticed that one calculator was based upon tax law that changed over three years ago! I recommend running your numbers on two calculators, and checking to see if your first estimate is in the same ballpark as a second estimate, with a different calculator. Take a look atthe estatetax calculator at EstateWeb.com. There is also a wealth (pardon the pun)of information available from the Big Five accountingfirms,includingArthur Andersen at www.arthurandersen.com, Deloitte and Touche at www.dton line.com, Ernst &I Young at www.ev.com, and PriceWaterhouseCoopers at www.pwc$obal.com.

Tax Planning for Married Couples What happens to assets accumulated in a marriage? Be aware of a common tax pitfall: if the combined estates of you and your spouse total more than


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the amount of the personal shelter ($675,000 for 20011, you need to pay close attention to estate planning details. Many married couples incorrectly reason that, “Sure, both our estatescombined total well over$675,000. But half, so each of our estates can be fully protected each of us owns only about by our personaltax shelters. Anyway, each of us is leaving everything to the other, so there won’t be anyfederal estate tax due, because of the unlimited marital deduction.” Yes, that is true for now-but what happens when the second spouse dies? The second-to-die spouse has only the $675,000 shelter to protect what were at one time the assets of both spouses. In effect, the $700,000 exemption which belonged to the first spouse to die has been lost to the couple and their family. This is a “tax tragedy” But, there arelegitimate ways to avoid this problem by using “A & B Trusts” or a “Bypass Trust.” If you are a couple with assets over $675,000, you should contact your attorney or accountant andask them about these types of trusts.

QTIP for ExtraProtection But what if you are not one-half of a long-term marriage? Whatif you are now married for the second time, and have children from your first marriage that you would like to protect? The QTIP trust is tailor-made for this modern life situation. You can provide for your current husband during his lifetime, but direct the remainder of your estate to go to your own kidsnot to your second (or third!) husbands family A QTIP trust requires that 100%of the interest or other income it generates be paid out to the surviving spouse. On his or her death, the entire trust principalis then paid out to its beneficiaries (your own children). That is an important “string” to keep attached. All monies deposited in a QTIP trust also qualify for the unlimited marital deduction from estate taxes, only with the QTIP can you keep the “string”and themarital deduction.

A Prenuptial Agreement? It was four weeks before Joanne Gallo’s wedding, and she was nervous. This would be her second wedding, much simpler than first, theand the 42-yearold dentist had all the arrangements in order. “I was fine until last week,” she told me, “thenmy girlfriends took me out for a drink, and one of them ever since.” said I needed a pre-nup.My stomach has been in knots

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Joanne knew herfriend was right. Shewas a principal in an established dental practice, with two others. She had already accumulated a six-figure retirement account, and would likely continue to out-earn her fiance, David, significantly. What is to worry about? Joannealso knew the cold facts: about half of all marriages today end in divorce, and most money and property earned by either spouse, while married, is at least, “on the table,” when a judge decides on thefinal distribution of assets. Joanne’s highest priority washer eight-year-old son, and she realized she had to do something to safeguard her estate for his benefit during her life, as well as after. Although she was totally comfortable with her decision to marry David, Joanne recognized it wouldbe irresponsible to ignorethe possibility of divorce, and put herson’s future at risk. She had to discuss a prenuptial agreement (sometimes called a premarital or antenuptial agreement) with her fiance. Talk about a romantic buzzkiller! “What doI say?” she wondered. “How you do bring up divorce a few weeks before the wedding?” The answer was unclear, but Joanne figured that she was not thefirst person to face this dilemma. She started Web surfing for ideas, and learned that others had found answer an by re-stating the problem: Don’t focus on divorce. Joanne would present the pre-nup as just an estate planning tool, part of a plan to ensure that each spouse’s property would ultimately pass to hisher children, in the event of premature death.Surely, David wouldn’t get offended by this proposition-“He has two kids, and probably wants the same thing,” she reasoned. Still, Joanne wondered why she could not just put her estate planning desires in a will. The reason is that state law gives a surviving spouse asignificant pieceof the deceased spouse’s property, no matter what hisher will says, unless the parties agree otherwise. That is what a pre-nuptial agreement is.Almost any arrangementfor property distribution is possible, upon death or divorce,if the parties agree. (Please don’t forget the obvious: Put it in writing.) Typically, the parties agree to share living expensesinformally, paying as they go. With respect to property acquired before the marriage, however, aswell as the income from that property, the agreement states that, “What’smine is mine, andwhat’s yours is yours.” Here are a few situations in whicha pre-nup should be considered: You have children from a previous marriage. Your current or future earning potentialis greater than your fiance’s. You are apartner or shareholder in a business or professional practice. Your net worth isgreater than your fiance’s. Your fiance has accumulated a worrisomelevel of debt.

Link to the Other Side: Estate Planning I 289 Prenuptial agreements are subject to much greater scrutinyfor fairness by judges than an ordinary business contract would be. Of course, by the time a judge gets involved, there is a dispute under way. Accordingly, the most important factors, to maximize (but not guarantee) the chance your pre-nup will be enforced, relate to fairness: Full disclosure (documented in the agreement) of all assets and liabilities of each spouse. No pressure,duress, or eveninequality of bargainingposition between the parties at the time the agreement is signed. Each party should seek advice from hisher own attorney-or clearly waive that right in writing. A single lawyer should never be asked to represent both parties in preparing a pre-nup. Don’t thrust a pre-nup in frontof your fiance the day before the wedding. Historically, at least when applied by men to women, even that kind of (not so) subtle pressure has been ruled sufficient to invalidate a prenuptial agreement.

An excellent piece on who should considera prenuptial agreement, as well as suggestions on talking about it withyour fiance, is foundat httu:Nfamilvlawfla.com/aeree.html.

Planning for Children with Disabilities: (SNT) The Supplemental Needs Trust Are there other types of family situations in yourlife that might require special planning? One very real fear that many parents have is how their children will manage without them. Thisis of even greater concern to parents whose children have special needs. “I have worried for years about what would happen to my son Steve, after I’m gone,” Marian told me. “He is mildly mentally disabled, and hasalways lived with me. I’m almost eighty, and he is close to fifty himself. Finally, I went and saw an estate planning attorney to help figure out what was best. I am so relieved that there is a plan, that he won’t just be left to fend for himself.” The SNT is designed to provide quality of life “extras” to an adult child, who might be receiving state medical, housing, or other assistance. (We are talking about non-essential things like cable TV, newspapers, recreational outings, etc.) The trick is to make these things available without jeopardizing the childs low-income status, for aid-qualification purposes. Definitely see a lawyer forthis. You can learnmore about SNTs at www.seniorlaw.com/snt.htm

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or www.thearcofpec.orddocuments/trusts.htm.Note that many Web resources on SNTs are found on sites operated by groups advocating onbehalf of those affected by a particular disability, in agiven state. They are still a good source of generally useful information.

The Irrevocable Life Insurance Trust (ILIT) Unlike the other trusts we have mentioned, this trust is irrevocable and cannot be changed in any significant way later. It is has the potential to do a great many things for families in a wide variety of situations, but it is so named because alife insurance policy is often its biggest (or only) asset. What is the pointof creating a trust to own your life insurance policies? The answeris clear if you continue the wise thinking thatled you to obtain coverage in the first place. In case of our premature death,how many of us have survivingbeneficiaries mature andknowledgeable enough toproperly handle a six-figure policy payout check? And how many don’t? The line forms on the left. The best reason to establish a trust to own insurance is to ensure that the management and distribution of policy proceeds is according to your wishes. The second bestreason is to save a fortune infederal estate tax. You know that life insurance payoffs are received by the beneficiary income-tax free, but remember that proceeds from policies you own will be included in your estate, just like a bank account. What if you figured your estate to be worth $500,000, not including your $250,000 life policy that sure doesn’t seem like anasset when you pay the premiums?Well, you miscalculatedthe policy is part of your estate, so add $250,000 to the ledger. Suddenly, you are over, not under, the estate tax threshold of $675,000 (in 2001). If an ILIT owns thepolicy, however, death proceeds are not included in your taxable estate. The “catch”is that to achieve this tax result, you must not have any rights of ownership in the policy or ongoing control of the trust. After you set the ILIT arrangement up, you must backoff. You are no longer in controlof the life insurance policy.

The Charitable Remainder Trust (CRT) Is there a way you can give something away and still benefit from it while you are alive? Yes. If you are charitably inclined, could use a nice incometax deduction, butaren’t ready to give up the income generated by a particular asset, theCRT might be justfor you. In the most basic form of CRT, a


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pre-selected, fixed-dollar payment is madefrom the CRT trust you have set up for you, each year for life, with the left over trustprincipal-the remainder-going to a charity or educational institution upon your death. You get to deduct the “presentvalue” of the money or assets you put into theCRT immediately, although you continue to get the income from that money or assets. There are dozens of varieties of this arrangement, and the tax rules change frequently. Therefore, a CRT is definitely out of the do-it-yourself field, and competentlegal advice is a must. Theplace to start is the website of the charity you are considering. Not surprisingly, these folks want to make it easy for you to give money. Their website is very likely to have a good deal of information on the CRT and related plans, and will probably offer extensive help in setting one up. For instance, I went to thewebsite of my alma mater, UCLA, and found the information on CRTs quite easily. UCLA would bevery happy if I (or any other willing alum) transferred property to them, and makes the informationreadily available.

Do It Yourself? I am frequently askedwhether it iswise for a woman to draft her own will, without using a lawyer. My answer is “Yes-but only if you can assure me she won’t make a mistake.” There are plentyof self-help websites, guides, form documents, and software products available on-line to empower you to createlegally valid estate planning documents.Legal validity hasvery little to do with whetheryou have properly identified and addressedall your estate planning needs-and that is thereal question. Let me be clear: anyonewho totally shuns professional legal help does so at herperil. That said, itis still worthwhile to acquaint yourself with online self-help resources for several reasons. First, you can save money, as well as learn quite a bit, by drafting your own will or trust, then paying a lawyer for an hourof her time to review it andgive you feedback. Secondly, even recognizing that an attorney would be the best option, you might be in a situation where it is either self-help or no-help. In that event, on-line self-help is vastly better than no help atall.

Self-help legal publishing pioneer Nolo (now, Nolo.com) has offered for many years an outstanding array of resources in print, and more recently, on CD-ROM and on-line. Muchof Nolo’s material is focused on estate planning, and a good bit of information is offered free at http://www.nolo.com. Nolo’s reasonably-priced software (WillMaker

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I What’sYour Net Worth? 8.0 and Living Trust Maker 2.0) and written materials for creating wills and trusts are very good-maybe too good. Despite the company’s caveats,do-it-yourselfersmight feel empowered to bite off more than they should without an attorney, at leastto review the plan. Kiplinger.com puts outWILLPower software, which canalso create a state-specific will thatestablishesmorecomplicated tax-saving trusts-unlike some of the other will-preparation products: http:// kiplinger.com/software. WILLPower alsocontainsextensiveestate planning reference material. Kiplinger is now a part of the Block Financial Corporation, and has long published KiplingerS magazine and the Kiplinger Tax Letter. Smartagreenlents.com, on-line sellers of business agreements and forms with embeddedinstructions, also puts out an “Estate Planning $25. Go Bundle” of common anduseful documents, downloadable for to www.smartaPreements.com (The linkto the downloadpage for this “Bundle” is on the home page, but may be a bit hard to find.) For about $20, MyLawyer.com offers on-line, interactive documentassembly systems for generating wills appropriate to various common family sltuations (e.g. married withchildren). Visit www.m$awyer.com. Trustforms.com offers several downloadable, fill-in-the-blank living trust forms for a variety of situations, for $29 each. The forms come with the necessary instructions and accompanymg documents (for example, a deed form to transfer your homeinto the trust).As a nonlawyer, I cannot vouch for the adequacy or appropriateness of these forms for any individual. Therefore, I strongly recommend (as the Web site does) that you consult an attorney to review the documents you prepare using these forms. Check out www.trustforms.com.

Confronting the mortality of our parents, as well as our own, gives us the opportunity to take steps to pass the baton gracefully from one generation to the next in order thatthey, too, might progressup the wealth ladder. As the economic impactof women grows, we increasingly find ourselves as estateplanningdecision-makers,whose collective judgments will profoundly influence the future, one family at a time. The Internet empowers us, likenothing before, to gather the information needed to make wise judgments and exert our influence responsibly. The choices and decisions you make regarding your estate planningwill echo for years within yourfamily. Through a combination of preserving your wealth, excelling in your career, savingand investing, andeffectively managing your money, you are one step away from the ultimate rung on the ladder:giving back.


Links You Will Love General Information about Probate, Wills,and h t s www.ccmtrust.com/familvtrusts/resources/index.htm www.estateplanforyou.com www.estateDlanning.com www.flprobate.com www.nolo.com www.thelegalbeagle.com www.wfn.com www.willsandprobate.com

Power ofAttorney www.ctelderlaw.org www.seniorlaw.com

Wills of Famous People www.courttv.com/legaldocs/newsmakers/wills

Finding an Attorney www. findlaw.com

www.martindale.com

Tax I n f o m t i o n and Calculators www.ccmtrust.com/familvtrusts/resources/to~ic5.htm www.dtonline.com www.estateweb.com/common/calc.htm www.findlaw.com

Self-help Will Preparation www.kiplineer.com/software www.mvlawyer.com www.nolo.com www.smartaereements.com www.trustforms.com

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Chapter 12

Give Something BackCharitable Giving

Nine-year old Olivia Lewis had a fundraising mission in mind.She wanted to raise money to fight breast cancer, so, on November 5,2000, she made a stack of drawings andseveral small bottle cap pins, and startedselling them to the people gathered in her family’s house that day. Why were so many people there in her living room? Because the night before,Olivia’s mother, Laura, had passed away at age 37 from breast cancer. “I’m raising money for charity,” she told each person as she offered her art for 25 cents; by the end of the day, she had raised $3.25. “How do I send this money to charity?” she asked afamily friend. “Let’s go on the computer and find out,” hermother’s friend replied. Together theyfound thewebsite for address for the Denver arm of the Susan G. Komen Foundation and noted the Olivia to send her moneyShe printed outa careful note, told them about her mother’s death, andincluded not just the money but also a sample bottle cap. I suspect there were tears on their end when they opened the office mail. Chapterafterchapter I’ve talked about how to use theInternet to increase your net worth. Now you know how to climb up the rungs of the wealth ladder,to use theNet to save money,stay outof debt, and make your money grow. Let’s now turn towards using the Net to go on-line and give back some of your money, your unused possessions, or your time. Women have long been the backboneof America’s tradition of charitable volunteerism-baking cookies for the church bakesale, serving soup at the homeless shelter, even rollingup bandages and knittingscarves for soldiers during our wars. Twenty-first century womenstill do those things, but As now we also have moneyto contribute along with our time and services. women move up the wealth ladder-thanks to higher salaries and better investing-we are in aneven better positionto give something back to our 294

Give Something Back-Charitable Giving

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12) Share your success 11) Preserve what you have 10) Increase your earning power

9) Minimize your taxes 8) Organize your finances 7) Protect your assets 6) Invest to build your net worth 5) Educate yourself about investment

4) Acquire a home 3) Free yourself from debt and build credit 2) Live within your means 1) Determine where you stand communities and donate to our favorite charities. Do not feel excluded if you aren’t wealthy “Philanthropy is the next frontier of the women’s movement,” says Andrea Kaminski, executive director of the Women’s PhilanthropyInstitute (www.women-philanthropyorg), anonprofitgroupin Madison, Wisconsin. “And you don’t have to be richto participate.” In fact, women are leading the resurgence in charitable giving. Take a lookat some of these eye-opening statistics: Women are more likely to volunteer than men. According to the Independent Sector, 62% of women volunteer, comparedto 49% of men. In 1998, an estimated70% of households reported making a charitable contribution.Even those with incomes under $10,000, almost half (48%) made a donation. The proportion of givers reached nearly90% for families with incomes greater than $100,000. Single women aresignificantly more likelyto make charitable contributions than are single men, according to the President’s Council of Economic Advisors. Women business owners in the United States are more likely than maleentrepreneurs to participateinvolunteeractivitiesandto encourage their employees to do the same.

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Why, after urging you to save, invest, and grow your money, am I now turning around and encouraging you give to some of it away? Because just as the rewards of increased financial security and net worth aremany, so,

too,arethe

rewards of donating to an eleemosynary (a ten-dollarword I

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learned from a friend who runs a charity. Use it to impress your mother!) institution. Watching the ever-increasing value of your investment account will give you afeeling of security and accomplishment. Writingout a sizable donation to your favorite charity will also give youthat feeling of accomplishment, as well as thesatisfaction of knowing your good fortune is being shared with others. Imagine the immediate rewards you will experience donating your time to a charity, and seeing thedifference your own actions can make. The remarkable thing in America is that the government, in effect, reimburses you for a substantial portionof your gifts to charity. Donations to recognized charities (501(c)3 organizations, educational institutions, and government agencies) are tax deductible. So when you donate $300 dollars to the local Boys & Girls Club, you get to deduct $300 from your taxable income. If you are in the28% bracket this meansyou pay $84 less in taxes, plus, if you live in a state with state income tax, you will save even more. Inessence, then, the government hassubsidized approximately one-third of your donation.

Many Ways to Give Just as there are endless ways to spend time and money on-line, there are also all kinds of ways to donate your time,possessions, services or money using the Web. Just type in the URL of your favorite charity (don’tforget to type in .org insteadof .com in most cases) and you can use your credit card to donate funds or volunteer your services. Many on-line service providers, such as your phonecompany, now also havelinks on their site, which take you to the websites of charitable organizations. You might even run across a linkto a charitable organization on your on-line broker. Indeed, even auction sites likeeBay have charity sections nowadays. Why donate money on-line instead of the traditional way? Itsaves you time, and it allows you to focus and choose to whom YOU want to give, instead of responding toan unsolicited solicitation. On-line giving also gets your money whereit is needed, faster. During times of national or international crisis-floods, earthquakes, refugee crises-money donated on-line can be putto work immediately. Relief organizations do nothave to wait for checks to arriveby mail. Using the Net in your charitable donations actually involves more than just the giving money aspect-you can now, more than ever before, learn about the charity that interests you. Rather than wait to receive a brochure or a fundraising call, you can go to their website, as well as independent authorities, andresearch what the charity does, how it spends money, its and its latest successes.

Give Something Back-Charitable

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Perhaps best of all, on-line donations eliminate the needfor expensive administrative functions that often divert donated dollars into overhead expenses. Functions such as manual accounting, solicitations by mail or phone, preparation of expensive marketing materials, and the preparation of lengthy mailing lists can be reduced or eliminatedentirely and companies such asCharitable Way, Inc. are leading the way. This means that more of your donateddollars-dollars you workedhard for-can go directly into hands-on, face-to-face charitable activities. The Net even allows youto compare charities within a sector in order to find the most cost efficient, find out who needs yourold desk, and even mange your donations, makingtax time easier.

Give Back? How Much? Charitable gifts by Americans totaled $190 billion dollars in 1999. What does it mean on an individual basis? Figures available from the Independent Sector, a WashingtonD.C.-based advocacy group, showed that in 1998 we donated an average of 2.1% of personal income, for an average household donation of $1,075. Historically, thesuggested goal for personal giving in America has always been about10% of one’s total income.Certainly, many religious institutions use this figure in their suggested tithing. In reality, however, very few live up to this lofty goal. In fact, my friend tells the story of joining a large church in a wealthy area of Sacramento. She honored the churchs request and stretched to pledge 10% of her modest income as a state worker to the church. She was chagrined to learn in the next church bulletin that she was the fourth-highest donor to the church in a congregation of over 2000. So 10% is probably off most people’s charts, but the reported actual number of 2.1% of income given to charity looks pretty skimpy by any standard. How should you decide on a target figure for charitable giving that is right for you and your income? Claude Rosenberg founded NewTithing Group in San Francisco. He maintains that we could all increase our charitable donationsby a whopping 90% and still have plenty of money to ourselves. On theNewTithing website (www.newtithing.or&,you will find a custom-designed tool to help you assess how muchyou reallycan afford, taking into account your savings goals, inflation, and other factors (see Figure 35). NewTithCalc is just like the online calculators that help you assess how much car you can afford, or how large a mortgage payment you can handle. NewTitheCalc asks you for the financial facts and does the figuring for you. Plug in the numbersfor yourtotal

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assets, earned and unearned income,capital-gains taxes, living income, and in the way of charitable givingfor you. Or, put in see what this site suggests just a few key facts and it will make some assumptionsfor you.

CanYouAfTord to Give? If you are not already giving to charity, when shouldyou begin? Whenyou amve at the salarytarget you have set for yourself? When you hit an age milestone (say45) that for you represents the time folks should start giving something back? Should you wait untilyou are on the way towards your own investment andfinancial goals? If you feel you And what should yougive? Is it just money? Just time? cannot give either money or time, can you donate unused items? There are no easy answers to these questions. Each one of us has to to when itfeels right, or what groups or activdecide if and how much give, As to ourown personal investment goals, it is cerities we want to support. tainly true that, the earlier you begin to invest the more money you will have to give back laterin life!

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I would encourageyou to look at your donations as a part of your completefinancialplanningpicture.Approachcharityunemotionally, and design a plan that works for your budget.Like your other investments, perhaps you will want to set aside money every month earmarked for donations. Or you might, like two friends of mine, sit down once year to a write out the checks and send themoff together. Peter and Gin Sander sit down at the dining room table every Christmas Eve after the children have gone to bed, and write out the charity checks for the year. Here’s how to design your plan: 1. Use the calculator at www.newtithine.org to find your top-end suggested donations.Bear in mind that this number comes from the perspective of a strong proponent of increased giving, so you would be better off to take the time to put your detailed information into the calculator, rather than letting it make the assumptionsfor you. 2. Compare thisfigure to your monthly budget and annual income. Do you feel that you could give more than you aregiving now? Or, due to your age and debt obligations, would you be more comfortable offering time instead of money right now? 3 . Determine the distributionof your funds. Once you decideon a comfortable annual amount,decide if you want itto go to one organization or three. Whether you give it in one lump sum to one group, or spread it around, itwill not affect the tax benefits.

One thing to keep in mind, when deciding how many charities to contribute to, is that the more you spread it around, the more follow-up solicitations youwill receive. What doI mean? You will soon find that yourone donation check seems to prompt a flurry of additional requests from that same organization.Each one of these mailings can cost the organization as much as two to three dollars. To minimize the use of their marketing dollars, you might consider keeping the number of organizations thatyou work with to a minimum, or asking the organization to limit the numberof mailing sent to you. Most are happy to do it.

Hearts and Minds So once you decide to give, how do you decide whom to give to? Most of us decide withour hearts. Whena loved one diesof breast cancer, we might send money to the Susan G. Komen Breast Cancer Foundation. When we have a memorable vacation inYosemite National Park, we send a check to

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the Yosemite Association. When we see heart-wrenching photosof flood victims in the newspaper, wesend a checkto the American Red Cross. Even folks famous for thinking with their heads-likeBillGatesgive with their hearts. When Gates and wife his Melinda first began making charitable donations, they assumed that they would be giving money to bring computers into underprivileged schools, or to people in developing countries. The more they looked at the world around them, however, the more theyrealized that most people in Third World have pressing more concerns than having access to a computer. He and his wife have shifted much of their giving towards immunizations against childhood diseases, rather than computers. Kay Koplovitz, founder of the cable company USA Networks and now CEO of Working Woman Network (www.wwn.com), also donates time and money where her interestslie-in helping women start and fund their own businesses. “I support Count Me In because itdirectly puts money into the hands of women needing microloans, who might not succeed otherwise.I developed Springboard for the same reason. This venture capital series for women entrepreneursis putting millionsof dollars into the hands of women starting andgrowing businesses,specifically in the area where women were traditionally not getting their “fair share.” To learn more about the Count Me In microloans, check them out at www.count-me-in.org. Information on Springboards annual venture capital event can be found at wwwspring board2001.org. When choosing a charitable cause to putyourhard-earnedmoney towards, you might askyourself the following questions: What do I feel passionate about-and why? What do I believe are the most pressing needs in our world? In my community? Who do 1 want to benefit? Do I want to be able to observe the impact of my donation? If so, a local charity would be best. In 10 years, what would I like to see my money do? What kind of impact would 1 like it to have?

Many Ways to Give Let’s run through the different ways you can use yourcomputer and on-line connection to “give something back.” You can usethe Net togive cash directly to charities. Making your dona-


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tions on-line at charitable websites saves you time and hassle. You do not need to write andmail a check,and keep in mind also it savesthe recipient organization money and time. One of the biggest questions that peoplehave when donating is, “How much of my money really gets through to the cause?” Who wants to see the money they donated for hungry children used for administrative overhead? Donating on-line saves the organization countless dollars spent on printing, postage, and other administrative costs. Making donations on-linealso helps you act on yourbest impulses.You read a dramatic story in thenewspaper, or learnof a crisis situationon television, and you knowyou have to help, but how?Did you write down the address ona little scrapof paper and shove it into your purse? Can youfind it (along with that plainenvelope and a stamp) when you need it? Fact is, we all tend to give on impulse, and the longer ittakes to get it together to write that check and send it off, the greater the chance that we will move on to other things and forget our intention to help. Hop on-line instead, type in the name or theorganization and there on the screenbefore you is your chance to help now. Here are several suggested strategies to make your dollars work for you:

Suggested Strategies 1. Never give cash; always write a check so you have a paper trail for tax purposes, even if you do get a receipt. 2. For automatic monthly donations, however, putting them on a credit card or a payroll deduction is better. Remember, the charity pays a credit card fee-but you do get your airline miles and aclear record for tax purposes. Pay off your bill monthly; otherwise, the bankwill do better thanyou or the charity. 3 . Prior to transacting, review the site’s privacy policy and any waivers explaining how your personal information will be used, if at all. 4.Watch out for charities that give you gifts after you make a donation-like the T-shirt. That is the last thing you want your money going to. 5. If it is a local chanty with which you are unfamiliar, consider dropping by ormakinganon-cashcontributionuntilyoubecomebetter acquainted with them. 6 . Watch for “handling fees.” Some sites may charge you ahandling fee in addition to the credit card processing fee that may comeoff of the donation amount before it is given to the charity. Not only is this

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What’sYour Net Worth? unethical, accordingto the standards setby the National Association of Fundraising Executives, but many peopleare unaware of this.

Many organizations also offer monthly giving plans, much like what many experience through their employer. The benefits are that itis easy, and they often allow you to contribute in small amounts. This can be done eithe through your credit card, or directly out of your checking account using Electronic Funds Transfer, known as “EFT.” EFT is preferable, because it eliminates processing fees for the organization and interest charges for you if you do notpay in atimely manner, though be sure to make sure your bank balance does not fall into negative territory. Automatic donations also help eliminate annoying renewal mailings that can add to those fundraising costs. Parting with cash is oftentimes difficult for older women, whoare afraid they might need it ina crisis. Some womenprefer to leave a donation to an organization in their will and get the satisfaction of knowing that herlegacy will be remembered through work shecares about.

What You Need to Know About Taxes and Donations What you may not realize is how much you can deduct from your taxes, whether it is for a cash donation or the mileage on your car for a trip you Do not forget that contributionscan add made to volunteer at your church. up to some real savings, but you will need to be aware of the following rules: If you give over $250 in cash or propertyto a charity, you must get a written receipt from the organizationspecifically identifylng the item to substantiate your claim. If it is under $250, a receipt or cancelled check is sufficient. If you donate a non-cashgift over $500 to a single organization, you must attach the Form 8283 to your 1040. If it is between $500 and $5,000, you need a receipt and the 8283. If you donate enoughto one organizationto claim adeduction of more than $5,000,you must attacha written appraisal from an independent appraiser supporting yourclaim. The IRS does not accept appraisals by the charity or thegiver for property worth more than$5,000. This applies only to non-securities donations. To deduct the fair market value of donations of clothing, household appliances, furniture, and other goods to charities, you must make sure you keep some documentation. Write up anitemized list and get it signed by the charity.

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Giving Stocks Why donate appreciated stocks?The simple answer-because it will cost you less while giving morethe to charity of your choice. StockYou Keep Sale of Stock $4,000 Less Tax 600 You Keep 3,400

StockYou Give to Charity Value of Stock $4,000 Tax Savings 1,120 Your cost to donate 2,280

It isa bit complicated,but here is howit works. Say youbought stock oneand-a-halfyears ago at $1,000 and now it has a value of $4,000.If you were to sell it, you would paycapital gains tax on your $3,000profit. If you are in the 20% capital gains tax bracket, you would pay about $600 in these taxes, so what you actually get from yoursale of stock is $3,400($4,000 $600 = $3,400).If you donate the appreciated stock to charity, you get a $4,000tax deduction, which will save you $1,120on your taxes assuming youareinthe28%taxbracket($4,000x0.28=$1,120).Youareoutofpocket only$2,280 (the$3,400you would have gotten to keep fromthe sale ofyour

stock after taxes minus the $1,120 you get viathe tax deduction for your donation). On the other hand, the charity gets the full $4,000value of your donation of stock.And, again, if you livein a statewith state income taxes, you will get an even bigger break. These tax benefits allow you to contribute more than you otherwise might havegiven-and that is one of the reasons the law isthere.

You can also deduct expenses for work you do with charitable organizations. For example, if you work in a hospital, you can deduct transportation costs to get there. You just need to keep track of your bus fares or driving mileage. In fact, traveling costs can represent a significant portion of your charitable deduction. When you donate more than$75 to a causeand receive something in return, likea dinner, the charity must subtract its value from the total amount of your gift. Only the remainder is tax deductible. If you donate less than $75, it is your responsibilityto separate the cost. If you purchase a ticket to a charitable event, you can deduct only that portion of the ticket price that exceeds the cost of the entertainment. For instance, if you attend a charitable dinner for which you paid $250 but the dinner was valued at $25, you can deduct $225. Upon purchase of the ticket, the charitywill give you a document that lets you know the dollar value of this amount. The same rule applies if you purchase products soldby a charitable organization.

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More HelpOn-line Can’t remember the exact nameof the organization you would liketo send money to? Thereare several charity portals that can help. Guidestar.org provides you the ability to search for a charity in your neighborhood, and provides information on 640,000 charities. The sitealso provides useful information on how to become a philanthropist. You can find Guidestar.org’s capabilities at such sites as Helping.org (www.helping.org)created by AOLls Foundation.

Tracking Contributions Much like on-line bill payment, the Internet now allows you to streamline your contributions in suchway a that, come the end of the taxyear, it takes much less of your time to figure it all out. DonationDepot.com is automating charitable contributionsfor organizations like the UnitedWay, as well as for companies and theiremployees. Say you are an employee and your company is offering you the ability to donate via payroll deductions. Through the new technology, you will be able to manage your donations on-line,view your history of contributions, and be remindedto take your deductionscome tax time. CharityWave.com provides a similar on-line donation and management capability, though it works directly with consumers. Keep in mind that,even though companies may tout that 100%of your donationgoes directly to the organization, they usually receive some amount from the organization for helping them raise the funds in the first place. Still, come April 15, you will have spent less time scrounging around the house looking for evidence of all of the different charities to which you donated; it can all be found in one place,if you use their site to manage all of your donations.

How Much Really Gets There? There are several ways for you to investigate any charity. To uncover thebig one-whether the organization is a 501(c)3 (which means your donations to it are tax deductible), you can go straight to the IRS at www.irs.treas.gov and see if the charityis legitimate. An easier source is Guidestar.org, which, among other things, lets you quickly pullup the most recently filed copy of an organization’s Form 990, explaining the good deeds accomplished and

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arguing for the continued favorable tax status. Keep in mind that smaller charities do not have to file this form and that it onlyprovides a snapshot in time of an organization’s status, butthey areeasy to read and understand. To determine whether the charity in question meets with the 23 standards set by the Better Business Bureau’s Philanthropic Advisory Service, which includesa501(c)3status, go to www.bbb.org and select “When you donate.” The BBB grades charities on things like their public accountability, use of funds, solicitations and information, fund raising practices, and governance, but keep in mind that they do not grade churches, schools, or colleges, which may have a501(c)3 status.1 recommend using two sites to check out a charity if you are not familiar with it. Other sites to help you evaluate a charity’s status and financials are the American Institute of Philanthropy at www.charitvwatch.org, which lists 360 non-profits that have beenrated,andtheInternetNonprofitCenteratwww.nonprofits.ore/ libran//how.html, which provides a guidefor reading a nonprofit’s financial statement. The Chronicle of Philanthropy at www.philanthropy.comclosely follows the ins-and-outs of the giving communityand trends thatare shaping the futureof on-line donations. How can you tell if a charity is not quite on the up and up?Here are some signs: You are getting overly aggressive telephone solicitations. The organization will not send you hard copies of reports until after you donate. You receive letters or calls saying you you’ve won something from a charity. Fundraising and administrative costs combined exceed 50% of its income. Many modern donors to charity consider their donated money to be a kind of “investment”inthe charity’s future.Theyexpect to seeactual results, much like they do from their other financial investments. They monitor howwell their charities are doing, they read annual reports, check out their websites periodicallyand whenthey seesomething they don’t like, they make there concerns known throughe-mails to the organization.

Give While Spending In the early days of e-commerce, several sites croppedup that let you give, while at the same time getting. These sites donate a portion of the price you

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pay for goods orservices directly to charity. In othercases, it gets more complicated. Some sites donate themoney (or a portionof the money) that they receive from referrals from their affiliate links. If you are shopping somewhere like shopforschool.com, you are in a “fundraising gateway” that leads to familiar sites like Amazon.com or Office Max. Amazon.com and Office Max pay back to shopforschools.com a percentage ofall sales that come to them through the shopforschools.com portal. In turn, shopforschools.com donates a portionof the fundsthey receive to the school you designate. Follow that? A little complicated, but schoolsare the ultimate beneficiary. The theory behindthese websites is that you are making the purchases you would have made anyway, like that book from Amazon.com. But, by accessing Amazon.comthrough the charity site, you are also making a donation at no extra cost to yourself. And if you select your children’s school as the beneficiary of your choice inthe example above, youare giving back in a simple and inexpensiveway. One of the best-known for-profit shopping portals that has a charitable feature is GreaterGood.com (www.meatergood.com). Their planis to make it “free and easy to support good causes through everyday Internet use.” What sites like this are actually doing for organizations like the Goodwill is providing avehicle for donors to buy goods, with a certain percentage going to thecharity. GreaterGood.com believes that visitors to their affiliated websites-like the Goodwill-should be able to do what they already do online-make travel arrangements, search, surf, or shop-with each action automatically generating revenuefor a cause they select at no extracharge to them. CauseLink.com provides a similar service for those visiting the AmericanCancer Society’s website. Working Assets, throughitsphone services, credit cards and online shopping enginelocated at www.working forchanee.com,works directly withconsumersandthen passes a certain percentage of your bill (1%in the case of phone bills) on to various organizations. a charitableaspect to them, Whilethesefundraisingsitesdohave remember that the money you spend there is not deductible. You are simply buying a book through Amazon.com,for instance. You got a book, but you do notget the tax deduction, too. When a portion of your purchase price is donated by the seller to charity, it is the seller, not you thebuyer, that takes the tax deduction. Sometimes, because they are giving a portion of their sales price to charity, such companies do not offer the same level of discounts as other merchants.Also keep in mind that, while the merchant may charge high prices for what may be suspect merchandise, the charity may realize only a very small contribution. In additionto the cause-related shopping portal that links you through


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like the book buying example above, GreaterGood.com also operateswhat are known as “click-to-donate’’ sites. These click-to-donate sites are essentially selling yourtime-your ad viewing, mind-sharingtime-to sponsors, who in turn are donating money to the programs. Thelargest site is The Hunger Program (www.thehunpersite.com).Go to the site, click on the button marked “donate food” and you will be led to a page displaying small banners for the sponsors who are actuallyunderwriting the donations. Look at the bannerfor L. L. Bean-it means that L. L. Bean is donating money to buy food. Using this method, The Hunger Site has raised the money for 10,000 metric tons of free food for the hungry since was it first established, through more than 85 millionclicks on the little “donate” button. An incredible idea, isn’t it? One that could notexist without the Net! GreaterGood.com also operate click-to-donate sites for breast cancer, the rain forest, and children with AIDS. Now, why wouldL. L.Bean or some other big company wantto do this? What is in it for them? I am not questioning their commitment to these causes, of course; I am just suggesting thatwe look a tiny bit deeper into why companies participate. It has to do with fact the that you, the consumer, now associate alarge company witha feel-good kind of cause. That the next time you get a catalog in the mail, or pass by one of their stores, you the consumer will have a warmerattitude towards the company you saw on the donation site. You can also take your shopping one step further-by making sureyou only buy merchandise from companies whose policies agree you with. Lara Kasper-Buckareff feels strongly about labor issues as well as the environment. How did she make sure that the money she spent on everyday things did not inadvertently go towards companies whose records in those areas did not match her concerns? “I used cooDamerica.orp to screen the companies I do business with.I find it very frustrating togo into theaverage store and have most of my clothing not made in the United States. What I’m concerned about are the working conditions under which it was produced. I wanted to be able to use my money to support businesses that protect the environment and care for its people.” Through the coopamerica.org site, Lara can type in the nameof the company she is considering buylng from and find out whether she likes their policies. Or, just go directly to Co-op America’s Greenpages.org, a searchable database of socially- and environmentally-responsible businesses that have been screened on a host of issues, from labor issues to community participation to workplace conditions to environmental impact. For larger consumer product companies from Hasbro to The Gap, check out Responsi bleshopper.org, which allows you to review their social and environmental

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track records, get industry profiles, and even compare companies withinan industry.

More to Buy! Okay, 1 admit it, I am not immune to the appeal of eBay. Who ever would so many weird and wonderful things out there have imagined that there are in the worldto buy? But is there also a way to buy things on eBay and feel good about contributing? You bet there is. At Christmas time, the eBay homepage includes an intriguing button marked “The Giving Tree.” By clicking on that button,you are given theopportunity tobid on items, with the proceeds goingdirectly to benefit the Boys and Girls Clubsof America and itsefforts to get Christmasgifts to deserving kids.We have all probably enjoyed participatingin Christmas toy drives, but doing itover the Internet is certainly faster and easier than having to find an organization to donate to, pick out, buy and wrap thegift and take itto the drop-off point. While large websites are actively assisting with charitable fundraising efforts, even individuals are now using auction sitesto raise money for their favorite charity. The most famous example isRosie O’Donnell, who estabAll Kids Foundation and runs an on-going charity auction on lished the For eBay featuring autographedstuff from the celebritiesthat have appearedon her show. Lessknown are the efforts of non-celebrities to useeBay’s moneymaking engine to raise money for their favorite causes. Emily Cunningham of New Fairfield, Connecticut, for example, had set herself a fundraising goal of $3,500 for the Leukemia Society Marathon, butwas only ableto raise pledges of $2,500 from colleaguesand friends. Hermother Fran hada good suggestion: sell afew excess possessions on eBay to raise the rest. “It’s like having a garage sale on the Internet,”says Fran. When Fran had her “customers” make their checks out to the Leukemia Society, oftentimes she found they would give more than they had originally committed to.

Investing with a Social Purpose Is it actually possible to invest in a way that gives back to the community? Is there a way to increase your own financial net worth, while at the same time helping businesses and communities achieve social good? The answer is a carefully-qualified “yes.” “Socially responsible investing” has grown in popularity over the past few decades. It may be the result of more money in the hands of baby


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Women’s Equity Fund LindaPei, president of ProconscienceFunds,decided to create the Women’s EquityFund (www.womens-eauitycom) to back up her feelings about the status of women inthe workplace withactions.“We haveno right to complainabout theglass ceiling when we can do something to address the issue,”she says. So Linda joinedwith Leslie Christian,a graduate of UCBerkeley’s Haas School of Business, tocreate a fund that focuseson advancing women’s interests.Their criteria for their investments? They look at the number of women on thecompany’s board, the percentage of women representing officers, development and training programs, and equal pay, among other factors. Says Linda: “We want our money to be invested with companies with forward-lookingmanagement teams-those that realize that unless they take advantage of contributions from allof their employees, they willnot becompetitive in the global marketplace.”

boomers with their residual social activism from the1960s. With the Gen Xers-and their equally firm social convictions-the socially responsible investing movement seems boundto strengthen. Today, therearespeciallycreated socially responsibleinvestment funds-funds that take into account the policies and actions of the companies in which they invest. These funds can have a great deal of influence over companies in their portfolio. How? Because when a fund that has invested $5 million in your company is concerned over something your company is doing, your company has abig problem. When it comes time for that fund to vote its “proxies” (the shareholder proxy forms that arrive in your mail prior to annual meetings), you bet that the company is going to pay attention. If the fund decidesto sell off its stock, the impact on the value of the company’s overall stock can be dramatic. Rest assured, the socially active investment fundsdo not overlook thevalue and importance of getting involved in shareholder votes.

Where Are These Guys? If socially-conscious investing sounds appealing to you, how canyou find a fund that meets your objectives? Two ways, actually. First, you can use the Net to find a socially-responsiblemutual fund through your own brokerage firm and its website, if they offer them, or bygoing directly to www.social invest.org. At socialinvest.org, a site run by the Social Investment Forum, youcan view theperformance,expenseratios,minimuminvestment

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requirements, and the social screens, for stock funds,bond funds, and even money market funds, all in one location. Also, be sure to view the funds performance to the appropriate ‘‘index”-such as the SQP 500 for large cap funds or the Russell 2000 for small cap funds-or similar types of funds, which are also available at Social Invest. Similar information can be found at www.socialfunds.com, www.preenmoney.com, and www.srinvest.net. The Domini Social Equity Fund, for instance, is the oldest and largest socially responsible index fund in the country It is also a no-load fund. If you oppose tobacco, nuclear power, and gambling, for instance, this fund strives to avoid investing in companies that derive significant revenues from these activities.Other socially responsible funds canbe easily researched online by visiting their sites, whether it be Ariel Mutual Funds at www.arie1 mutualfunds.com or the Calvert Group atwww.calvert.com. As an investor working toward your long-term retirement goals, your first concern should be the performance of your investments. Your basic decision to invest in a socially-responsiblefund shouldbe basedon the same businesslike criteria you use when making investment decisions, such as your comfort with risk and your time horizon. Use the same thought process we went through in the investing section on choosing a mutual fund in Chapter 5. When it comes to socially-responsible funds, many have questioned whether you sacrifice investment return for a good cause. Amy Domini, the founder of the Domini Fund, conducted compelling research showing that you do nothave to sacrifice performance. In fact,if you look at theDomini’s funds performance comparedto the S&P 500, you will notice that it holds u p well, and haseven outperformed theS&P 500 in the last three years. Its expense ratio of 0.95% is also belowthe average 1.40% for mutual funds.

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How Do They Rate? lhelve of the 17 socially and environmentally screenedmutual fundswith $100 million or more in assets earned high ratings from either or both of two of the industry’s most respected investment tracking firms, Morningstar and Lipper. Alisa Gravitz, executivedirector of Co-op America, a non-profit investor education organization, says, “We are now rapidly approaching the daywhensocially and environmentally responsible investing will be a‘no-brainer’for millions of additional investors.When youhaveexcellentperformance in bothup and downmarkets and increasing opportunities to make this world a better place to live, the case for screened funds extraordinarily is powerful.”


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Should you decide to invest in a socially-responsible fund, opening an account and funding it requires the exact same process that any other investment takes. The websites for the funds themselves will simply walk you through the steps in the application process. You can also often find socially-responsible funds at your on-linebroker’s site by searching in the mutual fund section. Opening your account with your on-line broker will reduce some of the paperwork and keep your investments streamlined.

Non-Cash Giving: GettingRid ofYour Junk Prior to the Internet, we relied on the Goodwill or St. Vincent de Paul to come haulaway our old clothes, thekids’ old toys, or the extra mattress we no longer needed. What happened to it after the truck drove away-who benefitedfrom our donation-was not aconcern,but forthose of us who do want see to our oldpossessions put to work by those we think need them most, we can log on and find a charity in need. This is especially important in this day and age with all the truckloads of unused stuff filling up ourlandfills! One of the beautiesof the Net is the abilityto connect people-to serve as a broker for items and services. While eBay now provides a forum for nonprofits to sell donated items on-line (rather than wait for someone to wander into their volunteer shop), organizations likeExcess Accessare providing a way for you to donate your accumulatedpossessions without the inconvenience of the past. Here are two important things to remember when making a non-cash donation: Put a market value on the items you are donating. Market value translates into what the item would likely sellfor at aflea market orgarage sale. For tax deduction purposes, make sureyou keep a recordof its value (not how you arrived at the value), the date you contributed and the entityreceiving the donation. Visit one of two IRS-approved websites to help you determine an appropriatemarket value: www.salvationarmv.org or www.itsde ductible.com. On large and expensive items (such asa painting going to the local art museum),will need an independent appraisal. Over the years, stuff that we just could notlive without when we bought it becomes stuff we cannot wait to get rid of. Nothing to feel guilty about; our tastes change, ourlifestlyes evolve, and we no longer want tohave the

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large teak desk in the corner of the bedroom.So, who does need it, and how can weget it to them? Enter ExcessAccess.com, a new organization designed to link donors of hard goods up with the folks and organizations that need their stuff. Furniture, art work, and all manner of office equipment is needed by non-profit organizations, and ExcessAccess is a great way to get it to them and take a deduction at the sametime. How does it work? Executive Director Lisa Guatier describes it this way: “The system is totally automatic, they (donors) review all postings; at ExcessAccess we match donors and recipients in a zip code radius, and once is a made match the recipientsare responsible for picking up the donation.”So if a homeless shelter needs beds, they post their need on ExcessAccess, and when someone posts extra beds that they would like to get rid of, a matchis made! Pamela Kerwin, the busy chief operating officer of Geovector, Inc., wanted to donate a beautiful old rug to a charity, but did nothave the time to drop it off herself. Through Excess Access, she made arrangements for a dance company to come over and pick it up. “It was a perfect match,” Pam said, “I’m also happen to be a strong patron of the arts.” And, before she knew it, she had a receipt for tax purposes in her e-mail box. It does cost the donor a one-time $10 fee to sign up with Excess Access, but after that there is no limit to the numberof items you can post for donation. By the time you check them out at www.excessaccess.com, they may be making their way into your region. You might also consider finding your local Goodwill by goingto and then into “donate goods.” Most national nonprofits with local offices provide a search capability or you can look them up by using the on-line yellow pages at www.yellowpages.com.

On-line Potential The ability to raise money and recruit volunteers on-line holdsvast potential for charities. Instead of the traditional glossy brochure or multi-paged fundraising letter sent out in a mass mailing to people identified as possible donors, charities are looking forward to being able to reach a whole new universe of young “beginner donors” on-line.A recent study by The Mellman Group (a public opinion polling firm) found that,while the universe of people receiving direct mail solicitationis mostly aged, on-line activists are mostly young people. On-line donors do have their own setof concerns, of course. Most are quite concerned about maintaining their privacy when sharing personal informationon-line,much like theirconcernsabouton-lineshopping.


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Many people do not want others to know they who donate to or how much they give. To protect yourself, follow these steps: Look at the privacy statement. Theprivacy statement shouldtell you exactly how your informationwill be used or if it will remain confidential. Legitimate charity siteswill keep your information confidential except for internal purposes. Read waivers. Oftentimes, before making a credit card transaction, you will be asked to read an agreement. It’s easy to skip over it, but I’d encourage you to take a look. More often than not,if information about how your name or donation might be used is missing, it’s being shared with another site.

A Foundation of One’sOwn When your income andassets have grown to the point whereyou want to devote largersums to charitable donations, you might to want consider your take nearly own foundation. Soundsawfully swanky, I know, but it does not as much money asyou might imagine. Many of the larger financial institutions have programs that permit you to set up your own donor-advised fund through themby depositing a minimum of $10,000. Check with your brokeragefirm to see if they offer one. You get the immediatewrite-off of that sum, and avoid the hassle and paperwork of making the various donations yourself. You just tell them which charities you would like your checks to go to.You will pay both an administrative fee for the program, plus a fee for the management of the funds you’ve dedicated to giving. There aretwo other things to know aboutthese.

No Breaks for Politicos Be advised that contributions to political candidates and their campaign committees, as well as contributions to politicalparties, are not taxdeductible! Althoughthis might discouragesome folks fromdonating, in the same way that you get a feeling of personal accomplishment whenyou involve yourself and your money ina charity, you can also gainan incredible feeling of political involvement and influence by putting your money where your political beliefs are, regardless of whether you geta tax deduction.

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The firstis that youtake the deduction only once (when you give them your $10,000);you don’t get to write-off every individual donation that happens after that. And the donations themselves need to beof a minimum size. For instance, with T. RowePrice’s Program for Charitable Giving (www.Pro -g), you need togive your money away in a minimum sum of $500. For those seekingto do something on an even larger scale, you cancreate your own “family foundation.” These foundations, which account for about two-thirds of all private foundations, allowyouto support your favorite causes, whether they be in the arts, social services, education, science, public health, or the environment. For large-scale foundations with seven-figure sums, why not check out the information from the National Foundation Center at www.cof.org. Notwhat you hadin mind? On the NFC site, look under“regional foundations” and see if there is one in yourarea. Setting up your own foundation through these organizationsbecan done in the $30,000 range. Worth magazine, for those in the higher income bracket, has a “giving” section at their site at www.worth.com with a guide to charitable giving and links to a hostof helpful sites.

Volunteering Your Timeand Services: TheOld Tradition Throughout the country, women are the leading volunteers for charitable organizations. Although men are catching up with women in their volunteer efforts, volunteeringis still more significant among women than men. Forty-nine percent (49%) of men reported volunteering, while for women the level approached 62%, according to IndependentSector. And according to the National Foundation for Women Business Owners, women business owners in theUnited States are more likely than men entrepreneursto participate in volunteer activities and to encourage their employees to volunteer as well. The Net is a great way to research what local organizations may benefit from you timeor expertise. Volunteer Match is a wonderfulplace to go to find out who in your area needs yourskills (www.vo1unteermatch.org). Type in your zip code, let them know howfar you would bewilling to travel, what kindsof organizations and what kind of tasks most appeal to you, and back comes a list of everything from helping at pet sheltersto filling in at the front deskfor a children’s charity You can specify either an ongoing need (if you want a volunteer job that will be a long termcommitment) or a onetime need likefilling in for a staff member taking a much-needed vacation. Guidestar (www.Puidestar.org) bills itself as The Donor’s Guide to the

Give SomethingBack-Charitable Giuing

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Charitable Universe. In addition to its700,000 listings of non-profits in the United States you can also search on their site for places that need volunteer help. If you decidethat non-profitsare dear to your heart,you can even check their job listings for a job inthe field! Feel like swinging a hammer?Feel like learning how to swing a hammer? Habitat for Humanity is a well-known organization that builds houses for the needy. Check out the WomenBuild section of the Habitat site at www.habitat.org and learn about how they put together women-built projects that provide an opportunity for women to learn construction skills in an unintimidating environment. More than 250 houses in theUS have been built by women crews.

Moving Forward I hope that all of this has inspired youto commit yourself, your time, and a portion of your money towards helping improve the world around us. Working together, combining our hearts, minds, hands, and wallets, can truly have an impact in this world we live in.

Links You Will Love Calculators www.newtithing.org

Giving Resources www.count-me-in.org www.excessaccess.com www.goodwill.or5 www.PreenDaPes.org www.pidestar.org www.habitat.or5 www.helpin_e.org www.itsdeductible.com wwwsalvationarmyorz www.s~ringboard2001.org www.susanekomen.org www.thehungersite.com

316


Information www.bbb.or3 www.charitywatch.org www.cof.org www.irs.gov www.nonDrofits.ordibrarvhow.htm1 www.philanthroDv.com www,programforgiving.org www.wfn.com www.worth.com

PhilunthropicAdvisors www.charitvwave.com www.donationDepot.com www.women-DhilanthroDv.org

Shopping Portals www.causelink.com www.peatergood.com www.shopforschools.com

Socially Conscious Investing www.arielmutualfunds.com www.calvert.com www.domini.com www.ereenmoney.com www.socialfunds.com www.socialinvest.org www.srinvest.net www.womens-eauitv.com

Afterword ~

~~

Keep Climbing Higher

The wealth ladder does not look so hard to climb, now, does it? With the information in this book, and the climbing gear available to you on the Internet, you now have everything you need to get to the top, including budgeting and saving strategies, powerful stock researching techniques, and wealth-preservation approachesfor estate planning. You also have a new title for yourself. You are now the CFO, your own chief financial officer. It might not be the official title you have at work, but it is certainly an accurate descriptionof the critical role you play in managing your own finances. Whether you are single or married, your financial picture simply must have yourfull attention. Throughout this book I have shared a number of statistics with you, largely to drive home the point that women need to take charge of their finances in order to protect their futures. I have been saving a powerful statistic for last, though-a statistic that I believe will give you an extraconfidence boost in your climb up the wealth ladder. Take a look at this: According to the U.S. Census and Spectrum Group’s Affluent Market Research Program, women are getting richer faster than men.Yes, you read that right-women are building their wealth faster than menare. During the period studied, from 1996-1998, the number of affluent women increased from 8.8 million to 14.8 million. During the same period, the number of wealthy men rose from 10.6 million to 14.3 million.Here is how that translates-a 68% increase in the numberof affluent women, compared to 36% a increase in affluent men. Does that give you chills? Women are getting richer faster than men. Despite all of the challenges that weface-economic challenges, family 317

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1 What’sYourNet Worth?

challenges, and social challenges-women are making enormous strides financially. Our collective net worth is on the move . . . up! With increased net worth comes increased an responsibility, and as CFO you need to keep a vigilant eye towards the ever-changing array of risk factors that could have aneffect on your money. Continue to use the information in this book to stay on top of those factors. Whether you are assessing the risk of a particulartype of investment, or taking a clear-eyed view of how much financial help your parents might need in the future, please do notbe caught unaware. Also continue to keep your eye on the big picture,financially speaking. Yes, use good judgment andbe prudent when it comes to spending money, but also look beyond the nickel-and-dime aspect. Learn to leverage your money in powerful ways, so that it adds upto real wealth over time. An important part of your big financial picture is that dry topic,taxes. Just because something is boring, does not mean you can ignore it. Taxes are far too important to your future net worth for you not to understand them thoroughly, particularly when it comesto taxes and investments. Starting today, I hope you will begin to think of taxes and other financial matters as an intriguing challenge. The challenge of building up your net worth and climbing the wealth ladder is perhaps the greatest you have ever faced. Take the information from this book and use it to your advantage to save money-use it to make money. Usethe information in this book to build your net worth and create the future retirementlife of your dreams, the one that you outlinedfor yourself in Chapter One.Most important, use this informationto prepare for the day (if it is not yet here) when you alone will be in charge of your finances. I created Women’s Financial Network two years ago, because I saw a growing interest and agrowing needfor women to get more deeply involved in finances. The Internet created a community aspect that was not possible before, in which women couldlearn from others, ask questions, and leverage one another’s ideas and experiences to pull them up the wealth ladder. By combining this community aspect with financial tools, information, andservices, women couldessentially have all of their financial needs addressed at a single place. From bankingto mortgages, stockresearch to on-line investing, the tools you need andthe information you seekare all there on WFN.com. Your life is busy, and your time is precious. This is one of the biggest issues facing women today: how can we get it all done? Trying to move up in yourcareer, juggling kids, husband, and home, andtrying to eke out a few minutes to yourself can seem impossible. My last piece of advice: Harness the Web, and use these powerful tools to save you timeand money,

Keep Climbing Higher

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and watch your moneygrow. Whether you use WFN or anyof the myriad of financial companies out there and described throughout these pages, I hope I have given yougreat tools and insights intothe many financial issues that affect us all as women. Now, use the tools and start yourclimb up the ladder! Jennifer Openshaw


Index

Adams, Abigal, 224 Adams, John, 224 Aiello, Marti, 222, 238 American Savmgs and Educational Council, 30 Autobytel, 41 Baker, Mari, 83-84,86 Bank of America, 8 banking, on-line, 199-201 beginning, 206-8, 209-10 and the big picture, 213-14 and billshill paying, 201-2, 210-13 and “cookies,”219 difference from traditional banks, 202-3 ease of use and ease in spotting errors, 203-4 and interest rates, 208 person-to-person (P2P) payment systems, 214-15 privacykecurity issues, 218-19 software, 215-17 strategies for selecting, 208-9 bankruptcy, 61-64 Berenson, Julia, 10, 34 Bernnett, Robert, 36 Biagioni, Linda, 5 Bingham, George, 32 Bingham, Sarah, 32 Black, Jan, 14 Boutin, Linda Wenker, 237 Brigs, LIZ,74, 83, 159 brokerage firms, 127-29 and beneficiary deslgnation, 131 on-line, 130

and power of attorney (POA), 131-32 ratings guides, 129-30, 134 titling an account, 130-31 Brown, Kathleen, 250, 279 budgeting, 16-17,27-28,35-36 and coupons, 36-37 and family involvement, 31-32 on-line help for, 28-30 and rebates, 36-37 and used items, 34-35 Cable, Margaret, 74, 78 Caldwell, Sandy, 137-38, 150 charitable giving, 294-96 determining how much togive, 298-99 determining where or whomto give to, 299-301 forming a foundation, 313-14 giving while spending, 305-8 non-cash giving, 311-12 on-line, 304,312-13 tracking contributions, 304-5 opportunities for, 296-97 and social purpose, 308-9 funds for, 309-1 1 and stocks, 303 strategies, 301-2 and taxes, 302-3 and volunteering, 314-15 Chicago Board of Options Exchange (CBOE), 163 Christian, Leslie, 309 Cohen, Abby Joseph, 8 comparative market analysis (CMA), 88 computers, 35

322

I Index

Consumer Reports, 31 Corcoran, Judy, 84 credit. See also identity theft building, 63 improving, 68-69 reports, 66-67 assessing, 67-68 Dacyczyn, Amy, 26 Danko, William D., 27 debt, 46-47. See also bankruptcy; credit, reports approaches to, 47-49 counseling for, 61 credit cards, 54,57-58 and children, 56 consolidation, 59-60 and home equity loans, 58-59 and low introductory rates, 58 and minimum payments, 54-56 surfing, 56 determining, 50-52 dwindling, 65-66 good versus bad debt, 49-50 and women,47 Direct Marketing Association, 19 Direct Re-Investment Plan (DRIP), 128 Domini Social Equity Fund, 310 “Edgar Database,” 147 Edwards, Sarah, 267 Employee Benefit Research Institute (EBRI), 107 estate planning, 267-70 definition of an estate, 284-85 and durable Power of Attorney (POA), 283-84 executor dutles, 273-75, 277 fees, 275 and prenuptial agreements, 287-89 probate proceedings, 276 Costs, 278-79 need for lawyers, 276-78 and taxes, 270-71,285-86 calculators for, 286 for married couples, 286-87 and trusts, 279-81 benefits, 281-82

Charitable Remainder Trust (CRT), 290-91 determining factors in choosing, 282-83 Irrevocable Life Insurance Trust (ILIT), 290 QTIP, 287 Supplemental Needs Trust (SNT), 289-90 wills, 271 and clarity of language, 271-73 writing your own, 273,291-92 estimated tax payments, 28 Executive Life Insurance, 195 Farrell, Mary, 7 Fields, Debbi, 25 financial goals, 13-14 Fiorina, Carly, 247 First Sex, The (Fisher), 248-49 Fisher, Helen, 248-49 Ford Motor Corporation, 8 Fredricks, Nancy, 264 Gallo, Joanne, 287-88 Gates, Bill, 300 Gates, Melinda, 300 Gillie, Carole, 4-5 Gomez Associates, 75, 205 Grau, Adnane, 121 Guatier, Lisa, 312 Hanson, Janet, 86 Harley Davidson, 8 Heron, Lindsay, 16, 20 Home Depot, 8 home ownership, 76.See also loans down payments, 95 finding a home, 83-85,89-90 virtual home tours, 85-86 and Inspections, 97 and mortgage lenders, 82-83,90-92, 97-98 Federal Housing Administration, 92 and multiple listmgservices (MLS), 86-87 and real estate agents, 87-88 finding an agent, 88-89

Index

and relocation expenses, 80 and school conditions, 87 versus renting, 79-81 housing market index (HMI), 82 Howard, Anne, 261 identity theft, 70-71 Individual Retirement Accounts (IRAa), 112-14 Education I R A , 114 Inland Revenue (United Kingdom), 225 Institute for Equality in Marriage, The,5 insurance, 168-70 and asset coverage, 187 auto, 187-89 disability, 184-87 health, 170-73 benefits, 173-74 COBRA, 173 comparison shopping, 191-94 costs, 173 health maintenance organizatlons (HMOs), 17 1 long-term 177-78, 179 on-line, 174-76, 195-97 preferred provider organizations (PPOs) , 171 special concerns, 178-80 home, 188-91 strategies for purchasing, 191 insurance companies financial health, 193-94 largest, 194 performance, 194-95 life, 180-82 credit, 183 on-line, 184-85 proper amount of, 182-84 renter’s, 191 Internet, XIV, 98 and comparison shopping, 32-33 cost of, 10 use by women, 33 investing, 101-3, 139-40. See also brokerage firms; stocks and bonds advisors, 117-20 guidelines for choosing, 118-20 baslcs, 121-22 concepts, 122

I 323

compounding, 122 diversification, 123-25 riskheward relationship, 123 fundamentals, 140-43 and investment clubs, 116-17 monitoring Investments, 160-61 and mutual funds, 125-27 fees, 126 on-line, 120-21 and saving for college,114-16 and social purpose, 308-9 mutual funds for, 309-1 1 and retirement needs, 104-6 windfalls, 141 “It’sa Woman’s World Wide Web” survey (Jupiter Media Metrix), 33 Jensen, Carla, 137 job and career search accepting a position, 259-61 and changing life stages, 252-53 fitting a jobto you, 250-5 1,264-65 and headhunters, 259 and the high tech market,254-56 and networking, 256-57 on-line, 249-50 career sites, 253 researching prospective opportunlties, 257-59 key items, 258-59 and salarylwages, 261-262 negotiating, 263 for your particular skills, 262-63 and women-friendly companies, 253-54 Johnson, Irene, 274, 275 Jung, Andrea, 247, 251 Jupiter Media Metrix, 210 Kasper, Ann, 256 Kerwin, Pamela,312 King, Stacy, 79 Koplovitz, Kay, 300 Kukla, Paula, 70 Ladies Homejournal, 9 Ladky, Anne, 255 Levy, Ellen, 121 Lewis, Laura, 179-80

324 I

Index

Lewis, Olivla, 294 loans and credit history, 96-97 and fees, 98 locking in rates, 94 and private mortgage insurance (PMI), 95 qualifying for, 96 types of, 92-93 fixed, 93-94 variable, 93-94 Mabry, Gwen, 280-81 Macaskill, Bridget, 8 MacLean, Audrey, xv1 Major Risk Medical Insurance Program (MRMIP), 176 Marino, Christina, 226 marriage, and money, 4-6 joint finances information chart, 5 Marshall, Maureen, 70 Massa, Tiffany, 246, 259 Meeker, Mary, 8 Merrill Lynch, 9 Miller, Heidi, 247 Miller, Paula, 64-65 Millionaire Next Dooq The (Stanley and Danko), 27 Moore, Janet, 185-86 Morgan Stanley Dean Witter, 9 Murphy, Diane, 9, 15 Myers, Sharri, 101 National Association of Home Builders (NAHB), 82 National Association of Investors Corporation (NAIC), 116-17 National Association of Women Business Owners, 103 NetSmart, 17 net worth definition, xiv determining, 2, 10-12 and the ESG (Earn it, Save it, Grow it) approach to net worth, 19, 24, 57, 213 Oda, Celeste, 41

Onassis, Jackie Kennedy, 272 PaineWebber, 9 survey on women andinvesting, 7-8, 11 Pei, Linda, 309 Pfieffer, Jen, 259 Pension Benefit Guaranty Corporation (PBGC), 109 Pozzo, Suzanne, 66 Promotional Fulfillment Center. 36-37 real estate, 74-76, 82. See also home ownership Real Estate Investment Trusts (REITs), 82 Reeve, Christopher, xvi Reeve, Dana, xvi retirement. Se also investing, and retirement needs; Individual Retirement Accounts and company pension plans, 108-9 401(k) and 403(b) plans,109-11 savings, 107-8 self-employment plans, 111-12 Rose, Charlotte, 6 Ross, Kirsten, 251 savings bonds (Series EE bonds), 115 Semler, Judy, 188 Siebert, Muriel, 8 Smart Money, website of, 11 Smiley, Heather, 199, 213 Social Security, 106-7, 108 spending, 16-17,20-21,22-24.30-31 control of, 25 Ernst Q Young survey of, 24 family plan, 25-27 and lost opportunity, 24-25 Stanley, Thomas J., 27 stocks and bonds,xvi, 137-38 and analysts, 152 and CMS approach, 141,151,159-60 fundamentals, 140-43 economic conditions, 147-48 and the industry youtarget, 148-49 qualitative considerations, 149-51 quantitative considerations, 151-53 options, 162-63

lndex call, 162 LEAPS, 231 put, 162-63 and price-to-book (PB)ratio, 155 and price-to-earnings (PE) ratio, 146, 154 and price-to-earnings-growth (PEG) ratio, 154-55 and price-to-sales (P/S) ratio, 155 pricing, 153-156 and the beta indicator, 155-56 and charting the future, 156 volatility, 155 research, 145-46 fundamental, 146 sophisticated buying strategies. See also stocks and bonds, options angel investors, 164-66 buying on margin, 161-62 and initial public offerings (IPOs), 164,165 timing the market, 1 4 4 4 5 and the world wide web,157-59 Sullivan, Teresa, 5 1 taxes, 222-24. See also estate planning, and taxes brackets, 229 building tax consciousness, 226 capital gains, 236 Child Tax credit, 231 credits, 228-29 deductions, 231-235 business, 233-35 charitable deductions, 232 education, 231-32 for parental care, 233 tax preparation deductions, 233 on-line help and preparation,236-38 advantages of, 239-40 filing on-line, 238-39 tax preparation sites, 241 and planning, 229-31 tax advantaged retirement plans, 23 1 professional help with, 243-44 and tax records, 242 expense, 243 income, 242

I 325

investment, 243 and Taxpayer Relief Act, 232 withholding, 2 4 1 4 2 telephone calling plans,31 Tightwad Gazette, The (Dacyczyn), 26 Tonello, Maria, 176 Tower Research Group, 210 travel, 37-40 Twohig, Peggy, 65 Uniform Gift to Minors Act (UGMA), 114-15 USA Today, 30 Van Dyck, James, 210 Wall Street, and women, 8 Warren, Elizabeth, 51 wealth ladder, xvi-xvii, 2 websites. See also bankmg, on-line for angel investing, 167 for apartments, 98 for attorneys, 293 for auctions, 43 for banks (and credit unions), 220 for big-ticket items, 33-34 for bill-paying, 220 budgetmg, bargain information, 45 calculators, 44, 72, 99, 134, 293, 315 for careers, 265 research, 265-66 for cars, 41-43,44 college financing, 135 for company research, 134-35 for consumer information or complaints, 72, 198 for coupons, 36,44 for credit cards, 72 for credit information, 72 for debt counseling, 73 education, 265 for electronics, 44 federal government, 245 for financial information, 15, 99, 166, 167,220-21 on advisors, 135-36, 316 on charitable giving, 315 on investing, 135,316 on IPOs, 167

326

1 lndex

websites (continued) on options, 167 on probate, wills, and trusts, 293 for giving (donating) resources, 315 for home equity loans,73 for homes, 99, 100, 265 insurance information auto, 198 health, 197 life, 198 long-term, 197 ratings, 198 for market information, 166-67 marriageldivorce, 136 mortgage lending, 75,97-98, 99 real estate, 75,99 for rebates, 36-37,44 for resume help, 266 for retirement research, 136 for salary comparisons, 266 shopping portals, 316 state tax information, 245 tax planning, 245 for telephone service, 45 for travel, 37-40,45 Westbrook, Jay Lawrence,51

Whelan, Helen, 255 Wilshire Associates (Wilshire5000 Index), 264 Wilson, Dick, 168 Wilson, Shirley, 168 Woodward, Susan, 137, 150 women. See also charitable giving; debt, and women; estate planning;job and career search; taxes, and women and divorce, 6, 63-65 and earning power,24649,317-19 as focus of financial servlces companies, 9 lack of investing confidence, 139 and money, 1-2, 17-19. See also spending single, 3 4 , 65 wages, compared to men, 21-22 widowed, 7 Women’s Financial Network (WFN), xv, xvi, 47, 102, 139, 200 and directory of women’s investment clubs, 11 7 website, 11, 15 Wyndham Hotels, 20 zero coupon bonds, 115

Jennifer Openshaw broke new ground in 1999when she founded Women’s Financial Network,an innovative financial servicescompany created for women by women. She servedas the company’s Chairman,CEO, and President until its acquisition by Siebert Financial Corp. Her work won her recognition as one of the Internet’s 25 Rising Starsby Internet Worldmagazine. Ms. Openshaw also servedas a financial commentator for Lifetime CBS-TVChannel 2 in Los AngeTelevision and was the “Money Expert” for and les. She isthe Women & Money columnist for CBSMarketWatch.com has appeared on numerous television shows, including CNBC’s Power and CNN’sIn the Money.She has Lunch, ABC’s World News This Morning, and theSun Franbeen profiled in Business Week, Fortune Small Business, cisco Chronicle.She will soon host a special womenand money program for Public Television.Ms. Openshaw holdsa Masters in Business Administration (MBA) from UCLA. Visit the author at www.iopenshaw.com.

To access information in this book and more, as well as to start investing, please visit Women’s Financial Network at Siebert (WFN at Siebart) at www.wfn.com.WFN at Siebert isa pioneering financial institution created for womenby women. WFN at Siebert is a division of Muriel Siebert& Co., Inc., the number 1 ranked discount broker by both SmartMoney and Kiplinger‘s in 1999. WFN at Siebert offers a host of services, including money market funds, IRAs, custodial accounts, and more. You may also reachWFN at 1-877-WFN-INVEST(877-936-4683),or by visitingone of our offices located nationwide.

What's Your Net Worth? Click Your Way to Wealth

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To Your Good Elf!

What's Your Net Worth? Click Your Way to Wealth

Spend Your Way to Wealth

Whats Your Pleasure

Whats Your Pleasure

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The Way to Wealth

Rewire Your Brain: Think Your Way to a Better Life

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Complete Bladesmith: Forging Your Way To Perfection

Getting Them to See It Your Way

Riskgrade Your Investments: Measure Your Risk and Create Wealth

Count Your Way Through Iran

Selling Your Business for All It's Worth

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Way to Go!: Finding Your Way with a Compass

How to get people to do things your way

Click 2 (Click Two)

Build Your Own .NET Language and Compiler

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