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Friday, August 31, 2012

Are people with diabetes eligible for life insurance?

Life insurance eligibility for people with diabetes
People with type 2 diabetes stand a better chance of obtaining life insurance

By: Ben Hargrove

A diagnosis of diabetes does not necessarily preclude you from being able to get life insurance, as long as it is type 2 diabetes and you are working to keep it under control.

Type 1 vs. type 2 diabetes

If you have type 1 diabetes, it will be much harder to get life insurance. Someone with type 1 diabetes is unable to produce insulin, which means they typically will need to inject or pump insulin. Type 1 diabetes typically begins in childhood, which means patients generally have it for much longer. The longer you have diabetes, the greater the possibility of more serious health consequences. 

If you have type 2 diabetes, you may have a better chance of getting life insurance than if you have type 1. Someone with type 2 diabetes has high levels of blood glucose resulting from insulin resistance.  There are a variety of potential treatments, including medication, insulin therapy, diet and exercise. Type 2 diabetes was once called adult-onset diabetes because people typically got the disease as adults, but these days, younger people are also being diagnosed with the disease.

How long you have had diabetes is important

When you were diagnosed with type 2 diabetes can play an important role in whether you get life insurance and, if so, at what rate. Insurers typically want to see that you have brought your type 2 diabetes under control. Some insurers may want to see that they have been under control for six months.  They may test your blood sugar levels with a hemoglobin AIC test.

If you were just diagnosed with type 2 diabetes, you will probably want to wait before applying for life insurance because you will want to be able to demonstrate that you have had the disease under control for six months or whatever length of time the insurer may require. However, waiting too long after you have been diagnosed may not be a good idea, since you could then run the risk of insurers’ concern that you have had it long enough to run a greater risk of health complications.

If you have already had health complications such as insulin shock, neuropathy or vision problems resulting from diabetes, it could negatively affect your ability to get life insurance.

Improve your chances by making healthy choices

Diet, exercise and regular doctor visits, factors that are helpful in getting life insurance for anyone, may be particularly helpful for people with type 2 diabetes.  Since obesity and inactivity are important risk factors for diabetes, maintaining a healthy weight, exercising regularly and having regular follow-up doctor visits can help demonstrate to the insurer that you are actively working to control your diabetes.

About the author: Ben Hargrove writes for a variety of life insurance and financial planning blogs, including Best Life Insurance Deals.

Money cat gives meaning to term "fat cat"

Was thinking of ways to boost traffic and potentially advertising revenue from this blog when I thought of the auto fill feature on Google search. After getting as far as Moneycat on Google search, both the web and image results gave me a lot of money cats, so I thought of posting a fat "money cat" on this blog via free embeddable html to see if Moneycation would then turn up earlier in the auto fill. 

Friday, August 24, 2012

Top 5 U.S. cities to retire in

 Retirement real estate in high demand areas puts upward pressure on property price
Different state tax laws make retirement decisions more complex

In terms of tax laws, cost of living and affordable quality healthcare, several U.S. cities and states stand out as being retirement-friendly. Other factors such as low levels of property crime, commuting and climate add to the benefits or retiring in some of these places. Although these are all important variables to consider when seeking a place to retire, it's also a good idea to review personal retirement goals with a financial professional in order to optimize financial aspects of retirement decision making.

1. Charleston, SC

Located in an area known for its tax friendliness and relatively low cost of living, Charleston offers warmer winters and numerous cultural charms for a multitude of retirees. Affordable access to beautiful public beaches and parks also make Charleston a great place to retire. According to Trulia real estate listing services, South Carolina properties rank in the middle tier in terms of average national costs.

2.  Louisville, KY

Home of the Kentucky Derby at Churchill Downs, Louisville is listed in Kiplinger's most tax-friendly states for retirees. It is also in the sixth least costly state to live in per the Missouri Economic Research & Information Center (MERIC). And while healthcare is not as affordable in Louisville as in other places, neighboring Indiana just a few miles away does score higher in the Commonwealth Fund healthcare rankings. Real estate in Kentucky is also more affordable than many other places in the country per the Trulia real estate heat map, and state crime rates are lower than average according to U.S. Census data.

3. Pittsburgh, PA

Pittsburgh offers some considerable financial benefits to retirees, many of which can be transposed to the whole state. Pittsburgh ranks among the five best U.S. cities for commuting and top 25 for retiring by Forbes, and the state is considered among the most tax-friendly to retirees by Kiplinger. Pennsylvania also scores higher in healthcare quality per the Commonwealth Fund, and low in cost of living per MERIC. Additionally, despite having relatively high inner-city crime rates, Pittsburgh has safe suburbs per Neighborhood Scout.

4. Oklahoma City, OK

Oklahoma places first among U.S. states with the lowest cost of living  which lowers retirement expenses for those living around Oklahoma City. Moreover, in addition to having affordable real estate prices, Oklahoma is also considered to have some of the best municipal and state taxes for retirees in the country per Kiplinger. U.S. News reports Oklahoma City to have comprehensive healthcare coverage, and retirement here may benefit those retirees seeking to live with a demographically younger population.

5. Honolulu, HI

Although Honolulu is among the U.S. states with the highest cost of living, it's rated among the top 10 safest cities to live in with populations above 500,000 by the Morgan Quitno Press State & City Ranking publications. This, nearby deflation of real estate purchase prices and its reasonable climate can offset some of those costs with lower property insurance premiums, heating and cooling costs. Additionally, U.S. News ranks Honolulu  among the best cities for public transportation. Honolulu is also ranked within the top 10 states for overall healthcare services by the Commonwealth Fund.

Image attribution: FreeDitigalPhotos.net; standard royalty free license

Thursday, August 23, 2012

Tips for using debit and credit cards

Credit card transactions can be disputed and reversed
Credit card security is an important concern in the wake of digital hacking

The security of credit card transactions is subject to stricter legal safety requirements and higher liability protection than debit cards. However, the security policies implemented by card networks and issuers differs leading to variance in the level and functionality of the fraud claims process among both credit and debit cards. Even though credit card transactions are thought to be safer than debit cards, other factors also influence and test this belief. These factors include the card's unique security features, safety practices of the card carrier and the technology used to process and monitor transactions.

Differences between credit and debit cards

Credit cards and debit cards operate differently, and this affects their security in some ways. Sally Herigstad, a certified public accounting reporting via CreditCard.com suggests credit cards offer more financial protection in terms of actual cash-flow because with credit cards a disputed charge is not immediately drawn from an account as is the case with debit cards. Additionally, the Bank of America states credit cards are more secure for shopping via the internet because consumer fraud protection is stricter than debit cards for these kind of purchases. 

The brand and issuer of both debit and credit cards also affects the quality of their security. For example, a Visa credit card issued by Bank of America has different security features and services than a MasterCard credit card issued by the Navy Federal Credit Union. Moreover, according to Visa, both its credit and debit cards are protected by perpetual fraud monitoring via its no liability policy. MasterCard also has its own trade marked security features such as a holographic magnetic strip called “Holomag” on the back of its card. The video below further discusses differences and advantages of debit and credit cards.

Demographic probability of theft

Demographic factors can also influence if credit cards are safer than debit cards and by how much. For example, according to CreditCard.com, women are more likely than men to be victims of identity theft. Thus, if a woman is carrying a credit card and a man carries a debit card, the probability is higher that a woman will be victimized regardless of what card is carried by the man. In other words, in this example, gender plays an increased role in security than the type of card.

The Federal Reserve Bank of San Francisco states the Credit Card Fraud Act protects both credit and debit cards. However, also per the San Francisco Federal Reserve Bank, debit cards are regulated by the Electronic Funds Transfer Act whereas credit cards are protected by the Fair Credit Billing Act and the Truth in Lending Law. Since these laws are not the same, and more laws exist for the regulation of credit cards, the security afforded to debit cards is less expansive than that protecting credit cards.

Image license: Image attribution: Elph; GFDL, CC BY-SA 3.0

Wednesday, August 22, 2012

Pros and cons of economic value added

Effect of regulation on Economic Value Added
Economic value added is affected by economies of scale
Price equilibrium is reached when economic value is no longer added via cost cutting

Economic Value Added (EVA) is a term referring to financial gain in excess of profit expectations. In other words, EVA  measures the extra value profits yield for an organization after deducting cost of capital such as dividends to shareholders. Although EVA is an acronym used across multiple industries with different meanings, its significance in finance is specific. Moreover, the usage of EVA often refers to a proprietary version of the calculation claimed to have been created by the Business Advisory Firm Stern Stewart & Co in the late 1980s. The video below further illustrates the concept of economic value added:

Uses of the economic value added metric

The EVA metric is primarily used as a business valuation tool. Some proponents of EVA such as P.C. Narayan of the Indian Institute of Management at Bangalore advocate EVA over other profitability metrics because it demonstrates potential future earnings. This according to Narayan, is because measurements such as Earnings Per Share (EPS) only provide a snapshot of how well a company has met stock-holder's past financial expectations and does not reflect potential for capital reinvestment.

Calculation of economic value added

In terms of the Stern, Steward & Co. formula, EVA is the result of subtracting taxes and weighted average cost of debt and equity capital from net operating profit. This however, is not the only way to determine EVA because the cost of capital calculation varies between businesses. For example, the United States Postal Service version of EVA indexes its operating cost to inflation to more accurately reflect costs after rate increases. Other companies may not need to adjust costs to inflation based on corporate policies and accounting methods. The Stern Steward  & Co EVA formula is shown below:

EVA= (Net Operating Profit-Tax)-(Weighted Average Cost of Equity and Debt)

Advantages of economic value added

The advantages of EVA are it supplements financial data from other methods of business assessment and valuation. Moreover, it reflects businesses' cost management and demonstrates availability working capital after its original opportunity cost has been deducted. Another benefit of EVA is it can be used as a managerial incentive that helps assure the continued performance of a business. It also evades problems associated with percentage calculations by using specific values according to Aswath Damodaran, a Finance Professor at the New York Stern School of Business.

Disadvantages of economic value added

Economic value added cannot measure how well capital asset managers utilize retained earnings via project management and other business ventures. Moreover, capital asset managers may squander liquid reserves instead of effectively increasing the future return on capital by  reinvesting it with the aim of lowering operational costs via profitability instead of cost cutting. Economic value added also cannot valuate return on expenses such as research and development. Moreover, despite being an income statement operating expense, research and development actually has the potential to yield  future earnings not measured by EVA.

Image attribution: Mgmwki; CC BY-SA 3.0

Tuesday, August 21, 2012

When transaction receipts and records become redundant

After a time, transaction receipts become less useful
Statutes of limitations influence the validity of financial claims

Knowing how long to keep household records and receipts avoids problems such as inaccurate tax filings, inability to reconcile checkbooks or cash-flow, and inefficient debt management. Some documents are needed for a lifetime, others expire in months. In any case, being able to identify the functionality, validity and utility of household records and receipts is key in knowing how long they are needed.

One way to make individual or household archival decisions is with the help of a record-keeping reference guide. For example household record tips from the Ohio State University suggest warranties should be kept for as long as the corresponding property is owned, but recommend income records only be kept for six years. However, knowing the reasoning behind such references is also helpful in evaluating the accuracy of record-keeping decisions because individuals can have different record requirements. Before going in to detail about the advantages of keeping receipts and why they should be kept, the following video provides a useful introduction in terms of understanding which receipts should be kept:

Verification of identity and transactions

Household records and receipts are used to document transactions, evaluate credibility and verify tax claims. They also protect and confirm identity, legal rights, health records and ownership. If the records are expired, invalid or so old they are no longer given any legal or financial credence, then there is a good chance they won't be needed for documentation and verification purposes. However, some household records such as birth-records never expire and should generally be kept for as long as one is alive.

Statutes determine how long to keep financial records

In terms of financial records, statutory limitations determine how long a particular financial transaction, debt or income can be legally enforced. These statutory limitations range between 2-15 years depending on the state, type of agreement and debt. For example, according to Nolo, in Kentucky a lawsuit on debt agreed to in writing can be filed for up to 15 years. However, the majority of states limit legal action to 2-6 years for the same contractually defined debt. Each states' specific allowable statutory time limitations and provisions can be obtained via state code or websites such as Nolo and CreditCards.com.

Taxation and financial records

The federal government also has a statute of limitations on money owed to it. In regard to taxes, the Internal Revenue Service (IRS) generally has up to ten years to collect taxes and 3-6 years to assess additional taxes per the online CPA Journal. Moreover, also per the CPA Journal, the amount of extra tax assessed affects how long the IRS has to make that determination. State taxes also have collection limitations; after determining what those limitations are and if they apply to particular tax situations, then a determination of the redundancy of tax records can be made.

Record keeping methods and systems

Organizing household records is a skill because if it is done well, it can provide quick access to a variety of valid documentations for multiple tasks such as filing taxes, applying for loans, documenting assets, confirming identity etc. With digital record-keeping, retaining useful financial records and copies of important documents for decades is more feasible, but not necessarily practical. This is because too many records can affect computer processing speed and those records may also be redundant in the sense they cannot serve a functional purpose. The digital prservation techniques discussed in the instructional video below may be helpful when developing a financial record-keeping system.

Being aware of how to prioritize financial records,  knowing what financial documents should be retained and having a good way to maintain records such as transaction receipts is an important aspect of personal financial and small-business financial management. Financial documents can be used to confirm purchases or returns, contest charges, comply with audits and a range of other useful functions. Thus, being able to properly manage receipts is beneficial to financial management.

Image attribution: FreeDigitalPhotos.net; standard royalty free license

Monday, August 20, 2012

Any press is good press: The worst marketing tactics that paid off

 Controversial advertising is not a foolproof marketing tactic
Negative media draws exposure brands, products and services

By James Maloney

Do controversial ads really work? Some marketers believe that they do. In fact, they believe that negative press is a good thing. People just love mistakes, blunders and bloopers. This may be true, and there are ads that have been able to get away with it, but then, the risk of running controversial ads may be just a little bit too great.

Some totally bad ads got away with it by making the brand popular and increasing sales. Unfortunately, it can easily be attributed to luck more than the marketing tactic itself. For example: The Beatles came out with the "Yesterday" and "Today" album. Now, the Beatles are the Beatles. These guys were the most popular band at the time. However, the album had a photo of the Beatles smiling with mutilated corpses of dolls scattered around them.

There were too many complaints about the cover of the album that they just had to recall it. Fortunately, the band was so famous that this controversy even made them more popular. Today, if you can find a copy of that album with the mutilated dolls cover, you can easily sell it for thousands of dollars.

It was sheer luck that the marketing tactic, although a big failure, turned out to be a success. This is probably why rock bands today love making controversial albums. However, we need to remember that the Beatles were so famous and everything they did seemed to be perfect. If anyone could get away with this marketing blunder, they could.

There are also those commercials that are extremely annoying. Webuyanycar had a commercial that was voted to be the most annoying in the UK. Fortunately, the business of the company was tied in to this type of commercial. Let’s face it, if you had a car that totally annoyed you, you would want to get rid of it and guess who you would think of first. You would think of that commercial that annoyed you too.

Marketing tactics that end up being very controversial will work, but not all the time. These tactics will only work in the right time and for the right product. Most of the time, controversial commercials only create controversy and may not increase sales at all. How would you consider a marketing tactic to be a success if it does not improve sales?

There are plenty of marketing techniques that will work and they do not have to be controversial. There are ads from decades ago that people still remember and these weren’t controversial at all.

When you use controversy to market a product, there is a very big chance that the product will end up negatively in the public’s eye. This is a risk that some marketers are willing to take in order to boost sales forecasts, but would the business be able to take this risk? Controversy can be a good choice, but not all of the time and marketers should remember this when marketing their brands or products.

About the author: This guest post is contributed by James Maloney, author of the Good Business Blog.

Image: Public Domain

Guide to dividend payments

Diagram: How corporations allocate dividends
Stock prices are offset by dividend issues
Special dividends are unique dividends uncharacteristic of typical issues

Shareholder dividends are a form of monetary distribution most commonly paid to owners of business stock and mutual funds. The dividends for company stock are made from corporate earnings and income earned from mutual funds. In the case of mutual funds, how the dividend is treated depends on the type of investments made by the fund. For example, bond funds are sometimes exempt to state tax because they invest in tax free bonds. In the case of corporations, the issuance or increase of a dividend sometimes leads to an increase in stock trading activity.

Corporate dividends are issued by boards of directors, and increases or decreases to dividend amounts are typically announced via quarterly reports. To qualify for a dividend payment the shareholder has to own the shares by a specific date. This date is called the record date. In addition to owning the shares by the record date, the shareholder must hold the shares until the ex-dividend date, the day of dividend distribution.

When dividend payments are made, they are either deposited directly into a Federal Deposit Insurance Corporation (FDIC) insured account such as a money market account or a FDIC defined non-insured investment sweep account. As an alternative to having funds deposited into a sweep account, dividends can be reinvested into the issuing corporation via a Dividend Reinvestment Plan or DRIP. Dividends may also be paid into retirement accounts and life insurance polices that hold shares in either stocks or mutual funds.

Qualified dividends

Qualified dividends are paid to investors at a lower tax rate and generally dividends issued by U.S. Corporations. Moreover, qualified dividends are taxed at a maximum rate of 15 percent per the Internal Revenue Service (IRS). Income earners in the lowest tax bracket pay less than 15 percent according to the brokerage firm Fidelity Investments. Qualified dividends earnings are are reported on a Form 1099-Div that is typically sent to taxpayers in January of each year and use for tax filing purposes on IRS Schedule-D. The following presentation further explains what qualified dividends are.

Ordinary dividends

The IRS describes ordinary dividends as payments made from the earnings of corporations that do not qualify for the net capital gains tax rate. One such qualification is the holding period of shares. For example, when shares are not held by investors for a certain amount of time they are paid as ordinary dividends. According to Fairmark, mutual funds that are owned for 60 days or less don't qualify for lower tax rates. Since ordinary dividends are not subject to a maximum of 15 percent tax, they are taxed at the regular income tax rate.

Special dividends

Special dividends are usually one time, larger than average dividends paid to shareholders when corporations have extra earnings. In the case of public companies, these dividends are reported to the Securities and Exchange Commission (SEC) using a Form 8-K. It is important to note that share prices can drop proportionate to the size of the dividend on the ex-dividend date. For example, if Company A has a share price of $100 and issues a $10 special dividend per share on January 26, then the share price opens for trading at $90 on that ex dividend date, it is most likely due to the special dividend according to the Motley Fool. The video below demonstrates an advanced trading method that utilizes dividend paying financial instruments and derivatives trading techniques.

Dividend investing or income investing is a way of investing that creates income with or without capital gains. This is helpful for retirees seeking to preserve cash-flow from higher risk investments while simultaneously limiting capital erosion. Depending on how dividend investing is utilized, the benefits and risks vary.

Image attribution: Urbanrenewal; CC BY-SA 3.0

Friday, August 17, 2012

How to ship glass items safely to prevent additional costs

Glass thickness and strength is a determining factor when shipping
Broken glass expenses can exceed the cost of safe packing
Knowing how to ship glass items safely improves the cost effectiveness of glass transportation expenses. This is because damaged goods cost more than expenses used to prevent them from becoming so. Moreover, in the case of businesses, ensuring glass does not get damaged helps maintain profits.

Glass exists in many shapes, sizes and thicknesses and is characteristically fragile in many cases. Each type of glass should therefore provide insight into the initial packaging and handling requirements. Many types of moving methods for glass exist including mobile glass stands, boxes, bags, foam and other types of protective inserts.

Step 1: Measure the glass

By measuring the glass you'll know how big and protective a glass container you'll need. The glass can be measured with a ruler or tape measure. For uneven glass shapes such as auto windows, square off edges and corners by measuring continuing straight lines until they meet. For example, a piece of glass with four sides may have a curved top piece. In this instance locate the area of the top with the highest measurement. Then measure a straight line at this height until you meet an invisible extended line for each of the sides.

Thursday, August 16, 2012

Guide to surety bonds

Surety bonds are a mechanism that protect individuals and businesses from certain kinds of work or service related performance problems. For example, according to the Small Business Administration (SBA) surety bonds on contracts are like insurance, and guarantee individuals or organizations work will be finished according to predetermined specifications. Moreover, in the case of payment surety bonds, those completing the work are guaranteed payment per the SBA.  

Surety bond terms of service

Depending on the service being performed and which party is seeking guarantee, specific kinds of surety bonds are used. According to State Farm Insurance, many kinds of surety bonds exist including permit bonds, contract performance bonds and public official bonds. Each type of bond serves a particular function of surety. To illustrate State Farm also claims license bonds assure clients whose contractors are 'licensed and bonded' that they will receive services such as electrical work within allowable standards. 

Surety bond indemnification

Surety bonds are not like Treasury bonds that are purchased in full and pay interest. Neither do they pay for claims like insurance companies do according to JW Surety Bonds. Rather, only a percentage of the surety bond's full surety coverage is paid by the buyer to guarantee service, work or payment. To make a claim against a surety bond, a filing of that claim and subsequent investigation similar to other types of insurance takes place. However, unlike many types of insurance, the buyer of the surety bond and not the seller is responsible for payment or service.

If a business, contractor or official holds a surety bond, it not only gives 'surety' of their services, but can improve their marketability. This is because guaranteed service is more likely to have a higher value to paying clients and assuming competitive pricing and functions of a business, provides a market advantage if competing businesses are not bonded. In some cases, especially in reference to government services, surety bonds are mandated. For example, surety bonds on Medicare equipment supplier services are required by the Department of Health & Human Services.

Surety bond registration and authentication

For buyers of services, it may not be enough if a business simply states it is bonded. The specific type of bond and the buyer's right to make claims against that bond are ideally verified for good measure. To confirm the authenticity of surety bonds the registration of the surety bond issuer can be verified with the U.S. Treasury Department. Following this, and upon successful identification of issuer legitimacy, that issuer or surety company can also be contacted to determine whether or not a specific company or service provider is indeed bonded.

Wednesday, August 15, 2012

How book building works

Financial statement numbers are impacted by book building activity
Securities underwriters "book build" when financial securities are issued

Book building is the valuation of  new financial securities carried out by securities underwriters known as book runners. When a company issues new bonds or shares, they have to be priced. This pricing is performed by the book builder(s) who market the new financial instruments for the issuing company. This price assessment is partially based on a measured demand for the security by both institutional, private and public investors. However, book value for securities is also determined using financial formulas such as the discounted value of future cash flows.

Book building and securities valuation

An initial public offering (IPOs) such as the Dunkin' Brands Group, Inc. IPO in July 2011 serves as an illustration of how  additional issuer based valuation influences book building. The IPO had shares offered at $19 per a July Wall Street Journal report. Arriving at this initial offering price is theoretically the role of book building, but is also be influenced by the issuers capitalization needs. In other words, if the IPO is designed to raise money, the amount of money to be raised can influence the IPO price per share regardless of book building valuations.

Business influences on book building

In light of the competing motives behind IPOs the process of book building involves capitalization requirements, buyer demand for financial securities, and actual valuation of corporate worth as represented by the financial security. Some financial observers also believe book building undervalues valuation. For example, in academic research published by New York University and authored by two professors named Boyan Jovanovic, and Bal√°zs Szentes, it is suggested than an initial public offering be pre-valued below actual worth before soliciting bids from buyers in an effort to share 'super-normal' returns with preferred clients for business purposes. 

Securities valuation and regulatory protection

The actual value of shares to be offered via an IPO are only issued shortly before the offering takes place according to research in the Journal of Corporate Finance. Moreover, according to this research, yet another variable affects the valuation of book building. Specifically, regulatory environment as evident in the form of opt out rules. In other words, the author of the study demonstrates that since book-builders can withdraw their offering of securities if demand is not high enough, the undervaluation that can take place during IPOs is accepted due to the surety made possible via the opt out option.

The function of book building is fundamentally straightforward, however what actually happens when organizational entities seek to raise funds by issuing financial securities via book-building isn't quite so simple. This process and the valuation of securities is carried out by book-builders that are securities underwriters or book-runners. However, the actual price of the securities offered, IPOs in particular, are affected by several factors including book-builder financial motives, the issuer's financial security, and investor demand.

Image attribution: Freedigitalphotos.net; standard royalty free license

Tuesday, August 14, 2012

Debt management warning signs

Lower credit scores tend to increase credit costs
Oversized debt in proportion to income is a serious financial obstacle

Increased debt burden often has the capacity to magnify financial stain on household budgets. Tackling that increased debt before it gets out of control is assisted by recognizing the warning signs you are headed into debt problems. Moreover, the reason it is beneficial to spot financial red flags early on is it better facilitates amelioration of debt related financial obstacles before they get big enough to cause financial damage.

The Experian credit rating agency recommends keeping credit card balance to limit ratios low. In other words, if you find credit card debt becoming an increasingly higher percentage of total credit limit, it could be an early warning of larger debt problems. Small debt problems can creep up incrementally and sometimes go unnoticed. These small increases in debt snowball after time and become larger debt problems that make money management more difficult.

Depletion of savings

A savings account balance that declines even just a few dollars a month could be a warning sign debt problems are ahead. To find out if it is a warning sign follow the money trail. If the money from savings is being transferred into another savings account then it is more likely to be a re-shuffling of assets. However, if that savings balance is declining because of transfers to a checking account or for debt payments, then it could be signaling a potential debt issue.

Lower credit rating

By keeping track of credit scores consumers stay aware of how credit rating agencies view their credibility. Since these agencies themselves have measured credibility, it naturally follows a declining credit score means they have found financial reasons to substantiate a lower credit score. This credit score is itself an indicator of decreased ability to manage debt and potential warning sign of debt problems. The industry credibility of credit rating agencies such as Equifax and Transunion is measured by credit research performed by 'non-partisan' organizations such as the Policy and Economic Research Council (PERC).

Higher monthly debt payments

Another warning sign of potential debt problems is higher monthly debt payments. In some cases, a higher monthly debt payment may be due to mismanagement of cash-flow, however at other times it may indeed be a debt warning sign. Moreover, if higher debt is due to cash-flow, it may be resolved by a rescheduling of payments to fit income schedules. However, if the higher debt payment is due purely from increasing debt, then that too could be a warning sign of bigger debt problems down the road. The relevance of that warning also rises if the pattern of increasing debt payment continues over time. 

Overdraft charges

Overdraft charges are another potential debt warning sign. As with high monthly debt payments, these charges may be due to mismanagement of cash-flow. However, at other times they may indeed be a debt warning signal, especially if they increase in frequency and deplete the ability to pay debt. Said differently, overdraft charges themselves are a debt related expense, and too many of these charges can throw off monthly budget payments designed to pro-actively manage debt leading to higher debt payments later on.

Additional warning signs of debt such as hiding purchases are discussed in the video below:

Proper debt management is an important aspect of personal finance that effects budgeting, standard of living and financial planning. Staying within budget, keeping debt no higher than 30-40% of an available credit limit or paying debt off regularly are just a few of the ways to manage debt effectively. By being aware of debt management warning signs, avoiding larger financial problems before they start is possible.

Image license: US-PDGov

Monday, August 13, 2012

How the accelerator effect works

Syndicated leverage loan market 1998-2011 
 Indicates how financial markets coincide with economic conditions

Monetary policy and financial regulation influence lending activity
Market performance is linked to economic conditions, but may not reflect them

The accelerator effect is the outcome financial circumstances relating to business and market outlays in terms of specific economic conditions. According to former chairman of the Federal Reserve Board, Ben Bernanke, the accelerator is itself a change to “financial and credit conditions” that affects the business operating environment. For example, if interest rates rise, the cost of capital also rises; if the business environment is experiencing a down-cycle, then the rising interest rates are thought to accelerate the negative impact of the business down-cycle which in turn influences economic conditions. 

A key function of the accelerator effect is to explain why certain financial conditions occur. When a cause for specific events can be proven to be the accelerator effect, then the reason for fiscal circumstances and actions can be illustrated and justified with more validity. For example, in a research study by an Bruno Coric Phd of the University of Spilt, it is claimed the accelerator effect itself serves as a model with which changes to business “outputs” are related to financial markets. In other words, the accelerator effect is a substantiated economic tool in the context of which economic scenarios are made clearer.

Even though there is some explanatory power to the accelerator effect, it is not completely illustrative of economically related financial scenarios. Moreover, as Ben Bernanke of the Federal Reserve and  Simon Hall of the Bank of England point out, the scenario described as the accelerator effect is not due to unique causes. Moreover, other variables also influence the economy which impact the accuracy of the accelerator effect as an explanatory tool. For example, even if financial obstacles such as access to financing are prevented from inhibiting business operation, there is still the question of how using available money would be profitably beneficial. 

Measurement of both economic and financial impact is also a key function of the accelerator effect. In a report by Amundi Asset Management the accelerator effect is measured by determining the quantitative changes to corporate investment behavior when economic stress is experienced in money supply, loans to firms, credit conditions and employment. To explain further, by gathering economic and corporate data, trend lines or 'financial affects' are measured. When these trends are statistically correlated to preceding and separate but similar economic scenarios, the impact of the accelerator affect can be numerically illustrated and corroborated.

Guidance is another function of the accelerator affect. The more an economic event can be demonstrated to be the accelerator effect, the greater the perceived utility of specific forms of monetary policy become. In other words, the affects of adjusting monetary policies to influence economic conditions are in part substantiated by the accelerator effect. In this context, if the cause of the financial accelerator is inhibited, the consequence in theory would be a reduction in the ability of that financial mechanism to amplify its economic impact leading to a change in the accelerator effect.

Image license: US-PDGov

Friday, August 10, 2012

Beyond couponing: Ways to save money outside of clipping coupons

 Paying off credit cards immediately reduces extra interest costs
Growing a garden reduced the need to buy vegetables

By Debra Johnson

Couponing has exploded recently, largely due to shows like Extreme Couponing that make couponing big business, and a lot of people mistakenly believe that this is the best or only way to save money. However it’s unlikely that the average person has enough time in their day to clip coupons and check deals and buy items in that large of quantities to justify that type of extreme couponing. And while couponing itself is a great practice, it’s not the only way to save money in your everyday life. In fact, sometimes it’s the smallest changes that make the biggest difference. Here are some minor changes that you can implement to make a major difference:
  1. Check out the local library. Every month people pay money for streaming and rental services like Netflix and Hulu to watch different TV shows and movies when they could be watching the same things courtesy of their local libraries. But it’s safe to say that a lot of people probably don’t even know where their local library is. However local libraries are stocked with DVDs of movies and TV shows and you’re able to check them out for free. Ditch the monthly subscription services and find your nearest library – that $10 a month that you save can add up nicely over the years. 
  2. Join E-bates. If you do any sort of shopping online (and let’s be honest here, most people do) then you should consider joining E-bates. The website links up with retailers all over the web and gives you a percentage of the money you spend back to you. Not to mention, it’s free to join, so there’s really no reason not to sign up and start saving.  

  3. Grocery shop mid-week. Instead of hitting up the grocery stores on the weekends, try shopping mid-week instead. Grocers tend to mark down items that need to sell quickly before their weekend shipments come in, and you can score vegetables, fruit, dairy products, and meat products, just to name a few, on clearance if you go before the weekend hits.

  4. Pay with cash. Mindlessly swiping your debit card is one of the leading causes behind spending too much money because it’s so easy to do. Instead of pulling out your debit or credit card while you’re out, take a set amount of cash with you and stick to only spending that. You’ll be much more aware of where your money is going when you have a finite amount to spend. 

  5. Comparison shop everything. Whether you’re scanning grocery flyers or shopping for the best vacation rates, comparison shopping can save you a ton of money. It may take you more time to do, but the time you’re spending is nothing compared to how much you’ll end up saving, and once you start doing it regularly it will become second nature.
One of the best ways to cut back on spending and save money is to become very aware of what you’re spending and to really evaluate if it’s something that you actually need or not. Don’t be afraid to turn down going out if it’s not truly in the budget, and find alternatives, like hosting a potluck dinner at your house or a game night, instead. The little changes can make a big difference in the amount of money you spend and save. 

About the author: This guest post is contributed by Debra Johnson, blogger and editor of live out nanny. She welcomes your comments at her email Id: - jdebra84 @ gmail.com.

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Pros and cons of online securities trading

Successful and experienced online securities traders acquire wealth
Financial strategies assist with online securities trading

The ability to utilize expertise and resources to acquire capital gains is essential to the success of individual traders of financial instruments. In this sense it is the responsibility of traders to discern between poor and prosperous techniques and strategy. Numerous drawbacks befall even the best and most talented of industry experts. However, once a trader becomes experienced, knowledgeable, and refined in his or her practices, avoiding the financial pitfalls associated with online securities transactions becomes more possible.


A key factor that draws millions of people to online securities trading is the substantial opportunity to increase personal wealth. Monetary gains on well implemented trades often yield returns far above more conservative forms of money management such as federal treasury bonds. The potential to earn hundreds, thousands and even millions is possible via online securities trading and via several financial instruments such as spread betting on currency pairs.


A key benefit of trading financial instruments online is the acquisition of tactical knowledge and ability to implement learned trading strategy. Using brokerage tools helps develop awareness of the affects of market forces such as volume and economic events on asset prices. Furthermore, the trading process and simulations help acclimate brokerage account holders with the best trading mechanisms to use at specific times. For instance, in intraday arbitrage, knowing when to buy or sell using limit orders vs market orders and all or nothing trades, is important, if not essential to a well implemented transaction.


Another important benefit of securities trading is the value provided by online brokers. For example, discount brokers that only charge transaction fees and exclude commissions via self-directed accounts often only cost pennies on the dollar. Moreover, the larger the transaction amount is, the smaller the proportional cost associated with that trade becomes. In addition, a wide range of complementary digital tools such as a spread betting demo account assist traders learn how to make the most of their money.


Online securities trading is risky. The financial products are not typically insured and market volatility has a dramatic affect on the price of securities. When combined with leverage or margin, capital losses are multiplied and substantially lower asset worth if prices go the wrong direction. Reducing risk exposure entails locating financial instruments that have higher yield for the least amount of risk. Ideal risk management also involves allocating assets in such a way that overall portfolio yield rises despite any capital losses on riskier assets. To further illustrate the risks associated with online securities trading, the eHow video below discusses investment techniques that affect risk.


There is a significant learning curve associated with online securities trading. If trading platforms are simplified, they do not necessarily make up for a lack of market knowledge and experience. Moreover, most digital brokerage services provide glossaries, demonstration accounts and tutorials precisely because there is a level of complexity involved with the trading process. Not being fully aware of the pitfalls of online trading such as failing to use a stop-loss order, or using too much leverage on risky buy order makes it that much easier to make a small, but costly error.

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Thursday, August 9, 2012

Types of financial instruments held in offshore accounts

Each offshore jurisdiction has unique financial advantages and disadvantages
Offshore accounts are financial vehicles that defer immediate taxation

Offshore bank accounts provide individuals seeking an alternative investment opportunity or different avenue of financial management to improve their financial planning options. Financial instruments held within expat bank accounts often include products that's value is based on market forces, or pre-determined contracts that offer lower interest rates and  costs. The potential benefits of offshore banking outweigh those of more restrictive banking regulation and policy. This is achievable via a range of products.


Foreign currency of various countries and denominations is held within offshore bank accounts. Money held in offshore accounts for foreign exchange trading also have several benefits. For starters many offshore banking facilities offer enhanced privacy protection, and the ability to pay bills or expenses in foreign currency rather than a domestic one. Some offshore financial institutions even provide accounts able to hold more than one currency or multi-currency accounts. 


Contracts for difference such as currency pairs, equity swaps and similar financial instruments are in effect derivative financial securities. These products provide traders an opportunity to capitalize on price movements without actually having to hold the underlying asset. In some cases these CFDs are purchased using capital leveraging or margin. In other words, a credit account is used in addition to the primary fully funded offshore account.


Funds come in many shapes and sizes, and are either directly managed by offshore banks, or traded with their services. Bond funds, exchange traded funds, and mutual funds are just a few of the fund types that are held within expat bank accounts. Additional funds such as hedge funds, money market funds and fixed income funds are examples of others. These funds are either maintained independently through a trust established at an international bank, or managed with the assistance of financial service professional.


Over the counter securities trading services are available via select offshore financial institutions. These include pink sheets, another term for stocks not traded on larger exchanges. Collateralized debt obligations are another type of OTC exchanged through offshore accounts. Essentially, if it is not traded via a major formal exchange that is regulated by a particular organization, then financial instruments are considered OTCs.


Equities are an asset class within several offshore financial institutions and expat bank accounts. Moreover, stocks that are not over the counter can be traded via accounts at offshore banks. This is because when the offshore bank has a headquarters in the domicile of residence, the trading networks are interlinked enabling offshore securities trading. Stock options or stock derivatives, are also available via some offshore banks.


Certificate of deposits are able to yield as high as eight percent or more at select offshore financial institutions. Specific rates are determined based on deposit amount, location, term and applicable banking policy. These rates are above and beyond some of the best international CD rates available, and this makes these negotiable instruments an attractive investment opportunity. Additionally, offshore banks do not necessarily withhold interest income tax due to differences in regulatory requirements.


Due to the fact offshore accounts are located in foreign jurisdictions, they are not subject to the monetary decisions of other banks in larger jurisdictions. It is for this reason, interest rates on loans from offshore banks are able to be more competitive. For example, offshore bonds that cost less to underwrite are better able to offer higher yields to lenders or investors. Similarly, just as loans are made, debt instruments such as international treasuries, corporate debentures and convertible bonds are also held or purchased within offshore accounts.

The range of financial products made available through offshore accounts is as diverse as the jurisdiction's regulations and banking policies allow. Due to the more liberal banking practices made possible via these financial institutions, more money management opportunities are available to investors and traders seeking investment alternatives with higher yields and potentially higher capital gains. In any case it is important to understand how any offshore investment, deposit or account is protected and to carefully study and discuss the risk and safety of such decisions with a financial professional.

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Saturday, August 4, 2012

Guest post: A personal review of Barron's Magazine - Reasons to unsubscribe from Forbes

By James Geddens

I have recently cancelled by subscription to Forbes Magazine and have instead started subscribing to Barron’s Magazine, simply due to the fact that I found it hard to keep up with some of the analysis.  The editorial articles inside Barron’s are extremely well authored and offer a superb perspective on what happened during the prior week’s financial world.  It also includes sections which tell you what is going to be happening during the following week’s stock market trading.

Get the latest stock market prices & tables

The Market Laboratory pull out section is essential too because this includes all the latest stock and bond prices for the next 7 days, although it can be a little bit too in-depth and you can tend to get this detail off the web anyway.  However, it’s still handy to have all the stock tables in front of you as one easy read.  Since making the switch from Forbes I have found that I have actually been able to read every single weekly edition of Barron’s.  It makes a change to having magazine piled up on my desk that I never get around to reading! 

Get invaluable investment leads like the professionals do

One of the other reasons that I subscribe to Barron’s Magazine is that I like to know what the business leaders are reading.  According to research, the average worth a Barron’s reader is $3 Million US Dollars.  Whilst I don’t have that much money, it’s still pretty cool to know that I can benefit from the same investment leads that those guys get each week.  Over the course of my subscription to Barron’s I have seen my own stock portfolio’s value rise by 21% as I owe a lot of that down to the advice that I get inside the different pages by the expert columnists.  A lot of the commentary in the magazine is also quite humorous and makes a change from the rather staid and stuffy reporting seen in rival publications. 

Value for money with up-to-date finance news

Barron’s Magazine might be quite expensive but it does come weekly which make the annual $99 Dollars subscription fee offer value for money in my view.  If you are an investor like me then you will already be aware of the importance of getting the most timely financial information – and Barron’s certainly seems to offer that.  Whether you want to know the latest oil prices, details on the latest corporate takeover, or what’s hot or not in finance, then it should tick all the boxes for you. 

No over the top advertising space

Another plus point to Barron’s is the fact that it does not have large and over the top advertising space on any of the pages.  There are a few ads, but these are always placed contextually and don’t interfere with your reading.  The ads usually blend quite well into the articles so you almost tend not to notice them. 

It’s like Forbes magazine but without the “fluff”

How I like to describe Barron’s Magazine, is that it is like the Wall Street Journal or Forbes… but without all the fluff.  You can either subscribe to it via post in traditional magazine format, or get it via email with a login to the Barrons.com website.  In the most simple terms possible I would say that Barron’s Magazine is a must read for people who love stock market numbers.  If you want to keep ahead of the competition and make better investment choices and picks then it could work for you.  Personally I love it and could not do without it nowadays. 

About the author: James Geddens is a 32 year old investment trader based in New York who reads Barron’s Magazine each week.  If you want to know more about Barron’s then you should click here for more info on this independent subscriptions website that hosts information about most financial magazines.