Preparation Is Important Before Buying That New Car

 (Photo credit: Wikipedia)Life is not a rehearsal and you need to live it fully and in the best way possible. Everything in this life requires proper planning so you can avoid disappointments. To have your own car is not easy and therefore, you need to be well prepared, financially. 

The purchase can be expensive depending on the type of car you want to purchase. It's up to you to do a lot of shopping around and diligent research on the Internet to make sure you are getting the best deal when going to the dealer.

Buying a car is one thing and maintaining that car is another thing. Whether it’s a new car or a second hand car the maintenance cost must be incurred in both cases. Most people have come to like the minivan that is known as the Nissan Quest. 

Even though you have purchased a new car you are still going to incur some repair costs after the initial warranty is over. It is therefore, advisable to purchase a used car which is cheaper at first than a new car but does still have similar maintenance costs.. 

This can be a good option especially when you have a vehicle that was well maintained by the person who possessed it before. The only measure that you ought to take is to be sure that you use a honest dealer who can guarantee you the integrity of the used car you are about to purchase. 

If you want to purchase a previously owned car, which is still in a good condition, then find the best used car dealer known for their honesty. It is important to consider the price you pay for the vehicle is in direct proportion to the condition of that vehicle both in appearance and performance. Finding a excellent condition used car is possible and worth the effort.

Save Money and Enjoy Better Coffee With an Aeropress

Brewing coffee with aeropress (Photo credit: Wikipedia)

I have always enjoyed my morning cup of coffee. Even in college I never missed having a few cups a day. Back then my only choices were Dunkin Donuts or coffee at the quickie mart. Now the choices abound. Starbucks has opened the flood gates on coffee enjoyment. No longer are we stuck with a cream and sugar coffee, today the choices and flavors are endless. They are also expensive.

To save a little money I went the way of the single serve coffee brewer it's worked very well. I probably save $15-$20 a week making coffee at home. I have been completely satisfied with this for several years. But I have been exploring ways to do better. 

My exploration has brought me to a device called an Aeropress. Which is basically a French Press, only better. This little machine has given me an even better cup of coffee than my single serve brewer. Like a single serve machine it makes only one cup at a time. This is the theory for brewing the freshest, best tasting cup of coffee you ever had.

I started with the "AeroPress Coffee and Espresso Maker" I purchased from Amazon. It comes with the coffee press, 700 filters, a bag to carry the stuff in, and all the tools to brew coffee. The 700 filters should allow you to make 700 cups of coffee, what a deal! 

Here's How To Use The Aeropress:

1. Place a filter disk in the cap and attach the cap to the chamber. Place the chamber, with cap, on top of your favorite coffee mug 
2. Place your ground coffee into the chamber. Use one included scoop per cup of espresso or per cup of coffee wanted, to a maximum of four scoops.
3. Now heat the water. You can actually heat it in the plunger, since it is hollow, or heat it any other way desired. The manufacturer recommends 165 - 175 degrees F. (75 - 80 C). First, wet the grounds with the water slowly, then add the rest of the water. There are markings on the chamber as well as the plunger for how much water to use. Stir gently for about ten seconds.
4. Wet the rubber seal on the plunger, insert it into the chamber and press slowly, it should take about 20 seconds for all the water to pass through the grounds, depending on how much you are making. 

The results of this work is a cup of "Expresso Strength" coffee. This is arguable, but the fact is that you have a very smooth, concentrated form of coffee. If you are after a more "classic" cup of coffee, you can add hot water to the output of the Aeropress, diluting it with 2 to 3 times the amount of hot water to espresso.

Link to World Aeropress Championship 2012 Recipe Competition

Now the coffee is ready to drink so flavor it as you usually do. I have found that sometimes I can't drink the amount of coffee made so I have stored it in the fridge for later. It still tastes as good but the aroma is substantially lost. Many people do not mind this so they make up an extra batch and keep it in the fridge and report it is still good tasting weeks later.

I believe that good coffee is as important as good personal finance. Try the Aeropress for a great cup of coffee.

AeroPress Coffee and Espresso Maker with zippered nylon tote bag and an Extra 350 Micro Filters (700 Total)

Helping Your Grandchildren with College Expenses

Although most of us don’t have enough financial freedom to completely finance the college education of our grandchildren, there are still ways we can invest some money for their future schooling.

If you are interested in setting aside money for your grandchildren’s education, be careful to consider all the options available to you (savings and investment plans and tax-free gifting). One plan may be perfect for one person but not the best choice for you, so make sure you understand how every option works before making any decisions.

There are three options in particular that many grandparents find beneficial for their savings goals; 529 plans, savings bonds and tax-free monetary gifts.

529 Plans

With a 529, grandparents can put away money for their grandchildren’s education through either a prepaid plan or a savings plan. Prepaid plans allow you to purchase tuition credits. These credits match today’s inflation rates, so their performance is based on how much the cost of tuition rises by the time your grandchild goes to college. Not all states offer the prepaid plan. With a savings plan, all growth is based on the performance of (usually) mutual fund investments. As the beneficiary gets older, the investments in a savings plan become more conservative, just like a retirement savings account.

Distributions from 529 plans to pay for qualified college expenses are exempt from the federal income tax. Investors who contribute to a 529 plan in their state of residence also often receive state tax advantages, exemption from state financial aid calculations and other benefits. Donors maintain control of the account, and most plans allow benefactors to reclaim the funds for any reason, at any time with no penalties. However, if a non-qualified withdrawal is made, the earnings will be subjected to an income tax and an additional 10% penalty tax.

Savings Bonds

Government savings bonds can be given to your grandchildren as birthday or Christmas gifts when they are very young. This gives the bonds plenty of time to mature before they are cashed in for college. The most common type of bond purchased to fund education is the T-note. It earns a fixed rate of interest every six months and is issued in terms of two, three, five, seven and 10 years. This means that you can’t cash in your purchased bonds until they have reach those terms, but the longer you allow them to sit, the more interest they will earn. The minimum purchase amount is $100.The income earned from interest is subject to a federal income tax but exempt from any state or local income taxes.

Tax-Free Monetary Gifts

If you are interested in giving a larger sum of money to a grandchild who will be attending college very soon, you may want to choose the tax-free monetary gift route. Most monetary gifts are subject to a tax, but grandparents can avoid that tax by giving their gift directly to the educational institution their grandchild plans on going to. Donors must make sure that the beneficiary is serious about graduating from that school, though, because there aren’t any hard rules that require schools to return the money if the child drops out. However, if the student has serious plans to graduate, a tax-free gift is the best way to transfer wealth and know that it will be used for its intended purpose.

For more information on college savings plans for your grandchildren, contact your local licensed financial advisor.

Nadia Jones is an education blogger for onlinecollege.org. She enjoys writing on topics of education reform, education news and online learning platforms. Outside of the blogging world, Nadia volunteers her time at an after school program for a local middle school and plays pitcher for a local club softball team. She welcomes your comments and questions at nadia.jones5@gmail.com.

• The Best Way to Save for College: A Complete Guide to 529 Plans 2011-12 - Book Review

  ---

• What College Expenses Do 529 Plans Cover and Not Cover?

  ---

• Roth IRA vs. 529 plan - Which is Better for College Savings?

  ---

Does Investment Bias Hurt Your Investing?

Do you find it almost completely impossible to remove complex thoughts and emotions when choosing investments. If you do you are experiencing "investment bias".

Believe it or not there is a whole field of study called “behavioral finance” and it is devoted to understanding why people make their investment decisions. People who do this as their profession say that we all can't help but have biases effecting our investment decisions.

Does this mean we are forever stuck and handicapped by this bias? No, because when we understand how these biases work we can learnt o avoid them.

Here are a few of the worst biases that effect our decision making when picking and maintaining our investments:

Overconfidence.

Overconfidence fools investors into thinking they know the right times to buy and sell an investment. This behavior also known as market timing can be very expensive if you are wrong too many times. Not only will you be losing money on bad trades but you will be experiencing more investment fees and taxes.

Representativeness.

There is a bias called "representativeness". This behavior shows itself as making investment decisions based on preconceived notions or stereotypes.  If you link stocks to other investments because they are alike in some ways, this is representativeness. The hot stock or sector is another form of this. Basing your investment decisions on the hot tip or rumour just leads you to making mistakes. Having a plan of building a portfolio in a balanced way will avoid this. Having good diversification and setting up a group of stock or better yet index funds that force you to be diversified will help you be more successful in your investments.

Anchoring.

This is similar to the previous bias but this bias makes investors weigh decisions to much on past performance of a sector or stock. If you believe a stock is worth a certain price and it drops, your bias assumes the stock is undervalued. This bias based on your assumptions and having no basis in fact will hurt your investment performance.

Confirmation.

This bias occurs when an investor looks for reasons to back up a decision on an investment. Looking for reasons to back up an assumption is backwards. Trying to find proof for your assumption will kill a portfolio's performance. Again, here a bias that is an idea not based on facts. 

A way to overcome bias.

We are all prone to making assumptions and a bias that is not based on facts, but feelings. If you are aware you have a bias, then you can take steps to be on the look out for it in your investment style. All this bias is hard to stay aware of and one way to to avoid it is to seek out good investment advice with a certified financial planner. They will be able to guide you into making more informed decisions and less emotional ones.

Should You Move Your UGMA/UTMA Accounts to a 529 College Savings Plans

English: Graduation (Photo credit: Wikipedia)

Both UGMA and UTMA accounts, together generally referred to as UGMA accounts because they're so similar, pale in comparison to 529-plan accounts, which were created in 1996.

"The biggest reason is tax savings." says John Wiggins of WhatIsA529Plan.com, "All the earnings from investments in a 529-plan account are tax exempt, while only a portion of the earnings in a UGMA or UTMA account are tax exempt."

Under one scenario, the 529-plan account would actually be owned by the UGMA or UTMA account. Experts in college saving say the tax advantages associated with 529-plan accounts, and the fact that the stock market has been so weak lately, make such a move doubly attractive.

In a 529-plan account, investments grow tax free and, under the Tax Relief Act, distributions for educational expenses are taken tax free as well. Only a portion of the earnings in UGMA and UTMA accounts are tax free.

When a child is under 14, the first $750 of earnings each year is exempt from federal and state taxes, the second $750 is taxed at the child's rate, and the rest is taxed at the parent's rate. If the child is 14 or older, all earnings are taxed at the child's rate.

Liquidating UGMA and UTMA account assets, however, and then taking the proceeds and putting them into a 529-plan account can bring a host of problems - most of them relating to ownership.

UGMA and UTMA accounts are custodial accounts, the contents of which belong to the child, meaning the assets of the 529-plan account purchased with the proceeds of the liquidated assets of a UGMA or UTMA account would belong to the child.

Normally, the assets of the 529-plan account belong to the parent.

UGMA and UTMA accounts also present a problem with respect to financial aid for college. Most financial-aid formulas impose a penalty for assets owned by the student.

They also pose a problem for parents who just need to get ahold of the money in an UGMA or UTMA account. Because the accounts are irrevocable gifts, the assets in them must be used for the child.

A 529-plan account is not irrevocable, although there is a 10% penalty on earnings for taking the money out before the child reaches a certain age.

Of course, issues of ownership can be sidestepped by just spending down an existing UGMA or UTMA, using the proceeds for the child's needs and buying a 529-plan account with new dollars independent of the UGMA, says Joseph Hurley, founder of Savingforcollege.com.

Even Mr. Hurley admits that such a solution might not work for a child from a family that just doesn't have the money to sink into a 529 plan.

Of course, the custodian of a UGMA or UTMA account could just liquidate the account and move the money into a 529-plan account without telling the 529-plan administrator where the money was coming from, suggests one financial adviser.

Such a move would be illegal, and the adviser recommends against it, but because there are no "UGMA or UTMA police," he says, he believes the practice is widespread.

Whatever the approach, it appears that 529-plan accounts are financial advisers' tool of choice for college savings. Consequently, it would be natural to assume that UGMA and UTMA accounts are on their way out. But Mr. Hurley says he doesn't think that's the case.

While many people use UGMA and UTMA accounts to save for a child's education, unlike 529 plan accounts, they are not necessarily intended for that purpose.

"Small custodial accounts still can be very useful," he says. "You don't have to use them for any particular purpose."

Here is a side by side comparison of 529 Plans and UGMA/UTMA Accounts:

	529 College Savings Plan	UGMA/UTMA Account
What you can do	Invest tax-free for college.	Invest on behalf of a minor for any purpose.
Ability to change beneficiaries	Yes.	No.
Controlled by	Person establishing the account.	Custodian, until the child is of age.
Uses	Qualified college expenses.	Any expense that benefits the child.
Impact on federal financial aid eligibility	Considered asset of parent or other account owner.	Considered asset of child.
Contributions state tax-deductible	Varies by state.	No.
State tax on earnings	Varies by state.	Depends on child's age.
Federal tax on earnings	No, if used for qualified expenses.	Depends on child's age.
Penalties for nonqualified withdrawals	Federal income tax plus 10% penalty tax; state penalties vary.	No.
Contribution maximum per beneficiary	$200,000 to $300,000 or more, depending on state.	None.
Investment options	Portfolios consisting of a variety of investments, including age-based options that adjust automatically.	UGMA: mutual funds and securities. UTMA: mutual funds, securities, real estate, royalties, patents, and paintings.
Estate planning impact	Contributions are removed from estate.	Contributions are immediately removed from estate.
Income limitations	No.	No.

Whatever decision you make be sure you contact your financial adviser for consul and help with doing this.

Index Fund Investors Do Better in the Long Run

If your not much of a gambler then index funds are best suited for you. Trying to find the hot stock or mutual fund is a lot of work and the odds that you will pick a winner are extremely low. The returns on index funds are better than the average active funds in every investment category  It's easy to build a portfolio of all index funds because there are funds covering every asset class in every market in the world.

Thirty-five years ago Vanguard CEO John C. Bogle along with his meager staff launched the first publicly available index mutual fund. It was named the Vanguard First Index Trust, later renamed the Vanguard 500 because it tracks the S&P 500 index.

Vanguard has recently released a white paper on performance entitled The Case for Indexing. It documents the poor results of active management versus indexes over the years — a result that worsens over extended periods. The following chart illustrates the decreasing success rate of active management.

A portfolio that holds only index funds in different asset classes has a very high probability of beating a portfolio that holds only actively managed funds in those asset classes. The table below highlights the probability of an all-actively managed fund portfolio outperforming an all-index fund portfolio.

There is a 30 percent chance that a single actively managed mutual fund will outperform an index fund over a 10 year period of time, but that probability drops to 9 percent when three managed funds in a portfolio are judged against three comparable index funds. The results get worse as more active funds are added and as more time passes. A portfolio with 10 active funds held for 20 years has only a 1 percent chance of beating a comparable all-index fund portfolio.

Index fund investing has proven to be the best strategy for most people. A low-cost index portfolio has the greatest probability for meeting long-term financial goals.