For you health insurance needs, you should consider the combination of a High Deductible Health Plan (HDHP) with an HSA. These health insurance plans are often undersold by insurance agents due to the lower commissions they receive. However, when compared to a traditional health insurance plan, the HDHP/HSA combination will virtually always reduce your health care costs.

The HDHP/HSA combination is often characterized as only being advantageous for the healthy and the wealthy. This assertion is wrong! As long as you contribute the maximum annual amount to your HSA, the HDHP will virtually always save you money on your health care costs, regardless of your health care expenses.

An HDHP/HSA provides three financial advantages over a traditional health insurance policy:

1) If a traditional health care plan, with a $1,500 family deductible, costs $400 per month, an HDHP, with a $4,000 family deductible, will typically cost around 25% less or $300 per month. In this example, the HDHP provides a $1200 per year savings on insurance premiums.

2) When you contribute the family maximum to your HSA, a $5,800 tax deduction is applied to both federal and Colorado income taxes. If family taxable income exceeds $65,100, all incremental income is taxed at 25% for federal income taxes and 4.63% for Colorado state income taxes. The $5,800 maximum HSA deduction provides a combined federal and state income tax savings of $1,718.50.

3) Medical expenses paid from your HSA are made with tax-free dollars. With a traditional health plan, all expenses are paid in after tax dollars. Thus, paying the traditional plan’s $1,500 family deductible will require before tax earnings of $2,132.

Let’s assume that your health care costs exceed $4,000 in 2008. On an after tax basis, the traditional health insurance plan’s deductible will save you $1,868 over the $4,000 HSA deductible. However, HDHP premiums are $1,200 less and the HSA deposit saves you $1,718.50 in federal and state income taxes. Combining both the premium and income tax savings, the HDHP/HSA plan costs $1050.50 less than a traditional health insurance plan, at the maximum HDHP deductible amount of $4,000. HDHP plans also have no co-pays and often pay 100% of all medical expenses after the deductible is met.

If your family is healthy and you only require $1,000 in medical expenses for the year, the annual after tax savings with the HDHP is $3,340. This represents the sum of the HDHP insurance premium savings, the HSA income tax savings and $421 saved by paying the $1,000 in medical expenses with HSA funds that are never taxed.

An HSA is the only savings device that combines the income tax savings of an IRA with the tax free withdrawal of a Roth IRA. Like an IRA, funds deposited into an HSA are completely deductible from your income taxes, even if you don’t itemize. Like a Roth IRA, HSA funds can be withdrawn tax free at any time, to pay for medical expenses.

If your finances will allow, use current income to pay medical expenses and save your HSA funds until retirement. The Employee Benefit Research Institute estimates that a 65 year old will require $164,000 in medical expenses if they live 20 years after retirement. With HSA funds growing tax free, you could potentially have “free” medical care throughout your retirement years.

As long as you fully fund your HSA account and are in at least the 25% federal income tax bracket, you will virtually always come out ahead with the HDHP/HSA. When it comes time to renew your health insurance coverage, consider the HDHP/HSA approach. It will save you money and it can provide an excellent savings vehicle for your retirement years.

With the current banking debacle and the recent lowering of the Fed funds rate the dollar has declined to just .64 Euros, almost ½ of its 2001 value.

Let’s look at what this decrease in the value of the dollar has meant in terms of oil and gasoline prices.   If the dollar was as strong today as it was in 2001, we would be paying $71 per barrel of oil instead of $125.  Likewise, gasoline would be $2.25/gallon instead of $3.95.

With increasing inflation, sinking stock prices and low investment interest rates, is there any investment approach that will protect your financial abundance?  I believe there is!   Here are some of my ideas:

1. Lower you exposure to equities (the stock market) – While I do not believe in market timing, paying attention to current investment conditions is always wise. With increasing inflationary pressures, it will be difficult for the US economy to grow. Until we see signs that our government is interested in addressing economic growth by lowering corporate income taxes (the US is the 2^nd highest in the developed world) and strengthening the dollar, I recommend that you keep you equity position at the lower end of your allocation range.

2. Invest in stocks of high quality companies with high yields - The stock market will likely continue to decline in 2008. However, GE is an example of a quality company, yielding 4.3%, that will likely increase in value in the long term. In the meantime, you will receive a yield that is higher than money market or CD rates, with the dividends taxed at a maximum of 15%.

I do not recommend buying stock in any financial institutions until the sub prime mortgage mess is completely understood. However, if you are willing to take some risk, you might consider a Business Development Company. My favorite is Kohlberg Capital (KCAP). KCAP has an expense ratio of just 2.5% vs an industry average of 5.7%. It is trading at over a 35% discount to its Net Asset Value (NAV) and it is currently yielding almost 20% annually.

3. Use Treasury Inflation Protected Securities (TIPS) – If inflation persists, it will likely prove wise to invest a portion of your fixed asset portfolio into TIPS. TIPS are inflation indexed bonds that are issued by the U.S. Treasury. Their interest rates will increase as inflation increases. Two easy methods of buying TIPS is either TIP, an Exchange Traded Fund that is currently yielding 5.6%, or the Vanguard Inflation-Protected Securities Fund Investor Shares (VIPSX) mutual fund. TIAA-CREF as well as most 401(k) or 403(b) plans also offer an inflation linked bond fund.

4. Gold is a good inflation hedge – Gold has increased over 25% since I added it to the Model ETF portfolio in Q3 of 2007. In spite of its current value, it may still prove to be a good hedge against future inflation. I do not recommend placing more than 10% of your equity portfolio into gold. An easy way to own gold is through the ETF (Exchange Traded Fund) GLD.

Regardless of how you decide to invest in these challenging times, remember to stay well diversified and do not chase the latest investment fad.

If you would like help in determining how to invest in these inflationary, turbulent times, contact me for a no cost consultation to discuss your goals and Financial Abundance’s low cost asset management approach.

With the extremely volatile stock markets and low current interest rates, how should you invest your savings? Here are seven ways to increase your investment returns in these turbulent times.

1. Invest in different types of assets – With the current stock market volatility, you may be tempted to get out of the market and put everything in cash. If you do this today, with money market rates at 2.25% and the inflation rate at 4%, you will be guaranteed a negative “real rate of return.” However, by investing in a variety of different asset classes, you will lower your portfolio risk and, over time, have a higher investment return.
2. Allocate all of your liquid assets – Common investment wisdom recognizes that asset allocation can produce up to 90% of your total investment return. When choosing different asset classes, be sure to consolidate all of your financial assets, including your taxable accounts, your 401(k) and IRA accounts, deferred annuities and even rental properties. Often, financial professionals consider only the assets that they are managing when they provide asset allocations. This limited asset allocation approach may provide higher risks and lower total returns on your consolidated portfolio.
3. Pay attention to financial trends - Don’t try to time when the markets will go up or down. However, pay close attention to current market cycles. Today, with a volatile stock market and a declining business cycle, it may be prudent to reduce your equity allocation. If inflationary pressures remain for the foreseeable future, consider having a portion of your portfolio in an inflationary hedge such as a gold fund or a bond mutual fund investing in Treasury Inflation Protected Securities (TIPS).
4. Learn to build “ladders” – Money market funds are typically yielding 2.25% or less. If you are sitting on cash that you won’t need in the short term, improve your yield by 1% or more with a short term CD ladder. Buy a 3 month, 6 month, 9 month and 12 month CD, with 25% of your cash in each CD. This approach could increase your annual yield to 3.5%. Plus, if interest rates start increasing, every 3 months you will be able to invest 25% of your cash funds at a higher interest rate.
5. Consider a Mid Cap allocation – Since 1981, when Mid Cap stocks were first tracked as a separate asset class, the Mid Cap index has performed significantly better than both the Large Cap and Small Cap stock indexes. Year to date, the S&P 400 Mid Cap index is out-performing the S&P 500 Large Cap index by over 10% and the S&P Small Cap 600 index by over 3%. Including a Mid Cap index fund with your equities may improve your total return.
6. Reduce your taxes on investments – Pay attention to which accounts hold your investments. Keep tax-efficient investments, such as municipal bonds and index stock funds in taxable accounts. Tax-inefficient investments, such as actively managed mutual funds and investments that pay non-qualified dividends (example: REITs), should be kept in tax free Roth accounts or tax deferred accounts such as a 401(k).
7. Minimize your investment fees - Investment sales expense (loads and 12b-1 fees), mutual fund operating expenses, brokerage trading costs and asset management fees reduce your total return. A low fee approach can substantially increase your investment returns. Over a 15 year period, paying an extra 1% yearly investment fee can reduce the total return on a $500,000 investment by $200,000.

In the 90s, making a decent return on your investments was easy. For the foreseeable future, you will need to pay much more attention to your investing in order to receive a reasonable investment return. More details on how to increase your investment returns are provided in Financial Abundance Guide.

In 2008, the Federal Trade Commission predicts that 33 percent of all Americans will be the victim of some form of identity theft. When this occurs, it can easily take over 600 hours of your time to restore your identity and, depending upon the type of identity theft, it can become a personal nightmare for years.

You may not be aware that there are five types of identity theft. Most people think of financial identity theft, in which someone uses your credit cards or your bank accounts. However, of all identity theft, financial is only 22% of the total and is the easiest to fix.

The biggest type of identity theft is criminal or character identity theft. This occurs when someone uses your identity in the commission of a crime. When this happens, there may be a warrant out for your arrest that you know nothing about it until the police arrive at your door.

Medical Identity Theft is the fastest growing type. This occurs when someone uses your health insurance as their own. When this occurs, your Medical Information Bureau records can be completely altered. This type of theft can lead to you being declined for insurance coverage or, in an emergency situation, you could be administered the wrong medication or given the wrong type of blood. In some situations, Medical Identity Theft has been fatal.

Social Security is the fourth area for identity theft. This continually occurs as people come to work in the U.S. without a valid Social Security number. In one case, a woman found out that over 80 people were using her Social Security number.

The final area is Driver’s License Identity Theft. When someone has a driver’s license or state id with your information and their photo, they can open bank accounts, purchase vehicles, get speeding tickets and even DUI’s, and you can be held responsible for all of these activities.

Stealing and selling identities is a multi-billion dollar black market. Once an identity is stolen, it can be bought and sold over and over again, with multiple people in multiple locations using the same identities. Since we are all in many different databases, there is no way to prevent your identity from being stolen. You cannot control which data base with your personal information will be breached next.

The best identity theft protection is to have a service that you can rely upon to quickly restore your identity if it has been stolen. The service should include: 1) Monitoring - your accounts should be constantly monitored and you should be notified when accounts open in your name, your address changes or any other changes occur; 2) Restoration – having an experience person who will work on your behalf to restore your identity to its original form is critical; 3) Legal Protection - for emergency situations, the service should provide immediate access to attorneys who will write letters and make phone calls on your behalf.

No one is immune to identity theft. If you would like more information on what you can do to protect yourself and your family, please do not hesitate to call or email me.

This article was written by Peggy Goehringer, a Certified ID Theft and Risk Management Specialist. Peggy can be contacted by phone at 720-280-1068 or by email at peggygoehringer@aol.com

In the past, my financial planning clients mainly came to me for investment advice, to help determine if they were saving enough for their children’s college expenses and their retirement and/or wondering if their retirement savings would last throughout their lifetimes. Recently however, more clients are seeking help in reducing their massive debts. These clients are unable to spend less than they earn due to the high cost of servicing their debt.

Many of my clients earn over $200,000 annually. After paying their taxes, home mortgages, home equity loans, car loans, credit card debt and vacation home payments, they often have less than 30% of their gross income remaining. They have no remaining income to save for educational expenses and retirement. Often, even paying their current bills puts them deeper in debt.

In the past 20 years, Americans have gone from saving 10% of their gross pay to saving less than 0%. Over the same time period, the average mortgage payment has increased from 15% to 30% of gross pay and average non-mortgage family debt has increased from 5% to 35% of gross pay.

After taxes, mortgage payments, non mortgage debt service (such as car loans and credit card interest payments) the average American family has less than 45% of their gross income remaining. Twenty years ago, the average family had 60% of gross income remaining after these payments.

Are you in the “debt danger zone?” To find out, calculate your total annual “debt,” including all taxes, mortgage payments, car payments, home equity loan payments, credit card interest payments, second home costs (net of income) and any other interest paid to service debt. If the sum of these payments exceeds 50% of your gross income you have entered the debt danger zone. If the sum exceeds 60% of your gross income, immediate action is critical.

If you are in the debt danger zone, consider the following:

1. Examine your spending habits. If you are spending more than you earn (including all of your “debt” payments) reduce non critical spending and put nothing further on your credit cards until their balances are completely paid.
2. If you have a vacation condo, selling it will not only provide equity to pay down other debt, it will also eliminate mortgage payments and HOA fees.
3. Use funds held in a savings or a brokerage account, to pay off credit card debt. However, do this only if you can still maintain an “emergency fund” that will cover at least 6 months of your total living expenses
4. If your 401(k) contributions are greater than the maximum employer matching amount, reduce your contributions to the matching amount cap until your high interest rate debt is eliminated.
5. To pay off credit card debt you could borrow from your 401(k) account, if your plan allows. The interest rates for repayment of a 401(k) loan will be considerably less than credit card interest rates. However, if this is done, immediately begin a scheduled repayment plan of the borrowed funds.
6. If you are still in the “danger zone,” consider downsizing your home. Reducing your mortgage by $100,000 can save you over $7,500 annually.

Because our government and financial institutions encourage us to increase debt and reduce savings, it is easy to fall into the debt danger zone. By paying close attention to your personal finances, you can reject this path to financial scarcity and discover the “path less traveled” to financial abundance.

For the complete text of bankrate.com article click 20 years of spending saps savings

Chapter one of Financial Abundance Guide is entitled “Spend Less Than You Earn.” While this concept appears obvious, many people suffering from personal financial setbacks do not follow this simple precept.

Determine your current financial health

First, prepare an annual budget. For your estimated monthly expenses, track your expenditures for three months. Be sure to include federal, state and FICA taxes. To your estimated monthly expenses add quarterly, semiannual or yearly expenses, such as home and auto insurance, vacations and property taxes. The sum is an estimate of your annual expenses.

Determine your annual “non-retirement income.”

This is your total income less any contributions made to 401(k) plans, IRAs or other retirement accounts. Non-retirement income less annual expenses is the amount of savings that you have available to recession-proof your life.

Ideally, this savings will be at least 10 percent of your non-retirement income. If not, identify some “nice to have” expenses that can be eliminated — like that morning café mocha which can cost over $1,000 per year. In 20 years, with a 5 percent investment return, removing the mocha would provide you with $35,710.

Wipe out any credit card debt

Use savings to pay down one of the most expensive forms of debt available. If you have good credit and equity in your home, consider a home equity line of credit. Use this line to pay off your credit card debt and then pay off your home equity line as quickly as possible.

Get an “emergency fund.”

An emergency fund is a highly liquid account which provides coverage for between six months to one year of your current expenditures. With an emergency fund in place, you can survive a business downturn, job loss or short- term disability without invading your retirement accounts.

Spend that government rebate wisely

If you receive the $600 per person federal tax rebate, use it to pay off credit card debt, increase your emergency fund or to save for educational or retirement expenses. This income can be your first step in recession proofing your life.

Once your credit card debt is eliminated and your emergency fund is in place, use your savings to buy your first house, pay for your children’s education or to better insure an abundant retirement.

When saving for your first house, consider a Roth IRA. Even if you have a company retirement plan, you can contribute up to $5,000 annually to a Roth IRA if you are single and earn less than $101,000 or earn less than $159,000 if you file taxes jointly. Once your Roth IRA has been established for five years, you pay no taxes when withdrawing up to $10,000 of income plus all of your Roth contributions for a down payment on your first house.

If you are saving for your child’s education, consider funding Coverdell Education Savings Plans and Section 529 College Savings Plans. With both plans, the invested funds will grow tax free and can be withdrawn tax free when used for educational expenses.

Most retirement plans provide an immediate tax deduction of the amount contributed and tax free growth of the plan’s funds. If your employer provides matching funds to your retirement plan contribution, always contribute the maximum amount that your employer matches. The matching funds are “free money” that virtually guarantee a high rate of return on your investments.

By following these simple, powerful steps you can achieve financial security. If you do not feel that you can take these steps by yourself, find a knowledgeable and trustworthy financial planner to help you with this journey. While lowering your current spending may cause some short term financial discomfort, the payoff of recession-proofing your life is a reduction of fear and stress.

In his article, Bud shows that the personal savings rates in the US have deteriorated from 10% in 1985 to 5% in 1990 to 2.5% in 2000 to 0 today. Personal savings rates today are the same as they were from 1929 through 1931, after the stock market crash that led to the great depression.

As savings rates have receded, personal consumption has climbed. In inflation adjusted dollars, consumption per capita in the US has climbed 25% from 1985 to today. From these figures, it is easy to see why the average American now saves nothing, compared to a 10% savings rate in 1985.

What you may not realize is why this has occurred. We all know that, until recently, credit was extremely easy to get. Credit cards, interest only mortgages, home equity loans and car loans helped transform us into a society of debtors instead of savers.

Since the vast majority of our GDP now comes from consumerism, US industry wants you to spend. Our financial institutions make significant profits from credit card interest and other forms of personal indebtedness. Even the government encourages spending over savings by providing tax deductions for mortgage interest while taxing savings interest at the same rate as earned income. State and local governments get much of their income from sales taxes that are placed on the goods and services that you buy.

Our President once said that we are addicted to oil. I would take that a step further and say we are addicted to consuming. Look at how often the media refers to you as a “consumer “ and see if you ever see the US population called savers.

If you have an addiction to consumption, now is the time to break it. As I often recommend, when you get your pay check, pay your self first by saving a portion of your paycheck. If, at age 30, you save $50 per week, with a 7% investment return, that $50 payment will be worth almost $400,000 when you are age 65.

As your pay increases, increase your saving amount until you are “paying yourself” at least 10% of your take home pay. By paying yourself first, you will have adequate resources to live an abundant retirement. This approach will also help you overcome the “consumption addiction” that industry, financial institutions and the government are all hoping that you will never break.

While our elected officials want you to go out and spend your rebate to help “stimulate” the economy, you might want to use it to begin to recession proof your life for the present as well as future recessions. If you would like to begin approaching life from abundance instead of scarcity, here are some possible ways to “spend” your rebate.

1. Use it to pay off your credit card debt, one of the most expensive forms of debt available.

2. Begin funding your “emergency fund.” An emergency fund is a highly liquid account which provides coverage for between six months to one year of your current expenditures. This fund will allow you to survive a business downturn, job loss or short- term disability without invading your retirement accounts.

3. If you are saving for a first house, use it to fund a Roth IRA. Even if you have a company retirement plan, you can contribute up to $5,000 annually to a Roth IRA, if you are single and earn less than $101,000 or earn less than $159,000 if you file taxes jointly. Once your Roth IRA has been established for five years, you pay no taxes when withdrawing up to $10,000 of Roth income plus all of your Roth contributions for a down payment on your first house.

4. If your employer provides matching funds to your company retirement plan contribution, use it to contribute up to the maximum amount that your employer matches. The matching funds are “free money” that virtually guarantee you a high rate of return.

5. If you have children that will one day go to college, use it to fund a Coverdell Education Savings Plans or a Section 529 College Savings Plans. With both plans, the invested funds will grow tax free and can be withdrawn tax free when used for educational expenses.

6. Invest it in either an IRA or Roth IRA for retirement. In future posts, I will demonstrate how you can never have too much for retirement.

You have probably heard the expression “use it or lose it.” If you spend the rebate buying another “thing” you will lose it. If you put it to work for you in one of the ways listed above, you will use it now and in the future.

Yesterday was the deadline to pay your 2007 taxes. If you are like most people, you probably feel that you paid too much. If so, now is the time to identify ways to lower your 2008 taxes. Every dollar of reduced taxes can be used to help fund educational or retirement expenses.

In “Financial Abundance Guide” I devote almost 100 pages to strategies for reducing your taxes. To demonstrate that I “eat my own cooking,” I will describe the approaches to tax reduction that my wife and I used in 2007. In parentheses I will put the page of my book on which the referenced strategy can be found.

1. In spite of receiving significant long term capital gains in 2007, we reported gains of less than $1,000 on our tax return. This was accomplished by keeping most of our equity holdings in our IRA or Roth IRA retirement accounts (pages 125 -126).

2. We were able to deduct $7,250 by fully funding our Health Savings Accounts (HSAs) in 2007. Since my wife and I are both over age 55, by setting up separate HSAs, we could each deduct an additional $800 over the normal family deduction of $5,650 (pages 63-66). In 2008, we will be able to contribute (and deduct) a total of $7,600 into our HSAs.

3.  Thanks to the expenses involved in writing, publishing and marketing my book in 2007, I had virtually no earned income. However, my wife had more than adequate income to allow for me to fund my IRA as a “spousal IRA” and receive a deduction of $5,000 (page 44-45). Since our AGI was under $159,000 my wife contributed $5,000 to a Roth IRA, even though she was covered by a company sponsored retirement plan (pages 46-47).

4. Our itemized deductions included a $10,000 gift to our “Donor Advised Fund” charitable giving account (pages 81-83). This was a gift of highly appreciated stock that we bought for $4,000 in 1999. By giving the stock to our charitable fund, the $6,000 capital gain was completely tax free, saving us from paying $900 in capital gains taxes (page 80-81).

5. Our daughter, in her third year of college, had tuition bills exceeding $8,000 in 2007. Thanks to the Lifetime Learning Credit, we received a $1,600 tax credit against actual taxes owed (page 38-39).

6. After all deductions and credits, our tax bill would have been $0. Knowing this was likely, I ran a pro forma tax return in early December. I determined that we could convert a significant amount of our IRA savings into a Roth IRA, and pay very little in taxes (pages 48-50). In December 2007, we converted $55,000 of IRA funds to Roth IRA funds. The total tax bill for this conversion was $2,605 for an effective tax rate of 4.7%. These funds can grow on a tax free basis for as long as we live. If we are able to leave an inheritance for our children, inherited Roth funds can continue to grow tax free for our children (page 176-177).

“Minimize your taxes” is Step 3 of the “7 Steps to Financial Abundance.” As I have demonstrated, active tax management can substantially increase your financial abundance. The next time that you are trying to maximize you investment returns, take a few minutes to consider methods of minimizing your taxes. The time spent may provide an “investment return” that far exceeds your expectations.