DFI Wealth Management
Since 1983
Daniel F. Iuculano, AAMS

Daniel F. Iuculano

Financial Planner

Accredited Asset Management Specialist SM
Chartered Mutual Fund Counselor SM

Contact: Dan Iuculano

Phone: (904) 302-8911

Email: danieli@dfi-wealth-mgmt.com

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Financial Coach

Financial Coach - your guide to personal financial management covering a wide range of financial topics from budgeting, investments, taxes and consumer saving tips, guiding a successful journey through life's financial maze.

Personal Financial Management Archive

Providing for one's pet's future in the case of illness or death

Estate Planning for your Pets - For those of you that have pets, check out the article listed here. Visit Protecting Your pets future

Pay Yourself First

It doesn't matter how much you earn, it matters how much you spend. It seems as families and individuals earn more income they spend it as fast as they make it.

I basic principal in financial planning is to "pay yourself first." This means you should set aside a pre-determine amount each month out of your monthly income before you pay your first bill.

You should be saving at least 10 % of your gross income monthly funding first your emergency fund followed by your investments. Depending on your age and desired life style you should consider even a higher percentage than ten percent.

Start with your employer 401 k plan especially if your company has some form of employee matching program.

Estate Planning - Wills & Trusts

Though there are several website devoted to "do-it-your-self" Wills, I strongly recommend you seek professional help from an estate attorney. This is an area of the tax law that shouldn't be left to any attorney except an estate planning or tax attorney.

The proper use of a Will or creation of a trust will go a long way in saving tax dollars to your heirs, don't be "penny wise and pound foolish" trying to save money on attorney fees.

Depending on your specific financial situation will determine whether or not a trust will make financial sense.

Distribution of your estate can be done via a Will, however any asset in the Will will normally have to be probated which takes time and money to complete; your assets will be included in your estate for tax purposes.

In the case of "Trusts" depending on the type of trust you may avoid probate and in some cases remove assets from the estate thereby reducing estate taxes.

Trailing Stop Loss

The market demonstrating so much volatility these past couple of months it makes sense to utilize a trailing loss strategy protecting your gains as well as minimizing your losses.

You should determine how much loss you can stand whether it be a percentage of dollar movement downward. Place a target stop loss (sell) if the price of your shares drops and if the specific stock should move upward also adjust your trailing stop loss to protect your gains.

Many investors place and wait and see policy and continue to hold a position until they see their position drop 50 percent or more before selling. Not a recommended strategy especially during wide market swings.

There might be occasions where you should evaluate a specific stock that has triggered a sell alert, but you should consider holding in spite of the alert. This would be true of strong financial companies that have seen a decline based on overall market conditions instead of a fundamental change in the underlining company's financials.

If the stock in question is paying a dividend of over 4 % annually, I tend to give it a bit more room before selling if the company's dividend yield is safe.

What to do if you owe back taxes or cannot pay this years tax bill

Visit Income Tax Planning section for in-depth discussion on major tax issues and software programs.

With the tax season coming to a close shortly, April 17 of this year. If you find that you are short of cash and cannot pay your years tax bill you do have several options that you may explore.

Providing the amount unpaid is less than $50,000 you can request an automatic installment payment plan using tax form 9465 Installment Agreement Request . The following link provides you with specifics about the installment agreement.

The IRS does charge a fee for the processing of the agreement depending on your specific financial situation. There is a one-time fee $52 for direct debit agreements and $105 for non-direct debit agreements. For eligible low-income individuals, the fee for entering new agreements stays at $43.

This program can be used for previous tax years as well, so if you still owe back taxes use tax form 9465 as well.

There are other options available as well such as "Offer in Compromise", visit my income tax planning section for further details.

How Long Should You Hold Tax Documents?

Visit Income Tax Planning section for in-depth discussion on major tax issues and software programs.

How long you should hold tax documents could depend on several factors based on your specifics.

Basic rule is that you need to keep tax papers at least three years after filing any specific tax year's return. If you haven't filed for any past year, the three years does not begin until you do.

The Internal Revenue Service can audit any filed tax return up to three years as long as no fraud is involved. Keep your supporting tax papers like W2's, and other tax related forms.

If you run a business keep your tax documents including your tax return for at least five years. Lenders might request a copy as well for approving a loan.

Keep detail records of stock or real property transactions for as long as you own the asset.

For further information on tax software and tax planning visit my Income Tax Planning section. I have provided online links to the major tax software publishers if you wish to purchase their products.

Tax Software versus Tax Preparation Professionals

Visit Income Tax Planning section for in-depth discussion on major tax issues and software programs.

You have four choices when it comes to preparing your taxes; do it yourself either online, software you install on your computer, by hand or have a tax professional do it for you.

My recommendation would be to do it yourself unless you have a complex financial life requiring many tax forms and schedules. That means either purchasing a software program such as Turbo Tax, HR Block at Home or TaxAct. There are other programs available but the three just mentioned are the most popular. Each of software publishers offer an online version though I would suggest the CD or downloadable version especially if your tax return typically requires numerous tax forms and schedules.

The cost of these services vary from free if you qualify, upward to hundred dollars or more. Each the guidelines for getting it done for free changes so check the requirements to see if you qualify. Generally the state returns do charge a fee even if the federal is free, there are exceptions depending on the state.

If you have a complex return or just don't want to be bothered then seek a tax professional such as a CPA or tax firms such as HR Block. Be careful when choosing a professional as the experience level differs greatly from one professional to another.

Suggest you prequalify your tax professional by asking about their training and how long they have been preparing tax returns. Many tax professional are fairly new at tax services like HR Block and they have a high turnover rate each year so you might be getting an inexperienced preparer.

For further information on tax software and tax planning visit my Income Tax Planning section. I have provided online links to the major tax software publishers if you wish to purchase their products.

Short Term Investing - Savings Bonds

If you are going to need funds for the near term say three years or less then you should consider placing your funds either in checking, savings, certificate of deposits, money market accounts or savings bonds.

In prior years the US Saving bond has been an excellent choice to consider versus any of the above mentioned savings programs.

You will have to tie up your money for at least one year, but the rate of interest that you receive generally will surpass any other safe and liquid investments. Forget the EE bonds as the 30 year bonds are fixed based on the rate when you purchase versus the I bond which is adjusted every six months and will accrue interest up to 30 years.

New rates on bonds are published every six months that being May and November of each year and you are allowed to purchase up to $10,000 each calendar year.

Investing: No Load Vs. Load Mutual Funds

When it comes to purchasing a mutual fund an investor will be faced with load and non load mutual funds. Basically "load" is a commissionable product and no-load is not. History has proven that load funds do not fair (performance wise) any better than those funds that do not charge a fee.

Therefore it would make little sense to pay a commission on any load fund unless a specific fund had stellar performance over a long period of time.

The majority of load funds are sold by insurance companies (agents) and brokerage firms like Merrill Lynch.

The impact of the upfront fee can decrease performance substantially over many years. Commission rate can vary from a few percentage points upward to eight percent depending on the fund.

There are several classes of load funds that will also impact your total return such as class A, B and C. The difference is when they charge the fee; upfront, backend or deferred or level loaded.

Bottom line - stick with the no-load mutual funds.

Every mutual fund offers a prospectus that spells out in detail the specifics of that fund any any fees or charges related to purchasing and holding a mutual fund. You should request and read the fund’s prospectus before making an investment decision.

Investing: Using Lipper to Choose a Mutual Fund

In addition to Morningstar rating service an investor should also consider Lipper Mutual Fund Service. Both services are excellent and using both offers a varied comparison as the two services do not always agree on the merits of any one mutual fund.

Lipper offer a free service depending on your specific needs . I access their service through a link via the Wall Street Journal Online version.

Lipper ranks mutual funds from five separate areas:

Total Return - rating from 1 to 5 (5 being the best) Lipper Ratings for Total Return reflect funds' historical total return performance relative to peers.

Consistent Return - rating from 1 to 5 (5 being the best) Lipper Ratings for Consistent Return reflect funds' historical risk-adjusted returns, adjusted for volatility, relative to peers.

Preservation - rating from 1 to 5 (5 being the best) Lipper Ratings for Preservation reflect funds' historical loss avoidance relative to other funds within the same asset class.

Tax Efficiency - rating from 1 to 5 (5 being the best) Lipper Ratings for Tax Efficiency reflect funds' historical success in postponing taxable distributions relative to peers.

Expense - rating from 1 to 5 (5 being the best) Lipper Ratings for Expense reflect funds' expense minimization relative to peers with similar load structures.

I especially like the feature of Lipper that offers comparison of total return vs. S&P 500 index. In addition you will find data on purchasing information as well as dividend distribution.

Investing: Use Morningstar to Choose a Mutual Fund

Morningstar offers research on Stocks, Bonds, ETF's as well as mutual funds. This month I will discuss it's mutual fund research service.

They offer both free and paid service depending on your specific needs you might want to look at their paid service.

Morningstar rates mutual funds from 1 to 5 stars(lowest to highest) for appreciation potential along with a risk (safety) and return indicators.

You will also find the fund's category (type), dividend yield, investment objective, top ten holdings, expense ratio, load (commission) if any, annual performance data, fund manager and tenure.

If you are looking for a fund to consider, try funds rated 4 stars or better. I prefer no loads (no commission) vs. load (carries a commission.) Look at how long the manager has been with the fund, the longer the better. Review performance data for 1, 3, 5 and 10 years.

You want a fund with a good track record (performance) not just what is currently happening. Compare fund with other funds in the same category and with the S&P 500 index. I look for steady record of performance over at least five years not just the past year.

Also take a look at expense ratio compared to other in a similar category, if the ratio is above 1.50 make sure the performance justifies the expense.

For more information on Morningstar click on the provided link .

Investing: Choosing a Mutual Fund

There are quite a few mutual funds to choose from, ranging from very conservative to quite aggressive including sector and international funds. You will also find funds that are focused on income such as bond funds and funds with above average dividend yields. There are funds that invest in large, medium and small cap with varying degrees of risk.

Depending on how much you have to get started, most funds will require at least $1,000 to $2,500 to open an account with $2,500 being the most common initial amount. After the initial amount you may purchase additional shares in amounts ranging from $50 to $250.

One of the major advantages to investing in a no-load (commission free) mutual fund is the ability to dollar cost average your investments. Dollar cost averaging is a strategy or method of investing additional amounts periodically say every month or quarter. The theory is that by dollar cost averaging over a period of time you will buy more shares at a lower price compared to buying lump sum thereby increasing your investment return.

Since there are hundreds of funds to choose from, a good place to begin is through research. There are two major research publications to help with your search. That being Morningstar and the other Lipper both offer a ranking and fundamental data on mutual specific funds. Both rate funds for timely appreciation on a scale of 1 to 5 with five being the highest ranking along with a measurement of risk and other factors such as expense ratios, etc.

Investing: How to Start an Investment Portfolio

If you are new to investing and wish to start some form of investment savings program a good place to start is with no-load (commission free) mutual funds.

The bad news is all mutual funds have a minimum dollar amount to open an account and the amount can range from $1,000 to typically $2,500. With that being said, put away as much as you can into a savings account until you meet the minimum requirement.

An alternative would be to open an account with Sharebuilder.com, a brokerage firm. You can buy a stock with as low as $50 initially and add to it monthly.

Select their basic plan which means you will pay as little as $4 a trade to purchase. However the $4 trade is only executed once a week. If you pay $9.95 you can trade as you would normally with any other firm.

The other option would to purchase Exchange Traded Funds (ETF), very similar to mutual funds as they are diversified, however unlike no-load mutual funds they trade all during the day and you will be charged the normal commissions.

For someone new to investing I suggest mutual funds which will lower your risk, costs and provide better diversification.

Next month I will discuss how to choose a mutual fund from a list of hundreds if not thousands mutual funds.

Investing - How much should you save?

Rule of thumb is a minimum of 10 percent of your gross income though more might be needed depending on your lifestyle, rate of return on your investments and specific retirement goals.

Remember that as you save and invest for the future you should also be setting aside an emergency fund to cover unexpected expenses. I recommend that you contribute to your emergency found in stages as you also add to your other savings and investments.

Start by contributing to any retirement plan that your employer offers such as a 401k plan up to the percentage or amount that you employer will match. That is free money and should be the first place you park your investments.,

If you are new to investing a good place to start would be opening an account with a mutual fund company. Select a no-load (commission free) fund and add to that fund on a monthly basis. You can usually start with as little as $1,000 to start the fund though it depends on the fund as to the minimum amount. Average amount seems to be $2,500 to open.

Another option to begin your investment program would be to purchase one of many available Exchange Traded Funds (ETF). However you will pay a commission to purchase but the ETF will allow you to better diversify your investment vs. buying individual companies.

Investing - Stay the Course

Investors who left the market and went into cash in late September did worse than those who stayed the course in stocks, mutual funds or a mix of stocks and bonds.

Those who were diversified road out the market swings actually had slightly bigger portfolios at the end of 2010 than they had at the peak of the market in 2007.

What has been proven is that diversification works. A mix of cash, stocks and bonds can and does out perform cash.

If you added additional investment dollars such as using a dollar cost averaging strategy you did even better than those who stayed the course not adding any new investments or adding to existing positions.

Lesson here is not to follow the herd, they are usually wrong. Panic is your worse enemy.

Investing - Income Producing Assets

A few days ago I called my local bank to re-order checks and much to my surprise I discovered that my bank was offering 3 % rate on savings with no minimum balance requirement. When you consider that most money market funds and brokerage cash positions are paying 0.10 % annually you might want to discuss what your bank is offering in the way of savings accounts and CD's. You can also shop nationally via www.bankrate.com to assist in the rate comparisons. Interest rates in January advanced significantly which will impact the bond market. Bonds of all varieties move opposite the direction of the interest rates so as inflation and rates increase expect bonds to drop in value. If you own and hold bonds till maturity you will receive at least full amount of your investment providing your bond doesn’t default. Mutual Fund bonds however are different as there is no maturity date therefore you don’t have the same option as if you had purchase a corporate or muni bond. However mutual fund bonds are diversified and as bonds are sold within the mutual funds themselves they are re-invested into higher paying bonds during inflationary periods.

Year-End Tax Strategies for Individuals

Make annual exclusion gifts before year-end to save gift tax and estate tax if it is reinstated. You can give $13,000 in 2010 or 2011 to an unlimited number of individuals free of gift tax. However, you can't carry over unused exclusions from one year to the next. The transfers also may save family income taxes where income-earning property is given to family members in lower income tax brackets who are not subject to the kiddie tax.

Increase your withholding if you are facing a penalty for underpayment of federal estimated tax. Doing so may reduce or eliminate the penalty.

Realize losses on stock while substantially preserving your investment position.

Make energy saving improvements to your main home, such as putting in extra insulation or installing energy saving windows or buying and installing an energy efficient furnace, and qualify for a 30% tax credit.

Convert your traditional IRA into a Roth IRA if doing so is expected to produce better long-term tax results for you and your beneficiaries. Distributions from a Roth IRA can be tax-free, but the conversion will increase your adjusted gross income for 2010.

Take required minimum distributions from your IRA or 401(k) plan or other employer-sponsored retired plan if you have reached age 70 ½.

Year-End Tax Strategies for Business Owners

Set up a self-employed retirement plan if you are self-employed and haven't done so yet.

Put new business equipment and machinery in service before year-end to qualify for the 50% bonus first year depreciation allowance.

Consider whether to defer cancellation of debt (COD) income from the reacquisition of an applicable debt instrument in 2010.

Hire a worker who has been unemployed for at least 60 days before year-end if you are thinking of adding to payroll soon. Your business will be exempt from paying the employer's 6.2% share of the Social Security payroll tax on the formerly unemployed new¬-hire for the remainder of 2010.

Increase your basis in a partnership or S corporation if doing so will enable you to deduct a loss from it for this year. A partner's share of partnership losses is deductible only to the extent of his partnership basis as of the end of the partnership year in which the loss occurs. An S corporation shareholder can deduct his pro-rata share of an S corporation's losses only to the extent of the total of his basis in (a) his S corporation stock, and (b) debt owed to him by the S corporation.

Employee Benefits - Part 1 Pension Plans

This month we will discuss benefits that are available from your employer. If self employed you are looking at an entirely different situation and options which I will discuss in a later article.

Company pension plans - typically a 401k plan whereby you make personal contributions to the plan and your employer may or may not make extra contributions on your behalf. These contribution are pre-tax thereby reducing your annual income for tax purposes.

I strongly recommend you contribute at least a percentage of your annual income up to the percent that will be matched by your employer. In many cases that will be 6 percent that will be match. The percentage can be different from employer to employer and in some cases some employers do not match at all.

One of the advantages to these type of plans is the automatic investing without much effort on your part and the investment grows tax deferred until you begin to make withdrawals in later years. It is recommended that you do not place too much of your contributions into your companies stock as you should diversify your contributions into several categories not placing too much in any one area.

Review your 401k performance annually and make adjusts as needed.

DFI Wealth Management Blog and other Social Media

This month article will be quite brief and serve as an introduction to my business blog and other social media accounts that offer a variety of business related content.

My business blog can be found at DFI Wealth Management Blog. Post are updated usually every three days and cover a wide range of financial topics as well as non financial posts reflecting some of my areas of interest such as "travel".

Brief highlights of written articles and posts can be found at Twitter. You will also find me on Facebook where I just concluded a ten part series on the myths to purchasing real estate foreclosures.

Tax Preparation

Don't confuse tax preparation with tax planning. Tax planning is taking steps well in advance towards reducing your tax liability vs. tax preparation which is the actual process of completing a tax return.

Most taxpayers do tax preparation each year and not tax planning. Vast majority of tax services which includes accountants, tax services such as HR Block seldom do tax planning. They would like you to believe they do, but they are only offering a service after the fact.

In future articles I will discuss the actual methods for reducing your tax liability starting with keeping good records if you are an investor buying stocks or mutual funds. Accurate cost basis is essential if you want to avoid over paying in taxes due to distributions and capital gains. Next month I will go into more details on how accomplish this.

Liquidity Issues in a portfolio

Let's first define "liquidity". Generally speaking it is an account or savings program such as a savings account, CD's, money market accounts, checking accounts, etc. that the principal is secure from loss.

Thought technically one could argue that money market funds could lose value if the price per share dropped below $1.00 which is possible and has happened in rare cases. However with that being said money market funds are still reasonably a safe investment.

How much should you keep liquid? - The answer will depend on your resources, income, expenses, current market conditions and cash flow needs. I recommend that you look at your immediate to 3 years in the future expenses, perhaps even 5 years depending on your specific financial situation.

When reviewing your investment portfolio allocation, first review what your 3 to 5 year
expense forecast will be. Do not invest in securities any amount you might need for future expenses within the 3 to 5 year period. You might even need to sell existing assets immediately to meet your liquidity goals.

Automobile Insurance

Best advice I can give is to keep your driving record clean of Accidents and Tickets. Shop for insurance quotes every three years or so and compare the quotes to your current policy. Make sure you are comparing "apples to apples".

Common mistake is not getting larger coverage limits which typically will not increase the premiums that much. If you are in an accident and it's your fault, you are carrying low coverage limits, the other party can sue you beyond your coverage amounts. Of course if you have no assets for them to go after your chances of a law suite decreases.

If you are carrying "comprehensive & collision coverage", and the car is paid for, then check the Kelly Blue Book for current book value. If you have an accident and your car is totaled the insurance will only pay you book value. At some point the annual premiums do not justify the additional costs.

Consumer Debt - Credit Monitoring

Don't waste your money on credit monitoring offered by the three major credit agencies. Best solution is two fold - Request from Annual Credit Report a free credit report from each of the three credit agencies. It is advisable to request one free report from one of the agencies every four months and secondly going to each of the three credit agencies and requesting a credit freeze. The Credit Freeze will cost you $10 per agency.

If you are facing too much debt and unable to make your monthly obligations, do not and I repeat do not use a debt settlement firm, it will cost you plenty. You can do the same thing yourself by contacting your creditors and requesting assistance. However be aware that in either case, if a creditor forgives any portion of your debt the amount forgiven is considered income and taxable. You will receive a tax form 1099A which is also sent to the IRS.

Consumer Debt - Credit Cards

Most consumers spend far too much on personal debt. Not uncommon to buy a house that they cannot afford, drive an automobile that is too expensive and carry large balances on their credit cards. It's no wonder consumers are finding it too difficult to save. The things you buy today will greatly impact your tomorrow. On the subject of credit cards, if you cannot afford to pay cash or if you cannot pay it off in full within six months time max. You shouldn't be putting it on a credit card, you cannot afford the item. Don't allow your possessions control your future.

Monthly Expenses - Cable TV

Review your monthly outgo as it relates to cable TV. Do you really watch that many cable stations. An Alternative would be satellite either Dish Network or DirecTV, both offer a 100 plus channels basic service starting at $30 per month. Most equipment can be acquired at no cost if you sign a two year contract.

Better yet is a free online service called hulu.com which offers both TV programming and movies. This does require high speed internet access and can be streamed to a television set in addition to a computer.

Third option is buying a HD TV with an off air receiver that will pull local TV programs directly from the major networks. Consumer Reports found that the reception and quality of picture was as good if not better than cable. Downside to this is of course you cannot receive cable stations such as ESPN and other programming. However hulu.com does offer some of the cable stations so a combination of hulu.com and an off air receiver may be the answer.

Monthly Expenses - Buying a car

When it comes to buying car many consumer's lease their vehicle instead of a purchase. Leasing a car seldom makes good economic sense and basically means you are acquiring a car you cannot afford. I suggest you stay away from leasing as the costs means you will be making payment basically forever considering trade-ins, etc. If you need to finance a purchase try to keep the finance term to no longer than 36 months. When shopping for an automobile never give the salesmen a monthly payment you are willing to pay. Don't mention a trade in even if you have one to consider. Get the best deal first without a trade, then after you get a firm deal then suggest you might like to do a trade-in. By all means comparison shop....

Monthly Expenses - Cost of keeping your car

Consumer Reports did a study on the virtues of keeping a car for 15 years. Bear in mind that most owners only keep their vehicles for three or maybe five years. But by keeping a car for 15 years or 225,000 miles, you save $31,000 dollars. The report found that during the course of 15 years, your average maintenance will be $18,000. Also factor in the cost of auto insurance which if you finance a car you most carrying additional insurance required by the financing company. Another consideration is whether to repair or trade, if cost to repair exceeds 50 % of the current Blue Book value then its probably wiser to trade.

Monthly Expenses - Alternatives for Landline and cell phone services

Landline - Do you really need to be spending anywhere from $25 a month to over $50 a month?

Suggest you take a look at Skype, an internet VOIP service costing $60 a year for unlimited calls days and night every day of the week, 52 weeks a year. That includes all of the US and Canada with international calls costing an additional 2 cents a minute to most of Europe, higher in other areas depending on country. The $60 a year includes an inbound phone number for your local area, voice mail and even email messages that you received a message.

Cell Phone - Do you you really find the need to make the phone companies rich at your expense? This is a major area of wasted money. Not uncommon for monthly bills to exceed $50 to $75 or more. If you look at the monthly costs over ten or more years, money that could have been used for retirement, vacations, etc it's a crying shame.

Personally I use Tracfone and have so for quite some years, it's a prepay cell service costing me about $10 a month on an average. Tracfone and it's sister company Net 10 is by far the best cell service of it's kind. True I am not a phone junkie and use my cell phone sparely. I am able to rollover minutes from one month to another and I only have to purchase more minutes once every 90 days.

Monthly Budget - When creating a budget for your monthly outflow keep in mind that the accumulation of possessions can end up controlling you as oppose to you controlling your expenses. Many people become slaves to their possessions.

That expensive house, car and credit card debt can end up creating additional stress and loss of freedom. In the end it will afford you a lesser quality of life in retirement years.

Consider the long term financial impact of a poor spending habits - Monthly cell phone bills in excess of $75, satellite or cable TV costing over $50 a month, landline phone service $50 plus per month and so on.

Next Financial Life Coach segment we will discuss alternatives to the above mentioned services featuring pre-pay cell, Skype, Google Voice, Hulu.com and the use of credit cards.

Cash Flow - What is left over after subtracting your monthly expenses from your income.

Step 1 - List all income sources received on a monthly basis.

Step 2 - List all monthly expenses paid each month.

Step 3 - Income minus expenses = Cash Flow (positive or negative)

It a good idea to track your cash flow each and every month to have an exact figure on where your money goes monthly. Remember your success will be measured not by how much you earn, but how much is left over each month.

Set aside each pay period at least 10 percent of your gross income into some form of savings plan. Always pay your self first when setting up a budget. You and your financial health is far more important than any other creditor you have have.

Savings Bonds - Comparison chart Between I Bonds and EE Bonds

I Bonds
EE Bonds
Any amount of $25 or more, including penny increments*
Any amount of $25 or more, including penny increments*
Purchase Price
Face value**
Face value**
Purchase Limit
$5,000 per Social Security Number***
$5,000 per Social Security Number***
Interest Earnings
  • A fixed rate of return and a variable semiannual inflation rate (based on CPI-U for March and September) are combined
  • Interest compounds semiannually for 30 years
  • Bonds issued after May 2005 earn a fixed rate of return.
  • Variable rates for bonds bought from May 1997 through April 2005 are based on 90% of the 6-month averages of 5-year Treasury Securities yields.
  • Interest compounds semiannually for 30 years.
Can be redeemed after 12 months
Can be redeemed after 12 months
Early Redemption Penalties
3-month interest penalty if redeemed during the first 5 years
3-month interest penalty if redeemed during the first 5 years
  • Exempt from state and local income tax
  • TreasuryDirect reports interest earnings; an online 1099-INT shows interest reportable for tax purposes.
  • Tax benefits available when used for education expenses
  • Exempt from state and local income tax
  • TreasuryDirect reports interest earnings; an online 1099-INT shows interest reportable for tax purposes.
  • Tax benefits available when used for education expenses

Savings Bonds - Possible good investment vehicle to park part of your emergency funds. Two major types of US Savings Bonds, specifically I Bonds and EE Bonds.

Bonds may be purchased as a paper bond or electronically in which case you can buy both paper and electronic for a total of $10,000 in one calendar year. The limitation is based on a social security number therefore in the case of a married couple you could buy a total of $20,000 if purchased as a paper and electronic bond.

Go to Treasury Direct for further information and to purchase online. Next article we will discuss the difference between I and EE Bonds.

Emergency Fund - As a rule of thumb, a cash reserve should be setup with a minimum of three to six months of gross income. More might be needed if situation warrants such as job or income instability.

Liquidity is essential so the emergency fund should be in an interest bearing account such as savings account, certificate of deposit, money market fund and US savings Bonds. Review cash needs up to three years in the future, any money that might be needed within at least three years should be placed in your emergency fund and checking accounts.

Shop online at www.bankrate.com for the best yields available either nationally or locally. Consider US Savings I Bonds which historically has paid very competitive rates and updated every six months. Current six month rate is 3.36 %. Next article we will discuss the specifics of Savings Bonds.

Pay Yourself First - On a monthly basis, make sure you add to your monthly budget a category for savings/investments. You should set aside no less than 10 % of your gross family income every month. You are your most important creditor you have, so pay yourself first. If you wish to retire earlier than normal then consider 15% to 20 % of your gross income. When determining the amount to set aside, include the amounts already going into 401k plans, etc. as part of the 10 %. Example: If your employer is deducting 6 % from your pay then you would need only to save or invest an additional 4 %.

As you save and invest, it is important that you build an emergency fund to cover short term needs as well as unexpected expenses. Next article we will discuss where and how to fund the "emergency fund".

Mind-set - "You are what you think about!" In other words, positive thoughts brings positive results; negative thoughts will bring negative results. In financial planning as well as in life a detail written plan of what you desire is essential. Define your goals near, immediate and long term. Be as specific as you can and read those goals ever day. It is recommended that you read your goals two to three times a day. An excellent reading (audio book) on this subject can be found at "Learn Out Loud" written by R.H. Jarrett titled "It Works". This audio book is offered for free and is only a few minutes long.

Resources - Two excellent resources of free audio books can be found at your public library and "Learn Out Loud". You will find a banner link on my Personal Development web page for "Learn Out Loud", top right column.