You Have Breast Cancer: How Long Can You Afford to Be Away From Work?

Breast cancer affects not just your health, but your bank account, too. Dede Bonner, Ph.D. and author of The 10 Best Questions for Surviving Breast Cancer: The Script You Need to Take Control of Your Health — poses the questions that will help you determine if and for how long you should take a leave of absence.

Do I want to take leave from work, or would I be happier if I continued working? What leave, medical benefits, and schedule flexibility can I reasonably expect from my employer? How many days can I afford to be out?

You must decide soon about taking time off from work during your breast cancer treatments. Your diagnosis, treatment plan, and doctors’ advice will largely determine how much time away from work you’ll need (if any).

Beyond your doctors’ recommendations, you are likely to have some options about how you want to spend your time. Some women choose to devote all their energies to healing. Going back to work may be a difficult step when you contemplate your normal work-related stresses on top of treatment-related side effects and dealing with nosy coworkers. Others prefer to work as a good distraction. Your job may give you something to think about besides your health, make you feel like you have more control over your life, and reconnect you with people who care about you. How the treatments are affecting you will also impact your decision.

For some, the need to keep their incomes drives all else. You may be compelled to work in order not to lose revenue. Another consideration is your partner’s or loved one’s lost income while he or she is caring for you and taking you to treatment appointments.

If you decide to take time off during the course of your treatment, remember that the U.S. Family and Medical Leave Act allows most workers twelve weeks of leave each year for a serious illness such as breast cancer. You don’t necessarily have to take all your leave at once, and you may prefer to dole it out to coincide with your scheduled treatments and posttreatment recovery times.

You can’t be discriminated against because of your illness.
Most employees are protected by the Americans with Disabilities Act (ADA). Cancer is considered a disability for the purposes of this law. This means that your employer can’t treat you any differently from other employees of your company and must make reasonable accommodations if needed. It’s comforting to know that legally you can’t lose your job because of your absence or illness.

Dede Bonner, Ph.D., author of 10 Best Questions for Surviving Breast Cancer: The Script You Need to Take Control of Your Health (Copyright © 2008 by 10 Best Questions, LLC) and a.k.a. “the Question Doctor,” is on the graduate business faculties of The George Washington University and Curtin University in Perth, Western Australia.

Read the Introduction to 10 Best Questions for Surviving Breast Cancer

More books by Dede Bonner

Browse more books about Healthy Living

Is Busy Better?

Many of us will feel exhilarated when we retire — at least for a while. Bernice Bratter and Helen Dennis, authors of Project Renewment: The First Retirement Model for Career Women, pose five questions to help you figure out how to make yours a time of renewal.

“In the first few months of my retirement I was so busy I didn’t know how I ever had time to work. The first thing I did was to take everything that was broken out of my storage cupboard and have it repaired. That included the vacuum, cracked porcelain plate and the bent silver spoon. I cleaned and organized my house. I took clothes to the tailors, shoes to the shoemaker and I had the house painted and windows washed. I even tackled the garage. I went on a trip to India and had breakfasts, lunches and dinners with old friends. I took yoga classes and long walks in the middle of the day. I read books and took computer lessons, honing my skills since I no longer had an assistant. My biggest luxury was reading the morning newspaper — in the morning.

“After everything got fixed and I grew tired of eating at restaurants every day, life began to feel superficial. I panicked when I realized that I was busy — and bored. I didn’t miss work, but I missed the mental stimulation, camaraderie and challenges that I had while working. I was scared that I could never find these things again in retirement.”

Clearly something was missing.

The early days of retirement are filled with choices: a time to catch up with friends, take the extra yoga and Pilates classes and start (and complete) the never-ending to-do lists. There is even a choice to do nothing. We initially may feel liberated and relieved, knowing we now have the time to do all of those things for which there was no time during our working years. This glorious honeymoon can last a lifetime or disappear and reappear many times.

At one time, retirement was considered the most stable period of life; today it can be one of the most dynamic life stages. And change is an integral part of it. Since retirement is an opportunity that can last as long as thirty years, just being busy for that amount of time may not be sufficient.

One of the unsettling retirement experiences of successful women is the prospect of an empty calendar. We are used to filling every minute, knowing where we are supposed to be, what projects are due and what clients to meet. Now the calendar is empty. If not, it is filled with different kinds of appointments — the doctor, mechanic, hairstylist and trainer. One woman commented, “Sometimes I write my own name on my calendar so I think I’m busy.

“There’s part of me that finds the prospect of not having something to do all day–every day a delicious concept. And then there’s part of me that is panicky about the idea that I’m not going to have something to do every day, that I am going to get bored, lose my sense of self-worth and not have anything to talk about to people.”

Why do we feel so compelled to be busy? Part of the answer is the Puritan work ethic. The Puritans were members of a group of English Protestants in the seventeenth century who were advocates of strict religious discipline. Their teachings were based on their Bible and emphasized hard work and perfection as necessary for salvation. Pleasure was considered sinful. Puritanism was well received by early capitalists because it created a self-disciplined and hardworking labor force. These values continue to define the American work ethic. American employees often do not take the full amount of paid vacation time because of the stress of returning to work to face a slew of e-mails and a huge to-do list. They also fear their absence will affect their job security. One-quarter of Americans don’t have any paid vacation time, and those who do have fourteen days; the French have thirty-nine days and the Brits twenty-four.

This ethic has formed the framework from which we derive implicit positive rewards as a result of the work we do. We gain a sense of self-respect when we demonstrate initiative, industriousness, productivity and self-discipline, all traits valued in the workplace.

If we are chairing the board of a nonprofit organization, raising a quarter of a million dollars for the art museum or getting up three times a week at 5:00 A.M. to oversee the local soup kitchen, we likely are deriving great meaning from these endeavors. They demonstrate our ability and commitment to achieve and complete tasks.

And by being busy, we are protected from the perception that others may have of us as no longer being able to perform. Keeping busy may give definition to our emerging role, which can be clouded at best. It motivates us to continue contributing to society, families, the arts and the nonprofit world. We try to make this world a better place. The key is to find value in our busyness.

A retired executive director in Project Renewment shared her uneasiness when asked, “What are you doing with yourself these days?” “I would mention so many activities that people would gasp at the number of my commitments. But what I was doing had little or no social value. I felt that others perceived me as being shallow and that my life lacked purpose.”

The American author Barbara Ehrenreich writes that “the secret of the truly successful . . . is that they learned very early in life how not to be busy.” This suggests that life is to be savored and not rushed.

When busyness no longer has meaning, it is time to stop, take stock and figure out what is missing in our lives. The board meetings may become tedious, the book clubs may be getting arduous and the gym may become boring.

Maintaining a busy schedule is not the same as being fulfilled. Being busy without meaning implies that quantity is better than quality. Most of us want that quality of life with activities and relationships that replenish our soul and have personal meaning. Being too busy may prevent our continued growth as suggested by the German classical scholar and philosopher Friedrich Nietzsche. “A man [woman] who is very busy seldom changes his [her] opinions.”

Questions to ask yourself:

  1. How do you feel about unscheduled time?
  2. Assuming you will have fifty unscheduled hours of time per week, what will bring you pleasure and satisfaction?
  3. How would you define a quality activity?
  4. If you want to keep a busy schedule, do you know why?
  5. How do you want to balance your time between leisure and activity?

Bernice Bratter, author of Project Renewment: The First Retirement Model for Career Women (Copyright © 2008 by Bernice Bratter and Helen Dennis, Illustrations copyright © 2008 by Lahni Baruck), is a native Angeleno who graduated from UCLA with a major in psychology. She did graduate work at the Phillips Graduate Institute, where she obtained a master’s degree in social science. She is a licensed marriage and family therapist and has served  as president of the Los Angeles Women’s Foundation, a public foundation dedicated to reshaping the lives of girls and women in Southern California, as well as executive director of the Center for Healthy Aging, a nonprofit interdisciplinary health care organization for older adults and their families. An advocate on aging and women’s issues, she has appeared in front of various government agencies and has lectured and served as a consultant to nonprofit organizations. In 1981 she was a gubernatorial appointee as observer for the State of California to the White House Conference on Aging and is the recipient of numerous awards and commendations including the Santa Monica YWCA Woman of the Year Award as well as the Center for Healthy Aging Community Leader Award. Bernice holds an honorary doctor of law degree from Pepperdine University and has served on the board of directors of Tenet Healthcare. She has appeared on 60 Minutes, 20/20, The Phil Donahue Show and in Hour Detroit magazine. In 1999 she cofounded Project Renewment, which explores the different challenges career women face once they leave the workforce. As cofounder of Project Renewment she continues to meet the demand of women who want to join a Project Renewment group.

Helen Dennis, author of Project Renewment: The First Retirement Model for Career Women (Copyright © 2008 by Bernice Bratter and Helen Dennis, Illustrations copyright © 2008 by Lahni Baruck), is a nationally recognized leader on issues of aging, employment and retirement. She has conducted research on these issues for organizations such as The Conference Board, AARP, UC Berkeley and the U.S. Administration on Aging. Nationally, she has lectured extensively to the business community, professional groups, nonprofit organizations and government agencies. In her consulting practice Helen has worked with more than ten thousand employees planning the nonfinancial aspects of their retirement, including men and women who are senior executives, managers, factory workers and university faculty and staff. She is the editor of two books, Retirement Preparation and Fourteen Steps in Managing an Aging Work Force, and a weekly columnist writing on “Successful Aging” for The Daily Breeze, a MediaNews group newspaper. As a leader, Helen has served as president of three nonprofit organizations and currently serves as chairperson for the American Society on Aging’s Business Forum on Aging and the Healthcare and Elder Law Programs in Southern California. She was appointed as a delegate to the 2005 White House Conference on Aging and serves on the national board of the American Society on Aging. A lecturer for more than twenty years at the University of Southern California’s Andrus Gerontology Center, she has been the recipient of several awards for her teaching effectiveness and contributions to the field of aging. These include the Distinguished Teaching Award from the Association for Gerontology in Higher Education, the Excellence in Teaching Award from the Andrus Associates at the University of Southern California and the Francis Townsend Award in Gerontology from California State University, Long Beach. Her views on age, employment and retirement issues have been quoted by the Wall Street Journal, the Los Angeles Times, the Christian Science Monitor, the Sacramento Bee and others. She has also appeared on 20/20 and national network news programs. As cofounder of Project Renewment, she continues to support the formation of Project Renewment groups and has made numerous national presentations on the challenges and opportunities facing career women in retirement.


Meditations on Money for the Inner Soul: Understand Road Blocks, Karmic Blocks, and How You Manifest Wealth

Break through the illusory nature of wealth and let your soul guide your relationship to money. From Lara Owen, author of Growing Your Inner Light: A Guide to Independent Spiritual Practice.

We live in a time in history in which wealth has taken on a new collective meaning. There are more wealthy people than ever before, and in the collective imagination, we have a newly created vision of a standard of living that we consider our birthright. Credit cards, mortgages, and car loans mean we can experience ourselves as being well-off without it necessarily being based in reality. Whole countries live off debt and fake money. It’s all very confusing when there are still large areas of the world dealing with famine and disease on a scale that is unheard of in what is termed the ”developed” world.

The inequality and illusory nature of wealth are not the only reasons to be wary of its seductions. Even if you thought you were well-off, chances are that whatever wealth you thought you possessed has diminished in recent times. The upheaval in the world’s financial markets has made it only too clear that worshipping at the altar of materialism is a risky business.

So how do we navigate this treacherous territory at a time when material greed and expectation have reached heights that Socrates probably never even imagined? At a time in which global finances are in such rapid flux that no one can predict what will happen next?

First of all, stay close to yourself. Listen to your dreams and imaginings, and your inner promptings. Take yourself seriously. The soul will not lead you in the wrong direction if you pay attention. Learn to distinguish between the inner soul voice and the conditioned fantasy voice, and pay close attention to how manifestation functions for you.

The following are some questions that will help you work through your thoughts about money. Write these in your journal, and take some time to meditate on and write about each one.

  • Where does your money tend to come from? Do you get funds from your family, from your spouse, from hard work, from throwing big parties, from creating works of art?
  • How does money come to you? Does it come in sudden wind-falls or in regular paychecks? Does it come happily or unhappily?
  • What are your open gates for receiving money, and where do you think you might be closed? Visualize the gates through which money comes to you and see why some are closed. Find out what it would take to open them.
  • How does stuff come to you? Is it different from how money comes to you? (Sometimes people have a knack for attracting things over money because they have a negative belief about money itself.)
  • Look for where life is easy for you and see if that lesson can be applied to the realms that are more difficult. For example, if you have easy, plentiful friendships with women, think about working in a field in which women will be your clients or customers.
  • Examine your family of origin issues. Every family has its trips about money. What did you learn about money as a child? If money was lacking, what concepts has that imparted to your thinking? If you were born into a family that had money and that you have inherited, accept this as your fate and use the money to further your soul dream, which will often be philanthropic and/or socially responsible.
  • Look at where you disrespect money and waste it, and clean up your act. Look at your ethics and see if you feel entirely comfortable with all your choices.
  • Add up how much money you spend a year in interest and see what you can do to turn that negative into a positive by earning the money before you spend it.

Gratitude practice is useful in clarifying our relationship with money. Think about all the financial help you have received in your life and give thanks for it. Gratitude blocks can often arise around money because it can be such a charged issue, bringing up issues of entitlement in particular.

If you feel you don’t have as much money as you need, look at what useful function the lack of money might serve for you spiritually. For example, if you tend to be scattered in your thoughts and actions, a lack of money might serve to focus you on what is really necessary. Imagine having all the money you think you need and see how you feel. Within that you may find clues to why you might be blocking yourself from being wealthier.

Practice respect for but also detachment from money. The gods and goddesses of money seem to like us to pay close attention but to also be relaxed. (That applies to just about everything, though, doesn’t it?)

Give space in your perceptions for the possibility that everything right now is absolutely perfect – that the restrictions you experience on the material level are actually part of the divine plan of your soul for your ultimate fulfillment. Do this while vowing to free yourself of karmic restrictions brought about by erroneous thoughts and actions regarding money, work, and material anxiety.

Lara Owen, author of Growing You Inner Light: A Guide to Independent Spiritual Practice (Copyright © 2009 by Lara Owen), has trained with spiritual teachers all over the world and has made a lifelong study of spiritual practice in several traditions. She has a background in Chinese medicine and psychotherapy, and has worked in publishing, television, and documentary film. Lara lectures internationally and maintains a consulting practice working with individuals, groups, and organizations. She is the author of several books on personal and spiritual development, including Love Begins at 40 and the acclaimed Her Blood Is Gold.


How to Invest in Foreign Currency, Without Leaving the Country

In a global economy, the dollar won’t always be on top. Will your savings be protected when it falls? Where to Put Your Money NOW author Peter Passell highlights three ways to shore up your retirement portfolio with overseas securities.

The very idea of investing in foreign currencies seems exotic and dangerous, an adventure best left to the professionals. But the ongoing integration of the global economy, along with the introduction of inexpensive ways to invest abroad, has radically altered the landscape. Much of what you buy is made in countries with other currencies, so the exchange rate between the dollar and those currencies now directly affects your living standard. Yet, oddly, many investors who are careful to hedge their bets in U.S. securities never think to diversify their portfolios into other major currencies.

There’s an important distinction between investing in foreign stocks and investing in foreign currencies. Foreign stocks do change in value as the exchange rate of the dollar changes. But a whole host of other factors also affect foreign stock prices. By contrast, buying safe bonds with short maturities (thus not subject to much market risk) is a pure currency “play” — a bet that the foreign currency will rise in value against the dollar.

Is there a good reason to bet that the dollar will fall in value? I think so. The dollar is overvalued in the sense that, at the current exchange rate, foreigners buy far less from us than we do from them. So, at present, foreigners (or their governments) must inevitably amass vast quantities of dollars (nearly $800 billion last year). And when (not if ) they get tired of trading their TVs and cars and oil for the chance to buy U.S. Treasury securities, the exchange value of the dollar will fall.

But even if you aren’t as sure as I am that the dollar will eventually tank, it still makes sense to put some of your savings into securities denominated in other currencies. Think of it this way: by keeping all your assets in dollars even though so much of what you buy comes from Asia and Europe, you are effectively betting that the dollar will appreciate.

A decade ago, buying safe, fixed-income securities in other currencies was not practical unless you had a lot of money to invest. Now, options abound.

Foreign Bond Funds
Lots of bond mutual funds buy securities in other countries. Most of them, though, are just looking for higher interest rates and don’t want to risk changes in the value of their assets as exchange rates vary. Luckily for them, there are sophisticated (if not always cheap) ways to neutralize exchange risk. But a few funds deliberately expose their shareholders to the risk of changes in exchange rates — precisely what we want as a means to hedge against the decline of the dollar.

Oppenheimer International Bond Fund. This fund does just what you’d like it to, investing in high-quality bonds denominated in diverse foreign currencies. I have to grit my teeth to recommend it, however, because the fees are so large: first a 4.75 percent sales charge, then close to 1 percent in annual management fees. Buy it only if you plan to hold for several years, if you buy it at all. Visit or call 1-888-470-0862.

American Century International Bond Fund. Much like the Oppenheimer fund; invests in a mix of bonds, mostly in Europe and Japan, with average maturities of about five years. Like Oppenheimer, it charges a 4.75 percent initial sales charge. The one exception: anyone who owned American Century mutual fund shares before September 28, 2007. Visit or call 1-888-345-2071.

Foreign-Currency-Linked Bank CDs
An online bank called the EverBank specializes in federally insured CDs with maturities up to twelve months that rise and fall in value with the exchange rate between the dollar and any of a dozen currencies. Don’t worry about how they get the federal insurance — the whole thing is on the up-and-up. The only drawbacks: relatively low interest rates and a $10,000 minimum investment. Visit or call 1-800-926-4922.

Foreign-Currency Exchange-Traded Funds
There seems to be an exchange-traded fund for every financial index these days, so why not some ETFs that track the exchange rate of the dollar with other currencies and pay a little interest, besides? Why not, indeed.

Sharp-eyed investors will note that some ETFs tracking exchange rates and other indexes are actually ETNs — exchange traded notes. The difference is small, but not insignificant. ETNs are uninsured loans to banks, which give you a little interest plus a link between the value of the principal and a specific financial index. So ETNs should generate slightly higher returns than equivalent ETFs, but shareholders must live with the (small) risk that the bank will default on the loan. In the spirit of conservative investing, I’d generally opt for ETFs unless an ETN offers a unique investment opportunity.

The most popular way to invest in currency ETFs is one currency at a time — which leaves the question of which currencies to buy and in what proportion. If you spend a lot of time (and/or money) in another country — for example, if you regularly visit relatives in Canada — it probably makes sense to buy the relevant single-currency ETF. Otherwise, you may be better off with an ETF that buys a whole package of currencies.

PowerShares DB G10 Currency Harvest Fund
Tracks an index of ten major currencies that is maintained by Deutsche Bank, the giant German bank. High management fees for an ETF. Visit or call 1-800-983-0903.

CurrencyShares ETFs
The investment company Rydex manages individual exchange traded funds for euros, Japanese yen, British pounds, Swedish krona, Swiss francs, Canadian dollars, and Mexican pesos. Management fees aren’t bad. The funds track exchange rates with the dollar quite closely and pay whatever interest they can earn in safe, short-term bonds in the currency. For information, visit

WisdomTree Dreyfus Currency Income ETFs
This brand of ETFs tracks a host of individual currencies — notably currencies of three emerging-market powerhouses, China, India, and Brazil. Visit

Barclays GEMS Asia 8 ETN
This new exchange-traded note tracks an index of the Indonesian rupiah, the Indian rupee, the Philippine peso, the South Korean won, the Thai baht, the Malaysian ringgit, the Taiwanese dollar, and the Chinese yuan. Downside: high management fees, some credit risk. Best information source:

Peter Passell, author of Where to Put Your Money NOW: How to Make Super-Safe Investments and Secure Your Future (Copyright © 2009 by Peter Passell), is a senior fellow at the Milken Institute and the editor of the Milken Institute Review, and has been a columnist for the New York Times. He is the author of many guides to personal finance, including Where to Put Your Money, The Money Manual, and How to Read the Financial Pages.


How to Find the Best Credit Card for You

Whether you’re a sensible card user or a bit dysfunctional when it comes to credit cards, there are steps you can take to get the right card and reduce your costs. Here’s what you need to know, from Get a Financial Life by Beth Kobliner.

Many of us have become addicted to credit cards, and banks have been more than willing to feed this habit by dangling cards in front of everyone old enough to sign his or her name. Today, the card companies are tightening their standards and limiting credit lines as well as hiking interest rates and fees.

Whether you’re a sensible card user or a bit dysfunctional when it comes to credit cards, there are steps you can take to get the right card and reduce your costs. It’s especially important that you know what to do these days; making credit mistakes can cost you a lot of money.

How to Find the Best Card for You
Despite what the ads say, whether your card has a Visa seal or a MasterCard logo is not that important. These are just membership organizations. It’s the banks or company that issues the card — such as Citibank or Bank of America — that matters. Issuers control the rates, fees, and other factors that are critical to you.

Look for a credit card that best suits your own personal spending habits. If you usually carry a balance from month to month, get the lowest interest rate — technically the annual percentage rate or APR — you can. But if you always pay off your balance in full, the rate doesn’t matter. In that case, your priority is to find a card that doesn’t’ charge an annual fee and offers a grace period, the stretch of time lenders give you to pay in full before they start charging interest.

If you pay off your entire balance each month, you may also want to consider special “reward” cards that offer frequent-flyer mileage or credits toward a car for every dollar you charge. If you have a troubled credit history, consider a secured card that requires you have enough money on deposit to cover your charges, and if you have a tough time controlling your credit card spending, you may be better off just sticking with a debit card instead. (More on all these options follows.)

In any case, most of us don’t need more than two credit cards total. Extra cards just make it easy to overspend.

How to Search for a Low-Rate Card
If you find you don’t have enough cash to pay off your credit card balance immediately, you’ll want to get the lowest-rate card possible and transfer your debit to it. The way it generally works is that the new low-rate issuer pays off your other creditor(s) or gives you checks to settle your old accounts. The details vary from card to card, though, so you need to read the fine print (online, generally buried in the “terms and fees” page or in the paperwork the company sends you) before signing up. Some low-rate issuers, for example, offer you a twenty-day grace period before interest acuminates on the money you borrow; others tack on transfers fees (for transferring the debt, naturally) and start charging you interest the moment the checks are cashed by your old cardholders.

There are two kinds of low-rate cards: those with low rates that last and those with temporarily low introductory rates, also known as teasers. Teaser rates can be as low as 0% and last for six months to a year. After that period, the rate increases dramatically. While the low teaser rate lasts, however, it can save you a lot of money. Transferring a $2,000 balance from a 16% card to one with a 0% teaser rate, for example, would save you $156 in interest payments over six months – assuming there are no balance transfer fees, of course.

So if you know for sure that you can pay off the whole card before that teaser rate runs out, you’re okay. The card issuer counts on the fact that you can’t – which is the case for most people. If that’s your situation and you’re super-organized, you may be able to keep your rates low by going “credit card surfing” – transferring your balance to a new teaser-rate card whenever your teaser rate runs out. But you have to surf carefully and that’s very hard to do. Credit card companies have gotten wise to credit card surfers, and most now charge transfer fees, so pay attention. Also, don’t let the low rates seduce you into paying off your debt slowly; try to pay at least as much every month as you would with a higher-rate card.

In a perfect world, you’d be able to find a card with a low rate that lasts. The interests rates on such cards tend to be higher than teaser rates, but are far more stable in the long run. Unfortunately, after the wave of credit card delinquencies in recent years, banks have made it significantly more difficult to qualify for these cards. Here are details on some of the requirements.

  • Solid bill-paying habits. If you’ve been 30 days late paying a credit card bill within the last four years or if you have ever been more than 60 days late, you’ll have a hard time getting a low-rate card.
  • Stability. Some issuers want to see that you’ve been at your job for at least a year. It also helps if you’ve lived in the same apartment or house for a year.
  • Moderate usage. To measure credit card use, issuers look at the ratio of your outstanding debt to your potential debt (that’s the sum of the credit limits on all your cards). This is called your usage ratio. For example, if you have two cards with a combined $1,000 credit limit and outstanding debt of $900, your usage ratio is 90% ($900 divided by $1000). This ratio should not exceed 30%. Borrowers who qualify for the best cards have a ratio of about 7%.
  • Long-term dependability. Lenders favor borrowers who have established a lengthy track record of on-time payment – years and years of good behavior.

Beth Kobliner, the author of Get a Financial Life (Copyright © 1996, 2000, 2009 by Beth Kobliner), is a contributor to the New York Times, and a former staff writer for Money magazine and a financial columnist for Glamour. She’s made multiple appearances on Oprah, Today, CNN, MSNBC, PBS, and NPR as a personal finance expert.



Fixed Income Annuities, a Worry-Free or Risk-Filled Ride?

Straight-shooting personal finance author Peter Passell demystifies guaranteed payout plans — and the insurance agents who sell them — in his latest book, Where to Put Your Money NOW: How to Make Super-Safe Investments and Secure Your Future.

Annuities are contracts that assure you a series of payments at specified dates in the future. The classic annuity contract designed to minimize the investor’s risk is an old-fashioned “defined-benefit” pension plan from an employer, in which you get a monthly check in a fixed amount until you (and usually your spouse) die. The ultimate annuity, one could argue, is Social Security. It pays every month for as long as you live and adjusts the payout to the cost of living. Social Security is, of course, backed by the commitment of Congress to deliver on the deal.

Annuities sold to individuals by insurance companies can, in theory, be the answer to a lot of the worries of conservative investors. In the simplest form, they work like pension plans, guaranteeing a fixed monthly payment for life. Lots of other investments provide reliable periodic payments — think of a U.S. Treasury bond with a thirty-year term, which delivers interest every six months for thirty years, then returns the principal. But few investments other than annuities can guarantee that you won’t outlive your savings, and few allow you to spend the principal along the way.

Using annuities to guarantee a predictable income in retirement has major problems, however. First, the idea of the annuity has strayed far from the simple pension-like contract; with all the bells and whistles that sellers add, the typical annuity contract is hard to understand. Since no two annuity contracts are alike, it is also difficult to comparison shop. Second, annuities are traditionally sold the way life insurance is sold: an agent spends hours or days with the client, working as hard as possible to sell the deal that generates the fattest commissions. Few of us are immune to this sort of salesmanship, thus few of us are likely to opt for the objectively best deal.

Third, changes in the tax laws several decades ago changed the focus of annuities from relatively simple, pension-like contracts to tax-sheltered savings accounts called deferred annuities that allow you to use the proceeds to buy a real annuity later on. The resulting contracts can look good on first glance, but almost always have drawbacks that make them less flexible and less rewarding than alternative, equally conservative investments.

Let’s start by getting off the table those tax-sheltered savings accounts that morph into annuities. With a deferred annuity, you plunk down a wad of money, the money earns income either at a fixed, CD-like rate or at a return keyed to the insurance company’s returns on a specified investment portfolio. Then, years down the road, you have the option of taking out the proceeds and paying the taxes on the earnings (which have been deferred), or trading the accumulated cash for an immediate fixed annuity that pays out like a pension. The sellers of deferred annuities generally stress the tax-sheltered savings rather than the annuity features because few buyers ever trade in their accounts for true annuities.

Still, what’s wrong with the concept of a deferred annuity? The devil is in the details. First, deferred annuities are illiquid. The insurance company sponsor almost always penalizes withdrawals before the five- or six-year mark. The IRS exacts its own (10 percent) penalty if you withdraw any cash before you are 59½. Second, deferred annuities are expensive: the insurance company sponsor typically charges fat fees to “manage” the account.

More important, the gimmick that made deferred annuities so attractive when they were invented — the ability to defer taxes on investment income — has been overshadowed by tax-sheltered individual retirement accounts (IRAs) and employer-sponsored 401(k) retirement accounts. With these, you get a tax break on contributions to the account, still get to defer taxes on income earned within the account, and generally pay far smaller fees. The bottom line: don’t even consider deferred annuities as a means of saving for retirement unless you’ve maxed out your contributions to your IRA and/or 401(k).

That still leaves ‘immediate” annuities, the classic annuity contract, to consider. On the plus side, they offer a certainty about retirement income that other investments can’t match. On the minus side, the contracts are inflexible, and the returns to your investment are apt to be quite low because somebody has to pay the salesman for his considerable efforts.

An annuity is, in effect, a bet about when you’ll die. Most of the people who buy annuities are healthy and expect to live a long time. The insurance companies understand this and set annuity payout terms accordingly. Thus annuities are generally a bad deal for people who don’t expect to live as long as their contemporaries.

If you do value the pension-like properties of annuities enough to invest in one, the trick is (a) to deal only with an insurance company that has the financial cojones to make good on its side of the bargain far into the future, and (b) to get the most for your money by shopping around.

The former task is relatively easy. Don’t be entirely put off by the collapse of AIG, America’s largest insurance company, in the financial meltdown. The companies that actually guarantee the annuity contracts are state-regulated subsidiaries of larger companies, and they are under government orders to behave far more conservatively with their reserves. Even AIG’s annuity subsidiary is generally considered solid.

Note, too, that state insurance commissions maintain reserve funds to meet the obligations of insolvent insurance companies in their jurisdictions. State-by-state information about insurance regulation is available from individual state Web sites. All of these sites are accessible through a site run by the National Association of Insurance Commissioners.

Another independent source on the quality of the insurance companies behind annuities is the credit rating agency A.M. Best, which, incidentally, came out of the mortgage-backed securities ratings scandals unscathed. A.M. Best provides ratings information online at no charge, provided you fill out a “membership” form. Visit for the particulars. When you go shopping for an annuity, consider only companies with the two highest rankings, A++ and A+.

As noted earlier, comparison shopping for immediate fixed annuities is difficult. But a few guidelines will help:

  • Avoid annuities that charge up-front fees or “loads.” In theory, they may be as good a deal as annuities that collect all of their fees annually. But loads are too often a sign that the insurer is relying heavily on its commission- based sales force, rather than the underlying quality of its financial products, to sell annuities.
  • Keep it simple. Like new cars, annuities come with all sorts of optional extras—in particular, guarantees that some or all of the investment will be returned to the heirs if the annuity-holder dies young. But there’s never a free lunch. Such bells and whistles make it (even more) difficult to compare annuities. Besides, it is practically impossible to assess the value of such features.
  • Focus on insurers affiliated with investment firms that are generally inclined to compete for business on the cost of services rather than on the charm of their sales force (see below).
  • After finding the annuity that pays the most, perform at least one reality check. Could you generate almost as much income from interest payments on, say, a newly issued U.S. Treasury bond and still have the principal left over after thirty years? If so, the annuity plainly isn’t worth it.

There is no substitute for comparison shopping, but four companies are a good place to start because they have both strong financial ratings and reputations for treating consumers fairly:

The primary business of this gigantic organization is to manage pensions (annuities) for college teachers. But it will sell annuities to anybody. Visit

The gold standard among full-service investment firms, known for low-fee financial products. The company sells immediate annuities through the Vanguard Lifetime Income Program. Visit or call the annuity line at 1-800-523-0352.

The chief competitor to Vanguard in the low-cost, full service investment business. Visit or call 1-800-345-1388.

This company provides excellent financial services at good prices—but only to military personnel (active or retired) and their families (including grown children). Visit or call 1-800-531-8722.

Peter Passell, author of Where to Put Your Money NOW: How to Make Super-Safe Investments and Secure Your Future (Copyright © 2009 by Peter Passell), is a senior fellow at the Milken Institute and the editor of the Milken Institute Review, and has been a columnist for the New York Times. He is the author of many guides to personal finance, including Where to Put Your Money, The Money Manual, and How to Read the Financial Pages.


Are You Financially Compatible? A Quiz on Love and Money

Disagreements about how to earn, spend or save money can be almost impossible to reconcile. In the quiz below, author Alvin Hall gives couples a head start on discussing differences now. From Your Money or Your Life: A Practical Guide to Managing and Improving Your Financial Life

Each partner should answer the following questions individually. Then review and discuss your answers together. There are no right or wrong answers. Instead, the quiz is designed to launch a conversation between the two of you about your attitudes toward money and your financial goals, dreams, and desires. The objective is to learn about yourself and your partner, and to lay the foundation for developing a money plan for life that you can both be happy with.

Your Current Money Situation

1. How satisfied am I with my current income?
2. How satisfied am I with my current degree of financial security?
3. How much debt do I currently have? Is my current debt load comfortable or is it too great?
4. How satisfied am I with my career and income prospects for the near future (one to three years)? How about for the longer term (three to twenty years)?
5. Are there things I would like to do to improve my career and income prospects? If so, what are they? Am I taking steps to pursue those goals?
6. How satisfied am I with my current spending patterns? Why?
7. What would I like to spend less money on?
8. What would I like to spend more money on?
9. What do I wish I could buy that I can’t currently afford?
10. How satisfied am I with my current saving patterns?
11. How much money do I have set aside for an emergency? Is it enough?
12. How much money do I have invested in stocks, bonds, mutual funds, or other financial investments?
13. How satisfied am I with the current results of my investments? Why?

How You Manage Your Money

14. Do I enjoy managing money? Specifically, how do I feel about paying bills? About saving? About investing?
15. Would I like to turn over the management of my money to another person if I could?
16. Where do I turn for advice and information about money and investments?
17. Do I have a professional financial adviser or financial planner? If so, am I satisfied with the help he or she gives me? Why or why not?

Your Future Financial Plans

18. What plans do I have for a family? Do I plan to have children? If so, how many? When?
19. If I plan to have children, do I expect to have enough income to raise them in a style I consider appropriate?
20. What “special things” (beyond basic food and shelter) would I want to provide for my children? Which are most important? Do I expect to be able to afford them?
21. What level of income do I hope to enjoy ten years from now? Twenty years? Thirty years?
22. What lifestyle would I like to enjoy ten years from now? Twenty years? Thirty years?
23. How long do I intend to keep working?
24. What is my idea of a rewarding retirement?
25. Where do I hope to live in retirement?
26. What activities do I hope to pursue in retirement?
27. How much income will I need to enjoy my desired retirement lifestyle?
28. How much savings will I need to make my desired retirement lifestyle possible?

Money and Your Partnership

29. To what extent do my partner and I share income and expenses?
30. Am I satisfied with the current sharing of money rights and responsibilities between me and my partner? Why or why not?
31. What money matters, if any, would I prefer not to share with my partner? Why?
32. Do I have any other emotional or psychological concerns related to money that this quiz has not uncovered? If so, what are they?

Alvin Hall, author of Your Money or Your Life: A Practical Guide to Managing and Improving Your Financial Life (Copyright © 2009 by Alvin Hall), has been training and counseling a wide range of financial service companies and institutions in the United States and around the world for the last twenty years. He lives in New York City.



Secrets to Saving an Emergency Fund, Starting Now

Personal finance expert Alvin Hall covers the whys and hows of financial safety — you don’t want to miss. From Your Money or Your Life: A Practical Guide to Managing and Improving Your Financial Life

Why do I need an emergency fund? The truth is that everyone is subject to financial emergencies.

In fact, statistics show that most people will suffer a significant loss of income at some point in their lives — a loss that can plunge them into near poverty if there’s no financial cushion to fall back on.

The emergency you face could take many forms, including:

  • Being laid off from a job during a time when the industry you are in is contracting and few jobs are available
  • A plant closing or business slowdown that eliminates your job
  • An injury that prevents you from working
  • A devastating or chronic illness
  • An accident that totals your car
  • A mental, emotional, or social problem that afflicts a family member
  • A fire that destroys your home and property
  • An unexpected legal calamity, such as an arrest or a lawsuit
  • An unexpected financial calamity, like being caught in a pyramid or Ponzi scheme

On my television program, we profiled a woman who could be the poster girl for savings. A year before I met her, she and her partner had joint earnings of nearly $100,000. They enjoyed that income to the fullest, taking lavish holidays and buying presents for their small child. They even spent close to $25,000 on a cruise to Jamaica in order to fulfill their dream of being married by a luxury ship’s captain.

Within a few months, everything changed. First, her husband left her. Weeks later, she was laid off from the job she’d held for thirteen years. Because she had no savings, her parents ended up paying her mortgage. Now, as an unemployed single mom, she’s dependent on state benefits to get through each month.

Please don’t say “It could never happen to me.” Deep inside, you know it could. You owe it to yourself and your family to be prepared for such emergencies.

The goal of saving at least six months’ income strikes some people as very ambitious. It’s certainly more than most people have on hand. But I’m convinced it represents a realistic emergency fund, one that will probably allow you to navigate safely through any financial storm you’re likely to encounter. Anything less is all too likely to be quickly depleted in the face of a true emergency.

Accumulating six months’ income won’t happen overnight. For most people who embark on a serious saving program, it will take four to five years to reach this target. That’s all right. Many of life’s worthwhile achievements take that much time: graduating from college or university, getting a career off the ground, raising a child to school age… The key is to set your sights on reaching the goal and be persistent in pursuing it. Once you’ve built up the six month fund, it can remain in savings untouched, ready to spring into action when an emergency arises.

Alvin says…
Begin saving now with the goal of having six to nine months’ after-tax income in a liquid savings account. Liquid means readily accessible at full value. Money invested in property is not liquid, since it may be difficult to sell at a moment’s notice, and if you must sell it quickly, you may not be able to get full value. Your emergency savings should also be in a safe account — one with virtually no risk of loss. Stocks, bonds, and mutual funds carry significant risk of loss and therefore don’t qualify on this score. I recommend using a bank account for your six to nine months’ savings, since such an account is both liquid (you can withdraw it at any time) and very safe (the value of your funds is insured up to the limit set by the FDIC).

Put Saving First
The problem most people have with saving is that they mentally spend their income before they get it. You need to turn off that switch. Here’s how.

Begin by deciding how much you want to save. A good target is 10 percent of your take-home pay. (Ten percent will allow you to build your six-month fund in less than five years.) But if that amount seems like a daunting goal, don’t make that into an excuse to do nothing. Many people can’t start out there. If necessary, start by saving whatever you can afford, even if it’s no more than ten or twenty or fifty dollars a month, and gradually increase the amount as and when you’re able.

Whatever amount you decide to target, take this money out of your paycheck up front, before you spend a penny on anything else. Better still, arrange for automatic withdrawals from your checking account into a savings account. Most banks will be happy to set up such a plan for you.

Deposit this “top 10 percent” into your account and then pretend that this account doesn’t exist; don’t even get an ATM card for it. If the bank sends you one anyway, cut it up. And when making your spending plans, don’t factor this money into your income. You know the old saying: Out of sight, out of mind. Keep your savings account out of sight, and soon it will slip out of your mind… except when you look up your balance, to congratulate yourself on how nicely it’s growing.

Saving secrets. Here are some other tricks that can help make saving easy…or at least easier:

  • Maintain your savings account in a different bank from your checking account, preferably one that’s a few blocks out of your way rather that just a step or two from your office door or your home. This helps to create a psychological barrier that discourages you from withdrawing and spending. Incidentally, searching out a new bank will give you an opportunity to investigate opportunities for earning a better interest rate on your money — a second benefit that’s not to be overlooked.
  • After launching your savings plan, look for opportunities to increase the amount you set aside each week or month. For example, earmark your next salary raise entirely for savings if you can. This is surprisingly easy to do — after all, you’ve been living on the lower amount all along. Just pretend you never got a raise, and enjoy watching how quickly your savings increase. Do the same with end-of-year bonuses, cash gifts or inheritances from relatives, and other windfalls.
  • Finally, change your debt habit into a saving habit. Here’s what I mean: Suppose you’ve been setting aside an amount each month to pay down your credit cards — $450, let’s say. Once you get all your debt paid off, start banking the same $450. You won’t miss the money, since you haven’t been spending it anyway. Use the same technique when you’ve finished paying off a car loan or your mortgage.

Putting fun into saving. Does all of this sound rather self denying and harsh? Perhaps you want to protest, the way small children do, “I never get to have any fun!” Well, consider building some fun into your savings program by tying it to giving yourself something you want. Decide in advance what categories of spending are most gratifying and enjoyable for you — the desserts of your daily financial diet. Then link that kind of spending to saving.

For example, if clothes are your weakness, then every time you spend money on a piece of clothing, deposit the exact same amount into your savings account. Do this with whatever is your weakness — buying books, going to the movies, splurging on fancy tools or cosmetics, whatever. Thus, the pleasure of treating yourself will be associated with (and increased by) the happiness of building up your cash reserve. If, however, you can’t deposit an equal amount of money into your savings account, then you can’t buy the thing you want. That’s the pact you must make and keep with yourself.

Another approach is to treat yourself once you’ve reached certain savings targets. These targets should be quarterly or longer. Only when you have saved that amount or more can you treat yourself to something you can easily afford. It’s important that the treat provide you with enough long-term satisfaction to motivate you to reach your next savings target.

Alvin Hall, author of Your Money or Your Life: A Practical Guide to Managing and Improving Your Financial Life (Copyright © 2009 by Alvin Hall), has been training and counseling a wide range of financial service companies and institutions in the United States and around the world for the last twenty years. He lives in New York City.



7 Ways to Set — and Stick to — a Budget

Like clutter in your home or a bad relationship, financial problems can be suffocating. Learn to set boundaries with your money to free you from nagging worries and to maintain financial health for your family. Master organizer Peter Walsh shows you how in Lighten Up: Love What You Have, Have What You Need, Be Happier with Less.

I’ve said that in your physical space, your relationships, your job and your family you need to set limits. The same is true for your money. If you don’t honor and respect your relationship with your money, that relationship will eventually sour and, like the clutter in your home or a bad boyfriend, become overwhelming, suffocating, and even paralyzing.

The concept of keeping to a budget is something that frightens and overwhelms many people but it shouldn’t. A budget is a tool to help you manage your money, reach consensus on what is reasonable spending, and track the financial health of your family. Budgets are also ways in which we can set our boundaries around money — the rules that we set up for ourselves in order to maintain a semblance of control over how we spend and allocate our financial resources. Boundaries are what keep us focused and moving closer to our goals. I’ve already given you lots of examples of boundaries in this book, and you may have already come up with a few of your own. Examples include:

  • Instilling the forty-eight-hour rule: don’t buy until you’ve spent two days asking yourself why you need to buy this item and how you’ll pay for it.
  • Setting dollar limits above which you must discuss your pur­chases and get “approval” by all family members. For some the limit can be as low as $50. Discussing your nonessential pur­chases (i.e., items that have nothing to do with basic living ex­penses) should be part of your conversations with your family members.
  • Sticking to cash and using credit cards only for emergencies.
  • Keeping to the commandment: If you cannot afford to pay for an item in full today, then don’t buy it.
  • Considering old-fashioned layaway terms for buying items that you cannot pay for in full today but that you truly need.
  • Setting aside a certain amount of money each month to put toward savings.
  • Servicing your debt consistently by allocating a certain amount each month toward outstanding bills and credit card balances.

When it comes to money, you need to set boundaries that help you balance your needs and desires in the present with your needs and desires in the future. With clear boundaries, there are no un­welcome financial surprises and your financial situation is clearly laid out. This type of financial organization frees you from many of those nagging worries and concerns about the unknown.

Boundaries don’t just exist for money-related issues. In your decluttered home, I ask you to set boundaries by keeping only the amount of stuff with which you can comfortably live the life you want to live. In relationships, those boundaries are more abstract and personal. At work, you need to establish boundaries that sepa­rate your work life and your home life. It’s up to you to figure out which boundaries fit your life and choices, and establish them today with your family. Everyone’s set of boundaries will be different. If, for example, your family has a tendency to spend money on eating out and buying the latest gadgets, then you’ll need to establish very clear boundaries around those weak spots and ensure that everyone in the family is accountable for abiding by them. You can think of boundaries as an owner’s manual or set of bylaws. When followed, they’ll help you and your family be more efficient, goal oriented, and successful.

Peter Walsh
, author of Lighten Up: Love What You Have, Have What You Need, Be Happier with Less (Copyright © 2011 by Peter Walsh Design, Inc.), is a clutter expert and organizational consultant who characterizes himself as part contractor and part therapist. He is a regular guest on The Oprah Winfrey Show and hosts Enough Already! with Peter Walsh on The Oprah Winfrey Network (OWN). Peter holds a master’s degree with a specialty in educational psychology. He divides his time between Los Angeles and Melbourne, Australia.



How Do You Feel About Not Earning Another Dollar?

Be prepared for the stunning moment when you realize you are about to live off your retirement savings. Bernice Bratter and Helen Dennis, authors of Project Renewment: The First Retirement Model for Career Women, pose five questions to help you figure out your relationship with money.

“If only I knew how long I would live,” lamented a sixty-year-old architect. “I know I’ll be fine if I die before I’m eighty.” Perhaps the biggest unknown is how many years are ahead of us. The good news is that we are living longer. The bad news is that our money may not stretch to those bonus years. Stephen M. Pollan and Mark Levine suggest in Die Broke: A Radical, Four-Part Financial Plan that the majority of us will not be able to retire in the way that our parents did. The Congressional Budget Office does not agree, suggesting that Boomers’ savings behavior is similar to their parents’. Yet only half are saving enough for retirement, assuming they maintain the same standard of living.

Financial planning is critical to establishing economic security in retirement. It is a logical process that requires analysis, projections and strategies, methods that are not new to most of us. As women, we engage in financial planning with an added dimension — our gut feelings about money.

Olivia Mellan, a psychotherapist specializing in problems that involve money, reminds us that women have a history of economic dependency, first on our parents and then, in many cases, on our mates. As competent professionals, most of us want to retain our independence and as a result “tend to have global cataclysmic fear about losing all (our) money and ending up on the street.” Mellan believes the root of this fear is based on years of feeling powerless to make enough money to support oneself.

How we think about money is not necessarily rational. Those of us who have accumulated wealth may park and walk ten blocks to avoid paying a parking lot fee. We may shop at thrift stores for our clothing, drive five miles to use a twenty-cent grocery coupon and remain conservative in our expenditures. Those of us with modest incomes may purchase Audis and wear Armani clothing. How we spend doesn’t always make sense.

Attitudes play a role in our money behavior. Our parents and early childhood experiences influence how we feel about money. Many of our parents were immigrants who scrimped and saved to buy a home and educate their children. Some lived through the Depression. Many were fiscally conservative because they wanted security and felt a responsibility to leave “something for the children.” Their mantras were “Never spend the principal,” “Never pay interest” and “Always pay cash.”

We absorbed their behaviors and advice. Regardless of the money we accumulate, their mantras still influence some of our decisions and fuel our fears about money. Our parents’ warnings are in our heads. The “bag lady syndrome” is a tough image to overcome.

“My parents were impoverished as children and young adults; they lived in fear that they would once again become poor. They passed those fears on to me, even though by the time I was born, my parents were financially comfortable.”

The fears persist. “I hang on to old clothing and old things because I am afraid that someday, I will not have the money to buy the new things that I may need, such as clothing and appliances.” “I am afraid I will run out of money before I run out of life.”

“When I retired, I knew what I had and knew it was not enough. I panicked to the point I felt sick in my stomach. It was clear that I had to figure out ways to get more income. In a few years, I’ll probably have to sell my home — which will be very hard.”

What are the realities? Poverty and old age are important women’s issues. Older women are twice as likely to be poor as men. The annual median income for women 65 and older is about $3,000 above the Census definition of poverty or $11,816.5 Ninety percent of all women, at some time in their lives, will be totally responsible for their own financial welfare.6

We internalize these floating data and statistics, knowing that age and gender are risk factors. This awareness drives our worry. Even though we have income, savings and a retirement plan, the feeling of vulnerability remains. Yes, we are becoming more informed and financially empowered, but many of us feel we aren’t where we need to be, just yet.

Being married doesn’t change the concern. Although many of us were raised to believe that our husbands would be the ultimate and eternal providers, we know that in many cases, it is not true. Judy Resnick, author of I’ve Been Rich. I’ve Been Poor. Rich Is Better, tells women that they must take responsibility for their financial security whether or not they are married or have a partner who shares expenses. She writes, “Total dependence on others can be dangerous to your health and your wealth.”7

Perhaps the fears never disappear. At least we can diminish them by realizing we are in charge of our financial future and if we are willing to take the necessary steps to plan for it.

Questions to ask yourself:

  1. What is your attitude toward money? What has influenced your attitude?
  2. Do you have a financial plan that you understand?
  3. What concrete steps could you take to increase the security of your financial future and increase your comfort level?
  4. Do you know how to assess the competency and ethics of financial planners? Do you know how they earn their money from clients?
  5. In what ways will retirement affect your lifestyle and will you have the income to support it?

Bernice Bratter
, is a licensed marriage and family therapist and an advocate for both women and the aging. In recognition of her leadership in the nonprofit arena, she has received numerous awards including an honorary doctorate of law degree from Pepperdine University. She has been featured on 60 Minutes, 20/20 and in Hour Detroit magazine. Helen Dennis, a nationally recognized leader on issues of aging, employment and retirement, has received awards for her university teaching and contributions to the field of aging. Editor of two books, popular speaker and weekly columnist, she has helped more than 10,000 employees prepare for retirement. Her expertise is sought by employers, national publications like The Wall Street Journal and such network news programs as ABC’s Primetime. They are the authors of Project Renewment: The First Retirement Model for Career Women (Copyright © 2008 by Bernice Bratter and Helen Dennis).


The Only Money Plan You’ll Ever Need: Balancing Must-Haves, Wants, and Savings

With the Balanced Money Formula, there is always enough for Must-Haves (50%), Wants (30%), and Savings (20%).  This 50-30-20 money plan from Elizabeth Warren and Amelia Warren Tyagi, authors of All Your Worth, covers all your financial concerns for long haul. Ready to jump in?

Why 50% for Must-Haves?
That’s the first question most people ask. The Must-Haves get only half your money? Half? How can that be? Are we saying you live on only half your money? Not exactly. We’re saying you should limit the hard-core commitments to at most half of your income. Remember, Must-Haves are the things you will have to pay no matter what.

But you may still wonder, if these are Must-Haves, why don’t they claim 60%? Or even 80%? After all, how can it be wrong to spend money on things you Must Have?

Why 50%? There are three simple reasons.

1. It is sustainable. Anyone can live on rice cakes — for a day. Anyone can hold her breath — for fifteen seconds. And anyone can spend everything on the rent and the car payments — for a very short time. All Your Worth is not about getting straight with your money for a month; it’s about getting straight for life. A diet that works for only a day is as worthless as lipstick on a pig. A spending plan that works for only a month is worth even less.Spending 50% of your income on Must-Haves is sustainable. It leaves you with plenty of money for the rest of your life. Enough for fun, and enough for the future — enough to last a lifetime.

2. It is safe. When everything is going well, you should have money for what you Must Have and for what you Want. But let’s face it, over a lifetime, things don’t always go according to plan. Sometimes the rain falls and you don’t have an umbrella.

Money balance is the key to keeping you safe when things go wrong.

Suppose you get laid off. That’s no fun to think about, but we all know it could happen. If your Must-Haves take only 50% of your income, then how would you fare? A lot better than you might think. With Must-Haves at 50%, your unemployment check could cover your needs for several months. (In most states, unemployment insurance covers roughly 50% of your previous salary, up to certain limits.) Knowing you can cover the basics should take some of the terror out of the pink slip! Likewise, if you were in a serious accident and you couldn’t work, most disability policies would cover about half of your salary, and so your basic needs would be met. And if you are married, keeping your Must-Haves at 50% means that you could get by on only one paycheck for a while.

Keeping your Must-Haves down to 50% gives you something that is so incredibly valuable: flexibility. If your Must-Haves creep higher — say, to 70 of 80% — there just isn’t much room to maneuver. There’s not any space to scale back, nowhere you can cut if you need to. But if you can get by on 50% of your income, you have the flexibility to cut back on your spending whenever you need to. You are in control. You can manage an unexpected expense like a car accident or a leaky roof. You’ll be okay if your boss cuts your hours. If you keep your Must-Have expenses under 50%, you can stay light on your feet, ready to roll with the punches.

3. It has been tested over time. We go back to 50% for the Must-Haves because that number worked for Americans for a long time. A generation or so ago, most families spent half (or less) of their incomes on the Must-Haves. As a result, most people were able to put money away, each and every month. Unlike today, saving was the norm. We go over the details in The Two-Income Trap, but the bottom line is this: Bankruptcy rates were low, foreclosures were rare, and few people even knew what a repo man did for a living. Getting rich, little by little, was commonplace; people did it every day. People also worried less — a whole lot less. They knew they could make it to the end of the month, and they knew they had plenty of money for a rainy day. So they slept easier and smiled more. Not a bad model for us to learn from today!

Why 30% for Wants?
Why 30% for Wants? Because you deserve some space where you can relax and enjoy yourself! This is what life is all about, the right-now reward for all your hard work.

This is the place for all the treats and extras, the things that give life spice. A new set of speakers, plane tickets to Grandma’s, aerobics classes, Christmas presents, and on and on. These are bought with “fun money,” the free money set aside for your Wants.

Unlike the Must-Have category, which is very restrictive in what gets included, Wants is a totally open field. Maybe your fun money goes to Duran Duran CDs and Kevin Costner films. Maybe you prefer origami lessons and Swedish massages. Maybe you think other people’s Wants are boring or dumb or icky, while your Wants are cool, sensitive, or socially responsible. Be that as it may, the fact remains: You can spend your fun money on anything you want. Anything at all; it doesn’t matter one bit. If you want to spend it piercing your belly button and playing the slots in Vegas, we won’t raise an eyebrow.

The fun is almost unlimited in choices. Dresses or Ding Dongs, dog treats or daffodils — whatever strikes your fancy. There is only one rule: The Wants category has a lid — and the lid is clamped down tight. There is no limit on how you spend fun money, but when it is gone, it is truly gone. No fudging around the edges. No borrowing against next month’s fun money. No nibbling out of the Savings. You can safely spend this much, but no more.

A spending cap can sound so dreary, full of denial and no-no-no. But this cap is all about liberation, not deprivation. When you know that it is okay to spend because the limits have been worked out, then you really can enjoy your money.

Setting aside a specific amount for your Wants is the key to breaking the cycle of crash-diet-budgeting. It puts an end to those fits of good intentions when you suddenly declare you Must Clamp Down On All Extra Spending Immediately. Talk about the road to misery! It’s like telling yourself that since you need to lose weight, you Must Never, Ever Eat Anything But Raw Vegetables. It’s impossible to live like that for very long, so either you deny yourself all the time and feel lousy, or you splurge and feel guilty. Either way, you are perpetually caught between the two sides to the trash compactor: misery from constant denial and guilt from having fun. You always feel bad about your money and, since you’re never quite sure how to get caught up, you don’t get any closer to a real solution to your problems. The Balanced Money Formula helps you break that cycle.

By figuring out now what is a Must-Have and what is a Want, you make it very easy to follow the golden rule of financial responsibility: Pay your Must-Haves first. The Wants should never, ever compete for money with your Must-Haves. In other words, when everything goes well, there is money for Must-Haves and Wants. But if something goes wrong, the Wants are the first thing you cut. There is no money for a trip to Las Vegas or a new set of speakers until the car payment and the rent are paid. You already know this, but saying it out loud today makes it a lot easier to cut right to the chase should the need ever arise. If that rainy day ever comes, you’ll know right where to head for shelter.

The Balanced Money Formula helps you create a prominent place for the money you spend on your Wants. No guilt, no worry, just fun. It’s grounded in reality, because it starts with what you earn each month. It’s safe, because you spend it after you’ve set aside enough for your basic needs. And it’s worry-free, because you’ve given yourself 100% permission to spend it. You’ll be surprised how much more fun this spending can be.

20% for Savings — Are We Kidding?
Savings comes at the end of the Balanced Money Formula, rather than at the beginning. That isn’t because Savings isn’t important. It is! Savings comes at the end so you know how to find the money to save. All Your Worth makes Savings really, really easy. Think about the formula: 50% for Must-Haves and 30% for Wants. That means that the 20% for Savings is automatic; it just happens. Once you get the plan in place and you bring Must-Have and Want expenses into line, you will have your 20% left over for Savings. No need for a Herculean “we have to tighten our belts so we can save for a house (or the kids’ college or whatever).” No boom-and-bust bank account. Just a simple, steady, month-by-month plan to build your wealth.

So why 20%?

So you can stop worrying
Maybe you’ve felt it. The rush in the pit of your stomach when you hear the pinging sound in your car, and you wonder how you’ll ever pay the mechanic. The tightness in your chest when the plumber tells you it will be $185 to fix the shower. The rock-hard knots in your back when you realize that the check you mailed to the electric company will probably bounce.

These are the feelings of not having any Savings. And when you start to save — when you really sock it away, month after month — these feelings stop. You can put these feelings in a box and mail them to the moon, because they won’t be with you anymore.

Setting aside 20% of your income will put some money in the bank fast. You will build a cushion that is there when you need it. This cushion will let you end — once and for all — the worry over life’s little financial emergencies. It will take a lot of the sting out of things that go wrong, because you will know that you can manage. When you have some money in the bank, you can relax. In other words, Savings isn’t just about living better tomorrow — it is about living better today.

Elizabeth Warren is a chaired professor at Harvard Law School. She has appeared on numerous television shows, including Dr. Phil and the Today show. Amelia Warren Tyagi, is a former consultant with McKinsey & Company, and has written for Time, USA Today, and several other publications; she is also a regular commentator on Marketplace. Elizabeth and Amelia are mother and daughter coauthors of All Your Worth: The Ultimate Lifetime Money Plan (Copyright © 2005 by Elizabeth Warren and Amelia Warren Tyagi) and The Two-Income Trap: Why Middle-Class Parents Are Going Broke.



5 Rules for Refinancing Your Home — Without Getting Burned

Re-shopping a home mortgage loan can save you money, but it can also become a costly mistake. Elizabeth Warren and Amelia Warren Tyagi explain when to sign and when to run from a home refi contract.  From their book All Your Worth: The Ultimate Lifetime Money Plan.

1. Arm Yourself Before You Call. You can save a lot of time in the long run and make things a lot easier if you get ready before you start shopping.

  • Clean up your credit report. The mortgage lender will start by ordering a copy of your credit report, so your best bet is to clear up any errors ahead of time. Order a copy of your credit report from each of the three big credit bureaus: Equifax, Experian, and TransUnion. (Depending on where you live, you can get your report for free or for a very low fee.) Steer clear of anyone who offers to clean up your credit report for you; they charge a lot of money, and most of them don’t do any good anyway. This is strictly a do-it-yourself job.If you find any errors, notify the credit bureau immediately. Here are some common errors to look out for: mistakes in your name, Social Security number, and other personal information; accounts that are not yours; bankruptcies that are more than 10 years old, and other negative information that is more than 7 years old (by law, the credit bureau is required to remove that information); credit inquiries that are more than 2 years old; missing notations when you’ve disputed a charge; list of credit card and mortgage accounts that are in good standing; closed accounts that are incorrectly listed as open. According to a recent poll, 1 in 4 credit reports contains an error serious enough to keep you from getting a good loan, so be sure to take the time to check your credit report before you apply for the mortgage.
  • Gather your financial information. Gather your pay stubs, tax returns, bank statements, and the like. You’ll need this before you can finalize your applications, so you might as well gather it ahead of time. You can usually get a more accurate quote if you have all the information at the time you apply.
  • Find out your current mortgage balance. This should be listed on your monthly mortgage statement. If you’ve thrown that out, then call the mortgage company and ask.
  • Learn how much your house is worth. The lenders will need to know this so they can calculate a “loan-to-value ratio” (which tells them how much equity you have in the house). The more equity you have, the better your interest rate. Eventually you will need an official estimate of the value of your house, but having a general sense ahead of time can help you with your shopping. So check out the open houses in your neighborhood and take a look at the real estate section of the newspaper so you get a ballpark estimate of what your house is worth.

2. Get multiple quotes. Before you buy something big — say, a washing machine or a new television — you probably check prices at two or three stores. Well, your mortgage probably costs 200 times more than your washing machine, so you should talk to 400–600 mortgage companies, right? Okay that’s a bit much, but you get the point — shopping hard for a mortgage can save you far more money than shopping for pretty much anything else. So put in the time to get it right. Here’s our rule of thumb: Five quotes before you quit. Five different mortgage companies with lots of information and plenty of range to compare. And if the quotes are all over the place, then you may want to get five more. The bottom line is that the time you spend here pays off big time.

3. Never forget that the mortgage broker does NOT work for you. The mortgage broker, like an insurance broker, gets you price quotes from a lot of different places, and gets a commission for his services. So far, so good. But, mortgage brokers (unlike most insurance brokers) often get extra commissions from the lender if they talk you into taking a mortgage with a higher interest rate than you actually qualify for. That’s right: They get kickbacks for steering you to a bad deal. And it’s perfectly legal, so you’d better beware.

Yes, it is your money. Yes, you choose which lender will have your mortgage. Yes, the broker will tell you that he “checked with all the banks” and that he found you “a great deal.” But the fact is, mortgage brokers are a lot like car salespeople. The more you pay, the more they make. A recent study at Harvard Law School showed that people who went to mortgage brokers paid, on average, over $1,000 more than people who went directly to the mortgage lender.

Does this mean you should never use a mortgage broker? Not necessarily. There are some reputable brokers who will give you a perfectly fair quote. (And there are some mortgage companies that will steer you to a bad deal if you don’t use a broker.) But you should never count on a lone broker, a single Web site, or just one lender to show you all your options. The lesson is straightforward: You must get on the phone and get quotes from several different sources. If you’re not sure if a particular company is a mortgage broker, just ask. And keep asking questions until you are sure you have the best deal.

4. Do not increase the amount of money you borrow. There are lots of people (including a number of so-called financial experts) who will tell you that it’s smart to “cash out” your home equity and take on a bigger mortgage. Well, we’re here to tell you it isn’t smart. In fact, it is just plain dangerous. You are not “cashing” anything. You are just borrowing money that you will have to pay back someday — and you are doing it in the most dangerous way possible. If something goes wrong and you can’t pay, the mortgage company gets to take away your house. Remember this simple rule: When you refinance your mortgage, don’t let the bank talk you into taking on a single dollar of new debt.

5. Watch out for fees, points, and other fine print. Picture this: a team of lawyers fanning out through a forest to lay bear traps, which they carefully cover over with leaves. Then switch the image: The forest is really just a mortgage agreement, and the leaves are just words to cover up what they are doing. But the traps are real, and you need to make sure that they aren’t in your contract. Here’s a list of the questions to ask, along with the answers you want to hear:

  • What is the interest rate? By law, every mortgage lender must quote you the annual interest rate. (You may also be quoted the Annual Percentage Rate, or APR, which lumps certain fees into the total cost.) Once you have the annual interest rate, you can make an apples-to-apples comparison on the interest rate, which is probably the most important part of the loan. Here’s a rule of thumb: Unless you have recently declared bankruptcy or have really bad credit (and we’re not talking about a couple of late payments), if someone wants to charge you more than the average market rate (which is listed in the newspaper and available at, this is probably a bad deal.
  • How many points are on the loan? A “point” is just jargon for an extra fee of 1% of the total amount of the mortgage loan. Generally speaking, there is a tradeoff between points and interest rate: A loan with fewer points will have a slightly higher interest rate, and vice versa. If you think you will sell the house or refinance again in the near future, then your best bet is usually to avoid the points and pay the higher rate.Regardless of how long you plan to stay in the house, you should steer clear of any mortgage that charges more than 1–2 points. Don’t assume that all big lenders charge about the same fees. Not long ago, when most companies were charging less than 1 point on refinancing, Wells Fargo reportedly charged some customers as much as 10–12 points!
  • What are the closing costs, origination costs, and other fees? Ask for a “Good Faith Estimate” of closing, origination, and other costs, and use this information when you do your comparison shopping. If the fees are unduly large, or if the estimate is in a range that is too wide to be useful (for example, we heard of one company that tells people that the fees are anywhere from $0 to $12,000!), walk away. This isn’t a company you can trust for the next 30 years.
  • How long is the payoff period? The typical mortgage payoff period is 30 years. But if someone tries to steer you to a 40-year loan or an “interest-only” loan (where you never pay off your mortgage!), run the other way. And if you have a relatively short time left to pay on your mortgage — 15 years or less — get a 10-year or 15-year loan, rather than a 30-year. Lower monthly payments are great, but not at the cost of keeping you in debt for more years than necessary.
  • Is this a fixed or variable rate? If rates are low, then it is a good idea to lock in the rate for as long as you plan to live in your house. You will pay slightly more for a fixed-rate loan, but the security is worth it; the rate on a variable loan can go up at any time. If you think you will stay in this house for the rest of your life, get a 30-year fixed-rate mortgage. If you are pretty sure you will move on in a few years, you might consider a mortgage that is fixed just for the first 5 or 7 years, which tends to be cheaper than a 30-year fixed loan. Brokers call such mortgages ARMs, for adjustable rate mortgages. At the end of the 5- or 7- year period, the rate can vary, but by then you will have sold the house and moved on. But stay away from any ARM that lasts less than 5 years; the risk that rates will rise while you’re still living there is just too high. And if you’re not really sure whether you’ll move or stay put, your safest bet is still a 30-year fixed loan. It costs a little more, but 30 years of easy sleeping is well worth the price.
  • Is there a balloon payment? If the answer is yes, walk away. A “balloon payment” is a giant payment that will be required of you at some point in the future (on top of your usual monthly payments). These are notorious scams that have cost countless homeowners tens of thousands of dollars in extra fees, and many have even lost their homes.
  • Is there a prepayment penalty? If the answer is yes, walk away. If you need to sell your home, or if you want to refinance to obtain a better rate in the future, a prepayment penalty leaves you at the mercy of your mortgage company — paying extra for the privilege of paying off your loan.
  • Is there a Yield Spread Premium (YSP)? This is industry-speak for the kickback that gets paid to brokers for steering you to a bad deal. Ask if the loan has a YSP. If the answer is yes, walk away. And if you can’t get a straight answer, run away. These aren’t people you want to deal with.
  • Do I have to take out Private Mortgage Insurance (PMI)? When you buy a home with a small down payment (less than 20% of the purchase price), most lenders require that you take on Private Mortgage Insurance (PMI). If you get in trouble and the bank forecloses, the PMI will pay the mortgage company off. It doesn’t benefit you and it doesn’t help you hold on to your house, so it’s really only there to help the mortgage lender, not you.

Elizabeth Warren is a chaired professor at Harvard Law School. She has appeared on numerous television shows, including Dr. Phil and the Today show. Amelia Warren Tyagi is a former consultant with McKinsey & Company, and has written for Time, USA Today, and several other publications; she is also a regular commentator on Marketplace. Elizabeth and Amelia are mother and daughter coauthors of All Your Worth: The Ultimate Lifetime Money Plan (Copyright © 2005 by Elizabeth Warren and Amelia Warren Tyagi) and The Two-Income Trap: Why Middle-Class Parents Are Going Broke.