With summer now in full swing, many of us will be spending some vacation time at the beach and / or in general leisure. This is my favorite time to catch up on some reading and reenergize my mind.

If you are looking to improve your finances, reading a few books and gleaning a few new ideas can make a lifelong difference. Most of the books I read are related to business and personal finance. Here are a few that I have read and believe are worth the investment of time (and the cost if they are not available at the library):

There are now over 1 billion bank issued credit and debit cards in circulation in the US. So, which is better -- a debit card or a credit card?

If you are often tempted to spend money you don't have, debit cards are probably the better choice. When you use a debit card, the money you spend is automatically deducted from your account. Most banks offer over-draft protection but, by and large, when there is no money left in the account, you probably aren't going to continue to use the card.

For people with more spending discipline, I think credit cards are the better choice for several reasons. First, they help you build your credit history. A strong credit score will get you the best rates on mortgages and car loans and may even help you get the next job that you apply for.

Also, when you use a credit card, you can take advantage of "float." You might charge something today and not have to "pay" for it until a month or a month and a half later. (Of course, this is also a feature that can get some people into trouble.)

There are also some great protection features built into credit cards. If someone steals your credit card, you are not responsible for the charges as long as you report the charges in a timely manner. Similar safeguards are available for debit card holders but since the money is removed from your account right away, you might have to wait days or weeks to get the money put back into your account and this could cause a cash flow nightmare.

My personal favorite reason for using a credit card is the rewards that you can get from many card providers. I am thrilled that 2 percent of everything I charge on my Fidelity 529 Rewards card is credited to my kid's 529 accounts. I have accumulated thousands of dollars in contributions simply by making everyday purchases. Another great card is the Schwab Invest First Visa card. This card has a 2 percent unlimited cash back feature. Each month, 2 percent of everything you charge is deposited into a Schwab One brokerage account.

It's a tough job market out there and finding a new job right now can take a lot of time and effort. If you are looking for a job, whether you are currently employed or not, some of your expenses may be tax deductible. These expenses fall into the "Miscellaneous Itemized Deductions" category.

The key factor is that you must be looking for a job in the same field as your current work - the costs of a job hunt in a new field do not qualify. A physical therapist looking for another physical therapy job can claim expenses, but if she is looking for a job as a landscaper she cannot claim those same costs. Since you need to be searching in the "same field" this also disqualifies first-time job seekers.

I recently checked my I-Bonds and saw they were earning zero percent interest. I also found a note “P5” which said there was a 3 month penalty being assessed. Why would I be assessed a penalty? They have not been touched since I bought them?

Last month I wrote a post about the zero percent composite rate currently being earned in I-Bonds and how that rate is calculated (http://www.boston.com/business/personalfinance/managingyourmoney/archives/2009/06/understanding_i.html). In that posting, I also mentioned how I-Bonds are subject to a penalty if redeemed within 5 years of when they are purchased. Specifically, I-Bonds issued in May 1997 or later will be penalized for 3 months worth of interest if they are redeemed within 5 years of their issuance date. This penalty is noted on the I-Bonds using the “P5” notation. You will see this notation when you look up the current value of your bond using the U.S. Treasury’s Savings Bond Calculator (http://www.treasurydirect.gov/indiv/tools/tools_savingsbondcalc.htm).

If you look up the value of your bond and you see a P5 notation on it, it means that your bond would be subject to the penalty if you redeemed it at that point in time. In other words, it means that your bond has not exceeded the 5-year holding period yet. Furthermore, the value or yield on your bond (at that point in time) already reflects the penalty. Keep in mind that you only get penalized if you redeem the bond. If you continue to hold it, the P5 notation will be removed once you exceed the 5-year holding period and the value of your bond will reflect an amount without the penalty.

A friend of mine, who was laid off several months ago and is sill unemployed, has been kicking around the idea of going into business for himself. His business idea is sound, but at this point, it is still just an idea. He wanted some advice on what he needed to do to get the business up and running. Here were my thoughts on areas that will need to be addressed:

The National Association of Personal Financial Advisors (NAPFA), a professional association of fee-only financial advisors and advocate for consumer protection in the financial industry is launching a series of free webinars designed to help educate consumers about various personal finance topics and issues.

The series will begin on August 7, 2009 and will run each month for an entire year. Consumers will be able to register to attend the live session online or listen to the recorded session at a later time. Each session will last for 1 hour and start at 1pm Eastern time.

The dates and topics will include:

August 7, 2009 - Money 101: Knowing the Basics

September 4, 2009 - Kids & Money

October 2, 2009 - What is Financial Planning?

November 6, 2009 - Protecting What You Have

December 4, 2009 - Investments: The Basics

January 8, 2010 - Investments: Advanced Concepts

February 5, 2010 - Managing Your 401(k)

March 5, 2010 - Leaving a Legacy

April 2, 2010 - Women and Money

May 6, 2010 - Financial Planning and Small Business Owners

June 4, 2010 - Your Retirement

July 1, 2010 - Financial Windfalls

If you have any interest in learning more about these specific topics, I encourage you to register and attend. With the economy down, you certainly can’t beat the price.

To register for the 2009 sessions or to learn more about NAPFA and these sessions, go to http://www.napfa.org/consumer/ConsumerWebinarSeries.asp.

Mortgage rates are at very attractive rates – yes rates have been as low as 4.5 percent in recent years but, relatively speaking, we are at historic lows. (Anyone who owned a house in the 80’s remembers well the days of double-digit interest rates, making today’s 5-6 percent rates look like peanuts.)

If you are buying a new home, or your mortgage rate is adjustable, interest only, or higher than 6.5 percent you should consider locking in a fixed rate. It is likely in the next few years that interest rates will begin to rise, taking mortgage rates with them.

Banks quote mortgage rates in conjunction with points paid, a point being 1 percent of the mortgage. The lower the rate, the more points you pay. It may seem like a “no-brainer” to take the zero point rate, but it often works out to the homeowner’s advantage to pay points. Let’s look at an example:

Bob wants to refinance a $100,000 mortgage. The local bank is offering a 30-year fixed rate mortgage at 5.75 percent with no points (Offer A). They are also offering 5.375 percent with 1.25 points (Offer B). The payment on offer A would be $583.58 per month, and on Offer B would be $559.57. If Bob chooses Offer B he will pay $1,250 in points (1.25 percent of $100,000) but will save $24.01 on his monthly payment. In 52 months, about 4.5 years, he will have broken even on the points he paid.

In general if you are planning to stay in the house for 5-7 years it makes sense to pay points and take the lower rate.

On June 24, 2009 President Obama signed into law the “Cash Allowance Rebate System”. This law is affectionately known as “cash for clunkers”. The program provides a US Government credit to new car buyers when they purchase a new more fuel efficient vehicle and trade in a less efficient vehicle. The program will run from July through November 1, 2009. Here are some of the details of the program:

I bought my home in January 2009 but do not have taxable income. How can I claim my credit?

The first-time homebuyer credit that was enacted as part of the Housing and Economic Recovery Act of 2008 does not have a minimum income limit. Therefore, those who qualify for the tax credit may file for it even if they do not have any taxable income. This tax credit is a refundable credit which means that the credit can lower your tax liability below zero and result in a refund if the credit exceeds your tax liability.

For example, if your tax liability before the credit is $5,000 dollars and the refundable tax credit is $8,000 dollars, your tax liability will be a negative $3,000 dollars ($5,000 - $8,000 = -$3,000). In your case, if you do not have any taxable income and your tax liability is zero, you should be eligible for a refund of the entire credit.

In order to claim the credit you will need to file a tax return and IRS Form 5405. Form 5405 (First Time Homebuyer Credit) should be filed with your 2008 or 2009 tax return depending on when you purchased the home. If you purchased your home in 2008, you should file for the credit on your 2008 tax return. If you purchased you home in 2009, you can file for the credit on your 2008 or 2009 tax return. If necessary, you can file an amended 2008 tax return to claim this credit.

For more information about this credit, visit the IRS’ web site at: http://www.irs.gov/newsroom/article/0,,id=204671,00.html

The Obama administration has expanded the Making Home Affordable program, their mortgage refinancing program, by increasing the loan-to-value limit. Now homeowners whose mortgages are up to 125% of the value of the home are eligible to refinance, an increase from the previous limit of 105%. That should be good news to some homeowners who previously did not qualify for the program.

How much good the relaxed limit will do is questionable. With mortgage rates on the rise the value of refinancing is a little less appealing than it was a few months ago. The average 30 year mortgage rate is now 5.38 percent, up from 4.78 in early May. In addition the new plan may not benefit some homeowners for a few months: borrowers with FHLB (Freddie Mac) loans who refinance through their current loan provider can refinance now, but must wait until October 1st if they are refinancing through a different lender. Those with FNMA (Fannie Mae) mortgages are required to use their current lender and must wait until September 1st. Finally the number of refinancings actually completed through the program has been less than anticipated due in part to a log jam of paperwork; mortgage lenders are hiring to help speed up the process. All this waiting isn't going to help the homeowner who is struggling to make payments or has just lost his job.

For more details about the program click here.

Does your child have a job this summer? If yes, you might want to talk with them about the advantages of a Roth IRA and encourage them to open an account and make a contribution. In order to make a contribution, the child must have earned income. In 2009, contributions up to $5,000 are permitted for individuals under the age of 50.

If you think it would be difficult to persuade a teenager to make a Roth contribution, consider these facts: if a 16 year old made a single $5,000 deposit into a Roth this year, that contribution would grow to over $217,000 by the time the child turned 65 (assuming an 8 percent return).

And, one of the big advantages of a Roth (versus a traditional IRA) is that no distributions are required. However, if distributions were voluntarily taken at age 65 and continued through age 82, the total amount distributed would be over $450,000. And all of that amount would be tax free -- not bad for a single $5,000 investment. Even most teenagers can appreciate numbers like those.

If your teenage worker is less than excited about contributing all of their wages to a "retirement" account, you should know that you can make the contribution for them. The only "catch" is that it counts against the $13,000 annual gift tax exclusion amount (married couples can gift up to $26,000). Finally, don't forget that Roths are not just for retirement -- contributions can be withdrawn any time.

Yesterday, with significant fanfare and reporters present, Governor Patrick signed into law a stimulus bill for the New Hampshire Retailers Association and e-commerce websites. By increasing the Massachusetts sales tax by 25 percent, both Mr. Patrick and the legislature have enacted the equivalent of the Northern Massachusetts Uncompetitive Act. This ensures that those retail vacancies, that are already abundant, will continue to rise (consequently local real estate rolls and real estate tax revenues will decline).

Fortunately New Hampshire retailers and Amazon.com will continue to thrive under this legislation. Unfortunate as it is for Massachusetts retailers, consumers will search out these lower taxed havens. No need to send jobs to China when we can send them right over the border to New Hampshire.

Let’s look at some of the tax increases and other highlights of the bill enacted yesterday by the Governor Patrick:

If you are shopping for a used car and want to know more about the vehicle’s history, check out the NMVITS for a report on the vehicle’s title history and current and past condition. The National Motor Vehicle Title Information System (NMVITS) was created provided by the Department of Justice (DOJ) to provide consumers with information about a used vehicle’s condition and history. This resource can provide you with valuable information about a used vehicle before you purchase it and potentially save you a lot of money and aggravation.

The NMVTIS was created to protect consumers from fraudulent activity and from purchasing potentially unsafe or stolen vehicles. The NMVTIS reports include information about a vehicle’s title history, recent odometer reading, current and prior condition (e.g., junk, salvage, flood, etc.) and historical theft history. The information in this system is compiled from various sources including state motor vehicle titling agencies, insurance carriers, auto recyclers, junk yards and salvage businesses.

In light of President Obama’s “Making Work Pay” tax credit, now is a good time to check the amount of federal taxes being withheld from your paycheck. The provision will provide a refundable tax credit in 2009 and 2010 of up to $400 for working individuals and $800 for married workers filing joint returns.

If you are normally paid via a paycheck with federal taxes withheld, then most likely your employer has adjusted your federal tax withholding to reflect the credit, and there is nothing you need to do. You probably noticed that your take-home pay increased a little bit this past Spring (however if you make more than $75,000 – or $150,000 for a married couple filing jointly – you are not eligible for the credit.)

Some people should pay close attention to their withholding. The credit is reduced by the recent $250 payment given to Social Security recipients. If you received this payment you should review your withholding to ensure that it won’t be reduced by the whole $400. Married couples with two jobs, individuals with more than one job and workers who can be claimed as a dependent on someone else’s tax return may also end up having less withheld than they will owe in federal taxes. To check your personal situation you can use the IRS withholding calculator. If you find you need to change your withholding you can submit a Form W-4 to your employer.

Those individuals receiving pensions may also want to review their situation. Pensions are not considered earned income, yet if taxes are withheld from payments they may have been adjusted for the tax credit. The IRS has given pension plans an optional adjustment procedure. You may want to check with your pension plan administrator to see just how your taxes have been adjusted.

Finally, one last note: self-employed individuals should estimate their tax liability and reduce it by the tax credit if they are eligible.

For more information click here to go to the IRS website.

Every day that you open the newspaper there is more bad news about unemployment. Even though the stock market is rebounding (at least at the moment), unemployment is a lagging economic indicator. That means that employment might not turn up until we are fairly deep into an economic turnaround. (When the last recession ended in November 2001, employment didn't improve significantly until almost two years later.)

Most recently the overall unemployment rate has hovered around 9 percent and many people are predicting that it could top 10 percent at some point this year or in early 2010. That number is definitely scary, but if you dig into the numbers a little, you will find that certain groups of people are being hit harder than others.

Recently, the unemployment rate was about 8.9 percent overall, but if you are a college graduate, the rate is less than half that amount -- just 4.4 percent. That is still a big jump from the beginning of 2008 when the unemployment rate for college grads was just a little over 2 percent but in the scheme of things, college graduates seem to be able to find jobs.

In comparision, the unemployment rate in May was 10 percent for high school graduates. For those who failed to graduate from high school, the unemployment rate was a much higher 15.5 percent.

Interestingly, unemployment among men is significantly higher than unemployment among women. Many people speculate that this is due to the fact that more women work in fields like healthcare and education, which have not been hit as hard in this recession.

So, the takeaway here is that people with college educations are faring much better in this job market (and probably every job market). If you didn't attend or graduate from college, consider enrolling (or re-enrolling). Many state and community colleges offer reasonable tuition and flexible class schedules and these schools are reporting noticeable jumps in enrollment.

As I noted in a previous post, the American Recovery and Reinvestment Act (the stimulus bill) provided little relief or stimuli to small businesses. This is a source of frustration to me since I work with small businesses and can see their positive impact on the economy and their employees. These entrepreneurial types can actually grow the economy and the job base.

At least Congress and the Administration tipped their hat in the direction of small businesses when it comes to capital purchases. Under the tax rules, businesses that acquire fixed assets take depreciation expense for the value of that asset over a period of several years. (Fixed assets include things such as office equipment, machinery, vehicles etc.) Consequently, businesses can experience significant cash drain in the year of purchase. They incur the cash outlay for the fixed asset and are also burdened with increased income taxes (since the corresponding depreciation expense must be taken over several years as opposed to in the current year). The stimulus bill has extended some laws that were set to expire that try to avert this kind of cash drain on small businesses and encourage them to invest in fixed assets. Here are the details of these provisions:

My husband is considering investing $10,000 dollars in a mutual fund which invests in GNMA securities. I am worried about the safety of the mutual fund. Do you know if it is FDIC insured?

Mutual funds that invest in GNMA securities are not FDIC insured. These bond mutual funds invest mainly in mortgage backed securities (which are bond investments backed by the Government National Mortgage Association (GNMA or “Ginnie Mae”). These mortgage backed securities (MBS) are formed by aggregating residential mortgages, mainly from the Federal Housing Authority (FHA) and the Department of Veterans Affairs (VA). While Ginnie Mae does not buy, sell, issue, or even aggregate these MBS, they do guarantee the timely payment of the interest and principal associated with the MBS if the underlying mortgages are in default.

Ginnie Mae is a government corporation that is a part of the Department of Housing and Urban Development (HUD). It deals in the residential housing and mortgage markets similar to government-sponsored enterprises, such as the Federal National Mortgage Association (FNMA or “Fannie Mae”) and the Federal Home Loan Mortgage Corporation (FHMLC or “Freddie Mac”). However, unlike Fannie Mae and Freddie Mac, Ginnie Mae is not a publicly traded company. Ginnie Mae securities are also the only ones that are federally guaranteed by the full faith and credit of the U.S. Government – like U.S. Treasuries (e.g., T-Bills, T-Bonds, T-Notes, TIPS). If the underlying owner (of a mortgage) in a Ginnie Mae MBS, defaults on the loan, the U.S. Government will continue to pay the investor of the MBS the interest and principal earned on the MBS investment.

Last week I received a phone call from a client who is looking for her first home. We’ve already met to figure out how much house she should buy, keeping in mind her income and what would be a comfortable mortgage payment. She doesn’t have enough saved for a 20 percent down payment, so our plan was to save for about a year to reach that goal. But the client called to tell me she had found a great house that was a little bit out of her price range. In addition, the bank she is working with has qualified her for several loans that would enable her to borrow the full asking price of the house.

I can’t blame her for being excited. It’s easy for a prospective homebuyer to fall in love with a property (a cardinal sin in homebuying.) And while she hadn't saved nearly her full down payment, she was looking just to get a feel for what’s out there. But I can blame the bank for enticing her into being irresponsible. Borrowing 100 percent of the value of the house, as we’ve seen in the past two years, has gotten a lot of people into trouble. It often means larger loan payments than are affordable, leaving the homebuyer with no “wiggle room” in their budget. If income goes down it becomes difficult to cover expenses. In addition we’ve also seen many homeowners end up in the uncomfortable position of owning a mortgage that is bigger than the value of the house.

Have banks and mortgage lenders learned nothing in the past 2 years? Why are they still offering these types of packages? My client happens to be a doctor and makes a good income, but she still has a limit for a comfortable mortgage payment. And, while not likely, she could lose her job. She could also become disabled or sick and unable to work. In addition she’s a single woman and has no one to fall back on. My job is to teach her fiscal responsibility. Why aren’t banks doing the same thing, considering that it’s their money they are doling out? Do you have any ideas?

According to an April 2009 Nilson report, there was over $972 billion in credit card debt outstanding at the end of 2008. That's almost a trillion dollars. The same report also says that in the past year, 15 percent of American adults have been late making a credit card payment and 8 percent have missed a payment entirely. Past-due rates are now the highest they have been since 1991, when the figure first began being tracked. As you can imagine, credit card companies are following these delinquency rates very, very closely. One reason is that regulations require the credit card company to write off the debt after it has been delinquent for six months.

Clearly, the credit card companies are motivated to collect at least SOME of the outstanding debt and a recent article in the New York Times details just HOW motivated the companies are. The article profiles a writer from Chicago who owed over $5,000 on his credit card. Unable to pay the full amount, the writer told the account representative who had called to check up on him that he would pay right away if the company would accept half the amount owed. To the writer's surprise, the account representative accepted the offer.

The article reports that the practice of accepting less than full payment has been going on for about 9 months and is now fairly widespread among credit card companies. However, only a few banks are willing to confirm that they offer such an option. Those banks include American Express and Bank of America.

The writer in the NY Times article may be an extreme example because he was self-employed and rented his home. (That meant that the credit card company couldn't garner his wages or put a lien on his house.) But it does highlight the fact that people who owe a lot on their credit cards and are struggling to pay back the debt down should make an offer to their credit card company -- perhaps it involves reducing the amount outstanding or maybe there is a payment plan that could work for both sides.

If you do end up settling with the card company for less than the amount owed, it might feel like a victory, but it is important to note that there will still be a severe and negative impact on your credit score so this option is certainly not without its flaws.

Many argued that the recently passed economic stimulus bill included very little to help small businesses in the United States. Small businesses (those with less than 100 employees) directly employ some 40 million people in the United States and are a driving force in the economy. As such, many felt there should have been more relief for this important sector of business. Considering General Motors has or will receive some $50 billion in US Government aid and directly employs less than 100,000 persons, it certainly seems like a valid argument.

There were some bright spots for small businesses included in the bill, specifically some expansion / improvement to the existing loan programs under the Small Business Administration (SBA). The bill provided $730 million to the SBA so they can help struggling businesses as well as provide much needed capital to entrepreneurs during the capital crunch. Many small businesses have lost access to capital due to the problems impacting the banking industry. The bill includes some of the following provisions to help small businesses:

As discussed in this blog a few times before, the American Recovery and Reinvestment Act (ARRA) passed earlier this year, provides a tax deduction for the purchase of a new qualified vehicle. The Treasury announced last week that this incentive now applies to all states – including those that do not impose a sales or excise tax. This includes Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon.

Purchasers of a new qualified vehicle in the states mentioned above can now take an above-the-line tax deduction for fees and other taxes that are imposed by the state or local government. These fees and other taxes must be based on the vehicle's sales price or as a per unit fee in order to qualify for the deduction.

All of the other provisions of this incentive are the same for all states including:
* New vehicles include cars, light trucks, motor homes, or motorcycles.
* The deduction is only available for purchases made on or after February 17, 2009 and before January 1, 2010.
* The deduction is limited to the sales tax, excise taxes, or fees paid on vehicles with a maximum purchase price of $49,500 dollars.
* If you are married and you file a joint tax return have, the deduction gets phased-out once your modified adjusted gross income (MAGI) reaches $250,000 dollars and is completely gone if your MAGI is more than $260,000 dollars. For all other taxpayers, the phase-out range is a MAGI of $125,000 dollars to $135,000 dollars.
* The deduction is available whether or not you itemize your deduction on your tax return.
* The deduction must be taken on your 2009 tax return (which is filed in 2010).