The Budget Deficits and Municipal Bankruptcies

The financial markets today no longer look safe for investing in municipal bonds. With the present U.S. economy assailed with a growth in municipal bankruptcies, the problems that continue to plague America are forever on the rise.

Budget deficits should be controlled by the local governments. In addition, further spats with creditors have to be avoided and so there is need for the deficit cuts by the municipalities. When the local government takes the regular steps in order to survive, the municipal bond investors and their invested amount of the tune of $3.7-trillion will be very much affected. The municipal bond defaulters are the cities in California; viz. Vallejo, Mammoth Lakes, Stockton, and San Bernardino. Compton is the next most likely town to follow suit; the reason being that all theses towns are facing the problem of big budget deficits.

During days of healthy financial markets, there is substantial consumer spending. Like for example if one considers Bell, which is a city outside of Los Angles; it is said that in the year 2010, it paid an amount of $800,000 a year to the city managers. (Source: Wall Street Journal, July 18, 2012). Municipalities land in trouble because of cases like this.

On account of being burdened with enormous budget deficits, cities filed for bankruptcy. The chief resources of revenue of the municipal governments are the property taxes, but when such sources are blocked, cities need to search for different means to make revenue for the payment of dues or just show their helplessness in being able to pay the municipal bond investors. Though the plan looks clever enough, i.e. defaulting on the municipal bonds and starting again, it simply does not work. Examples of cities that have already defaulted as mentioned above are Stockton, California and Jefferson County in Alabama.

Stockton, California has pensions to the tune of $26.0 million each year, which it must pay; as a result of which its municipal bond insurers may be badly hit by an amount above $100 million. (Source: The Examiner, September 17, 2012). In 2011, Jefferson County; not being successful in planning its finances to control the budget deficit, had filed for chapter-nine bankruptcy (which gives protection from creditors to municipalities comprising cities, counties, townships and school districts that are financially in doldrums by working towards a plan between them to resolve the outstanding debt). The municipal bond insurers now remain restless that they may stand to lose an amount near about $709 million.

As per reports from Bloomberg, September 10, 2012, Wenatchee, Washington, Scranton, Pennsylvania, and Moberly, Missouri have also defaulted on their municipal bonds payments as they did not have the requisite available cash.

Thus it can be clearly seen that there will be bound to be an increase in the number of municipal bankruptcies, which will in turn, hit the municipal bond investor to a large extent. It would be advisable for bond investors to exercise caution while purchasing bonds and not get hooked by endorsements of exemption from taxes.

For more news, visit http://www.profitconfidential.com/

Six Simple Steps to Saving Successfully SSS

1. Make it automatic

The best advice I can give you is to make your savings automatic.  Find a savings account that lets you set up automatic deposits.  You may think you'll be adamant and alert and remember to transfer your monthly contribution, and that it'll be a piece of cake...but don't waste your time.  The end of the month will come along, and most likely you'll have spent that money or decide to put it off until next month, because it's 'too much of a hassle right now.'  But really, even if you can save monthly you're better off setting up an automatic deposit, if simply just to save time.

2. Time it right 
Either take it out of your paycheck immediately or schedule it to transfer right after you get paid. Don't wait until the end of the month when you've had all 30/31 days to spend your hard earned cash on something else.  As I mentioned before, once it's close to the end of the month you'll be a lot less likely to transfer money to your savings.

3. Have a goal
You know what makes someone a good saver? Wanting something he/she can't get.  Vacations or concert tickets are a great start.  Figure out how much it will cost and start allocating a little bit every month.  By the time you go on that vacation, you won't need to worry about credit card debt, expensive meals for your girlfriend, or skipping out on that cool snorkeling expedition because the funds are running low.

4. Make it a habit
I would much rather you save $5 every month than $1000 once a year.  Why? It's about making saving a habit, a part of who you are. Not a one time, 'I got my tax refund!' kind of act (though there is absolutely nothing wrong with putting your tax refund into a savings account)... Studies show (don't worry, I've seen 'em) that people who learn to save a little every month or every paycheck start saving more.  Somehow you start to realize how easy it is and you start 'risking' more and all of a sudden you can afford a freaking boat! (FYI that would be an awesome goal)

5. Make it a budget item
If you have a budget, great, add savings as an expense.  That money is gone! Buh-Bye. Well until you take it out to fulfill your goal...

6. Spend it! 
Unless your goal is an emergency fund, allow yourself to spend it.  That's why you were frugal and saved in the first place.

You ready to do this?
Here are some resources that'll help you get started right away:

• Smarty Pig (Great for getting started because it forces you to set a goal and timeline) 
• ING Direct (I currently have an account with them, though I started it way back in 2005 when the interest rate was a whole lot higher)
• Get Rich Slowly Blog This blog has a great summary of different savings accounts with high interest rates

Consider the Alternatives You have before You Choose Equity Release

Before you choose any particular scheme to release the equity from your home, it is necessary to consider whether you have other solutions to meet your financial requirements. The objective of equity release mortgage schemes is to offer homeowners the opportunity to unlock the value in your property to obtain a certain amount of money.

Different circumstances may make it necessary to obtain money from the equity release schemes. You may need the money to pay for your son’s education or for your spouse’s medical costs. You may also need it to lead a comfortable retired life. However, this is often not the only solution available for your financial troubles.

It is necessary to consider the alternatives you have before you choose to release equity from your home.

Do you have any savings or investments? If yes, you may use them for the requirements you have. However, the high living costs and certain situations make it difficult to save enough money for retirement. If you do not have any considerable savings or investments, you may have to opt for an equity release scheme.

Can you shift to a smaller property or take in a lodger? Often the cost associated with repair and maintenance of a large property makes things difficult for a homeowner. In such a situation, you may sell off the property and shift to a smaller house. However, if you do not want to live somewhere else, you may have to opt for this scheme.

You may also take in a lodger to cut down on the cost of property maintenance. However, if you live on your own and do not want a stranger in the house, this solution may not be suitable for you.

Would your family members help you? Sometimes, your family would be able to help you handle the financial trouble you face. You may repay them after you have recovered from the tough times. However, many individuals do not want to borrow from family members. In such a circumstance, you may have to opt for equity property release schemes.

Are you entitled to State benefits? If you are entitled to State benefits but have not yet applied to these, you may consider this alternative. The means tested State benefit may be of advantage for you. If you avail of these benefits but they are inadequate, you need to understand the impact the equity release may have on this.

Sophia Webb is a financial adviser. She offers a brief description of the reasons that make it necessary to get independent financial advice before opting for equity release mortgage.

Overview of the Indian Tax System

The Indian tax system can be very complex, but for a clearer understanding, we can break it down into simple elements that make up one’s personal income:

a) Salary from an Employer.

b) Rental (house property) income

c) Capital gains (gain or losses made by the buying and selling of Shares and other capital assets)

d) Business income – income earned as a professional or as a partner in a firm.

e) Other sources of income such as interest and dividends.

Put all these incomes together and you get your Gross Total Income. It is called “gross” total income because you can reduce this income by various schemes available. These are called Tax Deductions. You can reduce your tax liability by investing in either of the following tax deductions:

a)  Invest money into a Provident Fund account

b) Investing a term deposit (FD) for 5 years

c) Paying premium of life insurance policy for yourself, your spouse and your children.

d) Repaying the principal component of a home loan.
e) Paying the Tuition Fees for the education of your children.


The above tax deductions can help you reduce your taxable income by upto Rs 100000 under Section 80c of the Indian Income Tax Act.

There are other tax deductions which are applied when you pay premiums of a mediclaim policy or when you give donations to recognized charitable organizations or when you pay the interest of an education loan, amongst several others that help you further reduce your taxable income.

After the tax deductions have been applied we arrive at your Total Income. We can then calculate your tax liability as per the following tax slabs:

There are basic exemptions limits on which you pay no tax. Any income over these limits is then taxed at different rates listed below:

For the assessment year 2012-2013, the basic exemption limits are:
Rs. 180000 for men, Rs. 190000 for women and Rs. 250000 for senior citizens

All Income Over the basic exemption limit but below Rs. 500000 will be taxed at 10%.

Income over Rs. 500000 but below Rs. 800000 will be taxed at 20%.
and lastly,
Income over Rs. 800000 and above is charged at 30%.

Once your tax liability is determined, all your tax credits such as TDS, advance taxes and self assessment taxes are deducted from your liability to get to a final grand total of the possible taxes that you may pay or get refunded.

Working Example:

A Male, aged 45 with a Salary Income of Rs. 250000 and Interest Income of Rs. 50000, a Rs. 5000 Investment in Employee Provident Fund and a total TDS of Rs. 5000 in the assessment year 2012-2013 will be taxed as follows:

Gross Total Income: Rs. 250000 + Rs. 50000 = Rs. 300000
Tax Deduction: Rs. 5000 (Investment in EPF)
Total Income: Rs. 295000
Basic Tax Exemption: Rs. 180000
So you have to now pay Tax on Rs. 115000 @ 10% = Rs. 11500
But you have already paid TDS of Rs. 5000, which is deducted from Rs. 11500 to arrive at a final tax figure of Rs. 6500 + Surcharge + Education Cess which is payable as your final tax liability.

The above article has especially written for Finance Buzz on Tax system in India by Aashish Ramchand, a Chartered Accountant by profession and Co-Founder of Make My Returns (www.makemyreturns.com)

Apartment Sales Up, Home Loans Still Down

As consumer demand for homes declines it appears that business is fueling the economy, as lending in the business sector has increased to three-year highs. Despite lowering interest rates consumers have remained conservative and focused on reducing household debt while the business sector takes over the reins of the economy. Home loans rose by just 0.2% during the month of June, which brings the annual average down to just 4.9%, its lowest level in the last 22 years.

While home loan applications may be on the decline there has been a lot of activity on the loan swapping front, as a number of consumers have been bargain-hunting to find the best available deals. Notable competition between banks to attract customers as well as the decreasing interest rate may not have been able to affect loans but they certainly have had a marked impact on home financing. The rate of home refinancing is currently sitting at 36.6%, a high level compared to the 33% that was reported for the first half of 2008 and 24% that was recorded in September 2009. Research we ran via home loans indicates that the average cost of Australian home loans is in the region of $315 000 per house, while refinancing has averaged out at $254 000.

An executive working for ME Bank has stated that home refinancing for the group grew from 21% to 28% in just a year as people look for alternative ways to consolidate and pay their debts off. For many home owners swapping banks can make a substantial difference to the fees and charges that people are paying and make a big difference to the affordability of monthly expenses and household running costs. Whatever the reasoning, it is a good sign of confidence and lateral thinking as people start to take action to get rid of their outstanding debts.

Refinancing may not work for everyone so it is important for consumers to weigh up the costs of making the switch against the proposed benefits before they commit to anything. The experts say that the national cash rate of 3.5% is a fairly good figure to work from and those home owners who are paying more than 2.75% higher than the cash rate should consider refinancing their home loans.

While home prices are on their way down, signalling more affordable housing for people, the number of homes on the market is still bigger than the number of available buyers, especially in Queensland and Tasmania. Major cities have experienced a remarkable turnaround in terms of property affordability and the market is still in a position to favour the buyer, for those who have the liquid cash. Housing costs are becoming more affordable for people around Sydney and Adelaide while Brisbane is also very competitively priced.

On a more positive note, apartment sales have improved and have had a lot to do with keeping the average low, but relatively respectable. June saw a growth of 2.8% in home sales but the figure was kept positive by a 15.7% increase in townhouse and apartment sales. Concessions on stamp duties for the first half of the year ensured that apartment sales in New South Wales were boosted by 30.8% and, while it is a good precursor to growth improvements, stand-alone housing, which is still suffering, comprises 70% of the housing market. While sales in Western Australia saw a rise during June, Victoria and Queensland saw decreases in sales. As far as auctions go, clearance rates are hovering around the 60% mark, with slight fluctuations around the country. The new credit card reforms may have an impact on mortgages going forward, if more people are able to consolidate what they owe and pay more towards their bonds to get out of mortgage stress.

Happy Hour: Saving my social life and my money

To me, the hardest part about saving is the toll it can take on my social life....or maybe it's that my social life always ruins my savings plan! Everyone has different money values, but for me spending money to hang out with my friends is totally worth it, which definitely makes it hard to tighten this particular budget item. 

It's great to save on drinks and spend some time gossiping with friends.  As an added bonus, I try to look for happy hours that have reduced prices on food.  That way you're pretty much having a cheap dinner at the same time.  Depending on how long you're out, you'll get hungry anyways so finding places with food is clutch.  Also watch out for 2 for 1 deals, often times it's per person, meaning each person automatically drinks two.  If that's the case, make sure they serve food as well! 

Depending on the situation, you can use the happy hour idea to avoid an expensive dinner.  Group dinners are pretty typical among friends and co-workers, but if you're feeling your budget tighten, suggest a happy hour with food.  It'll be less filling, there'll be drinks involved, and you'll be going out earlier in the evening than you would for dinner. 

Here our some of my favorite happy hours in SF:

• E and O Trading - happy hour till 6pm =/ but nice
• Waterfront Restaurant - yummy till 7pm
• Palio - $1 pizza when you buy 2 drinks
• Otis SF - happy hour till 8pm
• Cafe Metropol - yummy crustini! 
• Million Thai - happy hour till 8pm

How to Help Yourself Save for the Rainy Days

Saving money today is not something that is a luxury. When life throws that little curve ball our way it usually costs money. If you don’t have that rainy day fund available you can risk incurring a lot of debt. Emergency funds are necessary to have as a fall back. They are the cushion you need financially if you get sick and can’t work or if you or your spouse loses a job. It’s a fund for car repairs or an emergency flight out of town. 

You don’t have to make a lot of money to save money. Don’t give up on an emergency fund and if you don’t have one, you need to start one now. There are a lot of ways you can save up some cash and put it somewhere it can grow. 

Below are some great ways to save for those rainy days. 

Long Distance 

If you make long distance phone calls now and again then you should probably drop the long distant carrier and use the minutes on your cell phone or get a prepaid phone card. Long distance phone calls can be very expensive and the carriers of long distance calls can be draining you of money. 

Cash 

Always try to use cash when paying for clothes, food, and other items. Try to not use your credit cards at all. Most people don’t end up paying off credit cards monthly and paying for some food that you ate four months ago leaves a bad taste in the mouth. Cash makes you much more aware of what you’re spending and people tend to spend less this way. 

Cell Phone Plan 

Look at your cell phone calling plan and think about changing your plan if you have added features that are costing you too much. If you use your cell phone for mostly personal calls, you probably could get rid of call waiting, surfing the internet, video, caller ID and other added features. You can save a pretty good bit of money by cutting out added features and lowering your cell phone plan if you are going over your minutes or being charged for things you can change. 

Health Plan 

If you are married and you and your spouse both work, comparing health care plans and going with the lower cost policy may save you lots of money. Compare the out of pocket expenses and what you pay for the benefits monthly. If one employer is cheaper and you’re not with that employer, switch up. 

Library

People spend about $400 a year on renting movies, about $500 on buying books and about $250 buying music CDs per year. Think about how much you can save if you get free books from the library. Most libraries also have movies and CDs that you can borrow as well. It’s a great way to reduce costs and be entertained free!

Saving for a rainy day really can come in handy when you don’t think it will. Having that spare few hundred dollars by cutting back on some small things can mean a big difference to you one day. Use some of the tips above and begin a small savings that can grow day by day. Be ready for your rainy day!