Money Under 30 » Economy

Cash-for-Clunkers Bill Could Offer $4,500 for Your Old Car

David Weliver — Thu, 11 Jun 2009 11:30:54 +0000

My father drives an old Lincoln town car that has over 300,000 miles on it. That’s right, 300,000. Not only does he drive it, but he commutes over 90 miles each way in it, every day. Everybody who knows him thinks he should have gotten a new car oh, about 100,000 miles ago. But my dad is fanatically frugal and, perhaps more importantly, he simply likes his car. He’s determined to drive that old Lincoln until it simply doesn’t want to drive anymore. Unless the so-called “cash-for-clunkers” bill becomes law. The bill (which the House passed it today) could offer drivers like my dad up to $4,500 towards a new, more fuel-efficient ride. What’s the cash-for-clunkers bill all about? And could you benefit?

The cash-for-clunkers bill would give a $4,500 credit to anybody who trades in an old car for a new(er) vehicle that gets at least ten miles per gallon more, or a $3,500 credit for new cars that get between four and up to 10 MPG better fuel economy. According to the current version of the bill, to qualify, the trade-in vehicle must be model year 1985 or newer, be drivable, and must be destroyed upon trade-in (it cannot be resold). Additionally, the new car purchased must get at least 22 MPG or, if it is a light-duty truck, at least 18 MPG.

Obviously, the cash-for-clunkers bill is intended to eliminate less fuel efficient cars and create an incentive to buy a car (and presumably give a boost to the flagging auto industry). Critics of the bill say that we’re over-incentive people to spend money in certain struggling industries (this program would be akin to the $8,000 first-time home buyer tax credit designed to stimulate the housing market).

Personally, I think the cash-for-clunkers bill is a great idea. (And not just because I want to see my dad get some new wheels!) Even if the economy (and auto industry, in particular) weren’t in such dire straights, I believe it’s partially our government’s responsibility to begin to find ways to reduce our dependence on oil. Although moving towards more fuel-efficient vehicles isn’t a big a step as, say, developing alternatives to fossil fuels; it’s a start. Plus, this bill pushes for greater fuel efficiency in a model that is true to our free-market economy: Drive a more fuel-efficient car, get a financial incentive. Makes sense to me.

What do you think about the cash-for-clunkers bill? A good idea or too much government involvement? Would you take advantage of the incentive? Let us know!

Obama's Economic Plan: What Do You Want to See?

David Weliver — Tue, 24 Mar 2009 21:18:59 +0000

President Obama will ddress the nation again tonight at 8 p.m. Eastern time to talk further about the steps his administration is taking to bolster our uncertain economy. What would you want to ask him? What steps would you propose he include in his administration’s efforts to correct our economic situation?

We can’t know for sure whether tonight’s presidential address is a form of damage control in the wake of public outcry over the $165 million A.I.G. executive bonuses or simply a continuation of reassuring public appearances akin to FDR’s depression-era fireside chats. But one thing is growing increasingly clear: it is unlikely President Obama will be able to “fix” our economy in his first 100 days in office. After all, 63 days have already passed.

Despite spending trillions on bail-outs and economic stimuli, we are still losing jobs. Credit is still not flowing. For us young Americans, our futures are uncertain. Career paths we envisioned for ourselves a year ago now may seem unattainable. Our dreams of owning our first home or even our first car may be indefinitely on hold. For many, even the security of health insurance may not be available.

What Do You Think?

Let us know: What do you think President Obama should do to boost our economy? What steps could the government take to brighten your future?

Spending You Should Not Cut, Even In a Recession

David Weliver — Mon, 23 Mar 2009 17:23:28 +0000

These days, everybody’s looking to save money. And with good reason—the more you can cut back on monthly expenses, the better prepared you’ll be to weather the recession, including the frightening prospect of losing your income. That said, there are a few things to which you should continue to allocate money as long as you possibly can.

Health Insurance

It’s so critical to have health insurance, even if you’re young and healthy. An accident or sudden illness could put you in tens of thousands of dollars of debt. Worse, you could find yourself unable to get the health care you need to get better. If you’re currently employed and chose not to participate in your employer’s health insurance, reconsider it. If you’re not employed, find a way to buy your own low-cost health insurance plans (you can search hundreds of plans at eHealthInsurance.com). Even a bare-bones plan that will protect you if you face a catastrophic accident or illness is better than nothing at all.

Retirement Savings

When times get tough, a lot of people stop contributing to their 401(k) or IRA plans, especially this year when so many employers have stopped matching 401(k) contributions. Unfortunately, that’s short-sighted. The younger you are, the more valuable your retirement contributions are, because they will earn compounding interest for decades to come. Plus, the stock market is on sale these days—there hasn’t been a better time to buy stocks in a long time. Continue to contribute a minimum of 6% of your salary to your paycheck to your employer’s 401(k) or, even better, open a Roth IRA.

Education and Training

Your education and job skills are you most valuable asset. Unfortunately, I’ve heard stories of students dropping out of college because student loans fell through or they lost the job they needed to pay for school. Obviously, there are times when pursuing your degree simply isn’t affordable. But you shouldn’t let this recession deter you from accomplishing your educational goals. Use every resource available to you to find a way to pay for education and training programs that will increase your lifetime earning potential.

Healthy Food

When money is tight, it’s easy to become preoccupied with keeping a few dollars in your pocket and lose sight of other goals like eating well and staying fit. Although it may seem like a $0.99 hamburger is the cheapest way to get lunch, you’ll pay a dear price for those cheap meals if you make it a habit. Learn to eat healthy on a budget, and find other ways to save before giving up on buying healthier foods.

What About You?

Are there areas in your life that you refuse to cut back on? What are they, and why do you feel they’re important to keep up even in tough times?

2009 Economic Stimulus: What It Means For You

David Weliver — Thu, 19 Feb 2009 16:25:03 +0000

We are all holding our breath. We all want to know. Will the 2009 economic stimulus bill reverse our wayward economy? Unfortunately, it will take months, or longer, to find out. In the meantime, we can ask what this giant government spending plan will do for us—young Americans—individually. What will the 2009 economic stimulus plan mean for you?

The stimulus plan will impact every twentysomething differently. Whether you benefit from various provisions of the plan will depend upon whether you are a student or a worker, your annual income, and whether you lose your job, buy a home, or go through other life events.

What the Economic Stimulus May Do For You

$400 individual/$800 couples “making work pay” tax credit in 2009 and 2010
Temporary suspension of federal taxation on unemployment benefits
$8,000 first-time homebuyer tax credit
Additional tax credit up to $2,500 for higher education expenses
Vehicle purchase tax incentives

$400 or $800 “Making Work Pay” tax credit. Designed to temporarily alleviate working Americans’ tax burdens, the making work pay tax credit would reduce federal income taxes owed by up to $400 for individual filers making less than $100,000 and $800 for couples earning less than $200,000. The credit is slated to go into effect on July 1, 2009, after which workers will start seeing about $67 more in their monthly pay that’s not going to taxes.

Temporary suspension of taxes on unemployment benefits. Many workers laid off in 2008 may be in for a nasty surprise when they do their taxes this year: unemployment benefits are taxable, although most states do not withhold income taxes from benefit checks. The stimulus bill doesn’t help people who owe taxes on 2008 unemployment compensation, but it does suspend federal income tax on the first $2,400 of unemployment benefits earned in 2009. Unemployment recipients nationwide will also see an extra $25 weekly.

$8,000 first-time homebuyer tax credit. If you buy your first home between Dec. 31, 2008 and Dec. 1, 2009, you may be able to claim a tax credit of up to $8,000 for first-time homebuyers.

Additional tax credit up to $2,500 for higher education expenses. The “American opportunity tax credit” is basically an expansion of the Hope lifelong learning tax credit. The new perk provides 100% credit for the first $2,000 and 25% of the next $2,000 on qualified higher education expenses including tuition and textbooks. This credit is 40% “refundable”. That means that even if you are a full-time student and do not owe any income tax, you can earn a tax credit of up to $1,000 for these higher education expenses.

Vehicle purchase tax incentives. If you’re in the market for a new car, Uncle Sam is going to help by allowing you to deduct sales or excise taxes if you purchase the vehicle before the end of 2009. This deduction is above the line, meaning you can claim it even if you don’t itemize. The deduction is good for sales tax on purchases of up to $49,500 and phases out for individuals with incomes of more than $125,000 and couples with incomes of more than $250,000.

Don’t drive? There’s good news for public transit commuters, too. The bill increases the amount you can set aside in pretax dollars to cover public transportation to $230 from $120. To take advantage of this benefit, your employer must provide a mechanism for you to set aside tax-free transportation dollars and allow you to spend the dollars on qualified expenses like train, subway, or bus passes.

Do you see another way the 2009 economic stimulus bill will directly impact your life? Have a question about one of the bill’s benefits? Let me know!

How to Prepare for a Layoff

David Weliver — Mon, 12 Jan 2009 22:00:35 +0000

Layoffs are everywhere these days. My employer axed 20 more of my coworkers on Friday, and every week I hear about friends losing jobs at various companies nationwide. Layoffs suck, but given the recession we’re in, they aren’t a surprise. And although you can take steps to reduce the chance you will be laid off, you can never guarantee your job security. With that in mind, it’s a good idea to always be prepared for the possibility of being laid off.

Preparing for a layoff is a bit like writing your own will—it’s easier to put it off the task and hope you don’t need it. But find yourself jobless in the near future; you’ll be a lot happier if you’ve done a few simple things. Here are some basic steps to prepare for a potential layoff:

Prepare for a layoff step #1: Save some cash, no matter how little.

Losing your job is the single most important reason you need an emergency fund. Haven’t started saving? It’s not too late. Save what you can.

Last week I even heard the king of debt-reduction Dave Ramsay tell a radio show caller to stop paying extra towards credit card bills and start stockpiling cash. The reason? The caller’s union was preparing to go on strike (of all times) and he could easily be out of a job in a month. You will need cash to get you through weeks or months without your salary while you find work. You don’t want to go into more debt by using credit cards to survive while you’re unemployed, and even if you have to, credit cards can’t pay crucial expenses like your rent or mortgage.

If you think your job is at risk, start diverting money to savings now. Temporarily stop paying extra on any debts, and cut back on spending where you can. Don’t stop contributing to retirement accounts, however. The stock market is on sale, and those contributions are key to recouping losses your 401(k) or IRA sustained last year.

Prepare for a layoff step #2: Know your rights as a terminated employee.

In most cases, these rights include state unemployment benefits, the ability to purchase COBRA health insurance benefits, pay for unused vacation time, and prompt payment of your final paycheck. Lauren at LifeStyler has written an excellent summary of your employee rights if you are laid off.

Prepare for a layoff step #3: Don’t rely on unemployment benefits.

If you are an employee and are let go involuntarily, you may qualify for state unemployment benefits. But those benefits will only match a part of what you earned, will only last for a set number of weeks, and are taxable! That’s right, in most states taxes are not withheld from unemployment checks. If you do go on unemployment and can’t afford to set aside roughly 35% of each check for taxes, figure out how much you’ll owe after receiving all of your benefits. When you find work again, divide that amount by the number of pay periods remaining in the year, and indicate on your IRS form W-4 that you want that additional amount withheld from you paychecks. Learn more about federally-required unemployment benefits here.

Prepare for a layoff step #4: Have your resume and references ready.

Layoffs can be painfully sudden. Some employees are lucky enough to see the writing on the walls, others are not. When a layoff hits, the employees with a fresh resume and a job search strategy ready to go will have a leg up. Remember, you’ll be reentering the job market and going up against people who have been out of work for months already. Take some time to prep your resume and know who you can call on for rock-solid references. Network with past coworkers to see if anybody is hiring; the worst that can happen is you’ll land an exciting new job opportunity before you need it!

Prepare for a layoff step #5: Relax.

In many cases, there is nothing you can do to avoid being laid off. Also, it’s not personal; it’s business. I know that first hand because I have seen employees who bust their butts get canned. Do what you can to prepare—including saving money and developing a job search strategy—but try not to lose sleep over the possibility of a layoff. Do your job well, spend time with family and friends, and take care of yourself. The fear of losing your job—or not finding a new one—is not worth your health.

Laid off and short on cash? Read about how to manage your money when you’re unemployed.

I’m Optimistic About the Economy. Are You?

David Weliver — Fri, 02 Jan 2009 17:57:54 +0000

Kicking off 2009, I’m optimistic about the economy. Are you? What do you think 2009 will hold for the economy and for your own finances?

Yes, the numbers still look awful, and I’m still dealing with the impact this recession has taken on me personally. I can’t say whether things will start to turn around in three months, six months, or six years. Nobody can. But I believe they will turn around, and I believe that and in the interim, there are opportunities to learn, to save, and even to earn.

The grim reality

Economists predict the recession will persist. But for how long? One reader has a pretty gloomy outlook on the housing market. In his response to my article postulating that it’s a good time to buy a home or a car, NickZ points out several reasons you might not want to buy a house right now, including the rapidly plummeting prices of homes in markets like Florida and Southern California. He also points out many twenty somethings may not know where they’ll be working in five to ten years. Both excellent points.

In fact, even outside the most volatile real estate markets, housing prices are uncertain. Some say it could take decades for prices to recover.

Even so, if you can commit to a home for a long period of time, put 20% down, and take on a fixed 30-year or 15-year mortgage, you won’t be buying at the top of the market. You may not be buying at the very bottom, either, but I still think buying property now, (in many parts of America, at least) is still a smart play.

But it’s not just housing that’s crippled. Unemployment may get worse before it gets better. Add to that the fact that unemployment rates reported by the Bureau of Labor Statistics (BLS) don’t tell the whole story. They only include Americans who are unemployed but are able to work and who have actively looked for work in the past four weeks.

Unemployment does not include those unable or unwilling to work or look for work, those who are working part-time but need or want to work full-time, or students—including adults that have gone back to school because they can’t find work. Add all those groups up and a 6.7% unemployment rate might actually be 10%, 15%, or even 20%.

Why I’m optimistic

Without a doubt, we’ll feel effects of this recession for years. Some things will never be the same. Presumably, somebody with so-so credit will not be able get a high-rate, zero-down mortgage. Credit cards will restrict credit lines. Hopefully, Americans will spend less and save more. I believe these changes, although they require a difficult transition period, are positive.

Some changes, like the loss of U.S. manufacturing jobs, are not positive. Those jobs may not return. So not only do tens of thousands of workers need to make personal changes in order to make a living, our nation needs to do redefine itself to ensure our economy can recover from this recession and continue to grow and be competitive with other nations. I’m optimistic the new administration will make strides towards that goal.

Finally, I’m optimistic because I believe difficult economic times force us to learn, to adapt, and to innovate. Laid off workers may discover jobs—or entire career paths—they enjoy. Ideas—and the new businesses that build them—will be born from this recession. And those of us that were unprepared for the economic realities of 2008 may just be better prepared the next time good times stop rolling.

How are you feeling about the economy in 2009? Are you optimistic that things will get better? Or worried that things will get worse?

The Economy: I Want YOU to Spend Your Money

David Weliver — Thu, 04 Dec 2008 22:00:36 +0000

Capitol Hill is frustrated with Americans because we’re saving money, paying down debt, and not spending. How dare we!

For two months our government has been scrambling to ease credit markets frozen by a bundle of bad mortgages. But if banks lend again, the thinking goes, we Americans can resume buying stuff indiscriminately, thereby saving our economy.

I’m not an economist, and maybe the fact that I’m ignorant of some major economic principle is why I don’t understand. But when you have a government in more than 10 trillion dollars of debt, a “buy now, pay later” consumer culture, and a personal savings rate of less than three percent, how can spending more—going into more debt—possibly help the national economy in the long run?

Short term, I understand. Ease credit markets, give people new zero percent credit cards, sub-five percent mortgages, and tax rebates, and we’ll all start buying houses, cars, and other big ticket items. When we shop, businesses do well. When businesses do well, people get jobs. When people get jobs, more people shop.

But long term, this can’t be sustainable, can it? Eventually we all have to pay back what we owe. And it’s hard to keep buying when we’re repaying—as individuals and as a nation.

What do you think? Do you agree? Do you know of reasons why more credit, more lending, more buying are the answer to a recession?