With energy costs typically higher every year, it seems as though our gas and electric bills just get higher and higher each year. Recently, however, the price of natural gas has been dropping significantly as supplies have grown considerably. Consumers Energy gas price for residential customers was $7.3916 per MCF (thousand cubic feet) in December 2009. Currently the price is $6.9113 per MCF, a 6.5% decrease. Customers bills haven’t decreased that much because there are other fees that make up the total monthly gas bill.

So, if you don’t do anything and the weather in January and February is similar to last year’s weather, you can expect your bill to be a bit lower this winter. There’s a way, however, to lower it a bit more.

Residents in southeast Michigan who are customers of Consumers Energy (and perhaps other providers) have the option of receiving their natural gas from at least two other providers that we are aware of. One is IGS Energy and the other is Direct Energy. We assume that similar programs may be offered in other states.

We signed up with IGS Energy in September 2009 and received a guaranteed rate of $6.90 per MCF for the next twelve months. Although we didn’t keep my bills for the fall of 2009, in the last 12 months, there were only two months, in the summer, when Consumers Energy rate was less than the IGS rate. For the last 12 months, we have saved about $50 compared to what we would have paid for Consumers Energy gas.

We just renewed with IGS at a guaranteed rate of $6.19 for the next twelve months. Direct Energy is currently offering a guaranteed rate of $5.99. We don’t know much about Direct Energy, since we haven’t done business with them, so if you are interested in their offering, we suggest you check them out. Once you sign up with an alternative provider, you can cancel at any time. There are some rules with regards to cancelling and restarting, so we recommend you check them all out before committing.

We also recommend you keep a log of each month’s rate from Consumers Energy so that you can determine how much you are saving. You can find Consumers Energy current rate by clicking on the following link: Consumers Energy Gas Rate. While we had been comparing the rates, we weren’t diligent enough recently and only decided to check again when we received the offer from Direct Energy. We were able to switch to IGS’ lower rate over the telephone. We likely could have signed up for their lower rate a couple of months ago and saved even more.

You can contact IGS by calling 877-444-7427 and Direct Energy at 877-357-4675. We encourage you to ask lots of questions and make sure you are clear on all aspects of their programs before signing up. The new guaranteed rates for IGS and Direct Energy are 10.4% and 13.3% less, respectively, than the current Consumers Energy rate. Even if you only save $50 as we did, you can take your spouse out for a nice dinner. We think it’s worth a phone call.

It’s early on Christmas morning (very early) and I’m sitting here at my computer writing this blog. What am I doing? I hadn’t planned to write anything today. Where are my priorities? Yet, as it seems to happen more and more as I age, I woke up early with a thought in my mind that I couldn’t get rid of. My mind went into overdrive and I finally realized I wasn’t going back to sleep. So here I am sharing my thoughts with our readers.

Yesterday was a Christmas Eve day to remember. With our children now married, my wife and I are now often by ourselves on Christmas Eve. Yesterday, I helped my wife with some cooking in the morning and then we wrapped all the presents together. We planned a couple stops on the way to an early dinner out at one of our favorite restaurants.

We stopped to see two elderly acquaintances, one who lived alone and one recuperating from a recent accident. We were so happy we did, as they seemed to truly appreciate our visits.

A couple of years ago, in Florida just before Christmas, we decided to have a brunch for many of the people who lived in our condo. The association used to have a Christmas party but no longer sponsored one. So we decided to organize one. We were so happy we did, as many of the seniors really seemed to appreciate being able to get together.

The point of all this is that we write our three blogs every week focused on you and your money, your finances, your retirement, your insurance, and so on. Today, we wanted to write about “your time” instead of “Your Money” as this blog is titled. An investment of just a little bit of your time in others yields a huge return.

Christmas is a time of giving. It doesn’t matter what religion you practice. There’s a lesson for all from the example of the tradition of giving at Christmas. Everyone has been through a lot the last couple of years. People have lost their jobs or their homes. Yet, no matter how bad off one is there are others worse off. Many of you have likely already given of your time and resources to others in need. But if you haven’t, we hope that maybe you’ll take a moment to think of a lonely neighbor, someone in the hospital or someone unfortunate that you read about in the paper.

A small investment of a few minutes of your time will yield great benefits to you personally. It will be the best investment you ever made!

We’ve written more than once about a new way to give that maximizes your gift giving: “A Better Way to Give”, December 8, 2009. In that blog we discussed what are called Donor-advised funds. Many investment management firms such as Fidelity, Charles Schwab & Company, Inc. and The Vanguard Group offer such funds. In our blog, we explained what they are and how they work:

“Investors can open charitable gift fund accounts and easily transfer cash and securities to the accounts. Once transferred, the gifts are irrevocable and qualify for a tax deduction in the year of transfer (with some limitations). If a stock is transferred, it is immediately sold by the gift fund managers. Any gains on securities transferred avoid taxation. Therefore, assets with large capital gains tax liabilities allow individuals to give more by avoiding the potential capital gains taxes.

Donors decide how the assets they have gifted are to be invested. A number of investment “pools” are typically available in which to place the donated funds. Some are more aggressive than others; some focus on capital growth; some focus on income. The donor can decide how aggressive he or she wants to be. With professional management, donors have the possibility of seeing their accounts grow, providing the possibility of increasing the amount they can give to charities.

Accounts must first be funded with a minimum investment amount, which is usually between $5,000 and $10,000. After opening the account, gifts can be granted to the donee (This can be done online). Minimum grants are usually $50 to $100. Gifts must be made to IRS qualified public U.S. charities.”

We noted that a gift fund provides a way to reduce taxes in a year of unusually high-expected income. By bunching several years of gifts together, one can meet the gift fund minimum and receive a tax deduction for the total amount gifted in one year. The funds gifted can then grow tax free in the gift fund account and then be distributed to charities over the following years.

So what does all this have to do with giving your children the chance to experience giving? At least one gift fund allows you to give the gift of giving to others. The Fidelity Charitable Gift Fund, for example, allows you to give a “Gift4Giving” gift to whoever you please. Fidelity then sends them an email with a link to the gift fund website that allows them to designate the charity to receive the money you allocated to their “Gift4Giving”.

The Gift4Giving feature is a great way to help your children or grandchildren (or anyone else for that matter) experience the satisfaction of helping others when their resources are constrained. It’s a great way to set an example for your heirs that hopefully they will continue when you’re gone.

Note: This article was previously published in the Oakland Press about two years ago. The issues discussed need to be reiterated from time to time.

Have you ever made a big gain in a stock and then seen your gains evaporate because you held on to it too long? Have you ever stayed with a loser until it was worth virtually nothing? Or maybe you couldn’t part with a stock you inherited from your Dad that made up a substantial portion of your total investment portfolio and then saw it rapidly drop in value. People often hold on to a stock with big gains because they don’t want to pay the capital gains tax and then lose 20% to 30% when the stock tanks for any of a number of reasons.

We have a lot of psychological hang-ups that impact not only our investment portfolios but many other areas of our financial well-being. A relatively new scientific study called behavioral economics, looks at how investors think, the mistakes they make and how they can benefit from understanding those mistakes. The book titled Why Smart People Make Big Money Mistakes – and How to Correct Them: Lessons from the New Science of Behavioral Economics by Gary Belsky and Thomas Gilovich (Simon & Schuster) is a very easy read that’s difficult to put down.

Behavioral economics attempts to understand the links between psychology and economics. By doing so, people can potentially enhance their enjoyment of life by understanding, and changing the way they make money decisions.

One example discussed in the book is the concept of “mental accounting”. The book presents two scenarios:

“Imagine that you’re at the racetrack for a day of gambling or at your favorite store shopping for a suit. Yesterday you won $ 1000 from your state’s instant lottery game. Will you bet more tonight than you would otherwise, or will you buy a more expensive suit?

“Now imagine that you’re once again at the racetrack for a day of gambling or at your favorite store shopping for a suit. Yesterday you realized that you had $1,000 in a savings account that you had forgotten about. Will you bet more tonight than you would otherwise, or will you buy a more expensive suit?"

The authors point out that “if you answered yes to the first question and no to the second –-- as most people would--- you’re prone to mental accounting.” Mental accounting involves putting different values on the same dollars just because they came from a different source. Why should lottery winnings be valued any differently that your hard-earned salary or savings? Nearly all of us do this.

Another of the basic principles of behavioral science discussed in the book is that people are “loss averse”. According to the authors- “the pain people feel from losing $100 is much greater than the pleasure they receive from gaining the same amount. This helps to explain why people behave inconsistently when taking risks. For example, the same person can act conservatively when protecting gains (by selling successful investments to guarantee profits) but recklessly when seeking to avoid losses (by holding on to losing investments in the hope that they’ll become profitable.)”

There are a number of psychological obstacles that keep us from acting in our best interest, financially. Just being aware of them can help. We highly recommend that everyone read Belsky and Gilovich’s book. If you don’t have the time, below are a few of the steps they recommend to improve your financial well-being:

(1) Raise your insurance deductibles to $ 500 or even $ 1000. You may be able to cut premiums by 10% or more.

(2) Pay off credit card debt with emergency funds. It makes sense to pay off 16% credit card debt with funds earning perhaps only 3% to 5% in a savings account.

(3) Switch to index funds in your investment portfolio. It’s very tough to beat the market. Mutual fund expenses and taxes eat away at your returns. Index funds are low-cost and tax efficient.

(4) Diversify your investments. Holding a diversified portfolio will reduce the volatility in your returns and help you avoid over-reacting to the market’s gyrations.

(5) Track your spending Understanding where your money is going will help you feel more in control of your finances and better understand the behavioral-economic factors that affect how you manage your money.

In summary, understanding a bit about behavioral economics can have a significant impact on your financial well-being.

If you are like many Americans who like to earn points towards purchases or air travel, it may behoove you to take a look at some other credit cards. While the Capital One ads on TV annoy many people, they recently caught my attention with their double miles offer. I had intended on checking it out in more detail when I came across an article in the Wall Street Journal just this week that addresses the issue.

Titled “More Ways to Earn Miles Using Plastic” by Scott McCartney (Thursday December 16, 2010), the article points out that competition and changes in promotional partnerships due to airline mergers have resulted in better benefits than previously.

The article points out that there are basically two kinds of reward programs. Those tied to the airline’s frequent flier program typically pay one mile for every dollar charged. Usually, a $400 ticket can be earned with 25,000 miles flown. There are usually blackout dates and other restrictions. The other programs offered by credit card companies award miles usually varying from one to two miles per dollar charged and often have no blackout dates or airline restrictions. A $400 ticket for those programs often costs as much as 40,000 miles.

Some new programs (mainly bank-issued cards), according to the article, are offering perks such as baggage fees, change fees, pet fees, access to airport lounges, on-board food and special early boarding or security-line access. These types of cards, according to the article, are good for elite-level frequent fliers who get lots of free tickets but don’t have those types of awards.

The article includes a table of eight different credit card offerings, comparing the features. Two cards (Escape by Discover and Capital One Venture Rewards) offer double miles with a domestic flight awarded for $20,000 of charges (i.e. 40,000 miles) with no blackout dates or airline restrictions. The Capital One Venture card also charges no foreign currency transaction fees.

With competition stiff, many companies are offering big sign-up bonuses to attract customers. American Express Platinum, for example offers 50,000 bonus points with $1,000 spent in the first three months. But watch out because the platinum card costs $450 a year!

At the least, it may pay you to do a detailed comparison of the cards you use to the others that are available. If you travel a lot, it may very well be worthwhile.

Well it’s over. Congress finally quit playing games and passed the extension of the Bush tax cuts, along with a number of other significant measures. Most everyone has probably already heard about the changes, so we won’t discuss them in detail hear.

Most people likely assume that the only change they’ll see in their first January paycheck is the 2% of-their-pay reduction in Social Security taxes. For some, that change may not take place for a few weeks. Fortunately, the delay shouldn’t result in the increases people would have experienced had the tax-cuts not been extended. Nevertheless, some may not see the Social Security tax reduction right away.

In an article in the Wall Street Journal Thursday, December 16 by Laura Sanders titled “Pay Won’t Reflect Tax-Code Changes for Several Weeks, Ms. Sanders noted that some payroll providers will require several weeks to make the required changes and adequately test them. Of particular concern for some processors is the 2% reduction in the payroll tax.

The article points out that: “a worker earning $106,800 or more – the maximum that Social Security tax applies to – will save $2,136 or about $82 for every two-week period”. That’s enough for a decent dinner out for two at a moderately-priced restaurant. If that applies to you, you’re fortunate. Just don’t make a dinner reservation yet. You may not see that $82 for a few weeks.

There are signs the economy is improving, yet there are just as many signs that we still have a tough slog ahead of us. Yesterday the stock market closed at 11,476, up 13.04% for the year. The Wall Street Journal’s front page headline today reads: “Shopping Spree Fuels Surge”. If that was all you looked at, you’d think the economy was on a roll. Yet, if you dig a little deeper, we clearly have continued economic problems that will haunt us well into next year or longer.

Unemployment continues at near 10%. The real estate market continues to struggle. Yesterday, we received a “SmartBrief” from the Financial Planning Association. It included the following report from the Wall Street Journal regarding the projected increase in foreclosures for 2011:

“The housing market reported 1.2 million repossessions in 2010, up from 900,000 in 2009, and some analysts say 2011 could be even worse because problems with the foreclosure process prevented many from being completed in 2010. High unemployment and interest-rate resets on adjustable-rate mortgages that will increase monthly payments on some mortgages will also exacerbate the problem.”

The FPA brief also noted that investors have increased their cash holdings by $1.0 trillion in the last three years. The yield on 9-month certificates of deposits is now less than liquid money market accounts. Some turned to bonds for safety not realizing that bonds will drop in value when interest rates rise. Muni-bond prices are currently dropping as investors worry about the end of the subsidized Build America Bond (BAB) program. Long-term bond yields are rising.

Municipalities and state governments are struggling. New concerns are now arising about the financial stability of Spain.

We are hopeful that the tax legislation now being considered in Congress will provide some level of certainty for businesses to help then begin to invest and create jobs. Nevertheless, the added stimulus elements of the bill worry us that Congress hasn’t yet gotten the message about our rising national debt. And just yesterday we heard about a new $1.1 trillion omnibus spending bill submitted that includes billions in questionable earmarks. It’s hard to imagine a future without higher taxes and higher interest rates. Will that lead us into the next recession?

We suggest you hunker down, cut whatever discretionary spending you can, beef up your emergency funds and make sure your portfolio is very broadly diversified. Pay off whatever debt you have and avoid chasing the latest hot assets. It’s time to be fiscally conservative and prepare for more tough times ahead.

Ronald Reagan once said “The taxpayer – that’s someone who works for the federal government but doesn’t have to take the civil service examination”. How true it is. Each year we seem to work more and more for the federal government and less and less for the benefit of ourselves.

It now seems as though Congress may pass the legislation agreed to by President Obama and the Republicans, yet with Congress, nothing would surprise us. It seems as though everyone has some problem with the agreement, as do we, but some certainty regarding taxes is needed to get the economy moving.

We’ve written previously that we felt one of the big problems with the slow economic recovery was the lack of confidence resulting from so many unknowns: What would happen to taxes January 1st?; How would the estate tax mess be resolved?; What will the impact of the new healthcare legislation be on businesses and individuals?; What impact will new federal regulations have on the economy?

Now, it appears that two of these questions may soon be answered. Income tax rates and estate tax rates will be clearly defined for at least for a couple of years if Congress approves the President’s deal. It would certainly be better if the agreement provided longer-term certainty, but at least businesses and individuals can make some intelligent short-term decisions.

There’s also now talk of trying to simplify the taxes to eliminate loopholes and increase revenues. The tax code is so complex now that it’s tough for honest taxpayers to prepare an accurate return. In many cases, we expect that the IRS employees themselves don’t know how to accurately calculate what’s due, let alone ferret out the cheaters. As Will Rogers once said: “Income tax has made more liars out of the American people than golf has.” You might want to start early on your 2010 return, if you can figure out what the latest rules are.

Quotes from “The Quotable Investor”, published by The Lyons Press.

Financial advisors must register either with the states in which they do business or with the federal Securities and Exchange Commission (SEC). Currently, those advisors with $25 million or less of “assets under management” are regulated by the states in which they conduct business and those with more than $25 million of assets are regulated by the SEC. Starting next year, state regulators will manage advisors with up to $ 100 million of assets under management. Should you care?

We wrote in our blog just last week about the continuing problem of dishonest advisors who continue to fraudulently abscond with investors funds (There’s a Sucker Born Every Minute, Sunday, December 5, 2010). It would be nice if the state and federal regulators could better protect investors. Their resources, however, are severely limited.

Some think that state regulators can do a better job than the federal government since they typically audit advisors every three to five years, whereas the SEC typically audits ten percent of the advisors it regulates every year, according to a recent article in the Wall Street Journal by Jason Zweig titled “Will Shaking Up the Watchdog Take the Bite Out of Crime?". This means an SEC regulated advisor can expect to be audited only once every ten years.

Perhaps changing some advisors to be regulated by the states will free up resources at the SEC so they can audit advisors more often. But what about the smaller advisors regulated by the states? The recent economic crisis has created an economic crisis for state governments as well. Most states are faced with cutting services and are unlikely to be able to increase regulatory staff to address the coming increased workload. It seems likely, therefore, that state regulatory agencies may very well have to reduce the frequency with which they audit state-regulated advisors.

So it seems that the problem of regulating financial advisors won’t get better anytime soon. The larger advisors may be audited more often, the smaller ones, less often. The Ponzi schemers are both state regulated and SEC regulated. If you want to avoid being scammed, you have to do your own due diligence. Perhaps the best thing you can do is remember that “if it sounds too good, it likely is”. There’s no silver bullet.

Although we often have clients with college-bound children and help them plan for their college savings, we are still amazed ourselves at how much college costs. Everyone knows that college is getting more expensive every year. Nevertheless, many are surprised when they see the projected future costs.

State governments are in a money crunch and therefore are not contributing as much as they did in the past to the public colleges in their states. College costs have been increasing anywhere from 5% to 8% annually. It seems like every day you pick up the newspaper and see that a college is increasing its next year costs by eight or ten percent.

Saving early is the key. Our example that follows will illustrate this. The current cost for a freshman at Michigan State University currently is approximately $19,924 for tuition, room and board and books. The total cost for four years, starting eighteen years from now is estimated to be $247,784. This assumes a six percent annual increase in the costs going forward.

For a couple with a baby just born, who start saving this year and save the same amount monthly until the second semester of their child’s senior year at MSU, the required monthly savings would be $ 575, assuming a 5.19% average return in a moderate-age-based portfolio in a Vanguard 529 college savings plan. This rate of savings would provide for the payments to be made at the beginning of each semester for the four years.

If the couples’ child is currently five years old and they start saving now, they’ll have to save $651 a month. If the child is currently ten years old and they begin saving now, the savings amount jumps to $806 a month! Or, the parents of a newborn could invest a lump sum now of $89,278 and have enough for the four years’ expense.

If you have children or grandchildren and want to provide for their college education, hopefully you’ve already started saving for their college. Maybe you’ll be lucky and they’ll get an academic or sports scholarship. For those who aren’t so lucky, the key will be to start saving early or be prepared to sacrifice significantly, later. Whatever the case, it’s never too late to start saving. Whatever the amount, every little bit helps!

P.T. Barnum’s quote, “There’s a sucker born every minute”, provides a great lesson for all investors, yet few people seem to learn. Barnum was an American showman, businessman, and entertainer, known for promoting celebrated hoaxes. He founded the circus that eventually became the Ringling Bros. and Barnum & Bailey Circus. It’s somewhat ironic that, according to Wikipedia, the quote was not actually attributable to Barnum, himself.

Just last week, The Sarasota Herald Tribune carried an article discussing the fourth Ponzi scheme arrest in the Sarasota, Florida area in recent times. Ponzi schemes typically provide the promise of uncommonly high returns to investors. Early investors receive “returns” funded by the contributions of newer investors. The scheme is usually uncovered when one or more large investors ask to liquidate their accounts (often in a down market). When they don’t get paid, a red flag goes up and investigators step in.

This recent alleged scheme drew hundreds of people to seminars, which according to the Tribune’s article, “were run like religious revivals”. The article went on to say that “they (the alleged perpetrators) used religion to make people feel, No.1- Safe, and No. 2 - To exploit them emotionally”.

According to the article, one of the attendees stated: “Not only did I pay for the seminar; I paid an extra 25 bucks for a lousy breakfast, so I could meet the guy. Quite honestly, he sounded like a creep, but I invested anyway, because it sounded too good.”

We often tell our readers and clients that if it sounds too good, it most likely is. Keep in mind that higher returns virtually always bring with them higher risk. In the case of Ponzi schemes, the risk is ultra high. A French proverb states “Skeptics are never deceived.” And Charles Dickens once said in his novel “The Old Curiosity Shop” (1841), “It was a maxim with Foxey – our revered father, gentlemen – ‘Always suspect everybody’”.

The lesson here is that when you hear of higher, guaranteed returns, you need to get suspicious. You need to be skeptical and do some serious due diligence. If you don’t, you’ll run the risk of being the next sucker to get taken by the latest, flashiest Ponzi scheme.

If you are like many Americans out there, you don’t have any extra money floating around for unforeseen expenses. We’ve written time and again about how important it is to have an emergency fund, yet many Americans don’t. They are living from paycheck to paycheck and in many cases have high credit card debt.

If that sounds familiar to you, you may want to make an extra effort to set aside some extra cash for what may be a tough January. Why is that you ask? You may have heard on the news or read in the paper that Congress has yet to make a decision on whether or not to let the Bush tax cuts expire on December 31st. The big issue between the Democrats and Republicans is whether to renew the Bush tax cuts for those making more than $ 250,000 a year. Most Republicans and some Democrats believe that it is best for the economy to avoid raising taxes for anyone, including the “rich”.

The problem is, there is little time for Congress to come to an agreement. One would think that after the election and the message sent by the American people that the two parties could get together and agree on the tax rates for 2011. Yet, it wouldn’t surprise us if they adjourned for the holidays without resolving the issue.

If there’s no resolution, the IRS will be forced to issue tax tables to employers that require larger amounts withheld for taxes. If Congress settles the issue late, the Treasury Department may be forced to issue higher withholding rates to employers. If that happens, your first paycheck may be significantly smaller than usual, putting you in a bind to pay all your Christmas bills or even your normal monthly bills.

The new Congress will likely reinstate the Bush tax cuts if it doesn’t get done before Christmas and President Obama is seen by many as likely to approve such a measure if passed in January. Nevertheless, it may take some time for payroll systems and the IRS to make proper adjustments. So, as tough as it may be, you might want to set aside a little extra cash if you can find a way to do so.