Sfg Newsletter May 2007

May 16, 2007

Synergy Financial Group George Van Dyke 401 Washington Ave #703 Towson, MD 21204 410-825-3200 410-530-2500 (cell) [email protected] www.synergyfinancialgrp.com

The purpose of this newsletter is to give you interesting tidbits of information that you may find of interest. The hope is that some of what you read here will spur you to take action, help you to simplify some aspect of your financial life, or help you to avoid a future pitfall! Alert: REAL ESTATE FALLOUT - 13% of adjustable rate mortgages taken out during the last 3 calendar years (2004-06) are projected to ultimately end in foreclosure (source: First American CoreLogic, Wall Street Journal). BIGGER THAN MOST - To rank in the top 1% of American households based upon net worth (including the value of a family's primary residence) requires a net worth of $6 million or more (source: Federal Reserve, WSJ)

In this issue: Paying for Graduate School Don't Let This Year's Family Vacation Wreck Your Budget Modifying a Home for Independent Living Ask the Experts

Paying for Graduate School Paying for graduate school can be a challenge. While the bank of Mom and Dad may have helped fund an undergraduate education, students considering graduate school are more likely to be on their own financially. Here are some suggestions on where to look for financial help.

Scholarships and grants

Loans, loans, loans

Employer educational assistance

According to the College Board, the average graduate student funds 69% of his or her education costs with loans. Would-be students can borrow from private lenders or the federal government. Uncle Sam's three major loan programs--all available to graduate students-are the subsidized and unsubsidized Stafford loan, the subsidized Perkins loan, and the unsubsidized PLUS loan. "Subsidized" means the government pays the accruing interest during school and deferment (loan postponement) periods; such loans are only available to students who demonstrate financial need.

Some companies offer tuition reimbursement, which can be a great source of "free money." But there are often strings attached, like maintaining a certain grade point average or staying with the company for a number of years. The first $5,250 of employer-provided tuition benefits is exempt from federal income tax.

In 2007, graduate students may be eligible to borrow up to $8,500 in subsidized Stafford loans, up to $12,000 in unsubsidized Stafford loans, and up to $6,000 in Perkins loans. Currently, the interest rate on new Stafford loans is fixed at 6.8% and 5% for Perkins loans. And under the PLUS loan program, graduate students can borrow up to the full cost of their education (minus any other financial aid received) at a current fixed interest rate of 8.5%. To be eligible for federal student loans, you must be attending graduate school on at least a half-time basis. Then you must file the government's aid application, called the Free Application for Federal Student Aid. You can file it online at www.fafsa.ed.gov. Students can also obtain loans from banks or other private lenders, though such loans typically carry higher, variable rates of interest.

Most scholarship and grant aid at the graduate level comes from the school itself. However, this aid is often awarded on the basis of merit rather than need. To investigate, contact the school's financial aid office. Many scholarships and grants (like teaching fellowships or research grants) are awarded at the departmental level, so your chances might depend on what subject area you'll be studying.

Education tax benefits Three federal education tax benefits might help defray your expenses in 2007: The Lifetime Learning credit is worth up to $2,000 for tuition and fees. To qualify, your income must be below $57,000 (single) or $114,000 (married filing jointly). The deduction for qualified higher education expenses lets you deduct $4,000 for tuition and fees if your income is below $65,000 (single) or $130,000 (married filing jointly). If your income is more than that but less than $80,000 (single) or $160,000 (married filing jointly), you can deduct $2,000. This deduction is only available for 2007, and it can't be taken in the same year as the Lifetime credit. The student loan interest deduction lets you deduct up to $2,500 of student loan interest each year. To qualify, your income must be below $70,000 (single) or $140,000 (married filing jointly). For more information, see IRS Publication 970, Tax Benefits for Education.

Page 2 Don't Let This Year's Family Vacation Wreck Your Budget With today's busy lifestyles, many people view a nice family vacation every year as an entitlement, even if it means going into debt to pay for it. They rationalize that they work hard all year and deserve it, or they become wistful after hearing about the fancy vacation plans of friends, co-workers, or neighbors. Sure, everyone needs a break, and parents naturally want their kids to have fond memories of endless summer days spent romping on the beach, but how can you prevent your vacation costs from spiraling out of control? Can you really afford it? First, assess honestly whether you can afford the vacation you're thinking about. If you have to borrow most of the money to pay for it, then you probably can't afford it. If you do borrow to pay for your trip, you might find yourself financially strapped later on if the roof starts leaking or one of the kids needs braces. At the very least, you'll inherit the stress that comes with trying to pay off that debt. Think outside the vacation box

Keeping it simple When asked by one family magazine about their favorite vacation memories, most kids listed the simple things--eating ice cream, swimming, staying up late, jumping on the hotel bed, fishing, lying in a hammock, picking blueberries. So don't feel bad about keeping things simple!

Not being able to take a dream vacation doesn't mean you can't take a vacation at all. Everyone needs time away from their job and normal family responsibilities to recharge. If you simply don't have the budget for the vacation you want, think of other creative ways to spend your time off. Here are some ideas: •

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Try a few long weekends instead of one or two consecutive weeks. Perhaps you can afford a couple of nights at a hotel or bed and breakfast instead of all week. Or maybe you can camp for a few nights at a state or national park, where rates are very reasonable. Vacation from home. Take day trips into a nearby city and visit museums, restaurants, and other attractions. Or head out to the country for a hike, swim, and picnic. Doing things out of the ordinary, like eating breakfast three times a day or setting up a tent in the living room to play games and sleep in, can be a big hit with kids. Young kids usually just like being with their parents and are mostly happy to go along with what you have planned.

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Let older kids pick an activity. It might not be Disney World®, but what about a trip to an amusement or water park, a day or two at the beach, an afternoon canoeing or fishing, a movie and dinner outing, or a ballgame? Instead of lamenting the fact that you can't take an exotic vacation, focus on what you can do and enjoy the time with your family.

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Consider house swapping. If you're willing to trade houses with other like-minded families to save on room-and-board costs, there are several websites where you can find more information.

Plan now for next year (or the year after) It's never too early to start thinking about next year, or the year after that. Start saving now for that future getaway by making a budget and seeing where you might be able to squeeze a few dollars. Then consider opening a separate vacation account for those funds; otherwise, the money may get "lost" in your regular savings account and used for other purposes. Where you put your money will depend on your time horizon and other factors. A financial professional can help you examine your options. If you can contribute monthly to your vacation fund, great. If you can't, consider adding small windfalls like your tax refund, year-end bonus, or cash from birthdays and holidays. Knowing that you're setting aside money for a planned "dream" vacation can go a long way to making you feel less deprived in the years you can only afford to stay close to home. And when it comes time to actually planning your big vacation, keep cost-cutting tips in mind. For example, you might consider less convenient flights or a night or two at a less fancy hotel. Forget about the Joneses It's tempting to want to take grand vacations every year when everyone else seems to be doing so. But don't fall into the trap of thinking that you or your family will somehow be scarred if you can't. The important thing is to relax in a way that you can afford, and then enjoy that time with your family. You will have taught your children an important lesson--how to live a financially sound life, without worrying about what the Joneses are doing.

Page 3 Modifying a Home for Independent Living Because many homes aren't designed to accommodate changing physical needs, it's sometimes challenging for people with disabilities to live independently. But fortunately, homes can be modified to remove barriers to independence and reduce reliance on caregivers. For older individuals, home modifications can delay or even prevent the need for costly care in a nursing home or assistedliving facility. Improvement options will depend on individual needs and physical concerns. But here's a broad look at some of the home modifications that might help make day-to-day living safer and easier for you or a loved one. Inside the home Kitchen •

Remove cabinet doors to make it easier to see and reach items

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Use turntables inside cabinets to reach supplies easily

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Lower countertop surfaces and kitchen cabinets to make them more accessible

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Install a cook top and a low wall oven instead of using a range; install an adjustable mirror over the stove to make viewing cook top from a wheelchair easier

special hinges that allow doors to open wider •

Install a ceiling lift device that will allow independent movement around the home

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Install a stair lift or an in-home elevator

Outside the home •

Apply nonskid surfaces to garage floors, decks, stairs, and walkways

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Install handrails on both sides of stairs

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Replace standard exterior lights with motion-sensitive or photo-sensitive lights

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Construct an entrance/exit ramp

Paying for home modifications Many home modifications are simple and inexpensive, but if you need to remodel extensively or hire a contractor, you may need help paying for improvements. Fortunately, financial help is available from public and private agencies and charities. For example, states and communities may offer special financing or grant programs, and charities often organize repair or improvement projects. To find help available in your community, contact your local Area Agency on Aging through the nationwide Eldercare Locator at (800) 677-1116, or through their website, www.eldercare.gov.

Bathroom

Tax breaks

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If you itemize deductions on your federal income tax return, you may be able to deduct home improvements that are primarily for medical care and prescribed by your doctor. However, you can deduct only the amount that is more than 7.5% of your adjusted gross income. For example, if your adjusted gross income is $70,000, then you would be able to deduct expenses that exceed $5,250. Expenses that generally qualify include the cost of installing ramps, lowering or modifying cabinets, and adding grab bars. If an improvement increases the value of your home, it may be only partially deductible. For more information and a list of deductible expenses, see IRS Publication 502, Medical and Dental Expenses.

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Install a raised toilet with attached handrails (portable seats are also available if replacing the toilet is impractical) Cover sink handles with rubber grips to make it easier to turn the water on and off

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Install grab bars or poles near the toilet and shower

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Replace bathtub with low-threshold shower

Other living areas •

Replace door knobs with lever-style handles, or install door knob covers that are easier to grip and turn

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Add nightlights to prevent nighttime falls

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Remove throw rugs and thick doormats; replace padded carpet with thinner, levelloop carpet to prevent tripping and facilitate wheelchair or walker navigation

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Widen doorways, remove doors, or install

Some states also offer tax breaks to their residents, including sales tax exemptions, deductions, or tax credits; local property tax credits or abatements may be available as well. For more information, talk to a tax professional.

Daily living aids and assistive devices People often don't realize how many products are available to help people maintain their independence. Here are just a few that can be found at pharmacies and medical equipment suppliers: •

Amplified phones

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Large button remote controls

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Lift chairs

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Shower or tub chairs

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Reachers that grasp hard-to-pick -up items

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Optical magnifiers that project text onto a TV screen

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Personal emergency response systems

Ask the Experts Can reducing my credit card debt actually lower my credit score?

Synergy Financial Group George Van Dyke 401 Washington Ave #703 Towson, MD 21204 410-825-3200 410-530-2500 (cell) [email protected] www.synergyfinancialgrp.com

George Van Dyke is a Financial Consultant with Synergy Financial Group of Towson Maryland. Securities offered through Linsco Private Ledger (LPL) - Member NASD, SIPC. LPL does not provide legal or tax advice. The information contained in this report should be used for informational purposes only. Synergy's mission is to build, preserve and protect the capitol of our clients by offering a comprehensive and professional level of advisory and planning services as well as providing exceptional customer service. Our investment objective is to provide serious investors with a very acceptable after tax (where applicable) total return over a long term horizon. In order to achieve our client's goals, we recommend investing in a diversified portfolio of high quality securities spread over multiple asset classes. We place emphasis on creating tax efficient portfolios and managing risk. Through modern asset allocation techniques, portfolios are assembled to match each investor's individual investment goals and risk tolerance. We believe that strict adherence to a disciplined approach increases the likelihood of generating consistent returns and limits the risk of significant loss.

Copyright 2007 Forefield Inc. All Rights Reserved.

Most lenders use an automated credit scoring system to help determine your creditworthiness. The higher your credit score, the more creditworthy you appear. One of the factors built into credit scoring systems is your credit card balance-to-limit ratio (the amount of debt you owe compared to your total credit limit for all cards). Lenders like to see ratios indicating you're indebted for balances approximating only 30% of your total limit. Generally, if your balance-to-limit ratio is higher than that, then reducing your debt will improve your credit score. But how you reduce your debt can make a difference. You may have heard that you should consolidate several credit card balances on one card with a low interest rate, then close the paid (usually higher-rate) accounts. Doing so, the claim goes, not only minimizes the risk that you'll "dig the hole" of indebtedness even deeper, it also reduces your exposure to

identity theft through the fraudulent use of inactive open lines of credit. But if you do this, you could: •

Lower your total credit limit available without lowering your total debt, thus raising your balance-to-limit ratio--and potentially lowering your credit score in the process.

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Make your credit history appear shorter by canceling accounts you have had open longest--and a shorter credit history also may lower your credit score.

While it makes sense to transfer balances subject to high interest rates to accounts with lower rates (and then concentrate on paying down what you owe), consider waiting to close the paid accounts. Keeping them open may actually improve your credit score by lowering your balance-to-limit ratio (since you'll have the same amount of debt, but a higher total credit limit) while maintaining the longevity of your credit history.

How can I tell if I have too much debt? It may sound like a bad joke to say that you have too much debt when you find you're unable to borrow more, but there is more truth than humor in the flippancy. In determining your ability to repay debt, lenders will examine your debt-to-income ratio. Calculating this ratio can involve a couple of different variations. Your "debt service ratio" compares your total monthly debt payments (including your mortgage payment) to your gross monthly income. Your "debt safety ratio" compares your monthly consumer debt payments (not including your mortgage) to your take-home income. You will generally qualify for a conventional mortgage if your debt-to-income ratio (including the potential mortgage payment) is 36% or less. Federally guaranteed mortgage programs may allow debt-to-income ratios of up to 41%. And unsecured lenders (like credit card companies) allow even higher debt-toincome ratios--and then charge you higher interest rates to compensate themselves for

the potential risk you represent to them. To be on the safe side, however, your debt service ratio should ideally be around 25% and no greater than 35%, while your debt safety ratio shouldn't exceed 20% and should preferably be around 15%. While it can be difficult to live in today's society without incurring debt, it also can be difficult to live with too much debt. Here are some warning signs indicating that you may be too close to the edge: •

You can't maintain an emergency fund to cover 3 to 6 months of normal expenses

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You make only minimum monthly payments on your consumer debt

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You're at or near your credit card limits

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You use credit cards to pay for things you used to buy with cash

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You take cash advances against your credit cards to pay other bills