I am always a bit curious when I read a cover story headline like the one on Kiplinger Magazine this month. It says 18 Ways To Earn 5% or More On Your Money.

A lot of readers will make an assumption that goes along with that headline that they are talking about low-risk investments or no-risk savings products. After all, it doesn’t take a degree in advanced personal finance to know that there are literally thousands of ways to earn 5% or more on your money. Of course, most of those also come with a way to lose 5% or more on your money too.

That is not what the article is about. Instead, this particular article, whose article title inside the magazine is, “Great Rates In A Low-Yield World” manages to give a better clue. The article is NOT about where to open a savings account to earn 5% or more. It is about how to get 5% YIELD on your investment. That is, 5+ percent as income, and not counting losses on invested capital.

Real Earnings Are About More Than Dividends and Interest

Unfortunately, while the article does indeed uncover available investments earning a 5% or higher yield, it ignores the potential change in value of those investments. If you are holding bonds to maturity, of course, this factor is moot, but if your personal finance needs change or you don’t plan on holding those munis for a couple of decades, then price volatility is a very real factor in whether or not you earn that five percent target interest rate.

The first way to earn more than 5% on your money on the list is taxable municipal bonds. Specifically, they talk about Build America Bonds (BAB) which in addition to having taxable interest, have a portion of their bond insurance paid for by the Federal Government. Long-term BAB are paying 6 percent or higher in many cases.

Of course, you better be planning to hold on to those long-term bonds for a long-term investment.

As any educated investor knows, bond prices fall when interest rates rise. This is true for Build America Bonds muni bonds too. So, the $1,000 you shell out to get the 6.6% 25-year Illinois bonds the article references will soon be worth much less.

While economists are predicting the Fed won’t raise interest rates until 2012, that still means that for the next 23 years, those bonds will be trading at a discount. That is not a pretty outlook for bonds.

If rates rise far enough and you end up selling those bonds for whatever reason, your capital losses will make your actual rate of return on the bonds far less than the 5% you were trying to earn more than in the first place.

Other money earning strategies on the list potentially have the same issue. The list includes some REITS, preferred stocks, and some exchange traded limited partnerships.

Nothing drives home this point more than the inclusion of British Petroleum on the list of ways to earn more than 5% on that money. Since magazines go to print months before they hit the newsstand, the article was written before the BP oil spill in the Gulf of Mexico occurred. So, on page 39, under “Juicy Dividend Payers” is British oil giant BP (with a listed stock price of $59) and its 5.7% dividend.

Unless you have been living under a rock, you know that this is one suggestion you do not want to take. Suggestions that BP eliminate or sharply reduce its dividend payment in order to retain enough cash to pay out mounting compensation and penalties are growing louder. Furthermore, the stock’s price has been crushed, closing under $34 per share on Friday. If you bought BP at $59 hoping for a nice juicy dividend, not only is that dividend likely to be much lower (if not zero), but you have also lost 40% of your original investment!

The point is not that this one suggestion turned out very bad, but rather that any one of the suggestions in that same article could have something happen to them as well. It wouldn’t take the world’s largest oil spill to turn a 6% dividend into a 3% yield, while at the same time wiping out 5% of your original investment.

Looking for ways to earn more interest on your savings is good. Knowing the distinction between savings and investments is even better. Don’t run down to your broker’s office with your savings account because a financial magazine or money management website touts higher returns. First investigate the risks and make sure you are putting the right dollars in the right financial asset strategy buckets.

Whether you waited until the last minute or filed months ago, there is one last 2009 tax tips and tricks that you need to follow. Print out a copy of your tax return from your TurboTax software or print out your taxes from your TaxCut software, or whatever other tax software program you used to file your Federal Income Taxes.

Many people have the misconception that the TurboTax file saved on their computer as they worked on their Income Taxes is a regular file that can be opened and printed with a regular software program like Microsoft Word or Adobe Acrobat Reader. Unfortunately, that is not the case. The files generated by popular tax preparation programs like TurboTax and TaxCut is a proprietary file that can only be opened in the tax program. While next year’s version of the program will most likely be able to open that tax file, you have to buy it first. That isn’t very helpful if you need to produce a copy of your taxes in September to get a small business loan or open up a bank account.

There are ways to hack open TurboTax files, but why go through all that trouble?

Print Your TurboTax Files Now

While your tax program is still installed on your computer hard drive, run the program and click on the File Print Save section. I recommend printing out a hard copy of the actual forms submitted to the IRS as part of your income tax filing. That includes the Form 1040, Schedule A, Schedule D, and so on.

Most programs allow you to select how much you want to print, ranging from print only the official IRS form filed or e-filed, all the way to print everything, including all worksheets. Just print the filed forms. You won’t need all that other stuff unless you get audited.

However, you might want some of those numbers later on, and re-calculating them is a waste of time. Instead, use the program’s save function to save out one of the "all worksheets, all forms" options as a PDF file. That way, you can open and read that file whenever you want, even if the tax software has been uninstalled from your computer.

Which brings up one final point. By default, TurboTax saves your personal tax information files in the TurboTax directory. Normally, that isn’t an issue, but if the day comes when you are looking to delete some files from your computer, or choosing which files to backup or move to a new computer, you might think that the TurboTax folder is just the program’s files. In that case, you might assume you don’t need them anymore!

Go ahead and copy both your program’s data file, the TurboTax file, AND the PDF file that you saved out as instructed above to another folder. Name this folder something like Taxes 2009, and you can be sure that when you see that folder five or six months for now that you will probably be thinking, "Oh, those are my taxes. I better make sure and save those."

Get ready to start saving money on taxes in 2010! But, first, go out and relax a bit. You’ve earned it.

The recession might be ending soon, depending upon which economists and other financial forecasters you believe.  But, that doesn’t mean that people aren’t still looking to save money.  In fact, if one good thing comes out of this recession it will be that people have been reminded that money isn’t free, credit isn’t always easy to get, and saving for emergencies and opportunities is more important than remodeling the kitchen.

That being said, it isn’t always easy to find ways to save money.  Many family expenses seem pretty fixed and finding ways to make cuts can be hard.  The savings tips and saving tricks found in most money magazines, newspaper financial sections, and finance websites have been around the block a few times.  Many have lost their effectiveness, others were just never very helpful in the first place.

Saving Tips and Tricks Section

I’m happy to announce that today the Finance Gourmet website will begin building a new money saving tips section for our readers.  We’ll repeat some of the oldies but goodies (there is, after all, a reason that they are oldies but goodies).  However, we’ll also tell you about money saving tips that you might not already know about.  Some of them are easy, and some of them are harder, but they will all be worthwhile tools to add to your financial knowledge arsenal.

And, I guarantee that it won’t be the same old, "Make a budget, and cut back," advice you’ve seen a thousand times before.

Keep an eye out for our first money saving tips later today!  Or, do yourself a favor and grab the Finance Gourmet Feed instead.  That way, you won’t have to remember to get your tips, they’ll come automatically to you.

— The Finance Gourmet

If you have money in a 529 plan to save for college, good for you.  529 plans represent one of the best vehicles for educational savings, and with the cost of tuition skyrocketing faster than anyone can keep up with, they also represent the middle class’ only hope of paying for even 1/2 of a college education in the future.

When 529 plans were created, lawmakers attempted to correct some of the perceived issues with 401(k) plans which are similar in nature, but with a different goal.  One of those issues was that the majority of 401(k) plan participants were doing it wrong, that is, investing incorrectly.  One such problem was changing their investments too often in response to news events or media hype.

The solution implemented in 529 plans was that they were restricted to just one reallocation per year.  In other words, if you started 2009 with half your money in the S&P 500 fund and half your money in the International fund, you could change that to something else, but only once for all of 2009.

This restriction only applies to monies already in the account and exchanging that money between investments.  You can change where NEW money goes at any time.  Thus, in the example above, the account owner could switch to 25% S&P 500, 25% International, and 50% bonds on March 1st, but then they could not adjust that mix again until 2010.  However, the investor could elect to have all future contributions to go 100% to the Money Market fund on March 20th, and could change that again on April 19th, and so on, at any time.

2 Re-Allocations Investment Exchanges in 2009

Congress passed a law changing the rules for 2009 only.  In 2009, the account owner of a 529 plan may make TWO changes to the investment allocation of the existing funds.  One could therefore make a change now, and another change in September, for example.  The extra change cannot be rolled over and it does not apply to 2010, as of this writing.

Ironically, this action only proves the point.  Congress knows that people will be freaked out about their investments this year.  That means they will want to make the same kind of current events based investment decisions that were trying to be avoided by having the once a year rule in the first place.  Doubly ironic, is the fact that if one were going to “go safe” it probably should have been done in 2008.

With the new twice this year feature, Congress allows people to go safe now (too late) and then go back to “normal” later this year (probably too late as well). 

If you are sitting across the dinner table from a 15 year old, then you have a pretty tough call to make, especially if you have already rung up huge losses.  You are still probably better off sitting on the investment strategy you calmly and carefully analyzed when you were not scared, assuming that is how you picked your investments in the first place.  While there would only be 3 years until the account was started to be withdrawn, if you are looking to use the money over a full 4 or 5 years, then you are still looking at 7 or 8 years total.  There will most likely be some kind of recovery during that period.

Bond prices can only go down from here because higher interest rates cause lower bond prices and interest rates are already at zero…

If you are looking at someone under 10, do NOT panic.  Now is not the time to go 100% bonds, and it is most certainly NOT the time to go 100% money market.  The 20% recovery the market has already had from its lows earlier this year was the best way to get some of your money back.  You have 8+ years until the money is needed, let the markets do their work during that time.

You current contributions should be going into equities.  Pick a market index fund, or one of the “growth” allocations available in your plan.  Yes, there may be some more downside in this market, but you will be buying cheap if you are buying into stocks now. 

The opposite is true of bonds.  Never forget that bond prices go DOWN when interest rates go UP.  Interest rates are currently set at 0% basically.  That means it is GARAUNTEED that interest rates cannot go down, they can only go up.  Do the math and that means that for anything but the short-term bond prices can only go down.  Why would you buy an asset that is assured of losing value?

Once any sort of recovery begins, the Fed will have to start raising interest rates, and when they do, bond prices will fall.  The only way to avoid this is to own individual bonds and hold them until they mature.  For bond mutual funds, they can only lose money once the recovery begins.

A quick word about money market investment options: College costs are increasing at 7% per year on average.  If you are earning 3% in a money market (fat chance) you are losing 4% of buying power each year.  Yes, it is painful to watch the account value go down, but it will come back and over time, the market returns 9% to 11% depending on who you ask, and how you count.  In other words, your only hope to keep up with the 7% inflation of college tuition is to get that 9% in the stock market.  There is no other choice.

If you can’t or won’t listen, then that is too bad for your children, but AT LEAST make sure your current contributions are going into equities.  They won’t go down much more, but they could go up a lot.  Maybe that will be enough to make up for making the other decision.

Too harsh?  Leave a comment or shoot me an email.

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Sometimes people ask me questions that aren’t exactly my area of specialty.  While saving money by buying a refurbished or remanufactured product is technically about spending and personal finance, there is a lot of information that goes into such a decision that I have no way of knowing any better than you. With that being said, there are some common issues and concerns to watch out for when purchasing refurbished or remanufactured goods.

Is It Really A Good Price?

The promise of refurbished goods, particularly electronics, is getting a “good as new” product for a much lower price.  The devil, of course, is in the details.  The major concerns fall into two categories. The first is whether or not the refurbished product really IS as good as new.  And the second, is in what way the service and support of the product will be different because it is refurbished.

Many refurbished products come with a much shorter warranty than their new counterparts.  This begs the question, “If the product is as good as new, then why won’t you stand behind it with a warranty that is as good as the new one?”

The answer is, of course, that refurbished is NOT as good as new.  The product has had whatever defect caused it to be returned fixed, but that doesn’t mean it is new.  The customer who owned it before might have had it two days, two weeks, or two months before returning it.  That isn’t new, it is used, and that is reflected in the shorter warranty.

In order to determine whether or not that refurbished laptop, TV, or microwave is a good deal, you need to compare what you would get with a new purchase versus what you get with a refurbished purchase and then assign a value to the differences.

For example, if a new product comes with a 3-year warranty, but the refurbished product only comes with a 30-day warranty, that is a significant difference, and so the discount to the new price should be substantial.

On the other hand, the difference between a 12-month warranty and a 90-day warranty isn’t really that big (8 months), so the discount doesn’t have to be as big.

As a rule of thumb, the more likely the product is to need warranty service, the less likely a refurbished product is a good deal.  Ironically, these are the products most often offered as refurbished because there is a large supply of them from people sending them in for service.

Keep you eyes open and make smart decisions.  Don’t just go for it because it sounds cheap.  Make sure and look at all the angles and you’ll come out ahead.

Filing taxes as a small business or as self-employed?  If you aren’t using a sole-proprietorship business structure, chances are you are filing as an Limited Liability Company, or LLC.

If so, the IRS has a guide for filing as an LLC.  Basically, for purposes of Federal Income taxes, there is no such thing as an LLC.  Either you are a sole-proprietorship or you are a partnership or corporation for tax purposes.  However, this status does not affect your legal status as a LLC for purposes of liability and other state related laws.

If you are self-employed or employed in a small business with your spouse, go for the sole-proprietor method since it is much easier.  This way, you just file your Schedule C on your Form 1040 and you are off.

If you have employees or are in a partnership with a non-spouse, then you’ll probably need to go the partnership or corporation route.  Of course, then the Schedule C isn’t good enough, you’ll need a Schedule K or other form to report your share of the profits and expenses.

Keep it simple if you can and file your LLC as a Schedule C.

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I’ve been meaning to get a big comprehensive review of the various deals available on TurboTax, TaxACT, and other tax preparation programs, but frankly, there are so many and they are changing so fast that I can hardly keep up.  So instead, let me just throw it out there.  You can save a ton of money by buying your tax software and taking advantage of a sale.

Every year, everyone from Best Buy to Office Depot to Staples offers great deals when you buy your tax prep software at their store.  The deal isn’t necessarily on the price of the software, and if it is, it is usually on the basic version that may not handle everything.

Although, just a quick tip about TurboTax.  I got a free offer to use TurboTax basic online.  I own my house, and I run my own business and everything I needed was in the TurboTax basic version even though it kept asking me to upgrade to TurboTax Deluxe to make sure I didn’t miss out on any deductions.  Folks, the “hidden” or hard to find tax deductions usually are not going to apply to you unless you have very special circumstance.  In that case, you probably already know about them.  So, try the Basic version and if it doesn’t work out, you can go to Deluxe.  Or, even better, if it is just one extra piece, you can fill that form out manually.

Back to business.

Free Anti-Virus, Free Security, Free Internet Protection, and More

Back to the deals.  The biggest deals you will usually see come in the form of other software packages and programs you can get for dirt cheap, or totally free when you buy your tax program.  Usually TurboTax and TaxACT are the ones that get this treatment.

Almost always, an antivirus program is one of the programs you can get, along with Internet security applications, and things like clip-art, business programs, print shop like publishing programs and so on.  If you get TurboTax the deal can also include a deep discount on Quicken and QuickBooks.  That way, you can get your budgeting and business bookkeeping software at a big discount.

This is how I get my anti-virus subscription for free every year.  I check the ads in the Sunday paper each week and when they have a free McAfee or Norton, or whatever, I buy my copy of TurboTax and uninstall my anti-virus software and then re-install it with the new CD and key, and voilla, free brand name anti-virus software, and it is totally legal.

Check out this Sunday’s paper and see what you can find.

Christmas is over, but the bills might not all be gone.  Plus, Uncle Sam is going to want his kickback, that’s taxes to you and me, by April.  Throw in a recession, and it is probably a good idea to look at saving some money.

If you’ve been through your budget and you don’t find anything out of whack (tip: if your cell phone bill is more than $60 and you aren’t a traveling salesman, it’s time to re-evaluate) then we need to pull out some less used tips.

Homeowner’s Insurance Deductible

The dirty secret about homeowner’s insurance is that filing claims will get you and your policy dropped by the insurance company.  Those same claims will keep you from getting a new insurance policy with another company.  Sometimes, as little as 3 claims in 2 years will get you dropped like a hot potato.

Since there is nothing you can do about how insurance companies behave, the next best thing is to work smarter within their system.  Only file large claims and use your savings to pay for the nickel and dime stuff like a few shingles blown off the roof.  Of course, if you aren’t going to be filing smaller claims, then you shouldn’t be paying for the coverage.

Raise your homeowner’s insurance deductible to at least $1,000.  Chances are a $1,500 or $2,500 deductible won’t lower your rates that much more, but check anyway.  Saving $10 a year to raise your deductible $1,000 doesn’t make much sense, but if you can save $50 or $100 then that’s something to think about.

If you are the very responsible type and you have the recommended 3 to 6 months of living expenses tucked safely away in an emergency fund that you never touch, you can even consider a $5,000 deductible which could significantly lower your home insurance.  But, do the math first.  It will likely only make sense if you have a high value home.

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Also, do a homeowner’s review with your company if you have made any improvements or security upgrades.  The new alarm system might be worth a discount.  The same goes for removing anything that raised your rates.  If you don’t have a dog anymore, make sure they know that too.

Be careful that your insurance agent doesn’t use your review to sell you other insurance, or even more home insurance.  You are there for home insurance only, and you don’t want to talk about life insurance, car insurance, or any other insurance, no matter how good of time it is, or how great the deal is.  You especially don’t care if rates are going up next month (a common insurance salesman line). 

Also, there is no need to insure your home for full replacement value.  Laws very from state to state, but generally, a homeowner’s insurance policy provides for 120% or so, of coverage should your whole house need replaced.  But, that kind of event is relatively rare.  Even if you have a fire, chances are you’ll be repairing the house, not rebuilding it from scratch.

Flood Insurance

A major mistake many homeowners make is not getting flood insurance.  Your regular home owner’s insurance does not cover flooding.  That includes not just a river flooding, but also a water main break, a broken pipe (outside the home), and many other issues.  If you live anywhere near a river, lake, or ocean, flood insurance is a no brainer.  But, don’t assume you are safe if you don’t.

Check your city planning office to find out where your home is located.  Residentially zoned areas are generally categorized by flood plain status.  If your home sits in a 100-year flood plain, you might risk it.  But, don’t assume a 50-year flood plain equals safety.  The statistics don’t quite work that way.  Check with an expert.

Save Some Money This Holiday Season

Looking for some creative ways to save some money with the economy looking shaky and the holiday shopping season fast approaching?  Here is one way to save some potentially big dough.

Microsoft Live Search CashBack

Microsoft is literally giving away money to get people to try out its new search engine called Live Search.  You can find it at www.live.com.  Make sure you sign up for the CashBack program and use the right CashBack search screen, not the regular Live Search screen.  Read all the technical details about Microsoft Live Search CashBack.

Some vendors have pretty big cash back amounts.  JR.com is a big electronics outfit and they currently have 6% cash back offered.  Sound good?  I’m glad, but keep reading.

Pair this up with a good Cash Back Credit Card and you can be talking about some real savings.  Even if you are out of your special offer period and only get 1% cash back, that adds up fast.  A $1000 digital camera package would qualify for $60 in cash back from Live Search CashBack, plus the extra $10 you would get from your credit card cash back adds up to $70 in savings.  That would buy your nephew a really nice Christmas present for free!

Keep an eye on the FinanceGourmet.  We’ll be bringing you great savings tips to help out during these tough financial times all through the holidays, and into next year.

Remember, only 64 shopping days until Christmas!