Your parents or grandparents probably always told you, "If you can't pay for it with cash, then you can't afford to buy it." That may have been sound advice a generation ago, but such attitudes about credit are outdated and unrealistic for most adults working and living in today's world. As savvy, modern-day consumers, we will all need credit at some point.

The costs associated with purchasing cars, homes, health care, and college education have skyrocketed when compared to the average household income, so typical consumers need to borrow money if they want to own a home, purchase a car, and educate themselves or their children. Throw in a handful of charge accounts and credit cards, and it is no wonder that the average consumer is carrying more debt than ever before. With greater credit needs comes a greater need for debt management.

Good debt management ensures that you will have credit when you need it, make wise borrowing decisions, and avoid disaster if you become overextended. You can ensure that loans are available when you need them by establishing and maintaining a positive credit history. You can benefit from many specialized loan programs if you are aware of your borrowing options. You can save money by taking steps to reduce the cost of debt and save yourself from disaster if you know what to do when you can no longer meet your financial obligations.

Establishing Credit
You must first establish a credit record if you want to have ready access to loans when you need them. You establish a credit record by borrowing money from a lender who reports to a credit bureau. So, what's the problem? The problem is that few lenders will loan you money if you don't have an established credit record. That is the catch-22 of building credit. However, if you have no credit experience, there are several ways to get started.

Think small and take advantage of special credit deals to establish that first credit relationship. Increasing lender confidence with a large down payment, or posting collateral, is another. Insured credit, secured credit, and student loans have helped many borrowers get started. If you pay your obligations as agreed, you will be surprised at how many lenders will offer you credit once the ball is rolling.

Borrowing Options
You wouldn't try to buy a house using proceeds from a student loan, nor would you try to finance your college education with a credit card. However, you might use a home equity loan or line of credit to finance your child's college education. Knowing what borrowing options are available to you is important when shopping for credit. Some types of loans carry lower interest rates, some have tax-deductible interest, some are subsidized by government entities, and still others have special repayment terms designed to serve the needs of a special class of borrower.

Whenever you have the need to finance an expense, it is worth your time and effort to educate yourself about your borrowing options. Lenders today are enormously competitive, and there are more than just interest rates to consider when comparing one loan package to another. Find the loan that best suits your needs, and be sure you have examined all your choices.

Credit Reports
Part of what makes it possible for you to shop for credit is your credit report, which is a record of your past credit relationships. As mentioned previously, establishing and maintaining a good credit record makes you an attractive customer for lenders. You will get the best deals and have access to the largest number of credit options if your good credit record is maintained.

The first step in maintaining a good credit record is to pay your obligations as agreed. However, merely paying your bills is not enough. Many credit reports contain errors that are clerical in nature or caused by misidentification (e.g., someone else's bad credit gets put on your report). Although these errors are not your fault, they can cause delay or rejection when applying for a loan. To avoid such complications and delays, you need to obtain copies of your credit reports from the various national credit reporting agencies. Once done, you need to interpret the information and determine whether errors have been made. If there are problems with your report, you have a series of "borrower's rights"--enforced by the federal government--that you can exercise as well as detailed a procedures for correcting errors. You can force the credit reporting agencies to investigate errors and either correct, confirm, or delete the information, usually within 30 days.

Repairing Poor Credit
If the information on your credit report is correct but bad, you face a more difficult task. However, a poor credit record can be improved. Adding good credit to your report is helpful. It shows that your period of financial difficulty is over and that you are once again making good on your debts. You can also go back to creditors that reported bad information and negotiate a deal in which you agree to pay off the account, or make additional payments on the account, if the lender will agree to upgrade your credit status.

Your report may contain bad credit because of a dispute with a creditor. Perhaps you purchased a defective appliance on credit, the merchant failed to repair or replace it, you refused to make payments, and the merchant reported you as delinquent. You can add a consumer statement to your credit report to tell your side of the story. If all else fails in your attempt to repair credit, you may have to simply wait out your credit problems. Even bankruptcies disappear from your report in time.

Reducing the Cost of Debt
It is good to periodically evaluate your debt situation and determine whether you can reduce the cost of debt. It just doesn't make sense to pay more money for interest if you can be paying less.

There are several ways to reduce the cost of debt: You can refinance loans to get lower interest rates, use the equity in your home to pay off high interest loans and credit card balances, or transfer your credit card balances to cards with lower rates.

Other options include prepaying debts and liquidating assets to pay off loans and to avoid further interest charges. You may also seek to reduce or eliminate non-interest costs related to borrowing, such as fees and private mortgage insurance (PMI). If you have kept your mortgage payments current and built up sufficient equity in your house, you may be able to cancel your PMI coverage. Also note that many of these options have tradeoffs. For more information, you should talk to a qualified financial professional.

Options When You Can't Meet Your Financial Obligations
Ideally, you should never incur more debt than you can afford. If that plan fails, then your next task is to recognize when you are financially overextended and do something about it. Doing nothing is the worst possible choice. The longer you wait to take action, the more severe your financial troubles are likely to become.

Increasing your income stream may be an option. If not, there are things you can do to reduce your monthly obligations. Reducing the cost of debt, or negotiating directly with your creditors may enable you to lower monthly payments. If you need professional advice, you can contact one of the many nonprofit credit counseling services, such as Consumer Credit Counseling Services, which can often arrange an affordable repayment plan for you. If things are really out of control, you may want to consult a financial planner about more extreme tactics and determine whether you would benefit from a self-help support program such as Debtors Anonymous. You should face up to your financial difficulties and take steps to resolve them.

December is almost here, and many of you will be graduating in a few weeks. Even though it's the mid-year ceremony, don't worry. Your diploma counts just the same as those spring-time grads. So now that you're about to begin your life of social freedom and adult independence, let's go over a few issues concerning your wallet.

You should already know the usual graduate etiquette: Write thank you cards to graduation gifters; don't wear sneakers to the first job interview; oh, and invite fewer first dates over for ramen noodles. But don't forget, in your early professional years you will also encounter many important financial decisions for the first time.

In the beginning, you will likely earn a meager paycheck and hold onto the 'frugal student' mentality--what we lovingly refer to as Degree Rich, Money Poor™. During this time, it will be much easier to build positive financial habits than it would be five years down the road, when you will have become accustomed to earning (and spending) more money.

The Intersection of Common Sense and Patience
Damon Darlin of the New York Times wrote an excellent article a few months back in which he passed his best financial words of wisdom to America's newest college graduates:

• Learn to cook. You'll save money, eat healthier, and your partner will love your culinary talents
• Never borrow money to pay for a depreciating asset (i.e. clothing, electronics, jewelry, furniture, etc.)
• Cut out the "latte habit", those little purchases in your daily routine that add up to something more worthwhile and memorable.
• Find a partner and stay together. Study show that two can live more cheaply together than each alone and that divorce is a great destroyer of wealth
• Enroll in a 401k plan immediately, and save (more) money while you're young. Not only do you harness the power of compounding, but you also become accustomed to a lower rate of consumption while working. This way, less money is needed in retirement.

It's All About Three Principles
Mr. Darlin's points are all valid and map very well with Lightship Mutual's own Keys to Shine. It goes to show that presentation and style may differ, but experts all agree on three essential laws of personal finance:

1. Spend less than you earn
2. Make the money you have work for you
3. Prepare for the unexpected; save a little

Now you have the information, and we all know that information is power. Go forth, young graduates. It's time to launch your financial ships into the open seas.

A higher salary. More job security. Doing what you love. A chance to give back. Changing careers can be rewarding for many reasons, but career transitions don't always go smoothly. Your career shift may take longer than expected, or you may find yourself temporarily out of work if you need to go back to school or can't immediately find a job. Fortunately, planning for the financial impact can make the transition much easier.

Do Your Homework
You'll want to make sure that you clearly understand the steps involved as well as the financial consequences of a career move. How long will it take to transition from one career to the next? How will changing careers affect your income and expenses, both in the short term and the long term? Will you need additional education or training? If so, how will you cover the expense? How will your career move affect your health, life, and disability insurance coverages?

You should prepare a realistic budget and a timeline for achieving your career goals. And if you haven't already done so, save up an emergency cash reserve that you can rely on, if necessary, during your career transition. It's also a good time to reduce outstanding debt by paying off credit cards and loans.

And here's another suggestion. Assuming it's possible to do so, keep working in your current occupation while you're taking steps to prepare for your new career. Having a stable source of income and benefits will make the planning process much less stressful.

Hands Off Your Retirement Savings
Planning ahead can also help protect your retirement savings. When confronted with new expenses or a temporary need for cash, people tend to look at their retirement savings as an easy source of funds. But raiding your retirement savings, whether for the sake of convenience, to raise capital for a business you're starting, or to satisfy a short-term cash crunch, may severely limit your plans for the future. Although you may think you'll be able to make up the difference in your retirement account later--especially if your new career offers a much higher salary--that may be easier said than done. In addition, you may owe income taxes and penalties for accessing your account funds early.

Get Help From Others Who Have Been There
When contemplating a career move, there's really no substitute for getting help from people who understand the hurdles you'll face when changing professions. Talk to a specialist. Depending on your goals, this may be a mentor, career counselor, small business representative, or an individual who holds a job in your desired profession. A qualified financial professional can also give you insight into the potential impact of a career move and help you take steps to protect your finances.

Open the newspaper or turn on the TV, and you're bound to see a recurring stock market theme: DOW UP...DOW DOWN! S&P ON A ROLLER COASTER RIDE! So you ask yourself, "What the heck is going on?" Here's the scoop...analysts, commentators, and equity investors are beside themselves with euphoria as the U.S. stock market rises and falls on a weekly basis, and this market is creating a lot of wealth for those who are in the business of "financial news and analysis".

Keep it in Context
Even though the U.S. stock market rose to record levels not long ago, these metrics are not the end-all-be-all measures of our nation's financial status. Let's not forget the other (currently less favorable) economic indicators and their effects on our economy:

• Consumers are saddled with enormous levels of revolving debt
  
• Real wage growth is stagnant
• Personal savings rates are at 70-year lows
• Home-foreclosure rates are accelerating
  
• Oil prices are at record highs
• Our nation is bogged down in a costly, unpopular war
• Health care and college tuition costs are easily out pacing inflation

This all adds up to a perfect storm of reduced consumer spending. In other words, the amount of disposable income the average American has available to spend on products and services is quickly declining beyond expectations...just ask J.C. Penny Co. and Starbucks.

Some might dismiss these consumer statistics as insignificant, particularly since corporate profits remain strong. But let's not forget that consumer spending accounts for two-thirds of our nation's Gross Domestic Product (or GDP). GDP is one of the ways we measure the size of the U.S. economy. So when consumer spending slows, guess what? You got it...the U.S. economy contracts. This contraction is an indicator of negative economic growth, also known as recession.

Now before you go running outside to see if the sky is falling, please note that we are not predicting a massive downturn in U.S. stock market stability. We are, however, suggesting that the national economic picture may not be as rosy as pundits, commentators, and Wall Street experts would have you to believe.

Stay Focused...and Cautious
As investing sage Warren Buffett once said: "Be fearful when others are greedy and greedy when others are fearful." With investors now seeing dollars signs everywhere, market greed is spreading like wildfire. Buffett's wise words urge you to remain prudent and to go forward with your eyes wide open, particularly as the ever-hungry market mavens continue to beat the drums of higher...higher...higher.

Where Does the Market Typically Go After Sustained Highs?
Mark Arbeter, Chief Technical Strategist at Standard & Poor's chimes in on this point:

"If history can serve as a guide...we will likely see sub-par price performance in the first month following the setting of a new high, and then find above-average price appreciation in the three and six months after. In addition, the next market top usually occurred around three years after the setting of a record high."

Once again, do not take Mr. Arbeter's words as the gospel. He may be right...he may be wrong. But nobody--and we mean nobody--knows at what levels our stock market will be one, three, or ten months from now...and if they did, trust us, they wouldn't tell you or anybody else!

So What Do You Do Now?
Carry on as if it's just another day. Continue contributing to your 401k plan. Continue dollar cost averaging shares of an index mutual fund within your Roth IRA. Continue practicing intelligent spending habits.

There is no reason to lose your head and begin taking unnecessary risk when you've already developed a plan to succeed. Be patient, and be smart.

A record-keeping system is a systematic approach to retaining and filing documents in a way that makes them easy to find when needed, even if it's several years later. Record-keeping systems range from simple to elaborate and from basic to comprehensive. The ideal system is designed to fit your personal and family situation and lifestyle.

Good Record Keeping is Important
The most important thing to know about record keeping is that doing it well will save you a lot of time and money during your lifetime. Conversely, poor record keeping is sure to cost you in terms of money, time, and aggravation, perhaps dearly. For instance, assuming that you've been generally honest with the IRS, the only reason to fear a tax audit is that your records are incomplete or in disarray. If so, the IRS could find that you owe more tax than you paid. Insurance and legal claims frequently require supporting documents as well.

Record keeping is also important for estate planning purposes. After you pass away, your family and the executor of your estate will be grateful to find your records complete and in a meaningful order.

Decide What Your Record-Keeping System Will Include
The items you decide to retain in your record-keeping system will depend on several factors, including:

• Your personal and family situation
• The nature of your assets and investments
• Your household's number and type of income sources
• Your tolerance for risk
• The time you'll realistically devote to keeping records systematically

In addition to financial documents, you'll probably want your system to retain other types of important documents, such as insurance policies; health and employment records; property titles; certificates of birth, death, and citizenship; and product and service guarantees. Today, it is also common to videotape personal property for potential use as evidence in an insurance claim.

Create a System that Works Best for You
If throwing all your receipts, bills, and paycheck stubs into the proverbial shoe box until tax time is the best you can manage, then it will have to do. However, devising a systematic approach to retaining and filing your important documents will bring rewards you will appreciate in the future. If you can find little time for record keeping, then a simple system may be the answer. On the other hand, a more complex system that retains and files all potentially necessary documents on a weekly or monthly basis assures that when a need arises, you'll be able to retrieve whatever you need promptly and without fuss. You might view this as pay now or pay later.

Accessibility and Security Should Determine Where You Store Records
It is usually best to store original documents that you must or want to protect from harm in a safety-deposit box, typically rented at your local bank. This provides important protection against fire and theft. Keep a reference copy of the documents in your more readily accessible files and note on them the location of the originals.

Older files that will likely require infrequent access can be stored in any relatively secure place provided that they will not be prone to damage or destruction. Files pertaining to the last 6 to 12 months should be readily accessible.

Caution: Never store your will in a safety-deposit box unless you've left a copy elsewhere or you lease the box jointly. Otherwise, the box may be sealed at the time of your death, leaving your spouse or executor searching for another copy.

Analyzing cash flow is a simple process that helps you avoid the problems of a cash shortage. A cash crunch doesn't necessarily mean you are broke, but it is a situation you should avoid if possible. Cash flow analysis is a common practice at most businesses, whether large or small. In fact, you'll find a cash flow statement in every company's annual report.

Why Bother?
Cash flows represent all of the money coming in and going out within a given time period, often a month, quarter, or year. Subtracting the total outflows from total inflows provides your "net cash flow" for the period.

Tracking Cash Flows Ensures Ongoing Financial Solvency
Tracking cash flow differs from tracking income and expenses. Cash flow analysis looks at when you actually receive or disburse money. Note that income is seldom received at the moment it's earned because employers pay weekly, biweekly, or monthly. Similarly, buying with credit permits paying for goods or services after you receive them, sometimes long after. Surprisingly, it is possible to earn more than you spend and still have a negative cash flow.

Example(s): Janice, a popular family dentist, has a large, successful practice. Her success leads her to expand and modernize her office suite, a costly proposition. But her patients, feeling the impact of a slowing economy, are becoming ever later in their payments. While Janice has earned sufficient income to pay for her office renovation, she is falling short of the cash needed to make her monthly payments.

Compare Cash Inflows and Outflows on a Regular Basis
Cash flow analysis fulfills two purposes. First, it shows whether your money is coming in faster than it's going out (preferable) or vice versa (highly undesirable). Additionally, it shows, at a glance, the inflows and outflows for a given period, thereby enabling you to quickly spot problem and opportunity areas.

What are Cash Inflows?
Cash inflows include all money actually received within the given period. The money can be in the form of cash or checks that you could cash or deposit in an account. The source of the inflow is irrelevant for a cash flow analysis. Sources could include tax refunds, rent received on investment property, dividends, capital gains, gifts, and even prize winnings.

Caution: If you receive loan proceeds as a check made out to you, it is a cash inflow. If the check is made out to someone else from whom you purchased goods or services, it is really their cash inflow, not yours. If you receive a check and endorse it over to someone else, it is technically an inflow plus a matching outflow, and it therefore has no effect at all on total cash flow.

What are Cash Outflows?
Cash outflows include all money disbursed within the period, whether by cash, check, or electronic funds transfer. If you withdraw money from a bank account, it is not technically a cash outflow until you spend it, but for practical purposes, it is often easier to consider it an outflow when withdrawn. When you write a check that will be paid from money in your account, it is a cash outflow.

Caution: Using credit to get cash (otherwise known as a cash advance) does not cause a cash outflow until you actually repay the lender. Many banks offer overdraft protection and other forms of credit closely linked to checking accounts. A check that draws on the bank's money instead of yours is really credit, so it is not a cash outflow until you repay it.

What is Net Cash Flow?
Combining total cash inflow with total outflow for a selected period gives net cash flow. When outflows exceed inflows, net cash flow is negative. Conversely, a positive cash flow means that a cash surplus is accumulating. Typically, net cash flow is positive during your earning years and negative during retirement, when your nest egg provides your support. Cash flow alone tells just part of the story. Credit makes it easy to overspend, piling up debt even while cash flow remains positive (a common scenario that soon leads to problems).

Cash Flow Analysis is Just One Part of Your Complete Financial Picture
Cash flow analysis is one of several useful tools in budgeting. Together with an income/expense statement and a net worth statement, it can give a clear picture of your present financial situation. Reviewing these tools together usually reveals where changes can or must be made to achieve your short- and long-term budget objectives.

Reviewing Cash Flows Over Time Reveals Trends, Both Good and Bad
Calculating net cash flow for the most recent period tells you how you're currently faring. Comparing cash flow analyses for a sequence of equal periods (e.g., the last 6 or 12 months) will reveal trends. Not only does this process show whether a trend is positive or negative, but how rapidly the situation is changing.

Tip: Save your cash flow analyses for future comparisons.

Identify Upcoming Problems in Time to Avoid Them
Projecting what your cash flow will likely be in the upcoming month, quarter, or year is an important aspect of budgeting. Once you've completed a cash flow analysis for the most recent period, use it as the basis for projecting the next. Estimate what the inflows and outflows will be, then combine them to get a net cash flow forecast. You will then learn whether your cash flow is likely to deteriorate or improve. You can then adjust some of the controllable items right on the worksheet to see how they alter the net cash flow forecast.

Tip: Computer software for spreadsheets and budgeting enables the making of changes with instant recalculation of results. Moreover, such software permits you to print a given page before making further changes. Still, a pencil, eraser, and calculator are nearly as fast if your changes aren't too numerous.

You want to retire comfortably when the time comes. You also want to help your child go to college. So how do you juggle the two? The truth is, saving for your retirement and your child's education at the same time can be a challenge. But take heart--you may be able to reach both goals if you make some smart choices now.

Know What Your Financial Needs Are
The first step is to determine what your financial needs are for each goal. Answering the following questions can help you get started:

For retirement:

• How many years until you retire?
• Does your company offer an employer-sponsored retirement plan or a pension plan? Do you participate? If so, what's your balance? Can you estimate what your balance will be when you retire?
• How much do you expect to receive in Social Security benefits? (You can estimate this amount by using your Personal Earnings and Benefit Statement, now mailed every year by the Social Security Administration.)
• What standard of living do you hope to have in retirement? Do you want to travel extensively and live the good life, or will you be happy to stay in one place and live more simply?
• Do you or your spouse expect to work part-time in retirement?

For college:

• How many years until your child starts college?
• Will your child attend a public or private college? What's the expected cost?
• Do you have more than one child whom you'll be saving for?
• Does your child have any special academic, athletic, or artistic skills that could lead to a scholarship?
• Do you expect your child to qualify for financial aid?

Many on-line calculators are available to help you predict your retirement income needs and your child's college funding needs.

Figure Out How Much You Can Afford to Put Aside Each Month
Once you know what your financial needs are, the next step is to determine what you can afford to put aside each month. To do so, you'll need to prepare a detailed family budget that lists all of your income and expenses. Keep in mind, though, that the amount you can afford may change from time to time as your circumstances change. Once you've come up with a dollar amount, you'll need to decide how to divvy up your funds.

If Possible, Save for Your Retirement and Your Child's College at the Same Time
Ideally, you'll want to try to pursue both goals at the same time. The more money you can squirrel away for college bills now, the less money you or your child will need to borrow later. Even if you can allocate only a small amount to your child's college fund, say $50 or $100 a month, you might be surprised at how much you can accumulate over many years. For example, if you saved $100 every month and earned 8 percent, you'd have $18,415 in your child's college fund after 10 years. (This example is for illustrative purposes only and does not represent a specific investment.)

If you're unsure how to allocate your funds between retirement and college, a professional financial planner may be able to help you. This person can also help you select the best investments for each goal. Remember, just because you're pursuing both goals at the same time doesn't necessarily mean that the same investments will be appropriate. Each goal should be treated independently.

If You Can't Save for Both, then Your Retirement Takes Priority
As selfish as this may sound...If the numbers say that you can't afford to educate your child and also retire with the lifestyle you expected, then you should ditch the education planning and focus on your retirement. Wow, that's harsh, you say. Well...not exactly. And here's why. The bottom line, is somebody is going to have to make some sacrifices.

Ask yourself this question:

If I do not pay for my child's education, then how will he/she get the money to pay for tuition, books, room, and board?

The answers, of course, are limitless: loans, grants, scholarships, work study, part-time job, resident's assistant, etc. There are billions of dollars floating around out there earmarked specifically for our nation's college-bound youth.

Now, ask yourself another question:

If I do not pay for my own retirement expenses, then how will I get the money to pay for housing, food, health care, leisure activities, travel, etc.?

The answer, of course, is nobody. Sure, you may qualify for a small Social Security payment once a month (and it will be even smaller if you retire before your full benefits age) but even Social Security doesn't kick in until you're 62 years old. And you may also think Medicare/Medicaid are on your side for health care expenses. Think again. You can't tap those resources until you reach full retirement age. (Note: If you were born after 1960, then your retirement age is 67 years old.)

Though college is certainly an important goal, you must focus on your retirement if you have limited funds. With generous corporate pensions mostly a thing of the past, the retirement burden is now on your back. And if you wait until your child is in college to start saving for a looming retirement, you'll miss out on years (possibly decades) of tax-deferred growth and compounding of your money. Remember, your child can always attend college by obtaining outside money, but there's no such thing as a retirement loan!

If you are still not convinced, and utterly unsatisfied with our cold water to the face, then here are some other moves you may want to consider:

• Defer retirement: The longer you work, the more money you'll earn and the later you'll need to dip into your retirement savings.
• Work part-time during retirement.
• Reduce your standard of living now or in retirement: You might be able to adjust your spending habits now in order to have money later. Or, you may want to consider cutting back in retirement.
• Increase your earnings now: You might consider increasing your hours at your current job, finding another job with better pay, taking a second job, or having a previously stay-at-home spouse return to the workforce.
• Invest more aggressively: If you have several years until retirement or college, you might be able to earn more money by investing more aggressively (but remember that aggressive investments mean a greater risk of loss).
• Expect your child to contribute more money to college: Despite your best efforts, your child may need to take out student loans or work part-time to earn money for college.
• Send your child to a less expensive school: You may have dreamed your child would follow in your footsteps and attend an Ivy League school. However, unless your child is awarded a scholarship, you may need to lower your expectations. Don't feel guilty--a lesser-known liberal arts college or a state university may provide your child with a similar quality education at a far lower cost.
• Think of other creative ways to reduce education costs: Your child could attend a local college and live at home to save on room and board, enroll in an accelerated program to graduate in three years instead for four, take advantage of a cooperative education where paid internships alternate with course work, or defer college for a year or two and work to earn money for college.

Using a Retirement Account to Save for a Child's College Education
Although it may be appropriate in a few select situations, we typically discourage paying for college with funds from a retirement account. We especially discourage it if using retirement funds for a child's college education if doing so will leave you with no funds in your retirement years. However, you can certainly tap your retirement accounts to help pay the college bills if you need to.

With the IRA, you can withdraw money penalty free for college expenses, even if you're under age 59½ (though there may be income tax consequences for the money you withdraw). But with an employer-sponsored retirement plan like a 401(k) or 403(b), you'll pay a 10 percent penalty on any withdrawals made before you reach age 59½, even if the money is used for college expenses. There will be income tax consequences, as well.

For the most part, the window of opportunity for 2007 tax year planning closes on December 31. Here are a few points to consider as you contemplate any year-end tax moves and then look forward to the 2008 tax year.

New Zero Percent Tax Rate
Currently, the maximum federal income tax rate for most long-term capital gains and qualifying dividend income is 15%. Individuals in the lowest two tax brackets receive the benefit of an even lower 5% maximum rate. Beginning January 1, 2008, however (and continuing through 2010), the maximum rate drops all the way to zero for individuals in the lowest two tax brackets.

This presents an important planning opportunity. Make year-end gifts (up to $12,000 per individual gift tax free) of appreciated assets to family members currently in the lowest two tax brackets, who would then be able to sell the assets after January 1, 2008 without any resulting federal income tax. There's one big catch, though: the new "kiddie tax" rules.

New "Kiddie Tax" Rules
Generally, the kiddie tax rules apply when a child has unearned annual income (e.g., interest, investment earnings, taxable gain resulting from the sale of an asset) exceeding $1,700 (in 2007).

In 2007, the kiddie tax rules apply to children under the age of 18. Beginning in 2008, however, the kiddie tax rules apply to children who are under age 19, and to full-time students under age 24. (There's an exception for any child who earns more than one-half of his or her own support.)

So, if you want to take advantage of the zero tax bracket in 2008 by transferring appreciated assets to a low-tax-bracket family member, make sure the kiddie tax rules won't apply. Otherwise, the resulting income--at least the portion that exceeds $1,700--will be taxed at your (presumably higher) tax rate, eliminating most or all of any potential tax savings. For the remainder of 2007, though, the old rules apply--a child who will reach age 18 by year end is able to sell appreciated assets and potentially pay tax on any resulting income at the (still low) 5% rate.

AMT Uncertainty
Legislation signed into law in early 2006 brought the most recent in a long series of temporary "fixes" for the alternative minimum tax (AMT), which continues to reach further into the ranks of middle-income families. This temporary fix, in the form of increased AMT exemption amounts, expired at the end of 2006. If Congress doesn't act, the number of taxpayers subject to AMT is projected to increase from 4.24 million in 2006 to 23.19 million in 2007 (Source: Joint Committee on Taxation, March 5, 2007). Some action regarding the AMT is likely, but the form it will take is uncertain, making it important to stay up to date on any new developments.

Other Important Considerations
Unless there is additional legislative action, 2007 is the last year that a taxpayer age 70½ or older is able to make charitable contributions of up to $100,000 directly from an IRA to a qualified charity.

• 2007 is also the last year for other deductions, including the option to deduct state and local general sales tax (instead of state and local income tax) and the above-the-line deduction for qualified higher education expenses.
• For small businesses, legislation this year increased the Section 179 expensing limits.

Talk to a Professional
A qualified financial professional can explain how these issues, and others, might affect your 2007 tax situation.

Marriage is an exciting life event, but it brings many challenges. One such challenge that you and your spouse will have to face is if (and how) to merge your finances. Planning carefully and communicating clearly are important, because the financial decisions that you make will have a lasting impact on your future.

Discuss Your Financial Goals
The first step in mapping out your financial future together is to discuss your financial goals. Start by making a list of your short-term goals (e.g., paying off wedding debt, new car, vacation) and long-term goals (e.g., having children, your children's college education, retirement). Then, determine which goals are most important. Once you've identified the goals that are a priority, you can focus your energy on achieving them.

Prepare a Budget
Yes, the "B" word. You should prepare a budget that lists all of your income and expenses over a certain time period (e.g., monthly, annually). You can designate one spouse to be in charge of managing the budget, but both of you should take turns keeping records and paying the bills. And since the two of you will be involved in the marriage's finances, you should develop a record-keeping system that both of you understand. Also, be sure to keep your records in a joint filing system so that both of you can easily locate important documents.

Begin by listing your sources of income (e.g., salaries and wages, interest, dividends). Then, list your expenses (it may be helpful to review several months of entries in your checkbook and credit card bills). Add them up and compare the two totals. Hopefully, you get a positive number, meaning that you spend less than you earn. If not, review your expenses and see where you can cut down on your spending.

Bank Accounts--Separate or Joint?
At some point, you and your spouse will have to decide whether to combine your bank accounts or keep them separate. Maintaining a joint account does have advantages, such as easier record keeping and lower maintenance fees. However, it's sometimes more difficult to keep track of how much money is in a joint account when two individuals have access to it. Of course, you could avoid this problem by making sure that you tell each other every time you write a check or withdraw funds from the account. Or, you could always decide to maintain separate accounts.

Credit Cards
If you're thinking about adding your name to your spouse's credit card accounts, think again. When you and your spouse have joint credit, both of you will become responsible for 100 percent of the credit card debt. In addition, if one of you has poor credit, it will negatively impact the credit rating of the other.

If you or your spouse does not qualify for a card because of poor credit, and you are willing to give your spouse account privileges anyway, you can make your spouse an authorized user of your credit card. An authorized user is not a joint cardholder and is therefore not liable for any amounts charged to the account. Also, the account activity won't show up on the authorized user's credit record. But remember, you remain responsible for the account.

Insurance
If you and your spouse have separate health insurance coverage, you'll want to do a cost/benefit analysis of each plan to see if you should continue to keep your health coverage separate. For example, if your spouse's health plan has a higher deductible and/or co-payments or fewer benefits than those offered by your plan, he or she may want to join your health plan instead. You'll also want to compare the rate for one family plan against the cost of two single plans.

It's a good idea to examine your auto insurance coverage, too. If you and your spouse own separate cars, you may have different auto insurance carriers. Consider pooling your auto insurance policies with one company; many insurance companies will give you a discount if you insure more than one car with them. If one of you has a poor driving record, however, make sure that changing companies won't mean paying a higher premium.

Employer-Sponsored Retirement Plans
If both you and your spouse participate in an employer-sponsored retirement plan, you should be aware of each plan's characteristics. Review each plan together carefully and determine which plan provides the best benefits. If you can afford it, you should each participate to the maximum in your own plan. If your current cash flow is limited, you can make one plan the focus of your retirement strategy. Here are some helpful tips:

• If both plans match contributions, determine which plan offers the best match and take full advantage of it
• Compare the vesting schedules for the employer's matching contributions
• Compare the investment options offered by each plan--the more options you have, the more likely you are to find an investment mix that suits your needs
• Find out whether the plans offer loans--if you plan to use any of your contributions for certain expenses (e.g., your children's college education, a down payment on a house), you may want to participate in the plan that has a loan provision

Before You Say "I Do"
There are also many important financial steps that should be taken before the wedding day arrives. You and your future spouse need to openly discuss any outstanding debt obligations (credit cards, student loans, delinquencies, etc.). There are also some legal considerations you need to address such as pre-nuptial agreements, wills, and trusts.

Your credit reports contain information about past and present credit transactions. They are used primarily by potential lenders to evaluate your creditworthiness. So if you're about to apply for credit, especially for big items like a mortgage or car loan, you should review all three of your credit reports; they each possibly contain different accounts and personal information.

See What They See...For Free
You are entitled to a free credit report under the following circumstances:

• A company has taken adverse action against you, such as denying you credit, insurance, or employment (you must request a copy within 60 days of the adverse action)
• You're unemployed and plan to look for a job within the next 60 days
• You're on public government assistance
  
• Your report is inaccurate because of fraud, including identity theft

The Annual Freebie
In addition to the above scenarios, you are entitled to one free credit report every 12 months from each of the three credit bureaus.

You can obtain your free annual reports online at www.annualcreditreport.com, by calling 877-322-8228, or by completing an Annual Report Request Form and mailing it to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.

Alternatively, you can contact each of the three credit bureaus:

• Experian National Consumer Assistance Center, www.experian.com, P.O. Box 2104, Allen, TX 75013-2104, (888) 397-3742
• Trans Union LLC, Consumer Disclosure Center, www.transunion.com, 1000, Chester, PA 19022, (800) 916-8800
• Equifax, Inc., www.equifax.com, P.O. Box 740241, Atlanta, GA 30374, (800) 685-1111

If you make your request online, you should get access to your report immediately. If you request your report by phone or mail, you should receive it within 15 days.

Make the Freebies Work
Keep in mind that you do not have to get all three annual free reports at the same time. For example, we generally recommend that our clients order one of their free reports every 4 months:

• January - Experian
• May - Equifax
• September - Transunion

This little trick ensures our clients maintain free ongoing credit reporting throughout the entire year.

What's It All About?
Your credit report usually starts off with your personal information: name, address, Social Security number, telephone number, employer, past address and past employer, and (if applicable) your spouse's name. Check this information for accuracy; if any of it is wrong, correct it with the credit bureau that issued the report.

The bulk of the information in your credit report is account information. For each creditor, you'll find the lender's name, account number, and type of account; the opening date, high balance, present balance, loan terms, and your payment history; and the current status of the account. You'll also see status indicators that provide information about your payment performance over the past 12 to 24 months. They'll show whether the account is or has been past due, and if past due, they'll show how far (e.g., 30 days, 60 days). They'll also indicate charge-offs or repossessions. Because credit bureaus collect information from courthouse and registry records, you may find notations of bankruptcies, tax liens, judgments, or even criminal proceedings in your file.

At the end of your credit report, you'll find notations on who has requested your information in the past 24 months. When you apply for credit, the lender requests your credit report--that will show up as an inquiry. Other inquiries indicate that your name has been included in a creditor's "pre-screen" program. If so, you'll probably get a credit card offer in the mail.

You may be surprised at how many accounts show up on your report. If you find inactive accounts (e.g., a retailer you no longer do business with), you should consider closing the account and asking for a letter from the creditor confirming that the account was closed at the customer's request.

Basing the Future on the Past
What all this information means in terms of your creditworthiness depends on the lender's criteria. Generally speaking, a lender trusts you to make timely monthly payments against your debts in the future if you have always done so in the past. A history of late payments or bad debts will hurt you. Based on your track record, a new lender is likely to turn you down for credit or extend it to you at a higher interest rate if your credit report indicates that you are a poor risk.

Too many inquiries on your credit report in a short time can also make lenders suspicious. Loan officers may assume that you're being turned down repeatedly for credit or that you're up to something--going on a shopping spree, financing a bad habit, or borrowing to pay off other debts. Either way, the lenders may not want to take a chance on you.

Your credit report may also indicate that you have good credit, but not enough of it. For instance, if you're applying for a car loan, the lender may be reviewing your credit report to determine if you're capable of handling monthly payments over a period of years. The lender sees that you've always paid your charge cards on time, but your total balances due and monthly payments have been small. Because the lender can't predict from this information whether you'll be able to handle a regular car payment, your loan is approved only on the condition that you supply an acceptable cosigner.

Correcting Errors on Your Credit Report
Under federal and some state laws, you have a right to dispute incorrect or misleading information on your credit report. Typically, you'll receive with your report either a form to complete or a telephone number to call about the information that you wish to dispute. Once the credit bureau receives your request, it generally has 30 days to complete a reinvestigation by checking any item you dispute with the party that submitted it. One of four things should then happen:

• The credit bureau investigates, the party submitting the information agrees it's incorrect, and the information is corrected
• The credit bureau investigates, the party submitting the information maintains it's correct, and your credit report goes unchanged
• The credit bureau doesn't investigate, and so the disputed information must be removed from your report
• The credit bureau investigates, but the party submitting the information doesn't respond, and so the disputed information must be removed from your report

You should be provided with a report on the reinvestigation within five days of its conclusion. If the reinvestigation resulted in a change to your credit report, you should also get an updated copy.

You have the right to add to your credit report a statement of 100 words or less that explains your side of the story with respect to any disputed but unchanged information. A summary of your statement will go out with every copy of your credit report in the future, and you can have the statement sent to anyone who has gotten your credit report in the past six months. Unfortunately, though, this may not help you much--creditors often ignore or dismiss these statements.