We know. You're sick and tired of the 9-to-5 grind. You want to escape the commute...escape the water cooler...escape the status meetings. There's got to be a better way right? There's got to be a way for you to build your own business at home.

As we've described before, self employment has it's good, bad, and ugly sides. Similarly, working from home also has its pros and cons. Here's the skinny on using your residential dwelling for formal business activities.

Advantages of Working at Home

• No commute
• You save money
• Tax benefits
• Family benefits
• Launching pad for your business

Imagine rolling out of bed on a cold winter day, and with your hair still disheveled, sliding on your slippers. You get a cup of steaming hot chocolate loaded with marshmallows and stroll into your office, which is located next to your bedroom. Sounds enticing--doesn't it? Well, for many people this is work. And this is one of its advantages.

By working at home you save on commuting expenses and more. Since you already pay the mortgage or rent, you'll have no additional charges for office space. You may even be able to deduct the home expenses associated with the section of your house used as an office. Additionally, you get to spend more time at home with family. And last, but not least, working at home can be a good way to measure the viability of your new business.

Disadvantages of Working at Home

• Home distractions
• Work distractions
• Motivational problems
• Lack of interaction with others
  

If you work at home, you can be easily distracted. If people know you're home they will call you. And don't think that your two-year-old will be able to read the "do not disturb" sign on your door, let alone know what those words mean. If that's not enough, think of how seductive your leather sofa will look in the morning, especially when your favorite talk show or soap is airing. Recall those days when you couldn't motivate yourself to jump in the car and drive to work. Imagine how much harder it will be if your office is next to your bedroom. On the other hand, you may be the type who always thinks about work...particularly now that you're in a business you love. In that case, you might constantly venture into the office when you're bored, or when you want to develop an idea that's popped into your head.

The Lonely Life
A major problem may arise with outgoing, gregarious types. If you like mixing with others, working at home can be awfully lonely. There will also be times when the walls of your home remind you of work. These factors ultimately depend upon your preferences and personality.

Favorable Tax Treatment
If you work from your home, you may receive favorable tax treatment--if, of course, you follow the rules. The portion of your home used for business must be used "regularly and exclusively" for business purposes. Your home office must also be the principal place that you conduct your trade or business, or a place where you regularly meet with clients, customers, or patients. If you meet all of the requirements, you can deduct that portion of your home expenses that would be deductible if incurred in a trade or business and that is allocated to the section of your home dedicated to your business.

For example, if your home covers 4,000 square feet, and your home office occupies 1,000 square feet, you may be able to deduct 25 percent of your home expenses (1,000 / 4,000 = 0.25 or 25 percent).

Caution: The tax implications of a home office are complicated. Also, a home office may affect the tax treatment of the sale of your home.

Check Local Zoning Regulations
Some cities have zoning regulations that prohibit or limit home businesses. Check to see if your locality does.

Don't Quit Your Job...Yet
If you're working now, don't quit too soon. Wait to see if your home business can support you.

Be Professional
Have a fax machine, a separate phone line, and quality bond paper. Remember, if you're not a big business, you can still look like one.

Keep Great Records
You can probably take a deduction for the portion of your home expense dedicated to your business. However, you must be sure to keep thorough records of all your expenses and transactions. Make sure you don't commingle funds. Use company checks to pay for business expenses, for example.

Think About Benefits
If you're not covered under someone else's plan, you'll need health insurance. You can call your local chamber of commerce for information on affordable coverage. In addition to health insurance, you'll need to consider retirement plans: simplified employee pension plans (SEPs),individual retirement accounts (IRAs), or Keogh plans.

Write a Business Plan
Next, you should begin preparation for your business plan. The business plan is the blueprint of your business. This blueprint will guide the future of the business as well as serve as a means to measure its success.

Grow Your Business
To do this, you'll need to actively seek out potential customers and introduce them to your business. Get to know who buys your product or uses your service. What do they have in common? How can you find others with similar needs? Test out your marketing ideas on friends and family, and don't be afraid to leave the house and hit the pavement. Yes, you are the salesperson as well as the owner, manager, and marketer. Finally, focus on your strengths. Do what you do best and hire others to do the rest.


Additional Information
Our favorite small-biz resources include:

• Entrepreneur.com
• Inc.com
• Nolo.com
• StartupNation.com

Last year, New York City school children went door to door collecting pennies. By asking for only 1% of a dollar, they were able to raise $1 million for charity.

Sometimes small actions yield big results. Take a look at three examples of how adjusting your finances by just 1% can make a real difference over time.

1. Boost Your Retirement Contribution
Making contributions to an employer-sponsored retirement account via payroll deductions can be a convenient way to save for retirement. But because these contributions come out of your salary automatically, you can easily lose track of how much you're contributing, and end up with less than you should have--or could have--for retirement.

If you're not already saving the maximum amount allowed, why not commit to steadily increasing your contributions by 1% (or more) each year? For example, if you're earning $33,000 per year, and you're currently contributing 10% of your salary to your retirement account at work, you'll have approximately $394,000 by the time you retire in 30 years, assuming an average return of 8%. But if you increase your contribution by 1% (to 11% of your salary), your retirement account could be worth approximately $433,000--10% more--by the time you retire.*

2. Review Investment Expenses
When you're focused on returns, it's easy to overlook the costs associated with investing. However, it's important to periodically review investment expenses and their impact on returns. These vary widely, but even a 1% difference can be significant over time. For example, the following table shows what a $200,000 investment might be worth in the future, assuming an annual return of 8% before expenses are taken into account. (Note that taxes and inflation are not considered.)*

Of course, there are other things to be concerned about when investing. For example, you may want to consider potential ways to generate higher returns through your asset allocation and investment management choices, taking into account your investment objectives, risk tolerance, and time horizon.

3. Refinance Higher-Cost Loans
Concerns about the economy have led to rate cuts by the Federal Reserve. With some interest rates falling to their lowest levels in two years, now might be a good time to think about refinancing a higher-cost loan or mortgage. As the following examples show, interest rates don't need to fall far for you to save money. Here's what you could potentially save by reducing your interest rate by just 1%:

• Refinancing a 48-month, $25,000 car loan to reduce the rate from 6.99% to 5.99% could save you approximately $553 in interest over the life of the loan
• Refinancing a 25-year, $400,000 mortgage to reduce the rate from 6.75% to 5.75% could save you approximately $74,166 in interest over the life of the loan

*This is a hypothetical example, and does not reflect the performance of any specific investment.

Today's teens have more money to spend and more opportunities to spend it, and if they're not careful, they can easily get into financial trouble. Before it happens to your child, help him or her learn a few financial lessons.

Last month, we discussed surefire ways for parents to introduce younger children to the world of personal finance. But teenagers can be an entirely different challenge. Here are a few of our best tips for you parents who need some help breaking the ice...

Earning Wages
If you think your teen is ready, encourage him or her to get a part-time job. Here are some things to discuss once your teen begins working:

• Agree on what your child's pay should be used for
• Show your teen how taxes reduce take-home pay
• Open a checking account and a savings account, and encourage him or her to save a portion of every paycheck before spending any of it

Keeping a Balanced Budget
To develop a balanced budget, have your teen list all his or her income. Next, list common expenses, such as food and gas (don't include things you will pay for). Finally, subtract the expenses from the income. If the results show that your teen will be in the red, you'll need to come up with a plan to address the shortfall. To help your teen learn about budgeting:

• Devise a system for keeping track of what's spent
• Suggest thinking through spending decisions rather than buying on impulse
• Categorize expenses as needs (unavoidable) and wants (that can be reduced)
• Suggest ways to increase income (like doing extra chores) and/or reduce expenses

The Future is Now
An older teen should be ready to focus on saving for future goals, both larger (e.g., a new computer or a car) longer-term (e.g., college, an apartment). Here are some ways to encourage saving:

• Have your teen put the goals in writing to make them more concrete
• Encourage your child to save for what he or she wants, not what other kids have
• Praise your child for showing responsibility in meeting a goal

To introduce your teen to investing, open an investment account for him or her. (If your teen's a minor, this must be a custodial account.) Look for an account that can be opened with a low initial contribution at an institution that supplies educational materials about basic investment terms and concepts.

Should You Give the Kid Credit?
If your teen is responsible, you might consider getting him or her a credit card to begin establishing a positive credit history. Most major credit card companies require an adult to cosign a credit card agreement before they will issue a card to someone under the age of 18. Ask the credit card company for a low credit limit (e.g., $300) or a secured card. This can help your child learn to manage credit without getting into serious debt. Also:

• Set limits with your teen on the card's use
• Make sure your child understands the grace period, fee structure, and how interest accrues on the unpaid balance
• Agree on how the bill will be paid, and what will happen if your child can't pay the bill
• Make sure your child understands how long it will take to pay off a credit card balance if he or she only makes minimum payments

On January 28, 2008, President Bush signed into law the National Defense Authorization Act for fiscal year 2008. Among other things, the Act amends the Family and Medical Leave Act of 1993 (FMLA) to permit a "spouse, son, daughter, parent, or next of kin to take up to 26 weeks of leave to care for a member of the Armed Forces (including a member of the National Guard or Reserves) who is undergoing medical treatment, recuperation, or therapy, is otherwise in outpatient status, or is otherwise on the temporary disability retired list, for a serious injury or illness."

Specifically, the law permits:

1. Up to 26 weeks of leave in a one-time 12-month period to care for a service member with a "serious illness" who is injured in the line of active duty, effective immediately
   
   
2. Up to 12 weeks of leave in any 12-month period for a "qualifying exigency" related to a service member's call to active duty. What constitutes a "qualifying exigency" will be defined shortly by the Department of Labor.

We Are the Military's Preferred Provider for Financial Planning Services
During the past four years, the Garrett Planning Network has enjoyed a unique partnership with the Military Officers Association of America (MOAA).

“There are many different financial companies in the business of providing financial advice including brokerages, insurance companies, wealth management firms and fee-only financial planners,” said a 2004 MOAA Member Services Update that went out to MOAA’s 130,000 members. “Each of these approaches has advantages and disadvantages. But, after considerable research we feel that the fee-only model is best suited for MOAA, and that the Garrett Planning Network is the organization best suited to provide this service.”

Sheryl Garrett, founder of the Garrett Planning Network added, “The alliance gives MOAA a place to direct people who need high-quality, reasonably-priced advice in their best interests. We have provided intensive training so that the participating Garrett planners may more fully understand the unique challenges faced by active duty, National Guard/Reserve and retired officers and their families."

Serving Those Who Serve Us All
As a proud member Garrett Planning Network, Lightship Mutual is pleased and honored to work with the families and communities who support the mission and values of the MOAA. As such, we proudly offer a 20% discount to all MOAA members. As with all of our clients, we welcome members' questions and financial concerns regardless of yearly income or net worth.

Life's major decisions have a lasting impact, and important financial concerns are often overlooked during this annual holiday of love and consumption. But during this Valentine's Day, spend a moment thinking about all of your loved ones who are:

• Graduating from college
• Starting a career
• Getting married
• Having a new baby
• Changing jobs
• Nearing retirement

Gift Differently
Offer your friends and family something more meaningful. Give them peace of mind and the opportunity to secure a positive financial future. For the recipient, there are no products to buy and no accounts to set up; just the time and expertise of a qualified financial advisor to help steer them onto the correct financial course.

A certificate for one or two hours of time is ideal, and the session can either be tightly focused or a less formal "rapid fire" style Q&A session covering multiple topics.
Our most common concerns with gift recipients often include:

• Debt and credit management and repair
• Allocating retirement plan contributions among investment choices
• Estimating college education expenses, and how to fund them
• Developing a spending and savings plan
• Obtaining a second opinion on an investment portfolio
• Making a pension lump sum decision
• Deciding how much and what type of insurance to buy

Contact us to learn more and to obtain gift certificates for your loved ones today.

Conventional wisdom says credit card holders who repay their debts on time will receive the lowest interest rates and other favorable perks from banks and credit card companies. However, according to a recent BusinessWeek article, credit card issuers are surprisingly (or not surprisingly) gouging responsible consumers as well:

"[Bank of America] sent letters notifying some responsible cardholders that it would more than double their rates to as high as 28%, without giving an explanation for the increase...Fine print at the end of the letter -- headed "Important Amendment to Your Credit Card Agreement" -- advised calling an 800-number for the reason, but consumers who called say they were unable to get a clear answer."

Sneaky Secrets
Historically, creditors raised interest rates in response to a late payment or over-limit fee, but the disturbing aspect of the BusinessWeek story is how these customers are apparently responsible, on-time payers.

On the other hand, as financial advisors, we are privy to inside information, and we're familiar with a long-standing dirty little secret of the credit card industry: Most credit card issuers have the right to raise the interest rate to any amount on any customer for any reason as long as they give the customer 15 days' notice. This "notice" can be fine print at the bottom of your monthly statement, a postcard in the middle of the month, or a letter disguised in the familiar plain envelope.

Mortgage Losses Equal a Credit Card Boon
As banks take a major hit from home foreclosures, they plan to recover a significant amount of their financial losses by collecting more fees and interest from credit card holders. Kathy Chu of USA Today wrote an excellent article about the sneaky tactics employed by our nation's largest banks:

"The [charges aren't] directly linked to delinquencies on mortgages and other consumer loans. But as banks' losses mount, they're jacking up fees and rates and tightening rules on all sorts of consumer loans — from credit cards to auto loans — to cushion their losses.

By raising rates and fees — but not boosting them so high that they push borrowers into default — lenders are seeking a delicate financial balance...They can't squeeze too hard that they're going to kill their client. But they have to squeeze more revenue out of their current portfolios."

How to Navigate the Plastic Jungle
So where do you go? What do you do?

• Understand the terms of your credit card. Call your bank. Ask them about fees, interest rates, and any other charges.
• Keep a close eye on your monthly statements. If any charges or fees look suspicious, call your bank immediately.
• Pay attention. Your credit card company is betting that you won't notice any changes to your account.
  
• Continue reading financial websites. Talk to friends and family. Create a personal network that will allow you to discuss all things personal finance.

So you're going to have or adopt a baby. Congratulations! Parenthood may be one of the most rewarding experiences you'll ever have. As you prepare for life with your baby, here are a few things you should think about.

1. Reassess Your Budget
You'll have to buy a lot of things before (or soon after) your baby arrives, and keeping track of your spending can be tough. A new crib, stroller, car seat, and other items could cost you well over $1,000. But if you do your homework, you can save money without sacrificing quality and safety. Discount stores or Internet retailers may offer some items at lower prices than you'll find elsewhere. If you don't mind used items, poke around for bargains at yard sales, flea markets, and Craigslist.com. Finally, you'll probably get hand-me-downs and shower gifts from family and friends, so some items will be free.

Buying all of the gear you need is pretty much a one-shot deal, but you'll also have many ongoing expenses that will affect your monthly budget. These may include baby formula and food, diapers, clothing, child care (day care and/or baby-sitters), medical costs not covered by insurance (such as co-payments for doctor's visits), and increased housing costs (if you move to accommodate your larger family, for example). Redo your budget to figure out how much your total monthly expenses will increase after the birth of your baby. If you've never created a budget before, now is the time to start. Chances are, you'll be spending at least an extra few hundred dollars a month. If it looks like the added expenses will strain your budget, you'll want to think about ways to cut back on your expenses.

2. Decide if Someone Should Stay at Home
Will it make sense for both of you to work outside the home, or should one person stay home? That's a question only you and your partner can answer. Maybe both of you want to work because you enjoy your jobs. Or maybe you have no choice if the only way you can get by financially is for both of you to work. But don't be too hasty--the financial benefits of two incomes may not be as great as you think. Remember, you may have to pay for expensive day care if both of you work. You'll also pay more in taxes because your household income will be higher. Finally, the working partner will have commuting and other work-related expenses. Run the numbers to see how much of a financial benefit you really get if both of you work. Then, weigh that benefit against the peace of mind you would get from having one partner stay home with the baby. A compromise might be for one of you to work only part-time.

3. Review Your Insurance Needs
You'll incur high medical expenses during the pregnancy and delivery, so check the maternity coverage that your health insurance offers. And, of course, you'll have another person to insure after the birth. Good medical coverage for your baby is critical, because trips to the pediatrician, prescriptions, and other health-care costs can really add up over time. Fortunately, adding your baby to your employer-sponsored health plan or your own private plan is usually not a problem. Just ask your employer or insurer what you need to do (and when, usually within 30 days of birth or adoption) to make sure your baby will be covered from the moment of birth. An employer-sponsored plan (if available) is often the best way to insure your baby, because these plans typically provide good coverage at a lower cost. But expect additional premiums and out-of-pocket costs (such as co-payments) after adding your baby to any health plan.

It's also time to think about life insurance. Though it's unlikely that you'll die prematurely, you should be prepared anyway. Life insurance can protect your family's financial security if something unexpected happens to you. Your beneficiary can use the death benefit to pay off debts (e.g., a mortgage, car loan, credit cards), support your child, and meet other expenses. Some of the funds could also be set aside for your child's future education. If you don't have any life insurance, now may be a good time to get some. The cost of an individual policy typically depends on your age, your health, whether you smoke, and other factors. Even if you already have life insurance (through your employer, for example), you should consider buying more now that you have a baby to care for. A qualified financial professional can help you figure out how much coverage you need.

4. Update Your Estate Plan
With a new baby to think about, you and your partner should update your trusts and wills (or prepare wills, if you haven't already) with the help of an attorney. You'll need to address what will happen if an unexpected tragedy strikes. Who would be the best person to raise your child if you and your partner died at the same time? If the person you choose accepts this responsibility, you'll need to designate him or her in your wills as your minor child's legal guardian. You should also name a contingent guardian, in case the primary guardian dies. Guardianship typically involves managing money and other assets that you leave your minor child. You may also want to ask your attorney about setting up a trust for your child and naming trustees separate from the suggested guardians.

While working with your attorney, you and your partner should also complete a health-care proxy and durable power of attorney. These documents allow you to designate someone to act on your behalf for medical and financial decisions if you should become incapacitated.

5. Start Saving for Your Little One's Education
The price of a college education is high and keeps getting higher. By the time your baby is college-bound, the annual cost of a good private college could be almost triple what it is today, including tuition, room and board, books, and so on. How will you afford this? Your child may receive financial aid (e.g., grants, scholarships, and loans), but you need to plan in case aid is unavailable or insufficient. Set up a college fund to save for your child's education--you can arrange for funds to be deducted from your paycheck and invested in the account(s) that you choose. You can also suggest that family members who want to give gifts could contribute directly to this account. Start as soon as possible (it's never too early), and save as much as your budget permits. Many different savings vehicles are available for this purpose, some of which have tax advantages. Talk to a financial professional about which ones are best for you.

6. Pay Attention to Your Taxes
There's no way around it: Having children costs money. However, you may be entitled to some tax breaks that can help defray the cost of raising your child. First, you may be eligible for an extra exemption if your annual income is below a certain level for your filing status. This will reduce your income tax bill for every year that you're eligible to claim the exemption. You may also qualify for one or more child-related tax credits: the child tax credit (a $1,000 credit for each qualifying child), the child and dependent care credit (if you have qualifying child-care expenses), and the earned income credit (if your annual income is below a certain level). To claim any of these exemptions and credits on your federal tax return, you'll need a Social Security number for your child. You may be able to apply for this number (as well as a birth certificate) right at the hospital after your baby's birth.

For more information about tax issues, talk to a tax professional.

As Washington tries to move quickly to finalize an economic stimulus package that will give individual Americans rebates of several hundred dollars, Mark Johannessen, President the Financial Planning Association (FPA), issued a warning in late January advising consumer caution when considering uses for the money.

"It’s strangely ironic that Washington is telling Americans to go out and spend to help save our troubled economy," said Johannessen. "American consumers are nearing the $1 trillion mark in debt, for credit cards, mortgages and other types of loans."

Rebate Options
Once Congress reaches an agreement and you actually receive a rebate check--which will likely occur no sooner than May 2008--Johannessen is urging people to carefully consider using the money to pay down their credit card debt or add it to their savings for an emergency fund or retirement.

We strongly agree. Although the politicians want you to spend, spend, spend, the most prudent financial move for most is to establish and begin funding an emergency "rainy" day fund. In the grips of a recession, jobs are lost, incomes decrease, and household financial security often comes into question.

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Lightship Mutual is a proud member of the Financial Planning Association, a national organization dedicated to providing everyone with competent, objective financial advice delivered by competent, objective financial professionals. FPA members demonstrate and support an ongoing commitment to education as well as a client-centered financial planning process.

If you rent a house or an apartment, you probably think renter's insurance is unnecessary. Besides, you don't even own the building, and your landlord has coverage. However, you must realize the landlord's insurance policy only covers the building, not your personal belongings contained inside.

Without renter's insurance of your own, all of your electronics, furniture, books, clothes, etc. could be destroyed in a fire or lost during a burglary, and you would have no legal avenue to reclaim the cash value of your personal property.

What is Renter's Insurance?
Renter's insurance is a special kind of homeowners insurance. It provides no coverage for the building itself. Instead, it covers your personal possessions and protects you against liability claims if you rent a house or apartment.

Property Damage Coverage
Renter's insurance policies cover only losses that result from any of 17 named perils. If your property is lost or damaged as a result of one of these perils, your insurance company will compensate you for your loss. The covered perils are:

1. Fire or lightning
2. Windstorm or hail
3. Explosion
4. Riot or civil disturbance
5. Aircraft
6. Vehicles
7. Smoke
8. Vandalism or malicious mischief
9. Theft
10. Broken glass
11. Volcanic eruption
12. Falling objects
13. Weight of ice, snow, or sleet
14. Accidental discharge or overflow of water
15. Sudden and accidental tearing apart
16. Freezing
17. Artificially generated electrical charge

Keep in mind that most renter's insurance policies specifically exclude certain perils (e.g., earthquakes, flooding). As a result, you may need to purchase a separate policy to insure your possessions against damage caused by these hazards.

Property coverage levels typically start somewhere around $15,000 and go up from there. As you increase your coverage level, your premiums increase as well. An financial professional can help you determine the amount of coverage that you need. Or, you can visit one of our favorite insurance websites for more information.

Replacement Cost vs. Actual Cash Value
These may sound like highly technical terms, but they are actually very important when determining how much money you will get if you ever have to file a claim. When you get a quote from your insurance agent, make sure you know which type of coverage is being described.

• Actual Cash Value Coverage - reimburses you for only the amount that your property was worth at the time it was stolen, damaged, or destroyed. This means that if all of your clothes suffer smoke damage in a fire, your insurance company probably will pay as much as you could've made at a yard sale--not the $4,000 you spent over the last couple of years to create the perfect wardrobe.

• Replacement Cost Coverage - reimburses you for the amount that it will cost to replace your property. If you bought a $400 television two years ago, you'll receive enough money to go out and buy another television just like the old one. You will probably have to replace the lost property with your own money and submit the receipt before you receive compensation. Nevertheless, replacement cost coverage typically pays significantly more than actual cash value coverage.

Liability Coverage
Renter's insurance also provides liability coverage. A typical renter's insurance policy covers you for accidents and injuries that occur in your dwelling, as well as accidents outside of your home that are caused by you or your property. (This does not include automobile accidents.) This liability coverage includes legal defense costs, if you are taken to court over such an accident. Standard levels of liability coverage are $100,000, $300,000, and $500,000. The amount of liability coverage that you need depends on your individual circumstances.

What Does it Cost?
The cost of renter's insurance varies greatly depending on where you live, the construction of the building, your deductible, and how much insurance coverage you need. But renter's insurance is much less expensive than traditional homeowners insurance. On average, you will pay somewhere between $100 and $300 annually for a basic policy providing about $30,000 worth of coverage for your property. Replacement cost coverage is typically more expensive than actual cash value coverage and, in our opinion, is usually worth the extra money.