The rule--usually described in business--states that 20% of a company's clients produce 80% of the income. As a result, business owners should concentrate their efforts mainly on the top 20% and not so much on the other 80% who disproportionately drain your company's time, energy, and mental capacity.

Give Credit Where It's Due
Most people don't know that the "80-20 Rule" goes by another name: the Pareto Principle. Vilfredo Pareto, an economist at the turn of the 19th century, originally applied his law to income distribution, saying 80% of society's wealth and income accrues to 20% of the population. Generalized, his law becomes, "80% of all outputs [or consequences, or results, or profits] come from 20% all inputs [or causes, or efforts, or clients]."

Don't Re-Invent the Wheel
Pareto's powerful principle reaches far into our lives. If you have the presence of mind to recognize how a small number of people/events/bills can affect the majority of your time/energy/spending, then you're already ahead of most consumers.

Economics is known as "the dismal science", so you might not expect economists to have much of a sense of humor. But there is at least one joke economists tell that is actually very funny — and very educational.

A husband and wife spend a night in Las Vegas, and the man decides to try his luck at the casino. He loves roulette, but vows not to wager more than $5. So he puts his $5 down — on his lucky number, 17 — and wins. He keeps betting on number 17 and he keeps winning, so much so that towards the end of the night he is up more than $10 million. He decides to wager it all one last time on number 17. But this time he loses, and his $10 million gain is gone in an instant. When he returns to his hotel room, his wife asks him, “How did you do?” “Not bad,” he replies. “I only lost $5.”

The man could afford to be so relaxed about his multi-million dollar loss because of a phenomenon known as mental accounting, the tendency to value money differently based on where it comes from, where you keep it, how you spend it, and whether you expected more or less of it. As far as the gambler was concerned, the only money that was really ‘his’ was the initial $5. He didn’t have the $10 million before he started gambling and he didn’t have it when he finished, so for him the only real loss he suffered was the $5.

That is a common, if completely illogical, reaction to unexpected money. The truth is, the $10 million was just as much ‘his’ money as the initial $5. The only difference was that he never expected to have the $10 million, so he was more easily able to rationalize its unexpected loss.

If It's on Plastic, It Still Counts
The same kind of thing happens all the time in our day-to-day financial lives. Say you’re out shopping for essentials — groceries, for example — and you see some luxury item you would really love to have. You wouldn’t dream of paying for it in cash; that would blow an enormous hole in your budget. So you pay for it with a credit card. That feels better since the mental account in your head called ‘grocery budget’ remains intact, and the bill for the mental account in your head called ‘credit card’ won’t be due for at least another month.

But, of course, whether you pay in cash or you pay with credit, all of the money ultimately comes from the same account: yours! Purchases made on credit can feel less immediate because no cash actually leaves your wallet. But the reality is, credit card purchases will end up costing you more money — unless you pay off the amount in full every month, thereby avoiding interest charges.

Researchers conducted an experiment in which two groups of people were asked to bid on tickets to a basketball game. One group had to pay cash, while the other could pay by credit card. The average credit card bid was twice as high as the average cash bid. Why? Credit card bidders felt richer because they didn’t have to fork over any actual cash from their mental accounts.

Mental Accounting Every Day
Take a moment to think about some of your daily financial transactions, and you’re sure to spot examples of mental accounting at work. Say you have $1,000 stashed away for a rainy day under your mattress. You also have $1,000 in credit card debt, at 18% interest. You won’t touch the $1,000 in savings because it’s in a mental account called ‘emergency fund.’ But if you used it to pay off your credit card debt, you would save your self the 18% in interest charges, which amounts to $180. You could then use that $180 to start rebuilding your emergency fund, and you will have cleared some of your most expensive debt in the process.

Of course, mental accounting has its upsides, too. Keeping untouchable money in mental accounts like ‘home down payment’ or ‘college savings’ or ‘travel fund’ can be good for achieving your savings goals. Nonetheless, it is worth examining your mental accounts from time to time to make sure they all add up.

A Tax Refund Does Not Equal a Shopping Spree
The perfect opportunity to balance your mental accounts is tax time, especially if you are due a refund. As part of the government’s economic stimulus package, many households will receive tax rebates — of between $300 and $1,200 — in May. It’s tempting to put that money in a mental account called ‘Splurge!’ After all, like the Las Vegas gambler, you didn’t have that money before you filed your taxes, so you won’t miss it if you don’t have it after you filed your taxes, right?

Wrong.

That money is just as much ‘yours’ as the money in your paycheck. In fact, a tax rebate is nothing more than money taken from your paycheck that the government has decided to give back to you. So consider depositing any refund into mental accounts called ‘401(k)’ or ‘health care insurance’ or even ‘emergency fund.’ Tax rebates don’t have to be treated as ‘funny money.’ And maybe that’s why economics is called “the dismal science” because managing your finances is a serious business.

Note: Certain aspects of this article were produced by the Certified Financial Planner Board of Standards, the regulatory body for the CFP® and CERTIFIED FINANCIAL PLANNER™ marks.

An enormous amount of "foreclosure bargain-hunting" is going on these days. As the massive number of former homeowners continues to grow, many companies are making hay off of an unfortunate national trend.

Auction houses such as Hudson & Marshall and Williams & Williams are currently selling thousands of foreclosed properties--for pennies on the dollar--in nearly every state.

Of course, these regional auction houses will be outdone by the big boys. Where ever there's a national treasure hunt taking place, the Big Search sharks are never far behind. Yahoo and Google (thanks, Jonathan) are circling the sinking homeowner(ship), each recently unveiling shiny new foreclosure search engines. We'll bet you the home-equity value of an interest-only-ARM (which by the way is zero) that MSN and Ask.com aren't far behind.

As money experts, we are constantly asked the question, "How do I become a millionaire?" In the past, our responses involved stock market returns, saving wisely, and spending less...all quantitative measures. And honestly, these elements have been important in unlocking the doors of financial freedom for millions. But after speaking with audiences around the country--and learning from our own clients--we now understand that the answer isn't necessarily found on a bank statement or in an investment account. The answer is actually revealed with a simple word: Passion.

Now let's be real. Passion alone won't necessarily make your dreams of financial independence come true. Many people are passionate about many things (i.e. designer shoes, Paris Hilton's love life, and the 1972 Miami Dolphins) but this doesn't necessarily spell success.

Opportunities for personal growth exist for an increasing number of Americans, but they may not all succeed. Key traits that we constantly observe in our "well off" clients include determination, insight, and a strong belief in oneself. SmartMoney.com wrote about an interesting group of people it calls The $5 Million Club, and the characteristics listed above are found in every profile.

So, try this. For a moment, forget about money. Just think about what excites you. If the paycheck wasn't a concern, then what would you love to spend the rest of your days doing?

Would you want to:

• Play the concert piano?
• Sail the open seas?
• Volunteer at the local community center?
• Teach our nation's youth?
• Photograph the world?
  

In our observations, problems arise when individuals reverse this cycle and focus on the amount of money they want to earn...and then select a (often undesirable) job that will allow them to make the desired salary. However, this order is unnatural and often leads to burnout and early-career frustration, particularly since money can create an insatiable appetite for more.

Instead of focusing solely on salary, what if you decided to pursue your dreams? Imagine the personal happiness and success you would enjoy if you actually loved what you did. As the saying goes, "Do something you love for a living, and you'll never work another day in your life."

So now, when people ask us, "How do I become a millionaire?", we respond with another question: "What do you love to do?". To be clear, passion is how you let go of the fear and greed, and ultimately, how you become wealthy.

Even though we are money experts, we understand that wealth is about much more than the dollars and cents in your bank account. Wealth is the spiritual, emotional, and physical fulfillment that comes when you truly find yourself, achieve peace, and fulfill your dreams. Cash does indeed influence these factors, but the dollars in your pocket are only the means to a greater end.

Money is a poor master, but a great servant.

Today, women have more financial responsibilities than ever before. But, according to a recent industry report, many U.S. women remain without (or with inadequate) life insurance coverage. To be clear, life insurance planning is just as important for women as it is for men.

Income Replacement
Life insurance can be a useful tool for replacing income lost due to the death of a family's wage earner. If you're a working mother, your income can have a significant impact on the quality of your family's lifestyle, children's college education, and your own retirement. Life insurance protects your family by providing proceeds that can be used to replace your lost income if you die prematurely.

Single Parent Considerations
It's necessary for everyone, but for single parents especially, the creation of a emergency "rainy day" fund with enough cash to cover 6 months of living expenses is paramount. In today’s economic picture, job loss is a realistic possibility, and single parents have to build a safely net into their financial lives.

Secondly, as the sole provider, the child's financial welfare essentially depends upon one person. Therefore, single parents must ask themselves tough questions, such as "What would happen to my child if I were no longer in the financial picture?" As a result, we usually recommend a term life insurance policy which spans the child’s college years and includes a death benefit high enough to cover the total future (inflated) cost of the child’s college education.

Stay-at-Home Mom
Maintaining a household is a full-time job, and you have many important roles and duties. If you die, your surviving spouse may have to pay for services such as child care, transportation for your children, and housekeeping. Assuming any added responsibilities could cause your spouse to shorten work hours, resulting in a reduction in income. Proceeds from your life insurance can help your surviving spouse pay for necessary services and replace lost income.

Caregiver Replacement Costs
Many women find themselves providing care for both children and elderly family members. It's hard enough to find sufficient income to pay for household expenses, child care, and college tuition. Throw in the additional costs of caring for an elderly parent or other family member-- such as adult day care, uninsured medical expenses, and extra travel and transportation costs-- and the financial burden can be overwhelming.

Business Succession
The Center for Women's Business Research reports that over 10 million businesses are owned by women. If you die while owning your business, life insurance can be used to provide cash for company expenses such as payroll or operating costs while your estate is being settled. Life insurance can also be a useful tool for women business owners who are structuring buy-sell arrangements or providing benefits to key employees.

Final Expenses
The costs of funeral and burial expenses, estate administration expenses, outstanding debts, estate taxes, and the uninsured expenses of a final illness can place a financial burden on your survivors. Life insurance can ease this strain by providing a benefit that can be used to help pay for these costs.

Ensure You Have Enough Coverage
Women often carry inadequate life insurance coverage. If you have children, a spouse, or a business, then it may be time for you to consult with an qualified financial professional who can help you assess your life insurance needs and offer information about the different types of policies available.

Three chief executives with ties to the mortgage crisis received nearly a half-billion dollars in compensation over the past few years, according to a congressional report issued last Thursday; these paydays come despite the fact that the values of their underlying companies have collapsed under the enormous weight of the so-called "sub-prime mortgage crisis". Moreover, these men will continue to receive multi-million dollar paydays going forward--even if not actively employed--in the form of stock awards, deferred compensation, and golden-parachute retirement plans.

I sat watching Angela Mozilo, CEO and President of Countrywide Mortgage, testify in front of Congress (yes, I watch C-SPAN regularly), and the corporate apathy was quite clear. Members of his compensation committee also testified that they saw "no irregularities" in the hundred-million-dollar payouts to departing executives of these Titanic-like sinking corporations they leave behind.

The congressional report stated that America's top 3 sub-prime lenders, whose CEOs all testified before this congressional committee, lost a combined $20 billion in the last two quarters of 2007 alone, as investments related to sub-prime mortgages fell apart.

But Wait...There's More
In other gloomy news, Jeannine Aversa of the AP reports that U.S. employers cut jobs by 63,000 in February, the most in five years, a clear sign of our country's continued economic decline:

"Job losses were widespread, with hefty cuts coming from construction, manufacturing, retailing, financial services and a variety of professional and business services. Those losses swamped gains elsewhere including education and health care, leisure and hospitality, and the government...the health of the nation's job market is a critical factor shaping how the overall economy fares. If companies continue to cut back on hiring, that will spell more trouble."

Shoes Continue to Drop
Consumer confidence also continues to fall even as the Federal Reserve has signaled that the central bank will keep on cutting a key interest rate to bolster the economy.

"We've gotten to a point where there's very little for the consumer to cheer about. Everywhere you look — homes, grocery stores, gasoline stations — there are things that are all weighing on consumer attitudes," said Richard Yamarone, economist at Argus Research. "You have soaring energy and food prices, rising home foreclosures and uncertainties about the jobs climate. When you mix it altogether it is a recipe for miserable consumer sentiment."

Congress and the White House, meanwhile, have speedily enacted a relief package that includes tax rebates for households and businesses. Rebates of up to $600 for individuals or $1,200 for married couples should start going out in May. Beginning this week, the IRS will begin issuing letters to over 130 million households reminding them to file a 2007 federal income tax return in order to receive a rebate check.

The Fed has already cut its target for short-term interest rates, which influences borrowing costs across the economy, to 3% from 5.25%, where it stood in September. Fed Chairman Ben Bernanke and his colleagues are widely expected to cut rates again when they meet next week...many analysts predict a rate cut as high as three-quarters of a percentage point, departing drastically from the more typical quarter or half-point cut.

Back on the Home Front
According to the Wall Street Journal, the number of American homes entering foreclosure rose to the highest level on record in the fourth quarter of 2007.

"We are likely to be living with a high degree of uncertainty for some period of time about the ultimate magnitude and duration of the slowdown under way," said Federal Reserve Bank of New York President Timothy Geithner

And in the next article...

"I believe we are facing the most serious...economic and financial stresses that the U.S. has faced in at least a generation -- and possibly much longer," Lawrence Summers, who was Treasury secretary during the Clinton administration, said Friday at a Stanford University conference. "We are in nearly unprecedented territory with respect to financial strain."

How You Should Move Forward
We are actively advising our clients to stick to the plan. Continue watching cash flow. Keep an eye on your costs. The price of food and fuel are rapidly rising and must be accounted for in your monthly budget. Ultimately, you must remain prudent, focused, and educated. Read the newspaper. Stay informed of current national events as they will now--more than ever--affect us all.

According to media reports, our nation's Presidential candidates had a very good fund raising month of February.

Barack Obama received a record $55 million, the most ever raised by a presidential primary candidate in a single month. This puts him on pace (if he could campaign for 12 more months) to rack up more than $650 million dollars per year. Close on Obama's heels, Hillary Clinton raised an estimated $35 million, and John McCain came in third by netting about $12 million. If we project each candidate's February numbers over a full year--and add them all together--the three presidential candidates are on pace to raise over $1.2 billion per year.

So an interesting thought experiment arises. With our nation's ongoing economic woes, perhaps we should have an endless, year-after-year presidential campaign...with one important caveat: The candidates must funnel every penny of contributions into our nation's schools, roads, bridges, and hospitals. After all, who's currently getting these millions of dollars? Political consultants? PR reps? TV stations?

Let's eliminate the middlemen and put this immense cash to work for the American people.

With the current state of our economy, many employers will ponder the idea of reducing employee benefits in order to increase profits. And despite popular belief, many companies do still have defined benefit (pension) retirement plans. So if your employer decides to eliminate the pension plan--or worse goes out of business--then then what happens to your pension?

First of all, let's be clear: Your pension will be secure.

The plan will purchase an annuity for you that will pay your benefits when due (some plans may also let you elect a lump-sum payment). But you'll only receive the benefit you've earned as of the plan's termination date, which could be far less than the full pension benefit you had counted on.

If, however, the plan is underfunded (that is, there aren't enough assets to pay all benefits earned to date), then the fate of your pension depends in part on whether or not your plan is insured by the Pension Benefit Guaranty Corporation (PBGC). Fortunately, most defined benefit plans are covered, but check with your plan's administrator to be sure. When an underfunded plan terminates, the PBGC takes over responsibility for making pension payments.

The PBGC guarantee applies only to "basic benefits"--normal and early retirement benefits, survivor annuities, and disability benefits--earned (and vested) before the plan terminates. If the plan terminates while your employer is in bankruptcy, the guarantee may be limited to benefits earned before the bankruptcy filing.

According to the PBGC, 84% of retirees in recent years received the same benefit from the agency that they would have received from their pension plan.

Be sure to seek help from a qualified financial professional if you have additional questions or concerns.

Many economists believe the struggling U.S. homeowner needs greater assistance from the federal government in order to avoid foreclosure. Federal Reserve Chairman Bernanke agrees. Last Tuesday, Mr. Bernanke called for additional action to prevent our nation's distressed homeowners from ultimately losing their homes to foreclosure.

"Reducing the rate of preventable foreclosures would promote economic stability for households, neighborhoods and the nation as a whole...more can, and should be, done," the Fed chief said.

Among his suggestions, Bernanke wants mortgage and other financial companies to reduce the amount of the loan principal in order to provide financial relief to the borrower. Of course Bernanke himself acknowledged this idea won't be easy to sell to the lenders.

A Predictable Predicament
In a blog post ten months ago (and again four months ago) we examined several factors that were most likely going to impact our economy in a negative way. Here's a quick refresher...

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

Your Action Items
The whole point of the article you are currently reading is to demonstrate that our nation's current economic situation was very clearly written on the wall for months (if not years). Our leading economic indicators were clearly trending into the direction of a severe slowdown. In times such as these, prudent savers and investors alike must remain so. Do not panic. Continue to think clearly and rationally about your financial situations. Now, more than ever, you should consider seeking the counsel and advice of a qualified financial professional.

If you plan to make significant charitable gifts over a long period of time, a donor-advised fund (DAF) can be an attractive alternative to a private foundation.

What is a Donor-Advised Fund?
While private foundations are separate charitable entities operated by their donors, a DAF is merely an account set up with a host organization, such as a community foundation or educational institution. You make contributions to the account, and the organization makes grants to qualifying charities in your name. Although the organization legally owns your contributions and has ultimate control over grants, you can advise the organization on how to invest your contributions and how grants should be made.

Donor-advised funds have become popular recently because they require less money, time, legal assistance, and administration than private foundations. DAFs also enjoy greater tax advantages.

What are the Advantages?
Generally, you can open a DAF with a smaller initial contribution than would be required with a private foundation (as little as $10,000). And because DAFs are qualified public charities, you generally get an immediate income tax deduction for your contributions (subject to the usual limitations).

Additionally, while private foundations are required to distribute a minimum of 5% of their assets each year, DAFs currently have no such minimum distribution requirement. You can let your account build up tax free for many years, deferring distributions until a later date. Further, DAFs are not subject to excise tax as private foundations are.

Finally, DAFs don't need to fulfill many of the reporting and filing requirements that are imposed on private foundations. And because the host organization handles any legal, administrative, and filing requirements (including tax returns), you're completely freed from these responsibilities.

Insuring a condo or co-op is a little different from insuring a typical home because you don't own the entire building. Usually, two policies are involved: the master policy provided by the condo association or co-op board, and your individual policy, which is typically written on a standard homeowners form (known as Form HO-6). If you know what the master policy covers and purchase individual coverage to fill in the gaps, you should have the protection you need.

The Master Policy
The common areas you share with other owners should be covered by a master policy. These areas usually include the roof, stairways, elevators, and basement. If physical damage occurs to these areas, the repairs are covered under the master policy's provisions. The master policy also offers protection for liability incurred in the common areas. This means that if your guest or another person suffers a bodily injury while in a common area, the insurance company will step in to defend you and the other unit owners in the event of a lawsuit. Also make sure that the master policy provides broad coverage.

Additional Coverage for Improvements
It is important for you to know exactly what the master policy covers in order for you to purchase appropriate individual coverage for your unit and its contents. For instance, the master policy may cover individual units as they were originally built, but not improvements you have made to your property. You may need to buy an endorsement to cover any additions and improvements. A typical personal condo or co-op policy covers your personal property and other property, including private balconies, private entranceways, private garages, and other property that is your insurance coverage responsibility under your condo or co-op agreement.

What Your Personal Policy Will (and Will Not) Cover
Although the liability coverage on Form HO-6 is similar to that found in other homeowners policies, the property coverage is less comprehensive than that under the HO-3 form. This policy covers only the physical damage to your property and possessions caused by:

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

Certain perils specifically not covered are listed in the exclusions section of your policy. These typically include damage due to:

1. Enforcement of building codes
2. Earthquakes
3. Flooding
4. Power failures
5. Neglect
6. War
7. Nuclear hazard
8. Intentional acts

Loss Assessment
Check your personal policy and pay particular attention to the paragraph titled Loss Assessment. This paragraph entitles you to collect up to $1,000 for loss assessments charged to you by the condo or co-op association. Loss assessments typically result from losses suffered by the condominium or co-op as a whole, such as damage to a roof that is not covered by the master policy at all or is subject to a large deductible. These uninsured damages are then passed through to all unit owners.

Loss Settlement
Your policy will specify the amounts you can recover in the event of a loss. Depending on the provisions of your personal policy, your insurance company may pay the total replacement cost of your property, which would allow you to replace or repair your lost or damaged items. Or, you may receive only the actual cash value (ACV) of your property, which is generally the current fair market value or the property's purchase price minus depreciation. Your settlement will almost always be less under the ACV method. Also, certain property items are assigned a specific dollar value for loss purposes, no matter what its age or condition. Loss settlement is always subject to the coverage limits described in your policy.

Read Your Policy Before Making a Claim
To qualify for payment from your insurance company, you must meet the conditions spelled out in your homeowners policy. Some conditions dictate your responsibilities before a loss occurs, and some dictate the actions you must take after the loss to remain eligible for coverage. Read your policy carefully to familiarize yourself with your responsibilities. If you need assistance, consult your agent to go over the details in your policy. Be sure you use an agent who is knowledgeable about condo and co-op policies.

Coordination of Benefits Under the Master Policy and Personal Policy
When a loss is covered by both the condominium's or co-op's master insurance policy and your individual policy, your homeowners insurance will pay only for the balance of the loss that remains after the master insurance policy pays 100 percent of its limit.