The Roth 401(k) can offer advantages to high-income individuals who haven’t been able to contribute to a Roth IRA because of the income restrictions. (Eligibility for 2009 phases out between $105,000 and $120,000 for single filers and $166,000 to $176,000 for those who are married and file jointly). There are no income stipulations for Roth 401(k)s.

In addition, Roth 401(k) accounts are subject to the contribution limits of regular 401(k)s — $16,500 for 2009, or $22,000 for those 50 or older by the end of the year — allowing individuals to stock away thousands of dollars more in tax-free retirement income than they would through a Roth IRA. (In 2009, Roth IRA contributions are limited to $5,000 a year, or $6,000 for those 50 or older.)

The hitch: Those limits apply to contributions to both types of 401(k) plans, so you can’t save $16,500 in a regular 401(k) and another $16,500 in a Roth 401(k). “There’s no new opportunity to save here, but there’s an opportunity to save with a different kind of tax treatment,” says David Wray, president of the Profit Sharing/401(k) Council of America (PSCA).

Workers who are offered this option face a difficult choice: Contribute to a Roth 401(k) and suffer a cut in take-home pay (since contributions are made with after-tax dollars), or stick with a traditional 401(k) and hope that in retirement, their tax rate will be lower than it is now. Alternatively, they could hedge their bets by contributing to both accounts.

Making a sound decision hinges on your estimation of the taxes you think you’ll pay in retirement, says Michael Kitces, director of financial planning with the Pinnacle Advisory Group in Columbia, Md.

If you expect your tax rate to be the same or higher in retirement than it is now, you might be better off with a Roth 401(k). This is likely to be the case with young people who are just starting their careers and expect their income to increase in the future. “For folks who are in the 15% or 25% tax bracket, it may not be a bad idea to pay those taxes now and never have to worry about what tax brackets might become in the future,” says Kitces. If you’re in your peak earning years, on the other hand, and you figure your tax bracket will be lower in retirement, you’ll benefit from continuing with traditional 401(k) contributions.

In reality, of course, things are much more complicated. For one, no one can predict with certainty what tax rates will be in the future, though the general consensus is that they’re likely to rise to help the government offset growing budget deficits and pay for Social Security and Medicare. That’s one reason why people in the top tax brackets have indicated their preference for the Roth 401(k), says Wray. “They are ready to pay the regular tax now, whatever it is, because the certainty that they won’t have to pay taxes in the future offsets the value of the tax deferral.”

Still have questions about the Roth 401(k)? We thought so. And we’ve gone ahead and answered the most important ones.

1. Who is eligible for a Roth 401(k)?
Anyone whose employer offers it. This is where it gets tricky: Among the major concerns for employers are the costs associated with managing the plan, and educating their workforce about this investment option. According to the PSCA’s Wray, companies are much more likely to offer a Roth 401(k) if their employees indicate that they intend to participate. So if you want a Roth 401(k) option to be added to your plan, make sure to let your employer know.

2. What happens to the employer match?
Employer matches are made with pretax dollars, and the match accumulates in a separate account that is taxed as ordinary income at withdrawal.

3. What are the early withdrawal rules?
Early Roth 401(k) withdrawal rules are subject to the same requirements as traditional 401(k)s, according to the IRS. For specifics on that, see SmartMoney’s story “Tapping Your 401(k) Before You Retire.” However, those regulations aren’t set in stone. If your company rolls out a Roth 401(k) next year, be sure to ask your plan manager.

4. What happens if I leave my job?
The Roth 401(k) balance can be rolled over into a Roth IRA.

5. Is the Roth 401(k) option here to stay?
Yes. At one time, the Roth 401(k) option was set to expire after 2010, but it was made permanent by 2006 legislation. So this is a deal you can count on.

By SmartMoney

For example, you receive a student loan on Sept. 1st for $10,000 with a 6% interest rate. You will have an interest payment of $5 due for the month of September. If you do not pay the $50, it will be added to the amount of the loan. Septembers interest will accrue, and interest for October will be $50.25 ($1,060 x 6%/12). For unsubsidized loans, it is better to pay interest as you go. Although from first month to the second month your interest payment increased 0.25, imagine holding off four years worth of payments!

Subsidized loans begin to accrue interest usually upon graduation. Say you take out $20,000 a year for four years of scool. When you graduate (yay!), you will have an oustanding balance of $80,000, at an interest rate of 6% annually. That’s a payment each month of $400, or possibly more (depending on if you pay any principal with it or not. If you want to know what you’ll be paying in the future, find out by downloading our budgeting program for free. Most subsidized loans are for larger amounts of money, and most graduate and post-graduate (law school, med school) loans are subsidized.

Another advantage to the subsidized loans is that the government makes your interest payments for you while you are still in school. This is called a deferrment, and it makes your credit score shoot for the stars.

After you’ve applied, your school will determine eligibility based on a number of factors, including academic progress, the cost of attendance and the amount you or your family is able to pay (usually based on income). Depending on your school, scholarships may be taken into consideration as well.

By CollegeFinance101

So what goes into this all-important score? And how can you make sure you’ve got a good one?

The term credit score usually refers to your FICO score, a number based on a formula developed by the Fair Isaac Corporation. Fair Isaac looks at a summary of all your credit accounts and payment history. If you’ve got a mortgage, a MasterCard or a Macy’s account, it will be included in the report, as will late or missed payments. FICO scores range from 300 to 850, and Fair Isaac calculates them for each of the three big credit-reporting agencies: Equifax, Experian and TransUnion. That’s one reason why your FICO score with each may differ slightly. Generally speaking, the higher your score, the more money you can borrow and the less you’ll pay for the loan.

Here’s how your score is determined:

• 35 percent is determined by your payment history. Do you regularly pay your bills or fines on time to any creditor that submits your information to the credit bureau? Even unpaid library fines, medical bills or parking tickets may appear here.
• 30 percent is based on the amounts you owe each of your creditors, and how that compares with the total credit available to you or the total loan amount you took out. If you’re maxing out your credit cards, your score may suffer.
• 15 percent is based on the length of your credit history, both how long you’ve had each account and how long it’s been since you had any activity on those accounts. The fewer and older the accounts, the better (assuming you’ve made timely payments).
• 10 percent is based on how many accounts you’ve recently opened compared with the total number of your accounts, as well as the number of recent inquiries on your report made by lenders to whom you’ve applied for credit. Your score can drop if it looks as if you’re seeking several new sources of credit — a sign that you may be in financial trouble. (If a lender initiates an inquiry about your credit report without your knowledge, though, it should not affect your score.) Shopping around for an auto loan or mortgage shouldn’t hurt, if you keep your search to six weeks or less. But every inquiry you trigger when you apply for a credit card can affect your score, says Craig Watts, a spokesman for Fair Isaac. So be selective.
• The final 10 percent is determined by the types of credit used. Having installment debt — like a mortgage, in which you pay a fixed amount each month — demonstrates that you can manage a large loan. But how you handle revolving debt, like credit cards, tends to carry more weight since it’s seen as more predictive of future behavior. (You can pay off the balance each month or just the minimum, for example, charge to the limit of your cards or rarely use them.)

For the best rates on a loan or credit card, you want a score that’s above 700, at least. To achieve that, make sure to pay all your bills on time. It’s also a good idea to have at least one credit card you plan to use for a long time, but not too many. Keep a low balance — generally less than one-third of your total credit limit. Of course, it’s best to pay off your balance entirely each month. And stay on top of the information in your reports.

You can get a free copy of your credit report from each of the three major credit agencies once a year. Be sure to order it through annualcreditreport.com, the only authorized online site under federal law. If you notice information that’s inaccurate, you can submit a request for removal online at Equifax, , Experian or TransUnion. Or submit your request by mail. Be sure to specify what information you think is inaccurate and why, and include any documents that support your argument. Ask in writing that the information be corrected or removed from your report. By law, the bureaus must investigate your complaint, usually within 30 days, and give you a response in writing (or via e-mail, if your request was made online) and a free copy of your report, if the information is changed as a result. Your score should reflect that change shortly after.

To see your actual score, you’ll generally have to pay. You can go through Equifax, Experian or TransUnion directly, but be aware that the score you order may be one developed by the agencies themselves, like the TransUnion TransRisk New Account Score, Experian Plus or VantageScore. These are different than the FICO scores lenders generally use when they evaluate your loan applications. Myfico.com offers two reasonably priced options on its site. The $15.95 FICO Standard package (as of December 2008) gives you 30-day access to one FICO score and a credit report from one of the three major credit agencies. The $47.85 FICO Credit Complete package gives you 30-day access to your FICO scores and credit reports from all three major agencies. Myfico.com and other sites also offer services that monitor your score and report for a monthly fee (ranging from about $4.95 a month for myFico’s quarterly report to $6.65 a month for TransUnion’s Credit Monitoring Service).

Whether you need to monitor your credit that often is debatable. For most, a close look at the free annual reports from each bureau is probably enough. But if you plan to apply for a loan or credit card, check your score and report at least a couple of months beforehand. Not only will you be aware of how creditworthy you are, you’ll also have time to remove any errors you spot and make sure your score reflects the changes before you fill out any applications.

By NYTimes

Welcome to Joe Money’s “Drop Ship Crash Course” written by dropshipping and affiliate marketing guru Ryan Moran.  In these short lessons, we’ll cover the essentials to drop shipping on the internet, which is a major strategy that many use to make money on eBay and from their own e-commerce stores.

Drop shipping is a topic that one can spend months studying, so this course will only begin to scratch the surface of the drop shipping industry. However, it will help you get an understanding of how the process works and assess as to whether or not it is a business model that you’d like to pursue.

The truth is that many people use drop shipping to create significant income streams on the internet, and many eBay Powersellers achieve this status from drop shipping. Contrary to popular thought, the big money on auctions sites like eBay is not always made by people who go to garage sales and put their findings online. Instead, drop shipping provides a way for people to sell physical products on the internet that they never have to see, store, package, ship, or even pay for.

On paper, it sounds way too good to be true, but once you understand that process that is behind it, it’s a very simple concept. Drop shipping is simply selling other people’s products at a premium, and keeping the difference as a profit. This practice is common not only on the internet, but in catalog businesses and even retail stores.

Drop shipping is not a new idea; it has been used by merchants and retailers for decades. However, the internet has opened the doors for the average work at homer like yourself to capitalize on this type of an opportunity. When sites like eBay became popular, it became easy to sell physical products online, so drop shippers used it as a way to sell additional units of the items that were already selling.

Today, drop shipping has become a very easy way for average people to make solid income streams from home, because it is easy to do, can be done in your spare time, does not require start up money, and is a understandable, realistic approach to make money from home.

How Drop Shipping Works

The drop shipping process is a very easy concept, which is one of the reasons that it has become so popular. The reputable formula is the very reason that it is so profitable. It is an easy process that can be duplicated and done time and time again to bring in revenue on a consistent basis.

When stripped to its simplest form, the drop shipping process breaks down into four steps:

1.) You, the drop shipper, find wholesale items and list them for sale on eBay or your own online store.

2.) The product sells, and payment is received.

3.) The drop shipper orders the product from his or her supplier and specifies that the item be shipped to the buyer.

4.) The difference between the sale price and the wholesale price is the drop shipper’s profit.

You may notice a peculiar thing about this process: the item is sold before it is ever ordered. Therefore, you collect payment before you place the order of the item. In this way, you never have to use your own money. This is one of the benefits of drop shipping. Because of this fact, it is very easy for someone to get started without putting down any money.

You’ll also notice that the product is shipped directly to the customer. When someone purchases an item that you drop ship, you simply arrange for the item to go to the buyer. When doing this, you never have to handle the item. Because the item goes directly from the supplier to the purchaser, they handle the packaging, they handle the shipping, and they handle the delivery. You never see, store, or touch the items, and because the customer pays you before you order, you never have to pay with your own money.

Therefore, once you find an item from a wholesale supplier, you can sell it over and over and profit the difference between the wholesale price and the selling price. This can range from a few dollars to hundreds of dollars per item. How you collect your profits is another question that is raised, and is addressed below.

How You Get Paid

At this point, everything about the drop ship process sounds easy and super cool, but the idea of how you get paid can confuse some people. While you’re aware that the profit comes from the difference between your buying price and the selling price, how will you receive the cash?

In truth, it can come from a couple of different places. If you are selling on auction sites like eBay, you can receive the money in any way that your auction accepts payment. That may be from a money order, a personal check, or a variety of other ways. If you are using your own website, however, things can get a little hairier, depending on the types of payment that you will accept.

However you decide to go about things, the most important thing is this: receive payment before you order anything. In doing so, you never have to use your own money. What other business model allows you to sell before you buy? In theory, you could start with no money and still drop ship items to make money, because you never have to buy the items yourself.

When first starting out, these little questions can seem like mountains that need to be climbed, and many potential work form homers are scared away because they don’t know the answer to their problem. The truth of the matter is that, once your business starts taking off, these little complications fall by the wayside. However, it can seem like quite an obstacle for those who have never done it before.

If that is the case for you, and you’re not sure how you’re going to accept payment, then start off using only PayPal. PayPal is a safe, secure form to both send and accept payment. When you sell an item to drop ship, accept PayPal. When you buy the item from the supplier, pay with it using PayPal. In this way, you never have to see the funds, and money is simply channeled to the hands to which they belong. Furthermore, your profit will simply be the difference between PayPal transactions, and the money will add up. All major credit cards are on file with PayPal, so people will be able to use their credit card. It is also eBay’s preferred method for transactions, so most people will use it as the method of payment. Therefore, if you are unaware what you’re going to do for payment, use PayPal.

Using PayPal will simplify the process of both buying and selling, and it allows you to save time and drop ship more items. As long as your supplier accepts PayPal as a method of payment, you can use it in every step of the drop ship process and make things extremely easy. Then again, how can you find a supplier that meets your needs? For the answer, see the next section.

How to Find Suppliers

The success of your drop shipping ventures lies in the quality of your suppliers. That is, the source of the goods that you sell is essential to how much money you can make in drop shipping. In order to have items to list on eBay or your own web site, you have to find a supplier that has the item and provides it at a price low enough for you to make a profit. It wouldn’t do much good if you were able to sell an item, but you weren’t reaping a profit. Therefore, you must find goods that will sell at prices that will reap a profit for you.

While this is the most important part of the drop ship process, it is also the most difficult. Finding a supplier for a given item seems near impossible if you don’t know where to look. However, when you find the supplier that meets your needs, it is like striking gold. Many drop shippers have success from using only one supplier after establishing a relationship with the company. On the other hand, some drop shippers keep looking for new suppliers in order to provide better prices and a greater variety.

Therefore, the question stands: how does one go about finding quality suppliers? The most common way that people find suppliers is from dropship and wholesale directories. These directories compile quality supplies into one place, so users can quickly browse through to find those that meet their needs. For example, if you are looking to sell baby supplies, you can search for these types of suppliers in a dropship directory. Having these types of opportunities in your belt can simplify the work required for you to find profitable items to dropship.

Having a directory at your disposal also gives you the opportunity to compare prices before choosing a supplier. When searching on your own, you may only find one supplier in a given niche, and you will be forced to buy their products at their prices. When you have many suppliers at your fingertips, however, you are able to choose based on the supplier that meets your needs most accurately.

There are several different types of directories. There are those that simply give you a list of suppliers and let you have at it. Then, there are those that provide educational materials along with a list of suppliers. There are those that test each supplier to make sure they are legit, and there are even drop ship services that negotiate prices and attempt to make the process very easy for the drop shipper. What you need is completely up to your experience level and what you are hoping to do with your business.

There are many drop ship directories and services on the internet, and it can be overwhelming to sift through each one in order to find one that fulfills what you are looking for. Therefore, Joe Money has reviewed several different drop ship directories and services in order to aid in the decision making process. To find the best suppliers for whatever you are hoping to drop ship, return to our Make Money page and look for the reviews under the dropshipping section.

I was surprised to find out that your debt to limit ratio has a 30% impact on your credit score. Only your credit history has a higher effect on your credit score.

Debt to income ratio is sometimes called debt utilization. Basically, it is the percentage of overall debt you owe compared to the total amount of your available credit lines (not the amount of credit that you have).

Let’s say you have several credit cards and your total available credit line is $100,000. Now you have shown tremendous restraint and only owe $10,000 on those cards. So you are using 10% of your available credit line. Anything under 30% debt utilization is considered very good and will help you attain a high credit score. But, if you had loaded those same cards up with $80,000 worth of debt, you would be at 80% debt utilization and negatively considered a credit risk.

There are some things you can do to increase your debt to limit ratio. The most obvious is to pay down your debt. However, one thing consumers often do as soon as they pay off a balance on their credit card, is close the account. This may not be in your best interest if you are trying to raise your credit score. Closing an account lowers your total available line of credit. If you leave the account open with a zero balance, the credit scoring system thinks you are a financially responsible individual because your debt to income ratio is low.

There is a lot of controversy over closing unused credit card accounts. Some financial gurus are adamant about it. They say you should close the account so you won’t be tempted to overspend. But the truth is that you need to decide for yourself whether this will fit into your financial goals. If you are going to purchase a house or car anytime in the next year or so, you may need to depend on a high credit score and closing unused credit lines can lower your debt to income ratio.

You should also be aware that if you are debt free and have no line of credit open to you, your credit score will be lower than someone who has a small amount of debt and larger lines of credit. Of course, if you are debt free and have a million dollars or so in the bank, you won’t have to worry about your credit score or debt to income ratio.

Another way to lower your debt to limit ratio is to increase the amount of your credit lines. You can do this by calling your credit card company and asking them to raise your credit limit. Be sure to ask them if they can do this without pulling a new credit report on you. Credit inquiries constitute 10% percent of your credit score. Then, after they raise your limit, don’t spend any extra. Try to keep your balances low and spread out across several credit lines. Don’t go overboard when asking for increased credit lines. A high credit limit can be viewed as possible debt and has the potential to count against you.

The thing to remember about your debt to limit ratio is that the credit scoring system doesn’t look for a specific dollar amount. They look at how much debt you have, compared to how much credit is available to you.

How important is your debt to limit ratio? That depends on where you are in your financial life. Do you want to buy a house someday? Do you expect to pay cash for that house or are you going to need to finance it? I don’t know anyone who can afford to pay cash for a house. Whether we like it or not, having a good credit score has become an integral part of our financial lives. Since your debt to income ratio is a significant part of your credit score, it must be considered very important.

By M. Beddingfield

Additional Information (Reader Question):

Is 10% the Best Debt-to-Limit Ratio for My Credit Score?

Credit scoring models are full of eccentricities and minutia that can make a big difference in your final score. Debt-to-limit calculation (which accounts for 30% of your credit score) is one of those confusing areas. Here is one reader’s question:

I have read several sources who recommend using only 30% of your credit limit to enhance credit scores.  I recently read TWO articles that now recommend using less than 10% of the credit to best enhance the credit score.  Which (if either) is correct?  What is the recommended credit line usage limit to help credit scores?

Simple Answer: under 10% (and more than 0%) is the absolute best for your credit score.

For example: you would be earning the most score points in this category if you had four cards with a total credit limit of $15,000 and a total credit card balance level between $1 and $1,500.

But this is one of those “great idea, or greatest idea” sorts of things. A 30% DTL level would be a credit score improvement if you had previously been over 50%. The credit scoring model assigns fewer points toward your credit score the higher your debt-to-limit ratio is over 10%.

And remember, this is your statement balances on the cards vs. the total credit limits. The individual balance ratio on cards has some value too, but it is really the total ratio for all cards on your credit report that is important.

Note: You can still have a high debt-to-limit ratio even if you pay your credit cards off in full each month.

Some consumers looking for a quick credit fix stop using their credit cards except for a couple very small purchases a few months before a loan application as a way to reduce their debt-to-limit ratio and improve their scores.

By Emily Davidson – A former TransUnion insider.

Interested in learning more about your credit score and debt to limit ratio?  Want to know how to achieve YOUR very best credit score?  Joe Money has read countless “How To Improve Your Credit Score” books and has found “Best Credit” to be the best among them all.  It rocks.  We Promise.  Scouts honor.

For new investors or those now starting over, there’s good news here because Buffett’s investment success comes from some easy-to-grasp human qualities as much as sophisticated expertise in balance sheets.

Buffett would be the first to say his homespun and positive philosophy played a big role in his becoming the richest person in the world (before he gave most of his loot away).

Changing your basic psychology can be tough, so new investors may have a leg up here because they don’t have ingrained bad habits. But for anyone, a psychological makeover is worth the effort if you hope to recover your losses in the market’s next leg up — and then make the right moves for the rest of your life.

My tour of the essence of Buffett’s wisdom starts with the simple psychological lessons taught by the master, many of which are applicable in life outside investing.

Lesson No. 1: Be frugal

If the economic downturn is forcing you to live simply, look on the bright side: It’s making you more like Buffett.

Buffett lives in the same modest house in Omaha, Neb., that he bought more than five decades ago. He drives his own car.

How does this makes him a better investor? First, it gives him more to invest.

Second, a frugal investor will demand this quality from managers. Buffett is leery of corporate waste. Excessive executive pay or silly perks are red flags. Buffett once quipped that companies stack pay committees with “sedated Chihuahuas.”

Third, frugal people don’t need fast returns to support extravagant lifestyles. This leaves them free to think more clearly about when to buy and sell stocks, making them much better investors, believes Stephen Shueh, a Buffett expert and managing partner of Roundview Capital in Princeton, N.J.

Lesson No. 2: Wait for the ‘fat pitch’

Resist the itch to constantly buy or sell stocks.

“Lethargy bordering on sloth remains the cornerstone of our investment style,” quipped Buffett in his 1990 annual report to Berkshire Hathaway shareholders. Have the patience to wait a long time until some market turbulence brings the “fat pitch,” as Buffett calls it, or stocks of great companies trading at really cheap valuations.

We see that now in the market. Key Buffett holdings such as BNSF Railway and third-quarter purchases like ConocoPhillips, Eaton, NRG Energy and US Bancorp all appear to be in the range where Buffett would — or did — buy.

Lesson No. 3: Be a contrarian

A great way to make money is to go against the crowd. “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful,” Buffett explained in a 1986 letter to shareholders.

So be skeptical of the conventional wisdom. Not because the crowd is always wrong but because the crowd’s wisdom is probably already reflected in market prices, says Todd Lowenstein, a portfolio co-manager of the HighMark Value Momentum Fund.

Right now, for example, many investors are extremely negative, suggesting it’s a good time to buy stocks. Buffett is.

Lesson No. 4: Stick with what you know

One of Buffett’s basic rules is: If you don’t understand a company’s product or how it makes money, avoid it. He calls this “staying within your circle of confidence.”

This isn’t always easy. During the late 1990s boom, Buffett famously avoided tech companies, confessing that he could not understand what they did. He looked dumb until the bubble burst. “Ultimately, when it came full circle, he was proven right,” Lowenstein says.

Lesson No. 5: Don’t depend on others to say you’re right

If you are in need of constant affirmation about your investment decisions, particularly from the stock market, you won’t be able to invest like Buffett, points out Legg Mason money manager Robert Hagstrom in his book “The Warren Buffett Way.”

That’s because Buffett makes outsized returns by purchasing disliked value stocks that are so beaten down they’re often virtually ignored by the talking heads. They won’t be on TV every week telling you that you made the right choice.

Lesson No. 6: Buy companies cheap

This is the essence of being a value investor. The first step involves calculating what Buffett calls an “intrinsic value” for a business — either by examining what similar companies sell for or calculating the present value of all the cash that will be generated by a company in the future. For more details on how to do this, you’ll have to consult books such as “The Warren Buffett Way” or “The Market Gurus” by Validea’s John Reese.

Next, build in a “margin of safety” by purchasing a stock well below its intrinsic value.

Buffett doesn’t pay much attention to earnings per share, a common measure of value. Instead, he likes to see companies with good return on equity, solid operating margins and reasonable or no debt. He also likes to see that companies generate a lot of cash and that they invest it well or return it to shareholders in the form of dividends or buybacks.

The key throughout this analysis is to look back over five years or more. Buffett wants to see a consistent operating history; he’s not into startup companies. He also prefers to gauge how well a company does in different kinds of markets, not just the good times or the latest quarter.

Lesson No. 7: Look for companies with economic moats

A key characteristic supporting consistent operating history is a sustainable competitive advantage. In other words, a company should have a barrier to entry — or a kind of moat — that keeps potential competitors at bay.

This could be a patent protection on drugs, high costs to get into a business or simple brand power, fund manager Lowenstein says. “Franchise” businesses like these can do well because they have the power to raise prices. In contrast, companies in “commodity” businesses have to take whatever price is set by a competitive market — which can crush profits during hard times.

BNSF Railway is a great example of a “franchise” business. It’s pretty hard for anyone to lay enough track in North America to start a competing railroad. Coca-Cola, another long-term Buffett holding, has barriers to entry in the form of a strong global brand and distribution system that is hard to replicate.

Lesson No. 8: Buy big, concentrated positions

Most professional money managers protect against risk by diversifying. Buffett goes against the crowd here, too. When he finds a company he likes, he piles into it big time.

This is crucial to his success. Money manager Hagstrom calculates that if you eliminate a dozen of Buffett’s best investment choices over his career, he’s only an average performer. Buffett thinks his risk protection comes from understanding a business better than the market does and then being patient enough to buy it at the right price.

Lesson No. 9: Hold for life

Buffett quips that his favorite holding period is “forever.” Embedded in this concept are two key Buffett tenets I’ve already alluded to. First, it’s worth investing only in companies that are good enough to outperform for decades. Next, you have to think on your own and avoid the madness of the crowd.

“Buffett believes that unless you can watch your stock holdings decline by 50% without becoming panic-stricken, you should not be in the stock market,” Hagstrom says.

This doesn’t mean buy and forget. Buffett tracks his investments closely and gets out when he thinks that they are fully valued or that trouble is on the way, points out Pat Dorsey, the director of stock analysis at Morningstar.  A few years back, Buffett sold big positions in Fannie Mae and Freddie Mac, the home mortgage companies that blew up last year.

Buffett is not infallible, however. He still owns big positions in Gannett and Washington Post even though he forecast at his 2004 annual meeting that the newspaper business would see nothing but trouble for decades.

The price of his company’s stock — always a major part of his wealth — dropped 31% in 2008 as it followed the market down.

Lesson No. 10: Believe in America

Unlike most investors, Buffett doesn’t tweak his portfolio depending on which party is coming into office or where we are in the economic cycle. This may make him seen naive. But it also has him putting money to work now, when many others have lost faith in the U.S. economic system. It’s a move that will likely make him a winner down the road yet again.

After all, the current fears about the long-term prosperity of U.S. companies make no sense, he wrote in an October op-ed column in The New York Times. That’s why he’s also been busy moving his personal investment money from bonds to stocks in this pullback.

“These businesses will indeed suffer earnings hiccups, as they always have,” he wrote. “But most major companies will be setting new profit records five, 10 and 20 years from now.”

By Michael Brush

Joe Money highly recommends reading the below books.  The Intelligent Investor is written by Ben Graham (Warren’s mentor) and is by far one of the best books ever written on investing.  In fact, when Joe Money met Warren in 2007, he said that anyone who invests, seasoned professional or brand new, should read this book.  Warren himself has re-read it countless times as the advice is timeless.  The other book,  The Warren Buffett Way, is a great book that delves into the mind of Mr. Buffett and creates a framework for how he thinks and operates.  Another must read.

First, let’s review the basics. Details vary from state to state.

• Liability insurance pays for injuries and property damage caused by a crash if an insurance adjuster determines you were at fault. It does not cover your injuries or those of other people on your policy, or damage to your vehicle. State minimum requirements provide inadequate protection. Buy no less than $100,000 per person, $300,000 per accident and $50,000 for property damage, or no less than $300,000 if your policy has a single limit. You are personally liable for claims that exceed your coverage, so buy even more if you can, and consider an umbrella policy.

• Uninsured/underinsured motorist protection covers injuries to the occupants of your car — and property damage in some states — if the other driver has no insurance or too little.

• Collision insurance pays for damage to your vehicle in an accident. If your car is totaled, you’ll get what the insurer considers the pre-crash market value of your car, minus your deductible. To get a general idea of what that may be, check the Kelley Blue Book private-party price or visit the Web site of the National Automobile Dealers Association. You can pay extra for replacement-cost coverage for newer cars.

• Comprehensive insurance covers theft of your vehicle and noncollision damage to your car, as well as animal collisions. You may be eligible for lower rates if your vehicle has anti-theft and tracking devices.

• Medical or personal-injury protection provides coverage for you and your passengers, regardless of fault. You may not need this insurance if you have good health insurance.

• Twelve states have no-fault insurance, which generally covers the insured person’s injuries and property damage no matter who is at fault.

• Consider gap insurance if you owe more on your car than it’s worth.

Reduce your rates

The company you select and the coverage you buy can greatly reduce your rates.

• Shop around. Check rates online at Geico.com (Joe Money insurance recommendation based on price, service quality, and financial safety/credit quality) call companies, and consult an agent through the Independent Insurance Agents & Brokers of America. Rates vary greatly depending on a company’s operating expenses, history of claims and formulas for setting premiums. Check a company’s financial status and consumer record. The last thing you need is to go cheap and then find it’s all but impossible to file a claim.

• Increase your deductibles on comprehensive and collision coverage to an amount you can cover out of pocket.

• Consider dropping both if you own your vehicle outright and the combined annual cost for that coverage is more than 10% of what you would get if you car were totaled.

• Ask your insurer about all available special discounts.

• If you’re switching insurance companies, do it in writing. Your credit scores will suffer if you’re canceled for nonpayment.

Control yourself

Your behavior on and off the road has a bearing on your rates.

• Pay all bills on time. Your premiums are based in part on your credit scores or an insurance risk score based on your credit reports.  TransUnion’s TrueCredit will provide your auto insurance risk score for $9.95.

• Drive defensively, and avoid distractions such as text messaging or talking on a cell phone. One speeding ticket may not raise your rates, but an accident you caused probably would — generally by 40% of the company’s base rate.

• Don’t drink and drive.

• Don’t lend out your car. If your friend wrecks it, your rates will go up. If your uninsured friend wrecks your car, you’ll be liable for claims exceeding your policy.

The type of vehicle you drive affects your rates.

• Check the cost of insuring that sports car before you buy it. You’ll pay higher premiums for a vehicle with higher collision-damage costs or that’s attractive to thieves.  And no, it doesn’t cost more to insure a red car.

• High-tech items are more expensive to replace after a crash.

The deal on discounts

Factors such as age, how much you drive, where you live and, sometimes, what you do for a living affect insurance premiums. You can take some steps to get a better rate.

• If you get married, you’ll get a discount and benefit from combining policies. 

• People 55 and older get a discount for taking a driving class.

• Adding your newly licensed teen to your policy will increase your premiums 50% to 200%. One way to reduce costs: Buy a beater and list your child as the driver. Teen drivers can get discounts for drivers ed courses or good grades.

• You may get a discount if your child attends college away from home.

If you wreck your car

If you’ve been in a collision, tell your insurance company for your own protection, even if injuries are not readily apparent. Informing the company doesn’t mean you’re filing a claim.

• If you disagree with the value assigned to your totaled vehicle, provide quotes from local dealers and proof that your vehicle was well-maintained.  Still unsatisfied? Your options are mediation, arbitration and, finally, a lawsuit.

• Twenty-eight states require insurance companies to pay the sales tax on a replacement vehicle, based on the settlement value of your totaled car. Request it, as well as registration and title fees, wherever you live.

• In 14 states you can get payment for the “diminished value” of your damaged car.

• If the driver at fault in a crash is uninsured, consider “stacking” or collecting on all of your policies that have uninsured/underinsured motorist coverage to fully cover the damage, unless state law prohibits it.

• Body shops may be tempted to cut corners to meet insurance companies’ pricing requirements. Check Assured Performance Collision Care for qualified repair shops.

• If you cause an accident, does your policy require you to pay the difference between generic and original-equipment manufacturer parts? If someone else caused the accident, request original-equipment parts for your repairs.

By MSN Money

And consider these points:

• One rule of thumb is that you should spend no more than 20% of your household income to buy and operate car.

• If you don’t have a car payment now, consider whether you’re willing and able to take one on. Try putting aside a car payment, say, $500, each month for three months and not touching it. Are you able to live easily without that money? Would you really rather do something else with it?

• Have a realistic idea about the value of your trade-in. (You can find Kelley Blue Book values here.)

• If you owe money on your current car, rethink any plans to buy a new one if your loan is “upside down” — if the car isn’t worth what you owe. Rolling over debt is the fast track to real trouble. You’ll pay higher interest rates because what you owe isn’t secured by the new car itself.

• Look further ahead than the monthly payment. Choosing a car that requires premium gasoline will cost you several hundred dollars more a year. Choosing a car equipped with summer-only tires could force you to buy another set for winter. Satellite radio? That’ll cost $140 or so a year.

• Consider your credit. Loans for people with marginal credit have grown increasingly more expensive. A few months’ work on your credit rating could pay off in a loan rate several points less expensive. (You can get an estimate of your credit scores here.)

Still not ready to roll

If you decide to buy, there are still a few key steps before you leave the house:

• Get a feel for what’s out there. (Check MSN Autos‘ 2008 model year review or used-car listings at AutoTrader.) Unless you’re a gearhead or intensely brand-loyal, you should find several models to compare and test-drive rather than fixing on just one.

• Resist the urge to pay sticker or more for a high-demand car. Demand — and selling prices — always fall. Remember the New Beetle and the PT Cruiser?

• Call your insurer for full-coverage rates on the cars you’re considering. (You can compare the relative risk for theft, injury and collision repairs for different cars with MSN Money’s Auto Risk tool.)

• Contact your local motor-vehicles department to see what registration and licensing would cost. You probably will roll the first year’s costs into your loan, but the hit can be substantial in subsequent years in states with yearly fees based on the value of the car.

• Arrange financing. You can get an idea of rates here. You should apply with at least one bank or credit union. (If a bank won’t lend you money for a car, you really shouldn’t be buying one until your credit is repaired. A car dealer probably can find financing for you, but you will pay dearly for it.)

• Do a reality check. If you have little to no down payment, you are upside down the second you leave the dealer’s lot. The longer the loan, the longer you’ll stay trapped that way. Aim for 48 months; that way you can get a few payment-free years before the car begins to need major repairs — and you’ll have positive equity much more quickly.

Tricks of the trade

Will you trade your old car? Selling can be a hassle, and it’s not always worth the trouble. But sometimes it is. Consider:

• Is your old car worth less than $5,000 or so and paid off? Sell it yourself. A new-car dealer wouldn’t be generous (probably it would go to auction rather than stay on his lot), yet cars in that price range are a sweet spot for buyers who can’t afford to finance — and for smart folks who don’t want to go into debt.

• Selling a car worth a substantial sum is more difficult. You can’t offer the kind of financing and dickering room a dealer can. And selling a car on which you still owe money can be a lot of work. (See “How to sell a car you don’t own.”)

• A deciding factor on trade-ins may be your state’s sales-tax policy. Some states tax only the difference between the sale price of the new car and the trade-in value of the old. In others, you pay sales tax on the full value of the new car. A $20,000 trade-in in Washington state, for example, would save a buyer at least $1,460 in sales tax.

• Remember that the value of your old car is what someone will pay to buy it, not necessarily what a dealer will give you in trade. If a dealer offers you $2,000 above Blue Book for your car, he’s making up the difference elsewhere.

In the hot seat

• If you have arranged financing in advance, you can drive a harder bargain or simply walk away. If a dealer can offer a better deal, great, but you won’t be compelled to buy at the only place that would finance you.

• If you hate to haggle, you can try either a no-haggle dealership or a service that does the haggling for you. (See “Car dealers stake out haggle-free zones” and the video “A deal at a fixed price.”)

• Buy a car, not a payment. Negotiate the total price of the car. (Use the chart below as a rule of thumb to figure payments.) When the salesman asks about monthly payments, say, “I’m more interested in the price of the car right now.”

Estimate your payments as you shop

Here’s what you’ll pay for each $1,000 you borrow:

*Annual percentage rate

• Leasing is just another method of financing. It could make sense if you like to trade every two or three years and don’t drive a lot. Negotiate the cost of the car first. Put as little down as possible; gap insurance on leases won’t repay any “capital reduction” if you total the car. (See the video“Should you buy or lease a car?“)

Fill ‘er up . . . gulp

Gas prices are higher than ever, and there’s no quick fix. Here’s just some of what you can do:

• Easiest? Consume less, either by choosing fuel-efficient models or ditching a car altogether. Look for a car no bigger than you can use regularly (and rent a pickup when you need to go to Lowe’s). (See “Could you get by with just one car?” and MSN Autos’ Green Vehicle Center.)

• Plan your trips. That means not just combining errands but also planning your route to avoid left turns, for example. Also avoid idling in the drive-through.

• Forget premium gas. Buy the cheapest gasoline that doesn’t make your car engine knock.

• Compare fuel prices on Internet sites that track them, such as GasBuddy.com and GasPriceWatch.com. (See “12 ways to find cheap gas.”)

• Text messages about low prices also are available. If your phone supports sending a text message to an e-mail address, get prices from gas@gasbuddy.com or gas@fuelgo.com. For up-to-date delivery to your desktop, MSN Autos offers a downloadable program that grabs gas-price data.

• In general, the nicer the neighborhood, the more you’ll pay for gas because station owners’ overhead is higher. So stop in a less expensive part of town to pump up. However, it’s rarely worth it to drive around looking for cheaper gas.

• Try not to drive with a cold engine, don’t carry things on top of your vehicle, slow down, and avoid hard acceleration and braking. (See “Fuel-saving driving tips.”)

Squeeze out more savings

Whether driving a new car or the old one, we’re all looking for ways to save money. Here are more ideas:

• Consider car pools or shared car arrangements at least part of the time. (See “Should you share a car?“)

• Never skimp on maintenance, especially those things that cost a fortune if they break. Get regular oil changes, tire rotations, tuneups and transmission checks. With regular maintenance, today’s cars can go 200,000 miles or more. (See “Cars that last a million miles.”)

• Keep a record of repairs. With a log and the receipts, you’ll know who did the work and when and whether there’s a warranty. (See “20 ways you waste money on your car.”)

• Consider dropping comprehensive and collision coverage if you own your vehicle outright and the combined annual cost for that coverage is more than 10% of what you would get if you car were totaled.

By MSN Money