By Terry Savage, The Street.com

Some life insurance policies are starting to haunt the living. Three years ago, I said “premium financed” policies were “not exactly a scam, but dangerous.” Today that warning seems like an understatement.

More than $20 billion of these so-called “spin life” insurance policies have been sold and now they’re starting to implode. Many policy holders don’t realize the trouble they face.

The concept seemed straightforward when sales were rampant several years ago. Agents promised clients that investors would lend them money to pay the premiums for the first two years, until the policy was past the “contestability period.” Then the policy would be sold to an investor, who would continue to pay the premiums, hoping to collect on this “bet” on the senior’s longevity.

Agents were encouraging elderly people to buy huge life insurance policies on themselves, even though they didn’t need the insurance, and couldn’t afford the premiums.

Why would any person let a stranger become the owner of a policy on his life? The answer is simple: money.

Pre-death bonus: Seniors were tempted by upfront “bonuses” that ranged from thousands of dollars to expensive cruises just for letting the investor bet against the insurance industry’s mortality tables, and eventually collect the policy proceeds. And they were promised more money when the policy was sold.

At first, there was no risk to seniors. The loans to pay the premiums were “non-recourse.” However, three years ago, insurance companies decided that customers needed to guarantee at least 25% of the premium. The insurers potentially sensed problems brewing, but still wanted to sell policies.

Sales agents collected fat commissions by convincing seniors there was no risk. Household names in financial services were raising money to buy these policies, betting they would pay premiums for a few years and then collect on death. Among them were LaSalle Bank (now part of Bank of America (Stock Quote: BAC)), Credit Suisse Group (Stock Quote: CS) and funds managed by Berkshire Hathaway (Stock Quote: BRK.A) and Goldman Sachs (Stock Quote: GS).

Death bet gone wrong: Then came the credit crunch. Demand for the policies dropped as investors struggled to borrow. When the two-year premium period expired, the insured expected brokers to sell the policies, allowing them to collect their bonuses. But there was no money to complete deals.

Suddenly, seniors faced premiums on insurance they didn’t need and couldn’t afford. It wasn’t unusual for a senior to take out a $5 million policy, citing estate tax purposes. The premium on that policy could be $200,000 a year.

Sure, they could stop paying premiums and drop the policies, but most had signed documents agreeing to repay at least 25% of the first two years of premiums, plus interest. At the end of two years, the senior would owe $100,000 plus interest, adding another $6,000 to the tab.

Forgiven loans taxed: If the senior manages to pay off the guaranteed amount, plus interest, the lender will “forgive” the balance and additional interest. However, the policy holders will owe taxes on the forgiven debt.

If $300,000 plus $18,000 in interest was forgiven, a senior in the 35% tax bracket would owe an additional $100,000 in taxes on this phantom income.

Marc Sheridan and Don Tolep of Sheridan Wealth Advisors in Bay Harbor, Fla., say they’re seeing more seniors facing financial ruin with these loans. They say the Internal Revenue Service might be collecting as much as $1 billion in taxes on this income.

It’s estimated that more than 10,000 of these “spin life” policies were sold in recent years. It looked like easy money for those willing to “share” their insurable capacity. Now they’re learning an expensive lesson. And that’s the Savage Truth.

By Marek Fuchs | MainStreet.com

Bank of America (Stock Quote: BAC) announced today they’ve raised $26 billion of the $34 billion the government told it to raise after the results of recent stress tests. That’s the amount of capital, according to the government, that the bank needs to absorb future investment losses.

But what about you? Can your finances withstand unpredictable, money-draining stress?

Financial planners say you should stress test your own personal finances. And it takes considerably less fuss and public debate.

“What we are really talking about is living beyond means,” says Scot Stark, the president of Stark Capital Management in Freeland, Md. “It boils down to whether or not you are being irresponsible.”

Personal Stress Test Simplified
Running an effective stress test on yourself is not complex financial engineering. If what is going out outweighs what is coming in, you fail.

Failing a stress test, Stark points out, is not much of an option. It a long time to resuscitate a credit score or your emergency fund. Moreover, you’ll need to change all your habits and make sure the new ones stick. It’s no easy lift.

The upshot: Catch yourself before you fail.

Toward this happy end, Stark has a secret. He sits down once a week to make certain his household expenses are not exceeding his income. Maybe that’s asking too much of a financial planning civilian, he allows, but once a month is absolutely mandatory.

Personal Stress Test: What to Look For
Besides making certain that inflows and outflows are matching up, you should make certain that your mortgage payment does not exceed 28% of your gross income, and that you have a stash of rainy day money.

If you work on commission or otherwise have a salary that fluctuates, you want nine months of salary to draw on in an emergency. If you work on salary and stand to earn a severance if fired, you can probably get by with three months and still pass. Anything less, in either case, is the equivalent of getting a warning notice from the school dean. “Watch it, Frosh, you are headed for failure.”

Beyond that, telltale signs of am impending failure of a personal stress test are:

* Not paying off your credit card every month;
* Your credit rating declines significantly;
* You are late on any mortgage, utility or car payments; or
* You’re getting any sort of late notices in the mail.

If you are starting to fall short in any of these categories, you need to recalibrate what you are earning or spending, or both.

And if your credit card is a stubborn part of the problem, “just cut it up,” said Stark.

When you’re auditing, remember that this is your life. You’re not adding up these figures for a school class. The cost of failure is steep.

“I don’t think the government can run a birthday party,” said Stark, no fan of the Treasury Department’s bank stress test. But when it comes to your own private version, it’s easy to do, wholly accurate and, in the final estimation, essential to your future well-being.

Living Almost Large is a blog written by a “20-something DINK searching for true financial freedom.”  For those of you who don’t know, a DINK is a couple that has both sides working full time (“dual-income”) and they have no children (“no kids”).   To be clear: Dual Income No Kids.

Over the past week, there have been several great articles written by LAL.  Check out what she’s talking about below:

Do you think money affects relationships?  Here are some things to think about:

“How do you know someone isn’t being cheap and a user versus being generous but unable to contribute financially to a relationship?  What if the person is in debt and tries to not pay for any dating activities?  Do you view that as admirable and pay their way?

Should you, whether male or female, be watching your financial pocketbook as you date?  Is there a limit?  Can you tell or do you have to shell out some $$$ to figure it out?  What are some classic signs people should notice when dating?”

So what do you think?  Tell us both in the the comments at the bottom of the posts.

Is there anything that you have, or pay for that you would consider luxuries?  Do they make you feel rich?  LAL has a few that makes her feel like they have it pretty good - HDTV, eating out, lack of intense couponing.  What makes or would make you feel like you were living the good life?

“Are you green by choice and do you pay for it?  Or by default?  Or not at all?”  LAL says that she feels as tho they are green by “default”.  They do things that save money in the long run, but these things also ends up allowing them to be green in the process.  What about you? Are you actively pursuing a greener lifestyle, does it just happen, or could you care less?

We’re coming close to the end with our simple reminders to keep your budget and your finances in order.  Remember to apply one or two areas to your life to make success more likely.   Adding it all at once can put you into overload!

P - Pursue new careers – Whether you dislike your current career, or if you see no room for growth, maybe it’s time to work towards a new one? Start talking to others who are in your field of choice.

Q - Quit negative thinking – Automatic negative thoughts (or ANTs) can be damaging to your success.  You should try to keep yourself from automatically assuming that you aren’t going to be able to accomplish something, or that you would, no matter how hard you tried, fail.  You have to kill those ANTs as soon as they begin to come in.  At first this may not be easy, but if you are keeping an eye out for them, and instantly turning around to think something positive, then you will be able keep those negative thoughts at bay until they are no more.

R - Reduce costs of essentials – If you are not able to take on extra shifts or take on a second job, then maybe it’s time to consider if you really NEED to have DVR or if you can downgrade on your internet.  If you have a cell phone, do you really need to have a home phone too?  There are many areas you can consider when it comes to cutting costs.  Many families have chose to eat at home more.  This also contributes to more quality family time as well.

S - Stay focused on long-term goals – while short term goals are good – it’s good to think about your long term goals.  You will want the short term to add up to the long term.  If your end goal is to own your own home, then you will want to get rid of credit card debt and the like, as well as start saving for your down payment.  These short term goals are going to allow you to attain your long term goal of finally owning your own place.

T - Trouble won’t find you, you find trouble – Many people blame credit card companies for the problems they have with their debt.  However, you are the one who chose to open the card.  No one forced you to do it.  No one forced you to use the card either.  So it is no one elses fault.  Which is why you need to take control.  You need to take responsibility.  Once you do those things, you will be on the path of financial independence.  Stay away from it if you think you may have a problem later.

By Althea Chang | MainStreet.com

Being in denial about money matters can make a bad situation worse.

Most Americans feel today’s economy is riskier than the one their parents faced a generation ago. And the recession seems to be proving them correct. At the same time, the majority of those on Main Street think they’re doing pretty OK managing their money.

A whopping 93% of those surveyed say they’re doing a fair job or better at managing their economic and financial opportunities and risks, according to the Allstate-National Journal Heartland Monitor (Stock Quote: ALL), a series of surveys on how folks are dealing with personal finance issues.

Only 5% of the 1,200 polled said they’re doing a poor job.

The disparities with reality (um, that recession we noted above) are notable.

Sure, some consumers are making changes: 34% said they’ve cut back on wasteful spending and 22% have taken steps to live within their budgets. But it appears denial runs deep. Only 5% of respondents said credit card debt concerned them most—but the average credit card debt per household with a card was $10,679 at the end of 2008, according to a recent Nilson Report.

Are We Being Honest About Money Matters?
Same country, same consumers, different picture: In another survey, more than one in four respondents admitted they didn’t pay all of their bills on time. (This was part of the 2009 Consumer Financial Literacy Survey conducted for the National Foundation for Credit Counseling.)

And about 13 million adults have been contacted by debt collectors, are seriously considering filing for bankruptcy, or have already done so within the past three years, according to the survey. One third of adults say they have no savings whatsoever, according to the survey.

About 41% of adults gave themselves a grade of C, D, or F on their knowledge of personal finance, according to the National Foundation for Credit Counseling survey.

Are You in Denial?
So what’s the deal? Everyone’s deal is different, actually, but experts recommend that you ask yourself some tough money questions and seek honest answers.

“It’s common for people to be in denial of a difficult situation that they feel is out of their control,” says Dr. Nancy Molitor, a clinical psychologist in Wilmette, Ill. Molitor compares this tendency to people who underreport how much alcohol they drink. “Part of us wants us to be better than we are.”

To determine whether you’re in denial of a difficult financial situation, Molitor says you’ll have to ask yourself a few questions:

* When you have to make money decisions, do you feel a surge of adrenaline, physical aches or pains?

* Do you have a sense of dread when it comes to managing money? Do you have a visceral or intense reaction or shut down and tell yourself you’ll deal with bills tomorrow or next week?

* Do you have a past history of financial trouble? Do you chronically make late payments or have you made multiple loan modifications?

* Did you grow up in a family where money was used as a weapon or a means to buy love?

If you answer “yes” to more than one of these questions, you might want to get help. Ask a financial planner, a family member or spouse who reacts less emotionally to money, or even a therapist. And learn as much as you can about money and personal finance. When it’s less mysterious, it’s less frightening and you’ll be more likely to take control. Hey, that’s what MainStreet is here for!

Still, even though it is stressful, many of those surveyed in the Heartland survey said that today’s economy presents them with more opportunities to improve their standard of living than their parents had when they were younger. About 42% said they have more opportunities to improve their standard of living.

Improve yours by ditching money denial.

Finances to some aren’t easy, but we like to keep things as simple as possible.  That is why we have been coming up with some easy ABC’s to remember when it comes to your finances.  Check out A-E and F-J.

K - Keep Yourself In Check! – When it comes to paying off debt, the initial payments can be exciting! For once you are seeing that balance go down, and it’s great! However, “things come up” (which is why we encourage an emergency fund!). So this could affect what you could pay towards your debt. Don’t let it continue once the “emergency” is over. Keep a check on where your money is going (always tracking your accounts) so that you can spot any mishaps in your plans. Don’t get in the habit of making up your own “emergencies” as well. Just because your friends suddenly decide to go out tonight, and you want to go, don’t sacrifice your goals for one night of fun. That’s not to say you can’t go. Just try to find a way to cut costs.

L - Live life.. for your future – Many people will tell you that you should live for today, because you just don’t know what will happen tomorrow, and you should have fun! Well, while that may be partially true, you can say the same about tomorrow. You don’t know if you will lose your job, or if your child will get sick. So the best thing you could do is “set yourself up for success” so that when these things come up, you are prepared. And keep in mind, there are still plenty of things you can do to enjoy today! You just have to be willing to think outside the box at times.

M - Make it possible – Whatever your goals are, you have the power to make them reality. Take a proactive role in your finances, and you will find ways to make this possible. Don’t make enough to put towards your debts? Find ways to create more income: second, part-time jobs (they only have to be temporary), a home-based business, try to move up in your current job, etc. If you simply don’t know what you owe, create a list of what you do know about. Think there are more to it? Check your credit report. (This is also beneficial for looking into possibly mistakes on your credit report.)

N - Never go to the grocery store hungry – Here’s a tip that pertains to savings money on an easy task that everyone has to do at some point: If you are going grocery shopping, try to eat at least a snack before you go. This will help curb the tendency to put whatever looks good in the moment into your cart. When you are hungry, and you are looking at an aisle of food, everything may look good and you won’t be saving money! (Remember to take your list with you to the store as well!)

O – Offer to take on extra shifts – We mentioned earlier about creating more income with work. An easier way to do this would be to simply take on extra shifts at work if you can. This will allow you to not have to add a new job, but will still create more income for you to put towards your debts. All you have to do is calculate how much extra you would have from the extra shift(s), and then apply that to a debt.

By MainStreet.com Staff Writers

Buying a home for the first time can be an invigorating and scary experience. You may find the whole ordeal to be a bit overwhelming. Here are some pitfalls to avoid when you’re buying your first home:

1. Buying Before You’re Ready
Although you may hear people say you’re “throwing your money away on rent,” it isn’t always wise to buy a home. If you make a good salary and have an expanding family, the desire to own a home is natural, but you have to make sure that buying makes good financial sense. Start by evaluating your debt and income. You should cap your spending on a home at no more than three times your household adjusted gross income. Also, you should reduce your income by your debt. This is how much house you can truly afford. Most financial experts also recommend that you have eight to 12 months in liquid assets in order to be totally prepared for homeownership.

2. Not Asking Questions
For first-timers, being afraid to come off as too eager or annoying with questions can force you to miss important information. After all, smart people ask questions! Don’t be afraid to ask for definitions or explanations of everything, even if you think it should be something you know. You never know how much trouble you can get into by not understanding basic home buying terminology.

3. Underestimating Additional Costs
Just because you can afford your mortgage payment each month doesn’t mean that you can afford a home. You must also take into consideration closing costs, property taxes, home repairs and unexpected emergencies. In addition to these expenses, you should consider the costs of upkeep, including utilities, lawn care, security systems, pest control and annual maintenance.

4. Overestimating How Much You Can Afford
This goes back to being realistic about your income. Just because you’ve been approved for a loan amount doesn’t mean you can afford it.

5. Forgetting About Resale
This is a dangerous pitfall many people are contending with now that the market bubble has burst. They purchased homes that were “unique” or “needed work” but never got around to doing it. Now, they’re stuck with homes that are worth even less than they paid for them and still are in need of repairs. Which brings us to the next pitfall…

6. Thinking Home Repair Is Simple
This is a major no-no. Never assume a repair on a “fixer-upper” will be simple or cheap. Even if you are doing the labor yourself, the cost of permits and materials alone can set you back an enormous amount of time and money, so be prepared for this.

7. Forget About the Neighborhood
Be sure to visit any potential home at night as well as during the day. Remember, if you buy a home, you are buying the neighborhood also. Keep an eye out for the area’s progress. Is it on the upswing or in the middle of a downturn?

Overspending is extremely easy to do. Everyone falls for it every now and again because sometimes you just feel the need to spend. However, there may be things that trigger our overspending even when we know that we are on a budget and cannot really afford to spend money.

1.) Stress – Work, family, friends, sickness, money…all these things (and many more) can lead to stress in someone’s life. Stress can definitely trigger your spending because it allows you to take your mind off
of whatever may be bothering you for that little amount of time. Even if it is just going out for dinner or a drink after work…although you may not be able to afford it, if you think it will take away your stress and allow you to relax a little bit you are willing to spend the money.

2.) Peer Pressure – As you get older you think that you outgrow peer pressure and that it really not longer effects you. However, this is really not the case. In the work environment or even just with friends, peer pressure is very prominent as you get older. When shopping with friends, if they are buying things or if they tell you that something looks good on you and that you should buy it sometimes you fall into the trap and end up purchasing something just because someone said you should.

3.) Emotions – If something is happening in your life that has got you down or on the flip side makes you want to celebrate, this often triggers a side of you that makes you want to spend money. Similar to stress, spending allows you to forget bad things that are happening. However, if you get a promotion or something, you spend money to celebrate. The same goes for if you have a date or vacation…you are excited so spend more money.

4.) Credit Cards – Credit cards definitely give us an easy out. Even when people know that they do not have the money to spend, they know that a credit card can still allow us to spend. This is one of the worst influences because it will get you in serious amounts of debt that you have to account for later on. People get sucked into the credit card trap without really thinking about what they are doing and before they know it they have spent way more than they thought.

All of these things can trigger over spending that you know you should not be doing if it does not fit within your budget. Try to find things that will substitute spending money to help celebrate or make yourself feel better. In the long run, giving into these things that trigger your spending will only make you struggle with your budget or lead you into a great deal of debt down the road.

— By Hannah Waters, Geezeo.com

Photo by: Jane M. Sawyer

We previously mentioned some simple basics to keep in mind when it comes to budgeting and finance – just like your ABC’s.  In fact, were using the ABC’s to help keep it even more simple.  This time however, let’s look at some basics for your debt.

F - Figure out all of your debt – If you are wanting to budget in order to get control of your debt and pay it off, you need to know how much you owe and to whom you owe it.

G - Grow up! – It’s time to take responsibility for yourself and your actions.  If you are old enough to obtain debt, then you are old enough to pay it off.  You can’t rely on any one but yourself.

H - Have back up plans (Emergency Funds) – It’s important to save up enough money to have a cushion.  You should determine what your goal is.  For some it’s 3-6 months.  For others, they think that it is important to have at least a years worth.  This money should be enough to take care of you in an emergency, as well as if you lost your job.  If you were unable to find a new one, you would have enough money saved up to pay your bills at least for a time.

I - Include every debt – Don’t ignore a debt because you don’t think it’s important.  When paying off your debts, you should include all of them so you have have a full financial picture of where you are.

J - Just do it! – Sometimes you just have to suck it up and take care of your debt.  There are times when you may lack the motivation.  However, if that is the case with you, just start doing it, no excuses, and after a while, as the debt starts to decrease, then you will begin seeing how good it feels and want to continue.

Again, let Geezeo help you get a handle on your debt.  You can keep track of all of your accounts in one place to easily find out where you really stand with all of your accounts.

With the current economy going through a tough spot, it is easy to understand why people are wary about putting their money into a 401(k). People may be worried, but the positives definitely outweigh the negatives and putting money into your 401(k) can be extremely beneficial to your future. However, there are things to consider before you take the leap!

How Much Money You Can Afford – Think of your 401(k) as basically giving your money away until a later date. Once the money is in your 401(k) account, you really do not want to have to borrow money from the account because you get a lot of fees and taxes on this withdrawn money. Instead, make sure you budget for how much money you can afford to put in your account. It may be best to start smaller and build the amount up as time progresses.

Matching Contribution – Make sure you know if your company offers a matching contribution towards your 401(k). Let’s say your company will match up to 5% of the money that you contribute towards your 401(k)…then you should really try to contribute at least 5% of your paycheck to your account because it is basically free money from your company! This extra money from your company can be very beneficial to you when retirement time rolls around.

Tax Free – Remember, the money that you put into your 401(k) is pre-tax so you are not taxed on this income. This means that the money you put into your 401(k) will come out of your paycheck before the taxes are taken out and you will end up paying less taxes each paycheck that comes through.

What Type of Investor You Are – There are different types of 401(k) plans you can enroll in. You must decide whether you are a conservative, moderate, or aggressive investor in order to find the plan that is right for you. When considering what type of investor you are you should also consider how many years you have until retirement. Say for instance that you plan to retire in just three years, then a conservative 401(k) may be the best choice for you since you are more concerned with short-term changes in the market. However, if you are planning to retire in about 15 years, then a moderate or aggressive account may be better for you since you have more time to ride out fluctuations in the market.

Small Changes – Contributing even a small amount of money towards your 401(k) will help you save for your future. You may not even notice the small amount of money that is taken out of your account each paycheck. These small changes can help you a great deal with your savings.

Although investing in your 401(k) may be a big decision, there are many people you can ask for advice and help if you feel as though you do not completely understand the process. Friends, family, co-workers and human resources should all be able to offer you advice and guidance throughout the decision making process.

— By Hannah Waters, Geezeo.com

Photo by: octaviolopez

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