I realize that people like me aren’t supposed to send e-mails like that, but I couldn’t stop myself. My brain told me, “Follow your system; history says it works.” My gut cried, “Are you crazy? Save what you can!”

Fear makes you stupid. To be on the other end of unhinged e-mails like this is what advisers are for. Mine reminded me about crises past and how stocks had recovered. Still, under his calm, his gut was screaming, too. “It’s a dangerous time,” he couldn’t stop himself from saying.

Besides my retirement account, I have a taxable account that I manage myself. Both are invested in low-cost, no-load mutual funds, allocated across various types of securities. Both are rebalanced periodically to maintain their original allocations. I should be weathering this shock as I did all previous ones: make regular contributions, rebalance and wait.

But this is the kind of collapse that sends you back to first principles. Were my allocations right in the first place? Stressed financial planners are asking themselves the same thing.

Take the question of safety. Planners traditionally have said, “Keep money safe if you’ll need it within two or three years,” for expenses such as tuition, taxes, buying a house or future daily bills. Money you won’t touch for longer periods can go into riskier investments, for higher returns.

That worked fine in the three market cycles during 1980 to 2000. After stocks dropped, it took less than two years for them to recover their previous peaks.

Then came the 2000–2002 bear market, which took more than six years to recover, followed by the current plunge. In a classic case of barn-door thinking, planners are reworking their definition of “safe.” Many now say that money needed in the next five years should go into bank CDs, bank money-market accounts and short-term bond funds. These investments pay more than you’d get from money funds that buy Treasuries, many of which now cost more in fees than the near-zero interest you earn. Treasury bonds are the only investment bubble left.

My OMG question was whether I had put too much of my retirement account into stocks. The rule of thumb is to subtract your age from 110 and consider that the percentage of your portfolio to put at risk. If you’re 50, you’d go 60 percent into stocks with 40 percent in bonds.

Sunday Open Houses are starting to look a lot more attractive, and it’s not just because the sellers baked brownies and slapped on another coat of paint. Since 2006, the peak of the housing boom, prices have dropped nationally by 18 percent and the rates on 30-year fixed mortgages have fallen from 6.8 percent to 5.5 percent. That means the average monthly mortgage payment has dropped from more than $1,000 to $894. The bottom line? Says Rich Arzaga, an independent financial adviser who teaches real estate investing at University of California, Berkeley, “Money is cheap, the homes are affordable, and sellers are really very desperate.”

That doesn’t mean you should run out and buy a house today; you can take your time to find the perfect home. The market is likely to bump along the bottom for a while, say analysts, and some markets may not hit their absolute rock-bottom prices for weeks or months—or even, in some vulnerable markets, years. But if you’re a first-time home buyer or a preretiree looking to line up your place in the sun (and you’re lucky enough to be able to afford one in this economy), start shopping now. Here’s why.

Good deals for snowbirds. Retirement hot spots like Florida, Nevada and Arizona have been particularly hard hit with falling prices. There are more than 21,000 homes for sale in Vegas; more than 5,000 in Boca Raton, almost 15,000 in Phoenix. That means lots of choice and room to bargain on price. If you’re intending to move to one of those areas, it makes sense to vacation there this winter and start checking out the market. In the three to five years it takes you to relocate, prices and rates are likely to solidify. There are already signs of slowing inventories and firming prices in some spots, like San Diego. But be careful: if you buy into a condo development that has many empty units, you can expect your monthly condo fees to rise significantly, to cover all those no-shows. And don’t count on rental income in those communities-in-crisis.

A bird in the hand. Don’t wait for the government-backed 4.5 percent rate that Treasury Department sources floated recently. It may never materialize, what with opposition from troubled banks and existing homeowners, and skepticism that it is the economic tool most needed now. Current rates are grazing their 45-year lows as it is, says Keith Gumbinger of HSH Associates, a mortgage-research firm. And they are as likely to head back up as they are to fall further.

 
Nice Threads: 'Gossip Girl''s Ed Westwick (left) and Taylor Momsen
James Devaney / Getty Images (left); Soul Brother-Film Magic-Getty Images

Fashion consciousness isn’t new to the schoolyard set. But with more and more TV shows about wealthy teens, like the CW network’s “Gossip Girl” and MTV’s “My Super Sweet 16” on the airwaves, parents may find themselves bombarded with an unprecedented number of requests for $140 Coach bags and $60 Abercrombie jeans. Here’s how to balance the desire to make your kids happy with the need to avoid bankruptcy.

• Ask why kids want designer duds. Usually, the motivation is to fit in or acquire social status. Christine Feiler, whose kids are 6, 9, 12 and 14, says she regularly hears: “Everyone else has it!” One strategy is to talk about alternative ways of accomplishing that same goal, says Dee Shepherd-Look, a clinical psychologist who specializes in children and families. Parents can encourage their kids to more actively call friends and organize gatherings. “Studies on adolescent popularity show that popular kids are the ones who reach out, make things happen, who tend to be complimentary to other kids,” says Shepherd-Look.

• Lay out the financial picture. If a kid begs for pricey apparel, “the parents can smile and say, ‘That would be grand, but we can’t afford it’,” says child psychiatrist Elizabeth Berger, author of “Raising Kids With Character.” Then kids will understand a “no” is “not that the parents are just being mean,” says Brad Sagarin, an associate professor of psychology at Northern Illinois University. Don’t dwell on the electric bill and the mortgage with younger kids. Instead, ask if they would give up a birthday party to buy an Abercrombie shirt.

Should you discuss salaries with your co-workers? Sure. When you know the guy in the next cube is raking in an extra $500 every month, you can use that knowledge to try to bump up your own salary.

Younger workers are far more comfortable sharing this info, and many companies have become less restrictive about letting people talk, says Robert Hohman of glassdoor.com, a new Web site that offers company-specific salary details. You have to post your own pay to see the info on the site, which now has at least some salary data on 11,000 companies. You can get more-general information at Web sites like payscale.com and salary.com, and check for salary surveys through your own professional association. Or wait until the boss is on vacation and try the old pass-an-anonymous-memo gambit.

 
Illustration:Chris Gash for Newsweek
Committing to Separation: Divorce decrees increasingly include ‘disaster scenarios'

By Linda Stern
Aug. 4, 2008 issue

It’s been more than a year since Janette Chamberlin and her husband decided to divorce. To save money on lawyers, they’ve been negotiating their own settlement and are ready to draw up the papers and finalize the deal. She even has a new boyfriend. The catch? The Chamberlins still live together in their house outside Philadelphia. The couple just sold their home, and, as a result, neither has been able to afford to move out.

The economy is taking a toll on marriages, but it is tough on divorces, too. Couples can’t unload their houses for enough cash to pay off their mortgages and home-equity debts, but job losses and tougher mortgage standards make it harder to afford splitting them, too. “I’m seeing many people who lose jobs and just don’t have the money to pay their alimony and child support,” says Jill Brooke of the online community First Wives World (firstwivesworld.com). Here’s how troubled couples can extricate themselves during troubled times.

• Deal with the house. Couples can hang on to a house until the real-estate market improves, but it’s usually not a good idea, says Stacy Francis, a New York financial planner who deals with divorce issues. “You’re binding two people together financially who don’t want to be bound in any way,” and if one stops paying on the mortgage, it can cause housing and credit problems for the other. It’s better to transfer the house to one spouse, if that spouse can qualify for a mortgage on his or her own.

Couples who can’t afford to do that and find themselves “upside down”—owing more on the home than they can sell it for—are negotiating short sales, in which the bank agrees to cut the loan amount to the sale price the couple gets. Richard Zaretsky, a West Palm Beach, Fla., lawyer, says he is negotiating two or three short sales a week for divorcing couples.

Illustration: Chris Gash for Newsweek 

Last week’s banking news—the federal government stepped in to shore up mortgage-buying giants Freddie Mac and Fannie Mae and to take over the bad-loan dependent IndyMac Bank—left many consumers in a panic. But some experts see the intervention as an opportunity for folks to get their finances in order. “This is all good news for consumers,” says Kathleen Day of the Center for Responsible Lending, a Washington policy group. Here’s what the events mean for you.

• Mortgage shoppers: Last week’s actions may ease the supply of mortgage money, but qualifying for those loans remains a challenge. “The traffic has picked up, but only about half the people coming in are qualifying for a loan and having enough money to do the transaction,” says Marc Savitt, a mortgage broker from Martinsburg, W.Va., and president of the mortgage brokers’ trade group. At issue are higher fees and borrowing standards for anyone with credit scores below 680, a level that used to be high enough during the loan-pushing bubble. You’ll need to prove your salary and have enough cash in the bank to make a down payment as high as 20 percent. Start by checking your credit score at myfico.com, and do what you can to raise your score over 700 so you can get lower rates. Paying down some balances in a hurry or even raising your borrowing limits can sometimes bump up your score. Then cast a wide net for a lender that will give you the deal you like. “There are huge disparities on pricing from one side of town to the other,” reports Keith Gumbinger of research firm HSH Associates. “You can find pricing down in the 6 [percent range] and others up in the 8’s in the same city.” Check rates with a couple of local brokers, a national mortgage bank and at online sites like hsh.com. But don’t wait too long; interest rates are likely to rise.

Wall Street’s tumbling stock prices are falling particularly hard on one group of people: folks who were just about to collect their gold watches (or buyouts) and step into retirement. A bear market during the first five years of your retirement can doom the chances of your money lasting until you no longer need it, according to new research from T. Rowe Price. The firm is counselling investors not to retire if that means they have to start drawing down their investments and taking Social Security while the bear continues to grumble.

Every extra year of work and 401(k)-feeding can increase retirement income by 7 percent, according to new research from the firm. Even workers who stay at the job but stop putting away money will increase their retirement income by 4 percent a year. Furthermore, Social Security benefits get roughly 8 percent fatter for every year that you delay starting them. Combining all three: working longer, keeping up those retirement contributions and delaying Social Security can boost the purchasing power of a 62-year-old by as much as 30 percent.

By Paul Tolme 

Growing concern about climate change has fueled a boom in sales of carbon offsets, which allow consumers to support clean-energy or reforestation projects that, at least in theory, remove as many greenhouse gases from the atmosphere as the donor contributes. While some cheer this growing market, others question whether consumers get what they pay for. Carbon offsets are unregulated in the United States. “The majority of offset retailers have good intentions, but it’s still a market where you have to do your homework,” says Katherine Hamilton of Ecosystem Marketplace.

Smart shoppers should look for offsets certified and audited by third-party organizations. These include the Gold Standard; Environmental Resources Trust; the Voluntary Carbon Standard, and the Climate, Community and Biodiversity Alliance. Buyers should also consult carbon-offset buyers’ guides published by the Tufts Climate Initiative (tufts.edu/ tie/tci/), Clean Air–Cool Planet (cleanair-coolplanet.org) and the Environmental Defense Fund (edf.org).

Illustration: Chris Gash for Newsweek 

By Ashley R. Harris

Like so many women, Michelle La Rocca knew from childhood exactly what she wanted her wedding to look and feel like: Cinderella at the ball. But when the big day rolled around last summer, she was hit with a dose of reality. La Rocca’s Prince Charming didn’t have a king’s ransom in the bank, and she didn’t have a fairy godmother with a platinum AmEx. Clearly, paying for her dream wedding was going to require some creativity.

Taking inspiration from Cinderella’s mouse friends who fashioned a ball gown out of scraps, La Rocca began scurrying around for ways to fulfill her dream on the cheap. She sent out handwritten invitations instead of engraved ones. She scavenged the reception hall for leftover vases and candles to make table centerpieces. She and her fiancé bought candy in bulk to hand out as parting gifts and wrapped them with ribbon and a card. And even though she swore she would never skimp on her gown, La Rocca ultimately bought hers at— gasp!—a discount bridal store.

La Rocca is hardly the only budget bride. With the economy in the tank and the cost of the average wedding now a budget-busting $28,000, “people are doing more research and paying more attention to the details,” says Rebecca Dolgin, executive editor of The Knot (theknot.com), a wedding Web site. “The trend has moved away from everything-has-to-be-over-the-top, ” says Alicia Rockmore, CEO of lifestyle consultancy Buttoned Up (getbuttonedup.com), who says more and more couples are saving their money for the things that come after the big day, like houses and children. “The happiest day of your life should not be your wedding,” she says.

Want to take cash out of your house but afraid to borrow? A new crop of no-payment home-equity products is coming to market. The catch: you trade away a piece of your home’s future appreciation for cash now. Unlike traditional reverse mortgages, they are not structured like loans, the fees are lower and there’s usually not an age restriction. With a Rex Agreement (rex agreement.com), you can get $71,000 on a $500,000 home if you agree to split future changes in value 50-50 with Rex & Co. You have to stay in your home for at least five years. (If you want out sooner, penalties run as high as 25 cent of the original sum you received). If the value of your home goes up to $600,000, you’ll owe Rex $121,000 when you sell. That’s the original $71,000 plus $50,000 for half the appreciation. If the value falls to $400,000, you’ll pay $21,000; that’s the original amount minus half the depreciation. Other similar new products are EquityKey (equitykey.com) and My Equity Freedom (granderfinancial.com). Closing costs run as high as $4,000, so look before you leap.

Baerbel Schmidt/Getty Images
Fill ’er Up: This summer, many families are choosing smaller cars over gas guzzlers or driving shorter distances

May 26, 2008 issue
By Linda Stern

Amy and Adam Geurden of Hollandtown, Wis., had planned a long summer of short, fun getaways with their kids, Eric, 6, Holly, 3, and Jake, 2. In the works were water-park visits, roller-coaster rides, hiking adventures and a whirlwind weekend in Chicago. Then Amy did the math: their Chevy Suburban gets 17 miles to the gallon and, with gas prices topping $4, the family would have spent about $320 on fill-ups alone. They’ve since scrapped their plans in favor of a “staycation” around the backyard swimming pool. “I’m really disappointed,” she says.

So is almost everyone else. Nearly 60 percent of Americans are cutting back their vacation plans because of gas prices, according to a survey by Discover Financial Services. Here’s how to squeeze in a little bit of travel fun without breaking the bank.

Those plummeting house prices may hold a bit of good news for homeowners who want to cut their property taxes: homes that were assessed during the height of the housing bubble may now qualify for reassessment at a lower level. Typically, property taxes are calculated by multiplying a tax rate against the property’s assessed value. Every local county or district has its own appeal procedures and deadlines, so check your local government’s Web site for the specifics. But the basic order of events is this: check your latest assessment to make sure it accurately lists the dimensions and details of your home. Then find out what your neighbors are paying. Municipalities publish these records; find them at publicrecords.netronline.com, on your local government’s Web site, or by going into the tax assessor’s office and asking to see the records. Review what’s happened to prices in your neighborhood since you were assessed at zillow.com or with a local real-estate agent. If there have been significant declines, you can appeal the assessment the next time you get a tax bill or assessment notice. And now for the not-so-good news: state budget crunches are causing many municipalities to consider raising their property-tax rates, even as they are forced to lower assessments. So even if you get a downward reassessment, you could end up with a bigger tax bill anyway.

Illustration: Mark Matcho for Newsweek

Working part time can be good for your life and your checking account. But you need to know how to do it.

Louise Richardson of Parker, Colo., likes to work. But with four teenagers in her house and a firefighter for a husband, she prefers to do it part time. Through a placement service called 10 til 2, she landed a 15-hour-a-week job as an event planner. “It’s given us more financial freedom. My kids don’t see me as the person who cooks and cleans all day. But they also see that my family is my priority,” she says. “It allows you to have that balance between work and family.”

More than 25 million Americans—twice as many women as men—work part time. They’re moms, dads, retirees and people who are sick of the rat race. Employers are making it easier to work fewer hours: 36 percent now give employees the chance to work part time, according to a survey of 90 employers released last week by Hewitt Associates, a human-resources consulting company. The survey also found that 31 percent of employers now offer flextime, 46 percent permit job sharing and 39 percent allow telecommuting. TIP SHEET gives some tips on how to work part time successfully:

A few good fixed-rate offers remain. There’s a 6.5 percent fixed-rate card from Pulaski Bank (pulaskibank.org) and a 7.25 percent card from Simmons First National Bank (simmonsfirst.com). Capital One (capitalone.com) offers a 7.9 percent fixed rate on its “prestige” card for borrowers with the best credit scores. Before signing up, check the contract to see how long the rate is guaranteed, since most issuers reserve the right to change the rate as they see fit.