Gift cards are more popular than ever.  In 2007, it's estimated that $97 billion of them were purchased.  And the reason for their popularity is simple:  Of those that purchased gift cards, 85 percent wanted the recipient to be able to select their gift and over half had did know what to buy.

But there are several downsides:

• Expiration – Some cards expire or are subject to administrative feeds after a set period of time – usually 18 months.  This directly erodes the recipient’s purchasing power over time.
• Inflation – Unlike cash, which can earn interest while sitting in a savings account, gift cards do not accrue interest over time.  This means that inflation will slowly eat away at the purchasing potential of gift cards if not used immediately.
• Risk of Bankruptcy – If the issuing retailer files for bankruptcy, then it’s likely that the gift cards they issued will lose their value.  This happened within the last couple of days for holders of Circuit City gift-cards.  And happened last year with Sharper Image gift cards.  In the case of the later, Sharper Image wrote off about $62 million worth of gift cards.  Ouch.

There is a simple way to avoid all of these potential pitfalls, however.  Simply give cash in lieu of a gift card.

Forbes magazine recently featured the story of Mitchell Berns, a flyer who was left stranded by Delta due to “weather-related issues”.  As the story states:

“On that night he was flying home from a romantic getaway with his wife, who was pregnant with twins. Seeing that other airlines' planes were still departing as scheduled, Berns asked Delta to refund his ticket so that he could book one of those flights. They told him (politely, as he recalls) that weather-related cancellations or delays are not the airline's fault and do not come with a refund. Berns checked the National Weather Service report. It said snow that day was expected at five the next morning - hours after his flight was scheduled to land. He and several other passengers from his Delta flight easily booked a JetBlue flight departing at the same time. His tab: $938. He landed at J.F.K. on schedule.”

Since it seemed clear to him that the delay was not caused by weather, he turned around and filed a suit in small-claims court against Delta, and won.  Delta did not show up to defend itself, so Mr. Berns won a default judgement against Delta.  It cost $15 to file the suit and took about 4 hours of his time.  Delta ended up negotiating a settlement of $838, or just over $200 per hour for Mitchell’s time.

So, if you feel comfortable that you’re right, do not be afraid of taking on large companies.  Where small-claims are concerned, it’s often less expensive for them to try and settle than to defend against them.

Source:  A flier strikes back

• divine caroline covers seven tips for jumpstarting a stalled job search.
• Weiss Research has published The "X" List Report.  The report is a 12 page PDF file that lists the strongest and weakest banks in the US, based upon data culled from the FDIC and OTS.
• The New York Times has an article on five basics for building a solid financial future.
• Sarah Winfrey discusses the "Pa-Doink" Principle of Personal Savings.
• Forbes talks about the Best Ways to Break Unhealthy Habits.
• And finally, the Amateur Economist pointed us to a Laptop Mag article that covers Back to School Notebook Deals.

In our day to day writings, a lot of Personal Finance and Investing bloggers discuss Index Funds, ETFs, stocks, and other similar investments.  However, I thought I would take a step back today and focus on your most important investment.  Care to guess what it is?

If you said “House”, well…nice try, but that isn’t it.  While most Americans have the majority of their net-worth tied up in their home, that isn’t their most important investment.

And if you said “Retirement”, give your a pat on the back, but sorry…that isn’t it either.  It is true that retirement accounts consist mostly of stocks or stock funds; and that stock asset classes tend to outperform other assets over long periods of time, but that is not your most important investment.

It turns out that your most important investment is “You”.

Why is that?  Simply put, everything you do and every decision you make impacts your financial future in one way or another.  Your ability to buy a house and fund various financial goals stems directly from the income you generate from your job or career.  And due to the magic of compounding, the decisions that you make now about your retirement will have far-reaching consequences 20 or 30 years down the road.  Likewise, the lifestyle choices you make today regarding your health may have costly ramifications once you’re retired and on a fixed income.

What can you do about it?  Invest in yourself.  Take steps to maximize your ability to generate income, either by growing your career or business.  Educate yourself so that you’re well prepared to make the right decisions regarding your financial future (and reading blogs like this are a great first step!); and think about your lifestyle.  Are there habits that you have in place today that are going to have a dire impact on you or your health later on down the road?  If so, then take steps to change them.

Have a great weekend!

Julie Rains over at Wise Bread has written a thought-provoking article about how tapping into one’s home equity is like pawning off a gold necklace.

It the article, she draws a number of parallels between the two:

• Collateral is involved and is appraised as part of the transaction
• If the borrower fails to pay, then they lose the collateral
• Fees and interest payments are also part of the transaction

It is a rather interesting view of the two that I tend to agree with.  However, I believe that the article understates the real risk:  pawn transactions tend to involve non-critical assets such as guns or jewelry, but home equity loans put your home – often your largest asset – at risk.

One of the commenters goes on to suggest that the real problem is not with home equity loans, but how they are used.  Borrowers frequently use the proceeds of the load to fund vacations, automobiles or other depreciating assets, which causes an erosion in personal weath.  He suggests that as long as the funds are invested or used to purchase more assets, the use of a home equity loan can be a useful tool.

Sorry, but I do not buy that argument.  A home equity loan is simply another form of debt.  Tapping one’s home equity in order to purchase stocks, investments or to fund a business is simply another way of putting your home at risk.

Imagine, if you will, a scenario where you had taken out a home equity loan last October and used the proceeds to purchase an S&P index fund.  Over the intervening year, your “investment” would have lost 15%.  So not only would you have lost money, but you would still be on the hook to pay off the original loan.

As another example, the Los Angeles Times recently noted that one of the families from “Extreme Makeover” is losing their house due to foreclosure.  Why?  Well, they put up the home as collateral to fund a construction business.  When the business failed, they could no longer afford their debt.

No matter how you spin it, home equity loans are still a form of debt and should be approached with caution.

A few years ago, I had the opportunity to look into a financial product called a variable annuity.  It was so complex and had so many restrictions and stipulations that the legal document associated with it was over 200 pages long.  Likewise, many people have gotten themselves into trouble during the current downturn in housing because they did not fully understand the risks associated with their mortgage.

The financial industry is always striving to come up with new and ingenious ways to separate consumers from their money.  Xin Liu over at Wisebread has put together a nice article that details six financial products that most individuals should avoid.

Even though I am disappointed that adjustable-rate mortgages and variable annuities did not make the list, it’s a good read.

You can view it here…

In our daily lives, there are lots of small fees:  charges for cell phone features, ATM fees, IRA custodial fees and the like that can add up over time.  One tactic that you can employ in your arsenal of money saving tips is to monitor and hack away at those fees, when possible. 

But are they really that substantial?  They can be.  Over at the Motley Fool, Dayana Yochim argues that by watching your investment fees and investing in low-cost index funds, you can potentially save yourself as much as $70,000.  And that's not pocket change.

Read the full article here...

With fuel and food prices rising quickly, many people are finding it more difficult to make ends meet. Here are twelve ways that you can save money and make the most of your finances:

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