The Senate voted 98-0 Wednesday to extend and expand the tax credit and the House could vote on the bill as early as today. If passed, the $8,000 tax credit would remain in effect for first-time home buyers — or anyone who hasn’t owned a home in the last three years.

• Going to Buy? Get Mortgage Pre-Approval Online

Buyers who have owned their current homes at least five years would also now be eligible for tax credits of up to $6,500. To claim the credit, both groups of buyers would have to sign purchase agreements before April 30, 2010 and close before June 30. The tax credit would be extended until June 30, 2011 for servicemen and women serving overseas for at least 90 days.

The actual credit amount home buyers are eligible for is ten percent of their home purchase price up to a maximum of $8,000 for first-time home buyers and $6,500 for buyers who already own homes.

Who is Eligible for the Tax Credit?

To qualify for either credit, you must be purchasing a primary residence of less than $800,000 and cannot be purchasing the property from a direct relative.

You are eligible for the first-time home buyer tax credit if you:

• Have never owned a home
• Have not owned your primary residence for the last least three years

You are eligible for the $6,500 home buyer tax credit if you have lived in a home you own for five consecutive years out of the last eight years. Unfortunately, it does look like these new provisions still exclude some buyers from the credit. Buyers who have owned a home within the last three years, but did not own it for at least five years, cannot take the new credit.

Income Limits

The amount of the tax credit you can claim will be phased out for single taxpayers who earn more than $125,000 and joint taxpayers who earn more than $225,000.

• Read More: How to Claim the $8,000 Home Buyer Tax Credit

Related posts:

1. $15,000 Home Buyer Tax Credit?
2. $8,000 First-Time Home Buyer Tax Credit

I hear this all the time. When it comes to money, many of my peers (at least the ones not completely afraid of their finances) are concerned with upgrading their cars and homes, developing their career, and finding a partner or getting married. These are all good things to do, but something’s missing. We often hear about the same few financial steps for twentysomethings:

• Learn to budget
• Build credit
• Get out of debt
• Save an emergency fund
• Buy a home

Don’t get me wrong. These are important steps! I write about them all the time. But there are other financial habits that we twentysomethings don’t hear about as often:

• Plan for retirement
• Start investing
• Set financial goals
• Give to charity
• Get insurance

It’s not surprising we don’t pay much attention to these “forgotten” financial habits. (Perhaps they’re not forgotten; we just have yet to learn them.) After all, we’re not earning much yet and haven’t had time to accumulate wealth. That makes it seem a little silly to think about things like investing, insurance and—gasp—actually giving some money away!

But how we manage money in our first decade of independence will sculpt our lifelong financial habits. That’s why the sooner we start developing these good ones, the less we’ll have to think about making them as we age (and these habits become ever more important).

Plan for Retirement

This one is a no-brainer. Retirement savings accounts provide great tax benefits. Social Security will not be enough for our generation (if it’s around at all). And even small amounts saved in your twenties can grow to hundreds of thousands over 30 to 40 years. Save for retirement! Read last week’s article 23 things beginners absolutely must know about saving for retirement to learn more.

Start Investing

Yes, saving for retirement is investing. But money-savvy folks realize that investing isn’t just for retirement. A few good investments can help you reach other financial goals faster (like buying a home, starting a business, or sending your kids to college). That’s why it’s never to early to learn how to make smart investments and develop the habit of putting a few dollars a month aside to invest (independent of your savings and retirement contributions).

Set Financial Goals

Obviously, you don’t need a boatload in the bank to start jotting down a financial plan for yourself. Yet for some reason I don’t think most of us do this. Having a written financial plan helps us identify where we want to go, what it will take to get there, and how we can get started. If nothing else, I recommend everybody (at whatever age) have a five-year financial plan.

Give to Charity

Regardless of what consumer products marketers try to tell us, most of us living and working in developed countries are earning far more than we need to meet our basic needs (food, shelter, medicine, etc.) It’s selfish not to give at least a small portion of what we earn to help the greater good.

Maybe you’re not comfortable giving away ten percent of your income while you’re chipping away at debt or trying to move out from a cramped apartment; but get in the habit of cutting a few small checks to charity every year. As they say, it’s the act of giving—not the amount you give—that counts the most.

Get Insurance

You need to have health insurance! Getting health insurance coverage is one of the most important things you can do for yourself financially.

• Read more: What Every Young Person Needs to Know About Healthcare

But don’t stop there. Insurance is designed to protect our assets from unfortunate events. Crash your car? Insurance pays for the damage. House burn down? Insurance pays to rebuild. Make a habit of understanding how insurance works—and asking whether you have enough of it. As your bank account grows, so should your auto and home insurance limits.

Single twentysomethings don’t need life insurance, but if you get married (or even live together and split expenses), you need to consider it. Term life insurance is dirt cheap for healthy young people and can provide a vital safety net for a surviving spouse should the unthinkable happen.

If you’re well on your way to mastering the financial basics, start to make these “forgotten” financial habits a part of your money plan. The sooner you do, the more time (and money) you’ll have to do other things as you go along.

Related posts:

1. Budgeting In Your Twenties
2. Do You Need Health Insurance in Your Twenties?
3. How to Create a Five-Year Financial Plan

Happy Halloween!

• Three methods to pay off more than one debt. (Poorer Than You)
• A financial “foul up” by Matt Jabs, who describes how he’s upside down and paying the price. (My Next Buck)
• Some good advice for when you are ready to make decisions about home ownership. (Green Panda Treehouse)
• A few frugality tips for pet owners. (Living Almost Large)
• Why working while you’re a student may be harder than you think. (Studenonmics)
• The shockingly low rate of retirement savings by Americans. Don’t become a part of this trend! (20somethingfinance)

Finally a big thank you to the hosts of this week’s Carnival of Twentysomething Finances and Carnival of Personal Finance (where my post on signs you may be at risk for identity theft was an editor’s pick!)

Related posts:

1. Like This Site? Check Out YPBlogs.com
2. Weekly Links: Working
3. Weekly Links: Retirement and Investing

I recently read an article on The New York Times, four money talks to have before marriage, and a response at Get Rich Slowly. I agree that this is critical, but not just for couples considering marriage. A lot of us youngins shack up long before we marry, if we marry at all. So I think these articles need to be re-framed as money talks to have before living together.

What Should You Talk About?

The Times article illustrates four topics couples need to cover, and I can’t think of much to add. They are:

• Ancestry. What did your parents teach you about money? What are your financial predispositions?
• Credit. How do your credit scores compare? What does this say about how you have managed money in the past? How will this impact your ability to reach future financial goals?
• Control. Who handles what bills, how much can each partner spend independently?
• Affluence. What are your financial goals?

Why Have the Talk?

For married couples, the reasons to talk about money are more or less obvious: Your finances are now legally combined and financial problems are the leading cause of divorce.

But if you’re not married, why bother talking about money?

At the very least, if you’re living with somebody, you’re sharing a big chunk of your monthly expenses (housing payments, utilities, groceries, etc.) Do you know what you would do if one of you lost his or her job? Could you still pay the rent?

And although you may be less likely to merge finances than married couples, how you each handle money independently will still impact your common financial goals.

For example: Do you hope to take a vacation this year? Are you both saving for a trip, or will one of you go into credit card debt to make it happen? Do you hope to upgrade your apartment or buy a home? What will it take to move up?

How to Have the Talk

As much as Jay Monee is trying to change public perception to the contrary, I think most would still agree that personal finance is decidedly not sexy. (A million in hundred dollar bills showered on a hotel room bed? Sexy. Comparing credit scores? Definitely not.)

To ease the discomfort of talking about finances:

• Plan a time to talk about money. Carve out an hour or two and sit down over coffee or wine. Whatever you do, don’t spring the subject of your partner’s spending habits at the end of an otherwise romantic dinner.
• Prepare for the talk. With your discussion scheduled, you should each pull your credit scores, write out your latest monthly budget, estimate your net worth (assets and debts), and jot down your financial goals.
• Be understanding and open. As you start to talk about money, listen to your partner’s side. For this to work, there are going to be compromises. Shopaholics can usually learn to tame some spending, but spendthrifts can learn to live a little, too.
• Write it down. Finally, take notes. Write down any financial changes you want to make along with your joint financial goals.
• Keep it going. Talking about money should be an ongoing dialogue, not just a one-time down-and-dirty negotiation. The more you talk about money, the more comfortable it will become, and the easier you and your loved one can find common ground and begin achieving financial goals together.

What about you? What are the most important financial topics you discuss with your partner? Has it been difficult to have these talks? How have you made it easier?

Related posts:

1. We’re Getting Married (In a Week!) How Will Our Finances Change?
2. Is it Okay to Get Married With Debt?
3. How to Create a Five-Year Financial Plan

Retirement Saving Basics

1. Don’t be intimidated. All the numbers and acronyms are confusing, but this stuff isn’t as scary as it seems.

2. Start now (you’re never too young). A 22-year old earning $40,000 who starts putting 10 percent into a 401(k) and gets a three percent employer-matching contribution could have a nest egg of $1.7 million at age 65. And that’s not accounting for any raises or increased contributions over time. If you wait until you turn 32 to begin saving, however, the same contributions will only grow to about $780k. A fun goal is to try to save as much as you earn in a year before you turn 30.

• Cool Link: Calculate how fast your 401(k) will grow.

3. Social Security won’t be enough. It’s a fact: Social Security benefit requirements will exceed contributions sometime around 2037. That’s long before most of us twentysomethings will retire. Chances are we’ll still see some kind of government-provided income when we retire, but it won’t be enough to live on. You must take charge of your own retirement!

4. The 401(k) is your friend. A 401(k) is a way to save for retirement through payroll deductions at work. The money you put in now is tax-free; you’ll pay taxes when you take the money out.

5. IRAs too. An IRA is an individual retirement account. You can start one of these anytime at almost any bank or investment company. A “traditional” IRA works like a 401(k) in that you can deduct the money you put in on your federal taxes, but will pay taxes when you take it out. A “Roth” IRA is the opposite; you don’t get a tax break for your contributions, but when you retire, all of your withdrawals are tax-free. (Hint: Roth IRAs are a great idea for young savers).

6. There are limits. The IRS sets the maximum amount you can contribute in tax-advantaged retirement accounts every year. In 2009, savers under 50 can put up to $15,500 in a 401(k). The IRA contribution limit is $5,000 for savers under 50.

7. But you can do both! If you contribute to a 401(k) plan at work, you can still open an IRA. That means in 2009, you can stash away up to $20,500 for retirement. A good strategy? Contribute to your 401(k) up to the maximum your employer matches, then max out a Roth IRA. If you have more to save, make more 401(k) contributions.

8. 401(k) contributions reduce your taxes! 401(k) contributions reduce your taxable income. If you’re in the 25 percent tax bracket and put $100 to your 401(k), you’ll save $25 in taxes. Your 401(k) account grows by the entire $100, but your paycheck only decreases $75.

9. 401(k) plans don’t have income limits. Although many tax-advantaged investments (including IRAs) have income limits, 401(k)s do not. That means that you can continue saving no matter how much you earn.

Matching and Vesting

10. Many employers “match” 401(k) contributions. If your employer has a 401(k) match program, they’ll help you save for retirement. The most common match is 50 percent up to a maximum employee contribution of six percent. That means if you save six percent of your annual salary, your employer will match half of it (three percent).

11. Not taking advantage of a match is like giving up “free money”. If somebody told you they’d put $5 into your savings account for every $10 you put in, you’d be stupid not to do it, right? That’s essentially what an employer match does, so if you don’t take advantage of it, you’re basically turning down “free” money!

12. Maximize your match. Many employers calculate their maximum match by calendar year (ask HR to be sure). That means if you haven’t been contributing to your 401(k) yet this year; you can contribute a much bigger amount for all the remaining pay periods to get more employer-matching funds.

13. Most employer-matched contributes are vested. This means that you have to work for your employer for a set number of years before all of that money is yours to keep. For example, if matched contributions are subject to a five-year vesting schedule, you’ll get to keep 20% of your employer’s matching contributions for every year you work there. All of the money appears on your 401(k) statement as soon as it’s invested, but if you leave early, the unvested amount will appear as a “forfeiture” when you withdraw or rollover your money. If you’re close to becoming fully-vested and are considering leaving your job, it might be wise to consider sticking it out a few more months.

Rollovers and Withdrawals

14. Don’t cash out! The government created retirement accounts with tax savings to encourage us to save for retirement,. That means if we withdraw the money before age 59 1/2, we’ll not only owe federal and state taxes on the amount we take out, but also a ten percent penalty. Ouch! So once the money’s invested, let it grow. Don’t withdraw it!

15. With IRAs, there are exceptions to the 10 percent penalty. There are very specific rules about IRA withdrawals. In most cases, if you withdraw your money before age 59 1/2, you must pay federal taxes and the 10 percent early-withdrawal penalties, but there are some exceptions. Two of note to younger savers: You may be able to withdraw money from an IRA penalty-free for qualifying higher education expenses and up to $10,000 to purchase your first home.

16. 401(k)s are tied to employers. When you leave a job, your 401(k) stays put until you decide what to do with it. The smart thing to do is to either roll it over to your new employer’s 401(k) or rollover to an IRA that you create anywhere you want. Simply ask your former employer’s HR person for the forms to initiate the rollover. You have some time, but don’t wait forever. Your employer or 401(k) may automatically give you cash dispersal if you don’t rollover your old 401(k) in a certain time period. This is especially true if you have a small balance. Unfortunately, you’ll pay taxes and that 10 percent penalty, so don’t let this happen!

Choosing Your Investments

17. Keep it simple. You don’t need to know much about investing to start saving for retirement. In fact, it’s best that you just ignore what the stock market is doing. The important thing is that you make the contributions. Most 401(k) plans offer what are called “target-date” mutual funds based upon the year you predict you’ll retire. These funds automatically adjust their investments over time; they start out aggressive and become more conservative as their target date approaches.

18. You can be aggressive while you’re young. If you won’t retire for 30 or 40 years, you can take big risks with your investments because you won’t need to access your money for a long time and you have plenty of time to take advantage of long-term growth. Allocate your investments in mostly domestic and international stocks.

19. Ask for help. Your employer can put you in touch with a representative from your 401(k) company who will be happy to help you choose investments at no charge. Take advantage of it.

• Cool Link: How does your employer’s 401(k) plan stack up?

20. Look for no-load mutual funds. If you open an IRA or rollover an old 401(k), you’ll have virtually unlimited investment choices. There are big differences in how much different funds charge, although determining mutual fund fees can be complicated. Look for no-load mutual funds, which will eat less of your returns.

21. Consider ETFs. Exchange-traded funds (ETFs) are a great simple way to invest and can be bought or sold anytime just like a singular stock. I’m a particular fan of index ETFs, which track entire markets with one fund. With ETFs, you can invest in the entire S&P 500, Dow Jones Industrial Average, and even commodity markets with just one investment.

22. Do some research. You don’t have to become a financial junkie, but the more you know about how investments work and which ones are best for you, the smarter decisions you can make. I use a free account with Morningstar to quickly research mutual funds.

Finally

23. Just do it! The most important thing is that you save for retirement. Something. Anything. Just start putting away today. Get help if you need it. Learn as you go. Just start saving!

• Get an IRA: Open an IRA online now

Related posts:

1. What to Do If Your Employer Cuts Its 401(k) Match Benefit
2. The 401(k) Retirement Plan: An Introduction
3. How Much Should Be in Your 401(k) at 30?

That’s where enlisting a buyer’s agent can be a wise move.

What Real Estate Agents Do

Historically, real estate agents work for sellers, not buyers. Agents list sellers’ properties, market the listings, and really sell the homes. When they’re successfully, the earn a commission based upon a percentage of the sale price. The more the buyer pays, the more the agent earns. Agents will do everything that’s legal to sell homes. It’s their job.

For novice home buyers unfamiliar with real estate laws and the numerous problems properties may have, a buyer’s agent can help shed light on the actual pros and cons of different homes.

A buyer’s agent may also help you negotiate a lower price, but watch out—buyer’s agents usually split the commission with the seller’s agent, so they have an interest in a higher selling price too. Like the seller’s agent, your buyer’s agent is going to want to see you buy a home; his or her paycheck depends on it.

Finding a Buyer’s Agent

If you decide you want a buyer’s agent to help you navigate your first home buying experience, start asking friends for referrals to agents they’ve worked with and trust. If that doesn’t work, call up local real estate companies and ask to schedule brief “interviews” with prospective buyer’s agents. Ask prospective agents how much experience they have working as buyer’s agents and working with the kinds of properties you’re interested in.

Whatever you do, make sure you choose an agent that you like and trust.

When my wife bought her first condo a few years back, she jumped into the market without a buyer’s agent. Soon, a seller’s agent for a property that didn’t interest her latched on and got my wife to use him as her buyer’s agent. The agent did a lackluster job, but probably collected a sweet commission check for it anyway. My wife was probably better off with him as her buyer’s agent, but could have been even better served had she hand-selected the agent she worked with.

On the hunt for a new home? Check out 10 Tips for Hassle Free House Hunting and don’t forget to get mortgage pre-approval before you start your search.

Related posts:

1. 10 Tips for Hassle Free House Hunting
2. A Buyer's Market…Or Not
3. $6,500 Home Buyer Tax Credit

Having this letter from a mortgage lender in advance can save you from major disappointment if you find your perfect home, make an offer, and then find you the bank has denied your mortgage application.

Pre-qualification and pre-approval is simply when a lender takes a fast look at your credit and decides, preliminarily, that you’re eligible for a mortgage. Although this does not guarantee your ability to get any mortgage, it does give you an upper hand when negotiating with sellers.

So, what’s the difference between pre-qualification and pre-approval?

Pre-qualification is the less formal of the two. Basically, a lender tells you how much of a mortgage they would be willing to lend you based upon information that you provide. The lender doesn’t check your credit or vet your income and assets; they just reply upon what you tell them. Banks don’t charge for pre-qualification, and there’s no reason you have to go with a bank that gives you pre-qualification. At the same time, there’s no guarantee you’ll get the loan based upon pre qualification. If the lender later discovers that your credit is less stellar than what you said it was, the loan may fall through.

When you obtain pre-approval, the bank checks your credit, employment history, assets, and other debts. Most reputable lenders don’t charge for pre-approval, either, although some do—so be sure to ask. Again, you’re not under any obligation to go with a lender that provides you with pre-approval, although if their rates look good, some of your work applying for the mortgage is already done for you.

I recommend you get mortgage pre-approval online with leading mortgage comparison site LendingTree. It’s fast and free, and will give you a sense of the kinds of mortgages you’ll be approved for in minutes.

Related posts:

1. Beware Loan Modification Scams
2. How to Prepare to Buy Your First Home
3. Mortgage Application Declined? Here’s What to Do

Frugal Dad (@FrugalDad) published a great guest post by Wealth Pilgrim (@NealFrankle) about a young man considering buying an engagement ring while still paying off student loan debt.

PT Money (@PTMoney) answers another intriguing reader question: How do you handle somebody else’s debt when it’s in your name? (You either pay it, or destroy your credit. Either way, you then sue the guy.)

Man vs. Debt (@ManvsDebt) admits he’s a big, fat hypocrite in a personal update on his war on debt. Hey, at least he’s honest.

SpendonLife (@SpendonLife) has a guest post by PFFirewall (@PFFirewall) titled: How I paid off $20,000 of debt while still having fun. Whoa! That’s possible?

Good Financial Cents (@jeffrosecfp) explains Dave Ramsey’s Baby Steps. And since Ramsey is the get-out-debt-go-to-guy, debt-haters would be wise to read up.

Finally, many thanks to Fabulously Broke in the City for hosting this week’s Carnival of Personal Finance!

Related posts:

1. Weekly Links: Simplifying Your Finances
2. Weekly Links: Working
3. Weekly Links: Retirement and Investing

Unfortunately, “keeping up with the Jones’” plays a big role in the psychology of spending. We spend to keep up because we envy things other people have. We spend more with friends to win and maintain their acceptance. And when we do it, we usually spend more than we have.

When we assert our frugality before our desire to fit in, however, a new problem emerges: We risk offending our friends, standing out as a cheapskate, or—worse—becoming alienated from them.

Seeing Both Sides

I’ve been on both sides. Before my “financial awakening“, I was the guy rallying my friends to hit the hottest restaurants, throw lavish parties, even jet to Vegas for the weekend. But my frugal friends had no problem telling me “I’m not paying for that!” Others came along, but tempers spiked when it came time to split the tab. (It’s easiest to split, but what happens to the guy that just got water and a salad? Separate checks, please!)

More recently I’ve been the one declining plans (or carefully budgeting for them). Fortunately, most of my friends are cheap and/or broke too, so finding affordable entertainment isn’t as much of a problem.

Just Be Honest

The next time your friends want to grab $200-a-bottle table service at a club, use honesty to squelch their complaints at your reaction. Saying something like:

“As you know, I’m trying to be smart with my money and put some away. I’m not sure blowing a couple hundred bucks here is gonna help that. Do we really want to spend our money this way? Can we do something cheaper?”

Unless your friends are legitimately loaded, chances are they are almost as uncomfortable spending that much money, too. They may just be afraid to question it for fear of standing out.

So yes, it does take courage to call out your friends‘ overspending. But the more you do it, the more comfortable your group will get with talking about money and choosing affordable activities.

What Not to Do

Only excuse yourself from plans as a last resort. If you can’t get your friends to turn down that costly club, make a polite excuse and head home. (Avoid going with as paying the check may cause some controversy even if you don‘t drink or eat as much).

If you do have to turn down one or more events because of your budget, try planning another less-costly get-together shortly thereafter so your friends know that you haven’t been bailing on them, just their expensive affairs.

What about you? Have you had to deal with friends that spend way more than you? How have you handled it? Were you able to remain friends despite your fiscal differences?

Related posts:

1. Don’t Let Money Ruin Friendships
2. The Wallet Buddy: The Best Idea EVER
3. Use Your Health Insurance!

But as one person already commented—banks will cancel your credit cards if you don’t use them. Because you want to keep at least two credit cards open to continue building credit, you want to make sure the two cards you keep stay open. So you should use them from time to time.

Re-Think Your Credit Cards! from David Weliver on Vimeo.

What Credit Cards Do Best

The real argument for spending with a credit card instead of a debit card or cash is not the rewards you’ll earn. As I mentioned yesterday, credit cards play with your psychology and actually make you spend more than you would with cash. The real benefits credit cards offer that you can’t get from other payment methods are:

• Fraud protection
• Leverage in disputes with merchants
• Travel insurance and convenience

Credit cards are better for fraud protection because if they’re stolen, the most you’ll be liable for is $50. Plus, if somebody makes fraudulent charges, it’s not your money they’re stealing; it’s the bank’s. Also, if you make a purchase with a credit card and the merchant ends up charging you too much or doesn’t fulfill its obligations, the credit card company can help you dispute that charge. In many cases, you won’t have to pay the charge until the issue is resolved. If you had paid cash and gotten ripped off, your money is already long gone.

Also, most credit cards provide some minimal travel insurance programs. If you book air travel with a credit card and the airline damages your baggage, your credit card may cover some of the loss. Ditto for car rentals. Rent a car with a credit card, and the card provides some level of additional insurance if you bang up the rental.

Last but not least, credit cards are far more convenient than debit cards or cash when you travel. Hotels and car rental agencies need deposits—sometimes several hundred dollars. With cash or a debit card, you actually need to give them this money up front. With a credit card, they just put a hold on a portion of your credit line; you never have to part with any of your money for the deposit.

How To Use Your Two Credit Cards

With some of these benefits in mind, here’s how to best use the two credit cards you keep open. Use the card with the higher credit limit for:

• Big purchases, say over $100
• When you travel

You’ll protect yourself when you make big purchases and it’ll be far more convenient to travel. You may not use the card every month, but you should use it enough that the bank won’t cancel your card. Of course, pay the card in full every month.

Use the second credit card for a few fixed monthly expenses. I recommend setting up your card to automatically pay a few monthly bills, such as:

• Your gym membership
• Your cell phone bill
• Your car insurance

You’ll pay one bill every month instead of three, and you’ll be keeping that card open and building credit at the same time.

Re-Cap

So between yesterday’s post and today, I’ve laid out my new strategy for using credit cards minimally and wisely. The strategy is this:

• Cancel all but your oldest credit card and the card with the highest credit limit
• Use one card for big purchases and travel
• Use the second card for a few recurring monthly bills

What do you think? Good idea? Do you want to scream at me for suggesting people still use credit cards at all? Think I’m stupid for not recommending people take more advantage of rewards? Let’s hear it!

For a case study of this strategy, please see “I have seven credit cards. Should I cancel any of them?“

Related posts:

1. Radically Re-Thinking Credit Cards: Part One
2. Charge Cards: American Express Offers an Attractive Alternative to Credit Cards
3. The Better Deal: Cash Back or Miles Credit Cards?